8-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): January 12, 2007

TOWERSTREAM CORPORATION

(Exact Name of Registrant as Specified in Charter)

                Delaware                
(State or Other Jurisdiction
of Incorporation)
              333-131087                
(Commission File Number)

        20-8259086        
(IRS Employer
Identification No.)

55 Hammarlund Way
                    Middletown, RI                    
(Address of Principal Executive Offices)

        02842        
(Zip Code)

Registrant’s telephone number, including area code: (401) 848-5848

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 DFR 240.14a-12)

[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[ ] Pre-commencement communications pursuant to Rule 13e-4 (c) under the Exchange Act (17 CFR 240.13e-4(c))

On January 19, 2007, we filed with the Securities and Exchange Commission (the “SEC”) a Current Report on Form 8-K, as amended on January 25, 2007 (the “Form 8-K”), with respect to the Agreement of Merger and Plan of Reorganization, dated as of January 12, 2007, by and among us, Towerstream Corporation (now known as Towerstream I, Inc.), a privately held Delaware corporation (“TWER”), and Towerstream Acquisition, Inc., a newly formed wholly-owned Delaware subsidiary of ours (“Acquisition Sub”), whereby Acquisition Sub was merged with and into TWER, and TWER became a wholly-owned subsidiary of ours. Following the merger, we changed our name from University Girls Calendar, Ltd. to Towerstream Corporation and succeeded to the business of TWER as our sole line of business.

On March 13, 2007, we filed with the SEC an Annual Report on Form 10-KSB for the fiscal year ended November 30, 2006, which relates primarily to our business and operations during such pre-merger period. We are filing this amendment to the Form 8-K in order to (i) include a Management’s Discussion and Analysis or Plan of Operation relating to the financial condition and results of operations of TWER as of, and for each of the years ended, December 31, 2006 and 2005, as well as financial statements and related notes for such periods and pro forma financial statements as of, and for the year ended, December 31, 2006 that give effect to the merger and (ii) update the Executive Compensation disclosure in the Form 8-K to account for bonuses awarded to certain executive officers of TWER on February 14, 2007 for work performed during 2006.

Item 2.01. Completion of Acquisition or Disposition of Assets.

Management’s Discussion and Analysis or Plan of Operations

The Management’s Discussion and Analysis or Plan of Operation section contained in Item 2.01 of the Form 8-K is hereby amended and restated in its entirety as follows:

Recent Events

Prior to January 12, 2007, we were a public shell company without material assets or liabilities. On January 12, 2007, Towerstream I, Inc. completed a reverse merger with us, pursuant to which Towerstream I, Inc. became our wholly-owned subsidiary and we succeeded to the business of Towerstream I, Inc. as our sole line of business and the former security holders of Towerstream I, Inc. became our controlling stockholders. For financial reporting purposes, Towerstream I, Inc. was considered the accounting acquiror in the reverse merger. Accordingly, the historical financial statements presented and the discussion of financial condition and results of operations below are those of Towerstream I, Inc. and do not include our historical financial results. All costs associated with the reverse merger were expensed as incurred.

Overview

We are a leading supplier of fixed, high-speed, wireless broadband services to commercial users, with operations in New York City, Chicago, Los Angeles, Boston, San Francisco, Seattle, Providence and Newport, Rhode Island. Our fixed wireless broadband network delivers high-speed Internet access supporting VoIP, bandwidth on demand, wireless redundancy, VPNs, disaster recovery, bundled data, and video services. Furthermore, we offer customers bandwidth connection speeds ranging from the equivalent of a standard T-1 telephone line and up to 1,000 million bits per second.

Characteristics of our Revenues and Expenses

We offer our services under service agreements having terms of one, two or three years. Pursuant to these agreements, we bill customers on a monthly basis, in advance, for each month of service. To this end, payments received in advance of services performed are recorded as deferred revenues.

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Cost of revenues primarily consists of all expenses that are directly attributable to providing our service, and include the costs associated with bandwidth purchases and tower and rooftop rents. Fluctuations in our gross margin may occur due to the addition of network capacity to either existing points of presence or adding additional coverage through the addition of new locations or opening of new markets.

Sales and marketing expenses primarily consist of the salaries, benefits, travel and other costs of our sales and marketing teams, as well as marketing initiatives and business development expenses. General and administrative expenses primarily consist of the costs attributable to the support of our operations, such as costs related to information systems, salaries, expenses and office space costs for executive management, inside sales, technical support, financial accounting, purchasing, administrative and human resources personnel, insurance, recruiting fees, legal, accounting and other professional services.

Year Ended December 31, 2006 Compared to Year Ended December 31, 2005

Revenues. During the year ended December 31, 2006, we had revenues of $6,296,218, as compared to revenues of $5,397,510 during the year ended December 31, 2005, representing an increase of approximately 16.6%. This increase was primarily attributable to the growth of our network subscriber base.

Operating Loss. Operating expenses, which consist of cost of revenues, depreciation, customer support services, selling, general and administrative costs, totaled $6,986,722 for the year ended December 31, 2006, as compared to $6,127,770 for the year ended December 31, 2005, representing an increase of approximately 14.0%, the components of which are discussed in further detail below. In contrast, our operating loss for the year ended December 31, 2006 was $690,504, as compared to a loss of $730,260 for the year ended December 31, 2005, representing a decrease of approximately 5.4%. Our operating loss decreased as a result of our revenue growth and the absorption of certain current fixed costs and network capacity.

Cost of Revenues. Cost of revenues, which consists of tower rental charges, bandwidth purchases, and related engineering costs and overhead, exclusive of depreciation, totaled $1,636,820 for the year ended December 31, 2006, as compared to $1,509,505 for the year ended December 31, 2005, resulting in gross margins, before depreciation, of 74.0% and 72.0%, respectively. This increased margin is the result of a growing subscriber base and our ability to utilize existing fixed cost capacity to service our new subscribers.

Selling, General, and Administrative Expenses. Selling, general, and administrative expenses, which consist of commissions, salaries, advertising, and overhead expenses, totaled $3,636,376 for the year ended December 31, 2006, as compared to $3,265,352 for the year ended December 31, 2005, representing an increase of approximately 11.4%. This increase was primarily attributable to our recognition of $100,625 of stock based compensation and approximately $400,000 of legal and accounting costs associated with our reverse merger during the year ended December 31, 2006.

Customer Support Services. Customer support services totaled $507,276 for the year ended December 31, 2006, as compared to $419,356 for the year ended December 31, 2005, representing an increase of approximately 21%. This increase resulted from our hiring additional personnel and acquiring new systems to respond to customer growth and greater demand for our services.

Depreciation Expense. Depreciation expense totaled $1,206,250 for the year ended December 31, 2006, as compared to $933,557 for the year ended December 31, 2005, representing an increase of 29.2%.

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This increase was the result of increased purchases of capital equipment to support our increased customer growth of 16.6% in 2006 versus 2005.

Net Loss. We had a net loss of $811,531 for the year ended December 31, 2006, as compared to a net loss of $947,205 for the year ended December 31, 2005, representing a decrease of approximately 14.3%. This decrease in net loss was primarily attributable to our increased sales. We believe that net losses will continue as we make required additions to our sales, engineering and administrative personnel and our network in order to fuel expected revenue and subscriber growth.

Liquidity and Capital Resources

As of December 31, 2006 and December 31, 2005, we had cash and cash equivalents of $160,363 and $203,050, respectively. We have historically met our liquidity requirements from a variety of sources, including internally generated cash, short-term borrowings from both related parties and financial institutions and the sale of equity securities.

Net Cash Provided by Operating Activities. Net cash provided by operating activities totaled $967,730 for the year ended December 31, 2006, as compared to $479,285 for the year ended December 31, 2005, representing an increase of approximately 101.9%. This increase was primarily due to improved operating results derived from increased revenues generated in 2006 from our higher subscriber growth.

Net Cash Used in Investing Activities. Net cash used in investing activities was $1,168,109 for the year ended December 31, 2006, as compared to $1,378,027 for the year ended December 31, 2005, representing a decrease of approximately 15.2%. This decrease was due to our taking advantage of capital expended on our network’s capacity and coverage areas in previous years. As a result, we spent $243,000 less capital on our network during the year ended December 31, 2006 than in the year ended December 31, 2005, but expended $50,000 more on the acquisition of a Federal Communications Commission license in 2006 than in 2005.

Net Cash Provided By Financing Activities. Net cash provided by financing activities was $157,692 for the year ended December 31, 2006, as compared to $1,101,792 for the year ended December 31, 2005, representing a decrease of approximately 85.7%. As a result of our improved operating results, we required less funding from outside sources to meet our working capital needs. A significant potion of the $1.1 million of cash provided in fiscal 2005 was attributable to the sale of common stock of $925,000.

Working Capital. As of December 31, 2005, we had negative working capital of $2,323,230 due primarily to the short term nature of our debt. Approximately $1.7 million of our debt obligation was either on a demand basis or had maturities of less than one year. As of December 31, 2006, we had a negative working capital position of $3,323,752. As in previous periods, this negative position was primarily the result of approximately $2.2 million of our debt obligations that were either on a demand basis or had maturities of less than one year. Nevertheless, we believe that our current operating activities, together with the money raised from our private placements in January 2007, will enable us to meet our anticipated cash requirements for fiscal 2007.

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Loans From Related Parties

As of December 31, 2006, we owed a total of approximately $1.9 million to five of our stockholders for past borrowings and services. These loans were short term in nature and had varying interest rates, repayment terms, and conversion features.

During January 2007, our related party lenders sold approximately $1.7 million of debt to unrelated third-parties. The transferred notes, which totaled $1,691,636, accrued interest at 10% per annum, and following our reverse merger on January 12, 2007, were automatically converted into shares of common stock at a conversion price of $1.50 per share.

One note held by a related party in the amount of $250,000, which was not transferred, bore interest at 10% per annum and, following the reverse-merger, converted into common stock at a conversion price of $1.43 per share.

Private Placement

In connection with the reverse merger in January 2007, we completed a private placement, pursuant to which we issued 5,110,056 shares of common stock and five-year warrants to purchase 2,555,028 shares of common stock at an exercise price of $4.50 per share for aggregate gross proceeds of $11,497,625. In connection with this private placement, we incurred placement agent fees of approximately $446,400, and issued the placement agents five-year warrants to purchase an aggregate of 140,917 shares of common stock at an exercise price of $4.50 per share. In addition, we incurred other professional fees and expenses totaling approximately $522,300 in connection with the reverse merger and private placement.

Senior Debenture

In conjunction with our reverse merger in January 2007, we also sold $3,500,000 of senior convertible debentures. These debentures require quarterly interest-only payments of 8% per annum and mature on December 31, 2009. The debentures are convertible into shares of common stock at a conversion price of $2.75 per share, subject to certain limitations. In addition, holders of the debentures received five-year warrants to purchase an aggregate of 636,364 shares of common stock at an exercise price of $4.00 per share and five-years warrants to purchase an aggregate of 636,364 shares of common stock at an exercise price of $6.00 per share.

In connection with the issuance of the debentures, we incurred placement agent fees totaling approximately $140,000, and issued to such placement agent a five-year warrant to purchase 63,634 shares of common stock at an exercise price of $4.50 per share. This warrant had an estimated fair value of $34,750.

The above financing activities raised net proceeds of $14,411,237, which will be used to significantly expand our sales and marketing efforts, as well as our expansion into new markets.

Critical Accounting Policies

Our financial statements are prepared in conformity with generally accepted accounting principles in the United States of America, which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the reporting periods. Critical accounting policies are those that require the application of management’s most difficult, subjective, or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that may

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change in subsequent periods. In preparing the financial statements, we utilized available information, including our past history, industry standards and the current economic environment, among other factors, in forming our estimates and judgments, giving due consideration to materiality. Actual results may differ from these estimates. In addition, other companies may utilize different estimates, which may impact the comparability of our results of operations to those of companies in similar businesses. We believe that of our significant accounting policies, the following may involve a higher degree of judgment and estimation.

Property and Equipment. Property and equipment are stated at cost. The costs associated with the construction of our network and subscriber installations are capitalized. Costs include equipment, installation costs and materials. Depreciation is computed by the straight-line method over the following estimated useful lives:

	Years
Furniture, fixtures and equipment	5-7
Computer Equipment	5
Systems software	3
Network base station equipment	5-7
Customer premise equipment	5-7

Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Long-Lived Assets. Long-lived assets consist primarily of property and equipment. Long-lived assets are reviewed annually for impairment or whenever events or circumstances indicate their carrying value may not be recoverable. When such events or circumstances arise, an estimate of the future undiscounted cash flows produced by the asset, or the appropriate grouping of assets, is compared to the asset’s carrying value to determine if impairment exists pursuant to the requirements of Statement of Financial Accounting Standards, or SFAS, No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” If the asset is determined to be impaired, the impairment loss is measured based on the excess of its carrying value over its fair value. Assets to be disposed of are reported at the lower of their carrying value or net realizable value.

Revenue Recognition. Revenues are recognized at the time access to our services is made available to customers. Contractual arrangements range from one to three years. Deferred revenues are recognized as a liability when billings are received in advance of the date when revenues are earned. Our revenue arrangements with multiple deliverables under Emerging Issues Task Force, EITF, 00-21 are deemed to be immaterial.

Stock-Based Compensation. Effective January 1, 2006, we adopted SFAS No. 123 (revised 2004), “Share-Based Payment,” (SFAS 123R), which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation.” SFAS No. 123R supersedes Accounting Principles Board, or APB, Opinion No. 25, “Accounting for Stock Issued to Employees”, and amends SFAS No. 95, “Statement of Cash Flows.” SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based upon their fair values. As a result, the intrinsic value method of accounting for stock options with pro forma footnote disclosure, as allowed for under SFAS No. 123, is no longer permitted. We adopted SFAS No. 123R using the modified prospective method, which requires us to record compensation expense for all awards granted after the date of adoption, and for the unvested portion of previously granted awards that remain outstanding at the

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date of adoption. Accordingly, prior period amounts have not been restated to reflect the adoption of SFAS No. 123R. After assessing alternative valuation models and amortization assumptions, we chose to continue using the Black-Scholes valuation model and recognition of compensation expense over the requisite service period of the grant.

Convertible Notes Payable. We account for conversion options embedded in convertible notes in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock.” SFAS 133 generally requires companies to bifurcate conversion options embedded in convertible notes and preferred shares from their host instruments and to account for them as free standing derivative financial instruments in accordance with EITF 00-19. SFAS 133 provides for an exception to this rule when convertible notes are deemed to be conventional, as that term is described in the implementation guidance provided in paragraph 61(k) of Appendix A to SFAS 133 and further clarified in EITF 05-2 “The Meaning of Conventional Convertible Debt Instrument” in Issue No. 00-19. SFAS 133 provides for an additional exception to this rule when the economic characteristics and risks of the embedded derivative instrument are clearly and closely related to the economic characteristics and risks of the host instrument. We account for convertible notes (deemed conventional) and non-conventional convertible debt instruments classified as equity under EITF 00-19 “Accounting for Derivative Financial Investments indexed to, and potentially settled in, a Company’s own stock” and in accordance with the provisions of EITF 98-5, “Accounting for Convertible Securities with Beneficial Conversion Features,” and EITF 00-27 “Application of EITF 98-5 to Certain Convertible Instruments.” Accordingly, we record, as a discount to convertible notes, the intrinsic value of such conversion options based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their earliest date of redemption.

Recent Accounting Pronouncements

On February 15, 2007, FASB issued SFAS No. 159, entitled “The Fair Value Option for Financial Assets and Financial Liabilities.” The guidance in SFAS No. 159 “allows” reporting entities to “choose” to measure many financial instruments and certain other items at fair value. The objective underlying the development of this literature is to improve financial reporting by providing reporting entities with the opportunity to reduce volatility in reported earnings that results from measuring related assets and liabilities differently without having to apply complex hedge accounting provisions, using the guidance in SFAS No. 133, as amended, entitled “Accounting for Derivative Instruments and Hedging Activities”. The provisions of SFAS No. 159 are applicable to all reporting entities and is effective as of the beginning of the first fiscal year that begins subsequent to November 15, 2007. We do not believe this new accounting standard will have a material impact on our financial condition or results of operations.

In December 2006, FASB issued FASB Staff Position EITF 00-19-2 “Accounting for Registration Payment Arrangements,” which specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement should be separately recognized and measured in accordance with SFAS No. 5, “Accounting for Contingencies.” Adoption of EITF 00-19-02 is required for fiscal years beginning after December 15, 2006. We are currently evaluating the expected effect of EITF 00-19-02 on our consolidated financial statements and are currently not yet in a position to determine such effects.

In September 2006, FASB issued SFAS No. 157, Fair Value Measurements. This statement provides a single definition of fair value, a framework for measuring fair value, and expanded disclosures concerning fair value. Previously, different definitions of fair value were contained in various accounting pronouncements creating inconsistencies in measurement and disclosures. SFAS No. 157 applies under those previously issued pronouncements that prescribe fair value as the relevant measure of value, except

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SFAS No. 123R and related interpretations and pronouncements that require or permit measurement similar to fair value but are not intended to measure fair value. This pronouncement is effective for fiscal years beginning after November 15, 2007. We are evaluating the impact of this new standard, but currently believe that adoption will not have a material impact on our financial position or results of operations.

In September 2006, the Securities and Exchange Commission’s Office of the Chief Accountant and Divisions of Corporation Finance and Investment Management released Staff Accounting Bulletin, or SAB, No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, which provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. The Securities and Exchange Commission’s staff believes that registrants should quantify errors using both a balance sheet and an income statement approach and evaluate whether either approach results in quantifying a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. This pronouncement is effective for fiscal years ending after November 15, 2006. We adopted SAB No. 108 and found there to be no material impact on our financial position or results of operations.

In July 2006, FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109.” This interpretation establishes for all entities a minimum threshold for financial statement recognition of the benefit of tax positions, and requires certain expanded disclosures. This interpretation is effective for fiscal years beginning after December 31, 2006, and is to be applied to all open tax years as of the date of effectiveness. We are in the process of evaluating the impact of the application of this interpretation to our consolidated financial statements.

In February 2006, FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments”, an amendment of FASB Statements No. 133 and 140.” SFAS 155 clarifies certain issues relating to embedded derivatives and beneficial interests in securitized financial assets. The provisions of SFAS 155 are effective for all financial instruments acquired or issued after fiscal years beginning after September 15, 2006. We do not expect this pronouncement to have a material impact on our financial position, results of operations or cash flows.

In September 2005, FASB ratified the following consensus reached in EITF 05-8: The issuance of convertible debt with a beneficial conversion feature results in a basis difference in applying SFAS No. 109. Recognition of such a feature effectively creates a debt instrument and a separate equity instrument for book purposes, whereas the convertible debt is treated entirely as a debt instrument for income tax purposes. The resulting basis difference should be deemed a temporary difference because it will result in a taxable amount when the recorded amount of the liability is recovered or settled. Recognition of deferred taxes for the temporary difference should be reported as an adjustment to additional paid-in capital. This consensus is effective in the first interim or annual reporting period commencing after December 15, 2005, with early application permitted. The effect of applying the consensus should be accounted for retroactively to all debt instruments containing a beneficial conversion feature that is subject to EITF 00-27, and thus is applicable to debt instruments converted or extinguished in prior periods but which are still presented in the financial statements. The adoption of this pronouncement is not expected to have a material impact on our financial statements.

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In June 2005, the EITF reached consensus on EITF 05-6. EITF 05-6 provides guidance on determining the amortization period for leasehold improvements acquired in a reverse merger or acquired subsequent to lease inception. The guidance in EITF 05-6 will be applied prospectively and is effective for periods beginning after June 29, 2005. The adoption of EITF 05-6 did not have a material impact on our financial position, results of operations or cash flows.

In June 2005, FASB ratified EITF 05-2, “The Meaning of Conventional Convertible Debt Instrument” in EITF No. 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock,” which addresses when a convertible debt instrument should be considered “conventional” for the purpose of applying the guidance in EITF 00-19. EITF 05-2 also retained the exemption under EITF 00-19 for conventional convertible debt instruments and indicated that convertible preferred stock having a mandatory redemption date may qualify for the exemption provided under EITF 00-19 for conventional convertible debt if the instrument’s economic characteristics are more similar to debt than equity. EITF 05-2 is effective for new instruments entered into and instruments modified in periods beginning after June 29, 2005. The adoption of this pronouncement did not have a material impact on our financial position, results of operations or cash flows.

In May 2005, FASB issued SFAS No. 154, “Accounting Changes and Error Correction.” SFAS N. 154 replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for the accounting for and reporting of a change in accounting principle. SFAS No. 154 applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. When a pronouncement includes specific transition provisions, those provisions should be followed. This statement is effective for accounting changes and corrections of errors made in the fiscal years beginning after December 15, 2005. We do not believe this pronouncement will have a material impact on our financial position or results of operations.

Executive Compensation

The Summary Compensation Table contained within the Executive Compensation section contained in Item 2.01 of the Form 8-K is hereby amended and restated in its entirety as follows:

Name and Principal Position	Year	Salary ($)	Bonus ($)		Option Awards(1) ($)		Nonqualified Deferred Compensation Earnings ($)	Total  ($)
Jeffrey M. Thompson	2006	171,000	75,000	(2)	413,837	(3)	10,000	669,837
President and Chief Executive Officer (principal executive officer)	2005	171,000	—		110,191		—	281,191
George E. Kilguss, III	2006	135,000	50,000		—		45,000	230,000
Chief Financial Officer	2005	55,000			110,191		125,000	290,191
Arthur Giftakis	2006	120,000	—		—		—	120,000
Vice President of Engineering and Operations	2005	114,313	—		21,514		—	135,827
Paul Pedersen(4)	2006	—	—		—		—	—
	2005	—	—		—		—	—

______________

(1) Based upon the aggregate grant date fair value calculated in accordance with the Financial Accounting Standards Board Statement of Financial Accounting Standard No. 123R, Share Based Payment. For information regarding our valuation of option awards, see “Critical Accounting Policies — Stock-Based Expense.”

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(2) Of this $75,000 cash bonus, $30,000 was awarded to Mr. Thompson in 2006 in recognition of services performed during 2006, and $45,000 was awarded to Mr. Thompson on February 14, 2007 in recognition of services performed during 2006.

(3) This option award was made to Mr. Thompson on February 14, 2007 in recognition of services performed during 2006.

(4) Paul Pedersen resigned as our sole director and executive officer on January 12, 2007.

Item 9.01. Financial Statements and Exhibits.

Item 9.01 of the Form 8-K is hereby amended and supplemented as follows:

(a) Financial Statements of Businesses Acquired. In accordance with Item 9.01(a), TWER’s audited financial statements for the fiscal years ended December 31, 2005 and 2006 are filed in this Current Report on Form 8-K/A as Exhibit 99.9.

(b)Pro Forma Financial Information. In accordance with Item 9.01(b), our pro forma financial statements are filed in this Current Report on Form 8-K/A as Exhibit 99.10.

(d) Exhibits. The exhibits listed in the following Exhibit Index are filed as part of this Current Report on Form 8-K/A.

Exhibit No.	Description
99.9	TWER financial statements for the fiscal years ended December 31, 2005 and 2006 (audited)
99.10	Unaudited pro forma consolidated balance sheets as of December 31, 2006 and unaudited pro forma consolidated statement of operations for the year ended December 31, 2006

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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: March 19, 2007	Towerstream Corporation
	By:	/s/ Jeffrey M. Thompson
		Jeffrey M. Thompson
		Chief Executive Officer and President

EX-99.9

TOWERSTREAM CORPORATION

FINANCIAL STATEMENTS

For the Years Ended December 31, 2006 and 2005

TOWERSTREAM CORPORATION

CONTENTS

	Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	1
FINANCIAL STATEMENTS
Balance Sheet	2
Statements of Operations	3
Statements of Stockholders’ Equity	4
Statements of Cash Flows	5 - 6
NOTES TO FINANCIAL STATEMENTS	7 - 28

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

Towerstream Corporation

Middletown, Rhode Island

We have audited the accompanying balance sheet of Towerstream Corporation (the “Company”) as of December 31, 2006, and the related statements of operations, stockholders’ equity and cash flows for the years ended December 31, 2006 and 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits include consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Towerstream Corporation as of December 31, 2006, and the results of its operations and its cash flows for the years ended December 31, 2006 and 2005 in conformity with accounting principles generally accepted in the United States of America.

/s/ Marcum & Kliegman LLP

New York, New York

February 10, 2007, except for Note 15 (l) and (m) as to which the date is March 12, 2007

TOWERSTREAM CORPORATION

BALANCE SHEET

December 31, 2006

Assets
Current Assets
Cash	$	160,363
Accounts receivable, net of allowance for doubtful accounts of $107,245		157,443
Prepaid expenses		25,202
Total Current Assets		343,008
Property and equipment, net		3,758,585
FCC License		350,000
Security deposits and other assets		61,685
TOTAL ASSETS	$	4,513,278
Liabilities and Stockholder’s Equity
Current Liabilities
Short-term debt	$	259,341
Current maturities of capital lease obligations		62,685
Current maturities of notes payable, stockholders		1,797,611
Accounts payable and accrued expenses		966,357
Deferred compensation		180,000
Deferred revenues		400,766
Total Current Liabilities		3,666,760
Other Liabilities
Notes payable, stockholder, net of current maturities		74,400
Capital lease obligations, net of current maturities		73,315
Total other liabilities		147,715
TOTAL LIABILITIES		3,814,475
Commitments
Stockholder’s Equity
Common stock, par value $0.001; 30,000,000 shares authorized;
21,436,977 shares issued and 21,404,977 outstanding		21,437
Additional paid-in capital		8,925,366
Accumulated deficit		(8,213,000	)
		733,803
Less treasury stock, at cost, 32,000 shares		(35,000	)
TOTAL STOCKHOLDERS’ EQUITY		698,803
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	4,513,278

 The accompanying notes are an integral part of these financial statements  2

TOWERSTREAM CORPORATION

STATEMENTS OF OPERATIONS

For the Years Ended December 31, 2006 and 2005

	2006			2005
Revenues	$	6,296,218		$	5,397,510
Operating Expenses
Cost of revenues (exclusive of depreciation of $1,206,250 and
$933,557, respectively, shown separately below)		1,636,820			1,509,505
Depreciation		1,206,250			933,557
Customer support services		507,276			419,356
Selling, general and administrative expenses (includes stock-based
compensation expense of $100,625 in 2006)		3,636,376			3,265,352
TOTAL OPERATING EXPENSES		6,986,722			6,127,770
OPERATING LOSS		(690,504	)		(730,260	)
Other Expense/(Income)
Interest expense, net		237,071			216,945
Gain on extinguishment of debt		(114,339	)		—
Gain on sale of property and equipment		(1,705	)		—
TOTAL OTHER EXPENSE		121,027			216,945
NET LOSS	$	(811,531	)	$	(947,205	)
Net loss per common share - basic and diluted	$	(0.04	)	$	(0.05	)
Weighted average common shares outstanding		21,277,199			20,776,874

 The accompanying notes are an integral part of these financial statements 3

TOWERSTREAM CORPORATION

STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Years Ended December 31, 2006 and 2005

											Additional
	Common Stock				Treasury Stock						Paid-in		Accumulated
	Shares		Amount		Shares			Amount			Capital		Deficit			Total
Balance as of January 1, 2005		20,026,698	$	20,026		(32,000	)		($35,000	)	$	7,508,193		($6,454,264	)	$	1,038,955
Sale of common stock		925,000		925								924,075					925,000
Issuance of common stock upon conversion
of stockholder’s notes		118,612		119								59,187					59,306
Net loss														(947,205	)		(947,205	)
Balance as of December 31, 2005		21,070,310		21,070		(32,000	)		(35,000	)		8,491,455		(7,401,469	)		1,076,056
Issuance of common stock upon conversion
of stockholder’s notes payable and accrued interest		266,667		267								233,386					233,653
Issuance of common stock in connection
with purchase of FCC license		100,000		100								99,900					100,000
Stock-based compensation												100,625					100,625
Net loss														(811,531	)		(811,531	)
Balance as of December 31, 2006		21,436,977	$	21,437		(32,000	)		($35,000	)	$	8,925,366		($8,213,000	)	$	698,803

 The accompanying notes are an integral part of these financial statements 4

TOWERSTREAM CORPORATION

STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 2006 and 2005

Cash Flows From Operating Activities	2006			2005
Net loss	$	(811,531	)	$	(947,205	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation		1,206,250			933,557
Provision for doubtful accounts		62,245			114,293
Amortization of deferred debt discount		19,830			12,292
Gain on extinguishment of debt		(114,339	)		—
Non-cash charge for interest		42,916			—
Gain on sale of property and equipment		(1,705	)		—
Employee stock-based compensation		100,625			—
Changes in operating assets and liabilities:
Accounts receivable		(46,038	)		(77,204	)
Advances to officers		35,533			(5,775	)
Prepaid expenses		(16,381	)		4,331
Accounts payable and accrued expenses		486,881			128,229
Deferred compensation		55,000			202,312
Deferred revenues		(51,556	)		114,455
TOTAL ADJUSTMENTS		1,779,261			1,426,490
NET CASH PROVIDED BY OPERATING ACTIVITIES		967,730			479,285
Cash Flows From Investing Activities
Acquisition of property and equipment		(1,126,597	)		(1,369,527	)
Proceeds from sale of property and equipment		5,988			—
Purchase of FCC license		(50,000	)		—
Change in security deposits		2,500			(8,500	)
NET CASH USED IN INVESTING ACTIVITIES		(1,168,109	)		(1,378,027	)
Cash Flows From Financing Activities
Bank overdraft		—			(29,407	)
Repayment of revolving note, stockholder		(250,000	)		—
Proceeds from notes payable, stockholders		575,000			500,000
Repayment of notes payable, stockholder		(116,643	)		(106,237	)
Proceeds from short-term debt borrowings		250,000			—
Repayment of capital lease obligations		(33,948	)		(13,344	)
Repayment of long-term debt		(266,717	)		(174,220	)
Proceeds from sale of common stock					925,000
NET CASH PROVIDED BY FINANCING ACTIVITIES		157,692			1,101,792
NET (DECREASE) INCREASE IN CASH		(42,687	)		203,050
Cash – Beginning of year		203,050			—
Cash – End of year	$	160,363		$	203,050

 The accompanying notes are an integral part of these financial statements 5

TOWERSTREAM CORPORATION

STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 2006 and 2005

	2006		2005
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Interest	$	218,037	$	176,900
Non-cash investing and financing activities:
Conversion of deferred compensation into notes payable	$	—	$	195,312
Conversion of principal and interest on notes payable
Into shares of common stock	$	233,653	$	59,306
Acquisition of FCC license in exchange for
shares of common stock	$	100,000	$	—
Acquisition of FCC license in exchange for
note payable	$	200,000	$	—
Acquisition of property and equipment under capital lease obligations	$	122,008	$	—

 The accompanying notes are an integral part of these financial statements 6

TOWERSTREAM CORPORATION

NOTES TO FINANCIAL STATEMENTS

NOTE 1 -Organization and Nature of Business

TowerStream Corporation (herein after referred to as “Towerstream” or the “Company”) was formed on December 17, 1999 and was incorporated in Delaware. The Company operates as a Sub Chapter S corporation with its corporate headquarters located in Rhode Island.

The Company is a fixed wireless broadband provider. The Company serves several major U.S. markets including: Los Angeles, San Francisco, New York City, Chicago, Boston, Seattle, Providence and Newport, Rhode Island.

On January 12, 2007, Towerstream merged with a newly formed subsidiary of University Girls Calendar, Ltd. (“UGC”), a publicly traded shell company. As a result of the transaction, the former owners of Towerstream became the controlling stockholders of UGC and UGC changed its name to Towerstream Corporation. Accordingly, the merger of Towerstream and UGC (the “Merger”) is deemed to be a reverse merger that has been accounted for as a recapitalization of Towerstream (see Note 15).

NOTE 2 - Summary of Significant Accounting Policies

Accounts Receivable

The Company carries its accounts receivable at cost less an allowance for doubtful accounts. The allowance for doubtful accounts reflects management’s best estimate of probable losses inherent in the accounts receivable balance. Periodically, management evaluates its accounts receivable and establishes an allowance for doubtful accounts, based on the history of past write-offs, collections, and current credit conditions. The allowance for uncollectible accounts at December 31, 2006 was $107,245 and bad debt expense for 2006 and 2005 was approximately $62,000 and $114,000, respectively and are included as part of selling, general, and administrative expenses.

Property and Equipment

Property and equipment are stated at cost. The costs associated with the construction of the network and subscriber installations are capitalized. Costs include equipment, installation costs and materials. Depreciation is computed by the straight-line method over the following estimated useful lives:

	Years
Furniture, fixtures and equipment	5-7
Computer equipment	5
Systems software	3
Network and base station equipment	5-7
Customer premise equipment	5-7

7

TOWERSTREAM CORPORATION

NOTES TO FINANCIAL STATEMENTS

NOTE 2 - Summary of Significant Accounting Policies, continued

Expenditures for maintenance and repairs, which do not generally extend the useful life of the assets, are charged to operations as incurred. Gains or losses on disposal of property and equipment are reflected in the statement of operations in the period of disposal.

FCC License

Federal Communication Commission (“FCC”) license is initially recorded at cost and is not amortized. FCC license is considered to be an indefinite-lived intangible asset because the Company expects to continue to provide wireless service using the relevant license for the foreseeable future and the FCC license may be renewed for a nominal fee.

Deferred Revenues

Deferred revenues consist of either prepayment of services for future periods or payments received for current month services which overlap monthly reporting periods.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Advertising Costs

The Company charges advertising costs to expense as incurred. Advertising costs for the years ended December 31, 2006 and 2005 were approximately $44,000 and $240,000, respectively and are included as part of selling, general, and administrative expenses.

Income Tax Status

The Company, with the consent of its stockholders, has elected to be taxed under sections of the federal and the state of Rhode Island income tax law, which provide that, in lieu of corporation income taxes, the stockholders separately account for their pro rata shares of the Company’s items of income, deductions, losses and credits. As a result of this election, no provision or liability for income taxes has been recognized in the accompanying financial statements.

Research and Development

Research and development costs are expensed as incurred. Research and development costs for the years ended December 31, 2006 and 2005 were approximately $59,000 and $130,000, respectively. These costs have been recorded in the statement of operations as part of selling, general and administrative expenses.

8

TOWERSTREAM CORPORATION

NOTES TO FINANCIAL STATEMENTS

NOTE 2 - Summary of Significant Accounting Policies, continued

Long-Lived Assets

Long-lived assets consist primarily of property and equipment. Long-lived assets are reviewed annually for impairment or whenever events or circumstances indicate their carrying value may not be recoverable. When such events or circumstances arise, an estimate of the future undiscounted cash flows produced by the asset, or the appropriate grouping of assets, is compared to the asset’s carrying value to determine if impairment exists pursuant to the requirements of Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. If the asset is determined to be impaired, the impairment loss is measured based on the excess of its carrying value over its fair value. Assets to be disposed of are reported at the lower of their carrying value or net realizable value.

Management has determined there was no impairment of its property and equipment during the years ended December 31, 2006 and 2005.

Revenue Recognition

Revenues are recognized at the time access to the Company’s internet services is made available to its customers. Contractual arrangements range from one to three years. Deferred revenues are recognized as a liability when billings are received in advance of the date when revenues are earned. Company revenue arrangements with multiple deliverables under Emerging Issues Task Force Issue (“EITF”) No. 00-21 are deemed to be immaterial.

Fair Value of Financial Instruments

SFAS No. 107, “Disclosures about Fair Value of Financial Instruments” requires that the Company disclose estimated fair values of financial instruments. The carrying amounts reported in the statement of financial position for current assets and current liabilities qualifying as financial instruments are reasonable estimates of fair value. The fair value of long-term debt is estimated to approximate fair market value based on the current rates offered to the Company for debt of the same remaining maturities. The fair value of the Company’s notes payable to stockholders are not reasonably determinable based on the related party nature of the transactions.

Stock-Based Compensation

Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123R”), which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”). SFAS No. 123R supersedes APB No. 25, “Accounting for Stock Issued to Employees”, and amends SFAS No. 95, “Statement of Cash Flows.” SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based upon their fair values. As a result, the intrinsic value method of accounting for stock options with pro forma footnote disclosure, as allowed for under SFAS No. 123, is no longer permitted.

9

TOWERSTREAM CORPORATION

NOTES TO FINANCIAL STATEMENTS

NOTE 2 - Summary of Significant Accounting Policies, continued

Stock-Based Compensation, continued

The Company adopted SFAS No. 123R using the modified prospective method, which requires the Company to record compensation expense for all awards granted after the date of adoption, and for the unvested portion of previously granted awards that remain outstanding at the date of adoption. Accordingly, prior period amounts have not been restated to reflect the adoption of SFAS No. 123R. After assessing alternative valuation models and amortization assumptions, the Company chose to continue using the Black-Scholes valuation model and recognition of compensation expense over the requisite service period of the grant.

As a result, the Company’s net loss for the year ended December 31, 2006 is $100,625 higher than if it had continued to account for share-based compensation under Accounting Principles Board (“APB”) opinion No. 25. The Company recorded total stock-based compensation of $100,625 during this period for options granted and vested which is included in selling, general and administrative expense. As of December 31, 2006 the fair value of the unvested stock options amounted to $120,000 which are expected to be recognized over a weighted average period of approximately 2.1 years.

The Company uses the Black-Scholes option pricing model to determine the weighted average fair value of options. The weighted average fair value of options granted during the year ended December 31, 2006 and 2005 was $0.57 and $0.46, respectively. The assumptions utilized to determine the fair value of options at the date of grant are indicated in the following table.

	Year ended December 31, 2006	Year ended December 31, 2005
Risk-free interest rate	4.6% - 5.1%	3.6% - 4.4%
Expected volatility	41% - 60%	56%
Expected life (in years)	6 – 10	6 - 10
Expected dividend yield	—	—

10

TOWERSTREAM CORPORATION

NOTES TO FINANCIAL STATEMENTS

NOTE 2 - Summary of Significant Accounting Policies, continued

Stock-Based Compensation, continued

Prior to January 1, 2006, the Company’s stock-based employee compensation plans were accounted for under the recognition and measurement provisions of Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), and related Interpretations, as permitted by Financial Accounting Standards Board (“FASB”) Statement No. 123, “Accounting for Stock-Based Compensation,” (“SFAS 123”).

For the year ended December 31, 2005, as was permitted under SFAS No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure,” which amended SFAS No. 123, “Accounting for Stock-Based Compensation,” the Company elected to continue to follow the intrinsic value method in accounting for its stock-based employee compensation arrangements as defined by APB No. 25, “Accounting for Stock Issued to Employees,” and related interpretations including FASB Interpretation No. 44, “Accounting for Certain Transactions Involving Stock Compensation, an interpretation of APB No. 25.” Under the intrinsic value method, no stock-based compensation expenses had been recognized as the exercise price of the grants equaled the fair market value of the underlying stock at the date of grant. The following table illustrates the effect on net loss per share as if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation for the year ended December 31, 2005:

Net loss as reported	$	(947,205	)
Deduct: Stock-based employee compensation as determined under fair value method for all awards, net of related tax effects		(457,153	)
Pro forma net loss	$	(1,404,358	)
Net loss per share Basic and diluted loss – as reported	$	(0.05	)
Basic and diluted loss – pro forma	$	(0.07	)

11

TOWERSTREAM CORPORATION

NOTES TO FINANCIAL STATEMENTS

NOTE 2 - Summary of Significant Accounting Policies, continued

Basic and Diluted Loss Per Share

Net loss per share is computed in accordance with Statement of Financial Standards No. 128, “Earning Per Share” (“SFAS No. 128”). SFAS No. 128 requires the presentation of both basic and diluted earnings per share.

Basic net loss per common share is computed using the weighted average number of common shares outstanding during the period. Diluted loss per share reflects the potential dilution that could occur through the potential effect of common shares issuable upon the exercise of stock options, warrants and convertible securities. The calculation assumes (i) the exercise of stock options and warrants based on the treasury stock method; and (ii) the conversion of convertible preferred stock only if an entity records earnings from continuing operations, as such adjustments would otherwise be anti-dilutive to earnings per share from continuing operations. As a result of the Company having recorded a loss during each of the years ended December 31, 2006 and 2005, the average number of common shares used in the calculation of basic and diluted loss per share is identical and has not been adjusted for the effects of the following items: (i) 3,783,000 and 3,827,000 potential common shares from unexercised stock options and warrants for each of the years ended December 31, 2006 and 2005, respectively, and (ii) 980,748 and 1,339,139 shares convertible under stockholders’ notes at December 31, 2006 and 2005, respectively. Such potential common shares may dilute earnings per share in the future.

Convertible Notes Payable

The Company accounts for conversion options embedded in convertible notes in accordance with Statement of Financial Accounting Standard (“SFAS) No. 133 “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”) and EITF 00-19 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” (“EITF 00-19”). SFAS 133 generally requires Companies to bifurcate conversion options embedded in convertible notes and preferred shares from their host instruments and to account for them as free standing derivative financial instruments in accordance with EITF 00-19. SFAS 133 provides for an exception to this rule when convertible notes are deemed to be conventional as that term is described in the implementation guidance provided in paragraph 61 (k) of Appendix A to SFAS 133 and further clarified in EITF 05-2 “The Meaning of “Conventional Convertible Debt Instrument” in Issue No. 00-19. SFAS 133 provides for an additional exception to this rule when the economic characteristics and risks of the embedded derivative instrument are clearly and closely related to the economic characteristics and risks of the host instrument.

12

TOWERSTREAM CORPORATION

NOTES TO FINANCIAL STATEMENTS

NOTE 2 - Summary of Significant Accounting Policies, continued

Convertible Notes Payable, continued

The Company accounts for convertible notes (deemed conventional) and non-conventional convertible debt instruments classified as equity under EITF 00-19 “Accounting for Derivative Financial Investments Indexed to, and Potentially Settled in, a Company’s Own Stock “ (“EITF 00-19”) and in accordance with the provisions of Emerging Issues Task Force Issue (“EITF”) 98-5 “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios” (“EITF 98-5”), EITF 00-27 “Application of EITF 98-5 to Certain Convertible Instruments.” Accordingly, the Company records, as a discount to convertible notes, the intrinsic value of such conversion options based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their earliest date of redemption.

NOTE 3 - Cash

The Company maintains its cash in bank deposit accounts, which at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash. The amount on deposit at December 31, 2006 exceeded the insurance limits by approximately $47,000.

NOTE 4 - Property and Equipment, net

As of December 31, 2006, the Company’s property and equipment, net is comprised of:

Network and base station equipment	$	4,149,865
Customer premise equipment		3,090,253
Furniture, fixtures and equipment		185,151
Computer equipment		181,725
Systems software		135,208
		7,742,202
Less: accumulated depreciation		3,983,617
	$	3,758,585

Depreciation expense for the years ended December 31, 2006 and 2005 was $1,206,250 and $933,557.

13

TOWERSTREAM CORPORATION

NOTES TO FINANCIAL STATEMENTS

NOTE 4 - Property and Equipment, net, continued

Property held under capital leases as of December 31, 2006 consists of the following:

Network base station equipment	$	194,702
Less: accumulated depreciation		(54,479	)
	$	140,223

NOTE 5 - Asset Acquisitions

On August 26, 2006 the Company entered into a License Purchase Agreement for certain spectrum in southern Florida. The purchase price was comprised of a cash payment of $50,000 and the balance of $200,000 payable in four equal annual installments of $50,000 without interest plus 100,000 shares of Towerstream common stock valued at $1.00 per share. The Agreement requires acceleration of all future payments due 90 days after the Company receives additional financing in excess of $3,000,000. This condition was met on January 12, 2007. The Agreement is also contingent upon and may be unwound by the parties if certain events or conditions are not met prior to November 21, 2007.

On November 30, 2006 the Company completed an Asset Purchase Agreement to purchase a fixed wireless network in Seattle, WA for $200,000. The purchase included fixed wireless equipment and related assets at five points of presence, as well as, the assumption of certain operating leases at those locations. No customer contracts were purchased or assumed in the transaction.

14

TOWERSTREAM CORPORATION

NOTES TO FINANCIAL STATEMENTS

NOTE 6 - Notes Payable, Stockholders

As of December 31, 2006, Notes payable to stockholders consist of:

Unsecured 5% promissory note dated August 1, 2005 with monthly installments of principal and interest of $10,806. The note matures on August 1, 2008. The note contains an option for the stockholder to convert 50% of the outstanding principal balance into shares of common stock of the Company at the rate of $1.00 per share, the fair market value on the date of the loan.	$	197,011
Unsecured 10% promissory note dated December 7, 2005, payable in monthly installments of interest only. The note matures on December 6, 2007. The stockholder has the right to convert the principal and unpaid interest into shares of common stock at the rate of $1.00 per share, the fair market value on the date of the loan.		250,000
Unsecured 10% promissory note dated January 13, 2006, payable in monthly installments of interest only. The note matures sixty days after demand for repayment.		250,000
Unsecured 10% promissory note dated July 12, 2006, payable in monthly installments of interest only. The note matures sixty days after demand for repayment.		50,000
Secured 10% promissory note dated October 1, 2006. The note matures sixty days after demand for repayment. The note is secured by the assets of the Company.		125,000
Unsecured 10% promissory note dated September 7, 2004, payable in monthly installments of interest only. The note matures September 7, 2007. The note contains an option for the stockholder to convert to shares of common stock at $0.80 per common share, the fair market value on the date of the loan.		150,000
Unsecured 10% promissory note dated November 10, 2005, payable in monthly installments of interest only. The note matures on November 9, 2007. The stockholder has the right to convert the principal and interest into shares of common stock at the rate of $1.00 per share, the fair market value on the date of the loan.		250,000
Secured 10% promissory note dated October 1, 2006. The note matures sixty days after demand for repayment. The note is secured by the assets of the Company.		150,000
Unsecured 10% promissory note dated August 2, 2002, payable in monthly installments of interest only. The note matures sixty days after demand for repayment.		250,000
On August 26, 2006 the Company entered into a License Purchase Agreement for certain spectrum in southern Florida (see Note 5). The balance of the payments are due on April 12, 2007.		200,000
		1,872,011

15

TOWERSTREAM CORPORATION

NOTES TO FINANCIAL STATEMENTS

NOTE 6 - Notes Payable, Stockholders, continued

Less: current maturities of notes payable, stockholders		1,797,611
Note payable stockholder, net of current maturities	$	74,400

Concurrent with the Merger approximately $1.7 million of the above obligations were converted to common stock (see Note 15).

NOTE 7 - Short-Term Debt

As of December 31, 2006, short-term debt consists of:

7% equipment financing note, due in monthly installments of principal and interest of $879 through November 2007. Certain equipment is collateralized under the note agreement.	$	9,341
6% unsecured promissory note dated November 2, 2006, principal and accrued interest is due on April 23, 2007. On January 4, 2007, the note was amended whereby the holder was given the option to convert such note into shares of the Company’s common stock at $1.60 per share upon effectiveness of the Merger.		250,000
	$	259,341

Concurrent with the Merger, the above 6% unsecured promissory note of $250,000 was converted into 156,250 shares of common stock.

On January 12, 2006, the Company settled the principal balance of approximately $358,000 of certain equipment financing notes by paying approximately $244,000, prior to their maturity dates. The extinguishment of debt resulted in approximately $114,000 of gain on forgiveness of debt.

On March 30, 2006, two equipment finance notes in the principal amounts of $90,737 and $100,000 and related accrued interest of $42,916 were converted into 266,667 shares of common stock of the Company at the option of the debtor.

16

TOWERSTREAM CORPORATION

NOTES TO FINANCIAL STATEMENTS

NOTE 8 - Capital Lease Obligations

The Company is the lessee of network base station equipments under various capital leases expiring in 2009. The assets and liabilities under those capital leases are recorded at fair market value. The assets are depreciated over the lease term, which approximates their useful lives, using the straight-line method. Depreciation expense of assets under capital leases in 2006 and 2005 was approximately $25,000 and $15,000 respectively.

As of December 31, 2006, the minimum future lease payments under these capital leases are:

Year Ending December 31,
2007	$	81,280
2008		54,968
2009		26,671
Total minimum lease payments		162,919
Less: amount representing imputed interest		(26,919	)
Present Value of Minimum Capital Lease Payments		136,000
Less: current maturities of capital lease obligations		62,685
Capital lease, net of current maturities	$	73,315

17

TOWERSTREAM CORPORATION

NOTES TO FINANCIAL STATEMENTS

Note 9 - Employee Benefit Plan

Effective January 1, 2005, the Company established a new 401(k) retirement plan. The plan covers all eligible employees who have attained the age of twenty-one and have completed a half year of service with the Company. The Company could elect to match up to a certain amount of employees’ contributions to the 401(k) plan. Total employee and employer contributions are limited to 100% of compensation per participant or $42,000, whichever is less. For the years ended December 31, 2006 and 2005, there were no employer contributions were made toward the 401(k) plan.

NOTE 10 - Stock Option Plan

The Company adopted a stock option plan during the year ended December 31, 2000 (the “2000 Plan”). Under the 2000 Plan, the Company can issue up to 1.5 million stock options. On February 10, 2005, the Board of Directors approved the increase in the number of stock options that can be granted under the 2000 Plan from 1.5 million to 3.0 million. The 2000 Plan is intended to provide incentives: (i) to officers and other employees of the Company by providing them with opportunities to purchase common stock in the Company pursuant to options granted, which qualify as incentive stock options; (ii) to directors, officers and employees of, and consultants and advisors of the Company, by providing them with opportunities to purchase common stock in the Company pursuant to options granted which do not qualify as incentive stock options (“nonqualified options”); and (iii) to directors, officers and employees of, and consultants and advisors to the Company, by providing them with awards of common stock in the Company (“stock awards”).

The purchase price per share of common stock deliverable upon the exercise of an option shall be determined by the Board of Directors; however, pursuant to the 2000 Plan it shall not be below fair market value on the date of issuance. Each option and all rights shall expire on such date as shall be set forth in the applicable Stock Rights Agreement, except that, in the case of an incentive stock option, such date shall not be later than ten (10) years after the date on which the option is granted and, in all cases, options shall be subject to earlier termination as provided in the 2000 Plan.

Options granted under the 2000 Plan shall be exercisable either in full or in installments, and shares issued pursuant to stock awards granted under the 2000 Plan shall vest either in full or in installments, at such time or times during such period as shall be set forth in the Stock Rights Agreement evidencing such stock rights, subject to the provisions of the 2000 Plan, provided that no option granted shall be exercisable during the first twelve (12) months after the date of grant. In addition, the 2000 Plan limits the right of the holder of outstanding options to exercise such vested options within a limited timetable as defined under the 2000 Plan upon a Participant’s death, becoming disabled or terminating employment.

18

TOWERSTREAM CORPORATION

NOTES TO FINANCIAL STATEMENTS

NOTE 10 - Stock Option Plan, continued

Transactions under the stock option plan during the year ended December 31, 2006 and 2005 are summarized as follows:

	Number of Options			Weighted Average Exercise Price
Outstanding at January 1, 2005		1,318,000		$	0.92
Granted during the year 2005		870,000			1.00
Forfeited/expired		(72,000	)		1.11
Outstanding at December 31, 2005		2,116,000		$	0.91
Granted during the year 2006		399,500			1.00
Forfeited / expired		(368,500	)		1.12
Outstanding at December 31, 2006		2,147,000		$	0.92

The following table summarizes information concerning currently outstanding and exercisable stock options:

Outstanding Options					Options exercisable
		Weighted-
	Number	Average	Weighted-		Number	Weighted-
Range of	Outstanding at	Remaining	Average		Exercisable at	Average
Exercise	December 31,	Contractual	Exercise	Intrinsic	December 31,	Exercise	Intrinsic
Prices	2006	Life (years)	Price	Value	2006	Price	Value
$0.55	400,00	6.16	$0.55	$   344,000	400,000	$0.55	$344,000
$1.00	1,747,000	7.54	$1.00	716,270	1,382,500	$1.00	566,825
	2,147,000	7.28	$0.92	$1,060,270	1,782,500	$0.90	$910,825

The intrinsic value is calculated as the difference between the estimated market value of the Company’s common stock at December 31, 2006 which the Company determined to be $1.41 per share and the exercise price of the options.

	2005		2006
Options exercisable – End of year		1,782,500		1,541,667
Weighted average fair value of the options granted during the years.	$	0.57	$	0.46
Weighted average remaining contractual life of the outstanding options – End of year		7.28 years		8.05 years

19

TOWERSTREAM CORPORATION

NOTES TO FINANCIAL STATEMENTS

NOTE 10 - Stock Option Plan, continued

The options granted to employees in 2006 and 2005 were exercisable at prices ranging from $0.80 and $1.00 per common share expiring at various periods through December 2016.

On March 15, 2006 the Board of Directors canceled 201,000 options granted to employees in fiscal 2001 and 2003 at exercise prices of $1.50 per common share and reissued these same options to the same employees at exercise prices of $1.00, the fair market value at the time of the re-issuance. Accordingly, the Company expensed $15,770 of stock based compensation during the year 2006 to reflect the beneficial transfer.

NOTE 11 - Stock Warrants

The Company has issued warrants to purchase shares of common stock to employees and certain non-employees at exercisable prices ranging from $0.50 to $1.50 per common share expiring at various periods through March 2010. Warrants are only exercisable after the Company becomes a C corporation for tax reporting purposes (see Note 15).

A summary of the status of the warrants for the years ended December 31, is as follows:

	2006			2005
Warrants outstanding - Beginning of year		1,711,000			1,706,000
Granted		—			5,000
Expired		(75,000	)		—
Warrants outstanding - End of year		1,636,000			1,711,000
Warrants exercisable - End of year		—			—
Weighted average fair value of the warrants granted during the year	$	NA		$	0.49
Weighted average remaining contractual life of the outstanding warrants - End of year		2.20 years			3.09 years

20

TOWERSTREAM CORPORATION

NOTES TO FINANCIAL STATEMENTS

NOTE 12 - Deferred Compensation

On January 1, 2005, the Company entered into a deferred compensation agreement with an officer, who is also a stockholder. The officer agreed to defer $125,000 of his salary for 2005. The agreement allows for the accrual of interest at 10% compounded monthly which totaled approximately $6,700 at December 31, 2005. The amount deferred is due and payable upon either 1) the change of control of the Company’s voting stock or sale of substantially all the assets of the Company; 2) December 31, 2006; or 3) an earlier date if so elected by the Board of Directors. The officer has the right to convert the deferred compensation costs into shares of common stock at $1.00 per share.

On January 1, 2006, the Company entered into a deferred compensation agreement with the same officer above. The officer agreed to defer $45,000 of his salary for 2006. The agreement allows for the accrual of interest at 10% compounded monthly. The amount deferred is due and payable upon either 1) the change of control of the Company’s voting stock or sale of substantially all the assets of the Company; 2) December 31, 2006; or 3) an earlier date if so elected by the Board of Directors. The officer has the right to convert the deferred compensation costs into shares of common stock at $1.00 per share. As of December 31, 2006, the Company has accrued interest of approximately $25,000 on the deferred compensation.

On January 4, 2007 the above deferred compensation, accrued interest and conversion rights along with the notes payable were sold to a third party investor and subsequently converted into common stock (see Note 15(a)).

On September 30, 2006, the company awarded a bonus of $40,000 to another officer of the Company, who is also a stockholder of which $10,000 was deferred as of December 31, 2006 and subsequently paid in cash on January 31, 2007.

21

TOWERSTREAM CORPORATION

NOTES TO FINANCIAL STATEMENTS

NOTE 13 - Recent Accounting Pronouncements

The following pronouncements have been issued by the Financial Accounting Standards Board (“FASB”):

On February 15, 2007, FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 159, entitled “The Fair Value Option for Financial Assets and Financial Liabilities”.  The guidance in SFAS No. 159 allows reporting entities to choose to measure many financial instruments and certain other items at fair value.  The objective underlying the development of this literature is to improve financial reporting by providing reporting entities with the opportunity to reduce volatility in reported earnings that results from measuring related assets and liabilities differently without having to apply complex hedge accounting provisions, using the guidance in SFAS No. 133 [as amended], entitled “Accounting for Derivative Instruments and Hedging Activities”. The provisions of SFAS No. 159 are applicable to all reporting entities and is effective as of the beginning of the first fiscal year that begins subsequent to November 15, 2007. The Company does not believe this new accounting standard will have a material impact on its financial condition or results of operations.

In December 2006, the FASB issued FASB Staff Position (“FSP”) EITF 00-19-2 “Accounting for Registration Payment Arrangements” (“FSP EITF 00-19-2”) which specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement should be separately recognized and measured in accordance with SFAS No. 5, “Accounting for Contingencies.” Adoption of FSP EITF 00-19-02 is required for fiscal years beginning after December 15, 2006. The Company is currently evaluating the expected effect of FSP EITF 00-19-02 on its consolidated financial statements and is currently not yet in a position to determine such effects.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. This statement provides a single definition of fair value, a framework for measuring fair value, and expanded disclosures concerning fair value. Previously, different definitions of fair value were contained in various accounting pronouncements creating inconsistencies in measurement and disclosures. SFAS No. 157 applies under those previously issued pronouncements that prescribe fair value as the relevant measure of value, except SFAS No. 123(R) and related interpretations and pronouncements that require or permit measurement similar to fair value but are not intended to measure fair value. This pronouncement is effective for fiscal years beginning after November 15, 2007. The Company is evaluating the impact of this new standard, but currently believes that adoption will not have a material impact on its financial position or results of operations.

22

TOWERSTREAM CORPORATION

NOTES TO FINANCIAL STATEMENTS

NOTE 13 - Recent Accounting Pronouncements, continued

In September 2006, the Securities and Exchange Commission (“SEC”)’s Office of the Chief Accountant and Divisions of Corporation Finance and Investment Management released Staff Accounting Bulletin (“SAB”) No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB No. 108”), that provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. The SEC staff believes that registrants should quantify errors using both a balance sheet and an income statement approach and evaluate whether either approach results in quantifying a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. This pronouncement is effective for fiscal years ending after November 15, 2006. The Company has adopted SAB No. 108 and has found there to be no material impact on its financial position or results of operations.

In July 2006, the Financial Accounting Standards Board issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109” (the “Interpretation”). The Interpretation establishes for all entities a minimum threshold for financial statement recognition of the benefit of tax positions, and requires certain expanded disclosures. The Interpretation is effective for fiscal years beginning after December 31, 2006, and is to be applied to all open tax years as of the date of effectiveness. The Company is in the process of evaluating the impact of the application of the Interpretation to its consolidated financial statements.

In February 2006, the FASB issued SFAS No. 155 “Accounting for Certain Hybrid Financial Instruments”, an amendment of FASB Statements No. 133 and 140” (“SFAS 155”). SFAS 155 clarifies certain issues relating to embedded derivatives and beneficial interests in securitized financial assets. The provisions of SFAS 155 are effective for all financial instruments acquired or issued after fiscal years beginning after September 15, 2006. The Company does not expect this pronouncement to have a material impact on the Company’s financial position, results of operations or cash flows.

In September 2005, the FASB ratified the following consensus reached in Emerging Issues Task Force (“EITF”) Issue 05-8: a) The issuance of convertible debt with a beneficial conversion feature results in a basis difference in applying FASB Statement of Financial Accounting Standards SFAS No. 109. Recognition of such a feature effectively creates a debt instrument and a separate equity instrument for book purposes, whereas the convertible debt is treated entirely as a debt instrument for income tax purposes. b) The resulting basis difference should be deemed a temporary difference because it will result in a taxable amount when the recorded amount of the liability is recovered or settled. c) Recognition of deferred taxes for the temporary difference should be reported as an adjustment to additional paid-in capital. This consensus is effective in the first interim or annual reporting period commencing after December 15, 2005, with early application permitted. The effect of applying the consensus should be accounted for retroactively to all debt instruments containing a beneficial conversion feature that are subject to EITF Issue 00-27 (and thus is applicable to debt instruments converted or extinguished in prior periods but

23

TOWERSTREAM CORPORATION

NOTES TO FINANCIAL STATEMENTS

NOTE 13 - Recent Accounting Pronouncements, continued

which are still presented in the financial statements). The adoption of this pronouncement did not have a material impact on the Company’s financial statements.

In June 2005, the EITF reached consensus on Issue No. 05-6 (“EITF 05-6”). EITF 05-6 provides guidance on determining the amortization period for leasehold improvements acquired in a business combination or acquired subsequent to lease inception. The guidance in EITF 05-6 will be applied prospectively and is effective for periods beginning after June 29, 2005. The adoption of EITF 05-6 did not have a material impact on the Company’s financial position, results of operations or cash flows.

In June 2005, the FASB ratified EITF Issue No. 05-2, “The Meaning of `Conventional Convertible Debt Instrument” in EITF No. 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” (“EITF No. 05-2”), which addresses when a convertible debt instrument should be considered `conventional’ for the purpose of applying the guidance in EITF No. 00-19. EITF No. 05-2 also retained the exemption under EITF No. 00-19 for conventional convertible debt instruments and indicated that convertible preferred stock having a mandatory redemption date may qualify for the exemption provided under EITF No. 00-19 for conventional convertible debt if the instrument’s economic characteristics are more similar to debt than equity. EITF No. 05-2 is effective for new instruments entered into and instruments modified in periods beginning after June 29, 2005. The adoption of this pronouncement did not have a material impact on the Company’s financial position, results of operations or cash flows.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Correction.” This Statement replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for the accounting for and reporting of a change in accounting principle. The statements apply to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. When a pronouncement includes specific transition provisions, those provisions should be followed. This statement is effective for accounting changes and corrections of errors made in the fiscal years beginning after December 15, 2005. The adoption of this pronouncement did not have a material impact on the Company’s financial position or results of operations.

24

TOWERSTREAM CORPORATION

NOTES TO FINANCIAL STATEMENTS

NOTE 14 - Commitments

Lease Obligations

The Company leases roof top rights, cellular towers and office space under various non-cancelable agreements expiring through December 2019. As of December 31, 2006, the total future lease payments are as follows:

Year Ending December 31,
2007	$	928,781
2008		747,128
2009		637,798
2010		575,859
2011		274,452
Thereafter		1,094,713
	$	4,258,731

Rent expense for the years ended December 31, 2006 and 2005 totaled approximately $857,000 and $863,000, respectively.

NOTE 15 - Subsequent Events

a) On January 4, 2007, certain stockholders collectively transferred an aggregate of $1,616,753 in outstanding promissory notes and other payables due from Towerstream to a group of third party investors. In connection with these note transfers, Towerstream issued a new promissory note of approximately $1.7 million and cancelled the aforementioned obligations. As part of the arrangement, Towerstream agreed that it will take all actions to allow the investors to have the right to automatically convert the note into shares of common stock of UGC at a conversion price of $1.50 per share upon effectiveness of the merger as described below. In conjunction with the above transaction, the Towerstream Corporation, formerly UGC, a publicly traded shell company will record a charge of approximately $314,000 for the beneficial conversion feature granted to the holders of approximately $924,000 of the stockholders’ notes at $1.50 per share which did not originally have conversion rights and were converted to equity upon the Merger. In addition, a stockholder with a $250,000 convertible note exercised his right to convert the note into shares of common stock at $1.43 per share in conjunction with the Merger.

b) On January 12, 2007, Towerstream Acquisition, Inc., a wholly-owned subsidiary of UGC merged with Towerstream Corporation, a private corporation. Upon closing of the merger, Towerstream Corporation became a wholly-owned subsidiary of UGC, and UGC succeeded to Towerstream Corporation’s line of business as its sole line of business. In connection with the merger, Towerstream Corporation changed its name to Towerstream I, Inc., and UGC changed its name to Towerstream Corporation.

25

TOWERSTREAM CORPORATION

NOTES TO FINANCIAL STATEMENTS

NOTE 15 - Subsequent Events, continued

c) On January 12, 2007, Towerstream merged with a newly formed subsidiary of UGC. In connection with the merger, UGC issued 15,000,000 shares of its common stock for 21,404,977 outstanding shares of common stock of Towerstream. As a result of the transaction, the former owners of Towerstream became the controlling stockholders of UGC and UGC changed its name to Towerstream Corporation. Pursuant to the terms of the merger agreement, 1,900,000 shares of the previously issued and outstanding shares of UGC remain outstanding and all other shares outstanding prior to the merger were cancelled.

Accordingly, the merger of Towerstream and UGC (the “Merger”) is deemed to be a reverse merger that has been accounted for as a recapitalization of Towerstream.

d) Concurrent with the Merger, UGC sold 5,110,056 shares of common stock for gross proceeds of $11,497,625 (at $2.25 per share). In addition, these investors received warrants to purchase 2,555,028 shares of common stock for a period of five years at an exercise price of $4.50 per share, collectively (the “Private Placement”). In connection with the Private Placement, UGC incurred placement agent fees totaling approximately $446,400, and issued 140,917 warrants with an estimated fair value of approximately $77,000 to the placement agent at an exercise price of $4.50 per share for a period of five years. In addition, UGC incurred other professional fees and expenses totaling approximately $522,300 in connection with the Merger. In connection with the sale of units of common stock and warrants, UGC agreed to file a registration statement underlying the resale of the common stock issued and underlying warrants no later than March 19, 2007, and to cause such statement to be effective on or before May 28, 2007. If such statement is either not filed or declared effective by the above dates, it must pay liquidated damages of 1% of the unit purchase price per month of delinquency with a maximum amount of damages of 6% of the unit purchase price.

e) In conjunction with the Merger, UGC sold $3,500,000 of senior convertible debentures (the “Debentures”). The Debentures require quarterly interest only payments of 8% per annum, mature on December 31, 2009 and contain certain restrictive debt covenants as defined in the agreement. The Debentures are convertible into shares of common stock of UGC at $2.75 per share. In addition, holders of the Debentures received warrants to purchase 636,364 shares of common stock at an exercise price of $4.00 per share and warrants to purchase 636,364 shares of common stock at an exercise price of $6.00 per share, for a period of five years. The issuance of the warrants resulted in the recording of a debt discount of approximately $527,000. In connection with the sale of the debentures, UGC agreed to file a registration statement underlying the resale of the common stock issued upon conversion of the debentures and underlying warrants no later than March 29, 2007, and to cause such statement to be effective on or before May 28, 2007. If such statement is either not filed or declared effective by the above dates, it must pay liquidated

26

TOWERSTREAM CORPORATION

NOTES TO FINANCIAL STATEMENTS

NOTE 15 - Subsequent Events, continued

damages of 1% of the debenture purchase price per month of delinquency with a maximum mount of damages of 6% of the debenture purchase price.

In connection with the Debentures, UGC incurred placement agent fees totaling approximately $140,000, and issued 63,634 warrants with an estimated fair value of $34,750 to the placement agent at an exercise price of $4.50 per share for a period of five years.

f) In conjunction with the merger, on January 12, 2007 Towerstream Corporation, formerly UGC, reserved a total of 3,200,000 shares for the issuance of options and warrants. The total options and warrants exchanged in the merger totaled 2,651,027. Also, in conjunction with the merger Towerstream adopted the 2007 Equity Compensation Plan (the “2007 Plan”). The Plan provides a means for awarding specific equity-based benefits to officers and other employees, consultants and directors to encourage them to exercise their best efforts to enhance its growth. Under the Merger agreement all options and certain warrants and their respective rights and obligations, that were outstanding prior to the merger were transferred into the 2007 Plan and totaled 1,854,950. The total number of shares of Common Stock that can be delivered under the 2007 Plan is 2,403,923.

g) On January 12, 2007 the Board of Directors issued 50,000 non-qualified stock options to directors and 100,000 non-qualified stock options to a consultant. In addition, 3,504 incentive stock options were issued to an employee. All options were issued under the 2007 Plan at an exercise price of $2.25, the estimated market price of the common stock on the date of issuance.

h) In conjunction with the merger, on January 12, 2007, Towerstream Corporation’s income tax status as an S corporation terminated and subsequently will be classified as a C corporation for income tax reporting purposes.

i) On January 12, 2007 and concurrent with the Merger the $250,000 6% promissory note dated November 2, 2006 was converted into 156,250 shares of common stock. Towerstream Corporation will record a charge of approximately $64,000 for the beneficial conversion feature granted to the note holder.

j) On January 18, 2007, Towerstream entered into a one year consulting agreement with a company to provide services related to investor relations. The agreement calls for monthly payments of $7,500 plus expenses and a non-refundable issuance of 200,000 shares of Towerstream common stock.

k) On February 8, 2007, a stockholder exercised his warrant to purchase 56,062 shares of common stock of the Company for $119,973.

27

TOWERSTREAM CORPORATION

NOTES TO FINANCIAL STATEMENTS

NOTE 15 - Subsequent Events, continued

l) On February 14, 2007, the Board of Directors issued 75,000 incentive stock options to a member of management under the 2007 Equity Compensation Plan at an exercise price of $9.74, which was 110% of the estimated market price of the common stock on the date of the issuance. The options vest quarterly over two years.

m) On March 12, 2007 the Company entered into two, five year, antenna site license operating lease agreements which require monthly payments of $2,800 and $714 respectively.

28

EX-99.10

TOWERSTREAM CORPORATION AND SUBSIDIARY

PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

(Unaudited)

TOWERSTREAM CORPORATION AND SUBSIDIARY

INTRODUCTION TO PRO FORMA CONDENSED

COMBINED FINANCIAL STATEMENTS

(Unaudited)

The following unaudited pro forma condensed combined financial statements give effect to the merger transaction between Towerstream Corporation (“Towerstream”) and University Girls Calendar, Ltd. (“UGC”).

On January 12, 2007, Towerstream merged with a newly formed subsidiary of UGC, a publicly traded shell company. In connection with the merger 1,900,000 of UGC common shares will remain outstanding and all other shares of UGC outstanding were cancelled. Also, in connection with the merger, UGC issued 15,000,000 shares of its common stock for all the outstanding common stock of Towerstream. As a result of the transaction, the former owners of Towerstream became the controlling stockholders of UGC and UGC changed its name to Towerstream Corporation. Accordingly, the merger of Towerstream and UGC (the “Merger”) is a reverse merger that has been accounted for as a recapitalization of Towerstream.

Concurrent with the merger, certain stockholders collectively transferred an aggregate of $1,616,753 in outstanding promissory notes and other payables due from Towerstream to a group of third party investors. In connection with these note transfers, Towerstream issued a new promissory note of approximately $1.7 million and cancelled the aforementioned obligations. As part of the arrangement, Towerstream agreed that it will take all actions to allow the investors to have the right to automatically convert the note into shares of common stock of UGC at a conversion price of $1.50 per share upon effectiveness of the Merger. In addition, a stockholder with a $250,000 convertible note exercised his right to convert the note into shares of common stock at $1.43 per share in conjunction with the Merger and a debt holder with a $250,000 convertible note exercised his right to convert the note into shares of common stock at $1.60 per share in conjunction with the Merger.

Concurrent with the Merger, UGC sold 5,110,056 shares of common stock for gross proceeds of $11,497,625 (at $2.25 per share) through a Private Placement. In addition, these investors received warrants to purchase 2,555,028 shares of common stock for a period of five years at an exercise price of $4.50 per share. The holders of the common stock have certain registration rights as defined under the agreements.

In connection with the Private Placement, UGC incurred placement agent fees totaling approximately $446,400, and issued 140,917 warrants to the placement agent at an exercise price of $4.50 per share for a period of five years. In addition, UGC incurred other professional fees and expenses post December 31, 2006 totaling approximately $160,000 in connection with the Merger transaction.

In conjunction with the Merger, UGC sold $3,500,000 of senior convertible debentures (the “Debentures”). The Debentures require quarterly interest only payments of 8% per annum and mature on December 31, 2009. The Debentures are convertible into shares of common stock of UGC at $2.75 per share. In addition, holders of the Debentures received warrants to purchase 636,364 shares of common stock at an exercise price of $4.00 per share and warrants to purchase 636,364 shares of common stock at an exercise price of $6.00 per share, for a period of five years. The holders of the Debentures have certain limited conversion and registration rights as defined under the agreement.

In connection with the Debentures, UGC incurred placement agent fees totaling approximately $140,000, and issued 63,636 warrants with an estimated fair value of $34,750 to the placement agent at an exercise price of $4.50 per share for a period of five years.

The following unaudited pro forma condensed combined balance sheet combines the balance sheet of Towerstream with UGC as of December 31, 2006, as if the recapitalization of Towerstream occurred on that date.

The unaudited pro forma condensed combined balance sheet and earnings per share data should be read in conjunction with the separate historical financial statements of Towerstream, appearing elsewhere herein, and the historical financial statements of UGC, as filed and included in form 10-KSB for the year ended November 30, 2006. The fiscal year of Towerstream and UGC is December 31, and November 30, respectively. The unaudited pro forma condensed combined balance sheet is not necessarily indicative of the combined financial position had the acquisition occurred on December 31, 2006. The unaudited pro forma earnings per share data are not necessarily indicative as if the merger occurred at the beginning of the respective periods.

 TOWERSTREAM CORPORATION AND SUBSIDIARY

PRO FORMA UNAUDITED CONDENSED COMBINED BALANCE SHEET

December 31, 2006

							Pro Forma Adjustments
	Towerstream			University Girls			Towerstream				University Girls				Pro Forma
Assets	Corporation			Calendar, Ltd.			Corporation				Calendar, Ltd.				Combined
Current Assets	(a)			(b)
Cash and cash equivalents	$	160,363		$	10,059		$				$	14,411,237		m	$	14,571,600
												(10,059	)	n
Accounts receivable, net		157,443			806							(806	)	n		157,443
Prepaid expenses		25,202			4,409							(4,409	)	n		25,202
Total Current Assets		343,008			15,274							14,395,963				14,754,245
Property and equipment, net		3,758,585														3,758,585
FCC License		350,000														350,000
Security deposits and other assets		61,685										140,000		m		236,435
												34,750		o
TOTAL ASSETS	$	4,513,278		$	15,274		$				$	14,570,713			$	19,099,265
Liabilities and Stockholders’ Equity
Current Liabilities
Short-term debt	$	259,341					$	(250,000	)	c					$	$9,341
Current maturities of capital lease obligations		62,685														62,685
Current maturities of notes payable, stockholders		1,797,611						(1,597,611	)	e						200,000
Accounts payable and accrued expenses		941,614			17,641			159,963		g						1,119,218
Deferred compensation		180,000						(170,000	)	e						10,000
Accrued interest on deferred compensation		24,743						(24,743	)	e
Deferred revenues		400,766														400,766
Total Current Liabilities		3,666,760			17,641			(1, 882,391	)							1,802,010
Other Liabilities
Notes payable, stockholder, net of current maturities		74,400						(74,400	)	e
Capital lease obligations, net of current maturities		73,315														73,315
Senior convertible notes (net of debt discount												3,500,000		m		2,973,073
of $526,927)												(526,927	)	p
Total other liabilities		147,715						(74,400	)			2,973,073				3.046,388
TOTAL LIABILITIES		3,814,475			17,641			(1,956,791	)			2,973,073				4,848,398
Commitments
Stockholder’s Equity (Deficit)
Preferred stock, par value $0.001 (none issued)
Common stock, par value $0.001		21,437			4,450			(21,437	)	h		(2,550	)	q		23,469
								156		d		15,000		r
								1,303		f		5,110		s
Additional paid-in capital		8,925,366			70,558			21,437		h		11,046,127		m,s		14,227,398
								(156	)	d		2,550		q
								(1,303	)	f		(15,000	)	r
								250,000		c		34,750		o
								1,866,754		e		526,927		p
								(35,000	)	i		(15,274	)	n
								64,063		j
								313,992		k		1,405		t
								(8,751,018	)	l		(78,780	)	u
Accumulated other comprehensive income					1,405							(1,405	)	t
Accumulated deficit		(8,213,000	)		(78,780	)		(159,963	)	g		78,780		u
								8,751,018		l
								(64,063	)	j
								(313,992	)	k
		733,803			(2,367	)		1,921,791				11,597,640				14,250,867
Less treasury stock, at cost		(35,000	)					35,000		i
TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)		698,803			(2,367	)		1,956,791				11,597,640				14,250,867
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	4,513,278		$	15,274		$				$	14,570,713			$	19,099,265

See accompanying notes to pro forma condensed combined financial statements.

TOWERSTREAM CORPORATION AND SUBSIDIARY

Notes to Pro Forma Unaudited Condensed Combined Financial Statements

NOTE 1 –Merger Transaction

On January 12, 2007, Towerstream merged into a newly formed subsidiary of UGC, a publicly traded shell company. In connection with the merger 1,900,000 of UGC common shares remain outstanding and all other shares of UGC previously issued and outstanding were cancelled. Also, in connection with the merger, UGC issued 15,000,000 shares of its common stock for all the outstanding common stock of Towerstream. As a result of the transaction, the former owners of Towerstream became the controlling stockholders of UGC and UGC changed its name to Towerstream Corporation. Accordingly, the merger of Towerstream and UGC (the “Merger”) is a reverse merger that has been accounted for as a recapitalization of Towerstream.

NOTE 2 – Pro forma Adjustments

The pro forma adjustments to the unaudited condensed combined balance sheet give effect to the recapitalization of Towerstream as if the transaction had occurred on December 31, 2006.

Balance Sheet – December 31, 2006

a. Derived from the audited balance sheet of Towerstream as of December 31, 2006.

b. Derived from the audited balance sheet of UGC as of November 30, 2006.

c. To record as of December 31, 2006, the conversion of $250,000 of short-term debt for the issuance of 156,250 common shares.

d. To record par value for issuance of 156,250 shares of common stock related to conversion of short-term debt into shares of common stock (see c above).

e. To record as of December 31, 2006, the conversion of $1,866,754 stockholders’ obligations for the issuance of 1,302,583 common shares. The debt converted is as follows:

Notes payable, stockholders	$	1,672,011
Deferred compensation		170,000
Accrued interest on deferred compensation		24,743
Total amount of stockholder obligations converted into shares of common stock	$	1,866,754

f. To record par value for issuance of 1,302,583 shares of common stock related to conversion of stockholders’ obligations into shares of common stock (see e above).

g. To record professional fees and other expenses of approximately $160,000 related to the Merger and incurred after December 31, 2006.

h. Elimination of Towerstream common stock upon closing of the Merger.

i. Elimination of Towerstream treasury stock upon closing of the Merger.

j. To record the beneficial conversion feature granted to the holder of the $250,000 note at $1.60 per share which did not originally have a conversion right and was converted into shares of common stock in connection with the Merger (see c above).

k. To record the beneficial conversion feature granted to the holders of $923,505 of stockholders’ obligations at $1.50 per share which did not originally have conversion rights and were converted into shares of common stock in connection with the Merger.

l. Reclassification of accumulated deficit due to conversion from “S” corporation to “C” corporation

m. Concurrent with the Merger, UGC sold 5,110,056 shares of common stock for gross proceeds of $11,497,625 (at $2.25 per share) and incurred placement agent fees of $446,388. In addition, these investors received warrants to purchase 2,555,028 shares of common stock for a period of five years at an exercise price of $4.50 per share, collectively the (“Private Placement”).

TOWERSTREAM CORPORATION AND SUBSIDIARY

Notes to Pro Forma Unaudited Condensed Combined Financial Statements

NOTE 2 – Pro forma Adjustments, continued

In connection with the Private Placement, UGC incurred placement agent fees totaling approximately $446,400 and issued 140,917 warrants to the placement agents at an exercise price of $4.50 per share for a period of five years. In addition, UGC incurred other professional fees and expenses totaling approximately $160,000 after December 31, 2006 in connection with the Merger transaction.

In conjunction with the Merger, UGC sold $3,500,000 of senior convertible debentures (the “Debentures”). The Debentures require quarterly interest only payments of 8% per annum and mature on December 31, 2009. The Debentures are convertible into shares of common stock of UGC at $2.75 per share. In addition, holders of the Debentures received warrants to purchase 636,364 shares of common stock at an exercise price of $4.00 per share and warrants to purchase 636,364 shares of common stock at an exercise price of $6.00 per share, for a period of five years.

In connection with the Debentures, UGC incurred placement agent fees totaling approximately $140,000 and issued 63,636 warrants with an estimated fair value of $34,750 to the placement agent at an exercise price of $4.50 per share for a period of five years. The above equity and debt offerings generated net proceeds of $14,411,237 as computed below:

Gross proceeds received on sale of common stock	$	11,497,625
Less: placement agent fees on sale of Private Placement		446,388
			$	11,051,237

Gross proceeds received from issuance of Debentures	$	3,500,000
Less: placement agent fees on sale of Debentures		140,000
			$	3,360,000
Net Proceeds			$	14,411,237

n. To record elimination of UGC operating subsidiary assets transferred to UGC’s former sole officer and director in conjunction with the Merger.

o. To record fair value of placement agent warrants associated with issuance of Debentures.

p. To record a debt discount associated with warrants issued in connection with the issuance of Debentures.

q. To reflect the reduction of 2,550,010 shares of UGC common stock, par value $0.001

r. Issuance of 15,000,000 shares of UGC common stock to former Towerstream stockholders, par value $0.001

s. Issuance of 5,110,056 shares of UGC common stock in connection with Private Placement, par value $0.001

t. Elimination of UGC accumulated other comprehensive income.

u. Elimination of UGC accumulated deficit.

There are 23,468,889 shares of common stock issued and outstanding post merger consisting of 15,000,000 shares issued to the former owners of Towerstream, 1,900,000 shares issued to the owners of UCG, 1,302,583 shares issued to convertible note holders, 5,110,056 shares issued in connection with the Private Placement, and 156,250 shares issued to short-term note holder upon conversion of debt to common stock.

TOWERSTREAM CORPORATION AND SUBSIDIARY

Notes to Pro Forma Unaudited Condensed Combined Financial Statements

NOTE 3 - Basic and diluted earnings per share for the year ended December 31, 2006

The computation of pro forma basic and diluted earnings per share for the year ended December 31, 2006, is calculated as if the Merger occurred at the beginning of the period.

							Pro Forma Adjustments
	Towerstream			University Girls			Towerstream				University Girls				Pro Forma
YEAR ENDED DECEMBER 31, 2006:	Corporation			Calendar, Ltd.			Corporation				Calendar, Ltd.				Combined
		(a)			(b)		$	148,926		c	$	(46,667	)	g
												(11,583	)	h
								(64,063	)	d		(175,642	)	i
								(313,992	)	e		(280,000	)	j
								(159,963	)	f		69,559		k
Net Loss	$	(811,531	)	$	(69,559	)	$	(389,092	)		$	(444,333	)		$	(1,714,515	)
Earnings per common and common equivalent share:
Basic and Diluted:					(0.02	)										(0.07	)
Weighted average shares used in computing earnings per common and common equivalent share:
Basic and Diluted:					4,450,010							(2,550,010	)	l		23,120,643
												14,910,457		m
												5,110,056		n
												1,187,109		o
												13,021		p

a. Derived from the audited statement of operations of Towerstream for the year ended December 31, 2006.

b. Derived from the audited statement of operations of UGC for the year ended November 30, 2006.

c. To eliminate interest expense on stockholders’ obligations which were converted to shares of common stock as part of the Merger for the year ended December 31 2006.

d. To record additional interest expense related to the beneficial conversion feature granted to the holder of the $250,000 note in consideration for converting such debt to shares of common stock upon the Merger.

e. To record additional interest expense related to the beneficial conversion feature granted to the holders of the stockholders’ obligations in consideration for converting such debt to shares of common stock upon the Merger.

f. To record professional fees and other expenses of $159,963 related to the Merger.

g. Amortization of placement agent fees paid in connection with placement of Debentures.

h. Amortization of fair value of placement agent warrants issued in connection with placement of Debentures.

i. Amortization of debt discount associated with warrants issued in connection with the Debentures.

TOWERSTREAM CORPORATION AND SUBSIDIARY

Notes to Pro Forma Unaudited Condensed Combined Financial Statements

NOTE 3 - Basic and diluted earnings per share for the year ended December 31, 2006, continued

j. To record interest expense associated with issuance of the Debentures for the year ended December 31, 2006.

k. Elimination of net loss of UGC, the public shell company.

l. Reduction of 2,550,010 shares of UGC common stock from 4,450,010 to 1,900,000 shares in connection with the Merger.

m. 14,910,457 shares - weighted average calculation of 15,000,000 shares issued by UGC for 100% of the outstanding stock of Towerstream in connection with the Merger.

n. Issuance of 5,110,056 shares of UGC in connection with the Private Placement resulting in gross proceeds of $11,497,625.

o. 1,187,109 shares - weighted average calculation of 1,302,583 shares of UGC in settlement of stockholders’ obligations which resulted in the retirement and payment in full of $1,866,754 of debt upon the Merger.

p. 13,021 shares - weighted average calculation of 156,250 shares of UGC upon conversion of short-term debt to common stock upon the Merger.