Towerstream Corporation
TOWERSTREAM CORP (Form: 10-Q, Received: 08/10/2015 16:10:52)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

  For the quarterly period ended June 30, 2015

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from_______to_______

 

Commission file number 001-33449

 

TOWERSTREAM CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware

(State or other jurisdiction of incorporation or organization)

 

20-8259086

(I.R.S. Employer Identification No.)

 

 

 

88 Silva Lane

Middletown, Rhode Island

(Address of principal executive offices)

 

02842

(Zip Code)

 

Registrant’s telephone number, including area code (401) 848-5848

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No  

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes No

 

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

   

Large accelerated filer

Accelerated filer   

Non-accelerated filer    (Do not check if a smaller reporting company)

Smaller reporting company   

   

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No

 

As of August 6, 2015, there were 66,766,261 shares of common stock, par value $0.001 per share, outstanding.

   

 
 

 

   

TOWERSTREAM CORPORATION AND SUBSIDIARIES

 

Table of Contents

 

     

Pages

 

Part I

FINANCIAL INFORMATION

       
           

Item 1.

Financial Statements.

    1  
           
 

Condensed Consolidated Balance Sheets as of June 30, 2015 (unaudited) and December 31, 2014

    1  
           
 

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2015 and 2014 (unaudited)

    2  
           
 

Condensed Consolidated Statement of Stockholders’ Equity for the Six Months Ended June 30, 2015 (unaudited)

    3  
           
 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2015 and 2014 (unaudited)

    4  
           
 

Notes to Unaudited Condensed Consolidated Financial Statements

    5-13  
           

Item 2.

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

    14-25  
           

Item 3.

Quantitative and Qualitative Disclosures about Market Risk.

    25  
           

Item 4.

Controls and Procedures.

    25  
           

Part II

OTHER INFORMATION

       
           

Item 6.

Exhibits.

    26  

 

 
i

 

   

TOWERSTREAM CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   

June 30 , 201 5

(Unaudited)

   

December 31, 2014

 

Assets

               

Current Assets

               

Cash and cash equivalents

  $ 26,117,134     $ 38,027,509  

Accounts receivable, net

    1,011,670       1,310,647  

Prepaid expenses and other current assets

    1,317,789       926,699  

Total Current Assets

    28,446,593       40,264,855  
                 

Property and equipment, net

    31,522,059       33,905,286  
                 

Intangible assets, net

    2,003,722       2,199,858  

Goodwill

    1,674,281       1,674,281  

Other assets

    3,538,774       4,277,558  

Total Assets

  $ 67,185,429     $ 82,321,838  
                 

Liabilities and Stockholders’ Equity

               
                 

Current Liabilities

               

Accounts payable

  $ 984,047     $ 871,251  

Accrued expenses

    2,474,277       2,038,696  

Deferred revenues

    1,268,442       1,384,846  

Current maturities of capital lease obligations

    1,014,911       845,668  

Other

    65,723       57,242  

Total Current Liabilities

    5,807,400       5,197,703  
                 

Long-Term Liabilities

               

Long-term debt, net of debt discount of $2,594,452 and $3,194,147, respectively

    33,414,506       32,101,409  

Capital lease obligations, net of current maturities

    1,432,416       1,285,858  

Other

    1,899,356       1,774,841  

Total Long-Term Liabilities

    36,746,278       35,162,108  

Total Liabilities

    42,553,678       40,359,811  
                 

Commitments (Note 12)

               
                 

Stockholders' Equity

               

Preferred stock, par value $0.001; 5,000,000 shares authorized; none issued

    -       -  

Common stock, par value $0.001; 95,000,000 shares authorized; 66,766,261 and 66,656,789 shares issued and outstanding, respectively

    66,766       66,657  

Additional paid-in-capital

    158,074,791       157,631,299  

Accumulated deficit

    (133,509,806 )     (115,735,929 )

Total Stockholders' Equity

    24,631,751       41,962,027  

Total Liabilities and Stockholders' Equity

  $ 67,185,429     $ 82,321,838  

   

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 
1

 

   

TOWERSTREAM CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2015

   

201 4

   

201 5

   

201 4

 
                                 

Revenues

  $ 7,857,133     $ 8,264,848     $ 15,817,228     $ 16,644,754  
                                 

Operating Expenses

                               

Cost of revenues (exclusive of depreciation)

    6,319,537       6,101,913       12,719,904       11,957,856  

Depreciation and amortization

    3,409,113       3,281,062       6,788,496       6,976,477  

Customer support services

    1,332,233       1,150,905       2,573,712       2,326,670  

Sales and marketing

    1,548,480       1,399,089       2,876,910       2,820,688  

General and administrative

    2,428,153       2,666,997       5,297,391       5,344,937  

Total Operating Expenses

    15,037,516       14,599,966       30,256,413       29,426,628  

Operating Loss

    (7,180,383 )     (6,335,118 )     (14,439,185 )     (12,781,874 )

Other Income/(Expense)

                               

Interest expense, net

    (1,670,428 )     (59,488 )     (3,334,692 )     (122,539 )

Total Other Income/(Expense)

    (1,670,428 )     (59,488 )     (3,334,692 )     (122,539 )
                                 

Net Loss

  $ (8,850,811 )   $ (6,394,606 )   $ (17,773,877 )   $ (12,904,413 )
                                 
                                 

Net loss per common share – basic and diluted

  $ (0.13 )   $ (0.10 )   $ (0.26 )   $ (0.19 )

Weighted average common shares outstanding –   basic and diluted

    67,924,379       66,478,686       67,890,771       66,458,983  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 
2

 

   

TOWERSTREAM CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

For the Six Months Ended June 30, 2015

 

 

   

Common Stock

                         
   

Shares

   

Amount

   

Additional Paid-In-Capital

   

Accumulated Deficit

   

Total

 

Balance at January 1, 2015

    66,656,789     $ 66,657     $ 157,631,299     $ (115,735,929 )   $ 41,962,027  

Cashless exercise of options

    96,594       97       (97 )     -       -  

Issuance of common stock under employee stock purchase plan

    12,878       12       25,291       -       25,303  

Stock-based compensation for options

    -       -       418,298       -       418,298  

Net loss

    -       -       -       (17,773,877 )     (17,773,877 )

Balance at June 30, 2015

    66,766,261     $ 66,766     $ 158,074,791     $ (133,509,806 )   $ 24,631,751  

   

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 
3

 

 

  TOWERSTREAM CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 

(UNAUDITED)

 

   

Six Months Ended June 3 0 ,

 
   

201 5

   

201 4

 

Cash Flows From Operating Activities

               

Net loss

  $ (17,773,877 )   $ (12,904,413 )

Adjustments to reconcile net loss to net cash used in operating activities:

               

Provision for doubtful accounts

    100,000       117,000  

Depreciation for property, plant and equipment

    6,592,360       6,283,644  

Amortization for customer based intangibles

    196,136       692,833  

Amortization of debt issuance costs

    493,950       -  

Amortization of debt discount

    599,695       -  

Stock-based compensation

    422,079       555,034  

Deferred rent

    127,861       161,890  

Changes in operating assets and liabilities:

               

Accounts receivable

    198,977       (301,937 )

Prepaid expenses and other current assets

    (380,462 )     (444,799 )

Other assets

    249,024       161,650  

Accounts payable

    112,796       215,882  

Accrued expenses

    642,467       (294,303 )

Deferred revenues

    (116,404 )     (113,036 )

Accrued interest

    713,402       -  

Total Adjustments

    9,951,881       7,033,858  

Net Cash Used In Operating Activities

    (7,821,996 )     (5,870,555 )
                 

Cash Flows From Investing Activities

               

Acquisitions of property and equipment

    (3,605,994 )     (4,930,801 )

Lease incentive payment from landlord

    -       380,000  

Payments of security deposits

    (2,189 )     (18,721 )

Deferred acquisition payments

    (5,492 )     (61,946 )

Net Cash Used In Investing Activities

    (3,613,675 )     (4,631,468 )
                 

Cash Flows From Financing Activities

               

Payments on capital leases

    (496,226 )     (408,683 )

Proceeds from the issuance of common stock under employee stock purchase plan

    21,522       21,675  

Fair value of options repurchased

    -       (3,793 )

Net Cash Used In Financing Activities

    (474,704 )     (390,801 )
                 

Net Decrease In Cash and Cash Equivalents

    (11,910,375 )     (10,892,824 )
                 

Cash and Cash Equivalents – Beginning

    38,027,509       28,181,531  

Cash and Cash Equivalents – Ending

  $ 26,117,134     $ 17,288,707  
                 

Supplemental Disclosures of Cash Flow Information

               

Cash paid during the periods for:

               

Interest

  $ 1,559,200     $ 137,527  

Taxes

  $ 21,900     $ 41,269  

Acquisition of property and equipment:

               

Under capital leases

  $ 810,026     $ -  

Included in accrued expenses

  $ 317,393     $ 572,004  

 

The accompanying notes are an integral part of these condensed consolidated financial statements .

   

 
4

 

   

TOWERSTREAM CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1.    Organization and Nature of Business

 

Towerstream Corporation (referred to as “Towerstream” or the “Company”) was incorporated in Delaware in December 1999. During its first decade of operations, the Company's business activities were focused on delivering fixed wireless broadband services to commercial customers over a wireless network transmitting over both regulated and unregulated radio spectrum. The Company's fixed wireless service supports bandwidth on demand, wireless redundancy, virtual private networks, disaster recovery, bundled data and video services. The Company provides services to business customers in New York City, Boston, Chicago, Los Angeles, San Francisco, Seattle, Miami, Dallas-Fort Worth, Houston, Philadelphia, Las Vegas-Reno and Providence-Newport. The Company's “Fixed Wireless business” has historically grown both organically and through the acquisition of five other fixed wireless broadband providers in various markets.

 

In January 2013, the Company incorporated a wholly-owned subsidiary, Hetnets Tower Corporation (“Hetnets”). Hetnets was formed to operate a new shared wireless infrastructure platform that emerged from the Company's efforts to identify opportunities to leverage its fixed wireless network in urban markets to provide other wireless technology solutions and services. Hetnets operates a carrier-class network which has been constructed on "street level rooftops" which are closer to the ground (where Wi-Fi and small cell can operate with less interference from the macro cell) than the Company's traditional fixed wireless network. The Company believes that the wireless communications industry is experiencing a fundamental shift from its traditional macro-cellular architecture to densified small cell architecture where existing cell sites will be supplemented by many smaller base stations operating near street level. Hetnets is structured to operate like a tower company and expects to generate rental income from four separate sources including (i) rental of space on street level rooftops for the installation of customer owned small cells which includes Wi-Fi antennae, Distributed Antenna System (“DAS”), and Metro and Pico cells, (ii) rental of a channel on Hetnets’ Wi-Fi network for Internet access and the offloading of mobile data, (iii) rental of a port for backhaul or transport, and (iv) power and other related services. The Company refers to the activities of Hetnets as its “Shared Wireless Infrastructure” (or “Shared Wireless”) business.

   

In August 2014, the Company executed a master licensing agreement ("MLA") with a carrier for small cell deployments. The MLA establishes the detailed terms and conditions under which individual orders are governed, and are generally designed to expedite the deployment process. The term of this agreement is for 25 years.

 

Note 2.    Summary of Significant Accounting Policies

 

Basis of Presentation. The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and with Form 10-Q and Article 10 of Regulation S-X of the United States Securities and Exchange Commission. Accordingly, they do not contain all information and footnotes required by GAAP for annual financial statements. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of June 30, 2015 and the results of operations and cash flows for the periods presented. The results of operations for the six months ended June 30, 2015 are not necessarily indicative of the operating results for the full fiscal year for any future period.

 

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. The Company’s accounting policies are described in the Notes to Consolidated Financial Statements in its Annual Report on Form 10-K for the year ended December 31, 2014, and updated, as necessary, in this Quarterly Report on Form 10-Q.

 

Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the amounts of revenues and expenses. Actual results could differ from those estimates.

   

Concentration of Credit Risk .  Financial instruments that potentially subject the Company to significant concentrations of credit risk consist of cash and cash equivalents. At times, our cash and cash equivalents may be uninsured or in deposit accounts that exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance limits. As of June 30, 2015, the Company had cash and cash equivalent balances of approximately $25,596,000 in excess of the federally insured limit of $250,000.

 

 
5

 

 

TOWERSTREAM CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

 

Accounts Receivable . Accounts receivable are stated at cost less an allowance for doubtful accounts which reflects the Company’s estimate of balances that will not be collected. The allowance is based on the history of past write-offs, the aging of balances, collections experience and current credit conditions. Additions include provisions for doubtful accounts and deductions include customer write-offs. Changes in the allowance for doubtful accounts were as follows:

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

201 5

   

201 4

   

201 5

   

201 4

 

Beginning of period

  $ 71,343     $ 65,719     $ 59,273     $ 81,009  

Additions

    70,000       107,000       100,000       117,000  

Deductions

    (23,595 )     (10,856 )     (41,525 )     (36,146 )

End of period

  $ 117,748     $ 161,863     $ 117,748     $ 161,863  

   

Revenue Recognition. The Company normally enters into contractual agreements with its customers for periods ranging between one to three years. The Company recognizes the total revenue provided under a contract ratably over the contract period, including any periods under which the Company has agreed to provide services at no cost. The Company applies the revenue recognition principles set forth under the United States Securities and Exchange Commission Staff Accounting Bulletin 104, (“SAB 104”) which provides for revenue to be recognized when (i) persuasive evidence of an arrangement exists, (ii) delivery or installation has been completed, (iii) the customer accepts and verifies receipt, and (iv) collectability is reasonably assured.

 

Deferred Revenues. Customers are billed monthly in advance. Deferred revenues are recognized for that portion of monthly charges not yet earned as of the end of the reporting period. Deferred revenues are also recognized for certain customers who pay for their services in advance.

 

Intrinsic Value of Stock Options and Warrants . The Company calculates the intrinsic value of stock options and warrants as the difference between the closing price of the Company’s common stock at the end of the reporting period and the exercise price of the stock options and warrants.

 

Recent Accounting Pronouncements. In April 2015, the FASB issued ASU No. 2015-03 (“ASU 2015-03”), “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.” ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability, consistent with debt discounts, instead of being presented as an asset. ASU 2015-03 is effective for the Company on January 1, 2016. Once adopted, entities are required to apply the new guidance retrospectively to all prior periods presented. The retrospective application represents a change in accounting principle. Early adoption is permitted for financial statements that have not been previously issued. The Company is currently evaluating the effect that ASU 2015-03 will have on its condensed consolidated financial statements and related disclosures.

 

Reclassifications.  Certain accounts in the prior year’s condensed consolidated financial statements have been reclassified for comparative purposes to conform to the presentation in the current year’s condensed consolidated financial statements. These reclassifications have no effect on the previously reported net loss.

 

Subsequent Events . Subsequent events have been evaluated through the date of this filing.

 

Note 3.    Property and Equipment

 

Property and equipment is comprised of:

 

   

June 30, 2015

   

December 31, 2014

 

Network and base station equipment

  $ 37,820,584     $ 35,836,469  

Customer premise equipment

    28,574,798       26,511,691  

Shared wireless infrastructure

    21,027,870       21,044,189  

Information technology

    4,739,136       4,628,555  

Furniture, fixtures and other

    1,713,580       1,669,340  

Leasehold improvements

    1,622,802       1,599,393  
      95,498,770       91,289,637  

Less: accumulated depreciation

    63,976,711       57,384,351  

Property and equipment, net

  $ 31,522,059     $ 33,905,286  

   

 
6

 

 

TOWERSTREAM CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

 

 Property acquired through capital leases included within the Company’s property and equipment consists of the following:

 

   

June 30 , 201 5

   

December 31, 201 4

 

Network and base station equipment

  $ 1,390,593     $ 1,003,875  

Shared wireless infrastructure

    1,230,305       1,230,305  

Customer premise equipment

    669,792       246,484  

Information technology

    1,860,028       1,860,028  
      5,150,718       4,340,692  

Less: accumulated depreciation

    2,599,896       2,135,534  

Property acquired through capital leases, net

  $ 2,550,822     $ 2,205,158  

   

Depreciation expense for the three months ended June 30, 2015 and 2014 was $3,311,045 and $3,173,255, respectively. Depreciation expense for the six months ended June 30, 2015 and 2014 was $6,592,360 and $6,283,644, respectively.

 

Note 4. Intangible Assets

 

Intangible assets consist of the following:

 

   

June 30, 2015

   

December 31, 2014

 

Goodwill

  $ 1,674,281     $ 1,674,281  
                 

Customer relationships

  $ 11,856,127     $ 11,856,127  

Less: accumulated amortization of customer relationships

    11,136,960       10,940,824  

Customer relationships, net

    719,167       915,303  

FCC licenses

    1,284,555       1,284,555  

Intangible assets, net

  $ 2,003,722     $ 2,199,858  

 

Amortization expense for the three months ended June 30, 2015 and 2014 was $98,068 and $107,807, respectively. Amortization expense for the six months ended June 30, 2015 and 2014 was $196,136 and $692,833, respectively. The customer contracts acquired in the Delos acquisition are being amortized over a 50 month period ending April 2017. As of June 30, 2015, the remaining amortization period for the Delos acquisition was 22 months. Balances related to the Company’s other acquisitions have been fully amortized. Future amortization expense is as follows:

 

Remainder of 2015

  $ 196,136  

2016

    392,272  

2017

    130,759  
    $ 719,167  

 

The Company’s licenses with the Federal Communications Commission (the “FCC”) are not subject to amortization as they have an indefinite useful life.

 

Note 5. Accrued Expenses

 

Accrued expenses consist of the following: 

 

   

June 30, 2015

   

December 31, 2014

 

Payroll and related

  $ 1,195,878     $ 726,917  

Professional services

    352,839       256,534  

Property and equipment

    317,393       524,280  

Other

    302,340       280,413  

Network

    224,828       187,440  

Marketing

    80,999       63,112  

Total

  $ 2,474,277     $ 2,038,696  

 

Network represents costs incurred to provide services to the Company’s customers including tower rentals, bandwidth, troubleshooting and gear removal.

 

 
7

 

 

TOWERSTREAM CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

 

Note 6.    Other Liabilities

 

Other liabilities consist of the following:

 

   

June 30, 2015

   

December 31, 2014

 

Current

               

Deferred rent

  $ 59,690     $ 46,058  

Deferred acquisition payments

    6,033       11,184  

Total

  $ 65,723     $ 57,242  
                 

Long-Term

               

Deferred rent

  $ 1,498,019     $ 1,373,163  

Deferred acquisition payments

    -       341  

Deferred taxes

    401,337       401,337  

Total

  $ 1,899,356     $ 1,774,841  

 

Deferred acquisition payments related to Delos Internet totaled $6,033 at June 30, 2015 and bear interest at a rate of 7%.

 

Note 7.    Long-Term Debt

 

    In October 2014, the Company entered into a loan agreement (the "Loan Agreement") with Melody Business Finance, LLC (the "Lender") which provided the Company with a five-year $35 million term loan (the "Financing" or "Note").  The Note was issued at a 3% discount totaling $1,050,000 which is being amortized over the term of the Note.  The Company recognized interest expense of $87,466 and $179,231 in connection with the amortization of this discount for the three and six months ended June 30, 2015, respectively, and the unamortized balance totaled $775,404 at June 30, 2015.

 

     The Note bears interest payable in cash at a rate equal to the greater of (i) the sum of the one month Libor rate on each payment date plus 7% or (ii) 8% per annum, and additional paid in kind (“PIK”), or deferred, interest that accrues at 4% per annum.  The Company paid $720,892 of interest and accrued $360,446 of PIK interest for the three months ended June 30, 2015. The Company paid $1,426,803 of interest and accrued $713,402 of PIK interest for the six months ended June 30, 2015. PIK interest is included in Interest expense in the accompanying condensed consolidated statements of operations.

 

    As of June 30, 2015, the Company was in compliance with all of the debt covenants.

 

    In connection with the Loan Agreement and pursuant to a Warrant and Registration Rights Agreement, the Company issued warrants (the “Warrants”) to purchase 3,600,000 shares of common stock of which two-thirds have an exercise price of $1.26 and one-third have an exercise price of $0.01, subject to customary adjustments under certain circumstances.  The Warrants have a term of seven and a half years.  The fair value of the warrants granted to the Lender of $2,463,231 was calculated using the Black-Scholes option pricing model and recorded as a debt discount.  The debt discount is being amortized over the term of the Note using the effective interest rate.  The Company recognized interest expense of $205,190 and $420,464 in connection with the amortization of this discount for the three and six months ended June 30, 2015, respectively, and the unamortized balance totaled $1,819,048 at June 30, 2015.

 

   The Company incurred costs, primarily professional services, of approximately $2,900,000 related to the Loan Agreement.  These costs were recorded as other assets in the Company’s consolidated balance sheet and are being amortized over the term of the Loan Agreement using the effective interest rate.  Amortization expense totaled $241,051 and $493,950 for the three and six months ended June 30, 2015, respectively, and the unamortized balance totaled $2,136,969 at June 30, 2015. 

 

 
8

 

   

TOWERSTREAM CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

 

Note 8. Stock Options and Warrants

 

Stock Options

 

 The Company uses the Black-Scholes option pricing model to value options issued to employees, directors and consultants. Compensation expense, including on the date of grant the effect of forfeitures, is recognized over the period of service, generally the vesting period. Stock compensation expense and the weighted average assumptions used to calculate the fair values of stock options granted during the periods indicated were as follows:

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2015

   

2014

   

2015

   

2014

 

Risk-free interest rate

    1.6 %     1.6 %     1.6 %     1.6 %

Expected volatility

    59 %     47 %     59 %     47 %

Expected life (in years)

    4.1       5.3       4.1       5.3  

Expected dividend yield

    -       -       -       -  

Weighted average per share grant date fair value

  $ 0.95     $ 0.84     $ 0.95     $ 0.84  

Stock-based compensation

  $ 209,089     $ 260,882     $ 418,298     $ 551,233  

 

The risk-free interest rate was based on rates established by the Federal Reserve. The Company’s expected volatility was based upon the historical volatility for its common stock. The expected life of the Company’s options was determined using the simplified method as a result of limited historical data regarding the Company’s activity. Beginning in the fourth quarter of 2014, the Company began utilizing its historical data regarding the Company’s activity as it relates to the expected life of stock options. The dividend yield is based upon the fact that the Company has not historically paid dividends, and does not expect to pay dividends in the foreseeable future. Stock-based compensation is included in general and administrative expenses in the accompanying condensed consolidated statements of operations. The unamortized amount of stock options expense totaled $823,508 as of June 30, 2015 which will be recognized over a weighted-average period of 1.2 years.

 

Option transactions under the stock option plans during the six months ended June 30, 2015 were as follows:

 

   

Number

   

Weighted Average Exercise Price

 

Outstanding as of January 1, 2015

    3,997,695     $ 2.73  

Granted during 2015

    200,000     $ 2.07  

Exercised

    (426,530 )   $ 1.58  

Cancelled /expired

    (59,124 )   $ 1.82  

Outstanding as of June 30, 2015

    3,712,041     $ 2.74  

Exercisable as of June 30, 2015

    2,460,068     $ 3.05  

 

 In June 2015, the Company made its annual grant to the Board of Directors consisting of 200,000 options with an exercise price of $2.07 vesting monthly through May 2016.

 

 A total of 426,530 options were exercised on a cashless basis during the six months ended June 30, 2015 resulting in the net issuance of 96,594 shares.

 

 Cancellations for the six months ended June 30, 2015 were 31,624. Cancellations related to employee terminations except for 27,500 options which expired during the six months ended June 30, 2015.

 

 The weighted average remaining contractual life of the outstanding options as of June 30, 2015 was 6.7 years.

 

 The aggregate intrinsic value associated with the options outstanding and exercisable as of June 30, 2015 was $501,101 and $228,886, respectively. The closing price of the Company’s common stock at June 30, 2015 was $1.79 per share.

 

Stock Warrants

 

There were 4,050,000 warrants outstanding and exercisable at June 30, 2015 with a weighted average exercise price of $1.31 per share. The weighted average remaining contractual life of the warrants was 6.2 years.

 

The aggregate intrinsic value associated with the warrants outstanding and exercisable as of June 30, 2015 was $3,408,000. The closing price of the Company’s common stock at June 30, 2015 was $1.79 per share.

 

Cashless Exercises

 

The number of shares issuable upon the exercise of an option or a warrant will be lower if a holder exercises on a cashless basis. Under a cashless exercise, the holder uses a portion of the shares that would otherwise be issuable upon exercise, rather than cash, as consideration for the exercise. The amount of net shares issuable in connection with a cashless exercise will vary based on the exercise price of the option or warrant compared to the market price of the Company’s common stock on the date of exercise.

   

 
9

 

 

TOWERSTREAM CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

 

Note 9. Employee Stock Purchase Plan

 

Under the Company’s 2010 Employee Stock Purchase Plan (“ESPP Plan”), participants can purchase shares of the Company’s stock at a 15% discount. A maximum of 200,000 shares of common stock can be issued under the ESPP Plan of which 124,458 shares have been issued to date and 75,542 shares are available for future issuance. During the three and six months ended June 30, 2015, a total of 6,791 and 12,878 shares were issued under the ESPP Plan with a fair value of $12,156 and $25,303, respectively. The Company recognized $1,833 and $3,781 of stock-based compensation related to the 15% discount for the three and six months ended June 30, 2015, respectively. The Company recognized $1,882 and $3,801 of stock-based compensation related to the 15% discount for the three and six months ended June 30, 2014, respectively.

 

Note 10. Fair Value Measurement

 

Valuation Hierarchy

 

The accounting standard of the FASB for fair value measurements establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

 

Cash and cash equivalents are measured at fair value using quoted market prices and are classified within Level 1 of the valuation hierarchy. The carrying amounts of accounts receivable, accounts payable and accrued liabilities approximate their fair value due to their short maturities. There were no changes in the valuation techniques during the three months ended June 30, 2015.

 

   

Total Carrying Value

   

Quoted prices in active markets
(Level 1)

   

Significant
other
observable
inputs
(Level 2)

   

Significant
unobservable
inputs
(Level 3)

 

June 30, 2015

  $ 26,117,134     $ 26,117,134     $ -     $ -  

December 31, 2014

  $ 38,027,509     $ 38,027,509     $ -     $ -  

 

Note 11.    Net Loss Per Common Share

 

Basic and diluted net loss per share has been calculated by dividing net loss by the weighted average number of common shares outstanding during the period and the inclusion of 1,200,000 warrants to purchase shares of common stock at an exercise price of $0.01. The following common stock equivalents were excluded from the computation of diluted net loss per common share because they were anti-dilutive. The exercise or issuance of these common stock equivalents outstanding at June 30, 2015 would dilute earnings per share if the Company becomes profitable in the future. The exercise of these stock options and warrants could potentially generate proceeds up to approximately $16 million if exercised by the holder for cash.

 

Stock options

    3,712,041  

Warrants

    2,850,000  

Total

    6,562,041  

   

 
10

 

 

TOWERSTREAM CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

 

  Note 12.    Commitments

 

Operating Lease Obligations

 

The Company has entered into operating leases related to roof rights, cellular towers, office space, and equipment leases under various non-cancelable agreements expiring through April 2025. Certain of these operating leases include extensions, at the Company's option, for additional terms ranging from 1 to 25 years. Amounts associated with the extension periods have not been included in the table below as it is not presently determinable which options, if any, the Company will elect to exercise. As of June 30, 2015, total future operating lease obligations were as follows:

 

Remainder of 2015

  $ 10,779,421  

2016

    19,342,274  

2017

    13,801,840  

2018

    6,395,904  

2019

    2,842,743  

Thereafter

    1,047,538  
    $ 54,209,720  

 

Rent expenses were as follows:

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

201 5

   

201 4

   

201 5

   

201 4

 

Points of Presence

  $ 2,009,366     $ 1,948,102     $ 4,095,064     $ 3,793,348  

Street level rooftops

    3,397,290       3,263,423       6,858,788       6,392,916  

Corporate offices

    96,669       84,109       188,861       168,219  

Other

    100,605       95,219       188,940       185,717  
    $ 5,603,930     $ 5,390,853     $ 11,331,653     $ 10,540,200  

   

Rent expenses related to Points of Presence, street level rooftops and other were included in cost of revenues in the Company’s condensed consolidated statements of operations. Rent expense related to our corporate offices was included in general and administrative expenses in the Company’s condensed consolidated statements of operations.

 

In September 2013, the Company entered into a new lease agreement for its corporate offices and new warehouse space. The lease commenced on January 1, 2014 and expires on December 31, 2019 with an option to renew for an additional five year term through December 31, 2024. The Company spent approximately $600,000 in leasehold improvements in connection with consolidating its corporate based employees from two buildings into one building. The Landlord agreed to contribute $380,000 in funding towards qualified leasehold improvements and made such payment to the Company in February 2014. Total annual rent payments began at $359,750 for 2014 and escalate by 3% annually reaching $416,970 for 2019.

 

In December 2014, the Company entered into a new lease agreement in Florida, primarily for a second sales center. The lease commenced in February 2015 for 38 months with an option to renew for an additional 60 month period. Total annual rent payments begin at $53,130 and escalate by 3% annually.

 

Capital Lease Obligations

 

The Company has entered into capital leases to acquire property and equipment expiring through June 2018.  As of June 30, 2015, total future capital lease obligations were as follows:

 

Remainder of 2015

  $ 631,822  

2016

    1,110,428  

2017

    837,811  

2018

    143,796  
    $ 2,723,857  

Less: interest expense

    276,530  

Total capital lease obligations

  $ 2,447,327  

Current

  $ 1,014,911  

Long-term

  $ 1,432,416  

 

  Other

 

Under the terms of a one year information technology support agreement, the Company is making quarterly payments of approximately $68,000 through the first quarter of 2016.

 

Note 13. Segment Information

 

The Company has two reportable segments: Fixed Wireless and Shared Wireless Infrastructure. Management evaluates performance and allocates resources based on the operating performance of each segment as well as the long-term growth potential for each segment. Costs reported for each segment include costs directly associated with a segment’s operations. Intersegment revenues and expenses are eliminated in consolidation.

 

 
11

 

 

TOWERSTREAM CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

 

The balance of the Company’s operations is in the Corporate group which includes centralized operations. This group includes operations related to corporate overhead and centralized activities which support our overall operations. Corporate overhead includes administrative personnel, including executive management, and other support functions such as information technology and facilities. Centralized operations include network operations, customer care, and the management of network assets. The Corporate group is treated as a separate segment consistent with how management monitors and analyzes financial results. Corporate costs are not allocated to the segments because such costs are managed and controlled on a functional basis that encompasses all markets, with centralized, functional management held accountable for corporate results. Management also believes that not allocating these centralized costs provides a better reflection of the direct operating performance of each segment. The table below presents information about our operating segments:

 

   

Three Months Ended June 30 , 201 5 (Unaudited)

 
   

Fixed Wireless

   

Shared Wireless Infrastructure

   

Corporate

   

Eliminations

   

Total

 
                                         

Revenues

  $ 7,080,474     $ 826,226     $ -     $ (49,567 )   $ 7,857,133  
                                         

Operating Expenses

                                       

Cost of revenues (exclusive of depreciation)

    2,683,920       3,672,380       12,804       (49,567 )     6,319,537  

Depreciation and amortization

    2,175,665       1,015,859       217,589       -       3,409,113  

Customer support services

    360,919       196,226       775,088       -       1,332,233  

Sales and marketing

    1,427,790       43,299       77,391       -       1,548,480  

General and administrative

    180,565       95,189       2,152,399       -       2,428,153  

Total Operating Expenses

    6,828,859       5,022,953       3,235,271       (49,567 )     15,037,516  

Operating Income (Loss)

  $ 251,615     $ (4,196,727 )   $ (3,235,271 )   $ -     $ (7,180,383 )
                                         

Capital expenditures

  $ 2,422,143     $ 56,223     $ 57,181     $ -     $ 2,535,547  

 

   

Three Months Ended June 30, 2014 (Unaudited)

 
   

Fixed Wireless

   

Shared Wireless Infrastructure

   

Corporate

   

Eliminations

   

Total

 
                                         

Revenues

  $ 7,572,447     $ 738,370     $ -     $ (45,969 )   $ 8,264,848  
                                         

Operating Expenses

                                       

Cost of revenues (exclusive of depreciation)

    2,620,460       3,513,341       14,081       (45,969 )     6,101,913  

Depreciation and amortization

    2,080,501       977,960       222,601       -       3,281,062  

Customer support services

    271,591       178,774       700,540       -       1,150,905  

Sales and marketing

    1,252,124       62,862       84,103       -       1,399,089  

General and administrative

    202,053       157,636       2,307,308       -       2,666,997  

Total Operating Expenses

    6,426,729       4,890,573       3,328,633       (45,969 )     14,599,966  

Operating Income (Loss)

  $ 1,145,718     $ (4,152,203 )   $ (3,328,633 )   $ -     $ (6,335,118 )
                                         

Capital expenditures

  $ 1,403,404     $ 490,399     $ 204,334     $ -     $ 2,098,137  

 

 

   

Six Months Ended June 30 , 201 5 (Unaudited)

 
   

Fixed Wireless

   

Shared Wireless Infrastructure

   

Corporate

   

Eliminations

   

Total

 
                                         

Revenues

  $ 14,298,205     $ 1,613,854     $ -     $ (94,831 )   $ 15,817,228  
                                         

Operating Expenses

                                       

Cost of revenues (exclusive of depreciation)

    5,405,816       7,378,763       30,156       (94,831 )     12,719,904  

Depreciation and amortization

    4,302,453       2,047,369       438,674       -       6,788,496  

Customer support services

    687,007       356,361       1,530,344       -       2,573,712  

Sales and marketing

    2,638,075       86,911       151,924       -       2,876,910  

General and administrative

    300,894       203,533       4,792,964       -       5,297,391  

Total Operating Expenses

    13,334,245       10,072,937       6,944,062       (94,831 )     30,256,413  

Operating Income (Loss)

  $ 963,960     $ (8,459,083 )   $ (6,944,062 )   $ -     $ (14,439,185 )
                                         

Capital expenditures

  $ 3,856,210     $ 174,693     $ 178,230     $ -     $ 4,209,133  
                                         

As of June 30, 201 5

                                       

Property and equipment, net

  $ 20,977,133     $ 8,694,622     $ 1,850,304     $ -     $ 31,522,059  

Total assets

  $ 25,486,114     $ 10,789,654     $ 30,909,661     $ -     $ 67,185,429  

 

 
12

 

 

   

Six Months Ended June 30, 2014 (Unaudited)

 
   

Fixed Wireless

   

Shared Wireless Infrastructure

   

Corporate

   

Eliminations

   

Total

 
                                         

Revenues

  $ 15,257,973     $ 1,478,719     $ -     $ (91,938 )   $ 16,644,754  
                                         

Operating Expenses

                                       

Cost of revenues (exclusive of depreciation)

    5,119,152       6,902,292       28,350       (91,938 )     11,957,856  

Depreciation and amortization

    4,618,374       1,918,898       439,205       -       6,976,477  

Customer support services

    543,736       354,964       1,427,970       -       2,326,670  

Sales and marketing

    2,515,261       139,612       165,815       -       2,820,688  

General and administrative

    310,479       304,164       4,730,294       -       5,344,937  

Total Operating Expenses

    13,107,002       9,619,930       6,791,634       (91,938 )     29,426,628  

Operating Income (Loss)

  $ 2,150,971     $ (8,141,211 )   $ (6,791,634 )   $ -     $ (12,781,874 )
                                         

Capital expenditures

  $ 2,889,854     $ 1,428,452     $ 317,188     $ -     $ 4,635,494  
                                         

As of June 30, 2014

                                       

Property and equipment, net

  $ 21,966,834     $ 12,377,471     $ 2,492,402     $ -     $ 36,836,707  

Total assets

  $ 27,442,263     $ 14,839,751     $ 19,888,452     $ -     $ 62,170,466  

 

Note 14. Subsequent Events

 

In the third quarter of 2015, the Company's wholly owned subsidiary, Hetnets Tower Corporation ("Hetnets"), signed contracts with a leading carrier for the colocation of small cell equipment on Hetnets' wireless infrastructure.

 

 
13

 

 

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

 

The following discussion and analysis summarizes the significant factors affecting our condensed consolidated results of operations, financial condition and liquidity position for the six months ended June 30, 2015. This discussion and analysis should be read in conjunction with our audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2014 and the condensed consolidated unaudited financial statements and related notes included elsewhere in this filing. The following discussion and analysis contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements.

 

Forward-Looking Statements

 

Forward-looking statements in this Quarterly Report on Form 10-Q, including without limitation, statements related to our plans, strategies, objectives, expectations, intentions and adequacy of resources, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties including without limitation the following: (i) our plans, strategies, objectives, expectations and intentions are subject to change at any time at our discretion; (ii) our plans and results of operations will be affected by our ability to manage growth and competition; and (iii) other risks and uncertainties indicated from time to time in our filings with the Securities and Exchange Commission.

 

In some cases, you can identify forward-looking statements by terminology such as ‘‘may,’’ ‘‘will,’’ ‘‘should,’’ ‘‘could,’’ ‘‘expects,’’ ‘‘plans,’’ ‘‘intends,’’ ‘‘anticipates,’’ ‘‘believes,’’ ‘‘estimates,’’ ‘‘predicts,’’ ‘‘potential,’’ or ‘‘continue’’ or the negative of such terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of such statements. Readers are cautioned not to place too much reliance on these forward-looking statements which speak only as of the date hereof. We are under no duty to update any of the forward-looking statements after the date of this Quarterly Report on Form 10-Q.

 

Non-GAAP Measures and Reconciliations to GAAP Measures

 

We prepare our financial statements in accordance with generally accepted accounting principles (“GAAP”). We use certain Non-GAAP measures to monitor our business performance and that of our segments. These Non-GAAP measures are not recognized under GAAP. Accordingly, investors are cautioned about using or relying on these measures as alternatives to recognized GAAP measures. Our methods of calculating these measures may not be comparable to similar measures presented by other companies.

 

Characteristics of Revenues and Expenses

 

Our Fixed Wireless segment offers broadband services under agreements for periods normally ranging between one to three years. Pursuant to these agreements, we bill customers on a monthly basis, in advance, for each month of service. Payments received in advance of services performed are recorded as deferred revenues and recognized as revenue ratably over the service period. Our Shared Wireless Infrastructure segment offers to rent space, channels, and ports on our street level rooftops at a fixed monthly rent.

 

Costs of revenues consists of expenses that are directly related to providing services to our customers, including Core Network expenses (tower and street level rooftop rent and utilities, bandwidth costs, maintenance and other) and Customer Network expenses (customer maintenance, non-installation fees and other customer specific expenses).  We collectively refer to Core Network and Customer Network as our “Network,” and Core Network costs and Customer Network costs as “Network Costs.”  When we first enter a new market, or expand in an existing market, we are required to incur up-front costs in order to be able to provide services to commercial customers.  We refer to these activities as establishing a “Network Presence.” For the Fixed Wireless segment, these costs include constructing Points-of-Presence (“PoPs”) in buildings in which we have a lease agreement (“Company Locations”) where we install a substantial amount of equipment in order to connect numerous customers to the Internet. For the Shared Wireless Infrastructure segment, these costs include installing numerous access points, backhaul, and other equipment on street level rooftops that we refer to as “Hotzones.” The costs to build PoPs and construct Hotzones are capitalized and expensed over a five year period.  In addition, we also enter into tower and roof rental agreements, secure bandwidth and incur other Network Costs.  Once we have established a Network Presence in a new market or expanded our Network Presence in an existing market, we are capable of servicing a significant number of customers through that Network Presence.  The variable cost to add new customers is relatively modest, especially compared to the upfront cost of establishing or expanding our Network Presence.  However, we may experience variability in gross margins during periods in which we are expanding our Network Presence in a market.

 

Sales and marketing expenses primarily consist of the salaries, benefits, travel and other costs of our sales and marketing teams, as well as marketing initiatives and business development expenses.

 

Customer support services include salaries and related payroll costs associated with our customer support services, customer care, and installation and operations staff.

 

General and administrative expenses include costs attributable to corporate overhead and the overall support of our operations. Salaries and other related payroll costs for executive management, finance, administration and information systems personnel are included in this category. Other costs include office rent, utilities and other facilities costs, accounting, legal and other professional services, and other general operating expenses.

 

 
14

 

 

Overview – Fixed Wireless

 

We provide fixed wireless broadband services to commercial customers and deliver access over a wireless network transmitting over both regulated and unregulated radio spectrum. Our service supports bandwidth on demand, wireless redundancy, virtual private networks, disaster recovery, bundled data and video services. We currently provide service to business customers in twelve metropolitan markets.

 

Market Information – Fixed Wireless

  

    As of June 30, 2015, we operated in twelve metropolitan markets consisting of New York, Boston, Los Angeles, Chicago, San Francisco, Miami, Seattle, Dallas-Fort Worth, Houston, Philadelphia, Las Vegas-Reno and Providence-Newport. Although we provide services in multiple markets, these operations have been aggregated into one reportable segment based on the similar economic characteristics among all markets, including the nature of the services provided and the type of customers purchasing such services. The markets were launched at different times, and as a result, may have different operating metrics based on their size and stage of maturation. We incur significant up-front costs in order to establish a Network Presence in a new market. These costs include building PoPs and Network Costs. Other material costs include hiring and training sales and marketing personnel who will be dedicated to securing customers in that market. Once we have established a Network Presence in a new market, we are capable of servicing a significant number of customers. The rate of customer additions varies from market to market, and we are unable to predict how many customers will be added in a market during any specific period. We believe that providing operating information regarding each of our markets provides useful information to shareholders in understanding the leveraging potential of our business model and the operating performance of our mature markets. Set forth below is a summary of our operating performance on a per-market basis, and a description of how each category is determined.

 

Revenues : Revenues are allocated based on which market each customer is located in. Intercompany transactions have been eliminated in the tables below.

 

Costs of Revenues : Includes Core Network costs and Customer Network costs that can be allocated to a specific market.

 

Operating Costs : Represents costs that can be specifically allocated to a market which include direct sales personnel, certain direct marketing expenses, certain customer support and installation payroll expenses and third party commissions.

 

Adjusted Market EBITDA : Represents a market’s income (loss) before interest, taxes, depreciation, amortization, stock-based compensation, and other income (expense). We believe this metric provides useful information regarding the operating cash flow being generated in a market.

   

Shared Wireless Infrastructure, net: Represents the net operating results for that business segment.

 

Corporate : Includes corporate overhead and centralized activities which support our overall operations. Corporate overhead includes administrative personnel, including executive management, and other support functions such as information technology and facilities. Centralized operations include network operations, customer care, and the management of network assets.

  

We exited the Nashville market effective March 31, 2014.

 

Three M onths E nded June 30 , 201 5

  

Market

 

Revenues

   

Cost of
Revenues

   

Gross Margin

   

Operating Costs

   

Adjusted
Market
EBITDA

 

Los Angeles

  $ 2,041,795     $ 573,951     $ 1,467,844     $ 570,922     $ 896,922  

New York

    1,936,468       722,282       1,214,186       335,388       878,798  

Boston

    1,217,581       394,409       823,172       212,259       610,913  

Chicago

    582,012       307,011       275,001       125,651       149,350  

San Francisco

    253,831       123,542       130,289       50,732       79,557  

Houston

    187,459       73,856       113,603       37,816       75,787  

Miami

    321,133       133,304       187,829       141,123       46,706  

Las-Vegas-Reno

    179,367       121,935       57,432       44,330       13,102  

Seattle

    67,750       46,537       21,213       14,305       6,908  

Providence/Newport

    52,413       50,845       1,568       3,343       (1,775 )

Philadelphia

    26,730       27,666       (936 )     14,572       (15,508 )

Dallas-Fort Worth

    164,368       108,582       55,786       91,232       (35,446 )

T otal

  $ 7,030,907     $ 2,683,920     $ 4,346,987     $ 1,641,673     $ 2,705,314  

 

 
15

 

 

Reconciliation of Non-GAAP Financial Measure to GAAP Financial Measure

       

Adjusted market EBITDA

  $ 2,705,314  

Fixed wireless, non-market specific

       

Other expenses

    (327,601 )

Depreciation and amortization

    (2,175,665 )

Shared wireless infrastructure, net

    (4,147,160 )

Corporate

    (3,235,271 )

Other income (expense)

    (1,670,428 )

Net loss

  $ (8,850,811 )

 

Three Months E nded June 30, 2014

 

Market

 

Revenues

   

Cost of
Revenues

   

Gross Margin

   

Operating Costs

   

Adjusted
Market
EBITDA

 

Los Angeles

  $ 1,996,000     $ 573,010     $ 1,422,990     $ 468,799     $ 954,191  

New York

    1,949,999       702,033       1,247,966       335,819       912,147  

Boston

    1,449,309       403,931       1,045,378       189,968       855,410  

Chicago

    734,524       293,140       441,384       128,269       313,115  

Miami

    380,888       118,518       262,370       82,173       180,197  

San Francisco

    284,923       123,775       161,148       58,260       102,888  

Houston

    173,532       66,073       107,459       37,713       69,746  

Las Vegas-Reno

    224,856       121,870       102,986       56,089       46,897  

Seattle

    74,892       47,899       26,993       11,793       15,200  

Dallas-Fort Worth

    160,467       100,229       60,238       46,309       13,929  

Providence-Newport

    64,573       50,888       13,685       1,449       12,236  

Philadelphia

    32,515       19,094       13,421       5,953       7,468  

Total

  $ 7,526,478     $ 2,620,460     $ 4,906,018     $ 1,422,594     $ 3,483,424  

 

Reconciliation of Non-GAAP Financial Measure to GAAP Financial Measure

       

Adjusted market EBITDA

  $ 3,483,424  

Fixed wireless, non-market specific

       

Other expenses

    (303,174 )

Depreciation and amortization

    (2,080,501 )

Shared wireless infrastructure, net

    (4,106,234 )

Corporate

    (3,328,633 )

Other income (expense)

    (59,488 )

Net loss

  $ (6,394,606 )

 

Six Months Ended June 30, 2015

 

Market

 

Revenues

 

 

Cost of
Revenues

 

 

Gross Margin

 

 

Operating Costs

 

 

Adjusted
Market
EBITDA

 

Los Angeles

 

$

4,024,304

 

 

$

1,140,536

 

 

$

2,883,768

 

 

$

1,057,825

 

 

$

1,825,943

 

New York

 

 

3,898,194

 

 

 

1,505,299

 

 

 

2,392,895

 

 

 

651,220

 

 

 

1,741,675

 

Boston

 

 

2,464,548

 

 

 

799,852

 

 

 

1,664,696

 

 

 

379,093

 

 

 

1,285,603

 

Chicago

 

 

1,275,405

 

 

 

611,016

 

 

 

664,389

 

 

 

275,405