# TaoWeave, Inc.: Form 10-Q for the period ended Mar 31, 2023

- Company: [TaoWeave, Inc.](/companies/twav.md) (CIK 746210)
- Form: 10-Q
- Filed: 2023-05-10
- Accepted by EDGAR: May 10, 2023, 20:23 ET
- Period: 2023-03-31
- Accession: 0000746210-23-000040
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/746210/000074621023000040/glow-20230331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/746210/000074621023000040/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-01-01 to 2023-03-31 | $1.0m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Gross profit | 3 months, 2023-01-01 to 2023-03-31 | $276.0k | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-01-01 to 2023-03-31 | $6.0k | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2023-01-01 to 2023-03-31 | −$1.2m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-01-01 to 2023-03-31 | $38.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-01-01 to 2023-03-31 | −$1.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-01-01 to 2023-03-31 | −$0.60 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-01-01 to 2023-03-31 | −$0.60 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-01-01 to 2023-03-31 | 2,065,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2023-01-01 to 2023-03-31 | −$844.0k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-01-01 to 2023-03-31 | $0 | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-03-31 | $3.7m | us-gaap:Cash |
| Current assets | at 2023-03-31 | $5.7m | us-gaap:AssetsCurrent |
| Total assets | at 2023-03-31 | $6.3m | us-gaap:Assets |
| Current liabilities | at 2023-03-31 | $2.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-03-31 | $2.4m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-03-31 | $3.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 18,484 characters.

### Overview

We are a provider of patented multi-stream collaboration products and managed services for video collaboration and network solutions.

### Mezzanine™ Product Offerings

Our flagship product is called Mezzanine™, a family of turn-key products that enable dynamic and immersive visual collaboration across multi-users, multi-screens, multi-devices, and multi-locations (see further description of Mezzanine™ in Part I, Item 1). Mezzanine™ allows multiple people to share, control and arrange content simultaneously, from any location, enabling all participants to see the same content in its entirety at the same time in identical formats, resulting in dramatic enhancements to both in-room and virtual videoconference presentations. Applications include video telepresence, laptop and application sharing, whiteboard sharing and slides. Spatial input allows content to be spread across screens, spanning different walls, scalable to an arbitrary number of displays and interaction with our proprietary wand device. Mezzanine™ substantially enhances day-to-day virtual meetings with technology that accelerates decision making, improves communication, and increases productivity. Mezzanine™ scales up to support the most immersive and commanding innovation centers; across to link labs, conference spaces, and situation rooms; and down for the smallest work groups. Mezzanine’s digital collaboration platform can be sold as delivered systems in various configurations for small teams to total immersion experiences. The family includes the 200 Series (two display screen), 300 Series (three screen), and 600 Series (six screen). We also sell maintenance and support contracts related to Mezzanine™.

Historically, customers have used Mezzanine™ products in traditional office and operating center environments such as conference rooms or other presentation spaces. As discussed below, sales of our Mezzanine product have been adversely affected by commercial response to the COVID-19 pandemic. Like many technology companies in recent months, we will continue to monitor and manage our costs relative to demand with the goal of growing the Company’s revenue in the future. To the extent we believe new investments in product development, marketing, or sales are warranted as a result of changes in market demand, we believe additional capital will be required to fund those efforts and our ongoing operations.

### Managed Services for Video Collaboration

We provide a range of managed services for video collaboration, from automated to orchestrated, to simplify the user experience in an effort to drive adoption of video collaboration throughout our customers’ enterprise. We deliver our services through a hybrid service platform or as a service layer on top of our customers’ video infrastructure. We provide our customers with i) managed videoconferencing, where we set up and manage customer videoconferences and ii) remote service management, where we provide 24/7 support and management of customer video environments.

### Managed Services for Network

We provide our customers with network solutions that ensure reliable, high-quality and secure traffic of video, data and internet. Network services are offered to our customers on a subscription basis. Our network services business carries variable costs associated with the purchasing and reselling of this connectivity.

### Oblong’s Results of Operations

### Three Months Ended March 31, 2023 (the “2023 First Quarter”) compared to the Three Months Ended March 31, 2022 (the “2022 First Quarter”)

### Segment Reporting

The Company currently operates in two segments: (1) “Collaboration Products,” which represents the business surrounding our Mezzanine™ product offerings, and (2) “Managed Services,” which represents the business surrounding managed services for video collaboration and network solutions. Certain information concerning the Company’s segments for the three months ended March 31, 2023 and 2022 and is presented below (in thousands):

|  | Three Months Ended March 31, 2023 Managed Services | Collaboration Products | Corporate | Total |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $690 | $348 | $— | $1,038 |
| Cost of revenues | 460 | 302 | — | 762 |
| Gross profit | $230 | $46 | $— | $276 |
| Gross profit % | 33% | 13% |  | 27% |
| Allocated operating expenses | $— | $286 | $— | $286 |
| Unallocated operating expenses | — | — | 1,193 | 1,193 |
| Total operating expenses | $— | $286 | $1,193 | $1,479 |
| Income (loss) from operations | $230 | $(240) | $(1,193) | $(1,203) |
| Interest and other expense (income), net | 3 | (25) | — | (22) |
| Net income (loss) before tax | 233 | (215) | (1,193) | (1,181) |
| Income tax expense | 7 | 31 | — | 38 |
| Net income (loss) | $226 | $(246) | $(1,193) | $(1,219) |

|  | Three Months Ended March 31, 2022 Managed Services | Collaboration Products | Corporate | Total |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $966 | $566 | $— | $1,532 |
| Cost of revenues | 645 | 388 | — | 1,033 |
| Gross profit | $321 | $178 | $— | $499 |
| Gross profit % | 33% | 31% |  | 33% |
| Allocated operating expenses | $56 | $3,425 | $— | $3,481 |
| Unallocated operating expenses | — | — | 1,540 | 1,540 |
| Total operating expenses | $56 | $3,425 | $1,540 | $5,021 |
| Income (loss) from operations | $265 | $(3,247) | $(1,540) | $(4,522) |
| Interest and other expense (income), net | 6 | — | — | 6 |
| Income (loss) before income taxes | 271 | (3,247) | (1,540) | (4,528) |
| Income tax expense | 9 | 2 | — | 11 |
| Net income (loss) | $262 | $(3,249) | $(1,540) | $(4,539) |

Unallocated operating expenses in Corporate include costs during the 2023 First 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.

*Revenue.* Total revenue decreased 32% in the 2023 First Quarter compared to the 2022 First Quarter. The following table summarizes the changes in components of our revenue (in thousands), and the significant changes in revenue are discussed in more detail below.

| Revenue: Managed Services | Three Months Ended March 31, 2023 | % of Revenue | 2022 | % of Revenue |
| --- | ---: | ---: | ---: | ---: |
| Video collaboration services | $64 | 6% | $116 | 7% |
| Network services | 618 | 60% | 821 | 54% |
| Professional and other services | 8 | 1% | 29 | 2% |
| Total Managed Services revenue | $690 | 67% | $966 | 63% |
| Revenue: Collaboration Products |  |  |  |  |
| Visual collaboration product offerings | $348 | 33% | $562 | 37% |
| Licensing | — | —% | 4 | —% |
| Total Collaboration Products revenue | 348 | 33% | 566 | 37% |
| Total revenue | $1,038 | 100% | $1,532 | 100% |

#### Managed Services

- The decrease in revenue for video collaboration services is mainly attributable to lower revenue from existing customers (either from reductions in price or level of services) and loss of customers to competition.
- The decrease in revenue for network services 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.
- We expect revenue declines in our Managed Services segment will continue in the future.

#### Collaboration Products

- Customers generally use our Mezzanine™ products in traditional office and operating center environments such as conference rooms or other presentation spaces. The year over year decrease in revenue for our Collaboration Products business is primarily attributable to the aftermath of the COVID-19 pandemic on our existing and target customers as they continue to evaluate behavioral changes in how and when employees choose to work from traditional office environments, resulting in delayed buying decisions for our Collaboration Products. Continuation of the ongoing effects of the COVID-19 pandemic, could cause further disruptions to our operations and the operations of our customers, suppliers and logistics partners and could significantly adversely affect our near-term and long-term revenues, earnings, liquidity and cash flows.

*Cost of Revenue (exclusive of depreciation and amortization).* Cost of revenue, exclusive of depreciation and amortization and casualty loss, includes all internal and external costs related to the delivery of revenue. Cost of revenue also includes taxes which have been billed to customers. Cost of revenue by segment is presented in the following table (in thousands):

| Cost of Revenue | Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Managed Services | $460 | $645 |
| Collaboration Products | 302 | 388 |
| Total cost of revenue | $762 | $1,033 |

The decrease in our consolidated cost of revenue is mainly attributable to lower costs associated with the decrease in revenue during the same period. Our consolidated gross profit as a percentage of revenue was 27% in the 2023 First Quarter compared to 33% in the 2022 First Quarter. The gross profit as a percentage of revenue for our Collaboration Products segment was 13% in the 2023 First Quarter compared to 31% in the 2022 First Quarter. This decrease was mainly attributable to i) an increase in our inventory obsolescence reserve of $26,000 in the 2023 First Quarter as compared to the 2022 First Quarter, ii) a one-time assessment for common area charges on warehouse space of $12,000, and iii) an increase in personnel costs as a percentage of revenue between these periods.

Operating expenses are presented in the following table (in thousands):

| Operating expenses: | Three Months Ended March 31, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Research and development | $6 | $1,004 | $(998) | (99)% |
| Sales and marketing | 218 | 562 | (344) | (61)% |
| General and administrative | 1,169 | 1,690 | (521) | (31)% |
| Impairment charges | — | 1,138 | (1,138) | (100)% |
| Depreciation and amortization | 86 | 627 | (541) | (86)% |
| Total operating expenses | $1,479 | $5,021 | $(3,542) | (71)% |

*Research and Development*. Research and development expenses include internal and external costs related to developing new product offerings as well as features and enhancements to our existing product offerings. The decrease in research and development expenses for the 2023 First Quarter compared to the 2022 First Quarter is primarily attributable to the shut down of R&D expenses at the end of the 2022 First Quarter, in order to conserve cash, which resulted in lower personnel costs due to reduced headcount, consulting, and outsourced labor costs between these periods.

*Sales and Marketing Expenses*. The decrease in sales and marketing expenses for 2023 First Quarter compared to the 2022 First Quarter is primarily attributable to lower personnel costs due to reduced headcount, reduced marketing costs between these periods, and lower sales as discussed above.

*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. The decrease in general and administrative expenses for the 2023 First Quarter compared to the 2022 First Quarter is primarily attributable to a decrease in office related expenses and professional services.

*Impairment Charges.* There were no impairment charges in the 2023 First Quarter. The impairment charges in the 2022 First Quarter were attributable to goodwill. Future declines of our revenue, cash flows and/or market capitalization may give rise to a triggering event that may require the Company to record impairment charges in the future related to our intangible assets and other long-lived assets.

*Depreciation and Amortization*. The decrease in depreciation and amortization expenses for the 2023 First Quarter compared to the 2022 First Quarter is mainly attributable to the disposition and impairment of certain assets during the year ended 2022, as well as a decrease in depreciation as certain assets became fully depreciated.

*Loss from Operations.* The decrease in the Company’s loss from operations for the 2023 First Quarter compared to the 2022 First Quarter is mainly attributable to lower operating expenses as addressed above.

### Off-Balance Sheet Arrangements

As of March 31, 2023, 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 three months ended March 31, 2023. 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 Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 21, 2023 (the “2022 Annual Report”).

### Liquidity and Capital Resources

As of March 31, 2023, we had $3,714,000 in cash and working capital of $3,335,000. For the three months ended March 31, 2023, we incurred a net loss of $1,219,000 and used $844,000 of net cash in operating activities.

#### Equity Private Placement

On March 30, 2023, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain accredited investors (the “Investors”), pursuant to which we issued and sold, in a private placement transaction (the “Private Placement”), (i) 6,550 shares (the “Preferred Shares”) of our newly designated Series F convertible preferred stock, $0.0001 par value per share (the “Series F Preferred Stock”), initially convertible into up to 3,830,409 shares of our Common Stock, (ii) preferred warrants (“Preferred Warrants”) to acquire 32,750 shares of Series F Preferred Stock, and (iii) common warrants (“Common Warrants” and with the Preferred Warrants, the “Investor Warrants”) to acquire up to 3,830,413 shares of Common Stock. The terms of the Series F Preferred Stock are as set forward in the Certificate of Designations of Series F Preferred Stock of Oblong, Inc. (the “Certificate of Designations”), which was filed and became effective with the Secretary of State of the State of Delaware on March 31, 2023. The Private Placement closed on March 31, 2023. Please see the discussion in **Note 6 - Capital Stock** for further details on the Common Warrants and **Note 7 - Preferred Stock** for further discussion on the Series F Preferred Stock and Preferred Warrants.

The aggregate gross proceeds of the Private Placement are expected to be $6,386,250. All of the Preferred Shares and warrants were issued at the Closing, but part of the purchase price equivalent to $4,000,000 was placed into an escrow account with American Stock Transfer & Trust Company (the “Escrow”), to be released upon our obtaining stockholder approval permitting the issuance of more than 19.99% of our outstanding shares of Common Stock at less than the Minimum Price (as defined under the Nasdaq Rules) in accordance with Nasdaq listing standards and as otherwise may be required (the “Stockholder Approval”). The Company expects to use the net proceeds from the Private Placement and the proceeds, if any, from the exercise of the Investor Warrants for general corporate purposes and potential strategic alternatives. We have not, no has anyone on our behalf, initiated any substantive discussions directly or indirectly with any strategic alternatives partner.

In connection with the Private Placement, pursuant to an engagement letter dated March 30, 2023 (the “Engagement Letter”), between the Company and Dawson James Securities, Inc. (the “Placement Agent”), the Company agreed to (i) pay the Placement Agent a cash fee equal to 8% of the aggregate gross proceeds raised in the Private Placement, and (ii) grant to the Placement Agent warrants (the “Placement Agent Warrants”) to purchase 306,433 shares of Common Stock at an initial exercise price of $1.71 per share. Additionally, we agreed to reimburse the Placement Agent for certain expenses incurred in connection with the Private Placement and to pay certain contingent fees upon the occurrence of specified future events. Please see the discussion in **Note 6 - Capital Stock** for further details on the Placement Agent Warrants.

#### Future Capital Requirements and Going Concern

Our capital requirements in the future will continue to depend on numerous factors, including the potential release of the Escrow, the amount of revenue the Company is able to generate, customer renewal rates and the timing of collection of outstanding accounts receivable, in each case particularly as it relates to the Company’s major customers, the expense to deliver services, expense for sales and marketing, and expense for research and development. The Company believes that, in the event the Escrow is not released, based on its current projection of revenue, expenses, 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, in the short-term and the long-term, 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 Consolidated Financial Statements do not include any adjustments that might result from these uncertainties.

## Market risk

As filed, 135 characters.

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

## Controls and procedures

As filed, 1,422 characters.

#### 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 March 31, 2023. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2023, 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 March 31, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 6,360 characters.

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 2022 Annual Report. Except as set forth below, there have been no material changes to these risks during the three months ended March 31, 2023. The risks described in the 2022 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.

***The terms of the Series F Preferred Stock could limit our growth and our ability to finance our operations, fund our capital needs, respond to changing conditions and engage in other business activities that may be in our best interests.*** The Certificate of Designations for the Series F Preferred Stock contains a number of affirmative and negative covenants regarding matters such as the payment of dividends, maintenance of our properties and assets, transactions with affiliates, and our ability to issue other indebtedness. No assurances can be given that we will be able to comply with the financial or other covenants contained in the Certificate of Designations. If we are unable to comply with certain terms in the Certificate of Designations:

- dividends will accrue on the Series B Preferred Stock at 20% per annum;
- the holders of the Series B Preferred Stock could foreclose against our assets; and/or
- we could be forced into bankruptcy or liquidation.

Our ability to comply with these covenants may be adversely affected by events beyond our control, and we cannot assure you that we can maintain compliance with these covenants. The financial covenants could limit our ability to make needed expenditures or otherwise conduct necessary or desirable business activities.

***The issuance of the securities in the Private Placement significantly diluted the ownership interest of the existing holders of our common stock, and the market price of our common stock will likely decline significantly as a result of sales of such securities into the public market by the Investors and subsequent investors or the perception that such sales may*** ***occur.*** Our existing holders of common stock have been significantly diluted by the issuance of the securities in the Private Placement. Our public float was significantly increased and the market price of our common stock could decline significantly as a result of subsequent sales of the shares of common stock issued in the Private Placement, or the perception that such sales may occur.

In addition, the exercise price or conversion price of these securities may be at prices below the current and/or then trading prices of shares of our common stock or at prices below the price at which our existing shareholders purchased our common stock. The Investors may potentially make a significant profit with the resale of the securities depending on the trading price of our securities at the time of a sale and the purchase price of such securities by them. While the Investors may experience a positive rate of return based on the trading price of our securities, the existing holders of our common stock may not experience a similar rate of return on the shares of common stock they purchased due to differences in the applicable purchase price and trading price.

***If our stockholders do not approve the issuance by us in the Private Placement of more than 19.99% of our outstanding shares of Common Stock at less than the Minimum Price (as defined under the Nasdaq listing rules), our ability to finance our operations, execute our business plan and fund our capital needs will be materially and adversely affected.*** All of the Preferred Shares and Investor Warrants were issued at the closing of the Private Placement, but part of the purchase price equivalent to $4 million has been placed in an escrow account until the Stockholder Approval is obtained. Effectively, stockholder approval is one of the conditions for us to receive (i) $4 million in escrow and (ii) approximately $31.9 million upon the exercise of the Preferred Warrants, if exercised for cash. If the Stockholder Approval is not obtained, we will not be able to access such funds and our ability to execute our business plan will be jeopardized and we will be materially and adversely affected.

The failure of our stockholders to approve this proposal will mean that the conversion of the Preferred Shares and the exercise of the Common Warrants will be limited to the extent that such conversion or exercise, together with any other securities convertible or exchangeable for shares, would result in the issuance, in the aggregate, of no more than 19.99% of the shares of our Common Stock outstanding. As a result, we may be unable to issue sufficient shares upon conversion of the Preferred Shares or exercise of the Warrants which will, in lieu of those shares, require that we pay buy-in cash amounts to the Investors. We do not anticipate having sufficient funds to make any substantial cash payments to the holders of the Preferred Shares.

Our ability to successfully implement our business plan and ultimately generate value for our stockholders is dependent upon our ability to raise capital and satisfy our ongoing business needs. If we are required to satisfy our buy-in payment obligations in cash rather than Common Stock, we may not have the capital necessary to fully satisfy our ongoing business needs, the effect of which would adversely impact future operating results, and result in a delay in our business plans. Additionally, it may be necessary for the Company to obtain additional financing in order to pay the obligations in cash, which may result in additional transaction expenses.

Further, pursuant to the terms of the Purchase Agreement, if our stockholders do not approve this proposal, we will be required to seek stockholder approval of this proposal again on or before July 31, 2023, and thereafter semi-annually until we receive stockholder approval of this proposal. As such, our failure to obtain stockholder approval of this proposal at the May 18, 2023 Special Meeting will require us to incur the costs of holding one or more additional stockholder meetings until we receive such approval.

Filed May 10, 2023.
Source: SEC EDGAR, the filing index for accession 0000746210-23-000040. Last ingested by Listed: Oct 24, 2026, 14:54 ET. No prices; not investment advice.