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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended September 30, 2015

OR

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

For the transition period from           to          

Commission File No. 001-35724

Alteva, Inc.

(Exact name of registrant as specified in its charter)

Registrant’s telephone, including area code:   (877) 258-3722

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 x    NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  YES x   NO o

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

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act.  YES o    NO x

The number of shares of Alteva, Inc. common stock outstanding as of November 5, 2015 was 5,981,352.

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Index to Form 10-Q

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Part I — Financial Information

Item 1.  Financial Statements

ALTEVA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per share amounts)

Please see accompanying notes, which are an integral part of the condensed consolidated financial statements.

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ALTEVA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(in thousands)

Please see accompanying notes, which are an integral part of the condensed consolidated financial statements.

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ALTEVA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

Please see accompanying notes, which are an integral part of the condensed consolidated financial statements.

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ALTEVA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

Please see the accompanying notes, which are an integral part of the condensed consolidated financial statements.

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ALTEVA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1:   NATURE OF OPERATIONS AND CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Nature of Operations

Alteva, Inc. (“Alteva” or the “Company”) is a cloud-based communications company that provides Unified Communications (“UC”) solutions, including enterprise hosted Voice over Internet Protocol (“VoIP”) and operates as a regional Incumbent Local Exchange Carrier (“ILEC”) in southern Orange County, New York and northern New Jersey.  Unless otherwise indicated or unless the context requires, all references to the Company means the Company and its wholly-owned subsidiaries.  The Company delivers cloud-based UC solutions including BroadSoft-based VoIP integrated with Microsoft Lync, Microsoft Exchange, Google Apps for Business, leading customer relationship management (“CRM”) applications such as Salesforce.com and Bring-Your-Own-Device (“BYOD”) solutions for Mobility, which allows users to take advantage of all of the features available to them no matter where they are located or what device they are using.  The Company’s ILEC operations consist of providing local and toll telephone service to residential and business customers, Internet high-speed broadband service, and satellite television services provided by DIRECTV®.

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information, with the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.  In the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.  The operating results for the interim periods are not necessarily indicative of the results that may be expected for the entire year or any other future period.  The consolidated balance sheet as of December 31, 2014 has been derived from the audited consolidated financial statements as of that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.  All material intercompany transactions and balances have been eliminated.  The interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2014.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported period.  Significant estimates include, but are not limited to, depreciation and amortization expense, allowance for doubtful accounts, long-lived assets, pension and postretirement expenses, and income taxes.  Actual results could differ from those estimates.

Revenue Recognition

The Company derives its revenue from the sale of UC services as well as traditional telephone services.

The Company recognizes revenue when (i) persuasive evidence of an arrangement between the Company and the customer exists, (ii) the delivery of the product to the customer has occurred or service has been provided to the customer, (iii) the price to the customer is fixed or determinable, and (iv) collectability of the sales or service price is reasonably assured.  Revenue is reported net of all applicable sales tax.

UC

The Company’s UC services and solutions consist primarily of its hosted VoIP UC system, certain UC applications, and other professional services associated with the installation and activation. Additionally, the Company offers customers the ability to purchase telephone equipment from the Company directly or independently from external vendors.

Multiple element arrangements primarily include the sale of telephone equipment, along with professional services associated with installation, activation and implementation services, as well as follow on hosting services.  The Company has concluded that the separate units of accounting in these arrangements consist of (i) the telephone equipment sale and (ii) the professional services provided combined with the follow on hosting services.  The professional services provided do not constitute a separate unit of accounting as they do not have value to the customer on a stand-alone basis.  Arrangement consideration is allocated to the separate units of accounting based on the relative selling price.  The selling price for telephone equipment is based on third-party evidence representing list prices for similar equipment when sold a stand-alone basis.  The selling price for professional and hosting services is based on the Company’s best estimate of selling price (“BESP”).  The Company develops its BESP by considering pricing practices, margin, competition and overall market trends.

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The Company bills a portion of its monthly recurring hosted service revenue a month in advance. Any amounts billed and collected, but for which the service is not yet delivered, are included in deferred revenue. These amounts are recognized as revenues only when the service is delivered.

Equipment sales associated with the sale of telephone equipment is recognized upon delivery to the customer, as it is considered to be a separate earnings process. The sales are recognized on a gross basis, as the Company is considered the primary obligor in customer transactions among other considerations.  Other upfront fees, excluding equipment, along with associated costs, up to but not exceeding these fees, are deferred and recognized over the estimated life of the customer relationship.  The Company has estimated its customer relationship life at eight years and evaluates it periodically for continued appropriateness.

Telephone

Revenue is earned from monthly billings to customers for local voice services, long distance, DSL, Internet services, hardware and other services. Revenue is also derived from charges for network access to the local exchange telephone network from subscriber line charges and from contractual arrangements for services such as billing and collection and directory advertising. Revenue is recognized in the period in which service is provided to the customer. Directory advertising revenue is recorded ratably over the life of the directory. With multiple billing cycles, the Company accrues revenue earned but not yet billed at the end of a quarter. The Company also defers services billed in advance and recognizes them as income when earned.

The Telephone segment markets competitive service bundles which may include multiple deliverables. The base bundles consist of voice services (including a business or residential phone line), calling features and long distance services and customers may choose to add internet services to a base bundle package. Separate units of accounting within the bundled packages include voice services, long distance and Internet services. Revenue for all services included in bundles is recognized over the same service period, which is the time period in which the service is provided to the customer.

Certain revenue is realized under pooling arrangements with other service providers and is divided among the companies based on respective costs and investments to provide the services. The companies that take part in pooling arrangements may adjust their costs and investments for a period of two years, which causes the funds distributed by the pool to be adjusted retroactively. The Company believes that recorded amounts represent reasonable estimates of the final distribution from these pools. However, to the extent that the companies participating in these pools make adjustments, there will be corresponding adjustments to the Company’s recorded revenue in future periods.

Revenue from these pooling arrangements which includes Universal Service Funds (“USF”) and National Exchange Carrier Association (“NECA”) pool settlements, accounted for 5% and 3% of the Company’s consolidated revenues for the nine months ended September 30, 2015 and 2014, respectively.

Materials and Supplies

The Company’s materials and supplies are carried at average cost, net of reserves for obsolescence, and consist principally of telephone equipment, telephone pole and wiring spare parts and other ancillary equipment for resale.

Fair Value

Fair value is the estimated price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company is required by accounting standards to provide the disclosure framework for measuring fair value and expanded disclosure about fair value measurements.  Fair value measurements are classified and disclosed in one of the following categories:

Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement.  The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.

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Goodwill

Goodwill represents the excess of the purchase price of an acquired business over the net fair value of identifiable assets acquired and liabilities assumed.  Goodwill is not amortized, but rather is assessed for impairment at least annually.  The Company tests goodwill for impairment at the reporting unit level annually on December 31, or whenever events or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value.  If it is determined that an impairment has occurred, the Company records a write down of the carrying value and records the charge for the impairment as an operating expense during the period in which the determination is made.  The Company has determined that its operating segments are the applicable reporting units because they are the lowest level at which discrete, reliable financial and cash flow information is regularly reviewed by segment management.

The Company only has goodwill that is associated with its UC segment, resulting from the purchase of certain assets and certain liabilities of Alteva, LLC in 2011.  The Company is not aware of any events or circumstances that occurred during the nine months ended September 30, 2015 that would have more likely than not reduced the fair value of this reporting unit below its carrying value.

Income Taxes

The Company records deferred taxes that arise from temporary differences between the financial statement and the tax basis of assets and liabilities.  Deferred taxes are classified as current or non-current, depending on the classification of the assets and liabilities to which they relate.  Deferred tax assets and deferred tax liabilities are adjusted for the effect of changes in tax laws and rates on the date of enactment.  The Company’s deferred taxes result principally from differences in the timing of depreciation, in the accounting for pensions and other postretirement benefits, and state net operating loss carryforwards.

The process of providing for income taxes and determining the related balance sheet accounts requires management to assess uncertainties, make judgments regarding outcomes and utilize estimates. Management must make judgments currently about such uncertainties and determine estimates of the Company’s tax assets and liabilities. To the extent the final outcome differs, future adjustments to the Company’s tax assets and liabilities may be necessary.

The Company assesses the realizability of its deferred tax assets, taking into consideration future reversals of existing temporary differences, the Company’s forecast of future taxable income, and available tax planning strategies that could be implemented to realize the deferred tax assets. Based on this assessment, management must evaluate the need for, and the amount of, valuation allowances against the Company’s deferred tax assets. To the extent facts and circumstances change in the future, adjustments to the valuation allowances may be required.

Accounting for uncertainty in income taxes requires uncertain tax positions to be classified as non-current income tax liabilities unless they are expected to be paid within one year.  The Company recognizes interest accrued related to unrecognized tax benefits in interest expense.

Stock-Based Compensation

The Company measures the cost of employee services received in exchange for the award of an equity instrument based on the grant-date fair value of the award, with such cost recognized over the applicable vesting period.

Accounting Policies

There were no material changes to the Company’s other accounting policies as presented in Item 8 of its Annual Report on Form 10-K, as amended, for the year ended December 31, 2014.

NOTE 2:  NEW ACCOUNTING PRONOUNCEMENTS

In May 2015, the Financial Accounting Standards Board (“FASB”) issued accounting standards update (“ASU”) 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent), followed in July by ASU 2015-12, Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), and Health and Welfare Benefit Plans (Topic 965): Part (I) Fully Benefit-Responsive Investment Contracts, Part (II) Plan Investment Disclosures, Part (III) Measurement Date Practical Expedient. These ASUs simplify or eliminate some of the financial statement reporting and disclosures that were previously required for employee benefit plans. ASU 2015-07 is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years and requires retrospective presentation.  Parts I and II of ASU 2015-12 are effective for fiscal years beginning after December 15, 2015, and require retrospective presentation.  The Company expects the adoption of these standards will affect its employee benefit plan disclosures.

In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs.  The update provides guidance on simplifying the presentation for debt issuance costs and debt discount and premium. The standard is effective for the annual and interim periods within those annual periods beginning after December 15, 2015.  The Company does not expect the adoption of ASU 2015-03 to have a significant impact to the disclosure or balance sheet presentation in its consolidated financial statements.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements — Going Concern: Disclosure of

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Uncertainties about an Entity’s Ability to Continue as a Going Concern.  The update provides guidance that previously did not exist under US GAAP about a company’s management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures, if applicable.  The standard is effective for annual and interim periods within those annual periods beginning after December 15, 2016.  Early adoption is permitted. The Company does not expect the adoption of ASU 2014-15 to have a significant impact to the disclosures in its consolidated financial statements.

In June 2014, the FASB issued ASU 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.  The update provides guidance on how to account for certain share-based payment awards where employees would be eligible to vest in the award regardless of whether the employee is still rendering service on the date the performance target is achieved.  The standard is effective for annual and interim periods within those annual periods beginning after December 15, 2015.  Early adoption is permitted.  The Company does not expect the adoption of ASU 2014-12 to have a material impact to its consolidated results of operations.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers: Topic 606 to supersede nearly all existing revenue recognition guidance under U.S. GAAP.  The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services.  ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under existing U.S. GAAP.  The guidance was originally effective for annual reporting periods beginning after December 15, 2016, and interim periods therein. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which defers the effective date to annual reporting periods beginning after December 15, 2017. Early adoption is permitted for annual reporting periods beginning after December 15, 2016. ASU 2014-09 can be adopted using either of two methods: (i) retrospective to each prior reporting period presented with the option to elect certain practical expedients as defined within ASU 2014-09; or (ii) retrospective with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application and providing certain additional disclosures as defined per ASU 2014-09. The Company is currently evaluating the impact of adopting ASU 2014-09 on its consolidated financial statements and has not yet selected a transition method nor has it selected an adoption date.

In April 2014, the FASB issued ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU 2014-08 revised guidance to only allow disposals of components of an entity that represent a strategic shift (e.g., disposal of a major geographical area, a major line of business, a major equity method investment, or other major parts of an entity) and that have a major effect on a reporting entity’s operations and financial results to be reported as discontinued operations. The revised guidance also requires expanded disclosure in the financial statements for discontinued operations, as well as for disposals of significant components of an entity that do not qualify for discontinued operations presentation. ASU 2014-08 is effective for interim and annual reporting periods beginning after December 15, 2014. The Company adopted ASU 2014-08 effective January 1, 2015 and the adoption did not have a significant impact on the Company’s consolidated financial statement presentation.

NOTE 3:  SEAT LICENSES AND OTHER INTANGIBLE ASSETS

Intangible assets with finite lives are amortized over their respective estimated useful lives to their estimated residual value. Identifiable intangible assets that are subject to amortization are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable.

The components of seat licenses are as follows:

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The components of other intangible assets are as follows:

NOTE 4:  ORANGE COUNTY-POUGHKEEPSIE LIMITED PARTNERSHIP

The Company was a limited partner in the Orange County-Poughkeepsie Limited Partnership (“O-P”) and had an 8.108% limited partnership interest in the O-P until April 30, 2014, which was accounted for under the equity method of accounting.  The majority owner and general partner of the O-P is Verizon Wireless of the East LP (“Verizon”).

On April 30, 2014, the Company exercised the Put option and sold all of its ownership interest in the O-P for gross proceeds of $50 million, which resulted in a gain on the sale of $49.8 million.  The Company did not receive any income from the O-P after April 30, 2014.  The Company used a portion of the proceeds to repay all of the then outstanding borrowings under the TriState credit facility, paid taxes on the gain and fund a special dividend paid in this quarter. The Company expects to use the remaining gross proceeds, among other things, for working capital needs and support growth initiatives. The Company may, in its discretion, use the gross proceeds for other purposes.

Pursuant to the equity method accounting of the Company’s investment income, the Company is required to record the income from the O-P as an increase to the Company’s investment account.  On May 26, 2011, the Company entered into an agreement (the “4G Agreement”) with Verizon and Cellco Partnership (d/b/a Verizon Wireless), the other limited partner, in the O-P to make certain changes to the O-P partnership agreement.  The 4G Agreement provided for guaranteed annual cash distributions to the Company through 2013.  The Company was therefore required to apply the cash payments made as a return on its investment when received.   As a result of receiving the fixed guaranteed cash distributions from the O-P in excess of the Company’s proportionate share of the O-P income, the investment account was reduced to zero during 2012. Thereafter, the Company recorded the fixed guaranteed cash distributions that were received from the O-P in excess of the proportionate share of the O-P income directly to the Company’s statement of operations as other income.  In 2014 when the guaranteed distribution ceased, the Company returned to recording the income from the O-P as in increase to the Company’s investment account and any cash payments received were applied as a return on its investment.  As of September 30, 2015 and December 31, 2014, the investment account was zero.

The following summarizes the income statement (unaudited) for the nine months ended September 30, 2014:

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NOTE 5: DEBT OBLIGATIONS

Debt obligations consisted of the following at September 30, 2015 and December 31, 2014:

On November 7, 2014, the Company entered into a demand line of credit with TriState (the “Demand Line of Credit”) to allow for borrowings up to $5.0 million. The Company borrows or repays its debt as needed based upon its working capital obligations.  It is up to the discretion of TriState to approve borrowings within the allowed line of credit limit and TriState may, at any time, demand that the Company make payment on an outstanding balance. There are no financial covenants under the Demand Line of Credit.  As of September 30, 2015, the Company did not have any outstanding balance under the Demand Line of Credit.

NOTE 6:  INCOME TAXES

The effective tax rate for the nine months ended September 30, 2015, and September 30, 2014 was 16% and 36%, respectively.  We determined our interim tax provision by developing an estimate of the annual effective tax rate and applying such rate to interim pre-tax results. The estimated rate includes projections of tax expense on the expected increase in our valuation allowance for deferred tax assets.  The estimated effective tax rate differed from the U.S. statutory rate primarily due to the expected increase in the valuation allowance, which reduced the overall tax benefit recorded for the period ended September 30, 2015.

As of September 30, 2015 and December 31, 2014, the Company carried a full valuation allowance against its deferred tax assets because management determined that it was not more likely than not that it would realize the benefits of such deferred tax assets. The Company maintains a deferred tax liability related to indefinite lived intangibles.

Accounting for uncertainty in income taxes requires uncertain tax positions to be classified as non-current income tax liabilities unless they are expected to be paid within one year.  The Company has concluded that there are no material uncertain tax positions requiring recognition in its consolidated financial statements as of September 30, 2015 and December 31, 2014.

The Company recognizes interest accrued related to unrecognized tax benefits in interest expense. For the nine months ended September 30, 2015 and 2014, the interest expense relating to unrecognized tax benefits was not material.

The Company and its subsidiaries file a U.S. federal consolidated income tax return.  The U.S. federal statute of limitations remains open for the years 2011 and thereafter. State income tax returns are generally subject to examination for a period of 3 to 5 years after filing the respective return.  The impact of any federal changes on state returns remains subject to examination by the relevant states for a period of up to one year after formal notification to the states.

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NOTE 7:  PENSION AND POSTRETIREMENT OBLIGATIONS

The components of net periodic cost (benefit) for the three months ended September 30, 2015 and 2014 are as follows:

The components of net periodic cost (benefit) for the nine months ended September 30, 2015 and 2014 are as follows:

For the nine months ended September 30, 2015 and September 30, 2014, the Company has contributed $0.1 million and $0.2 million, respectively, to its pension and postretirement benefits plans. The amortization of prior service cost and recognized actuarial loss included in pension and postretirement expense represent reclassifications out of other comprehensive income (loss).

NOTE 8:    STOCK BASED COMPENSATION

The Company has a shareholder approved long-term incentive plan (the “LTIP”) to assist the Company and its affiliates in attracting, motivating and retaining selected individuals to serve as employees, directors, consultants and advisors of the Company and its affiliates by providing incentives to such individuals through the ownership and performance of the Company’s common stock. There are 1.1 million shares of common stock authorized for issuance under the LTIP.  Shares available for grant under the LTIP may be authorized and unissued shares or shares that have been reacquired by the Company and are designated as treasury shares. As of September 30, 2015 and December 31, 2014, 382,198 and 420,392 shares of the Company’s common stock were available for grant under the LTIP. The LTIP permits the issuance by the Company of awards in the form of stock options, stock appreciation rights, restricted stock and restricted stock units and performance shares. The exercise price per share of the Company’s common stock purchasable under any stock option or stock appreciation right may not be less than 100% of the fair market value of one share of common stock on the date of grant. The term of any stock option or stock appreciation right may not exceed ten years. The LTIP also provides plan participants with a cashless mechanism to exercise their stock options. Issued restricted stock, stock options and restricted stock units are subject to vesting restrictions.

On August 21, 2015, the Compensation Committee of the Board of Directors of the Company (the “Committee”) approved amendments to the vesting terms of unvested equity grants for all employees with outstanding grants under the LTIP.  All existing employee equity grant award agreements were amended to provide that all such awards vest immediately upon a change in control of the Company. On the same day, the Committee took further action so that all awarded, but unvested restricted stock of non-employee directors vested effective as of the close of business on Monday, August 24, 2015. As a result of these two changes, the Company recorded an additional $0.2 million in compensation expense during the third quarter of 2015 relating to the accelerated vesting for the three and nine months ended September 30, 2015.

Restricted Stock Awards

Stock-based compensation expense for restricted stock awards was $0.7 million and $0.7 million for the nine months ended September 30, 2015 and 2014, respectively, and was recorded within selling, general, and administrative expenses.

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Restricted stock awards are amortized over their respective vesting periods of two or three years.  The Company records stock-based compensation for grants of restricted stock awards on a straight-line basis.

The following table summarizes the restricted common stock activity for the nine months ended September 30, 2015:

The total grant-date fair value of restricted stock vested for the nine months ended September 30, 2015 was $0.8 million.  As of September 30, 2015, $0.6 million of total unrecognized compensation expense related to restricted common stock is expected to be recognized over a weighted average period of approximately 2.0 years.

Stock Options

The following tables summarize stock option activity for the nine months ended September 30, 2015, along with stock options exercisable at the end of the period:

The fair value of the stock-based awards was estimated using the Black-Scholes model.  No options were granted during the nine months ended September 30, 2015.

As of September 30, 2015, the amount of unrecognized compensation expense related to stock options awards was de minimis.

Stock-based compensation expense resulting from stock options granted to employees was de minimis for the nine months ended September 30, 2015 and 2014 and was recorded within selling, general, and administrative expenses.

Shareholder Rights Plan

On September 2, 2014, in connection with an unsolicited, non-binding acquisition proposal, the Company’s Board of Directors (the “Alteva Board”) adopted a Stockholder Rights Plan that provides for the distribution of one right for each share of common stock outstanding.  Each right entitles the holder to purchase one one-thousandth (1/1000th) of a share of Series A Junior Participating Preferred Stock, par value of $0.01 per share, of the Company (the “Preferred Stock”) at a price of $22.20 per one-thousandth of a share of Preferred Stock, subject to adjustment.  The rights generally become distributed and exercisable at the discretion of the Alteva Board following a public announcement that 20% or more of the Company’s common stock has been acquired or an intent to acquire has become apparent.  By its terms, the Stockholder Rights Plan expired on September 1, 2015.

Share Repurchase Program

On August 25, 2014, the Alteva Board authorized a repurchase program for up to $3.0 million of its common stock.  Share purchases may take place in open market transactions or in privately negotiated transaction and may be made from time to time depending on market conditions, share price, trading volume and other factors. The repurchase program authorized by the Alteva Board does not require the Company to acquire a specific number of shares, and may be terminated, suspended, or

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modified at any time. The timing and actual number of shares repurchased, if any, will depend on a variety of factors including the market price of the Company’s common stock, regulatory, legal and contractual requirements, and other market factors. The share repurchase is expected to be funded from available cash on hand.

On May 14, 2015, the stock repurchase program was terminated by the Company’s Board of Directors in connection with approving the special cash dividend of $2.60 per outstanding common share (see Note 10).

As of September 30, 2015, the Company repurchased 11,057 shares under the repurchase program at a value of $0.1 million.  Shares were purchased on the open market at the prevailing days’ stock price, plus transaction costs.

NOTE 9:  EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share is computed by dividing net income (loss) applicable to common stock by the weighted average number of shares of common stock outstanding during the period.  Diluted earnings (loss) per share is computed by dividing net income (loss) applicable to common stock by the weighted average number of shares of common stock adjusted to include the effect of potentially dilutive securities.  Potentially dilutive securities include incremental shares issuable upon exercise of outstanding stock options and shares of unvested restricted stock.  Diluted earnings (loss) per share exclude all dilutive securities if their effect is anti-dilutive.

The Company’s restricted stock awards are considered “participating securities” because they contain non-forfeitable rights to dividends. Under the two-class method, earnings per share (“EPS”) is computed by dividing earnings allocated to common shareholders by the weighted-average number of common shares outstanding for the period. In applying the two-class method, earnings are allocated to both shares of common stock and participating securities based on their respective weighted-average shares outstanding for the period.

For the three and nine months ended September 30, 2015, the Company experienced a net loss.  As a result, the effect of participating securities was excluded from the computation of basic and diluted EPS.  The net losses were not allocated because the restricted stockholders are not required to fund losses.

The weighted average number of shares of common stock used in basic and diluted earnings per share for the three and nine months ended September 30, 2015 and 2014 was as follows:

(1)         For the three months ended September 30, 2015 and 2014, the Company had 0.1 million and 0.2 million, respectively in nonvested participating securities.  As the participating securities do not participate in losses, there was no allocation of loss for the three months ended September 30, 2015 and 2014.

(2)         For the three months ended September 30, 2015 and 2014, potentially dilutive shares related to out of the money common stock options that were excluded from EPS, as their effect was anti-dilutive, were nominal.

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(1)         For the nine months ended September 30, 2015 and 2014, the Company had 0.1 million and 0.2 million, respectively in nonvested participating securities.  As the participating securities do not participate in losses, there was no allocation of loss for the nine months ended September 30, 2015.

(2)         For the nine months ended September 30, 2015 and 2014, potentially dilutive shares related to out of the money common stock options that were excluded from EPS, as their effect was anti-dilutive, were nominal.

NOTE 10:  SHAREHOLDERS’ EQUITY

A summary of the changes to shareholders’ equity for the nine months ended September 30, 2015 and 2014 is provided below: