ý
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
ý | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
2009
¨
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
¨ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 77-0312442 | |
|
| |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
225 Long Avenue, Hillside, NJ | 07205 | |
(Address of principal executive offices) | (Zip Code) | |
| ||
| ||
Title of each class | Name of each exchange on which registered | |
None | Not applicable |
Large accelerated filer | ¨ | Accelerated filer | ¨ |
Non-accelerated filer | ¨ | Smaller reporting company | ý |
$15,078,000.
65,150,232.
| TABLE OF CONTENTS |
|
|
|
|
Item |
| Page |
|
| |
|
| |
1. | 1 | |
1A | 15 | |
1B | 20 | |
2. | 20 | |
3. | 20 | |
4. | 20 | |
| ||
| ||
5. | 21 | |
6. | 23 | |
7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 24 |
7A. | 36 | |
8. | 37 | |
9. | Changes in Disagreements with Accountants on Accounting and Financial Disclosure | 37 |
9A | 37 | |
9B | 37 | |
| ||
| ||
10. | 38 | |
11. | 40 | |
12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters | 41 |
13. | Certain Relationships and Related Transactions, and Director Independence | 41 |
14. | 41 | |
| ||
| ||
15. | 42 | |
47 |
-i-
and Wainhouse Research. needs. Overview. customers by partnering and peering with Glowpoint, offering the Glowpoint service cloud as part of their network service offerings. This strategy has the added benefit of increasing the demand for network bandwidth, thereby increasing the carrier’s network sale. deployments. services. peering; (iii) via existing network provider peering; or (iv) via an overlay network provided and managed by Glowpoint. The following outlines the four connectivity options in more detail: Select) purchasing Glowpoint’s managed Event Services. event services. Our managed video services have been used during events to cost-effectively acquire video content for broadcasters, cable companies and other media enterprises, especially in the sports, news and entertainment industries. While it includes our core managed video services, IP-based broadcasting and event services require more project management and dedicated operational and engineering personnel than our standard subscription services. Rather than using an expensive satellite feed, companies can acquire broadcast-quality standard definition footage at a fraction of the cost from Glowpoint over a dedicated IP connection. Since 2002, we have provided this service to ESPN during the professional football and professional basketball drafts. ESPN has used it for interviews from team locations with coaches, players and analysts during their coverage. Our managed services for IP-broadcast solutions are currently used by many well-known media In 2007, we launched a High Definition (HD) content acquisition solution that we branded TeamCamHD and RemoteCamHD. This offering provides two-way HD video communication for content acquisition from remote locations. gateway and multi-point calls. Competitive providers of network, such as telecommunications carriers (see “Competition” below), would have to install video-specific gatekeeper technology throughout their networks to provide the additional functionality necessary to create similar service capability. The challenge facing these carriers to replicate our network features is two-fold: (i) the sheer volume of data traffic carried by their networks would make such a project enormously expensive and, most likely, cost prohibitive and (ii) the gatekeepers alone do not route calls and track usage, it is our other proprietary technology that augments the gatekeeper functionality. We have also developed a specialized configuration of software, hardware and global positioning technology that enables us to accurately monitor jitter, packet loss and latency to maximize overall network performance. customers and help drive wider adoption and acceptance. investments. for telepresence and unified communications. systems, with more than 30,000 video endpoint devices now certified to use our services. infrastructure, and the ability for businesses to connect with other businesses in a seamless fashion.p lans,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 annual 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. 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 annual report on Form 10-K.leadingcarrier-grade provider of advancedmanaged services for telepresence and video communications solutions.conferencing. Our suite of advanced and robust telepresence and video communications solutions enablemanaged services empower organizations to seamlessly and consistently communicate via video over any network and with each other over disparate networks andany video technology platforms – empowering business, governmental agencies and educational institutionsplatform, enabling them to sharply boost the impact and productivity of their internal and external communications while at the same time reducingreduce their on-going operating costs. We supportcosts and total cost of ownership. Glowpoint supports thousands of video communications systemsendpoints in overmore than 35 countries withand our 24/7 managed video and global business-to-business (B2B) exchange services poweringare driving video collaboration for Fortune® 500 companies, major broadcasters,governmental and educational institutions, and media and entertainment broadcasters. Glowpoint also provides resale and wholesale programs, including private-labeled (branded) resale options for manufacturers, carriers, unified communications providers, and integrators seeking to offer this service as wella value-add to their collaboration and communications offerings.· Glowpoint’s VNOC managed services provide a single point of contact for monitoring, scheduling, and the support and management of telepresence rooms and traditional conference rooms. · · Glowpoint’s conferencing services offer scalable, pre-scheduled and “ad-hoc” conferencing resources to clients with Glowpoint’s hosted infrastructure in the Cloud. In addition to connecting in virtually any device to a call, our conference producers can manage, record, and stream video events to the web, video event based services. · Glowpoint’s professional services provide a compliment to our core managed service offerings and may be applied toward a branding program or even a video deployment evaluation by an enterprise. Today, Glowpoint has branded its video services for Polycom, the world’s leading video equipment manufacturer, for AVI-SPL, one of the largest integrators in the world, for a global telecommunications carrier, and for a host of others who offer Glowpoint’s managed services to their client base. global carriers anda service” industry or other cloud-based services, such as salesforce.com or rackspace.com. manufacturersmay be manufactured by Cisco, Polycom, Tandberg, or Life Size) and their customers around the world.We view our services as analogous to cellular service providers in the cellular telephone industry. Regardless of the cellular phone purchased, users must select a cellular service provider to make it work. Users make that service decision based on the features, reliability and price offerednetwork neutral (i.e., connectivity may be via native Internet or network provided by the service provider. In our industry,AT&T, Verizon, TATA Communications, British Telecom, or others), supporting all recognized video standards across any IP network. As such, regardless of the video conferencing or telepresence equipment purchased or the network connecting it, Glowpoint provides the managedGlowpoint’s services to make it work. In doing so, we offer a vast arraymay be applied.solutions, includingincreasing their return on investment, lowering their total cost of ownership, and providing access to expertise and skills not available elsewhere. Glowpoint provides an alternative to capital intensive, premise-based infrastructure, which customers typically have had to purchase for the video application services, video operations services (VNOC) for telepresence, managed network services, IPenvironment to function, as well as the tools and ISDN videoconferencing services, multi-point conferencing (bridging), technology hosting and management, and professional services. We provide these services to aenable wide variety of companies, from large enterprises and governmental entities to small and medium-sized bus inesses. Glowpoint is primarily focused on high quality two-way video communications. With the advent of HD (High Definition) and telepresence solutions, we combined various components of our features and services, and developed new ones, to create a comprehensive service offering for enterprises and their end users that can support anyadoption of the telepresence products on the market today. Glowpoint also wholesales these services and provides private-labeled branding for manufacturers, carriers, and integrators seeking to offer this service as a value-add to their offerings for their customer bases.Glowpoint’s video communications solutions are hardware and network agnostic, supporting all recognized video standards across any high-quality network. As a result, we havethroughout their business. Glowpoint has become the recognized leader of managed video and global video interconnection point, linkingexchange services that provide businesses and service providers a way to link together their “islands of video” across third party private networks (e.g., provided by AT&T, SBC, Qwest and others), protocols (e.g., H320, H323, IP, SIP, and VoIP), and devices (e.g., telepresence, desktop, laptop, and mobile phone)enabling organizations to drive wide adoption.Glowpoint’s services provide usersThese access POPs are all connected with a consistent experience - regardless of how they are connecting or where they are connecting from.Glowpoint’s video communications solutions involve two major components, the Glowpoint managed video applications services and the Glowpoint managed network, services. Glowpoint has focused its sales and marketing efforts on the managed video application services, which are network agnostic and may be leveraged by customers on any QoS (Quality of Service) network that supports two-way video transport. Glowpoint’s services for telepresence are in increased demand because they address the need for a single point of contact to provide monitoring, scheduling, support, and management of telepresence rooms and the associated equipment. Additionally, companies look to Glowpoint as a resource to provide secure business-to-business (B2B) support when using the video systems to communicate beyond their internal enterprise use. Our Telepresence inter-Exchange Network (TEN) is a1suite of services and applications designed to overcome the challenges of using video outside of a company's private network, such as interconnectivity and interoperability, and we believe will be a critical component for enhanced B2B video communications. Our managed video application services are sold as a monthly subscription service and may also include Glowpoint managed network services as an option.The Glowpoint network services leverage the Glowpoint network, a multiple protocol layer switching (MPLS) QoS network that is dedicated to high-quality two-way video transporttransport. The Glowpoint network, which was built and managed by Glowpoint. The Glowpoint networkinternally, is exclusively dedicated to IP-based video communications, which allows uscommunications. It was designed to optimize the performance and routing of video and audio packets so asin order to offerensure broadcast quality images with telephony-like reliability, scalable features and ease-of-use. Because of the commoditized nature of network services and the investment that couldwould be required by today’s high-bandwidth telepresence uses, Glowpoint haswe have de-emphasized its aggressive salesour managed network service offering to focus more on the managed services and marketing ofB2B exchange offerings. Our previously referenced managed network services, though that service is still utilizednow principally a means for clients to access our service cloud and TEN. Customers can access the Glowpoint service cloud and TEN exchange in demandone of four ways: (i) via public networks, such as the native Internet or public switched telephone network (PSTN); (ii) via private network peering; (iii) via existing network provider peering; or (iv) via an overlay network provided and managed by a multitude of video users. Glowpoint’s network reach spans the globe, with 11 points of presence (POPs) in secure, hardened facilities and virtually unlimited peering and interconnect capability to cost effectively deliver Glowpoint services to customers in virtually any region in the world. The interconnection points also serve as secure connection point for TEN.Glowpoint. A unique feature of the Glowpoint network and TEN is its sophisticated gatekeepercall control infrastructure and configuration, along with its patent-pending call control capabilities (see “Intellectual Property” below), which enable. This design enables customers to seamlessly connect to nearly any standards-based video communications user in the world, whether they are still usingon ISDN, or the Internet, acrossor their own private network, virtually eliminating the United States as well as to virtually any major city around the world. Sincehistorical challenge where videoconferencing users typically cantraditionally could only communicate to others on the same service, Glowpoint is bridging these isolated islands of videohardware and making video communications more ubiquitous. In less than 10 years, Glowpoint has established itself as the technology leader in advanced video communications services. Ournetwork service. when we launched our managed video subscription service, and have evolved to support the next generation of telepresence and high definition video. From 2000 to 2003, we were a division of Wire One Technologies Inc. (“Wire One”), a reseller of videoconferencing equipment that was formed in May 2000 by the merger of All Communications Corporation and View Tech, Inc. After steady growth of the IP-based video service business through early 2003, we determined that separating the Glowpoint managed video services business from the Wire One equipment reselling business could create larger distribution channels for Glowpoint, allow for more aggressive product development, and provide us with the opportunity to develop business relationships based solely on the objective of expanding our video service product offering and increasing the size of our customer base. In September 2003, we completed the sale of the equipment business and officially changed our name from Wire One to Glowpoint in order to focus solely on growing Glowpoint’s video communications solutions. Since 2003, we have been exclusively focused on making video communications as reliable and as easy to use as the telephone and have redefined the two-way video communications marketplace.recognized as one of the premier video-over-IPa respected leading managed service providers in the market today.provider. Our track record and quality-of-service commitment of 99.99% network uptime has earned us various awards and credits. We have been recognized in the industry for focusing on providing an innovative customer experience through our use of IP-based video functionality.functionality and innovation. Our industry awards include: 2009 Excellence in Globalization Award (Frost and Sullivan); 2009 Top Ten Managed Service Provider (MSP mentor); 2009 Best US Managed Conferencing Services Provider (Telepresence and Videoconferencing Insight Newsletter); PACE Award for contributions to the advancement of video communications (Telespan 2008); Best US Managed Video Service Provider (VC Insight, 2008, 2007 and 2006); and Growth Company of the Year, Finalist (New Jersey Technology Council, 2007);. We are also widely followed and Technology Innovation Award (discussed in market research by the leading industry and research analysts, such as Gartner, IDC, Frost and Sullivan,, 2002).telepresenceunified communications industries continue to mature, Glowpoint believes it has established itself as the “go-to” provider for enterprisesorganizations and other service providers to support their unified communication services.Overviewvideoconferencingvideo communications industry continues to transform and rapidly mature. When Glowpoint was initially launched, videoconferencing was a niche industry with unproven technology and questionable quality. We set out to capitalize on that by offering a high-quality, IP-based, reliable service. Today, video communications, especially in the form of telepresence, is becoming a more mainstream, mission critical service.technology. “Telepresence” is a termprovides an experience that represents what Glowpoint has been providing since soon after its launch in 2000 -- high quality, easy to use video communications where the technology does not interfere with the purpose of the meeting. The most popular representation of telepresence is a specially designed room configured to support a “true to life” meeting environment. Everything from multiple monitors, special furniture, strategic camera placement and sound panels are deployed to create an immersive experience so that participants feel as though they are all sitting in the same physical room even though they may be continents apart. Entrance into the telepresence market by Cisco Systems and Hewlett-Packard has brought new competition to theothers, and consolidation of some traditional videoconferencing equipment leadersmanufacturers (e.g., PolycomCisco’s announced acquisition Tandberg and Tandberg); more importantly for Glowpoint, however,Logitech’s acquisition of Life Size Communications) have, we believe, their telepresence offerings and vision have validated our business plan and brought new life and interest to the video communications industry.·Videoconferencing and Telepresence Equipment Manufacturers;·Carriers (Network Providers);· Videoconferencing and Telepresence Equipment Manufacturers; · Carriers (Network Providers); · Managed Service/Conferencing Services Providers (Multi-Point Conference Services); and · System Integrators and Video and Telepresence Equipment Resellers. 2·Managed Service/Conferencing Services Providers (Multi-Point Conference Services); and·Video and Telepresence Equipment Resellers and Systems Integrators..Manufacturers. Manufacturers of videoconferencing and telepresence equipment such as Polycom, Tandberg and Lifesize, focus on selling video endpoint, room, and infrastructure equipment. With the introduction of HD and telepresence, the manufacturers are recognizing that, as part of offering these more complex solutions, there is increased demand from their customers for them to also provide managed services in order to ensure a successful and problem-freeso video communications experience.usage programs inside enterprises may be successful. As such, they recognize and appreciate the need to partner with experienced service providers, like Glowpoint, who make it seamless for customers to buy and use the manufacturer’s products. Glowpoint’s managed services offerprovide purchasers of this equipment, especially expensive telepresence systems, the peace of mindknowledge that their video conferences and telepresence rooms will be managed rel iably,reliably, maximizing the customer’s use (and return on investment) of the expensive equipment.usinguse ISDN. With the emergence of the more robust, scalable, and scalablesophisticated IP network capabilities for videoconferencing and telepresence, the network providers are now aggressively offering services that include high qualityintelligent virtual private networks (VPNs) on which customers may support data, voice and video applications simultaneously. This is often referred to as a "converged network" or "convergence". At this time, however, converged solutions provided by network providers are bandwidth only and provide little or noRecently, more IP-based video communicationcommunications applications o rand managed services. This means that customers may connect their video conferencing equipment to aservices have emerged as an integral part of converged network but must then figure out howofferings. Although in its infancy, we believe that trend will continue as the demand and requirements for video communications continue to support the video applications on their own. This amounts to "self service" videoconferencing, where video usersgrow. Glowpoint services and hosted infrastructure are isolated on the converged network with no video application services or support available.While it may appear that other network providers are competitors, most of the network providers lack dedicated video expertise and do not offer IP video services or support. Essentially, their offering is simply bandwidth and their video services, ifaccessible across any are still focused on ISDN. Glowpoint has been able to leverage this distinction by offering its services over third party networks (rather than the Glowpoint network). We call it "Glowpoint-enabling" or "Exchange Interconnect," which effectively gives a customer’s private network access to Glowpoint’s video application services. This allows network providers to partner with Glowpoint and remainprovider’s network. So, carriers can be a trusted and comprehensive provider for their video communications customers.competeattempt competing with us,the Glowpoint offerings, others have chosen to partner with and resell Glowpoint’s services to increase their speed to market and transform their businesses.increasing. Most businesses already findincreasing, while usage of video is becoming more critical in the mix of unified communications. Many enterprises have become dependent on video communications for increased productivity while also reducing operating costs, and have made it difficult topart of their core business practices. These same enterprises have difficulty and incur considerable cost in effectively maintainmaintaining and managemanaging their existing business applicationsvideo communication deployments because of the shortage of experienced information technology and network personnel. Many customers appreciateenterprises also recognize that supporting video communications ininside their enterpriseorganization distracts their core support organization from other critical business application supportapplications and requires a different skill set than normal business IT support. As a result, businesses are increasingly require outsourced solutionsseeking out managed services and providershosted, cloud-based infrastructure to support theand power their user community and manage their network dedicated to video.video technologies. In fact, isolating and extending the video applicationapplications from other business applications and existing communications infrastructure has become an increasingly important capability for larger organizations. AsWith the rapid advancements in video technologies, it has become increasingly expensive and difficult for enterprises to maintain the infrastructure itself, werequired to power these technologies. We believe that many customers cannot full yfully support quality videoconferencingvideo communications on their networks. And, even if a customer network can support videoconferencing, manyexisting infrastructure and network. Many businesses are reluctant to run a video application over the same network that supports their enterprise data and other applications. Among other concerns, the video communications applications would be required to share bandwidth with data applications (e.g., CRM applications, financial applications, e-mail and file transfers) on a common network. Allocating enough bandwidth inWe view the network, however, as a corporate local area network or Intranetmeans to handle real-time transmission of imagesaccess video applications and audio, in addition to data applications, can be difficult and can significantly impede overall network performance. An effective video network must also be easily scalable in much the same way thatinfrastructure. Therefore, we believe a company can simply add more phone lines as its employee base and operations grow. Moreover, widespread adoption by both enterprise and consumer users requires a video communications solution that provides the same reliability as public tel ephone service. We believe that there exists a significantgreater market opportunity to continueneed is to provide an IP-basedaccess to current and next generation infrastructure across those networks. Glowpoint’s “video in the cloud” approach allows enterprises of all sizes to connect via any network connection to power their video communications solution that is as scalable, dependable and, ultimately, as commonplace as voice telephony.3hashad been technically feasible for years, but did not gain popularity until the full feature and services people were accustomedit was easy to with their traditional telephones became available. Features like publicly-available phone numbers, operator services, voicemail and the ability to seamlessly call to phones off of a company’s private IP phone network were the critical application components that facilitated adoption of VoIP phones.use. Because most companies did not provide those featuresaccomplish this on their own, VoIP service providers developed themfeatures and nowservices to make VoIP simple to adopt and use. Now companies can simply “plug” their VoIP networks into traditional telephony companiesthe Cloud for these application services and off-net transport.“video” telephony company offeringservice provider with services and features enabling wide adoption of video communications for businesses and their users. We specialize in making video communications easy to use and offer application services largely unavailable from anyone else at this time and difficult, if not impossible, for customers to build on their own (see “Intellectual Property” below). Glowpoint providestime. Glowpoint’s unique features and services, such as seamless and secure business-to-business video calling, a comprehensive video exchange directory of businesses connected to TEN, ten-digit dialing video phone numbers automatically routed to IP video systems, live on-demand video operator services, video mailboxes, seamless video calling to off-net locations anywhere in the world and other video application services, allare available to customers by simply “plugging” their video systems or rooms into the Glowpoint service cloud.somemany industry leaders, only about 5-8% of conference rooms in United States businesses have videoconferencing equipment. We believeanalysts, the industry still has not begun to fully realize the potential deployment of video to individual desktops or in consumer environments. As a result, we believe there is still a large untapped potential market for video communications both in the business and consumer markets. Major technology companies such as Cisco Systems and Hewlett-Packard have publicly announced that they feel the telepresence market alone can become a multi-billion dollar industry in the coming years.According to some industry analysts, market research by IDC and published Cisco white papers, the network services side of the videoconferencing industry (currently dominated by network providers) and managed services (such as video operations and multi-point conferencing) is anticipated to grow to more than $4billions of dollars annually in the coming years. Gartner Research, for example, predicts the videoconferencing products and services market worldwide – which includes equipment, network and managed services – will reach $8.6 billion globally overby 2013, with the next few years. Further market data continues to support these projections, with some exceeding the numbers when considering the economic crisis and its impact on video usage and adoption. While still in its relative infancy, wefor services totaling approximately $3.8 billion.* We believe that Glowpoint’s aggregate potential addressable market, which includes end-user customers and industry partners, is significant, though we can give no assurance as to what our market share will be in the coming years.video communications managed serviceservices and solutions including video operation services, conferencing services, managed network services, technology hosting and management, and professional services. We are focused primarily on high qualityspecifically designed to support two-way video communications and our offerings have evolved to meet market demands. In the process we have supported millions of video calls since we launched our service in late 2000. We believe our experience, expertise, video-centric focus, unique features and services, and superior support are unrivaled and a key differentiator in the industry. We have also bundled some of ourcommunications. Our managed services to offer unique video communication solutions for broadcast/media content acquisitionare delivered and video call center applications. In addition,supported via our hosted infrastructure platform and proprietary applications, systems, and processes, along with our expert operations, engineering, and development resources that make up the growth of HD (High Definition) telepresence solutions, we have productized comprehensive video operation services we call our VNOC (video network operations center) services. Theseservice teams. Our services can support any of the telepresence and HD solutions on the market today, regardlessand are designed to enable enterprises of any size to connect as an extension of their own video environment or as an alternative to building one. We believe our experience, expertise, superior support, video-centric focus, unique features and services, hosted infrastructure and exchange are unrivaled and key differentiators in the industry. We have also been successful in bundling some of our services to offer unique video communication solutions that are market and application specific, such as broadcast/media content acquisition and business-to-business private and public exchange applications.connection.· · · · Elite(Premier and VNOC Premierhas been providing the highestis recognized as a video communications expert and industry leader in delivering high quality “white glove” service as part of its product offeringsmanaged services for years. Now, with HD and telepresence technology and the accompanying high expectations in the marketplace for the quality, performance and service, the company isany video environment. We continue to be well positioned with its offering to support the latest customer demands. Our video operations services have been positioned to support high-touch, fully managed environments (VNOC ElitePremier offering) as well as self-use support environments (VNOC PremierSelect offering). The services includeOur global VNOC service offering includes the following:·Room Certification; Proactive Monitoring and “Room Sweeps”: Each customer location, such as a telepresence room, is certified by Glowpoint· · · · · · · · video infrastructure. Thereafter, the room is proactively monitored with dozens of alarm points to allow Glowpoint to identify and fix any technology trouble before usersnetwork they are impacted. In addition to the proactive monitoring, Glowpoint conducts a “room sweep” using its proprietary tools, which are not available to any other managed service provider in the industry today. Glowpoint’s proactive monitoring and room sweeps ensure that certified rooms remain operational and are ready for the start of every conference.·Single Point of Contact:VNOC “at your service” support is a single point of contact accessible via our video concierge service (a branded version of our patented live video operator assistance), which is integrated with a “support” button on the control panel or phone that provides dedicated toll-free dial-in access or Web mail/portal access.·Scheduling:Scheduling with the VNOC service removes any concerns of room management and allows customers to book room resources through all available means, such as a dedicated toll-free number (direct dial for international calls), concierge service through video one touch dialing, and Web portal scheduling tools which are4integrated with Microsoft Outlook and Lotus Notes. Glowpoint’s online scheduling tool is advanced and solves many of the challenges with room resource management that many large enterprises encounter today. Confirmation notifications are provided both to requestors and to participants. All scheduling options may be private labeled to match our customer’s attributes (e.g., name, logo and marketing tagline).·Conference Production and Monitoring: A Glowpoint telepresence conference producer will set up and manage the successful launch and connection of all sites in the telepresence meeting, including point-to-point or multi-point calls. Our VNOC team then continuously supports and monitors all telepresence calls, including digitally monitoring connectivity levels by a qualified Glowpoint video producer. Our goal is to ensure that the technology is transparent to our users.·Help Desk Support: Our VNOC team provides technical support for all active calls during a meeting. When required, we will coordinate with hardware vendors and integrators to repair or replace any component parts or resolve room integration issues. As the single point of technical support for video solutions, our top priority is resolving endpoint or connectivity issues.·Training: We believe that successful use and adoption of video communication requires ease of use, which is in large part a result of knowing how best to use the system. We host training sessions for customers and provide periodic training updates as reasonably requested.·Interoperability Testing and Support: We believe we are the industry leader in evaluating and testing video communication equipment for reliability and interoperability through our Glowpoint Certified Program (see “Intellectual –Hardware Interoperability” below). As telepresence continues to evolve, we expect to continue leading the industry in our interoperability and certification testing to assist our telepresence customers.·Stewardship Reporting and Service Reviews: We provide monthly stewardship reports that capture key metrics related to the performance of the room, the associated network, and various support levels, including statistics related to usage (number of meetings, duration, and hours of use), network and room connectivity availability, network and room mean time to repair, and failure/root cause analysis. We have quarterly meetings with our customers to review these statistics, providing a forum to discuss areas of success, areas in need of improvement, and address any other concern.·Advanced Network Monitoring: If a client chooses to use another network to support its telepresence rooms, Glowpoint offers advanced network monitoring which allows the VNOC service to not only qualify the room readiness at all times, but to also monitor the performance of the network supporting that room. We will set thresholds based on the requirements of video traffic and react and report on any deficiencies.The Glowpoint VNOC solution may be bundled with our Quality of Service (QoS) managed network service or offered on its own by Glowpoint-enabling another network service.using. Customers who purchase a Cisco, Polycom, or Tandberg Telepresence or HD video solution, for example, may all take advantage of the Glowpoint VNOC solution regardless of their choice of network. Customers choosing to Glowpoint-enable their network may interconnect with Glowpoint’s Telepresence inter-Exchange Network (TEN) with sufficient bandwidth to handle business-to-business (B2B) telepresence calls. A typical telepresence room requires 6 megabits per second (mbps) per video device, of which there are typically usually two or three per telepresence room. Therefore, the total bandwidth per telepresence room is usually at least 18 mbps. Multi-point calls (bridging calls) require even more bandwidth, often as much as a DS-3 (45 mbps) to support one session. Our managed ne twork solution is ideal to support the telepresence suites, especially when customer networks cannot handle those demanding requirements. Managed Network Servicenetwork service is an extranet connection to Glowpoint, enabling connecting endpoints to be part of Glowpoint’s global business-to-business (B2B) community, TEN, andservices also gain access to Glowpoint’s video application services. This is primarily done in two ways – (i) registering video endpoints or (ii) via a full high-quality IP network overlay.Most network providers lack dedicated video expertiseour service cloud (hosted infrastructure and do not offer IP video services or support. Instead, they tend to offer bandwidthservices), such as on-demand B2B telepresence calls and their video services, if any, are still focused on ISDN. Glowpoint has been able to capitalize on this deficiency by offering its IP-based services over those third party networks (rather than the Glowpoint network); allowing network providers to partner with Glowpoint and remain a trusted and comprehensive providervirtual meeting rooms.their video communications customers. We call it "Glowpoint-enabling" or "E xchange Interconnect," which is a “bring-your-own-access” (“BYOA”) offering and permits customers to leverage their existing internal IP networks or VPNs (virtual private networks) while still enabling a customer’s video systems to (i) communicate with other video users on separate networks and on different video platforms and (ii) grant access to Glowpoint’s video application services. There are three ways to connect:·Network Overlay –Glowpoint provides a dedicated, Quality of Service (QoS), managed IP network video connection directly to each customer site with video endpoints. This managed network services may include “last mile” (or local loop) connectivity, which is the network connection between Glowpoint’s network backbone and the customer’s5location. A Glowpoint managed router is placed on site and thenVideocustomer’s endpoint(s). All video traffic is transported through this dedicated connection, which can be delivered from 512 kbps and up, over the Glowpoint IP video network. All Glowpoint network overlay customers have access to Glowpoint’s shared infrastructure (e.g. MCUs, gateways, etc.), have an automatic connection to Glowpoint’s B2B Telepresence inter-Exchange Network (TEN), and are equipped with all of Glowpoint’s unique features and services.In late 2006, we formed GP Communications, LLC (“GP Comm”), a wholly-owned subsidiary of Glowpoint, Inc., to provide the last mile connection. Among other things, the creation of GP Comm had the benefit of repositioning our managed video service offering to unbundle (or separate) the video application services from the managed network offering. A key differentiator for our managed network services is our 99.99% service level availability (SLA) and QoS commitment, and the fact that our network was designed exclusively for two-way video communications, which we believe is the industry’s highest quality and reliable network service offering.·Private Network Enablement – In an increasingly popular world of convergence, many businesses seek to leverage their own networks for video transport, but increasingly face the challenge of placing video calls off of their own network. In these situations, Glowpoint provides companies with a secure interconnect and firewall traversal capabilities that effectively allow them to get off of their private "island of video" and connect to other video endpoints, while taking advantage of all the other Glowpoint services. This secure interconnect gives customers connectivity to Glowpoint’s TEN Network permitting B2B calling, access to Glowpoint’s shared infrastructure (e.g. MCUs, gateways, etc.), and access to Glowpoint’s unique features and services.·Public Network (Native Internet) Enablement – For non-telepresence video systems and desktop video conferencing, the native Internet is sometimes considered an acceptable means to communicate with others. However, when those users attempt to communicate via the Internet in to or out of a private enterprise, they are almost always blocked because common industry security practices do not allow inbound or outbound video from the Internet. By registering those video endpoints with Glowpoint, however, users will have access to Glowpoint’s shared infrastructure (e.g. MCUs, gateways, etc.), access to Glowpoint’s unique features and services, and make communication from one Internet connected endpoint to another registered endpoint possible.Managed Video Application ServicesOnce connected via Glowpoint’s managed network service,cloud, or interconnected by virtue of being a VNOC customer, customers gain access to Glowpoint’s award winningaward-winning video application services,applications, which arecontinue to offer some of the most unique features available today. today, including:· · · · · · · · · services are designed to facilitate use and drive wider adoption -- making video as easy and spontaneous as using the telephone, but with the power of face-to-face communications. Our proprietary video application services and features include:·Video calling plan–Customers can make and receive unlimited calls to video systems on the Glowpoint video network or the public Internet for one fixed monthly price. Glowpoint customers also receive a dedicated 10-digit “phone number” for each video endpoint, which people are accustomed to dialing and, we believe, facilitates adoption of video communications.·Traffic and Technology Monitoring–Glowpoint provides 24x7x365 monitoring of its network and infrastructure to maintain its Quality of Service (QoS) commitment to its customers, which is required for today's mission critical video communications. Customer IT departments are often required to determine network problems, such as latency, jitter, packet loss and overall connection quality, which can challenge an IT group, especially while a video call is occurring. Glowpoint’s monitoring gives those professionals peace of mind and can make the video experience predictable and successful.·Unified Call Scheduling and Call Launching– Glowpoint’s unified video call scheduling service is provided by our proprietary web-based portal, which can be synchronized with an enterprise resource scheduler, such at Microsoft Outlook or Lotus Notes, or through a live reservationist via telephone or email. Glowpoint also provides a call launching service, thereby guaranteeing the successful start of scheduled video conferences. Prior to the start of a scheduled conference, skilled Glowpoint conference producers call each video endpoint to ensure that each is properly connected for the call.·“000” Live Video Operator Assistance–With our patented live video operator support, customers obtain live, face-to-face assistance simply by dialing “000” from any Glowpoint subscribed endpoint. Video operators can help callers with general questions about their service and can provide them the dialing information they need to process calls.6·Video Endpoint Management–Many customers enjoy the option of having a single point of contact for all of their video communication needs. Therefore, we offer remote video endpoint management services and can provide proactive monitoring and support, along with maintenance of video endpoints (such as providing required software updates), to ensure our customer’s video endpoints are always ready and reliably available.·Automated Video Call Assistant–When a video call is not answered, fails to connect, or the recipient is busy, callers are greeted by “Lisa”, Glowpoint’s automated video call assistant, explaining why the call did not complete and providing the caller with an interactive menu to select options, including a connection to a live operator by selecting the option on the menu. Non-Glowpoint videoconferencing users typically are met with a blank screen, a cryptic technical error message or worse, and have no idea why a call was not completed. Our error-handling feature is user-friendly and removes much of the guesswork, which simplifies the video calling experience and promotes further adoption and use of video communications.·VideoMailbox–Glowpoint has brought voicemail to the video communications world. If a Glowpoint customer receives a video call and is not available or his video system is turned off, the call is automatically re-routed to a VideoMailbox where the caller is greeted with an outgoing video personally recorded by the Glowpoint customer. The caller may then leave his/her own video message in the VideoMailbox. The Glowpoint customer then receives a message which is stored on his VideoMailbox and receives an email alert with an image of the caller and associated information. Our customer may then view the message as a media file either through the online portal or checking messages from his video endpoint.·IP-to-ISDN and/or Internet Gateway Access; Reduced Rate International Calling –Glowpoint’s shared infrastructure is equipped with a sophisticated gatekeeper platform that enables a seamless transition between ISDN and IP technologies and Internet-based endpoints. Essentially, this capability allows Glowpoint IP customers to place and receive calls with any ISDN or Internet-based video system or voice phone in the world. Much of the world continues to utilize ISDN as a means for video communications and the cost of placing video calls overseas can cost hundreds of dollars per hour. Glowpoint offers customers significantly reduced rates for ISDN calling by utilizing our least cost routing capabilities. We route video calls over our IP network to our nearest point of presence, where the call is then handed off to the in-region ISDN network, thereby eliminating or reducing long distance charges.·Reservation-Less, Bridging on Demand (“Meet Me Rooms”) –This “bridging on demand” (BOD) service permits multiple users to see and communicate simultaneously on one screen in a virtual room, without the need for reservations or call management. The shared infrastructure MCU enables various modes of viewing, including continuous presence that allows all parties to see each other at the same time in a collaborative conference session, allows Speaker Only, allows Speaker voice activated, and various other layouts. The BOD service is a cost effective, automated alternative to pre-scheduled managed multi-point calls. We offer this service in both standard and high definition.These proprietary video application services, many of which are the subject of patented and patent-pending technology (see “Intellectual Property” below), were developed by Glowpoint over many years of focusing exclusively on video communications. While not an applicationper se, Glowpoint customers also have access to video communications support and expertise that we do not believe is available anywhere else.unmatched in experience and skills. Our Network Operations CenterVNOC provides solutions and support for the physical network as well as the video experience and unique programs that businesses may support with video. We do not just monitor and trouble-shoot the network and leave customers to their own devices to support video communications. We are our customers’ video communications partner and provide support to ensure a high-quality, easy-to-use and reliable video experience.managedscheduled and on-demand multi-point video conferencing, event management and web streaming.·Managed Video Conferencing –· one time. Our world-class global conferencing service and skilled professional technicians provide high quality service to fulfill all conferencing needs – at a competitive price. With our managed multi-point conferencing service, virtually anyone can participate on a video call together. Glowpoint also launched one time. Our world-class global conferencing service and skilled professional technicians provide high quality service to fulfill all conferencing needs – at a competitive price. With our managed multi-point conferencing services, virtually anyone can participate on a video call together. Glowpoint was recognized as offering the world’s first High Definition (HD) and telepresence managed multi-point conferencing services.· · ·Event Management –Glowpoint provides a full range of event management services to support mission critical conferences. Glowpoint’s satellite broadcasting, room rental capabilities and streaming services extend the range of a7customer’s video equipment to participants around the globe, and Glowpoint’s experienced technicians provide the expertise needed for a well organized, professional meeting.·Web Streaming Events –Glowpoint provides a full complement of streaming media solutions that enable our customers to leverage their existing video environment and broadcast their meetings over the web for extended viewership. Our solutions offer both live and on-demand offerings.Solutions:Solution: Bundled OfferingsOffering for Broadcast and Video Call Centersvideo call centers.Managed IP Video Service for Broadcast and Event Servicescompanie s,companies, including ESPN and NFL Network.In April 2007, we announcedGlowpoint now provides a multi-year agreement with NASCAR Images asfull suite of HD solutions for the first customerbroadcast, entertainment and media industry and is considered a high-quality alternative to deploy the TeamCamHD solution, which will be used to provide the NASCAR industry the ability to acquiretraditional means of acquiring content such as driverin many applications, including interviews between races, which may then be distributed to key media outlets for dissemination.Video Call Center SolutionGlowpoint is leading the way in developing unique applications using video communications. Leveraging our patented live video operator service, we developed a proprietary product that allows businesses to bring video to their call centers, turning their most talented resources into a global sales team. We call this application “Customer Connect” and it is the “middle ware” that plugs into, and accesses alleven full motion video.8that other company even though it is actually “powered by Glowpoint.” Glowpoint has been involved in a number of private label opportunities, including Sony and Vision Net (Australia), and, in the last 18 months, has branded various services for multiple strategic global partners specifically for VNOC services.In constructing Glowpoint’s global network and service offering, we developed technical and operational expertise relating to supporting two-way video communications. In early 2006, we decided to leverage this intellectual property and video infrastructure by offering to host other companies’ video-related equipment and applications. Our technology hosting revenue is comprised of a non-recurring fee for setup and installation, and an ongoing monthly hosting and support fee. For enterprise customers, the majority of hosting revenue is centered on hosting and managing MCUs (bridges). For other service providers, Glowpoint hosts components of the provider’s video solution.We have focused our research and development on the three key factors that we believe are essential to the successful delivery and widespread adoption of video communications: (i) network architecture; (ii) video applications and telephony features; and (iii) hardware interoperability. Our research and development has led to a patenttwo patents and a number of patent applications (see below) and various solutions. We know of no competitor that offers any service with comparable features, performance, reliability, and scalability, and we believe there are significant barriers to create one.andor exceed what we believe to beare the needs and expectations of two-way video communications. Our architecture includes patented and patent pending technologies that provide advantages over other networks that are capable of carrying video, including such Glowpoint features as interoperability between IP and ISDN systems, fast re-route of video calls, varied and flexible “last mile” connectivity options that support multiple protocols, 99.99% Quality of Service (“QoS”) commitment, and a fully redundant and secure backbone design.OurOur networkIt is a ring with mesh points to provide full redundancy on the backbone. Utilizing carrier grade Ciscoswitching and routing, along with session border controls to access products in the core, we have been able to design a backbone that is scalable and can easily grow as demand dictates. With the increasing adoption of HD (High Definition) video systems and telepresence rooms, the expectation is that the demand for more bandwidth per video call will also grow. Our investment in our access points and backbone architecture accounted for this and our backbone capacityTEN exchange traffic and video sessions utilizing our infrastructure can more than triplescale with modest additional investment. Becausea state-of-the-art network operations center (NOC) atstaffed command and control (network operations) centers in three locations across the United States – from our Hillside, NJ headquarters, to our facilities in Conshohocken, PA and in Venutra, CA – from which we monitor the operations of our network and infrastructure on a 24x724x7x365 basis. The NOC’s primary functions are to monitor the network, manage and support all backbone equipment, and provide proactive and on-demand support for our customers. Video traffic does not pass through our NOC, nor does usage information or authentication packets. We designed our network to handle those functions at our Points of Presence (POPs),POPs, which was done for improved video performance and, more importantly, to address security and disaster recovery/business continuity matters. We utilize Zyrion Traverse, EXFO’s Brix solution,Cisco Works network management tools to monitor and support our network. We also use Microsoft CRM for workflow in order to track and report trouble tickets.Our proprietary network architecture includesexchange POPs include Glowpoint-owned equipment installed at carrier neutral collocation centers across the country,globe, connected by multiple dedicated high-speed circuits.circuits that make the fabric of our Telepresence interExchange Network (TEN). These Points of Presence (POPs)access and exchange POPs contain our cloud-based application infrastructure, provide access to virtually every carrier in the world, and are connected in a ring topology with strategic mesh points, which virtually eliminate the risk of a single point of failure and provide industry-leading throughput, scalability and mission-critical resiliency. Our model is complimentary for any MPLS provider in the world to enable Glowpoint video application services on their respective networks. We have contracted with numerouspurchase network from various providers, for backbone circuits, aggregate hubs and collocation facilities. Ourincluding our primary vendors in the United States are (i) Qwest and XO for backbone connectivity, (ii) Qwest, Verizon Business/MCI and Covad for the aggregate hubs, and (iii) Equinix for collocation facilities. We have also contracted with a number of “last mile” providers in the United States and abroad to deliver local loops to our customer locations. In the United States, Covad Communications, are our primary SD SL providers withEasynet, Masergy, PCCW, Qwest, Verizon Business/MCI, andSprint, TATA Communications, XO Communications, providing private line DS-1 services. We use Network-I and Easynet for DSL as well as T-Systems, Masergy and others for international connectivity.Verizon Business/MCI.goal is to partner with carriers who can provide dedicated broadband access to our network using either digital subscriber lines (DSL) or dedicated 1.5 mbps (DS-1) or 45 mbps (DS-3) lines. We have many access options for connecting customer locations to the backbone, including SDSL, HDSL, T1, DS3, Sonet, ATM and Gigabit Ethernet options.Our networkTEN architecture was specially designed for the efficient and cost-effective delivery of feature-rich two-way video content. The networkexchange boasts a fully deployed and sophisticated gatekeeper infrastructure that can support thousands of video endpoints with redundancy. This design enables us to provide a unique set of value-added services, such as intelligent call routing and an exclusive consolidated videoa patented IP-based call detail record (CDR) feature that allows for detailed tracking on a call-by-call basis for point-to-point,9Video Applications and Telephony FeaturesWe developed and offer a full arrayvideoconferencing equipment.or SIP. Through the Glowpoint Certification Program, we test and assess new equipment, options and configurations for use throughout our network. The program sets strict standards for equipment performance and service levels. Customers can be assured that Glowpoint-certified products conform to the highest standards of compliancy as well as interoperability with other leading manufacturers of similar products. Our certification team has created a comprehensive testing and evaluation methodology requiring that each manufacturer’s class of video communications equipment meet or exceed performance, reliability and interoperability levels in the areas of video, audio, data, feature and capability set. We maintain a close relationshiprelationships with all of the leading video equipment manufacturers, such a sas Polycom, Tandberg, Sony, Cisco, HaiVision, Life SizeLifeSize (a division of Logitech), and Radvision, and provide each of them with information about their products’ performance.Because we were the first dedicated IP-video service provider, theand video applicationshave resulted in a significant amount of intellectual property – from real-time ratingmetering and billing for video calls to videointelligent call center applications for customer support.routing. In 2007, we received our first patent; in 2009, we were awarded a second patent. A number of other applications have been filed with the United States Patent and Trademark Office and are in various stages of the patent process, which included initialinclude some rejections to which we have responded in due course. We have abandoned one patent application, determining that the likelihood of an award and the cost to obtain it versus the value of the potential award did not justify proceeding any further. While there can be no assurance that a patent will be awarded, we believe that thisour patented and patent-pending proprietary technology provides an important barrier for competitive offerings of similar video communications services. We are unique and, given our proprietary technology, believe we are especially well positioned to partner with telecommunications carriers, virtual priva te network providers, equipment manufacturers, resellers and other companies focused on integrating innovative and high qualityhigh-quality video solutions into their product mix.B2 in April 2007 for our live video operator assistance feature. Thisfeature and awarded U.S. Patent No. 7,664,098 in February 2009 for our real-time metering and billing for IP-based calls. Our patented “Live Operator” technology provides customers the ability to obtain live, face-to-face assistance and has widespread application, from general video call assistance to “video concierge” services. This patent is an essential component of providing “expert on demand” and telepresence “white glove” (our VNOC) services. Our “Call Detail Records” (CDR) patent for IP-based calls provides the ability to meter and bill an end-user on a transactional basis, just as traditional telephone calls are billed. This unique capability is a vital development as more and more telepresence and video conferencing calling traffic is distributed over disparate IP-based networks – rather than ISDN – as B2B calling is becoming much more common for video users. We believe this patent helpsthese patents help solidify our position as the leader in developing solutions that make video communications a critical business application for our customers.10strategic.strategic and have limited them to the United States. The following is a brief description of our pending patents and their role in our managed video service offering:·Video Call Director - When you place a voice telephone call, you expect some resolution· · · · 11simply dial the phone number to “gateway” from their IP system on Glowpoint to ISDN systems. In addition, Glowpoint customers can be called directly from virtually any ISDN video system or even a phone anywhere in the world. This patent-pending automated call routing capability has been leveraged to provide a least cost gateway to customers, routing the call to the most inexpensive gateway exit point off the Glowpoint network before entering the PSTN/ISDN network.·Video Communications Control System/Parental Control – In late 2005, Glowpoint introduced IVE (Instant Video Everywhere), a software-based video service that works with a simple web camera over the Internet. During development and market research, it became apparent that the early adopters of consumer based two-way video communications would be teenagers and young adults. Given that demographic and the proliferation of tools to help parents control what websites are visited by their children, we felt that parental control of two-way video communications was a logical requirement as video communications became more mainstream. This patent-pending technology leverages existing parental control codes and guidelines to restrict video calls from being placed or received from blocked callers. It also permits parents to establish a “friends and family” directory of allowable video numbers that can be called. While it may be cu rrently ahead of its time, we believe this patent-pending technology will be valuable in the future.·Method and Process for Follow-Me Video Phone Number – Our IVE (Instant Video Everywhere) product offering was intended to enable traveling business people to stay connected by video wherever they go. These “road warriors” could log into IVE from a hotel room, airport lounge, or anywhere else a quality broadband connection was available, and place and receive video calls. In order to enhance the experience and integration with the video systems in their offices, Glowpoint developed technology to create a Follow-Me Video number capability. Essentially, the user has one video phone number and, if logged into IVE, the video call will automatically route there instead of the video system in the user’s office. This patent-pending technology allows our customer to have one video number, one video mailbox, and yet literally be reached by video anywhere in the world.· · · managed video services to a broad range of businesses in many industries through both direct and indirect sales channels. As noted above (see “Overview -Industry Overview”), strategic relationships with videoconferencing equipment manufacturers, unified communication providers, global integration service providers, equipment resellers, audio/visual integrators, and network providers have expanded our indirect sales channels. The global demand for video communications has also increased our opportunities for regional partnerships in the world, including in the emerging markets of Asia/Pacific, Middle East, and Central/Latin Americas. Many of the complex solutions sought in today’s market, especially telepresence and unified communications solutions, have created new and unique opportunities for the sale of Glowpoint services. We also continue to diversify our lead generation and sales efforts by integrating these indirect sales channels with aggressive internal lead generation programs and vertical industry focused marketing and promotional efforts. No matterRegardless of the lead generation, sales or distribution channel, our goal is to provide all with a world-class service, sales and collateral materials, training, and management tools to reduce barr iersbarriers to buying, and increase our return on investment against our sales, marketing and promotional efforts.companies. Thiscompanies, which resulted in historically moderate growth. Recentgrowth opportunities and results. Technology developments in the video communications industry, improvements in network offerings, and achanges in human behavior, driven by such global conditions as the recent economic downturn, in general economic conditions, however,security concerns and health concerns, have positioned video communications to play a mission critical role in business practices, whichpractices. These changes, we believe, shouldwill result in greaterincreased demand for managed video services. Recognizing this, Glowpoint adjustedhas and will continue to adapt its product positioningservice offerings and simplified its offerings to not only fit into specific vertical markets, butstrategic relationships to address the unique needs of today’s and tomorrow’s video communications solutions, especially telepresence.it reliablythe technology is reliable and functions properly functions so as to be used to its fullest extentin order to maximize that investment. They also want to use it to maketheir investment, while increasingly seeking B2B video calls to other businesses – business-to-business (B2B) – so as to increase the opportunities for use.calling capabilities. Glowpoint markets and sells its VNOC services and TEN its B2B global exchange, to these purchasers and to equipment manufacturers and integrators, who purchase our VNOC services on a wholesale basis and resell them in orderas a turnkey bundled offering. We will continue to ensure that their sold product is reliable and satisfactory to their customer, which will result in greater adoption and increased future sales of products. We are focusingfocus more of our sales and marketing efforts on these strategic relationships and business development opportunities becausedue to increased interest has increased significantly and because the value of VNOC service sales tend to be of a larger magnitude than our historical sales opportunities of managed video services. In many of these opportunities we have also found that some end user customers interestedThis strategy applies to all video applications, from telepresence to desktop video and is even expected to apply in VNOC services are also interested in havingconsumer applications as our service cloud model is adopted by business users for their non-telepresencepersonal video endpoints also managed, which can equal or rival the value of the VNOC service opportunity.communications needs. Since the second quarter of 2008, we have sold our VNOC services to support more than 100200 telepresence rooms and to more than another 500 standard room systems.sellmarket and marketsell to new markets and onesmarkets that we’ve created, where video communications can play a critical role in business practices. ExamplesAn example of marketsa market we created for our services includeis the legal and broadcast/media sectors. Law firms have been using video conferencingsector, where we recognized a match between the need for years, but poor performancecost effective content acquisition and the difficultycapability of associating its usage to clients prevented widespread utilizationvideo communications technology combined with Glowpoint’s managed services and growth in the sector. Therefore, Glowpoint introduced a legal industry-focused video solution, which combines Glowpoint’s high-quality managed video services with special billing features that enable law firms to enter a client/matter12billing code before placing a video call. This innovation established Glowpoint as a key component of many law firms’ communication infrastructures and translated into more sales success. For the broadcast/media industry, we recognized its need to acquire more content and do so more cost effectively. Therefore,TEN. To support this market opportunity, we introduced a highly managed and supported service that has been utilizedis used to acquire video content for broadcasters, cable companies and other media enterprises, especially in the sports, news and entertainment industries. Rather than utilizing an expensive satellite feed, companies can acquire broadcast-quality standard definition (SD) and high definition (HD) content over a dedicated Glowpointmanaged IP network connection into TEN at a fraction of the cost. The initial SD use of Glowpoint in the broadcast sector was in 2002, when we provided this service to ESPN during the professional football and basketball drafts. ESPN has used it for inte rviewsinterviews from team locations with coaches, players and analysts during their coverage of the drafts every year since 2002. In 2007, we launched a High Definition (HD) content acquisition solution that we branded TeamCamHD and RemoteCamHD, and announced a multi-year agreement with NASCAR Images as the first customer to deploy this solution, which will be utilized to provide the NASCAR industry the abilityhas been used to acquire HD content such as driver interviews between races, which maythat is then be distributed to key media outletsoutlets. In early 2010, we announced the availability of our professional event services for television broadcast.Other current plans include mining our existing customer basethe broadcast industry in high definition as well.additional sales, strengthening our indirect sales channel relationships,network and continued conversion of ISDN users. Depending on the source, anywhere from 50% to 70% of installed video systems are still using legacy ISDN services. Considering that there are an estimated 500,000 to 1,000,000 video systems in the United States alone, we believe there is still a huge untapped market available to convert to Glowpoint IP services. We will continue to create sales programs designed to convince legacy ISDN users to migrate to IP, which may include bundles with resellers, where equipment and services are sold to the customer as one package.The decision about what network or managed service to use is generally made at the same time a customer purchases, video conferencing equipment. Because we do not selllaunches, or implements video equipment we have historically not been included in a number of opportunities at the point of sale.or programs. Part of our continuing strategy to ensure that Glowpoint is involved at the point of sale is to work with our indirect channels, which is mostly made up of companies that also sell video equipment.equipment and will evolve to the unified communications providers over time. Glowpoint initiated a campaign in May 2006continues to re-energize thatfocus on its indirect sales channel and reestablish relationships. The salesto foster greater growth, through our direct and indirect channels continues to grow, withwhich has resulted in the indirect sales channel contributing the highest amount of new sales on average through 2008.2009. Approximately 10%70% of new sales were realized through these channels in 2006, which grew to approximately 40% through 2007, and were2009, up from over 60% on average through 2008. Our global indirect wholes alewholesale relationships, which include the “white label” branding of services, became increasingly productivecontinue their increased productivity in 2008.2009. We will continue to focus sales and marketing efforts on these relationships so that they become a significant and consistent contributor to our growth going forward.over 750more than 650 customers ranging from Fortune 100 companies toand federal, state, and municipal governmental entities to businesses and service professionals (e.g., accountants and lawyers) toand non-profit organizations. Our top ten current market segments at the end of 2008,2009, listed in order of approximate contribution to revenue, are: broadcast/media, 14% of revenue; electronics, 11%; legal and law enforcement, 18% of revenue; broadcast/media, 16%; financial services, 16%9%; governmental entities (local, state and federal), 8%9%; manufacturing,consulting, 7%; education, 5%financial services, 7%; healthcarebanking and medicine, 5%finance, 6%; engineering and construction, 4%6%; retail, 3%manufacturing, 5%; and services (including consulting), 3%education and teaching, 5%. As of the year end 2008, no singleOne major customer represents more than 10%approximately 15% of our revenue.2008,2009, we had 82approximately 100 full-time employees. Of these employees, 917 are involved in network and service engineering and development, 4254 in customer service and operations, 1816 in sales and marketing, and 13 in corporate functions. None of our employees are represented by a labor union. We believe that our employee relations are good.video application services and managed network services, we mainly compete against select telecommunications carriers, VPNwho have begun to offer a managed service providers,for video as part of their core network offerings, and videoconferencing resellers.equipment resellers and integrators. Many of our competitors have greater resources than we do, including, without limitation, financial, engineering, personnel, intellectual property, research and development, and network resources. Telecommunications carriers, such asThese carrier competitors, which include AT&T, Verizon Business/MCI, Global Crossing, British Telecom (BT), Sprint/BT Conferencing and some of the regional Bell operating companies, mainly compete on the basis of offering network and a converged solution of data, voice and video. VPN service providersGlowpoint differentiates itself from these competitors based on its singular video expertise, flexibility, and smaller regional network providers, such as Masergy Communications, Virtela Communications, and SAVVIS, are all capable of supporting video over their networks, but we understand do not maintainresponsiveness to customer demands. Other competitors have evolved from the audio/visual integration industry or sell a complete managed service offering directly. Typically, these providers partner with a video service provider, such as BT Conferencing/Wire One,videoconferencing equipment resale industry, including York Telecom, Iformata Communications Nortel’s MNOC orand BCS Global, toand compete directly with us. These relationships generally are not exclusivetheir own flavor of managed video services. Glowpoint differentiates itself from these competitors based on its carrier grade services, providing the service levels and we have been able to partner24x7x365 global support enterprises demand for mission critical communications. Glowpoint has partnered with a number of would-be competitors with the intent of selling our video application services to be delivered over their networks.networks or as a complement to their offerings. Glowpoint-enabling a third party network is one way Glowpoint may reduce the threat of competition, as it can work closely with carriers and customers to deliver video services even if Glowpoint’s network is not selected. Some videoconferencing equipment manufacturers and resellers have opted to create their own video services offering, using third party networks (such as Savvis or Masergy) or a third party managed video service providers (such as Iformata Communications, York Telecom or Nortel’s MNOC) to sell video services at the equipment point of sale.services. We do not believe that any of thesethe competitive offerings havecurrently available in the market offer the full range and scop escope of the carrier grade managed services that Glowpoint offers.13video service with our conferencing services hosted within our exchange, we believe we offer significant performance and cost savings for our customers, and we believe replicating or matching our comprehensive offering is difficult, if not nearly impossible, for t hethe competition.·full support of all industry standards and equipment manufacturers;·full support of all network types, regardless of whether private or public;·primary focus and competency on two-way video communications;·breadth of service offerings;·unique custom built applications and services;·global distribution and network presence;·technical expertise, with knowledgeable video service and training personnel;·commitment to world-class customer service and support; and·existing wholesale relationships with equipment manufacturers, global carriers, and audio/visual integrators.More than just· full support of all industry standards and equipment manufacturers; · full support of all network types, regardless of whether private or public; · primary focus and competency on two-way video communications; · breadth of service offerings; · unique custom built applications and services; · global distribution and network presence; · technical expertise, with knowledgeable video service and training personnel; · commitment to world-class customer service and support; and · existing wholesale relationships with equipment manufacturers, global carriers, audio/visual integrators, and unified communications providers. bandwidth forthe managed services that are driving adoption and enabling video communications, Glowpoint has developed a comprehensive approach to significantly improve video communications so that it can become an integral, mission critical tool for business communications. In addition to designing a networkplatform and service portfolio specifically targeted for two-way video communications, Glowpoint has continued to develop proprietary applications that ensure a high quality, reliable and easy-to-use experience. Glowpoint supports any standards-based videoconferencing equipment and through our certification program, has developed expertise in the area of hardware interoperability across disparate technology and IP networks. Our value-added services include video operators, multi-point video conferencing (bridging), seamless connectivity from IP to ISDN (gateway services), on-line portal that allows customers to schedule conferences, access to an interactive directory of video communities, access to public rooms for video communications, real-time monitoring and diagnostics tools, interact with expert video communications support teams, and access to real-time billing, a ndand call/usage details for a customer’s video environment. Our managed services offer customers substantially reduced transmission costs and superior video communications quality, remote monitoring and management of all registered video endpoint subscriber locations, video streaming, firewall transport services and VNOC support for telepresencesupported rooms and other video endpoints/infrastructure.SEC Public Reference Room100 F Street, N.E.Washington, D.C. 20549SEC Public Reference Room 100 F Street, N.E. Washington, D.C. 20549 Public Reference Section Securities and Exchange Commission100 F Street N.E.Washington, D.C. 20549Public Reference Section Securities and Exchange Commission 100 F Street N.E. Washington, D.C. 20549 14www.glowpoint.com.www.glowpoint.com.
Our consolidated financial statements are prepared assuming we are a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from being unable
Our consolidated financial statements have been prepared assuming thatto fund our operations.
·
Substantial disposition of assets outside the ordinary course of business;
·
Externally forced revisions of our operations or similar actions; and
·
A reorganization of our business.
Company
15
16
17
services from us through January 31, 2007. While Tandberg has continued to purchase services from us after January 31, 2007, Tandberg has been transitioning its business from Glowpoint and intends to cease buying these services from Glowpoint, which may occur at any time. Because this revenue is our lowest margin revenue, however, we expect our overall gross margin percentage to increase once we lose this gross revenue.
18
that we will be successful in our efforts to market and sell our products and services, and if we are not successful in building market awareness and generating increased sales, future results of operations will be adversely affected.equipm entequipment that make up the backbone of our networkservice offering and hosted infrastructure, or at one or more of our partners’ data centers, could substantially and adversely impact our business. We cannot assure you that we will not experience failures or shutdowns relating to individual facilities or even catastrophic failure of the entire network.network, service offering or hosted infrastructure. Any damage to or failure of our systems or service providers could result in reductions in, or terminations of, services supplied to our customers, which could have a material adverse effect on our business.Sprint, British Telecom/BT Conferencing/WireOne,Conferencing, Global Crossing, Cisco and Hewlett-Packard, have entered into the video communications industry. Many of these organizations have substantially greater financial and other resources than us, furnish some of the same services provided by us, and have established relationships with major corporate customers that have policies of purchasing directly from them. We believe that as the demand for video communications systems continues to increase, additional competitors, many of which may have greater resources than us, will continue to enter the video communications market.solutionsequipment resale business in September 2003. Our future success will be dependent in significant part on our ability to generate demand for our Glowpoint managed video services and professional services. To this end, our direct marketing and indirect sales operations must increase market awareness of our service offering to generate increased revenue. Our products and services require a sophisticated sales effort targeted at the senior management of our prospective customers. All new hires will require training and will take time to achieve full productivity. We cannot be certain that our new hires will become as productive as necessary or that we will be able to hire enough qualified individuals or retain existing employees in the future. We cannot be certain19network services, and its use, any system failures or interruptions may cause loss of customers.network services and on the management of traffic volumes and route preferences over our network.service offering. As we continue to expand these services, and as trafficthe complexity and volume continuescontinue to increase, we will face increasing demands and challenges in managing them. Any prolonged failure of these services or other systems or hardware that cause significant interruptions to our operations could seriously damage our reputation and result in customer attrition and financial loss.necessar ynecessary to upgrade our managed video services as improvements in video communication technologies are introduced. In the event that other companies develop more technologically advanced networks,service offerings, our competitive position relative to such companies would be harmed.·New accounting pronouncements or changes in accounting policies; and·Legislation or other governmental action that detrimentally impacts our expenses or reduces sales by adversely affecting our customers.· New accounting pronouncements or changes in accounting policies; and · Legislation or other governmental action that detrimentally impacts our expenses or reduces sales by adversely affecting our customers.
20
Since September 19, 2007,
|
| Glowpoint |
| ||||
|
| Common Stock |
| ||||
|
| High |
| Low |
| ||
Year Ended December 31, 2007 |
|
|
|
|
|
|
|
First Quarter |
| $ | 0.74 |
| $ | 0.38 |
|
Second Quarter |
|
| 0.78 |
|
| 0.47 |
|
Third Quarter |
|
| 0.85 |
|
| 0.50 |
|
Fourth Quarter |
|
| 0.75 |
|
| 0.40 |
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008 |
|
|
|
|
|
|
|
First Quarter |
| $ | 0.65 |
| $ | 0.41 |
|
Second Quarter |
|
| 0.71 |
|
| 0.44 |
|
Third Quarter |
|
| 0.64 |
|
| 0.42 |
|
Fourth Quarter |
|
| 0.50 |
|
| 0.20 |
|
|
|
|
|
|
|
|
|
Glowpoint | ||||||
Common Stock | ||||||
High | Low | |||||
Year Ended December 31, 2008 | ||||||
First Quarter | $ | 0.65 | $ | 0.41 | ||
Second Quarter | 0.71 | 0.44 | ||||
Third Quarter | 0.64 | 0.42 | ||||
Fourth Quarter | 0.50 | 0.20 | ||||
Year Ended December 31, 2009 | ||||||
First Quarter | $ | 0.45 | $ | 0.26 | ||
Second Quarter | 0.45 | 0.28 | ||||
Third Quarter | 0.63 | 0.32 | ||||
Fourth Quarter | 0.69 | 0.48 | ||||
2009.
21
Plan Category Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights Weighted Average Exercise Price of Outstanding Options, Warrants and Rights Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding Securities Reflecting in Column (a)) Equity compensation plans approved 4,922,667 $1.28 1,348,837 Equity compensation plans not approved 50,000 $2.98 — Total 4,972,667 $1.31 1,348,837 2008.2009. The securities issued under equity compensation plans not approved by security holders consist entirely of options issued with respect to individual compensation arrangements for officers, directors and consultants.
by security holders
by security holdersPlan Category Equity compensation plans approved by security holders 4,686,051 $ 0.82 1,529,219 Equity compensation plans not approved by security holders 20,000 3.94 — Total 4,706,051 $ 0.84 1,529,219
22
Consolidated Statement of Operations Information: |
| Years Ended December 31, |
| |||||||||
|
| 2008 |
|
| 2007 |
|
| 2006 | ||||
Revenue |
| $ | 24,537 |
|
| $ | 22,792 |
|
| $ | 19,511 |
|
Cost of revenue |
|
| 14,337 |
|
|
| 15,234 |
|
|
| 13,583 |
|
Gross margin |
|
| 10,200 |
|
|
| 7,558 |
|
|
| 5,928 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
| 1,063 |
|
|
| 855 |
|
|
| 816 |
|
Sales and marketing |
|
| 3,710 |
|
|
| 3,106 |
|
|
| 2,570 |
|
General and administrative |
|
| 8,634 |
|
|
| 8,218 |
|
|
| 11,049 |
|
Total operating expenses |
|
| 13,407 |
|
|
| 12,179 |
|
|
| 14,435 |
|
Loss from operations |
|
| (3,207 | ) |
|
| (4,621 | ) |
|
| (8,507 | ) |
Interest and other expense (income): |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, including $141, $261, and $0, respectively, for Insider Purchasers |
|
| 4,535 |
|
|
| 6,043 |
|
|
| 3,969 |
|
Amortization of deferred financing costs, including $46, $14, and $0, respectively, for Insider Purchasers |
|
| 448 |
|
|
| 531 |
|
|
| 389 |
|
Loss on extinguishment of debt, including $99 for Insider Purchasers |
|
| 1,816 |
|
|
| — |
|
|
| — |
|
Decrease in fair value of derivative financial instruments' liability, including $86, $440, and $0, respectively, for Insider Purchasers |
|
| (2,673 | ) |
|
| (5,665 | ) |
|
| (1,992 | ) |
Interest income |
|
| (18 | ) |
|
| (59 | ) |
|
| (83 | ) |
Total interest and other expense (income), net |
|
| 4,108 |
|
|
| 850 |
|
|
| 2,283 |
|
Net loss |
|
| (7,315 | ) |
|
| (5,471 | ) |
|
| (10,790 | ) |
Gain on redemption of preferred stock |
|
| 2,419 |
|
|
| 799 |
|
|
| — |
|
Preferred stock dividends |
|
| — |
|
|
| (252 | ) |
|
| — |
|
Net loss attributable to common stockholders |
| $ | (4,896 | ) |
| $ | (4,924 | ) |
| $ | (10,790 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
| $ | (0.11 | ) |
| $ | (0.11 | ) |
| $ | (0.24 | ) |
Weighted average number of common shares and share equivalents outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
| 46,477 |
|
|
| 46,735 |
|
|
| 46,242 |
|
, except per share amounts.
Balance Sheet Information: |
| December 31, |
| |||||||||
|
| 2008 |
|
| 2007 |
|
| 2006 |
| |||
Cash and cash equivalents |
| $ | 1,227 |
|
| $ | 2,312 |
|
| $ | 2,153 |
|
Working capital deficit |
|
| (4,225 | ) |
|
| (9,092 | ) |
|
| (11,868 | ) |
Total assets |
|
| 7,177 |
|
|
| 8,562 |
|
|
| 8,393 |
|
Long-term debt (including current portion) |
|
| 1,715 |
|
|
| 7,231 |
|
|
| 4,326 |
|
Total stockholders’ deficit |
| $ | (3,213 | ) |
| $ | (17,172 | ) |
| $ | (11,591 | ) |
Consolidated Statement of Operations Information: | Years Ended December 31, | |||||||||||||||||||
2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
Core Revenues | $ | 25,192 | $ | 21,942 | $ | 19,150 | $ | 16,679 | $ | 14,376 | ||||||||||
Non-Core Revenues | 1,348 | 2,595 | 3,642 | 2,832 | 3,359 | |||||||||||||||
Total Revenues | $ | 26,540 | $ | 24,537 | $ | 22,792 | $ | 19,511 | $ | 17,735 | ||||||||||
Operating expenses: | ||||||||||||||||||||
Network and infrastructure | 11,838 | 12,762 | 13,917 | 11,910 | 12,956 | |||||||||||||||
Global managed services | 7,476 | 5,849 | 4,092 | 4,342 | 7,055 | |||||||||||||||
Sales and marketing | 3,193 | 3,382 | 2,732 | 2,230 | 3,684 | |||||||||||||||
General and administrative | 4,465 | 4,662 | 5,398 | 6,744 | 7,461 | |||||||||||||||
Depreciation and amortization | 1,056 | 1,261 | 1,467 | 1,947 | 2,292 | |||||||||||||||
Sales taxes and regulatory fees | (2,500 | ) | (172 | ) | (193 | ) | 845 | 926 | ||||||||||||
Total operating expenses | 25,528 | 27,744 | 27,413 | 28,018 | 34,374 | |||||||||||||||
Income (loss) from operations | 1,012 | (3,207 | ) | (4,621 | ) | (8,507 | ) | (16,639 | ) | |||||||||||
Interest and other expense (income): | ||||||||||||||||||||
Interest (income) expense, net, including $0, $141, $261, $0 and $0 for expense, respectively, for Insider Purchasers | (543 | ) | 4,517 | 5,984 | 3,886 | (97 | ) | |||||||||||||
Amortization of deferred financing costs, including $0, $46, $14, $0, and $0 respectively, for Insider Purchasers | — | 448 | 531 | 389 | — | |||||||||||||||
Loss on extinguishment of debt, including $0 and $99, respectively, for Insider Purchasers | 254 | 1,816 | — | — | — | |||||||||||||||
Gain on settlement with Gores | — | — | — | — | (379 | ) | ||||||||||||||
Increase (decrease) in fair value of derivative financial instruments' liability, including $0, $86, $440, $0 and $0, respectively, for Insider Purchasers | 1,848 | (2,673 | ) | (5,665 | ) | (1,992 | ) | 271 | ||||||||||||
Total interest and other expense (income), net | 1,559 | 4,108 | 850 | 2,283 | (205 | ) | ||||||||||||||
Net loss | (547 | ) | (7,315 | ) | (5,471 | ) | (10,790 | ) | (16,434 | ) | ||||||||||
(Loss) gain on redemption of preferred stock | (64 | ) | 2,419 | 799 | — | — | ||||||||||||||
Preferred stock deemed dividends | — | — | — | — | (1,282 | ) | ||||||||||||||
Preferred stock dividends | — | — | (252 | ) | (347 | ) | (315 | ) | ||||||||||||
Net loss attributable to common stockholders | $ | (611 | ) | $ | (4,896 | ) | $ | (4,924 | ) | $ | (11,137 | ) | $ | (18,031 | ) | |||||
Net loss attributable to common stockholders per share: | ||||||||||||||||||||
Basic and diluted | $ | (0.01 | ) | $ | (0.11 | ) | $ | (0.11 | ) | $ | (0.24 | ) | $ | (0.41 | ) | |||||
Weighted average number of common shares: | ||||||||||||||||||||
Basic and diluted | 52,938 | 45,477 | 45,914 | 46,246 | 44,348 | |||||||||||||||
Balance Sheet Information: | as of December 31, | |||||||||||||||||||
2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
Cash | $ | 587 | $ | 1,227 | $ | 2,312 | $ | 2,153 | $ | 2,023 | ||||||||||
Working capital deficit | (1,365 | ) | (4,225 | ) | (9,092 | ) | (11,868 | ) | (3,526 | ) | ||||||||||
Total assets | 6,914 | 7,177 | 8,562 | 8,393 | 9,037 | |||||||||||||||
Long-term debt (including current portion) | — | 1,715 | 7,231 | 4,326 | — | |||||||||||||||
Total stockholders’ equity (deficit) | $ | 1,153 | $ | (3,213 | ) | $ | (17,172 | ) | $ | (11,591 | ) | $ | (2,405 | ) |
23
We viewprofessional services. A critical differentiator of Glowpoint is that our services as analogous to cellular service providers in the cellular telephone industry. Regardless of the cellular phone purchased, users must select a cellular service provider to make it work. Users make that service decision based on the features, reliabilitysolutions are hardware agnostic and price offered by the service provider. In our industry,network neutral, supporting all recognized video standards across any IP network. As such, regardless of the video conferencing or telepresence equipment purchased or the network connecting it, Glowpoint provides the managedGlowpoint’s services to make it work. In doing so, we offer a vast arraymay be applied.
Glowpoint’s video communications solutions involve two major components,throughout their business. Glowpoint has become the Glowpointrecognized leader of managed video applicationsand global video exchange services that provide businesses and the Glowpoint managed network services. Glowpoint has focused its salesservice providers a way to link together their “islands of video” across third party private networks and marketing efforts on the managed video application services, which are network agnostic and may be leveraged by customers on any QoS (Quality of Service) network that supports two-way video transport. Glowpoint’s services for telepresence are in increased demand because they address the need for a single point of contactenabling organizations to provide monitoring, scheduling, support, and management of telepresence rooms and the associated equipment. Additionally, companies look to Glowpoint as a resource to provide secure business-to-business (B2B) support when using the video systems to communicate beyond their internal enterprise use. Our Telepresence inter-Exchange Network (TEN) is a suite of services and applications designed to overcom e the challenges of using video outside of a company's private network, such as interconnectivity and interoperability, and we believe will be a critical component for enhanced B2B video communications. Our managed video application services are sold as a monthly subscription service and may also include Glowpoint managed network services as an option.
According to some industry analysts, market research by IDC and published Cisco white papers, the network services side of the videoconferencing industry (currently dominated by network providers) and managed services (such as video operations and multi-point conferencing) is anticipated to grow to $1 billion in 2010 and grow to more than $4 billion globally over the next few years. Further market data continues to support these projections, with some exceeding the numbers when considering the economic
24
crisis and its impact on video usage anddrive wide adoption. Glowpoint continues to focus on securing a prominent place in this burgeoning industry to capitalize on the increased demand for its services.
Use of Estimates
Preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from the estimates made. We continually evaluate estimates used in the preparation of the consolidated financial statements for reasonableness. Appropriate adjustments, if any, to the estimates used are made prospectively based upon such periodic evaluation. The significant areas of estimation include determining the allowance for doubtful accounts, deferred tax valuation allowance, accrued sales taxes, the estimated life of customer relationships, and the estimated lives and reco verability of property and equipment.
25
|
| 2008 |
|
| 2007 |
| ||
Revenue |
|
| 100.0 | % |
|
| 100.0 | % |
Cost of revenue |
|
| 58.4 |
|
|
| 66.8 |
|
Gross margin |
|
| 41.6 |
|
|
| 33.2 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
Research and development |
|
| 4.3 |
|
|
| 3.8 |
|
Sales and marketing |
|
| 15.1 |
|
|
| 13.6 |
|
General and administrative |
|
| 35.2 |
|
|
| 36.0 |
|
Total operating expenses |
|
| 54.6 |
|
|
| 53.4 |
|
Loss from operations |
|
| (13.0 | ) |
|
| (20.2 | ) |
Interest and other expense (income): |
|
|
|
|
|
|
|
|
Interest expense, including 0.6% and 1.2%, respectively, for Insider Purchasers |
|
| 18.5 |
|
|
| 26.6 |
|
Amortization of deferred financing costs, including 0.2% and 0.1%, respectively, for Insider Purchasers |
|
| 1.8 |
|
|
| 2.3 |
|
Loss on extinguishment of debt, including 0.4% for Insider Purchasers |
|
| 7.4 |
|
|
| — |
|
Decrease in fair value of derivative financial instruments’ liability, including 0.4% and 1.9%, respectively, for Insider Purchasers |
|
| (10.9 | ) |
|
| (24.9 | ) |
Interest income |
|
| (0.1 | ) |
|
| (0.3 | ) |
Total interest and other expense (income), net |
|
| 16.7 |
|
|
| 3.7 |
|
Net loss |
|
| (29.7 | ) |
|
| (23.9 | ) |
Gain on redemption of preferred stock |
|
| 9.9 |
|
|
| 3.5 |
|
Preferred stock dividends |
|
| — |
|
|
| (1.1 | ) |
Net loss attributable to common stockholders |
|
| (19.8 | )% |
|
| (21.5 | )% |
|
|
|
|
|
|
|
|
|
2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
Core Revenues | 94.9 | % | 89.4 | % | 84.0 | % | 85.5 | % | 81.1 | % | ||||||||||
Non-Core Revenues | 5.1 | 10.6 | 16.0 | 14.5 | 18.9 | |||||||||||||||
Total Revenues | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||
Operating expenses: | ||||||||||||||||||||
Network and infrastructure | 44.6 | 52.0 | 61.1 | 61.0 | 73.1 | |||||||||||||||
Global managed services | 28.2 | 23.8 | 18.0 | 22.3 | 39.8 | |||||||||||||||
Sales and marketing | 12.0 | 13.8 | 12.0 | 11.4 | 20.8 | |||||||||||||||
General and administrative | 16.8 | 19.0 | 23.7 | 34.6 | 42.1 | |||||||||||||||
Depreciation and amortization | 4.0 | 5.1 | 6.4 | 10.0 | 12.9 | |||||||||||||||
Sales taxes and regulatory fees | (9.4 | ) | (0.7 | ) | (0.8 | ) | 4.3 | 5.2 | ||||||||||||
Total operating expenses | 96.2 | 113.0 | 120.4 | 143.6 | 193.9 | |||||||||||||||
Income (loss) from operations | 3.8 | (13.0 | ) | (20.4 | ) | (43.6 | ) | (93.9 | ) | |||||||||||
Interest and other expense (income): | ||||||||||||||||||||
Interest (income) expense, net, including 0.0% and 0.6% of expense, respectively, for Insider Purchasers | (2.0 | ) | 18.4 | 26.3 | 19.9 | (0.5 | ) | |||||||||||||
Amortization of deferred financing costs, including 0.2%, 0.0% and 0.0% for Insider Purchasers | — | 1.8 | 2.3 | 2.0 | — | |||||||||||||||
Loss on extinguishment of debt, including 0.0% and 0.4%, respectively, for Insider Purchasers | 1.0 | 7.4 | — | — | — | |||||||||||||||
Gain on settlement with Gores | — | — | — | — | (2.1 | ) | ||||||||||||||
Increase (decrease) in fair value of derivative financial instruments’ liability, including 0.0% , 0.4%, 0.0%, 0.0% and 0.0% respectively, for Insider Purchasers | 7.0 | (10.9 | ) | (24.9 | ) | (10.2 | ) | 1.5 | ||||||||||||
Total interest and other expense (income), net | 6.0 | 16.7 | 3.7 | 11.7 | (1.1 | ) | ||||||||||||||
Net loss | (2.2 | ) | (29.7 | ) | (24.1 | ) | (55.3 | ) | (92.8 | ) | ||||||||||
Loss (gain) on redemption of preferred stock | (0.2 | ) | 9.9 | 3.5 | — | — | ||||||||||||||
Preferred stock deemed dividends | — | — | — | — | (7.2 | ) | ||||||||||||||
Preferred stock dividends | — | — | (1.1 | ) | (1.8 | ) | (1.8 | ) | ||||||||||||
Net loss attributable to common stockholders | (2.4 | )% | (19.8 | )% | (21.7 | )% | (57.1 | )% | (101.8 | )% | ||||||||||
·
Subscription and related services, which includes VNOC Support Services (described above), a new revenue stream for 2008, represent about 71% of our total current revenue and is generally tied to contracts of 12 months or more;
·
Multi-point Bridging, which represents about 16% of our total current revenue and is a usage based service where we enable customers to have video meetings with multiple locations on the screen at one time; and
·
Events and Professional Services, which represent about 2% of our total current revenue and is revenue derived from non-recurring services (e.g., the professional football draft event) or from providing professional services to develop custom solutions.
· | Subscription network and related services, represent about 65% of our total current revenue and is generally tied to contracts of 12 months or more; |
· | Subscription managed video services, which represent about 10% of our total current revenue (up from 1% in 2008) and is generally tied to contracts of 12 months or more; |
· | Multi-point Bridging, which represents about 17% of our total current revenue and is a usage based service where we enable customers to have video meetings with multiple locations on the screen at one time; and |
· | Events and Professional Services, which represent about 3% of our total current revenue and is revenue derived from non-recurring services (e.g., the professional football draft event) or from providing professional services to develop custom solutions. |
·
ISDN resale business, which represents about 9% of our total current revenue. We do not actively pursue more ISDN resale business and have actively sought to reduce the amount of low margin revenue from this line of business; and
26
·
· | ISDN resale business, which represents about 5% of our total current revenue. We do not actively pursue more ISDN resale business and have actively sought to reduce the amount of low margin revenue from this line of business; and |
· | Integration services, which include integrating various hardware components, or procuring hardware components for our customers, to support our managed video services. In most cases, we provide integration services as a “pass-through” or at low margin in order to facilitate the completion of the project on behalf of our customer. We do not actively pursue this type of revenue. |
Year Ended December 31, (in thousands) | ||||||||||||||||
Revenue | 2009 | 2008 | Increase (Decrease) | % Change | ||||||||||||
Core revenue: | ||||||||||||||||
Subscription revenue: | ||||||||||||||||
Network and related services | $ | 16,993 | $ | 17,081 | $ | (88 | ) | (0.6 | %) | |||||||
Managed video services (1) | 2,888 | 391 | 2,497 | 638.6 | % | |||||||||||
19,881 | 17,472 | 2,409 | 13.8 | % | ||||||||||||
Non-subscription revenue: | ||||||||||||||||
Bridging (2) | 4,439 | 3,924 | 515 | 13.1 | % | |||||||||||
Special events and professional services (3) | 872 | 546 | 326 | 59.7 | % | |||||||||||
25,192 | 21,942 | 3,250 | 14.8 | % | ||||||||||||
Non-core revenue: | ||||||||||||||||
Integration services for a broadcast customer (4) | 63 | 350 | (287 | ) | (82.0 | %) | ||||||||||
ISDN resale revenue (5) | 1,285 | 2,245 | (960 | ) | (42.8 | %) | ||||||||||
1,348 | 2,595 | (1,247 | ) | (48.1 | %) | |||||||||||
Total revenue | $ | 26,540 | $ | 24,537 | $ | 2,003 | 8.2 | % | ||||||||
|
| Year Ended December 31, |
| |||||||||||||
Revenue |
| 2008 |
|
| 2007 |
|
| Increase (Decrease) |
|
| % Change |
| ||||
Core revenue: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Subscription and related revenue (1) |
| $ | 17,472 |
|
| $ | 15,368 |
|
| $ | 2,104 |
|
|
| 13.7 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-subscription revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bridging (2) |
|
| 3,924 |
|
|
| 3,387 |
|
|
| 537 |
|
|
| 15.9 | % |
Special events and professional services (3) |
|
| 546 |
|
|
| 395 |
|
|
| 151 |
|
|
| 38.2 | % |
|
|
| 21,942 |
|
|
| 19,150 |
|
|
| 2,792 |
|
|
| 14.6 | % |
Non-core revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Integration services for a broadcast customer (4) |
|
| 350 |
|
|
| 973 |
|
|
| (623 | ) |
|
| (64.0 | %) |
ISDN resale revenue (5) |
|
| 2,245 |
|
|
| 2,669 |
|
|
| (424 | ) |
|
| (15.9 | %) |
|
|
| 2,595 |
|
|
| 3,642 |
|
|
| (1,047 | ) |
|
| (28.7 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
| $ | 24,537 |
|
| $ | 22,792 |
|
| $ | 1,745 |
|
|
| 7.7 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) The increased subscription and related revenue is caused by increases in installed subscription circuits, revenue per circuit and VNOC support services which started in the 2nd4th quarter of 2008.
Cost of revenues - Cost of revenueIP-based video communications. This operating expense category also includes the cost for taxes which have been billed to customers. Network and infrastructure expenses decreased by $897,000,$924,000, or 5.9%7.2%, to $14,337,000$11,838,000 in the 2009 year from $12,762,000 in the 2008 year from $15,234,000 in the 2007 year. The primary decrease was a reduction of $614,000 in costs for integration services on equipment required by broadcast customers, discussed in the Revenue section. In the 2008 year, there were $308,000 of integration costs versus $922,000 in the 2007 year. We also realized $506,000 of savings from the continuing efforts to eliminate costs in our network and our on-going activity involving the renegotiation of rates and the migration of service to lower cost providers where possible and a $211,000 reduction of $263,000 in depreciation costs.costs for integration services on equipment required by broadcast customers. These savings were partially offset by $424,000the costs of new customers. The network and infrastructure expenses should go down as a % of revenues as cloud-based and managed video revenues grow and customers do not require Glowpoint connectivity to use our services.
2009 | % of 2009 Revenues | 2008 | % of 2008 Revenues | Change from Prior Year | % Change from Prior Year | |||||||||||||||||||
Telecommunication carrier charges | $ | 10,026 | 37.8 | % | $ | 10,877 | 44.3 | % | $ | (851 | ) | (7.8 | %) | |||||||||||
Cost for taxes billed to customers | 1,812 | 6.8 | % | 1,885 | 7.7 | % | (73 | ) | (3.9 | %) | ||||||||||||||
Total for the year | $ | 11,838 | 44.6 | % | $ | 12,762 | 52.0 | % | $ | (924 | ) | (7.2 | %) | |||||||||||
27
staffing and the opening of a new Network Operation Center in Philadelphia.
|
| 2008 |
|
| % of 2008 Revenues |
|
| 2007 |
|
| % of 2007 Revenues |
| ||||
Telecommunication carrier charges |
| $ | 9,901 |
|
|
| 40.3 | % |
| $ | 10,380 |
|
|
| 45.6 | % |
Sales taxes and regulatory fees |
|
| 1,818 |
|
|
| 7.4 | % |
|
| 1,845 |
|
|
| 8.1 | % |
Depreciation |
|
| 923 |
|
|
| 3.8 | % |
|
| 1,134 |
|
|
| 5.0 | % |
Salaries and benefits |
|
| 1,051 |
|
|
| 4.3 | % |
|
| 728 |
|
|
| 3.2 | % |
General overhead costs |
|
| 336 |
|
|
| 1.4 | % |
|
| 225 |
|
|
| 1.0 | % |
Integration costs |
|
| 308 |
|
|
| 1.3 | % |
|
| 922 |
|
|
| 4.0 | % |
Total for the year |
| $ | 14,337 |
|
|
| 58.5 | % |
| $ | 15,234 |
|
|
| 66.9 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin - Gross margin increased by $2,642,000, or 35.0%, to $10,200,000 from $7,558,000 in the 2008 year. The savings discussed in the Cost
2009 | % of 2009 Revenues | 2008 | % of 2008 Revenues | Change from Prior Year | % Change from Prior Year | |||||||||||||||||||
Salaries and benefits | $ | 5,156 | 19.4 | % | $ | 3,700 | 15.1 | % | $ | 1,456 | 39.4 | % | ||||||||||||
Contract employees | 784 | 3.1 | % | 615 | 2.5 | % | 169 | 27.5 | % | |||||||||||||||
Communication costs | 436 | 1.6 | % | 389 | 1.6 | % | 47 | 12.1 | % | |||||||||||||||
Repairs and maintenance | 403 | 1.5 | % | 429 | 1.7 | % | (26 | ) | (6.1 | %) | ||||||||||||||
Rent and occupancy | 389 | 1.5 | % | 298 | 1.2 | % | 91 | 30.5 | % | |||||||||||||||
Office expenses | 117 | 0.4 | % | 140 | 0.6 | % | (23 | ) | (16.4 | %) | ||||||||||||||
Travel and entertainment | 48 | 0.2 | % | 132 | 0.5 | % | (84 | ) | (63.6 | %) | ||||||||||||||
Other expenses | 143 | 0.5 | % | 146 | 0.6 | % | (3 | ) | (2.1 | %) | ||||||||||||||
Total for the year | $ | 7,476 | 28.2 | % | $ | 5,849 | 23.8 | % | $ | 1,627 | 27.8 | % | ||||||||||||
are summarized as follows (in thousands):
2009 | % of 2009 Revenues | 2008 | % of 2008 Revenues | Change from Prior Year | % Change from Prior Year | |||||||||||||||||||
Salaries and benefits | $ | 2,458 | 9.3 | % | $ | 2,285 | 9.3 | % | $ | 173 | 7.6 | % | ||||||||||||
Agent commissions | 326 | 1.1 | % | 362 | 1.5 | % | (36 | ) | (9.9 | %) | ||||||||||||||
Advertising and marketing | 178 | 0.7 | % | 312 | 1.3 | % | (134 | ) | (42.9 | %) | ||||||||||||||
Travel and entertainment | 128 | 0.5 | % | 224 | 0.9 | % | (96 | ) | (42.9 | %) | ||||||||||||||
Other expenses | 103 | 0.4 | % | 199 | 0.8 | % | (96 | ) | (48.2 | %) | ||||||||||||||
Total for the year | $ | 3,193 | 12.0 | % | $ | 3,382 | 13.8 | % | $ | (189 | ) | (5.6 | %) | |||||||||||
2009 | % of 2009 Revenues | 2008 | % of 2008 Revenues | Change from Prior Year | % Change from Prior Year | |||||||||||||||||||
Salaries and benefits | $ | 2,398 | 9.0 | % | $ | 2,361 | 9.6 | % | $ | 37 | 1.6 | % | ||||||||||||
Professional fees | 518 | 1.9 | % | 653 | 2.8 | % | (135 | ) | (20.7 | %) | ||||||||||||||
Severance costs | 253 | 0.9 | % | — | 0.0 | % | 253 | N/A | ||||||||||||||||
Bad debts | 258 | 1.01 | % | 257 | 1.0 | % | 1 | 0.4 | % | |||||||||||||||
Insurance | 147 | 0.6 | % | 165 | 0.7 | % | (18 | ) | (10.9 | %) | ||||||||||||||
Communication costs | 133 | 0.5 | % | 38 | 0.2 | % | 95 | 250.0 | % | |||||||||||||||
Board of director costs | 114 | 0.4 | % | 171 | 0.7 | % | (57 | ) | (33.3 | %) | ||||||||||||||
Office expenses and postage | 102 | 0.4 | % | 107 | 0.4 | % | (5 | ) | (4.7 | %) | ||||||||||||||
Consultants | 122 | 0.5 | % | 351 | 1.4 | % | (229 | ) | (65.2 | %) | ||||||||||||||
Travel and entertainment | 74 | 0.3 | % | 101 | 0.4 | % | (27 | ) | (26.7 | %) | ||||||||||||||
Rent | 77 | 0.3 | % | 72 | 0.3 | % | 5 | 6.9 | % | |||||||||||||||
Repairs and maintenance | 54 | 0.2 | % | 41 | 0.2 | % | 13 | 31.7 | % | |||||||||||||||
Other expenses | 215 | 0.8 | % | 345 | 1.4 | % | (130 | ) | (37.7 | %) | ||||||||||||||
Total for the year | $ | 4,465 | 16.8 | % | $ | 4,662 | 19.1 | % | $ | (197 | ) | (4.2 | %) | |||||||||||
liability.
28
Preferred stock dividends - We recognized preferred stock dividends of $0 and $252,000 for the 2008 year and 2007 year, respectively. The decrease in 2008 preferred stock dividends results from the September 2007 issuance of 474.8126 shares of a new Series C Preferred Stock, which does not pay dividends, in exchange for all of our then issued and outstanding Series B Preferred Stock which bore 12% dividends. For earnings per share calculations these dividends, though charged to Paid in Capital, increases the net loss attributable to common stockholders.
Going Concern
Our consolidated financial statements have been prepared assuming that
2010 (the “Purchase Agreement”), the Company received approximately $3,000,000 of gross proceeds in a closing (the “Closing”) of a private placement of 30 shares of its Series B Preferred Stock.
December 31, 2009 | 2010 Private Placement – Conversion of Series A-2 Preferred Stock | 2010 Private Placement - Series B Preferred Stock Exchange | Expiration of Warrants | Other Transactions (Note 1) | March 29, 2010 | |||||||||||||||||||
Common Shares Outstanding | 64,966 | 15,452 | — | — | 184 | 80,602 | ||||||||||||||||||
Series B Preferred Stock | — | — | — | — | — | — | ||||||||||||||||||
Options | 4,706 | — | — | — | 4 | 4,710 | ||||||||||||||||||
Warrants | 3,464 | — | — | (1,640 | ) | (121 | ) | 1,703 | ||||||||||||||||
Series A-2 Preferred Stock | 45,087 | (15,452 | ) | (13,333 | ) | — | — | 16,302 | ||||||||||||||||
Total | 118,223 | — | (13,333 | ) | (1,640 | ) | 67 | 103,317 |
|
| December 31, 2008 |
|
| 2009 Private Placement |
|
| Other Transactions |
|
| March 27, |
| ||||
Common Shares Outstanding |
|
| 46,810 |
|
|
| - |
|
|
| 700 |
|
|
| 47,510 |
|
Options (Note 1) |
|
| 4,973 |
|
|
| - |
|
|
| 432 |
|
|
| 5,405 |
|
Warrants |
|
| 40,917 |
|
|
| 3,345 |
|
|
| - |
|
|
| 44,262 |
|
Series A-1 Preferred Shares |
|
| 37,898 |
|
|
| 7,189 |
|
|
| - |
|
|
| 45,087 |
|
Total |
|
| 130,598 |
|
|
| 10,534 |
|
|
| 1,132 |
|
|
| 142,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following briefly describes the Senior Secured Notes and preferred stock as of December 31, 2008 and March 27, 2009 and the chronological history of the transactions affecting these securities during the last three years which description is qualified in its entirety by reference to the provisions of the applicable exhibits to the Company's Form 8-K’s filed with the Securities and Exchange Commission on various dates.
Senior Secured Notes and Series A Preferred Stock as of December 31, 2008
As of December 31, 2008, there were $1,722,000 of Senior Secured Notes outstanding. On March 16, 2009 all of these Senior Secured Notes were exchanged for shares of Series A-1 Preferred Stock. Until exchanged in March 2009, the Senior Secured Notes bore interest at 16% per annum, matured on September 30, 2010 and were convertible into common stock at a conversion price of $0.50 per share (x) at any time at the holder’s election or (y) automatically if the closing bid price (as defined in the Senior Secured Notes) of the Company’s common stock exceeds $1.25 (as adjusted for stock splits, stock dividends, combinations and similar transactions) for twenty (20) consecutive trading days. We had the option to pay the accrued interest for the Senior Secured Notes in cash or additional Senior Secured Notes. To date, all interest payments have been made by issuing additional Senior Secured Notes.
As of December 31, 2008, there are 3,790 shares of the Series A Convertible Preferred Stock (“Series A Preferred Stock”) (outstanding with a fair value of $11,574,000). Each share of Series A Preferred Stock has a stated value of $7,500 per share (the “Stated Value”), a liquidation preference equal to the Stated Value, and is convertible at the holder’s election into common stock at a conversion price per share of $0.75. As of December 31, 2008 the Stated Value of the Series A Preferred Stock is $28,423,000. Each share of Series A Preferred Stock is convertible into 10,000 shares of common stock. The Series A Preferred Stock is senior to all other classes of equity and, after the first anniversary of issuance (the “Dividend Grace Period”), is entitled to dividends at a rate of 5% per annum, payable quarterly in cash, based on the Stated Value. After the Dividend Grace Period and so long as any of the Company’s Senior Secured Notes remain outstanding, dividends shall accrue quarterly and will not be paid. The Series A Preferred Stock contains provisions providing weighted average anti-dilution protection. In the March 2009 Private Placement these shares of Series A Preferred Stock were exchanged for shares of the Series A-1 Preferred Stock.
Placement.
In the March 2009 Private Placement all of the Series A Preferred Stock were exchanged for Series A-1 Preferred Stock. Each share of Series A-1 Preferred Stock has a stated value of $7,500 per share (the “Stated Value”), a liquidation preference equal to the Stated Value, and is convertible at the holder’s election into common stock at a conversion price per share of $0.75. Therefore, each share of Series A-1 Preferred Stock is convertible into 10,000 shares of common stock. The Series A-1 Preferred Stock is senior to all other classes of equity, has weighted average anti-dilution protection and, after the first anniversary of the Issuance Date (the “Dividend Grace Period”), is entitled to dividends at a rate of 5% per annum, payable quarterly, based on the Stated Value. After the Dividend Grace Period, all dividends shall be payable (i) if on or before September 30, 2010, at the Company’s optio n in cash or through the issuance of a number of additional shares of Series A-1 Preferred Stock with an aggregate liquidation preference equal to the dividend amount payable on the applicable dividend payment date and (ii) if after September 30, 2010, at the option of the holder in cash or through the issuance of a number of additional shares of Series A-1 Preferred Stock with an aggregate liquidation preference equal to the dividend amount payable on the applicable dividend payment date. The “Issuance Date” is defined as the original issuance date of the Series A-1 Preferred Stock, except for shares of Series A-1 Preferred Stock issued upon the exchange of Series A Preferred Stock pursuant to the Series A Preferred Consent and Exchange Agreement (see below), in which case the “Issuance Date” is the date of issuance of the Series A Convertible Preferred Stock (i.e., either November 25, 2008 or December 31, 2008). Except for when dividends are payable, the Series A-1 Prefe rred Stock is the same as the Series A Preferred Stock created in November 2008.
30
March and April 2006 Private Placements
In March and April 2006, we issued Senior Secured Notes and warrants to purchase common stock in a private placement to accredited investors (the “2006 Private Placements”). In the 2006 Private Placement, we issued $6,180,000 of our Senior Secured Notes and Series A warrants to purchase 6,180,000 shares of common stock at an exercise price of $0.65 per share. In connection with the 2008 Private Placements (defined below), the exercise price of the Series A warrants has been adjusted to $0.40 per share and some of which were exchanged for Series A-3 warrants. The warrants are subject to certain anti-dilution protection.
In the 2006 Private Placements we also agreed to reduce the exercise price of previously issued warrants to purchase 3,625,000 shares of common stock held by the investors in this private placement to $0.65 from a weighted average price of $3.38, and to extend the expiration date of any such warrants to no earlier than three years after the offering date. The new weighted average expiration date of the warrants was 3.5 years from a previous weighted average expiration date of 2.9 years. In addition, we issued to the designees and assigns of Burnham Hill Partners (“BHP”) placement agent warrants to purchase 618,000 shares of our common stock at an exercise price of $0.55 per share. All of the warrants issued are subject to certain anti-dilution protection. The $5,585,000 net proceeds from the 2006 Private Placements were used to support our corporate restructuring program and for working capital.
September 2007 Private Placement
In September 2007, we issued $3,538,000 of additional Senior Secured Notes and warrants in a private placement (the “2007 Private Placement”), the investors of which included (but were not limited to) some of the holders of our then outstanding Senior Secured Notes and participating Glowpoint officers and directors, which included Michael Brandofino, Aziz Ahmad, Bami Bastani, Edwin F. Heinen, Joseph Laezza and David W. Robinson. The Senior Secured Notes and other transaction documents provided that the participating Glowpoint officers and directors were not entitled to all of the rights and benefits available to the other purchasers upon the occurrence of certain events, including, but not limited to, an event of default, the failure by Glowpoint to achieve specified EBITDA levels (see 2008 Private Placements for changes related to the EBITDA covenants). Of the $3,538,000 raised, the Company paid a placement agent fee of $283,000 and received net proceeds of $3,230,000. In this transaction, we issued $3,538,000 aggregate principal amount of our Senior Secured Notes and Series A-2 warrants to purchase 3,538,000 shares of common stock at an exercise price of $0.65 per share. In connection with the November 2008 private placement, the exercise price of the Series A-2 warrants has been adjusted to $0.40 per share and some of which were exchanged for Series A-3 warrants. The Series A-2 warrants are exercisable for a period of five years.
Also in the 2007 Private Placement, pursuant to an Exchange Agreement, we issued an aggregate of 474.8126 shares of a new Series C convertible preferred stock (the “Series C Preferred Stock”) in exchange for cancelling all of our issued and outstanding Series B Preferred Stock, cancelling $1,098,000 of accrued but unpaid dividends due on the Series B Preferred Stock, and surrendering 1,525,000 shares of common stock held by North Sound Capital LLC entities. Each share of Series C Preferred Stock, par value $0.0001 per share, had a liquidation preference equal to its stated value, which was $10,000 per share, and was convertible at the holder’s election into 10,000 shares of common stock, subject to adjustment. The Series C Preferred Stock would automatically convert to common stock after the closing bid and ask prices of our common stock exceeds $2.00 (as adjusted for stock splits, stock dividends, combinations and similar transactions) for a period of ten consecutive trading days. In the 2008 Private Placement, all of the shares of the Series C Preferred Stock were exchanged for shares of Series A Preferred Stock.
Also in the 2007 Private Placement, we amended the terms of our then outstanding Senior Secured Notes to, among other things, extend the maturity date to March 31, 2009 from September 30, 2007. We also (i) amended the outstanding Series A warrants, to amend certain definitions; (ii) amended the Registration Rights Agreement, dated March 31, 2006, which amendment (x) included among the registrable securities the shares issuable upon conversion of the Senior Secured Notes issued on September 21, 2007, conversion of the Series C Preferred Stock and the exercise of the Series A-2 warrants and (y) provided Glowpoint additional time to file the required registration statement and cause its effectiveness; and (iii) amended the Security Agreement, dated March 31, 2006, to include as Permitted Liens (as defined therein) equipment purchase money financing and a credit facility collateralized by up to $1,000,000 of receivables. In considera tion for amending the then outstanding Senior Secured Notes and other transaction documents, we issued Series A-2 warrants to the noteholders to purchase an aggregate of 4,772,822 shares of common stock (which represented thirty-three (33%) percent of the shares of common stock issuable upon conversion of the existing Senior Secured Notes.
BHP acted as placement agent for the 2007 Private Placement and acted as financial advisor for the other transactions occurring on September 21, 2007 and received a cash fee of $283,000, which equaled eight (8%) percent of the gross proceeds we received. We also issued warrants to the designees and assignees of BHP to purchase (i) 566,080 shares of common stock at an exercise price of $0.55 per share and (ii) 250,000 shares of common stock at an exercise price of $0.65 per share (collectively, the “2007 BHP Warrants”). In connection with the 2008 Private Placements, the exercise price of the 2007 BHP Warrants was adjusted to $0.40 per share and some of which were exchanged for Series A-3 warrants.
31
In December 2007, in light of, among other things, changes to Rule 144 of the Securities Act, we amended the Registration Rights Agreement to eliminate any requirement to register any shares other than those issuable upon exercise of the Series A, Series A-2, placement agent and advisory warrants, which effectively eliminated the right of the holders of the Senior Secured Notes to demand that the Company pay such holders an amount of cash, calculated in the Senior Secured Notes. Accordingly, the Company thereafter no longer accounted for the beneficial conversion feature as a derivative liability. Therefore, in December 2007, the Company eliminated the $2,778,000 derivative liability related to the beneficial conversion feature that had been accrued as of that date.
November and December 2008 Private Placements
In November and December 2008, the Company entered into a series of transactions to recapitalize its balance sheet, raise funds, eliminate the derivative liabilities, extend the maturity date of the remaining Senior Secured Notes and limit the related interest rate (the “2008 Private Placements”).
In November 2008,Company’s liquidation preference for the Company received $1,825,000 of gross proceeds in an initial closing (the “Initial Closing”) of a private placement of 456 shares of Series AA-2 Preferred Stock and Series A-3 warrants to acquire an aggregate of 2,281,000 shares of common stock pursuant to a Series A ConvertibleB Preferred Stock Purchase Agreement (the “2008 Purchase Agreement”). Pursuant to the 2008 Purchase Agreement, the Company may sell additional sharesas of Series A Preferred Stock and Series A-3 warrants in one or more subsequent closings that may occur during the 90-day period following the Initial Closing, up to a maximum offering amount of $8,000,000. There can be no assurance, however, that the Company will raise any additional funds following the Initial Closing. The Series A-3 warrants have an exercise price of $0.40 per share, contain provisions providing weighted average anti-dilution protection and are exerc isable for a period of five years. In accordance with the terms of that certain Registration Rights Agreement dated November 25, 2008 and amended on February 19, 2009, we are obligated to file a registration statement within 90 days after written request by at least two-thirds of the shares underlying the Series A-3 warrants, registering for resale the shares of common stock issuable upon exercise of the Series A-3 warrants. As of the date of this filing we have not received any such request for registration.
Also in November 2008, the Company issued 1,880 shares of its Series A Preferred Stock and Series A-3 warrants to acquire 9,401,000 shares of common stock in exchange for $7,521,000 of the Company’s Senior Secured Notes, which represented all but $4,931,000 of the Company’s then outstanding Senior Secured Notes (the “Retained Notes”). All of the Senior Secured Notes held by the Insider Purchasers were exchanged in the transaction. The Insider Purchasers have the same rights as the remaining holders of the Series A Preferred Stock, since there are no terms or conditions in the Series A Preferred Stock which are impacted by the results of the Company. Pursuant to an Amendment No. 2 to Senior Secured Notes, the Retained Notes were amended to, among other things, (i) extend the maturity date from MarchDecember 31, 2009 to September 30,and March 29, 2010 (ii) delete the provision providing that the Company achieve a certain Minimum Ad justed EBITDA levels (as defined therein), (iii) fix the interest rate at 16% per annum, and (iv) provide that no cash bonuses will be awarded to Company management in 2008 or for 2008 performance and no future cash bonuses, options or restricted stock awards will be granted until (x) the Company has realized two quarters of positive operating income and (y) the Company has a reasonable expectation of realizing positive operating income in the quarter in which any such grant is made, all as determined in accordance with U.S. GAAP. Such amendment was executed by holders holding $1,752,000 of Retained Notes. In connection with amending the remaining $3,179,000 of the Retained Notes, the Company issued Series A-3 warrants to purchase 2,384,000 shares of common stock.
In December 2008, the Company issued 820 shares of its Series A Preferred Stock and Series A-3 warrants to acquire 2,976,000 shares of common stock in exchange for $3,281,000 of the Company’s Senior Secured Notes, which represents all but $1,722,000 of the Company’s then outstanding Senior Secured Notes. The terms of this exchange were substantially similar to the terms of the Company’s note exchange that closed on November 25, 2008.
Pursuant to that certain Series C Preferred Consent and Exchange Agreement, dated November 25, 2008, the holders of the Company’s Series C Convertible Preferred Stock (i) consented to the creation of the Series A Preferred Stock and (ii) were issued an aggregate of 633 shares of Series A Preferred Stock, which had a Stated Value of $4,748,100, in exchange for the outstanding 474.81 shares of Series C Convertible Preferred Stock, which also had a Stated Value of $4,748,100.
Pursuant to that certain Amendment to Warrants to Purchase Shares of Common Stock of Glowpoint Agreement, dated November 25, 2008, the holders of 19,525,000 Series A, A-2, placement agent and advisory warrants to purchase shares of common stock of the Company agreed to eliminate the provisions of their warrant agreements which required the Company to account for a derivative liability. In consideration for the elimination of the derivative liability, we reduced the exercise price of those warrants to $0.40 from a weighted average price of $0.63 and extended the expiration date five years (to November 25, 2013) from a weighted average expiration date of 2.8 years.
BHP, acted as placement agent for the private placements and acted as financial advisor for the other transactions disclosed herein and received a fee of $128,000 for the November 2008 transaction, which equaled seven (7%) percent of the gross proceeds received by the Company in the Initial Closing. In the December 2008 transaction BHP was entitled to a fee of $150,000 in cash,
32
$75,000 of which was payable within three business days following the closing of the transaction and the remaining $75,000 was payable upon closing a subsequent capital raise with gross proceeds to the Company of at least $1,000,000. In connection with the 2008 Private Placements, the Company also issued advisory warrants to BHP and/or its designees and assignees to purchase 1,000,000 shares of common stock at an exercise price of $0.40 per share and agreed to consolidate all prior warrant issuances to BHP, its designees and assignees, into a single warrant per such holder with the same terms as the Series A-3 warrants.
The foregoing brief descriptions of the 2008 Private Placements are qualified in their entirety by reference to the provisions of the applicable exhibits to the Company's Form 8-K’s filed with the Securities and Exchange Commission on November 26, 2008 and January 5, 2009.
March 2009 Private Placement
On March 16, 2009, the Company entered into a series of transactions that resulted in the Company raising additional working capital, exchanging or repaying all of its outstanding senior secured convertible promissory notes, and exchanging all of its Series A Convertible Preferred Stock for a newly-created Series A-1 Convertible Preferred Stock. As a result, the Company is debt-free (other than normal course trade payables and existing capital lease obligations) and has a single class of preferred stock outstanding.
Pursuant to that certain Series A-1 Convertible Preferred Stock Purchase Agreement, dated March 16, 2009 (the “2009 Purchase Agreement”), the Company received $1,800,000 of gross proceeds in an initial closing (the “Initial 2009 Closing”) of a private placement of 450 shares of its newly-created Series A-1 Convertible Preferred Stock (the “Series A-1 Preferred Stock”) and amended Series A-3 warrants to acquire 2,250,000 shares of common stock. Pursuant to the 2009 Purchase Agreement, the Company may sell additional shares of Series A-1 Preferred Stock and Series A-3 warrants in one or more subsequent closings that may occur during the 90-day period following the Initial 2009 Closing, up to a maximum offering amount of $4,000,000. There can be no assurance, however, that the Company will raise any additional funds following the Initial Closing.
The Series A-3 warrants have an exercise price of $0.40 per share, contain provisions providing weighted average anti-dilution protection and are exercisable for a period of five years. In accordance with the terms of that certain Registration Rights Agreement dated November 25, 2008 and amended on February 19, 2009, we are obligated to file a registration statement within 90 days after written request by at least two-thirds of the shares underlying the Series A-3 warrants, registering for resale the shares of common stock issuable upon exercise of the Series A-3 warrants. As of the date of this filing we have not received any such request for registration.
Each share of Series A-1 Preferred Stock has a stated value of $7,500 per share (the “Stated Value”), a liquidation preference equal to the Stated Value, and is convertible at the holder’s election into common stock at a conversion price per share of $0.75. Therefore, each share of Series A-1 Preferred Stock is convertible into 10,000 shares of common stock. The Series A-1 Preferred Stock is senior to all other classes of equity, has weighted average anti-dilution protection and, after the first anniversary of the Issuance Date (the “Dividend Grace Period”), is entitled to dividends at a rate of 5% per annum, payable quarterly, based on the Stated Value. After the Dividend Grace Period, all dividends shall be payable (i) if on or before September 30, 2010, at the Company’s option in cash or through the issuance of a number of additional shares of Series A-1 Preferred Stock with an aggregate liqui dation preference equal to the dividend amount payable on the applicable dividend payment date and (ii) if after September 30, 2010, at the option of the holder in cash or through the issuance of a number of additional shares of Series A-1 Preferred Stock with an aggregate liquidation preference equal to the dividend amount payable on the applicable dividend payment date. The “Issuance Date” is defined as the original issuance date of the Series A-1 Preferred Stock, except for shares of Series A-1 Preferred Stock issued upon the exchange of Series A Preferred Stock pursuant to the Series A Preferred Consent and Exchange Agreement (see below), in which case the “Issuance Date” is the date of issuance of the Series A Convertible Preferred Stock (i.e., either November 25, 2008 or December 31, 2008). Except for when dividends are payable, the Series A-1 Preferred Stock is the same as the Series A Preferred Stock created in November 2008.
Pursuant to that certain Note Exchange Agreement, dated March 16, 2009, the Company issued 269 shares of its Series A-1 Preferred Stock and Series A-3 warrants to acquire 595,000 shares of common stock in exchange for $1,076,000 of the Company’s Senior Secured Notes, which represented all but $713,000 of the Company’s then outstanding Senior Secured Notes (the “Remaining Notes”). The Remaining Notes were purchased for $750,000 and retired by the Company pursuant to that certain Securities Purchase Agreement, dated March 16, 2009, which prepayment was funded from the sale of securities in the Initial 2009 Closing. Therefore, there are no Senior Secured Notes outstanding.
Pursuant to that certain Series A Preferred Consent and Exchange Agreement, dated March 16, 2009, the holders of the Company’s Series A Preferred Stock (i) consented to the creation of the Series A-1 Preferred Stock and (ii) were issued an aggregate of 3,790 shares of Series A-1 Preferred Stock in exchange for an aggregate of 3,790 shares of the Company’s Series A Preferred Stock.
33
BHP, acted as placement agent for the 2009 Private Placement and acted as financial advisor for the other transactions disclosed herein and received a fee of $126,000, which equaled seven (7%) percent of the gross proceeds received by the Company in the Initial 2009 Closing. The Company also paid BHP an additional $75,000 which was payable in connection with fees earned in an earlier transaction that were deferred until the 2009 Private Placement.
The foregoing brief descriptions of the 2009 Private Placements are qualified in their entirety by reference to the provisions of the applicable exhibits to the Company's Form 8-K’s filed with the Securities and Exchange Commission on March 19, 2009.
Calculation of Fully Diluted Shares
The Company’s equity consists of (i) common stock, (ii) Series A-1 Preferred Stock, which is convertible into common stock, (iii) options to acquire common stock, and (iv) warrants to acquire common stock. The following is a summary of the Company’s shares of common stock and common stock equivalents as of March 27, 2009, together with expiration dates and applicable exercise/conversion prices (000s(000’s omitted):
|
| Potential Fully |
|
| Expiration |
|
| Weighted |
|
| Aggregate |
| ||||
Common Shares Outstanding |
|
| 47,510 |
|
|
| — |
|
| $ | — |
|
| $ | — |
|
Options (Note 1) |
|
| 5,405 |
|
| 10/2009 – 3/2019 |
|
|
| 1.23 |
|
|
| 6,763 |
| |
Warrants (Note 2) |
|
| 40,912 |
|
| 11/2013 – 3/2014 |
|
|
| 0.40 |
|
|
| 16,365 |
| |
Warrants (Note 2) |
|
| 1,640 |
|
|
| 3/2010 |
|
|
| 1.61 |
|
|
| 2,640 |
|
Warrants (Note 2) |
|
| 1,710 |
|
|
| 8/2009 |
|
|
| 2.56 |
|
|
| 4,370 |
|
Series A-1 Preferred Shares (Note 3) |
|
| 45,087 |
|
|
| — |
|
|
| 0.75 |
|
|
| — |
|
Total |
|
| 142,264 |
|
|
|
|
|
|
|
|
|
| $ | 30,138 |
|
Note 1 – The options have a median exercise price of $0.59. All of the options can be exercised for cash or in a cashless exercise.
Note 2 – All of the warrants can be exercised for either cash or in a cashless exercise.
Note 3 - Each of the 4,509 shares of the Series A-1 Preferred Stock has a stated value of $7,500, a liquidation preference of $7,500 and is convertible at the holder’s election into common stock at a conversion price per share of $0.75. Therefore, each share of Series A-1 Preferred Stock is convertible into 10,000 shares of common stock.
Calculation of the Company’s potential fully diluted shares outstanding is based on the Company’s common stock price so as to determine (x) whether the options and warrants are in the money and likely to be exercised and (y) whether the Series A-1 Preferred Stock will likely be converted into common stock or the liquidation preference paid in cash. Each share of Series A-1 Preferred Stock has a conversion price of $0.75. Therefore, if the Company’s common stock price is less than $0.75 per share, we assume holders of the Series A-1 Preferred Stock will not convert into common stock. If the price is greater than or equal to $0.75, we assume holders of the Series A-1 Preferred will convert their shares into the Company’s common stock.
The following table illustrates the number of shares of common stock that would be outstanding as of March 27, 2009 at various notional common stock market prices. We have assumed that all holders of warrants and options elect a cashless exercise rather than pay the exercise price in cash. There can be no assurance that the notional common stock market price or the Company’s resulting enterprise value will equal these illustrative levels. There can be no assurance that the Company will experience a liquidity event at an amount that would result in any distribution to equity holders of the following illustrative amounts or any other amounts. All amounts are in thousands with the exception of the notional common stock price.
Notional Common Stock Price |
| $ | 0.35 |
|
| $ | 0.50 |
|
| $ | 0.75 |
|
| $ | 1.00 |
|
| $ | 1.50 |
|
Existing Common Shares Outstanding |
|
| 47,510 |
|
|
| 47,510 |
|
|
| 47,510 |
|
|
| 47,510 |
|
|
| 47,510 |
|
Exercised Options |
|
| 68 |
|
|
| 452 |
|
|
| 1,267 |
|
|
| 1,792 |
|
|
| 2,495 |
|
Exercised Warrants |
|
| - |
|
|
| 8,183 |
|
|
| 19,098 |
|
|
| 24,561 |
|
|
| 30,024 |
|
Converted Series A-1 Preferred Shares |
|
| - |
|
|
| - |
|
|
| 45,087 |
|
|
| 45,087 |
|
|
| 45,087 |
|
Resulting Common Shares Outstanding |
|
| 47,578 |
|
|
| 56,145 |
|
|
| 112,962 |
|
|
| 118,950 |
|
|
| 125,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed Enterprise Value (Note A) |
| $ | 50,467 |
|
| $ | 61,887 |
|
| $ | 84,722 |
|
| $ | 118,950 |
|
| $ | 187,675 |
|
Less Series A-1 Preference (Note B) |
|
| 33,815 |
|
|
| 33,815 |
|
|
| - |
|
|
| - |
|
|
| - |
|
Assumed Aggregate Theoretical Value of the resulting Common Shares Outstanding |
| $ | 16,652 |
|
| $ | 28,072 |
|
| $ | 84,722 |
|
| $ | 118,950 |
|
| $ | 187,675 |
|
34
Note A – Enterprise value is a non-GAAP concept calculated by (i) adding a company’s common stock market capitalization, outstanding debt and preferred stock and (ii) subtracting total cash and cash equivalents. In the foregoing illustration, we added the Company’s notional common stock market capitalization (common shares outstanding multiplied by the notional common stock price) and the Series A-1 preferred stock liquidation preference, which was assumed to be in effect only when the notional common stock price is less than $0.75. We have assumed that cash and cash equivalents and accounts receivables equal any short and long term debt and liabilities of the Company, though there may be no basis for such an assumption.
Note B – If the notional common stock price is less than $0.75 per share, we assume the holders of Series A-1 Preferred shares would elect to receive their liquidation preference rather than convert into shares of common stock. Therefore, there would be 45,087,000 less shares of common stock but the holders of the Series A-1 Preferred Stock would have the right to receive a liquidation preference of $33,815,000.
We do not as a matter of course make any statement as to any future results. However, we have prepared the information set forth above to present the theoretical fully diluted common shares outstanding and assumed enterprise value on the assumptions outlined above. The information was not prepared with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants, but, in the view of the Company, was prepared on a reasonable basis. However, this information is not fact and should not be relied upon as being necessarily indicative of any result, and readers are cautioned not to place undue reliance on the theoretical information presented.
December 31, 2009 | 2010 Private Placement - Series B Preferred Stock Exchange | 2010 Private Placement – Conversion of Series A-2 Preferred Stock | 2010 Private Placement - Sale of Series B Preferred Stock | March 29, 2010 | ||||||||||||||||
Series B Preferred Stock | $ | — | $ | 5,000 | $ | — | $ | 3,000 | $ | 8,000 | ||||||||||
Series A-2 Preferred Stock | 33,815 | (10,000 | ) | (11,589 | ) | — | 12,226 | |||||||||||||
Total | $ | 33,815 | $ | (5,000 | ) | $ | (11,589 | ) | $ | 3,000 | $ | 20,226 | ||||||||
flows
$640,000.
revenue.
$1,213,000.
lease.
Commitments and Contractual Obligations
2009.
Contractual Obligations: |
| Total |
|
| Less Than 1 Year |
|
| 1-3 Years |
| 3-5 Years | More than 5 Years | |||||||
Senior Secured Notes |
| $ | 1,722 |
|
| $ | - |
|
| $ | 1,722 |
|
| $ | ─ |
| $ | ─ |
Operating lease obligations |
|
| 540 |
|
|
| 278 |
|
|
| 262 |
|
|
| ─ |
|
| ─ |
Capital lease obligations |
|
| 274 |
|
|
| 274 |
|
| ─ |
|
|
| ─ |
|
| ─ | |
Commercial commitments |
|
| 1,241 |
|
|
| 1,241 |
|
| ─ |
|
|
| ─ |
|
| ─ | |
Total |
| $ | 3,777 |
|
| $ | 1,793 |
|
| $ | 1,984 |
|
| $ | ─ |
| $ | ─ |
RecentHierarchy of Generally Accepted Accounting Pronouncements
In December 2007,Principles a replacement of FASB Statement No. 162”
35
Effective January 1, 2008, the Company adopted SFAS No. 157, "Fair Value Measurements"Accounting Standards Updates (“SFAS 157”ASU”). that follows, references in “italics” relate to ASC or ASU topics, and their descriptive titles, as appropriate.
Level 1 — Quoted prices in active markets for identical assets or liabilities.
Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The adoption of this Statement did not have a material impact on the Company's consolidated results of operations and financial condition.
Note 12.
In May 2008, the FASB issued FASB Staff Position (FSP) APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (FSP APB 14-1). FSP APB 14-1 clarifies that convertible debt instruments that may be settled in cash upon either mandatory or optional conversion (including partial cash settlement) are not addressed by paragraph 12 of APB Opinion No. 14, “Accounting for Convertible Debt and Debt issued with Stock Purchase Warrants.” Additionally, FSP APB 14-1ASC Topic 470 specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP APB 14-1ASC Topic 470 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fisca lfiscal years. We will adopt FSP APB 14-1adopted the amended sections of ASC Topic 470 beginning in the first quarter of 2009, and this standard must be applied on a retrospective basis. We areThe adoption of ASC Topic 470 did not have a material impact on the Company’s consolidated results of operations and financial condition.
In June 2008, the FASB ratified EITF Issue No. 07-5, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock” (“EITF 07-5”). Equity-linked instruments (or embedded features) that otherwise meet the definition of a derivative as outlined in SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” are not accounted for as derivatives if certain criteria are met, one of which is that the instrument (or embedded feature) must be indexed to the entity’s stock. EITF 07-5 provides guidance on determining if equity-linked instruments (or embedded features) such as warrants to purchase our stock are considered indexed to our stock. EITF 07-5 is effective for the financial statements issued for fiscal years and interim periods within those fiscal years, beginning after December 15, 2008 and will be applied to outstanding instruments as of the beginning of the fiscal year in which it is adopted. Upon adoption, a cumulative effect adjustment will be recorded, if necessary, based on amounts that would have been recognized if this guidance had been applied from the issuance date of the affected instruments. The Company is currently determining the impact, if any, that EITF 07-5topic will have on its consolidated financial statements.
7A. Quantitative and Qualitative Disclosures about Market Risk
36
We have exposure to interest rate risk related to our cash equivalents portfolio. The primary objective of our investment policy is to preserve principal while maximizing yields. Our cash equivalents portfolio is short-term in nature; therefore changes in interest rates will not materially impact our consolidated financial condition. However, such interest rate changes can cause fluctuations in our results of operations and cash flows.
2009.
Directors, Executive Officers, Promoters and Control Persons
The following table sets forth information with respect to our current directors and executive officers*.
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
| ||||
|
|
| ||
———————
* Does not include applicable information for former directors Michael Brandofino, Richard Reiss and Aziz Ahmad, each of whom resigned without disagreement in March 2009, as reported on the Company’s Form 8-K filed on March 19, 2009.
(1)
Member of the Audit Committee
(2)
Member of the Compensation Committee
(3)
Member of the Nominating Committee
(4)
Alternate Member of the Compensation Committee
(5)
Alternate Member of the Audit, Compensation and Nominating Committees
Biographies
Bami Bastani, Class II Director. Dr. Bastani joined our board of directors in February 2007 and his term will expire at the annual meeting of stockholders in 2010. Until August 2008, he was President and CEO of ANADIGICS (NASDAQ:ANAD), a leading supplier of semiconductor radio frequency integrated circuits for the broadband and wireless communications markets. Prior to joining ANADIGICS in 1998, he held senior positions with Fujitsu Microelectronics and National Semiconductor. Dr. Bastani currently serves on the board of directors of Nitronex, a private company; he previously served on the board of directors of Globespan Virata in 2003 and was a national member of the AEA board of directors until 2007. Dr. Bastani earned his Ph.D and his M.S.E.E. in Microelectronics from Ohio State University and his B.S. (Electrical Engineering) from the University of Arkansas. He also holds three U.S. patents.
Dean Hiltzik, Class III Director. Mr. Hiltzik has been a member of our board of directors since May 2000 and his term will expire at the annual meeting of stockholders in 2011. From September 1999 until May 2000, Mr. Hiltzik was a member of the board of directors of All Communications Corporation (“ACC”). Mr. Hiltzik, a certified public accountant, is a partner and director at the accounting and consulting firm of Marks Paneth & Shron LLP (“MPS”), which acquired his former firm Schneider & Associates LLP, which he joined in 1979. MPS provides tax and consulting services to Glowpoint. Mr. Hiltzik received a B.A. from Columbia University and an M.B.A. in Accounting from Hofstra University.
Joseph Laezza, Co-Chief Executive Officer, President and Class III Director. Mr. Laezza has been our Co-Chief Executive Officer and Class III Director since March 2009, our President since June 2008, our Chief Operating Officer since April 2006 and previously served as our Vice President, Operations since March 2004. His term as a Class III Director will expire at the annual meeting of stockholders in 2011. Mr. Laezza joined the Company from Con Edison Communications, where he was Vice President, Network Operations. He previously held management positions at a number of telecommunications service providers, including AT&T and XO Communications, where he was responsible for operations, service delivery, and customer service.
James S. Lusk, Class I Director.Mr. Lusk joined our board of directors in February 2007 and his term will expire at the annual meeting of stockholders in 2009. He is Chief Financial Officer of ABM Industries Incorporated (NYSE:ABM), a leading facility services contractor in the United States and Canada, and was formerly ABM’s Executive Vice President. Prior to joining ABM, he was Vice President, Business Services of Avaya, Chief Financial Officer, Treasurer of BioScrip/MIM, President of Lucent Technologies’ Business Solutions division, and interim Chief Financial Officer of Lucent Technologies. Mr. Lusk earned his B.S. (Economics), cum laude, from the Wharton School, University of Pennsylvania, and his M.B.A (Finance) from Seton Hall University. He is a CPA and was inducted into the AICPA Business and Industry Leadership Hall of Fame in 1999.
38
David W. Robinson, Co-Chief Executive Officer, Executive Vice President of Business Development, General Counsel and Class III Director. Mr. Robinson has been our Co-Chief Executive Officer and Class III Director since March 2009, our Executive Vice President, Business Development since June 2008, and General Counsel since May 2006. His term as a Class III Director will expire at the annual meeting of stockholders in 2011. Prior to joining the Company, Mr. Robinson was Vice President and General Counsel of Con Edison Communications from August 2001 until March 2006, when Con Edison Communications was purchased by RCN Corporation. Before that, Mr. Robinson served in senior executive positions with other telecommunications service providers and provided legal and business counseling to other businesses. Mr. Robinson received a B.A. from the University of Pennsylvani a (magna cum laude) and a Juris Doctorate from Boston College Law School.
Peter Rust, Class I Director. Mr. Rust joined our board of directors in May 2006 and is currently Chairman of the Board and a member of the Audit and Nominating Committees. His term will expire at the annual meeting of stockholders in 2009. Mr. Rust has over 27 years of experience in the telecommunications, Internet and computer industries. He is currently CEO of Bank Street Consulting Group, a firm that helps companies accelerate their growth by designing and implementing best-in-class product, market and sales strategies as well as recruiting required talent. Previously, Mr. Rust was CEO of FWD, a web-based multimedia communications business and President and CEO of Con Edison Communications. He is also a former director of NEON Communications, is a current director for two non-profits and is a past member of the Communications Sector of the NYC Investment Fund. Mr. Rust h olds an M.B.A. in Corporate Finance from Adelphi University, a Master of Science in Biomedical Engineering from Polytechnic University of New York, and a B.A. from Brown University in Rhode Island.
Non-Director Executive Officer
Edwin F. Heinen, Chief Financial Officer and Executive Vice President, Finance. Mr. Heinen, a certified public accountant, has been our Chief Financial Officer since April 2006 and previously served as our Controller since March 2005. Mr. Heinen joined the Company from Communications Network Enhancement, Inc., an audio conferencing company, where he was CFO since September 2001. Before that, Mr. Heinen served in senior financial executive positions with responsibility for accounting, auditing, treasury, analysis, budgeting, and financial and tax reporting. Mr. Heinen received a B.S. in Business Administration from Cornell University and an M.B.A in Finance from the University of Detroit.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires executive officers and directors and persons who beneficially own more than 10% of a registered class of our equity securities to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Executive officers, directors and greater than 10% stockholders are required by regulations of the Securities and Exchange Commission to furnish us with copies of all Section 16(a) reports they file.
Based solely on our review of the copies of reports we received, or written representations that no such reports were required for those persons, we believe that, for 2008, all statements of beneficial ownership required to be filed with the Securities and Exchange Commission were filed on a timely basis.
Code of Ethics
We have adopted a code of business conduct and ethics, which is designed to promote: honest and ethical conduct; full, fair, accurate, timely and understandable disclosure in our filings with the SEC and other public communications; compliance with applicable laws, rules and regulations; prompt internal reporting of violations of the code of business conduct and ethics; and accountability for adherence to the code of business conduct and ethics. The code of business conduct and ethics applies to our employees, officers and directors, including our principal executive officer, principal financial officer, principal accounting officer and controller. A copy of our code of business conduct and ethics is available at our website at www.glowpoint.com. You may request a copy of the code of business conduct and ethics, at no cost, by telephoning us at (866) GLOWPOINT or writing us at the following address: Glowpoint, Inc., 225 Long Avenue, Hillside, New Jersey 07205, Attention: Investor Relations. We may post amendments to or waivers of the provisions of the code of business conduct and ethics, if any, made with respect to our principal executive officer, principal financial officer, principal accounting officer or controller on that website. Please note, however, that the information contained on the website is not incorporated by reference in, or considered to be part of, this document.
39
Corporate Governance
Corporate governance is typically defined as the system that allocates duties and authority among a company’s stockholders, board of directors and management. The stockholders elect the board and vote on extraordinary matters; the board is the company’s governing body, responsible for hiring, overseeing and evaluating management, particularly the chief executive officer; and management runs the company’s day-to-day operations. The primary responsibilities of the board of directors are oversight, counseling and direction to our management in the long-term interests of us and our stockholders. Our board of directors currently consists of six directors. The current board members include four independent directors and two current members of our senior management.
Independent Directors. Other than Messrs. Laezza and Robinson (our current executive officers), each of our directors qualifies as “independent” in accordance with the published listing requirements of the Company Guide of the American Stock Exchange. This independence definition includes a series of objective tests, such as that the director is not an employee of the company and has not engaged in various types of business dealings with the company. In addition, the board has made a subjective determination as to each independent director that no relationship exist which, in the opinion of the board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
Board Committees. The board has an audit committee, a compensation committee and a nominating committee. Each committee has a charter that is available for review on our website at www.glowpoint.com. You may request a copy of each charter, at no cost, by telephoning us at (866) GLOWPOINT or writing us at the following address: Glowpoint, Inc., 225 Long Avenue, Hillside, New Jersey 07205, Attention: Investor Relations.
Audit Committee. We currently have an audit committee consisting of James Lusk, Peter Rust and Bami Bastani. Mr. Lusk is the chairman of the audit committee. The audit committee consults and meets with our Registered Public Accounting Firm and chief financial officer and accounting personnel, reviews potential conflict of interest situations where appropriate, and reports and makes recommendations to the full board of directors regarding such matters.
The members of the audit committee each qualify as “independent” under the heightened standards established for members of audit committees pursuant to Rule 10A-3 under the Securities Exchange Act. The audit committee is also required to have at least one independent member who is determined by the board to meet the qualifications of an “audit committee financial expert” in accordance with SEC rules, including that the person meets the relevant definition of an “independent director.” Each member of the audit committee has been determined to be an audit committee financial expert and independent director. Stockholders should understand that this designation is a disclosure requirement of the SEC related to these directors’ experience and understanding with respect to certain accounting and auditing matters. The designation does not impose upon these directors any duties, obligations or liability that ar e greater than are generally imposed on them as a member of the audit committee and the board, and their designation as an audit committee financial expert pursuant to this SEC requirement does not affect the duties, obligations or liability of any other member of the audit committee or the board.
Compensation Committee. We currently have a compensation committee consisting of Dean Hiltzik, Bami Bastani and James Lusk. Peter Rust serves as alternate members of the compensation committee. Each member of the compensation committee meets the required independence standard. The compensation committee is responsible for supervising our executive compensation policies, reviewing officers’ salaries, reviewing and discussing with management the Compensation Discussion and Analysis, providing the Compensation Committee Report for inclusion in our Proxy Statement, and performing such other duties as the board of directors may prescribe from time to time.
Nominating Committee. We currently have a nominating committee consisting of Dean Hiltzik, Peter Rust and Bami Bastani. Each member of the nominating committee meets the required independence standard. The nominating committee is responsible for assessing the performance of our board of directors and making recommendations to our board regarding nominees for the board. The nominating committee was formed in February 2004. Prior to the formation of the committee, its functions were performed by the board of directors. The nominating committee considers qualified candidates to serve as a member of our board of directors suggested by our stockholders. Stockholders can suggest qualified candidates for director by writing to our Corporate Secretary at 225 Long Avenue, Hillside, New Jersey 07205. Stockholder submissions that are received in accordance with our by-laws and that meet the criteria outlined in the nominating committe e charter are forwarded to the members of the nominating committee for review. There have been no changes to the procedures by which stockholders may recommend nominees to our board of directors in the last two years.
Item 11. Executive Compensation
Item 11. Executive Compensation |
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
We receive financial and tax services from Marks, Paneth & Shron LLP, an accounting and consulting firm in which Dean Hiltzik, one of our directors, is a partner. In the last fiscal year, we incurred fees of approximately $62,000 for services received from this firm.
41
A.
The following documents are filed as part of this report:
1. Consolidated Financial Statements:
A. | The following documents are filed as part of this report: |
1. Consolidated Financial Statements: |
2. Financial Statement Schedules have been omitted since they are either not required, not applicable, or the information is otherwise included.
3.
Exhibits:
2. Financial Statement Schedules have been omitted since they are either not required, not applicable, or the information is otherwise included. |
3. Exhibits: A list of exhibits required to be filed as part of this report is set forth in the Exhibit Index on page 52 of this Form 10-K, which immediately precedes such exhibits, and is incorporated by reference. |
Exhibit Number | Description | |
|
| |
| Amended and Restated Certificate of Incorporation. (1) | |
3.2 | Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Wire One Technologies, Inc. changing its name to Glowpoint, Inc. | |
3.3 | Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Glowpoint, Inc. increasing its authorized common stock to 150,000,000 shares from 100,000,000 shares. | |
3.4 | Amended and Restated Bylaws. | |
3.5 | Amendment to Amended and Restated Bylaws | |
4.1 | Specimen Common Stock Certificate. | |
4.2 |
| |
| Certificate of Designations, Preferences and Rights of Series D Preferred Stock. | |
|
| |
|
| |
| Certificate of Designations, Preferences and Rights of Series A Preferred Stock of Glowpoint. | |
| Form of Series A-3 Warrant dated November 25, 2008. | |
| Form of Amendment to Warrants to Purchase Shares of Common Stock of Glowpoint, dated as of November 25, 2008. | |
| Certificate of Designations, Preferences and Rights of Series A-1 Preferred Stock of Glowpoint. | |
| Certificate of Designations, Preferences and Rights of Series A-2 Preferred Stock of Glowpoint. (18) | |
4.8 | Form of | |
| Form of Amendment to Series A-3 Warrant dated August 10, 2009. (18) | |
4.10 | Certificate of Designations, Preferences and Rights of Series B Preferred Stock of Glowpoint. (19) | |
10.1 | Glowpoint, Inc. 2000 Stock Incentive Plan. (2) | |
10.2 |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Employment Agreement with Joseph Laezza, dated as of March 11, 2004. | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
| Employment Agreement with David W. Robinson, dated May 1, 2006 | |
| Employment Agreement with Edwin F. Heinen, dated January 30, 2007. | |
| Employment Agreement Amendment with Edwin F. Heinen, dated April 24, 2007. (6) | |
10.6 | Employment Agreement Amendment with David W. Robinson, dated April 24, 2007. | |
|
| |
|
| |
| Employment Agreement Amendment with Joseph Laezza, dated May 15, 2007. | |
|
| |
| Glowpoint, Inc. 2007 Stock Incentive Plan. | |
| Employment Agreement Amendment with David W. Robinson, dated September 20, 2007. | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Exchange Agreement, dated September 21, 2007, between Glowpoint and the Holders set forth therein. | |
|
| |
| Letter Agreement, dated as of December 18, 2007, amending the amended Registration Rights Agreement, dated as of September 21, 2007, between Glowpoint and the Purchasers set forth therein. | |
| Lease Agreement for premises located at 225 Long Avenue, Hillside, New Jersey, dated as of December 31, 2007, between Glowpoint and Vitamin Realty Associates, L.L.C. | |
| Employment Agreement Amendment with David W. Robinson dated April 30, 2008. | |
|
| |
| Form of Series A Convertible Stock Purchase Agreement, dated as of November 25, 2008, between Glowpoint and the purchasers set forth therein. | |
| Form of Registration Rights Agreement, dated as of November 25, 2008, between Glowpoint and the purchasers set forth therein. | |
| Form of Note Exchange Agreement, dated November 25, 2008, between Glowpoint and the holders set forth therein. | |
| Form of Series C Preferred Consent and Exchange Agreement, dated November 25, 2008, between Glowpoint and the holders set forth therein. | |
| Employment Agreement Amendment with Joseph Laezza, dated November 24, 2008. |
| Employment Agreement Amendment with Edwin F. Heinen, dated November 24, 2008. | |
| Form of Note Exchange Agreement, dated December 31, 2008, between Glowpoint and the holders set for the therein. | |
| Form of Series A-1 Convertible Stock Purchase Agreement, dated as of March 16, 2009, between Glowpoint and the purchasers set forth therein. | |
| Amendment No. 1 to Registration Rights Agreement, dated February 19, 2009. |
(16) | ||
|
| |
| Form of Note Exchange Agreement, dated March 16, 2009, between Glowpoint and the holders set forth therein. | |
| Form of Securities Purchase Agreement, dated March 16, 2009, between Glowpoint and the holder set forth therein. | |
| Form of Series A Preferred Consent and Exchange Agreement, dated March 16, 2009, between Glowpoint and the holders set forth therein. | |
|
| |
| Employment Agreement Amendment with Joseph Laezza, dated March 12, 2009. | |
| Employment Agreement Amendment with Edwin F. Heinen, dated March 12, 2009. | |
| Employment Agreement Amendment with David W. Robinson, dated March 12, 2009. | |
10.29 |
| |
10.30 | Form of Warrant Exchange Agreement, dated August 11, 2009, between Glowpoint and the holders set forth therein. (18) | |
10.31 | Form of Registration Rights Agreement, dated August 11, 2009, between Glowpoint and the holders set forth therein. (18) | |
10.32 | Form of Series B Stock Purchase Agreement, dated as of March 29, 2010, between Glowpoint and the purchasers set forth therein. (19) | |
10.33 | Form of Series A-2 Preferred Exchange Agreement, dated March | |
10.34 | Form of Series A-2 Preferred Consent Agreement, dated March 29, 2010, between Glowpoint and the holders set forth therein. (19) | |
10.35 | Employment Agreement Amendment with Joseph Laezza, dated March 30, 2010. (21) | |
10.36 | Employment Agreement Amendment with David W. Robinson, dated March 30, 2010. (21) | |
10.37 | Employment Agreement Amendment with Edwin F. Heinen, dated March 30, 2010. (21) | |
10.38 | Master Subcontracting Agreement between Polycom, Inc. and Glowpoint, Inc., dated November 26, 2007. (21) | |
10.39 | Form of Restricted Stock Award Agreement (20) and Schedule of Recently Reported Restricted Stock Awards. | |
| Letter of Resignation from Aziz Ahmad, dated March 18, 2009. (16) | |
17.2 | Letter of Resignation from Richard Reiss, dated March 18, 2009. (16) | |
17.3 | Letter of Resignation from Bami Bastani, dated May 28, 2009. (17) | |
17.4 | Letter of Resignation from Dean Hiltzik, dated May 28, 2009. (17) | |
21.1 | Subsidiaries of Glowpoint, Inc. | |
Rule 13a—14(a)/15d—14(a) Certification of the Chief Executive Officer. | ||
Rule 13a—14(a)/15d—14(a) Certification of the Chief Financial Officer. | ||
Section 1350 Certification of the Chief Executive Officer. | ||
Section 1350 Certification of the Chief Financial Officer. | ||
99.1 | Press Release. |
(1)
Filed as an appendix to View Tech, Inc.’s Registration Statement on Form S-4 (File No. 333-95145) and incorporated herein by reference.
(2)
Filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2000, and incorporated herein by reference.
(3)
Filed as an exhibit to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 15, 2002, and incorporated herein by reference.
(4)
Filed as an exhibit to Registrant’s Current Report on Form 8-K, dated December 23, 2002, and incorporated herein by reference.
(5)
Filed as an exhibit to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 26, 2004, and incorporated herein by reference.
(6)
Filed as an exhibit to Registrant’s Registration Statement on Form S-3 (Registration No. 333-69432) and incorporated herein by reference.
(7)
Filed as an exhibit to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 10, 2000, and incorporated herein by reference.
(8)
Filed as an Exhibit to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003, and incorporated herein by reference.
(9)
Filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2004, and incorporated herein by reference.
(10)
Filed as an exhibit to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 14, 2005, and incorporated herein by reference.
(11)
Filed as an exhibit to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 4, 2006, and incorporated herein by reference.
(12)
Filed as an exhibit to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 5, 2006, and incorporated herein by reference.
(13)
Filed as an exhibit to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 2, 2007, and incorporated herein by reference.
(14)
Filed as an exhibit to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 21, 2007, and incorporated herein by reference.
(15)
Filed as an exhibit to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006, and incorporated herein by reference.
(16)
Filed as an exhibit to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 26, 2007, and incorporated herein by reference.
(17)
Filed as an exhibit to Registrant’s Definitive Proxy on Schedule 14A filed with the Securities and Exchange Commission on July 30, 2007, and incorporated herein by reference.
(18)
Filed as an exhibit to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 24, 2007, and incorporated herein by reference.
(19)
Filed as an exhibit to Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on January 11, 2008, and incorporated herein by reference.
(1) | Filed as an appendix to View Tech, Inc.’s Registration Statement on Form S-4 (File No. 333-95145) and incorporated herein by reference. |
(2) | Filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2000, and incorporated herein by reference. |
(3) | Filed as an Exhibit to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003, and incorporated herein by reference. |
(4) | Filed as an exhibit to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 5, 2006, and incorporated herein by reference. |
(5) | Filed as an exhibit to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 2, 2007, and incorporated herein by reference. |
(6) | Filed as an exhibit to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 21, 2007, and incorporated herein by reference. |
(7) | Filed as an exhibit to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006, and incorporated herein by reference. |
(8) | Filed as an exhibit to Registrant’s Definitive Proxy on Schedule 14A filed with the Securities and Exchange Commission on July 30, 2007, and incorporated herein by reference. |
(9) | Filed as an exhibit to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 24, 2007, and incorporated herein by reference. |
(10) | Filed as an exhibit to Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on January 11, 2008, and incorporated herein by reference. |
(11) | Filed as an exhibit to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 30, 2008, and incorporated herein by reference. |
(12) | Filed as an exhibit to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007, and incorporated herein by reference. |
(13) | Filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2008, and incorporated herein by reference. |
(14) | Filed as an exhibit to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 26, 2008, and incorporated herein by reference. |
(15) | Filed as an exhibit to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 5, 2009, and incorporated herein by reference. |
(16) | Filed as an exhibit to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 19, 2009, and incorporated herein by reference. |
(17) | Filed as an exhibit to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 3, 2009, and incorporated herein by reference. |
(18) | Filed as an exhibit to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 11, 2009, and incorporated herein by reference. |
(19) | Filed as an exhibit to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 30, 2010, and incorporated herein by reference. |
(20) (21) | Filed as an exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2008, and incorporated herein by reference. Filed herewith. |
45
(20)
Filed as an exhibit to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 30, 2008, and incorporated herein by reference.
(21)
Filed as an exhibit to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007, and incorporated herein by reference.
(22)
Filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2008, and incorporated herein by reference.
(23)
Filed as an exhibit to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 26, 2008, and incorporated herein by reference.
(24)
Filed as an exhibit to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 5, 2009, and incorporated herein by reference.
(25)
Filed as an exhibit to Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 19, 2009, and incorporated herein by reference.
(26)
Filed herewith.
46
GLOWPOINT, INC. | |||
| |||
By: | /s/ Joseph Laezza | ||
|
| ||
| |||
Co-Chief Executive Officer and President |
/s/ | Co-Chief Executive Officer and President (Principal Executive Officer) | |
Joseph Laezza | ||
/s/ | Chief Financial Officer (Principal Financial and Accounting Officer) | |
Edwin F. Heinen | ||
/s/ | Director | |
| ||
/s/ | Director | |
| ||
/s/ |
| |
| ||
| Director and Co-Chief Executive Officer | |
David W. Robinson | ||
/s/ | Director | |
Peter Rust |
47
Board of Directors and Stockholders of Glowpoint, Inc.
Board of Directors and Stockholders of Glowpoint, Inc. |
The accompanying consolidated financial statements have been prepared assuming Glowpoint, Inc. and Subsidiaries will continue as a going concern. As more fully described in Note 2, the Company has a working capital deficiency and recurring net losses, and is in the process of seeking additional capital. The Company has not yet secured sufficient capital to fund its operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that may result from the outcome of this uncertainty.
30, 2010
|
| December 31, |
| |||||
ASSETS |
| 2008 |
|
| 2007 |
| ||
Current assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 1,227 |
|
| $ | 2,312 |
|
Accounts receivable, net of allowance for doubtful accounts of $301 and $132, respectively |
|
| 3,090 |
|
|
| 2,546 |
|
Prepaid expenses and other current assets |
|
| 294 |
|
|
| 348 |
|
Total current assets |
|
| 4,611 |
|
|
| 5,206 |
|
Property and equipment, net |
|
| 2,533 |
|
|
| 2,692 |
|
Other assets |
|
| 33 |
|
|
| 664 |
|
Total assets |
| $ | 7,177 |
|
| $ | 8,562 |
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 2,367 |
|
| $ | 1,575 |
|
Accrued expenses |
|
| 842 |
|
|
| 1,427 |
|
Accrued sales taxes and regulatory fees |
|
| 4,535 |
|
|
| 4,011 |
|
Derivative financial instruments |
|
| — |
|
|
| 6,117 |
|
Customer deposits |
|
| 606 |
|
|
| 713 |
|
Deferred revenue |
|
| 325 |
|
|
| 330 |
|
Current portion of capital lease |
|
| 161 |
|
|
| 125 |
|
Total current liabilities |
|
| 8,836 |
|
|
| 14,298 |
|
Long term liabilities: |
|
|
|
|
|
|
|
|
Senior Secured Notes, net of discount of $240 and $3,912, respectively |
|
| 1,482 |
|
|
| 6,647 |
|
Senior Secured Notes held by Insider Purchasers - related parties, net of discount |
|
| — |
|
|
| 226 |
|
Capital lease, less current portion |
|
| 72 |
|
|
| 233 |
|
Total long term liabilities |
|
| 1,554 |
|
|
| 7,106 |
|
Total liabilities |
|
| 10,390 |
|
|
| 21,404 |
|
Preferred stock: |
|
|
|
|
|
|
|
|
Preferred stock, $10,000 par value; 0 and 1,500 shares authorized and redeemable; |
|
| — |
|
|
| 4,330 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
Stockholders’ deficit: |
|
|
|
|
|
|
|
|
Preferred stock, $.0001 par value; 7,500 shares authorized and convertible; 3,790 and 0 Series A shares issued and outstanding recorded at fair value (liquidation value of $28,423 and $0), respectively (see Note 10 for information related to Insider Purchasers – related parties) |
|
| 11,574 |
|
|
| — |
|
Common stock, $.0001 par value; 150,000,000 shares authorized; 48,374,954 and 47,629,564 shares issued; 46,810,063 and 46,064,673 shares outstanding, respectively |
|
| 5 |
|
|
| 5 |
|
Additional paid-in capital |
|
| 172,000 |
|
|
| 162,300 |
|
Accumulated deficit |
|
| (185,409 | ) |
|
| (178,094 | ) |
|
|
| (1,830 | ) |
|
| (15,789 | ) |
Less: Treasury stock, 1,564,891 shares at cost |
|
| (1,383 | ) |
|
| (1,383 | ) |
Total stockholders’ deficit |
|
| (3,213 | ) |
|
| (17,172 | ) |
Total liabilities and stockholders’ deficit |
| $ | 7,177 |
|
| $ | 8,562 |
|
December 31, | ||||||||
ASSETS | 2009 | 2008 | ||||||
Current assets: | ||||||||
Cash | $ | 587 | $ | 1,227 | ||||
Accounts receivable, net of allowance for doubtful accounts of $262 and $301, respectively | 3,323 | 3,090 | ||||||
Prepaid expenses and other current assets | 291 | 294 | ||||||
Total current assets | 4,201 | 4,611 | ||||||
Property and equipment, net | 2,682 | 2,533 | ||||||
Other assets | 31 | 33 | ||||||
Total assets | $ | 6,914 | $ | 7,177 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 3,232 | $ | 2,367 | ||||
Accrued expenses | 879 | 842 | ||||||
Accrued sales taxes and regulatory fees | 888 | 4,535 | ||||||
Customer deposits | 308 | 606 | ||||||
Deferred revenue | 259 | 325 | ||||||
Current portion of capital lease | — | 161 | ||||||
Total current liabilities | 5,566 | 8,836 | ||||||
Long term liabilities: | ||||||||
Accrued sales taxes and regulatory fees, less current portion | 195 | — | ||||||
Senior Secured Notes, net of discount of $240 | — | 1,482 | ||||||
Capital lease, less current portion | — | 72 | ||||||
Total long term liabilities | 195 | 1,554 | ||||||
Total liabilities | 5,761 | 10,390 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ equity (deficit): | ||||||||
Preferred stock, $.0001 par value; 7,500 shares authorized and convertible; 4,509 and 3,790 shares issued and outstanding recorded at fair value (liquidation value of $33,815 and $28,423), respectively (see Note 12 for information related to Insider Purchasers – related parties) | 14,275 | 11,574 | ||||||
Common stock, $.0001 par value; 150,000,000 shares authorized; 66,531,087 and 48,374,954 shares issued; 64,966,196 and 46,810,063 shares outstanding, respectively | 7 | 5 | ||||||
Additional paid-in capital | 150,659 | 172,000 | ||||||
Accumulated deficit | (162,405 | ) | (185,409 | ) | ||||
2,536 | (1,830 | ) | ||||||
Less: Treasury stock, 1,564,891 shares at cost | (1,383 | ) | (1,383 | ) | ||||
Total stockholders’ equity (deficit) | 1,153 | (3,213 | ) | |||||
Total liabilities and stockholders’ equity (deficit) | $ | 6,914 | $ | 7,177 |
F-2
Year Ended December 31, 2008 2007 Revenue $ 24,537 $ 22,792 Cost of revenue 14,337 15,234 Gross margin 10,200 7,558 Operating expenses: Research and development 1,063 855 Sales and marketing 3,710 3,106 General and administrative 8,634 8,218 Total operating expenses 13,407 12,179 Loss from operations (3,207 ) (4,621 ) Interest and other expense (income): Interest expense, including $141 and $261, respectively, for Insider Purchasers 4,535 6,043 Amortization of deferred financing costs, including $46 and $14, respectively, for Insider Purchasers 448 531 Loss on extinguishment of debt, including $99 for Insider Purchasers 1,816 — Decrease in fair value of derivative financial instruments’ liability, including $86 and $440, respectively, for Insider Purchasers (2,673 ) (5,665 ) Interest income (18 ) (59 ) Total interest and other expense, net 4,108 850 Net loss (7,315 ) (5,471 ) Gain on redemption of preferred stock 2,419 799 Preferred stock dividends — (252 ) Net loss attributable to common stockholders $ (4,896 ) $ (4,924 ) Net loss attributable to common stockholders per share: Basic and diluted $ (0.11 ) $ (0.11 ) Weighted average number of common shares: Basic and diluted 46,477 46,735 2008 Additional Series A Common Stock Paid In Accumulated Preferred Stock Treasury Stock Shares Amount Capital Deficit Shares Amount Shares Amount Total Balance at January 1, 2007 46,390 $ 5 $ 161,267 $ (172,623 ) — $ — 40 (240 ) $ (11,591 ) Net loss — — — (5,471 ) — — — — (5,471 ) Stock-based compensation - restricted stock 1,240 — 391 — — — — — 391 Stock-based compensation - options — — 480 — — — — — 480 Treasury stock received and costs incurred in connection with Series C convertible preferred stock exchange — — (89 ) — — — 1,525 (1,143 ) (1,232 ) Gain on redemption of Series B preferred stock — — 799 — — — — — 799 Reclassification of placement agent warrants – Senior Secured Notes — — (296 ) — — — — — (296 ) Preferred stock dividends — — (252 ) — — — — — (252 ) Balance at December 31, 2007 47,630 5 162,300 (178,094 ) — — 1,565 (1,383 ) (17,172 ) Stock-based compensation - restricted stock 745 — 394 — — — — — 394 Stock-based compensation - options — — 353 — — — — — 353 Warrants issued in connection with the 2008 Private Placements — — 4,853 — — — — — 4,853 Series A Convertible Preferred Stock issued in connection with the 2008 Private Placements — — — — 3,790 11,574 — — 11,574 Gain on redemption of Series C preferred stock — — 2,419 — — — — — 2,419 Costs related to 2008 private placements — — (538 ) — — — — — (538 ) Gain on elimination of derivative liabilities — — 2,219 — — — — — 2,219 Net loss for the year — — — (7,315 ) — — — — (7,315 ) Balance at December 31, 2008 48,375 $ 5 $ 172,000 $ (185,409 ) 3,790 $ 11,574 1,565 $ (1,383 ) $ (3,213 ) $ 26,540 $ 24,537 Operating expenses: 11,838 12,762 7,476 5,849 3,193 3,382 4,465 4,662 1,056 1,261 (2,500 ) (172 ) 25,528 27,744 1,012 (3,207 ) Interest and other expense (income): Interest (income) expense, net, including $0 and $141 of expense, respectively, for Insider Purchasers (543 ) 4,517 Amortization of deferred financing costs, including $46 for Insider Purchasers — 448 Loss on extinguishment of debt, including $0 and $99, respectively, for Insider Purchasers 254 1,816 Increase (decrease) in fair value of derivative financial instruments’ liability, including $0 and $86, respectively, for Insider Purchasers 1,848 (2,673 ) 1,559 4,108 (547 ) (7,315 ) (64 ) 2,419 Net loss attributable to common stockholders $ (611 ) $ (4,896 ) Net loss attributable to common stockholders per share: $ (0.01 ) $ (0.11 ) Weighted average number of common shares: 52,938 45,477 20082009 and 2007 Series A-2 Additional Accum- (Note A) Paid In ulated 47,630 $ 5 $ 162,300 $ (178,094 ) — $ — 1,565 $ (1,383 ) $ (17,172 ) Stock-based compensation - restricted stock 745 — 394 — — — — — 394 Stock-based compensation - stock options — — 353 — — — — — 353 Warrants issued in connection with the 2008 Private Placements — — 4,853 — — — — — 4,853 Series A Convertible Preferred Stock issued in connection with the 2008 Private Placements — — — — 4 11,574 — — 11,574 Gain on redemption of Series C preferred stock — — 2,419 — — — — — 2,419 Costs related to 2008 private placements — — (538 ) — — — — — (538 ) Gain on elimination of derivative liabilities — — 2,219 — — — — — 2,219 — — — (7,315 ) — — — — (7,315 ) 48,375 $ 5 $ 172,000 $ (185,409 ) 4 $ 11,574 1,565 $ (1,383 ) $ (3,213 ) Cumulative effect of reclassification of warrants (ASC Topic 815) — — (26,173 ) 23,551 — — — — (2,622 ) Balance at January 1, 2009, as adjusted 48,375 5 145,827 (161,858 ) 4 11,574 1,565 (1,383 ) (5,835 ) Stock-based compensation - restricted stock 735 — 277 — — — — — 277 Stock-based compensation - stock options — — 279 — — — — — 279 Loss on redemption of Series A Preferred Stock — — (1,999 ) — — 1,999 — — — 17,372 2 (2 ) — — — — — — 49 — 17 — — — — — 17 Series A-1 Preferred Stock issued in connection with the 2009 Private Placement — — — — 1 2,637 — — 2,637 — — 4,751 — — — — — 4,751 Gain on redemption of Series A-1 Preferred Stock — — 1,935 — — (1,935 ) — — — Costs related to 2009 Private Placement, warrant and Preferred Stock exchange — — (426 ) — — — — — (426 ) — — — (547 ) — — — — (547 ) 66,531 $ 7 $ 150,659 $ (162,405 ) 5 $ 14,275 1,565 $ (1,383 ) $ 1,153
F-4
Year Ended December 31, 2008 2007 Cash flows from operating activities: Net loss $ (7,315 ) $ (5,471 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,261 1,467 Bad debt expense 257 28 Loss on extinguishment of debt 1,816 — Amortization of deferred financing costs 448 531 Beneficial conversion feature for Senior Secured Notes — 1,977 Accretion of discount on Senior Secured Notes 2,732 2,881 Loss on disposal of equipment 77 14 Expense recognized for the decrease in the estimated fair value of derivative financial instruments’ liability (2,673 ) (5,665 ) Stock-based compensation 568 871 Increase (decrease) in cash attributable to changes in assets and liabilities: Accounts receivable . (801 ) 174 Prepaid expenses and other current assets 54 (21 ) Other assets (5 ) 41 Accounts payable 793 (382 ) Accrued expenses, sales taxes and regulatory fees 1,636 1,024 Customer deposits (107 ) 611 Deferred revenue (5 ) 42 Net cash used in operating activities (1,264 ) (1,878 ) Cash flows from investing activities: Purchases of property and equipment (1,179 ) (1,053 ) Net cash used in investing activities (1,179 ) (1,053 ) Cash flows from financing activities: Proceeds from preferred stock offering, including $13 from Insider Purchaser 1,825 — Capital Lease (125 ) — Proceeds from issuance of Senior Secured Notes, including $400 from Insider Purchasers and net of financing costs of $308 — 3,230 Costs related to private placements (342 ) (140 ) Net cash provided by financing activities 1,358 3,090 (Decrease) increase in cash and cash equivalents (1,085 ) 159 Cash and cash equivalents at beginning of year 2,312 2,153 Cash and cash equivalents at end of year $ 1,227 $ 2,312 Supplement disclosures of cash flow information: Cash paid during the year for interest $ 100 $ 5 Year Ended December 31, 2008 2007 Non-cash investing and financing: Exchange of Senior Secured Notes for Series A Preferred Stock $ 10,802 $ — Redemption of Series C Preferred Stock 4,330 — �� Gain on elimination of derivative liability 2,219 — Additional Senior Secured Notes issued as payment for interest including $48 and $9, respectively, for Insider Purchasers 1,493 862 Costs related to private placements incurred by issuance of placement agent warrants 196 — Deferred financing costs for Senior Secured Notes incurred by issuance of placement agent warrants — 417 Preferred stock dividends — 252 Capital lease used to acquire network equipment — 358 Cash flows from operating activities: $ (547 ) $ (7,315 ) Adjustments to reconcile net loss to net cash used in operating activities: 1,056 1,261 258 257 254 1,816 — 448 Accretion of discount on Senior Secured Notes 23 2,732 8 77 Expense recognized for the decrease in the estimated fair value of derivative financial instruments’ liability 1,848 (2,673 ) 556 568 Increase (decrease) in cash attributable to changes in assets and liabilities: Accounts receivable . (491 ) (801 ) Prepaid expenses and other current assets 3 54 2 (5 ) 865 793 105 1,112 Accrued sales taxes and regulatory fees . (3,452 ) 524 (298 ) (107 ) (66 ) (5 ) Net cash provided by (used in) operating activities . 124 (1,264 ) Cash flows from investing activities: (1,213 ) (1,179 ) (1,213 ) (1,179 ) Cash flows from financing activities: Proceeds from preferred stock offering, including $0 and $13 from Insider Purchaser, respectively 1,800 1,825 17 — (234 ) (125 ) (750 ) — Costs related to private placements and preferred stock and warrant exchange (384 ) (342 ) 449 1,358 (640 ) (1,085 ) 1,227 2,312 $ 587 $ 1,227 Supplement disclosures of cash flow information: $ 80 $ 100
�� | Year Ended December 31, | |||||||
2009 | 2008 | |||||||
Non-cash investing and financing: | ||||||||
Exchange of Senior Secured Notes for Series A-1 Preferred Stock | $ | 1,076 | $ | — | ||||
Exchange of Senior Secured Notes for Series A Preferred Stock | — | 10,802 | ||||||
Redemption of Series C Preferred Stock | — | 4,330 | ||||||
Gain on elimination of derivative liability | — | 2,219 | ||||||
Additional Senior Secured Notes issued as payment for interest including $0 and $48 for Insider Purchasers, respectively | 55 | 1,459 | ||||||
Costs related to private placements incurred by issuance of placement agent warrants | 42 | 196 | ||||||
F-6
200820082009 and 2007leadingcarrier-grade provider of advancedmanaged services for telepresence and video communications solutions.conferencing. Our suite of advanced and robust telepresence and video communications solutions enablemanaged services empower organizations to seamlessly and consistently communicate via video over any network and with each other over disparate networks andany video technology platforms – empowering business, governmental agencies and educational institutionsplatform, enabling them to sharply boost the impact and productivity of their internal and external communications while at the same time reducingreduce their on-going operating costs. We supportcosts and total cost of ownership. Glowpoint supports thousands of video communications systemsendpoints in overmore than 35 countries withand our 24/7 managed video and global business-to-business (“B2B”) exchange services poweringare driving video collaboration for Fortune® 500 companies, major broadcasters,governmental and educational institutions, and media and entertainment broadcasters. Glowpoint also provides resale and wholesale programs, including private-labeled (branded) resale options for manufacturers, carriers, unified communications providers, and integrators seeking to offer this service as well as global carriersa value-add to their collaboration and communications offerings.equipment manufacturersoperations (“VNOC”) managed service, business-to-business exchange, video conferencing services, and their customers around the world.We viewprofessional services. A critical differentiator of Glowpoint is that our services as analogous to cellular service providers in the cellular telephone industry. Regardless of the cellular phone purchased, users must select a cellular service provider to make it work. Users make that service decision based on the features, reliabilitysolutions are hardware agnostic and price offered by the service provider. In our industry,network neutral, supporting all recognized video standards across any IP network. As such, regardless of the video conferencing or telepresence equipment purchased or the network connecting it, Glowpoint provides the managedGlowpoint’s services to make it work. In doing so, we offer a vast arraymay be applied.solutions, includingincreasing their return on investment, lower their total cost of ownership, and providing access to expertise and skills not available elsewhere. Glowpoint provides an alternative to capital intensive, premise-based infrastructure, which customers typically have had to purchase for the video application services, video operations services (VNOC) for telepresence, managed network services, IPenvironment to function, as well as the tools and ISDN videoconferencing services, multi-point conferencing (bridging), technology hosting and management, and professional services. We provide these services to aenable wide variety of companies, from large enterprises and governmental entities to small and medium-sized bus inesses. Glowpoint is primarily focused on high quality two-way video communications. With the advent of HD (High Definition) and telepresence solutions, we combined various components of our features and services, and developed new ones, to create a comprehensive service offering for enterprises and their end users that can support anyadoption of the telepresence products on the market today. Glowpoint also wholesales these services and provides private-labeled branding for manufacturers, carriers, and integrators seeking to offer this service as a value-add to their offerings for their customer bases.Glowpoint’s video communications solutions involve two major components,throughout their business. Glowpoint has become the Glowpointrecognized leader of managed video applicationsand global video exchange services that provide businesses and the Glowpoint managed network services. Glowpoint has focused its salesservice providers a way to link together their “islands of video” across third party private networks and marketing efforts on the managed video application services, which are network agnostic and may be leveraged by customers on any QoS (Qualityenabling organizations to drive wide adoption.
Going concern
Our consolidated financial statements have been prepared assuming that
F-7
interest thereon$162,405,000. However, we have historically been exchanged for our Series A Convertible Preferred Stock (the “Series A Preferred Stock”) and in March 2009 the remaining $1,722,000 were either exchanged for Series A-1 convertible preferred stock or purchased and retired (see Note 19). We raisedable to raise capital in private placements, but continuemost recently $3,000,000 in March 2010, amended the terms of our preferred stock to sustain losseseliminate any dividends until January 2013 and negative operating cash flows. Additionally, current economic conditions may causehave reached settlements with a declinemajority of the taxing authorities in business and consumer spending which could adversely affect our business and financial performance.These factors raise substantial doubt as to our ability to continue as a going concern. Assuming we are able to negotiate favorable terms with the authorities regarding ourhad accrued sales and use taxes and regulatory fees. Based primarily on our March 2010 financing (see also Note 5)24), along with our cash flow projection, the Company believes that it has, and we are not adversely affected by the current economic conditions, we believe that our available capital as of Decemberwill have, sufficient cash flow to fund its operations through at least March 31, 2008 will enable us to continue as a going concern through December 31, 2009.2011. There arecan be no assurancesassurances; however, that we will be able to raise additional capital as may be needed or upon acceptable terms, nor that the current economic conditions will not negatively impact us. If the current economic conditions negatively impact us we are unable to negotiate favorable terms with authorities, orand we are unable to raise any additional capital asthat may be needed upon acceptable terms, it wouldcould have a material adverse effect on the Company. The accompanying consolidated financial statements do not include any adjustments that might result from this uncertainty.
Certain prior
presentation to help readers understand our business expenses. This new financial statement format had no impact on revenues, income (loss) from operations or net loss for any period presented.
F-8
as required by ASC topic 605 “Revenue Gross as a Principal Versus Net as an Agent”Recognition”. Revenues derived from other sources are recognized when services are provided or events occur.
Cash
Remitted to Taxing Authorities
generated by those assets are compared to the carrying amounts of those assets. If and when the carrying values of the assets exceed their fair values, the related assets will be written down to fair value. In the year ended December 31, 2009 and 2008, no impairment losses were recorded.
Long-Lived Assets
We evaluate impairment losses on long-lived assets used in operations, primarily fixed assets, when events and circumstances indicate that the carrying value of the assets might not be recoverable in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144“Accounting for the Impairment or Disposal of Long-Lived Assets”. For purposes of evaluating the recoverability of long-lived assets, the undiscounted cash flows estimated to be generated by those assets are compared to the carrying amounts of those assets. If and when the carrying values of the assets exceed their fair values, the related assets will be written down to fair value. In the 2008 and 2007 years, no impairment losses were indicated or recorded.
Earnings (Loss)
F-9
The Company accounts for stock
The intrinsic value
| 2008 |
| 2007 |
Risk free interest rate
| 2.9% |
| 4.6% |
Expected option lives | 5 Years |
| 5 Years |
Expected volatility | 97.0% |
| 98.4% |
Estimated forfeiture rate | 10% |
| 10% |
Expected dividend yields | None |
| None |
Weighted average grant date fair value of options | $0.31 |
| $0.45 |
|
|
|
|
2008:
2009 | 2008 | |||||||
Risk free interest rate | 2.0 | % | 2.9 | % | ||||
Expected option lives | 5 Years | 5 Years | ||||||
Expected volatility | 113.3 | % | 97.0 | % | ||||
Estimated forfeiture rate | 10 | % | 10 | % | ||||
Expected dividend yields | None | None | ||||||
Weighted average grant date fair value of options | $ | 0.33 | $ | 0.31 | ||||
Fair value of Financial Instruments
Financial instruments reported in our consolidated balance sheets consist of cash and cash equivalents, accounts receivable and accounts payable, the carrying value of which approximated fair value at December 31, 2008 and 2007 due to the short-term nature of these instruments.
Derivative Financial Instruments
The Company’s objectives in using debt-related derivative financial instruments are to obtain the lowest cash cost source of funds within a targeted range of variable-to fixed-rate debt obligations. Derivatives are recognized in the consolidated balance sheets at fair value based on the criteria specified in SFAS No. 133,“Accounting for Derivative Instruments and Hedging Activities”. The estimated fair value of the derivative liabilities is calculated using the Black-Scholes method where applicable and such estimates are revalued at each balance sheet date, with changes in value recorded as other income or expense in the consolidated statement of operations.
F-10
Software Development Costs
The Company incurs costs for the development of its “Customer Connect” software that is to be sold, leased or licensed to third parties in the future. All software development costs have been appropriately accounted for in accordance with SFAS 86 “Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed”. Software development costs are required to be capitalized when a product’s technological feasibility has been established by completion of a detailed program design or working model of the product, and ending when a product is available for release to customers. The Company capitalized $0 and $139,000 of software development costs for the years ended December 31, 2008 and 2007, respectively. Software development costs are being amortized over 24 months beginning in September 2007, when the product became available for general release to customers and the c apitalization of software costs ceased. For the years ended December 31, 2008 and 2007, we amortized $94,000 and $31,000, respectively, to cost of revenues. As of December 31, 2008, the remaining $63,000 of unamortized capitalized software costs were written off since the net realizable value of the capitalized software was not realizable.
Deferred Financing Costs
The costs incurred when undertaking financing activities, excluding any internal costs, have been capitalized and are amortized using the effective interest method over the term of the financing. Amortization of deferred financing costs was $448,000 and $531,000 for the years ended December 31, 2008 and 2007, respectively. At December 31, 2008 and 2007, included in other assets in the accompanying consolidated balance sheets are $0 and $635,000, respectively, of deferred financing costs.
Recent Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 160, (“Noncontrolling Interests in Consolidated Financial Statements”), an amendment of ARB No. 51 (“SFAS No. 160”). SFAS 160 amends ARB No. 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary, in which the noncontrolling interest will be reclassified as equity; and the income, expense and comprehensive income from a noncontrolling interest will be fully consolidated. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008, and therefore would be effective for the Company beginning January 1, 2009. The adoption of this Statement did not have an impact on the Company's consolidated results of operations and financial condition.
Effective January 1, 2008, the Company adopted SFAS No. 157, "Fair Value Measurements". In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, "Effective Date of FASB Statement No. 157", which provides a one year deferral of the effective date of SFAS 157 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. Therefore, the Company has adopted the provisions of SFAS 157 with respect to its financial assets and liabilities only. SFAS 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined under SFAS 157 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asse t or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under SFAS 157 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:
Level 1 — Quoted prices in active markets for identical assets or liabilities.
Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
F-11
The adoption of this Statement did not have a material impact on the Company's consolidated results of operations and financial condition.
In May 2008, the FASB issued Statement No. 162, The Hierarchy of Generally Accepted Accounting Principles (“Statement No. 162”). The statement is intended to improve financial reporting by identifying a consistent hierarchy for selecting accounting principles to be used in preparing financial statements that are presented in conformity with GAAP. Prior to the issuance of Statement No. 162, GAAP hierarchy was defined in the American Institute of Certified Public Accountants (“AICPA”) Statement on Auditing Standards (SAS) No. 69, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. Unlike SAS No. 69, Statement No. 162 is directed to the entity rather than the auditor. Statement No. 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board Auditing amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Ac cepted Accounting Principles. Statement No. 162 is not expected to have any material impact on the Company’s results of operations, financial condition or liquidity.
In May 2008, the FASB issued FASB Staff Position (FSP) APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (FSP APB 14-1). FSP APB 14-1 clarifies that convertible debt instruments that may be settled in cash upon either mandatory or optional conversion (including partial cash settlement) are not addressed by paragraph 12 of APB Opinion No. 14, “Accounting for Convertible Debt and Debt issued with Stock Purchase Warrants.” Additionally, FSP APB 14-1 specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP APB 14-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those f iscal years. We will adopt FSP APB 14-1 beginning in the first quarter of 2009, and this standard must be applied on a retrospective basis. We are currently evaluating the impact the adoption of FSP APB 14-1 will have on our consolidated financial position and results of operations.
In June 2008, the FASB ratified EITF Issue No. 07-5, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock” (“EITF 07-5”). Equity-linked instruments (or embedded features) that otherwise meet the definition of a derivative as outlined in SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” are not accounted for as derivatives if certain criteria are met, one of which is that the instrument (or embedded feature) must be indexed to the entity’s stock. EITF 07-5 provides guidance on determining if equity-linked instruments (or embedded features) such as warrants to purchase our stock are considered indexed to our stock. EITF 07-5 is effective for the financial statements issued for fiscal years and interim periods within those fiscal years, beginning after December 15, 2008 and will be applied to outstanding instruments as of the beginning of the fiscal year in which it is adopted. Upon adoption, a cumulative effect adjustment will be recorded, if necessary, based on amounts that would have been recognized if this guidance had been applied from the issuance date of the affected instruments. The Company is currently determining the impact, if any, that EITF 07-5 will have on its financial statements.
|
| 2008 |
|
| 2007 |
| ||
Prepaid maintenance contracts |
| $ | 112 |
|
| $ | 86 |
|
Prepaid insurance |
|
| 40 |
|
|
| 69 |
|
Deferred installation costs |
|
| 76 |
|
|
| 67 |
|
Due from vendors and tax authorities |
|
| 4 |
|
|
| 5 |
|
Other prepaid expenses |
|
| 62 |
|
|
| 121 |
|
|
| $ | 294 |
|
| $ | 348 |
|
|
|
|
|
|
|
|
|
|
F-12
2009 | 2008 | |||||||
Prepaid maintenance contracts | $ | 113 | $ | 112 | ||||
Deferred installation costs | 97 | 76 | ||||||
Prepaid insurance | 40 | 40 | ||||||
Other prepaid expenses | 41 | 66 | ||||||
$ | 291 | $ | 294 | |||||
|
| 2008 |
|
| 2007 |
| Estimated Useful Life | ||
Network equipment and software |
| $ | 9,200 |
|
| $ | 8,655 |
| 3 to 5 Years |
Computer equipment and software |
|
| 2,356 |
|
|
| 2,102 |
| 3 to 4 Years |
Bridging equipment |
|
| 2,008 |
|
|
| 1,977 |
| 5 Years |
Leasehold improvements |
|
| 255 |
|
|
| 235 |
| Note A |
Office furniture and equipment |
|
| 258 |
|
|
| 222 |
| 5 Years |
Videoconferencing equipment |
|
| 66 |
|
|
| 66 |
| 3 Years |
|
|
| 14,143 |
|
|
| 13,257 |
|
|
Accumulated depreciation and amortization |
|
| (11,610 | ) |
|
| (10,565 | ) |
|
|
| $ | 2,533 |
|
| $ | 2,692 |
|
|
|
|
|
|
|
|
|
|
|
|
2009 | 2008 | Estimated Useful Life | |||||||
Network equipment and software | $ | 9,593 | $ | 9,200 | 3 to 5 Years | ||||
Computer equipment and software | 2,571 | 2,356 | 3 to 4 Years | ||||||
Bridging equipment | 2,008 | 2,008 | 5 Years | ||||||
Leasehold improvements | 296 | 255 | Note A | ||||||
Office furniture and equipment | 451 | 324 | 5 Years | ||||||
14,919 | 14,143 | ||||||||
Accumulated depreciation and amortization | (12,237 | ) | (11,610 | ) | |||||
$ | 2,682 | $ | 2,533 | ||||||
Depreciation and amortization expense is allocated as follows for the years ended December 31, 2008 and 2007 (in thousands):
|
| 2008 |
|
| 2007 |
| ||
Cost of revenue |
| $ | 923 |
|
| $ | 1,134 |
|
Research and development |
|
| 54 |
|
|
| 51 |
|
Sales and marketing |
|
| 12 |
|
|
| 13 |
|
General and administrative |
|
| 272 |
|
|
| 269 |
|
|
| $ | 1,261 |
|
| $ | 1,467 |
|
|
|
|
|
|
|
|
|
|
Indiffer.
Settlements to be remitted to taxing authorities | Accrued sales taxes and regulatory fees | Collected sales taxes and regulatory fees | Total | |||||||||||||
January 1, 2008 | $ | — | $ | 3,611 | $ | 400 | $ | 4,011 | ||||||||
Collections, net of payments | — | — | 188 | 188 | ||||||||||||
Refunds | — | 525 | — | 525 | ||||||||||||
Payments | — | (285 | ) | — | (285 | ) | ||||||||||
Net Adjustments to accrual (Note A) | — | 96 | — | 96 | ||||||||||||
December 31, 2008 | — | 3,947 | 588 | 4,535 | ||||||||||||
Collections, net of payments | — | — | 45 | 45 | ||||||||||||
Settlements with tax authorities | 926 | (293 | ) | (633 | ) | — | ||||||||||
Payments | — | (213 | ) | — | (213 | ) | ||||||||||
Net Adjustments to accrual (Note A) | — | (3,284 | ) | — | (3,284 | ) | ||||||||||
December 31, 2009 | $ | 926 | $ | 157 | $ | — | $ | 1,083 | ||||||||
Less amounts included in long term liabilities | (195 | ) | — | — | (195 | ) | ||||||||||
December 31, 2009 – current portion | $ | 731 | $ | 157 | $ | — | $ | 888 | ||||||||
2009 | 2008 | |||||||
Change in estimate | $ | 1,829 | $ | (309 | ) | |||
Settlements from amnesty programs | 812 | — | ||||||
Expiration of statute of limitations | 529 | 213 | ||||||
Settlements from audits | 114 | — | ||||||
$ | 3,284 | $ | (96 | ) | ||||
F-13
Accrued sales taxes and regulatory feesoperations as of December 31, 2008 and 2007follows (in thousands):
|
| 2008 |
|
| 2007 |
| ||
Sales taxes and regulatory fees |
| $ | 2,336 |
|
| $ | 2,284 |
|
Sales taxes and regulatory fees – penalties |
|
| 562 |
|
|
| 533 |
|
Sales taxes and regulatory fees – interest |
|
| 1,049 |
|
|
| 785 |
|
Tax obligations of a predecessor of Glowpoint |
|
| — |
|
|
| 8 |
|
Collected sales taxes and regulatory fees to be remitted to authorities |
|
| 588 |
|
|
| 401 |
|
|
| $ | 4,535 |
|
| $ | 4,011 |
|
|
|
|
|
|
|
|
|
|
2009 | 2008 | |||||||
Sales taxes and regulatory fees | $ | (2,500 | ) | $ | (172 | ) | ||
Interest (income) expense | (784 | ) | 268 | |||||
$ | (3,284 | ) | $ | 96 | ||||
|
| 2008 |
|
| 2007 |
| ||
Accrued compensation |
| $ | 502 |
|
| $ | 784 |
|
Accrued communication costs |
|
| 187 |
|
|
| 161 |
|
Accrued professional fees |
|
| 71 |
|
|
| 120 |
|
Accrued interest |
|
| 9 |
|
|
| 108 |
|
Other accrued expenses |
|
| 73 |
|
|
| 254 |
|
|
| $ | 842 |
|
| $ | 1,427 |
|
|
|
|
|
|
|
|
|
|
2009 | 2008 | |||||||
Accrued compensation | $ | 610 | $ | 502 | ||||
Accrued communication costs | 182 | 187 | ||||||
Accrued professional fees | 30 | 71 | ||||||
Accrued interest | — | 9 | ||||||
Other accrued expenses | 57 | 73 | ||||||
$ | 879 | $ | 842 | |||||
|
| Sale of Series A Preferred Stock |
|
| Preferred Stock Exchange |
|
| Senior Secured Note Exchange |
|
| Elimination of Derivative Liability |
|
| Senior Secured Note Modification |
|
| Placement Agent Warrant Fee |
|
| Total |
| |||||||
Consideration received: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Gross proceeds – cash |
| $ | 1,825 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 1,825 |
|
Senior Secured Notes |
| $ | — |
|
| $ | — |
|
| $ | (10,802 | ) |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | (10,802 | ) |
Series C Preferred Stock – shares |
|
| — |
|
|
| (475 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (475 | ) |
Series C Preferred Stock – carrying amount |
| $ | — |
|
| $ | (4,330 | ) |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | (4,330 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consideration provided to holders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Series A-3 Warrants issued: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
| 2,281 |
|
|
| — |
|
|
| 12,377 |
|
|
| — |
|
|
| 2,384 |
|
|
| 1,000 |
|
|
| 18,042 |
|
Carrying amount |
| $ | 448 |
|
| $ | — |
|
| $ | 2,516 |
|
| $ | 1,225 |
|
| $ | 468 |
|
| $ | 196 |
|
| $ | 4,853 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A Preferred Stock issued: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
| 456 |
|
|
| 633 |
|
|
| 2,701 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,790 |
|
Carrying amount |
| $ | 1,377 |
|
| $ | 1,911 |
|
| $ | 8,286 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 11,574 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of Series A Preferred Stock | Preferred Stock Exchange | Senior Secured Note Exchange | Elimination of Derivative Liability | Senior Secured Note Modification | Placement Agent Warrant Fee | Total | ||||||||||||||||||||||
Consideration received: | ||||||||||||||||||||||||||||
Gross proceeds – cash | $ | 1,825 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 1,825 | ||||||||||||||
Senior Secured Notes | $ | — | $ | — | $ | (10,802 | ) | $ | — | $ | — | $ | — | $ | (10,802 | ) | ||||||||||||
Series C Preferred Stock surrendered: | ||||||||||||||||||||||||||||
Shares | — | (475 | ) | — | — | — | — | (475 | ) | |||||||||||||||||||
Carrying amount | $ | — | $ | (4,330 | ) | $ | — | $ | — | $ | — | $ | — | $ | (4,330 | ) | ||||||||||||
Consideration provided to holders: | ||||||||||||||||||||||||||||
Series A-3 Warrants issued: | ||||||||||||||||||||||||||||
Shares | 2,281 | — | 12,377 | — | 2,384 | 1,000 | 18,042 | |||||||||||||||||||||
Carrying amount | $ | 448 | $ | — | $ | 2,516 | $ | 1,225 | $ | 468 | $ | 196 | $ | 4,853 | ||||||||||||||
Series A Preferred Stock issued: | ||||||||||||||||||||||||||||
Shares | 456 | 633 | 2,701 | — | — | — | 3,790 | |||||||||||||||||||||
Carrying amount | $ | 1,377 | $ | 1,911 | $ | 8,286 | $ | — | $ | — | $ | — | $ | 11,574 | ||||||||||||||
F-14
Stock”) and Series A-3 warrants having an exercise price of $0.40 per share (the “Series A-3 Warrants”) to acquire an aggregate of 2,281,000 shares of common stock pursuant to a Series A Convertible Preferred Stock Purchase Agreement (the “Purchase Agreement”). Pursuant to the Purchase Agreement, the Company may sell additional shares of Series A Preferred Stock and Series A-3 Warrants in one or more subsequent closings that may occur during the 90-day period following the Initial Closing, up to a maximum offering amount of $8,000,000. There can be no assurance, however, that the Company will raise any additional funds following the Initial Closing.
Agreement.
The Series A Preferred Stock will bewas recorded in the balance sheet at $1,911,000 which was the fair value of the Series A Preferred Stock.
(the “Series A Fair Value”) be subtracted from net loss to arrive at net loss attributable to common stockholders. The Series C Carrying Amount of $4,330,000 is based on the recorded fair value. The Series A Carrying Amount of $1,911,000 is based on a fair value of $3,000 for each of the 633 shares of Series A Preferred Stock exchanged in the transaction. The $2,419,000 excess of Series C Carrying Amount over the Series A Fair Value is recognized in our consolidated statement of operations as a “Gain on Redemption of Preferred Stock” and subtracted from our net loss to arrive at the net loss attributable to common shareholders.
F-15
required the Company to account for a derivative liability. In consideration for the elimination of the derivative liability we reduced the exercise price of those warrants to $0.40 from a weighted average price of $0.63, and we extended the expiration date of any such warrants to November 25, 2013 (5 years) from a weighted average expiration life of 2.8 years.
notes (see Note 9).
was paid in March 2009.
Total Costs | ||||
Cash financing costs: | ||||
Burnham Hill Partners placement agent fees | $ | 203 | ||
Legal and other professional fees | 139 | |||
342 | ||||
Non-cash financing costs: | ||||
Burnham Hill Partners placement agent warrants | 196 | |||
$ | 538 |
Sale of Series A-1 Preferred Stock | Preferred Stock Exchange | Senior Secured Note Exchange | Senior Secured Note Purchase | Placement Agent Warrant Fee | Total | |||||||||||||||||||
Consideration received by Company: | ||||||||||||||||||||||||
Cash: | ||||||||||||||||||||||||
Amount received | $ | 1,800 | $ | — | $ | — | $ | (750 | ) | $ | — | $ | 1,050 | |||||||||||
Senior Secured Notes: | ||||||||||||||||||||||||
Carrying amount | $ | — | $ | — | $ | (1,076 | ) | $ | (713 | ) | $ | — | $ | (1,789 | ) | |||||||||
Series A Preferred Stock: | ||||||||||||||||||||||||
Shares | — | (3,790 | ) | — | — | — | (3,790 | ) | ||||||||||||||||
Carrying amount | $ | — | $ | (11,574 | ) | $ | — | $ | — | $ | — | $ | (11,574 | ) | ||||||||||
Consideration provided to holders: | ||||||||||||||||||||||||
Series A-3 Warrants issued: | ||||||||||||||||||||||||
Shares | 2,250 | — | 594 | — | 500 | 3,344 | ||||||||||||||||||
Carrying amount | $ | 189 | $ | — | $ | 50 | $ | — | $ | 42 | $ | 281 | ||||||||||||
Series A-1 Preferred Stock issued: | ||||||||||||||||||||||||
Shares | 450 | 3,790 | 269 | — | — | 4,509 | ||||||||||||||||||
Carrying amount | $ | 1,611 | $ | 13,573 | $ | 1,026 | $ | — | $ | — | $ | 16,210 | ||||||||||||
F-16
Total Costs | ||||
Cash financing costs: | ||||
Burnham Hill Partners placement agent fees | $ | 201 | ||
Legal and other professional fees | 85 | |||
286 | ||||
Non-cash financing costs: | ||||
Burnham Hill Partners placement agent warrants | 42 | |||
$ | 328 |
Preferred Stock Exchange | Warrant Exchange | Total | ||||||||||
Consideration received by Company: | ||||||||||||
Series A-1 Preferred Stock: | ||||||||||||
Shares | (4,509 | ) | — | (4,509 | ) | |||||||
Carrying amount | $ | (16,210 | ) | $ | — | $ | (16,210 | ) | ||||
Series A-3 Warrants: Shares | — | 39,088 | 39,088 | |||||||||
Consideration provided to holders: | ||||||||||||
Common Stock : | ||||||||||||
Shares | — | 17,372 | 17,372 | |||||||||
Carrying amount | $ | — | $ | 2 | $ | 2 | ||||||
Series A-2 Preferred Stock issued: | ||||||||||||
Shares | 4,509 | — | 4,509 | |||||||||
Carrying amount | $ | 14,275 | $ | — | $ | 14,275 | ||||||
Total Costs | ||||
Cash financing costs: | ||||
Burnham Hill Partners placement agent fees | $ | 75 | ||
Legal and other professional fees | 23 | |||
$ | 98 |
|
| December 31, 2007 |
|
| 2008 Activity |
|
| 2008 Private Placements Entries, Net |
|
| December 31, 2008 |
| ||||
Principal of Senior Secured Notes: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
2006 Private Placements |
| $ | 6,180 |
|
| $ | — |
|
| $ | (4,680 | ) |
| $ | 1,500 |
|
2007 Private Placement |
|
| 3,100 |
|
|
| — |
|
|
| (3,100 | ) |
|
| — |
|
2007 Private Placement, Insider Purchasers |
|
| 438 |
|
|
| — |
|
|
| (438 | ) |
|
| — |
|
Senior Secured Notes issued as payment for interest |
|
| 1,279 |
|
|
| 1,445 |
|
|
| (2,502 | ) |
|
| 222 |
|
Senior Secured Notes issued as payment for interest, Insider Purchasers |
|
| 9 |
|
|
| 48 |
|
|
| (57 | ) |
|
| — |
|
|
|
| 11,006 |
|
|
| 1,493 |
|
|
| (10,777 | ) |
|
| 1,722 |
|
Discount: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instrument – Series A Warrants |
|
| (2,873 | ) |
|
| — |
|
|
| 2,873 |
|
|
| — |
|
Derivative financial instrument – Series A-2 warrants |
|
| (4,484 | ) |
|
| — |
|
|
| 4,484 |
|
|
| — |
|
Derivative financial instrument – Series A-2 warrants, Insider Purchasers |
|
| (250 | ) |
|
| — |
|
|
| 250 |
|
|
| — |
|
Derivative financial instrument – Series A-3 warrants, net of write off of $208 |
|
| — |
|
|
| (468 | ) |
|
| 208 |
|
|
| (260 | ) |
Reduction of exercise price and extension of expiration dates of warrants |
|
| (766 | ) |
|
| — |
|
|
| 766 |
|
|
| — |
|
|
|
| (8,373 | ) |
|
| (468 | ) |
|
| 8,581 |
|
|
| (260 | ) |
Accretion of discount |
|
| 4,211 |
|
|
| 2,591 |
|
|
| (6,782 | ) |
|
| 20 |
|
Accretion of discount, Insider Purchasers |
|
| 29 |
|
|
| 141 |
|
|
| (170 | ) |
|
| — |
|
|
|
| (4,133 | ) |
|
| 2,264 |
|
|
| 1,629 | (1) |
|
| (240 | ) |
Senior Secured Notes, including $0 and $226 at December 31, 2007 and 2008, respectively, held by Insider Purchasers, net of discount |
| $ | 6,873 |
|
| $ | 3,757 |
|
| $ | (9,148 | ) |
| $ | 1,482 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 | 2009 Activity | 2009 Private Placements Entries, Net | December 31, 2009 | |||||||||||||
Principal of Senior Secured Notes: | ||||||||||||||||
2006 Private Placements | $ | 1,500 | $ | — | $ | (1,500 | ) | $ | — | |||||||
Senior Secured Notes issued as payment for interest | 222 | 55 | (277 | ) | — | |||||||||||
1,722 | 55 | (1,777 | ) | — | ||||||||||||
Discount: | ||||||||||||||||
Series A-3 warrants | (260 | ) | — | 260 | — | |||||||||||
(260 | ) | — | 260 | — | ||||||||||||
Accretion of discount | 20 | 23 | (43 | ) | — | |||||||||||
(240 | ) | 23 | 217 | — | ||||||||||||
Senior Secured Notes, net of discount | $ | 1,482 | $ | 78 | $ | (1,560 | ) | $ | — | |||||||
11 - Derivative Liabilities
F-17
We accounted for the reduction of the exercise price of 3,625,000 previously issued warrants held by the investors in the 2006 Private Placements to $0.65 from a weighted average price of $3.38, and the extension of the expiration date of any such warrants to no earlier than three years after the offering date at fair value as a debt discount with an offsetting credit to Paid in Capital. A portion of the finance costs of the Senior Secured Notes issued in 2006 Private Placements were allocated to this transaction and charged to Paid in Capital. The estimated fair value of this modification was based on the excess of the fair value of these warrants at the date of the financings over the fair value of these warrants at their original terms. In the 2006 Private Placements, $766,000 of the proceeds were attributed to the estimated fair value of the modification of price and term of these warrants. &nb sp;The $766,000 fair value of this modification was treated as a discount of the Senior Secured Notes and expensed, using the effective interest method, over the 18 month period to the original maturity date of September 30, 2007 of the Senior Secured Notes issued in the 2006 Private Placements.
In the 2007 Private Placement, we amended the terms of our then outstanding Senior Secured Notes to extend the maturity date to March 31, 2009 from September 30, 2007 (the “2007 Senior Secured Notes Extension”). In consideration for the 2007 Senior Secured Notes Extension, we issued Series A-2 warrants to the note holders to purchase an aggregate of 4,773,000 shares of common stock (which represented thirty-three (33%) percent of the shares of common stock issuable upon conversion of the then outstanding Senior Secured Notes and accrued interest). The Series A-2 warrants have an exercise price of $0.65 per share and are exercisable for a period of five years. The warrants are subject to certain anti-dilution protection. Burnham Hill Partners acted as financial advisor for the Preferred Stock Exchange (as defined in Note 10, Series C Convertible Preferred Stock below) and 2007 Senior Secured Notes Extension and received financial advisory warrants to purchase 250,000 shares of common stock at an exercise price of $0.65 per share. The warrants were exercisable for a period of five years and are subject to certain anti-dilution protection. The Company allocated 150,000 of the warrants, with a fair value of $86,000, to the Senior Secured Notes Extension and incurred professional fees related to the Senior Secured Notes Extension of $50,000.
The Senior Secured Notes originally bore interest at 10% per annum, increasing to 12% on the first anniversary following their issuance, and mature on March 31, 2009. Beginning in January 2008 the per annum interest rate on the unpaid principal balance of the Senior Secured Notes then in effect shall increase if the Company fails to achieve a minimum adjusted quarterly earnings before interest, taxes, depreciation and amortization (the “Adjusted EBITDA”) as defined in the Senior Secured Notes. The per annum interest rate shall increase by 200 basis points if the stated quarterly Adjusted EBITDA is not achieved, and such increase will be cumulative for each subsequent quarterly failure to achieve the stated Adjusted EBITDA; provided, however, that the per annum interest rate shall revert to the lower interest rate in the event the Company achieves or exceeds the stated or cumulative minimum Adjusted EBITDA in any subsequ ent quarterly period. The Senior Secured Notes and other transaction documents provide that the Insider Purchasers will not be entitled to all of the rights and benefits available to the other purchasers upon the failure by the Company to achieve Adjusted EBITDA. The Company achieved the minimum Adjusted EBITDA for the quarter ended March 31, 2008 but did not achieve the minimum Adjusted EBITDA for the six months ended June 30, 2008 and the nine months ended September 30, 2008. Therefore, the interest rate on the unpaid principal balance of the Senior Secured Notes increased by 200 basis points to 14% beginning July 1, 2008 and an additional 200 basis points on October 1, 2008 to 16%.
The Senior Secured Notes are convertible into common stock at a conversion rate of $0.50 per share (x) at any time at the holder’s election or (y) automatically if the closing bid price (as defined in the Senior Secured Notes) of the Company’s common stock exceeds $1.25 (as adjusted for stock splits, stock dividends, combinations and similar transactions) for twenty (20) consecutive trading days. We have the option to pay the accrued interest for the Senior Secured Notes in cash or additional Senior Secured Notes. To date, all required interest payments have been made by issuing additional Senior Secured Notes.
In the 2007 Private Placement, we issued $3,538,000 of our Senior Secured Notes and Series A-2 warrants to purchase 3,538,000 shares of common stock at an exercise price of $0.65 per share. Insider Purchasers invested $438,000 in the private placement. The Series A-2 warrants were exercisable for a period of five years and are subject to certain anti-dilution protection. In addition, we issued to the designees and assignees of Burnham Hill Partners placement agent warrants to purchase 566,080 shares of our common stock at an exercise price of $0.55 per share. The warrants were exercisable for a period of five years and are subject to certain anti-dilution protection.
F-18
Burnham Hill Partners received a cash fee of $283,000, which equaled eight (8%) percent of the gross proceeds we received. The $3,230,000 net proceeds of the September 2007 private placement are being used for working capital.
In the 2008 Private Placements, the Company entered into a series of transactions to recapitalize its balance sheet, raise funds, eliminate the derivative liabilities and extend the maturity date of the Senior Secured Notes and limit the related interest rate. The 2008 Private Placements adjusted the exercise price and expiration date of the Series A, Series A-2, Placement Agent and Financial Advisory warrants to $0.40 per share, deleted the Adjusted EBITDA interest calculation and set the interest rate for the Senior Secured Notes at 16% per annum and the maturity date for the Senior Secured Notes was extended to September 30, 2010 among other things. See Note 7 – 2008 Private Placement Transactions.
During the year ended December 31, 2008 and 2007, the accretion of discount on the Senior Secured Notes was $2,732,000 and $2,881,000, respectively.
Financing Costs
The financing costs, which were included in Other Assets in the accompanying consolidated balance sheets, and accumulated amortization as of December 31, 2008, is as follows (in thousands):
|
| 2006 Private Placements |
|
| 2007 Private Placement and Senior Secured Notes Extension |
|
|
2007 Private Placement, Insider Purchasers |
|
| 2008 Private Placements |
|
| Extinguishment of Debt |
|
| Total |
| ||||||
Cash financing costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Placement agent fees – Burnham Hill Partners |
| $ | 480 |
|
| $ | 248 |
|
| $ | 35 |
|
| $ | 203 |
|
| $ | (966 | ) |
| $ | — |
|
Other financing costs |
|
| 115 |
|
|
| 71 |
|
|
| 3 |
|
|
| 139 |
|
|
| (328 | ) |
|
| — |
|
|
|
| 595 |
|
|
| 319 |
|
|
| 38 |
|
|
| 342 |
|
|
| (1,294 | ) |
|
| — |
|
Non-cash financing costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Placement agent and financial advisory warrants – Burnham Hill Partners |
|
| 296 |
|
|
| 376 |
|
|
| 41 |
|
|
| 196 |
|
|
| (909 | ) |
|
| — |
|
Financing costs charged to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid in Capital |
|
| (110 | ) |
|
| — |
|
|
| — |
|
|
| (538 | ) |
|
| 648 |
|
|
| — |
|
Total financing costs |
|
| 781 |
|
|
| 695 |
|
|
| 79 |
|
|
| — |
|
|
| (1,555 | ) |
|
| — |
|
Accumulated amortization |
|
| (781 | ) |
|
| (527 | ) |
|
| (60 | ) |
|
| — |
|
|
| 1,368 |
|
|
| — |
|
|
|
| — |
|
|
| 168 |
|
|
| 19 |
|
|
| — |
|
|
| (187 | ) |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization during year |
| $ | — |
|
| $ | 402 |
|
| $ | 46 |
|
| $ | — |
|
| $ | — |
|
| $ | 448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The financing costs for the 2006 Private Placements were being amortized over the 18 month period through September 30, 2007, the maturity date of the originally issued Senior Secured Notes. The financing costs for the 2007 Private Placement and extension of the maturity date of the 2006 Private Placement were being amortized over the 18 month period through March 31, 2009, the original maturity date of the Senior Secured Notes. As a result of the 2008 Private Placements the remaining financing costs were charged to Paid in Capital.
F-19
The financing costs, which were included in Other Assets in the accompanying consolidated balance sheets, and accumulated amortization as of December 31, 2007, is as follows (in thousands):
|
| 2007 |
| |||||||||||||
|
| 2006 Private Placements |
|
| 2007 Private Placement and Senior Secured Notes Extension |
|
| 2007 Private Placement, Insider Purchasers |
|
| Total |
| ||||
Cash financing costs: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Placement agent fees – Burnham Hill Partners |
| $ | 480 |
|
| $ | 248 |
|
| $ | 35 |
|
| $ | 763 |
|
Other financing costs |
|
| 115 |
|
|
| 71 |
|
|
| 3 |
|
|
| 189 |
|
|
|
| 595 |
|
|
| 319 |
|
|
| 38 |
|
|
| 952 |
|
Non-cash financing costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Placement agent and financial advisory warrants – Burnham Hill Partners |
|
| 296 |
|
|
| 376 |
|
|
| 41 |
|
|
| 713 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing costs charged to Paid in Capital |
|
| (110 | ) |
|
| — |
|
|
| — |
|
|
| (110 | ) |
Total financing costs |
|
| 781 |
|
|
| 695 |
|
|
| 79 |
|
|
| 1,555 |
|
Accumulated amortization |
|
| (781 | ) |
|
| (125 | ) |
|
| (14 | ) |
|
| (920 | ) |
|
| $ | 0 |
|
| $ | 570 |
|
| $ | 65 |
|
| $ | 635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization during year |
| $ | 392 |
|
| $ | 125 |
|
| $ | 14 |
|
| $ | 531 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities
Activity for derivative liabilities during the years ended and as of December 31, 2008 and 2007 was as follows (in thousands):
|
| December 31, 2007 |
|
| Increase (decrease) in Fair Value |
|
| Elimination of derivative liability |
|
| December 31, 2008 |
| ||||
(i) Derivative financial instrument – February 2004 capital raise |
| $ | 1,200 |
|
| $ | (94 | ) |
| $ | (1,106 | ) |
| $ | — |
|
(iii) Derivative financial instrument – Placement agent and financial advisory warrants |
|
| 457 |
|
|
| (239 | ) |
|
| (218 | ) |
|
| — |
|
(iv) Derivative financial instrument – Series A warrants |
|
| 1,758 |
|
|
| (946 | ) |
|
| (812 | ) |
|
| — |
|
(v) Derivative financial instrument – Series A-2 warrants, 2007 Private Placement |
|
| 1,008 |
|
|
| (520 | ) |
|
| (488 | ) |
|
| — |
|
(v) Derivative financial instrument – Series A-2 warrants, 2007 Private Placement, Insider Purchasers |
|
| 142 |
|
|
| (73 | ) |
|
| (69 | ) |
|
| — |
|
(vi) Derivative financial instrument – Series A-2 warrants, issued in connection with Senior Secured Notes Extension |
|
| 1,552 |
|
|
| (801 | ) |
|
| (751 | ) |
|
| — |
|
|
| $ | 6,117 |
|
| $ | (2,673 | ) |
| $ | (3,444 | ) |
| $ | — |
|
F-20
The components of the increase or (decrease) in the fair value ofvarious derivative financial instruments’ liability with changes in value recorded as other (income) expense for the years ended December 31, 2008 and 2007 was as follows (in thousands):
|
| 2008 |
|
| 2007 |
| ||
(i) Derivative financial instrument – February 2004 capital raise |
| $ | (94 | ) |
| $ | (36 | ) |
(ii) Derivative financial instrument – Beneficial conversion feature – Senior Secured Notes |
|
| — |
|
|
| (865 | ) |
(ii) Derivative financial instrument – Beneficial conversion feature – Senior Secured Notes |
|
| — |
|
|
| (2,666 | ) |
(ii) Derivative financial instrument – Beneficial conversion feature – Senior Secured Notes, Insider Purchasers |
|
| — |
|
|
| (112 | ) |
(iii) Derivative financial instrument – Placement agent and financial advisory warrants |
|
| (239 | ) |
|
| (313 | ) |
(iv) Derivative financial instrument – Series A warrants |
|
| (946 | ) |
|
| 359 |
|
(v) Derivative financial instrument – Series A-2 warrants, 2007 Private Placement |
|
| (520 | ) |
|
| (757 | ) |
(v) Derivative financial instrument – Series A-2 warrants, 2007 Private Placement, Insider Purchasers |
|
| (73 | ) |
|
| (108 | ) |
(vi) Derivative financial instrument – Series A-2 warrants, issued in connection with Senior Secured Notes Extension |
|
| (801 | ) |
|
| (1,167 | ) |
|
| $ | (2,673 | ) |
| $ | (5,665 | ) |
|
|
|
|
|
|
|
|
|
The components of the gain on elimination of derivative financial liability for the year ended December 31, 2008 was as follows (in thousands):
|
| 2008 |
| |
(i) Elimination of derivative financial instrument – February 2004 capital raise |
| $ | (1,106 | ) |
(iii) Elimination of derivative financial instrument – Placement agent and financial advisory warrants |
|
| (218 | ) |
(iv) Elimination of derivative financial instrument – Series A warrants |
|
| (812 | ) |
(v) Elimination of derivative financial instrument – Series A-2 warrants, 2007 Private Placement |
|
| (488 | ) |
(v) Elimination of derivative financial instrument – Series A-2 warrants, 2007 Private Placement, Insider Purchasers |
|
| (69 | ) |
(vi) Elimination of derivative financial instrument – Series A-2 warrants, issued in connection with Senior Secured Notes Extension |
|
| (751 | ) |
|
|
| (3,444 | ) |
Warrants issued to eliminate derivative financial instrument liability |
|
| 1,225 |
|
|
|
| (2,219 | ) |
Less amounts allocated to Paid in Capital |
|
| (2,219 | ) |
|
| $ | — |
|
|
|
|
|
|
(i) We accounted for the registration rights agreement related to the February 2004 capital raise as a separate freestanding instrument and accounted for the liquidated damages provision as a derivative liability subject to SFAS No. 133.instruments. The estimated fair value of the derivative liability is based on estimates of the probability and costs expected to be incurred and such estimates are revalued at each balance sheet date with changes in value recorded as other income or expense. We estimated the fair value of the derivative liability as of December 31, 2007 to be $1,200,000.
In the 2008 Private Placements we amended various warrants to eliminate the provisions of the warrant agreements which required the Company to account for the related derivative liability, exchanged shares of Series C Preferred Stock for Series A Preferred Stock and exchanged Senior Secured Notes for Series A Preferred Stock. With this recapitalization of the balance sheet and the elimination of the derivative liabilities related to the warrants the Company currently estimates that the fair value for the derivative liability for the 2004 capital raise is now nominal. Therefore, in November 2008, the Company eliminated the $1,106,000 derivative liability related to the February 2004 capital raise as an increase to additional paid-in capital.
F-21
(ii) We initially accounted for the convertibility of the Senior Secured Notes into common stock at a conversion rate of $0.50 per share as a derivative liability subject to SFAS No. 133. Management determined that certain events or actions necessary to deliver registered shares are not controlled by the Company and that the holders have the right to demand that the Company pay the holders in cash, calculated as defined in the Senior Secured Notes, under certain circumstances. Accordingly, the Company accounted for the beneficial conversion feature as a derivative liability. The estimated fair value of the derivative liability is based on the prepayment amount that would be owed to a Senior Secured Notes holder if payment is required. The prepayment amount is the greater of (i) 125% of the value of the Senior Secured Notes and accrued interest and (ii) the value if the Senior Secured Notes an d accrued interest converted into common stock at $0.50 per share and then multiplied by the then current stock price. Since the Senior Secured Notes are convertible at the issuance date, an expense related to the derivative liability is recognized on that date.
In December 2007, in light of changes to Rule 144 of the Securities Act, we amended the Registration Rights Agreement to eliminate the requirement to register the shares issuable upon conversion of the Senior Secured Notes, thereby eliminating any requirement to deliver registered shares, which effectively eliminated the right of the holders of the Senior Secured Notes to demand that the Company pay such holders cash, calculated as defined in the Senior Secured Notes. Accordingly, the Company will no longer account for the beneficial conversion feature as a derivative liability. Therefore, in December 2007, the Company eliminated the $2,778,000 derivative liability related to the beneficial conversion feature that had been accrued as of that date.
(iii) We accounted for the issuance of the placement agent and financial advisory warrants issued in connection with the March and April 2006 and September 2007 private placements of the Senior Secured Notes as a derivative liability subject to SFAS No. 133. Management determined that the events or actions necessary to deliver registered shares are not controlled by the Company and that the holders have the right to demand that the Company pay the holders in cash, calculated as defined in the Series A and Series A-2 warrants, under certain circumstances. Accordingly the Company accounted for the placement agent and financial advisory warrants as a derivative liability. The estimated fair value of the derivative liability isinstruments was calculated using the Black-Scholes method and such estimates are revalued at each balance sheet date with changes in value recorded as other income or expense. We estimated the fair value of the de rivative liability as of December 31, 2007 to be $457,000. See also Note 18.
In the 2008 Private Placement we amended these placement agent and financial advisory warrants issued in connection with the 2006 Private Placements and 2007 Private Placement of the Senior Secured Notes to eliminate the provisions of the warrant agreements which required the Company to account for a derivative liability. Therefore, in November 2008, the Company eliminated the $218,000 derivative liability related to the warrants that had been accrued as of that date.
(iv) We accounted for the issuance of the Series A warrants to purchase 6,180,000 shares of common stock at an exercise price of $0.65 per share as a derivative liability subject to SFAS No. 133. Management determined that certain events or actions necessary to deliver registered shares are not controlled by the Company and that the holders have the right to demand that the Company pay the holders in cash, calculated as defined in the Series A warrant, under certain circumstances. Accordingly the Company accounted for the Series A warrants as a derivative liability. The estimated fair value of the derivative liability is calculated using the Black-Scholes method and such estimates are revalued at each balance sheet date, with changes in value recorded as other income or expense. We estimated the fair value of the derivative liability as of December 31, 2007 to be $1,758,000.
In the 2008 Private Placement we amended these Series A warrants to eliminate the provisions of the warrant agreements which required the Company to account for a derivative liability. Therefore, in November 2008, the Company eliminated the $812,000 derivative liability related to the warrants that had been accrued as of that date.
(v) In connection with the 2007 Private Placement we accounted for the issuance of the Series A-2 warrants to purchase 3,538,000 shares of common stock at an exercise price of $0.65 per share as a derivative liability subject to SFAS No. 133. Management determined that certain events or actions necessary to deliver registered shares are not controlled by the Company and that the holders have the right to demand that the Company pay the holders in cash, calculated as defined in the Series A-2 Warrant, under certain circumstances. Accordingly the Company accounted for the Series A-2 warrants as a derivative liability. The estimated fair value of the
F-22
derivative liability is calculated using the Black-Scholes method and such estimates arewere revalued at each balance sheet date, with changes in value recorded as other income or expense. In the 20072008 Private Placement, $2,015,000Placements these derivative liabilities were eliminated with the related gain credited to Additional Paid in Capital.
In 2008 Private Placements we amended these Series A-2 warrants to eliminate the provisions of the warrant agreements which required the Companyneed to account for a derivative liability. Therefore, in November 2008,liability was eliminated. On August 11, 2009, the date of the August 2009 Exchange, the Company eliminated the $557,000 derivative liability related to the warrants that had been accrued as of that date.
(vi) In connection with the Senior Secured Notes Extension we accounted for the issuance of the Series A-2 warrants to purchase 4,773,000 shares of common stock at an exercise price of $0.65 per share as a derivative liability subject to SFAS No. 133. Management determined that certain events or actions necessary to deliver registered shares are not controlled by the Company and that the holders have the right to demand that the Company pay the holders in cash, calculated as defined in the Series A-2 Warrant, under certain circumstances. Accordingly the Company accounted for the Series A-2 warrants as a derivative liability. The estimated fair value of the derivative liability is calculated using the Black-Scholes method and such estimates are revalued at each balance sheet date, with changes in value recorded as other income or expense. In the Senior Secured Notes Extension, $2,719,000 was attributed to the estimated fair value of the derivative liability. The $2,719,000 for the derivative liability will be treated as a discount on the Senior Secured Notes and expensed, using the effective interest method, over the 18 month period to the Senior Secured Notes’ maturity date. We estimatedmeasured the fair value of the derivative liability as of December 31, 2007 to be $1,552,000.
In the 2008 Private Placements we amended these Series A-2 warrants to eliminate the provisions of the warrant agreements which required the Company to account forinstruments, and recorded a derivative liability. Therefore, in November 2008, the Company eliminated the $751,000 derivative liability related$1,157,000 charge to the warrants that had been accrued asstatement of that date.
Insider Purchasers Investment in September 2007 Private Placement
In the 2007 Private Placement, the Insider Purchasers invested an aggregate of $438,000 and were issued Senior Secured Notes and Series A-2 warrants to acquire 438,000 shares of common stock. The Senior Secured Notes and other transaction documents provide that the Insider Purchasers will not be entitled to all of the rights and benefits available to the other purchasers upon the occurrence of certain events, including, but not limited to, an event of default, the failure by Glowpoint to achieve specified Adjusted EBITDA, and the failure to timely file the required registration statement.
In the 2008 Private Placement, the Company exchanged 1,880 shares (126 for Insider Purchasers) of Series A Preferred Stock and Series A-3 Warrants to acquire 9,401,000 shares (631,000 for Insider Purchasers) of common stock were issued for $7,521,000 of the Company’s Senior Secured Notes. The Series A Preferred Stock and other transaction documents provide that the Insider Purchasers will be entitled to all of the rights and benefits available to the other purchaser.
Senior Secured Notes –Adjusted EBITDA Requirements
In the 2007 Private Placement the Company was required to achieve minimum Adjusted EBITDA, as defined, in 2008 or the per annum interest rate on the unpaid principal balance of the Senior Secured Notes then in effect would increase by 200 basis points. In the 2008 Private Placement this was deleted and the interest rateoperations for the Senior Secured Notes was set at 16% per annum.
The Company achieved the minimum Adjusted EBITDA for the quarter ended March 31, 2008 but did not achieve the minimum Adjusted EBITDA for the six months ended June 30, 2008 and nine months ended September 30, 2008. Therefore, the interest rate on the unpaid principal balance of the Senior Secured Notes increased by 200 basis points to 14% beginning July 1, 2008 and an additional 200 basis points on October 1, 2008 to 16%.
F-23
Note 9 - Interest Expense
The components of interest expense for the yearsyear ended December 31, 2008 and 2007 are presented below (in thousands):
|
| 2008 |
|
| 2007 |
| ||
Accretion of discount on Senior Secured Notes |
| $ | 2,591 |
|
| $ | 2,852 |
|
Accretion of discount on Senior Secured Notes, Insider Purchasers |
|
| 141 |
|
|
| 29 |
|
Interest on Senior Secured Notes |
|
| 1,376 |
|
|
| 900 |
|
Interest on Senior Secured Notes, Insider Purchasers |
|
| 44 |
|
|
| 12 |
|
Beneficial conversion feature – Senior Secured Notes |
|
| — |
|
|
| 1,757 |
|
Beneficial conversion feature – Senior Secured Notes, Insider Purchasers |
|
| — |
|
|
| 220 |
|
Interest expense for sales and use taxes and regulatory fees |
|
| 283 |
|
|
| 268 |
|
Interest expense for capital lease |
|
| 78 |
|
|
| — |
|
Other interest expense |
|
| 22 |
|
|
| 5 |
|
|
| $ | 4,535 |
|
| $ | 6,043 |
|
|
|
|
|
|
|
|
|
|
Note 10 - Stockholders’ Deficit
CommonStock
In February 2004, we raised net proceeds of $12,480,000 in a private placement offering of 6,100,000 shares of our common stock at $2.25 per share. We also issued warrants to the investors in a private placement offering to purchase 1,830,000 shares of our common stock at an exercise price of $2.75 per share.2009. The warrants expire five and a half years after the closing date. The warrants are subject to certain anti-dilution protection (minimum price of $2.60) and as a result of the March 2005 financing, the exercise price was reduced to $2.60 (the incremental fair value was nominal). In addition, we issued to our placement agent five and a half year warrants to purchase 427,000 shares of common stock at an exercise price of $2.71 per share with an estimated fair value of $895,000. The placement agent warrants are subject to anti-dilution protection (minimum price of $2.60) and as a result of the March 2005 financing, the exercise price was reduced to $2.60 (the incremental fair value was nominal).
The registration rights agreement for the February 2004 financing provides for liquidated damages of 3% of the aggregate purchase price for the first month and 1.5% for each subsequent month if we failed to register the common stock and the shares of common stock underlying the warrants or maintain the effectiveness of such registration. We accounted for the registration rights agreement as a separate freestanding instrument and accounted for the liquidated damages provision as a derivative liability subject to SFAS No. 133. The estimated fair value of the derivative liability is based on estimates of the probability and costs expected to be incurred and such estimates are revalued at each balance sheet date with changes in value recorded as other income or expense. $1,164,000 of the proceeds of the financing was attributed to the estimated fair value of the derivative liability. We estimatedCompany determined the fair valuevalues of these securities using a Black-Scholes valuation model.
Inliabilities was recorded in other income and expense. During the year ended December 31, 2008, Private Placements we amended various warrants to eliminatea decrease of $2,673,000 in the provisions of the warrant agreements which required the Company to account for the related derivative liability, exchanged shares of Series C Preferred Stock for Series A Preferred Stock and exchanged Senior Secured Notes for Series A Preferred Stock. With this recapitalization of the balance sheet and the eliminationfair value of the derivative liabilities was recorded in other income and expense.
December 31, 2008 | Cumulative Effect of Change in Accounting Principle | Activity during the period | Increase in Fair Value | Elimination of Derivative Liability | December 31, 2009 | |||||||||||||||||||
Derivative financial instrument – warrants | $ | — | $ | 2,546 | $ | 281 | $ | 1,797 | $ | (4,624 | ) | $ | — | |||||||||||
Derivative financial instrument – warrants – insider purchasers | — | 76 | — | 51 | (127 | ) | — | |||||||||||||||||
$ | — | $ | 2,622 | $ | 281 | $ | 1,848 | $ | (4,751 | ) | $ | — | ||||||||||||
F-24
are presented below (in thousands):
2009 | 2008 | |||||||
Interest (Income) Expense: | ||||||||
Accretion of discount on Senior Secured Notes | $ | 23 | $ | 2,591 | ||||
Accretion of discount on Senior Secured Notes, Insider Purchasers | — | 141 | ||||||
Interest on Senior Secured Notes | 57 | 1,376 | ||||||
Interest on Senior Secured Notes, Insider Purchasers | — | 44 | ||||||
Adjustment of interest accrual for sales and use taxes and regulatory fees | (784 | ) | 268 | |||||
Interest expense for capital lease | 42 | 78 | ||||||
Other interest (income) expense | 119 | 19 | ||||||
Interest (income) expense, net | $ | (543 | ) | $ | 4,517 | |||
Series A Convertible Preferred Stock
In the 2008 Private Placement, the Company received $1,825,0002009.
Each share ofA-1 Preferred Stock created in March 2009 and the Series A Preferred Stock is valued at $3,000, which is based on gross proceeds of $4,000 received by the Company less $1,000, the Black-Scholes value for the Series A-3 Warrants issued with each Series A Preferred Stock share to acquire 5,000 shares of the Company’s common stock.
F-25
In the 2008 Private Placements, see Note 7, the Company exchanged 2,701 shares of Series A Preferred Stock and Series A-3 Warrants to acquire 12,377,000 shares of common stock were issued for $10,802,000 (including $24,000 of accrued interest) of the Company’s Exchanged Notes. Insider Purchasers will receive the same rights as the other holders of the Series A Preferred Stock. created in November 2008.
Series A as of December 31, 2008 Note A | 2009 Private Placement | Series A & A-1 Exchange Note B | Series A-1 & A-2 Exchange Note C | Series A-2 as of December 31, 2009 | ||||||||||||||||
Shares of Preferred Stock: | ||||||||||||||||||||
Investors | 3,675 | 719 | — | — | 4,394 | |||||||||||||||
Insider Purchasers | 115 | — | — | — | 115 | |||||||||||||||
3,790 | 719 | — | — | 4,509 | ||||||||||||||||
Book Value: | ||||||||||||||||||||
Investors | $ | 11,226 | $ | 2,637 | $ | 1,934 | $ | (1,886 | ) | $ | 13,911 | |||||||||
Insider Purchasers | 348 | — | 65 | (49 | ) | 364 | ||||||||||||||
$ | 11,574 | $ | 2,637 | $ | 1,999 | $ | (1,935 | ) | $ | 14,275 | ||||||||||
Liquidation Value: | ||||||||||||||||||||
Investors | $ | 27,560 | $ | 5,392 | $ | — | $ | — | $ | 32,952 | ||||||||||
Insider Purchasers | 863 | — | — | — | 863 | |||||||||||||||
$ | 28,423 | $ | 5,392 | $ | — | $ | — | $ | 33,815 | |||||||||||
|
| Senior Secured Notes |
|
| Series A Preferred Stock Shares |
|
| Series A Preferred Stock Book Value |
|
| Series A Preferred Stock Liquidation Value |
|
| Series A-3 Warrants |
| |||||
Investors |
| $ | 10,297 |
|
|
| 2,575 |
|
| $ | 7,905 |
|
| $ | 19,307 |
|
|
| 11,746 |
|
Insider Purchasers |
|
| 505 |
|
|
| 126 |
|
|
| 381 |
|
|
| 946 |
|
|
| 631 |
|
|
| $ | 10,802 |
|
|
| 2,701 |
|
| $ | 8,286 |
|
| $ | 20,253 |
|
|
| 12,377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
– Share, book value and liquidation value amounts for Mr. Brandofino have been reclassified into the Investors totals (see Note 23).
We accounted for the 2008 Preferred Stock Exchange as a redemption and in accordance with Emerging Issues Task Force Topic No. D-42“Stock. The Effectresulting $1,999,000 loss on the Calculation of Earnings per Share for the Redemption or Induced Conversion of Preferred Stock”(“D- 42”). In connection with the 2008 Preferred Stock Exchange, D-42 requires that the excess of the carrying amount of the Series C Preferred Stock (the “Series C Carrying Amount”) over the fair valueredemption of the Series A Preferred Stock (the “Series A Fair Value”) be subtracted from net losswas charged to arrive at net loss attributable to common stockholders. The SeriesAdditional Paid in Capital.
The following is a summaryredemption of the Series A Preferred Stock (in thousands except Series A Preferred Stock shares) as of December 31, 2008:
|
| Series A Preferred Stock Shares |
|
| Series A Preferred Stock Book Value |
|
| Series A Preferred Stock Liquidation Value |
| |||
Investors |
|
| 3,661 |
|
| $ | 11,183 |
|
| $ | 27,453 |
|
Insider Purchasers |
|
| 129 |
|
|
| 391 |
|
|
| 970 |
|
|
|
| 3,790 |
|
| $ | 11,574 |
|
| $ | 28,423 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series C Convertible Preferred Stock
In September 2007, we entered into an exchange agreement with the holders of the Series B convertible preferred stock (the “Series B Holders”) and issued an aggregate of 474.8126 shares of a new Series C Preferred Stock in exchange for cancelling all of our issued and outstanding Series B convertible preferred stock, cancelling $1,098,000 of accrued but unpaid dividends due on the Series B convertible preferred stock, and 1,525,000 shares of common stock held by the Series B Holders (the “2007 Preferred Stock Exchange”). Each share of Series C Preferred Stock, par value $0.0001 per share, has a liquidation preference equal to its stated value, which is $10,000 per share, and is convertible at the holder’s election into 10,000 shares of common stock. The Series C Preferred Stock has anti-dilution rights. The Series C preferred stockholders are not entitled to receive dividends. The Series
F-26
C Preferred Stock is only redeemable in the event of the Company’s liquidation, dissolution or winding up of affairs. Upon a change of control, as defined therein, the holders of the Series C Preferred Stock or the Company can require that the Series C Preferred Stock be redeemed at the stated value per share as adjusted. The Series C Preferred Stock must be converted into shares of common stock when the closing bid and ask price of the Company’s common stock exceeds $2.00 for a period of 10 consecutive trading days. The Series C Preferred Stock is not classified in Stockholders’ Deficit.
Burnham Hill Partners acted as financial advisor for, among other things, the 2007 Preferred Stock Exchange and the extension of the maturity date of the Senior Secured Notes that were maturing in September 2007 and received warrants to purchase 250,000 shares of common stock at an exercise price of $0.65 per share. The financial advisory warrants are exercisable for a period of five years and are subject to certain anti-dilution protection. The Company allocated 100,000 of the financial advisory warrants, with a fair value of $57,000, to the 2007 Preferred Stock Exchange and incurred professional fees related to the 2007 Preferred Stock Exchange of $33,000. These costs were charged to Paid in Capital. See Note 8 for the allocation of the remaining financial advisory warrants.
We accounted for the 2007 Preferred Stock Exchange as a redemption and in accordance with D- 42 which requires that the excess of the carrying amount of the Series B convertible preferred stock (the “Series B Carrying Amount”) over the fair value of the Series C Preferred Stock (the “Series C Fair Value”) be subtracted from net loss to arrive at net loss attributable to common stockholders. The Series B Carrying Amount of $5,129,000 is comprised of the $2,888,000 stated value of the Series B convertible preferred stock, the $1,098,000 of accrued but unpaid dividends, and $1,143,000 for the 1,525,000 shares of common stock valued at the common stock price of $0.75 on the date the common stock shares were surrendered. We computed the $4,330,000 Series C Fair Value using a valuation model utilized by the financial advisory and investment banking industries to determine the fair value of this type of financial ins trument. The $799,000 excess of Series B Carrying Amount over the Series C Fair Value is recognized in our consolidated statement of operations as a “Gain on Redemption of Preferred Stock” and subtracted from our net loss to arrive at the net loss attributable to common shareholders.
The Series CA-1 Preferred Stock was recordedcredited to Additional Paid in the accompanying consolidated balance sheet at its fair value on the dateCapital.
2009.
Glowpoint 2007 Stock Incentive Plan
Pursuant to
F-27
The exercise price of the awards isare established by the administrator of the plan and, in the case of ISOs issued to employees who are less than 10% stockholders, the per share exercise price must be equal to at least 100% of the fair market value of a share of the common stock on the date of grant or not less than 110% of the fair market value of the shares in the case of an employee who is a 10% stockholder. The administrator of the plan determines the terms and provisions of each award granted, under the 2007 Plan, including the vesting schedule, repurchase provisions, rights of first refusal, forfeiture provisions, form of payment, payment contingencies and satisfaction of any performance criteria.
The exercise price of the awards is established by the administrator of the plan and, in the case of ISOs issued to employees who are less than 10% stockholders, the per share exercise price must be equal to at least 100% of the fair market value of a share of the common stock on the date of grant or not less than 110% of the fair market value of the shares in the case of an employee who is a 10% stockholder. The administrator of the plan determines the terms and provisions of each award granted under the 2000 Plan, including the vesting schedule, repurchase provisions, rights of first refusal, forfeiture provisions, form of payment, payment contingencies and satisfaction of any performance criteria.
VTI Stock Option Plans
As part
F-28
20,000 shares were outstanding.
|
| Outstanding |
|
| Exercisable |
| ||||||||||
|
| Number of Options |
|
| Weighted Average Exercise Price |
|
| Number of Options |
|
| Weighted Average Exercise Price |
| ||||
Options outstanding, January 1, 2007 |
|
| 5,100 |
|
| $ | 2.26 |
|
|
| 3,664 |
|
| $ | 2.86 |
|
Granted |
|
| 1,284 |
|
|
| 0.59 |
|
|
|
|
|
|
|
|
|
Exercised |
|
| — |
|
|
| 0.00 |
|
|
|
|
|
|
|
|
|
Expired |
|
| (1,380 | ) |
|
| 2.94 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
| (791 | ) |
|
| 2.58 |
|
|
|
|
|
|
|
|
|
Options outstanding, December 31, 2007 |
|
| 4,213 |
|
|
| 1.47 |
|
|
| 2,519 |
|
|
| 2.06 |
|
Granted |
|
| 892 |
|
|
| 0.43 |
|
|
|
|
|
|
|
|
|
Exercised |
|
| — |
|
|
| 0.00 |
|
|
|
|
|
|
|
|
|
Expired |
|
| — |
|
|
| 0.00 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
| (132 | ) |
|
| 0.58 |
|
|
|
|
|
|
|
|
|
Options outstanding, December 31, 2008 |
|
| 4,973 |
|
| $ | 1.31 |
|
|
| 3,334 |
|
| $ | 1.72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of common stock available for future grant under Company plans |
|
| 1,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding | Exercisable | |||||||||||||||
Number of Options | Weighted Average Exercise Price | Number of Options | Weighted Average Exercise Price | |||||||||||||
Options outstanding, January 1, 2008 | 4,213 | $ | 1.47 | 2,519 | $ | 2.06 | ||||||||||
Granted | 892 | 0.43 | ||||||||||||||
Exercised | — | 0.00 | ||||||||||||||
Expired | — | 0.00 | ||||||||||||||
Forfeited | (132 | ) | 0.58 | |||||||||||||
Options outstanding, December 31, 2008 | 4,973 | 1.31 | 3,334 | 1.72 | ||||||||||||
Granted | 1,155 | 0.43 | ||||||||||||||
Exercised | (49 | ) | 0.42 | |||||||||||||
Expired | (98 | ) | 3.50 | |||||||||||||
Forfeited | (1,275 | ) | 2.12 | |||||||||||||
Options outstanding, December 31, 2009 | 4,706 | $ | 0.84 | 2,910 | $ | 1.08 | ||||||||||
Shares of common stock available for future grant under Company plans | 1,529 | |||||||||||||||
Outstanding | Exercisable | |||||||||||||||||||||
Range of price | Number of Options | Weighted Average Remaining Contractual Life (In Years) | Weighted Average Exercise Price | Number of Options | Weighted Average Exercise Price | |||||||||||||||||
$ | 0.20 – 0.40 | 1,301 | 8.20 | $ | 0.36 | 550 | $ | 0.36 | ||||||||||||||
0.41 – 0.50 | 1,109 | 8.45 | 0.45 | 417 | 0.43 | |||||||||||||||||
0.51 – 0.65 | 1,088 | 7.72 | 0.60 | 738 | 0.59 | |||||||||||||||||
0.66 – 1.19 | 671 | 5.01 | 1.14 | 668 | 1.14 | |||||||||||||||||
1.27 – 5.50 | 537 | 3.42 | 2.89 | 537 | 2.89 | |||||||||||||||||
$ | 0.20 – 5.50 | 4,706 | 7.15 | $ | 0.84 | 2,910 | $ | 1.08 | ||||||||||||||
| Outstanding | Exercisable | |||
Range of price | Number of Options | Weighted Average Remaining Contractual Life (In Years) | Weighted Average Exercise Price | Number of Options | Weighted Average Exercise Price |
$ 0.20 – 0.49 | 1,379 | 8.30 | $ 0.37 | 601 | $ 0.39 |
0.50 – 0.70 | 1,549 | 8.68 | 0.58 | 688 | 0.57 |
0.86 – 1.48 | 935 | 5.80 | 1.21 | 935 | 1.21 |
1.58 – 3.50 | 506 | 4.15 | 3.02 | 506 | 3.02 |
3.90 – 5.50 | 604 | 2.07 | 4.03 | 604 | 4.03 |
$ 0.20 – 5.50 | 4,973 | 6.77 | $ 1.31 | 3,334 | $ 1.72 |
|
|
|
|
|
|
F-29
|
| Options |
|
| Weighted Average Grant Date Fair Value |
| ||
Nonvested options outstanding, January 1, 2007 |
|
| 1,436 |
|
| $ | 0.59 |
|
Granted |
|
| 1,284 |
|
|
| 0.45 |
|
Vested |
|
| (917 | ) |
|
| 0.65 |
|
Forfeited |
|
| (108 | ) |
|
| 0.41 |
|
Nonvested options outstanding, December 31, 2007 |
|
| 1,695 |
|
|
| 0.46 |
|
Granted |
|
| 892 |
|
|
| 0.31 |
|
Vested |
|
| (828 | ) |
|
| 0.51 |
|
Forfeited |
|
| (120 | ) |
|
| 0.42 |
|
Nonvested options outstanding, December 31, 2008 |
|
| 1,639 |
|
| $ | 0.36 |
|
|
|
|
|
|
|
|
|
|
At December 31, 2008 and 2007 there was $0 and $26,000, respectively, of total unrecognized compensation costs related to non-vested options granted prior to January 1, 2007 that are expected to be recognized over a weighted-average period of 0.00 and 0.53 years, respectively.
Options | Weighted Average Grant Date Fair Value | |||||||
Nonvested options outstanding, January 1, 2008 | 1,695 | $ | 0.46 | |||||
Granted | 892 | 0.31 | ||||||
Vested | (828 | ) | 0.51 | |||||
Forfeited | (120 | ) | 0.42 | |||||
Nonvested options outstanding, December 31, 2008 | 1,639 | 0.36 | ||||||
Granted | 1,155 | 0.33 | ||||||
Vested | (793 | ) | 0.35 | |||||
Forfeited | (205 | ) | 0.36 | |||||
Nonvested options outstanding, December 31, 2009 | 1,796 | $ | 0.34 | |||||
|
| 2008 |
|
| 2007 |
| ||
Cost of revenue |
| $ | 21 |
|
| $ | 22 |
|
Research and development |
|
| 24 |
|
|
| 45 |
|
Sales and marketing |
|
| 64 |
|
|
| 45 |
|
General and administrative |
|
| 244 |
|
|
| 368 |
|
|
| $ | 353 |
|
| $ | 480 |
|
|
|
|
|
|
|
|
|
|
2009 | 2008 | |||||||
Global managed services | $ | 122 | $ | 115 | ||||
Sales and marketing | 38 | 64 | ||||||
General and administrative | 119 | 174 | ||||||
$ | 279 | $ | 353 | |||||
|
| Restricted Shares |
|
| Weighted Exercise Price |
| ||
Unvested restricted shares outstanding, January 1, 2007 |
|
| 317 |
|
| $ | 0.71 |
|
Granted |
|
| 1,240 |
|
|
| 0.58 |
|
Vested |
|
| (530 | ) |
|
| 0.69 |
|
Forfeited |
|
| — |
|
|
| 0.00 |
|
Unvested restricted shares outstanding, December 31, 2007 |
|
| 1,027 |
|
|
| 0.54 |
|
Granted |
|
| 745 |
|
|
| 0.47 |
|
Vested |
|
| (552 | ) |
|
| 0.55 |
|
Forfeited |
|
| — |
|
|
| 0.00 |
|
Unvested restricted shares outstanding, December 31, 2008 |
|
| 1,220 |
|
| $ | 0.49 |
|
|
|
|
|
|
|
|
|
|
Restricted Shares | Weighted Average Exercise Price | |||||||
Unvested restricted shares outstanding, January 1, 2008 | 1,027 | $ | 0.54 | |||||
Granted | 745 | 0.47 | ||||||
Vested | (552 | ) | 0.55 | |||||
Forfeited | — | 0.00 | ||||||
Unvested restricted shares outstanding, December 31, 2008 | 1,220 | 0.49 | ||||||
Granted | 1,225 | 0.34 | ||||||
Vested | (793 | ) | 0.42 | |||||
Forfeited | (490 | ) | 0.50 | |||||
Unvested restricted shares outstanding, December 31, 2009 | 1,162 | $ | 0.38 | |||||
|
| 2008 |
|
| 2007 |
| ||
General and administrative |
| $ | 207 |
|
| $ | 391 |
|
Sales and marketing |
|
| 8 |
|
|
| — |
|
Accrued expenses (1) |
|
| 179 |
|
|
| — |
|
|
| $ | 394 |
|
| $ | 391 |
|
|
|
|
|
|
|
|
|
|
Note 1 – In 2007 the Company accrued $179,000, included in General and Administrative expenses in 2007, to pay management bonuses. In 2008, the Company issued restricted shares, with a value of $179,000, to pay for the accrued management bonuses accrued in 2007.
2009 | 2008 | |||||||
Global managed services | $ | 21 | $ | 14 | ||||
General and administrative | 249 | 372 | ||||||
Sales and marketing | 7 | 8 | ||||||
$ | 277 | $ | 394 | |||||
|
| Warrants |
|
| Weighted Exercise Price |
| ||
Warrants outstanding, January 1, 2007 |
|
| 14,749 |
|
| $ | 1.28 |
|
Granted |
|
| 9,127 |
|
|
| 0.64 |
|
Exercised |
|
| — |
|
|
| — |
|
Forfeited |
|
| (901 | ) |
|
| 5.39 |
|
Warrants outstanding, December 31, 2007 |
|
| 22,975 |
|
|
| 0.86 |
|
Granted |
|
| 18,042 |
|
|
| 0.40 |
|
Exercised |
|
| — |
|
|
| — |
|
Forfeited |
|
| (100 | ) |
|
| 0.50 |
|
Warrants outstanding, December 31, 2008 |
|
| 40,917 |
|
| $ | 0.54 |
|
|
|
|
|
|
|
|
|
|
Warrants | Weighted Average Exercise Price | |||||||
Warrants outstanding, January 1, 2008 | 22,975 | $ | 0.86 | |||||
Granted | 18,042 | 0.40 | ||||||
Exercised | — | — | ||||||
Forfeited | (100 | ) | 0.50 | |||||
Warrants outstanding, December 31, 2008 | 40,917 | 0.54 | ||||||
Granted | 3,344 | 0.40 | ||||||
Exercised | — | — | ||||||
Exchanged – Note 9 | (39,088 | ) | 0.40 | |||||
Forfeited | (1,709 | ) | 2.56 | |||||
Warrants outstanding, December 31, 2009 | 3,464 | $ | 0.97 | |||||
Range of Price |
|
| Number Outstanding |
|
| Weighted Average Remaining Contractual Life (In Years) |
|
| Weighted Average Exercise Price |
| Subject to Anti-dilution Protection | ||||
$ | 0.40 |
|
|
| 37,567 |
|
|
| 4.90 |
|
| $ | 0.40 |
| Yes |
| 1.61 |
|
|
| 1,640 |
|
|
| 1.20 |
|
|
| 1.61 |
| No |
| 2.60 |
|
|
| 1,710 |
|
|
| 0.63 |
|
|
| 2.56 |
| No |
$ | 0.40 – 2.60 |
|
|
| 40,917 |
|
|
| 4.58 |
|
| $ | 0.54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-31
Exercise Price | Number Outstanding | Expiration Date | Subject to Anti-dilution Protection | ||||||
$ | 0.40 | 1,824 | 11/25/2013 | Yes | |||||
1.61 | 1,640 | 3/14/2010 | No | ||||||
3,464 | |||||||||
|
| 2008 |
|
| 2007 |
| ||
Risk free interest rate |
|
| 1.55 | % |
|
| 4.3 | % |
Warrant lives |
| 5 Years |
|
| 5 Years |
| ||
Expected volatility |
|
| 108.8 | % |
|
| 94.6 | % |
Expected dividend yields |
| None |
|
| None |
| ||
|
|
|
|
|
|
|
|
|
2008:
2009 | 2008 | |||||||
Risk free interest rate | 2.69 | % | 1.55 | % | ||||
Warrant lives | 5 Years | 5 Years | ||||||
Expected volatility | 113.9 | % | 108.8 | % | ||||
Expected dividend yields | None | None | ||||||
December 31, | ||||||||
2009 | 2008 | |||||||
Series A-2 Preferred Stock | 45,087 | — | ||||||
Warrants | 3,464 | 40,917 | ||||||
Options | 4,706 | 4,973 | ||||||
Unvested restricted stock | 1,162 | 1,220 | ||||||
Senior Secured Notes | — | 3,463 | ||||||
Series A Preferred Stock | — | 37,898 | ||||||
54,419 | 88,471 | |||||||
Fair Value as of December 31, 2009 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Increases (decreases) during the year ended December 31, 2009 | ||||||||||||||||
Liabilities: | ||||||||||||||||||||
Derivative financial instruments | $ | — | $ | — | $ | — | $ | — | $ | 1,848 | ||||||||||
Increases (decreases) during the year ended December 31, 2009 | ||||
Liabilities: | ||||
Balance as of January 1, 2009 | $ | 2,622 | ||
Initial measurement of warrants issued in the period | 281 | |||
Elimination of derivative liability | (4,751 | ) | ||
Increase in fair value of derivative liability of warrants | 1,848 | |||
Balance as of December 31, 2009 | $ | — | ||
Original Value | November 2008 | December 31, 2008 | March 2009 | August 2009 | ||||||||||||||||
Number of warrants | 40,917 | 18,042 | 40,917 | 3,344 | 44,262 | |||||||||||||||
Exercise price | $ | 0.97 | $ | 0.40 | $ | 0.54 | $ | 0.40 | $ | 0.53 | ||||||||||
Risk free interest rate | 3.3 | % | 2.1 | % | 0.7 | % | 1.0 | % | 0.7 | % | ||||||||||
Expected warrant lives in years | 5.0 | 5.0 | 1.9 | 1.8 | 1.3 | |||||||||||||||
Expected volatility | 102.7 | % | 105.7 | % | 132.3 | % | 139.0 | % | 143.3 | % | ||||||||||
Expected dividend yields | None | None | None | None | None | |||||||||||||||
Fair value per share | $ | 0.64 | $ | 0.20 | $ | 0.06 | $ | 0.08 | $ | 0.11 | ||||||||||
Common stock price | $ | 0.83 | $ | 0.27 | $ | 0.15 | $ | 0.17 | $ | 0.23 | ||||||||||
Fair value of warrants | $ | 26,173 | $ | 448 | $ | 2,622 | $ | 281 | $ | 4,763 | ||||||||||
Fair Value at Measurement Date | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Gains (losses) | ||||||||||||||||
Liabilities: | ||||||||||||||||||||
Warrants issued in connection with: | ||||||||||||||||||||
Sale of Series A-1 Preferred Stock | $ | 189 | $ | — | $ | — | $ | 189 | $ | — | ||||||||||
Senior Secured Note Exchange | 50 | — | — | 50 | — | |||||||||||||||
Placement agent warrant fee | 42 | — | — | 42 | — | |||||||||||||||
$ | 281 | $ | — | $ | — | $ | 281 | $ | — | |||||||||||
|
| 2008 |
|
| 2007 |
| ||
U.S. federal income taxes at the statutory rate |
| $ | (2,487 | ) |
| $ | (1,843 | ) |
State taxes, net of federal effects |
|
| (439 | ) |
|
| (325 | ) |
Nondeductible expenses |
|
| (625 | ) |
|
| 417 |
|
Beneficial conversion feature |
|
| 216 |
|
|
| 912 |
|
Change in valuation allowance |
|
| 3,335 |
|
|
| 839 |
|
|
| $ | — |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
2009 | 2008 | |||||||
U.S. federal income taxes at the statutory rate | $ | (186 | ) | $ | (2,487 | ) | ||
State taxes, net of federal effects | (33 | ) | (439 | ) | ||||
Nondeductible expenses | 885 | 2,449 | ||||||
Expired state operating loss carry forwards | 1,333 | — | ||||||
Non-recognizable income | — | (3,074 | ) | |||||
Beneficial conversion feature | — | 216 | ||||||
Other | (7 | ) | — | |||||
Change in valuation allowance | (1,992 | ) | 3,335 | |||||
$ | — | $ | — | |||||
Deferred tax assets: |
| 2008 |
|
| 2007 |
| ||
Tax benefit of operating loss carry forward |
| $ | 48,739 |
|
| $ | 47,706 |
|
Reserves and allowances |
|
| 1,700 |
|
|
| 1,500 |
|
Accrued expenses |
|
| 149 |
|
|
| 89 |
|
Goodwill |
|
| 524 |
|
|
| 595 |
|
Warrants issued for services |
|
| 742 |
|
|
| 605 |
|
Equity based compensation |
|
| 704 |
|
|
| 562 |
|
Fixed assets |
|
| 111 |
|
|
| 141 |
|
Restricted stock |
|
| 292 |
|
|
| 217 |
|
Total deferred tax assets |
|
| 52,961 |
|
|
| 51,415 |
|
|
|
|
|
|
|
|
|
|
Deferred tax liability: |
|
|
|
|
|
|
|
|
Fair value adjustments to derivative financial instruments |
|
| - |
|
|
| ( 1,789 | ) |
Deferred tax assets and liability, net |
|
| 52,961 |
|
|
| 49,626 |
|
Valuation allowance |
|
| (52,961 | ) |
|
| (49,626 | ) |
Net deferred tax assets |
| $ | — |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
F-32
Deferred tax assets: | 2009 | 2008 | ||||||
Tax benefit of operating loss carry forward | $ | 48,760 | $ | 48,739 | ||||
Reserves and allowances | 168 | 1,700 | ||||||
Accrued expenses | 73 | 149 | ||||||
Goodwill | 453 | 524 | ||||||
Warrants issued for services | 457 | 742 | ||||||
Equity based compensation | 994 | 996 | ||||||
Fixed assets | 64 | 111 | ||||||
Total deferred tax assets | 50,969 | 52,961 | ||||||
Deferred tax liability: | ||||||||
Fair value adjustments to derivative financial instruments | - | - | ||||||
Deferred tax assets and liability, net | 50,969 | 52,961 | ||||||
Valuation allowance | (50,969 | ) | (52,961 | ) | ||||
Net deferred tax assets | $ | — | $ | — |
2008.
2008.
2010.
Party Transactions
December 31, | ||||||||
2009 | 2008 | |||||||
Consulting Services | $ | 26 | $ | 180 | ||||
Video Services | $ | 305 | $ | 293 | ||||
Chief
F-33
Compensation expense of $277,000$267,000 and $360,000,$262,000, comprised of base salary and the incentive bonus, was recorded during the years ended December 31, 20082009 and 2007, respectively. In addition, Mr. Brandofino’s original agreement stipulated that had we entered into a sale agreement during the term of the agreement and he realizes less than $200,000 from the exercise of all outstanding options, then he is entitled to a bonus in an amount equal to the difference between $200,000 and the amount realized.2008. Either we or Mr. BrandofinoRobinson may terminate his employment at any time, for any reason or no reason at all; however, if Mr. BrandofinoRobinson is terminated without cause or resigns for good reason (as defined) or if he dies, he is entitled to one yeartwelve months of his then annualthen-annual base salary, as well as the pro-rated amount of incentive compensation due as of the effective date of termination and one year of accelerated vesting of the restricted stock options granted under the amended employment agreement. If Mr. Brandofino’sRobinson’s employment is terminated with c ausecause or if he voluntarily resigns, he is entitled to his base salary and other benefits through the last day actually worked. In March 2009, Mr. Brandofino voluntarily resigned as an officer and directorRobinson was appointed Co-Chief Executive Officer, a member of the CompanyBoard and entered intowas granted 270,000 shares of restricted stock and options to acquire 180,000 shares of common stock all of which vest upon the earlier of a separation agreement withchange of control and the Company providing certain benefits (see Note 19 Subsequent Events).
third anniversary of grant.
to acquire 180,000 shares of common stock all of which vest upon the earlier of a change of control and the third anniversary of grant.
F-34
Executive Vice President, Business Development and General Counsel - In May 2006, we entered intoto acquire 140,000 shares of common stock all of which vest upon the earlier of a two-year employment agreement with David W. Robinson, which was subsequently been amended several times with a current expiration date January 31, 2011. Under the agreement, Mr. Robinson is entitled to an annual base salary and, subject to the sole discretionchange of our Compensation Committee, annual incentive bonus in an amount equivalent to forty percent (40%) of his then-annual base salary, taking into consideration the achievement of goals and metrics established by the President and CEO, which goals and metrics shall be updated on an annual basis. Compensation expense of $262,000 and $312,000, comprised of base salarycontrol and the incentive bonus, was recorded during the years ended December 31, 2008 and 2007. The agreement also provided for a grantthird anniversary of 200,000 shares of restricted common stock, wit h 60,000 shares vesting upon commencement of employment and one-third of the remaining restricted shares (or 46,666 shares) vesting annually thereafter. Either we or Mr. Robinson may terminate his employment at any time, for any reason or no reason at all; however, if Mr. Robinson is terminated without cause or resigns for good reason (as defined) or if he dies, he is entitled to twelve months of his then-annual base salary, as well as the pro-rated amount of incentive compensation due as of the effective date of termination and one year of accelerated vesting of the restricted stock under the employment agreement. If Mr. Robinson’s employment is terminated with cause or if he voluntarily resigns, he is entitled to his base salary and other benefits through the last day actually worked. In March 2009, Mr. Robinson was appointed Co-Chief Executive Officer and a member of the Board and granted additional restricted stock and options (see Note 19 Subsequent Events).
Operating Leases
We lease several facilities under operating leases expiring through 2012. Certain leases require us to pay increases in real estate taxes, operating costs and repairs over certain base year amounts. Lease payments for the years ended December 31, 2008, and 2007 were $312,000, and $292,000, respectively.
Future minimum rental commitments under all non-cancelable operating leases are as follows (in thousands):
Year Ending December 31 |
|
|
| |
2009 |
| $ | 278 |
|
2010 |
|
| 147 |
|
2011 |
|
| 96 |
|
2012 |
|
| 19 |
|
|
| $ | 540 |
|
|
|
|
|
|
Capital Lease Obligation
We lease certain equipment under a non-cancelable lease agreement, which expires in 2009, at a fixed interest rate of 25%. The lease is accounted for as capital lease. The equipment under the capital lease as of December 31, 2008 had a cost of $383,000. Depreciation expense on the equipment under capital lease was for the year ending December 31, 2008 and 2007 was $77,000 and $0, respectively. Future minimum commitments under this capital lease is as follows (in thousands):
Total minimum lease obligation for year ending December 31, 2009 |
| $ | 274 |
|
Less interest at 26% |
|
| (41 | ) |
Present value of total minimum lease obligation |
| $ | 233 |
|
|
|
|
|
|
Commercial Commitments
We have entered into a number of agreements with telecommunications companies to purchase communications services. Some of the agreements require a minimum amount of services purchased over the life of the agreement, or during a specified period of time.
F-35
Glowpoint believes that it will meet its commercial commitments. In certain instances where Glowpoint did not meet the minimum commitments, no such 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 agreement are similar to those offered by other carriers.
Glowpoint does not believe that any loss contingency related to a potential shortfall should be recorded in the financial statements because it is not probable, from the information available and from prior experience, that Glowpoint has incurred a liability.
There are $1,242,000 of future minimum commercial commitments under carrier agreements which expire in the year ended December 31, 2009.
Note 18 – Adjustments Related to Prior Fiscal Periods
During the quarter ended December 31, 2007, the Company identified and recorded certain adjustments related to the year ended December 31, 2006 and to the period ended September 30, 2007. The adjustments are related to recognizing a derivative liability related to the placement agent and financial advisory warrants issued in connection with the March and April 2006 and September 2007 private placements of the Senior Secured Notes. Had these adjustments been reflected in the year ended December 31, 2006, the derivative liability in the balance sheet would have been increased by $147,000, Paid in Capital would have been reduced by $296,000 and other income from the decrease in the fair value of derivative financial instruments would have been $149,000 greater. There was no impact on the loss from operations. The effect of these adjustments, was to increase the net loss and net loss attributable to common stockholders fo r the year ended December 31, 2007 by $149,000. The effect on the Company’s consolidated balance sheet and consolidated statements of operations as of September 30, 2007, June 30, 2007 and March 31, 2007 were not considered to be material. The effect of recording the adjustment in the fourth quarter of 2007 was to reduce the Company’s net income by $32,000. The Company’s consolidated financial statements for prior periods have not been restated since the amounts of the adjustments are not material either quantitatively or qualitatively to the consolidated balance sheet, consolidated statement of operations or consolidated statement of cash flows or the consolidated financial statements taken as a whole.
Note 19 – Subsequent Events
March 2009 Private Placements
grant.
Pursuant to that certain Series A-1 Convertible Preferred Stock Purchase Agreement, dated March 16, 2009 (the “2009 Purchase Agreement”), the Company received $1,800,000 of gross proceeds on March 18, 2009 in an initial closing (the “Initial 2009 Closing”) of a private placement of 450 shares of its newly-created Series A-1 Convertible Preferred Stock (the “Series A-1 Preferred Stock”) and amended Series A-3 warrants to acquire 2,250,000 shares of common stock. Pursuant to the 2009 Purchase Agreement, the Company may sell additional shares of Series A-1 Preferred Stock and Series A-3 warrants in one or more subsequent closings that may occur during the 90-day period following the Initial 2009 Closing, up to a maximum offering amount of $4,000,000. There can be no assurance, however, that the Company will raise any additional funds following the Initial Closing.
The Series A-3 warrants have an exercise price of $0.40 per share, contain provisions providing weighted average anti-dilution protection and are exercisable for a period of five years. In accordance with the terms of that certain Registration Rights Agreement dated November 25, 2008 and amended on February 19, 2009, we are obligated to file a registration statement within 90 days after written request by at least two-thirds of the shares underlying the Series A-3 warrants, registering for resale the shares of common stock issuable upon exercise of the Series A-3 warrants. As of the date of this filing we have not received any such request for registration.
F-36
Each share of Series A-1 Preferred Stock has a stated value of $7,500 per share (the “Stated Value”), a liquidation preference equal to the Stated Value, and is convertible at the holder’s election into common stock at a conversion price per share of $0.75. Therefore, each share of Series A-1 Preferred Stock is convertible into 10,000 shares of common stock. The Series A-1 Preferred Stock is senior to all other classes of equity, has weighted average anti-dilution protection and, after the first anniversary of the Issuance Date (the “Dividend Grace Period”), is entitled to dividends at a rate of 5% per annum, payable quarterly, based on the Stated Value. After the Dividend Grace Period, all dividends shall be payable (i) if on or before September 30, 2010, at the Company’s option in cash or through the issuance of a number of additional shares of Series A-1 Preferr ed Stock with an aggregate liquidation preference equal to the dividend amount payable on the applicable dividend payment date and (ii) if after September 30, 2010, at the option of the holder in cash or through the issuance of a number of additional shares of Series A-1 Preferred Stock with an aggregate liquidation preference equal to the dividend amount payable on the applicable dividend payment date. The “Issuance Date” is defined as the original issuance date of the Series A-1 Preferred Stock, except for shares of Series A-1 Preferred Stock issued upon the exchange of Series A Preferred Stock pursuant to the Series A Preferred Consent and Exchange Agreement (see below), in which case the “Issuance Date” is the date of issuance of the Series A Convertible Preferred Stock (i.e., either November 25, 2008 or December 31, 2008). Except for when dividends are payable, the Series A-1 Preferred Stock is the same as the Series A Preferred Stock created in November 2008.
Pursuant to that certain Note Exchange Agreement, dated March 16, 2009, the Company issued 269 shares on March 18, 2009 of its Series A-1 Preferred Stock and Series A-3 warrants to acquire 595,000 shares of common stock in exchange for $1,076,000 of the Company’s Senior Secured Notes, which represented all but $713,000 of the Company’s then outstanding Senior Secured Notes (the “Remaining Notes”) ($594,000 net of discount as of December 31, 2008). The Remaining Notes were purchased on March 18, 2009 for $750,000 and retired by the Company pursuant to that certain Securities Purchase Agreement, dated March 16, 2009, which prepayment was funded from the sale of securities in the Initial 2009 Closing. As a result, there are no Senior Secured Notes outstanding.
Pursuant to that certain Series A Preferred Consent and Exchange Agreement, dated March 16, 2009, the holders of the Company’s Series A Preferred Stock (i) consented to the creation of the Series A-1 Preferred Stock and (ii) were issued an aggregate of 3,790 shares of Series A-1 Preferred Stock in exchange for an aggregate of 3,790 shares of the Company’s Series A Preferred Stock on March 18, 2009.
BHP, acted as placement agent for the 2009 Private Placement and acted as financial advisor for the other transactions disclosed herein and received a fee of $126,000, which equaled seven (7%) percent of the gross proceeds received by the Company in the Initial 2009 Closing. Glowpoint also issued advisory warrants to BHP and/or its designees and assignees to purchase 500,000 shares of common stock at an exercise price of $0.40 per share. The advisory warrants are substantially similar to the amended Series A-3 Warrants. The Company also paid BHP an additional $75,000 which was payable in connection with fees earned in an earlier transaction that were deferred until the 2009 Private Placement.
F-37
The following summary of selected unaudited consolidated financial information (the “Unaudited Proforma Information”), with respect to the year ended December 31, 2008 should be read in conjunction with the audited consolidated financial statements and footnotes included elsewhere in this document. The Unaudited Proforma Information reflects the estimated impact that the 2009 Private Placement would have had on the Company’s financial statements had the 2009 Private Placement occurred on December 31, 2008 (000’s omitted).
|
| As Reported |
|
| Investment |
|
| Preferred Stock Exchange |
|
| Note Purchase |
|
| Note Exchange |
|
| Proforma 12/31/08 |
| ||||||
|
| 12/31/08 |
|
| (Unaudited) |
|
| (Unaudited) |
|
| (Unaudited) |
|
| (Unaudited) |
|
| (Unaudited) |
| ||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Cash and cash equivalents |
| $ | 1,227 |
|
| $ | 1,523 |
|
| $ | — |
|
| $ | (750 | ) |
| $ | — |
|
| $ | 2,000 |
|
Total current assets |
|
| 4,611 |
|
|
| 1,523 |
|
|
| — |
|
|
| (750 | ) |
|
| — |
|
|
| 5,384 |
|
Total assets |
|
| 7,177 |
|
|
| 1,523 |
|
|
| — |
|
|
| (750 | ) |
|
| — |
|
|
| 7,950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
| |||||||||||||||||||||||
Senior Secured Notes |
|
| 1,482 |
|
|
| — |
|
|
| — |
|
|
| (585 | ) |
|
| (897 | ) |
|
| — |
|
Total liabilities |
|
| 10,390 |
|
|
| — |
|
|
| — |
|
|
| (594 | ) |
|
| (897 | ) |
|
| 8,899 |
|
Total stockholders’ deficit |
|
| (3,213 | ) |
|
| 1,523 |
|
|
| — |
|
|
| (156 | ) |
|
| 897 |
|
|
| (949 | ) |
Total liabilities and stockholders’ deficit |
|
| 7,177 |
|
|
| 1,523 |
|
|
| — |
|
|
| (750 | ) |
|
| — |
|
|
| 7,950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENT OF OPERATION |
| |||||||||||||||||||||||
Loss on extinguishment of debt, including $99 for Insider Purchasers |
|
| 1,816 |
|
|
| — |
|
|
| — |
|
|
| 156 |
|
|
| 144 |
|
|
| 2,116 |
|
Net loss attributable to common stockholders |
|
| (4,896 | ) |
|
| — |
|
|
| 1,457 |
|
|
| (156 | ) |
|
| (144 | ) |
|
| (3,739 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
Employment Agreements
On March 19, 2009, the Company announced the voluntarilyvoluntary resignation of Michael Brandofino as Glowpoint’s Chief Executive Officer and a member of the Board of Directors. Joseph Laezza and David W. Robinson were appointed Co-Chief Executive Officers. The Company amended the employment agreements of Messrs. Brandofino, Laezza, and Robinson. Mr. Brandofino’s employment agreement was amended to revise the covenant not to compete during the year following his resignation so as to prohibit working with or consulting for certain named entities, but otherwise lessening the non-compete previously provided. The employment agreement of Mr. Robinson was amended to extend its term until January 31, 2011, so as to be co-terminus with the employment agreement of Messrs. Laezza and Heinen. The employment agreements of Messrs. Brandofino, Laezza, Heinen and Robinson were also amended as of January 1, 2009 to make changes in connection with revisions to Internal Revenue Code Section 409A. The Company also entered into a Separation Agreement with Mr. Brandofino that provided, among other things, salary continuation for a stated period and a grant of 400,000 shares of restricted stock (replacing the May 2007 grant of restricted stock) that vest upon the earlier of a change of control and the second anniversary of grant. In connection with his voluntary resignation, Mr. Brandofino will bewas paid severance of between approximately $225,000 and $300,000 over the following nine months to one year and other benefits (e.g., grants of new restricted stock, extension of period to exercise vested options, etc.) valued at approximately $70,000. On
Severance pay plus payroll taxes | $ | 300 | ||
Restricted stock award and extension of exercise period for vested options | 57 | |||
Other benefits and costs | 36 | |||
393 | ||||
Less: | ||||
Amounts paid or vested | (318 | ) | ||
Reduction in severance amounts | (75 | ) | ||
Accrual as of December 31, 2009 | $ | - | ||
Year Ending December 31 | ||||
2010 | $ | 260 | ||
2011 | 96 | |||
2012 | 19 | |||
$ | 375 | |||
F-38
Board Changes and Matters
Also on March 19, 2009, Richard Reiss, a director of Glowpoint since inception, and Aziz Ahmad, a director of Glowpoint since 2006, resigned from Glowpoint’s board of directors (the “Board”Closing, which equaled seven (7%) and all committees. Messrs. Laezza and Robinson were elected to fill the vacancies on the Board created by such resignations. Mr. Reiss served on no Board committees. Mr. Ahmad was an alternate memberpercent of the audit, compensation and nominating committees. There was no disagreement betweengross proceeds received by the Company in the Closing. Glowpoint also issued advisory warrants to Burnham Hill Partners LLC and/or its designees and the resigning directors. In connection with their resignations, the Company amended the option agreementsassignees to purchase shares of common stock equal to one and two-tenths (1.2%) percent of the resigning Board members to extenddiluted common shares outstanding immediately following the exercisabilityclosing of their options to 180the above-described transactions, at an exercise price of $0.632 per share, which equals 110% of the volume weighted average trading price for the ten days following their resignation (from 90 days) and amended their restricted stock award agreements, if any, to accelerate the vesting of restricted stock awards by one year.
Pursuantprior to the Purchase Agreement, the Company also agreed to take all steps necessary or advisable to eliminate the classificationClosing, and are exercisable for a period of its Board of Directors at the Company’s next annual meeting of shareholdersfive years (the “Annual Meeting”“Financial Advisory Warrants”). In order to comply with this provision, it is expected that all directors will submit their resignations and some of them may not stand for re-election. For those that do not stand for re-election, they will receive substantially the same option agreement amendment and restricted stock award amendment as described herein. The Board of Directors also agreed in the Purchase Agreement to amend and restate its director compensation policy, at the Annual Meeting, to provide, “Directors who are not our executive officers or employees receive an annual cash fee of $20,000, payable in equal quarterly installments on the first business day following the end of the calendar quarter, and an annual grant of 25,000 res tricted shares of our common stock, which shall be made at the annual meeting of our stockholders and shall vest at the next annual meeting of our stockholders. The chairperson of our board of directors, if any, and the chairperson of our audit committee will each receive an additional cash payment of $5,000 per year, payable in equal quarterly installments.”
F-39