Quarterly Report (10-q)

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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.

☐ 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

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,

-8-

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.

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 $18,862,000 was measured as the fair value of the consideration exchanged in the Acquisition.

The Company acquired net assets of $11,496,000, including $12,780,000 of identifiable intangible assets, in the Acquisition. The purchase price exceeded the fair value of the net assets acquired by $7,366,000, which was recorded as goodwill.

The accompanying condensed consolidated financial statements do not include any revenues or expenses related to the Oblong Industries business on or prior to October 1, 2019 (the Closing Date of the Acquisition).

The condensed consolidated statements of operations for the three and nine months ended September 30, 2020 include $1,942,000 and $6,669,000 of revenue, respectively, and net losses of $334,000 and $3,839,000, respectively, related to Oblong Industries. The Company's unaudited pro forma results for the three and nine months ended September 30, 2019 are summarized in the table below, assuming the Acquisition had occurred on January 1, 2019. These unaudited pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations which would have actually resulted had the Acquisition occurred on January 1, 2019, nor to be indicative of future results of operations.


	Pro forma and unaudited (as if the Acquisition of Oblong Industries had occurred on January 1, 2019)
	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
	($ in thousands)		($ in thousands)
Revenue
Glowpoint	$	2,370	$	7,403
Oblong Industries	$	4,259	$	12,758
Pro forma total revenue	$	6,629	$	20,161
Net loss
Glowpoint	$	640	$	2,113
Oblong Industries	$	3,756	$	12,782
Pro forma net loss	$	4,396	$	14,895

Note 4 - Inventory

Inventory was $1,126,000 and $1,816,000 as of September 30, 2020 and December 31, 2019, respectively, and consisted primarily of equipment related to our Mezzanine™ product offerings, including cameras, tracking hardware, computer equipment, display equipment and amounts related to the Oblong Industries business. Inventory consists of finished goods and was determined using average costs and was stated at the lower of cost or net realizable value. The Company periodically performs analyses to identify obsolete or slow-moving inventory, and any such amounts are written off to expense.

Note 5 - Goodwill

As of September 30, 2020 and December 31, 2019, goodwill was $7,366,000 and $7,907,000, respectively. As of September 30, 2020, goodwill was comprised of $7,366,000 recorded in connection with the October 1, 2019 Acquisition of Oblong Industries. As of December 31, 2019, goodwill was comprised of (i) $7,366,000 recorded in connection with the October 1, 2019 Acquisition of Oblong Industries and (ii) $541,000 related to the Glowpoint reporting unit as discussed below.

We test goodwill for impairment on an annual basis on September 30 of each year, or more frequently if events occur or circumstances change indicating that the fair value of the goodwill may be below its carrying amount. Following the Acquisition of Oblong Industries, the Company operated two reporting units, Glowpoint and Oblong Industries. During the nine months ended September 30, 2020, we considered the novel Coronavirus (COVID-19) pandemic and resulting declines in certain of the Company’s revenue to be a triggering event for an interim goodwill impairment test for both reporting units as of March 31. To determine the fair value of each reporting unit for the goodwill impairment tests, we used a weighted average of

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the discounted cash flow method and a market-based method (comparing the Company’s equity and analyzing multiples of revenue for comparable companies). For the Oblong Industries reporting unit, the fair value of the reporting unit exceeded its carrying amount, therefore no impairment charge was required for the three or nine months ended September 30, 2020. For the Glowpoint reporting unit, we recorded an impairment charge on goodwill of $541,000 at March 31, 2020 as the carrying amount of the reporting unit exceeded its fair value on the test date. This charge is recognized as “Impairment Charges” on our condensed consolidated Statements of Operations. The Glowpoint reporting unit’s impairment charges for the nine months ended September 30, 2019 were $453,000.

The activity in goodwill during the nine months ended September 30, 2020 and the year ended December 31, 2019 is shown in the following table ($ in thousands):


Goodwill	Glowpoint		Oblong Industries		Total
Balance December 31, 2018	$	2,795	$	—	$	2,795
Impairment charges	(2,254)		—		(2,254)
Acquisition	—		7,366		7,366
Balance December 31, 2019	541		7,366		7,907
Impairment charges	(541)		—		(541)

Balance September 30, 2020	$	—	$	7,366	$	7,366

In the event we experience future declines in our revenue, cash flows and/or stock price, this may give rise to a triggering event that may require the Company to record additional impairment charges on goodwill in the future.

Note 6 - Intangible Assets

The following table presents the components of net intangible assets (in thousands):


	As of September 30, 2020						As of December 31, 2019
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Glowpoint
Customer Relationships	$	4,335	$	(4,335)	$	—	$	4,335	$	(4,335)	$	—
Affiliate network	994		(718)		276		994		(666)		328
Trademarks	548		(548)		—		548		(504)		44
Subtotal	$	5,877	$	(5,601)	$	276	$	5,877	$	(5,505)	$	372

Oblong Industries
Developed technology	10,060		(2,016)		8,044		10,060		(504)		9,556
Trade names	2,410		(241)		2,169		2,410		(60)		2,350
Distributor relationships	310		(62)		248		310		(16)		294
Subtotal	$	12,780	$	(2,319)	$	10,461	$	12,780	$	(580)	$	12,200
Total	$	18,657	$	(7,920)	$	10,737	$	18,657	$	(6,085)	$	12,572

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 months ended March 31, 2020, we considered the novel Coronavirus (COVID-19) pandemic and resulting declines in certain of the Company’s revenue to be a triggering event for an interim impairment test of intangible assets for both reporting units. During the three months ended September 30, 2020, we did not identify any triggering events, therefore no impairment charges were required for the three and nine months ended September 30, 2020. Intangible assets with finite lives are amortized using the straight-line method over the estimated economic lives of the assets, which range from five years to twelve years in accordance with ASC Topic 350.

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The weighted average lives for the components of intangible assets are as follows:


Glowpoint
Affiliate network			12 years
Trademarks			8 years

Oblong Industries
Developed technology			5 years
Trade names			10 years
Distributor relationships			5 years

Related amortization expense was $611,000 and $1,835,000 for the three and nine months ended September 30, 2020, respectively. Related amortization expense was $32,000 and $95,000 for the three and nine months ended September 30, 2019, respectively. The increase is the result of the October 1, 2019 Acquisition of Oblong Industries.

Amortization expense for each of the next five succeeding years will be as follows (in thousands):


Remainder of 2020	$	597
2021	2,388
2022	2,386
2023	2,378
2024	1,844
Thereafter	1,144
Total	$	10,737

Note 7 - Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consisted of the following (in thousands):


	September 30,		December 31,
	2020		2019

Accrued compensation costs	$	627	$	810



Other accrued expenses and liabilities	858		843

Accrued dividends on Series A-2 Preferred Stock	4		99
Accrued expenses and other liabilities	$	1,489	$	1,752

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Note 8 - Debt

Debt consisted of the following (in thousands):


	September 30,		December 31,
	2020		2019
SVB Loan Principal	$	5,609	$	5,609
PPP Loan Principal	2,417		—
Total Loan Principal	8,026		5,609
Less: Unamortized SVB debt discount	(49)		(102)
Net carrying value	7,977		5,507
Less: SVB current maturities, net of debt discount	3,465		2,664
Less: PPP current maturities	1,477		—
Total current maturities, net of debt discount	4,942		2,664
Long-term SVB obligations, net of current maturities and debt discount	2,095		2,843
Long-term PPP obligations, net of current maturities	940		—
Total long-term obligations, net of current maturities and debt discount	$	3,035	$	2,843

Future minimum principal payments are as follows (in thousands):


Future Minimum Principal Payments	SVB Loan		PPP Loan		Total
Remainder of 2020	$	874	$	269	$	1,143
2021	3,498		1,611		5,109
2022	1,237		537		1,774
	$	5,609	$	2,417	$	8,026

Silicon Valley Bank Loan Agreement and Warrant

Subsequent to the period of this report, the Company and SVB completed an agreement to satisfy all outstanding obligations under the SVB Loan Agreement. As a result, as of the filing date of this Report, the Company has no outstanding obligations under the SVB Loan Agreement. For further discussion, see Note 14 - Subsequent Events.

On October 1, 2019, in connection with the Acquisition of Oblong Industries, the Company and Oblong Industries, as borrowers, and SVB, as lender, executed an amendment to the SVB Loan Agreement. On October 24, 2019, GP Communications joined the SVB Loan Agreement as an additional co-borrower. The SVB Loan Agreement provided for a term loan facility of approximately $5,247,000, (the “SVB Loan”), all of which was outstanding at December 31, 2019 and September 30, 2020. On June 26, 2020, the Company and SVB entered into a Default Waiver and First Amendment (the“Amendment”) to the SVB Loan Agreement. Under the Amendment, the Bank agreed to extend the interest-only payment period under the SVB Loan Agreement through September 30, 2020, after which equal monthly principal payments of $291,500 were payable over an eighteen month period from October 1, 2020 through March 1, 2022 (the “Maturity Date”) to fully repay the loan. The SVB Loan originally accrued interest at a rate equal to the Prime Rate (as defined in the SVB Loan Agreement) plus 200 basis points (for a total of 6.75% as of December 31, 2019). In connection with the Amendment, the interest rate under the Loan was increased to the Prime Rate plus 425 basis points (for a total of 7.50% as of September 30, 2020).

In connection with its execution of the amended SVB Loan Agreement on October 1, 2019, the Company i) agreed to pay SVB a fee of $100,000 on April 1, 2020 (the “Deferral Fee”) and ii) issued a warrant to SVB that entitles SVB to purchase 72,394 shares of the Company’s Common Stock at an exercise price of $0.01 per share (the “SVB Warrant”). Pursuant to the Amendment, the due date for the Deferral Fee was changed to the earlier of (i) the maturity of the loan, (ii) the repayment in full of all principal and interest owing under the Loan Agreement, and (iii) occurrence of an event of default under the Loan Agreement. The SVB Warrant has a ten (10) year term. The fair value of the SVB Warrant was recorded to additional paid-in capital and was determined to be $72,000 using the Black-Scholes model. The total obligations under the SVB Loan Agreement were $5,609,000, comprised of $5,247,000 for the SVB Loan, the Deferral Fee and the Maturity Fee of $262,000 that was assumed on October 1, 2019 as part of the Acquisition. The Deferral Fee, the fair value of the SVB Warrant, and $20,000 of

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debt issuance costs totaled $192,000 and was recorded as a discount to the debt. This debt discount is being amortized to interest expense using the effective interest method over the term of the debt. During the three and nine months ended September 30, 2020, the Company amortized $8,000 and $53,000 of the debt discount, respectively, which is recorded in “Interest and other expense, Net” on our condensed consolidated Statements of Operations. The remaining unamortized debt discount as of September 30, 2020 and December 31, 2019 was $49,000 and $102,000, respectively.

The obligations under the SVB Loan Agreement were secured by substantially all of the assets of Oblong and its subsidiaries. The SVB Loan Agreement contained certain restrictions and covenants, which, among other things, subject to certain exceptions, restricted the Company’s ability to dispose of any portion of its business or property, engage in certain material changes to its business, enter into a merger, incur additional debt or make guarantees, pay dividends or make distribution payments on, or redeem, retire, or repurchase any capital stock (subject to certain exceptions), create liens or other encumbrances, or enter into related party transactions outside of the ordinary course of business. The SVB Loan Agreement also contained customary events of default, including failure to pay any principal or interest when due, failure to perform or observe covenants, breaches of representations and warranties, certain cross defaults, certain bankruptcy related events, monetary judgments defaults and the Company’s de-listing from the NYSE American without a listing of its Common Stock on another nationally recognized stock exchange. Upon the occurrence of an event of default, the outstanding obligations under the SVB Loan Agreement could be accelerated and become immediately due and payable.

Paycheck Protection Program Loan

On April 10, 2020 (the “Origination Date”), the Company received $2,417,000 in aggregate loan proceeds (the “PPP Loan”) from MidFirst Bank (the “Lender”) pursuant to the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The PPP Loan is evidenced by a Promissory Note (the “Note”), dated April 10, 2020, by and between the Company and the Lender. Subject to the terms of the Note, the PPP Loan bears interest at a fixed rate of one percent (1.0%) per annum. Payments of principal and interest are deferred for the first six months following the Origination Date. Following the deferral period, the Company will be required to make payments of principal plus interest accrued under the PPP Loan to the Lender in 18 monthly installments based upon an amortization schedule to be determined by the Lender based on the principal balance of the Note outstanding following the deferral period and taking into consideration any portion of the PPP Loan that is forgiven prior to that time. The PPP Loan is unsecured and guaranteed by the U.S. Small Business Administration.

The Company may apply to the Lender for forgiveness of some or all of the Note with the amount which may be forgiven equal to the sum of eligible payroll costs, mortgage interest, covered rent, and covered utility payments, in each case incurred by the Company during the twenty-four week period following the Origination Date, calculated in accordance with the terms of the CARES Act. Certain reductions in Company payroll costs during this period may reduce the amount of the Note eligible for forgiveness. There is no guarantee that the Company will receive forgiveness for any fixed amount of any PPP Loan principal received by the Company.

The Note provides for customary events of default including, among other things, failure to make any payment when due, cross-defaults under any loan documents with the Lender, certain cross-defaults under agreements with third parties, inaccuracy of representations and warranties, events of dissolution or insolvency, certain change of control events, and material adverse changes in the Company’s financial condition. If an event of default occurs, the Lender will have the right to accelerate indebtedness under the PPP Loan and/or pursue other remedies available to the Lender at law or in equity.

Note 9 - Preferred Stock

Our Certificate of Incorporation authorizes the issuance of up to 5,000,000 shares of preferred stock. As of September 30, 2020, 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 45 shares issued and outstanding (the “Series A-2 Preferred Stock”); (iii) 2,800 shares of 0% Series B Convertible Preferred Stock (“Series B Preferred Stock”) authorized and no shares issued and outstanding; (iv) 1,750 shares of 0% Series C Convertible Preferred Stock (“Series C Preferred Stock”) authorized and 250 shares issued and outstanding; (v) 4,000 shares of Series D Convertible Preferred Stock authorized and no shares issued or outstanding; (vi) 100 shares of Perpetual Series B Preferred Stock authorized and no shares issued or outstanding; (vii) 1,750,000 shares of 6.0% Series D Convertible Preferred Stock (“Series D Preferred Stock”) authorized and 1,702,010 shares issued and outstanding; and (viii) 175,000 shares of 6.0% Series E Convertible Preferred Stock (“Series E Preferred Stock”) authorized and 131,579 shares issued and outstanding.

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Series A-2 Preferred Stock

Each share of Series A-2 Preferred Stock has a stated value of $7,500 per share (the “A-2 Stated Value”), a liquidation preference equal to the Series A-2 Stated Value, and is convertible at the holder’s election into common stock at a conversion price per share of $21.60 as of September 30, 2020. Therefore, each share of Series A-2 Preferred Stock is convertible into 345 shares of common stock, for an aggregate of 15,625 shares of common stock as of September 30, 2020. The conversion price is subject to adjustment upon the occurrence of certain events set forth in our Certificate of Incorporation.

Subsequent to the period of this Report, the Company entered into a securities purchase agreement for the issuance of 1,043,000 shares of the Company’s Common Stock at the price of $2.85 per share. Due to this issuance, and in accordance with the provisions of the Series A-2 Preferred Stock, the conversion price of the Series A-2 Preferred Stock was reduced to $18.49 per share. This new conversion price results in each share of Series A-2 Preferred Stock being convertible into 405 shares of common stock, for an aggregate of 18,131 shares.

The Series A-2 Preferred Stock is senior to all outstanding classes of the Company’s equity, has weighted average anti-dilution protection and, effective January 1, 2013, entitled to cumulative dividends at a rate of 5.0% per annum, payable quarterly, based on the Series A-2 Stated Value and payable at the option of the holder in cash or through the issuance of a number of additional shares of Series A-2 Preferred Stock with an aggregate liquidation preference equal to the dividend amount payable on the applicable dividend payment date. As of September 30, 2020 and December 31, 2019, the Company has recorded $4,000 and $99,000, respectively, in accrued dividends on the accompanying condensed consolidated Balance Sheets related to the Series A-2 Preferred Stock outstanding. During the nine months ended September 30, 2020, $99,000 of accrued dividends as of December 31, 2019, were exchanged for 13 shares of Series A-2 Preferred Stock. The Company, at its option, may redeem all or a portion of the Series A-2 Preferred Stock in cash at a price per share of $8,250 (equal to $7,500 per share multiplied by 110%) plus all accrued and unpaid dividends.

In accordance with ASC Topic 815, we evaluated whether our convertible preferred stock contains provisions that protect holders from declines in our stock price or otherwise 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 that reduces the conversion price below the $11.16 fair value of the common stock on the issuance date of the Series A-2 Preferred Stock.

Series C Preferred Stock

On January 25, 2018, the Company closed a registered direct offering of 1,750 shares of its Series C Preferred Stock for total gross proceeds to the Company of $1,750,000. The shares of Series C Preferred Stock were sold at a price equal to their stated value of $1,000 per share and are convertible into shares of the Company’s common stock at a conversion price of $3.00 per share. During the nine months ended September 30, 2020 and 2019, 225 and 50 shares of Series C Preferred Stock were converted to 75,000 and 16,667 shares of the Company’s common stock, respectively. As of September 30, 2020, 250 shares of Series C Preferred Stock remained issued and outstanding.

The Company has agreed that it will not enter into certain “fundamental transactions,” including transactions constituting a change of control of the Company, certain reorganization transactions or a sale of all or substantially all of the Company’s assets, except as pursuant to written agreements in form and substance satisfactory to the holders of a majority of the outstanding shares of Series C Preferred Stock including the Lead Investor and on terms with respect to the Series C Preferred Stock as set forth in the Certificate of Designation of Rights, Powers, Preferences, Privileges and Restrictions of the Series C Preferred Stock.

Series D Preferred Stock

In connection with the Acquisition (see Note 3 - Oblong Industries Acquisition), the Company issued an aggregate of 1,686,659 shares of Series D Preferred Stock and an aggregate of 49,967 restricted shares of Series D Preferred Stock (“Restricted Series D Preferred Stock”), the latter of which are subject to vesting over a two-year period following the Closing Date of the Acquisition. Each share of Series D Preferred Stock is automatically convertible into a number of shares of the Company’s common stock equal to the accrued value of the share (initially $28.50), plus any accrued dividends thereon, divided by the Conversion Price (initially $2.85 per share, subject to specified adjustments) upon the completion of both (i)

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approval of such conversion by the Company’s stockholders (which occurred on December 19, 2019); and (ii) the receipt of all required authorizations and approval of a new listing application for the combined organization from the NYSE American.

Pursuant to the terms of the Series D Certificate of Designations, each share of Series D Preferred Stock is entitled to receive an annual dividend equal to 6.0% of its then-existing Accrued Value per annum, commencing on the first anniversary of the issuance of the Series D Preferred Stock (or October 1, 2020). Prior to the first anniversary of the issuance of the Series D Preferred Stock no dividends will accrue on such stock. Dividends are cumulative and accrue daily in arrears. If the Company’s Board of Directors does not declare any applicable dividend payment in cash, the Accrued Value of the Series D Preferred Stock will be increased by the amount of such dividend payment. As of September 30, 2020, no dividends have been accrued.

Series E Preferred Stock

On October 1, 2019, Oblong entered into a Series E Preferred Stock Purchase Agreement (the “Purchase Agreement”) with the investors party thereto, who, prior to the closing of the Acquisition, were stockholders of Oblong Industries (the “Purchasers”), relating to the offer and sale by the Company in a private placement (the “Offering”) of up to 131,579 shares of its Series E Preferred Stock at a price of $28.50 per share. At an initial closing on October 1, 2019 and a subsequent closing on December 18, 2019, the Company sold a total of 131,579 shares of Series E Preferred Stock for net proceeds of approximately $3,750,000. The 131,579 shares of Series E Preferred Stock issued by the Company in the Series E Financing have an aggregate Accrued Value of $3,750,000 and upon their conversion will convert at a conversion price of $2.85 per share into 1,315,790 common shares. Like the Series D Preferred Stock, each share of Series E Preferred Stock is automatically convertible into common stock upon the receipt of all required authorizations and approval of a new listing application for the combined organization from the NYSE American.

Pursuant to the terms of the Series E Certificate of Designations, each share of Series E Preferred Stock is entitled to receive an annual dividend equal to 6.0% of its then-existing Accrued Value per annum, commencing on the first anniversary of the issuance of the Series E Preferred Stock (or October 1, 2019 or December 18, 2019, as applicable). Prior to the first anniversary of the issuance of the Series E Preferred Stock no dividends will accrue on such stock. Dividends are cumulative and accrue daily in arrears. If the Company’s Board of Directors does not declare any applicable dividend payment in cash, the Accrued Value of the Series E Preferred Stock will be increased by the amount of such dividend payment. As of September 30, 2020, no dividends have been accrued.

In connection with the Purchase Agreement, the Company executed a Registration Rights Agreement, dated October 1, 2019 (the “Rights Agreement”). Pursuant to the Rights Agreement, among other things, the Company has provided the Purchasers with certain rights to require it to file and maintain the effectiveness of a registration statement with respect to the re-sale of shares of Common Stock underlying the shares of Series D Preferred Stock issued in the Oblong Transaction and Series E Preferred Stock sold in the Series E Financing.

If the Series D and Series E Preferred Stock had been converted to common stock as of September 30, 2020, 17,020,100 and 1,315,790 shares of common stock would have been issued for the Series D and Series E Preferred Stock, respectively, which would have increased our outstanding shares of common stock from 5,242,558 to 23,578,448. Both the Series D and Series E Preferred Stock remain outstanding as of September 30, 2020 and as of the filing of this Report. The Company intends to file a new listing application with the NYSE American as soon as possible upon satisfying the initial listing standards. Among other requirements, these standards require the Company to have at least $15 million of non-affiliate public float, which, under the Company’s current financial situation, may be difficult or impossible for the Company to satisfy.

Note 10 - Stock Based Compensation

2019 Equity Incentive Plan

On December 19, 2019, the Oblong, Inc. 2019 Equity Incentive Plan (the “2019 Plan”) was approved by the Company’s stockholders at the Company’s 2019 Annual Meeting of Stockholders. The 2019 Plan is an omnibus equity incentive plan pursuant to which the Company may grant equity and cash incentive awards to certain key service providers of the Company and its subsidiaries. The 2019 Plan replaces the Glowpoint, Inc. 2014 Equity Incentive Plan (the “Prior Plan”), which was adopted by the Company’s Board of Directors on April 22, 2014, and subsequently approved by the Company’s stockholders. Following approval of the 2019 Plan, the Company terminated the Prior Plan and may no longer make grants under the Prior Plan; however, any outstanding equity awards granted under the Prior Plan will continue to be governed by the terms of the Prior Plan. As of September 30, 2020, no restricted stock units were outstanding under the Prior Plan. As of September 30, 2020, the share pool available for new grants under the 2019 Plan is 3,021,000, which is equal to the sum of (i) 2,600,000 shares of the Company’s Common Stock and (ii) the 421,000 shares of the Company’s Common Stock that remained available

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for issuance under the Prior Plan. No equity awards were granted under the 2019 Plan during the nine months ended September 30, 2020.

2007 Stock Incentive Plan

In May 2014, the Board terminated the Company’s 2007 Stock Incentive Plan (the “2007 Plan”). Notwithstanding the termination of the 2007 Plan, outstanding awards under the 2007 Plan will remain in effect in accordance with their terms. As of September 30, 2020, options to purchase a total of 107,500 shares of common stock and 627 shares of restricted stock were outstanding under the 2007 Plan. No shares are available for issuance under the 2007 Plan.

Stock Options

For the nine months ended September 30, 2020 and the year ended December 31, 2019, other than the options granted to certain former holders of options to purchase shares of Oblong Industries’ common stock, for which no stock-based compensation was recorded as discussed below, no stock options were granted.

A summary of stock options expired and forfeited under our plans and options outstanding as of, and changes made during, the nine months ended September 30, 2020 and the year ended December 31, 2019 is presented below:


	Outstanding and Exerciseable
	Number of Options	Weighted Average Exercise Price
Options outstanding, December 31, 2018	118,003	$	19.90
Exchanged for Oblong Industries stock options	107,845	4.92

Expired	(440)	16.48
Forfeited	(10,063)	23.20
Options outstanding, December 31, 2019	215,345	12.27


Expired	(107,845)	4.92

Options outstanding and exercisable, September 30, 2020	107,500	$	19.64

Additional information as of September 30, 2020 is as follows:


	Outstanding and Exercisable
Range of price	Number of Options	Weighted Average Remaining Contractual Life (In Years)	Weighted Average Exercise Price
$0.00 – $10.00	2,500	2.70	$	9.00
$10.01 – $20.00	97,500	2.31	19.32
$20.01 – $30.00	2,500	1.68	21.80
$30.01 – $40.00	5,000	1.45	30.20

	107,500	2.26	$	19.64

In connection with the Acquisition, all options to purchase shares of Oblong Industries’ common stock held by previously terminated employees of Oblong Industries were assumed by the Company and deemed, in the aggregate, to constitute options to acquire a total of 107,845 shares of the Company’s common stock, at a volume weighted average exercise price of $4.92 per share and a remaining exercise period of one year. These options all expired on September 30, 2020. No stock-based compensation expense was recorded in the three and nine months ended September 30, 2020 for these stock options as the value for these options was recorded as part of the consideration of the Acquisition given that these options were issued to terminated employees.

-17-

The intrinsic value of vested options, unvested options and exercised options were not significant for all periods presented. There was no remaining unrecognized stock-based compensation expense for options at September 30, 2020 as all options were vested.

Restricted Stock Awards

A summary of restricted stock granted, vested and unvested outstanding as of, and changes made during, the nine months ended September 30, 2020 and the year ended December 31, 2019, is presented below:


	Restricted Shares	Weighted Average Grant Date Price
Unvested restricted stock outstanding, December 31, 2018	11,320	$	14.88
Granted	—	—
Vested	(1,372)	15.72
Forfeited	(9,321)	14.70
Unvested restricted stock outstanding, December 31, 2019	627	15.80



Unvested restricted stock outstanding, September 30, 2020	627	$	15.80

Stock-based compensation expense relating to restricted stock awards is allocated as follows (in thousands):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019



General and administrative	—		—		—		3
	$	—	$	—	$	—	$	3

The unvested restricted stock award as of September 30, 2020 was issued in 2014 and vests over the lesser of ten years, a change in control, or separation from the company. Due to the variability of the vesting, the expense was amortized over an average service period of five years; therefore, there is no unrecognized stock-based compensation expense for restricted stock awards for the period ended September 30, 2020.

Restricted Stock Units

A summary of restricted stock units (“RSUs”) granted, vested, forfeited and unvested outstanding as of, and changes made during, the nine months ended September 30, 2020 and the year ended December 31, 2019, is presented below:


	Restricted Stock Units	Weighted Average Grant Price
Unvested restricted stock units outstanding, December 31, 2018	503,518	$	1.94
Granted	55,479	1.30
Vested	(114,505)	3.05
Forfeited	(421,158)	1.54
Unvested restricted stock units outstanding, December 31, 2019	23,334	2.20

Vested	(23,334)	2.20

Unvested restricted stock units outstanding, September 30, 2020	—	$	—

As of September 30, 2020, 28,904 vested RSU’s remain outstanding as shares of common stock have not yet been delivered for these units in accordance with the terms of the RSU’s.

-18-

Stock-based compensation expense relating to restricted stock units is allocated as follows (in thousands):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Cost of revenue	$	—	$	2	$	—	$	10
Research and development	—		2		—		11
Sales and marketing	—		—		—		—
General and administrative	—		10		6		43
	$	—	$	14	$	6	$	64

There was no remaining unrecognized stock-based compensation expense for restricted stock units at September 30, 2020.

There was no tax benefit recognized for stock-based compensation expense for the nine months ended September 30, 2020 or the year ended December 31, 2019. No compensation costs were capitalized as part of the cost of an asset during the periods presented.

Restricted Series D Preferred Stock

In connection with the Acquisition, all options to purchase shares of Oblong Industries’ common stock held by existing employees of Oblong Industries were canceled and exchanged for an aggregate of 49,967 shares of Restricted Series D Preferred Stock, which are subject to vesting over a two-year period following the Closing Date.

Stock-based compensation expense relating to Restricted Series D Preferred Stock is allocated as follows (in thousands):


	Three Months Ended September 30,		Nine Months Ended September 30,		Three and Nine Months Ended September 30,
	2020		2020		2019

Research and development	$	11	$	39	$	—
Sales and marketing	7		17		—
General and administrative	10		27		—
	$	28	$	83	$	—

During the three and nine months ended September 30, 2020, 1,086 and 32,891 shares of Restricted Series D Preferred Stock were forfeited, respectively. As of September 30, 2020, 5,123 shares of Restricted Series D Preferred Stock remain outstanding. The remaining unrecognized stock-based compensation expense for Restricted Series D Preferred Stock at September 30, 2020 was $57,000, and will be recognized over a weighted average period of 1 year.

Note 11 - Net Loss Per Share

Basic net loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. The weighted-average number of shares of common stock outstanding does not include any potentially dilutive securities or unvested restricted stock. Unvested restricted stock, although classified as issued and outstanding at September 30, 2020 and 2019, is considered contingently returnable until the restrictions lapse and will not be included in the basic net loss per share calculation until the shares are vested. Unvested restricted stock does not contain non-forfeitable rights to dividends and dividend equivalents. Unvested RSUs are not included in calculations of basic net loss per share, as they are not considered issued and outstanding at time of grant.

Diluted net loss per share is computed by giving effect to all potential shares of common stock, including stock options, preferred stock, RSUs, and unvested restricted stock, to the extent they are dilutive. For the three and nine months ended September 30, 2020 and 2019, all such common stock equivalents have been excluded from diluted net loss per share as the effect to net loss per share would be anti-dilutive (due to the net loss).

-19-

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 September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Numerator:
Net loss	$	(2,085)	$	(640)	$	(8,598)	$	(2,113)
Less: preferred stock dividends	(4)		(4)		(12)		(23)
Net loss attributable to common stockholders	$	(2,089)	$	(644)	$	(8,610)	$	(2,136)
Denominator:
Weighted-average number of shares of common stock for diluted net loss per share	5,257		5,184		5,237		5,128
Basic and diluted net loss per share	$	(0.40)	$	(0.12)	$	(1.64)	$	(0.42)

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):


	Nine Months Ended
	September 30,
	2020	2019
Unvested restricted stock units	—	23,334

Outstanding stock options	107,500	107,500
Unvested restricted stock awards	627	627
Shares of common stock issuable upon conversion of Series A-2 preferred stock	15,545	10,978

Shares of common stock issuable upon conversion of Series C preferred stock	83,333	158,333
Shares of common stock issuable upon conversion of Series D preferred stock	17,020,100	—
Shares of common stock issuable upon conversion of Series E preferred stock	1,315,790	—
Warrants	72,394	—

Note 12 - Segment Reporting

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 were managed separately and involve different products and services. Accordingly, the Company currently operates in two segments: (1) the Glowpoint (now named Oblong) business, which mainly consists of managed services for video collaboration and network applications; and (2) the Oblong Industries business, which consists of products and services for visual collaboration technologies.

Because the closing of the Acquisition of Oblong Industries occurred on October 1, 2019, the Company’s condensed consolidated financial statements as of and for the three and nine months ended September 30, 2020 and 2019 included in this Report only reflect Oblong Industries’ financial results for the first through third quarters of 2020.

-20-

Certain information concerning the Company’s segments for the three and nine months ended September 30, 2020 is presented in the following tables (in thousands):


	Three Months ended September 30, 2020
	Glowpoint			Oblong Industries			Total
Revenue	$	1,324		$	1,942		$	3,266
Cost of revenues	893			719			1,612
Gross profit	$	431		$	1,223		$	1,654
Gross profit %	33		%	63		%	51		%

Allocated operating expenses	$	1,187		$	1,477		$	2,664
Unallocated operating expenses							980
Total operating expenses	$	1,187		$	1,477		$	3,644

Loss from operations	$	(756)		$	(254)		$	(1,990)
Interest and other expense, net	5			90			95
Net loss	$	(761)		$	(344)		$	(2,085)


	Nine Months Ended September 30,
	Glowpoint			Oblong Industries			Total
Revenue	$	4,741		$	6,669		$	11,410
Cost of revenues	2,948			2,736			5,684
Gross profit	$	1,793		$	3,933		$	5,726
Gross profit %	38		%	59		%	50		%

Allocated operating expenses	$	3,398		$	7,545		$	10,943
Unallocated operating expenses							3,059
Total operating expenses	$	3,398		$	7,545		$	14,002

Loss from operations	$	(1,605)		$	(3,612)		$	(8,276)
Interest and other expense, net	12			310			322
Net loss	$	(1,617)		$	(3,922)		$	(8,598)

Unallocated operating expenses include costs for the three and nine months ended September 30, 2020 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. Interest and other expense, net, is also not allocated to the operating segments.

For the three and nine months ended September 30, 2020 and 2019, there was no material revenue attributable to any individual foreign country. Approximately 1% of foreign revenue is billed in foreign currency and foreign currency gains and losses are not material.

-21-

Revenue by geographic area is allocated as follows (in thousands):


	Three Months ended September 30,
	2020		2019
Domestic	$	2,080	$	1,571
Foreign	1,186		799
	$	3,266	$	2,370


	Nine Months Ended September 30,
	2020		2019
Domestic	$	7,536	$	5,042
Foreign	3,874		2,361
	$	11,410	$	7,403

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 September 30,
	2020		% of Revenue		2019		% of Revenue
Revenue: Glowpoint
Video collaboration services	$	249	8	%	$	1,317	56	%
Network services	1,028		31	%	969		41	%
Professional and other services	47		1	%	84		4	%
Total Glowpoint revenue	$	1,324	40	%	$	2,370	100	%

Revenue: Oblong Industries
Visual collaboration product offerings	$	1,686	52	%	—		—	%
Professional services	—		—	%	—		—	%
Licensing	256		8	%	—		—	%
Total Oblong Industries revenue	$	1,942	60	%	—		—	%
Total revenue	$	3,266	100	%	$	2,370	100	%


	Nine Months Ended September 30,
	2020		% of Revenue		2019		% of Revenue
Revenue: Glowpoint
Video collaboration services	$	1,847	16	%	$	4,335	59	%
Network services	2,719		24	%	2,879		39	%
Professional and other services	175		2	%	189		3	%
Total Glowpoint revenue	4,741		42	%	7,403		100	%

Revenue: Oblong Industries
Visual collaboration product offerings	4,931		43	%	—		—	%
Professional services	898		8	%	—		—	%
Licensing	840		7	%	—		—	%
Total Oblong Industries revenue	6,669		58	%	—		—	%
Total revenue	$	11,410	100	%	$	7,403	100.00	%

-22-

Glowpoint’s fixed assets were 100% located in domestic markets as of September 30, 2020 and December 31, 2019. Oblong Industries’ long-lived assets were located 88% in domestic and 12% in foreign markets as of September 30, 2020.

The disaggregation of the Company’s total assets as of September 30, 2020 is presented below (in thousands):


	As of September 30, 2020
	Glowpoint		Oblong		Total
Total assets	$	3,370	$	23,872	$	27,242

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 September 30,
		2020		2019
	Segment	% of Revenue		% of Revenue
Customer A	Glowpoint	20	%	26	%
Customer B	Oblong Industries	12	%	—	%
Customer C	Glowpoint	*		25	%

* The amount did not exceed 10% of the Company’s consolidated total revenues.


		Nine Months Ended September 30,
		2020		2019
	Segment	% of Revenue		% of Revenue
Customer A	Glowpoint	17	%	23	%
Customer B	Oblong Industries	19	%	—	%
Customer C	Glowpoint	*		27	%

* The amount did not exceed 10% of the Company’s consolidated total revenues.

Concentration of accounts receivable was as follows:


		As of September 30, 2020
		2020		2019
	Segment	% of Accounts Receivable		% of Accounts Receivable
Customer A	Glowpoint	20	%	15	%
Customer B	Oblong Industries	*		—	%
Customer C	Glowpoint	*		51	%

Customer E	Oblong Industries	15	%	—	%

* The amount did not exceed 10% of the Company’s consolidated total accounts receivable.

Note 13 - Commitments and Contingencies

Operating Leases

We lease office and warehouse space in Los Angeles, California; Boston, Massachusetts; Dallas, Texas; Los Altos, California; Herndon, Virginia; and Munich, Germany. These leases expire between October 2020 and 2023. Lease expense for the three and nine months ended September 30, 2020 and 2019 were $267,000, $915,000, $52,000, and $153,000, respectively. The year over year increases are the result of acquiring lease obligations as part of the October 1, 2019 Acquisition of Oblong Industries.

-23-

The Company primarily leases facilities for office and data center space under non-cancellable operating leases for its U.S. and international locations that expire at various dates through 2023. For leases with a term greater than 12 months, the Company recognizes a right-of-use asset and a lease liability based on the present value of lease payments over the lease term. Variable lease payments are not included in the lease payments to measure the lease liability and are expensed as incurred. The Company’s leases have remaining terms of one to four years and some of the leases include a Company option to extend the lease term for less than twelve months to five years, or more, which if reasonably certain to exercise, the Company includes in the determination of lease payments. The lease agreements do not contain any material residual value guarantees or material restrictive covenants.

As the Company's leases do not provide a readily determinable implicit rate, the Company uses the incremental borrowing rate at lease commencement, which was determined using a portfolio approach, based on the rate of interest that the Company would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. The Company uses the implicit rate when a rate is readily determinable. Operating lease expense is recognized on a straight-line basis over the lease term.

Leases with an initial term of 12 months or less are not recognized on the balance sheet and the expense for these short-term leases is recognized on a straight-line basis over the lease term. Common area maintenance fees (or CAMs) and other charges related to these leases continue to be expensed as incurred.

The following provides balance sheet information related to leases as of September 30, 2020 (in thousands):


		September 30, 2020
Assets
	Operating lease, right-of-use asset, net	$	1,665

Liabilities
	Current portion of operating lease liabilities	$	907
	Operating lease liabilities, net of current portion	889
	Total operating lease liabilities	$	1,796

The following table summarizes the future undiscounted cash payments reconciled to the lease liability (in thousands):


Remaining Lease Payments
Remainder of 2020	$	258
2021	968
2022	566
2023	116
Total lease payments	$	1,908
Effect of discounting	(112)
Total lease liability	$	1,796

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%. On October 1, 2019 (the closing date of the Acquisition of Oblong Industries), the Company recognized ROU assets and lease liabilities for Oblong Industries of approximately $3,376,000 and $3,578,000, respectively, using an estimated incremental borrowing rate of 6%. The ROU assets and lease liabilities are recorded on the Company’s condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019. During the nine months ended September 30, 2020, non-cash immaterial out-of-period adjustments of approximately $195,000 were recorded to reduce the right of use asset and lease liability. These adjustments related to an error in the calculation of these amounts, in connection with the Oblong Acquisition.

During the nine months ended September 30, 2020, the Company entered into one new lease, in Los Angeles, for warehouse space. The new lease commences on September 1, 2020 and has a term of 18 months. The new lease resulted in an addition to ROU Assets, and corresponding increase to lease liability, of $116,000.

-24-

During the nine months ended September 30, 2020, the Company exited four of its leases, one in New York, one in London, one in Atlanta, and one in Los Angeles. The New York and London leases were exited in April 2020 when the Company elected not to renew the leases. The Atlanta and Los Angeles leases were exited in July 2020 and August 2020, respectively, when the Company negotiated terminations of the leases. These lease exits resulted in the reduction of ROU assets and the reduction of lease Liability.

The New York ROU Asset was fully amortized, and the lease liability had been fully paid, as of the date of exit resulting in a net effect of zero on the ROU asset and operating lease liability on the Company’s unaudited Condensed, Consolidated Balance Sheet durng the first quarter of 2020.

The Company had originally planned to renew the London Lease, and, pursuant to ASC 842, had recorded additional operating lease liability and ROU Asset value. Upon the exit of the London Lease, the Company recorded a disposal of ROU Asset value, and corresponding reduction of operating lease liability, of $214,000 on the Company’s unaudited Condensed, Consolidated Balance Sheet during the first quarter of 2020.

On April 24, 2020, the Company signed an amendment to the lease on our Los Angeles warehouse in order to exit the lease early. The original termination date of the lease was the end of May 2022 and we exited the lease at the end of August 2020. This transaction resulted in the disposal of $317,000 in ROU assets and a reduction of $333,000 of lease liability during the second quarter of 2020.

On July 31, 2020, the Company entered into a termination agreement related to our lease in Atlanta. The original termination date of the lease was the end of October 2020 and the termination agreement allows for the termination of the lease on July 31, 2020, in exchange for a cancellation fee of $10,000. Upon exit of the Atlanta lease, the Company recorded a disposal of ROU Asset value of $18,000, and a reduction of lease liability of $21,000, during the three months ended September 30, 2020.

Claim Related to Series A-2 Preferred Stock

As discussed in Note 3 - Oblong Industries Acquisition, on October 1, 2019, the Company closed its Acquisition of Oblong Industries, in connection with which it became a co-borrower under the SVB Loan Agreement. Following consummation of the Acquisition, the holder of the Company’s Series A-2 Preferred Stock communicated to the Company his belief that the Company’s execution of the joinder to the SVB Loan Agreement without his consent contravened approval rights in the Series A-2 Certificate of Designations. The Company has not accrued any liabilities for this matter as of September 30, 2020. As of the filing of this Report, there has been no further update regarding this matter.

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, the U.S. President announced a National Emergency relating to the disease. There is a possibility of continued widespread infection in the United States and abroad, with the potential for catastrophic impact. National, state and local authorities have required or recommended social distancing and imposed quarantine and isolation measures on large portions of the population, including mandatory business closures. These measures, while intended to protect human life, have had, and may continue to have, serious adverse impacts on domestic and foreign economies of uncertain severity and duration. On June 8, 2020, the National Bureau of Economic Research indicated that the U.S. economy had entered a recession. 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, but we expect that it may materially affect our business, financial condition and results of operations. The extent to which the coronavirus impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others. Moreover, the coronavirus outbreak has begun to have indeterminable adverse effects on general commercial activity and the world economy, and our business and results of operations could be adversely affected to the extent that this coronavirus or any other epidemic harms the global economy generally and/or the markets in which we operate specifically. Any of the foregoing factors, or other cascading effects of the coronavirus pandemic that are not currently foreseeable, could materially increase our costs, negatively impact our revenues and damage the Company’s results of operations and its liquidity position, possibly to a significant degree. The duration of any such impacts cannot be predicted.

Effective April 30, 2020, an existing major customer of the Company suspended certain professional services we provided to the them, due to cost cutting measures due to COVID-19. These services accounted for $1.0 million (9%) of the Company’s revenue for the nine months ended September 30, 2020, none of which occurred during the three months ended September 30,

-25-

2020. Uncertainties resulting from COVID-19 may result in additional customers delaying budget expenditures or re-allocating resources, which would result in a decrease in orders from these customers. Any such decrease in orders from these customers could cause a material adverse effect on our revenues and financial results and our ability to generate positive cash flows, all of which cannot be predicted at this time.

Note 14 - Subsequent Events

Private Placement Transaction

On October 21, 2020, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with accredited investors (the “Purchasers”), providing for the offer and sale by the Company to the Purchasers in a private placement of (i) 1,043,000 shares of the Company’s common stock, at a price of $2.85 per share in cash, and (ii) warrants to purchase up to 521,500 shares of common stock, for gross proceeds of $2,973,000 before deducting placement agent fees and other offering expenses (the “Private Placement”). The Private Placement closed, and the net proceeds were received, on October 22, 2020.

The net proceeds of the Private Placement were used by the Company to make the Satisfaction Payment discussed under “SVB Agreement” below.

SVB Agreement

On October 22, 2020, the Company entered into an agreement (the “Satisfaction Agreement”) with certain of its subsidiaries, Oblong Industries, Inc. and GP Communications, LLC (the “Guarantors”), and SVB as lender, pursuant to which SVB agreed to accept a one-time cash payment of $2,500,000 (the “Satisfaction Payment”) in satisfaction of the Company’s outstanding payment obligations under the SVB Loan Agreement, effective immediately, subject to certain terms and conditions. See Note 8 - Debt for further discussion of the SVB Loan Agreement. SVB also agreed to release the security interests and other liens previously granted to or held by SVB as security for the Company’s obligations under the SVB Loan Agreement, as well as the Guarantors’ guarantees thereof. The Company made the Satisfaction Payment on October 22, 2020.

-26-

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

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 October 1, 2019, Glowpoint closed an acquisition of all of the outstanding equity interests of Oblong Industries, Inc., a privately held Delaware corporation (“Oblong Industries”), pursuant to the terms of an Agreement and Plan of Merger (as amended, the “Merger Agreement”), dated September 12, 2019, by and among Glowpoint, Oblong Industries and Glowpoint Merger Sub II, Inc., a Delaware corporation and a wholly owned subsidiary of Glowpoint (“Merger Sub”). Pursuant to the Merger Agreement, among other things, Merger Sub merged with and into Oblong Industries, with Oblong Industries surviving as a wholly owned subsidiary of Glowpoint (the “Acquisition”). See further discussion of the Acquisition in Note 3 - Oblong Industries Acquisition to our condensed consolidated financial statements attached hereto. On March 6, 2020, Glowpoint changed its name to Oblong, Inc. 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.

Since the closing of the Acquisition on October 1, 2019, we have been focused on the integration of the former businesses of Glowpoint and Oblong Industries into a combined organization. While our Acquisition of Oblong Industries does provide additional revenues to the combined organization, 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 revenue and cost synergies in connection with combining Glowpoint and Oblong Industries; we reduced the total of general and administrative, research and development and sales and marketing expenses from $5,656,000 in the fourth quarter of 2019 to $4,560,000 in the first quarter of 2020, then to $3,637,000 in the second quarter of 2020, and then to $2,747,000 in the third quarter of 2020. We believe additional capital will be required to fund operations and provide growth capital including investments in technology, product development and sales and marketing. We intend to invest sales and marketing resources to expand awareness of Oblong Industries’ product offerings in the Cisco sales channel with the goal of increasing adoption and growing revenue. We expect to continue operating Glowpoint’s former business in the future as part of our combined organization; however, we expect to focus the majority of our future investments in product development and sales and marketing on our efforts to grow revenue from Oblong Industries’ products and service offerings. We believe there is a substantial market opportunity for Oblong Industries’ product offerings and services, and we are in the process of transforming our offerings to meet the evolving needs of our customers. As part of the transformation of our business, we are evolving certain aspects of our model by designing and developing software to include subscription-based offerings. Historically, our technology products and services have been developed and consumed in conventional commercial real estate spaces such as conference rooms. As our core collaboration products evolve, we expect to add more contemporary software features along with expanded accessibility beyond commercial spaces through both hybrid and SaaS offerings. See “Part I. Item 1. Business Overview and Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2019 10-K for further discussion.

Oblong’s Results of Operations

Three Months Ended September 30, 2020 (the “2020 Third Quarter”) compared to the Three Months Ended September 30, 2019 (the “2019 Third Quarter”)

Segment Reporting

As discussed above, on October 1, 2019, the Company acquired Oblong Industries, and Oblong Industries became a wholly owned subsidiary of the Company. 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 were managed separately and involve different products and services. Accordingly, the Company currently operates in two segments: 1) the Glowpoint (now named Oblong) business, which mainly consists of managed services for video collaboration and network applications and 2) the Oblong Industries business, which consists of products and services for visual collaboration technologies.

-27-

Because the closing of the Acquisition of Oblong Industries occurred on October 1, 2019, the Company’s condensed consolidated financial statements as of and for the three months ended September 30, 2019 included in this Report do not include Oblong Industries’ financial results. Certain information concerning the Company’s segments for the three months ended September 30, 2020 and 2019 is presented in the following table (in thousands):


	Three Months Ended September 30, 2020
	Glowpoint			Oblong Industries			Total
Revenue	$	1,324		$	1,942		$	3,266
Cost of revenues	893			719			1,612
Gross profit	$	431		$	1,223		$	1,654
Gross profit %	33		%	63		%	51		%

Allocated operating expenses	$	1,187		$	1,477		$	2,664
Unallocated operating expenses							980
Total operating expenses	$	1,187		$	1,477		$	3,644

Loss from operations	$	(756)		$	(254)		$	(1,990)
Interest and other expense, net	5			90			95
Net loss	$	(761)		$	(344)		$	(2,085)

Unallocated operating expenses include costs during the 2020 Third Quarter 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. Interest and other expense, net, is also not allocated to the operating segments.

As shown in the table below, the combined organization’s total revenue for the three months ended September 30, 2019 on a pro forma basis (as if the Acquisition of Oblong Industries had occurred on January 1, 2019), was $6.6 million.


	Pro forma and unaudited (as if the Acquisition of Oblong Industries had occurred on January 1, 2019)
	Three Months Ended September 30, 2019
	($ in thousands)
Revenue
Glowpoint	$	2,370
Oblong Industries	$	4,259
Pro forma total revenue	$	6,629
Net loss
Glowpoint	$	640
Oblong Industries	$	3,756
Pro forma net loss	$	4,396

Revenue. Total revenue increased $896,000 (or 38%) to $3,266,000 in the 2020 Third Quarter from $2,370,000 in the 2019 Third Quarter. The following table summarizes the changes in components of our revenue, and the significant changes in revenue are discussed in more detail below.

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	Three Months Ended September 30,
	2020		% of Revenue		2019		% of Revenue
Revenue: Glowpoint
Video collaboration services	$	249	8	%	$	1,317	56	%
Network services	1,028		31	%	969		41	%
Professional and other services	47		1	%	84		4	%
Total Glowpoint revenue	$	1,324	40	%	$	2,370	100	%

Revenue: Oblong Industries
Visual collaboration product offerings	$	1,686	52	%	$	—	—	%
Professional services	—		—	%	$	—	—	%
Licensing	256		8	%	$	—	—	%
Total Oblong Industries revenue	$	1,942	60	%	$	—	—	%
Total revenue	$	3,266	100	%	$	2,370	100	%

Glowpoint

•Revenue for managed services for video collaboration services decreased $1,068,000 (or 81%) to $249,000 in the 2020 Third Quarter from $1,317,000 in the 2019 Third Quarter. This decrease is mainly attributable to lower revenue from existing customers (either from reductions in price or level of services) and loss of customers to competition.

•Revenue for network services increased $59,000 (or 6%) to $1,028,000 in the 2020 Third Quarter from $969,000 in the 2019 Third Quarter.

•Revenue for professional and other services decreased $37,000 (or 44%) to $47,000 in the 2020 Third Quarter from $84,000 in the 2019 Third Quarter. This decrease is mainly attributable to lower revenue from existing customers related to equipment purchases.

Oblong Industries

•The increase in revenue in each of the different components was attributable to the Acquisition of Oblong Industries on October 1, 2019 and includes Oblong Industries’ revenue for the 2020 Third Quarter as compared to no revenue for the 2019 Third Quarter.

•The decrease from the pro forma revenue for the three months ended September 30, 2019 shown above as compared to revenue for the 2020 Third Quarter was mainly attributable to (i) a decrease in revenue from our product offerings due to both delayed fulfillment and delays in order placement as a result of the novel Coronavirus (COVID-19) pandemic, and (ii) a decrease in custom professional services revenue as an existing customer cancelled such services effective April 30, 2020 as a result of COVID-19.

Cost of Revenue (exclusive of depreciation and amortization). Cost of revenue, exclusive of depreciation and amortization, includes all internal and external costs related to the delivery of revenue. Cost of revenue also includes taxes which have been billed to customers.


	For the Three Months Ended September 30,
	2020		2019
Cost of Revenue
Glowpoint	$	893	$	1,582
Oblong Industries	719		—
Total cost of revenue	$	1,612	$	1,582

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Cost of revenue decreased to $1,612,000 in the 2020 Third Quarter from $1,582,000 in the 2019 Third Quarter. This decrease in cost of revenue is mainly attributable to lower costs associated with the decrease in Glowpoint revenue between the 2020 Third Quarter and the 2019 Third Quarter, offset by the inclusion of the cost of revenue for Oblong Industries for the 2020 Third Quarter. The Company’s gross profit as a percentage of revenue increased to 51% in the 2020 Third Quarter as compared to 33% in the Third Quarter 2019. This increase is due to inclusion of Oblong Industries’ gross profit 63% in the 2020 Third Quarter. Glowpoint’s gross profit of 33% remained constant quarter over quarter.

Research and Development. Research and development expenses include internal and external costs related to developing new service offerings and features and enhancements to our existing services. Research and development expenses increased to $747,000 in the 2020 Third Quarter from $190,000 in the 2019 Third Quarter. This increase is primarily attributable to $618,000 of research and development expenses for Oblong Industries in the 2020 Third Quarter with no expenses included for Oblong Industries in the Third Quarter 2019 as the Acquisition of Oblong Industries occurred on October 1, 2019, offset by reductions in the Glowpoint related expenses.

Sales and Marketing Expenses. Sales and marketing expenses increased to $668,000 in the 2020 Third Quarter from $38,000 in the 2019 Third Quarter. This increase is primarily attributable to $632,530 of sales and marketing expenses for Oblong Industries in the 2020 Third Quarter with no expenses included for Oblong Industries in the Third Quarter 2019 as the Acquisition of Oblong Industries occurred on October 1, 2019, offset by reductions in the Glowpoint related expenses.

General and Administrative Expenses. General and administrative expenses include direct corporate expenses and costs of personnel in the various corporate support categories, including executive, finance and accounting, legal, human resources and information technology. General and administrative expenses increased to $1,332,000 in the 2020 Third Quarter from $1,035,000 in the 2019 Third Quarter. This $297,000 increase is primarily attributable to $307,000 of general and administrative expenses for Oblong Industries for the 2020 Third Quarter with no expenses included for Oblong Industries in the Third Quarter 2019 as the Acquisition of Oblong Industries occurred on October 1, 2019, offset by reductions in Glowpoint related expenses.

Impairment Charges. Impairment charges in the 2020 Third Quarter were $117,000 as compared to $20,000 in the 2019 Third Quarter. The impairment charges for the for both periods are primarily attributable to impairment charges on property and equipment no longer in service.

Depreciation and Amortization Expenses. Depreciation and amortization expenses increased to $780,000 in the 2020 Third Quarter from $145,000 in the 2019 Third Quarter. This increase is mainly attributable to $710,000 of depreciation and amortization expense recorded in the 2020 Third Quarter related to assets recorded in connection with the Acquisition of Oblong Industries.

Loss from Operations. The Company recorded a loss from operations of $1,990,000 in the 2020 Third Quarter as compared to a loss from operations of $640,000 in the 2019 Third Quarter. This increase in our loss from operations from the 2019 Third Quarter to the 2020 Third Quarter is mainly attributable to the increase in operating expenses discussed above, partially offset by an increase in gross profit as discussed above.

Nine Months Ended September 30, 2020 compared to Nine Months Ended September 30, 2019

Segment Reporting

Because the closing of the Acquisition of Oblong Industries occurred on October 1, 2019, the Company’s condensed consolidated financial statements as of and for the Nine Months Ended September 30, 2019 included in this Report do not include Oblong Industries’ financial results. Certain information concerning the Company’s segments for the nine months ended September 30, 2020 and 2019 is presented in the following table (in thousands):

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	Nine Months Ended September 30, 2020
	Glowpoint			Oblong Industries			Total
Revenue	$	4,741		$	6,669		$	11,410
Cost of revenues	2,948			2,736			5,684
Gross profit	$	1,793		$	3,933		$	5,726
Gross profit %	38		%	59		%	50		%

Allocated operating expenses	$	3,398		$	7,545		$	10,943
Unallocated operating expenses							3,059
Total operating expenses	$	3,398		$	7,545		$	14,002

Loss from operations	$	(1,605)		$	(3,612)		$	(8,276)
Interest and other expense, net	12			310			322
Net loss	$	1,617		$	3,922		$	(8,598)

Unallocated operating expenses include costs during the Nine Months Ended September 30, 2020 (after the October 1, 2019 Acquisition date) that are not specific to a particular segment but are general to the group; included are expenses incurred for general liability and other insurance, professional fees and other similar corporate expenses. Interest and other expense, net, is also not allocated to the operating segments.

As shown in the table below, the combined organization’s total net loss for the Nine Months Ended September 30, 2019 on a pro forma basis (as if the Acquisition of Oblong Industries had occurred on January 1, 2019), was $14.9 million.


	Pro forma and unaudited (as if the Acquisition of Oblong Industries had occurred on January 1, 2019)
	Nine Months Ended September 30, 2019
	($ in thousands)
Revenue
Glowpoint	$	7,403
Oblong Industries	$	12,758
Pro forma total revenue	$	20,161
Net loss
Glowpoint	$	2,113
Oblong Industries	$	12,782
Pro forma net loss	$	14,895

Revenue. Total revenue increased $4,007,000 (or 54%) to $11,410,000 in the Nine Months Ended September 30, 2020 from $7,403,000 in the Nine Months Ended September 30, 2019. The following table summarizes the changes in components of our revenue, and the significant changes in revenue are discussed in more detail below.

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	Nine Months Ended September 30,
	2020		% of Revenue		2019		% of Revenue
Revenue: Glowpoint
Video collaboration services	$	1,847	16	%	$	4,335	59	%
Network services	2,719		24	%	2,879		39	%
Professional and other services	175		2	%	189		3	%
Total Glowpoint revenue	$	4,741	42	%	$	7,403	100	%

Revenue: Oblong Industries
Visual collaboration product offerings	$	4,931	43	%	$	—	—	%
Professional services	898		8	%	—		—	%
Licensing	840		7	%	—		—	%
Total Oblong Industries revenue	$	6,669	58	%	$	—	—	%
Total revenue	$	11,410	100	%	$	7,403	100	%

Glowpoint

•Revenue for managed services for video collaboration services decreased $2,488,000 (or 57%) to $1,847,000 in the Nine Months Ended September 30, 2020 from $4,335,000 in the Nine Months Ended September 30, 2019. This decrease is mainly attributable to lower revenue from existing customers (either from reductions in price or level of services) and loss of customers to competition.

•Revenue for network services decreased $160,000 (or 6%) to $2,719,000 in the Nine Months Ended September 30, 2020 from $2,879,000 in the Nine Months Ended September 30, 2019. This decrease is mainly attributable to net attrition of customers and lower demand for our services given the competitive environment and pressure on pricing that exists in the network services business.

•Revenue for professional and other services decreased $14,000 (or 7%) to $175,000 in the Nine Months Ended September 30, 2020 from $189,000 in the Nine Months Ended September 30, 2019. This decrease is mainly attributable to lower revenue from existing customers related to equipment purchases.

•We expect a continuing decline in revenue from the Glowpoint business given the dynamic and competitive environment for these services.

Oblong Industries

•The increase in revenue in each of the different components was attributable to the Acquisition of Oblong Industries on October 1, 2019 and includes Oblong Industries’ revenue for the Nine Months Ended September 30, 2020 as compared to no revenue for the Nine Months Ended September 30, 2019.

•The decrease from the pro forma revenue for the nine months ended September 30, 2019 shown above as compared to revenue for the nine months ended September 30, 2020 was mainly attributable to (i) a decrease in revenue from our product offerings due to both delayed fulfillment and delays in order placements as a result of the novel Coronavirus (COVID-19) pandemic, and (ii) a decrease in custom professional services revenue as an existing customer cancelled such services effective April 30, 2020 as a result of COVID-19.

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	For the Nine Months Ended September 30,
	2020		2019
Cost of Revenue
Glowpoint	$	2,948	$	4,901
Oblong Industries	2,736		—
Total cost of revenue	$	5,684	$	4,901

Cost of revenue increased to $5,684,000 in the Nine Months Ended September 30, 2020 from $4,901,000 in the Nine Months Ended September 30, 2019. This increase in cost of revenue is mainly attributable to the inclusion of the cost of revenue for Oblong Industries for the Nine Months Ended September 30, 2020, partially offset by lower costs associated with the decrease in Glowpoint revenue between the Nine Months Ended September 30, 2020 and the Nine Months Ended September 30, 2019. The Company’s gross profit as a percentage of revenue increased to 50% in the Nine Months Ended September 30, 2020 as compared to 34% in the Nine Months Ended September 30, 2019. This increase is due to inclusion of Oblong Industries’ gross profit (or 59%) in the Nine Months Ended September 30, 2020 and an increase in Glowpoint’s gross profit from 34% in the Nine Months Ended September 30, 2019 to 38% in the Nine Months Ended September 30, 2020. The increase in Glowpoint’s gross profit was due to reduced personnel costs as a percentage of revenue.

Research and Development. Research and development expenses include internal and external costs related to developing new service offerings and features and enhancements to our existing services. Research and development expenses increased to $3,062,000 in the Nine Months Ended September 30, 2020 from $652,000 in the Nine Months Ended September 30, 2019. This increase is primarily attributable to $2,674,000 of research and development expenses for Oblong Industries in the Nine Months Ended September 30, 2020 with no expenses included for Oblong Industries in the Nine Months Ended September 30, 2019 as the Acquisition of Oblong Industries occurred on October 1, 2019, partially offset by reductions in the Glowpoint related expenses.

Sales and Marketing Expenses. Sales and marketing expenses increased to $2,708,000 in the Nine Months Ended September 30, 2020 from $111,000 in the Nine Months Ended September 30, 2019. This increase is primarily attributable to $2,600,000 of sales and marketing expenses for Oblong Industries in the Nine Months Ended September 30, 2020 with no expenses included for Oblong Industries in the Nine Months Ended September 30, 2019 as the Acquisition of Oblong Industries occurred on October 1, 2019.

General and Administrative Expenses. General and administrative expenses include direct corporate expenses and costs of personnel in the various corporate support categories, including executive, finance and accounting, legal, human resources and information technology. General and administrative expenses increased $2,256,000 (or 77%) to $5,173,000 in the Nine Months Ended September 30, 2020 from $2,917,000 in the Nine Months Ended September 30, 2019. This increase is primarily attributable to $2,271,000 of general and administrative expenses for Oblong Industries for the Nine Months Ended September 30, 2020 with no expenses included for Oblong Industries in the Nine Months Ended September 30, 2019 as the Acquisition of Oblong Industries occurred on October 1, 2019.

Impairment Charges. Impairment charges in the Nine Months Ended September 30, 2020 were $667,000 as compared to $473,000 in the Nine Months Ended September 30, 2019. The impairment charges for both periods primarily relate to impairment charges on the Glowpoint reporting unit’s goodwill and impairment charges on property and equipment no longer in service. As of September 30, 2020, there is no remaining goodwill balance for the Glowpoint reporting unit.

Depreciation and Amortization Expenses. Depreciation and amortization expenses increased to $2,392,000 in the Nine Months Ended September 30, 2020 from $461,000 in the Nine Months Ended September 30, 2019. This increase is mainly attributable to $2,175,000 of depreciation and amortization expense recorded in the Nine Months Ended September 30, 2020 related to assets recorded in connection with the Acquisition of Oblong Industries.

Loss from Operations. The Company recorded a loss from operations of $8,276,000 in the Nine Months Ended September 30, 2020 as compared to a loss from operations of $2,112,000 in the Nine Months Ended September 30, 2019. This increase in our loss from operations is mainly attributable to the increase in operating expenses discussed above, partially offset by an increase in gross profit as discussed above.

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Off-Balance Sheet Arrangements

As of September 30, 2020, we had no off-balance sheet arrangements.

Inflation

Management does not believe inflation had a significant effect on the condensed consolidated financial statements for the periods presented.

Critical Accounting Policies

There have been no changes to our critical accounting policies during the nine months ended September 30, 2020. Critical accounting policies and the significant estimates made in accordance with such policies are regularly discussed with our Audit Committee. Those policies are discussed under “Critical Accounting Policies” in “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as in our condensed consolidated financial statements and the footnotes thereto, each included in our 2019 10-K.

Liquidity and Capital Resources

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 a 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”). The Company may apply to the Lender for forgiveness of some or all of the Loan, with the amount which may be forgiven equal to the sum of eligible payroll costs, mortgage interest, covered rent, and covered utility payments, in each case incurred by the Company during the twenty four-week period following the Origination Date, calculated in accordance with the terms of the CARES Act. Certain reductions in Company payroll costs during this period may reduce the amount of the PPP Loan eligible for forgiveness. The Company estimates that approximately $2,266,000 of the PPP Loan will be forgiven. However, this estimate is subject to change and there is no guarantee that the Company will receive any forgiveness for any fixed amount of any PPP Loan principal received by the Company. See further discussion of the PPP Loan in Note 8 - Debt.

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 in our condensed consolidated financial statements.

Future Capital Requirements and Going Concern

-34-

third quarter 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.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a “smaller reporting company” as defined by the rules and regulations of the SEC, we are not required to provide this information.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2020. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2020, the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms and are designed to ensure that information required to be disclosed by the Company in the reports we file or submit under the Exchange Act is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

No change in our internal control over financial reporting occurred during the fiscal quarter ended September 30, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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.

ITEM 1A. RISK FACTORS

A description of the risks associated with our business, financial conditions and results of operations is set forth in “Part I. Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the Securities and Exchange Commission on May 15, 2020 (the “2019 Annual Report”) There have been no material changes to these risks during the nine months ended September 30, 2020. The risks described in the 2019 Annual Report are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Unregistered Sales of Equity Securities by the Company

There have been no unregistered sales of securities by the Company during the period covered by this Report that have not been previously reported in a Current Report on Form 8-K.

Purchases of Equity Securities by the Company

Stock Repurchase Program

On July 21, 2018, the Company’s Board of Directors authorized a stock repurchase program (the “Stock Repurchase Program”) granting the Company authority to repurchase up to $750,000 of the Company’s Common Stock. All shares of Common Stock repurchased under the Stock Repurchase Program are recorded as treasury stock. The Stock Repurchase Program does not have an expiration date. No shares of Common Stock were purchased pursuant to our Stock Repurchase

-36-

Program during the three months ended September 30, 2020. As of September 30, 2020, the Company had $673,000 remaining for future repurchases of Common Stock under the Stock Repurchase Program.

Limitations Upon the Payment of Dividends

The restrictions on the payment of dividends on our common stock have not materially changed during the three months ended September 30, 2020. Our ability to pay cash dividends is limited by the Certificates of Designations governing our Preferred Stock. See Note 9 - Preferred Stock to our condensed consolidated financial statements contained herein for additional information.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

-37-

ITEM 6. EXHIBITS


Exhibit Number						Description
4.1						Form of Common Stock Purchase Warrant (filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on October 26, 2020, and incorporated herein by reference).
10.1						Form of Securities Purchase Agreement (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on October 26, 2020, and incorporated herein by reference).
10.2						Agreement, dated October 20, 2020, by and among Oblong, Inc., Oblong Industries, Inc., GP Communications LLC, and Silicon Valley Bank (filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on October 26, 2020, and incorporated herein by reference).
31.1*						Rule 13a—14(a)/15d—14(a) Certification of the Chief Executive Officer.
31.2*						Rule 13a—14(a)/15d—14(a) Certification of the Chief Financial Officer.
32.1**						Section 1350 Certification of the Chief Executive Officer and Chief Financial Officer.
101.INS						XBRL Instance Document
101.SCH						XBRL Taxonomy Extension Schema
101.CAL						XBRL Taxonomy Extension Calculation Linkbase
101.DEF						XBRL Taxonomy Extension Definition Linkbase
101.LAB						XBRL Taxonomy Extension Label Linkbase
101.PRE						XBRL Taxonomy Extension Presentation Linkbase

* Filed herewith.

** Furnished herewith.

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SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.