UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 2020.

or

☐  Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission file number: 001-35376

OBLONG, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware	77-0312442
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

25587 Conifer Road, Suite 105-231, Conifer, CO 80433

(Address of Principal Executive Offices, including Zip Code)

(303) 640-3838

(Registrant’s Telephone Number, including Area Code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.0001 per share	OBLG	NYSE American

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)

Yes ☐ No ☒

The number of shares outstanding of the registrant’s common stock as of August 12, 2020 was 5,226,879.

OBLONG, INC.

Index

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements		1
	Condensed Consolidated Balance Sheets at June 30, 2020 (unaudited) and December 31, 2019	1
	Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019	3
	Unaudited Condensed Consolidated Statement of Stockholders’ Equity for the three and six months ended June 30, 2020 and 2019	4
	Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019	6
	Notes to unaudited Condensed Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		27
Item 3. Quantitative and Qualitative Disclosures About Market Risk		36
Item 4. Controls and Procedures		36
PART II - OTHER INFORMATION
Item 1. Legal Proceedings		36
Item 1A. Risk Factors		36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		36
Item 3. Defaults Upon Senior Securities		37
Item 4. Mine Safety Disclosures		37
Item 5. Other Information		37
Item 6. Exhibits		38
Signatures		39

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q (this “Report”) contains statements that are considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and its rules and regulations (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended, and its rules and regulations (the “Exchange Act”). These forward-looking statements include, but are not limited to, statements about the plans, objectives, expectations and intentions of Oblong, Inc. (“Oblong” or “we” or “us” or the “Company”). All statements other than statements of current or historical fact contained in this Report, including statements regarding Oblong’s future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” and similar expressions, as they relate to Oblong, are intended to identify forward-looking statements. These statements are based on Oblong’s current plans, and Oblong’s actual future activities and results of operations may be materially different from those set forth in the forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the statements made. Any or all of the forward-looking statements in this Report may turn out to be inaccurate. Oblong has based these forward-looking statements largely on its current expectations and projections about future events and financial trends that it believes may affect its financial condition, results of operations, business strategy and financial needs. The forward-looking statements can be affected by inaccurate assumptions or by known or unknown risks, uncertainties and assumptions. There are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements, including our plans, objectives, expectations and intentions and other factors that are discussed under the section entitled “Part I. Item 1A. Risk Factors” and in our consolidated financial statements and the footnotes thereto for the fiscal year ended December 31, 2019, each included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the Securities and Exchange Commission (the “SEC”) on May 15, 2020, as well as under “Part II. Item 1A. Risk Factors” in this Report. Oblong undertakes no obligation to publicly revise these forward-looking statements to reflect events occurring after the date hereof. All subsequent written and oral forward-looking statements attributable to Oblong or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements contained in this Report. Forward-looking statements in this Report include, among other things: our ability to meet commercial commitments; our expectations and estimates relating to customer attrition, sales cycles, future revenues, expenses, capital expenditures and cash flows; evolution of our customer solutions and our service platforms; our ability to fund operations and continue as a going concern; expectations regarding adjustments to our cost of revenue and other operating expenses; our ability to finance investments in product development and sales and marketing; matters related to our integration with Oblong Industries, Inc., and any benefits thereof; our ability to raise capital through sales of additional equity or debt securities and/or loans from financial institutions; our beliefs about employee relations; statements relating to market need, evolution of our solutions and our service platforms; our beliefs about the service offerings of our competitors and our ability to differentiate Oblong’s services; adequacy of our internal controls; statements regarding our information systems and our ability to protect and prevent security breaches; expectations relating to additional patent protection; and beliefs about the strength of our intellectual property, including patents. For additional information regarding known material factors that could cause our actual results to differ materially from our projected results, please see “Part II. Item 1A. Risk Factors” in this Report. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, those summarized below:

•the continued impact of the coronavirus pandemic on our business, including its impact on our customers and other business partners, our ability to conduct operations in the ordinary course, and our ability to obtain capital financing important to our ability to continue as a going concern;

•our ability to continue as a going concern;

•our ability to raise capital in one or more debt and/or equity offerings in order to fund operations or any growth initiatives;

•our ability to innovate technologically, and, in particular, our ability to develop next generation Oblong technology;

•customer acceptance and demand for our video collaboration services and network applications;

•the quality and reliability of our services;

•the prices for our products and services;

•customer renewal rates;

•risks related to the concentration of our customers and the degree to which our sales, now or in the future, depend on certain large client relationships;

•customer acquisition costs;

•our ability to compete effectively in the video collaboration services and network services businesses;

•actions by our competitors, including price reductions for their competitive services;

•potential federal and state regulatory actions;

•our ability to successfully integrate the former Glowpoint, Inc. and Oblong Industries, Inc. businesses following the closing of our acquisition of Oblong Industries, Inc. on October 1, 2019;

•our ability to satisfy the standards for initial listing of common stock for the combined organization of Oblong on the NYSE American stock exchange;

•our ability to satisfy the standards for continued listing of our common stock on the NYSE American stock exchange;

•changes in our capital structure and/or stockholder mix;

•the costs, disruption, and diversion of management’s attention associated with campaigns commenced by activist investors; and

•our management’s ability to execute its plans, strategies and objectives for future operations.

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

OBLONG, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value, stated value, and shares)

	June 30, 2020		December 31, 2019
	(Unaudited)
ASSETS
Current assets:
Cash	$	4,141	$	4,602
Accounts receivable, net	1,360		2,543
Inventory	1,344		1,816
Prepaid expenses and other current assets	919		965
Total current assets	7,764		9,926
Property and equipment, net	910		1,316
Goodwill	7,366		7,907
Intangibles, net	11,348		12,572
Operating lease - right of use asset, net	1,806		3,117
Other assets	99		71
Total assets	$	29,293	$	34,909
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt, net of discount	$	3,665	$	2,664
Accounts payable	643		647
Accrued expenses and other current liabilities	1,174		1,752
Deferred revenue	2,139		1,901
Current portion of operating lease liabilities	898		1,294
Total current liabilities	8,519		8,258
Long-term liabilities:
Long-term debt, net of current portion and net of discount	4,304		2,843
Operating lease liabilities, net of current portion	1,063		2,020
Other long-term liabilities	—		3
Total long-term liabilities	5,367		4,866
Total liabilities	13,886		13,124
Commitments and contingencies (see Note 13)
Stockholders’ equity:
Preferred stock Series A-2, convertible; $.0001 par value; $7,500 stated value; 7,500 shares authorized, 45 and 32 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively and liquidation preference of $336 at June 30, 2020	—		—
Preferred stock Series C, convertible; $.0001 par value; $1,000 stated value; 1,750 shares authorized, 325 and 475 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively and liquidation preference of $325 at June 30, 2020	—		—
Preferred stock Series D, convertible; $.0001 par value; $28.50 stated value; 1,750,000 shares authorized, 1,703,096 and 1,734,901 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively and liquidation preference of $48,538 at June 30, 2020	—		—

See accompanying notes to condensed consolidated financial statements.

-1-

Preferred stock Series E, convertible; $.0001 par value; $28.50 stated value; 175,000 shares authorized, 131,579 shares issued and outstanding at June 30, 2020 and December 31, 2019 and liquidation preference of $3,750 at June 30, 2020	—		—
Common stock, $.0001 par value; 150,000,000 shares authorized; 5,340,162 shares issued and 5,226,879 outstanding at June 30, 2020 and 5,266,828 shares issued and 5,161,543 outstanding at December 31, 2019	1		1
Treasury stock, 113,283 and 105,285 shares at June 30, 2020 and December 31, 2019, respectively	(181)		(165)
Additional paid-in capital	207,535		207,383
Accumulated deficit	(191,948)		(185,434)
Total stockholders’ equity	15,407		21,785
Total liabilities and stockholders’ equity	$	29,293	$	34,909

See accompanying notes to condensed consolidated financial statements.

-2-

OBLONG, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Revenue	$	2,816	$	2,439	$	8,144	$	5,033
Cost of revenue (exclusive of depreciation and amortization)	1,683		1,644		4,072		3,319
Gross profit	1,133		795		4,072		1,714
Operating expenses:
Research and development	988		249		2,315		462
Sales and marketing	834		40		2,040		73
General and administrative	1,815		770		3,842		1,882
Impairment charges	—		453		550		453
Depreciation and amortization	796		157		1,612		316
Total operating expenses	4,433		1,669		10,359		3,186
Loss from operations	(3,300)		(874)		(6,287)		(1,472)
Interest and other expense, net	76		1		220		1
Foreign exchange loss	9		—		7		—
Interest and other expense, net	85		1		227		1
Net loss	(3,385)		(875)		(6,514)		(1,473)
Preferred stock dividends	4		4		8		19
Net loss attributable to common stockholders	$	(3,389)	$	(879)	$	(6,522)	$	(1,492)
Net loss attributable to common stockholders per share:
Basic and diluted net loss per share	$	(0.65)	$	(0.17)	$	(1.25)	$	(0.29)
Weighted-average number of shares of common stock:
Basic and diluted	5,240		5,163		5,222		5,134

See accompanying notes to condensed consolidated financial statements.

-3-

OBLONG, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

Three and Six Months Ended June 30, 2020

(In thousands, except shares)

(Unaudited)

	Series A-2 Preferred Stock			Series C Preferred Stock			Series D Preferred Stock			Series E Preferred Stock			Common Stock			Treasury Stock
	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Additional Paid-In Capital		Accumulated Deficit		Total
Balance at December 31, 2019	32	$	—	475	$	—	1,734,901	$	—	131,579	$	—	5,266,828	$	1	105,285	$	(165)	$	207,383	$	(185,434)	$	21,785
Net loss	—	—		—	—		—	—		—	—		—	—		—	—		—		(3,129)		(3,129)
Stock-based compensation	—	—		—	—		—	—		—	—		—	—		—	—		32		—		32
Preferred stock conversion	—	—		(150)	—			—		—	—		50,000	—		—	—		—		—		—
Forfeitures of restricted stock	—	—		—	—		(14,441)	—		—	—		—	—		—	—		—		—		—
Preferred stock dividends	—	—		—	—		—	—		—	—		—	—		—	—		(4)		—		(4)
Issuance of preferred stock for accrued dividends	13	—		—	—		—	—		—	—		—	—		—	—		98		—		98
Purchase of treasury stock	—	—		—	—		—	—		—	—		—	—		—	(7)		—		—		$	(7)
Balance at March 31, 2020	45	—		325	—		1,720,460	—		131,579	—		5,316,828	1		105,285	(172)		207,509		(188,563)		18,775
Net loss	—	—		—	—		—	—		—	—		—	—		—	—		—		(3,385)		(3,385)
Stock-based compensation	—	—		—	—		—	—		—	—		—	—		—	—		29		—		29
Issuance of stock on vested restricted stock units	—	—		—	—		—	—		—	—		23,334	—		—	—		—		—		—
Forfeited restricted stock				—	—		(17,364)	—		—	—		—	—		—	—		—		—		—
Preferred stock dividends	—	—		—	—		—	—		—	—		—	—		—	—		(4)		—		(4)
Purchase of treasury stock	—	—		—	—		—	—		—	—		—	—		7,998	(9)		—		—		(9)
Issuance of preferred stock for accrued dividends	—	—		—	—		—	—		—	—		—	—		—	—		1		—		1
Balance at June 30, 2020	45	$	—	325	$	—	1,703,096	$	—	131,579	$	—	5,340,162	$	1	113,283	$	(181)	$	207,535	$	(191,948)	$	15,407

See accompanying notes to condensed consolidated financial statements.

-4-

OBLONG, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

Three and Six Months Ended June 30, 2019

(In thousands, except shares)

(Unaudited)

	Series A-2 Preferred Stock			Series B Preferred Stock			Series C Preferred Stock			Common Stock			Treasury Stock
	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Additional Paid-In Capital		Accumulated Deficit		Total
Balance at December 31, 2018	32	$	—	75	$	—	525	$	—	5,113,726	$	1	132,519	$	(496)	$	184,998	$	(177,673)	$	6,830
Net loss	—	—		—	—		—	—		—	—		—	—		—		(598)		(598)
Stock-based compensation	—	—		—	—		—	—		—	—		—	—		29		—		29
Preferred stock conversion	—	—		(75)	—		(50)	—		43,402	—		—	—		—		—		—
Issuance of stock on vested restricted stock units	—	—		—	—		—	—		16,824	—		—	—		—		—		—
Preferred stock dividends	—	—		—	—		—	—		—	—		—	—		(15)		—		(15)
Purchase of treasury stock	—	—		—	—		—	—		—	—		900	(1)		—		—		(1)
Balance at March 31, 2019	32	—		—	—		475	—		5,173,952	1		133,419	(497)		185,012		(178,271)		6,245
Net loss	—	—		—	—		—	—		—	—		—	—		—		(875)		(