**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**FORM 10-K**

**x**                              AnnualReport Pursuant to Section 13 or 15(d) of the Securities Exchange Actof 1934 For the Fiscal Year Ended December 31, 2006

**o**                                 TransitionReport Pursuant to Section 13 or 15(d) of the Securities Exchange Actof 1934 for the transition period from                to                 

**Commission File Number 000-21091**

**FIBERTOWER CORPORATION**

(Exact name of registrantas specified in its charter)

| **Delaware**                       |   | **52-1869023**      |
|------------------------------------|--------|---------------------|
| (State or other  jurisdiction      |   | (I.R.S. Employer    |
| of incorporation or  organization) |   | Identification No.) |

 

**185 Berry Street**

**Suite 4800**

**San Francisco, CA 94107**

(Address of Principalexecutive offices)

**(415) 659-3500**

(Registrant’s telephone number,including area code)

**Securities registered pursuant toSection 12(b) of the Act:**

| Title of each class                | ** ** | **Name of each exchange on which registered:** |
|------------------------------------|------------|------------------------------------------------|
| **Common  stock, par value $0.01** |       | **Nasdaq  Global Market**                      |

 

**Securities registeredpursuant to Section 12(g) of the Act:            None**

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Indicate by check mark if theregistrant is a well-known seasoned issuer, as defined in Rule 405 of theSecurities Act. Yes o   No x.

Indicate by check mark if theregistrant is not required to file reports pursuant to Section 13 orSection 15 (d) of the Securities Act. Yes o   No x.

Indicate by check markwhether the registrant: (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant was requiredto file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  Yes x   No o.

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405of this chapter) is not contained herein, and will not be contained, to thebest of registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K. o

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large acceleratedfiler   o          Acceleratedfiler   x         Non-accelerated filer   o

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2of the Securities Exchange Act of 1934): Yes o  No x.

As of June 30, 2006, theaggregate market value of the voting and non-voting common stock held bynon-affiliates was $235 million based on the closing price of the Company’scommon stock on the Nasdaq Global Market on that day. Shares held by executiveofficers and directors and by each person who owned 5% or more of theoutstanding common stock have been excluded in that such persons may be deemedaffiliates. This determination of affiliate status is not necessarily aconclusive determination for other purposes.

Indicate by check markwhether the registrant has filed all documents and reports required to be filedby Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934subsequent to the distribution of securities under a plan confirmed by a court.Yes  x No o.

The registrant had145,645,643 shares of our common stock outstanding as of February 28,2007.

The following documents to befiled with the Commission are incorporated in Part III hereof byreference:

Portionsof the Registrant’s  proxy statementrelating to its 2007 Annual Shareholders’ Meeting to be filed with theCommission not later than 120 days after the end of the fiscal year covered bythis report.

 

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**FiberTowerCorporationINDEX**
|           | ** ** | ** **                                                                                                         | ** ** | **Page** |
|-----------|------------|--------------------------------------------------------------------------------------------------------------------|------------|----------|
|      |       | PART I.                                                                                                       |       |     |
| Item 1.   |       | Business                                                                                                           |       | 3        |
| Item  1A. |       | Risk Factors                                                                                                       |       | 14       |
| Item 1B.  |       | Unresolved Staff Comments                                                                                          |       | 31       |
| Item 2.   |       | Properties                                                                                                         |       | 31       |
| Item  3.  |       | Legal Proceedings                                                                                                  |       | 32       |
| Item 4.   |       | Submission of Matters to a Vote of Security Holders                                                                |       | 32       |
|      |       | PART II.                                                                                                      |       |     |
| Item 5.   |       | Market for Registrant’s Common Equity, Related  Stockholder Matters and Issuer Purchases of Equity Securities |       | 33       |
| Item  6.  |       | Selected  Financial Data                                                                                           |       | 33       |
| Item 7.   |       | Management’s Discussion and Analysis of Financial  Condition and Results of Operations                        |       | 35       |
| Item 7A.  |       | Quantitative and Qualitative Disclosures about Market  Risk                                                        |       | 47       |
| Item 8.   |       | Financial Statements and Supplementary Data                                                                        |       | 48       |
| Item 9.   |       | Changes in and Disagreements with Accountants on  Accounting and Financial Disclosure                              |       | 76       |
| Item  9A. |       | Controls  and Procedures                                                                                           |       | 76       |
| Item  9B. |       | Other Information                                                                                                  |       | 80       |
| .         |       | PART III.                                                                                                     |       |     |
| Item 10.  |       | Directors, Executive Officers and Corporate Governance                                                             |       | 80       |
| Item 11.  |       | Executive Compensation                                                                                             |       | 80       |
| Item 12.  |       | Security Ownership of Certain Beneficial Owners and  Management and Related Stockholder Matters     |       | 80       |
| Item 13.  |       | Certain Relationships and Related Transactions, and  Director Independence                                         |       | 80       |
| Item 14.  |       | Principal Accountant Fees and Services                                                                             |       | 80       |
|      |       | PART IV.                                                                                                           |       |     |
| Item 15.  |       | Exhibits, Financial Statement Schedules                                                                            |       | 80       |

 

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**PART I.**

**ITEM1.**                BUSINESS

***FORWARD LOOKING***STATEMENTS

This report includes “forward-looking”information, as that term is defined in the Private Securities LitigationReform Act of 1995 or by the Securities and Exchange Commission in its rules,regulations and releases, regarding, among other things, our financial andbusiness prospects, the deployment of our services, capital requirements andfinancing prospects. We caution investors that any such statements are based oncurrently available operational, financial and competitive information, and aresubject to various risks and uncertainties. Actual future results and trendsmay differ materially depending on a variety of factors. Those factors include,among others, those matters disclosed as Risk Factors in Item 1A contained inthis report.

**IntroductoryStatement—The Merger**

On August 29, 2006,First Avenue Networks, Inc. (“First Avenue”) completed its merger (the “Merger”)with FiberTower Network Services Corp. (formerly known as FiberTowerCorporation, and to which we refer in this report as “Old FiberTower”) pursuantto the Agreement and Plan of Merger, dated May 14, 2006, among FirstAvenue, Marlin Acquisition Corporation and Old FiberTower. First Avenue, as thesurviving entity of the Merger, changed its name to FiberTower Corporation andour common stock continues to be listed on the Nasdaq Global Market under thesymbol “FTWR.” (Previously the First Avenue stock traded under the symbol “FRNS”).The Merger brought together the Federal Communications Commission (“FCC”)area-licensed spectrum, of First Avenue with the existing Old FiberTowerpoint-to-point network model and customer contracts, which we believe willenable us to (1) increase customer penetration among the top wireless carriers,(2) lower operational risk associated with building networks, and (3) effectivelydeploy capital. The Merger was accounted for as a “reverse acquisition.” As aresult, all financial information and statements prior to the Merger includedin this report reflect only the financial results of Old FiberTower on ahistorical basis after applying the Merger exchange ratio to historical share-relateddata. All financial information and financial statements subsequent to theMerger include the historical results of operations of Old FiberTower and theresults of operations of First Avenue from the effective date of the Merger.

**The Company**

Our Internet address is *www.fibertower.com*.On the Investor Relations portion of this web site, we make available free of chargeour annual report on Form 10-K, our quarterly reports on Form 10-Q,our current reports on Form 8-K, and any amendments to those reportsas soon as reasonably practicable after they are filed with or furnished to theU.S. Securities and Exchange Commission, or SEC.

First Avenue was incorporated in Delaware in 1993. OldFiberTower was incorporated in Delaware in 2000. We are a leading provider offacilities-based backhaul services to wireless carriers. Backhaul is thetransport of voice, video and data traffic from a wireless carrier’s mobilebase station, or cell site, to their mobile switching center, or MSC, where thetraffic is then switched onto a fixed wireline telecommunications network. Weutilize our comprehensive wireless spectrum assets to provide backhaul servicesthrough a hybrid radio/fiber network architecture. Our services allow wirelesscarriers to optimize their networks, enabling significant improvements in theiravailability, reliability, scalability and cost, while providing a long-termsolution for the increasing demand for backhaul capacity. We secured our firstnational agreement with a major wireless carrier in 2002 and launched ourservices into our first market in Dallas, Texas in April 2003. As of December 31,2006, our business has expanded to include master service agreements with sixof the eight largest U.S. wireless carriers. Through these master serviceagreements 

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and other customeragreements, we are contracted to provide services to nearly 3,400 customerlocations in 12 markets throughout the United States.

We believe that we are the first independent networkprovider in the United States focused specifically on providing backhaulservices to wireless providers. Our spectrum portfolio includes, on average,over 740 MHz in the top 20 U.S. metropolitan areas and, in the aggregate,approximately 1.5 billion channel pops, calculated as the number ofchannels in a given area multiplied by the population, as measured in the 2000census, covered by these channels. We believe our spectrum portfolio representsone of the largest and most comprehensive collections of millimeter wavespectrum in the United States. Our licenses extend over virtually the entireUnited States, and cover a population of over 284 million people.

Our networks are designed to be modular and arerelatively inexpensive to deploy as compared to fixed wireline networks. Thepoint to point fixed wireless networks we presently deploy use mature andproven technologies, allowing us to operate at a level of reliability, referredto as carrier-class, that is appropriate for a telecommunication carrier’snetwork. Our current service offeringsconsist of T-1s (a standardized telecommunications data service offeringat 1.544 Mbps of capacity, also known as DS-1) and other bulk timedivision multiplexing, or TDM, transport at higher capacities. In general, weprovide service between a wireless carrier’s cell site and switch, or otherdrop location. We have designed our network architecture to accommodateadditional transport services that our customers may implement in the future,including, for example, metro Ethernet and other packet-based protocols.

We deploy networks to existing towers, rooftops, orother sites where wireless carriers have deployed cell sites. At each of thesephysical locations, or sites, there may be more than one wireless carrier’scell site—each of which we refer to as a customer location. When possible, weprovide service to multiple customers at a single site, using a sharedinfrastructure in order to increase our capital efficiency. We generate revenuein proportion to the number of customers on a site, the number of T-1sused by each customer at that site, and the price charged for each T-1.This revenue, after subtracting the cost of fiber service transport, isavailable to cover a fixed cost base consisting of items such as rent,insurance, utilities, and field technicians.

As of December 31,2006, we had deployed 1,996 sites and had 1,329 billing sites. As of that date,our network was carrying 6,869 T-1 equivalents for 1,804 customerlocations or an average of 5.2 T-1s per site. Currently, our top 100 andtop 200 sites have an average of 12.7 T-1s and 10.7 T-1s,respectively. For the year ended December 31, 2006, we generated revenueof $13.8 million and had a backlog of nearly 1,600 committed customerlocations. Please see our consolidated financial statements and theaccompanying notes for information regarding our revenues, net losses and totalassets for each of the last three years.

**Industry Overview**

Backhaul, a critical component of a wireless carrier’snetwork, is defined as the transport piece between a cell site and a carrier’smobile switching office. Key factors driving demand for backhaul servicesinclude the nationwide rollout of third generation (3G) networks, the continuedrise in voice and data usage, and expansion of wireless carriers’ geographiccoverage. The recent FCC Advanced Wireless Services, or AWS, auction augmentedthe spectrum portfolios of the major United States wireless carriers, and othersmaller competitors, including Leap Wireless and MetroPCS, which will enableexpansion of wireless data offerings and geographic coverage. The entrance ofnew wireless competitors (e.g., Clearwire Corporation and SpectrumCo LLC)is also expected to increase the total number of active cell sites, and hencefurther increase the demand for backhaul services.

The majority of backhaul traffic in the United Statesis currently transported over a wired infrastructure, typically copper-basedT-1 circuits and in some locations, fiber optic-based facilities.Copper-based networks are extensively deployed today, but, as backhaultraffic demands increase, the 

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existing copper-basedT-1 circuits will approach their capacity limits to transport voice anddata traffic. Currently, fiber optic networks, which have a higher capacity forthe transport of voice and data traffic as compared to copper networks, serviceonly 5% to 7% of existing cell sites. We believe that the cost prohibitivenature of building fiber optic networks to a majority of cell sites willprevent their widespread use as a backhaul alternative.

Fixed wireless backhaulprovides an alternative to traditional wired backhaul infrastructure. Fixedwireless systems are more flexible, less expensive and quicker to deploy thanwired networks, using building or tower mounted antennas placed at strategicpoints in a direct line of sight with one another. Wireless backhaul providers,working in conjunction with telecommunications equipment vendors, have evolvedwireless backhaul technology and equipment, resulting in a proven and maturealternative to wireline backhaul services.

**Company Strengths**

*ScalableFacilities-Based Network Designed for Carrier-Class Applications.**  *Our networks are designed to bemodular, and relatively inexpensive to deploy as compared to fixed wirelinenetworks and have been specifically designed and built to provide high-capacitycarrier-class backhaul transport services to wireless carriers. In contrast,most existing telephone, cable and metropolitan fiber networks are designed toprovide voice and video services to a wide range of customers and are notoptimized for any specific application. In addition, our networks will allowthe provision of additional services, such as metro Ethernet and other packet-basedprotocols.

*ExtensiveOperating Experience Utilizing Proven Technologies.**  *We have a demonstrated expertiseand history in designing, deploying and operating fixed wireless networks tobackhaul wireless traffic. We deployed our first network in Dallas, Texas in April 2003,where we provide wireless backhaul services to multiple wireless carriers.Since that time we have expanded operations to a total of 12 markets. Ournetworks utilize proven and mature technologies, including microwave and fiberoptic equipment from major telecommunications equipment manufacturers, toprovide high reliability services. The technologies we utilize for wirelessbackhaul are deployed extensively in Latin America, Asia and Europe.

*SignificantBacklog with Leading Wireless Carriers.**  *Our customers include severalnational and regional wireless carriers. As of December 31, 2006, we hadentered into master services agreements with Cingular, Leap, Metro PCS, SprintNextel, T-Mobile and Verizon Wireless. Our customer agreements are generally onfive year terms, and the T-1 orders under these agreements typicallyprovide for termination liability. We have firm commitments on nearly 3,400customer locations.

*PremierPortfolio of Spectrum Assets.**  *Our 24 GHz spectrum and 39 GHzspectrum licenses represent what we believe to be the preeminent collection ofmillimeter wave spectrum licenses in the United States for backhaul and similarapplications, providing breadth of geographic coverage, depth in key marketsand complementary technical and propagation characteristics. Our spectrumenables us to use a wide range of radio technologies, includingpoint-to-multipoint technologies—allowing us to achieve wider coverage anddeeper market penetration than would otherwise be economically possible. Our spectrumportfolio includes, on average, over 740 MHz in the top 20 metropolitan areasin the United States and, in the aggregate, approximately 1.5 billionchannel pops. These licenses, which include 754 licenses for 39 GHz spectrumand 103 licenses for 24 GHz spectrum, extend over virtually the entirecontinental United States, covering over 284 million people.

*SignificantRelationship with Leading Tower Companies.**  *Crown Castle International Corp. isa major investor in FiberTower, and currently holds approximately 18% of ouroutstanding stock. American Tower Corporation was also an early investor inFiberTower. We lease communications facilities from both companies and havelimited exclusivity agreements with them, under which they have agreed not tocompete directly with us as a provider of backhaul services and not to investin our competitors in 20 

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FiberTower-designatedmarkets. In the aggregate, Crown Castle and American Tower own approximately35,000 tower and antenna sites.

*Experienced and ProvenSenior Management Team.**  *Our management team includes key personnel who haveheld senior positions at major communications companies including AmeritechCorporation, Flarion Technologies, IDT Spectrum, Nextel, Nortel Networks,Teligent and Winstar Communications.

**Business Strategy**

*LeverageOur Spectrum Assets and Operational Expertise.**  *We seek to leverage our spectrumassets by maximizing utilization of network capacity in current markets,expanding into new geographic markets and exploiting new businessopportunities. We believe that in currently developed markets we can add newsites encompassing multiple customer locations with incremental investments,thereby improving capacity utilization and increasing revenue and operatingcash flow.

*BuildOut Our Markets Based on Identified Demand.**  *We target new markets byidentifying demand from our customers with whom we have signed master serviceagreements, and pre-sell firm commitments as we enter those new markets inorder to decrease capital expenditure lead times and payback periods and increaseour return on investment. In addition to pre-sales, we use our market knowledge(e.g., information on colocation at tower sites and expertise in estimatingdemand and pricing) to determine the sites in a market that we believe have thelargest revenue potential, including sites not pre-sold. We believe that thecombination of this market knowledge along with our ability to pre-sell lowersthe risk of the build-out of new markets. We currently intend to spendapproximately $100 million in capital expenditures in 2007.

*Continueto Develop Innovative Solutions that Meet the Needs of Our Customers.**  *Our goal is to provide solutionswhich simplify the operation of our customers’ networks and reduce theiroperating costs. Our ability to leverage our scalable network and technologyallows us to meet the evolving backhaul needs of our customers quickly and inan efficient, low-cost manner. We will continue to work proactively withour existing customers to assess their service needs and requirements.

*Continueto Improve the Efficiency of Our Network and Reduce Network Expenses.**  *Our networks are designed to bemodular and therefore allow us to build out markets based on demand. Weengineer our networks to serve as many customers as possible while meeting ourinternal return on investment thresholds. We continuously seek ways to reduceour network expenses by utilizing lit and dark fiber, testing and procuring newand more efficient network equipment, and grooming our network to maximizecapacity and efficiency. As we continue to grow our customer base inestablished markets, the fixed cost nature of our network will allow us to addincremental traffic to our sites at a marginal cost.

**Competition**

We compete with a range of diversifiedtelecommunications services providers. Our competition includes:

*Incumbentand Competitive Local Exchange Carriers**  *The mobile wireless backhaulservices market is currently dominated by Incumbent Local Exchange Carriers, (“ILECs”),including AT&T, Verizon, Embarq, and Qwest which provide backhaul servicesprimarily over copper lines. These carriers own significant network assets andoften have affiliated relationships with their mobile wireless carrier customers,such as AT&T’s relationship with Cingular and Verizon’s relationship withVerizon Wireless.

*CableMultiple System Operators (“MSOs”).**  *Cable MSOs, including Cox, TimeWarner Cable and Comcast, among others, have the ability to offer broadbandaccess over their networks and offer or are considering offering backhaulservices.

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*ElectricUtilities.**  *Electricutilities, including PPL Corporation, are offering, or are planning to offer,broadband access over power lines (BPL) which could evolve into a competitivebackhaul service alternative.

*FiberService Providers.**  *Fiberservices providers, including Level 3 and Time Warner Telecom are moving aggressivelyto provide direct fiber optic links to cell towers.

*EmergingCompetition.**  *Satelliteproviders that use spectrum suitable for high-bandwidth transport servicescould emerge as competitors.

*OtherFixed Wireless Providers.**  *In addition to us, a number of companies, some ofwhich have significant spectrum assets, have launched, or are considering,launching fixed wireless backhaul networks including NextLink (a subsidiary ofXO Holdings), TowerLinks Networks, Telecom Transport Management Inc., andIDT Spectrum (a subsidiary of IDT Corporation).

Our primary competition are the ILECs who provide over90% of the backhaul services purchased today. FiberTower competes with theILECs and others by providing service at a discount to the market pricetypically charged by the ILEC. In addition, we offer a provisioning schedulewhich is generally much quicker than our competitors, and at a minimum, meetservice reliability requirements of our customers and oftentimes improves uponservices currently provided by our competition.

**Our Network**

We launched service in Dallas, Texas in April 2003,where we provided wireless backhaul services to Cingular (formerly known asAT&T Wireless). Since that time, we have expanded operations to a total of12 markets. The networks we deploy and operate utilize point-to-point, or PTP,Digital Radio Links, or DRL, over the 11 GHz, 18 GHz and 23 GHzmicrowave radio spectrum licensed to us on a site-by-site basis by the FCC. Ourspectrum portfolio includes 754 licenses for 39 GHz spectrum and 103 licensesfor 24 GHz spectrum and extends over virtually the entire United States,covering over 284 million people. We hold in excess of 750 100 MHzlicenses for spectrum between 38.6 GHz and 40 GHz, or 39 GHz spectrum. Wehave one of the largest and most comprehensive FCC-granted millimeter wave spectrumlicense portfolios in the United States including, on average, over 740 MHz inthe top 20 metropolitan areas. In the aggregate, our licenses representapproximately 1.5 billion channel pops.

Using our licensed radio spectrum, we transport voice,video and data traffic from wireless carrier base stations to aggregationsites, known as a Fiber Exchange Points, or FEPs. The aggregated trafficstreams are converted at the FEP sites for delivery to MSCs, or other drop-offlocations over fiber optic networks.

Multiple FEP sites, strategically positionedthroughout our markets, support carrier traffic grooming, aggregation andsignal handoff to fixed network fiber optic facilities for transport to carrierMSCs or other drop-off points. These fiber facilities are typicallyprovided in the form of lit transport services by national or regional fiberservice providers, or FSPs.

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In certain cases, we obtain the right to use darkfiber where technically and economically attractive. FiberTower currently hasequipment in place at FEP sites which can be modified to utilize dark fiber fora relatively small incremental cost. This enables us to reap significant costsavings, increase operating leverage and enhance control and reliability overtransmissions to carrier MSCs or other drop-off locations.

We enter into leases at cell sites and FEPs, whichprovide space to place our equipment on the tower or other structure as well asground space for an equipment cabinet. We also generally obtain rights fromcustomers to place similar equipment in their MSC or other drop location and,in certain circumstances, to place equipment in their space at a cell site.

We purchase equipment from major telecommunicationsequipment manufacturers and typically maintain multiple vendors for criticaltypes of network equipment in order to ensure availability and reliability ofsupply. We have designed our network to use equipment that is widely availablein high volume and deployed in large scale worldwide.

Advances in technology and increased competition amongmanufacturers have led to the development of new network equipment, such asantennas, which are less costly, more compact and capable of supporting highertransmission capacities. This has led to several economic and operationalbenefits for us including lower rent expense, reduced structural analysis costsand deployment lead times, increased flexibility in equipment placement, andzoning fee reductions.

We manage the deployment of our networks using bothinternal resources as well as national and regional telecommunicationscontractors. In mature markets, our own local team may lead market expansionprojects or direct local telecommunications contractors. For new markets wherewe do not yet have an established presence, we typically engage a majortelecommunications deployment partner to manage the network deployment.

We manage and monitor our networks on a 24 hourper day, seven day per week basis from our NOCs (“Network Operating Center”).We operate a primary NOC in San Francisco, California, with a back-up system inDallas, Texas and monitoring capabilities in Pittsburgh, Pennsylvania. Throughour scalable backoffice systems and business processes, we enable customers tohave visibility across the network and to access an integrated suite ofmanagement tools that provides insight into network status and repairactivities. Our online reporting applications and processes enable increasedservice quality as they allow for immediate analysis of network faults and as aresult, minimize repair times and outage minutes per T-1.

The following tablesummarizes our license holdings and total channel pops in the 50 largest U.S.markets.

**License Holdings and Channel Pops in All Markets**

| **Basic Economic Area** | ** ** | ** ** | ** ** | **24 GHz SMSA   Licensed   Channels(1)** | ** ** | **39 GHz BEA   Licensed   Channels(2)** | ** ** | **Total   Channel   Pops(3)** | ** ** |
|-----------------------------------|------------|------------|------------|----------------------------------------------------|------------|---------------------------------------------------|------------|-------------------------------|------------|
| New York, NY                      |       |       | 5          |                                               |       |                                              | 4          |                          |       |   | 115.9 |   |   |
| Los Angeles, CA                   |       |       | 5          |                                               |       |                                              | 4          |                          |       |   | 115.8 |   |   |
| Chicago, IL                       |       |       | 5          |                                               |       |                                              | 3          |                          |       |   | 71.1 |   |   |
| Washington,  DC/Baltimore, MD     |       |       | 5          |                                               |       |                                              | 3          |                          |       |   | 62.1 |   |   |
| San Francisco, CA                 |       |       | 5          |                                               |       |                                              | 4          |                          |       |   | 55.1 |   |   |
| Detroit, MI                       |       |       | 5          |                                               |       |                                              | 5          |                          |       |   | 54.5 |   |   |
| Philadelphia, PA                  |       |       | 4          |                                               |       |                                              | 4          |                          |       |   | 49.5 |   |   |

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| Dallas, TX                                       |       |       | 5       |       |       |       | 3       |       |       |       | 48.5        |       |       |
|--------------------------------------------------|------------|------------|---------|------------|------------|------------|---------|------------|------------|------------|-------------|------------|------------|
| Houston, TX                                      |       |       | 5       |       |       |       | 3       |       |       |       | 43.1        |       |       |
| Atlanta, GA                                      |       |       | 5       |       |       |       | 3       |       |       |       | 38.8        |       |       |
| Boston, MA                                       |       |       | 5       |       |       |       | 3       |       |       |       | 35.4        |       |       |
| Miami, FL                                        |       |       | 5       |       |       |       | 3       |       |       |       | 29.2        |       |       |
| Seattle, WA                                      |       |       | 5       |       |       |       | 3       |       |       |       | 26.6        |       |       |
| Minneapolis, MN                                  |       |       | 5       |       |       |       | 2       |       |       |       | 25.8        |       |       |
| Phoenix, AZ                                      |       |       | 5       |       |       |       | 2       |       |       |       | 25.3        |       |       |
| Cleveland, OH                                    |       |       | 5       |       |       |       | 4       |       |       |       | 25.1        |       |       |
| Pittsburgh, PA                                   |       |       | 4       |       |       |       | 5       |       |       |       | 24.5        |       |       |
| St. Louis, MO                                    |       |       | 5       |       |       |       | 3       |       |       |       | 23.2        |       |       |
| San Diego, CA                                    |       |       | 4       |       |       |       | 2       |       |       |       | 22.9        |       |       |
| Tampa, FL                                        |       |       | 5       |       |       |       | 2       |       |       |       | 18.9        |       |       |
| Portland, OR                                     |       |       | 4       |       |       |       | 4       |       |       |       | 18.6        |       |       |
| Indianapolis, IN                                 |       |       | 4       |       |       |       | 4       |       |       |       | 17.9        |       |       |
| Denver, CO                                       |       |       | 2       |       |       |       | 3       |       |       |       | 17.4        |       |       |
| San Antonio, TX                                  |       |       | 4       |       |       |       | 4       |       |       |       | 16.4        |       |       |
| Kansas City, MO                                  |       |       | 4       |       |       |       | 4       |       |       |       | 15.9        |       |       |
| Orlando, FL                                      |       |       | 1       |       |       |       | 4       |       |       |       | 14.6        |       |       |
| Puerto Rico                                      |       |       | 0       |       |       |       | 1       |       |       |       | 14.4        |       |       |
| Sacramento, CA                                   |       |       | 4       |       |       |       | 2       |       |       |       | 13.0        |       |       |
| Milwaukee, WI                                    |       |       | 4       |       |       |       | 3       |       |       |       | 12.8        |       |       |
| Columbus, OH                                     |       |       | 2       |       |       |       | 4       |       |       |       | 12.1        |       |       |
| Cincinnati, OH                                   |       |       | 3       |       |       |       | 3       |       |       |       | 11.9        |       |       |
| Salt Lake City, UT                               |       |       | 1       |       |       |       | 3       |       |       |       | 11.5        |       |       |
| Raleigh, NC                                      |       |       | 1       |       |       |       | 6       |       |       |       | 11.5        |       |       |
| Nashville, TN                                    |       |       | 1       |       |       |       | 4       |       |       |       | 10.7        |       |       |
| New Orleans, LA                                  |       |       | 1       |       |       |       | 5       |       |       |       | 9.9         |       |       |
| Oklahoma City, OK                                |       |       | 1       |       |       |       | 5       |       |       |       | 9.5         |       |       |
| Greenville, SC                                   |       |       | 1       |       |       |       | 3       |       |       |       | 9.1         |       |       |
| Charlotte, NC                                    |       |       | 1       |       |       |       | 4       |       |       |       | 9.0         |       |       |
| Rochester, NY                                    |       |       | 1       |       |       |       | 5       |       |       |       | 8.5         |       |       |
| Albany, NY                                       |       |       | 1       |       |       |       | 5       |       |       |       | 8.4         |       |       |
| Syracuse, NY                                     |       |       | 1       |       |       |       | 4       |       |       |       | 8.3         |       |       |
| Jacksonville, FL                                 |       |       | 1       |       |       |       | 4       |       |       |       | 8.1         |       |       |
| Austin, TX                                       |       |       | 1       |       |       |       | 5       |       |       |       | 7.8         |       |       |
| Las Vegas, NV                                    |       |       | 1       |       |       |       | 2       |       |       |       | 7.5         |       |       |
| Grand Rapids, MI                                 |       |       | 0       |       |       |       | 4       |       |       |       | 7.5         |       |       |
| Memphis, TN                                      |       |       | 1       |       |       |       | 3       |       |       |       | 6.8         |       |       |
| Louisville, KY                                   |       |       | 1       |       |       |       | 4       |       |       |       | 6.7         |       |       |
| Norfolk, VA                                      |       |       | 2       |       |       |       | 3       |       |       |       | 6.7         |       |       |
| Buffalo, NY                                      |       |       | 1       |       |       |       | 4       |       |       |       | 6.6         |       |       |
| Birmingham, AL                                   |       |       | 1       |       |       |       | 3       |       |       |       | 5.7         |       |       |
| Total Top 50  Markets                            |       |       | 148     |       |       |       | 177     |       |       |       | 1,236.1     |       |       |
| **Grand Total All Markets and  Legacy Licenses** | ** ** | ** ** | **179** | ** ** | ** ** | ** ** | **753** | ** ** | ** ** | ** ** | **1,509.7** | ** ** | ** ** |

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(1)           SMSA licenses represent those licenses granted by theFCC that encompass Statistical Metropolitan Service Areas. Each channelrepresents 80 MHz.

(2)           BEA licenses represent only those licenses granted bythe FCC that encompass Economic Areas. FiberTower holds additional licensesthat represent areas that overlap Basic Economic Areas and have differentregulatory characteristics. These licenses are referred to as “legacy”licenses. Each channel represents 100 MHz.

(3)           Total channel pops shown in millions of pops per BasicEconomic Area (based on 2000 census data).

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**Product andServices**

As of December 31,2006, we offered backhaul services to major wireless carriers in 12 marketsacross 3 geographic regions in the United States. In addition, we have begun todevelop two additional markets in Atlanta, Georgia and the Carolinas.

**Current Markets Served**

| **South Region**         | ** ** | **Midwest Region** | ** ** | **Northeast Region**                       |
|--------------------------|------------|--------------------|------------|--------------------------------------------|
| Dallas/Fort Worth        |       | Detroit            |       | Boston                                     |
| San  Antonio/Austin/Waco |       | Pittsburgh         |       | New York/New Jersey                        |
| Houston                  |       | Cleveland          |       | Washington DC/N. Virginia/S. Maryland |
| Denver                   |       | Chicago            |       |                                       |
| West Florida             |       |               |       |                                       |

 

Backhaul bridges the distance between cell sites andthe landline fiber optic infrastructure. Our service provides this linkwirelessly using PTP connections linked together to form a network capableof connecting customer sites to a FEP with access to wireline fiber opticnetworks for further connection to the carrier’s MSC.

We sell these servicesdirectly to wireless carriers, generally under multi-year service contracts. Weprovide service in increments of T-1s and can provide bulk capacityservices (e.g., 8 T-1s, 12 T-1s). Our connections are designed tosupport all voice, video and data applications and all air interfacetechnologies currently required or requested in the future by our customers.

**Sales andMarketing**

Our national sales organization includes direct salesgroups focused on two types of customers: national carriers and regionalcarriers. National carriers typically have presence in all or most of ourdeployed markets whereas regional carriers usually have presence in a subset ofour markets.

Our sales organization also includes a salesoperations function that provides sales engineering, research, proposaldevelopment and customer development support. The extended sales team iscomprised of field personnel who develop local customer relationships, workingclosely with sales teams on customer communications and programs.

Our marketing organization focuses on a range ofintegrated pricing, product development and market analytics, including siteselection, market selection, market demand forecasting, new market survey andattributes research, custom database development and pricing.

Our customers are nationaland regional wireless carriers. We have entered into master services agreementswith Cingular, Leap, Metro PCS, Sprint Nextel, T-Mobile and Verizon Wireless.

**REGULATORYENVIRONMENT**

**GovernmentRegulation**

Our wireless broadbandservices are subject to regulation by the FCC, and we may be subject toregulation by state and local governmental agencies. At the federal level, theFCC has jurisdiction over the use of the electromagnetic spectrum (*i.e.*, wireless transmissions) and hasexclusive jurisdiction over all interstate telecommunications services (thosethat originate in one state and terminate in another state.) State regulatorycommissions have jurisdiction over intrastate communications (those thatoriginate and terminate in the same state). Municipalities may regulate limitedaspects of our business by, for example, imposing zoning requirements andrequiring installation permits. The regulations of these agencies are 

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continuallyevolving through rulemakings and other administrative and judicial proceedings,and there is no guarantee that in the future regulatory changes will not havean adverse effect on our business. In addition, Congress regularly considerslegislation that, if enacted, may impact the communications sector. As aregulated entity, we may face additional obligations and costs in connectionwith such legislation.

**Federal Regulation**

*FCCLicensing.**  *Asan FCC licensee and FCC regulated entity, we are subject to comprehensiveregulatory oversight, including regulations constraining ownership of us, rules governingour licenses and radio equipment, and rules related to construction andoperation of our services. In addition, we are subject to certain regulatoryand other fees levied by the FCC for certain classes of licenses and services.Under certain circumstances, including certain violations of FCC rules, ourlicenses may be revoked, canceled or conditioned, or we may be fined. Amongother things, the Communications Act of 1934, as amended, and the FCC rules andregulations impose requirements on radio licensees and carriers that includeregulations on the ownership, operation, acquisition and sale of the broadbandoperating radio systems that are needed to provide the services we offer.

*Wide-arealicensing.**  *Wehold wide-area licenses in the 24.25-24.45 GHz and 25.05-25.25 GHz(24 GHz) and 38.6-40.0 GHz (39 GHz) bands. The operational rules generallyprovide significant flexibility to licensees operating in both the 24 GHz and39 GHz bands. For example, licensees are permitted to offer point-to-multipointand point-to-point services, and, at least in the 39 GHz band, will bepermitted to provide mobile services upon adoption of inter-licenseecoordination policies.

*Point-to-pointlicensing.**  *Inaddition to our 24 GHz and 39 GHz licenses, we also provide transmission linksutilizing licensed spectrum granted by the FCC in other bands, including 6 GHz,10 GHz, 11 GHz, 18 GHz and 23 GHz bands. Unlike the 24 and 39 GHz wide-arealicenses, the FCC grants specific fixed wireless point-to-point links in thesebands. The licensee may only operate from the exact geographic coordinatesidentified on the license. Any changes that require operation at anothercoordinate require either a license modification or a new license. The FCCgenerally processes such applications for point-to-point microwave license on aroutine basis.

*LicenseRenewal.**  *Ourwide-area 39 GHz and 24 GHz licenses are granted for initial ten-year termswith renewal dates ranging from 2007 to 2014. To renew our licenses, we mustdemonstrate that at the time of renewal we have provided “substantial service,”as determined by the FCC. The “substantial service” requirement also applies toconstruction of the licensed frequencies. According to the FCC’s regulations,failure to construct the frequencies within the license term leads to automaticforfeiture of the license. While it is clear that the FCC’s use of the “substantialservice” concept for license construction and renewal was intended to affordlicensees’ additional security that their licenses would be renewed, the FCChas not had any significant occasion to construe the requirement.

For the 39 GHz and 24 GHzbands, the FCC intended that the substantial service test would providelicensees some flexibility in demonstrating usage of their spectrum. The FCChas adopted a “safe harbor” test so that licensees have some certainty in howto meet the substantial service test. For example, for 39 GHz licenseesoffering point-to-point service, the FCC has said that the construction of fourlinks per channel per million persons in the license area will meet thesubstantial service test. For 24 GHz point-to-point/multipoint licensees theFCC has said that a showing of four links per million persons within a servicearea or service to an area that has very limited access to either wireless orwireline telecommunications services will meet the substantial service test.While the safe harbors are intended to provide guidance, it is not the only wayfor licensees to demonstrate substantial service. Licensees may show that theyhave met the substantial service test in other ways, such as providing nicheservices or offering service to underserved consumers; however, there is littleprecedent in this area at this time. Accordingly, we believe that the level ofservice that will be considered “substantial” by the FCC at 

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renewalmay vary depending upon our type of product offering. We do not currently meetthe substantial service safe harbor guidance provided by the FCC for thesubstantial majority of our 24 and 39 GHz licenses, but believe that ourlicenses will be renewed based on our significant network investment andexpanding geographic coverage. However, since we are required to demonstratesubstantial service at the time the licenses are renewed, the FCC could chooseto revoke licenses that do not meet the substantial service safe harbor. Thesubstantial majority of the licenses are not up for renewal until 2010 to 2011.

The point-to-pointlicenses that we possess also have a ten year term and, as long as thepoint-to-point link remains operational, may be renewed by paying a minimallicense renewal fee.

*License Expiration Extension Waiver.*

On October 6, 2006,we filed a request with the FCC seeking to have the terms and constructionrequirements of 214 “rectangular service area” 39 GHz band licenses extended.All of these licenses are scheduled for renewal within the next year. Theyrepresent approximately 15% of our total wide-area license holdings channelpops. We have asked the FCC to grant waivers to extend the licenses and waivethe requirement that we demonstrate that we have provided substantial serviceat renewal until October 18, 2010, at which time other similar licenses wehold will be due for renewal. Our request is predicated upon the favorablechanges in demand and technology since the earlier failures to commercializethe 39 GHz band, the efficiency of focusing on renewing our similarly situatedwide-area licenses at the same time, and on the additional scale and scopeavailable to FiberTower as a result of the Merger. On January 31, 2007 the FCCacted upon our request providing a blanket 6 month extension until August 1,2007 to complete construction for all the licenses with expiration datesbetween November 15, 2006 and June 9, 2007 (162 licenses). Theremaining 52 licenses possess expiration and build-out dates that occur after August 1,2007.

*Spectrum Leasing.**  *The FCC has also adoptedregulations permitting certain classes of licensees, such as 24 GHz and 39 GHzlicensees, to lease a portion, or all, of their spectrum to third parties. Werefer to those regulations as the Secondary Market Ruling. The FCC’s spectrumleasing rules are generally designed to promote a secondary market forspectrum and provide a number of options for leasing depending upon the degreeof control that the lessee desires to be afforded. Since the ruling, we believethat the transaction costs associated with meeting FCC documentationrequirements for any kind of spectrum leasing have decreased from over $20,000per lease to a negligible amount. While generally beneficial to licensees, theFCC’s leasing rules may introduce additional competition to the types ofservices and products that we offer. Moreover, the FCC spectrum leasing rules couldbe modified in a manner that is not favorable to our business.

*Band Sharing.**  *Licenses in the 39 GHz band aresubject to an arrangement between the FCC and the Department of Industry ofCanada regarding sharing between broadband wireless systems along the U.S.-Canadaborder. Additionally, this band is subject to satellite power flux densitylimits which might limit our ability to provide service in certain conditionsif certain satellite systems receive the right to operate.

*Auctions.**  *Since 1994, the FCC has conductedauctions of licenses for spectrum. In July 2004, the FCC auctioned seven80 MHz licenses for 24 GHz spectrum in 176 Basic Economic Areas (BEA, or BEAs)covering the entire United States. As discussed below, the purchaser’s use ofthe spectrum was limited to areas outside our 24 GHz spectrum holdings. Since weheld the most populous areas in many of the BEAs, the purchaser would be barredfrom operating in the metropolitan sections with arguably the most businesspotential. In the auction only seven licenses covering 12.8 million popswere purchased, including one by us.

Our 24 GHz licensesare for geographic areas known as SMSAs (Standard Metropolitan Statistical Area)and were originally awarded to Teligent a company from who we acquired thelicenses in 2005, as replacement spectrum due to rebanding in the 18 GHz band.Importantly, new licensees in the 24 GHz 

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band,who may be authorized for service areas larger than the SMSAs, must protectoperations conducted under our authorizations in order to not interfere withour business.

The availability of morespectrum in the 24 GHz or 39 GHz band could increase the number of entitieswith which we compete. In the future, the FCC could decide to hold another 24GHz auction. The FCC still controls a substantial amount of 39 GHz spectrum.The FCC could auction this spectrum in the future, increasing the number ofentities that hold this spectrum. Additionally, in a pending proceeding, theFCC is considering the allocation and licensing by auction of additionalspectrum in the 37-38.6 GHz range. In the future, the FCC could makeavailable additional spectrum between 10 and 40 GHz.

*SafeView’s SafeScoutInterference Issues.**  *OnSeptember 5, 2006, we filed with the FCC a Petition for Reconsideration ofthe FCC’s August 4, 2006 Order granting a waiver to SafeView, Inc. topermit the certification, marketing, and operation of SafeView’s SafeScoutimaging device under Part 15 of the FCC’s Rules. The SafeScout is a devicethat uses imaging technology to detect contraband or weapons carried byindividuals, and would be particularly useful in airports. The FCC noted that,by operating as a Part 15 unlicensed device, the SafeScout must acceptharmful interference and not cause interference to primary licensees. Inaddition, the FCC imposed certain conditions on SafeView’s operation of theSafeScout, including limiting installations to indoor areas and maintaining adatabase of installed devices. Despite these steps, however, we believe thatprimary licensees in the 24 GHz band deserve more precise tools for managingpotential harmful interference issues, especially in and around airports, wheremicrowave services such as those provided by us are used by airport authoritiesand others. We filed a petition for reconsideration on September 5, 2006.Our petition has been supported in reply comments filed by the Fixed WirelessCommunications Coalition. The petition remains pending before the FCC, and inthe event that the FCC does not act on our petition, we face some risk of interferencewhen operating near the SafeScout.

*Policies and Service Rules forthe Broadcasting-Satellite Service.**  *In June 2006, the FCC releaseda further Notice of Proposed Rulemaking specifically seeking to promote promptcommencement of the 17/24 GHz Broadcasting Satellite Service, or BSS, which isintended to introduce a new generation of broadband services to residential andbusiness subscribers in the United States. The proposed BSS use includesground-to-satellite uplinks in spectrum that overlaps with part of the 24 GHzspectrum for which we are licensed. In the proceeding, the FCC seeks comment on(1) whether the existing power limits for satellite earth stations inbands shared co-equally with terrestrial radio communications services areappropriate, and (2) whether the antenna pattern requirements applicableto BSS feeder-link stations should be modified to relieve the coordinationburden on either BSS or 24 GHz or both services. We filed comments on October 16,2006 and reply comments on November 15, 2006 concerning the technicalrequirements for inter-service operations and sharing in the 24 GHz banddesigned to assure that interference concerns are minimized or eliminated.

*Unbundled NetworkElements.**  *Asof  March 11, 2006, incumbent localexchange carriers, or ILECs, are no longer required to lease certain parts oftheir network at favorable costs to their competitors. Instead, CompetitiveLocal Exchange Carriers, or CLECs, and others that had been using theseunbundled network elements from the ILECs must obtain them from other sourcesor negotiate new supply arrangements with ILECs. This ruling affected massmarket local switching and, in many circumstances, DS-1 and DS-3local access and transport. Nonethless, in the FCC’s recent approval of theAT&T/BellSouth merger, the FCC conditioned their approval upon the mergedcompany continuing to provide certain unbundled network elements at currentrates for a period of time to our competitors. It also required certain ILECsto offer similar prices in their areas to competitors to obtain those ratesfrom AT&T. We expect that there may be some instances when competitivecarriers will seek alternative (non-ILEC) services, and we hope to serve thosecarriers with broadband, fixed wireless transport solutions.

*Private Carriage.**  *Although there has been a narrowingof the differences in regulatory requirements applicable to common carriers andprivate transmission companies in recent years, the FCC regulations 

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applicable tocommon carriers remains more extensive. Generally, the Communications Actregards firms that offer transmission services directly to the public for a feeas common carriers. We currently offer our fixed wireless services toparticular customers with specific needs on an individual contract basis. We donot hold ourselves out to the public for the provision of our services. Assuch, we believe we operate as a private carrier and are not subject to the FCC’scommon carrier regulations. Nonetheless, the FCC could determine that we areoperating as a common carrier, and as a result, determine that we are subjectto our common carrier rules and regulations which would likely increaseour costs of providing service and could have an adverse impact on our businessoperations, revenues, and profitability.

**State Regulation**

Our services arenon-switched wireless transmission links that we offer on a private, ratherthan on a common carrier basis. However, if one or more states determines thatwe are providing intrastate, common carrier service, we would be subject tostate regulation in those states. Regulations vary in each state, but if we aredeemed to be providing intrastate service, we may be required to apply for andmaintain Certificates of Public Convenience and Necessity in some or all of thestates in which we have operations. We also may be required to fulfill otherstate requirements, such as file tariffs, reports and contribute to stateuniversal service funds, among other things.

**Employees**

As of December 31,2006, we had 219 employees, of whom 25 were in Sales and Marketing; 137 were inEngineering, Market/Field Operations, and Network Operations; and 57 were inGeneral and Administrative.

None of our employees arerepresented by a collective bargaining agreement. We believe our relations withour employees are good and that our continued success will depend, in part, onour ability to attract and retain highly qualified and motivated employees andon maintaining positive working relations with current employees.

**ITEM 1A.   RISK FACTORS**

*While the following are the risks and uncertainties webelieve are most important for you to consider, you should know that they arenot the only risks or uncertainties facing us or that may adversely affect ourbusiness. If any of these risks or uncertainties actually occurs, our business,operating results or financial condition may be materially adversely affected.Additional risks and uncertainties not presently known to us or that are notcurrently believed to be important to you also may adversely affect ourcompany.*

**Risks Relating to Our Industry and Business**

*We maynot realize the anticipated benefits of the Merger due to challenges associatedwith integrating the companies or other factors.*

The success of the Mergerwill depend in part on the success of our management in integrating theoperations, technologies and personnel of First Avenue and Old FiberTower. Ourinability to meet the challenges involved in successfully integrating theoperations of these companies or otherwise to realize any of the anticipatedbenefits of the Merger could seriously harm our results of operations. Inaddition, the overall integration of the two companies may result inunanticipated operations problems, expenses, liabilities and diversion ofmanagement’s attention. The challenges involved in integration include:

·       integratingthe two companies’ operations, technologies, products and services;

·       coordinatingand integrating sales and marketing and research and development functions;

·       demonstratingto our customers that the Merger will not result in adverse changes in businessfocus;

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·       assimilatingthe personnel of both companies and integrating the business cultures of bothcompanies;

·       integratingthe two companies’ accounting systems;

·       consolidatingcorporate and administrative infrastructures and eliminating duplicativeoperations; and

·       maintainingemployee morale and motivation.

We may not be able tosuccessfully integrate these operations in a timely manner, or at all, and wemay not realize the anticipated benefits of the Merger, including potentialsynergies or sales or growth opportunities, to the extent or in the time frameanticipated. The anticipated benefits and synergies of the Merger are based onassumptions and current expectations, not actual experience, and assume asuccessful integration. In addition to the potential integration challengesdiscussed above, our ability to realize the benefits and synergies of thebusiness combination could be adversely impacted to the extent that ourhistorical relationships with existing or potential customers, suppliers orstrategic partners are adversely affected as a consequence of the Merger, or bypractical or legal constraints on our ability to combine operations.

*Chargesto earnings resulting from the application of the purchase method of accountingmay adversely affect the market value of our common stock.*

In accordance with UnitedStates generally accepted accounting principles, we have accounted for theMerger as a reverse acquisition of First Avenue using the purchase method ofaccounting, which may result in charges to earnings that could have a materialadverse effect on the market value of our common stock. Under the purchasemethod of accounting, we have allocated the total purchase price to FirstAvenue’s net tangible and identifiable intangible assets based on their fairvalues as of the date of completion of the Merger, and have recorded the excessof the purchase price over those fair values as goodwill. We will incuramortization expense over the useful lives of amortizable intangible assetsacquired in connection with the Merger. In addition, to the extent the value ofgoodwill or other intangible assets becomes impaired, we may be required toincur material charges relating to the impairment of those assets. Theseamortization and potential impairment charges could have a material impact onour results of operations.

*For U.S.federal income tax purposes, there is a significant risk that we will not beable to deduct the interest on the Notes. We may be limited in our ability touse some or all of the First Avenue’s and Old FiberTower’s net operating lossesfor U.S. federal income tax purposes, which may increase our tax liability infuture years.*

There is a significantrisk that the interest on the Notes will not be deductible for U.S federalincome tax purposes. In addition, changes in the ownership of First Avenue as aresult of the Merger may cause there to be an annual limitation on FiberTowers’use of First Avenue’s net operating loss carryforwards that arose prior to theMerger. Such limitation would be imposed in addition to any annual limitationson the use of such net operational losses that resulted from prior ownershipchanges. Similarly, changes in the ownership of Old FiberTower as a result ofthe Merger may cause there to be an annual limitation on the use of its netoperating loss carryforwards that arose prior to the Merger. Such limitationalso would be imposed in addition to any annual limitations that arose fromprior ownership changes of Old FiberTower. Since we do not currently generatetaxable income and therefore cannot currently make use of any of our netoperating losses, we have not yet performed the analysis to determine whethersuch changes of control have occurred, but we believe it is like that theyhave. Furthermore, we may experience future ownership changes that may limitour use of net operating losses. Limitations on the use of First Avenue’s andOld FiberTower’s net operating losses may increase our U.S. federal income taxliability in future years and could cause some of these net operating losses toexpire unused. See “Management’s Discussion and Analysis of Financial Conditionand Results of Operations—Critical Accounting Policies and Estimates—IncomeTaxes.”

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*We expectto incur negative cash flows and operating losses for at least the next fewyears.*

TheCompany has generated operating and net losses since our inception, and weexpect that we will continue to generate significant operating and net lossesand negative cash flows for the next few years. We may not achieve or sustainprofitability in the future. Our ability to achieve profitability will depend,in part, on our ability to:

·       attractand retain an adequate customer base;

·       reactto changes, including technological changes, in the markets we target;

·       deployour services in additional markets;

·       respondto competitive developments;

·       attractand retain experienced and talented personnel as needed; and

·       establishstrategic and maintain existing business relationships.

Accordingly, ourhistorical revenue may not be indicative of future revenue based on comparabletraffic volumes. If the prices for our communications services decrease, and ifwe are unable to offer additional services from which we can derive additionalrevenue or otherwise reduce our operating expenses, our operating results willdecline and our business and financial results will suffer.

*Toservice our indebtedness we will require a significant amount of cash. Ourability to generate cash depends on many factors beyond our control.*

Our business does not currentlygenerate sufficient cash flow from operations to service the interest on the $402.5 millionof Convertible Senior Secured Notes (“Notes”) that were sold onNovember 9, 2006. As a result, we deposited into an escrow account $68.5million of the net proceeds from the Notes offering,  which together with the proceeds from theinvestment thereof, will be sufficient to make the first four interest paymentson the Notes. Thereafter, we have the option to pay interest on the next fourinterest payment dates in additional notes. Our ability to pay our expenses andmake payments due on the Notes therefore depends on our future performance,which will be affected by financial, business, economic, legislative and otherfactors, many of which are beyond our control. Our business may not generatesufficient cash flow from operations in the future, which could result in ourbeing unable to pay interest or repay indebtedness, including the Notes, or tofund other liquidity needs. If we do not have sufficient funds, we may berequired to sell assets or incur additional debt, or we may need to refinanceall or a portion of our indebtedness, including the Notes, at or beforematurity. We cannot assure you that we will be able to accomplish any of thesealternatives on terms acceptable to us, or at all. In addition, the terms ofexisting or future debt agreements may restrict us from adopting any of thesealternatives. The failure to generate sufficient cash flow or to achieve any ofthese alternatives could materially adversely affect the value of the Notes andour ability to pay interest and the amounts due under the Notes.

*We may beunable to successfully execute any of our identified business opportunities orother business opportunities that we determine to pursue.*

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

·       theability of our equipment, our equipment suppliers or our service providers toperform as we expect;

·       theability of our services to achieve market acceptance;

·       ourability to execute our business strategy, which could be affected by ourlimited experience in providing high-speed transmission services;

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·       ourability to effectively manage our third party relationships;

·       ourability to negotiate acceptable agreements to secure suitable locations for ourradios and antennas;

·       ourability to manage the expansion of our operations, which could result inincreased costs, high employee turnover or damage to customer relationships;

·       ourability to attract and retain qualified personnel, which may be affected by thesignificant competition in our industry for persons experienced in networkoperations and engineering;

·       equipmentfailure or interruption of service, which could adversely affect our reputationand our relations with our customers;

·       ourability to accurately predict and respond to the rapid technological changes inour industry and the evolving demands of the markets we serve; and

·       ourability to raise substantial additional capital to fund our growth.

Our failure to adequatelyaddress one or more of the above factors would have a significant impact on ourability to implement our business plan with respect to mobile backhaul andfiber network extensions and our ability to pursue other opportunities thatarise, which might negatively affect our business.

*We mayrequire significant funds in the future, which may not be available to us tooperate and expand our business.*

As of December 31,2006, we had unrestricted cash, cash equivalents certificates of deposit andshort term investments of $365 million. However, our business is capitalintensive, and we may require additional funds to fund capital expenditures andpay operating expenses at some point in the future. We may be unable to secureadditional financing when needed, on acceptable terms, or at all, for thesepurposes. Any such financing could be subject to onerous terms and could bevery dilutive to our stockholders. If we are unable to secure capital whenneeded, our business plans could be adversely affected and our results ofoperations could suffer.

*We investsignificant resources into developing sites that may not necessarily generatesignificant revenues in the future.*

Prior to 2005, OldFiberTower constructed networks where each site had committed customer ordersprior to any network design or deployment activities. Beginning in late 2005,in order to shorten the time a customer was required to wait between commitmentand initial service delivery, Old FiberTower implemented a strategy to deploynetworks where not all sites had committed customer orders at the start ofdeployment. Accordingly, we have an inventory of sites where T-1s areavailable for sale following completion of a deployment project, including somesites where no T-1s have yet been sold. As of December 31, 2006, wehad 1,996 deployed sites, with 1,329 sites then being used to deliver servicesto customers and generating revenues. We incur significant costs inconstructing and developing a site, and if we are unable to generate sufficientrevenues from the site in the future, our business and financial conditionwould be adversely affected.

*Failureto comply with internal control attestation requirements could lead to loss ofpublic confidence in our financial statements and negatively impact the priceof the notes and our common stock.*

Pursuantto Section 404 of the Sarbanes-Oxley Act of 2002, we are required toinclude, in this Annual Report on Form 10-K for the fiscal yearending December 31, 2006, management’s assessment of the effectiveness of FirstAvenue’s internal control over financial reporting. For the fiscal year endedDecember 31, 2007, we will be required to include management’s assessmentof the effectiveness of the combined company’s internal control over financialreporting. Furthermore, our independent registered public accounting firm willbe required to attest as to whether management’s assessment of the 

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effectiveness of internal controls over financialreporting is fairly stated in all material respects and to separately report onwhether it believes we maintained, in all material respects, effective internalcontrol over financial reporting. Old FiberTower, as a privately held company,had not been required to review or assess its internal control procedures. Forthe fiscal year ending December 31, 2007, we will be required to modifyand apply the disclosure controls and procedures, internal controls and relatedcorporate governance policies to include the current operations of OldFiberTower. If we fail to timely complete the development of our internalcontrols as a combined company and management is unable to make thisassessment, or if the independent registered public accounting firm cannottimely attest to this assessment, we could be subject to regulatory sanctions,which could harm our results of operations, or we could experience a loss ofpublic confidence in our internal controls and the reliability of our financialstatements, which ultimately could negatively impact the price of the notes andour common stock.

*Materialweaknesses in our internal control over financial reporting could lead to lossof public confidence in our financial statements and negatively impact theprice of our common stock.*

As discussed in“Item 9A. Controls and Procedures”, our management has identified andreported to our audit committee and our independent registered publicaccounting firm, the following material weakness in our internal control overfinancial reporting. The scope and complexity of our operations increasedduring late 2006, principally as a result of the merger between Old FiberTowerand First Avenue, and our subsequent convertible debt offering. As a result, wedo not have a sufficient number of accounting personnel with the relevanttechnical accounting and financial reporting experience and skills, and we lackthe requisite accounting systems (which were largely non-integrated as ofDecember 31, 2006), to facilitate the preparation of timely and accurateconsolidated financial statements, particularly with respect to accounting forsignificant unusual transactions. Consequently, material errors occurred, orhave the potential to occur, in our (i) goodwill and deferred income taxliability accounts and (ii) embedded derivative financial instruments andother income and expense accounts, as well as in the related financialstatement disclosures. Therefore, we recorded a number of adjustments to our2006 consolidated financial statements, and related disclosures, prior to theirinclusion in this report.

As a result of this material weakness in our internalcontrol over financial reporting, our CEO and CFO have concluded that, as ofDecember 31, 2006, our disclosure controls and procedures and our internalcontrol over financial reporting were not effective. We are implementing andwill continue to implement measures intended to address this material weaknessand improve our internal control over financial reporting. If these measuresare insufficient to address the issues raised, or if we discover additionalinternal control deficiencies, (1) we may fail to meet reporting requirementsestablished by the SEC, (2) we may fail to meet our obligations under theterms of our convertible notes and our future indebtedness, (3) ourfinancial statements may contain material misstatements and require restatementand (4) our business and operating results may be harmed. The restatementof previously issued financial statements could also expose us to legal risk.The defense of any such actions could cause the diversion of management’sattention and resources, and we could be required to pay damages to settle suchactions if any such actions are not resolved in our favor. Moreover, we may bethe subject of negative publicity focusing on the financial statement inaccuraciesand resulting restatement and negative reactions by our stockholders, creditorsor others with which we do business. The occurrence of any of the foregoingcould harm our business and reputation and cause the price of our common stockto decline.

Any future acquisitions and other material changes inour operations will likely require us to expand and possibly revise ourdisclosure controls and procedures, internal controls and related corporategovernance policies. In addition, new and changed laws and regulations aresubject to varying interpretations in many cases and, as a result, theirapplication in practice may evolve over time as new guidance is provided byregulatory and governing bodies. If our efforts to comply with new or changedlaws and regulations differ from the conduct intended by regulatory orgoverning bodies due to ambiguities or varying interpretations of the law, wecould be subject to regulatory sanctions, our reputation may be harmed and thetrading price of the notes and our common stock may be adversely affected.

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*We are a new entrant into a highly concentrated marketwith few potential customers.*

There are only a limited number of national mobilewireless carriers in any given regional market and typically fewer than four toseven mobile wireless carriers in any given market who are potential customersfor mobile wireless carrier backhaul services. Our business strategy willdepend on maintaining and growing customer relationships with a small number ofnational mobile wireless carriers and additional wireless carriers in eachmarket. The competitors in this market, including large telephone companies,enjoy long-standing and established relationships with all of the mobilewireless carriers. If we are unable to secure and maintain a minimum number ofongoing and growing relationships with carrier customers in each market, ourresults of operations will be adversely affected.

*A single customerhas accounted for 70% or more of our revenues for each year of our operations.*

Cingular has been our largest customer and hashistorically accounted for more than 80% of our revenues from 2003-2005. In 2006, Cingular accounted for 70% ofour revenues. If we were to lose Cingular as a customer, or if Cingular reducedtheir usage of our services or became financially unable to pay our charges,our business, financial condition and operating results would be harmed. Inaddition, if Cingular were to encounter financial difficulties, our businesscould be adversely affected.

***Thesuccess of our business strategy relies on the continued growth of the mobilewireless services industry and high-bandwidth broadband mobile applications inthe United States.***

The demand for backhaulservices, and accordingly those we offer, depends on the continued growth ofthe mobile wireless services industry. The provision of mobile wirelessservices represents an evolving sector of the telecommunications industry, andis subject to a number of risks, including:

·       thecontinued development and use of high-bandwidth mobile applications;

·       historicalperceptions regarding the burdens and unreliability of previous mobile wirelesstechnologies;

·       highrates of consumer adoption of mobile applications;

·       increasedlevels of usage by subscribers;

·       increasesin the number of overall subscribers; and

·       thecontinued development and market acceptance of mobile devices enabled formobile applications.

If the mobile wireless carrier industry demand forbackhaul services does not continue to grow through new subscriber additionsand the adoption of high-bandwidth 3G applications, or for any other reason,our operations and financial performance will be adversely affected.

*Our revenues dependon the sale of fixed-wireless T-1 backhaul circuits for mobilewireless carriers.*

We derive a substantial majority of our revenues fromthe sale of fixed-wireless T-1 backhaul and related services tomobile wireless carriers. We expect that we will continue to derive asubstantial majority of our revenues from these services in the future. Anycompetitor’s substitute service with similar performance and coveragecharacteristics and a lower cost structure could create downward price pressureand adversely affect our sales efforts. In addition, competing technologiescould be developed that make our services obsolete. Accordingly, any changes indemand for our services, whether due to pricing pressure, technologicalchanges, or otherwise, could materially and adversely affect our business andresults of operations.

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*Thetelecommunications market is highly competitive, and we may be unable tocompete effectively, especially against competitors with greater financial andother resources, which could materially and adversely affect our ability toattract customers and maintain and grow our sales performance. Many of our existingor emerging competitors are better established and have significantly greaterresources than we do, which may make it difficult to attract and retaincustomers and grow revenues.*

We operate in a highlycompetitive environment and may not be able to compete successfully. Ourcompetitors include or could include:

·       cablemultiple system operators offering either T-1, DS-1 and higherbandwidth circuits or Ethernet-based backhaul services;

·       incumbentand competitive local exchange carriers who offer T-1, DS-1 andhigher bandwidth services or Ethernet-based backhaul services;

·       satelliteproviders providing high capacity backhaul services;

·       otherfixed-wireless service providers using unlicensed or licensed spectrum,suitable for high-bandwidth transport services;

·       fiberservices providers with metro area network and distribution facilities; and

·       electricutilities and other providers offering or planning to offer broadband accessover power lines.

Moreover, we expect other existing and prospectivecompetitors to adopt technologies or business plans similar to ours, or to seekother means to develop a product competitive with our services. Manycompetitors are well-established and have larger and better developed networksand systems, longer-standing relationships with customers and suppliers,greater name recognition and greater financial, technical and marketingresources than we have. These competitors can often subsidize competingservices with revenues from other sources, such as consumer services, contentor advertising, and thus may offer their services at lower prices. These orother competitors may also reduce the prices of their services significantly ormay offer backhaul connectivity with other services, which could make theirservices more attractive to customers. Given the intense competition, we may beunable to compete effectively with these and other technologies and serviceproviders and, consequently, we may be unable to attract customers and grow andmaintain our sales, or we may experience difficulty in developing long-termopportunities.

*An economic orwireless telecommunications industry slowdown may materially and adverselyaffect our business.*

Slowdowns in the U.S. economy or in thetelecommunications industry in the future may impact consumer demand forwireless services, thereby reducing demand for our backhaul services, ornegatively impact the debt and equity markets, thereby reducing demand for ourservices by causing wireless carriers to delay or abandon implementation of newsystems and technologies, including 3G and other wireless broadband services.Further, the threat of  terrorist attacksand the political and economic uncertainties resulting there from and otherunforeseen events may impose additional risks upon and adversely affect thewireless telecommunications industry and our business.

*Competitors orcustomers may acquire radio spectrum for the purpose of offering similar fixedwireless services, which could impact our growth and negatively affect ouroperating results.*

The FCC controls a substantial amount of radiospectrum that may be procured through auction or other licensing mechanisms andused for provision of fixed wireless services. Fixed wireless radio spectrumcould be acquired by companies through sale or lease for the purpose ofcompeting with us. Additionally, companies that we might serve with ourwireless operations may elect to acquire spectrum or use spectrum they alreadycontrol and develop their own fixed wireless networks. Moreover, certainunlicensed technologies may be used to provide services that could be used tocompete with our services. All of these could adversely affect our business.

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*We depend on thirdparties to help deploy our infrastructure and equipment to deliver ourservices.*

We rely on third-partycontractors to deploy the infrastructure and equipment needed to provide ourservices. None of these third parties are contractually obligated to continueproviding these services to us for any specific period of time. There areinherent risks in relying on third parties to provide these services,including:

·       thethird parties could determine not to continue providing these types of servicesin the future, which would require us to obtain the services from other third-partycontractors, or require us to develop the capability to perform these servicesinternally;

·       reducedcontrol over delivery schedules and quality of work; or

·       defectsin third-party work may not be discovered until after services have beenprovided, which could lead to outages, decreased performance levels andcustomer dissatisfaction.

If these third-party contractors are unable toprovide quality services to us at reasonable prices, or if these third-partyproviders cease providing these services, our business could be harmed.

*We may experiencedifficulties in constructing, upgrading and maintaining our network, whichcould adversely affect customer satisfaction, increase carrier turnover andreduce revenues.*

We may experience quality deficiencies, cost overrunsand delays on construction, maintenance and upgrade projects, including theportions of those projects not within our control. The construction of networksfor backhaul services also requires the receipt of permits and approvals fromnumerous governmental bodies, including municipalities and zoning boards. Suchbodies often limit the expansion of transmission towers and other necessaryconstruction. Failure to receive approvals in a timely fashion can delay systemrollouts and raise the cost of completing construction projects. In addition,we typically must obtain rights from land, building and tower owners to installour antennas and other equipment to provide our services. We may not be able toobtain, on terms acceptable to us, or at all, the rights necessary to constructour network and expand our services.

We also face challenges in managing and operating ournetwork. These challenges include operating, maintaining and upgrading networkand customer premises equipment to accommodate increased traffic ortechnological advances, and managing the sales, advertising, customer support,billing and collection functions of the business while providing reliablenetwork service at expected speeds and levels of quality. The failure in any ofthese areas could adversely affect customer satisfaction, increase subscriberturnover, increase costs, decrease our revenues and otherwise have a materialadverse effect on our business, prospects, financial condition and results ofoperations.

*We are subject tocomprehensive and continually evolving regulation that could increase our costsand adversely affect our ability to successfully implement our business plan.*

We and some of our communications services andinstallations are regulated by the FCC, state agencies, local zoningauthorities, and other governmental entities. Our failure to comply with theserequirements may have an adverse effect on our licenses or operations and couldresult in sanctions, fines or other penalties. These regulators regularlyconduct rulemaking proceedings and issue interpretations of existing rules. Forexample, the FCC has a number of proceedings still pending to implement theTelecommunications Act of 1996, and these regulatory proceedings could imposeadditional obligations on us, give rights to competitors, increase our costs,and otherwise adversely affect our ability to implement our business plan.Congress could also enact new legislation that could restrict the manner inwhich we conduct our business, impose additional obligations on us, assist ourcompetitors in competing against us or otherwise harm our business.

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*If we do notretain, obtain or maintain rights to use licensed spectrum in one or moremarkets, we may be unable to operate in these markets, which could harm ourbusiness and our ability to execute our business strategy.*

Since we plan to provide services using licensedspectrum, we will be dependent on our ability to retain, acquire and maintainsufficient rights to use licensed spectrum by retaining our own licenses andacquiring additional microwave radio spectrum licenses, or long-term spectrumleases, in each of the markets in which we operate. Obtaining additionallicensed spectrum, if required, can be a long and difficult process that can becostly and require a disproportionate amount of management resources. We maynot be able to acquire, lease or maintain the spectrum necessary to execute ourbusiness strategy.

*The FCC may cancelor revoke our licenses for past or future violations of the FCC’s rules, whichcould limit our operations and growth.*

As an FCC licensee, we are subject to extensiveregulatory oversight. For example, the FCC imposes requirements on theconstruction and technical aspects of the operation of our licenses andwireless communication systems and on the nature of the services that we canprovide within a particular frequency band. The FCC’s regulations also requirevarious regulatory filings and fees. The FCC may find that our filings made andfees paid are insufficient. The FCC also may find that the operation of our licensesor wireless communication systems violates the FCC’s rules or policies.Findings of violations by the FCC may result in fines and/or sanctions.Moreover, under some circumstances, our licenses may be canceled orconditioned, and in extreme cases, our licenses may be revoked. In addition,the FCC could change our regulations of our operations and licenses, whichcould impact our business. The FCC also could change our regulation of ourwireless customers that are using our backhaul services, thereby impacting ouroperations and growth.

*Our FCC licensesmay not be renewed upon expiration, which could limit the expansion of ourbusiness and our ability to serve our customers and could harm our operatingresults.*

Our spectrum licenses in the 24GHz and 39 GHz bands are granted for ten-year terms with renewal dates rangingfrom 2007 to 2014. For our 24 GHz and 39 GHz licenses to qualify for renewal,we must demonstrate that we have provided “substantial service” by the end ofthe term of each license. The FCC’s substantial service renewal standard forboth the 24 GHz and 39 GHz licenses is intended to provide licensees withflexibility in demonstrating usage of their licenses. The FCC’s “safe harbor”test provides licensees with a degree of certainty as to how to comply with thesubstantial service requirement. For example, for 39 GHz licensees offeringpoint-to-point service, the FCC has said that the construction of four linksper channel per million persons in the license area will meet the substantial servicetest. For 24 GHz point-to-point/multipoint licensees the FCC has said that ashowing of four links per million persons within a service area or service toan area that has very limited access to either wireless or wirelinetelecommunications services will meet the substantial service test. While thesafe harbors are intended to provide guidance, they are not the only way forlicensees to demonstrate substantial service. Licensees may show that they havemet the substantial service test in other ways, such as providing nicheservices or offering services to underserved consumers; however, there islittle precedent in this area at this time. Accordingly, we believe that thelevel of service that will be considered “substantial” by the FCC at renewalmay vary depending upon our type of product offering. Further, the FCC maymodify our perception of substantial service and, in the future, we may offerservices for which the FCC establishes more stringent substantial servicerequirements. The loss of some of our licenses could limit the expansion of ourbusiness and harm our operating results.

Weare required to demonstrate substantial service at the time the licenses arerenewed, and the substantial majority of our licenses will be up for renewalcommencing in 2010. We do not currently meet the substantial service safeharbor guidance provided by the FCC for the substantial majority of our 24 and39 GHz licenses but believe that our licenses will be renewed based on oursignificant network investment and expanding geographic coverage. However,since we are required to demonstrate substantial service at the time licencesare renewed, the FCC could choose to revoke licences that do not meet thesubstantial service safe harbor.

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On October 6, 2006,we filed a request with the FCC seeking to have the terms and constructionrequirements of 214 “rectangular service area” 39 GHz band licenses extended.All of these licenses are scheduled for renewal at various dates before December 31,2007. They represent approximately 15% of our total wide-area license holdingschannel pops. We have asked the FCC to grant waivers necessary to extend thelicenses and our required demonstration that we have provided substantialservice at renewal until October 18, 2010, at which time other similarlicenses we hold will be due for renewal. Our request is predicated upon thefavorable changes in demand and technology since the earlier failures tocommercialize the 39 GHz band, the efficiency of focusing on renewing oursimilarly situated wide-area licenses at the same time, and on the additionalscale and scope available to FiberTower as a result of the Merger. On January 31, 2007 the FCCacted upon our request providing a blanket 6 month extension untilAugust 1, 2007 to complete construction for all the licenses withexpiration dates between November 15, 2006 and June 9, 2007 (162licenses). The remaining 52 licenses possess expiration and build-out datesthat occur after August 1, 2007.

*The value of our FCC licenses could decline, whichcould materially affect our ability to raise capital, and could have a materialadverse effect on our business and the value of our stock and the collateralfor the notes.*

Thecarrying value of our mobile wireless FCC spectrum licenses comprises asignificant portion of our assets. A decline in the value of our FCC licensescould negatively impact our ability to raise capital both privately and in thepublic markets and could significantly reduce the value and the attractivenessof our stock to investors. The value of any or all of our FCC licenses coulddecrease as a result of many factors, including:

·       increasesin the supply of spectrum that provides similar functionality;

·       newradio technology in unlicensed bands that provides the same capability as ournetwork;

·       adecrease in the demand for services offered with any of our FCC licenses;

·       lowervalues placed on similar licenses in future FCC auctions;

·       regulatorylimitations on the use, transfer or assignment of any of our FCC licenses; or

·       bankruptcyor liquidation of any comparable companies.

Many of these factorsdepend on circumstances beyond our control. The occurrence of any of theseevents could have a material adverse effect on our ability to generate revenuesand on our business, prospects, results of operations and financial condition.

Also, if the valuedeclines, impairment charges might be necessary which would negatively impactoperating results and might lead to a conclusion that the FCC spectrum assetsare no longer indefinite lived intangible assets in which case they would thenhave to be amortized over their remaining useful lives which would negativelyimpact results of operations.

*Our reliance upon spectrum licensed by the FCCincludes additional risks.*

Ouruse of FCC-licensed spectrum imposes additional risks on our business,including:

·       increasesin spectrum acquisition costs;

·       adversechanges to regulations governing spectrum/licensee rights;

·       therisk that spectrum will not be commercially usable or free of harmfulinterference from licensed or unlicensed operators in our or adjacent bands;

·       withrespect to spectrum in the United States, contractual disputes with or thebankruptcy or other reorganization of the license holders, which couldadversely affect control over the spectrum subject to such license;

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·       changein the FCC allocation of microwave radio spectrum, or change in the FCCrules regarding the licensing of microwave radio spectrum; and

·       invalidationof any authorization to use all or a significant portion of the spectrum,resulting in, among other things, impairment charges related to assets recordedfor such spectrum.

*The FCC may determine that we are subject to commoncarrier regulation, which could increase our costs and result in a decline inour operations, revenues and profitability.*

We currently offer ourservices as a private carrier and do not consider our services to betelecommunications services subject to common carrier or telecommunicationscarrier obligations. The FCC has broad powers to require providers ofcommunications facilities and services to operate as common carriers, and thereis significant FCC and Federal court case law in regard to this issue. Based onthis body of law, we do not believe that the FCC, if it examined the issue withrespect to our services, would require us to begin operating as a commoncarrier. However, there can be no assurance of this. Should the FCC concludethat we are a common carrier, we would become subject to a number of additionalregulatory obligations. The precise nature of those obligations will varydepending upon the particular services offered, but we could be required by theFCC to offer services according to published rates, terms and conditions deemedto be just, reasonable, and non-discriminatory. We could also be required tomake certain additional reports to the FCC, pay additional regulatory fees, andadhere to other requirements imposed on common carriers. Adherence to theseobligations could materially affect our costs of providing services andtherefore have an adverse impact on our business operations, revenues, andprofitability.

*If state regulatory bodies determine that our servicesare common carrier, intrastate services, then we may be subject to fines orsanctions for failure to obtain state regulatory authorizations. We also may besubject to regulation in those states which will increase our operating costsin those states.*

If one or more statesdetermines that we are providing intrastate, common carrier service, we may berequired to obtain regulatory authorizations in those states and/or be subjectto fines or sanctions for failure to obtain regulatory authorizations in thosestates. As a result, we may be required to apply for and maintain Certificatesof Public Convenience and Necessity in those states. We also may be required tofulfill other state requirements, such as filing tariffs and reports andcontributing to state universal service funds, among other things. Suchadditional regulation would increase our costs.

*We may be required to make certain FCC filings in thefuture and may be subject to fines and or sanctions for failure to file in thepast.*

Prior to the merger withOld FiberTower, First Avenue had taken the position that it was not obligatedto submit certain revenue reporting forms required by the FCC’s rules tobe filed by certain providers of telecommunications services. These forms arethe basis of payments assessed by the FCC in support of universal service,numbering administration, telecommunications relay services for the deaf, andlocal number portability. There can be no assurance that the FCC will acceptFirst Avenue’s interpretation of its filing obligations in this respect. TheFCC could determine that such revenue reporting filings should have been madeand that FiberTower should be assessed a fine and/or be required to make anyand all payments such filings might necessitate. While Old FiberTower filedsuch revenue reporting forms prior to the Merger, those revenues did not meetthe FCC’s threshold for Old FiberTower to make payments to the FCC’s programsdescribed above. There can be no assurance that the FCC would accept a decisionby FiberTower to suspend such filings in the future.

*FCC Regulation of radio frequency emissions and radiofrequency environments may increase our costs and/or limit our operations.*

The FCC regulates thehealth and safety effects of radio frequency emissions for us and otherwireless communications providers. Any FCC licensee whose emissions in an areaexceed five percent (5%) of the 

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totalpermissible emissions limit is responsible for ensuring that the site meetsapplicable health and safety requirements. The fixed wireless equipment we useis designed to operate at RF emission levels well below the FCC’s standard.However, if we operate in an area where other higher RF emitters are operating,we could nonetheless be required to cooperate with, and contribute financiallyto, efforts intended to bring the site within applicable health and safetylimits.

*FCC approval for conversion of the Notes, if required,may not be forthcoming or may result in adverse conditions to our business orto the holders of the Notes.*

If the conversion of theNotes into shares of our common stock would cause a change in control ofFiberTower under the Communications Act of 1934, as amended and the FCC’srules, regulations or policies promulgated thereunder, the prior approval ofthe FCC would be required prior to any such conversion. There can be noassurance that, at the time the conversion is contemplated, the FCC would grantsuch an approval, or that the FCC would grant such an approval without adverseconditions.

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

We have experiencedservice interruptions in some markets in the past and may experience serviceinterruptions or system failures in the future. Any unscheduled serviceinterruption will adversely affect our ability to operate our business andcould result in an immediate loss of revenues. If we experience frequent orpersistent system or network failures, our reputation and brand could bepermanently harmed. We may make significant capital expenditures to increasethe reliability of our systems, but these capital expenditures may not achievethe expected results.

We will also depend on thecontinuing operation of our information technology and communications systems.Any damage to or failure of these systems could result in interruptions inservice. Interruptions in service could reduce revenues and harm operatingresults, and our brand could be damaged if people believe the network isunreliable. These systems are also vulnerable to damage or interruption fromearthquakes, terrorist attacks, riots, acts of war, floods, tornadoes,hurricanes, fires, power loss, telecommunications failures, computer viruses,computer denial of service attacks or other attempts to harm our systems, andsimilar events. Some systems are not fully redundant, and disaster recoveryplanning may not be adequate. The occurrence of a natural disaster orunanticipated problems at any network center could result in lengthyinterruptions in service and adversely affect operating results.

*The industries in which we operate are continuallyevolving. Our services may become obsolete, and we may not be able to developcompetitive products or services on a timely basis or at all.*

Themobile wireless services industry is characterized by rapid technologicalchange, competitive pricing, frequent new service introductions and evolvingindustry standards and regulatory requirements. The backhaul infrastructurethat supports this dynamic industry must be similarly flexible and able toadapt to these changes. Our success depends on our ability to anticipate andadapt to these challenges and to offer competitive services on a timely basis.We face a number of difficulties and uncertainties associated with thisreliance on technological development, such as:

·       competitionfrom service providers using other means to deliver similar or alternativeservices;

·       competitionfrom new service providers using more efficient, less expensive technologies,including products or services not yet invented or developed;

·       gainingand sustaining market acceptance of the technology underlying our services;

·       realizingeconomies of scale;

·       respondingsuccessfully to advances in competing technologies in a timely andcost-effective manner;

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·       migrationtoward standards-based technology, requiring substantial capitalexpenditures; and

·       existing,proposed or undeveloped technologies that may render fixed wireless backhauland other services less profitable or obsolete.

As the services offered byus and our competitors develop, wireless carriers may not accept our servicesas a commercially viable alternative to other means of delivering wirelessbackhaul and other services. Accordingly, our inability to keep pace withtechnological development could materially and adversely affect our business.

*If our data security measures are breached, ourreputation and business may be harmed.*

We rely on the security ofour networks to deliver our services to customers. Because techniques used toobtain unauthorized access to or to sabotage networks change frequently and maynot be recognized until launched against a target, we may be unable toanticipate or implement adequate preventive measures against unauthorizedaccess or sabotage. Consequently, unauthorized parties may overcome thesesecurity systems and obtain access to data on the network. We may incur costsassociated with the unauthorized use of our networks including administrativeand capital costs associated with detecting, monitoring and reducing theincidence of fraud. In addition, because we operate and control the network andthe customers’ network connectivity, unauthorized access or sabotage of ournetwork could result in damage to our network and to the computers or otherdevices used by customers or carriers. An actual or perceived breach of networksecurity, regardless of whether the breach is our fault, could harm public perceptionof the effectiveness of our security measures, adversely affect our ability toattract and retain customers, expose us to significant liability and adverselyaffect our business prospects.

*We rely on single equipment vendors for certainnetwork components. If these components fail to perform, or if the relevantvendor fails to maintain timely supply, we may have a shortage of componentsand may be required to suspend or delay network deployment and serviceintroductions.*

We depend on certain singlesource suppliers that supply components used in our network to deliver ourservices. If we need alternative sources for key component parts for anyreason, these component parts may not be immediately available to us. Ifalternative suppliers are not immediately available, we will have to identifyand qualify alternative suppliers, and production or delivery of thesecomponents may be delayed. We may not be able to find an adequate alternativesupplier in a reasonable time period, or on commercially acceptable terms, ifat all.

*In certain markets, our network facilities includesingle points of failure that, in the case of a failure, could cause wide scalemarket service disruption.*

In some of our markets,some of our network facilities do not have redundant components. Accordingly,if one of these components were to fail for any reason, our network may not beable to achieve satisfactory performance levels and may even suffer outages.Any service disruptions may have an immediate and significant impact on ourability to attract, retain, and grow customer revenues, which would harm ourbusiness and operating results.

*We depend on the continued availability of leases orlicenses for our communications facilities.*

We lease communicationsfacilities from the owners of towers, rooftops, water towers, utility poles andother structures. We typically seek five year initial terms for our leases withthree five year renewal options. The options are generally at our option with awindow of 90 to 180 days before the expiration of each term in which toterminate the agreement. Our leases in the Austin, Dallas, San Antonio andWaco, Texas markets will begin to come up for renewal in the third and fourthquarters of 2007. If these leases are terminated or if the owners of thesestructures are unwilling to continue to enter into leases or licenses with usin the future, we would have to seek alternative arrangements with otherproviders. If we are unable to continue to obtain or renew leases onsatisfactory terms, our business would be harmed.

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*We do business with affiliated third parties and maynot have obtained the most advantageous terms possible.*

We lease communicationsfacilities from two of our significant stockholders, American Tower, whichreceived approximately 4% of our outstanding common stock pursuant to theMerger, and Crown Castle, which owns approximately 18% of our outstandingcommon stock. We may not have obtained the same lease terms with thesestockholders as we might have obtained from unaffiliated providers.

*Our limited exclusivity agreements with American Towerand Crown Castle could terminate if we fail to meet certain performanceobligations under those agreements.*

We have limitedexclusivity agreements with American Tower and Crown Castle under which theyhave each agreed not to compete directly with us as a provider of backhaulservices and not to invest in other entities in 20 designated markets. If weare unable to meet certain minimum backhaul service level obligations requiredunder these agreements, these exclusivity provisions will terminate. Inaddition, these agreements terminate on January 2009 or on certainchange-in-control transactions affecting American Tower or Crown Castle. Anysuch termination of these exclusivity agreements could adversely affect ourbusiness.

*A portion of our communications facilities or somesubset of our equipment may not have been installed with valid lease agreementsand/or proper permits.*

In some cases, some of ourcommunications facilities or some of our equipment may not have been installedwith valid lease agreements and/or proper permits in place. If a facilitiesowner were to challenge our ability to operate on that site, the resolution ofthe matter may require the termination of service to the customer, or an increasein operating costs associated with the locations, which could adversely affectoperating results.

*To be successful, we must attract, retain and motivatekey employees, and the inability to do so could seriously harm us. The loss ofkey personnel could adversely affect our business because these individuals areimportant to our continued growth.*

To be successful, we mustattract, retain and motivate executives and other key employees and keep themfocused on our strategies and goals. Competition for personnel throughout ourindustry is intense, and we may be unable to retain key employees or attract orretain other highly qualified employees in the future. If we are not successfulin attracting new personnel or retaining and motivating our current personnel,our business and prospects could be adversely affected. Our future successdepends to a significant extent on the skills, experience, performance andcontinued services of our senior management and other key personnel. We believethat our future success is highly dependent on our senior management to providesignificant continuity in the execution of our growth plans following therecently completed merger. The loss of any members of our management team couldharm our business.

*We have little experience with customer renewal ratesand it is difficult to predict the extent of customer renewals for ourservices.*

We sell our servicespursuant to service agreements that are generally for up to five years inlength. Customers have no obligation to renew after the expiration of theirinitial subscription period and no assurance can be given that customers willrenew at the same or higher levels of service, if at all. Moreover, under somecircumstances, some of these customers have the right to cancel their serviceagreements prior to the expiration of the terms of their agreements. We havelimited historical data with respect to rates of customer renewals, and wecannot accurately predict future customer renewal rates. Renewal rates maydecline or fluctuate as a result of a number of factors, including ourcustomers’ satisfaction or dissatisfaction with the services, the prices of theservices, the prices of the services offered by competitors or mergers andacquisitions affecting our customer base. If customers do not renew theirsubscriptions for our services or if they renew on less favorable terms,revenues may decline and our business will suffer.

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*Our quarterly results of operations have fluctuated inthe past and may fluctuate in the future. As a result, we may fail to meet orexceed the expectations of securities analysts or investors, which could causethe trading price of the Notes and our common stock to decline.*

Our quarterly results of operations have fluctuated inthe past and may fluctuate in the future as a result of a variety of factors,many of which are outside of our control. If quarterly results of operationsfall below the expectations of securities analysts or investors, the tradingprice of the notes and our common stock could decline substantially.Fluctuations in quarterly results of operations may be due to a number offactors, including, but not limited to, those listed below:

·       ourability to increase sales to existing customers and attract new customers;

·       theaddition or loss of significant customers;

·       theamount and timing of operating costs and capital expenditures related to themaintenance and expansion of our business, operations and infrastructure;

·       failureof our key suppliers, including equipment and fiber service providers;

·       thetiming and success of new product and service introductions by the combinedcompany or competitors;

·       changesin our pricing policies or those of competitors;

·       changesin consumer demand for mobile services;

·       serviceoutages or security breaches;

·       theextent to which any of our significant customers do not renew their serviceagreements;

·       limitationsof the capacity of our network and systems;

·       thetiming of costs related to the development or acquisition of technologies,services or businesses;

·       generaleconomic, industry and market conditions and those conditions specific to thetelecommunications industry; and

·       geopoliticalevents such as war, threat of war or terrorist actions.

We believe that, as aresult of the above listed factors, our quarterly revenues and results ofoperations may vary significantly in the future and that period-to-periodcomparisons of operating results may not be meaningful. You should not rely onhistorical results as an indication of future performance.

*We have experiencedgrowth in recent periods. If we fail to manage future growth effectively, wemay be unable to execute our business plan, maintain high levels of service oraddress competitive challenges adequately.*

We have substantiallyexpanded our overall business, customer base, headcount and operations inrecent periods. We increased our total number of full-time employees from 29 onDecember 31, 2003 to 219 on December 31, 2006. In addition, duringthis same period, we made substantial investments in network infrastructure,growing from 121 sites deployed and billing to nearly 2,000 sites deployed andover 1,300 deployed and billing sites as of December 31, 2006. We willneed to continue to expand our business, including the number of billing sites.We anticipate that this expansion will require substantial management effortand significant additional investment in infrastructure. In addition, we willbe required to continue to improve our operational, financial and managementcontrols and our reporting procedures, as Old FiberTower was not previously apublic company. Our historic expansion has placed, and our expected futuregrowth will continue to place, a significant strain on managerial,administrative, 

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operational,financial and other resources. If we are unable to manage growth successfully,our business will be harmed.

*Acquisitions couldresult in operating difficulties, dilution and distractions from our corebusiness.*

We may evaluate potentialstrategic transactions in the future, including acquisitions. The process ofacquiring and integrating a company, business or technology is risky, mayrequire a disproportionate amount of management or financial resources and maycreate unforeseen operating difficulties or expenditures. Future acquisitionscould result in potentially dilutive issuances of our equity securities, theincurrence of debt, contingent liabilities or amortization expenses, or write-offsof goodwill or intangible assets, any of which could harm our financialcondition. Future acquisitions may require additional equity or debt financing,which may not be available on favorable terms, or at all.

*Our substantiallevel of indebtedness could materially adversely affect our financial conditionand prevent us from fulfilling our obligations under the Notes and our otherindebtedness.*

As of December 31, 2006, we have totalindebtedness of $403.8 million, consisting of the Notes. The indenturegoverning the Notes will also allow us to enter into a senior secured creditfacility and incur certain other additional indebtedness, including *pari passu*senior secured indebtedness incertain circumstances.

Our substantialindebtedness could have important consequences and significant effects on ourbusiness, including the following:

·       itmay make it difficult for us to satisfy our obligations under the Notes and ourother indebtedness and contractual and commercial commitments and, if we failto comply with these requirements, an event of default could result;

·       wemust use a substantial portion of our cash flow from operations to pay intereston the Notes and our other indebtedness, which will reduce the funds availableto us for other purposes;

·       ourability to obtain additional debt financing in the future for working capital,capital expenditures, acquisitions or general corporate purposes will belimited;

·       ourflexibility in reacting to changes in our industry may be limited and we couldbe more vulnerable to adverse changes in our business or economic conditions ingeneral; and

·       wemay be at a competitive disadvantage compared to our competitors that are notas highly leveraged.

Any of the aboveconsequences could have a material adverse effect on our business, financialcondition, results of operations, prospects and ability to satisfy ourobligations under the Notes.

*Rights of holdersof Notes in the collateral may be adversely affected by the failure to have,obtain and/or perfect liens on certain assets.*

Subject to certain exceptions, the liens securing the Noteswill cover substantially all of our assets other than our FCC licenses andauthorizations, whether now owned or acquired or arising in the future.Applicable law requires that certain property and rights acquired after thegrant of a general security interest or lien can only be perfected at the timesuch property and rights are acquired and identified. There can be no assurancethat the trustee or the collateral agent will monitor, or that we will informthe trustee or the collateral agent of, the future acquisition of property andrights that constitute collateral, and that the necessary action will be takento properly perfect the lien on such after acquired collateral. The collateralagent for the Notes has no obligation to monitor the acquisition of additionalproperty or 

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rights that constitutecollateral or the perfection of any security interests therein. Such failuremay result in the loss of the lien thereon or of the priority of the liensecuring the Notes.

Any foreclosure on thecollateral that would result in a change of control would require various priorregulatory approvals from the FCC, as well as foreclosures on the assets, whichmay not be obtained in a timely fashion, if at all.

*FiberTowerCorporation, the issuer of the Notes, is a holding company, and therefore ourability to make any required payment on the Notes depends upon the ability ofour subsidiaries to pay dividends or to advance funds.*

FiberTower Corporation,the issuer of the Notes, has no direct operations and no significant assetsother than the stock of our subsidiaries. Because we conduct our operationsthrough our operating subsidiaries, we depend on those entities for dividendsand other payments to generate the funds necessary to meet our financialobligations, including our required obligations under the Notes. However, eachof our subsidiaries is a legally distinct entity, and while our domesticsubsidiaries will guarantee the Notes, such guarantees are subject to risks.The ability of our subsidiaries to pay dividends and make distributions will besubject to, among other things, the terms of any debt instruments of oursubsidiaries then in effect and applicable law. If distributions from oursubsidiaries to us were eliminated, delayed, reduced or otherwise impaired, ourability to make payments on the Notes would be substantially impaired.

*The Notes containrestrictive covenants that limit our operational flexibility.*

The Notes containcovenants that, among other things, restrict our ability to take specificactions, even if we believe them to be in our best interest. These covenantsinclude restrictions on our ability to:

·       incuror guarantee additional indebtedness or issue certain preferred stock;

·       paydividends or make other distributions;

·       issuecapital stock of our restricted subsidiaries;

·       transferor sell assets, including capital stock of our restricted subsidiaries;

·       makecertain investments or acquisitions;

·       grantliens on our assets;

·       incurdividend or other payment restrictions affecting our restricted subsidiaries;

·       enterinto certain transactions with affiliates; and

·       merge,consolidate or transfer all or substantially all of our assets.

Our failure to comply withthese restrictions could lead to a default under the Notes.

*Future sales of ourcommon stock in the public market or the issuance of securities senior to ourcommon stock could adversely affect the trading price of our common stock andthe value of the Notes and our ability to raise funds in new stock offerings.*

Future sales ofsubstantial amounts of our common stock or equity-related securities inthe public market, or the perception that such sales could occur, couldadversely affect prevailing trading prices of our common stock and the value ofthe Notes and could impair our ability to raise capital through futureofferings of equity or equity-related securities. No prediction can be madeas to the effect, if any, that future sales of shares of common stock or theavailability of shares of common stock for future sale will have on the tradingprice of our common stock or the value of the Notes. The price of our commonstock could be affected by possible sales of our common stock by investors whoview the Notes as a more 

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attractivemeans of equity participation in our company and by hedging or arbitragetrading activity that we expect to develop involving our common stock. Thehedging or arbitrage could, in turn, affect the trading price of the Notes.

*Provisions in ourcharter documents and Delaware law may delay or prevent an acquisition of ourcompany.*

Our certificate of incorporation and bylaws containprovisions that could make it harder for a third party to acquire us withoutthe consent of our Board of Directors. For example, our certificate ofincorporation provides that the Board of Directors can issue preferred stock atour discretion with respect to voting, conversion, distribution, and otherrights given to stockholders, which may be used in a way to significantlydilute the ownership of a hostile acquiror. In addition, if a potentialacquiror were to make a hostile bid for us, the acquiror would not be able tocumulate votes at a meeting, which would require the acquiror to hold moreshares to gain representation on the Board of Directors than if cumulativevoting were permitted. In addition, the members of our Board of Directors areelected on a staggered or classified basis, which could prevent or detertakeovers or changes in control by increasing the time it takes for a hostileacquiror to replace board members.

Section 203 of the Delaware General CorporationLaw limits mergers and other business combination transactions involving 15% orgreater stockholders of Delaware corporations unless certain board orstockholder approval requirements are satisfied. These provisions and othersimilar provisions make it more difficult for a third party to acquire uswithout negotiation. These provisions may apply even if the offer may beconsidered beneficial by some stockholders.

Our Board of Directorscould choose not to negotiate with an acquiror that it did not believe was inour strategic interests. If an acquiror is discouraged from offering to acquireus or prevented from successfully completing a hostile acquisition by these orother measures, stockholders could lose the opportunity to sell their shares ata favorable price.

**ITEM 1B.   UNRESOLVED STAFFCOMMENTS**

There were no unresolvedwritten comments received from the staff of the Securities and ExchangeCommission relating to our periodic reports filed under the Exchange Act of1934.

**ITEM 2.   PROPERTIES**

Our executive offices are located in San Francisco,California, where we lease approximately 24,500 square feet of space. The leasecontinues through July 31, 2009 and does not include a renewal option. Wedo not own any real property.

We also have offices located in McLean, Virginia wherewe lease approximately 8,300 square feet of space. This lease ends inJune 2007 when the office will be relocated to leased space contiguouswith our Northeast Regional field office in Sterling, Virginia.

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Thefollowing outlines significant leased properties and the square footage ofthese properties:

| ** **                                            | ** ** | **Approximate** | ** ** |
|-------------------------------------------------------|------------|-----------------|------------|
| **City/State**                                        | ** ** | ** **      | ** ** | **Square Footage** | ** ** |
| San Francisco, CA  (HQ and administrative)            |       |            | 24,500     |   |   |
| McLean, Virginia  (First Avenue headquarters)         |       |            | 8,300      |   |   |
| Iselin, New  Jersey (Sales and executive office)      |       |            | 8,400      |   |   |
| Dallas, Texas  (South Regional Field office)          |       |            | 5,400      |   |   |
| Detroit, Michigan  (Midwest Regional field office)    |       |            | 6,400      |   |   |
| Sterling,  Virginia (Northeast Regional field office) |       |            | 4,600      |   |   |
| Atlanta, Georgia  (Southeast Regional field office)   |       |            | 3,360      |   |   |
| Dulles, Virginia  (warehouse)(month to month lease)   |       |            | 22,000     |   |   |
| Herndon, Virginia  (office space)(1)                  |       |            | 33,400     |   |   |
|                                                       |            |                 |            |  |  |  |  |

----

(1)          Former corporate officeof Teligent, a predecessor company, which has been subleased to third party.

FiberTower leases additional field operations officeand warehouse space in Alpine, New Jersey; Brooklyn, New York; BroadviewHeights, Ohio; Centennial, Colorado; Charlottsville, Virginia; Chicago,Illinois: Fort Worth, Texas; Foxboro, Massachusetts; Billerica, Massachusetts;Houston, Texas; Pine Brook, New Jersey; Tampa, Florida; San Antonio, Texas;Washington, District of Columbia; White Plains, New York; and Woodbridge,Illinois.

Our facilities are considered adequate for our currentlevel of operations but may need to be expanded as the Company expands.

FiberTower also leasesnominal space at over 2,300 buildings, towers or other structures for networkequipment installations as of December 31, 2006.

**ITEM 3.**                LEGAL PROCEEDINGS

We are not currently aparty to any material legal proceedings. From time to time, we could becomeinvolved in various legal proceedings arising from the normal course ofbusiness activities. Depending on the amount and timing, an unfavorableresolution of a matter could materially affect our future results ofoperations, cash flows or financial position in a particular period.

**ITEM4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

Under Nasdaq MarketplaceRules, the approval of our stockholders was required to approve the issuance ofshares of our common stock in excess of 28,767,197 shares (the “Share Cap”)upon conversion of the Notes. On November 8, 2006, certain of ourstockholders, who collectively held approximately 52% of our outstanding commonstock as of that date, approved by written consent the terms of the Notes andthe issuance of shares of our common stock in excess of the Share Cap inaccordance with the terms of the Notes. The actions by written consent weresufficient to approve the issuance of shares of our common stock in excess ofthe Share Cap without the affirmative vote of any other FiberTower stockholder.

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**PART II**

**ITEM 5.   MARKETFOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERPURCHASES OF EQUITY SECURITIES**

Our common stock is traded on the NASDAQ Global Marketunder the symbol FTWR. Prior to the Merger on August 29, 2006, FirstAvenue, was traded on the NASDAQ Global Market under the symbol FRNS. Prior toJune 20, 2005, First Avenue’s common stock was listed on the OTC BulletinBoard.

The market price range forthe common stock for the last two fiscal years as reported on the NASDAQ GlobalMarket or Over the Counter Bulletin Board, as applicable, is as follows:

**CommonStock**

| ** **                                    | ** ** | **PRICE RANGE** | ** ** |
|-----------------------------------------------|------------|----------------------|------------|
| ** **                                    | ** ** | **High**             | ** ** | **Low** | ** ** |
| **Fiscal year ended  December 31, 2006** |       |                 |       |   |   |
| First Quarter                                 |       | $                    | 9.04       |   | $ | 5.01 |   |
| Second Quarter                                |       | $                    | 15.90      |   | $ | 8.76 |   |
| Third Quarter                                 |       | $                    | 11.20      |   | $ | 6.00 |   |
| Fourth Quarter                                |       | $                    | 9.63       |   | $ | 5.08 |   |
| **Fiscal year ended  December 31, 2005** |       |                 |       |   |   |
| First Quarter                                 |       | $                    | 13.50      |   | $ | 9.55 |   |
| Second Quarter                                |       | $                    | 9.65       |   | $ | 4.75 |   |
| Third Quarter                                 |       | $                    | 6.89       |   | $ | 5.25 |   |
| Fourth Quarter                                |       | $                    | 6.63       |   | $ | 4.89 |   |

 

On February 28, 2007, the closing price of ourcommon stock as reported by the Nasdaq Global Market was $5.33 per share. Therewere 1,019 holders of record of our common stock on February 28, 2007.

We havenot paid any cash dividends in the past and do not anticipate paying any cashdividends in the foreseeable future. We intend to retain earnings, if any, tofinance the expansion of our business and fund ongoing operations for theforeseeable future. Our Convertible Senior Secured Notes issued November 9,2006 restrict the payment of any dividends.

**ITEM 6.**   SelectedFinancial Data

The followingselected historical financial data for the years ended December 31, 2006,2005, and 2004 are derived from Old FiberTower’s audited consolidated financialstatements included elsewhere in this Annual Report on Form 10-K.The selected historical financial data for Old FiberTower for the years endedDecember 31, 2003 and 2002 are derived from Old FiberTower’s auditedfinancial statements not included in this Annual Report on Form 10-K.

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On August 29,2006, First Avenue completed the Merger with Old FiberTower. The Merger wasaccounted for as a reverse acquisition under the purchase method of accounting.Under this accounting treatment, Old FiberTower was considered the acquiringentity and First Avenue was considered the acquired entity. First Avenue, asthe surviving entity of the Merger, changed its name to FiberTower Corporation.The consolidated financial statements after the Merger reflect the financialresults of Old FiberTower on a historical basis after applying the exchangeratio to historical share-related data, and include the results ofoperations of First Avenue from the effective date of the Merger. Accordingly,First Avenue’s financial statements included in our reports filed with the SECprior to the Merger are not comparable to the historical financial statementsincluded in the following selected financial data.
|                                                                           | ** ** | **Year Ended December 31**                                              | ** ** |
|---------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------|------------|
| ** **                                                                | ** ** | **2006**                                                                               | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                                                | ** ** | **(in thousands, except share and per share data)** | ** ** |
| **Consolidated  Statement of Operations Data:**                           |       |                                                                                   |       |   |   |   |   |   |   |   |   |
| Service revenues                                                          |       | $                                                                                      | 13,763     |   | $ | 6,224 |   | $ | 2,624 |   | $ | 736 |   | $ | 25 |   |
| Operating  expenses:                                                      |       |                                                                                   |       |   |   |   |   |   |   |   |   |
| Cost of service revenues (excluding depreciation and  amortization)  |       | 36,541                                                                                 |       | 19,224 |   | 8,701 |   | 2,918 |   | 18 |   |
| Sales and marketing                                                       |       | 6,479                                                                                  |       | 3,822 |   | 2,572 |   | 1,572 |   | 1,077 |   |
| General and administrative                                                |       | 18,038                                                                                 |       | 4,444 |   | 2,529 |   | 1,405 |   | 2,709 |   |
| Depreciation and amortization                                             |       | 9,077                                                                                  |       | 3,096 |   | 1,233 |   | 563 |   | 87 |   |
| Total operating expenses                                                  |       | 70,135                                                                                 |       | 30,586 |   | 15,035 |   | 6,458 |   | 3,891 |   |
| Loss from operations                                                      |       | (56,372                                                                                | )          | (24,362 | ) | (12,411 | ) | (5,722 | ) | (3,866 | ) |
| Other income  (expense):                                                  |       |                                                                                   |       |   |   |   |   |   |   |   |   |
| Interest income                                                           |       | 6,326                                                                                  |       | 2,683 |   | 485 |   | 140 |   | 128 |   |
| Interest expense                                                          |       | (7,680                                                                                 | )          | (223 | ) | (138 | ) | (37 | ) | (1 | ) |
| Miscellaneous income (expense), net                                       |       | 448                                                                                    |       | (7 | ) | (1 | ) | (7 | ) | 2 |   |
| Other income (expense), net                                               |       | (906                                                                                   | )          | 2,453 |   | 346 |   | 96 |   | 129 |   |
| Net loss                                                                  |       | $                                                                                      | (57,278    | ) | $ | (21,909 | ) | $ | (12,065 | ) | $ | (5,626 | ) | $ | (3,737 | ) |
| Basic and diluted loss per share                                          |       | $                                                                                      | (1.11      | ) | $ | (4.92 | ) | $ | (3.66 | ) | $ | (2.77 | ) | $ | (2.23 | ) |
| Weighted average  number of shares used in per share amounts              |       | 51,542,046                                                                             |       | 4,457,456 |   | 3,297,796 |   | 2,030,067 |   | 1,676,046 |   |

 

| ** **                                | ** ** | **As of December 31**                  | ** ** |
|-------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                | ** ** | **2006**                                              | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                | ** ** | **(In thousands,  except other operating data)** | ** ** |
| **Balance  Sheet Data:**                  |       |                                                  |       |   |   |   |   |   |   |   |   |
| Cash and cash  equivalents                |       | $                                                     | 345,174    |   | $ | 112,936 |   | $ | 25,620 |   | $ | 15,249 |   | $ | 10,228 |   |
| Short-term investments                    |       | 15,253                                                |       | — |   | — |   | — |   | — |   |
| Restricted investments                    |       | 70,522                                                |       | 3,480 |   | — |   | — |   | — |   |
| Working capital                           |       | 375,425                                               |       | 94,522 |   | 19,480 |   | 13,049 |   | 9,769 |   |
| Property and  equipment, net              |       | 171,612                                               |       | 77,199 |   | 26,823 |   | 7,690 |   | 1,910 |   |
| FCC licenses                              |       | 342,000                                               |       | — |   | — |   | — |   | — |   |
| Goodwill                                  |       | 243,388                                               |       | — |   | — |   | — |   | — |   |
| Total assets                              |       | 1,216,478                                             |       | 195,849 |   | 57,102 |   | 24,067 |   | 12,880 |   |
| Convertible senior secured notes          |       | 403,759                                               |       | — |   | — |   | — |   | — |   |
| Other long term obligations               |       | —                                                |       | 629 |   | 2,036 |   | 403 |   | 443 |   |
| Convertible preferred stock               |       | —                                                |       | 220,675 |   | 70,847 |   | 31,853 |   | 17,020 |   |
| Stockholders’  equity (deficit)      |       | 673,822                                               |       | (48,539 | ) | (22,832 | ) | (10,819 | ) | (5,205 | ) |
| **Other Operating Data:**                 |       |                                                  |       |   |   |   |   |   |   |   |   |
| Number of sites  deployed(1)              |       | 1,996                                                 |       | 743 |   | 271 |   | 121 |   |   |   |
| Number of customer  locations billing     |       | 1,804                                                 |       | 699 |   | 195 |   | 70 |   |   |   |
| Number of sites  billing                  |       | 1,329                                                 |       | 529 |   | 254 |   | 121 |   |   |   |
| Number of billing T-1s  on the network(1) |       | 6,869                                                 |       | 2,558 |   | 1,197 |   | 534 |   |   |   |
|                                           |            |                                                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)             As a result of the Merger, First Avenue’s network of 79deployed sites (all sold and billing) and 497 billing T-1s were addedduring 2006.

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**ITEM 7.**                MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial conditionand results of operations should be read in conjunction with the consolidatedfinancial statements and related notes thereto included elsewhere in thisAnnual Report on Form 10-K. Some of the statementsin the following discussion are forward-looking statements that are basedon our current expectations, estimates and projections about our business andoperations. For a variety of reasons, including those described in “Forward-LookingStatements” and “Risk Factors,” our actual results may differ materially.Except for our prices and unless otherwise specified, all dollar amountspresented under “Results of Operations” below are in thousands

Since the Merger wasaccounted for as a reverse acquisition, our historical financial statements forperiods prior to the Merger are the historical financial statements of OldFiberTower and include the results of First Avenue from and after the Merger.As a result, our historical financial statements may not be indicative of ourfuture results of operations.

***Executive Overview***

We provide backhaul services to wireless carriers. Webegan generating backhaul service revenue in 2003 by providing our services inDallas, Texas. We have commercial relationships with 6 of the leading wirelesscarriers in the United States. As of December 31, 2006, we had 219employees. We market our services solely in the United States through our directsales force.

We use a variety of metrics to assess the growth andevaluate the performance of our operations. In addition to traditionalfinancial evaluations, including performance against budget, we also considernon financial measurements, the most important of which are the number of sitesdeployed, number of sites billing, the number of customer locations billing andtotal T-1s billing. The number of sites deployed represents sites fromwhich we could deliver our services in a particular market. Customer locationsbilling are carrier locations, at which we currently provide T-1s. Adeployed site could have multiple customer (carrier) locations. The number ofsites billing represents the number of deployed sites on which we currentlyhave sold at least one T-1 to a customer. A T-1 is an increment ofbandwidth that the Company sells of approximately 1.54 megabits per second.

We consider these to be key metrics because the numberof sites constructed is a key factor in determining the amount of additional capitalexpenditures required to grow the network and the number of field personnelrequired to support our operations and sales growth. Sites billing, the numberof customer locations billing and the number of T-1s per sites billingare all indicators of the productivity of the network.

As we expand into new markets, we incur significant upfront costs for predevelopment site evaluation, site leases, cost of newcapital equipment and construction costs. These expenses are incurred well inadvance of receiving revenues from customers. Accordingly, in most cases, wewill incur substantial upfront costs in constructing sites, without anyassurance of significant future revenues from those sites.

Prior to 2005, our strategy was to construct networksonly where a site had committed customer orders prior to any network design ordeployment activities. Beginning in late 2005, in order to shorten the time acustomer had to wait between commitment and initial service delivery, weimplemented a new strategy to deploy networks where not all sites had committedcustomer orders at the start of deployment. As a consequence, we may have aninventory of sites where T-1s are available following completion of adeployment project, including some sites where no T-1s are being used todeliver services.

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As ofDecember 31, 2006, we had deployed 1,996 sites, of which 1,329 had billingcustomers. A deployed site may not yet be billing for various reasonsincluding:

·       Wehave sold service at that site, but have not yet commenced providing service tothe customer; or

·       Wehave not yet sold any service at that site, but the site is located in a marketin which wireless carriers who are our customers operate but with whom we maynot have yet secured a commitment for this specific market.

Sites where we havesold service but not yet commenced providing service may be subject to factorsincluding:

·       Thecustomer is not yet able to take delivery of the T-1;

·       Otherelements of the network between the site and the drop-off location are not yetconstructed, so service cannot yet be delivered; or

·       Duringcertain periods in certain markets, we may complete construction of sites at afaster rate than the services associated with those sites can be provisioned tothe customer, resulting in a temporary increase in the number of sites not yetbilling.

Our business plan dependson the fact that most, if not all, sites will generate revenue at some futuredate sufficient to fully recover our investment in property and equipment. Ifwe are unable to generate sufficient revenues from these sites in the future,our business, financial condition and results of operations would be adverselyaffected. We have recognized relatively limited amounts of revenues to date,have generated operating and net losses and negative cash flows and expect togenerate operating and net losses and negative cash flows for the foreseeablefuture. (See “Liquidity and Capital Resources” below).

**Service Revenues**

We generate revenue by charging a monthly recurringcharge per circuit (a circuit is one T-1 line). The durations of ourcustomer contracts are generally three or five years.

Wehave derived more than 80% of our historic revenues from two customers,Cingular Wireless and Sprint Nextel as shown below:

|                   | ** ** | **Year Ended December 31,** | ** ** |
|-------------------|------------|--------------------------------------------|------------|
| ** **        | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Cingular Wireless |       |                                       | 70         | % |   |   | 88 | % |   |   | 86 | % |   |
| Sprint Nextel     |       |                                       | 14         | % |   |   | 9 | % |   |   | 14 | % |   |

 

Accountsreceivable from these two customers comprised the following percentages ofour  total accounts receivable balancesat December 31, 2006 and 2005:

|                   | ** ** | **As of December 31,** | ** ** |
|-------------------|------------|---------------------------------------|------------|
| ** **        | ** ** | **2006**                              | ** ** | **2005** | ** ** |
| Cingular Wireless |       |                                  | 85         | % |   |   | 87 | % |   |
| Sprint Nextel     |       |                                  | 10         | % |   |   | 10 | % |   |

 

**Cost of ServiceRevenues and Operating Expenses**

Cost of service revenues are comprised primarily ofengineering and maintenance personnel expenses, site lease expense for spaceleased at our sites, fiber service provider and fiber lease expenses, and costsassociated with unsuccessful site acquisition. We expect cost of servicerevenues to increase significantly in future periods as we execute our businessplan to grow our network operations into other geographic 

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locations and thecontinuing effects of Statement of Financial Accounting Standards123(R) (“SFAS 123(R)”), which relates to accounting for share-basedpayments for future grants.

Sales and marketing expenses are comprised primarilyof compensation and related benefits and travel expenses. We expect sales andmarketing expenses to increase in future periods as a result of expanding ouroperations and the continuing effects of SFAS 123R for future grants.

General and administrative expenses primarily consistof compensation and related benefits, recruiting fees, travel expenses,professional fees and insurance. We expect general and administrative expensesto increase in future periods as a result of expanding operations and the continuingeffects of SFAS 123R for future grants.

Depreciation andamortization expenses primarily consist of depreciation related to thedeployment of network sites and the amortization of debt issuance costs. Weexpect depreciation expenses to increase in future periods as a result ofdeploying and commencing depreciation on additional sites.

**Challenges FacingOur Business**

In addition to the risks described in the sectionentitled “Risk Factors,” there are various challenges facing our businessincluding deploying in a predictable manner, scaling our business and managinggrowth, acquiring new customers on existing sites, the concentrated nature ofour customers and the emerging nature of our market.

Deploying in a predictable manner can be challenginggiven the numerous landlords that we must deal with in order to lease space onsites, complying with the various zoning and permitting laws of differentcities or districts, and managing the contractors involved with construction,program and project management. We have taken steps to reduce deploymentunpredictability by engaging with large, well-established, turnkey vendors thatare experienced in this area. Additionally, we concentrate on selecting sitesowned by major tower operators with whom we already have agreements, which webelieve will help minimize the risk of failing to negotiate a definitive leasefor a site.

We are a rapidly growing company, and hiring qualifiedpersonnel and developing processes and systems rapidly are necessary in orderto grow successfully. If we cannot hire qualified employees, manage our growthand develop these systems and processes successfully, our business would beadversely affected.

As described above, acquiring customers on existingsites in a timely fashion is important for appropriate return on the capitalthat we invest, particularly since we incur significant costs in preparingsites to become operational. In many cases, these costs are incurred well inadvance of having committed revenue from a customer. Our business, financialcondition and results of operations will be negatively affected if we do notobtain sufficient revenues from constructed sites.

We are a new entrant into a highly concentrated marketwith few potential customers in any particular market. Maintaining and growingour existing relationships with the leading wireless carriers and developingnew relationships with other carriers are critical to our success.

We operate in an emergingmarket. Our future success depends on an increased demand for wireless servicesfor voice and other mobile broadband services such as transmissions of photosor videos and internet communication.

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**Internal Controls**

As discussed in “Item 9A. Controls andProcedures”, our management has identified and reported to our audit committeeand our independent registered public accounting firm, the following materialweakness in our internal control over financial reporting. The scope andcomplexity of our operations increased during late 2006, principally as aresult of the merger between Old FiberTower and First Avenue, and oursubsequent convertible debt offering. As a result, we do not have a sufficientnumber of accounting personnel with the relevant technical accounting andfinancial reporting experience and skills, and we lack the requisite accountingsystems (which were largely non-integrated as of December 31, 2006), tofacilitate the preparation of timely and accurate consolidated financialstatements, particularly with respect to accounting for significant unusual transactions.Consequently, material errors occurred, or have the potential to occur, in our(i) goodwill and deferred income tax liability accounts and(ii) embedded derivative financial instruments and other income andexpense accounts, as well as in the related financial statement disclosures.Therefore, we recorded a number of adjustments to our 2006 consolidatedfinancial statements, and related disclosures, prior to their inclusion in thisreport.

As a result of this material weakness in our internalcontrol over financial reporting, our CEO and CFO have concluded that, as ofDecember 31, 2006, our disclosure controls and procedures and our internalcontrol over financial reporting were not effective. We are implementing andwill continue to implement measures intended to address this material weaknessand improve our internal control over financial reporting. While we believethat such measures will improve our internal controls, we recognize that theprocess of designing, implementing and maintaining effective internal controlsis a continuous process that requires us to anticipate and react to changes inour business and the economic and regulatory environment. If these measures areinsufficient to address the issues raised, or if we discover additionalinternal control deficiencies or material weaknesses, we may fail to meetreporting requirements established by the SEC and our obligations under theterms of the notes and our future indebtedness, our financial statements maycontain material misstatements and require restatement and our business andoperating results may be harmed.

**Results ofOperations**

Presented below are selected statement of operationsdata for the years ended December 31, 2006, 2005 and 2004 that have beenderived from our audited consolidated financial statements which are presentedelsewhere in this document. You should read this information together with theconsolidated financial statements and related notes that are included elsewherein this document. Our historical results are not necessarily indicative of theresults that are expected in future periods.

**Statement ofOperations Data:(In thousands)**

| ** **                                                         | ** ** | **Year Ended December 31,** | ** ** |
|--------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                         | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Service revenues                                                   |       | $                                          | 13,763     |   | $ | 6,224 |   | $ | 2,624 |   |
| Cost of service  revenue (excluding depreciation and amortization) |       | 36,541                                     |       | 19,224 |   | 8,701 |   |
| Sales and  marketing                                               |       | 6,479                                      |       | 3,822 |   | 2,572 |   |
| General and  administrative                                        |       | 18,038                                     |       | 4,444 |   | 2,529 |   |
| Depreciation and  amortization                                     |       | 9,077                                      |       | 3,096 |   | 1,233 |   |
| Other income  (expense), net                                       |       | (906                                       | )          | 2,453 |   | 346 |   |
| Net loss                                                           |       | $                                          | (57,278    | ) | $ | (21,909 | ) | $ | (12,065 | ) |

 

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The following tablesets forth selected statement of operations data as a percentage of our servicerevenues for each of the periods indicated.

| ** **                                                         | ** ** | **Year Ended December 31,** | ** ** |
|--------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                         | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Service revenues                                                   |       | 100                                        | %          | 100 | % | 100 | % |
| Cost of service  revenue (excluding depreciation and amortization) |       | 266                                        | %          | 309 | % | 332 | % |
| Sales and  marketing                                               |       | 47                                         | %          | 61 | % | 98 | % |
| General and  administrative                                        |       | 131                                        | %          | 71 | % | 96 | % |
| Depreciation and  amortization                                     |       | 66                                         | %          | 50 | % | 47 | % |
| Interest income  (net of interest expense)                         |       | (7                                         | )%         | 39 | % | 13 | % |
| Net loss                                                           |       | (416                                       | )%         | (352 | )% | (460 | )% |

 

*Year endedDecember 31, 2006 compared to year ended December 31, 2005*

Service revenues for the year ended December 31,2006 increased 121% to $13.8 million from $6.2 million for the year endedDecember 31, 2005. This increase was primarily driven by the addition of800 new billing sites and a 169% increase in billing T-1 lines to ournetwork during the previous 12 months combined with adding new customers onexisting sites. Included in the revenues for the year ended December 31,2006 was revenue in the amount of $0.5 million relating to nonrecurringpenalties incurred by a customer for the early termination of certain circuits.The acquisition of First Avenue contributed $0.6 million in revenue over thelast four months of 2006.

Cost of service revenues (excluding depreciation andamortization) increased 90% to $36.5 million for the year endedDecember 31, 2006, compared to $19.2 million for the year endedDecember 31, 2005, as a result of additional costs incurred to support thebilling sites that were added to the network during the past year and sharebased compensation of $1.1 million recorded to cost of service revenues in theyear ended December 31, 2006. Service revenues tend to lag cost of servicerevenues initially for new sites, especially in new markets, because there arecertain upfront costs that are generally incurred for a period of time before asite generates revenue. These costs include site evaluation expenses, leasepayments that are incurred as a site is being constructed, payments to fiberservice providers in order to ensure sufficient capacity is available to carrynew traffic, as well as costs related to unsuccessful site acquisitions thatare incurred during deployment. Due to the fact that most of our sites arerelatively new, cost of service revenues (excluding depreciation andamortization) has exceeded service revenues. The acquisition of First Avenuecontributed $1.3 million in cost of service revenues for the last four monthsof 2006.

Sales and marketing expenses increased 70% to $6.5million for the year ended December 31, 2006, compared to $3.8 million forthe year ended December 31, 2005 due to the expansion of marketing effortsto a limited number of customers, and the effect of stock-based compensationexpense, which contributed $0.7 million in expense for the year endedDecember 31, 2006. The acquisition of First Avenue contributed $1.0million in sales and marketing expense for the last four months of 2006.

General and administrativeexpenses increased 306% to $18.0 million for the year ended December 31,2006, from $4.4 million for the year ended December 31, 2005. Thisincrease is the result of increases in personnel costs due to an increase inheadcount, stock-based compensation, which contributed $4.6 million in expensefor the year ended December 31, 2006, and professional fees. Theacquisition of First Avenue contributed $2.6 million in general andadministrative expenses for the last four months of 2006.

Depreciation and amortization expense increased 193%to $9.1 million for the year ended December 31, 2006 from $3.1 million forthe year ended December 31, 2005. This increase was due to an increase of 1,250network sites that were deployed during the past 12 months.

Interest income increased 136% to $6.3 million for theyear ended December 31, 2006, from $2.7 million for the year endedDecember 31, 2005. The increase was due to increased interest incomeresulting from cash proceeds from the $150 million Series A PreferredStock financing that closed in July 2005 and the $402.5 million ofgross proceeds from the convertible notes issued in November 2006.

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Interest expense increased to $7.7 million for theyear ended December 31, 2006, from $0.2 million for the year endedDecember 31, 2005. The increase was primarily due to interest incurred asa result of $402.5 million in convertible notes issued inNovember 2006.

*Year endedDecember 31, 2005 compared to year ended December 31, 2004*

Service revenues for 2005 increased 137% to $6.2million from $2.6 million in 2004. This increase was primarily driven by theaddition of 275 new billing sites to our network during the year combined withadding new customers on our existing sites.

Cost of service revenues(excluding depreciation and amortization) increased 121% or $10.5 million to$19.2 million for 2005, compared to $8.7 million for 2004 as a result of costsincurred to support the expanding network. The increase in cost of revenues wasdue to the increase in upfront costs associated with the addition of the newsites to the network in advance of receiving significant revenues from thesesites.

Sales and marketing expenses increased 49%, or $1.2million, to $3.8 million for 2005, compared to $2.6 million for 2004. Thisincrease was a result of additional salaries and benefits to support our salesefforts as well as increases in travel expenses.

General and administrative expenses increased 76% or$1.9 million to $4.4 million for 2005, from $2.5 million for 2004. Thisincrease was the result of increases in personnel costs due to increases inheadcount and professional fees to support our growth.

Depreciation and amortization expense increased to$3.1 million for 2005 from $1.2 million for 2004. This increase resulted froman increase of 472 deployed sites in our network.

Other income (expense), net totaled $2.5 million for2005 as compared to $0.3 million for 2004. This increase was due toincreased interest income resulting from the $150 million Series APreferred Stock financing that closed in July 2005.

**Liquidity andCapital Resources**

Our business does not currently generate sufficientcash flow from operations to fund our short-term or long-term liquidity needs,and we may not be able to generate cash flow from operations sufficient to meetour liquidity needs in the future, which would require us to continue to raisefunds through external sources. We have relied on the proceeds from equity anddebt financings to provide cash for our operations.

On November 9, 2006, wecompleted the sale of $402.5 million of 9.00% Convertible Senior Secured Notesdue on November 15, 2012 (“Notes”). The Notes were sold to two initialpurchasers in a private placement exempt from the registration requirements ofthe Securities Act of 1933, as amended. The Notes are fully guaranteed, jointlyand severally, by us and each of our subsidiaries (“Guarantees”). See Note 6 tothe consolidated financial statements for additional information regardingthese Notes. We anticipate that we will use approximately $100 million ofcash for investing activities during 2007 to expand our network.

Our primary liquidity needs arise from capitalrequirements necessary to expand our network and fund operating losses. We hadunrestricted cash and cash equivalents, certificates of deposit and short terminvestments of approximately $365 million at December 31, 2006. Webelieve this gives us sufficient liquidity to continue operations at leastthrough December 31, 2007 and beyond.

We also require cash to service the interest on theNotes described above. At the time of the closing of the sale of the Notes tothe initial purchasers, we deposited into an escrow account $68.5 million ofthe net proceeds from the Notes offering, which, together with the proceedsfrom the investment thereof, will be sufficient to make the first four interestpayments on the Notes. Thereafter, we have the option to pay interest on thenext four interest payment dates in additional notes. Our ability to pay ourexpenses and make payments due on the Notes depends on our future performance,which will be affected by financial, business, economic, legislative and otherfactors, many of which are beyond our control.

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We anticipate that we will continue to investsignificantly in deploying our network over the next several years. The size ofour capital requirements will depend on numerous factors, including our abilityto grow revenues, control costs, and deploy our network on a timely basisaccording to plan and customer requirements. We will require significant cashexpenditures related to capital construction costs and operating losses. Weintend to obtain financing through the issuance of additional equity or debt securities,or both. There can be no assurance that this additional financing will beavailable on terms acceptable to us or at all. If we are unable to raisesufficient funds, we may need to reduce our operations or delay our expansion.In addition, we may be required to sell assets or incur additional debt, or wemay need to refinance all or a portion of our indebtedness at or beforematurity. We may not be able to accomplish any of these alternatives on termsacceptable to us, or at all. In addition, the terms of existing or future debtagreements may restrict us from adopting any of these alternatives.

**Cash Flow Analysis**

Our principal liquidity requirements are primarily forworking capital purposes and the expansion of our network through ourinvestment in network equipment and site acquisition and construction costs.

*OperatingActivities:*

Net cash used in operating activities increased by $30.6 millionto $36.3 million compared to cash used in operations of $5.8 millionfor the year ended December 31, 2005. The negative cash flow fromoperations in 2006 was primarily caused by a net loss of $57.3 million for theyear, and a decrease of $2.6 million in accounts payable due to the payment ofvendors. The net loss for the year includesnon-cash charges of $18.4 million, which consist primarily of $9.1 millionof depreciation and amortization, stock-based compensation of $6.4 million, $1.7million in accretion of convertible notes.

Net cash used in operatingactivities increased by $0.4 million to $5.8 million in 2005,compared to $5.3 million in 2004. This increase was principally the resultof an increase in net loss of $9.8 million in 2005, which was offset by anincrease in accounts payable and accrued liabilities of $14.1 million andnon-cash charges of $3.4 million, which consists principally ofdepreciation and amortization expense. The increase in accounts payable andaccrued liabilities of $14.1 million is due principally to the expansionof our network.

*InvestingActivities*

Net cash used in investing activities consistedprimarily of our investment in network equipment and site construction costs aswell as the back-office systems to support the network. In addition, in 2006 wereceived $52.1 million in cash and maturing certificates of deposit fromour merger with First Avenue Networks, net of $2 million in transaction-relatedexpenses.

Netcash used in investing activities were as follows (in thousands):

| **Period ended**         | ** ** | ** **                | ** ** | **Amount** | ** ** |
|-------------------------------|------------|---------------------------|------------|------------|------------|
| Year ended  December 31: | ** ** | ** **                | ** ** |
| 2006                          | ** ** | $                         | 124,291    | ** ** |
| 2005                          | ** ** |     52,801 | ** ** |
| 2004                          | ** ** |     23,310 | ** ** |
|                               |            |                           |            |            |            |  |

 

In the year ended December 31, 2006, we completeddeployment on 1,178 sites spending $94.7 million in capital expenditures.In 2005 and 2004, we completed deployment on 472 and 150 sites, respectivelyand incurred related capital expenditures of $53.0 million and$20.4 million, respectively. We anticipate that we will use approximately$100 million of cash for investing activities during 2007 to expand ournetwork. We invested $15.3 million in short term investments. Additionally, we purchased$68.5 million in U.S. Treasury securities to fund the restricted escrow accountestablished to pay for the first four interest payments on the ConvertibleSenior Secured Notes.

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*FinancingActivities*

On November 9, 2006, we completed the sale of theNotes, which provided $388.2 million in net proceeds. The Notes were soldto two initial purchasers in a private placement exempt from the registrationrequirements of the Securities Act of 1933, as amended. The Notes are fullyguaranteed, jointly and severally, by us and each of our subsidiaries. As partof the private placement we incurred $14.3 million in debt issuance costs thatwere paid at closing. See Note 6 to the consolidated financial statements foradditional information regarding these Notes.

Net cash was also provided by the exercise of stockoptions and amounted to $660,000, $47,000 and $48,000, in 2006, 2005 and 2004,respectively.

Cash provided by financingactivities in 2005 and 2004 was derived almost exclusively from the proceeds ofvarious series of Old FiberTower preferred stock financings that providedproceeds of $149.8 million and $39.0 million, net of closing costs,in 2005 and 2004, respectively. All of Old FiberTower’s preferred stock wasconverted into common stock in connection with the Merger. In 2005, cash wasused in financing activities relating to loans aggregating  $4.0 million to four stockholders (thesenotes receivable from stockholders were repaid in August 2006 inconnection with the Merger).

*Debt Obligationsand Restricted Cash and Investments*

Long-term accounts payable consisted of trade payableswith extended payment terms relating to our purchase of equipment, software andprofessional services from certain vendors. Two of these vendor contracts,which contain the nonrevolving lines of credit described below, assessedinterest on unpaid balances ($1.2 million as of December 31, 2005 andnone at December 31, 2006) at 10% per annum.

Two of our vendor contracts contained nonrevolvinglines of credit for the purchase of equipment in the aggregate amount of $5 millionthrough July 2, 2005 (as of December 31, 2006 and 2005, we had noadditional borrowing capacity under these lines of credit). As of December 31,2005, we had utilized $3 million of these lines of credit. The aggregateoutstanding balance was $1.2 million as of December 31, 2005 (none atDecember 31, 2006).

Also, in relation to a service supplier agreement thatwas executed in 2005, we were required to maintain a restricted cash equivalentbalance with a financial institution of $1.0 million as of December 31,2006 and 2005. We also maintain five additional letters of credit with afinancial institution in connection with other obligations. Four of theseletters of credit, which expire between June 19, 2007 and November 17,2007, totaled $356,000, at December 31, 2006 and $16,000 at December 31,2005 and 2004 and were collateralized by cash equivalents of $389,000 as of December 31,2006 and $16,000 as of December 31, 2005 and 2004, respectively. The fifthletter of credit expires in June 2011 and totaled $134,000 at December 31,2006 and $0 at December 31, 2005 and 2004. The total restricted cash andcash equivalents balance as of December 31, 2006 and 2005 was$1.6 million, and $3.5 million, respectively.

At December 31, 2006,we had unrestricted cash and cash equivalents of $365 million that were held inbank accounts, money market mutual funds, short-term obligations of the FederalHome Loan Mortgage Corporation and commercial paper issued by major U.S. andforeign corporations and financial institutions. In addition, under the termsof our November 2006 convertible note agreement, we have an additional$68.5 million invested in restricted U.S. Treasury securities. We believe wehave limited exposure to financial market risk including changes in interestrates. We believe the fair value of the investment portfolio or related incomewould not be significantly impacted by changes in interest rates due mainly tothe short term nature of the investment portfolio.

**Off-Balance SheetArrangements**

We have no off-balancesheet arrangements.

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**ContractualObligations and Commitments**

Thefollowing table summarizes our contractual obligations and other commercialcommitments as of December 31, 2006 (dollars in thousands):

| ** **                        | ** ** | ** ** | ** ** | **Payments Due by Period** | ** ** |
|-----------------------------------|------------|------------|------------|-------------------------------------------|------------|
| ** **                        | ** ** | **Total**  | ** ** | **Fiscal  2007**                          | ** ** | **Fiscal  2008-  2009** | ** ** | **Fiscal  2010-  2011** | ** ** | **Beyond  Fiscal  2011** | ** ** |
| **Contractual Obligations:** |       |       |       |                                      |       |   |   |   |   |   |   |
| Operating lease  obligations      |       | $          | 141,797    |                                      | $          | 15,917 |   | $ | 32,005 |   | $ | 31,701 |   | $ | 62,174 |   |
| Asset retirement  obligations     |       | 2,119      |       | —                                    |       | — |   | — |   | 2,119 |   |
| Convertible  senior secured notes |       | 722,736    |       | 36,830                                    |       | 72,450 |   | 72,450 |   | 541,006 |   |
| **Other Commercial Commitments:** |       |       |       |                                      |       |   |   |   |   |   |   |
| Letters of credit                 |       | 490        |       | 356                                       |       | — |   | 134 |   | — |   |
| **Total**                         |       | $          | 867,142    |                                      | $          | 53,103 |   | $ | 104,455 |   | $ | 104,285 |   | $ | 605,299 |   |

 

**Critical AccountingPolicies and Estimates**

Our discussion and analysis of our financial conditionand results of operations is based upon our consolidated financial statements,which have been prepared in accordance with U.S. generally accepted accountingprinciples. For additional information regarding our critical accountingpolicies and estimates, please refer to Note 2 to our Consolidated FinancialStatements in Item 8. The application of these policies requires us to makeestimates that affect the reported amount of assets, liabilities, revenues andexpenses, and related disclosures of contingent assets and liabilities. We baseour accounting estimates on historical experience and other factors which webelieve to be reasonable under the circumstances. However, actual results mayvary from these estimates under different assumptions or conditions. Managementhas discussed the development and selection of critical accounting policies andestimates with our Audit Committee.

We believe that the following critical accountingpolicies represent the more significant judgments and estimates made in thepreparation of our consolidated financial statements.

*The following is a summary of our critical accountingpolicies and estimates we make in preparing our consolidated financialstatements:*

*Revenueand Expense Recognition**—*We recognize revenues when: (1) persuasive evidence ofan arrangement exists, (2) the services have been provided to thecustomer, (3) the sales price is fixed or determinable and (4) thecollection of the sales price is reasonably assured. Amounts billed in advanceof providing service are deferred and recorded as deferred revenues.Incremental direct costs of service activation are charged to expense asincurred. We purchase electricity and lease collocation site space from certainof our customers. We receive an identifiable benefit in exchange for theamounts paid to our customers and we can reasonably estimate the fair value ofthe purchased electricity and leased tower site space. Therefore, we chargesuch amounts to cost of service revenues as incurred, unless the amount paidexceeds the respective fair value, in which case the differential is recordedas a reduction of service revenues. Other consideration provided to customers,such as customer incentives, is recorded as a reduction of service revenues.

*AccountsReceivable Allowances—*We encounter billing disputeswith certain customers in the ordinary course of business in thetelecommunications industry. We believe the impact of such disputes on ouraccounts receivable and service revenues is reasonably estimable based onhistorical experience. Accordingly, we maintain an allowance, through chargesto service revenues, based on management’s best estimate of the ultimateresolution of customer disputes. We provided an allowance for billing disputesof $157 as of December 31, 2006 (none at December 31, 2005).

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We perform ongoing evaluations of our customers’financial condition and generally do not require collateral or other creditenhancements. We will record an allowance for bad debts based on historicalexperience and our best estimate of future credit losses. We provided anallowance for doubtful accounts of $4 as of December 31, 2006 (none atDecember 31, 2005).

*UsefulLife Assignments and Impairment Evaluations Associated with Long-Lived Assets,including Intangible Assets**—Property* andequipment, which consists principally of network equipment and capitalized sitedevelopment costs, are stated at cost, less accumulated depreciation andamortization. Depreciation and amortization are calculated using thestraight-line method over the estimated economic lives ranging from three toten years. Depreciation is commenced when the assets are placed in service. Theeconomic lives are estimated at the time assets are placed in service and arebased on experience and anticipated technological changes. In assessing therecoverability of our property and equipment, we must make assumptionsregarding estimated future cash flows and other factors to determine the fairvalue of the respective assets. Property and equipment are evaluated for impairmentwhenever events or changes in circumstances indicate that the carrying valuemay not be recoverable. An impairment loss is recognized whenever (i) theestimated undiscounted future cash flows expected to result from the use of theasset plus net proceeds expected from disposition of the asset (if any) areless than the carrying value of the asset and (ii) the fair value of theasset is less than its carrying value. When an impairment loss is identified,the carrying value of the asset is reduced to its fair value.

Asdescribed more fully below, we evaluate our intangible assets with indefinite lives for impairmentannually and between annual evaluations if events or changes in circumstancesindicate that the carrying amount of such assets may not be fully recoverable***.***In cases where required, an impairmentprovision will be recognized in an amount by which the carrying value exceedsthe estimated fair value of such assets. In December 2006, we tested ourintangible assets pursuant to the guidance in SFAS 142. This testing did notresult in any impairment charges against the intangible assets,

*FCClicenses**—Recoverability*of the carryingvalue of FCC licenses is dependent on numerous factors, including successfuldeployment of networks and radio links or sales of such assets to a thirdparty. We consider the FCC licenses to have an indefinite useful life under theprovisions of SFAS 142. We perform an impairment test on these assets on anannual basis or more frequently if events and circumstances indicate the assetsmight be impaired. The impairment test compares the estimated fair value of theFCC licenses with the carrying value of the assets. If the estimated fair valueis less than the carrying value, an impairment loss would be recorded.

Our licenses are integralto our business. As a result, we believe that we must focus on protecting thisvaluable asset as our business plan evolves. Under FCC rules, licenses arerenewed based upon service provided as of the renewal date. The FCC does notconsider service provided during the ten year period for which the licenses aregranted. They evaluate whether “substantial service” is provided as of therenewal date. We will continue to lease spectrum, utilizing this non-capitalintensive method to put more of our FCC licenses to work. We may also introducenew product offerings utilizing our spectrum. Under our current business plan,we believe that we will meet the FCC’s “substantial service” requirement as ofthe various license renewal dates. We will continue to periodically assess ourprogress toward meeting these requirements. If at any time we determine that wewill most likely not meet these requirements, we will first test the FCClicenses for impairment and then we will modify the life of the particular FCClicenses and begin amortizing the cost over the remaining license period.

To evaluate whether animpairment of our FCC licenses has occurred, we consider a number of factors,including (i) the change in our public equity value; (ii) the changein the public equity value of companies providing similar services or holdingsimilar FCC licenses; (iii) private purchases of similar licenses; (iv) discountedcash flow analyses for the future cash flows relating to the FCC licenses; and (v) theresults of FCC spectrum auctions for similar spectrum. Recoverability of thecarrying value of our 

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FCClicenses is dependent on successful deployment of networks and radio links orsales of such assets to a third party. At December 31, 2006,  FiberTower’s FCC licenses had a carryingvalue of $342 million.

*Goodwill—**The*excess of thepurchase price over the fair value of identifiable net assets of acquiredcompanies is allocated to goodwill. Under the provisions of SFAS 142, goodwillis not amortized but is reviewed for impairment annually or more frequently ifimpairment indicators arise.

We have one reporting unitfor consideration in the application of the impairment requirements of SFAS 142.When determining the fair value of this reporting unit, we consider acombination of the market price of our common equity and discounted cash flows.In assessing the recoverability of goodwill, we must make assumptions regardingestimated future cash flows, discount rates and other factors to determine ifan impairment has occurred. If these estimates or their related assumptionschange in the future, we may be required to record impairment charges. Futuredeclines in our goodwill value could result in an impairment charge toearnings, increasing our operating loss in future periods.  Our stock price could decline as a result ofsuch a charge to earnings. At December 31, 2006, FiberTower’s goodwill hada carrying value of $243.4 million.

*Asset RetirementObligations—*We account for asset retirementobligations in accordance with SFAS No. 143, “Accounting for AssetRetirement Obligations.” We recognize liabilities for asset retirementobligations relating to the estimated costs of removing network equipment fromour leased colocation sites, as stipulated in the related lease agreements. Theasset retirement obligations are recognized in the period in which they areincurred if a reasonable estimate of their fair value can be made. Theassociated asset retirement costs are capitalized as part of the carryingamount of the related long lived assets and depreciated on a straight-linebasis over their estimated useful life of ten years. We calculate the netpresent value of the retirement obligation assuming a credit-adjusted,risk-free interest rate of 12%. We also assume the settlement date for removingthe network equipment from our leased colocation sites to be ten years from thedate the asset is placed into service, which is the expected term of therelated leases. We monitor the estimates and assumptions used in determiningour asset retirement obligations and adjust them accordingly if deemednecessary.

*DeferredTaxes—We*have recordeda full valuation allowance to reduce our deferred tax assets to the amount thatis more likely than not to be realized. In the event we were to determine thatwe would be able to realize the deferred tax assets in the future in excess ofthe net recorded amount, an adjustment to the deferred tax valuation allowancewould be reported as follows.  To the extent any of the $579,000 of valuationallowance associated with the First Avenue merger is subsequently reversed, itwill be recognized first as a reduction of goodwill, then as a reduction ofother intangible assets, and, lastly, as a reduction of that period’s incometax expense. To the extent any of the valuation allowance related to FirstAvenue’s predecessor is subsequently reversed as a result of the use of netoperating loss carryforwards, it will be recognized as a direct addition toadditional paid in capital. To the extent that an adjustment to the valuation allowancearises for any other reason, it will be recorded as a reduction of income taxexpense in the period such determination is made.

*Leases—*Welease our office space, certain network facilities and vehicles under operatingleases, and account for these leases in accordance with SFAS No. 13,“Accounting for Leases.” Most of our operating lease arrangements representagreements made with landlords for space leased at our colocation sites. Theterm of these agreements is typically for five years and we have the unilateralability and intent to extend the term of these site lease agreements such thatthe minimum lease periods equal or slightly exceed the estimated 10 yearuseful lives of the property and equipment located at such leased sites. Wealso do not believe there are any explicit or implicit “penalties,” as definedin SFAS No. 98, Accounting for Leases, for failure to renew any siteleases at the end of the respective assumed lease terms of approximately10 years that would extend the lease term past the assumed terms ofapproximately 10 years. For leases that contain scheduled rent escalationprovisions, we record the total rent payable during the lease term on astraight-line basis over the lease term.

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*Stock-BasedCompensation—*Prior to January 1, 2006, weaccounted for stock-based compensation paid to employees under the recognitionand measurement provisions set forth in Accounting Principles Board OpinionNo. 25, Accounting for Stock Issued to Employees (“APB 25”) Under theintrinsic-value method set forth in APB 25, no compensation cost wasrequired to be recognized for awards that had an exercise price equal to, orgreater than, the market value of the underlying stock on the date of grant.

Effective January 1,2006, we adopted the fair value recognition provisions of StatementNo. 123 (revised 2004) of the Financial Accounting Standards Board(“FASB”), Share-Based Payment (“SFAS No. 123(R)”). SFASNo. 123(R) requires the fair value of all share-based payments toemployees, including grants of employee stock options, to be recognized asexpense over the employees’ requisite service period.

We adopted SFASNo. 123(R) on a prospective basis effective January 1, 2006.Under the prospective method we continue to account for previously outstandingstock options at the date of adoption of SFAS No. 123(R) under APB25. The application of SFAS No. 123(R) increased our net loss for theyear ended December 31, 2006 by $2.1 million ($0.04 per share) out of atotal share-based compensation of $6.4 million.

We accounted for stockoptions granted to nonemployees prior to 2006 using the fair-value method setforth in SFAS No. 123. Effective January 1, 2006, we account forshare-based payments to nonemployees based on the guidance in Emerging Issues TaskForce (“EITF”) Issue No. 96-18, “Accounting for Equity InstrumentsThat Are Issued to Other Than Employees.”

**Weestimate the fair value of options granted using the Black-Scholes-Mertonoption valuation at model and the assumptions shown in Note 9, “Stockholders’Equity,” in the condensed consolidated financial statements. We estimate theexpected term of options granted based on the guidance in SEC Staff AccountingBulletin No. 107. Expected volatilities were calculated based on thehistorical volatilities of similar public companies in the telecommunicationsindustry. We base the risk-free rate for periods within the contractual life ofthe option on the U.S. Treasury yield curve in effect at the time of the grant.We have never paid any cash dividends on our common stock and we do notanticipate paying any cash dividends in the foreseeable future. Consequently,we use an expected dividend yield of zero in the Black-Scholes-Merton optionvaluation model. We use the straight-line method for share-based paymentexpense recognition, and estimate forfeitures and only recognize share-basedpayment expense for those awards expected to vest. Our estimated forfeiturerate is based on our historical forfeiture experiences. We may elect to usedifferent assumptions under the Black-Scholes-Merton option valuation model inthe future if our experience indicates that a different measure is preferable,which could materially affect our net loss and net loss per share.**

**Related Party Transactions**

During the years endedDecember 31, 2006 and 2005, we leased colocation space from certainstockholders that (i) own greater than 10% of our outstanding equitysecurities and/or (ii) have representatives who serve on our Board ofDirectors. One of these related parties also provided us with certain servicespertaining to its network operations center during such years. The aggregateoperating expenses included in the accompanying statements of operations foryears ended December 31, 2006 and 2005, respectively, pertaining to theselease and service arrangements were approximately $1,722, and $433,respectively. We do not consider the corresponding amounts for the year ended December 31,2004 to be material to our financial statements. As a result of the Merger, theownership interests of one related party is less than 3% of our outstandingequity securities and transactions with this entity during the fourth quarterof 2006 is excluded.

During the years endedDecember 31, 2006, 2005 and 2004, (i) a member of our Board ofDirectors and (ii) one of our investors served as consultants to theCompany on various aspects of our business and strategy. These individuals werecompensated for their services with varying amounts of cash and stock options,which we do not consider to be material to the accompanying consolidatedfinancial statements.

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Representatives from threeentities holding approximately 36% of the outstanding common stock serve on ourBoard of Directors. A company controlled by a member of the Board of Directorsperiodically serves as a consultant to a holder of approximately 16% of ouroutstanding common stock.

The Executive Chairman ofour board of directors, serves as a director of Tessco TechnologiesIncorporated. Tessco supplies us with various materials which we use in ourbusiness operations. During 2006, we paid Tessco approximately $0.7 millionwith an additional $0.2 million in unpaid and uninvoiced balances as ofDecember 31, 2006.

**ITEM7A*.  *QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISKS**

At December 31, 2006,we had unrestricted cash, cash equivalents, certificates of deposit andshort-term investments of $365 million that were held in bank accounts,money market mutual funds, short-term obligations of the Federal Home LoanMortgage Corporation and commercial paper issued by major U.S. and foreigncorporations and financial institutions.

We are adverse toprincipal loss and intend to ensure the safety and preservation of our investedfunds by limiting default and market risk. We intend to continue to invest ourcash and cash equivalents in high quality short-term (less than three months’maturity) obligations issued by major corporations and financial institutions.

As of December 31,2006, we believe we have limited exposure to financial market risk, includingchanges in interest rates, because our investments have a maturity of less thanthree months. We believe the fair value of the investment portfolio will not besignificantly impacted by changes in interest rates due mainly to the shortterm nature of the investment portfolio, although future interest income wouldbe impacted by changes in interest rates as well as the amount of fundsavailable to be invested in such securities.

Our Convertible SeniorSecured Notes, with a maturity of November 2012, bear a fixed coupon rateof 9% and a total interest yield of 12% per annum. The fair value of such Notesis dependent upon a number of factors including future interest rates and themarket value of FiberTower’s common stock. The Notes are traded in a verythinly traded resale market. We do not hedge our debt obligations or engage inany derivative investments to offset the impact of future changes in the marketvalue of the Notes. Future increases in interest rates would decrease the fairvalue of the Notes while decreases in rates would likely have the oppositeeffect. At December 31, 2006, the fair value and amortized cost of our Noteswere $479 million and $403.8 million, respectively.

We have not heldderivative financial or commodity instruments in the past and have no currentplans to do so in the future. We have not conducted business in foreigncurrencies in the past and have no current plans to do so in the future.

47

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**ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARYDATA**

**Index toConsolidated Financial Statements**

|                                                                                                                                                  |   |   | Page   |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| Report of Independent  Registered Public Accounting Firm                                                                                              |   |   | 49     |   |
| Consolidated Financial  Statements as of December 31, 2006 and 2005 and for each of the three  years in the period ended December 31, 2006: |   |   |   |   |
| Consolidated  Balance Sheets                                                                                                                          |   |   | 50     |   |
| Consolidated Statements of Operations                                                                                                                 |   |   | 51     |   |
| Consolidated Statements of Convertible Preferred Stock  and Stockholders’ Equity (Deficit)                                                       |   |   | 52     |   |
| Consolidated Statements of Cash Flows                                                                                                                 |   |   | 53     |   |
| Notes to Consolidated Financial Statements                                                                                                            |   |   | 54     |   |

 

48

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**Report ofIndependent Registered Public Accounting Firm**

The Board of Directors and StockholdersFiberTower Corporation

We have audited the accompanying consolidated balancesheets of FiberTower Corporation as of December 31, 2006 and 2005, and therelated consolidated statements of operations, convertible preferred stock andstockholders’ equity (deficit), and cash flows for each of the three years inthe period ended December 31, 2006. These financial statements are theresponsibility of the Company’s management. Our responsibility is to express anopinion on these financial statements based on our audits.

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, 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 financial statements referred toabove present fairly, in all material respects, the consolidated financialposition of FiberTower Corporation at December 31, 2006 and 2005, and theconsolidated results of its operations and its cash flows for each of the threeyears in the period ended December 31, 2006, in conformity with U.S.generally accepted accounting principles.

As discussed in Note 2 to the consolidated financialstatements, in 2006 the Company adopted the fair value recognition provisionsof Statement of Financial Accounting Standards No. 123(R), “Share-BasedPayment,” using the prospective-transition method.

We also have audited, inaccordance with the standards of the Public Company Accounting Oversight Board(United States), the effectiveness of FiberTower Corporation’s (which, asindicated in our report dated March 29, 2007, was formerly known as FirstAvenue Networks, Inc.) internal control over financial reporting as of December 31,2006, based on criteria established in InternalControl—Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission and our report dated March 29,2007 expressed an adverse opinion thereon.
|  |   | /s/ ERNST &  YOUNG LLP |
|--|--------|---------------------------------|

 

San Francisco, California March 29, 2007

49

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**FIBERTOWER CORPORATION**Consolidated BalanceSheets(All amounts are in thousands, except share and per share data)
|                                                                                                                                                                                                                                                                                                            | ** ** | **December 31, 2006** | ** ** | **December 31, 2005** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| **Assets:**                                                                                                                                                                                                                                                                                                |       |                            |       |                            |       |   |   |   |   |
| Current assets:                                                                                                                                                                                                                                                                                            |       |                            |       |                            |       |   |   |   |   |
| Cash and cash  equivalents                                                                                                                                                                                                                                                                                 |       |                            | $          | 345,174                         |       |   |   | $ | 112,936 |   |   |
| Certificates of  deposit                                                                                                                                                                                                                                                                                   |       |                            | 5,000      |                            |       |   | — |   |   |
| Short term  investments                                                                                                                                                                                                                                                                                    |       |                            | 15,253     |                            |       |   | — |   |   |
| Restricted cash  and investments, current portion                                                                                                                                                                                                                                                          |       |                            | 35,616     |                            |       |   | 1,844 |   |   |
| Accounts  receivable, net of allowances of $161 at December 31, 2006 (None at  December 31, 2005)                                                                                                                                                                                                |       |                            | 2,904      |                            |       |   | 822 |   |   |
| Prepaid expenses  and other current assets                                                                                                                                                                                                                                                                 |       |                            | 2,624      |                            |       |   | 1,113 |   |   |
| Total current  assets                                                                                                                                                                                                                                                                                      |       |                            | 406,571    |                            |       |   | 116,715 |   |   |
| Restricted cash  and investments                                                                                                                                                                                                                                                                           |       |                            | 34,906     |                            |       |   | 1,636 |   |   |
| Property and  equipment, net                                                                                                                                                                                                                                                                               |       |                            | 171,612    |                            |       |   | 77,199 |   |   |
| FCC licenses                                                                                                                                                                                                                                                                                               |       |                            | 342,000    |                            |       |   | — |   |   |
| Goodwill                                                                                                                                                                                                                                                                                                   |       |                            | 243,388    |                            |       |   | — |   |   |
| Debt issuance  costs, net of accumulated amortization of $300 at December 31, 2006                                                                                                                                                                                 |       |                            | 14,009     |                            |       |   | — |   |   |
| Intangible and  other long-term assets, net                                                                                                                                                                                                                                                                |       |                            | 3,992      |                            |       |   | 299 |   |   |
| Total assets                                                                                                                                                                                                                                                                                               |       |                            | $          | 1,216,478                       |       |   |   | $ | 195,849 |   |   |
| **Liabilities, Convertible Preferred Stock and  Stockholders’ Equity (Deficit)**                                                                                                                                                                                                                      |       |                            |       |                            |       |   |   |   |   |
| Current liabilities:                                                                                                                                                                                                                                                                                       |       |                            |       |                            |       |   |   |   |   |
| Accounts payable                                                                                                                                                                                                                                                                                           |       |                            | $          | 18,039                          |       |   |   | $ | 18,927 |   |   |
| Accrued  compensation and related benefits                                                                                                                                                                                                                                                                 |       |                            | 4,246      |                            |       |   | 1,782 |   |   |
| Accrued interest  payable                                                                                                                                                                                                                                                                                  |       |                            | 5,333      |                            |       |   | — |   |   |
| Other accrued liabilities                                                                                                                                                                                                                                                                                  |       |                            | 3,528      |                            |       |   | 1,484 |   |   |
| Total current  liabilities                                                                                                                                                                                                                                                                                 |       |                            | 31,146     |                            |       |   | 22,193 |   |   |
| Other liabilities                                                                                                                                                                                                                                                                                          |       |                            | 1,020      |                            |       |   | — |   |   |
| Deferred rent                                                                                                                                                                                                                                                                                              |       |                            | 1,648      |                            |       |   | 320 |   |   |
| Asset retirement  obligations                                                                                                                                                                                                                                                                              |       |                            | 2,119      |                            |       |   | 571 |   |   |
| Long-term accounts  payable                                                                                                                                                                                                                                                                                |       |                            | —     |                            |       |   | 629 |   |   |
| Convertible senior  secured notes                                                                                                                                                                                                                                                                          |       |                            | 403,759    |                            |       |   | — |   |   |
| Deferred tax liability                                                                                                                                                                                                                                                                                     |       |                            | 102,964    |                            |       |   | — |   |   |
| Total liabilities                                                                                                                                                                                                                                                                                          |       |                            | 542,656    |                            |       |   | 23,713 |   |   |
| Commitments and contingencies                                                                                                                                                                                                                                                                              |       |                            |       |                            |       |   |   |   |   |
| Convertible  preferred stock, $0.0001 par value; 225,000,000 shares authorized: zero and  68,062,541 shares issued and outstanding at December 31, 2006 and 2005,  respectively                                                                                                        |       |                            | —     |                            |       |   | 220,675 |   |   |
| Stockholders’ equity  (deficit):                                                                                                                                                                                                                                                                      |       |                            |       |                            |       |   |   |   |   |
| Common stock,  $0.001 par value and $0.0001 at December 31, 2006 and 2005,  respectively; 400,000,000 and 325,000,000 shares authorized at  December 31, 2006 and 2005, respectively, 144,970,908 and 5,370,798  shares issued and outstanding at December 31, 2006 and 2005,  respectively |       |                            | 145        |                            |       |   | 5 |   |   |
| Additional paid-in  capital                                                                                                                                                                                                                                                                                |       |                            | 776,077    |                            |       |   | 679 |   |   |
| Notes receivable  from stockholders, including accrued interest of $79 at December 31,  2005                                                                                                                                                                                                          |       |                            | —     |                            |       |   | (4,079 | ) |   |
| Deferred  stock-based compensation                                                                                                                                                                                                                                                                         |       |                            | —     |                            |       |   | (22 | ) |   |
| Accumulated  deficit                                                                                                                                                                                                                                                                                       |       |                            | (102,400   | )                               |       |   | (45,122 | ) |   |
| Total  stockholders’ equity (deficit)                                                                                                                                                                                                                                                                 |       |                            | 673,822    |                            |       |   | (48,539 | ) |   |
| Total liabilities,  convertible preferred stock and stockholders’ equity (deficit)                                                                                                                                                                                                          |       |                            | $          | 1,216,478                       |       |   |   | $ | 195,849 |   |   |

 

See accompanying notes.

50

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**FIBERTOWER CORPORATION**ConsolidatedStatements of Operations(All amounts arein thousands, except share and per share data)

| ** **                                                          | ** ** | **Years Ended December 31** | ** ** |
|---------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                          | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Service revenues                                                    |       | $                                          | 13,763     |   | $ | 6,224 |   | $ | 2,624 |   |
| Operating expenses:                                                 |       |                                       |       |   |   |   |   |
| Cost of service revenues (excluding depreciation and  amortization) |       | 36,541                                     |       | 19,224 |   | 8,701 |   |
| Sales and marketing                                                 |       | 6,479                                      |       | 3,822 |   | 2,572 |   |
| General and administrative                                          |       | 18,038                                     |       | 4,444 |   | 2,529 |   |
| Depreciation and amortization                                       |       | 9,077                                      |       | 3,096 |   | 1,233 |   |
| Total operating expenses                                            |       | 70,135                                     |       | 30,586 |   | 15,035 |   |
| Loss from  operations                                               |       | (56,372                                    | )          | (24,362 | ) | (12,411 | ) |
| Other income (expense):                                             |       |                                       |       |   |   |   |   |
| Interest income                                                     |       | 6,326                                      |       | 2,683 |   | 485 |   |
| Interest expense                                                    |       | (7,680                                     | )          | (223 | ) | (138 | ) |
| Miscellaneous income (expense), net                                 |       | 448                                        |       | (7 | ) | (1 | ) |
| Total other income (expense), net                                   |       | (906                                       | )          | 2,453 |   | 346 |   |
| Net loss                                                            |       | $                                          | (57,278    | ) | $ | (21,909 | ) | $ | (12,065 | ) |
| Basic and diluted  loss per share                                   |       | $                                          | (1.11      | ) | $ | (4.92 | ) | $ | (3.66 | ) |
| Weighted average number  of shares used in per share amounts:       |       |                                       |       |   |   |   |   |
| Basic and diluted                                                   |       | 51,542,046                                 |       | 4,457,456 |   | 3,297,796 |   |

 

See accompanying notes.

51

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**FIBERTOWERCORPORATIONConsolidated Statements of Convertible Preferred Stock and Stockholders’ Equity(Deficit)**(All amounts are inthousands, except share and per share data)

| ** **                                                                                                                                     | ** ** | ** **                            | ** ** | ** ** | ** ** | **Stockholders’ Equity** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|------------|------------|------------------------------------|------------|
| ** **                                                                                                                                     | ** ** | **Convertible  Preferred Stock** | ** ** | ** ** | ** ** | **Common Stock**              | ** ** | **Additional  Paid-in** | ** ** | **Notes Receivable  from** | ** ** | **Deferred  Stock-based** | ** ** | **Accumulated** | ** ** | **Total  Stockholders’ Equity** | ** ** |
| ** **                                                                                                                                     | ** ** | **Shares**                            | ** ** | **Amount** | ** ** | ** **                         | ** ** | **Shares** | ** ** | **Amount** | ** ** | **Capital** | ** ** | **Stockholders** | ** ** | **Compensation** | ** ** | **Deficit** | ** ** | **(Deficit)** | ** ** |
| Balance at December 31, 2003                                                                                                              |       | 16,812,380                            |       | $          | 31,853     |                               |       |   | 5,049,991 |   |   | $ | 5 |   |   |   | $ | 324 |   |   |       | $ | — |       |    |     | $ | — |      |    |   | $ | (11,148 | ) |   |   | $ | (10,819 | ) |   |
| Issuance of convertible preferred stock, net of  issuance costs of $163                                                                        |       | 13,228,437                            |       | 38,994     |       |                               |       | — |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Issuance and remeasurement of stock options granted  to nonemployees for services                                                              |       | —                                |       | —     |       |                               |       | — |   |   | — |   |   |   | 4 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 4 |   |   |
| Issuance of common stock upon exercise of stock  options                                                                                       |       | —                                |       | —     |       |                               |       | 194,474 |   |   | — |   |   |   | 48 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 48 |   |   |
| Net loss                                                                                                                                       |       | —                                |       | —     |       |                               |       | — |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | (12,065 | ) |   |   | (12,065 | ) |   |
| Balance at December 31, 2004                                                                                                              |       | 30,040,817                            |       | 70,847     |       |                               |       | 5,244,465 |   |   | 5 |   |   |   | 376 |   |   |   | — |   |   |   | — |   |   |   | (23,213 | ) |   |   | (22,832 | ) |   |
| Issuance of convertible preferred stock,  Series A, net of issuance costs of $172                                                         |       | 45,608,130                            |       | 149,828    |       |                               |       | — |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Conversion of convertible preferred stock,  Series A-1, Series B and Series C, into convertible  preferred stock, Series A |       | (7,586,406                            | )          | —     |       |                               |       | — |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Issuance and remeasurement of stock options granted  to nonemployees for services rendered                                                     |       | —                                |       | —     |       |                               |       | — |   |   | — |   |   |   | 4 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 4 |   |   |
| Issuance of common stock upon exercise of stock  options                                                                                       |       | —                                |       | —     |       |                               |       | 111,131 |   |   | — |   |   |   | 47 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 47 |   |   |
| Issuance of common stock to nonemployee for services  rendered                                                                                 |       | —                                |       | —     |       |                               |       | 15,202 |   |   | — |   |   |   | 14 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 14 |   |   |
| Issuance of notes receivable from stockholders                                                                                                 |       | —                                |       | —     |       |                               |       | — |   |   | — |   |   |   | — |   |   |   | (4,000 | ) |   |   | — |   |   |   | — |   |   |   | (4,000 | ) |   |
| Accrual of interest on notes receivable from  stockholders                                                                                     |       | —                                |       | —     |       |                               |       | — |   |   | — |   |   |   | — |   |   |   | (79 | ) |   |   | — |   |   |   | — |   |   |   | (79 | ) |   |
| Deferred stock-based compensation                                                                                                              |       | —                                |       | —     |       |                               |       | — |   |   | — |   |   |   | 238 |   |   |   | — |   |   |   | (49 | ) |   |   | — |   |   |   | 189 |   |   |
| Amortization of deferred stock-based compensation                                                                                              |       | —                                |       | —     |       |                               |       | — |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 27 |   |   |   | — |   |   |   | 27 |   |   |
| Net loss                                                                                                                                       |       | —                                |       | —     |       |                               |       | — |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | (21,909 | ) |   |   | (21,909 | ) |   |
| Balance at December 31, 2005                                                                                                              |       | 68,062,541                            |       | 220,675    |       |                               |       | 5,370,798 |   |   | 5 |   |   |   | 679 |   |   |   | (4,079 | ) |   |   | (22 | ) |   |   | (45,122 | ) |   |   | (48,539 | ) |   |
| Issuance of common stock upon exercise of stock  options                                                                                       |       | —                                |       | —     |       |                               |       | 1,028,488 |   |   | 2 |   |   |   | 658 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 660 |   |   |
| Accrual of interest on notes receivable from stockholders                                                                                      |       | —                                |       | —     |       |                               |       | — |   |   | — |   |   |   | — |   |   |   | (106 | ) |   |   | — |   |   |   | — |   |   |   | (106 | ) |   |
| Amortization of deferred stock-based compensation                                                                                              |       | —                                |       | —     |       |                               |       | — |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 22 |   |   |   | — |   |   |   | 22 |   |   |
| Conversion of preferred stock to common stock                                                                                                  |       | (68,062,541                           | )          | (220,675   | )          |                               |       | 68,062,541 |   |   | 68 |   |   |   | 220,607 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 220,675 |   |   |
| Fractional shares paid in cash                                                                                                                 |       | —                                |       | —     |       |                               |       | (28 | ) |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Issuance of shares in connection with merger                                                                                                   |       | —                                |       | —     |       |                               |       | 67,204,089 |   |   | 67 |   |   |   | 547,593 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 547,660 |   |   |
| Awards of restricted shares of common stock, net of  cancellations                                                                             |       | —                                |       | —     |       |                               |       | 3,275,020 |   |   | 3 |   |   |   | (3 | ) |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Repayment of notes receivable and accrued interest from  stockholders                                                                          |       | —                                |       | —     |       |                               |       | — |   |   | — |   |   |   | — |   |   |   | 4,185 |   |   |   | — |   |   |   | — |   |   |   | 4,185 |   |   |
| Employee stock-based compensation expense                                                                                                      |       | —                                |       | —     |       |                               |       | — |   |   | — |   |   |   | 6,366 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 6,366 |   |   |
| Issuance of stock to nonemployee for services                                                                                                  |       | —                                |       | —     |       |                               |       | 30,000 |   |   |   |   |   |   | 177 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 177 |   |   |
| Net loss                                                                                                                                       |       | —                                |       | —     |       |                               |       | — |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | (57,278 | ) |   |   | (57,278 | ) |   |
| Balance at  December 31, 2006                                                                                                             |       | —                                |       | $          | —     |                               |       |   | 144,970,908 |   |   | $ | 145 |   |   |   | $ | 776,077 |   |   |   | $ | — |   |   |   | $ | — |   |   |   | $ | (102,400 | ) |   |   | $ | 673,822 |   |   |
|                                                                                                                                           |       |                                  |       |       |       |                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

 

See accompanying notes

52

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**FIBERTOWER CORPORATIONConsolidated Statements of Cash Flows**(All amounts are inthousands)

| ** **                                                                                             | ** ** | **Year Ended December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                             | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Operating activities**                                                                               |       |                                       |       |   |   |   |   |
| Net loss                                                                                               |       | $                                          | (57,278    | ) | $ | (21,909 | ) | $ | (12,065 | ) |
| Adjustments to reconcile  net loss to net cash used in operating activities:                           |       |                                       |       |   |   |   |   |
| Depreciation and amortization                                                                          |       | 9,077                                      |       | 3,096 |   | 1,233 |   |
| Decline in value of embedded derivative                                                                |       | (483                                       | )          | — |    | — |   |
| Accretion of convertible notes                                                                         |       | 1,742                                      |       | — |   | — |   |
| Accretion of interest income                                                                           |       | (480                                       | )          | — |   | — |   |
| Accretion of asset retirement obligations                                                              |       | 205                                        |       | 65 |   | — |   |
| Amortization of debt issuance costs                                                                    |       | 300                                        |       | — |   | — |   |
| Impairment charge for long-lived assets                                                                |       | 589                                        |       | — |   | — |   |
| Stock-based compensation                                                                               |       | 6,402                                      |       | 234 |   | 4 |   |
| Loss on disposal of equipment                                                                          |       | 116                                        |       | 5 |   | 1 |   |
| Net  changes in operating assets and liabilities (excluding impact of business  acquisition):          |       |                                       |       |   |   |   |   |
| Accounts receivable, net                                                                               |       | (1,999                                     | )          | (495 | ) | (173 | ) |
| Prepaid expenses and other current assets                                                              |       | (651                                       | )          | (651 | ) | (289 | ) |
| Other long-term assets                                                                                 |       | (703                                       | )          | (158 | ) | (127 | ) |
| Accounts payable                                                                                       |       | (2,628                                     | )          | 11,661 |   | 5,131 |   |
| Accrued interest payable                                                                               |       | 5,333                                      |       | — |   | — |   |
| Accrued compensation and related benefits                                                              |       | 1,507                                      |       | 1,151 |   | 489 |   |
| Other accrued liabilities and deferred rent                                                            |       | 2,630                                      |       | 1,243 |   | 435 |   |
| Net  cash used in operating activities                                                                 |       | (36,321                                    | )          | (5,758 | ) | (5,361 | ) |
| **Investing  activities**                                                                              | ** ** | ** **                                 | ** ** | ** ** |   |   |   |
| Cash and cash equivalents acquired in merger, net of  merger-related costs                             |       | 36,732                                     |       | — |   | — |   |
| Maturities of certificates of deposits                                                                 |       | 15,327                                     |       | — |   | — |   |
| Purchase of short term investments                                                                     |       | (15,253                                    | )          | — |   | — |   |
| Maturities (purchases) of restricted investments                                                       |       | 2,052                                      |       | 170 |   | (2,943 | ) |
| Purchase of restricted securities                                                                      |       | (68,479                                    | )          | — |   | — |   |
| Purchase of property and equipment                                                                     |       | (94,670                                    | )          | (52,971 | ) | (20,367 | ) |
| Net cash used in investing activities                                                                  |       | (124,291                                   | )          | (52,801 | ) | (23,310 | ) |
| **Financing  activities**                                                                              |       |                                       |       |   |   |   |   |
| Proceeds from issuance of convertible notes, net                                                       |       | 388,190                                    |       | — |   | — |   |
| Proceeds from issuance of convertible preferred  stock, net                                            |       | —                                     |       | 149,828 |   | 38,994 |   |
| Proceeds from exercise of stock options                                                                |       | 660                                        |       | 47 |   | 48 |   |
| Repayment (issuance) of notes receivable from  stockholders                                            |       | 4,000                                      |       | (4,000 | ) | — |   |
| Net cash provided by financing activities                                                              |       | 392,850                                    |       | 145,875 |   | 39,042 |   |
| Net increase in cash and cash equivalents                                                              |       | 232,238                                    |       | 87,316 |   | 10,371 |   |
| Cash and cash equivalents at beginning of period                                                       |       | 112,936                                    |       | 25,620 |   | 15,249 |   |
| Cash and cash equivalents at end of period                                                             |       | $                                          | 345,174    |   | $ | 112,936 |   | $ | 25,620 |   |
| **Supplemental  disclosures**                                                                          |       |                                       |       |   |   |   |   |
| Cash paid for interest                                                                                 |       | $                                          | 109        |   | — |   | $ | 103 |   |
| Supplemental Disclosure  of Noncash Investing and Financing Activities:                                |       |                                       |       |   |   |   |   |
| Fair value of First Avenue Networks’ common stock at  date of merger                              |       | $                                          | 520,160    |   | — |    | — |   |
| Fair value of First Avenue Networks’ common stock  options and warrants assumed at date of merger |       | $                                          | 27,501     |   | — |    | — |   |
| Conversion of  convertible preferred stock to common stock                                             |       | $                                          | 220,675    |     | — |      | — |   |

 

See accompanying notes

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**FIBERTOWER CORPORATIONNotes to Consolidated Financial Statements(All amounts in thousands, except for share, per share data and percentages)**

**Note 1—Organizationand Business**

*Organization andoperations—**FiberTower* Corporation (formerlyknown as First Avenue Networks, Inc. (“First Avenue”)) (collectively withits subsidiaries, the “Company”) was incorporated in 1993 in the State ofDelaware, to build and operate a shared high-capacity backhaul network forwireless operators and service providers in the United States.

The Company is a leadingprovider of facilities-based backhaul services to wireless carriers. Backhaulis the transport of voice and data traffic from a wireless carrier’s mobilebase station (cell site) to its mobile switching station, where the traffic isthen switched ontothe fixed telecommunications network. The Company utilizes wireless spectrumassets to provide backhaul services through a hybrid radio/fiber networkarchitecture. The Company’s services allow wireless carriers to optimize theirnetworks, enabling significant improvements in their availability, reliability,scalability and cost, while providing a long-term solution for the increasing demand for backhaul capacity.The Company secured its first national agreement with a major wireless carrierin 2002, and launched its services into the first market in Dallas, Texas in April 2003.As of December 31, 2006, the Company had master service agreements withsix of the eight largest U.S. wireless carriers. Through these and other customeragreements, the Company provides services to 1,329 billing sites in 12 marketsthroughout the United States as of December 31, 2006.

The Company’s spectrumportfolio includes, on average, over 740 MHz in the top 20 U.S. metropolitanareas and, in the aggregate, approximately 1.5 billion channel pops, which iscalculated as the number of channels in a given area multiplied by thepopulation as measured in the 2000 census covered by these channels.

The Company is subject to a number of risks associated with itsrelatively early stage of development, including, but not limited to,dependence on key employees, dependence on key customers and suppliers,potential competition from larger, more established companies, the ability todevelop and bring new services or products to market (including expansion ofthe Company’s network), the ability to attract and retain additional qualifiedpersonnel and the ability to obtain adequate financing to support its growth.

The Company has incurredlosses and negative cash flows from operating and investing activities sinceits inception, and it had an accumulated deficit of $102,400 at December 31,2006. Through December 31, 2006, the Company has relied primarily onequity and debt financings to fund its operating and investing activities.Management expects operating losses and negative cash flows to continue for theforeseeable future. Failure to generate sufficient revenue could have amaterial adverse effect on the Company’s results of operations, financialcondition and cash flows. The recoverability of assets is highly dependent onthe ability of management to execute its business plan.

*Merger transaction—**On* August 29, 2006, FiberTowerNetwork Services Corp. (formerly known as “FiberTower Corporation” and referredto hereinafter as “Old FiberTower”)  andFirst Avenue completed a merger pursuant to a definitive merger agreement (the “MergerAgreement”) dated May 14, 2006. Under the terms of the Merger Agreement,all of the outstanding shares of Old FiberTower’s Series A ConvertiblePreferred Stock (“Series A”) were converted to shares of Old FiberTower’scommon stock immediately prior to the completion of the merger. Accordingly,First Avenue issued 73,885,330 shares of common stock in exchange for all ofthe issued and outstanding common shares of Old FiberTower. In addition, FirstAvenue issued options for 4,206,682 shares of its common stock in exchange forall of the outstanding stock options of Old FiberTower. However, since thistransaction has been accounted for as a reverse acquisition of First Avenue byOld FiberTower the financial statements reflect the transaction as if OldFiberTower had issued consideration to First Avenue shareholders.

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Following the completion of the merger, the stockholders andoption holders of Old FiberTower owned approximately 51%, on a fully dilutedbasis, of the outstanding shares of First Avenue. In addition, under the termsof the Merger Agreement, the Chief Executive Officer (“CEO”) of First Avenuebecame the CEO of the combined company. Old FiberTower designated five membersand First Avenue designated three members to the Board of Directors of thecombined company. The CEO is also a director of the combined company. Eachstanding committee of the Board of Directors consists of one member designatedby First Avenue and two members designated by Old FiberTower. First Avenue wasrenamed “FiberTower Corporation” following the completion of the merger.

The merger of First Avenue and Old FiberTower has been accountedfor as a reverse acquisition of First Avenue by Old FiberTower under thepurchase method of accounting because Old FiberTower’s stockholders owned amajority of the shares, on a fully diluted basis, of the combined companyfollowing the merger. In addition, Old FiberTower designated the majority ofthe members of the Board of Directors and of each of the standing committees ofthe combined company.

In order to affect themerger described above, each share of Old FiberTower common stock was exchangedfor .3040542 shares of the Company’s stock. Accordingly, the numbers of commonand preferred shares, par values and per share information included herein hasbeen retroactively restated to give effect to the merger.

The accompanying consolidated financial statements reflect theoperating results of Old FiberTower on a historical basis and First Avenue’s operating resultssubsequent to the effective date of the merger, August 29, 2006. See Note3 for additional information.

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

*Principles ofconsolidation and basis of presentation*—Theseconsolidated financial statements include all of the assets, liabilities andresults of operations of the Company and its subsidiaries, all of which arewholly owned. All significant intercompany transactions and balances have beeneliminated.

*Use of estimates—**The* preparation offinancial statements in conformity with U.S. generally accepted accountingprinciples requires management to make estimates and assumptions that affectthe amounts reported in the financial statements and accompanying notes. Actualresults could differ materially from those estimates. The Company’s criticalaccounting estimates include (i) useful life assignments and impairmentevaluations associated with long-lived assets, including intangible assets, (ii) revenuerecognition, (iii) establishment of accounts receivable allowances, (iv) assetretirement obligations, (v) deferred rent, (vi) valuation ofderivatives embedded in the Company’s convertible senior secured notes, (vii) valuationof Old FiberTower’s common stock and the Company’s stock-based awards, and (viii) establishmentof valuation allowances associated with deferred tax assets.

*Cash equivalents—**The* Company considers short-term,highly liquid investments with an original maturity of three months or less tobe cash equivalents. In accordance with Statement of FinancialAccounting Standards No. 115, *Accountingfor Certain Investments in Debt and Equity Securities*, the Companyclassifies all cash equivalents as available-for-sale at the time of purchase,and it reevaluates such designation at each balance sheet date. Cash equivalents are stated attheir cost adjusted for accretion of discounts and amortization of premiums.Such adjusted cost approximates the fair market values of the Company’s cashequivalents as of December 31, 2006 and 2005. Unrealized gains and losseson available-for-sale securities were insignificant at December 31, 2006 and2005. The Company’s cashequivalents, including restricted balances, consisted of money market mutualfunds, bankers acceptances, and commercial paper issued by major U.S. andforeign corporations with an aggregate adjusted cost and fair market value of $336,217and none as of December 31, 2006 and 2005, respectively. Accretionof discounts and amortization of premiums on cash equivalents are included ininterest income.

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*Certificates of deposit—**As* of December 31,2006, the Company had $5,000 of certificates of deposit with a maturity of lessthan three months. These investments are classified as held to maturity andcarried at cost which approximates market. Interest on the certificates ofdeposit is included in interest income as earned.

*Short-term investments*—Asof December 31, 2006, the Company had $15,253 of short term investmentswith a maturity of greater than three months. These investments are classifiedas held to maturity and carried at cost which approximates market. Interest onthe short term investments is included in interest income as earned.

*Restricted cash andinvestments—**In* connection with an equipmentfinancing arrangement, the Company was required to maintain a letter of creditwith a financial institution in the amount of $1,300 as of December 31,2005. This line of credit, which expired on June 30, 2006, wascollateralized by cash and cash equivalents of $1,844 as of December 31,2005. The obligation to which this line of credit related was repaid on July 1,2006.

Also, in relation to a service supplier agreement thatwas executed in 2005, the Company is required to maintain a restricted cash balancewith a financial institution of $1,000 as of December 31, 2006 and 2005. TheCompany also maintains five additional letters of credit with two financialinstitutions in connection with other obligations. Four of these letters ofcredit, which expire between June 19, 2007 and November 17, 2007,totaled $356, at December 31, 2006 and $16 at December 31, 2005 andwere collateralized by cash equivalents of $389 as of December 31, 2006and $16 as of December 31, 2005. The fifth letter of credit expires in June 2011and totaled $134 at December 31, 2006 and $0 at December 31 2005. Thetotal restricted cash and cash equivalents balance as of December 31, 2006and 2005 was $1,563, and $3,480, respectively.

*The*Company’s restricted investments include of U. S. Treasury securities held ascollateral for future interest payments related to the Company’s convertiblesenior secured notes (see Note 6). These securities are classified asheld-to-maturity and are reported at amortized cost. Restricted investmentswith maturity dates in 2007 totaled $35,229 at December 31, 2006 areclassified as current assets and relate to interest payments on the Company’sConvertible Senior Secured Notes due in that year. Restricted investments withmaturity dates in 2008 totaled $33,730 are classified as non-current assets andrelate to interest payments due in 2008. Gross unrealized losses on these U.S.Treasury securities, which relate to changes in market interest rates, were$191 as of December 31, 2006. Accretion of discounts and amortization ofpremiums on restricted investments are included in interest income.

*Fair values of financial instruments—**The Company has determined theestimated fair values of financial instruments using available marketinformation and management’s judgment. Accordingly, these estimates are notnecessarily reflective of the amounts that would be realized in a currentmarket exchange.* Theaggregate estimated fair values of the Company’s financial instruments,consisting of cash, and cash equivalents, restricted cash and cash equivalents,certificates of deposit, accounts receivable and accounts payable approximatedtheir respective carrying values as of December 31, 2006 and 2005 based onthe liquidity of these instruments and their short term nature. See Note 6 fordisclosure of the fair value and carrying value of the Company’s Senior SecuredConvertible Notes.

*Revenue and expenserecognition—**The* Company recognizes revenuesrelating to its shared high-capacity wireless backhaul service when (i) persuasiveevidence of an arrangement exists, (ii) the services have been provided tothe customer, (iii) the sales price is fixed or determinable and (iv) thecollection of the sales price is reasonably assured. Revenues earned for whichthe customer has not been billed are recorded as “unbilled revenues.” However,there were no unbilled revenues as of December 31, 2006 and  2005. Amounts billed in advance of providingservice are recorded as “deferred revenues.” There were $320 of deferredrevenues at December 31, 2006 and no deferred revenues at December 31,2005.

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Incremental direct costsof service activation are charged to expense as incurred. The Company purchaseselectricity and leases colocation site space from certain of its customers. TheCompany receives an identifiable benefit in exchange for the amounts paid toits customers and the Company can reasonably estimate the fair value of thepurchased electricity and leased collocation site space. Therefore, suchamounts are charged to cost of service revenues as incurred, unless the amountpaid exceeds the respective fair value, in which case the differential isrecorded as a reduction of service revenues. Other consideration provided tocustomers, such as customer incentives, is recorded as a reduction of servicerevenues.

The Company encountersbilling disputes with certain customers in the ordinary course of business inthe telecommunications industry. The Company believes the impact of suchdisputes on its accounts receivable and service revenues is reasonablyestimable based on historical experience. Accordingly, the Company maintains anallowance, through charges to service revenues, based on management’s bestestimate of the ultimate resolution of customer disputes. The Company providedan allowance for billing disputes of $157 as of December 31, 2006 (none atDecember 31, 2005).

The Company performsongoing evaluations of its customers’ financial condition and generally doesnot require collateral or other credit enhancements. The Company records an allowancefor bad debts based on historical experience and management’s best estimate offuture credit losses. The Company provided an allowance for doubtful accountsof $4 as of December 31, 2006 (none at December 31, 2005).

The Company writes-offuncollectible accounts receivable balances through charges to the respectiveallowances when collection efforts have been exhausted.

*Concentrations of creditrisk, significant customers and key suppliers—**Financial* instrumentsthat potentially subject the Company to concentrations of credit risk consistprimarily of cash and cash equivalents, certificates of deposit, restrictedcash and cash equivalents, restricted investments and accounts receivable.Cash, cash equivalents, certificates of deposit and restricted cash and cashequivalents consist principally of demand deposits, certificates of deposit andmoney market mutual funds held by one domestic financial institution with ahigh credit standing and commercial paper issued by a number of majorcorporations and financial institutions. Restricted investments consist of U.S. Treasury securities.

For the years ended December 31,2006, 2005 and 2004, two customers accounted for a significant portion of theCompany’s revenues, as follows:

| ** **        | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|-------------------|------------|----------|------------|----------|------------|----------|------------|
| Cingular Wireless |       |     | 70         | %        |       |     | 88         | % |   |   | 86 | % |   |
| Sprint Nextel     |       |     | 14         | %        |       |     | 9          | % |   |   | 14 | % |   |

 

Accountsreceivable from these two customers comprised the following percentages of theCompany’s gross accounts receivable balances at December 31, 2006 and December 31,2005:

| ** **        | ** ** | **2006** | ** ** | **2005** | ** ** |
|-------------------|------------|----------|------------|----------|------------|
| Cingular Wireless |       |     | 85         | %        |       |   | 87 | % |   |
| Sprint Nextel     |       |     | 10         | %        |       |   | 10 | % |   |

 

The Company is dependent on a limited number ofsuppliers for certain equipment used to provide its services. The Company hasgenerally been able to obtain an adequate supply of such equipment. However, anextended interruption in the supply of equipment currently obtained from itssuppliers could adversely affect the Company’s business and results ofoperations.

*Propertyand equipment—**Property* and equipment are stated at costless accumulated depreciation and amortization. Depreciation andamortization are calculated using the straight-line method over estimateduseful lives ranging from three to ten years. Leasehold improvements areamortized over the shorter of the lease term or their estimated useful lives.

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The Company capitalizes costs incurred in bringing itsnetwork equipment to an operational state. Costs directly associated with theacquisition, construction and installation of network equipment are capitalizedas a cost of that equipment. Indirect costs that relate to several sites arecapitalized and allocated to the respective network equipment to which thecosts relate. Other indirect costs are charged to expense as incurred. As ofDecember 31, 2006 and 2005, network equipment included capitalized internallabor costs of $11,357, and $5,970, respectively.

Interest will be capitalized on network equipment andconstruction-in-progress based on the effective interest rate on the Company’sborrowings and the average balance of assets under construction during theperiod. Capitalized interest will be reported as an element of the cost ofproperty and equipment. Interest costs subject to capitalization wereimmaterial during years ended December 31, 2006, 2005 and 2004.

The Company accounts for software developed orobtained for internal use in accordance with Statement of Position (“SOP”)98-1, Accounting for the Costs ofComputer Software Developed or Obtained for Internal Use. SOP 98-1requires entities to capitalize certain costs related to internal-use softwareonce certain criteria have been met. As of December 31, 2006 and 2005,capitalized internal-use software included capitalized internal labor costs of $1,431and $539, respectively.

Property and equipment are evaluated for impairmentwhenever events or changes in circumstances indicate that the carrying value ofan asset may not be recoverable. An impairment loss is recognized whenever (i)the estimated undiscounted future cash flows expected to result from the use ofthe asset plus net proceeds expected from disposition of the asset (if any) areless than the carrying value of the asset and (ii) the fair value of the assetis less than its carrying value. When an impairment loss is identified, thecarrying value of the asset is reduced to its fair value.

During 2005, pursuant to an amendment of a contractwith one of the Company’s customers, the Company received a cash payment fromsuch customer in the amount of $559. This contract amendment allows thecustomer to terminate the Company’s services at specified collocation sitesthat are used to serve such customer (along with other customers, in mostinstances), if so requested by the customer. The Company believes this contractamendment will result in the decommissioning of certain colocation sites thatare used exclusively to serve this customer. The network equipment located atthese sites will be redeployed elsewhere in the Company’s network. However, therelated equipment installation and collocation site acquisition costs, whichhad an aggregate net carrying value of $106 at December 31, 2005, had noalternative use or salvage value. Therefore, the Company considered theselong-lived assets to be impaired as of December 31, 2005. The resultantlong-lived asset impairment charge of $106 is included in cost of servicerevenues for the year ended December 31, 2005. 

As of December 31, 2006, 10 additional sites have beenidentified to be decommissioned pursuant to the customer arrangement describedabove and one site identified in 2005 was deleted from the list. The networkequipment located at these sites will be redeployed elsewhere in the Company’snetwork. However, the related equipment installation and collocation siteacquisition costs, which had an aggregate net carrying value of $374 atDecember 31, 2006, have no alternative use or salvage value. Therefore, theCompany considered these long-lived assets to be impaired as of December 31,2006. The resultant long-lived asset impairment charge of $374 is included incost of service revenues for the year ended December 31, 2006. 

*Asset retirementobligations—*The Company recognizes liabilities forasset retirement obligations relating to the estimated costs of removingnetwork equipment from its leased colocation sites, as stipulated in therelated lease agreements. The asset retirement obligations are recognized inthe period in which they are incurred if a reasonable estimate of their fairvalue can be made. The associated asset retirement costs are capitalized aspart of the carrying amount of the related long-lived assets anddepreciated on a straight-line basis over their estimated useful life of ten years.

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Asummary of the asset retirement obligations activity is as follows:

| ** **                                           | ** ** | **Year Ended  December 31,** | ** ** |
|------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                           | ** ** | **2006**                               | ** ** | **2005** | ** ** |
| Asset retirement  obligations at beginning of period |       | $                                      | 571        |   | $ | — |   |
| Liabilities  incurred in the current period          |       | 1,090                                  |       | 506 |   |
| Liabilities  settled in the current period           |       | —                                 |       | — |   |
| Accretion expense                                    |       | 205                                    |       | 65 |   |
| Revisions in  estimated cash flows                   |       | 253                                    |       | — |   |
| Asset retirement  obligations at end of period       |       | $                                      | 2,119      |   | $ | 571 |   |

 

*Intangibleassets—*The Company accounts for its intangible assets,which consist of Federal Communications Commission ("FCC") licenses,goodwill and customer relationships, in accordance with the provisions ofStatement of Financial Accounting Standards No. 142, “Goodwill and OtherIntangible Assets” (“SFAS 142”) which requires that goodwill and intangibleassets with indefinite lives not be amortized, but be tested annually forimpairment or more frequently if indicators of impairment arise.  Intangible assets that have finite lives,which consist of customer relationships, are amortized using the straight-linemethod over their estimated useful life of 10 years.

The Company, as described more fully below,evaluates its intangible assets withindefinite lives for impairment annually, and between annual evaluationsif events or changes in circumstances indicate that the carrying amount of suchassets may not be fully recoverable.  In cases where required, an impairmentprovision is recognized in an amount by which the carrying value exceeds theestimated fair value of such assets.

*FCClicenses—*Recoverability of the carrying value of FCClicenses is dependent on numerous factors, including successful deployment ofnetworks and radio links or sales of such assets to a third party. The Companyconsiders the FCC licenses to have an indefinite useful life under theprovisions of SFAS 142. The Company performs an impairment test on these assetson an annual basis or more frequently if events and circumstances indicate theassets might be impaired. The impairment test compares the estimated fair valueof the FCC licenses with the carrying value of the assets. If the estimatedfair value is less than the carrying value, an impairment loss would berecorded.

The Company hasdetermined that its FCC licenses have indefinite useful lives based on thefollowing factors:

·       FCCspectrum is a non-depleting asset;

·       Thelicenses are integral to the business and the Company expects them tocontribute to cash flows indefinitely;

·       Licenserenewal applications are generally authorized by the FCC subject to certainconditions, without substantial cost under a stable regulatory, legislative andlegal environment;

·       Maintenanceexpenditures required to obtain future cash flows are not significant; and,

·       TheCompany intends to use these assets for the foreseeable future.

To evaluate whether an impairment of its FCC licenseshas occurred, the Company considers a number of factors, including (i) thechange in its public equity value; (ii) the change in the public equity valueof companies providing similar services or holding similar FCC licenses; (iii)private purchases of similar licenses; (iv) discounted cash flow analysis;and (v) the results of FCC spectrum auctions for similar spectrum.  Recoverability of the carrying value of theCompany’s FCC licenses is dependent on successful deployment of networks andradio links or sales of such assets to a third party.  At December 31, 2006, the 

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Company’s FCC licenseshave a carrying value of $342,000 which was based on a valuation of FirstAvenue’s assets that was prepared in connection with Old FiberTower’s merger with First Avenue.

*Finite-livedintangibles assets—*Recoverability of the carryingvalue of the customer relationship intangible asset is dependent on numerousfactors including continued generation of revenues from First Avenue’scustomers. The Company will periodically evaluate whether the value of itscustomer relationship intangible asset has been impaired. All of the customerrelationship intangible is related to Old FiberTower’s merger with FirstAvenue.

*Goodwill—*Goodwillis recorded when the price paid for an acquisition exceeds the estimated fairvalue of the net identified tangible and intangible assets acquired. Annuallyin the fourth quarter of each year, or more frequently if indicators ofpotential impairment exist, the Company performs a review to determine if thecarrying value of the recorded goodwill is impaired. The first step of thisprocess is to identify potential goodwill impairment by comparing the fairvalue of the single reporting entity to its carrying value.  The Company estimates fair value using acombination of the market price of the Company’s common equity and discountedcash flows.  If the carrying value isless than fair value, the Company would complete step two in the impairmentreview process, which measures the amount of goodwill impairment.  Management tests the reasonableness of theinputs and outcomes of the discounted cash flow analysis and the evaluation ofthe market price of its common equity against other available comparable marketdata.  All of the goodwill is related tothe merger of First Avenue and Old FiberTower.

*Debtissuance costs—*Debt issuance costs consist of investmentbanking fees, legal and accounting fees and printing costs incurred inconnection with the sale of the Company’s Convertible Senior Secured Notes (SeeNote 6) in November 2006. Such costs are being amortized as additionalinterest expense over the six-year term of the Notes under the effectiveinterest method. Deferred debt issuance costs of $14,309 were incurred withamortization of $300 recognized in 2006.

*Accountingfor stock-based compensation—*Prior to January 1,2006, the Company accounted for stock-based compensation paid to employeesunder the recognition and measurement provisions set forth in AccountingPrinciples Board Opinion No. 25, Accounting for Stock Issued to Employees(“APB 25”). Under the intrinsic-value method set forth in APB 25, nocompensation cost was required to be recognized for awards that had an exerciseprice equal to, or greater than, the market value of the underlying stock onthe date of grant.

Effective January 1, 2006, the Company adoptedthe fair value recognition provisions of Statement of Financial AccountingStandards No. 123 (revised 2004) of the Financial Accounting StandardsBoard (“FASB”), Share-Based Payment (“SFAS No. 123(R)”) SFAS No. 123(R)requires the fair value of all share-based payments to employees, includinggrants of employee stock options, to be recognized as expense over theemployees’ requisite service period.

The Company adopted SFAS No. 123(R) on aprospective basis effective January 1, 2006. Under the prospective method,the Company continues to account for previously outstanding stock options atthe date of adoption of SFAS No. 123(R) under APB 25. Theapplication of SFAS No. 123(R) increased the Company’s net loss for theyear ended December 31, 2006 by $2,122 ($0.04 per share) out of total sharebased compensation of $6,402.

The Company determines the fair value of each stockoption at the grant date using the Black-Scholes-Merton option valuation model.Generally, the Company’s stock options vest ratably over a four-year periodfrom date of grant and have contractual terms ranging from 5 to 10 years.Expected volatilities are calculated based on the historical volatilities ofsimilar public companies in the telecommunications industry. The expected termof options granted is based on an average of the vesting term and thecontractual life of the option, which represents management’s estimate of theperiod that options granted are expected to be outstanding. The risk-freeinterest rate for periods within the contractual life of the 

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options is based on theU.S. Treasury yield curve in effect at the time of the grant. The Companydetermines the fair value of each restricted common stock award based on thefair value of the Company’s common stock at the date of grant.

The Company uses the straight-line method forshare-based payment expense recognition, and estimates forfeitures and onlyrecognizes share-based payment expense for those awards expected to vest. TheCompany’s estimated forfeiture rate is based on its historical forfeitureexperience.

The Company accounted for stock options granted tonon-employees prior to 2006 based on the guidance on Emerging Issues Task Force(“EITF”) Issue No 96-18, “Accounting for Equity Instruments That areIssued to Other Than Employees for Acquiring, or in Conjunction with, Selling Goodsor Services.” Effective January 1, 2006, the Company accounts for stockoptions granted to non-employees using the fair value method set forth inSFAS No. 123(R).

*AdvertisingCosts—*Advertising costs are charged to sales andmarketing expense as incurred. The Company incurred no advertising costs duringthe years ended December 31, 2006, 2005 and 2004.

*Incometaxes—*The Company uses the liability method to accountfor income taxes as required by SFAS No. 109, Accounting for Income Taxes. Under this method, deferred taxassets and liabilities are determined based on differences between the financialreporting and tax bases of assets and liabilities. Deferred tax assets andliabilities are measured using enacted tax rates and laws that will be ineffect when the differences are expected to reverse. Valuation allowances areestablished when necessary to reduce deferred tax assets to the amountsexpected to be realized.

*Lossper share—*Basic and diluted net loss per share for theyears ended December 31, 2006, 2005 and 2004 has been calculated by dividingnet loss by the weighted average number of the Company’s common sharesoutstanding (which have been retroactively restated by multiplying the Company’shistorical weighted average common shares outstanding by the merger exchangeratio), less issued common shares subject to repurchase or forfeiture, andexcludes any dilutive effects of stock options, warrants and convertible notes..  Diluted net loss per share was thesame as basic net loss per share in all periods presented because the Companyhad net losses in each of these periods and inclusion of potentially issuableshares would be anti-dilutive.

Areconciliation of the numerator and denominator used in the calculation ofbasic and diluted loss per share is as follows: 

| ** **                                                        | ** ** | **2006**   | ** ** | **2005**  | ** ** | **2004**   | ** ** |
|-------------------------------------------------------------------|------------|------------|------------|-----------|------------|------------|------------|
| Numerator for basic and  diluted net loss per share:              |       |       |       |      |       |       |       |
| Net loss for period                                               |       | $          | (57,278    | )         | $          | (21,909    | )          | $ | (12,065 | ) |
| Denominator for basic  and diluted net loss per share:            |       |       |       |      |       |       |       |
| Weighted average common  shares outstanding                       |       | 52,776,296 |       | 5,327,395 |       | 5,167,332  |       |
| Weighted average common  shares outstanding subject to repurchase |       | (1,234,250 | )          | (869,939  | )          | (1,869,536 | )          |
| Denominator for basic and diluted net loss per share              |       | 51,542,046 |       | 4,457,456 |       | 3,297,796  |       |
|                                                                   |            |            |            |           |            |            |            |  |  |  |

 

As of December 31, 2006, the Company had optionsoutstanding to purchase 9.6 million shares, of which 5.1 millionshares were exerciserable. In addition, at December 31, 2006, there are atotal of 3.1 million unvested restricted shares and share grants. Thereare also warrants outstanding at December 31, 2006, to acquire 2.9 millioncommon shares. The Company’s Convertible Senior Secured Notes could not be converteduntil February 15, 2007. On that date, 48.6 million shares werepotentially 

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issuable if all such Noteswere converted.  These potentiallyissuable shares would further dilute investors when the options and warrantsare exercised, the restricted share grants vest and the Convertible SeniorSecured Notes are converted.

*Segmentreporting—*The Company operates in one businesssegment.

*Recentaccounting pronouncements—*In September 2006, theFinancial Accounting Standards Board ("FASB") issued SFAS No. 157,“Fair Value Measurements.” SFAS No. 157 defines fair value, establishes aframework for measuring fair value and expands disclosure of fair valuemeasurements. SFAS No. 157 applies under other accounting pronouncementsthat require or permit fair value measurements and accordingly, does notrequire any new fair value measurements. SFAS No. 157 is effective forfinancial statements issued for fiscal years beginning after November 15, 2007.The Company is currently evaluating the impact of this pronouncement on itsconsolidated financial statements.

In February, 2007, the FASB issued SFAS No. 159,“The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS No. 159permits entities to choose, at specified election dates, to measure eligibleitems at fair value (“fair value option”) and to report in earnings unrealizedgains and losses on those items for which the fair value option has been elected.SFAS No. 159 also requires entities to present the fair values of theseassets and liabilities on the face of the balance sheet. SFAS No. 159 iseffective as of the beginning of an entity’s fiscal year commencing afterNovember 15, 2007. Early adoption is permitted as of the beginning of theprevious fiscal year provided that the entity makes that choice in the first120 days of that fiscal year and also elects to apply the provisions ofSFAS No. 159. The Company is currently evaluating the impact of thispronouncement on its consolidated financial statements.

In September 2006, the staff of the Securities andExchange Commission (“SEC”) issued Staff Accounting Bulletin ("SAB")No. 108, “Considering the Effects of Prior Year Misstatements when QuantifyingMisstatements in Current Year Financial Statements.” SAB No. 108 providesinterpretative guidance on how effects of prior-year uncorrected misstatementsshould be considered when quantifying misstatements in the current yearfinancial statements. SAB No. 108 requires registrants to quantifymisstatements using both an income statement (“rollover”) and balance sheet(“iron curtain”) approach and evaluate whether either approach results in amisstatement that, when all relevant quantitative and qualitative factors areconsidered, is material. If prior year errors that had been previouslyconsidered immaterial now are considered material under either approach, norestatement is required so long as management properly applied its previousapproach and all relevant factors and circumstances were considered. If prioryears are not restated, the cumulative effect adjustment is recorded in openingaccumulated deficit as of the beginning of the fiscal year of implementation.SAB is effective for fiscal years ending after November 15, 2006. Theimplementation of SAB No. 108 did not have a material effect on theCompany's consolidated financial statements.

In June 2006, the FASBissued FASB Interpretation No. 48, or FIN 48, “Accounting for Uncertaintyin Income Taxes.” FIN 48 prescribes a recognition threshold andmeasurement attribute for the financial statement recognition and measurementof a tax position taken or expected to be taken in a tax return. FIN 48also provides guidance on derecognition, classification, interest andpenalties, accounting in interim periods, disclosure and transition. FIN 48is effective for fiscal years beginning after December 15, 2006. TheCompany does not expect the adoption of FIN 48 to have a material impacton its financial statements.

**Note 3*—*Merger with FirstAvenue**

As stated inNote 1, Old FiberTower and First Avenue completed their merger onAugust 29, 2006. The merger of Old FiberTower and First Avenue has beenaccounted for as a reverse acquisition of First Avenue by Old FiberTower underthe purchase method of accounting.

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The total purchaseprice for this merger was $549,643, consisting of 67.2 million sharesof  vested First Avenue common stock witha fair value of approximately $520,160, fully vested warrants for the purchaseof 2.9 million shares of First Avenue’s common stock with a fair value ofapproximately $19,968, fully vested options for the purchase of 3,402,669shares of First Avenue’s common stock with a fair value of approximately $7,533,a merger-related restructuring liability of $65 and $1,917 in direct transactioncosts, consisting of legal and other professional services fees. The fair valueof First Avenue’s common shares outstanding as of August 29, 2006 is based onthe closing price of First Avenue’s common stock on August 29, 2006.

The total purchase consideration is as follows (inthousands):

| ** **                                   | ** ** | **Shares  Issued** | ** ** | **Estimated  Fair Value** | ** ** |
|----------------------------------------------|------------|--------------------|------------|--------------------------------|------------|
| Shares of First  Avenue common stock         |       | 67,204,089         |       | $                              | 520,160    |   |
| First Avenue  stock options and warrants     |       | 6,282,224          |       | 27,501                         |       |
| Acquisition-related  costs                   |       |               |       | 1,917                          |       |
| Merger-related  restructuring liability, net |       |               |       | 65                             |       |
| Total purchase  consideration                |       |               |       | $                              | 549,643    |   |

 

The First Avenue warrants outstanding on August 29, 2006 werevalued using the Black-Scholes-Merton option pricing model. The assumptionsused in calculating the fair value of such warrants were as follows:

| Contractual life  of warrants |   | 2.4–8.3   |  years |
|-------------------------------|--------|----------------|-------------|
| Expected  volatility          |   | 106.8          | %           |
| Risk-free  interest rate      |   | 4.72–4.75 | %           |
| Expected dividend yield       |   | 0.00           | %           |

 

The First Avenue stock options outstanding on August 29, 2006were also valued using the Black-Scholes-Merton option pricing model. Theassumptions used in calculating the fair value of such options were as follows:

| Expected life of  options |   | 1.00 |  year |
|---------------------------|--------|------|------------|
| Expected volatility       |   | 68.1 | %          |
| Risk-free interest  rate  |   | 4.85 | %          |
| Expected dividend  yield  |   | 0.00 | %          |

 

The fair value ofunvested First Avenue options for the purchase of 846,667 common shares, whichwas determined using the Black-Scholes option pricing model with the aboveassumptions, totaled $2,526, and was deducted from the purchase considerationand will be recognized as compensation expense over the vesting period. Anadditional 689,600 shares of unvested restricted common stock with a fair valueof $3,469 is also being recognized as compensation expense over the vestingperiod.

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Thepurchase consideration was allocated to the assets acquired and liabilitiesassumed based on management’s analysis and estimates of their fair values,which were based partially on a valuation prepared by a third party withrespect to certain of First Avenue’s tangible and intangible assets.  Such purchase consideration was preliminarilyallocated in the Company’s third quarter 2006 unaudited condensed consolidatedfinancial statements, and the Company finalized the allocation of the purchaseconsideration during the fourth quarter of 2006.Thepurchase consideration was allocated as follows:
|                                    | ** ** | **Amount** | ** ** |
|------------------------------------|------------|------------|------------|
| Cash and cash  equivalents         |       | $          | 38,650     |   |
| Certificates of  deposit           |       | 20,327     |       |
| Property and  equipment            |       | 7,710      |       |
| FCC licenses                       |       | 342,000    |       |
| Goodwill                           |       | 243,388    |       |
| Customer  relationship intangible  |       | 3,000      |       |
| Deferred tax  liability            |       | (102,964   | )          |
| Other assets and  liabilities, net |       | (2,468     | )          |
| Total                              |       | $          | 549,643    |   |

 

In conjunction with the fourth quarter finalization ofthe purchase price allocation, the Company determined that a $102,964 deferredtax liability had been improperly excluded from its preliminaryallocation.  This deferred tax liabilityrelates to the difference between the book and tax bases of the Company’s FCClicenses and other intangible assets. The adjustment required a corresponding $102,964 increase togoodwill.  

Severaladditional adjustments to the preliminary allocation were identified in thefourth quarter as the third party valuation and certain analyses werecompleted, as follows: (i) the Company eliminated an accrued property and usetax liability, the ultimate payment of which was determined to be remote,pertaining to a predecessor entity in the amount of $4,110; and (ii) the Companyeliminated certain property and equipment with a carrying value of $1,468,which was determined to be incompatible with the Company’s post-merger networkconfiguration and had no salvage value. These two adjustments to the Company’spreliminary purchase price allocation also affected the goodwill balancepreliminarily recognized as a result of the merger.
|                                    | ** ** | **Preliminary** | ** ** | **Final** | ** ** | **Change** | ** ** |
|------------------------------------|------------|-----------------|------------|-----------|------------|------------|------------|
| Cash and cash  equivalents         |       |            | $          | 38,650    |       |       | $          | 38,650 |   | $ | — |   |
| Certificates of  deposit           |       |            | 20,327     |      |       | 20,327     |       | — |   |
| Property and  equipment            |       |            | 9,178      |      |       | 7,710      |       | (1,468 | ) |
| FCC licenses                       |       |            | 342,000    |      |       | 342,000    |       | — |   |
| Goodwill                           |       |            | 143,531    |      |       | 243,388    |       | 99,857 |   |
| Customer  relationship intangible  |       |            | 3,000      |      |       | 3,000      |       | — |   |
| Deferred tax  liability            |       |            | —     |      |       | (102,964   | )          | (102,964 | ) |
| Other assets and  liabilities, net |       |            | (6,578     | )         |       | (2,468     | )          | 4,110 |   |
| Total                              |       |            | $          | 550,108   |       |       | $          | 549,643 |   | $ | (465 | ) |

 

As part of the merger between Old FiberTower and FirstAvenue, FiberTower incurred severance and relocation expenses of $65. Theseactivities were part of a merger-related plan contemplated prior to closing,and have been incorporated into the purchase price pursuant to the guidance inEITF Issue No. 95-3.

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The valuation of the FCC licenses was based onmultiple methodologies applied to the 24 GHz and 39 GHz spectrum acquiredincluding an income approach that discounted projected cash flows using adiscount rate that took into account the risk associated with the Company’sbusiness model as well as an approach that valued the contribution of spectrumto the Company's business plan and previous spectrum sales including prior FCCauctions. The FCC licenses have been determined to have indefinite lives.

The valuation of the customer relationships was based on a discountedcash flow analysis. Thecustomer relationship intangible asset isbeing amortized on a straight-line basis over 10 years. Amortization of the customer relationshipintangible asset totaled $100 in the year ended December 31, 2006 and willamount to $300 in each of the next five years. 

Goodwill will notbe deductible for income tax purposes.

Old FiberTower merged with First Avenue in order togain access to First Avenue’s FCC area-wide licenses.  These licenses allow the Company to accesslower cost technologies, that will allow the Company to more effectively serveits customer base.  We believe that theFirst Avenue assets combined with Old FiberTower’s existing network will enablethe Company to (i) increase customer penetration among the top wirelesscompanies, (ii) lower operational risk associated with building networks,(iii) effectively deploy capital, and (iv) gain improved access tocapital.

*Pro FormaFinancial Information*—The following unaudited pro formaconsolidated results of operations assume that the merger was completed as ofthe beginning of the years presented below

| ** **                          | ** ** | **2006**    | ** ** | **2005**    | ** ** |
|-------------------------------------|------------|-------------|------------|-------------|------------|
| Service revenues                    |       | $           | 14,944     |        | $          | 7,549 |   |
| Operating loss                      |       | $           | (82,489    | )           | $          | (39,324 | ) |
| Net loss                            |       | $           | (81,564    | )           | $          | (35,046 | ) |
| Basic and diluted loss per share    |       | $           | (0.57      | )           | $          | (0.29 | ) |
| Weighted average shares outstanding |       | 143,238,928 |       | 120,026,103 |       |

 

This pro forma informationis presented for informational purposes only and is not necessarily indicativeof the results of operations that would have been achieved had the mergeroccurred at the beginning of each period presented.

**Note 4—Property and Equipment**

Propertyand equipment consisted of the following:

|                                                 | ** ** | **December 31,** | ** ** |
|-------------------------------------------------|------------|-----------------------|------------|
| ** **                                      | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Network equipment                               |       | $                     | 120,500    |   | $ | 31,075 |   |
| Internal-use  computer software                 |       | 2,096                 |       | 1,175 |   |
| Office equipment  and other                     |       | 2,832                 |       | 2,241 |   |
|                                            |       | 125,428               |       | 34,491 |   |
| Less accumulated  depreciation and amortization |       | 14,200                |       | 4,968 |   |
| Property and  equipment in-service, net         |       | 111,228               |       | 29,523 |   |
| Construction-in-progress                        |       | 60,384                |       | 47,676 |   |
| Property and equipment,  net                    |       | $                     | 171,612    |   | $ | 77,199 |   |

Assets classified as construction-in-progress are notbeing depreciated as they have not yet been placed in service.

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**Note 5—Long-Term Accounts Payable and Vendor Contracts**

Long-term accounts payableconsisted of trade payables with extended payment terms relating to the Company’spurchase of equipment, software and professional services from certain vendors.Two of these vendor contracts, which contain the nonrevolving lines of creditdescribed below, assessed interest on unpaid balances ($1,215 as of December 31,2005 and none at December 31, 2006) at 10% per annum.

Two of the Company’svendor contracts contained nonrevolving lines of credit for the purchase ofequipment in the aggregate amount of $5,000 through July 2, 2005 (as of December 31,2006 and 2005, the Company had no additional borrowing capacity under theselines of credit). As of December 31, 2005, the Company had utilized $3,063of these lines of credit. The aggregate outstanding balance of $1,215 as of December 31,2005 (none at December 31, 2006) was collateralized by equipment with anet book value of approximately $2,950 at December 31, 2005.

**Note 6—Convertible Senior Secured Notes**

On November 9, 2006,the Company completed the sale of $402,500 of 9.00% Convertible Senior SecuredNotes (“Notes”) that mature on November 15, 2012. The Notes were sold tothe initial purchasers in a private placement exempt from the registrationrequirements of the Securities Act of 1933, as amended. The Notes are fullyguaranteed, jointly and severally (“Guarantees”), by the Company and each ofits subsidiaries (“Guarantors”).

The Notes bear interest ata coupon rate of 9% per annum, payable semi-annually in arrears in cash on May 15and November 15 each year. As required by the indenture governing theNotes, the Company used $68.5 million of the net proceeds to acquire U. S.Treasury securities to provide for the payment, in full, of the first foursemi-annual interest payments. These securities may only be used to pay theinterest or other payments required by the indenture and are reflected asrestricted investments in the consolidated balance sheet.

Subject to certainconditions, commencing May 15, 2009, the Company has the option of makingthe four semi-annual interest payments due in 2009 and 2010 with additionalnotes in lieu of cash. Such additional notes would bear interest at an annualrate of 11%.

If not redeemed orconverted prior to maturity, the Company will be required to repay the Notesfor 125.411% of their initial principal amount, or $504,779. The Company isaccreting the principal premium ratably over the six year period until theNotes mature and is recognizing such accretion as additional interest expense.The effect of this accretion is to increase the effective yield to the holdersto 12% per annum based on the par value of the Notes.

The Notes and Guaranteesare secured by a first priority pledge of substantially all of the assets ofthe Company and the subsidiaries and by a first priority pledge of the stock ofall of the Guarantors, subject, in each case, to**aprior lien to secure a working capital facility of up to $50 million. The Notesrank senior to any of the Company’s and the Guarantors’ existing and future subordinatedindebtedness.

The Notes are notredeemable by the Company before November 15, 2010. If the Company’scommon stock exceeds specified trading values, the Company may redeem any ofthe Notes, in whole or in part at any time on or after November 15, 2010at 100% of the aggregate accreted principal amount, together with accrued andunpaid interest.

The Notes may be converted into the Company’s commonshares at an effective conversion price of $8.29 per share which is subject toadjustment under certain circumstances. Holders who convert their Notes prior to November 15,2009 or convert their Notes prior to November 15, 2010 in connection withcertain designated events will receive a make-whole premium on the Notes suchHolders convert.

The Notes contain certain anti-dilution provisionsthat will cause the conversion price of the Notes to be reduced (i) uponthe Company issuing or selling common stock or other securities convertibleinto common stock with aggregate proceeds of $25,000 or more prior to November 15,2008 and (ii) if the 

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Company has notconsummated common stock issuances or sales for aggregate proceeds of at least$50,000 within two years.

A majority of the Company’s shareholders have executedwritten consents that would allow the issuance of shares of common stock inconnection with the possible conversion of the convertible notes. The number ofcommon shares that could be issued would increase if the anti-dilutionprovisions of the Notes are triggered before conversion. This increase iscapped at a 33% increase in the total number of shares.

The Notes contain covenants, including, but notlimited to, restrictions on the Company’s future indebtedness and the paymentof dividends. As of December 31, 2006, the Company is in compliance withall of the covenants.

If certain designated events occur prior to maturity,the holders may require the Company to repurchase all or part of their Notesfor cash at a repurchase price equal to 101% of their aggregate accretedprincipal amount, plus accrued and unpaid interest.

The Company and the Guarantors filed a shelfregistration statement with the Securities and Exchange Commission (“SEC”) on February 5,2007 covering the resale of the Notes, Guarantees and the shares of commonstock issuable upon conversion of the Notes and are required to use allcommercially reasonable efforts to have the shelf registration statement becomeeffective prior to May 9, 2007. The Company and the Guarantors will berequired to pay liquidated damages if they fail to register the Notes,Guarantees and common shares or keep the shelf registration statement effectiveduring specified time periods.

The Company concluded thatthe embedded features related to the make-whole premium, designated eventmake-whole premium and holder put option upon the occurrence of certaindesignated events qualify as derivatives and should be bundled as a compoundembedded derivative (“Derivative’’) under Statement of Financial AccountingStandards No. 133, “Accounting for Derivative Instruments and Hedging Activities.”

The fair value of the Derivativeas of December 31, 2006 was $635. The change in fair value of the Derivativefrom the date of issuance of the Notes through December 31, 2006 totaled$483 and has been recorded as other income in the consolidated statements ofoperations.

The Company will monitorthe fair value of the Derivative each reporting period and record changes infair value through charges to other income (expense) with an offsettingadjustment to the carrying value of the Notes on the balance sheet. The valueof the Derivative will fluctuate based on changes in several factors includingthe trading price of the Company’s common stock, passage of time and otherevents described in the Notes. These value changes could be significant.

Theproceeds from issuance of the Notes were allocated between the Notes andmake-whole premium Derivative as follows:

|                                   | ** ** | **November 9, 2006** | ** ** | **December 31, 2006** | ** ** |
|-----------------------------------|------------|--------------------------------|------------|---------------------------------|------------|
| Convertible  senior secured notes |       |                           | $          | 401,383                         |       |   |   | $ | 403,124 |   |   |
| Derivative                        |       |                           | 1,117      |                            |       |   | 635 |   |   |
| Total balance of  Notes           |       |                           | $          | 402,500                         |       |   |   | $ | 403,759 |   |   |

 

The aggregate fair valueof the Notes, which was determined based on quoted market values, isapproximately $479,000 as of December 31, 2006, as compared to the aggregatecarrying value of the Notes at such date of $403,759.

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**Note 7—LeasingArrangements**

The Company leases its facilities, includingbuildings, collocation sites and certain fiber optic capacity and certainvehicles and equipment under leasing arrangements that have been accounted foras operating leases in the accompanying financial statements. Certain of theCompany’s operating leases contain renewal options and rent escalation clauses.

Futureminimum lease payments under operating leases with non-cancelable terms inexcess of one year were as follows as of December 31, 2006:

| Years ending  December 31, |   |   |    |
|---------------------------------|--------|--------|---------|
| 2007                            |   | $      | 15,917  |   |
| 2008                            |   | 16,100 |    |
| 2009                            |   | 15,905 |    |
| 2010                            |   | 16,090 |    |
| 2011                            |   | 15,611 |    |
| Thereafter                      |   | 62,174 |    |
| Total minimum lease  payments   |   | $      | 141,797 |   |

 

Rent expense under all operating leases for the years ended December 31,2006, 2005 and 2004, was $10,801, $2,685, and $932, respectively. Paymentsunder the Company’s operating leases that escalate over the term of the lease arerecognized as rent expense on a straight-line basis.

**Note 8**—Convertible Preferred Stock

In July 2005, Old FiberTower issued 45,608,130shares of Series A Convertible Preferred Stock in a financing thatgenerated net cash proceeds of $149,828. As a result of the Series Afinancing, all 30,040,817 issued and outstanding shares of Series A-1,Series B and Series C Convertible Preferred Stock were converted into22,454,411 shares of Series A.

As of December 31, 2005 the Company had 68,412,195shares of Series A authorized, and 68,052,541 shares of Series A issued andoutstanding.

As described in Note 1,all shares of Series A were converted (on a one-to-one basis) into sharesof the Company’s common stock immediately prior to the consummation of themerger with First Avenue.

**Note 9—Stockholders’Equity (Deficit)**

*Founders’ Shares and Notes Receivable fromStockholders—*In July 2000 and February 2001, Old FiberTowerissued 4,560,000 shares of common stock (the “Founders’ Shares”) to itsfounders in exchange for cash in the amount of $70. In May 2002, the founderscontributed 117,126 of the Founders’ Shares back to the Company withoutconsideration. Ten percent of the Founders’ Shares vested in May 2002, and theremaining Founders’ Shares vested monthly over a four-year period beginning onMay 31, 2002. As of December 31, 2005, 333,275 Founders’ Shares remainedsubject to forfeiture and cancellation (none as of December 31, 2006.)

*During*July 2005,Old FiberTower accepted notes receivable aggregating $4,000 from its foundersin exchange for cash. Such notes were collateralized by all shares then ownedby the founders. The notes bore interest at a fixed rate of 4.164%.

For accounting purposes, the acceptance of thesenon-recourse notes receivable from Old FiberTower’s founders in exchange forcash was considered to be (i) the purchase of treasury shares by OldFiberTower and (ii) the simultaneous issuance to the founders ofunexercised, partially vested options to purchase the number of shares of OldFiberTower’s common stock that collateralize the notes. Such 

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deemed options hadintrinsic value at the date of grant because the exercise price was less thanthe fair value of the common stock at such date, as determined by OldFiberTower. With respect to the deemed purchase of treasury shares, the Companyrecorded the aggregate principal balance of the notes, along with interestsubsequently accrued, as a reduction of stockholders’ equity in the accompanyingbalance sheet as of December 31, 2005. However, the related common shareswere presented as issued and outstanding for financial reporting purposesbecause the holders of such shares were legally entitled to vote these shares,participate in dividends, when and if declared by the Board of Directors, andenjoy the other rights of ownership of such shares while the notes wereoutstanding. With respect to the deemed issuance of unexercised, partiallyvested stock options to Old FiberTower’s founders, because the interestcomponent of the notes was full-recourse, payable at maturity andnonrefundable, such stock options constituted fixed stock-based awards, whichresulted in the recognition of stock-based compensation expense aggregating$238. The stock-based compensation of $189 associated with the vested portionof the deemed options was charged to operations at the date of grant in 2005.The remaining deferred stock-based compensation associated with the unvestedportion of the deemed options of $49 was recognized over the vesting period(which ended in 2006) using the graded vesting method.

The notes receivable fromstockholders, plus accrued interest, were fully repaid prior to the completionof the merger with First Avenue.

*Old FiberTower Stock Plan—*InMay 2001, Old FiberToweradopted a stock option plan (the “Old FiberTower Stock Plan”) pursuant to whichthe Board of Directors was authorized to grant options to purchase commonstock, or issue shares of common stock, to employees, officers, directors,advisors or consultants of Old FiberTower. Incentive stock options (“ISOs”) andnonqualified stock options (“NSOs”) were granted with an exercise price equal tothe estimated fair value of the common stock at the date of grant. All optionsissued under the Old FiberTower Stock Plan have a ten-year term, become fullyexercisable upon vesting, and generally vest over one to four years. Unlessotherwise stipulated by the Board of Directors, Restricted Stock Awards toemployees under the Old FiberTower Stock Plan vest over a four-year period fromthe grant date. During 2006, Restricted Stock Awards issued to certaindirectors vested immediately while other Restricted Stock Awards vested overperiods of less than four years, as stipulated in the respective awardagreements. Prior to vesting, the Restricted Stock Awards have voting rightsand are entitled to dividends. Therefore, such shares are consideredoutstanding for financial reporting purposes, but are included in the loss pershare computations only to the extent vested.

As a result of the merger discussed in Note 1, alloutstanding options and Restricted Stock Awards under this plan were legallyassumed by First Avenue and this plan was discontinued effective August 29,2006. All existing outstanding options and Restricted Stock Awards continuedunder the same terms of the original grant agreements (including the ten yearcontractual life of options) as adjusted for the merger exchange ratio withrespect to the number of shares and per share price.

*First Avenue Stock Option Plan—*Asa result of the Mergerdiscussed in Notes 1 and 3, Old FiberTower, as the acquirer of First Avenue,assumed options for the purchase of 4,249,336 common shares that had beengranted by First Avenue under its Stock Incentive Plan (the “Stock IncentivePlan”) prior to the merger. 

First Avenue revised the Stock Incentive Plan,effective as of August 29, 2006 as follows: (1) provided for the issuance ofrestricted shares as well as ISOs and NSOs; (2) increased the number of optionsand restricted shares reserved for issuance under the plan from 7.6 millionshares to 23,314,588 shares; (3) provided for annual awards of restrictedshares with an aggregate value of $85 to each non-employee director, and (4)allowed for an annual increase in the aggregate authorized shares to 1.5% ofthe then outstanding common shares. In addition, all options granted under theStock Incentive Plan have a contractual term of five years.

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Asummary of the Company’s 2006 stock option activity is as follows:  

| ** **                                   | ** ** | **Number  of Shares** | ** ** | **Weighted Average  Exercise  Price Per Share** | ** ** | **Weighted Average  Remaining  Contractual  Term (years)** | ** ** | **Aggregate  Intrinsic  Value  ($000s)** | ** ** |
|----------------------------------------------|------------|----------------------------|------------|------------------------------------------------------|------------|----------------------------------------------------------------------|------------|------------------------------------------|------------|
| Balance at December 31, 2005            |       | 3,516,146                  |       |                                                 | $          | 0.72                                                                 |       |                                     |       |   |   |   |   |   |   |   |
| Granted                                      |       | 3,918,054                  |       |                                                 | $          | 6.80                                                                 |       |                                     |       |   |   |   |   |   |   |   |
| Forfeited                                    |       | (1,042,193                 | )          |                                                 | $          | 5.66                                                                 |       |                                     |       |   |   |   |   |   |   |   |
| Exercised                                    |       | (1,028,488                 | )          |                                                 | $          | .64                                                                  |       |                                     |       |   |   |   |   | $ | 4,937 |   |   |
| Options assumed in merger with  First Avenue |       | 4,249,336                  |       |                                                 | $          | 7.03                                                                 |       |                                     |       |   |   |   |   |   |   |   |
| Balance at December 31, 2006            |       | 9,612,855                  |       |                                                 | $          | 5.46                                                                 |       |                                     |       | 5.0 |   |   |   | $ | 14,150 |   |   |
| Exercisable  at December 31, 2006       |       | 5,114,186                  |       |                                                 | $          | 5.12                                                                 |       |                                     |       | 4.1 |   |   |   | $ | 8,620 |   |   |

 

Thefollowing sets forth information regarding options outstanding at December 31,  2006:

| **Options  Outstanding** | ** ** | **Options  Exercisable**        | ** ** |
|--------------------------|------------|---------------------------------|------------|
| ** **               | ** ** | ** **                      | ** ** | **Weighted ** | ** ** | **Weighted Average** | ** ** | ** ** | ** ** | **Weighted** | ** ** |
| **Range of**        | ** ** | **Outstanding**                 | ** ** | **Average Exercise** | ** ** | **Remaining Life** | ** ** | **Options** | ** ** | **Average Exercise** | ** ** |
| **Exercise Prices** | ** ** | **Number of Options** | ** ** | **Price per Share** | ** ** | **(Years)** | ** ** | **Exercisable** | ** ** | **Price per Share** | ** ** |
| $0.17–$0.52         |       |                            | 654,374    |   |   |   | $ | 0.34 |   |   |   | 3.6 |   |   | 633,453 |   |   | $ | 0.34 |   |   |
| $0.86–$0.96         |       |                            | 1,876,105  |   |   |   | $ | 0.89 |   |   |   | 7.5 |   |   | 923,209 |   |   | $ | 0.89 |   |   |
| $4.68–$5.43         |       |                            | 1,035,014  |   |   |   | $ | 4.76 |   |   |   | 6.9 |   |   | 415,524 |   |   | $ | 4.68 |   |   |
| $7.00–$7.47         |       |                            | 2,432,000  |   |   |   | $ | 7.07 |   |   |   | 3.4 |   |   | 2,432,000 |   |   | $ | 7.07 |   |   |
| $7.74–$7.93         |       |                            | 3,140,362  |   |   |   | $ | 7.75 |   |   |   | 4.6 |   |   | 235,000 |   |   | $ | 7.92 |   |   |
| $8.35–$8.86         |       |                            | 475,000    |   |   |   | $ | 8.71 |   |   |   | 2.4 |   |   | 475,000 |   |   | $ | 8.71 |   |   |
|                     |       |                            | 9,612,855  |   |   |   |   |   |   |   | 5.0 |   |   | 5,114,186 |   |   | $ | 5.12 |   |   |

 

Options outstanding that arevested or are expected to vest are as follows
|                          | ** ** | **Number of  Shares** | ** ** | **Weighted Average  Exercise price** | ** ** | **WeightedAverage  Remaining  Contractual  Life (Years)** | ** ** | **Aggregate  Intrinsic Value  ($000s)** | ** ** |
|--------------------------|------------|----------------------------|------------|------------------------------------------------|------------|----------------------------------------------------------------|------------|----------------------------------------------|------------|
| Vested                   |       | 5,114,186                  |       |                                           | $          | 5.12                                                           |       |                                         |       | 4.1 |   |   |   | $ | 8,620 |   |   |
| Options expected to vest |       | 2,958,846                  |       |                                           | $          | 5.84                                                           |       |                                         |       | 5.9 |   |   |   | 3,637 |   |   |
| Total                    |       | 8,073,032                  |       |                                           | $          | 5.38                                                           |       |                                         |       | 4.8 |   |   |   | $ | 12,257 |   |   |

 

Theaggregate intrinsic values above include only in-the-money options based on theCompany's closing stock price of $5.88 at December 31, 2006.

Thefair value of the options granted during the year ended December 31, 2006was determined using a Black-Scholes-Merton option pricing model and theassumptions set forth below:

| Expected life of  options |   | 3.75—6.25 years |   |
|---------------------------|--------|----------------------|--------|
| Volatility                |   | 70%                  |   |
| Risk-free  interest rate  |   | 4.39%—5.03%     |   |
| Expected dividend yield   |   | 0.00%                |   |

 

The weighted-average grant-date fair value of stockoptions granted during the year ended December 31, 2006 was $3.82 pershare.

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As of December 31, 2006, there was $10,450 ofunrecognized compensation cost related to stock options. This cost is expectedto be recognized over a weighted-average period of approximately 1.75 years.

The aggregate fair value of options that have been accountedfor under SFAS No. 123 (R) and that vested during the year endedDecember 31, 2006 was $961.

In connection withthe merger of First Avenue with Old FiberTower, the Company agreed to providecertain severance benefits, including cash compensation and the acceleration ofvesting of 50% of the then outstanding stock options, to any of OldFiberTower’s officers who are actually or constructively terminated within 12months of the merger. During the year ended December 31, 2006, fourexecutives of Old FiberTower terminated employment and options for 109,880shares were accelerated under this agreement. Share based payment expense of$173 was recorded in connection with these option modifications.

Certain of the Company’s key employees’ stock optionand Restricted Stock Awards agreements provide that upon a change in control of the Company 100% of thestock options and restricted shares granted to such employees will be fullyvested. 

During 2006, theCompany issued Restricted stock award under the Stock Incentive Plan to itsemployees and directors. Generally, the shares awarded to employees vest over afour-year period from grant date. Restricted Stock Awards issued to certaindirectors vested immediately while shares issued to the Chairman will vest overtwo years. Prior to vesting, the restricted stock have voting rights and areentitled to dividends. Such shares are considered outstanding on the balancesheet but are included in the earnings (loss) per share computations only tothe extent vested.

A summary of the Restricted Stock Awardactivity for the year ended December 31, 2006 is as follows:

| ** **                                            | ** ** | **Number of  Shares** | ** ** | **Weighted-Average  Grant-Date  Per Share  Fair Value** | ** ** |
|-------------------------------------------------------|------------|----------------------------|------------|-------------------------------------------------------------------|------------|
| Balance at  December 31, 2005                    |       | —                     |       |                                                              | —     |   |   |
| Granted                                               |       | 2,856,528                  |       |                                                              | $          | 7.64 |   |   |
| Vested                                                |       | (43,928                    | )          |                                                              | $          | 7.74 |   |   |
| Cancelled                                             |       | (460,800                   | )          |                                                              | —     |   |   |
| Restricted shares assumed in merger with First Avenue |       | 689,600                    |       |                                                              | $          | 7.74 |   |   |
| Balance at  December 31, 2006                    |       | 3,041,400                  |       |                                                              | $          | 7.65 |   |   |

 

As of December 31, 2006, there was approximately$16,650 of unrecognized compensation cost related to the restricted stock grants.This compensation cost is expected to be recognized over a weighted-averageperiod of approximately 1.75 years. The aggregate intrinsic value of therestricted stock outstanding at December 31, 2006 was $17.9 million.

Common stock share grants—The Board ofDirectors of Old FiberTower, awarded an aggregate of 189,692 shares at a fairvalue of $11.16 per share to three executives and one director that becameeffective upon the completion of the merger discussed in Note 3. Theexecutives’ shares aggregating 142,269 shares fully vested in 2006 and thedirector’s shares fully vested in March 2007. The Company recordedshare-based payment expense of $2,076 during the year ended December 31,2006 in connection with these common stock share grants.

Asof December 31, 2006, there was approximately $50 of unrecognizedcompensation cost related to these common stock share grants. This compensationcost is expected to be recognized over a period of two months. The aggregateintrinsic value of the common stock share grants outstanding atDecember 31, 2006 was $279.

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Duringthe year ended December 31, 2005, the Company issued 15,202 shares offully-vested common stock to a consultant in exchange for services rendered.The fair value of such shares at the date of issuance of $14 was charged togeneral and administrative expense in 2005.

InDecember 2006, the Company issued 30,000 shares to a consultant inexchange for services rendered. The fair value of such shares at the date ofissuance of $177 was charged to general and administrative expense in 2006.

The employee andnon-employee stock-based compensation expense was recorded in the consolidatedstatements of operations as follows:

| ** **                  | ** ** | **Years Ended December 31** | ** ** |
|-----------------------------|------------|--------------------------------------------|------------|
| ** **                  | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Cost of service revenues    |       | $                                          | 1,145      |   | $ | 53 |   |   | $ | — |   |   |
| Sales and marketing         |       | 675                                        |       | 107 |   |   | 3 |   |   |
| General and  administrative |       | 4,582                                      |       | 77 |   |   | 1 |   |   |
| Total                       |       | $                                          | 6,402      |   | $ | 237 |   |   | $ | 4 |   |   |

 

Inaddition, the Company capitalized $165 of share-based payment expense for theyear ended December 31 2006 in connection with collocation site acquisition andnetwork construction activities. 

*Warrants—*FiberTower assumed warrants in connection with itsmerger with First Avenue. As of December 31 2006, there were 2,879,555warrants outstanding. Such warrants expire between January 24, 2009 and December 14,2014.

The following table summarizes information aboutwarrants outstanding as of December 31, 2006:

| **Warrants Outstanding**                  | ** ** | **Warrants Exercisable** | ** ** |
|------------------------------------------------|------------|-------------------------------|------------|
| **Exercisable Price Per Share** | ** ** | ** **                    | ** ** | **Warrants  Outstanding** | ** ** | **Weighted-  Average  Remaining  Contractual  Life (Years)** | ** ** | **Number  Exercisable** | ** ** | **Weighted-  Average  Exercise Price  Per Share** | ** ** |
| $1.84                                          |       |                          | 305,555    |   |   |   | 2.1 |   |   | 305,555 |   |   | $ | 1.84 |   |   |
| $7.25                                          |       |                          | 2,574,000  |   |   |   | 8.0 |   |   | 2,574,000 |   |   | $ | 7.25 |   |   |

 

*Common Stock Reserved forFuture Issuance*

Shares of common stock reserved for future issuancewere as follows as of December 31, 2006:

| ** **                           | ** ** | **December 31,   2006** | ** ** |
|--------------------------------------|------------|-----------------------------------|------------|
| Convertible senior  secured notes(1) |       |                              | 48,552,473 |   |   |
| Warrants                             |       |                              | 2,879,555  |   |   |
| Stock options and  restricted shares |       |                              | 22,866,551 |   |   |
| Total shares reserved                |       |                              | 74,298,579 |   |   |

----

(1)          Effective as ofFebruary 15, 2007.

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**Note 10**—IncomeTaxes

A reconciliation of FiberTower’s effectivetax rate as a percentage of loss before income tax and the federal statutorytax rate for the years ended December 31, 2006, 2005 and 2004 is as follows:

| ** **                               | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Federal statutory tax rate               |       | 35.0     | %          | 34.0     | %          | 34.0     | %          |
| State income tax, net of federal benefit |       | 5.2      | %          | 6.0      | %          | 6.0      | %          |
| Nondeductible items and other            |       | (0.7     | )%         | —   |       | —   |       |
| Impact of valuation allowance            |       | (39.5    | )%         | (40.0    | )%         | (40.0    | )%         |
| Effective income  tax rate               |       | 0.0      | %          | 0.0      | %          | 0.0      | %          |

 

Due to theCompany’s (i) net operating losses since inception and (ii) presentinability to recognize the potential benefits of its net operating losscarryforwards, as described below, no provision or benefit for income taxes hasbeen recorded in the accompanying financial statements.

Deferred tax assets and liabilities atDecember 31, 2006 and 2005 are as follows:

| ** **                               | ** ** | **2006** | ** ** | **2005** | ** ** |
|------------------------------------------|------------|----------|------------|----------|------------|
| Deferred tax assets:                     |       |     |       |     |       |
| Net operating  loss carryforwards        |       | $        | 615,131    |     | $          | 18,000 |   |
| Property and equipment                   |       | 35,033   |       | —   |       |
| FCC license  amortization                |       | 42       |       | —   |       |
| State taxes                              |       | (36,343  | )          | —   |       |
| Other                                    |       | 3,583    |       | 300      |       |
| Total deferred  tax assets               |       | 617,446  |       | 18,300   |       |
| Valuation  allowance                     |       | (617,446 | )          | (18,300  | )          |
| Net deferred tax  assets                 |       | $        | —     |     | $          | — |   |
| Intangible assets deferred tax liability |       | $        | (102,964   | )        | $          | — |   |

 

Realization ofthe Company’s deferred tax assets is dependent upon future earnings, if any,the timing and amount of which are uncertain. Management has concluded that itwas more likely than not that the Company’s deferred tax assets would not berealized. Accordingly, the Company’s deferred tax assets have been fully offsetby a valuation allowance at December 31, 2006 and 2005. During the yearsended December 31, 2006, 2005 and 2004, the Company increased thisvaluation allowance by $600,417, $9,100 and $4,900, respectively. Approximately$579,000 of the increase in the valuation allowance during the year endedDecember 31, 2006 relates to tax benefits associated with the merger withFirst Avenue (Note 3). To the extent any of the deferred tax asset valuationallowance recognized in connection with this merger is subsequently reversed,it will be recognized first as a reduction of goodwill, then as a reduction of otherintangible assets and, lastly, as a reduction of current period income taxexpense.

As a result of the adoption of SFAS No. 123(R),the Company’s deferred tax assets at December 31, 2006 do not includeexcess tax benefits from stock option exercises. Stockholders’ equity will beincreased if these excess tax benefits are ultimately realized.

At December 31, 2006,the Company had net operating loss carryforwards of approximately $1,429,350for federal income tax purposes. These net operating loss carryforwards beginto expire in 2011 and fully expire in 2026. Utilization of the Company’s netoperating loss carryforwards may be subject to a substantial annual limitationdue to historical or future ownership percentage change rules provided by 

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InternalRevenue Code Section 382. The annual limitation may result in theexpiration of certain net operating loss carryforwards before theirutilization.

**Note 11**—RetirementSavings Plan

The Company maintains a 401(k) retirement savingsplan (the “Savings Plan”) for its permanent employees. Each participant in theSavings Plan may elect to contribute a percentage of his or her annualcompensation to the Savings Plan, up to a specified maximum amount per year.The Company, at its discretion, may also make contributions to the SavingsPlan. The Company made $13 in contributions to the Savings Plan during theyears ended December 31, 2006, (none in 2005 and 2004). Benefits payableunder the Savings Plan are limited to Company and employees.

**Note 12**—RelatedParty Transactions

During the years ended December 31, 2006 and2005, the Company leased collocation space from certain stockholders that (i) owngreater than 10% of the Company’s outstanding equity securities and/or (ii) haverepresentatives who serve on the Company’s Board of Directors. One of theserelated parties also provided the Company with certain services pertaining toits network operations center during such years. The aggregate operatingexpenses included in the accompanying statements of operations for years ended December 31,2006 and 2005, respectively, pertaining to these lease and service arrangementswere approximately $1,722, and $433, respectively. The Company does notconsider the corresponding amounts for the year ended December 31, 2004 tobe material to our financial statements. As a result of the Merger, theownership interests of one related party is less than 3% of the Company’soutstanding equity securities and transactions with this entity during thefourth quarter of 2006 are excluded.

During the years ended December 31, 2006, 2005and 2004, (i) a member of our Board of Directors and (ii) one of ourinvestors served as consultants to the Company on various aspects of ourbusiness and strategy. These individuals were compensated for their serviceswith varying amounts of cash and stock options, which we do not consider to bematerial to the accompanying consolidated financial statements.

Representatives from three entities holdingapproximately 36% of the outstanding common stock serve on our Board ofDirectors. A company controlled by a member of the Board of Directorsperiodically serves as a consultant to a holder of approximately 16% of ouroutstanding common stock.

The executive chairman of the Company’s board ofdirectors, serves as a director of Tessco Technologies Incorporated. Tesscosupplies the Company with various materials which are used in the businessoperations. During 2006, we have paid Tessco approximately $0.7 million with anadditional $0.2 million in unpaid and uninvoiced balances.

**Note 13**—Guarantees and Other Contingencies

*RegulatoryMatters—*The Company is subject to certain claims andassessments and makes routine filings with the FCC. Management believes thatresolution of any such claims or matters arising from such filings, if any,will not have a material adverse impact on the Company’s consolidated financialposition.

*LicenseRenewal*—Like other FCC licenses, the licenses whichFirst Avenue holds were granted for an initial ten-year term and have renewaldates ranging from 2007 to 2011. To obtain renewal of a license, the licenseemust demonstrate that it has provided “substantial service” during its licenseterm. What level of service is considered “substantial” will vary dependingupon the type of offering by the licensee. The FCC has provided specificguidance only for point-to-point offerings, where it has indicated the licenseeshould have constructed four links per channel per million persons in thelicensed market area. Licensees are required, prior to the expiration date oftheir licenses, to file renewal applications with an exhibit demonstratingcompliance with the substantial service criteria. If an entity is deemed not tohave provided 

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substantial service withrespect to a license for which renewal is sought, the renewal will not begranted and the license will be canceled. We do not currently meet thesubstantial service safe harbor guidance provided by the FCC for the substantialmajority of our 24 and 39 GHz licenses, but believe that our licenses will berenewed based on our significant network investment and expanding geographiccoverage. However, since we are required to demonstrate substantial service atthe time the licenses are renewed, the FCC could choose to revoke licenses thatdo not meet the substantial service safe harbor.

*Otherguarantees*—From time to time, the Company enters intocertain types of contracts that contingently require it to indemnify variousparties against claims from third parties. These contracts primarily relate to:(i) certain real estate leases, under which the Company may be required toindemnify property owners for environmental and other liabilities and for otherclaims arising from the Company’s use of the applicable premises; (ii) certainagreements with the Company’s officers, directors and employees, under whichthe Company may be required to indemnify such persons for liabilities arisingout of their employment relationship;(iii) contracts under which the Company may be required to indemnifycustomers against third-party claims that a Company product or serviceinfringes a patent, copyright or other intellectual property right; and (iv) procurementor license agreements under which the Company may be required to indemnifylicensors or vendors for certain claims that may be brought against themarising from the Company’s acts or omissions with respect to the suppliedproducts or technology.

Generally, a maximum obligation under these contractsis not explicitly stated. Because the obligated amounts associated with thesetypes of agreements are not explicitly stated, the overall maximum amount ofthe obligation cannot be reasonably estimated. Historically, the Company hasnot been required to make payments under these obligations, and no liabilitieshave been recorded for these obligations in the Company’s consolidated balancesheets.

*Legalproceedings**—*The Company issubject to certain legal proceedings and claims in the ordinary course ofbusiness. In the opinion of management, the ultimate outcome of these matterswill not have a material impact on the Company’s financial position or resultsof operations.

As of December 31, 2006, the Company had a disputewith a vendor concerning the amount owed to it for purchases of equipment. TheCompany believes that this dispute will be resolved in the near term without amaterial adverse effect on the Company’s consolidated financial statements. Oneof the disputes related to December 31, 2005 was resolved in 2006 and did nothave a material effect on the company’s consolidated financial statements.

**Note 14—Selected Quarterly Financial Information(Unaudited)**

FiberTower’s 2006 and 2005unaudited selected consolidated quarterly financial information are as follows:

| ** **                        | ** ** | **Quarters Ended**                                                                    | ** ** |
|-----------------------------------|------------|--------------------------------------------------------------------------------------------|------------|
| ** **                        | ** ** | **March 31**                                                                          | ** ** | **June 30** | ** ** | **September 30** | ** ** | **December 31** | ** ** |
| ** **                        | ** ** | **(All amounts in thousands except per share amounts)** | ** ** |
| **2006**                          |       |                                                                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Service revenues                  |       |                                                                                       | $          | 2,523 |   |   | $ | 3,093 |   |   | $ | 4,038 |   |   |   | $ | 4,109 |   |   |
| Operating loss                    |       |                                                                                       | (7,549     | ) |   | (10,811 | ) |   | (15,070 | ) |   |   | (22,942 | ) |   |
| Net loss                          |       |                                                                                       | $          | (6,477 | ) |   | $ | (10,011 | ) |   | $ | (14,469 | ) |   |   | $ | (26,321 | ) |   |
| Basic and diluted loss  per share |       |                                                                                       | $          | (1.25 | ) |   | $ | (1.84 | ) |   | $ | (0.27 | ) |   |   | $ | (0.19 | ) |   |
| **2005**                          |       |                                                                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Service revenues                  |       |                                                                                       | $          | 909 |   |   | $ | 1,335 |   |   | $ | 1,678 |   |   |   | $ | 2,302 |   |   |
| Operating loss                    |       |                                                                                       | (4,860     | ) |   | (5,211 | ) |   | (6,027 | ) |   |   | (8,264 | ) |   |
| Net loss                          |       |                                                                                       | $          | (4,795 | ) |   | $ | (5,188 | ) |   | $ | (4,924 | ) |   |   | $ | (7,002 | ) |   |
| Basic and diluted loss  per share |       |                                                                                       | $          | (1.18 | ) |   | $ | (1.22 | ) |   | $ | (1.07 | ) |   |   | $ | (1.44 | ) |   |

 

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**ITEM 9.**                CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Prior to the Merger on August 29, 2006, FirstAvenue’s financial statements were audited by KBA Group LLP (“KBA”). Old FiberTower’s financialstatements were audited by Ernst & Young LLP (“E&Y”). OldFiberTower was treated as the acquirer for accounting purposes and E&Y willcontinue to audit our financial statements, as approved by our Audit Committeeof the Board of Directors on September 25, 2006.

Because First Avenue was audited by KBA prior to theMerger, the Merger technically resulted in a change in independent accountants.Effective on September 25, 2006, we dismissed KBA as our independentregistered public accounting firm. The decision to dismiss KBA as ourindependent accountants was approved by the Audit Committee of our Board ofDirectors on September 25, 2006.

We do not have anydisagreements with our accountants on accounting and financial disclosurematters.

**Item 9A.**        Controlsand Procedures 

*(a)**          Evaluationof disclosure controls and procedures.*

As of December 31, 2006, our management carriedout an evaluation under the supervision and with the participation of our ChiefExecutive Officer and Chief Financial Officer, of the effectiveness of thedesign and operation of our disclosure controls and procedures pursuant toRules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“ExchangeAct”). Disclosure controls are controls and procedures that are designed toensure that information required to be disclosed in our reports filed under theExchange Act, such as this Form 10-K, is recorded, processed, summarizedand reported, within the time periods specified in the SEC’s rules and forms.Disclosure controls and procedures include, without limitation, controls andprocedures designed to ensure that information required to be disclosed by acompany in the reports that it files or submits under the Exchange Act isaccumulated and communicated to the company’s management, including itsprincipal executive and principal financial officers, or persons performingsimilar functions, as appropriate to allow timely decisions regarding requireddisclosure.

As described belowunder Management's Report on Internal Control over Financial Reporting, our managementhas identified and reported to our audit committee and Ernst & YoungLLP, our independent registered public accounting firm, a material weakness inour internal control over financial reporting. As a result of this materialweakness in our internal control over financial reporting, our CEO and CFO haveconcluded that, as of December 31, 2006, our disclosure controls andprocedures were not effective.

(b)          Management's Report onInternal Control over Financial Reporting

Our management is responsible for establishing andmaintaining effective internal control over financial reporting and for itsassessment of the effectiveness of internal control over financial reporting.

On August 29, 2006, FiberTower Network ServicesCorp. (which was formerly known as FiberTower Corporation and is referred tohereinafter as “Old FiberTower”), a privately-held company, merged with FirstAvenue Networks, Inc. Upon completion of the merger, First Avenue Networks, Inc.changed its name to FiberTower Corporation. Old FiberTower was determined to bethe acquirer for accounting purposes. Our management’s assessment of andconclusion on the effectiveness of internal control over financial reportingdid not include the internal controls of OldFiberTower, which is included inthe 2006 consolidated financial statements of FiberTower Corporation andconstituted approximately $159 million and $131 million of total andnet assets, respectively, as of December 31, 2006 and approximately $13 millionand $47 million of revenues and net loss, respectively, for the year thenended.

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As of December 31, 2006, our management hasassessed the effectiveness of our internal control over financial reporting. Inmaking its assessment of internal control over financial reporting, managementused the criteria issued by the Committee of Sponsoring Organizations of theTreadway Commission (COSO) in *Internal Control—IntegratedFramework.* A material weakness is a significant deficiency, orcombination of significant deficiencies, that results in more than a remotelikelihood that a material misstatement of the annual or interim financialstatements will not be prevented or detected. In performing the assessment,management has identified the following control deficiency that we haveconcluded is a material weakness in both the design and operating effectivenessof internal control over financial reporting as of December 31, 2006:

The scope and complexity of our operations increasedduring late 2006, principally as a result of the merger between Old Fiber TowerFirst Avenue Networks, Inc. and our subsequent convertible debt offering. As aresult, we do not have a sufficient number of accounting personnel with therelevant technical accounting and financial reporting experience and skills,and we lack the requisite accounting systems (which were largely non-integratedas of December 31, 2006), to facilitate the preparation of timely andaccurate consolidated financial statements, particularly with respect to accountingfor significant unusual transactions. Consequently, material errors occurred,or have the potential to occur, in our accounting for (i) goodwill anddeferred income tax liability accounts and (ii) embedded derivativefinancial instrument and other income and expense accounts, as well as in therelated financial statement disclosures. Therefore, we recorded a number ofadjustments to our 2006 consolidated financial statements, and relateddisclosures, prior to including them in this report.

Until this materialweakness is remediated, there is more than a remote likelihood that a materialmisstatement to our annual or interim consolidated financial statements couldoccur and not be prevented or detected by our controls in a timely manner. As aresult of the material weakness described above, management has concluded that,as of December 31, 2006, our system of internal control over financialreporting was not effective based on the criteria in *InternalControl-Integrated Framework.* Our independent registered publicaccounting firm, Ernst & Young LLP, has issued an attestation reporton our assessment of our internal control over financial reporting. That reportappears below in this Item 9A.

(c)           Reportof Independent Registered Public Accounting Firm on Internal Control OverFinancial Reporting

The Board of Directors and StockholdersFiberTower Corporation

We have audited management’s assessment, included inthe accompanying report entitled “Management’s Report on Internal Control overFinancial Reporting,” that FiberTower Corporation (which, as described below,was formerly known as First Avenue Networks, Inc.) did not maintain effectiveinternal control over financial reporting as of December 31, 2006, becauseof the effect of a material weakness in the overall design and operation ofFiberTower Corporation’s technical accounting and financial reporting functions,based on criteria established in Internal Control—Integrated Framework issuedby the Committee of Sponsoring Organizations of the Treadway Commission (theCOSO criteria). FiberTower Corporations’s management is responsible formaintaining effective internal control over financial reporting and for itsassessment of the effectiveness of internal control over financial reporting.Our responsibility is to express an opinion on management’s assessment and anopinion on the effectiveness of the Company’s internal control over financialreporting based on our audit.

We conducted our audit inaccordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit toobtain reasonable assurance about whether effective internal control overfinancial reporting was maintained in all material respects. Our audit includedobtaining an understanding of internal control over financial 

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reporting,evaluating management’s assessment, testing and evaluating the design andoperating effectiveness of internal control, and performing such otherprocedures as we considered necessary in the circumstances.  We believe that our audit provides areasonable basis for our opinion.

A company’s internalcontrol over financial reporting is a process designed to provide reasonableassurance regarding the reliability of financial reporting and the preparationof financial statements for external purposes in accordance with generallyaccepted accounting principles. A company’s internal control over financialreporting includes those policies and procedures that (1) pertain to themaintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directorsof the company; and (3) provide reasonable assurance regarding preventionor timely detection of unauthorized acquisition, use, or disposition of the company’sassets that could have a material effect on the financial statements.

Because of its inherentlimitations, internal control over financial reporting may not prevent ordetect misstatements. Also, projections of any evaluation of the effectivenessto future periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.

On August 29, 2006,FiberTower Network Services Corp. (which was formerly known as FiberTowerCorporation and is referred to hereinafter as “Old FiberTower”), aprivately-held company, merged with First Avenue Networks, Inc. Upon completionof the merger, First Avenue Networks, Inc. changed its name to FiberTower Corporation.Old FiberTower was determined to be the acquirer for accounting purposes. Asindicated in the accompanying report entitled “Management’s Report on InternalControl Over Financial Reporting,” management’s assessment of and conclusion onthe effectiveness of internal control over financial reporting did not includethe internal controls of Old FiberTower, which is included in the 2006consolidated financial statements of FiberTower Corporation and constitutedapproximately $158,863 and $131,320 of total and net assets, respectively, asof December 31, 2006 and approximately $13,177 and $47,171 of revenues andnet loss, respectively, for the year then ended. Our audit of internal controlover financial reporting of FiberTower Corporation also did not include anevaluation of the internal control over financial reporting of Old FiberTower.

A material weakness is acontrol deficiency, or combination of control deficiencies, that results inmore than a remote likelihood that a material misstatement of the annual orinterim financial statements will not be prevented or detected. The followingmaterial weakness has been identified and included in management’s assessment.The scope and complexity of the Company’s operations increased during late2006, principally as a result of the merger with First Avenue Networks, Inc.and a subsequent convertible debt offering. The Company does not have asufficient number of accounting personnel with the relevant technicalaccounting and financial reporting experience and skills, and it lacks therequisite accounting systems (which were largely non-integrated as of December 31,2006), to facilitate the preparation of timely and accurate consolidatedfinancial statements, particularly with respect to accounting for significantunusual transactions. Consequently, material errors occurred, or have thepotential to occur, in the Company’s (i) goodwill and deferred income taxliability accounts and (ii) embedded derivative financial instrument and otherincome and expense accounts, as well as in the related financial statementdisclosures. Therefore, the Company recorded a number of adjustments to its2006 consolidated financial statements, and related disclosures, prior to theirissuance. This material weakness was considered in determining the nature,timing, and extent of audit tests applied in our audit of the 2006 consolidatedfinancial statements, and this report does not affect our report dated March 29,2007 on those financial statements.

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In our opinion,management’s assessment that FiberTower Corporation did not maintain effectiveinternal control over financial reporting as of December 31, 2006, isfairly stated, in all material respects, based on the COSO criteria. Also, inour opinion, because of the effect of the material weakness described above onthe achievement of the objectives of the control criteria, FiberTowerCorporation has not maintained effective internal control over financialreporting as of December 31, 2006, based on the COSO criteria.
|  |   | /s/ ERNST & YOUNG LLP |
|--|--------|---------------------------|

 

SanFrancisco, CaliforniaMarch 29, 2007

*(d)**          RemediationEfforts to Address Material Weakness*

Management believes the material weakness wasprimarily the result of several significant, complex transactions weexperienced in 2006, including the Merger of Old FiberTower with First AvenueNetworks, Inc. and the convertible senior secured notes offering, as well assignificant turnover of our financial accounting and reporting staff.

We have begunplanning and implementing changes to our processes to improve our internalcontrol over financial reporting. The following are among the steps we havetaken, or intend to take, to remediate the above stated material weakness:

·       We hiredan Accounting Manager with over 15 years of accounting experience in the firstquarter of 2007. The Accounting Manager holds a Masters of Accounting degree,and is a Certified Public Accountant.

·       We intend tohirean accountant with strong technical skills to evaluate the impact ofnon-routine and non-systemic transactions for proper treatment under U.S. GAAPaccounting.

·       We intend tohirean SEC reporting expert to manage the assimilation of financial transactionsand preparation of reports that comply with relevant rules and regulations fortimely review and approval of management, submission to the external auditorsand ultimate filing with the SEC.

·       We engageda reputable firm to provide outsourcing resources and expertise in ourcontinuing assessment, redesign and improvement of our internal controls overfinancial reporting and to assist in the implementation of the requirements ofSarbanes-Oxley Section 404 for our combined company in 2007.

Although we have already taken some actions toremediate the material weakness, further remedial action is required includingthe addition of a permanent controller and additional accounting staff and thedevelopment and implementation of enhanced accounting systems, processes,policies and procedures. Our management and Audit Committee will monitorclosely the implementation of our remediation plan.

The effectiveness of the steps we have taken to dateand the steps we are still in the process of completing is subject to continuedmanagement review, as well as Audit Committee oversight, and we may makeadditional changes to our internal control over financial reporting.

*(e)**           Changesin internal control over financial reporting**.***

Internal control overfinancial reporting did not change materially during the quarter ended December 31,2006 with respect to First Avenue Networks, Inc., which is the entity includedin the scope of management’s assessment of internal control over financialreporting as of December 31, 2006, as 

79

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describedabove.  Management mitigated risksassociated with the merger of First Avenue Networks, Inc. and Old FiberTower bydeferring the integration of their accounting systems until 2007. Whilemanagement has determined that this deferral mitigated the risk of materialerrors in accounting transactions, maintaining two disparate general ledgersystems resulted in changes to the process of consolidation and preparation ofour financial statements. We hired two senior financial consultants to developthe technical accounting, and financial reporting capabilities of theaccounting staff.

**ITEM 9B.**       OTHER INFORMATION

**None**

**PART III**

**ITEM 10.**         DIRECTORS,EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information regardingDirectors, Executive Officers and Corporate Governance required by Item 10is incorporated by reference to our proxy statement for our 2007 annual meetingof stockholders, which we refer to as our 2007 Proxy Statement

**ITEM 11.**         EXECUTIVECOMPENSATION

The information regardingExecutive Compensation required by Item 11 is incorporated by reference to our2007 Proxy Statement.

**ITEM 12.**         SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS

The information regardingSecurity Ownership of Certain Beneficial Owners and Management and RelatedStockholder Matters required by Item 12 is incorporated by reference to our2007 Proxy Statement.

**ITEM 13.**         CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information regardingCertain Relationships and Related Transactions and Director Independencerequired by Item 13 is incorporated by reference to our 2007 Proxy Statement.

**ITEM 14.**         PRINCIPALACCOUNTANT FEES AND SERVICES

The information regardingPrincipal Accountant Fees and Services required by Item 14 is incorporated byreference to our 2007 Proxy Statement.

**PART IV**

**ITEM 15.**         EXHIBITSAND FINANCIAL STATEMENT SCHEDULES

1.                 FinancialStatements: See “Index to Consolidated Financial Statements” in Part II,Item 8 of this report.

2.                 FinancialStatement Schedules: All schedules are omitted because the required informationis inapplicable, immaterial, or the information is presented in theconsolidated financial statements and notes thereto in Item 8 of this report.

3.                 Exhibits: Theexhibits listed in the accompanying exhibit index are filed, furnished orincorporated by reference as part of this report.

80

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**SIGNATURES**

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

|                            | FIBERTOWER CORPORATION |
|----------------------------|------------------------|
| Date: March 29,  2007 | By:                    | /s/ THOMAS A. SCOTT |   |   |
|                       |                   | Thomas A. Scott |   |   |
|                       |                   | Chief Financial Officer |   |   |

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of the registrant and inthe capacities and on the dates indicated.

| /s/ MICHAEL K. GALLAGHER |   | President, Chief Executive Officer and               |   | March 29, 2007 |
|--------------------------|--------|------------------------------------------------------|--------|---------------------|
| Michael K.  Gallagher    |   | Director (Principal Executive Officer)               |   |                |
| /s/  THOMAS A. SCOTT     |   | Senior Vice President  and Chief Financial           |   | March 29, 2007 |
| Thomas A. Scott          |   | Officer (Principal Financial and Accounting Officer) |   |                |
| /s/  JOHN D. BELETIC     |   | Executive Chairman and  Director                     |   | March 29, 2007 |
| John D. Beletic          |   |                                                 |   |                |
| /s/  BANDEL CARANO       |   | Director                                             |   | March 29, 2007 |
| Bandel Carano            |   |                                                 |   |                |
| /s/  RANDALL HACK        |   | Director                                             |   | March 29, 2007 |
| Randall Hack             |   |                                                 |   |                |
| /s/  JOHN KELLY          |   | Director                                             |   | March 29, 2007 |
| John Kelly               |   |                                                 |   |                |
| /s/  JOHN B. MULETA      |   | Director                                             |   | March 29, 2007 |
| John B. Muleta           |   |                                                 |   |                |
| /s/  DARRYL SCHALL       |   | Director                                             |   | March 29, 2007 |
| Darryl Schall            |   |                                                 |   |                |
| /s/  STEVEN D. SCHEIWE   |   | Director                                             |   | March 29, 2007 |
| Steven D. Scheiwe        |   |                                                 |   |                |
| /s/  NEIL S. SUBIN       |   | Director                                             |   | March 29, 2007 |
| Neil S. Subin            |   |                                                 |   |                |

p

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**EXHIBITINDEX**
| Exhibit No. | ** ** | ** ** | ** ** | **Exhibit**                                                                                                                                                                                                                                                                                                                                       |
|------------------|------------|------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|             | 2.1        |       |       | Agreement and Plan of  Merger, dated May 14, 2006, among First Avenue Networks, Inc.,  FiberTower Corporation and Marlin Acquisition Corporation (incorporated by  reference to Registrant’s Current Report on Form 8-K filed on  May 18, 2006).                                                                         |
|             | 3.1        |       |       | Restated  Certificate of Incorporation of the Registrant dated August 29, 2006  (incorporated by reference to Annex C to the Registrant’s Definitive  Information Statement on Schedule 14C), as filed with the SEC on  July 25, 2006.                                                                                             |
|             | 3.2        |       |       | Amended and  Restated Bylaws of the Registrant (incorporated by reference to Annex D to  the Registrant’s Definitive Information Statement on Schedule 14C), as filed  with the SEC on July 25, 2006.                                                                                                                                   |
|             | 4.1        |       |       | Specimen of Common  Stock Certificate (incorporated by reference to the Registrant’s registration  statement on Form S-8 (Reg. No. 137040) filed on  August 31, 2006).                                                                                                                                                        |
|             | 4.2        |       |       | Senior Secured  Note and Class A Warrant Agreement (incorporated by reference to  Exhibit 2.2 to the Registrant’s Current Report Form 8-K dated  January 4, 2002).                                                                                                                                                       |
|             | 4.3        |       |       | Form of  Class A Warrant (incorporated by reference to Exhibit 2.2 to the  Registrant’s Current Report Form 8-K dated January 4, 2002).                                                                                                                                                                             |
|             | 4.4        |       |       | Form Stock  Purchase Warrant to subscribe for and purchase Common Stock of the Registrant  (incorporated by reference to Exhibit 4.1 to the Registrant’s Current  Report Form 8-K dated January 29, 2004).                                                                                                               |
|             | 4.5        |       |       | Form of 9%  Senior Secured Note due December 20, 2008 (incorporated by reference to  Exhibit 4.2 to the Registrant’s Current Report Form 8-K dated  January 29, 2004).                                                                                                                                              |
|             | 4.6        |       |       | Indenture, dated  as of November 9, 2006, among FiberTower Corporation, as issuer, the  guarantors named therein, and Wells Fargo Bank, National Association, as  trustee (incorporated by reference to the Registrant’s Current Report on  Form 8-K filed on November 15, 2006).                                             |
|             | 4.7        |       |       | Form of  9.00% Convertible Senior Secured Notes due 2012, including the form of  Guarantee (incorporated by reference to the Registrant’s Current Report on Form 8-K  filed on November 15, 2006).                                                                                                                            |
|             | 4.8        |       |       | Registration  Rights Agreement, dated as of November 9, 2006, among FiberTower  Corporation, the guarantors named therein, and Jefferies &  Company, Inc. and Deutsche Bank Securities Inc. (incorporated by  reference to the Registrant’s Current Report on Form 8-K filed on  November 15, 2006).            |
|             | 4.9        |       |       | Escrow Agreement,  dated as of November 9, 2006, among FiberTower Corporation, Wells Fargo  Bank, National Association, as trustee under the Indenture, and Wells Fargo  Bank, National Association, as escrow agent (incorporated by reference to the  Registrant’s Current Report on Form 8-K filed on November 15,  2006). |
|             | 4.10       |       |       | Pledge and  Security Agreement, dated as of November 9, 2006, among FiberTower  Corporation, the subsidiary grantors named therein, and Wells Fargo Bank,  National Association, as collateral agent (incorporated by reference to the  Registrant’s Current Report on Form 8-K filed on November 15,  2006).                 |
|             | 4.11       |       |       | Registration  Rights Agreement, dated August 29, 2006, by and among the Company and  each of the holders listed on Exhibit A thereto (incorporated by  reference to the Registrant’s current report on Form 8-K filed on  September 1, 2006).                                                                            |
|                  |            |            |            |                                                                                                                                                                                                                                                                                                                                                   |  |  |

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|        | 10.1         |   |   | First Amendment  to Senior Secured Note and Class A Warrant Purchase Agreement, dated  January 26, 2004, among the Company and the Purchasers named in Schedule  I thereto (incorporated by reference to the Registrant’s current report on  Form 8-K dated January 29, 2004).                                                |
|--------|--------------|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | 10.2         |   |   | Common Stock and  Warrant Purchase Agreement, dated January 28, 2004, by and between the  Company and the Investors party thereto (incorporated by reference to the  Registrant’s current report on Form 8-K dated January 29,  2004).                                                                                             |
|   | 10.3         |   |   | Securities  Purchase Agreement dated as of December 14, 2004 by and among First  Avenue Networks, Inc. and the Purchasers listed on Schedule I attached  thereto (incorporated by reference to the Registrant’s current report on  Form 8-K dated December 14, 2004).                                                         |
|   | 10.4         |   |   | Form of  Common Stock Purchase Warrant issued by the Company to each of the Purchasers  (incorporated by reference to the Registrant’s current report on Form 8-K  dated December 14, 2004).                                                                                                                                       |
|   | 10.5         |   |   | Form of  Common Stock Purchase Warrant issued to Tejas Securities Group, Inc.  (incorporated by reference to the Registrant’s annual report on Form 10-K  for the year ended December 31, 2004).                                                                                                                              |
|   | 10.6         |   |   | Amended and  Restated Asset Purchase Agreement, dated as of January 13, 2005, by and  among First Avenue Networks, Inc., Teligent Services  Acquisition, Inc., Teligent, Inc. and Teligent Services, Inc.  (incorporated by reference to the Registrant’s current report on Form 8-K  dated January 18, 2005). |
|   | 10.7         |   |   | Third Amended and  Restated Registration Rights Agreement, dated January 28, 2004, by and  the Company and the parties thereto (incorporated by reference to the  Registrant’s current report on Form 8-K dated January 18,  2005).                                                                                                |
|   | 10.8         |   |   | Warrant issued to  Dr. Rajendra Singh (incorporated by reference to the Registrant’s  current report on Form 8-K dated January 18, 2005).                                                                                                                                                                                          |
|   | *10.9        |   |   | First Avenue  Networks, Inc. Stock Incentive Plan (incorporated by reference to Annex  E to the Registrant’s Definitive Information Statement on Schedule 14C, as  filed with the SEC on July 25, 2006).                                                                                                                                |
|   | *10.10       |   |   | Form of  Stock Option Agreement under First Avenue Networks, Inc. Stock Incentive  Plan (incorporated by reference to the Registrant’s registration statement on  Form S-8 (Reg. No. 137040) filed on August 31, 2006).                                                                                                  |
|   | †*10.11 |   |   | Form of Restricted  Stock Agreement under First Avenue Networks, Inc. Stock Incentive Plan.                                                                                                                                                                                                                                                  |
|   | *10.12       |   |   | FiberTower  Corporation Amended and Restated Stock Option Plan (incorporated by reference  to the Registrant’s registration statement on Form S-8 (Reg.  No. 137040) filed on August 31, 2006).                                                                                                                                    |
|   | *10.13       |   |   | Form of  Stock Option Agreement under FiberTower Corporation Amended and Restated  Stock Option Plan (incorporated by reference to the Registrant’s registration  statement on Form S-8 (Reg. No. 137040) filed on  August 31, 2006).                                                                                         |
|   | *10.14       |   |   | Offer Letter  dated August 29, 2006, by and between the Company and John D. Beletic  (incorporated by reference to the Registrant’s current report on Form 8-K  filed on September 1, 2006).                                                                                                                                       |
|   | *10.15       |   |   | Employment  Agreement dated August 29, 2006, by and between the Company and Michael  K. Gallagher (incorporated by reference to the Registrant’s current report on  Form 8-K filed on September 1, 2006).                                                                                                                          |

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|        | †21.1 |   |   | List of  subsidiaries                                                                                                                                                                                               |
|--------|------------|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | †23.1 |   |   | Consent of  Independent Registered Public Accounting Firm                                                                                                                                                           |
|   | †31.1 |   |   | Certification of  Chief Executive Officer Pursuant to Rule 13a-14(a) of the  Securities Exchange Act of 1934, as amended                                                                                  |
|   | †31.2 |   |   | Certification of  Chief Financial Officer Pursuant to Rule 13a-14(a) of the  Securities Exchange Act of 1934, as amended                                                                                  |
|   | †32.1 |   |   | Certification of  the Chief Executive Officer Pursuant to Rule 13a-14(b) of the  Exchange Act and 18 U.S.C. Section 1350, as Adopted Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 |
|   | †32.2 |   |   | Certification of the  Chief Financial Officer Pursuant to Rule 13a-14(b) of the  Exchange Act and 18 U.S.C. Section 1350, as Adopted Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 |

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†                    Filed herewith

*                    Managementcontracts or compensation plans or arrangements in which directors or executiveofficers are eligible to participate.

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