ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Spok, Inc., a wholly owned subsidiary of Spok Holdings, Inc. (NASDAQ: SPOK)("Spok" or the "Company"), is proud to be the global leader in healthcare communications. We deliver clinical information to care teams when and where it matters most to improve patient outcomes. Top hospitals rely on the Spok Care Connect platform to enhance workflows for clinicians, support administrative compliance, and provide a better experience for patients. Our customers send over 100 million messages each month through their Spok solutions.

We offer a focused suite of unified critical communication solutions that include call center operations, clinical alerting and notifications, one-way and advanced two-way wireless messaging services, mobile communications and public safety solutions.

We provide one-way and advanced two-way wireless messaging services including information services throughout the United States. These services are offered on a local, regional and nationwide basis employing digital networks. One-way messaging consists of numeric and alphanumeric messaging services. Numeric messaging services enable subscribers to receive messages that are composed entirely of numbers, such as a phone number, while alphanumeric messages may include numbers and letters, which enable subscribers to receive text messages. Two-way messaging services enable subscribers to send and receive messages to and from other wireless messaging devices, including pagers, personal digital assistants and personal computers. We also offer voice mail, personalized greeting, message storage and retrieval, and equipment loss and/or maintenance protection to both one-way and two-way messaging subscribers. These services are commonly referred to as wireless messaging and information services.

We also develop, sell and support enterprise-wide systems for hospitals and other organizations needing to automate, centralize and standardize mission critical communications. These solutions are used for contact centers, clinical alerting and notification, mobile communications and messaging and for public safety notifications. These areas of market focus compliment the market focus of our wireless services outlined above.

Basis of Presentation

The accompanying consolidated financial statements include our accounts and the accounts of our wholly-owned direct and indirect subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). In management's opinion, the consolidated financial statements include all adjustments and accruals that are necessary for a fair presentation of the results of all periods reported herein and all such adjustments are of a normal, recurring nature (except for the reduction of deferred income tax assets and related valuation allowance described in further detail below under the heading "Prior Period Financial Statement Correction of an Immaterial Misstatement").

Amounts shown on the consolidated statements of income within the operating expense categories of cost of revenue; research and development; service, rental and maintenance; selling and marketing; and general and administrative are recorded exclusive of severance, depreciation, amortization and accretion. These items are shown separately on the consolidated statements of income within operating expenses. Foreign currency translation adjustments were immaterial and are not presented separately in our consolidated statements of stockholders’ equity and balance sheets, and consequently no statements of comprehensive income are presented.

Certain prior period amounts in the consolidated financial statements have been reclassified to conform to the current period's presentation. These reclassifications had no effect on the reported results of operations. In the fourth quarter 2016, the Company concluded that it was appropriate to separately state those operating costs related to research and development. Previously those costs had been classified under the Service, Rental and Maintenance operating category. Corresponding reclassifications were made to the Consolidated Statements of Income for the years ended December 31, 2015 and 2014. This change in classification has no effect on the previously reported Consolidated Statements of Income for any period.

Prior Period Financial Statement Correction of an Immaterial Misstatement

In 2016, we identified certain adjustments in preparing our provision for income taxes, the most significant of which relating to our determination that certain net operating loss carryforwards (“NOLs”) available for state income tax purposes on which we based our calculation of the deferred income tax asset and deferred income tax benefit in our financial statements for the year ended December 31, 2015 were overstated, resulting in the recorded deferred income tax asset and benefit reported in our 2015 financial statements being overstated by approximately $4.3 million. The aggregate amount and effect of all such adjustments was $4.0 million. The Company files income tax returns in substantially every state in the United States. After undertaking an extensive reconciliation of its cumulative net operating loss carryforwards in 2016 as a result of a recent 3rd party Tax Court decision upheld upon appeal impacting another taxpayer, the Company found that a portion of the NOLs used in prior periods were subject to this Tax Court decision, requiring the absorption and use of other NOLs not subject to this decision, lowering the amount of related deferred income tax assets reported by the Company at December 31, 2015. Further details related to this decision can be found in Note 8 "Income Taxes". This adjustment did not impact the Company’s cash flows from operations or cash position. Financial statements relating to any other prior period were also not affected by this matter.

The Company also determined, based on the performance criteria of the 2011 Long-Term Incentive Plan ("LTIP") and 2015 LTIP for the 2015 and 2016 grants, that unvested restricted stock units ("RSUs") have not met since issuance, the criteria to be considered dilutive. Our 2016 Consolidated Financial Statements reflect this determination, along with additional corrections, within the calculation of basic and diluted weighted average shares outstanding and earnings per share for the years ended December 31, 2016, 2015 and 2014.

We assessed the materiality of these misstatements on our 2014 and 2015 financial statements in accordance with SEC Staff Accounting Bulletin ("SAB") No. 99, Materiality, codified in Accounting Standards Codification ("ASC") 250, Presentation of Financial Statements, and concluded that they were not material to any prior annual or interim periods. However, the amount of the prior period correction, if recorded in 2016, would have been material to the quarterly amounts within our current 2016 Consolidated Statements of Operations. Consequently, in accordance with ASC 250 (specifically SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements), we have corrected these misstatements in 2014 and 2015 by revising the consolidated 2014 and 2015 financial statements and other financial information included herein. Periods not presented herein will be revised, as applicable, in future filings.

The effect of these revisions on the Company's Consolidated Balance Sheet is as follows:



(Dollars in thousands)	As Previously Reported At December 31, 2015			Adjustment		As Revised At December 31, 2015
Gross deferred income tax asset	$	129,760		265		$	130,025
Valuation allowance	(45,777		)	(4,254	)	(50,031		)
Net deferred income tax asset	83,983			(3,989	)	79,994
Retained earnings	223,116			(3,989	)	219,127

The effect of these revisions on the Company's Consolidated Statement of Income is as follows:



(Dollars in thousands, except for share and per share amounts)	As Previously Reported for the Twelve Months Ended December 31, 2015		Adjustment			As Revised for the Twelve Months Ended December 31, 2015
Income tax benefit	$	57,937	$	(3,989	)	$	53,948
Net income	84,235		(3,989		)	80,246
Basic net income per common share	3.99		(0.25		)	3.74
Basic weighted average common shares outstanding	21,120,268		350,773			21,471,041
Diluted net income per common share	3.98		(0.24		)	3.74
Diluted weighted average common shares outstanding	21,186,750		284,291			21,471,041



(Dollars in thousands, except for share and per share amounts)	As Previously Reported for the Twelve Months Ended December 31, 2014		Adjustment			As Revised for the Twelve Months Ended December 31, 2014
Basic weighted average common shares outstanding	21,621,466		22,697			21,644,163
Diluted net income per common share	$	0.94	$	0.02		$	0.96
Diluted weighted average common shares outstanding	22,090,770		(446,607		)	21,644,163



(Dollars in thousands, except for per share amounts)	As Previously Reported for the Three Months Ended December 31, 2015		Adjustment			As Revised for the Three Months Ended December 31, 2015
Income tax benefit	$	57,937	$	(3,989	)	$	53,948
Net income	72,721		(3,989		)	68,732
Basic net income per common share	3.54		(0.26		)	3.28
Diluted net income per common share	3.53		(0.25		)	3.28

The effect of these revisions on the Company's Consolidated Statement of Cash Flows is as follows:



(Dollars in thousands)	As Previously Reported At December 31, 2015			Adjustment			As Revised At December 31, 2015
Net income	$	84,235		$	(3,989	)	$	80,246
Deferred income tax (benefit) expense	(59,007		)	3,989			(55,018		)

Use of Estimates

The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. On an on-going basis, we evaluate estimates and assumptions, including but not limited to those related to the impairment of long-lived assets, intangible assets subject to amortization and goodwill, accounts receivable allowances, revenue recognition, depreciation expense, asset retirement obligations, severance and income taxes. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Revenue Recognition

We recognize revenue when four basic criteria have been met:


•	there is persuasive evidence that an arrangement exists;


•	delivery has occurred or services rendered;


•	the fee is fixed or determinable; and


•	collectability is reasonably assured.

Amounts billed to customers, but not meeting the above revenue recognition criteria are deferred until all four criteria have been met.

Signed agreements are used as evidence of an arrangement. If a contract signed by the customer does not exist, we use a purchase order as evidence of an arrangement. If both a signed contract and a purchase order exist, we consider the signed contract to be the final persuasive evidence of an arrangement. At the time a contract is executed, we evaluate the contract to assess whether the fee is fixed or determinable. If the fee is assessed as not being fixed or determinable, revenue recognition is delayed until this assessment can be made. Additionally, we review customer creditworthiness and our historical ability to collect payments when due.

Our wireless revenue consists primarily of service, rental and maintenance fees charged to customers on a monthly, quarterly or annual basis. Revenue also includes the sale of messaging devices directly to customers and other companies that resell our services. With respect to revenue recognition for multiple deliverables, we evaluated these revenue arrangements and determined that two separate units of accounting exist, paging service revenue and product sales. We recognize paging service revenue over the period the service is performed; revenue from product sales is recognized at the time of shipment or installation. We have a variety of billing arrangements with our customers resulting in deferred revenue from advance billings and accounts receivables for billing in-arrears arrangements.

Our software revenue consists primarily of the sale of software (license fees), professional services (primarily installation and training), equipment (to be used in conjunction with the software) and maintenance support (post-contract support). The software is licensed to end users under an industry standard software license agreement. Our software products are considered to be “off-the-shelf software” as the software is marketed as a stock item that customers can use without customization.

Software revenue consists of two primary components: (1) operations revenue consisting of software license revenue, professional services revenue and equipment revenue, and (2) maintenance revenue.

We generally sell software licenses, professional services, equipment and maintenance in multiple-element arrangements. At inception of the arrangement, we allocate the arrangement consideration to the software deliverables (software licenses, professional services and maintenance) as a group and to the non-software deliverables (equipment and maintenance on equipment, when applicable) using the relative selling price method. When performing this allocation, the estimated selling price for each deliverable is based on vendor specific objective evidence of fair value (“VSOE”), third party evidence of fair value (“TPE”), or if VSOE and TPE are not available, the best estimated selling price (“BESP”) for selling the element on a stand-alone basis. We have determined that TPE is not a practical alternative due to differences in our service offerings compared to other parties and the availability of relevant third-party pricing information. The amount of revenue allocated to delivered items is limited by contingent revenue, if any.

Our standard post contract support (maintenance) is allocated using VSOE as an input in the relative selling price allocation. For software licenses, professional services, equipment and premium maintenance we have determined that neither VSOE nor TPE is available and as such, we have used BESP as an input in order to allocate our arrangement fees. We determine BESP by considering our overall pricing objectives and market conditions. Significant pricing practices take into consideration our discounting practices, the size and volume of our transactions, the customer demographic, the geographic area where our services are sold, our price lists, our go-to-market strategy, historical standalone sales and contract prices. The determination of BESP is made through consultation with and approval by management, taking into consideration the go-to-market strategy. As our go-to-market strategies evolve, we may modify our pricing practices in the future, which could result in changes in relative selling prices, including both VSOE and BESP.

In multiple-element arrangements, the arrangement consideration allocated to our non-software deliverables (equipment) is generally recognized upon shipment or delivery to the customer depending on delivery method of Free on Board ("FOB") shipping or FOB destination, respectively.

For our software deliverables, which include software licenses, professional services, and post-contract support (maintenance), we further allocate arrangement consideration using the residual method. As noted above, we have not established VSOE for our software licenses, professional services and premium maintenance. However, we have established, and continue to maintain, VSOE for our standard post-contract support (maintenance). We recognize contract revenue ratably over the longer of the estimated services delivery period or the maintenance term. If delivery of the software and services is completed before the end of the maintenance period, then the remaining revenue associated with these elements is recognized in full at this time. Any unrecognized revenue related to maintenance continues to be recognized ratably over the remaining term of the maintenance period. If the period of delivery to the customer is not known, license and professional services revenue will be recognized when software and professional services are fully delivered to the customer and the maintenance revenue will be recognized ratably over the remaining contractual term of the agreement. The defined services period for most of our projects is shorter than the maintenance term.

The Company recognizes deferred revenue when it receives payments in advance of the delivery of products or the performance of services. Our deferred balance represents the contractual obligation for maintenance, software license, professional services and wireless services for which we have received payment in advance of meeting the revenue recognition criteria. We will recognize revenue when the goods or services meet our revenue recognition criteria.

Impairment of Long-Lived Assets, Intangible Assets Subject to Amortization and Goodwill

We are required to evaluate the carrying value of our long-lived assets, amortizable intangible assets and goodwill. Amortizable intangible assets include customer related intangibles, technology based intangibles, contract based intangibles and marketing intangibles that primarily resulted from our previous acquisitions. Such intangibles are amortized over periods up to ten years. Quarterly, we assess whether circumstances exist which suggest that the carrying value of long-lived and amortizable intangible assets may not be recoverable. When applicable, we assess the recoverability of the carrying value of our long-lived assets and certain amortizable intangible assets based on estimated undiscounted cash flows to be generated from such assets. In assessing the recoverability of these assets, we forecast estimated enterprise-level cash flows based on various operating assumptions such as revenue forecasted by product line and in-process research and development cost. If the forecast of undiscounted cash flows does not exceed the carrying value of the long-lived and amortizable intangible assets, we would record an impairment charge to the extent the carrying value exceeded the fair value of such assets.

Goodwill resulting from our acquisitions is not amortized but is evaluated for impairment at least annually, or when events or circumstances suggest a potential impairment has occurred. We generally perform this annual impairment test in the fourth quarter of the reporting period. We evaluate goodwill for impairment between annual tests if indicators of impairment exist. The first step of the impairment test involves comparing the fair value of the reporting unit with its carrying value. If the reporting unit’s fair value is less than the carrying amount of the reporting unit, we compare the implied fair value of the affected reporting unit’s goodwill with the carrying value of that goodwill. The amount by which the implied fair value is less than the carrying value of the goodwill, if any, is recognized as an impairment loss. For purposes of the goodwill impairment evaluation, the Company as a whole is considered the reporting unit. The fair value of the reporting unit is estimated under a market based approach using the fair value of the Company's common stock. A confirmatory discounted cash flow analysis is also used to assess whether impairment exists. This calculation requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur and determination of our weighted average cost of capital.

We did not record any impairment of long-lived assets, definite lived intangible assets or goodwill for the years ended December 31, 2016, 2015 and 2014.

Accounts Receivable Allowances

Our two most significant allowance accounts are: an allowance for doubtful accounts and an allowance for service credits. Provisions for these allowances are recorded on a monthly basis and are included as a component of general and administrative expenses and a reduction of revenue, respectively. Accounts receivable was recorded net of $1.1 million and $1.3 million allowance for the periods ended December 31, 2016 and 2015, respectively.

Estimates are used in determining the allowance for doubtful accounts and are based on historical collection experience and current and forecasted trends. In determining these percentages, we review historical write-offs, including comparisons of write-offs to provisions for doubtful accounts and as a percentage of revenues. We compare the ratio of the allowance to gross receivables to historical levels, and monitor amounts collected and related statistics. We write off receivables when they are deemed uncollectible. While write-offs of customer accounts have historically been within our expectations and the provisions established, we cannot guarantee that the future write-off experience will be consistent with historical experience, which could result in material differences in the allowance for doubtful accounts and related provisions.

The allowance for service credits and maintenance related provisions is based on historical credit percentages, current credit and aging trends, historical actual payment trends and actual credit experience. We analyze our past credit experience over several time frames. Using this analysis along with current operational data including existing experience of credits issued and the time frames in which credits are issued, we establish an appropriate allowance for service credits. This allowance also reduces accounts receivable for lost and non-returned pagers to the expected realizable amounts and for free wireless services. In addition, this allowance reduces software maintenance revenue. While credits issued have been within our expectations and the provisions established, we cannot guarantee that future credit experience will be consistent with historical experience, which could result in material differences in the allowance for service credits and maintenance related provisions.

Inventory

Inventories are stated at the lower of cost or net realizable value. Cost is computed using a weighted average cost approach which blends the prices at which goods are purchased from vendors. We evaluate our ending inventories for shrinkage and estimated obsolescence. Any shrinkage identified is written off to cost of goods sold in the period in which the shrinkage is identified. Further, we assess the impact of changing technology on our inventories and we write off inventories that are considered obsolete in the period in which the analysis takes place. Inventory consists primarily of finished goods. We do not account for inventory as work-in-process or raw materials as any such inventory would be immaterial to the consolidated financial statements.

Property and Equipment

Property and equipment are reported at cost and are depreciated using the straight-line method based on estimated useful lives which range from one to five years.

Transmitter assets are grouped into tranches based on our transmitter decommissioning forecast and are depreciated using the group life method on a straight-line basis. Depreciation expense is determined by the expected useful life of each tranche of the underlying transmitter assets. The expected useful life is based on our forecasted usage of those assets and their retirement over time and aligns the useful lives of these transmitter assets with their planned removal from service. Disposals are charged against accumulated depreciation with no gain or loss recognized. This rational and systematic method matches the underlying usage of these assets to the underlying revenue that is generated from these assets. Depreciation expense for these assets is subject to change based upon revisions in the timing of transmitter deconstruction resulting from our long-range planning and network rationalization process.

Asset Retirement Obligations

We recognize liabilities and corresponding assets for future obligations associated with the retirement of assets. We have paging equipment assets, principally transmitters, which are located on leased locations. The underlying leases generally require the removal of equipment at the end of the lease term; therefore, a future obligation exists. Asset retirement costs are reflected in paging equipment assets with depreciation expense recognized over the estimated lives, which range between one and five years. The asset retirement costs and the corresponding liabilities that have been recorded to date generally relate to either current plans to consolidate networks or to the removal of assets at a future terminal date. When an asset retirement obligation arises, the liabilities and corresponding assets are recorded at their present value using a discounted cash flow approach and the liabilities are accreted using the interest method.

The recognition of an asset retirement obligation requires that management make numerous assumptions regarding such factors as the cost and timing of deconstruction; the credit-adjusted risk-free rate to be used; inflation rates; and future advances in technology. The fair value estimate of contractor fees to remove each asset is assumed to escalate by 4% each year through the terminal date. The total estimated liability is based on the estimated future value of those costs and the timing of deconstruction.

We believe these estimates are reasonable at the present time, but we can give no assurance that changes in technology, our financial condition, the economy or other factors would not result in higher or lower asset retirement obligations. Any variations from our estimates would generally result in a change in the assets and liabilities in equal amounts, and operating results would differ in the future by any difference in depreciation expense and accretion expense (see Note 3, "Consolidated Financial Statement Components", and Note 6, "Asset Retirement Obligations", for additional details).

Severance

We continually evaluate our staffing levels to meet our business objectives for our operations and our strategy to reduce cost associated with the declining wireless revenue and subscriber base. Severance costs are reviewed periodically to determine whether a severance charge is required due to the Company's accounting for post-employment benefits. We are required to accrue post-employment benefits if certain specified criteria are met. Post-employment benefits include salary continuation, severance benefits and continuation of health insurance benefits.

From time to time, we will announce reorganization plans that may include eliminating positions. Each plan is reviewed to determine whether a restructuring charge is required to be recorded related to costs associated with exit or disposal activities. We are required to record an estimate of the fair value of any termination costs based on certain facts, circumstances and assumptions, including specific provisions included in the underlying reorganization plan.

Subsequent to recording such accrued severance and restructuring liabilities, changes in market or other conditions may result in changes to assumptions upon which the original liabilities were recorded that could result in an adjustment to the liabilities and, depending on the circumstances, such adjustment could be material (see Note 5, "Severance", and Note 11, "Employee Benefits Plan", for additional details).

Income Taxes

We file a consolidated U.S. Federal income tax return and income tax returns in state, local and foreign jurisdictions as required. The provision for current income taxes is calculated and accrued on income and expenses expected to be included in current year U.S. and foreign income tax returns. The provision for current income taxes may also include interest, penalties and an estimated amount reflecting uncertain tax positions.

Deferred income tax assets and liabilities are computed based on temporary differences between the financial statement values and the tax bases of assets and liabilities including net operating loss and tax credit carryforwards at the enacted tax rates expected to apply to taxable income when taxes are actually paid or recovered. Changes in deferred income tax assets and liabilities are included as a component of deferred income tax expense. Deferred income tax assets represent amounts available to reduce future income taxes payable. We provide a valuation allowance when we consider it “more likely than not” (greater than a 50% probability) that a deferred income tax asset will not be fully recovered. Adjustments to the valuation allowance are a component of the deferred income tax expense or benefit in the statements of income.

Assets and liabilities are established for uncertain tax positions taken or positions expected to be taken in income tax returns when such positions fail to meet the “more likely than not” threshold based on the technical merits of the positions. We assess whether previously unrecognized tax benefits may be recognized when the tax position is (1) more likely than not of being sustained based on its technical merits, (2) effectively settled through examination, negotiation or litigation, or (3) settled through actual expiration of the relevant tax statutes (see Note 8, "Income Taxes", for additional details).

Research and Development

Development costs incurred in the research and development of new software products and enhancements to existing software products for external use are charged to operations and expensed as incurred. Until technological feasibility has been established, research and development costs are expensed as incurred. Material costs incurred after technological feasibility is established and before the product is ready for general release are capitalized and amortized on a straight-line basis over the estimated remaining economic life of the product or the ratio of current revenues to total projected product revenues, whichever is greater. To date, the time between technological feasibility and general release to the public has been extremely short and consequently expenses available for capitalization have been immaterial. Accordingly, all research and developments costs incurred to date have been expensed as incurred.

In previous filings, research and development costs were included within the service, rental and maintenance operating category. Beginning with our 2016 Form 10-K we have disclosed research and development costs separately within our Consolidated Financial Statements and have adjusted comparative periods accordingly.

Commissions Expenses

We pay a sales commission for each contract executed with a customer. We capitalize the commissions paid at contract execution and recognize the related expense as the revenue from the underlying contract is recognized. Commission expense was $5.6 million, $7.2 million and $8.5 million for the years ended December 31, 2016, 2015 and 2014, respectively. Commission expense is classified as selling and marketing expenses.

Shipping and Handling Costs

We incur shipping and handling costs to send and receive messaging devices and other equipment to/from our customers. Amounts billed to customers related to shipping and handling are classified as revenue and the Company's shipping and handling costs are classified as cost of sales. These costs are expensed as incurred.

Advertising Expenses

Advertising costs are charged to operations when incurred because they occur in the same period as the benefit is derived. Advertising costs are classified as selling and marketing expenses. We do not incur any direct response advertising costs. Advertising expenses were $1.8 million, $1.7 million and $2.3 million for the years ended December 31, 2016, 2015 and 2014, respectively. Advertising expenses incurred in 2014 included one-time advertising and related expenses of $0.7 million associated with the re-branding to the name Spok in July 2014.

Stock Based Compensation

We account for share-based payments to employees, including restricted stock units ("RSUs"), restricted common stock ("restricted stock") and the option to purchase common stock under the Employee Stock Purchase Plan ("ESPP") based on their fair value and the estimated number of shares we expect will vest based on the performance metrics associated with the award, if applicable. Fair value is measured based on the closing fair market value of the Company's common stock on the date of grant. Compensation expense is recognized on a straight line basis over the requisite service period. Forfeitures and withdrawals are accounted for on an as incurred basis.

Changes in our estimates of the expected attainment of performance targets are reflected in the amount of compensation expense that we recognize for the related instruments' during the interim reporting period when the change in estimate is determined and may cause the amount of compensation expense that we record for each period to vary. Further information regarding stock based compensation can be found in Note 9, "Stock Based Compensation".

Cash Equivalents

Cash equivalents include short-term, interest-bearing instruments purchased with initial or remaining maturities of three months or less when purchased.

Sales and Use Taxes

Sales and use taxes imposed on the ultimate consumer are excluded from revenue where we are required by law or regulation to act as collection agent for the taxing jurisdiction.

Fair Value of Financial Instruments

Our financial instruments include our cash, letters of credit (“LOCs”), accounts receivable and accounts payable. The fair value of cash, accounts receivable and accounts payable approximate their carrying values at December 31, 2016 and 2015 due to their short maturities.

Earnings Per Common Share

The calculation of earnings per common share is based on the weighted-average number of common shares outstanding during the applicable period. The calculation for diluted earnings per common share recognizes the effect of all potential dilutive common shares that were outstanding during the respective periods, unless the impact would be anti-dilutive. Further information regarding earnings per common share can be found in Note 7, "Stockholders' Equity".