UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q


x	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended ~~June 30, 2017.~~March 31, 2018.


¨	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission file number: 001-35376

GLOWPOINT, INC.
(Exact Name of Registrant as Specified in its Charter)



Delaware (State or Other Jurisdiction of Incorporation or Organization)	77-0312442 (I.R.S. Employer Identification No.)

1776 Lincoln Street, Suite 1300, Denver, CO, 80203

(Address of Principal Executive Offices, including Zip Code)

(303) 640-3838
(Registrant’s Telephone Number, including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer o	Accelerated filer o
Non-accelerated filer o	Smaller reporting company x
	Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)

Yes o No x

The number of shares outstanding of the registrant’s common stock as of ~~July 31, 2017~~May 7, 2018 was ~~36,149,323.~~46,484,975.

GLOWPOINT, INC.

Index



PART I - FINANCIAL INFORMATION
Item 1. Financial Statements		1
	Condensed Consolidated Balance Sheets at ~~June 30, 2017~~March 31, 2018 (unaudited) and December 31, ~~2016~~2017	1
	Unaudited Condensed Consolidated Statements of Operations for the three ~~and six~~ months ended ~~June 30,~~March 31, 2018 and 2017 ~~and 2016~~	2
	Unaudited Condensed Consolidated Statement of Stockholders’ Equity for the ~~six~~three months ended ~~June 30, 2017~~March 31, 2018	3
	Unaudited Condensed Consolidated Statements of Cash Flows for the ~~six~~three months ended ~~June 30,~~March 31, 2018 and 2017 ~~and 2016~~	4
	Notes to unaudited Condensed Consolidated Financial Statements	5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		15
Item 3. Quantitative and Qualitative Disclosures About Market Risk		1918
Item 4. Controls and Procedures		1918

PART II - OTHER INFORMATION
Item 1. Legal Proceedings		1918
Item 1A. Risk Factors		1918
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		1918
Item 3. Defaults Upon Senior Securities		19
Item 4. Mine Safety Disclosures		19
Item 5. Other Information		2120
Item 6. Exhibits		2221
Signatures		2322

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q (this “Report”) contains statements that are considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and its rules and regulations (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended, and its rules and regulations (the “Exchange Act”). These forward-looking statements include, but are not limited to, statements about the plans, objectives, expectations, and intentions of Glowpoint, Inc. (“Glowpoint” or “we” or “us” or the “Company”). All statements other than statements of current or historical fact contained in this Report, including statements regarding Glowpoint’s future financial position, business strategy, budgets, projected costs, and plans and objectives of management for future operations, are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” and similar expressions, as they relate to Glowpoint, are intended to identify forward-looking statements. These statements are based on Glowpoint’s current plans, and Glowpoint’s actual future activities and results of operations may be materially different from those set forth in the forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the statements made. Any or all of the forward-looking statements in this Report may turn out to be inaccurate. Glowpoint has based these forward-looking statements largely on its current expectations and projections about future events and financial trends that it believes may affect its financial condition, results of operations, business strategy, and financial needs. The forward-looking statements can be affected by inaccurate assumptions or by known or unknown risks, uncertainties, and assumptions. There are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements, including our plans, objectives, expectations and intentions and other factors that are discussed under the section entitled ~~“Risk Factors,” as well as~~“Part I. Item 1A. Risk Factors” and in our consolidated financial statements and the footnotes thereto for the fiscal year ended December 31, ~~2016 as filed with the SEC with~~2017, each included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 filed with the Securities and Exchange Commission on March ~~31, 2017.~~7, 2018. Glowpoint undertakes no obligation to publicly revise these forward-looking statements to reflect events occurring after the date hereof. All subsequent written and oral forward-looking statements attributable to Glowpoint or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements contained in this Report. Forward-looking statements in this Report include, among other things: our ~~ability to meet commercial commitments; our~~ expectations and estimates relating to customer attrition, sales cycles, future revenues, expenses and cash flows; ~~the status~~evolution of our ~~largest customer;~~customer solutions and our service platforms; our anticipated capital expenditures; our ability to ~~service debt obligations and~~ fund operations; expectations regarding adjustments to our cost of revenue and other operating expenses; our ability to raise capital through sales of additional equity ~~or debt securities and/or loans from financial institutions;~~securities; our ability to continue as a going concern; and adequacy of our internal controls. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, those summarized below:

customer acceptance and demand for our video collaboration services and network applications;

the quality and reliability of our services;

the prices for our services;

customer renewal rates;

risks related to the concentration of our customers and the degree to which our sales, now or in the future, depend on certain large client relationships;

customer acquisition costs;

our ability to compete effectively in the video collaboration services and network services businesses;

actions by our competitors, including price reductions for their competitive services,

potential federal and state regulatory actions;

our need for and the availability of adequate working capital;

our ability to innovate technologically;

our ability to satisfy the standards for continued listing on the NYSE American;

changes in our capital structure and/or stockholder mix;

the costs, disruption, and diversion of management’s attention associated with campaigns commenced by activist investors; and

our management’s ability to execute its plans, strategies and objectives for future operations, including but not limited to transforming our product line to more automated / software-based solutions in order for us to service the rapidly evolving video communications market.

GLOWPOINT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value, stated value, and shares)


	June 30, 2017			December 31, 2016			March 31, 2018			December 31, 2017
	(Unaudited)						(Unaudited)
ASSETS
Current assets:
Cash	$	1,097		$	1,140		$	3,068		$	3,946
Accounts receivable, net	1,696			1,635			1,295			1,220
Prepaid expenses and other current assets	936			978			696			715
Total current assets	3,729			3,753			5,059			5,881
Property and equipment, net	1,773			2,203			1,007			1,159
Goodwill	9,225			9,225			7,100			7,750
Intangibles, net	875			1,309			594			626
Other assets	10			10			8			8
Total assets	$	15,612		$	16,500		$	13,768		$	15,424
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	10,696		$	10,660		$	—		$	1,194
Accounts payable	111			75			309			337
Accrued expenses and other liabilities	1,183			1,165			714			1,003
Accrued dividends	53			47
Accrued sales taxes and regulatory fees	353			395			247			259
Total current liabilities	12,396			12,342			1,270			2,793
Long term liabilities:
Deferred tax liability	284			230
Long term debt, net of current portion							—			369
Total long term liabilities							—			369
Total liabilities	12,680			12,572			1,270			3,162
Commitments and contingencies (see Note 10)
Stockholders’ equity:
Preferred stock, Series A-2, convertible; $.0001 par value; $7,500 stated value; 7,500 shares authorized, 32 shares issued and outstanding and liquidation preference of $237 at June 30, 2017 and December 31, 2016	100			100
Common stock, $.0001 par value; 150,000,000 shares authorized; 36,782,000 issued and 36,535,000 outstanding at June 30, 2017 and 36,659,000 issued and 36,455,000 outstanding at December 31, 2016	4			4
Treasury stock, 247,000 and 204,000 shares at June 30, 2017 and December 31, 2016, respectively	(231		)	(219		)
Preferred stock Series A-2, convertible; $.0001 par value; $7,500 stated value; 7,500 shares authorized, 32 shares issued and outstanding and liquidation preference of $237 at March 31, 2018 and December 31, 2017							—			—
Preferred stock Series B, convertible; $.0001 par value; $1,000 stated value; 2,800 shares authorized, 375 shares issued and outstanding and liquidation preference of $375 at March 31, 2018 and 450 shares issued and outstanding and liquidation preference of $450 at December 31, 2017							—			—
Preferred stock Series C, convertible; $.0001 par value; $1,000 stated value; 1,750 shares authorized, 1,275 shares issued and outstanding and liquidation preference of $1,275 at March 31, 2018 and none at December 31, 2017							—			—
Common stock, $.0001 par value; 150,000,000 shares authorized; 47,318,000 issued and 46,485,000 outstanding at March 31, 2018 and 45,161,000 issued and 44,510,000 outstanding at December 31, 2017							5			5
Treasury stock, 833,000 and 651,000 shares at March 31, 2018 and December 31, 2017, respectively							(405		)	(352		)
Additional paid-in capital	180,607			180,333			184,688			183,114
Accumulated deficit	(177,548		)	(176,290		)	(171,790		)	(170,505		)
Total stockholders’ equity	2,932			3,928			12,498			12,262
Total liabilities and stockholders’ equity	$	15,612		$	16,500		$	13,768		$	15,424

GLOWPOINT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)


	Three Months Ended						Six Months Ended						Three Months Ended
	June 30,						June 30,						March 31,
	2017			2016			2017			2016			2018			2017
Revenue	$	3,856		$	5,088		$	7,936		$	10,606		$	3,474		$	4,080
Operating expenses:
Cost of revenue (exclusive of depreciation and amortization)	2,261			3,120			4,709			6,579			2,147			2,448
Research and development	292			302			579			589			250			287
Sales and marketing	160			225			300			505			177			140
General and administrative	857			1,104			1,873			2,344			898			1,016
Impairment charges	5			25			5			25			650			—
Depreciation and amortization	460			508			919			1,054			232			459
Total operating expenses	4,035			5,284			8,385			11,096			4,354			4,350
Loss from operations	(179		)	(196		)	(449		)	(490		)	(880		)	(270		)
Interest and other expense, net	384			375			755			755			(405		)	(371		)
Loss before income taxes	(563		)	(571		)	(1,204		)	(1,245		)	(1,285		)	(641		)
Income tax expense	27			34			54			71			—			(27		)
Net loss	(590		)	(605		)	(1,258		)	(1,316		)	(1,285		)	(668		)
Preferred stock dividends	3			3			6			6			3			3
Net loss attributable to common stockholders	$	(593	)	$	(608	)	$	(1,264	)	$	(1,322	)	$	(1,288	)	$	(671	)

Net loss attributable to common stockholders per share:
Basic and diluted net loss per share	$	(0.02	)	$	(0.02	)	$	(0.03	)	$	(0.04	)	$	(0.03	)	$	(0.02	)

Weighted-average number of shares of common stock:
Basic and diluted	37,168			35,879			37,168			35,861			46,232			36,181

GLOWPOINT, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

~~Six~~Three Months Ended ~~June 30, 2017~~March 31, 2018

(In thousands, except shares of Series A-2, Series B and Series C Preferred Stock)

(Unaudited)


	Series A-2 Preferred Stock			Common Stock			Treasury Stock													Series A-2 Preferred Stock			Series B Preferred Stock				Series C Preferred Stock				Common Stock			Treasury Stock				Additional Paid-In Capital				Accumulated Deficit
	Shares	Amount		Shares	Amount		Shares	Amount			Additional Paid-In Capital			Accumulated Deficit			Total			Shares	Amount		Shares		Amount		Shares		Amount		Shares	Amount		Shares	Amount						Total
Balance at December 31, 2016	32	$	100	36,659	$	4	204	$	(219	)	$	180,333		$	(176,290	)	$	3,928
Balance at December 31, 2017																				32	$	—	450		$	—	—		—		45,161	$	5	651	$	(352	)	Additional Paid-In Capital		$	183,114	Accumulated Deficit			$	(170,505	)	$	12,262
Net loss	—	—		—	—		—	—			—			(1,258		)	(1,258		)	—	—		—		—		—		—		—	—		—	—			—				(1,285		)	(1,285		)
Stock-based compensation	—	—		—	—		—	—			280			—			280			—	—		—		—		—		—		—	—		—	—			50				—			50
Issuance of preferred stock, net of expenses																				—	—		—		—		1,750		—		—	—		—	—			1,527				—			1,527
Preferred stock conversion																				—	—		(75	)	—		(475	)	—		1,851	—		—	—			—				—			—
Issuance of stock on vested restricted stock units	—	—		123	—		—	—			—			—			—			—	—		—		—		—		—		306	—		—	—			—				—			—
Preferred stock dividends	—	—		—	—		—	—			(6		)	—			(6		)	—	—		—		—		—		—		—	—		—	—			(3		)		—			(3		)
Repurchase of common stock	—	—		—	—		43	(12		)	—			—			(12		)
Balance at June 30, 2017	32	$	100	36,782	$	4	247	$	(231	)	$	180,607		$	(177,548	)	$	2,932
Purchase of treasury stock																				—	—		—		—		—		—		—	—		182	(53		)	—				—			(53		)
Balance at March 31, 2018																				32	$	—	375		$	—	1.275		$	—	47,318	$	5	833	$	(405	)	$	184,688			$	(171,790	)	$	12,498

GLOWPOINT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Six Months Ended June 30,						Three Months Ended March 31,
	2017			2016			2018			2017
Cash flows from operating activities:
Net loss	$	(1,258	)	$	(1,316	)	$	(1,285	)	$	(668	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	919			1,054			232			459
Bad debt recovery	(14		)	(9		)
Amortization of deferred financing costs	36			36
Stock-based compensation expense	280			528
Bad debt expense (recovery)							5			(4		)
Amortization of debt discount, net of gain on extinguishment							104			18
Stock-based compensation							50			164
Impairment charges	5			25			650			—
Deferred tax provision	54			74			—			27
Increase (decrease) attributable to changes in assets and liabilities:
Changes in assets and liabilities:
Accounts receivable	(47		)	554			(80		)	(2		)
Prepaid expenses and other current assets	42			(302		)	19			(60		)
Accounts payable	36			(280		)	(28		)	83
Accrued expenses and other liabilities	18			(52		)	(127		)	56
Accrued sales taxes and regulatory fees	(42		)	—			(12		)	(55		)
Net cash provided by operating activities	29			312
Net cash provided by (used in) operating activities							(472		)	18
Cash flows from investing activities:
Purchases of property and equipment	(60		)	(183		)	(48		)	(36		)
Net cash used in investing activities	(60		)	(183		)	(48		)	(36		)
Cash flows from financing activities:
Principal payments under borrowing arrangements	—			(400		)	(1,832		)	—
Proceeds from Series C Preferred Stock issuance, net of expenses of $223							1,527			—
Purchase of treasury stock	(12		)	(13		)	(53		)	(12		)
Net cash used in financing activities	(12		)	(413		)	(358		)	(12		)
Decrease in cash and cash equivalents	(43		)	(284		)	(878		)	(30		)
Cash at beginning of period	1,140			1,764			3,946			1,140
Cash at end of period	$	1,097		$	1,480		$	3,068		$	1,110

Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	542		$	563		$	316		$	266

Non-cash investing and financing activities:
Accrued preferred stock dividends	$	6		$	6		$	3		$	3

GLOWPOINT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~June 30, 2017~~March 31, 2018

(Unaudited)

Note 1 - Business Description and Significant Accounting Policies

Business Description

Glowpoint, Inc. (“Glowpoint,” or “we,” or “us,” or the “Company”) is a managed service provider of video collaboration and network applications. Our services are designed to provide a comprehensive suite of automated and concierge applications to simplify the user experience and expedite the adoption of video as the primary means of collaboration. Our customers include Fortune 1000 companies, along with small and medium sized enterprises in a variety of industries. We market our services globally through a multi-channel sales approach that includes direct sales and channel partners. The Company was formed as a Delaware corporation in May 2000. The Company operates in one ~~segment.~~segment and therefore segment information is not presented.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of Glowpoint and our 100%-owned subsidiary, GP Communications, LLC, whose business function is to provide interstate telecommunications services for regulatory purposes. All material inter-company balances and transactions have been eliminated in consolidation.

Basis of Presentation

The Company's fiscal year ends on December 31 of each calendar year. The accompanying interim condensed consolidated financial statements are unaudited and have been prepared on substantially the same basis as our annual consolidated financial statements for the fiscal year ended December 31, ~~2016.~~2017. In the opinion of the Company's management, these interim condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of our financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates.

The December 31, ~~2016~~2017 year-end condensed consolidated balance sheet data in this document were derived from audited consolidated financial statements and does not include all of the disclosures required by U.S. generally accepted accounting principles. These condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements as of and for the fiscal year ended December 31, ~~2016~~2017 and notes thereto included in the Company's fiscal ~~2016~~2017 Annual Report on Form 10-K, filed with the ~~SEC~~Securities and Exchange Commission on March ~~31, 2017~~7, 2018 (the ~~“2016~~“2017 10-K”).

The results of operations and cash flows for the interim periods included in these condensed consolidated financial statements are not necessarily indicative of the results to be expected for any future period or the entire fiscal year.

Significant Accounting Policies

The significant accounting policies used in preparation of these condensed consolidated financial statements are disclosed in our ~~2016 10-K, and there have been no changes to the Company's significant accounting policies during the six months ended June 30, 2017.~~2017 10-K.

~~Taxes Billed to Customers and Remitted to Taxing Authorities~~

We recognize taxes billed to customers in revenue and taxes remitted to taxing authorities in our cost of revenue. For the three and six months ended June 30, 2017, we included taxes of $142,000 and $293,000, respectively in revenue, and we included taxes of $172,000 and $312,000, respectively, in cost of revenue. For the three and six months ended June 30, 2016, we included taxes of $216,000 and $470,000, respectively, in revenue, and we included taxes of $265,000 and $692,000, respectively, in cost of revenue.

~~- 5-~~

~~Recent~~Adopted Accounting ~~Pronouncements~~Standards

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting ~~Standards~~Standard Update ~~ASU~~(ASU) 2014-09 “(Topic 606) "Revenue from Contracts with ~~Customers”~~ Customers~~(Subtopic 606), which~~." Topic 606 supersedes ~~most existing~~the revenue recognition ~~guidance under U.S. generally accepted accounting principles (“U.S. GAAP”). The core principle of ASU 2014-09 is~~requirements in Accounting Standards Codification Topic 605 “Revenue Recognition” (Topic 605), and requires entities to recognize revenue when control of promised goods or services ~~are~~is transferred to customers inat an amount that reflects the consideration to which anthe entity expects to be entitled to in exchange for those goods or services. On January 1, 2018, we adopted Topic 606 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning

- 5-

after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Accounting Standards Codification Topic 605. We did not record an adjustment to opening accumulated deficit as of January 1, 2018 as the cumulative impact of adopting Topic 606 was not material. The costs associated with obtaining a customer contract were previously expensed in the period they were incurred. Under Topic 606, these payments are deferred on our consolidated balance sheet and amortized over the expected life of the customer contract. The impact to sales and marketing expense for the three months ended March 31, 2018 was not material as a result of applying Topic 606.

In August 2016, the FASB issued ASU ~~2014-09 defines a five step process~~No. 2016-15, which amends ASC 230, to ~~achieve this core principle~~clarify guidance on the classification of certain cash receipts and payments in ~~doing so, more judgment and estimates may be required within~~ the ~~revenue recognition process than are required under existing U.S. GAAP.~~statement of cash flows. The ~~standard~~FASB issued ASU 2016-15 with the intent of reducing diversity in practice with respect to eight types of cash flows. This guidance is effective for ~~annual periods~~fiscal years beginning after December 15, 2017, ~~and~~including interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). The Company commenced our evaluation of the impact of the pending adoption of ASU 2014-09 on our consolidated financial statements in late 2016 and we are actively reviewing hundreds of customer contracts. Under the ASU, revenue will be recognized as the customer obtains control of the goods and services promised in the contract (i.e., performance obligations). Given the nature of our services and terms and conditions in our contracts, the customer obtains control as we deliver services under the contract.within those fiscal years. We recognize the majority of our revenue on a monthly recurring basis as we deliver our services. The Company intends to use the retrospective approach with the cumulative effect of initially adopting ASU 2014-09 onhave adopted this guidance effective January 1, ~~2018. Based on current analysis, management does~~2018, and this guidance did not ~~expect the adoption of ASU 2014-09 to~~ have a material impact on our consolidated financial ~~statements and disclosures.~~statements.

In ~~November 2015,~~May 2017, the FASB issued ASU ~~2015-17, “Income Taxes” (Subtopic 740). The amendments~~2017-09, which clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. ASU 2017-09 will reduce diversity in ~~this update require deferred tax liabilities~~practice and ~~assets be classified~~result in fewer changes to the terms of an award being accounted for as ~~non-current regardless of~~modifications. Under ASU 2017-09, an entity will not apply modification accounting to a share-based payment award if the award's fair value, vesting conditions and classification ofas an equity or liability instrument are the ~~underlying assets~~same immediately before and ~~liabilities. For public companies,~~after the ~~amendments~~change. ASU 2017-09 will be ~~effective for financial statements issued for annual periods beginning~~applied prospectively to awards modified on or after ~~December 15, 2016. Earlier application is permitted. Management does not expect~~ the adoption ~~of ASU 2015-17 to~~date. We have adopted this guidance effective January 1, 2018, and this guidance did not have a material impact on our consolidated financial ~~statements and disclosures.~~statements.

Recently Issued Accounting Pronouncements

In February 2016 the FASB ~~created Topic 842 and~~ issued ASU 2016-02, “~~Leases~~“Leases””. ~~This guidance supersedes Topic 840, “Leases”. This~~The ASU ~~requires~~introduces a lessee model that results in most leases impacting the balance sheet. The ASU addresses other concerns related to the current leases model. Under ASU 2016-02, lessees will be required to recognize ~~a right-of-use assets and~~for all leases with terms longer than 12 months, at the commencement date of the lease, a lease liability, ~~initially~~which is a lessee’s obligation to make lease payments arising from a lease measured aton a discounted basis, and a right-to-use asset, which is an asset that represents the ~~present value~~lessee’s right to use or control the use of a specified asset for the lease ~~payments on~~term. Leases will be classified as either finance or operating, with classification affecting the ~~balance sheet. For public companies, the amendments will be~~pattern of expense recognition. The update is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. ~~Earlier application is permitted. Management is currently evaluating~~While we continue to evaluate the ~~impact~~effect of ~~the adoption of ASU 2016-02~~adopting this guidance on our consolidated financial statements and ~~disclosures.~~

~~In March 2016,~~related disclosures, we expect our operating leases, as disclosed in Note 10, will be subject to the ~~FASB issued ASU 2016-09, “Compensation - Stock Compensation” (Subtopic 718), which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or~~new standard. We will recognize right-of-use assets and operating lease liabilities and classification on the statement of cash flows. The new rules were adopted by the Company in the first quarter of 2017. Periods prior to 2017 were not adjusted to reflect the adoption of this accounting standard as the Company has adopted this standard on a prospective basis beginning January 1, 2017, and such adoption did not have a material impact on the Company’s financial condition, results of operations or cash flows.

~~In August 2016, the FASB issued ASU 2016-09, “Statement of Cash Flows-Classification of Certain Cash Receipts and Cash Payments”~~ (Subtopic 230). This guidance clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows. The amendment addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. These updates are effective for annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods, with early adoption permitted. The guidance should be applied retrospectively unless it is impractical to do so; in which case, the guidance should be applied prospectively as of the earliest date practicable. Management is currently evaluating the impact of the adoption of ASU 2016-09 on our ~~financial statements~~balance sheet upon adoption, which will increase our total assets and ~~disclosures.~~liabilities.

~~In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows-Restricted Cash~~”(Subtopic 230). These amendments require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. As a result, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows. The amendments do not provide definition of restricted cash or restricted cash equivalents. Effective date for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. Management does not expect the adoption of ASU 2016-18 to have any impact on our financial statements and disclosures, as restricted cash is currently included in the change of cash on the statement of cash flows.

~~In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment” (Subtopic 350). This guidance simplifies the accounting for goodwill impairment by removal of Step 2 of the goodwill~~

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impairment test. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. For public companies, the standard will be effective for calendar year-end December 15, 2020. Earlier adoption is permitted for any impairment test performed after January 1, 2017. Management is currently evaluating the impact of the adoption of ASU 2017-04 on our financial statements and disclosures.

Note 2 - ~~Debt Recapitalization,~~ Liquidity and Going Concern

As of ~~June 30, 2017,~~March 31, 2018, we had ~~$1,097,000~~$3,068,000 of cash, ~~and a~~ working capital ~~deficit~~ of ~~$8,667,000. Our cash balance as of June 30, 2017 includes restricted cash of $18,000 (as discussed in Note 4).~~$3,789,000 and no debt. For the ~~six~~three months ended ~~June 30, 2017,~~March 31, 2018, we incurred a net loss of ~~$1,258,000~~$1,285,000 and ~~generated~~used $472,000 of net cash ~~provided by~~in operating ~~activities of $29,000. We generated cash flow from operations even though we incurred~~activities. During the three months ended March 31, 2018 and the year ended December 31, 2017, a ~~net loss as our net loss includes non-cash operating expenses that are added back to our cash flow from operations (as shown on the condensed consolidated statements of cash flows). A~~ substantial portion of our cash flow from operations has been dedicated to the payment of interest on our then-existing indebtedness, thereby reducing our ability to use our cash flow to fund our operations, capital expenditures and investments in sales and marketing. For the ~~six~~three months ended ~~June 30,~~March 31, 2018 and 2017, ~~and 2016,~~ our cash flow from operations was reduced by ~~$542,000~~$316,000 and ~~$563,000,~~$266,000, respectively, for interest payments on our then-existing indebtedness.

~~On July~~During the three months ended March 31, ~~2017,~~2018, the Company completed a ~~recapitalization~~series of ~~its existing debt obligations as~~transactions (each of which is described further in ~~Note~~Notes 6 ~~(the “Debt Recapitalization”). As~~and 7 below, as applicable) that improved our financial position and reduced the outstanding principal on our debt obligations from $1.8 million as of December 31, 2017 to $0 as of March 31, 2018. The following is a ~~result~~summary of ~~the Debt Recapitalization,~~these transactions:

•On January 25, 2018, the Company ~~eliminated~~ closed a registered direct offering of 1,750 shares of our 0% Series C Convertible Preferred Stock (the “Series C Preferred Stock”) for net proceeds of $1,527,000 (the “Series C Offering”).

•~~$9,362,000~~On January 26, 2018, the Company terminated the Business Loan and Security Agreement, dated July 31, 2017, by and between the Company and Super G Capital LLC (“Super G”), along with the accompanying Warrant to Purchase Shares of Common Stock, dated July 31, 2017, and paid off all remaining debt obligations with Super G (“the Super G Payoff”).

•During the three months ended March 31, 2018, the Company made total principal payments of $800,000 on the Western Alliance Bank Loan Agreement, resulting in no outstanding debt ~~and accrued interest obligations and improved its working capital position~~ as of ~~July~~March 31, ~~2017. After completion~~2018.

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Our capital requirements continue to depend on numerous factors, including the timing and amount of revenue, the ~~Debt Recapitalization,~~expense to deliver our services, expense for sales and marketing, expense for research and development, capital improvements, and the ~~Company’s cash position was approximately $1,270,000 as of July 31, 2017.~~cost involved in protecting our intellectual property rights. The Company ~~anticipates continued declines~~believes that, based on our current projection of revenue, expenses, capital expenditures and cash flows, it has sufficient resources to fund its operations for at least the next twelve months following the filing of this Report. However, there is no assurance the Company will be able to accomplish this during this period or in ~~its revenue and~~the future following such period. The Company anticipates reduced cash flow from operations ~~that will require~~and increased levels of capital expenditures in 2018 as compared to 2017, and we believe additional capital may be required to fund investments in product development and sales and marketing ~~expenses and capital expenditures~~as a means to reverse ~~its~~our revenue trends. ~~Therefore,~~While we expect to continue to adjust our cost of revenue and other operating expenses to partially offset the ~~Company plans~~impact of revenue declines associated with our legacy services, we believe additional capital may be necessary to fund our obligations. In the event we need access to capital to fund operations or provide growth capital, we would likely need to raise capital in one or more equity offerings. There can be no assurance that we will ~~succeed~~be successful in raising necessary capital or that any such offering will be on terms acceptable to the Company. If we ~~cannot~~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~~respective lead investors of the 0% Series B Convertible Preferred Stock (the “Series B Preferred Stock”) and the Series C Preferred Stock have certain rights to approve future financings. There can be no assurance that the lead investors will provide the required approvals, which may affect our ability to ~~continue as~~raise capital, refinance indebtedness or borrow additional funds on terms we deem advisable, or at all. Failure to obtain financing, or obtaining financing on unfavorable terms, could result in a ~~going concern. The accompanying condensed consolidated financial statements do not include any adjustments that might result from these uncertainties.~~decrease in our stock price, would have a material adverse effect on future operating prospects, and could require us to significantly reduce operations.

Note 3 - Capitalized Software Costs

The Company capitalizes certain costs incurred in connection with developing or obtaining internal-use software. All software development costs have been appropriately accounted for as required by ASC Topic 350-40 “Intangible – Goodwill and Other – Internal-Use Software”. Capitalized software costs are included in ~~Property~~“Property and ~~Equipment~~equipment, net” on our condensed consolidated balance sheets and are amortized over three to four years. Software costs that do not meet capitalization criteria are expensed as incurred. For the three ~~and six~~ months ended ~~June 30, 2017,~~March 31, 2018, we capitalized ~~$24,000 and $58,000, respectively,~~$48,000 of internal-use software ~~costs and we amortized $163,000 and $320,000, respectively, of these~~ costs. For the three ~~and six~~ months ended ~~June 30, 2016, we capitalized $97,000~~March 31, 2018 and ~~$159,000, respectively, and~~2017, we amortized ~~$151,000~~$131,000 and ~~$330,000,~~$157,000, respectively, of these costs. During the three ~~and six~~ months ended ~~June 30,~~March 31, 2018 and 2017, we recorded no impairment losses related to capitalized software. ~~During the three and six months ended June 30, 2016, we recorded $22,000 of impairment losses related to capitalized software no longer in service.~~

Note 4 - ~~Restricted Cash~~Goodwill & Intangibles

Goodwill is not amortized but is subject to periodic testing for impairment in accordance with ASC Topic 350 “Intangibles - Goodwill and Other - Testing Indefinite-Lived Intangible Assets for Impairment”. We test goodwill for impairment on an annual basis on September 30 of each year or more frequently if events occur or circumstances change indicating that the fair value of the goodwill may be below its carrying amount. As of ~~June 30, 2017~~March 31, 2018, the Company considered the declines in our revenue and ~~December~~stock price to be a triggering event for an interim goodwill impairment test. The Company operates as a single reporting unit and used market-based approaches to determine the fair value of the reporting unit. These approaches used quoted market prices in active markets and revenue multiples for comparable companies. As of March 31, ~~2016, our cash balance included restricted cash of $18,000, respectively. The $18,000 letter of credit that serves as~~2018, the ~~security deposit for our lease of office space in Colorado (as discussed in Note 10) is secured by an equal~~carrying amount of our reporting unit exceeded its fair value; therefore, the Company recorded a goodwill impairment charge of $650,000 in the three months ended March 31, 2018. This charge is recognized as “Impairment charges” on our Condensed Consolidated Statements of Operations. The remaining goodwill balance as of March 31, 2018 was $7,100,000. The continued future decline of our revenue, cash ~~pledged as collateral and such cash is held~~flows and/or stock price may give rise to a triggering event that may require the Company to record additional impairment charges on goodwill in ~~a restricted bank account.~~the future.

The Company assesses the impairment of purchased intangible assets subject to amortization when events and circumstances indicate that the carrying value of the assets might not be recoverable. Fair value of our intangible assets is determined using the relief from royalty methodology. This approach involves two steps: (a) estimating reasonable royalty rates for each intangible asset and (b) applying these royalty rates to a net revenue stream and discounting the resulting cash flows to determine fair value. This fair value is then compared with the carrying value of each intangible asset. If the carrying value of the intangible asset is greater than its implied fair value, an impairment in the amount of the excess is recognized and charged to operations. 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 at least annually, as well as whenever an event or change in circumstances has occurred that could have a significant adverse effect on the fair value of long-lived assets. The Company performed an evaluation of intangible assets as of March 31, 2018 and determined that the fair value of the long-lived assets exceeded the carrying value, therefore no impairment charges were required for the three months ended March 31, 2018.

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Note 5 - Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consisted of the following (in thousands):


	June 30, 2017		December 31, 2016		March 31, 2018		December 31, 2017
Accrued interest	$	835	$	658
Accrued compensation	150		133
Other accrued expenses	198		374		$	264	$	316
Accrued compensation costs					227		129
Accrued marketing expense					136		—
Deferred revenue					87		393
Super G Warrant liability					—		165
Accrued expenses and other liabilities	$	1,183	$	1,165	$	714	$	1,003

Note 6 - Debt ~~Recapitalization and Debt~~

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~~Current debt~~Debt consisted of the following (in thousands):

June 30, 2017 December 31, 2016
Main Street Term Loan, net of unamortized debt discount based on an imputed interest rate of 12%; $89 at June 30, 2017 and $123 at December 31, 2016, respectively. $ 8,911
$ 8,877
SRS Note, net of unamortized debt discount based on an imputed interest rate of 15%; $0 at June 30, 2017 and $2 at December 31, 2016, respectively. 1,785
1,783
Total current debt $ 10,696

$ 10,660

On July 31, 2017, the Company completed a recapitalization of its existing debt obligations as summarized in the table below and as described further below (the “Debt Recapitalization”). Therefore, as of July 31, 2017, there were no remaining obligations related to the Main Street Term Loan or SRS Note. The Company eliminated $9,362,000 of debt and accrued interest obligations as of July 31, 2017 in the Debt Recapitalization and lowered outstanding shares of common stock by 385,517, as summarized in the following two tables.

Former Debt Obligations as of July 31, 2017 Debt Obligations Extinguished on July 31, 2017 New Outstanding Debt Obligations as of July 31, 2017
Main Street Term Loan: principal $ 9,000,000
$ (9,000,000 ) —
SRS Note: principal 1,784,692
(1,784,692 ) —
SRS Note: accrued interest 777,568
(777,568 ) —
Western Alliance Bank: principal $ 1,100,000
Super G Capital: principal 1,100,000
Total $ 11,562,260
$ (11,562,260 ) $ 2,200,000



~~Outstanding Shares of Common Stock on July 31, 2017 prior to the Debt Recapitalization~~	~~36,534,840~~
~~Shares of common stock redeemed in connection with the Main Street Payoff~~	~~(7,711,517~~	)
~~Shares of common stock issued in connection with the SRS Note Exchange~~	~~7,326,000~~
~~Outstanding Shares of Common Stock on July 31, 2017 after the Debt Recapitalization~~	~~36,149,323~~

~~Main Street Payoff Letter and Redemption Agreement~~

As of June 30, 2017, the Company had outstanding borrowings of $9,000,000 with Main Street Capital Corporation (“Main Street”) under a senior secured term loan facility (the “Main Street Term Loan”). Borrowings under the Main Street Term Loan were to mature on October 17, 2018 unless sooner terminated as provided in the Main Street Loan Agreement. As of June 30, 2017, the Company was in default of certain covenants in the Main Street Term Loan. The interest rate on the Main Street Term Loan borrowings was 12% per annum and interest payments were due monthly. During the six months ended June 30, 2017, the Company made no principal payments on the Main Street Term Loan. As of June 30, 2017, Main Street owned 7,711,517 shares, or 21%, of the Company’s outstanding common stock.

On July 31, 2017, the Company and Main Street entered into (i) a payoff letter (the “Main Street Payoff Letter”) that terminated the $9,000,000 Main Street Term Loan and (ii) a Redemption Agreement (“the Main Street Redemption Agreement”) whereby the Company redeemed 7,711,517 shares of the Company’s common stock held by Main Street, in exchange for total cash payments from the Company of $2,550,000 (together the “Main Street Payoff”). On July 31, 2017, the Company funded the Main Street Payoff using ~~$350,000~~ ~~of the Company’s existing cash plus cash proceeds of~~ ~~$2,200,000~~ ~~borrowed under loan agreements with Western Alliance Bank and Super G (each defined below).~~

~~SRS Note Exchange Agreement~~

As of June 30, 2017, the Company had outstanding total obligations of $2,530,000 (consisting of $1,785,000 of principal and $745,000 of accrued interest) under a promissory note (the “SRS Note”) to Shareholder Representative Services LLC (“SRS”) the Company issued in connection with the 2012 acquisition of Affinity Videonet, Inc. (“Affinity”), which was amended in February

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2015. The maturity date of the SRS Note was July 6, 2017 and the interest rate on the SRS Note was 15% per annum. Payment of all interest earned after March 1, 2015 was due on July 6, 2017, unless certain trailing Adjusted EBITDA targets were met as defined in the SRS Note. During the six months ended June 30, 2017, the Company made no principal or interest payments on the SRS Note. In June 2017, SRS granted the Company a waiver of the final installment for 60 days. The SRS Note was subordinate to borrowings under the Main Street Loan Agreement, and was only permitted to be repaid if permitted by the terms of the Main Street Loan Agreement.

On July 31, 2017, the Company and SRS entered into a Note Exchange Agreement (the “SRS Note Exchange Agreement’) to extinguish the $2,562,000 of obligations on the SRS Note (including accrued interest for July 2017 of $32,000) in exchange for 7,326,000 shares of the Company’s common stock (the “SRS Note Exchange”). Our President, Chief Executive Officer, and Director, Peter Holst, held a ~~27.3%~~ ~~interest in the SRS Note (or~~ ~~$699,528~~ ~~as of July 31, 2017 including accrued interest) and received~~ ~~1,825,157~~ ~~shares of the Company’s common stock in connection with the SRS Note Exchange (representing an effective exchange price into common stock of~~ ~~$0.383~~ ~~per share). The SRS Note Exchange was negotiated and approved on behalf of the Company by a special committee of the board of directors consisting exclusively of independent, disinterested directors.~~



	March 31, 2018		December 31, 2017
Western Alliance Bank A/R Revolver	$	—	$	800
Super G Loan	—		1,032
Unamortized debt discounts	—		(269		)
Net carrying value	—		1,563
Less: current maturities, net of debt discount	—		(1,194		)
Long-term obligations, net of debt discount	$	—	$	369

Western Alliance Bank Business Financing Agreement

On July 31, 2017, the Company and its subsidiary entered into a Business Financing Agreement with Western Alliance Bank, as lender (the “Western Alliance Bank Loan Agreement”). The Western Alliance Bank Loan Agreement ~~provides~~provided the Company with up to a total of $1,500,000 of revolving loans (the “A/R Revolver”). The maximum amount available under the A/R Revolver iswas limited to the lesser of (x) $1,500,000 and (y) an amount equal to the borrowing base. The borrowing base ~~includes~~included 85% of the Company’s eligible accounts receivable plus a non-formula amount (which was ~~$600,000~~$400,000 at ~~closing,~~December 31, 2017, and which ~~steps~~stepped down ~~to $400,000 on October 1, 2017,~~ to $200,000 on January 1, 2018, and to $0 on April 1, 2018) (“the Non-Formula Amount”). The Western Alliance Bank Loan Agreement provided that all borrowings would bear interest at the prime rate (4.75% as of March 31, 2018) plus 2.25% (or a total of 7.00% as of March 31, 2018) per year. The prime rate was subject to a floor of 4.00%. Interest payments on the outstanding borrowings were due monthly. On July 31, 2017, the Company received a loan in an amount equal to $1,100,000 under the Western Alliance Bank Loan Agreement, consisting of $500,000 based on 85% of eligible accounts receivable and $600,000 of Non-Formula ~~Amount,~~Amount. During the ~~proceeds~~three months ended March 31, 2018, the Company made total principal payments of ~~which~~$800,000 on the A/R Revolver (including $400,000 on the Non-Formula Amount). As of March 31, 2018, there were ~~used to fund~~no outstanding borrowings on the ~~Main Street Payoff.~~

A/R Revolver and we had availability of $764,000. All loans under the A/R Revolver were to mature on July 31, 2019 (unless such loans are not supported by the borrowing base, in which case any loans exceeding the borrowing base must be immediately repaid). ~~Given the step-down~~As of ~~the Non-Formula Amount as described above,~~March 31, 2018, the Company ~~will be~~was in compliance with all required to make a mandatory prepayment of the loans on October 1, 2017, January 1, 2018 and April 1, 2018 in an amount equal to $200,000. The Western Alliance Bank Loan Agreement provides that all borrowings bear interest at the prime rate (4.25% as of July 31, 2017) plus 1.75% (or a total of 6.00% as of July 31, 2017) per year. The prime rate is subject to a floor of 4.00%. Interest payments on the outstanding borrowings are due monthly. The Company may receive new borrowings on the A/R Revolver if supported by the borrowing base and may prepay borrowingscovenants under the Western Alliance Bank Loan ~~Agreement at any time without premium or penalty, subject to certain notice requirements. The obligations of~~Agreement. On May 8, 2018, the Company ~~under~~terminated the Western Alliance Bank Loan Agreement are secured by substantially all of the assets of the Company and its subsidiary, including accounts receivable, intellectual property, equipment and other personal property. The Western Alliance Bank Loan Agreement contains certain restrictions and covenants, which, among other things, subject to certain exceptions, restrict the Company’s ability to incur additional debt or make guarantees, sell assets, make investments or loans, make distributions or create liens or other encumbrances. The Western Alliance Bank Loan Agreement also requires that we comply with certain financial covenants, including maintaining a specified asset coverage ratio, minimum levels of adjusted EBITDA, minimum revenues vs. plan and minimum amounts of cash held with Western Alliance Bank.

The Western Alliance Bank Loan Agreement contains customary events of default, including failure to pay any principal or interest when due, failure to perform or observe covenants, breaches of representations and warranties, certain cross defaults, certain bankruptcy related events, monetary judgments defaults and a change in control. Upon the occurrence of an event of default, the outstanding obligations may be accelerated and become immediately due and payable.Agreement.

Super G Loan Agreement and Warrant

On July 31, 2017, the Company and its subsidiary entered into a Business Loan and Security Agreement with Super G Capital, LLC (“Super G”), as lender (the “Super G Loan Agreement”) and received a term loan from Super G in an amount equal to $1,100,000 ~~the proceeds of which were used to fund the Main Street Payoff.~~

(the “Super G Loan”). Borrowings under the Super G Loan Agreement ~~are~~were to be repaid in installments (including interest) of $33,000 per month in the first 3 months following closing and approximately $68,600 per month in months four through twenty-four following closing, for total payments of $1,540,000. ~~Interest payments for fiscal years 2017, 2018 and 2019 on~~The effective interest rate of the Super G Loan ~~are expected to total $148,000, $246,000 and $46,000, respectively. The obligations of the Company under the Super G Loan Agreement are secured by~~was approximately 33%.

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a second lien on substantially all of the assets of the Company and its subsidiary, including accounts receivable, intellectual property, equipment and other personal property. The security interest granted and loans made under the Super G Loan Agreement are subordinated to the security interest and loans made under the Western Alliance Bank Loan Agreement pursuant to a subordination and intercreditor agreement. The Super G Loan Agreement contains certain restrictions and covenants similar to the Western Alliance Bank Loan Agreement, and requires the Company to comply with certain financial covenants, including maintaining unrestricted cash with Western Alliance and maintaining minimum levels of adjusted EBITDA.

On July 31, 2017, the Company also issued a warrant that ~~entitles~~entitled Super G to ~~subscribe to~~purchase 550,000 shares of the Company’s common stock at an exercise price of $0.30 per share ~~(“the Super~~(the “Super G Warrant”). The Super G Warrant ~~has~~had a 3three year term and if the profit on such warrants iswas not equal to at least $165,000 over the term of the warrants, ~~Super G is entitled to a cash exit fee for any difference~~ at the end of the 3three year ~~term.~~term, the Company was required to pay an exit fee equal to the difference between $165,000 and the amount of profit recognized. During the three

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months ended March 31, 2018, no warrants were exercised. The $165,000 fair value of this warrant was recorded as a derivative liability and as a discount to the carrying amount of the debt as of December 31, 2017.

On January 26, 2018, the Company and Super G entered into a payoff letter that terminated the Super G Loan Agreement ~~contains customary events~~and the Super G Warrant in exchange for total cash payments from the Company of ~~default, including failure~~$1,269,000 (the “Super G Payoff”). The total obligations to pay any principal or interest when due, failure to perform or observe covenants, breaches of representations and warranties, certain cross defaults, certain bankruptcy related events, monetary judgments defaults and failure to own 100%Super G at the time of the ~~Company’s subsidiary. Upon the occurrence of an event of default, subject to the terms of the above-mentioned subordination~~Super G Payoff was $1,434,000, including principal, accrued and ~~intercreditor agreement, the outstanding obligations may be accelerated and become immediately~~remaining interest due ~~and payable.~~

Deferred financing costs related to the Main Street and SRS debt agreements of $89,000 and $125,000 are included as a direct deduction of the carrying amount of our debt as of June 30, 2017 and December 31, 2016, respectively. The financing costs were amortized using the effective interest method over the term of ~~each loan through each maturity date. During~~ the ~~three~~Super G Loan, and ~~six months ended June 30, 2017 and 2016, amortization~~the Super G Warrant Liability. Therefore, the Company recorded a gain on extinguishment of ~~deferred financing costs was $18,000 and $36,000, respectively,~~the debt of $165,000, which is recorded in “Interest and Other Expense, Net” on our Condensed Consolidated Statements of Operations. In connection with the Super G Payoff, the related warrant liability and corresponding debt discount were eliminated during the three months ended March 31, 2018. As of March 31, 2018, there are no outstanding obligations related to the Super G Loan.

The total debt discount on the Western Alliance Bank A/R Revolver and Super G Loan was $339,000, comprised of $174,000 of debt issuance costs and $165,000 related to the Super G Warrant. This debt discount was being amortized to interest expense using the effective interest method over the term of the debt. During the three months ended March 31, 2018, the Company amortized $269,000 of the debt discount, which is recorded in “Interest and Other Expense, Net” on our Condensed Consolidated Statements of Operations. As of March 31, 2018, there is no remaining unamortized debt discount.

Note 7 - Preferred Stock

Our Certificate of Incorporation authorizes us to issue up to 5,000,000 shares of preferred stock. As of ~~June 30, 2017,~~March 31, 2018, there were: (i) 100 shares of Perpetual Series B-1 Preferred Stock authorized and no shares issued or outstanding; (ii) 7,500 shares of Series A-2 Convertible Preferred Stock authorized and 32 shares issued and outstanding (the “Series A-2 Preferred Stock”); (iii) 2,800 shares of Series B Preferred Stock authorized and 375 shares issued and outstanding; (iv) 1,750 shares of Series C Preferred Stock authorized and 1,275 shares issued and outstanding; (v) 4,000 shares of Series D Convertible Preferred Stock authorized and no shares issued or outstanding; and (vi) 100 shares of Perpetual Series B Preferred Stock authorized and no shares issued or outstanding.

Series A-2 Preferred Stock

Each share of Series A-2 Preferred Stock has a stated value of $7,500 per share (the “A-2 Stated Value”), a liquidation preference equal to the A-2 Stated Value, and is convertible at the holder’s election into ~~Common Stock~~common stock at a conversion price per share of ~~$2.9835~~$2.16 as of ~~June 30, 2017.~~March 31, 2018. Therefore, each share of Series A-2 Preferred Stock is convertible into ~~2,514~~3,472 shares of ~~Common Stock~~common stock as of ~~June 30, 2017.~~March 31, 2018. The conversion price is subject to adjustment upon the occurrence of certain events set forth in our Certificate of Incorporation. During the ~~six~~three months ended ~~June 30, 2017, there were no adjustments~~March 31, 2018, the Series C Offering resulted in an adjustment to the Series A-2 Preferred Stock conversion ~~price.~~ price from $2.40 to $2.16 per share.

The Series A-2 Preferred Stock is subordinate to the Series B-1 Preferred Stock but senior to all other classes of equity, has weighted average anti-dilution protection and, ~~commencing on~~since January 1, 2013, ishas been entitled to cumulative dividends at a rate of 5% per annum, payable quarterly, based on the A-2 Stated ~~Value. Once dividend payments commence, all dividends are~~Value and payable at the option of the holder in cash or through the issuance of a number of additional shares of Series A-2 Preferred Stock with an aggregate liquidation preference equal to the dividend amount payable on the applicable dividend payment date. As of ~~June 30, 2017,~~March 31, 2018, the Company has recorded ~~$53,000~~$62,000 in accrued dividends in “Accrued expenses and other liabilities” on the accompanying ~~condensed consolidated balance sheet~~Condensed Consolidated Balance Sheet related to the remaining Series A-2 Preferred Stock outstanding. The Company, at our option, may redeem all or a portion of the Series A-2 Preferred Stock in cash at a price per share of $8,250 per share (equal to $7,500 per share multiplied by 110%) plus all accrued and unpaid dividends.

Series B Preferred Stock

In October 2017, the Company closed a registered direct offering of 2,800 shares of its Series B Preferred Stock for total gross proceeds to the Company of $2,800,000. The shares of Series B Preferred Stock were sold at a price equal to their stated value of $1,000 per share and are convertible into shares of the Company’s common stock at a conversion price of $0.28 per share. During the three months ended March 31, 2018, 75 shares of Series B Preferred Stock were converted to 268,000 shares of the Company’s common stock. As of March 31, 2018, 375 shares of Series B Preferred Stock remain issued and outstanding. The Series B Preferred Stock is pari passu with the Company’s issued and outstanding shares of Series C Preferred Stock.

Subject to certain exceptions, the Company has agreed to provide the holders of Series B Preferred Stock a right of participation for up to 100% of any future offering of its common stock or other securities or equity linked debt obligations until October 2019. In addition, the Company agreed to expand the size of the Company’s board of directors to six members and to appoint a new

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independent director agreeable to the lead investor in the offering (the “Lead Investor”). Subject to limited exceptions, for as long as at least 333 shares of Series B Preferred Stock remain outstanding and unconverted (subject to adjustment for stock splits, stock dividends, recapitalizations, reorganizations, reclassifications, combinations and subdivisions or similar events occurring after the date of the Purchase Agreement with respect to the Series B Preferred Stock), the Company may not issue any common stock or convertible securities (or modify any of the foregoing that may be outstanding) to any person, or incur any debt, without the express written consent of the Lead Investor.

In addition, the Company has agreed that it will not enter into certain “fundamental transactions,” including transactions constituting a change of control of the Company, certain reorganization transactions or a sale of all or substantially all of the Company’s assets, except as pursuant to written agreements in form and substance satisfactory to the holders of a majority of the outstanding shares of Series B Preferred Stock including the Lead Investor and on terms with respect to the Series B Preferred Stock as set forth in the Certificate of Designation of Rights, Powers, Preferences, Privileges and Restrictions of the Series B Preferred Stock.

Series C Offering

On January 25, 2018, the Company closed a registered direct offering of 1,750 shares of its Series C Preferred Stock for total gross proceeds to the Company of $1,750,000. The shares of Series C Preferred Stock were sold at a price equal to their stated value of $1,000 per share and are convertible into shares of the Company’s common stock at a conversion price of $0.30 per share. The net proceeds to us from the sale of our securities in this offering were $1,527,000 after deducting offering expenses paid by us. During the three months ended March 31, 2018, 475 shares of Series C Preferred Stock were converted to 1,583,000 shares of the Company’s common stock. As of March 31, 2018, 1,275 shares of Series C Preferred Stock remain issued and outstanding. The Series C Preferred Stock is pari passu with the Company’s issued and outstanding shares of Series B Preferred Stock.

Subject to certain exceptions, the Company has agreed to provide the purchasers, during the period that the purchasers continue to hold Series C Preferred Stock, a right of participation for up to 100% of any future offering of its common stock or other securities or equity linked debt obligations until January 2020. Subject to limited exceptions, for as long as at least $500,000 of stated value of Series C Preferred Stock remain outstanding and unconverted (subject to adjustment for stock splits, stock dividends, recapitalizations, reorganizations, reclassifications, combinations and subdivisions or similar events occurring after the date of the Purchase Agreement with respect to the Series C Preferred Stock), the Company shall not issue any common stock or convertible securities (or modify any of the foregoing that may be outstanding) to any person at a price per share less than $0.30, or incur any debt, without the express written consent of the Lead Investor.

In addition, the Company has agreed that it will not enter into certain “fundamental transactions,” including transactions constituting a change of control of the Company, certain reorganization transactions or a sale of all or substantially all of the Company’s assets, except as pursuant to written agreements in form and substance satisfactory to the holders of a majority of the outstanding shares of Series C Preferred Stock including the Lead Investor and on terms with respect to the Series C Preferred Stock as set forth in the Certificate of Designation of Rights, Powers, Preferences, Privileges and Restrictions of the Series C Preferred Stock.

In accordance with ASC Topic 815, we evaluated whether our convertible preferred stock contains provisions that protect holders from declines in our stock price or otherwise couldresult in modification of the exercise price and/or shares to be issued under the respective preferred stock agreements based on a variable that is not an input to the fairvalue of a “fixed-for-fixed” option and require a derivative ~~liability accounting.~~liability. The Company determined no derivative liability is required under ASC Topic 815 with respect to our convertible preferred stock. A contingent beneficial conversion amount is required to be calculated and recognized when and if the adjusted $2.16 conversion price of the ~~convertible preferred stock~~Series A-2 Preferred Stock is adjusted to reflect a down round stock issuance that reduces the conversion price below the $1.16 fair value of the common stock on the issuance date of the ~~convertible preferred stock.~~Series A-2 Preferred Stock.

Note 8 - Stock Based Compensation

Glowpoint 2014 Equity Incentive Plan

On May 28, 2014, the Glowpoint, Inc. 2014 Equity Incentive Plan (the “2014 Plan”) was approved by the Company’s stockholders at the Company’s 2014 Annual Meeting of Stockholders. The purpose of the 2014 Plan is to promote the success of the Company and to increase stockholder value by providing an additional means to attract, motivate, retain, and reward selected employees and other eligible persons through the grant of equity awards. Awards may be granted under the 2014 Plan to officers, employees, directors and consultants of the Company or its subsidiary. The 2014 Plan permits the grant of stock options, stock appreciation rights, restricted shares, restricted stock units, cash awards and other awards, including stock bonuses, performance

- 10-

stock, performance units, dividend equivalents, or similar rights to purchase or acquire shares, whether at a fixed or variable price or ratio related to the Company’s common stock, upon the passage of time, the occurrence of one or more events, or the satisfaction of performance criteria or other conditions, or any combination thereof, or any similar securities with a value derived from the

~~- 10-~~

value of or related to the Company’s common stock, or returns thereon. A total of 4,400,000 shares of the Company’s common stock were initially available for issuance under the 2014 Plan. As of ~~June 30, 2017, 733,000~~March 31, 2018, 1,824,000 shares were available for issuance under the 2014 Plan. In April 2018, 1,310,000 restricted stock units were granted under the 2014 Plan, leaving 514,000 shares available for issuance under the 2014 Plan. On April 12, 2018, the Company's compensation committee recommended, and the Company's board of directors adopted, subject to stockholder approval, an amendment to the 2014 Plan to, among other things, increase the number of shares of common stock available for issuance under the 2014 Plan by 3,000,000 shares (the "Amendment"), enabling the continued use of the 2014 Plan for share-based awards. The Company is seeking stockholder approval of the Amendment in connection with its 2018 Annual Meeting of Stockholders to be held on May 31, 2018.

Glowpoint 2007 Stock Incentive Plan

In May 2014, the Board terminated the Glowpoint 2007 Stock Incentive Plan (the “2007 Plan”). Notwithstanding the termination of the 2007 Plan, outstanding awards under the 2007 Plan will remain in effect in accordance with their terms. As of March 31, 2018, options to purchase a total of 1,191,000 shares of common stock and 113,000 shares of restricted stock were outstanding under the 2007 Plan. No shares are available for issuance under the 2007 Plan.

Glowpoint 2000 Stock Incentive Plan

In June 2010, the Board terminated the Glowpoint 2000 Stock Incentive Plan (as amended, the “2000 Plan”). Notwithstanding the termination of the 2000 Plan, outstanding awards under the 2000 Plan will remain in effect in accordance with their terms. As of ~~June 30, 2017,~~March 31, 2018, options to purchase a total of ~~4,800~~500 shares of common stock were outstanding under the 2000 Plan.

~~Glowpoint 2007 Stock Incentive Plan~~

~~In May 2014, the Board terminated the Glowpoint 2007 Stock Incentive Plan (the “2007 Plan”). Notwithstanding the termination of the 2007 Plan, outstanding awards~~ No shares are available for issuance under the 2007 Plan will remain in effect in accordance with their terms. As of June 30, 2017, options to purchase a total of 1,203,000 shares of common stock and 184,000 shares of restricted stock were outstanding under the 20072000 Plan.

Stock Options

For the three months ended March 31, 2018, no stock options were granted; therefore, no fair value assumptions are presented herein. A summary of stock options ~~granted, exercised,~~ expired and forfeited under our stock incentive plans and stock options outstanding as of, and changes made during, the ~~six~~three months ended ~~June 30, 2017,~~March 31, 2018, is presented below (shares in thousands):

Outstanding Exercisable
Number of Shares Underlying Options Weighted
Average
Exercise
Price Number of Shares Underlying Options Weighted
Average
Exercise
Price
Options outstanding, December 31, 2016 1,222
$ 1.99
1,198
$ 1.99
Granted —
—

Exercised —
—

Expired (6 ) 1.93

Forfeited (8 ) 2.39

Options outstanding, June 30, 2017 1,208
$ 1.99
1,208
$ 1.99



	Outstanding				Exercisable
	Number of Shares Underlying Options		Weighted Average Exercise Price		Number of Shares Underlying Options	Weighted Average Exercise Price
Options outstanding, December 31, 2017	1,202		$	1.99	1,202	$	1.99
Expired	(1	)	2.30
Forfeited	(9	)	1.61
Options outstanding, March 31, 2018	1,192		$	1.99	1,192	$	1.99

Stock-based compensation expense related to stock options ~~is allocated as follows~~was $0 and $18,000 for the three ~~and six~~ months ended ~~June 30,~~March 31, 2018 and 2017, respectively, and ~~2016 (in thousands):~~

Three Months Ended Six Months Ended
June 30, June 30,
2017 2016 2017 2016
General and administrative $ —
$ 90
$ 18
$ 184

was recorded to general and administrative expenses. There is no remaining unrecognized stock-based compensation expense for stock options as of ~~June 30, 2017.~~March 31, 2018.

Restricted Stock Awards

A summary of unvested restricted stock awards ~~granted, vested, forfeited and unvested~~ outstanding as of, and changes made during, the ~~six~~three months ended ~~June 30, 2017,~~March 31, 2018, is presented below (shares in thousands):

Restricted Shares Weighted Average
Grant Price
Unvested restricted shares outstanding, December 31, 2016 363
$ 1.08
Granted —
—
Vested (9 ) 1.47
Forfeited —
—
Unvested restricted shares outstanding, June 30, 2017 354
$ 1.07



	Restricted Shares		Weighted Average Grant Price
Unvested restricted stock outstanding, December 31, 2017	341		$	1.06
Vested	(228	)	0.84
Unvested restricted stock outstanding, March 31, 2018	113		$	1.49

- 11-

The number ~~of shares~~ of restricted stock awards vested during the ~~six~~three months ended ~~June 30, 2017~~March 31, 2018 includes ~~3,271~~78,000 shares withheld and repurchased by the Company ~~on behalf of~~from employees to satisfy ~~$1,000~~$20,000 of tax obligations relating to the vesting of such shares. Such shares are held in the Company’s treasury stock as of ~~June 30, 2017.~~March 31, 2018.

Stock-based compensation expense related to restricted stock awards is allocated as follows ~~for the three and six months ended June 30, 2017 and 2016~~ (in thousands):


	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
	2017		2016		2017		2016		2018		2017
Cost of revenue	$	2	$	2	$	4	$	4	$	—	$	2
Research and development	1		1		2		2		—		1
General and administrative	12		24		24		141		10		12
	$	15	$	27	$	30	$	147	$	10	$	15

Certain restricted stock awards have performance-based vesting provisions and are subject to forfeiture, in whole or in part, if these performance conditions are not achieved. Management assesses, on an ongoing basis, the probability of whether the performance criteria will be achieved and, once it is deemed probable, compensation expense is recognized over the relevant performance period. For those awards not subject to performance criteria, the cost of the restricted stock awards is expensed, which is determined to be the fair market value of the shares at the date of grant, on a straight-line basis over the vesting period.

The remaining unrecognized stock-based compensation expense for restricted stock awards as of ~~June 30, 2017~~March 31, 2018 was ~~$203,000.~~$144,000. Of this amount, ~~$48,000~~$7,000 relates to time-based awards with a remaining weighted average period of ~~0.80~~1.23 years. The remaining ~~$155,000~~$137,000 of unrecognized stock-based compensation expense relates to performance-based awards for which expense will be recognized upon it becoming probable that the Company ~~achieving~~will achieve defined ~~revenue targets and other~~ financial ~~goals and will expire 10 years from the grant date.~~targets.

Restricted Stock Units

A summary of unvested restricted stock units (“RSUs”) ~~granted, vested, forfeited and unvested~~ outstanding as of, and changes made during, the ~~six~~three months ended ~~June 30, 2017,~~March 31, 2018, is presented below (shares in thousands):

RSUs Weighted Average
Grant Price
Unvested RSUs outstanding, December 31, 2016 3,196
$ 0.62
Granted —
—
Vested (724 ) 0.41
Forfeited (85 ) 0.61
Unvested RSUs outstanding, June 30, 2017 2,387
$ 0.68



	RSUs		Weighted Average Grant Price
Unvested restricted stock units outstanding, December 31, 2017	1,752		$	0.57
Vested	(306	)	0.51
Forfeited	(456	)	0.28
Unvested restricted stock units outstanding, March 31, 2018	990		$	0.72

As of ~~June 30, 2017,~~March 31, 2018, 988,000 vested RSUs issued to non-employee directors remain outstanding as shares of common stock have not yet been delivered due to the deferred payment provisions set forth in these RSUs.

As of ~~June 30, 2017, there were approximately 1,715,000~~March 31, 2018, 546,000 unvested RSUs ~~that~~ have performance-based vesting provisions and are subject to forfeiture, in whole or in part, if these performance conditions are not achieved. Management assesses, on an ongoing basis, the probability of whether the performance criteria will be achieved and, once it is deemed probable, stock-based compensation expense is recognized over the relevant performance period. As of ~~June 30, 2017, there were approximately 672,000~~March 31, 2018, 443,000 unvested RSUs ~~that~~ have timed-based vesting provisions, and the cost of the RSUs is expensed, which is determined to be the fair market value of the shares at the date of grant, on a straight-line basis over the vesting period.

Stock-based compensation expense related to RSUs is allocated as follows ~~for the three and six months ended June 30, 2017 and 2016~~ (in thousands):

- 12-


	Three Months Ended					Six Months Ended				Three Months Ended
	June 30,					June 30,				March 31,
	2017		2016			2017		2016		2018		2017
Cost of revenue	$	8	$	9		$	19	$	17	$	5	$	12
Research and development	14		10			29		19		10		14
Sales and marketing	—		(3		)	4		1		2		4
General and administrative	80		84			180		161		23		100
	$	102	$	100		$	232	$	198	$	40	$	130

The remaining unrecognized stock-based compensation expense for RSUs as of ~~June 30, 2017~~March 31, 2018 was ~~$1,242,000.~~$419,000. Of this amount ~~$260,000~~$118,000 relates to time-based RSUs with a remaining weighted average period of ~~0.84~~0.47 years. The remaining ~~$982,000~~$301,000 of unrecognized stock-based compensation expense relates to performance-based RSUs for which expense will be recognized upon it becoming probable that the Company ~~achieving~~achieves defined ~~revenue~~financial targets ~~and other financial goals over~~for fiscal ~~years 2017 and~~year 2018.

There was no tax benefit recognized for stock-based compensation for the three and six months ended June 30, 2017 or 2016. No compensation costs were capitalized as part of the cost of an asset during the periods presented.

Note 9 - Net Loss Per Share

Basic net loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. The weighted-average number of shares of common stock outstanding does not include any potentially dilutive securities or ~~any~~ unvested restricted ~~shares of common~~ stock. ~~These unvested~~Unvested restricted ~~shares,~~stock, although classified as issued and outstanding at ~~June 30,~~March 31, 2018 and 2017, ~~and 2016, are~~is considered contingently returnable until the restrictions lapse and will not be included in the basic net loss per share calculation until the shares are vested. Unvested ~~shares of our~~ restricted stock dodoes not contain non-forfeitable rights to dividends and dividend equivalents. Unvested ~~restricted stock units~~RSUs are not included in calculations of basic net loss per share, as they are not considered issued and outstanding at time of grant.

Diluted net loss per share is computed by giving effect to all potential shares of common stock, including stock options, preferred stock, ~~restricted stock units,~~RSUs, and unvested restricted stock, ~~awards,~~ to the extent they are dilutive. For the three ~~and six~~ months ended ~~June 30,~~March 31, 2018 and 2017, ~~and 2016,~~ all such common stock equivalents have been excluded from diluted net loss per share as the effect to net loss per share would be anti-dilutive (decrease our net loss per share).

The following table sets forth the computation of the Company’s basic and diluted net loss per share (in thousands, except per share data):


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2017			2016			2017			2016			2018			2017
Numerator:
Net loss	$	(590	)	$	(605	)	$	(1,258	)	$	(1,316	)	$	(1,285	)	$	(668	)
Less: preferred stock dividends	3			3			6			6			3			3
Net loss attributable to common stockholders	$	(593	)	$	(608	)	$	(1,264	)	$	(1,322	)	$	(1,288	)	$	(671	)
Denominator:
Weighted-average number of shares of common stock for basic and diluted net loss per share	37,168			35,879			37,168			35,861			46,232			36,181
Basic and diluted net loss per share	$	(0.02	)	$	(0.02	)	$	(0.03	)	$	(0.04	)	$	(0.03	)	$	(0.02	)

The weighted-average number of shares for the three months ended March 31, 2018 and 2017 includes 988,000 ~~shares~~ and ~~387,000~~517,000 shares of vested RSUs, respectively, as discussed in Note 8.

The following table represents the potential shares that were excluded from the computation of weighted-average number of shares of common stock in computing the diluted net loss per share for the periods presented because including them would have had an anti-dilutive effect (in thousands):

- 13-


	Three and Six Months Ended June 30,		Three Months Ended March 31,
	2017	2016	2018	2017
Unvested restricted stock units	2,387	3,208	742	2,938
Unvested restricted stock awards	354	363	113	354
Outstanding stock options	1,208	1,233	1,192	1,222
Shares of common stock issuable upon conversion of preferred stock, Series A-2	79	79
Shares of common stock issuable upon conversion of Series A-2 Preferred			79	79
Shares of common stock issuable upon conversion of Series B Preferred			1,339	—
Shares of common stock issuable upon conversion of Series C Preferred			4,250	—

Note 10 - Commitments and Contingencies

Operating Leases

We lease two facilities in Denver, CO and Oxnard, CA that are under operating leases through December 2018 and March 2020, respectively. Both of these leases require us to pay increases in real estate taxes, operating costs and repairs over certain base year amounts. Rent expense for the three ~~and six~~ months ended ~~June 30,~~March 31, 2018 and 2017 ~~were~~was $77,000 and $74,000, ~~and $147,000, respectively. Rent expense for the three and six months ended June 30, 2016 were $72,000 and $146,000,~~ respectively.

Future minimum rental commitments under all non-cancelable operating leases as of ~~June 30, 2017,~~March 31, 2018, are as follows (in thousands):

Year Ending December 31,
Remaining 2017 $ 151
2018 308
2019 88
2020 23
$ 570

~~Commercial Commitments~~

We have entered into a number of agreements with our suppliers to purchase communications and consulting services. Some of the agreements require a minimum amount of services to be purchased over the life of the agreement, or during a specified period of time. Glowpoint believes that it will meet its commercial commitments. Historically, in certain instances where Glowpoint did not meet the minimum commitments, no penalties for minimum commitments have been assessed and the Company has entered into new agreements. It has been our experience that the prices and terms of successor agreements are similar to those offered by other suppliers. Glowpoint does not believe that any loss contingency related to a potential shortfall should be recorded in the consolidated financial statements because it is not probable, from the information available and from prior experience, that Glowpoint has incurred a liability.

~~Letters of Credit~~

As of June 30, 2017, the Company had an outstanding irrevocable standby letter of credit with Wells Fargo Bank, N.A., for $18,000 to serve as our security deposit for our lease of office space in Colorado. See Note 4.



Year Ending December 31,
Remaining 2018	$	231
2019	88
2020	23
	$	342

Note 11 – Major Customers

Major customers are defined as direct customers or channel partners that account for more than 10% of the Company’s revenue. For the three months ended ~~June 30, 2017,~~March 31, 2018, two major customers represented ~~23%~~24% and ~~15%, respectively of our revenue. For the six months ended June 30, 2017, the same major customers represented 22% and 16%~~23%, respectively of our revenue and represented ~~51%~~13% and ~~21%~~59%, respectively, of our accounts receivable balance at ~~June 30, 2017.~~March 31, 2018. For the three months ended ~~June 30, 2016,~~March 31, 2017, the same two major customers represented ~~17%~~16% and ~~12%, respectively, of our revenue. For the six months ended June 30, 2016, the same major customers represented 15% and 11%~~21%, respectively, of our revenue.

In January 2017, our largest customer filed a voluntary petition for protection under Chapter 11 of the United States Bankruptcy Code. This customer has paid us in full for all amounts that were due as of their bankruptcy filing date. Since the bankruptcy filing date, we have continued to perform services for this customer, and we have received payments in accordance with payment terms and expect to continue to do so. It has not yet been determined whether the bankruptcy estate will assume or reject our contract with this customer. A rejection of our contract with this customer by the bankruptcy estate could have a material adverse effect

~~- 14-~~

on our business, financial condition and results of operations, as any reduction in the use of our services or the business failure by one of our major customers or wholesale channel partners could have such a result.

Note 12 - Geographical Data

For the ~~six~~three months ended ~~June 30,~~March 31, 2018 and 2017, ~~and 2016,~~ there was no material revenue attributable to any individual foreign country. Revenue by geographic area, based on customer location, is allocated as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
	2017		2016		2017		2016		2018		2017
Domestic	$	2,734	$	3,719	$	5,587	$	7,813	$	2,269	$	2,853
Foreign	1,122		1,369		2,349		2,793		1,205		1,227
Total Revenue	$	3,856	$	5,088	$	7,936	$	10,606	$	3,474	$	4,080

Long-lived assets were 100% located in domestic markets as of ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017.

~~Note 13 - Related Party Transactions~~

As of June 30, 2017, Peter Holst, the Company’s President and CEO and a prior stockholder of Affinity, held a 27.3% interest in the SRS Note, which was issued to SRS on behalf of the prior stockholders of Affinity in October 2012. See Note 6 for a description of the terms of the SRS Note. As of July 31, 2017, there were no remaining obligations related to the SRS Note, see further discussion of the Debt Recapitalization in Note 6. Our President, Chief Executive Officer, and Director, Peter Holst, held a ~~27.3%~~ ~~interest in the SRS Note (or~~ ~~$699,528~~ ~~as of July 31, 2017 including accrued interest) and received~~ ~~1,825,157~~ ~~shares of the Company’s common stock in connection with the SRS Note Exchange (representing an effective exchange price into common stock of~~ ~~$0.383~~ ~~per share). The SRS Note Exchange was negotiated and approved on behalf of the Company by a special committee of the board of directors consisting exclusively of independent, disinterested directors.~~

As of June 30, 2017, Main Street owned 7,711,517 shares, or 21%, of the Company’s outstanding common stock. Main Street was the Company’s senior debt lender (see Note 6). On July 31, 2017, the Company redeemed the 7,711,517 shares of common stock from Main Street, see further discussion of the Debt Recapitalization in Note 6.

Transactions with related parties, including the transactions referred to above, are reviewed and approved by independent members of the Board of Directors of the Company in accordance with the Company’s Code of Business Conduct and Ethics.

Note 1413 - Subsequent Events

As of March 31, 2018, there were no outstanding borrowings under the Company’s A/R Revolver with Western Alliance Bank and we had availability of $764,000. On ~~July 31, 2017,~~May 8, 2018, the Company ~~completed~~entered into a payoff letter with Western Alliance Bank that terminated the ~~Debt Recapitalization, see further discussion in Note 6. The Company believes~~Western Alliance Bank Loan Agreement. See “Part II. Item 5. Other Information” below for additional information regarding the Debt Recapitalization will result in a gain on debt extinguishment and net taxable income for calendar year 2017. We believe that the Company has available net operating loss (“NOL”) carryforwards to offset our projected taxable income for 2017. The Company expects to complete its analysistermination of the accounting and income tax ramifications related to the Debt Recapitalization in preparation for filing our Quarterly Report on 10-Q for the three months ended September 30, 2017. The Company has experienced ownership changes within the meaning of Internal Revenue Code Section 382 in previous years that impose limitations on the Company’s NOL carryforwards. It is possible that the Debt Recapitalization will result in another such ownership change, further limiting the Company’s NOLs. The Company will perform an updated Section 382 analysis following the Debt Recapitalization to determine whether additional limitations must be imposed. The Company’s most recently identified ownership change under Section 382 occurred in tax year 2013.Western Alliance Bank Loan Agreement.

- 14-

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

~~- 15-~~

We experienced significant declines in revenue during ~~2015~~2017, 2016 and ~~2016~~2015 that have continued into the ~~first half of 2017.~~three months ended March 31, 2018. These revenue declines are primarily due to net attrition of customers and lower demand for our services given the competitive environment and pressure on pricing that exists in our industry.

On January 25, 2018, the Company closed a registered direct offering of 1,750 shares of 0% Series C Convertible Preferred Stock (the “Series C Preferred Stock”) for net proceeds of $1,527,000 (the “Series C Offering”). On January 26, 2018, the Company terminated the Business Loan and Security Agreement, dated July 31, 2017, by and between the Company ~~completed a recapitalization~~and Super G Capital LLC (“Super G”), along with the accompanying Warrant to Purchase Shares of ~~its existing~~Common Stock, dated July 31, 2017, and paid off all remaining debt obligations ~~as further described~~with Super G (“the Super G Payoff”). Also, during the three months ended March 31, 2018, the Company paid off all remaining debt with Western Alliance Bank.

As of March 31, 2018, the Company had $3,068,000 in ~~Note 6 to~~cash and no debt. With a strengthened balance sheet, the ~~accompanying condensed consolidated financial statements (the “Debt Recapitalization”). The~~ Company eliminated $9,362,000 of debt and accrued interest obligations in the Debt Recapitalization and lowered outstanding shares of common stock by 385,517. The Company anticipates continued declines in our revenue and reduced cash flow from operations that will require additional capitalcurrently expects to fund investments in product development, sales and marketing expenses and capital expenditures in order to ~~reverse our~~develop new service offerings, with the goal of reversing the Company’s negative revenue trends. ~~Therefore,~~The Company intends to release new services in the ~~Company plans~~summer of 2018 that leverage our core strengths in information technology (“IT”) service management and are focused on automation and microlearning (or short bursts of focused information necessary to ~~raise capital in one or more offerings. There~~help a learner achieve a specific actionable objective). However, there can be no assurance ~~we will succeed in raising necessary capital or~~ that ~~any such offering~~the Company will be ~~on terms acceptable to~~successful in generating significant revenue with these new services, and the ~~Company. If we cannot raise additional capital that~~Company may be ~~needed~~unable to grow revenue and may continue to experience declines in revenue in the future. In addition, as the Company continues to transform into a service-led organization, revenue attributable to its core and legacy product lines and services has declined. The Company has worked to migrate customers from legacy products, such as managed videoconferencing and video meeting suites, to more automated/software-based solutions. As a result of a growing market trend around cloud consumption preferences, more customers are exploring cost-effective software-based services for procuring technology. As this trend continues, the Company has remained focused on ~~terms acceptable~~generating positive cash flow from operations and investing in future results by implementing cost savings programs designed to ~~us,~~streamline its operations and eliminate overlapping processes and expenses. If the Company fails in its effort to develop new service offerings that achieve broad market acceptance on a timely basis, it ~~could have a material adverse effect on~~will not be able to compete effectively and will likely experience continued declines in revenue and lower gross margins.

See further discussion of the ~~Company. The factors discussed above raise substantial doubt as to our ability to continue as a going concern.~~Company’s business, future plans and liquidity in “Results of Operations” and “Liquidity and Capital Resources” below.

Results of Operations

Three ~~and Six~~ Months Ended ~~June 30, 2017~~March 31, 2018 (the “~~2017~~2018 Quarter”~~, the “2017 Period”, respectively)~~) compared to Three ~~and Six~~ Months Ended ~~June 30, 2016~~March 31, 2017 (the ~~“2016~~“2017 Quarter”~~, the “2016 Period”, respectively)~~)

Revenue. Total revenue decreased ~~$1,232,000~~$606,000 to ~~$3,856,000~~$3,474,000 (or ~~24%~~15%) in the ~~2017~~2018 Quarter from ~~$5,088,000 in the 2016 Quarter. Total revenue decreased $2,670,000 to $7,936,000 (or 25%)~~$4,080,000 in the 2017 ~~Period~~Quarter. This decrease is mainly attributable to: (i) a decrease of $506,000 in revenue from ~~$10,606,000~~video collaboration services and (ii) a decrease of $338,000 in ~~the 2016 Period.~~revenue from network services, partially offset by an increase of $238,000 in revenue from professional and other services. The following table summarizes the changes in ~~the~~ components of our revenue ~~(in thousands):~~and the significant changes in revenue are discussed in more detail below.

- 15-


									Three Months Ended
	Three Months Ended				Six Months Ended				March 31,
	June 30,				June 30,				($ in thousands)
	2017		2016		2017		2016		2018		2017
Revenue
Video collaboration services	$	2,342	$	2,921	$	4,791	$	5,909	$	1,944	$	2,450
Network services	1,440		2,017		2,963		4,364		1,185		1,523
Professional and other services	74		150		182		333		345		107
Total revenue	$	3,856	$	5,088	$	7,936	$	10,606	$	3,474	$	4,080

Revenue for video collaboration services decreased ~~$579,000~~$506,000 (or ~~20%~~21%) to ~~$2,342,000~~$1,944,000 in the 2018 Quarter from $2,450,000 in the 2017 Quarter from $2,921,000 in the 2016 Quarter and decreased $1,118,000 (or 19%) to $4,791,000 in the 2017 Period from $5,909,000 in the 2016 Period. The decreases in video collaboration services revenue areQuarter. This decrease is mainly attributable ~~as follows:~~

to the following: (i) ~~approximately 47% and 43%~~48% of ~~the decreases between the 2017 Quarter and the 2016 Quarter and the 2017 Period and the 2016 Period, respectively, are~~this decrease is due to lower revenue for existing customers (either from reductions in price or level of ~~services for existing customers;~~

services); (ii) ~~approximately~~ 37% ~~and 32%~~ of ~~the decreases between the 2017 Quarter and the 2016 Quarter and the 2017 Period and the 2016 Period, respectively, are~~this decrease is due to lower ~~customer~~ demand for ~~our services related to~~ video meeting suites as a result of increased usage of desktop and mobile video products and technologies;

and (iii) ~~approximately 14% and 21%~~15% of ~~the decreases between the 2017 Quarter and the 2016 Quarter and the 2017 Period and the 2016 Period, respectively, are~~this decrease is due to loss of customers to ~~competition.~~competition between 2017 and 2018.

Revenue for network services decreased ~~$577,000~~$338,000 (or ~~29%~~22%) to ~~$1,440,000~~$1,185,000 in the 2018 Quarter from $1,523,000 in the 2017 ~~Quarter from $2,017,000 in the 2016 Quarter and decreased $1,401,000 (or 32%) to $2,963,000 in the 2017 Period from $4,364,000 in the 2016 Period. The decreases are~~Quarter. This decrease is mainly attributable to net attrition of customers and lower demand for ~~these~~our services given the competitive environment and pressure on pricing that exists in the network services business.

Revenue for professional and other services ~~decreased $76,000~~increased $238,000 (or ~~51%~~222%) to ~~$74,000~~$345,000 in the 2018 Quarter from $107,000 in the 2017 ~~Quarter from $150,000 in the 2016 Quarter and decreased $151,000 (or 45%) to $182,000 in the 2017 Period from $333,000 in the 2016 Period.~~Quarter. The ~~decreases are~~increase is mainly attributable to ~~lower professional support services.~~resale of video equipment.

We expect that the year-over-year ~~total~~negative revenue trend for the ~~2016 Period~~2017 Quarter to the ~~2017 Period~~2018 Quarter for video collaboration services and network services will continue for the remainder of ~~2017~~2018 given the dynamic and competitive environment for ~~video collaboration and network~~our services, and due to ~~the~~expected limited

~~- 16-~~

~~resources available to invest in sales and marketing to increase revenue. We remain focused on new customer acquisition and increasing sales~~ adoption of our ~~next-generation video collaboration solutions. However, we~~planned new services in 2018. We believe ~~that~~ sales cycles associated with selling our services directly to enterprise IT organizations and through our channel partners typically range from six to eighteen months. These factors create uncertainty as to when, and if, we will be able to stabilize and ultimately grow our revenue (see “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the ~~2016 10-K~~fiscal year ended December 31, 2017 filed with the Securities and Exchange Commission (the “SEC”) on March 7, 2018 (the “2017 10-K”) for further discussion).

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 ~~the cost for~~ taxes which have been billed to customers.

Cost of revenue decreased to ~~$2,261,000~~$2,147,000 in the 2018 Quarter from $2,448,000 in the 2017 ~~Quarter from $3,120,000 in the 2016~~ Quarter. This ~~$859,000~~$301,000 decrease in cost of revenue is mainly attributable to lower costs associated with the $1,232,000 decrease in revenue during the same period. Cost of revenue decreased to $4,709,000 in the 2017 Period from $6,579,000 in the 2016 Period. This $1,870,000 decrease is cost of revenue is mainly attributable to lower costs associated with the $2,670,000$606,000 decrease in revenue during the same period. We reduced costs related to revenue in these areas during the ~~2017 Quarter and 2017 Period:~~2018 Quarter: personnel costs, network costs, taxes, and external costs associated with video meeting suites. Cost of revenue, as a percentage of total revenue, was ~~59%~~62% and ~~61%~~60% for the 2018 Quarter and 2017 Quarter, ~~and 2016 Quarter, respectively, and 59% and 62% for the 2017 Period and 2016 Period,~~ respectively. ~~The improvement~~This increase in cost of revenue as a percentage of revenue is mainly attributable to an increase in revenue for resale of equipment (in professional and other services) at relatively lower ~~taxes and fixed network costs.~~gross margins than our core services.

Research and Development. Research and development expenses include internal and external costs related to developing new service offerings and features and enhancements to our existing services. Research and development expenses ~~of $292,000~~decreased to $250,000 in the 2018 Quarter from $287,000 in the 2017 ~~Quarter~~Quarter. This decrease is mainly attributable to lower headcount and ~~$579,000 in the 2017 Period were stable as compared to $302,000 in the 2016 Quarter and $589,000 in the 2017 Period.~~corresponding personnel costs.

Sales and Marketing Expenses. Sales and marketing expenses ~~decreased~~increased to ~~$160,000~~$177,000 in the 2018 Quarter from $140,000 in the 2017 ~~Quarter from $225,000 in the 2016~~ Quarter. ~~Sales and marketing expenses decreased to $300,000 in the 2017 Period from $505,000 in the 2016 Period.~~ This ~~decrease~~increase is primarily attributable to an increase in third party marketing costs of $56,000, partially offset by lower headcount and corresponding personnel costs of ~~$170,000 and $390,000, offset by an increase in third party consulting costs of $105,000 and $184,000, respectively, between the 2017 and 2016 Quarters and the 2017 and 2016 Periods.~~$18,000.

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. General and administrative expenses decreased ~~by $247,000~~$118,000 to ~~$857,000~~$898,000 in the ~~2017~~2018 Quarter from ~~$1,104,000~~ $1,016,000

- 16-

in the ~~2016~~2017 Quarter. This decrease is primarily attributable ~~a decrease~~to lower stock-based compensation expense of ~~$115,000 in legal costs, including $62,000 of legal expenses related to the UTC Litigation, (see the 2016 10-K for further discussion of this litigation which was settled on September 30, 2016),~~$98,000, and a decrease in administrative and overhead costs of ~~$108,000 and decrease~~$38,000, partially offset by an increase in personnel costs of $24,000. General and administrative costs decreased by $471,000 to $1,873,000 in the 2017 Period from $2,344,000 in the 2016 Period. This decrease is mainly attributable to lower personnel costs of $166,000, lower legal costs of $164,000 including $125,000 of legal expenses related to the UTC Litigation, and a decrease of $140,000 in administrative and overhead expenses.$16,000. Additionally, we incur significant audit, legal, insurance and other administrative costs as a publicly traded corporation. These costs are included in general and administrative expenses. As our revenue declines, our costs associated with being a publicly traded corporation increase as a percentage of revenue.

Impairment Charges. Impairment charges on goodwill in the 2018 Quarter were $650,000, as compared to none in the 2017 ~~Quarter and 2017 Period were~~ ~~$5,000~~ ~~as compared to~~ ~~$25,000~~ in the 2016 Quarter and 2016 Period. The impairment losses for the 2017 Quarter and 2017 Period are attributable to computer and network equipment no longer in service. The impairment losses for the 2016 Quarter and 2016 Period are primarily attributable to capitalized software no longer in service.Quarter. The continued future decline 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 Expenses. Depreciation and amortization expenses decreased to ~~$460,000~~$232,000 in the 2018 Quarter from $459,000 in the 2017 ~~Quarter from $508,000 in the 2016 Quarter and decreased to $919,000 in the 2017 Period from $1,054,000 in the 2016 Period. These decreases are~~Quarter. This $227,000 decrease is mainly attributable to lower ~~depreciation~~amortization expense ~~due to an increase in~~of $185,000 as certain intangible assets ~~that~~ became fully ~~depreciated~~amortized in the third quarter of 2017.

Loss from Operations. The Company recorded a loss from operations of ~~$179,000~~$880,000 in the ~~2017~~2018 Quarter as compared to a loss from operations of ~~$196,000 in the 2016 Quarter. The Company recorded a loss from operations of $449,000~~$270,000 in the 2017 ~~Period as compared to $490,000 in the 2016 Period.~~Quarter. The ~~decrease~~$610,000 increase in our loss from operations from the ~~2016~~2017 Quarter to the ~~2017~~2018 Quarter ~~and the 2016 Period to the 2017 Period~~ is ~~primarily~~mainly attributable to ~~lower operating expenses,~~a $606,000 decrease in revenue, a $650,000 increase in impairment charges on goodwill, partially offset by ~~a decrease~~decreases in cost of revenue, general and administrative expenses and depreciation and amortization as discussed above.

~~- 17-~~

~~Adjusted EBITDA~~

Adjusted EBITDA, a non-GAAP financial measure, is defined as net loss before depreciation, amortization, taxes, severance, stock-based expense, impairment charges and interest and other expense, net. Adjusted EBITDA is not intended to replace operating loss, net loss, cash flow or other measures of financial performance reported in accordance with U.S. GAAP. Rather, Adjusted EBITDA is an important measure used by management to assess the operating performance of the Company and was used in the calculation of financial covenants in the Main Street Loan Agreement and was used in determining if principal payments were required on the SRS Note. Adjusted EBITDA as defined here may not be comparable to similarly titled measures reported by other companies due to differences in accounting policies. A reconciliation of net loss to Adjusted EBITDA is shown below:

Three Months Ended Six Months Ended
June 30, June 30,
2017 2016 2017 2016
Net loss $ (590 ) $ (605 ) $ (1,258 ) $ (1,316 )
Depreciation and amortization 460
508
919
1,054
Interest and other expense, net 384
375
755
755
Income tax expense 27
34
54
71
EBITDA 281
312
470
564
Stock-based compensation 116
216
280
528
Severance 16
40
30
97
Impairment charges 5
25
5
25
Adjusted EBITDA $ 418
$ 593
$ 785
$ 1,214

Liquidity and Capital Resources

As of ~~June 30, 2017,~~March 31, 2018, we had ~~$1,097,000~~$3,068,000 of cash and a working capital ~~deficit~~ of ~~$8,667,000. Our cash balance as of June 30, 2017 includes restricted cash of $18,000 (as discussed in Note 4).~~$3,789,000. For the ~~six~~three months ended ~~June 30, 2017,~~March 31, 2018, we incurred a net loss of ~~$1,258,000~~$1,285,000 and ~~generated~~used $472,000 of net cash ~~provided by~~in operating ~~activities of $29,000. We generated cash flow from operations even though we incurred~~activities. During the three months ended March 31, 2018 and the year ended December 31, 2017 a ~~net loss as our net loss includes non-cash operating expenses that are added back to our cash flow from operations (as shown on the condensed consolidated statements of cash flows). A~~ substantial portion of our cash flow from operations has been dedicated to the payment of interest on our then-existing indebtedness, thereby reducing our ability to use our cash flow to fund our operations, capital expenditures and investments in sales and marketing. For the ~~six~~three months ended ~~June 30,~~March 31, 2018 and 2017, ~~and 2016,~~ our cash flow ~~from operations~~ was reduced by ~~$542,000~~$316,000 and ~~$563,000,~~$266,000, respectively, for interest payments on our ~~former indebtedness with Main Street and SRS.~~then-existing indebtedness. During the three months ended March 31, 2018, the Company reduced the outstanding principal on our debt obligations from $1.8 million as of December 31, 2017 to $0 as of March 31, 2018.

~~As a result~~Net cash used in investing activities for the three months ended March 31, 2018 was $48,000 and primarily represented capitalized internal-use software costs.

Net cash used in financing activities for the three months ended March 31, 2018 was $358,000, primarily attributable to (i) $1,032,000 of aggregate principal payments on the ~~Debt Recapitalization (described~~Super G Loan Agreement, (ii) $800,000 of aggregate principal payments on the Western Alliance Bank Loan Agreement, and (iii) $53,000 for repurchase of treasury stock from employees to satisfy minimum statutory tax withholding requirements, partially offset by $1,527,000 of net proceeds from the Series C Offering.

Our capital requirements continue to depend on numerous factors, including the timing and amount of revenue, the expense to deliver our services, expense for sales and marketing, expense for research and development, capital improvements, and the cost involved in ~~Note 6~~protecting our intellectual property rights. The Company believes that, based on our current projection of revenue, expenses, capital expenditures and cash flows, it has sufficient resources to fund its operations for at least the ~~accompanying condensed consolidated financial statements),~~next twelve months following the filing of this Report. However, there is no assurance the Company ~~eliminated $9,362,000 of debt and accrued interest obligations and improved its working capital position as of July 31, 2017. After completion of~~will be able to accomplish this during this period or in the ~~Debt Recapitalization, the Company’s cash position was approximately $1,270,000 as of July 31, 2017.~~future following such period. The Company anticipates ~~continued declines in our revenue and~~ reduced cash flow from operations ~~that will require~~and increased levels of capital expenditures in 2018 as compared to 2017, and we believe additional capital may be required to fund investments in product development and sales and marketing ~~expenses and capital expenditures~~as a means to reverse ~~its~~our negative revenue trends. ~~Therefore,~~While we expect to continue to adjust our cost of revenue and other operating expenses to partially offset the ~~Company plans~~impact of revenue declines associated with our legacy services, we believe additional capital may be necessary to fund our obligations. In the event we need access to capital to fund operations or provide growth capital, we would likely need to raise capital in one or more equity offerings. There can be no assurance that we will ~~succeed~~be successful in raising necessary capital or that any such offering will be on terms acceptable to the Company. If we ~~cannot~~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~~respective lead investors of the 0% Series B Convertible Preferred Stock (the “Series B Preferred Stock”) and the Series C Preferred Stock have certain rights to approve future financings. There can be no assurance that the lead investors will provide the required approvals, which may affect our ability to ~~continue as~~raise capital, refinance indebtedness or borrow additional funds on terms we deem advisable, or at all. Failure to obtain financing, or obtaining financing on unfavorable terms, could result in a ~~going concern. The accompanying condensed consolidated financial statements do not include any adjustments that might result from these uncertainties.~~decrease in our stock price, would have a material adverse effect on future operating prospects, and could require us to significantly reduce operations.

- 17-

Off-Balance Sheet Arrangements

As of ~~June 30, 2017,~~March 31, 2018, 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.

~~- 18-~~

Critical Accounting Policies

~~There~~Other than the adoption of Topic 606, there have been no changes to our critical accounting policies during the ~~six~~three months ended ~~June 30, 2017.~~March 31, 2018. 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 ~~our~~ “Part II. Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations” ~~included in Item 7,~~ as well as in our consolidated financial statements and the footnotes thereto, each included in our ~~2016~~2017 10-K.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Item 4. Controls and Procedures

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 ~~June 30, 2017.~~March 31, 2018. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of ~~June 30, 2017,~~March 31, 2018, 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 ~~June 30, 2017~~March 31, 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

~~None.~~From time to time, we are subject to various legal proceedings arising in the ordinary course of business, including proceedings for which we have insurance coverage. As of the date hereof, we are not party to any legal proceedings that we currently believe will have a material adverse effect on our business, financial position, results of operations or liquidity.

Item 1A. Risk Factors

A description of the risks associated with our business, financial conditions and results of operations is set forth in “Part I.Item 1A1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016~~2017 and filed with the ~~SEC~~Securities and Exchange Commission on March ~~31, 2017~~7, 2018. There have been no material changes to these risks during the ~~six~~three months ended ~~June 30, 2017.~~March 31, 2018.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

- 18-

There have been no unregistered sales of securities during the period covered by this Report that have not been previously reported in a Current Report on Form 8-K. ~~The Company has not made any purchases of its own securities during~~

During the ~~time~~ period covered by this ~~Report.~~Report, the Company repurchased 182,000 shares of the Company’s common stock (and recorded such shares in treasury stock) from employees to satisfy $53,000 of minimum statutory tax withholding requirements relating to the vesting of stock awards.

Issuer Purchases of Equity Securities



Period	Total Number of Shares Purchased ⁽¹⁾⁽²⁾		Average Price Paid Per Share
January 1 – 31, 2018	67,000	$	0.36
February 1 – 28, 2018	—	$	—
March 1 – 31, 2018	115,000	$	0.25
Total	182,000	$	0.29

(1) All shares purchased by the Company during the period covered by this report were purchased from employees to offset $53,000 of minimum statutory tax withholding requirements relating to the vesting of stock awards.

(2) As of March 31, 2018, the maximum number of shares that may yet be purchased by the Company would not exceed the employees’ portion of taxes withheld on the vesting of the following outstanding unvested equity awards: 113,000 shares of restricted stock, 1,192,000 stock options, 990,000 restricted stock units, plus 1,824,000 shares yet to be granted under the 2014 Equity Incentive Plan as of March 31, 2018. See Note 8 to the Company’s condensed consolidated financial statements included elsewhere herein for information regarding certain actions taken by the Company with respect to its 2014 Equity Incentive Plan subsequent to March 31, 2018.

Item 3. Defaults upon Senior Securities

The Main Street Loan Agreement contained certain financial covenants that were measured on a quarterly basis. The Company breached its debt to Adjusted EBITDA ratio covenant as of the end of the second, third and fourth quarters of 2016, and the first and second quarters of 2017 and breached the fixed charge coverage ratio covenant as of March 31, 2017 and June 30, 2017, each of which constituted an event of default under the Main Street Loan Agreement. On July 31, 2017, the Company completed the Debt Recapitalization as described in Note 2 of the accompanying condensed consolidated financial statements. Therefore, as of July 31, 2017, there were no remaining obligations related to the Main Street Term Loan.Not applicable.

Item 4. Mine Safety Disclosures

~~- 19-~~

Not applicable.

- ~~20-~~19-

Item 5. Other Information

~~None.~~Item 1.02. Termination of a Material Definitive Agreement

As of March 31, 2018 and May 8, 2018, the Company had no outstanding principal or accrued interest due under the Business Financing Agreement (as amended, the “Western Alliance Bank Loan Agreement”), dated July 31, 2017, by and among the Company and GP Communications, LLC, a Delaware limited liability company (the “Subsidiary”), as borrowers, and Western Alliance Bank, an Arizona corporation, as lender (the “Lender”).

On May 8, 2018, the Company, the Subsidiary and the Lender entered into a payoff letter that terminated the Western Alliance Bank Loan Agreement. The Company did not pay any premiums or penalties in connection with its voluntary prepayment and termination of the Western Alliance Bank Loan Agreement.

- ~~21-~~20-

Item 6. Exhibits



Exhibit Number		Description
31.1*		Rule 13a—14(a)/15d—14(a) Certification of the Chief Executive Officer.
31.2*		Rule 13a—14(a)/15d—14(a) Certification of the Chief Financial Officer.
32.1**		Section 1350 Certification of the Chief Executive Officer and Chief Financial Officer.
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema
101.CAL		XBRL Taxonomy Extension Calculation Linkbase
101.DEF		XBRL Taxonomy Extension Definition Linkbase
101.LAB		XBRL Taxonomy Extension Label Linkbase
101.PRE		XBRL Taxonomy Extension Presentation Linkbase

* Filed herewith.

** Furnished herewith.

- ~~22-~~21-

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



	GLOWPOINT, INC.

~~7/31/2017~~5/9/2018	By:	/s/ Peter Holst
		Peter Holst
		Chief Executive Officer
		(Principal Executive Officer)



~~7/31/2017~~5/9/2018	By:	/s/ David Clark
		David Clark
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

- ~~23-~~22-



	June 30, 2017		December 31, 2016
Main Street Term Loan, net of unamortized debt discount based on an imputed interest rate of 12%; $89 at June 30, 2017 and $123 at December 31, 2016, respectively.	$	8,911	$	8,877
SRS Note, net of unamortized debt discount based on an imputed interest rate of 15%; $0 at June 30, 2017 and $2 at December 31, 2016, respectively.	1,785		1,783
Total current debt	$	10,696	$	10,660



	Former Debt Obligations as of July 31, 2017		Debt Obligations Extinguished on July 31, 2017			New Outstanding Debt Obligations as of July 31, 2017
Main Street Term Loan: principal	$	9,000,000	$	(9,000,000	)	—
SRS Note: principal	1,784,692		(1,784,692		)	—
SRS Note: accrued interest	777,568		(777,568		)	—
Western Alliance Bank: principal						$	1,100,000
Super G Capital: principal						1,100,000
Total	$	11,562,260	$	(11,562,260	)	$	2,200,000



	Restricted Shares		Weighted Average Grant Price
Unvested restricted shares outstanding, December 31, 2016	363		$	1.08
Granted	—		—
Vested	(9	)	1.47
Forfeited	—		—
Unvested restricted shares outstanding, June 30, 2017	354		$	1.07



	RSUs		Weighted Average Grant Price
Unvested RSUs outstanding, December 31, 2016	3,196		$	0.62
Granted	—		—
Vested	(724	)	0.41
Forfeited	(85	)	0.61
Unvested RSUs outstanding, June 30, 2017	2,387		$	0.68



Year Ending December 31,
Remaining 2017	$	151
2018	308
2019	88
2020	23
	$	570