Oblong Inc

Previous wording

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

Current wording

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

Previous wording

Unallocated operating expenses in Corporate include costs during the 2024 and 2023 Second 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.

Current wording

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.

Previous wording

*Revenue.*Total revenue decreased 36.1% in the 2024 Second Quarter compared to the 2023 Second 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.

Current wording

*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.

Previous wording

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. Our consolidated gross profit as a percentage of revenue was 20% in the 2024 Second Quarter compared to a consolidated gross profit as a percentage of revenue of 13% in the 2023 Second Quarter.

Current wording

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.

Previous wording

Our Managed Services segment recorded a 35% gross profit as a percentage of sales for the 2024 Second Quarter compared to 33% in the 2023 Second Quarter.

Current wording

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.

Previous wording

Our Collaboration Products segment recorded a negative gross profit as a percentage of sales of 55% for the 2024 Second Quarter compared to a negative gross profit as a percentage of sales of 28% in the 2023 Second Quarter. This decrease was mainly attributable to an increase in personnel costs as a percentage of revenue, partially offset by a reduction in the expense related to our inventory obsolescence reserve of $164,000 in the 2024 Second Quarter compared to the 2023 Second Quarter.

Current wording

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.

Previous wording

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 Second Quarter compared to the 2023 Second Quarter is primarily attributable to an increase in consulting, and outsourced labor costs between these periods.

Current wording

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.

Previous wording

Sales and Marketing Expenses. The increase in sales and marketing expenses for the 2024 Second Quarter compared to the 2023 Second Quarter is primarily attributable to a reversal of approximately $294,000 in accrued compensation during the 2023 Second Quarter.

Current wording

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.

Previous wording

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 2024 Second Quarter compared to the 2023 Second Quarter is primarily attributable to reduced stock compensation expense and professional service expenses as a result of cost-cutting measures.

Current wording

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.

Previous wording

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

Current wording

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.

Previous wording

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

Current wording

*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.

Previous wording

*Loss from Operations.*The decrease in the Company’s loss from operations for the 2024 Second Quarter compared to the 2023 Second Quarter is mainly attributable to lower operating expenses during the 2024 Second Quarter, partially offset by the casualty loss recovery we recorded in the 2023 Second Quarter, as addressed above.

Current wording

*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.

Previous wording

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

Current wording

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

Previous wording

Unallocated operating expenses in Corporate include costs during the six months ended June 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.

Current wording

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.

Previous wording

*Revenue.*Total revenue decreased 38.0% in the six months ended June 30, 2024 compared to the six months ended June 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.

Current wording

*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.

Previous wording

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. Our consolidated gross profit as a percentage of revenue was 9% in the six months ended June 30, 2024 compared to a consolidated gross profit as a percentage of revenue of 20% in the six months ended June 30, 2023.

Current wording

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.

Previous wording

Our Managed Services segment recorded a 32% gross profit as a percentage of sales for the six months ended June 30, 2024 compared to a gross profit as a percentage of revenue of 33% in the six months ended June 30, 2023.

Current wording

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.

Previous wording

Our Collaboration Products segment recorded a negative gross profit as a percentage of sales of 103% for the six months ended June 30, 2024 compared to a negative gross profit as a percentage of sales of 6% in the six months ended June 30, 2023. This decrease was mainly attributable to an increase in personnel costs as a percentage of revenue, partially offset by a reduction in the expense related to our inventory obsolescence reserve of $130,000 in the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

Current wording

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.

Previous wording

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 six months ended June 30, 2024 compared to the six months ended June 30, 2023 is primarily attributable to an increase in consulting, and outsourced labor costs between these periods.

Current wording

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.

Previous wording

Sales and Marketing Expenses. The decrease in sales and marketing expenses for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 is primarily attributable to lower personnel costs due to reduced marketing costs between these periods.

Current wording

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.

Previous wording

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 six months ended June 30, 2024 compared to the six months ended June 30, 2023 is primarily attributable to reduced stock compensation expense and overhead and professional service expenses as a result of cost-cutting measures.

Current wording

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.

Previous wording

*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 six months ended June 30, 2023, we recorded a recovery payment from one of our insurance policies of $400,000 as an offset to this casualty loss.

Current wording

*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.

Previous wording

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

Current wording

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.

Previous wording

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

Current wording

*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.

Previous wording

*Loss from Operations.*The decrease in the Company’s loss from operations for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 is mainly attributable to lower operating expenses during the six months ended June 30, 2024, partially offset by the casualty loss recovery we recorded during the six months ended June 30, 2023 and by lower gross profit, as addressed above.

Current wording

*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.

Previous wording

There have been no changes to our critical accounting policies during the six months ended June 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.

Current wording

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.

Previous wording

As of June 30, 2024, we had $5,858,000 in cash and working capital of $5,047,000. For the six months ended June 30, 2024 we incurred a net loss of $2,119,000, financing activities provided $1,478,000 of net cash, and we used $1,610,000 of net cash in operating activities.

Current wording

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.

Previous wording

We believe that our existing cash and cash equivalents will be sufficient to fund our operations and meet our working capital requirements through 2025. 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.

Current wording

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.