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): May 10, 2011

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 May 10, 2011, Towerstream Corporation (the “Company”) issued a press release announcing results for the three months ended March 31, 2011. 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, except as shall be expressly set forth by specific reference in such filing.

The press release includes EBITDA calculations, which is not a generally accepted accounting principles (“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 with 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, other non-operating income or expenses, as well as gain or loss on (i) disposal of property and equipment, (ii) nonmonetary transactions, and (iii) business acquisitions. 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, excluding non-recurring expenses and Wi-Fi offload program expenses, 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 8.01.Other Events.

On May 10, 2011, the Company and One Velocity, Inc. (“One Velocity”) entered a definitive agreement to acquire certain business assets from One Velocity.  Under the terms of the agreement, the Company will acquire One Velocity business assets operating in Las Vegas and Reno, Nevada including all customer contracts, network infrastructure, and related assets.  The acquisition closing is subject to customary conditions and is expected to close by the end of the second quarter 2011.

Item 9.01.Financial Statements and Exhibits.

(d) Exhibits

99.1  Press Release, dated May 10, 2011

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: May 10, 2011	By:	/s/ Joseph Hernon
		Joseph Hernon
		Chief Financial Officer

EXHIBIT INDEX

Exhibit No. Description

99.1  Press Release, dated May 10, 2011

EX-99.1

Towerstream Reports First Quarter 2011 Results

MIDDLETOWN, R.I., May 10, 2011 – Towerstream Corporation (NASDAQ: TWER), a leading 4G service provider delivering high-speed wireless Internet access to businesses in 11 major metropolitan areas in the U.S., announced results for the first quarter ended March 31, 2011.

First Quarter Operating Highlights

· Revenues increased 9% to $6.0 million during the first quarter 2011 compared to the fourth quarter 2010 and increased 40% compared to the first quarter 2010

· Gross margin remained strong at 75% during the first quarter 2011

· Adjusted Market EBITDA profitability increased to $3.1 million in the first quarter 2011 as compared to $2.9 million for the fourth quarter 2010 and $2.1 million for the first quarter 2010

· Adjusted EBITDA profitability, excluding non-recurring expenses and costs associated with the Wi-Fi offload program, increased to $0.8 million for the first quarter 2011 compared to $0.7 million for the fourth quarter 2010 and compared to an Adjusted EBITDA loss of $0.1 million for the first quarter 2010

· Customer churn for the first quarter 2011 was 1.56% compared to 1.36% during the fourth quarter 2010 and 1.29% during the first quarter 2010

· Cost associated with the Company’s Wi-Fi offload program totaled $1.2 million in the first quarter 2011 as compared to $0.1 million in the fourth quarter 2010 and $0.2 million in the first quarter 2010

Management Comments

“The combination of organic growth and a disciplined acquisition strategy has given us a great start for top line growth in 2011,” stated Jeff Thompson, Chief Executive Officer. 

“We continue to achieve significant progress building what we believe is the largest and fastest Wi-Fi offload network in Manhattan,” added Mr. Thompson.  “The NYC network will be ready for customers in the second half of 2011.”

“Adjusted EBITDA profitability from our core business continues to increase and our financial position remains strong,” stated Joseph Hernon, Chief Financial Officer. “Cash balances decreased only $1.2 million in the first quarter even though we invested approximately that amount on our Wi-Fi offload program.”

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Selected Financial Data and Key Operating Metrics

(All dollars are in thousands except ARPU)

	(Unaudited)
	Three months ended
	3/31/2011			12/31/2010			3/31/2010
Selected Financial Data
Revenues	$	5,953		$	5,452		$	4,244
Gross margin		75	%		75	%		75	%
Depreciation and amortization		1,975			1,658			1,101
Core operating expenses (1)( 2)		3,986			3,842			3,620
Operating loss (1)		(1,514	)		(1,403	)		(1,552	)
Net loss (1)		(1,513	)		(1,378	)		(1,532	)
Adjusted EBITDA (2)		593			374			(234	)
Non-recurring expenses		49			332			150
Wi-Fi offload program		121			-			-
Adjusted EBITDA excluding non-recurring and Wi-Fi offload program expenses (2)		763			706			(84	)
Capital expenditures
Wireless broadband	$	1,532		$	1,400		$	1,154
Wi-Fi offload		1,088			57			220
Key Operating Metrics
Churn rate (2)		1.56	%		1.36	%		1.29	%
ARPU (2)	$	688		$	682		$	703
ARPU of new customers (2)		558			661			503

(1) Includes stock-based compensation of $106, $94 and $194, respectively.

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

Operating Outlook and Guidance

· Revenues for the second quarter 2011 are expected to range between $6.4 million to $6.5 million.

· Adjusted EBITDA profitability is expected to range between $0.9 million to $1.0 million.

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.

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We focus on Adjusted EBITDA as a principal 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, other non-operating income or expenses as well as gain or loss on (i) disposal of property and equipment, (ii) nonmonetary transactions, and (iii) business acquisitions.  Adjusted Market EBITDA also excludes corporate overhead expenses and other centralized costs.  We believe that Adjusted Market EBITDA trends are insightful indicators of our markets’ relative performance, and whether our markets are able to produce sufficient market cash flow to fund working capital and capital expenditure needs.

The term “Core Operating Expenses” includes customer support services, sales and marketing, and general and administrative expenses, and excludes cost of revenues, depreciation and amortization.

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 costs which support all markets collectively or (ii) any network related capital expenditures incurred in a market.

The Non-GAAP measure, Adjusted EBITDA, excluding non-recurring expenses and Wi-Fi offload program expenses, has been reconciled to Net loss as follows:

(All dollars are in thousands)

	Three months ended
	3/31/2011			12/31/2010			3/31/2010
Reconciliation of Non-GAAP to GAAP:
Adjusted EBITDA, excluding non-recurring expenses and Wi-Fi offload program expenses	$	763		$	706		$	(84	)
Depreciation and amortization		(1,975	)		(1,658	)		(1,101	)
Non-recurring expenses, primarily acquisition-related		(49	)		(332	)		(150	)
Wi-Fi offload program expenses		(121	)		-			-
Stock-based compensation		(106	)		(94	)		(194	)
Loss on property and equipment		(18	)		(25	)		(23	)
Loss on nonmonetary transactions		(8	)		-			-
Interest expense		(3	)		(1	)		-
Other income (expense), net		(2	)		23			20
Interest income		6			3			-
Net loss	$	(1,513	)	$	(1,378	)	$	(1,532	)

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Summary Condensed Consolidated Financial Statements

(All dollars are in thousands except per share amounts)

Statement of Operations	(Unaudited)
	Three months ended March 31,
	2011			2010
Revenues	$	5,953		$	4,244
Operating Expenses
Cost of revenues (exclusive of depreciation)		1,506			1,075
Depreciation and amortization		1,975			1,101
Customer support services		771			578
Sales and marketing		1,340			1,233
General and administrative		1,875			1,809
Total Operating Expenses		7,467			5,796
Operating Loss		(1,514	)		(1,552	)
Other Income (Expense)
Interest income		6			-
Interest expense		(3	)		-
Other income (expense), net		(2	)		20
Total Other Income (Expense)		1			20
Net Loss	$	(1,513	)	$	(1,532	)
Net loss per common share	$	(0.04	)	$	(0.04	)
Weighted average common shares outstanding – basic and diluted		42,210			34,668

Analysis of First Quarter Results of Operations

Revenues for the first quarter 2011 increased 9% from the fourth quarter 2010 and increased 40% compared to the first quarter 2010. These increases were driven by a 43% growth in our customer base from approximately 2,100 customers at the end of the first quarter 2010 to approximately 2,900 at the end of the first quarter 2011.

ARPU of new customers decreased 16% in the first quarter 2011 compared to the fourth quarter 2010 and increased 11% compared to the first quarter 2010. The sequential decrease related to a higher relative percentage of new lower ARPU, multi-point customers in the first quarter of 2011 compared to mid-range customers. However, new higher ARPU point-to-point customers continued to increase in the first quarter 2011 and were significantly higher than the first quarter 2010. ARPU of all customers in the first quarter 2011 increased 1% compared to the fourth quarter 2010 and decreased 2% compared to the first quarter 2010.

Customer churn during the first quarter 2011 was 1.56% compared to 1.36% during the fourth quarter 2010 and 1.29% during the first quarter 2010. While our churn rate was higher, it was within our targeted range of 1.4% to 1.7% and remains low compared to industry averages.

Depreciation and amortization expenses increased 19% in the first quarter 2011 compared to the fourth quarter 2010 and increased 79% compared to the first quarter 2010.  The increases are primarily related to the amortization of customer based intangible assets recorded in connection with the acquisitions of Sparkplug Chicago and Pipeline Wireless in 2010.

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Customer support expenses increased 16% in the first quarter 2011 compared to the fourth quarter 2010 and increased 33% compared to the first quarter 2010. These increases reflect staffing additions and other costs incurred to support a customer base which increased 43% over the one year period.

Sales and marketing expenses increased 7% in the first quarter 2011 compared to the fourth quarter 2010 and increased 9% compared to the first quarter 2010. The sequential increase primarily relates to payroll taxes which are generally at their highest level in the first quarter and their lowest level in the fourth quarter. The year-over-year increase related to higher commissions earned.

General and administrative expenses decreased 3% in the first quarter 2011 compared to the fourth quarter 2010 and increased 4% compared to the first quarter 2010. The sequential improvement is attributable to lower professional service fees related to the Pipeline acquisition in the fourth quarter 2010. The year-over-year increase is primarily attributable to higher payroll costs.

Net loss increased 10% in the first quarter 2011 compared to the fourth quarter 2010 and decreased 1% compared to the first quarter 2010. The sequential increase related to operating expenses associated with the Wi-Fi offload program which totaled $121,000 in the first quarter 2011 as compared to zero in the fourth quarter 2010.

Capital expenditures totaled $2.6 million for the first quarter 2011 as compared to $1.5 million for the fourth quarter 2010 and $1.4 million for the first quarter 2010. The Company spent $1.1 million in the first quarter 2011 related to the construction of a Wi-Fi offload network, primarily in New York City, compared to $0.1 million in the fourth quarter 2010 and $0.2 million in the first quarter 2010.

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Balance Sheet

	(Unaudited) March 31, 2011			(Audited) December 31, 2010
Assets
Current Assets
Cash and cash equivalents	$	22,006		$	23,173
Other		896			856
Total Current Assets		22,902			24,029
Property and equipment, net		16,540			15,266
Other assets		4,719			5,295
Total Assets		44,161			44,590
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable and accrued expenses		3,281			2,506
Deferred revenues and other		1,433			1,339
Total Current Liabilities		4,714			3,845
Long-Term Liabilities		628			724
Total Liabilities		5,342			4,569
Stockholders’ Equity
Common stock		42			42
Additional paid-in-capital		75,643			75,333
Accumulated deficit		(36,866	)		(35,354	)
Total Stockholders’ Equity		38,819			40,021
Total Liabilities and Stockholders’ Equity	$	44,161		$	44,590

Statement of Cash Flows (Unaudited)

	Three months ended March 31,
	2011			2010
Cash Flows From Operating Activities
Net loss	$	(1,513	)	$	(1,532	)
Non-cash adjustments:
Depreciation & amortization		1,975			1,101
Stock-based compensation		106			194
Other		25			52
Changes in operating assets and liabilities		684			(373	)
Net Cash Provided By (Used In) Operating Activities		1,277			(558	)
Cash Flows From Investing Activities
Acquisitions of property and equipment		(2,620	)		(1,374	)
Other		(9	)		-
Net Cash Used In Investing Activities		(2,629	)		(1,374	)
Cash Flows From Financing Activities
Repayment of capital leases		(20	)		-
Proceeds from option exercises		205			-
Net Cash Provided By Financing Activities		185			-
Net Decrease In Cash and Cash Equivalents		(1,167	)		(1,932	)
Cash and Cash Equivalents – Beginning		23,173			14,041
Cash and Cash Equivalents – Ending	$	22,006		$	12,109

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Market data for the three months ended March 31, 2011

(All dollars are in thousands)

Market	Revenues		Cost of Revenues(1)		Gross Margin(1)				Operating Costs		Adjusted Market EBITDA
Boston	$	1,653	$	394	$	1,259	76	%	$	222	$	1,037
New York		1,448		340		1,108	77	%		332		776
Los Angeles		950		174		776	82	%		261		515
Chicago		817		227		590	72	%		185		405
San Francisco		349		60		289	83	%		93		196
Miami		301		69		232	77	%		103		129
Seattle		136		53		83	61	%		29		54
Providence/Newport		119		41		78	66	%		27		51
Dallas-Fort Worth		144		81		63	44	%		65		(2	)
Nashville		16		8		8	50	%		12		(4	)
Philadelphia		20		13		7	35	%		28		(21	)
Total	$	5,953	$	1,460	$	4,493	75	%	$	1,357	$	3,136
Reconciliation of Non-GAAP Financial Measure to GAAP Financial Measure
Adjusted market EBITDA											$	3,136
Centralized costs (1)												(799	)
Corporate expenses												(1,770	)
Depreciation and amortization												(1,975	)
Stock-based compensation												(106	)
Other income (expense)												1
Net loss											$	(1,513	)

Market data for the three months ended March 31, 2010

(All dollars are in thousands)

Market	Revenues		Cost of Revenues(1)		Gross Margin(1)					Operating Costs		Adjusted Market EBITDA
New York	$	1,394	$	273	$	1,121		80	%	$	290	$	831
Boston		1,053		175		878		83	%		174		704
Los Angeles		675		133		542		80	%		289		253
San Francisco		269		57		212		79	%		65		147
Chicago		292		111		181		62	%		96		85
Providence/Newport		129		44		85		66	%		35		50
Miami		199		70		129		65	%		87		42
Seattle		122		52		70		57	%		31		39
Dallas-Fort Worth		111		82		29		26	%		53		(24	)
Philadelphia		-		15		(15	)	0	%		51		(66	)
Total	$	4,244	$	1,012	$	3,232		76	%	$	1,171	$	2,061
Reconciliation of Non-GAAP Financial Measure to GAAP Financial Measure
Adjusted market EBITDA												$	2,061
Centralized costs (1)													(703	)
Corporate expenses													(1,615	)
Depreciation													(1,101	)
Stock-based compensation													(194	)
Other income (expense)													20
Net loss												$	(1,532	)

(1) Certain expenses are reported as Cost of Revenues for financial statement purposes but are included in Centralized costs in the Market Data table because they are not specific to any market.  These costs totaled $46 and $63 respectively for the three months ended March 31, 2011 and 2010.

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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 May 10, 2011 at 5:00 p.m.ETto review our financial results and provide an update on current business developments.

Interested parties may participate in the conference by dialing 877-755-7423 or 678-894-3069 (for international callers). A telephonic replay of the conference may be accessed approximately two hours after the call through May 17, 2011 at 11:59 p.m. ET by dialing 800-642-1687 or 706-645-9291 (for international callers) using pass code 60741164.

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/eventdetail.cfm?eventid=95823.

About Towerstream Corporation

Towerstream is a leading 4G service provider in the U.S., delivering high-speed wireless Internet access to businesses. Founded in 2000, the Company has established networks in 11 markets including New York City, Boston, Los Angeles, Chicago, Philadelphia, the San Francisco Bay area, Miami, Seattle, Dallas-Fort Worth, Nashville, and the greater Providence area where the Company is based. For more information, visit our website at www.towerstream.com or follow us on Twitter @Towerstream.

The Towerstream Corporation logo is available at:http://www.globenewswire.com/newsroom/prs/?pkgid=6570.

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 have the ability to be up and running within a week.

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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:

Matt Calderone

LaunchSquad Public Relations

212-564-3665

towerstream@launchsquad.com

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