Towerstream Corporation
TOWERSTREAM CORP (Form: 10-Q, Received: 11/09/2015 16:08:55)

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 September 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

 

20-8259086

  (State or other jurisdiction of incorporation or organization)

 

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

     
88 Silva Lane   02842
Middletown, Rhode Island   (Zip Code)

(Address of principal executive offices)

 

 

 

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 November 5, 2015, there were 66,777,529 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 September 30, 2015 (unaudited) and December 31, 2014

1

 

 

 

 

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

2

 

 

 

 

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

3

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 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

 

   

September 30 , 201 5

(Unaudited)

   

December 31,

2014

 

Assets

               

Current Assets

               

Cash and cash equivalents

  $ 20,308,551     $ 38,027,509  

Accounts receivable, net

    959,057       1,310,647  

Prepaid expenses and other current assets

    1,169,648       926,699  

Total Current Assets

    22,437,256       40,264,855  
                 

Property and equipment, net

    30,040,784       33,905,286  
                 

Intangible assets, net

    1,905,654       2,199,858  

Goodwill

    1,674,281       1,674,281  

Other assets

    3,200,142       4,277,558  

Total Assets

  $ 59,258,117     $ 82,321,838  
                 

Liabilities and Stockholders’ Equity

               
                 

Current Liabilities

               

Accounts payable

  $ 1,005,813     $ 871,251  

Accrued expenses

    2,470,314       2,038,696  

Deferred revenues

    1,233,981       1,384,846  

Current maturities of capital lease obligations

    998,986       845,668  

Other

    63,040       57,242  

Total Current Liabilities

    5,772,134       5,197,703  
                 

Long-Term Liabilities

               

Long-term debt, net of debt discount of $2,316,486 and $3,194,147, respectively

    34,060,563       32,101,409  

Capital lease obligations, net of current maturities

    1,183,172       1,285,858  

Other

    1,916,694       1,774,841  

Total Long-Term Liabilities

    37,160,429       35,162,108  

Total Liabilities

    42,932,563       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; 200,000,000 and 95,000,000 shares authorized, respectively; 66,777,529 and 66,656,789 shares issued and outstanding, respectively

    66,778       66,657  

Additional paid-in-capital

    158,278,008       157,631,299  

Accumulated deficit

    (142,019,232 )     (115,735,929 )

Total Stockholders' Equity

    16,325,554       41,962,027  

Total Liabilities and Stockholders' Equity

  $ 59,258,117     $ 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 September 30,

   

Nine Months Ended September 30,

 
   

2015

   

201 4

   

201 5

   

201 4

 
                                 

Revenues

  $ 7,797,291     $ 8,301,604     $ 23,614,519     $ 24,946,358  
                                 

Operating Expenses

                               

Cost of revenues (exclusive of depreciation)

    6,186,834       6,210,920       18,906,738       18,168,776  

Depreciation and amortization

    3,435,635       3,318,395       10,224,131       10,294,872  

Customer support services

    1,310,794       1,247,791       3,884,506       3,574,461  

Sales and marketing

    1,513,650       1,353,015       4,390,560       4,173,703  

General and administrative

    2,194,122       2,381,586       7,491,513       7,726,523  

Total Operating Expenses

    14,641,035       14,511,707       44,897,448       43,938,335  

Operating Loss

    (6,843,744 )     (6,210,103 )     (21,282,929 )     (18,991,977 )

Other Expense

                               

Interest expense, net

    (1,665,682 )     (43,970 )     (5,000,374 )     (166,509 )

Total Other Expense

    (1,665,682 )     (43,970 )     (5,000,374 )     (166,509 )

Net Loss

  $ (8,509,426 )   $ (6,254,073 )   $ (26,283,303 )   $ (19,158,486 )
                                 

Net loss per common share – basic and diluted

  $ (0.13 )   $ (0.09 )   $ (0.39 )   $ (0.29 )

Weighted average common shares outstanding – basic and diluted

    67,966,261       66,643,804       67,916,211       66,521,267  

 

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 Nine Months Ended September 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

    24,146       24       37,337       -       37,361  

Stock-based compensation for options

    -       -       609,469       -       609,469  

Net loss

    -       -       -       (26,283,303 )     (26,283,303 )

Balance at September 30, 2015

    66,777,529     $ 66,778     $ 158,278,008     $ (142,019,232 )   $ 16,325,554  

   

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)

 

   

Nine Months Ended September 3 0 ,

 
   

201 5

   

201 4

 

Cash Flows From Operating Activities

               

Net loss

  $ (26,283,303 )   $ (19,158,486 )

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

               

Provision for doubtful accounts

    132,000       192,000  

Depreciation for property, plant and equipment

    9,929,927       9,503,971  

Amortization for customer based intangibles

    294,204       790,901  

Amortization of debt issuance costs

    722,902       -  

Amortization of debt discount

    877,661       -  

Accrued interest

    1,081,493       -  

Stock-based compensation

    615,052       740,405  

Deferred rent

    145,336       271,455  

Changes in operating assets and liabilities:

               

Accounts receivable

    219,591       (627,188 )

Prepaid expenses and other current assets

    (242,950 )     (506,133 )

Other assets

    353,451       213,407  

Accounts payable

    134,562       (637,806 )

Accrued expenses

    528,402       177,214  

Deferred revenues

    (150,865 )     (133,324 )

Total Adjustments

    14,640,766       9,984,902  

Net Cash Used In Operating Activities

    (11,642,537 )     (9,173,584 )
                 

Cash Flows From Investing Activities

               

Acquisitions of property and equipment

    (5,352,183 )     (6,848,919 )

Lease incentive payment from landlord

    10,626       380,000  

Decrease (increase) of security deposits

    2,911       (13,672 )

Deferred acquisition payments

    (8,310 )     (64,574 )

Net Cash Used In Investing Activities

    (5,346,956 )     (6,547,165 )
                 

Cash Flows From Financing Activities

               

Payments on capital leases

    (761,243 )     (596,649 )

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

    31,778       30,430  

Fair value of options repurchased

    -       (3,793 )

Net Cash Used In Financing Activities

    (729,465 )     (570,012 )
                 

Net Decrease In Cash and Cash Equivalents

    (17,718,958 )     (16,290,761 )
                 

Cash and Cash Equivalents – Beginning

    38,027,509       28,181,531  

Cash and Cash Equivalents – Ending

  $ 20,308,551     $ 11,890,770  
                 

Supplemental Disclosures of Cash Flow Information

               

Cash paid during the periods for:

               

Interest

  $ 2,361,323     $ 187,653  

Taxes

  $ 22,400     $ 23,229  

Acquisition of property and equipment:

               

Under capital leases

  $ 810,026     $ 33,204  

Included in accrued expenses

  $ 427,496     $ 386,448  

 

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.

 

At September 30, 2015, the Company had cash and cash equivalents of approximately $20.3 million and working capital of approximately $16.7 million. Based on (i) current projections for revenues for its two business segments, (ii) operating costs to support those business segments including the effect of cost reduction measures that are being implemented, and (iii) capital expenditures to support the network infrastructure, the Company believes that its current cash balances are sufficient to maintain operations and fulfill working capital requirements for the next twelve months from the date of filing this quarterly report.

 

The Company has historically financed operations through private and public placement of equity securities, as well as debt financings and capital leases. The Company's ability to fund its longer term cash requirements is subject to multiple risks, many of which are beyond its control. Should additional funding be required, the Company may need to raise additional capital through the sale of equity or debt securities. There can be no assurances that the Company would be successful in raising additional capital.

   

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 September 30, 2015 and the results of operations and cash flows for the periods presented. The results of operations for the nine months ended September 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 September 30, 2015, the Company had cash and cash equivalent balances of approximately $19,791,000 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 September 30,

   

Nine Months Ended September 30,

 
   

201 5

   

201 4

   

201 5

   

201 4

 

Beginning of period

  $ 117,748     $ 161,863     $ 59,273     $ 81,009  

Additions

    32,000       75,000       132,000       192,000  

Deductions

    (43,762 )     (30,995 )     (85,287 )     (67,141 )

End of period

  $ 105,986     $ 205,868     $ 105,986     $ 205,868  

 

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:

   

September 30, 2015

   

December 31, 2014

 

Network and base station equipment

  $ 38,731,362     $ 35,836,469  

Customer premise equipment

    29,616,923       26,511,691  

Shared wireless infrastructure

    20,899,869       21,044,189  

Information technology

    4,770,115       4,628,555  

Furniture, fixtures and other

    1,713,722       1,669,340  

Leasehold improvements

    1,623,071       1,599,393  
      97,355,062       91,289,637  

Less: accumulated depreciation

    67,314,278       57,384,351  

Property and equipment, net

  $ 30,040,784     $ 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:

 

   

September 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

    2,857,432       2,135,534  

Property acquired through capital leases, net

  $ 2,293,286     $ 2,205,158  

 

Depreciation expense for the three months ended September 30, 2015 and 2014 was $3,337,567 and $3,220,327, respectively. Depreciation expense for the nine months ended September 30, 2015 and 2014 was $9,929,927 and $9,503,971, respectively.

 

Note 4. Intangible Assets

 

Intangible assets consist of the following:

 

   

September 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

    11,235,028       10,940,824  

Customer relationships, net

    621,099       915,303  

FCC licenses

    1,284,555       1,284,555  

Intangible assets, net

  $ 1,905,654     $ 2,199,858  

 

Amortization expense for the three months ended September 30, 2015 and 2014 was $98,068 and $98,068, respectively. Amortization expense for the nine months ended September 30, 2015 and 2014 was $294,204 and $790,901, respectively. The customer contracts acquired in the Delos acquisition are being amortized over a 50 month period ending April 2017. As of September 30, 2015, the remaining amortization period for the Delos acquisition was 19 months. Balances related to the Company’s other acquisitions have been fully amortized. Future amortization expense is as follows:

 

Remainder of 2015

  $ 98,068  

2016

    392,272  

2017

    130,759  
    $ 621,099  

 

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: 

 

   

September 30, 2015

   

December 31, 2014

 

Payroll and related

  $ 946,445     $ 726,917  

Property and equipment

    427,496       524,280  

Professional services

    409,554       256,534  

Network

    316,258       187,440  

Other

    289,811       280,413  

Marketing

    80,750       63,112  

Total

  $ 2,470,314     $ 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:

   

September 30, 2015

   

December 31, 2014

 

Current

               

Deferred rent

  $ 59,825     $ 46,058  

Deferred acquisition payments

    3,215       11,184  

Total

  $ 63,040     $ 57,242  
                 

Long-Term

               

Deferred rent

  $ 1,515,357     $ 1,373,163  

Deferred acquisition payments

    -       341  

Deferred taxes

    401,337       401,337  

Total

  $ 1,916,694     $ 1,774,841  

 

Deferred acquisition payments related to Delos Internet totaled $3,215 at September 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 $83,076 and $262,307 in connection with the amortization of this discount for the three and nine months ended September 30, 2015, respectively, and the unamortized balance totaled $692,328 at September 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 $736,183 of interest and accrued $368,092 of PIK interest for the three months ended September 30, 2015. The Company paid $2,162,986 of interest and accrued $1,081,493 of PIK interest for the nine months ended September 30, 2015. PIK interest is included in Interest expense in the accompanying condensed consolidated statements of operations.

 

As of September 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 $194,890 and $615,355 in connection with the amortization of this discount for the three and nine months ended September 30, 2015, respectively, and the unamortized balance totaled $1,624,157 at September 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 $228,952 and $722,902 for the three and nine months ended September 30, 2015, respectively, and the unamortized balance totaled $1,908,017 at September 30, 2015. 

 

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 September 30,

   

Nine Months Ended September 30,

 
   

2015

   

2014

   

2015

   

2014

 

Risk-free interest rate

  1.5 % - 1.6   1.7 % - 1.8   1.5 % - 1.6 %   1.6 % - 1.8

Expected volatility

  57.8 % - 59.3         59   57.8 % - 59.3 %   47 % - 59

Expected life (in years)

        4.2           5.3           4.2           5.3  

Expected dividend yield

         -            -            -            -  

Weighted average per share grant date fair value

  $     0.63     $     0.75     $     0.71     $     0.80  

Stock-based compensation

  $     191,170     $     183,844     $     609,469     $     735,076  

 

 
8

 

 

TOWERSTREAM CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

   

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. Beginning in the fourth quarter of 2014, the Company began utilizing historical data to determine the expected life of stock options. Prior to that date, the Company utilized the simplified method as there was limited historical data then available. 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 $1,012 ,437 as of September 30, 2015 which will be recognized over a weighted-average period of 1.0 years.

 

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

 

   

Number

   

Weighted Average Exercise Price

 

Outstanding as of January 1, 2015

    3,997,695     $ 2.73  

Granted during 2015

    828,750     $ 1.52  

Exercised

    (426,530 )   $ 1.58  

Cancelled /expired

    (74,124 )   $ 1.72  

Outstanding as of September 30, 2015

    4,325,791     $ 2.63  

Exercisable as of September 30, 2015

    2,711,299     $ 2.99  

 

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.

 

In July 2015, the Company granted to its two executive officers a total of 81 ,250 options with an exercise price of $1.55 vesting quarterly over one year period.

 

In September 2015, the Company granted to its employees and two executive officers a total of 547 ,500 options with an exercise price of $1.31. 50% of the options vest on the one year anniversary date with the remaining 50% vesting quarterly over the following 12 months. Employees with 1,000 share grants vest 100% on the one year anniversary.

 

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

 

Cancellations for the three and nine months ended September 30, 2015 were 15 ,000 and 74,124, respectively. Cancellations principally related to employee terminations except for 27,500 options which expired during the nine months ended September 30, 2015 under its terms.

 

The weighted average remaining contractual life of the outstanding options as of September 30, 2015 was 7 years.

 

The aggregate intrinsic value associated with the options outstanding and exercisable as of September 30, 2015 was $8,950 and $8,950, respectively. The closing price of the Company’s common stock at September 30, 2015 was $1.07 per share .

 

Stock Warrants

 

There were 4,050,000 warrants outstanding and exercisable at September 30, 2015 with a weighted average exercise price of $1.31 per share. The weighted average remaining contractual life of the warrants was 6 years. During the nine months ended September 30, 2015, no stock warrants were issued, exercised, expired or cancelled.

 

The aggregate intrinsic value associated with the warrants outstanding and exercisable as of September 30, 2015 was $1,272,000.

 

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 135,726 shares have been issued to date and 64,274 shares are available for future issuance. During the three and nine months ended September 30, 2015, a total of 11,268 and 24,146 shares were issued under the ESPP Plan with a fair value of $12,057 and $37,361, respectively. The Company recognized $1,803 and $5,583 of stock-based compensation related to the 15% discount for the three and nine months ended September 30, 2015, respectively. The Company recognized $1,529 and $5,329 of stock-based compensation related to the 15% discount for the three and nine months ended September 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 nine months ended September 30, 2015.

 

   

Total

Carrying

Value

   

Quoted prices

in active

markets
(Level 1)

   

Significant
other
observable
inputs
(Level 2)

   

Significant
unobservable
inputs
(Level 3)

 

September 30, 2015

  $ 20,308,551     $ 20,308,551     $ -     $ -  

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. For the three and nine months ended September 30, 2015 and 2014, 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 September 30, 2015 would dilute earnings per share if the Company becomes profitable in the future. The exercise of those stock options and warrants outstanding at September 30, 2015 could potentially generate proceeds up to approximately $17 million if exercised by the holder for cash.

 

   

Three and Nine Months Ended September 30,

 
   

201 5

   

201 4

 

Stock options

    4,325,791       3,901,314  

Warrants

    2,850,000       450,000  

Total

    7,175,791       4,351,314  

 
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 September 30, 2015, total future operating lease obligations were as follows:

 

Remainder of 2015

  $ 5,268,066  

2016

    19,388,526  

2017

    14,114,624  

2018

    6,832,370  

2019

    3,314,230  

Thereafter

    1,284,645  
    $ 50,202,461  

 

Rent expenses were as follows:

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

201 5

   

201 4

   

201 5

   

201 4

 

Points of Presence

  $ 2,079,322     $ 1,939,574     $ 6,174,386     $ 5,732,922  

Street level rooftops

    3,240,996       3,359,804       10,099,784       9,752,720  

Corporate offices

    96,558       84,109       285,419       252,328  

Other

    113,171       88,211       302,111       273,928  
    $ 5,530,047     $ 5,471,698     $ 16,861,700     $ 16,011,898  

 

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 September 30, 2015, total future capital lease obligations were as follows:

 

Remainder of 2015

  $ 315,910  

2016

    1,110,428  

2017

    837,811  

2018

    143,796  
    $ 2,407,945  

Less: interest expense

    225,787  

Total capital lease obligations

  $ 2,182,158  

Current

  $ 998,986  

Long-term

  $ 1,183,172  

 

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.

 

 
11

 

 

TOWERSTREAM CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

 

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.

 

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 September 30 , 201 5 (Unaudited)

 
   

Fixed Wireless

   

Shared Wireless Infrastructure

   

Corporate

   

Eliminations

   

Total

 
                                         

Revenues

  $ 6,995,168     $ 849,824     $ -     $ (47,701 )   $ 7,797,291  
                                         

Operating Expenses

                                       

Cost of revenues (exclusive of depreciation)

    2,734,708       3,483,763       16,064       (47,701 )     6,186,834  

Depreciation and amortization

    2,214,143       1,005,185       216,307       -       3,435,635  

Customer support services

    379,168       179,660       751,966       -       1,310,794  

Sales and marketing

    1,400,507       35,793       77,350       -       1,513,650  

General and administrative

    110,137       99,356       1,984,629       -       2,194,122  

Total Operating Expenses

    6,838,663       4,803,757       3,046,316       (47,701 )     14,641,035  

Operating Income (Loss)

  $ 156,505     $ (3,953,933 )   $ (3,046,316 )   $ -     $ (6,843,744 )
                                         

Capital expenditures

  $ 1,778,844     $ 46,058     $ 31,390     $ -     $ 1,856,292  

 

   

Three Months Ended September 30, 2014 (Unaudited)

 
   

Fixed Wireless

   

Shared Wireless Infrastructure

   

Corporate

   

Eliminations

   

Total

 
                                         

Revenues

  $ 7,553,609     $ 793,964     $ -     $ (45,969 )   $ 8,301,604  
                                         

Operating Expenses

                                       

Cost of revenues (exclusive of depreciation)

    2,631,572       3,609,807       15,510       (45,969 )     6,210,920  

Depreciation and amortization

    1,980,519       1,013,693       324,183       -       3,318,395  

Customer support services

    345,918       147,379       754,494       -       1,247,791  

Sales and marketing

    1,239,446       38,261       75,308       -       1,353,015  

General and administrative

    63,686       163,125       2,154,775       -       2,381,586  

Total Operating Expenses

    6,261,141       4,972,265       3,324,270       (45,969 )     14,511,707  

Operating Income (Loss)

  $ 1,292,468     $ (4,178,301 )   $ (3,324,270 )   $ -     $ (6,210,103 )
                                         

Capital expenditures

  $ 1,154,281     $ 589,883     $ 21,603     $ -     $ 1,765,767  

 

 
12

 

 

TOWERSTREAM CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED  

 

   

Nine Months Ended September 30 , 201 5 (Unaudited)

 
   

Fixed Wireless

   

Shared Wireless Infrastructure

   

Corporate

   

Eliminations

   

Total

 
                                         

Revenues

  $ 21,293,373     $ 2,463,678     $ -     $ (142,532 )   $ 23,614,519  
                                         

Operating Expenses

                                       

Cost of revenues (exclusive of depreciation)

    8,140,524       10,862,526       46,220       (142,532 )     18,906,738  

Depreciation and amortization

    6,516,596       3,052,554       654,981       -       10,224,131  

Customer support services

    1,066,175       536,021       2,282,310       -       3,884,506  

Sales and marketing

    4,038,582       122,704       229,274       -       4,390,560  

General and administrative

    411,031       302,889       6,777,593       -       7,491,513  

Total Operating Expenses

    20,172,908       14,876,694       9,990,378       (142,532 )     44,897,448  

Operating Income (Loss)

  $ 1,120,465     $ (12,413,016 )   $ (9,990,378 )   $ -     $ (21,282,929 )
                                         

Capital expenditures

  $ 5,635,054     $ 220,751     $ 209,620     $ -     $ 6,065,425  
                                         

As of September 30, 2015

                                       

Property and equipment, net

  $ 20,813,961     $ 7,561,436     $ 1,665,387     $ -     $ 30,040,784  

Total assets

  $ 25,173,164     $ 9,544,523     $ 24,540,430     $ -     $ 59,258,117  

 

 

   

Nine Months Ended September 30, 2014 (Unaudited)

 
   

Fixed Wireless

   

Shared Wireless Infrastructure

   

Corporate

   

Eliminations

   

Total

 
                                         

Revenues

  $ 22,811,582     $ 2,272,683     $ -     $ (137,907 )   $ 24,946,358  
                                         

Operating Expenses

                                       

Cost of revenues (exclusive of depreciation)

    7,750,725       10,512,098       43,860       (137,907 )     18,168,776  

Depreciation and amortization

    6,598,893       2,932,592       763,387       -       10,294,872  

Customer support services

    889,654       502,342       2,182,465       -       3,574,461  

Sales and marketing

    3,754,707       177,874       241,122       -       4,173,703  

General and administrative

    374,164       467,290       6,885,069       -       7,726,523  

Total Operating Expenses

    19,368,143       14,592,196       10,115,903       (137,907 )     43,938,335  

Operating Income (Loss)

  $ 3,443,439     $ (12,319,513 )   $ (10,115,903 )   $ -     $ (18,991,977 )
                                         

Capital expenditures

  $ 4,044,135     $ 2,018,334     $ 338,791     $ -     $ 6,401,260  
                                         

As of September 30, 2014

                                       

Property and equipment, net

  $ 21,340,927     $ 11,753,330     $ 2,287,890     $ -     $ 35,382,147  

Total assets

  $ 26,293,518     $ 14,232,594     $ 14,948,568     $ -     $ 55,474,680  

 

 

 
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 nine months ended September 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.

 

 
14

 

 

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.

 

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 September 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 September 30 , 201 5

  

Market

 

Revenues

   

Cost of
Revenues

   

Gross Margin

   

Operating Costs

   

Adjusted
Market
EBITDA

 

Los Angeles

  $ 1,996,588     $ 557,491     $ 1,439,097     $ 444,894     $ 994,203  

New York

    1,968,822       789,483       1,179,339       369,533       809,806  

Boston

    1,177,289       397,438       779,851       207,793       572,058  

Chicago

    614,588       312,209       302,379       159,755       142,624  

San Francisco

    269,568       123,912       145,656       58,806       86,850  

Houston

    180,278       74,804       105,474       53,390       52,084  

Miami

    293,651       134,170       159,481       146,534       12,947  

Providence/Newport

    51,438       45,399       6,039       2,695       3,344  

Seattle

    53,829       50,994       2,835       12,107       (9,272 )

Philadelphia

    24,133       28,274       (4,141 )     6,639       (10,780 )

Las-Vegas-Reno

    149,666       124,362       25,304       53,094       (27,790 )

Dallas-Fort Worth

    167,617       96,172       71,445       103,716       (32,271 )

T otal

  $ 6,947,467     $ 2,734,708     $ 4,212,759     $ 1,618,956     $ 2,593,803  

 

 
15

 

 

Reconciliation of Non-GAAP Financial Measure to GAAP Financial Measure

       

Adjusted market EBITDA

  $ 2,593,803  

Fixed wireless, non-market specific

       

Other expenses

    (270,856 )

Depreciation and amortization

    (2,214,143 )

Shared wireless infrastructure, net

    (3,906,232 )

Corporate

    (3,046,316 )

Other income (expense)

    (1,665,682 )

Net loss

  $ (8,509,426 )

 

Three Months E nded September 30, 2014

 

Market

 

Revenues

   

Cost of
Revenues

   

Gross Margin

   

Operating Costs

   

Adjusted
Market
EBITDA

 

Los Angeles

  $ 2,016,888     $ 543,967     $ 1,472,921     $ 513,935     $ 958,986  

New York

    1,949,316       724,148       1,225,168       348,283       876,885  

Boston

    1,363,282       397,754       965,528       201,988       763,540  

Chicago

    722,474       298,883       423,591       111,998       311,593  

Las-Vegas-Reno

    338,417       126,312       212,105       1,114       210,991  

Miami

    357,315       116,987       240,328       54,250       186,078  

Houston

    178,249       71,171       107,078       10,050       97,028  

Dallas-Fort Worth

    155,612       96,015       59,597       19,545       40,052  

San Francisco

    270,055       125,070       144,985       105,417       39,568  

Seattle

    74,418       44,696       29,722       (3,434 )     33,156  

Providence-Newport

    56,279       53,874       2,405       1,746       659  

Philadelphia

    25,335       32,695       (7,360 )     4,246       (11,606 )

Total

  $ 7,507,640     $ 2,631,572     $ 4,876,068     $ 1,369,138     $ 3,506,930  

 

Reconciliation of Non-GAAP Financial Measure to GAAP Financial Measure

       

Adjusted market EBITDA

  $ 3,506,930  

Fixed wireless, non-market specific

       

Other expenses

    (279,912 )

Depreciation and amortization

    (1,980,519 )

Shared wireless infrastructure, net

    (4,132,332