**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**Form
      10-KSB**




(Mark
      One)





x
                ANNUAL
                    REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
                    OF1934


For
      the
      fiscal year ended December 31, 2007





OR





o
                TRANSITION
                    REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF
                    1934


For
      the
      transition period from_______to_______





Commission
      file number 001-33449





TOWERSTREAM
      CORPORATION


(Name
      of
      small business issuer in its charter)




**Delaware**
              (State
                or Other Jurisdiction of Incorporation or Organization)
            
            **20-8259086**
              (I.R.S.
                Employer Identification No.)**55
                Hammarlund Way**
              **Middletown,
                Rhode Island**
              (Address
                of principal executive offices)
            
            **02842**
              (Zip
                Code)





Issuer’s
      telephone number **(401)
      848-5848**





Securities
      registered under Section 12(b) of the Exchange Act:





Title
                of each class
            
            Name
                of each exchange on which registeredCommon
                Stock, par value $0.001 per share
            
            The
                NASDAQ Stock Market LLC





Securities
      registered under Section 12(g) of the Exchange Act: None





Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act o





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





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB. o





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


Yes
o No
x





The
      revenues for the year ended December 31, 2007, the most recent fiscal year,
      were
      $6,883,343.





As
      of
      March 12, 2008, the aggregate market value of the voting and non-voting common
      equity held by non-affiliates was $46,297,945 (based on the last sales price
      of
      the issuer’s common stock on March 12, 2008).





34,537,718
      shares of Common Stock, par value $0.001 per share, were outstanding as of
      March
      12, 2008.





**DOCUMENTS
      INCORPORATED BY REFERENCE**





Certain
      portions of the issuer’s definitive proxy statement for its 2008 annual meeting
      of stockholders, to be filed with the SEC within 120 days after the close of
      the
      fiscal year ended December 31, 2007, have been incorporated by reference into
      Part III hereof.





Transitional
      Small Business Disclosure Format (Check one): Yes o No
x







**TOWERSTREAM
      CORPORATION**





Table
      of
      Contents




Page**Part
                I**Item
                1.
            
            Description
                of Business
            
            1Item
                2.
            
            Description
                of Property
            
            14Item
                3.
            
            Legal
                Proceedings
            
            14Item
                4.
            
            Submission
                of Matters to a Vote of Security Holders
            
            14**Part
                II**Item
                5.
            
            Market
                for Common Equity, Related Stockholder Matters and Small Business
                Issuer
                Purchases of Equity Securities
            
            15Item
                6.
            
            Management’s
                Discussion and Analysis or Plan of Operation
            
            16Item
                7.
            
            Financial
                Statements
            
            22Item
                8.
            
            Changes
                In and Disagreements With Accountants on Accounting and Financial
                Disclosure
            
            42Item
                8A (T).
            
            Controls
                and Procedures
            
            42Item
                8B.
            
            Other
                Information
            
            43**Part
                III**Item
                9.
            
            Directors,
                Executive Officers, Promoters, Control Persons and Corporate Governance;
                Compliance With Section 16(a) of the Exchange Act
            
            44Item
                10.
            
            Executive
                Compensation
            
            44Item
                11.
            
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            
            44Item
                12.
            
            Certain
                Relationships and Related Transactions, and Director
                Independence
            
            44Item
                13.
            
            Exhibits
            
            44Item
                14.
            
            Principal
                Accountant Fees and Services
            
            45




i




**PART
      I**





**Forward-Looking
      Statements**




Forward-looking
      statements in this report, including without limitation, statements related
      to
      Towerstream Corporation’s 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) Towerstream
      Corporation’s plans, strategies, objectives, expectations and intentions are
      subject to change at any time at the discretion of Towerstream Corporation;
      (ii)
      Towerstream Corporation’s plans and results of operations will be affected by
      Towerstream Corporation’s ability to manage growth; and (iii) other risks and
      uncertainties indicated from time to time in Towerstream Corporation’s filings
      with the Securities and Exchange Commission.




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





**Item
      1. Description of Business.**





Towerstream
      Corporation (“Towerstream”, “we”, “us”, “our” or the “Company”) provides fixed
      wireless broadband services to commercial users based on a traditional monthly
      subscription model. Through transmissions over both regulated and unregulated
      radio spectrum, we offer customers high speed Internet access over a fixed
      wireless network, which supports bandwidth on demand, wireless redundancy,
      virtual private networks (“VPNs”), disaster recovery, bundled data and video
      services. We are currently providing service to approximately 900 business
      customers utilizing fixed wireless technology in New York City, Boston, Chicago,
      Los Angeles, San Francisco, Seattle, Miami, Providence and Newport, Rhode
      Island.





We
      tailor
      our service offerings to satisfy customer needs based principally upon size.
      We
      offer customers bandwidth connections ranging from 0.5 megabits per second
      up to
      1 gigabit per second. As companies grow, they can increase their bandwidth
      at
      any time in a variety of bits per second increments, usually without additional
      installation or equipment charges. Furthermore, regardless of business size
      and
      connection package, we guarantee uptime, latency and throughput by offering
      customers technical credits against their bill for periods of down
      time.


**Our
      Networks**





We
      establish proprietary wireless networks in each of the markets we serve by
      installing antennae on towers, building rooftops or other structures to send
      and
      receive wireless signals. We connect the customer to our Wireless Ring in the
      Sky, which has no single point of failure. This ring is fed by multiple lead
      Internet providers located at opposite ends of our service cities. We believe
      that we are the only wireless broadband provider that offers true separate
      egress for true redundancy. For new markets we enter, after installing our
      wireless base stations and establishing our wireless ring, we generally can
      activate new customers within two to seven business days of receiving an order.
      Our coverage area can be accessed by customers within approximately 10 miles
      of
      our installed base stations, depending upon location and line of sight
      access.




**Market
      Coverage**





We
      intend
      to grow our business by deploying our service more broadly and seeking to
      rapidly increase our subscriber base. We intend to deploy our wireless broadband
      network broadly both in terms of geography and categories of commercial and
      business subscribers. We intend to increase the number of geographic markets
      we
      serve, taking advantage of a staged roll-out model to deploy our services
      throughout major additional United States markets. We also plan to service
      a
      wide a range of commercial subscribers, from small businesses to large
      enterprises.




1





We
      determine which geographic markets to enter by assessing a number of criteria
      in
      four broad categories. First, we evaluate our ability to deploy our service
      in a
      given market, taking into consideration our spectrum position, the availability
      of towers and zoning constraints. Second, we assess the market by evaluating
      the
      number of competitors, existing price points, demographic characteristics and
      distribution channels. Third, we evaluate the economic potential of the market,
      focusing on our forecasts of revenue growth opportunities and capital
      requirements. Finally, we look at market clustering opportunities and other
      cost
      efficiencies that might be realized. Based on this approach, as of
      December 31, 2007, we offered wireless broadband connectivity in eight
      markets covering approximately 48% of small and medium business (5 to 249
      employees) in the top 20 metropolitan statistical areas.





**Sales
      and Marketing**





We
      hire
      salespeople to sell our services directly to subscribers. As of December 31,
      2007, we employed 95 salespeople. We generally compensate these employees on
      a
      salary plus commission basis.





Our
      indirect sales channels include a variety of authorized representatives, such
      as
      integrators, resellers, and online operators. Authorized representatives assist
      in developing awareness of and demand for our service by promoting our services
      and brand as part of their own advertising and direct marketing campaigns.
      Such
      representatives are compensated either on a one-time referral fee basis or
      through the payment of a residual of between 7% to 18% of revenue referred
      by
      such representatives, based on volume.





We
      expect
      our marketing channels to shift toward our lower-cost direct sales force
      channels. Over time, we expect we will become increasingly focused on new market
      development.





**Competition**





The
      market for broadband services is highly competitive, and includes companies
      that
      offer a variety of services using a number of distinctly different technological
      platforms, such as cable networks, digital subscriber lines (“DSL”),
      third-generation cellular, satellite, wireless Internet service and other
      emerging technologies. We compete with these companies on the basis of the
      portability, ease of use, speed and price of our respective services.
      Competitors to our wireless broadband services include:





*Incumbent
      Local Exchange Carriers and Common Local Exchange Carriers*





We
      face
      competition from traditional wireline operators in terms of price, performance,
      discounted rates for bundles of services, breadth of service, reliability,
      network security, and ease of access and use. In particular, we face competition
      from traditional wireline companies like Verizon Communications Inc., Qwest
      Corporation and AT&T Inc., all of which are so called ‘‘incumbent local
      exchange carriers,’’ as well as Covad Communications Group, Inc., Speakeasy,
      Inc., XO Communications, LLC, MegaPath Networks Inc., and Choice One
      Communications Inc., all of which are so called ‘‘common local exchange
      carriers.’’





*Cable
      Modem and DSL Services*





We
      compete with companies that provide Internet connectivity through cable modems
      or DSL. Principal competitors include cable companies, such as Comcast
      Corporation, and incumbent telephone companies, such as AT&T Inc. or Verizon
      Communications Inc. Both the cable and telephone companies deploy their services
      over wired networks initially designed for voice and one-way data transmission
      that have subsequently been upgraded to provide for additional
      services.





*Cellular
      and PCS Services*





Cellular
      and personal communications service (“PCS”), carriers are seeking to expand
      their capacity to provide data and voice services that are superior to ours.
      These providers have substantially broader geographic coverage than we have
      and,
      for the foreseeable future, than we expect to have. If one or more of these
      providers can deploy technologies that compete effectively with our services,
      the mobility and coverage offered by these carriers will provide even greater
      competition than we currently face. Moreover, more advanced cellular and PCS
      technologies, such as third generation mobile technologies, currently offer
      broadband service with packet data transfer speeds of up to 2,000,000 bits
      per
      second for fixed applications, and slower speeds for mobile applications. We
      expect that third generation technology will be improved to increase
      connectivity speeds to make it more suitable for a range of advanced
      applications.




2




*Wireless
      Broadband Service Providers*





We
      also
      face competition from other wireless broadband service providers that use
      licensed and unlicensed spectrum. In addition to these commercial operators,
      many local governments, universities and other governmental or
      quasi-governmental entities are providing or subsidizing ‘‘WiFi’’ networks over
      unlicensed spectrum, in some cases at no cost to the user. There exist numerous
      small local urban and rural wireless operations offering local services that
      could compete with us in certain of our present or planned geographic markets.
      In addition, Sprint Nextel Corporation holds 2.5GHz licenses throughout the
      United States and has announced plans to invest $3 billion in building out
      a nationwide WiMAX-based network throughout the United States. Clearwire
      Corporation also offers wireless high speed Internet access utilizing
      WiMAX-based technology in various markets and has indicated that it intends
      to
      offer this service throughout the United States.





*Satellite* ****





Satellite
      providers, such as WildBlue Communications, Inc. and Hughes Network Systems,
      LLC, offer broadband data services that address a niche market, mainly less
      densely populated areas that are unserved or underserved by competing service
      providers. Although satellite offers service to a large geographic area, latency
      caused by the time it takes for the signal to travel to and from the satellite
      may challenge satellite providers’ ability to provide some services, such as
      Voice over Internet Protocol (“VoIP”), which reduces the size of the addressable
      market.





*Other* ****





We
      believe other emerging technologies may also seek to enter the broadband
      services market. For example, we are aware that several power generation and
      distribution companies are seeking to develop or have already offered commercial
      broadband Internet services over existing electric power lines.





**Competitive
      Strengths**





Even
      though we face substantial existing and prospective competition, we believe
      that
      we have a number of competitive advantages that will allow us to retain existing
      customers and attract new customers to our company over time.





***Reliability***





As
      compared to cellular, cable and DSL networks that generally rely on
      infrastructure originally designed for non-broadband purposes, our network
      was
      designed specifically to support wireless broadband services. We also connect
      the customer to our Wireless Ring in the Sky, which has no single point of
      failure. This ring is fed by multiple lead Internet providers located at
      opposite ends of our service cities and connected to our national ring which
      is
      fed by multiple leading carriers. We believe that we are the only wireless
      broadband provider that offers true separate egress for true redundancy. With
      DSL and cable offerings, all wires are rendered dead by one backhoe swipe or
      switch failure. Our Wireless Ring in the Sky is backhoe-proof and weather-proof.
      As a result of these factors, our network has historically experienced
      reliability rates of approximately 99%.





***Value***





We
      own
      our entire network, which enables us to price our services lower than most
      of
      our competitors. Specifically, we are able to offer competitive prices, as
      we do
      not pass along a local loop charge to our customers, because we do not have
      to
      buy one from the telephone company.





***Efficient
      Economic Model***





Our
      economic model is characterized by low fixed capital and operating expenditures
      relative to other wireless and wireline broadband service providers. We own
      our
      entire network, dispensing with the costs involved in using lines owned by
      telephone or cable companies. Our system is expandable and covers an area up
      to
      several miles away from each tower, which will enable us to realize incremental
      savings in our build-out costs as our subscriber base grows.





***Experienced
      Management Team***





Our
      executive management has over 60 years of combined experience in the
      communications industry with companies such as Bell Atlantic Corp. and The
      New
      England Telephone and Telegraph Company.




3





**Corporate
      History**





We
      were
      organized in the State of Nevada on June 2, 2005, and became a public
      shell company, as defined by the Securities and Exchange Commission. On
      January 4, 2007, we merged with and into a wholly-owned Delaware
      subsidiary, for the sole purpose of changing our state of incorporation to
      Delaware. On January 12, 2007, a wholly-owned subsidiary of ours
      merged with and into a private company, Towerstream Corporation, with
      Towerstream Corporation being the surviving company. Upon closing of the merger,
      we discontinued our former business and succeeded to the business of Towerstream
      Corporation as our sole line of business. At the same time, we also changed
      our
      name to Towerstream Corporation and, our subsidiary, Towerstream Corporation,
      changed its name to Towerstream I, Inc.





**Regulatory
      Matters**





Wireless
      broadband services are subject to regulation by the Federal Communications
      Commission (“FCC”). At the federal level, the FCC has jurisdiction over wireless
      transmissions over the electromagnetic spectrum and all interstate
      telecommunications services. State regulatory commissions have jurisdiction
      over
      intrastate communications. Municipalities may regulate limited aspects of our
      business by, for example, imposing zoning requirements and requiring
      installation permits.





*Telecommunications
      Regulation* ****





Our
      wireless broadband systems can be used to provide Internet access service and
      VPNs. In a decision in March 2007, the FCC has classified wireless broadband
      Internet access service as an interstate information services that is regulated
      under Title I of the Communications Act of 1934, as amended. Accordingly, most
      regulations that apply to telephone companies and other common carriers do
      not
      apply to our wireless broadband Internet access service. For example, we are
      not
      currently required to contribute a percentage of gross revenues from our
      Internet access services to universal service funds used to support local
      telephone service and advanced telecommunications services for schools,
      libraries and rural health care facilities (‘‘USF Fees’’).





We
      are
      not required to file tariffs with the FCC, setting forth the rates, terms,
      and
      conditions of our Internet access service. The FCC, however, is currently
      considering whether to impose various consumer protection obligations, similar
      to Title II obligations, on wireless broadband Internet access providers. These
      requirements may include obligations related to truth-in-billing, slamming,
      discontinuing service, customer proprietary network information and federal
      universal service funds mechanisms. Internet access providers are currently
      subject to generally applicable state consumer protection laws enforced by
      state
      Attorneys General and general Federal Trade Commission consumer protection
      rules.




On
      August 5, 2005, the FCC adopted an Order finding that both
      facilities-based broadband Internet access providers are subject to the
      Communications Assistance for Law Enforcement Act (“CALEA”), which requires
      service providers covered by that statute to build certain law enforcement
      surveillance assistance capabilities into their communications networks. The
      FCC
      required facilities-based broadband Internet access providers to comply with
      CALEA requirements by May 14, 2007. We have complied with such CALEA
      requirements.





On
      May 3, 2006, the FCC adopted an additional Order addressing CALEA
      compliance obligations of these providers. In that order, the FCC: (i) affirmed
      the May 14, 2007 compliance deadline; (ii) indicated compliance
      standards are to be developed by the industry within the telecommunications
      standards-setting bodies working together with law enforcement; (iii) permitted
      the use of certain third parties to satisfy CALEA compliance obligations; (iv)
      restricted the availability of compliance extensions; (v) concluded that
      facilities-based broadband Internet access providers are responsible for any
      CALEA development and implementation costs; (vi) declared that the FCC may
      pursue enforcement action, in addition to remedies available through the courts,
      against any non-compliant provider; and (vii) adopted interim progress report
      filing requirements.





Broadband
      Internet-related and Internet protocol-services regulatory policies are
      continuing to develop, and it is possible that our broadband Internet access
      could be subject to additional regulations in the future. The extent of the
      regulations that will ultimately be applicable to these services and the impact
      of such regulations on the ability of providers to compete are currently
      unknown.





*Spectrum
      Regulation*





The
      FCC
      routinely reviews its spectrum policies and may change its position on spectrum
      allocations from time to time. We believe that the FCC is committed to
      allocating spectrum to support wireless broadband deployment throughout the
      United States and will continue to modify its regulations to foster such
      deployment, which will help us implement our existing and future business
      plans.




4





*Internet
      Taxation*





The
      Internet Tax Freedom Act, which was signed into law in October 2007, extended
      a
      moratorium on taxes on Internet access and multiple, discriminatory taxes on
      electric commerce. This moratorium had previously expired in November 2007,
      and as with the preceding Internet Tax Freedom Act, ‘‘grandfathered’’ states
      that taxed Internet access prior to October 1998 to allow them to continue
      to do so. Certain states have enacted various taxes on Internet access or
      electronic commerce, and selected states’ taxes are being contested on a variety
      of bases. However, state tax laws may not be successfully contested and future
      state and federal laws imposing taxes or other regulations on Internet access
      and electronic commerce may arise, any of which could increase the cost of
      providing Internet services, which could, in turn, materially adversely affect
      our business.





**Employees**





As
      of
      December 31, 2007 we had approximately 157 employees, all of which are full-time
      employees. We believe our employee relations are good.





**Risk
      Factors**




*Investing
      in our common stock involves a high degree of risk. Prospective investors should
      carefully consider the risks described below and other information contained
      in
      this annual report, including our financial statements and related notes before
      purchasing shares of our common stock. There are numerous and varied risks,
      known and unknown, that may prevent us from achieving our goals. If any of
      these
      risks actually occurs, our business, financial condition or results of
      operations may be materially adversely affected. In that case, the trading
      price
      of our common stock could decline and investors in our common stock could lose
      all or part of their investment.*




**Risks
      Relating to Our Business**




***We
      may be unable to successfully execute any of our identified business
      opportunities or other business opportunities that we determine to
      pursue.***




We
      currently have a limited corporate infrastructure. In order to pursue business
      opportunities, we will need to continue to build our infrastructure and
      operational capabilities. Our ability to do any of these successfully could
      be
      affected by any one or more of the following factors:




·
            the
                ability of our equipment, our equipment suppliers or our service
                providers
                to perform as we expect;·
            the
                ability of our services to achieve market acceptance;·
            our
                ability to execute our business strategy, which could be affected
                by our
                limited experience in providing fixed, high-speed wireless broadband
                services;·
            our
                ability to manage our third party relationships
                effectively;·
            our
                ability to negotiate acceptable agreements to secure suitable locations
                for our equipment, such as desirable rooftop antenna lease
                locations;·
            our
                ability to manage the expansion of our operations and any acquisitions
                we
                may make, which could result in increased costs, high employee turnover
                or
                damage to customer relationships;·
            our
                ability to attract and retain qualified personnel, which may be affected
                by the significant competition in our industry for persons experienced
                in
                network operations and engineering;·
            equipment
                failure or interruption of service, which could adversely affect
                our
                reputation and our relations with our customers;·
            our
                ability to accurately predict and respond to the rapid technological
                changes in our industry and the evolving demands of the markets we
                serve;
                and·
            our
                ability to raise substantial additional capital to fund our
                growth.




5




Our
      failure to adequately address any one or more of the above factors could have
      a
      significant impact on our ability to implement our business plan with respect
      to
      fixed, high-speed wireless broadband services and our ability to pursue other
      opportunities that arise, which might negatively affect our
      business.




***We
      depend on the continued availability of leases or licenses for our
      communications equipment.***




We
      have
      constructed proprietary networks in each of the markets we serve by installing
      antennae on rooftops, cellular towers and other structures pursuant to lease
      or
      license agreements to send and receive wireless signals necessary for our
      network. We typically seek five year initial terms for our leases with three
      to
      five year renewal options. Such renewal options are generally exercisable at
      our
      discretion before the expiration of each term in which to terminate the
      agreement. If these leases are terminated or if the owners of these structures
      are unwilling to continue to enter into leases or licenses with us in the
      future, we would be forced to seek alternative arrangements with other
      providers. If we are unable to continue to obtain or renew such leases on
      satisfactory terms, our business would be harmed.




***Our
      business depends on a strong brand, and if we do not maintain and enhance our
      brand, our ability to attract and retain subscribers may be impaired and our
      business and operating results may be harmed.***




We
      believe that our brand is a critical part of our business. Maintaining and
      enhancing our brand may require us to make substantial investments with no
      assurance that these investments will be successful. If we fail to promote
      and
      maintain the “Towerstream” brand, or if we incur significant expenses in this
      effort, our business, prospects, operating results and financial condition
      may
      be harmed. We anticipate that maintaining and enhancing our brand will become
      increasingly important, difficult and expensive.




***We
      may from time to time pursue acquisitions that we believe complement our
      existing operations, which involves risks that could adversely affect our
      business.***




Growth
      by
      acquisition involves risks that could adversely affect our business, including
      the diversion of management time from operations to pursue and complete
      acquisitions, and difficulties in integrating additional operations and
      personnel of acquired companies. In addition, any future acquisitions could
      result in significant costs, the incurrence of additional indebtedness or
      issuance of equity securities to fund the acquisition and contingent or
      undisclosed liabilities, all of which could materially adversely affect our
      business, financial condition and results of operations.




In
      connection with any future acquisition, we generally will seek to minimize
      the
      impact of contingent and undisclosed liabilities by obtaining indemnities and
      warranties from the seller that may be supported by deferring payment of a
      portion of the purchase price. However, these indemnities and warranties, if
      obtained, may not fully cover the liabilities due to their limited scope, amount
      or duration, the financial limitations of the indemnitor or warrantor, or for
      other reasons.




***We
      have a history of operating losses and expect to continue suffering losses
      for
      the foreseeable future.***




Our
      current business was launched in 1999. Our current business has incurred losses
      in each year of operation. Prior to our reverse merger in January 2007,
      Towerstream operated as an S corporation and recorded a net loss in 2006 of
      $811,531. The accumulated deficit of the S corporation as of December 31, 2006
      was $8,213,002. Concurrently with our reverse merger, we elected to operate
      as a
      C corporation, and recorded a net loss of $8,501,725 in the year 2007. As of
      December 31, 2007, our accumulated deficit was $8,501,725, which
      included a recapitalization adjustment to eliminate the S corporation deficit.
      We cannot anticipate when, if ever, our operations will become profitable.
      We
      expect to incur significant net losses as we expand our sales force, develop
      our
      network, expand our markets, undertake acquisitions, acquire spectrum and pursue
      our business strategy. We intend to invest significantly in our business before
      we expect cash flow from operations to be adequate to cover our anticipated
      expenses.




If
      we are
      unable to execute our business strategy and grow our business, either as a
      result of the risks identified in this section or for any other reason, our
      business, prospects, financial condition and results of operations will be
      adversely affected.




6




***Our
      business may require additional capital for continued growth, and our growth
      may
      be slowed if we do not have sufficient capital.***




The
      continued growth and operation of our business may require additional funding
      for working capital, debt service, the enhancement and upgrade of our network,
      the build-out of infrastructure to expand our coverage, possible acquisitions,
      and possible bids to acquire spectrum licenses. In addition, we must use a
      portion of our cash flows from operations and other available cash to make
      payments of principal and interest on our debt, thereby reducing funds that
      could be available for other purposes, such as working capital, the enhancement
      and upgrade of our network, the build-out of infrastructure to expand our
      coverage, possible acquisitions and possible bids to acquire spectrum licenses.
      We may be unable to secure such funding when needed in adequate amounts or on
      acceptable terms, if at all. To execute our business strategy, we may issue
      additional equity securities in public or private offerings, potentially at
      a
      price lower than the market price at the time of such issuance. Similarly,
      we
      may seek additional debt financing, and may be forced to incur significant
      interest expense. If we cannot secure sufficient funding, we may be forced
      to
      forego strategic opportunities or delay, scale back or eliminate network
      deployments, operations, acquisitions, spectrum bids and other
      investments.




***Our
      indebtedness and restrictive debt covenants could limit our financing options
      and liquidity position, which would limit our ability to grow our
      business.***




In
      January 2007, we issued our 8% senior convertible debentures, due
      December 31, 2009 in an aggregate principal amount of $3,500,000. As
      of January 2008, $2,750,000 of principal remains outstanding under the 8%
      convertible debentures. The terms of our indebtedness could have negative
      consequences to the holders of our common stock, such as:




·
            we
                may be unable to obtain additional financing to fund working capital,
                operating losses, capital expenditures or acquisitions on terms acceptable
                to us, or at all;·
            we
                may be unable to refinance our indebtedness on terms acceptable to
                us, or
                at all; and·
            we
                may be more vulnerable to economic downturns and limit our ability
                to
                withstand competitive pressures.




Additionally,
      covenants in the securities purchase agreement governing our debentures impose
      operating and financial restrictions on us. These restrictions prohibit or
      limit
      our ability, and the ability of our subsidiaries, to, among other
      things:




·
            pay
                cash dividends to our stockholders;·
            incur
                additional indebtedness;·
            permit
                liens on or conduct sales of assets; and·
            engage
                in transactions with affiliates.




These
      restrictions may limit our ability to obtain additional financing, withstand
      downturns in our business and take advantage of business opportunities.
      Moreover, we may seek additional debt financing on terms that include more
      restrictive covenants, may require repayment on an accelerated schedule or
      may
      impose other obligations that limit our ability to grow our business, acquire
      needed assets, or take other actions we might otherwise consider appropriate
      or
      desirable.




***Many
      of our competitors are better established and have resources significantly
      greater than we have, which may make it difficult to attract and retain
      subscribers.***




The
      market for broadband and related services is highly competitive, and we compete
      with several other companies within each of our markets. Many of our competitors
      are well established with larger and better developed networks and support
      systems, longer-standing relationships with customers and suppliers, greater
      name recognition and greater financial, technical and marketing resources than
      we have. Our competitors may subsidize competing services with revenue from
      other sources and, thus, may offer their products and services at prices lower
      than ours. Our competitors may also reduce the prices of their services
      significantly or may offer broadband connectivity packaged with other products
      or services. We may not be able to reduce our prices or otherwise combine our
      services with other products or services, which may make it more difficult
      to
      attract and retain subscribers. In addition, new competitors may emerge for
      our
      primarily commercial and business customer base from businesses primarily
      engaged in providing residential services to consumers.




7




Many
      of
      our competitors are better established or have greater financial resources
      than
      we have. Our competitors include:




·
            cable
                operators offering high-speed Internet connectivity services and
                voice
                communications;·
            incumbent
                and competitive local exchange carriers providing DSL services over
                existing wide, metropolitan, and local area networks;·
            third
                generation (“3G”), cellular, PCS, and other wireless providers offering
                wireless broadband services and capabilities, including developments
                in
                existing cellular and PCS technology that may increase network speeds
                or
                have other advantages over our services;·
            Internet
                service providers offering dial-up Internet
                connectivity;·
            municipalities
                and other entities operating free or subsidized
                networks;·
            providers
                of VoIP telephone services;·
            wireless
                Internet service providers using licensed or unlicensed
                spectrum;·
            satellite
                and fixed wireless service providers offering or developing broadband
                Internet connectivity and VoIP telephony;·
            electric
                utilities and other providers offering or planning to offer broadband
                Internet connectivity over power lines; and·
            resellers
                providing wireless Internet service by “piggy-backing” on DSL or networks
                operated by others.




We
      expect
      other existing and prospective competitors to adopt technologies or business
      plans similar to ours, or seek other means to develop services competitive
      with
      ours, particularly if our services prove to be attractive in our target markets.
      This competition may make it difficult to attract and retain
      subscribers.




***We
      may experience difficulties in constructing, upgrading and maintaining our
      network, which could adversely affect customer satisfaction, increase subscriber
      turnover and reduce our revenues.***




Our
      success depends on developing and providing products and services that give
      subscribers high quality Internet connectivity. If the number of subscribers
      using our network and the complexity of our products and services increase,
      we
      will require more infrastructure and network resources to maintain the quality
      of our services. Consequently, we may be required to make substantial
      investments to construct and improve our facilities and equipment and to upgrade
      our technology and network infrastructure. If we do not implement these
      developments successfully, or if we experience inefficiencies, operational
      failures, or unforeseen costs during implementation, the quality of our products
      and services could decline.




We
      may
      experience quality deficiencies, cost overruns and delays in implementing our
      network improvements and expansion, in maintenance and upgrade projects,
      including the portions of those projects not within our control or the control
      of our contractors. Our network requires the receipt of permits and approvals
      from numerous governmental bodies, including municipalities and zoning boards.
      Such bodies often limit the expansion of transmission towers and other
      construction necessary for our business. Failure to receive approvals in a
      timely fashion can delay system rollouts and raise the cost of completing
      projects. In addition, we typically are required to obtain rights from land,
      building or tower owners to install our antennae and other equipment to provide
      service to our subscribers. We may not be able to obtain, on terms acceptable
      to
      us, or at all, the rights necessary to construct our network and expand our
      services.




We
      also
      face challenges in managing and operating our network. These challenges include
      operating, maintaining and upgrading network and customer premise equipment
      to
      accommodate increased traffic or technological advances, and managing the sales,
      advertising, customer support, billing and collection functions of our business
      while providing reliable network service at expected speeds and quality. Our
      failure in any of these areas could adversely affect customer satisfaction,
      increase subscriber turnover or churn, increase our costs and decrease our
      revenues.




8




***If
      we do not obtain and maintain rights to use licensed spectrum in one or more
      markets, we may be unable to operate in these markets which could negatively
      impact our ability to execute our business strategy. To the extent we secure
      licensed spectrum, we face increased operational costs, greater regulatory
      scrutiny and may become subject to arbitrary government decision
      making.***




Since
      we
      provide our services in some markets by using licensed spectrum, we must secure
      and maintain sufficient rights to use licensed spectrum by obtaining licenses
      or
      long-term leases in those markets. Obtaining licensed spectrum can be a long
      and
      difficult process that can be costly and require a disproportionate amount
      of
      our management resources, and may require us to incur significant indebtedness
      or secure additional capital. We may not be successful in our efforts to secure
      financing and may not be deemed a qualified bidder due to our small size or
      our
      creditworthiness, or be able to acquire, lease, or maintain the spectrum
      necessary to execute our strategy.




Licensed
      spectrum, whether owned or leased, poses additional risks, including:




·
            inability
                to satisfy build-out or service deployment requirements upon which
                spectrum licenses or leases are, or may be,
                conditioned;·
            increases
                in spectrum acquisition costs or complexity;·
            competitive
                bids, pre-bid qualifications, and post-bid requirements for spectrum
                acquisitions, in which we may not be successful leading to, among
                other
                things, increased competition;·
            adverse
                changes to regulations governing spectrum rights;·
            the
                risk that spectrum acquired or leased will not be commercially usable
                or
                free of damaging interference from licensed or unlicensed operators
                in our
                or adjacent bands;·
            contractual
                disputes with, or the bankruptcy or other reorganization of, the
                license
                holders, which could adversely affect control over the spectrum subject
                to
                such licenses;·
            failure
                of the FCC or other regulators to renew spectrum licenses as they
                expire;
                and·
            invalidation
                of authorization to use all or a significant portion of our
                spectrum.




***In
      a number of markets we utilize unlicensed spectrum, which is subject to intense
      competition, low barriers of entry and slowdowns due to multiple simultaneous
      users.***




We
      presently utilize unlicensed spectrum in connection with our service offerings.
      Unlicensed or “free” spectrum is available to multiple simultaneous users and
      may suffer bandwidth limitations, interference, and slowdowns if the number
      of
      users exceeds traffic capacity. The availability of unlicensed spectrum is
      not
      unlimited and others do not need to obtain permits or licenses to utilize the
      same unlicensed spectrum that we currently or may in the future utilize,
      threatening our ability to reliably deliver our services. Moreover, the
      prevalence of unlicensed spectrum creates low barriers of entry in our business,
      creating the potential for heightened competition.




***Interruption
      or failure of our information technology and communications systems could impair
      our ability to provide our services, which could damage our reputation and
      harm
      our operating results.***




Our
      services depend on the continuing operation of our information technology and
      communications systems. We have experienced service interruptions in the past
      and may experience service interruptions or system failures in the future.
      Any
      unscheduled service interruption adversely affects our ability to operate our
      business and could result in an immediate loss of revenues. If we experience
      frequent or persistent system or network failures, our reputation could be
      permanently harmed. We may need to make significant capital expenditures to
      increase the reliability of our systems, but these capital expenditures may
      not
      achieve the results we expect.




9




***Excessive
      customer churn may adversely affect our financial performance by slowing
      customer growth, increasing costs and reducing
      revenues.***




The
      successful implementation of our business plan depends upon controlling customer
      churn. Customer churn is a measure of customers who stop using our services.
      Customer churn could increase as a result of:




·
            billing
                errors and/or general reduction in the quality of our customer
                service;·
            interruptions
                to the delivery of services to customers over our network;
                and·
            the
                availability of competing technology, such as cable modems, DSL,
                third-generation cellular, satellite, wireless internet service and
                other
                emerging technologies, some of which may, from time to time, be less
                expensive or technologically superior to those offered by
                us.




An
      increase in customer churn can lead to slower customer growth, increased costs
      and a reduction in revenues.




***If
      our strategy is unsuccessful, we will not be profitable and our stockholders
      could lose their investment.***




There
      is
      no track record for companies pursuing our strategy. Many fixed wireless
      companies that have sought to develop markets in which we operate by pursuing
      alternative business strategies or strategies similar to ours have failed and
      there is no guarantee that our strategy will be successful or profitable. If
      our
      strategy is unsuccessful, we may fail to meet our objectives and not realize
      the
      revenues or profits from the business we pursue that may cause the value of
      our
      company to decrease, thereby potentially causing our stockholders to lose their
      investment.




***We
      may not be able to effectively control and manage our growth, which would
      negatively impact our operations.***




If
      our
      business and markets continue to grow and develop, it will be necessary for
      us
      to finance and manage expansion in an orderly fashion. In addition, we may
      face
      challenges in managing expanding product and service offerings and in
      integrating acquired businesses with our own. Such eventualities will increase
      demands on our existing management, workforce and facilities. Failure to satisfy
      increased demands could interrupt or adversely affect our operations and cause
      backlogs and administrative inefficiencies.




***The
      success of our business depends on the continuing contributions of our key
      personnel and our ability to attract, train and retain highly qualified
      personnel.***




We
      are
      highly dependent on the continued services of our chairman, Philip Urso, and
      our
      chief executive officer and president, Jeffrey M. Thompson. On December 21,
      2007, we entered into a two-year employment agreement with Jeffrey M. Thompson,
      with the option of automatic one-year renewals. We cannot guarantee that any
      of
      these persons will stay with us for any definite period. Loss of the services
      of
      any of these individuals could adversely impact our operations. We do not
      maintain any policies of “key man” insurance on our executives.




In
      addition, to successfully introduce our services in new markets and grow our
      business in existing markets, we must be able to attract, train, motivate and
      retain highly skilled and experienced technical employees. Qualified technical
      employees periodically are in great demand and may be unavailable in the time
      frame required to satisfy our customers’ requirements. We may not be able to
      attract and retain sufficient numbers of highly skilled technical employees
      in
      the future. The loss of technical personnel or our inability to hire or retain
      sufficient technical personnel at competitive rates of compensation could impair
      our ability to successfully grow our business and retain our existing customer
      base.




***Any
      acquisitions we make could result in integration difficulties that could lead
      to
      substantial costs, delays or other operational or financial
      difficulties.***




We
      may
      seek to expand by acquiring competing businesses, including in our current
      or
      other geographic or customer markets, including as a means to acquire spectrum.
      We cannot accurately predict the timing, size and success of our acquisition
      efforts and the associated capital commitments that might be required. We expect
      to face competition for acquisitions, which may limit the number of acquisition
      opportunities available to us and may lead to higher acquisition prices. We
      may
      not be able to identify, acquire or profitably manage additional businesses
      or
      successfully integrate acquired businesses, if any, into our company, without
      substantial




10




costs,
      delays or other operational or financial difficulties. In addition, such
      acquisitions involve a number of other risks, including:




·
            failure
                of the acquired businesses to achieve expected results;·
            diversion
                of management’s attention and resources to
                acquisitions;·
            failure
                to retain key customers or personnel of the acquired
                businesses;·
            disappointing
                quality or functionality of acquired equipment and personnel;
                and·
            risks
                associated with unanticipated events, liabilities or
                contingencies.




Client
      dissatisfaction with, or performance problems of, a single acquired business
      could negatively affect our reputation. The inability to acquire businesses
      on
      reasonable terms or successfully integrate and manage acquired companies, or
      the
      occurrence of performance problems at acquired companies, could result in
      dilution, unfavorable accounting treatment or one-time charges and difficulties
      in successfully managing our business.




***Our
      inability to obtain capital, use internally generated cash or debt, or use
      shares of our common stock to finance future acquisitions could impair the
      growth and expansion of our business.***




The
      extent to which we will be able or willing to use shares of our common stock
      to
      consummate acquisitions will depend on the market value of our securities,
      which
      will vary, liquidity, which is presently limited, and the willingness of
      potential sellers to accept shares of our common stock as full or partial
      payment for their business. Using shares of our common stock for this purpose
      also may result in significant dilution to our then existing stockholders.
      To
      the extent that we are unable to use our common stock to make future
      acquisitions, our ability to grow through acquisitions may be limited by the
      extent to which we are able to raise capital through debt or additional equity
      financings. We may not be able to obtain the necessary capital to finance any
      acquisitions. If we are unable to obtain additional capital on acceptable terms,
      we may be required to reduce the scope of any expansion or redirect resources
      committed to internal purposes. Our failure to use shares of our common stock
      to
      make future acquisitions may hinder our ability to actively pursue our
      acquisition program.




***We
      rely on a limited number of third party suppliers that produce our network
      equipment and to install and maintain our network sites. If these companies
      fail
      to perform or experience delays, shortages or increased demand for their
      products or services, we may face shortage of components, increased costs,
      and
      may be required to suspend our network deployment and our product and service
      introduction.***




We
      depend
      on a limited number of third party suppliers to produce and deliver products
      required for our networks. We also depend on a limited number of third parties
      to install and maintain our network facilities. We do not maintain any long
      term
      supply contracts with these manufacturers. If a manufacturer or other provider
      does not satisfy our requirements, or if we lose a manufacturer or any other
      significant provider, we may have insufficient network equipment for delivery
      to
      subscribers and for installation or maintenance of our infrastructure, and
      we
      may be forced to suspend the deployment of our network and enrollment of new
      subscribers, thus impairing future growth.




***If
      our data security measures are breached, subscribers may perceive our network
      and services as not secure, which may adversely affect our ability to attract
      and retain subscribers and expose us to liability.***




Network
      security and the authentication of a subscriber’s credentials are designed to
      protect unauthorized access to data on our network. Because techniques used
      to
      obtain unauthorized access to or to sabotage networks change frequently and
      may
      not be recognized until launched against a target, we may be unable to
      anticipate or implement adequate preventive measures against unauthorized access
      or sabotage. Consequently, unauthorized parties may overcome our encryption
      and
      security systems and obtain access to data on our network, including on a device
      connected to our network. In addition, because we operate and control our
      network and our subscribers’ Internet connectivity, unauthorized access or
      sabotage of our network could result in damage to our network and to the
      computers or other devices used by our subscribers. An actual or perceived
      breach of network security, regardless of whether the breach is our fault,
      could
      harm public perception of the effectiveness of our security measures, adversely
      affect our ability to attract and retain subscribers, expose us to significant
      liability and adversely affect our business prospects.




11




***In
      providing our services we could infringe on the intellectual property rights
      of
      others, which may cause us to engage in costly litigation and, if we do not
      prevail, could also cause us to pay substantial damages and prohibit us from
      selling our services.***




Third
      parties may assert infringement or other intellectual property claims against
      us. We may have to pay substantial damages, including damages for past
      infringement if it is ultimately determined that our services infringe a third
      party’s proprietary rights. Further, we may be prohibited from selling or
      providing some of our services before we obtain additional licenses, which,
      if
      available at all, may require us to pay substantial royalties or licensing
      fees.
      Even if claims are without merit, defending a lawsuit takes significant time,
      may be expensive and may divert management’s attention from our other business
      concerns. Any public announcements related to litigation or interference
      proceedings initiated or threatened against us could cause our business to
      be
      harmed and our stock price to decline.




**Risks** **Relating to Our Industry**




***An
      economic or industry slowdown may materially and adversely affect our
      business.***




Slowdowns
      in the economy or in the wireless or broadband industry may impact demand for
      wireless or broadband services, thereby reducing demand for our services, or
      negatively impact other businesses or industries, thereby reducing demand for
      our services by causing others to delay or abandon implementation of new systems
      and technologies, including wireless broadband services. Further, the war on
      terrorism, the threat of additional terrorist attacks, the political and
      economic uncertainties resulting therefrom and other unforeseen events may
      impose additional risks upon and adversely affect the wireless or broadband
      industry, and our business.




***The
      industry in which we operate is continually evolving, which makes it difficult
      to evaluate our future prospects and increases the risk of an investment in
      our
      securities. Our services may become obsolete, and we may not be able to develop
      competitive products or services on a timely basis or at
      all.***




The
      broadband and wireless services industries are characterized by rapid
      technological change, competitive pricing, frequent new service introductions,
      and evolving industry standards and regulatory requirements. We believe that
      our
      success depends on our ability to anticipate and adapt to these challenges
      and
      to offer competitive services on a timely basis. We face a number of
      difficulties and uncertainties associated with our reliance on technological
      development, such as:




·
            competition
                from service providers using more traditional and commercially proven
                means to deliver similar or alternative services;·
            competition
                from new service providers using more efficient, less expensive
                technologies, including products not yet invented or
                developed;·
            uncertain
                customer acceptance;·
            realizing
                economies of scale;·
            responding
                successfully to advances in competing technologies in a timely and
                cost-effective manner;·
            migration
                toward standards-based technology, requiring substantial capital
                expenditures; and·
            existing,
                proposed or undeveloped technologies that may render our wireless
                broadband services less profitable or
                obsolete.




As
      the
      services offered by us and our competitors develop, businesses and consumers
      may
      not accept our services as a commercially viable alternative to other means
      of
      delivering wireless broadband services. As a result, our services may become
      obsolete, and we may be unable to develop competitive products or services
      on a
      timely basis, or at all.




***We
      are subject to extensive regulation that could limit or restrict our activities.
      If we fail to comply with these regulations, we may be subject to penalties,
      including fines and suspensions, and past due fees and interest, which may
      adversely affect our financial condition and results of
      operations.***




Our
      business, including the acquisition, lease, maintenance, and use of spectrum
      licenses, is extensively regulated by federal, state and local governmental
      authorities. A number of federal, state and local privacy, security, and
      consumer laws also apply to our business. These regulations and their
      application are subject to continual change as new legislation, regulations
      or
      amendments to existing regulations are adopted from time to time by governmental
      or regulatory authorities, including as a result of judicial interpretations
      of
      such laws and regulations. Current regulations directly affect the breadth
      of
      services we are able to offer and may impact the rates, terms and conditions
      of
      our services. Regulation of companies that offer competing services, such as
      cable and DSL providers and telecommunications carriers, also affects our
      business.




12




We
      believe that we are not required to register with the Universal Service
      Administrative Company (“USAC”)as a seller of telecommunications, nor are we
      required to collect USF Fees from our customers or to pay USF Fees directly.
      It
      is possible, however, that the FCC may assert that we are a seller of
      telecommunications and that we are required to register and pay USF Fees on
      some
      or all of our gross revenues. Although we would contest any such assertion,
      we
      could become obligated to pay USF Fees, interest and penalties to USAC with
      respect to our gross revenues, past and/or future, from providing
      telecommunications and we may be unable to retroactively bill our customers
      for
      past USF Fees.




In
      addition, the FCC or other regulatory authorities may in the future restrict
      our
      ability to manage subscribers’ use of our network, thereby limiting our ability
      to prevent or address subscribers’ excessive bandwidth demands. To maintain the
      quality of our network and user experience, we may manage the bandwidth used
      by
      our subscribers’ applications, in part by restricting the types of applications
      that may be used over our network. If the FCC or other regulatory authorities
      were to adopt regulations that constrain our ability to employ bandwidth
      management practices, excessive use of bandwidth-intensive applications would
      likely reduce the quality of our services for all subscribers. Such decline
      in
      the quality of our services could harm our business.




The
      breach of a license or applicable law, even if inadvertent, can result in the
      revocation, suspension, cancellation or reduction in the term of a license
      or
      the imposition of fines. In addition, regulatory authorities may grant new
      licenses to third parties, resulting in greater competition in territories
      where
      we already have rights to licensed spectrum. In order to promote competition,
      licenses may also require that third parties be granted access to our bandwidth,
      frequency capacity, facilities or services. We may not be able to obtain or
      retain any required license, and we may not be able to renew a license on
      favorable terms, or at all.




Wireless
      broadband services may become subject to greater state or federal regulation
      in
      the future. The scope of the regulations that may apply to companies like us
      and
      the impact of such regulations on our competitive position are presently unknown
      and could be detrimental to our business and prospects.




**Risks
      Relating to Our Organization**




***Our
      certificate of incorporation allows for our board to create new series of
      preferred stock without further approval by our stockholders, which could
      adversely affect the rights of the holders of our common
      stock.***




Our
      board
      of directors has the authority to fix and determine the relative rights and
      preferences of preferred stock. Our board of directors also has the authority
      to
      issue preferred stock without further stockholder approval. As a result, our
      board of directors could authorize the issuance of a series of preferred stock
      that would grant to holders the preferred right to our assets upon liquidation,
      the right to receive dividend payments before dividends are distributed to
      the
      holders of common stock and the right to the redemption of the shares, together
      with a premium, prior to the redemption of our common stock. In addition, our
      board of directors could authorize the issuance of a series of preferred stock
      that has greater voting power than our common stock or that is convertible
      into
      our common stock, which could decrease the relative voting power of our common
      stock or result in dilution to our existing stockholders.




***Our
      officers and directors own a substantial amount of our common stock and,
      therefore, exercise significant control over our corporate governance and
      affairs, which may result in their taking actions with which other shareholders
      do not agree.***




Our
      executive officers and directors, and entities affiliated with them, control
      approximately 25% of our outstanding common stock (including exercisable stock
      options held by them). These shareholders, if they act together, may be able
      to
      exercise substantial influence over the outcome of all corporate actions
      requiring approval of our shareholders, including the election of directors
      and
      approval of significant corporate transactions, which may result in corporate
      action with which other shareholders do not agree. This concentration of
      ownership may also have the effect of delaying or preventing a change in
      control, which might be in other shareholders’ best interest, but which might
      negatively affect the market price of our common stock.




***We
      are subject to financial reporting and other requirements for which our
      accounting, internal audit and other management systems and resources may not
      be
      adequately prepared.***




On
      January 12, 2007, we became subject to reporting and other obligations
      under the Securities Exchange Act of 1934, as amended, including the
      requirements of Section 404 of the Sarbanes-Oxley Act. Section 404 requires
      us
      to conduct an annual management assessment of the effectiveness of our internal
      controls over financial reporting for the fiscal year ended December 31, 2007
      and thereafter and to obtain a report by our independent auditors addressing
      these assessments for the fiscal year ending December 31, 2008 and thereafter.
      These reporting and other obligations will place significant demands on our
      management, administrative, operational, internal audit and accounting
      resources. We anticipate that we may need to upgrade our systems; implement
      additional financial and management controls, reporting systems and procedures;
      implement an internal audit function; and hire additional accounting, internal
      audit and finance staff. If we are unable to accomplish these objectives in
      a
      timely and effective fashion, our ability to comply with our financial reporting
      requirements and other rules that apply to reporting companies could be
      impaired. Any failure to maintain effective internal controls could have a
      negative impact on our ability to manage our business and on our stock
      price.




13




**Risks
      Relating to Our Common Stock**


****


***We
      may fail to qualify for continued listing on Nasdaq, which could make it more
      difficult for investors to sell their shares.***




On
      May
      16, 2007, we were approved for listing on The Nasdaq Capital Market. There
      can
      be no assurance that trading of our common stock on such market will be
      sustained or desirable or that we can meet Nasdaq’s continued listing standards.
      In the event that our common stock fails to qualify for continued inclusion,
      our
      common stock could thereafter only be quoted on the OTC Bulletin Board or in
      what are commonly referred to as the “pink sheets.” Under such circumstances,
      shareholders may find it more difficult to dispose of, or to obtain accurate
      quotations, for our common stock, and our common stock would become
      substantially less attractive to certain purchasers, such as financial
      institutions, hedge funds and other similar investors.





***Our
      common stock may be affected by limited trading volume and price fluctuations,
      each of which could adversely impact the value of our common stock.***




There
      has
      been limited trading in our common stock and there can be no assurance that
      an
      active trading market in our common stock will either develop or be maintained.
      Our common stock has experienced, and is likely to experience in the future,
      significant price and volume fluctuations, which could adversely affect the
      market price of our common stock without regard to our operating performance.
      In
      addition, we believe that factors such as quarterly fluctuations in our
      financial results and changes in the overall economy or the condition of the
      financial markets could cause the price of our common stock to fluctuate
      substantially. These fluctuations may also cause short sellers to enter the
      market from time to time in the belief that we will have poor results in the
      future. We cannot predict the actions of market participants and, therefore,
      can
      offer no assurances that the market for our stock will be stable or appreciate
      over time.





***We
      have not paid dividends in the past and do not expect to pay dividends in the
      future. Any return on an investment in our common stock may be limited to the
      value of the stock.***




We
      have
      never paid cash dividends on our common stock and do not anticipate doing so
      in
      the foreseeable future. The payment of dividends on our common stock will depend
      on our earnings, financial condition and other business and economic factors
      as
      our board of directors may consider relevant. If we do not pay dividends, our
      common stock may be less valuable because a return on a shareholders investment
      will only occur if our stock price appreciates.





**Item
      2. Description of Property.**





Our
      executive offices are currently located in Middletown, Rhode Island, where
      we
      lease approximately 42,137 square feet of space, consisting of a 17,137 square
      feet building at 55 Hammarlund Way for our administrative offices and a 25,000
      square feet building at 88 Silva Lane for our sales call center. Our annual
      rent
      payments under the lease are approximately $527,000 through February 2010,
      approximately $558,000 through May 2012, and approximately $590,000 through
      the end of the lease. Our lease expires on October 1, 2013, with an option
      to
      renew for an additional five-year term. We do not own any real property.





**Item
      3. Legal Proceedings.**





There
      are
      no legal proceedings pending, and we are not aware of any proceeding that a
      governmental authority is contemplating, against us.





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





No
      matter
      was submitted during the fourth quarter of the fiscal year ended December 31,
      2007 to a vote of security holders through the solicitation of proxies or
      otherwise.




14





**PART
      II**








**Item
      5. Market for Common Equity, Related Stockholder Matters and Small Business
      Issuer Purchases of Equity Securities.**





**Market
      Information**





Our
      common stock was quoted on the OTC Bulletin Board from January 12, 2007 through
      May 30, 2007 under the symbol TWER.OB. Since May 31, 2007 our common stock
      has
      been listed on The Nasdaq Capital Market under the symbol TWER. Prior to January
      12, 2007, there was no active market for our common stock. The following table
      sets forth the high and low bid prices for our common stock for the periods
      indicated, as reported by the OTC Bulletin Board, and the high and low sales
      prices as reported on The Nasdaq Capital Market. The quotations reflect
      inter-dealer prices, without retail mark-up, mark-down or commission, and may
      not represent actual transactions.





**FISCAL
                YEAR 2007**
            
            **HIGH**
            
            **LOW**January
                12, 2007 to March 31, 2007
            
            $
            11.00
            
            $
            0.66April
                1, 2007 to May 30, 2007
            
            $
            7.72
            
            $
            6.60May
                31, 2007 to June 30, 2007
            
            $
            7.75
            
            $
            3.31Third
                Quarter
            
            $
            3.80
            
            $
            2.38Fourth
                Quarter
            
            $
            3.20
            
            $
            1.89





The
      last
      reported sales price of our common stock on The Nasdaq Capital Market on
      December 31, 2007 was $3.07. According to the records of our transfer agent,
      as
      of March 12, 2008, there were approximately 117 holders of record of our common
      stock.





**Dividend
      Policy**





In
      the
      past, we have not declared or paid cash dividends on our common stock, and
      we do
      not intend to pay any cash dividends on our common stock. Rather, we intend
      to
      retain future earnings (if any) to fund the operation and expansion of our
      business and for general corporate purposes. In addition, our agreements with
      debenture holders and other investors restrict us from paying any cash
      dividends.





**Securities
      Authorized for Issuance Under Equity Compensation Plans**





As
      of
      December 31, 2007, we have made the following grants under our 2007 Equity
      Compensation Plan and our 2007 Incentive Stock Plan:





**Equity
      Compensation Plan Information**








Number
                of securities to be issued upon exercise of outstanding options,
                warrants
                and rights
            
            Weighted-average
                exercise price of outstanding options, warrants and rights
            
            Number
                of securities remaining available for future issuance under equity
                compensation plansEquity
                compensation plans approved by security holders
            
            
            2,328,067
            
            $
            2.08
            
            
            2,575,855Equity
                compensation plans not approved by security holders
            
            
            -
            
            
            -
            
            
            -Total
            
            
            2,328,067
            
            $
            2.08
            
            
            2,575,855





**Recent
      Sales of Unregistered Securities**





None.




15





**Item
      6. Management’s Discussion and Analysis or Plan of Operation.**





Prior
      to
      January 12, 2007, we were a public shell company, as defined by the
      Securities and Exchange Commission, without material assets or activities.
      On
      January 12, 2007, we completed a reverse merger, pursuant to which a
      wholly-owned subsidiary of ours merged with and into a private company,
      Towerstream Corporation, with such private company being the surviving company.
      In connection with this reverse merger, we discontinued our former business
      and
      succeeded to the business of Towerstream as our sole line of business. For
      financial reporting purposes, Towerstream, and not us, is considered the
      accounting acquiror. Accordingly, the historical financial statements presented
      and the discussion of financial condition and results of operations herein
      are
      those of Towerstream and do not include our historical financial results. All
      costs associated with the reverse merger (other than financing related costs
      in
      connection with the simultaneous sale of $3,500,000 of our 8% senior convertible
      debentures due 2009 and warrants, and approximately $11,500,000 of units
      consisting of common stock and warrants) were expensed as incurred.




**Overview**




We
      provide fixed wireless broadband services to commercial users based on a
      traditional monthly subscription model. Through transmissions over both
      regulated and unregulated radio spectrum, we offer customers high speed Internet
      access over a fixed wireless network, which supports bandwidth on demand,
      wireless redundancy, virtual private networks (“VPNs”), disaster recovery,
      bundled data and video services. We are currently providing service to
      approximately 900 business customers utilizing fixed wireless technology in
      New
      York City, Boston, Chicago, Los Angeles, San Francisco, Seattle, Miami,
      Providence and Newport, Rhode Island.




**Characteristics
      of our Revenues and Expenses**




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




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




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




**Year
      Ended December 31, 2007 Compared to Year Ended December
      31, 2006**




*Revenues.* During
      the year ended December 31, 2007, we had revenues of $6,883,343, as
      compared to revenues of $6,296,218 during the year ended December 31, 2006,
      representing an increase of 9.3%. This increase was primarily attributable
      to
      increases in the average revenue per user (“ARPU”) and the growth of our network
      subscriber base. As shown below, the ARPU of total subscribers increased to
      $725
      as subscribers are gravitating to higher bandwidth products offered by
      us.




Customer
      churn, represented as a percent of revenue lost on a monthly basis from
      subscribers disconnecting from our network, averaged 2.03% for the three months
      ended December 31, 2007 compared with 1.28% for the three months ended September
      30, 2007.




16




The
      following metrics are used to track revenue performance trends:





Quarterly
                Operating Metrics(1)
            
            March
                31,
              2007
            
            June
                30,
              2007
            
            September
                30,
              2007
            
            December
                31,
              2007Revenues
            
            $
            1,580,699
            
            $
            1,632,061
            
            $
            1,764,689
            
            $
            1,905,894Sequential
                growth
            
            
            1.1
            %
            
            3.2
            %
            
            8.1
            %
            
            8.0
            %ARPU(2)
            
            $
            657
            
            $
            669
            
            $
            694
            
            $
            725ARPU
                of new subscriber additions(3)
            
            $
            767
            
            $
            918
            
            $
            748
            
            $
            767Average
                revenue per trained sales agent(4)
            
            $
            1,095
            
            $
            1,131
            
            $
            1,067
            
            $
            705Churn(5)
            
            
            1.27
            %
            
            1.87
            %
            
            1.28
            %
            
            2.03
            %





(1)Information is calculated for each quarter as a stand-alone
                period.(2)ARPU is the average revenue per user per month which is calculated
                by
                dividing the average number of subscribers on the network into the
                total
                average revenue for the period.(3)ARPU of new subscriber additions is calculated by dividing the total
                number of new subscribers added in the period into monthly recurring
                revenue generated from those subscribers.(4)Average revenue per trained sales agent is the average of the new
                recurring revenue brought in by trained sales agents per month per
                agent.
                A trained sales agent is defined as a sales agent that was employed
                by us
                during the period and has been employed by us for a minimum of 90
                days.(5)The churn percentage represents the monthly recurring revenue lost
                during
                the period as a percentage of total
                revenues.




*Operating
      Loss.* Operating
      expenses, which consist of cost of revenues, depreciation, customer support
      services, selling, and general and administrative costs, totaled $15,695,512
      for
      the year ended December 31, 2007, as compared to $6,986,722 for
      the
      year ended December 31, 2006, representing an increase of 124.6%, the
      components of which are discussed in further detail below. As a result of the
      increased expense level, our operating loss for the year ended December
      31, 2007 increased to $8,812,169 as compared to our operating loss of $690,504 for the
      year ended December 31, 2006.




*Cost
      of Revenues.* Cost
      of revenues, which consists of tower rental charges, bandwidth purchases, and
      related engineering costs and overhead, exclusive of depreciation, totaled
      $2,469,065 for the year ended December 31, 2007, as compared to $1,642,065 for the
      year ended December 31, 2006, resulting in gross margins, before
      depreciation, of 64.1% and 73.9% ,
      respectively, a decrease of 9.8%. The decreased margin is the result of
      increases in both tower rent expense and bandwidth purchases, increases in
      network supplies and shipping costs and increased expenses related to site
      work
      visits, as well as additional network staffing in the period. Tower rent expense
      increased by approximately $248,000 in the year resulting primarily from our
      January 2007 acquisition of a fixed wireless network in Seattle,
      Washington, our expansion into the Miami market, and our expanded presence
      in
      the New York and Los Angeles markets. Bandwidth purchases increased by
      approximately $202,000 during the year. Network supplies and shipping costs
      increased by approximately $141,000 during the year. Site work expenses
      increased by approximately $104,000 due to the growth of our network subscriber
      base. In addition, network engineering and network personnel staffing increased
      by approximately $95,000 as a result of new hires associated with the increased
      capacity.




*Depreciation
      Expense.* Depreciation
      expense totaled $1,879,515 for the year ended December 31, 2007, as compared
      to $1,206,250 for
      the
      year ended December 31, 2006, representing an increase of 55.8%. This
      increase was the result of increased purchases of capital equipment used to
      expand our market and geographic capacity.




*Customer
      Support Services.* Customer
      support services totaled $931,785 for the year ended December 31, 2007, as
      compared to $490,592 for
      the
      year ended December 31, 2006, representing an increase of 89.9%. This
      increase was the result of new hires throughout 2007 to meet the needs of our
      growing customer base.




17




*Selling
      Expenses.* Selling
      expenses, which consist primarily of commissions, salaries and advertising
      expenses, totaled $3,588,111 for the year ended December 31, 2007, as compared
      to $1,082,051 for the year ended December 31, 2006, representing an increase
      of
      231.6%. Of this increase, approximately $1,946,000 related to the expansion
      of
      our sales force and sales support team, which is expected to continue as we
      pursue market expansion and revenue growth opportunities. Advertising expense
      increased by approximately $551,000 due to our efforts to expand our network
      subscriber base.




*General
      and Administrative Expenses.* General
      and administrative expenses, which consist of salaries and overhead expenses,
      totaled $6,827,036 for the year ended December 31, 2007, as compared to
      $2,565,764 for the year ended December 31, 2006, representing an increase
      of 166.1%. This increase was partly attributable to recurring and non-recurring
      expenses incurred and associated with the transition from a private to a public
      company. We incurred additional costs of approximately $477,000 related to
      our
      reverse merger and equity and debt financings in 2007. Increases in professional
      fees, director-related costs, printing, taxes and filing costs totaled
      approximately $1,167,000 during the year.




Approximately
      $1,203,000 was expended on administrative staffing increases, which are expected
      to continue as we pursue market expansion and revenue growth opportunities.
      Rent
      increased by approximately $164,000 while software costs increased by
      approximately $185,000 due to staffing increases and the expansion of our call
      center facility. Stock-based compensation also increased by approximately
      $945,000 from the same period in 2006.




*Interest
      Income.* Interest
      income for the year ended December 31, 2007 totaled $1,460,825 as compared
      to
      $797 for the year ended December 31, 2006. This increase was attributable to
      the
      capital raising efforts of January 2007 and June 2007, which resulted in net
      proceeds of approximately $51,600,000.




*Interest
      Expense.* Interest
      expense totaled $974,774 for the year ended December 31, 2007, as compared
      to $237,868 for the year ended December 31, 2006. This increase was
      attributable to a number of factors including non-cash charges to interest
      expense of $378,055 related to the beneficial conversion feature granted to
      the
      holders of the stockholder notes payable and other notes payable converted
      to
      equity upon the merger, amortization of placement costs associated with the
      debentures of $56,308, additional interest expense upon conversion of notes
      payable of $74,882 and amortization of deferred debt discount of $169,788.
      During 2007, we also incurred and paid $268,174 of interest expense on our
      debentures. These increases were offset by a decrease in shareholder loan
      interest of approximately $158,000.




*Other
      Expense/Income.* Other
      expense for the year ended December 31, 2007 totaled $175,607 compared to
      $116,044 of other income for the year ended December 31, 2006. In
      June 2007, we recorded an accrual of approximately $150,000 for partial
      liquidated damages required by the terms of the registration rights agreements,
      in connection with the January 2007 private placement issuances, for
      failure to cause a registration statement to be declared effective by the
      required date. During the year ended December 31, 2006, we recognized a
      gain of approximately $114,000 in connection with the forgiveness of
      debt.




*Net
      Loss.* We
      recorded a net loss of $8,501,725 for the year ended December 31, 2007, as
      compared to a net loss of $811,531 for the year ended December 31, 2006.
      The net loss was primarily attributable to certain non-recurring costs
      associated with our recent equity and debt financing recorded to general and
      administrative expenses, recurring costs associated with transitioning from
      a
      private to public company, and market and capacity expansion initiatives. We
      believe that net losses will continue as we make required additions to our
      sales, engineering and administrative personnel and network in order to increase
      revenues and subscriber growth.




**Liquidity
      and Capital Resources**




As
      of
      December 31, 2007 and December 31, 2006, we had cash and cash
      equivalents of $40,756,865 and $160,363, respectively.
      Cash and cash equivalents are invested in various Aaa rated institutional money
      market funds. This increase is attributable to equity and debt financing
      activities which raised approximately $51,600,000 of net proceeds, offset by
      $10,868,874 used in operating and investing activities during the period. We
      have historically met our liquidity requirements from a variety of sources,
      including internally generated cash, short and long-term borrowings and the
      sale
      of equity securities.




*Net
      Cash Used in/Provided by Operating Activities.* Net
      cash used in operating activities totaled $3,973,760 for the year ended December
      31, 2007, as compared to net cash provided by operating activities of $967,730 for
      the
      year ended December 31, 2006. This decrease was primarily due to the higher
      operating expenses incurred in the 2007 period resulting in our
      $8,501,725 net loss for the period.




*Net
      Cash Used in Investing Activities.* Net
      cash used in investing activities totaled $6,895,114 for the year ended December
      31, 2007, as compared to $1,168,109 for
      the
      year ended December 31, 2006 and was primarily attributable to an increase
      in capital expenditures. Approximately $1,918,000 was expended upgrading our
      network and increasing its capabilities and capacity, approximately $1,287,000
      was spent on customer premise equipment and related installation costs and
      approximately $1,247,000 was spent on the addition of new points of presence.
      We
      also incurred approximately $2,226,000 of costs associated with our employee
      growth, including the expansion of our Middletown, RI call center facility.




18




*Net
      Cash Provided By Financing Activities.* Net cash provided by financing activities totaled $51,465,376 for the year
      ended
      December 31, 2007, as compared to $157,692 for
      the
      year ended December 31, 2006. The increase is directly attributable to our
      issuing 5,110,056 shares of common stock at approximately $2.25 per share and
      the sale of $3,500,000 of debentures producing total net proceeds to us of
      approximately $14,400,000 in January 2007 plus net proceeds of $37,200,000
      from the issuance of 10,000,000 shares of common stock at $4.00 per share in
      June 2007. Other financing activities included the repayment of $200,000
      stockholder notes and proceeds of $119,973 from warrants exercised.




*Working
      Capital.* As
      of December 31, 2007, we had working capital of $38,899,104 due primarily
      to our capital raising activities in 2007. We believe that our current operating
      activities, together with the money raised, will enable us to meet our
      anticipated cash requirements for 2008.




*Private
      Placement*




In
      connection with the reverse merger in January 2007, we completed a private
      placement, pursuant to which we issued 5,110,056 shares of common stock at
      a
      price of $2.25 per share and five-year warrants to purchase 2,555,030 shares
      of
      common stock at an exercise price of $4.50 per share for aggregate gross
      proceeds of $11,497,625. In connection with this private placement, we incurred
      placement agent fees of approximately $446,400, and issued the placement agent
      five-year warrants to purchase an aggregate of 140,916 shares of common stock
      at
      an exercise price of $4.50 per share. In addition, we incurred other
      professional fees and expenses totaling approximately $186,000 in connection
      with the reverse merger and private placement.




*Senior
      Convertible Debentures*




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




In
      connection with the issuance of the debentures, we incurred placement agent
      fees
      totaling approximately $140,000, and issued to such placement agent a five-year
      warrant to purchase 63,636 shares of common stock at an exercise price of
      $4.50 per share. This warrant had an estimated fair value of
      $34,750.




In
      January 2008, one of the debenture holders converted $750,000 of their senior
      convertible debenture into common stock. As a result of this conversion, we
      issued 272,727 shares of common stock at a conversion price of $2.75 per
      share.




*Subsequent
      Registered Offering*




On
      June 11, 2007, we issued 10,000,000 shares of common stock in
      connection with a subsequent registered direct offering (the “Subsequent
      Registered Offering”) at $4.00 per share, resulting in gross proceeds of
      $40,000,000. In connection with the Subsequent Registered Offering, we incurred
      placement agent fees of $2,800,000 and issued to the placement agents five-year
      warrants to purchase 300,000 shares of common stock at an exercise price of
      $4.00 per share.




The
      above
      financing activities raised net proceeds of $51,611,237, which will be used
      to
      expand our sales and marketing efforts, as well as our expansion into new
      markets.




**Critical
      Accounting Policies**




Our
      financial statements are prepared in conformity with generally accepted
      accounting principles in the United States of America, which require us to
      make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities at the date of our financial statements and the reported amounts
      of
      revenues and expenses during the reporting periods. Critical accounting policies
      are those that require the application of management’s most difficult,
      subjective, or complex judgments, often because of the need to make estimates
      about the effect of matters that are inherently uncertain and that may change
      in
      subsequent periods. In preparing the financial statements, we utilized available
      information, including our past history, industry standards and the current
      economic environment, among other factors, in forming our estimates and
      judgments, giving due consideration to materiality. Actual results may differ
      from these estimates. In addition, other companies may utilize different
      estimates, which may impact the comparability of our results of operations
      to
      those of companies in similar businesses. We believe that of our significant
      accounting policies, the following may involve a higher degree of judgment
      and
      estimation.




*Revenue
      Recognition.* Revenues
      are recognized at the time access to our services is made available to
      customers. Contractual arrangements range from one to three years. Also included
      in revenues are fees associated with terminated contracts upon collection.
      Deferred revenues are recognized as a liability when billings are received
      in
      advance of the date when revenues are earned or when fees associated with
      termination have not yet been collected. Our revenue arrangements with multiple
      deliverables under Emerging Issues Task Force Issue (“EITF”) 00-21 are deemed to
      be immaterial.




19




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





*Long-Lived
      Assets.* Long-lived
      assets consist primarily of property and equipment and FCC licenses. Long-lived
      assets are reviewed annually for impairment or whenever events or circumstances
      indicate their carrying value may not be recoverable. Conditions that would
      necessitate an impairment assessment include a significant decline in the
      observable market value of an asset, a significant change in the extent or
      manner in which an asset is used, or a significant adverse change that would
      indicate that the carrying amount of an asset or group of assets is not
      recoverable. When such events or circumstances arise, an estimate of the future
      undiscounted cash flows produced by the asset, or the appropriate grouping
      of
      assets, is compared to the asset’s carrying value to determine if impairment
      exists pursuant to the requirements of SFAS 144, “Accounting for the Impairment
      or Disposal of Long-Lived Assets”. If the asset is determined to be impaired,
      the impairment loss is measured based on the excess of its carrying value over
      its fair value. Assets to be disposed of are reported at the lower of their
      carrying value or net realizable value.




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




**Recent
      Accounting Pronouncements**




In
      December 2007, the Financial Accounting Standards Board (“FASB”) issued
      Statement No. 141(R), "Business Combinations" (“SFAS 141(R)”), which will change
      the accounting for and reporting of business combination transactions. The
      most
      significant changes in the accounting for business combinations under SFAS
      141(R) include: (1) valuation of any acquirer shares issued as purchase
      consideration will be measured at fair value as of the acquisition date; (2)
      contingent purchase consideration, if any, will generally be measured and
      recorded at the acquisition date, at fair value, with any subsequent change
      in
      fair value reflected in earnings rather than through an adjustment to the
      purchase price allocation; (3) acquired in-process research and development
      costs, which have historically been expensed immediately upon acquisition,
      will
      now be capitalized at their acquisition date fair values, measured for
      impairment over the remaining development period and, upon completion of a
      successful development project, amortized to expense over the asset's estimated
      useful life; (4) acquisition related costs will be expensed as incurred rather
      than capitalized as part of the purchase price allocation; and (5) acquisition
      related restructuring cost accruals will be reflected within the acquisition
      accounting only if certain specific criteria are met as of the acquisition
      date;
      the prior accounting convention, which permitted an acquirer to record
      restructuring accruals within the purchase price allocation as long as certain,
      broad criteria had been met, generally around formulating, finalizing and
      communicating certain exit activities, will no longer be permitted.




SFAS
      141(R) is effective for reporting periods beginning on or after December 15,
      2008. Earlier adoption is not permitted. We anticipate that adoption of this
      pronouncement will significantly impact how we account for business combination
      transactions consummated after the effective date, in the various areas outlined
      above.




In
      December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
      Consolidated Financial Statements, an Amendment of ARB No. 51", (“SFAS 160”),
      effective for fiscal years beginning after December 15, 2008. SFAS 160 clarifies
      the accounting for noncontrolling interests and establishes accounting and
      reporting standards for the noncontrolling interest in a subsidiary, including
      the requirement that the noncontrolling interest be classified as a component
      of
      equity. SFAS 160 is required to be adopted simultaneously with SFAS 141(R).
      We
      do not expect that this pronouncement will have a significant impact on our
      consolidated financial position or results of operations.




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




20




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




21




**Item
      7. Financial Statements.**




**TOWERSTREAM
      CORPORATION**


**Index
      to Consolidated Financial Statements**


PageReport
                  of Independent Registered Public Accounting Firm
              
              
              23Consolidated
                  Balance Sheet at December 31, 2007
              
              
              24Consolidated
                  Statements of Operations for the Years Ended December 31, 2007
                  and
                  2006
              
              
              25Consolidated
                  Statements of Stockholders’ Equity for the Years Ended December 31, 2007
                  and 2006
              
              
              26Consolidated
                  Statements of Cash Flows for the Years Ended December 31, 2007
                  and
                  2006
              
              
              27Notes
                  to Consolidated Financial Statements
              
              
              29




22





**Report
      of Independent Registered Public Accounting Firm**





To
      the
      Audit Committee of the


Board
      of
      Directors and Shareholders


of
      Towerstream Corporation




We
      have
      audited the accompanying consolidated balance sheet of Towerstream Corporation
      (the “Company) as of December 31, 2007 and the related consolidated statements
      of operations, stockholders’ equity and cash flows for the years ended December
      31, 2007 and 2006. These consolidated financial statements are the
      responsibility of the Company’s management. Our responsibility is to express an
      opinion on these consolidated financial statements based on our audits.




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




In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of Towerstream Corporation,
      as
      of December 31, 2007, and the results of its operations and its cash flows
      for
      the year **s** ended
      December 31, 2007 and 2006, in conformity with the accounting principles
      generally accepted in the United States of America .







/s/
      Marcum & Kliegman LLP




New
      York,
      New York


March
      18,
      2008 ****




23





**TOWERSTREAM
      CORPORATION**


**CONSOLIDATED
      BALANCE SHEET**


**December
      31, 2007**





**Assets**Current
                AssetsCash
                and cash equivalents
            
            $
            40,756,865Accounts
                receivable, net of allowance for doubtful accounts of
                $77,615
            
            
            184,621Prepaid
                expenses and other current assets
            
            
            736,156Total
                Current Assets
            
            
            41,677,642Property
                and equipment, net
            
            
            8,518,750Security
                deposits and other assets
            
            
            283,790FCC
                licenses
            
            
            475,000**TOTAL
                ASSETS**
            
            $
            50,955,182**Liabilities
                and Stockholders’ Equity**Current
                LiabilitiesCurrent
                maturities of capital lease obligations
            
            $
            47,486Accounts
                payable
            
            
            1,413,970Accrued
                expenses
            
            
            685,576Deferred
                revenues
            
            
            631,506Total
                Current Liabilities
            
            
            2,778,538Other
                LiabilitiesLong-term
                debt, net of deferred debt discount of $357,139
            
            
            3,142,861Capital
                lease obligations, net of current maturities
            
            
            25,341Deferred
                rent
            
            
            273,154Total
                Other Liabilities
            
            
            3,441,356**TOTAL
                LIABILITIES**
            
            
            6,219,894CommitmentsStockholders'
                EquityPreferred
                stock, par value $0.001; 5,000,000 authorized, none
                outstanding
            
            
            -Common
                stock, par value $0.001; 70,000,000 shares authorized; 34,080,053issued
                and outstanding
            
            
            34,080Additional
                paid-in-capital
            
            
            53,223,033Deferred
                consulting costs
            
            
            (20,100
            )Accumulated
                deficit
            
            
            (8,501,725
            )44,735,288**TOTAL
                LIABILITIES AND STOCKHOLDERS' EQUITY**
            
            $
            50,955,182




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




24





**TOWERSTREAM
      CORPORATION**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**





**For
                the Years Ended December 31,****2007**
            
            **2006**Revenues
            
            $
            6,883,343
            
            $
            6,296,218Operating
                ExpensesCost
                of revenues (exclusive of depreciation of$1,879,515
                and $1,206,250,
              respectively,shown
                separately below)
            
            
            2,469,065
            
            
            1,642,065Depreciation
            
            
            1,879,515
            
            
            1,206,250Customer
                support services
            
            
            931,785
            
            
            490,592Selling
                expenses
            
            
            3,588,111
            
            
            1,082,051General
                and administrative expenses (includesstock-based
                compensation
              expense
                of $1,045,705and
                $100,625, respectively)
            
            
            6,827,036
            
            
            2,565,764**TOTAL
                OPERATING EXPENSES**
            
            
            15,695,512
            
            
            6,986,722**OPERATING
                LOSS**
            
            
            (8,812,169
            )
            
            (690,504
            )Other
                Income/(Expense)Interest
                income
            
            
            1,460,825
            
            
            797Interest
                expense
            
            
            (974,774
            )
            
            (237,868
            )Other
                (expense)/income
            
            
            (175,607
            )
            
            116,044**TOTAL
                OTHER INCOME/ (EXPENSE)**
            
            
            310,444
            
            
            (121,027
            )**NET
                LOSS**
            
            $
            (8,501,725
            )
            $
            (811,531
            )Net
                loss per common share - basic and diluted
            
            $
            (0.29
            )
            $
            (0.05
            )Weighted
                average common shares outstanding - basic and diluted
            
            
            29,243,802
            
            
            14,892,036




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




25




**TOWERSTREAM
      CORPORATION**


**CONSOLIDATED
      STATEMENT OF STOCKHOLDERS’ EQUITY**


**For
      the Years Ended December 31, 2007 and 2006**




**Common
                Stock****Shares**
            
            
            **Amount**
            
            
            **Additional
                Paid-In-Capital**
            
            
            **Deferred
                Consulting Costs**
            
            
            **Accumulated
                Deficit**
            
            
            **Total**Balance
                at January 1, 2006
            
            
            14,743,050
            
            $
            14,743
            
            $
            8,462,782
            
            $
            −
            
            $
            (7,401,471
            )
            $
            1,076,054Issuance
                of commonstock
                upon
              conversion
                ofstockholder’s
              notes
                payableand accrued
                interest
            
            
            186,873
            
            
            187
            
            
            233,466
            
            
            
            
            
            
            
            
            233,653Issuance
                of common stock in connection
              with
                purchase of FCC license
            
            
            70,077
            
            
            70
            
            
            99,930
            
            
            
            
            
            
            
            
            100,000Stock-based
                compensation
            
            
            
            
            
            
            
            
            100,625
            
            
            
            
            
            
            
            
            100,625Net
                loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (811,531
            )
            
            (811,531
            )Balance
                at January 1, 2007 (see Note 1)
            
            
            15,000,000
            
            
            15,000
            
            
            8,896,803
            
            
            −
            
            
            (8,213,002
            )
            
            698,801University
                Girls Calendar, Ltd. upon
              merger
                on January 12, 2007
            
            
            1,900,000
            
            
            1,900
            
            
            (18,652
            )
            
            
            
            
            
            
            
            (16,752
            )Recapitalization
                of accumulated deficit at
              the
                time of S corporation revocation
            
            
            
            
            
            
            
            
            (8,213,002
            )
            
            
            
            
            8,213,002
            
            
            -Net
                proceeds from issuance of common
              stock
                - January 12, 2007
            
            
            5,110,056
            
            
            5,110
            
            
            11,046,127
            
            
            
            
            
            
            
            
            11,051,237Net
                proceeds from issuance of common
              stock
                - June 11, 2007
            
            
            10,000,000
            
            
            10,000
            
            
            37,190,000
            
            
            
            
            
            
            
            
            37,200,000Issuance
                of common stock upon conversion
              of
                stockholders’ notes payable
            
            
            1,302,582
            
            
            1,303
            
            
            1,940,333
            
            
            
            
            
            
            
            
            1,941,636Issuance
                of common stock upon
              conversion
                of notes payable
            
            
            156,250
            
            
            156
            
            
            249,844
            
            
            
            
            
            
            
            
            250,000Beneficial
                conversion feature uponconversion
                ofstockholders’
                notes payableinto
                common stock
            
            
            
            
            
            
            
            
            378,055
            
            
            
            
            
            
            
            
            378,055Issuance
                of common stock for consulting services
            
            
            200,000
            
            
            200
            
            
            401,800
            
            
            (402,000
            )
            
            
            
            
            -Exercise
                of warrants
            
            
            56,062
            
            
            56
            
            
            119,917
            
            
            
            
            
            
            
            
            119,973Exercise
                of options
            
            
            4,672
            
            
            5
            
            
            6,676
            
            
            
            
            
            
            
            
            6,681Debt
                discount associated with warrantsissuedin
                connection with issuance of debentures
            
            
            
            
            
            
            
            
            526,927
            
            
            
            
            
            
            
            
            526,927Issuance
                of warrants to placement agent in connection with issuance of
                debentures
            
            
            
            
            
            
            
            
            34,750
            
            
            
            
            
            
            
            
            34,750Non-cash
                exercise of warrants
            
            
            350,431
            
            
            350
            
            
            (350
            )
            
            
            
            
            
            
            
            -Stock-based
                compensation
            
            
            
            
            
            
            
            
            663,805
            
            
            
            
            
            
            
            
            663,805Amortization
                of deferred consulting costs
            
            
            
            
            
            
            
            
            
            
            
            381,900
            
            
            
            
            
            381,900Net
                loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (8,501,725
            )
            
            (8,501,725
            )Balance
                at December 31, 2007
            
            
            34,080,053
            
            $
            34,080
            
            $
            53,223,033
            
            $
            (20,100
            )
            $
            (8,501,725
            )
            $
            44,735,288





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




26


**TOWERSTREAM
      CORPORATION**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**





**For
                the Years Ended December 31,****2007**
            
            **2006****Cash
                Flows From Operating Activities**Net
                loss
            
            $
            (8,501,725
            )
            $
            (811,531
            )Adjustments
                to reconcile net loss to net cash (used in)/provided by operating
                activities:Provision
                for doubtful accounts receivable
            
            
            90,000
            
            
            62,245Depreciation
            
            
            1,879,515
            
            
            1,206,250Stock-based
                compensation
            
            
            1,045,705
            
            
            100,625Non-cash
                interest on notes payable
            
            
            74,882
            
            
            42,916Amortization
                of beneficial conversion feature
            
            
            378,055
            
            
            −Amortization
                of deferred debt discount
            
            
            169,788
            
            
            19,830Amortization
                of financing costs
            
            
            56,308
            
            
            −Gain
                on extinguishment of debt
            
            
            −
            
            
            (114,339
            )Loss
                (gain) on sale and disposition of property and equipment
            
            
            25,631
            
            
            (1,705
            )Other
            
            
            1,139
            
            
            −Changes
                in operating assets and liabilities:
            
            
            −
            
            
            −Accounts
                receivable
            
            
            (117,178
            )
            
            (46,038
            )Advances
                to officers
            
            
            −
            
            
            35,533Prepaid
                expenses and other current assets
            
            
            (710,955
            )
            
            (16,381
            )Accounts
                payable and
            
            
            579,025
            
            
            439,611Accrued
                expenses
            
            
            562,157
            
            
            47,270Deferred
                compensation
            
            
            (10,000
            )
            
            55,000Deferred
                revenues
            
            
            230,740
            
            
            (51,556
            )Deferred
                rent
            
            
            273,153
            
            
            −**TOTAL
                ADJUSTMENTS**
            
            
            4,527,965
            
            
            1,779,261**NET
                CASH (USED IN)/PROVIDED BY OPERATING ACTIVITIES**
            
            
            (3,973,760
            )
            
            967,730**Cash
                Flows From Investing Activities**Acquisitions
                of property and equipment
            
            
            (6,709,917
            )
            
            (1,126,597
            )Proceeds
                from sale of property and equipment
            
            
            44,600
            
            
            5,988Acquisition
                of FCC licenses
            
            
            (125,000
            )
            
            (50,000
            )Change
                in security deposits
            
            
            (104,797
            )
            
            2,500**NET
                CASH USED IN INVESTING ACTIVITIES**
            
            
            (6,895,114
            )
            
            (1,168,109
            )**Cash
                Flows From Financing Activities**Net
                proceeds from sale of debentures
            
            
            3,360,000
            
            
            −Repayment
                of stockholder notes
            
            
            (200,000
            )
            
            (116,643
            )Repayment
                of equipment note
            
            
            (9,341
            )
            
            −Repayment
                of long-term debt
            
            
            −
            
            
            (266,717
            )Repayment
                of capital leases
            
            
            (63,174
            )
            
            (33,948
            )Proceeds
                from exercise of warrants
            
            
            119,973
            
            
            −Repayment
                of revolving note, stockholder
            
            
            −
            
            
            (250,000
            )Proceeds
                from notes payable, stockholders
            
            
            −
            
            
            575,000Proceeds
                from short-term debt borrowings
            
            
            −
            
            
            250,000Issuance
                of common stock upon exercise of options
            
            
            6,681
            
            
            −Net
                proceeds from sale of common stock
            
            
            48,251,237
            
            
            −**NET
                CASH PROVIDED BY FINANCING ACTIVITIES**
            
            
            51,465,376
            
            
            157,692**NET
                INCREASE IN CASH and CASH EQUIVALENTS**
            
            
            40,596,502
            
            
            (42,687
            )**Cash
                and Cash Equivalents - Beginning**
            
            
            160,363
            
            
            203,050**Cash
                and Cash Equivalents - Ending**
            
            $
            40,756,865
            
            $
            160,363




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




27





**For
                the Years Ended December, 31****2007**
            
            **2006****Supplemental
                Disclosures of Cash Flow Information**Cash
                paid during the years for:Interest
            
            $
            321,694
            
            $
            218,037Non-cash
                investing and financing activities:Conversion
                of principal and interest on notes payable into shares of common
                stock
            
            $
            2,191,636
            
            $
            233,653Acquisition
                of property and equipment under capital lease obligations
            
            $
            −
            
            $
            122,008Assumption
                of accounts payable in reverse merger transaction
            
            $
            16,752
            
            $
            −Acquisition
                of FCC license in exchange for shares of common stock
            
            $
            −
            
            $
            100,000Acquisition
                of FCC license in exchange for note payable
            
            $
            −
            
            $
            200,000





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




28




**TOWERSTREAM
      CORPORATION**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**Note
      1.    Organization and Nature of
      Business**




Towerstream
      Corporation (herein after referred to as ‘‘Towerstream’’ or the ‘‘Company’’) was
      formed on December 17, 1999 and was incorporated in Delaware. In
      January 2007, the Company terminated its Sub S tax status and elected to
      operate as a C corporation with its corporate headquarters located in Rhode
      Island.




On
      January 12, 2007, Towerstream merged with a newly formed subsidiary of
      University Girls Calendar Ltd. (‘‘UGC’’), a publicly traded shell company. In
      connection with the merger, 1,900,000 UGC common shares remained outstanding
      and
      all other outstanding shares of UGC were cancelled. Also, in connection with
      the
      merger, UGC issued 15,000,000 shares of its common stock for all the outstanding
      common stock of Towerstream. As a result of the transaction, the former owners
      of Towerstream became the controlling stockholders of UGC and UGC changed its
      name to Towerstream Corporation. Accordingly, the merger of Towerstream and
      UGC
      (the ‘‘Merger’’) is a reverse merger that has been accounted for as a
      recapitalization of Towerstream. Effective on January 12, 2007, and
      for all reporting periods thereafter, the Company’s operating activities,
      including any prior comparative period, will include only those of Towerstream
      Corporation. All references to shares and per share amounts, stock options
      and
      stock warrants in the accompanying financial statements have been restated
      to
      reflect the aforementioned share exchange.




The
      Company provides fixed wireless broadband services to commercial users based
      on
      a traditional monthly subscription model. Through transmissions over both
      regulated and unregulated radio spectrum, the Company offers customers high
      speed Internet access over a fixed wireless network which supports bandwidth
      on
      demand, wireless redundancy, virtual private networks (“VPNs”), disaster
      recovery, bundled data and video services. The Company provides service to
      business customers in New York City, Boston, Chicago, Los Angeles, San
      Francisco, Seattle, Miami, Providence and Newport, Rhode Island.




**Note
      2.    Summary of Significant Accounting
      Policies**




*Basis
      of Presentation.* The
      consolidated financial statements have been prepared in accordance with
      accounting principles generally accepted in the United States of America for
      annual financial statements and with Form 10-KSB and Item 310 of Regulation
      S-B
      of the Securities and Exchange Commission. The consolidated financial statements
      include the accounts of the Company and its wholly owned subsidiary. All
      significant intercompany balances and transactions have been eliminated in
      consolidation. In the opinion of the Company’s management, the accompanying
      consolidated financial statements contain all the adjustments necessary
      (consisting only of normal recurring accruals) to make the financial position
      of
      the Company as of December 31, 2007, the results of operations for the
      years ended December 31, 2007 and 2006, and cash flows for the years ended
      December 31, 2007 and 2006 not misleading.




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




*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.




The
      Company maintains its cash and cash equivalents accounts at high quality
      financial institutions with balances, at times, in excess of federally insured
      limits. As of December 31, 2007, the Company had cash and cash equivalents
      balances of approximately $1,021,000 in excess of the federally insured limit
      of
      $100,000. The Company has substantial cash equivalent balances which are
      invested in various Aaa rated institutional money market funds. As of December
      31, 2007, the Company had cash equivalent balances of approximately
      $39,574,000 invested in excess of the Securities Investor Protection Corporation
      (‘‘SIPC’’) limit of $500,000.




29




*Accounts
      Receivable* .
      Accounts receivable are stated at cost less an allowance for doubtful accounts.
      The allowance for doubtful accounts reflects the Company’s best estimate of
      probable losses inherent in the accounts receivable balance. Periodically,
      the
      Company evaluates its accounts receivable and establish an allowance for
      doubtful accounts, based on the history of past write-offs, collections and
      current credit conditions. Bad debt expense for 2007 and 2006 was $90,000 and
      $62,245, respectively, and is included in general and administrative expenses
      in
      the accompanying statements of operations.




*Property
      and Equipment.* Property
      and equipment are stated at cost. The costs associated with the construction
      of
      the network and subscriber installations are capitalized. Costs include
      equipment, installation costs and materials. Depreciation is calculated on
      a
      straight-line basis over the estimated useful lives of the assets. Leasehold
      improvements are amortized over the lesser of the useful lives or the term
      of
      the respective lease. Network, base station and customer premise equipment
      are
      depreciated over estimated useful lives ranging from 5 to 7 years, furniture,
      fixtures and office equipment from 5 to 7 years, computer equipment of 5 years
      and system software of 3 years.




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




*FCC
      Licenses.* Federal
      Communication Commission (“FCC”) licenses are initially recorded at cost and are
      not amortized. FCC licenses are considered to be intangible assets with an
      indefinite life because the Company expects to continue to provide wireless
      service using the relevant licenses for the foreseeable future and the FCC
      license(s) may be renewed for a nominal fee.




*Deferred
      Revenues.* Deferred
      revenues consist of either prepayment of future service periods or payments
      received for current month services which overlap monthly reporting periods.
      Deferred revenues also include fees associated with terminated customer
      contracts, which are recognized as revenue upon collection.





*Income
      Taxes.* The
      Company provides for federal and state income taxes currently payable, as well
      as for those deferred because of timing differences between reporting income
      and
      expenses for financial statement purposes versus tax purposes. Deferred tax
      assets and liabilities are recognized for the future tax consequences
      attributable to differences between the carrying amount of assets and
      liabilities for financial reporting purposes and the amounts used for income
      taxes. Deferred tax assets and liabilities are measured using the enacted tax
      rates expected to be recoverable or settled. The effect of a change in tax
      rates
      is recognized as income or expense in the period of the change. A valuation
      is
      established, when necessary, to reduce deferred income tax assets to the amount
      that is more likely than not to be realized. The Company recorded a full
      valuation loss for the net loss incurred for the year ended December
      31, 2007.





*Long-Lived
      Assets.* Long-lived
      assets consist primarily of property and equipment and FCC licenses. Long-lived
      assets are reviewed annually for impairment or whenever events or circumstances
      indicate their carrying value may not be recoverable. Conditions that would
      necessitate an impairment assessment include a significant decline in the
      observable market value of an asset, a significant change in the extent or
      manner in which an asset is used, or a significant adverse change that would
      indicate that the carrying amount of an asset or group of assets is not
      recoverable. When such events or circumstances arise, an estimate of the future
      undiscounted cash flows produced by the asset, or the appropriate grouping
      of
      assets, is compared to the asset’s carrying value to determine if impairment
      exists pursuant to the requirements of Statement of Financial Accounting
      Standards (“SFAS”) 144, “Accounting for the Impairment or Disposal of Long-Lived
      Assets”. If the asset is determined to be impaired, the impairment loss is
      measured based on the excess of its carrying value over its fair value. Assets
      to be disposed of are reported at the lower of their carrying value or net
      realizable value.





The
      Company has determined that there were no impairments of its property and
      equipment and its FCC licenses during the years ended December 31, 2007 and
      2006.





*Revenue
      Recognition.* Revenues
      are recognized at the time access to the Company’s internet services is made
      available to its customers. Also included in revenues are fees associated with
      terminated contracts upon collection. Contractual arrangements range from one
      to
      three years. Deferred revenues are recognized as a liability when billings
      are
      received in advance of the date when revenues are earned or when fees associated
      with termination have not yet been collected. Company revenue arrangements
      with
      multiple deliverables under Emerging Issues Task Force Issue (‘‘EITF’’) No.
      00-21 are deemed to be immaterial.




30





*Advertising
      Costs.* The
      Company charges advertising costs to expense as incurred. Advertising costs
      for
      the years ended December 31, 2007 and 2006 were approximately $594,000 and
      $44,000, respectively and are included in selling expenses in the accompanying
      statements of operations.




*Fair
      Value of Financial Instruments.* SFAS
      No.
      107, “Disclosures about Fair Value of Financial Instruments” requires that the
      Company disclose estimated fair values of financial instruments. The carrying
      amounts reported in the statement of financial position for current assets
      and
      current liabilities qualifying as financial instruments are reasonable estimates
      of fair value. The fair value of long-term debt is estimated to approximate
      fair
      market value based on the current rates offered to the Company for debt of
      the
      same remaining maturities.




*Stock-Based
      Compensation.* Effective
      January 1, 2006, the Company adopted SFAS No. 123 (revised 2004),
‘‘Share-Based Payment,’’ (‘‘SFAS 123R’’), which is a revision of SFAS No.
      123, ‘‘Accounting for Stock-Based Compensation’’ (‘‘SFAS No. 123’’). SFAS No.
      123R supersedes Accounting Principles Board (“APB”) No. 25, ‘‘Accounting for
      Stock Issued to Employees’’, and amends SFAS No. 95, ‘‘Statement of Cash
      Flows.’’ SFAS No. 123R requires all share-based payments to employees, including
      grants of employee stock options, to be recognized in the financial statements
      based upon their fair values.




The
      Company adopted SFAS 123R using the modified prospective method, which requires
      the Company to record compensation expense for all awards granted after the
      date
      of adoption, and for the unvested portion of previously granted awards that
      remain outstanding at the date of adoption. After assessing alternative
      valuation models and amortization assumptions, the Company chose to continue
      using the Black-Scholes valuation model and recognition of compensation expense
      over the requisite service period of the grant.




For
      the
      year ended December 31, 2007, the Company recorded stock-based compensation
      of $663,805 for amortization of stock options granted under the Company’s stock
      option plan and $381,900 for amortization of stock-based deferred consulting
      costs. The Company recorded stock-based compensation of $100,625 for
      amortization of stock options for the year ended December 31, 2006. As a result
      of the adoption of SFAS 123R, the Company’s net loss for the year ended December
      31, 2006 was $100,625 higher than if it had continued to account for
      stock.-based compensation under APB No. 25.





The
      unamortized amount of stock options expense was $979,466 as of December
      31, 2007. The unamortized balance of the stock-based consulting costs is
      $20,100 as of December 31, 2007.





The
      Company uses the Black-Scholes option pricing model to determine the weighted
      average fair value of options. The assumptions utilized to determine the fair
      value of options at the date of grant are indicated in the following
      table:





**Year
                ended**
            
            **Year
                ended****December
                31, 2007**
            
            **December
                31, 2006**Risk-free
                interest rate
            
            
            3.3%
                - 5.0
            %
            
            4.6%
                - 5.1
            %Expected
                volatility
            
            
            57%
                - 60
            %
            
            41%
                - 60
            %Expected
                life (in years)
            
            
            7
            
            
            6
                - 10Expected
                dividend yield
            
            
            -
            
            
            -




*Basic
      and Diluted Loss Per Share.* Net
      loss per share is computed in accordance with SFAS No. 128, ‘‘Earnings Per
      Share’’ (‘‘SFAS No. 128’’). SFAS No. 128 requires the presentation of both basic
      and diluted earnings per share.




Basic
      net
      loss per common share is computed using the weighted average number of common
      shares outstanding during the period. Diluted loss per share reflects the
      potential dilution that could occur through the potential effect of common
      shares issuable upon the exercise of stock options, warrants and convertible
      securities. The calculation assumes: (i) the exercise of stock options and
      warrants based on the treasury stock method; and (ii) the conversion of
      convertible preferred  stock
      only if an entity records earnings from continuing operations, as such
      adjustments would otherwise be anti-dilutive to earnings per share from
      continuing operations. As a result of the Company having recorded a net loss
      during the years ended December 31, 2007 and 2006, the average number of common
      shares used in the calculation of basic and diluted loss per share are identical
      for each period and have not been adjusted for the effects of the following
      potential common shares from unexercised stock options and warrants, and shares
      convertible under certain debt agreements:




31





**Year
                Ended**
            
            **Year
                Ended****December
                31, 2007**
            
            **December
                31, 2006**Stock
                options
            
            
            2,328,067
            
            
            2,147,000Warrants
            
            
            4,672,325
            
            
            1,636,000Convertible
                debt
            
            
            1,272,728
            
            
            980,748Total
            
            
            8,273,120
            
            
            4,763,748




The
      issuance of such potential common shares may dilute earnings per share in the
      future.




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





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




*Recent
      Accounting Pronouncements.* In
      December 2007, the Financial Accounting Standards Board (“FASB”) issued
      Statement No. 141(R), "Business Combinations", (“SFAS 141(R)”), which will
      change the accounting for and reporting of business combination transactions.
      The most significant changes in the accounting for business combinations under
      SFAS 141(R) include: (1) valuation of any acquirer shares issued as purchase
      consideration will be measured at fair value as of the acquisition date; (2)
      contingent purchase consideration, if any, will generally be measured and
      recorded at the acquisition date, at fair value, with any subsequent change
      in
      fair value reflected in earnings rather than through an adjustment to the
      purchase price allocation; (3) acquired in-process research and development
      costs, which have historically been expensed immediately upon acquisition,
      will
      now be capitalized at their acquisition date fair values, measured for
      impairment over the remaining development period and, upon completion of a
      successful development project, amortized to expense over the asset's estimated
      useful life; (4) acquisition related costs will be expensed as incurred rather
      than capitalized as part of the purchase price allocation; and (5) acquisition
      related restructuring cost accruals will be reflected within the acquisition
      accounting only if certain specific criteria are met as of the acquisition
      date;
      the prior accounting convention, which permitted an acquirer to record
      restructuring accruals within the purchase price allocation as long as certain,
      broad criteria had been met, generally around formulating, finalizing and
      communicating certain exit activities, will no longer be permitted.




SFAS
      141(R) is effective for reporting periods beginning on or after December 15,
      2008. Earlier adoption is not permitted. The Company anticipates that adoption
      of this pronouncement will significantly impact how the Company accounts for
      business combination transactions consummated after the effective date, in
      the
      various areas outlined above.




32




In
      December 2007, the FASB issued Statement of Financial Accounting Standards
      (“SFAS”) No. 160, "Noncontrolling Interests in Consolidated Financial
      Statements, an Amendment of ARB No. 51", (“SFAS 160’), effective for fiscal
      years beginning after December 15, 2008. SFAS 160 clarifies the accounting
      for
      noncontrolling interests and establishes accounting and reporting standards
      for
      the noncontrolling interest in a subsidiary, including the requirement that
      the
      noncontrolling interest be classified as a component of equity. SFAS 160 is
      required to be adopted simultaneously with SFAS 141(R). The Company does not
      expect that this pronouncement will have a significant impact on the Company’s
      consolidated financial position or results of operations.




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





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




**Note
      3.    Property and Equipment, net**




The
      Company’s property and equipment, net is comprised of:


Network
                  and base station equipment
              
              $
              7,448,258Customer
                  premise equipment
              
              
              4,120,647Furniture,
                  fixtures and equipment
              
              
              1,294,472Computer
                  equipment
              
              
              476,206Leasehold
                  improvements
              
              
              496,368System
                  software
              
              
              473,26114,309,212Less:
                  accumulated depreciation
              
              
              5,790,462$
              8,518,750




Depreciation
      expense for the years ended December 31, 2007 and 2006 was $1,879,515 and
      $1,206,250, respectively.




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


Network
                  and base station equipment
              
              $
              194,702Less:
                  accumulated depreciation
              
              
              93,419$
              101,283
  33




**Note
      4.    Long-Term Debt**




On
      January 18, 2007, the Company issued $3,500,000 of 8% senior
      convertible debentures (the ‘‘Debentures’’). These Debentures mature on
      December 31, 2009, and are convertible, in whole or in part, at each
      holder’s option, into shares of the Company’s common stock at an initial
      conversion price of $2.75 per share. In addition, holders of the Debentures
      received warrants to purchase an aggregate of 636,364 shares of common stock
      at
      an exercise price of $4.00 per share and warrants to purchase an aggregate
      of
      636,364 shares of common stock at an exercise price of $6.00 per share, each
      for
      a period of five years. The fair value of the warrants granted to the holders
      of
      Debentures was calculated using the Black-Scholes option pricing model and
      estimated to have a fair value of approximately $527,000 (the ‘‘Debt
      Discount’’), which is being amortized over the term of the debenture agreement.
      The unamortized balance of the Debt Discount totaled $357,139 at December
      31, 2007.




Should
      the Company, at any time while the Debentures are outstanding, sell or grant
      any
      option to purchase or sell or grant any right to reprice, or otherwise dispose
      of or issue any common stock entitling any party to acquire shares of the
      Company’s common stock at a per share price less than $2.75, the conversion
      price of the Debentures shall be reduced to equal that lower price.




The
      terms
      of the Debentures provide for the Company to pay interest on the aggregate
      unconverted and then outstanding principal amount of the Debentures at the
      rate
      of 8% per annum, payable quarterly in arrears on January 1, April 1,
      July 1 and October 1 of each year, commencing
      January 1, 2008. So long as a resale registration statement is in
      effect with respect to the shares of common stock underlying the Debentures
      and
      the debenture holders are not subject to any market  standoff
      provisions, as described below, interest is payable in either cash or common
      stock, at the Company’s option. If interest is paid in common stock, however,
      the shares shall be valued at 90% of the 10-day volume weighted average price
      of
      the Company’s common stock prior to the interest payment date. In the event that
      there is an effective registration statement on file with the Securities and
      Exchange Commission with respect to the common stock underlying the Debentures
      and the closing bid price for the 10 trading days prior to an interest payment
      date is $3.44, or greater, the interest payment for that period will be waived.
      Moreover, if there is an effective registration statement on file with the
      Securities and Exchange Commission with respect to the common stock underlying
      the Debentures, the debenture holders are not subject to any market standoff
      provisions, and the 10-day volume weighted average price of the Company’s common
      stock exceeds $5.50 for 10 consecutive trading days, the Company has the
      right to force the debenture holders to convert their Debentures into common
      stock upon 10-day prior written notice.




As
      part
      of the debenture agreement, the Company may not pledge or grant a lien on any
      of
      its assets without the debenture holders’ consent. In addition, for one year
      following issuance of the Debentures, the holders of the Debentures hold a
      right
      of first refusal to participate in any future equity or equity-linked financing
      conducted by the Company, subject to certain exemptions. The amount of this
      right is pro rata, with each debenture holder’s portion equal to a fraction, the
      numerator of which is the amount of the debenture purchased by such holder
      and
      the denominator of which is the sum of the amount of the debenture purchased
      by
      such holders and $11,497,625, the aggregate purchase price for the units of
      common stock and warrants issued pursuant to the private placements that closed
      on January 12, 2007, and January 18, 2007.




In
      connection with the Debentures, UGC incurred placement agent fees totaling
      approximately $140,000, and issued to the placement agent warrants to purchase
      up to 63,636 shares of common stock with an estimated fair value of $34,750
      at
      an exercise price of $4.50 per share for a period of five years. These financing
      costs shall be amortized over the term of the debenture agreement.




In
      January 2008, one of the debenture holders converted their debt into the
      Company’s common stock. (See Note 13)





**Note
      5.     Capital Lease Obligations**





The
      Company is the lessee of network base station equipments under various capital
      leases expiring in 2009. The assets and liabilities under those capital leases
      are recorded at fair market value. The assets are depreciated over the lease
      term, which approximates their useful lives, using the straight-line method.
      Depreciation expense of assets under capital leases in 2007 and 2006 was
      approximately $39,000 and $25,000 respectively.




34




As
      of
      December 31, 2007, the minimum future lease payments under these capital leases
      are:





**Year
                Ending December 31,**2008
            
            $
            54,4812009
            
            
            26,665Total
                minimum lease payments
            
            
            81,146Less:
                amount representing imputed interest
            
            
            8,319Present
                value of minimum capital lease payments
            
            
            72,827Less:
                current maturities of capital lease obligations
            
            
            47,486Capital
                lease, net of current maturities
            
            $
            25,341





**Note
      6.    Capital Stock**




The
      Company is authorized to issue 5,000,000 shares of preferred stock at a par
      value of $0.001. The board of directors is authorized, subject to any
      limitations prescribed by law, without further vote or action by the
      stockholders, to issue from time to time shares of preferred stock in one or
      more series. There have been no issuances of preferred stock as of December
      31,
      2007.




The
      Company is authorized to issue 70,000,000 shares of common stock at a par value
      of $0.001. The holders of common stock are entitled to one vote per share.
      The
      Company’s certificate of incorporation does not provide for cumulative voting.
      The holders of the Company’s common stock are entitled to receive ratably such
      dividends, if any, as may be declared by the board of directors out of legally
      available funds. Upon liquidation, dissolution or winding-up, the holders of
      the
      Company’s common stock are entitled to share ratably in all assets that are
      legally available for distribution. The holders of the Company’s common stock
      have no preemptive, subscription, redemption or conversion rights. The rights,
      preferences and privileges of holders of the Company’s common stock are subject
      to, and may be adversely affected by , the rights of the holders of any series
      of preferred stock, which may be designated solely by action of the board of
      directors and issued in the future.




Concurrent
      with the Merger, UGC sold 5,110,056 shares of common stock for gross proceeds
      of
      $11,497,625 (at $2.25 per share) through a private placement (the ‘‘Private
      Placement’’). In addition, these investors received warrants to purchase
      2,555,030 shares of common stock for a period of five years at an exercise
      price
      of $4.50 per share.




In
      connection with the Private Placement, UGC incurred placement agent fees
      totaling approximately $446,400, and issued warrants to purchase up to 140,916
      shares of common stock to the placement agent at an exercise price of $4.50
      per
      share for a period of five years.




On
      January 4, 2007, certain stockholders collectively transferred an
      aggregate of $1,616,754 in outstanding promissory notes and other payables
      due
      from Towerstream to a group of third party investors. In connection with these
      note transfers, Towerstream issued new promissory notes to these investors
      with
      an aggregate principal sum of $1,691,636 and cancelled the aforementioned
      obligations. The increase in the notes payable of approximately $75,000 was
      recorded as additional interest expense by the Company. These notes
      automatically converted into 1,127,757 shares of common stock of UGC at a
      conversion price of $1.50 per share as a result of the Merger. In
      conjunction with the above transaction, the Company recorded approximately
      $314,000 for the beneficial conversion feature granted to the holders of
      approximately $924,000 of the stockholders’ notes at $1.50 per share which did
      not originally have conversion rights and were converted to equity upon the
      Merger.




In
      addition, a stockholder with a $250,000 convertible note exercised his right
      to
      convert the note into 174,825 shares of common stock at $1.43 per share in
      conjunction with the Merger.




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




35




On
      January 18, 2007, Towerstream entered into a one year consulting
      agreement with a company to provide services related to investor relations.
      The
      agreement terms among other items include monthly payments of $7,500 plus
      expenses and the non-refundable issuance of 200,000 shares of Towerstream common
      stock. The fair value of the common shares were valued at $402,000. The
      estimated costs of the consulting agreement shall be amortized over the one
      year
      consulting term. For the year ended December 31, 2007, the Company
      amortized approximately $382,000, which is included in general and
      administrative expenses.




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




On
      June 11, 2007, the Company issued 10,000,000 shares of common stock in
      connection with a subsequent registered direct offering (the ‘‘Subsequent
      Registered Offering’’) at $4.00 per share, resulting in gross proceeds of
      $40,000,000. In connection with the Subsequent Registered Offering, the Company
      incurred placement agent fees of $2,800,000 and issued warrants to purchase
      300,000 shares of common stock to the placement agents at an exercise price
      of
      $4.00 per share for a period of five years.




On
      June 15, 2007, a stockholder exercised his warrant to purchase 325,000
      shares. On June 27, 2007, another stockholder exercised his warrant to purchase
      75,000 shares. Both transactions were effected using the net issue exercise
      (or
‘‘cashless exercise’’) election of the warrant agreements, whereby the number of
      shares issued is calculated by dividing the warrant value on the exercise date
      by the average share price over the 10-day period immediately prior to the
      exercise date. Accordingly, 288,976 shares were issued in exchange for the
      325,000 warrants exercised and 61,455 shares were issued in exchange for the
      75,000 warrants exercised.




On
      July 2, 2007, a former employee exercised his options to purchase
      1,168 shares of common stock at an exercise price of $1.43 per
      share.





On
      September 24, 2007, a former employee exercised her options to purchase 3,504
      shares of common stock at an exercise price of $1.43 per share.




The
      Company is subject to liquidated damages for failure to cause a registration
      statement to be declared effective on or before May 28, 2007 in
      connection with its January 2007 private placements. In connection with
      each of its January 2007 unit and debenture private placements, the Company
      entered into a registration rights agreement, pursuant to which it agreed to
      file a registration statement with the Securities and Exchange Commission to
      register the resale of the shares of common stock issued as part of the units
      together with the common stock underlying the unit warrants, the debentures
      and
      the debenture warrants, and to cause such registration statement to be declared
      effective by the Securities and Exchange Commission on or before
      May 28, 2007. This registration statement was not declared effective
      by the Securities and Exchange Commission on or before May 28, 2007,
      requiring the Company to pay liquidated damages in cash to its investors of
      1%
      of their purchase price as of May 28, 2007. The Company recorded a
      liability of $149,976 as of June 18, 2007, the date on which the
      registration statement became effective.




**Note
      7. Employee Benefit Plan**




Effective
      January 1, 2005, the Company established a new 401(k) retirement plan (“401(k)
      plan”). The 401(k) plan covers all eligible employees who have attained the age
      of twenty-one and have completed a half year of service with the Company. The
      Company could elect to match up to a certain amount of employees’ contributions
      to the 401(k) plan. Total employee and employer contributions are limited to
      100% of compensation per participant or $42,000, whichever is less. For the
      years ended December 31, 2007 and 2006, there were no employer contributions
      made toward the 401(k) plan.




36




**Note
      8. Other (Expense) Income**




Other
      (expense) income consists of the following:





**Year
                Ended**
            
            **Year
                Ended****December
                31, 2007**
            
            **December
                31, 2006**Partial
                liquated damages related to a registration statement
            
            $
            (149,976
            )
            $
            −Forgiveness
                of debt
            
            
            −
            
            
            114,339(Loss)
                gain on sale and disposition of property and equipment
            
            
            (25,631
            )
            
            1,705Other
                (expense) income
            
            $
            (175,607
            )
            $
            116,044




In
      June 2007, the Company recorded an accrual of $149,976 for partial
      liquidated damages required by the terms of the registration rights agreements
      in connection with the January 2007 private placement issuances, for
      failure to cause a registration statement to be declared effective by the
      required date.




**Note
      9. Income Taxes**




Effective
      January 1, 2007, the Company adopted the provisions FASB Interpretation 48,
      “Accounting for Uncertainty in Income Taxes - an Interpretation of FASB
      Statement No. 109” (“FIN 48”). This interpretation establishes for all entities
      a minimum threshold for financial statement recognition of the benefit of tax
      positions, and requires certain expanded disclosures. Additionally, FIN 48
      provides guidance on measurement, derecognition, classification, interest and
      penalties, accounting for income taxes in interim periods, as well as the
      required disclosures and transition.




FIN
      48
      prescribes a recognition threshold and a measurement attribute for the financial
      statement recognition and measurement of tax positions taken or expected to
      be
      taken in a tax return. For those benefits to be recognized, a tax position
      must
      be more likely than not to be sustained upon examination by taxing authorities.
      Differences between tax positions taken and or expected to be taken in a tax
      return and the benefit recognized and measured pursuant to the interpretation
      are referred to as “unrecognized benefits”.  A liability is recognized (or
      amount of net operating loss carry forward or amount of tax refundable is
      reduced) for an unrecognized tax benefit because it represents an enterprise’s
      potential future obligation to the taxing authority for a tax position that
      was
      not recognized as a result of applying provisions of FIN 48.





In
      accordance with FIN 48, interest costs related to unrecognized tax benefits
      are
      required to be calculated (if applicable) and would be classified within
“Interest income, net” in the consolidated statements of operations. Penalties
      would be recognized as a component of “Selling, general and administrative
      expenses”. No interest and penalties were recorded during the twelve months
      ended December 31, 2007.





The
      adoption of the provision of FIN 48 did not have a material impact on the
      Company’s consolidated financial position and results of operations. As of
      December 31, 2007, no liability for unrecognized tax benefits was required
      to be
      recorded.





The
      Company’s utilization of the NOL carryforwards is subject to an annual
      limitation due to ownership changes that have occurred previously or that could
      occur in the future as provided in Section 382 of the Internal Revenue Code
      of
      1986, as well as similar state and foreign provisions.  In general, an
      ownership change, as defined by Section 382, results from transactions
      increasing the ownership of certain stockholders or public group in the stock
      of
      a corporation by more than fifty percentage points over a three-year period.
      Since its formation, the Company has raised capital through the issuance of
      capital stock and various convertible instruments which combined with the
      purchasing shareholders’ subsequent disposition of these shares, has resulted in
      an ownership change, as defined by Section 382, and also could result in an
      ownership change in the future upon subsequent disposition.




37





This
      annual limitation is determined by first multiplying the value of the Company’s
      stock at the time of ownership change by the applicable long-term tax exempt
      rate, and could then be subject to additional adjustments, as required. Any
      limitation may result in expiration of a portion of the NOL carryforwards before
      utilization.





In
      assessing the realizability of deferred tax assets, the
      Company has considered whether it is more likely than not that some
      portion or all of the deferred tax assets will not be realized. The ultimate
      realization of deferred tax assets is dependent upon the generation of future
      taxable income during the periods in which those temporary differences become
      deductible. In making this determination, under the applicable financial
      reporting standards, the Company is allowed to consider the scheduled
      reversal of deferred tax liabilities, projected future taxable income, and
      tax
      planning strategies. A full valuation allowance has been recorded for the
      deferred tax asset balance as of December 31, 2007. A valuation allowance will
      be maintained until sufficient positive evidence exists to support the reversal
      of any portion or all of the valuation allowance net of appropriate reserves.
      Should the Company report continuing taxable income in future periods with
      supportable trends, the valuation allowance will be reduced
      accordingly.





At
      December 31, 2007, the Company had a net deferred tax asset totaling
      approximately $2,572,000 primarily due to the federal and state operating
      loss of approximately $6,532,000 for the year ended December 31,
      2007.  A valuation allowance was recorded in 2007 for the full amount
      of this asset due to uncertainty as to the realization of the
      benefit.





The
      net
      operating loss may be applied to future federal taxable income and will expire
      in 2027. The net operating loss may be applied to various future state taxable
      income and will expire beginning in 2012. The Internal Revenue Code contains
      provisions which will limit the net operating loss carryforward available for
      further use if significant changes in ownership interest of the Company occurs.





As
      a
      result of the Company’s significant net operating loss and the corresponding
      valuation allowance, no income tax benefit has been recorded at December 31,
      2007.  The provision for income taxes using the statutory Federal tax
      rate as compared to the Company’s effective tax rate is summarized as
      follows:





**Year
                Ended December 31, 2007**Federal
                statutory rate
            
            
            -34.0
            %State
                taxes
            
            
            -6.0
            %Permanent
                differences
            
            
            7.0
            %Valuation
                allowance
            
            
            33.0
            %Effective
                tax rate
            
            
            0.0
            %





Due
      to
      the Company’s subchapter S tax status prior to January 2007, no income tax
      benefit has been recorded for the year ended December 31, 2006 as all losses
      passed through to the shareholders of the S corporation.




**Note
      10.    Stock Option Plan**




In
      conjunction with the Merger on January 12, 2007, Towerstream reserved
      a total of 3,200,000 shares for the issuance of options and warrants. Also,
      in conjunction with the Merger, the Company adopted the 2007 Equity Compensation
      Plan (the ‘‘2007 Plan’’). The 2007 Plan provides a means for the Company to
      award specific equity-based benefits to officers and other employees,
      consultants and directors, of the Company and its related companies and to
      encourage them to exercise their best efforts to enhance the growth of the
      Company and the related companies. Under the Merger agreement, all options
      and
      certain warrants and their respective rights and obligations that were
      outstanding prior to the Merger were transferred into the 2007 Plan. During
      the
      year ended December 31, 2007, certain employees who had warrants to purchase
      common stock of the Company exchanged them for options under the 2007 plan.
      The
      total number of shares of Common Stock that can be delivered under the 2007
      Plan
      is 2,403,922. As of December 31, 2007, 2,303,231 stock options have been issued
      under the 2007 Plan.




38




On
      May 10, 2007, the Board of Directors issued 135,000 incentive stock
      options to an employee under the 2007 Plan. The options were issued at an
      exercise price of $7.05, the estimated market price of the common stock on
      the
      date of issuance.




On
      June 29, 2007, the Board of Directors issued 135,000 incentive stock
      options to an employee under the 2007 Plan. The options were issued at an
      exercise price of $3.70, the estimated market price of the common stock on
      the
      date of issuance.




On
      May 10, 2007, the Board of Directors approved the adoption of the 2007
      Incentive Stock Plan under which the Company may issue up to an additional
      2,500,000 shares of the Company’s common stock in the form of options or
      restricted stock (the ‘‘2007 Incentive Stock Plan’’). The 2007 Incentive Stock
      Plan was approved by the Company’s stockholders on May 17, 2007. As of
      December 31, 2007, 24,836 stock options have been issued under the 2007
      Incentive Stock Plan.




Options
      granted under both the 2007 Plan and the 2007 Incentive Plan have terms of
      up to
      ten years and are exercisable at a price per share not less than the fair market
      value of the underlying common stock on the date of grant. The total number
      of
      shares of common stock that are available for issuance under both the 2007
      Plan
      and the 2007 Incentive Stock Plan combined is 4,903,922 shares.




Transactions
      under the stock option plans during the years ended December 31, 2007 and
      December 31, 2006 are as follows:





**Number
                  of**
                **Options**
            
            **Weighted
                  Average**
                **Exercise
                  Price**Outstanding
                as of January 1, 2006
            
            
            1,482,840
            
            $
            1.31Granted
                during the year 2006
            
            
            279,958
            
            
            1.43Forfeited
                /expired
            
            
            (258,234
            )
            
            1.60Outstanding
                at December 31, 2006
            
            
            1,504,564
            
            
            1.31Granted
                during the year 2007
            
            
            523,340
            
            
            4.83Warrants
                exchanged for options
            
            
            350,386
            
            
            1.14Exercised
            
            
            (4,672
            )
            
            1.43Forfeited
                /expired
            
            
            (45,551
            )
            
            1.43Outstanding
                as of December 31, 2007
            
            
            2,328,067
            
            $
            2.08




On
      March
      15, 2006, the board of directors canceled 140,862 options granted to employees
      in fiscal 2001 and 2003 at exercise prices of $2.14 per common share and
      reissued these same options to the same employees at exercise prices of $1.43,
      the fair market value at the time of re-issuance. Accordingly, the Company
      expensed $15,770 of stock-based compensation for the year ended December 31,
      2006 to reflect the beneficial transfer.




39




The
      following table summarizes information concerning currently outstanding and
      exercisable stock options as of December 31, 2007:





**Options
                Outstanding**
            
            **Options
                Exercisable****Range
                of Exercise Prices**
            
            **Number
                Outstanding**
            
            **Weighted-Average
                Remaining Contractual Life (years)**
            
            **Weighted-Average
                Exercise Price**
            
            **Intrinsic
                Value**
            
            **Number
                Exercisable**
            
            **Weighted-Average
                Exercise Price**
            
            **Intrinsic
                Value**$0.78
            
            
            280,309
            
            
            5.16
            
            $
            0.78
            
            $
            640,548
            
            
            280,309
            
            $
            0.78
            
            $
            640,548$1.14
            
            
            350,386
            
            
            2.04
            
            $
            1.14
            
            
            676,245
            
            
            350,386
            
            $
            1.14
            
            
            676,245$1.43
            
            
            1,174,032
            
            
            6.61
            
            $
            1.43
            
            
            1,928,936
            
            
            1,080,127
            
            $
            1.43
            
            
            1,774,650$2.00
            
            
            24,836
            
            
            9.92
            
            $
            2.00
            
            
            26,574
            
            
            24,836
            
            $
            2.00
            
            
            26,574$2.25
            
            
            153,504
            
            
            9.03
            
            $
            2.25
            
            
            125,873
            
            
            -
            
            $
            2.25
            
            
            -$3.70
            
            
            135,000
            
            
            9.49
            
            $
            3.70
            
            
            -
            
            
            -
            
            $
            3.70
            
            
            -$7.05
            
            
            135,000
            
            
            9.36
            
            $
            7.05
            
            
            -
            
            
            -
            
            $
            7.05
            
            
            -$9.74
            
            
            75,000
            
            
            9.12
            
            $
            9.74
            
            
            -
            
            
            28,125
            
            $
            9.74
            
            
            -2,328,067
            
            
            6.35
            
            $
            2.08
            
            $
            3,398,176
            
            
            1,763,783
            
            $
            2.08
            
            $
            3,118,017




The
      intrinsic value is calculated as the difference between the closing price of
      the
      Company’s common stock at December 31, 2007, which was $3.07 per share, and the
      exercise price of the options.





**2007**
            
            **2006**Options
                exercisable - End of year
            
            1,763,783
            
            1,249,125Weighted
                average fair value of the options granted during the year
            
            $
            2.89
            
            $
            0.82




The
      options granted to employees in 2007 and 2006 were exercisable at prices ranging
      from $1.43 and $9.74 per common share expiring at various periods through
      December 2017.




**Note
      11.    Stock Warrants**




The
      Company issued warrants to purchase shares of its common stock. The warrants
      were granted to employees and certain non-employees at exercisable prices
      ranging from $0.71 to $6.00 per share expiring at various periods through
      June 2012. During the year ended December 31, 2007, certain employees who
      had warrants to purchase common stock of the Company exchanged them for options
      under the 2007 Plan. Warrants were granted to non-employees in connection with
      certain loan borrowings, debenture issuance and equity private placements.




40




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





**2007**
            
            **2006**Warrants
                outstanding - Beginning of year
            
            
            1,146,462
            
            
            1,199,020Granted
            
            
            4,332,311
            
            
            -Warrants
                exchanged for options
            
            
            (350,386
            )
            
            -Exercised
            
            
            (456,062
            )
            
            -Expired
            
            
            -
            
            
            (52,558
            )Warrants
                outstanding - End of year
            
            
            4,672,325
            
            
            1,146,462Warrants
                exercisable - End of year
            
            
            4,672,325
            
            
            -Weighted
                average fair value of the warrants granted during the year
            
            $
            0.92
            
            
            -Weighted
                average remaining contractual life of the outstanding warrants -
                End of
                year
            
            
            3.87
                years
            
            
            2.20
                years




**Note
      12.    Commitments and Contingencies**




*Lease
      Obligations.* The
      Company maintains several operating leases, includes leases related to roof
      top
      rights, cellular towers and office space, under various non-cancelable
      agreements expiring through December 2019. As of December 31, 2007,
      the total future lease payments are as follows:


**Year
                  Ending December 31,**2008
              
              $
              1,646,9382009
              
              
              1,653,8162010
              
              
              1,544,8272011
              
              
              1,262,9082012
              
              
              1,095,935Thereafter
              
              
              1,602,945$
              8,807,369




Rent
      expense for the year ended December 31, 2007 and 2006 totaled approximately
      $1,276,000 and $862,000, respectively.




On
      August 8, 2007, the Company signed a lease amendment with the existing
      landlord adding approximately 25,000 square feet to its existing office space
      and extending the lease term. The new lease term commenced on
      October 1, 2007 and terminates six years from the date of commencement
      with an option to renew for an additional five-year term. The additional space
      houses an expanded call center facility in Middletown, RI. The Company’s annual
      rent payments under the lease will increase to approximately $527,000 through
      February 2010, approximately $558,000 through May 2012, and
      approximately $590,000 through the end of the lease. The lease amendment
      provides an initial six-month rent-free period on half of the additional 25,000
      square feet. Furthermore, a build-out allowance of $250,000 is provided for
      tenant improvements, in addition to the remaining $53,000 build-out allowance
      previously agreed upon. The security deposit required by the landlord increased
      from approximately $11,000 to approximately $105,000.




*Other
      Commitments and Contingencies.* On
      April 9, 2007 the Company entered into a two-year services agreement
      with a third party monitoring firm to help the Company comply with the
      Communications Assistance for Law Enforcement Act (CALEA), passed in
      October 1994, which requires telecommunications carriers to comply with law
      enforcements’ wiretapping requests. The services agreement calls for an initial
      payment by the Company of $94,000 plus twenty four monthly payments of
      $9,000.




The
      Company has entered into purchase agreements for FCC licenses which include
      contingent future payments. These payments total $375,000 and are cancelable
      upon certain future actions of the FCC.


41





**Note
      13.     Subsequent Events**




On
      January 4, 2008, one of the debenture holders converted $750,000 of their senior
      convertible debenture into common stock. As a result of this conversion, the
      Company issued 272,727 shares of common stock at a conversion price of $2.75
      per
      share.




On
      January 19, 2008, two warrant holders exercised their warrants to purchase
      a
      total of 251,717 shares. These transactions were effected using the net issue
      exercise (or “cashless exercise”) election of the warrant agreements, whereby
      the number of shares issued is calculated by dividing the warrant value on
      the
      exercise date by the average closing and ask prices over the 10-day period
      immediately prior to the exercise date. Accordingly, 184,938 shares were issued
      in exchange for the 251,717 warrants exercised.





**Item
      8. Changes In and Disagreements With Accountants on Accounting and Financial
      Disclosure.**





None.





**Item
      8A (T). Controls and Procedures.**




***Controls
      and Procedures***




We
      carried out an evaluation, under the supervision and with the participation
      of
      our management, including our chief executive officer and interim 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 interim
      chief financial officer concluded that our disclosure controls and procedures
      are effective, as of the year ended December 31, 2007, 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.




***Changes
      in Internal Control over Financial Reporting***




There
      were no changes in our internal control over financial reporting during the
      fourth quarter of the year ended December 31, 2007 that have materially
      affected, or are reasonably likely to materially affect, our internal control
      over financial reporting.




***Management’s
      Annual Report on Internal Control over Financial
      Reporting***




Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting. Internal control over financial reporting
      is
      defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act
      as a process designed by, or under the supervision of, a company’s principal
      executive and principal financial officers and effected by a company’s board of
      directors, management and other personnel 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. Our internal control over financial reporting includes
      those policies and procedures that:




·
            pertain
                to the maintenance of records that, in reasonable detail, accurately
                and
                fairly reflect the transactions and dispositions of our assets;·
            provide
                reasonable assurance that transactions are recorded as necessary
                to permit
                preparation of financial statements in accordance with generally
                accepted
                accounting principles, and that our receipts and expenditures are
                being
                made only in accordance with authorizations of our management and
                directors; and·
            provide
                reasonable assurance regarding prevention or timely detection of
                unauthorized acquisition, use or disposition of our assets that could
                have
                a material effect on the financial statements.




42




Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Projections of any evaluation of effectiveness
      to future periods are subject to the risk that controls may become inadequate
      because of changes in conditions, or that the degree of compliance with the
      policies or procedures may deteriorate.




Our
      management assessed the effectiveness of our internal control over financial
      reporting as of December 31, 2007. In making this assessment, management
      used the criteria set forth by the Committee of Sponsoring Organizations of
      the
      Treadway Commission (COSO) in Internal Control — Integrated Framework.





Based
      on
      our assessment, our management has concluded that, as of December 31, 2007,
      our internal control over financial reporting is effective based on those
      criteria.





This
      annual report does not include an attestation report of our registered
      public accounting firm regarding internal control over financial reporting.
      Management’s report was not subject to attestation by our registered public
      accounting firm pursuant to temporary rules of the Securities and Exchange
      Commission that permit us to provide only management’s report in this
      annual report.





**Item
      8B. Other Information.**





None.




43




**PART
      III**





**Item
      9. Directors, Executive Officers, Promoters, Control Persons and Corporate
      Governance; Compliance With Section 16(a) of the Exchange
      Act.**





The
      information required by this item is incorporated by reference from the
      discussion responsive thereto contained in the Proxy Statement for our 2008
      Annual Meeting of Stockholders to be filed with the Securities and Exchange
      Commission not later than 120 days after the end of the fiscal year covered
      by
      this report.





**Item
      10. Executive Compensation.**





The
      information required by this item is incorporated by reference from the
      discussion responsive thereto contained in the Proxy Statement for our 2008
      Annual Meeting of Stockholders to be filed with the Securities and Exchange
      Commission not later than 120 days after the end of the fiscal year covered
      by
      this report.





**Item
      11. Security Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters.**





The
      information required by this item is incorporated by reference from the
      discussion responsive thereto contained in the Proxy Statement for our 2008
      Annual Meeting of Stockholders to be filed with the Securities and Exchange
      Commission not later than 120 days after the end of the fiscal year covered
      by
      this report.







**Item
      12. Certain Relationships and Related Transactions, and Director Independence.**





The
      information required by this item is incorporated by reference from the
      discussion responsive thereto contained in the Proxy Statement for our 2008
      Annual Meeting of Stockholders to be filed with the Securities and Exchange
      Commission not later than 120 days after the end of the fiscal year covered
      by
      this report.





**Item
      13. Exhibits.**


**Exhibit
                  No.**
              
              **Description**2.1
              
              Agreement
                  of Merger and Plan of Reorganization, dated January 12, 2007, by
                  and among University Girls Calendar, Ltd., Towerstream Acquisition,
                  Inc.
                  and Towerstream Corporation (Incorporated by reference to Exhibit
                  2.1 to
                  the Current Report on Form 8-K of Towerstream Corporation filed with
                  the Securities and Exchange Commission on
                  January 19, 2007).3.1
              
              Certificate
                  of Incorporation of University Girls Calendar, Ltd. (Incorporated
                  by
                  reference to Exhibit 3.1 to the Current Report on Form 8-K of University
                  Girls Calendar, Ltd. filed with the Securities and Exchange Commission
                  on
                  January 5, 2007).3.2
              
              Certificate
                  of Amendment to Certificate of Incorporation of University Girls
                  Calendar,
                  Ltd., changing the Company’s name to Towerstream Corporation (Incorporated
                  by reference to Exhibit 3.3 to the Current Report on Form 8-K of
                  Towerstream Corporation filed with the Securities and Exchange
                  Commission
                  on January 19, 2007).3.3
              
              By-Laws
                  of Towerstream Corporation (Incorporated by reference to Exhibit
                  3.2 to
                  the Current Report on Form 8-K of Towerstream Corporation filed
                  with the
                  Securities and Exchange Commission on
                  January 19, 2007).3.4
              
              Amendment
                  No. 1 to the By-Laws of Towerstream Corporation (Incorporated by
                  reference
                  to Exhibit 3.1 to the Current Report on Form 8-K of Towerstream
                  Corporation filed with the Securities and Exchange Commission on
                  August
                  30, 2007).10.1*
              
              Towerstream
                  Corporation 2007 Equity Compensation Plan (Incorporated by reference
                  to
                  Exhibit 4.1 to the Current Report on Form 8-K of Towerstream Corporation
                  filed with the Securities and Exchange Commission on
                  January 19, 2007).
  44
 
 **Exhibit
                  No.**
              
              **Description**10.2*
              
              Form
                  of 2007 Equity Compensation Plan Incentive Stock Option Agreement
                  (Incorporated by reference to Exhibit 10.18 to the Current Report
                  on Form
                  8-K of Towerstream Corporation filed with the Securities and Exchange
                  Commission on January 19, 2007).10.3*
              
              Form
                  of 2007 Equity Compensation Plan Non-Qualified Stock Option Agreement
                  (Incorporated by reference to Exhibit 10.19 to the Current Report
                  on Form
                  8-K of Towerstream Corporation filed with the Securities and Exchange
                  Commission on January 19, 2007).10.4
              
              Placement
                  Agent Agreement, dated January 5, 2007, by and between
                  Towerstream Corporation and Granite Financial Group, LLC (Incorporated
                  by
                  reference to Exhibit 10.13 to the Current Report on Form 8-K of
                  Towerstream Corporation filed with the Securities and Exchange
                  Commission
                  on January 19, 2007).10.5
              
              Placement
                  Agent Agreement, dated January 4, 2007, by and between
                  Towerstream Corporation and Palladium Capital Advisors, LLC (Incorporated
                  by reference to Exhibit 10.14 to the Current Report on Form 8-K of
                  Towerstream Corporation filed with the Securities and Exchange
                  Commission
                  on January 19, 2007).10.6
              
              Placement
                  Agent Agreement, dated January 8, 2007, by and between
                  Towerstream Corporation and Ardent Advisors, LLC (Incorporated
                  by
                  reference to Exhibit 10.15 to the Current Report on Form 8-K of
                  Towerstream Corporation filed with the Securities and Exchange
                  Commission
                  on January 19, 2007).10.7
              
              Placement
                  Agent Agreement, dated January 3, 2007, by and between
                  Towerstream Corporation and WFG Investments, Inc. (Incorporated
                  by
                  reference to Exhibit 10.16 to the Current Report on Form 8-K of
                  Towerstream Corporation filed with the Securities and Exchange
                  Commission
                  on January 19, 2007).10.8
              
              Stock
                  Purchase Agreement, dated as of January 3, 2007, by and between
                  University Girls Calendar, Ltd. and Paul Pedersen (Incorporated
                  by
                  reference to Exhibit 2.4 to the Current Report on Form 8-K of University
                  Girls Calendar, Ltd. filed with the Securities and Exchange Commission
                  on
                  January 5, 2007).10.9
              
              Form
                  of Directors and Officers Indemnification Agreement (Incorporated
                  by
                  reference to Exhibit 10.17 to the Current Report on Form 8-K of
                  Towerstream Corporation filed with the Securities and Exchange
                  Commission
                  on January 19, 2007).10.10*
              
              Towerstream
                  Corporation 2007 Incentive Stock Plan (incorporated by reference
                  to
                  Exhibit 10.12 to the Registration Statement on Form SB-2 (File
                  No.
                  333-142032) of Towerstream Corporation initially filed with the
                  Securities
                  and Exchange Commission on April 11, 2007).10.11
              
              Form
                  of Placement Agent Agreement for June 2007 Offering (Incorporated
                  by
                  reference to Exhibit 10.10 to the Registration Statement on Form
                  SB-2
                  (333-142032) of Towerstream Corporation filed with the Securities
                  and
                  Exchange Commission on April 11, 2007).10.12
              
              Form
                  of Subscription Agreement (Incorporated by reference to Exhibit
                  10.11 to
                  the Registration Statement on Form SB-2 (333-142032) of Towerstream
                  Corporation filed with the Securities and Exchange Commission on
                  April 11,
                  2007).10.13**
              
              Employment
                Agreement, dated December 21, 2007, between Towerstream Corporation
                and
                Jeffrey M. Thompson (Incorporated by reference to Exhibit 10.1 to
                the
                Current Report on Form 8-K of Towerstream Corporation filed with
                the
                Securities and Exchange Commission on December 31, 2007).21.1
              
              List
                  ofSubsidiaries
                  (Incorporated by reference to Exhibit 21.1 to the Current Report
                  on Form
                  8-K of Towerstream Corporation filed with the Securities and Exchange
                  Commission on January 19, 2007).31.1
              
              Section
                  302 Certification of Principal Executive Officer31.2
              
              Section
                  302 Certification of Principal Financial Officer32.1
              
              Section
                  906 Certification of Principal Executive Officer32.2
              
              Section
                  906 Certification of Principal Financial Officer*
              Management
                compensatory plan**
              Management
                contract




**Item
      14. Principal Accountant Fees and Services.**





The
      information required by this item is incorporated by reference from the
      discussion responsive thereto contained in the Proxy Statement for our 2008
      Annual Meeting of Stockholders to be filed with the Securities and Exchange
      Commission not later than 120 days after the end of the fiscal year covered
      by
      this report.




45




**SIGNATURES**





In
      accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
      this report to be signed on its behalf by the undersigned, thereunto duly
      authorized.


**TOWERSTREAM
              CORPORATION**Date: March
              19, 2008
            By:
            /s/
              Jeffrey M. ThompsonJeffrey
                M. Thompson
                President
                  and Chief Executive Officer(President
              and
              Principal Executive Officer)




In
      accordance with the Exchange Act, this report has been signed below by the
      following persons on behalf of the registrant and in the capacities and on
      the
      dates indicated.





**Name**
            
            **Capacity**
            
            **Date**/s/
              Jeffrey M. ThompsonJeffrey
                M. Thompson
            
            Director
                  and Chief Executive Officer
                  (President
                    and Principal Executive Officer)
            
            March
                19, 2008/s/
              Maria PerryMaria Perry
            
            Interim
                Chief Financial Officer
              (Principal
                Financial Officer and
            
            March
                19, 2008Principal
                Accounting Officer)/s/
              Philip UrsoPhilip Urso
            
            Director
                - Chairman of the Board of Directors
            
            March
                19, 2008/s/
              Howard L. Haronian, M.D.Howard L. Haronian, M.D.
            
            Director
            
            March
                19, 2008/s/
              William J. BushWilliam
              J. Bush
            
            Director
            
            March
                19, 2008/s/
              Paul KoehlerPaul
              Koehler
            
            Director
            
            March
                19, 2008




46




**EXHIBIT
      INDEX**


**Exhibit
                  No.**
              
              **Description**2.1
              
              Agreement
                  of Merger and Plan of Reorganization, dated January 12, 2007, by
                  and among University Girls Calendar, Ltd., Towerstream Acquisition,
                  Inc.
                  and Towerstream Corporation (Incorporated by reference to Exhibit
                  2.1 to
                  the Current Report on Form 8-K of Towerstream Corporation filed with
                  the Securities and Exchange Commission on
                  January 19, 2007).3.1
              
              Certificate
                  of Incorporation of University Girls Calendar, Ltd. (Incorporated
                  by
                  reference to Exhibit 3.1 to the Current Report on Form 8-K of University
                  Girls Calendar, Ltd. filed with the Securities and Exchange Commission
                  on
                  January 5, 2007).3.2
              
              Certificate
                  of Amendment to Certificate of Incorporation of University Girls
                  Calendar,
                  Ltd., changing the Company’s name to Towerstream Corporation (Incorporated
                  by reference to Exhibit 3.3 to the Current Report on Form 8-K of
                  Towerstream Corporation filed with the Securities and Exchange
                  Commission
                  on January 19, 2007).3.3
              
              By-Laws
                  of Towerstream Corporation (Incorporated by reference to Exhibit
                  3.2 to
                  the Current Report on Form 8-K of Towerstream Corporation filed
                  with the
                  Securities and Exchange Commission on
                  January 19, 2007).3.4
              
              Amendment
                  No. 1 to the By-Laws of Towerstream Corporation (Incorporated by
                  reference
                  to Exhibit 3.1 to the Current Report on Form 8-K of Towerstream
                  Corporation filed with the Securities and Exchange Commission on
                  August
                  30, 2007).10.1*
              
              Towerstream
                  Corporation 2007 Equity Compensation Plan (Incorporated by reference
                  to
                  Exhibit 4.1 to the Current Report on Form 8-K of Towerstream Corporation
                  filed with the Securities and Exchange Commission on
                  January 19, 2007).10.2*
              
              Form
                  of 2007 Equity Compensation Plan Incentive Stock Option Agreement
                  (Incorporated by reference to Exhibit 10.18 to the Current Report
                  on Form
                  8-K of Towerstream Corporation filed with the Securities and Exchange
                  Commission on January 19, 2007).10.3*
              
              Form
                  of 2007 Equity Compensation Plan Non-Qualified Stock Option Agreement
                  (Incorporated by reference to Exhibit 10.19 to the Current Report
                  on Form
                  8-K of Towerstream Corporation filed with the Securities and Exchange
                  Commission on January 19, 2007).10.4
              
              Placement
                  Agent Agreement, dated January 5, 2007, by and between
                  Towerstream Corporation and Granite Financial Group, LLC (Incorporated
                  by
                  reference to Exhibit 10.13 to the Current Report on Form 8-K of
                  Towerstream Corporation filed with the Securities and Exchange
                  Commission
                  on January 19, 2007).10.5
              
              Placement
                  Agent Agreement, dated January 4, 2007, by and between
                  Towerstream Corporation and Palladium Capital Advisors, LLC (Incorporated
                  by reference to Exhibit 10.14 to the Current Report on Form 8-K of
                  Towerstream Corporation filed with the Securities and Exchange
                  Commission
                  on January 19, 2007).10.6
              
              Placement
                  Agent Agreement, dated January 8, 2007, by and between
                  Towerstream Corporation and Ardent Advisors, LLC (Incorporated
                  by
                  reference to Exhibit 10.15 to the Current Report on Form 8-K of
                  Towerstream Corporation filed with the Securities and Exchange
                  Commission
                  on January 19, 2007).10.7
              
              Placement
                  Agent Agreement, dated January 3, 2007, by and between
                  Towerstream Corporation and WFG Investments, Inc. (Incorporated
                  by
                  reference to Exhibit 10.16 to the Current Report on Form 8-K of
                  Towerstream Corporation filed with the Securities and Exchange
                  Commission
                  on January 19, 2007).10.8
              
              Stock
                  Purchase Agreement, dated as of January 3, 2007, by and between
                  University Girls Calendar, Ltd. and Paul Pedersen (Incorporated
                  by
                  reference to Exhibit 2.4 to the Current Report on Form 8-K of University
                  Girls Calendar, Ltd. filed with the Securities and Exchange Commission
                  on
                  January 5, 2007).10.9
              
              Form
                  of Directors and Officers Indemnification Agreement (Incorporated
                  by
                  reference to Exhibit 10.17 to the Current Report on Form 8-K of
                  Towerstream Corporation filed with the Securities and Exchange
                  Commission
                  on January 19, 2007).


**Exhibit
                No.**
            
            **Description**


10.10*
            
            Towerstream
                Corporation 2007 Incentive Stock Plan (incorporated by reference
                to
                Exhibit 10.12 to the Registration Statement on Form SB-2 (File No.
                333-142032) of Towerstream Corporation initially filed with the Securities
                and Exchange Commission on April 11, 2007).10.11
            
            Form
                of Placement Agent Agreement for June 2007 Offering (Incorporated
                by
                reference to Exhibit 10.10 to the Registration Statement on Form
                SB-2
                (333-142032) of Towerstream Corporation filed with the Securities
                and
                Exchange Commission on April 11, 2007).10.12
            
            Form
                of Subscription Agreement (Incorporated by reference to Exhibit 10.11
                to
                the Registration Statement on Form SB-2 (333-142032) of Towerstream
                Corporation filed with the Securities and Exchange Commission on
                April 11,
                2007).10.13**
            
            Employment
              Agreement, dated December 21, 2007, between Towerstream Corporation
              and
              Jeffrey M. Thompson (Incorporated by reference to Exhibit 10.1 to the
              Current Report on Form 8-K of Towerstream Corporation filed with the
              Securities and Exchange Commission on December 31, 2007).21.1
            
            List
                ofSubsidiaries
                (Incorporated by reference to Exhibit 21.1 to the Current Report
                on Form
                8-K of Towerstream Corporation filed with the Securities and Exchange
                Commission on January 19, 2007).31.1
            
            Section
                302 Certification of Principal Executive Officer31.2
            
            Section
                302 Certification of Principal Financial Officer32.1
            
            Section
                906 Certification of Principal Executive Officer32.2
            
            Section
                906 Certification of Principal Financial Officer*
            Management
              compensatory plan**
            Management
              contract