Towerstream Corporation
TOWERSTREAM CORP (Form: 10-Q, Received: 05/10/2016 17:37:46)

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 March 31, 2016

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 May 6, 2016, there were 66,999,325 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 March 31, 2016 (unaudited) and December 31, 2015

1

 

 

 

 

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2016 and 2015 (unaudited)

2

 

 

 

 

Condensed Consolidated Statement of Stockholders’ Equity (Deficit) for the Three Months Ended March 31, 2016 (unaudited)

3

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2016 and 2015 (unaudited)

4

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

5-12

 

 

 

Item 2.

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

13-18

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk.

19

 

 

 

 Item 4.

Controls and Procedures.

19

 

 

 

Part II

OTHER INFORMATION

 

     
Item 1A. Risk Factors 20
     

Item 6.

Exhibits.

21

 

 

 
 i

 

 

TOWERSTREAM CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   

March 31 , 201 6

(Unaudited)

   

December 31, 2015

 

Assets

               

Current Assets

               

Cash and cash equivalents

  $ 9,640,720     $ 15,116,531  

Accounts receivable, net

    366,426       308,551  

Prepaid expenses and other current assets

    864,281       474,029  

Current assets of discontinued operations

    726,746       1,248,569  

Current assets held for sale

    -       5,315,107  

Total Current Assets

    11,598,173       22,462,787  
                 

Property and equipment, net

    20,640,877       21,235,384  
                 

Intangible assets, net

    4,906,140       1,273,030  

Goodwill

    1,674,281       1,674,281  

Other assets

    375,306       384,357  

Total Assets

  $ 39,194,777     $ 47,029,839  
                 

Liabilities and Stockholders’ Equity

               
                 

Current Liabilities

               

Accounts payable

  $ 508,030     $ 877,134  

Accrued expenses

    1,650,998       1,629,218  

Deferred revenues

    1,210,828       1,486,754  

Current maturities of capital lease obligations

    1,003,951       992,690  

Current liabilities of discontinued operations

    3,330,192       3,907,368  

Deferred rent

    60,039       63,012  

Total Current Liabilities

    7,764,038       8,956,176  
                 

Long-Term Liabilities

               

Long-term debt, net of debt discount and deferred financing costs of $3,293,017 and $3,744,941, respectively

    33,827,458       33,003,962  

Capital lease obligations, net of current maturities

    677,827       932,826  

Other

    1,046,002       1,591,188  

Total Long-Term Liabilities

    35,551,287       35,527,976  

Total Liabilities

    43,315,325       44,484,152  
                 

Commitments (Note 14)

               
                 

Stockholders' Equity (Deficit)

               

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; 66,999,325 and 66,810,149 shares issued and outstanding, respectively

    66,999       66,810  

Additional paid-in-capital

    159,024,504       158,697,608  

Accumulated deficit

    (163,212,051 )     (156,218,731 )

Total Stockholders' Equity/(Deficit)

    (4,120,548 )     2,545,687  

Total Liabilities and Stockholders' Equity

  $ 39,194,777     $ 47,029,839  

     

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 March 31,

 
   

2016

   

2015

 
                 

Revenues

  $ 6,734,090     $ 7,172,467  
                 

Operating Expenses

               

Infrastructure and access

    2,551,727       2,498,971  

Depreciation and amortization

    2,527,647       2,347,873  

Network operations

    1,291,188       1,334,432  

Customer support

    543,191       672,883  

Sales and marketing

    1,494,920       1,330,682  

General and administrative

    1,979,792       1,984,072  

Total Operating Expenses

    10,388,465       10,168,913  

Operating Loss

    (3,654,375 )     (2,996,446 )

Other Income/(Expense)

               

Interest expense, net

    (1,607,120 )     (1,664,264 )

Total Other Income/(Expense)

    (1,607,120 )     (1,664,264 )

Loss from continuing operations

    (5,261,495 )     (4,660,710 )

Loss from discontinued operations

               
Operating loss     (2,909,567 )     (4,262,356 )
Gain on sale of assets     1,177,742       -  
Total     (1,731,825 )     (4,262,356 )

Net Loss

  $ (6,993,320 )   $ (8,923,066 )
                 

(Loss) gain per share – basic and diluted

               

Continuing

  $ (0.08 )   $ (0.07 )

Discontinued

               
Operating     (0.04 )     (0.06 )
Non-operating     0.02       -  
Total     (0.02 )     (0.06 )

Net loss per common share – basic and diluted

  $ (0.10 )   $ (0.13 )
                 

Weighted average common shares outstanding – basic and diluted

    68,050,808       67,856,789  

 

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

   

 

 
2

 

 

TOWERSTREAM CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)

(UNAUDITED)

For the Three Months Ended March 31, 2016

   

   

Common Stock

                         
   

Shares

   

Amount

   

Additional Paid-In-Capital

   

Accumulated Deficit

   

Total

 

Balance at January 1, 2016

    66,810,149     $ 66,810     $ 158,697,608     $ (156,218,731 )   $ 2,545,687  

Issuance of common stock for consulting services

    100,000       100       19,900       -       20,000  

Issuance of common stock under employee stock purchase plan

    89,176       89       10,611       -       10,700  

Stock-based compensation for options

    -       -       296,385       -       296,385  

Net loss

    -       -       -       (6,993,320 )     (6,993,320 )

Balance at March 31, 2016

    66,999,325     $ 66,999     $ 159,024,504     $ (163,212,051 )   $ (4,120,548 )

   

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)

 

   

Three Months Ended March 3 1 ,

 
   

201 6

   

201 5

 

Cash Flows From Operating Activities

               

Net loss

  $ (6,993,320 )   $ (8,923,066 )

Loss from discontinued operations

    1,731,825       4,262,356  

Loss from continuing operations

    (5,261,495 )     (4,660,710 )

Adjustments to reconcile loss from continuing operations to net cash used in operating activities:

               

Provision for doubtful accounts

    -       30,000  

Depreciation for property, plant and equipment

    2,322,974       2,249,805  

Amortization for intangible assets

    204,673       98,068  

Amortization for debt issuance costs

    204,114       252,899  

Amortization for debt discount

    247,810       307,040  

Accrued interest

    371,572       352,956  

Loss on property and equipment

    528,364       -  

Stock-based compensation

    318,169       211,157  

Deferred rent

    (548,161 )     90,649  

Changes in operating assets and liabilities:

               

Accounts receivable

    (57,875 )     (93,434 )

Prepaid expenses and other current assets

    (390,252 )     (473,830 )

Other assets

    (6,588 )     7,173  

Accounts payable

    (369,104 )     139,439  

Accrued expenses

    51,203       493,534  

Deferred revenues

    (275,926 )     139  

Total Adjustments

    2,600,973       3,665,595  

Net Cash Used In Continuing Operating Activities

    (2,660,522 )     (995,115 )

Net Cash Used In Discontinued Operating Activities

    (2,094,260 )     (2,895,703 )

Net Cash Used In Operating Activities

    (4,754,782 )     (3,890,818 )
                 

Cash Flows From Investing Activities

               

Acquisitions of property and equipment

    (625,976 )     (1,533,227 )

Change in security deposits

    15,639       (4,200 )

Deferred acquisition payments

    -       (2,723 )

Net Cash Used In Continuing Investing Activities

    (610,337 )     (1,540,150 )

Net Cash Provided By ( Used In ) Discontinued Investing Activities

    124,130       (117,470 )

Net Cash Used In Investing Activities

    (486,207 )     (1,657,620 )
                 

Cash Flows From Financing Activities

               

Repayment of capital leases

    (243,738 )     (222,858 )

Issuance of common stock under employee stock purchase plan

    8,916       11,200  

Net Cash Used In Continuing Financing Activities

    (234,822 )     (211,658 )

Net Cash Used In Discontinued Financing Activities

    -       -  

Net Cash Used In Financing Activities

    (234,822 )     (211,658 )
                 

Net Decrease In Cash and Cash Equivalents

               

Continuing Operations

    (3,505,681 )     (2,746,923 )

Discontinued Operations

    (1,970,130 )     (3,013,173 )

Net Decrease In Cash and Cash Equivalents

    (5,475,811 )     (5,760,096 )
                 

Cash and Cash Equivalents – Beginning

    15,116,531       38,027,509  

Cash and Cash Equivalents – Ending

  $ 9,640,720     $ 32,267,413  
                 

Supplemental Disclosures of Cash Flow Information

               

Cash paid during the periods for:

               

Interest

  $ 778,971     $ 768,520  

Taxes

  $ 11,780     $ 21,900  

Acquisition of property and equipment:

               

Under capital leases

  $ -     $ 49,380  

Included in accrued expenses

  $ 148,712     $ 496,789  
Fair value of backhaul agreement acquired   $ 3,837,783     $ -  

 

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”), to operate a new business designed to leverage its fixed wireless network in urban markets to provide other wireless technology solutions and services. Hetnets built a carrier-class network which offered a shared wireless infrastructure platform, primarily for (i) co-location of customer owned antenna and related equipment and (ii) Wi-Fi access and offloading. The Company referred to this as its “Shared Wireless Infrastructure” or “Shared Wireless” business. During the fourth quarter of 2015, the Company determined to exit this business and curtailed activities in its smaller markets. The remaining network, located in New York City (or “NYC”), was the largest and had a lease access contract with a major cable company. As a result, the Company explored opportunities during the fourth quarter of 2015 and continuing into the first quarter of 2016 to sell the New York City network. On March 9, 2016, the Company completed a sale and transfer of certain assets pursuant to an Asset Purchase Agreement (the "Agreement") with a large cable company (the "Buyer"). Under the terms of the Agreement, the Buyer assumed certain rooftop leases and acquired ownership of and the right to operate the Wi-Fi access point and related equipment associated with such leases. The Company retained ownership of all backhaul and related equipment, and the parties entered into an agreement under which the Company provides backhaul services to the Buyer. The agreement is for a three year period with two, one year renewals and is cancellable by the Buyer on sixty days’ notice. During the first quarter of 2016, the Company determined that it would not be able to sell the remainder of the New York City network, and accordingly, all remaining assets were redeployed into the fixed wireless network or written off. The operating results and cash flows for Hetnets have been reclassified and presented as discontinued operating results for all periods presented in these condensed consolidated financial statements.

 

Note 2. Liquidity and Management Plans

   

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of March 31, 2016, the Company had cash and cash equivalents of approximately $9.6 million and working capital of approximately $3.8 million. The Company incurred significant operating losses since inception and continues to generate losses from operations and as of March 31, 2016, the Company has an accumulated deficit of $163.2 million. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Historically, the Company has financed its operation through private and public placement of equity securities, as well as debt financing 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. The Company intends to raise additional capital, either through debt or equity financings or through the potential sale of the Company’s assets in order to achieve its business plan objectives. Management believes that it can be successful in obtaining additional capital; however, no assurance can be provided that the Company will be able to do so. There is no assurance that any funds raised will be sufficient to enable the Company to attain profitable operations or continue as a going concern. To the extent that the Company is unsuccessful, the Company may need to curtail or cease its operations and implement a plan to extend payables or reduce overhead until sufficient additional capital is raised to support further operations. There can be no assurance that such a plan will be successful.   

 

Note 3. 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 March 31, 2016 and the results of operations and cash flows for the periods presented. The results of operations for the three months ended March 31, 2016 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, 2015. 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, 2015, 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. Key estimates include fair value of certain financial instruments, carrying value of intangible assets, reserves for accounts receivable and accruals for liabilities.  

 

 
5

 

 

TOWERSTREAM CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

   

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 March 31, 2016, the Company had cash and cash equivalent balances of approximately $9,121,000 in excess of the federally insured limit of $250,000.

 

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 March 31,

 
   

201 6

   

201 5

 

Beginning of period

  $ 92,864     $ 59,273  

Additions

    -       30,000  

Deductions

    (10,915 )     (17,930 )

End of period

  $ 81,949     $ 71,343  

 

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.

  

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.

 

Segments . The Company determined that the Shared Wireless Infrastructure and Fixed Wireless businesses represented separate business segments. In addition, the Company established a Corporate Group so that centralized operating and administrative activities which supported both businesses could be reported separately. During the fourth quarter of 2015, the Company determined to exit the Shared Wireless Infrastructure business. As a result, its operating results for all periods presented are being reported as discontinued operations in these financial statements. The operating results of the Fixed Wireless business are being reported as continuing operations.

 

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

 

Note 4 .    Discontinued Operations

 

During the fourth quarter of 2015, the Company determined to exit the business conducted by Hetnets and curtailed activities in its smaller markets. The remaining network, located in New York City (or “NYC”), was the largest and had a lease access contract with a major cable company. As a result, the Company explored opportunities during the fourth quarter of 2015 and continuing into the first quarter of 2016 to sell the New York City network. On March 9, 2016, the Company completed a sale and transfer of certain assets pursuant to an Asset Purchase Agreement (the "Agreement") with a large cable company (the "Buyer"). Under the terms of the Agreement, the Buyer assumed certain rooftop leases and acquired ownership of and the right to operate the Wi-Fi access point and related equipment associated with such leases. The Company retained ownership of all backhaul and related equipment, and the parties entered into an agreement under which the Company provides backhaul services to the Buyer. The agreement is for a three year period with two, one year renewals and is cancellable by the Buyer on sixty days’ notice. The Company recognized a gain of $1,177,742 as the net present value of the backhaul agreement of $3,837,783, which has been recorded as an intangible asset, exceeded the net book value of the network assets transferred to the Buyer which totaled $2,660,041.  

 

 
6

 

 

TOWERSTREAM CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

 

The Company has determined that it will not be able to sell the remaining network locations in New York City. As a result, the Company recognized charges totaling $1,585,319 in the first quarter of 2016 which included $453,403 representing the estimated cost to settle lease obligations, $528,364 to write off network assets which could not be redeployed into the fixed wireless network, $110,500 related to security deposits which are not expected to be recovered, and $493,052 related to the accelerated expensing of deferred acquisition costs. These costs were partially offset by a $1,244,284 reduction in the accrual for terminated lease obligations that was recorded in the fourth quarter of 2015. This reduction reflects the outcome of settlements negotiated in the first quarter of 2016 with certain landlords. The operating results and cash flows for Hetnets have been reclassified and presented as discontinued operations in these condensed consolidated financial statements for all periods presented.

   

Discontinued Operations

 

A more detailed presentation of loss from discontinued operations is set forth below. There has been no allocation of consolidated interest expense to discontinued operations.

 

   

Three Months Ended March 31 ,

 
   

2016

   

2015

 

Revenues

  $ 553,302     $ 787,628  

Operating expenses:

               

Infrastructure and access

    2,523,222       3,697,156  

Depreciation

    638,681       1,031,510  

Network operations

    183,583       195,394  

Customer support services

    69,804       82,312  

Sales and marketing

    246       43,612  

General and administrative

    47,333       -  

Total operating expenses

    3,462,869       5,049,984  

Net operating loss

    (2,909,567 )     (4,262,356 )

Gain on sale of assets

    1,177,742       -  

Net Loss

  $ (1,731,825 )   $ (4,262,356 )

 

The components of the balance sheet accounts presented as discontinued operations were as follows:

 

   

March 31, 2016

   

December 31, 2015

 

Assets:

               

Accounts receivable, net

  $ 494,768     $ 715,993  

Prepaid expenses and other current assets

    -       278,891  

Deferred acquisitions costs

    -       253,685  

Security deposits

    231,978       -  

Total Current Assets

  $ 726,746     $ 1,248,569  
                 

Liabilities:

               

Accounts payable

  $ 806,606     $ 556,800  

Accrued expenses

    30,000       66,101  

Accrued expenses - leases

    2,493,586       3,284,467  

Total Current Liabilities

  $ 3,330,192     $ 3,907,368  

 

Note 5. Property and Equipment

 

Property and equipment is comprised of:

 

   

March 31, 2016

   

December 31, 2015

 

Network and base station equipment

  $ 40,467,952     $ 38,351,119  

Customer premise equipment

    33,578,392       30,910,874  

Information technology

    4,828,479       4,810,865  

Furniture, fixtures and other

    1,713,430       1,713,722  

Leasehold improvements

    1,625,910       1,623,559  
      82,214,163       77,410,139  

Less: accumulated depreciation

    61,573,286       56,174,755  

Property and equipment, net

  $ 20,640,877     $ 21,235,384  

 

 

 
7

 

 

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:

   

   

March 31 , 201 6

   

December 31, 201 5

 

Network and base station equipment

  $ 2,620,898     $ 2,620,898  

Customer premise equipment

    669,792       669,792  

Information technology

    1,860,028       1,860,028  
      5,150,718       5,150,718  

Less: accumulated depreciation

    3,372,504       3,114,968  

Property acquired through capital leases, net

  $ 1,778,214     $ 2,035,750  

   

Note 6. Intangible Assets

 

Intangible assets consist of the following:

 

   

March 31, 2016

   

December 31, 2015

 

Customer relationships

  $ 11,856,126     $ 11,856,126  

Backhaul agreement

    3,837,783       -  

FCC licenses

    750,000       750,000  
      16,443,909       12,606,126  

Less: accumulated amortization of customer relationships

    11,537,769       11,333,096  

Intangible assets, net

  $ 4,906,140     $ 1,273,030  

 

Amortization expense for the three months ended March 31, 2016 and 2015 was $204,673 and $98,068, respectively. The customer contracts acquired in the Delos acquisition are being amortized over a 50 month period in quarterly amounts of $98,068 ending April 2017. The backhaul agreement acquired in the Time Warner Cable (“TWC”) transaction is being amortized over a 36 month period in quarterly amounts of $319,815 ending in March 2019. The TWC transaction closed in March 2016 so only a partial quarterly expense of $106,605 was recognized in the quarter ended March 31, 2016. The Company’s licenses with the Federal Communications Commission (the “FCC”) are not subject to amortization as they have an indefinite useful life.

 

Note 7. Accrued Expenses

 

Accrued expenses consist of the following: 

 

   

March 31, 2016

   

December 31, 2015

 

Payroll and related

  $ 717,613     $ 551,448  

Professional services

    403,444       427,932  

Other

    317,388       339,680  

Property and equipment

    148,712       176,614  

Network

    63,841       133,544  

Total

  $ 1,650,998     $ 1,629,218  

 

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

     

Note 8. Other Liabilities

 

Other liabilities consist of the following:

 

   

March 31, 2016

   

December 31, 2015

 

Current

               

Deferred rent

  $ 60,039     $ 63,012  
                 

Long-Term

               

Deferred rent

  $ 682,228     $ 1,227,414  

Deferred taxes

    363,774       363,774  

Total

  $ 1,046,002     $ 1,591,188  

 

 

 
8

 

 

TOWERSTREAM CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

 

Note 9. 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 $74,063 and $91,765 in connection with the amortization of this discount for the three months ended March 31, 2016 and 2015, respectively. The unamortized balance totaled $539,673 at March 31, 2016 and $613,736 at December 31, 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 $743,144 and $705,911 of interest, and accrued $371,572 and $352,956 of PIK interest for the three months ended March 31, 2016 and 2015, respectively.

 

As of March 31, 2016, 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 $173,747 and $215,275 in connection with the amortization of this discount for the three months ended March 31, 2016 and 2015, respectively. The unamortized balance totaled $1,266,038 at March 31, 2016 and $1,439,785 at December 31, 2015.

 

The Company incurred costs, primarily professional services, of approximately $2,900,000 related to the Loan Agreement. These costs were recorded as a liability in the Company’s condensed consolidated balance sheet and are being amortized over the term of the Loan Agreement using the effective interest rate. Amortization expense totaled $204,114 and $252,899 for the three months ended March 31, 2016 and 2015, respectively. The unamortized balance totaled $1,487,307 at March 31, 2016 and $1,691,421 at December 31, 2015. 

 

Note 10 . 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 the estimated 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 March 31 ,

 
   

2016

   

2015

 

Risk-free interest rate

  1.2% - 1.4%       -  

Expected volatility

  77.6% - 82.1%       -  

Expected life (in years)

    4.2       -  

Expected dividend yield

    -       -  

Weighted average per share grant date fair value

  0.14     $ -  

Stock-based compensation

$   296,385     $ 209,209  

 

The risk-free interest rate was based on rates established by the Federal Reserve. The expected volatility was based upon the historical volatility for the Company’s common stock. The Company utilized historical data to determine the expected life of stock options. The dividend yield reflected 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 $391,761 as of March 31, 2016 which will be recognized over a weighted-average period of 0.8 years.

 

Option transactions under the stock option plans during the three months ended March 31, 2016 were as follows:

 

   

Number

   

Weighted Average Exercise Price

 

Outstanding as of January 1, 2016

    4,340,042     $ 2.61  

Granted during 2016

    825,000       0.24  

Exercised

    -       -  

Cancelled /expired

    89,500       1.48  

Outstanding as of March 31, 2016

    5,075,542     $ 2.24  

Exercisable as of March 31, 2016

    3,946,080     $ 2.57  

 

 

 
9

 

 

TOWERSTREAM CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

 

In February 2016, the Company granted a consultant 100,000 options with an exercise price of $0.20 which vested immediately. In March 2016, the Company granted its newly appointed interim Chief Executive Officer 100,000 options with an exercise price of $0.25 and 25,000 options with an exercise price of $0.12 both of which vested immediately, and its newly appointed Chief Operating Officer 600,000 options with an exercise price of $0.25 which vest quarterly over a two year period. The aggregate fair value of the options granted was $116,210 for the three months ended March 31, 2016.

 

Cancellations for the three months ended March 31, 2016 related to employee terminations.

 

The weighted average remaining contractual life of the outstanding options as of March 31, 2016 was 7 .0 years.

 

There was no aggregate intrinsic value associated with the options outstanding and exercisable as of March 31, 2016. The closing price of the Company’s common stock at March 31, 2016 was $0.12 per share.

 

Stock Warrants

 

There were 4,050,000 warrants outstanding and exercisable at March 31, 2016 with a weighted average exercise price of $1.31 per share. The weighted average remaining contractual life of the warrants was 5.4 years. No stock warrants were issued, exercised, expired or cancelled during the three months ended March 31, 2016.

 

The aggregate intrinsic value associated with the warrants outstanding and exercisable as of March 31, 2016 was $132,000.

 

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.

 

Note 11. 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. During the three months ended March 31, 2016 and 2015, a total of 89,176 and 6,087 shares were issued under the ESPP Plan with a fair value of $10,700 and $13,148, respectively. The Company recognized $1,784 and $1,948 of stock-based compensation related to the 15% discount for the three months ended March 31, 2016 and 2015, respectively.

 

Note 12. 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.

 

The carrying amounts of cash and cash equivalents, 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 March 31, 2016.

 
 
10

 

 

TOWERSTREAM CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

 

Note 13. 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 ended March 31, 2016 and 2015, 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 March 31, 2016 and 2015 would dilute earnings per share if the Company becomes profitable in the future.

   

   

Three Months Ended March 31,

 
   

2016

   

2015

 

Stock options

    5,075,542       3,973,405  

Warrants

    2,850,000       2,850,000  

Total

    7,925,542       6,823,405  

 

  Note 14. 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 March 31, 2016, total future operating lease obligations were as follows:

 

Remainder of 2016

  $ 9,474,143  

2017

    8,829,245  

2018

    4,389,155  

2019

    2,721,992  

2020

    623,067  

Thereafter

    95,371  
    $ 26,132,973  

 

Rent expenses were as follows:

 

   

Three Months Ended March 31 ,

 
   

201 6

   

201 5

 

Points of Presence

  $ 2,075,658     $ 2,085,698  

Street level rooftops

    1,900,791       3,461,498  

Corporate offices

    149,147       92,193  

Other

    121,489       88,336  
    $ 4,247,085     $ 5,727,725  

 

Rent expenses related to Points of Presence and other were included in infrastructure and access 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 in February 2014. Total annual rent payments began at $359,750 for 2014 and escalate by 3% annually reaching $416,970 for 2019.

 

 

 
11

 

 

TOWERSTREAM CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

 

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 started at $53,130 and escalated by 3% annually. In April 2016, the Company terminated the Florida lease. Under the terms of the agreement, the Company forfeited its security deposit of $26,648 and agreed to make a termination payment of $25,000.

 

Capital Lease Obligations

 

The Company has entered into capital leases to acquire property and equipment expiring through June 2018. As of March 31, 2016, total future capital lease obligations were as follows:

 

Remainder of 2016

  $ 837,468  

2017

    837,811  

2018

    143,796  
    $ 1,819,075  

Less: interest expense

    137,297  

Total capital lease obligations

  $ 1,681,778  

Current

  $ 1,003,951  

Long-term

  $ 677,827  

 

 

 
12

 

     

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 three months ended March 31, 2016. 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, 2015 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. 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

 

Infrastructure and access expenses relate directly to maintaining our network and providing connectivity to our customers. Infrastructure primarily relates to our Points-of-Presence ("PoPs") where we install a substantial amount of equipment, mostly on the roof, which we utilize to connect numerous customers to the internet. We enter into long term lease agreements to maintain our equipment on these PoPs and these rent payments comprise the majority of our infrastructure and access costs. Access expenses primarily consist of bandwidth connectivity agreements that we enter into with national service providers.

 

Network operations costs relate to the daily operations of our network and ensuring that our customers have connectivity within the terms of our service level agreement. We have employees based in our largest markets who are dedicated to ensuring that our network operates effectively on a daily basis. Other employees monitor network operations from our network operating center which is located at our corporate headquarters. Payroll comprises approximately 55 to 60% of network operations costs. Information technology systems and support comprises approximately 20 to 25% of network operations costs.

 

Customer support costs relate to our continuing communications with customers regarding their service level agreement. Payroll comprises approximately 75 to 80% of customer support costs. Other costs include travel expenses to service customer locations, shipping, troubleshooting, and facilities related expenses.

 

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.

  

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 and finance personnel are included in this category. Other costs include accounting, legal and other professional services, and other general operating expenses.

 

 

 
13

 

         

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.

  

As of March 31, 2016, 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.

 

Overview - Shared Wireless Infrastructure  

 

In January 2013, the Company incorporated a wholly-owned subsidiary, Hetnets Tower Corporation (“Hetnets”), to operate a new business designed to leverage its fixed wireless network in urban markets to provide other wireless technology solutions and services. Hetnets built a carrier-class network which offered a shared wireless infrastructure platform, primarily for (i) co-location of customer owned antenna and related equipment and (ii) Wi-Fi access and offloading. The Company referred to this as its “Shared Wireless Infrastructure” or “Shared Wireless” business. During the fourth quarter of 2015, the Company determined to exit this business and curtailed activities in its smaller markets. The remaining network, located in New York City (or “NYC”), was the largest and had a lease access contract with a major cable company. As a result, the Company explored opportunities during the fourth quarter of 2015 and continuing into the first quarter of 2016 to sell the New York City network. On March 9, 2016, the Company completed a sale and transfer of certain assets pursuant to an Asset Purchase Agreement (the "Agreement") with a large cable company (the "Buyer"). Under the terms of the Agreement, the Buyer assumed certain rooftop leases and acquired ownership of and the right to operate the Wi-Fi access point and related equipment associated with such leases. The Company retained ownership of all backhaul and related equipment, and the parties entered into an agreement under which the Company provides backhaul services to the Buyer. The agreement is for a three year period with two, one year renewals and is cancellable by the Buyer on sixty days’ notice. During the first quarter of 2016, the Company determined that it would not be able to sell the remainder of the New York City network, and accordingly, all remaining assets are being redeployed into the fixed wireless network or written off. The operating results and cash flows for Hetnets have been reclassified and presented as discontinued operating results for all periods presented in these condensed consolidated financial statements.

 

Three Months Ended March 31, 2016 Compared to Three Months Ended March 31, 2015

 

Continuing Operations – Fixed Wireless

 

Revenues. Revenues totaled $6,734,090 during the three months ended March 31, 2016 compared to $7,172,467 during the three months ended March 31, 2015 representing a decrease of $438,377, or 6%. The decrease principally related to a 7% decrease in the base of customers billed on a monthly recurring basis.

 

Customer churn totaled 1.65% during the three months ended March 31, 2016 compared to 1.86% during the three months ended March 31, 2015. Churn represents the percent of revenue lost on a monthly basis from customers who have cancelled their contract. Effective January 1, 2016, we have modified our methodology to conform to common practice in the telecommunications industry. Revenue adjustments associated with customers who are modifying the (i) amount of their bandwidth or (ii) the pricing terms of their contract will no longer be included in the calculation of customer churn. Customer churn calculated under the previous methodology would have totaled 1.84% and 2.03% for the three months ended March 31, 2016 and 2015, respectively.   Our goal is to maintain churn levels below industry averages of approximately 2.00%. Churn levels can fluctuate from period to period depending upon whether customers move to a location not serviced by the Company, go out of business, or a myriad of other reasons.

 

Infrastructure and A ccess . Infrastructure and access totaled $2,551,727 during the three months ended March 31, 2016 compared to $2,498,971 during the three months ended March 31, 2015 representing an increase of $52,756, or 2%. Bandwidth expense totaled $392,892 during the three months ended March 31, 2016 compared to $378,616 during the three months ended March 31, 2015 representing an increase of $14,276, or 4%.

 

Depreciation and Amortization. Depreciation and amortization totaled $2,527,647 during the three months ended March 31, 2016 compared to $2,347,873 during the three months ended March 31, 2015 representing an increase of $179,774 or 8%. Depreciation expense totaled $2,322,974 during the three months ended March 31, 2016 compared to $2,249,805 during the three months ended March 31, 2015 representing an increase of $73,169, or 3%.  

 

 
14

 

 

Amortization expense totaled $204,673 during the three months ended March 31, 2016 compared to $98,068 during the three months ended March 31, 2015 representing an increase of $106,605, or more than 100%. Amortization expense relates to intangible assets recorded in connection with acquisitions and other transactions, and can fluctuate significantly from period to period depending upon the timing of acquisitions and other transactions, the relative amounts of intangible assets recorded, and the amortization periods. The increase related entirely to amortization associated with the TWC transaction which closed in March 2016.

 

Network O perations . Network operations totaled $1,291,188 during the three months ended March 31, 2016 compared to $1,334,432 during the three months ended March 31, 2015 representing a decrease of $43,244, or 3%. Payroll costs totaled $771,839 in the 2016 period compared to $735,010 in the 2015 period representing an increase of $36,829, or 5%. Average headcount was slightly lower in the 2016 period. Field activities expense totaled $145,858 during the three months ended March 31, 2016 compared to $142,657 during the three months ended March 31, 2015 representing an increase of $3,201, or 2%. Information technology support expenses totaled $254,084 in the 2016 period compared to $322,154 in the 2015 period representing a decrease of $68,070, or 21%, as the Company internally absorbed certain functions that were previously provided by third parties. Network support costs totaled $119,407 during the three months ended March 31, 2016 compared to $134,611 during the three months ended March 31, 2015 representing a decrease of $15,204, or 11%. These costs can fluctuate from period to period and the dollar change is not meaningful.

 

Customer Support . Customer support totaled $543,191 during the three months ended March 31, 2016 compared to $672,883 during the three months ended March 15, 2015 representing a decrease of $129,692, or 19%. Payroll expense totaled $416,098 during the 2016 period compared to $517,610 during the 2015 period representing a decrease of $101,512, or 20%. Average headcount was lower in the 2016 period as the Company consolidated departments and improved efficiencies. Other customer support costs totaled $127,093 during the three months ended March 31, 2016 compared to $155,273 during the 2015 period representing a decrease of $28,180, or 18%. This decrease was principally attributable to lower customer troubleshooting costs which can fluctuate from period to period.

 

Sales and Marketing. Sales and marketing expenses totaled $1,494,920 during the three months ended March 31, 2016 compared to $1,330,682 during the three months ended March 31, 2015 representing an increase of $164,238, or 12%. Payroll costs totaled $966,855 during the 2016 period compared to $829,117 during the 2015 period representing an increase of $137,738, or 17%. The increase related to higher headcount in connection with the opening of a new sales office in Florida in the first quarter of 2015. Advertising expenses totaled $183,077 during the three months ended March 31, 2016 compared to $279,040 during the three months ended March 31, 2015 representing a decrease of $95,963, or 34%. The Company has significantly reduced its Internet marketing initiatives in connection with its current marketing focus on specific businesses in certain connected buildings rather than marketing broadly to all businesses in a market. Outside commissions totaled $205,929 in the 2016 period compared to $127,005 in the 2015 period representing an increase of $78,924, or 62%. The increase relates almost exclusively to the Company’s residual program which pays continuing commissions as long as the referred business is a customer. Other costs totaled $139,059 during the three months ended March 31, 2016 compared to $95,520 during the three months ended March 31, 2015 representing an increase of $43,539, or 46%. The increase primarily relates to a decision to close the sales office in Florida.

 

General and Administrative. General and administrative expenses totaled $1,979,792 for the three months ended March 31, 2016 compared to $1,984,072 for the three months ended March 31, 2015 representing a decrease of $4,280, or less than 1%. Payroll costs increased to $764,707 in the 2016 period compared to $588,523 in the 2015 period representing an increase of $176,184, or 30%. The increase related to severance payments to the Company’s former Chief Executive Officer (“CEO”). Stock based compensation increased to $318,169 during the three months ended March 31, 2016 compared to $211,157 during the three months ended March 31, 2015 representing an increase of $107,012, or 51%. The increase substantially related to a full quarter of expense during the quarter ended March 31, 2016 associated with a September 2015 grant made to all employees which was not applicable during the quarter ended March 31, 2015. Professional services fees totaled $410,380 during the three months ended March 31, 2016 compared to $396,649 during the three months ended March 31, 2015 representing an increase of $13,731, or 3%. The increase was primarily attributed to higher audit fees due to the complexities associated with accounting for the termination of the shared wireless infrastructure business. Corporate travel expenses totaled $48,853 in the 2016 period compared to $166,231 in the 2015 period representing a decrease of $117,378, or 71%. The decrease related to the cancellation of the President’s club trip for top performers and lower travel expenses at the CEO level. Acquisitions expense totaled $31,925 during the three months ended March 31, 2016 compared to $107,700 during the three months ended March 31, 2015 representing a decrease of $75,775, or 70%. Acquisition related expenses can vary from period to period depending on the level of activity during a period. Customer related expenses decreased by approximately $25,000 in the 2016 period due to lower bad debt expense and costs related to being a public company also decreased by approximately $25,000 compared to the 2015 period.

 

Interest Expense, Net.  Interest expense, net totaled $1,607,120 during the three months ended March 31, 2016 compared to $1,664,264 during the three months ended March 31, 2015 representing a decrease of $57,144, or 3%. Interest expense relates to the $35 million secured term loan which closed in October 2014.

 

Loss from Continuing Operations . Loss from continuing operations totaled $5,261,495 during the three months ended March 31, 2016 compared to $4,660,710 during the three months ended March 31, 2015 representing an increase of $600,785, or 13%. Revenues decreased by $438,377 in the 2016 period which represented 73% of the increased loss. Higher operating expenses in the 2016 period represented $219,552, or 37%, of the increased loss.

 

 

 
15

 

 

Discontinued Operations – Shared Wireless

 

Revenues . Revenues for the Shared Wireless business totaled $553,302 during the three months ended March 31, 2016 compared to $787,628 during the three months ended March 31, 2015 representing a decrease of $234,326 or 30%. The decrease related to the Company’s contract with a major cable company which was terminated in March 2016 resulting in only a partial quarter of revenue in the 2016 period compared to a full quarter of revenue in the 2015 period.

 

Infrastructure and access. Infrastructure and access totaled $2,523,222 during the three months ended March 31, 2016 compared to $3,697,156 during the three months ended March 31, 2015 representing a decrease of $1,173,934, or 32%. Rent expense for rooftop locations totaled $1,900,791 in the 2016 period compared to $3,461,498 in the 2015 period representing a decrease of $1,560,707, or 45%. The reduction reflects the termination of lease agreements during the fourth quarter of 2015, primarily in Chicago, San Francisco, and Miami. Loss on fixed assets totaled $528,364 during the three months ended March 31, 2016 compared to zero during the three months ended March 31, 2015. During the first quarter of 2016, the Company sold certain network infrastructure assets to a major cable company. The Company determined to shut down the remaining network locations and recognized a loss of $528,364 which represented the net book value of capitalized installation costs as well as equipment which could not be redeployed into the fixed wireless network.

 

Depreciation. Depreciation totaled $638,681 during the three months ended March 31, 2016 compared to $1,031,510 during the three months ended March 31, 2015 representing a decrease of $392,829 or 38%. The Company terminated business activities in certain markets in the fourth quarter of 2015 and wrote off $1.6 million of network assets which represented 24% of the depreciable base at December 31, 2015. This resulted in lower depreciation in the 2016 period.

 

Network Operations. Network operations totaled $183,583 during the three months ended March 31, 2016 compared to $195,394 during the three months ended March 31, 2015 representing a decrease of $11,811, or 6%. Payroll expense totaled $145,066 during the 2016 period compared to $186,324 during the 2015 period representing a decrease of $41,258. The business was terminated in early March 2016 resulting in less than a full quarter of payroll costs in the 2016 period. Other costs totaled $38,517 during the 2016 period compared to $9,435 during the 2015 period representing an increase of $29,082. Certain costs were incurred in the 2016 period related to the termination of the business.

 

Customer Support Services. Customer support services totaled $69,804 during the three months ended March 31, 2016 compared to $82,312 during the three months ended March 31, 2015 representing a decrease of $12,508 or 15%. The business was terminated in early March 2016 resulting in less than a full quarter of costs in the 2016 period.

 

Sales and Marketing. Sales and marketing expenses totaled $246 during the three months ended March 31, 2016 compared to $43,612 during the three months ended March 31, 2015 representing a decrease of $43,366, or 99%. The decrease reflects a lack of sales and marketing efforts prior to terminating the business in March 2016.

 

General and Administrative. General and administrative expenses totaled $47,333 during the three months ended March 31, 2016 compared to zero during the three months ended March 31, 2015. The increase reflects professional services fees incurred in the 2016 period for terminating the business.

 

Loss from Discontinued Operations. Loss from discontinued operations for the three months ended March 31, 2016 totaled $1,731,825 compared to $4,262,356 for the three months ended March 31, 2015 representing a decrease of $2,530,531, or 59%. Infrastructure and access costs decreased by $1,173,934 representing 46% of the decrease. Gain on sale of assets increased by $1,177,742 representing 47% of the decrease.

  

Liquidity and Capital Resources

 

Changes in capital resources during the three months ended March 31, 2016 and 2015 are described below.

 

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of March 31, 2016, the Company had cash and cash equivalents of approximately $9.6 million and working capital of approximately $3.8 million. The Company has incurred significant operating losses since inception and continues to generate losses from operations and as of March 31, 2016, the Company has an accumulated deficit of $163.2 million. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern.  

 

 
16

 

 

Historically, the Company has financed its operation through private and public placement of equity securities, as well as debt financing 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. The Company intends to raise additional capital, either through debt or equity financings or through the potential sale of the Company’s assets in order to achieve its business plan objectives. Management believes that it can be successful in obtaining additional capital; however, no assurance can be provided that the Company will be able to do so. There is no assurance that any funds raised will be sufficient to enable the Company to attain profitable operations or continue as a going concern. To the extent that the Company is unsuccessful, the Company may need to curtail or cease its operations and implement a plan to extend payables or reduce overhead until sufficient additional capital is raised to support further operations. There can be no assurance that such a plan will be successful.

 

Continuing Operations

   

Net Cash Used In Operating Activities. Net cash used in operating activities for the three months ended March 31, 2016 totaled $2,660,522 compared to $995,115 for the three months ended March 31, 2015 representing an increase of $1,665,407. Revenues generated from continuing operations were $438,377 lower in the 2016 period which adversely impacted cash flows available to support operating activities. Changes in operating assets and liabilities provided cash of $73,021 during the 2015 period but used cash of $1,048,542 in the 2016 which represented a total difference of $1,121,563. Changes in operating assets and liabilities generally represent timing differences regarding payments and receipts, and are normally not indicative of operating results.

 

Net Cash (Used In) Provided by Financing Activities . Net cash used in financing activities for the three months ended March 31, 2016 totaled $234,822 compared to net cash used in financing activities of $211,658 for the three months ended March 31, 2015, representing an increase of $23,164. The majority of the payments for both periods related to capital lease payments.

 

Discontinued Operations

 

Net Cash Used In Operating Activities. Net cash used in operating activities for the three months ended March 31, 2016 totaled $2,094,261 compared to $2,895,703 for the three months ended March 31, 2015 representing a decrease of $801,442, or 28%. Operating activities for the discontinued business were partially curtailed in the fourth quarter of 2015 which resulted in lower cash requirements in the first quarter of 2016

 

Net Cash Used in Investing Activities. Net cash provided by investing activities for the three months ended March 31, 2016 totaled $124,130 compared to net cash used of $117,470 for the three months ended March 31, 2015 representing a change of $241,600. Cash capital expenditures totaled $118,470 in the 2015 period compared to zero in the 2016 period which reflected the Company’s decision in the fourth quarter of 2015 to exit the shared wireless infrastructure business.

 

Net Cash (Used In) Provided by Financing Activities . There were no financing activities during either period.

    

In January 2013, the Company incorporated a wholly-owned subsidiary, Hetnets Tower Corporation (“Hetnets”), to operate a new business designed to leverage its fixed wireless network in urban markets to provide other wireless technology solutions and services. Hetnets built a carrier-class network which offered a shared wireless infrastructure platform, primarily for (i) co-location of customer owned antenna and related equipment and (ii) Wi-Fi access and offloading. The Company referred to this as its “Shared Wireless Infrastructure” or “Shared Wireless” business. During the fourth quarter of 2015, the Company determined to exit this business and curtailed activities in its smaller markets. The remaining network, located in New York City (or “NYC”), was the largest and had a lease access contract with a major cable company. As a result, the Company explored opportunities during the fourth quarter of 2015 and continuing into the first quarter of 2016 to sell the New York City network. On March 9, 2016, the Company completed a sale and transfer of certain assets to a major cable company (the “Buyer”). The Asset Purchase Agreement provided that the Buyer would assume certain rooftop leases in NYC and acquire ownership of the Wi-Fi access points and related equipment associated with operating the network. The Company retained ownership of all backhaul and related equipment and the parties entered into a backhaul services agreement under which the Company provides internet bandwidth to the Buyer at the locations governed by the leases. The agreement is for a three year period with two, one year renewals and is cancellable by the Buyer on sixty days’ notice. The net effect of the Buyer (i) assuming certain rooftop leases, (ii) entering into a backhaul services agreement, and (iii) terminating the access agreement is projected to result in a net reduction in cash requirements of approximately $6 million annually. During the first quarter of 2016, the Company determined that it would not be able to sell the remainder of the New York City network, and accordingly, all remaining assets are being redeployed into the fixed wireless network or written off. The operating results and cash flows for Hetnets have been reclassified and presented as discontinued operating results for all periods presented in these condensed consolidated financial statements.

   

Other Considerations

 

Debt Financing . In October 2014, we entered into a loan agreement (the “Loan Agreement”) with Melody Business Finance, LLC (the “Lender”). The Lender provided us with a five-year $35 million secured term loan (the “Financing”). The Financing was issued at a 3% discount and the Company incurred $2,893,739 in debt issuance costs. Net proceeds were $31,056,260.

 

The loan bears interest at a rate equal to the greater of (i) the sum of the most recently effective one month LIBOR as in effect 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 aggregate principal amount outstanding plus all accrued and unpaid interest is due in October 2019. The Company has the option of making principal payments (i) on or before October 16, 2016 (the “Second Anniversary”) but only for the full amount outstanding and (ii) after the Second Anniversary in minimum amount(s) of $5 million.

 

In connection with the Loan Agreement and pursuant to a Warrant and Registration Rights Agreement, we issued warrants (the “Warrants”) to purchase 3.6 million 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 standard anti-dilution provisions. The Warrants have a term of seven and a half years. We have agreed to include the shares of common stock underlying the Warrants in a registration statement that must be filed no later than December 31, 2016.

 

 
17

 

 

Contractual Obligations and Commitments

 

The following table summarizes our contractual obligations and other commitments as of March 31, 2016:

 

   

Payments due by period

 
   

Total

   

201 6

   

201 7

   

201 8

   

201 9

   

2020

   

Thereafter

 

Operating leases

  $ 26,132,973     $ 9,474,143     $ 8,829,245     $ 4,389,155     $ 2,721,992     $ 623,067     $ 95,371  

Long-term debt

    37,120,475       -       -       -       37,120,475       -       -  

Capital leases

    1,819,075       837,468       837,811       143,796       -       -       -  

Total

  $ 65,072,523     $ 10,311,611     $ 9,667,056     $ 4,532,951     $ 39,842,467     $ 623,067     $ 95,371  

 

Operating Leases. We have 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 our option, for additional terms ranging from 1 to 25 years. Amounts associated with the extension periods have not been included in the table above as it is not presently determinable which options, if any, we will elect to exercise.

 

Long-Term Debt . We have entered into a loan agreement with Melody Business Finance, LLC. The $35 million term loan becomes due in October 2019. Accrued PIK interest totaled $2,120,475 as of March 31, 2016.

 

Capital Lease. We have entered into capital leases to acquire property and equipment expiring through June 2018.

 

Critical Accounting Policies

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. Critical accounting policies are those that require the application of management’s most difficult, subjective or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that may change in subsequent periods. In preparing the financial statements, we utilize available information, including our past history, industry standards and the current economic environment, among other factors, in forming our estimates and judgments, giving appropriate consideration to materiality. Actual results may differ from these estimates. In addition, other companies may utilize different estimates which may impact the comparability of our results of operations to other companies in our industry. We believe that of our significant accounting policies, the following may involve a higher degree of judgment and estimation, or are fundamentally important to our business.

 

Revenue Recognition. We normally enter into contractual agreements with our customers for periods ranging between one to three years. We recognize the total revenue provided under a contract ratably over the contract period including any periods under which we have agreed to provide services at no cost. Deferred revenues are recognized as a liability when billings are issued in advance of the date when revenues are earned. We recognize revenue 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.

 

Long-Lived Assets . Long-lived assets with definite lives consist primarily of property and equipment, and intangible assets such as acquired customer relationships. Long-lived assets are evaluated periodically for impairment or whenever events or circumstances indicate their carrying value may not be recoverable. Conditions that would result in an impairment charge include a significant decline in the fair value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable. When such events or circumstances arise, an estimate of the future undiscounted cash flows produced by the asset, or the appropriate grouping of assets, is compared to the asset’s carrying value to determine if impairment exists. If the asset is determined to be impaired, the impairment loss is measured based on the excess of its carrying value over its fair value. Assets to be disposed of are reported at the lower of their carrying value or net realizable value.

 

 

 
18

 

 

Off-Balance Sheet Arrangements. We have no off-balance sheet arrangements, financings, or other relationships with unconsolidated entities known as ‘‘Special Purposes Entities.’’

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Market risk is the potential loss arising from adverse changes in market rates and prices. Our primary market risk relates to interest rates. At March 31, 2016, all cash and cash equivalents are immediately available cash balances. A portion of our cash and cash equivalents are held in institutional money market funds.   

 

Item 4. Controls and Procedures.

 

Disclosure Controls and Procedures

 

We carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the ‘‘Exchange Act’’). Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based upon our evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective, as of March 31, 2016, in ensuring that material information that we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our system of internal control over financial reporting during the three months ended March 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 
19 

 

 

  PART II

OTHER INFORMATION

 

Item 1A. Risk Factors.

 

We may incur additional charges in connection with our decision to exit the Shared Wireless infrastructure business, and any additional costs would adversely impact our cash flows.

 

 During the fourth quarter of 2015, we determined to exit the Shared Wireless infrastructure business and curtailed activity in our smaller markets. In connection with this action, we recognized charges in the fourth quarter of 2015 aggregating approximately $5,359,000, consisting of approximately $3,284,000 of estimated cost to settle our lease obligations, $1,618,000 to write-off network assets which could not be redeployed into the fixed wireless network and writing off $456,000 of deferred acquisition costs and security deposits which are not expected to be recovered.

 

  During the first quarter of 2016, we sold the majority of network locations in New York City, our largest market, to a major cable company.  We also determined that we would not be able to sell the remaining network locations in New York City.  As a result, the Company recognized charges totaling $1,585,319 in the first quarter of 2016 which included $453,403 representing the estimated cost to settle lease obligations, $528,364 to write off network assets which could not be redeployed into the fixed wireless network, $110,500 related to security deposits which are not expected to be recovered, and $493,052 related to the accelerated expensing of deferred acquisition costs. These costs were partially offset by a $1,244,284 reduction in the accrual for terminated lease obligations that was recorded in the fourth quarter of 2015. This reduction reflects the outcome of settlements negotiated in the first quarter of 2016 with certain landlords.  

 

We believe that we have recognized principally all of the costs required to exit this business but can provide no assurance that additional costs will not be incurred. Any additional costs would adversely impact our operating results and cash flows, and our stock price could decline.

 

We may fail to regain compliance for continued listing on the NASDAQ Capital Market and a delisting of our stock could make it more difficult for investors to sell their shares

 

Our common stock was approved for listing on the NASDAQ Capital Market in May of 2007 where it continues to be listed. The listing Rules (the “Rules”) of NASDAQ require the company to meet certain requirements. These continued listing standards include specific criteria, including:  

 

a $1.00 minimum closing bid price;

   

stockholders’ equity of $2.5 million;

   

500,000 shares of publicly-held common stock with a market value of at least $1 million;

   

300 round-lot stockholders; and

   

compliance with NASDAQ’s corporate governance requirements, as well as additional or more stringent criteria that may be applied in the exercise of NASDAQ’s discretionary authority.

 

On November 24, 2015, NASDAQ informed the Company that it had failed to maintain a minimum bid price of $1 per share for more than 30 consecutive business days. The Company can regain compliance if, at any time during the 180 day period ending May 23, 2016, the closing bid price of the common stock is at least $1 for a minimum of ten consecutive business days.  The Company has formally requested that the Nasdaq Listing Qualifications Panel provide the Company an additional 180 calendar day period, or until November 22, 2016, to regain compliance with the bid price requirement.  It is unknown if this request will be granted or if we will be able to regain compliance with the minimum bid price requirement within the time allowed in order to continue our common stock listing on the Nasdaq Capital Market. While we hope to regain compliance in the ordinary course of business, we may consider a reverse stock split, if necessary to continue our listing, and have committed to NASDAQ to do so if necessary. However, even if we do effect such a reverse stock split, our stockholders may bring actions against us in connection with that reverse stock split that could divert management resources, cause us to incur significant expenses or cause our common stock to be further diluted.

 

 
20

 

 

 The Company reported stockholders’ deficit at March 31, 2016 of $4,120,548 resulting in noncompliance with the $2,500,000 of stockholders’ equity required by NASDAQ. As of May 9, 2016, we have not yet received correspondence from NASDAQ with respect to this deficiency.  It is unknown at this time if we will be able to regain compliance with the stockholders’ equity requirement in order to continue our common stock listing on the Nasdaq Capital Market.

 

 If we fail to comply with NASDAQ’s continued listing standards, we may be delisted and our common stock will trade, if at all, only on the over-the-counter market, such as the OTC Bulletin Board or OTCQX market, and then only if one or more registered broker-dealer market makers comply with quotation requirements.  In addition, delisting of our common stock could depress our stock price, substantially limit liquidity of our common stock and materially adversely affect our ability to raise capital on terms acceptable to us, or at all.

 

      Finally, delisting of our common stock would likely result in our common stock becoming a “penny stock” under the Securities Exchange Act.  The principal result or effect of being designated a “penny stock” is that securities broker-dealers cannot recommend the shares but must trade it on an unsolicited basis. Penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document prepared by the SEC, which specifies information about penny stocks and the nature and significance of risks of the penny stock market. A broker-dealer must also provide the customer with bid and offer quotations for the penny stock, the compensation of the broker-dealer and sales person in the transaction, and monthly account statements indicating the market value of each penny stock held in the customer’s account. In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for shares that become subject to those penny stock rules. Under such circumstances, shareholders may find it more difficult to sell, or to obtain accurate quotations, for our common stock, and our common stock would become substantially less attractive to certain purchasers such as financial institutions, hedge funds and other similar investors.

 

Item 6. Exhibits.

   

Exhibit No.

Description

31.1

Section 302 Certification of Principal Executive Officer.

31.2

Section 302 Certification of Principal Financial Officer.

32.1

Section 906 Certification of Principal Executive Officer.

32.2

Section 906 Certification of Principal Financial Officer.

101.INS

XBRL Instance Document*

101.SCH

XBRL Taxonomy Extension Schema Document*

101.CAL

XBRL Taxonomy Calculation Linkbase Document*

101.LAB

XBRL Taxonomy Labels Linkbase Document*

101.PRE

XBRL Taxonomy Presentation Linkbase Document*

101.DEF

XBRL Definition Linkbase Document*

 


*Attached as Exhibit 101 to this report are the following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Cash Flows, (iv) the Condensed Consolidated Statement of Stockholders’ Equity (Deficit), and (v) related notes to these financial statements.  

 

 
21

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

TOWERSTREAM CORPORATION   

 

 

 

 

Date: May 10, 2016

By:  

/s/ Philip Urso

 

Philip Urso

Chairman and Interim Chief Executive Officer

(Principal Executive Officer)

     

 

 

By:

/s/ Joseph P. Hernon

 

 

Joseph P. Hernon

 

Chief Financial Officer

 

(Principal Financial Officer and Principal Accounting Officer)

 

 

 
22

 

 

  EXHIBIT INDEX

 

Exhibit No.

 

Description

31.1

Section 302 Certification of Principal Executive Officer.

31.2

Section 302 Certification of Principal Financial Officer.

32.1

Section 906 Certification of Principal Executive Officer.

32.2

Section 906 Certification of Principal Financial Officer.

101.INS

XBRL Instance Document*

101.SCH

XBRL Taxonomy Extension Schema Document*

101.CAL

XBRL Taxonomy Calculation Linkbase Document*

101.LAB

XBRL Taxonomy Labels Linkbase Document*

101.PRE

XBRL Taxonomy Presentation Linkbase Document*

101.DEF

XBRL Definition Linkbase Document*

  


*Attached as Exhibit 101 to this report are the following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Cash Flows, (iv) the Condensed Consolidated Statement of Stockholders’ Equity (Deficit), and (v) related notes to these financial statements.  

 

 

23

EXHIBIT 31.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Philip Urso, certify that:

 

(1)

I have reviewed this quarterly report on Form 10-Q of Towerstream Corporation for the quarter ended March 31, 2016;

   

(2)

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

   

(3)

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

   

(4)

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

 

a)  

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

 

 

 

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     

 

c)  

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     

 

d)  

Disclosed in the report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of the annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

(5)

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

 

a)  

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     

 

b)  

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 10, 2016

 

 

/s/ Philip Urso

 

Philip Urso
Chairman and Interim Chief Executive Officer

(Principal Executive Officer)

 

EXHIBIT 31.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Joseph P. Hernon, certify that:

 

(1)

I have reviewed this quarterly report on Form 10-Q of Towerstream Corporation for the quarter ended March 31, 2016;

   

(2)

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

   

(3)

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

   

(4)

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

 

a)  

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

 

 

 

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

 

 

 

c)  

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     

 

d)  

Disclosed in the report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of the annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

(5)

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

 

a)  

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     

 

b)  

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 10, 2016

 

 

/s/ Joseph P. Hernon

 

Joseph P. Hernon
Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)

 

EXHIBIT 32.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S. C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 

   

In connection with the Quarterly Report of Towerstream Corporation, (the ‘‘Company’’) on Form 10-Q for the period ended March 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the ‘‘Report’’), I, Philip Urso, Chairman and Interim Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

 

 (1)  

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

 

 (2)  

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

  

Date: May 10, 2016

 

 

/s/ Philip Urso

 

Philip Urso
Chairman and Interim Chief Executive Officer

(Principal Executive Officer)

 

EXHIBIT 32.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Towerstream Corporation, (the ‘‘Company’’) on Form 10-Q for the period ended March 31, 2016, as filed with the Securities and Exchange Commission on the date hereof (the ‘‘Report’’), I, Joseph P. Hernon, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

   

 (1)  

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

 

 (2)  

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

  

Date: May 10, 2016

 

 

/s/ Joseph P. Hernon

 

Joseph P. Hernon
Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)