UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Amendment No. 1)10-K
(Mark One)
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x☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20192020
OR
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¨☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________ to __________
Commission file number: 001-35376
OBLONG, INC.
(Exact name of registrant as specified in its charter)
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| Delaware | | 77-0312442 |
(State or other jurisdiction of
incorporation or organization)
| | (I.R.S. Employer Identification No.) |
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| 25587 Conifer Road, Suite 105-231 | | |
| Conifer, CO | | 80433 |
| (Address of principal executive offices) | | (Zip Code) |
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Registrant’s telephone number, including area code: (303) 640-3838 |
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| Securities registered pursuant to Section 12(b) of the Exchange Act: |
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock, $0.0001 par value | OBLG | NYSE AmericanNasdaq Capital Market |
Securities registered pursuant to Section 12(g) of the Exchange Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨☐ No ý☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨☐ No ý☒
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 ý☒ 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý☒ 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 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.
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| Large accelerated filer | ¨☐ | Accelerated filer | ¨ |
| Non-accelerated filer | ý☒ | Smaller reporting company | ý☒ |
| Emerging growth company | ¨☐ |
Indicate by checkmark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☐ No ☒
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 Act). Yes ¨☐ No ý☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant computed by reference to the price at which the common equity was last sold on June 30, 2019,2020, the last business day of the Registrant’s most recently completed second fiscal quarter, was $5,057,000.$6,482,725.
The number of shares of the Registrant’s common stock outstanding as of May 11, 2020March 25, 2021 was 5,211,500.26,618,048.
OBLONG, INC.
Index
EXPLANATORY NOTE | | | | | | | | |
| Item | | Page |
| PART I | |
| 1. | Business | |
| 1A. | Risk Factors | |
| 1B. | Unresolved Staff Comments | |
| 2. | Properties | |
| 3. | Legal Proceedings | |
| 4. | Mine Safety Disclosures | |
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| PART II | |
| 5. | Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities | |
| 6. | Selected Financial Data | |
| 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
| 7A. | Qualitative and Quantitative Disclosures About Market Risk | |
| 8. | Financial Statements and Supplemental Data | |
| 9 | Change in and Disagreements with Accountants on Accounting and Financial Disclosure | |
| 9A. | Controls and Procedures | |
| 9B. | Other Information | |
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| PART III | |
| 10. | Directors, Executive Officers and Corporate Governance | |
| 11. | Executive Compensation | |
| 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | |
| 13. | Certain Relationships and Related Transactions, and Director Independence | |
| 14. | Principal Accounting Fees and Services | |
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| PART IV | |
| 15. | Exhibits and Financial Statement Schedules | |
| 16. | Signatures | |
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Amendment No. 1 on Form 10-K/A (this “Amendment”) amends the Annual Reportannual report on Form 10-K for(this “Report”) contains statements that are considered forward-looking statements within the year ended December 31, 2019meaning of Oblong, Inc., a Delaware corporation (the “Company”), as originally filed with the U.S. Securities and Exchange Commission (the “SEC”) on May 15, 2020 (the “2019Annual Report”). The Company is filing this Amendment to amend the 2019 Annual Report solely to include, prior to Part I of the 2019 Annual Report, the disclosure set forth under “Reliance on Securities and Exchange Commission Order” below regarding the Company’s reliance upon the SEC’s Order under Section 3627A of the Securities Exchange Act of 1934 Granting Exemptions from Specified Provisions of the Exchange Act1933, as amended, and Certain Rules Thereunder, dated March 4, 2020 (Release No. 34-88318), as superseded by the SEC’s Order under Section 36 of the Securities Exchange Act of 1934 Modifying Exemptions from the Reportingits rules and Proxy Delivery Requirements for Public Companies, dated March 25, 2020 (Release No. 34-88465) (collectively, the “Order”regulations (the “Securities Act”), to delay the filing of the 2019 Annual Report due to circumstances related to the coronavirus pandemic.
Except as described above, this Amendment does not amend, modify or update the information in, or exhibits to, the 2019 Annual Report, and we have not updated disclosures included therein to reflect any subsequent developments or events. This Amendment should be read in conjunction with the 2019 Annual Report and with our other filings made with the SEC subsequent to the filing of the 2019 Annual Report.
RELIANCE ON SECURITIES AND EXCHANGE COMMISSION ORDER
On March 30, 2020, the Company filed a Current Report on Form 8-K (the “March 30 Form 8-K”) indicating its intention to rely on the Order to delay the filing of the 2019 Annual Report due to circumstances related to the coronavirus pandemic. As stated in the March 30 Form 8-K, the coronavirus pandemic resulted in travel limitations, limited access to the Company’s facilities and remote work for key personnel involved in preparing the 2019 Annual Report, all of which adversely impacted the Company’s ability to complete the audit and the 2019 Annual Report on a timely basis. Following the filing of the March 30 Form 8-K, on May 15, 2020, the Company filed a Form 12b-25 (the “May 15 Form 12b-25”) pursuant to Rule 12b-25Section 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 in “Item 1A. Risk Factors” and/or listed below. 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, sales cycles, future revenues, expenses, capital expenditures and cash flows; our expectations relating to the forgiveness of our PPP Loan; 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 employee relations; statements relating to market need, evolution of our solutions and our service platforms; our beliefs about the service offerings of our competitors and our ability to differentiate Oblong’s services; adequacy of our internal controls; statements regarding our information systems and our ability to protect and prevent security breaches; expectations relating to additional patent protection; and beliefs about the strength of our intellectual property, including patents. For additional information regarding known material factors that could cause our actual results to differ materially from our projected results, please see “Item 1A. Risk Factors.” 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 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 compete effectively in the video collaboration services and network services businesses;
•the quality and reliability of our services;
•the prices for our products and services;
•customer renewal 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;
•customer acquisition costs;
•actions by our competitors, including price reductions for their competitive services;
•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
Item 1. Business
Overview
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 October 1, 2019, the Company closed an acquisition of all of the outstanding equity interests of Oblong Industries, Inc., a privately held Delaware corporation founded in 2006 (“Oblong Industries”), pursuant to the terms of an Agreement and Plan of Merger (as amended, the “Merger Agreement”). Pursuant to the Merger Agreement, among other things, Oblong Industries became a wholly owned subsidiary of the Company (the “Merger”). See further discussion of the Merger in Note 3 - Oblong Industries Acquisition to our consolidated financial statements attached hereto. On March 6, 2020, Glowpoint changed its name to Oblong, Inc. In this Report, we use the terms “Oblong” or “we” or “us” or the “Company” to refer to (i) Oblong (formerly Glowpoint), for periods prior to the closing of the Merger, and (ii) the “combined organization” of Oblong (formerly Glowpoint) and Oblong Industries for periods after the closing of the Merger. For purposes of segment reporting, we refer to the Oblong (former Glowpoint) business as “Glowpoint” herein, and to the Oblong Industries business as “Oblong Industries” herein.
We believe there is a substantial market opportunity for Oblong Industries’ product offerings and services. Therefore, we expect to focus our future investments in product development and sales and marketing on our efforts to grow revenue from Oblong Industries’ products and service offerings. Glowpoint’s business has experienced revenue declines in recent years which we expect to continue. We plan to seek opportunities in the future to divest some or all of Glowpoint’s business.
Recent Developments
On February 1, 2021, we determined to voluntarily withdraw the listing of the Company’s common stock from the NYSE American Stock Exchange Act(the “NYSE American”) and transfer such listing to The Nasdaq Capital Market (“Nasdaq”). The listing and trading of our common stock on the NYSE American ended on February 11, 2021, and began trading on Nasdaq on February 12, 2021.
The terms of the Company’s Series D and Series E Preferred Stock, par value $0.0001 per share (together, the “Series D and EPreferredStock”), provided that such shares were automatically convertible into a number of shares of the Company’s common stock equal to the accrued value of the preferred shares (initially $28.50), plus any accrued dividends thereon, divided by the conversion price (initially $2.85 per share, subject to specified adjustments) upon the completion of both (i) approval of such conversion by the Company’s stockholders entitled to vote thereon (which occurred on December 19, 2019); and (ii) the receipt of all required authorizations and approval of a new listing application for the combined organization following the Company’s October 2019 acquisition of Oblong Industries from the NYSE American or any such other exchange upon which the Company’s securities are then listed for trading. This conversion condition was completed in its entirety, and the Series D and E Preferred Stock automatically converted to shares of common stock pursuant to their terms, effective upon the commencement of trading of the common stock on Nasdaq in February 2021 as described above.
Following the conversion of the Series D and E Preferred Stock during February 2021, the Company had issued and outstanding no shares of Preferred Stock.
Our Products and Services
Oblong Industries
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.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). The Company also sells maintenance and support contracts and license agreements.
See “Market Need--Oblong Industries” below for further discussion of our Mezzanine product offerings.
Oblong (formerly Glowpoint)
Managed Services for Video Collaboration
Our services are designed to provide a comprehensive suite of automated and concierge applications to simplify the user experience and expedite the adoption of video as the primary means of collaboration. Our customers include Fortune 1000 companies, along with small and medium enterprises in a variety of industries. We market our services globally through a multi-channel sales approach that includes direct sales and channel partners.
We provide a range of video collaboration services, from automated to orchestrated, to address the spectrum of user experience and business applications, in an effort to drive adoption of video throughout the 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 the following services to meet their videoconferencing needs:
•Managed Videoconferencingis a “high-touch” concierge-based offering where we set up and manage customer videoconferences. Our managed videoconferencing services are offered to our customers on either a usage basis or on a monthly subscription. These services include call scheduling and launching, and videoconference monitoring, support and reporting.
•Remote Service Management provides an overlay to enterprise information technology (“IT”) and channel partner support organizations and provides 24/7 support and management of customer video environments. Our services are designed to align with a globally recognized set of best practices, Information Technology Infrastructure Library (“ITIL”), to standardize processes and communicate through a consistent set of terms with our customers and partners. We leverage an IT service management (“ITSM”) provider, ServiceNow, Inc., to systematically provide Remote Service Management, as well as enable us to integrate with an enterprise’s systems and workflows. We offer, on a monthly subscription basis, three tiers of Remote Service Management options, ranging from remote proactive automated monitoring to end-to-end management to complement the needs of IT support organizations (including 24x7 support desk, incident/problem/change management, site certifications, and service level agreements).
Network Services
Our network services provide our customers around the world 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. We offer our customers the following networking solutions that can be tailored to each customer’s needs:
•Cloud Connect: Video™: Allows our customers to outsource the management of their video traffic to us and provides the customer’s office locations with a secure, dedicated video network connection to the Oblong Cloud for video communications.
•Cloud Connect: Converge™: Provides customized Multiprotocol Label Switching (“MPLS”) solutions for customers who require a converged network. A converged network is an efficient network solution that combines the customer’s voice, video, data, and Internet traffic over one or more common access circuits. We fully manage and prioritize traffic to ensure that video and other business critical applications run smoothly.
•Cloud Connect: Cross Connect™: Allows the customer to leverage their existing carrier for the extension of a Layer 2 private line to our data center.
Professional and Other Services
Our professional services include onsite support, or dispatch, as well as configuration or customization of equipment or software on behalf of a customer. On a limited basis, we also resell video equipment to our customers.
Sales and Marketing
Oblong Industries has sold its product offerings through both direct customer sales and channel partners. Oblong Industries had six employees engaged in sales and marketing activities at December 31, 2020. In June 2019, Oblong Industries entered into a sales channel partner agreement with Cisco Systems, Inc. As a result, the family of Mezzanine™ product offerings became available globally on the Cisco Global Price List as a part of the Cisco SolutionsPlus Program. This program allows Cisco’s customers and channel partners to purchase Mezzanine™ through Cisco’s Global Price List to streamline the ordering process. We anticipate our investments in sales and marketing throughout 2021 will primarily focus on further delaydeveloping our core channel partner relationships.
Oblong (formerly Glowpoint) has sold its services through both direct customer sales and indirect sales channels. Oblong reduced sales and marketing expenses in recent years in order to reduce expenses and improve cash flow from operations. At December 31, 2020, Oblong had one employee engaged in sales and marketing.
Market Need
Oblong Industries
Today, ideation and content collaboration are gaining growing importance in both physical and virtual meeting environments to support collective brainstorming and expedite decision making. Visualization of ideas can happen more naturally when people expand the collaborative canvas from sharing a single content stream among many participants to empowering an entire team, such as through our Mezzanine™ multistream solutions. While historically focused on in-room collaboration, the need for next-generation virtual collaboration solutions is on the rise, attributed to the confluence of several key trends that influence the way individuals collaborate. Key capabilities and features of our Mezzanine Series include:
•Share Work With Others. Easily present work by plugging in or sharing wirelessly with the Mezzanine app. Share up to 10 connected devices including laptops, in-room PCs, and digital media players. Upload images and slides to present and explore content alongside live video streams.
•Capture Ideas Instantly. Save snapshots of on-screen content to make sure good ideas don’t get lost. Annotate content in the Mezzanine app and share thoughts with others. Download meeting materials to reference or share after the meeting.
•Visualize Options and Outcomes. Mezzanine content spans multiple displays so the information needed is in sight and on hand. Share more content, see more detail, and improve visual storytelling. Arrange content for side-by-side comparisons and cross-referencing.
•Unite Distributed Teams. Connect teams and get everyone on the same page. Meeting participants share the same visual workspace so they can perform like they are in the same room. Everyone in every location can add content and steer the conversation, increasing opportunity and motivation to participate.
•Connect with Ease. Mezzanine works seamlessly with existing video conferencing and collaboration solutions so teams can join meetings with the tools they use every day. Integration with Cisco and Polycom systems simplify connecting rooms with voice, video, and content.
•Orchestrate Content. Place content anywhere in the room from anywhere in the room with Mezzanine’s award-winning wands. Gestural interaction makes it easy to move and highlight content to focus the attention of the team.
We believe key drivers for demand include:
•rapid growth of cloud-based unified communications (UC) services adoption and continuously increasing collaborative intensity in workplaces;
•accelerating demand for low-cost video conferencing options such as USB conference room cameras and audio/video soundbars;
•rising appetite among end-user organizations for content sharing as well as content collaboration capabilities including ideation, annotation, illustration, and coediting;
•convergence of audio, video and content collaboration (as opposed to siloed applications and platforms) to improve employee productivity;
•significant growth in the number of huddle rooms and flexible meeting spaces worldwide;
•preference for Bring Your Own Device (BYOD) screen share in meeting spaces; and
•growing number of distributed and remote workers.
Today’s knowledge workers are seeking optimal meeting spaces - both in and out of the office - that foster creativity, agility, innovation, and engagement. The trend towards ad-hoc and small group meetings has led to the creation of the huddle room concept, where workers can meet in a disruption-free setting. Globally, there are over 90 million meeting spaces, 33 million of which are huddle spaces. However, it is estimated that fewer than 5 percent of these spaces are truly ‘full spectrum’ collaboration enabled. Further, the penetration of stand-alone content sharing applications is significantly less than video penetration in large and huddle-sized meeting rooms. While pre-pandemic momentum suggested end-users were beginning to embrace simple, easy to install, intuitive, and affordable collaboration solutions that integrate with cloud-based collaboration software services, we believe as businesses begin to reopen there will be significant demand for higher forms of engagement that combines robust video conferencing with enhanced content sharing as users adapt to more flexible workplace alternatives. This combination focuses on allaying customer apprehension with regards to how to cost-effectively pursue an expanded collaboration strategy without replacing their existing investments.
Transforming our Business Model
We are transforming our offerings to meet the evolving needs of our customers. As part of the transformation of our business, we are evolving certain aspects of our model by designing and developing software to include subscription-based offerings. Historically, our technology products and services have been developed and consumed in conventional commercial real estate spaces such as conference rooms. As our core collaboration products evolve, we expect to add more contemporary software features along with expanded accessibility beyond commercial spaces through both hybrid and SaaS offerings. These initiatives will require significant investment in technology development and sales and marketing. For a discussion of the risks associated with our strategy, see “Item 1A. Risk Factors,” including the risk factor entitled “We depend upon the development of new products and services, and enhancements to existing products and services, and if we fail to predict and respond to emerging technological trends and customers’ changing needs, our operating results may suffer.”
Oblong (formerly Glowpoint)
Revenue attributable to the former Glowpoint services has declined in recent years primarily due to loss of customers to competition. We expect this trend to continue in the future for the Glowpoint business. As a result of a growing market trend around cloud consumption preferences, more customers are exploring cost-effective software-based services for procuring technology. Many enterprises have become dependent on video communications for increased productivity and reduced operating costs, thus making video communications part of their core business practices. With the technology advancements over the past few years, including browser-based and mobile video, the options for video collaboration solutions and services are greater than ever before.
Competition
Oblong Industries
The market for communication and collaboration technology services is competitive and rapidly changing. Certain features of our current Mezzanine™ series compete in the communication and collaboration technologies market with products offered by Cisco Webex, Zoom, LogMeIn, GoToMeeting, along with bundled productivity solutions providers who offer limited content sharing capabilities such as Microsoft Teams, and Google G Suite. In the rapidly evolving “Ideation” market, certain elements of our application compete with Microsoft, Google, InFocus, Bluescape, Mersive, Barco, Nureva and Prysm.
Oblong (formerly Glowpoint)
With respect to our video collaboration services, we primarily compete with managed services companies, videoconferencing equipment resellers and telecommunication providers, including BT Conferencing, AT&T, Verizon, LogMeIn, Yorktel, ConvergeOne, Whitlock and AVI-SPL. We also compete with companies that offer hosted videoconference bridging solutions, including Blue Jeans Networks, Vidyo and Zoom. Lastly, the technology and software providers, including Cisco, LifeSize, Microsoft, and Polycom, are delivering competitive cloud-based videoconferencing and calling services. With respect to our network services, we primarily compete with telecommunications carriers, including British Telecom, AT&T, Verizon and Telus. Our competitors offer services similar to ours both on a bundled and un-bundled basis, creating a highly competitive environment with pressure on pricing of such services. Competitor solutions also create opportunities for integration and support services for Oblong. We believe we differentiate ourselves based on our full suite of cloud and managed video collaboration services in combination with the ITSM platform for support automation. We believe our services are unique based on our intellectual property, user interfaces and capabilities that we have built over the years.
Customers
Oblong Industries
Customers and Markets
Many factors influence the collaboration requirements of our customers. These include the size of the organization, number and types of technology systems, geographic location, and business applications deployed throughout the customer’s network. Our customer base is not limited to any specific industry, geography, or market segment. Our customers primarily operate in the following markets: enterprise, commercial, and public sector.
Enterprise
Enterprise businesses are large regional, national, or global organizations with multiple locations or branch offices and typically employ 1,000 or more employees. Many enterprise businesses have unique collaboration needs within a multivendor environment. We offer service and support packages and sell these products primarily through a network of third-party application, technology vendors and channel partners.
Commercial
We define commercial businesses as organizations which typically have fewer than 1,000 employees. We sell to the larger, or midmarket, customers within the commercial market through a combination of our direct sales force and channel partners. These customers typically require the latest advanced technologies that our enterprise customers demand, but with less complexity.
Public Sector
Public sector entities include federal governments, state and local governments, as well as educational institution customers. Many public sector entities have specialized access requirements for collaboration services within a multi-vendor environment. We sell to public sector entities primarily through a network of third-party application, technology vendors, and channel partners.
Oblong (formerly Glowpoint)
Our customers include Fortune 1000 companies, along with small and medium enterprises across a wide range of industries including consulting, executive search, broadcast media, legal, finance, insurance and technology. Major customers are defined as direct customers or channel partners that account for more than 10% of the Company’s total consolidated revenue.
Customer Concentration
For the year ended December 31, 2020, two major customers each accounted for approximately 17%, of the Company’s total consolidated revenue. For the year ended December 31, 2019, two major customers accounted for approximately 20% and 18%, respectively, of the Company’s total consolidated revenue. Any reduction in the use of our services or the business failure
by one of our major customers and/or wholesale channel partners could have a material adverse effect on our business and results of operations.
Intellectual Property
Oblong Industries
Oblong Industries’ core technology platform is called g-speak. It enables applications to be developed that run across multiple screens and multiple devices. Our customers use the platform to solve big data problems, to collaborate more effectively, and to go from viewing pixels on a single screen to interacting with pixels on every screen. Oblong Industries invested significant resources in developing intellectual property surrounding this technology, resulting in 69 issued patents (56 in the United States and 13 across Europe, China, Japan, Korea and India) and 8 pending patents (including 7 in the United States). These patents are mainly related to spatial computing, distributed applications and 3D input devices. We expect our issued patents to expire between 2027 and 2038.
Oblong (formerly Glowpoint)
We have invested in research and development, engineering and application development in the process of building our managed service and cloud platforms. Some of this development has led to issued patents, as described below, along with ongoing recognition in the industry as having unique tools and applications to enable our video applications.
Oblong Cloud Conferencing
The Oblong (formerly Glowpoint) Cloud is based on a Service Oriented Architecture framework that enables us to create unique unified communication service offerings. Our cloud-based-video services can be delivered as a software and infrastructure service in a hosted environment or can support a hybrid mix of public and private clouds.
Videoconferencing has traditionally presented challenges for the user by presenting a complex maze of systems and networks that must be navigated and closely managed. Although most of the business-quality video systems today are “standards-based,” there are inherent interoperability problems between different vendors’ video equipment, resulting in communication islands. Our suite of cloud and managed video services can be accessed and utilized by customers regardless of their technology or network. Customers who purchase a Cisco, Polycom, Avaya, or LifeSize (Logitech) system, or use certain other third-party video communications software such as Microsoft, WebEx or WebRTC, may all take advantage of the Oblong Cloud regardless of their choice of network. We have built the Oblong Cloud to support all standard video signaling protocols, including SIP, H.323 and Integrated Services Digital Network (“ISDN”) using infrastructure from a variety of manufacturers.
The Oblong Cloud combines years of best practices, experience and technology development into a video collaboration platform that provides instant connectivity, self-serve and managed help desk resources, and the ease of use that makes video collaboration seamless and effortless. Beyond the technology and applications, the Oblong Cloud is built around security protocols to enable enterprises and organizations of any size to communicate with other desired video users in a secure, high-quality and reliable fashion.
Video Service Platform
Our Video Service Platform provides enterprise customers with a cloud-based system for managing video collaboration. The Video Service Platform, which leverages technology from an industry leading ITSM provider, ServiceNow, Inc., is available to our channel partners and enterprise customers. The Video Service Platform’s scalability and multi-tenant design allows us and our channel partners to seamlessly activate existing and new enterprise customers. It is completely web-based and accessible from any web-enabled device. The Video Service Platform automates and streamlines critical functions and workflows needed by IT organizations for managing enterprise video collaboration environments, including incident management, change management, and reporting/analytics for continuous improvement. Other benefits provided to enterprise IT organizations include: (i) better transparency into the performance of the enterprise collaboration environment via business intelligence metrics, reporting and management dashboards; (ii) greater scale with self-service support, giving end users an easy interface for submitting/tracking tickets; (iii) deeper expertise for managing video collaboration with access to our Remote Service Management services and knowledge base; (iv) more efficiencies gained by automating manual tasks and workflows including escalations, updates/notifications, and provisioning; and (v) access to ITIL.
Patents
The development of our “video as a service” applications and network architecture has resulted in a significant amount of proprietary information and technology. We currently hold 6 patents issued in the U.S. related to real-time metering and billing for video calls, intelligent call routing, and a live video operator assistance feature, which we expect to expire between 2024 and 2031.
Research and Development
The Company incurred research and development expenses during the years ended December 31, 2020 and 2019 of $3.7 million and $2.0 million, respectively, related to the development of features and enhancements to our products and services. The increase was attributable to the inclusion of research and development expenses for the full calendar year during 2020 for Oblong Industries as compared to inclusion of expenses for the fourth quarter of 2019, during calendar year 2019.
Employees
As of December 31, 2020, we had 42 full-time employees. Of these employees, 11 are involved in customer support and operations, 12 in engineering and development, 7 in sales and marketing, and 12 in corporate functions. Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing and new employees, advisors and consultants. Our compensation program is designed to attract, retain, and motivate highly qualified employees and executives and is comprised of a mix of competitive base salary, bonus and equity compensation awards, as well as other employee benefits. Our employees are not covered by a collective bargaining agreement, and we consider our relations with our employees to be good. We are committed to diversity and inclusion as well as equitable pay within our workforce. In addition, the health and safety of our employees, customers and communities are of primary concern to us. During the COVID-19 pandemic, we have taken significant steps to protect our workforce, including but not limited to, working remotely, and implementing social distancing protocols consistent with guidelines issued by federal, state, and local law.
Available Information
We are subject to the reporting requirements of the Exchange Act. The Exchange Act requires us to file periodic reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”). Copies of these periodic reports, proxy statements and other information can be read and copied on official business days during the hours of 10 a.m. to 3 p.m. at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site at http://www.sec.gov that contains reports, proxy and information statements and other information that we file electronically with the SEC.
In addition, we make available, free of charge, on our Internet website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file this material with, or furnish it to, the SEC. You may review these documents on our website at www.oblong.com by accessing the investor relations section. Our website and the information contained on or connected to our website is not incorporated by reference herein, and our web address is included as an inactive textual reference only.
Item 1A. Risk Factors
Our business faces numerous risks, including those set forth below and those described elsewhere in this Report or in our other filings with the SEC. The risks described below are not the only risks that we face, nor are they necessarily listed in order of significance. Other risks and uncertainties may also affect our business. Any of these risks may have a material adverse effect on our business, financial condition, results of operations and cash flow. When making an investment decision with respect to our common stock, you should also refer to the other information contained or incorporated by reference in this Report, including our consolidated financial statements and the related notes.
Risks Related to Our Business
The Oblong (formerly Glowpoint) business experienced declines in revenue in recent fiscal years and may continue to experience further revenue decline in future periods. Our revenue increased for calendar year 2020 as compared to calendar year 2019; primarily attributable to the acquisition of Oblong Industries on October 1, 2019. The Oblong (formerly Glowpoint)
business has experienced declines in revenue for the last several years. We believe that these revenue declines are primarily due to net attrition of customers and lower demand for Glowpoint’s services given the competitive environment and pressure on pricing that exists in our industry. During the past several years, we had limited resources to invest in product development and sales and marketing in order to reverse the Company’s revenue trends.
Revenue growth and increase in the market share of our products depends on successful adoption of our Mezzanine product offerings in the Cisco partner channel, which requires sufficient sales, marketing, and product development funding. With the acquisition of Oblong Industries, our goal is to grow revenue from an increase in adoption of Oblong Industries’ product offerings. If we cannot successfully gain adoption of our Mezzanine product offerings in the Cisco partner channel or through other channels, we may not be able to grow revenue and/or increase the market share of our products. We cannot assure you that we will have sufficient funds available to invest in sales and marketing and continued product development in order to achieve revenue growth.
We have a history of substantial net operating losses and we may incur future net losses. We reported substantial net losses in recent years. We may not be able to achieve revenue growth or profitability or generate positive cash flow on a quarterly or annual basis in the future. If we do not achieve profitability in the future, the value of our common stock may be adversely impacted, and we could have difficulty obtaining capital to continue our operations.
Our business activities may require additional financing that might not be obtainable on acceptable terms, if at all, which could have a material adverse effect on its financial condition, liquidity and its ability to operate as a going concern in the future. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying consolidated financial statements, as of December 31, 2020, we had $5.3 million in cash (including restricted cash), an accumulated consolidated deficit of $192.9 million resulting from historical net losses, and total obligations of $2.4 million under the Paycheck Protection Program Loan (“PPP Loan”). In addition, the Oblong (formerly Glowpoint) business has experienced declines in revenue in recent fiscal years, with revenue of $12.6 million, $9.7 million, and $6.3 million in 2018, 2019 and 2020, respectively.
In April 2020, we received cash proceeds of $2,417,000 from the PPP Loan from MidFirst Bank under the Paycheck Protection Program (PPP) contained within the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The PPP Loan has a term of two years, is unsecured, and is guaranteed by the U.S. Small Business Administration (SBA). The PPP Loan carries a fixed interest rate of one percent (1.0%) per annum, with the first six months of interest deferred. The Company estimates that approximately $2,266,000 of the PPP Loan will be forgiven. However, this estimate is subject to change and there is no guarantee that the Company will receive any forgiveness for any fixed amount of any PPP Loan principal received by the Company. Our capital requirements in the future will continue to depend on numerous factors, including the timing and amount of revenue for the combined organization, customer renewal rates and the timing of collection of outstanding accounts receivable, in each case particularly as it relates to the combined organization’s major customers, the expense to deliver services, expense for sales and marketing, expense for research and development, capital expenditures, the cost involved in protecting intellectual property rights, the amount of forgiveness of the PPP Loan, if any, and the debt service obligations under the PPP Loan. 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. The Company believes that, based on the combined organization’s current projection of revenue, expenses, capital expenditures, debt service obligations, 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 2019 Annual Report becauseCompany. 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 statements do not include any adjustments that might result from these uncertainties.
We received a loan under the Paycheck Protection Program of the CARES Act, and all or a portion of the loan may not be forgivable. Under the CARES Act, we will be eligible to apply for forgiveness of certain PPP Loan proceeds used to pay payroll costs, rent, utilities and other qualifying expenses during the eight-week period following receipt of the PPP Loan, provided that we maintain our number of employees and compensation within certain parameters during such period. If the conditions outlined in the PPP Loan program are adhered to by us, all or part of such PPP Loan could be forgiven. The Company estimates that approximately $2,266,000 of the PPP Loan will be forgiven. However, this estimate is subject to change and there is no guarantee that the Company will receive any forgiveness for any fixed amount of any PPP Loan principal received by the Company.
If we fail to achieve broad market acceptance on a timely basis, we will not be able to compete effectively, and we will likely experience continued declines in revenue and lower gross margins. We operate in a highly competitive, quickly changing environment, and our future success depends on our ability to develop or acquire, and introduce, new products that achieve broad market acceptance. Our future success will depend in large part upon our ability to identify demand trends in the markets in which we operate, and to quickly develop or acquire, and build and sell products that satisfy these demands in a cost-effective manner. In order to differentiate our products from our competitors’ products, we must increase our focus and capital investment in research and development. If our products do not achieve widespread market acceptance, or if we are unsuccessful in capitalizing on market opportunities, our future growth may be slowed and our financial results could be harmed. Also, as the mix of our business increasingly includes new products and services that require additional investment, this shift may adversely impact our margins, at least in the near-term. Successfully predicting demand trends is difficult, and it is very difficult to predict the effect that introducing a new product will have on existing product sales. We will also need to respond effectively to new product announcements by our competitors by quickly introducing competitive products.
In addition, we may not be able to successfully manage integration of any new product lines with our existing products. Selling new product lines in new markets will require our management to learn different strategies in order to be successful. We may be unsuccessful in launching a new product line in new markets which requires management of new suppliers, potential new customers and new business models. Our management may not have the experience of selling in these new markets and we may not be able to grow our business as planned. If we are unable to effectively and successfully further develop these new product lines, we may not be able to achieve our desired sales targets and our gross margins may be adversely affected.
We may experience delays and quality issues in releasing new products, which could result in lower quarterly revenue than expected. In addition, we may experience product introductions that fall short of our projected rates of market adoption. Any future delays in product development and introduction, or product introductions that do not meet broad market acceptance, or unsuccessful launches of new product lines could result in:
•loss of or delay in revenue and loss of market share;
•negative publicity and damage to our reputation and brand;
•a decline in the compilationaverage selling price of our products; and
•adverse reactions in our sales channels.
If we cannot successfully introduce new product lines, either through rapid innovation or acquisition of new products or product lines, we may not be able to maintain or increase the market share of our products. In addition, if we are unable to successfully introduce or acquire new products with higher gross margins, or if we are unable to improve the margins on our existing product lines, our revenue and overall gross margin will likely decline.
We cannot assure you that our present or future products will achieve market acceptance on a sustained basis. In order to achieve market acceptance and achieve future revenue growth, we must introduce new product lines, incorporate new technologies into our existing product lines and design, and develop and successfully commercialize higher performance products in a timely manner. We cannot assure you that it will be able to offer new or complementary products that gain market acceptance quickly enough to avoid decreased revenues during current or future product introductions or transitions.
We depend upon the development of new products and services, and enhancements to existing products and services, and if we fail to predict and respond to emerging technological trends and customer’s changing needs, our operating result may suffer. The markets for our products and services are characterized by rapidly changing technology, evolving industry standards, and new product and service introductions. Our operating results depend on our ability to develop and introduce new products and services into existing and emerging markets and to reduce the production costs of existing products. If customers do not purchase and/or renew our offerings our business could be harmed. The process of developing new technology related to market transitions - such as collaboration, digital transformation and cloud - is complex and uncertain, and if we fail to accurately predict customers’ changing needs and emerging technological trends our business could be harmed. We must commit significant resources, including the investments we have been making in our strategic priorities to developing new products and services before knowing whether our investments will result in products and services the market will accept. In particular, if our modeled evolution from on-premises products to hybrid and, ultimately, SaaS consumption of our flagship Mezzanine™ products does not emerge as we believe it will, or if the industry does not evolve as we believe it will, or if our strategy for addressing this evolution is not successful, many of our strategic initiatives and investments may be of no or limited value. Similarly, our business could be harmed if we fail to develop, or fail to develop in a timely fashion, offerings to address other market transitions, or if the offerings addressing these other transitions that ultimately succeed are based on technology, or
an approach to technology, different from ours. In addition, our business could be adversely affected in periods surrounding our new product introductions if customers delay purchasing decisions to qualify or otherwise evaluate new product offerings.
We have also been transforming our business to move from selling individual products and services generally consumed in conventional commercial conference rooms to selling products and services integrated into architectures and solutions, and we are seeking to meet the evolving needs of customers which include offering our products and solutions in the manner in which customers wish to consume them. As a part of this transformation, we continue to make changes to how we are organized and how we build and deliver our technology, including changes in our business models with customers. If our strategy for addressing our customer needs, or the architectures and solutions we develop do not meet those needs, or the changes we are making in how we are organized and how we build and deliver or technology is incorrect or ineffective, we may not be able to achieve our customer adoption and revenue goals, in connection with which our operating results and financial condition may be negatively affected.
Furthermore, we may not execute successfully on our vision or strategy because of challenges with regard to product planning and timing, technical hurdles that we fail to overcome in a timely fashion, or a lack of appropriate resources. This could result in competitors, some of which may also be our partners, providing those solutions before we do and loss of market share, revenue, and earnings. In addition, the growth in demand for technology delivered as a service enables new competitors to enter the market. The success of new products and services depends on several factors, including proper new product and service definition, component costs, timely completion and introduction of these products and services, differentiation of new products and services from those of our competitors, and market acceptance of these products and services. There can be no assurance that we will successfully identify new product and services opportunities, develop and bring new products and services to market in a timely manner, or achieve market acceptance of our products and services or that products, services and technologies developed by others will not render our products, services or technologies obsolete or noncompetitive.
Our success depends on our ability to recruit and retain adequate engineering talent. The market for our products and services are characterized by rapidly changing technology. The pressure to innovate and stay ahead of our competitors requires an investment in talent. Specifically, competing successfully in this market depends on our ability to recruit and retain adequate engineering talent. Because of the competitive nature of this industry, this can prove a challenge. Failure to recruit and retain adequate talent could negatively impact our ability to keep up with the rapidly changing technology.
Our success is highly dependent on the evolution of our overall market and on general economic conditions. The market for collaboration technology and services is evolving rapidly. Although certain industry analysts project significant growth for this market, their projections may not be realized. Our future growth depends on broad acceptance and adoption of collaboration technologies and services. There can be no assurance that this market will grow, that our offerings will be adopted or that businesses will purchase our collaboration technologies and services. If we are unable to react quickly to changes in the market, if the market fails to develop or develops more slowly than expected, or if our services do not achieve market acceptance, then we are unlikely to achieve profitability. Additionally, adverse economic conditions may cause a decline in business and consumer spending which could adversely affect our business and financial performance.
We may be unable to adequately respond to rapid changes in technology. The market for our collaboration technologies and services is characterized by rapidly changing technology, evolving industry standards and frequent product introductions. The introduction of products and services embodying new technology and the emergence of new industry standards may render our existing product and service offerings obsolete and unmarketable if we are unable to adapt to change. A significant factor in our ability to grow and to remain competitive is our ability to successfully introduce new products and services that embody new technology, anticipate and incorporate evolving industry standards and achieve levels of functionality and price acceptable to the market. If our offerings are unable to meet expectations or unable to keep pace with technological changes in the collaboration industry, our offerings could eventually become obsolete. We may be unable to allocate the funds necessary to upgrade our offerings as improvements in collaboration technologies are introduced. In the event that other companies develop more advanced service offerings, our competitive position relative to such companies would be harmed.
We operate in a highly competitive market and many of our competitors have greater financial resources and established relationships with major corporate customers. The collaboration industry is highly competitive and includes large, well-financed participants. Many of these organizations have substantially greater financial and other resources than us, furnish some of the same services provided by us, and have established relationships with major corporate customers that have policies of purchasing directly from them. Our competitors offer services similar both on a bundled and un-bundled basis, creating a highly competitive environment with pressure on pricing of such services. We believe that as the demand for collaboration technologies continues to increase, additional competitors, many of which may have greater resources than us, will continue to enter this market.
We rely on a limited number of customers for a significant portion of our revenue, and the loss of any one of those customers, or several of our smaller customers, could materially harm our business. A significant portion of our revenue is generated from a limited number of customers. For the year ended December 31, 2020, two major customers each accounted for 17% of the Company’s total consolidated revenue. The composition of our significant customers will vary from period to period and we expect that most of our revenue will continue, for the foreseeable future, to come from a relatively small number of customers. Consequently, our financial results may fluctuate significantly from period-to-period based on the actions of one or more significant customers. A customer may take actions that affect the Company for reasons that we cannot anticipate or control, such as reasons related to the customer’s financial condition, changes in the customer’s business strategy or operations, changes in technology and the introduction of alternative competing products, or as the result of the perceived quality or cost-effectiveness of our products. Our agreements with these customers may be canceled if we materially breach the agreement or for other reasons outside of our control such as insolvency or financial hardship that may result in a customer filing for bankruptcy court protection against unsecured creditors. In addition, our customers may seek to renegotiate the terms of current agreements or renewals. 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.
Any system failures or interruptions may cause loss of customers. Our success depends, in part, on the seamless, uninterrupted operation of our managed service offerings. As the complexity and volume continue to increase, we will face increasing demands and challenges in managing them. Any prolonged failure of these services or other systems or hardware that cause significant interruptions to our operations could seriously damage our reputation and result in customer attrition and financial loss.
There is limited market awareness of our services. Our future success will be dependent in significant part on our ability to generate demand for our collaboration technologies and services. To this end, our direct marketing and indirect sales operations must increase market awareness of our service offerings to generate increased revenue. We have limited sales and marketing resources, with 7 employees in sales and marketing as of December 31, 2020, and we have had limited resources and/or cash flow in the last several years for spending on advertising, marketing and additional personnel. Our products and services require a sophisticated sales effort targeted at the senior management of our prospective customers. If we were to hire new employees in sales and marketing, those employees will require training and take time to achieve full productivity. We cannot be certain that our new hires will become as productive as necessary or that we will be able to hire enough qualified individuals or retain existing employees in the future. In June 2019, Oblong Industries entered into a sales channel partner agreement with Cisco Systems, Inc. As a result, the family of Mezzanine™ product offerings became available globally on the Cisco Global Price List as a part of the Cisco SolutionsPlus Program. This program allows Cisco’s customers and channel partners to purchase Mezzanine™ through Cisco’s Global Price List to streamline the ordering process. Given the limited history with sales through this channel, there can be no assurance that we will generate significant sales through the Cisco channel program. We cannot be certain that we will be successful in our efforts to market and sell our products and services, and, if we are not successful in building market awareness and generating increased sales, future results of operations will be adversely affected.
We rely on third-party software that may be difficult to replace or may not perform adequately. We integrate third-party licensed software components into our technology infrastructure (e.g., ServiceNow, Inc.) in order to provide our services. This software may not continue to be available on commercially reasonable terms or pricing or may fail to continue to be updated to remain competitive. The loss of the right to use this third-party software may increase our expenses or impact the provisioning of our services. The failure of this third-party software could materially impact the performance of our services and may cause material harm to our business or results of operations.
We depend upon our network providers and facilities infrastructure. Our success depends upon our ability to implement, expand and adapt our network infrastructure and support services to accommodate an increasing amount of video traffic and evolving customer requirements at an acceptable cost. This has required and will continue to require that we enter into agreements with providers of infrastructure capacity, equipment, facilities and support services on an ongoing basis. We cannot ensure that any of these agreements can be obtained on satisfactory terms and conditions. We also anticipate that future expansions and adaptations of our network infrastructure facilities may be necessary in order to respond to growth in the number of customers served.
Our network could fail, which could negatively impact our revenues. Our success depends upon our ability to deliver reliable, high-speed access to our channels’ and customers’ data centers and upon the ability and willingness of our telecommunications providers to deliver reliable, high-speed telecommunications service through their networks. Our network and facilities, and other networks and facilities providing services to us, are vulnerable to damage, unauthorized access or cessation of operations from human error and tampering, breaches of security, fires, earthquakes, severe storms, power losses, telecommunications failures, software defects, intentional acts of vandalism including computer viruses, and similar events. The occurrence of a
natural disaster or other unanticipated problems at the network operations center, key sites at which we locate routers, switches and other computer equipment that make up the backbone of our service offering and hosted infrastructure, or at one or more of our partners’ data centers, could substantially and adversely impact our business. We cannot ensure that we will not experience failures or shutdowns relating to individual facilities or even catastrophic failure of the entire network or hosted infrastructure. Any damage to, or failure of, our systems or service providers could result in reductions in, or terminations of, services supplied to our customers, which could have a material adverse effect on our business and results of operations.
Our network depends upon telecommunications carriers who could limit or deny us access to their network or fail to perform, which would have a material adverse effect on our business. We rely upon the ability and willingness of certain telecommunications carriers and other corporations to provide us with reliable high-speed telecommunications service through their networks. If these telecommunications carriers and other corporations decide not to continue to provide service to us through their networks on substantially the same terms and conditions (including, without limitation, price, early termination liability, and installation interval), if at all, it would have a material adverse effect on our business, financial condition and results of operations. Additionally, many of our service level objectives are dependent upon satisfactory performance by our telecommunications carriers. If they fail to so perform, it may have a material adverse effect on our business.
Cybersecurity incidents could disrupt business operations, result in the loss of critical and confidential information, and adversely impact our reputation and results of operations. 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 information systems and the data maintained within those systems, and on an annual basis, we test the adequacy of our security measures. As part of our efforts, we may be required to expend significant capital to protect against the threat of security breaches or to alleviate problems caused by such breaches, including unauthorized access to proprietary customer data stored in our information systems and the introduction of computer malware to our systems. However, there can be includedno assurance our safety and security measures will detect and prevent security breaches in a timely manner or otherwise prevent damage or interruption of our systems and operations. We may be vulnerable to losses associated with the improper functioning, security breach or unavailability of our information systems. In the event of a cybersecurity incident, our affiliates and customers may seek to hold us liable for any damages, which could result in reputational damage, litigation, or negative publicity, among other negative consequences.
We may experience material disconnections and/or reductions in the 2019 Annual Reportprices of our services and may not be able to replace the loss of revenues. Historically, we have experienced both significant disconnections of services and also reductions in the prices of our services. We endeavor to obtain long-term commitments from new customers, as well as expand our relationships with current customers. The disconnection of services by our significant customers or by several of our smaller customers could have a material adverse effect on our business, financial condition and results of operations. Service contract durations and termination liabilities are defined within the terms and conditions of the Company’s agreements with our customers. Termination of services in our existing agreements typically require a minimum of 30 days’ notice and are subject to early termination penalties equal to the amount of accrued and unpaid charges including the remaining term length multiplied by any fixed monthly fees. The standard form of service agreement with us includes an auto-renewal clause at the end of each term if the customer does not choose to terminate service at that time. Certain customers and partners negotiate master agreements with custom termination liabilities that differ from our standard form of service agreement.
Our failure to obtain or maintain the right to use certain intellectual property may negatively affect our business. Our future success and competitive position depends in part upon our ability to obtain and maintain certain proprietary intellectual property to be used in connection with our services. While we are not currently engaged in any intellectual property litigation, we could become subject to lawsuits in which it is alleged that we have infringed the intellectual property rights of others or we could commence lawsuits against others who we believe are infringing upon our rights. Our involvement in intellectual property litigation could result in significant expense, adversely affecting the development of sales of the challenged product and diverting the efforts of our technical and management personnel, whether or not such litigation is resolved in our favor.
In the event of an adverse outcome as a defendant in any such litigation, we may, among other things, be required to pay substantial damages; cease the development, use or sale of services that infringe upon other patented intellectual property; expend significant resources to develop or acquire non-infringing intellectual property; discontinue the use or incorporation of infringing technology; or obtain licenses to the infringing intellectual property. We cannot ensure that we would be successful in such development or acquisition or that such licenses would be available upon reasonable terms. Any such development, acquisition or license could require the expenditure of substantial time and other resources and could have a negative effect on our business and financial results.
An adverse outcome as plaintiff in any such litigation, in addition to the costs involved, may, among other things, result in the loss of the intellectual property (such as a patent) that was the subject of the lawsuit by a determination of invalidity or unenforceability, significantly increase competition as a result of such determination, and require the payment of penalties resulting from counterclaims by the defendant.
We may not be able to protect the rights to our intellectual property. Failure to protect our existing intellectual property rights may result in the loss of our exclusivity or the right to use our technologies. If we do not adequately ensure our freedom to use certain technology, we may have to pay others for rights to use their intellectual property, pay damages for infringement or misappropriation and/or be enjoined from using such intellectual property. We rely on patent, trade secret, trademark and copyright law to protect our intellectual property. Some of our intellectual property is not covered by any patent. As we further develop our services and related intellectual property, we expect to seek additional patent protection. Our patent position is subject to complex factual and legal issues that may give rise to uncertainty as to the validity, scope and enforceability of a particular patent. Accordingly, we cannot assure that any of the patents owned by us or other patents that other parties license to us in the future will not be invalidated, circumvented, challenged, rendered unenforceable or licensed to others; any of our pending or future patent applications will be issued with the breadth of claim coverage sought by it, if issued at all; or any patents owned by or licensed to us, although valid, will not be dominated by a patent or patents to others having broader claims. Additionally, effective patent, trademark, copyright and trade secret protection may be unavailable, limited or not applied for in certain foreign countries.
We also seek to protect our proprietary intellectual property, including intellectual property that may not be patented or patentable, in part by confidentiality agreements. We cannot ensure that these agreements will not be breached, that we will have adequate remedies for any breach or that such persons will not assert rights to intellectual property arising out of these relationships.
We are exposed to the credit and other counterparty risk of our customers in the ordinary course of our business. Our customers have varying degrees of creditworthiness, and we may not always be able to fully anticipate or detect deterioration in their creditworthiness and overall financial condition, which could expose us to an increased risk of nonpayment under our contracts with them. In the event that a material customer or customers default on their payment obligations to us, discontinue buying services from us or use their buying power with us to reduce its revenue, this could materially adversely affect our financial condition, results of operations or cash flows.
Our future plans could be adversely affected if we are unable to attract or retain key personnel. We have attracted a highly skilled management team and specialized workforce. Our future success is dependent in part on attracting and retaining qualified management and technical personnel. Our inability to hire qualified personnel on a timely basis, or the departure of key employees (including Peter Holst, the Company’s President and CEO) without a suitable replacement therefor could materially and adversely affect our business development and therefore, our business, prospects, results of operations and financial condition.
If our actual liability for sales and use taxes and federal regulatory fees is different from our accrued liability, it could have a material impact on our financial condition. Each state has different rules and regulations governing sales and use taxes, and these rules and regulations are subject to varying interpretations that may change over time. We review these rules and regulations periodically and, when we believe our services are subject to sales and use taxes in a particular state, we voluntarily engage state tax authorities in order to determine how to comply with their rules and regulations. Vendors of services, like us, are typically held responsible by taxing authorities for the collection and payment of any applicable sales taxes and federal fees. If one or more taxing authorities determines that taxes should have, but have not, been paid with respect to our services, we may be liable for past taxes in addition to taxes going forward. Liability for past taxes may also include very substantial interest and penalty charges. Our customer contracts provide that our customers must pay all applicable sales taxes and fees. Nevertheless, customers may be reluctant to pay back taxes and may refuse responsibility for interest or penalties associated with those taxes. If we are required to collect and pay back taxes and the associated interest and penalties, and if our customers fail or refuse to reimburse us for all or a portion of these amounts, we will have incurred unplanned expenses that may be substantial. Moreover, imposition of such taxes on our services going forward will effectively increase the cost of such services to our customers and may adversely affect our ability to retain existing customers or to gain new customers in the areas in which such taxes are imposed. We may also become subject to tax audits or similar procedures in states where we already pays sales and use taxes. The assessment of taxes, interest, and penalties as a result of audits, litigation, or otherwise could be materially adverse to our current and future results of operations and financial condition.
We depend upon suppliers and have limited sources for some services. We rely on other companies to supply some components of our network infrastructure and the means to access our network. Certain products and services that we resell and certain components that we require for our network are available only from limited sources. We could be adversely affected if such sources were to become unavailable to us on commercially reasonable terms. We cannot ensure that, on an ongoing basis, we will be able to obtain third-party services cost-effectively and on the scale and within the time frames that we require, if at all. Failure to obtain or to continue to make use of such third-party services would have a material adverse effect on our business, financial condition and results of operations.
Ourfailure to properly manage the Company’s staffdistribution of our services could result in a loss of revenues. We currently sell our services both directly to customers and through channel partners. Successfully managing the interaction of our direct and indirect sales channels to reach various measures establishedpotential customers for our services is a complex process. Each sales channel has distinct risks and costs, and therefore, our failure to addressimplement the coronavirus pandemic. The May 15 Form 12b-25 extendedmost advantageous balance in the Company’s deadlinesales model for our services could adversely affect our revenue and profitability.
We will need to raise additional capital by issuing securities or debt, which may cause significant dilution to our stockholders and restrict our operations. We will need to raise additional capital to fund our near and long-term operations. Additional financing may not be available when we need it or may not be available on favorable terms. To the filingextent that we raise additional capital by issuing equity securities, the terms of such an issuance may cause more significant dilution to our stockholders’ ownership, and the 2019 Annual Reportterms of any new equity securities may have preferences over the combined organization’s common stock. Any debt financing we enter into may involve covenants that restrict our operations. These restrictive covenants may include limitations on additional borrowing and specific restrictions on the use of our assets, as well as prohibitions on our ability to May 29, 2020.create liens, pay dividends, redeem stock or make investments.
See “Part I. Item 1A. Risk Factors -- Risks Related to Our Business Resulting From the Coronavirus Pandemic”Pandemic
The coronavirus pandemic is an emerging serious threat to health and economic well-being affecting our employees, investors, customers, and other business partners. On March 11, 2020, the World Health Organization announced that infections of the novel Coronavirus (COVID-19) had become pandemic, and on March 13, the U.S. President announced a National Emergency relating to the disease. Throughout 2020, widespread infection in the United States and abroad prompted National, state, and local authorities to require or recommend social distancing and impose quarantine and isolation measures on large portions of the population, including mandatory business closures. These measures, while intended to protect human life, have had serious adverse impacts on domestic and foreign economies, and these impacts could continue, in various degrees of severity and for an uncertain duration. The effectiveness of economic stabilization efforts, including government payments to affected citizens and industries and the availability of the vaccine introduced in December 2020, is uncertain.
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, but we expect that it may materially affect our business, financial condition and results of operations. The extent to which the coronavirus impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others. Moreover, the coronavirus outbreak has had indeterminable adverse effects on general commercial activity and the world economy, and our business and results of operations could be adversely affected to the extent that this coronavirus or any other epidemic harms the global economy generally and/or the markets in which we operate specifically.
Further, our current and potential customers may likely be required to continue to allocate resources and adjust budgets to accommodate potential contingencies related to the effects of the coronavirus and measures required to be put in place to prevent and contain contamination of the virus. An existing major customer of the Company suspended certain professional services we provided to the customer effective April 30, 2020 due to COVID-19. These services accounted for $1.0 million, or 9%, of the Company’s revenue for the year ended December 31, 2020. Uncertainties resulting from COVID-19 may result in additional customers delaying budget expenditures or re-allocating resources, which would result in a decrease in orders from these customers. Any such decrease in orders from these customers could cause a material adverse effect on our operations and financial results and our ability to generate positive cash flows. Further, our current service offerings and our future growth may be minimized to a point that would be detrimental to our business development activities.
Any of the foregoing factors, or other cascading effects of the coronavirus pandemic that are not currently foreseeable, could materially increase our costs, negatively impact our sales and damage the company’s results of operations and its liquidity position, possibly to a significant degree. The duration of any such impacts cannot be predicted.
A material disruption in our workplace as a result of the coronavirus could affect our ability to carry on our business operations in the ordinary course and may require additional cost and effort should our employees continue to not be able to be physically on-premises. While many of our employees work remotely in the ordinary course, other employees work from our offices. Should we continue to experience periods where it is not prudent for some or all of these employees to be physically present on-site, we may not have the benefit of the time and skills of such employees or we may be required to adjust our current business operations and processes to permit some or all of such employees to work remotely in order to avoid the potential spread of the virus. In addition, for a currently indeterminate amount of time we may be forced to continue to suspend all non-essential travel for our employees and discourage employee attendance at industry events and in-person work-related meetings. We can offer no assurances that these adjustments would not cause material disruptions to our daily operations or require us to expend our time, energy and resources to make necessary adjustments, and they therefore may result in a material adverse effect on our sales, research and development and other critical areas of our business model.
Risks to Owning Our Common Stock
Our stock price has fluctuated in the past, has recently been volatile and may be volatile in the future, and as a result, investors in our common stock could incur substantial losses. Our stock price has fluctuated in the past, has recently been volatile and may be volatile in the future. For example, on November 30, 2020, the intra-day sales price of our common stock fluctuated between a reported low sale price of $4.07 and a reported high sales price of $12.25. We may incur rapid and substantial decreases in our stock price in the foreseeable future that are unrelated to our operating performance or prospects. In addition, the COVID-19 outbreak has caused broad stock market and industry fluctuations. The stock market in general and the market for technology companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, investors may experience losses on their investment in our common stock. The market price for our common stock may be influenced by many factors, including the following:
| | | | | | | | |
| · | investor reaction to our business strategy; |
| · | the success of competitive products or technologies; |
| · | our continued compliance with the listing standards of the Nasdaq; |
| · | regulatory or legal developments in the United States and other countries, especially changes in laws or regulations applicable to our products; |
| · | variations in our financial results or those of companies that are perceived to be similar to us; |
| · | our ability or inability to raise additional capital and the terms on which we raise it; |
| · | declines in the market prices of stocks generally; |
| · | trading volume of our common stock; |
| · | sales of our common stock by us or our stockholders; |
| · | general economic, industry and market conditions; and |
| · | other events or factors, including those resulting from such events, or the prospect of such events, including war, terrorism and other international conflicts, public health issues including health epidemics or pandemics, such as the outbreak of the novel coronavirus (COVID-19), and natural disasters such as fire, hurricanes, earthquakes, tornados or other adverse weather and climate conditions, whether occurring in the United States or elsewhere, could disrupt our operations, disrupt the operations of our suppliers or result in political or economic instability. |
These broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance. Further, recent increases are significantly inconsistent with any improvements in actual or expected operating performance, financial condition or other indicators of value, including our loss per share of $1.48 and $1.52 for the years ended December 31, 2020 and 2019, Annual Reportrespectively. Since the stock price of our common stock has fluctuated in the past, has been recently volatile and “Note 17may be volatile in the future, investors in our common stock could incur substantial losses. In the past, following periods of volatility in the market, securities class-action litigation has often been instituted against companies. Such litigation, if instituted against us, could result in substantial costs and diversion of management’s attention and resources, which could materially and adversely affect our business, financial condition, results of operations and growth prospects. There can be no guarantee that our stock price will remain at current prices or that future sales of our common stock will not be at prices lower than those sold to investors.
Throughout much of our corporate history, our common stock has been thinly traded, and therefore has therefore been susceptible to wide price swings. While our common stock has recently experienced increased trading volume, we cannot ensure that this level of trading volume will continue, or that the increased trading volumes will lessen the historic volatility in the price for our common stock. Thinly traded stocks are more susceptible to significant and sudden price changes and the liquidity of our common stock depends upon the presence in the marketplace of willing buyers and sellers. At any time, the
liquidity of our common stock may decrease to the thinly traded levels it has experienced in the past, and we cannot ensure that any holder of our securities will be able to find a buyer for its shares. Further, we cannot ensure that an organized public market for our securities will continue or that there will be any private demand for our common stock.
Additionally, recently, securities of certain companies have experienced significant and extreme volatility in stock price due short sellers of shares of common stock, known as a “short squeeze.” These short squeezes have caused extreme volatility in those companies and in the market and have led to the price per share of those companies to trade at a significantly inflated rate that is disconnected from the underlying value of the company. Many investors who have purchased shares in those companies at an inflated rate face the risk of losing a significant portion of their original investment as the price per share has declined steadily as interest in those stocks have abated. While we have no reason to believe our shares would be the target of a short squeeze, there can be no assurance that we will not be in the future, and you may lose a significant portion or all of your investment if you purchase our shares at a rate that is significantly disconnected from our underlying value.
Penny stock regulations may impose certain restrictions on the marketability of our securities. The SEC has adopted regulations which generally define a “penny stock” to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions. Our common stock is presently subject to these regulations, which impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally those with a net worth in excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together with their spouse). For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of such securities and have received the purchaser’s written consent to the transaction prior to the purchase. Additionally, for any transaction involving a “penny stock,” unless exempt, the rules require the delivery, prior to the transaction, of a risk disclosure document mandated by the SEC relating to the “penny stock” market. The broker-dealer must also disclose the commission payable to both the broker-dealer and the registered representative, current quotations for the securities and, if the broker-dealer is the sole market maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market. Finally, monthly statements must be sent disclosing recent price information for the “penny stock” held in the account and information on the limited market in “penny stocks.” Consequently, the “penny stock” rules may restrict the ability of broker-dealers to sell our securities and may negatively affect the ability of purchasers of our shares of common stock to sell such securities.
Future operating results may vary from quarter to quarter, and we may fail to meet the expectations of securities analysts and investors at any given time. We have experienced, and may continue to experience, significant quarterly fluctuations in operating results. Factors that cause fluctuation in our results of operations include lack of revenue growth or declines in revenue and declines in gross margins and increases in operating expenses. Accordingly, it is possible that in one or more future quarters our operating results will be adversely affected and fall below the expectations of securities analysts and investors. If this happens, the trading price of our common stock may decline.
Sales of substantial amounts of common stock in the public market, or the perception that such sales may occur, could reduce the market price of our common stock and make it more difficult for us and our stockholders to sell our equity securities in the future. The sale into the public market of a significant number of shares of common stock issued upon the conversion of the Series D and Series E Preferred Stock in February 2021, or the resale into the public market of shares issued in prior or future financings, could depress the trading price of our common stock and make it more difficult for us or our stockholders to sell equity securities in the future. Such transactions may include, but are not limited to (i) any future issuances by us of additional shares of our common stock or of other securities that are convertible or exchangeable for shares of common stock; and (ii) the resale of any previously issued but restricted shares of our common stock that become freely available for re-sale, whether through an effective registration statement or under Rule 144 of the Securities Act.
While the sale of shares to the public might increase the trading volume of our common stock and thus the liquidity of our stockholders’ investments, the resulting increase in the number of shares available for public sale could drive the price of our common stock down, thus reducing the value of our stockholders’ investment and perhaps hindering our ability to raise additional funds in the future.
Our charter documents and Delaware law could discourage takeover attempts and lead to management entrenchment. The Company’s certificate of incorporation and amended and restated bylaws contain provisions that could delay or prevent a change in control of the company. These provisions could also make it difficult for stockholders to elect directors that are not nominated by the current members of the board of directors or take other corporate actions, including effecting changes in the Company’s management. These provisions include:
•no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;
•the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;
•the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on its board of directors;
•the requirement that a special meeting of stockholders may be called only by the chairman of our board of directors or a majority of our board of directors, which could delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors;
•the ability of our board of directors, by majority vote, to amend the Company’s amended and restated bylaws, which may allow our board of directors to take additional actions to prevent an unsolicited takeover and inhibit the ability of an acquirer to amend the amended and restated bylaws to facilitate an unsolicited takeover attempt; and
•advance notice procedures with which stockholders must comply to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of the Company.
General Risks
We incur significant accounting and administrative costs as a publicly traded corporation that impact our financial condition. As a publicly traded corporation, we incur certain costs to comply with regulatory requirements. If regulatory requirements were to become more stringent or if controls thought to be effective later fail, we may be forced to make additional expenditures, the amounts of which could be material. Some of our competitors are privately owned so their comparatively lower accounting and administrative costs can be a competitive disadvantage for us. Should our sales continue to decline or if we are unsuccessful at increasing prices to cover higher expenditures for internal controls and audits, ours costs associated with regulatory compliance will rise as a percentage of sales.
If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud. As a result, current and potential stockholders may not be confident in our financial reporting, which could adversely affect the price of our stock and harm our business. Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to include in our annual report on Form 10-K our assessment of the effectiveness of our internal controls over financial reporting. Although we believe that we currently have adequate internal control procedures in place, we cannot be certain that our internal controls over financial reporting will remain effective. If we cannot adequately maintain the effectiveness of our internal controls over financial reporting, we may be subject to liability and/or sanctions or investigation by regulatory authorities, such as the SEC. Any such action could adversely affect our financial results and the market price of our common stock.
We could fail to satisfy the standards to maintain our listing on a stock exchange. We could fail to satisfy the standards for continued exchange listing on the Nasdaq Capital Market such as standards having to do with a minimum share price, the minimum number of public shareholders, a minimum amount of stockholders’ equity or the aggregate market value of publicly held shares. As a result of each of the foregoing, we may be unable to maintain our listing on the Nasdaq Capital Market, which would negatively affect, among other things (i) our ability to raise capital on terms we deem advisable, or at all, and (ii) the liquidity of our common stock. Failure to obtain financing, or obtaining financing on unfavorable terms, could result in a decrease in our stock price, would have a material adverse effect on future operating prospects and could require us to significantly reduce operations. Any holder of our securities should regard them as a long-term investment and should be prepared to bear the economic risk of an investment in such securities for an indefinite period.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We lease three facilities in Los Angeles, California, one facility in Boston, Massachusetts, one facility in Dallas, Texas, and one facility in Munich Germany, all providing office space. We also lease space in City of Industry, California, providing warehouse space. These leases expire between 2022 and 2023. During 2020, and through the date of this filing, we exited leases in Herndon, Virginia; Atlanta, Georgia; Houston, Texas; Los Altos, California; London, England, and a warehouse space in Los Angeles, California. Although subject to COVID restrictions, we currently occupy two of the facilities in Los Angeles and the warehouse space in City of Industry; we have subleases in place for the third Los Angeles property, the Dallas property, and the Boston property. The Munich property is not in use and the Company is considering its options with this lease. 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. For additional information regarding our obligations under leases, see Note 16 - Commitments and Contingencies - COVID-19” and “Note 21 - Subsequent Events - Suspension of Services by Major Customer” to the consolidated financial statements contained in Part II, Item 8 of this Annual Report.
Item 3. 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 4. Mine Safety Disclosures
Not Applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Effective February 11, 2021, the Company’s common stock trades on the Nasdaq Capital Market under the symbol “OBLG.” Prior to February 11, 2021, the Company’s common stock traded on the NYSE American under the symbols “OBLG” and “GLOW”.
The following table sets forth high and low sale prices per share for our common stock for each quarter of 2019 Annualand 2020, based upon information obtained from the NYSE American. All reported sales prices reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions.
| | | | | | | | | | | |
| |
| High | | Low |
| Year Ended December 31, 2019 | | | |
| First Quarter | $ | 1.80 | | | $ | 1.20 | |
| Second Quarter | 2.07 | | | 0.80 | |
| Third Quarter | 1.22 | | | 0.60 | |
| Fourth Quarter | 1.49 | | | 0.94 | |
| Year Ended December 31, 2020 | | | |
| First Quarter | $ | 2.53 | | | $ | 1.15 | |
| Second Quarter | 1.70 | | | 0.93 | |
| Third Quarter | 3.87 | | | 1.39 | |
| Fourth Quarter | 9.50 | | | 2.03 | |
On March 25, 2021, the closing sale price of our common stock was $4.20 per share as reported on the Nasdaq Capital Market, and 26,618,048 shares of our common stock were issued and outstanding. As of March 25, 2021, there were 176
holders of record of our common stock. American Stock Transfer & Trust Company, LLC is the transfer agent and registrar of our common stock.
Dividends
Our board of directors has never declared or paid any cash dividends on our common stock and does not expect to do so for the foreseeable future. We currently intend to retain any earnings to finance the growth and development of our business. Our board of directors will make any future determination of the payment of dividends based upon conditions then existing, including our earnings, financial condition and capital requirements, as well as such economic and other conditions as our board of directors may deem relevant. In addition, our ability to pay cash dividends is limited by the Certificates of Designations governing our Preferred Stock.
Recent Sales of Unregistered Securities
In a transaction exempt from registration under Section 4(a)(2) of the Securities Act, in January 2020, the Company converted $99,000 of accrued dividends on the Series A-2 Preferred Stock to 13.1524 shares of Series A-2 Preferred Stock. On January 28, 2021 all 44.7695 outstanding shares of Series A-2 Preferred Stock and accrued dividends on the Series A-2 Preferred Stock converted into shares of common stock. Each share of Series A-2 Preferred Stock had a stated value of $7,500 per share and a conversion price per share of $16.11 as of December 31, 2020. Each share of Series A-2 Preferred Stock converted into 1,882.7996 shares of common stock, for an aggregate of 84,292 shares of common stock. Subsequent to the conversion, the Company no longer has any Series A-2 Preferred Stock issued and outstanding.
Purchases of Equity Securities by Oblong, Inc. and Affiliated Purchasers
Stock Repurchase Program
On July 21, 2018, the Company’s Board of Directors authorized a stock repurchase program (the “Stock Repurchase Program”) granting the Company authority to repurchase up to $750,000 of the Company’s Common Stock, par value $0.0001 per share (“Common Stock”). All shares of Common Stock repurchased under the Stock Repurchase Program are recorded as treasury stock. The Stock Repurchase Program does not have an expiration date. As of December 31, 2020, the Company had $673,000 remaining for future repurchases of Common Stock under the Stock Repurchase Program.
Vesting of Stock Awards
During the years ended December 31, 2020 and 2019, the Company repurchased 7,998 and 47,918 shares of the Company’s Common Stock (and recorded such shares in treasury stock) from employees, respectively, to satisfy $16,000 and $51,000 of minimum statutory tax withholding requirements relating to the vesting of stock awards, respectively.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased (1) | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
| Q4 2019 | | 6,896 | | $1.00 | | — | | $673,000 |
| Q2 2020 | | 7,998 | | $1.00 | | — | | $673,000 |
| Total | | 14,894 | | $1.00 | | — | | $673,000 |
| | | | | | | | |
| (1) All shares purchased by the Company during the period covered by this Report were purchased from employees to offset $15,574 of minimum statutory tax withholding requirements relating to the vesting of stock awards. As of December 31, 2020, the maximum number of shares that may yet be purchased by the Company would not exceed the employees’ portion of taxes withheld on the vesting of the following outstanding unvested equity awards: 627 shares of restricted stock, 107,500 stock options, and 3,014,000 shares yet to be granted under the 2019 Equity Incentive Plan as of December 31, 2020. |
Item 6. Selected Financial Data
Not applicable.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our consolidated balance sheets as of December 31, 2020 and 2019, and the related consolidated statements of operations, stockholders’ equity and cash flows for the years ended December 31, 2020 and 2019, and the related notes attached thereto. All statements contained herein that are not historical facts, including, but not limited to, statements regarding anticipated future capital requirements, our future development plans, our ability to obtain debt, equity or other financing, and our ability to generate cash from operations, are based on current expectations. The discussion of results, causes and trends should not be construed to imply any conclusion that such results or trends will necessarily continue in the future. Because the closing of the acquisition of Oblong Industries occurred on October 1, 2019, the Company’s consolidated financial statements as of and for the year ended December 31, 2019, included in this Report only reflect Oblong Industries’ financial results for the fourth quarter of 2019.
Business
Oblong, Inc. (“Oblong” or “we” or “us” or the “Company”) was formed as a Delaware corporation in May 2000 and prior to March 6, 2020, was named Glowpoint, Inc. (“Glowpoint”). On October 1, 2019, the Company closed an acquisition of all of the outstanding equity interests of Oblong Industries, Inc., a privately held Delaware corporation founded in 2006 (“Oblong Industries”), pursuant to the terms of an Agreement and Plan of Merger (as amended, the “Merger Agreement”). Pursuant to the Merger Agreement, among other things, Oblong Industries became a wholly owned subsidiary of the Company (the “Merger”). See further discussion of the impactMerger in Note 3 - Oblong Industries Acquisition to our consolidated financial statements attached hereto. On March 6, 2020, Glowpoint changed its name to Oblong, Inc. In this Report, we use the terms “Oblong” or “we” or “us” or the “Company” to refer to (i) Oblong (formerly Glowpoint), for periods prior to the closing of the Merger and (ii) the “combined organization” of Oblong, Inc. (formerly Glowpoint) and Oblong Industries for periods after the closing of the Merger. For purposes of segment reporting, we refer to the Oblong (formerly Glowpoint) business as “Glowpoint” herein, and to the Oblong Industries business as “Oblong Industries” herein.
Since the closing of the Merger on October 1, 2019, we have been focused on the integration of the businesses of Oblong (formerly Glowpoint) and Oblong Industries into a combined organization. While our acquisition of Oblong Industries provides additional revenues to the combined organization, the cost to further develop and commercialize Oblong Industries’ product offerings is expected to exceed its revenues for the foreseeable future. We believe there is a substantial market opportunity for Oblong Industries’ product offerings and services, and we are in the process of transforming our offerings to meet the evolving needs of our customers. As part of the transformation of our business, we are evolving certain aspects of our model by designing and developing software to include subscription-based offerings. Historically, our technology products and services have been developed and consumed in conventional commercial real estate spaces such as conference rooms. As our core collaboration products evolve, we expect to add more contemporary software features along with expanded accessibility beyond commercial spaces through both hybrid and SaaS offerings. These initiatives will require significant investment in technology development and sales and marketing.
We have achieved certain revenue and cost synergies in connection with combining Oblong and Oblong Industries; we reduced the total of general and administrative, research and development and sales and marketing expenses 49% from $5,656,000 in the fourth quarter of 2019 to $2,899,000 in the fourth quarter of 2020. We believe additional capital will be required to fund operations and provide growth capital including investments in Oblong Industries’ technology, product development and sales and marketing. We intend to invest sales and marketing resources to expand awareness of Oblong Industries’ product offerings with the goal of increasing adoption and growing revenue.
Glowpoint’s business has experienced revenue declines in recent years which we expect to continue.We currently expect to continue operating the Glowpoint business as part of our combined organization, however, we plan to seek opportunities in the future to divest some or all of Glowpoint’s business.
Results of Operations
Year Ended December 31, 2020 (“2020”) versus Year Ended December 31, 2019 (“2019”)
Segment Reporting
As discussed above, on October 1, 2019, the Company acquired Oblong Industries, and Oblong Industries became a wholly owned subsidiary of the Company. Prior to the acquisition of Oblong Industries on October 1, 2019, the Company operated in one segment. Effective October 1, 2019, the former businesses of Glowpoint (now Oblong, Inc.) and Oblong Industries were
managed separately during the fourth quarter of 2019 and the year ended December 31, 2020, and involved different products and services. Accordingly, the Company currently operates in two segments: (1) the Oblong (formerly Glowpoint) business which mainly consists of managed services for video collaboration and network and (2) the Oblong Industries business which consists of products and services for visual collaboration technologies.
Because the closing of the acquisition of Oblong Industries occurred on October 1, 2019, the Company’s consolidated financial statements as of and for the year ended December 31, 2019 included in this Report only reflect Oblong Industries’ financial results for the fourth quarter of 2019. Certain information concerning the Company’s segments for the years ended December 31, 2020 and 2019, is presented in the following table (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, 2020 |
| Oblong (formerly Glowpoint) | | Oblong Industries | | Corporate | | Total |
| Revenue | $ | 6,227 | | | $ | 9,106 | | | $ | — | | | $ | 15,333 | |
| Cost of revenues | 3,789 | | | 3,491 | | | — | | | 7,280 | |
| Gross profit | $ | 2,438 | | | $ | 5,615 | | | $ | — | | | $ | 8,053 | |
| Gross profit % | 39.2 | % | | 61.7 | % | | — | % | | 52.5 | % |
| | | | | | | |
| Allocated operating expenses | $ | 1,479 | | | $ | 9,913 | | | $ | — | | | $ | 11,392 | |
| Unallocated operating expenses | — | | | — | | | 6,725 | | | 6,725 | |
| Total operating expenses | $ | 1,479 | | | $ | 9,913 | | | $ | 6,725 | | | $ | 18,117 | |
| | | | | | | |
| Income (loss) from operations | $ | 959 | | | $ | (4,298) | | | $ | (6,725) | | | $ | (10,064) | |
| Interest and other income (expense), net | (19) | | | 2,765 | | | — | | | 2,746 | |
| Income (loss) before income taxes. | $ | 940 | | | $ | (1,533) | | | $ | (6,725) | | | $ | (7,318) | |
| Income tax expense | $ | 50 | | | $ | 53 | | | $ | — | | | $ | 103 | |
| Net income (loss) | $ | 890 | | | $ | (1,586) | | | $ | (6,725) | | | $ | (7,421) | |
| | | | | | | |
| As of December 31, 2020 |
| Total assets | $ | 6,494 | | | $ | 22,649 | | | $ | — | | | $ | 29,143 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, 2019 |
| Oblong (formerly Glowpoint) | | Oblong Industries | | Corporate | | Total |
| Revenue | $ | 9,660 | | | $ | 3,167 | | | $ | — | | | $ | 12,827 | |
| Cost of revenues | 6,269 | | | 1,158 | | | — | | | 7,427 | |
| Gross profit | $ | 3,391 | | | $ | 2,009 | | | $ | — | | | $ | 5,400 | |
| Gross profit % | 35.1 | % | | 63.4 | % | | — | % | | 42.1 | % |
| | | | | | | |
| Allocated operating expenses | $ | 6,835 | | | $ | 5,183 | | | $ | — | | | $ | 12,018 | |
| Unallocated operating expenses | — | | | — | | | 956 | | | 956 | |
| Total operating expenses | $ | 6,835 | | | $ | 5,183 | | | $ | 956 | | | $ | 12,974 | |
| | | | | | | |
| Loss from operations | $ | (3,444) | | | $ | (3,173) | | | $ | (956) | | | $ | (7,574) | |
| Interest and other expense, net | — | | | — | | | (187) | | | (187) | |
| Loss before income taxes | $ | (3,444) | | | $ | (3,173) | | | $ | (1,143) | | | $ | (7,761) | |
| Income tax expense | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Net loss | $ | (3,444) | | | $ | (3,173) | | | $ | (1,143) | | | $ | (7,761) | |
| | | | | | | |
| As of December 31, 2019 |
| Total assets | $ | 5,942 | | | $ | 28,967 | | | $ | — | | | $ | 34,909 | |
Unallocated operating expenses include costs, after the October 1, 2019 acquisition date, 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. Interest and other (income) expense, net, is also not allocated to the operating segments.
As shown in the table below, the combined organization’s total revenue for calendar year 2019 on a pro forma basis (as if the acquisition of Oblong Industries had occurred on January 1, 2019), was $25.6 million.
| | | | | |
| Pro forma and unaudited (as if the acquisition of Oblong Industries had occurred on January 1, 2019) |
| Year Ended December 31, ($ in thousands) |
| 2019 |
| Revenue | |
| Oblong (formerly Glowpoint) | $ | 9,660 | |
| Oblong Industries | 15,926 | |
| Pro forma total revenue | $ | 25,586 | |
Revenue. Total revenue increased $2,506,000 (or 20%) in 2020 to $15,333,000 from $12,827,000 in 2019. The following table summarizes the changes in components of our revenue, and the significant changes in revenue are discussed in more detail below.
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, ($ in thousands) |
| 2020 | | % of Revenue | | 2019 | | % of Revenue |
| Revenue: Oblong (formerly Glowpoint) | | | | | | | |
| Video collaboration services | $ | 2,413 | | | 15.7 | % | | $ | 5,566 | | | 43.4 | % |
| Network services | 3,611 | | | 23.6 | % | | 3,860 | | | 30.1 | % |
| Professional and other services | 203 | | 1.3 | % | | 234 | | 1.8 | % |
| Total Oblong (formerly Glowpoint) revenue | $ | 6,227 | | | 40.6 | % | | $ | 9,660 | | | 75.3 | % |
| | | | | | | |
| Revenue: Oblong Industries | | | | | | | |
| Visual collaboration product offerings | $ | 6,873 | | | 44.8 | % | | $ | 2,180 | | | 17.0 | % |
| Professional services | 1,033 | | | 6.7 | % | | $ | 709 | | | 5.5 | % |
| Licensing | 1,200 | | | 7.8 | % | | $ | 278 | | | 2.2 | % |
| Total Oblong Industries revenue | $ | 9,106 | | | 59.4 | % | | $ | 3,167 | | | 24.7 | % |
| | | | | | | |
| Total consolidated revenue | $ | 15,333 | | | 100.0 | % | | $ | 12,827 | | | 100.0 | % |
Oblong (formerly Glowpoint)
•Revenue for managed services for video collaboration services decreased $3,153,000 (or 57%) to $2,413,000 in 2020, from $5,566,000 in 2019. This decrease is mainly attributable to lower revenue from existing customers (either from reductions in price or level of services) and loss of customers to competition.
•Revenue for network services decreased $249,000 (or 6%) to $3,611,000 in 2020 from $3,860,000 in 2019. This decrease 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.
•Revenue for professional and other services decreased $31,000 (or 13%) to $203,000 in 2020 from $234,000 in 2019. This decrease is mainly attributable to lower resale of video equipment.
Oblong Industries
•For Oblong Industries, the increase in revenue in each of the different components is primarily attributable to the acquisition of Oblong Industries on October 1, 2019. Oblong Industries revenue for 2020 includes a full year of revenue, compared to revenue for 2019, which only included three months. Oblong Industries revenue for 2020 decreased compared to pro forma 2019, shown above, primarily as a result of delayed fulfillment and order placements and cancellation of professional services, as a result of the coronavirus pandemicpandemic.
•Revenue for visual collaboration product offerings increased $4,693,000 (or 215%) to $6,873,000 in 2020 from $2,180,000 in 2019.
•Revenue for professional services increased $324,000 (or 46%) to $1,033,000 in 2020 from $709,000 in 2019. Oblong Industries’ professional service revenue was generated from a specialized group of personnel that delivered innovative architectural scale spatial computing solutions for customers implementing Executive Briefing Centers, Command Centers, Television studios and Virtual Wargaming environments. A former customer terminated our professional services effective April 30, 2020 due to COVID-19. Our professional services revenue for the years ended December 31, 2020 and 2019 was primarily attributable to this customer. We do not expect to generate revenue from professional services in 2021 and in the future.
•Revenue for licensing increased $922,000 (or 332%) to $1,200,000 in 2020 from $278,000 in 2019. A former customer terminated the licensing of our technology effective December, 31 2020. Our licensing revenue for the years ended December 31, 2020 and 2019 was primarily attributable to this customer. We do not expect to generate material revenue from licensing in 2021.
Cost of revenue (exclusive of depreciation and amortization). Cost of revenue, exclusive of depreciation and amortization, includes all internal and external costs related to the delivery of revenue. Cost of revenue also includes the cost for taxes which have been billed to customers.
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2020 | | 2019 |
| Cost of Revenue | | | |
| Oblong (formerly Glowpoint) | $ | 3,789 | | | $ | 6,269 | |
| Oblong Industries | $ | 3,491 | | | 1,158 | |
| Total cost of revenue | $ | 7,280 | | | $ | 7,427 | |
Cost of revenue decreased to $7,280,000 in 2020 from $7,427,000 in 2019. The $147,000 decrease in cost of revenue from 2019 to 2020 is mainly attributable to lower costs associated with the decrease in Oblong (formerly Glowpoint) revenue during the same period, partially offset by the increased costs related to the increase in revenue for Oblong Industries from 2019 to 2020. The Company’s total gross profit, as a percentage of revenue, improved to 53% in 2020 as compared to 42% in 2019. For Oblong, gross profit, as a percentage of Oblong revenue, improved to 39% for 2020 from 35% for 2019. This improvement was due to reduced personnel costs as a percentage of revenue. For Oblong Industries, gross profit, as a percentage of revenue was 62% for of 2020 as compared to 63% for 2019.
Research and Development. Research and development expenses include internal and external costs related to developing features and enhancements to our existing services. Research and development expenses in 2020 and 2019 were $3,711,000 and $2,023,000, respectively. This increase is primarily attributable to a full year of research and development expenses for Oblong Industries in 2020, as compared to inclusion of only the fourth quarter for 2019.
Sales and Marketing. Sales and marketing expenses in 2020 and 2019 were $3,392,000 and $1,936,000, respectively. This increase is primarily attributable to a full year of sales and marketing expenses for Oblong Industries in 2020, as compared to inclusion of only the fourth quarter for 2019.
General and Administrative. General and administrative expenses include direct corporate expenses related to costs of personnel in the various corporate support categories, including executive, legal, finance and accounting, human resources and information technology. General and administrative expenses in 2020 and 2019 were $6,724,000 and $5,377,000, respectively. This increase is mainly attributable to an increase related to a full year of general and administrative expenses for Oblong Industries in 2020 as compared to inclusion of only the fourth quarter for 2019.
Impairment Charges. Impairment charges in 2020 and 2019 were $1,150,000 and $2,317,000, respectively. The impairment charges for 2020 are primarily attributable to $541,000 on Oblong’s goodwill, $465,000 on right-of-use assets related to Oblong Industries operating leases, and $144,000 on assets no longer used in the business. For 2019, the impairment charges are primarily attributable to $2,254,000 on goodwill and $63,000 on capitalized software 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 goodwill, intangible assets and other long-lived assets.
Depreciation and Amortization. Depreciation and amortization expenses in 2020 and 2019 were $3,140,000 and $1,321,000, respectively. This increase of $1,819,000 is mainly attributable to $2,878,000 of depreciation and amortization expense recorded in 2020 related to assets recorded in connection with the acquisition of Oblong Industries, compared to $754,000 of depreciation and amortization expense recorded in the fourth quarter of 2019, partially offset by a decrease of $305,000 in depreciation and amortization expense for Oblong as certain assets became fully depreciated in 2020.
Loss from Operations. Loss from operations increased to $10,064,000 in 2020 from $7,574,000 in 2019. The increase in the Company’s loss from operations is mainly attributable to an increase of $5,143,000 in operating expenses, partially offset by an increase of $2,653,000 in gross profit, as discussed further above.
Interest and Other (Income) Expense, Net. Interest and other (income) expense in 2020 was income of $2,746,000, comprised of (i) a gain on extinguishment of debt of $3,117,000 related to the satisfaction of the SVB loan, partially offset by (ii) $352,000 of interest expense on the Company’s debt obligations. Interest and other expense, net in 2019 was $187,000, comprised of (i) $97,000 of interest expense on the Company’s debt obligations with Silicon Valley Bank (“SVB”) during the fourth quarter of 2019, and (ii) $90,000 of amortization of debt discount costs related to the SVB Loan Agreement.
Income Tax Expense. We did not record any income tax expense in 2020 and 2019 (see Note 17 - Income Taxes to our consolidated financial statements).
Liquidity and Capital Resources
As of December 31, 2020 and 2019, we had $5,277,000 (including restricted cash of $219,000) and $4,602,000 of cash, respectively. For the years ended December 31, 2020 and 2019, we incurred net losses of $7,421,000 and $7,761,000, respectively, and net cash used in operating activities was $6,566,000 and $3,253,000, respectively.
Net cash used in investing activities for 2020 was $31,000 and primarily related to purchases of property and equipment. Net cash provided by investing activities in 2019 was $2,149,000, and primarily related to cash acquired in the merger.
Net cash provided by financing activities in 2020 was $7,272,000, primarily attributable to net proceeds of $7,371,000 from two private placements of common stock and $2,417,000 of proceeds from the PPP Loan, partially offset by the satisfaction payment of $2,500,000 on the SVB Loan. Net cash provided by financing activities for 2019 was $3,699,000, primarily attributable to net proceeds of $3,750,000 from a private placement of Series E Preferred Stock, partially offset by $51,000 used to purchase treasury stock.
SVB Loan Agreement
On October 1, 2019, in connection with the Acquisition of Oblong Industries, the Company and Oblong Industries, as borrowers, and Silicon Valley Bank (“SVB”), as lender, executed an amendment to the SVB Loan Agreement. On October 24, 2019, GP Communications joined the SVB Loan Agreement as an additional co-borrower. The SVB Loan Agreement provided for a term loan facility of approximately $5,247,000, (the “SVB Loan”), all of which was outstanding at December 31, 2019. On June 26, 2020, the Company and SVB entered into a Default Waiver and First Amendment (the “Amendment”) to the SVB Loan Agreement. Under the Amendment, the Bank agreed to extend the interest-only payment period under the SVB Loan Agreement through September 30, 2020, after which equal monthly principal payments of $291,500 were payable over an eighteen month period from October 1, 2020 through March 1, 2022 (the “Maturity Date”) to fully repay the loan. The SVB Loan originally accrued interest at a rate equal to the Prime Rate (as defined in the SVB Loan Agreement) plus 200 basis points (for a total of 6.75% as of December 31, 2019). In connection with the Amendment, the interest rate under the SVB Loan was increased to the Prime Rate plus 425 basis points (for a total of 7.50% as of September 30, 2020).
In connection with its execution of the amended SVB Loan Agreement on October 1, 2019, the Company (i) agreed to pay SVB a fee of $100,000 on April 1, 2020 (the “Deferral Fee”) and (ii) issued a warrant to SVB that entitles SVB to purchase 72,394 shares of the Company’s common stock at an exercise price of $0.01 per share (the “SVB Warrant”). Pursuant to the Amendment, the due date for the Deferral Fee was changed to the earlier of (i) the maturity of the loan, (ii) the repayment in full of all principal and interest owing under the Loan Agreement, and (iii) occurrence of an event of default under the Loan Agreement. The SVB Warrant has a ten (10) year term.The fair value of the SVB Warrant was recorded to additional paid-in capital and was determined to be $72,000 using the Black-Scholes model. The total obligations under the SVB Loan Agreement were $5,509,000, comprised of $5,247,000 for the SVB Loan, the Deferral Fee and the Maturity Fee of $262,000 that was assumed on October 1, 2019 as part of the Acquisition. The Deferral Fee, the fair value of the SVB Warrant, and $20 of debt issuance costs totaled $192 and was recorded as a discount to the debt.The remaining unamortized debt discount as of December 31, 2019 was $130,000. This debt discount was being amortized to interest expense using the effective interest method over the term of the debt.During the year ended December 31, 2020, the Company amortized $81,000 of the debt discount, which is recorded in “Interest and other expense, Net” on our Consolidated Statements of Operations, and $49 of the discount was forgiven in the Satisfaction Agreement discussed below.
On October 22, 2020, the Company entered into an agreement (the “Satisfaction Agreement”) with SVB as lender, pursuant to which SVB agreed to accept a one-time cash payment of $2,500,000 (the “Satisfaction Payment”) in satisfaction of the Company’s outstanding payment obligations under the SVB Loan Agreement, subject to certain terms and conditions. SVB also agreed to release the security interests and other liens previously granted to or held by SVB as security for the Company’s obligations under the SVB Loan Agreement. The Company made the Satisfaction Payment on October 22, 2020. The remaining balance of $3,062,000, net of discount, as well as $55,000 of accrued interest was forgiven and recorded as a “Gain on Extinguishment of Debt” on our Consolidated Statements of Operations. As of December 31, 2020, the Company has no outstanding obligations under the SVB Loan Agreement.
Future Capital Requirements and Going Concern
As of December 31, 2020, we had $5,277,000 of cash and restricted cash. As of December 31, 2020 and the filing of this Report, we had $2,417,000 of total obligations under the PPP Loan. The Company estimates that approximately $2,266,000 of the PPP Loan will be forgiven. However, this estimate is subject to change and there is no guarantee that the Company will receive any forgiveness for any fixed amount of any PPP Loan principal received by the Company. Our capital requirements in the future will continue to depend on numerous factors, including the timing and amount of revenue for the combined organization, customer renewal rates and the timing of collection of outstanding accounts receivable, in each case particularly as it relates to the combined organization’s major customers, the expense to deliver services, expense for sales and marketing, expense for research and development, capital expenditures, and the amount of forgiveness of the PPP Loan, if any, and the debt service obligations under the PPP Loan. While our acquisition of Oblong Industries provides additional revenues to the Company, the cost to further develop and commercialize Oblong Industries’ product offerings is expected to exceed its revenues for the foreseeable future. We expect to continue to invest in Oblong Industries’ product development and sales and marketing expenses with the goal of growing the Company’s revenue in the future. The Company believes that, based on the combined organization’s current projection of revenue, expenses, capital expenditures, debt service obligations, 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 consolidated financial statements do not include any adjustments that might result from these uncertainties.
See Note 16 - Commitments and Contingencies to our consolidated financial statements for discussion regarding certain additional factors that could impact the Company’s liquidity in the future.
Critical Accounting Policies
We prepare our consolidated financial statements in accordance with U.S. Generally Accepted Accoutning Principles (“GAAP”). Our significant accounting policies are described in Note 1 - Business Description and Significant Accounting Policies to our consolidated financial statements attached hereto. We believe the following critical accounting policies involve the most significant judgments and estimates used in the preparation of our consolidated financial statements.
Revenue Recognition
Oblong (formerly Glowpoint)
Revenue billed in advance for video collaboration services is deferred until the revenue has been earned, which is when the related services have been performed. Other service revenue, including amounts passed through based on surcharges from our telecom carriers, related to the network services and collaboration services are recognized as service is provided. As the non-refundable, upfront installation and activation fees charged to our customers do not meet the criteria as a separate unit of accounting, they are deferred and recognized over the 12 to 24-month period estimated life of the customer relationship. Revenue related to professional services is recognized at the time the services are performed. Revenues derived from other sources are recognized when services are provided or events occur.
Oblong Industries
The Company accounts for revenue in accordance with Financial Accounting Standards Board (“FASB”) issued Accounting Standard Codification Topic 606 “Revenue from Contracts with Customers.” Topic 606 requires entities to recognize revenue when control of promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The costs associated with obtaining a customer contract under Topic 606 are deferred on our consolidated balance sheet and amortized over the expected life of the customer.
Oblong Industries’ core platform is g-speak™, and Mezzanine™ is its flagship product built on this platform. Mezzanine™ offers advanced collaboration for conference room technology, which amplifies sales presentations, enhances group collaboration, and makes work sessions more productive. The Company offers g-speak development licenses to larger enterprise customers. The Company’s products are systems that consist of hardware and software that function together to
deliver the system’s essential functionality. The Company sells the systems as a complete package and does not sell the hardware and software separately. The Company also sells maintenance and support contracts and license agreements. The Company has determined that its systems and service contracts have value to a customer on a standalone basis; therefore, revenue from each item should be recognized separately. The Company establishes the relative selling price of each deliverable based on estimated selling price. The Company recognizes product revenue from its systems upon shipment, installation revenue upon completed installation and revenue from maintenance contracts and license agreements ratably over the applicable periods, ranging from 12 to 36 months. Professional service contracts are billed based on time and materials at the contract rate as the services are rendered.
Deferred revenue as of December 31, 2020 totaled $1,723,000 as certain performance obligations were not satisfied as of this date. Deferred revenue as of December 31, 2019 totaled $1,901,000 as certain performance obligations were not satisfied as of this date. During the year ended December 31, 2020, the Company recorded $999,000 of revenue that was included in deferred revenue as of December 31, 2019.
Impairment of Long-Lived Assets, Goodwill and Intangible Assets
The Company assesses the impairment of long-lived assets used in operations, primarily fixed assets and purchased intangible assets subject to amortization when events and circumstances indicate that the carrying value of the assets might not be recoverable. For purposes of evaluating the recoverability of fixed assets and amortizing intangible assets, the undiscounted cash flows estimated to be generated by those assets are compared to the carrying amounts of those assets. If and when the carrying values of the assets exceed the undiscounted cash flows, then the related assets will be written down to fair value.
For the years ended December 31, 2020 and 2019, the Company recorded asset impairment charges on property and equipment of $144,000 and $63,000, respectively, which pertained primarily to assets no longer used in the business. During the year ended December 31, 2020, the Company disposed of fixed assets of $3,438,000, and the corresponding accumulated depreciation of $3,287,000, which resulted in a loss on disposal of $151,000. There were no impairments to purchased intangible assets for the years ended December 31, 2020 and 2019.
For the year ended December 31, 2020, the Company recorded aggregate impairment charges of $465,000 on two right-of-use assets. See Note 16 - Commitments and Contingencies for further discussion. There were no impairments to right-of-use assets for the year ended December 31, 2019.
Goodwill. Goodwill is not amortized but is subject to periodic testing for impairment in accordance with ASC Topic 350 “Intangibles - Goodwill and Other - Testing Indefinite-Lived Intangible Assets for Impairment” (“ASC Topic 350”). As of December 31, 2020 and 2019, goodwill was $7,367,000 and $7,908,000, respectively. As of December 31, 2020, all of the goodwill was recorded in connection with the October 1, 2019 acquisition of Oblong Industries.
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. Prior to the acquisition of Oblong Industries on October 1, 2019, the Company operated as a single reporting unit and used its market capitalization to determine the fair value of the reporting unit as of each test date. In order to determine the market capitalization, the Company used the trailing 20-day volume weighted average price (“VWAP”) of its stock as of each period end.
For the Oblong (formerly Glowpoint) reporting unit, we recorded goodwill impairment charges of $541,000 and $2,254,000 in the years ended December 31, 2020 and 2019, respectively, as the carrying amount of the reporting unit exceeded its fair value on the applicable test dates. These charges are recognized as “Impairment Charges” on our Consolidated Statements of Operations, and the Oblong segment no longer has any goodwill included in the Consolidated Balance Sheet as of December 31, 2020.
In the event we experience future declines in our revenue, cash flows and/or stock price, this may give rise to a triggering event that may require the Company to record additional impairment charges on goodwill in the future.
Intangible Assets. Intangible assets total $10,140,000 and $12,572,000 as of December 31, 2020 and 2019, respectively. The Company assesses the impairment of purchased intangible assets subject to amortization when events and circumstances indicate that the carrying value of the assets might not be recoverable. The determination of related estimated useful lives and whether or not these assets are impaired involves significant judgments, related primarily to the future profitability and/or future value 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. Long-lived assets are evaluated for impairment whenever an event or change in circumstances has occurred that could have a significant adverse effect on the
fair value of long-lived assets. The Company performed evaluations of intangible assets as of each quarter end during 2019 and 2020 and determined that no impairment charges were required for the years ended December 31, 2020 and 2019. Intangible assets with finite lives are amortized using the straight-line method over the estimated economic lives of the assets, which range from five to twelve years in accordance with ASC Topic 350 “Intangibles - Goodwill and Other - Testing Indefinite-Lived Intangible Assets for Impairment.”
Inflation
Management does not believe inflation had a significant effect on the consolidated financial statements for the periods presented.
Off-Balance Sheet Arrangements
As of December 31, 2020 and 2019, we had no off-balance sheet arrangements.
Recent Accounting Pronouncements
See the sections titled “Summary of Significant Accounting Policies-Recently adopted accounting pronouncements” and “Recent accounting pronouncements not yet adopted” in Note 1 - Business Description and Significant Accounting Policies to our Consolidated Financial Statements for more information.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
The information required by this Item 8 is incorporated by reference herein from Item 15, Part IV, of this Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. 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 December 31, 2020. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2020, 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
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated changes in internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended December 31, 2020 and have concluded that no change has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Management’s Annual Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining an adequate system of internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control system was
designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes, in accordance with U.S. GAAP. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate.
The Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2020 based on the 2013 framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). The COSO framework summarizes each of the components of a company’s internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring. Based on this evaluation, the Company’s management concluded that our internal control over financial reporting was effective as of December 31, 2020.
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Board of Directors
Our Board of Directors currently consists of three directors. The current Board members include two independent directors and our chief executive officer. The core responsibility of our Board of Directors is to exercise its business judgment to act in what it reasonably believes to be in the best interests of the Company and its stockholders. Further, members of the Board fulfill their responsibilities consistent with their fiduciary duty to the stockholders, and in compliance with all applicable laws and regulations. The primary responsibilities of the Board include:
•Oversight of management performance and assurance that stockholder interests are served;
•Oversight of the Company’s business affairs and long-term strategy; and
•Monitoring adherence to the Company’s standards and policies, including, among other things, policies governing internal controls over financial reporting.
Our Board of Directors conducts its business through meetings of the Board and through activities of the standing committees, as further described below. The Board and each of the standing committees meet throughout the year and also holds special meetings and acts by written consent from time to time, as appropriate. Board agendas include regularly scheduled executive sessions of the independent directors to meet without the presence of management. The Board has delegated various responsibilities and authority to different committees of the Board, as described below. Members of the Board have access to all of our members of management outside of Board meetings.
Our Board of Directors met and/or acted by written consent eleven times during the year ended December 31, 2020. During this period, each director attended 75% or more of the aggregate of (i) the total number of meetings of the Board of Directors held during the period for which he was a director and (ii) the total number of meetings of committees of the Board of Directors on which he served, held during the period for which he served. The Company does not have a policy with regard to directors’ attendance at our annual meetings of stockholders. Our Chairman of the Board attended the 2020 annual meeting of stockholders.
The following table sets forth information with respect to our Board of Directors as of the date of this Report.
| | | | | | | | |
| Name | Age | Position with Company |
Jason Adelman (1)(2)(3) | 51 | Director, Chairman of the Compensation Committee, Chairman of the Nominating Committee |
| Peter Holst | 52 | Chairman of the Board, President and Chief Executive Officer |
James S. Lusk (1)(2)(3) | 65 | Director, Chairman of the Audit Committee, Lead Independent Director |
| (1) Member of the Audit Committee | |
| (2) Member of the Compensation Committee | |
| (3) Member of the Nominating Committee | |
Biographies for Board of Directors
Jason Adelman, Director. Mr. Adelman joined our Board of Directors in July 2019. Mr. Adelman was initially appointed to our Board in connection with the now-terminated Representations Agreement.Mr. Adelman is the Founder and Managing Member of Burnham Hill Capital Group, LLC, a privately held financial advisory firm, and serves as Managing Member of Cipher Capital Partners LLC, a private investment fund. Mr. Adelman also serves as a member of the board of directors of Trio-Tech International (NYSE American:TRT). Prior to founding Burnham Hill Capital Group, LLC in 2003, Mr. Adelman served as Managing Director of Investment Banking at H.C. Wainwright and Co., Inc. Mr. Adelman graduated from the University of Pennsylvania with a B.A. in Economics, cum laude, and from Cornell Law School with a J.D.
In considering Mr. Adelman as a director of the Company, the Board reviewed, among other qualifications, his experience and expertise in finance, accounting, banking and management based on his experience with Burnham Hill Capital Group LLC, Cipher Capital Partners LLC, and H. C. Wainwright & Co.
For more information regarding the Representations Agreement, see “Part III, Item 13. Certain Relationships and Related Transactions, and Director Independence” below.
Peter Holst, Chairman of the Board, President and Chief Executive Officer. Prior to being named President and CEO in January 2013, Mr. Holst served as the Company’s Senior Vice President for Business Development since October 1, 2012. Mr. Holst has served as a director of the Company since January 2013 and as Chairman of the Board since July 2019. Mr. Holst has more than 28 years of experience in the collaboration industry. Prior to joining the Company, Mr. Holst served as the Chief Executive Officer of Affinity VideoNet, Inc., and as the President and Chief Operating Officer of Raindance Communications. Mr. Holst holds a degree in Business Administration from the University of Ottawa.
In considering Mr. Holst as a director of the Company, the Board reviewed his extensive knowledge and expertise in the communication services industry, and the leadership he has shown in his positions with prior companies.
James S. Lusk, Director. Mr. Lusk joined our Board of Directors in February 2007. Mr. Lusk is currently the Chief Financial Officer of Sutherland Global Services, a global provider of business process transformation and technology management services. Mr. Lusk joined Sutherland in July 2015. From 2007 until July 2015, Mr. Lusk was Executive Vice President of ABM Industries Incorporated (NYSE:ABM), a leading provider of facility solutions, and served as ABM’s Chief Financial Officer from 2007 until April 2015. Prior to joining ABM, he served as Vice President, Business Services and Chief Operating Officer for the Europe, Middle East and Africa region for Avaya from 2005 to 2007. Mr. Lusk has also served as Chief Financial Officer and Treasurer of BioScrip/MIM, President of Lucent Technologies’ Business Services division, and interim Chief Financial Officer and Corporate Controller of Lucent Technologies. Mr. Lusk earned his B.S. (Economics), cum laude, from the Wharton School, University of Pennsylvania, and his M.B.A (Finance) from Seton Hall University. He is a certified public accountant and was inducted into the AICPA Business and Industry Leadership Hall of Fame in 1999.
In considering Mr. Lusk as a director of the Company, the Board reviewed his extensive expertise and knowledge regarding finance and accounting matters, as well as compensation, risk assessment and corporate governance. Mr. Lusk qualifies as an “audit committee financial expert” under the applicable SEC rules and accordingly contributes to the Board of Directors his understanding of generally accepted accounting principles and his skills in auditing, as well as in analyzing and evaluating financial statements.
Director Independence
On February 12, 2021, the Company transferred the listing of our common stock from the NYSE American Stock Exchange (the “NYSE American”) to The Nasdaq Capital Market (“Nasdaq”).Our Board of Directors has determined that each of our current directors, other than Mr. Holst, qualifies as “independent” in accordance with the rules of the Nasdaq. Because Mr. Holst is an employee of the Company, he does not qualify as independent.
The Nasdaq independence definition includes a series of objective tests, such as that the director is neither an executive officer nor an employee of the Company and has not engaged in various types of business dealings with the Company. In addition, as further required by the Nasdaq rules, the Board has made a subjective determination as to each independent director that no relationship exists which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In making these determinations, the directors reviewed and discussed information provided by the directors and the Company with regard to each director’s business and personal activities as they may relate to the Company and the Company’s management, including each of the matters set forth under “Part III, Item 13. Certain Relationships and Related Transactions, and Director Independence.” below.
Board Committees
The Board has an audit committee, a compensation committee and a nominating committee, and may form special committees as is required from time to time. Each of the committees regularly report on their activities and actions to the full Board. The charters for the audit committee, the compensation committee, and the nominating committee are available on the Company’s website at www.oblong.com. The contents of our website are not incorporated by reference into this document for any purpose.
Audit Committee
The audit committee currently consists of Mr. Lusk (chair) and Mr. Adelman. Our Board of Directors has determined that all members of the audit committee are “independent” within the meaning of the listing standards of Nasdaq and the SEC rules governing audit committees and “financially literate” for purposes of applicable Nasdaq listing standards. In addition, our Board of Directors has determined that each of Messrs. Lusk and Adelman have the accounting and related financial management expertise to satisfy the requirements of an “audit committee financial expert,” as determined pursuant to the rules and regulations of the SEC. In order to comply with Nasdaq rules, the Company will need to add a third member to the audit committee within six months of our listing on the Nasdaq (or by August 12, 2021). The audit committee consults and meets with our independent registered public accounting firm, Chief Financial Officer and accounting personnel, reviews potential conflict of interest situations where appropriate, and reports and makes recommendations to the full Board of Directors regarding such matters. The audit committee met four times during the year ended December 31, 2020.
Compensation Committee
We have, and will continue to have, a compensation committee of at least two members. Our compensation committee currently consists of Mr. Adelman (chair) and Mr. Lusk. Each member of the compensation committee meets the applicable independence requirements of the Nasdaq, including the additional independence test required for compensation committee members. In affirmatively determining the independence of the compensation committee members, we considered all factors specifically relevant to determining whether each of the directors has a relationship to the Company that is material to that director’s ability to be independent from management in connection with the duties of a compensation committee member. The compensation committee met two times during the year ended December 31, 2020.
The compensation committee is responsible for establishing and administering our executive compensation policies. The role of the compensation committee is to (i) formulate, evaluate and approve compensation of the Company’s directors, executive officers and key employees, (ii) oversee all compensation programs involving the use of the Company’s stock and (iii) produce, if required under applicable securities laws, a report on executive compensation for inclusion in the Company’s proxy statement for its annual meeting of stockholders. The duties and responsibilities of the compensation committee under its charter include:
•annually reviewing and making recommendations to the Board with respect to compensation of directors, executive officers and key employees of the Company;
•annually reviewing and approving corporate goals and objectives relevant to Chief Executive Officer compensation, evaluating the Chief Executive Officer’s performance in light of those goals and objectives, and recommending to the Board the Chief Executive Officer’s compensation levels based on this evaluation;
•reviewing competitive practices and trends to determine the adequacy of the executive compensation program;
•approving and overseeing compensation programs for executive officers involving the use of the Company’s stock;
•approving and administering cash incentives for executives, including oversight of achievement of performance objectives, and funding for executive incentive plans;
•annually performing a self-evaluation on the performance of the compensation committee; and
•making regular reports to the Board concerning the activities of the compensation committee.
When appropriate, the compensation committee may, in carrying out its responsibilities, form and delegate authority to subcommittees. The Chief Executive Officer plays a role in determining the compensation of our other executive officers by evaluating the performance of those executive officers. The Chief Executive Officer’s evaluations are then reviewed by the compensation committee. This process leads to a recommendation for any changes in salary, bonus terms and equity awards, if any, based on performance, which recommendations are then reviewed and approved by the compensation committee.
Nominating Committee
Our nominating committee currently consists of Mr. Adelman (chair) and Mr. Lusk. Each member of the nominating committee meets the independence requirements of the Nasdaq. The nominating committee is responsible for assessing the performance of our Board of Directors and making recommendations to our Board regarding nominees for the Board. The nominating committee met two times during the year ended December 31, 2020.
The nominating committee considers qualified candidates to serve as a member of our Board of Directors that are suggested by our stockholders. Nominees recommended by stockholders will be given appropriate consideration and evaluated in the same manner as other nominees. Stockholders can suggest qualified candidates for director by writing to our Corporate Secretary at 25587 Conifer Road, Suite 105-231, Conifer, CO 80433. Stockholder submissions that are received in accordance with our by-laws and that meet the criteria outlined in the nominating committee charter are forwarded to the members of the nominating committee for review. Stockholder submissions must include the following information:
•a statement that the writer is our stockholder and is proposing a candidate for our Board of Directors for consideration by the nominating committee;
•the name of and contact information for the candidate;
•a statement of the candidate’s business and educational experience;
•information regarding each of the factors set forth in the nominating committee charter sufficient to enable the nominating committee to evaluate the candidate;
•a statement detailing any relationship between the candidate and any of our customers, suppliers or competitors;
•detailed information about any relationship or understanding between the proposing stockholder and the candidate; and
•a statement that the candidate is willing to be considered and willing to serve as our director if nominated and elected.
In considering potential new directors, the nominating committee will review individuals from various disciplines and backgrounds. Among the qualifications to be considered in the selection of candidates are broad experience in business, finance or administration; familiarity with national and international business matters; familiarity with our industry; and prominence and reputation. While there is no formal policy with regard to consideration of diversity in identifying director nominees, the nominating committee will consider diversity in business experience, professional expertise, gender and ethnic background, along with various other factors when evaluating director nominees. The nominating committee will also consider whether the individual has the time available to devote to the work of our Board of Directors and one or more of its committees.
The nominating committee will also review the activities and associations of each candidate to ensure that there is no legal impediment, conflict of interest or other consideration that might hinder or prevent service on our Board of Directors. In making its selection, the nominating committee will bear in mind that the foremost responsibility of a director of a corporation is to represent the interests of the stockholders as a whole. The nominating committee will periodically review and reassess the adequacy of its charter and propose any changes to the Board of Directors for approval.
Contacting the Board of Directors
Any stockholder who desires to contact our Board of Directors, committees of the Board of Directors and individual directors may do so by writing to: Oblong, Inc., 25587 Conifer Road, Suite 105-231, Conifer, CO 80433, Attention: David Clark, Corporate Secretary. Mr. Clark will direct such communication to the appropriate persons.
Board Leadership Structure and Role in Risk Oversight
Mr. Holst has served as the Company’s President and Chief Executive Officer since January 2013 and has served as the Chairman of the Company’s Board of Directors since July 2019. Mr. Patrick Lombardi served as the Chairman of the Company’s Board of Directors from April 2014 until July 2019.
The Board believes the combined role of Chairman and Chief Executive Officer promotes unified leadership and direction for the Company, which allows for a single, clear focus for management to execute the Company's strategy and business plans. As Chief Executive Officer, the Chairman is best suited to ensure that critical business issues are brought before the Board, which enhances the Board’s ability to develop and implement business strategies.
To ensure a strong and independent Board, as discussed herein, the Board has affirmatively determined that all directors of the Company, other than Mr. Holst, are independent within the meaning of the Nasdaq listing standards currently in effect. Our Corporate Governance Guidelines provide that non-management directors shall meet in regular executive session without management present, and that Mr. Lusk, who serves as our lead independent director, shall act as the Chairman of such meetings. Additionally, Mr. Lusk actively participates in establishing and setting Board meeting agendas.
The Board has an active role, directly and through its committees, in the oversight of the Company’s risk management efforts. The Board carries out this oversight role through several levels of review. The Board regularly reviews and discusses with members of management information regarding the management of risks inherent in the operation of the Company’s business and the implementation of the Company’s strategic plan, including the Company’s risk mitigation efforts.
Each of the Board’s committees also oversees the management of the Company’s risks related thereto.that are under each committee’s areas of responsibility. For example, the audit committee oversees management of accounting, auditing, external reporting, internal controls and cash investment risks. The nominating committee oversees and assesses the performance of the Board and makes recommendations to the Board from time to time regarding nominees for the Board. The compensation committee oversees risks arising from compensation practices and policies. While each committee has specific responsibilities for oversight of risk, the Board is regularly informed by each committee about such risks. In this manner the Board is able to coordinate its risk oversight.
We have adopted a code of conduct and ethics, as amended effective October 12, 2015, that applies to all of our employees, directors and officers, including our Chief Executive Officer, Chief Financial Officer and our finance team. The full text of our code of conduct and ethics (as amended) is posted on our website at www.oblong.com and will be made available to stockholders without charge, upon request, in writing to the Corporate Secretary at 25587 Conifer Road, Suite 105-231, Conifer, CO 80433. Disclosure regarding any amendments to, or waivers from, provisions of the code of conduct and ethics that apply to our principal executive officer, principal financial officer, principal accounting officer or controller or person performing similar functions will be included in a Current Report on Form 8-K within four business days following the date of the amendment or waiver, unless website posting of such amendments or waivers is then permitted by the rules of the national securities exchange on which the Company trades.
Biographies for Executive Officers
Peter Holst, President and Chief Executive Officer (CEO). See “Biographies for Board of Directors” above for Mr. Holst’s biography.
David Clark, Chief Financial Officer. Mr. Clark, 52, joined the Company in March 2013 as Chief Financial Officer (“CFO”). Mr. Clark has more than 28 years of experience in finance and accounting. Prior to joining the Company, Mr. Clark
served as Vice President of Finance, Treasurer and acting CFO for Allos Therapeutics, a publicly traded biopharmaceutical company, and as CFO of Seurat Company (formerly XOR, Inc.), an e-commerce managed services company. Mr. Clark started his career with seven years in the audit practice of PricewaterhouseCoopers LLP. Mr. Clark is an active Certified Public Accountant and received a Master of Accountancy and a B.S. in Accounting from the University of Denver.
Pete Hawkes, Senior Vice President, Design, Product & Engineering. Mr. Hawkes, 43, joined the Company in October 2011. Mr. Hawkes previously held the position of Director of Interaction Design at the Company and was promoted to his current position in May 2020. Mr. Hawkes received an M.F.A. in Design Media Arts from the University of California Los Angeles.
Family Relationships
There are no family relationships between the officers and directors of the Company.
Legal Proceedings
During the past ten years none of our directors or executive officers was involved in any legal proceedings described in subparagraph (f) of Item 401 of Regulation S-K.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires executive officers and directors and persons who beneficially own more than 10% of a registered class of our equity securities to file reports of ownership and changes in ownership with the SEC. Executive officers, directors and greater than 10% stockholders are required by regulations of the SEC to furnish us with copies of all Section 16(a) reports they file.
Based solely on our review of the copies of reports we received, or written representations that no such reports were required for those persons, we believe that, for the year ended December 31, 2020, all statements of beneficial ownership required to be filed with the SEC were filed on a timely basis with the exception of the following: David Clark, a current officer of the Company, failed to file on a timely basis a Form 4 to report two withholding transactions. The Form 4 was subsequently filed, and the Company is not aware of any failure by Mr. Clark to file a required form under Section 16 of the Exchange Act during 2020.
Item 11. Executive Compensation
Director Compensation
The Company’s director compensation plan provides that non-employee directors are entitled to receive annually: (i) a grant of 2,500 shares of restricted stock or restricted stock units (“RSUs”) awarded under the Company’s 2019 Equity Incentive Plan (pro-rated as necessary for the period of service from the director’s date of appointment to the Board of Directors until the next annual meeting of stockholders); and (ii) a retainer fee of $20,000. The annual fee is payable in equal quarterly installments on the first business day following the end of the calendar quarter, in cash or shares of restricted stock, as chosen by the director, on an annual basis on or before December 31 of the applicable fiscal year. The annual equity grants to directors are normally made as of the date of the annual meeting of the Company’s stockholders. Grants of restricted stock or RSUs vest on the first anniversary of the grant date or earlier upon the occurrence of certain termination events or upon a change in control of the Company. Vested RSUs are settled in shares of Common Stock on a 1-for-1 basis upon the earliest of (i) the tenth anniversary of the grant date of the RSUs, (ii) a change in control (as defined in the award agreement) of the Company and (iii) the date of a director’s separation from service.
The Company’s director compensation plan provides that non-employee directors are also entitled to receive annually: (i) an additional cash payment of $20,000 to the chairman of its Board of Directors, (ii) an additional cash payment of $10,000 to the chairperson of its audit committee, (iii) an additional cash payment of $5,000 to each of the chairpersons of its compensation committee and nominating committee, and (iv) an additional cash payment of $3,000 to each non-chair member of any standing committee, in each case payable in equal quarterly installments in arrears. In addition, the Company may establish special committees of the Board from time to time and provide for additional retainers in connection therewith.
The following table represents compensation for the Company’s non-employee directors during the year ended December 31, 2020. All compensation for Peter Holst, the Company’s Chairman, President and CEO, during the year ended December 31, 2020 is included in the Summary Compensation Table under “Executive Compensation” below.
| | | | | | | | | | | | | | | | | | | | |
| Name | | Fees Earned or Paid in Cash | | Stock Awards (1) | | Total |
| Jason Adelman | | $30,000 | | None | | $30,000 |
| James S. Lusk | | $33,000 | | None | | $33,000 |
Richard Ramlall (2) | | $19,500 | | $35,475 | | $54,975 |
| | | | | | |
| (1) These amounts represent the aggregate grant date fair value for awards of restricted stock units for fiscal year 2020 computed in accordance with FASB ASC Topic 718. |
| (2) Mr. Ramlall decided to not stand for re-election to the Board at the Company’s 2020 Annual Meeting of Stockholders (which took place on December 22, 2020). Mr. Ramlall was issued 7,500 shares of common stock on December 22, 2020 and did not receive cash fees for the fourth quarter of 2020. |
As of December 31, 2020, Mr. Lusk has 10,000 outstanding vested stock options and 627 unvested restricted stock awards. In addition, as of December 31, 2020, 28,904 vested RSUs issued to Mr. Lusk remain outstanding due to the deferred payment provisions set forth in these RSU awards. No other equity awards are outstanding as of December 31, 2020 for the remaining non-employee directors.
Executive Compensation
Summary Compensation Table
The following table sets forth for the years ended December 31, 2020and 2019 the compensation awarded to, paid to, or earned by: Peter Holst, Chairman, President and CEO; David Clark, CFO, Treasurer and Secretary; Pete Hawkes, SVP, Product, Design & Engineering, and John Underkoffler, former Director and former Chief Technology Officer (“CTO”) (the “named executive officers”), as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name and Principal Positions | Year | Salary
($) | | Bonus
($) | Stock Awards (1)
($) | | All Other Compensation
($) | | Total
($) |
| Peter Holst | 2020 | 199,875 | | | 210,000 | | — | | | 8,550 | | (2) | 418,425 | |
| Chairman, President and CEO | 2019 | 199,875 | | | 212,500 | | 43,668 | | (3) | 10,790 | | (2) | 466,833 | |
| | | | | | | | | |
| David Clark | 2020 | 225,133 | | | 118,125 | | — | | | 8,550 | | (2) | 351,808 | |
| CFO, Treasurer and Secretary | 2019 | 225,133 | | | 119,295 | | 13,974 | | (4) | 10,790 | | (2) | 369,192 | |
| | | | | | | | | |
| John Underkoffler | 2020 | 100,000 | | (5) | — | | — | | | 115,400 | | (5) | 215,400 | |
| Former Director and Former CTO | 2019 | 75,000 | | (6) | — | | — | | | 250 | | | 75,250 | |
| Pete Hawkes | 2020 | 180,304 | | (7) | — | | — | | | — | | | 180,304 | |
| SVP, Design, Product, & Engineering | | | | | | | | | |
| | | | | | | | | |
| (1) These amounts represent the aggregate grant date fair value for awards of RSUs for 2019, computed in accordance with FASB ASC Topic 718. |
| (2) Represents a matching contribution under the Company’s 401(k) Plan of $8,550 and $8,400 for 2020 and 2019, respectively, and $2,390 of parking reimbursement for 2019. |
| (3) Represents the grant date fair value of 33,334 performance-vested RSU awards granted on January 28, 2019. These awards terminated without vesting on June 1, 2019 pursuant to their terms. |
| (4) Represents the grant date fair value of 10,667 performance-vested awards RSU granted on January 28, 2019. These awards terminated without vesting on June 1, 2019 pursuant to their terms. |
| (5) Effective May 1, 2020, Mr. Underkoffler was no longer with the Company as an employee and therefore the salary shown herein represents salary earned from January 1, 2020 through May 1, 2020 (Mr. Underkoffler’s annual salary was $300,000). Mr. Underkoffler received a severance payment of $100,000 and COBRA benefits in connection with his separation from the Company pursuant to the terms of a Separation Agreement (which is reflected in the “All Other Compensation” column and is discussed further in “Agreements with Named Executive Officers” below). Effective November 9, 2020, Mr. Underkoffler resigned from the Board of Directors. |
| (6) Mr. Underkoffler joined the Company on October 1, 2019 and therefore the salary shown herein represents salary earned from October 1, 2019 through December 31, 2019. |
| (7) Effective June 29, 2020, Mr. Hawkes annual salary is $200,000. With Mr. Underkoffler’s departure, Mr. Hawkes became a newly designate named executive officer of the Company; accordingly, only compensation received with respect to fiscal year 2020 is presented in the table above. |
Outstanding Equity Awards at 2020 Fiscal Year-End
The table set forth below presents information concerning outstanding stock option awards and restricted stock awards held by certain named executive officers at December 31, 2020. At December 31, 2020, Mr. Underkoffler held no outstanding equity awards as of the end of the 2020 fiscal year.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Option Awards | | Stock Awards |
| Name | Grant Date | Number of Securities Underlying Unexercised Options
(#) Exercisable (1) | | Option Exercise Price ($) | | Option Expiration Date | | Number of Shares of Stock that Have Not Vested (#)(2) | | Market Value of Shares of Stock That Have Not Vested ($)(3) |
| Peter Holst | 1/13/2013 | 87,500 | | | $19.80 | | 1/13/2023 | | — | | | — | |
| | | | | | | | | | |
| David Clark | 3/25/2013 | 10,000 | | | $15.10 | | 3/25/2023 | | — | | | — | |
| | | | | | | | | | |
| Pete Hawkes | 10/1/2019 | — | | | — | | | — | | | 801 | | | 41,171 | |
| | | | | | | | | | |
| | | | | | | | | | |
| (1) All stock option awards held by Messers Holst and Clark were fully vested and exercisable as of December 31, 2020 |
| (2) At December 31, 2020, Mr. Hawkes held 801 restricted shares of Series D Preferred Stock, which were subject to vesting over a two-year period following the closing date (October 1, 2019) of the Merger, subject to his continued employment through each such vesting date. On February 12, 2021, vesting was accelerated for Mr. Hawkes’ remaining restricted shares of Series D Preferred Stock in connection with the conversion of Series D Preferred Stock to common stock on such date. |
| (3) Calculated on an as-converted basis to common stock at a per share price of $5.14, which was the closing price of our common stock on the NYSE American as of December 31, 2020. |
| | | | | | | | | | |
401(k) Plan
The Company maintains a tax-qualified 401(k) plan on behalf of its eligible employees, including its named executive officers. Pursuant to the terms of the plan, for fiscal years 2020 and 2019, eligible employees may defer up to 80% of their salary each year, and the Company matched 50% of an employee’s contributions on the first 6% of the employee’s salary. This matching contribution vests over four years.
Agreements with Named Executive Officers
We have entered into employment agreements with certain of our named executive officers, excluding Mr. Hawkes. All named executive officers, whether or not subject to an employment agreement, are “at will” employees of the Company.
Peter Holst Employment Agreement.
On January 13, 2013, the Board appointed Peter Holst as the Company’s President and Chief Executive Officer, and as a member of the Board. In connection with his appointment, the Company entered into an employment agreement with Mr. Holst, which was subsequently amended and restated as of January 28, 2016 and as of July 19, 2019 (as amended and restated, the “Holst Employment Agreement”). Pursuant to the Holst Employment Agreement, Mr. Holst receives an annual base salary of $199,875 and is eligible to receive an annual incentive bonus equal to 100% of his base salary, at the discretion of the compensation committee of the Board based on meeting certain financial and non-financial goals.
Under the terms of the Holst Employment Agreement, if Mr. Holst’s employment is terminated outside of a “change in control” (as defined in the Holst Employment Agreement) (i) by the Company without “cause” or by Mr. Holst for “good reason” (as such terms are defined therein) or (ii) as a result of the expiration of the term of the Holst Employment Agreement caused by the Company’s election not to renew such agreement, then he will be entitled to receive the following payments and benefits, subject to his execution and non-revocation of an effective general release of claims in favor of the Company:
•12 months’ base salary, payable in equal monthly installments in accordance with the Company’s normal payroll practices;
•100% of his maximum annual target bonus payable for the calendar year in which such termination occurs;
•100% accelerated vesting of Mr. Holst’s then-unvested shares of restricted stock and RSUs (if any); and
•payment (or reimbursement) of the COBRA premiums for continuation of coverage for Mr. Holst and his eligible dependents under the Company’s then existing medical, dental and prescription insurance plans for a period of 12 months.
In addition to the above payments and benefits, in the event that Mr. Holst’s employment is terminated during the 18-month period following a “change in control” (i) by the Company without “cause” or by Mr. Holst for “good reason” or (ii) as a result of the expiration of the term of the Holst Employment Agreement caused by the Company’s election not to renew such agreement, then he will be entitled to receive the following payments and benefits, subject to his execution and non-revocation of an effective general release of claims in favor of the Company:
•24 months’ base salary, payable in equal monthly installments in accordance with the Company’s normal payroll practices;
•100% of his maximum annual target bonus payable for the calendar year in which such termination occurs;
•a pro-rated portion of his maximum annual target bonus for the calendar year in which the effective date of termination occurs;
•80% accelerated vesting of Mr. Holst’s then-unvested shares of restricted stock and RSUs (if any); and
•payment (or reimbursement) of the COBRA premiums for continuation of coverage for Mr. Holst and his eligible dependents under the Company’s then existing medical, dental and prescription insurance plans for a period of 12 months.
In consideration of the payments and benefits under the Holst Employment Agreement, Mr. Holst is restricted from engaging in competitive activities for 12 months after the termination of his employment, as well as prohibited from soliciting the Company’s clients and employees and from disclosing the Company’s confidential information.
The Holst Employment Agreement contains a “best after-tax benefit” provision, which provides that, to the extent that any amounts payable under the Holst Employment Agreement would be subject to the federal tax levied on certain “excess parachute payments” under Section 4999 of the Code, the Company will either pay Mr. Holst the full amount due under the Holst Employment Agreement or, alternatively, reduce his payments to the extent that no Section 4999 excise tax would be due, whichever provides the highest net after-tax benefit to Mr. Holst.
David Clark Employment Agreement.
On March 25, 2013, the Company entered into an employment agreement with David Clark in connection with his appointment as Chief Financial Officer of the Company, which was subsequently amended and restated on July 19, 2019 (as amended and restated, the “Clark Employment Agreement”). Pursuant to the Clark Employment Agreement, Mr. Clark receives an annual base salary of $225,133 and is eligible to receive an annual incentive bonus equal to 50% of his base salary, at the discretion of the compensation committee of the Board, based on meeting certain financial and non-financial goals.
Under the terms of the Clark Employment Agreement, if Mr. Clark’s employment is terminated outside of a “change in control” (as defined in the Clark Employment Agreement) (i) by the Company without “cause” or by Mr. Clark with or without “good reason” (as such terms are defined therein) or (ii) as a result of the expiration of the term of the Clark Employment Agreement caused by the Company’s election not to renew such agreement, then he will be entitled to receive the following payments and benefits, subject to his execution and non-revocation of an effective general release of claims in favor of the Company:
•Six months’ base salary, payable in equal monthly installments in accordance with the Company’s normal payroll practices;
•50% of his maximum annual target bonus payable for the calendar year in which such termination occurs;
•a pro-rated portion of his maximum annual target bonus for the calendar year in which the effective date of termination occurs;
•100% accelerated vesting of Mr. Clark’s then-unvested shares of restricted stock and RSUs (if any); and
•payment (or reimbursement) of the COBRA premiums for continuation of coverage for Mr. Clark and his eligible dependents under the Company’s then existing medical, dental and prescription insurance plans for a period of six months.
In addition to the above payments and benefits, in the event that Mr. Clark’s employment is terminated during the 18-month period following a “change in control” by the Company without “cause” or by Mr. Clark for “good reason,” then he will also be entitled to receive (i) increased severance equal to 18 months’ base salary, (ii) 100% of his maximum annual target bonus payable for the calendar year in which such termination occurs, and (iii) extended payment (or reimbursement) of the COBRA premiums for 12 months. In such event, Mr. Clark will be entitled to receive 80% accelerated vesting of his then-unvested shares of restricted stock and RSUs (if any).
In consideration of the payments and benefits under the Clark Employment Agreement, Mr. Clark is restricted from engaging in competitive activities for six months after the termination of his employment, as well as prohibited from soliciting the Company’s clients and employees and from disclosing the Company’s confidential information.
John Underkoffler Separation Agreement.
On May 7, 2020, the Company announced that Mr. John Underkoffler had ceased serving in the role of Chief Technology Officer effective as of May 1, 2020. On November 9, 2020, the Company entered into a Separation Agreement (the “Separation Agreement”) with Mr. Underkoffler to aid in Mr. Underkoffler’s transition from the Company. Pursuant to the Separation Agreement, among other things: (i) the Company agreed to make a severance payment of $100,000 to Mr. Underkoffler (which was paid in a single lump sum during the year ended December 31, 2020) and provided him payment (or reimbursement) of the COBRA premiums for continuation of health insurance benefits for twelve months; (ii) Mr. Underkoffler executed a customary release of claims and proprietary information and inventions agreement; and (iii) Mr. Underkoffler resigned as a director of the Company effective as of November 9, 2020. Mr. Underkoffler’s resignation was not a result of any disagreement with the Company regarding any matter relating to its operations, policies or practices.
Potential Payments to Named Executive Officers upon Termination or Change-in-Control
In accordance with Rules 12b-15the terms of the Company’s 2007 Stock Incentive Plan and 13a-14 under2014 Equity Incentive Plan, upon a “Change in Control” or “Corporate Transaction” (as each such term is defined in such Plans), all shares of restricted stock, RSUs and all unvested options, including those held by the Exchange Act,named executive officers, immediately vest and become exercisable, as applicable. No named executive officer is entitled to accelerated vesting in connection with a voluntary resignation, retirement, termination due to death or disability, or a termination for cause. In accordance with the terms of the Company’s 2019 Equity Incentive Plan, the Company is filing herewithgiven authority to accelerate the timing of the exercise/vesting provisions of awards under such plan in the event of certain change in control or other corporate transactions.
See “Agreements with Named Executive Officers” above for a discussion of certain payments the Company could be required to make upon the termination of a Named Executive Officer.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth information regarding the beneficial ownership of our capital stock as of March 25, 2021 by each of the following:
•each person (or group within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) known by us to own beneficially more than 5% of any class of our voting securities;
•the named executive officers set forth in the Summary Compensation Table under “Executive Compensation” above;
•each of our directors and director nominees; and
•all of our directors and executive officers as a group.
The amounts and percentages in the table below are based on shares issued and outstanding as of March 25, 2021, including (i) 26,618,048 shares of Common Stock. As used in this table, “beneficial ownership” means the sole or shared power to vote or direct the voting or to dispose or direct the disposition of any security. A person is considered the beneficial owner of securities that can be acquired within 60 days of such date through the exercise or conversion of any option, warrant or other derivative security. Shares of Common Stock subject to options, restricted stock units (“RSUs”), warrants or other derivative
securities which are currently dated certifications pursuantexercisable or convertible or are exercisable or convertible within such 60 days are considered outstanding for computing the ownership percentage of the person holding such options, RSUs, warrants or other derivative security, but are not considered outstanding for computing the ownership percentage of any other person.
| | | | | | | | | | | | | | |
| | Common Stock |
Name and Address of Beneficial Owners (1) | | Amount and Nature of Beneficial Ownership (2) | | Percent of Class |
| Named Executive Officers and Directors: | | | | |
| Peter Holst | | 413,491 | | (3) | 1.6 | % |
| David Clark | | 58,933 | | (4) | 0.2 | % |
| Pete Hawkes | | 13,112 | | (9) | — | % |
| James S. Lusk | | 43,406 | | (5) | 0.2 | % |
| Jason Adelman | | 496,000 | | (6) | 1.9 | % |
All directors and executive officers as a group
(4 people) | | 1,024,942 | | | 3.9 | % |
| | | | |
| Greater than 5% Owners: | | | | |
| Foundry Group, 700 Front St., Suite 104, Louisville, CO 80027 | | 7,839,509 | | (7) | 29.5 | % |
| Greenspring Associates, LLC 100 Painters Mill Road, Suite 700, Owings Mills, MD 21117 | | 3,692,661 | | (8) | 13.9 | % |
| Morgan Stanley Funds | | 3,416,345 | | (9) | 12.8 | % |
| | | | |
| (1) Unless otherwise noted, the address of each person listed is c/o Oblong, Inc., 25587 Conifer Road, Suite 105-231, Conifer, CO 80433. |
| (2) Unless otherwise indicated by footnote, the named persons have sole voting and investment power with respect to the shares of Common Stock beneficially owned. |
| (3) Includes 325,991 shares of Common Stock and 87,500 shares of Common Stock subject to stock options presently exercisable. |
| (4) Includes 48,933 shares of Common Stock and 10,000 shares of Common Stock subject to stock options presently exercisable. |
(5) Based on ownership information from the Form 4 filed by Mr. Lusk with the SEC on May 31, 2018. Amount includes 10,000 shares of Common Stock subject to stock options presently exercisable and 28,904 shares of Common Stock issuable from vested RSUs (for which the shares of Common Stock have not yet been delivered in accordance with the terms of these RSUs). |
| (6) Based on ownership information from the Form 4 filed by Mr. Adelman with the SEC on April 23, 2020. Mr. Adelman beneficially owns 496,000 shares of Common Stock, of which 419,500 shares are held directly by Mr. Adelman and 76,500 shares are held in a retirement plan. |
| (7) Based on ownership information from an amendment to Schedule 13D filed on February 22, 2021. |
| (8) Based on ownership information from an amendment to Schedule 13G filed on February 12, 2021. |
| (9) Based on records from the Company’s transfer agent as of the date of this report. |
Equity Compensation Plan Information
The following table sets forth as of December 31, 2020 information regarding our common stock that may be issued under the Company’s equity compensation plans:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Plan Category | | Number of Securities
to be Issued Upon
Exercise of
Outstanding Stock Options
(a) | | Weighted Average
Exercise Price of
Outstanding
Stock Options
(b) | | Number of Securities to be Issued Upon Vesting of Outstanding Restricted Stock Units (*)
(c) | | Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(excluding Securities
Reflected in Columns
(a) & (c)) |
| Equity compensation plans approved by security holders | | 107,500 | | | $ | 19.64 | | | — | | | 3,013,500 | |
(*) As of December 31, 2020, 28,904 vested RSUs remain outstanding under the Company’s 2014 Equity Incentive Plan, as shares of common stock have not yet been delivered for these units in accordance with the terms of the RSUs.
See “Part II. Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities--Securities Authorized for Issuance under Equity Compensation Plans” for information concerning our equity compensation plans as of December 31, 2020.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Other than compensation arrangements for our directors and named executive officers, which are described elsewhere in this Annual Report, there have been no transactions since January 1, 2019 to Section 302which we were a party or will be a party, in which:
•the amounts involved exceeded or will exceed the lesser of (1) $120,000 or (2) one percent of the average of our total assets at year end for the last two completed fiscal years; and
•any of our directors, executive officers or holders of more than 5% of our capital stock, or any member of the immediate family of, or person sharing the household with, the foregoing persons, had or will have a direct or indirect material interest.
Representations Agreement
On July 19, 2019, the Company entered into a Representation Agreement (the “Representation Agreement”) with certain stockholders of the Company comprised of Jason Adelman, Cass Adelman and certain of their affiliates (collectively, the “Stockholders”) regarding the nomination of Jason Adelman and Richard Ramlall to the Board of Directors of the Company in July 2019 and related matters. The Representation Agreement provided that, among other things, the Company would recommend, support and solicit proxies at the Company’s 2019 Annual Meeting of Stockholders for the re-election of Jason Adelman and Richard Ramlall together with three other directors selected by the Board. The Representation Agreement contained customary covenants of the Company regarding the nomination of Jason Adelman and Richard Ramlall to the Board and customary standstill obligations of the Stockholders. The Representation Agreement terminated on the earlier to occur of the date of the 2020 Annual Meeting of the Company’s stockholders or the one year anniversary of the 2019 Annual Meeting of the Company’s stockholders.
Policy on Future Related Party Transactions
Transactions with related parties, including the transactions referred to above, are reviewed and approved by independent members of the Board of Directors of the Company in accordance with the Company’s written Code of Business Conduct and Ethics.
Director Independence
See Item 10. Director Independence and Item 10. Board Leadership Structure and Role in Risk Oversight for information regarding the independence of our directors.
Item 14. Principal Accounting Fees and Services
The audit committee, composed entirely of independent, non-employee members of the Board of Directors, appointed the firm of EisnerAmper LLP (“EisnerAmper”) as the independent registered public accounting firm for the audit of the consolidated financial statements of the Company and its subsidiaries for the fiscal years ending December 31, 2020 and 2019. As our independent registered public accounting firm, EisnerAmper audited our consolidated financial statements for the fiscal year ending December 31, 2020, reviewed the related interim quarters, and performed audit-related services and consultation in connection with various accounting and financial reporting matters. EisnerAmper may also perform certain non-audit services for our Company. The audit committee has determined that the provision of the services provided by EisnerAmper as set forth herein are compatible with maintaining EisnerAmper’s independence and the prohibitions on performing non-audit services set forth in the Sarbanes-Oxley Act and relevant SEC rules.
Audit Fees
EisnerAmper, our principal accountant, billed us approximately $275,000 for professional services for the audit of 2002 from the Company’s principal executive officer and principal financial officer. Because noour annual consolidated financial statements have beenfor the 2020 fiscal year and the reviews of the consolidated financial statements included in this Amendment,our quarterly reports on Form 10-Q for the 2020 fiscal year. EisnerAmper billed us $344,480 for professional services for the audit of our annual consolidated financial statements for the 2019 fiscal year and this Amendment does not contain or amend any disclosure with respect to Items 307 and 308 of Regulation S-K, paragraphs 3, 4 and 5the reviews of the certifications have been omitted. Similarly, because noconsolidated financial statements have been included in this Amendment, certifications pursuant to Section 906 ofour quarterly reports on Form 10-Q for the Sarbanes-Oxley Act of 2002 have been omitted.
EXHIBIT INDEX
2019 fiscal year.
Audit-Related Fees
EisnerAmper did not bill us in the 2020 and 2019 fiscal years for any audit-related fees.
Tax Fees
EisnerAmper did not bill us in the 2020 and 2019 fiscal years for any professional services rendered for tax compliance, tax advice or tax planning.
All Other Fees
EisnerAmper billed us $9,000 in the 2020 fiscal year for products and services other than the audit and audit-related fees described above. There was no other products or services billed for in the 2019 fiscal year.
Audit Committee Pre-Approval Policy
The audit committee is required to pre-approve the engagement of EisnerAmper to perform audit and other services for the Company. Our procedures for the pre-approval by the audit committee of all services provided by EisnerAmper comply with SEC regulations regarding pre-approval of services. Services subject to these SEC requirements include audit services, audit-related services, tax services and other services. The audit engagement is specifically approved, and the auditors are retained by the audit committee. The audit committee also has adopted policies and procedures for pre-approving all non-audit work performed by EisnerAmper. In accordance with audit committee policy and the requirements of law, all services provided by EisnerAmper in the 2020 and 2019 fiscal years were pre-approved by the audit committee and all services to be provided by EisnerAmper will be pre-approved. Pre-approval includes audit services, audit-related services, tax services and other services. To avoid certain potential conflicts of interest, the law prohibits a publicly traded company from obtaining certain non-audit services from its auditing firm. We obtain these services from other service providers as needed.
PART IV
Item 15. Exhibits, Financial Statement Schedules
A. The following documents are filed as part of this Report:
1. Consolidated Financial Statements:
|
| | | | |
Exhibit No. | | DescriptionPage |
31.1* | Report of Independent Registered Public Accounting Firm | |
| Consolidated Balance Sheets at December 31, 2020 and 2019 | |
| Consolidated Statements of Operations for the years ended December 31, 2020 and 2019 | |
| Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2020 and 2019 | |
| Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019 | |
| Notes to Consolidated Financial Statements | |
2. Financial Statement Schedules have been omitted since they are either not required, not applicable, or the information is otherwise included.
3. Exhibits:
A list of exhibits required to be filed as part of this Report is set forth in the Exhibit Index on page 44 of this Form 10-K, which immediately precedes such exhibits, and is incorporated by reference.
Item 16. Form 10-K Summary
None.
EXHIBIT INDEX
| | | | | | | | |
Exhibit
Number | | Description |
| 2.1 | | |
| 2.2† | | |
| 2.3 | | |
| 2.4† | | |
| 2.5 | | |
| 3.1 | | |
| 3.2 | | |
| 3.3 | | |
| 3.4 | | |
| 3.5 | | |
| 3.6 | | |
| 3.7 | | |
| 4.1 | | |
| 4.2 | | |
| 4.3 | | |
| 4.4 | | |
| 4.5 | | |
| 4.6 | | |
| | | | | | | | |
| 4.7 | | |
| 4.8 | | |
| 4.9 | | |
| 4.10 | | |
| 4.11 | | |
| 4.12 | | Default Waiver and First Amendment to Second Amended and Restated Loan and Security Agreement, dated June 26, 2020, by and among by and among Oblong, Inc., Oblong Industries, Inc., and GP Communications, LLC, as borrowers, and Silicon Valley Bank as lender (filed as Exhibit 10.2 to the Registrants Quarterly Report on Form 10-Q filed with the SEC on August 14, 2020, and incorporated herein by reference). |
| 4.13 | | Agreement, dated October 20, 2020, by and among Oblong, Inc., Oblong Industries, Inc., GP Communications LLC, and Silicon Valley Bank (filed as Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on November 16, 2020, and incorporated herein by reference). |
| 10.1# | | |
| 10.2# | | |
| 10.3# | | |
| 10.4# | | |
| 10.5# | | |
| 10.6# | | |
| 10.7# | | |
| 10.8# | | |
| 10.9# | | |
| 10.10# | | |
| 10.11# | | |
| 10.12# | | |
| 10.13# | | |
| 10.14 | | |
| | | | | | | | |
| 10.15# | | |
| 10.16# | | |
| 10.17# | | |
| 10.18# | | |
| 10.19 | | |
| 10.20 | | |
| 10.21 | | |
| 10.22 | | |
| 10.23 | | |
| 10.24 | | |
| 10.25# | | |
| 10.26 | | |
| 10.27# | | |
| 10.28# | | |
| 10.29 | | |
| 10.30 | | |
| 10.31 | | |
| 10.32# | | |
| 10.33 | | |
| 10.34 | | |
| 10.35 | | |
| 21.1* | | |
| 23.1* | | |
| 24.1 | | |
| | | | | | | | |
| 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 |
_____________________———————
# Constitutes a management contract, compensatory plan or arrangement.
* Filed herewith.
** Furnished herewith.
† Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The registrant hereby undertakes to furnish supplemental copies of any of the omitted schedules upon request by the SEC.
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
March 30, 2021
| | | | | | | | |
| OBLONG, INC. |
| | |
| By: | /s/ Peter Holst |
| | Peter Holst |
| | Chief Executive Officer and President |
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Peter Holst and David Clark jointly and severally, his attorneys-in-fact, each with power of substitution, for him in any and all capacities, to sign any amendments to this Report on Form 10-K, and file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant as of this 30th day of March 2021 in the capacities indicated.
| | | | | | | | |
| /s/ Peter Holst | | Chairman of the Board, President and Chief Executive Officer |
| Peter Holst | | |
| | | | | | | | |
| /s/ David Clark | | Chief Financial Officer (Principal Financial and Accounting Officer) |
| David Clark | | |
| | | | | | | | |
| /s/ Jason Adelman | | Director |
| Jason Adelman | | |
| | | | | | | | |
| /s/ James Lusk | | Director |
| James Lusk | | |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of
Oblong, Inc.
We have audited the accompanying consolidated balance sheets of Oblong, Inc. (the “Company") as of December 31, 2020 and 2019, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2020 and 2019, and the consolidated results of their operations and their cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has incurred losses and expects to continue to incur losses. These conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments. The communication of the critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Goodwill Impairment Assessment
The Company performs goodwill impairment testing on an annual basis on September 30 or when events occur or circumstances change that would indicate the carrying value exceeds the fair value. For reporting units evaluated using a quantitative assessment, the fair values are determined using a weighting of an income approach and a market approach. An impairment loss is recognized when the carrying amount of a reporting unit’s net assets exceeds the estimated fair value of the reporting unit. These estimates are subject to significant management judgment, including the determination of many factors such as, but not limited to, sales growth rates and discount rates developed using market observable inputs and considering risk regarding future performance. Changes in these estimates can have a significant impact on the determination of cash flows and fair value and could potentially result in future material impairments. During the first quarter of 2020, the Company determined that interim triggering events, including the economic downturn caused by COVID-19 and the resulting declines in
certain of the Company’s revenue, required an interim evaluation of goodwill at March 31, 2020. The impairment test determined the carrying value of goodwill in the Oblong (formerly Glowpoint) reporting unit exceeded its estimated fair value. As a result, the Company impaired the full carrying value of this reporting unit’s goodwill through an impairment charge of $541,000.
We identified goodwill impairment assessment as a critical audit matter because of the significant management judgment and subjectivity in developing the fair value measurement of the reporting units. This required a high degree of auditor judgement and an increase in audit effort to perform procedures and evaluate audit evidence related to the revenue growth rates, estimated costs, and the discount rate assumptions utilized in the income approach.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others, (i) obtaining an understanding of management’s process and evaluating the design of controls related to the goodwill impairment assessment; (ii) testing management’s process for developing the fair value estimate; (iii) evaluating the appropriateness of the valuation model used in management’s estimate; (iv) testing the completeness, accuracy, and relevance of underlying data used in the model; and (v) evaluating the reasonableness of the revenue growth rates and assumptions used by management. Evaluating management’s assumptions related to the revenue growth rates, estimated costs and the discount rate involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the reporting unit, (ii) the consistency with external market and industry data, (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit, and (iv) performed sensitivity analyses over significant estimates and assumptions. We involved valuation professionals with specialized skills and knowledge when performing audit procedures to evaluate the reasonableness of Management’s estimates and assumptions related to the selection of sales growth rates and discount rates.
Intangible Asset Impairment Assessment
Intangible assets are comprised of developed technology, trade names, and distributor relationships in the Oblong Industries reporting segment. The Company assesses the impairment of intangible assets subject to amortization when events and circumstances indicate that the carrying value of the assets might not be recoverable. Estimates and assumptions are utilized in the valuations, including projected cash flows, revenue growth rates, and the estimated useful lives of the assets. These estimates are subject to significant management judgment. Changes in these estimates can have a significant impact on the determination of cash flows and could potentially result in future material impairments. The Company did not record any impairments on these intangible assets in 2020.
We identified the intangible asset impairment assessment as a critical audit matter because of the significant management judgment and subjectivity in developing the undiscounted cash flows utilized in the impairment assessment. This required a high degree of auditor judgement and significant audit effort to perform procedures and evaluate audit evidence related to the projected cash flows including revenue growth rates.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others, (i) obtaining an understanding of management’s process and evaluating the design of controls related to the intangible asset impairment assessment; (ii) testing management’s process for developing the undiscounted cash flow estimate; (iii) testing the completeness, accuracy, and relevance of underlying data used in the model; and (iv) evaluating the reasonableness of the revenue growth rates and assumptions used by management, including the estimated useful lives of the intangible assets. Evaluating management’s assumptions related to the revenue growth rates involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the reporting unit, (ii) the consistency with external market and industry data, (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit, and (iv) performed sensitivity analyses over significant estimates and assumptions. We involved valuation professionals with specialized skills and knowledge when performing audit procedures to evaluate the reasonableness of Management’s estimates and assumptions related to the selection of sales growth rates and the estimated useful lives of the assets.
/s/ EisnerAmper LLP
We have served as the Company’s auditor since 2010.
EISNERAMPER LLP
Iselin, New Jersey
March 30, 2021
OBLONG, INC.,
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value, stated value and shares)
| | | | | | | | | | | |
| December 31,
2020 | | December 31,
2019 |
| ASSETS | | | |
| Current assets: | | | |
| Cash | $ | 5,058 | | | $ | 4,602 | |
| Current portion of restricted cash | 158 | | | 0 | |
| Accounts receivable, net | 3,166 | | | 2,543 | |
| Inventory | 920 | | | 1,816 | |
| Prepaid expenses and other current assets | 691 | | | 965 | |
| Total current assets | 9,993 | | | 9,926 | |
| Property and equipment, net | 573 | | | 1,316 | |
| Goodwill | 7,367 | | | 7,908 | |
| Intangibles, net | 10,140 | | | 12,572 | |
| Operating lease, right-of-use assets | 903 | | | 3,117 | |
| Other assets | 167 | | | 70 |
| Total assets | $ | 29,143 | | | $ | 34,909 | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
| Current liabilities: | | | |
| Current portion of long-term debt, net of debt discount | $ | 2,014 | | | $ | 2,664 | |
| Accounts payable | 313 | | | 647 | |
| Current portion deferred revenue | 1,217 | | | 1,901 | |
| Operating lease liabilities, current | 830 | | | 1,294 | |
| Accrued expenses and other liabilities | 1,201 | | | 1,752 | |
| | | |
| | | |
| Total current liabilities | 5,575 | | | 8,258 | |
| Long-term liabilities: | | | |
| | | |
| Long-term debt, net of current portion and net of debt discount | 403 | | | 2,843 | |
| Operating lease liabilities, net of current portion | 602 | | | 2,020 | |
| Deferred revenue, net of current portion | 506 | | | 0 | |
| Other long-term liabilities | 0 | | | 3 | |
| Total long-term liabilities | 1,511 | | | 4,866 | |
| Total liabilities | 7,086 | | | 13,124 | |
| Commitments and contingencies (see Note 16) | 0 | | 0 |
| Stockholders’ equity: | | | |
| Preferred stock Series A-2, convertible; $.0001 par value; $7,500 stated value; 7,500 shares authorized, 45 and 32 shares, issued and outstanding, and liquidation preference of $338 and $237 at December 31, 2020 and 2019, respectively | 0 | | | 0 | |
| | | |
| Preferred stock Series C, convertible; $.0001 par value; $1,000 stated value; 1,750 shares authorized, 0 shares issued and outstanding and 0 liquidation preference at December 31, 2020 and 475 shares issued and outstanding and liquidation preference of $475 at December 31, 2019 | 0 | | | 0 | |
| Preferred stock Series D, convertible; $.0001 par value; $28.50 stated value; 1,750,000 shares authorized, 1,697,958 and 1,734,901 shares issued and outstanding, and liquidation preference of $48,392 and $49,445 at December 31, 2020 and 2019, respectively | 0 | | | 0 | |
| Preferred stock Series E, convertible; $.0001 par value; $28.50 stated value; 175,000 shares authorized, 131,579 shares issued and outstanding and liquidation preference of $3,750 at December 31, 2020 and 2019 | 0 | | | 0 | |
| Common stock, $.0001 par value; 150,000,000 shares authorized; 7,861,912 shares issued and 7,748,629 outstanding at December 31, 2020 and 5,266,800 shares issued and 5,161,500 outstanding at December 31, 2019 | 1 | | 1 |
| Treasury stock, 113,300 and 105,300 shares at December 31, 2020 and 2019, respectively | (181) | | | (165) | |
| Additional paid-in capital | 215,092 | | | 207,383 | |
| Accumulated deficit | (192,855) | | | (185,434) | |
| Total stockholders’ equity | 22,057 | | | 21,785 | |
| Total liabilities and stockholders’ equity | $ | 29,143 | | | $ | 34,909 | |
See accompanying notes to consolidated financial statements
-F-3-
OBLONG, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
| | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2019 |
| Revenues | $ | 15,333 | | | $ | 12,827 | |
| Cost of revenues (exclusive of depreciation and amortization) | 7,280 | | | 7,427 | |
| Gross profit | 8,053 | | | 5,400 | |
| Operating expenses: | | | |
| Research and development | 3,711 | | | 2,023 | |
| Sales and marketing | 3,392 | | | 1,936 |
| General and administrative | 6,724 | | | 5,377 | |
| Impairment charges | 1,150 | | | 2,317 | |
| Depreciation and amortization | 3,140 | | 1,321 |
| Total operating expenses | 18,117 | | | 12,974 | |
| Loss from operations | (10,064) | | | (7,574) | |
| Interest and other (income) expense: | | | |
| Interest expense and other, net | 352 | | | 187 | |
| Gain on extinguishment of debt | (3,117) | | | 0 | |
| | | |
| | | |
| Foreign exchange loss | 19 | | | 0 | |
| Interest and other (income) expense, net | (2,746) | | | 187 | |
| Loss before income taxes | (7,318) | | | (7,761) | |
| Income tax expense | 103 | | | 0 | |
| Net loss | $ | (7,421) | | | $ | (7,761) | |
| Preferred stock dividends | 17 | | | 27 | |
| Undeclared dividends | 788 | | | 0 | |
| Net loss attributable to common stockholders | $ | (8,226) | | | $ | (7,788) | |
| | | |
| Net loss attributable to common stockholders per share: | | | |
| Basic and diluted net loss per share | $ | (1.48) | | | $ | (1.52) | |
| | | |
| | | |
| Weighted-average number of common shares: | | | |
| Basic and diluted | 5,547 | | | 5,108 | |
| | | |
See accompanying notes to consolidated financial statements
-F-4-
OBLONG, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except shares of Series A-2, Series B, Series C, Series D and Series E Preferred Stock)
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| Series A-2 Preferred Stock | | Series B Preferred Stock | | Series C Preferred Stock | | Series D Preferred Stock | | Series E Preferred Stock | | Common Stock | | Treasury Stock | | | | | | |
| Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Additional Paid-In Capital | | Accumulated Deficit | | Total |
| Balance at December 31, 2018 | 32 | | | $ | 0 | | | 75 | | | $ | 0 | | | 525 | | | $ | 0 | | | 0 | | | $ | 0 | | | 0 | | | $ | 0 | | | 5,114 | | | $ | 1 | | | 133 | | | $ | (496) | | | $ | 184,998 | | | $ | (177,673) | | | $ | 6,830 | |
| Net loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (7,761) | | | (7,761) | |
| Stock-based compensation | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 110 | | | — | | | 110 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Issuance of preferred stock in merger | — | | | — | | | — | | | — | | | — | | | — | | | 1,736,626 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 18,862 | | | — | | | 18,862 | |
| Forfeiture of preferred stock | — | | | — | | | — | | | — | | | — | | | — | | | (1,725) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Preferred stock conversion | — | | | — | | | (75) | | | — | | | (50) | | | — | | | — | | | — | | | — | | | — | | | 44 | | | — | | | — | | | — | | | — | | | — | | | — | |
| Preferred stock dividends | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (27) | | | — | | | (27) | |
| Issuance of stock on vested restricted stock units | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 109 | | | — | | | (76) | | | 382 | | | (382) | | | — | | | 0 | |
| Proceeds from Series E equity offering | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 131,579 | | | — | | | — | | | — | | | — | | | — | | | 3,750 | | | — | | | 3,750 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Repurchase of treasury stock | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 48 | | | (51) | | | — | | | — | | | (51) | |
| Issuance of warrants to purchase common stock in connection with long term debt | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 72 | | | — | | | 72 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2019 | 32 | | | 0 | | | 0 | | | 0 | | | 475 | | | 0 | | | 1,734,901 | | | 0 | | | 131,579 | | | 0 | | | 5,267 | | | 1 | | | 105 | | | (165) | | | 207,383 | | | (185,434) | | | 21,785 | |
| Net loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (7,421) | | | (7,421) | |
| Stock-based compensation | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 8 | | | — | | | — | | | — | | | 198 | | | — | | | 198 | |
| Issuance of preferred stock for accrued dividends | 13 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 99 | | | — | | | 99 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Forfeiture of preferred stock | — | | | — | | | — | | | — | | | — | | | — | | | (28,618) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Preferred stock conversion | — | | | — | | | — | | | — | | | (475) | | | — | | | — | | | — | | | — | | | — | | | 158 | | | — | | | — | | | — | | | — | | | — | | | — | |
| Preferred stock dividends | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (17) | | | — | | | (17) | |
| Issuance of stock on vested restricted stock units | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 23 | | | — | | | 8 | | | (16) | | | — | | | — | | | (16) | |
| Series D exchanged for taxes | — | | | — | | | — | | | — | | | — | | | — | | | (8,325) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Forfeiture of restricted stock agreement | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (9) | | | — | | | — | | | — | | | — | | | — | | | — | |
| Issuance of common shares from financing, net of offering costs | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 2,293 | | | — | | | — | | | — | | | 7,371 | | | | | 7,371 | |
| Issuance of common shares from warrant exercise | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 72 | | | — | | | — | | | — | | | — | | | — | | | — | |
| Issuance of shares for professional service fees | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 50 | | | — | | | — | | | — | | | 58 | | | — | | | 58 | |
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| Balance at December 31, 2020 | 45 | | | $ | 0 | | | 0 | | | $ | 0 | | | 0 | | | $ | 0 | | | 1,697,958 | | | $ | 0 | | | 131,579 | | | $ | 0 | | | 7,862 | | | $ | 1 | | | 113 | | | $ | (181) | | | $ | 215,092 | | | $ | (192,855) | | | $ | 22,057 | |
See accompanying notes to consolidated financial statements
-F-5-
OBLONG, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2019 |
| Cash flows from Operating Activities (Net of business combinations): | | | |
| Net loss | $ | (7,421) | | | $ | (7,761) | |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | |
| Depreciation and amortization | 3,140 | | | 1,321 | |
| Bad debt expense | 168 | | | 11 | |
| Amortization of debt discount | 56 | | | 90 | |
| Amortization of right-of-use assets | 1,001 | | | 0 | |
| | | |
| Fees paid with common stock | 58 | | | 0 | |
| | | |
| Gain on debt extinguishment | (3,117) | | | 0 | |
| Stock-based compensation | 198 | | | 110 | |
| | | |
| Impairment charges on property and equipment | 144 | | | 63 | |
| Impairment charges on right-of use assets | 465 | | | 0 | |
| Impairment charges on goodwill | 541 | | | 2,254 | |
| | | |
| Changes in assets and liabilities: | | | |
| Accounts receivable | (792) | | | 780 | |
| Prepaid expenses and other current assets | 273 | | | 301 | |
| Inventory | 820 | | | 19 | |
| Other assets | (35) | | | 495 | |
| Accounts payable | (335) | | | 129 | |
| Accrued expenses and other liabilities | (415) | | | (692) | |
| Deferred revenue | (178) | | | (373) | |
| Operating lease liability | (1,134) | | | 0 | |
| Other long-term liabilities | (3) | | | 0 | |
| Net cash used in operating activities | (6,566) | | | (3,253) | |
| Cash flows from Investing Activities: | | | |
| Proceeds on sale of equipment | 7 | | | 0 | |
| Cash acquired through Oblong Industries merger | 0 | | | 2,194 | |
| Purchases of property and equipment | (38) | | | (45) | |
| Net cash (used in) provided by investing activities | (31) | | | 2,149 | |
| Cash flows from Financing Activities: | | | |
| | | |
| | | |
| Principal payments under borrowing arrangement | (2,500) | | | 0 | |
| Advances on borrowing arrangements | 0 | | | 0 | |
| Proceeds from new loan agreement | 2,417 | | | 0 | |
| Proceeds from issuance of common stock, net of offering costs of $602 | 7,371 | | | 0 | |
| | | |
| | | |
| | | |
| Shares withheld to cover tax liability | (16) | | | 0 | |
| Proceeds from Series E preferred stock | 0 | | | 3,750 | |
| Purchase of treasury stock | 0 | | | (51) | |
| Net cash provided by financing activities | 7,272 | | | 3,699 | |
| | | |
| Net increase in cash and restricted cash | 675 | | | 2,595 | |
| Cash at beginning of year | 4,602 | | | 2,007 | |
| Cash and restricted cash at end of year | $ | 5,277 | | | $ | 4,602 | |
| | | |
| | | |
See accompanying notes to consolidated financial statements
-F-6-
| | | | | | | | | | | |
| Supplemental disclosures of cash flow information: | | | |
| Cash paid during the period for interest | $ | 213 | | | $ | 105 | |
| | | |
| Reconciliation of cash and restricted cash | | | |
| Cash | $ | 5,058 | | | $ | 4,602 | |
| Current portion of restricted cash | 158 | | | 0 | |
| Restricted cash included in other assets, net of current portion | 61 | | | 0 | |
| Total cash and restricted cash | $ | 5,277 | | | $ | 4,602 | |
| | | |
| Non-cash investing and financing activities: | | | |
| Issuance of preferred stock in exchange for accrued dividends | $ | 99 | | | $ | 0 | |
| | | |
| | | |
| Transfer of assets from inventory to property and equipment | $ | 78 | | | $ | 0 | |
| Issuance of common stock warrant | $ | 0 | | | $ | 72 | |
| Issuance of Series D stock for acquisition of Oblong Industries | $ | 0 | | | $ | 18,862 | |
| Accrued preferred stock dividends | $ | 17 | | | $ | 27 | |
| Issuance of common stock for vested restricted stock units | $ | 0 | | | $ | 382 | |
| | | |
See accompanying notes to consolidated financial statements
-F-7-
OBLONG, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
On October 1, 2019, the Company closed an acquisition of all of the outstanding equity interest of Oblong Industries, Inc., a privately held Delaware corporation founded in 2006 (“Oblong Industries”); see further discussion in Note 3 - Oblong Industries Acquisition.
By: /s/ Peter Holst
Peter HolstPrinciples of Consolidation
Chief Executive Officer
The consolidated financial statements include the accounts of Oblong and Presidentour 100%-owned subsidiaries (i) GP Communications, LLC (“GP Communications”), whose business function is to provide interstate telecommunications services for regulatory purposes, (ii) Oblong Industries, Inc., and (iii) the following subsidiaries of Oblong Industries: Oblong Industries Europe, S.L. and Oblong Europe Limited. All inter-company balances and transactions have been eliminated in consolidation. The U.S. Dollar is the functional currency for all subsidiaries.
Date: MaySegments
Prior to the acquisition of Oblong Industries on October 1, 2019, the Company operated in 1 segment. Effective October 1, 2019, the former businesses of Glowpoint, Inc. (now Oblong, Inc.) and Oblong Industries were managed separately and involve different products and services. Accordingly, the Company currently operates in 2 segments: 1) the Oblong, Inc. (formerly Glowpoint) business which mainly consists of managed services for video collaboration and network and 2) the Oblong Industries business which consists of products and services for visual collaboration technologies. See Note 15 - Segment Reporting for further discussion.
Use of Estimates
Preparation of the 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, the inputs used in the fair value of equity based awards as well as the values ascribed to assets acquired and liabilities assumed in the business combination.
Restricted Cash
As of December 31, 2020, our total cash balance was $5,277,000, consisting of available cash of $5,058,000, current restricted cash of $158,000, and $61,000 in long-term restricted cash. The long-term restricted cash is included in our other assets on our consolidated balance sheet. The restricted cash pertains to two letters of credit that serve as the security deposit for our leased office space in Munich, Germany and our leased office space in Los Altos, California (as discussed in Note 16 - Commitments and Contingencies), and is secured by an equal amount of cash pledged as collateral, and such cash is held in a restricted bank account. As of February 28, 20202021, the lease and the letter of credit ($158,000) for the Los Altos office space expired.
Allowance for Doubtful Accounts
We perform ongoing credit evaluations of our customers. We record an allowance for doubtful accounts based on specifically identified amounts that are believed to be uncollectible. We also record additional allowances based on our aged receivables, which are determined based on historical experience and an assessment of the general financial conditions affecting our customer base. If our actual collections experience changes, revisions to our allowance may be required. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. We do not obtain collateral from our customers to secure accounts receivable. The allowance for doubtful accounts was $182,000 and $19,000 at December 31, 2020 and 2019, respectively.
Inventory
Inventory consists of finished goods and was determined using average costs and was stated at the lower of cost or net realizable value. The Company periodically performs analyses to identify obsolete or slow-moving inventory, and as of December 31, 2020, the Company has recorded an reserve for obsolescence of $193,000. There was 0 corresponding reserve for 2019.
Fair Value of Financial Instruments
The Company considers its cash, accounts receivable, accounts payable and debt obligations to meet the definition of financial instruments. The carrying amount of cash, accounts receivable and accounts payable approximated their fair value due to the short maturities of these instruments. The carrying amounts of our debt obligations (see Note 10 - Debt) approximate their fair values, which are based on borrowing rates that are available to the Company for loans with similar terms, collateral, and maturity.
The Company measures fair value as required by Accounting Standards Codification (“ASC”) Topic 820“Fair Value Measurements and Disclosures” (“ASC Topic 820”). ASC Topic 820 defines fair value, establishes a framework and gives guidance regarding the methods used for measuring fair value, and expands disclosures about fair value measurements. ASC Topic 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, there exists a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
•Level 1 - unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date.
•Level 2 - inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data.
•Level 3 - unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date.
This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.
Revenue Recognition
The Company accounts for revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606.
The Company recognizes revenue using the five-step model as prescribed by Topic 606:
•Identification of the contract, or contracts, with a customer;
•Identification of the distinct performance obligations in the contract;
•Determination of the transaction price;
•Allocation of the transaction price to the performance obligations in the contract; and
•Recognition of revenue when or as the Company satisfies a performance obligation.
Oblong’s (formerly Glowpoint) managed videoconferencing services are offered to our customers on either a usage basis or on a subscription. Our network services are offered to our customers on a subscription basis. Revenue for these services is generally recognized on a monthly basis as services are performed. Revenue related to professional services is recognized at the time the services are performed. The costs associated with obtaining a customer contract were previously expensed in the period they were incurred. Under Topic 606, these payments are deferred on our consolidated balance sheet and amortized over the expected life of the customer contract. Deferred revenue as of December 31, 2020 totaled $27,000 as certain performance obligations were not satisfied as of this date. During the year ended December 31, 2020, the Company recorded $21,000 of revenue that was included in deferred revenue as of December 31, 2019. During the year ended December 31, 2019, the Company recorded $32,000 of revenue that was included in deferred revenue as of December 31, 2018.
Oblong Industries’ visual collaboration products are composed of hardware and embedded software sold as a complete package, and generally include installation and maintenance services. Revenue for hardware and software is recognized upon shipment to the customer. Installation revenue is recognized upon completion of installation, which also triggers the beginning of recognition of revenue for maintenance services which range from one to three years. Revenue is recognized over time for maintenance services. Professional services are contracts with specific customers for software development, visual design, interaction design, engineering, and project support. These contracts vary in length, and revenue is recognized over time as services are rendered. Licensing agreements are for the Company’s core technology platform, g-speak, and are generally one year in length. Revenue for these services is recognized ratably over the service period. Upon adoption of Topic 606, Oblong Industries was not required to adjust its revenue recognition methodology, as recognition was deemed to be in-line with the five-step model. Deferred revenue as of December 31, 2020 totaled $1,696,000 as certain performance obligations were not satisfied as of this date. During the year ended December 31, 2020, the Company recorded $978,000 of revenue that was included in deferred revenue as of December 31, 2019. During the three months ended December 31, 2019, the Company recorded $352,000 of revenue that was included in deferred revenue as of the date of the merger.
The Company disaggregates its revenue by geographic region. See Note 15 - Segment Reporting for more information.
Taxes Billed to Customers and Remitted to Taxing Authorities
We recognize taxes billed to customers in revenue and taxes remitted to taxing authorities in our cost of revenue. For the years ended December 31, 2020 and 2019, we included taxes of $313,000 and $390,000, respectively, in revenue and we included taxes of $328,000 and $390,000, respectively, in cost of revenue.
Impairment of Long-Lived Assets, Goodwill and Intangible Assets
The Company assesses the impairment of long-lived assets used in operations, primarily fixed assets and purchased intangible assets subject to amortization when events and circumstances indicate that the carrying value of the assets might not be recoverable. For purposes of evaluating the recoverability of fixed assets and amortizing intangible assets, the undiscounted cash flows estimated to be generated by those assets are compared to the carrying amounts of those assets. If and when the carrying values of the assets exceed the undiscounted cash flow, then the related assets will be written down to fair value.
For the years ended December 31, 2020 and 2019, the Company recorded asset impairment charges on property and equipment of $144,000 and $63,000, which pertained primarily to assets no longer used in the business. During the year ended December 31, 2020, the Company disposed of fixed assets of $3,438,000, and the corresponding accumulated depreciation of $3,287,000, which resulted in a loss on disposal of $151,000. There were no impairments to purchased intangible assets for the years ended December 31, 2020 and 2019.
For the year ended December 31, 2020, the Company recorded aggregate impairment charges of $465,000 on two right-of-use assets. See Note 16 - Commitments and Contingencies for further discussion. There were 0 impairments to right-of-use assets for the year ended December 31, 2019.
Goodwill is not amortized but is subject to periodic testing for impairment in accordance with ASC Topic 350 “Intangibles - Goodwill and Other - Testing Indefinite-Lived Intangible Assets for Impairment” (“ASC Topic 350”). During the years ended December 31, 2020 and 2019, the Company recorded impairment charges on goodwill of $541,000 and $2,254,000, respectively. See Note 7 - Goodwill and Note 8 - Intangible Assets) for further discussion.
Concentration of Credit Risk
Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash, and trade accounts receivable. We place our cash primarily in commercial checking accounts. Commercial bank balances may from time to time exceed federal insurance limits.
Property and Equipment
Property and equipment are stated at cost and are depreciated over the estimated useful lives of the related assets, which range from three to ten years. Leasehold improvements are amortized over the shorter of either the asset’s useful life or the related lease term. Depreciation is computed on the straight-line method for financial reporting purposes.
Income Taxes
We use the asset and liability method to determine our income tax expense or benefit. Deferred tax assets and liabilities are computed based on temporary differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates that are expected to be in effect when the differences are expected to be recovered or settled. Any resulting net deferred tax assets are evaluated for recoverability and, accordingly, a valuation allowance is provided when it is more likely than not that all or some portion of the deferred tax asset will not be realized.
Stock-based Compensation
Stock-based awards have been accounted for as required by ASC Topic 718 “Compensation – Stock Compensation” (“ASC Topic 718”). Under ASC Topic 718 stock-based awards are valued at fair value on the date of grant, and that fair value is recognized over the requisite service period. The Company accounts for forfeitures when they occur.
Research and Development
Research and development expenses include internal and external costs related to developing new service offerings and features and enhancements to our existing services.
Treasury Stock
Purchases and sales of treasury stock are accounted for using the cost method. Under this method, shares acquired are recorded at the acquisition price directly to the treasury stock account. Upon sale, the treasury stock account is reduced by the original acquisition price of the shares and any difference is recorded in additional paid in capital, on a first-in first-out basis. The Company does not recognize a gain or loss to income from the purchase and sale of treasury stock.
Recent Accounting Pronouncements
Recently Issued Accounting Pronouncements
Credit Losses
In June 2016 the FASB issued ASU 2016-13, “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).” The 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., 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. The update is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently evaluating the impact the new guidance will have on its consolidated financial statements.
Note 2 - Liquidity and Going Concern
As of December 31, 2020, we had $5,277,000 of cash and $2,417,000 of total obligations under the MidFirst Bank Loan (the “PPP Loan”) under the Paycheck Protection Program (PPP) contained within the Coronavirus Aid, Relief, and Economic Security (CARES) Act (see Note 10 - Debt). Our capital requirements in the future will continue to depend on numerous factors, including the timing and amount of revenue for the combined organization, customer renewal rates and the timing of collection of outstanding accounts receivable, in each case particularly as it relates to the combined organization’s major customers, the expense to deliver services, expense for sales and marketing, expense for research and development, capital expenditures, the cost involved in protecting intellectual property rights, the amount of forgiveness of the PPP Loan, if any, and the debt service obligations under the PPP Loan. While our acquisition of Oblong Industries provides additional revenues to the Company, the cost to further develop and commercialize Oblong Industries’ product offerings is expected to exceed its revenues for the foreseeable future. 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. The Company believes that, based on the combined organization’s current projection of revenue, expenses, capital expenditures, debt service obligations, 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 consolidated financial statements do not include any adjustments that might result from these uncertainties.
Note 3 - Oblong Industries Acquisition
On October 1, 2019, the Company closed its acquisition of Oblong Industries, Inc., a Delaware corporation (“Oblong Industries” and, such transaction, the “Acquisition”). The Acquisition was consummated through the merger of Glowpoint Merger Sub II, Inc., a Delaware corporation and wholly-owned subsidiary of the Company (the “Merger Sub”), with and into Oblong Industries on the Closing Date, with Oblong Industries continuing as the surviving corporation and as a wholly-owned subsidiary of the Company. On the Closing Date, (i) the shares of common and preferred stock of Oblong Industries issued and outstanding immediately prior to the effective time of the Acquisition were converted into an aggregate of 1,686,659 shares of the Company’s 6.0% Series D Convertible Preferred Stock, par value $0.0001 per share (the “Series D Preferred Stock”); (ii) all options to purchase shares of Oblong’s common stock held by previously terminated employees of Oblong Industries were assumed by the Company and deemed, in the aggregate, to constitute options to acquire a total of 107,845 shares of the Company’s common stock, par value $0.0001 per share (“common stock”), at a volume weighted average exercise price of $4.92 per share and a remaining exercise period of one year; and (iii) all options to purchase shares of Oblong Industries’ common stock held by existing employees of Oblong were canceled and exchanged for an aggregate of 49,967 restricted shares of Series D Preferred Stock (“Restricted Series D Preferred Stock”), which are subject to vesting over a two-year period following the Closing Date.
Each share of Series D Preferred Stock is automatically convertible into a number of shares of Common Stock equal to the accrued value of the share (initially $28.50), plus any accrued dividends thereon, divided by the Conversion Price (initially $2.85 per share, subject to specified adjustments) upon the completion of both i) approval of such conversion by the Company’s stockholders (which occurred on December 19, 2019) and (ii) the receipt of all required authorizations and approval of a new listing application for the combined organization from the NYSE American. Upon such conversion, the Series D Preferred Stock (including shares of Restricted Series D Preferred Stock) will convert into an aggregate of 17,349,010 shares of common stock. Following their conversion to common stock, shares of Restricted Series D Preferred Stock will remain subject to their vesting conditions. Subsequent to the date of this Annual Report on Form 10-K, the company transferred the listing of its common stock from the NYSE American to the Nasdaq Capital Market. Upon this transfer, all of the Series D Preferred Stock, including the Restricted Series D Stock, was converted into shares of the Company’s common stock. Please refer to Note 20 - Subsequent Events for further discussion of the transfer and the conversion.
The Acquisition was accounted for in accordance with FASB Accounting Standards Codification Topic 805 “Business Combinations” (“ASC 805”) as a business combination, which requires an allocation of the purchase price of an acquired entity to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The purchase price and the fair value of the assets acquired and liabilities assumed were based on management estimates and values with assistance
from an outside appraisal. Pursuant to ASC 805, the purchase price of $18,862,000 was measured as the fair value of the consideration exchanged in the Acquisition as follows:
| | | | | |
| Series D Preferred Stock (1,686,659 shares at $11.15 per share) | $ | 18,811,000 | |
| Value of common stock options issued (107,845 at $0.47 per option) | $ | 51,000 | |
| Total purchase price | $ | 18,862,000 | |
The value per share of the Series D Preferred Stock was determined using an equity allocation method using the Company’s publicly traded common stock as the basis, with use of an option pricing model for determination of the value per share of the Series D Preferred Stock in the event conversion to common stock does not occur. On October 1, 2019, the closing sale price of our common stock was $1.00 per share as reported on the NYSE American. The value of the 107,845 common stock options was determined using the Black-Scholes method, with the following weighted-average assumptions: (i) exercise price of $4.92, (ii) risk-free interest rate of 1.5%, (iii) expected volatility of 217% and (iv) expected term of one year. The value of the Restricted Series D Preferred Stock was not included in the purchase price given the vesting requirements post combination. Therefore, the Company recorded stock-based compensation expense in the post combination period over the vesting period of these awards.
Based on the purchase price allocation, the following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the Closing Date (in thousands):
| | | | | | | | |
| Cash | | $ | 2,194 | |
| Accounts receivable | | 1,962 | |
| Prepaid expenses and other current assets | | 719 | |
| Inventory | | 1,835 | |
| Property and equipment | | 1,221 | |
| Operating lease, right-of-use assets | | 3,376 | |
| Trade names | | 2,410 | |
| Distributor relationships | | 310 | |
| Developed technology | | 10,060 | |
| Other assets | | 194 | |
| Total assets acquired at fair value | | $ | 24,281 | |
| | |
| Accounts payable | | $ | (296) | |
| Operating lease liabilities | | (3,578) | |
| Deferred revenue | | (2,231) | |
| Debt | | (5,509) | |
| Other liabilities | | (1,171) | |
| Total liabilities assumed | | $ | (12,785) | |
| | |
| Net assets acquired | | $ | 11,496 | |
The purchase price exceeded the fair value of the net assets acquired by 7,367,000, which was recorded as goodwill.
The accompanying consolidated financial statements do not include any revenues or expenses related to the Oblong Industries business on or prior to October 1, 2019 (the Closing Date of the Acquisition). A total of $468,000 of acquisition costs were expensed and included in General and Administrative expenses in the accompanying Statement of Operations for the year ended December 31, 2019.
The preliminary allocation of the purchase price was based upon a valuation for which the estimates and assumptions are subject to change within the measurement period (up to one year from the acquisition date). The final allocation price could differ materially from the preliminary allocation. Any subsequent changes to the purchase price allocation that result in material changes to the Company’s consolidated financial results will be adjusted accordingly.
The consolidated statement of operations for the year ended December 31, 2019 includes $3,167,000 of revenue and net loss of $3,360,000 related to Oblong Industries for the period from October 1, 2019 through December 31, 2019. The Company's unaudited pro forma results for the year ended December 31, 2019 is summarized in the table below, assuming the Acquisition had occurred on January 1, 2019 (in thousands). These unaudited pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations which would have actually resulted had the acquisition occurred on January 1, 2019, nor to be indicative of future results of operations. These pro forma results include pro forma adjustments of $1,393,000 for the year ended December 31, 2019 related to the incremental amortization of Oblong Industries’ intangible assets recorded in connection with the Acquisition.
| | | | | |
| Pro forma and unaudited (as if the acquisition of Oblong Industries had occurred on January 1, 2019) |
| Year Ended December 31, 2019 |
| Revenue | |
| Oblong (formerly Glowpoint) | $ | 9,660 | |
| Oblong Industries | 15,926 | |
| Total revenue | $ | 25,586 | |
| Net loss | |
| Oblong | $ | 4,401 | |
| Oblong Industries | 15,795 | |
| Pro forma net loss | $ | 20,196 | |
Note 4 - Inventory
Inventory was $920,000 and $1,816,000 as of December 31, 2020 and 2019, respectively, and consisted primarily of equipment related to our Mezzanine™ product offerings, including cameras, tracking hardware, computer equipment, display equipment and amounts related to the Oblong Industries business. Inventory consists of finished goods and was determined using average costs and was stated at the lower of cost or net realizable value.
The Company periodically performs analyses to identify obsolete or slow-moving inventory. As of December 31, 2020, we had a reserve for obsolete or slow moving inventory of $193,000.
Note 5 - Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in thousands):
| | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 |
| Other prepaid expenses | $ | 663 | | | $ | 548 | |
| | | |
| Other current assets | 28 | | | 209 | |
| Prepaid software licenses | 0 | | | 208 | |
| | | |
| | | |
| | | |
| Prepaid expenses and other current assets | $ | 691 | | | $ | 965 | |
Note 6 - Property and Equipment
Property and equipment consisted of the following (in thousands):
| | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 |
| Network equipment and software | $ | 4,957 | | | $ | 6,251 | |
| Computer equipment and software | 5,686 | | | $ | 7,232 | |
| Leasehold improvements | 164 | | | $ | 953 | |
| Office furniture and equipment | 752 | | | $ | 369 | |
| 11,559 | | | 14,805 | |
| Accumulated depreciation and amortization | (10,986) | | | (13,489) | |
| Property and equipment, net | $ | 573 | | | $ | 1,316 | |
| | | | | |
| Estimated Useful Life |
| Network equipment and software | 3 to 5 Years |
| Computer equipment and software | 3 to 5 Years |
| Leasehold improvements | (*) |
| Office furniture and equipment | 3 to 10 Years |
(*) – Amortized over the shorter period of the estimated useful life (five years) or the lease term.
Related depreciation and amortization expense for the consolidated entities was $708,000 and $614,000 for the years ended December 31, 2020 and December 31, 2019, respectively.
For the years ended December 31, 2020 and December 31, 2019, the Company recorded asset impairment charges on property and equipment of $144,000 and $63,000, which pertained primarily to assets no longer used in the business. During the year ended December 31, 2020, the Company transferred trade show assets valued at $78,000 (net of $38,000 depreciation) from inventory to fixed assets; disposed of fixed assets of $3,438,000, and the corresponding accumulated depreciation of $3,287,000, for proceeds of $7,000 resulting in a loss on disposal of $144,000.
Note 7 - Goodwill
As of December 31, 2020 and 2019, goodwill was $7,367,000 and $7,908,000, respectively. As of December 31, 2020, goodwill was comprised of $7,367,000 recorded in connection with the October 1, 2019 acquisition of Oblong Industries.
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. Following the Acquisition of Oblong Industries, the Company operated 2 reporting units, Oblong (formerly Glowpoint) and Oblong Industries. During the year ended December 31, 2020, we considered the novel Coronavirus (COVID-19) pandemic and resulting declines in certain of the Company’s revenue to be a triggering event for an interim goodwill impairment test for both reporting units as of March 31, 2020. To determine the fair value of each reporting unit for the goodwill impairment tests, we used a weighted average of the discounted cash flow method and a market-based method (comparing the Company’s equity and analyzing multiples of revenue for comparable companies). For the Oblong Industries reporting unit, the fair value of the reporting unit exceeded its carrying amount, as of both testing dates, therefore 0 impairment charge was required for the year ended December 31, 2020. For the Oblong (formerly Glowpoint) reporting unit, we recorded an impairment charge on goodwill of $541,000 at March 31, 2020, as the carrying amount of the reporting unit exceeded its fair value on the test date. This charge is recognized as “Impairment Charges” on our consolidated Statements of Operations, and reduced goodwill for the Oblong. reporting unit to 0.
The activity in goodwill during the years ended December 31, 2020 and 2019 is shown in the following table ($ in thousands):
| | | | | | | | | | | | | | | | | |
| Goodwill | Oblong | | Oblong Industries | | Total |
| Balance January 1, 2019 | $ | 2,795 | | | $ | 0 | | | $ | 2,795 | |
| Acquisition | 0 | | | 7,367 | | | 7,367 | |
| Impairment | (2,254) | | | 0 | | | (2,254) | |
| Balance December 31, 2019 | 541 | | | 7,367 | | | 7,908 | |
| Impairment | (541) | | | 0 | | | (541) | |
| | | | | |
| Balance December 31, 2020 | $ | 0 | | | $ | 7,367 | | | $ | 7,367 | |
In the event we experience future declines in our revenue, cash flows and/or stock price, this may give rise to a triggering event that may require the Company to record additional impairment charges on goodwill in the future.
Note 8 - Intangible Assets
The following table presents the components of net intangible assets (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2020 | | As of December 31, 2019 |
| | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| Oblong | | | | | | | | | | | |
| | | | | | | | | | | |
| Affiliate network | $ | 994 | | | $ | (735) | | | $ | 259 | | | $ | 994 | | | $ | (666) | | | $ | 328 | |
| Trademarks | 548 | | | (548) | | | 0 | | | 548 | | | (504) | | | 44 | |
| Subtotal | 1,542 | | | (1,283) | | | 259 | | | 1,542 | | | (1,170) | | | 372 | |
| | | | | | | | | | | |
| Oblong Industries | | | | | | | | | | | |
| Developed technology | 10,060 | | | (2,520) | | | 7,540 | | | 10,060 | | | (504) | | | 9,556 | |
| Trade names | 2,410 | | | (302) | | | 2,108 | | | 2,410 | | | (60) | | | 2,350 | |
| Distributor relationships | 310 | | | (77) | | | 233 | | | 310 | | | (16) | | | 294 | |
| Subtotal | 12,780 | | | (2,899) | | | 9,881 | | | 12,780 | | | (580) | | | 12,200 | |
| Total | $ | 14,322 | | | $ | (4,182) | | | $ | 10,140 | | | $ | 14,322 | | | $ | (1,750) | | | $ | 12,572 | |
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 months ended March 31, 2020, we considered the novel Coronavirus (COVID-19) pandemic and resulting declines in certain of the Company’s revenue to be a triggering event for an interim impairment test of intangible assets for both reporting units. During the year ended December 31, 2020, no impairment charges were required. 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 twelve years in accordance with ASC Topic 350. The weighted average lives for the components of intangible assets are as follows:
| | | | | |
| Oblong (formerly Glowpoint) | Life |
| Affiliate network | 12 years |
| Trademarks | 8 years |
| |
| Oblong Industries | Life |
| Developed technology | 5 years |
| Trade names | 10 years |
| Distributor relationships | 5 years |
Related amortization expense was $2,432,000 and $707,000 for the years ended December 31, 2020 and 2019, respectively. Amortization expense for each of the next five succeeding years will be as follows (in thousands):
| | | | | |
| 2021 | $ | 2,386 | |
| 2022 | 2,386 | |
| 2023 | 2,386 | |
| 2024 | 1,850 | |
| 2025 | 241 | |
| Thereafter | 891 | |
| Total | $ | 10,140 | |
Note 9 - Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following (in thousands):
| | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 |
| | | |
| Accrued compensation costs | $ | 411 | | | $ | 810 | |
| Other accrued expenses and liabilities | 786 | | | 843 | |
| Accrued dividends on Series A-2 Preferred Stock | 4 | | | 99 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Accrued expenses and other liabilities | $ | 1,201 | | | $ | 1,752 | |
Note 10 - Debt
Debt consisted of the following (in thousands):
| | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 |
| SVB Loan Principal | $ | 0 | | | $ | 5,609 | |
| PPP Loan Principal | 2,417 | | | 0 | |
| Total Loan Principal | 2,417 | | | 5,609 | |
| Less: Unamortized SVB debt discount | 0 | | | (102) | |
| Net carrying value | 2,417 | | | 5,507 | |
| Less: SVB current maturities, net of debt discount | 0 | | | 2,664 | |
| Less: PPP current maturities | 2,014 | | | 0 | |
| Total current maturities, net of debt discount | 2,014 | | | 2,664 | |
| Long-term SVB obligations, net of current maturities and debt discount | 0 | | | 2,843 | |
| Long-term PPP obligations, net of current maturities | 403 | | | 0 | |
| Total long-term obligations, net of current maturities and debt discount | $ | 403 | | | $ | 2,843 | |
Silicon Valley Bank Loan Agreement and Warrant
On October 1, 2019, in connection with the Acquisition of Oblong Industries, the Company and Oblong Industries, as borrowers, and SVB, as lender, executed an amendment to the SVB Loan Agreement. The SVB Loan Agreement provided for a term loan facility of approximately $5,247,000, and a discount of $362,000, for a total liability of $5,609,000 (the “SVB Loan”), all of which was outstanding at December 31, 2019. The Loan had a maturity date of March 1, 2022 with monthly payments of $291,500 (plus accrued and unpaid interest) to begin on October 1, 2020. The SVB Loan accrued interest at a rate equal to the Prime Rate plus 425 basis points (for a total of 7.50% as of September 30, 2020).
In connection with its execution of the amended SVB Loan Agreement on October 1, 2019, the Company issued a warrant to SVB that entitles SVB to purchase 72,394 shares of the Company’s common stock at an exercise price of $0.01 per share (the “SVB Warrant”). The SVB Warrant has a ten (10) year term. The fair value of the SVB Warrant was recorded to additional paid-in capital and was determined to be $72,000 using the Black-Scholes model. The debt discount associated with the SVB Loan was being amortized to interest expense using the effective interest method over the term of the debt. During the year ended December 31, 2020, the Company amortized $83,000 of the debt discount, which is recorded in “Interest and other expense, Net” on our Consolidated Statements of Operations, and $47,000 of the discount was forgiven in the Satisfaction Agreement discussed below.
On October 22, 2020, the Company entered into an agreement (the “Satisfaction Agreement”) with certain of its subsidiaries, Oblong Industries, Inc. and GP Communications, LLC (the “Guarantors”), and SVB as lender, pursuant to which SVB agreed to accept a one-time cash payment of $2,500,000 (the “Satisfaction Payment”) in satisfaction of the Company’s outstanding payment obligations under the SVB Loan Agreement, effective immediately, subject to certain terms and conditions. SVB also agreed to release the security interests and other liens previously granted to or held by SVB as security
for the Company’s obligations under the SVB Loan Agreement, as well as the Guarantors’ guarantees thereof. The Company made the Satisfaction Payment on October 22, 2020. The remaining balance of $3,063,000, net of discount, as well as $54,000 of accrued interest was forgiven and recorded as a “Gain on Extinguishment of Debt” on our Consolidated Statements of Operations. As of December 31, 2020, the Company has 0 outstanding obligations under the SVB Loan Agreement.
Paycheck Protection Program Loan
On April 10, 2020 (the “Origination Date”), the Company received $2,417,000 in aggregate loan proceeds (the “PPP Loan”) from MidFirst Bank (the “Lender”) pursuant to the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The PPP Loan is evidenced by a Promissory Note (the “Note”), dated April 10, 2020, by and between the Company and the Lender. Subject to the terms of the Note, the PPP Loan bears interest at a fixed rate of one percent (1.0%) per annum. Under the terms of the Note, payments of principal and interest are deferred for six months from the origination date. Following the deferral period, the Company will be required to make payments of principal plus interest accrued under the PPP Loan to the Lender in 18 monthly installments based upon an amortization schedule to be determined by the Lender based on the principal balance of the Note outstanding following the deferral period and taking into consideration any portion of the PPP Loan that is forgiven prior to that time. The PPP Loan is unsecured and guaranteed by the U.S. Small Business Administration.
The Paycheck Protection Program provides for forgiveness of up to the full amount borrowed as long as the Company uses the loan proceeds during the 24-week period following disbursement for eligible purposes as described in the CARES Act and related guidance. Under the CARES Act, loan forgiveness is generally available for the sum of documented payroll costs, covered rent payments, covered mortgage interest and covered utilities during the 24-week period. The Company used the majority of the proceeds from the PPP Loan to pay expenses during the applicable period that the Company believes were for eligible purposes; certain reductions in Company payroll costs during this period may reduce the amount of the Note eligible for forgiveness. The Company expects to submit an application to the Lender for forgiveness of the PPP Loan in the second quarter of 2021. There is no guarantee that the Company will receive forgiveness for any fixed amount of any PPP Loan principal received by the Company.
Under the revised rules for the PPP Loan program, the Company will not have to begin principal and interest payments before the date on which the SBA remits the loan forgiveness amount to the Lender (or notifies the Lender that no loan forgiveness is allowed). Following the decision on forgiveness, the Company will be required to pay the Lender equal monthly payments of principal and interest based on the principal amount outstanding on the PPP Loan, plus interest outstanding at the end of the deferment period, and taking into account any reductions in the principal amount due to forgiveness, if any. Interest accrued during the deferment period will be capitalized as principal.
The Company has accounted for the PPP Loan in the same manner as it has for its other loan agreements. Payments that are due within 12 months of balance sheet dates are shown as current liabilities and payments due thereafter are shown as non-current liabilities. We expect our forgiveness application to be processed, and any applicable payments to begin in May 2021. If the Company’s application for forgiveness is approved, the Company will recognize a gain on extinguishment of debt at the time of forgiveness. As of December 31, 2020 the remaining principal balance on the Note is $2,417,000 and $18,000 of interest has been accrued.
Future minimum principal payments are as follows (in thousands):
| | | | | | | | |
| Future Minimum Principal Payments | | PPP Loan1 |
| 2021 | | $ | 2,014 | |
| 2022 | | $ | 403 | |
| | $ | 2,417 | |
1Future minimum payments is based on the repayment beginning in May 2021.
The Note provides for customary events of default including, among other things, failure to make any payment when due, cross-defaults under any loan documents with the Lender, certain cross-defaults under agreements with third parties, inaccuracy of representations and warranties, events of dissolution or insolvency, certain change of control events, and material adverse changes in the Company’s financial condition. If an event of default occurs, the Lender will have the right to accelerate indebtedness under the PPP Loan and/or pursue other remedies available to the Lender at law or in equity.
Note 11 - Capital Stock
Common Stock
Our common stock has historically traded on the NYSE American under the symbol “GLOW.” On March 9, 2020, in connection with our name change to Oblong, Inc., we changed our ticker symbol to “OBLG.” On February 11, 2021, the Company effected a voluntary transfer from the NYSE American to the Nasdaq Capital Market. As of December 31, 2020 we had 150,000,000 shares of our $0.0001 par value Common Stock authorized, with 7,861,912 and 7,748,629 shares of issued and outstanding, respectively.
The following table provides a summary of Common Stock activity for the years ended December 31, 2020 and 2019 (in thousands):
| | | | | | | | |
| Issued Shares as of December 31, 2018 | | 5,114 | |
| | |
| Issuances from Preferred Stock Conversions | | 44 | |
| | |
| Issuances related to Stock Compensation | | 109 | |
| | |
| | |
| Issued Shares as of December 31, 2019 | | 5,267 | |
| | |
| Less Treasury Shares: | | 105 | |
| | |
| Outstanding Shares as of December 31, 2019 | | 5,162 | |
| | |
| Issuances from Private Placements | | 2,293 | |
| Issuances from Preferred Stock Conversions | | 158 | |
| Issuances related to Warrants | | 72 | |
| Issuances related to Stock Compensation | | 31 | |
| Forfeitures of Restricted Stock Awards | | (9) | |
| Issuance of shares for fees | | 50 | |
| Issued Shares as of December 31, 2020 | | 7,862 | |
| | |
| Less Treasury Shares: | | 113 | |
| | |
| Outstanding Shares as of December 31, 2020 | | 7,749 | |
October 2020 Private Equity Placement
On October 21, 2020, the Company, entered into a Securities Purchase Agreement with certain accredited investors, providing for the offer and sale of (i) 1,043,000 shares of the Company’s Common Stock, at a price of $2.85 per share in cash, and (ii) warrants to purchase up to 521,500 shares of Common Stock (the “Warrants”) for gross proceeds of $2,973,000. Net proceeds were $2,717,000, after deducting issuance costs of $256,000. The Private Placement closed on October 22, 2020.
The Warrants have a term of 2 years, are initially exercisable at $4.08 per share and are subject to cashless exercise if, at the time of exercise, the Warrant Shares are not subject to an effective resale registration statement. The Warrants are also subject to adjustment in the event of (i) stock splits and dividends, (ii) subsequent rights offerings, (iii) pro-rata distributions, and (iv) certain fundamental transactions, including but not limited to the sale of the Company, business combinations, and reorganizations. The Warrants do not have any price protection or price reset provisions with respect to future issuances of securities. The fair value of the Warrants was recorded to additional paid-in capital and was determined to be $1,334,000 using the Black-Scholes model.
Warrant Issuance
On October 20, 2020, the Company issued 72,238 shares of its Common Stock to fulfill the exercise of a warrant by Silicon Valley Bank. Refer to Note 10 - Debt, for further discussion of the Silicon Valley Bank Warrant.
December 2020 Private Equity Placement
On December 6, 2020, the Company, entered into a Securities Purchase Agreement with certain accredited investors, providing for the offer and sale of (i) 1,250,000 shares Company’s Common Stock, at a price of $4.00 per share in cash, and (ii) warrants to purchase up to 625,000 shares of Common Stock (the “Warrants”) for gross proceeds of $5,000,000. Net proceeds were $4,654,000 after deducting issuance costs of $346,000. The Private Placement closed on December 7, 2020.
The Warrants have a term of 2 years, are initially exercisable at $5.49 per share and are subject to cashless exercise if, at the time of exercise, the Warrant Shares are not subject to an effective resale registration statement. The Warrants are also subject to adjustment in the event of (i) stock splits and dividends, (ii) subsequent rights offerings, (iii) pro-rata distributions, and (iv) certain fundamental transactions, including but not limited to the sale of the Company, business combinations, and reorganizations. The Warrants do not have any price protection or price reset provisions with respect to future issuances of securities. The fair value of the Warrants was recorded to additional paid-in capital and was determined to be $2,635,000 using the Black-Scholes model.
Warrants
As discussed above, during the year ended December 31, 2020, the Company granted and fulfilled an exercise of common stock warrants. Warrant activity for the years ended December 31, 2020 and 2019 is presented below:
| | | | | | | | | | | | | | |
| | Outstanding |
| | Number of Warrants | | Weighted Average Exercise Price |
| Warrants outstanding and exercisable, December 31, 2018 | | 0 | | | $ | 0 | |
| Granted | | 72,238 | | | 0.01 | |
| | | | |
| | | | |
| | | | |
| Warrants outstanding and exercisable, December 31, 2019 | | 72,238 | | | 0.01 | |
| Granted | | 1,146,500 | | | 4.85 | |
| Exercised | | (72,238) | | | 0.01 | |
| | | | |
| | | | |
| Warrants outstanding and exercisable, December 31, 2020 | | 1,146,500 | | | $ | 4.85 | |
Issuance for Professional Service Fees
On December 10, 2020, the Company issued 50,000 shares of Common Stock as payment for services, equal to $348,000, related to a financial advisory agreement entered into on December 1, 2020. The term of the agreement is 6 months and the Company will record the expense ratably over that term as the service is provided. The Company recorded $58,000 as professional service fees included as a component of general and administrative expenses in the accompanying consolidated statement of operations.
During the years ended December 31, 2020 and 2019, 158,333 and 43,919 shares of the Company’s Common stock were issued in relation to preferred stock conversions. Refer to Note 12 - Preferred Stock,for further discussion of Preferred Stock.
Issuances for Stock Compensation
During the years ended December 31, 2020 and 2019, we issued 30,834 and 109,183 shares of common stock, respectively, relating to the vesting of restricted stock units under our equity incentive plans. Refer to Note 13 - Stock Based Compensation, for further discussion of our equity incentive plans.In addition,during 2020, unvested restricted stock awards of 9,321 were forfeited. There were 0 related forfeitures during 2019.
Treasury Shares
The Company maintains Treasury Stock for the Common Stock shares bought back by the Company when withholding shares to cover taxes on Stock Compensation transactions, or when purchasing shares related to the Stock Repurchase Program discussed below. The following table shows the activity for Treasury Stock during the years ended December 31, 2020 and 2019 (in thousands):
| | | | | | | | | | | | | | |
| | Shares | | Value |
| Treasury Shares as of December 31, 2018 | | 133 | | | $ | (496) | |
| Issuances out of Treasury Stock | | (76) | | | 382 | |
| Purchases to cover stock compensation taxes | | 48 | | | (51) | |
| | | | |
| Treasury Shares as of December 31, 2019 | | 105 | | | $ | (165) | |
| Purchases to cover stock compensation taxes | | 8 | | | (16) | |
| | | | |
| Treasury Shares as of December 31, 2020 | | 113 | | | $ | (181) | |
During the years ended December 31, 2020 and 2019, the Company repurchased 7,998 and 47,918 shares of the Company’s Common Stock (and recorded such shares in treasury stock) from employees, respectively, to satisfy $16,000 and $51,000 of minimum statutory tax withholding requirements relating to the vesting of stock awards, respectively. During 2019, approximately 76,000 shares were issued out of our Treasury Shares to fulfill RSU vestings. The value of the issued Treasury Shares was based on the original value of Treasury Shares, on a first-in-first-out basis, with the offset to Additional Paid in Capital.
Stock Repurchase Program
On July 21, 2018 the Company’s Board of Directors authorized a stock repurchase program (the “Stock Repurchase Program”) granting the Company authority to repurchase up to $750,000 of the Company’s Common Stock. Under the Company’s Stock Repurchase Program, repurchases of Common Stock may be funded using the Company’s existing cash balance and/or future cash flows through repurchases made in the open market, in privately negotiated transactions, or pursuant to other means determined by the Company, in each case as permitted by securities laws and other legal requirements. The number of shares purchased under the Stock Repurchase Program and the timing of any purchases may be based on many factors, including the level of the Company’s available cash, general business conditions, and the pricing of the Common Stock. The Stock Repurchase Program does not obligate the Company to acquire a specific number of shares and may be suspended, modified, or terminated at any time. During the year ended December 31, 2020, the Company did not repurchase any shares of Common Stock. All shares of Common Stock repurchased under the Stock Repurchase Program are recorded as treasury stock. The Stock Repurchase Program does not have an expiration date. As of December 31, 2020, the Company had $673,000 remaining under the Stock Repurchase Program.
Note 12 - Preferred Stock
Our Certificate of Incorporation authorizes the issuance of up to 5,000,000 shares of preferred stock. The following table shows our authorized, issued, and outstanding preferred stock as of December 31, 2020:
| | | | | | | | | | | | | | |
| | Authorized | | Issued and Outstanding |
| | | | |
| | | | |
| 5% Series A-2 Preferred | | 7,500 | | | 45 | |
| | | | |
| | | | |
| 0% Series C Preferred | | 1,750 | | | 0 | |
| 0% Series D Preferred | | 4,000 | | | 0 | |
| 6% Series D Preferred | | 1,750,000 | | | 1,697,958 | |
| 6% Series E Preferred | | 175,000 | | | 131,579 | |
| | | | |
| | 1,938,250 | | | 1,829,582 | |
Series A-2 Preferred Stock
Each share of Series A-2 Preferred Stock has a stated value of $7,500 per share (the “A-2 Stated Value”), a liquidation preference equal to the Series A-2 Stated Value, and is convertible at the holder’s election into common stock at a conversion price per share of $16.11 as of December 31, 2020. Therefore, each share of Series A-2 Preferred Stock is convertible into 466 shares of common stock, for an aggregate of 20,950 shares of common stock, as of December 31, 2020. The conversion price is subject to adjustment upon the occurrence of certain events set forth in our Certificate of Incorporation.
The Series A-2 Preferred Stock is senior to all outstanding classes of the Company’s equity, has weighted average anti-dilution protection and, effective January 1, 2013, entitled to cumulative dividends at a rate of 5.0% per annum, payable quarterly, based on the Series A-2 Stated Value and payable at the option of the holder in cash or through the issuance of a number of additional shares of Series A-2 Preferred Stock with an aggregate liquidation preference equal to the dividend amount payable on the applicable dividend payment date. As of December 31, 2020 and 2019, the Company has recorded $4,000 and $99,000, respectively, in accrued dividends on the accompanying Consolidated Balance Sheets related to the Series A-2 Preferred Stock outstanding. During the year ended December 31, 2020, $17,000 in dividends were accrued, $13,000 in accrued dividends were paid, and $99,000 in accrued and unpaid dividends were exchanged for 13 additional shares of Series A-2 Preferred Stock. The Company, at its option, may redeem all or a portion of the Series A-2 Preferred Stock in cash at a price per share of $8,250 (equal to $7,500 per share multiplied by 110%) plus all accrued and unpaid dividends.
In accordance with ASC Topic 815, we evaluated whether our convertible preferred stock contains provisions that protect holders from declines in our stock price or otherwise couldresult in modification of the exercise price and/or shares to be issued under the respective preferred stock agreements based on a variable that is not an input to the fairvalue of a “fixed-for-fixed” option and require a derivative liability. The Company determined no derivative liability is required under ASC Topic 815 with respect to our convertible preferred stock. A contingent beneficial conversion amount is required to be calculated and recognized when and if the adjusted $16.11 conversion price of the Series A-2 Preferred Stock is adjusted to reflect a down round stock issuance that reduces the conversion price below the $11.16 fair value of the common stock on the issuance date of the Series A-2 Preferred Stock.
On January 28, 2021, all outstanding shares of the series A-2 Preferred Stock, and accrued dividends, were converted into shares of common stock. Refer to Note 20 - Subsequent Events, for further discussion of the conversion.
Series C Preferred Stock
On January 25, 2018, the Company closed a registered direct offering of 1,750 shares of its Series C Preferred Stock for total gross proceeds to the Company of $1,750,000. The shares of Series C Preferred Stock were sold at a price equal to their stated value of $1,000 per share and were convertible into shares of the Company’s common stock at a conversion price of $3.00 per share. During the years ended December 31, 2020 and 2019, 475 and 50 shares of Series C Preferred Stock were converted to 158,333 and 16,667 shares of the Company’s common stock, respectively. As of December 31, 2020, 0 shares of Series C Preferred Stock remain issued and outstanding.
Series D Preferred Stock
In connection with the Acquisition (see Note 3 - Oblong Industries Acquisition), the Company issued an aggregate of 1,686,659 shares of Series D Preferred Stock and an aggregate of 49,967 restricted shares of Series D Preferred Stock (“Restricted Series D Preferred Stock”), the latter of which are subject to vesting over a two-year period following the Closing Date of the Acquisition. Each share of Series D Preferred Stock is automatically convertible into a number of shares of the Company’s common stock equal to the accrued value of the share (initially $28.50), plus any accrued dividends thereon, divided by the Conversion Price (initially $2.85 per share, subject to specified adjustments) upon the completion of both (i) approval of such conversion by the Company’s stockholders (which occurred on December 19, 2019); and (ii) the receipt of all required authorizations and approval of a new listing application for the combined organization from the NYSE American or any such other exchange upon which the Company’s securities are then listed for trading.
Pursuant to the terms of the Series D Certificate of Designations, each share of Series D Preferred Stock is entitled to receive an annual dividend equal to 6% of its then-existing Accrued Value per annum, commencing on the first anniversary of the issuance of the Series D Preferred Stock (or October 1, 2020). Prior to the first anniversary of the issuance of the Series D Preferred Stock no dividends will accrue on such stock. Dividends are cumulative and accrue daily in arrears. If the Company’s Board of Directors does not declare any applicable dividend payment in cash, the Accrued Value of the Series D Preferred Stock will be increased by the amount of such dividend payment. The undeclared dividends for the Series D Preferred Stock, as of December 31, 2020, were $732,000, and increased the value of the Series D Preferred Stock by such amount.
During the years ended December 31, 2020 and 2019, 28,618 and 1,725 of Restricted Series D Preferred Stock were forfeited, respectively, and, in 2020, $8,325 shares of Series D Preferred Stock were surrendered to cover the taxes on vesting shares. As of December 31, 2020, there are 1,647,991 shares of Series D Preferred Stock, and 49,967 shares of Restricted Series D Preferred Stock outstanding.
Series E Preferred Stock
On October 1, 2019, Oblong entered into a Series E Preferred Stock Purchase Agreement (the “Purchase Agreement”) with the investors party thereto, who, prior to the closing of the Acquisition, were stockholders of Oblong Industries (the “Purchasers”), relating to the offer and sale by the Company in a private placement (the “Offering”) of up to 131,579 shares of its Series E Preferred Stock at a price of $28.50 per share. At an initial closing on October 1, 2019 and a subsequent closing on December 18, 2019, the Company sold a total of 131,579 shares of Series E Preferred Stock for net proceeds of approximately $3,750,000. The 131,579 shares of Series E Preferred Stock issued by the Company in the Series E Financing have an aggregate Accrued Value of $3,750,000 and upon their conversion will convert at a conversion price of $2.85 per share into 1,315,790 common shares. Like the Series D Preferred Stock, each share of Series E Preferred Stock is automatically convertible into common stock upon the receipt of all required authorizations and approval of a new listing application for the combined organization from the NYSE American or any such other exchange upon which the Company’s securities are then listed for trading.
Pursuant to the terms of the Series E Certificate of Designations, each share of Series E Preferred Stock is entitled to receive an annual dividend equal to 6.0% of its then-existing Accrued Value per annum, commencing on the first anniversary of the issuance of the Series E Preferred Stock (or October 1, 2020 or December 18, 2020, as applicable). Prior to the first anniversary of the issuance of the Series E Preferred Stock no dividends will accrue on such stock. Dividends are cumulative and accrue daily in arrears. If the Company’s Board of Directors does not declare any applicable dividend payment in cash, the Accrued Value of the Series E Preferred Stock will be increased by the amount of such dividend payment. The undeclared dividends for the Series E Preferred Stock, as of December 31, 2020, were $56,000, and increased the value of the Series E Preferred Stock by such amount.
During the years ended December 31, 2020 and 2019 0 shares of Series E Preferred Stock were forfeited and 131,579 shares remain outstanding as of December 31, 2020.
Subsequent Conversion
If the outstanding shares of Series D and Series E Preferred Stock had been converted to common stock as of December 31, 2020, 17,020,100 and 1,315,790 shares of common stock would have been issued for the Series D and Series E Preferred Stock, respectively, which would have increased our outstanding shares of common stock from 7,748,629 to 26,084,519. In 2021 all outstanding shares of the Series D and Series E Preferred Stock, plus the value of the 6.0% dividend, were converted into shares of common stock. Refer to Note 20 - Subsequent Events, for further discussion of the conversion.
Note 13 - Stock Based Compensation
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. The 2019 Plan replaces the Glowpoint, Inc. 2014 Equity Incentive Plan (the “Prior Plan”), which was adopted by the Company’s Board of Directors on April 22, 2014, and subsequently approved by the Company’s stockholders. Following approval of the 2019 Plan, the Company terminated the Prior Plan and may no longer make grants under the Prior Plan; however, any outstanding equity awards granted under the Prior Plan will continue to be governed by the terms of the Prior Plan. The maximum number of shares of the Company’s Common Stock initially reserved and available for issuance under the 2019 Plan was equal to the sum of (i) 2,600,000 shares the Company’s Common Stock and (ii) 421,000 shares of the Company’s Common Stock remaining available for issuance under the Prior Plan at the time of its termination. As of December 31, 2020, 28,904 restricted stock units were outstanding under the Prior Plan. As of December 31, 2020, the share pool available for new grants under the 2019 Plan is 3,013,500.
During the year ended December 31, 2020, the Company issued 7,500 shares from the 2019 Plan to a former Board member and recorded stock-based compensation expense of $35,000 in general and administrative expenses (based on the stock price on the date of issuance). NaN equity awards were granted under the 2019 Plan during the year ended December 31, 2019.
2007 Stock Incentive Plan
In May 2014, the Board terminated the Company’s 2007 Stock Incentive Plan (the “2007 Plan”). Notwithstanding the termination of the 2007 Plan, outstanding awards under the 2007 Plan will remain in effect accordance with their terms. As of December 31, 2020, options to purchase a total of 107,500 shares of common stock and 627 shares of restricted stock were outstanding under the 2007 Plan. NaN shares are available for issuance under the 2007 Plan.
Stock Options
For the years ended December 31, 2020 and 2019, other than the options granted to certain former holders of options to purchase shares of Oblong’s common stock, for which no stock-based compensation was recorded as discussed below, 0 stock options were granted. A summary of stock options expired and forfeited under our plans and options outstanding as of, and changes made during, the years ended December 31, 2020 and 2019 is presented below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Outstanding | | Exercisable |
| Number of Options | | Weighted Average Exercise Price | | Number of Options | | Weighted Average Exercise Price |
| Options outstanding, December 31, 2018 | 118,003 | | | $ | 19.90 | | | 118,003 | | | $ | 19.90 | |
| Exchanged for Oblong Industries stock options | 107,845 | | | 4.92 | | | | | |
| | | | | | | |
| Expired | (440) | | | 16.48 | | | | |
| Forfeited | (10,063) | | | 23.20 | | | | |
| Options outstanding and exercisable, December 31, 2019 | 215,345 | | | 12.27 | | | 215,345 | | | 12.27 | |
| | | | | | | |
| | | | | | | |
| Expired | (107,845) | | | 4.92 | | | | | |
| | | | | | | |
| Options outstanding and exercisable, December 31, 2020 | 107,500 | | | $ | 19.64 | | | 107,500 | | | $ | 19.64 | |
Additional information as of December 31, 2020 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Outstanding and Exercisable | | |
| Range of price | | Number
of Options | | Weighted
Average
Remaining
Contractual
Life (In Years) | | Weighted
Average
Exercise
Price | | | | |
| $0.00 – $10.00 | | 2,500 | | | 2.45 | | $ | 9.00 | | | | | |
| $10.01 – $20.00 | | 97,500 | | | 2.06 | | 19.32 | | | | | |
| $20.01 – $30.00 | | 2,500 | | | 1.43 | | 21.80 | | | | | |
| $30.01 – $40.00 | | 5,000 | | | 1.19 | | 30.20 | | | | | |
| | | | | | | | | | |
| | 107,500 | | | 2.01 | | $ | 19.64 | | | | | |
In connection with the Acquisition, all options to purchase shares of Oblong’s common stock held by previously terminated employees of Oblong Industries were assumed by the Company and deemed, in the aggregate, to constitute options to acquire a total of 107,845 shares of the Company’s common stock, at a volume weighted average exercise price of $4.92 per share and a remaining exercise period of one year. NaN stock-based compensation expense was recorded in the years ended December 31, 2020 and 2019 for these stock options, as the value for these options was recorded as part of the consideration of the Acquisition given that these options were issued to terminated employees. As of December 31, 2020, all 107,845 options had expired.
The intrinsic value of vested options, unvested options and exercised options were 0t significant for all periods presented. There was 0 remaining unrecognized stock-based compensation expense for options at December 31, 2020 as all options were vested.
Restricted Stock Awards
A summary of restricted stock granted, vested and unvested outstanding as of, and changes made during, the years ended December 31, 2020 and 2019, is presented below:
| | | | | | | | | | | |
| Restricted Shares | | Weighted Average
Grant Price |
| Unvested restricted stock outstanding, December 31, 2018 | 11,320 | | | $ | 14.88 | |
| | | |
| Vested | (1,372) | | | 15.72 | |
| Forfeited | (9,321) | | | 14.70 | |
| Unvested restricted stock outstanding, December 31, 2019 | 627 | | 15.80 | |
| | | |
| | | |
| | | |
| Unvested restricted stock outstanding, December 31, 2020 | 627 | | | $ | 15.80 | |
Stock-based compensation expense relating to restricted stock awards is allocated as follows (in thousands):
| | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2019 |
| | | |
| | | |
| | | |
| General and administrative | 0 | | | 3 | |
| $ | 0 | | | $ | 3 | |
The stock compensation for the unvested restricted stock awards was amortized over an average service life of five years, but the vesting term was the lesser of i) ten years from the date of issuance (May 28, 2024) or ii) the departure date of the director. The unvested restricted stock awards have been fully expensed and there is 0 unrecognized stock-based compensation expense for restricted stock awards at December 31, 2020.
Restricted Stock Units
A summary of restricted stock units (“RSUs”) granted, vested, forfeited and unvested outstanding as of, and changes made during, the years ended December 31, 2020 and 2019, is presented below:
| | | | | | | | | | | |
| Restricted Stock Units | | Weighted Average
Grant Price |
| Unvested RSUs outstanding, December 31, 2018 | 503,518 | | | $ | 1.94 | |
| Granted | 55,479 | | | 1.30 | |
| Vested | (114,505) | | | 3.05 | |
| Forfeited | (421,158) | | | 1.54 | |
| Unvested RSUs outstanding, December 31, 2019 | 23,334 | | | 2.20 | |
| | | |
| Vested | (23,334) | | | 2.20 | |
| | | |
| Unvested RSUs outstanding, December 31, 2020 | 0 | | | $ | 0 | |
As of December 31, 2020 and 2019, 28,904 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.
The number of RSUs vested during the year ended December 31, 2020 includes 7,998 shares of common stock withheld and repurchased by the Company on behalf of employees to satisfy $16,000 of tax obligations relating to the vesting of such shares.
Stock-based compensation expense relating to restricted stock units is allocated as follows (in thousands):
| | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2019 |
| Cost of revenue | $ | 0 | | | $ | 10 | |
| Research and development | 0 | | 12 | |
| | | |
| General and administrative | 6 | | 52 | |
| $ | 6 | | | $ | 74 | |
There was 0 remaining unrecognized stock-based compensation expense for restricted stock units at December 31, 2020.
There was 0 tax benefit recognized for stock-based compensation expense for the years ended December 31, 2020 and 2019. NaN compensation costs were capitalized as part of the cost of an asset during the periods presented.
Restricted Series D Preferred Stock
In connection with the Acquisition, all options to purchase shares of Oblong Industries’ common stock held by existing employees of Oblong Industries were canceled and exchanged for an aggregate of 49,967 restricted shares of Series D Preferred Stock (“Restricted Series D Preferred Stock”), which are subject to vesting over a two-year period following the Closing Date.
Stock-based compensation expense relating to Restricted Series D Preferred Stock is allocated as follows (in thousands):
| | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2019 |
| Research and development | $ | 47 | | | $ | 17 | |
| Sales, general and administrative | $ | 111 | | | $ | 16 | |
| $ | 158 | | | $ | 33 | |
During the years ended December 31, 2020 and 2019, 29,694 and 1,725 shares of Restricted Series D Preferred Stock were forfeited, respectively and 18,548 shares were outstanding as of December 31, 2020. The remaining unrecognized stock-based compensation expense for Restricted Series D Preferred Stock at December 31, 2020 was $38,000, which was expensed in February 2021 upon the conversion of the shares into common. Refer to Note 20 - Subsequent Events, for further discussion of the conversion.
Note 14 - Net Loss Per Share
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 0t include any potentially dilutive securities or any unvested restricted shares of common stock. These unvested restricted shares, although classified as issued and outstanding at December 31, 2020 and December 31, 2019, are 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 shares of our restricted stock do not contain non-forfeitable rights to dividends and dividend equivalents. Vested RSUs (for which shares of common stock have not yet been delivered) are included in the calculations of basic net loss per share. 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 awards, to the extent they are dilutive. For the year ended December 31, 2020, 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 losses).
The following table sets forth the computation of the Company’s basic and diluted net loss per share (in thousands, except per share data):
| | | | | | | | | | | |
| Year Ended December 31, |
| Numerator: | 2020 | | 2019 |
| Net loss | $ | (7,421) | | | $ | (7,761) | |
| Less: preferred stock dividends | 17 | | | 27 | |
| Less: undeclared dividends | $ | 788 | | | $ | 0 | |
| Net loss attributable to common stockholders | $ | (8,226) | | | $ | (7,788) | |
| Denominator: | | | |
| Weighted-average number of shares of common stock for basic net loss per share | 5,547 | | | 5,108 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Basic and diluted net loss per share | $ | (1.48) | | | $ | (1.52) | |
| | | |
The weighted-average number of shares for the years ended December 31, 2020 and 2019 includes 28,904 and 28,904 shares, respectively, of vested RSUs, as discussed in Note 13 - Stock Based Compensation.
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:
| | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2019 |
| Unvested restricted stock units | 0 | | | 23,334 | |
| | | |
| Outstanding stock options | 107,500 | | | 215,345 | |
| Unvested restricted stock awards | 627 | | | 627 | |
| Shares of common stock issuable upon conversion of Series A-2 preferred stock | 18,161 | | | 10,978 | |
| | | |
| Shares of common stock issuable upon conversion of Series C preferred stock | 0 | | | 158,333 | |
| Shares of common stock issuable upon conversion of Series D preferred stock | 17,020,100 | | | 17,349,010 | |
| Shares of common stock issuable upon conversion of Series E preferred stock | 1,315,790 | | | 1,315,790 | |
| Warrants | 1,146,500 | | | 72,394 | |
Note 15 - Segment Reporting
Prior to the acquisition of Oblong Industries on October 1, 2019, the Company operated in 1 segment. The businesses of Oblong (formerly Glowpoint) and Oblong Industries were managed separately during the fourth quarter of 2019 and the year ended December 31, 2020, and involve different products and services. Accordingly, the Company currently operates in 2 segments: (1) the Oblong business which mainly consists of managed services for video collaboration and network applications; and (2) the Oblong Industries business which consists of products and services for visual collaboration technologies.
Because the closing of the acquisition of Oblong Industries occurred on October 1, 2019, the Company’s consolidated financial statements as of and for the year ended December 31, 2019 included in this Report only reflect Oblong Industries’ financial results for the fourth quarter of 2019, as compared to full year results for the year ended December 31, 2020.
Certain information concerning the Company’s segments for the years ended December 31, 2020 and 2019 is presented in the following tables (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, 2020 |
| Oblong (formerly Glowpoint) | | Oblong Industries | | Corporate | | Total |
| Revenue | $ | 6,227 | | | $ | 9,106 | | | $ | 0 | | | $ | 15,333 | |
| Cost of revenues | 3,789 | | | 3,491 | | | 0 | | | 7,280 | |
| Gross profit | $ | 2,438 | | | $ | 5,615 | | | $ | 0 | | | $ | 8,053 | |
| Gross profit % | 39.2 | % | | 61.7 | % | | 0 | % | | 52.5 | % |
| | | | | | | |
| Allocated operating expenses | $ | 1,479 | | | $ | 9,913 | | | $ | 0 | | | $ | 11,392 | |
| Unallocated operating expenses | 0 | | | 0 | | | 6,725 | | | 6,725 | |
| Total operating expenses | $ | 1,479 | | | $ | 9,913 | | | $ | 6,725 | | | $ | 18,117 | |
| | | | | | | |
| Income (loss) from operations | $ | 959 | | | $ | (4,298) | | | $ | (6,725) | | | $ | (10,064) | |
| Interest and other income (expense), net | (19) | | | 2,765 | | | 0 | | | 2,746 | |
| Income (loss) before income taxes. | $ | 940 | | | $ | (1,533) | | | $ | (6,725) | | | $ | (7,318) | |
| Income tax expense | $ | 50 | | | $ | 53 | | | $ | 0 | | | $ | 103 | |
| Net income (loss) | $ | 890 | | | $ | (1,586) | | | $ | (6,725) | | | $ | (7,421) | |
| | | | | | | |
| As of December 31, 2020 |
| Total assets | $ | 6,494 | | | $ | 22,649 | | | $ | 0 | | | $ | 29,143 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, 2019 |
| Oblong (formerly Glowpoint) | | Oblong Industries | | Corporate | | Total |
| Revenue | $ | 9,660 | | | $ | 3,167 | | | $ | 0 | | | $ | 12,827 | |
| Cost of revenues | 6,269 | | | 1,158 | | | 0 | | | 7,427 | |
| Gross profit | $ | 3,391 | | | $ | 2,009 | | | $ | 0 | | | $ | 5,400 | |
| Gross profit % | 35.1 | % | | 63.4 | % | | 0 | % | | 42.1 | % |
| | | | | | | |
| Allocated operating expenses | $ | 6,835 | | | $ | 5,183 | | | $ | 0 | | | $ | 12,018 | |
| Unallocated operating expenses | 0 | | | 0 | | | 956 | | | 956 | |
| Total operating expenses | $ | 6,835 | | | $ | 5,183 | | | $ | 956 | | | $ | 12,974 | |
| | | | | | | |
| Loss from operations | $ | (3,444) | | | $ | (3,173) | | | $ | (956) | | | $ | (7,574) | |
| Interest and other expense, net | 0 | | | 0 | | | (187) | | | (187) | |
| Loss before income taxes | $ | (3,444) | | | $ | (3,173) | | | $ | (1,143) | | | $ | (7,761) | |
| Income tax expense | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| Net loss | $ | (3,444) | | | $ | (3,173) | | | $ | (1,143) | | | $ | (7,761) | |
| | | | | | | |
| As of December 31, 2019 |
| Total assets | $ | 5,942 | | | $ | 28,967 | | | $ | 0 | | | $ | 34,909 | |
Unallocated operating expenses include costs for the year ending December 31, 2020 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 years ended December 31, 2020 and 2019, there was no material revenue attributable to any individual foreign country. Approximately 1% of foreign revenue is billed in foreign currency and foreign currency gains and losses are not material. Revenue by geographic area is allocated as follows (in thousands):
| | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2019 |
| Domestic | $ | 10,288 | | | $ | 9,096 | |
| Foreign | $ | 5,045 | | | $ | 3,731 | |
| $ | 15,333 | | | $ | 12,827 | |
Disaggregated information for the Company’s revenue has been recognized in the accompanying consolidated statements of operations and is presented below according to contract type (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2020 | | % of Revenue | | 2019 | | % of Revenue |
| Revenue: Oblong (formerly Glowpoint) | | | | | | | |
| Video collaboration services | $ | 2,413 | | | 15.7 | % | | $ | 5,566 | | | 43.4 | % |
| Network services | 3,611 | | | 23.6 | % | | 3,860 | | | 30.1 | % |
| Professional and other services | 203 | | 1.3 | % | | 234 | | 1.8 | % |
| Total Oblong revenue | $ | 6,227 | | | 40.6 | % | | $ | 9,660 | | | 75.3 | % |
| | | | | | | |
| Revenue: Oblong Industries | | | | | | | |
| Visual collaboration product offerings | $ | 6,873 | | | 44.8 | % | | $ | 2,180 | | | 17.0 | % |
| Professional services | 1,033 | | | 6.7 | % | | 709 | | | 5.5 | % |
| Licensing | 1,200 | | | 7.8 | % | | 278 | | | 2.2 | % |
| Total Oblong Industries revenue | $ | 9,106 | | | 59.4 | % | | $ | 3,167 | | | 24.7 | % |
| Total revenue | $ | 15,333 | | | 100.0 | % | | $ | 12,827 | | | 100.0 | % |
Oblong fixed assets were 100% located in domestic markets at December 31, 2020. Oblong Industries’ long-lived assets were located 80% in domestic and 20% in foreign markets at December 31, 2020.
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:
| | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2020 | | 2019 |
| Segment | | % of Revenue | | % of Revenue |
| Customer A | Oblong | | 17.0 | % | | 17.8 | % |
| Customer B | Oblong Industries | | 17.0 | % | | * |
| Customer C | Oblong | | 0 | % | | 19.8 | % |
| | | | | |
| | | | | |
Concentration of accounts receivable was as follows:
| | | | | | | | | | | | | | | | | |
| | | As of December 31, |
| | | 2020 | | 2019 |
| Segment | | % of Accounts Receivable | | % of Accounts Receivable |
| Customer A | Oblong | | 14.1 | % | | * |
| Customer B | Oblong Industries | | 20.1 | % | | * |
| Customer C | Oblong Industries | | 12.0 | % | | 16.0 | % |
| Customer D | Oblong Industries | | 0 | % | | 18.0 | % |
| Customer E | Oblong | | * | | 11.5 | % |
* The amount did not exceed 10% of the Company’s consolidated total revenue or accounts receivable.
Note 16 - Commitments and Contingencies
Operating Leases
We lease 3 facilities in Los Angeles, California, 1 facility in Boston, Massachusetts, 1 facility in Dallas, Texas, and 1 facility in Munich Germany, all providing office space. We also lease space in City of Industry, California, providing warehouse space. These leases expire between 2022 and 2023. During 2020, and through the date of this filing, we exited leases in Herndon, Virginia; Atlanta, Georgia; Houston, Texas; Los Altos, California; London, England, and a warehouse space in Los Angeles, California. Although subject to COVID restrictions, we currently occupy 2 of the facilities in Los Angeles and the warehouse space in City of Industry; we have subleases in place for the third Los Angeles property, the Dallas property, and the Boston property. The Munich property is not in use and the Company is considering its options with this lease. Lease expenses, net of common charges and sublet proceeds, for the years ended December 31, 2020 and 2019 were $997,000 and $580,000, respectively. The 2019 lease expense consisted of twelve months of lease expense for Oblong (formerly Glowpoint) and three months of lease expense for Oblong Industries. The 2020 expenses consisted of twelve months of lease expense for Oblong Industries, and three months of lease expense for Oblong.
The Company primarily leases facilities for office and data center space under non-cancellable operating leases for its U.S. and international locations that expire at various dates through 2023. For leases with a term greater than 12 months, the Company recognizes a right-of-use asset and a lease liability based on the present value of lease payments over the lease term. Variable lease payments are not included in the lease payments to measure the lease liability and are expensed as incurred. The Company’s leases have remaining terms of one to three years and some of the leases include a Company option to extend the lease term for less than twelve months to five years, or more, which if reasonably certain to exercise, the Company includes in the determination of lease payments. The lease agreements do not contain any material residual value guarantees or material restrictive covenants.
As the Company's leases do not provide a readily determinable implicit rate, the Company uses the incremental borrowing rate at lease commencement, which was determined using a portfolio approach, based on the rate of interest that the Company would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. Operating lease expense is recognized on a straight-line basis over the lease term.
Leases with an initial term of 12 months or less are not recognized on the balance sheet and the expense for these short-term leases is recognized on a straight-line basis over the lease term. Common area maintenance fees (or CAMs) and other charges related to these leases continue to be expensed as incurred.
The following provides balance sheet information related to leases as of December 31, 2020 and 2019 (in thousands):
| | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2020 | | 2019 |
| Assets | | | | |
| Operating lease, right-of-use asset, net | | $ | 903 | | | $ | 3,117 | |
| | | | | |
| Liabilities | | | | |
| Current portion of operating lease liabilities | | $ | 830 | | | $ | 1,294 | |
| Operating lease liabilities, net of current portion | | 602 | | | 2,020 | |
| Total operating lease liabilities | | $ | 1,432 | | | $ | 3,314 | |
The following table summarizes the future undiscounted cash payments reconciled to the lease liability (in thousands):
| | | | | | | | |
| Year Ending December 31, | | |
| 2021 | | $ | 901 | |
| 2022 | | 514 | |
| 2023 | | 116 | |
| Total lease payments | | $ | 1,531 | |
| Effect of discounting | | (99) | |
| Total lease liability | | $ | 1,432 | |
During the year ended December 31, 2020, we entered into 1 new operating lease, terminated 6 operating leases, and took impairment losses on the right-of-use assets on 2 of our operating leases. The following table provides a reconciliation of activity for our right of use assets and lease liabilities (in thousands):
| | | | | | | | | | | | | | |
| | Right-of-Use Asset | | Operating Lease Liability |
| Balance at December 31, 2019 | | $ | 3,117 | | | $ | 3,314 | |
| Additions | | $ | 116 | | | $ | 116 | |
| Terminations and Modifications | | $ | (864) | | | $ | (860) | |
| Amortizations and Reductions | | $ | (1,001) | | | $ | (1,138) | |
| Impairment Charges | | $ | (465) | | | $ | 0 | |
| Balance at December 31, 2020 | | $ | 903 | | | $ | 1,432 | |
The ROU assets and lease liabilities are recorded on the Company’s consolidated balance sheets as of December 31, 2020 and December 31, 2019. During the year ended December 31, 2020, non-cash immaterial out-of-period adjustments of approximately $195,000 were recorded to reduce the right of use asset and lease liability. These adjustments related to an error in the calculation of these amounts, in connection with the Oblong Acquisition.
During the year ended December 31, 2020, the Company entered into 1 new lease, in City of Industry, CA, for warehouse space. The new lease commenced on September 1, 2020 and has a term of 18 months. The new lease resulted in an addition to ROU Assets, and corresponding increase to lease liability, of $116,000.
During the year ended December 31, 2020, the Company exited 6 of its leases, 1 in Denver, 1 in New York, 1 in London, 1 in Atlanta, 1 in Los Angeles, and 1 in Virginia. The Denver lease was exited in the first quarter of 2020, the New York and London leases were exited in the second quarter of 2020, and the Atlanta lease was exited in the third quarter of 2020 when the Company elected not to renew the leases. The Los Angeles lease was exited in third quarter of 2020, and the Virginia lease was exited in the fourth quarter of 2020, when the Company negotiated early terminations of the leases. These lease exits resulted in the reduction of ROU assets and the reduction of lease liability.
The Denver ROU asset was fully amortized, and the lease liability had been fully paid, as of the date of exit resulting in a net effect of zero on the ROU asset and operating lease liability on the Company’s consolidated balance sheet during the first quarter of 2020.
The New York ROU asset was fully amortized, and the lease liability had been fully paid, as of the date of exit resulting in a net effect of zero on the ROU asset and operating lease liability on the Company’s consolidated balance sheet during the first quarter of 2020.
The London lease expired in April 2020 and the Company elected not to renew the lease. The Company had originally planned to renew the London Lease, and, pursuant to ASC 842, had recorded additional operating lease liability and ROU asset value. Upon the exit of the London Lease, the Company recorded a disposal of ROU asset value of $214,000 and corresponding reduction of operating lease liability of $197,000 on the Company’s consolidated balance sheet during the first quarter of 2020.
On April 24, 2020, the Company signed an amendment to the lease on our Los Angeles warehouse in order to exit the lease early. The original termination date of the lease was the end of May 2022 and we exited the lease at the end of August 2020. Upon the exit of the LA Warehouse Lease, the Company recorded a disposal of ROU asset value of $317,000 and corresponding reduction of operating lease liability of $333,000 of lease liability on the Company’s consolidated balance sheet during the second quarter of 2020. In addition, in exchange for the early termination, the Company forfeited its security deposit of $26,000.
On July 31, 2020, the Company entered into a termination agreement related to our lease in Atlanta, upon the expiration of the lease term. The Company had originally planned to renew the Atlanta Lease, and, pursuant to ASC 842, had recorded additional operating lease liability and ROU asset value. Upon exit of the Atlanta lease, the Company recorded a disposal of ROU asset value of $17,000, and a corresponding reduction of lease liability of $20,000, on the Company’s consolidated balance sheet during the third quarter of 2020.
On November 30, 2020, the Company entered into a termination agreement, related to our lease in Virginia, in exchange for a cancellation fee of $45,000 and the forfeiture of our $18,000 security deposit. The original term of the lease was set to expire in September 2022. Upon exit of the Virginia lease, the Company recorded a disposal of ROU asset value of $120,000, and a corresponding reduction of lease liability of $137,000, on the Company’s consolidated balance sheet during the fourth quarter of 2020.
During 2020, the Company subleased its office space in Dallas and Los Altos, a portion of its office space in Boston, and in December 2020, we subleased one of the units of our LA office space. The sublease terms all mirror the remaining terms of their respective leases, and all subleases are in good standing. During the year ended December 31, 2020, the Company recorded an offset of approximately $374,000 to our rent and occupancy expenses from the proceeds of these subleases.
On December 31, 2020, the Company determined it was not going to be able to sublet the remainder of the Boston property, or any of the Munich property, and impaired the ROU asset value of these leases. The Company recorded impairment charges of $195,000 and $270,000 on the ROU assets of the Boston and Munich leases, respectively, and included these amounts in impairment expense in the accompanying consolidated statement of operations for the year ended December 31, 2020.
COVID-19
On March 11, 2020, the World Health Organization announced that infections of the novel Coronavirus (COVID-19) had become pandemic, and on March 13, the U.S. President announced a National Emergency relating to the disease. There is a possibility of continued widespread infection in the United States and abroad, with the potential for catastrophic impact. National, state and local authorities have required or recommended social distancing and imposed or are considering quarantine and isolation measures on large portions of the population, including mandatory business closures. These measures, while intended to protect human life, are expected to have serious adverse impacts on domestic and foreign economies of uncertain severity and duration. Some economists are predicting the United States will soon enter a recession. 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, but we expect that it may materially affect our business, financial condition and results of operations. The extent to which the coronavirus impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others. Moreover, the coronavirus outbreak has begun to have indeterminable adverse effects on general commercial activity and the world economy, and our business and results of operations could be adversely
affected to the extent that this coronavirus or any other epidemic harms the global economy generally and/or the markets in which we operate specifically. Any of the foregoing factors, or other cascading effects of the coronavirus pandemic that are not currently foreseeable, could materially increase our costs, negatively impact our revenues and damage the Company’s results of operations and its liquidity position, possibly to a significant degree. The duration of any such impacts cannot be predicted. As discussed in Note 21, an existing major customer of the Company suspended certain professional services we provided to the customer effective April 30, 2020 due to COVID-19. These services accounted for $1.0 million, or 9%, of the Company’s revenue for the year ended December 31, 2020. Uncertainties resulting from COVID-19 may result in additional customers delaying budget expenditures or re-allocating resources, which would result in a decrease in orders from these customers. Any such decrease in orders from these customers could cause a material adverse effect on our revenues and financial results and our ability to generate positive cash flows.
Note 17 - Income Taxes
The following table sets forth pretax book loss (in thousands):
| | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2019 |
| United States | $ | (7,570) | | | $ | (7,882) | |
| Foreign | 252 | | | 121 | |
| Total | $ | (7,318) | | | $ | (7,761) | |
The following table sets forth income before taxes and the income tax expense for the years ended December 31, 2020 and 2019 (in thousands):
| | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2019 |
| Current: | | | |
| Federal | $ | 0 | | | $ | 0 | |
| Foreign | 53 | | | 0 | |
| State | 50 | | | 0 | |
| 103 | | | 0 | |
| | | |
| Deferred: | | | |
| Federal | 0 | | | 0 | |
| Foreign | 0 | | | 0 | |
| State | 0 | | | 0 | |
| 0 | | | 0 | |
| Income tax expense | $ | 103 | | | $ | 0 | |
Our effective tax rate differs from the statutory federal tax rate for the years ended December 31, 2020 and 2019 as shown in the following table (in thousands):
| | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2019 |
| U.S. federal income taxes at the statutory rate | $ | (1,533) | | | $ | (1,630) | |
| State taxes, net of federal effects | (122) | | | (130) | |
| | | |
| UK Anti-Hybrid expense addback | 289 | | | 397 | |
| | | |
| Transaction costs | 0 | | | 74 | |
| Goodwill impairment | 114 | | | 473 | |
| | | |
| | | |
| Section 382 Limitation | 0 | | | (7,448) | |
| Adjustment to NOL Benefit | 4,640 | | | 0 | |
| NOL Carryforward Adjustment for Expired NOLs | 84 | | | 0 | |
| Stock Compensation Plan Adjustments | 272 | | | 0 | |
| Change in state apportionment rate | (350) | | | (406) | |
| Change in valuation allowance | (3,868) | | | 8,869 | |
| Research and development credit | 546 | | | (136) | |
| | | |
| Other | 31 | | | (63) | |
| Income tax expense | $ | 103 | | | $ | 0 | |
| | | |
The tax effect of the temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of December 31, 2020 and 2019 is presented below (in thousands):
| | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 |
| Deferred tax assets (liabilities): | | | |
| Tax benefit of operating loss carry forward - Federal | $ | 23,184 | | | $ | 22,793 | |
| Tax benefit of operating loss carry forward - State | 5,548 | | | 10,122 | |
| | | |
| Accrued expenses | 141 | | | 83 | |
| Deferred revenue | 417 | | | 522 | |
| | | |
| Stock-based compensation | 396 | | | 671 | |
| Fixed assets | 329 | | | 320 | |
| Goodwill | 167 | | | 236 | |
| Inventory | 47 | | | (61) | |
| Intangible amortization | (2,285) | | | (3,287) | |
| | | |
| | | |
| R&D credit | 2,154 | | | 2,700 | |
| Texas margin tax temporary credit | 159 | | | 186 | |
| Other | 285 | | | 125 | |
| Total deferred tax asset, net | $ | 30,542 | | | $ | 34,410 | |
| | | |
| Valuation allowance | (30,542) | | | (34,410) | |
| Net deferred tax liability | $ | 0 | | | $ | 0 | |
The ending balances of the deferred tax asset have been fully reserved, reflecting the uncertainties as to realizability evidenced by the Company’s historical results. The change in valuation allowance for the year ended December 31, 2020 is an decrease of $4,005,000 principally due to the reduction of NOLs due to Section 382 limitations. The change in valuation allowance for the year ended December 31, 2019 was an increase of $25,040,000.
We and our subsidiary file federal and state tax returns on a consolidated basis. On October 1, 2019 Oblong, Inc. acquired the stock of Oblong Industries Inc. that resulted in Oblong Industries Inc.'s shareholders now owning 75% of Oblong, Inc. Therefore, an “ownership change” occurred on this date (as defined under Section 382 of the Internal Revenue Code of 1986, as
amended), which places an annual limitation on the utilization of the net operating loss (“NOL”) carryforwards accumulated before the ownership change. If additional ownership changes occur in the future, the use of the net operating loss carryforwards could be subject to further limitation.
As a result of this annual limitation and the limited carryforward life of the accumulated NOLs, we determined that the ownership change resulted in the permanent loss of approximately $30,880,000 of tax NOL carryforwards. At December 31, 2019, we had federal net operating loss carryforwards of $108,497,000 available to offset future federal taxable income which expire in various amounts from 2020 through 2037. At December 31, 2020, we had federal net operating loss carryforwards of $110,401,000 available to offset future federal taxable income which expire in various amounts from 2020 through 2037. Of this amount, 5,928,000 is subject to annual Section 382 limitations. As of December 31, 2020 and 2019, the Company also has various state net operating loss carryforwards of $94,223,000 and $141,210,000, respectively. The determination of the state net operating loss carryforwards is dependent upon apportionment percentages and state laws that can change, from year to year and impact the amount of such carryforwards.
There were no significant matters determined to be unrecognized tax benefits taken or expected to be taken in a tax return, in accordance with ASC Topic 740 “Income Taxes” (“ASC 740”), which clarifies the accounting for uncertainty in income taxes recognized in the financial statements, that have been recorded on the Company’s consolidated financial statements for the years ended December 31, 2020 and 2019. The Company does not anticipate a material change to unrecognized tax benefits in the next twelve months.
Additionally, ASC 740 provides guidance on the recognition of interest and penalties related to unrecognized tax benefits. There were 0 interest or penalties related to income taxes that have been accrued or recognized as of and for the years ended December 31, 2020 and 2019.
The federal and state tax returns for the 2017 and subsequent years are currently open to examination.
Note 18 - 401(k) Plan
We have adopted a retirement plan under Section 401(k) of the Internal Revenue Code. The 401(k) plan covers substantially all employees who meet minimum age and service requirements. Company contributions to the 401(k) plan for the years ended December 31, 2020 and 2019 were $58,000 and $74,000, respectively.
Note 19 - Related Party Transactions
On October 1, 2019, Oblong entered into a Series E Preferred Stock Purchase Agreement with the investors party thereto, who, prior to the closing of the Acquisition, were stockholders of Oblong Industries, relating to the offer and sale by the Company in a private placement (the “Offering”) of up to 131,579 shares of its Series E Preferred Stock at a price of $28.50 per share (see further discussion in Note 12 - Preferred Stock).
Note 20 - Subsequent Events
Listing Transfer from NYSE American to Nasdaq
On February 1, 2021, the Company, acting pursuant to authorization from its Board of Directors, determined to voluntarily withdraw the listing of the Company’s common stock, par value $0.0001 per share (the “Common Stock”), from the NYSE American Stock Exchange (the “NYSE American”) and transfer such listing to The Nasdaq Capital Market (“Nasdaq”). The Company’s listing and trading of its Common Stock on the NYSE American ended at market close on February 11, 2021, and trading began on Nasdaq at market open on February 12, 2021, and is continuing to trade under the ticker symbol “OBLG”.
Preferred Stock Conversions
Series A-2 Preferred Stock
On January 28, 2021, the Company entered into an agreement with the holder of the Series A-2 Preferred Stock to convert the Stated Value of all outstanding shares of the Series A-2 Preferred Stock, approximately 45 shares, into 84,292 shares of the Company’s common stock, at a negotiated conversion price of $4.00 per share, after taking into consideration accrued and unpaid dividends.
Series D and Series E Preferred Stock
The terms of the Company’s Series D and Series E Preferred Stock, par value $0.0001 per share (together, the “Series D and E Preferred Stock”), provided that such shares are automatically convertible into a number of shares of the Company’s Common Stock equal to the accrued value of the preferred shares (initially $28.50), plus any accrued dividends thereon, divided by the conversion price (initially $2.85 per share, subject to specified adjustments) upon the completion of both (i) approval of such conversion by the Company’s stockholders entitled to vote thereon (which occurred on December 19, 2019); and (ii) the receipt of all required authorizations and approval of a new listing application for the combined organization following the Company’s October 2019 acquisition of Oblong Industries, Inc. from the NYSE American or any such other exchange upon which the Company’s securities are then listed for trading. The Company determined that this conversion condition was completed in its entirety, and the Series D and E Preferred Stock automatically converted to shares of Common Stock pursuant to their terms, effective upon the commencement of trading of the Company’s Common Stock on Nasdaq as described above.
As of the date of conversion, the Company had 1,703,641 shares of Series D Preferred Stock and 131,579 shares of Series E Preferred Stock outstanding, respectively. The outstanding shares of Series D and Series E Preferred stock were converted into 17,416,887 and 1,345,176 shares of Common Stock, respectively, after taking into consideration all accrued and unpaid dividends.
Following the conversion of the Series A-2, Series D, and Series E Preferred Stock, the Company had an aggregate of 26,618,048 shares of Common Stock issued and outstanding, and 0 shares of Preferred Stock issued and outstanding.