TWER Towerstream Corporation (CE)

Note 16. Subsequent Events

On August 4, 2017, the holder of 100 shares of Series G Convertible Preferred Stock elected to convert them into shares of common stock. In accordance with the conversion terms applicable to those preferred shares, the Company issued 1,000,000 shares of common stock.

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 and six months ended June 30, 2017. 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/A Amendment No.2 for the year ended December 31, 2016 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 15% to 20% of network operations costs.

Customer support costs relate to our continuing communications with customers regarding their service level agreement. Payroll comprises approximately 83% to 88% of customer support costs. Other costs include 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.

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 June 30, 2017, 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 decided 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 into the first quarter of 2016 to sell the NYC network.

As further described in Note 4 to our condensed consolidated financial statements, on March 9, 2016, the Company completed a sale and transfer of certain assets to the major cable company (the “Buyer”). The asset purchase agreement ("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 will provide 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 operating results and cash flows for Hetnets have been presented as discontinued operating results in these condensed consolidated financial statements.

Three Months Ended June 30, 201 7 Compared to Three Months Ended June 30, 201 6

Continuing Operations – Fixed Wireless

Revenues. Revenues totaled $6,517,817 during the three months ended June 30, 2017 compared to $6,872,342 during the three months ended June 30, 2016 representing a decrease of $354,525, or 5%. Although the number of customers remained relatively consistent for the two periods, the revenue decrease is due to new acquisitions (“new customers”) having a lower average rate per unit as compared to the customers churning. Customer churn, calculated as a percent of revenue lost on a monthly basis from customers terminating service or reducing their service level, totaled 1.48% during the three months ended June 30, 2017 compared to 1.59% during the three months ended June 30, 2016.

Infrastructure and A ccess . Infrastructure and access totaled $2,622,723 during the three months ended June 30, 2017 compared to $2,650,134 during the three months ended June 30, 2016 representing a decrease of $27,411, or 1%. The decrease primarily relates to a reduction in bandwidth costs offset by increased rent and other expenses.

Depreciation and Amortization. Depreciation and amortization totaled $2,100,281 during the three months ended June 30, 2017 compared to $3,044,132 during the three months ended June 30, 2016 representing a decrease of $943,851 or 31%. Depreciation expense totaled $1,747,777 during the three months ended June 30, 2017 compared to $2,626,249 during the three months ended June 30, 2016 representing a decrease of $878,472, or 33%.

Amortization expense totaled $352,504 during the three months ended June 30, 2017 compared to $417,883 during the three months ended June 30, 2016 representing a decrease of $65,379, or 16%. Amortization expense relates to customer related intangible assets recorded in connection with acquisitions and can fluctuate significantly from period to period depending upon the timing of acquisitions, the relative amounts of intangible assets recorded, and the amortization periods.

Network O perations . Network operations totaled $1,085,249 during the three months ended June 30, 2017 compared to $1,279,570 during the three months ended June 30, 2016 representing a decrease of $194,321 or 15%. Payroll costs totaled $656,161 in the 2017 period compared to $785,513 in the 2016 period representing a decrease of $129,352, or 16% due primarily to staffing reductions. Information technology support expenses totaled $147,490 in the 2017 period compared to $231,031 in the 2016 period representing a decrease of $83,541 or 36%, due primarily to a decrease in third party support costs.

Customer Support . Customer support totaled $391,335 during the three months ended June 30, 2017 compared to $484,664 during the three months ended June 30, 2016 representing a decrease of $93,329, or 19%. Payroll expense totaled $291,202 during the 2017 period compared to $429,073 during the 2016 period representing a decrease of $137,871 or 32%. Average headcount was lower in the 2017 period as the Company consolidated departments and improved efficiencies. Other customer support costs totaled $100,133 during the three months ended June 30, 2017 compared to $55,591 during the 2016 period representing an increase of $44,542 or 80%. This increase was principally attributable to higher customer troubleshooting costs which can fluctuate from period to period.

Sales and Marketing . Sales and marketing expenses totaled $976,790 during the three months ended June 30, 2017 compared to $883,961 during the three months ended June 30, 2016 representing an increase of $92,829, or 11%. Payroll costs totaled $652,248 during the 2017 period compared to $574,571 during the 2016 period representing an increase of $77,677, or 14%. The payroll increase is primarily related to increased staffing levels associated with the new sales office located in Virginia which was opened in the second quarter of 2017. Advertising expenses totaled $28,220 during the 2017 period as compared to $59,562 during the 2016 period representing a decrease of $31,342, or 53%. 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 within a market. Indirect channel commissions, previously referred to as outside commissions, totaled $221,583 in the 2017 period compared to $190,165 in the 2016 period representing an increase of $31,418, or 17%. The increase relates almost exclusively to the Company’s residual program which pays continuing commissions as long as the referred business is a customer.

General and Administrative. General and administrative expenses totaled $1,514,141 during the three months ended June 30, 2017 compared to $1,604,542 during the three months ended June 30, 2016 representing a decrease of $90,401, or 6%. Payroll costs decreased to $404,017 in the 2017 period compared to $500,046 in the 2016 period representing a decrease of $96,029, or 19%. The decrease relates to severance paid to a former executive in the 2016 period. Stock based compensation totaled $315,540 during the 2017 period compared to $141,805 during the 2016 period representing an increase of $173,735, or more than 100%. Stock-based compensation can fluctuate significantly from period to period depending on the timing, quantity and valuation of stock option grants. Corporate travel expenses totaled $42,827 in the 2017 period compared to $14,854 in the 2016 period representing an increase of $27,973, or more than 100%. The increase is related to executive travel in 2017. Non-recurring expenses decreased $167,486, or 100%, for the three months ended June 30, 2017. The decrease primarily relates to the Miami lawsuit which the Company settled during the 2016 period. Public company expenses decreased to $55,562 in the 2017 period compared to $90,023 in the 2016 period representing a decrease of $34,461, or 38%. The decrease relates to the reduction of public company filing fees and the contract termination with our investor relation firms in 2017.

Interest Expense, Net.  Interest expense, net totaled $1,298,920 during the three months ended June 30, 2017 compared to $1,588,291 during the three months ended June 30, 2016 representing a decrease of $289,371, or 18%. Interest expense relates to the $35,000,000 secured term loan which closed in October 2014. The decrease is primarily attributable to the $5,000,000 reduction of debt in the fourth quarter of 2016 as more fully described in Note 9, Long-Term Debt.

Discontinued Operations – Shared Wireless

Revenues . Revenue was zero for the three months ended June 30, 2017 and 2016.

Infrastructure and Access. Infrastructure and Access totaled zero during the three months ended June 30, 2017 and 2016. 

Depreciation. Depreciation totaled zero during the three months ended June 30, 2017 and 2016.

Network Operations. Network operations totaled zero during the three months ended June 30, 2017 compared to $9,364 during the three months ended June 30, 2016 representing a decrease of $9,364, or 100%. Certain costs were incurred in the 2016 period related to the termination of the business.

Customer Support Services. Customer support services totaled zero during the three months ended June 30, 2017 and 2016.

Sales and Marketing. Sales and marketing expenses totaled zero during the three months ended June 30, 2017 and 2016.

General and Administrative. General and administrative expenses totaled zero during the three months ended June 30, 2017 compared to $58,212 during the three months ended June 30, 2016 representing a decrease of $58,212, or 100%. The decrease reflects professional service fees incurred in the 2016 period related to the termination of the business.

Six Months Ended June 30, 201 7 Compared to Six Months Ended June 30, 201 6

Continuing Operations – Fixed Wireless

Revenues. Revenues totaled $13,090,134 during the six months ended June 30, 2017 compared to $13,606,432 during the six months ended June 30, 2016 representing a decrease of $516,298, or 4%. Although the number of customers remained relatively consistent for the two periods, the revenue decrease is due to new customers having a lower average rate per unit as compared to the customers churning.

Infrastructure and Access . Infrastructure and access totaled $5,331,034 during the six months ended June 30, 2017 compared to $5,220,881 during the six months ended June 30, 2016 representing an increase of $110,153, or 2%. The increase primarily relates to higher tower rental expense offset by reduced bandwidth costs.

Depreciation and Amortization. Depreciation and amortization totaled $4,533,782 during the six months ended June 30, 2017 compared to $5,571,778 during the six months ended June 30, 2016 representing an decrease of $1,037,996 or 19%. Depreciation expense totaled $3,763,394 during the six months ended June 30, 2017 compared to $4,949,222 during the six months ended June 30, 2016 representing a decrease of $1,185,828, or 24%.

Amortization expense totaled $770,388 during the six months ended June 30, 2017 compared to $622,556 during the six months ended June 30, 2016 representing an increase of $147,832, or 24%. The increase is related to our backhaul agreement with a major cable company. Amortization expense relates to customer related intangible assets recorded in connection with acquisitions and can fluctuate significantly from period to period depending upon the timing of acquisitions, the relative amounts of intangible assets recorded, and the amortization periods.

Network O perations . Network operations totaled $2,286,156 during the six months ended June 30, 2017 compared to $2,551,738 during the six months ended June 30, 2016 representing a decrease of $265,582, or 10%. Payroll costs totaled $1,375,526 in the 2017 period compared to $1,557,352 in the 2016 period representing a decrease of $181,826, or 12% due primarily to staffing reductions. Network costs totaled $371,639 in the six months ended June 30, 2017 compared to $485,115 during the six months ended June 30, 2016 representing a decrease of $113,476, or 23%. The decrease was primarily due to a reduction in third party support costs. Field activities costs totaled $297,986 in the six months ended June 30, 2017 compared to $244,121 during the six months ended June 30, 2016 representing an increase of $53,865, or 22% due to higher installation volume during 2017.

Customer Support . Customer support totaled $759,017 during the six months ended June 30, 2017 compared to $1,027,855 during the six months ended June 30, 2016 representing a decrease of $268,838, or 26%. Payroll expense totaled $600,143 during the 2017 period compared to $845,171 during the 2016 period representing a decrease of $245,028 or 29%. Average headcount was lower in the 2017 period as the Company consolidated departments and improved efficiencies. Other customer support costs totaled $158,877 during the six months ended June 30, 2017 compared to $182,684 during the 2016 period representing a decrease of $23,807 or 13%. 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 $1,841,766 during the six months ended June 30, 2017 compared to $2,378,881 during the six months ended June 30, 2016 representing a decrease of $537,115, or 23%. Payroll costs totaled $1,205,246 during the 2017 period compared to $1,541,426 during the 2016 period representing a decrease of $336,180, or 22%. The payroll decrease relates to lower headcount associated with cost savings initiatives and the closure of our Florida sales office in the first quarter of 2016 offset by additional hires in the new Virginia sales office. Advertising expenses totaled $46,496 during the six months ended June 30, 2017 compared to $242,639 during the six months ended June 30, 2016 representing a decrease of $196,143 or 81%. 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. Indirect channel commissions totaled $435,835 in the 2017 period compared to $396,094 in the 2016 period representing an increase of $39,741, or 10%. The increase relates to the Company’s residual program which pays continuing commissions as long as the referred business is a customer .

General and Administrative. General and administrative expenses totaled $3,051,869 during the six months ended June 30, 2017 compared to $3,584,334 during the six months ended June 30, 2016 representing a decrease of $532,465, or 15%. Payroll costs decreased to $827,742 in the 2017 period compared to $1,264,753 in the 2016 period representing a decrease of $437,011, or 35%. The decrease is related to severance payments made in 2016 period to former executives and lower headcount associated with staffing reductions. Stock based compensation totaled $667,874 during the 2017 period compared to $459,795 during the 2016 period representing an increase of $208,079, or 45%. Stock-based compensation can fluctuate significantly from period to period depending on the timing, quantity and valuation of stock option grants. Professional fees totaled $714,419 in the 2017 period compared to $839,324 in the 2016 period representing a decrease of $124,905, or 15%. The decrease is related to decreased legal fees offset by higher recruiting expenses. Non-recurring expenses decreased to $2,751 for the six months ended June 30, 2017 compared to $199,411 for the six month period ended June 30, 2016 representing a decrease of $196,660, or 99%. The decrease primarily relates to the Miami lawsuit which the Company settled during the 2016. Public company costs for the six months ended June 30, 2017 were $117,157 compared to $164,527 during the six months ended June 30,2016 representing a decrease of $47,370, or 29%. The decrease relates to the reduction of public company filing fees, the contract termination with our investor relation firms in 2017, offset by an increase in annual meeting expenses. Other expenses increased to $414,435 for the six months ended June 30, 2017 compared to $330,310 for the six month period ended June 30, 2016 representing an increase of $84,125, or 25%. The increase primarily relates to increased business taxes.

Interest Expense, Net.  Interest expense, net totaled $2,572,821 during the six months ended June 30, 2017 compared to $3,195,411 during the six months ended June 30, 2016 representing a decrease of $622,590, or 20%. Interest expense relates to the $35,000,000 secured term loan which closed in October 2014. The decrease is primarily attributable to the $5,000,000 reduction of debt in the fourth quarter of 2016 as more fully described in Note 9, Long-Term Debt .

Discontinued Operations – Shared Wireless

Revenues . Revenues for the Shared Wireless business totaled zero during the six months ended June 30, 2017 compared to $553,302 during the six months ended June 30, 2016 representing a decrease of $553,302 or 100%. The decrease primarily related to our contract with a major cable company which was terminated in March 2016 resulting in no revenue in the six months ended June 30, 2017 versus two months of revenue in the 2016 period.

Infrastructure and Access. Infrastructure and access totaled zero during the six months ended June 30, 2017 compared to $2,523,222 during the six months ended June 30, 2016 representing a decrease of $2,523,222, or 100%. Rent expense for rooftop locations totaled zero in the 2017 period compared to $1,994,858 in the 2016 period representing a decrease of $1,994,858 or 100%. All business activities associated with the shared wireless business were terminated in the first quarter of 2016. Loss on fixed assets totaled zero during the six months ended June 30, 2017 compared to $528,364 during the six months ended June 30, 2016. 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 zero during the six months ended June 30, 2017 compared to $638,681 during the six months ended June 30, 2016. All business activities associated with the shared wireless business were terminated during the first quarter of 2016.

Network Operations. Network operations totaled zero during the six months ended June 30, 2017 compared to $192,947 during the six months ended June 30, 2016 representing a decrease of $192,947, or 100%. Certain costs were incurred in the 2016 period related to the termination of the business.

Customer Support Services. Customer support services totaled zero during the six months ended June 30, 2017 compared to $69,804 during the six months ended June 30, 2016 representing a decrease of $69,804 or 100%. The business was terminated in early March 2016.

Sales and Marketing. Sales and marketing expenses totaled zero during the six months ended June 30, 2017 compared to $246 during the six months ended June 30, 2016 representing a decrease of $246, or 100%. 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 zero during the six months ended June 30, 2017 compared to $105,545 during the six months ended June 30, 2016. 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 six months ended June 30, 2017 totaled zero compared to $1,799,401 for the six months ended June 30, 2016 representing a decrease of $1,799,401, or 100% and reflects the termination of the business in March 2016.     

Liquidity and Capital Resources

Changes in capital resources during the six months ended June 30, 2017 and 2016 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 June 30, 2017, the Company had cash and cash equivalents of approximately $9.0 million and working capital of approximately $6.2 million. The Company has incurred significant operating losses since inception and continues to generate losses from operations and as of June 30, 2017, the Company has an accumulated deficit of $183.9 million. These matters raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date these financial statements are issued. 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

Continuing Operations

Net Cash Used In Operating Activities. Net cash used in operating activities for the six months ended June 30, 2017 totaled $1,431,794 compared to $4,389,683 for the six months ended June 30, 2016 representing a decrease of $2,957,889. Revenues generated from continuing operations were $516,298 lower in the 2017 period which adversely impacted cash flows available to support operating activities. Changes in operating assets and liabilities used cash of $522,976 during the 2017 period compared to $2,119,814 used in the 2016 period, which represented a total difference of $1,596,838. 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 Investing Activities. Net cash used in investing activities for the six months ended June 30, 2017 totaled $1,473,754 compared to $1,160,400 for the six months ended June 30, 2016 representing an increase of $313,354. Cash capital expenditures totaled $1,460,829 in the 2017 period compared to $1,160,400 in the 2016 period representing an increase of $300,429. Capital expenditures can fluctuate from period to period depending upon the number of customer additions and upgrades, network construction activity related to increasing capacity or coverage, and other related reasons.

Net Cash Provided by (Used in) Financing Activities . Net cash used in financing activities for the six months ended June 30, 2017 totaled $478,926 compared to net cash provided by financing activities of $1,754,706 for the six months ended June 30, 2016, representing a decrease of $2,233,632. During the 2016 period, the Company completed an equity offering which resulted in net proceeds of $2,230,000.

Discontinued Operations

Net Cash Provided by ( Used In ) Operating Activities. Net cash provided by operating activities for the six months ended June 30, 2017 totaled $80,882 compared to $1,343,659 used for the six months ended June 30, 2016 representing an increase of $1,424,541. Operating activities for the discontinued business were terminated in March 2016 which resulted in lower cash requirements for the 2017 period. The Company also received cash proceeds in 2017 due to a refund of a security deposit associated with discontinued operations.

Net Cash Used in Investing Activities. There were no investing activities during either period.

Net Cash Provided by (Used in) 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 (“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 will provide 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 $35,000,000 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. During the fourth quarter of 2016, the Company entered into a financing agreement with an investor whereas the investor acquired $5,000,000 of outstanding principal and accrued interest in exchange for 1,000 shares of convertible preferred stock and warrants as further described in Note 9.

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 had 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 $5,000,000 plus multiples of $1,000,000.

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 generally 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.

Recent Accounting Standards . See Note 3 of our condensed consolidated financial statements.

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