Table of Contents

 

 



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________________

FORM 10-Q

____________________________________

(Mark one)

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

For the quarterly period ended June 30, 2020 

OR

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

For the transition period from                      to                      

Commission file number: 001-36827 

____________________________________

Anterix Inc.

(Exact name of registrant as specified in its charter)

____________________________________

 



 



 

Delaware

33-0745043

(State or other jurisdiction of

Incorporation or organization)

(I.R.S. Employer

Identification No.)



 

3 Garret Mountain Plaza

Suite 401

Woodland Park,  New Jersey

07424

(Address of principal executive offices)

(Zip Code)



(973771-0300 

(Registrant’s telephone number, including area code)



(Former name, former address and former fiscal year, if changed since last report)

____________________________________

Securities registered pursuant to Section 12(b) of the Act:





 

 



 

 

Title of each class

Trading symbol

Name of each exchange on which registered

Common Stock, $0.0001 par value

ATEX

The NASDAQ Stock Market LLC

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).      Yes      No

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

 



 

 

 



 

 

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

  

Smaller reporting company

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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

At July 31, 2020, 17,296,295 shares of the registrant’s common stock were outstanding.  

 

 

 


 

Table of Contents

 

Anterix Inc.

FORM 10-Q

For the quarterly period ended June 30, 2020



TABLE OF CONTENTS

 



 

 



 

 

PART I. FINANCIAL INFORMATION 

 

Item 1.

Consolidated Financial Statements



Consolidated Balance Sheets as of June 30, 2020 (Unaudited) and March 31, 2019 (Audited)



Unaudited Consolidated Statements of Operations for the three months ended June 30, 2020 and June 30, 2019



Unaudited Consolidated Statement of Stockholders’ Equity for the three months ended June 30, 2020



Unaudited Consolidated Statement of Stockholders’ Equity for the three months ended June 30, 2019



Unaudited Consolidated Statements of Cash Flows for the three months ended June 30, 2020 and June 30, 2019



Notes to Unaudited Consolidated Financial Statements

Item 2.

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

21 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

28 

Item 4.

Controls and Procedures

29 

PART II. OTHER INFORMATION

30 

Item 1.

Legal Proceedings

30 

Item 1A.

Risk Factors 

30 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

30 

Item 3.

Defaults Upon Senior Securities

30 

Item 4.

Mine Safety Disclosures 

30 

Item 5.

Other Information

30 

Item 6.

Exhibits

31 

SIGNATURES

32 

 



 


 

Table of Contents

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS



This Quarterly Report on Form 10-Q (the “Form 10-Q”) includes statements of our expectations, intentions, plans, and beliefs that constitute “forward-looking statements.”  These forward-looking statements are principally, but not solely, contained in the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements include, but are not limited to, statements about our strategies, plans, objectives, expectations, intentions, expenditures and assumptions and other statements contained herein that are not historical facts. Our forward-looking statements are generally, but not always, accompanied by words such as “estimate,” “project,” “predict,” “believe,” “expect,” “anticipate,” “potential,” “should,” “will,” “may,” “plan,” “goal,” “can,” “could,” “continuing,” “ongoing,” “intend” or other words that convey the uncertainty of future events or outcomes. We have based these forward-looking statements on our current expectations and projections about future events and financial, market and business trends. The matters discussed in these forward-looking statements are subject to risks, uncertainties and other factors that could cause our actual results to differ materially from those projected, anticipated or implied in the forward-looking statements. Many of these risks, uncertainties and other factors are beyond our ability to control, influence, or predict. The most significant of these risks, uncertainties and other factors are described in “Item 1A—Risk Factors” in Part II of this Form 10-Q and in our Annual Report on Form 10-K for the year ended March 31, 2020 filed with the SEC on May 28, 2020.  As a result, investors are urged not to place undue reliance on any forward-looking statements.  These forward-looking statements reflect our views and assumptions only as of the date such forward-looking statements were made. Except to the limited extent required by applicable law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

 

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Table of Contents

 

PART I. FINANCIAL INFORMATION



Item 1:  Consolidated Financial Statements



Anterix Inc.

Consolidated Balance Sheets

(dollars in thousands, except share data)

 





 

 

 

 

 

 



 

June 30, 2020

 

March 31, 2020



 

(Unaudited)

 

 

(Audited)

ASSETS

Current Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

124,766 

 

$

137,453 

Accounts receivable, net of allowance for doubtful accounts of $10 and $12, respectively

 

 

25 

 

 

61 

Prepaid expenses and other current assets

 

 

1,597 

 

 

4,638 

Total current assets

 

 

126,388 

 

 

142,152 

Property and equipment, net

 

 

5,867 

 

 

7,000 

Right of use assets, net

 

 

6,090 

 

 

6,500 

Intangible assets

 

 

115,839 

 

 

111,526 

Equity method investment

 

 

35 

 

 

39 

Other assets

 

 

166 

 

 

180 

Total assets

 

$

254,385 

 

$

267,397 

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

3,988 

 

$

5,649 

Due to related parties

 

 

106 

 

 

110 

Restructuring reserve

 

 

341 

 

 

636 

Operating lease liabilities

 

 

1,611 

 

 

1,695 

Deferred revenue

 

 

729 

 

 

733 

Total current liabilities

 

 

6,775 

 

 

8,823 

Noncurrent liabilities

 

 

 

 

 

 

Operating lease liabilities

 

 

6,668 

 

 

7,051 

Deferred revenue

 

 

2,551 

 

 

2,733 

Deferred income tax

 

 

3,095 

 

 

3,084 

Other liabilities

 

 

849 

 

 

640 

Total liabilities

 

 

19,938 

 

 

22,331 

Commitments and contingencies

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

Preferred stock, $0.0001 par value per share, 10,000,000 shares authorized and no shares outstanding at June 30, 2020 and March 31, 2020

 

 

 —

 

 

 —

Common stock, $0.0001 par value per share, 100,000,000 shares
authorized and 17,289,027 shares issued and outstanding at June 30, 2020 and 17,184,712 shares issued and outstanding at March 31, 2020

 

 

 

 

Additional paid-in capital

 

 

455,489 

 

 

450,978 

Accumulated deficit

 

 

(221,044)

 

 

(205,914)

Total stockholders' equity

 

 

234,447 

 

 

245,066 

Total liabilities and stockholders' equity

 

$

254,385 

 

$

267,397 



 

 

 

 

 

 





See accompanying notes to consolidated financial statements.

 

 

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Anterix Inc.

Consolidated Statements of Operations

(dollars in thousands, except share data)

(Unaudited)



 





 

 

 

 

 

 



 

Three months ended June 30,



 

2020

 

2019

Operating revenues

 

 

 

 

 

 

Service revenue

 

$

74 

 

$

271 

Spectrum revenue

 

 

182 

 

 

182 

Total operating revenues

 

 

256 

 

 

453 

Operating expenses

 

 

 

 

 

 

Direct cost of revenue (exclusive of depreciation and amortization)

 

 

548 

 

 

918 

General and administrative

 

 

5,738 

 

 

4,848 

Sales and support

 

 

661 

 

 

1,214 

Product development

 

 

692 

 

 

680 

Depreciation and amortization

 

 

1,208 

 

 

642 

Stock compensation expense

 

 

1,955 

 

 

1,577 

Restructuring costs

 

 

13 

 

 

110 

Impairment of long-lived assets

 

 

29 

 

 

 —

Total operating expenses

 

 

10,844 

 

 

9,989 

Loss from disposal of intangible assets

 

 

(4,678)

 

 

 —

Loss from operations

 

 

(15,266)

 

 

(9,536)

Interest income

 

 

41 

 

 

354 

Other income

 

 

110 

 

 

100 

Loss on equity method investment

 

 

(4)

 

 

 —

Loss before income taxes

 

 

(15,119)

 

 

(9,082)

Income tax expense

 

 

11 

 

 

292 

Net loss

 

$

(15,130)

 

$

(9,374)

Net loss per common share basic and diluted

 

$

(0.88)

 

$

(0.63)

Weighted-average common shares used to compute basic
  and diluted net loss per share

 

 

17,207,532 

 

 

14,763,379 



See accompanying notes to consolidated financial statements.

 

 

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Anterix Inc.

Consolidated Statement of Stockholders’ Equity

(dollars in thousands, except share data)

(Unaudited)





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Number of Shares

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Common
stock

 

 

Common
stock

 

Additional
paid-in
capital

 

Accumulated
deficit

 

Total

Balance at March 31, 2020

 

17,184,712 

 

 

$

 

$

450,978 

 

$

(205,914)

 

$

245,066 

Equity based compensation*

 

38,465 

 

 

 

 —

 

 

1,955 

 

 

 —

 

 

1,955 

Equity payment of prior year accrued employee related expenses

 

19,733 

 

 

 

 —

 

 

1,537 

 

 

 —

 

 

1,537 

Stock option exercises

 

46,117 

 

 

 

 —

 

 

1,019 

 

 

 —

 

 

1,019 

Net loss

 

 —

 

 

 

 —

 

 

 —

 

 

(15,130)

 

 

(15,130)

Balance at June 30, 2020

 

17,289,027 

 

 

$

 

$

455,489 

 

$

(221,044)

 

$

234,447 





* includes restricted shares



See accompanying notes to consolidated financial statements.

 

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Anterix Inc.

Consolidated Statement of Stockholders’ Equity

(dollars in thousands, except share data)

(Unaudited)







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Number of Shares

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Common
stock

 

 

Common
stock

 

Additional
paid-in
capital

 

Accumulated
deficit

 

Total

Balance at March 31, 2019

 

14,739,145 

 

 

 

 

$

349,227 

 

$

(168,464)

 

$

180,764 

Cumulative effect of change in accounting principle

 

 —

 

 

 

 —

 

 

(188)

 

 

188 

 

 

 —

Balance at April 1, 2019

 

14,739,145 

 

 

 

 

 

349,039 

 

 

(168,276)

 

 

180,764 

Equity based compensation*

 

24,853 

 

 

 

 —

 

 

1,577 

 

 

 —

 

 

1,577 

Stock option exercises

 

79,323 

 

 

 

 —

 

 

1,719 

 

 

 —

 

 

1,719 

Shares withheld for taxes

 

(3,208)

 

 

 

 —

 

 

(142)

 

 

 —

 

 

(142)

Net loss

 

 —

 

 

 

 —

 

 

 —

 

 

(9,374)

 

 

(9,374)

Balance at June 30, 2019

 

14,840,113 

 

 

$

 

$

352,193 

 

$

(177,650)

 

$

174,544 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 





* includes restricted shares



See accompanying notes to consolidated financial statements.

 

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Anterix Inc.

Consolidated Statements of Cash Flows

(dollars in thousands)

(Unaudited)



 



 

 

 

 

 

 



 

Three months ended June 30,

 

 

2020

 

2019

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net loss

 

$

(15,130)

 

$

(9,374)

Adjustments to reconcile net loss to net cash used
  by operating activities

 

 

 

 

 

 

Depreciation and amortization

 

 

1,208 

 

 

642 

Non-cash compensation expense attributable to stock awards

 

 

1,955 

 

 

1,577 

Deferred income taxes

 

 

11 

 

 

292 

Bad debt expense

 

 

 —

 

 

87 

Loss from disposal of intangible assets

 

 

4,678 

 

 

 —

(Gain) loss on disposal of long-lived assets

 

 

(1)

 

 

Impairment of long-lived assets

 

 

29 

 

 

 —

Loss on equity method investment

 

 

 

 

 —

Changes in operating assets and liabilities

 

 

 

 

 

 

Accounts receivable

 

 

36 

 

 

182 

Prepaid expenses and other assets

 

 

3,055 

 

 

(7)

Right of use assets

 

 

411 

 

 

347 

Accounts payable and accrued expenses

 

 

(124)

 

 

(1,372)

Due to related parties

 

 

(4)

 

 

(73)

Restructuring reserve

 

 

(295)

 

 

(803)

Operating lease liabilities

 

 

(467)

 

 

(324)

Deferred revenue

 

 

(187)

 

 

(199)

Other liabilities

 

 

209 

 

 

(6)

Net cash used by operating activities

 

 

(4,612)

 

 

(9,030)

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

Purchases of intangible assets

 

 

(8,991)

 

 

 —

Purchases of equipment

 

 

(103)

 

 

(247)

Net cash used by investing activities

 

 

(9,094)

 

 

(247)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

Proceeds from stock option exercises

 

 

1,019 

 

 

1,719 

Payments of withholding tax on net issuance of restricted stock

 

 

 —

 

 

(142)

Net cash provided by financing activities

 

 

1,019 

 

 

1,577 

Net change in cash and cash equivalents

 

 

(12,687)

 

 

(7,700)

CASH AND CASH EQUIVALENTS

 

 

 

 

 

 

Beginning of the period

 

 

137,453 

 

 

76,722 

End of the period

 

$

124,766 

 

$

69,022 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

 

 

 

 

 

 

Cash paid during the period:

 

 

 

 

 

 

Taxes paid

 

$

 —

 

$

Non-cash financing activities:

 

 

 

 

 

 

Equity payment of prior year accrued employee related expenses

 

$

1,537 

 

$

 —

 

See accompanying notes to consolidated financial statements.

 

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Anterix Inc.

Notes to Consolidated Financial Statements

(Unaudited)

 

1.     Nature of Operations



Anterix Inc. (formerly known as pdvWireless, Inc., the “Company”) is a wireless communications company focused on commercializing its spectrum assets to enable its targeted utility and critical infrastructure 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) with nationwide coverage throughout the contiguous United States, Hawaii, Alaska and Puerto Rico.  On May 13, 2020, the Federal Communications Commission (“FCC”) approved a Report and Order 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 (the “Report and Order”).  The Company is now engaged in qualifying for and securing broadband licenses from the FCC, with a focus on pursuing licenses in those counties in which it believes it has near-term commercial opportunities.  At the same time, the Company’s sales and marketing organization is pursuing opportunities to lease the broadband licenses it secures to its targeted utility and critical infrastructure customers.



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.  On August 6, 2019, the Company changed its name from pdvWireless, Inc. to Anterix Inc.  The Company maintains offices in Woodland Park, New Jersey and McLean, Virginia.



Historical Business Operations



Historically, the Company generated revenue principally from its pdvConnect and TeamConnect businesses.  pdvConnect is a mobile communication and workforce management solution.  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.  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 operations to align and focus its business priorities on its broadband spectrum initiatives.  Consistent with this restructuring plan, the Company transferred its TeamConnect business in December 2018 to A BEEP LLC (“A BEEP”) and Goosetown Enterprises, Inc (“Goosetown”), with the Company continuing to provide customer care, billing and collection services through April 1, 2019.  On December 31, 2018, the Company entered into a memorandum of understanding (“MOU”) with the principals of Goosetown.  Under the terms of the MOU, the Company assigned the intellectual property rights to its TeamConnect and pdvConnect related applications to TeamConnect LLC (the “LLC”).  The LLC assumed customer care services related to the pdvConnect service, with the Company providing transition services to the LLC through April 1, 2019.  On April 1, 2020, the Company transferred its pdvConnect customers to the LLC and the LLC agreed to pay the Company a certain portion of the recurring revenues from these customers.



Follow-on Offering



In July 2019, the Company completed a registered follow-on offering in which it sold 2,222,223 shares of its common stock at a purchase price to the public of $45.00 per share.  Net proceeds were approximately $94.2 million after deducting $5.5 million in underwriting discounts and commissions, and $0.3 million in offering expenses.



Executive Succession Plan



On June 25, 2020, the Company issued a press release announcing an effective date of July 1, 2020 for its executive leadership succession plan (the “Succession Plan”), which followed the achievement of the FCC Report and Order.

 

2.     Summary of Significant Accounting Policies



Basis of Presentation and Use of Estimates



The unaudited consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information.  Pursuant to the rules and

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regulations of the U.S. Securities and Exchange Commission (the “SEC”), certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted.



Because certain information and footnote disclosures have been condensed or omitted, these unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2020, as filed on May 28, 2020 with the SEC.  In the Company’s opinion all normal and recurring adjustments considered necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented have been included.  The Company believes that the disclosures made in the unaudited consolidated interim financial statements are adequate to make the information not misleading.  The results of operations for the interim periods presented are not necessarily indicative of the results for the year.  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.  New estimates in the period relate to determining the Company’s estimated incremental borrowing rate in recognizing right of use assets and operating lease liabilities.  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 three months ended June 30, 2020.  These reclassifications had no effect on previously reported net loss or net loss per common share basic and diluted.



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.  On May 13, 2020, the FCC approved the Report and Order 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.  The Company is now engaged in qualifying for and securing broadband licenses from the FCC, with a focus on pursuing licenses in those counties in which it believes it has near-term commercial opportunities. 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 annually on an aggregate basis, as the Company will be utilizing the wireless licenses on an integrated basis as part of developing broadband.  In the year ended March 31, 2020, (“Fiscal 2020”), the Company performed a step zero 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 quantitative impairment testing.  There are no triggering events indicating impairment in the three months ended June 30, 2020.



See Note 4 “Intangible Assets” for a discussion of the Company’s loss from the disposal of intangible assets incurred during the quarter ended June 30, 2020.



Long-Lived Asset and Right of Use Asset Impairment



The Company evaluates long-lived assets, including right of use 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 the asset groups are 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. During the three months ended June 30, 2020, the Company recorded a $29,000 non-cash impairment charge for long-lived assets consisting of $29,000 for network site costs to reduce the carrying values to zero.  There was no impairment charge for the three months ending June 30, 2019.

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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, stock options, restricted stock and warrants are considered to be potentially dilutive securities.  Because the Company has reported a net loss for the three months ended June 30, 2020 and 2019, respectively, 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 1,586,000 and 1,395,000 at June 30, 2020 and 2019, 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 June 2016, the FASB issued ASC 326, Financial Instruments - Credit Losses and has subsequently modified several areas of the standard in order to provide additional clarity and improvements.  The new standard requires entities to use a Current Expected Credit Loss impairment model based on expected losses rather than incurred losses.  Under this model, an entity would recognize an impairment allowance equal to its current estimate of all contractual cash flows that the entity does not expect to collect from financial assets measured at amortized cost within the scope of the standard.  The entity's estimate would consider relevant information about past events, current conditions and reasonable and supportable forecasts, which will result in recognition of lifetime expected credit losses.  As a smaller reporting company, the standard will be effective for the Company's fiscal year beginning April 2023, including interim reporting periods within that fiscal year, although early adoption is permitted.  The Company is evaluating the potential impact that ASC 326 and subsequent modifications may have on its consolidated financial statements.



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.

 



3.     Revenue



In December 2018, the Company’s board of directors (the “Board”) approved the transfer of its TeamConnect business and support for its pdvConnect business to help reduce operating costs and to allow the Company 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 on January 2, 2019, (ii) a Customer Acquisition, Resale and Licensing Agreement with Goosetown on January 2, 2019 and (iii) an MOU with the principals of Goosetown on December 31, 2018.    Under the A BEEP and Goosetown Agreements, the Company agreed to: (i) transfer its TeamConnect customers located in the Atlanta, Chicago, Dallas, Houston and Phoenix metropolitan markets to A BEEP, (ii) transfer its TeamConnect customers located in the Baltimore/Washington DC, Philadelphia and New York metropolitan markets to Goosetown, (iii) provide A BEEP and Goosetown with access to MotoTRBO Systems and (iv) grant A BEEP and Goosetown the right to resell access to the MotoTRBO Systems pursuant to separate Mobile Virtual Network Operation arrangements for a two-year period.    The Company also granted Goosetown a license to sell the business applications the Company developed for its TeamConnect service.  On March 31, 2019, the agreements were amended to formally set the transition date for the businesses as April 1, 2019 and to clarify the responsibilities between the parties.



Under these agreements, A BEEP and Goosetown agreed to provide customer care, billing and collection services for their respective acquired customers.    The Company continued to provide these services through April 1, 2019 to help facilitate the transitioning of the acquired customers.  Additionally, the Company is required to maintain and pay all site lease, backhaul and utility costs required to operate the MotoTRBO Systems for a two-year period.    As part of the Company’s efforts to clear the 900 MHz spectrum for broadband use, A BEEP and Goosetown are required to migrate the acquired customers off the MotoTRBO Systems over the two-year period.  In consideration for the customers and rights the Company transferred, A BEEP and Goosetown are required to pay a certain portion of the recurring revenues they receive from the acquired customers ranging from 100% to 20% during the terms of the agreements.  Additionally, A BEEP is required to pay the Company a portion of recurring revenue from customers who utilize A BEEP’s push-to-talk Diga-talk Plus application service ranging from 35% to 15% for a period of two years.    For a period of two years, Goosetown is required to pay the Company 20% of recurring revenues from the TeamConnect applications it licensed.    



Under the terms of the MOU that the Company entered into with the principals of Goosetown on December 31, 2018, the Company assigned the intellectual property rights to its TeamConnect and pdvConnect related applications to the LLC.  The LLC also assumed customer care services related to the pdvConnect service, with the Company providing transition services to

11

 


 

the LLC through April 1, 2019. On April 1, 2020, the Company transferred its pdvConnect customers to the LLC, and the LLC agreed to pay the Company a certain portion of the recurring revenues from these customers.



In accordance with ASC 606, when the customer purchased or received a discounted handset in connection with entering into a contract for service, the Company allocated revenue between the handset and the service based on the relative standalone selling price.    Revenue was recognized when the performance obligation which includes providing the services or transferring control of promised handsets, which are distinct to a customer, had been satisfied.  Revenue was recognized in an amount that reflects the consideration the Company expects to be entitled to for those performance obligations.



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 a 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 was historically 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.  On April 1, 2020, these customers were transferred to the LLC.  The LLC agreed to pay the Company a certain portion of the recurring revenues through the term of the agreement.



TeamConnect combines pdvConnect with push-to-talk (“PTT”) mobile communication services involving digital network architecture and mobile devices.  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.  On April 1, 2019, these customers were transitioned to A BEEP and Goosetown.  A BEEP and Goosetown agreed to pay the Company a certain portion of the recurring revenues during the term of the agreements.  While the customer remains on the Company’s MotoTRBO Systems, the portion of recurring revenues paid by A BEEP and Goosetown is recorded as revenue.



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 three months ended June 30, 2020 and 2019 was approximately $182,000 each period.



Contract Assets.  Contract assets include the portion of the Company’s future service invoices which have been allocated to the discounted price of the radios and amortized as a reduction against service revenue over the contract period.



The Company also recognizes a contract asset for the incremental costs of obtaining a contract with a customer.  These costs include commissions for salespeople 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 a result of transferring customers to A BEEP and Goosetown, all contract and contract acquisition costs were impaired.  The Company increased direct cost of revenue amounting to $178,000 and sales and support expense amounting to $258,000 for the three months ended June 30, 2019.  



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, 2020 of $3.5 million has been reduced by revenue recognized in the three months ended June 30, 2020 of $0.2 million leaving a remaining liability of $3.3 million as of June 30, 2020.  

 

4.     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 no impairment charges related to the Company’s indefinite-lived intangible assets during the three months ended June 30, 2020 and 2019.



12

 


 

During the three months ended June 30, 2020, the Company entered into agreements with several third parties in multiple U.S. markets to acquire wireless licenses for cash consideration of $9.0 million, after receiving FCC approval.



The nation’s railroads, particularly the major freight lines, operate on six narrowband 900 MHz channels licensed to their trade association, the Association of American Railroads (“AAR”).  Three of these narrowband channels are located in the 900 MHz broadband segment created by the FCC in the Report and Order.  As a result, in order to qualify for broadband licenses under the Report and Order, the Company will be required to provide spectrum for the relocation of the AAR channels to narrowband channels outside the 900 MHz broadband segment.



In January 2020, the Company entered into an agreement with the AAR in which it agreed to cancel licenses in the 900 MHz band to enable the AAR to relocate its operations, including operations utilizing the three channels located in the 900 MHz broadband segment (the “AAR Agreement”).  The FCC referenced the AAR agreement in the Report and Order, and required the Company to cancel its licenses and return them to the FCC in accordance with the AAR Agreement.  The Report and Order provides that the FCC will make the channels associated with these licenses available to the AAR to enable the AAR to relocate their current operations.  The Report and Order also provides that the FCC will credit the Company for its cancelled licenses for purposes of determining the Company’s eligibility to secure broadband licenses and the calculation of any anti-windfall payments.



In accordance with the Report and Order, the Company cancelled its licenses in the three months ended June 30, 2020.  Because the Company did not receive any licenses nor monetary reimbursement in exchange for the cancellation, but only credit for purposes of determining its future eligibility and  payment obligations for broadband licenses under the Report and Order, the Company recorded a $4.7 million loss from disposal of the intangible assets in the Consolidated Statements of Operations for the three months ended June 30, 2020.



Intangible assets consist of the following at June 30, 2020 and March 31, 2020 (in thousands):





 

 

 



 

Wireless Licenses

Balance at March 31, 2020

 

$

111,526 

Acquisitions

 

 

8,991 

Cancellations

 

 

(4,678)

Balance at June 30, 2020

 

$

115,839 

 



5.     Equity Method Investment



In connection with the transfer of its TeamConnect business and support for its pdvConnect business, the Company entered into a memorandum of understanding (“MOU”) with the principals of Goosetown on December 31, 2018.  Under the MOU, the Company agreed to assign the intellectual property rights to its pdvConnect application to the LLC, a new entity formed by the principals of Goosetown, in exchange for a 19.5% ownership interest in the LLC, effective April 30, 2019.    The Goosetown principals have agreed to fund the future operations of the LLC, subject to certain limitations.    The LLC has assumed the Company’s software support and maintenance obligations under the Goosetown and A BEEP Agreements.    The LLC has also assumed customer care services related to the Company’s pdvConnect application.    The Company provided transition services to the LLC through April 1, 2019 to facilitate an orderly transition of the customer care services.  On April 1, 2020, the Company transferred its pdvConnect customers to the LLC, and the LLC agreed to pay the Company a certain portion of the recurring revenues from these customers.

During the three months ended June 30, 2020, the change in the carrying value of the investment in the LLC is summarized as follows (in thousands):





 

 

 



 

Equity Method Investment

Equity method investment carrying value at March 31, 2020

 

$

39 

Share of net loss from LLC

 

 

(4)

Equity method investment carrying value at June 30, 2020

 

$

35 

 

6.     Related Party Transactions



Under the terms of the MOU, the Company is obligated to pay the LLC a monthly service fee for a 24-month period ending on January 7, 2021 for its assumption of the Company’s support obligations under the A BEEP and Goosetown 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.  For the three months ended June 30, 2020 and 2019, the Company incurred $176,000 and

13

 


 

$264,000 under the MOU, respectively.  As of June 30, 2020 and March 31, 2020, the Company owed $1,000 and $12,000 to the LLC, respectively.



The Company did not purchase any equipment from Motorola for the three months ended June 30, 2020.  The Company purchased $9,000 of equipment from Motorola for the three months ended June 30, 2019.  The Motorola revenue recognized for the three months ended June 30, 2020 and, 2019 were approximately $182,000 each quarterAs of June 30, 2020 and March 31, 2020, the Company owed $105,000 and $98,000 to Motorola, respectively.



On May 5, 2020, the Company entered into a consulting agreement with Rachelle B. Chong under which Ms. Chong will serve as a Senior Advisor to the Company’s management team effective May 15, 2020In connection with the consulting agreement, Ms. Chong submitted her resignation from the Company’s Board of Directors and as a member of the Board’s Nominating and Corporate Governance Committee.  During the three months ended June 30, 2020, the Company incurred $24,000 in consulting fees to Ms. Chong.  As of June 30, 2020, the Company did not owe Ms. Chong fees for consulting services

 

7.     Impairment and Restructuring Charges



Long-lived Assets and Right of Use Assets Impairment.



During the three months ended June 30, 2020, the Company recorded a $29,000 non-cash impairment charge for long-lived assets consisting of $29,000 for network site costs to reduce the carrying values to zero.  There was no impairment charge for the three months ending June 30, 2019.



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 its 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 Company’s Board 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.



On June 1, 2018, the Company’s Board 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 three months ended June 30, 2020,  total accrued restructuring charges for the April 2018 and June 2018 restructuring activities were as follows (in thousands):





 

 

 



 

Restructuring Activities

Balance at March 31, 2020

 

$

565 

Cash payments

 

 

(309)

Balance at June 30, 2020 (classified as current liabilities - restructuring reserve)

 

$

256 



 

 

 

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 three months ended June 30, 2020 and 2019, the Company recorded an additional restructuring charge relating to the December 2018 Cost-Reduction Actions amounting to $14,000 and $144,000, respectively, related to employee severance and benefit costs.  For the three months ended June 30, 2019, the Company reduced the facility exit costs accrual for its San Diego, California office by approximately $28,000.  The Company completed the cost reduction and restructuring actions in July 31, 2019 and the related cash payments for severance costs was completed by the end of August 31, 2019.  



14

 


 

For the three months ended June 30, 2020, total December 2018 cost reduction charges were as follows (in thousands):





 

 

 



 

Restructuring Activities

Balance at March 31, 2020

 

$

71 

Severance costs

 

 

14 

Cash payments

 

 

 —

Balance at June 30, 2020 (classified as current liabilities - restructuring reserve)

 

$

85 



 

 

 



8.     Leases



A lease is defined as a contract that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration.  On April 1, 2019, the Company adopted ASC 842 and it primarily affected the accounting treatment for operating lease agreements in which the Company is the lessee.





Substantially all of the leases in which the Company is the lessee are comprised of corporate office space and tower space.  The Company is obligated under certain lease agreements for office space with lease terms expiring on various dates from October 14, 2024 through June 30, 2027, which includes a ten-year lease extension for its corporate headquarters.  The Company entered into multiple lease agreements for tower space related to its TeamConnect business.  The lease expiration dates range from July 31, 2020 to June 30, 2026. 



Substantially all of the Company’s leases are classified as operating leases, and as such, were previously not recognized on the Company’s Consolidated Balance Sheet. With the adoption of Topic 842, operating lease agreements are required to be recognized on the Consolidated Balance Sheet as Right of Use (“ROU”) assets and corresponding lease liabilities.



ROU assets include any prepaid lease payments and exclude any lease incentives and initial direct costs incurred.  Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.  The lease terms may include options to extend or terminate the lease if it is reasonably certain that the Company will exercise that option.



Weighted-average remaining lease term and discount rate for the Company’s operating leases are as follows:







 

 

 

 

 

 



 

Three months ended June 30,



 

2020

 

2019

Weighted average term - operating lease liabilities

 

 

4.83 years

 

 

5.53 years

Weighted average incremental borrowing rate – operating lease liabilities

 

 

13% 

 

 

13% 



 

 

 

 

 

 

Rent expense amounted to approximately $0.7 million for the three months ended June 30, 2020, of which approximately $0.4 million was classified as cost of revenue and the remainder of approximately $0.3 million was classified in operating expenses in the Consolidated Statements of Operations.  Rent expense amounted to approximately $0.6 million for the three months June 30, 2019, of which approximately $0.4 million, was classified as cost of revenue and the remainder of approximately $0.2 million was classified in operating expenses in the Consolidated Statements of Operations. 

In June 2020, the Company terminated an operating tower space lease early resulting in a non-cash reductions in ROU assets by $19,000, operating lease liabilities by $20,000 and gain in disposal of long-lived asset by $1,000.



The following table presents net lease cost for the three months ended June 30, 2020 and 2019 (in thousands):





 

 

 

 

 

 



 

Three months ended June 30,



 

2020

 

2019

Lease cost

 

 

 

 

 

 

Operating lease cost (cost resulting from lease payments)

 

$

659 

 

$

624 

Short term lease cost

 

 

 

 

22 

Sublease income

 

 

(3)

 

 

(4)

Net lease cost

 

$

659 

 

$

642 



15

 


 

The following table presents supplemental cash flow and non-cash activity information for the three months ended June 30, 2020 and 2019 (in thousands):





 

 

 

 

 

 



 

Three months ended June 30,



 

2020

 

2019

Operating cash flow information:

 

 

 

 

 

 

Operating lease - operating cash flows (fixed payments)

 

$

723 

 

$

637 

Operating lease - operating cash flows (liability reduction)

 

$

467 

 

$

324 

Non-cash activity:

 

 

 

 

 

 

Right of use assets obtained in exchange for new operating lease liabilities

 

$

 —

 

$

7,904 



 

 

 

 

 

 



The following table presents supplemental balance sheet information as of June 30, 2020 and March 31, 2020 (in thousands):







 

 

 

 

 

 



 

June 30, 2020

 

March 31, 2020

Non-current assets - right of use assets, net

 

$

6,090 

 

$

6,500 

Current liabilities - operating lease liabilities

 

$

1,611 

 

$

1,695 

Non-current liabilities - operating lease liabilities

 

$

6,668 

 

$

7,051 



 

 

 

 

 

 

Future minimum payments under non-cancelable leases for office and tower spaces (exclusive of real estate tax, utilities, maintenance and other costs borne by the Company), for the remaining terms of the leases following the three months ended June 30, 2020 are as follows (in thousands):





 

 

 



 

 

Operating

Fiscal Year

 

 

Leases

2021 (excluding the three months ended June 30, 2020)

 

$

1,977 

2022

 

 

2,292 

2023

 

 

2,126 

2024

 

 

1,920 

2025

 

 

1,532 

After 2025

 

 

1,373 

Total future minimum lease payments

 

 

11,220 

Amount representing interest

 

 

(2,941)

Present value of net future minimum lease payments

 

$

8,279 

 

9.     Income Taxes 



On March 27, 2020, the Coronavirus Aid Relief and Economic Security (“CARES”) Act was signed into law.  The Act contains several new or changed income tax provisions, including but not limited to the following: increased limitation threshold for determining deductible interest expense, class life changes to qualified improvements (in general, from 39 years to 15 years) and the ability to carry back net operating losses (“NOLs”) incurred from tax years 2018 through 2020 up to the five preceding tax years.  Most of these provisions are either not applicable or have no material effect on the Company.  However, the CARES Act changed the language of when NOLs converted from a 20-year life to an indefinite life.  From the Tax Cuts and Jobs Act of 2017 (“TCJA”) rule, NOLs in tax periods ending after December 31, 2017 had an indefinite life.  Under the new CARES Act, NOLs generated in periods beginning after December 31, 2017 are carried forward indefinitely.  This dating change effectively disqualified the Company's March 31, 2018 NOL as an indefinite lived asset and source of taxable income to offset the Company's deferred tax liability stemming from indefinite-lived intangibles.  The Company's NOLs generated after March 31, 2018, may continue to be used as an indefinite-lived asset to offset the deferred tax liability, but limited to 80% of future taxable income (or the balance of the deferred tax liability as of March 31, 2020).  The total impact of this date change from the CARES Act increased the Company's net federal deferred tax liability from approximately $0.2 million to $1.6 million as of March 31, 2020.  The state deferred tax liability of approximately $1.4 million as of March 31, 2020 is unchanged.



For the year ended March 31, 2019, the Company had federal and state NOL carryforwards of approximately $164.0 million and $74.0 million, respectively, expiring in various amounts from 2020 through 2038, to offset future taxable income.  Federal and state NOLs generated during the March 31, 2019 period of approximately $38.5 million and $6.0 million, respectively, can be carried forward indefinitely but limited to 80% of future taxable income when used.  For the year ended March 31, 2020, the Company incurred federal and state operating losses of approximately $48.1 million and $38.8 million, respectively, to offset future taxable income, of which the entire $48.1 million federal NOL and $9.2 million of state NOLs can be carried forward indefinitely, but can only offset 80% of taxable income when used.  

16

 


 



For the three months ended June 30, 2020, the Company incurred federal and state net operating losses of approximately $14.9 million and $12.0 million, respectively, to offset future taxable income, of which $19.0 million can be carried forward indefinitely, but can only offset 80% of taxable income when used. 



The Company used a discrete effective tax rate method to calculate taxes for the three months ended June 30, 2020. The Company determined that applying an estimate of the annual effective tax rate would not provide a reasonable estimate as small changes in estimated “ordinary” loss would result in significant changes in the estimated annual effective tax rate.  Accordingly, for the three months ending June 30, 2020, the Company recorded a total deferred tax expense of $11,000 due to the inability to use some portion of federal and state NOL carryforwards against the deferred tax liability created by amortization of indefinite-lived intangibles.

 

10.    Stock Acquisition Rights, Stock Options and Warrants



The Company established the 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, 19,358 stock option shares were outstanding and vested as of June 30, 2020.



The Company’s Board has reserved 4,147,985 shares of common stock for issuance under its 2014 Stock Plan as of June 30, 2020, of which 890,473 shares are available for future issuance.  The number of shares may increase, based on Board approval, 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.  Effective January 1, 2020, the Board elected to increase the shares authorized under the 2014 Stock Plan by 342,762 shares, which represented 2% of the of the Company’s common stock issued and outstanding as of December 31, 2019.



Restricted Stock and Restricted Stock Units



A summary of non-vested restricted stock activity for the three months ended June 30, 2020 is as follows:





 

 

 

 

 



 

 

 

 

 



 

 

 

Weighted



 

 

 

Average



 

Restricted

 

Grant Day



 

Stock

 

Fair Value

Non-vested restricted stock outstanding at March 31, 2020

 

352,194 

 

$

37.41 

Granted

 

205,981 

 

 

49.86 

Forfeited

 

 —

 

 

 —

Vested

 

(53,957)

 

 

42.13 

Non-vested restricted stock outstanding at June 30, 2020

 

504,218 

 

$

41.99 



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 was approximately $1.7 million and $1.0 million for the three months ended June 30, 2020 and 2019, respectively.



At June 30, 2020, there was $17.1 million of unvested compensation expense for restricted stock, which is expected to be recognized over a weighted average period of 2.8 years.



Performance Stock Units



17

 


 

A summary of the performance stock unit activity for the three months ended June 30, 2020 is as follows:





 

 

 

 

 



 

 

 

 

 



 

 

 

Weighted



 

 

 

Average



 

Performance

 

Grant Day



 

Stock

 

Fair Value

Performance stock outstanding at March 31, 2020

 

138,984 

 

$

46.85 

Granted

 

30,049 

 

 

49.92 

Forfeited

 

 —

 

 

 —

Vested

 

 —

 

 

 —

Performance stock outstanding at June 30, 2020

 

169,033 

 

$

47.10 



On February 28, 2020, the Company awarded 95,538 performance-based restricted stock units. The performance goals are: 



(A) Target Goal:  50% of the shares vest upon (i) achievement by December 31, 2020 of 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 (ii) the lack of objection by the Company’s Board 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; and



(B) Stretch Goal: The remaining 50% of the performance shares vest and settle upon the occurrence of all three of the following conditions: (i) the Company enters into one or more long-term agreement(s) with critical infrastructure or enterprise business(es) to enable such business(es) to utilize the Company’s spectrum for broadband connectivity; (ii) the combined total contract dollars payable to the Company over the initial term(s) of such agreement(s) equals or exceeds a certain amount as specified by the Board; and (iii) the agreement(s) is/are binding on such business(es) and is/are either not contingent on prior Board approval(s) or such approval(s) has/have been received.  If all of these conditions have not been achieved by December 30, 2020, the performance shares will expire unvested.



Additionally, on February 28, 2020, the Company awarded 43,446 performance-based restricted stock units.  The performance goal related to these units is: 100% of the shares will vest upon (i) achievement by December 31, 2020 of 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 (ii) the lack of objection by the Company’s Board 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.



On June 24, 2020, the Company awarded up to 60,098 performance-based restricted units to the newly appointed President and Chief Executive Officer as part of the Succession Plan, (the “CEO Performance Units”).  The performance-based restricted units will vest based on the Company’s achievement of revenue metric over a four-year measurement period from the grant date, with 30,049 units vesting if the target revenue metric is achieved and up to 60,098 vesting if the maximum revenue metric is achieved. 



For the three months ended June 30, 2020, the Company recorded stock compensation expense amounting to approximately $7,000 for the CEO Performance Units.  For the three months ended June 30, 2019, there was no stock compensation expense recognized for the performance-based restricted stock units.  As of June 30, 2020, there was approximately $8.0 million of unvested compensation expense related to the outstanding performance-based restricted stock units.



Stock Options



A summary of stock option activity for the three months ended June 30, 2020 is as follows:





 

 

 

 

 



 

 

 

 

 



 

Options

 

Weighted Average
Exercise Price

Options outstanding at March 31, 2020

 

1,807,466 

 

$

23.93 

Options granted

 

60,558 

 

 

49.92 

Options exercised

 

(58,704)

 

 

(29.39)

Options forfeited/expired

 

 —

 

 

 —

Options outstanding at June 30, 2020

 

1,809,320 

 

$

24.63 



18

 


 

On June 24, 2020, the Company awarded a stock option to purchase 60,558 shares of common stock to its newly appointed President and Chief Executive Officer as part of the Succession Plan.  The award has a contractual life of 10 years. 25% of the option shares will vest on July 1, 2021with the remaining shares vesting in three equal annual installments, based on the President and Chief Executive Officer’s continuous service to the Company through the applicable vesting dates.



The Black-Scholes option model requires weighted average assumptions to be used for the calculation of the Company’s stock compensation expense.  The assumptions used during the three months ended June 30, 2020 were:  the expected life of the award was 6.07 years; the risk free interest rate was 0.43%; the expected volatility rate was 53.41%; the expected dividend yield was 0.0%; and the expected forfeiture rate was 0%.



Stock compensation expense related to the amortization of the fair value of stock options issued was approximately $0.2 million  for the three months ended June 30, 2020. For the three months ended June 30, 2019, stock compensation expense was approximately $0.6 million.    



As of June 30, 2020, there was approximately $2.0 million of unrecognized compensation expense related to non-vested stock options granted under the Company’s stock option plans which is expected to be recognized over a weighted-average period of 1.9 years.



Performance Stock Options



A summary of the performance stock options as of June 30, 2020 is as follows:





 

 

 

 

 



 

 

 

 

 



 

Performance Options

 

Weighted Average
Exercise Price

Performance Options outstanding at March 31, 2020

 

82,197 

 

$

46.85 

Performance Options granted

 

 —

 

 

 —

Performance Options exercised

 

 —

 

 

 —

Performance Options forfeited/expired

 

 —

 

 

 —

Performance Options outstanding at June 30, 2020

 

82,197 

 

$

46.85 



 

 

 

 

 

On February 28, 2020, the Company awarded 67,562 performance-based stock options.  The performance goals are:



(A) Target Goal:  50% of the shares vest upon (i) achievement by December 31, 2020 of 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 (ii) the lack of objection by the Company’s Board 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 and



(B) Stretch Goal:  The remaining 50% of the performance shares vest and settle upon the occurrence of all three of the following conditions:  (i) the Company enters into one or more long-term agreement(s) with critical infrastructure or enterprise business(es) to enable such business(es) to utilize the Company’s spectrum for broadband connectivity; (ii) the combined total contract dollars payable to the Company over the initial term(s) of such agreement(s) equals or exceeds a certain amount as specified by the Board; and (iii) the agreement(s) is/are binding on such business(es) and is/are either not contingent on prior Board of Director approval(s) or such approval(s) has/have been received.  If all of these conditions have not been achieved by December 30, 2020, the performance shares will expire unvested.



Additionally, the Company awarded 14,635 performance-based stock options on February 28, 2020.  The performance goal is:  100% of the shares will vest upon (i) achievement by December 31, 2020 of 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 (ii) the lack of objection by the Company’s Board 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.



For the three months ended June 30, 2020, there was no stock compensation expense recognized for the 82,197 performance-based stock options.  As of June 30, 2020, there was approximately $1.4 million of unvested compensation expense relating to the outstanding performance-based stock options.

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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 of these Class B Units into shares of its common stock at its election. 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 the 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 consolidated financial statements.

 

11.     Contingencies



Litigation



From time to time, the Company may be involved in litigation that arises from the ordinary operations of the business, such as contractual or employment disputes or other general actions. The Company is not involved in any material legal proceedings at this time.



COVID-19 Pandemic



In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a pandemic and COVID-19 continues to cause significant disruptions throughout the United States.  The ultimate extent of the impact of COVID-19 on the financial performance of the Company and its ability to secure broadband licenses pursuant to the terms of the 900 MHz Report and Order and to commercialize any broadband licenses it secures, will depend on future developments, including the duration and spread of COVID-19, the laws, orders and restrictions imposed by federal, state and local governmental agencies, and the overall economy, all of which are highly uncertain and cannot be predicted.  If the financial markets and/or the overall economy are impacted for an extended period, the Company's operating results may be materially and adversely affected.  The Company is actively managing the business to maintain its cash flow and believes that it has adequate liquidity through at least the next twelve months.

 

12.     Concentrations of Credit Risk



Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents and trade accounts receivable.



The Company places its cash and temporary cash investments with financial institutions for which credit loss is not anticipated.



As of June 30, 2020, the Company sells its pdvConnect product and extends credit predominately to one third-party carrier. The Company maintains allowances for doubtful accounts based on factors surrounding the write-off history, historical trends, and other information.

 

13.     Business Concentrations



For the three months ended June 30, 2020, the Company had one reseller that accounted for approximately 14% of total operating revenues.  For the three months ended June 30, 2019, the Company had two Tier 1 domestic carrier that accounted for approximately 89% of operating revenues. 



As of June 30, 2020, the Company had one domestic carrier that accounted for approximately 73% of total accounts receivable.  As of March 31, 2020, the Company had one domestic carrier and one reseller that accounted for approximately 71% of total accounts receivable.



20

 


 

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



This discussion and analysis of the financial condition and results of operations of Anterix Inc. (“Anterix,” the “Company”, “we”, “us”, or “our”) should be read in conjunction with our financial statements and notes thereto included in this Quarterly Report on Form 10-Q (the “Form 10-Q”) and the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended March 31, 2020, filed with the SEC on May 28, 2020 (the “Annual Report”).  In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors including, but not limited to, those identified or referenced in “Item 1A—Risk Factors” in Part II of this Form 10-Q.  As a result, investors are urged not to place undue reliance on any forward-looking statements.  Except to the limited extent required by applicable law, we do not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Form 10-Q.



Overview



We are a wireless communications company focused on commercializing our spectrum assets to enable our targeted utility and critical infrastructure customers to deploy private broadband networks, technologies and solutions.  We are the largest holder of licensed spectrum in the 900 MHz band (896-901/935-940 MHz) with nationwide coverage throughout the contiguous United States, Hawaii, Alaska and Puerto Rico.  On May 13, 2020, the Federal Communications Commission (“FCC”) approved a Report and Order 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 (the “Report and Order”).  We are now engaged in qualifying for and securing broadband licenses from the FCC, with a focus on pursuing licenses in those counties in which we believe we have near-term commercial opportunities.  At the same time, our sales and marketing organization is pursuing opportunities to lease the broadband licenses we secure to our targeted utility and critical infrastructure customers.



Securing Broadband Licenses



In the Report and Order, the FCC reconfigured the 900 MHz band to create a 6 MHz broadband segment (240 channels) and two narrowband segments, consisting of a 3 MHz narrowband segment (120 channels) and a 1 MHz narrowband segment (39 channels). 



The Role of the County.  Under the Report and Order, the FCC established the “county” as the base unit of measure in determining whether a broadband applicant is eligible to secure a broadband license.  There are 3,223 counties in the United States, including Puerto Rico.



Broadband License Eligibility Requirements.  The Report and Order establishes three eligibility requirements to obtain broadband licenses in a county, which we refer to herein as (i) the “50% Licensed Spectrum Test,” (ii) the “90% Broadband Segment Test” and (iii) the “240 Channel Requirement.”   



1.50% Licensed Spectrum Test.    To be eligible for a broadband license in a particular county, we must demonstrate that we hold more than 50% of the outstanding licensed channels in the county.  Because the 50% Licensed Spectrum Test is based on licensed channels, any channels that are not licensed by the FCC are not included in the denominator when determining whether we have satisfied this test.  The denominator is determined by the number of channels licensed by all licensees with sites in the county and within 20 miles of the county boundary.  In some situations, a single channel is licensed by more than one entity, and therefore could be counted more than once.  The FCC has licensed less than 399 channels in all but the most populous counties.  As of the date of this filing, we satisfy the 50% Licensed Spectrum Test in more than 3,100 counties of the 3,223 counties in the United States and its territories.



2.90% Broadband Segment Test.    The second test, the 90% Broadband Segment Test, addresses the balance between a voluntary market process to clear any Covered Incumbent (i.e., holders of licenses in the broadband segment) and the mandatory relocation process established by the FCC in the Report and Order (which applies to all Covered Incumbents, except for those Covered Incumbents operating “Complex Systems” as described below).  This test requires we hold or have agreements with Covered Incumbents for 90% of the licensed channels in the broadband segment in a particular county and within 70 miles of the county’s boundaries.  The broadband segment in the 900 MHz band has a total of 241 channels.  The 90% Broadband Segment Test is calculated using outstanding licensed channels, which means that if the FCC has licensed 241 channels, we will be required to have control of or agreements covering 217 channels within the broadband segment.  In many counties in the United States, the FCC has licensed fewer than 241 channels in the broadband segment and these unlicensed channels are not included in the denominator when determining whether we have satisfied this 90% Broadband Segment Test.



Before filing for a broadband license, we must satisfy the 90% Broadband Segment Test by utilizing our channel holdings and negotiating with Covered Incumbents on a purely voluntary basis for any additional channels we require to satisfy this test.  Only after

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we satisfy the 90% Broadband Segment Test will the FCC issue a broadband license to us and commence the “Mandatory Retuning” period.  During this period, any Covered Incumbents that remain in the broadband segment (other than Complex Systems) are required to negotiate with us in good faith to clear the broadband segment, subject to intervention by the FCC if the parties cannot reach an agreement.



3.240 Channel Requirement.    The Report and Order requires the broadband applicant to surrender 6 MHz of spectrum (or 240 channels)  in a county to receive the broadband license.  If we do not have sufficient channels in the county to return 240 channels to the FCC, we will make an “Anti-Windfall Payment” to the U.S. Treasury to secure the broadband license.  The Anti-Windfall Payment for these channels will be based on prices paid in the applicable county in the 600 MHz auction conducted by the FCC.



Treatment of Complex Systems.  The Report and Order exempts “Complex Systems” from the mandatory retuning process—even if we meet the 90% Broadband Segment Test.  The FCC defines a Complex System as a radio system that has at least 45 integrated sites.  The FCC exempted Complex Systems from the mandatory retuning requirements because retuning these systems would potentially be more disruptive to the operators than retuning the smaller systems operated by other incumbents.  Of the small number of systems that qualify for this 45-site exemption, based on our calculation, all but one system belongs to utilities that we have identified as our target customers.



The Association of American Railroads.    The nation’s railroads, particularly the major freight lines, operate on six narrowband 900 MHz channels licensed to their trade association, the Association of American Railroads (“AAR”).  Three of these narrowband channels are located in the 900 MHz broadband segment created by the FCC in the Report and Order.  As a result, in order to qualify for broadband licenses under the Report and Order, we are required to provide spectrum for the relocation of the AAR channels to narrowband channels outside the 900 MHz broadband segment.



In January 2020, we entered into an agreement with the AAR in which it agreed to cancel licenses in the 900 MHz band to enable the AAR to relocate its operations, including operations utilizing the three channels located in the 900 MHz broadband segment (the “AAR Agreement”).  The FCC referenced the AAR agreement in the Report and Order and required us to cancel our licenses and return them to the FCC in accordance with the AAR Agreement.  The Report and Order provides that the FCC will make the channels associated with these licenses available to the AAR to enable the AAR to relocate their current operations.  The Report and Order also provides that the FCC will credit us for our cancelled licenses for purposes of determining our eligibility and the calculation of our requirement to pay any anti-windfall payments to secure broadband licenses.



In accordance with the Report and Order, we cancelled our licenses and recorded a loss on the disposal of intangible assets, in the three months ended June 30, 2020.



Costs of Securing Broadband Licenses



As a broadband applicant, we can satisfy the three eligibility tests discussed above by including our existing licensed channels and by acquiring or retuning additional channels when necessary through (i) spectrum purchases, (ii) spectrum relocations and/or (iii) Anti-Windfall Payments, or any combination thereof.  



1.Channel Acquisition.  In 2015, we began acquiring targeted additional channels in various markets in anticipation of the Report and Order.  We will continue to employ spectrum acquisition as a tool for those situations where an incumbent desires to exit the 900 MHz band.  We may selectively acquire channels outside the 900 MHz broadband segment and use them to swap for channels within the broadband segment.  For purposes of broadband license eligibility, any potential acquisitions we negotiate will be included as part of our broadband application, but the acquisition does not need to be consummated at the time we submit our license application.



2.Retuning Costs.  Retuning is the exercise of exchanging, also referred to as swapping, broadband segment channels held by Covered Incumbents and moving them to channels outside of the 900 MHz broadband segment.  A retune or swap adds to the number of channels we hold for computational purposes in the 90% Broadband Segment Test.  We began retuning or swapping channels with Covered Incumbents in 2015 in anticipation of the Report and Order.  We have continued retuning channels with Covered Incumbents since that time. 



3.Anti-Windfall Payments.    To obtain a 6 MHz broadband license, we must surrender up to 240 licensed channels in the county.  As this band has been underutilized historically, most counties in the United States do not have 240 channels licensed.  To make up the difference, we will pay for the difference in  spectrum  held by the Company and the 6 MHz it will be receiving as the broadband licensee by making an Anti-Windfall Payment.  As noted above, the FCC will use as a reference the spectrum price based on the average price paid in the FCC’s 600 MHz auction in a given county.



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Importantly, the markets where the FCC has channels in inventory and where we may need to make Anti-Windfall Payments to effectively return 240 channels to the FCC are generally in smaller urban, suburban and rural markets.  Our spectrum position is greatest in the largest, most populated and therefore most expensive markets, with a few exceptions.  Although we will need to make Anti-Windfall Payments to secure broadband licenses in some counties, the cost for the channels, on average, will be lower than the nationwide average amount paid in the FCC’s 600 MHz auction. 



When combining our estimated clearing and spectrum acquisition costs with our anticipated Anti-Windfall Payments to the U.S. Treasury, we anticipate the combined total costs of securing broadband licenses from the FCC will to range from $130 to $160 million, the significant majority of which we intend to spend by the end of fiscal year 2024.  We will deploy this capital at our determined pace based on several key ongoing factors, including customer demand, market opportunity and offsetting income from spectrum leases.



Historical Spectrum Initiatives



We acquired our 900 MHz spectrum and certain related equipment from Sprint in September 2014 for $100 million.  While the spectrum we initially purchased can support narrowband and wideband wireless services, the most significant business opportunities we identified requires contiguous spectrum that allows for greater bandwidth than allowed by the current configuration of our spectrum.  As a result, since purchasing our 900 MHz spectrum in 2014, we pursued 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.  Specifically, in November 2014, we 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.  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.  We 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 endorsed the Company’s objective of creating a broadband opportunity in the 900 MHz band for critical infrastructure and other enterprise users.  In the NPRM, the FCC requested comments from interested parties, including us, on a number of important topics that would impact the timing and costs of obtaining a broadband license.  The Company filed comments to the NPRM in June 2019 and reply comments in July 2019. 



On May 13, 2020, the FCC approved a Report and Order 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. 



Historical Business Operations



Historically, we generated revenue principally from our pdvConnect and TeamConnect businesses.  We historically marketed pdvConnect, a mobile communication and workforce management solution, primarily through two Tier 1 carriers in the United States.  In Fiscal 2016, we began offering a commercial push-to-talk (“PTT”) service, which we marketed as TeamConnect, in seven major metropolitan areas throughout the United States, including Atlanta, Baltimore/Washington, Chicago, Dallas, Houston, New York and Philadelphia.  We 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, we announced our plan to restructure our operations to align and focus our business priorities on our spectrum initiatives.  Consistent with this restructuring plan, we transferred our TeamConnect business and support obligations for our pdvConnect business in December 2018.  Specifically, we 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.  Under the A BEEP and Goosetown Agreements, we agreed to: (i) transfer our TeamConnect customers located in the Atlanta, Chicago, Dallas, Houston and Phoenix metropolitan markets to A BEEP, (ii) transfer our TeamConnect customers located in the Baltimore/Washington DC, Philadelphia and New York metropolitan markets to Goosetown, (iii) provide A BEEP and Goosetown with access to our TeamConnect Metro and Campus Systems (the “MotoTRBO Systems”) and (iv) grant A BEEP and Goosetown the right to resell access to our MotoTRBO Systems pursuant to separate Mobile Virtual Network Operation arrangements for a two-year period.  We also granted Goosetown a license to sell the business applications we developed for our TeamConnect service. 

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We retained a number of significant obligations under our A BEEP and Goosetown agreements related to the TeamConnect and pdvConnect businesses.  To help ensure the transitioning of the TeamConnect customers, we continued to provide customer care, billing and collection services through April 1, 2019.  We are required to 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.  By the end of this two-year period, A BEEP and Goosetown are required to migrate their respective customers off of the MotoTRBO Systems.  We are required to continue to pay the cell tower leases for the TeamConnect networks we deployed for the balance of the lease terms.  We also retained customer billing and collection responsibility for the pdvConnect business.



Under the terms of the MOU, we assigned the intellectual property rights to our TeamConnect and pdvConnect related applications to TeamConnect LLC (the “LLC”), a new entity formed by the principals of Goosetown, in exchange for a 19.5% ownership interest in the LLC, effective April 30, 2019.  The Goosetown Principals have agreed to fund the future operations of the LLC, subject to certain limitations. The LLC assumed our software support and maintenance obligations under the A BEEP and Goosetown Agreements.  The LLC also assumed customer care services related to the pdvConnect service.  We provided transition services to the LLC through April 1, 2019.  We are also obligated to pay the LLC a monthly service fee for a 24-month period ending on January 7, 2021 for its assumption of our support obligations under the A BEEP and Goosetown Agreements.  We are obligated to pay the LLC a certain portion of the billed revenue we received from pdvConnect customers for a 48-month period.  On April 1, 2020, we transferred the pdvConnect customers to the LLC, and the LLC agreed to provide us a portion of the billed revenue they receive from these customers.



 

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Results of Operations



Comparison of the three months ended June 30, 2020 and 2019



The following table sets forth our results of operations for the three months ended June 30, 2020 (“Fiscal 2021”) and 2019 (“Fiscal 2020”). The period-to-period comparison of financial results is not necessarily indicative of the financial results we will achieve in future periods.



Operating revenues 







 

 

 

 

 

 

 

 

 

 

 



 

Three months ended June 30,

 

Aggregate Change

(in thousands)

 

2020

 

2019

 

2020 from 2019



 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

Service revenue

 

$

74 

 

$

271 

 

$

(197)

 

-73%

Spectrum lease revenue

 

 

182 

 

 

182 

 

 

 —

 

0% 

Total operating revenues

 

$

256 

 

$

453 

 

$

(197)

 

-43%



 

 

 

 

 

 

 

 

 

 

 

Overall operating revenues decreased by $0.2 million, or 43%, to $0.3 million for the three months ended June 30, 2020 from $0.5 million for the three months ended June 30, 2019.  The decrease in the three months is primarily attributable to the transfer of pdvConnect customers to the LLC. 



Operating expenses







 

 

 

 

 

 

 

 

 

 

 



 

Three months ended June 30,

 

Aggregate Change

(in thousands)

 

2020

 

2019

 

2020 from 2019



 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

Direct cost of revenue (exclusive of depreciation and amortization)

 

$

548 

 

$

918 

 

$

(370)

 

-40%

General and administrative

 

 

5,738 

 

 

4,848 

 

 

890 

 

18% 

Sales and support

 

 

661 

 

 

1,214 

 

 

(553)

 

-46%

Product development

 

 

692 

 

 

680 

 

 

12 

 

2% 

Depreciation and amortization

 

 

1,208 

 

 

642 

 

 

566 

 

88% 

Stock compensation expense

 

 

1,955 

 

 

1,577 

 

 

378 

 

24% 

Restructuring costs

 

 

13 

 

 

110 

 

 

(97)

 

-88%

Impairment of long-lived assets

 

 

29 

 

 

 —

 

 

29 

 

100% 

Total operating expenses

 

$

10,844 

 

$

9,989 

 

$

855 

 

9% 



 

 

 

 

 

 

 

 

 

 

 

Direct cost of revenue.  Direct cost of revenue decreased by $0.4 million, or 40%, to $0.5 million for the three months ended June 30, 2020 from $0.9 million for the three months ended June 30, 2019.  The $0.4 million decrease in the three months ended June 30, 2020 resulted from a $0.2 million impairment of contract costs related to the TeamConnect customers transferred to A Beep and Goosetown that we incurred in Fiscal 2020, and a $0.2 million decrease in the support services related to the transfer of the TeamConnect customers



General and administrative expenses.  General and administrative expenses increased by $0.9 million, or 18%, to $5.7 million for the three months ended June 30, 2020 from $4.8 million for three months ended June 30, 2019.  The increase of $0.9 million resulted mainly from a $0.6 million increase in headcount and related costs and $0.3 million higher consulting charges to assist with the FCC initiatives.   



Sales and support expenses.  Sales and support expenses decreased by $0.6 million, or 46%, to $0.7 million for the three months ended June 30, 2020 from $1.2 million for three months ended June 30, 2019.  The $0.6 million decrease principally resulted  from a $0.3 million impairment of contract costs incurred in Fiscal 2020 related to the TeamConnect customers transferring to A BEEP and Goosetown.  In addition, a $0.2 million decrease for rebranding efforts in Fiscal 2020 that did not incur in Fiscal 2021.



Product development expenses. Product development expenses remained relatively flat for the three months ended June 30, 2020 as compared to the three months ended June 30, 2019.



Depreciation and amortization. Depreciation and amortization increased by $0.6 million, or 88% to $1.2 million for the three months ended June 30, 2020 from $0.6 million for the three months ended June 30, 2019.  The increase was due the change in useful life for our network sites during Fiscal 2020 that resulted in higher depreciation expense for the three months ended June 30, 2020.

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Stock compensation expense.  Stock compensation expense increased by $0.4 million, or 24%, to $2.0 million for the three months ended June 30, 2020 from $1.6 million for the three months ended June 30, 2019. The increase is attributable to higher valuation of equity grants awarded due to increase in stock price during the first quarter of Fiscal 2021.



Restructuring costs.  Restructuring costs decreased by $97,000, or 88%, to $13,000 for the three months ended June 30, 2020 from $0.1 million for the three months ended June 30, 2019.  The decrease was mainly due to the reduction of employee severance and benefit costs relating to the December 2018 cost reduction and restructuring actions related to the transfer of the TeamConnect business to A BEEP and Goosetown and the transfer of the pdvConnect business to the LLC.



Impairment of long-lived assets.  The impairment for the three months ended June 30, 2020 resulted from the $29,000 non-cash impairment charge for long-lived assets for network sites.  There was no impairment charge for the three months ended June 30, 2019.



Loss from disposal of intangible assets







 

 

 

 

 

 

 

 

 

 

 



 

Three months ended June 30,

 

Aggregate Change



 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

2020

 

2019

 

2020 from 2019



 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

Loss from disposal of intangible assets

 

$

(4,678)

 

$

 —

 

$

(4,678)

 

-100%



 

 

 

 

 

 

 

 

 

 

 

In the three months ended June 30, 2020, we cancelled licenses in the 900 MHz band in accordance with the Report and Order and our agreement with the AAR.  Because we did not receive any licenses nor monetary reimbursement in exchange for the cancellation, but only credit for purposes of determining our future eligibility and payment requirements for broadband licenses under the Report and Order, we recorded a $4.7 million loss from disposal of the intangible assets in the Consolidated Statements of Operations for the three months ended June 30, 2020.



Interest income







 

 

 

 

 

 

 

 

 

 

 



 

Three months ended June 30,

 

Aggregate Change

(in thousands)

 

2020

 

2019

 

2020 from 2019



 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

Interest income

 

$

41 

 

$

354 

 

$

(313)

 

-88%



Interest income decreased by 88% for the three months ended June 30, 2020, as compared to the three months ended June 30, 2019 due to the lower cash balances due to payments for spectrum acquisitions.



Other  income







 

 

 

 

 

 

 

 

 

 

 



 

Three months ended June 30,

 

Aggregate Change

(in thousands)

 

2020

 

2019

 

2020 from 2019



 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

Other income

 

$

110 

 

$

100 

 

$

10 

 

10% 



Other income remained relatively flat for the three months ended June 30, 2020 as compared to the three months ended June 30, 2019.



Loss on equity method investment







 

 

 

 

 

 

 

 

 

 

 

 



 

Three months ended June 30,

 

Aggregate Change

 

(in thousands)

 

2020

 

2019

 

2020 from 2019

 



 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

 

Loss on equity method investment

 

$

(4)

 

$

 —

 

$

(4)

 

-100%

 



The loss on investment for the three months ended June 30, 2020 is due to the 19.5% ownership interest in TeamConnect LLC.



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Income tax expense







 

 

 

 

 

 

 

 

 

 

 



 

Three months ended June 30,

 

Aggregate Change

(in thousands)

 

2020

 

2019

 

2020 from 2019



 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

Income tax expense

 

$

11 

 

$

292 

 

$

(281)

 

-96%



On March 27, 2020, the Coronavirus Aid Relief and Economic Security (“CARES”) Act was signed into law.  The new CARES Act modified Section 172(b)(1)(A) of the Internal Revenue Code to state that net operating loss (“NOL”) arising in a taxable year beginning before January 1, 2018, is carried forward 20 years provided that a carryback claim is not effected.  From this adjusted provision, our March 31, 2018 NOL carryforward changed from an indefinite life to a 20-year life.  We used a discrete effective tax rate method to calculate taxes for the three months ended June 30, 2020. We determined that applying an estimate of the annual effective tax rate would not provide a reasonable estimate as small changes in estimated “ordinary” loss would result in significant changes in the estimated annual effective tax rate.  Accordingly, for the three months ending June 30, 2020, we recorded a total deferred tax expense of $11,000 due to the inability to use some portion of federal and state NOL carryforwards against the deferred tax liability created by amortization of indefinite-lived intangibles.



A non-cash state income expense of $0.3 million was recorded for the three months ended June 30, 2019.  The state income tax expense resulted from our determination that most of our state operating loss carryforwards revealed that most of them are not indefinite.  As a result, we recorded approximately $0.3 million of deferred tax expense and an additional deferred tax liability reflecting our inability to use the state NOL carryforward against the indefinite-lived intangible.



Liquidity and Capital Resources



At June 30, 2020, we had cash and cash equivalents of $124.8 million.



Our accounts receivable are heavily concentrated in one domestic carrier partner. As of June 30, 2020, our net accounts receivable balance was approximately $25,000, of which approximately $18,000, or approximately 73%, was owed by this one domestic carrier partner.



Cash Flows from Operating, Investing and Financing Activities





 

 

 

 

 

 



 

Three months ended June 30,

(in thousands)

 

2020

 

2019



 

 

(Unaudited)

 

 

(Unaudited)

Net cash used by operating activities

 

$

(4,612)

 

$

(9,030)

Net cash used by investing activities

 

$

(9,094)

 

$

(247)

Net cash provided by financing activities

 

$

1,019 

 

$

1,577 



Net cash used by operating activities.  Net cash used in operating activities was $4.6 million for the three months ended June 30, 2020, as compared to $9.0 million for the three months ended June 30, 2019. The majority of net cash used by operating activities during the three months ended June 30, 2020 resulted from our net loss of $15.1 million partially offset by non-cash stock-based compensation of $2.0 million, loss from disposal of intangible assets of $4.7 million and decrease in prepaid expenses and other assets by $3.1 million.  The majority of net cash used by operating activities during the three months ended June 30, 2019 resulted from the net loss of $9.4 million and decrease in accounts payable and accrued expenses by $1.4 million, partially offset by non-cash stock-based compensation of $1.6 million 



Net cash used by investing activities.  Net cash used in investing activities was approximately $9.1 million for the three months ended June 30, 2020 as compared to $0.2 million used for the three months ended June 30, 2019.  The net cash used  by investing activities during the three months ended June 30, 2020 resulted from wireless license acquisitions amounting to $9.0 million and purchase of equipment amounting to $0.1 million.  The net cash used by investing activities during the three months ended June 30, 2019 resulted from construction costs related to internally developed software.  



Net cash provided by financing activities. For the three months ended June 30, 2020 and 2019, net cash provided by financing activities was $1.0 million and $1.6 million, respectively, primarily from the proceeds from stock option exercises.



We are now engaged in qualifying for and securing broadband licenses from the FCC pursuant to the Report and Order.  At the same time, our sales and marketing department are pursuing opportunities to lease the broadband licenses we secure to our targeted utility and critical infrastructure customers. Our future capital requirements will depend on many factors, including: the timeline and costs to acquire broadband licenses pursuant to the Report and Order, including the costs to acquire additional spectrum, the costs related to

27

 


 

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retuning, or swapping spectrum held by, Covered Incumbents and the costs of paying Anti-Windfall payments to the U.S. Treasury; costs related to the commercializing of our spectrum assets; and our ability to sign customer contracts and generate revenues from the license or transfer of any broadband licenses we secure; the terms and conditions of any customer contracts, including the timing of payments; the costs associated with expanding our business development, sales and marketing organization, the costs and ongoing obligations related to our former TeamConnect and pdvConnect businesses; the revenues we generate from royalties we may receive from our agreements we entered into with the buyers of our TeamConnect and our pdvConnect businesses; and our ability to control our operating expenses.



On April 3, 2020, we filed a shelf registration statement (the “Shelf Registration Statement”) on Form S-3 with the SEC that was declared effective by the SEC on April 20, 2020, which permits us to offer up to $150 million of common stock, preferred stock, debt securities and warrants in one or more offerings and in any combination, including in units from time to time.  Our Shelf Registration Statement is intended to provide us with additional flexibility to access capital markets for general corporate purposes, which may include working capital, capital expenditures, repayment of debt, other corporate expenses and acquisitions of complementary products, technologies, or businesses.



We entered into an Amended and Restated Controlled Equity Offering Sales Agreement and an Amended and Restated Sales Agreement (collectively, the “Sales Agreements”) with Cantor Fitzgerald & Co. and B. Riley FBR, Inc., respectively (collectively, the “Agents”), and on April 3, 2020, registered the sale of up to an aggregate of $50,000,000 in shares of our common stock in at the market sales transactions pursuant to the Sales Agreements under the Shelf Registration Statement.  Through the date of this filing, we have not sold any shares of our common stock in at the market transactions or any securities under the Shelf Registration Statement.



We believe our cash and cash equivalents on hand will be sufficient to meet our financial obligations through at least the next 12 months.  As noted above, our future capital requirements will depend on a number of factors, including among others, the costs and timing of securing broadband licenses, including our spectrum retuning activities, spectrum acquisitions and the Anti-Windfall payments to the U.S. Treasury, and our operating activities and any revenues we generate through our commercialization activities.  When combining our estimated clearing and spectrum acquisition costs with our anticipated Anti-Windfall payments to the U.S. Treasury to effectively acquire additional spectrum from the FCC’s inventory in markets where we need it, we anticipate the combined total costs to range from $130 to $160 million, the significant majority of which we intend to spend over through the end of fiscal year 2024.  We will deploy this capital at our determined pace based on several key ongoing factors, including customer demand, market opportunity, and offsetting income from spectrum leases.  As we cannot predict the duration or scope of the COVID-19 pandemic and its impact on our targeted customers, the potential negative financial impact to our results of operations and financial condition cannot be reasonably estimated.  We are actively managing the business to maintain our cash flow and believe that we currently have adequate liquidity.  To implement our business plans and initiatives, however, we may need to raise additional capital.  We cannot predict with certainty the exact amount or timing for any future capital raises.  See “Risk Factors” in Item 1A of Part II of this Quarterly Report on Form 10-Q for a reference to the risks and uncertainties that could cause our costs to be more than we currently anticipate and/or our revenue and operating results to be lower than we currently anticipate.  If required, we intend to raise additional capital through debt or equity financings, including pursuant to our Shelf Registration Statement, or through some other financing arrangement.  However, we cannot be sure that additional financing will be available if and when needed, or that, if available, we can obtain financing on terms favorable to our stockholders and to us.  Any failure to obtain financing when required will have a material adverse effect on our business, operating results, financial condition and liquidity.



Off-balance sheet arrangements



As of June 30, 2020 and March 31, 2020, we did not have and do not have any relationships with unconsolidated entities or financial partnerships that were established for the purpose of facilitating off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

 

Item 3.  Quantitative and Qualitative Disclosures about Market Risk



Our financial instruments consist of cash, cash equivalents, trade accounts receivable and accounts payable.  We consider investments in highly liquid instruments purchased with original maturities of 90 days or less to be cash equivalents.  Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates.  However, because of the short-term nature of the highly liquid instruments in our portfolio, a 10% change in market interest rates would not be expected to have a material impact on our financial condition and/or results of operations.



Our operations are based in the United States and, accordingly, all of our transactions are denominated in U.S. dollars.  We are currently not exposed to market risk from changes in foreign currency.

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Item 4.  Controls and Procedures



Disclosure Controls and Procedures



Our management, with the participation of our President and Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on that evaluation, our management, including our President and Chief Executive Officer and our Chief Financial Officer, has concluded that our disclosure controls and procedures were effective as of the end of such period.     



Changes in Internal Control over Financial Reporting



In connection with the evaluation required by Exchange Act Rule 13a-15(d), our management, including our President and Chief Executive Officer and our Chief Financial Officer, concluded that no changes in our internal control over financial reporting occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



Inherent Limitations on Effectiveness of Controls



Our management, including our President and Chief Executive Officer and our Chief Financial Officer, do not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. 

29

 


 

Table of Contents

 

PART II – OTHER INFORMATION



Item 1.  Legal Proceedings. 



We are not involved in any material legal proceedings.



Item 1A.  Risk Factors.



In evaluating us and our common stock, we urge you to carefully consider the risks (including those disclosed below) and other information in this Quarterly Report on Form 10-Q as well as the risk factors disclosed in our Annual Report on Form 10-K for the year ended March 31, 2020, filed with the Securities and Exchange Commission (the “SEC”) on May 28, 2020 (the “Annual Report”).  There have been no material changes from the risk factors as previously disclosed in our Annual Report.  Any of the risks discussed in this Quarterly Report on Form 10-Q and in our Annual Report, as well as additional risks and uncertainties not currently known to us or that we currently deem immaterial, could materially and adversely affect our results of operations or financial condition.



Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.



Use of Proceeds



On May 18, 2015, we completed a public offering of our common stock in which we raised net proceeds of approximately $64.8 million.  We registered the shares of common stock issued in the offering on a Registration Statement on Form S-1 (File No. 333-203681), which the SEC declared effective on May 12, 2015.  Through June 30, 2020, we have used the entire  $64.8 million of the net proceeds from this offering.  We did not complete any transaction in which we paid any of these proceeds, directly or indirectly, to our directors or officers, to any person owning 10% or more of any class of our equity securities, to any associate of any of the foregoing, or to any of our affiliates.  There has been no material change in the expected uses of the net proceeds from the offering as described in our Registration Statement.



Item 3.  Defaults Upon Senior Securities.



None.



Item 4.  Mine Safety Disclosures. 



Not applicable.



Item 5.  Other Information.



On August 4, 2020, we entered into Amendment 2 (“Amendment 2”) to the IP Assignment, Software Support, and Development Services Agreement, dated as of January 7, 2019, as previously amended, by and between us and TeamConnect, LLC (the “LLC”).  Under Amendment 2, we agreed to the transfer of our pdvConnect customers to the LLC, effective as of April 1, 2020.  In exchange for the customer transfer, the LLC agreed to pay us a certain portion of the recurring revenues from these customers.    The foregoing summary of Amendment 2 is not complete, and is qualified in its entirety by reference to the full text thereof, a copy of which is filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q, and incorporated herein by reference.

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Item 6.  Exhibits.





 



 



 

Exhibit
No.

Description of Exhibit

3.1(1)

Amended and Restated Certificate of Incorporation of Anterix Inc. (the “Company”).

3.2(2)

Certificate of Amendment No. 1 to Amended and Restated Certificate of Incorporation of the Company. 

3.3(3)

Certificate of Amendment No. 2 to Amended and Restated Certificate of Incorporation of the Company.

4(4)

Amended and Restated Bylaws of the Company.

4.1(5)

Amendment No. 1 to the Amended and Restated ByLaws of the Company.

4.2(1)

Form of Common Stock Certificate of the Company.

10.1#

Amendment 2, dated August 4, 2020, to the IP Assignment, Software Support, and Development Services Agreement, dated as of January 7, 2019, by and between us and TeamConnect, LLC.

31.1

Certification of Principal Executive Officer pursuant to Rules 13a-14 and 15d-14 promulgated pursuant to the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of Principal Financial Officer pursuant to Rules 13a-14 and 15d-14 promulgated pursuant to the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*

Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*

Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document



____________



(1)Incorporated by reference to Exhibit 3.1 of the Registrant’s Registration Statement on Form S-1 (File No. 333-201156), filed with the SEC on December 19, 2014.



(2)Incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K (File No. 001-36827), filed with the SEC on November 5, 2015.



(3)Incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K (File No. 001-36827), filed with the SEC on August 6, 2019.



(4)Incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K (File No. 001-36827), filed with the SEC on June 27, 2017.



(5)Incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K (File No. 001-36827), filed with the SEC on May 8, 2020.



*The certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the Registrant specifically incorporates it by reference.

#  Certain confidential portions of this exhibit were omitted by means of marking such portions with an asterisk because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed. 



31

 


 

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SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized.





 

 

 

 

 

 

Anterix Inc.

 

 

 

 

Date:

August 6, 2020

 

/s/ Robert H. Schwartz

 

 

 

Robert H. Schwartz

 

 

 

President and Chief Executive Officer

(Principal Executive Officer)

 

 

 

 

Date:

August 6, 2020

 

/s/ Timothy A. Gray

 

 

 

Timothy A. Gray

 

 

 

Chief Financial Officer

(Principal Financial and Principal Accounting Officer)



 

 

 

 



32

 


EXHIBIT 10.1



THE SYMBOL “[*]” DENOTES PLACES WHERE CERTAIN IDENTIFIED INFORMATION HAS BEEN EXCLUDED FROM THE EXHIBIT BECAUSE IT IS BOTH (i) NOT MATERIAL, AND (ii) WOULD LIKELY CAUSE COMPETITIVE HARM TO THE COMPANY IF PUBLICLY DISCLOSED

AMENDMENT 2 TO IP ASSIGNMENT

This Amendment 2 (“Amendment 2”) to the IP Assignment, Software Support, and Development Services Agreement dated as of January 7, 2019, as amended (“IP Assignment”) is made this 6th day of August, 2020 between Anterix Inc. (formerly known as pdvWireless, Inc.) (“Assignor”), and TeamConnect, LLC (“Assignee”) and is made effective as of April 1, 2020 (the “Amendment 2 Effective Date”).  The parties wish to amend the IP Assignment in accordance with the terms and conditions thereof and agree that the IP Assignment is hereby amended as set forth below.  Unless defined in this Amendment, 2 defined terms shall have the meaning set forth in the IP Assignment.

NOW, THEREFORE, the Parties, intending to be legally bound, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, hereby agree as follows:

1.

The Parties acknowledge that an assignment of trademark rights for the Assigned Intellectual Property on Exhibit B to the IP Assignment has been filed with the United States Patent and Trademark Office and that such assignment is effective as of October 14, 2019 (“IP Assignment Date”).  The Parties agree that after IP Assignment Date, Assignee shall be responsible for all costs, fees and expenses associated with maintaining the Assigned Intellectual Property, including without limitation, any patent annuities and/or trademark renewals and all associated fees.  To the extent that Assignor has paid any costs, fees or expenses related to the Assigned Intellectual Property after the IP Assignment Date, Assignee shall reimburse Assignor for such fees, costs and expenses upon presentation of receipts showing the amounts that were paid to maintain the Assigned Intellectual Property on behalf of Assignee. 

2.

The Parties agree that the list of assets and equipment that is to be transferred to Assignee pursuant to Section 4.3 of the IP Assignment shall be as set forth on Exhibit A hereto (“Equipment”).  As of the Amendment 2 Effective Date, Assignee shall be responsible for all repairs and maintenance of the Equipment and any and all other costs related thereto.

3.

The IP Assignment shall be amended as follows:

a.

The following sentence shall be added to the end of Section 3.2 of the IP Assignment:

i.

“As of April 1, 2020, Assignee will begin to provide billing and collections services for the pdvConnect Customers for the remainder of the term of this Agreement.”

b.

The following sentence shall be added to the end of Section 4.1 of the IP Assignment:

i.

“Assignee hereby agrees to license the Supported Applications to Assignor and A Beep on the same or similar terms and conditions as the Goosetown Licenses during the term of this Agreement.”

c.

Section 5.3 of the IP Assignment is hereby amended and restated as follows:

i.

“5.3     pdvConnect Customer Services Payments.  In consideration of the pdvConnect Customer Services, Assignee shall receive a percentage of the monthly Billed Revenue.  As of the Effective Date, Assignor shall pay Assignee  [*]  of the monthly Billed Revenue received from pdvConnect Customers until March 31, 2020 ("pdvConnect Payments").  PdvConnect Payments and the reports set forth in Section 5.4 are due within thirty (30) days of the end of the calendar month in which pdvConnect Customers are billed by Assignor.  Once a pdvConnect Customer account is more than sixty (60) days in arrears, no pdvConnect Payment will be due to Assignee unless such pdvConnect Customer subsequently becomes current at which time the pdvConnect Payment obligation will apply to the Billed Revenue during the period of arrears and thereafter.  In the event the pdvConnect Customer defaults on the payments due, Assignor shall have the right to offset the amount due to Assignee to recover the prior pdvConnect Payment to Assignee that was never collected by Assignor.  In the event the pdvConnect Customer inadvertently submits payment to the Assignee, the Assignee shall, within five (5) business days of receipt of such payment, provide notice of such payment and at the end of each calendar month, submit the total payments inadvertently made to Assignee to Assignor.  As of the Amendment 2 Effective Date, Assignor shall transfer all pdvConnect Customers to Assignee and Assignee shall provide billing and collections services for the pdvConnect


 

Customers for the remainder of the term of this Agreement.  As of the Amendment 2 Effective Date, Assignee, shall pay Assignor  [*]  of the monthly Billed Revenue received from pdvConnect Customers for the remainder of the term of this Agreement ("pdvConnect Customer Share Payments").  PdvConnect Customer Share Payments and the reports set forth in Section 5.4 are due within thirty (30) days of the end of the calendar month in which pdvConnect Customers are billed by Assignee. Once a pdvConnect Customer account is more than sixty (60) days in arrears, no pdvConnect Customer Share Payment will be due to Assignor unless such pdvConnect Customer subsequently becomes current at which time the pdvConnect Customer Share Payment obligation will apply to the Billed Revenue during the period of arrears and thereafter.  In the event the pdvConnect Customer defaults on the payments due, Assignee shall have the right to offset the amount due to Assignor to recover the prior pdvConnect Customer Share Payment to Assignor that was never collected by Assignee.  In the event the pdvConnect Customer inadvertently submits payment to the Assignor, the Assignor shall, within five (5) business days of receipt of such payment, provide notice of such payment to Assignee and at the end of each calendar month, at Assignor’s election either (i) submit the total payments inadvertently made to Assignor by Assignee; (ii) allow Assignee to reduce the amount of the pdvConnect Customer Share Payment by such amount; or (ii) offset such amounts against other amounts owed by Assignor to Assignee hereunder.  Assignor will notify Assignee of its election at least three (3) days prior to the date the Customer Share Payment is due.”

d.

Section 5.7 of the IP Assignment is hereby amended and restated as follows:

i.

“5.7     Wireless Carrier Payments.  In consideration for Assignee providing pdvConnect Customer Services to Wireless Carrier Billed Customers, as of the Effective Date, Assignor shall pay Assignee a percentage share (as set forth below) of the net recurring revenue that Assignor receives directly from the Wireless Carriers (the “Wireless Carrier Revenue”).  Assignor shall, within thirty (30) days of receipt of the billing report from the Wireless Carriers, estimate the monthly Wireless Carrier Revenue for such month, and shall pay to Assignee  [*]  of the estimated monthly Wireless Carrier Revenue (the “WC Payment”).  When the Wireless Carrier Revenue is received from the Wireless Carriers, Assignor shall, within thirty (30) days of receipt, apply any adjustment from the estimated amount paid to the actual Wireless Carrier Revenue received.  In the event of a negative adjustment, Assignor will true-up the WC Payment to the correct amount of  [*]  of the actual received monthly Wireless Carrier Revenue.  In the event of a positive adjustment, Assignor will submit an invoice to Assignee for reimbursement of the overpayment amount.  The WC Payments and subsequent adjustments will continue in effect for as long as Assignor maintains contracts with the Wireless Carriers.  If Assignee converts a Wireless Carrier Billed Customer to a pdvConnect Customer, such customer shall no longer be subject to the WC Payment.  In the event that Assignor’s contracts with the Wireless Carriers terminate or expire and Assignee enters into a similar arrangement with one or both of the Wireless Carriers, Assignee shall pay Assignor  [*]  of the Wireless Carrier Revenue for the remainder of the term of this Agreement (the “WC Share Payment”).  Assignee shall, within thirty (30) days of receipt of the billing report from the Wireless Carriers, estimate the monthly Wireless Carrier Revenue for such month, and shall pay to Assignor  [*]  of the estimated monthly Wireless Carrier Revenue.  When the Wireless Carrier Revenue is received from the Wireless Carriers, Assignee shall, within thirty (30) days of receipt, apply any adjustment from the estimated amount paid to Assignor to the actual Wireless Carrier Revenue received by Assignee.  In the event of a negative adjustment, Assignee will true-up the WC Share Payment to the correct amount of  [*]  of the actual received monthly Wireless Carrier Revenue.  In the event of a positive adjustment, Assignor will submit an invoice to Assignee for reimbursement of the overpayment amount.”

4.

This Amendment 2 supersedes all proposals, oral or written, all negotiations, conversations, or discussions between or among parties relating to the subject matter of this Amendment and all past dealing or industry custom.  This Amendment shall be integrated in and form part of the MoU and IP Assignment upon execution.  All terms and conditions of the MoU and IP Assignment shall remain unchanged except as modified in this Amendment; and the terms of the MoU and IP Assignment, as modified by this Amendment, are hereby ratified and confirmed.  Where the terms of the MoU and IP Assignment conflict with those of this Amendment, however, the terms of this Amendment shall control. 


 

IN WITNESS WHEREOF, Assignee and Assignor have caused this Amendment to be executed by their respective, duly authorized officers or representatives, effective as of the Amendment 2 Effective Date.



ANTERIX INC. (formerly PDVWIRELESS, INC.):

By:  /s/ Timothy Gray__________      

      (Authorized Signature)

Name:  Timothy Gray

Title:  CFO



TEAMCONNECT, LLC:

By:  /s/ Joseph Gottlieb__________

      (Authorized Signature)

Name:  Joseph Gottlieb

Title:  Member


 

Exhibit A

Equipment

Summary of Assets Transferred



 

 

 

 

Location

Model

Category

Serial Number

Description

San Diego

 

Computer Equipment

 

TRIPP POWERSTRIP (PN RS-1215-20)

San Diego

DL380 G8

Computer Equipment

MXQ24205RJ

HP server- kvm-01-server host virtual machines

San Diego

DL380 G8

Computer Equipment

MXQ24205TJ

HP server -server for ptsg - ptsg-50-71

San Diego

WC-C2960G-24TC-L

Computer Equipment

FOC1239W22Y

Switch for networking - switch3

San Diego

WC-C2960G-24TC-L

Computer Equipment

FOC1239Z1WY

Switch for networking - switch4

San Diego

 

Computer Equipment

 

Router Component - pstn01 - T1 Card

San Diego

USB-3000

Computer Equipment

 

DP Ambe Dongle

San Diego

USB-3000

Computer Equipment

 

DP Ambe Dongle

San Diego

PA 500

Computer Equipment

009401009446

Network Firewall-fw01 & 02

San Diego

PA 500

Computer Equipment

009401009449

 

San Diego

WS-C2960G-24TC-L

Computer Equipment

FOC1617W4ZG

Networking Switches - switch5 & 6

San Diego

 

Computer Equipment

FOC1630X51Y

 

San Diego

WS-C3560G-24TS-S

Computer Equipment

FOC1204Z0BV

Network switches - switch7 & 8

San Diego

 

Computer Equipment

FOC1141Y3J7

 

San Diego

HP SB DL320E

Computer Equipment

MX243600CU

Server pdvLab- tca-staging-01

San Diego

HP SB DL320E

Computer Equipment

MX24420035

Server pdvLab- tca-staging-02

San Diego

 

Computer Equipment

 

Server Component

San Diego

TVS-871U-RP

Computer Equipment

Q157I22085

Server - QNAP Storage Server

San Diego

 

Computer Equipment

 

Enterprise Hard Drive

San Diego

DL380p Gen8

Computer Equipment

2M24041N2B

Server - hyper-v-09

San Diego

 

Computer Equipment

 

Server component

San Diego

DL20 Gen9

Computer Equipment

MX2701006E

Computer Server - tcag-tex-02

San Diego

DL20 Gen9

Computer Equipment

MX2618002R

Computer Server - tcag-tex-01

San Diego

 

Computer Equipment

 

DP Ambe Dongles

San Diego

DL380P Gen8

Computer Equipment

2M25200XRP

Server - hyper-v-06

San Diego

DL20 Gen9

Computer Equipment

MX2701004H

Server - tcag-stg-01

San Diego

DL20 Gen9

Computer Equipment

MX2701005K

Server - tcag-stg-02

San Diego

 

Computer Equipment

 

Server Component

San Diego

 

Computer Equipment

 

Server Component

San Diego

 

Computer Equipment

 

Server Component

San Diego

 

Computer Equipment

 

Server Component

San Diego

 

Computer Equipment

 

Server Component

San Diego

DL180 Gen9

Computer Equipment

2M244317H4

Server kvm-02

San Diego

Linktrophy Mini2

Computer Equipment

See Lab listing

Latency Testing-latency01

San Diego

 

Computer Equipment

See Lab listing

Latency Testing-latency02

San Diego

 

Furniture & Fixtures

Dan Foxley Desk

Desk

San Diego

 

Furniture & Fixtures

Inv #34025: 2 Used Workbench (Tan & Dark Brown), Furniture Delivery

Used Workbench (Tan & Dark Brown)

San Diego

i7

Office Equipment

10901

Computer workstation for developer - BB005

San Diego

 

Office Equipment

10878

Computer workstation for developer-BB004

San Diego

Mac Mini

Office Equipment

C0KVN00XGCW

Computer - Developer Workstation - MAC003

San Diego

MacBook Pro

Office Equipment

C2QN500AFTC9

Laptop Apple Macbook Pro

San Diego

LG 24 INCH

Office Equipment

409NDMTJ1403

LCD MONITORS FOR Workstation BB005

San Diego

LG 24 INCH

Office Equipment

409NDXQJ1386

LCD MONITORS FOR Workstation BB005

San Diego

 

Office Equipment

 

HP 300GB 12GB SAS 10K 2.5IN SC HDD- Hard drive

San Diego

DL20 Gen9

Office Equipment

MX271200UD

HP DL20 GEN9 E3-1220V5 SFF SRV

San Diego

T450s

Office Equipment

PC-09E4ZJ

Lenovo T450s Laptop- Lenovo134


 

San Diego

 

Other Equipment

 

DataCenter Network Rack Hardware

San Diego

ACER S240HL 24 DVI LED

Other Equipment

 

Computer Monitor

San Diego

 

Office Equipment

16231046100145

Computer Desktop

San Diego

 

Computer Software

 

Software- forbug tracking

Data Center

 

Site Equipment

SGH326Y52C

Virtual Hosts for TCS servers: kvm-03 | kvm-04

Data Center

 

Site Equipment

 

Virtual Hosts for TCS servers: kvm-03 | kvm-05

Data Center

 

Site Equipment

 

Increase monitoring software from 100 to 300

Data Center

 

Site Equipment

 

Video Cards

Data Center

 

Site Equipment

 

Software - Microsoft SQL Database

Data Center

 

Site Equipment

 

Network Switch

Data Center

 

Site Equipment

 

HD's VMWARE-01 and 02

Data Center

 

Site Equipment

 

Server Memory-16GB

Data Center

 

Site Equipment

 

Hard Drives-HP 600GB 6G SATA VALUE ENDURANCE

Data Center

 

Site Equipment

SGH315RXHC

Servers Hyper-v-100 & 101

Data Center

 

Site Equipment

 

Microsoft Windows Server 2016 Software

Data Center

 

Site Equipment

 

SSD Hard Drives for DATACENTER servers

Data Center

 

Site Equipment

 

Hardware RAID card to servers: hyper-v-100 and hyper-v-101

Data Center

 

Site Equipment

 

HP 600GB 12G SAS 15K 2.5 inch SC

Data Center

 

Site Equipment

 

Hard drives

Data Center

 

Site Equipment

 

Hard drives

Data Center

 

Site Equipment

 

Hard Drives for Server vmware-01

Data Center

 

Site Equipment

USE3130E4X

HP DL380P G8 Rackmount Server for ScaleMatrix Datacenter  Hyper-v-102

Data Center

 

Site Equipment

 

Hard Drives for DataCenter

pdvLab

 

Site Equipment

 

Anker USB 3.0 SuperSpeed 10Port Hub Including a BC 1.2Charging Port




EXHIBIT 31.1 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, Robert H. Schwartz, certify that:

1.

I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2020 of Anterix Inc.;

2.

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

3.

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

4.

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

a)

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

b)

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

c)

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

d)

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

5.

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

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

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

 



 

 

 



 

 

 

Date: August 6, 2020

 

By:

/s/ Robert H. Schwartz



 

 

Robert H. Schwartz

 

President and Chief Executive Officer

(Principal Executive Officer)




EXHIBIT 31.2 

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, Timothy A. Gray, certify that:

1.

I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2020 of Anterix Inc.;

2.

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

3.

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

4.

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

a)

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

a)

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

b)

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

c)

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

5.

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

a)

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

b)

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

 



 

 



 

 

Date: August 6, 2020

By:

/s/ Timothy A. Gray

 

 

Timothy A. Gray

 

Chief Financial Officer

(Principal Financial and Principal Accounting Officer)



 


EXHIBIT 32.1 

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Anterix Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert H. Schwartz,  President and Chief Executive Officer of the Company, certify, solely for purposes of complying with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

 



 

 



 

 

Date: August 6, 2020

By:

/s/ Robert H. Schwartz



 

Robert H. Schwartz

 

President and Chief Executive Officer

(Principal Executive Officer)





A signed original of this written statement required by Section 906 has been provided to Anterix Inc. and will be retained by Anterix Inc. and furnished to the Securities and Exchange Commission or its staff upon request.



This certification that accompanies the Report to which it relates, is not deemed filed with the Securities and Exchange Commission, and is not to be incorporated by reference into any filing of Anterix Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Report), irrespective of any general incorporation language contained in such filing.










EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Anterix Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Timothy A. Gray, Chief Financial Officer of the Company, certify, solely for purposes of complying with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

 



 

 



 

 

Date: August 6, 2020

By:

/s/ Timothy A. Gray



 

Timothy A. Gray

 Chief Financial Officer

(Principal Financial and Principal Accounting Officer)



A signed original of this written statement required by Section 906 has been provided to Anterix Inc. and will be retained by Anterix Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

This certification that accompanies the Report to which it relates, is not deemed filed with the Securities and Exchange Commission, and is not to be incorporated by reference into any filing of Anterix Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Report), irrespective of any general incorporation language contained in such filing.