The following discussion should be read in conjunction with our consolidated balance sheets as ofDecember 31, 2022 and 2021, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years endedDecember 31, 2022 and 2021, and the related notes attached thereto. All statements contained herein that are not historical facts, including, but not limited to, statements regarding anticipated future capital requirements, our future development plans, our ability to obtain debt, equity or other financing, and our ability to generate cash from operations, are based on current expectations. The discussion of results, causes and trends should not be construed to imply any conclusion that such results or trends will necessarily continue in the future. -24-
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Business
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. Results of Operations
Year Ended
Segment Reporting
The Company currently operates in two segments for purposes of segment reporting: (1) "Collaboration Products," which represents theOblong 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 years ended
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Year Ended December 31, 2022 Collaboration Managed Services Products Corporate Total Revenue$ 3,348 $ 2,128 $ -$ 5,476 Cost of revenues 2,273 1,657 - 3,930 Gross profit$ 1,075 $ 471 $ -$ 1,546 Gross profit % 32 % 22 % - % 28 % Allocated operating expenses $ 19$ 18,355 $ -$ 18,374 Unallocated operating expenses - - 5,160 5,160 Total operating expenses $ 19$ 18,355
Income (loss) from operations$ 1,056 $ (17,884) $ (5,160) $ (21,988) Interest and other expense (income), net 12 (52) - (40) Income (loss) before income taxes$ 1,044 $ (17,832) $ (5,160) $ (21,948) Income tax expense $ (4) $ (3) $ -$ (7) Net income (loss)$ 1,048 $ (17,829) $ (5,160) $ (21,941) Year Ended December 31, 2022 Total assets $ 752$ 1,824 $ 3,085 $ 5,661 Year Ended December 31, 2021 Collaboration Managed Services Products Corporate Total Revenue$ 4,270 $ 3,469 $ -$ 7,739 Cost of revenues 2,991 2,030 - 5,021 Gross profit$ 1,279 $ 1,439 $ -$ 2,718 Gross profit % 30 % 41 % - % 35 % Allocated operating expenses $ 591$ 7,879 $ -$ 8,470 Unallocated operating expenses - - 6,042 6,042 Total operating expenses $ 591$ 7,879
Income (loss) from operations $ 688$ (6,440) $ (6,042) $ (11,794) Interest and other (income) expense, net 22 (227) (2,448) (2,653) Loss before income taxes $ 666$ (6,213) $ (3,594) $ (9,141) Income tax benefit $ (15) $ (75)$ (90) Net income (loss) $ 681$ (6,138) $ (3,594) $ (9,051) Year Ended December 31, 2021 Total assets$ 1,053 $ 18,615 $ 8,939 $ 28,607 Unallocated operating expenses in Corporate include costs 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. Unallocated assets consist of unrestricted cash. -26- -------------------------------------------------------------------------------- Revenue. Total revenue decreased for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 . The following table summarizes the changes in components of our revenue, and the significant changes in revenue are discussed in more detail below (in thousands): Year Ended December 31, 2022 % of Revenue 2021 % of Revenue Revenue: Managed Services Video collaboration services$ 334 6 %$ 854 11 % Network services 2,954 54 % 3,347 43 % Professional and other services 60 1 % 69 1 % Total Managed Services revenue$ 3,348 61 %$ 4,270 55 % Revenue: Collaboration Products Visual collaboration product offerings$ 2,114 39 %$ 3,367 44 % Licensing 14 - %$ 102 1 % Total Collaboration Products revenue$ 2,128 39 %$ 3,469 45 % Total consolidated revenue$ 5,476 100 %$ 7,739 100 %
Managed Services
•The year over year 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 year over year 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 •Historically, customers have used 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 product offerings is primarily attributable to the ongoing effects 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. The Company's results reflect the challenges of long and unpredictable sales cycles, delays in customer retrofit budgets for commercial real estate spaces, project delays, and prospective orders in our distribution channels as a direct result of partner and customer implementation schedules shifting due to the COVID-19 pandemic and its aftermath. The COVID-19 pandemic in particular has, and may continue to have, a significant economic and business impact on our Company. During 2021 and 2022, we experienced declines in revenue as our partners and customers across all sectors delayed potential orders in reaction to the ongoing impacts of the pandemic that caused our customers to suspend or postpone technology changes/upgrades due to budget and occupancy uncertainties. We continue to monitor the impact of the pandemic on our customers, suppliers and logistics providers; the significance and duration of the ongoing impact on us is still uncertain. Material adverse effects of the COVID-19 pandemic, and its aftermath, on market drivers, our partners and 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 ongoing effects 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. -27-
-------------------------------------------------------------------------------- Cost of Revenue (exclusive of depreciation and amortization and casualty loss). 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): Year Ended December 31, 2022 2021 Cost of Revenue Managed Services$ 2,273 $ 2,991 Collaboration Products 1,657 2,030 Total cost of revenue$ 3,930 $ 5,021 The year over year 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 28% in 2022 compared to 35% in 2021. This decrease in gross profit was primarily due to the decline in gross profit percentage for our Collaboration Products segment, as we maintained certain levels of personnel and other fixed costs to deliver lower revenue.
Operating expenses are presented in the following table (in thousands):
Year Ended December 31, 2022 2021 $ Change % Change Operating expenses: Research and development$ 1,699 $ 2,913 $ (1,214) (42) % Sales and marketing 1,431 2,195 (764) (35) % General and administrative 5,278 6,363 (1,085) (17) % Impairment charges 12,740 305 12,435 4077 % Casualty loss, net 483 - 483 100 % Depreciation and amortization 1,903 2,736 (833) (30) % Total operating expenses$ 23,534 $ 14,512 $ 9,022 62 % Research and Development. Research and development expenses include internal and external costs related to developing features and enhancements to our existing product offerings. The year over year decrease in research and development expenses for 2022 compared to 2021 is primarily attributable to lower personnel costs due to reduced headcount, partially offset by a$270,000 increase in consulting and outsourced labor costs between these periods. Sales and Marketing. The year over year decrease in sales and marketing expenses for 2022 compared to 2021 is primarily attributable to lower office costs due to fewer real estate leases, and lower personnel costs due to reduced headcount. General and Administrative. General and administrative expenses include direct corporate expenses related to costs of personnel in the various corporate support categories, including executive, legal, finance and accounting, human resources and information technology. The year over year decrease in general and administrative expenses in 2022 compared to 2021 is mainly attributable to decreases of$767,000 in stock-based expense and$203,000 in credit losses from accounts receivable, and lower consulting and professional fees and general office expenses, partially offset by an increase in personnel expenses, primarily attributable to receiving an Employee Retention Credit ("ERC") during 2021. Impairment Charges. The impairment charges in 2022 are attributable to impairment charges of$7,367,000 related to goodwill, impairment charges of$5,133,000 related to intangible assets, impairment charges of$59,000 related to property and equipment, and impairment charges of$179,000 related to right-of-use assets associated with two of ourLos Angeles, CA leases. The impairment charges in 2021 were attributable to impairment charges on property and equipment of$98,000 and impairment charges on intangible assets of$207,000 no longer in service. 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. -28-
-------------------------------------------------------------------------------- Casualty Loss. InJune 2022 , the Company discovered that$533,000 of inventory was stolen from the Company's warehouse inCity of Industry, California . The theft is being investigated further by theLos Angeles, CA Sheriff's Department and claims have been filed with the Company's insurance carriers. During 2022, we received a recovery payment from one of our insurance policies of$50,000 , resulting in a net casualty loss of$483,000 on our Consolidated Statements of Operations. Subsequent to the date of this report, we received notification from our other insurance carrier that they determined the Company was entitled to insurance proceeds of$315,000 relating to our inventory theft claim. The Company is currently in negotiations with the insurance carrier with the objective of increasing their determination of proceeds. We will offset the casualty loss with the recognition of any proceeds once received from our insurance carrier. Depreciation and Amortization. The year over year decrease in depreciation and amortization expenses in 2022 compared to 2021 is mainly attributable to the disposition and impairment of certain assets during 2021 and 2022 as well as a decrease in depreciation as certain assets became fully depreciated. Loss from Operations. The year over year increase in the Company's loss from operations is mainly attributable to the significant impairment charges recorded in 2022, as well as higher operating expenses and lower revenue and gross profit as addressed above. Interest and Other Income, Net. Interest and other income, net in 2022 was primarily comprised of interest income related to our cash accounts, partially offset by interest expense. Interest and other income, net in 2021 was primarily comprised of (i) other income resulting from the settlement of an office lease, and (ii) a gain on extinguishment of debt resulting from the forgiveness of our Paycheck Protection Program loan (the "PPP Loan").
Income Tax Benefit. We recorded an income tax benefit of
Liquidity and Capital Resources
As ofDecember 31, 2022 , we had$3,085,000 of cash and$2,959,000 of working capital. For the years endedDecember 31, 2022 and 2021, we incurred net losses of$21,941,000 and$9,051,000 , respectively, and net cash used in operating activities was$5,934,000 and$7,732,000 , respectively. Net cash provided by investing activities for the year endedDecember 31, 2022 was$19,000 , primarily related to the sale of property and equipment, compared to net cash used in investing activities of$49,000 for the year endedDecember 31, 2021 primarily related to purchases of property and equipment.
There was no cash flow related to financing activities for the year ended
Future Capital Requirements and Going Concern
Our capital requirements in the future will continue to depend on numerous factors, including the timing and amount of revenue, customer renewal rates and the timing of collection of outstanding accounts receivable, in each case particularly as it relates to our major customers, the expense to deliver services, expense for sales and marketing, expense for research and development, capital expenditures, and the cost involved in protecting intellectual property rights. The Company believes that, based on our current projection of revenue, expenses, capital expenditures, and cash flows, it will not have sufficient resources to fund its operations for the next twelve months following the filing of this Report. 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.
See Note 15 - Commitments and Contingencies to our Consolidated Financial Statements for discussion regarding certain additional factors that could impact the Company's liquidity in the future.
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Critical Accounting Policies
We prepare our Consolidated Financial Statements in accordance withU.S. Generally Accepted Accounting Principles ("GAAP"). Our significant accounting policies are described in Note 1 - Business Description and Significant Accounting Policies to our Consolidated Financial Statements attached hereto. We believe the following critical accounting policies involve the most significant judgments and estimates used in the preparation of our Consolidated Financial Statements. Revenue Recognition
The Company accounts for revenue in accordance with Accounting Standards Codification ("ASC") Topic 606.
The Company recognizes revenue using the five-step model as prescribed by Topic 606:
•Identification of the contract, or contracts, with a customer;
•Identification of the distinct performance obligations in the contract;
•Determination of the transaction price;
•Allocation of the transaction price to the performance obligations in the contract; and
•Recognition of revenue when or as the Company satisfies a performance obligation.
The Company's managed videoconferencing services are offered to our customers on either a usage basis or on a subscription basis. Our network services are offered to our customers on a subscription basis. Revenue for these services is generally recognized on a monthly basis as services are performed. Revenue related to professional services is recognized at the time the services are performed. The costs associated with obtaining a customer contract are deferred on our consolidated balance sheet and amortized over the expected life of the customer contract. Deferred revenue as ofDecember 31, 2022 totaled$1,000 as certain performance obligations were not satisfied as of this date. During the year endedDecember 31, 2022 , the Company recorded$7,000 of revenue that was included in deferred revenue as ofDecember 31, 2021 . During the year endedDecember 31, 2021 , the Company recorded$24,000 of revenue that was included in deferred revenue as ofDecember 31, 2020 . The Company's visual collaboration products are composed of hardware and embedded software sold as a complete package, and generally include installation and maintenance services. Revenue for hardware and software is recognized upon shipment to the customer. Installation revenue is recognized upon completion of installation, which also triggers the beginning of recognition of revenue for maintenance services which range from one to three years. Revenue is recognized over time for maintenance services. Licensing agreements are for the Company's core technology platform, g-speak, and are generally one year in length. Revenue for these services is recognized ratably over the service period. Deferred revenue, as ofDecember 31, 2022 , totaled$549,000 as certain performance obligations were not satisfied as of this date. During the year endedDecember 31, 2022 , the Company recorded$776,000 of revenue that was included in deferred revenue as ofDecember 31, 2021 . During the year endedDecember 31, 2021 , the Company recorded$1,193,000 of revenue that was included in deferred revenue as ofDecember 31, 2020 . Revenue recorded over time for the years endedDecember 31, 2022 and 2021 was$970,000 and$1,809,000 , respectively. Revenue recorded at a period in time for the years endedDecember 31, 2022 and 2021 was$4,506,000 and$5,930,000 , respectively.
Long-Lived Assets,
Property and Equipment
Property and equipment are accounted for in accordance with ASC Topic 360 "Property, Plant, and Equipment" ("ASC Topic 360"), stated at cost, and are depreciated using the straight-line method over the estimated economic lives of the 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. Property and equipment assets, net of accumulated depreciation, totaled$3,000 and$159,000 as ofDecember 31, 2022 and 2021, respectively. -30-
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Intangible Assets
Intangible assets are accounted for in accordance with ASC Topic 350 "Intangibles -Goodwill and Other" ("ASC Topic 350"), and intangible assets with finite lives are amortized using the straight-line method over the estimated economic lives of the assets, which initially ranged from five to twelve years. Intangible assets, net of accumulated amortization totaled$604,000 and$7,562,000 as ofDecember 31, 2022 and 2021, respectively.
Goodwill is accounted for in accordance with ASC Topic 350 and is not amortized.Goodwill is subject to periodic testing for impairment. As ofDecember 31, 2021 , goodwill of$7,367,000 was recorded on our Consolidated Balance Sheet in connection with theOctober 1, 2019 acquisition ofOblong Industries . As a result of the impairment charges discussed below, there was no goodwill recorded on our Consolidated Balance Sheet as ofDecember 31, 2022 .
Operating Lease Right-of-use-assets
Right-of-use Assets are accounted for in accordance with ASC Topic 842 "Leases"
("ASC Topic 842"), and are amortized using a straight-line method over the
estimated life of the lease. Right-of-use assets, net totaled
The Company primarily leases facilities for office, warehouse, and data center space under non-cancellable operating leases for itsU.S. and international locations, and accounts for these leases in accordance with ASC-842. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the expected lease term. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Since our lease arrangements do not provide an implicit rate, we use our estimated incremental borrowing rate for the expected remaining lease term at commencement date in determining the present value of future lease payments. Impairment The Company assesses the impairment of our long-lived assets subject to amortization when events and circumstances indicate that the carrying value of the assets might not be recoverable. The determination of related estimated useful lives and whether or not these assets are impaired involves significant judgments, related primarily to the future profitability and/or future value of the assets. Changes in the Company's strategic plan and/or other-than-temporary changes in market conditions could significantly impact these judgments and could require adjustments to recorded asset balances. Long-lived assets are evaluated for impairment whenever an event or change in circumstances has occurred that could have a significant adverse effect on the fair value of long-lived assets. During the year endedDecember 31, 2022 , we considered the declines in revenue for the Collaboration Products reporting segment and the decline in the Company's market capitalization to be triggering events for an impairment test of our long-lived and intangible for this reporting unit. Based on the corresponding recoverability tests of the asset group for this reporting unit, it was determined that the carrying value exceeded the gross cash flows of the asset group. The recoverability tests consisted of comparing the estimated undiscounted cash flows expected to be generated by those assets to the respective carrying amounts, and involves significant judgements and assumptions, related primarily to the future revenue and profitability of the assets. For the year endedDecember 31, 2022 , the Company recorded impairment charges on property and equipment assets of$59,000 . See Note 5 - Property and Equipment for further discussion. During the year endedDecember 31, 2021 , the Company recorded impairment charges of$98,000 on property and equipment assets. For the year endedDecember 31, 2022 , the Company recorded impairment charges of$5,133,000 on purchased intangible assets. See Note 7 - Intangible Assets for further discussion. The Company recorded impairment Charges of$207,000 to purchased intangible assets for the year endedDecember 31, 2021 . We tested goodwill for impairment on an annual basis, onSeptember 30th of each year, unless events occurred or circumstances changed indicating that the fair value of the goodwill may be below its carrying amount. During the year endedDecember 31, 2022 , we considered the sustained decline in our stock price to be a triggering event for an interim goodwill impairment test, as of bothMarch 31, 2022 andJune 30, 2022 . To determine the fair value of the reporting unit for the goodwill impairment test, we used a weighted average of the discounted cash flow method and market-based method. -31-
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During the year ended
Right-of-use assets are tested for impairment using guidance from ASC Topic 360. For the year endedDecember 31, 2022 , the Company recorded aggregate impairment charges of$179,000 on two right-of-use assets. See Note 9 - Operating Lease Liabilities and Right-of-Use Assets for further discussion. There were no right-of-use asset impairments for the year endedDecember 31, 2021 .
Off-Balance Sheet Arrangements
As of
Recent Accounting Pronouncements
See the sections titled "Summary of Significant Accounting Policies-Recently adopted accounting pronouncements" and "Recent accounting pronouncements not yet adopted" in Note 1 - Business Description and Significant Accounting Policies to our Consolidated Financial Statements for more information.
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