ATEX Anterix Inc

PART I. FINANCIAL INFORMATION

See accompanying notes to consolidated financial statements.

* includes restricted shares

See accompanying notes to consolidated financial statements.

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* includes restricted shares

See accompanying notes to consolidated financial statements.

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See accompanying notes to consolidated financial statements.

Anterix Inc.

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.

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 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, 2021, as filed on June 15, 2021 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.

Correction of Immaterial Errors

In connection with preparing its financial statements for the year ended March 31, 2021, the Company determined that it incorrectly presented stock-based compensation and loss on disposal of long-lived assets, net in its Consolidated Statement of Operations for the quarter ended June 30, 2020.

The Company previously reported stock compensation expense as a separate line item in the Consolidated Statement of Operations. Stock compensation expense should have been included in the same income statement line or lines as the cash compensation paid to the individuals receiving the stock-based awards such as general and administrative costs, product development and sales and support. For the three months ended June 30, 2020, the separate line item of $2.0 million in stock compensation expense has been changed to report as $1.8 million in general and administrative, $0.1 million in product development, and $40,000 in sales and support in the Consolidated Statement of Operations.

The Company previously included loss on disposal of long-lived assets as part of other income and expenses in its Consolidated Statement of Operations. A gain or loss recognized on the transfer of a long-lived asset that is not part of discontinued operations should be included in income from continuing operations before income taxes in the income statement of a business entity. Separate lines are now added for the loss of disposal of long-lived assets, net before loss of operation amounting to $1,000 to correct the error in presentation. 

In connection with preparing the financial statements for the second quarter of the fiscal year ended March 31, 2021, the Company determined that it incorrectly classified the initial refundable deposits made for purchasing spectrum as net cash used by operating activities in the Consolidated Statements of Cash Flows for the three months ended June 30, 2020. These initial deposits are made to holders of spectrum, (“incumbents”), and are refundable if the FCC does not approve the sale of the spectrum. Once the FCC approves the sale, the Company makes the final payment to the incumbent. Once the final payment is made, both the initial deposit and final payment are transferred to the intangible asset for the wireless licenses. The impact to the Consolidated Statements of Cash Flows when the final payment was made reduces the cash used by operating activities. The initial and final payments were then classified as cash used by investing activities.

Operating activities in the Consolidated Statements of Cash Flows should consist of the funds used for the Company’s ongoing business activities. Investing activities in the Consolidated Statements of Cash Flows should consist of funds used to purchase the Company’s long-term assets, such as fixed assets and its spectrum purchases. Since the initial deposits were contemplated as part of the purchase of spectrum, they should have been classified as investing activities instead of operating activities. As a result, the Company made an error in classifying the initial deposits for spectrum acquisitions as operating activities. The payments should have been classified as investing activities.

Refundable deposits amounting to approximately $2.8 million relating to acquisition of intangible assets that are pending FCC approval which were previously reported in prepaid expenses and other assets and net cash used by operating activities are now reported to purchases of intangible assets, including refundable deposits and the net cash used by investing activities in the Consolidated Statements of Cash Flows for the three months ended June 30, 2020.

The following table is a comparison of the reported results of operations and cash flows for the three months ended June 30, 2020 as a result of the correction of immaterial errors (in thousands):

Intangible Assets

Intangible assets are wireless licenses that are used to provide the Company with the exclusive right to utilize designated radio frequency spectrum to provide wireless communication services. While licenses are issued for only a fixed time, generally ten years, such licenses are subject to renewal by the FCC. License renewals have occurred routinely and at nominal cost in the past. There are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful life of the Company’s wireless licenses. As a result, the Company has determined that the wireless licenses should be treated as an indefinite-lived intangible asset. The Company will evaluate the useful life determination for its wireless licenses each year to determine whether events and circumstances continue to support their treatment as an indefinite useful life asset.

Historically, wireless licenses were tested for impairment on an aggregate basis, consistent with the Company’s dispatch business at a national level. Effective in the year ended March 31, 2021, (“Fiscal 2021”), the Company determined the unit of accounting for impairment testing purposes should be based on geographical markets and accordingly, tested the wireless

licenses for impairment based on these individual markets. The change in the unit of accounting was due to the Company’s expected use and marketability of its wireless licenses to support broadband operations at an individual market level as a result of the Report and Order. Due to the change in the unit of accounting, the Company performed a step one quantitative impairment test in Fiscal 2021 to determine if the fair value of the wireless licenses exceed the carrying value at the geographical market level. The estimated fair values of each unit of accounting were determined using a market-based approach based on the 600 MHz auction price as noted in the Report and Order. The Company also performed a step zero qualitative assessment on an aggregate basis to test the wireless licenses for impairment due to the change in the unit of accounting in Fiscal 2021. There are no triggering events indicating impairment in the three months ended June 30, 2021.

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, 2021.

Long-Lived Asset and Right of Use Assets 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, 2021, the Company recorded a $15,000 non-cash impairment charge for long-lived assets for network equipment costs to reduce the carrying values to zero. During the three months ended June 30, 2020, the Company recorded a $29,000 non-cash impairment charge for long-lived assets for network site costs to reduce the carrying values to zero.

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, 2021 and 2020, 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 1,488,000 and 1,586,000 at June 30, 2021 and 2020, 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

Long-Term Lease of 900 MHz Broadband Spectrum. In December 2020, the Company entered into its first long-term 900 MHz broadband spectrum Lease Agreements covering Ameren’s service territories. The Lease Agreements will enable Ameren to deploy a private LTE network in its service territories in Missouri and Illinois covering approximately 7.5 million people. Each Lease Agreement is for a term of up to 40 years, consisting of an initial term of 30 years, with an option to extend

for an additional 10-year term for an additional payment.  The scheduled prepayments for the 30-year initial terms of the Lease Agreements total approximately $48 million dollars. Full prepayment for the 30-year initial terms is due by 2026, with approximately 50% of the total prepayments due and payable subject to our ability to clear spectrum and secure the broadband licenses for the relevant counties. The Company is proactively clearing incumbents from the 900 MHz broadband segments in Ameren’s service territories and expects to begin delivering the broadband spectrum licenses by county during fiscal year 2022.  The Board approved the Lease Agreements on April 23, 2021, and Ameren’s board of directors approved the Lease Agreements on May 6, 2021. The payments of prepaid fees under the Lease Agreements will be accounted for as deferred revenue on the Company’s consolidated balance sheets and will be recognized ratably as the Company delivers broadband spectrum by county over the contractual term of approximately 30-years.

Historical Business. In December 2018, 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 Company’s TeamConnect Metro and Campus Systems (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, these agreements were amended to formally set the transition date for the businesses as April 1, 2019 and to clarify the responsibilities between the parties.

As part of the Company’s efforts to clear the 900 MHz spectrum for broadband use, A BEEP and Goosetown were required to migrate the acquired customers off the MotoTRBO Systems by December 31, 2020. 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, 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 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.

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, except for one Tier 1 domestic carrier. The LLC agreed to pay the Company a certain portion of the recurring revenues from the transferred customers through the term of the agreement.

TeamConnect combines pdvConnect with push-to-talk 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, 2021 and 2020 was approximately $182,000 each period.

Contract Assets. The Company recognizes a contract asset for the incremental costs of obtaining a contract with a customer. These costs include sales commissions. These costs are amortized ratably using the portfolio approach over the estimated customer contract period. The Company will review 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.

For the three months ended June 30, 2021, the Company incurred commission and stock compensation costs to obtain its long-term 900 MHz broadband spectrum lease agreements amounting to approximately $8,000, which was capitalized and will be amortized over the contractual term of approximately 30-years.

The following table presents the activity for the Company’s contract assets (in thousands):

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 following table presents the activity for the Company’s contract liabilities (in thousands):

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, 2021 and 2020.

During the three months ended June 30, 2021, the Company entered into agreements with several third parties in multiple U.S. markets to acquire wireless licenses for cash consideration of $4.9 million, after receiving FCC approval. As of June 30, 2021 and March 31, 2021, the Company recorded initial deposits to incumbents amounting to approximately $3.6 million and $2.3 million, respectively, that are refundable if the FCC does not approve the sale of the spectrum. Of the $3.6 million initial refundable deposit balance as of June 30, 2021, $3.1 million was included in prepaid expenses and other current assets and the remaining $0.5 million in other assets in the Consolidated Balance Sheets. Of the $2.3 million initial refundable deposit balance as of March 31, 2021, $1.9 million was included in prepaid expenses and other current assets and the remaining $0.5 million in other assets in the Consolidated Balance Sheets.

Intangible assets consist of the following at June 30, 2021 and March 31, 2021 (in thousands):

5.     Related Party Transactions

Under the terms of the MOU, the Company was obligated to pay the LLC a monthly service fee for a 24-month period that ended 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, 2021 and 2020, the Company incurred $15,000 and $176,000 under the MOU, respectively. As of June 30, 2021, the Company did not have any outstanding liabilities to the LLC. As of March 31, 2021, the Company owed $32,000 to the LLC.

The Company did not purchase any equipment from Motorola for the three months ended June 30, 2021 and 2020, respectively. The Motorola revenue recognized for the three months ended June 30, 2021 and, 2020 were approximately $182,000 each quarter. As of June 30, 2021 and March 31, 2021, the Company owed $120,000 to Motorola at the end of each period.

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, 2020. In 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, 2021 and 2020, the Company incurred $36,000 and $24,000 in consulting fees to Ms. Chong, respectively. As of June 30, 2021 and March 31, 2021, the Company did not owe Ms. Chong fees for consulting services.

On June 25, 2020, as part of its Executive Succession Plan, the Company announced that Brian D. McAuley had submitted his resignation as Executive Chairman of the Board, effective on July 1, 2020. On August 27, 2020, the Company entered into a consulting agreement (the “Consulting Agreement”) with Mr. McAuley under which Mr. McAuley will serve as a Senior Advisor to the Company’s management team and provide strategic, corporate governance and Board advisory services. The Consulting Agreement provides that Mr. McAuley will receive cash compensation of $40,000 per year. Pursuant to the existing terms of his outstanding equity awards, Mr. McAuley will continue to vest in his outstanding equity awards as he continues to provide services to the Company pursuant to the Consulting Agreement. The Consulting Agreement was effective as of September 2, 2020 and terminates by its terms on September 1, 2021, unless terminated earlier by either party or extended upon the mutual agreement of the parties at least thirty (30) days before the end of the term. The Consulting Agreement contains standard confidentiality, indemnification and intellectual property assignment provisions in favor of the Company. The Consulting Agreement also contains a waiver by Mr. McAuley to any severance benefits that he might be entitled to receive under the Company’s Executive Severance Plan in connection with his resignation and the Executive Succession Plan. In consideration for this waiver, in the event the Company terminates the Consulting Agreement without cause, Mr. McAuley dies or becomes disabled during the term of the Consulting Agreement, or the Company elects not to extend the term of the Consulting Agreement through September 1, 2023, then the vesting of all outstanding time-based equity awards held by Mr. McAuley shall accelerate on the date his consulting services end such that he will be deemed to have vested in a total of 18,761 shares of Common Stock for his services under the Consulting Agreement. In addition, Mr. McAuley’s performance-based equity awards shall remain outstanding (and shall not terminate) and he shall continue to be eligible to obtain vested option shares and vested restricted stock units under his outstanding performance-based equity awards if the “Vesting Conditions” set forth in the performance-based equity awards are satisfied. For the quarter ended June 30, 2021, the Company incurred approximately $10,000 in consulting fees to Mr. McAuley. As of June 30, 2021 and March 31, 2021, the Company did not have any outstanding liabilities to Mr. McAuley.

6.     Impairment and Restructuring Charges

Long-lived Assets and Right of Use Assets Impairment.

During the three months ended June 30, 2021, the Company recorded a $15,000 non-cash impairment charge for long-lived assets consisting of $15,000 for network equipment to reduce the carrying values to zero. 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.

Restructuring Charges.

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, the Company recorded an additional restructuring charge relating to the December 2018 Cost-Reduction Actions amounting to $14,000, related to employee severance and benefit costs. The Company did not incur restructuring charges for the quarter ending June 30, 2021.

7.     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 31, 2024 through June 30, 2027, which includes a 10-year lease extension for its corporate headquarters. The Company entered into multiple lease agreements for tower space. The lease expiration dates range from July 31, 2021 to November 30, 2027.

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:

Rent expense amounted to approximately $0.5 million for the three months ended June 30, 2021 are included in general and administrative expenses in the Consolidated Statements of Operations. Rent expense amounted to approximately $0.7 million for the three months ended June 30, 2020, of which approximately $0.4 million was included as direct cost of revenue and the remainder of approximately $0.3 million was included in general and administrative 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, 2021 and 2020 (in thousands):

The following table presents supplemental cash flow and non-cash activity information for the three months ended June 30, 2021 and 2020 (in thousands):

The following table presents supplemental balance sheet information as of June 30, 2021 and March 31, 2021 (in thousands):

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, 2021 are as follows (in thousands):

8.     Income Taxes

The Company's net operating losses (“NOLs’) generated after March 31, 2018 may be used as an indefinite-lived asset to offset its deferred tax liability, but limited to 80 percent of future taxable income. The deferred tax liabilities as of June 30, 2021 is approximately $2.0 million for federal and $1.4 million for state.

For the year ended March 31, 2021, the Company had federal and state NOL carryforwards of approximately $266.3 million and $152.3 million, respectively. Of these federal and state NOLs, approximately $125.1 million and $114.4 million respectively, are expiring in various amounts from 2021 through 2041. The remaining federal and state NOLs of approximately $141.2 million and $37.9 million, respectively, have an indefinite life but the federal NOLs may only offset 80% of taxable income when used.

For the three months ended June 30, 2021, the Company incurred federal and state net operating losses of approximately $24.9 million and $20.1 million, respectively, to offset future taxable income, of which $31.9 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, 2021. 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, 2021, the Company recorded a total deferred tax expense of $146,000 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.

9.    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.

The Board has reserved 5,027,201 shares of common stock for issuance under the 2014 Stock Plan as of June 31, 2021, of which 1,435,468 shares are available for future issuance. Historically, the number of shares reserved under the 2014 Stock Plan were increased, based on Board approval, each January 1 through January 1, 2021 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 (the “evergreen provision”). Effective January 1, 2021, the Board elected to increase the shares authorized under the 2014 Stock Plan by 879,216 shares, which represented 5% of the of the Company’s common stock issued and outstanding as of December 31, 2020. On June 14, 2021, the Compensation Committee of the Board approved Amendment No. 1 to 2014 Stock Plan to eliminate the evergreen provision for all future years (i.e., January 1, 2022 through January 1, 2024).

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 $2.6 million for the three months ended June 30, 2021 of which 2.3 million are included in general and administrative expenses, $0.2 million in product and development and the remainder of $0.1 million in sales and support expenses reported in the Consolidated Statement of Operations. Stock compensation expense related to restricted stock was approximately $1.7 million for the three months ended June 30, 2020 of which $1.6 million are included in general and administrative expenses, $0.1 million in product and development and the remainder of the expense, $41,000, in sales and support reported in the Consolidated Statement of Operations.

At June 30, 2021, there was $22.7 million of unvested compensation expense for restricted stock, which is expected to be recognized over a weighted average period of 3.0 years.

Cumulative Spectrum Proceeds Monetized

On December 31, 2020, the Compensation Committee awarded performance-based restricted units to the Company’s President and Chief Executive Officer (“CEO”) as part of the Succession Plan, (the “CEO Performance Units”). The performance-based

restricted units will vest on a determination date of June 24, 2024 (“Determination Date”) (unless sooner triggered by an earlier involuntary termination), based on Cumulative Spectrum Proceeds Monetized (“CSPM”) metric over a four-year measurement period commencing on June 24, 2020, with 15,025 units vesting if the minimum CSPM level is achieved, 30,049 units vesting if the target CSPM metric is achieved and up to 60,098 vesting if the maximum CSPM metric is achieved.

The Company recorded approximately $0.1 million of stock compensation expense included in general and administrative expenses reported in the Consolidated Statements of Operations relating to the CEO Performance Units - CSPM for the quarter ended June 30, 2021. As of June 30, 2021, there was approximately $1.0 million of unvested compensation expense for the outstanding performance-based restricted stock units related to the December 31, 2020 CEO Performance Units, which is expected to be recognized over a weighted average period of 3.24 years.

Total Stockholder Return

On February 1, 2021, the Compensation Committee awarded performance-based restricted units to the President and Chief Executive Officer based on Total Stockholder Return metrics (“TSR Performance Units”). The performance-based restricted units will vest upon continued service and achievement of certain stock price levels calculated using a four-year compound annual growth rate and based on the average closing bid price per share of the Company’s common stock measured over a sixty-trading day period (“Stock Price Levels”). Shares will vest in a range of 25% to 350% of the 45,000 target reported units based on achieving specified Stock Price Levels. The vesting end measurement date is February 1, 2025, with earlier vesting determination dates upon a change in control of the Company, involuntary termination of the CEO or twelve months following the achievement of the maximum stock price level. If after February 1, 2023, the CEO achieves a Stock Price Level, there will be a vesting determination date the earlier of twelve months thereafter or February 1, 2025.

The Company recorded approximately $0.2 million of stock compensation expense relating to the TSR Performance Units for the quarter ended June 30, 2021 included in general and administrative expenses reported in the Consolidated Statements of Operations. As of June 30, 2021, there was approximately $2.9 million of unvested compensation expense for the outstanding performance-based restricted stock units related to the February 1, 2021 TSR Performance Units, which is expected to be recognized over a weighted average period of 3.68 years.

There were no stock options granted for the three months ended June 30, 2021.

In May 2021, the Company reacquired 20,132 shares when a participant surrendered already-owned shares of the Company’s common stock to cover the exercise price of an outstanding stock option exercised by the participant. The 20,132 shares surrendered are constructively retired by the Company as of June 30, 2021 which resulted in the reduction of approximately $1.0 million in additional paid in capital in the Consolidated Statement of Stockholders’ Equity.

For the three months ended June 30, 2021 and 2020, stock compensation expense related to the amortization of the fair value of stock options issued was approximately $0.4 million and $0.2 million, respectively, and is included in general and administrative expenses reported in the Consolidated Statements of Operations.

As of June 30, 2021, there was approximately $1.5 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 1.6 years.