# TaoWeave, Inc.: Form 10-Q for the period ended Sep 30, 2024

- Company: [TaoWeave, Inc.](/companies/twav.md) (CIK 746210)
- Form: 10-Q
- Filed: 2024-11-07
- Accepted by EDGAR: Nov 7, 2024, 13:31 ET
- Period: 2024-09-30
- Accession: 0001437749-24-033771
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/746210/000143774924033771/oblg20240930d_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/746210/000143774924033771/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-07-01 to 2024-09-30 | $578.0k | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Revenue | 9 months, 2024-01-01 to 2024-09-30 | $1.8m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Gross profit | 3 months, 2024-07-01 to 2024-09-30 | $79.0k | us-gaap:GrossProfit |
| Gross profit | 9 months, 2024-01-01 to 2024-09-30 | $196.0k | us-gaap:GrossProfit |
| Research and development | 3 months, 2024-07-01 to 2024-09-30 | $38.0k | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2024-01-01 to 2024-09-30 | $153.0k | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2024-07-01 to 2024-09-30 | −$1.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2024-01-01 to 2024-09-30 | −$3.3m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2024-07-01 to 2024-09-30 | $0 | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2024-01-01 to 2024-09-30 | $9.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | −$1.0m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | −$3.2m | us-gaap:NetIncomeLoss |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | −$11.25 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | −$16.60 | us-gaap:EarningsPerShareBasic |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | −$2.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2024-09-30 | $5.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-09-30 | $6.0m | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-30 | $6.0m | us-gaap:Assets |
| Current liabilities | at 2024-09-30 | $1.3m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-09-30 | $1.3m | us-gaap:Liabilities |
| Shareholders' equity | at 2024-09-30 | $4.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 27,906 characters.

### Overview

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

***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 the commercial response to the COVID-19 pandemic and its aftermath. 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.

### Strategy

In recent years, our Company has faced significant challenges, leading to declining revenues for both our Mezzanine™ product offerings and our Managed Services. These setbacks have prompted us to undertake a comprehensive review of our strategic direction with the aim of enhancing shareholder value through various means.

Our exploration of strategic alternatives is diverse, encompassing the consideration of a range of transformative actions. These include the possibility of a business combination, where we might merge with or be acquired by another company; a reverse merger, where a private company merges with us to become public without going through the traditional initial public offering process; or outright sale of the company. Each option is being carefully evaluated to ensure it aligns with our overarching goal of sustainable growth and value creation.

Our strategy for growth is twofold: (i) we aim to grow organically by expanding our market presence and increasing adoption of our products and services, and (ii) we are actively seeking inorganic growth opportunities through strategic partnerships or acquisitions. Specifically, we are interested in early-stage technology companies that are not just innovating but have also developed minimum viable products (MVPs) that have gained some measure of market acceptance. These companies may complement our existing offerings but, could also open new avenues for expansion by tapping into significant market opportunities.

In our quest to find the right partners or acquisition targets, we are particularly focused on ventures that have demonstrated their ability to innovate and capture early-stage interest of their target markets, indicating a clear path to scalability and a substantial market presence.

However, it's important to note that while we are committed to this strategic review process, there is no guaranteed outcome. The process of identifying and executing on the right strategic alternative, whether it be a merger, sale, or business combination, is complex and uncertain. We want our shareholders to understand that, despite our best efforts, there is no assurance that this strategic review will culminate in a definitive transaction involving the Company. Our priority remains clear: to explore every avenue that could potentially enhance the value we deliver to our shareholders and ensure the long-term success of our Company.

**Oblong’s Results of Operations**

**Three Months Ended September 30, 2024 (the “2024 Third Quarter”) compared to the Three Months Ended September 30, 2023 (the “2023 Third Quarter”)**

Certain information concerning the Company’s segments for the three months ended September 30, 2024 and 2023 is presented below (in thousands):

|  | Three Months Ended September 30, 2024 Managed Services | Collaboration Products | Corporate | Total |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $510 | $68 | $— | $578 |
| Cost of revenues | 295 | 204 | — | 499 |
| Gross profit | $215 | $(136) | $— | $79 |
| Gross profit % | 42% | (200)% |  | 14% |
| Allocated operating expenses | $60 | $104 | $— | $164 |
| Unallocated operating expenses | — | — | 987 | 987 |
| Total operating expenses | $60 | $104 | $987 | $1,151 |
| Operating income (loss) | $155 | $(240) | $(987) | $(1,072) |
| Interest income, net | (31) | (1) | — | (32) |
| Income (loss) before income taxes | 186 | (239) | (987) | (1,040) |
| Income tax expense | — | — | — | — |
| Net income (loss) | $186 | $(239) | $(987) | $(1,040) |

|  | Three Months Ended September 30, 2023 Managed Services | Collaboration Products | Corporate | Total |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $603 | $269 | $— | $872 |
| Cost of revenues | 398 | 250 | — | 648 |
| Gross profit | $205 | $19 | $— | $224 |
| Gross profit % | 34% | 7% |  | 26% |
| Allocated operating expenses | $— | $151 | $— | $151 |
| Unallocated operating expenses | — | — | $998 | 998 |
| Total operating expenses | $— | $151 | $998 | $1,149 |
| Operating income (loss) | $205 | $(132) | $(998) | $(925) |
| Interest income, net | (35) | 5 | — | (30) |
| Income (loss) before income taxes | 240 | (137) | (998) | (895) |
| Income tax expense | — | — | — | — |
| Net income (loss) | $240 | $(137) | $(998) | $(895) |

Unallocated operating expenses in Corporate include costs during the 2024 and 2023 Third Quarters 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 33.7% in the 2024 Third Quarter compared to the 2023 Third 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 September 30, 2024 | % of Revenue | 2023 | % of Revenue |
| --- | ---: | ---: | ---: | ---: |
| Video collaboration services | $6 | 1% | $38 | 4% |
| Network services | 502 | 87% | 557 | 64% |
| Professional and other services | 2 | —% | 8 | 1% |
| Total Managed Services revenue | $510 | 88% | $603 | 69% |
| Revenue: Collaboration Products |  |  |  |  |
| Visual collaboration product offerings | $68 | 12% | $268 | 31% |
| Professional and other services | - | —% | 1 | —% |
| Total Collaboration Products revenue | $68 | 12% | $269 | 31% |
| Total revenue | $578 | 100% | $872 | 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.
- For the three months ended September 30, 2024, one customer made up 97% of Managed Services revenue. For the three months ended September 30, 2023, this same customer made up 88% of Managed Services revenue.

#### 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 due to lower demand, largely a consequence of the workplace reactions to the COVID-19 pandemic and its prolonged effects. We believe the COVID-19 pandemic fundamentally altered the way businesses consider the use of physical office spaces and, consequently, the demand for technologies that enable in-person collaboration within these spaces. Our analysis indicates that the reduced demand for our Mezzanine™ products, particularly in the aftermath of COVID-19, reflects a broader reassessment among our customers regarding the necessity and investment in collaboration solutions tailored for traditional office environments.

*Cost of Revenue (exclusive of amortization).* Cost of revenue, exclusive of 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 September 30, 2024 | 2023 |
| --- | ---: | ---: |
| Managed Services | $295 | $398 |
| Collaboration Products | 204 | 250 |
| Total cost of revenue | $499 | $648 |

The decrease in our consolidated cost of revenue is mainly attributable to lower costs associated with the decrease in revenue during the same period, and by a decrease in the expense related to our reserve for obsolescence on our inventory asset for our Collaboration Products segment, partially offset by severance costs incurred during the 2024 Third Quarter related to certain headcount reductions in September 2024. Our consolidated gross profit as a percentage of revenue was 14% in the 2024 Third Quarter compared to a consolidated gross profit as a percentage of revenue of 26% in the 2023 Third Quarter.

Our Managed Services segment recorded a 42% gross profit as a percentage of sales for the 2024 Third Quarter compared to 34% in the 2023 Third Quarter.

Our Collaboration Products segment recorded a negative gross profit as a percentage of sales of 200% for the 2024 Third Quarter compared to a gross profit as a percentage of sales of 7% in the 2023 Third Quarter. This decrease was mainly attributable to an increase in personnel costs as a percentage of revenue, severance costs of $30,000 incurred in the 2024 Third Quarter related to headcount reductions in September 2024, partially offset by a reduction in the expense related to our inventory obsolescence reserve of $24,000 in the 2024 Third Quarter compared to the 2023 Third Quarter.

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

| Operating expenses: | Three Months Ended September 30, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Research and development | $38 | $5 | $33 | 660% |
| Sales and marketing | 66 | 81 | (15) | (19)% |
| General and administrative | 1,047 | 977 | 70 | 7% |
| Amortization | — | 86 | (86) | (100)% |
| Total operating expenses | $1,151 | $1,149 | $2 | 0% |

*Research and Development*. Research and development expenses include internal and external costs related to developing features and enhancements to our existing product offerings. The increase in research and development expenses for the 2024 Third Quarter compared to the 2023 Third Quarter is primarily attributable to an increase in consulting, and outsourced labor costs between these periods.

*Sales and Marketing Expenses*. The decrease in sales and marketing expenses for the 2024 Third Quarter compared to the 2023 Third Quarter is primarily attributable to reduced personnel expenses during the 2024 Third Quarter, partially offset by severance costs of $16,000 related to headcount reductions in September 2024.

*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 increase in general and administrative expenses for the 2024 Third Quarter compared to the 2023 Third Quarter is primarily attributable to increased professional service expenses as a result of severance costs of $60,000 related to headcount reductions in September 2024, partially offset by reduced stock compensation expense as a result of stock options being fully expensed.

*Amortization*. The decrease in amortization expense for the 2024 Third Quarter compared to the 2023 Third Quarter is attributable to the impairment of certain assets during the year ended 2023.

*Interest Income, Net.* Interest income, net for the 2024 Third Quarter and the 2023 Third Quarter is primarily comprised of interest income related to our cash accounts.

*Loss from Operations.* The increase in the Company’s loss from operations for the 2024 Third Quarter compared to the 2023 Third Quarter is mainly attributable to the severance costs we recorded in the 2024 Third Quarter, as addressed above.

**Oblong’s Results of Operations**

**Nine Months Ended September 30, 2024 (the “2024 Third Quarter”) compared to the Nine Months Ended September 30, 2023 (the “2023 Third Quarter”)**

Certain information concerning the Company’s segments for the nine months ended September 30, 2024 and 2023 is presented below (in thousands):

|  | Nine Months Ended September 30, 2024 Managed Services | Collaboration Products | Corporate | Total |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $1,540 | $275 | $— | $1,815 |
| Cost of revenues | 995 | 624 | — | 1,619 |
| Gross profit | $545 | $(349) | $— | $196 |
| Gross profit % | 35% | (127)% |  | 11% |
| Allocated operating expenses | $122 | $347 | $— | $469 |
| Unallocated operating expenses | — | — | 3,001 | 3,001 |
| Total operating expenses | $122 | $347 | $3,001 | $3,470 |
| Operating income (loss) | $423 | $(696) | $(3,001) | $(3,274) |
| Interest income, net | (98) | (26) | — | (124) |
| Income (loss) before income taxes | 521 | (670) | (3,001) | (3,150) |
| Income tax expense | 6 | 3 | — | 9 |
| Net income (loss) | $515 | $(673) | $(3,001) | $(3,159) |

|  | Nine Months Ended September 30, 2023 Managed Services | Collaboration Products | Corporate | Total |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $1,933 | $933 | $— | $2,866 |
| Cost of revenues | 1,288 | 956 | — | 2,244 |
| Gross profit | $645 | $(23) | $— | $622 |
| Gross profit % | 33% | (2)% |  | 22% |
| Allocated operating expenses | $3 | $61 | $— | $64 |
| Unallocated operating expenses | — | — | 3,777 | 3,777 |
| Total operating expenses | $3 | $61 | $3,777 | $3,841 |
| Operating income (loss) | $642 | $(84) | $(3,777) | $(3,219) |
| Interest income, net | (69) | (25) | — | (94) |
| Income (loss) before income taxes | 711 | (59) | (3,777) | (3,125) |
| Income tax expense | 7 | 31 | — | 38 |
| Net income (loss) | $704 | $(90) | $(3,777) | $(3,163) |

Unallocated operating expenses in Corporate include costs during the nine months ended September 30, 2024 and 2023 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 36.7% in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. 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 | Nine Months Ended September 30, 2024 | % of Revenue | 2023 | % of Revenue |
| --- | ---: | ---: | ---: | ---: |
| Video collaboration services | $41 | 2% | $148 | 5% |
| Network services | 1,489 | 82% | 1,758 | 61% |
| Professional and other services | 10 | 1% | 27 | 1% |
| Total Managed Services revenue | $1,540 | 85% | $1,933 | 67% |
| Revenue: Collaboration Products |  |  |  |  |
| Visual collaboration product offerings | $275 | 15% | $932 | 33% |
| Professional and other services | - | —% | 1 | —% |
| Total Collaboration Products revenue | $275 | 15% | $933 | 33% |
| Total revenue | $1,815 | 100% | $2,866 | 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.
- For the nine months ended September 30, 2024, one customer made up 98% of Managed Services revenue. For the nine months ended September 30, 2023, this same customer made up 87% of Managed Services revenue.

#### 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 due to lower demand, largely a consequence of the workplace reactions to the COVID-19 pandemic and its prolonged effects. We believe the COVID-19 pandemic fundamentally altered the way businesses consider the use of physical office spaces and, consequently, the demand for technologies that enable in-person collaboration within these spaces. Our analysis indicates that the reduced demand for our Mezzanine™ products, particularly in the aftermath of COVID-19, reflects a broader reassessment among our customers regarding the necessity and investment in collaboration solutions tailored for traditional office environments.

*Cost of Revenue (exclusive of amortization).* Cost of revenue, exclusive of 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 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: |
| Managed Services | $995 | $1,288 |
| Collaboration Products | 624 | 956 |
| Total cost of revenue | $1,619 | $2,244 |

The decrease in our consolidated cost of revenue is mainly attributable to lower costs associated with the decrease in revenue during the same period and a decrease in the expense related to our reserve for obsolescence on our inventory asset for our Collaboration Products segment, partially offset by severance costs during the nine months ended September 30, 2024 related to certain headcount reductions in September 2024. Our consolidated gross profit as a percentage of revenue was 11% in the nine months ended September 30, 2024 compared to a consolidated gross profit as a percentage of revenue of 22% in the nine months ended September 30, 2023.

Our Managed Services segment recorded a 35% gross profit as a percentage of sales for the nine months ended September 30, 2024 compared to a gross profit as a percentage of revenue of 33% in the nine months ended September 30, 2023.

Our Collaboration Products segment recorded a negative gross profit as a percentage of sales of 127% for the nine months ended September 30, 2024 compared to a negative gross profit as a percentage of sales of 2% in the nine months ended September 30, 2023. This decrease was mainly attributable to an increase in personnel costs as a percentage of revenue and severance costs of $30,000 during the nine months ended September 30, 2024, partially offset by a reduction in the expense related to our inventory obsolescence reserve of $92,000 in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

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

| Operating expenses: | Nine Months Ended September 30, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Research and development | $153 | $16 | $137 | 856% |
| Sales and marketing | 177 | 241 | (64) | (27)% |
| General and administrative | 3,140 | 3,723 | (583) | (16)% |
| Amortization | — | 259 | (259) | (100)% |
| Casualty gain (insurance proceeds) | — | (400) | 400 | (100)% |
| Impairment charges | — | 2 | (2) | (100)% |
| Total operating expenses | $3,470 | $3,841 | $(371) | (10)% |

*Research and Development*. Research and development expenses include internal and external costs related to developing features and enhancements to our existing product offerings. The increase in research and development expenses for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 is primarily attributable to an increase in consulting, and outsourced labor costs between these periods.

*Sales and Marketing Expenses*. The decrease in sales and marketing expenses for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 is primarily attributable to lower personnel costs due to reduced marketing costs between these periods, partially offset by severance costs of $16,000 during the nine months ended September 30, 2024 related to headcount reductions in September 2024.

*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 nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 is primarily attributable to reduced stock compensation expense as a result of stock options being fully expensed, partially offset by severance costs of $60,000 during the nine months ended September 30, 2024 due to headcount reductions in September 2024.

*Casualty Gain/Loss.* In June 2022, the Company discovered that $533,000 of inventory was stolen from the Company's warehouse in City of Industry, California, and we recorded a casualty loss in operating expenses. During the nine months ended September 30, 2023, we recorded a recovery payment from one of our insurance policies of $400,000 as an offset to this casualty loss.

*Amortization*. The decrease in amortization expense for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 is attributable to the impairment of certain assets during the year ended 2023.

*Interest Income, Net.* Interest income, net for the nine months ended September 30, 2024 and 2023 is primarily comprised of interest income related to our cash accounts.

*Loss from Operations.* The increase in the Company’s loss from operations for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 is mainly attributable to the casualty loss recovery we recorded during the nine months ended September 30, 2023, the severance costs recorded during the nine months ended September 30, 2024, and lower gross profit, as addressed above.

### Off-Balance Sheet Arrangements

As of September 30, 2024, 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, 2024. 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 2023 Annual Report.

### Liquidity and Capital Resources

As of September 30, 2024, we had $5,619,000 in cash and cash equivalents and working capital of $4,665,000. For the nine months ended September 30, 2024 we incurred a net loss of $3,159,000 and we used $2,521,000 of net cash in operating activities.

Financing activities provided $2,149,000 of net cash for the nine months ended September 30, 2024, consisting of net proceeds from warrant exercises.

In September 2024, in order to reduce operating expenses and preserve capital, the Company reduced its workforce by nine employees. This resulted in severance costs of $106,000 which are recorded in operating expenses for the three and nine months ended September 30, 2024 and is included are accrued compensation as of September 30, 2024. The entirety of the severance costs were paid out in October 2024.

We believe that our existing cash and cash equivalents will be sufficient to fund our operations and meet our working capital requirements into mid-2026. We believe additional capital will be required, in the long term, to fund operations and provide growth capital including our pursuit of potential strategic alternatives and 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.

## 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, 1,435 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 September 30, 2024. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2024, 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, 2024, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 5,696 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 2023 Annual Report. Except as set forth below, there have been no material changes to these risks during the nine months ended September 30, 2024. The risks described in the 2023 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.

***We rely on a limited number of customers for a significant portion of our revenue, and the loss of any one of those customers, or several of our smaller customers, could materially harm our business.*** A significant portion of our revenue is generated from a limited number of customers. For the three and nine months ended September 30, 2024, one major customer accounted for 87% and 83% of the Company’s total consolidated revenue, respectively. The composition of our significant customers will vary from period to period, and we expect that most of our revenue will continue, for the foreseeable future, to come from a relatively small number of customers. Consequently, our financial results may fluctuate significantly from period-to-period based on the actions of one or more significant customers. A customer may take actions that affect the Company for reasons that we cannot anticipate or control, such as reasons related to the customer’s financial condition, changes in the customer’s business strategy or operations, changes in technology and the introduction of alternative competing products, or as the result of the perceived quality or cost-effectiveness of our products. Our agreements with these customers may be canceled if we materially breach the agreement or for other reasons outside of our control such as insolvency or financial hardship that may result in a customer filing for bankruptcy court protection against unsecured creditors. If our customers were to experience losses due to a failure of a depository institution to return their deposits, it could expose us to an increased risk of nonpayment under our contracts with them. In addition, our customers may seek to renegotiate the terms of current agreements or renewals. 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, liquidity, financial condition, and results of operations.

***We could fail to satisfy the standards to maintain our listing on a stock exchange.*** Our Common Stock is listed on The Nasdaq Capital Market. In order to maintain that listing, we must satisfy minimum financial and other continued listing requirements and standards. On September 21, 2023, we received a written notice from the Nasdaq Stock Market, LLC ("Nasdaq") indicating that the Company was not in compliance with the $1.00 minimum bid price set forth in Nasdaq Listing Rule 5550(a)(2) for continued listing on The Nasdaq Capital Market (the "Bid Price Rule"). We were granted two 180-day extensions (until September 16, 2024) to regain compliance with the Bid Price Rule. On September 10, 2024, we received written notice from Nasdaq notifying the Company that it had determined that for the last 10 consecutive business days, from August 26 to September 9, 2024, the closing bid price of the Company’s Common Stock had been at $1.00 per share or greater and that, accordingly, the Company had regained compliance with the Bid Price Rule, and that the matter was now closed.

In the event that we again become non-compliant, with Rule 5550(a)(2) or other continued listing requirements of Nasdaq and cannot re-establish compliance within the required timeframe, our Common Stock could be delisted from The Nasdaq Capital Market, which could have a material adverse effect on our financial condition and which may cause the value of our Common Stock to decline. If our Common Stock is not eligible for listing or quotation on another market or exchange, trading of our Common Stock could be conducted in the over-the-counter market or on an electronic bulletin board established for unlisted securities such as the Pink Sheets or the OTC Bulletin Board. In such event, it would become more difficult to dispose of, or obtain accurate price quotations for, our Common Stock, and there would likely be a reduction in our coverage by security analysts and the news media, which could cause the price of our Common Stock to decline further. In addition, it may be difficult for us to raise additional capital if we are not listed on a national securities exchange.

While Nasdaq rules do not impose a specific limit on the number of times a listed company may effect a reverse stock split to maintain or regain compliance with Listing Rule 5810(c)(3)(A), Nasdaq has stated that a series of reverse stock splits may undermine investor confidence in securities listed on Nasdaq. Accordingly, Nasdaq may determine that it is not in the public interest to maintain our listing, even if we regain compliance with Listing Rule 5810(c)(3)(A) as a result of any reverse stock split. In addition, Nasdaq Listing Rule 5810(c)(3)(A)(iv) states that any listed company that fails to meet Listing Rule 5810(c)(3)(A) after effecting one or more reverse stock splits over the prior two-year period with a cumulative ratio of 250 shares or more to one will not be eligible for an automatic 180-day grace compliance period and the Nasdaq Listing Qualifications Department is obligated to immediately issue a delisting determination.

Filed Nov 7, 2024.
Source: SEC EDGAR, the filing index for accession 0001437749-24-033771. Last ingested by Listed: Oct 24, 2026, 14:54 ET. No prices; not investment advice.