Note 3 - Oblong Industries Acquisition

On October 1, 2019, the Company closed its acquisition of Oblong Industries, Inc., a Delaware corporation (“Oblong Industries” and, such transaction, the “Acquisition”). The Acquisition was consummated through the merger of Glowpoint Merger Sub II, Inc., a Delaware corporation and wholly-owned subsidiary of the Company (the “Merger Sub”), with and into Oblong Industries on the Closing Date, with Oblong Industries continuing as the surviving corporation and as a wholly-owned subsidiary of the Company. On the Closing Date, (i) the shares of common and preferred stock of Oblong Industries issued and outstanding immediately prior to the effective time of the Acquisition were converted into an aggregate of 1,686,659 shares of the Company’s 6.0% Series D Convertible Preferred Stock, par value $0.0001 per share (the “Series D Preferred Stock”); (ii) all options to purchase shares of Oblong’s common stock held by previously terminated employees of Oblong Industries were assumed by the Company and deemed, in the aggregate, to constitute options to acquire a total of 107,845 shares of the Company’s common stock, par value $0.0001 per share (“common stock”), at a volume weighted average exercise price of $4.92 per share and a remaining exercise period of one year; and (iii) all options to purchase shares of Oblong Industries’ common stock held by existing employees of Oblong were canceled and exchanged for an aggregate of 49,967 restricted shares of Series D Preferred Stock (“Restricted Series D Preferred Stock”), which are subject to vesting over a two-year period following the Closing Date.

Each share of Series D Preferred Stock is automatically convertible into a number of shares of Common Stock equal to the accrued value of the share (initially $28.50), plus any accrued dividends thereon, divided by the Conversion Price (initially $2.85 per share, subject to specified adjustments) upon the completion of both i) approval of such conversion by the Company’s stockholders (which occurred on December 19, 2019) and (ii) the receipt of all required authorizations and approval of a new listing application for the combined organization from the NYSE American. Upon such conversion, the Series D Preferred Stock (including shares of Restricted Series D Preferred Stock) will convert into an aggregate of 17,349,010 shares of common stock. Following their conversion to common stock, shares of Restricted Series D Preferred Stock will remain subject to their vesting conditions.

The Acquisition was accounted for in accordance with FASB Accounting Standards Codification Topic 805 “Business Combinations” (“ASC 805”) as a business combination, which requires an allocation of the purchase price of an acquired entity to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The purchase price and the fair value of the assets acquired and liabilities assumed were based on management estimates and values with assistance from an outside appraisal. Pursuant to ASC 805, the purchase price of $18,862,000 was measured as the fair value of the consideration exchanged in the Acquisition as follows:



Series D Preferred Stock (1,686,659 shares at $11.15 per share)	$	18,811,000
Value of common stock options issued (107,845 at $0.47 per option)	51,000
Total purchase price	$	18,862,000

The value per share of the Series D Preferred Stock was determined using an equity allocation method using the Company’s publicly traded common stock as the basis, with use of an option pricing model for determination of the value per share of the Series D Preferred Stock in the event conversion to common stock does not occur. On October 1, 2019, the closing sale price of our common stock was $1.00 per share as reported on the NYSE American. The value of the 107,845 common stock options was determined using the Black-Scholes method, with the following weighted-average assumptions: (i) exercise price of $4.92, (ii) risk-free interest rate of 1.5%, (iii) expected volatility of 217% and (iv) expected term of one year. The value of the Restricted Series D Preferred Stock was not included in the purchase price given the vesting requirements post combination. Therefore, the Company recorded stock-based compensation expense in the post combination period over the vesting period of these awards.

Based on the purchase price allocation, the following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the Closing Date (in thousands):



Cash	$	2,194
Accounts receivable	1,962
Prepaid expenses and other current assets	719
Inventory	1,835
Property and equipment	1,221
Operating lease, right-of-use assets	3,376
Trade names	2,410
Distributor relationships	310
Developed technology	10,060
Other assets	194
Total assets acquired at fair value	$	24,281

Accounts payable	$	(296	)
Operating lease liabilities	(3,578		)
Deferred revenue	(2,231		)
Debt	(5,509		)
Other liabilities	(1,171		)
Total liabilities assumed	$	(12,785	)

Net assets acquired	$	11,496

The purchase price exceeded the fair value of the net assets acquired by $7,366,000, which was recorded as goodwill.

The accompanying consolidated financial statements do not include any revenues or expenses related to the Oblong Industries business on or prior to October 1, 2019 (the Closing Date of the Acquisition). A total of $468,000 of acquisition costs were expensed and included in General and Administrative expenses in the accompanying Statement of Operations for the year ended December 31, 2019.

The preliminary allocation of the purchase price was based upon a valuation for which the estimates and assumptions are subject to change within the measurement period (up to one year from the acquisition date). The final allocation price could differ materially from the preliminary allocation. Any subsequent changes to the purchase price allocation that result in material changes to the Company’s consolidated financial results will be adjusted accordingly.

The consolidated statement of operations for the year ended December 31, 2019 includes $3,167,000 of revenue and net loss of $3,360,000 related to Oblong Industries for the period from October 1, 2019 through December 31, 2019. The Company's unaudited pro forma results for the years ended December 31, 2019 and 2018 are summarized in the table below, assuming the Acquisition had occurred on January 1, 2018 (in thousands). These unaudited pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations which would have actually resulted had the acquisition occurred on January 1, 2018, nor to be indicative of future results of operations. These pro forma results include pro forma adjustments of $1,393,000 and $1,880,000 for the years ended December 31, 2019 and 2018, respectively, related to the incremental amortization of Oblong Industries’ intangible assets recorded in connection with the Acquisition.



	Pro forma and unaudited (as if the acquisition of Oblong Industries had occurred on January 1, 2018)
	Year Ended December 31,
	2019		2018
Revenue
Glowpoint	$	9,660	$	12,557
Oblong Industries	15,926		17,249
Total revenue	$	25,586	$	29,806
Net loss
Glowpoint	$	4,401	$	7,168
Oblong Industries	15,795		19,734
Pro forma net loss	$	20,196	$	26,902