8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

_________________

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

_________________

Date of Report (Date of earliest event reported):  August 5, 2009

Towerstream Corporation

(Exact Name of Registrant as Specified in Charter)

Delaware	001-33449	20-8259086
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

55 Hammarlund Way Middletown, RI	02842
(Address of principal executive offices)	(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:

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

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

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

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

Item 2.02. Results of Operations and Financial Condition.

On August 5, 2009, Towerstream Corporation (the “Company”) issued a press release announcing results for the three and six months ended June 30, 2009. A copy of the press release is attached to this report as Exhibit 99.1 and is being furnished pursuant to Item 2.02 of Form 8-K and shall not be deemed incorporated by reference into any of the Registrant’s registration statements or other filings with the Securities and Exchange Commission.

The press release includes EBITDA calculations, which is not a GAAP financial measure. It is presented in the press release because the Registrant’s management uses this information in evaluating the operating efficiency and overall financial performance of its business. The Registrant’s management also believes that this information provides the users of the Registrant’s financial statements a valuable insight into its operating results.  EBITDA is calculated as net income (loss) before interest, income taxes, deprecation and amortization. The Company defines adjusted EBITDA as net income (loss) before interest, income taxes, deprecation and amortization expenses, excluding when applicable, stock-based compensation, gain or loss on disposal of property and equipment, gain or loss on derivative instruments, and other non-operating income or expenses. It is important to note, however, that non-GAAP financial measures as presented do not represent cash provided by or used in operating activities and may not be comparable to similarly titled measures reported by other companies. Neither should be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. A reconciliation of adjusted EBITDA, as compared to the most directly comparable GAAP financial measure, net loss, is presented in a reconciliation table in the attached press release.

The information contained in this Form 8-K contains forward-looking statements, including certain statements regarding intent, beliefs, expectations, projections, forecasts and plans, which are subject to numerous assumptions, risks, and uncertainties. A number of factors described from time to time in our periodic filings with the Securities and Exchange Commission could cause actual conditions, events, or results to differ significantly from those described in the forward-looking statements. All forward-looking statements included in this Form 8-K are based on information available at the time of the report. We assume no obligation to update any forward-looking statement.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits

99.1 Press Release, dated August 5, 2009

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 hereunto duly authorized.

	TOWERSTREAM CORPORATION
Dated: August 5, 2009	By:	/s/ Jeffrey M. Thompson
	Name:	Jeffrey M. Thompson
	Title:	Chief Executive Officer

EXHIBIT INDEX

Exhibit No.	Description
99.1	Press Release, dated August 5, 2009

EX-99.1

Towerstream Second Quarter 2009 Revenues

Increased 47% over Second Quarter 2008

Adjusted EBITDA improves 39% compared to First Quarter 2009

Middletown, RI, August 5, 2009 – Towerstream (NASDAQ: TWER), a leading fixed WiMAX provider currently operating in nine major metropolitan areas, announced results for the second quarter ended June 30, 2009.

Operating Highlights:

· Second quarter 2009 revenues increased 47% from the second quarter 2008 and increased 8% from the first quarter 2009

· Adjusted EBITDA improved 39% compared to the first quarter 2009, decreasing from a loss of almost $1.1 million to a loss of less than $0.7 million

· Record number of contracts signed in June 2009, exceeding the previous monthly record by 28%

· Gross margin remained strong at 75% during the second quarter 2009 which represented a 1% decrease from the first quarter 2009 and a 25% increase from the second quarter 2008

· Six markets are now generating positive quarterly adjusted EBITDA and all nine markets collectively are generating positive quarterly adjusted EBITDA

· “Cash burn” totaled $1.6 million in the second quarter 2009, representing a 40% decrease from the first quarter

· Customer churn for the second quarter 2009 was 1.90%, compared to 1.68% for the first quarter 2009 and 1.17% for the second quarter 2008

· Cash and cash equivalents totaled $20.2 million at June 30, 2009

Management Comments:

“This was a pivotal quarter for Towerstream to demonstrate the evolution of our sales strategy," said Jeff Thompson, President and Chief Executive Officer.  “Already, we have seen positive results from this strategy as we reported a record number of contracts in June. New contracts executed in July were the second highest in our history, and we believe these sustained results reflect an accelerating interest in our wireless products.”

“The core strength of our monthly recurring revenue model and tight cost controls resulted in a 39% improvement in adjusted EBITDA compared to the first quarter,” stated Joseph Hernon, Chief Financial Officer.  “Cash burn improved 40% sequentially, and our cash resources of approximately $20 million at June 30, 2009 provide solid coverage relative to current quarterly cash requirements.  Gross margin remained strong at 75% and continued operational improvements resulted in a 5% sequential decrease in core operating expenses.”

Selected Financial Data and Key Operating Metrics:

(All dollars are in thousands except ARPU)

	(Unaudited)
	Three months ended
	6/30/2009			3/31/2009*			6/30/2008*
Selected Financial Data
Revenues	$	3,673		$	3,417		$	2,494
Gross margin		75	%		76	%		60	%
Operating expenses (1)		5,562			5,622			6,266
Operating loss (1)		(1,889	)		(2,205	)		(3,772	)
Net loss (1)		(2,100	)		(2,416	)		(3,730	)
Adjusted EBITDA (2)		(660	)		(1,084	)		(2,679	)
Capital expenditures	$	1,071		$	955		$	1,841
Key Operating Metrics
Churn rate (2)		1.90	%		1.68	%		1.17	%
ARPU (2)	$	769		$	799		$	819
ARPU of new customers (2)	$	547		$	540		$	898

* Certain reclassifications of prior period amounts have been made to conform to current year presentation.

(1) Includes stock-based compensation of $229, $157 and $336, respectively.

(2) See Non-GAAP Measures below for a definition and reconciliation of adjusted EBITDA, and definitions of Churn, ARPU and ARPU of new customers.

Analysis of Results of Operations and Financial Condition

Second Quarter 2009 Results of Operations

Revenues for the second quarter 2009 increased 8% from the first quarter 2009, and increased 47% compared to the second quarter 2008.  These increases were driven by growth in our customer base from approximately 1,100 customers at the end of the second quarter 2008 to approximately 1,600 at the end of second quarter 2009.

ARPU of new customers in the second quarter 2009 increased 1% compared to the first quarter 2009, and decreased 39% compared to the second quarter 2008.  ARPU of all customers in the second quarter 2009 decreased 4% compared to the first quarter 2009, and decreased 6% compared to the second quarter 2008.  Customer churn for the second quarter 2009 of 1.90% increased compared to 1.68% for the first quarter 2009 and 1.17% for the second quarter 2008.  New customers continued to be cautious in their purchasing decisions which resulted in ARPU values below historical levels.  The higher churn in the 2009 period reflects the effect of the ongoing economic recession on the Company’s commercial customer base.

Gross margin decreased 1% in the second quarter 2009 compared to the first quarter 2009, and increased by 25% compared to the second quarter 2008.  The year-over-year improvement in gross margin primarily related to a 47% increase in the number of customers, and the Company’s ability to add these customers onto its network at relatively low marginal cost.

Customer support expenses in the second quarter 2009 decreased 12% compared to the first quarter 2009, and decreased less than 1% compared to the second quarter 2008. The quarter-over-quarter decrease relates to lower payroll expenses as the Company continues to focus on cost control.

Sales and marketing expenses in the second quarter 2009 decreased 12% compared to the first quarter 2009, and decreased 31% compared to the second quarter 2008.  The decreases are primarily related to lower department headcount which averaged 100, 102, and 130 in the second quarter 2009, first quarter 2009, and second quarter 2008, respectively.  The Company continues to optimize its sales and marketing strategy, including the enhanced use of Internet-based marketing programs which has both increased qualified leads and enabled the Company to reduce headcount.  Sales and marketing headcount includes marketing, direct sales which includes account executives and sales managers, and indirect sales which includes sales operations, support and administration.

General and administrative expenses increased 4% in the second quarter 2009 compared to the first quarter 2009, and decreased 11% compared to the second quarter 2008.  The year-over-year decrease of 11% is attributable to lower professional fees of approximately $100,000 and stock-based compensation of approximately $110,000.

Net loss decreased 13% in the second quarter 2009 compared to the first quarter 2009, and decreased 44% compared to the second quarter 2008.  The 13% sequential improvement reflects the positive effect of an 8% increase in revenues and a 1% decrease in operating expenses.  The year-over-year improvement of 44% is attributable to a 47% increase in revenues and an 11% decrease in operating expenses.

Operating Outlook and Guidance:

· Revenues for the third quarter 2009 are expected to range between $3.85 million to $3.95 million

· Adjusted EBITDA loss for the third quarter 2009 is expected to range between $0.5 million to $0.6 million, excluding $0.1 million that the Company expects to spend related to efforts to secure grants under the U.S. Government’s Broadband Stimulus program

Non-GAAP Measures

The terms “Adjusted EBITDA,” “Churn,” “Churn rate,” ”ARPU,” and “Market Cash Flow” are measurements used by Towerstream to monitor business performance and are not recognized measures under generally accepted accounting principles (“GAAP”).  Accordingly, investors are cautioned in using or relying upon these measures as alternatives to recognized GAAP measures.  Our methods of calculating these measures may differ from other issuers and, accordingly, may not be comparable to similar measures presented by other issuers.

We focus on adjusted EBITDA as a principle indicator of the operating performance of our business.  EBITDA represents net income (loss) before interest, income taxes, depreciation and amortization.  We define adjusted EBITDA as net income (loss) before interest, income taxes, depreciation and amortization expenses, excluding, when applicable, stock-based compensation, gain or loss on disposal of property and equipment, gain or loss on derivative instruments, and other non-operating income or expenses.  Adjusted EBITDA for a market also excludes corporate overhead expenses and other centralized operating costs. We believe that adjusted EBITDA trends are valuable indicators of our markets' relative performance, and of whether our markets are able to produce sufficient market cash flow to fund working capital and capital expenditure needs.

The terms “Churn” and “Churn rate” refer to the percent of revenue lost on a monthly basis from customers disconnecting from our network or reducing the amount of their bandwidth.  The term “ARPU” refers to the monthly average revenue per user, or customer, being generated from those customers under contract at the end of each indicated period.  We calculate ARPU by dividing our monthly recurring revenue (“MRR”) at the end of a period by the number of customers generating that MRR.  ARPU of new customers is calculated in the same manner but only includes new customers who entered into contracts during the indicated period.  Market Cash Flow represents the amount of cash generated in a market after deducting a market’s direct operating expenses from that market’s revenues.  Market Cash Flow does not include (i) centralized operating costs which support all markets collectively or (ii) any network related capital expenditures incurred in a market.

The Non-GAAP measure, adjusted EBITDA, has been reconciled to Net loss as follows:

All amounts are in thousands except per share amounts

	Three months ended
	6/30/2009			3/31/2009*			6/30/2008*
Reconciliation of Non-GAAP to GAAP:
Adjusted EBITDA	$	(660	)	$	(1,084	)	$	(2,679	)
Interest expense		(186	)		(184	)		(106	)
Interest income		9			13			148
Loss on derivative financial instruments		(34	)		(41	)		-
Loss on property and equipment		(18	)		(16	)		(4	)
Depreciation		(982	)		(947	)		(753	)
Stock-based compensation		(229	)		(157	)		(336	)
Net loss	$	(2,100	)	$	(2,416	)	$	(3,730	)

* Certain reclassifications of prior period amounts have been made to conform to current year presentation.

Summary Condensed Consolidated Financial Statements

	(Unaudited)			(Audited)
	June 30, 2009			December 31, 2008
Assets
Current Assets
Cash and cash equivalents	$	20,188		$	24,740
Accounts receivable, net		340			280
Other		305			319
Total Current Assets		20,833			25,339
Property and equipment, net		12,953			12,891
Other assets		1,162			1,058
Total Assets		34,948			39,288
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable		882			1,395
Accrued expenses		820			861
Deferred revenues		979			986
Short-term debt, net of discount		2,613			2,607
Derivative liabilities		12			-
Other		69			78
Total Current Liabilities		5,375			5,927
Long-Term Liabilities
Derivative liabilities		152			-
Other		317			354
Total Long-Term Liabilities		469			354
Total Liabilities		5,844			6,281
Stockholders’ Equity
Common stock		35			34
Additional paid-in-capital		54,711			54,852
Accumulated deficit		(25,642	)		(21,879	)
Total Stockholders’ Equity		29,104			33,007
Total Liabilities and Stockholders’ Equity	$	34,948		$	39,288

	(Unaudited)						(Unaudited)
	Three months ended June 30,						Six months ended  June 30,
	2009			2008			2009			2008
Revenues	$	3,673		$	2,494		$	7,090		$	4,576
Operating Expenses
Cost of revenues (exclusive of depreciation)		915			993			1,741			1,927
Depreciation		982			753			1,930			1,429
Customer support services		484			485			1,034			938
Sales and marketing		1,385			2,020			2,961			3,794
General and administrative		1,796			2,015			3,518			3,975
Total Operating Expenses		5,562			6,266			11,184			12,063
Operating Loss		(1,889	)		(3,772	)		(4,094	)		(7,487	)
Other Income (Expense)
Interest income		9			148			22			437
Interest expense		(186	)		(106	)		(369	)		(289	)
Loss on derivative financial instruments		(34	)		-			(75	)		-
Total Other Income (Expense)		(211	)		42			(422	)		148
Net Loss	$	(2,100	)	$	(3,730	)	$	(4,516	)	$	(7,339	)
Net loss per common share	$	(0.06	)	$	(0.11	)	$	(0.13	)	$	(0.21	)
Net loss per common share excluding      stock-based compensation	$	(0.05	)	$	(0.10	)	$	(0.12	)	$	(0.20	)
Weighted average common shares       outstanding – basic and diluted		34,595			34,556			34,591			34,526

	(Unaudited)
	Six months ended June 30,
	2009			2008
Cash Flows From Operating Activities
Net loss	$	(4,516	)	$	(7,339	)
Non-cash adjustments:
Depreciation		1,930			1,429
Stock-based compensation		386			510
Other		366			340
Changes in operating assets and liabilities		(662	)		(64	)
Net Cash Used In Operating Activities		(2,496	)		(5,124	)
Cash Flows From Investing Activities
Acquisitions of property and equipment		(2,026	)		(3,888	)
Other		(3	)		(13	)
Net Cash Used In Investing Activities		(2,029	)		(3,901	)
Cash Flows From Financing Activities
Repayment of capital leases		(19	)		(25	)
Repayment of short-term debt		(8	)		-
Net Cash Used In Financing Activities		(27	)		(25	)
Net Decrease In Cash and Cash Equivalents		(4,552	)		(9,050	)
Cash and Cash Equivalents – Beginning		24,740			40,757
Cash and Cash Equivalents – Ending	$	20,188		$	31,707

Market data for the three months ended June 30, 2009

(in thousands)

Market	Revenues		Cost of Revenues		Gross Margin				Operating Costs		Adjusted Market EBITDA
New York	$	1,322	$	228	$	1,094	83	%	$	279	$	815
Boston		1,008		166		842	84	%		238		604
Los Angeles		442		82		360	81	%		238		122
San Francisco		235		56		179	76	%		99		80
Providence/Newport		126		37		89	71	%		19		70
Chicago		220		87		133	60	%		116		17
Miami		150		66		84	56	%		110		(26	)
Seattle		107		59		48	45	%		87		(39	)
Dallas-Fort Worth		63		60		3	5	%		118		(115	)
Total	$	3,673	$	841	$	2,832	77	%	$	1,304	$	1,528

Reconciliation of Non-GAAP Financial Measure to GAAP Financial Measure
Adjusted market EBITDA	$	1,528
Centralized operating costs		(639	)
Corporate expenses		(1,567	)
Depreciation		(982	)
Stock-based compensation		(229	)
Other income (expense)		(211	)
Net loss	$	(2,100	)

Market data for six months ended June 30, 2009

(in thousands)

Market	Revenues		Cost of Revenues		Gross Margin					Operating Costs		Adjusted Market EBITDA
New York	$	2,559	$	426	$	2,133		83	%	$	626	$	1,507
Boston		1,969		335		1,634		83	%		441		1,193
Los Angeles		848		149		699		82	%		510		189
San Francisco		459		100		359		78	%		228		131
Providence/Newport		267		74		193		72	%		71		122
Chicago		422		168		254		60	%		243		11
Miami		260		126		134		52	%		217		(83	)
Seattle		204		126		78		38	%		187		(109	)
Dallas-Fort Worth		102		114		(12	)	(12	%)		243		(255	)
Total	$	7,090	$	1,618	$	5,472		77	%	$	2,766	$	2,706

Reconciliation of Non-GAAP Financial Measure to GAAP Financial Measure
Adjusted market EBITDA	$	2,706
Centralized operating costs		(1,352	)
Corporate expenses		(3,132	)
Depreciation		(1,930	)
Stock-based compensation		(386	)
Other income (expense)		(422	)
Net loss	$	(4,516	)

Conference Call and Webcast

A conference call led by President and Chief Executive Officer, Jeff Thompson, and Chief Financial Officer, Joseph Hernon, will be held on August 5, 2009 at 5:00 p.m.EDT to review results and provide an update on business developments.

Interested parties may participate in the conference by dialing 888-679-8033 or 617-213-4846 (for international callers) using pass code 70974945. A telephonic replay of the conference may be accessed approximately three hours after the call through August 12, 2009 at 11:59 p.m. EDT by dialing 888-286-8010 or 617-801-6888 (for international callers) using pass code 78771672.

The call will also be webcast and can be accessed in a listen-only mode on the Company’s website at http://ir.towerstream.com/events.cfm.

Towerstream’s wireless broadband solution network delivers high-speed Internet access supporting VoIP, bandwidth on demand, wireless redundancy, VPNs, disaster recovery, bundled data, and video services, and can be delivered in days.  Unlike cable Internet and DSL, Towerstream connections are symmetrical, which means that the upload and download speeds are identical.  This creates a more stable connection, suitable for VoIP and web hosting, as well as many other business applications.Companies utilizing multiple appliances simultaneously, such as streaming video and VoIP, can prioritize their bandwidth to secure mission-critical activities.  All of Towerstream’s products are backed by its Service Level Agreement (SLA) and the ability to be up and running within a week.  Towerstream currently serves businesses of all sizes in New York, Boston, Los Angeles, Chicago, the San Francisco Bay Area, Miami, Seattle, Dallas-Fort Worth and Providence/Newport, RI.

For more information, visit www.towerstream.com.

About Towerstream Corporation

Towerstream is a leading fixed WiMAX service provider in the U.S., delivering high-speed Internet access to businesses.  Founded in 2000, the Company has established networks in nine markets including New York City, Boston, Los Angeles, Chicago, the San Francisco Bay Area, Miami, Seattle, Dallas-Fort Worth, and the greater Providence area where the Company is based.  The Company was the first carrier selected to join the WiMAX Forum to assist leading vendors in establishing industry compliance with international broadband wireless access standards and cross-vendor interoperability.  Towerstream was awarded two 2008 Telephony Innovation  Awards for Most Innovative Broadband Wireless Service and Most Innovative Small Business Service and the Best of WiMAX World 2008 Service Provider Deployment Award for its New York City network.

Safe Harbor

Certain statements contained in this press release are “forward-looking statements” within the meaning of applicable federal securities laws, including, without limitation, anything relating or referring to future financial results and plans for future business development activities, and are thus prospective.  Forward-looking statements are inherently subject to risks and uncertainties some of which cannot be predicted or quantified based on current expectations.  Such risks and uncertainties include, without limitation, the risks and uncertainties set forth from time to time in reports filed by the Company with the Securities and Exchange Commission.  Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct.  Consequently, future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements contained herein.  The Company undertakes no obligation to correct or update any forward-looking statements, whether as a result of new information, future events or otherwise.

INVESTOR CONTACT:

Terry McGovern

Vision Advisors

415-902-3001

mcgovern@visionadvisors.net

MEDIA CONTACT:

Amanda Lordy

Dukas Public Relations

212-704-7385

amanda@dukaspr.com