10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2014

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from_______to_______

Commission file number 001-33449

TOWERSTREAM CORPORATION

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	20-8259086 (I.R.S. Employer Identification No.)
88 Silva Lane Middletown, Rhode Island (Address of principal executive offices)	02842 (Zip Code)

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

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  ☒   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).

Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

                                        Large accelerated filer ☐                                                                                                                                   Accelerated filer ☒

                                        Non-accelerated filer ☐ (Do not check if a smaller reporting company)                                                    Smaller reporting company ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐No ☒

As of August 7, 2014, there were 66,643,804 shares of common stock, par value $0.001 per share, outstanding.

TOWERSTREAM CORPORATION AND SUBSIDIARIES

Table of Contents

		Pages
Part I	FINANCIAL INFORMATION
Item 1.	Financial Statements.	1
	Condensed Consolidated Balance Sheets as of  June 30, 2014 (unaudited) and December 31, 2013	1
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2014 and 2013 (unaudited)	2
	Condensed Consolidated Statement of Stockholders’ Equity for the Six Months Ended June 30, 2014 (unaudited)	3
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2014 and 2013 (unaudited)	4
	Notes to Unaudited Condensed Consolidated Financial Statements	5-15
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	16-28
Item 3.	Quantitative and Qualitative Disclosures about Market Risk.	28
Item 4.	Controls and Procedures.	28
Part II	OTHER INFORMATION
Item 6.	Exhibits.	30

ii

TOWERSTREAM CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	(Unaudited) June 30, 2014			December 31, 2013
Assets
Current Assets
Cash and cash equivalents	$	17,288,707		$	28,181,531
Accounts receivable, net		796,485			611,548
Prepaid expenses and other current assets		1,370,386			925,587
Total Current Assets		19,455,578			29,718,666
Property and equipment, net		36,836,707			38,484,858
Intangible assets, net		2,395,994			3,088,827
Goodwill		1,674,281			1,674,281
Other assets		1,807,906			1,950,835
Total Assets	$	62,170,466		$	74,917,467
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable	$	1,457,625		$	1,241,743
Accrued expenses		1,943,068			2,532,679
Deferred revenues		1,283,744			1,396,780
Current maturities of capital lease obligations		781,651			783,051
Other		51,443			67,255
Total Current Liabilities		5,517,531			6,021,508
Long-Term Liabilities
Capital lease obligations, net of current maturities		1,398,053			1,805,336
Other		1,492,438			996,682
Total Long-Term Liabilities		2,890,491			2,802,018
Total Liabilities		8,408,022			8,823,526
Commitments (Note 12)
Stockholders' Equity
Preferred stock, par value $0.001; 5,000,000 shares authorized; none issued		-			-
Common stock, par value $0.001; 95,000,000 shares authorized; 66,643,804 and 66,424,561 shares issued and outstanding, respectively		66,644			66,425
Additional paid-in-capital		154,744,392			154,171,695
Accumulated deficit		(101,048,592	)		(88,144,179	)
Total Stockholders' Equity		53,762,444			66,093,941
Total Liabilities and Stockholders' Equity	$	62,170,466		$	74,917,467

The accompanying notes are an integral part of these condensed consolidated financial statements.

1

TOWERSTREAM CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Revenues	$	8,264,848		$	8,212,175		$	16,644,754		$	16,511,398
Operating Expenses
Cost of revenues (exclusive of depreciation)		6,101,913			5,166,287			11,957,856			10,147,593
Depreciation and amortization		3,281,062			3,935,826			6,976,477			7,806,913
Customer support services		1,147,275			1,181,717			2,319,410			2,578,611
Sales and marketing		1,399,089			1,523,804			2,820,688			2,964,660
General and administrative		2,666,997			2,636,033			5,344,937			5,773,632
Total Operating Expenses		14,596,336			14,443,667			29,419,368			29,271,409
Operating Loss		(6,331,488	)		(6,231,492	)		(12,774,614	)		(12,760,011	)
Other Income/(Expense)
Interest expense, net		(59,488	)		(58,670	)		(122,539	)		(94,284	)
Gain on business acquisition		-			62,642			-			1,004,099
Other income (expense), net		(3,630	)		(3,630	)		(7,260	)		(7,260	)
Total Other Income/(Expense)		(63,118	)		342			(129,799	)		902,555
Net Loss	$	(6,394,606	)	$	(6,231,150	)	$	(12,904,413	)	$	(11,857,456	)
Net loss per common share – basic and diluted	$	(0.10	)	$	(0.09	)	$	(0.19	)	$	(0.19	)
Weighted average common shares outstanding – basic and diluted		66,478,686			66,370,789			66,458,983			63,931,300

The accompanying notes are an integral part of these condensed consolidated financial statements.

2

TOWERSTREAM CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

For the Six Months Ended June 30, 2014

	Common Stock
	Shares		Amount		Additional Paid-In-Capital			Accumulated Deficit			Total
Balance at December 31, 2013		66,424,561	$	66,425	$	154,171,695		$	(88,144,179	)	$	66,093,941
Cashless exercise of options		192,270		192		(192	)		-			-
Issuance of common stock under employee stock purchase plan		11,973		12		25,464			-			25,476
Issuance of common stock upon vesting of restricted stock awards		15,000		15		(15	)		-			-
Stock-based compensation for options		-		-		551,233			-			551,233
Fair value of options repurchased		-		-		(3,793	)		-			(3,793	)
Net loss		-		-		-			(12,904,413	)		(12,904,413	)
Balance at June 30, 2014		66,643,804	$	66,644	$	154,744,392		$	(101,048,592	)	$	53,762,444

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

TOWERSTREAM CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six Months Ended June 30,
	2014			2013
Cash Flows From Operating Activities
Net loss	$	(12,904,413	)	$	(11,857,456	)
Adjustments to reconcile net loss to net cash used in operating activities:
Provision for doubtful accounts		117,000			60,000
Depreciation for property, plant and equipment		6,283,644			6,236,334
Amortization for customer based intangibles		692,833			1,570,579
Stock-based compensation		555,034			667,376
Gain on business acquisition		-			(1,004,099	)
Loss on sale and disposition of property and equipment		-			59,135
Deferred rent		161,890			(57,880	)
Changes in operating assets and liabilities:
Accounts receivable		(301,937	)		(59,552	)
Prepaid expenses and other current assets		(444,799	)		(244,169	)
Other assets		161,650			233,634
Accounts payable		215,882			(685,847	)
Accrued expenses		(1,161,615	)		(1,472,991	)
Deferred revenues		(113,036	)		(172,991	)
Total Adjustments		6,166,546			5,129,529
Net Cash Used In Operating Activities		(6,737,867	)		(6,727,927	)
Cash Flows From Investing Activities
Acquisitions of property and equipment		(4,063,489	)		(2,119,826	)
Lease incentive payment from landlord		380,000			-
Acquisition of a business, net of cash acquired		-			(222,942	)
Proceeds from sale of property and equipment		-			1,465
Payments of security deposits		(18,721	)		(25,644	)
Deferred acquisition payments		(61,946	)		(83,545	)
Net Cash Used In Investing Activities		(3,764,156	)		(2,450,492	)
Cash Flows From Financing Activities
Payments on capital leases		(408,683	)		(376,207	)
Issuance of common stock upon exercise of options		-			253,189
Issuance of common stock under employee stock purchase plan		21,675			37,411
Net proceeds from sale of common stock		-			30,499,336
Fair value of options repurchased		(3,793	)		-
Net Cash (Used In) Provided By Financing Activities		(390,801	)		30,413,729
Net (Decrease) Increase In Cash and Cash Equivalents		(10,892,824	)		21,235,310
Cash and Cash Equivalents – Beginning		28,181,531			15,152,226
Cash and Cash Equivalents – Ending	$	17,288,707		$	36,387,536
Supplemental Disclosures of Cash Flow Information
Cash paid during the periods for:
Interest	$	137,527		$	94,525
Taxes	$	41,269		$	28,336
Non-cash investing and financing activities:
Fair value of common stock issued in connection with an acquisition	$	-		$	951,256
Acquisition of property and equipment:
Under capital leases	$	-		$	80,894
Included in accrued expenses	$	572,004		$	433,408

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

TOWERSTREAM CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1.    Organization and Nature of Business

Towerstream Corporation (referred to as “Towerstream” or the “Company”) was incorporated in Delaware in December 1999. During its first decade of operations, the Company's business activities were focused on delivering fixed wireless broadband services to commercial customers over a wireless network transmitting over both regulated and unregulated radio spectrum. The Company's fixed wireless service supports bandwidth on demand, wireless redundancy, virtual private networks, disaster recovery, bundled data and video services. The Company provides services to business customers in New York City, Boston, Chicago, Los Angeles, San Francisco, Seattle, Miami, Dallas-Fort Worth, Houston, Philadelphia, Las Vegas-Reno and Providence-Newport. The Company's “fixed wireless business” has historically grown both organically and through the acquisition of five other fixed wireless broadband providers in various markets.

In January 2013, the Company incorporated a wholly-owned subsidiary, Hetnets Tower Corporation (“Hetnets”).  Hetnets was formed to operate a new shared wireless infrastructure platform that emerged from the Company's efforts to identify opportunities to leverage its fixed wireless network in urban markets to provide other wireless technology solutions and services.  Hetnets operates a carrier-class network which has been constructed on "street level rooftops" which are closer to the ground (where Wi-Fi and small cell can operate with less interference from the macro cell) than the Company's traditional fixed wireless network.  The Company believes that the wireless communications industry is experiencing a fundamental shift from its traditional macro-cellular architecture to densified small cell architecture where existing cell sites will be supplemented by many smaller base stations operating near street level.  Hetnets is structured to operate like a tower company and expects to generate rental income from four separate sources including (i) rental of space on street level rooftops for the installation of customer owned small cells which includes Wi-Fi antennae, DAS, and Metro and Pico cells, (ii) rental of a channel on Hetnets’ Wi-Fi network for internet access and the offloading of mobile data, (iii) rental of a port for backhaul or transport, and (iv) power and other related services. The Company refers to the activities of Hetnets as its “shared wireless infrastructure” (or “shared wireless”) business.

       In June 2013, Hetnets entered into a Wi-Fi service agreement (the “Wi-Fi Agreement”) with a major cable operator (the “Cable Operator”). The Wi-Fi Agreement provides leased access to certain access points, primarily within New York City and Bergen County, New Jersey. The Cable Operator has a limited right to expand access in other Hetnets’ markets. The term of the Wi-Fi Agreement is for an initial three year period, and provides for automatic annual renewals for two additional one year periods.

Note 2.    Summary of Significant Accounting Policies

Basis of Presentation. The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and with Form 10-Q and Article 10 of Regulation S-X of the United States Securities and Exchange Commission. Accordingly, they do not contain all information and footnotes required by GAAP for annual financial statements. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of June 30, 2014 and the results of operations and cash flows for the periods presented. The results of operations for the six months ended June 30, 2014 are not necessarily indicative of the operating results for the full fiscal year or for 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, 2013. 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, 2013, and updated, as necessary, in this Quarterly Report on Form 10-Q.

Use of Estimates.    The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the amounts of revenues and expenses. Actual results could differ from those estimates.

Cash and Cash Equivalents.    The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

5

TOWERSTREAM CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Concentration of Credit Risk.    Financial instruments that potentially subject the Company to significant concentrations of credit risk consist of cash and cash equivalents. At times, our cash and cash equivalents may be uninsured or in deposit accounts that exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance limits. As of June 30, 2014, the Company had cash and cash equivalent balances of approximately $2,014,000 in excess of the federally insured limit of $250,000.

The Company also had approximately $15,017,000 invested in institutional money market funds. These funds are protected under the Securities Investor Protection Corporation, a nonprofit membership corporation which provides limited coverage up to $500,000.

Accounts Receivable. Accounts receivable are stated at cost less an allowance for doubtful accounts which reflects the Company’s estimate of balances that will be not collected. The allowance is based on the history of past write-offs, the aging of balances, collections experience and current credit conditions. Additions include provisions for doubtful accounts and deductions include customer write-offs. Changes in the allowance for doubtful accounts were as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Beginning of period	$	65,719		$	143,437		$	81,009		$	190,109
Additions		107,000			60,000			117,000			60,000
Deductions		(10,856	)		(40,759	)		(36,146	)		(87,431	)
End of period	$	161,863		$	162,678		$	161,863		$	162,678

Business Acquisitions. Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the fair value of the consideration transferred on the acquisition date.  When the Company acquires a business, it assesses the acquired assets and liabilities assumed for the appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions at the acquisition date. The excess of the total consideration transferred over the net identifiable assets acquired and liabilities assumed is recognized as goodwill.  If this consideration is lower than the fair value of the identifiable net assets acquired, the difference is recognized as a gain on business acquisition. Acquisition costs are expensed and included in general and administrative expenses in our condensed consolidated statements of operations.

The highest level of judgment and estimation involved in accounting for business acquisitions relates to determining the fair value of the customer relationships and network assets acquired. In each of the five acquisitions completed over the past four years, the highest asset value has been allocated to the customer relationships acquired. Determining the fair value of customer relationships involves judgments and estimates regarding how long the customers will continue to contract services with the Company. During the course of completing five acquisitions, the Company has developed a database of historical experience from prior acquisitions to assist in preparing future estimates of cash flows. Similarly, the Company has used its historical experience in building networks to prepare estimates regarding the fair value of the network assets that it acquires.

Revenue Recognition. The Company normally enters into contractual agreements with its customers for periods ranging between one to three years. The Company recognizes the total revenue provided under a contract ratably over the contract period, including any periods under which the Company has agreed to provide services at no cost. The Company recognizes revenue 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.

Deferred Revenues. Customers are billed monthly in advance. Deferred revenues are recognized for that portion of monthly charges not yet earned as of the end of the reporting period. Deferred revenues are also recognized for certain customers who pay for their services in advance.

Goodwill. Goodwill represents the excess of the purchase price over the estimated fair value of identifiable net assets acquired in an acquisition. Goodwill is not amortized but rather is reviewed annually for impairment, or whenever events or circumstances indicate that the carrying value may not be recoverable. The Company initially performs a qualitative assessment of goodwill which considers macro-economic conditions, industry and market trends, and the current and projected financial performance of the reporting unit.  No further analysis is required if it is determined that there is a less than 50 percent likelihood that the carrying value is greater than the fair value. 

6

TOWERSTREAM CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Recent Accounting Pronouncements. In May 2014, Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09 (“ASU 2014-09”), “Revenue from Contracts with Customers,” which requires an entity to recognize revenue representing the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to receive in exchange for those goods or services. ASU 2014-09 is intended to establish principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenues and cash flows arising from the entity’s contracts with customers. ASU 2014-09 will replace most existing revenue recognition guidance in GAAP when it becomes effective. The new standard is effective for the Company on January 1, 2017. Early application is not permitted. The Company is currently evaluating the effect that ASU 2014-09 will have on its condensed consolidated financial statements and related disclosures.

In June 2014, FASB issued ASU No. 2014-12 (“ASU 2014-12”), “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period,” which requires a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. ASU 2014-12 states that the performance target should not be reflected in estimating the grant date fair value of the award. ASU 2014-12 clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the periods for which the requisite service has already been rendered. The new standard is effective for the Company on January 1, 2016. The Company does not expect adoption of ASU 2014-12 to have a significant impact on its condensed consolidated financial statements.

Reclassifications.    Certain accounts in the prior year’s condensed consolidated financial statements have been reclassified for comparative purposes to conform to the presentation in the current year’s condensed consolidated financial statements. These reclassifications have no effect on the previously reported net loss.

Subsequent Events. Subsequent events have been evaluated through the date of this filing.

Note 3.    Business Acquisitions

Delos Internet

In February 2013, the Company completed the acquisition of Delos Internet (“Delos”). The Company obtained full control of Delos and determined that the acquisition was a business combination to be accounted for under the acquisition method. The following table summarizes the consideration transferred and the amounts of identified assets acquired and liabilities assumed at the acquisition date. The number of shares issued was based on the closing price of the Company's common stock on the February 28, 2013 closing date which was $2.47.

Fair value of consideration transferred:	Original			Adjustments			Final
Cash	$	225,000		$	-		$	225,000
Common stock		1,071,172			(119,916	)		951,256
Other liabilities assumed		-			36,733			36,733
Capital lease obligations assumed		128,929			-			128,929
Total consideration transferred		1,425,101			(83,183	)		1,341,918
Fair value of identifiable assets acquired and liabilities assumed:
Cash		2,058			-			2,058
Accounts receivable		80,524			1,286			79,238
Property and equipment		826,524			18,824			807,700
Security deposits		1,993			-			1,993
Accounts payable		(26,970	)		2,566			(29,536	)
Deferred revenue		(62,110	)		(2,135	)		(59,975	)
Other liabilities		(89,930	)		-			(89,930	)
Total identifiable net tangible assets		732,089			20,541			711,548
Customer relationships		1,634,469			-			1,634,469
Total identifiable net assets		2,366,558			20,541			2,346,017
Gain on business acquisition	$	941,457		$	62,642		$	1,004,099

7

TOWERSTREAM CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

The Company recognized a gain on business acquisition of $1,004,099 which is included in other income (expense) in the Company’s condensed consolidated statements of operations for the six months ended June 30, 2013. The challenging economic environment during 2012 made it difficult for smaller companies like Delos to raise sufficient capital to sustain their growth.  As a result, the Company was able to acquire the customer relationships and wireless network of Delos at a discounted price.

In May 2013, the Company finalized the purchase price of Delos which resulted in a reduction of approximately $21,000 of identifiable net assets and an increase in the gain on business acquisition of approximately $63,000. The purchase price adjustment resulted in a decrease in the number of shares of common stock issued to Delos of 48,549 from 433,673 to 385,124 shares.

The Company incurred approximately $41,000 and $99,000, respectively, of third-party costs in connection with the Delos acquisition for the three and six month ended June 30, 2013. These expenses are included in the general and administrative expenses in the Company’s condensed consolidated statements of operations for the respective periods.

Pro Forma Information

The following table reflects the unaudited pro forma consolidated results of operations had the acquisition taken place at the beginning of the 2013 period:

	Six Months Ended June 30, 2013
Revenues	$	16,623,968
Amortization expense		1,635,958
Total operating expenses		29,443,388
Net loss		(11,916,865	)
Basic net loss per share	$	(0.19	)

The pro forma information presented above does not purport to present what actual results would have been had the acquisition actually occurred at the beginning of 2013 and are not necessarily indicative of the operating results for any future period.

Note 4.    Property and Equipment

Property and equipment is comprised of:

	June 30, 2014		December 31, 2013
Network and base station equipment	$	34,173,206	$	32,233,262
Customer premise equipment		25,124,372		24,244,017
Shared wireless infrastructure		20,624,465		19,128,064
Information technology		4,565,143		4,417,869
Furniture, fixtures and other		1,667,977		1,661,567
Leasehold improvements		1,599,093		1,433,984
		87,754,256		83,118,763
Less: accumulated depreciation		50,917,549		44,633,905
Property and equipment, net	$	36,836,707	$	38,484,858

Property acquired through capital leases included within the Company’s property and equipment consists of the following:

	June 30, 2014		December 31, 2013
Network and base station equipment	$	828,027	$	828,027
Shared wireless infrastructure		1,216,142		1,216,142
Customer premise equipment		96,843		96,843
Information technology		1,860,028		1,860,028
		4,001,040		4,001,040
Less: accumulated depreciation		1,733,770		1,333,666
Property acquired through capital leases, net	$	2,267,270	$	2,667,374

8

TOWERSTREAM CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Note 5. Intangible Assets

Intangible assets consist of the following:

	June 30, 2014		December 31, 2013
Goodwill	$	1,674,281	$	1,674,281
Customer relationships	$	11,856,127	$	11,856,127
Less: accumulated amortization of customer relationships		10,744,688		10,051,855
Customer relationships, net		1,111,439		1,804,272
FCC licenses		1,284,555		1,284,555
Intangible assets, net	$	2,395,994	$	3,088,827

Amortization expense for the three months ended June 30, 2014 and 2013 was $107,807 and $817,979, respectively. Amortization expense for the six months ended June 30, 2014 and 2013 was $692,833 and $1,570,579, respectively. The customer contracts acquired in the Company’s acquisition of Delos are being amortized over a 50 month period ending April 2017. As of June 30, 2014, the remaining amortization period for the Delos acquisition was 34 months. Balances related to the Company’s other acquisitions have been fully amortized. Future amortization expense is as follows:

Remainder of 2014	$	196,136
2015		392,272
2016		392,272
2017		130,759
	$	1,111,439

The Company’s licenses with the Federal Communications Commission (“FCC”) are not subject to amortization as they have an indefinite useful life.

Note 6. Accrued Expenses

Accrued expenses consist of the following:

	June 30, 2014		December 31, 2013
Property and equipment	$	572,004	$	867,311
Payroll and related		813,005		937,624
Professional services		160,712		186,917
Network		127,719		138,684
Marketing		84,830		108,741
Other		184,798		293,402
Total	$	1,943,068	$	2,532,679

Network expenses consist of costs incurred to provide services to our customers and include tower rentals, bandwidth, troubleshooting and gear removal.

Note 7.    Other Liabilities

Other liabilities consist of the following:

	June 30, 2014		December 31, 2013
Current
Deferred rent	$	40,644	$	-
Deferred acquisition payments		10,799		67,255
Total	$	51,443	$	67,255
Long-Term
Deferred rent	$	1,163,607	$	662,361
Deferred acquisition payments		6,026		11,516
Deferred taxes		322,805		322,805
Total	$	1,492,438	$	996,682

9

TOWERSTREAM CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Deferred acquisition payments related to Delos totaled $16,825 at June 30, 2014 and bear interest at rates ranging from 7% to 12.5%. In May 2014, the Company made its last deferred acquisition payment of $16,630 related to the acquisition of Pipeline Wireless LLC.

Note 8. Stock Options and Warrants

Stock Options

The Company uses the Black-Scholes option pricing model to value options issued to employees, directors and consultants. Compensation expense, including on the date of grant the effect of forfeitures, is recognized over the period of service, generally the vesting period. Stock compensation expense and the weighted average assumptions used to calculate the fair values of stock options granted during the periods indicated were as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Risk-free interest rate		1.6	%		1.0 - 1.5	%		1.6	%		0.8 - 1.5	%
Expected volatility		47	%		65	%		47	%		65 - 68	%
Expected life (in years)		5.3		5.3 – 6.5				5.3			5 - 6.5
Expected dividend yield		-			-			-			-
Weighted average per share grant date fair value	$	0.84		$	1.46		$	0.84		$	1.46
Stock-based compensation	$	260,882		$	253,098		$	551,233		$	631,304

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 as a result of limited historical data regarding the Company’s activity. The dividend yield is based upon the fact that the Company has not historically paid dividends, and does not expect to pay dividends in the foreseeable future. Stock-based compensation is included in general and administrative expenses in the accompanying condensed consolidated statements of operations. The unamortized amount of stock options expense totaled $1,231,353 as of June 30, 2014 which will be recognized over a weighted-average period of 1.8 years.

Option transactions under the stock option plans during the six months ended June 30, 2014 were as follows:

	Number			Weighted Average Exercise Price
Outstanding as of December 31, 2013		4,055,016		$	2.70
Granted during 2014		200,000		$	1.93
Exercised		(340,906	)	$	0.74
Forfeited /expired		(110,805	)	$	2.68
Outstanding as of June 30, 2014		3,803,305		$	2.83
Exercisable as of June 30, 2014		2,659,485		$	2.70

In June 2014, the Company made its annual grant to the Board of Directors consisting of 200,000 options with an exercise price of $1.93 vesting monthly through May 2015.

A total of 340,906 options were exercised on a cashless basis during the three ended June 30, 2014 resulting in the net issuance of 192,270 shares.

Cancellations for the three and six months ended June 30, 2014 were 75,805 and 110,805, respectively. Cancellations related to employee terminations except for 14,250 options which were repurchased during the three months ended June 30, 2014.

The weighted average remaining contractual life of the outstanding options as of June 30, 2014 was 5.9 years.

10

TOWERSTREAM CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

The intrinsic value of outstanding and exercisable options totaled $645,363 and $643,363 respectively, as of June 30, 2014. The intrinsic value is calculated as the difference between the closing price of the Company’s common stock as of June 30, 2014, which was $1.94 per share, and the exercise price of the options.

Stock Warrants 

There were 450,000 warrants outstanding and exercisable at June 30, 2014 and December 31, 2013 with an exercise price of $5.00 and an expiration date in July 2016.

       The warrants had no intrinsic value at June 30, 2014. The intrinsic value is calculated as the difference between the closing price of the Company’s common stock as of June 30, 2014, which was $1.94 per share, and the exercise price of the warrants.

Cashless Exercises

The number of shares issuable upon the exercise of an option or a warrant will be lower if a holder exercises on a cashless basis. Under a cashless exercise, the holder uses a portion of the shares that would otherwise be issuable upon exercise, rather than cash, as consideration for the exercise. The amount of net shares issuable in connection with a cashless exercise will vary based on the exercise price of the option or warrant compared to the current market price of the Company’s common stock on the date of exercise.

Note 9. Employee Stock Purchase Plan

Under the Company’s 2010 Employee Stock Purchase Plan (“ESPP Plan”), participants can purchase shares of the Company’s stock at a 15% discount. A maximum of 200,000 shares of common stock can be issued under the ESPP Plan. During the three and six months ended June 30, 2014, a total of 6,490 and 11,973 shares were issued under the ESPP Plan with a fair value of $12,591 and $25,476, respectively. The Company recognized $1,882 and $3,801 of stock-based compensation related to the 15% discount for the three and six months ended June 30, 2014, respectively. The Company recognized $3,021 and $6,522 of stock-based compensation related to the 15% discount for the three and six months ended June 30, 2013, respectively.

Note 10. Fair Value Measurement

Valuation Hierarchy

The accounting standard of the FASB for fair value measurements 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. 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 based on the Company’s own assumptions used to measure assets and liabilities at fair value. 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.

Cash and 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 accounts receivable, accounts payable and accrued liabilities approximate their fair value due to their short maturities. There were no changes in the valuation techniques during the six months ended June 30, 2014.

	Total Carrying Value		Quoted prices  in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
June 30, 2014	$	17,288,707	$	17,288,707	$	-	$	-
December 31, 2013	$	28,181,531	$	28,181,531	$	-	$	-

11

TOWERSTREAM CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Note 11.    Net Loss Per Common Share

Basic and diluted net loss per share has been calculated by dividing net loss by the weighted average number of common shares outstanding during the period. The following common stock equivalents were excluded from the computation of diluted net loss per common share because they were anti-dilutive. The exercise or issuance of these common stock equivalents outstanding at June 30, 2014 would dilute earnings per share if the Company becomes profitable in the future. The exercise of the outstanding stock options and warrants could potentially generate proceeds up to approximately $13 million if exercised by the holder for cash.

Stock options	3,803,305
Warrants	450,000
Total	4,253,305

Note 12.    Commitments

Operating Lease Obligations

The Company has entered into operating leases related to roof rights, cellular towers, office space, and equipment leases under various non-cancelable agreements expiring through December 2020. Certain of these operating leases include extensions, at the Company's option, for additional terms ranging from 1 to 25 years. Amounts associated with the extension periods have not been included in the table below as it is not presently determinable which options, if any, the Company will elect to exercise. As of June 30, 2014, total future operating lease obligations were as follows:

Remainder of 2014	$	10,429,485
2015		19,226,692
2016		17,782,036
2017		12,039,856
2018		4,513,665
Thereafter		2,063,693
	$	66,055,427

Rent expenses were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
Points of Presence	$	1,948,102	$	1,715,204	$	3,793,348	$	3,340,906
Street level rooftops		3,263,423		2,585,804		6,392,916		5,049,902
Corporate offices		84,109		121,519		168,219		245,276
Other		95,219		105,351		185,717		225,229
	$	5,390,853	$	4,527,878	$	10,540,200	$	8,861,313

Rent expenses related to Points of Presence, street level rooftops and other were included in cost of revenues in the Company’s condensed consolidated statements of operations. Rent expense related to our corporate offices was included in general and administrative expenses in the Company’s condensed consolidated statements of operations.

In September 2013, the Company entered into a new lease agreement for its corporate offices and new warehouse space. The lease commenced on January 1, 2014 and expires on December 31, 2019 with an option to renew for an additional five year term through December 31, 2024. The Company spent approximately $600,000 in leasehold improvements in connection with consolidating its corporate based employees from two buildings into one building. The Landlord agreed to contribute $380,000 in funding towards qualified leasehold improvements and made such payment to the Company in February 2014. Total annual rent payments begin at $359,750 for 2014 and escalate by 3% annually reaching $416,970 for 2019.

12

TOWERSTREAM CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

Capital Lease Obligations

The Company has entered into capital leases to acquire property and equipment expiring through March 2018. As of June 30, 2014, total future capital lease obligations were as follows:

Remainder of 2014	$	478,632
2015		908,344
2016		655,754
2017		391,305
2018		53,922
	$	2,487,957
Less: Interest expense		308,253
Total capital lease obligations	$	2,179,704
Current	$	781,651
Long-term	$	1,398,053

Other

During the fourth quarter of 2013, the Company renewed a one year information technology infrastructure support agreement which became effective at the end of the first quarter of 2014. Payments of approximately $121,000 are due quarterly through the first quarter of 2015.

Note 13.    Segment Information

The Company has two reportable segments: Fixed Wireless and Shared Wireless Infrastructure. Management evaluates performance and allocates resources based on the operating performance of each segment as well as the long-term growth potential for each segment. Costs reported for each segment include costs directly associated with a segment’s operations. Inter-segment revenues and expenses are eliminated in consolidation.

     The balance of the Company’s operations is in the Corporate group which includes centralized operations. This group includes operations related to corporate overhead and centralized activities which support overall operations. Corporate overhead includes administrative personnel, including executive management, and other support functions such as information technology and facilities. Centralized operations include network operations, customer care, and the management of network assets. The Corporate group is treated as a separate segment consistent with how management monitors and analyzes financial results. Corporate costs are not allocated to the segments because such costs are managed and controlled on a functional basis that encompasses all markets with centralized, functional management held accountable for corporate results. Management also believes that not allocating these centralized costs provides a better reflection of the direct operating performance of each segment. The table below presents information about the Company's operating segments:

	Three Months Ended June 30, 2014 (Unaudited)
	Fixed  Wireless		Shared Wireless Infrastructure			Corporate			Eliminations			Total
Revenues	$	7,572,447	$	738,370		$	-		$	(45,969	)	$	8,264,848
Operating Expenses
Cost of revenues (exclusive of depreciation)		2,620,460		3,513,341			14,081			(45,969	)		6,101,913
Depreciation and amortization		2,080,501		977,960			222,601			-			3,281,062
Customer support services		267,961		178,774			700,540			-			1,147,275
Sales and marketing		1,252,124		62,862			84,103			-			1,399,089
General and administrative		202,053		157,636			2,307,308			-			2,666,997
Total Operating Expenses		6,423,099		4,890,573			3,328,633			(45,969	)		14,596,336
Operating Income (Loss)	$	1,149,348	$	(4,152,203	)	$	(3,328,633	)	$	-		$	(6,331,488	)
Capital expenditures	$	1,403,404	$	490,399		$	204,334		$	-		$	2,098,137

13

TOWERSTREAM CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

	Three Months Ended June 30, 2013 (Unaudited)
	Fixed  Wireless		Shared Wireless Infrastructure			Corporate			Eliminations			Total
Revenues	$	8,061,156	$	196,508		$	-		$	(45,489	)	$	8,212,175
Operating Expenses
Cost of revenues (exclusive of depreciation)		2,385,047		2,797,126			29,603			(45,489	)		5,166,287
Depreciation and amortization		2,836,979		911,325			187,522			-			3,935,826
Customer support services		286,068		134,376			761,273			-			1,181,717
Sales and marketing		1,322,233		111,209			90,362			-			1,523,804
General and administrative		170,710		144,750			2,320,573			-			2,636,033
Total Operating Expenses		7,001,037		4,098,786			3,389,333			(45,489	)		14,443,667
Operating Income (Loss)	$	1,060,119	$	(3,902,278	)	$	(3,389,333	)	$	-		$	(6,231,492	)
Capital expenditures	$	1,028,311	$	232,819		$	46,033		$	-		$	1,307,163

	Six Months Ended June 30, 2014 (Unaudited)
	Fixed Wireless		Shared Wireless Infrastructure			Corporate			Eliminations			Total
Revenues	$	15,257,973	$	1,478,719		$	-		$	(91,938	)	$	16,644,754
Operating Expenses
Cost of revenues (exclusive of depreciation)		5,119,152		6,902,292			28,350			(91,938	)		11,957,856
Depreciation and amortization		4,618,374		1,918,898			439,205			-			6,976,477
Customer support services		536,476		354,964			1,427,970			-			2,319,410
Sales and marketing		2,515,261		139,612			165,815			-			2,820,688
General and administrative		310,479		304,164			4,730,294			-			5,344,937
Total Operating Expenses		13,099,742		9,619,930			6,791,634			(91,938	)		29,419,368
Operating Income (Loss)	$	2,158,231	$	(8,141,211	)	$	(6,791,634	)	$	-		$	(12,774,614	)
Capital expenditures	$	2,889,854	$	1,428,452		$	317,188		$	-		$	4,635,494
As of June 30, 2014
Property and equipment, net	$	21,966,834	$	12,377,471		$	2,492,402		$	-		$	36,836,707
Total assets	$	27,442,263	$	14,839,751		$	19,888,452		$	-		$	62,170,466

14

TOWERSTREAM CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

	Six Months Ended June 30, 2013 (Unaudited)
	Fixed Wireless		Shared Wireless Infrastructure			Corporate			Eliminations			Total
Revenues	$	16,247,892	$	354,984		$	-		$	(91,478	)	$	16,511,398
Operating Expenses
Cost of revenues (exclusive of depreciation)		4,719,192		5,448,011			71,868			(91,478	)		10,147,593
Depreciation and amortization		5,656,588		1,775,437			374,888			-			7,806,913
Customer support services		561,143		378,898			1,638,570			-			2,578,611
Sales and marketing		2,619,174		158,257			187,229			-			2,964,660
General and administrative		317,607		334,934			5,121,091			-			5,773,632
Total Operating Expenses		13,873,704		8,095,537			7,393,646			(91,478	)		29,271,409
Operating Income (Loss)	$	2,374,188	$	(7,740,553	)	$	(7,393,646	)	$	-		$	(12,760,011	)
Capital expenditures	$	2,115,783	$	369,019		$	149,326		$	-		$	2,634,128
As of June 30, 2013
Property and equipment, net	$	24,477,899	$	12,739,109		$	1,910,097		$	-		$	39,127,105
Total assets	$	32,348,914	$	14,916,880		$	38,404,977		$	-		$	85,670,771

Note 14. Subsequent Events

In August 2014, the Company executed a master licensing agreement ("MLA") with a carrier for small cell deployments.  An MLA establishes the detailed terms and conditions under which individual orders are governed, and are generally designed to expedite the deployment process.  The term of this agreement is for 25 years.

15

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

The following discussion and analysis summarizes the significant factors affecting our condensed consolidated results of operations, financial condition and liquidity position for the six months ended June 30, 2014. 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 the year ended December 31, 2013 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

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 competition; 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 too much 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 Quarterly Report on Form 10-Q.

Non-GAAP Measures and Reconciliations to GAAP Measures

We prepare our financial statements in accordance with generally accepted accounting principles (“GAAP”). We use certain Non-GAAP measures to monitor our business performance and that of our segments. These Non-GAAP measures are not recognized under GAAP. Accordingly, investors are cautioned about using or relying on these measures as alternatives to recognized GAAP measures. Our methods of calculating these measures may not be comparable to similar measures presented by other companies.

Characteristics of Revenues and Expenses

Our Fixed Wireless segment offers broadband services under agreements for periods normally ranging between one to three years. Pursuant to these agreements, we bill customers on a monthly basis, in advance, for each month of service. Payments received in advance of services performed are recorded as deferred revenues and recognized as revenue ratably over the service period. Our Shared Wireless Infrastructure segment offers to rent space, channels, and ports on our street level rooftops at a fixed monthly rent.

Costs of revenues consists of expenses that are directly related to providing services to our customers, including Core Network expenses (tower and street level rooftop rent and utilities, bandwidth costs, maintenance and other) and Customer Network expenses (customer maintenance, non-installation fees and other customer specific expenses).  We collectively refer to Core Network and Customer Network as our “Network,” and Core Network costs and Customer Network costs as “Network Costs.”  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 services to commercial customers.  We refer to these activities as establishing a “Network Presence.” For the Fixed Wireless segment, these costs include constructing Points-of-Presence (“PoPs”) in buildings in which we have a lease agreement (“Company Locations”) where we install a substantial amount of equipment in order to connect numerous customers to the Internet. For the Shared Wireless Infrastructure segment, these costs include installing numerous access points, backhaul, and other equipment on street level rooftops that we refer to as “Hotzones.” The costs to build PoPs and construct Hotzones are capitalized and expensed over a five year period.  In addition, we also enter into tower and roof rental agreements, secure bandwidth and incur other Network Costs.  Once we have established a Network Presence in a new market or expanded 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.  However, we may experience variability in gross margins during periods in which we are expanding our Network Presence in a market.

16

Sales and marketing expenses primarily consist of the salaries, benefits, travel and other costs of our sales and marketing teams, as well as marketing initiatives and business development expenses.

Customer support services include salaries and related payroll costs associated with our customer support services, customer care, installation and operations staff.

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 office rent, utilities and other facilities costs, accounting, legal and other professional services, and other general operating expenses.

Overview – Fixed Wireless

We provide fixed wireless broadband services to commercial customers and deliver access over a wireless network transmitting over both regulated and unregulated radio spectrum. Our service supports bandwidth on demand, wireless redundancy, virtual private networks, disaster recovery, bundled data and video services. We currently provide service to business customers in twelve metropolitan markets.

Market Information – Fixed Wireless

As of June 30, 2014, we operated in twelve metropolitan markets consisting of New York, Boston, Los Angeles, Chicago, San Francisco, Miami, Seattle, Dallas-Fort Worth, Houston, Philadelphia, Las Vegas-Reno and Providence-Newport. 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. The markets were launched at different times, and as a result, may have different operating metrics based on their size and 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 Costs. 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 and the operating performance of our mature 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.

Revenues: Revenues are allocated based on which market each customer is located in.

Costs of Revenues: Includes Core Network costs and Customer Network costs that can be allocated to a specific market.

Operating Costs: Represents costs that can be specifically allocated to a market which include direct sales personnel, certain direct marketing expenses, certain customer support and installation payroll expenses and third party commissions.

Corporate: Includes corporate overhead and centralized activities which support our overall operations. Corporate overhead includes administrative personnel, including executive management, and other support functions such as information technology and facilities. Centralized operations include network operations, customer care, and the management of network assets.

Shared Wireless Infrastructure, net: Represents the net operating results for that business segment.

Adjusted Market EBITDA: Represents a market’s income (loss) before interest, taxes, depreciation, amortization, stock-based compensation, and other income (expense). We believe this metric provides useful information regarding the operating cash flow being generated in a market.

We entered the Houston market in February 2013 through the acquisition of Delos Internet (“Delos”). We exited the Nashville market effective March 31, 2014.

17

Three months ended June 30, 2014

Market	Revenues		Cost of Revenues		Gross Margin		Operating Costs		Adjusted Market EBITDA
Los Angeles	$	1,996,000	$	573,010	$	1,422,990	$	468,799	$	954,191
New York		1,949,999		702,033		1,247,966		335,819		912,147
Boston		1,449,309		403,931		1,045,378		189,968		855,410
Chicago		734,524		293,140		441,384		128,269		313,115
Miami		380,888		118,518		262,370		78,543		183,827
San Francisco		284,923		123,775		161,148		58,260		102,888
Houston		173,532		66,073		107,459		37,713		69,746
Las Vegas-Reno		224,856		121,870		102,986		56,089		46,897
Seattle		74,892		47,899		26,993		11,793		15,200
Dallas-Fort Worth		160,467		100,229		60,238		46,309		13,929
Providence-Newport		64,573		50,888		13,685		1,449		12,236
Philadelphia		32,515		19,094		13,421		5,953		7,468
Total	$	7,526,478	$	2,620,460	$	4,906,018	$	1,418,964	$	3,487,054

Reconciliation of Non-GAAP Financial Measure to GAAP Financial Measure
Adjusted market EBITDA	$	3,487,054
Fixed wireless, non-market specific
Other expenses		(303,174	)
Depreciation and amortization		(2,080,501	)
Shared wireless infrastructure, net		(4,106,234	)
Corporate		(3,328,633	)
Other income (expense)		(63,118	)
Net loss	$	(6,394,606	)

Three months ended June 30, 2013

Market	Revenues		Cost of Revenues		Gross Margin			Operating Costs		Adjusted Market EBITDA
Los Angeles	$	2,046,981	$	483,494	$	1,563,487		$	379,757	$	1,183,730
Boston		1,628,247		356,085		1,272,162			245,407		1,026,755
New York		1,940,048		634,068		1,305,980			371,895		934,085
Chicago		820,014		265,855		554,159			113,166		440,993
Miami		390,716		105,392		285,324			85,851		199,473
Houston		180,254		57,284		122,970			30,209		92,761
Las Vegas-Reno		273,887		140,713		133,174			41,269		91,905
San Francisco		320,043		113,277		206,766			117,074		89,692
Providence-Newport		113,728		49,702		64,026			18,855		45,171
Seattle		93,702		46,699		47,003			23,921		23,082
Philadelphia		40,052		19,311		20,741			15,283		5,458
Dallas-Fort Worth		162,348		100,040		62,308			66,339		(4,031	)
Nashville		5,647		13,127		(7,480	)		2,859		(10,339	)
Total	$	8,015,667	$	2,385,047	$	5,630,620		$	1,511,885	$	4,118,735

Reconciliation of Non-GAAP Financial Measure to GAAP Financial Measure
Adjusted market EBITDA	$	4,118,735
Fixed wireless, non-market specific
Other expenses		(267,126	)
Depreciation and amortization		(2,836,979	)
Shared wireless infrastructure, net		(3,856,789	)
Corporate		(3,389,333	)
Other income (expense)		342
Net loss	$	(6,231,150	)

18

Six months ended June 30, 2014

Market	Revenues		Cost of Revenues		Gross Margin			Operating Costs		Adjusted Market EBITDA
Los Angeles	$	4,035,759	$	1,134,319	$	2,901,440		$	937,098	$	1,964,342
New York		3,866,028		1,320,544		2,545,484			616,059		1,929,425
Boston		2,983,564		797,546		2,186,018			386,678		1,799,340
Chicago		1,459,587		586,799		872,788			269,367		603,421
Miami		749,950		220,991		528,959			173,645		355,314
Houston		346,348		124,012		222,336			55,612		166,724
San Francisco		560,963		251,455		309,508			148,820		160,688
Las Vegas-Reno		480,752		243,355		237,397			98,410		138,987
Providence-Newport		144,858		98,443		46,415			3,024		43,391
Dallas-Fort Worth		327,124		193,711		133,413			95,440		37,973
Seattle		139,825		95,730		44,095			17,378		26,717
Philadelphia		69,373		39,605		29,768			20,824		8,944
Nashville		1,904		12,642		(10,738	)		2,331		(13,069	)
Total	$	15,166,035	$	5,119,152	$	10,046,883		$	2,824,686	$	7,222,197

Reconciliation of Non-GAAP Financial Measure to GAAP Financial Measure
Adjusted market EBITDA	$	7,222,197
Fixed wireless, non-market specific
Other expenses		(537,530	)
Depreciation and amortization		(4,618,374	)
Shared wireless infrastructure, net		(8,049,273	)
Corporate		(6,791,634	)
Other income (expense)		(129,799	)
Net loss	$	(12,904,413	)

Six months ended June 30, 2013

Market	Revenues		Cost of Revenues		Gross Margin			Operating Costs		Adjusted Market EBITDA
Los Angeles	$	4,116,805	$	1,013,262	$	3,103,543		$	791,220	$	2,312,323
Boston		3,297,685		686,364		2,611,321			460,028		2,151,293
New York		3,825,913		1,233,167		2,592,746			708,332		1,884,414
Chicago		1,733,214		571,504		1,161,710			226,925		934,785
Miami		768,063		204,653		563,410			169,876		393,534
Las Vegas-Reno		662,062		272,638		389,424			97,825		291,599
San Francisco		622,673		214,117		408,556			203,000		205,556
Houston		233,239		78,300		154,939			42,928		112,011
Providence-Newport		241,096		98,843		142,253			37,200		105,053
Seattle		230,739		92,384		138,355			63,099		75,256
Philadelphia		79,992		37,348		42,644			37,810		4,834
Dallas-Fort Worth		333,700		188,821		144,879			141,797		3,082
Nashville		11,233		27,791		(16,558	)		7,107		(23,665	)
Total	$	16,156,414	$	4,719,192	$	11,437,222		$	2,987,147	$	8,450,075

Reconciliation of Non-GAAP Financial Measure to GAAP Financial Measure
Adjusted market EBITDA	$	8,450,075
Fixed wireless, non-market specific
Other expenses		(510,777	)
Depreciation and amortization		(5,656,588	)
Shared wireless infrastructure, net		(7,649,075	)
Corporate		(7,393,646	)
Other income (expense)		902,555
Net loss	$	(11,857,456	)

19

Overview - Shared Wireless Infrastructure

Our Shared Wireless Infrastructure segment offers a range of rental options on street level rooftops related to (i) the installation of customer owned Small Cells, (ii) Wi-Fi access and the offloading of mobile data, and (iii) backhaul, power and other related telecommunications. To date, our operating activities have been primarily focused in New York City, and to a lesser degree, San Francisco, Chicago, and Southern Florida. Costs incurred to establish and operate this business segment include (a) rent payments under lease agreements which provide us with the right to install wireless technology equipment and (b) construction of a carrier-class network to deliver the services being offered by our shared wireless segment.

In June 2013, we entered into the Wi-Fi service agreement with a major cable operator (the “Cable Operator”). The Wi-Fi Agreement provides leased access to certain access points, primarily within New York City and Bergen County, New Jersey. The Cable Operator has a limited right to expand access in other markets. The term of the Wi-Fi Agreement is for an initial three year period, and provides for automatic renewals for two additional one year periods.

Supplemental Segment Information

Operating information about each segment in accordance with GAAP is disclosed in Note 13 of the financial statements. In addition, we use other non-GAAP measurements to assess the operating performance of each segment. These non-GAAP financial measures are commonly used by investors, financial analysts, and rating agencies. Management believes that these non-GAAP financial measures should be available so that investors have the same data that management employs in assessing our overall operations.

EBITDA, a non-GAAP financial measure, is calculated as 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, deferred rent expense, 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.

Net Cash Flow is another commonly used non-GAAP financial measure. Net Cash Flow is defined as Adjusted EBITDA less capital expenditures.

Three months ended June 30, 2014

	Fixed Wireless		Shared Wireless Infrastructure			Corporate			Total
Operating Income (Loss)	$	1,149,348	$	(4,152,203	)	$	(3,328,633	)	$	(6,331,488	)
Depreciation and amortization		2,080,501		977,960			222,601			3,281,062
Stock-based compensation		-		-			262,764			262,764
Loss on non-monetary transactions		67,833		-			-			67,833
Deferred rent		38,742		61,192			(8,807	)		91,127
Non-recurring expenses, primarily acquisition- related		-		-			91,359			91,359
Adjusted EBITDA		3,336,424		(3,113,051	)		(2,760,716	)		(2,537,343	)
Less: Capital expenditures		1,403,404		490,399			204,334			2,098,137
Net Cash Flow	$	1,933,020	$	(3,603,450	)	$	(2,965,050	)	$	(4,635,480	)

Reconciliation of Adjusted EBITDA to Net Loss
Adjusted EBITDA	$	(2,537,343	)
Depreciation and amortization		(3,281,062	)
Stock-based compensation		(262,764	)
Loss on non-monetary transactions		(67,833	)
Deferred rent		(91,127	)
Non-recurring expenses, primarily acquisition-related		(91,359	)
Operating Income (Loss)		(6,331,488	)
Interest expense, net		(59,488	)
Other income (expense), net		(3,630	)
Net loss	$	(6,394,606	)

20

Reconciliation of Net Cash Flow to Net Cash Used in Operating Activities
Net cash flow	$	(4,635,480	)
Capital expenditures		2,098,137
Non-recurring expenses, primarily acquisition-related		(91,359	)
Changes in operating assets and liabilities, net		1,003,909
Other, net		(23,948	)
Net cash used in operating activities	$	(1,648,741	)

Three months ended June 30, 2013

	Fixed Wireless		Shared Wireless Infrastructure			Corporate			Total
Operating Income (Loss)	$	1,060,119	$	(3,902,278	)	$	(3,389,333	)	$	(6,231,492	)
Depreciation and amortization		2,836,979		911,325			187,522			3,935,826
Stock-based compensation		-		-			270,895			270,895
Loss on property and equipment		14,874		2,310			-			17,184
Loss on non-monetary transactions		64,974		-			-			64,974
Non-recurring expenses, primarily acquisition-related		-		-			47,415			47,415
Adjusted EBITDA		3,976,946		(2,988,643	)		(2,883,501	)		(1,895,198	)
Less: Capital expenditures		1,028,311		232,819			46,033			1,307,163
Net Cash Flow	$	2,948,635	$	(3,221,462	)	$	(2,929,534	)	$	(3,202,361	)

Reconciliation of Adjusted EBITDA to Net Loss
Adjusted EBITDA	$	(1,895,198	)
Depreciation and amortization		(3,935,826	)
Stock-based compensation		(270,895	)
Loss on property and equipment		(17,184	)
Loss on non-monetary transactions		(64,974	)
Non-recurring expenses, primarily acquisition-related		(47,415	)
Operating Income (Loss)		(6,231,492	)
Interest expense, net		(58,670	)
Gain on business acquisition		62,642
Other income (expense), net		(3,630	)
Net loss	$	(6,231,150	)

Reconciliation of Net Cash Flow to Net Cash Used in Operating Activities
Net cash flow	$	(3,202,361	)
Capital expenditures		1,307,163
Non-recurring expenses, primarily acquisition-related		(47,415	)
Changes in operating assets and liabilities, net		(266,373	)
Other, net		(96,216	)
Net cash used in operating activities	$	(2,305,202	)

21

     Six Months Ended June 30, 2014

	Fixed Wireless		Shared Wireless Infrastructure			Corporate			Total
Operating Income (Loss)	$	2,158,231	$	(8,141,211	)	$	(6,791,634	)	$	(12,774,614	)
Depreciation and amortization		4,618,374		1,918,898			439,205			6,976,477
Stock-based compensation		-		-			555,034			555,034
Loss on non-monetary transactions		135,401		-			-			135,401
Deferred rent		45,496		134,007			(17,613	)		161,890
Non-recurring expenses, primarily acquisition-related		-		-			91,359			91,359
Adjusted EBITDA		6,957,502		(6,088,306	)		(5,723,649	)		(4,854,453	)
Less: Capital expenditures		2,889,854		1,428,452			317,188			4,635,494
Net Cash Flow	$	4,067,648	$	(7,516,758	)	$	(6,040,837	)	$	(9,489,947	)

Reconciliation of Adjusted EBITDA to Net Loss
Adjusted EBITDA	$	(4,854,453	)
Depreciation and amortization		(6,976,477	)
Stock-based compensation		(555,034	)
Loss on non-monetary transactions		(135,401	)
Deferred rent		(161,890	)
Non-recurring expenses, primarily acquisition-related		(91,359	)
Operating Income (Loss)		(12,774,614	)
Interest expense, net		(122,539	)
Other income (expense), net		(7,260	)
Net loss	$	(12,904,413	)

Reconciliation of Net Cash Flow to Net Cash Used in Operating Activities
Net cash flow	$	(9,489,947	)
Capital expenditures		4,635,494
Non-recurring expenses, primarily acquisition-related		(91,359	)
Changes in operating assets and liabilities, net		(1,643,855	)
Other, net		(148,200	)
Net cash used in operating activities	$	(6,737,867	)

Six Months Ended June 30, 2013

	Fixed Wireless		Shared Wireless Infrastructure			Corporate			Total
Operating Income (Loss)	$	2,374,188	$	(7,740,553	)	$	(7,393,646	)	$	(12,760,011	)
Depreciation and amortization		5,656,588		1,775,437			374,888			7,806,913
Stock-based compensation		-		-			667,376			667,376
Loss on property and equipment		54,101		5,034			-			59,135
Loss on non-monetary transactions		142,158		-			-			142,158
Non-recurring expenses, primarily acquisition-related		-		-			112,815			112,815
Adjusted EBITDA		8,227,035		(5,960,082	)		(6,238,567	)		(3,971,614	)
Less: Capital expenditures		2,115,783		369,019			149,326			2,634,128
Net Cash Flow	$	6,111,252	$	(6,329,101	)	$	(6,387,893	)	$	(6,605,742	)

22

Reconciliation of Adjusted EBITDA to Net Loss
Adjusted EBITDA	$	(3,971,614	)
Depreciation and amortization		(7,806,913	)
Stock-based compensation		(667,376	)
Loss on property and equipment		(59,135	)
Loss on non-monetary transactions		(142,158	)
Non-recurring expenses, primarily acquisition-related		(112,815	)
Operating Income (Loss)		(12,760,011	)
Interest expense, net		(94,284	)
Gain on business acquisition		1,004,099
Other income (expense), net		(7,260	)
Net loss	$	(11,857,456	)

Reconciliation of Net Cash Flow to Net Cash Used in Operating Activities
Net cash flow	$	(6,605,742	)
Capital expenditures		2,634,128
Non-recurring expenses, primarily acquisition-related		(112,815	)
Changes in operating assets and liabilities, net		(2,401,916	)
Other, net		(241,582	)
Net cash used in operating activities	$	(6,727,927	)

Three Months Ended June 30, 2014 Compared to Three Months Ended June 30, 2013

Revenues. Revenues totaled $8,264,848 during the three months ended June 30, 2014 compared to $8,212,175 during the three months ended June 30, 2013 representing an increase of $52,673, or 1%. Revenues for the Fixed Wireless segment totaled $7,572,447 during the three months ended June 30, 2014 compared to $8,061,156 during the three months ended June 30, 2013 representing a decrease of $488,709, or 6%. The decrease principally resulted from an 8% decrease in monthly recurring billings which can be attributed, in part, to a lower number of sales personnel. Revenues for the Shared Wireless segment totaled $738,370 during the three months ended June 30, 2014 compared to $196,508 during the three months ended June 30, 2013 representing an increase of $541,862, or greater than 100%. The increase was exclusively related to higher revenues generated through a large cable company customer contract.

Average revenue per user (“ARPU”) for the Fixed Wireless segment totaled $760 as of June 30, 2014 compared to $740 as of June 30, 2013 representing an increase of $20, or 3%. The increase in ARPU primarily related to customers upgrading to higher bandwidth service which generates higher monthly recurring revenue. ARPU for new customers totaled $626 during the three months ended June 30, 2014 compared to $640 during the three months ended June 30, 2013 representing a decrease of $14, or 2%.

Customer churn, calculated as a percent of revenue lost on a monthly basis from customers terminating service or reducing their service level, totaled 1.71% during the three months ended June 30, 2014 compared to 2.34% during the three months ended June 30, 2013. Our goal is to maintain churn levels between 1.40% and 1.70% which we believe is below industry averages of approximately 2.00%. Churn levels can fluctuate from quarter to quarter depending upon whether customers move to a location not serviced by the Company, go out of business, or a myriad of other reasons. We believe that the improved results for the 2014 period reflects the efforts of our recently formed customer retention department which has adopted an active communications program with our customers to identify, address and mitigate any potential service issues with our customers. Churn elevated to 2.04% during the twelve months ended March 31, 2014 but averaged 1.71% during the thirty six months ended June 30, 2014.

Cost of Revenues.    Cost of revenues totaled $6,101,913 during the three months ended June 30, 2014 compared to $5,166,287 during the three months ended June 30, 2013 representing an increase of $935,626, or 18%.On a consolidated basis, higher rent expense represented approximately 100% of the increase with rents for PoPs for the fixed wireless segment increasing by approximately $202,000 and rents for street level rooftops for the shared wireless segment increasing by approximately $744,000. On a consolidated basis, gross margin was 26% for the three months ended June 30, 2014 as compared to 37% for the three months ended June 30, 2013 representing a decrease of 11 percentage points with the shared wireless and fixed wireless segments accounting for 9 and 2 of the percentage point decreases, respectively. On a per market basis, approximately $675,000, or 72%, of the increase in cost of revenues occurred in our New York City market which is the second largest market for our fixed wireless segment and where approximately 60% of the street level rooftops for our shared wireless segment are located. Lease agreements for our PoPs and street level rooftops generally include escalators averaging two to three percent annually. Other cost of revenues, including bandwidth and customer network costs totaled $704,168 during the three months ended June 30, 2014 as compared to $715,317 during the three months ended June 30, 2013 representing a decrease of $11,149, or 2%.

23

Depreciation and Amortization.    Depreciation and amortization totaled $3,281,062 during the three months ended June 30, 2014 compared to $3,935,826 during the three months ended June 30, 2013 representing a decrease of $654,764, or 17%. Depreciation expense totaled $3,173,255 during the three months ended June 30, 2014 compared to $3,117,847 during the three months ended June 30, 2013 representing an increase of $55,408, or 2%.

Amortization expense totaled $107,807 during the three months ended June 30, 2014 compared to $817,979 during the three months ended June 30, 2013 representing a decrease of $710,172, or 87%. Amortization expense relates to customer related intangible assets recorded in connection with acquisitions and can fluctuate significantly from period to period depending upon the timing of acquisitions, the relative amounts of intangible assets recorded, and the amortization periods. The decrease was related to two acquisitions which hadalmost no amortization in the 2014 period but full amortization in the 2013 period. We recognized zero and $232,953 of amortization expense in the 2014 and 2013 periods, respectively, related to intangible assets associated with One Velocity Inc. (“One Velocity”) which became fully amortized in November 2013. In addition, we recognized $9,739 and $486,958 of amortization expense in the 2014 and 2013 periods, respectively, related to intangible assets associated with Color Broadband Communications (“Color Broadband”) which became fully amortized in April 2014.

Customer Support Services.    Customer support services totaled $1,147,275 during the three months ended June 30, 2014 compared to $1,181,717 during the three months ended June 30, 2013 representing a decrease of $34,442, or 3%. The decrease was primarily related to lower payroll costs as average headcount totaled 69 during the 2014 period as compared to 70 during the 2013 period.

Sales and Marketing. Sales and marketing expenses totaled $1,399,089 during the three months ended June 30, 2014 compared to $1,523,804 during the three months ended June 30, 2013 representing a decrease of $124,715, or 8%. Compensation related costs, including sales commissions, totaled $966,373 during the 2014 period as compared to $1,142,723 during the 2013 period representing a decrease of $176,350, or 15%. Average headcount totaled 44 during the 2014 period compared to 49 during the 2013 period representing a decrease of 5, or 10%. Advertising costs totaled $289,236 during the 2014 period as compared to $244,844 during the 2013 period representing an increase of $44,392, or 18%.

General and Administrative. General and administrative expenses totaled $2,666,997 during the three months ended June 30, 2014 compared to $2,636,033 during the three months ended June 30, 2013 representing an increase of $30,964, or 1%. Payroll costs totaled $1,019,296 during the 2014 period compared to $936,535 during the 2013 period representing an increase of $82,761, or 9%. Professional services costs totaled $252,327 during the 2014 period compared to $301,236 during the 2013 period representing a decrease of $48,909, or 16%. The decrease primarily related to higher legal fees for FCC matters during the 2013 period. Facilities expense totaled $105,079 during the 2014 period compared to $144,850 during the 2013 period representing a decrease of $39,771, or 27%. The Company consolidated its corporate offices from two buildings to one building which has lowered its facilities costs. Insurance expense totaled $113,721 during the 2014 period compared to $69,374 during the 2013 period representing an increase of $44,347, or 64%. The increase primarily related to higher workers' compensation premiums.

Interest Expense, Net.    Interest expense, net totaled $59,488 during the three months ended June 30, 2014 compared to $58,670 during the three months ended June 30, 2013 representing an increase of $818, or 1%.

Gain on Business Acquisition.    There was no gain on business acquisition during the three months ended June 30, 2014 compared to $62,642 during the three months ended June 30, 2013.  The gain recognized in the 2013 period represented the final purchase price adjustment related to the acquisition of Delos in February 2013. The final, adjusted gain totaled $1,004,099. The challenging economic environment during 2012 made it difficult for smaller companies like Delos to raise sufficient capital to sustain their growth. As a result, we were able to acquire the customer relationships and wireless network of Delos at a discounted price.

Net Loss.    Net loss totaled $6,394,606 during the three months ended June 30, 2014 compared to $6,231,150 during the three months ended June 30, 2013 representing an increase of $163,456, or 3%. Revenues increased by $52,673, or 1%, while operating expenses increased by $152,669, or 1%. In addition, non-operating expense totaled $63,118 during the three months ended June 30, 2014 compared with non-operating income of $342 during the three months ended June 30, 2013.

24

Six Months Ended June 30, 2014 Compared to Six Months Ended June 30, 2013

Revenues. Revenues totaled $16,644,754 during the six months ended June 30, 2014 compared to $16,511,398 during the six months ended June 30, 2013 representing an increase of $133,356, or 1%. Revenues for the Fixed Wireless segment totaled $15,257,973 during the six months ended June 30, 2014 compared to $16,247,892 during the six months ended June 30, 2013 representing a decrease of $989,919, or 6%.   The decrease principally resulted from a 6% decrease in monthly recurring billings which can be attributed, in part, to a lower number of sales personnel. Revenues for the Shared Wireless segment totaled $1,478,719 during the six months ended June 30, 2014 compared to $354,984 during the six months ended June 30, 2013 representing an increase of $1,123,735, or greater than 100%. The increase was primarily related to higher revenues generated through a large cable company customer contract.

Cost of Revenues.    Cost of revenues totaled $11,957,856 during the six months ended June 30, 2014 compared to $10,147,593 during the six months ended June 30, 2013 representing an increase of $1,810,263, or 18%. On a consolidated basis, higher rent expense represented approximately 100% of the increase with rents for PoPs for the fixed wireless segment increasing by approximately $412,000 and rents for street level rooftops for the shared wireless segment increasing by approximately $1,459,000. On a consolidated basis, gross margin was 28% for the six months ended June 30, 2014 as compared to 39% for the six months ended June 30, 2013 representing a decrease of 11 percentage points with the shared wireless and fixed wireless segments accounting for 9 and 2 of the percentage point decreases, respectively. On a per market basis, approximately $1,265,000, or 70%, of the increase in cost of revenues occurred in our New York City market which is the second largest market for our fixed wireless segment and where approximately 60% of the street level rooftops for our shared wireless segment are located. Lease agreements for our PoPs and street level rooftops generally include escalators averaging two to three percent annually. Other cost of revenues, including bandwidth and customer network costs totaled $1,411,225 during the six months ended June 30, 2014 as compared to $1,471,406 during the six months ended June 30, 2013 representing a decrease of $60,181, or 4%.

Depreciation and Amortization.    Depreciation and amortization totaled $6,976,477 during the six months ended June 30, 2014 compared to $7,806,913 during the six months ended June 30, 2013 representing a decrease of $830,436, or 11%. Depreciation expense totaled $6,283,644 during the six months ended June 30, 2014 compared to $6,236,334 during the six months ended June 30, 2013 representing an increase of $47,310, or 1%.

Amortization expense totaled $692,833 during the six months ended June 30, 2014 compared to $1,570,579 during the six months ended June 30, 2013 representing a decrease of $877,746 or 56%. Amortization expense relates to customer related intangible assets recorded in connection with acquisitions and can fluctuate significantly from period to period depending upon the timing of acquisitions, the relative amounts of intangible assets recorded, and the amortization periods. The decrease was related to two acquisitions which hadpartial or no amortization in the 2014 period but full amortization in the 2013 period. We recognized zero and $465,907 of amortization expense in the 2014 and 2013 periods, respectively, related to intangible assets associated with One Velocity which became fully amortized in November 2013. In addition, we recognized $496,697 and $973,915 of amortization expense in the 2014 and 2013 periods, respectively, related to intangible assets associated with Color Broadband which became fully amortized in April 2014. These decreases were partially offset by higher amortization expense associated with the Delos acquisition which was completed in February 2013, and for which $196,136 was recorded in the 2014 period compared to $130,757 in the 2013 period.

Customer Support Services.    Customer support services totaled $2,319,410 during the six months ended June 30, 2014 compared to $2,578,611 during the six months ended June 30, 2013 representing a decrease of $259,201, or 10%. The decrease was primarily related to lower payroll costs as average headcount decreased 9% to 67 during the 2014 period as compared to 74 during the 2013 period.

Sales and Marketing. Sales and marketing expenses totaled $2,820,688 during the six months ended June 30, 2014 compared to $2,964,660 during the six months ended June 30, 2013 representing a decrease of $143,972, or 5%. Compensation related costs, including sales commissions, totaled $1,939,921 during the 2014 period as compared to $2,173,244 during the 2013 period representing a decrease of $233,323, or 11%. Average headcount totaled 45 during the 2014 period compared to 49 during the 2013 period representing a decrease of 4, or 8%. Channel commissions totaled $199,858 during the 2014 period as compared to $179,004 during the 2013 period representing an increase of $20,854, or 12%. Advertising costs totaled $585,442 during the 2014 period as compared to $542,289 during the 2013 period representing an increase of $43,153, or 8%.

General and Administrative.  General and administrative expenses totaled $5,344,937 during the six months ended June 30, 2014 compared to $5,773,632 during the six months ended June 30, 2013 representing a decrease of $428,695 or 7%. Stock-based compensation totaled $555,034 during the 2014 period compared to $667,376 during the 2013 period representing a decrease of $112,342, or 17%. Stock-based compensation can fluctuate significantly from period to period depending on the timing, quantity and valuation of stock option grants. Professional services costs totaled $626,936 during the 2014 period compared to $749,162 during the 2013 period representing a decrease of $122,226, or 16%. The decrease partially related to higher legal fees for the shared wireless segment during the 2013 period, primarily related to our San Francisco network. Facilities expense totaled $203,162 during the 2014 period compared to $308,759 during the 2013 period representing a decrease of $105,597, or 34%. The Company consolidated its corporate offices from two buildings to one building which has lowered its facilities costs. Insurance expense totaled $234,269 during the 2014 period compared to $138,555 during the 2013 period representing an increase of $95,714, or 69%. The increase primarily related to higher workers' compensation premiums.

25

Interest Expense, Net.    Interest expense, net totaled $122,539 during the six months ended June 30, 2014 compared to $94,284 during the six months ended June 30, 2013 representing an increase of $28,255, or 30%.

Gain on Business Acquisition.    There was no gain on business acquisition during the six months ended June 30, 2014 compared to $1,004,099 during the six months ended June 30, 2013.  The gain recognized in the 2013 period related to the acquisition of Delos in February 2013. The challenging economic environment during 2012 made it difficult for smaller companies like Delos to raise sufficient capital to sustain their growth. As a result, we were able to acquire the customer relationships and wireless network of Delos at a discounted price.

Net Loss.    Net loss totaled $12,904,413 during the six months ended June 30, 2014 compared to $11,857,456 during the six months ended June 30, 2013 representing an increase of $1,046,957, or 9%. Revenues increased by $133,356, or 1%, while operating expenses increased by $147,959, or 1%. In addition, non-operating expense totaled $129,799 during the six months ended June 30, 2014 compared with non-operating income, primarily related to gain on business acquisition, of $902,555 during the six months ended June 30, 2013.

Liquidity and Capital Resources

We have historically met our liquidity and capital requirements primarily through the public sale and private placement of equity securities and debt financing. Changes in capital resources during the six months ended June 30, 2014 and 2013 are described below.

Net Cash Used in Operating Activities.    Net cash used in operating activities for the six months ended June 30, 2014 totaled $6,737,867 compared to $6,727,927 for the six months ended June 30, 2013 representing an increase of $9,940, or less than 1%. Cash used in operations for the six months ended June 30, 2014 totaled $5,094,012 as compared to $4,326,011 for the six months ended June, 30, 2013. Changes in operating assets and liabilities generally represent timing differences regarding payments and receipts, and are normally not indicative of operating results.  Changes in operating assets and liabilities used cash of $1,643,855 during the six months ended June 30, 2014 as compared to $2,401,916 for the six months ended June 30, 2013.

Net Cash Used in Investing Activities. Net cash used in investing activities for the six months ended June 30, 2014 totaled $3,764,156 compared to $2,450,492 for the six months ended June 30, 2013 representing an increase of $1,313,664, or 54%. Cash capital expenditures for the fixed wireless segment increased from $1,904,985 in the 2013 period to $2,615,952 in the 2014 period representing an increase of $710,967, or 37%. Cash capital expenditures for the shared wireless infrastructure segment increased from $180,007 in the 2013 period to $1,326,391 in the 2014 period representing an increase of $1,146,384 or greater than 100%. In addition, we received an incentive payment of $380,000 from our landlord in connection with entering a new lease agreement for our corporate offices. These funds were used to pay for qualified leasehold improvements to the facility. Finally, we paid cash of $225,000 for the acquisition of Delos in the 2013 period. There were no acquisitions in the 2014 period.

Net Cash (Used In) Provided by Financing Activities.  Net cash used in financing activities for the six months ended June 30, 2014 totaled $390,801 compared to net cash provided by financing activities of $30,413,729 for the six months ended June 30, 2013, representing a decrease of $30,804,530, or greater than 100%. The decrease was primarily related to net proceeds of $30,499,336 received in the first quarter of 2013 from the sale of 11,000,000 shares of our common stock at a public offering price of $3.00 per share.

Acquisition of Delos. In February 2013, we completed the acquisition of Delos which was based in the Houston, Texas area. The aggregate consideration for the acquisition included (i) approximately $225,000 in cash, (ii) 385,124 shares of common stock with a fair value of approximately $951,000 based on the market price of our common stock on the closing date, and (iii) approximately $166,000 in assumed liabilities. The acquisition of Delos was a business combination accounted for under the acquisition method.

Underwritten Offering. In the first quarter of 2013, we completed an underwritten offering of 11,000,000 shares of our common stock at a public offering price of $3.00 per share. The total gross proceeds of the offering were $33,000,000. Net proceeds were $30,499,336, after underwriting discounts, commissions and offering expenses.

Capital Resources.    As of June 30, 2014, we had cash and cash equivalents of $17,288,707 and working capital of $13,938,047. Based on our current operating activities and plans, we believe our capital resources at the end of June 30, 2014 will enable us to meet our anticipated cash requirements for at least the next twelve months.

26

Contractual Obligations and Commitments

The following table summarizes our contractual obligations and other commitments as of June 30, 2014:

	Payments due by period
	Total		2014		2015		2016		2017		2018		Thereafter
Capital leases	$	2,487,957	$	478,632	$	908,344	$	655,754	$	391,305	$	53,922	$	-
Operating leases		66,055,427		10,429,485		19,226,692		17,782,036		12,039,856		4,513,665		2,063,693
Deferred payments		17,782		5,813		11,627		342		-		-		-
Other		364,246		242,831		121,415		-		-		-		-
Total	$	68,925,412	$	11,156,761	$	20,268,078	$	18,438,132	$	12,431,161	$	4,567,587	$	2,063,693

Capital Lease Obligations. We have entered into capital leases to acquire network, rooftop tower site and customer premise equipment expiring through March 2018.

Operating Leases. We have entered into operating leases related to roof rights, cellular towers, office space, and equipment leases under various non-cancelable agreements expiring through December 2020. Certain of these operating leases include extensions, at our option, for additional terms ranging from 1 to 25 years. Amounts associated with the extension periods have not been included in the table above as it is not presently determinable which options, if any, we will elect to exercise.

Other. During the fourth quarter of 2013, we renewed a one year information technology infrastructure support agreement which became effective at the end of the first quarter of 2014. Payments of approximately $121,000 are due quarterly through the first quarter of 2015.

Critical Accounting Policies

     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, and the amounts of revenues and expenses. 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 utilize available information, including our past history, industry standards and the current economic environment, among other factors, in forming our estimates and judgments, giving appropriate 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 that of our significant accounting policies, the following may involve a higher degree of judgment and estimation, or are fundamentally important to our business.

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 issued in advance of the date when revenues are earned. We recognize revenue 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 with definite lives consist primarily of property and equipment, and intangible assets such as acquired customer relationships. Long-lived assets are evaluated periodically 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 fair 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. 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.

Business Acquisitions. Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the fair value of the consideration transferred on the acquisition date.  When we acquire a business, we assess the acquired assets and liabilities assumed for the appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions at the acquisition date. The excess of the total consideration transferred over the net identifiable assets acquired and liabilities assumed is recognized as goodwill.  If the total consideration is lower than the fair value of the identifiable net assets acquired, the difference is recognized as a gain on business acquisition. Acquisition costs are expensed and included in general and administrative expenses in our condensed consolidated statements of operations.

27

     The highest level of judgment and estimation involved in accounting for business acquisitions relates to determining the fair value of the customer relationships and network assets acquired. In each of the five acquisitions completed over the past four years, the highest asset value has been allocated to the customer relationships acquired. Determining the fair value of customer relationships involves judgments and estimates regarding how long the customers will continue to contract services with us. During the course of completing five acquisitions, we have developed a database of historical experience from prior acquisitions to assist us in preparing future estimates of cash flows. Similarly, we have used our historical experience in building networks to prepare estimates regarding the fair value of the network assets that we acquire. 

Goodwill. Goodwill represents the excess of the purchase price over the estimated fair value of identifiable net assets acquired in an acquisition. Goodwill is not amortized but rather is reviewed annually for impairment, or whenever events or circumstances indicate that the carrying value may not be recoverable. We initially perform a qualitative assessment of goodwill which considers macro-economic conditions, industry and market trends, and the current and projected financial performance of the reporting unit.  No further analysis is required if it is determined that there is a less than 50 percent likelihood that the carrying value is greater than the fair value. 

Recent Accounting Pronouncements. In May 2014, Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09 (“ASU 2014-09”), “Revenue from Contracts with Customers,” which requires an entity to recognize revenue representing the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to receive in exchange for those goods or services. ASU 2014-09 is intended to establish principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenues and cash flows arising from the entity’s contracts with customers. ASU 2014-09 will replace most existing revenue recognition guidance in GAAP when it becomes effective. The new standard is effective for us on January 1, 2017. Early application is not permitted. We are currently evaluating the effect that ASU 2014-09 will have on our condensed consolidated financial statements and related disclosures.

In June 2014, FASB issued ASU No. 2014-12 (“ASU 2014-12”), “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period,” which requires a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. ASU 2014-12 states that the performance target should not be reflected in estimating the grant date fair value of the award. ASU 2014-12 clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the periods for which the requisite service has already been rendered. The new standard is effective for us on January 1, 2016. We do not expect adoption of ASU 2014-12 to have a significant impact on our condensed consolidated financial statements.

Off-Balance Sheet Arrangements.    We have no off-balance sheet arrangements, financings, or other relationships with unconsolidated entities known as ‘‘Special Purposes Entities.’’

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

     Market risk is the potential loss arising from adverse changes in market rates and prices.  Our primary market risk relates to interest rates.  At June 30, 2014, all cash and cash equivalents are immediately available cash balances.  A portion of our cash and cash equivalents are held in institutional money market funds.   

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

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 June 30, 2014, 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.

28

Changes in Internal Control over Financial Reporting

There were no changes in our system of internal control over financial reporting during the six months ended June 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

29

PART II

OTHER INFORMATION

Item 6. Exhibits.

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.
101.INS	XBRL Instance Document*
101.SCH	XBRL Taxonomy Extension Schema Document*
101.CAL	XBRL Taxonomy Calculation Linkbase Document*
101.LAB	XBRL Taxonomy Labels Linkbase Document*
101.PRE	XBRL Taxonomy Presentation Linkbase Document*
101.DEF	XBRL Definition Linkbase Document*

*Attached as Exhibit 101 to this report are the following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Cash Flows, (iv) the Condensed Consolidated Statements of Stockholders’ Equity, and (v) related notes to these financial statements.  

30

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	TOWERSTREAM CORPORATION
Date: August 11, 2014	By:	/s/ Jeffrey M. Thompson
		Jeffrey M. Thompson
		President and Chief Executive Officer
		(Principal Executive Officer)
By:		/s/ Joseph P. Hernon
		Joseph P. Hernon
		Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)

31

EXHIBIT INDEX

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
101.INS	XBRL Instance Document*
101.SCH	XBRL Taxonomy Extension Schema Document*
101.CAL	XBRL Taxonomy Calculation Linkbase Document*
101.LAB	XBRL Taxonomy Labels Linkbase Document*
101.PRE	XBRL Taxonomy Presentation Linkbase Document*
101.DEF	XBRL Definition Linkbase Document*

*Attached as Exhibit 101 to this report are the following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Cash Flows, (iv) the Condensed Consolidated Statements of Stockholders’ Equity, and (v) related notes to these financial statements.  

32 

EX-31

EXHIBIT 31.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Jeffrey M. Thompson, certify that:

(1)		I have reviewed this quarterly report on Form 10-Q of Towerstream Corporation for the quarter ended June 30, 2014;
(2)		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3)		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4)		The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)		Disclosed in the report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of the annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
(5)		The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 11, 2014

/s/ Jeffrey M. Thompson

Jeffrey M. Thompson

President and Chief Executive Officer

(Principal Executive Officer)

EX-31

EXHIBIT 31.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Joseph P. Hernon, certify that:

(1)		I have reviewed this quarterly report on Form 10-Q of Towerstream Corporation for the quarter ended June 30, 2014;
(2)		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3)		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4)		The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)		Disclosed in the report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of the annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
(5)		The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 11, 2014

/s/ Joseph P. Hernon

Joseph P. Hernon

Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)

EX-32

EXHIBIT 32.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S. C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Towerstream Corporation, (the ‘‘Company’’) on Form 10-Q for the period ended June 30, 2014 as filed with the Securities and Exchange Commission on the date hereof (the ‘‘Report’’), I, Jeffrey M. Thompson, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 11, 2014

/s/ Jeffrey M. Thompson

Jeffrey M. Thompson

President and Chief Executive Officer

(Principal Executive Officer)

EX-32

 

EXHIBIT 32.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Towerstream Corporation, (the ‘‘Company’’) on Form 10-Q for the period ended June 30, 2014, as filed with the Securities and Exchange Commission on the date hereof (the ‘‘Report’’), I, Joseph P. Hernon, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 11, 2014

/s/ Joseph P. Hernon

Joseph P. Hernon

Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)

XML

Note 4 - Property and Equipment (Details) - Property Acquired Through Capital Leases (USD $)	Jun. 30, 2014	Dec. 31, 2013
Capital Leased Assets [Line Items]
Capital Leased Assets, Gross	$ 4,001,040	$ 4,001,040
Less: accumulated depreciation	1,733,770	1,333,666
Property acquired through capital leases, net	2,267,270	2,667,374
Network and Base Station Equipment [Member]
Capital Leased Assets [Line Items]
Capital Leased Assets, Gross	828,027	828,027
Rooftop Tower Sites [Member]
Capital Leased Assets [Line Items]
Capital Leased Assets, Gross	1,216,142	1,216,142
Customer Premise Equipment [Member]
Capital Leased Assets [Line Items]
Capital Leased Assets, Gross	96,843	96,843
Information Technology [Member]
Capital Leased Assets [Line Items]
Capital Leased Assets, Gross	$ 1,860,028	$ 1,860,028

XML

Note 12 - Commitments (Details) - Total Future Operating Lease Obligations (USD $)	Jun. 30, 2014
Total Future Operating Lease Obligations [Abstract]
Remainder of 2014	$ 10,429,485
2015	19,226,692
2016	17,782,036
2017	12,039,856
2018	4,513,665
Thereafter	2,063,693
	$ 66,055,427

XML

Note 8 - Stock Options and Stock Warrants (Details) - Option Transactions Under the Stock Option Plans (USD $)	6 Months Ended
	Jun. 30, 2014	Dec. 31, 2013
Option Transactions Under the Stock Option Plans [Abstract]
Outstanding as of	3,803,305	4,055,016
Weighted average exercise price as of	$ 2.83	$ 2.70
Exercisable as of June 30, 2014	2,659,485
Exercisable as of June 30, 2014	$ 2.70
Granted during 2014	200,000
Granted during 2014	$ 1.93
Exercised	(340,906)
Exercised	$ 0.74
Forfeited /expired	(110,805)
Forfeited /expired	$ 2.68

XML

Note 12 - Commitments (Details) - Rent Expenses (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Note 12 - Commitments (Details) - Rent Expenses [Line Items]
Lease and Rental Expense	$ 5,390,853	$ 4,527,878	$ 10,540,200	$ 8,861,313
Other Property [Member]
Note 12 - Commitments (Details) - Rent Expenses [Line Items]
Lease and Rental Expense	95,219	105,351	185,717	225,229
Points of Presence [Member]
Note 12 - Commitments (Details) - Rent Expenses [Line Items]
Lease and Rental Expense	1,948,102	1,715,204	3,793,348	3,340,906
Street Level Rooftops [Member]
Note 12 - Commitments (Details) - Rent Expenses [Line Items]
Lease and Rental Expense	3,263,423	2,585,804	6,392,916	5,049,902
Corporate Offices [Member]
Note 12 - Commitments (Details) - Rent Expenses [Line Items]
Lease and Rental Expense	$ 84,109	$ 121,519	$ 168,219	$ 245,276

XML

Note 8 - Stock Options and Stock Warrants (Details) (USD $)	3 Months Ended	6 Months Ended	12 Months Ended		6 Months Ended		6 Months Ended	3 Months Ended	1 Months Ended
	Jun. 30, 2014	Jun. 30, 2014	Dec. 31, 2013	Feb. 28, 2013	Jun. 30, 2014 Warrant [Member]	Dec. 31, 2013 Warrant [Member]	Jun. 30, 2014 Employee Stock Option [Member]	Jun. 30, 2014 Cashless Exercise of Options [Member]	Jun. 30, 2014 Board of Directors [Member]
Note 8 - Stock Options and Stock Warrants (Details) [Line Items]
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized (in Dollars)							$ 1,231,353
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition							1 year 292 days
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross		200,000							200,000
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Exercise Price (in Dollars per share)									$ 1.93
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period		340,906						340,906
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period, Net of Shares in Lieu of Cash		192,270
Share-based Compensation Arrangement by Share-based Payment Award, Options, Forfeitures in Period	75,805	110,805
Stock Repurchased During Period, Shares	14,250
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term		5 years 328 days
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Intrinsic Value (in Dollars)	645,363	645,363
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Intrinsic Value (in Dollars)	$ 643,363	$ 643,363
Share Price (in Dollars per share)	$ 1.94	$ 1.94		$ 2.47
Class of Warrant or Right, Issued During Period			450,000		450,000
Class of Warrant or Right, Exercise Price of Warrants or Rights (in Dollars per share)					$ 5.00	$ 5.00

XML

Note 2 - Summary of Significant Accounting Policies (Details) (USD $)	Jun. 30, 2014
Accounting Policies [Abstract]
Cash, Uninsured Amount	$ 2,014,000
Cash, FDIC Insured Amount	250,000
Money Market Funds, at Carrying Value	15,017,000
Cash Securities Investor Protection Corporation Coverage Amount	$ 500,000

XML

Note 13 - Segment Information (Details)	6 Months Ended
	Jun. 30, 2014
Segment Reporting [Abstract]
Number of Reportable Segments	2

XML

Note 5 - Intangible Assets (Tables)

6 Months Ended

Jun. 30, 2014

Disclosure Text Block [Abstract]

Schedule of Intangible Assets and Goodwill [Table Text Block]

	June 30, 2014		December 31, 2013
Goodwill	$	1,674,281	$	1,674,281
Customer relationships	$	11,856,127	$	11,856,127
Less: accumulated amortization of customer relationships		10,744,688		10,051,855
Customer relationships, net		1,111,439		1,804,272
FCC licenses		1,284,555		1,284,555
Intangible assets, net	$	2,395,994	$	3,088,827

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

Remainder of 2014	$	196,136
2015		392,272
2016		392,272
2017		130,759
	$	1,111,439

XML

Note 10 - Fair Value Measurement (Details) - Fair Value of Assets and Liabilities (USD $)	Jun. 30, 2014	Dec. 31, 2013
Note 10 - Fair Value Measurement (Details) - Fair Value of Assets and Liabilities [Line Items]
Balance as of	$ 17,288,707	$ 28,181,531
Fair Value, Inputs, Level 1 [Member]
Note 10 - Fair Value Measurement (Details) - Fair Value of Assets and Liabilities [Line Items]
Balance as of	$ 17,288,707	$ 28,181,531

XML

Note 5 - Intangible Assets (Details) - Future Amortization Expense (USD $)	Jun. 30, 2014	Dec. 31, 2013
Future Amortization Expense [Abstract]
Remainder of 2014	$ 196,136
2015	392,272
2016	392,272
2017	130,759
	$ 1,111,439	$ 1,804,272

XML

Note 3 - Business Acquisitions (Details) - Unaudited Pro Forma Consolidated Results of Operations (USD $)	6 Months Ended
	Jun. 30, 2013
Unaudited Pro Forma Consolidated Results of Operations [Abstract]
Revenues	$ 16,623,968
Amortization expense	1,635,958
Total operating expenses	29,443,388
Net loss	$ (11,916,865)
Basic net loss per share (in Dollars per share)	$ (0.19)

XML

Note 11 - Net Loss per Common Share (Details) - Antidilutive Securities	6 Months Ended
	Jun. 30, 2014
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities	4,253,305
Equity Option [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities	3,803,305
Warrant [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities	450,000

XML

Note 8 - Stock Options and Stock Warrants (Details) - Black-Scholes Option Pricing Model Assumptions (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Note 8 - Stock Options and Stock Warrants (Details) - Black-Scholes Option Pricing Model Assumptions [Line Items]
Risk-free interest rate	1.60%		1.60%
Expected volatility	47.00%	65.00%	47.00%
Expected life (in years)	5 years 109 days		5 years 109 days
Expected dividend yield	0.00%
Weighted average per share grant date fair value (in Dollars per share)	$ 0.84	$ 1.46	$ 0.84	$ 1.46
Stock-based compensation (in Dollars)	$ 260,882	$ 253,098	$ 551,233	$ 631,304
Minimum [Member]
Note 8 - Stock Options and Stock Warrants (Details) - Black-Scholes Option Pricing Model Assumptions [Line Items]
Risk-free interest rate		1.00%		0.80%
Expected volatility				65.00%
Expected life (in years)		5 years 109 days		5 years
Maximum [Member]
Note 8 - Stock Options and Stock Warrants (Details) - Black-Scholes Option Pricing Model Assumptions [Line Items]
Risk-free interest rate		1.50%		1.50%
Expected volatility				68.00%
Expected life (in years)		6 years 6 months		6 years 6 months

XML

Note 3 - Business Acquisitions

6 Months Ended

Jun. 30, 2014

Business Combinations [Abstract]

Business Combination Disclosure [Text Block]

Note 3.    Business Acquisitions

Delos Internet

In February 2013, the Company completed the acquisition of Delos Internet (“Delos”). The Company obtained full control of Delos and determined that the acquisition was a business combination to be accounted for under the acquisition method. The following table summarizes the consideration transferred and the amounts of identified assets acquired and liabilities assumed at the acquisition date. The number of shares issued was based on the closing price of the Company's common stock on the February 28, 2013 closing date which was $2.47.

Fair value of consideration transferred:	Original			Adjustments			Final
Cash	$	225,000		$	-		$	225,000
Common stock		1,071,172			(119,916	)		951,256
Other liabilities assumed		-			36,733			36,733
Capital lease obligations assumed		128,929			-			128,929
Total consideration transferred		1,425,101			(83,183	)		1,341,918
Fair value of identifiable assets acquired and liabilities assumed:
Cash		2,058			-			2,058
Accounts receivable		80,524			1,286			79,238
Property and equipment		826,524			18,824			807,700
Security deposits		1,993			-			1,993
Accounts payable		(26,970	)		2,566			(29,536	)
Deferred revenue		(62,110	)		(2,135	)		(59,975	)
Other liabilities		(89,930	)		-			(89,930	)
Total identifiable net tangible assets		732,089			20,541			711,548
Customer relationships		1,634,469			-			1,634,469
Total identifiable net assets		2,366,558			20,541			2,346,017
Gain on business acquisition	$	941,457		$	62,642		$	1,004,099

The Company recognized a gain on business acquisition of $1,004,099 which is included in other income (expense) in the Company’s condensed consolidated statements of operations for the six months ended June 30, 2013. The challenging economic environment during 2012 made it difficult for smaller companies like Delos to raise sufficient capital to sustain their growth.  As a result, the Company was able to acquire the customer relationships and wireless network of Delos at a discounted price.

In May 2013, the Company finalized the purchase price of Delos which resulted in a reduction of approximately $21,000 of identifiable net assets and an increase in the gain on business acquisition of approximately $63,000. The purchase price adjustment resulted in a decrease in the number of shares of common stock issued to Delos of 48,549 from 433,673 to 385,124 shares.

The Company incurred approximately $41,000 and $99,000, respectively, of third-party costs in connection with the Delos acquisition for the three and six month ended June 30, 2013. These expenses are included in the general and administrative expenses in the Company’s condensed consolidated statements of operations for the respective periods.

Pro Forma Information

The following table reflects the unaudited pro forma consolidated results of operations had the acquisition taken place at the beginning of the 2013 period:

	Six Months Ended June 30, 2013
Revenues	$	16,623,968
Amortization expense		1,635,958
Total operating expenses		29,443,388
Net loss		(11,916,865	)
Basic net loss per share	$	(0.19	)

The pro forma information presented above does not purport to present what actual results would have been had the acquisition actually occurred at the beginning of 2013 and are not necessarily indicative of the operating results for any future period.

XML

Note 6 - Accrued Expenses (Details) - Accrued Expenses (USD $)	Jun. 30, 2014	Dec. 31, 2013
Note 6 - Accrued Expenses (Details) - Accrued Expenses [Line Items]
Accrued Liabilities, Current	$ 1,943,068	$ 2,532,679
Property and Equipment [Member]
Note 6 - Accrued Expenses (Details) - Accrued Expenses [Line Items]
Accrued Liabilities, Current	572,004	867,311
Payroll and Related [Member]
Note 6 - Accrued Expenses (Details) - Accrued Expenses [Line Items]
Accrued Liabilities, Current	813,005	937,624
Professional Services [Member]
Note 6 - Accrued Expenses (Details) - Accrued Expenses [Line Items]
Accrued Liabilities, Current	160,712	186,917
Network [Member]
Note 6 - Accrued Expenses (Details) - Accrued Expenses [Line Items]
Accrued Liabilities, Current	127,719	138,684
Marketing [Member]
Note 6 - Accrued Expenses (Details) - Accrued Expenses [Line Items]
Accrued Liabilities, Current	84,830	108,741
Other Accrued Liabilities [Member]
Note 6 - Accrued Expenses (Details) - Accrued Expenses [Line Items]
Accrued Liabilities, Current	$ 184,798	$ 293,402

XML

Note 10 - Fair Value Measurement (Tables)

6 Months Ended

Jun. 30, 2014

Fair Value Disclosures [Abstract]

Fair Value, Assets Measured on Recurring Basis [Table Text Block]

	Total Carrying Value		Quoted prices  in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
June 30, 2014	$	17,288,707	$	17,288,707	$	-	$	-
December 31, 2013	$	28,181,531	$	28,181,531	$	-	$	-

XML

Note 8 - Stock Options and Stock Warrants (Tables)

6 Months Ended

Jun. 30, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Risk-free interest rate		1.6	%		1.0 - 1.5	%		1.6	%		0.8 - 1.5	%
Expected volatility		47	%		65	%		47	%		65 - 68	%
Expected life (in years)		5.3		5.3 – 6.5				5.3			5 - 6.5
Expected dividend yield		-			-			-			-
Weighted average per share grant date fair value	$	0.84		$	1.46		$	0.84		$	1.46
Stock-based compensation	$	260,882		$	253,098		$	551,233		$	631,304

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

	Number			Weighted Average Exercise Price
Outstanding as of December 31, 2013		4,055,016		$	2.70
Granted during 2014		200,000		$	1.93
Exercised		(340,906	)	$	0.74
Forfeited /expired		(110,805	)	$	2.68
Outstanding as of June 30, 2014		3,803,305		$	2.83
Exercisable as of June 30, 2014		2,659,485		$	2.70

XML

Note 12 - Commitments (Details) - Total Future Capital Lease Obligations (USD $)	Jun. 30, 2014	Dec. 31, 2013
Total Future Capital Lease Obligations [Abstract]
Remainder of 2014	$ 478,632
2015	908,344
2016	655,754
2017	391,305
2018	53,922
	2,487,957
Less: Interest expense	308,253
Total capital lease obligations	2,179,704
Current	781,651	783,051
Long-term	$ 1,398,053	$ 1,805,336

XML

Note 7 - Other Liabilities (Details) (USD $)	6 Months Ended		6 Months Ended		1 Months Ended
	Jun. 30, 2013	Jun. 30, 2014 Delos Internet [Member]	Jun. 30, 2014 Delos Internet [Member] Minimum [Member]	Jun. 30, 2014 Delos Internet [Member] Maximum [Member]	May 31, 2014 Pipeline Wireless [Member]
Note 7 - Other Liabilities (Details) [Line Items]
Deferred Acquisition Payments, Gross		$ 16,825
Delos Interest Rate			7.00%	12.50%
Payments to Acquire Businesses, Net of Cash Acquired	$ 222,942				$ 16,630

XML

Note 11 - Net Loss per Common Share (Tables)

6 Months Ended

Jun. 30, 2014

Earnings Per Share [Abstract]

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share [Table Text Block]

Stock options	3,803,305
Warrants	450,000
Total	4,253,305

XML

Note 12 - Commitments (Tables)

6 Months Ended

Jun. 30, 2014

Disclosure Text Block Supplement [Abstract]

Schedule of Future Minimum Rental Payments for Operating Leases [Table Text Block]

Remainder of 2014	$	10,429,485
2015		19,226,692
2016		17,782,036
2017		12,039,856
2018		4,513,665
Thereafter		2,063,693
	$	66,055,427

Schedule of Rent Expense [Table Text Block]

	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
Points of Presence	$	1,948,102	$	1,715,204	$	3,793,348	$	3,340,906
Street level rooftops		3,263,423		2,585,804		6,392,916		5,049,902
Corporate offices		84,109		121,519		168,219		245,276
Other		95,219		105,351		185,717		225,229
	$	5,390,853	$	4,527,878	$	10,540,200	$	8,861,313

Schedule of Future Minimum Lease Payments for Capital Leases [Table Text Block]

Remainder of 2014	$	478,632
2015		908,344
2016		655,754
2017		391,305
2018		53,922
	$	2,487,957
Less: Interest expense		308,253
Total capital lease obligations	$	2,179,704
Current	$	781,651
Long-term	$	1,398,053

XML

Note 2 - Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

Significant Accounting Policies [Text Block]

Note 2.    Summary of Significant Accounting Policies

Basis of Presentation. The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and with Form 10-Q and Article 10 of Regulation S-X of the United States Securities and Exchange Commission. Accordingly, they do not contain all information and footnotes required by GAAP for annual financial statements. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of June 30, 2014 and the results of operations and cash flows for the periods presented. The results of operations for the six months ended June 30, 2014 are not necessarily indicative of the operating results for the full fiscal year or for 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, 2013. 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, 2013, and updated, as necessary, in this Quarterly Report on Form 10-Q.

Use of Estimates.    The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the amounts of revenues and expenses. Actual results could differ from those estimates.

Cash and Cash Equivalents.    The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

Concentration of Credit Risk.    Financial instruments that potentially subject the Company to significant concentrations of credit risk consist of cash and cash equivalents. At times, our cash and cash equivalents may be uninsured or in deposit accounts that exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance limits. As of June 30, 2014, the Company had cash and cash equivalent balances of approximately $2,014,000 in excess of the federally insured limit of $250,000.

The Company also had approximately $15,017,000 invested in institutional money market funds. These funds are protected under the Securities Investor Protection Corporation, a nonprofit membership corporation which provides limited coverage up to $500,000.

Accounts Receivable. Accounts receivable are stated at cost less an allowance for doubtful accounts which reflects the Company’s estimate of balances that will be not collected. The allowance is based on the history of past write-offs, the aging of balances, collections experience and current credit conditions. Additions include provisions for doubtful accounts and deductions include customer write-offs. Changes in the allowance for doubtful accounts were as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Beginning of period	$	65,719		$	143,437		$	81,009		$	190,109
Additions		107,000			60,000			117,000			60,000
Deductions		(10,856	)		(40,759	)		(36,146	)		(87,431	)
End of period	$	161,863		$	162,678		$	161,863		$	162,678

Business Acquisitions. Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the fair value of the consideration transferred on the acquisition date.  When the Company acquires a business, it assesses the acquired assets and liabilities assumed for the appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions at the acquisition date. The excess of the total consideration transferred over the net identifiable assets acquired and liabilities assumed is recognized as goodwill.  If this consideration is lower than the fair value of the identifiable net assets acquired, the difference is recognized as a gain on business acquisition. Acquisition costs are expensed and included in general and administrative expenses in our condensed consolidated statements of operations.

The highest level of judgment and estimation involved in accounting for business acquisitions relates to determining the fair value of the customer relationships and network assets acquired. In each of the five acquisitions completed over the past four years, the highest asset value has been allocated to the customer relationships acquired. Determining the fair value of customer relationships involves judgments and estimates regarding how long the customers will continue to contract services with the Company. During the course of completing five acquisitions, the Company has developed a database of historical experience from prior acquisitions to assist in preparing future estimates of cash flows. Similarly, the Company has used its historical experience in building networks to prepare estimates regarding the fair value of the network assets that it acquires.

Revenue Recognition. The Company normally enters into contractual agreements with its customers for periods ranging between one to three years. The Company recognizes the total revenue provided under a contract ratably over the contract period, including any periods under which the Company has agreed to provide services at no cost. The Company recognizes revenue 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.

Deferred Revenues. Customers are billed monthly in advance. Deferred revenues are recognized for that portion of monthly charges not yet earned as of the end of the reporting period. Deferred revenues are also recognized for certain customers who pay for their services in advance.

Goodwill. Goodwill represents the excess of the purchase price over the estimated fair value of identifiable net assets acquired in an acquisition. Goodwill is not amortized but rather is reviewed annually for impairment, or whenever events or circumstances indicate that the carrying value may not be recoverable. The Company initially performs a qualitative assessment of goodwill which considers macro-economic conditions, industry and market trends, and the current and projected financial performance of the reporting unit.  No further analysis is required if it is determined that there is a less than 50 percent likelihood that the carrying value is greater than the fair value. 

Recent Accounting Pronouncements. In May 2014, Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09 (“ASU 2014-09”), “Revenue from Contracts with Customers,” which requires an entity to recognize revenue representing the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to receive in exchange for those goods or services. ASU 2014-09 is intended to establish principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenues and cash flows arising from the entity’s contracts with customers. ASU 2014-09 will replace most existing revenue recognition guidance in GAAP when it becomes effective. The new standard is effective for the Company on January 1, 2017. Early application is not permitted. The Company is currently evaluating the effect that ASU 2014-09 will have on its condensed consolidated financial statements and related disclosures.

In June 2014, FASB issued ASU No. 2014-12 (“ASU 2014-12”), “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period,” which requires a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. ASU 2014-12 states that the performance target should not be reflected in estimating the grant date fair value of the award. ASU 2014-12 clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the periods for which the requisite service has already been rendered. The new standard is effective for the Company on January 1, 2016. The Company does not expect adoption of ASU 2014-12 to have a significant impact on its condensed consolidated financial statements.

Reclassifications.    Certain accounts in the prior year’s condensed consolidated financial statements have been reclassified for comparative purposes to conform to the presentation in the current year’s condensed consolidated financial statements. These reclassifications have no effect on the previously reported net loss.

Subsequent Events. Subsequent events have been evaluated through the date of this filing.

XML

Note 13 - Segment Information (Tables)

6 Months Ended

Jun. 30, 2014

Segment Reporting [Abstract]

Schedule of Segment Reporting Information, by Segment [Table Text Block]

	Three Months Ended June 30, 2014 (Unaudited)
	Fixed  Wireless		Shared Wireless Infrastructure			Corporate			Eliminations			Total
Revenues	$	7,572,447	$	738,370		$	-		$	(45,969	)	$	8,264,848
Operating Expenses
Cost of revenues (exclusive of depreciation)		2,620,460		3,513,341			14,081			(45,969	)		6,101,913
Depreciation and amortization		2,080,501		977,960			222,601			-			3,281,062
Customer support services		267,961		178,774			700,540			-			1,147,275
Sales and marketing		1,252,124		62,862			84,103			-			1,399,089
General and administrative		202,053		157,636			2,307,308			-			2,666,997
Total Operating Expenses		6,423,099		4,890,573			3,328,633			(45,969	)		14,596,336
Operating Income (Loss)	$	1,149,348	$	(4,152,203	)	$	(3,328,633	)	$	-		$	(6,331,488	)
Capital expenditures	$	1,403,404	$	490,399		$	204,334		$	-		$	2,098,137

	Three Months Ended June 30, 2013 (Unaudited)
	Fixed  Wireless		Shared Wireless Infrastructure			Corporate			Eliminations			Total
Revenues	$	8,061,156	$	196,508		$	-		$	(45,489	)	$	8,212,175
Operating Expenses
Cost of revenues (exclusive of depreciation)		2,385,047		2,797,126			29,603			(45,489	)		5,166,287
Depreciation and amortization		2,836,979		911,325			187,522			-			3,935,826
Customer support services		286,068		134,376			761,273			-			1,181,717
Sales and marketing		1,322,233		111,209			90,362			-			1,523,804
General and administrative		170,710		144,750			2,320,573			-			2,636,033
Total Operating Expenses		7,001,037		4,098,786			3,389,333			(45,489	)		14,443,667
Operating Income (Loss)	$	1,060,119	$	(3,902,278	)	$	(3,389,333	)	$	-		$	(6,231,492	)
Capital expenditures	$	1,028,311	$	232,819		$	46,033		$	-		$	1,307,163

	Six Months Ended June 30, 2014 (Unaudited)
	Fixed Wireless		Shared Wireless Infrastructure			Corporate			Eliminations			Total
Revenues	$	15,257,973	$	1,478,719		$	-		$	(91,938	)	$	16,644,754
Operating Expenses
Cost of revenues (exclusive of depreciation)		5,119,152		6,902,292			28,350			(91,938	)		11,957,856
Depreciation and amortization		4,618,374		1,918,898			439,205			-			6,976,477
Customer support services		536,476		354,964			1,427,970			-			2,319,410
Sales and marketing		2,515,261		139,612			165,815			-			2,820,688
General and administrative		310,479		304,164			4,730,294			-			5,344,937
Total Operating Expenses		13,099,742		9,619,930			6,791,634			(91,938	)		29,419,368
Operating Income (Loss)	$	2,158,231	$	(8,141,211	)	$	(6,791,634	)	$	-		$	(12,774,614	)
Capital expenditures	$	2,889,854	$	1,428,452		$	317,188		$	-		$	4,635,494
As of June 30, 2014
Property and equipment, net	$	21,966,834	$	12,377,471		$	2,492,402		$	-		$	36,836,707
Total assets	$	27,442,263	$	14,839,751		$	19,888,452		$	-		$	62,170,466

	Six Months Ended June 30, 2013 (Unaudited)
	Fixed Wireless		Shared Wireless Infrastructure			Corporate			Eliminations			Total
Revenues	$	16,247,892	$	354,984		$	-		$	(91,478	)	$	16,511,398
Operating Expenses
Cost of revenues (exclusive of depreciation)		4,719,192		5,448,011			71,868			(91,478	)		10,147,593
Depreciation and amortization		5,656,588		1,775,437			374,888			-			7,806,913
Customer support services		561,143		378,898			1,638,570			-			2,578,611
Sales and marketing		2,619,174		158,257			187,229			-			2,964,660
General and administrative		317,607		334,934			5,121,091			-			5,773,632
Total Operating Expenses		13,873,704		8,095,537			7,393,646			(91,478	)		29,271,409
Operating Income (Loss)	$	2,374,188	$	(7,740,553	)	$	(7,393,646	)	$	-		$	(12,760,011	)
Capital expenditures	$	2,115,783	$	369,019		$	149,326		$	-		$	2,634,128
As of June 30, 2013
Property and equipment, net	$	24,477,899	$	12,739,109		$	1,910,097		$	-		$	39,127,105
Total assets	$	32,348,914	$	14,916,880		$	38,404,977		$	-		$	85,670,771

XML

Note 5 - Intangible Assets (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Note 5 - Intangible Assets (Details) [Line Items]
Amortization of Intangible Assets	$ 107,807	$ 817,979	$ 692,833	$ 1,570,579
Delos Internet [Member]
Note 5 - Intangible Assets (Details) [Line Items]
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life			50 months
Finite-Lived Intangible Assets, Remaining Amortization Period			34 months

XML

Note 12 - Commitments (Details) (USD $)	3 Months Ended		6 Months Ended			1 Months Ended	6 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014 Corporate Offices [Member] Due in 2019 [Member]	Sep. 30, 2013 Corporate Offices [Member]	Jun. 30, 2014 Corporate Offices [Member]	Feb. 28, 2014 Corporate Offices [Member]	Jun. 30, 2014 Due in 2014 [Member] Corporate Offices [Member]	Jun. 30, 2014 Minimum [Member]	Jun. 30, 2014 Maximum [Member]
Note 12 - Commitments (Details) [Line Items]
Lessee Leasing Arrangements, Operating Leases, Renewal Term						5 years				1 year	25 years
Leasehold Improvements, Gross						$ 600,000
Operating Lease, Leasehold Improvements to be Made by Lessor								(380,000)
Operating Leases, Rent Expense	5,390,853	4,527,878	10,540,200	8,861,313	416,970				359,750
Annual Increase in Operating Lease Rent Expense							3.00%
Other Obligations Quarterly Payments			$ 121,000

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Current Assets
Cash and cash equivalents	$ 17,288,707	$ 28,181,531
Accounts receivable, net	796,485	611,548
Prepaid expenses and other current assets	1,370,386	925,587
Total Current Assets	19,455,578	29,718,666
Property and equipment, net	36,836,707	38,484,858
Intangible assets, net	2,395,994	3,088,827
Goodwill	1,674,281	1,674,281
Other assets	1,807,906	1,950,835
Total Assets	62,170,466	74,917,467
Current Liabilities
Accounts payable	1,457,625	1,241,743
Accrued expenses	1,943,068	2,532,679
Deferred revenues	1,283,744	1,396,780
Current maturities of capital lease obligations	781,651	783,051
Other	51,443	67,255
Total Current Liabilities	5,517,531	6,021,508
Long-Term Liabilities
Capital lease obligations, net of current maturities	1,398,053	1,805,336
Other	1,492,438	996,682
Total Long-Term Liabilities	2,890,491	2,802,018
Total Liabilities	8,408,022	8,823,526
Commitments (Note 12)
Stockholders' Equity
Preferred stock, par value $0.001; 5,000,000 shares authorized; none issued	0	0
Common stock, par value $0.001; 95,000,000 shares authorized; 66,643,804 and 66,424,561 shares issued and outstanding, respectively	66,644	66,425
Additional paid-in-capital	154,744,392	154,171,695
Accumulated deficit	(101,048,592)	(88,144,179)
Total Stockholders' Equity	53,762,444	66,093,941
Total Liabilities and Stockholders' Equity	$ 62,170,466	$ 74,917,467

XML

Note 7 - Other Liabilities (Details) - Other Liabilities (USD $)	Jun. 30, 2014	Dec. 31, 2013
Current
Deferred rent	$ 40,644
Deferred acquisition payments	10,799	67,255
Total	51,443	67,255
Long-Term
Deferred rent	1,163,607	662,361
Deferred acquisition payments	6,026	11,516
Deferred taxes	322,805	322,805
Total	$ 1,492,438	$ 996,682

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $)	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Cash Flows From Operating Activities
Net loss	$ (12,904,413)	$ (11,857,456)
Adjustments to reconcile net loss to net cash used in operating activities:
Provision for doubtful accounts	117,000	60,000
Depreciation for property, plant and equipment	6,283,644	6,236,334
Amortization for customer based intangibles	692,833	1,570,579
Stock-based compensation	555,034	667,376
Gain on business acquisition	(1,004,099)	(1,004,099)
Loss on sale and disposition of property and equipment		59,135
Deferred rent	161,890	(57,880)
Changes in operating assets and liabilities:
Accounts receivable	(301,937)	(59,552)
Prepaid expenses and other current assets	(444,799)	(244,169)
Other assets	161,650	233,634
Accounts payable	215,882	(685,847)
Accrued expenses	(1,161,615)	(1,472,991)
Deferred revenues	(113,036)	(172,991)
Total Adjustments	6,166,546	5,129,529
Net Cash Used In Operating Activities	(6,737,867)	(6,727,927)
Cash Flows From Investing Activities
Acquisitions of property and equipment	(4,063,489)	(2,119,826)
Lease incentive payment from landlord	380,000
Acquisition of a business, net of cash acquired		(222,942)
Proceeds from sale of property and equipment		1,465
Payments of security deposits	(18,721)	(25,644)
Deferred acquisition payments	(61,946)	(83,545)
Net Cash Used In Investing Activities	(3,764,156)	(2,450,492)
Cash Flows From Financing Activities
Payments on capital leases	(408,683)	(376,207)
Issuance of common stock upon exercise of options		253,189
Issuance of common stock under employee stock purchase plan	21,675	37,411
Net proceeds from sale of common stock		30,499,336
Fair value of options repurchased	(3,793)
Net Cash (Used In) Provided By Financing Activities	(390,801)	30,413,729
Net (Decrease) Increase In Cash and Cash Equivalents	(10,892,824)	21,235,310
Cash and Cash Equivalents – Beginning	28,181,531	15,152,226
Cash and Cash Equivalents – Ending	17,288,707	36,387,536
Cash paid during the periods for:
Interest	137,527	94,525
Taxes	41,269	28,336
Non-cash investing and financing activities:
Fair value of common stock issued in connection with an acquisition		951,256
Acquisition of property and equipment:
Under capital leases		80,894
Included in accrued expenses	$ 572,004	$ 433,408

XML

Note 3 - Business Acquisitions (Details) (USD $)	1 Months Ended	3 Months Ended	6 Months Ended			1 Months Ended			3 Months Ended	6 Months Ended
	May 31, 2013	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Feb. 28, 2013	May 31, 2013 Common Stock Adjustment [Member] Delos Internet [Member]	May 31, 2013 Before Adjustment to Common Stock [Member] Delos Internet [Member]	May 31, 2013 After Adjustment To Common Stock [Member] Delos Internet [Member]	Jun. 30, 2014 Delos Internet [Member]	Jun. 30, 2014 Delos Internet [Member]
Note 3 - Business Acquisitions (Details) [Line Items]
Share Price (in Dollars per share)			$ 1.94		$ 2.47
Business Combination, Bargain Purchase, Gain Recognized, Amount		$ 62,642	$ 1,004,099	$ 1,004,099
Business Acquisition Purchase Price Allocation Change In Assets Acquired Liabilities Assumed Net	21,000
Business Combination Bargain Purchase Increase Of Gain Recognized	63,000
Business Acquisition, Equity Interest Issued or Issuable, Number of Shares (in Shares)						48,549	433,673	385,124
Business Combination, Acquisition Related Costs									$ 41,000	$ 99,000

XML

Note 2 - Summary of Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

Schedule of Allowance for Doubtful Accounts Receivable [Table Text Block]

	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Beginning of period	$	65,719		$	143,437		$	81,009		$	190,109
Additions		107,000			60,000			117,000			60,000
Deductions		(10,856	)		(40,759	)		(36,146	)		(87,431	)
End of period	$	161,863		$	162,678		$	161,863		$	162,678

XML

Note 3 - Business Acquisitions (Details) - Consideration Transferred and the Amounts of Identified Assets Acquired and Liabilities Assumed (USD $)	3 Months Ended	6 Months Ended		1 Months Ended
	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Feb. 28, 2013 Other Liabilities Assumed [Member] Scenario, Adjustment [Member] Delos Internet [Member]	Feb. 28, 2013 Other Liabilities Assumed [Member] Scenario, Actual [Member] Delos Internet [Member]	Feb. 28, 2013 Capital Lease Obligations Assumed [Member] Scenario, Previously Reported [Member] Delos Internet [Member]	Feb. 28, 2013 Capital Lease Obligations Assumed [Member] Scenario, Adjustment [Member] Delos Internet [Member]	Feb. 28, 2013 Capital Lease Obligations Assumed [Member] Scenario, Actual [Member] Delos Internet [Member]	Feb. 28, 2013 Scenario, Previously Reported [Member] Delos Internet [Member]	Feb. 28, 2013 Scenario, Adjustment [Member] Delos Internet [Member]	Feb. 28, 2013 Scenario, Actual [Member] Delos Internet [Member]
Business Acquisition [Line Items]
Cash									$ 225,000		$ 225,000
Common stock									1,071,172	(119,916)	951,256
Fair value of liabilies transferred				36,733	36,733	128,929		128,929
Total consideration transferred						1,425,101	(83,183)	1,341,918
Fair value of identifiable assets acquired and liabilities assumed:
Cash									2,058		2,058
Accounts receivable									80,524	1,286	79,238
Property and equipment									826,524	18,824	807,700
Security deposits									1,993		1,993
Accounts payable									(26,970)	2,566	(29,536)
Deferred revenue									(62,110)	(2,135)	(59,975)
Other liabilities									(89,930)		(89,930)
Total identifiable net tangible assets									732,089	20,541	711,548
Customer relationships									1,634,469		1,634,469
Total identifiable net assets									2,366,558	20,541	2,346,017
Gain on business acquisition	$ 62,642	$ 1,004,099	$ 1,004,099						$ 941,457	$ 62,642	$ 1,004,099

XML

Note 4 - Property and Equipment (Tables)

6 Months Ended

Jun. 30, 2014

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment [Table Text Block]

	June 30, 2014		December 31, 2013
Network and base station equipment	$	34,173,206	$	32,233,262
Customer premise equipment		25,124,372		24,244,017
Shared wireless infrastructure		20,624,465		19,128,064
Information technology		4,565,143		4,417,869
Furniture, fixtures and other		1,667,977		1,661,567
Leasehold improvements		1,599,093		1,433,984
		87,754,256		83,118,763
Less: accumulated depreciation		50,917,549		44,633,905
Property and equipment, net	$	36,836,707	$	38,484,858

Schedule of Capital Leased Assets [Table Text Block]

	June 30, 2014		December 31, 2013
Network and base station equipment	$	828,027	$	828,027
Shared wireless infrastructure		1,216,142		1,216,142
Customer premise equipment		96,843		96,843
Information technology		1,860,028		1,860,028
		4,001,040		4,001,040
Less: accumulated depreciation		1,733,770		1,333,666
Property acquired through capital leases, net	$	2,267,270	$	2,667,374

XML

Note 1 - Organization and Nature of Business

6 Months Ended

Jun. 30, 2014

Disclosure Text Block [Abstract]

Nature of Operations [Text Block]

Note 1.    Organization and Nature of Business

Towerstream Corporation (referred to as “Towerstream” or the “Company”) was incorporated in Delaware in December 1999. During its first decade of operations, the Company's business activities were focused on delivering fixed wireless broadband services to commercial customers over a wireless network transmitting over both regulated and unregulated radio spectrum. The Company's fixed wireless service supports bandwidth on demand, wireless redundancy, virtual private networks, disaster recovery, bundled data and video services. The Company provides services to business customers in New York City, Boston, Chicago, Los Angeles, San Francisco, Seattle, Miami, Dallas-Fort Worth, Houston, Philadelphia, Las Vegas-Reno and Providence-Newport. The Company's “fixed wireless business” has historically grown both organically and through the acquisition of five other fixed wireless broadband providers in various markets.

In January 2013, the Company incorporated a wholly-owned subsidiary, Hetnets Tower Corporation (“Hetnets”).  Hetnets was formed to operate a new shared wireless infrastructure platform that emerged from the Company's efforts to identify opportunities to leverage its fixed wireless network in urban markets to provide other wireless technology solutions and services.  Hetnets operates a carrier-class network which has been constructed on "street level rooftops" which are closer to the ground (where Wi-Fi and small cell can operate with less interference from the macro cell) than the Company's traditional fixed wireless network.  The Company believes that the wireless communications industry is experiencing a fundamental shift from its traditional macro-cellular architecture to densified small cell architecture where existing cell sites will be supplemented by many smaller base stations operating near street level.  Hetnets is structured to operate like a tower company and expects to generate rental income from four separate sources including (i) rental of space on street level rooftops for the installation of customer owned small cells which includes Wi-Fi antennae, DAS, and Metro and Pico cells, (ii) rental of a channel on Hetnets’ Wi-Fi network for internet access and the offloading of mobile data, (iii) rental of a port for backhaul or transport, and (iv) power and other related services. The Company refers to the activities of Hetnets as its “shared wireless infrastructure” (or “shared wireless”) business.

       In June 2013, Hetnets entered into a Wi-Fi service agreement (the “Wi-Fi Agreement”) with a major cable operator (the “Cable Operator”). The Wi-Fi Agreement provides leased access to certain access points, primarily within New York City and Bergen County, New Jersey. The Cable Operator has a limited right to expand access in other Hetnets’ markets. The term of the Wi-Fi Agreement is for an initial three year period, and provides for automatic annual renewals for two additional one year periods.

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Preferred stock, par value (in Dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, shares issued	0	0
Common stock, par value (in Dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	95,000,000	95,000,000
Common stock, shares issued	66,643,804	66,424,561
Common stock, shares outstanding	66,643,804	66,424,561

XML

Note 11 - Net Loss per Common Share

6 Months Ended

Jun. 30, 2014

Earnings Per Share [Abstract]

Earnings Per Share [Text Block]

Note 11.    Net Loss Per Common Share

Basic and diluted net loss per share has been calculated by dividing net loss by the weighted average number of common shares outstanding during the period. The following common stock equivalents were excluded from the computation of diluted net loss per common share because they were anti-dilutive. The exercise or issuance of these common stock equivalents outstanding at June 30, 2014 would dilute earnings per share if the Company becomes profitable in the future. The exercise of the outstanding stock options and warrants could potentially generate proceeds up to approximately $13 million if exercised by the holder for cash.

Stock options	3,803,305
Warrants	450,000
Total	4,253,305

XML

Document And Entity Information	6 Months Ended
	Jun. 30, 2014	Aug. 07, 2014
Document and Entity Information [Abstract]
Entity Registrant Name	TOWERSTREAM CORP
Document Type	10-Q
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		66,643,804
Amendment Flag	false
Entity Central Index Key	0001349437
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Accelerated Filer
Entity Well-known Seasoned Issuer	No
Document Period End Date	Jun. 30, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q2

XML

Note 12 - Commitments

6 Months Ended

Jun. 30, 2014

Disclosure Text Block Supplement [Abstract]

Commitments Disclosure [Text Block]

Note 12.    Commitments

Operating Lease Obligations

The Company has entered into operating leases related to roof rights, cellular towers, office space, and equipment leases under various non-cancelable agreements expiring through December 2020. Certain of these operating leases include extensions, at the Company's option, for additional terms ranging from 1 to 25 years. Amounts associated with the extension periods have not been included in the table below as it is not presently determinable which options, if any, the Company will elect to exercise. As of June 30, 2014, total future operating lease obligations were as follows:

Remainder of 2014	$	10,429,485
2015		19,226,692
2016		17,782,036
2017		12,039,856
2018		4,513,665
Thereafter		2,063,693
	$	66,055,427

Rent expenses were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
Points of Presence	$	1,948,102	$	1,715,204	$	3,793,348	$	3,340,906
Street level rooftops		3,263,423		2,585,804		6,392,916		5,049,902
Corporate offices		84,109		121,519		168,219		245,276
Other		95,219		105,351		185,717		225,229
	$	5,390,853	$	4,527,878	$	10,540,200	$	8,861,313

Rent expenses related to Points of Presence, street level rooftops and other were included in cost of revenues in the Company’s condensed consolidated statements of operations. Rent expense related to our corporate offices was included in general and administrative expenses in the Company’s condensed consolidated statements of operations.

In September 2013, the Company entered into a new lease agreement for its corporate offices and new warehouse space. The lease commenced on January 1, 2014 and expires on December 31, 2019 with an option to renew for an additional five year term through December 31, 2024. The Company spent approximately $600,000 in leasehold improvements in connection with consolidating its corporate based employees from two buildings into one building. The Landlord agreed to contribute $380,000 in funding towards qualified leasehold improvements and made such payment to the Company in February 2014. Total annual rent payments begin at $359,750 for 2014 and escalate by 3% annually reaching $416,970 for 2019.

Capital Lease Obligations

The Company has entered into capital leases to acquire property and equipment expiring through March 2018. As of June 30, 2014, total future capital lease obligations were as follows:

Remainder of 2014	$	478,632
2015		908,344
2016		655,754
2017		391,305
2018		53,922
	$	2,487,957
Less: Interest expense		308,253
Total capital lease obligations	$	2,179,704
Current	$	781,651
Long-term	$	1,398,053

Other

During the fourth quarter of 2013, the Company renewed a one year information technology infrastructure support agreement which became effective at the end of the first quarter of 2014. Payments of approximately $121,000 are due quarterly through the first quarter of 2015.

XML

Condensed Consolidated Statements of Operations (Unaudited) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Revenues	$ 8,264,848	$ 8,212,175	$ 16,644,754	$ 16,511,398
Operating Expenses
Cost of revenues (exclusive of depreciation)	6,101,913	5,166,287	11,957,856	10,147,593
Depreciation and amortization	3,281,062	3,935,826	6,976,477	7,806,913
Customer support services	1,147,275	1,181,717	2,319,410	2,578,611
Sales and marketing	1,399,089	1,523,804	2,820,688	2,964,660
General and administrative	2,666,997	2,636,033	5,344,937	5,773,632
Total Operating Expenses	14,596,336	14,443,667	29,419,368	29,271,409
Operating Loss	(6,331,488)	(6,231,492)	(12,774,614)	(12,760,011)
Other Income/(Expense)
Interest expense, net	(59,488)	(58,670)	(122,539)	(94,284)
Gain on business acquisition		62,642	1,004,099	1,004,099
Other income (expense), net	(3,630)	(3,630)	(7,260)	(7,260)
Total Other Income/(Expense)	(63,118)	342	(129,799)	902,555
Net Loss	$ (6,394,606)	$ (6,231,150)	$ (12,904,413)	$ (11,857,456)
Net loss per common share – basic and diluted (in Dollars per share)	$ (0.10)	$ (0.09)	$ (0.19)	$ (0.19)
Weighted average common shares outstanding – basic and diluted (in Shares)	66,478,686	66,370,789	66,458,983	63,931,300

XML

Note 6 - Accrued Expenses

6 Months Ended

Jun. 30, 2014

Accrued Liabilities Disclosure [Abstract]

Accrued Liabilities Disclosure [Text Block]

Note 6. Accrued Expenses

Accrued expenses consist of the following:

	June 30, 2014		December 31, 2013
Property and equipment	$	572,004	$	867,311
Payroll and related		813,005		937,624
Professional services		160,712		186,917
Network		127,719		138,684
Marketing		84,830		108,741
Other		184,798		293,402
Total	$	1,943,068	$	2,532,679

Network expenses consist of costs incurred to provide services to our customers and include tower rentals, bandwidth, troubleshooting and gear removal.

XML

Note 5 - Intangible Assets

6 Months Ended

Jun. 30, 2014

Disclosure Text Block [Abstract]

Intangible Assets Disclosure [Text Block]

Note 5. Intangible Assets

Intangible assets consist of the following:

	June 30, 2014		December 31, 2013
Goodwill	$	1,674,281	$	1,674,281
Customer relationships	$	11,856,127	$	11,856,127
Less: accumulated amortization of customer relationships		10,744,688		10,051,855
Customer relationships, net		1,111,439		1,804,272
FCC licenses		1,284,555		1,284,555
Intangible assets, net	$	2,395,994	$	3,088,827

Amortization expense for the three months ended June 30, 2014 and 2013 was $107,807 and $817,979, respectively. Amortization expense for the six months ended June 30, 2014 and 2013 was $692,833 and $1,570,579, respectively. The customer contracts acquired in the Company’s acquisition of Delos are being amortized over a 50 month period ending April 2017. As of June 30, 2014, the remaining amortization period for the Delos acquisition was 34 months. Balances related to the Company’s other acquisitions have been fully amortized. Future amortization expense is as follows:

Remainder of 2014	$	196,136
2015		392,272
2016		392,272
2017		130,759
	$	1,111,439

The Company’s licenses with the Federal Communications Commission (“FCC”) are not subject to amortization as they have an indefinite useful life.

XML

Note 3 - Business Acquisitions (Tables)

6 Months Ended

Jun. 30, 2014

Business Combinations [Abstract]

Schedule of Business Acquisitions, by Acquisition [Table Text Block]

Fair value of consideration transferred:	Original			Adjustments			Final
Cash	$	225,000		$	-		$	225,000
Common stock		1,071,172			(119,916	)		951,256
Other liabilities assumed		-			36,733			36,733
Capital lease obligations assumed		128,929			-			128,929
Total consideration transferred		1,425,101			(83,183	)		1,341,918
Fair value of identifiable assets acquired and liabilities assumed:
Cash		2,058			-			2,058
Accounts receivable		80,524			1,286			79,238
Property and equipment		826,524			18,824			807,700
Security deposits		1,993			-			1,993
Accounts payable		(26,970	)		2,566			(29,536	)
Deferred revenue		(62,110	)		(2,135	)		(59,975	)
Other liabilities		(89,930	)		-			(89,930	)
Total identifiable net tangible assets		732,089			20,541			711,548
Customer relationships		1,634,469			-			1,634,469
Total identifiable net assets		2,366,558			20,541			2,346,017
Gain on business acquisition	$	941,457		$	62,642		$	1,004,099

Business Acquisition, Pro Forma Information [Table Text Block]

	Six Months Ended June 30, 2013
Revenues	$	16,623,968
Amortization expense		1,635,958
Total operating expenses		29,443,388
Net loss		(11,916,865	)
Basic net loss per share	$	(0.19	)

XML

Note 13 - Segment Information

6 Months Ended

Jun. 30, 2014

Segment Reporting [Abstract]

Segment Reporting Disclosure [Text Block]

Note 13.    Segment Information

The Company has two reportable segments: Fixed Wireless and Shared Wireless Infrastructure. Management evaluates performance and allocates resources based on the operating performance of each segment as well as the long-term growth potential for each segment. Costs reported for each segment include costs directly associated with a segment’s operations. Inter-segment revenues and expenses are eliminated in consolidation.

     The balance of the Company’s operations is in the Corporate group which includes centralized operations. This group includes operations related to corporate overhead and centralized activities which support overall operations. Corporate overhead includes administrative personnel, including executive management, and other support functions such as information technology and facilities. Centralized operations include network operations, customer care, and the management of network assets. The Corporate group is treated as a separate segment consistent with how management monitors and analyzes financial results. Corporate costs are not allocated to the segments because such costs are managed and controlled on a functional basis that encompasses all markets with centralized, functional management held accountable for corporate results. Management also believes that not allocating these centralized costs provides a better reflection of the direct operating performance of each segment. The table below presents information about the Company's operating segments:

	Three Months Ended June 30, 2014 (Unaudited)
	Fixed  Wireless		Shared Wireless Infrastructure			Corporate			Eliminations			Total
Revenues	$	7,572,447	$	738,370		$	-		$	(45,969	)	$	8,264,848
Operating Expenses
Cost of revenues (exclusive of depreciation)		2,620,460		3,513,341			14,081			(45,969	)		6,101,913
Depreciation and amortization		2,080,501		977,960			222,601			-			3,281,062
Customer support services		267,961		178,774			700,540			-			1,147,275
Sales and marketing		1,252,124		62,862			84,103			-			1,399,089
General and administrative		202,053		157,636			2,307,308			-			2,666,997
Total Operating Expenses		6,423,099		4,890,573			3,328,633			(45,969	)		14,596,336
Operating Income (Loss)	$	1,149,348	$	(4,152,203	)	$	(3,328,633	)	$	-		$	(6,331,488	)
Capital expenditures	$	1,403,404	$	490,399		$	204,334		$	-		$	2,098,137

	Three Months Ended June 30, 2013 (Unaudited)
	Fixed  Wireless		Shared Wireless Infrastructure			Corporate			Eliminations			Total
Revenues	$	8,061,156	$	196,508		$	-		$	(45,489	)	$	8,212,175
Operating Expenses
Cost of revenues (exclusive of depreciation)		2,385,047		2,797,126			29,603			(45,489	)		5,166,287
Depreciation and amortization		2,836,979		911,325			187,522			-			3,935,826
Customer support services		286,068		134,376			761,273			-			1,181,717
Sales and marketing		1,322,233		111,209			90,362			-			1,523,804
General and administrative		170,710		144,750			2,320,573			-			2,636,033
Total Operating Expenses		7,001,037		4,098,786			3,389,333			(45,489	)		14,443,667
Operating Income (Loss)	$	1,060,119	$	(3,902,278	)	$	(3,389,333	)	$	-		$	(6,231,492	)
Capital expenditures	$	1,028,311	$	232,819		$	46,033		$	-		$	1,307,163

	Six Months Ended June 30, 2014 (Unaudited)
	Fixed Wireless		Shared Wireless Infrastructure			Corporate			Eliminations			Total
Revenues	$	15,257,973	$	1,478,719		$	-		$	(91,938	)	$	16,644,754
Operating Expenses
Cost of revenues (exclusive of depreciation)		5,119,152		6,902,292			28,350			(91,938	)		11,957,856
Depreciation and amortization		4,618,374		1,918,898			439,205			-			6,976,477
Customer support services		536,476		354,964			1,427,970			-			2,319,410
Sales and marketing		2,515,261		139,612			165,815			-			2,820,688
General and administrative		310,479		304,164			4,730,294			-			5,344,937
Total Operating Expenses		13,099,742		9,619,930			6,791,634			(91,938	)		29,419,368
Operating Income (Loss)	$	2,158,231	$	(8,141,211	)	$	(6,791,634	)	$	-		$	(12,774,614	)
Capital expenditures	$	2,889,854	$	1,428,452		$	317,188		$	-		$	4,635,494
As of June 30, 2014
Property and equipment, net	$	21,966,834	$	12,377,471		$	2,492,402		$	-		$	36,836,707
Total assets	$	27,442,263	$	14,839,751		$	19,888,452		$	-		$	62,170,466

	Six Months Ended June 30, 2013 (Unaudited)
	Fixed Wireless		Shared Wireless Infrastructure			Corporate			Eliminations			Total
Revenues	$	16,247,892	$	354,984		$	-		$	(91,478	)	$	16,511,398
Operating Expenses
Cost of revenues (exclusive of depreciation)		4,719,192		5,448,011			71,868			(91,478	)		10,147,593
Depreciation and amortization		5,656,588		1,775,437			374,888			-			7,806,913
Customer support services		561,143		378,898			1,638,570			-			2,578,611
Sales and marketing		2,619,174		158,257			187,229			-			2,964,660
General and administrative		317,607		334,934			5,121,091			-			5,773,632
Total Operating Expenses		13,873,704		8,095,537			7,393,646			(91,478	)		29,271,409
Operating Income (Loss)	$	2,374,188	$	(7,740,553	)	$	(7,393,646	)	$	-		$	(12,760,011	)
Capital expenditures	$	2,115,783	$	369,019		$	149,326		$	-		$	2,634,128
As of June 30, 2013
Property and equipment, net	$	24,477,899	$	12,739,109		$	1,910,097		$	-		$	39,127,105
Total assets	$	32,348,914	$	14,916,880		$	38,404,977		$	-		$	85,670,771

XML

Note 9 - Employee Stock Purchase Plan

6 Months Ended

Jun. 30, 2014

Employee Stock Purchase Plan Disclosure [Abstract]

Employee Stock Purchase Plan Disclosure [Text Block]

Note 9. Employee Stock Purchase Plan

Under the Company’s 2010 Employee Stock Purchase Plan (“ESPP Plan”), participants can purchase shares of the Company’s stock at a 15% discount. A maximum of 200,000 shares of common stock can be issued under the ESPP Plan. During the three and six months ended June 30, 2014, a total of 6,490 and 11,973 shares were issued under the ESPP Plan with a fair value of $12,591 and $25,476, respectively. The Company recognized $1,882 and $3,801 of stock-based compensation related to the 15% discount for the three and six months ended June 30, 2014, respectively. The Company recognized $3,021 and $6,522 of stock-based compensation related to the 15% discount for the three and six months ended June 30, 2013, respectively.

XML

Note 7 - Other Liabilities

6 Months Ended

Jun. 30, 2014

Other Liabilities and Financial Instruments Subject to Mandatory Redemption [Abstract]

Other Liabilities Disclosure [Text Block]

Note 7.    Other Liabilities

Other liabilities consist of the following:

	June 30, 2014		December 31, 2013
Current
Deferred rent	$	40,644	$	-
Deferred acquisition payments		10,799		67,255
Total	$	51,443	$	67,255
Long-Term
Deferred rent	$	1,163,607	$	662,361
Deferred acquisition payments		6,026		11,516
Deferred taxes		322,805		322,805
Total	$	1,492,438	$	996,682

Deferred acquisition payments related to Delos totaled $16,825 at June 30, 2014 and bear interest at rates ranging from 7% to 12.5%. In May 2014, the Company made its last deferred acquisition payment of $16,630 related to the acquisition of Pipeline Wireless LLC.

XML

Note 8 - Stock Options and Stock Warrants

6 Months Ended

Jun. 30, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

Note 8. Stock Options and Warrants

Stock Options

The Company uses the Black-Scholes option pricing model to value options issued to employees, directors and consultants. Compensation expense, including on the date of grant the effect of forfeitures, is recognized over the period of service, generally the vesting period. Stock compensation expense and the weighted average assumptions used to calculate the fair values of stock options granted during the periods indicated were as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Risk-free interest rate		1.6	%		1.0 - 1.5	%		1.6	%		0.8 - 1.5	%
Expected volatility		47	%		65	%		47	%		65 - 68	%
Expected life (in years)		5.3		5.3 – 6.5				5.3			5 - 6.5
Expected dividend yield		-			-			-			-
Weighted average per share grant date fair value	$	0.84		$	1.46		$	0.84		$	1.46
Stock-based compensation	$	260,882		$	253,098		$	551,233		$	631,304

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 as a result of limited historical data regarding the Company’s activity. The dividend yield is based upon the fact that the Company has not historically paid dividends, and does not expect to pay dividends in the foreseeable future. Stock-based compensation is included in general and administrative expenses in the accompanying condensed consolidated statements of operations. The unamortized amount of stock options expense totaled $1,231,353 as of June 30, 2014 which will be recognized over a weighted-average period of 1.8 years.

Option transactions under the stock option plans during the six months ended June 30, 2014 were as follows:

	Number			Weighted Average Exercise Price
Outstanding as of December 31, 2013		4,055,016		$	2.70
Granted during 2014		200,000		$	1.93
Exercised		(340,906	)	$	0.74
Forfeited /expired		(110,805	)	$	2.68
Outstanding as of June 30, 2014		3,803,305		$	2.83
Exercisable as of June 30, 2014		2,659,485		$	2.70

In June 2014, the Company made its annual grant to the Board of Directors consisting of 200,000 options with an exercise price of $1.93 vesting monthly through May 2015.

A total of 340,906 options were exercised on a cashless basis during the three ended June 30, 2014 resulting in the net issuance of 192,270 shares.

Cancellations for the three and six months ended June 30, 2014 were 75,805 and 110,805, respectively. Cancellations related to employee terminations except for 14,250 options which were repurchased during the three months ended June 30, 2014.

The weighted average remaining contractual life of the outstanding options as of June 30, 2014 was 5.9 years.

The intrinsic value of outstanding and exercisable options totaled $645,363 and $643,363 respectively, as of June 30, 2014. The intrinsic value is calculated as the difference between the closing price of the Company’s common stock as of June 30, 2014, which was $1.94 per share, and the exercise price of the options.

Stock Warrants 

There were 450,000 warrants outstanding and exercisable at June 30, 2014 and December 31, 2013 with an exercise price of $5.00 and an expiration date in July 2016.

       The warrants had no intrinsic value at June 30, 2014. The intrinsic value is calculated as the difference between the closing price of the Company’s common stock as of June 30, 2014, which was $1.94 per share, and the exercise price of the warrants.

Cashless Exercises

The number of shares issuable upon the exercise of an option or a warrant will be lower if a holder exercises on a cashless basis. Under a cashless exercise, the holder uses a portion of the shares that would otherwise be issuable upon exercise, rather than cash, as consideration for the exercise. The amount of net shares issuable in connection with a cashless exercise will vary based on the exercise price of the option or warrant compared to the current market price of the Company’s common stock on the date of exercise.

XML

Note 10 - Fair Value Measurement

6 Months Ended

Jun. 30, 2014

Fair Value Disclosures [Abstract]

Fair Value Disclosures [Text Block]

Note 10. Fair Value Measurement

Valuation Hierarchy

The accounting standard of the FASB for fair value measurements 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. 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 based on the Company’s own assumptions used to measure assets and liabilities at fair value. 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.

Cash and 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 accounts receivable, accounts payable and accrued liabilities approximate their fair value due to their short maturities. There were no changes in the valuation techniques during the six months ended June 30, 2014.

	Total Carrying Value		Quoted prices  in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
June 30, 2014	$	17,288,707	$	17,288,707	$	-	$	-
December 31, 2013	$	28,181,531	$	28,181,531	$	-	$	-

XML

Note 2 - Summary of Significant Accounting Policies (Details) - Changes in Allowance for Doubtful Accounts (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Changes in Allowance for Doubtful Accounts [Abstract]
Beginning of period	$ 65,719	$ 143,437	$ 81,009	$ 190,109
Additions	107,000	60,000	117,000	60,000
Deductions	(10,856)	(40,759)	(36,146)	(87,431)
End of period	$ 161,863	$ 162,678	$ 161,863	$ 162,678

XML

Note 11 - Net Loss per Common Share (Details) (USD $) In Millions, unless otherwise specified	6 Months Ended
	Jun. 30, 2014
Earnings Per Share [Abstract]
Proceeds From Stock Option And Warrant Exercises	$ 13

XML

Accounting Policies, by Policy (Policies)

6 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

Use of Estimates, Policy [Policy Text Block]

Use of Estimates.    The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the amounts of revenues and expenses. Actual results could differ from those estimates.

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash and Cash Equivalents.    The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

Concentration Risk, Credit Risk, Policy [Policy Text Block]

Concentration of Credit Risk.    Financial instruments that potentially subject the Company to significant concentrations of credit risk consist of cash and cash equivalents. At times, our cash and cash equivalents may be uninsured or in deposit accounts that exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance limits. As of June 30, 2014, the Company had cash and cash equivalent balances of approximately $2,014,000 in excess of the federally insured limit of $250,000.

The Company also had approximately $15,017,000 invested in institutional money market funds. These funds are protected under the Securities Investor Protection Corporation, a nonprofit membership corporation which provides limited coverage up to $500,000.

Receivables, Policy [Policy Text Block]

Accounts Receivable. Accounts receivable are stated at cost less an allowance for doubtful accounts which reflects the Company’s estimate of balances that will be not collected. The allowance is based on the history of past write-offs, the aging of balances, collections experience and current credit conditions. Additions include provisions for doubtful accounts and deductions include customer write-offs. Changes in the allowance for doubtful accounts were as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Beginning of period	$	65,719		$	143,437		$	81,009		$	190,109
Additions		107,000			60,000			117,000			60,000
Deductions		(10,856	)		(40,759	)		(36,146	)		(87,431	)
End of period	$	161,863		$	162,678		$	161,863		$	162,678

Business Combinations Policy [Policy Text Block]

Business Acquisitions. Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the fair value of the consideration transferred on the acquisition date.  When the Company acquires a business, it assesses the acquired assets and liabilities assumed for the appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions at the acquisition date. The excess of the total consideration transferred over the net identifiable assets acquired and liabilities assumed is recognized as goodwill.  If this consideration is lower than the fair value of the identifiable net assets acquired, the difference is recognized as a gain on business acquisition. Acquisition costs are expensed and included in general and administrative expenses in our condensed consolidated statements of operations.

The highest level of judgment and estimation involved in accounting for business acquisitions relates to determining the fair value of the customer relationships and network assets acquired. In each of the five acquisitions completed over the past four years, the highest asset value has been allocated to the customer relationships acquired. Determining the fair value of customer relationships involves judgments and estimates regarding how long the customers will continue to contract services with the Company. During the course of completing five acquisitions, the Company has developed a database of historical experience from prior acquisitions to assist in preparing future estimates of cash flows. Similarly, the Company has used its historical experience in building networks to prepare estimates regarding the fair value of the network assets that it acquires.

Revenue Recognition, Policy [Policy Text Block]

Revenue Recognition. The Company normally enters into contractual agreements with its customers for periods ranging between one to three years. The Company recognizes the total revenue provided under a contract ratably over the contract period, including any periods under which the Company has agreed to provide services at no cost. The Company recognizes revenue 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.

Revenue Recognition, Deferred Revenue [Policy Text Block]

Deferred Revenues. Customers are billed monthly in advance. Deferred revenues are recognized for that portion of monthly charges not yet earned as of the end of the reporting period. Deferred revenues are also recognized for certain customers who pay for their services in advance.

Goodwill and Intangible Assets, Goodwill, Policy [Policy Text Block]

Goodwill. Goodwill represents the excess of the purchase price over the estimated fair value of identifiable net assets acquired in an acquisition. Goodwill is not amortized but rather is reviewed annually for impairment, or whenever events or circumstances indicate that the carrying value may not be recoverable. The Company initially performs a qualitative assessment of goodwill which considers macro-economic conditions, industry and market trends, and the current and projected financial performance of the reporting unit.  No further analysis is required if it is determined that there is a less than 50 percent likelihood that the carrying value is greater than the fair value.

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements. In May 2014, Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09 (“ASU 2014-09”), “Revenue from Contracts with Customers,” which requires an entity to recognize revenue representing the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to receive in exchange for those goods or services. ASU 2014-09 is intended to establish principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenues and cash flows arising from the entity’s contracts with customers. ASU 2014-09 will replace most existing revenue recognition guidance in GAAP when it becomes effective. The new standard is effective for the Company on January 1, 2017. Early application is not permitted. The Company is currently evaluating the effect that ASU 2014-09 will have on its condensed consolidated financial statements and related disclosures.

In June 2014, FASB issued ASU No. 2014-12 (“ASU 2014-12”), “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period,” which requires a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. ASU 2014-12 states that the performance target should not be reflected in estimating the grant date fair value of the award. ASU 2014-12 clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the periods for which the requisite service has already been rendered. The new standard is effective for the Company on January 1, 2016. The Company does not expect adoption of ASU 2014-12 to have a significant impact on its condensed consolidated financial statements.

Reclassification, Policy [Policy Text Block]

Reclassifications.    Certain accounts in the prior year’s condensed consolidated financial statements have been reclassified for comparative purposes to conform to the presentation in the current year’s condensed consolidated financial statements. These reclassifications have no effect on the previously reported net loss.

Subsequent Events, Policy [Policy Text Block]

Subsequent Events. Subsequent events have been evaluated through the date of this filing.

XML

Note 6 - Accrued Expenses (Tables)

6 Months Ended

Jun. 30, 2014

Accrued Liabilities Disclosure [Abstract]

Schedule of Accrued Liabilities [Table Text Block]

	June 30, 2014		December 31, 2013
Property and equipment	$	572,004	$	867,311
Payroll and related		813,005		937,624
Professional services		160,712		186,917
Network		127,719		138,684
Marketing		84,830		108,741
Other		184,798		293,402
Total	$	1,943,068	$	2,532,679

XML

Note 9 - Employee Stock Purchase Plan (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Note 9 - Employee Stock Purchase Plan (Details) [Line Items]
Percentage Of Discount Allowed For Shares Issued Under Employee Stock Purchase Plan			15.00%
Stock Issued During Period, Value, Employee Stock Purchase Plan			$ 25,476
2010 Employee Stock Purchase Plan [Member]
Note 9 - Employee Stock Purchase Plan (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized (in Shares)	200,000		200,000
Stock Issued During Period, Shares, Employee Stock Purchase Plans (in Shares)	6,490		11,973
Stock Issued During Period, Value, Employee Stock Purchase Plan	12,591		25,476
Defined Contribution Plan, Cost Recognized	$ 1,882	$ 3,021	$ 3,801	$ 6,522

XML

Note 5 - Intangible Assets (Details) - Intangible Assets (USD $)	Jun. 30, 2014	Dec. 31, 2013
Intangible Assets [Abstract]
Goodwill	$ 1,674,281	$ 1,674,281
Customer relationships	11,856,127	11,856,127
Less: accumulated amortization of customer relationships	10,744,688	10,051,855
Customer relationships, net	1,111,439	1,804,272
FCC licenses	1,284,555	1,284,555
Intangible assets, net	$ 2,395,994	$ 3,088,827

XML

Condensed Consolidated Statement of Stockholders' Equity (Unaudited) (USD $)	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Total
Balance at Dec. 31, 2013	$ 66,425	$ 154,171,695	$ (88,144,179)	$ 66,093,941
Shares (in Shares) at Dec. 31, 2013	66,424,561
Cashless exercise of options	192	(192)
Cashless exercise of options (in Shares)	192,270			340,906
Issuance of common stock under employee stock purchase plan	12	25,464		25,476
Issuance of common stock under employee stock purchase plan (in Shares)	11,973
Issuance of common stock upon vesting of restricted stock awards	15	(15)
Issuance of common stock upon vesting of restricted stock awards (in Shares)	15,000
Stock-based compensation for options		551,233		551,233
Fair value of options repurchased		(3,793)		(3,793)
Net loss			(12,904,413)	(12,904,413)
Balance at Jun. 30, 2014	$ 66,644	$ 154,744,392	$ (101,048,592)	$ 53,762,444
Shares (in Shares) at Jun. 30, 2014	66,643,804

XML

Note 4 - Property and Equipment

6 Months Ended

Jun. 30, 2014

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment Disclosure [Text Block]

Note 4.    Property and Equipment

Property and equipment is comprised of:

	June 30, 2014		December 31, 2013
Network and base station equipment	$	34,173,206	$	32,233,262
Customer premise equipment		25,124,372		24,244,017
Shared wireless infrastructure		20,624,465		19,128,064
Information technology		4,565,143		4,417,869
Furniture, fixtures and other		1,667,977		1,661,567
Leasehold improvements		1,599,093		1,433,984
		87,754,256		83,118,763
Less: accumulated depreciation		50,917,549		44,633,905
Property and equipment, net	$	36,836,707	$	38,484,858

Property acquired through capital leases included within the Company’s property and equipment consists of the following:

	June 30, 2014		December 31, 2013
Network and base station equipment	$	828,027	$	828,027
Shared wireless infrastructure		1,216,142		1,216,142
Customer premise equipment		96,843		96,843
Information technology		1,860,028		1,860,028
		4,001,040		4,001,040
Less: accumulated depreciation		1,733,770		1,333,666
Property acquired through capital leases, net	$	2,267,270	$	2,667,374

XML

Note 13 - Segment Information (Details) - Segment Information (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2013
Segment Reporting Information [Line Items]
Revenues	$ 8,264,848	$ 8,212,175	$ 16,644,754	$ 16,511,398
Operating Expenses
Cost of revenues (exclusive of depreciation)	6,101,913	5,166,287	11,957,856	10,147,593
Depreciation and amortization	3,281,062	3,935,826	6,976,477	7,806,913
Customer support services	1,147,275	1,181,717	2,319,410	2,578,611
Sales and marketing	1,399,089	1,523,804	2,820,688	2,964,660
General and administrative	2,666,997	2,636,033	5,344,937	5,773,632
Total Operating Expenses	14,596,336	14,443,667	29,419,368	29,271,409
Operating Income (Loss)	(6,331,488)	(6,231,492)	(12,774,614)	(12,760,011)
Capital expenditures	2,098,137	1,307,163	4,635,494	2,634,128
As of June 30, 2014
Property and equipment, net	36,836,707	39,127,105	36,836,707	39,127,105	38,484,858
Total assets	62,170,466	85,670,771	62,170,466	85,670,771	74,917,467
Fixed Wireless [Member] | Operating Segments [Member]
Segment Reporting Information [Line Items]
Revenues	7,572,447	8,061,156	15,257,973	16,247,892
Operating Expenses
Cost of revenues (exclusive of depreciation)	2,620,460	2,385,047	5,119,152	4,719,192
Depreciation and amortization	2,080,501	2,836,979	4,618,374	5,656,588
Customer support services	267,961	286,068	536,476	561,143
Sales and marketing	1,252,124	1,322,233	2,515,261	2,619,174
General and administrative	202,053	170,710	310,479	317,607
Total Operating Expenses	6,423,099	7,001,037	13,099,742	13,873,704
Operating Income (Loss)	1,149,348	1,060,119	2,158,231	2,374,188
Capital expenditures	1,403,404	1,028,311	2,889,854	2,115,783
As of June 30, 2014
Property and equipment, net	21,966,834	24,477,899	21,966,834	24,477,899
Total assets	27,442,263	32,348,914	27,442,263	32,348,914
Shared Wireless Infrastructure [Member] | Operating Segments [Member]
Segment Reporting Information [Line Items]
Revenues	738,370	196,508	1,478,719	354,984
Operating Expenses
Cost of revenues (exclusive of depreciation)	3,513,341	2,797,126	6,902,292	5,448,011
Depreciation and amortization	977,960	911,325	1,918,898	1,775,437
Customer support services	178,774	134,376	354,964	378,898
Sales and marketing	62,862	111,209	139,612	158,257
General and administrative	157,636	144,750	304,164	334,934
Total Operating Expenses	4,890,573	4,098,786	9,619,930	8,095,537
Operating Income (Loss)	(4,152,203)	(3,902,278)	(8,141,211)	(7,740,553)
Capital expenditures	490,399	232,819	1,428,452	369,019
As of June 30, 2014
Property and equipment, net	12,377,471	12,739,109	12,377,471	12,739,109
Total assets	14,839,751	14,916,880	14,839,751	14,916,880
Corporate, Non-Segment [Member]
Operating Expenses
Cost of revenues (exclusive of depreciation)	14,081	29,603	28,350	71,868
Depreciation and amortization	222,601	187,522	439,205	374,888
Customer support services	700,540	761,273	1,427,970	1,638,570
Sales and marketing	84,103	90,362	165,815	187,229
General and administrative	2,307,308	2,320,573	4,730,294	5,121,091
Total Operating Expenses	3,328,633	3,389,333	6,791,634	7,393,646
Operating Income (Loss)	(3,328,633)	(3,389,333)	(6,791,634)	(7,393,646)
Capital expenditures	204,334	46,033	317,188	149,326
As of June 30, 2014
Property and equipment, net	2,492,402	1,910,097	2,492,402	1,910,097
Total assets	19,888,452	38,404,977	19,888,452	38,404,977
Consolidation, Eliminations [Member]
Segment Reporting Information [Line Items]
Revenues	(45,969)	(45,489)	(91,938)	(91,478)
Operating Expenses
Cost of revenues (exclusive of depreciation)	(45,969)	(45,489)	(91,938)	(91,478)
Total Operating Expenses	$ (45,969)	$ (45,489)	$ (91,938)	$ (91,478)

XML

Note 7 - Other Liabilities (Tables)

6 Months Ended

Jun. 30, 2014

Other Liabilities and Financial Instruments Subject to Mandatory Redemption [Abstract]

Schedule of Other Liabilities [Table Text Block]

	June 30, 2014		December 31, 2013
Current
Deferred rent	$	40,644	$	-
Deferred acquisition payments		10,799		67,255
Total	$	51,443	$	67,255
Long-Term
Deferred rent	$	1,163,607	$	662,361
Deferred acquisition payments		6,026		11,516
Deferred taxes		322,805		322,805
Total	$	1,492,438	$	996,682

XML

Note 4 - Property and Equipment (Details) - Property and Equipment (USD $)	Jun. 30, 2014	Dec. 31, 2013	Jun. 30, 2013
Property, Plant and Equipment [Line Items]
Property plant and equipment, gross	$ 87,754,256	$ 83,118,763
Less: accumulated depreciation	50,917,549	44,633,905
Property and equipment, net	36,836,707	38,484,858	39,127,105
Network and Base Station Equipment [Member]
Property, Plant and Equipment [Line Items]
Property plant and equipment, gross	34,173,206	32,233,262
Customer Premise Equipment [Member]
Property, Plant and Equipment [Line Items]
Property plant and equipment, gross	25,124,372	24,244,017
Rooftop Tower Sites [Member]
Property, Plant and Equipment [Line Items]
Property plant and equipment, gross	20,624,465	19,128,064
Information Technology [Member]
Property, Plant and Equipment [Line Items]
Property plant and equipment, gross	4,565,143	4,417,869
Furniture and Fixtures [Member]
Property, Plant and Equipment [Line Items]
Property plant and equipment, gross	1,667,977	1,661,567
Leasehold Improvements [Member]
Property, Plant and Equipment [Line Items]
Property plant and equipment, gross	$ 1,599,093	$ 1,433,984

XML

Note 14. Subsequent Events

6 Months Ended

Jun. 30, 2014

Subsequent Events [Abstract]

Subsequent Events [Text Block]

Note 14. Subsequent Events

In August 2014, the Company executed a master licensing agreement ("MLA") with a carrier for small cell deployments.  An MLA establishes the detailed terms and conditions under which individual orders are governed, and are generally designed to expedite the deployment process.  The term of this agreement is for 25 years.