OBLONG, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

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. 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™.

We believe there is a substantial market opportunity for our Mezzanine™ product
offerings, and we are in the process of transforming our offerings to meet the
evolving needs of our customers. Historically, customers have used Mezzanine™
products in conventional commercial real estate spaces such as conference rooms.
As discussed below, sales of our Mezzanine product have been adversely affected
by commercial response to the COVID-19 pandemic. We are currently designing and
developing software offerings for our core collaboration products, with expanded
accessibility beyond commercial spaces through both hybrid and
software-as-a-service ("SaaS") solutions delivered in the cloud. These
initiatives will require significant investment in technology and product
development and sales and marketing. We believe additional capital will be
required to fund these investments and our operations. If we do not complete the
transformation, or if we fail to manage the transformation successfully and in a
timely manner, our revenue, business and operating results may be adversely
affected.

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, 2022 (the “2022 First Quarter”) compared to the
Three Months Ended March 31, 2021 (the “2021 First Quarter”)

Segment Reporting


The Company currently operates in two segments: (1) "Collaboration Products,"
which represents the Oblong Industries business surrounding our Mezzanine™
product offerings and (2) "Managed Services," which represents the Oblong
(formerly Glowpoint) business surrounding managed services for video
collaboration and network solutions. Certain information concerning the
Company's segments for the three months ended March 31, 2022 and 2021 is
presented in the following table (in thousands):

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                                                              Three Months Ended March 31, 2022
                                                                Collaboration
                                      Managed Services            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          $        3,275          $         -          $    3,331
Unallocated operating expenses                     -                       -                1,690               1,690
 Total operating expenses            $            56          $        

3,275 $ 1,690 $ 5,021


Income (loss) from operations        $           265          $       (3,097)         $    (1,690)         $   (4,522)
Interest and other expense, net                    6                       -                    -                   6
Net income (loss) before tax         $           259          $       (3,097)         $    (1,690)         $   (4,528)
Income tax expense                                 9                       2                    -                  11
Net income (loss)                    $           250          $       (3,099)         $    (1,690)         $   (4,539)



Unallocated operating expenses include costs during the 2022 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 20% in the 2022 First Quarter compared to the
2021 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.

                                                                        Three Months Ended March 31,
                                            2022                  % of Revenue                 2021                 % of Revenue
Revenue: Managed Services
Video collaboration services          $         116                             7  %       $      291                            15  %
Network services                                821                            54  %              881                            46  %
Professional and other services                  29                             2  %                  23                          1  %
   Total Managed Services revenue     $         966                            63  %       $    1,195                            62  %

Revenue: Collaboration Products
Visual collaboration product
offerings                             $         562                            37  %       $      693                            36  %
Licensing                                         4                             -  %               30                             2  %
   Total Collaboration Products
revenue                               $         566                            37  %       $      723                            38  %
Total revenue                         $       1,532                           100  %       $    1,918                           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.


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Collaboration Products
•The decrease in revenue for visual collaboration product offerings is primarily
attributable to the effects of the COVID-19 pandemic on our existing and target
customers as they evaluate how and when to re-open their conventional office and
conference facility footprints, as Mezzanine™ products are currently used in
conventional spaces such as conference rooms. The Company's results reflect the
challenges due to long and unpredictable sales cycles, delays in customer
retrofit budgets, project starts, and supply delayed orders in our distribution
channels as a direct result of customer implementation schedules shifting due to
the COVID-19 pandemic. The COVID-19 pandemic in particular has, and may continue
to have, a significant economic and business impact on our Company. During 2020,
2021 and the first three months of 2022, we saw a weakness in revenue as our
prospective customers across all sectors delayed order placements in reaction to
the ongoing impacts of the pandemic that caused our customers to suspend or
postpone real estate retrofit projects due to budget and occupancy
uncertainties. We continue to monitor the impact of the pandemic on our
customers, suppliers and logistics providers, and evaluate governmental actions
being taken to curtail and respond to the spread of the virus. The significance
and duration of the ongoing impact on us is still uncertain. Material adverse
effects of the COVID-19 pandemic on market drivers, our customers, suppliers or
logistics providers may be expected to continue to significantly impact our
operating results. We will continue to actively follow, assess and analyze the
ongoing impact of the pandemic and adjust our organizational structure,
strategies, plans and processes to respond. Because the situation continues to
evolve, we cannot reasonably estimate the ultimate impact to our business,
results of operations, cash flows and financial position that the pandemic may
have. Continuation of the pandemic and government actions in response thereto
could cause further disruptions to our operations and the operations of our
customers, suppliers and logistics partners and may be expected to continue to
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, 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):

                                            Three Months Ended March 31,
                                                  2022                   2021
           Cost of Revenue
           Managed Services          $          645                    $   833
           Collaboration Products               388                        457
           Total cost of revenue     $        1,033                    $ 1,290



The decrease in cost of revenue is mainly attributable to lower costs associated
with the decrease in revenue during the same period. The Company's gross profit
as a percentage of revenue was 33% in both the 2022 First Quarter and the 2021
First Quarter.















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

                                               Three Months Ended March 31,
                                                2022                   2021                 $ Change                 % Change
Operating expenses:
Research and development                  $        1,004          $        692          $         312                          45  %
Sales and marketing                                  562                   527                     35                           7  %
General and administrative                         1,690                 2,067                   (377)                        (18) %
Impairment charges                                 1,138                    31                  1,107                        3571  %
Depreciation and amortization                        627                   722                    (95)                        (13) %
Total operating expenses                  $        5,021          $      4,039          $         982                          24  %



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
2022 First Quarter compared to the 2021 First Quarter is primarily attributable
to severance costs of $205,000 incurred during the 2022 First Quarter related to
certain headcount reductions in March 2022 and a $234,000 increase in consulting
and outsourced labor costs between these periods.

Sales and Marketing Expenses. The slight increase in sales and marketing
expenses for 2022 First Quarter compared to the 2021 First Quarter is mainly
attributable to an increase in marketing costs between these periods.


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 2022 First Quarter compared to the 2021 First Quarter is mainly
attributable to a decrease of $274,000 in stock-based expense for professional
service fees and a decrease in bad debt expense of $129,000.

Impairment Charges. The impairment charges in the 2022 First Quarter are
attributable to impairment charges on goodwill for our Collaboration Products
reporting unit, and the impairment in the 2021 First Quarter was attributable to
impairment charges on property and equipment no longer in service. Future
declines of our revenue, cash flows and/or stock price may give rise to a
triggering event that may require the Company to record impairment charges in
the future related to our goodwill, intangible assets and other long-lived
assets.

Depreciation and Amortization. The decrease in depreciation and amortization
expenses for the 2022 First Quarter compared to the 2021 First Quarter is mainly
attributable to the disposition and impairment of certain assets during 2021 as
well as a decrease in depreciation as certain assets became fully depreciated.

Loss from Operations. The increase in the Company's loss from operations for the
2022 First Quarter compared to the 2021 First Quarter is mainly attributable to
lower revenue and gross profit and higher operating expenses as addressed above.


Off-Balance Sheet Arrangements

As of March 31, 2022, 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, 2022. 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

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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 2021 10-K.

Liquidity and Capital Resources


As of March 31, 2022, we had $6,586,000 in cash, consisting of $6,525,000 in
available cash and $61,000 in restricted cash, and working capital of
$7,469,000. For the three months ended March 31, 2022, we incurred a net loss of
$4,539,000 and used $2,404,000 of net cash in operating activities.

Our capital requirements in the future will continue to depend on numerous
factors, including the timing and amount of revenue for the Company, 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, expense for
research and development, and capital expenditures. We 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 its current projection of revenue, expenses, capital expenditures, and cash
flows, it will not have sufficient resources to fund its operations for the next
twelve months following the filing of this Report. 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 consolidated financial statements do not include any adjustments
that might result from these uncertainties.

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