UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~March~~June 3130, 2018

ORor

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

For the transition period from_______to_______

Commission file number 001-33449

TOWERSTREAM CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation or organization)

20-8259086

(I.R.S. Employer Identification No.)

76 Hammarlund Way

Middletown, Rhode Island

(Address of principal executive offices)

02842

(Zip Code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☒ No ☐

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

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☐ (Do not check if a smaller reporting company)	Smaller reporting company ☒
	Emerging growth company ☐

If an emerging growth company, indicate by check mark, if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of ~~May~~August 1117, 2018, there were 394,~~399~~409 shares of common stock, par value $0.001 per share, outstanding.

TOWERSTREAM CORPORATION AND SUBSIDIARIES

Table of Contents

		Pages
Part I	FINANCIAL INFORMATION
Item 1.	Financial Statements.	1
	Condensed Consolidated Balance Sheets as of March 31, 2018 (unaudited) and December 31, 2017	1
	Condensed Consolidated Balance Sheets as of June 30, 2018 (unaudited) and December 31, 2017	1
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2018 and 2017 (unaudited)	2
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2018 and 2017 (unaudited)	2
	Condensed Consolidated Statement of Stockholders’ Deficit for the Three Months Ended March 31, 2018 (unaudited)	3
	Condensed Consolidated Statement of Stockholders’ Deficit for the Six Months Ended June 30, 2018 (unaudited)	3
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2018 and 2017 (unaudited)	4-5
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2017 (unaudited)	4-5
	Notes to Unaudited Condensed Consolidated Financial Statements	6-1618
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	1719-2125
Item 3.	Quantitative and Qualitative Disclosures about Market Risk.	2225
Item 4.	Controls and Procedures.	2225
Part II	OTHER INFORMATION
Item 6.	Exhibits.	2326

TOWERSTREAM CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31,			December 31,
	June 30, 2018 (Unaudited)			December 31, 2017
	2018			2017
	(unaudited)
Assets
Current Assets
Cash and cash equivalents	$	54,~~317~~659,~~120~~088		$	7,568,982
Accounts receivable, net of reserves for uncollectible accounts of $100,717 and $95,884, respectively		864,234			912,333
Accounts receivable, net of reserves for uncollectible accounts of $195,440 and $95,884, respectively		565,029			912,333
Prepaid expenses and other current assets		~~347~~343,~~513~~605			242,320
Total Current Assets		65,~~528~~567,~~867~~722			8,723,635
Property and equipment, net		12,~~696~~164,~~390~~741			13,430,980
Intangible assets, net		1,~~922~~602,~~656~~841			2,242,471
Goodwill		1,674,281			1,674,281
Other assets		~~429~~433,~~378~~857			386,047
Total Assets	$	2321,~~251~~443,~~572~~442		$	26,457,414
Liabilities and Stockholders’ Deficit
Liabilities, Series I Preferred Stock and Stockholders’ Deficit
Current Liabilities
Accounts payable	$	~~253~~90,~~026~~210		$	1,150,861
Accrued expenses		1789,~~320,269~~153			1,622,036
Accrued interest		~~859~~1,~~985~~140,944			722,629
Deferred revenues		1,~~083~~066,~~262~~882			934,450
Current maturities of capital lease obligations		~~258~~326,~~209~~773			382,918
Current liabilities of discontinued operations		1,~~011~~016,~~526~~739			1,029,022
Deferred rent		90103,~~837~~626			78,048
Long-term debt (callable), net of debt discounts and deferred financing costs of $598,963 and $789,287, respectively		34,401,795			33,868,700
Long-term debt (callable), net of debt discounts and deferred financing costs of $300,482 and $789,287, respectively		35,054,130			33,868,700
Total Current Liabilities		39,~~278~~588,~~909~~457			39,788,664
Long-Term Liabilities
Capital lease obligations, net of current maturities		~~364~~470,~~478~~654			305,947
Other		~~736~~718,~~494~~786			754,203
Total Long-Term Liabilities		1,~~100~~189,~~972~~440			1,060,150
Total Liabilities		40,~~379~~777,~~881~~897			40,848,814
Commitments (Note 15)
Commitments (Note 16)
Series I Preferred Stock
Series I Preferred – 100 and 0 shares issued and outstanding, respectively; (Liquidation value – Note 10)		-			-
Stockholders' Deficit
Preferred stock, par value $0.001; 5,000,000 shares authorized
Series G Convertible Preferred - 538 shares issued and outstanding, respectively; Liquidation value of $538,000 as of March 31, 2018 and December 31, 2017		1			1
Series G Convertible Preferred – 538 shares issued and outstanding, respectively; Liquidation value of $538,000 as of June 30, 2018		1			1
Series H Convertible Preferred - 501 shares issued and outstanding, respectively; Liquidation value of $501,000 as of March 31, 2018 and December 31, 2017		1			1
Series H Convertible Preferred - 501 shares issued and outstanding, respectively; Liquidation value of $501,000 as of June 30, 2018		1			1
Common stock, par value $0.001; 200,000,000 shares authorized; 394,399 shares issued and outstanding as of March 31, 2018 and December 31, 2017, respectively		394			394
Common stock, par value $0.001; 200,000,000 shares authorized; 394,409 shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively		394			394
Additional paid-in-capital		174,~~819~~844,~~646~~680			174,733,113
Accumulated deficit		(~~191~~194,~~948~~179,~~351~~531	)		(189,124,909	)
Total Stockholders' Deficit		(1719,~~128~~334,~~309~~455	)		(14,391,400	)
Total Liabilities and Stockholders' Deficit	$	23,251,572		$	26,457,414
Total Liabilities, Series I Preferred Stock and Stockholders' Deficit	$	21,443,442		$	26,457,414

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

TOWERSTREAM CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended
	Three Months Ended June 30,						Six Months Ended June 30,
	March 31,
	2018			2017			2018			2017
	2018			2017
Revenues	$	6,220,758		$	6,517,817		$	12,662,560		$	13,090,134
Revenues	$	6,441,802		$	6,572,317
Operating Expenses
Operating Expenses
Infrastructure and access		2,756,943			2,622,723			5,445,665			5,331,034
Infrastructure and access		2,688,722			2,708,311
Depreciation and amortization		1,603,807			2,100,281			3,307,404			4,533,782
Depreciation and amortization		1,703,597			2,433,501
Network operations		684,516			1,085,249			1,749,766			2,286,156
Network operations		1,065,250			1,200,907
Customer support		362,844			391,335			837,660			759,017
Customer support		474,816			367,682
Sales and marketing		385,661			976,790			1,133,662			1,841,766
Sales and marketing		748,001			864,976
General and administrative		840,689			1,514,141			2,008,450			3,051,869
General and administrative		1,167,760			1,537,728
Total Operating Expenses		6,634,460			8,690,519			14,482,607			17,803,624
Total Operating Expenses		7,848,146			9,113,105
Operating Loss		(413,702	)		(2,172,702	)		(1,820,047	)		(4,713,490	)
Operating Loss		(1,406,344	)		(2,540,788	)
Other Expense
Other Expense
Interest expense, net		(1,817,477	)		(1,295,041	)		(3,234,575	)		(2,567,313	)
Interest expense, net		(1,417,098	)		(1,272,272	)
Total Other Expense		(1,817,477	)		(1,295,041	)		(3,234,575	)		(2,567,313	)
Total Other Expense		(1,417,098	)		(1,272,272	)
Net Loss		(2,231,179	)		(3,467,743	)		(5,054,622	)		(7,280,803	)
Net Loss	$	(2,823,442	)	$	(3,813,060	)
Deemed dividend to Series D and Series F preferred stockholders		-			(1,905,570	)		-			(1,905,570	)
Net loss per common share – basic and diluted	$	(7.16	)	$	(14.50	)
Net loss attributable to common stockholders	$	(2,231,179	)		(5,373,313	)	$	(5,054,622	)	$	(9,186,373	)
Weighted average common shares outstanding – basic and diluted		394,399			262,904
Net loss per common share – basic and diluted	$	(5.66	)	$	(17.91	)	$	(12.82	)	$	(32.63	)
Weighted average common shares outstanding – basic and diluted		394,409			299,983			394,409			281,546

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

TOWERSTREAM CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT

For the Six Months Ended June 30, 2018

(UNAUDITED)

For the Three Months Ended March 31, 2018

	Series G Convertible				Series H Convertible								Additional
	Preferred Stock				Preferred Stock				Common Stock				Paid-In-		Accumulated
	Shares		Amount		Shares		Amount		Shares		Amount		Capital		Deficit			Total

Balance at January 1, 2018		538	$	1		501	$	1		394,409	$	394	$	174,733,113	$	(189,124,909	)	$	(14,391,400	)
Stock based compensation for options		-		-		-		-		-		-		111,567		-			111,567
Net loss		-		-		-		-		-		-		-		(5,054,622	)		(5,054,622	)
Balance at June 30, 2018		538	$	1		501	$	1		394,409	$	394	$	174,844,680	$	(194,179,531	)	$	(19,334,455	)

	Series G Convertible Preferred Stock				Series H Convertible Preferred Stock				Common Stock				Additional Paid-In-		Accumulated
	Shares		Amount		Shares		Amount		Shares		Amount		Capital		Deficit			Total
Balance at January 1, 2018		538	$	1		501	$	1		394,399	$	394	$	174,733,113	$	(189,124,909	)	$	(14,391,400	)
Stock-based compensation for options		-		-		-		-		-		-		86,533		-			86,533
Net Loss		-		-		-		-		-		-		-		(2,823,442	)		(2,823,442	)
Balance at March 31, 2018		538	$	1		501	$	1		394,399	$	394	$	174,819,646	$	(191,948,351	)	$	(17,128,309	)

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

TOWERSTREAM CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Three Months Ended March 31,
	For the Six Months Ended June 30,
	2018			2017
Cash Flows From Operating Activities
Net loss	$	(25,~~823~~054,~~442~~622	)	$	(37,~~813~~280,~~060~~803	)
Adjustments to reconcile loss from continuing operations to net cash used in continuing operating activities:
Provision for doubtful accounts		35141,000			7,000
Depreciation for property, plant and equipment		1,383,782			2,015,617
Depreciation for property and equipment		2,667,774			3,763,394
Amortization for intangible assets		~~319~~639,~~815~~630			~~417~~770,~~884~~388
Amortization for debt discount and deferred financing costs		~~190~~488,~~324~~805			~~290~~557,~~700~~022
Interest added to principal		~~342~~696,~~771~~625			~~321~~661,~~813~~677
Accrued interest		~~137~~418,~~356~~315			-
Stock-based compensation - Options		86111,~~533~~567			~~352~~667,~~281~~821
Stock-based compensation - Employee stock purchase plan		-			53
Loss on the sale of property, plant and equipment		42,152			-
Stock-based compensation - Employee stock purchase plan		-			54
Deferred rent		(9,839	)		(55,370	)
Deferred rent		(4,920	)		(27,684	)
Changes in operating assets and liabilities:
Accounts receivable		13206,~~099~~304			(~~114~~286,~~890~~266	)
Prepaid expenses and other current assets		(~~105~~101,~~193~~285	)		50(12,~~967~~123	)
Other assets		(4347,~~331~~810	)		(~~191~~3,328	)
Accounts payable		(~~897~~1,~~835~~060,651	)		(~~148~~29,~~858~~106	)
Accrued expenses		24(912,~~974~~332	)		~~383~~(159,~~748~~686	)
Deferred revenues		~~148~~132,~~812~~432			(4632,~~860~~467	)
Total Adjustments		13,~~673~~412,~~339~~687			35,~~501~~849,~~581~~009
Net Cash Used In Continuing Operating Activities		(1,~~150~~641,~~103~~935	)		(~~311~~1,~~479~~431,794	)
Net Cash Used In Discontinued Operating Activities		(17,496	)		(71,253	)
Net Cash (Used In) Provided By Discontinued Operating Activities		(12,283	)		80,882
Net Cash Used In Operating Activities	$	(1,~~167~~654,~~599~~218	)	$	(~~382~~1,~~732~~350,912	)
Cash Flows From Investing Activities
Acquisitions of property and equipment		(~~915~~964,~~354~~390	)		(~~556~~1,~~530~~460,829	)
Proceeds from the sale of property, plant and equipment		15,000			-
Change in security deposits		-			(1012,~~533~~925	)
Net Cash Used In Investing Activities	$	(~~900~~949,~~354~~390	)	$	(~~567~~1,~~063~~473,754	)
Cash Flows From Financing Activities
Repayment of capital leases		(183,909	)		(254,800	)
Repayments of capital lease obligations		(306,286	)		(479,231	)
Issuance of common stock under employee stock purchase plan		-			~~304~~305
Net Cash Used In Financing Activities	$	(~~183~~306,~~909~~286	)	$	(~~254~~478,~~496~~926	)
Net Decrease In Cash and Cash Equivalents
Net Decrease Cash and Cash Equivalents
Continuing Operations		(2,~~234~~897,~~366~~611	)		(13,~~133~~384,~~038~~474	)
Discontinued Operations		(1712,~~496~~283	)		~~(71~~80,~~253~~882	)
Net Decrease In Cash and Cash Equivalents		(2,~~251~~909,~~862~~894	)		(13,~~204~~303,~~291~~592	)
Cash and Cash Equivalents – Beginning		7,568,982			12,272,444
Cash and Cash Equivalents - Beginning		7,568,982			12,272,444
Cash and Cash Equivalents – Ending	$	5,317,120		$	11,068,153
Cash and Cash Equivalents - Ending	$	4,659,088		$	8,968,852

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

TOWERSTREAM CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Three Months Ended March 31,
	Six Months Ended June 30,
Supplemental Disclosures of Cash Flow Information	2018		2017
Cash paid during the periods for:
Interest	$	~~746~~1,~~726~~671,680	$	~~661~~1,~~419~~354,804
Income taxes	$	~~669~~12,794	$	~~730~~13,440
Acquisition of property and equipment:
Included in accrued expenses	$	~~278~~240,~~905~~594	$	~~154~~201,~~093~~222
Included in capital leases	$	~~117~~414,~~731~~848	$	-
Interest added to note principal	$	~~342~~696,~~771~~625	$	~~321~~661,~~813~~677

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

TOWERSTREAM CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization and Nature of Business

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

InNote January 2013, the Company incorporated a wholly-owned subsidiary, Hetnets Tower Corporation (“Hetnets”), to operate a new business designed to leverage its fixed wireless network in urban markets to provide other wireless technology solutions and services2. ~~Hetnets built a carrier-class network which offered a shared wireless infrastructure platform~~Liquidity, ~~primarily~~Going for (i) co-location of customer owned antenna and related equipment and (ii) Wi-Fi access and offloading. The Company referred to this as its “Shared Wireless Infrastructure” or “Shared Wireless” business. During the fourth quarter of 2015Concern, ~~the Company determined to exit this business~~ and ~~curtailed~~Management activities in its smaller markets. The remaining network, located in New York City (or “NYC”), was the largest and had a lease access contract with a major cable company. As a result, the Company explored opportunities during the fourth quarter of 2015 and continuing into the first quarter of 2016 to sell the NYC network.Plans

OnThe ~~March~~accompanying 9,condensed ~~2016,~~consolidated ~~the~~financial ~~Company~~statements ~~completed~~have abeen ~~sale~~prepared ~~and~~on ~~transfer~~a ofgoing ~~certain~~concern ~~assets~~basis, ~~pursuant~~which tocontemplates anthe ~~asset~~realization ~~purchase~~of ~~agreement~~assets ~~with~~and athe ~~large~~satisfaction ~~cable~~of ~~company~~liabilities (in the ~~"Buyer").~~normal ~~Under~~course ~~the~~of ~~terms~~business. As of ~~the~~June ~~agreement~~30, 2018, the ~~Buyer~~Company ~~assumed~~had ~~certain~~cash ~~rooftop leases~~ and ~~acquired~~cash ~~ownership~~equivalents of approximately $4.7 million and ~~the~~working ~~right~~capital todeficiency ~~operate~~of ~~the~~approximately ~~Wi-Fi~~$34.0 ~~access~~million. ~~points~~The ~~and~~Company ~~related~~incurred ~~equipment~~significant ~~associated~~operating ~~with~~losses ~~such~~since ~~leases.~~inception ~~The~~and ~~Company~~continues ~~retained~~to ~~ownership~~generate oflosses ~~all~~from ~~backhaul~~operations and ~~related~~as ~~equipment~~of June 30, ~~and~~2018, the ~~parties~~Company ~~entered~~has ~~into~~ an ~~agreement~~accumulated ~~under~~deficit ~~which~~of ~~the~~$194.2 ~~Company~~million. ~~provides~~These ~~backhaul~~matters ~~services~~raise tosubstantial doubt about the ~~Buyer.~~Company’s ~~The~~ability ~~agreement~~to iscontinue ~~for~~as a ~~three-year~~going ~~period~~concern ~~with~~within ~~two~~ one- year ~~renewals~~from ~~and~~the isdate ~~cancellable~~these byfinancial ~~the~~statements ~~Buyer~~are onissued. ~~sixty~~Management ~~days’~~has ~~notice.~~also ~~During~~evaluated the ~~first~~significance ~~quarter~~ of ~~2016,~~these conditions in relation to the Company’s ~~determined~~ability ~~that~~to itmeet ~~would~~its obligations. The condensed consolidated financial statements do not beinclude ~~able~~any toadjustments ~~sell~~relating to the ~~remainder~~recoverability and classification of ~~the~~asset ~~NYC~~amounts ~~network,~~or ~~and~~the ~~accordingly,~~classification ~~all~~of ~~remaining~~liabilities ~~assets~~that ~~were~~might ~~redeployed~~be ~~into~~necessary should the ~~fixed~~Company ~~wireless~~be ~~network~~unable orto ~~written~~continue ~~off~~as a going concern.

InThe ~~March~~Company ~~2018,~~has ~~the~~monitored ~~Company~~and ~~announced~~reduced ~~that~~certain of its ~~board~~operating ofcosts ~~directors~~over ~~commenced~~the ancourse ~~evaluation~~ of ~~strategic~~2017 ~~repositioning~~and into the first half of 2018. Historically, the Company ashas itfinanced ~~moves~~its tooperations ~~leverage~~through ~~its~~private ~~existing~~and ~~key~~public ~~assets~~placement inof ~~major~~equity ~~U.S.~~securities, ~~markets.~~as Inwell ~~conjunction~~as ~~with~~debt ~~such~~financing ~~announcement,~~and ~~the~~capital leases. The Company’s isability ~~launching~~to afund ~~concerted~~its ~~focus~~longer onterm ~~indirect~~cash ~~and~~requirements ~~wholesale~~is ~~channels~~subject ~~and~~to ~~has~~multiple ~~retained~~risks, ~~Bank~~many ~~Street~~of ~~Group~~which ~~LLC~~are asbeyond its ~~independent~~control. ~~financial~~The ~~advisor~~Company intends to ~~explore~~raise ~~strategic~~additional ~~alternatives~~capital, ~~including~~either ~~the~~through ~~sale~~debt ofor ~~some~~equity financings or ~~all~~through the potential sale of the Company’s assets in order to achieve its business orplan ~~assets~~objectives. ~~There~~ Management believes that it can be successful in obtaining additional capital; however, no ~~assurances~~assurance can be provided that the ~~process~~Company will ~~result~~be inable ato ~~transaction~~do so. ~~Any~~There ~~potential~~is ~~strategic~~no ~~alternative~~assurance that any funds raised will be ~~evaluated~~sufficient byto enable the ~~board~~Company to attain profitable operations or continue as a going concern. ~~The~~To the extent that the Company ~~does~~is ~~not~~unsuccessful, ~~intend~~the Company may need to ~~discuss~~curtail ~~developments~~or ~~with~~cease ~~respect~~its operations and implement a plan to ~~the~~extend ~~evaluation~~payables ~~process~~or ~~unless~~reduce aoverhead ~~transaction~~until sufficient additional capital is ~~approved,~~raised orto ~~disclosure~~support ~~becomes~~further ~~appropriate~~operations. There can be no assurance that such a plan will be successful.

Note 2. Liquidity, Going Concern and Management Plans

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of March 31, 2018, the Company had cash and cash equivalents of approximately $5.3 million and working capital deficiency of approximately $32.8 million. The Company incurred significant operating losses since inception and continues to generate losses from operations and as of March 31, 2018, the Company has an accumulated deficit of $191.9 million. These matters raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date these financial statements are issued. Management has also evaluated the significance of these conditions in relation to the Company’s ability to meet its obligations. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

The Company has monitored and reduced certain of its operating costs over the course of 2017 and into the first quarter of 2018. Historically, the Company has financed its operations through private and public placement of equity securities, as well as debt financing and capital leases. The Company’s ability to fund its longer term cash requirements is subject to multiple risks, many of which are beyond its control. The Company intends to raise additional capital, either through debt or equity financings or through the potential sale of the Company’s assets in order to achieve its business plan objectives. Management believes that it can be successful in obtaining additional capital; however, no assurance can be provided that the Company will be able to do so. There is no assurance that any funds raised will be sufficient to enable the Company to attain profitable operations or continue as a going concern. To the extent that the Company is unsuccessful, the Company may need to curtail or cease its operations and implement a plan to extend payables or reduce overhead until sufficient additional capital is raised to support further operations. There can be no assurance that such a plan will be successful.

TOWERSTREAM CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

In March 2018, the Company announced that its board of directors had commenced an evaluation of strategic repositioning of the Company as it moves to leverage its existing key assets in major U.S. markets. In conjunction with such announcement, the Company began to focus on indirect and wholesale channels and retained Bank Street Group LLC as its independent financial advisor to explore strategic alternatives, including the sale of some or all of the Company’s business or assets. There can be no assurances that the process will result in a transaction. Any potential strategic alternative will be evaluated by the board. The Company does not intend to discuss developments with respect to the evaluation process unless a transaction is approved, or further disclosure becomes appropriate.

In May 2018, the Company adopted a management incentive plan pursuant to which it shall pay up to $2,000,000 in cash bonuses (subject to withholding and deductions) to officers, directors and employees upon either a sale of the Company or a sale of its assets in each case that results in the payment in full of the obligations due under the Loan Agreement (as defined in Note 9, Long-Term Debt) (a “Triggering Sale”). Payments under the management incentive plan shall pay participants an aggregate of $1,000,000 upon a Triggering Sale plus up to an additional aggregate of $1,000,000 to be earned proportionately for a Triggering Sale in which the implied enterprise value of the Company based on the consideration paid in such Triggering Sale increases from a minimum of $45,000,000 to a maximum of $55,000,000.

Note 3. Summary of Significant Accounting Policies

Basis of Presentation. The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and with Form 10-Q and Article 10 of Regulation S-X of the United States Securities and Exchange Commission. Accordingly, they do not contain all information and footnotes required by GAAP for annual financial statements. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of ~~March~~June 3130, 2018 and the results of operations and cash flows for the periods presented. The results of operations for the three and six months ended ~~March~~June 3130, 2018 are not necessarily indicative of the operating results for the full fiscal year for any future period.

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. The Company’s accounting policies are described in the Notes to Consolidated Financial Statements in its Annual Report on Form 10-K for the year ended December 31, 2017, and updated, as necessary, in this Quarterly Report on Form 10-Q.

Retroactive Adjustment for Reverse Stock Split. On September 29, 2017, the Company effected a one-for-seventy-five reverse stock split of its common stock. Consequently, all earnings per share and other share related amounts and disclosures have been retroactively adjusted for all periods presented.

Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the amounts of revenues and expenses. Actual results could differ from those estimates. Key estimates include fair value of certain financial instruments, carrying value of intangible assets, reserves for accounts receivable and accruals for liabilities.

Concentration of Credit Risk. Financial instruments that potentially subject the Company to significant concentrations of credit risk consist of cash and cash equivalents. At times, our cash and cash equivalents may be uninsured or in deposit accounts that exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance limits. As of ~~March~~June 3130, 2018, the Company had cash and cash equivalent balances of approximately $54.14 million in excess of the federally insured limit of $250,000.

TOWERSTREAM CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Intrinsic Value of Stock Options and Warrants. The Company calculates the intrinsic value of stock options and warrants as the difference between the closing price of the Company’s common stock at the end of the reporting period and the exercise price of the stock options and warrants.

~~Recent Accounting Pronouncements~~Goodwill. InGoodwill ~~May~~represents ~~2014,~~ the ~~Financial~~excess ~~Accounting~~of ~~Standards~~the ~~Board~~purchase ~~(“FASB”)~~price ~~issued~~over ~~Accounting~~the ~~Standards~~estimated ~~Update~~fair ~~(“ASU”)~~value ~~No.~~of ~~2014-09~~identifiable ~~(“ASU~~net ~~2014-09”),~~assets ~~“Revenue~~acquired ~~from~~in ~~Contracts~~an ~~with Customers”~~acquisition. ~~The~~Goodwill ~~FASB~~is ~~has~~not ~~consolidated~~amortized ~~ASU~~but ~~2014-19~~rather ~~and~~is ~~other~~reviewed ~~revenue~~annually ~~accounting~~in ~~standards~~the ~~for~~fourth ~~specialized~~quarter ~~transactions~~for ~~and~~impairment, ~~industries~~or ~~into~~whenever ~~one~~events ~~Accounting~~or ~~Standards~~circumstances ~~Codification~~indicate ~~(“ASC”)~~that ~~Topic~~the ~~606,~~carrying ~~“Revenue~~value ~~from~~may ~~Contracts~~not ~~with~~be ~~Customers” (“ASC 606”)~~recoverable. The ~~core~~Company ~~principle~~initially ofperforms ~~ASC~~a ~~606~~qualitative isassessment ~~that~~of ~~revenue~~goodwill iswhich ~~recognized~~considers ~~when~~macro-economic ~~the~~conditions, ~~transfer~~industry ofand ~~goods~~market ortrends, ~~services~~and tothe ~~customers~~current ~~occurs~~and inprojected anfinancial ~~amount~~performance ~~that~~of ~~reflects~~ the ~~consideration~~reporting tounit. ~~which~~No ~~the~~further ~~Company~~analysis ~~expects~~is torequired beif ~~entitled~~it inis ~~exchange~~determined ~~for~~that ~~those~~there ~~goods~~is ora ~~services.~~less ~~The~~than ~~Company~~50 ~~has~~percent ~~adopted~~likelihood ~~ASC~~that ~~606~~the ascarrying ofvalue ~~January~~is 1,greater ~~2018~~than ~~and utilized~~ the ~~modified~~fair ~~retrospective method of adoption~~value. ~~See~~There ~~Note~~were ~~13,~~no ~~Revenues,~~indicators ~~for~~of ~~further~~impairment ~~information~~identified ~~regarding~~during the ~~implementation~~three and ~~required~~six ~~disclosures~~months ~~related~~ended toJune ~~the~~30, ~~Company’s revenues~~2018.

Recent Accounting Pronouncements. In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09 (“ASU 2014-09”), “Revenue from Contracts with Customers”. The FASB has consolidated ASU 2014-19 and other revenue accounting standards for specialized transactions and industries into one Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” (“ASC 606”). The core principle of ASC 606 is that revenue is recognized when the transfer of goods or services to customers occurs in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The Company has adopted ASC 606 as of January 1, 2018 and utilized the modified retrospective method of adoption. See Note 14, Revenues, for further information regarding the implementation and required disclosures related to the Company’s revenues.

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

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

7Note 4. Discontinued Operations

During the fourth quarter of 2015, the Company determined to exit the business conducted by Hetnets Tower Corporation and curtailed activities in its smaller markets. The remaining network, located in New York City, was the largest and had a lease access contract with a major cable company. As a result, the Company explored opportunities during the fourth quarter of 2015 and continuing into the first quarter of 2016 to sell the New York City network. On March 9, 2016, the Company completed a sale and transfer of certain assets pursuant to an asset purchase agreement with the major cable company (the “Buyer”). Under the terms of the agreement, the Buyer assumed certain rooftop leases and acquired ownership of and the right to operate the Wi-Fi access points and related equipment associated with such leases. The Company retained ownership of all backhaul and related equipment, and the parties entered into an agreement under which the Company provides backhaul services to the Buyer. The agreement is for a three-year period with two one-year renewals and is cancellable by the Buyer on sixty-days’ notice. In connection with the agreement, the Company transferred to the Buyer a net book value of network assets aggregating $2,660,041 in exchange for the backhaul agreement valued at $3,837,783. The backhaul agreement has been recorded as an intangible asset in the accompanying condensed consolidated balance sheets.

TOWERSTREAM CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Note 4. Discontinued Operations

During the fourth quarter of 2015, the Company determined to exit the business conducted by Hetnets and curtailed activities in its smaller markets. The remaining network, located in NYC, was the largest and had a lease access contract with a major cable company. As a result, the Company explored opportunities during the fourth quarter of 2015 and continuing into the first quarter of 2016 to sell the NYC network. On March 9, 2016, the Company completed a sale and transfer of certain assets pursuant to an asset purchase agreement with the Buyer. Under the terms of the agreement, the Buyer assumed certain rooftop leases and acquired ownership of and the right to operate the Wi-Fi access points and related equipment associated with such leases. The Company retained ownership of all backhaul and related equipment, and the parties entered into an agreement under which the Company provides backhaul services to the Buyer. The agreement is for a three-year period with two one-year renewals and is cancellable by the Buyer on sixty-days’ notice. In connection with the agreement, the Company transferred to the Buyer a net book value of network assets aggregating $2,660,041 in exchange for the backhaul agreement valued at $3,837,783. The backhaul agreement has been recorded as an intangible asset in the accompanying condensed consolidated balance sheets.

The components of the balance sheet accounts presented as discontinued operations were as follows:

	March 31, 2018		December 31, 2017
	June 30, 2018		December 31, 2017
Liabilities:
Accrued expenses - leases	$	1,~~011~~016,~~526~~739	$	1,029,022
Total Current Liabilities	$	1,~~011~~016,~~526~~739	$	1,029,022

Accrued expenses represent the estimated cost of terminating the leases associated with the Hetnets business. Accordingly, disbursements associated with such activity during the period ended ~~March~~June 3130, 2018 were recorded as reductions to that estimated liability. As of ~~March~~June 3130, 2018 and based upon negotiations, settlements and experiences through that date, the Company had reduced that remaining estimated liability by $1712,~~496~~283 to $1,~~011~~016,~~526~~739.

Note 5. Property and Equipment, Net

Property and equipment, net is comprised of:

	March 31, 2018		December 31, 2017
	June 30, 2018		December 31, 2017
Network and base station equipment	$	4344,~~954~~321,~~530~~305	$	43,573,869
Customer premise equipment		3536,~~628~~048,~~144~~426		34,996,202
Information technology		4,~~882~~885,~~523~~481		4,881,332
Furniture, fixtures and other		1,715,524		1,715,524
Leasehold improvements		1,516,~~039~~678		1,651,300
Accrual – equipment received not invoiced		~~278~~240,~~905~~594		605,646
		87,975,665		87,423,873
		88,728,008		87,423,873
Less: accumulated depreciation		7576,~~279~~563,~~275~~267		73,992,893
Property and equipment, net	$	12,~~696~~164,~~390~~741	$	13,430,980

Depreciation expense for the three months ended ~~March~~June 3130, 2018 and 2017 was $1,~~383~~283,~~782~~992 and $1,747,777, respectively. Depreciation expense for the six months ended June 30, 2018 and 2017 was $2,~~015~~667,~~617~~774 and $3,763,394, respectively.

TOWERSTREAM CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

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

	March 31, 2018		December 31, 2017
	June 30, 2018		December 31, 2017
Network and base station equipment	$	2,~~629~~680,~~526~~000	$	2,629,526
Customer premise equipment		1,~~387~~633,~~104~~747		1,269,373
Information technology		1,860,028		1,860,028
		5,876,658		5,758,927
		6,173,775		5,758,927
Less: accumulated depreciation		4,~~811~~905,~~407~~188		4,708,697
Property acquired through capital leases, net	$	1,~~065~~268,~~251~~587	$	1,050,230

Note 6. Goodwill and Intangible Assets, Net

Intangible assets, net consist of the following:

	March 31, 2018		December 31, 2017
Goodwill	$	1,674,281	$	1,674,281
Backhaul agreement		3,837,783		3,837,783
Less: accumulated amortization		2,665,127		2,345,312
Backhaul agreement, net		1,172,656		1,492,471
FCC licenses		750,000		750,000
Intangible assets, net	$	1,922,656	$	2,242,471

Amortization expense for the three months ended March 31, 2018 and 2017 was $319,815 and $417,884, respectively. The fair value of the backhaul agreement acquired in the transaction with the large cable company, as described in Note 4, is being amortized on a straight-line basis over the three-year term of the agreement. The Company’s licenses with the Federal Communications Commission (the “FCC”) are not subject to amortization as they have an indefinite useful life. Future amortization expense is as follows:

Remainder of 2018		959,446
2019		213,210
Total	$	1,172,656

TOWERSTREAM CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Note 6. Goodwill and Intangible Assets, Net

Goodwill and intangible assets, net consist of the following:

	June 30, 2018		December 31, 2017

Goodwill	$	1,674,281	$	1,674,281

Backhaul agreement		3,837,783		3,837,783
Less: accumulated amortization		2,984,942		2,345,312
Backhaul agreement, net		852,841		1,492,471

FCC licenses		750,000		750,000

Intangible assets, net	$	1,602,841	$	2,242,471

Amortization expense for the three months ended June 30, 2018 and 2017 was $319,815 and $352,504, respectively. Amortization expense for the six months ended June 30, 2018 and 2017 was $639,630 and $770,388, respectively. The fair value of the backhaul agreement acquired in the transaction with a large cable company, as described in Note 4, is being amortized on a straight-line basis over the three-year term of the agreement. The Company’s licenses with the Federal Communications Commission (the “FCC”) are not subject to amortization as they have an indefinite useful life. Future amortization expense is as follows:

Remainder of 2018		639,631
2019		213,210
Total	$	852,841

Note 7. Accrued Expenses

Accrued expenses consist of the following:

	March 31, 2018		December 31, 2017
	June 30, 2018		December 31, 2017
Payroll and related	$	~~564~~174,~~017~~359	$	515,448
Professional services		~~163~~100,~~680~~672		318,979
Other		~~138~~106,~~208~~346		279,374
Property and equipment		~~278~~240,~~905~~594		320,043
Network		~~175~~167,~~459~~182		188,192
Total	$	1789,~~320,269~~153	$	1,622,036

Network represents costs incurred to provide services to the Company’s customers including tower rentals, bandwidth, troubleshooting and gear removal.

TOWERSTREAM CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Note 8. Other Long-Term Liabilities

Other long-term liabilities consist of the following:

	March 31, 2018		December 31, 2017
	June 30, 2018		December 31, 2017
Deferred rent	$	~~399~~382,~~896~~188	$	417,605
Deferred taxes		336,598		336,598
Total	$	~~736~~718,~~494~~786	$	754,203

Note 9. Long-Term Debt

Long-term debt (callable) consists of the following:

	March 31, 2018			December 31, 2017
	June 30, 2018			December 31, 2017
Principal	$	35,~~000~~354,~~758~~612		$	34,657,987
Unamortized debt discount		(~~598~~300,~~963~~482	)		(789,287	)
Total	$	3435,~~401~~054,~~795~~130		$	33,868,700

In October 2014, the Company entered into a $35,000,000 note ("Note") with Melody Business Finance, LLC ("Lender") wherein the Company received net proceeds of $33,950,000 after a 3% original issue discount.

This Note matures on October 16, 2019 and accrues interest on the basis of a 360-day year at:

a) A rate equal to the greater of: i) the sum of the one-month Libor rate on any given day plus 7% or ii) 8% per annum. The one-month Libor rate was 12.8809% as of ~~March~~June 3130, 2018. Interest accrued at this rate is paid in cash at the end of each quarter; plus

b)	A rate of 4% per annum. Interest accrued at this rate is added to the principal amount at the end of each quarter.

This Note is secured by a first-priority lien and security interest in all of the assets of the Company and its subsidiaries, excluding the capital stock of the Company, and certain capital leases, contracts and assets secured by purchase money security interests.

10The Note contains representations and warranties by the Company and the Lender, certain indemnification provisions in favor of the Lender and customary covenants (including limitations on other debt, liens, acquisitions, investments and dividends), and events of default (including payment defaults, breaches of covenants, a material impairment in the Lender’s security interest or in the collateral, and events relating to bankruptcy or insolvency). The Note contains several restrictive covenants and the most significant of which requires the Company to maintain a minimum cash balance of $6,500,000 at all times. Upon the occurrence of an event of default, an additional 5% interest rate will be applied to the outstanding loan balances, and the Lender may terminate its lending commitment, declare all outstanding obligations immediately due and payable, and take such other actions as set forth in the Note to secure its interests.

TOWERSTREAM CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

~~The~~Effective ~~Note~~January ~~contains~~26, ~~representations~~2018, ~~and~~the ~~warranties~~Company byentered into a Forbearance to Loan Agreement (the ~~Company~~“Agreement”) ~~and~~with the Lender, ~~certain~~as ~~indemnification~~administrative ~~provisions~~agent into ~~favor of~~ the ~~Lender~~lenders ~~and~~under ~~customary~~the ~~covenants~~loan ~~(including~~agreement ~~limitations~~entered into on ~~other~~October ~~debt~~16, ~~liens,~~2014 ~~acquisitions~~by and among the Company, ~~investments~~certain ~~and~~of ~~dividends)~~its subsidiaries, the Lender and ~~events~~the oflenders ~~default~~party thereto (~~including~~the ~~payment~~“Loan ~~defaults~~Agreement”). Pursuant to the Agreement, ~~breaches~~the ofLender, ~~covenants~~through March 30, a2018 ~~material~~(the ~~impairment~~“Forbearance inPeriod”), waived the ~~Lender~~Company’s ~~security~~requirement ~~interest~~to ormaintain inat ~~the~~least ~~collateral~~$6,500,000 ~~and~~minimum ~~events~~in ~~relating~~deposit toaccounts ~~bankruptcy~~ or ~~insolvency).~~securities ~~The~~accounts ~~Note~~(the ~~contains~~“$6,500,000 ~~several~~Minimum”) ~~restrictive~~and ~~covenants~~agreed ~~and~~to ~~the~~forbear ~~most~~from ~~significant~~exercising any of ~~which~~its ~~requires~~rights ~~the~~with ~~Company~~respect to ~~maintain~~an aevent ~~minimum~~of ~~cash~~default ~~balance~~related ofto the $6,500,000 Minimum provided that the interest on the Note shall accrue at ~~all~~the ~~times~~default rate. ~~Upon~~The Forbearance Period shall terminate upon the Company’s failure to maintain at least $4,000,000 minimum in deposit accounts or securities accounts or upon the occurrence of ancertain ~~event~~events of default,. anThe ~~additional~~Agreement 5%was ~~interest~~amended ~~rate~~and ~~will~~restated beeffective ~~applied~~February 28, 2018 to also include a forbearance of Section 6.1(a)(i) of the ~~outstanding~~Loan ~~loan~~Agreement ~~balances,~~“Qualified ~~and~~Auditor’s Report” in the ~~Lender~~event ~~may~~that ~~terminate~~the ~~its~~Company’s ~~lending~~audited ~~commitment,~~consolidated ~~declare~~financial ~~all~~statements ~~outstanding~~for ~~obligations~~the ~~immediately~~year ~~due~~ended ~~and~~December ~~payable~~31, ~~and~~2017 ~~take~~contained ~~such~~a ~~other~~going ~~actions~~concern asqualification. ~~set~~The ~~forth~~Agreement inwas ~~the~~further ~~Note~~amended and restated effective March 30, 2018 to ~~secure~~extend ~~its~~the ~~interests~~forbearance period until April 15, 2018.

Effective ~~January~~April 2615, 2018, the Company entered into a second amended and restated Forbearance to Loan Agreement (the “Second Amended and Restated Agreement”) with the Lender, asand ~~administrative agent to~~ the majority lenders under the ~~loan~~Loan ~~agreement~~Agreement. Pursuant ~~entered~~to ~~into~~the onSecond ~~October~~Amended 16and Restated Agreement, ~~2014~~the byLender and ~~among~~the majority lenders waived the Company,’s ~~certain~~requirement ofunder ~~its~~Section ~~subsidiaries,~~6.1(a)(i) of the ~~Lender~~Loan ~~and~~Agreement to deliver to the ~~lender~~Lender an auditor’s ~~party~~report ~~thereto~~without a “going concern” qualification (the “~~Loan~~Qualified ~~Agreement~~Report”). ~~Pursuant~~through toJune ~~the Agreement~~30, ~~the~~2018. ~~Lender,~~The Forbearance Period was extended through ~~March~~June 30, 2018 (the “Second Forbearance Period”). In addition, the Lender, through the Second Forbearance Period, waived the Company’s requirement to maintain atthe ~~least~~ $6,500,000 ~~minimum~~Minimum in deposit accounts or securities accounts ~~(the “$6,500,000 Minimum”)~~ and agreed to forbear from exercising any of its rights with respect to an event of default related to the Qualified Report and the $6,500,000 Minimum ~~provided~~through ~~that~~ the ~~interest~~Forbearance ~~on the Note shall accrue at the default rate~~Period. The Second Forbearance Period shall terminate upon the Company’s failure to maintain at least $43,000,000 minimum in deposit accounts or securities accounts or upon the occurrence of certain events of default. The ~~Agreement~~Company ~~was~~also ~~amended~~agreed, ~~and~~among ~~restated~~other ~~effective February 28~~things, ~~2018 to also include a forbearance of Section 6.1~~(~~a)(~~i) ofto ~~the~~certain ~~Loan~~milestones ~~Agreement~~in ~~“Qualified~~connection ~~Auditor’s~~with ~~Report”~~a inproposed ~~the~~sale ~~event~~of ~~that~~ the Company’s, ~~audited~~(ii) ~~consolidated~~subject ~~financial~~to ~~statements~~applicable ~~for the year ended December 31~~law, ~~2017~~to ~~contained~~cease afiling ~~going~~periodic ~~concern~~reports ~~qualification.~~with ~~The~~the ~~Agreement~~Securities ~~was~~and ~~further~~Exchange ~~amended~~Commission and ~~restated~~(iii) ~~effective~~to ~~March~~issue ~~30, 2018~~ to ~~extend~~ the ~~forbearance~~Lender ~~period~~a ~~until~~new ~~April~~series ~~15, 2018. The Company has classified long term debt within current liabilities as~~ of ~~March~~preferred ~~31,~~stock ~~2018~~that ~~and~~will ~~December~~be ~~31,~~entitled ~~2017,~~to ~~respectively.~~receive ~~Effective~~upon ~~April~~a ~~15,~~liquidation ~~2018,~~event ~~the Company entered into~~ a ~~second~~distribution ~~amended~~as ~~and~~set ~~restated~~forth ~~Forbearance~~in ~~to Loan Agreement (~~the “Second Amended and Restated Agreement~~”) with the Lender as more fully discussed in Note 16 Subsequent Events~~.

On May 24, 2018, the parties amended the Second Amended and Restated Agreement to, among other things, extend the compliance period for certain covenants to May 31, 2018 from April 30, 2018 and to revise the milestones for a proposed sale of the Company as set forth therein. Such amendment was effective as of May 15, 2018.

The Company has classified long term debt within current liabilities as of June 30, 2018 and December 31, 2017, respectively.

The Company has the option to prepay the Note in the minimum principal amount of $5,000,000 plus integral amounts of $1,000,000 beyond that amount subject to certain prepayment penalties. Mandatory prepayments are required upon the occurrence of certain events, including but not limited to: i) the sale, lease, conveyance or transfer of certain assets, ii) issuance or incurrence of indebtedness other than certain permitted debt, iii) issuance of capital stock redeemable for cash or convertible into debt securities; and iv) any change of control.

A discount of $6,406,970 to the face value of the Note was recorded upon its issuance and that discount is being amortized over the term of the Note using the effective interest rate method. That discount consisted of:12

a) $2,463,231 representing the fair value of warrants simultaneously issued to the Lender for the purchase of up to 1,600 and 800 shares of the Company's common stock at $1,890.00 and $15.00 per share, respectively, through April 2022. The fair value of these warrants was calculated utilizing the Black-Scholes option pricing model;

b) $2,893,739 in costs incurred associated with obtaining this financing arrangement which consisted primarily of professional fees; and

c) $1,050,000 related to a 3% original issue discount.

On November 8, 2016 and in connection with a financing transaction, an investor acquired $5,000,000 of the Company's obligations to the Lender consisting of principal and accrued interest of $4,935,834 and $64,166, respectively. The investor then immediately exchanged such obligations for 1,000 shares of the Company's Series D Convertible Preferred Stock and warrants for the purchase of up to 53,334 shares of the Company's common stock. In connection with that exchange, the Company:

a) Wrote-off the portion of the unamortized debt discount and deferred financing costs associated with the exchanged principal and recorded a charge to interest expense of $331,609. The accrued interest and the adjustment to the unamortized debt discount activity described in this paragraph are separate from and unrelated to the amounts appearing in the following paragraphs; and

b) Recorded a non-cash loss on extinguishment of debt charge of $500,000. This amount represents the difference between the fair value of the Series D Convertible Preferred Stock of $5,500,000 and the carrying amount of the debt of $5,000,000 as of the date of the exchange.

TOWERSTREAM CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

The Company recorded interest expense of $1,~~210~~504,~~697~~354 and $~~965~~1,~~439~~019,591 for the three months ended ~~March~~June 3130, 2018 and 2017, respectively. The Company recorded interest expense of $2,715,051 and $1,985,030 for the six months ended June 30, 2018 and 2017, respectively. Of those amounts, the Company ~~will~~paid ~~pay~~to the Lender $~~867~~2,~~926~~018,425 and $~~643~~1,~~626~~323,353 and ~~add~~added $~~342~~696,~~771~~625 and $~~321~~661,~~813~~677 of interest to the principal amount of the Note during the ~~three~~six months ended ~~March~~June 3130, 2018 and 2017, respectively.

The Company recorded amortization expense related to the debt discount of $~~190~~298,~~324~~480 and $~~290~~266,~~700~~322 for the three months ended ~~March~~June 3130, 2018 and 2017, respectively. Amortization expense totaled $488,805 and $557,022 for the six months ended June 30, 2018 and 2017, respectively and classified those amounts as interest expense.

Note 10. ~~Stock~~Capital ~~Options and Warrants~~Stock

On May 24, 2018, the Company effected an exchange of warrants with the lenders under the Loan Agreement who held an aggregate of 2,400 shares of common stock (as adjusted for the Company’s 1:20 and 1:75 reverse splits effected in July 2016 and September 2017) for an aggregate of 100 shares of the Company’s newly authorized Series I Preferred Stock ~~Options~~(the ~~Plans~~“Series I Preferred Stock”). The difference in value was de minimis and therefore no deemed dividend was recorded.

Shares of Series I Preferred Stock are not convertible into common stock.

In the event of a liquidation or fundamental transaction, a holder of Series I Preferred Stock shall be redeemed and shall be entitled to receive, per share of Series I Preferred Stock, in cash out of the assets of the Company, whether from capital or from earnings available for distribution to its shareholders (the “Liquidation Funds”), a one-time redemption payment in full satisfaction of all obligations to the holder and in cancellation of the Series I Preferred Stock equal to the quotient of (i) the product of (x) the remainder of Liquidation Funds available for distribution (including any deferred amounts) minus: (A) distribution or payment in full to the holders of the Company’s Series G Convertible Preferred Stock of the liquidation preference amount in accordance with the rights and designations of such series of Senior Preferred Stock, (B) distribution or payment to the holders of the Company’s Series H Convertible Preferred Stock of the liquidation preference amount in accordance with the rights and designations of such series of Senior Preferred Stock; (C) $1,025,437 to be reserved for junior stock holders as their interests appear; and (D) up to $2 million in payments under the 2018 Management and Key Employee Incentive Plan adopted by the Corporation (the Liquidation Funds less the amounts required under (A), (B), (C) and (D) hereof, the “Net Liquidation Funds”), multiplied by (y) 25% divided by (ii) the total number of outstanding shares of Series I Preferred Stock.

All shares of capital stock of the Company (when and if issued), except for shares of Series G Convertible Preferred Stock and shares of Series H Convertible Preferred Stock outstanding as of May 24, 2018, shall be junior in rank to all shares of Series I Preferred Stock with respect to the preferences as to dividends, distributions and payments upon the liquidation, dissolution, winding-up or fundamental transaction (as defined in the Series I Certificate of Designations) of the Company.

TOWERSTREAM CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Holders of the Series I Preferred Stock shall have no voting rights except with respect to, and in each case each holder shall be entitled to one vote for each share of Series I Preferred Stock held by such holder: (i) amending, altering or repealing any provision of the Certificate of Incorporation (including the Certificate of Designation) of the Company, if the amendment, alteration or repeal of the Certificate of Incorporation would adversely affect the rights, preferences, powers or privileges of the Series I Preferred Stock or (ii) creating, authorizing, issuing or increasing the authorized or issued amount of any class or series of any of the Company’s equity securities, or any warrants, options or other rights convertible or exchangeable into any class or series of any of the Company’s equity securities, which would constitute senior preferred stock or parity stock or reclassify any authorized stock of the Company into any such stock, or create, authorize or issue any obligation or security convertible into, exchangeable or exercisable for, or evidencing the right to purchase any such stock. In each such case, at least a majority of the outstanding shares of Series I Preferred Stock shall vote in favor of such proposal.

The Series I Preferred Stock was accounted for under Section 480-10-S99 - Distinguishing liabilities from Equity (FASB Accounting Standards Codification 480) as amended by ASU 2009-04 - for Redeemable Equity Instruments (“ASU 2009-04”). Under ASU 2009-04, a redeemable equity security is to be classified as temporary equity if it is conditionally redeemable upon the occurrence of an event that is not solely within the control of the issuer.

Note 11. Stock Options and Warrants

Stock Options

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

	Three Months Ended March 31,
	Three Months Ended June 30,							Six Months Ended June 30,
	2018			2017	~~2017~~			2018	2017
Risk-free interest rate	2.7%	-	%	1.6%	-	1.7%	%	2.7%	1.6%	-	1.7%
Expected volatility	105%	-	%		113%	~~110~~	%	105%	110%	-	113%
Expected life (in years)	4.2	-			4.2	~~4.2~~		4.2		4.2
Expected dividend yield	-	-			-	-		-		-
Estimated forfeiture rates	20%	-	%		20%	20	%	20%		20%
Weighted average per share grant date fair value	$1.76	-			$8.60	~~9.84~~		$1.76		$9.65
Stock-based compensation	$25,034	~~86,533~~			$315,540	~~352,281~~		$111,567		$667,821

The risk-free interest rate was based on rates established by the Federal Reserve. The expected volatility was based upon the historical volatility for the Company’s common stock. The Company utilized historical data to determine the expected life of stock options. The dividend yield reflected the fact that the Company has not historically paid dividends, and does not expect to pay dividends in the foreseeable future. Stock-based compensation is included in general and administrative expenses in the accompanying condensed consolidated statements of operations. The unamortized amount of stock options expense totaled $~~141~~114,~~635~~940 as of ~~March~~June 3130, 2018 which will be recognized over a weighted-average period of 1.64 years.

Option transactions under the stock option plans during the ~~three~~six months ended ~~March~~June 3130, 2018 were as follows:

	Number			Weighted Average Exercise Price
Outstanding as of January 1, 2018		76,601		$	117.42
Granted during 2018		-102			-2.40
Cancelled /expired		(163	)		544.60
Exercised		-			-
Outstanding as of March 31, 2018		76,438		$	116.51
Cancelled /expired		(3,806	)		122.23
Exercisable as of March 31, 2018		50,055		$	168.87
Outstanding as of June 30, 2018		72,897		$	117.01
Exercisable as of June 30, 2018		49,483		$	165.18

12Grants under the stock option plans during the six months ended June 30, 2018 were related to the annual grants to outside directors which totaled 102 shares of common stock.

TOWERSTREAM CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

~~Cancellations~~Options ~~for~~granted during the ~~three~~reporting ~~months~~period ~~ended~~had ~~March~~a ~~31,~~term ~~2018~~of ~~consisted~~ten ofyears. ~~149~~All ~~related~~options were issued at an exercise price equal to ~~employee~~the ~~terminations~~fair ~~and~~value 14on ~~were~~the ~~associated~~date ~~with~~of grant. The director grants vest over a one year period from the ~~expiration~~date of issuance. The aggregate fair value of the options granted was $180 for the six months ended June 30, 2018.

~~The~~Cancellations ~~weighted~~for ~~average~~the ~~remaining~~six ~~contractual~~months ~~life~~ended June 30, 2018 consisted of ~~the~~3,683 ~~outstanding~~related ~~options~~to asemployee ofterminations ~~March~~and ~~31,~~123 ~~2018~~were ~~was~~associated ~~8.7~~with ~~years~~the expiration of options.

~~There~~The ~~was~~weighted noaverage ~~intrinsic~~remaining ~~value~~contractual ~~associated~~life ~~with~~of the ~~options~~ outstanding ~~and~~options ~~exercisable~~ as of ~~March~~June 3130, 2018. ~~The closing price of the Company’s common stock at March 31, 2018~~ was $38.504 ~~per share~~years.

The intrinsic value associated with the options outstanding was $24 as of June 30, 2018. There was no intrinsic value associated with the options exercisable as of June 30, 2018. The closing price of the Company’s common stock at June 29, 2018 was $2.64 per share.

Stock Warrants

~~There~~Warrant ~~were~~transactions ~~2,400~~during ~~warrants~~the ~~outstanding~~six ~~and~~months ~~exercisable~~ended asJune ~~of March 31~~30, 2018 ~~and~~were ~~December~~as ~~31, 2017, respectively, with a weighted-average exercise price of $1,265.00. The weighted average remaining contractual life of the warrants was 4.1 years.~~follows:

There was no aggregate intrinsic value associated with the warrants outstanding and exercisable as of March 31, 2018.

	Number			Weighted Average Exercise Price
Outstanding as of January 1, 2018		2,400		$	1,265.25
Exchanged during 2018		(2,400	)		1,265.25
Outstanding and exercisable as of June 30, 2018		-		$	-

~~Note~~On 11May 24, 2018, the Company effected an exchange of 2,400 warrants with the Lender for an aggregate of 100 shares of Series I Preferred Stock. ~~Employee~~See Note 10, Capital Stock, ~~Purchase~~for ~~Plan~~further information regarding the exchange of warrants.

~~Under~~Note ~~the~~12. ~~Company’s 2010~~ Employee Stock Purchase Plan (“ESPP Plan”), participants can purchase shares of the Company’s stock at a 15% discount. A maximum number of 334 shares of common stock can be issued under the ESPP Plan of which all of the authorized shares have been issued as of March 31, 2018. There were no participants in the ESPP Plan during the three months ended March 31, 2018. During the three months ended March 31, 2017, a total of 30 shares were issued under the ESPP Plan with a fair value of $358. The Company recognized $54 of stock-based compensation related to the 15% discount for the three months ended March 31, 2017.

~~Note~~Under 12the Company’s 2010 Employee Stock Purchase Plan (“ESPP Plan”), participants can purchase shares of the Company’s stock at a 15% discount. ~~Fair~~A ~~Value~~maximum ~~Measurement~~number of 334 shares of common stock can be issued under the ESPP Plan of which all of the authorized shares have been issued as of June 30, 2018. There have been no participants in the ESPP Plan since the three months ended March 31, 2017. During the six months ended June 30, 2017, a total of 30 shares were issued under the ESPP Plan with a fair value of $358. The Company recognized $53 of stock-based compensation related to the 15% discount for the six months ended June 30, 2017.

~~The~~Note ~~FASB’s accounting standard for fair value measurements establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value~~13. ~~This~~Fair ~~hierarchy~~Value prioritizes the inputs into three broad levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.Measurement

13The FASB accounting standard for fair value measurements establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair value due to their short maturities. There were no changes in the valuation techniques during the three and six months ended June 30, 2018.

TOWERSTREAM CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

~~The~~Note ~~carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair value due to their short maturities~~14. ~~There~~Revenues ~~were no changes in the valuation techniques during the three months ended March 31, 2018.~~

~~Note~~In 13May 2014, the FASB issued ASC 606, “Revenue from Contracts with Customers.” ~~Revenues~~The core principle of ASC 606 is that revenue is recognized when the transfer of goods or services to customers occurs in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The Company has adopted ASC 606 as of January 1, 2018 and utilized the modified retrospective method of adoption which includes the deferral of commission costs associated with obtaining its customer contracts and revenues associated with customer installations. The impact to revenues for the three and six months ended June 30, 2018 was a reduction of $48,252 and $113,828, respectively, as a result of applying Topic 606. The prior year information has not been restated as the application of Topic 606 did not have a material impact on the accounting treatment of 2017 revenues and continues to be reported under the accounting standards in effect for that period.

In May 2014, the FASB issued ASC 606, “Revenue from Contracts with Customers.” The core principle of ASC 606 is that revenue is recognized when the transfer of goods or services to customers occurs in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The Company has adopted ASC 606 as of January 1, 2018 and utilized the modified retrospective method of adoption which includes the deferral of commission costs associated with obtaining its customer contracts and revenues associated with customer installations. The impact to revenues for the quarter ended March 31, 2018 was a reduction of $65,576 as a result of applying Topic 606. The prior year information has not been restated as the application of Topic 606 did not have a material impact on the accounting treatment of 2017 revenues and continues to be reported under the accounting standards in effect for that period.

Revenue Recognition

Generally, the Company considers all revenues as arising from contracts with customers. Revenue is recognized based on the five-step process outlined in ~~ASC606~~ASC 606:

Step 1 – Identify the Contract with the Customer – A contract exists when (a) the parties to the contract have approved the contract and are committed to perform their respective obligations, (b) the entity can identify each party’s rights regarding the goods or services to be transferred, (c) the entity can identify the payment terms for the goods or services to be transferred, (d) the contract has commercial substance and €(e) it is ~~probably~~probable that the entity will collect substantially all of the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer.

Step 2 – Identify Performance Obligations in the Contract – Upon execution of a contract, the Company identifies as performance obligations each promise to transfer to the customer either (a) goods or services that are distinct or (b) a series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer. To the extent a contract includes multiple promised goods or services, the Company must apply judgement to determine whether the goods or services are capable of being distinct within the context of the contract. If these criteria are not met, the goods or services are accounted for as a combined performance obligation.

Step 3 – Determine the Transaction Price – When (or as) a performance obligation is satisfied, the Company ~~shall~~recognizes ~~recognize~~ as revenue the amount of the transaction price that is allocated to the performance obligation. The contract terms are used to determine the transaction price. Generally, all contracts include fixed consideration. If a contract did include variable consideration, the Company would determine the amount of variable consideration that should be included in the transaction price based on expected value method. Variable consideration would be included in the transaction price, if in the Company’s judgement, it is probable that a significant future reversal of cumulative revenue under the contract would not occur.

Step 4 – Allocate the Transaction Price – After the transaction price has been determined, the next step is to allocate the transaction price to each performance obligation in the contract. If the contract only has one performance obligation, the entire transaction price will be applied to that obligation. If the contract has multiple performance obligations, the transaction price is allocated to the performance obligations based on the relative standalone selling price ~~(SSP)~~ at contract inception.

Step 5 – Satisfaction of the Performance Obligations (and Recognize Revenue) – When an asset is transferred and the customer obtains control of the asset (or the services are rendered), the Company recognizes revenue. At contract inception, the Company determines if each performance obligation is satisfied at a point in time or over time. For device sales, revenue is recognized at a point in time when the goods are transferred to the customer and they obtain control of the asset. For maintenance contracts, revenue is recognized over time as the performance obligations in the contracts are completed.

TOWERSTREAM CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Disaggregation of Revenue

We provide fixed wireless business internet service to companies ranging from small businesses to fortune 500 companies. The Company recognizes the total revenue provided under a contract ratably over the contract period, including any periods under which the Company has agreed to provide services at no cost. The Company generally enters into contractual agreements with its customers for periods ranging between one to three years.

Deferred Revenues

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

The Company also defers installation fees billed to the customer and commission costs associated with obtaining new contracts. The installation fees and commission costs are amortized over the average contract term of new contracts. As of ~~March~~June 3130, 2018, the Company had $65113,~~576~~828 of deferred installation fees which is included in Deferred Revenues on the Company’s condensed consolidated balance sheet and $~~105~~150,~~550~~977 of deferred commission costs included in Other Current Assets on the Company’s condensed consolidated balance sheet.

14Note 15. Net Loss Per Common Share

TOWERSTREAM CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Note 14. Net Loss Per Common Share

Basic and diluted net loss per share has been calculated by dividing net loss by the weighted average number of common shares outstanding during the period.

The following common stock equivalents were excluded from the computation of diluted net loss per common share because they were anti-dilutive. The exercise or issuance of these common stock equivalents would dilute earnings per share if the Company becomes profitable in the future.

	Three Months Ended March 31,
	As of June 30,
	2018		2017
Stock options		7672,~~438~~897		7077,~~587~~608
Warrants		~~2,400~~-		2,400
Series D Convertible Preferred Stock		-		41,100
Series G preferred stock		71,734		98,400
Series F Convertible Preferred Stock		-		56,200
Series H preferred stock		53,440		53,440
Series G Convertible Preferred Stock		71,734		-
Total		198,071		231,848
Series H Convertible Preferred Stock		53,440		-
Total		204,012		170,287

Note 1516. Commitments

Operating Lease Obligations

The Company has entered into operating leases related to roof rights, cellular towers, office space, and equipment leases under various non-cancelable agreements expiring through June 2023. Certain of these operating leases include extensions, at the Company's option, for additional terms ranging from one to fifteen years. Amounts associated with the extension periods have not been included in the table below as it is not presently determinable which options, if any, the Company will elect to exercise. As of ~~March~~June 3130, 2018, total future operating lease obligations were as follows:

Remainder of 2018	$	63,~~326~~779,~~739~~418
2019		6,~~582~~215,~~121~~654
2020		4,~~297~~420,~~526~~229
2021		2,~~401~~501,~~804~~647
2022		1,~~172~~231,~~735~~349
Thereafter		~~462~~484,~~033~~105
Total	$	2118,~~242~~632,~~958~~402

~~Rent expenses were as follows:~~17

	Three Months Ended March 31,
	2018		2017
Points of Presence	$	2,217,640	$	2,106,103
Corporate offices		59,673		81,524
Other		2,37,290		97,256
Total	$	2,514,603	$	2,284,883

TOWERSTREAM CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Rent expenses were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Points of Presence	$	2,227,980	$	2,085,930	$	4,445,619	$	4,192,033
Corporate offices		64,547		94,630		124,220		176,155
Other		240,809		109,148		478,100		206,404
Total	$	2,533,336	$	2,289,708	$	5,047,939	$	4,574,592

Rent expenses related to Points of Presence were included in infrastructure and access in the Company’s condensed consolidated statements of operations. Rent expense related to our corporate offices was allocated between general and administrative, sales and marketing, customer support, and network operations expense in the Company’s condensed consolidated statements of operations. Other rent expenses were included in network operations within the Company’s condensed consolidated statements of operations.

In October 2017, the Company amended the lease agreement for its corporate offices and warehouse space located in Rhode Island. The amended lease commenced on January 1, 2018 and expires on December 31, 2024 with an option to renew for an additional five-year term through December 31, 2024. Total annual rent payments begin at $183,256 for 2018 and escalate by approximately 2.5% annually reaching $213,422 for 2024.

Capital Lease Obligations

The Company has entered into capital leases to acquire property and equipment expiring through August 2020. As of ~~March~~June 3130, 2018, total future capital lease obligations were as follows:

Total Capital lease obligation:
Remainder of 2018	$	~~235~~194,~~122~~250
2019		~~274~~388,~~230~~500
2020		~~186~~300,~~102~~374
Subtotal		~~695~~883,~~454~~124
Less: Interest Expense		(72,767	)
Less: Interest expense		85,697
Total	$	~~622~~797,~~687~~427
Total Capital lease obligation:
Current	$	~~258~~326,~~209~~773
Long-term		~~364~~470,~~478~~654
Total	$	~~622~~797,~~687~~427

Note 1617. - Subsequent Events

Effective ~~April~~August 1520, 2018, the Company entered into a ~~second~~third amended and restated Forbearance to Loan Agreement (the “~~Second~~Third Amended and Restated Agreement”) with the Lender and the majority lenders under the Loan Agreement ~~entered into on October 16, 2014 by and among the Company, certain of its subsidiaries, the Lender and the lenders party thereto~~. Pursuant to the ~~Second~~Third Amended and Restated Agreement, the Lender and the majority lenders waived the Company’s requirement under Section 6.1(a)(i) of the Loan Agreement to deliver to the Lender ~~an auditor’s report without~~ a ~~“going concern” qualification (the “~~Qualified Report~~”).~~ ~~The Forbearance Period is~~ through ~~June~~September 30, 2018 ~~(the “Second Forbearance Period”)~~. InThe ~~addition, the Lender, through the~~ Second Forbearance Period, ~~waived~~was ~~the~~extended ~~Company’s~~from ~~requirement~~June ~~to maintain the $6~~30,~~500,000~~ ~~Minimum~~2018 ~~in deposit accounts or securities accounts and agreed to forbear from exercising any of its rights with respect to an event of default related to the Qualified Report~~ through ~~the~~September ~~Forbearance Period, which is June~~ 30, 2018 ~~and~~ (the ~~$6,500,000~~“Third ~~Minimum. The Second~~ Forbearance Period ~~shall terminate upon the Company’s failure to maintain at least $3,000,000 minimum in deposit accounts or securities accounts or upon the occurrence of certain events of default~~”). The Company also agreed, among other things, ~~(i)~~ to certain ~~milestones~~milestone dates in connection with a proposed sale of the Company, (ii) subject to applicable law, to cease filing periodic reports with the Securities and Exchange Commission and (iii) to issue to the Lender a new series of preferred stock that will be entitled to receive upon a liquidation event a distribution as set forth in the Second Amended and Restated Agreement.

1618

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

The following discussion and analysis summarizes the significant factors affecting our condensed consolidated results of operations, financial condition and liquidity position for the three and six months ended ~~March~~June 3130, 2018. This discussion and analysis should be read in conjunction with our audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2017 and the condensed consolidated unaudited financial statements and related notes included elsewhere in this filing. The following discussion and analysis contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements.

Forward-Looking Statements

Forward-looking statements in this Quarterly Report on Form 10-Q, including without limitation, statements related to our plans, strategies, objectives, expectations, intentions and adequacy of resources, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties including without limitation the following: (i) our plans, strategies, objectives, expectations and intentions are subject to change at any time at our discretion; (ii) our plans and results of operations will be affected by our ability to manage growth and competition; and (iii) other risks and uncertainties indicated from time to time in our filings with the Securities and Exchange Commission.

In some cases, you can identify forward-looking statements by terminology such as ‘‘may,’’ ‘‘will,’’ ‘‘should,’’ ‘‘could,’’ ‘‘expects,’’ ‘‘plans,’’ ‘‘intends,’’ ‘‘anticipates,’’ ‘‘believes,’’ ‘‘estimates,’’ ‘‘predicts,’’ ‘‘potential,’’ or ‘‘continue’’ or the negative of such terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of such statements. Readers are cautioned not to place too much reliance on these forward-looking statements which speak only as of the date hereof. We are under no duty to update any of the forward-looking statements after the date of this Quarterly Report on Form 10-Q.

Non-GAAP Measures and Reconciliations to GAAP Measures

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

Characteristics of Revenues and Expenses

We offer broadband services under agreements for periods normally ranging between one to three years. Pursuant to these agreements, we bill customers on a monthly basis, in advance, for each month of service. Payments received in advance of services performed are recorded as deferred revenues and recognized as revenue ratably over the service period.

Infrastructure and access expenses relate directly to maintaining our network and providing connectivity to our customers. Infrastructure primarily relates to our Points-of-Presence ("PoPs") where we install a substantial amount of equipment, mostly on the roof, which we utilize to connect numerous customers to the internet. We enter into long term lease agreements to maintain our equipment on these PoPs and these rent payments comprise the majority of our infrastructure and access costs. Access expenses primarily consist of bandwidth connectivity agreements that we enter into with national service providers.

Network operations costs relate to the daily operations of our network and ensuring that our customers have connectivity within the terms of our service level agreement. We have employees based in our largest markets who are dedicated to ensuring that our network operates effectively on a daily basis. Other employees monitor network operations from our network operating center which is located at our corporate headquarters. Payroll comprises approximately 6050% to 7060% of network operations costs. Information technology systems and support comprises approximately 1015% to 20% of network operations costs.

Customer support costs relate to our continuing communications with customers regarding their service level agreement. Payroll comprises approximately 75% to 85% of customer support costs. Other costs include shipping, troubleshooting, and facilities related expenses.19

Customer support costs relate to our continuing communications with customers regarding their service level agreement. Payroll comprises approximately 65% to 75% of customer support costs. Other costs include shipping, troubleshooting, and facilities related expenses.

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

General and administrative expenses include costs attributable to corporate overhead and the overall support of our operations. Salaries and other related payroll costs for executive management and finance personnel are included in this category. Other costs include accounting, legal and other professional services, and other general operating expenses.

Overview – Fixed Wireless

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

As of ~~March~~June 3130, 2018, we provide service to business customers in twelve metropolitan markets consisting of New York, Boston, Los Angeles, Chicago, San Francisco, Miami, Seattle, Dallas-Fort Worth, Houston, Philadelphia, Las Vegas-Reno and Providence-Newport. Although we provide services in multiple markets, these operations have been aggregated into one reportable segment based on the similar economic characteristics among all markets, including the nature of the services provided and the type of customers purchasing such services. The markets were launched at different times, and as a result, may have different operating metrics based on their size and stage of maturation. We incur significant up-front costs in order to establish a network presence in a new market. These costs include building PoPs and network costs. Other material costs include hiring and training sales and marketing personnel who will be dedicated to securing customers in that market. Once we have established a network presence in a new market, we are capable of servicing a significant number of customers. The rate of customer additions varies from market to market, and we are unable to predict how many customers will be added in a market during any specific period.

In March 2018, we announced that our board of directors had commenced an evaluation of strategic repositioning of the Company as we move to leverage existing key assets in major U.S. markets. In conjunction with such announcement, we launched a concerted focus on indirect and wholesale channels and retained Bank Street Group LLC as our independent financial advisor to explore strategic alternatives, including the sale of some or all of our business or assets. There can be no assurances that the process will result in a transaction. Any potential strategic alternative will be evaluated by the board. We do not intend to discuss developments with respect to the evaluation process unless a transaction is approved, or further disclosure becomes appropriate.

Overview - Shared Wireless Infrastructure

In January 2013, the Company incorporated a wholly-owned subsidiary, Hetnets Tower Corporation (“Hetnets”), to operate a new business designed to leverage its fixed wireless network in urban markets to provide other wireless technology solutions and services. Hetnets built a carrier-class network which offered a shared wireless infrastructure platform, primarily for (i) co-location of customer owned antenna and related equipment and (ii) Wi-Fi access and offloading. The Company referred to this as its “Shared Wireless Infrastructure” or “Shared Wireless” business. During the fourth quarter of 2015, the Company ~~determined~~decided to exit this business and curtailed activities in its smaller markets. The remaining network, located in New York City (or “NYC”), was the largest and had a lease access contract with a major cable company. As a result, the Company explored opportunities during the fourth quarter of 2015 and into the first quarter of 2016 to sell the NYC network.

As further described in Note 4 to our condensed consolidated financial statements, on March 9, 2016, the Company completed a sale and transfer of certain assets to the major cable company (the “Buyer”). The asset purchase agreement provided that the Buyer would assume certain rooftop leases in NYC and acquire ownership of the Wi-Fi access points and related equipment associated with operating the network. The Company retained ownership of all backhaul and related equipment and the parties entered into a backhaul services agreement under which the Company will provide bandwidth to the Buyer at the locations governed by the leases. The agreement is for a three-year period with two one-year renewals and is cancellable by the Buyer on sixty days’ notice. The operating results and cash flows for Hetnets have been presented as discontinued operations in these condensed consolidated financial statements.

~~Three Months Ended March 31, 2018 Compared to Three Months Ended March 31, 2017~~20

Three Months Ended June 30, 2018 Compared to Three Months Ended June 30, 2017

Continuing Operations – Fixed Wireless

Revenues. Revenues totaled $6,~~441~~220,~~802~~758 during the three months ended ~~March~~June 3130, 2018 compared to $6,~~572~~517,~~317~~817 during the three months ended ~~March~~June 3130, 2017 representing a decrease of $~~130~~297,~~515~~059, or 25%. The decrease is due to personnel reductions within the salesforce team, $6548,~~576~~252 net impact of adopting ASC 606, and fewer total customers offset by new customers having a higher average rate per unit~~, and a lower overall customer churn rate~~.

Customer Churn. Customer churn, calculated as a percent of revenue lost on a monthly basis from customers terminating service or reducing their service level, totaled 1.0945% during the three months ended ~~March~~June 3130, 2018 compared to 1.3948% during the three months ended ~~March~~June 3130, 2017. Churn levels can fluctuate from period to period depending upon whether customers move to a location not serviced by the Company, go out of business, or a myriad of other reasons.

18Infrastructure and Access. Infrastructure and access totaled $2,756,943 during the three months ended June 30, 2018 compared to $2,622,723 during the three months ended June 30, 2017 representing an increase of $134,220, or 5%. The increase primarily relates to higher tower rent and maintenance costs.

~~Infrastructure~~Depreciation and ~~Access~~Amortization. ~~Infrastructure~~Depreciation and ~~access~~amortization totaled $21,~~688~~603,~~722~~807 ~~for~~during the three months ended ~~March~~June 3130, 2018 compared to $2,~~708~~100,~~311~~281 ~~for~~during the three months ended ~~March~~June 3130, 2017 representing a decrease of $496,474 or 24%. Depreciation expense totaled $1,283,992 during the three months ended June 30, 2018 compared to $1,747,777 during the three months ended June 30, 2017 representing a decrease of $19463,~~589~~785, or 127%. The depreciation decrease ~~primarily~~is ~~relates~~due to capital investment activity being lower ~~bandwidth~~than ~~costs~~historical ~~offset~~levels byand a higher ~~tower~~percentage ~~rental~~of ~~costs~~assets becoming fully depreciated.

~~Depreciation and~~ Amortization. ~~Depreciation~~expense ~~and amortization~~ totaled $1319,~~703,597~~815 during the three months ended ~~March~~June 3130, 2018 compared to $2352,~~433,501~~504 during the three months ended ~~March~~June ~~31, 2017 representing a decrease of $729,904 or~~ 30~~%. Depreciation expense totaled $1~~,~~383,782~~ ~~during the three months ended March 31, 2018 compared to $2,015,617 during the three months ended March 31,~~ 2017 representing a decrease of $~~631~~32,~~835,~~689 or 319%. The ~~depreciation~~ decrease isin ~~due~~amortization toexpense ~~capital~~was ~~investment~~due ~~activity~~to ~~being~~customer ~~lower~~related ~~than~~intangible ~~historical~~assets ~~levels~~that ~~and~~were afully ~~higher~~amortized ~~percentage~~as of ~~assets~~the ~~becoming~~first ~~fully~~quarter ~~depreciated~~of 2018.

~~Amortization~~Network ~~expense~~Operations. Network operations totaled $~~319~~684,~~815~~516 during the three months ended ~~March~~June 3130, 2018 compared to $~~417~~1,~~884~~085,249 during the three months ended ~~March~~June 3130, 2017 representing a decrease of $98400,~~069,~~733 or 2337%. The decrease inis ~~amortization~~due ~~expense~~to ~~was~~lower payroll related expenses of $332,140, or 51%, associated with employee headcount levels, IT costs decreased by $22,652, or 15%, due primarily to ~~customer~~lower ~~related~~third ~~intangible~~party ~~assets~~support ~~that~~and ~~were~~software ~~fully~~license ~~amortized~~fees, asand ofa ~~the~~$20,778 ~~first~~reduction ~~quarter~~in oftravel ~~2018~~and entertainment.

~~Network~~Customer ~~Operations~~Support. ~~Network~~Customer ~~operations~~support totaled $1362,~~065,250~~844 ~~for~~during the three months ended ~~March~~June 3130, 2018 compared to $1391,~~200,907~~335 ~~for~~during the three months ended ~~March~~June 3130, 2017 representing a decrease of $~~135~~28,~~657~~491, or 117%. ~~The~~Payroll ~~primary~~expense ~~reason~~decreased ~~for~~$60,061, ~~the~~or ~~decrease~~21%, isdue ~~lower~~to ITthe ~~costs~~reduction of ~~$106,393,~~employee orheadcount ~~47%,~~in ~~due~~the ~~primarily~~2018 toperiod, ~~decreased~~offset ~~third~~by ~~party~~increased support ~~and~~costs ~~software~~of ~~license~~$31,569, ~~fees~~or 32%.

~~Customer~~Sales ~~Support~~and Marketing. ~~Customer~~Sales ~~support~~and marketing expenses totaled $~~474~~385,~~816~~661 ~~for~~during the three months ended ~~March~~June 3130, 2018 compared to $~~367~~976,~~682~~790 ~~for~~during the three months ended ~~March~~June 3130, 2017 representing ana ~~increase~~decrease of $~~107~~591,~~134~~129, or 2961%. Payroll ~~expense~~expenses ~~increased~~have decreased $48568,~~365~~016, or 1687%, due to the ~~addition~~reduction of ~~new~~employee ~~employees in the 2018 period and support cost increased $58,769, or 100%, primarily due to higher maintenance costs~~headcount.

~~Sales~~General and ~~Marketing~~Administrative. ~~Sales~~General and ~~marketing~~administrative expenses totaled $~~748~~840,~~001~~689 during the three months ended ~~March~~June 3130, 2018 compared to $~~864~~1,~~976~~514,141 during the three months ended ~~March~~June 3130, 2017 representing a decrease of $~~116~~673,~~975~~452, or 1444%. Stock-based ~~Payroll~~compensation ~~expenses have~~ decreased $~~140~~290,~~378,~~506 oras ~~25%,~~there ~~due~~were toa ~~the~~minimal ~~reduction~~number of ~~employee~~options ~~headcount.~~issued ~~Travel~~during ~~and~~the ~~entertainment~~quarter, ~~decreased~~professional byfees decreased $25193,~~467~~160, orand ~~32%,~~payroll ~~due~~costs todecreased ~~cost savings initiatives, offset~~ by ~~increased indirect channel commissions of~~ $52120,~~651,~~879 ordue ~~25%,~~to ~~associated~~headcount ~~with the Company’s residual program which pays continuing commissions as long as the referred business is a customer~~reductions.

~~General~~Interest ~~and~~Expense, ~~Administrative~~Net. Interest ~~General~~expense, ~~and~~net ~~administrative expenses~~ totaled $1,~~167~~817,~~760~~ 477 during the three months ended ~~March~~June 3130, 2018 compared to $1,~~537~~295,~~728~~041 during the three months ended ~~March~~June 3130, 2017 representing aan ~~decrease~~increase of $~~369~~522,~~968,~~436 or 2440%. ~~Stock-based~~Interest ~~compensation~~expense ~~decreased~~relates to the $~~265~~35,~~802~~000,000 assecured ~~there~~term ~~were~~loan nowhich ~~options~~closed ~~issued~~in ~~during~~October 2014 and capital lease arrangements. The increase is primarily attributable to the ~~quarter,~~interest ~~professional~~rate ~~fees~~change ~~decreased~~which ~~$199,432,~~occurred ~~offset~~with bythe ~~increased~~forbearance ~~payroll~~agreement ~~costs~~as ofmore ~~$52~~fully described in Note 9,~~894~~ Long-Term Debt to the condensed consolidated financial statements.

Interest Expense, Net. Interest expense, net totaled $1,417,098 during the three months ended March 31, 2018 compared to $1,272,272 during the three months ended March 31, 2017 representing an increase of $144,826, or 11%. Interest expense relates to the $35,000,000 secured term loan which closed in October 2014 and capital lease arrangements. The increase is primarily attributable to the interest rate change which occurred with the forbearance agreement as more fully described in Note 9, Long-Term Debt to the condensed consolidated financial statements.21

19Six Months Ended June 30, 2018 Compared to Six Months Ended June 30, 2017

Continuing Operations – Fixed Wireless

Revenues. Revenues totaled $12,662,560 during the six months ended June 30, 2018 compared to $13,090,134 during the six months ended June 30, 2017 representing a decrease of $427,574, or 3%. The decrease is due to personnel reductions within the salesforce team, $113,828 net impact of adopting ASC 606, and fewer total customers offset by new customers having a higher average rate per unit.

Infrastructure and Access. Infrastructure and access totaled $5,445,665 during the six months ended June 30, 2018 compared to $5,331,034 during the six months ended June 30, 2017 representing an increase of $114,631, or 2%. The increase primarily relates to higher tower rental costs.

Depreciation and Amortization. Depreciation and amortization totaled $3,307,404 during the six months ended June 30, 2018 compared to $4,533,782 during the six months ended June 30, 2017 representing a decrease of $1,226,378 or 27%. Depreciation expense totaled $2,667,774 during the six months ended June 30, 2018 compared to $3,763,394 during the six months ended June 30, 2017 representing a decrease of $1,095,620, or 29%. The depreciation decrease is due to capital investment activity being lower than historical levels and a higher percentage of assets becoming fully depreciated.

Amortization expense totaled $639,630 during the six months ended June 30, 2018 compared to $770,388 during the six months ended June 30, 2017 representing a decrease of $130,758, or 17%. The decrease in amortization expense was due to customer related intangible assets that were fully amortized as of the first quarter of 2018.

Network Operations. Network operations totaled $1,749,766 during the six months ended June 30, 2018 compared to $2,286,156 during the six months ended June 30, 2017 representing a decrease of $536,390, or 23%. The primary reasons for the decrease is lower payroll costs of $301,257, or 22%, due to employee headcount reductions, and lower IT costs of $129,045, or 35%, due to decreased third party support and software license fees.

Customer Support. Customer support totaled $837,660 during the six months ended June 30, 2018 compared to $759,017 during the six months ended June 30, 2017 representing an increase of $78,643, or 10%. Customer support costs increased $90,338 due to higher maintenance costs offset by a decrease in payroll expense of $11,696, or 2%.

Sales and Marketing. Sales and marketing expenses totaled $1,133,662 during the six months ended June 30, 2018 compared to $1,841,766 during the six months ended June 30, 2017 representing a decrease of $708,104, or 38%. Payroll expenses have decreased $708,393, or 59%, due to employee headcount reductions.

General and Administrative. General and administrative expenses totaled $2,008,450 during the six months ended June 30, 2018 compared to $3,051,869 during the six months ended June 30, 2017 representing a decrease of $1,043,419 or 34%. Stock-based compensation decreased $556,307 as there were a minimal number of options issued during the period, professional fees decreased $392,593, and public company fees decreased $96,290.

Interest Expense, Net. Interest expense, net totaled $3,234,575 during the six months ended June 30, 2018 compared to $2,567,313 during the six months ended June 30, 2017 representing an increase of $667,262, or 26%. Interest expense relates to the $35,000,000 secured term loan which closed in October 2014 and capital lease arrangements. The increase is primarily attributable to the interest rate change which occurred with the forbearance agreement as more fully described in Note 9, Long-Term Debt to the condensed consolidated financial statements.

Liquidity and Capital Resources

Changes in capital resources during the ~~three~~six months ended ~~March~~June 3130, 2018 and 2017 are described below.

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of ~~March~~June 3130, 2018, we had cash and cash equivalents of approximately $54.37 million and working capital deficiency of approximately $3234.80 million. We have incurred significant operating losses since inception and continue to generate losses from operations and as of ~~March~~June 3130, 2018, we have an accumulated deficit of $~~191~~194.92 million. These matters raise substantial doubt about our ability to continue as a going concern within one year after the date these financial statements are issued. Management has also evaluated the significance of these conditions in relation to the Company's ability to meet its obligations. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should we be unable to continue as a going concern.

Historically, we have financed our ~~operation~~operations through private and public placement of equity securities, as well as debt financing and capital leases. Our ability to fund our longer term cash requirements is subject to multiple risks, many of which are beyond our control. We intend to raise additional capital, either through debt or equity financings or through the potential sale of our assets in order to achieve our business plan objectives. Management believes that it can be successful in obtaining additional capital; however, no assurance can be provided that we will be able to do so. There is no assurance that any funds raised will be sufficient to enable us to attain profitable operations or continue as a going concern. To the extent that we are unsuccessful, we may need to curtail or cease our operations and implement a plan to extend payables or reduce overhead until sufficient additional capital is raised to support further operations. There can be no assurance that such a plan will be successful.

Continuing Operations

Net Cash Used In Operating Activities. Net cash used in operating activities for the ~~three~~six months ended ~~March~~June 3130, 2018 totaled $1,~~150~~641,~~103~~935 compared to $~~311~~1,~~479~~431,794 for the ~~three~~six months ended ~~March~~June 3130, 2017 representing an increase of $~~838~~210,~~624~~141. The increase in cash used in operations is due to a $~~983~~1,~~390~~260,366 increase in cash ~~outflows~~flows associated with operating assets and liabilities, and a $~~844~~1,~~852~~175,956 decrease in non-cash items, offset by a decrease of $~~989~~2,~~618~~226,181 in net loss.

Net Cash Used in Investing Activities. Net cash used in investing activities for the ~~three~~six months ended ~~March~~June 3130, 2018 totaled $~~900~~949,~~354~~390 compared to $~~567~~1,~~063~~473,754 for the ~~three~~six months ended ~~March~~June 3130, 2017 representing ana ~~increase~~decrease of $~~333~~524,~~291~~364. Cash capital expenditures totaled $~~915~~964,~~354~~390 in the 2018 period compared to $~~556~~1,~~530~~460,829 in the 2017 period representing an increase of $~~358~~496,~~824~~439. Capital expenditures can fluctuate from period to period depending upon the number of customer additions and upgrades, network construction activity related to increasing capacity or coverage, and other related reasons.

Net Cash Used Inin Financing Activities. Net cash used in financing activities for the ~~three~~six months ended ~~March~~June 3130, 2018 totaled $~~183~~306,~~909~~286 compared to $~~254~~478,~~496~~926 for the ~~three~~six months ended ~~March~~June 3130, 2017, representing a decrease of $70172,~~587~~640. The majority of the payments for both periods relate to capital ~~lease payments~~leases.

Discontinued Operations

Net cash used in discontinued operations for the ~~three~~six months ended ~~March~~June 3130, 2018 was $1712,~~496~~283 compared to net cash provided by discontinued operations of $7180,~~253~~882 for the ~~three~~six months ended ~~March~~June 3130, 2017, representing a decrease of $5393,~~757~~165. See Note 4, “Discontinued Operations”, within the notes to our condensed consolidated financial statements for additional information about our discontinued operations.

2023

Other Considerations

Debt Financing. In October 2014, we entered into a loan agreement (the “Loan Agreement”) with Melody Business Finance, LLC (the “Lender”). The Lender provided us with a five-year $35,000,000 secured term loan. The loan was issued at a 3% discount and the Company incurred $2,893,739 in debt issuance costs. Net proceeds were $31,056,260.

The loan bears interest at a rate equal to the greater of (i) the sum of the most recently effective one month LIBOR as in effect on each payment date plus 7% or (ii) 8% per annum, and additional paid in kind (“PIK”), or deferred, interest that accrues at 4% per annum.

The aggregate principal amount outstanding plus all accrued and unpaid interest is due in October 2019. The Company had the option of making principal payments (i) on or before October 16, 2016 (the “Second Anniversary”) but only for the full amount outstanding and (ii) after the Second Anniversary in minimum amount(s) of $5,000,000 plus multiples of $1,000,000.

In connection with the Loan Agreement and pursuant to a Warrant and Registration Rights Agreement, we issued warrants to purchase 2,400 shares of common stock of which two-thirds have an exercise price of $1,890.00 and one-third have an exercise price of $15.00, subject to standard anti-dilution provisions. The warrants have a term of seven and a half years.

In November 2016, the Company entered into a series of agreements wherein $5,000,000 of the Company’s senior secured debt due to Lender was canceled and the Company simultaneously issued 1,000 shares of Series D Convertible Preferred Stock and warrants to purchase 53,334 shares of common stock at an exercise price of $100.50 per share. The cancellation of that debt serves to reduce the balloon payment due in October 2019 by that amount and reduce interest payments by $400,000 on an annual basis.

On May 24, 2018, the Company effected an exchange of 2,400 warrants with the Lender for an aggregate of 100 shares of Series I Preferred Stock. See Note 10, Capital Stock, for further information regarding the exchange of warrants.

Critical Accounting Policies

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

Revenue Recognition. We generally enter into contractual agreements with our customers for periods ranging between one to three years. We recognize the total revenue provided under a contract ratably over the contract period including any periods under which we have agreed to provide services at no cost. Deferred revenues are recognized as a liability when billings are issued in advance of the date when revenues are earned. We apply the revenue recognition principles set forth under ASC 606 which provides for revenue to be recognized based on the application of a principle based five-step model as follows: (i) identification of the contract, (ii) identification of the performance obligations in the contract, (iii) determination of the transaction price, (iv) allocation of the transaction price to the performance obligations, and (v) recognition of revenue as the performance obligations are satisfied.

Long-Lived Assets. Long-lived assets with definite lives consist primarily of property and equipment, and intangible assets such as acquired customer relationships. Long-lived assets are evaluated periodically for impairment or whenever events or circumstances indicate their carrying value may not be recoverable. Conditions that would result in an impairment charge include a significant decline in the fair value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable. When such events or circumstances arise, an estimate of the future undiscounted cash flows produced by the asset, or the appropriate grouping of assets, is compared to the asset’s carrying value to determine if impairment exists. If the asset is determined to be impaired, the impairment loss is measured based on the excess of its carrying value over its fair value. Assets to be disposed of are reported at the lower of their carrying value or net realizable value.

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Market risk is the potential loss arising from adverse changes in market rates and prices. Our primary market risk relates to interest rates. At ~~March~~June 3130, 2018, all cash and cash equivalents are immediately available cash balances.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the ‘‘Exchange Act’’). Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based upon our evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective, as of ~~March~~June 3130, 2018, in ensuring that material information that we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms.

Changes in Internal Control over Financial Reporting

There were no other changes in our system of internal control over financial reporting during the three months ended ~~March~~June 3130, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

2225

PART II

OTHER INFORMATION

Item 6. Exhibits.

Exhibit No.	Description
10.1	Third Amended and Restated Forbearance to Loan Agreement dated August 20, 2018
31.1	Section 302 Certification of Principal Executive Officer.
31.2	Section 302 Certification of Principal Financial Officer.
32.1	Section 906 Certification of Principal Executive Officer.
32.2	Section 906 Certification of Principal Financial Officer.
101.INS	XBRL Instance Document*
101.SCH	XBRL Taxonomy Extension Schema Document*
101.CAL	XBRL Taxonomy Calculation Linkbase Document*
101.LAB	XBRL Taxonomy Labels Linkbase Document*
101.PRE	XBRL Taxonomy Presentation Linkbase Document*
101.DEF	XBRL Definition Linkbase Document*

* - Attached as Exhibit 101 to this report are the following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~March~~June 3130, 2018 formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Cash Flows, (iv) the Condensed Consolidated Statement of Stockholders’ Deficit, and (v) related notes to these financial statements.

2326

SIGNATURES

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

	TOWERSTREAM CORPORATION
Date: May 15, 2018	By:	/s/ Ernest Ortega
Date: August 20, 2018	By:	/s/ Ernest Ortega
		Ernest Ortega Chief Executive Officer (Principal Executive Officer)

	By:	/s/ John Macdonald
		John Macdonald
		Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)

2427

EXHIBIT INDEX

Exhibit No.	Description	~~Description~~
31.1		Section 302 Certification of Principal Executive Officer.
10.1	Third Amended and Restated Forbearance to Loan Agreement dated August 20, 2018
31.2		Section 302 Certification of Principal Financial Officer.
31.1	Section 302 Certification of Principal Executive Officer.
32.1		Section 906 Certification of Principal Executive Officer.
31.2	Section 302 Certification of Principal Financial Officer.
32.2		Section 906 Certification of Principal Financial Officer.
32.1	Section 906 Certification of Principal Executive Officer.
101.INS		XBRL Instance Document*
32.2	Section 906 Certification of Principal Financial Officer.
101.SCH		XBRL Taxonomy Extension Schema Document*
101.INS	XBRL Instance Document*
101.CAL		XBRL Taxonomy Calculation Linkbase Document*
101.SCH	XBRL Taxonomy Extension Schema Document*
101.LAB		XBRL Taxonomy Labels Linkbase Document*
101.CAL	XBRL Taxonomy Calculation Linkbase Document*
101.PRE		XBRL Taxonomy Presentation Linkbase Document*
101.LAB	XBRL Taxonomy Labels Linkbase Document*
101.DEF		XBRL Definition Linkbase Document*
101.PRE	XBRL Taxonomy Presentation Linkbase Document*
101.DEF	XBRL Definition Linkbase Document*

2528

Filing Compare · TOWERSTREAM CORP