Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

		Page(s)

Part I	FINANCIAL INFORMATION

Item 1.	Financial Statements.	1

	Condensed Consolidated Balance Sheets as of June 30, 2009 (unaudited) and December 31, 2008	1

	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2009 and 2008 (unaudited)	2

	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2009 and 2008 (unaudited)	3-4

	Condensed Consolidated Statement of Stockholders’ Equity for the six months ended June 30, 2009 (unaudited)	5

	Notes to Unaudited Condensed Consolidated Financial Statements	6-14

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	15-23

Item 3.	Quantitative and Qualitative Disclosures about Market Risk.	23

Item 4.	Controls and Procedures.	23

Part II	OTHER INFORMATION

Item 4.	Submission of Matters to a Vote of Security Holders.	24

Item 6.	Exhibits.	24

	(Unaudited) June 30, 2009			December 31, 2008
Assets
Current Assets
Cash and cash equivalents	$	20,187,961		$	24,740,268
Accounts receivable, net of allowance for doubtful accounts of $78,398 and $66,649, respectively		340,469			279,399
Prepaid expenses and other		305,119			319,325
Total Current Assets		20,833,549			25,338,992

Property and equipment, net		12,952,569			12,890,779

FCC licenses		975,000			875,000
Other assets		187,064			183,063
Total Assets	$	34,948,182		$	39,287,834

Liabilities and Stockholders’ Equity

Current Liabilities
Current maturities of capital lease obligations	$	6,022		$	25,346
Accounts payable		882,164			1,394,476
Accrued expenses		819,741			861,390
Deferred revenues		979,306			985,403
Short-term debt, net of discount of $229,151 and $142,605, respectively		2,613,349			2,607,395
Derivative liabilities		11,513			-
Deferred rent		63,088			52,554
Total Current Liabilities		5,375,183			5,926,564

Long-Term Liabilities
Derivative liabilities		151,631			-
Deferred rent		317,260			354,071
Total Long-Term Liabilities		468,891			354,071
Total Liabilities		5,844,074			6,280,635

Commitments (Note 11)

Stockholders' Equity
Preferred stock, par value $0.001; 5,000,000 shares authorized; none issued		-			-
Common stock, par value $0.001; 70,000,000 shares authorized; 34,600,409 and 34,587,854 shares issued and outstanding, respectively		34,600			34,588
Additional paid-in-capital		54,711,138			54,851,755
Accumulated deficit		(25,641,630	)		(21,879,144	)
Total Stockholders' Equity		29,104,108			33,007,199
Total Liabilities and Stockholders' Equity	$	34,948,182		$	39,287,834

	Three Months Ended June 30,						Six Months Ended June 30,
	2009			2008			2009			2008

Revenues	$	3,673,581		$	2,494,094		$	7,090,647		$	4,575,975

Operating Expenses
Cost of revenues (exclusive of depreciation)		914,938			993,513			1,740,852			1,926,715
Depreciation		982,323			752,667			1,929,944			1,429,306
Customer support services		484,189			485,160			1,034,013			938,212
Sales and marketing		1,385,624			2,019,787			2,961,339			3,793,695
General and administrative		1,795,813			2,015,267			3,518,155			3,974,639
Total Operating Expenses		5,562,887			6,266,394			11,184,303			12,062,567
Operating Loss		(1,889,306	)		(3,772,300	)		(4,093,656	)		(7,486,592	)
Other Income (Expense)
Interest income		9,024			148,163			22,213			436,871
Interest expense		(185,570	)		(105,958	)		(368,926	)		(288,976	)
Loss on derivative financial instruments		(34,088	)		-			(75,237	)		-
Other, net		(73	)		4			(73	)		4
Total Other Income (Expense)		(210,707	)		42,209			(422,023	)		147,899
Net Loss	$	(2,100,013	)	$	(3,730,091	)	$	(4,515,679	)	$	(7,338,693	)

Net loss per common share – basic and diluted	$	(0.06	)	$	(0.11	)	$	(0.13	)	$	(0.21	)
Weighted average common shares outstanding – basic and diluted		34,594,752			34,556,332			34,591,322			34,526,080

	Six Months Ended June 30,
	2009			2008

Cash Flows From Operating Activities	$	(4,515,679	)	$	(7,338,693	)
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Provision for doubtful accounts		25,509			85,000
Depreciation		1,929,944			1,429,306
Stock-based compensation		386,322			509,797
Non-cash interest on notes payable		-			73,393
Accretion of debt discount		227,627			72,139
Amortization of financing costs		29,125			29,125
Loss on sale and disposition of property and equipment		33,806			8,828
Deferred rent		(26,277	)		71,339
Loss on derivative financial instruments		75,237			-
Changes in operating assets and liabilities:
Accounts receivable		(86,579	)		(72,547	)
Prepaid expenses and other current assets		(14,920	)		350,783
Accounts payable		(512,312	)		(674,080	)
Accrued expenses		(41,649	)		122,789
Deferred revenues		(6,097	)		209,103
Total Adjustments		2,019,736			2,214,975
Net Cash Used In Operating Activities		(2,495,943	)		(5,123,718	)

Cash Flows From Investing Activities
Acquisitions of property and equipment		(2,026,540	)		(3,887,730	)
Proceeds from sale of property and equipment		1,000			1,200
Change in security deposits		(4,000	)		(14,706	)
Net Cash Used In Investing Activities		(2,029,540	)		(3,901,236	)

Cash Flows From Financing Activities
Repayment of capital leases		(19,324	)		(25,065	)
Repayment of short-term debt		(7,500	)		-
Payment to warrant holders for fractional shares upon cashless exercise		-			(9	)
Net Cash Used In Financing Activities		(26,824	)		(25,074	)

Net Decrease In Cash and Cash Equivalents		(4,552,307	)		(9,050,028	)

Cash and Cash Equivalents - Beginning		24,740,268			40,756,865
Cash and Cash Equivalents - Ending	$	20,187,961		$	31,706,837

	Common Stock
	Shares		Amount		Additional Paid-In- Capital			Accumulated Deficit			Total
Balance at January 1, 2009		34,587,854	$	34,588	$	54,851,755		$	(21,879,144	)	$	33,007,199
Cumulative effect of change in accounting principle – January 1, 2009 reclassification of equity-linked financial instruments to derivative liabilities						(526,927	)		753,193			226,266
Issuance of common stock for bonuses		12,555		12		10,032						10,044
Stock-based compensation						376,278						376,278
Net loss									(4,515,679	)		(4,515,679	)
Balance at June 30, 2009		34,600,409	$	34,600	$	54,711,138		$	(25,641,630	)	$	29,104,108

In January 2007, Towerstream merged with a newly formed subsidiary of University Girls Calendar Ltd. (‘‘UGC’’), a publicly traded shell company. In connection with the merger, all outstanding shares of UGC were cancelled, except for 1,900,000 shares of common stock. In addition, 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, which also changed its name to Towerstream Corporation. The previously private company, Towerstream Corporation, changed its name to Towerstream I, Inc., and became a wholly-owned subsidiary of the publicly traded company. The merger of Towerstream and UGC was a reverse merger that was accounted for as a recapitalization of Towerstream.

The Company provides broadband services to commercial customers and delivers access over a fixed wireless network transmitting over both regulated and unregulated radio spectrum. The Company’s service supports bandwidth on demand, wireless redundancy, virtual private networks (“VPNs”), disaster recovery, bundled data and video services. The Company provides service to business customers in New York City, Boston, Chicago, Los Angeles, San Francisco, Seattle, Miami, Dallas-Fort Worth, Providence and Newport, Rhode Island.

Basis of Presentation. The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and with Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission. Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all the adjustments (consisting only of normal recurring accruals) necessary for fair presentation of the Company’s financial position, as of June 30, 2009, and the results of operations and cash flows for the periods presented. The results of operations for the three and six months ended June 30, 2009, are not necessarily indicative of the operating results for the full fiscal year or any future period.

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008. The Company’s accounting policies are described in the Notes to Consolidated Financial Statements in its Annual Report on Form 10-K for the year ended December 31, 2008, and updated, as necessary, in this Quarterly Report on Form 10-Q.

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, the 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.

At times, our cash and cash equivalents may be uninsured or in deposit accounts that exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance limits. The financial institution at which the Company has its deposit accounts is participating in the FDIC’s Transaction Account Guarantee Program. Under that program, through December 31, 2009, all non-interest bearing transaction accounts at participating institutions are fully guaranteed by the FDIC for the entire amount in the account. Coverage under the Transaction Account Guarantee Program is in addition to, and separate from, the overage available under the FDIC’s general deposit insurance rules.

Accounts Receivable. Accounts receivable are stated at cost less an allowance for doubtful accounts. The allowance for doubtful accounts reflects the Company’s estimate of accounts receivable that will not be collected. The allowance is based on the history of past write-offs, the aging of balances, collections experience and current credit conditions. Amounts determined to be uncollectible are written-off against the allowance for doubtful accounts. Additions to the allowance for doubtful accounts, e.g. bad debt expense, totaled $26,884 and $85,000 for six months ended June 30, 2009 and 2008, respectively. Deductions to the allowance for doubtful accounts, e.g. customer write-offs, totaled $15,135 and $40,734 for the six months ended June 30, 2009 and 2008, respectively.

Derivative Financial Instruments. The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks. The Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the condensed consolidated statements of operations. For stock-based derivative financial instruments, the Company uses the Black-Scholes option pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

Recent Accounting Pronouncements. In January 2008, the Company adopted Statement of Financial Accounting Standard (“SFAS”) No. 157, “Fair Value Measurements,” (“SFAS 157”) which defines fair value, establishes a framework for measuring fair value and expands the related disclosure requirements. The statement indicates, among other matters, that a fair value measurement assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. FAS 157 defines fair value based upon an exit price model. Refer to Note 9 for additional discussion on fair value measurements.

Effective in the first quarter of 2009, the Company implemented SFAS 157-2 for its nonfinancial assets and liabilities that are re-measured at fair value on a non-recurring basis. The adoption did not impact the Company’s financial position or results of operations. The Company may have disclosure requirements if it completes an acquisition or incurs an impairment of its assets in future periods.

In December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141(R), "Business Combinations," (“FAS 141(R)”) which replaces SFAS No. 141, “Business Combinations.” FAS 141(R) establishes principles and requirements for determining how an enterprise recognizes and measures the fair value of certain assets and liabilities acquired in a business combination, including noncontrolling interests, contingent consideration and certain acquired contingencies. FAS 141(R) also requires that acquisition-related transaction expenses and restructuring costs be expensed as incurred rather than capitalized as a component of the business combination. FAS 141(R) became effective on January 1, 2009.

In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51," (“FAS 160”). FAS 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary (previously referred to as minority interests). FAS 160 also requires that a retained noncontrolling interest upon the deconsolidation of a subsidiary be initially measured at its fair value. Under FAS 160, noncontrolling interests are reported as a separate component of consolidated stockholders’ equity. In addition, net income allocable to noncontrolling interests and net income attributable to stockholders are reported separately in the consolidated statements of operations. FAS 160 became effective beginning January 1, 2009.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities,” (“FAS 161”). The new standard amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” (“FAS 133”) and enhances disclosures about how and why a company uses derivatives; how derivative instruments are accounted for under FAS 133 (and the interpretations of that standard); and how derivatives affect a company’s financial position, financial performance and cash flows. FAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company has adopted this standard as of January 1, 2009. Additional disclosures have been included in the Company’s condensed consolidated financial statements in accordance with FAS 161.

In April 2008, the FASB issued FASB Staff Position (“FSP”) FAS 142-3, “Determination of the Useful Life of Intangible Assets,” (“FSP 142-3”). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets,” (“FAS 142”). The objective of FSP 142-3 is to improve the consistency between the useful life of a recognized intangible asset under FAS 142 and the period of expected cash flows used to measure the fair value of the asset under FAS 141(R) and other United States generally accepted accounting principles (“GAAP”). FSP 142-3 is effective prospectively for intangible assets acquired or received after January 1, 2009. The Company does not expect FSP 142-3 to have a material impact on its accounting for future acquisitions or renewals of intangible assets.

In May 2008, the FASB issued APB Staff Position 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement),” (“FSP APB 14-1”). FSP APB 14-1 specifies that for convertible debt instruments that may be settled in cash upon conversion, issuers of such instruments should separately account for the liability and equity components in the statement of financial condition. FSP APB 14-1 is effective beginning January 1, 2009 and is to be applied retrospectively. The Company’s debt may not be settled in cash upon conversion. Accordingly, there was no impact on the Company’s financial position or results of operations upon adoption.

In April 2009, the FASB issued FSP SFAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly,” (“FSP FAS 157-4”) which provides additional guidance for estimating fair value in accordance with SFAS 157 when the volume and level of activity have significantly decreased. FSP 157-4 also includes guidance on identifying circumstances that indicate a transaction is not orderly. This standard is effective for periods ending after June 15, 2009. The adoption of this standard did not have a material impact on the Company’s financial position or results of operations.

In April 2009, the FASB issued FSP SFAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments,” (“FSP FAS 107-1 and APB 28-1”). FSP FAS 107-1 and APB 28-1 amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” to require disclosures about fair value of financial instruments in interim as well as in annual financial statements. FSP FAS 107-1 and APB 28-1 amends APB Opinion No. 28, “Interim Financial Reporting,” to require those disclosures in all interim financial statements. This standard is effective for periods ending after June 15, 2009. The adoption of this standard did not have a material impact on the Company’s financial position or results of operations.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events,” (“FAS 165”). FAS 165 establishes general standards of accounting for and disclosure of subsequent events. In addition, FAS 165 requires entities to disclose the date through which subsequent events have been evaluated, as well as whether that date is the date the financial statements were issued or the date the financial statements were made available to be issued. FAS 165 is effective for periods ending after June 15, 2009 and accordingly, the Company adopted this standard in the second quarter of 2009. The Company has evaluated subsequent events through the time of filing its financial statements with the Securities and Exchange Commission on August 5, 2009.

In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards CodificationTM and the Hierarchy of Generally Accepted Accounting Principles – A Replacement of FASB Statement No. 162,” (“FAS 168”). FAS 168 establishes “The FASB Accounting Standards CodificationTM” (“Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP in the United States. The Codification does not change current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by providing all the authoritative literature related to a particular topic in one place. The Codification is effective for periods ending after September 15, 2009, and as of the effective date, all existing accounting standard documents will be superseded. The Company does not expect the adoption of this standard to have a material impact on the Company’s financial position or results of operations.

	June 30, 2009		December 31, 2008
Network and base station equipment	$	11,809,579	$	11,075,631
Customer premise equipment		8,177,215		7,079,096
Furniture, fixtures and equipment		1,525,980		1,525,980
Computer equipment		591,397		559,645
System software		816,258		789,810
Leasehold improvements		775,420		775,420
		23,695,849		21,805,582
Less: accumulated depreciation		10,743,280		8,914,803
	$	12,952,569	$	12,890,779

Depreciation expense for the three months ended June 30, 2009 and 2008 was $982,323 and $752,667, respectively. Depreciation expense for the six months ended June 30, 2009 and 2008 was $1,929,944 and $1,429,306, respectively. During the six months ended June 30, 2009, the Company sold or wrote-off property and equipment with $136,273 of original cost and $101,467 of accumulated depreciation. During the six months ended June 30, 2008, the Company sold or wrote-off property and equipment with $39,098 of original cost and $29,069 of accumulated depreciation.

In January 2007, the Company issued $3,500,000 of 8% senior convertible debentures (the “Debentures”). These Debentures mature on December 31, 2009 and are convertible into common stock at an initial conversion price of $2.75 per share. Holders of the Debentures also received warrants to purchase an aggregate of 636,364 shares of common stock at an exercise price of $4.00 per share and warrants to purchase an aggregate of 636,364 shares of common stock at an exercise price of $6.00 per share. The warrants are exercisable until January 2012 and were valued using the Black Scholes option pricing model. The proceeds were initially allocated between the warrants ($526,927) and the Debentures ($2,973,073) based on their relative fair values in accordance with APB 14, “Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants.” The discounted carrying value of the Debentures is being accreted to the maturity value over the term of the Debentures. The amount of accretion recorded in each period is recognized as non-cash interest expense.

In January 2008, a Debenture holder converted $750,000 of Debentures into common stock at a conversion price of $2.75 per share resulting in the issuance of 272,727 shares of common stock. The carrying value of the Debenture on the date of conversion was $676,607. Accordingly, the Company recognized the remaining debt discount of $73,393 as non-cash interest expense in connection with the conversion.

As further described in Note 6, EITF 07-05 became effective on January 1, 2009. In connection with its implementation, the Company was required to classify the conversion feature of the Debentures and the warrants issued with the Debentures as derivative liabilities. The cumulative effect of adopting EITF 07-05 resulted in a decrease in the carrying value of the Debentures as of January 1, 2009 from $2,607,395 to $2,293,222. Interest expense totaled $169,586 during the three months ended June 30, 2009 and included $55,000 associated with the 8% coupon and $114,586 associated with the accretion of the discount. Interest expense totaled $337,627 during the six months ended June 30, 2009 and included $110,000 associated with the 8% coupon and $227,627 associated with the accretion of the discount. Interest expense totaled $89,501 during the three months ended June 30, 2008 and included $55,000 associated with the 8% coupon and $34,501 associated with accretion of the discount. Interest expense totaled $256,080 during the six months ended June 30, 2008 and included $110,548 associated with the 8% coupon, $73,393 associated with accretion of the converted Debentures, and $72,139 associated with accretion of the remaining Debentures.

During the second quarter of 2009, the Company agreed to pay $100,000 related to the second installment of one of its FCC licenses. An agreement was reached in which the Company would pay monthly installments to the licensor over a one year period. As of June 30, 2009, $92,500 is included in short-term debt in the Company’s condensed consolidated balance sheet for the FCC license. The Company anticipates payment of this obligation in full by year end 2009.

In June 2008, the FASB finalized Emerging Issues Task Force (“EITF”) 07-05, “Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock,” (“EITF 07-05”). Under EITF 07-05, instruments which do not have fixed settlement provisions are deemed to be derivative instruments. The conversion feature of the Company’s Debentures, and the warrants issued with the Debentures, do not have fixed settlement provisions because their conversion and exercise prices, respectively, may be lowered if the Company issues securities at lower prices in the future. The reset provisions protect the Debenture holders from the potential dilution associated with future financings. In accordance with EITF 07-05, the conversion feature of the Debentures was separated from the host contract, the Debenture, and recognized as an embedded derivative instrument. Both the conversion feature of the Debenture and the warrants have been re-characterized as derivative liabilities. FAS 133 requires that the fair value of these liabilities be re-measured at the end of every reporting period with the change in value reported in the statement of operations.

	June 30, 2009			March 31, 2009			January 1, 2009			January 18, 2007

Debenture Conversion feature:
Risk-free interest rate		0.8	%		0.5	%		0.4	%		4.7	%
Expected volatility		79	%		81	%		74	%		60	%
Expected life (in years)		0.5			0.8			1			3
Expected dividend yield		-			-			-			-

Warrants:
Risk-free interest rate		1.4	%		1.2	%		1.0	%		4.7	%
Expected volatility		79	%		81	%		74	%		60	%
Expected life (in years)		2.5			2.8			3			3
Expected dividend yield		-			-			-			-

Fair value:
Conversion feature	$	11,513		$	13,581		$	11,838		$	856,025
Warrants	$	151,631		$	115,475		$	76,079		$	620,316

The risk-free interest rate was based on rates established by the Federal Reserve. Effective in the first quarter of 2008, the Company based expected volatility on the historical volatility for its common stock. Previously, the Company’s estimated volatility was based on the volatility of publicly-traded peers. The expected life of the Debentures’ conversion option was based on the maturity of the Debentures and the expected life of the warrants was determined by the expiration date of the warrants. The expected dividend yield was based upon the fact that the Company has not historically paid dividends, and does not expect to pay dividends in the future.

The warrants were originally recorded at their relative fair value as an increase in additional paid-in-capital. Changes in the accumulated deficit include $635,241 of interest expense associated with the accretion of additional discount recognized on the Debenture and $1,388,434 in gains resulting from decreases in the fair value of the derivative liabilities through December 31, 2008. The derivative liability amounts reflect the fair value of each derivative instrument as of the January 1, 2009 date of implementation. The Debenture amounts represent the additional discount recorded upon adoption of EITF 07-05. This discount will be recognized in 2009 as additional interest expense.

The Company uses the Black-Scholes option pricing model to value options granted to employees, directors and consultants. Compensation expense, including the effect of forfeitures, is recognized over the period of service, generally the vesting period. Stock-based compensation for the amortization of stock options granted under the Company’s stock option plans totaled $229,252 and $335,877 during the three months ended June 30, 2009 and 2008, respectively. Stock-based compensation for the amortization of stock options granted under the Company’s stock option plans totaled $386,322 and $489,697 during the six months ended June 30, 2009 and 2008, respectively. There was no stock-based compensation for the amortization of stock-based consulting fees for the three months ended June 30, 2008. Stock-based compensation for the amortization of stock-based consulting fees totaled $20,100 for the six months ended June 30, 2008. Stock-based compensation is included in general and administrative expenses in the accompanying condensed consolidated statements of operations.

	Three Months Ended June 30,						Six Months Ended June 30,
	2009			2008			2009			2008

Risk-free interest rate		1.3% – 2.7	%		3.3% – 3.4	%		1.3% – 2.7	%		2.5% – 3.4	%
Expected volatility		86% – 87	%		76% – 98	%		81% – 87	%		76% – 98	%
Expected life (in years)		2.5 – 6.8			5 – 6.5			2.5 – 6.8			5 – 6.5
Expected dividend yield		–			–			–			–
Weighted average per share grant date fair value	$	0.51		$	0.99		$	0.51		$	1.18

The risk-free interest rate was based on rates established by the Federal Reserve. The Company’s expected volatility was based upon the historical volatility for its common stock. The expected life of the Company’s options was determined using the simplified method under Staff Accounting Bulletin No. 110. The expected dividend yield was based upon the fact that the Company has not historically paid dividends, and does not expect to pay dividends in the future.

FAS 157 establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs, whose value is determined using pricing models, discounted cash flow methodologies or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation to measure assets and liabilities. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

			Fair Value Measurements at June 30, 2009
	Total Carrying Value at June 30, 2009		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)

Cash equivalents (money market funds)	$	20,187,961	$	20,187,961	$	-	$	-
Derivative liabilities	$	163,144	$	-	$	-	$	163,144

Cash equivalents are measured at fair value using quoted market prices and are classified within Level 1 of the valuation hierarchy. The carrying amounts of cash, accounts receivable, accounts payable, accrued liabilities and debt approximate their fair value due to their short maturities. The derivative liabilities are measured at fair value using quoted market prices and estimated volatility factors, and are classified within Level 3 of the valuation hierarchy. There were no changes in the valuation techniques during the six months ended June 30, 2009.

The following common stock equivalents were excluded from the computation of diluted net loss per common share because they were antidilutive. The exercise of these common stock equivalents outstanding at June 30, 2009 could potentially dilute earnings per shares in the future. The exercise of the outstanding stock options and warrants could generate proceeds up to approximately $26,000,000.

Other Commitments and Contingencies. One of the purchase agreements related to FCC licenses includes a contingent payment of $275,000, depending on the status of the license with the FCC, and whether the Company has obtained approval to broadcast terrestrially in the 3650 to 3700 MHz band. The contingent payment would consist of the issuance of common stock with a value of $275,000 (due in May 2011).

The following discussion and analysis summarizes the significant factors affecting our condensed consolidated results of operations, financial condition and liquidity position for the three and six months ended June 30, 2009. This discussion and analysis should be read in conjunction with our audited financial statements and notes thereto included in our Annual Report on Form 10-K for our year-ended December 31, 2008 and the condensed consolidated unaudited financial statements and related notes included elsewhere in this filing. The following discussion and analysis contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements.

Forward-looking statements in this Quarterly Report on Form 10-Q, including without limitation, statements related to our plans, strategies, objectives, expectations, intentions and adequacy of resources, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties including without limitation the following: (i) our plans, strategies, objectives, expectations and intentions are subject to change at any time at our discretion; (ii) our plans and results of operations will be affected by our ability to manage growth; and (iii) other risks and uncertainties indicated from time to time in our filings with the Securities and Exchange Commission.

In some cases, you can identify forward-looking statements by terminology such as ‘‘may,’’ ‘‘will,’’ ‘‘should,’’ ‘‘could,’’ ‘‘expects,’’ ‘‘plans,’’ ‘‘intends,’’ ‘‘anticipates,’’ ‘‘believes,’’ ‘‘estimates,’’ ‘‘predicts,’’ ‘‘potential,’’ or ‘‘continue’’ or the negative of such terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of such statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We are under no duty to update any of the forward-looking statements after the date of this Report.

We provide broadband services to commercial customers and deliver access over a fixed wireless network transmitting over both regulated and unregulated radio spectrum. Our service supports bandwidth on demand, wireless redundancy, virtual private networks (“VPNs”), disaster recovery, bundled data and video services. We provide service to business customers in New York City, Boston, Chicago, Los Angeles, San Francisco, Seattle, Miami, Dallas-Fort Worth, Providence and Newport, Rhode Island.

In January 2007, Towerstream merged with a newly formed subsidiary of University Girls Calendar Ltd. (‘‘UGC’’), a publicly traded shell company. In connection with the merger, all outstanding shares of UGC were cancelled, except for 1,900,000 shares of common stock. 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, which also changed its name to Towerstream Corporation. The previously private company, Towerstream Corporation, changed its name to Towerstream I, Inc., and became a wholly-owned subsidiary of the publicly traded company. The merger of Towerstream and UGC was a reverse merger that was accounted for as a recapitalization of Towerstream.

Costs of revenues consists of expenses that are directly related to providing services to our customers, including core network costs (tower and roof rent expense and utilities, bandwidth costs, Points of Presence (“PoP”) maintenance and other) and customer network costs (customer maintenance, non-installation fees, and other customer specific expenses). We collectively refer to core network costs and customer network costs as Network Operating Expenses. When we first enter a new market, or expand in an existing market, we are required to incur up-front costs in order to be able to provide fixed wireless broadband services to commercial customers. We refer to these activities as establishing a “Network Presence”. These costs include building PoPs which are Company Locations where we install a substantial amount of equipment in order to connect numerous customers to the internet. The costs to build PoPs are capitalized and expensed over a 5 year period. In addition to building PoPs, we also enter tower and roof rental agreements, secure bandwidth, and incur other Network Operating Expenses. Once we have established a Network Presence in a new market, or expand our Network Presence in an existing market, we are capable of servicing a significant number of customers through that Network Presence. The variable cost to add new customers is relatively modest, especially compared to the upfront cost of establishing or expanding our Network Presence. As a result, our gross margins in a market normally increase over time as we add new customers in that market. However, we may experience variability in gross margins during periods in which we are expanding our Network Presence in a market.

General and administrative expenses include costs attributable to corporate overhead and the overall support of our operations. Salaries and other related payroll costs for executive management, finance, administration and information systems personnel are included in this category. Other costs include rent, utilities, and other facility costs, accounting, legal, and other professional services, and other general operating expenses.

We operate in one segment which is the business of fixed wireless broadband services. Although we provide services in multiple markets, these operations have been aggregated into one reportable segment based on the similar economic characteristics among all markets, including the nature of the services provided and the type of customers purchasing such services. While we operate in only one business segment, we recognize that providing information on the revenues and costs of operating in each market can provide useful information to investors regarding our operating performance.

As of June 30, 2009, we operated in nine markets across the United States including New York, Boston, Los Angeles, Chicago, San Francisco, Miami, Seattle, Dallas-Fort Worth and Providence. The markets were launched at different times, and as a result, may have different operating metrics based on their stage of maturation. We incur significant up-front costs in order to establish a Network Presence in a new market. These costs include building PoPs and Network Operating Expenses. Other material costs include hiring and training sales and marketing personnel who will be dedicated to securing customers in that market. Once we have established a Network Presence in a new market, we are capable of servicing a significant number of customers. The rate of customer additions varies from market to market, and we are unable to predict how many customers will be added in a market during any specific period. We believe that providing operating information regarding each of our markets provides useful information to shareholders in understanding the leveraging potential of our business model, the operating performance of our mature markets, and the long-term potential for our newer markets. Set forth below is a summary of our operating performance on a per-market basis, and a description of how each category is determined.

Centralized Operating Costs: Represents costs incurred to support activities across all of our markets that are not allocable to a specific market. This principally consists of payroll costs for customer care representatives, customer support engineers, sales support and installations personnel. These individuals service customers across all markets rather than being dedicated to any specific market.

Corporate expenses: Includes costs attributable to corporate overhead and the overall support of our operations. Salaries and related payroll costs for executive management, finance, administration and information systems personnel are included in this category. Other costs include office rent, utilities and other facilities costs, professional services and other general operating expenses.

Market	Revenues		Cost of Revenues			Gross Margin			Operating Costs			Market EBITDA
New York	$	1,321,731		$	227,771		$	1,093,960		$	278,655	$	815,305
Boston		1,007,857			165,424			842,433			238,636		603,797
Los Angeles		442,394			82,049			360,345			238,028		122,317
San Francisco		235,374			56,271			179,103			98,699		80,404
Providence/Newport		126,062			36,636			89,426			18,880		70,546
Chicago		220,491			87,298			133,193			116,263		16,930
Miami		150,331			66,698			83,633			109,607		(25,974	)
Seattle		106,639			58,673			47,966			87,413		(39,447	)
Dallas-Fort Worth		62,702			60,306			2,396			117,832		(115,436	)
Total	$	3,673,581		$	841,126		$	2,832,455		$	1,304,013	$	1,528,442

Market	Revenues		Cost of Revenues			Gross Margin				Operating Costs			Market EBITDA
New York	$	2,559,016		$	425,667		$	2,133,349			$	625,720	$	1,507,629
Boston		1,969,396			335,831			1,633,565				440,808		1,192,757
Los Angeles		848,314			148,826			699,488				509,840		189,648
San Francisco		458,715			99,692			359,023				227,927		131,096
Providence/Newport		267,080			73,972			193,108				71,185		121,923
Chicago		422,400			168,488			253,912				243,271		10,641
Miami		259,659			125,813			133,846				217,142		(83,296	)
Seattle		203,631			125,767			77,864				186,474		(108,610	)
Dallas-Fort Worth		102,436			114,616			(12,180	)			243,336		(255,516	)
Total	$	7,090,647		$	1,618,672		$	5,471,975			$	2,765,703	$	2,706,272

ARPU as of June 30, 2009 totaled $769 compared to $819 as of June 30, 2008, representing a decrease of $50, or 6%. The decrease relates to new customers purchasing lower ARPU products during the economic recession. Customer churn, calculated as a percent of revenue lost on a monthly basis from customers terminating service or reducing their service level, totaled 1.90% for the three months ended June 30, 2009 compared to 1.17% for the three months ended June 30, 2008, representing a 62% increase on a percentage basis. The higher churn in the 2009 period reflects the effect of the ongoing economic recession on our commercial customer base.

Cost of Revenues. Cost of revenues totaled $914,938 for the three months ended June 30, 2009 as compared to $993,513 for the three months ended June 30, 2008, a decrease of $78,575, or 8%. Gross margins increased to 75% during the 2009 period as compared to 60% during the 2008 period representing a 25% increase on a percentage basis. During the first two quarters of 2009, we have focused on increasing market penetration in existing markets rather than expanding into new markets. We have been able to add new customers at low marginal costs which has positively effected gross margins. In addition, we have been able to lower the cost of certain network operating expenses including bandwidth, shipping, supplies, and equipment support.

Depreciation. Depreciation totaled $982,323 for the three months ended June 30, 2009 as compared to $752,667 for the three months ended June 30, 2008, representing an increase of $229,656, or 31%. This increase was primarily related to the continued investment in our network, base station and customer premise equipment (collectively, our “Network”) which was required to support the growth in our customer base and our expansion into new and existing markets. Gross fixed assets totaled $23,695,849 at June 30, 2009 as compared to $18,157,844 at June 30, 2008, representing an increase of $5,538,005, or 30%.

Sales and Marketing. Sales and marketing totaled $1,385,624 for the three months ended June 30, 2009 as compared to $2,019,787 for the three months ended June 30, 2008, representing a decrease of $634,163, or 31%. Approximately $237,000 of the decrease in expenses related to lower payroll costs as sales and marketing personnel totaled 103 at June 30, 2009 compared with 134 for the same period in 2008. In addition, commissions and bonuses decreased by approximately $245,000 in the 2009 period. Advertising costs totaled $122,538 in the 2009 period as compared to $266,873 in the 2008 period, representing a decrease of $144,335, or 54%. We reduced our internet based marketing costs in the 2009 period as part of our continuing efforts to optimize the efficiency of our sales and marketing programs.

General and Administrative. General and administrative totaled $1,795,813 for the three months ended June 30, 2009 as compared to $2,015,267 for the three months ended June 30, 2008, representing a decrease of $219,454, or 11%. This decrease was principally attributable to decreases in (i) professional fees of approximately $104,000 and (ii) stock-based compensation of approximately $107,000.

Interest Income. Interest income totaled $9,024 for the three months ended June 30, 2009 compared with $148,163 for the three months ended June 30, 2008, representing a decrease of $139,139, or 94%. The decrease relates to lower interest yields in the 2009 period compared with the 2008 period due to current economic factors. In addition, average cash balances for the second quarter decreased from approximately $32.9 million to approximately $20.4 million.

Interest Expense. Interest expense totaled $185,570 for the three months ended June 30, 2009 compared with $105,958 for the three months ended June 30, 2008, representing an increase of $79,612, or 75%. Additional non-cash interest expense of $78,540 was recognized in the second quarter of 2009 in connection with the adoption of a new accounting pronouncement, EITF 07-05, as further described in Note 6 to the financial statements.

Cost of Revenues. Cost of revenues totaled $1,740,852 for the six months ended June 30, 2009 as compared to $1,926,715 for the six months ended June 30, 2008, a decrease of $185,863, or 10%. Gross margins increased to 75% during the 2009 period as compared to 58% during the 2008 period representing a 29% increase on a percentage basis. During the first two quarters of 2009, we have continued to focus on increasing market penetration in existing markets rather than expanding into new markets. During the six months ended June 30 2009, we lowered Core Network and Customer Network costs by approximately $114,000 and $93,000, respectively, even though our customer base increased by 47% during the 2009 period.

Depreciation. Depreciation totaled $1,929,944 for the six months ended June 30, 2009 as compared to $1,429,306 for the six months ended June 30, 2008, representing an increase of $500,638, or 35%. This increase was primarily related to the continued investment in our Network, which was required to support the growth in our customer base and our expansion into new and existing markets. Gross fixed assets totaled $23,695,849 at June 30, 2009 as compared to $18,157,844 at June 30, 2008, representing an increase of $5,538,005, or 30%.

Customer Support Services. Customer support services totaled $1,034,013 for the six months ended June 30, 2009 as compared to $938,212 for the six months ended June 30, 2008, representing an increase of $95,801, or 10%. This increase was primarily related to additional personnel hired to support our growing customer base. Average headcount increased by 12%, from 34 in the 2008 period to 38 in the 2009 period.

General and Administrative. General and administrative totaled $3,518,155 for the six months ended June 30, 2009 as compared to $3,974,639 for the six months ended June 30, 2008, representing a decrease of $456,484, or 11%. This decrease was principally attributable to (i) a decrease in professional fees of approximately $299,000 (ii) and a decrease of approximately $123,000 in stock-based compensation.

Interest Income. Interest income totaled $22,213 for the six months ended June 30, 2009 compared with $436,871 for the six months ended June 30, 2008, representing a decrease of $414,658, or 95%. In March 2008, we transferred our cash balances into four separate U.S. Treasury based money market funds. These funds have lower yields but are higher quality instruments than the funds in which we previously invested. In addition, average cash balances decreased from approximately $33.5 million to approximately $21.5 million, and interest rates have decreased year-over-year.

Interest Expense. Interest expense totaled $368,926 for the six months ended June 30, 2009 compared with $288,976 for the six months ended June 30, 2008, representing an increase of $79,950, or 28%. Additional non-cash interest expense of approximately $157,000 was recognized in the first six months of 2009 in connection with the adoption of a new accounting pronouncement which was offset by approximately $73,000 of non-cash interest expense that was recognized when a portion of our debt was converted into equity in January 2008.

We have historically met our liquidity and capital requirements primarily through the public sale and private placement of equity securities and debt financing. Cash and cash equivalents totaled $20,187,961 and $24,740,268 at June 30, 2009 and December 31, 2008, respectively. The decrease in cash and cash equivalents related to our operating, investing and financing activities during the six months ended June 30, 2009, each of which is described below.

Net Cash Used in Operating Activities. Net cash used in operating activities totaled $2,495,943 for the six months ended June 30, 2009, as compared to $5,123,718 for the six months ended June 30, 2008, representing a decrease of $2,627,775, or 51%. This decrease was directly related to the lower net loss reported in the 2009 period of $4,515,679, which represented a reduction of $2,823,014, or 38%, as compared to the 2008 period.

Net Cash Used in Investing Activities. Net cash used in investing activities totaled $2,029,540 for the six months ended June 30, 2009 as compared to $3,901,236 for the six months ended June 30, 2008, representing a decrease of $1,871,696, or 48%. The decrease in the 2009 period related almost entirely to lower spending on property and equipment. During the 2008 period, we expanded our corporate office and spent approximately $752,000 on office equipment, system software and leasehold improvements. Spending on PoPs decreased by approximately $932,000 during the 2009 period as compared to the 2008 period. Our decision to focus on our existing markets, rather than to expand into new markets during the ongoing economic recession, has resulted in lower PoP spending as the existing markets already have established PoPs.

Our financial statements are prepared in conformity with accounting principles generally accepted in the United States of America which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent 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 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 other companies in our industry. We believe the following significant accounting policies may involve a higher degree of judgment and estimation.

Revenue Recognition. We normally enter into contractual agreements with our customers for periods ranging between one to three years. We recognize the total revenue provided under a contract ratably over the contract period, including any periods under which we have agreed to provide services at no cost. Deferred revenues are recognized as a liability when billings are received in advance of the date when revenues are earned. We apply the revenue recognition principles set forth under SEC Staff Accounting Bulletin 104, (“SAB 104”) which provides for revenue to be recognized when (i) persuasive evidence of an arrangement exists, (ii) delivery or installation has been completed, (iii) the customer accepts and verifies receipt, and (iv) collectability is reasonably assured.

Long-Lived Assets. Long-lived assets consist primarily of property and equipment, and FCC licenses. Long-lived assets are reviewed annually for impairment or whenever events or circumstances indicate their carrying value may not be recoverable. Conditions that would result in an impairment charge include a significant decline in the market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change that would indicate that the carrying amount of an asset or group of assets is not 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.

Asset Retirement Obligations. SFAS No. 143, “Accounting for Asset Retirement Obligations,” (“FAS 143”) addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. FAS 143 requires the recognition of an asset retirement obligation and an associated asset retirement cost when there is a legal obligation in connection with the retirement of tangible long-lived assets. Our network equipment is installed on both buildings in which the Company has a lease agreement (“Company Locations”) and at customer locations. In both instances, the installation and removal of our equipment is not complicated and does not require structural changes to the building where the equipment is installed. Costs associated with the removal of our equipment at company or customer locations are not material, and accordingly, we have determined that we do not presently have asset retirement obligations under FAS 143.

In January 2008, we adopted SFAS No. 157, “Fair Value Measurements,” (“SFAS 157”) which is defines fair value, establishes a framework for measuring fair value and expands the related disclosure requirements. The statement indicates, among other matters, that a fair value measurement assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. FAS 157 defines fair value based upon an exit price model.

Effective in the first quarter of 2009, we implemented SFAS 157-2 for our nonfinancial assets and liabilities that are re-measured at fair value on a non-recurring basis. The adoption did not impact our financial position or results of operations. We may have disclosure requirements if we complete an acquisition or incur an impairment of our assets in future periods.

Under FAS 160, noncontrolling interests are reported as a separate component of consolidated stockholders’ equity. In addition, net income allocable to noncontrolling interests and net income attributable to stockholders are reported separately in the consolidated statements of operations. FAS 160 became effective beginning January 1, 2009.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities,” (“FAS 161”). The new standard amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” (“FAS 133”) and enhances disclosures about how and why a company uses derivatives; how derivative instruments are accounted for under FAS 133 (and the interpretations of that standard); and how derivatives affect a company’s financial position, financial performance and cash flows. FAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. We have adopted this standard as of January 1, 2009. Additional disclosures have been included in our condensed

In April 2008, the FASB issued FASB Staff Position (“FSP”) FAS 142-3, “Determination of the Useful Life of Intangible Assets,”(“FSP 142-3”). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets,” (“FAS 142”). The objective of FSP 142-3 is to improve the consistency between the useful life of a recognized intangible asset under FAS 142 and the period of expected cash flows used to measure the fair value of the asset under FAS 141(R) and other United States generally accepted accounting principles (“GAAP”). FSP 142-3 is effective prospectively for intangible assets acquired or received after January 1, 2009. We do not expect FSP 142-3 to have a material impact on our accounting for future acquisitions or renewals of intangible assets.

In May 2008, the FASB issued APB Staff Position 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement),” (“FSP APB 14-1”). FSP APB 14-1 specifies that for convertible debt instruments that may be settled in cash upon conversion, issuers of such instruments should separately account for the liability and equity components in the statement of financial condition. FSP APB 14-1 is effective beginning January 1, 2009 and is to be applied retrospectively. Our debt may not be settled in cash upon conversion. Accordingly, there was no impact on our financial position or results of operations upon adoption.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events,” (“FAS 165”). FAS 165 establishes general standards of accounting for and disclosure of subsequent events. In addition, FAS 165 requires entities to disclose the date through which subsequent events have been evaluated, as well as whether that date is the date the financial statements were issued or the date the financial statements were made available to be issued. FAS 165 is effective for periods ending after June 15, 2009 and accordingly, we adopted this standard in the second quarter of 2009. We have evaluated subsequent events through the time of filing our financial statements with the Securities and Exchange Commission on August 5, 2009.

In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards CodificationTM and the Hierarchy of Generally Accepted Accounting Principles – A Replacement of FASB Statement No. 162,” (“FAS 168”). FAS 168 establishes “The FASB Accounting Standards CodificationTM” (“Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP in the United States. The Codification does not change current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by providing all the authoritative literature related to a particular topic in one place. The Codification is effective for periods ending after September 15, 2009, and as of the effective date, all existing accounting standard documents will be superseded. We do not expect the adoption of this standard to have a material impact on our financial position or results of operations.

We carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the ‘‘Exchange Act’’). Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based upon our evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective, as of the six months ended June 30, 2009, in ensuring that material information that we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms.

Delaware (State or other jurisdiction of incorporation or organization)		20-8259086 (I.R.S. Employer Identification No.)

55 Hammarlund Way Middletown, Rhode Island (Address of principal executive offices)		02842 (Zip Code)

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

	Six Months Ended June 30,
	2009		2008
Supplemental Disclosures of Cash Flow Information
Cash paid during the periods for:
Interest	$	111,116	$	114,759
Non-cash investing and financing activities:
Conversion of long-term debt into shares of common stock	$	-	$	750,000
Acquisition of FCC license through short-term debt	$	100,000	$	-

	June 30, 2009		December 31, 2008
Network and base station equipment	$	168,441	$	168,441
Less: accumulated depreciation		118,307		106,099
	$	50,134	$	62,342

	June 30,		December 31,
	2009		2008
Payroll and related	$	334,629	$	510,608
Penalties		95,726		149,976
Interest		55,000		55,000
Rent		25,902		50,149
Marketing		86,669		-
Professional services		52,589		17,953
Other		169,226		77,704
Total	$	819,741	$	861,390

Derivative Instrument	Additional Paid-In-Capital		Accumulated Deficit			Derivative Liability			Debenture

Conversion feature	$	-	$	(277,531	)	$	(11,838	)	$	289,369
Warrants	$	526,927	$	(475,662	)	$	(76,069	)	$	24,804
Total	$	526,927	$	(753,193	)	$	(87,907	)	$	314,173

	Number of			Weighted Average
	Options			Exercise Price
Options outstanding as of January 1, 2009		3,335,793		$	1.82
Granted		592,022		$	0.76
Cancelled		(135,000	)	$	1.25
Options outstanding as of June 30, 2009		3,792,815		$	1.68
Options exercisable as of June 30, 2009		2,607,770		$	1.81

	Three Months Ended June 30,					Six Months Ended June 30,
	2009			2008		2009			2008

Beginning balance	$	(41,149	)	$	-	$	-		$	-
Net unrealized loss on derivative financial instruments		(34,088	)		-		(75,237	)		-
Ending balance	$	(75,237	)	$	-	$	(75,237	)	$	-

	2009
Stock options		3,792,815
Warrants		4,332,310
Convertible debt		1,000,001
Total		9,125,126

Remainder of 2009	$	1,372,816
2010		2,665,295
2011		2,308,643
2012		2,105,367
2013		1,354,174
Thereafter		1,722,422
	$	11,528,717

Reconciliation of Non-GAAP Financial Measure to GAAP Financial Measure
Market EBITDA	$	1,528,442
Centralized operating costs		(639,612	)
Corporate expenses		(1,566,561	)
Depreciation		(982,323	)
Stock-based compensation		(229,252	)
Other income (expense)		(210,707	)
Net loss	$	(2,100,013	)

Nominees	For		Withheld
Philip Urso		27,504,528		488,371
Jeffrey M. Thompson		26,866,494		1,126,405
Howard L. Haronian, M.D.		27,447,353		545,546
Paul Koehler		26,775,169		1,217,730
William Bush		26,823,106		1,169,793

Exhibit No.		Description
31.1		Section 302 Certification of Principal Executive Officer
31.2		Section 302 Certification of Principal Financial Officer
32.1		Section 906 Certification of Principal Executive Officer
32.2		Section 906 Certification of Principal Financial Officer

	TOWERSTREAM CORPORATION

Date: August 5, 2009	By:	/s/ Jeffrey M. Thompson

		Jeffrey M. Thompson
		President and Chief Executive Officer
		(Principal Executive Officer)

Date: August 5, 2009	By:	/s/ Joseph P. Hernon

		Joseph P. Hernon
		Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)