10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2017

OR

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

For the transition period from __________ to __________

Commission file number: 1-32362

OTELCO INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware	52-2126395
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
505 Third Avenue East, Oneonta, Alabama	35121
(Address of Principal Executive Offices)	(Zip Code)
(205) 625-3574
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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        ¨

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        ¨

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

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes        ¨        No        x

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes        x        No        ¨

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at August 4, 2017
Class A Common Stock ($0.01 par value per share)	3,346,689
Class B Common Stock ($0.01 par value per share)	0

OTELCO INC.
FORM 10-Q
For the three-month period ended June 30, 2017

TABLE OF CONTENTS

		Page
PART I FINANCIAL INFORMATION		2
Item 1.	Financial Statements	2
	Condensed Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016 (unaudited)	2
	Condensed Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 2017 and 2016 (unaudited)	3
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2017 and 2016 (unaudited)	4
	Notes to Condensed Consolidated Financial Statements (unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	19
Item 4.	Controls and Procedures	19
PART II OTHER INFORMATION		21
Item 1.	Legal Proceedings	21
Item 6.	Exhibits	21

i

Unless the context otherwise requires, the words “we,” “us,” “our,” the “Company” and “Otelco” refer to Otelco Inc., a Delaware corporation, and its consolidated subsidiaries as of June 30, 2017.

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements that are subject to risks and uncertainties. Forward-looking statements give our current expectations relating to our financial condition, results of operations, plans, objectives, future performance and business. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. These forward-looking statements are based on assumptions that we have made in light of our experience in the industry in which we operate, as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual financial condition or results of operations, impact our strategic review and exploration process, including the outcome of any decisions we may make regarding strategic alternatives, or cause our actual results to differ materially from those in the forward-looking statements.

1

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

OTELCO INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share par value and share amounts)

(unaudited)

	June 30, 2017			December 31, 2016
Assets
Current assets
Cash and cash equivalents	$	11,274		$	10,538
Accounts receivable:
Due from subscribers, net of allowance for doubtful accounts of $203 and $187, respectively		4,631			5,035
Other		1,537			1,528
Materials and supplies		2,533			2,184
Prepaid expenses		1,337			2,912
Total current assets		21,312			22,197
Property and equipment, net		49,604			49,271
Goodwill		44,976			44,976
Intangible assets, net		1,542			1,785
Investments		1,644			1,821
Other assets		243			222
Total assets	$	119,321		$	120,272
Liabilities and Stockholders’ Deficit
Current liabilities
Accounts payable	$	751		$	1,477
Accrued expenses		5,346			4,730
Advance billings and payments		1,525			1,487
Customer deposits		67			62
Current maturity of long-term notes payable, net of debt issuance cost		2,959			6,071
Total current liabilities		10,648			13,827
Deferred income taxes		28,280			28,280
Advance billings and payments		2,444			1,987
Other liabilities		8			26
Long-term notes payable, less current maturities and debt issuance cost		85,547			86,860
Total liabilities		126,927			130,980
Stockholders’ deficit
Class A Common Stock, $.01 par value-authorized 10,000,000 shares; issued and outstanding 3,346,689 and 3,291,750 shares, respectively		34			33
Additional paid in capital		4,143			4,186
Accumulated deficit		(11,783	)		(14,927	)
Total stockholders’ deficit		(7,606	)		(10,708	)
Total liabilities and stockholders’ deficit	$	119,321		$	120,272

The accompanying notes are an integral part of these condensed consolidated financial statements.

2

OTELCO INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

(unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Revenues	$	17,406		$	17,232		$	34,786		$	34,722
Operating expenses
Cost of services		8,044			7,875			15,857			16,005
Selling, general and administrative expenses		2,467			2,407			5,174			4,983
Depreciation and amortization		1,842			2,051			3,681			4,089
Total operating expenses		12,353			12,333			24,712			25,077
Income from operations		5,053			4,899			10,074			9,645
Other income (expense)
Interest expense		(2,571	)		(2,721	)		(5,182	)		(5,203	)
Other income		—			4			203			623
Total other expense		(2,571	)		(2,717	)		(4,979	)		(4,580	)
Income before income tax expense		2,482			2,182			5,095			5,065
Income tax expense		(946	)		(858	)		(1,951	)		(1,991	)
Net income	$	1,536		$	1,324		$	3,144		$	3,074
Weighted average number of common shares outstanding:
Basic		3,346,689			3,283,177			3,346,689			3,283,177
Diluted		3,445,632			3,380,445			3,445,632			3,378,090
Basic net income per common share	$	0.46		$	0.40		$	0.94		$	0.94
Diluted net income per common share	$	0.45		$	0.39		$	0.91		$	0.91

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

OTELCO INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Six Months Ended June 30,
	2017			2016
Cash flows from operating activities:
Net income	$	3,144		$	3,074
Adjustments to reconcile net income to cash flows provided by operating activities:
Depreciation		3,479			3,571
Amortization		202			518
Amortization of loan costs		621			609
Loss on extinguishment of debt		—			155
Provision for uncollectible accounts receivable		206			119
Stock-based compensation		166			199
Paid in kind interest - subordinated debt		157			115
Changes in operating assets and liabilities
Accounts receivable		189			115
Material and supplies		(349	)		(173	)
Prepaid expenses and other assets		1,554			1,246
Accounts payable and accrued expenses		(110	)		217
Advance billings and payments		495			(67	)
Other liabilities		(13	)		(14	)
Net cash from operating activities		9,741			9,684
Cash flows used in investing activities:
Acquisition and construction of property and equipment		(3,758	)		(2,215	)
Net cash used in investing activities		(3,758	)		(2,215	)
Cash flows used in financing activities:
Loan origination costs		(77	)		(5,215	)
Principal repayment of long-term notes payable		(5,125	)		(101,053	)
Proceeds from loan refinancing		—			100,300
Retirement of CoBank equity		164			—
Tax withholdings paid on behalf of employees for restricted stock units		(209	)		(109	)
Net cash used in financing activities		(5,247	)		(6,077	)
Net increase in cash and cash equivalents		736			1,392
Cash and cash equivalents, beginning of period		10,538			6,884
Cash and cash equivalents, end of period	$	11,274		$	8,276
Supplemental disclosures of cash flow information:
Interest paid	$	4,456		$	3,728
Income taxes paid	$	692		$	685
Conversion of Class B common stock to Class A common stock	$	—		$	2
Issuance of Class A common stock	$	1		$	1

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2017
(unaudited)

1. Organization and Basis of Financial Reporting

Basis of Presentation and Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of Otelco Inc. (the “Company”) and its subsidiaries, all of which are either directly or indirectly wholly owned. These include: Blountsville Telephone LLC; Brindlee Mountain Telephone LLC; CRC Communications LLC (“CRC”); Granby Telephone LLC; Hopper Telecommunications LLC; Mid-Maine Telecom LLC; Mid-Maine TelPlus LLC; Otelco Mid-Missouri LLC (“MMT”) and its wholly owned subsidiary I-Land Internet Services LLC; Otelco Telecommunications LLC; Otelco Telephone LLC (“OTP”); Pine Tree Telephone LLC; Saco River Telephone LLC; Shoreham Telephone LLC; and War Telephone LLC.

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and all of the aforesaid subsidiaries after elimination of all material intercompany balances and transactions. The unaudited operating results for the three months and six months ended June 30, 2017, are not necessarily indicative of the results that may be expected for the year ending December 31, 2017, or any other period.

The unaudited condensed consolidated financial statements and notes included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. The interim condensed consolidated financial information herein is unaudited. The information reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the periods included in this report.

Recent Accounting Pronouncements

During 2017, the Financial Accounting Standards Board (the “FASB”) has issued Accounting Standards Updates (“ASUs”) 2017-01 through 2017-11. Except for ASUs 2017-03, 2017-04, 2017-09 and 2017-10, which are discussed below, these ASUs provide technical corrections or simplifications to existing guidance and to specialized industries or entities and therefore have minimal, if any, impact on the Company.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). This ASU requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also provides a more robust framework for revenue issues and improves comparability of revenue recognition practices across industries. This ASU was the product of a joint project between the FASB and the International Accounting Standards Board to clarify the principles for recognizing revenue and to develop a common revenue standard. This guidance was to be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016, with early adoption not permitted. In July 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. This ASU confirmed a one-year delay in the effective date of ASU 2014-09, making the effective date for the Company the first quarter of fiscal 2018 instead of the first quarter of fiscal 2017. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Consideration (Reporting Revenues Gross versus Net). This ASU is further guidance to ASU 2014-09, and clarifies principal versus agent considerations. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. This ASU is also further guidance to ASU 2014-09, and clarifies the identification of performance obligations. In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. This ASU is also further guidance to ASU 2014-09, and clarifies assessing the narrow aspects of recognizing revenue. In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. This ASU is also further guidance to ASU 2014-09, and clarifies technical corrections and improvements for recognizing revenue. In January 2017, the FASB issued ASU 2017-03, Accounting Changes and Error Corrections (Topic 250) and Investments-Equity Method and Joint Ventures (Topic 323) (“ASU 2017-03”). This ASU requires registrants to evaluate the impact ASU 2014-09 will have on financial statements and adequately disclose this information to assist the reader in assessing the significance of ASU 2014-09 on the financial statements when adopted. ASU 2014-09 permits the use of either a retrospective or modified retrospective application. The Company intends to use the modified retrospective approach. The Company is continuing to evaluate ASU 2014-09 and the related guidance both internally and through its insight from an industry working group. The Company will continue its evaluation of ASU 2014-09 and the related guidance through the date of adoption.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). This ASU requires lessees to recognize most leases on the balance sheet. The provisions of this ASU are effective for annual periods beginning after December 15,

5

2018, and interim periods within those years, with early adoption permitted. In January 2017, the FASB issued ASU 2017-03, which requires registrants to evaluate the impact ASU 2016-02 will have on financial statements and adequately disclose this information to assist the reader in assessing the significance of ASU 2016-02 on the financial statements when adopted. The Company is evaluating the requirements of ASU 2016-02 and has not yet determined the impact of the adoption on the Company’s condensed consolidated financial position or results of operations.

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350) (“ASU 2017-04”). The objective of this ASU is to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not expect this ASU to have a material impact on its condensed consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718) (“ASU 2017-09”). ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Accounting Standards Codification (“ASC”) Topic 718, Stock Compensation. ASU 2017-09 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted for any interim period for which financial statements have not been issued. ASU 2017-09 should be applied prospectively to an award modified on or after the adoption date. The Company does not expect this ASU to have a material impact on its condensed consolidated financial statements.

In May 2017, the FASB issued ASU 2017-10, Service Concession Arrangements (Topic 853) (“ASU 2017-10”). The objective of this ASU is to specify that an operating entity should not account for a service concession arrangement that meets certain criteria as a lease in accordance with ASC Topic 840, Leases. ASU 2017-10 further states that the infrastructure used in a service concession arrangement should not be recognized as property, plant and equipment of the operating entity. The provisions of this ASU are effective for annual periods beginning after December 15, 2017, and interim periods within those years, with early adoption permitted. The Company does not expect this ASU to have a material impact on its condensed consolidated financial statements.

Refinancing

On January 25, 2016, the Company entered into a senior loan agreement (the “Senior Loan Agreement”), providing for a five year term loan facility in the aggregate principal amount of $85.0 million and a five year $5.0 million revolving credit facility, and a subordinated loan agreement (the “Subordinated Loan Agreement”), providing for a five and a half year term loan facility in the aggregate principal amount of $15.0 million. On February 17, 2016, the Subordinated Loan Agreement was amended to increase the aggregate principal amount available for borrowing thereunder to $15.3 million, and the Company borrowed $85.0 million under the term loan facility of the Senior Loan Agreement and $15.3 million under the Subordinated Loan Agreement. The Company used the borrowings under the Senior Loan Agreement and the Subordinated Loan Agreement to, among other things, pay all amounts due, including principal, interest and fees, and satisfy in full all of its obligations under its previous credit facility (the “Previous Credit Facility”), which was scheduled to mature on April 30, 2016. As a result of the repayment of the Previous Credit Facility, all of the shares of the Company’s Class B common stock were automatically converted into an equal number of shares of the Company’s Class A common stock. The term loan facility under the Senior Loan Agreement requires principal payments of $1.0 million quarterly, which payments began on April 1, 2016. Principal amounts outstanding under the Subordinated Loan Agreement will generally not be due until maturity. The Company recorded costs of $15 thousand and write-off of loan costs of $140 thousand in connection with this refinancing. During second quarter 2017, the Company paid an amendment fee of $77.9 thousand to its senior lender to raise the capital expenditure limits under the Senior Loan Agreement to $8.5 million and $7.5 million for 2017 and 2018, respectively. The increased capital expenditures are associated with fulfilling build out requirements associated with the Federal Communications Commission’s (the “FCC”) Alternative Connect America Model (“ACAM”) program.

2. Notes Payable

Notes payable consists of the following (in thousands, except percentages) as of:

	June 30, 2017
	Current			Long-term			Total
Senior Loan Agreement with Cerberus Business Finance, LLC; variable interest rate of 8.81% at June 30, 2017, interest is monthly, paid in arrears on the first business day of each month. The Senior Loan Agreement is secured by the total assets of the subsidiary guarantors. The unpaid balance is due February 17, 2021.	$	4,000		$	72,875		$	76,875
Debt issuance cost		(1,041	)		(2,384	)		(3,425	)
Senior notes payable, net of debt issuance cost	$	2,959		$	70,491		$	73,450

6

	December 31, 2016
	Current			Long-term			Total
Senior Loan Agreement with Cerberus Business Finance, LLC; variable interest rate of 8.75% at December 31, 2016, interest is monthly, paid in arrears on the first business day of each month. The Senior Loan Agreement is secured by the total assets of the subsidiary guarantors. The unpaid balance is due February 17, 2021.	$	7,125		$	74,875		$	82,000
Debt issuance cost		(1,054	)		(2,835	)		(3,889	)
Senior notes payable, net of debt issuance cost	$	6,071		$	72,040		$	78,111

	June 30, 2017			December 31, 2016
Subordinated Loan Agreement with NewSpring Mezzanine Capital III, L.P.; fixed interest rate due monthly of 12.00%. Payment in kind (“PIK”) interest rate of 2.00% per annum. PIK interest accrued is added to the principal amount then outstanding on the last business day of each quarter. The unpaid balance is due August 17, 2021.	$	15,300		$	15,300
PIK interest added to principal		430			273
Less: Long-term portion of debt issuance cost		(674	)		(753	)
Long-term notes payable, net of debt issuance cost	$	15,056		$	14,820

Associated with the Senior Loan Agreement, the Company has capitalized and amortized deferred financing cost using the effective interest method. The Company has capitalized $4.9 million in deferred financing cost associated with the Senior Loan Agreement. Amortization expense for the deferred financing cost associated with the Senior Loan Agreement was $541 thousand and $426 thousand for the six months ended June 30, 2017, and 2016, respectively.

Associated with the Subordinated Loan Agreement, the Company has capitalized and amortized deferred financing cost using the effective interest method. The Company has capitalized $892 thousand in deferred financing cost associated with the Subordinated Loan Agreement. Amortization expense for the deferred financing cost associated with the Subordinated Loan Agreement was $80 thousand and $57 thousand for the six months ended June 30, 2017, and 2016, respectively.

The Company had a revolving credit facility on June 30, 2017, and December 31, 2016, with a maximum borrowing capacity of $5.0 million associated with the Senior Loan Agreement. The revolving credit facility is available until February 17, 2021. There was no balance outstanding as of June 30, 2017, or December 31, 2016. The Company pays a monthly fee of 0.75% on the unused portion of the revolver loan under the Senior Loan Agreement, payable in arrears. The fee expense was $19 thousand and $14 thousand for the six months ended June 30, 2017, and 2016, respectively.

Maturities of notes payable for the next five years and thereafter, assuming no future annual excess cash flow payments and excluding the PIK interest, are as follows (in thousands):

2017 (remaining)	$	2,000
2018		4,000
2019		4,000
2020		4,000
2021		78,175
Total	$	92,175

7

In addition, PIK interest of $1,772 thousand associated with the Subordinated Loan Agreement will be paid at maturity. A total of $5,835 thousand of debt issuance cost is amortized over the life of the loans and is recorded net of the notes payable on the condensed consolidated balance sheets.

The Company’s notes payable agreements are subject to certain financial covenants and restrictions on indebtedness, financial guarantees, business combinations and other related items. As of June 30, 2017, the Company was in compliance with all such covenants and restrictions.

3. Income Tax

As of each of June 30, 2017, and December 31, 2016, the Company had U.S. federal and state net operating loss carryforwards of $0 and $25 thousand, respectively. The Company had no alternative minimum tax credit carryforwards as of June 30, 2017, or December 31, 2016. The Company establishes valuation allowances when necessary to reduce deferred tax assets to amounts expected to be realized. As of June 30, 2017, the Company had no valuation allowance recorded.

The effective income tax rate as of June 30, 2017, and December 31, 2016, was 38.3% and 41.5%, respectively.

4. Net Income Per Common Share

Basic net income per common share is computed by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted net income per common share reflects the potential dilution that would occur should all of the shares of Class A common stock underlying restricted stock units (“RSUs”) be issued.

A reconciliation of the common shares for purposes of the calculation of the Company’s basic and diluted net income per common share is as follows (weighted average number of common shares outstanding in whole numbers and net income in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Weighted average number of common shares outstanding - basic		3,346,689		3,283,177		3,346,689		3,283,177
Effect of dilutive securities		98,943		97,268		98,943		94,913
Weighted average number of common shares and potential common shares - diluted		3,445,632		3,380,445		3,445,632		3,378,090
Net income	$	1,536	$	1,324	$	3,144	$	3,074
Net income per common share - basic	$	0.46	$	0.40	$	0.94	$	0.94
Net income per common share - diluted	$	0.45	$	0.39	$	0.91	$	0.91

5. Revenue Concentration

Revenues for interstate access services are based on reimbursement of costs and an allowed rate of return. Revenues of this nature are received from the National Exchange Carrier Association in the form of monthly settlements. Such revenues amounted to 21.9% and 19.1% of the Company’s total revenues for the six months ended June 30, 2017, and 2016, respectively.

6. Commitments and Contingencies

From time to time, the Company may be involved in various claims, legal actions and regulatory proceedings incidental to and in the ordinary course of business, including administrative hearings of the Alabama Public Service Commission, the Maine Public Utilities Commission, the Massachusetts Department of Telecommunications and Cable, the Missouri Public Service Commission, the New Hampshire Public Utilities Commission, the Vermont Public Service Board and the West Virginia Public Service Commission, relating primarily to rate making and customer service requirements. In addition, the Company may be involved in similar proceedings with interconnection carriers and the FCC. Currently, except as set forth below, none of the Company’s legal proceedings are expected to have a material adverse effect on the Company’s business.

8

Sprint Communications L.P. (“Sprint”), MCI Communications Services, Inc. (“MCI”) and Verizon Select Services, Inc. (“Verizon”) have filed more than 60 lawsuits in federal courts across the United States alleging that over 400 local exchange carriers (“LECs” or “LEC Defendants”) overcharged Sprint, MCI and Verizon for so-called intraMTA traffic (wireless phone calls that originate and terminate in the same metropolitan transit area). The lawsuits seek a refund of previously-paid access charges for intraMTA traffic, as well as a discount related to intraMTA traffic on a going-forward basis. One of the Company’s subsidiaries, MMT, was named as a defendant in two of the lawsuits that are being brought before the District Court for the Western District of Missouri (one filed on May 2, 2014, by Sprint and the other filed on September 5, 2014, by MCI and Verizon). In addition, one of the Company’s other subsidiaries, OTP, was named as a defendant in a lawsuit relating to these issues filed by MCI and Verizon in the District Court for the District of Delaware on September 5, 2014. As all of the lawsuits relating to these issues raise the same fundamental questions of law, the United States Judicial Panel on Multidistrict Litigation (“MDL”) has consolidated the lawsuits in the District Court for the Northern District of Texas (the “Court”) for all pre-trial proceedings. On November 17, 2015, the Court issued a memorandum opinion and order dismissing the plaintiffs’ federal-law claims with prejudice, dismissing the state-law claims but granting leave to replead said claims, and denying the LEC Defendants’ request to refer the matter to the FCC. On May 5, 2016, Sprint filed amended complaints alleging additional state-law claims. Since that time, a number of LECs, including MMT, filed claims in the MDL proceeding against Level 3 Communications LLC (“Level 3”). These claims argued that the LECs that filed the claims were entitled to access charges from Level 3 for terminating intraMTA traffic and that Level 3 had improperly withheld payment. These claims were consolidated with the Verizon, MCI and Sprint claims. Level 3 moved to dismiss the LECs’ claims and the LECs opposed the motion. On March 22, 2017, the Court issued a memorandum and order denying Level 3’s motion to dismiss, putting the Level 3 claims in a similar procedural posture as the Verizon, MCI and Sprint claims. On May 3, 2017, the Court dismissed Sprint’s amended complaints against the LECs, further affirming the Court’s position that the LECs are entitled to receive access charges for terminating intraMTA traffic. On June 1, 2017, the Court issued an updated scheduling order calling for the parties to submit all materials necessary for the Court to rule on pending summary judgement motions by September 1, 2017. At this time, it is not possible to determine whether these lawsuits will have a material adverse effect on the Company’s business.

On November 10, 2014, a large coalition of the LEC Defendants, including MMT and OTP, filed a petition for declaratory ruling with the FCC seeking a ruling by the FCC that: (1) any traffic intentionally routed over Interexchange carrier (“IXC”) trunks by IXCs should be subject to access charges; (2) only carriers with specific agreements with an LEC may use alternative billing arrangements; (3) federal tariffing rules require the LECs to assess access charges for switched access traffic routed through Feature Group D trunks; and (4) the IXCs may not engage in self-help by refusing to pay the LEC Defendants’ properly assessed access charges. On March 11, 2015, the LEC Defendants filed their reply brief with the FCC. No timeline has been established for a decision by the FCC. At this time, it is not possible to determine whether this action will have a material adverse effect on the Company’s business.

7. Stock Plans and Stock Associated with Acquisition

The Company has previously granted RSUs underlying 366,356 shares of Class A common stock. These RSUs (or a portion thereof) vest with respect to each recipient over a one to three year period from the date of grant, provided the recipient remains in the employment or service of the Company as of the vesting date and, in selected instances, certain performance criteria are attained. Additionally, these RSUs (or a portion thereof) could vest earlier in the event of a change in control of the Company, or upon involuntary termination without cause. Of the 366,356 previously granted RSUs, RSUs underlying 162,716 shares of Class A common stock have vested or were cancelled. During the six months ended June 30, 2017, no RSUs were granted by the Company. The previous RSU grants were made primarily to executive-level personnel at the Company and, as a result, no compensation costs have been capitalized.

The following table summarizes RSU activity as of June 30, 2017:

	RSUs			Weighted Average Grant Date Fair Value
Outstanding at December 31, 2016		203,640		$	4.57
Granted		—		$	—
Vested		(88,287	)	$	4.66
Forfeited or cancelled		(16,410	)	$	4.40
Outstanding at June 30, 2017		98,943		$	4.51

CRC acquired substantially all of the assets of Reliable Networks of Maine, LLC (“Reliable Networks”), a Portland, Maine-based provider of cloud hosting and managed services for small and mid-sized companies who rely on mission-critical software applications, on January 2, 2014. Pursuant to the purchase agreement relating to the Reliable Networks acquisition, Class A common stock was issued to the former owner of Reliable Networks in 2015 as a result of Reliable Networks achieving certain financial

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objectives and certain other conditions being satisfied, including that certain individuals continued to be employed by the Company or one of its subsidiaries and in good standing on the last day of the applicable year (the “Earn-Out”). For the year ended December 31, 2014, the Company delivered 68,233 shares of Class A common stock to the former owner of Reliable Networks on March 12, 2015, as a result of the Earn-Out. For the years ended December 31, 2016, and 2015, the applicable Earn-Out criteria was not met and no shares of Class A common stock were issued as a result of the Earn-Out.

Stock-based compensation expense related to RSUs and the Earn-Out was $166 thousand and $199 thousand for the six months ended June 30, 2017, and 2016, respectively. Accounting standards require that the Company estimate forfeitures for RSUs and the Earn-Out and reduce compensation expense accordingly. The Company has reduced its expense by the assumed forfeiture rate and will evaluate actual experience against the assumed forfeiture rate going forward. The forfeiture rate has been developed using historical performance metrics which could impact the size of the final issuance of Class A common stock. The Company has no history before 2014 with RSU forfeiture or Earn-Out stock forfeiture.

As of June 30, 2017, the unrecognized total compensation cost related to unvested RSUs was $343 thousand. That cost is expected to be recognized by the end of 2019.

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

Overview

General

Since 1999, we have acquired and operate eleven rural local exchange carriers (“RLECS”) serving subscribers in north central Alabama, central Maine, western Massachusetts, central Missouri, western Vermont and southern West Virginia. We also operate a competitive local exchange carrier (“CLEC”) serving subscribers in Maine, Massachusetts and New Hampshire. Our services include a broad suite of communications and information services including local and long distance telephone services; internet and broadband data services; network access to other wireline, long distance and wireless carriers for calls originated or terminated on our network; other telephone related services; cloud hosting and professional engineering services for small and mid-sized companies who rely on mission-critical software applications; digital high-speed transport services (in our New England market); and video and security (in some markets). As of June 30, 2017, we operated 98,059 voice, data and other access lines, which we refer to as access line equivalents. We view, manage and evaluate the results of operations from the various telecommunications products and services as one company and therefore have identified one reporting segment as it relates to providing segment information.

The Federal Communications Commission (the “FCC”) released its Universal Service Fund and Intercarrier Compensation Order (the “FCC ICC Order”) in November 2011. The FCC ICC Order makes substantial changes in the way telecommunication carriers are compensated for serving high cost areas and for completing traffic with other carriers. We began seeing the significant impact of the FCC ICC Order to our business in July 2012, with additional impacts beginning in July 2013 and July 2014. The initial consequence to our business was to reduce access revenue from intrastate calling in Maine and other states where intrastate rates were higher than interstate rates. A portion of this revenue loss for our RLEC properties is returned to us through the Connect America Fund (the “CAF”). There is no recovery mechanism for the lost revenue in our CLEC. The impact of the FCC ICC Order is expected to reduce our revenue and net income through 2020.

Support under the Alternative Connect America Model (“ACAM”) is expected to increase in 2017 by an estimated $1.5 million compared to 2016 support received under legacy rate-of-return regulation. Without the ACAM support, in 2017 our RLECs would have seen a normal year-over-year funding decrease under Universal Service Fund High Cost Loop (“USF HCL”) and the FCC’s Budget Control mechanism. ACAM support requires additional investment in plant and equipment to reach target broadband speeds and covered locations. ACAM support will decline through 2026 as the additional investment is completed.

The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes included in Item 1 of Part I and the other financial information appearing elsewhere in this report. The following discussion and analysis relates to our financial condition and results of operations on a consolidated basis.

Revenue Sources

Our revenues are derived from six sources:

· Local services. We receive revenues from providing local exchange telecommunication services in our eleven rural territories and on a competitive basis throughout Maine, New Hampshire and western Massachusetts through both wholesale and retail channels. These revenues include monthly subscription charges for basic service, calling beyond the local territory on a fixed price and on a per minute basis, local private line services and enhanced calling features, such as voicemail, caller identification, call waiting and call forwarding. We also provide billing and collections services for other carriers under contract and receive revenues from directory advertising. A significant portion of our rural subscribers take bundled service plans which include multiple services, including unlimited domestic calling, for a flat monthly fee.

· Network access. We receive revenues from charges established to compensate us for the origination, transport and termination of calls of long distance, wireless and other interexchange carriers. These include subscriber line charges imposed on end users and switched and special access charges paid by carriers. Switched access charges for long distance services within Alabama, Maine, Massachusetts, Missouri, New Hampshire, Vermont and West Virginia have historically been based on rates approved by the Alabama Public Service Commission, the Maine Public Utilities Commission, the Massachusetts Department of Telecommunications and Cable, the Missouri Public Service Commission, the New Hampshire Public Utilities Commission, the Vermont Public Service Board and the West Virginia Public Service Commission, respectively, where appropriate. The FCC ICC Order preempted the state commissions’ authority to set terminating intrastate access service rates, and required companies with terminating access rates higher than interstate rates to reduce their terminating intrastate access rates to a rate equal to interstate

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access service rates by July 1, 2013, and to move to a “bill and keep” arrangement by July 1, 2020, which will eliminate access charges between carriers. The FCC ICC Order prescribes a recovery mechanism for the recovery of any decrease in intrastate terminating access revenues through the CAF for RLEC companies. This recovery is limited to 95% of the previous year’s revenue requirement. Interstate access revenue is based on an FCC regulated rate-of-return on investment and recovery of expenses and taxes. From 1990 through June 2016, the rate-of-return had been authorized up to 11.25%. In March 2016, the FCC reduced the authorized rate-of-return to 9.75% effective July 1, 2021, using a transitional approach to reduce the impact of an immediate reduction. Rate-of-return transition began on July 1, 2016, with the authorized rate reduced to 11.0%, with further 25 basis point reductions each July 1 thereafter until the authorized rate reaches 9.75% on July 1, 2021. Switched and special access charges for interstate and international services are based on rates approved by the FCC. We also receive revenue from the Universal Service Fund for the deployment of voice and broadband services to end-user customers. Since January 1, 2017, ten of our RLECs receive support payments through ACAM and one of our RLECs receives support payments through modified legacy rate-of-return support mechanisms for USF HCL and Interstate Common Line Support.

· Internet. We receive revenues from monthly recurring charges for digital high-speed data lines, legacy dial-up internet access and ancillary services such as web hosting and computer virus protection.

· Transport services. We receive monthly recurring revenues for the rental of fiber to transport data and other telecommunication services in Maine and New Hampshire.

· Video and security. We offer basic, digital, high-definition, digital video recording, video on demand and pay per view cable television services to a portion of our telephone service territory in Alabama, including Internet Protocol (“IP”) television (“IPTV”). We offer wireless security systems and system monitoring in Alabama and Missouri. Until October 2016, we were a reseller of satellite services for DirecTV in Missouri.

· Managed services. We provide private/hybrid cloud hosting services, as well as consulting and professional engineering services, for mission-critical software applications for small and mid-sized North American companies. Revenues are generated from monthly recurring hosting Infrastructure as a Service fees, monthly maintenance fees, à la carte professional engineering services and pay-as-you-use Software as a Service fees. Services are domiciled in two diverse owned data centers. Historically, Reliable Networks’ operations in-rack and professional engineering services were covered by a SOC 2 Type II audit covering security, availability and confidentiality, and our data center operations were covered by a separate SOC 2 Type II audit covering security and availability. However, going forward, Reliable Networks’ and our other data operations will be covered by a single SOC 2 Type II audit.

Access Line and Customer Trends

The number of voice and data access lines serves as a fundamental factor in determining revenue stability for a telecommunications provider. Reflecting general trends in the RLEC industry, the number of residential voice access lines we serve has been decreasing when normalized for territory acquisitions, whereas business access lines have remained generally steady or grown. We expect that these trends will continue, and may be potentially impacted by competition from cable and co-operative electric providers in our RLEC territories, the availability of alternative telecommunications products, such as cellular and IP-based services, as well as economic conditions generally. Historically, these residential trends have been partially offset by the growth of residential data access lines, also called digital high-speed internet access service. As the penetration of data lines in our RLEC markets has increased, the growth in residential data lines no longer offsets the decline in residential voice lines. Our competitive carrier voice and data access lines have grown as we continue to offer new services and further penetrate our chosen markets. Our ability to continue this growth and our response to the rural trends will have an important impact on our future revenues. Our primary strategy consists of leveraging our strong incumbent market position, selling additional services to our rural customer base, such as alarm and medical alert monitoring services, and providing better service and support levels and a broader suite of services, including managed services and hybrid/cloud-based hosting, than the incumbent and other competitive carriers to our CLEC customer base.

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Key Operating Statistics

(unaudited)

	As of
	December 31,				March 31,		June 30,		% Change from
	2015		2016		2017		2017		March 31, 2017
Business/Enterprise
CLEC
Voice lines		18,606		17,034		16,852		16,582		(1.6	)%
HPBX seats		10,880		11,487		11,532		11,322		(1.8	)%
Data lines		3,629		3,655		3,315		3,435		3.6	%
Wholesale network lines		2,743		2,570		2,584		2,521		(2.4	)%
RLEC
Voice lines		16,123		16,621		16,359		15,853		(3.1	)%
Data lines		1,539		1,634		1,624		1,625		0.1	%
Access line equivalents(1)		53,520		53,001		52,266		51,338		(1.8	)%
Residential
CLEC
Voice lines		225		199		192		631		228.6	%
Data lines		2,432		2,291		2,275		2,882		26.7	%
RLEC
Voice lines		23,143		20,978		20,556		20,154		(2.0	)%
Data lines		20,089		19,622		19,562		19,421		(0.7	)%
Other services		3,728		3,682		3,665		3,633		(0.9	)%
Access line equivalents(1)		49,617		46,772		46,250		46,721		1.0	%
Otelco access line equivalents(1)		103,137		99,773		98,516		98,059		(0.5	)%

⁽¹⁾ We define access line equivalents as retail and wholesale voice lines, data lines (including cable modems, digital subscriber lines, other broadband connections and dedicated data access trunks) and other services (including entertainment and security services).

Our business and enterprise access line equivalents decreased by 928 during second quarter 2017, or 1.8%, compared to March 31, 2017. Customer churn in our New England CLEC customer base and a decrease in multi-use voice lines in Alabama accounted for the decline. Residential access line equivalents increased 471 during second quarter 2017, or 1.0%, compared to March 31, 2017, reflecting the addition of customers in the town of Leverett, Massachusetts, on April 1, 2017, partially offset by industry-wide trends of reduced residential voice lines.

We offer competitively-priced location-specific bundled service packages, many including unlimited domestic calling, tailored to the varying telecommunications requirements of our customers. Competitive pricing and bundling of services have led our long distance service to be the choice of the majority of our voice customers in the rural markets we serve. In addition, almost all of our CLEC customers have selected us as their long distance carrier. We also provide other services primarily to our residential customers, including cable television, IPTV, over-the-top entertainment services and security monitoring and medical alert services.

Our Rate and Pricing Structure

Our CLEC enterprise pricing is based on market requirements. We combine varying services to meet individual customer requirements, including technical support and managed services, and provide multi-year contracts which are both market sensitive for the customer and stabilizing for our sales process.

Our RLECs operate in six states and have limited regulation by the respective state regulatory authorities. The impact on pricing flexibility varies by state. Our rates for other services we provide, including cable, IPTV, long distance, data lines and high-speed internet access, are not price regulated. The market for competitive services, such as wireless, also impacts our ability to adjust prices. With the increase of bundled services offerings, including unlimited long distance, pricing for individual services takes on reduced importance to revenue stability. We expect this trend to continue into the immediate future.

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Categories of Operating Expenses

Our operating expenses are categorized as cost of services; selling, general and administrative expenses; and depreciation and amortization.

Cost of services. This includes expenses for salaries, wages and benefits relating to our telephone central office and outside plant operation, maintenance, sales and customer service; other plant operations, maintenance and administrative costs; network access costs; data center operations; and costs of services for long distance, cable television, internet and directory services.

Selling, general and administrative expenses. This includes expenses for salaries, wages and benefits and contract service payments (for example, legal fees) relating to engineering, financial, human resources and corporate operations; information management expenses, including billing; allowance for uncollectible accounts receivable; expenses for travel, lodging and meals; internal and external communications costs; insurance premiums; stock exchange and banking fees; and postage.

Depreciation and amortization. This includes depreciation of our telecommunications, cable and internet networks and equipment, and amortization of intangible assets. Certain of these amortization expenses continue to be deductible for tax purposes.

Our Ability to Control Operating Expenses

We strive to control expenses in order to maintain our operating margins. As our revenue continues to shift to non-regulated services and CLEC customers and our residential RLEC revenue continues to decline, operating margins decrease, reflecting the lower margins associated with non-regulated services. Reductions over time in FCC controlled payments may be difficult to fully offset through expense control and pricing action. With the introduction of ACAM funding in 2017, the increase in revenue can be used to support additional capital investment in our network to enhance broadband speeds and coverage.

Results of Operations

The following table sets forth our results of operations as a percentage of total revenues for the periods indicated:

	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Revenues
Local services		33.1	%		34.0	%		32.7	%		34.1	%
Network access		32.2			31.0			32.5			30.9
Internet		22.7			22.5			22.6			22.2
Transport services		6.7			7.1			6.7			7.3
Video and security		4.3			4.2			4.3			4.2
Managed services		1.0			1.2			1.2			1.3
Total revenues		100.0	%		100.0	%		100.0	%		100.0	%
Operating expenses
Cost of services		46.2	%		45.7	%		45.6	%		46.1	%
Selling, general and administrative expenses		14.2			14.0			14.8			14.4
Depreciation and amortization		10.6			11.9			10.6			11.8
Total operating expenses		71.0			71.6			71.0			72.3
Income from operations		29.0			28.4			29.0			27.7
Other income (expense)
Interest expense		(14.8	)		(15.7	)		(14.9	)		(14.9	)
Other income		0.0			0.0			0.5			1.8
Total other expense		(14.8	)		(15.7	)		(14.4	)		(13.1	)
Income before income tax expense		14.2			12.7			14.6			14.6
Income tax expense		(5.4	)		(5.0	)		(5.6	)		(5.8	)
Net income available to common stockholders		8.8	%		7.7	%		9.0	%		8.8	%

Three Months and Six Months Ended June 30, 2017, Compared to Three Months and Six Months Ended June 30, 2016

Total revenues. Total revenues increased 1.0% in the three months ended June 30, 2017, to $17.4 million from $17.2 million in the three months ended June 30, 2016. Total revenues increased 0.2% in the six months ended June 30, 2017, to $34.8 million from $34.7 million in the six months ended June 30, 2016. The decrease in revenue due to the loss of RLEC residential access line equivalents was offset by the incremental revenue associated with the FCC’s ACAM program and

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growth in internet, video and security revenue. The tables below provide the components of our revenues for the three months and six months ended June 30, 2017, compared to the same periods of 2016.

For the three months ended June 30, 2017, and 2016

	Three Months Ended June 30,				Change
	2017		2016		Amount			Percent
	(dollars in thousands)
Local services	$	5,762	$	5,849	$	(87	)		(1.5	)%
Network access		5,604		5,345		259			4.8
Internet		3,958		3,879		79			2.0
Transport services		1,168		1,230		(62	)		(5.0	)
Video and security		747		718		29			4.0
Managed services		167		211		(44	)		(20.9	)
Total	$	17,406	$	17,232	$	174			1.0

Local services. Local services revenue decreased 1.5% in the three months ended June 30, 2017, to slightly less than $5.8 million from slightly more than $5.8 million in the three months ended June 30, 2016. The decline in RLEC residential voice access lines and related revenue, such as long distance, accounted for a decrease of $0.3 million. A portion of the RLEC decrease is recovered through the CAF, which is categorized as interstate access revenue. The decline in RLEC residential voice access revenue was partially offset by an increase in HPBX and fiber revenue of $0.2 million.

Network access. Network access revenue increased 4.8% in the three months ended June 30, 2017, to $5.6 million from $5.3 million in the three months ended June 30, 2016. The initial ACAM revenue and transition payments and CAF revenue increased $2.1 million. A one-time settlement accounted for an increase of $0.2 million. These increases were partially offset by a $1.6 million decrease in interstate access, including universal service funding. End-user based fees decreased $0.2 million and special access charges decreased $0.2 million.

Internet. Internet revenue increased 2.0% in the three months ended June 30, 2017, to $4.0 million from $3.9 million in the three months ended June 30, 2016. Revenue associated with increased data speeds and equipment rental fees accounted for the increase.

Transport services. Transport services revenue decreased 5.0% in the three months ended June 30, 2017, to just under $1.2 million from just over $1.2 million in the three months ended June 30, 2016, reflecting customer churn and market pricing.

Video and security. Video and security revenue for the three months ended June 30, 2017, increased 4.0% from the three months ended June 30, 2016, to remain at $0.7 million in both periods reflecting increases in IPTV and security revenue.

Managed services. Managed services revenue decreased 20.9% in the three months ended June 30, 2017, to just under $0.2 million from just over $0.2 million in the three months ended June 30, 2016, reflecting a decrease in professional services revenue.

For the six months ended June 30, 2017, and 2016

	Six Months Ended June 30,				Change
	2017		2016		Amount			Percent
	(dollars in thousands)
Local services	$	11,361	$	11,848	$	(487	)		(4.1	)%
Network access		11,316		10,737		579			5.4
Internet		7,868		7,700		168			2.2
Transport services		2,317		2,533		(216	)		(8.5	)
Video and security		1,512		1,452		60			4.1
Managed services		412		452		(40	)		(8.8	)
Total	$	34,786	$	34,722	$	64			0.2

Local services. Local services revenue decreased 4.1% in the six months ended June 30, 2017, to just under $11.4 million from just over $11.8 million in the six months ended June 30, 2016. The decline in RLEC residential voice access lines and related revenue accounted for a decrease of $0.4 million and long distance, special lines and other revenue, such as directory revenue, accounted for a decrease of $0.3 million. These declines were partially offset by an increase in HPBX and fiber revenue of $0.1 million and network fees of $0.1 million. A portion of the RLEC decrease is recovered through the CAF, which is categorized as interstate access revenue.

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Network access. Network access revenue increased 5.4% in the six months ended June 30, 2017, to $11.3 million from $10.7 million in the six months ended June 30, 2016. The initial ACAM revenue and transition payments and CAF revenue increased $4.4 million. A one-time settlement accounted for an increase of $0.2 million. These increases were partially offset by a $3.5 million decrease in interstate access, including universal service funding. End-user based fees decreased $0.3 million and special access charges decreased $0.2 million.

Internet. Internet revenue increased 2.2% in the six months ended June 30, 2017, to $7.9 million from $7.7 million in the six months ended June 30, 2016. Revenue associated with increased data speeds and equipment rental fees accounted for the increase.

Transport services. Transport services revenue decreased 8.5% in the six months ended June 30, 2017, to $2.3 million from $2.5 million in the six months ended June 30, 2016, reflecting customer churn and market pricing.

Video and security. Video and security revenue for the six months ended June 30, 2017, increased 4.1% from the six months ended June 30, 2016, to remain at $1.5 million in both periods, reflecting increases in IPTV revenue.

Managed services. Managed services revenue for the six months ended June 30, 2017, decreased from the six months ended June 30, 2016, to remain at $0.4 million in both periods. Decreases in professional services revenue were partially offset by increases in cloud hosting revenue.

Operating expenses. Operating expenses in the three months ended June 30, 2017, increased 0.2% to $12.4 million from $12.3 million in the three months ended June 30, 2016. Operating expenses in the six months ended June 30, 2017, decreased 1.5% to $24.7 million from $25.1 million in the six months ended June 30, 2016. The tables below provide the components of our operating expenses for the three months and six months ended June 30, 2017, compared to the same periods of 2016.

For the three months ended June 30, 2017, and 2016

	Three Months Ended June 30,				Change
	2017		2016		Amount			Percent
	(dollars in thousands)
Cost of services	$	8,044	$	7,875	$	169			2.1	%
Selling, general and administrative expenses		2,467		2,407		60			2.5
Depreciation and amortization		1,842		2,051		(209	)		(10.2	)
Total	$	12,353	$	12,333	$	20			0.2

Cost of services. Cost of services increased 2.1% to just over $8.0 million in the three months ended June 30, 2017, from just under $7.9 million in the three months ended June 30, 2016. Network and other operations expense increased just over $0.1 million and pole rental expense increased $0.1 million. These increases were partially offset by a decrease of $0.1 million in customer service and sales costs. Circuit, access, internet and cable costs were unchanged.

Selling, general and administrative expenses. Selling, general and administrative expenses increased 2.5% to $2.5 million in the three months ended June 30, 2017, from $2.4 million in the three months ended June 30, 2016. The increase was the result of a transition from the stock-based senior management bonus plan, which had been in place for three years, to a cash-based bonus plan for 2017.

Depreciation and amortization. Depreciation and amortization decreased 10.2% in the three months ended June 30, 2017, to just over $1.8 million from just under $2.1 million in the three months ended June 30, 2016. The amortization of the telephone plant adjustment decreased $0.1 million. New England RLEC depreciation and amortization of other intangible assets decreased $0.1 million.

For the six months ended June 30, 2017, and 2016

	Six Months Ended June 30,				Change
	2017		2016		Amount			Percent
	(dollars in thousands)
Cost of services	$	15,857	$	16,005	$	(148	)		(0.9	)%
Selling, general and administrative expenses		5,174		4,983		191			3.8
Depreciation and amortization		3,682		4,089		(407	)		(10.0	)
Total	$	24,713	$	25,077	$	(364	)		(1.5	)

Cost of services. Cost of services decreased 0.9% to just over $15.8 million in the six months ended June 30, 2017, from just under $16.0 million in the six months ended June 30, 2016. Customer service and sales costs decreased $0.2 million and circuit,

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access, internet and cable costs decreased $0.2 million. These decreases were partially offset by increases in network and other operations expense of $0.1 million and pole rental expense of $0.2 million.

Selling, general and administrative expenses. Selling, general and administrative expenses increased 3.8% to $5.2 million in the six months ended June 30, 2017, from $5.0 million in the six months ended June 30, 2016. The transition from the stock-based senior management bonus plan, which had been in place for three years, to a cash-based bonus plan for 2017, accounted for a $0.3 million increase. Delay in customer payments increased uncollectible revenue by $0.1 million. Regulatory expenses increased $0.1 million associated with ACAM implementation. These increases were partially offset by decreases in legal, insurance, property tax, loan and other administrative expenses of $0.3 million.

Depreciation and amortization. Depreciation and amortization decreased 10.0% in the six months ended June 30, 2017, to $3.7 million from $4.1 million in the six months ended June 30, 2016. The amortization of the telephone plant adjustment decreased $0.2 million; other intangible assets decreased $0.1 million; and cable television and New England RLEC and CLEC depreciation decreased $0.2 million. Alabama and Missouri depreciation increased $0.1 million.

For the three months ended June 30, 2017, and 2016

	Three Months Ended June 30,						Change
	2017			2016			Amount			Percent
	(dollars in thousands)
Interest expense	$	(2,571	)	$	(2,721	)	$	(150	)		(5.5	)%
Other income		—			4			(4	)		NM	*
Income tax expense		(947	)		(858	)		89			10.4

* Not a meaningful calculation.

Interest expense. Interest expense decreased 5.5% in the three months ended June 30, 2017, to $2.6 million from $2.7 million in the three months ended June 30, 2016. The lower outstanding balance on our senior credit facility accounted for the decrease. We have repaid $8.1 million of debt principal since we funded our new senior and subordinated credit facilities in February 2016. These credit facilities mature in 2021.

Income tax expense. Provision for income tax expense was just over $0.9 million in the three months ended June 30, 2017, compared to just under $0.9 million in the three months ended June 30, 2016. The effective income tax rate as of June 30, 2017, and December 31, 2016, was 38.3% and 41.5%, respectively.

For the six months ended June 30, 2017 and 2016

	Six Months Ended June 30,						Change
	2017			2016			Amount			Percent
	(dollars in thousands)
Interest expense	$	(5,182	)	$	(5,203	)	$	(21	)		(0.4	)%
Other income		203			623			(420	)		(67.4	)
Income tax expense		(1,951	)		(1,991	)		(40	)		(2.0	)

Interest expense. Interest expense for the six months ended June 30, 2017, decreased 0.4% from the six months ended June 30, 2016, to remain at $5.2 in both periods. Higher interest cost associated with our new credit facilities, beginning in February 2016, of $0.1 million was offset by lower amortization of loan cost of $0.1 million. We have repaid $8.1 million of debt principal since we funded our new senior and subordinated credit facilities in February 2016. These credit facilities mature in 2021.

Other income. Other income decreased 67.4% in the six months ended June 30, 2017, to $0.2 million from $0.6 million in the six months ended June 30, 2016, primarily related to the annual CoBank dividend. In first quarter 2016, our senior credit facility held by CoBank (and five other banks) was fully repaid. As such, we were only entitled to a partial year of dividends from CoBank, which are received in the first quarter of each year. The CoBank patronage shares held by us are expected to be repatriated over the next nine years.

Income tax expense. Provision for income tax expense was just under $2.0 million in the six months ended June 30, 2017, compared to $2.0 million in the six months ended June 30, 2016. The effective income tax rates as of June 30, 2017, and December 31, 2016, were 38.3% and 41.5%, respectively.

Net income. As a result of the foregoing, there was net income of $1.5 million and $1.3 million in the three months ended June 30, 2017, and 2016, respectively. The difference was primarily driven by the new ACAM revenue. As a result of the foregoing,

17

there was net income of just over $3.1 million and just under $3.1 million in the six months ended June 30, 2017, and 2016, respectively. The difference is primarily attributable to the new ACAM revenue, partially offset by the smaller CoBank dividend received in 2017.

Liquidity and Capital Resources

Our liquidity needs arise primarily from: (i) interest and principal payments related to our credit facilities; (ii) capital expenditures for investment in our business; and (iii) working capital requirements.

For the six months ended June 30, 2017, we generated cash from our business to invest in additional property and equipment of $3.8 million, pay loan principal of $5.1 million and pay scheduled interest on our debt of $4.5 million. After meeting all of these needs of our business, cash increased to $11.3 million as of June 30, 2017, from $10.5 million as of December 31, 2016.

Cash flows from operating activities for the six months ended June 30, 2017, amounted to just over $9.7 million compared to just under $9.7 million for the six months ended June 30, 2016, reflecting a small increase in net income.

Cash flows used in investing activities for the six months ended June 30, 2017, were $3.8 million compared to $2.2 million in the six months ended June 30, 2016. Increased investment in property and equipment in the six months ended June 30, 2017, reflecting additional RLEC fiber installation associated with the FCC’s ACAM program, accounted for the difference.

Cash flows used in financing activities for the six months ended June 30, 2017, were $5.2 million compared to $6.1 million in the six months ended June 30, 2016, reflecting changes associated with our credit facilities, primarily loan origination costs for the facilities in 2016 and principal payments in 2017.

We do not invest in financial instruments as part of our business strategy.

Our prior credit facility was scheduled to mature in April 2016. However, on January 25, 2016, we entered into a new senior credit facility, providing for a five year term loan facility in the aggregate principal amount of $85.0 million and a five year $5.0 million revolving credit facility, and a new subordinated credit facility, providing for a five and a half year term loan facility in the aggregate principal amount of $15.0 million. On February 17, 2016, the subordinated credit facility was amended to increase the aggregate principal amount available for borrowing thereunder to $15.3 million, and we borrowed $85.0 million under the term loan facility of the senior credit facility and $15.3 million under the subordinated credit facility. We used the borrowings under the credit facilities to, among other things, pay all amounts due, including principal, interest and fees, and satisfy in full all of our obligations under our previous credit facility.

We anticipate that operating cash flow, together with borrowings under our revolving credit facility, will be adequate to meet our currently anticipated operating and capital expenditure requirements for at least the next 12 months. Our cash position reflects the continuing strength of our operations.

We use consolidated earnings before interest, taxes, depreciation and amortization (“Consolidated EBITDA”) and the ratio of our debt, net of cash, to Consolidated EBITDA for the last twelve months (“Leverage Ratio”) as operational performance measurements. Consolidated EBITDA, as presented in this Quarterly Report on Form 10-Q, corresponds to the definition of Consolidated EBITDA in our credit facilities. Consolidated EBITDA and the Leverage Ratio, as presented in this Quarterly Report on Form 10-Q, are supplemental measures of our performance that are not required by, or presented in accordance with, accounting principles generally accepted in the United States (“U.S. GAAP”). The lenders under our credit facilities use C to determine compliance with credit facility requirements. We report Consolidated EBITDA and the Leverage Ratio in our quarterly earnings press release to allow current and potential investors to understand these performance metrics and because we believe that they provide current and potential investors with helpful information with respect to our operating performance, including our ability to generate earnings sufficient to service our debt, and enhance understanding of our financial performance and highlight operational trends. However, Consolidated EBITDA and the Leverage Ratio should not be considered as an alternative to net income or any other performance measures derived in accordance with U.S. GAAP. Our presentation of Consolidated EBITDA and the Leverage Ratio may not be comparable to similarly titled measures used by other companies. Consolidated EBITDA for the three months and six months ended June 30, 2017, and 2016, and the twelve months ended June 30, 2017, and its reconciliation to net income, is reflected in the table below (in thousands):

18

Reconciliation of Consolidated EBITDA to Net Income
	Three Months Ended June 30,					Six Months Ended June 30,				Twelve Months Ended June 30,
	2017		2016			2017		2016		2017
Net income	$	1,536	$	1,324		$	3,144	$	3,074	$	5,215
Add: Depreciation		1,741		1,792			3,479		3,571		7,046
Interest expense less interest income		2,260		2,400			4,561		4,439		9,359
Interest expense - amortized loan cost		311		321			621		764		1,254
Income tax expense		946		858			1,951		1,991		3,617
Amortization - intangibles		101		259			202		518		158
Loan fees		39		40			79		124		570
Stock-based compensation (earn-out)		—		(78	)		—		—		—
Stock-based compensation (senior management)		71		137			166		199		382
Consolidated EBITDA	$	7,005	$	7,053		$	14,203	$	14,680	$	27,601

The table below provides the calculation of the Leverage Ratio, as of June 30, 2017 (dollar amounts in thousands).

Senior notes payable	$	73,450
Debt issuance costs		3,425
Senior notes outstanding	$	76,875
Subordinated notes payable	$	15,056
Debt issuance costs		674
Subordinated notes outstanding	$	15,730
Total notes outstanding	$	92,605
Less cash		(11,274	)
Notes outstanding, net of cash	$	81,331
Consolidated EBITDA for the last twelve months	$	27,601
Leverage Ratio		2.95

As we reduce our debt, the Leverage Ratio would be expected to decline if Consolidated EBITDA remains consistent. In addition to the $1.0 million debt principal payment made at the beginning of each quarter, we made an additional $3.0 million debt principal payment on August 1, 2017.

Recent Accounting Pronouncements

See Note 1, Organization and Basis of Financial Reporting, to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for a description of the recent accounting pronouncements that are applicable to us.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Our short-term excess cash balance is invested in short-term commercial paper. We do not invest in any derivative or commodity type instruments. Accordingly, we are subject to minimal market risk on our investments.

Interest rates applicable to the term loan and the revolving loan under our senior credit facility are set at a margin over a LIBOR rate (which is defined as the higher of (1) LIBOR and (2) 1.0% per annum) or a reference rate (which is generally defined as the highest of (1) 3.5% per annum, (2) the federal funds rate plus 0.50% per annum, (3) the LIBOR rate plus 1.00% per annum and (4) the prime rate). Accordingly, we are exposed to interest rate risk. A one percentage point change in one-month LIBOR interest rates from the interest rates actually applicable to the term loan under our senior credit facility during the periods would have resulted in an increase of $0.2 million and $0.4 million in our interest expense for the three months and six months ended June 30, 2017, respectively.

Item 4. Controls and Procedures

With the participation of the Chief Executive Officer and the Chief Financial Officer, management has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2017.

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There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) during the three months ended June 30, 2017, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II OTHER INFORMATION

Item 1. Legal Proceedings

As previously reported in our Annual Report on Form 10-K for the year ended December 31, 2016 and our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2017, Sprint Communications L.P. (“Sprint”), MCI Communications Services, Inc. (“MCI”) and Verizon Select Services, Inc. (“Verizon”) have filed more than 60 lawsuits in federal courts across the United States alleging that over 400 local exchange carriers (“LECs” or “LEC Defendants”) overcharged Sprint, MCI and Verizon for so-called intraMTA traffic (wireless phone calls that originate and terminate in the same metropolitan transit area). The lawsuits seek a refund of previously-paid access charges for intraMTA traffic, as well as a discount related to intraMTA traffic on a going-forward basis. One of our subsidiaries, Otelco Mid-Missouri LLC (“Otelco Mid-Missouri”), was named as a defendant in two of the lawsuits that are being brought before the District Court for the Western District of Missouri (one filed on May 2, 2014, by Sprint and the other filed on September 5, 2014, by MCI and Verizon). In addition, one of the Company’s other subsidiaries, Otelco Telephone LLC, was named as a defendant in a lawsuit relating to these issues filed by MCI and Verizon in the District Court for the District of Delaware on September 5, 2014. As all of the lawsuits relating to these issues raise the same fundamental questions of law, the United States Judicial Panel on Multidistrict Litigation (“MDL”) has consolidated the lawsuits in the District Court for the Northern District of Texas (the “Court”) for all pre-trial proceedings. On November 17, 2015, the Court issued a memorandum opinion and order dismissing the plaintiffs’ federal-law claims with prejudice, dismissing the state-law claims but granting leave to replead said claims, and denying the LEC Defendants’ request to refer the matter to the FCC. On May 5, 2016, Sprint filed amended complaints alleging additional state-law claims. Since that time, a number of LECs, including Otelco Mid-Missouri, filed claims in the MDL proceeding against Level 3 Communications LLC (“Level 3”). These claims argued that the LECs that filed the claims were entitled to access charges from Level 3 for terminating intraMTA traffic and that Level 3 had improperly withheld payment. These proceedings were consolidated with the Verizon, MCI and Sprint claims. Level 3 moved to dismiss the LECs’ claims and the LECs opposed the motion. On March 22, 2017, the Court issued a memorandum and order denying Level 3’s motion to dismiss, putting the Level 3 claims in a similar procedural posture as the Verizon, MCI and Sprint claims. On May 3, 2017, the Court dismissed Sprint’s amended complaints against the LECs, further affirming the Court’s position that the LECs are entitled to receive access charges for terminating intraMTA traffic. On June 1, 2017, the Court issued an updated scheduling order calling for the parties to submit all materials necessary for the Court to rule on pending summary judgement motions by September 1, 2017. At this time, it is not possible to determine whether these lawsuits will have a material adverse effect on the Company’s business.

Item 6. Exhibits

Exhibits

See Exhibit Index.

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.

Date: August 4, 2017	OTELCO INC.
	By:	/s/ Curtis L. Garner, Jr.
		Curtis L. Garner, Jr.
		Chief Financial Officer

22

EXHIBIT INDEX

Exhibit No.	Description
31.1	Certificate pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934 of the Chief Executive Officer
31.2	Certificate pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934 of the Chief Financial Officer
32.1	Certificate pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the Chief Executive Officer
32.2	Certificate pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the Chief Financial Officer
101	The following information from the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2017, formatted in Extensible Business Reporting Language (XBRL): (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Operations; (iii) Condensed Consolidated Statements of Cash Flows; and (iv) Notes to Condensed Consolidated Financial Statements

23

EX-31.1

Exhibit 31.1

CERTIFICATION BY CHIEF EXECUTIVE OFFICER

I, Robert J. Souza, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Otelco Inc.;

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

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

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

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

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

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

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

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

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

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

Date: August 4, 2017

/s/ Robert J. Souza

Robert J. Souza

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION BY CHIEF FINANCIAL OFFICER

I, Curtis L. Garner, Jr., certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Otelco Inc.;

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

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

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

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

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

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

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

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

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

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

Date: August 4, 2017

/s/ Curtis L. Garner, Jr.

Curtis L. Garner, Jr.

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Otelco Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert J. Souza, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

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

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

/s/ Robert J. Souza

Robert J. Souza

Chief Executive Officer

August 4, 2017

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Otelco Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Curtis L. Garner, Jr., Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

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

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

/s/ Curtis L. Garner, Jr.

Curtis L. Garner, Jr.

Chief Financial Officer

August 4, 2017

XML

Document And Entity Information	6 Months Ended
	Jun. 30, 2017 shares
Document Information [Line Items]
Entity Registrant Name	OTELCO INC.
Entity Central Index Key	0001288359
Trading Symbol	otel
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Document Type	10-Q
Document Period End Date	Jun. 30, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q2
Amendment Flag	false
Common Class A [Member]
Document Information [Line Items]
Entity Common Stock, Shares Outstanding (in shares)	3,346,689
Common Class B [Member]
Document Information [Line Items]
Entity Common Stock, Shares Outstanding (in shares)	0

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Current assets
Cash and cash equivalents	$ 11,274	$ 10,538
Accounts receivable:
Due from subscribers, net of allowance for doubtful accounts of $203 and $187, respectively	4,631	5,035
Other	1,537	1,528
Materials and supplies	2,533	2,184
Prepaid expenses	1,337	2,912
Total current assets	21,312	22,197
Property and equipment, net	49,604	49,271
Goodwill	44,976	44,976
Intangible assets, net	1,542	1,785
Investments	1,644	1,821
Other assets	243	222
Total assets	119,321	120,272
Current liabilities
Accounts payable	751	1,477
Accrued expenses	5,346	4,730
Advance billings and payments	1,525	1,487
Customer Deposits	67	62
Current maturity of long-term notes payable, net of debt issuance cost	2,959	6,071
Total current liabilities	10,648	13,827
Deferred income taxes	28,280	28,280
Advance billings and payments	2,444	1,987
Other liabilities	8	26
Long-term notes payable, less current maturities and debt issuance cost	85,547	86,860
Total liabilities	126,927	130,980
Stockholders' deficit
Additional paid in capital	4,143	4,186
Accumulated deficit	(11,783)	(14,927)
Total stockholders' deficit	(7,606)	(10,708)
Total liabilities and stockholders' deficit	119,321	120,272
Common Class A [Member]
Stockholders' deficit
Common Stock, Value	$ 34	$ 33

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Allowance for doubtful accounts	$ 203	$ 187
Common Class A [Member]
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, authorized (in shares)	10,000,000	10,000,000
Common stock, issued (in shares)	3,346,689	3,291,750
Common stock, outstanding (in shares)	3,346,689	3,291,750

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Revenues	$ 17,406	$ 17,232	$ 34,786	$ 34,722
Operating expenses
Cost of services	8,044	7,875	15,857	16,005
Selling, general and administrative expenses	2,467	2,407	5,174	4,983
Depreciation and amortization	1,842	2,051	3,681	4,089
Total operating expenses	12,353	12,333	24,712	25,077
Income from operations	5,053	4,899	10,074	9,645
Other income (expense)
Interest expense	(2,571)	(2,721)	(5,182)	(5,203)
Other income		4	203	623
Total other expense	(2,571)	(2,717)	(4,979)	(4,580)
Income before income tax expense	2,482	2,182	5,095	5,065
Income tax expense	(946)	(858)	(1,951)	(1,991)
Net income	$ 1,536	$ 1,324	$ 3,144	$ 3,074
Weighted average number of common shares outstanding:
Basic (in shares)	3,346,689	3,283,177	3,346,689	3,283,177
Diluted (in shares)	3,445,632	3,380,445	3,445,632	3,378,090
Basic net income per common share (in dollars per share)	$ 0.46	$ 0.40	$ 0.94	$ 0.94
Diluted net income per common share (in dollars per share)	$ 0.45	$ 0.39	$ 0.91	$ 0.91

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
Cash flows from operating activities:
Net income	$ 3,144	$ 3,074
Adjustments to reconcile net income to cash flows provided by operating activities:
Depreciation	3,479	3,571
Amortization	202	518
Amortization of loan costs	621	609
Loss on extinguishment of debt		155
Provision for uncollectible accounts receivable	206	119
Stock-based compensation	166	199
Payment in kind interest - subordinated debt	157	115
Changes in operating assets and liabilities
Accounts receivable	189	115
Materials and supplies	(349)	(173)
Prepaid expenses and other assets	1,554	1,246
Accounts payable and accrued expenses	(110)	217
Advance billings and payments	495	(67)
Other liabilities	(13)	(14)
Net cash from operating activities	9,741	9,684
Cash flows used in investing activities:
Acquisition and construction of property and equipment	(3,758)	(2,215)
Net cash used in investing activities	(3,758)	(2,215)
Cash flows used in financing activities:
Loan origination costs	(77)	(5,215)
Principal repayment of long-term notes payable	(5,125)	(101,053)
Proceeds from loan refinancing		100,300
Retirement of CoBank equity	164
Tax withholdings paid on behalf of employees for restricted stock units	(209)	(109)
Net cash used in financing activities	(5,247)	(6,077)
Net increase in cash and cash equivalents	736	1,392
Cash and cash equivalents, beginning of period	10,538	6,884
Cash and cash equivalents, end of period	11,274	8,276
Supplemental disclosures of cash flow information:
Interest paid	4,456	3,728
Income taxes paid	692	685
Conversion of Class B common stock to Class A common stock		2
Issuance of Class A common stock	$ 1	$ 1

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Note 1 - Organization and Basis of Financial Reporting

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

1. Organization and Basis of Financial Reporting

Basis of Presentation and Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of Otelco Inc. (the “Company”) and its subsidiaries, all of which are either directly or indirectly wholly owned. These include: Blountsville Telephone LLC; Brindlee Mountain Telephone LLC; CRC Communications LLC (“CRC”); Granby Telephone LLC; Hopper Telecommunications LLC; Mid-Maine Telecom LLC; Mid-Maine TelPlus LLC; Otelco Mid-Missouri LLC (“MMT”) and its wholly owned subsidiary I-Land Internet Services LLC; Otelco Telecommunications LLC; Otelco Telephone LLC (“OTP”); Pine Tree Telephone LLC; Saco River Telephone LLC; Shoreham Telephone LLC; and War Telephone LLC.

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and all of the aforesaid subsidiaries after elimination of all material intercompany balances and transactions. The unaudited operating results for the

three

months and

six

months ended

June 30, 2017,

are

not

necessarily indicative of the results that

may

be expected for the year ending

December 31, 2017,

or any other period.

The unaudited condensed consolidated financial statements and notes included in this Quarterly Report on Form

10

-Q should be read in conjunction with the consolidated financial statements and notes thereto in the Company’s Annual Report on Form

10

-K for the year ended

December 31, 2016.

The interim condensed consolidated financial information herein is unaudited. The information reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the periods included in this report.

Recent Accounting Pronouncements

During

2017,

the Financial Accounting Standards Board (the “FASB”) has issued Accounting Standards Updates (“ASUs”)

2017

-

01

through

2017

-

11.

Except for ASUs

2017

-

03,

2017

-

04,

2017

-

09

and

2017

-

10,

which are discussed below, these ASUs provide technical corrections or simplifications to existing guidance and to specialized industries or entities and therefore have minimal, if any, impact on the Company.

In

May 2014,

the FASB issued ASU

2014

-

09,

Revenue from Contracts with Customers (Topic

606

)

(“ASU

2014

-

09”

). This ASU requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also provides a more robust framework for revenue issues and improves comparability of revenue recognition practices across industries. This ASU was the product of a joint project between the FASB and the International Accounting Standards Board to clarify the principles for recognizing revenue and to develop a common revenue standard. This guidance was to be effective for fiscal years, and interim periods within those fiscal years, beginning after

December 15, 2016,

with early adoption

not

permitted. In

July 2015,

the FASB issued ASU

2015

-

14,

Revenue from Contracts with Customers (Topic

606

): Deferral of the Effective Date.

This ASU confirmed a

one

-year delay in the effective date of ASU

2014

-

09,

making the effective date for the Company the

first

quarter of fiscal

2018

instead of the

first

quarter of fiscal

2017.

In

March 2016,

the FASB issued ASU

2016

-

08,

Revenue from Contracts with Customers (Topic

606

): Principal versus Agent Consideration (Reporting Revenues Gross versus Net)

. This ASU is further guidance to ASU

2014

-

09,

and clarifies principal versus agent considerations. In

April 2016,

the FASB issued ASU

2016

-

10,

Revenue from Contracts with Customers (Topic

606

): Identifying Performance Obligations and Licensing.

This ASU is also further guidance to ASU

2014

-

09,

and clarifies the identification of performance obligations. In

May 2016,

the FASB issued ASU

2016

-

12,

Revenue from Contracts with Customers (Topic

606

): Narrow-Scope Improvements and Practical Expedients.

This ASU is also further guidance to ASU

2014

-

09,

and clarifies assessing the narrow aspects of recognizing revenue. In

December 2016,

the FASB issued ASU

2016

-

20,

Technical Corrections and Improvements to Topic

606,

Revenue from Contracts with Customers.

This ASU is also further guidance to ASU

2014

-

09,

and clarifies technical corrections and improvements for recognizing revenue. In

January 2017,

the FASB issued ASU

2017

-

03,

Accounting Changes and Error Corrections (Topic

250

) and Investments-Equity Method and Joint Ventures (Topic

323

)

(“ASU

2017

-

03”

). This ASU requires registrants to evaluate the impact ASU

2014

-

09

will have on financial statements and adequately disclose this information to assist the reader in assessing the significance of ASU

2014

-

09

on the financial statements when adopted. ASU

2014

-

09

permits the use of either a retrospective or modified retrospective application. The Company intends to use the modified retrospective approach. The Company is continuing to evaluate ASU

2014

-

09

and the related guidance both internally and through its insight from an industry working group. The Company will continue its evaluation of ASU

2014

-

09

and the related guidance through the date of adoption.

In

February 2016,

the FASB issued ASU

2016

-

02,

Leases (Topic

842

)

(“ASU

2016

-

02”

)

.

This ASU requires lessees to recognize most leases on the balance sheet. The provisions of this ASU are effective for annual periods beginning after

December 15, 2018,

and interim periods within those years, with early adoption permitted.

In

January 2017,

the FASB issued ASU

2017

-

03,

which requires registrants to evaluate the impact ASU

2016

-

02

will have on financial statements and adequately disclose this information to assist the reader in assessing the significance of ASU

2016

-

02

on the financial statements when adopted. The Company is evaluating the requirements of ASU

2016

-

02

and has

not

yet determined the impact of the adoption on the Company’s condensed consolidated financial position or results of operations.

In

January 2017,

the FASB issued ASU

2017

-

04,

Intangibles-Goodwill and Other (Topic

350

)

(“ASU

2017

-

04”

). The objective of this ASU is to simplify how an entity is required to test goodwill for impairment by eliminating Step

2

from the goodwill impairment test. ASU

2017

-

04

is effective for fiscal years beginning after

December 15, 2019,

and interim periods within those fiscal years. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after

January 1, 2017.

The Company does

not

expect this ASU to have a material impact on its condensed consolidated financial statements.

In

May 2017,

the FASB issued ASU

2017

-

09,

Compensation-Stock Compensation (Topic

718

)

(“ASU

2017

-

09”

). ASU

2017

-

09

provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Accounting Standards Codification (“ASC”) Topic

718,

Stock Compensation

. ASU

2017

-

09

is effective for fiscal years beginning after

December 15, 2017,

and interim periods within those fiscal years. Early adoption is permitted for any interim period for which financial statements have

not

been issued. ASU

2017

-

09

should be applied prospectively to an award modified on or after the adoption date. The Company does

not

expect this ASU to have a material impact on its condensed consolidated financial statements.

In

May 2017,

the FASB issued ASU

2017

-

10,

Service Concession Arrangements (Topic

853

)

(“ASU

2017

-

10”

). The objective of this ASU is to specify that an operating entity should

not

account for a service concession arrangement that meets certain criteria as a lease in accordance with ASC Topic

840,

Leases

. ASU

2017

-

10

further states that the infrastructure used in a service concession arrangement should

not

be recognized as property, plant, and equipment of the operating entity. The provisions of this ASU are effective for annual periods beginning after

December 15, 2017,

and interim periods within those years, with early adoption permitted. The Company does

not

expect this ASU to have a material impact on its condensed consolidated financial statements.

Refinancing

On

January 25, 2016,

the Company entered into a senior loan agreement (the “Senior Loan Agreement”), providing for a

five

year term loan facility in the aggregate principal amount of

$85.0

million and a

five

year

$5.0

million revolving credit facility, and a subordinated loan agreement (the “Subordinated Loan Agreement”), providing for a

five

and a half year term loan facility in the aggregate principal amount of

$15.0

million. On

February 17, 2016,

the Subordinated Loan Agreement was amended to increase the aggregate principal amount available for borrowing thereunder to

$15.3

million, and the Company borrowed

$85.0

million under the term loan facility of the Senior Loan Agreement and

$15.3

million under the Subordinated Loan Agreement. The Company used the borrowings under the Senior Loan Agreement and the Subordinated Loan Agreement to, among other things, pay all amounts due, including principal, interest and fees, and satisfy in full all of its obligations under its previous credit facility (the “Previous Credit Facility”), which was scheduled to mature on

April 30, 2016.

As a result of the repayment of the Previous Credit Facility, all of the shares of the Company’s Class B common stock were automatically converted into an equal number of shares of the Company’s Class A common stock. The term loan facility under the Senior Loan Agreement requires principal payments of

$1.0

million quarterly, which payments began on

April 1, 2016.

Principal amounts outstanding under the Subordinated Loan Agreement will generally

not

be due until maturity. The Company recorded costs of

$15

thousand and write-off of loan costs of

$140

thousand in connection with this refinancing. During

second

quarter

2017,

the Company paid an amendment fee of

$77.9

thousand to its senior lender to raise the capital expenditure limits under the Senior Loan Agreement to

$8.5

million and

$7.5

million for

2017

and

2018,

respectively. The increased capital expenditures are associated with fulfilling build out requirements associated with the Federal Communications Commission’s (the “FCC”) Alternative Connect America Model (“ACAM”) program.

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Note 2 - Notes Payable

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Debt Disclosure [Text Block]

2. Notes Payable

Notes payable consists of the following (in thousands, except percentages) as of:

	June 30, 2017
	Current			Long-term			Total
Senior Loan Agreement with Cerberus Business Finance, LLC; variable interest rate of 8.81% at June 30, 2017, interest is monthly, paid in arrears on the first business day of each month. The Senior Loan Agreement is secured by the total assets of the subsidiary guarantors. The unpaid balance is due February 17, 2021.	$	4,000		$	72,875		$	76,875
Debt issuance cost		(1,041	)		(2,384	)		(3,425	)
Senior notes payable, net of debt issuance cost	$	2,959		$	70,491		$	73,450

	December 31, 2016
	Current			Long-term			Total
Senior Loan Agreement with Cerberus Business Finance, LLC; variable interest rate of 8.75% at December 31, 2016, interest is monthly, paid in arrears on the first business day of each month. The Senior Loan Agreement is secured by the total assets of the subsidiary guarantors. The unpaid balance is due February 17, 2021.	$	7,125		$	74,875		$	82,000
Debt issuance cost		(1,054	)		(2,835	)		(3,889	)
Senior notes payable, net of debt issuance cost	$	6,071		$	72,040		$	78,111

	June 30,			December 31,
	2017			2016
Subordinated Loan Agreement with NewSpring Mezzanine Capital III, L.P.; fixed interest due monthly with a rate of 12.00%. Payment in kind (“PIK”) interest rate of 2.00% per annum. PIK interest accrued is added to the principal amount then outstanding on the last business day of each quarter. The unpaid balance is due August 17, 2021.	$	15,300		$	15,300
PIK interest added to principal		430			273
Less: Long-term portion of debt issuance cost		(674	)		(753	)
Long-term notes payable, net of debt issuance cost	$	15,056		$	14,820

Associated with the Senior Loan Agreement, the Company has capitalized and amortized deferred financing cost using the effective interest method. The Company has capitalized

$4.9

million in deferred financing cost associated with the Senior Loan Agreement. Amortization expense for the deferred financing cost associated with the Senior Loan Agreement was

$541

thousand and

$426

thousand for the

six

months ended

June 30, 2017,

and

2016,

respectively.

Associated with the Subordinated Loan Agreement, the Company has capitalized and amortized deferred financing cost using the effective interest method. The Company has capitalized

$892

thousand in deferred financing cost associated with the Subordinated Loan Agreement. Amortization expense for the deferred financing cost associated with the Subordinated Loan Agreement was

$80

thousand and

$57

thousand for the

six

months ended

June 30, 2017,

and

2016,

respectively.

The Company had a revolving credit facility on

June 30, 2017,

and

December 31, 2016,

with a maximum borrowing capacity of

$5.0

million associated with the Senior Loan Agreement. The revolving credit facility is available until

February 17, 2021.

There was

no

balance outstanding as of

June 30, 2017,

or

December 31, 2016.

The Company pays a monthly fee of

0.75%

on the unused portion of the revolver loan under the Senior Loan Agreement, payable in arrears. The fee expense was

$19

thousand and

$14

thousand for the

six

months ended

June 30, 2017,

and

2016,

respectively.

Maturities of notes payable for the next

five

years, assuming

no

future annual excess cash flow payments and excluding the PIK interest, are as follows (in thousands):

2017 (remaining)	$	2,000
2018		4,000
2019		4,000
2020		4,000
2021		78,175
Total	$	92,175

In addition, PIK interest of

$1,772

thousand associated with the Subordinated Loan Agreement will be paid at maturity. A total of

$5,835

thousand of debt issuance cost is amortized over the life of the loans and is recorded net of the notes payable on the condensed consolidated balance sheets.

The Company’s notes payable agreements are subject to certain financial covenants and restrictions on indebtedness, financial guarantees, business combinations and other related items. As of

June 30, 2017,

the Company was in compliance with all such covenants and restrictions.

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Note 3 - Income Tax

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Income Tax Disclosure [Text Block]

3. Income Tax

As of each of

June 30, 2017,

and

December 31, 2016,

the Company had U.S. federal and state net operating loss carryforwards of

$0

and

$25

thousand, respectively. The Company had

no

alternative minimum tax credit carryforwards as of

June 30, 2017,

or

December 31, 2016. 

The Company establishes valuation allowances when necessary to reduce deferred tax assets to amounts expected to be realized.  As of

June 30, 2017,

the Company had

no

valuation allowance recorded. 

The effective income tax rate as of

June 30, 2017,

and

December 31, 2016,

was

38.3%

and

41.5%,

respectively.

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Note 4 - Net Income Per Common Share

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Earnings Per Share [Text Block]

4. Net Income per Common Share

Basic net income per common share is computed by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted net income per common share reflects the potential dilution that would occur should all of the shares of Class A common stock underlying restricted stock units (“RSUs”) be issued.

A reconciliation of the common shares for purposes of the calculation of the Company’s basic and diluted net income per common share is as follows (weighted average number of common shares outstanding in whole numbers and net income in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Weighted average number of common shares outstanding - basic		3,346,689		3,283,177		3,346,689		3,283,177
Effect of dilutive securities		98,943		97,268		98,943		94,913
Weighted average number of common shares and potential common shares - diluted		3,445,632		3,380,445		3,445,632		3,378,090
Net income	$	1,536	$	1,324	$	3,144	$	3,074
Net income per common share - basic	$	0.46	$	0.40	$	0.94	$	0.94
Net income per common share - diluted	$	0.45	$	0.39	$	0.91	$	0.91

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Note 5 - Revenue Concentration

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Concentration Risk Disclosure [Text Block]

5. Revenue Concentration

Revenues for interstate access services are based on reimbursement of costs and an allowed rate of return. Revenues of this nature are received from the National Exchange Carrier Association in the form of monthly settlements. Such revenues amounted to

21.9%

and

19.1%

of the Company’s total revenues for the

six

months ended

June 30, 2017,

and

2016,

respectively.

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Note 6 - Commitments and Contingencies

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

6. Commitments and Contingencies

From time to time, the Company

may

be involved in various claims, legal actions and regulatory proceedings incidental to and in the ordinary course of business, including administrative hearings of the Alabama Public Service Commission, the Maine Public Utilities Commission, the Massachusetts Department of Telecommunications and Cable, the Missouri Public Service Commission, the New Hampshire Public Utilities Commission, the Vermont Public Service Board and the West Virginia Public Service Commission, relating primarily to rate making and customer service requirements. In addition, the Company

may

be involved in similar proceedings with interconnection carriers and the FCC. Currently, except as set forth below,

none

of the Company’s legal proceedings are expected to have a material adverse effect on the Company’s business.

Sprint Communications L.P. (“Sprint”), MCI Communications Services, Inc. (“MCI”) and Verizon Select Services, Inc. (“Verizon”) have filed more than

60

lawsuits in federal courts across the United States alleging that over

400

local exchange carriers (“LECs” or “LEC Defendants”) overcharged Sprint, MCI and Verizon for so-called intraMTA traffic (wireless phone calls that originate and terminate in the same metropolitan transit area). The lawsuits seek a refund of previously-paid access charges for intraMTA traffic, as well as a discount related to intraMTA traffic on a going-forward basis. One of the Company’s subsidiaries, MMT, was named as a defendant in

two

of the lawsuits that are being brought before the District Court for the Western District of Missouri (

one

filed on

May 2, 2014,

by Sprint and the other filed on

September 5, 2014,

by MCI and Verizon). In addition,

one

of the Company’s other subsidiaries, OTP, was named as a defendant in a lawsuit relating to these issues filed by MCI and Verizon in the District Court for the District of Delaware on

September 5, 2014.

As all of the lawsuits relating to these issues raise the same fundamental questions of law, the United States Judicial Panel on Multidistrict Litigation (“MDL”) has consolidated the lawsuits in the District Court for the Northern District of Texas (the “Court”) for all pre-trial proceedings. On

November 17, 2015,

the Court issued a memorandum opinion and order dismissing the plaintiffs’ federal-law claims with prejudice, dismissing the state-law claims but granting leave to replead said claims, and denying the LEC Defendants’ request to refer the matter to the FCC. On

May 5, 2016,

Sprint filed amended complaints alleging additional state-law claims. Since that time, a number of LECs, including MMT, filed claims in the MDL proceeding against Level

3

Communications LLC (“Level

3”

). These claims argued that the LECs that filed the claims were entitled to access charges from Level

3

for terminating intraMTA traffic and that Level

3

had improperly withheld payment. These claims were consolidated with the Verizon, MCI and Sprint claims. Level

3

moved to dismiss the LECs’ claims and the LECs opposed the motion. On

March 22, 2017,

the Court issued a memorandum and order denying Level

3’s

motion to dismiss, putting the Level

3

claims in a similar procedural posture as the Verizon, MCI and Sprint claims. On

May 3, 2017,

the Court dismissed Sprint’s amended complaints against the LECs, further affirming the Court’s position that the LECs are entitled to receive access charges for terminating intraMTA traffic. On

June 1, 2017,

the Court issued an updated scheduling order calling for the parties to submit all materials necessary for the Court to rule on pending summary judgement motions by

September 1, 2017.

At this time, it is

not

possible to determine whether these lawsuits will have a material adverse effect on the Company’s business. 

On

November 10, 2014,

a large coalition of the LEC Defendants, including MMT and OTP, filed a petition for declaratory ruling with the FCC seeking a ruling by the FCC that: (

1

) any traffic intentionally routed over Interexchange carrier (“IXC”) trunks by IXCs should be subject to access charges; (

2

) only carriers with specific agreements with an LEC

may

use alternative billing arrangements; (

3

) federal tariffing rules require the LECs to assess access charges for switched access traffic routed through Feature Group D trunks; and (

4

) the IXCs

may

not

engage in self-help by refusing to pay the LEC Defendants’ properly assessed access charges. On

March 11, 2015,

the LEC Defendants filed their reply brief with the FCC.

No

timeline has been established for a decision by the FCC. At this time, it is

not

possible to determine whether this action will have a material adverse effect on the Company’s business.

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Note 7 - Stock Plans and Stock Associated with Acquisition

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Shareholders' Equity and Share-based Payments [Text Block]

7. Stock Plans and Stock Associated with Acquisition

The Company has previously granted RSUs underlying

366,356

shares of Class A common stock.

These RSUs (or a portion thereof) vest with respect to each recipient over a

one

to

three

year period from the date of grant, provided the recipient remains in the employment or service of the Company as of the vesting date and, in selected instances, certain performance criteria are attained. Additionally, these RSUs (or a portion thereof) could vest earlier in the event of a change in control of the Company, or upon involuntary termination without cause. Of the

366,356

previously granted RSUs, RSUs underlying

162,716

shares of Class A common stock have vested or were cancelled

. During the

six

months ended

June 30, 2017,

no

RSUs were granted by the Company. The previous RSU grants were made primarily to executive-level personnel at the Company and, as a result,

no

compensation costs have been capitalized.

The following table summarizes RSU activity as of

June 30, 2017:

				Weighted Average
				Grant Date
	RSUs			Fair Value
Outstanding at December 31, 2016		203,640		$	4.57
Granted		-		$	-
Vested		(88,287	)	$	4.66
Forfeited or cancelled		(16,410	)	$	4.40
Outstanding at June 30, 2017		98,943		$	4.51

CRC acquired substantially all of the assets of Reliable Networks of Maine, LLC (“Reliable Networks”), a Portland, Maine-based provider of cloud hosting and managed services for small and mid-sized companies who rely on mission-critical software applications, on

January 

2,

2014.

Pursuant to the purchase agreement relating to the Reliable Networks acquisition, Class A common stock was issued to the former owner of Reliable Networks in

2015

as a result of Reliable Networks achieving certain financial objectives and certain other conditions being satisfied, including that certain individuals continued to be employed by the Company or

one

of its subsidiaries and in good standing on the last day of the applicable year (the “Earn-Out”). For the year ended

December 

31,

2014,

the Company delivered

68,233

shares of Class A common stock to the former owner of Reliable Networks on

March 

12,

2015,

as a result of the Earn-Out. For the years ended

December 

31,

2016,

and

2015,

the applicable Earn-Out criteria was

not

met and

no

shares of Class A common stock were issued as a result of the Earn-Out.

Stock-based compensation expense related to RSUs and the Earn-Out was

$166

thousand and

$199

thousand for the

six

months ended

June 30, 2017,

and

2016,

respectively. Accounting standards require that the Company estimate forfeitures for RSUs and the Earn-Out and reduce compensation expense accordingly. The Company has reduced its expense by the assumed forfeiture rate and will evaluate actual experience against the assumed forfeiture rate going forward. The forfeiture rate has been developed using historical performance metrics which could impact the size of the final issuance of Class A common stock. The Company has

no

history before

2014

with RSU forfeiture or Earn-Out stock forfeiture.

As of

June 30, 2017,

the unrecognized total compensation cost related to unvested RSUs was

$343

thousand. That cost is expected to be recognized by the end of

2019.

  

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Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2017

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

Basis of Presentation and Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of Otelco Inc. (the “Company”) and its subsidiaries, all of which are either directly or indirectly wholly owned. These include: Blountsville Telephone LLC; Brindlee Mountain Telephone LLC; CRC Communications LLC (“CRC”); Granby Telephone LLC; Hopper Telecommunications LLC; Mid-Maine Telecom LLC; Mid-Maine TelPlus LLC; Otelco Mid-Missouri LLC (“MMT”) and its wholly owned subsidiary I-Land Internet Services LLC; Otelco Telecommunications LLC; Otelco Telephone LLC (“OTP”); Pine Tree Telephone LLC; Saco River Telephone LLC; Shoreham Telephone LLC; and War Telephone LLC.

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and all of the aforesaid subsidiaries after elimination of all material intercompany balances and transactions. The unaudited operating results for the

three

months and

six

months ended

June 30, 2017,

are

not

necessarily indicative of the results that

may

be expected for the year ending

December 31, 2017,

or any other period.

The unaudited condensed consolidated financial statements and notes included in this Quarterly Report on Form

10

-Q should be read in conjunction with the consolidated financial statements and notes thereto in the Company’s Annual Report on Form

10

-K for the year ended

December 31, 2016.

The interim condensed consolidated financial information herein is unaudited. The information reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the periods included in this report.

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements

During

2017,

the Financial Accounting Standards Board (the “FASB”) has issued Accounting Standards Updates (“ASUs”)

2017

-

01

through

2017

-

11.

Except for ASUs

2017

-

03,

2017

-

04,

2017

-

09

and

2017

-

10,

which are discussed below, these ASUs provide technical corrections or simplifications to existing guidance and to specialized industries or entities and therefore have minimal, if any, impact on the Company.

In

May 2014,

the FASB issued ASU

2014

-

09,

Revenue from Contracts with Customers (Topic

606

)

(“ASU

2014

-

09”

). This ASU requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also provides a more robust framework for revenue issues and improves comparability of revenue recognition practices across industries. This ASU was the product of a joint project between the FASB and the International Accounting Standards Board to clarify the principles for recognizing revenue and to develop a common revenue standard. This guidance was to be effective for fiscal years, and interim periods within those fiscal years, beginning after

December 15, 2016,

with early adoption

not

permitted. In

July 2015,

the FASB issued ASU

2015

-

14,

Revenue from Contracts with Customers (Topic

606

): Deferral of the Effective Date.

This ASU confirmed a

one

-year delay in the effective date of ASU

2014

-

09,

making the effective date for the Company the

first

quarter of fiscal

2018

instead of the

first

quarter of fiscal

2017.

In

March 2016,

the FASB issued ASU

2016

-

08,

Revenue from Contracts with Customers (Topic

606

): Principal versus Agent Consideration (Reporting Revenues Gross versus Net)

. This ASU is further guidance to ASU

2014

-

09,

and clarifies principal versus agent considerations. In

April 2016,

the FASB issued ASU

2016

-

10,

Revenue from Contracts with Customers (Topic

606

): Identifying Performance Obligations and Licensing.

This ASU is also further guidance to ASU

2014

-

09,

and clarifies the identification of performance obligations. In

May 2016,

the FASB issued ASU

2016

-

12,

Revenue from Contracts with Customers (Topic

606

): Narrow-Scope Improvements and Practical Expedients.

This ASU is also further guidance to ASU

2014

-

09,

and clarifies assessing the narrow aspects of recognizing revenue. In

December 2016,

the FASB issued ASU

2016

-

20,

Technical Corrections and Improvements to Topic

606,

Revenue from Contracts with Customers.

This ASU is also further guidance to ASU

2014

-

09,

and clarifies technical corrections and improvements for recognizing revenue. In

January 2017,

the FASB issued ASU

2017

-

03,

Accounting Changes and Error Corrections (Topic

250

) and Investments-Equity Method and Joint Ventures (Topic

323

)

(“ASU

2017

-

03”

). This ASU requires registrants to evaluate the impact ASU

2014

-

09

will have on financial statements and adequately disclose this information to assist the reader in assessing the significance of ASU

2014

-

09

on the financial statements when adopted. ASU

2014

-

09

permits the use of either a retrospective or modified retrospective application. The Company intends to use the modified retrospective approach. The Company is continuing to evaluate ASU

2014

-

09

and the related guidance both internally and through its insight from an industry working group. The Company will continue its evaluation of ASU

2014

-

09

and the related guidance through the date of adoption.

In

February 2016,

the FASB issued ASU

2016

-

02,

Leases (Topic

842

)

(“ASU

2016

-

02”

)

.

This ASU requires lessees to recognize most leases on the balance sheet. The provisions of this ASU are effective for annual periods beginning after

December 15, 2018,

and interim periods within those years, with early adoption permitted.

In

January 2017,

the FASB issued ASU

2017

-

03,

which requires registrants to evaluate the impact ASU

2016

-

02

will have on financial statements and adequately disclose this information to assist the reader in assessing the significance of ASU

2016

-

02

on the financial statements when adopted. The Company is evaluating the requirements of ASU

2016

-

02

and has

not

yet determined the impact of the adoption on the Company’s condensed consolidated financial position or results of operations.

In

January 2017,

the FASB issued ASU

2017

-

04,

Intangibles-Goodwill and Other (Topic

350

)

(“ASU

2017

-

04”

). The objective of this ASU is to simplify how an entity is required to test goodwill for impairment by eliminating Step

2

from the goodwill impairment test. ASU

2017

-

04

is effective for fiscal years beginning after

December 15, 2019,

and interim periods within those fiscal years. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after

January 1, 2017.

The Company does

not

expect this ASU to have a material impact on its condensed consolidated financial statements.

In

May 2017,

the FASB issued ASU

2017

-

09,

Compensation-Stock Compensation (Topic

718

)

(“ASU

2017

-

09”

). ASU

2017

-

09

provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Accounting Standards Codification (“ASC”) Topic

718,

Stock Compensation

. ASU

2017

-

09

is effective for fiscal years beginning after

December 15, 2017,

and interim periods within those fiscal years. Early adoption is permitted for any interim period for which financial statements have

not

been issued. ASU

2017

-

09

should be applied prospectively to an award modified on or after the adoption date. The Company does

not

expect this ASU to have a material impact on its condensed consolidated financial statements.

In

May 2017,

the FASB issued ASU

2017

-

10,

Service Concession Arrangements (Topic

853

)

(“ASU

2017

-

10”

). The objective of this ASU is to specify that an operating entity should

not

account for a service concession arrangement that meets certain criteria as a lease in accordance with ASC Topic

840,

Leases

. ASU

2017

-

10

further states that the infrastructure used in a service concession arrangement should

not

be recognized as property, plant, and equipment of the operating entity. The provisions of this ASU are effective for annual periods beginning after

December 15, 2017,

and interim periods within those years, with early adoption permitted. The Company does

not

expect this ASU to have a material impact on its condensed consolidated financial statements.

Costs Associated with Exit or Disposal Activities or Restructurings, Policy [Policy Text Block]

Refinancing

On

January 25, 2016,

the Company entered into a senior loan agreement (the “Senior Loan Agreement”), providing for a

five

year term loan facility in the aggregate principal amount of

$85.0

million and a

five

year

$5.0

million revolving credit facility, and a subordinated loan agreement (the “Subordinated Loan Agreement”), providing for a

five

and a half year term loan facility in the aggregate principal amount of

$15.0

million. On

February 17, 2016,

the Subordinated Loan Agreement was amended to increase the aggregate principal amount available for borrowing thereunder to

$15.3

million, and the Company borrowed

$85.0

million under the term loan facility of the Senior Loan Agreement and

$15.3

million under the Subordinated Loan Agreement. The Company used the borrowings under the Senior Loan Agreement and the Subordinated Loan Agreement to, among other things, pay all amounts due, including principal, interest and fees, and satisfy in full all of its obligations under its previous credit facility (the “Previous Credit Facility”), which was scheduled to mature on

April 30, 2016.

As a result of the repayment of the Previous Credit Facility, all of the shares of the Company’s Class B common stock were automatically converted into an equal number of shares of the Company’s Class A common stock. The term loan facility under the Senior Loan Agreement requires principal payments of

$1.0

million quarterly, which payments began on

April 1, 2016.

Principal amounts outstanding under the Subordinated Loan Agreement will generally

not

be due until maturity. The Company recorded costs of

$15

thousand and write-off of loan costs of

$140

thousand in connection with this refinancing. During

second

quarter

2017,

the Company paid an amendment fee of

$77.9

thousand to its senior lender to raise the capital expenditure limits under the Senior Loan Agreement to

$8.5

million and

$7.5

million for

2017

and

2018,

respectively. The increased capital expenditures are associated with fulfilling build out requirements associated with the Federal Communications Commission’s (the “FCC”) Alternative Connect America Model (“ACAM”) program.

XML

Note 2 - Notes Payable (Tables)

6 Months Ended

Jun. 30, 2017

Notes Tables

Schedule of Long-term Debt Instruments [Table Text Block]

	June 30,			December 31,
	2017			2016
Subordinated Loan Agreement with NewSpring Mezzanine Capital III, L.P.; fixed interest due monthly with a rate of 12.00%. Payment in kind (“PIK”) interest rate of 2.00% per annum. PIK interest accrued is added to the principal amount then outstanding on the last business day of each quarter. The unpaid balance is due August 17, 2021.	$	15,300		$	15,300
PIK interest added to principal		430			273
Less: Long-term portion of debt issuance cost		(674	)		(753	)
Long-term notes payable, net of debt issuance cost	$	15,056		$	14,820

Schedule of Maturities of Long-term Debt [Table Text Block]

2017 (remaining)	$	2,000
2018		4,000
2019		4,000
2020		4,000
2021		78,175
Total	$	92,175

Senior Notes [Member]

Notes Tables

Schedule of Long-term Debt Instruments [Table Text Block]

	June 30, 2017
	Current			Long-term			Total
Senior Loan Agreement with Cerberus Business Finance, LLC; variable interest rate of 8.81% at June 30, 2017, interest is monthly, paid in arrears on the first business day of each month. The Senior Loan Agreement is secured by the total assets of the subsidiary guarantors. The unpaid balance is due February 17, 2021.	$	4,000		$	72,875		$	76,875
Debt issuance cost		(1,041	)		(2,384	)		(3,425	)
Senior notes payable, net of debt issuance cost	$	2,959		$	70,491		$	73,450

	December 31, 2016
	Current			Long-term			Total
Senior Loan Agreement with Cerberus Business Finance, LLC; variable interest rate of 8.75% at December 31, 2016, interest is monthly, paid in arrears on the first business day of each month. The Senior Loan Agreement is secured by the total assets of the subsidiary guarantors. The unpaid balance is due February 17, 2021.	$	7,125		$	74,875		$	82,000
Debt issuance cost		(1,054	)		(2,835	)		(3,889	)
Senior notes payable, net of debt issuance cost	$	6,071		$	72,040		$	78,111

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Note 4 - Net Income Per Common Share (Tables)

6 Months Ended

Jun. 30, 2017

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Weighted average number of common shares outstanding - basic		3,346,689		3,283,177		3,346,689		3,283,177
Effect of dilutive securities		98,943		97,268		98,943		94,913
Weighted average number of common shares and potential common shares - diluted		3,445,632		3,380,445		3,445,632		3,378,090
Net income	$	1,536	$	1,324	$	3,144	$	3,074
Net income per common share - basic	$	0.46	$	0.40	$	0.94	$	0.94
Net income per common share - diluted	$	0.45	$	0.39	$	0.91	$	0.91

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Note 7 - Stock Plans and Stock Associated with Acquisition (Tables)

6 Months Ended

Jun. 30, 2017

Notes Tables

Schedule of Share-based Compensation, Restricted Stock Units Award Activity [Table Text Block]

				Weighted Average
				Grant Date
	RSUs			Fair Value
Outstanding at December 31, 2016		203,640		$	4.57
Granted		-		$	-
Vested		(88,287	)	$	4.66
Forfeited or cancelled		(16,410	)	$	4.40
Outstanding at June 30, 2017		98,943		$	4.51

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Note 1 - Organization and Basis of Financial Reporting (Details Textual) - USD ($)		3 Months Ended	6 Months Ended	12 Months Ended		17 Months Ended
	Jan. 25, 2016	Jun. 30, 2017	Jun. 30, 2017	Dec. 31, 2018	Dec. 31, 2017	Jun. 30, 2017	Dec. 31, 2016	Feb. 17, 2016
Debt Issuance Costs, Net		$ 15,000	$ 15,000			$ 15,000
Write off of Deferred Debt Issuance Cost			140,000
Revolving Credit Facility [Member]
Line of Credit Facility, Maximum Borrowing Capacity	$ 5,000,000	5,000,000	5,000,000			5,000,000	$ 5,000,000
Debt Instrument, Term	5 years
Senior Notes [Member]
Debt Instrument, Term	5 years
Debt Instrument, Face Amount	$ 85,000,000
Proceeds from Issuance of Debt						85,000,000
Debt Instrument, Periodic Payment		1,000,000
Debt Issuance Costs, Net		3,425,000	$ 3,425,000			3,425,000	$ 3,889,000
Payments of Debt Restructuring Costs		$ 77,900
Senior Notes [Member] | Scenario, Forecast [Member]
Capital Expenditure Limit				$ 7,500,000	$ 8,500,000
Subordinated Debt [Member]
Debt Instrument, Term	5 years 182 days
Debt Instrument, Face Amount	$ 15,000,000							$ 15,300,000
Proceeds from Issuance of Debt						$ 15,300,000

XML

Note 2 - Notes Payable (Details Textual) - USD ($)	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Mar. 31, 2017	Dec. 31, 2016	Jan. 25, 2016
Amortization of Debt Issuance Costs	$ 621,000	$ 609,000
Notes Payable, Net [Member]
Debt Issuance Costs, Gross	5,835,000
Revolving Credit Facility [Member]
Line of Credit Facility, Maximum Borrowing Capacity	5,000,000			$ 5,000,000	$ 5,000,000
Long-term Line of Credit	$ 0			$ 0
Line of Credit Facility, Commitment Fee Percentage	0.75%
Line of Credit Facility, Commitment Fee Amount	$ 19,000	14,000
Senior Notes [Member]
Debt Issuance Costs, Gross			$ 4,900,000
Amortization of Debt Issuance Costs	541,000	426,000
Subordinated Debt [Member]
Accrued Paid-in-Kind Interest, Payment at Maturity	1,772,000
Debt Issuance Costs, Gross	892,000
Amortization of Debt Issuance Costs	$ 80,000	$ 57,000

XML

Note 2 - Notes Payable - Senior Loan Agreement (Details) - USD ($)	Jun. 30, 2017	Dec. 31, 2016
Long-term notes payable, less current maturities and debt issuance cost	$ (15,000)
Current maturity of long-term notes payable, net of debt issuance cost	2,959,000	$ 6,071,000
Long-term notes payable, less current maturities and debt issuance cost	85,547,000	86,860,000
Senior notes payable, net of debt issuance cost	92,175,000
Senior Notes [Member]
Debt issuance cost, current	(1,041,000)	(1,054,000)
Debt issuance cost, long-term	(2,384,000)	(2,835,000)
Long-term notes payable, less current maturities and debt issuance cost	(3,425,000)	(3,889,000)
Current maturity of long-term notes payable, net of debt issuance cost	2,959,000	6,071,000
Long-term notes payable, less current maturities and debt issuance cost	70,491,000	72,040,000
Senior notes payable, net of debt issuance cost	73,450,000	78,111,000
Senior note payable, current	4,000,000	7,125,000
Senior note payable, long-term	72,875,000	74,875,000
Senior note payable, face amount	$ 76,875,000	$ 82,000,000

XML

Note 2 - Notes Payable - Senior Loan Agreement (Details) (Parentheticals)	Jun. 30, 2017	Dec. 31, 2016
Senior Notes [Member]
Interest rate	8.81%	8.75%

XML

Note 2 - Notes Payable - Summary of Notes Payable (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Total	$ 92,175
Subordinated Debt [Member]
Senior note payable, face amount	15,300	$ 15,300
PIK interest added to principal	430	273
Debt issuance cost, long-term	(674)	(753)
Total	$ 15,056	$ 14,820

XML

Note 2 - Notes Payable - Summary of Notes Payable (Details) (Parentheticals) - Subordinated Debt [Member]	Jun. 30, 2017	Dec. 31, 2016
Fixed, interest rate	12.00%	12.00%
Payment in kind, interest rate	2.00%	2.00%

XML

Note 2 - Notes Payable - Maturities of Notes Payable (Details) $ in Thousands	Jun. 30, 2017 USD ($)
2017 (remaining)	$ 2,000
2018	4,000
2019	4,000
2020	4,000
2021	78,175
Total	$ 92,175

XML

Note 3 - Income Tax (Details Textual) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2017	Dec. 31, 2016
Effective Income Tax Rate Reconciliation, Percent	38.30%	41.50%
Deferred Tax Assets, Tax Credit Carryforwards, Alternative Minimum Tax	$ 0	$ 0
Deferred Tax Assets, Valuation Allowance	0
Domestic Tax Authority [Member]
Operating Loss Carryforwards	$ 0	$ 25

XML

Note 4 - Net Income Per Common Share - Reconciliation of Income (Loss) Per Common Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Weighted average number of common shares outstanding - basic (in shares)	3,346,689	3,283,177	3,346,689	3,283,177
Effect of dilutive securities (in shares)	98,943	97,268	98,943	94,913
Weighted average number of common shares and potential common shares - diluted (in shares)	3,445,632	3,380,445	3,445,632	3,378,090
Net income	$ 1,536	$ 1,324	$ 3,144	$ 3,074
Net income per common share - basic (in dollars per share)	$ 0.46	$ 0.40	$ 0.94	$ 0.94
Net income per common share - diluted (in dollars per share)	$ 0.45	$ 0.39	$ 0.91	$ 0.91

XML

Note 5 - Revenue Concentration (Details Textual)	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
National Exchange Carrier Association [Member] | Customer Concentration Risk [Member] | Sales Revenue, Net [Member]
Concentration Risk, Percentage	21.90%	19.10%

XML

Note 7 - Stock Plans and Stock Associated with Acquisition (Details Textual) - USD ($) $ in Thousands	6 Months Ended		12 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Reliable Networks [Member]
Business Acquisition, Equity Interest Issued or Issuable, Number of Shares			0	0	68,233
Restricted Stock Units (RSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested or Cancelled	162,716
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	0		366,356
Employee Service Share-based Compensation, Allocation of Recognized Period Costs, Capitalized Amount	$ 0
Allocated Share-based Compensation Expense	166	$ 199
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized	$ 343
Restricted Stock Units (RSUs) [Member] | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	1 year
Restricted Stock Units (RSUs) [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	3 years

XML

Note 7 - Stock Plans and Stock Associated with Acquisition - Summary of RSU Activity (Details) - Restricted Stock Units (RSUs) [Member] - $ / shares	6 Months Ended	12 Months Ended
	Jun. 30, 2017	Dec. 31, 2016
Outstanding at December 31, 2016 (in shares)	203,640
Outstanding at December 31, 2016 (in dollars per share)	$ 4.57
Outstanding at June 30, 2017 (in dollars per share)	$ 4.51	$ 4.57
Granted (in shares)	0	366,356
Granted (in dollars per share)
Vested (in shares)	(88,287)
Vested (in dollars per share)	$ 4.66
Forfeited or cancelled (in shares)	(16,410)
Forfeited or cancelled (in dollars per share)	$ 4.40
Outstanding at June 30, 2017 (in shares)	98,943	203,640