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 September 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 November 9, 2020 was 6,285,558.

OBLONG, INC.

Index

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements		1
	Condensed Consolidated Balance Sheets at September 30, 2020 (unaudited) and December 31, 2019	1
	Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019	3
	Unaudited Condensed Consolidated Statement of Stockholders’ Equity for the three and nine months ended September 30, 2020 and 2019	4
	Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 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 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 any campaigns commenced by activist investors in the future; 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)

	September 30, 2020		December 31, 2019
	(Unaudited)
ASSETS
Current assets:
Cash	$	2,670	$	4,602
Accounts receivable, net	2,207		2,543
Inventory	1,126		1,816
Prepaid expenses and other current assets	725		965
Total current assets	6,728		9,926
Property and equipment, net	641		1,316
Goodwill	7,366		7,907
Intangibles, net	10,737		12,572
Operating lease - right of use asset, net	1,665		3,117
Other assets	105		71
Total assets	$	27,242	$	34,909
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt, net of discount	$	4,942	$	2,664
Accounts payable	662		647
Accrued expenses and other current liabilities	1,489		1,752
Deferred revenue	1,973		1,901
Current portion of operating lease liabilities	907		1,294
Total current liabilities	9,973		8,258
Long-term liabilities:
Long-term debt, net of current portion and net of discount	3,035		2,843
Operating lease liabilities, net of current portion	889		2,020
Other long-term liabilities	—		3
Total long-term liabilities	3,924		4,866
Total liabilities	13,897		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 September 30, 2020 and December 31, 2019, respectively and liquidation preference of $338 at September 30, 2020	—		—
Preferred stock Series C, convertible; $.0001 par value; $1,000 stated value; 1,750 shares authorized, 250 and 475 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively and liquidation preference of $250 at September 30, 2020	—		—
Preferred stock Series D, convertible; $.0001 par value; $28.50 stated value; 1,750,000 shares authorized, 1,702,010 and 1,734,901 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively and liquidation preference of $48,507 at September 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 September 30, 2020 and December 31, 2019 and liquidation preference of $3,750 at September 30, 2020	—		—
Common stock, $.0001 par value; 150,000,000 shares authorized; 5,355,841 shares issued and 5,242,558 outstanding at September 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 of common stock at September 30, 2020 and December 31, 2019, respectively	(181)		(165)
Additional paid-in capital	207,558		207,383
Accumulated deficit	(194,033)		(185,434)
Total stockholders’ equity	13,345		21,785
Total liabilities and stockholders’ equity	$	27,242	$	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				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Revenue	$	3,266	$	2,370	$	11,410	$	7,403
Cost of revenue (exclusive of depreciation and amortization)	1,612		1,582		5,684		4,901
Gross profit	1,654		788		5,726		2,502
Operating expenses:
Research and development	747		190		3,062		652
Sales and marketing	668		38		2,708		111
General and administrative	1,332		1,035		5,173		2,917
Impairment charges	117		20		667		473
Depreciation and amortization	780		145		2,392		461
Total operating expenses	3,644		1,428		14,002		4,614
Loss from operations	(1,990)		(640)		(8,276)		(2,112)
Interest and other expense, net	102		—		322		1
Foreign exchange loss (gain)	(7)		—		—		—
Interest and other expense, net	95		—		322		1
Net loss	(2,085)		(640)		(8,598)		(2,113)
Preferred stock dividends	4		4		12		23
Net loss attributable to common stockholders	$	(2,089)	$	(644)	$	(8,610)	$	(2,136)
Net loss attributable to common stockholders per share:
Basic and diluted net loss per share	$	(0.40)	$	(0.12)	$	(1.64)	$	(0.42)
Weighted-average number of shares of common stock:
Basic and diluted	5,237		5,184		5,257		5,128

See accompanying notes to condensed consolidated financial statements.

-3-

OBLONG, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

Three and Nine Months Ended September 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	—	—		325	—		1,703,096	—		131,579	—		5,340,162	1		113,283	(181)		207,535		(191,948)		15,407
Net loss	—	—		—	—		—	—		—	—		—	—		—	—		—		(2,085)		(2,085)
Stock-based compensation	—	—		—	—		—	—		—	—		—	—		—	—		27		—		27
Preferred stock conversion	—	—		(75)	—		—	—		—	—		25,000	—		—	—		—		—		—
Forfeited restricted stock	—	—		—	—		(1,086)	—		—	—		(9,321)	—		—	—		—		—		—
Preferred stock dividends	—	—		—	—		—	—		—	—		—	—		—	—		(4)		—		(4)
Balance as of September 30, 2020	45	$	—	250	$	—	1,702,010	$	—	131,579	$	—	5,355,841	$	1	113,283	$	(181)	$	207,558	$	(194,033)	$	13,345

See accompanying notes to condensed consolidated financial statements.

-4-

OBLONG, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

Three and Nine Months Ended September 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)		(875)
Stock-based compensation	—	—		—	—		—	—		—	—		—	—		24		—		24
Issuance of stock on vested restricted stock units	—	—		—	—		—	—		—	—		(75,000)	382		(382)		—		—
Preferred stock dividends	—	—		—	—		—	—		—	—		—	—		(4)		—		(4)
Purchase of treasury stock	—	—		—	—		—	—		—	—		24,000	(34)		—		—		(34)
Balance at June 30, 2019	32	—		—	—		475	—		5,173,952	1		82,419	(149)		184,650		(179,146)		5,356
Net loss	—	—		—	—		—	—		—	—		—	—		—		(640)		(640)
Stock-based compensation	—	—		—	—		—	—		—	—		—	—		14		—		14
Issuance of stock on vested restricted stock units	—	—		—	—		—	—		65,000	—		—	—		—		—		—
Preferred stock dividends	—	—		—	—		—	—		—	—		—	—		(4)		—		(4)
Purchase of treasury stock	—	—		—	—		—	—		—	—		16,000	(16)		—		—		(16)
Balance at September 30, 2019	32	$	—	—	$	—	475	$	—	5,238,952	$	1	98,419	$	(165)	$	184,660	$	(179,786)	$	4,710

See accompanying notes to condensed consolidated financial statements.

-5-

OBLONG, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Nine Months Ended September 30,
	2020		2019
Cash flows from operating activities:
Net loss	$	(8,598)	$	(2,113)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	2,392		461
Bad debt expense	14		12
Amortization of debt discount	53		—
Amortization of right of use asset	834		37
Payments on lease liability	(895)		(43)
Stock-based compensation	89		67
Loss on foreign currency remeasurement	—		1
Change in inventory	—		—
Impairment charges - property and equipment	126		20
Impairment charges - goodwill	541		453
Changes in operating assets and liabilities:
Accounts receivable	322		270
Inventory	689		—
Prepaid expenses and other current assets	240		171
Other assets	(32)		25
Accounts payable	15		202
Accrued expenses and other current liabilities	(184)		(219)
Deferred revenue	72		(12)
Other liabilities	(3)		—
Net cash used in operating activities	(4,325)		(668)
Cash flows from investing activities:
Purchases of property and equipment	(8)		(17)
Net cash used in investing activities	(8)		(17)
Cash flows from financing activities:
Proceeds from PPP Loan	2,417		—
Purchase of treasury stock	(16)		(51)
Net cash provided by (used in) financing activities	2,401		(51)
Decrease in cash and cash equivalents	(1,932)		(736)
Cash at beginning of period	4,602		2,007
Cash at end of period	$	2,670	$	1,271
Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	159	$	—
Non-cash investing and financing activities:
Issuance preferred stock in exchange for accrued dividends	99		—
Accrued preferred stock dividends	12		23
Issuance of common stock for vested restricted stock units	$	—	$	382

See accompanying notes to condensed consolidated financial statements.

-6-

OBLONG, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 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. 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 Acquisition, and (ii) the “combined organization” of Oblong (formerly Glowpoint) and Oblong Industries for periods after the closing of the Acquisition. 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 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 nine months ended September 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, 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.

-7-

Segments

Prior to the Acquisition of Oblong Industries on October 1, 2019, the Company operated in one 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 two 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.

Property and Equipment

Property and equipment are stated at cost and are depreciated over the estimated useful lives of the related assets, which range from three to ten years. Leasehold improvements are amortized over the shorter of either the asset’s useful life or the related lease term. Depreciation is computed on the straight-line method for financial reporting purposes. During the three and nine months ended September 30, 2020, the Company recorded asset impairment charges on property and equipment of $117,000 and $126,000, respectively, for the discontinued use of, or disposal of, property and equipment. These charges are included in “Impairment Charges” on our condensed consolidated statement of operations. The impairment charges related to property and equipment for the three and nine months ended September 30, 2019 were $20,000.

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 Financial 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,

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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 September 30, 2020, we had $2,670,000 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 $3,245,000. For the nine months ended September 30, 2020, we incurred a net loss of $8,598,000 and used $4,325,000 of net cash in operating activities.

During the nine months ended September 30, 2020, we received cash proceeds of $2,417,000 from a loan made to the Company by MidFirst Bank under the Paycheck Protection Program (PPP) contained within the Coronavirus Aid Relief, and Economic Security (CARES) Act (the “PPP Loan”). See further discussion of the PPP Loan in Note 8 - Debt.

As of September 30, 2020, the SVB Loan Agreement provided that interest-only payments were due through September 30, 2020, after which monthly principal payments of $291,500, plus interest, were payable in order to fully repay the loan by March 1, 2022. Subsequent to the period of this Report, in October 2020, the Company: (i) completed a private placement of common stock for gross proceeds of $2,973,000, and (ii) completed an agreement with SVB to satisfy all outstanding obligations of $5,609,000 under the SVB Loan Agreement in exchange for a one-time cash payment of $2,500,000. See further discussion of these transactions in Note 14 - Subsequent Events.

Our capital requirements in the future will continue to depend on numerous factors, including the timing and amount of revenue for the combined organization, customer renewal rates and the timing of collection of outstanding accounts receivable, in each case particularly as it relates to the combined organization’s major customers, the expense to deliver services, expense for sales and marketing, expense for research and development, capital expenditures, the cost involved in protecting intellectual property rights, the amount of forgiveness of the PPP Loan, if any, and any debt service obligations under the PPP Loan. 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. However, 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 $1,813,000, or 40%, from the first quarter of 2020 as compared to the third quarter of 2020 (or a total of $4,560,000 in the first quarter of 2020 as compared to $2,747,000 in the third quarter of 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 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.

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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 $