SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549


FORM
      10-Q




x
            Quarterly
                report under Section 13 or 15(d) of the Securities Exchange Act of
                1934
                for the quarterly period ended September 30,
                2005.




or




o
            Transition
                report under Section 13 or 15(d) of the Securities Exchange Act of
                1934




**Commission
      file number: 0-25940**




**GLOWPOINT,
      INC.**


(Exact
      Name of registrant as Specified in its Charter)




**Delaware**
              (State
                or other Jurisdiction of
              Incorporation
                or Organization)
            **77-0312442**
              (I.R.S.
                Employer Number)





**225
      Long Avenue, Hillside, New Jersey 07205**


(Address
      of Principal Executive Offices)




**973-282-2000**


(Issuer’s
      Telephone Number, Including Area Code)




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




Yes
o No
x




Check
      whether the registrant is an accelerated filer as defined in Rule 12b-2 of
      the
      Exchange Act of 1934.




Yes
o No
x




The
      number of shares outstanding of the registrant’s Common Stock as of November 14,
      2005 was 46,046,340.







**GLOWPOINT,
      INC**




**Index**




PART
      I -
      FINANCIAL INFORMATION


Item 1.
              Condensed
                  Consolidated Financial Statements*Condensed
                  Consolidated Balance Sheet at September 30, 2005 (unaudited) and
                  Restated
                  Condensed Consolidated Balance Sheet at December 31,
                  2004*
              1Unaudited
                  Condensed Consolidated Statements of Operations For the Nine Months
                  and
                  Three Months ended September 30, 2005 and 2004 (Restated)
              2Unaudited
                  Condensed Consolidated Statements of Cash Flows for the Nine Months
                  Ended
                  September 30, 2005 and 2004 (Restated)
              3Notes
                  to Condensed Consolidated Financial Statements
              4Item 2.
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              11Item 3.
              Quantitative
                  and Qualitative Disclosures about Market Risk
              20Item 4.
              Controls
                  and Procedures
              20PART II -OTHER
                INFORMATIONItem 1.
              Legal
                  Proceedings
              21Item 2.
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              21Item 3.
              Defaults
                  Upon Senior Securities
              21Item 4.
              Submission
                  of Matters to a Vote of Security Holders
              21Item 5.
              Other
                  Information
              21Item 6.
              Exhibits
              21Signatures
              22






*
            The
                Restated Condensed Consolidated Balance Sheet at December 31, 2004
                has
                been derived from the audited restated consolidated financial statements
                filed as an exhibit to our Report on Form 8-K on March 17,
                2006.




i


**Glowpoint,
      Inc.**


**Condensed
      Consolidated Balance Sheets**




**(
      IN THOUSANDS, EXCEPT PAR VALUE)**




**September
                30,**
              **2005**
            
            **December
                31,**
              **2004*****(Unaudited)****ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            6,221
            
            $
            4,497Escrowed
                cash
            
            
            —
            
            
            337Accounts
                receivable, net of allowance for doubtful accounts of $152 and $305;
                respectively
            
            
            2,329
            
            
            1,872Receivable
                from Gores Technology Group
            
            
            —
            
            
            2,371Prepaid
                expenses and other current assets
            
            
            923
            
            
            554Total
                current assets
            
            
            9,473
            
            
            9,631Property
                and equipment , net
            
            
            4,588
            
            
            5,103Other
                assets
            
            
            217
            
            
            258Total
                assets
            
            $
            14,278
            
            $
            14,992**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Current
                liabilities:Accounts
                payable
            
            $
            3,732
            
            $
            2,984Accrued
                expenses
            
            
            2,353
            
            
            2,421Current
                portion of derivative financial instrument
            
            
            1,026
            
            
            367Deferred
                revenue
            
            
            449
            
            
            265Capital
                lease obligations
            
            
            —
            
            
            35Total
                current liabilities
            
            
            7,560
            
            
            6,072Derivative
                financial instrument, less current portion
            
            
            387
            
            
            932Total
                liabilities
            
            
            7,947
            
            
            7,004Preferred
                stock, $.0001 par value; 5,000 shares authorized; 0.120 and 0.204
                Series B
                shares issued and outstanding, (stated value of $2,888 and $4,888;
                liquidation value of $3,279 and $5,257), respectively
            
            
            2,888
            
            
            4,888Stockholders’
                Equity:Common
                stock, $.0001 par value; 100,000 shares authorized; 46,006 and 37,855
                shares issued; 45,966 and 37,815 shares outstanding,
                respectively
            
            
            5
            
            
            4Deferred
                compensation
            
            
            (711
            )
            
            (1,176
            )Additional
                paid-in capital
            
            
            160,133
            
            
            148,510Accumulated
                deficit
            
            
            (155,744
            )
            
            (143,998
            )3,683
            
            
            3,340Less:
                Treasury stock, 40 shares at cost
            
            
            (240
            )
            
            (240
            )Total
                stockholders’ equity
            
            
            3,443
            
            
            3,100Total
                liabilities and stockholders’ equity
            
            $
            14,278
            
            $
            14,992





*  Derived
      from the audited restated consolidated financial statements filed as an exhibit
      to our Report on Form 8-K on March 17, 2006.





See
      accompanying notes to condensed consolidated financial statements.




1


**Glowpoint,
      Inc.**


**Condensed
      Consolidated Statements of Operations**


**(In
      Thousands, Except Per Share Data)**




**(Unaudited)**




**Nine
                Months Ended September 30,**
            
            **Three
                Months Ended September 30,****2005**
            
            **2004**
            
            **2005**
            
            **2004****(Restated)**
            
            
            
            **(Restated)**Revenues
            
            $
            13,157
            
            $
            11,748
            
            $
            4,558
            
            $
            4,383Cost
                of revenues
            
            
            11,367
            
            
            11,851
            
            
            3,675
            
            
            4,240Gross
                margin (loss)
            
            
            1,790
            
            
            (103
            )
            
            883
            
            
            143Operating
                expenses:Research
                and development
            
            
            896
            
            
            794
            
            
            320
            
            
            313Sales
                and marketing
            
            
            3,159
            
            
            2,190
            
            
            1,011
            
            
            931General
                and administrative
            
            
            9,822
            
            
            8,112
            
            
            3,721
            
            
            2,870Total
                operating expenses
            
            
            13,877
            
            
            11,096
            
            
            5,052
            
            
            4,114Loss
                from operations
            
            
            (12,087
            )
            
            (11,199
            )
            
            (4,169
            )
            
            (3,971
            )Other
                (income) expenses:Amortization
                of deferred financing costs
            
            
            —
            
            
            448
            
            
            —
            
            
            —Interest
                (income) expense, net
            
            
            (76
            )
            
            (5
            )
            
            (43
            )
            
            (26
            )Increase
                in fair value of derivative financial instrument
            
            
            114
            
            
            88
            
            
            33
            
            
            45Amortization
                of discount on subordinated debentures
            
            
            —
            
            
            2,650
            
            
            —
            
            
            —Other
                non- operating business
            
            
            —
            
            
            (132
            )
            
            —
            
            
            (132
            )Loss
                on exchange of debt
            
            
            —
            
            
            743
            
            
            —
            
            
            —Gain
                on settlement with Gores
            
            
            (379
            )
            
            —
            
            
            —
            
            
            —Total
                other (income) expense, net
            
            
            (341
            )
            
            3,792
            
            
            (10
            )
            
            (113
            )Net
                loss
            
            
            (11,746
            )
            
            (14,991
            )
            
            (4,159
            )
            
            (3,858
            )Preferred
                stock dividends
            
            
            (205
            )
            
            (
                270
            )
            
            (58
            )
            
            (99
            )Preferred
                stock deemed dividends
            
            
            (1,282
            )
            
            —
            
            
            —
            
            
            —Net
                loss attributable to common stockholders
            
            $
            (13,233
            )
            $
            (15,261
            )
            $
            (4,217
            )
            $
            (3,957
            )Net
                loss attributable to common stockholders per share:Basic
                and diluted
            
            $
            (0.30
            )
            $
            (0.43
            )
            $
            (0.09
            )
            $
            (0.10
            )Weighted
                average number of common shares:Basic
                and diluted
            
            
            43,693
            
            
            35,865
            
            
            45,966
            
            
            37,841





See
      accompanying notes to condensed consolidated financial statements.




2




**Glowpoint,
      Inc.**


**Condensed
      Consolidated Statements of Cash Flows**


**(In
      Thousands)**


**(Unaudited)**


**Nine
                Months Ended September 30,****2005**
            
            **2004****(Restated)**Cash
                flows from Operating Activities:Net
                loss
            
            $
            (11,746
            )
            $
            (14,991
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Depreciation
                and amortization
            
            
            1,727
            
            
            1,669Amortization
                of deferred financing costs
            
            
            —
            
            
            448Amortization
                of discount on subordinated debentures
            
            
            —
            
            
            2,650Loss
                on exchange of debt
            
            
            —
            
            
            743Other
                expense recognized for the increase in the estimated fair value of
                the
                debenture liability
            
            
            114
            
            
            88Common
                stock issued for interest on convertible debentures
            
            
            —
            
            
            45Gain
                on settlement with Gores
            
            
            (379
            )
            
            —Equity-based
                compensation
            
            
            580
            
            
            586Other
            
            
            —
            
            
            (78
            )Increase
                (decrease) in cash attributable to changes in assets and liabilities,
                net
                of effects of acquisitions:Escrowed
                cash
            
            
            337
            
            
            (2
            )Accounts
                receivable
            
            
            (457
            )
            
            188Receivable
                from Gores Technology Group
            
            
            —
            
            
            (400
            )Prepaid
                expenses and other current assets
            
            
            (369
            )
            
            350Other
                assets
            
            
            41
            
            
            (220
            )Accounts
                payable
            
            
            748
            
            
            (449
            )Accrued
                expenses
            
            
            (22
            )
            
            323Deferred
                revenue
            
            
            184
            
            
            17Net
                cash used in operating activities
            
            
            (9,242
            )
            
            (9,033
            )Cash
                flows from Investing Activities:Proceeds
                from discontinued operations (Note 6)
            
            
            2,750
            
            
            —Purchases
                of property, equipment and leasehold improvements
            
            
            (1,212
            )
            
            (852
            )Net
                cash provided by (used in) investing activities
            
            
            1,538
            
            
            (852
            )Cash
                flows from Financing Activities:Proceeds
                from issuance of common stock and warrants
            
            
            9,389
            
            
            11,399Offering
                costs
            
            
            —
            
            
            (34
            )Proceeds
                attributed to derivative financial instrument
            
            
            —
            
            
            1,164Exercise
                of warrants and options, net
            
            
            74
            
            
            562Payments
                on capital lease obligations
            
            
            (35
            )
            
            (97
            )Net
                cash provided by financing activities
            
            
            9,428
            
            
            12,994Increase
                in cash and cash equivalents
            
            
            1,724
            
            
            3,109Cash
                and cash equivalents at beginning of period
            
            
            4,497
            
            
            4,105Cash
                and cash equivalents at end of period
            
            $
            6,221
            
            $
            7,214Supplement
                disclosures of cash flow information:Cash
                paid during the period for:Interest
            
            $
            2
            
            $
            62







See
      accompanying notes to condensed consolidated financial statements.




3





**Nine
                Months Ended**
              **September
                30,****2005**
            
            **2004****(Restated)**Non-cash
                investing and financing activities:Deferred
                compensation and additional paid-in capital recorded for the issuance
                of
                restricted common stock
            
            $
            —
            
            $
            511Issuance
                of Series B convertible preferred stock in exchange for convertible
                debentures
            
            
            —
            
            
            4,888Conversion
                of Series B convertible preferred stock to common stock
            
            
            2,000
            
            
            —Preferred
                stock deemed dividends
            
            
            1,282
            
            
            —Preferred
                stock dividends
            
            
            205
            
            
            270Equity
                issued as consideration for accrued preferred stock
                dividends
            
            
            183
            
            
            —







See
      accompanying notes to condensed consolidated financial statements.






**GLOWPOINT,
      INC.**


**NOTES
      TO** **CONDENSED
      CONSOLIDATED FINANCIAL STATEMENTS**


**September
      30, 2005**




**Note
      1 — The Business**




Glowpoint,
      Inc. (“Glowpoint” or “we” or “us”), a Delaware corporation, provides
      comprehensive video communications services. Prior to 2004, Glowpoint, then
      known as Wire One Technologies, Inc., sold substantially all of the assets
      of
      its video solutions (VS) business to an affiliate of Gores Technology Group
      (Gores) and accordingly, the accompanying condensed consolidated financial
      statements do not include such operations (See Note 6). Our services include
      IP-based and ISDN-based videoconferencing services, which are provided
      principally on a subscription basis, and managed bridging conferencing services
      for multi-point video and audio communications among three or more participants.
      We also provide hosting, IP-based broadcasting and event services.




On
      April
      20, 2004, we entered into an agreement with Tandberg, Inc., a wholly owned
      subsidiary of Tandberg ASA (OSLO: TAA.OL), a global provider of visual
      communications solutions. As part of the agreement, we acquired for $1.00
      certain assets and the customer base of Tandberg owned Network Systems LLC.
      Network Systems customers, primarily ISDN-based video users, obtained immediate
      access to our video bridging and webcasting services. As part of the agreement,
      Tandberg’s corporate use of IP video communications and other telecommunications
      services, formerly purchased through Network Systems, is being provided
      exclusively by us under a multi-year agreement. In addition, we assumed current
      contractual commitments with AT&T, MCI and Sprint from Network Systems,
      which were subsequently consolidated into new agreements with these carriers.
      For accounting purposes, such commitments did not result in any additional
      asset
      or liability recognition. Tandberg named the GlowPoint Certified Program as
      a
      recognized external testing partner for its hardware and software products.
      The
      transaction was accounted for following purchase accounting under Statement
      of
      Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations”. The
      fair value of tangible assets acquired and liabilities assumed were nominal.
      Accordingly, we did not record any value of intangible assets acquired. Results
      of operations of the acquired business are included in the accompanying
      financial statements from April 20, 2004, the date of acquisition. The following
      pro forma information for the nine months ended September 30, 2004 gives effect
      to the acquisition as if it had occurred on January 1, 2004:




4




(In
                thousands, except
              per
                share amounts)Nine
                Months Ended September 30, 2004Revenues
            
            $
            12,738Gross
                margin
            
            
            410Net
                loss
            
            
            (14,686
            )Net
                loss attributable to common stockholders
            
            
            (14,956
            )Net
                loss attributable to common stockholders per share
            
            $
            (0.42
            )





**Note
      2 — Basis of Presentation**




Our
      accompanying unaudited financial statements have been prepared in accordance
      with accounting principles generally accepted in the United States of America
      for interim financial information and pursuant to the rules and regulations
      of
      the Securities and Exchange Commission. Accordingly, they do not include all
      of
      the information and footnotes required by accounting principles generally
      accepted in the United States of America for complete financial statements.
      In
      the opinion of management, all adjustments (consisting of normal recurring
      accruals and the restatement adjustments-see Note 3) considered necessary for
      a
      fair presentation have been included. Operating results for the nine months
      and
      three months ended September 30, 2005 and 2004 are not necessarily indicative
      of
      the results that may be expected for the year ending December 31, 2005. For
      further information, refer to the restated consolidated financial statements
      and
      footnotes thereto for the fiscal year ended December 31, 2004 as filed with
      the
      Securities and Exchange Commission as an exhibit to Form 8-K on March 17, 2006.




The
      condensed consolidated financial statements include the accounts of Glowpoint
      and our wholly owned subsidiaries, AllComm Products Corporation (“APC”) and VTC
      Resources, Inc. (“VTC”). All material inter-company balances and transactions
      have been eliminated in consolidation.




Our
      condensed consolidated financial statements have been prepared assuming we
      will
      continue as a going concern. We incurred a loss from operations of $12.1 million
      and $4.2 million for the nine months and three months ended September 30, 2005,
      respectively and of $11.2 million and $4.0 million for the nine months and
      three
      months ended September 30, 2004, respectively. We had net cash used in
      operations of $9.2 million and $9.0 million for the nine months ended September
      30, 2005 and 2004, respectively. At September 30, 2005, we had cash and cash
      equivalents of $6.2 million, working capital of $1.9 million and an accumulated
      deficit of $155.7 million. We continue to sustain losses and negative cash
      flows
      from operations. In March 2006, we commenced a restructuring of our business
      (see Note 10). In April 2006, we issued senior secured convertible notes and
      warrants and raised net proceeds of $5.6 million. We believe that our available
      working capital at September 30, 2005, together with our operating activities
      and the April 2006 financing will enable us to continue as a going concern
      through September 30, 2006.




**Note
      3— Restatement**




We
      have
      identified errors in previously reported consolidated financial statements
      and
      have restated our condensed consolidated balance sheet as of December 31, 2004
      and the condensed consolidated statements of operations for the nine months
      and
      three months ended September 30, 2004 and cash flows for the nine months ended
      September 30, 2004. The condensed consolidated balance sheet as of December
      31,
      2004 has been derived from the audited restated financial statements filed
      as an
      exhibit to our Report on Form 8-K on March 17, 2006. The restatements in the
      statement of operations for the nine months ended September 30, 2004 (the “2004
      period”) and for the three months ended September 30, 2004 (the “2004 quarter”)
      relate to the following matters (the items described below will not aggregate
      the total amount of the restatement):





Revenues -
      Revenues were increased $12,000 for the 2004 period and reduced by $2,000 for
      the 2004 quarter. We have deferred the recognition of revenue associated with
      installation services from 2002 and 2003 and amortized it over a 24 month period
      (the estimated average life of a subscription based customer). Previously,
      we
      recognized such installation revenue at the time such services were completed.
      This change had the impact of increasing revenues by $126,000 for the 2004
      period and $56,000 for the 2004 quarter. The increases were offset by a
      reduction related to sales taxes of $55,000 for the 2004 period and $34,000
      for
      the 2004 quarter and a reclassification of $45,000 to other income for the
      2004
      period and for the 2004 quarter.





5


Cost
      of revenues - Cost
      of revenues was increased by $2,381,000 for the 2004 period and $805,000 for
      the
      2004 quarter. For the 2004 period, $1,619,000, and for the 2004 quarter,
      $505,000 was erroneously capitalized as property and equipment rather than
      being
      charged to cost of revenues in the period. We recomputed the amount of our
      network costs allocated to cost of revenues, research and development, sales
      and
      marketing and general and administrative expenses to properly reflect costs
      associated with the various departments that used the internal network. This
      resulted in increases to cost of revenues of $260,000 for the 2004 period and
      $72,000 for the 2004 quarter. Depreciation expense of $223,000 for the 2004
      period and $65,000 for the 2004 quarter previously allocated to sales and
      marketing and general and administrative expenses has been reclassified to
      cost
      of revenues. Additionally, we recomputed the amount of certain circuit costs
      that were allocated to Gores and previously charged to the sale of the VS
      business and have decreased the amount allocated by $344,000 for the 2004 period
      and $89,000 for the 2004 quarter. Cost of revenues was increased by $166,000
      for
      the 2004 period and $95,000 for the 2004 quarter to properly reflect
      installation costs. Cost of revenues was decreased by $118,000 for the 2004
      period and $56,000 for the 2004 quarter to apply credits from telecommunications
      carriers to the appropriate periods. Cost of revenues was reduced $113,000
      in
      the 2004 period for costs incurred in 2003 that were previously recognized
      in
      the 2004 period.




Research
      and development -
      Research and development expenses were decreased by $234,000 for the 2004 period
      and by $51,000 for the 2004 quarter. The decreases reflect the reclassification
      of $331,000 for the 2004 period and of $85,000 for the 2004 quarter of costs
      to
      general and administrative expenses. This reclassification was partially offset
      by the proper allocation of depreciation expense and allocated network services
      which increased expenses by $97,000 for the 2004 period and $33,000 for the
      2004
      quarter.





Sales
      and marketing - Sales
      and marketing expenses, previously referred to as selling, were decreased by
      $3,673,000 for the 2004 period and $1,187,000 for the 2004 quarter. The
      decreases reflect the reclassification of $2,615,000 for the 2004 period and
      $888,000 for the 2004 quarter of costs to general and administrative expenses.
      Sales commissions and bonuses were reduced by $66,000 for the 2004 period for
      costs that should have been expensed prior to the 2004 period. To reflect a
      proper allocation of network costs to sales and marketing expense we have
      recorded a reduction of $648,000 for the 2004 period and $201,000 for the 2004
      quarter. Sales and marketing costs have been reduced by $377,000 for the 2004
      period and $114,000 for the 2004 quarter relating to improper commission
      accruals.





General
      and administrative -
      General and administrative expenses were increased by $2,441,000 for the 2004
      period and $912,000 for the 2004 quarter. We have reclassified to general and
      administrative expenses $2,946,000 for the 2004 period and $973,000 for the
      2004
      quarter of costs that were previously classified as selling and research and
      development, which relate principally to customer service, engineering and
      other
      operating expenses. Depreciation expense was reduced by $1,433,000 for the
      2004
      period and $491,000 for the 2004 quarter reflecting the reduction of fixed
      assets and a reclassification of depreciation expense. The re-allocation of
      network costs between cost of revenues, research and development, sales and
      marketing and general and administrative expenses resulted in an increase of
      $354,000 for the 2004 period and $118,000 for the 2004 quarter in general and
      administrative expenses. Expenses were also increased for professional fees
      of
      $228,000 for the 2004 period and $120,000 for the 2004 quarter incurred in
      connection with the Gores arbitration, which had previously been charged to
      the
      loss on the sale of the VS business to Gores. We recognized additional expense
      of $196,000 for the 2004 period and $69,000 for the 2004 quarter relating to
      sales taxes. Bad debt expense was increased by $64,000 for the 2004
      quarter.





Other
      (income) expense - Other
      expense for the 2004 period of $4,503,000 was reduced by $711,000, which
      resulted in other expense of $3,792,000. Other expense as previously reported
      of
      $23,000 for the 2004 quarter was adjusted by $136,000, which resulted in other
      income of $113,000. A gain of $53,000 previously recognized in the 2004 period
      and a loss of $116,000 in the 2004 quarter have been reversed to properly
      account for marketable securities which were received in 2003 and sold in
      September 2004. As a result of correcting the accounting for the issuance of
      the
      subordinated convertible debentures, we reduced the amortization of the related
      discount by $515,000 and recognized additional amortization of deferred
      financing costs of $363,000 for the 2004 period. We had previously overstated
      the discount by $1,489,000, which was partially offset by overstating
      amortization by $989,000 as of January 1, 2004, due to the overstatement of
      the
      discount and by following the straight line method of amortizing the discount
      rather than the effective yield method. As a result of correcting the accounting
      for the exchange of the subordinated convertible debentures for Series B
      convertible preferred stock, warrants and a modification to warrants, we reduced
      the loss on the exchange of debt by $611,000 for the 2004 period. We had
      previously recognized a loss on the exchange of $1,354,000, which included
      the
      excess of the fair value of the common stock underlying the Series B convertible
      preferred stock of $5,499,000 over the face amount of the subordinated
      convertible debentures of $4,888,000 in the loss on exchange. However, the
      subordinated convertible debentures were convertible into the same number of
      shares of common stock as the Series B convertible preferred stock and,
      accordingly, had the same fair value. The loss on the exchange has been reduced
      to $743,000, representing the fair value of the shares of common stock and
      the
      incremental fair value from the warrant modification, which were included in
      the
      exchange.





6


The
      following table summarizes the account balances that have been restated (dollars
      in thousands):





Previously
              Reported
            
            As
              Restated
            
            Previously
              Reported
            
            As
              RestatedStatements
                of Operations:
            
            Nine
                months ended
            
            Three
                months endedSeptember
                30, 2004
            
            September
                30, 2004(unaudited)
            
            (unaudited)Revenues
            
            $
            11,736
            
            $
            11,748
            
            $
            4,385
            
            $
            4,383Cost
                of revenues
            
            
            9,470
            
            
            11,851
            
            
            3,435
            
            
            4,240Gross
                margin (loss)
            
            
            2,266
            
            
            (103
            )
            
            950
            
            
            143Operating
              expenses:Research
                and development
            
            
            1,028
            
            
            794
            
            
            364
            
            
            313Sales
                and marketing
            
            
            5,863
            
            
            2,190
            
            
            2,118
            
            
            931General
                and administrative
            
            
            5,671
            
            
            8,112
            
            
            1,958
            
            
            2,870Total
                operating expenses
            
            
            12,562
            
            
            11,096
            
            
            4,440
            
            
            4,114Loss
                from operations
            
            
            (10,296
            )
            
            (11,199
            )
            
            (3,490
            )
            
            (3,971
            )Other
                (income) expense
            
            
            4,503
            
            
            3,792
            
            
            23
            
            
            (113
            )Loss
                from continuing operations
            
            
            (14,799
            )
            
            (14,991
            )
            
            (3,513
            )
            
            (3,858
            )Discontinued
                operations
            
            
            (105
            )
            
            ──
            
            
            (43
            )
            
            ──Net
                loss
            
            
            (14,904
            )
            
            (14,991
            )
            
            (3,556
            )
            
            (3,858
            )Preferred
                stock dividends
            
            
            (270
            )
            
            (270
            )
            
            (99
            )
            
            (99
            )Net
                loss attributable to commonstockholders
            
            $
            (15,174
            )
            $
            (15,261
            )
            $
            (3,655
            )
            $
            (3,957
            )Net
                loss attributable to common stockholders per
                share:Basic
                and diluted
            
            $
            (0.42
            )
            $
            (0.43
            )
            $
            (0.10
            )
            $
            (0.10
            )




**Note
      4 — Stock-Based Compensation**




We
      periodically grant stock options to employees and directors in accordance with
      the provisions of our stock option plans, with the exercise price of the stock
      options being set at the closing market price of the common stock on the date
      of
      grant. We account for our employee stock-based compensation plans under
      Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued
      to Employees”, and, accordingly, account for employee stock-based compensation
      utilizing the intrinsic value method. Statement of Financial Standards (“SFAS”)
      No. 123, “Accounting for Stock-Based Compensation”, establishes a fair value
      based method of accounting for stock-based compensation plans. We have adopted
      the disclosure only alternative under SFAS No. 123, and SFAS No. 148 “Accounting
      for Stock Based Compensation - Transition and Disclosure” which requires
      disclosure of the pro forma effects on our net loss attributable to common
      stockholders and the related per share amounts as if SFAS No. 123 had been
      adopted as well as certain other information.




7


The
      fair
      value of stock options or warrants issued in return for services rendered by
      non-employees is accounted for using the fair value based method. The following
      table illustrates the effect on net loss attributable to common stockholders
      and
      net loss per share for the nine months and three months ended September 30,
      2005
      and 2004 if the fair value based method had been applied to all
      awards.




Nine
                Months Ended September 30,
            
            Three
                Months Ended September 30,2005
            
            2004
            
            2005
            
            2004Net
                loss attributable to common stockholders, as reported
                herein
            
            $
            (13,233
            )
            $
            (15,261
            )
            $
            (4,217
            )
            $
            (3,957
            )Add:
                stock-based compensation expense included in reported loss
            
            
            509
            
            
            550
            
            
            198
            
            
            172Deduct:
                total stock-based employee compensation expense determined under
                the fair
                value based method for all awards
            
            
            (1,351
            )
            
            (1,490
            )
            
            (504
            )
            
            (710
            )Pro
                forma net loss attributable to common stockholders
            
            $
            (14,075
            )
            $
            (
                16,201
            )
            $
            (4,523
            )
            $
            (
                4,495
            )Net
                loss attributable to common stockholders per share:Basic
                and diluted – as reported herein
            
            $
            (0.30
            )
            $
            (0.43
            )
            $
            (0.09
            )
            $
            (0.10
            )Basic
                and diluted – pro forma
            
            $
            (0.32
            )
            $
            (0.45
            )
            $
            (0.10
            )
            $
            (0.12
            )





During
      the third quarter of 2004 we modified certain options to extend their life
      upon
      future separation of employment, which occurred during the second quarter of
      2005. The above table reflects the pro forma expense for the fair value of
      the
      modification in the third quarter of 2004. The unaudited condensed consolidated
      financial statements included in our June 30, 2005 Form 10-Q reflected this
      pro
      forma expense in the second quarter of 2005. The revised stock-based employee
      compensation expense determined under the fair value based method was $847,000
      and $408,000 for the six and three month periods ended June 30, 2005,
      respectively. The revised pro forma net loss attributable to common stockholders
      was $9,552,000 and $4,523,000 for the six and three month periods ended June
      30,
      2005, respectively.




The
      weighted average grant date fair value of options granted during the nine months
      and three months ended September 30, 2005 were $1.10 and $0.99, respectively.
      The weighted average grant date fair value of options granted during the nine
      months and three months ended September 30, 2004 were $1.06 and $1.00,
      respectively. The weighted average grant date fair value of 190,000 shares
      of
      restricted common stock granted during the nine months ended September 30,
      2004
      was $2.01. The fair value of our stock-based option awards to employees was
      estimated assuming no expected dividends and the following weighted average
      assumptions:




Nine
                Months Ended September 30,
            
            Three
                Months Ended September 30,2005
            
            2004
            
            2005
            
            2004Risk
                free interest rate
            
            
            4.07
            
            
            3.51
            
            
            4.19
            
            
            3.57Expected
                lives
            
            
            5
                Years
            
            
            5
                Years
            
            
            5
                Years
            
            
            5
                YearsExpected
                volatility
            
            
            108.51
            %
            
            113.60
            %
            
            107.94
            %
            
            113.66
            %





**Note
      5 — Loss Per Share**




Basic
      loss per share is calculated by dividing net loss attributable to common
      stockholders by the weighted average number of shares of common stock
      outstanding during the period. Diluted loss per share for the nine months and
      three months ended September 30, 2005 and 2004 is the same as basic loss per
      share. Potential shares of common stock associated with 14,616,000 and
      12,345,000 outstanding options and warrants and 1,301,000 and 2,080,000 shares
      issuable upon the conversion of our Series B convertible preferred stock as
      of
      September 30, 2005 and 2004, respectively, have been excluded from the diluted
      calculations because the effects would be antidilutive.




8


**Note
      6 — Sale of VS Business**




In
      September 2003, we completed the sale of all of the assets of our VS business
      to
      Gores pursuant to the terms of the asset purchase agreement dated as of June
      10,
      2003. The total consideration payable to us under the agreement was up to $24
      million, consisting of $21 million in cash, of which $19 million was payable
      as
      of closing ($335,000 was placed in an escrow account) and $2 million was held
      back by Gores to cover potential purchase price adjustments, an unsecured $1
      million promissory note maturing on December 31, 2004 and bearing interest
      at 5%
      per annum and up to $2 million in earn-out payments based on performance of
      the
      assets over the two years following the closing. As partial consideration for
      the purchase of assets, Gores also assumed certain liabilities related to the
      VS
      business, including (1) all liabilities to be paid or performed after the
      closing date that arose from or out of the performance or non-performance by
      Gores after the closing date of any contracts included in the assets or entered
      into after June 10, 2003 and (2) our accounts payable, customer deposits,
      deferred revenue and accrued liabilities related to the VS
      business.




Pursuant
      to the agreement, Gores agreed that, for a period of three years commencing
      on
      the closing date, it would not, directly or indirectly, acquire or own any
      equity interest in certain of our competitors identified in the agreement.
      The
      agreement further provided that Gores could acquire an identified competitor
      upon payment to us of a one-time fee of $5 million. In November 2004, Gores
      acquired V-SPAN, Inc., which was one of the identified competitors.




Following
      the closing of the sale to Gores, we were unable to reach agreement with Gores
      on the amount, if any, of the adjustment to be made to the purchase price,
      which
      was based on the net assets, as defined, of the VS business sold to Gores as
      of
      June 30, 2003. Consequently, we entered into arbitration with Gores in July
      2004, with PriceWaterhouseCoopers as the arbitrator. In January 2005, the
      arbitrator concluded that the net assets of the VS business sold to Gores should
      be reduced by $4.3 million.




In
      March
      2005, we entered into a settlement agreement with Gores, resolving the
      outstanding disputes between the companies relating to the sale of the VS
      business, various payables between the companies and Gores’ acquisition of
      V-SPAN. Pursuant to the agreement, Gores paid us $2.75 million and released
      the
      $335,000, including interest thereon that was escrowed at the closing of the
      asset sale. We dismissed our lawsuit against Gores relating to the V-SPAN
      acquisition. We will not receive any payments under the earn-out provision
      in
      the agreement.




We
      originally accounted for the arbitrator’s ruling and settlement agreement with
      Gores as settlements of a contingency which became known prior to the issuance
      of the December 31, 2004 financial statements. Therefore, although the sale
      to
      Gores closed during 2003, we deferred recognition of the related gain until
      December 31, 2004. The arbitrator’s adjustment of $4,340,000 related to the
      correction of specific financial reporting errors that should have adjusted
      prior period financial statements rather than being charged to the gain on
      the
      sale of the VS business.




The
      ultimate settlement of amounts due to/from Gores that arose subsequent to the
      transaction closing date and unrelated to the sale transaction, including
      $293,000 and $77,000 of revenues that we recognized during the nine months
      and
      three months ended September 30, 2004, respectively, were previously deferred
      in
      the determination of the loss on the sale. The restated condensed consolidated
      financial statements exclude these amounts from the sale transaction, and a
      gain
      from the settlement of these items of $379,000 has been recognized during the
      nine months ended September 30, 2005, when the settlement was reached with
      Gores.




In
      addition, we have become aware of several other accounting errors whereby items
      unrelated to the sale of the VS business to Gores were inappropriately charged
      to the loss on the sale. We have determined that the matters addressed in the
      arbitrator ruling and the other corrections represent accounting errors.
      Accordingly, the accompanying restated financial statements reflect these items
      as corrections of errors prior to 2004 and the gain or loss on the transaction
      has been accounted for upon the closing in 2003. Pursuant to the settlement
      agreement with Gores in 2005, each party was released from amounts due to the
      other beyond the payment by Gores of $2,750,000 and the release of the escrowed
      cash to us. Accordingly, we recognized the gain on settlement.




9




**Note
      7** **—
      Bank Loan Payable**




In
      February 2004, we terminated a working capital credit facility with JPMorgan
      Chase. As a result of the termination of this facility, we wrote off $85,000
      of
      unamortized deferred financing costs to expense in the nine months ended
      September 30, 2004.




**Note
      8** **—
      Stockholder’s Equity**




In
      January 2004, in exchange for the cancellation and termination of convertible
      debentures with an aggregate face value of $4,888,000 and forfeiture of any
      and
      all rights of collection, claim or demand under the debentures, we agreed to
      give the holders of the debentures: (i) an aggregate of 203.667 shares of series
      B convertible preferred stock; (ii) an aggregate of 250,000 shares of restricted
      common stock; and (iii) a reduction of the exercise price of the warrants issued
      pursuant to the original purchase agreement from $3.25 to $2.75. As a result
      of
      this exchange, the unamortized discount on subordinated debentures and deferred
      financing costs were written off to expense, resulting in amortization of
      discount of $2,650,000 and amortization of deferred financing costs of $363,000
      for the nine months ended September 30, 2004. Additionally, we recognized a
      $743,000 loss on the exchange. The investors have anti-dilution rights. As
      a
      result of the February 2004 and March 2005 financings, the conversion price
      of
      the Series B convertible preferred stock and the exercise price of the warrants
      have been adjusted to $2.22 and $2.47, respectively and we recognized deemed
      dividends of $115,000 in the nine months ended September 30, 2005. The
      corresponding amount in the 2004 period was nominal.




In
      February 2004, we raised net proceeds of $12.5 million in a private placement
      of
      6,100,000 shares of our common stock at $2.25 per share. We also issued warrants
      to the investors in the private placement to purchase 1,830,000 shares of our
      common stock at an exercise price of $2.75 per share. The warrants expire five
      and a half years after the closing date. The warrants are subject to certain
      anti-dilution protection and as a result of the March 2005 financing, the
      exercise price was reduced to $2.60 (the incremental fair value was nominal).
      We
      also 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. As a result of the March 2005 financing,
      the
      exercise price was reduced to $2.60




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 account for the registration rights agreement as a
      separate freestanding instrument and account 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.
      Approximately $1,164,000 of the proceeds of the financing was attributed to
      the
      estimated fair value of the derivative liability. We estimated the fair value
      of
      the derivative liability to be $1,413,000 as of September 30, 2005 and
      $1,298,000 as of December 31, 2004. We recognized other expense of $88,000
      and
      $45,000 for the nine months and three months ended September 30, 2004,
      respectively and $114,000 and $33,000 for the nine months and three months
      ended
      September 30, 2005, respectively.




In
      March
      2005, we raised net proceeds of $9.4 million in a private placement of 6,766,667
      shares of our common stock at $1.50 per share. Investors in the private
      placement were also issued warrants to purchase 2,706,667 shares of common
      stock
      at an exercise price of $2.40 per share. The warrants expire five years after
      the closing date. The warrants are subject to certain anti-dilution protection.




In
      March
      2005, 83.333 shares of our outstanding Series B convertible preferred stock
      and
      accrued dividends of $183,000 were exchanged for 1,333,328 shares of our common
      stock and warrants to purchase 533,331 shares of our common stock with an
      aggregate fair value of $1,350,000. We recognized deemed dividends of $1,167,000
      during the 2005 period in connection with the warrants and a reduced conversion
      price, which were offered as an inducement to convert.




**Note
      9 — Other Matters**




In
      April
      2005, we amended our operating lease for our Hillside, New Jersey office to
      extend the term of the lease through April 2007. At such time, we also increased
      the square feet under lease. Payments under the amended lease aggregate
      $145,000, $218,000 and $73,000 for the years ending December 31, 2005, 2006
      and
      2007, respectively, excluding operating costs.




10


**Note
      10 — Subsequent Events**




In
      March
      2006, we implemented a corporate restructuring plan designed to reduce certain
      operating, sales and marketing and general and administrative costs. As part
      of
      the strategic initiative, we implemented management changes, including the
      promotion of Michael Brandofino to Chief Operating Officer with principal
      responsibility for the implementation and management of the restructuring plan.
      Gerard Dorsey, Executive Vice President and Chief Financial Officer since
      December 2004, left Glowpoint in April 2006 to pursue other opportunities.
      In
      April 2006, Mr. Brandofino was appointed President and Chief Executive Officer
      and a member of the Board of Directors and Ed Heinen was appointed Chief
      Financial Officer.




In
      April
      2006, we issued senior secured convertible notes and warrants in a private
      placement to private investors. In the transaction, we issued $6.18 million
      aggregate principal amount of our 10% Senior Secured Convertible Notes, Series
      A
      warrants to purchase 6,180,000 shares of common stock at an exercise price
      of
      $0.65 per share and Series B warrants to purchase 6,180,000 shares of common
      stock at an exercise price of $0.01 per share. The warrants are subject to
      certain anti-dilutive protection. The Series B warrants only become exercisable
      if we fail to achieve positive operating income, determined in accordance with
      generally accepted accounting principles, excluding restructuring and non-cash
      charges, in the fourth quarter of 2006. In addition, the Series B warrants
      will
      be cancelled if we consummate a strategic transaction or repay the Notes prior
      to the date we make our financial statements for the fourth quarter of 2006
      available to the public. We also agreed to change the exercise price of all
      previously issued warrants held by the investors in this offering to $0.65,
      and
      to extend the term of any such warrants that would expire earlier than three
      years after the offering date. Our
      costs
      related to the issuance of the notes were approximately $0.58 million, a portion
      of which represents placement fees of $0.5 million to
      Burnham Hill Partners, our placement agent. In addition, we
      issued to Burnham Hill Partners placement agent warrants to
      purchase 618,000 shares of our common stock at an exercise price of $0.55 per
      share. The
      $5.6
      million net proceeds of the offering will be used to support our corporate
      restructuring program and for working capital.




The
      Notes
      bear interest at 10% per annum, mature on September 30, 2007 and are convertible
      into common stock at a conversion rate of $0.50 per share. The Series A and
      Series B warrants are exercisable for a period of 5 years.




We
      are
      currently evaluating the accounting treatment of this transaction, including
      consideration of applicable accounting standards for derivative
      instruments.  We are also evaluating the effect on the conversion price of
      our Series B convertible preferred stock and the exercise price of outstanding
      warrants that are subject to anti-dilution adjustments occasioned by this
      transaction.  Reductions to the conversion price and exercise prices may
      result in deemed dividend treatment.





**ITEM
                2.**
            **MANAGEMENT’S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                OPERATIONS.**




The
      following discussion should be read in conjunction with our condensed
      consolidated financial statements for the nine months and three months ended
      September 30, 2005 and 2004 and the notes thereto included elsewhere herein.
      The
      discussion of results, causes and trends should not be construed to imply any
      conclusion that such results or trends will necessarily continue in the
      future.




The
      statements contained herein, other than historical information, are or may
      be
      deemed to be forward-looking statements within the meaning of Section 27A of
      the
      Securities Act of 1933, as amended, and Section 21E of the Securities and
      Exchange Act of 1934, as amended, and involve factors, risks and uncertainties
      that may cause our actual results in future periods to differ materially from
      such statements. These factors, risks and uncertainties, include market
      acceptance and availability of new video communications services; the
      non-exclusive and terminable at-will nature of sales agent agreements; rapid
      technological change affecting demand for our services; competition from other
      video communication service providers; and the availability of sufficient
      financial resources to enable us to expand our operations.




**Overview**




Glowpoint,
      Inc. ("Glowpoint" or "we" or "us"), a Delaware corporation, provides
      comprehensive video communications services over its carrier-grade IP-based
      subscriber network enabling users to connect across the United States, as well
      as to business centers around the world. Prior to 2004, Glowpoint, then known
      as
      Wire One Technologies, Inc., sold substantially all of the assets of its video
      solutions (VS) business to an affiliate of Gores Technology Group (Gores).
      See
      Note 6 to the condensed consolidated financial statements for further
      information.




11


On
      April
      20, 2004, we entered into an agreement with Tandberg, Inc., a wholly owned
      subsidiary of Tandberg ASA (OSLO:TAA.OL), a global provider of visual
      communications solutions. As part of the agreement, we acquired for $1.00
      certain assets and the customer base of Tandberg-owned Network Systems LLC
      (successor to the NuVision Companies). Network Systems customers, primarily
      ISDN-based video users, obtained immediate access to our video bridging and
      webcasting services. As part of the agreement, Tandberg's corporate use of
      IP
      video communications and other telecommunications services, formerly purchased
      through Network Systems, is being provided exclusively by us under a multi-year
      agreement. In addition, we assumed contractual commitments with AT&T, MCI
      and Sprint from Network Systems, which were subsequently consolidated into
      new
      agreements with these carriers. Tandberg named the Glowpoint Certified Program
      as a recognized external testing partner for its hardware and software
      products.


In
        March
        2005, we entered into a strategic alliance with Sony Electronics, Inc. to
        create
        and launch a complete, Sony-customized, user-friendly video communication
        solution focused on broadening the use of IP-based video in and out of
        traditional office environments. Initially the relationship focused on creating
        a unique video experience for Sony customers by "private labeling" Glowpoint's
        features and services for Sony. The two companies launched a number of
        initiatives including broadcast solutions and an internet based video service
        called IVE (an acronym for Instant Video Everywhere). We developed and own
        IVE,
        but branded it for Sony as part of this initiative. In March 2006 Glowpoint
        and
        Sony modified and renewed their agreements to limit the focus to providing
        solutions for the broadcast market, which the parties believe has the most
        promise for near-term success.
  In
        February 2006, we signed a separate agreement with Sony of Canada Ltd. to
        promote and resell our services, including the IVE video service. The IVE
        video
        service is now branded "Glowpoint's IVE."




On
      March
      7, 2005, we announced a settlement agreement with Gores, resolving the
      outstanding disputes relating to the sale of the assets of our VS business
      to
      Gores in September 2003. The agreement also covered Gores' acquisition of V-SPAN
      Inc. in November 2004. Pursuant to the terms of the settlement agreement, Gores
      paid us $2.75 million and released to us the $335,000 that was escrowed at
      the
      closing of the asset sale. Also as part of the settlement, we dismissed our
      lawsuit against Gores relating to the V-SPAN acquisition.




On
      March
      14, 2005, we entered into a common stock purchase agreement with several
      unrelated institutional investors in connection with the offering of (i) an
      aggregate of 6,766,667 shares of our common stock and (ii) warrants to purchase
      up to an aggregate of 2,706,667 shares of our common stock. We received proceeds
      from this offering of approximately $10.15 million, less our expenses relating
      to the offering, which were approximately $760,500, a portion of which
      represents investment advisory fees totaling $710,500 to Burnham Hill Partners,
      our financial advisor. The warrants are exercisable for a five-year period
      term
      and have an exercise price of $2.40 per share. The warrants may be exercised
      by
      cash payment of the exercise price or by "cashless exercise."




**Restatement
      and related matters**




On
      June
      2, 2005, we dismissed our independent accounting firm, BDO Seidman LLP, for
      geographic reasons, and retained the independent accounting firm of Eisner
      LLP.
      In the course of its initial assessment of our December 31, 2004 balance sheet,
      Eisner raised certain issues relating to property and equipment. Our internal
      accounting team looked into the matter and subsequently concluded, on a
      preliminary basis, that the costs associated with certain purchases of
      videoconferencing equipment for resale and certain other operating costs that
      represented cost of revenue had erroneously been capitalized as property and
      equipment.




These
      preliminary conclusions were discussed at a meeting of our board of directors
      on
      July 21, 2005. At that meeting, our Audit Committee determined to undertake
      an
      independent investigation of the matter. Following that meeting, our internal
      accounting team conducted a further review of the audited financial statements
      for 2002 through 2004 and held several discussions with our former CFO. Based
      on
      these discussions, on August 2, 2005, we concluded that our financial statements
      for fiscal years 2002 through 2004 (and the related quarters) and the quarter
      ended March 31, 2005 needed to be restated and should no longer be relied
      upon.




We
      requested that BDO Seidman audit our restated consolidated financial statements
      for fiscal years 2002 through 2004 and review our condensed consolidated
      financial statements for the applicable inclusive interim periods and the
      quarter ended March 31, 2005, which BDO Seidman declined. We have restated
      our
      consolidated financial statements as of December 31, 2004 and for the year
      then
      ended and our unaudited condensed consolidated financial statements for the
      interim periods within 2004, which have been filed as an exhibit to our Report
      on Form 8-K filed with the Securities and Exchange Commission on March 17,
      2006.
      We have also restated our condensed consolidated financial statements as of
      March 31, 2005 and for the three months ended March 31, 2005 and 2004, which
      have been filed on Form 10-Q/A with the Commission on March 22, 2006. We have
      described the specific impact of the restatement on the interim nine months
      and
      three months ended September 30, 2004 in the more detailed discussion
      below.




12


Our
      internal accounting team is working diligently to complete our fiscal 2005
      results. Restating financial statements for fiscal years 2002 and 2003 will
      require significant additional time and resources, primarily because of the
      following reasons:




·  During
      2003, we completed the sale of our VS business to Gores. As part of the sale,
      we
      transferred four data communication servers which contained various documents
      and audit support workpapers associated with the books and records of the VS
      business for all periods prior to the sale. We did not retain backups of the
      information on those servers and we just recently received data downloads from
      such servers. Gores was only able to locate three of the four servers
      transferred.




·  We
      may
      not be able to quantify inventory in periods prior to 2004. Effective with
      the
      sale to Gores, we no longer owned any inventory and BDO Seidman was the only
      auditor who observed the physical inventory counts that affect those periods.
      To
      date, we have not been able to verify such inventory amounts, which will be
      necessary in order to complete a restatement of our consolidated financial
      statements for the years ended December 31, 2002 and 2003. We will take all
      available actions to gain access to the BDO Seidman workpapers.




At
      this
      time, we cannot determine whether the resolution of the above items will enable
      us to restate fiscal years 2002 and 2003 in a reasonable amount of time or
      at
      all.




**Audit
      Committee Investigation** .
      The
      Audit Committee commenced its independent investigation following the July
      21,
      2005 board meeting. The Audit Committee hired independent counsel, the law
      firm
      of Kronish Lieb Weiner & Hellman LLP, to conduct the investigation. Kronish
      Lieb retained a forensic audit firm, Alix Partners LLP, to assist in the
      investigation. The investigation was concluded in late September 2005 and found
      that expenses associated with services provided to and equipment purchased
      by
      customers during 2001 through 2003 were improperly capitalized as additions
      to
      our fixed assets, and that such practices affected our 2001 through 2004
      financial statements. The Audit Committee investigation also found that, during
      the same period, some of the amounts associated with practices described in
      the
      preceding sentence were written off in subsequent accounting journal entries
      that were themselves improper, and that similarly improper additions to our
      fixed assets continued even after such write-offs had occurred. Our prior CFO,
      who participated in these practices and under whose supervision they occurred,
      left Glowpoint in April 2005 after the planned relocation of the finance
      department from New Hampshire to our headquarters in New Jersey. In addition
      to
      issues affecting fixed assets, the investigation found that during the relevant
      period, we lacked adequate internal accounting controls. Finally, the
      investigation identified certain areas that warrant further review, including
      past revenue recognition practices when we were a reseller of videoconferencing
      equipment, costs allocated to the accounting associated with the Gores
      transaction and internal reallocation of communication costs.




As
      noted
      above, the Audit Committee investigation found that during the relevant periods
      being restated, we lacked adequate internal controls. A material weakness in
      internal controls is a significant deficiency, or a combination of significant
      deficiencies, that results in more than a remote likelihood that a material
      misstatement of the annual or interim financial statements will not be prevented
      or detected. We believe that a material weakness in our internal controls arose
      as the result of aggregating several significant deficiencies, including:
      inadequate review and approval of journal entries in the financial statement
      preparation process and a lack of supporting documentation and assumptions
      used
      therein, an insufficient number of technical accounting and public company
      reporting personnel in the finance department, the absence of a formal monthly
      closing process and subsequent formal reporting of monthly financial statements
      and account variance analysis. Additionally, our finance office was located
      in
      New Hampshire and our headquarters was located in New Jersey.




The
      Audit
      Committee investigation further found that our current management has instituted
      improved internal accounting controls, including relocation and restaffing
      of
      the finance organization to our headquarters in April 2005. Our restaffing
      included a corporate Controller who has over 25 years experience in public
      and
      private company reporting, has earned his CPA and became our CFO in April 2006.
      We also instituted a formal monthly closing process, including account analysis,
      oversight of all closing processes, formal monthly review of the financial
      statements and the implementation of monthly written reports to the Board of
      Directors. We are continuing to evaluate and improve our internal control
      procedures, where applicable.




13


**SEC
      Inquiry** .
      On
      August 2, 2005, we contacted the Securities and Exchange Commission to notify
      it
      of our determination to restate our financial statements. On August 3, 2005,
      the
      SEC notified us that it was conducting an informal inquiry into our reported
      accounting issues. The SEC has met with our outside counsel as well as counsel
      to the Audit Committee. The SEC also sent us a document production request
      on
      October 27, 2005, and we responded to the request on November 14, 2005. The
      SEC
      has also recently contacted our former CFO and BDO Seidman LLP, our former
      independent accounting firm.




**Delisting** .
      On
      August 16, 2005, we received a letter from the Nasdaq National Market indicating
      that our common stock would be delisted from Nasdaq because of our failure
      to
      timely file our Form 10-Q for the quarter ended June 30, 2005. We requested
      and
      were granted a hearing to seek a conditional listing exception. The hearing
      occurred on September 15, 2005. On October 3, 2005, the Nasdaq Listing
      Qualifications Panel notified us that our common stock would be delisted from
      the Nasdaq National Market effective with the open of business on October 5,
      2005. Our common stock now trades over the counter in the pink sheets under
      the
      symbol "GLOW.PK".





**Nine** **Months Ended September 30, 2005 ( the “2005 period”) Compared to Nine Months
      Ended September 30, 2004 ( the “2004 period”) and the Three Months Ended
      September 30, 2005 ( the “2005 quarter”) Compared to Three Months Ended
      September 30, 2004 ( the “ 2004 quarter”).**




**Results
      of operations**




The
      following table sets forth for the nine months and three months ended September
      30, 2005 and 2004, information derived from condensed consolidated financial
      statements as expressed as a percentage of revenues:




(Unaudited)Nine
                Months Ended
              September
                30,
            
            Three
                Months Ended
              September
                30 ,2005
            
            2004
            
            2005
            
            2004(Restated)
            
            
            
            (Restated)Revenues
            
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %Cost
                of revenues
            
            
            86.4
            
            
            100.9
            
            
            80.6
            
            
            96.7Gross
                margin (loss)
            
            
            13.6
            
            
            (0.9
            )
            
            19.4
            
            
            3.3Operating
                expenses:Research
                and development
            
            
            6.8
            
            
            6.8
            
            
            7.0
            
            
            7.1Sales
                and marketing
            
            
            24.0
            
            
            18.6
            
            
            22.2
            
            
            21.2General
                and administrative
            
            
            74.7
            
            
            69.1
            
            
            81.6
            
            
            65.5Total
                operating expenses
            
            
            105.5
            
            
            94.5
            
            
            110.8
            
            
            93.8Loss
                from operations
            
            
            (91.9
            )
            
            (95.4
            )
            
            (91.4
            )
            
            (90.5
            )Other
                (income) expense:Amortization
                of deferred financing costs
            
            
            0.0
            
            
            3.8
            
            
            0.0
            
            
            ──Interest
                (income) expense, net
            
            
            (0.6
            )
            
            (0.1
            )
            
            (1.0
            )
            
            (0.6
            )Increase
                in derivative financial instrument
            
            
            0.9
            
            
            0.7
            
            
            0.7
            
            
            1.0Amortization
                of discount on subordinated debentures
            
            
            0.0
            
            
            22.6
            
            
            0.0
            
            
            ──Other
                non-operating business
            
            
            
            
            
            (1.1
            )
            
            
            
            
            (3.0
            )Loss
                on exchange of debt
            
            
            0.0
            
            
            6.3
            
            
            0.0
            
            
            ──Gain
                on settlement with Gores
            
            
            (2.9
            )
            
            ──
            
            
            ──
            
            
            ──Total
                other (income) expenses, net
            
            
            (2.6
            )
            
            32.2
            
            
            (0.3
            )
            
            (2.6
            )Net
                loss
            
            
            (89.3
            )
            
            (127.6
            )
            
            (91.1
            )
            
            (87.9
            )Preferred
                stock dividends
            
            
            (1.6
            )
            
            (2.3
            )
            
            (1.3
            )
            
            (2.3
            )Preferred
                stock deemed dividends
            
            
            (9.7
            )
            
            ──
            
            
            ──
            
            
            ──Net
                loss attributable to common stockholders
            
            
            (100.6
            )%
            
            (129.9
            )%
            
            (92.4
            )%
            
            (90.2
            )%





14




Revenues -
      Revenues increased $1.4 million, or 12%, in the 2005 period to $13.2 million
      from $11.8 million in the 2004 period. Subscription and related revenue (which
      includes contractual revenue related to the Network Services customer base,
      formerly known as NuVision) increased $0.6 million, or 8%, in the 2005 period
      to
      $8.2 million from $7.6 million in the 2004 period. Contractual revenue related
      to the Network Services customer base was $0.2 million in both the 2005 period
      and the 2004 period. We began receiving revenue from this customer base when
      we
      acquired it from Tandberg, Inc. in April 2004. Non-subscription revenue
      consisting of bridging, events and other one-time fees increased $0.8 million,
      or 20%, in the 2005 period to $4.9 million from $4.1 million in the 2004 period.
      The growth in non-subscription revenue was the result of an increase of $0.7
      million in revenue from the Network Services customer base in the 2005 period
      from the 2004 period. Revenues for the 2005 quarter increased $0.2 million,
      or
      4%, to $4.6 million from $4.4 million in the 2004 quarter. Subscription and
      related revenue increased $.3 million, or 10%, in the 2005 quarter to $2.9
      million from $2.6 million in the 2004 quarter. Non-subscription revenue
      consisting of bridging events and other one-time fees decreased $0.1 million,
      or
      3%, in the 2005 quarter to $1.7 million from $1.8 million in the 2004 quarter.
      This decrease was caused by a reduction in revenue from the Network Services
      customer base.




Restatement
      Impact - Revenues -
      Revenues were increased $12,000 for the 2004 period and reduced by $2,000 for
      the 2004 quarter. We have deferred the recognition of revenue associated with
      installation services from 2002 and 2003 and amortized it over a 24 month period
      (the estimated average life of a subscription based customer). Previously,
      we
      recognized such installation revenue at the time such services were completed.
      This change had the impact of increasing revenues by $126,000 for the 2004
      period and $56,000 for the 2004 quarter. The increases were offset by a
      reduction related to sales taxes of $55,000 for the 2004 period and $34,000
      for
      the 2004 quarter and a reclassification of $45,000 to other income for the
      2004
      period and for the 2004 quarter.





Cost
      of revenues - Cost
      of
      revenues for the 2005 period decreased $0.5 million, or 4%, to $11.4 million
      from $11.9 million in the 2004 period. Cost of revenues decreased $0.5 million,
      or 13%, in the 2005 quarter to $3.7 million from $4.2 million in the 2004
      quarter. The decline in costs as a percentage of revenue in the 2005 period
      and
      the 2005 quarter is the result of the renegotiation of rates, the migration
      of
      service to lower cost providers where possible and a reduction of $166,000
      to
      reflect a vendor credit relating to a second quarter of 2005 billing dispute.
      For the 2005 period, additional revenue associated with the Network Services
      customer base, which began in the second quarter of 2004, resulted in increased
      gross margins. This additional revenue caused our gross margin to increase
      to
      13.6% in the 2005 period (12.3% excluding the credit) from a negative 0.9%
      in
      the 2004 period. The additional revenue also caused our gross margin to increase
      to 19.4% (15.7% excluding the credit) in the 2005 quarter from 3.3% in the
      2004
      quarter. The rate of increase in our gross margin percentage is not indicative
      of results expected to be achieved in subsequent periods.





Restatement
      Impact - Cost of revenues - Cost
      of revenues was increased by $2,381,000 for the 2004 period and $805,000 for
      the
      2004 quarter. For the 2004 period, $1,619,000, and for the 2004 quarter,
      $505,000 was erroneously capitalized as property and equipment rather than
      being
      charged to cost of revenues in the period. We recomputed the amount of our
      network costs allocated to cost of revenues, research and development, sales
      and
      marketing and general and administrative expenses to properly reflect costs
      associated with the various departments that used the internal network. This
      resulted in increases to cost of revenues of $260,000 for the 2004 period and
      $72,000 for the 2004 quarter. Depreciation expense of $223,000 for the 2004
      period and $65,000 for the 2004 quarter previously allocated to sales and
      marketing and general and administrative expenses has been reclassified to
      cost
      of revenues. Additionally, we recomputed the amount of certain circuit costs
      that were allocated to Gores and previously charged to the sale of the VS
      business and have decreased the amount allocated by $344,000 for the 2004 period
      and $89,000 for the 2004 quarter. Cost of revenues was increased by $166,000
      for
      the 2004 period and $95,000 for the 2004 quarter to properly reflect
      installation costs. Cost of revenues was decreased by $118,000 for the 2004
      period and $56,000 for the 2004 quarter to apply credits from telecommunications
      carriers to the appropriate periods. Cost of revenues was reduced $113,000
      in
      the 2004 period for costs incurred in 2003 that were previously recognized
      in
      the 2004 period.





Research
      and development -
      Research and development costs, which include the costs of the personnel in
      this
      group, the equipment they use and their use of the network for development
      projects, increased by $0.1 million in the 2005 period to $0.9 million from
      $0.8
      million in the 2004 period. The increase was a result of increased usage of
      outside contractors to meet the demand for application development in
      conjunction with new product development for us and certain of our partners.
      Research and development expense was $0.3 million for the 2005 quarter and
      2004
      quarter. Research and development expense as a percentage of revenue was 6.8%
      for the 2005 period, 6.8% for the 2004 period, 7.0% for the 2005 quarter and
      7.1% for the 2004 quarter.





15


Restatement
      Impact - Research and development -
      Research and development expenses were decreased by $234,000 for the 2004 period
      and by $51,000 for the 2004 quarter. The decreases reflect the reclassification
      of $331,000 for the 2004 period and of $85,000 for the 2004 quarter of costs
      to
      general and administrative expenses. This reclassification was partially offset
      by the proper allocation of depreciation expense and allocated network services
      which increased expenses by $97,000 for the 2004 period and $33,000 for the
      2004
      quarter.





Sales
      and marketing - Sales
      and marketing expenses, which include sales salaries, commissions, overhead
      and
      marketing costs, increased $1.0 million in the 2005 period to $3.2 million
      from
      $2.2 million in the 2004 period. The primary causes of the increase in costs
      for
      the 2005 period were a $0.5 million increase in salaries, benefits and travel
      costs resulting from the addition of a direct sales force of 11 employees and
      an
      increase of $0.3 million in marketing expense associated with a sales lead
      generation program and other initiatives. Sales and marketing expenses increased
      $0.1 million to $1.0 million for the 2005 quarter from $0.9 million for the
      2004
      quarter. The primary causes of the increase in costs for the 2005 quarter were
      an increase in salaries, benefits and travel costs. Sales and marketing expense,
      as a percentage of revenue, was 24.0% for the 2005 period, 18.6% for the 2004
      period, 22.2% for the 2005 quarter and 21.2% for the 2004 quarter.





Restatement
      Impact - Sales and marketing - Sales
      and marketing expenses, previously referred to as selling, were decreased by
      $3,673,000 for the 2004 period and $1,187,000 for the 2004 quarter. The
      decreases reflect the reclassification of $2,615,000 for the 2004 period and
      $888,000 for the 2004 quarter of costs to general and administrative expenses.
      Sales commissions and bonuses were reduced by $66,000 for the 2004 period for
      costs that should have been expensed prior to the 2004 period. To reflect a
      proper allocation of network costs to sales and marketing expense we have
      recorded a reduction of $648,000 for the 2004 period and $201,000 for the 2004
      quarter. Sales and marketing costs have been reduced by $377,000 for the 2004
      period and $114,000 for the 2004 quarter relating to improper commission
      accruals.





General
      and administrative -
      General and administrative expenses increased $1.7 million in the 2005 period
      to
      $9.8 million from $8.1 million in the 2004 period. The primary components of
      the
      increase were $1.1 million in salaries and benefits related to executive
      management and increased staffing levels, $0.8 million for professional fees
      incurred in connection with the restatement of our financial statements and
      the
      related audit committee investigation and $0.2 million for increased equipment
      rentals. These increases were partially offset by a reduction of $0.4 in
      consulting fees. General and administrative expenses increased $0.8 million
      to
      $3.7 million for the 2005 quarter from $2.9 million for the 2004 quarter.
      Professional fees incurred in connection with the restatement of our financial
      statements and the related audit committee investigation resulted in an increase
      of $0.8 million and salaries and benefits related to executive management and
      increased staffing levels increased $0.3 million in the 2005 quarter. These
      increases were partially offset by reductions of $0.2 million in consulting
      fees. General and administrative expenses as a percentage of revenue were 74.7%
      in the 2005 period, 69.1% in the 2004 period, 81.6% in the 2005 quarter and
      65.5% in the 2004 quarter.





Restatement
      Impact - General and administrative -
      General and administrative expenses were increased by $2,441,000 for the 2004
      period and $912,000 for the 2004 quarter. We have reclassified to general and
      administrative expenses $2,946,000 for the 2004 period and $973,000 for the
      2004
      quarter of costs that were previously classified as selling and research and
      development, which relate principally to customer service, engineering and
      other
      operating expenses. Depreciation expense was reduced by $1,433,000 for the
      2004
      period and $491,000 for the 2004 quarter reflecting the reduction of fixed
      assets and a reclassification of depreciation expense. The re-allocation of
      network costs between cost of revenues, research and development, sales and
      marketing and general and administrative expenses resulted in an increase of
      $354,000 for the 2004 period and $118,000 for the 2004 quarter in general and
      administrative expenses. Expenses were also increased for professional fees
      of
      $228,000 for the 2004 period and $120,000 for the 2004 quarter incurred in
      connection with the Gores arbitration, which had previously been charged to
      the
      loss on the sale of the VS business to Gores. We recognized additional expense
      of $196,000 for the 2004 period and $69,000 for the 2004 quarter relating to
      sales taxes. Bad debt expense was increased by $64,000 for the 2004
      quarter.





Other
      (income) expense - Other
      income of $0.3 million for the 2005 period principally reflects a gain on the
      settlement of an amount owed to Gores. Other expense of $3.8 million for the
      2004 period principally reflects amortization of discount on convertible
      debentures and related deferred financing costs and a loss on exchange of the
      debentures for Series B convertible preferred stock, common stock and a
      modification to warrants. Other income for the 2005 quarter reflects net
      interest income and for the 2004 quarter reflects a gain on marketable
      securities and an insurance claim payment.





16


Restatement
      Impact - Other (income) expense - Other
      expense for the 2004 period of $4,503,000 was reduced by $711,000, which
      resulted in other expense of $3,792,000. Other expense as previously reported
      of
      $23,000 for the 2004 quarter was adjusted by $136,000, which resulted in other
      income of $113,000. A gain of $53,000 previously recognized in the 2004 period
      and a loss of $116,000 in the 2004 quarter have been reversed to properly
      account for marketable securities which were received in 2003 and sold in
      September 2004. As a result of correcting the accounting for the issuance of
      the
      subordinated convertible debentures, we reduced the amortization of the related
      discount by $515,000 and recognized additional amortization of deferred
      financing costs of $363,000 for the 2004 period. We had previously overstated
      the discount by $1,489,000, which was partially offset by overstating
      amortization by $989,000 as of January 1, 2004, due to the overstatement of
      the
      discount and by following the straight line method of amortizing the discount
      rather than the effective yield method. As a result of correcting the accounting
      for the exchange of the subordinated convertible debentures for Series B
      convertible preferred stock, warrants and a modification to warrants, we reduced
      the loss on the exchange of debt by $611,000 for the 2004 period. We had
      previously recognized a loss on the exchange of $1,354,000, which included
      the
      excess of the fair value of the common stock underlying the Series B convertible
      preferred stock of $5,499,000 over the face amount of the subordinated
      convertible debentures of $4,888,000 in the loss on exchange. However, the
      subordinated convertible debentures were convertible into the same number of
      shares of common stock as the Series B convertible preferred stock and,
      accordingly, had the same fair value. The loss on the exchange has been reduced
      to $743,000, representing the fair value of the shares of common stock and
      the
      incremental fair value from the warrant modification, which were included in
      the
      exchange.





Preferred
      stock deemed dividends - We
      recognized deemed dividends of $1,167,000 for the 2005 period in connection
      with
      warrants and a reduced conversion price, which were offered as an inducement
      to
      convert our Series B convertible preferred stock. In addition, we recognized
      deemed dividends of $115,000 in the 2005 period in connection with an
      anti-dilution adjustment to the conversion price of our Series B convertible
      preferred stock resulting from our March 2005 financing. There were no deemed
      dividends previously reported.





Net
      loss - Net
      loss attributable to common stockholders decreased to $13.2 million, or $0.30
      per basic and diluted share, in the 2005 period from $15.3 million, or $0.43
      per
      basic and diluted share, in the 2004 period. Net loss attributable to common
      stockholders increased to $4.2 million, or $0.10 per basic and diluted share
      in
      the 2005 quarter, from $4.0 million in the 2004 quarter, or $0.09 per basic
      and
      diluted share, in the 2004 quarter.





Earnings
      before interest, taxes, depreciation and amortization (EBITDA) is not a standard
      financial measurement under accounting principles generally accepted in the
      United States of America (GAAP). EBITDA should not be considered as an
      alternative to net loss or cash flow from operating activities as a measure
      of
      liquidity or as an indicator of operating performance or any measure of
      performance derived in accordance with GAAP. EBITDA is provided below to more
      clearly present the financial results that management uses to internally
      evaluate its business. We believe that this non-GAAP financial measure allows
      investors and management to evaluate and compare our operating results from
      continuing operations from period to period in a meaningful and consistent
      manner. The following table provides a reconciliation of the net loss
      attributable to common stockholders to EBITDA from continuing
      operations.





17




Nine
                Months Ended September 30,
            
            Three
                Months Ended September 30,2005
            
            2004
            
            2005
            
            2004(Restated)
            
            
            
            (Restated)Net
                loss attributable to common stockholders
            
            $
            (13,233
            )
            $
            (15,261
            )
            $
            (4,217
            )
            $
            (3,957
            )Depreciation
                and amortization
            
            
            1,727
            
            
            1,669
            
            
            580
            
            
            567Amortization
                of deferred financing costs
            
            
            —
            
            
            448
            
            
            —
            
            
            —Amortization
                of discount on subordinated debentures
            
            
            —
            
            
            2,650
            
            
            —
            
            
            —Loss
                on exchange of debt
            
            
            —
            
            
            743
            
            
            —
            
            
            —Gain
                from discontinued operations
            
            
            (379
            )
            
            —
            
            
            —
            
            
            —Preferred
                stock dividends and deemed dividends
            
            
            1,487
            
            
            270
            
            
            58
            
            
            99Interest
                (income) expense net
            
            
            (76
            )
            
            (5
            )
            
            (43
            )
            
            (26
            )EBITDA
                from continuing operations
            
            $
            (10,474
            )
            $
            (9,486
            )
            $
            (3,622
            )
            $
            (3,317
            )





**Liquidity
      and capital resources**




At
      September 30, 2005, we had working capital of $1.9 million compared to $3.6
      million at December 31, 2004, a decrease of approximately $1.7 million or 47%.
      We had $6.2 million in cash and cash equivalents at September 30, 2005 compared
      to $4.5 million at December 31, 2004. The $1.7 million increase in cash resulted
      from the net proceeds from the March 2005 private placement of common stock
      of
      $9.4 million and the $2.7 million from the Gores settlement offset by the $9.2
      million usage of cash in operations in the 2005 period and the purchase of
      $1.2
      million of property, equipment and leasehold improvements.




In
      January 2004, in exchange for the cancellation and termination of convertible
      debentures with an aggregate face value of $4,888,000 and forfeiture of any
      and
      all rights of collection, claim or demand under the debentures, we agreed to
      give the holders of the debentures: (i) an aggregate of 203.667 shares of series
      B convertible preferred stock; (ii) an aggregate of 250,000 shares of restricted
      common stock; and (iii) a reduction of the exercise price of the warrants issued
      pursuant to the original purchase agreement from $3.25 to $2.75.




In
      February 2004, we raised net proceeds of $12.5 million in a private placement
      of
      6,100,000 shares of our common stock at $2.25 per share. We also issued warrants
      to purchase 1,830,000 shares of our common stock at an exercise price of $2.75
      per share. The warrants expire on August 17, 2009. The warrants are subject
      to
      certain anti-dilution protection 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.




In
      February 2004, we terminated a $7.5 million revolving credit facility with
      JPMorgan Chase.




In
      March
      2005, we entered into a common stock purchase agreement with several unrelated
      institutional investors in connection with the offering of (i) an aggregate
      of
      6,766,667 shares of our common stock and (ii) warrants to purchase up to an
      aggregate of 2,706,667 shares of our common stock. We received proceeds from
      this offering of approximately $10.15 million, less our expenses relating to
      the
      offering, which were approximately $760,500, a portion of which represents
      investment advisory fees totaling $710,500 to Burnham Hill Partners, our
      financial advisor. The warrants are exercisable for a five-year period term
      and
      have an exercise price of $2.40 per share. The warrants are subject to certain
      anti-dilution protection. The warrants may be exercised by cash payment of
      the
      exercise price or by “cashless exercise.”




In
      April
      2006, we issued senior secured convertible notes and warrants in a private
      placement to private investors. In the transaction, we issued $6.18 million
      aggregate principal amount of our 10% Senior Secured Convertible Notes, Series
      A
      warrants to purchase 6,180,000 shares of common stock at an exercise price
      of
      $0.65 per share and Series B warrants to purchase 6,180,000 shares of common
      stock at an exercise price of $0.01 per share. The warrants are subject to
      certain anti-dilution protection. The Series B warrants only become exercisable
      if we fail to achieve positive operating income, determined in accordance with
      GAAP, excluding restructuring and non-cash charges, in the fourth quarter of
      2006. In addition, the Series B warrants will be cancelled if we consummate
      a
      strategic transaction or repay the Notes prior to the date we make our financial
      statements for the fourth quarter of 2006 available to the public. We also
      agreed to change the exercise price of all previously issued warrants held
      by
      the investors in this offering to $0.65, and to extend the term of any such
      warrants that would expire earlier to three years after the offering date.
Our
      costs
      related to the issuance of the notes was approximately $0.58 million, a portion
      of which represents placement fees of $0.5 million to
      Burnham Hill Partners, our placement agent. In addition, we
      issued to Burnham Hill Partners placement agent warrants to
      purchase 618,000 shares of our common stock at an exercise price of $0.55 per
      share. The
      $5.6
      million net proceeds of the offering will be used to support our corporate
      restructuring program and for working capital.




18


The
      Notes
      bear interest at 10% per annum, mature on September 30, 2007 and are convertible
      into common stock at a conversion rate of $0.50 per share. The Series A and
      Series B warrants are exercisable for a period of 5 years.




We
      are
      currently evaluating the accounting treatment of this transaction, including
      consideration of applicable accounting standards for derivative
      instruments.  We are also evaluating the effect on the conversion price of
      our Series B convertible preferred stock and the exercise price of outstanding
      warrants that are subject to anti-dilution adjustments occasioned by this
      transaction.  Reductions to the conversion price and exercise prices may
      result in deemed dividend treatment.




Net
      cash
      used in operating activities was $9.2 million for the 2005 period and $9.1
      million for the 2004 period. For the 2005 period, the primary components of
      the
      net cash usage were the net loss of $11.7 million which was increased by a
      $0.5
      million increase in accounts receivable, a $0.4 million increase in prepaid
      expenses and other current assets and a non-cash gain on the settlement with
      Gores of $0.4 million and reduced by depreciation and amortization expense
      of
      $1.7 million, a $0.7 million increase in accounts payable and accrued expenses,
      $0.6 million of equity-based compensation, the receipt of $0.3 million in
      previously escrowed cash in conjunction with the Gores settlement agreement
      and
      an increase in deferred revenue of $0.2 million. For the 2004 period, the
      primary components of the net cash usage were the net loss of $15.0 million
      and
      an increase in the amount due from Gores of $0.4 million, reduced by
      amortization of discount on subordinated debentures of $2.7 million,
      depreciation and amortization of $1.7 million, loss on exchange of debt of
      $0.7
      million, equity-based compensation of $0.6 million and amortization of deferred
      financing costs of $0.4 million.




During
      the quarter ended September 30, 2005, there were no material changes in our
      contractual obligations.




Cash
      provided by investing activities for the 2005 period amounted to $1.5 million
      which consisted of $2.7 collected in the settlement with Gores partially offset
      by $1.2 million for the purchase of property, equipment and leasehold
      improvements. For the 2004 period, cash used in investing activities was $0.9
      million for the purchase of property, equipment and leasehold improvements.
      The
      Glowpoint network is currently built out to handle the anticipated level of
      subscriptions through 2006. We do not anticipate current expansion for the
      network and therefore currently have no significant commitments to make capital
      expenditures in 2006.




Cash
      provided by financing activities for the 2005 and 2004 periods was $9.4 million
      and $13.0 million, respectively. Financing activities for the 2005 and 2004
      periods included receipt of the $9.4 million and $11.4 million of net proceeds
      from the private placements of common stock and warrants. The 2004 period
      includes $1.2 million of proceeds attributable to a derivative financial
      instrument and $0.6 million for the exercise of warrants and
      options.




We
      believe that our available capital as of September 30, 2005, together with
      our
      operating activities, will enable us to continue as a going concern through
      September 30, 2006.




**Critical
      accounting policies**




We
      prepare our financial statements in accordance with accounting principles
      generally accepted in the United States of America. Preparing financial
      statements in accordance with generally accepted accounting principles requires
      us to make estimates and assumptions that affect the reported amounts of assets
      and liabilities and disclose contingent assets and liabilities as of the date
      of
      the financial statements and the reported amounts of revenues and expenses
      during the reporting period. The following paragraphs include a discussion
      of
      some critical areas where estimates are required. The significant areas of
      estimation includes determining the allowance for doubtful accounts, accrued
      sales tax, the estimated lives of property and equipment and the fair value
      of
      the derivative financial instrument.




19


**Revenue
      recognition**




We
      recognize service revenue related to the Glowpoint network subscriber service
      and the multi-point video and audio bridging services as service is provided.
      As
      the non-refundable, upfront activation fees charged to the subscribers do not
      meet the criteria as a separate unit of accounting, they are deferred and
      recognized over the life of the customer contracts. Revenues derived from other
      sources are recognized when services are provided or events occur.




**Allowance
      for doubtful accounts**




We
      record
      an allowance for doubtful accounts based on specifically identified amounts
      that
      we believe to be uncollectible. We also record additional allowances based
      on
      certain percentages of our aged receivables, which are determined based on
      historical experience and our assessment of the general financial conditions
      affecting our customer base. If our actual collections experience changes,
      revisions to our allowance may be required. After all attempts to collect a
      receivable have failed, we write off the receivable against the
      allowance.




**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 2005 period, no impairment losses
      were recorded.




**Inflation**




Management
      does not believe inflation had a material adverse effect on the financial
      statements for the periods presented.





**ITEM
                3.**
            **QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET
                RISK**




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.




There
      are
      no other material qualitative or quantitative market risks particular to
      us.




**ITEM
                    4.**
                **CONTROLS
                    AND PROCEDURES**
  During
          the periods covered by this report, we lacked adequate internal controls.
          A
          material weakness in internal controls is a significant deficiency, or
          a
          combination of significant deficiencies, that results in more than a remote
          likelihood that a material misstatement of the annual or interim financial
          statements will be not be prevented or detected. We believe that a material
          weakness in our internal controls arose as the result of aggregating several
          significant deficiencies, including: inadequate review and approval of
          journal
          entries in the financial statement preparation process and a lack of supporting
          documentation and assumptions used therein, an insufficient number of technical
          accounting and public company reporting personnel in the finance department,
          the
          absence of a formal monthly closing process and subsequent formal reporting
          of
          monthly financial statements and account variance analysis. Additionally,
          our
          finance office was located in New Hampshire and our headquarters was located
          in
          New Jersey.
  Our
          current management team has instituted improved internal accounting controls,
          including the institution of a formal monthly closing process, including
          account
          analysis, oversight of all closing processes, formal monthly review of
          the
          financial statements and the implementation of monthly written reports
          to the
          Board of Directors. We are continuing to evaluate and improve our internal
          control procedures, where applicable.





20




**PART
      II –** **OTHER
      INFORMATION**






**ITEM
      1.** **LEGAL
      PROCEEDINGS**


We
      are
      defending several suits in the ordinary course of business that are not material
      to our business, financial condition or results of operations.




**ITEM
      2.** **UNREGISTERED
      SALES OF EQUITY SECURITIES AND
      USE
      OF PROCEEDS**


None




**ITEM
      3.  **DEFAULTS
      UPON SENIOR SECURITIES****




None.




**ITEM
      4. **SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS****




None.




**ITEM
      5. OTHER
      INFORMATION**




None.




**ITEM
      6. EXHIBITS**




None.




21





**(i)**  **Signatures**




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




GLOWPOINT,
                INC.
              RegistrantDate:
                May 11, 2006
            By:/s/
                Michael BrandofinoMichael
                Brandofino, Chief Executive Officer
              (principal
                executive officer)Date:
                May 11, 2006
            By:/s/
                Edwin F. HeinenEdwin
                F. Heinen, Chief Financial Officer
              (principal
                financial and accounting officer)






22