OBLONG, INC.
OBLONG, INC.
OBLONG, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| | | | | | | | | | | |
| Six Months Ended June 30, | | |
| 2020 | | 2019 |
Cash flows from operating activities: | | | |
Net loss | $ | (6,514) | | | $ | (1,473) | |
Adjustments to reconcile net loss to net cash used in operating activities: | | | |
Depreciation and amortization | 1,612 | | | 316 | |
Bad debt expense | 34 | | | 9 | |
Amortization of debt discount | 45 | | | — | |
Amortization of right of use asset | 595 | | | — | |
Payments on lease liability | (626) | | | — | |
Loss on disposal of equipment | 15 | | | — | |
Stock-based compensation | 61 | | | 53 | |
Loss on foreign currency remeasurement | (12) | | | — | |
Impairment charges | 550 | | | 453 | |
Changes in operating assets and liabilities: | | | |
Accounts receivable | 1,149 | | | (112) | |
Inventory | 473 | | | — | |
Prepaid expenses and other current assets | 47 | | | 73 | |
Other assets | (28) | | | 50 | |
Accounts payable | (3) | | | 86 | |
Accrued expenses and other current liabilities | (490) | | | (423) | |
Deferred revenue | 238 | | | — | |
Other liabilities | (3) | | | — | |
Net cash used in operating activities | (2,857) | | | (968) | |
Cash flows from investing activities: | | | |
Purchases of property and equipment | (5) | | | (17) | |
Net cash used in investing activities | (5) | | | (17) | |
Cash flows from financing activities: | | | |
Proceeds from PPP Loan | 2,417 | | | — | |
Purchase of treasury stock | (16) | | | (35) | |
Net cash provided by (used in) financing activities | 2,401 | | | (35) | |
Decrease in cash and cash equivalents | (461) | | | (1,020) | |
Cash at beginning of period | 4,602 | | | 2,007 | |
Cash at end of period | $ | 4,141 | | | $ | 987 | |
| | | |
Supplemental disclosures of cash flow information: | | | |
Cash paid during the period for interest | $ | 96 | | | $ | — | |
Non-cash investing and financing activities: | | | |
Issue preferred stock in exchange for accrued dividends | 99 | | | — | |
Accrue preferred stock dividends | 8 | | | 19 | |
Issuance of common stock for vested restricted stock units | $ | — | | | $ | 382 | |
See accompanying notes to condensed consolidated financial statements.
-6-
|
| | | | | | | |
| Three Months Ended March 31, |
| 2020 | | 2019 |
Cash flows from operating activities: | | | |
Net loss | $ | (3,129 | ) | | $ | (598 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | | | |
Depreciation and amortization | 815 |
| | 159 |
|
Bad debt expense | 13 |
| | (4 | ) |
Amortization of debt discount | 34 |
| | — |
|
Amortization of right of use asset | 302 |
| | — |
|
Payments on lease liability | (317 | ) | | — |
|
Loss on disposal of equipment | 22 |
| | — |
|
Stock-based compensation | 32 |
| | 29 |
|
Impairment charges | 541 |
| | — |
|
Changes in operating assets and liabilities: | | | |
Accounts receivable | (1,679 | ) | | (67 | ) |
Inventory | 377 |
| | — |
|
Prepaid expenses and other current assets | (133 | ) | | (72 | ) |
Other assets | (59 | ) | | 24 |
|
Accounts payable | 274 |
| | (15 | ) |
Accrued expenses and other current liabilities | (398 | ) | | 136 |
|
Deferred revenue | 772 |
| | — |
|
Other liabilities | (3 | ) | | — |
|
Net cash used in operating activities | (2,536 | ) | | (408 | ) |
Cash flows from investing activities: | | | |
Purchases of property and equipment | — |
| | (9 | ) |
Net cash used in investing activities | — |
| | (9 | ) |
Cash flows from financing activities: | | | |
Preferred stock dividends | — |
| | — |
|
Purchase of treasury stock | (7 | ) | | (1 | ) |
Net cash used in financing activities | (7 | ) | | (1 | ) |
Decrease in cash and cash equivalents | (2,543 | ) | | (418 | ) |
Cash at beginning of period | 4,602 |
| | 2,007 |
|
Cash at end of period | $ | 2,059 |
| | $ | 1,589 |
|
| | | |
Supplemental disclosures of cash flow information: | | | |
Cash paid during the period for interest | $ | 90 |
| | $ | — |
|
| | | |
Non-cash investing and financing activities: | | | |
Accrued preferred stock dividends | $ | 4 |
| | $ | 15 |
|
Issue of preferred stock in exchange for accrued dividends | $ | 98 |
| | $ | — |
|
OBLONG, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31,June 30, 2020
(Unaudited)
Note 1 - Business Description and Significant Accounting Policies
Business Description
Oblong, Inc. (“Oblong” or “we” or “us” or the “Company”) was formed as a Delaware corporation in May 2000 and is a provider of patented multi-stream collaboration technologies and managed services for video collaboration and network applications. Prior to March 6, 2020, Oblong, Inc. was named Glowpoint, Inc. (“Glowpoint”). On March 6, 2020, Glowpoint changed its name to Oblong, Inc.
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” and, such transaction, the “Acquisition”); see further discussion in Note 3 - Oblong Industries Acquisition.Acquisition. 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 (formerly Glowpoint) business as “Glowpoint” herein, and to the Oblong Industries business as “Oblong Industries” herein.
Basis of Presentation
The Company's fiscal year ends on December 31 of each calendar year. The accompanying interim condensed consolidated financial statements are unaudited and have been prepared on substantially the same basis as our annual consolidated financial statements for the fiscal year ended December 31, 2019. In the opinion of the Company's management, these interim condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of our financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates.
The December 31, 2019 year-end condensed consolidated balance sheet data in this document was derived from audited consolidated financial statements. These condensed consolidated financial statements and notes included in this quarterly report on Form 10-Q does not include all disclosures required by U.S. generally accepted accounting principles and should be read in conjunction with the Company's audited consolidated financial statements as of and for the year ended December 31, 2019 and notes thereto included in the Company's fiscal 2019 Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on May15,May 15, 2020 (the “2019 10-K”).
The results of operations and cash flows for the interim periods included in these condensed consolidated financial statements are not necessarily indicative of the results to be expected for any future period or the entire fiscal year. Because the closing of the acquisition of Oblong Industries occurred on October 1, 2019, the Company’s condensed consolidated financial statements for the three and six months ended March 31,June 30, 2019 included in this Report do not reflect Oblong Industries’ financial results.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of Oblong and our 100%-owned subsidiaries, (i) GP Communications, LLC (“GP Communications”), whose business function is to provide interstate telecommunications services for regulatory purposes, (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.
Segments
Prior to the acquisition of Oblong Industries on October 1, 2019, the Company operated in one1 segment. Following October 1, 2019, the former businesses of Glowpoint and Oblong Industries have been managed separately and involve different products and services. Accordingly, the Company currently operates in two2 segments: 1) the Glowpoint (now named Oblong) business which includes managed services for video collaboration and network applications and 2) the Oblong Industries business which includes products and services for visual collaboration technologies. See Note 12 - Segment Reporting for further discussion.
Use of Estimates
Preparation of the condensed 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 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 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 fair value of equity based awards as well as the values ascribed to assets acquired and liabilities assumed in the business combination.
Significant Accounting Policies
The significant accounting policies used in preparation of these condensed consolidated financial statements are disclosed in our 2019 10-K.
Leases
The Company determines if an arrangement is a lease at inception. For the Company’s operating leases, the right-of-use (“ROU”) assets represents the Company’s right to use an underlying asset for the lease term and operating lease liabilities represent an obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Since all of the lease agreements do not provide an implicit rate, the Company estimated an incremental borrowing rate in determining the present value of the lease payments. Operating lease expense is recognized on a straight-line basis over the lease term, subject to any changes in the lease or expectations regarding the terms. Variable lease costs such as operating costs and property taxes are expensed as incurred.
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 equity, 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.
Recently Issued Accounting Pronouncements
In June 2016 the FASBFinancial Accounting Standards Board (“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).” Topic 326 introduces an impairment model that is based on expected credit losses, rather than incurred losses, to estimate credit losses on certain types of financial instruments (e.g. accounts receivable, loans and held-to-maturity securities), including certain off-balance sheet financial instruments (e.g., loan commitments). The expected credit losses should consider historical information, current information, and reasonable and supportable forecasts, including estimates of prepayments, over the contractual term. Financial instruments with similar risk characteristics may be grouped together when estimating expected credit losses. Topic 326 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 Uncertainty
As of March 31,June 30, 2020, we had $2,059,000$4,141,000 of cash, $5,609,000 of total obligations under the Silicon Valley Bank (“SVB”) Loan Agreement, obligations of $2,417,000 under the Paycheck Protection Program loan, and a working capital deficit of $895,000.$755,000. For the threesix months ended March 31,June 30, 2020, we incurred a net loss of $3,129,000$6,514,000 and used $2,536,000$2,857,000 of net cash in operating activities.
As of March 31, 2020, theThe SVB Loan Agreement providedprovides that interest-only payments wereare due through March 31,September 30, 2020, after which equal monthly principal andpayments of $291,500, plus interest, payments wereare payable in order to fully repay the loan by September 1, 2021. 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 Loan Agreement through September 30, 2020, after which equal monthly principal payments of $291,500 are payable over an eighteen-month period from October 1, 2020 through March 1, 2022 to fully repay the loan.2022. See further discussion of the AmendmentSVB Loan in Note 148 - Subsequent Events.Debt.
In AprilDuring the three and six months ended June 30, 2020, we received cash proceeds of $2,417,000 from a loan for $2,416,600 (the “PPP Loan”) frommade to the Company by MidFirst Bank under the Paycheck Protection Program (PPP) contained within the Coronavirus Aid Relief, and Economic Security (CARES) Act (see Note 14 - Subsequent Events(the “PPP Loan”). TheSee further discussion of 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.in Note 8 - 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, debt service obligations under the SVB Loan Agreement, the amount of forgiveness of the PPP Loan, if any, and the debt service obligations under the PPP Loan, and expenses required to successfully integrate Glowpoint and Oblong Industries. While our acquisition of Oblong Industries does provide additional revenues to the Company, the cost to further develop and commercialize its product offerings is expected to exceed its revenues for the foreseeable future. We have achieved certain cost synergies in connection with combining Glowpoint and Oblong Industries; we reduced the total of general and administrative, research and development, sales, and marketing expenses by $1,081,000$938,000 or 19%21% from the fourthfirst quarter of 20192020 as compared to the firstsecond quarter of 2020 (or a total of $5,656,000$4,575,000 in the fourthfirst quarter of 20192020 as compared to $4,575,000$3,637,000 in the firstsecond quarter of 2020). We expect to further reduce the Company’s quarterly operating expenses in the futuresecond half of 2020 as compared to its annualized operating expenses for the three months ended March 31,June 30, 2020.
We also 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 and raise capital in one or more debt and/or equity offerings. There can be no assurance that we will be successful in raising necessary capital or that any such offering will be on terms acceptable to the Company. If we are unable to raise additional capital that may be needed on terms acceptable to us, it could have a material adverse effect on the Company. The factors discussed above raise substantial doubt as to our ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments that might result from these uncertainties.
See Note 13 - Commitments and Contingencies to our condensed consolidated financial statements for discussion regarding certain additional factors that could impact the Company’s liquidity in the future.
Note 3 - Oblong Industries Acquisition
On October 1, 2019 (the “Closing Date”), the Company closed its acquisition of Oblong Industries, Inc. 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.
The acquisition was accounted for in accordance with FASB Accounting Standards Codification (“ASC”) 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.
The Company acquired net assets of $11,496,000, including $12,780,000 of identifiable intangible assets, in the acquisition. The purchase price exceeded the fair value of the net assets acquired by $7,366,000, which was recorded as goodwill.
The accompanying condensed 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).
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 condensed consolidated statementstatements of operations for the three and six months ended March 31,June 30, 2020 includes $3,283,000include $1,443,000 and $4,726,000 of revenue, respectively, and net losslosses of $2,234,000$2,738,000 and $4,972,000, respectively, related to Oblong Industries. The Company's unaudited pro forma results for the three and six months ended March 31,June 30, 2019 are summarized in the table below, assuming the Acquisition had occurred on January 1, 2019. These unaudited pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations which would have actually resulted had the acquisition occurred on January 1, 2019, nor to be indicative of future results of operations.
| | | | | | | | | | | | | | |
| | Pro forma and unaudited (as if the acquisition of Oblong Industries had occurred on January 1, 2019) | | |
| | Three Months Ended June 30, 2019 | | Six Months Ended June 30, 2019 |
| | ($ in thousands) | | ($ in thousands) |
Revenue | | | | |
Glowpoint | | $ | 2,439 | | | $ | 5,033 | |
Oblong Industries | | $ | 3,781 | | | $ | 8,499 | |
Pro forma total revenue | | $ | 6,220 | | | $ | 13,532 | |
Net loss | | | | |
Glowpoint | | $ | 875 | | | $ | 1,473 | |
Oblong Industries | | $ | 4,854 | | | $ | 7,866 | |
Pro forma net loss | | $ | 5,729 | | | $ | 9,339 | |
|
| | | | |
| | Pro forma and unaudited (as if the acquisition of Oblong Industries had occurred on January 1, 2019) |
| | Three Months Ended March 31, 2019 |
| | ($ in thousands) |
Revenue | | |
Glowpoint | | $ | 2,594 |
|
Oblong Industries | | 4,718 |
|
Pro forma total revenue | | $ | 7,312 |
|
Net loss | | |
Glowpoint | | $ | (598 | ) |
Oblong Industries | | (3,592 | ) |
Pro forma net loss | | $ | (4,190 | ) |
Note 4 - Inventory
Inventory was $1,439,000$1,344,000 and $1,816,000 as of March 31,June 30, 2020 and December 31, 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, and any such amounts are written off to expense.
Note 5 - Goodwill
As of March 31,June 30, 2020 and December 31, 2019, goodwill was $7,366,000 and $7,907,000, respectively. As of March 31,June 30, 2020, goodwill was comprised of $7,366,000 recorded in connection with the October 1, 2019 acquisition of Oblong Industries. As of December 31, 2019, goodwill was comprised of (i) $7,366,000 recorded in connection with the October 1, 2019 acquisition of Oblong Industries and (ii) $541,000 related to the Glowpoint reporting unit as discussed below.
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 two2 reporting units, Glowpoint and Oblong Industries. As of March 31,During the six months ended June 30, 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.units as of March 31, 2020. To determine the fair value of each reporting unit, as of March 31, 2020 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, therefore no impairment charge was required.required for the three or six months ended June 30, 2020. For the Glowpoint reporting unit, we recorded an impairment charge on goodwill of $541,000 for the three
months endedat March 31, 2020 as the carrying amount of the reporting unit exceeded its fair value on the test date. This charge is recognized as “Impairment Charges” on our condensed consolidated Statements of Operations.
The activity in goodwill during the threesix months ended March 31,June 30, 2020 and the year ended December 31, 2019 is shown in the following table ($ in thousands):
| | | | | | | | | | | | | | | | | |
Goodwill | Glowpoint | | Oblong Industries | | Total |
Balance December 31, 2018 | $ | 2,795 | | | $ | — | | | $ | 2,795 | |
Impairment charges | (2,254) | | | — | | | (2,254) | |
Acquisition | — | | | 7,366 | | | 7,366 | |
Balance December 31, 2019 | 541 | | | 7,366 | | | 7,907 | |
Impairment charges | (541) | | | — | | | (541) | |
| | | | | |
Balance June 30, 2020 | $ | — | | | $ | 7,366 | | | $ | 7,366 | |
|
| | | | | | | | | | | |
Goodwill | Glowpoint | | Oblong Industries | | Total |
Balance December 31, 2018 | $ | 2,795 |
| | $ | — |
| | $ | 2,795 |
|
Impairment | (2,254 | ) | | — |
| | (2,254 | ) |
Acquisition | — |
| | 7,366 |
| | 7,366 |
|
Balance December 31, 2019 | 541 |
| | 7,366 |
| | 7,907 |
|
Impairment | (541 | ) | | — |
| | (541 | ) |
Balance March 31, 2020 | $ | — |
| | $ | 7,366 |
| | $ | 7,366 |
|
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 6 - Intangible Assets
The following table presents the components of net intangible assets (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of June 30, 2020 | | | | | | As of December 31, 2019 | | | | |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Glowpoint | | | | | | | | | | | |
Customer Relationships | $ | 4,335 | | | $ | (4,335) | | | $ | — | | | $ | 4,335 | | | $ | (4,335) | | | $ | — | |
Affiliate network | 994 | | | (700) | | | 294 | | | 994 | | | (666) | | | 328 | |
Trademarks | 548 | | | (533) | | | 15 | | | 548 | | | (504) | | | 44 | |
Subtotal | $ | 5,877 | | | $ | (5,568) | | | $ | 309 | | | $ | 5,877 | | | $ | (5,505) | | | $ | 372 | |
| | | | | | | | | | | |
Oblong Industries | | | | | | | | | | | |
Developed technology | 10,060 | | | (1,513) | | | 8,547 | | | 10,060 | | | (504) | | | 9,556 | |
Trade names | 2,410 | | | (181) | | | 2,229 | | | 2,410 | | | (60) | | | 2,350 | |
Distributor relationships | 310 | | | (47) | | | 263 | | | 310 | | | (16) | | | 294 | |
Subtotal | $ | 12,780 | | | $ | (1,741) | | | $ | 11,039 | | | $ | 12,780 | | | $ | (580) | | | $ | 12,200 | |
Total | $ | 18,657 | | | $ | (7,309) | | | $ | 11,348 | | | $ | 18,657 | | | $ | (6,085) | | | $ | 12,572 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| As of March 31, 2020 | | As of December 31, 2019 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Glowpoint | | | | | | | | | | | |
Customer Relationships | $ | 4,335 |
| | $ | (4,335 | ) | | $ | — |
| | $ | 4,335 |
| | $ | (4,335 | ) | | $ | — |
|
Affiliate network | 994 |
| | (683 | ) | | 311 |
| | 994 |
| | (666 | ) | | 328 |
|
Trademarks | 548 |
| | (519 | ) | | 29 |
| | 548 |
| | (504 | ) | | 44 |
|
Subtotal | $ | 5,877 |
| | $ | (5,537 | ) | | $ | 340 |
| | $ | 5,877 |
| | $ | (5,505 | ) | | $ | 372 |
|
| | | | | | | | | | | |
Oblong Industries | | | | | | | | | | | |
Developed technology | 10,060 |
| | (1,008 | ) | | 9,052 |
| | 10,060 |
| | (504 | ) | | 9,556 |
|
Trade names | 2,410 |
| | (120 | ) | | 2,290 |
| | 2,410 |
| | (60 | ) | | 2,350 |
|
Distributor relationships | 310 |
| | (31 | ) | | 279 |
| | 310 |
| | (16 | ) | | 294 |
|
Subtotal | $ | 12,780 |
| | $ | (1,159 | ) | | $ | 11,621 |
| | $ | 12,780 |
| | $ | (580 | ) | | $ | 12,200 |
|
Total | $ | 18,657 |
| | $ | (6,696 | ) | | $ | 11,961 |
| | $ | 18,657 |
| | $ | (6,085 | ) | | $ | 12,572 |
|
AsAt 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 three months ended June 30, 2020, we did not determine a triggering event to be examined. The fair value of each reporting unit’s intangible assets exceeded the respective carrying amounts during both periods, therefore no impairment charges were required for the three and six months ended March 31,June 30, 2020. 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:
| | | | | |
Glowpoint | |
Affiliate network | 12 years |
Trademarks | 8 years |
| |
GlowpointOblong Industries | |
Affiliate networkDeveloped technology | 12 Years5 years |
TrademarksTrade names | 8 Years10 years |
| |
Oblong Industries | |
Developed technology | 5 Years |
Trade names | 10 Years |
Distributor relationships | 5 Yearsyears |
Related amortization expense was $611,000$613,000 and $707,000$1,224,000 for the three and six months ended March 31,June 30, 2020, respectively. Related amortization expense was $32,000 and 64,000 for the yearthree and six months ended December 31,June 30, 2019, respectively. The increase is the result of the October 1, 2019 acquisition of Oblong Industries.
Amortization expense for each of the next five succeeding years will be as follows (in thousands):
| | | | | |
Remainder of 2020 | $ | 1,209 | |
2021 | 2,354 | |
2022 | 2,351 | |
2023 | 2,344 | |
2024 | 1,827 | |
Thereafter | 1,263 | |
Total | $ | 11,348 | |
|
| | | |
Remainder of 2020 | $ | 1,820 |
|
2021 | 2,388 |
|
2022 | 2,386 |
|
2023 | 2,378 |
|
2024 | 1,844 |
|
Thereafter | 1,145 |
|
Total | $ | 11,961 |
|
Note 7 - Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following (in thousands):
| | | | | | | | | | | |
| June 30, | | December 31, |
| 2020 | | 2019 |
| | | |
Accrued compensation costs | $ | 470 | | | $ | 810 | |
| | | |
| | | |
| | | |
Other accrued expenses and liabilities | 696 | | | 843 | |
| | | |
Accrued dividends on Series A-2 Preferred Stock | 8 | | | 99 | |
Accrued expenses and other liabilities | $ | 1,174 | | | $ | 1,752 | |
|
| | | | | | | |
| March 31, | | December 31, |
|
| 2020 | | 2019 |
Accrued compensation costs | 596 |
| | 810 |
|
Other accrued expenses and liabilities | 661 |
| | 843 |
|
Accrued dividends on Series A-2 Preferred Stock | $ | 5 |
| | $ | 99 |
|
Accrued expenses and other liabilities | $ | 1,262 |
| | $ | 1,752 |
|
Note 8 - Debt
Debt consisted of the following (in thousands):
| | | | | | | | | | | |
| June 30, | | December 31, |
| 2020 | | 2019 |
SVB Loan Principal | $ | 5,609 | | | $ | 5,609 | |
PPP Loan Principal | 2,417 | | | — | |
Total Loan Principal | 8,026 | | | 5,609 | |
Less: Unamortized SVB debt discount | (57) | | | (102) | |
Net carrying value | 7,969 | | | 5,507 | |
Less: SVB current maturities, net of debt discount | 2,591 | | | 2,664 | |
Less: PPP current maturities | 1,074 | | | — | |
Total current maturities, net of debt discount | 3,665 | | | 2,664 | |
Long-term SVB obligations, net of current maturities and debt discount | 2,961 | | | 2,843 | |
Long-term PPP obligations, net of current maturities | 1,343 | | | — | |
Total long-term obligations, net of current maturities and debt discount | $ | 4,304 | | | $ | 2,843 | |
|
| | | | | | | |
| March 31, | | December 31, |
| 2020 | | 2019 |
Loan obligations | $ | 5,609 |
| | $ | 5,609 |
|
Unamortized debt discounts | (68 | ) | | (102 | ) |
Net carrying value | 5,541 |
| | 5,507 |
|
Less: current maturities, net of debt discount | (3,550 | ) | | (2,664 | ) |
Long-term obligations, net of current maturities and debt discount | $ | 1,991 |
| | $ | 2,843 |
|
Future minimum principal payments are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | |
Future Minimum Principal Payments | | SVB Loan | | PPP Loan | | Total |
Remainder of 2020 | | $ | 874 | | | $ | 269 | | | $ | 1,143 | |
2021 | | 3,498 | | | 1,611 | | | 5,109 | |
2022 | | 1,237 | | | 537 | | | 1,774 | |
| | $ | 5,609 | | | $ | 2,417 | | | $ | 8,026 | |
Silicon Valley Bank Loan Agreement and Warrant
On October 1, 2019, in connection with the Acquisitionacquisition of Oblong Industries, the Company and Oblong Industries, as borrowers, and 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 provides for a term loan facility of approximately $5,247,000, (the “Loan”“SVB Loan”), all of which is outstanding at December 31, 2019 and March 31,June 30, 2020. As of March 31, 2020, the SVB Loan Agreement provided that interest-only payments will be due through March 31, 2020, after which equal monthly principal and interest payments were payable in order to fully repay the Loan as of September 1, 2021. 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 are 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 5.25% as of March 31, 2020 and 6.75% as of December 31, 2019). In connection with the Amendment, the interest rate under the Loan was increased to the Prime Rate plus 425 basis points.points (for a total of 7.50% as of June 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, with the following weighted-average assumptions: (i) risk-free interest rate of 1.5%, (iii) expected volatility of 143% and (iv) expected term of ten years.model. The total obligations under the SVB Loan Agreement are $5,609,000, which are comprised of $5,247,000 for the term 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 $20,000 of debt issuance costs totaled $192,000 and was recorded as a discount to the debt. This debt discount is being amortized to interest expense using the effective interest method over the term of the debt. During the three and six months ended March 31, 2019 and the year ended December 31, 2019,June 30, 2020, the Company amortized $34,000 and $90,000$45,000 of the debt discount, respectively, which is recorded in “Interest and other
expense, Net” on our condensed consolidated Statements of Operations. The remaining unamortized debt discount as of March 31,June 30, 2020 and December 31, 2019 was $68,000$57,000 and $102,000, respectively.
The obligations under the SVB Loan Agreement are secured by substantially all of the assets of Oblong and its subsidiaries. The SVB Loan Agreement contains certain restrictions and covenants, which, among other things, subject to certain exceptions, restrict the Company’s ability to dispose of any portion of its business or property, engage in certain material changes to its business, enter into a merger, incur additional debt or make guarantees, pay dividends or make distribution payments on, or redeem, retire, or repurchase any capital stock (subject to certain exceptions), create liens or other encumbrances, or enter into related party transactions outside of the ordinary course of business. The SVB Loan Agreement also contains customary events of default, including failure to pay any principal or interest when due, failure to perform or observe covenants, breaches of representations and warranties, certain cross defaults, certain bankruptcy related events, monetary judgments defaults and the Company’s de-listing from the NYSE American without a listing of its Common Stock on another nationally recognized stock exchange. Upon the occurrence of an event of default, the outstanding obligations under the SVB Loan Agreement may be accelerated and become immediately due and payable.
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. Payments of principal and interest are deferred for the first six months following 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 Company may apply to the Lender for forgiveness of some or all of the Note with the amount which may be forgiven equal to the sum of eligible payroll costs, mortgage interest, covered rent, and covered utility payments, in each case incurred by the Company during the twenty-four week period following the Origination Date, calculated in accordance with the terms of the CARES Act. Certain reductions in Company payroll costs during this period may reduce the amount of the Note eligible for forgiveness. There is no guarantee that the Company will receive forgiveness for any fixed amount of any PPP Loan principal received by the Company.
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 9 - Preferred Stock
Our Certificate of Incorporation authorizes the issuance of up to 5,000,000 shares of preferred stock. As of March 31,June 30, 2020, there were: (i) 100 shares of Perpetual Series B-1 Preferred Stock authorized and no0 shares issued or outstanding; (ii) 7,500 shares of Series A-2 Convertible Preferred Stock authorized and 45 shares issued and outstanding (the “Series A-2 Preferred Stock”); (iii) 2,800 shares of 0% Series B Convertible Preferred Stock (“Series B Preferred Stock”) authorized and no0 shares issued and outstanding; (iv) 1,750 shares of 0% Series C Convertible Preferred Stock (“Series C Preferred Stock”) authorized and 325 shares issued and outstanding; (v) 4,000 shares of Series D Convertible Preferred Stock authorized and no0 shares issued or outstanding; (vi) 100 shares of Perpetual Series B Preferred Stock authorized and no0 shares issued or outstanding; (vii) 1,750,000 shares of 6.0% Series D Convertible Preferred Stock (Series D Preferred Stock) authorized and 1,720,4601,703,096 shares issued and outstanding; and (viii) 175,000 shares of 6.0% Series E Convertible Preferred Stock (“Series E Preferred Stock”) authorized and 131,579 shares issued and outstanding.
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 $21.60 as of March 31,June 30, 2020. Therefore, each share of Series A-2 Preferred Stock is convertible into 10,978345 shares of common stock, for an aggregate of 15,545 shares of common stock as of March 31,June 30, 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 subordinate to the Series B-1 Preferred Stock and Series C-1 Preferred Stock but senior to all other classes of equity, has weighted average anti-dilution protection and, effective January 1, 2013, entitled to cumulative dividends at a rate of 5%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 March 31,June 30, 2020 and December 31, 2020,2019, the Company has recorded $5,000$8,000 and $99,000, respectively, in accrued dividends on the accompanying condensed consolidated Balance Sheets related to the Series A-2 Preferred Stock outstanding. During the threesix months ended March 31,June 30, 2020, $98,000,$99,000 of accrued dividends as of December 31, 2019, were exchanged for 13 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 $21.60 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.
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 are convertible into shares of the Company’s common stock at a conversion price of $3.00 per share. During the threesix months ended March 31,June 30, 2020 and the year ended December 31, 2019, 150 and 50 shares of Series C Preferred Stock were converted to 50,000 and 16,667 shares of the Company’s common stock, respectively. As of March 31,June 30, 2020, 325 shares of Series C Preferred Stock remained issued and outstanding.
The Company has agreed that it will not enter into certain “fundamental transactions,” including transactions constituting a change of control of the Company, certain reorganization transactions or a sale of all or substantially all of the Company’s assets, except as pursuant to written agreements in form and substance satisfactory to the holders of a majority of the outstanding shares of Series C Preferred Stock including the Lead Investor and on terms with respect to the Series C Preferred Stock as set forth in the Certificate of Designation of Rights, Powers, Preferences, Privileges and Restrictions of the Series C Preferred Stock.
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.
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 6.0% 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. As of March 31,June 30, 2020, no dividends have been accrued.
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.
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, 20202019 or December 18, 2020,2019, 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. As of March 31,June 30, 2020, no dividends have been accrued.
In connection with the Purchase Agreement, the Company executed a Registration Rights Agreement, dated October 1, 2019 (the “Rights Agreement”). Pursuant to the Rights Agreement, among other things, the Company has provided the Purchasers with certain rights to require it to file and maintain the effectiveness of a registration statement with respect to the re-sale of shares of Common Stock underlying the shares of Series D Preferred Stock issued in the Oblong Transaction and Series E Preferred Stock sold in the Series E Financing.
If the Series D and Series E Preferred Stock had been converted to common stock as of March 31,June 30, 2020, 17,204,60017,030,960 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 5,211,5435,226,879 to 23,731,933.23,573,629. Both the Series D and Series E Preferred Stock remain outstanding as of March 31,June 30, 2020 and as of the filing of this Report. The Company intends to file a new listing application with the NYSE American as soon as possible upon satisfying the initial listing standards. Among other requirements, these standards require the Company to have at least $15 million of non-affiliate public float, which, under the Company’s current financial situation, may be difficult or impossible for the Company to satisfy.
Note 10 - 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. As of the termination of the Prior Plan, 421,000 shares of the Company’s Common Stock remained available for issuance under the Prior Plan. As of March 31,June 30, 2020, 23,3340 restricted stock units were outstanding under the Prior Plan. As of March 31,June 30, 2020, the share pool available for new grants under the 2019 Plan is 3,021,000, which is equal to the sum of (i) 2,600,000 shares of the Company’s Common Stock and (ii) the 421,000 shares of the Company’s Common Stock that remained available for issuance under the Prior Plan. NoNaN equity awards were granted under the 2019 Plan during the threesix months ended March 31,June 30, 2020.
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 March 31,June 30, 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. NoNaN shares are available for issuance under the 2007 Plan.
Stock Options
For the threesix months ended March 31,June 30, 2020 and the year ended December 31, 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, no0 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 threesix months ended March 31,June 30, 2020 and the year ended December 31, 2019 is presented below:
| | | | | | | | | | | | | | | |
| Outstanding and Exerciseable | | | | | | |
| Number of Options | | Weighted Average Exercise Price | | | | |
Options outstanding, December 31, 2018 | 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, December 31, 2019 | 215,345 | | | 12.27 | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Options outstanding and exercisable, June 30, 2020 | 215,345 | | | $ | 12.27 | | | | | |
|
| | | | | | | | | | | | | |
| 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 |
| | | | |
Exercised | — |
| | — |
| | | | |
Expired | (440 | ) | | 16.48 |
| | | | |
Forfeited | (10,063 | ) | | 23.20 |
| | | | |
Options outstanding, December 31, 2019 | 215,345 |
| | 12.27 |
| | 215,345 |
| | 12.27 |
|
Options outstanding and exercisable, March 31, 2020 | 215,345 |
| | $ | 12.27 |
| | 215,345 |
| | $ | 12.27 |
|
Additional information as of March 31,June 30, 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 | | 110,345 | | | 0.40 | | $ | 5.01 | |
$10.01 – $20.00 | | 97,500 | | | 2.64 | | 19.32 | |
$20.01 – $30.00 | | 2,500 | | | 2.02 | | 21.80 | |
$30.01 – $40.00 | | 5,000 | | | 1.78 | | 30.20 | |
| | | | | | |
| | 215,345 | | | 1.46 | | $ | 12.27 | |
|
| | | | | | | | | |
| | Outstanding and Exercisable |
Range of price | | Number of Options | | Weighted Average Remaining Contractual Life (In Years) | | Weighted Average Exercise Price |
$0.00 – $10.00 | | 110,345 |
| | 0.56 | | $ | 5.01 |
|
$10.01 – $20.00 | | 97,500 |
| | 2.81 | | 19.32 |
|
$20.01 – $30.00 | | 2,500 |
| | 2.19 | | 21.80 |
|
$30.01 – $40.00 | | 5,000 |
| | 1.95 | | 30.20 |
|
| | 215,345 |
| | 1.63 | | $ | 12.27 |
|
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. NoNaN stock-based compensation expense was recorded in the year ended December 31, 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.
The intrinsic value of vested options, unvested options and exercised options were not0t significant for all periods presented. There was no0 remaining unrecognized stock-based compensation expense for options at March 31,June 30, 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 threesix months ended March 31,June 30, 2020 and the year ended December 31, 2019, is presented below:
| | | | | | | | | | | |
| Restricted Shares | | Weighted Average Grant Date Price |
Unvested restricted stock outstanding, December 31, 2018 | 11,320 | | | $ | 14.88 | |
Granted | — | | | — | |
Vested | (1,372) | | | 15.72 | |
Forfeited | (9,321) | | | 14.70 | |
Unvested restricted stock outstanding, December 31, 2019 | 627 | | 15.80 | |
| | | |
| | | |
| | | |
Unvested restricted stock outstanding, June 30, 2020 | 627 | | | $ | 15.80 | |
|
| | | | | | |
| Restricted Shares | | Weighted Average Grant Date Price |
Unvested restricted stock outstanding, December 31, 2018 | 11,320 |
| | $ | 14.88 |
|
Granted | 0 |
| | — |
|
Vested | (1,372 | ) | | 15.72 |
|
Forfeited | (9,321 | ) | | 14.70 |
|
Unvested restricted stock outstanding, December 31, 2019 | 627 |
| | 15.80 |
|
Unvested restricted stock outstanding, March 31, 2020 | 627 |
| | $ | 15.80 |
|
Stock-based compensation expense relating to restricted stock awards is allocated as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | Six Months Ended | | |
| June 30, | | | | June 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
| | | | | | | |
| | | | | | | |
| | | | | | | |
General and administrative | — | | | 1 | | | — | | | 3 | |
| $ | — | | | $ | 1 | | | $ | — | | | $ | 3 | |
|
| | | | | | | |
| Three Months Ended March 31, | | Three Months Ended March 31, |
| 2020 | | 2019 |
General and administrative | — |
| | 2 |
|
| $ | — |
| | $ | 2 |
|
ThereThe unvested restricted stock award as of June 30, 2020 was issued in 2014 and vests over the lesser of ten years, a change in control, or separation from the company. Due to the variability of the vesting, the expense was amortized over an average service period of five years; therefore, there is no0 unrecognized stock-based compensation expense for restricted stock awards at March 31,June 30, 2020.
Restricted Stock Units
A summary of restricted stock units (“RSUs”) granted, vested, forfeited and unvested outstanding as of, and changes made during, the threesix months ended March 31,June 30, 2020 and the year ended December 31, 2019, is presented below:
| | | | | | | | | | | |
| Restricted Stock Units | | Weighted Average Grant Price |
Unvested restricted stock units outstanding, December 31, 2018 | 503,518 | | | $ | 1.94 | |
Granted | 55,479 | | | 1.30 | |
Vested | (114,505) | | | 3.05 | |
Forfeited | (421,158) | | | 1.54 | |
Unvested restricted stock units outstanding, December 31, 2019 | 23,334 | | | 2.20 | |
| | | |
Vested | (23,334) | | | 2.20 | |
| | | |
Unvested restricted stock units outstanding, June 30, 2020 | — | | | $ | — | |
|
| | | | | | |
| Restricted Stock Units | | Weighted Average Grant Price |
Unvested restricted stock units outstanding, December 31, 2018 | 503,518 |
| | $ | 1.94 |
|
Granted | 55,479 |
| | 1.30 |
|
Vested | (114,505 | ) | | 3.05 |
|
Forfeited | (421,158 | ) | | 1.54 |
|
Unvested restricted stock units outstanding, December 31, 2019 | 23,334 |
| | 2.20 |
|
Unvested restricted stock units outstanding, March 31, 2020 | 23,334 |
| | $ | 2.20 |
|
As of March 31,June 30, 2020, 28,904 vested RSUsRSU’s remain outstanding as shares of common stock have not yet been delivered for these units in accordance with the terms of the RSUs. As of March 31, 2020, there were 11,667 unvested RSUs that have performance-based vesting provisions and are subject to forfeiture, in whole or in part, if these performance conditions are not achieved. Management assesses, on an ongoing basis, the probability of whether the performance criteria will be achieved and, once it is deemed probable, stock-based compensation expense is recognized over the relevant performance period. As of March 31, 2020, there were 11,667 unvested RSUs that have timed-based vesting provisions, and the cost of the RSUs is expensed, which is determined to be the fair market value of the shares at the date of grant, on a straight-line basis over the vesting period.RSU’s.
Stock-based compensation expense relating to restricted stock units is allocated as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | Six Months Ended | | |
| June 30, | | | | June 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
Cost of revenue | $ | — | | | $ | 4 | | | $ | — | | | $ | 8 | |
Research and development | — | | | 5 | | | — | | | 9 | |
Sales and marketing | — | | | — | | | — | | | — | |
General and administrative | — | | | 14 | | | 6 | | | 33 | |
| $ | — | | | $ | 23 | | | $ | 6 | | | $ | 50 | |
|
| | | | | | | |
| Three Months Ended March 31, | | Three Months Ended March 31, |
| 2020 | | 2019 |
Cost of revenue | $ | — |
| | $ | 4 |
|
Research and development | — |
| | 4 |
|
Sales and marketing | — |
| | 19 |
|
General and administrative | 6 |
| | 27 |
|
| $ | 6 |
| | $ | 54 |
|
There was no0 remaining unrecognized stock-based compensation expense for restricted stock units at March 31,June 30, 2020.
There was no0 tax benefit recognized for stock-based compensation expense for the threesix months ended March 31,June 30, 2020 or the year ended December 31, 2019. NoNaN 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):
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | | Three and Six Months Ended June 30, |
| 2020 | | 2020 | | 2019 |
| | | | | |
Research and development | $ | 14 | | | $ | 28 | | | $ | — | |
Sales and marketing | 6 | | | 10 | | | — | |
General and administrative | 9 | | | 17 | | | — | |
| $ | 29 | | | $ | 55 | | | $ | — | |
|
| | | | | | | |
| Three Months Ended March 31, | | Three Months Ended March 31, |
| 2020 | | 2019 |
Research and development | $ | 14 |
| | $ | — |
|
Sales and marketing | 4 |
| | — |
|
General and administrative | 8 |
| | — |
|
| $ | 26 |
| | $ | — |
|
During the three and six months ended March 31,June 30, 2020, 14,44117,364 and 31,805 shares of Restricted Series D Preferred Stock were forfeited.forfeited, respectively. As of March 31,June 30, 2020, 1,720,46016,437 shares of Restricted Series D Preferred Stock remain outstanding. The remaining unrecognized stock-based compensation expense for Restricted Series D Preferred Stock at March 31,June 30, 2020 was $319,000,$97,000, and will be recognized over a weighted average period of 1.190.62 years.
Note 11 - 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 not0t include any potentially dilutive securities or unvested restricted stock. Unvested restricted stock, although classified as issued and outstanding at March 31,June 30, 2020 and 2019, is considered contingently returnable until the restrictions lapse and will not be included in the basic net loss per share calculation until the shares are vested. Unvested restricted stock does not contain non-forfeitable rights to dividends and dividend equivalents. Unvested RSUs are not included in calculations of basic net loss per share, as they are not considered issued and outstanding at time of grant.
Diluted net loss per share is computed by giving effect to all potential shares of common stock, including stock options, preferred stock, RSUs, and unvested restricted stock, to the extent they are dilutive. For the three and six months ended March 31, June 30,
2020 and 2019, all such common stock equivalents have been excluded from diluted net loss per share as the effect to net loss per share would be anti-dilutive (due to the net loss).
The following table sets forth the computation of the Company’s basic and diluted net loss per share (in thousands, except per share data):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
Numerator: | | | | | | | |
Net loss | $ | (3,385) | | | $ | (875) | | | $ | (6,514) | | | $ | (1,473) | |
Less: preferred stock dividends | (4) | | | (4) | | | (8) | | | (19) | |
Net loss attributable to common stockholders | $ | (3,389) | | | $ | (879) | | | $ | (6,522) | | | $ | (1,492) | |
Denominator: | | | | | | | |
Weighted-average number of shares of common stock for diluted net loss per share | 5,240 | | | 5,163 | | | 5,222 | | | 5,134 | |
Basic and diluted net loss per share | $ | (0.65) | | | $ | (0.17) | | | $ | (1.25) | | | $ | (0.29) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
|
| | | | | | | |
| Three Months Ended March 31, |
| 2020 | | 2019 |
Numerator: | | | |
Net loss | $ | (3,129 | ) | | $ | (598 | ) |
Less: preferred stock dividends | (4 | ) | | (15 | ) |
Net loss attributable to common stockholders | $ | (3,133 | ) | | $ | (613 | ) |
Denominator: | | | |
Weighted-average number of shares of common stock for diluted net loss per share | 5,204 |
| | 5,104 |
|
Basic and diluted net loss per share | $ | (0.60 | ) | | $ | (0.12 | ) |
The weighted-average number of shares for the three months ended March 31, 2020 and 2019 includes 28,904 and 98,763 shares of vested RSUs, respectively, as discussed in Note 10 - 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 (due to the net loss):
| | | | | | | | | | | |
| Six Months Ended | | |
| June 30, | | |
| 2020 | | 2019 |
Unvested restricted stock units | — | | | 444,225 | |
| | | |
Outstanding stock options | 215,345 | | | 117,751 | |
Unvested restricted stock awards | 627 | | | 11,320 | |
Shares of common stock issuable upon conversion of Series A-2 preferred stock | 15,545 | | | 10,995 | |
| | | |
Shares of common stock issuable upon conversion of Series C preferred stock | 108,333 | | | 158,333 | |
Shares of common stock issuable upon conversion of Series D preferred stock | 17,030,960 | | | — | |
Shares of common stock issuable upon conversion of Series E preferred stock | 1,315,790 | | | — | |
Warrants | 72,394 | | | — | |
Prior to the acquisition of Oblong Industries on October 1, 2019, the Company operated in one1 segment. Following October 1, 2019, the former businesses of Glowpoint and Oblong Industries were managed separately and involve different products and services. Accordingly, the Company currently operates in two2 segments: (1) the Glowpoint (now named 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 condensed consolidated financial statements as of and for the three and six months ended March 31,June 30, 2020 and 2019 included in this Report only reflect Oblong Industries’ financial results for the first and second quarter of 2020.