NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
Note 1 - Business Description and Significant Accounting Policies
Business Description
Oblong, Inc. (“Oblong” or “we” or “us” or the “Company”) was formed as a Delaware corporation in May 2000 and is a provider of patented multi-stream collaboration technologies and managed services for video collaboration and network applications. Prior to March 6, 2020, Oblong, Inc. was named Glowpoint, Inc. (“Glowpoint”). On March 6, 2020, Glowpoint changed its name to Oblong, Inc.
Basis of Presentation
The Company's fiscal year ends on December 31 of each calendar year. The accompanying interim condensed consolidated financial 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, 2021. 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, 2021 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, 2021 and notes thereto included in the Company's fiscal 2021 Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on March 29, 2022 (the “2021 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.
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, and (iii) Oblong Europe Limited, a subsidiary of Oblong Industries. All inter-company balances and transactions have been eliminated in consolidation. The U.S. Dollar is the functional currency for all subsidiaries.
Segments
The Company currently operates in two segments: (1) “Collaboration Products” which represents the Oblong Industries business surrounding our Mezzanine™ product offerings and (2) “Managed Services” which represents the Oblong (formerly Glowpoint) business surrounding managed services for video collaboration and network solutions. See Note 10 - 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, and the inputs used in the fair value of equity based awards.
Significant Accounting Policies
The significant accounting policies used in preparation of these condensed consolidated financial statements are disclosed in our 2021 10-K, and there have been no changes to the Company’s significant accounting policies during the six months ended June 30, 2022.
Recently Issued Accounting Pronouncements
In June 2016 the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13 as amended, “Financial Instruments - Credit Losses (Topic 326).” 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 has evaluated the impact the new guidance will have on its consolidated financial statements, and does not expect the impact to be material.
In May 2021, the FASB issued ASU 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. The FASB is issuing this update to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity classified written call options (for example, warrants) that remain equity classified after modification or exchange. ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the amendments prospectively to modifications or exchanges occurring after the effective date of the amendments. The Company has adopted this standard, effective January 1, 2022, and it did not have a material affect on our financial statements.
Casualty Loss
During the three months ended June 30, 2022, the Company discovered that $533,000 of inventory was stolen from the Company’s warehouse in City of Industry, California. This theft has been recorded as a casualty loss of $533,000 during the three and six months ended June 30, 2022 on the Company’s condensed consolidated Statements of Operations. The theft is being investigated further by the Los Angeles, CA Sheriff’s Department and a claim has been filed with the Company’s insurance company. We are seeking to recover the majority of the loss through our insurance policies and we will offset the casualty loss with the recognition of a gain of any proceeds should we subsequently receive them from our insurance company. No assurances can be provided that we will be successful in recovering any or all of the casualty loss.
Note 2 - Liquidity and Going Concern Uncertainty
As of June 30, 2022, we had $5,107,000 in cash and working capital of $5,461,000. For the six months ended June 30, 2022, we incurred a net loss of $13,572,000 and used $3,911,000 of net cash in operating activities.
Future Capital Requirements and Going Concern
Our capital requirements in the future will continue to depend on numerous factors, including the timing and amount of revenue for the Company, customer renewal rates and the timing of collection of outstanding accounts receivable, in each case particularly as it relates to the Company’s major customers, the expense to deliver services, expense for sales and marketing, expense for research and development, and capital expenditures. We expect to continue to invest in product development and sales and marketing expenses with the goal of growing the Company’s revenue in the future. The Company believes that, based on its current projection of revenue, expenses, capital expenditures, and cash flows, it will not have sufficient resources to fund its operations for the next twelve months following the filing of this Report. We believe additional capital will be required to fund operations and provide growth capital including investments in technology, product development and sales and marketing. To access capital to fund operations or provide growth capital, we will need to raise capital in one or more debt and/or equity offerings. There can be no assurance that we will be successful in raising necessary capital or that any such offering will be on terms acceptable to the Company. If we are unable to raise additional capital that may be needed on terms acceptable to us, it
could have a material adverse effect on the Company. The factors discussed above raise substantial doubt as to our ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments that might result from these uncertainties.
Note 3 - Goodwill
As of June 30, 2022 and December 31, 2021, goodwill was zero and $7,367,000, respectively, recorded in connection with the October 1, 2019 acquisition of Oblong Industries (our Collaboration Products reporting unit).
We test goodwill for impairment on an annual basis on September 30 of each year, or more frequently if events occur or circumstances change indicating that the fair value of the goodwill may be below its carrying amount. To determine the fair value of the reporting unit for the goodwill impairment test, we use a weighted average of the discounted cash flow method and market-based method.
We considered the sustained decline in our stock price to be a triggering event for an interim goodwill impairment test, as of both March 31, 2022 and June 30, 2022, and we recorded impairment charges against the carrying value of Goodwill of $6,229,000 and $7,367,000 for the three and six months ended June 30, 2022, respectively, as the carrying amount of the Collaboration Products reporting unit exceeded its fair value on the test dates. These charges are recognized as “Impairment Charges” on our condensed consolidated Statements of Operations. Following these impairment charges, our goodwill value was reduced to zero as of June 30, 2022.
Note 4 - Intangible Assets
The following table presents the components of net intangible assets for our Collaboration Products reporting segment (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of June 30, 2022 | | As of December 31, 2021 | | |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Weighted Average Lives |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Developed technology | $ | 10,060 | | | $ | (5,544) | | | $ | 4,516 | | | $ | 10,060 | | | $ | (4,537) | | | $ | 5,523 | | | 5 years |
| Trade names | 2,410 | | | (663) | | | 1,747 | | | 2,410 | | | (542) | | | 1,868 | | | 10 years |
| Distributor relationships | 310 | | | (171) | | | 139 | | | 310 | | | (139) | | | 171 | | | 5 years |
| | | | | | | | | | | | | |
| Total | $ | 12,780 | | | $ | (6,378) | | | $ | 6,402 | | | $ | 12,780 | | | $ | (5,218) | | | $ | 7,562 | | | |
At each reporting period, we determine if there was a triggering event that may result in an impairment of our intangible assets. During the three and six months ended June 30, 2022, we considered the declines in revenue for the Collaboration Products reporting segment to be a triggering event for an impairment test of intangible assets for this reporting unit. Based on the corresponding recoverability tests of the intangible assets for this reporting unit, we determined no impairment changes were required for the three and six months ended June 30, 2022. The recoverability test consisted of comparing the estimated undiscounted cash flows expected to be generated by those assets to the respective carrying amounts, and involves significant judgements and assumptions, related primarily to the future revenue and profitability of the assets. Intangible assets with finite lives are amortized using the straight-line method over the estimated economic lives of the assets, which range from five years to ten years in accordance with ASC Topic 350.
Related amortization expense was $580,000, $1,160,000, $613,000, and $1,224,000 for the three and six months ended June 30, 2022 and 2021, respectively.
Amortization expense for each of the next five succeeding years will be as follows (in thousands):
| | | | | |
| |
| Remainder of 2022 | $ | 1,158 | |
| 2023 | 2,309 | |
| 2024 | 1,791 | |
| 2025 | 241 | |
| 2026 | 241 | |
| Thereafter | 662 | |
| Total | $ | 6,402 | |
Note 5 - Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
| | | | | | | | | | | |
| June 30, | | December 31, |
| 2022 | | 2021 |
| | | |
| Accrued compensation costs | $ | 677 | | | $ | 551 | |
| Accrued professional fees | 77 | | | 69 | |
| Accrued taxes and regulatory fees | 84 | | | 92 | |
| Customer deposits | 115 | | | 145 | |
| Other accrued expenses and liabilities | 23 | | | 102 | |
| | | |
| | | |
| Accrued expenses and other liabilities | $ | 976 | | | $ | 959 | |
| | | |
Note 6 - Leases
We lease three facilities in Los Angeles, California and one facility in Austin, Texas, each providing office space. We also lease a facility in City of Industry, California, providing warehouse space. These leases expire between 2022 and 2024. During the six months ended June 30, 2022, we exited leases in Boston, Massachusetts and Dallas, Texas. We currently occupy the warehouse space in City of Industry, and the office facility in Austin, Texas, and we have a sublease in place for one of the Los Angeles office spaces. With the exception of these spaces described above, we currently operate out of remote employment sites with a remote office located at 25587 Conifer Road, Suite 105-231, Conifer, Colorado 80433.
Lease expenses, including common charges and net of sublet proceeds, for the three and six months ended June 30, 2022 and 2021 were $76,000, $145,000, $92,000, and $167,000, respectively.
The following provides balance sheet information related to leases as of June 30, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | | | | |
| | | |
| | | June 30, 2022 | | December 31, 2021 |
| Assets | | | | |
| Operating lease, right-of-use asset, net | | $ | 245 | | | $ | 659 | |
| | | | | |
| Liabilities | | | | |
| Current portion of operating lease liabilities | | $ | 378 | | | $ | 492 | |
| Operating lease liabilities, net of current portion | | 68 | | | 236 | |
| Total operating lease liabilities | | $ | 446 | | | $ | 728 | |
During the three and six months ended June 30, 2022 and 2021, payments of $125,000, $298,000, $218,000, and $451,000 were made on leases, respectively. The following table summarizes the future undiscounted cash payments reconciled to the lease liability (in thousands):
| | | | | | | | |
| Remaining Lease Payments | | |
| 2022 | | $ | 221 | |
| 2023 | | 225 | |
| 2024 | | 17 | |
| Total lease payments | | 463 | |
| Effect of discounting | | (17) | |
| Total lease liability | | $ | 446 | |
During the six months ended June 30, 2022, we did not enter into any new leases, we exited our Boston, MA and our Dallas, TX leases upon expiration, and we vacated two of the properties in Los Angeles. The properties we vacated are under leases until May 2023 and management does not expect to be able to sublet the properties given the limited time remaining on the leases. Therefore, due to not utilizing the asset, management believes that the right-of-use assets attached to these leases have lost their value. An impairment charge of $179,000 was recorded for these assets during the three months ended June 30, 2022. During the year ended December 31, 2021, we entered into one new operating lease, modified one operating lease, and terminated two operating leases. The following table provides a reconciliation of activity for our right-of-use (“ROU”) assets and lease liabilities (in thousands):
| | | | | | | | | | | | | | |
| | Right-of-Use Asset | | Operating Lease Liability |
| Balance at December 31, 2020 | | $ | 903 | | | $ | 1,432 | |
| Additions | | 60 | | | 60 | |
| Terminations and Modifications | | 192 | | | 156 | |
| Amortization and Payments | | (496) | | | (920) | |
| | | | |
| Balance at December 31, 2021 | | $ | 659 | | | $ | 728 | |
| | | | |
| | | | |
| Amortization and Payments | | (235) | | | (282) | |
| Impairment Charges | | (179) | | | — | |
| Balance at June 30, 2022 | | $ | 245 | | | $ | 446 | |
The ROU assets and lease liabilities are recorded on the Company’s condensed consolidated Balance Sheets as of June 30, 2022 and December 31, 2021.
Note 7 - Capital Stock
Common Stock
The Company’s common stock, par value $0.0001 per share (the “Common Stock”), is listed on The Nasdaq Capital Market (“Nasdaq”), under the ticker symbol “OBLG”. As of June 30, 2022, we had 150,000,000 shares of our Common Stock authorized, with 30,929,331 and 30,816,048 shares issued and outstanding, respectively.
The Company did not issue any shares of Common Stock during the three and six months ended June 30, 2022.
Warrants
Warrants outstanding as of June 30, 2022 are as follows:
| | | | | | | | | | | | | | | | | | | | |
| Issue Date | | Warrants Issued | | Exercise Price | | Expiration Date |
| October 21, 2020 | | 521,500 | | | $ | 4.08 | | | October 22, 2022 |
| December 6, 2020 | | 625,000 | | | 5.49 | | | December 7, 2022 |
June 30, 2021 - Series A(1) | | 1,000,000 | | | 4.00 | | | January 4, 2023 |
| June 30, 2021 - Series B | | 3,000,000 | | | 4.40 | | | June 30, 2024 |
| | 5,146,500 | | | | | |
| (1) Series A Warrants shown as amended on December 31, 2021 |
Warrant activity for the year ended December 31, 2021 is presented below. There was no warrant activity for the three or six months ended June 30, 2022.
| | | | | | | | | | | | | | |
| | Outstanding |
| | Number of Warrants (in thousands) | | Weighted Average Exercise Price |
| Warrants outstanding and exercisable, December 31, 2020 | | 1,146,500 | | | $ | 4.85 | |
| Granted | | 4,000,000 | | | 4.30 | |
| | | | |
| | | | |
| | | | |
| Warrants outstanding and exercisable, December 31, 2021 | | 5,146,500 | | | 4.42 | |
| | | | |
| | | | |
| | | | |
| | | | |
| Warrants outstanding and exercisable, June 30, 2022 | | 5,146,500 | | | $ | 4.42 | |
Treasury Shares
The Company maintains treasury stock for the Common Stock shares bought back by the Company when withholding shares to cover taxes on transactions related to equity awards. There were no treasury stock transactions during the six months ended June 30, 2022 or the year ended December 31, 2021.
Note 8 - 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. As of June 30, 2022, the share pool available for new grants under the 2019 Plan is 2,663,500.
Stock Options
For the six months ended June 30, 2022 no stock options were granted, 50,000 stock options vested, 7,500 vested stock options expired and 150,000 unvested stock options were forfeited. In accordance with the 2019 Plan, these cancelled unvested options were added back into the share pool. For the six months ended June 30, 2021, 300,000 stock options were granted.
A summary of stock options granted, expired, and forfeited under our plans, and options outstanding as of, and changes made during, the six months ended June 30, 2022 and the year ended December 31, 2021 is presented below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Outstanding | | Exercisable |
| Number of Options | | Weighted Average Exercise Price | | Number of Options | | Weighted Average Exercise Price |
| Options outstanding and exercisable, December 31, 2020 | 107,500 | | | $ | 19.64 | | | 107,500 | | | $ | 19.64 | |
| Granted | 300,000 | | | 3.25 | | | — | | | — | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Options outstanding and exercisable, December 31, 2021 | 407,500 | | | 7.57 | | | 107,500 | | | 19.64 | |
| | | | | | | |
| | | | | | | |
| Vested | — | | | — | | | 50,000 | | | 3.25 | |
| Expired | (7,500) | | | 27.40 | | | (7,500) | | | 27.40 | |
| Forfeited | (150,000) | | | 3.25 | | | — | | | — | |
| Options outstanding and exercisable, June 30, 2022 | 250,000 | | | $ | 9.57 | | | 150,000 | | | $ | 12.98 | |
Additional information as of June 30, 2022 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Outstanding | | Exercisable |
| Range of price | | Number
of Options | | Weighted
Average
Remaining
Contractual
Life (In Years) | | Weighted
Average
Exercise
Price | | Number
of Options | | Weighted
Average
Exercise
Price |
$0.00 – $10.00 | | 152,500 | | | 8.88 | | $ | 3.34 | | | 52,500 | | | $ | 1.20 | |
$10.01 – $20.00 | | 97,500 | | | 0.56 | | 19.32 | | | 97,500 | | | 19.32 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | 250,000 | | | 5.63 | | $ | 9.57 | | | 150,000 | | | $ | 12.98 | |
The intrinsic value of vested options, unvested options and exercised options were not significant for all periods presented. Net stock compensation expense, related to stock options, for the six months ended June 30, 2022 was a negative $1,000 made up of $83,000 in expense and $84,000 in forfeiture credits. No stock compensation expense, related to stock options, was recorded for the six months ended June 30, 2021. The remaining unrecognized stock-based compensation expense for options as of June 30, 2022 is $247,000, which will be recognized over a weighted average period of 2.00 years.
Restricted Stock Awards
As of June 30, 2022 and 2021, there were 627 unvested restricted stock awards outstanding, with a weighted average grant date price of $15.80. The awards were issued in 2014 and vest over the lesser of ten years, a change in control, or separation from the company. Due to the variability of the vesting, the expense was amortized over an average service period of five years, therefore, there is no unrecognized stock-based compensation expense for restricted stock awards as of June 30, 2022.
Restricted Stock Units
As of June 30, 2022 and 2021, there were no unvested restricted stock units (“RSUs”) outstanding. As of June 30, 2022, 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.
There was no stock compensation expense related to RSUs for the three and six months ended June 30, 2022 and 2021. There was no remaining unrecognized stock-based compensation expense for RSUs as of June 30, 2022.
Note 9 - 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 not include any potentially dilutive securities or unvested restricted stock. Unvested restricted stock, although classified as issued and outstanding at June 30, 2022 and 2021, is considered contingently returnable until the restrictions lapse and will not be included in the basic net loss per share calculation until the shares are vested. Unvested restricted stock does not
contain non-forfeitable rights to dividends and dividend equivalents. Unvested RSUs are not included in calculations of basic net loss per share, as they are not considered issued and outstanding at time of grant.
Diluted net loss per share is computed by giving effect to all potential shares of common stock, including stock options, preferred stock, RSUs, and unvested restricted stock, to the extent they are dilutive. For the three and six months ended June 30, 2022 and 2021, all such common stock equivalents have been excluded from diluted net loss per share as the effect to net loss per share would be anti-dilutive (due to the net loss).
The following table sets forth the computation of the Company’s basic and diluted net loss per share (in thousands, except per share data):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Numerator: | | | | | | | |
| Net loss | $ | (9,033) | | | $ | (2,246) | | | $ | (13,572) | | | $ | (5,679) | |
| Less: preferred stock dividends | — | | | — | | | — | | | (1) | |
| Less: undeclared dividends | — | | | — | | | — | | | (366) | |
| Less: loss on induced conversion of Series A-2 Preferred Stock | — | | | — | | | — | | | (300) | |
| | | | | | | |
| Net loss attributable to common stockholders | $ | (9,033) | | | $ | (2,246) | | | $ | (13,572) | | | $ | (6,346) | |
| Denominator: | | | | | | | |
| Weighted-average number of shares of common stock | 30,816 | | | 26,644 | | | 30,816 | | | 22,250 | |
| Basic and diluted net loss per share | $ | (0.29) | | | $ | (0.08) | | | $ | (0.44) | | | $ | (0.29) | |
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The following table represents the potential shares that were excluded from the computation of weighted-average number of shares of common stock in computing the diluted net loss per share for the periods presented because including them would have had an anti-dilutive effect (due to the net loss):
| | | | | | | | | | | |
| Three and Six Months Ended June 30, |
| 2022 | | 2021 |
| Unvested restricted stock awards | 627 | | | 627 | |
| | | |
| Outstanding stock options | 250,000 | | | 407,500 | |
| Warrants | 5,146,500 | | | 5,146,500 | |
Note 10 - Segment Reporting
The Company currently operates in two segments: (1) “Managed Services”, which represents the Oblong (former Glowpoint) business surrounding managed services for video collaboration and network applications; and (2) “Collaboration Products” which represents the Oblong Industries business surrounding our Mezzanine™ product offerings.
Certain information concerning the Company’s segments for the three and six months ended June 30, 2022 and 2021 is presented in the following tables (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2022 |
| Managed Services | | Collaboration Products | | Corporate | | Total |
| Revenue | $ | 810 | | | $ | 523 | | | $ | — | | | $ | 1,333 | |
| Cost of revenues | 525 | | | 401 | | | — | | | 926 | |
| Gross profit | $ | 285 | | | $ | 122 | | | $ | — | | | $ | 407 | |
| Gross profit % | 35 | % | | 23 | % | | | | 31 | % |
| | | | | | | |
| Allocated operating expenses | $ | 1 | | | $ | 8,254 | | | $ | — | | | $ | 8,255 | |
| Unallocated operating expenses | — | | | — | | | 1,185 | | | 1,185 | |
| Total operating expenses | $ | 1 | | | $ | 8,254 | | | $ | 1,185 | | | $ | 9,440 | |
| | | | | | | |
| Income (loss) from operations | $ | 284 | | | $ | (8,132) | | | $ | (1,185) | | | $ | (9,033) | |
| Interest and other expense, net | — | | | — | | | — | | | — | |
| Net income (loss) before tax | $ | 284 | | | $ | (8,132) | | | $ | (1,185) | | | $ | (9,033) | |
| Income tax expense | (1) | | | 1 | | | — | | | — | |
| Net income (loss) | $ | 285 | | | $ | (8,133) | | | $ | (1,185) | | | $ | (9,033) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2022 |
| Managed Services | | Collaboration Products | | Corporate | | Total |
| Revenue | $ | 1,776 | | | $ | 1,089 | | | $ | — | | | $ | 2,865 | |
| Cost of revenues | 1,170 | | | 789 | | | — | | | 1,959 | |
| Gross profit | $ | 606 | | | $ | 300 | | | $ | — | | | $ | 906 | |
| Gross profit % | 34 | % | | 28 | % | | | | 32 | % |
| | | | | | | |
| Allocated operating expenses | $ | 57 | | | $ | 11,529 | | | $ | — | | | $ | 11,586 | |
| Unallocated operating expenses | | | | | 2,875 | | | 2,875 | |
| Total operating expenses | $ | 57 | | | $ | 11,529 | | | $ | 2,875 | | | $ | 14,461 | |
| | | | | | | |
| Income (loss) from operations | $ | 549 | | | $ | (11,229) | | | $ | (2,875) | | | $ | (13,555) | |
| Interest and other expense, net | 6 | | | — | | | — | | | 6 | |
| Net income (loss) before tax | $ | 543 | | | $ | (11,229) | | | $ | (2,875) | | | $ | (13,561) | |
| Income tax expense | 8 | | | 3 | | | — | | | 11 | |
| Net income (loss) | $ | 535 | | | $ | (11,232) | | | $ | (2,875) | | | $ | (13,572) | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2021 |
| Managed Services | | Collaboration Products | | Corporate | | Total |
| Revenue | $ | 1,078 | | | $ | 971 | | | $ | — | | | $ | 2,049 | |
| Cost of revenues | 739 | | | 510 | | | — | | | 1,249 | |
| Gross profit | $ | 339 | | | $ | 461 | | | $ | — | | | $ | 800 | |
| Gross profit % | 31 | % | | 47 | % | | | | 39 | % |
| | | | | | | |
| Allocated operating expenses | $ | 82 | | | $ | 1,796 | | | $ | — | | | $ | 1,878 | |
| Unallocated operating expenses | — | | | — | | | 1,400 | | | 1,400 | |
| Total operating expenses | $ | 82 | | | $ | 1,796 | | | $ | 1,400 | | | $ | 3,278 | |
| | | | | | | |
| Income (loss) from operations | $ | 257 | | | $ | (1,335) | | | $ | (1,400) | | | $ | (2,478) | |
| Interest and other expense, net | 9 | | | (241) | | | — | | | (232) | |
| Income (loss) before income taxes | $ | 248 | | | $ | (1,094) | | | $ | (1,400) | | | $ | (2,246) | |
| Income tax expense | — | | | — | | | — | | | — | |
| Net income (loss) | $ | 248 | | | $ | (1,094) | | | $ | (1,400) | | | $ | (2,246) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2021 |
| Managed Services | | Collaboration Products | | Corporate | | Total |
| Revenue | $ | 2,273 | | | $ | 1,694 | | | $ | — | | | $ | 3,967 | |
| Cost of revenues | 1,572 | | | 967 | | | — | | | 2,539 | |
| Gross profit | $ | 701 | | | $ | 727 | | | $ | — | | | $ | 1,428 | |
| Gross profit % | 31 | % | | 43 | % | | | | 36 | % |
| | | | | | | |
| Allocated operating expenses | $ | 193 | | | $ | 3,626 | | | $ | — | | | $ | 3,819 | |
| Unallocated operating expenses | — | | | — | | | 3,498 | | | 3,498 | |
| Total operating expenses | $ | 193 | | | $ | 3,626 | | | $ | 3,498 | | | $ | 7,317 | |
| | | | | | | |
| Income (loss) from operations | $ | 508 | | | $ | (2,899) | | | $ | (3,498) | | | $ | (5,889) | |
| Interest and other expense, net | 14 | | | (224) | | | — | | | (210) | |
| Net income (loss) before tax | $ | 494 | | | $ | (2,675) | | | $ | (3,498) | | | $ | (5,679) | |
| Income tax expense | — | | | — | | | — | | | — | |
| Net income (loss) | $ | 494 | | | $ | (2,675) | | | $ | (3,498) | | | $ | (5,679) | |
Unallocated operating expenses in Corporate include costs for the three and six months ended June 30, 2022 and 2021 that are not specific to a particular segment but are general to the group; included are expenses incurred for administrative and accounting staff, general liability and other insurance, professional fees and other similar corporate expenses.
For the three and six months ended June 30, 2022 and 2021, there was no material revenue attributable to any individual foreign country.
Revenue by geographic area is allocated as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Domestic | $ | 705 | | | $ | 1,227 | | | $ | 1,546 | | | $ | 2,242 | |
| Foreign | 628 | | | 822 | | | 1,319 | | | 1,725 | |
| $ | 1,333 | | | $ | 2,049 | | | $ | 2,865 | | | $ | 3,967 | |
| | | | | | | |
Disaggregated information for the Company’s revenue has been recognized in the accompanying condensed consolidated Statements of Operations and is presented below according to contract type (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| 2022 | | % of Revenue | | 2021 | | % of Revenue |
| Revenue: Managed Services | | | | | | | |
| Video collaboration services | $ | 79 | | | 6 | % | | $ | 230 | | | 11 | % |
| Network services | 723 | | | 54 | % | | 830 | | | 41 | % |
| Professional and other services | 8 | | | 1 | % | | 18 | | | 1 | % |
| Total Managed Services revenue | $ | 810 | | | 61 | % | | $ | 1,078 | | | 53 | % |
| | | | | | | |
| Revenue: Collaboration Products | | | | | | | |
| Visual collaboration product offerings | $ | 520 | | | 39 | % | | $ | 942 | | | 46 | % |
| | | | | | | |
| Licensing | 3 | | | — | % | | 29 | | | 1 | % |
| Total Collaboration Products revenue | 523 | | | 39 | % | | 971 | | | 47 | % |
| Total revenue | $ | 1,333 | | | 100 | % | | $ | 2,049 | | | 100 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2022 | | % of Revenue | | 2021 | | % of Revenue |
| Revenue: Managed Services | | | | | | | |
| Video collaboration services | $ | 195 | | | 7 | % | | $ | 521 | | | 23 | % |
| Network services | 1,544 | | | 54 | % | | 1,711 | | | 75 | % |
| Professional and other services | 37 | | | 1 | % | | 41 | | | 2 | % |
| Total Managed Services revenue | $ | 1,776 | | | 62 | % | | $ | 2,273 | | | 57 | % |
| | | | | | | |
| Revenue: Collaboration Products | | | | | | | |
| Visual collaboration product offerings | $ | 1,082 | | | 38 | % | | $ | 1,635 | | | 80 | % |
| | | | | | | |
| Licensing | 7 | | | — | % | | 59 | | | 3 | % |
| Total Collaboration Products revenue | 1,089 | | | 38 | % | | 1,694 | | | 43 | % |
| Total revenue | $ | 2,865 | | | 100 | % | | $ | 3,967 | | | 100 | % |
The Company considers a significant customer to be one that comprises more than 10% of the Company’s consolidated revenues or accounts receivable. The loss of or a reduction in sales or anticipated sales to our most significant or several of our smaller customers could have a material adverse effect on our business, financial condition and results of operations.
Concentration of revenues was as follows:
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, |
| | | 2022 | | 2021 |
| Segment | | % of Revenue | | % of Revenue |
| Customer A | Managed Services | | 48 | % | | 32 | % |
| Customer B | Collaboration Products | | 11 | % | | 5 | % |
| | | | | |
| | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | |
| | | Six Months Ended June 30, |
| | | 2022 | | 2021 |
| Segment | | % of Revenue | | % of Revenue |
| Customer A | Managed Services | | 46 | % | | 34 | % |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Concentration of accounts receivable was as follows:
| | | | | | | | | | | | | | | | | |
| | | As of June 30, 2022 |
| | | 2022 | | 2021 |
| Segment | | % of Accounts Receivable | | % of Accounts Receivable |
| Customer A | Managed Services | | 42 | % | | 22 | % |
| Customer B | Managed Services | | 7 | % | | 13 | % |
| Customer C | Collaboration Products | | 10 | % | | — | % |
| | | | | |
| | | | | |
Note 11 - Commitments and Contingencies
From time to time, we are subject to various legal proceedings arising in the ordinary course of business, including proceedings for which we have insurance coverage. As of the date hereof, we are not party to any legal proceedings that we currently believe will have a material adverse effect on our business, financial position, results of operations or liquidity.
COVID-19
On March 11, 2020, the World Health Organization announced that infections of the novel Coronavirus (COVID-19) had become pandemic, and on March 13, 2020, the U.S. President announced a National Emergency relating to the disease. There has been continued widespread infection in the United States and abroad, as COVID-19 has had, and continues to have, a significant impact around the world, prompting governments and businesses to take unprecedented measures in response. Such measures have included restrictions on travel and business operations, temporary closures of businesses, hybrid operations of businesses and for workers, and quarantine and shelter-in-place orders. Some businesses have imposed vaccine mandates and many businesses are experiencing labor shortages. These factors have also impacted the supply chain, leading to significant delays and shortages. These measures, while intended to protect human life, have had serious adverse impacts on domestic and foreign economies. The severity and duration of such impacts are uncertain as new variants of the COVID-19 virus emerge and a resulting surge in diagnosed cases may be seen. The sweeping nature of the coronavirus pandemic makes it extremely difficult to predict how the Company’s business and operations will be affected in the longer run. The COVID-19 pandemic has materially affected our revenue and results of operations for 2020, 2021, and the six months ended June 30, 2022. The decreases in our revenue are primarily attributable to the effects of the global pandemic on our channel partners and customers as they evaluate how and when to re-open their commercial real estate footprints. The Company’s results reflect the challenges due to long and unpredictable sales cycles, delays in customer retrofit budgets, project starts, and supply delayed orders in our distribution channels as a direct result of customer implementation schedules shifting due to the COVID-19 pandemic. The COVID-19 pandemic in particular has, and may continue to have, a significant economic and business impact on our Company. During 2020, 2021, and the first half of 2022, we have seen a continuing weakness in revenue as our customers across all sectors delayed order placements in reaction to the ongoing impacts of the COVID-19 pandemic that caused our customers to suspend or postpone real estate retrofit projects due to budget and occupancy uncertainties. We continue to monitor the impact of the COVID-19 pandemic on our customers, suppliers and logistics providers, and to evaluate governmental actions being taken to curtail and respond to the spread of the virus. The significance and duration of the ongoing impact on us is still uncertain. Material adverse effects of the COVID-19 pandemic on market drivers, our customers, suppliers or logistics providers could significantly impact our operating results. We will continue to actively follow, assess and analyze the ongoing
impact of the COVID-19 pandemic and adjust our organizational structure, strategies, plans and processes to respond. Because the situation continues to evolve, we cannot reasonably estimate the ultimate impact to our business, results of operations, cash flows and financial position that the COVID-19 pandemic may have. Continuation of the COVID-19 pandemic and government actions in response thereto could cause further disruptions to our operations and the operations of our customers, suppliers and logistics partners and could significantly adversely affect our near-term and long-term revenues, earnings, liquidity and cash flows.