Alteva (ALTV) 10-Q 2015 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended March 31, 2015

OR

oTRANSITION 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)

New York	14-1160510
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

401 Market Street, 1st Floor
Philadelphia, PA	19106
(Address of principal executive offices)	(Zip Code)

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.

Large accelerated filer £	Accelerated filer £
Non-accelerated filer £ (Do not check if a smaller reporting company)	Smaller reporting company x

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

The number of shares of Alteva, Inc. common stock outstanding as of May 7, 2015 was 5,998,231.

Index to Form 10-Q

Part I	Financial Information
Item 1.	Financial Statements
	Condensed Consolidated Statements of Operations for the three months ended March 31, 2015 and 2014 (unaudited)	3
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2015 and 2014 (unaudited)	4
	Condensed Consolidated Balance Sheets as of March 31, 2015 (unaudited) and December 31, 2014	5
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2015 and 2014 (unaudited)	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	20
Item 4.	Controls and Procedures	20
Part II	Other Information
Item 1A.	Risk Factors	21
Item 6.	Exhibits	21

2

Part I — Financial Information

Item 1.  Financial Statements

ALTEVA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per share amounts)

	Three Months Ended
	March 31,
	2015			2014
Operating revenues:
Unified Communications	$	4,461		$	4,211
Telephone	3,293			3,313
Total operating revenues	7,754			7,524
Operating expenses:
Cost of services and products (exclusive of depreciation and amortization expense)	3,143			3,052
Selling, general and administration expenses	5,055			5,698
Depreciation and amortization	1,242			903
Restructuring costs and other special charges	—			100
Total operating expenses	9,440			9,753
Operating loss	(1,686		)	(2,229		)
Other income:
Interest income (expense), net	9			(139		)
Income from investment	—			2,040
Other income, net	1,501			21
Total other income, net	1,510			1,922
Loss before income taxes	(176		)	(307		)
Income tax expense (benefit)	18			(58		)
Net loss	(194		)	(249		)
Preferred dividends	6			6
Net loss applicable to common stock	$	(200	)	$	(255	)
Basic loss per common share	$	(0.03	)	$	(0.04	)
Diluted loss per common share	$	(0.03	)	$	(0.04	)
Weighted average shares of common stock used to calculate loss per common share:
Basic	5,829			6,161
Diluted	5,829			6,161

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

3

ALTEVA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(in thousands)

	Three Months Ended
	March 31,
	2015			2014
Net loss	$	(194	)	$	(249	)
Other comprehensive income (loss):
Defined benefit pension plans:
Amortization of prior service costs	25			(35		)
Amortization of actuarial gain	217			183
Other comprehensive income	242			148
Comprehensive income (loss)	$	48		$	(101	)

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

4

ALTEVA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

	March 31,			December 31,
	2015			2014
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	22,791		$	24,047
Trade accounts receivable - net of allowance for uncollectibles - $404 and $402 at March 31, 2015 and December 31, 2014, respectively	2,855			2,737
Other accounts receivable	2,038			488
Materials and supplies	188			167
Prepaid expenses	654			349
Prepaid income taxes	262			311
Deferred income taxes	28			43
Total current assets	28,816			28,142
Property, plant and equipment, net	11,587			12,384
Intangibles, net	4,808			5,020
Seat licenses, net	1,510			1,543
Goodwill	9,006			9,006
Other assets	1,060			1,023
Total assets	$	56,787		$	57,118
Liabilities and Shareholders’ Equity
Current liabilities
Short-term debt	$	346		$	325
Accounts payable	1,152			1,216
Advance billing and payments	284			274
Accrued taxes	886			1,056
Pension and post retirement benefit obligations	276			276
Accrued wages	731			1,036
Other accrued expenses	3,049			2,885
Total current liabilities	6,724			7,068
Long-term debt	333			295
Deferred income taxes	767			766
Pension and postretirement benefit obligations	8,758			8,833
Total liabilities	16,582			16,962
Shareholders’ equity
Preferred shares - $100 par value, authorized and issued shares of 5; $0.01 par value, authorized and unissued shares of 10,000	500			500
Common stock - $0.01 par value, authorized shares of 10,000; issued shares of 6,877 and 6,826 at March 31, 2015 and December 31, 2014, respectively	69			69
Treasury stock - at cost, 902 and 885 common shares at March 31, 2015 and December 31, 2014, respectively	(8,229		)	(8,077		)
Additional paid in capital	14,206			14,047
Accumulated other comprehensive loss	(3,755		)	(3,997		)
Retained earnings	37,414			37,614
Total shareholders’ equity	40,205			40,156
Total liabilities and shareholders’ equity	$	56,787		$	57,118

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

5

ALTEVA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

		Three Months Ended March 31,
		2015			2014
CASH FLOW FROM OPERATING ACTIVITIES	��
Net loss		$	(194	)	$	(249	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,242			903
Stock based compensation expense		159			306
Deferred income taxes		16			62
Non cash gain on lease termination		(1,500		)	—
Undistributed earnings from equity investment		—			(2,040		)
Other non-cash operating activities		(2		)	51
Changes in assets and liabilities:
Trade accounts receivable		(118		)	(290		)
Prepaid expenses and other assets		(363		)	(473		)
Accounts payable and accrued expenses		(118		)	555
Accrued taxes		(170		)	(489		)
Pension and postretirement benefit obligations		167			70
Net cash used in operating activities		(881		)	(1,594		)
CASH FLOW FROM INVESTING ACTIVITIES
Capital expenditures		(89		)	(48		)
Proceeds from sale of assets		—			33
Net cash used in investing activities		(89		)	(15		)
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from debt		—			1,300
Repayment of debt and capital leases		(128		)	(664		)
Purchase of treasury stock		(152		)	(398		)
Dividends (Preferred)		(6		)	(6		)
Net cash (used in) provided by financing activities		(286		)	232
Net change in cash and cash equivalents		(1,256		)	(1,377		)
Cash and cash equivalents at beginning of period		24,047			1,636
Cash and cash equivalents at end of period		$	22,791		$	259
Supplemental disclosure of non-cash investing activities:
Acquisition of equipment and seat licenses under capital leases		$	188		$	242
Seat licenses acquired but not paid		$	111		$	114

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

6

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.  Operating results and cash flows for the three month period ended March 31, 2015 are not necessarily indicative of the results that may be expected for the entire year.  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 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.

7

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 4% and 2% of the Company’s consolidated revenues for the three months ended March 31, 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:

Level 1:Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. The Company considers active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2:These are inputs, other than quoted prices that are included in Level 1, which are observable in the marketplace throughout the term of the assets or liabilities, can be derived from observable data, or supported by observable levels at which transactions are executed in the marketplace.

Level 3:Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources (i.e. supported by little or no market activity). The Company does not have sufficient corroborating evidence to support classifying these assets and liabilities as Level 1 or Level 2.

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.

8

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 three months ended March 31, 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 for the year ended December 31, 2014.

NOTE 2:  NEW ACCOUNTING PRONOUNCEMENTS

In August 2014, the Financial Accounting Standards Board (“FASB”) issued accounting standards update (“ASU”) 2014-15  Presentation of Financial Statements — Going Concern: Disclosure of 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.

9

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers: Topic 606 (ASU 2014-09) 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.  On April 1, 2015, the FASB proposed to extend the effective date of ASU 2014-09 from reporting periods beginning after December 15, 2016 to reporting periods beginning after December 15, 2017.  Upon the conclusion of the 30 day period for public comment, the proposal will be decided upon.  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 determined the effect on its ongoing financial reporting.

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:

	Estimated	Gross		Accumulated			Net
($ in thousands)	Useful Lives	Value		Amortization			Value
As of March 31, 2015
Seat licenses	5 years	$	3,047	$	(1,537	)	$	1,510

	Estimated	Gross		Accumulated			Net
($ in thousands)	Useful Lives	Value		Amortization			Value
As of December 31, 2014
Seat licenses	5 years	$	2,936	$	(1,393	)	$	1,543

The components of other intangible assets are as follows:

	Estimated	Gross		Accumulated			Net
($ in thousands)	Useful Lives	Value		Amortization			Value
As of March 31, 2015
Customer relationships	8 years	$	5,400	$	(2,475	)	$	2,925
Trade name	15 years	2,400		(586		)	1,814
Website	12 years	95		(26		)	69
Total		$	7,895	$	(3,087	)	$	4,808

	Estimated	Gross		Accumulated			Net
($ in thousands)	Useful Lives	Value		Amortization			Value
As of December 31, 2014
Customer relationships	8 years	$	5,400	$	(2,306	)	$	3,094
Trade name	15 years	2,400		(547		)	1,853
Website	12 years	95		(22		)	73
Total		$	7,895	$	(2,875	)	$	5,020

10

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 will 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 and paid taxes on the gain. The Company expects to use the remaining gross proceeds, among other things, to fund a special cash dividend, 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 March 31, 2015 and December 31, 2014, the investment account was zero.

The following summarizes the income statement (unaudited) for the three months ended March 31, 2014 that the O-P provided to the Company:

	For the three months ended
($ in thousands)	March 31, 2014
Net sales	$	84,441
Cellular service cost	37,610
Operating expenses	21,689
Operating income	25,142
Other income	19
Net income	$	25,161
Company’s share	$	2,040

NOTE 5: DEBT OBLIGATIONS

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

	As of
($ in thousands)	March 31, 2015		December 31, 2014
Short-term debt:
Capital leases and other borrowings, current portion	$	346	$	325
Long-term debt:
Capital leases and other borrowings	333		295
Total debt obligations	$	679	$	620

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 March 31, 2015, the Company did not have any outstanding balance under the Demand Line of Credit.

11

NOTE 6:  INCOME TAXES

The effective tax rate for the three months ended March 31, 2015, and March 31, 2014 was (10%) and 19%, 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 resulted in an overall tax expense recorded for the period ended March 31, 2015.

As of March 31, 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 uncertain tax positions requiring recognition in its consolidated financial statements as of March 31, 2015 and December 31, 2014.

The Company recognizes interest accrued related to unrecognized tax benefits in interest expense. For the three months ended March 31, 2015 and 2014, there was no interest expense relating to unrecognized tax benefits.

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. The Company is currently under audit in the state of New Jersey for the years ended December 31, 2009 through December 31, 2012.

NOTE 7:  PENSION AND POSTRETIREMENT OBLIGATIONS

The components of net periodic cost (benefit) for the three months ended March 31, 2015 and 2014 are as follows:

	Pension Benefits						Postretirement Benefits
	For the three months ended						For the three months ended
($ in thousands)	March 31, 2015			March 31, 2014			March 31, 2015			March 31, 2014
Service cost	$	—		$	—		$	3		$	3
Interest cost	200			212			26			32
Expected return on plan assets	(223		)	(225		)	(8		)	(8		)
Amortization of prior service cost	14			14			11			(49		)
Recognized actuarial loss (gain)	237			177			(20		)	6
Net periodic benefit cost (benefit)	$	228		$	178		$	12		$	(16	)

For the three months ended March 31, 2015 and March 31, 2014, the Company has contributed $0.1 million and $0.1 million, respectively, to its pension and postretirement benefits plans. The amortization of prior service cost and recognized actuarial (gain) 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 either authorized, but unissued shares or shares that have been reacquired by the Company and designated as treasury shares. As of March 31, 2015 and December 31, 2014, 405,666 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.

Restricted Stock Awards

Stock-based compensation expense for restricted stock awards was $0.2 million and $0.3 million for the three months ended March 31, 2015 and 2014, respectively, and was recorded within selling, general, and administrative expenses.  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.

12

The following table summarizes the restricted common stock activity for the three months ended March 31, 2015:

	For the three months ended
	March 31, 2015
	Shares		Weighted Average Fair Value
Balance - nonvested at January 1, 2015	124,578		$	9.84
Granted	54,452		7.34
Vested	(59,594	)	9.25
Forfeited	(3,333	)	9.94
Balance - nonvested at March 31, 2015	116,103		$	8.58

The total grant-date fair value of restricted stock vested for the three months ended March 31, 2015 was $0.6 million.  As of March 31, 2015, $0.9 million of total unrecognized compensation expense related to restricted common stock is expected to be recognized over a weighted average period of approximately 2.79 years.

Stock Options

The following tables summarize stock option activity for the three months ended March 31, 2015, along with stock options exercisable at the end of the period:

	For the three months ended
	March 31, 2015
Options	Shares		Weighted Average Exercise Price		Weighted Average Contractual Life (Years)
Outstanding - Beginning of period	327,003		$	12.18
Forfeited or expired	(20,155	)	11.14
Outstanding - End of period	306,848		$	12.25	6.53
Vested and Expected to Vest at March 31, 2015	291,506
Exercisable at March 31, 2015	216,794

The fair value of the stock-based awards was estimated using the Black-Scholes model.  No options were granted during the three months ended March 31, 2015.

As of March 31, 2015, the amount of unrecognized compensation expense related to stock options awards is expected to be de minimis.

Stock-based compensation expense resulting from stock options granted to employees was de minimis for the three months ended March 31, 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.  The rights will expire on September 1, 2015, unless the final expiration date is advanced or extended or unless the rights are earlier redeemed or exchanged by the Company. Further description and terms of the rights are set forth in the Rights Agreement between the Company and American Stock Transfer & Trust Company, LLC.  As of March 31, 2015, the Company is not aware of the occurrence of any events that would trigger the rights under the plan.

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 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.

13

As of March 31, 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 months ended March 31, 2015 and 2014, 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 months ended March 31, 2015 and 2014 was as follows:

	For the three months ended March 31,
(amounts in thousands, except for per share)	2015			2014
NUMERATOR:
Net loss applicable to common stock before participating securities	$	(200	)	$	(255	)
Less: income applicable to participating securities (1)	—			—
Net loss applicable to common stock	$	(200	)	$	(255	)
DENOMINATOR:
Weighted average shares outstanding - Basic and Diluted (2)	5,829			6,161
EPS:
Net loss per share - Basic and Diluted	$	(0.03	)	$	(0.04	)

(1)For the three months ended March 31, 2015 and 2014, the Company had 0.1 million and 0.4 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 March 31, 2015 or March 31, 2014.

(2)For the three months ended March 31, 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 three months ended March 31, 2015 and 2014 is provided below:

	For the three months ended March 31,
($ in thousands)	2015			2014
Shareholders’ equity, beginning of period	$	40,156		$	13,006
Net loss	(194		)	(249		)
Dividends paid on preferred stock	(6		)	(6		)
Stock based compensation	159			306
Treasury stock purchases	(152		)	(398		)
Changes in pension and postretirement benefit plans	242			148
Shareholders’ equity, end of period	$	40,205		$	12,807

NOTE 11:  SEGMENT INFORMATION

The Company’s two segments, UC and Telephone, are strategic business units that offer different products and services.  The Company evaluates the performance of its two segments based upon factors such as revenue growth, expense containment, market share and operating results.

14

The UC segment is a premier provider of hosted Unified Communications as a Service (UCaaS) including VoIP, hosted Microsoft communication services, fixed mobile convergence and advanced voice applications for a broad customer base including, medium and large-sized businesses and enterprise business customers.

The Telephone segment operates as an ILEC in southern Orange County, New York and northern New Jersey.  The Telephone segment consists of providing local and toll telephone service, high-speed broadband and fiber Internet access services and satellite video services to residential and business customers.  The ILEC service areas are primarily rural and have an estimated population of 50,000.  We also operate as a CLEC in Middletown, New York, Scotchtown, New York and Vernon, New Jersey.

The segment results presented below are not necessarily indicative of the results of operations these segments would have achieved had they operated as stand-alone entities during the periods presented.  All intersegment transactions are shown net of eliminations.

Segment statement of operations information for the three months ended March 31, 2015 and 2014 is set forth below:

	For the three months ended March 31,
	2015									2014
	UC			Telephone			Consolidated			UC			Telephone			Consolidated
Operating Revenues	$	4,461		$	3,293		$	7,754		$	4,211		$	3,313		$	7,524
Operating Expenses
Cost of services and products	2,163			980			3,143			2,026			1,026			3,052
Selling, general and administrative expense	3,123			1,932			5,055			3,661			2,037			5,698
Depreciation and amortization	860			382			1,242			521			382			903
Restructuring costs and other special charges	—			—			—			56			44			100
Total Operating Expenses	6,146			3,294			9,440			6,264			3,489			9,753
Operating Loss	(1,685		)	(1		)	(1,686		)	(2,053		)	(176		)	(2,229		)
Interest income (expense), net							9									(139		)
Income from investment							—									2,040
Other income, net							1,501									21
Loss before income taxes							$	(176	)							$	(307	)

The assets for the UC segment decreased during the three months ended March 31, 2015 primarily as a result of accelerated depreciation/amortization of office equipment and leasehold improvements associated with the exit of the office lease (see Note 13).

NOTE 12:    COMMITMENTS AND CONTINGENCIES

The Company is party, from time to time, to various legal proceedings, including patent infringement claims, regulatory investigations and tax examinations incidental to its business.  The Company continually monitors these legal proceedings, regulatory investigations and tax examinations to determine the impact and any required accruals.

On March 31, 2014, David J. Cuthbert was terminated as President and Chief Executive Officer of Alteva.  The Company notified Mr. Cuthbert that his termination was for “cause” and, as such, Mr. Cuthbert was not entitled to any of the benefits provided for under his employment agreement dated March 5, 2013, including cash severance and the acceleration of vesting on any unvested equity instruments.  Mr. Cuthbert disputed the Company’s basis for termination and claimed that he was due his full severance benefits.  The Company accrued $100,000 during the three months ended March 31, 2014, and reported this amount in the statement of operations under restructuring costs and other special charges.  As the Company did not want to incur further legal fees or the risk of distraction of a protracted legal dispute, on October 16, 2014, the Company, through mediation, entered into a settlement agreement and mutual release agreement (the “Settlement Agreement”) with Mr. Cuthbert.  In consideration for Mr. Cuthbert’s execution of the Settlement Agreement, the Company agreed to pay to Mr. Cuthbert the amount of $0.75 million less certain taxes and withholdings, which was paid out on October 28, 2014.

During the year ended December 31, 2014, the Company was named as a party to a lawsuit from Sprint regarding a certain tariff charge (IntraMTA carrier charge) billed by Alteva, paid by Sprint over a number of years that had not previously been disputed. Sprint has filed similar lawsuits against other carriers related to the same tariff charges. The Company has filed a motion to dismiss.  The amount of the claim filed by Sprint is for $0.2 million; however the Company has not been able to substantiate the basis for the claim amount and therefore, has not recorded an accrual as of March 31, 2015.

15

NOTE 13:    OFFICE RELOCATION

In February 2015, the Company entered into an agreement to terminate the lease for its corporate headquarters in Philadelphia, PA.  As part of this agreement, the Company is entitled to receive a payment of $1.5 million as long as the Company vacates the facility by May 18, 2015.  If the Company vacates the facility at a later date, it will forego $250,000 of the termination payment.  In connection with the lease termination, the Company has recognized other income of $1.5 million during the three months ended March 31, 2015 in the statement of operations.  The Company will depreciate the remaining net book value of the leasehold improvements and furniture and fixtures associated with the old headquarters, and recognize the remaining deferred rent liability through the expected move date of May 18, 2015. The statement of operations includes accelerated depreciation of $0.4 million reported in depreciation and amortization as well as accelerated deferred rent of $0.2 million reported in selling, general and administration expenses in the UC Segment. At March 31, 2015, the Company had leasehold improvements and furniture and fixtures with a net book value of $0.4 million and deferred rent of $0.2 million recognized in the balance sheet related to this leased facility.  These amounts will be reported in depreciation and amortization and selling, general and administration expenses, respectively, in the UC Segment during the second quarter 2015.

In connection with the lease termination, the Company entered into a lease for a new corporate headquarters in Philadelphia, PA dated February 27, 2015.  The terms of the lease are for 10 full years with minimum rental payments of $0.4 million for the first full twelve month period, escalating by 2.5% each year thereafter.  The first full twelve month period is expected to begin on June 1, 2015 since the Company is expected to begin operating from the new location on May 18, 2015.  Per the agreement, the Company will pay a per diem rate from the date it begins operating from the new location until the first day of the first full month.

NOTE 14:    SUBSEQUENT EVENTS

Special Cash Dividend

On May 14, 2015, the Company’s Board of Directors authorized and declared a special cash dividend of $2.60 on each outstanding common share.

The record date for the special cash dividend is the close of business on June 19, 2015, and the payment date for the dividend is June 30, 2015. At $2.60 per share, the special cash dividend represents approximately 36.0% of the Company’s closing stock price on May 14, 2015. Pursuant to NYSE MKT policy, when a dividend is declared in a per share amount that exceeds 20% of a company’s stock price, the date on which that company’s shares will begin to trade without the dividend, or ex-dividend, is the first business day following the payable date. The Company expects, in accordance with this policy, that the ex-dividend date as set by NYSE MKT will be July 1, 2015, the first business day following the payable date for the special cash dividend. If so, shareholders of record on the record date who sell their shares prior to the ex-dividend date will be required by the exchange to give the purchaser a due bill, covering the amount of the dividend, to be redeemed on the date fixed by the exchange.

Stock Repurchase Program

On May 14, 2015, the stock repurchase program that was authorized in August 2014 was terminated by the Company’s Board of Directors in connection with approving the special cash dividend.

16

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Quarterly Report on Form 10-Q, including, without limitation, statements containing the words “believes,” “anticipates,” “intends,” “expects” and words of similar import, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions, both nationally and in the geographic regions in which we operate; industry capacity; goodwill and long-lived asset impairment; demographic changes; management turnover; technological changes and changes in consumer demand; existing governmental regulations and changes in or our failure to comply with, governmental regulations; legislative proposals relating to the businesses in which we operate; changes to the USF; risks associated with our unfunded pension liability; competition; the loss of any significant ability to attract and retain highly skilled personnel and any other factors that are described in “Risk Factors.” Given these uncertainties, current and prospective investors should be cautioned regarding reliance on such forward-looking statements. Except as required by law, we disclaim any obligation to update any such factors or to publicly announce the results of any revision to any of the forward-looking statements contained herein to reflect future events or developments. For a further discussion of the matters described above, see Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2014.

Overview

Alteva, Inc. (we, our or us) is a cloud-based communications company that provides Unified Communication (“UC”) solutions, including enterprise hosted VoIP and we operate a regional Incumbent Local Exchange Carrier (“ILEC”) in southern Orange County, New York and northern New Jersey. Our UC segment 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.  Our Telephone segment consists of our ILEC operations that provide local and toll telephone service to residential and business customers, internet high-speed broadband service, and DIRECTV. Our cloud-based Unified Communication as a Service (“UCaaS”) solutions are focused on medium, large and enterprise markets, which are defined as 20-1,000 users per location. We meet our customers’ unique needs for a business communications solution that integrates multi-location, mobility, business productivity and analytics, into a single seamless experience.

This discussion and analysis provides information about the important aspects of our operations and investments, both at the consolidated and segment levels, and includes discussions of our results of operations, financial position and sources and uses of cash.

This discussion and analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q.

Executive Summary

	Three months ended March 31, 2015									Three months ended March 31, 2014									Change
			% of Total		Operating			Operating				% of Total		Operating			Operating					Operating
($ in thousands)	Revenue		Revenue		Loss			Margin		Revenue		Revenue		Loss			Margin		Revenue			Loss
UC	$	4,461	58	%	$	(1,685	)	(38	)%	$	4,211	56	%	$	(2,053	)	(49	)%	$	250		$	368
Telephone	3,293		42	%	(1		)	(0	)%	3,313		44	%	(176		)	(5	)%	(20		)	175
Total	$	7,754	100	%	$	(1,686	)	(22	)%	$	7,524	100	%	$	(2,229	)	(30	)%	$	230		$	543

Revenues increased 3% to $7.8 million for the three months ended March 31, 2015, in comparison to $7.5 million for the three months ended March 31, 2014.  The increase is primarily due to our UC license and usage revenues. During the three months ended March 31, 2015, we had an operating loss of $1.7 million, compared to an operating loss of $2.2 million for the three months ended March 31, 2014.  The decrease in operating loss was attributable to lower corporate selling, general and administrative expenses as a result of our cost reduction initiatives, offset by higher depreciation expense incurred in connection with the acceleration of depreciation associated with leasehold improvements to be written off in connection with the upcoming lease exit in May 2015. During the three months ended March 31, 2015 and March 31, 2014, we had net losses of $0.2 million.For the past several years, we have experienced declines in telephone access lines within our Telephone segment due to sustained competition and cellular substitution for landline telephone services in our regulated franchise area that has reduced revenue in this segment. We partially offset the decline in telephone access lines by focusing our efforts on identifying and pursuing growth opportunities to increase our ILEC broadband Internet business.

17

Results of Operations for the three months ended March 31, 2015 and 2014

OPERATING REVENUES

	For the three months ended March 31, 2015				For the three months ended March 31, 2014				Change
			% of Total				% of Total
($ in thousands)	Revenue		Revenue		Revenue		Revenue		Revenue
UC	$	4,461	58	%	$	4,211	56	%	$	250
Telephone	3,293		42	%	3,313		44	%	(20		)
Total	$	7,754	100	%	$	7,524	100	%	$	230

Revenues for our UC segment increased 6% for the three months ended March 31, 2015 compared to the same period in 2014.  This increase was primarily associated with a $0.3 million increase in license and usage revenue from the segment’s organic growth.  Revenues for our Telephone segment were relatively unchanged for the three months ended March 31, 2015 compared to the same period in 2014 as a result of continued access line losses being offset by higher revenue from pooling arrangements, an increase in access line rates and modest growth in broadband Internet services revenues.

OPERATING EXPENSES

	UC							Telephone							Consolidated
	For the Three Month Ended March 31,							For the Three Month Ended March 31,							For the Three Month Ended March 31,
(in thousands)	2015		2014		Change			2015		2014		Change			2015		2014		Change
Cost of services and products	$	2,163	$	2,026	$	137		$	980	$	1,026	$	(46	)	$	3,143	$	3,052	$	91
Selling, general and administrative	3,123		3,661		(538		)	1,932		2,037		(105		)	5,055		5,698		(643		)
Depreciation and amortization	860		521		339			382		382		—			1,242		903		339
Restructuring costs and other special charges	—		56		(56		)	—		44		(44		)	—		100		(100		)
Total operating expenses	$	6,146	$	6,264	$	(118	)	$	3,294	$	3,489	$	(195	)	$	9,440	$	9,753	$	(313	)

Operating expenses declined 3% for the three months ended March 31, 2015 compared to the three months ended March 31, 2014 primarily due to selling, general and administrative expenses decreasing 11%.  This decrease was driven by cost reduction initiatives and management changes in 2014 as well as a reduction in rent expense during the quarter as a result of the accelerated amortization of deferred rent in connection with the office lease exit (see Note 13).

Cost of Services and Products

Cost of services and products for our UC segment increased 7% for three months ended March 31, 2015 compared to the same period in 2014 due to the increase in users.

Cost of services and products for our Telephone segment decreased 4% for three months ended March 31, 2015 compared to the same period in 2014 primarily due to cost savings in our circuits and carrier access billing services.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased 11% for the three months ended March 31, 2015 compared to the same period primarily as a result of the $0.2 million favorable impact from deferred rent amortization associated with the lease exit (see Note 13).  Cost savings continued to be realized in connection with management changes and staff rationalization.

Depreciation and Amortization Expense

Depreciation and amortization expense in the UC segment increased 65% for the three months ended March 31, 2015 compared to the three months ended March 31, 2014 primarily due to the accelerated depreciation of leasehold improvements to be written off in connection with the office lease exit (see Note 13).

TOTAL OTHER INCOME (EXPENSE)

	For the Three Month Ended March 31,
(in thousands)	2015		2014			Change
Interest income (expense), net	$	9	$	(139	)	$	148
Income from investment	—		2,040			(2,040		)
Other income, net	1,501		21			1,480
Total other income, net	$	1,510	$	1,922		$	(412	)

Total other income decreased 21% for the three months ended March 31, 2015, as compared to same period in 2014. The decrease reflected the loss of O-P investment income that was largely offset by the recorded gain on our lease termination (see Note 13).

18

INCOME TAXES

For the three months ended March 31, 2015, we had an income tax expense of $18,000, or 10% of loss before income taxes, as compared to an income tax benefit of $58,000, or 19% of loss before income taxes, for the three months ended March 31, 2014.  The estimated effective tax rate for each period includes projections of tax expense on the expected change 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 resulted in an overall tax expense recorded for the period ended March 31, 2015.

LIQUIDITY AND CAPITAL RESOURCES

We had $22.8 million of cash and cash equivalents at March 31, 2015, as compared with $24.0 million at December 31, 2014.  Our source of cash flows is primarily generated from operations. We sold all of our ownership interest in the O-P on April 30, 2014 for gross proceeds of $50 million (see Note 4).  We will not receive any income from the O-P after April 30, 2014.  We used a portion of the proceeds to repay all of the outstanding borrowings under the TriState credit facility and pay taxes on the related gain.  We expect the remaining gross proceeds to be used to fund a special cash dividend, working capital needs and support growth initiatives.

On November 7, 2014, we entered into a new demand line of credit with TriState (the “Demand Line of Credit”) to allow for borrowings up to $5.0 million.  We borrow or repay our debt as needed based upon our 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 we make payment on an outstanding balance. As of March 31, 2015, the Company did not have any outstanding balance under the Demand Line of Credit.

On May 14, 2015, our Board of Directors authorized and declared a special cash dividend of $2.60 on each outstanding common share. (see Note 14).

On May 14, 2015, the stock repurchase program that was authorized in August 2014 was terminated by our Board of Directors in connection with approving the special cash dividend.

CASH FROM OPERATING ACTIVITIES

Net cash used in operating activities decreased from March 31, 2014 to March 31, 2015.  During the first quarter of 2015, depreciation and amortization was higher due to the accelerated depreciation of assets associated with terminating the lease for our headquarters in Philadelphia, PA and vacating the facility.  This was offset by the add back of the $1.5 million termination payment we expect to receive from the landlord during the second quarter of 2015.  During the first quarter of 2014, we recorded $2.0 million of income from O-P, however the distribution of this income was not received until May 2014.  We did not receive cash from the O-P during the three months ended March 31, 2014.

CASH FROM INVESTING ACTIVITIES

Net cash used in investing activities was relatively unchanged from March 31, 2014 to March 31, 2015.  Net cash used in investing activities for the three months ended March 31, 2015 and 2014 was de minimis and due to the purchase of VoIP equipment for the UC segment and circuit equipment, pole lines, cable and wiring for the telephone segment.

CASH FROM FINANCING ACTIVITIES

Net cash used by financing activities during the three months ended March 31, 2015 was $0.3 million compared to cash provided by financing activities of $0.2 million for the three months ended March 31, 2014.  During the three months ended March 31, 2015, we purchased $0.2 million of treasury shares from employee restricted stock vestings and made capital lease payments totaling $0.1 million.  The financing activities for the three months ended March 31, 2014 were attributed to the repayment of debt of $0.7 million offset by $1.3 million of net borrowings from our TriState credit facility to fund working capital needs.

19

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are not subject to any material market risk. Our exposure to changes in interest rates results from our borrowing activities. There were no material changes to our quantitative disclosure about market risk as presented in item 7A of our Annual Report on Form 10-K for the year ended December 31, 2014.

ITEM 4.  CONTROLS AND PROCEDURES

Our management, with the participation of our Chief Executive Officer (Principal Executive Officer) and our Executive Vice President, Chief Financial Officer, Treasurer and Corporate Secretary (Principal Financial and Accounting Officer) have evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15(d)-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon this evaluation, our Chief Executive Officer (Principal Executive Officer) and our Executive Vice President, Chief Financial Officer, Treasurer and Corporate Secretary (Principal Financial and Accounting Officer) have concluded that our disclosure controls and procedures were effective as of March 31, 2015. There were no changes in our internal control over financial reporting during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

20

PART II - OTHER INFORMATION

ITEM 1A. - RISK FACTORS

Risks related to our business are detailed in our Annual Report on Form 10-K for the year ended December 31, 2014 filed with the Securities and Exchange Commission.

ITEM 6. EXHIBITS

3.1	Articles of Incorporation, as amended, are incorporated herein by reference from Exhibit 3(i) to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2003.
3.2	By-Laws, as amended, are incorporated herein by reference from Exhibit 3.2 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2013.
3.3	Certificate of Amendment of the Certificate of Incorporation filed with the New York Department of State on May 21, 2013 is incorporated herein by reference from Exhibit 3.1 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2013.
10.1	Partnership Interest Purchase Agreement as of April 30, 2014 between Alteva, Inc. and Cellco Partnership is incorporated herein by reference from Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2014.
10.2	400 Market Street Office Lease as of February 27, 2015 between Alteva, Inc. and 400 Market L.P.
31.1	Rule 13a-14(a)/15d-14(a) Certification signed by Brian J. Kelley, Chief Executive Officer.
31.2	Rule 13a-14(a)/15d-14(a) Certification signed by Brian H. Callahan, Executive Vice President, Chief Financial Officer, Treasurer and Corporate Secretary.
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 signed by Brian J. Kelley, Chief Executive Officer.
32.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 signed by Brian H. Callahan, Executive Vice President, Chief Financial Officer, Treasurer and Corporate Secretary.
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.

21

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, thereunto duly authorized.

	Alteva, Inc.
	(Registrant)
Date: May 15, 2015	/s/ Brian J. Kelley
	Brian J. Kelley
	Chief Executive Officer
	(Principal Executive Officer)
Date: May 15, 2015	/s/ Brian H. Callahan
	Brian H. Callahan
	Executive Vice President, Chief Financial Officer, Treasurer and Corporate Secretary (Principal Financial and Accounting Officer)

22

Index to Exhibits

3.1	Articles of Incorporation, as amended, are incorporated herein by reference from Exhibit 3(i) to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2003.
3.2	By-Laws, as amended, are incorporated herein by reference from Exhibit 3.2 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2013.
3.3	Certificate of Amendment of the Certificate of Incorporation filed with the New York Department of State on May 21, 2013 is incorporated herein by reference from Exhibit 3.1 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2013.
10.1	Partnership Interest Purchase Agreement as of April 30, 2014 between Alteva, Inc. and Cellco Partnership is incorporated herein by reference from Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2014.
10.2	400 Market Street Office Lease as of February 27, 2015 between Alteva, Inc. and 400 Market L.P.
31.1	Rule 13a-14(a)/15d-14(a) Certification signed by Brian J. Kelley, Chief Executive Officer.
31.2	Rule 13a-14(a)/15d-14(a) Certification signed by Brian H. Callahan, Executive Vice President, Chief Financial Officer, Treasurer and Corporate Secretary.
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 signed by Brian J. Kelley, Chief Executive Officer.
32.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 signed by Brian H. Callahan, Executive Vice President, Chief Financial Officer, Treasurer and Corporate Secretary.
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.

23