NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2019
(Unaudited)
Note 1
- Business Description and Significant Accounting Policies
Business Description
Glowpoint, Inc. (“
Glowpoint,
” “
we,
” “
us,
” or the “
Company
”) is a managed service provider of video collaboration and network applications. Our services are designed to provide a comprehensive suite of automated and concierge applications to simplify the user experience and expedite the adoption of video as the primary means of collaboration. Our customers include Fortune 1000 companies, along with small and medium sized enterprises in a variety of industries. We market our services globally through a multi-channel sales approach that includes direct sales and channel partners. The Company was formed as a Delaware corporation in May 2000. The Company operates in
one
segment and therefore segment information is not presented.
On December 20, 2018, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Glowpoint Merger Sub, Inc., a Delaware corporation and a direct wholly-owned subsidiary of Glowpoint (the “Merger Sub”), and SharedLabs, Inc. (“SharedLabs”), a privately held global software and technology services company located in Jacksonville, Florida. The Merger Agreement provided for the merger of the Merger Sub with and into SharedLabs, with SharedLabs surviving as a wholly-owned subsidiary of Glowpoint (the “Merger”), in exchange for the issuance of shares of the Company’s Common Stock, par value
$0.0001
per share (“Common Stock”). On April 28, 2019, the Company, the Merger Sub and SharedLabs entered into a Mutual Termination Agreement (the “Termination Agreement”), which provides for, among other things, (i) the termination of the Merger Agreement, (ii) the reservation of all rights by the Company and the Merger Sub under the Merger Agreement, applicable law or otherwise, with respect to any claims now existing or hereafter arising out of or related to the Merger Agreement, and (iii) the release by SharedLabs of the Company and the Merger Sub and certain of their affiliates from any claims up to the effective time of the Termination Agreement. SharedLabs has agreed to work with the Company in good faith to reach a resolution with respect to the Company’s rights in connection with the termination of the Merger Agreement, including the payment by SharedLabs of fees and expenses in connection therewith. To the extent it is necessary, the Company expects to utilize available legal remedies in order to pursue the payment by SharedLabs of any such amounts. There can be no assurance that the Company will be able to obtain payment by SharedLabs of any fees and expenses it owes to Glowpoint in connection with the termination of the Merger Agreement under the terms of the Merger Agreement. The Company has not recorded any amounts related to such potential recoveries as of
June 30, 2019
and will record any such amounts when and if the gain contingency is resolved.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of Glowpoint and our
100%
-owned subsidiary, GP Communications, LLC, whose business function is to provide interstate telecommunications services for regulatory purposes. All material inter-company balances and transactions have been eliminated in consolidation.
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,
2018
. 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,
2018
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,
2018
and
notes thereto included in the Company's fiscal
2018
Annual Report on Form 10-K, filed with the Securities and Exchange Commission on
March 8, 2019
(the “
2018
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.
Significant Accounting Policies
The significant accounting policies used in preparation of these condensed consolidated financial statements are disclosed in our
2018
10-K.
Leases
The Company determines if an arrangement is a lease at inception. For the Company’s operating leases, the right-of-use (“ROU”) assets represents the Company’s right to use an underlying asset for the lease term and operating lease liabilities represent an obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Since all of the lease agreements do not provide an implicit rate, the Company estimated an incremental borrowing rate in determining the present value of the lease payments. Operating lease expense is recognized on a straight-line basis over the lease term, subject to any changes in the lease or expectations regarding the terms. Variable lease costs such as operating costs and property taxes are expensed as incurred.
Treasury Stock
Purchases and sales of treasury stock are accounted for using the cost method. Under this method, shares acquired are recorded at the acquisition price directly to the treasury stock account. Upon sale, the treasury stock account is reduced by the original acquisition price of the shares and any difference is recorded in equity, on a first-in first-out basis. This method does not allow the Company to recognize a gain or loss to income from the purchase and sale of treasury stock.
Adopted Accounting Standards
In February 2016 the FASB issued ASU 2016-02, “
Leases (Topic 842)
,” which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. On January 1, 2019, the Company adopted the new lease standard using the optional transition method under which comparative financial information will not be restated and continue to apply the provisions of the previous lease standard in its annual disclosures for the comparative periods. In addition, the new lease standard provides a number of optional practical expedients in transition. The Company elected the package of practical expedients. As such, the Company did not have to reassess whether expired or existing contracts are or contain a lease; did not have to reassess the lease classifications or reassess the initial direct costs associated with expired or existing leases.
The new lease standard also provides practical expedients for an entity's ongoing accounting. The Company elected the short-term lease recognition exemption under which the Company will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases. The Company elected the practical expedient to not separate lease and non-lease components for certain classes of assets (office buildings). For leases that qualify as short-term leases, the Company has elected to not apply the balance sheet recognition requirements of Topic 842, and instead we recognize the lease payments in the condensed consolidated statement of operations on a straight-line basis over the lease term.
On January 1, 2019, the Company recognized ROU assets and lease liabilities of approximately
$99,000
and
$111,000
, respectively, using an estimated incremental borrowing rate of
7.75%
. The ROU assets are recorded in other assets and the lease liabilities are recorded in accrued expenses on the Company’s condensed consolidated balance sheet.
In June 2018 the FASB issued ASU 2018-07, “
Compensation - Stock Compensation (Topic 718).
” The guidance simplifies the accounting for share-based payments to non-employees by aligning it with the accounting for share-based payments to employees, with certain exceptions. The new guidance expands the scope to include share-based payments granted to non-employees in exchange for goods or services used or consumed in an entity’s own operations and supersedes the guidance in ASC 505-50. Effective January 1, 2019, we adopted Topic 718 and this guidance did not have a material impact on our consolidated financial statements.
Recently Issued Accounting Pronouncements
In June 2016 the FASB issued ASU 2016-13,
“Financial Instruments - Credit Losses (Topic 326).”
The amendments introduce an impairment model that is based on expected credit losses, rather than incurred losses, to estimate credit losses on certain types of financial instruments (e.g., loans and held-to-maturity securities), including certain off-balance sheet financial instruments (e.g., loan commitments). The expected credit losses should consider historical information, current information, and reasonable and supportable forecasts, including estimates of prepayments, over the contractual term. Financial instruments with similar risk characteristics may be grouped together when estimating expected credit losses. In addition, the amendments provide for a simplified accounting model for purchased financial assets with a more-than-insignificant amount of credit deterioration since their origination. The update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We believe the effect of adopting this guidance on our consolidated financial statements and related disclosures will not be material.
Note 2 - Liquidity and Going Concern
As of
June 30, 2019
, we had
$987,000
of cash and working capital of
$2,022,000
. For the
six
months ended
June 30, 2019
, we incurred a net loss of
$1,473,000
and used
$968,000
of net cash in operating activities.
Our capital requirements continue to depend on numerous factors, including the timing and amount of revenue, customer renewal rates and the timing of our collection of outstanding accounts receivable, in each case particularly as it relates to our major customers, the expense to deliver our services, expense for sales and marketing, expense for research and development, capital expenditures, the cost involved in protecting our intellectual property rights, expenses required to successfully pursue and execute any merger and acquisition and/or business development initiatives, and, our ability to recover any damages owing from SharedLabs under the terms of the Merger Agreement. The Company believes that, based on our 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. The Company is exploring business development initiatives to leverage its technology, including pursuing organic growth and strategic growth through merger and acquisition or partnership opportunities. We anticipate negative cash flow from operations for the remainder of
2019
and we believe additional capital will be required to fund investments in product development and sales and marketing as a means to reverse our negative revenue trends. While we expect to continue to adjust our cost of revenue and other operating expenses to partially offset the impact of revenue declines associated with our legacy services, we believe additional capital will be necessary to fund our operations. 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
- Reverse Stock Split
On April 17, 2019, the Company filed an amendment to its certificate of incorporation that effected a one-for-ten reverse stock split of the Company's issued and outstanding shares of common stock. The reverse stock split did not affect the number of authorized shares of the Company’s common stock or the par value of a share of the Company’s common stock. Proportionate adjustments were made to the per share exercise or conversion price and the number of shares issuable upon the exercise or conversion of all outstanding options and other convertible or exchangeable securities, including issued and outstanding shares of the Company’s convertible preferred stock. All shares of common stock, as well as the per share exercise or conversion price and the number of shares issuable upon the exercise or conversion of all outstanding options and other convertible or exchangeable securities, including issued and outstanding shares of the Company’s convertible preferred stock, presented in this Report have been retroactively adjusted to give effect to this reverse stock split.
Note 4 - Goodwill & Intangibles
Goodwill is not amortized but is subject to periodic testing for impairment in accordance with ASC Topic 350 “
Intangibles - Goodwill and Other - Testing Indefinite-Lived Intangible Assets for Impairment.
” 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. As of
June 30, 2019
the Company considered the declines in our revenue and stock price to be triggering events for an interim goodwill impairment test. The Company operates as a single reporting unit and used its market capitalization to determine the fair value of the reporting unit as of each test date. In order to determine the market capitalization, the Company used the trailing 20 day volume weighted average price (“VWAP”) of its stock as of
June 30, 2019
. As of
June 30, 2019
, the carrying amount of our reporting unit exceeded its fair value; therefore, the Company recorded goodwill impairment charges of
$453,000
in the
three and six
months ended
June 30, 2019
. These charges are recognized as “Impairment charges” on our Condensed Consolidated Statements of Operations. The remaining goodwill balance as of
June 30, 2019
was
$2,342,000
. The continued future decline of our revenue, cash flows and/or stock price may give rise to a triggering event that may require the Company to record additional impairment charges on goodwill in the future.
The Company assesses the impairment of purchased intangible assets subject to amortization when events and circumstances indicate that the carrying value of the assets might not be recoverable. Fair value of our intangible assets is determined using the relief from royalty methodology. This approach involves two steps: (a) estimating reasonable royalty rates for each intangible asset and (b) applying these royalty rates to a net revenue stream and discounting the resulting cash flows to determine fair value. This fair value is then compared with the carrying value of each intangible asset. If the carrying value of the intangible asset is greater than its implied fair value, an impairment in the amount of the excess is recognized and charged to operations. The determination of related estimated useful lives and whether or not these assets are impaired involves significant judgments, related primarily to the future profitability and/or future value of the assets. Changes in the Company’s strategic plan and/or other-than-temporary changes in market conditions could significantly impact these judgments and could require adjustments to recorded asset balances. Long-lived assets are evaluated for impairment at least annually, as well as whenever an event or change in circumstances has occurred that could have a significant adverse effect on the fair value of long-lived assets. The Company performed an evaluation of intangible assets as of
June 30, 2019
and determined that the undiscounted cash flows of the long-lived assets exceeded the carrying value, therefore
no
impairment charges were required for the
three and six
months ended
June 30, 2019
.
Note 5 - Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
Accrued compensation costs
|
$
|
202
|
|
|
$
|
189
|
|
Accrued sales taxes and regulatory fees
|
132
|
|
|
168
|
|
Other accrued expenses
|
105
|
|
|
223
|
|
Accrued dividends on Series A-2 Preferred Stock
|
90
|
|
|
71
|
|
Right to use lease liability
|
71
|
|
|
—
|
|
Accrued professional fees
|
4
|
|
|
246
|
|
Deferred rent expense
|
—
|
|
|
13
|
|
Accrued expenses and other liabilities
|
$
|
604
|
|
|
$
|
910
|
|
Note
6
- Preferred Stock
Our Certificate of Incorporation authorizes us to issue up to
5,000,000
shares of preferred stock. As of
June 30, 2019
, there were: (i)
100
shares of Perpetual Series B-1 Preferred Stock authorized and
no
shares issued or outstanding; (ii)
7,500
shares of Series A-2 Convertible Preferred Stock authorized and
32
shares issued and outstanding (the “Series A-2 Preferred Stock”); (iii)
2,800
shares of
0%
Series B Convertible Preferred Stock (the “Series B Preferred Stock”) authorized and
no
shares issued and outstanding; (iv)
1,750
shares of
0%
Series C Convertible Preferred Stock (the “Series C Preferred Stock”) authorized and
475
shares issued and outstanding; (v)
4,000
shares of Series D Convertible Preferred Stock authorized and
no
shares issued or outstanding; and (vi)
100
shares of Perpetual Series B Preferred Stock authorized and
no
shares issued or outstanding.
Series A-2 Preferred Stock
Each share of Series A-2 Preferred Stock has a stated value of
$7,500
per share (the “A-2 Stated Value”), a liquidation preference equal to the A-2 Stated Value, and is convertible at the holder’s election into common stock at a conversion price per share of
$21.60
as of
June 30, 2019
. Therefore, each share of Series A-2 Preferred Stock is convertible into
347
shares of common stock as of
June 30, 2019
. The conversion price is subject to adjustment upon the occurrence of certain events set forth in our Certificate of Incorporation.
The Series A-2 Preferred Stock is subordinate to the Series B-1 Preferred Stock but senior to all other classes of equity, has weighted average anti-dilution protection and, since January 1, 2013, has been entitled to cumulative dividends at a rate of
5%
per annum, payable quarterly, based on the A-2 Stated Value and payable at the option of the holder in cash or through the issuance of a number of additional shares of Series A-2 Preferred Stock with an aggregate liquidation preference equal to the dividend amount payable on the applicable dividend payment date. As of
June 30, 2019
, the Company has recorded
$90,000
in accrued dividends in “Accrued expenses and other liabilities” on the accompanying Condensed Consolidated Balance Sheet related to the remaining Series A-2 Preferred Stock outstanding. The Company, at its option, may redeem all or a portion of the Series A-2
Preferred Stock in cash at a price per share of
$8,250
per share (equal to
$7,500
per share multiplied by
110%
) plus all accrued and unpaid dividends.
Series B Preferred Stock
During the
six
months ended
June 30, 2019
,
75
shares (constituting all issued and outstanding shares) of Series B Preferred Stock were converted to
26,786
shares of the Company’s common stock at the conversion price of
$2.80
per share. As of
June 30, 2019
,
no
shares of Series B Preferred Stock remain issued and outstanding.
Series C Preferred Stock
In January 2018, the Company closed a registered direct offering of
1,750
shares of its Series C Preferred Stock for total gross proceeds to the Company of
$1,750,000
. The shares of Series C Preferred Stock were sold at a price equal to their stated value of
$1,000
per share and are convertible into shares of the Company’s common stock at a conversion price of
$3.00
per share. During the
six
months ended
June 30, 2019
,
50
shares of Series C Preferred Stock were converted to
16,667
shares of the Company’s common stock. As of
June 30, 2019
,
475
shares of Series C Preferred Stock remain issued and outstanding, which are convertible to
158,333
shares of the Company’s common stock.
Subject to certain exceptions, the Company has agreed to provide the purchasers, during the period that the purchasers continue to hold Series C Preferred Stock, a right of participation for up to
100%
of any future offering of its common stock or other securities or equity linked debt obligations until January 2020.
In addition, the Company has agreed that it will not enter into certain “fundamental transactions,” including transactions constituting a change of control of the Company, certain reorganization transactions or a sale of all or substantially all of the Company’s assets, except as pursuant to written agreements in form and substance satisfactory to the holders of a majority of the outstanding shares of Series C Preferred Stock including the Lead Investor and on terms with respect to the Series C Preferred Stock as set forth in the Certificate of Designation of Rights, Powers, Preferences, Privileges and Restrictions of the Series C Preferred Stock.
In accordance with ASC Topic 815, we evaluated whether our convertible preferred stock contains provisions that protect holders from declines in our stock price or otherwise could
result in modification of the exercise price and/or shares to be issued under the respective preferred stock agreements based on a variable that is not an input to the fair
value of a “fixed-for-fixed” option and require a derivative liability. The Company determined
no
derivative liability is required under ASC Topic 815 with respect to our convertible preferred stock. A contingent beneficial conversion amount is required to be calculated and recognized when and if the adjusted
$21.60
conversion price of the Series A-2 Preferred Stock is adjusted to reflect a down round stock issuance. In the event there is an adjustment to the conversion price, our earnings per share calculations will be impacted by the resulting deemed dividend.
Note
7
- Stock Based Compensation
Glowpoint 2014 Equity Incentive Plan
On May 28, 2014, the Glowpoint, Inc. 2014 Equity Incentive Plan (the “2014 Plan”) was approved by the Company’s stockholders at the Company’s 2014 Annual Meeting of Stockholders. The purpose of the 2014 Plan is to promote the success of the Company and to increase stockholder value by providing an additional means to attract, motivate, retain, and reward selected employees and other eligible persons through the grant of equity awards. Awards may be granted under the 2014 Plan to officers, employees, directors and consultants of the Company or its subsidiary. The 2014 Plan permits the grant of stock options, stock appreciation rights, restricted shares, restricted stock units, cash awards and other awards, including stock bonuses, performance stock, performance units, dividend equivalents, or similar rights to purchase or acquire shares, whether at a fixed or variable price or ratio related to the Company’s common stock, upon the passage of time, the occurrence of
one
or more events, or the satisfaction of performance criteria or other conditions, or any combination thereof, or any similar securities with a value derived from the value of or related to the Company’s common stock, or returns thereon. A total of
440,000
shares of the Company’s common stock were initially available for issuance under the 2014 Plan. At the 2018 Annual Meeting of Stockholders held on May 31, 2018, the Company’s stockholders approved an amendment to the 2014 Plan to, among other things, increase the number of shares of common stock available for issuance under the 2014 Plan by
300,000
shares (the "Amendment"). As of
June 30, 2019
,
373
shares were available for issuance under the 2014 Plan. In July 2019,
399,855
restricted stock units expired and were forfeited, resulting in a corresponding increase in shares available for issuance under the 2014 Plan.
Glowpoint 2007 Stock Incentive Plan
In May 2014, the Board terminated the Glowpoint 2007 Stock Incentive Plan (the “2007 Plan”). Notwithstanding the termination of the 2007 Plan, outstanding awards under the 2007 Plan will remain in effect in accordance with their terms. As of
June 30, 2019
, options to purchase a total of
117,726
shares of common stock and
11,320
shares of restricted stock were outstanding under the 2007 Plan.
No
shares are available for issuance under the 2007 Plan.
Glowpoint 2000 Stock Incentive Plan
In June 2010, the Board terminated the Glowpoint 2000 Stock Incentive Plan (as amended, the “2000 Plan”). Notwithstanding the termination of the 2000 Plan, outstanding awards under the 2000 Plan will remain in effect in accordance with their terms. As of
June 30, 2019
, options to purchase a total of
25
shares of common stock were outstanding under the 2000 Plan.
No
shares are available for issuance under the 2000 Plan.
Stock Options
For the
six
months ended
June 30, 2019
,
no
stock options were granted; therefore, no fair value assumptions are presented herein. A summary of stock options expired under our stock incentive plans and stock options outstanding as of, and changes made during, the
six
months ended
June 30, 2019
, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
Exercisable
|
|
Number of Shares Underlying Options
|
|
Weighted
Average
Exercise
Price
|
|
Number of Shares Underlying Options
|
|
Weighted
Average
Exercise
Price
|
Options outstanding, December 31, 2018
|
118,003
|
|
|
$
|
19.90
|
|
|
118,003
|
|
|
$
|
19.90
|
|
Expired
|
(252
|
)
|
|
16.28
|
|
|
|
|
|
Options outstanding, June 30, 2019
|
117,751
|
|
|
$
|
19.91
|
|
|
117,751
|
|
|
$
|
19.91
|
|
Stock-based compensation expense related to stock options was
$0
for the
three and six
months ended
June 30, 2019
and
2018
. There is
no
remaining unrecognized stock-based compensation expense for stock options as of
June 30, 2019
.
Restricted Stock Awards
As of
June 30, 2019
,
11,320
unvested restricted stock awards were outstanding. No activity occurred related to restricted stock awards during the
six
months ended
June 30, 2019
.
Stock-based compensation expense related to restricted stock awards is allocated as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 30,
|
|
June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
General and administrative
|
1
|
|
|
2
|
|
|
3
|
|
|
12
|
|
|
$
|
1
|
|
|
$
|
2
|
|
|
$
|
3
|
|
|
$
|
12
|
|
Certain restricted stock awards have performance-based vesting provisions and are subject to forfeiture, in whole or in part, if these performance conditions are not achieved. Management assesses, on an ongoing basis, the probability of whether the performance criteria will be achieved and, once it is deemed probable, compensation expense is recognized over the relevant performance period. For those awards not subject to performance criteria, the cost of the restricted stock awards is expensed, which is determined to be the fair market value of the shares at the date of grant, on a straight-line basis over the vesting period.
The remaining unrecognized stock-based compensation expense for restricted stock awards as of
June 30, 2019
was
$137,000
. Of this amount,
no
expense relates to time-based awards. The remaining
$137,000
of unrecognized stock-based compensation expense relates to performance-based awards for which expense will be recognized upon it becoming probable that the Company will achieve defined financial targets.
Restricted Stock Units
A summary of unvested restricted stock units (“RSUs”) outstanding as of, and changes made during, the
six
months ended
June 30, 2019
, is presented below:
|
|
|
|
|
|
|
|
|
RSUs
|
|
Weighted Average
Grant Price
|
Unvested restricted stock units outstanding, December 31, 2018
|
503,518
|
|
|
$
|
1.94
|
|
Granted
|
52,979
|
|
|
1.31
|
|
Vested
|
(112,005
|
)
|
|
3.10
|
|
Forfeited
|
(267
|
)
|
|
1.31
|
|
Unvested restricted stock units outstanding, June 30, 2019
|
444,225
|
|
|
$
|
1.57
|
|
During the
six
months ended
June 30, 2019
,
91,999
shares were issued to satisfy vested RSUs, of which
75,175
shares were issued from the Company’s treasury stock. The number of RSUs vested during the
six
months ended
June 30, 2019
includes
24,444
shares withheld and repurchased by the Company from employees to satisfy
$35,000
of tax obligations relating to the vesting of such shares. Such shares are included in “
Purchase of treasury stock
” during the
six
months ended
June 30, 2019
.
As of
June 30, 2019
,
98,763
vested RSUs issued to non-employee directors remain outstanding as shares of common stock have not yet been delivered due to the deferred payment provisions set forth in these RSUs.
As of
June 30, 2019
,
421,890
unvested RSUs have performance-based vesting provisions and are subject to forfeiture, in whole or in part, if these performance conditions are not achieved. Management assesses, on an ongoing basis, the probability of whether the performance criteria will be achieved and, once it is deemed probable, stock-based compensation expense is recognized over the relevant performance period. In July 2019,
399,855
RSUs expired based on the terms set forth in these RSUs and such RSUs were forfeited.
As of
June 30, 2019
,
22,335
unvested RSUs have timed-based vesting provisions, and the cost of the RSUs is expensed, which is determined to be the fair market value of the shares at the date of grant, on a straight-line basis over the vesting period.
Stock-based compensation expense related to RSUs is allocated as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 30,
|
|
June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Cost of revenue
|
$
|
4
|
|
|
$
|
12
|
|
|
$
|
8
|
|
|
$
|
17
|
|
Research and development
|
5
|
|
|
18
|
|
|
9
|
|
|
28
|
|
Sales and marketing
|
—
|
|
|
2
|
|
|
—
|
|
|
4
|
|
General and administrative
|
14
|
|
|
75
|
|
|
33
|
|
|
98
|
|
|
$
|
23
|
|
|
$
|
107
|
|
|
$
|
50
|
|
|
$
|
147
|
|
The remaining unrecognized stock-based compensation expense for RSUs as of
June 30, 2019
was
$643,000
. Of this amount
$18,000
relates to time-based RSUs with a remaining weighted average period of
1.08
years. The remaining
$625,000
of unrecognized stock-based compensation expense relates to performance-based RSUs for which expense will be recognized upon it becoming probable that the Company achieves defined financial targets or a change of control occurs.
Note 8 - 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
no
t include any potentially dilutive securities or unvested restricted stock. Unvested restricted stock, although classified as issued and outstanding at
June 30, 2019
and
2018
, 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, 2019
and
2018
, 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,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Numerator:
|
|
|
|
|
|
|
|
Net loss
|
$
|
(875
|
)
|
|
$
|
(1,689
|
)
|
|
$
|
(1,473
|
)
|
|
$
|
(2,974
|
)
|
Less: preferred stock dividends
|
4
|
|
|
3
|
|
|
19
|
|
|
6
|
|
Net loss attributable to common stockholders
|
$
|
(879
|
)
|
|
$
|
(1,692
|
)
|
|
$
|
(1,492
|
)
|
|
$
|
(2,980
|
)
|
Denominator:
|
|
|
|
|
|
|
|
Weighted-average number of shares of common stock for basic and diluted net loss per share
|
5,163
|
|
|
4,736
|
|
|
5,134
|
|
|
4,681
|
|
Basic and diluted net loss per share
|
$
|
(0.17
|
)
|
|
$
|
(0.36
|
)
|
|
$
|
(0.29
|
)
|
|
$
|
(0.64
|
)
|
The weighted-average number of shares for all periods presented includes
98,763
shares of vested RSUs, respectively, as discussed in Note
7
.
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:
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
2019
|
|
2018
|
Unvested restricted stock units
|
444,225
|
|
|
239,300
|
|
Unvested restricted stock awards
|
11,320
|
|
|
11,300
|
|
Outstanding stock options
|
117,751
|
|
|
118,900
|
|
Shares of common stock issuable upon conversion of Series A-2 Preferred
|
10,995
|
|
|
10,995
|
|
Shares of common stock issuable upon conversion of Series B Preferred
|
—
|
|
|
133,900
|
|
Shares of common stock issuable upon conversion of Series C Preferred
|
158,333
|
|
|
425,000
|
|
Total
|
742,624
|
|
|
939,395
|
|
Note 9
- Commitments and Contingencies
Operating Leases
We lease
two
facilities in Denver, CO and Oxnard, CA that are under operating leases through December 31, 2019 and April 30, 2020, respectively. Both of these leases require us to pay increases in real estate taxes, operating costs and repairs over certain base year amounts. Rent expense for the
three and six
months ended
June 30, 2019
was
$49,000
and
$101,000
, respectively. Rent expense for the
three and six
months ended
June 30, 2018
was
$73,000
and
$148,000
, respectively.
Future minimum rental commitments under all non-cancelable operating leases as of
June 30, 2019
, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ending December 31,
|
|
Short-Term Lease
|
|
ROU Lease
|
|
Total
|
Remaining 2019
|
|
$
|
40
|
|
|
$
|
44
|
|
|
$
|
84
|
|
2020
|
|
—
|
|
|
30
|
|
|
30
|
|
|
|
$
|
40
|
|
|
$
|
74
|
|
|
$
|
114
|
|
The following table summarizes the future undiscounted cash payments reconciled to the lease liability (in thousands):
|
|
|
|
|
|
Year Ending December 31,
|
|
|
Remaining 2019
|
|
$
|
44
|
|
2020
|
|
30
|
|
Total cash payments remaining
|
|
$
|
74
|
|
Effect of discounting
|
|
(3
|
)
|
Total accrued lease liability
|
|
$
|
71
|
|
Operating cash flow supplemental information as of
June 30, 2019
:
On January 1, 2019, initial ROU assets of
$99,000
were recognized as a non-cash addition with the adoption of the new lease standard. Cash paid for amounts included in the present value of the operating lease liabilities was
$44,000
, which was included within accrued expenses for the
six
months ended
June 30, 2019
.
Note 10 – Major Customers
Major customers are defined as direct customers or channel partners that account for more than
10%
of the Company’s revenue. For the
three and six
months ended
June 30, 2019
,
three
major customers represented
29%
,
22%
, and
10%
, respectively, of our revenue.
Two
customers represented
46%
and
14%
, respectively, of our accounts receivable balance at
June 30, 2019
. For the
three
months ended
June 30, 2018
,
two
major customers represented
25%
and
19%
, respectively, of our revenue. For the
six
months ended
June 30, 2018
, the same
two
major customers represented
21%
and
24%
, respectively, of our revenue.
Note 11
- Geographical Data
For the
three and six
months ended
June 30, 2019
and
2018
, there was
no
material revenue attributable to any individual foreign country. Revenue by geographic area, based on customer location, is allocated as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Domestic
|
$
|
1,675
|
|
|
$
|
2,238
|
|
|
$
|
3,471
|
|
|
$
|
4,495
|
|
Foreign
|
764
|
|
|
1,055
|
|
|
1,562
|
|
|
2,272
|
|
Total Revenue
|
$
|
2,439
|
|
|
$
|
3,293
|
|
|
$
|
5,033
|
|
|
$
|
6,767
|
|
Long-lived assets were
100%
located in domestic markets as of
June 30, 2019
and December 31,
2018
.