expressions are generally intended to identify forward-looking statements, because these forward-looking statements involve risks and uncertainties. There are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements, including our plans, objectives, expectations and intentions and other factors that are discussed under the section entitled "Risk Factors," as well as our consolidated financial statements and the footnotes thereto, for the fiscal year ended December 31, 2011 as filed with the Commission with our Annual Report on Form 10-K filed on March 8, 2012.
The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this Report.
Overview
Glowpoint, Inc. ("Glowpoint" or "we" or "us" or the "Company") is a provider of cloud managed video services. Our services, delivered via our cloud-based OpenVideo™ platform (as discussed in further detail below), are securely accessible via any network (private or public) and are technology-agnostic. The Company delivers services to more than 500 different enterprises in over 35 countries supporting thousands of video endpoints, immersive telepresence rooms, and infrastructure for business-quality, real-time, two-way visual communications. Glowpoint's managed services solve the challenges associated with achieving consistent high-quality video experiences and controlling the total cost of ownership related to technology and support, while increasing the return on investment (ROI) of its end users' video equipment by providing seamless access to video equipment outside of their immediate enterprise network.
Glowpoint's solutions are hardware-agnostic, meaning the video equipment may be manufactured by Cisco, Polycom, Logitech, Sony or others and network-neutral, in that connectivity may be via native Internet or network provided by AT&T, Verizon, TATA Communications, British Telecom or others, supporting all recognized video standards across any IP network.
With its carrier-grade, multi-tenant OpenVideo™ platform built in-house, Glowpoint provides a range of remote monitoring and management services that increase the utilization of the video deployment by ensuring all systems are on, all the time, and calls start on time with the highest possible quality. Glowpoint's core value proposition for customers includes the enablement of integration of their video deployment into the unified communications environment, allowing wide adoption and usage of video communications, increasing ROI and lowering the total cost of ownership. With its multi-tenant infrastructure in the cloud, Glowpoint provides an alternative to capital-intensive, premise-based infrastructure, which customers traditionally have had to purchase for the video environment to function, as well as the tools and services to enable wide adoption of video communications throughout their business. Glowpoint is a leader in managed video and global video exchange services that provide businesses and service providers a way to link together their "islands of video" across third party private networks and enable organizations to drive adoption.
The Company has been recognized in the industry for focusing on providing an innovative customer experience through our use of IP-based video functionality and innovation. Industry awards and recognition over the last few years include:
Excellence in Globalization Award (Frost and Sullivan); Top Ten Managed Service Provider (MSP mentor); Best US Managed Conferencing Services Provider (Telepresence and Videoconferencing Insight Newsletter); PACE Award for contributions to the advancement of video communications (Telespan); and Growth Company of the Year, Finalist (New Jersey Technology Council). We are also widely followed and discussed in market research by the leading industry and research analyst firms, including Gartner, Forrester, Frost and Sullivan, and Wainhouse Research.
Glowpoint, a Delaware corporation, was formed in May 2000. The Company operates in one segment and therefore segment information is not presented

Glowpoint Services and Features
Today's telepresence and video conferencing environments have become a key part of a complete unified business communications strategy. For organizations that are already using video, and for those exploring its benefits for the first time, OpenVideo™ is a unique platform that can help them achieve a successful video collaboration program.
Traditionally, video has presented challenges by presenting a complex maze of systems and networks that must be navigated through and closely managed - and although most of the business-quality video systems today are

"standards-based," there are inherent interoperability problems between different vendors' video equipment, resulting in communication islands. Glowpoint's suite of cloud managed video services can be accessed and utilized by customers regardless of the technology and network they are using. Customers who purchase a Cisco, Polycom, LifeSize (Logitech) or use any other third-party video communications software, may all take advantage of the Glowpoint OpenVideo™ cloud regardless of their choice of network. Glowpoint's core services are offered as part of OpenVideo™ to generate monthly recurring revenue for the Company.
OpenVideo™ is a cloud platform that offers telepresence, video and unified communications and collaboration users a way to meet and communicate across the varying hardware/software platforms and carrier networks in a secure and seamless fashion. OpenVideo™ combines years of best practices, experience and technology development into video collaboration platform that provides instant connectivity, self-serve and managed help desk resources, and the ease of use that makes video collaboration seamless and effortless. Beyond the technology and applications, OpenVideo™ is built around security protocols to ensure that enterprises and organizations of any size can communicate to any other desired video users in a secure, high-quality and reliable fashion. Glowpoint's services are categorized as follows:
Monitoring & Management Services and Collaboration Services ("Managed Services Combined")
We provide end-to-end cloud managed services for telepresence, conference room, desktop, mobile solutions, and video infrastructure. We have a team of video experts utilizing the latest in remote management technologies. These engineering and operational customer support resources operate out of our three Video Network Operations Centers (VNOCs) located in the United States, in California, Pennsylvania, and New Jersey. These VNOC facilities provide global 24/7 support to our network and managed service customers, including our wholesale branded partners customers. The primary functions of these operational resources located in these centers are customer service, conference production, network operation monitoring and remediation, and help desk technical support.

The company also maintains Points-of Presence (POP's) that houses the technology and infrastructure along with the servers and database warehousing for the OpenVideo platform and support systems of the business. There are currently three Points-of-Presence (POPs) located in the United States (New Jersey and Chicago) and United Kingdom (London), with additional POPs planned as needed. These carrier-neutral data centers are co-location facilities where network equipment that serves our video infrastructure is housed and acts as shared or dedicated infrastructure for our business customers. The POPs provide power redundancy & UPS (uninterrupted Power Supply) systems, which are constantly monitored and maintained. They also have physical security, flood controls, fire detection and suppression systems and are structurally designed for earthquakes.

We offer a complete portfolio of remote monitoring & management services that can help make video more widely available, improve up-time, drive higher usage, off-load IT teams, or all of the above. Our service packages can be customized to suit the needs of the business, whether for a large enterprise, small or medium sized business.
Glowpoint provides wholesale programs and private-labeled resale options for hardware manufacturers, network operators and systems integrators seeking to offer video services as a value-added addition to their collaboration and communications offerings. All of Glowpoint's unique features and services have been designed so that the entire suite can be private labeled by other service providers or companies who want to integrate video communications into their existing products quickly and cost effectively. Glowpoint will provide all of the video infrastructure and support, including customer portals and billing applications, as a private label service for a third party. This means that our services are branded with the other company's name, logo and other information, our live operators answer calls using the other company's name, and the other company's end user customers view the service as provided by that other company even though it is actually "powered by Glowpoint." Glowpoint has been involved in a number of private label opportunities and currently provides branding of its services to six strategic global partners whom serve 147 customers with these services and support from Glowpoint through their unique brands. These services account for approximately 37% of Glowpoint's total revenue for the six months ended June 30, 2012. Many strategic global companies in the unified communications industry have recognized Glowpoint's value to their own sales and marketing efforts. These strategic partnerships are core to the company's global sales strategy.
Glowpoint's collaboration services, hosted via the OpenVideo™ cloud, are designed to connect video users all over the world whether they are on immersive telepresence, conference room, desktop or mobile devices. Customers that are registered to the OpenVideo™ cloud can connect to any other customer in the OpenVideo™ cloud and get access to Glowpoint's full suite of cloud managed video services, including the Virtual Video Room, video bridging, and webcasting services. Through our extensive partnerships, OpenVideo™ customers can also have business-to-business connectivity across other service providers platforms.

Network Services

In order to provide customers with access to the OpenVideo™ cloud, Glowpoint maintains a dedicated video overlay network. We have partnered with Tier 1 MPLS providers, including Global Crossing, Masergy, XO, Qwest, TATA, PCCW and Verizon Business, to provide a global access footprint with flexible options to consume our suite of OpenVideo™ services. Our OpenVideo™ cloud is also connected to the Equnix Ethernet Carrier Exchange to provide native Layer 2 Ethernet services to enterprise customers.

Glowpoint leverages the last mile and network connectivity of carriers and provides an option for businesses to purchase a full overlay network for their video only needs. The network bandwidth that we provide for these dedicated overlay networks ranges from 1.5Mbps to 1Gbps. As a result of this, our network services business carries variable costs associated with the purchasing and reselling of this connectivity.

With our network services, we provide customers with the flexibility to either source the entire network from a single provider, maintain existing network and extend a logical connection to the OpenVideo™ cloud or bring bandwidth to OpenVideo™ datacenters. Although a declining component of our revenue stream, we believe that network services will continue to be an integral part of our revenue mix in the future, driven by new connectivity needs to connect and peer with Glowpoint's OpenVideo™ cloud. However, Glowpoint does not consider this a core driver or measurement of its market share in the cloud managed video service industry.

Professional and other services
With the growing interest in convergence and the desire by some enterprises to add the transport of video to their enterprise networks, we have provided professional services and believe the market for such services is growing. Additionally, our extensive knowledge of all leading video conferencing vendors' equipment makes our video engineers a valuable resource for manufacturers, partners and end users on an outsourced basis. While our primary focus is generating monthly recurring revenue from our subscription services, our professional services have been a valuable lead for video communication opportunities leading to sales of our managed video services. Glowpoint provides professional services to its partners and customers for custom solutions but does not consider this a core driver or measurement of its market share in the cloud managed video service industry.
We have bundled certain components of our managed services to offer video communication solutions for broadcast/media content acquisition and event services. Customers have used our managed video services during events to cost-effectively acquire video content for broadcasters, cable companies and other media enterprises, especially in the sports, news and entertainment industries. While it includes our core managed video services, IP-based broadcasting and event services require more project management and dedicated operational and engineering personnel than our standard subscription services. Rather than using an expensive satellite feed, companies can acquire broadcast-quality standard or high definition footage at a fraction of the cost from Glowpoint over a dedicated IP connection. Since 2002, we have provided this service to ESPN during the professional football and basketball drafts. ESPN has used our service for interviews from team locations with coaches, players and analysts during their coverage. In 2007, we launched a High Definition (HD) content acquisition solution that we branded TeamCamHD and RemoteCamHD. This offering provides two-way HD video communication for content acquisition from remote locations. Glowpoint now provides a full suite of HD solutions for the broadcast, entertainment and media industry and is considered a high-quality alternative to the traditional means of acquiring content in many applications, including interviews and even full motion video.

Critical Accounting Policies and Estimates There have been no changes to our critical accounting policies in the three months ended June 30, 2012. Critical accounting policies and the significant estimates made in accordance with them are regularly discussed with our audit committee. Those policies are discussed under "Critical Accounting Policies" in our "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in Item 7, as well as in our consolidated financial statements and the footnotes thereto for the fiscal year ended December 31, 2011, as filed with the Commission with our Annual Report on Form 10-K filed on March 8, 2012.

Results of Operations
Six and Three Months Ended June 30, 2012 ("2012 Period" and the "2012 Quarter," respectively) compared to Six and Three Months Ended June 30, 2011 ("2011 Period" and the "2011 Quarter," respectively)

Revenue. Total revenue decreased $389,000, or 2.8%, in the 2012 Period to $13,546,000 from $13,935,000 in the 2011 Period. Total revenue decreased $154,000 or 2.2% in the 2012 Quarter to $6,800,000 from $6,954,000 in the 2011 Quarter. The following are the changes in the components of our revenue:
• Revenue for Managed Services Combined, which represents subscription (monitoring and management) services generally tied to contracts of 12 months or more and usage based collaboration services, increased 5.2% to $6,501,000 and 5.2% to $3,204,000 in the 2012 Period and 2012 Quarter, respectively. Revenue for Managed Services Combined accounted for 48.0% of our total revenue in the 2012 Period compared to 44.3% for the 2011 Period. The increase in revenue for Managed Services Combined was primarily attributable to new customer acquisitions.

• Revenue for network services, which represents network sales and related services generally tied to contracts of 12 months or more, decreased 10.3% to $6,170,000 and 10.0% to $3,030,000 in the 2012 Period and 2012 Quarter, respectively. Revenue for network services accounted for 45.5% of total revenue in the 2012 Period compared to 49.4% for the 2011 Period. The decrease in revenue for network services was primarily attributable to customers' disconnecting or reducing their portfolio of Glowpoint services. The trends in the economy, the commoditization of IP networking, along with the availability of converged networking services such that end users can purchase one network and use for all their unified communications applications to include video, have all contributed to the decline in these revenues for Glowpoint. We believe our network service revenue will continue to decline in the current year, although at a slower pace than the previous year.

• Revenue for professional and other services, which represent non-recurring services, decreased 0.1% to $875,000 and increased 4.4% to $566,000 in the 2012 Period and 2012 Quarter, respectively. Revenue for professional and other services accounted for 6.5% of revenue in the 2012 Period compared to 6.3% for the 2011 Period. The increase in revenue for professional and other services in the 2012 Quarter was primarily attributable to special projects we performed for one of our wholesale partners.

                               Six Months Ended June 30,                               Three Months Ended June 30,
                                    (in thousands)                                           (in thousands)
                                              Increase        % Change                                Increase        % Change
                   2012         2011         (Decrease)                     2012        2011         (Decrease)
Revenue
Managed
Services
Combined        $  6,501     $  6,180     $        321           5.2  %   $ 3,204     $ 3,046     $        158           5.2  %
Network
services           6,170        6,879             (709 )       (10.3 )      3,030       3,366             (336 )       (10.0 )
Professional
and other
services             875          876               (1 )        (0.1 )        566         542               24           4.4

Network and Infrastructure Expenses. Network and infrastructure expenses decreased 13.6% to $4,221,000 in the 2012 Period and 13.2% to $2,145,000 in the 2012 Quarter. Network and infrastructure expenses include all external costs, exclusive of depreciation and amortization, related to the Glowpoint network and hosting facilities for our cloud-based infrastructure. This operating expense category also includes the cost for taxes which have been billed to customers. The decrease was primarily attributed to customers' disconnecting or reducing their portfolio of Glowpoint services and the achievement of cost efficiencies exclusive of the lost customers.
Global Managed Services Expenses. Global managed services expenses decreased 10.6% to $3,461,000 in the 2012 Period and 10.8% to $1,765,000 in the 2012 Quarter. Global managed services expenses include all costs for delivering and servicing our managed services, such as delivering customer service operations, internal costs of maintaining the network and infrastructure, and the development and implementation of operating support systems and associated hardware enhancements. The decrease was primarily attributed to automation and efficiencies in use of capacity of platform.

Sales and Marketing Expenses. Sales and marketing expenses increased 2.2% to $1,864,000 in the 2012 Period and decreased 2.7% to $878,000 in the 2012 Quarter. The increase in the 2012 Period was primarily attributed to investments in expanding the sales force. The decrease in the 2012 Quarter was primarily due to fewer trade shows and sponsorships.
General and Administrative Expenses. General and administrative expenses, which include direct corporate expenses related to costs of personnel in the various corporate support categories, including executive, finance, human resources and information technology, decreased 1.3% to $2,652,000 in the 2012 Period and increased 1.6% to $1,302,000 in the 2012 Quarter. The decrease in the 2012 Period was primarily due to expenses related to the relocation of our new headquarters during the first and second quarters of 2011 as well as a reduction in expenses due to efficiencies. The increase in the 2012 Quarter was primarily due to consulting related expenses.
Depreciation and Amortization Expenses. Depreciation and amortization expenses increased 51.0% to $865,000 in the 2012 Period and 43.1% to $425,000 in the 2012 Quarter, due to purchases of property and equipment (as discussed in Note 13 to our consolidated financial statements attached hereto) exceeding the retirement of these assets.
Income from Operations. Income from operations increased by $389,000 in the 2012 Period to $483,000 and $262,000 in the 2012 Quarter to $285,000. The primary drivers of the increase were due to a shift in revenue to higher margin managed service revenues and efficiencies.
Interest and Other Expense. Interest and other expense in the 2012 Period was $58,000, which principally reflected $29,000 of interest charges from vendors and $29,000 of the amortization of financing charges related to our Revolving Loan Facility. Interest and other expense in the 2011 Period was $63,000, which principally reflected $32,000 of interest charges from vendors and $31,000 of the amortization of financing charges related to our Revolving Loan Facility. Interest and other expense in the 2012 Quarter was $32,000, which principally reflected $18,000 of interest charges from vendors and $14,000 of the amortization of financing charges related to our Revolving Loan Facility. Interest and other expenses in the 2011 Quarter was $30,000, which principally reflected $14,000 of interest charges from vendors and $16,000 of the amortization of financing charges related to our Revolving Loan Facility. Income Taxes. As a result of our current income, we recorded a $5,000 provision for incomes taxes for certain minimum taxes in the 2012 Period and 2012 Quarter. There was no provision recorded in the 2011 Period and 2011 Quarter. Any deferred tax asset that would be related to our losses has been fully reserved under a valuation allowance, reflecting the uncertainties as to realization evidenced by our historical results and restrictions on the usage of the net operating loss carry forwards.
Income from Continuing Operations. Income from continuing operations increased by $394,000 to $425,000 in the 2012 Period, and by $260,000 to $253,000 in the 2012 Quarter. This increase was due to reduced operating expenses noted above. Income from Discontinued Operations. Income from discontinued operations decreased by $18,000 to $0 in the 2012 Period and $24,000 to $0 in the 2012 Quarter. This decrease was a result of the transfer of our ISDN resale business completed in the third quarter of 2011.
Net Income. Net Income increased by $371,000 to $420,000, or $0.02 per basic and diluted share, in the 2012 Period. Net Income increased by $231,000 to $248,000, or $0.01 per basic and diluted share, in the 2012 Quarter. The increases in income have been driven by a number of factors. Primarily, the shift in revenue make up to higher margin managed service revenues, which is represented by the decline in network service and increase in managed services. In addition, as the network service is eliminated, there is a cost that is also eliminated which is directly related to the last mile connection and associated cost that Glowpoint incurs for delivering network service. Finally, the company has and will continue to invest in automation and development of operational tools, which permits the business to grow its managed services without taking on additional costs. This efficiency has permitted the company to also make certain cost cuts in previous periods as well as add revenues without add costs. Liquidity and Capital Resources

For the six months ended June 30, 2012, we had net income of $420,000 and a positive cash flow from operations of $297,000. As of June 30, 2012, we had $1,689,000 of cash, positive working capital of $1,513,000 and an accumulated deficit of $164,279,000. In June 2012, the Company renewed its Revolving Loan Facility (as discussed in Note 10 to our consolidated financial statements attached hereto) pursuant to which the Company may borrow up to $5,000,000 for working capital purposes and under which we had unused borrowing availability of approximately $2,662,000 as of June 30, 2012. The Revolving Loan Facility matures in June 2014. Pursuant to the terms of our Series A-2 Preferred Stock and Series B-1 Preferred Stock, the Company will be obligated to pay dividends commencing on January 1, 2013.

In August 2012, the Company entered into a definitive agreement to acquire privately held Affinity VideoNet (as discussed in Note 14 to our consolidated financial statements attached hereto) which will be funded with $7,750,000 cash sourced through debt financing, the issuance of $2,750,000 note, and the issuance of 2,650,000 shares of common stock. The Company has been in negotiations with various lenders and the Merger is anticipated to close in the third quarter of 2012 subject to various conditions, including, but not limited to, (i) the accuracy of the representations and warranties with respect to certain matters, and (ii) the consummation of certain debt financing relating to the transaction.

Based primarily on our efforts to manage costs and our Revolving Loan Facility, . . .