pdvW
ireless, Inc.
Consolidated Balance Sheets
March 31, 2019 and 2018 (As Restated)
(dollars in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018 (As Restated)
|
ASSETS
|
Current Assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
76,722
|
|
$
|
98,318
|
Accounts receivable, net of allowance for doubtful accounts of
$77
and
$29
, respectively
|
|
|
444
|
|
|
935
|
Inventory
|
|
|
—
|
|
|
173
|
Prepaid expenses and other current assets
|
|
|
1,180
|
|
|
850
|
Total current assets
|
|
|
78,346
|
|
|
100,276
|
Property and equipment
|
|
|
9,830
|
|
|
12,775
|
Intangible assets
|
|
|
107,548
|
|
|
106,606
|
Capitalized patent costs, net
|
|
|
184
|
|
|
197
|
Other assets
|
|
|
845
|
|
|
486
|
Total assets
|
|
$
|
196,753
|
|
$
|
220,340
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
Current liabilities
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
5,106
|
|
$
|
4,192
|
Restructuring reserve
|
|
|
2,758
|
|
|
—
|
Due to related parties
|
|
|
183
|
|
|
224
|
Deferred revenue
|
|
|
792
|
|
|
813
|
Total current liabilities
|
|
|
8,839
|
|
|
5,229
|
Noncurrent liabilities
|
|
|
|
|
|
|
Deferred revenue
|
|
|
3,466
|
|
|
4,257
|
Deferred income tax
|
|
|
685
|
|
|
—
|
Other liabilities
|
|
|
2,999
|
|
|
2,325
|
Total liabilities
|
|
|
15,989
|
|
|
11,811
|
Commitments and contingencies
|
|
|
|
|
|
|
Stockholders' equity
|
|
|
|
|
|
|
Preferred stock,
$0.0001
par value per share,
10,000,000
shares authorized and
no
shares outstanding at March 31, 2019 and March 31, 2018
|
|
|
—
|
|
|
—
|
Common
stock,
$0.0001
par value per share,
100,000,000
shares
authorized and
14,739,145
shares issued and outstanding at March 31, 2019 and
14,487,650
shares issued and outstanding at March 31
, 2018
|
|
|
1
|
|
|
1
|
Additional paid-in capital
|
|
|
349,227
|
|
|
335,767
|
Accumulated deficit
|
|
|
(168,464)
|
|
|
(127,239)
|
Total stockholders' equity
|
|
|
180,764
|
|
|
208,529
|
Total liabilities and stockholders' equity
|
|
$
|
196,753
|
|
$
|
220,340
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
pdvWir
eless, Inc.
Consolidated Statements of Operations
Years Ended March 31, 2019, 2018 (As Restated), and 2017
(dollars in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018 (As Restated)
|
|
2017
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
Service revenue
|
|
$
|
4,774
|
|
$
|
4,796
|
|
$
|
3,618
|
Spectrum revenue
|
|
|
729
|
|
|
729
|
|
|
729
|
Other revenue
|
|
|
996
|
|
|
830
|
|
|
440
|
Total operating revenues
|
|
|
6,499
|
|
|
6,355
|
|
|
4,787
|
Cost of revenue
|
|
|
|
|
|
|
|
|
|
Sales and service
|
|
|
7,251
|
|
|
7,898
|
|
|
7,049
|
Gross loss
|
|
|
(752)
|
|
|
(1,543)
|
|
|
(2,262)
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
25,620
|
|
|
20,864
|
|
|
22,553
|
Sales and support
|
|
|
3,679
|
|
|
6,967
|
|
|
5,652
|
Product development
|
|
|
2,311
|
|
|
2,352
|
|
|
2,316
|
Restructuring costs
|
|
|
9,598
|
|
|
—
|
|
|
—
|
Impairment of long-lived assets
|
|
|
782
|
|
|
—
|
|
|
—
|
Total operating expenses
|
|
|
41,990
|
|
|
30,183
|
|
|
30,521
|
Loss from operations
|
|
|
(42,742)
|
|
|
(31,726)
|
|
|
(32,783)
|
Interest expense
|
|
|
—
|
|
|
(3)
|
|
|
(5)
|
Interest income
|
|
|
1,462
|
|
|
741
|
|
|
128
|
Other expense
|
|
|
(28)
|
|
|
(78)
|
|
|
(28)
|
Loss before income taxes
|
|
|
(41,308)
|
|
|
(31,066)
|
|
|
(32,688)
|
Income tax expense (benefit)
|
|
|
685
|
|
|
(6,498)
|
|
|
6,498
|
Net loss
|
|
$
|
(41,993)
|
|
$
|
(24,568)
|
|
$
|
(39,186)
|
Net loss per common share basic and diluted
|
|
$
|
(2.88)
|
|
$
|
(1.70)
|
|
$
|
(2.72)
|
Weighted-average common shares used to compute basic
and diluted net loss per share
|
|
|
14,575,787
|
|
|
14,450,715
|
|
|
14,390,641
|
See accompanying notes to consolidated financial statements.
pdv
Wireless, Inc.
Consolidated Statement of Stockholders’ Equity
Years Ended March 31, 2019, 2018 (As Restated), and 2017
(dollars in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
Preferred
stock
series AA
|
|
Common
stock
|
Preferred
stock
series AA
|
|
Common
stock
|
|
Additional
paid-in
capital
|
|
Accumulated
deficit
|
|
Total
|
Balance at March 31, 2016
|
—
|
|
14,384,594
|
|
$
|
—
|
|
$
|
1
|
|
$
|
325,670
|
|
$
|
(63,485)
|
|
$
|
262,186
|
Equity based compensation*
|
—
|
|
57,015
|
|
|
—
|
|
|
—
|
|
|
4,887
|
|
|
—
|
|
|
4,887
|
Stock option exercises
|
—
|
|
8,000
|
|
|
—
|
|
|
—
|
|
|
152
|
|
|
—
|
|
|
152
|
Shares withheld for taxes
|
—
|
|
(7,241)
|
|
|
—
|
|
|
—
|
|
|
(143)
|
|
|
—
|
|
|
(143)
|
Net loss
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(39,186)
|
|
|
(39,186)
|
Balance at March 31, 2017
|
—
|
|
14,442,368
|
|
|
—
|
|
|
1
|
|
|
330,566
|
|
|
(102,671)
|
|
|
227,896
|
Equity based compensation*
|
—
|
|
53,513
|
|
|
—
|
|
|
—
|
|
|
5,602
|
|
|
—
|
|
|
5,602
|
Stock option exercises
|
—
|
|
13,740
|
|
|
—
|
|
|
—
|
|
|
267
|
|
|
—
|
|
|
267
|
Shares withheld for taxes
|
—
|
|
(21,971)
|
|
|
—
|
|
|
—
|
|
|
(668)
|
|
|
—
|
|
|
(668)
|
Net loss
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(24,568)
|
|
|
(24,568)
|
Balance at March 31, 2018 (As Restated)
|
—
|
|
14,487,650
|
|
|
—
|
|
|
1
|
|
|
335,767
|
|
|
(127,239)
|
|
|
208,529
|
Cumulative effect of change in accounting principle
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
768
|
|
|
768
|
Balance at April 1, 2018
|
—
|
|
14,487,650
|
|
|
—
|
|
|
1
|
|
|
335,767
|
|
|
(126,471)
|
|
|
209,297
|
Equity based compensation*
|
—
|
|
89,461
|
|
|
—
|
|
|
—
|
|
|
10,301
|
|
|
—
|
|
|
10,301
|
Stock option exercises
|
—
|
|
169,003
|
|
|
—
|
|
|
—
|
|
|
3,368
|
|
|
—
|
|
|
3,368
|
Shares withheld for taxes
|
—
|
|
(6,969)
|
|
|
—
|
|
|
—
|
|
|
(209)
|
|
|
—
|
|
|
(209)
|
Net loss
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(41,993)
|
|
|
(41,993)
|
Balance at March 31, 2019
|
—
|
|
14,739,145
|
|
$
|
—
|
|
$
|
1
|
|
$
|
349,227
|
|
$
|
(168,464)
|
|
$
|
180,764
|
* Includes restricted shares issued.
See accompanying notes to consolidated financial statements.
pdv
Wireless, Inc.
Consolidated Statements of Cash Flows
Years Ended March 31, 2019, 2018 (As Restated), and 2017
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018 (As Restated)
|
|
2017
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(41,993)
|
|
$
|
(24,568)
|
|
$
|
(39,186)
|
Adjustments to reconcile net loss to net cash used
by operating activities
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
2,846
|
|
|
2,845
|
|
|
2,232
|
Non-cash compensation expense attributable to stock awards
|
|
|
10,301
|
|
|
5,602
|
|
|
4,744
|
Deferred income taxes
|
|
|
685
|
|
|
(6,498)
|
|
|
6,498
|
Bad debt expense
|
|
|
218
|
|
|
22
|
|
|
58
|
Accretion expense
|
|
|
12
|
|
|
14
|
|
|
12
|
Loss on disposal of assets
|
|
|
54
|
|
|
86
|
|
|
29
|
Impairment of long-lived assets
|
|
|
782
|
|
|
—
|
|
|
—
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
273
|
|
|
(320)
|
|
|
(166)
|
Inventory
|
|
|
173
|
|
|
(45)
|
|
|
(35)
|
Prepaid expenses and other assets
|
|
|
69
|
|
|
(91)
|
|
|
(276)
|
Accounts payable and accrued expenses
|
|
|
914
|
|
|
757
|
|
|
(247)
|
Restructuring reserve
|
|
|
2,758
|
|
|
—
|
|
|
—
|
Due to related parties
|
|
|
(41)
|
|
|
224
|
|
|
—
|
Deferred revenue
|
|
|
(813)
|
|
|
(752)
|
|
|
(786)
|
Other liabilities
|
|
|
673
|
|
|
738
|
|
|
619
|
Net cash used by operating activities
|
|
|
(23,089)
|
|
|
(21,986)
|
|
|
(26,504)
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Purchases of intangible assets
|
|
|
(942)
|
|
|
(1,931)
|
|
|
(750)
|
Purchases of equipment
|
|
|
(724)
|
|
|
(950)
|
|
|
(1,640)
|
Payments for patent costs
|
|
|
—
|
|
|
—
|
|
|
(1)
|
Net cash used by investing activities
|
|
|
(1,666)
|
|
|
(2,881)
|
|
|
(2,391)
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Payment of notes payable
|
|
|
—
|
|
|
(497)
|
|
|
(495)
|
Proceeds from stock option exercises
|
|
|
3,368
|
|
|
267
|
|
|
153
|
Payments of withholding tax on net issuance of restricted stock
|
|
|
(209)
|
|
|
(668)
|
|
|
(143)
|
Net cash provided (used) by financing activities
|
|
|
3,159
|
|
|
(898)
|
|
|
(485)
|
Net change in cash and cash equivalents
|
|
|
(21,596)
|
|
|
(25,765)
|
|
|
(29,380)
|
CASH AND CASH EQUIVALENTS
|
|
|
|
|
|
|
|
|
|
Beginning of the year
|
|
|
98,318
|
|
|
124,083
|
|
|
153,463
|
End of the year
|
|
$
|
76,722
|
|
$
|
98,318
|
|
$
|
124,083
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
pdvWireless, Inc.
No
tes to Consolidated Financial Statements
pdvWireless, Inc. (the “Company”) is a wireless communications company focused on
developing and commercializing its spectrum assets to enable its targeted critical infrastructure and enterprise customers to deploy private broadband networks, technologies and solutions.
The Company is the largest holder of
licensed spectrum in the 900 MHz band
(896-901/935-940 MHz)
throughout the contiguous United States, plus Hawaii, Alaska and Puerto Rico. On average, the Company holds approximately
60%
of the channels in the 900 MHz band in the top
20
metropolitan market areas in the United States.
The Company is currently pursuing a regulatory proceeding at the Federal Communication Commission (“FCC”) that seeks to modernize and realign the 900 MHz band to increase its usability and capacity by allowing it to be utilized for the deployment of broadband networks, technologies and solutions. At the same time, the Company is pursuing business opportunities with its targeted critical infrastructure and enterprise customers to build awareness and demand for its spectrum assets, assuming the Company achieves favorable results with its FCC initiatives. The Company’s goal is to become the leading provider of broadband spectrum assets to critical infrastructure and enterprise customers. Assuming its FCC initiatives are successful, the Company’s spectrum assets will enable its customers to deploy broadband networks, technologies and solutions that are private, secure, reliable and cost-effective and at the same time allow them to achieve their modernization objectives and regulatory obligations.
The Company was originally incorporated in California in 1997 and reincorporated in Delaware in 2014. In November 2015, the Company changed its name from Pacific DataVision, Inc. to pdvWireless, Inc. The Company maintains offices in Woodland Park, New Jersey
and
McLean, Virginia
.
Historically, the Company generated revenue principally from its pdvConnect and TeamConnect businesses. pdvConnect is a mobile communication and workforce management solution that enables businesses to locate and communicate with their field workers and improve the documentation of work events and job status. The Company historically marketed pdvConnect primarily through two Tier 1 carriers in the United States. In Fiscal 2016, it began offering a commercial push-to-talk (“PTT”) service, which was marketed as TeamConnect, in seven major metropolitan areas throughout the United States, including Atlanta, Baltimore/Washington, Chicago, Dallas, Houston, New York and Philadelphia. The Company developed TeamConnect to address the needs of enterprises that value a tailored PTT solution addressing the management of their mobile workforce. It primarily offered the TeamConnect service to customers indirectly through third-party sales representatives who were primarily selected from Motorola’s nationwide dealer network.
In June 2018, the Company announced its plan to restructure its business to align and focus its business priorities on its spectrum initiatives aimed at modernizing and realigning the 900 MHz band to increase its usability and capacity, including for the future deployment of broadband and other advanced technologies and services. In December 2018,
the Company’s
b
oard of
d
irectors approved the transfer of the Company’s TeamConnect and pdvConnect businesses to help reduce its operating costs and to allow its management team to focus on its FCC initiatives and future broadband opportunities. Specifically, the Company entered into: (i) a Customer Acquisition and Resale Agreement with A BEEP LLC, (“A BEEP”), on January 2, 2019 (ii) a Customer Acquisition, Resale and Licensing Agreement with Goosetown Enterprises, Inc, (“Goosetown”) on January 2, 2019, and (iii) a memorandum of understanding (“MOU”) with the principals of Goosetown on December 31, 2018.
A BEEP Agreement
Under the A BEEP Agreement, A BEEP acquired: (i) the Company’s TeamConnect customers located in the Atlanta, Chicago,
Dallas, Houston and Phoenix metropolitan markets (the “A BEEP Purchased Customers”), (ii) the right to access the Company’s TeamConnect Metro and Campus systems (the “MotoTRBO Systems”) and (iii) the right to resell access to the Company’s MotoTRBO Systems pursuant to a Mobile Virtual Network Operation arrangement (the “MVNO Arrangement”).
A BEEP agreed to provide customer care, billing and collection services for all A BEEP Purchased Customers. The Company continue
d
to provide these services through April 1, 2019 to help facilitate the transitioning of the A BEEP Purchased Customers. Additionally, the Company will pay all site lease, backhaul and utility costs required to operate the MotoTRBO Systems for a two (2)-year period
ending on January 2, 2021
. Within th
is
two
-
year period, A BEEP will migrate the Purchased Customers off of the Company’s MotoTRBO
S
ystems.
A BEEP has also agreed to pay the Company a certain portion of the recurring revenues received from the A BEEP Purchased Customers ranging from
100%
to
20%
during the term of the A BEEP Agreement. Additionally, A BEEP has agreed to pay the Company a portion of recurring revenues from the Company’s customers who utilize A BEEP’s push-to-talk Diga-Talk Plus application (“Diga-Talk Plus”) ranging from
35%
to
15%
for a period of
48
months.
Additionally, the A BEEP Agreement provides audit rights to the Company, mutual indemnification obligations and certain liability waivers. The A BEEP Agreement has a term of no longer than
72
-months, unless terminated earlier by one of the parties as a result of a material breach by the other party.
For the year ended March 31, 2019,
there were no amounts earned or incurred by the Company under the A BEEP Agreement.
Goosetown Agreement
Under the Goosetown Agreement, Goosetown acquired: (i) the Company’s TeamConnect customers located in the Baltimore/Washington DC, Philadelphia and New York metropolitan markets (the “Goosetown Purchased Customers”), (ii) the right to access the Company’s MotoTRBO Systems, (iii) the right to resell access to the Company’s MotoTRBO Systems pursuant to a MVNO Arrangement and (iv) a license to sell the TeamConnect Mobile, TeamConnect Hub and TeamConnect for Smart Devices applications (collectively, the “Licensed Applications”).
Goosetown agreed to provide customer care, billing and collection services for all Goosetown Purchased Customers. The Company continue
d
to provide these services through April 1, 2019 to help facilitate the transitioning of the Goosetown Purchased Customers. Additionally, the Company will pay all site lease, backhaul and utility costs required to operate the MotoTRBO Systems for a two (2)-year period
ending on January 2, 2021
. Within th
is
two
-year period, Goosetown will migrate the Purchased Customers off of the Company’s MotoTRBO
S
ystems.
Goosetown has also agreed to pay the Company a portion of the recurring revenues received from the Goosetown Purchased Customers ranging from
100%
to
20%
during the term of the Goosetown Agreement. Additionally, Goosetown has agreed to pay the Company
20%
of recurring revenues from the Licensed Applications for a period of
48
months
.
Additionally, the Goosetown Agreement provides audit rights to the Company, mutual indemnification obligations and certain liability waivers. The Goosetown Agreement has a term of no longer than
72
-months, unless terminated earlier by one of the parties as a result of a material breach by the other party.
For the year ended March 31, 2019, there were no amounts earned or incurred by the Company under the Goosetown Agreement.
TeamConnect LLC Agreements
The Company also entered into the MOU with TeamConnect LLC (the “LLC”), an entity formed by the principals of Goosetown (the “Goosetown Principals”). The terms of the MOU provide that the Company will assign the intellectual property rights to its TeamConnect and pdvConnect related applications and software pursuant to the terms of an IP Assignment, Software Support and Development Services Agreement (the “IP Agreement”) to the LLC in exchange for a
19.5%
ownership interest in the LLC
upon the
April 30, 2019
execution of the LLC’s Amended and Restated Limited Liability Company Agreement
. The Goosetown Principals have agreed to fund the future operations of the LLC, subject to certain limitations. The LLC will assume the Company’s software support and maintenance obligations under the Goosetown and A BEEP Agreements. The LLC will also assume customer care services related to the Company’s pdvConnect applications. The Company provide
d
transition services to the LLC through April 1, 2019.
The Company is obligated to pay the LLC a monthly service fee for
a
24
-
month
period ending
o
n
January 7, 2021
for its assumption of the Company’s support obligations under the Goosetown and A BEEP Agreements. The Company is
also
obligated to pay the LLC a certain portion of the billed revenue received by the Company from pdvConnect customers for a
48
-month period
, (“Customer Services Payments”).
For the year ended March 31, 2019, the Company incurred
$331,000
under the MOU.
Spectrum Initiatives
The Company’s spectrum is its most valuable asset.
While its current licensed spectrum can support narrowband and wideband wireless services, the most significant business opportunities the Company has identified require contiguous spectrum that allows for greater bandwidth than allowed by the current configuration of its spectrum. As a result, the Company’s first priority is to continue to pursue its initiatives at the FCC seeking to modernize and realign a portion of the 900 MHz band to increase its usability and capacity by allowing it to accommodate the deployment of broadband networks, technologies and solutions.
In November 2014, the Company and the Enterprise Wireless Alliance (“EWA”) submitted a Joint Petition for Rulemaking to the FCC to propose a realignment of a portion of the 900 MHz band to create a 6 MHz broadband authorization, while retaining 4 MHz for continued narrowband operations. In response to the Joint Petition, the FCC issued a public notice requesting comments from interested parties and asked a number of questions about the proposal. A number of parties, including several incumbent licensees, filed comments with the FCC expressing their views, including both support and opposition. In May 2015, the Company and the EWA filed proposed rules with the FCC related to the Joint Petition. Comments on the proposed rules were filed in June 2015 and reply comments in July 2015.
In August 2017, the FCC issued a Notice of Inquiry (“NOI”) announcing that it had commenced a proceeding to examine whether it would be in the public interest to change the existing rules governing the 900 MHz band to increase access to spectrum, improve spectrum efficiency and expand flexibility for a variety of potential uses and applications, including broadband and other advanced technologies and services. The FCC requested interested parties, including the Company, to comment on a number of questions related to
three
potential options for the 900 MHz band: (i) retaining the current configuration of the 900 MHz band, but
increasing operational flexibility, (ii) reconfiguring a portion or all of the 900 MHz band to support broadband and other advanced technologies and services, or (iii) retaining the current 900 MHz band licensing and eligibility rules. Because the FCC requested information on multiple options for the 900 MHz band, the NOI effectively superseded the Joint Petition and other pending proposals that involved the 900 MHz band. The Company and EWA filed a joint response to the FCC’s NOI in October 2017 and reply comments in November 2017.
On March 14, 2019, the FCC unanimously adopted a Notice of Proposed Rulemaking (the “NPRM”) that endorses the Company’s objective of creating a broadband opportunity in the 900 MHz band for critical infrastructure and other enterprise users. The NPRM generally proposes the Company’s recommended band plan concept and technical rules. Importantly, the proposed technical rules include the Company’s recommended equipment specifications that will enable the deployment and use of available, globally standardized broadband LTE networks, technologies and solutions.
In the NPRM, the FCC has proposed three criteria for an applicant to secure a broadband license in a particular county within the U.S.: (i) the applicant must hold all
20
blocks of geographic
Specialized Mobile Radio (“
SMR
”)
licenses in the county; (ii) the applicant must reach agreement to relocate all incumbents in the broadband segment on a 1:1 voluntary channel exchange or demonstrate that the incumbents will be protected from interference; and (iii) the applicant must agree to return to the FCC all rights to geographic and site-based spectrum in the county in exchange for the broadband license.
The FCC requested comments from incumbents and other interested parties on a number of important topics in the NPRM that will have a material impact on the timing and costs of obtaining a broadband license. As noted above, the broadband applicant must hold all 20 blocks of geographic SMR licenses in the county. In certain areas, some of the SMR spectrum is being held in inventory by the FCC. In the NPRM, the FCC requested comments on how a broadband applicant could acquire the FCC’s inventory of geographic SMR allocated spectrum. Specifically, in considering whether to make its inventory of geographic SMR spectrum available to the broadband applicant, the FCC has asked whether it should do so only if the applicant meets a threshold number of its own geographic SMR licenses. The FCC also questions how to mitigate a windfall that might thereby be attributed to the broadband applicant by the FCC’s action. The Company will need to address this issue, both in this context and in the context of exchanging narrowband for broadband spectrum.
The NPRM also proposes a market-driven, voluntary exchange process for clearing the broadband spectrum. An applicant seeking a broadband license for a particular county will need to demonstrate that it has entered into agreements with incumbents or that it can protect their narrowband operations from interference. All incumbents must be accounted for before the broadband applicant can file an application with the FCC. As the FCC recognized in the NPRM, this requirement, without some mechanism for preventing holdouts, could allow a single incumbent with a license for a single channel to thwart the FCC’s objective of creating a 900 MHz broadband opportunity in any county.
In the NPRM, the FCC has requested comments on different approaches to address the holdout situation. One approach is based on a “success threshold” whereby once the potential broadband licensee has reached voluntary agreements with incumbents holding a prescribed percentage of channels in the broadband segment, remaining incumbents would become subject to mandatory relocations. In this and other approaches set forth in the NPRM, the potential broadband licensee would be responsible for providing comparable facilities and paying the reasonable costs of relocation. The NPRM proposes to exempt from mandatory relocation “complex systems,” those with
65
or more integrated sites. There are only a small number of complex systems in the country in the broadband segment proposed by the FCC, and all of them are operated by utilities or other critical infrastructure entities.
The Association of American Railroads (“AAR”) holds a nationwide geographic license for
six
non-contiguous
private land mobile systems for business users (“
B/ILT
”)
channels in the 900 MHz band, three of which are located within the FCC’s proposed broadband segment. The spectrum is used by freight railroads for Advanced Train Control System (“ATCS”) operations. The Company has recognized from the outset the importance of reaching agreement with the railroads about their relocation, and have worked with them throughout the FCC process. The Company and the AAR are in agreement about the optimal solution. However, this proposed solution will require an exemption from the relocation rules proposed by the FCC in the NPRM.
The NPRM also seeks comment on several different auction approaches for counties where the broadband segment cannot be cleared of incumbents, including overlay auctions that, again, would trigger mandatory relocation rights for the auction winner with the obligation of providing comparable facilities and paying reasonable relocation costs. The Company believes the challenge of any proposed approach is achieving the appropriate balance between protecting incumbents’ rights to a minimally disruptive relocation process, and not preventing the deployment of broadband technologies on a timely and cost-effective basis.
While the NPRM proposes a 6 MHz broadband segment, it also asks for comment on a realignment of the entire 900 MHz band to create a 10 MHz broadband channel, citing suggestions from Southern California Edison and Duke Energy that this larger channel would better address their broadband needs.
The full text of the NPRM, and the comments and related correspondence filed in the 900 MHz Proceeding, are available on the FCC’s public website. Comments to the NPRM are due on June 3, 2019 and reply comments will be due on July 2, 2019. At the end of the reply comment period, the FCC’s next step could be the issuance of a Report and Order, a request for additional information, a decision to close the proceeding without further action, or some other action, and the timing of any such next step also remains uncertain. In addition, the terms of any Report and Order may differ materially from the terms of the NPRM.
2.
Restatement of Previously Issued Consolidated Financial Statements
In connection with preparing its financial statements for the quarter ended June 30, 2018, the Company determined that it incorrectly interpreted the effective dates of changes in the accounting treatment of its net operating losses (“NOLs”) according to the new tax provisions instituted by the Tax Cuts and Jobs Act of 2017, which was signed into law on December 22, 2017 (the “TCJA”). The TCJA, among other items: (i) increased the NOL carryforward period from
20
-years to an indefinite carryforward period and (ii) limited the percentage of NOLs that may be used to offset taxable income to 80%.
Under the TCJA, the 80% limitation applies to NOLs arising in taxable years “beginning after” December 31, 2017, which for the Company would be its fiscal year commencing on April 1, 2018 and ending on March 31, 2019 (“Fiscal 2019”). The TCJA, however, provides that the indefinite carryforward period applies to NOLs arising in taxable years “ending after” December 31, 2017, which for the Company would be its fiscal year beginning on April 1, 2017 and ending on March 31, 2018 (“Fiscal 2018”). Based on these dates, NOLs generated by the Company during Fiscal 2018 would both (i) not be subject to the 80% limitation and (ii) have an indefinite life.
In preparing its financial statements for the quarter ended December 31, 2017 and the year ended March 31, 2018 (the “Relevant Periods”), the Company, in consultation with its third-party tax firm, determined that it was unlikely that Congress intended to provide this double benefit to the NOLs generated by the Company during Fiscal 2018. As a result, the Company determined that an appropriate approach would be to continue to limit the carryforward period during Fiscal 2018 to
20
years, rather than apply an indefinite life to these NOLs.
Based on its review of available accounting literature in connection with preparing its financial statements for the quarter ended June 30, 2018, the Company determined that it should apply the accounting changes implemented by the TCJA in accordance with the effective dates set forth in the TCJA. Specifically, the Company determined that, based on the current language of the TCJA, the correct accounting treatment for the NOLs it generated during Fiscal 2018 is to apply an indefinite life to these NOLs.
Applying an indefinite life to the NOLs the Company generated during Fiscal 2018 enables the Company to utilize an increased amount of NOLs to offset the deferred tax liability created by the Company’s amortization of its indefinite-lived intangibles. The Company determined that it should recognize an additional deferred tax benefit of
$5.6
million for the three months ended December 31, 2017 and
$6.0
million for the fiscal year ended March 31, 2018.
The Company determined that these changes had a material impact on the previously filed financial statements for the quarter ended December 31, 2017 and the fiscal year ended March 31, 2018. As a result, on August 9, 2018, the Company filed an amended Quarterly Report on Form 10-Q/A for the quarter ended December 31, 2017 and an amended Annual Report on Form 10-K/A for the year ended March 31, 2018, with restated financial statements and information for these periods.
This Form 10-K reflects the restated financial statements and information for Fiscal 2018 filed by the Company with the SEC on August 9, 2018 in its previously amended Quarterly and Annual Reports.
The table below sets forth the consolidated balance sheet, including the balances originally reported, the adjustments and the as restated balances
for the fiscal year ended March 31, 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
As
|
|
|
|
|
|
|
|
Originally
|
|
|
|
|
|
Reported
|
|
Adjustments
|
|
As restated
|
Liabilities
|
|
|
|
|
|
|
|
|
Deferred income tax liability
|
$
|
6,060
|
|
$
|
(6,060)
|
|
$
|
—
|
Total liabilities
|
|
17,871
|
|
|
(6,060)
|
|
|
11,811
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
$
|
(133,299)
|
|
$
|
6,060
|
|
$
|
(127,239)
|
Total stockholders' equity
|
|
202,469
|
|
|
6,060
|
|
|
208,529
|
The table below sets forth the consolidated statements of operations, including the balance originally reported, the adjustment and the as restated balance for the fiscal year ended March 31, 2018 (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
As
|
|
|
|
|
|
|
|
|
Originally
|
|
|
|
|
|
|
Reported
|
|
Adjustments
|
|
As restated
|
|
Income tax benefit
|
$
|
(438)
|
|
$
|
(6,060)
|
|
$
|
(6,498)
|
|
Net loss
|
|
(30,628)
|
|
|
6,060
|
|
|
(24,568)
|
|
Net loss per common share basic and diluted
|
$
|
(2.12)
|
|
$
|
0.42
|
|
$
|
(1.70)
|
|
The table below sets forth the consolidated statement of stockholders’ equity, including the balances originally reported, the adjustments and the as restated balances for the fiscal year ended March 31, 2018 (in thousands):
|
|
|
|
|
|
|
|
|
Total
|
|
Accumulated
|
|
Stockholders'
|
|
Deficit
|
|
Equity
|
Balance at March 31, 2018, As Reported
|
$
|
(133,299)
|
|
$
|
202,469
|
Adjustments
|
|
6,060
|
|
|
6,060
|
Balance at March 31, 2018, As Restated
|
$
|
(127,239)
|
|
$
|
208,529
|
The table below sets forth the consolidated statements of cash flows from operating activities, including the balances originally reported, the adjustments and the as restated balances for the year ended March 31, 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
As
|
|
|
|
|
|
|
|
Originally
|
|
|
|
|
|
Reported
|
|
Adjustments
|
|
As restated
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(30,628)
|
|
$
|
6,060
|
|
$
|
(24,568)
|
Adjustments to reconcile net loss to net cash used by operating activities
|
|
|
|
|
|
|
|
|
Deferred Income Tax
|
|
(438)
|
|
|
(6,060)
|
|
|
(6,498)
|
Net cash flows used by operating activities
|
$
|
(21,986)
|
|
|
—
|
|
$
|
(21,986)
|
3.
Summary of Significant Accounting Policies
Basis of Presentation and Use of Estimates
The consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant estimates relate to allowance for doubtful accounts, estimated useful lives of depreciable assets, asset retirement obligations, the carrying amount of long-lived assets under construction in process, valuation allowance on the Company’s deferred tax assets, and recoverability of intangible assets. The Company is also required to make certain estimates with regard to the valuation of awards and forfeiture rates for its share-based award programs. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the financial statements in the applicable period. Accordingly, actual results could materially differ from those estimates.
The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries, including PDV Spectrum Holding Company, LLC formed in April 2014. All significant intercompany accounts and transactions have been eliminated in consolidation.
Reclassifications
Certain prior year amounts have been reclassified to conform to the presentation of the corresponding amounts in the financial statements for the year ended March 31, 2019. These reclassifications had no effect on previously reported results of operations, cash flows, assets, liabilities or equity for the years presented.
Cash and Cash Equivalents
All highly liquid investments with maturities of three months or less at the time of purchase are considered cash equivalents. Cash equivalents are stated at cost, which approximates the quoted market value and include amounts held in money market funds.
Accounts Receivable
We offer pdvConnect as a mobile workforce management application directly through our sales force and indirectly through
two
domestic Tier 1 carriers. As of March 31, 2019 and 2018, we had accounts receivable balances owed to us by
one
Tier 1 domestic carrier representing approximately
31%
and
53%
, respectively, of our accounts receivable balances.
Allowance for Doubtful Accounts
An allowance for uncollectible receivables is estimated based on a combination of write-off history, aging analysis and any specific known troubled accounts. The Company reviews its allowance for uncollectible receivables on a quarterly basis. Past due balances meeting specific criteria are reviewed individually for collectability.
Changes in the allowance for doubtful accounts for the years ended March 31, 2019 and 2018 are summarized below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Balance at beginning of the year
|
|
$
|
29
|
|
$
|
53
|
|
$
|
3
|
Bad debt expense
|
|
|
218
|
|
|
22
|
|
|
58
|
Write-offs
|
|
|
(170)
|
|
|
(46)
|
|
|
(8)
|
Balance at end of the year
|
|
$
|
77
|
|
$
|
29
|
|
$
|
53
|
Inventory
Inventories as of March 31, 2018 consisted of vehicle-mounted devices, handsets, and accessories are valued at the lower of cost or net realizable value, with net realizable value being defined as replacement value using the First In, First Out method. Provisions are made periodically to reduce any excess, obsolete or slow moving inventory to its net realizable value.
Pr
operty and Equipment
Property and equipment is stated at cost. Depreciation is computed using the straight-line method over the shorter of the estimated useful lives of the assets or the applicable lease term. The carrying amount at the balance sheet date of long-lived assets under construction in process include construction costs to date on capital projects that have not been completed, assets being constructed that are not ready to be placed into service, and assets that are not currently in service. On a periodic basis costs within construction in process are reviewed and a determination is made if the assets being developed will be put into use. If it is concluded that the asset will not be put into use, the costs will be expensed. If the asset will be put into use, the costs are transferred to property and equipment when substantially all of the activities necessary to prepare the assets for their intended use are completed. Depreciation commences upon completion.
Accounting for Asset Retirement Obligations
An asset retirement obligation is evaluated and recorded as appropriate on assets for which the Company has a legal obligation to retire. The Company records a liability for an asset retirement obligation and the associated asset retirement cost at the time the underlying asset is acquired and put into service. Subsequent to the initial measurement of the asset retirement obligation, the obligation is adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation, if any.
Over time, the liability is accreted to its present value and the capitalized cost is depreciated over the estimated useful life of the asset.
The Company enters into long-term leasing arrangements primarily for tower site locations. The Company constructs assets at these locations and, in accordance with the terms of many of these agreements, the Company is obligated to restore the premises to their original condition at the conclusion of the agreements, generally at the demand of the other party to these agreements. The Company recognizes the fair value of a liability for an asset retirement obligation and capitalizes that cost as part of the cost basis of the related asset, depreciating it over the useful life of the related asset
.
Upon settlement of the obligation, any difference between the cost to retire the asset and the recorded liability is recognized in the Consolidated Statement of Operations.
As of March 31, 2019, the Company had an asset retirement obligation of approximately
$0.3
million.
Changes in the liability for the asset retirement obligations for the years ended March 31, 2019 and 2018 are summarized below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Balance at beginning of the year
|
|
$
|
316
|
|
$
|
268
|
|
$
|
204
|
Revision of estimate
|
|
|
—
|
|
|
34
|
|
|
52
|
Accretion expense
|
|
|
12
|
|
|
14
|
|
|
12
|
Balance at end of the year
|
|
$
|
328
|
|
$
|
316
|
|
$
|
268
|
|
|
|
|
|
|
|
|
|
|
Intangible Assets
Intangible assets are wireless licenses that will be used to provide the Company with the exclusive right to utilize designated radio frequency spectrum to provide wireless communication services. While licenses are issued for only a fixed time, generally
ten
years, such licenses are subject to renewal by the FCC. License renewals have occurred routinely and at nominal cost in the past. There are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful life of the Company’s wireless licenses. As a result, the Company has determined that the wireless licenses should be treated as an indefinite-lived intangible asset. The Company will evaluate the useful life determination for its wireless licenses each year to determine whether events and circumstances continue to support their treatment as an indefinite useful life asset.
The licenses are tested for impairment on an aggregate basis, as we will be utilizing the wireless licenses on an integrated basis as a part of developing broadband.
In Fiscal 2019, the Company
perform
ed
a step one quantitative impairment test to determine if the fair value is greater than carrying value. Estimated fair value is determined using a market
-
based approach
.
In Fiscal 2018 and 2017, the Company used a qualitative approach to test indefinite-lived intangible assets for impairment by first assessing qualitative factors to determine whether it is more-likely-than-not that the fair value of an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform qua
nt
itative impairment testing.
Patent Costs
Costs to acquire a patent on certain aspects of the Company’s technology have been capitalized. These amounts are amortized, subject to periodic evaluation for impairment, over statutory lives following award of the patent. Gross patent costs are approximately
$572,000
at March 31, 2019 and March 31, 2018 and the associated accumulated amortization amounted to approximately
$388,000
and
$375,000
, respectively. Amortization expense was approximately
$13,000
per year for the years ended March 31, 2019, 2018 and 2017
respectively.
The amortization expense is estimated to aggregate
$13,000
per year over the next five year period. Renewal costs are expensed when incurred.
Long-Lived Asset Impairment
The Company evaluates long-lived assets, other than intangible assets with indefinite lives, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Asset groups are determined at the lowest level for which identifiable cash flows are largely independent of cash flows of other groups of assets and liabilities. When the carrying amount of a long-lived asset group is not recoverable and exceeds its fair value, an impairment loss is recognized equal to the excess of the asset group’s carrying value over the estimated fair value.
Fair Value of Financial Instruments
Financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses are carried at cost, which management believes approximates fair value because of the short term maturity of these instruments.
Revenue Recognition
Revenues are recognized when a contract with a customer exists and control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration it expects to be entitled to in exchange for those goods or services and the identified performance obligation has been satisfied.
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in Accounting Standards Update 2014-09,
Revenue from Contracts with Customers,
(“ASC 606”). A contract’s transaction price is allocated to each distinct performance obligation and is recognized as revenue when, or as, the performance obligation is satisfied, which typically occurs when the services are rendered. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. The Company’s contracts with customers may include multiple performance obligations. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price. It generally determines standalone selling prices based on the prices charged to customers under contracts involving only the relevant performance obligation. Judgment may be used to determine the standalone selling prices for items that are not sold separately, including services provided at no additional charge. Most of our performance obligations are satisfied over time as services are provided.
The Company recognizes an asset for the incremental costs of obtaining a contract with a customer if it expects the benefit of those costs to be longer than one year. The Company has determined that certain sales commissions meet the requirements to be capitalized and have been recorded as an asset upon the Company’s adoption of ASC 606.
Cost of Revenue
The Company’s
historical
cost of revenue relating to its TeamConnect service offering includes the costs of operating its dispatch network and its cloud-based solutions and to a lesser degree, the costs associated with the sales of the relevant user devices. With respect to sales of its
historical
software applications through its wireless carrier partners, cost of revenue includes the portion of service revenue retained by its domestic Tier 1 carrier partners pursuant to its agreements with these parties, which may include network services, connectivity, SMS service, sales, marketing, billing and other ancillary services.
Shipping and Handling Costs
Costs associated
with
shipping and handling of two-way radios and accessories to dealers or end-user customers are recognized as incurred and included in cost of revenue in the Consolidated Statements of Operations.
Indirect Sales Commissions
As a result of adopting ASC 606, on April 1, 2018, cash considerations paid to its sales team and indirect dealers are capitalized as part of contract costs and amortized on a straight-line basis over the customer’s estimated contract period, which is an average of 24 months. The Company compensates its indirect sales representatives with an upfront commission and residual fees based on a customer’s continued use of its TeamConnect service. When a commission is earned solely due to selling activity related to the Company’s TeamConnect service, the cost is
capitalized as part of contract costs
. The Company reviews and records the estimated incentives payable to the indirect sales representatives as accrued expense on a monthly basis.
Product Development Costs
The Company charges all product and development costs to expense as incurred. Types of expense incurred in product and development costs include employee compensation, consulting, travel, facility costs and equipment and technology costs.
Advertising and Promotional Expense
The Company expenses advertising and promotional costs as incurred. Cooperative advertising reimbursements from vendors are recorded net of advertising and promotional expense in the period in which the related advertising and promotional expense is incurred. Advertising and promotional expense was approximately
$39,
000
for the year ended March 31, 2019, approximately
$155,000
for the year ended March 31, 2018, and approximately
$103,000
for the year ended March 31, 2017.
Stock Compensation
The Company accounts for stock options in accordance with US GAAP, which requires the measurement and recognition of compensation expense, based on the estimated fair value of awards granted to consultants, employees and directors. The Company estimates the fair value of share-based awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense in the Company’s statements of operations over the requisite service periods. In the event the participant’s employment by or engagement with (as a director or otherwise) the Company terminates before exercise of the options granted, the stock options granted to the participant shall immediately expire and all rights to purchase shares thereunder shall immediately cease and expire and be of no further force or effect, other than applicable exercise rights for vested shares that may extend past the termination date as provided for in the participant’s applicable option award agreement. Additionally, the Compensation Committee adopted an Executive Severance Plan (the “Severance Plan”) in February 2015,
which was amended in February 2019,
and the Company subsequently entered into Severance Plan Participation Agreements with its executive officers and certain key employees. In addition to providing participants with severance payments, the Severance Plan provides for accelerated vesting and extends the exercise period for outstanding equity awards if the Company terminates a participant’s service for reasons other than cause, death or disability or the participant terminates his or her service for good reason, whether before or after a change of control (each of such terms as defined in the Severance Plan).
To calculate option-based compensation, the Company uses the Black-Scholes option-pricing model. The Company’s determination of fair value of option-based awards on the date of grant using the Black-Scholes model is affected by assumptions regarding a number of subjective variables.
The fair value of restricted stock, restricted stock units and performance units are measured based upon the quoted closing market price for the stock on the date of grant. The compensation cost for the restricted stock and restricted stock units is recognized on a straight-line basis over the vesting period. The compensation cost for the performance units is recognized when the performance criteria are expected to be complete.
No
tax benefits have been attributed to the share-based compensation expense because the Company maintains a full valuation allowance for all net d
eferred tax assets.
Effective April 1, 2017, the Company adopted ASU No. 2016-09,
Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
(“ASU 2016-09”), which simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. Under the new guidance, all excess tax benefits and tax deficiencies, including tax benefits of dividends on share-based payment awards, should be recognized as income tax expense or benefit in the income statement, eliminating the notion of the additional paid-in capital (“APIC”) pool. The excess tax benefits will be classified as operating activities along with other income tax cash flows rather than financing activities in the statement of cash flows. The tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. ASU 2016-09 also allows entities to elect to either estimate the total number of awards that are expected to vest or account for forfeitures when they occur. Additionally, ASU 2016-09 clarifies that cash payments to tax authorities in connection with shares withheld to meet statutory tax withholding requirements should be presented as a financing activity in the statement of cash flows. The Company has elected to continue its past practice of estimating the total number of awards expected to vest and adopted the provisions of ASU 2016-09 related to changes in the consolidated statements of cash flows on a retrospective basis.
Income Taxes
The Company utilizes the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities as well as from net operating loss and tax credit carryforwards. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. A valuation allowance is established when it is estimated that it is more likely than not that the tax benefit of a deferred tax asset will not be realized.
Changes in valuation allowance for the years ended March 31, 2019 and 2018 are summarized below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Balance at beginning of the year
|
|
$
|
26,515
|
|
$
|
36,908
|
|
$
|
20,189
|
Charged (credited) to costs and expenses
|
|
|
685
|
|
|
(438)
|
|
|
6,498
|
Impacts related to the 2017 Tax Act
|
|
|
—
|
|
|
(6,060)
|
|
|
—
|
Changes in net loss carryforward and other
|
|
|
9,819
|
|
|
(3,895)
|
|
|
10,221
|
Balance at end of the year
|
|
$
|
37,019
|
|
$
|
26,515
|
|
$
|
36,908
|
Accounting for Uncertainty in Income Taxes
The Company recognizes the effect of tax positions only when they are more likely than not to be sustained. Management has determined that the Company had no uncertain tax positions that would require financial statement recognition or disclosure. The Company is no longer subject to U.S. federal, state or local income tax examinations for periods prior to 2016. We recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense.
Net Loss Per Share of Common Stock
Basic net loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration for potentially dilutive securities. For purposes of the diluted net loss per share calculation, preferred stock, convertible notes payable-affiliated entities, stock options, restricted stock and warrants are considered to be potentially dilutive securities. Because the Company has reported a net loss for the years ended March 31, 2019, 2018 and 2017, diluted net loss per common share is the same as basic net loss per common share for those periods.
Common stock equivalents resulting from potentially dilutive securities approximated
1,421,000
,
1,002,000
and
709,000
at March 31, 2019, 2018 and 2017, respectively, and have not been included in the dilutive weighted average shares of common stock outstanding, as their effects are anti-dilutive.
Recently Issued Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board, (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02,
Leases,
which
sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. Originally, entities were required to adopt ASU 2016-02 using a modified retrospective approach at the beginning of the earliest comparative period presented in the financial statements and the recognition of a cumulative-effect adjustment to the opening balance of retained earnings. The FASB subsequently issued ASU 2018-10 and ASU 2018-11 in July 2018, which provide clarifications and improvements to ASU 2016-02 (collectively, the “new lease standard”). ASU 2018-11 also provides the optional transition method which allows companies to apply the new lease standard at the adoption date instead of at the earliest comparative period presented and continue to apply the provisions of the previous lease standard in its annual disclosures for the comparative periods. The new lease standard requires lessees to present a right-of-use asset and a corresponding lease liability on the balance sheet. Lessor accounting is substantially unchanged compared to the current accounting guidance. Additional footnote disclosures related to leases will also be required.
On April 1, 2019, the Company adopted the new lease standard using the optional transition method. The comparative financial information will not be restated and will continue to be reported under the previous lease standard in effect during those periods. In addition, the new lease standard provides a number of optional practical expedients in transition. The Company elected the package of practical expedients. As such, the Company will not reassess whether expired or existing contracts are or contain a lease; will not need to reassess the lease classifications or reassess the initial direct costs associated with expired or existing leases. The Company did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to the Company.
The new lease standard also provides practical expedients for an entity’s ongoing accounting. The Company elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, the Company will not recognize
right of use (“
ROU
”)
assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. The Company elected the practical expedient to not separate lease and non-lease components for certain classes of assets (office buildings).
On April 1, 2019, the Company expects to recognize
ROU
assets in the range of approximately
$
7.0
to
$
8.0
million and lease liabilities in the range of approximately
$9.0
to
$10.0
million, derecognize deferred rent liability of approximately
$2.0
million and
record
no adjustment to accumulated deficit. The Company does not expect the adoption of the new lease standard to impact its consolidated statements of operations and its statements of cash flows.
In June 2018, the FASB issued ASU No. 2018-07,
Compensation – Stock Compensation (Topic 718) – Improvements to Nonemployee Share-based Payment Accounting
. ASU 2018-07 addresses several aspects of the accounting for nonemployee share-based payment transactions, including share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 is effective for the Company’s fiscal year 2020 beginning April 1, 2019. The Company estimates the impact of adopting this guidance to be a reduction of approximately
$0.3
million to
$0.4
million to its accumulated deficit.
Other accounting standards that have been issued or proposed by the FASB or other standard-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption.
Recently Adopted Accounting Pronouncements
In May 2014, the FASB issued ASC 606, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers, and also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. ASC 606 replaced most existing revenue recognition guidance in U.S. GAAP. The new standard was effective for the Company on April 1, 2018. See Note 4 – Revenue for further discussion, including the impact on the Company’s consolidated financial statements and required disclosures.
In May 2017, the FASB issued ASU 2017-09,
Compensation - Stock Compensation (Topic 718) Scope of Modification Accounting
. The amendments in ASU 2017-09 provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The adoption of ASU 2017-09 became effective for annual periods beginning after December 15, 2017 with prospective application. The Company adopted this standard on April 1, 2018. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements or related disclosures.
4. Revenue
On April 1, 2018, the Company adopted ASC 606 using the modified retrospective method and recognized the cumulative effect of initially applying the guidance as an adjustment to the opening balance of retained deficit. The Company applied the new revenue standard to new and existing contracts that were not complete as of the date of initial application. As a result of applying this standard using the modified retrospective method, the Company has presented financial results and applied its accounting policies for the period beginning April 1, 2018 under ASC 606, while prior period results and accounting policies have not been adjusted and are reflected under legacy GAAP pursuant to Accounting Standard Codification 605.
As a result of adopting ASC 606, on April 1, 2018, the Company recorded a reduction of
$0.8
million to its accumulated deficit. The most significant drivers of the adjustment included the Company’s change in accounting policy related to the deferral of costs to obtain a contract. The Company is required to capitalize certain contract acquisition costs that relate directly to a customer contract, and recognize such costs as an asset, including commissions paid to its sales team and indirect dealers, and to amortize these costs on a straight-line basis over the customer’s estimated contract period, which is an average of 24 months. The Company previously expensed these contract acquisition costs as incurred in selling, general and administrative expenses. Management assesses these costs and the related asset carrying value for impairment on a quarterly basis.
In accordance with ASC 606, when the customer purchases or receives a discounted handset in connection with entering into a contract for service, the Company allocates revenue between the handset and the service based on the relative standalone selling price. Revenue is recognized when the performance obligation which includes providing the services or transferring control of
promised handsets, which are distinct to a customer, has been satisfied. Revenue is recognized in an amount that reflects the consideration the Company expects to be entitled to for those performance obligations.
The cumulative effect of the changes made to the Company’s consolidated April 1, 2018 balance sheet for the adoption of ASC 606 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31,
|
|
Adjustments due to
|
|
Balance at April 1,
|
|
|
2018
|
|
ASC 606
|
|
2018
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
$
|
850
|
|
$
|
473
|
|
$
|
1,323
|
|
Other assets
|
|
486
|
|
|
295
|
|
|
781
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Deferred revenue, short-term and long-term
|
$
|
5,070
|
|
$
|
—
|
|
$
|
5,070
|
|
Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
$
|
(127,239)
|
|
$
|
768
|
|
$
|
(126,471)
|
|
Service Revenue
. The Company has historically derived its service revenue from a fixed monthly recurring unit price per user, with 30-day payment terms, for its pdvConnect, TeamConnect and Diga-talk service offerings.
pdvConnect
is the Company’s proprietary cloud-based mobile resource management solution which has historically been sold as a separate software-as-a-service offering for dispatch-centric business customers who utilize Tier 1 cellular networks, and to a lesser extent, who utilize land mobile radio networks not operated by the Company. pdvConnect is sold directly by the Company or through two Tier 1 domestic carriers. The service is contracted and billed on a month to month basis and the Company satisfies its performance obligation over time as the services are delivered.
TeamConnect
combines pdvConnect with the Company’s push-to-talk (“PTT”) mobile communication services involving digital network architecture and mobile devices. TeamConnect gives customers the ability to instantly set up PTT communications and delivers real-time information from mobile workers to dispatch operators. It also allows customers to deliver voice messages to any computer (via the internet), any email address or to any phone in the United States as well as to communicate in real time with TeamConnect enabled smartphones on any cellular carrier network. The contract period for the TeamConnect service varies from a month to month basis to 24 months. The customer is billed at the beginning of each month of the contract term. The Company recognizes revenue as it satisfies its performance obligation over time as the services are delivered.
Diga-talk
is a mobile communications offering that is being resold by the Company and that provides nationwide two-way digital communication services. The service is contracted and billed on a month to month basis. The Company launched the offering in March 2018 and is a reseller of the services and related devices. The determination was made that the Company is the principal in this reseller arrangement since the customer views the Company as fulfilling the performance obligations and therefore, records revenue on a gross basis over time upon delivery of the services.
Spectrum Revenue.
In September 2014, Motorola paid the Company an upfront, fully-paid fee of
$7.5
million in order to use a portion of the Company’s wireless spectrum licenses. The payment of the fee is accounted for as deferred revenue on the Company’s consolidated balance sheets and is recognized ratably as the service is provided over the contractual term of approximately ten years. The revenue recognized for the years ended March 31, 2019, 2018 and 2017 was approximately
$729,000
each year.
Other Revenue.
The Company historically derived other revenue primarily from either the sale of radios and accessories for TeamConnect and Diga-talk as well as the rental of radios for TeamConnect based on 30-day payment terms. The Company recognizes radio and accessory revenue when a customer takes possession of the device.
For TeamConnect, when the customer purchases a radio offered at a discounted price bundled with services or is provided a discount by the dealer which is paid for by the Company, the Company allocates a portion of our future service billings to the radio and recognizes revenue upon handset delivery at the inception of the contract, which results in a contract asset that is amortized as a reduction to service revenue over the expected term of the customer’s contract period, which is typically 24 months. For Diga-talk, the customer contract is month to month. As a result, when the customer purchases a radio offered at a discounted price bundled with services, the discount for the radio is taken in the first month.
Contract Assets.
Contract assets include the portion of the Company’s future service invoices which has been allocated to the discounted price of the radios and amortized as a reduction against service revenue over the contract period. As of March 31, 2019 and April 1, 2018, the Company had
$0.3
million in total contract assets, of which
$0.1
million was classified as a component of prepaid expenses and other current assets in our condensed consolidated balances sheets for both periods. The amortization of the contract asset for the year ended March 31, 2019 was not significant.
The Company also recognizes a contract asset for the incremental costs of obtaining a contract with a customer. These costs include commissions for sales people and commissions paid to third-party dealers. These costs are amortized ratably using the portfolio approach over the estimated customer contract period. The Company reviews the contract asset on a periodic basis to determine if an impairment exists. If it is determined that there is an impairment, the contract asset will be expensed. Under the previous accounting standard, the Company expensed commissions as incurred. As of March 31, 2019 and April 1, 2018, the Company had
$0.5
million and
$0.6
million, respectively, of deferred costs related to expenses required to obtain or fulfill a contract. Of these total deferred costs, as of March 31, 2019,
$0.3
million was recorded as a component of prepaid and other current assets. As of April 1, 2019,
$0.4
million were recorded as a component of prepaid and other current assets. In addition, the Company recorded
$0.5
million resulting from the amortization of its contract assets during the year ended March 31, 2019 in selling, general and administrative expenses in its consolidated statement of operations.
The following table presents the activity for the Company’s contract assets (in thousands):
|
|
|
|
|
Contract Assets
|
|
Balance as of April 1, 2018
|
$
|
768
|
|
Additions
|
|
284
|
|
Amortization
|
|
(558)
|
|
Impairment
|
|
(58)
|
|
Balance at March 31, 2019
|
$
|
436
|
|
|
|
|
|
Contract liabilities.
Contract liabilities primarily relate to advance consideration received from customers for spectrum services, for which revenue is recognized over time, as the services are performed. These contract liabilities are recorded as deferred revenue on the balance sheet. The related liability as of March 31, 2018
of
$5.1
million has been reduced by revenue recognized in the year ended March 31, 2019 of
$0.9
million leaving a remaining liability of
$4.2
million as of March 31, 2019.
Adoption Impact.
The following table is a comparison of the reported
results of operations for the year ended March 31, 2019 compared to the amounts that would have been reported had the Company not adopted ASC 606 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Impact on change in accounting policy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of
|
|
|
|
|
As Reported
|
|
ASC 606
|
|
Legacy GAAP
|
Service revenue
|
|
$
|
4,774
|
|
$
|
108
|
|
$
|
4,882
|
Spectrum revenue
|
|
|
729
|
|
|
—
|
|
|
729
|
Other revenue
|
|
|
996
|
|
|
(94)
|
|
|
902
|
Sales and support
|
|
|
3,679
|
|
|
(318)
|
|
|
3,361
|
Net (loss)/income
|
|
|
(41,993)
|
|
|
332
|
|
|
(41,661)
|
Net loss per common share basic and diluted
|
|
$
|
(2.88)
|
|
$
|
0.02
|
|
$
|
(2.86)
|
The following table is a comparison of certain consolidated balance sheet captions under ASC 606 to the balance sheet results using the historical accounting method:
|
|
|
|
|
|
|
|
|
|
Impact on change in accounting policy
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
Impact of
|
|
Legacy GAAP
|
|
March 31, 2019
|
|
ASC 606
|
|
March 31, 2019
|
Prepaid and other current assets
|
$
|
1,180
|
|
$
|
(313)
|
|
$
|
867
|
Other assets
|
|
845
|
|
|
(124)
|
|
|
721
|
Deferred revenue, short term and long term
|
|
4,258
|
|
|
—
|
|
|
4,258
|
Accumulated deficit
|
|
(168,464)
|
|
|
437
|
|
|
(168,027)
|
5. Inventory
Inventory
consists of the following at March 31, 2019 and March 31, 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
Mobile devices
|
|
$
|
-
|
|
$
|
88
|
Handsets
|
|
|
-
|
|
|
51
|
Accessories
|
|
|
-
|
|
|
34
|
Total inventory
|
|
$
|
-
|
|
$
|
173
|
|
|
|
|
|
|
|
6. Property and Equipment
Property and equipment consists of the following at March 31, 2019 and March 31, 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
useful life
|
|
2019
|
|
2018
|
Network sites and equipment
|
|
|
5-10
years
|
|
$
|
15,954
|
|
$
|
15,263
|
Computer equipment
|
|
|
5-7
years
|
|
|
140
|
|
|
184
|
Computer software
|
|
|
1-3
years
|
|
|
28
|
|
|
10
|
Furniture and fixture and other equipment
|
|
|
2-5
years
|
|
|
1,026
|
|
|
1,418
|
Leasehold improvements
|
|
|
Shorter of the lease term or
10
years
|
|
|
351
|
|
|
344
|
|
|
|
|
|
|
17,499
|
|
|
17,219
|
Less accumulated depreciation
|
|
|
|
|
|
7,952
|
|
|
5,468
|
|
|
|
|
|
|
9,548
|
|
|
11,751
|
Construction in process
|
|
|
|
|
|
283
|
|
|
1,024
|
Property and equipment, net
|
|
|
|
|
$
|
9,830
|
|
$
|
12,775
|
Depreciation expense for the years ended March 31, 2019, 2018 and 2017 amounted to approximately
$2.8
million,
$2.8
million and
$2.2
million, respectively; approximately
$2.6
million,
$2.6
million and
$2.0
million, respectively, of such depreciation expense was classified as cost of revenue while the remainder was classified as operating expenses in the Company’s Consolidated Statements of Operations. During the year ended March 31, 2019, the Company recorded a
$0.8
million non-cash charge for long-lived asset impairment of its radio assets to reduce the carrying value to the estimated recoverable amount. Leasehold improvements include certain allowances for tenant improvements related to the expansion of the Company’s corporate headquarters. As of March 31, 2019, construction in progress primarily relates to various software and web projects being developed internally. As of March 31, 2018, construction in process includes the expenditures related to the costs to establish the Company’s dedicated wide-area, two-way radio dispatch networks in certain metropolitan areas. During the year ended March 31, 2018,
$0.5
million costs in construction in process were expensed for assets that were not put into use.
7. Intangible Assets
Wireless licenses are considered indefinite-lived intangible assets. Indefinite-lived intangible assets are not subject to amortization but instead are tested for impairment annually, or more frequently if an event indicates that the asset might be impaired. There were on impairment charges related to the Company’s indefinite-lived intangible assets during the years ended March 31, 2019
,
2018
and 2017
.
During the years ended March 31, 2019 and 2018, the Company entered into agreements with several third parties in multiple U.S. markets to acquire wireless licenses for cash consideration, upon FCC approval.
Intangible assets consist of the following at March 31, 2019 and March 31, 2018 (in thousands):
|
|
|
|
|
|
Wireless Licenses
|
Balance at March 31, 2017
|
|
$
|
104,676
|
Acquisitions
|
|
|
1,930
|
Balance at March 31, 2018
|
|
$
|
106,606
|
Acquisitions
|
|
|
942
|
Balance at March 31, 2019
|
|
$
|
107,548
|
8. Accounts Payable and Accrued Expenses
The table below provides additional information related to the Company’s accounts payable and accrued expenses at March 31, 2019 and March 31, 2018 (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
Accounts payable and accrued expenses
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
743
|
|
$
|
479
|
Accrued employee related expenses
|
|
|
2,623
|
|
|
2,337
|
Accrued expenses
|
|
|
825
|
|
|
590
|
Other
|
|
|
915
|
|
|
786
|
Total accounts payable and accrued expenses
|
|
$
|
5,106
|
|
$
|
4,192
|
9. Related Party Transactions
During the year ended March 31, 2019, the Company incurred
$141,000
in consulting fees to a consultant firm who is an affiliate of a significant holder of the Company. As of March 31, 2019, the Company owes
$5,000
to the consulting firm.
No
such services were provided for the years ended March 31, 2018 and 2017.
The Company
purchased
$0.4
million and
$0.9
million of equipment from Motorola for the years ended March 31, 2019 and 2018 respectively.
The Company recognized approximately $729,000 each year in Spectrum revenue for the years ended March 31, 2019, 2018 and 2017.
As of
March 31, 2019 and 2018, the Company owes
$60,000
and
$224,000
to the equipment supplier, respectively.
For the year ended March 31, 2019, the Company incurred
$331,000
under the MOU previously discussed in Note 1.
As of March 31, 2019, the
C
ompany owes
$118,000
to the LLC.
10. Note Payable
During the year ended March 31, 2016, the Company entered into a promissory note in the amount of
$1,289,013
with a third party in exchange for wireless licenses. The term of the note was through
March 15, 2018
and bore a fixed rate of interest of
0.55%
per annum, which was based on the Short-Term Applicable Federal Rate on the closing date. For the year ended March 31, 2018, the Company had repaid
$497,265
, resp
ectively,
in principal. There was
no
outstanding borrowings on the promissory note as of March 31, 2019 and 2018.
For the fiscal years 2018 and 2017, total interest expense on all notes payable was approximately
$3,000
and
$5,000
, respectively. There was
no
interest expense for fiscal year 2019.
11. Impairment and Restructuring Charges
Long-lived Asset Impairment.
During the year ended March 31, 2019, the Company reviewed assets designated for its TeamConnect business. As a result of the Company’s shift to better align and focus its business priorities on its spectrum initiatives, it determined that the carrying value of radios and related accessories were not fully recoverable. As a result, the Company recorded a non-cash asset impairment charge of
$0.8
million in the year ending March 31, 2019, to reduce the carrying value of these assets to zero.
Restructuring Charges.
April 2018 and June 2018 restructuring activities
In April 2018, the Company announced a shift in its focus and resources in order to pursue the regulatory initiatives at the FCC and prepare for the future deployment of broadband and other advanced technologies and services. In light of this shift in focus, the board of directors also approved a chief executive officer transition plan, under which, John Pescatore, the Company’s chief executive officer and president, transitioned to the position of vice chairman and Morgan O’Brien, the Company’s then-current vice chairman, assumed the position as the new chief executive officer. In connection with the transition, the Company and Mr. Pescatore entered into a Continued Service, Consulting and Transition Agreement and a separate Consulting Agreement (the “CEO Transition Agreements”) and the Company also entered into additional consulting and transition agreements with several other key employees.
As of March 31, 2019, the Company recorded a liability of
$2.7
million
, of which
$2.1
million is reflected in restructuring reserve and
$0.6
million in other non-current liabilities,
for the cash payments under both the CEO Transition Agreements with Mr. Pescatore and the consulting and transition agreements with other key employees payable within the next twelve to eighteen months. In addition, for the year ended March 31, 2019, the Company recorded a non-cash
$1.7
million charge for stock compensation expense due to modifications to the key employee stock grants
recorded in restructuring costs.
For the year ended
March 31, 2019, the Company recorded a non-cash
$4.6
million charge for stock compensation expense due to modifications to Mr. Pescatore’s stock grants and the key employee stock grants.
On
June 1
, 2018, the Company’s
b
oard of
d
irectors approved an initial plan to restructure its business aimed at reducing the operating costs of its TeamConnect and pdvConnect businesses and better aligning and focusing its business priorities on its spectrum initiatives. As part of the restructuring plan, the Company eliminated approximately
20
positions, or
20%
of its workforce, primarily from its TeamConnect and pdvConnect businesses. In August 2018, the Company continued with its restructuring efforts and eliminated approximately
seven
additional positions.
For the year ended March 31, 2019, total restructuring costs related to the April 2019 and June 2018 restructuring activities were
$8.7
million consisting of
$4.6
million of stock compensation expense,
$3.7
million for the CEO Transition Agreements and the additional consulting and transition agreements with other key employees, as well as
$0.4
million related to employee severance and benefit costs. Restructuring efforts has been completed by March 31, 2019.
For the year ended March 31, 2019, total accrued restructuring charges for the April 2018 and June 2018 restructuring activities were as follows (in thousands):
|
|
|
|
|
|
Restructure Activity
|
Balance at March 31, 2018
|
|
$
|
—
|
Severance costs
|
|
|
408
|
Consulting costs
|
|
|
3,721
|
Facility exit
|
|
|
3
|
Cash payments
|
|
|
(1,477)
|
Balance at March 31, 2019
|
|
|
2,655
|
Less amount classified as current liabilities - restructuring reserve
|
|
|
2,093
|
Noncurrent liabilities - included in other liabilities
|
|
$
|
562
|
December 2018 cost reductions
On December 31, 2018, the Company’s board of directors approved the following cost reduction actions: (i) the elimination of approximately
20
positions, or
30%
of the Company’s workforce and (ii) the closure of its office in San Diego, California (collectively, the “December 2018 Cost-Reduction Actions”). For the year ended March 31, 2019, the company recorded an additional restructuring charge relating to the December 2018 Cost-Reduction Actions amounting to
$0.9
million consisting of
$0.8
million related to employee severance and benefit costs and
$0.1
million in facility exit costs for our San Diego, California office.
An additional
$0.3
million of restructuring charges will be incurred during fiscal 2020 and 2021 related to employee retention costs. The Company anticipates that the cost reduction and restructuring actions will be completed by July 31, 2019 and that the related cash payments for severance costs will occur by the end of August 31, 2019.
For the year ended March 31, 2019, total December 2018 cost reduction charges were as follows (in thousands):
|
|
|
|
|
|
Restructure Activity
|
Balance at March 31, 2018
|
|
$
|
—
|
Severance costs
|
|
|
794
|
Facility exit
|
|
|
110
|
Cash payments
|
|
|
(225)
|
Balance at March 31, 2019
|
|
|
679
|
Less amount classified as current liabilities - restructuring reserve
|
|
|
665
|
Noncurrent liabilities - included in other liabilities
|
|
$
|
14
|
12.
Income Taxes
On December 22, 2017,
new tax provisions were instituted under the
Tax Cuts and Jobs Act of 2017 (“TCJA”)
were signed into law
. The TCJA includes numerous changes to existing tax law, including a permanent reduction in the federal corporate income tax rate from 35% to 21%. The rate reduction is effective as of January 1, 2018. Another provision i
ncluded in the law is that
net
operating losses
(“NOLs”)
incurred in years ending after December 31, 2017 may be carried forward indefinitely. The Company now can
consider indefinite lived assets and the associated deferred tax liability as a source of future taxable income when assessing the potential to realize future tax deductions from indefinite carryforwards of
NOLs
and interest expense.
The Company had federal and state
NOLs
of approximately
$9
1.7
million at March 31, 2017, expiring in varying amounts from
2019
through
2037
. For the year ended March 31, 2018, the Company incurred an operating loss of approximately
$34.
1
million which, per the provision in the TCJA does not expire and is not subject to the 80% of taxable income limitation upon usage. For the year ended March 31, 2019, the Company incurred a
net
operating loss of approximately
$4
0.
0
million, which is carried forward indefinitely, but can only offset 80% of taxable income when used.
The Company has deferred tax assets of approximately
$40.7
million and
$30.9
million relating principally to the
NOLs as of
March 31, 2019 and 2018, respectively. Federal
NOL carryforwards
may be subject to limitations as a result of the change in ownership that occurred in the year ended March 31, 2015 as defined under Internal Revenue Code Section 382.
State
NOL
carryforwards are subject to limitations which differ from federal law in that they may not allow the carryback of net operating losses and have shorter carryforward periods.
Accounting Standards Codification Topic 740,
Income Taxes
, requires that a valuation allowance be recorded to reduce deferred tax assets when it is more likely than not that the tax benefit of the deferred tax assets will not be realized. The evaluation includes the consideration of all available evidence, both positive and negative, regarding historical operating results including recent years with reported losses, the estimated timing of future reversals of existing taxable temporary differences, estimated future taxable income exclusive of reversing temporary differences and carryforwards, and potential tax planning strategies which may be employed to prevent an operating loss or tax credit carryforward from expiring unused. In situations where a three-year cumulative loss condition exists, accounting standards limit the ability to consider projections of future results as positive evidence to assess the realizability of deferred tax assets. In Fiscal 2018, the Company’s financial results reflected a three-year cumulative loss. The three-year cumulative loss constitutes significant negative evidence, limiting the Company’s ability to consider other positive evidence, such as the Company’s projections for future growth. Based upon the TCJA provision related to the
NOL
arising from years ending after December 31, 2017, the Company now can
consider indefinite lived assets and the associated deferred tax liability as a source of future taxable income when assessing the potential to realize future tax deductions from indefinite carryforwards of net operating losses and interest expense
Consequently, in Fiscal 2018 the Company recorded a non-cash benefit of
$6.5
million as a reduction in valuation allowance against substantially all of its deferred tax assets.
For Fiscal 2019, analysis of the state
NOL
carryforwards revealed that most of them are not indefinite.
The Company’s financial results continued to reflect a three-year cumulative loss and as a result a full valuation allowance should be maintained. The Company recorded
$0.7
million of deferred tax expense and deferred tax liability from the inability to use the state NOL carryforwards against the indefinite-lived intangible.
This valuation allowance has no effect on the Company’s ability to utilize the deferred tax assets to offset future taxable income, if generated. As required by GAAP, the Company will continue to assess the likelihood that the deferred tax assets will be realizable in the future and the valuation allowance will be adjusted accordingly. The tax benefits relating to any reversal of the valuation allowance on the net deferred tax assets in a future period will be recognized as a reduction of future income tax expense in that period.
In May 2018, the Company received notice from the Internal Revenue Service that it would be auditing the Company’s tax return for the period ended March 31, 2016. This audit was closed with no changes on March 11, 2019.
Net deferred tax assets and liabilities consist of the following as of March 31, 2019 and 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018 (As Restated)
|
Deferred tax asset
|
|
|
|
|
|
|
Allowance for uncollectible accounts
|
|
$
|
19
|
|
$
|
7
|
Restructuring reserve
|
|
|
820
|
|
|
—
|
Deferred rent
|
|
|
569
|
|
|
513
|
Accrued expenses
|
|
|
386
|
|
|
197
|
Deferred revenue
|
|
|
1,034
|
|
|
1,214
|
Asset retirement obligations
|
|
|
10
|
|
|
7
|
Net operating loss carryforward
|
|
|
40,739
|
|
|
30,925
|
Charitable contributions carryforward
|
|
|
58
|
|
|
—
|
Stock compensation expense
|
|
|
786
|
|
|
88
|
Total deferred tax asset
|
|
|
44,421
|
|
|
32,951
|
Deferred tax liability
|
|
|
|
|
|
|
Property and equipment
|
|
|
(264)
|
|
|
(375)
|
Definite-lived intangible assets
|
|
|
(6)
|
|
|
(1)
|
Indefinite-lived intangible assets
|
|
|
(7,817)
|
|
|
(6,060)
|
Total deferred tax liability
|
|
|
(8,087)
|
|
|
(6,436)
|
Total deferred tax assets and liabilities
|
|
|
36,334
|
|
|
26,515
|
Valuation allowance
|
|
|
(37,019)
|
|
|
(26,515)
|
Net deferred tax assets and liabilities
|
|
$
|
(685)
|
|
$
|
—
|
The components of the income tax expense
(benefit)
for the years ended March 31, 2019 and 2018 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
2019
|
|
2018 (As Restated)
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
$
|
—
|
State
|
|
|
—
|
|
|
—
|
Total current
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
Federal
|
|
|
—
|
|
|
(5,971)
|
State
|
|
|
685
|
|
|
(527)
|
Total deferred
|
|
|
685
|
|
|
(6,498)
|
|
|
|
|
|
|
|
Total income tax expense (benefit)
|
|
$
|
685
|
|
$
|
(6,498)
|
The differences between the United States federal statutory tax rate and the Company's effective tax rate for the years ended March 31, 2019 and 2018 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018 (As Restated)
|
Statutory federal tax
|
|
$
|
(8,675)
|
|
21%
|
|
$
|
(10,563)
|
|
34%
|
State income taxes, net of federal benefit
|
|
|
(1,483)
|
|
4%
|
|
|
(932)
|
|
3%
|
Incentive stock option expense
|
|
|
681
|
|
-2%
|
|
|
—
|
|
—
|
Other permanent differences
|
|
|
93
|
|
0%
|
|
|
2,071
|
|
-7%
|
Restricted stock shortfall/windfall
|
|
|
(435)
|
|
1%
|
|
|
(118)
|
|
0%
|
Change in valuation allowance - Federal
|
|
|
9,819
|
|
-24%
|
|
|
2,986
|
|
-10%
|
Change in valuation allowance - State
|
|
|
685
|
|
-2%
|
|
|
—
|
|
—
|
Prior-year adjustments
|
|
|
—
|
|
0%
|
|
|
58
|
|
0%
|
|
|
$
|
685
|
|
-2%
|
|
$
|
(6,498)
|
|
21%
|
13. Stock Acquisition Rights, Stock Options and Warrants
The Company established the pdvWireless 2014 Stock Plan (the “2014 Stock Plan”) to attract, retain and reward individuals who contribute to the achievement of the Company’s goals and objectives. This 2014 Stock Plan superseded previous stock plans although under such previous plans,
25,711
stock options were outstanding and vested as of March 31, 2019.
The Company’s board of directors has reserved
3,805,223
shares of common stock for issuance under its 2014 Stock Plan as of March 31, 2019. The number of shares will continue to automatically increase each January 1
through January 1, 2024 by an amount equal to the lesser of (i)
5%
of the number of shares of common stock issued and outstanding on the immediately preceding December 31 or (ii) a lesser amount determined by the board of directors. Effective January 1, 2019, the board of directors declined to accept the full automatic increase to the 2014 Stock Plan and elected to increase the shares authorized and reserved for issuance under the 2014 Stock Plan
by 293,528
shares which represented
2%
of the of the common stock issued and outstanding as of December 31,2018.
Restricted Stock and Restricted Stock Units
A summary of non-vested restricted stock activity for the years ended March 31, 2019 and 2018 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
Average
|
|
|
Restricted
|
|
Grant Day
|
|
|
Stock
|
|
Fair Value
|
Non-vested restricted stock outstanding at March 31, 2017
|
|
127,457
|
|
$
|
25.10
|
Granted
|
|
144,482
|
|
|
24.41
|
Forfeited
|
|
(1,638)
|
|
|
(24.28)
|
Vested
|
|
(52,488)
|
|
|
(24.94)
|
Non-vested restricted stock outstanding at March 31, 2018
|
|
217,813
|
|
|
24.69
|
Granted
|
|
171,780
|
|
|
31.58
|
Forfeited
|
|
(28,798)
|
|
|
(25.39)
|
Vested
|
|
(81,583)
|
|
|
(25.45)
|
Non-vested restricted stock outstanding at March 31, 2019
|
|
279,212
|
|
$
|
28.71
|
The Company recognizes compensation expense for restricted stock on a straight-line basis over the explicit vesting period. Vested restricted stock units are settled and issuable upon the earlier of the date the employee ceases to be an employee of the Company or a date certain in the future. Stock compensation expense related to restricted stock inclusive of the modification described below, was approximately
$4.1
million for the year ended March 31, 2019 and
$1.9
million for the year ended March 31, 2018.
The Company entered into the CEO Transition Agreements on April 23, 2018. It also entered into additional consulting and transition agreements with several other key employees during the year ended March 31, 2019. As a result of these agreements, the Company determined that
56,362
of restricted stock units should be accounted for as a Type III modification (the award was not probable to vest prior to the modification but is probable of vesting under the modified condition) for the year ended March 31, 2019. The expense recorded for these modifications was approximately
$1.4
million for the year ended March 31, 2019 and is accounted for in restructuring costs.
Stock compensation expense for restricted stock is accounted for in general and administrative expense in the Company’s Consolidated Statement of Operations. At March 31, 2019, there was
$5.6
million of unvested compensation expense for the restricted stock, which is expected to be recognized over a weighted average period of
2.85
years.
Performance Stock Units
During the year ended March 31, 2019, the Company did not award any performance stock units under the 2014 Stock Plan. Outstanding performance stock units represent the number of shares of the Company’s common stock that the recipient would receive upon the Company’s attainment of the applicable performance goals. The units will vest in full upon attainment of the performance goals. Performance is based upon achievement, prior to January 13, 2020, of (A) a Final Order from the FCC providing for the creation and allocation of licenses for spectrum in the 900 MHz band consisting of paired blocks of contiguous spectrum, each containing at least 3 MHz of contiguous spectrum, authorized for broadband wireless communications uses and (B) the lack of objection by the Company's board of directors to the terms and conditions (including, but not limited to, the rebanding, clearing and relocation procedures, license assignment and award mechanisms, and technical and operational rules) set forth or referenced in the Final Order. These awards do not forfeit.
A summary of the Performance stock activity for the years ended March 31, 2019 and 2018 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
Average
|
|
|
Performance
|
|
Grant Day
|
|
|
Stock
|
|
Fair Value
|
Performance stock outstanding at March 31, 2017
|
|
37,295
|
|
$
|
25.81
|
Granted
|
|
71,843
|
|
|
22.75
|
Forfeited
|
|
—
|
|
|
—
|
Vested
|
|
—
|
|
|
—
|
Performance stock outstanding at March 31, 2018
|
|
109,138
|
|
|
23.80
|
Granted
|
|
—
|
|
|
—
|
Forfeited
|
|
—
|
|
|
—
|
Vested
|
|
—
|
|
|
—
|
Performance stock outstanding at March 31, 2019
|
|
109,138
|
|
$
|
23.80
|
|
|
|
|
|
|
For the year end March 31, 2019, there was
no
stock compensation expense recognized for the performance stock units. At March 31, 2019, there was approximately
$2.6
million of unvested compensation expense.
Stock Options
A summary of Stock Option activity for the years ended March 31, 2019 and 2018 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Weighted Average
Exercise Price
|
|
Weighted
Average
Contractual
Term
|
Aggregate
Intrinsic Value
|
Options outstanding at March 31, 2017
|
|
1,733,595
|
|
$
|
22.79
|
|
|
|
|
|
Options granted
|
|
252,945
|
|
|
25.39
|
|
|
|
|
|
Options exercised
|
|
(5,740)
|
|
|
(18.69)
|
|
|
|
|
|
Options forfeited/expired
|
|
(12,426)
|
|
|
(26.91)
|
|
|
|
|
|
Options outstanding at March 31, 2018
|
|
1,968,374
|
|
|
23.11
|
|
|
|
|
|
Options granted
|
|
726,875
|
|
|
23.73
|
|
|
|
|
|
Options exercised
|
|
(169,003)
|
|
|
(19.93)
|
|
|
|
|
|
Options forfeited/expired
|
|
(602,612)
|
|
|
(23.08)
|
|
|
|
|
|
Options outstanding at March 31, 2019
|
|
1,923,634
|
|
$
|
23.64
|
|
5.85
|
|
$
|
22,782,999
|
Exercisable at March 31, 2019
|
|
1,543,003
|
|
$
|
22.70
|
|
5.34
|
|
$
|
19,638,772
|
Total vested or expected to vest at March 31, 2019
|
|
1,913,506
|
|
$
|
23.62
|
|
5.83
|
|
$
|
22,699,467
|
The Company entered into the CEO Transition Agreements on April 23, 2018. It also entered into additional consulting and transition agreements with several other key employees during the year ended March 31, 2019. As a result of these agreements, the Company determined that
574,434
stock options to purchase shares of common stock should be accounted for as a Type I modification (which does not change the expectation that the award will ultimately vest resulting from an increase in the term to exercise the options) for the year ended March 31, 2019. The Company also determined that
56,250
stock options to purchase shares of common stock should be accounted for as a Type III modification for the year ended March 31, 2019. As a result, the
58
0,684
stock options are reflected as new grants and the previous grants are treated as forfeited.
The Company awarded stock options to purchase
146,191
shares of common stock to employees and consultants during the year ended March 31, 2019, of which stock options to purchase
112,000
shares of common stock were awarded to employees and stock options to purchase
34,191
shares of common stock were awarded to consultants, and which each
have a
ten
-year contractual life. Of the
112,000
stock options to purchase shares of common stock that were granted in the year ended March 31, 2019,
100,000
stock options were granted to the President and
12,000
stock options were granted to employees. For the stock options granted to employees,
25%
vests on the first anniversary of grant, and the remainder
will vest in three equal annual installments thereafter. For the stock option to purchase
100,000
shares of common stock awarded to the Company’s President,
50%
of the option shares vest on the second anniversary of grant and
25%
of the options shares vests in two annual installments thereafter. Shares granted to employees are subject to vesting, future settlement conditions and other such terms as determined
by the board of directors and set forth in the applicable award agreements.
The intrinsic value of stock options exercised was approximately
$3.1
million at March 31, 2019.
Additional information regarding stock options outstanding at March 31, 2019 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
Weighted
|
|
|
|
Exercise Price
|
|
Exercise
|
|
Number
|
|
Remaining
|
|
Average
|
|
Options
|
|
of Shares
|
|
Prices
|
|
Outstanding
|
|
Life in Years
|
|
Exercise Price
|
|
Exercisable
|
|
Exercisable
|
|
$
|
13.25
|
-
|
$
|
20.00
|
|
973,698
|
|
4.50
|
|
$
|
19.82
|
|
973,698
|
|
$
|
19.82
|
|
|
20.01
|
-
|
|
46.23
|
|
919,936
|
|
7.28
|
|
|
26.85
|
|
543,805
|
|
|
26.61
|
|
|
46.24
|
-
|
|
72.85
|
|
30,000
|
|
5.87
|
|
|
49.14
|
|
25,500
|
|
|
49.14
|
|
|
|
|
|
|
|
1,923,634
|
|
5.85
|
|
$
|
23.64
|
|
1,543,003
|
|
$
|
22.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of stock options granted is estimated on the date of grant using the Black-Scholes option valuation model. This stock-based compensation expense valuation model requires the Company to make assumptions and judgments regarding the variables used in the calculation. These variables include the expected term, the expected volatility of the Company’s common stock, expected risk-free interest rate, forfeiture rate and expected dividends. The Company calculates an expected term and volatility from the historical volatilities and terms of selected comparable public companies within its industry along with the Company’s short history regarding these variables. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the stock option. The Company estimates its forfeiture rate based on an analysis of its actual forfeitures and will continue to evaluate the appropriateness of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover and other factors. The Company has never paid, and does not anticipate paying, any cash dividends in the foreseeable future, and therefore uses an expected dividend yield of zero in the option-pricing model.
The following assumptions were used to calculate the fair value of
stock
options:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
Year Ended
|
|
|
March 31, 2019
|
|
March 31, 2018
|
Risk-free interest rate
|
|
2.41%
to
2.68%
|
|
1.76%
to
2.73%
|
Dividend yield
|
|
-%
|
|
-%
|
Volatility
|
|
49.71%
to
50.30%
|
|
49.05%
|
Expected term
|
|
5 years
|
|
5 years
|
Forfeiture rate
|
|
3%
|
|
3%
|
Performance Stock Options
A summary of the Performance Stock Options as of March 31, 2019 and 2018 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
Options
|
|
Weighted Average
Exercise Price
|
|
Weighted
Average
ContractualTerm
|
Aggregate
Intrinsic Value
|
Performance Options outstanding at March 31, 2017
|
|
50,000
|
|
$
|
25.81
|
|
|
|
|
|
Performance Options granted
|
|
129,945
|
|
|
25.84
|
|
|
|
|
|
Performance Options exercised
|
|
—
|
|
|
—
|
|
|
|
|
|
Performance Options forfeited/expired
|
|
—
|
|
|
—
|
|
|
|
|
|
Performance Options outstanding at March 31, 2018
|
|
179,975
|
|
|
25.83
|
|
|
|
|
|
Performance Options granted
|
|
—
|
|
|
—
|
|
|
|
|
|
Performance Options exercised
|
|
—
|
|
|
—
|
|
|
|
|
|
Performance Options forfeited/expired
|
|
—
|
|
|
—
|
|
|
|
|
|
Performance Options outstanding at March 31, 2019
|
|
179,945
|
|
$
|
25.83
|
|
7.87
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
The performance stock options will vest in full immediately upon attainment of the performance goals. Performance is based upon the Company’s achievement, prior to January 13, 2020, of (A) a Final Order from the FCC providing for the creation and allocation of licenses for spectrum in the 900 MHz band consisting of paired blocks of contiguous spectrum, each containing at least 3 MHz of contiguous spectrum, authorized for broadband wireless communications uses and (B) the lack of objection by the Company's
Board of Directors to the terms and conditions (including, but not limited to, the rebanding, clearing and relocation procedures, license assignment and award mechanisms, and technical and operational rules) set forth or referenced in the Final Order.
The stock compensation expense related to the consulting and transition agreements entered into by the Company for the year ended March 31, 2019 was
$3.2
million. This expense was incurred due to the Type I and Type III modifications resulting from the consulting and termination agreements. The expense is accounted for in restructuring costs in the accompanying Consolidated Statement of Operations.
Stock compensation expense related to the amortization of the fair value of service based stock options issued was approximately
$3.0
million,
$3.7
million and
$3.2
million for the years ended March 31, 2019, 2018, and 2017 respectively. There was
no
stock compensation expense related to the performance stock options issued during those periods. Stock compensation expense is included as part of general and administrative expense in the accompanying Consolidated Statement of Operations.
The weighted average fair value for the stock option awards granted for the fiscal year ended March 31, 2019 was
$7.82
per share. As of March 31, 2019, there was approximately
$4.1
million of unrecognized compensation cost related to non-vested stock options granted under the Company’s stock option plans, of which
$2.1
million pertains to the non-performance based stock options. The cost of the service based stock options is expected to be recognized over a weighted-average period of
2.38
years.
Motorola Investment
On September 15, 2014, Motorola invested
$10.0
million to purchase
500,000
Class B Units of the Company’s subsidiary, PDV Spectrum Holding Company, LLC (at a price equal to
$20.00
per unit). The Company owns
100%
of the Class A Units in this subsidiary. Motorola has the right at any time to convert its 500,000 Class B Units into
500,000
shares of the Company’s common stock. The Company also has the right to force Motorola’s conversion into shares of its common stock. Motorola is not entitled to any assets, profits or distributions from the operations of the subsidiary. In addition, Motorola’s conversion ratio from Class B Units to shares of the Company’s common stock is fixed on a one-for-one basis, and is not dependent on the performance or valuation of either the Company or its subsidiary. The Class B Units have no redemption or call provisions and can only be converted into shares of the Company’s common stock. Management has determined that this investment does not meet the criteria for temporary equity or non-controlling interest due to the limited rights that Motorola has as a holder of Class B Units, and accordingly has presented this investment as part of its permanent equity within Additional Paid-in Capital in the accompanying financial statements.
14. Supplemental Disclosure of Cash Flow Information
For the year ended March 31, 2019, the Company paid in cash approximately
$31,000
in taxes.
The Company
did
no
t pay any interest for the year ended March 31, 2019. The Company paid in cash approximately
$15,000
in taxes and approximately
$3,000
in interest during the year ended March 31, 2018. The Company paid approximately
$40,000
in taxes and approximately
$5,000
in interest payments for the year ended March 31, 2017.
During the year ended March 31, 2017, the Company entered into a barter transaction with a third party whereby it acquired wireless licenses valued at approximately
$307,000
consisting of approximately
$269,000
related to use of the Company’s network along with radios and approximately
$39,000
in cash.
The Company capitalized asset retirement obligations that amounted to approximately
$34,000
and
$52,000
, for the years ended March 31, 2018 and 2017
, respectively
.
The Company did not capitalize an
y
asset retirement obligations for the year ended March 31, 2019.
15. Commitments and contingencies
Leasing Obligations
The Company is obligated under certain lease agreements for office space whose leases expire on various dates from
May 7, 2019
through
June 30, 2027
, which includes a
ten
-year lease extension for the corporate office. The Company entered into multiple lease agreements for tower space related to its TeamConnect business. The lease expiration dates range from
December 31, 2019
to
June 30, 2026
.
Rent expense amounted to approximately
$2.8
million, approximately
$2.5
million, and approximately
$1.9
million for the years ended March 31, 2019, 2018, and 2017, respectively, of which approximately
$1.7
million, approximately
$1.6
million, and approximately
$1.4
million, respectively, was classified as cost of revenue and the remainder of approximately
$1.1
million, approximately
$0.9
million, and approximately
$0.5
million, respectively, was classified in operating expenses in the Consolidated Statements of Operations. At March 31, 2019, accumulated deferred rent payable amounted to approximately
$2.3
million and is included as part of other liabilities in the accompanying Consolidated Balance Sheet.
Aggregate rentals, under non-cancelable leases for office and tower space (exclusive of real estate taxes, utilities, maintenance and other costs borne by the Company) for the remaining terms of the leases for the year ended March 31, 2019 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
2020
|
|
$
|
2,732
|
2021
|
|
|
2,549
|
2022
|
|
|
2,174
|
2023
|
|
|
2,027
|
2024
|
|
|
1,893
|
After 2024
|
|
|
3,062
|
Total
|
|
$
|
14,437
|
Litigation
In addition to commitments and obligations in the ordinary course of business, the Company may be subject, from time to time, to various claims and pending and potential legal actions arising out of the normal conduct of its business. The Company assesses contingencies to determine the degree of probability and range of possible loss for potential accrual in its financial statements. Because litigation is inherently unpredictable and unfavorable resolutions could occur, assessing litigation contingencies is highly subjective and requires judgments about future events. When evaluating contingencies, the Company may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the presence of complex or novel legal theories, and/or the ongoing discovery and development of information important to the matters. In addition, damage amounts claimed in litigation against it may be unsupported, exaggerated or unrelated to possible outcomes, and as such are not meaningful indicators of its potential liability.
The Company regularly reviews contingencies to determine the adequacy of its accruals and related disclosures. During the period presented, the Company has not recorded any accrual for loss contingencies associated with any claims or legal proceedings; determined that an unfavorable outcome is probable or reasonably possible; or determined that the amount or range of any possible loss is reasonably estimable. However, the outcome of legal proceedings and claims brought against the Company is subject to significant uncertainty. Therefore, although management considers the likelihood of a material adverse outcome to be remote, if one or more of these legal matters were resolved against the Company in a reporting period, the Company’s consolidated financial statements for that reporting period could be materially adversely affected.
1
6
.
Concentrations of Credit Risk
Financial instruments which potentially expose the Company to concentrations of credit risk consist primarily of cash and trade accounts receivable.
The Company places its cash and temporary cash investments with financial institutions for which credit loss is not anticipated.
The Company sells its pdvConnect product and extends credit predominately to
two
third-party carriers. The Company maintains allowances for doubtful accounts based on factors surrounding the write-off history, aging analysis, and any specific known troubled accounts.
17. Business Concentrations
For the years ended March 31, 2019 and 2018, the Company had
one
Tier 1 domestic carrier that accounted for approximately
25%
and
39%
of operating revenue, respectively. For the year ended March 31, 2017,
two
Tier 1 carriers accounted for approximately
38%
and
10%
of operating revenue. For the 2019, 2018, and 2017 fiscal years, operating revenues were from domestic sales.
As of March 31, 2019, and 2018, the Company had one Tier
1
domestic carrier that accounted for approximately
31%
and
53%
, respectively, of its accounts receivable.
18. Selected Quarterly Financial Data (Unaudited)
Selected financial data by quarter was as follows (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
|
Full Year
|
Fiscal Year 2019 ended March 31, 2019
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
Operating revenues
|
|
$
|
1,872
|
|
$
|
1,824
|
|
$
|
1,501
|
|
$
|
1,302
|
|
$
|
6,499
|
Gross (loss) profit
|
|
$
|
(274)
|
|
$
|
26
|
|
$
|
(113)
|
|
$
|
(391)
|
|
$
|
(752)
|
Net loss
|
|
$
|
(12,302)
|
|
$
|
(11,779)
|
|
$
|
(8,351)
|
|
$
|
(9,561)
|
|
$
|
(41,993)
|
Net loss per common share basic and diluted
|
|
$
|
(0.85)
|
|
$
|
(0.81)
|
|
$
|
(0.57)
|
|
$
|
(0.65)
|
|
$
|
(2.88)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
|
Full Year
|
Fiscal Year 2018 ended March 31, 2018
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(As Restated) (Unaudited)
|
|
(As Restated) (Unaudited)
|
|
(As Restated)
|
Operating revenues
|
|
$
|
1,465
|
|
$
|
1,513
|
|
$
|
1,601
|
|
$
|
1,776
|
|
$
|
6,355
|
Gross loss
|
|
$
|
(235)
|
|
$
|
(398)
|
|
$
|
(415)
|
|
$
|
(495)
|
|
$
|
(1,543)
|
Net loss
|
|
$
|
(7,910)
|
|
$
|
(8,199)
|
|
$
|
(99)
|
|
$
|
(8,360)
|
|
$
|
(24,568)
|
Net loss per common share basic and diluted
|
|
$
|
(0.55)
|
|
$
|
(0.57)
|
|
$
|
(0.01)
|
|
$
|
(0.59)
|
|
$
|
(1.70)
|