News Column

TOWERSTREAM CORP - 10-Q/A - Management's Discussion and Analysis of Financial Condition and Results of Operations.

June 6, 2014

The following discussion and analysis summarizes the significant factors affecting our condensed consolidated results of operations, financial condition and liquidity position for the three months ended March 31, 2014. This discussion and analysis should be read in conjunction with our audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2013 and the condensed consolidated unaudited financial statements and related notes included elsewhere in this filing. The following discussion and analysis contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Forward-Looking Statements Forward-looking statements in this Quarterly Report on Form 10-Q, including without limitation, statements related to our plans, strategies, objectives, expectations, intentions and adequacy of resources, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties including without limitation the following: (i) our plans, strategies, objectives, expectations and intentions are subject to change at any time at our discretion; (ii) our plans and results of operations will be affected by our ability to manage growth and competition; and (iii) other risks and uncertainties indicated from time to time in our filings with the Securities and Exchange Commission. In some cases, you can identify forward-looking statements by terminology such as "may,'' "will,'' "should,'' "could,'' "expects,'' "plans,'' "intends,'' "anticipates,'' "believes,'' "estimates,'' "predicts,'' "potential,'' or "continue'' or the negative of such terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of such statements. Readers are cautioned not to place too much reliance on these forward-looking statements which speak only as of the date hereof. We are under no duty to update any of the forward-looking statements after the date of this Quarterly Report on Form 10-Q.



Non-GAAP Measures and Reconciliations to GAAP Measures

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



Characteristics of Revenues and Expenses

Our Fixed Wireless segment offers broadband services under agreements for periods normally ranging between one to three years. Pursuant to these agreements, we bill customers on a monthly basis, in advance, for each month of service. Payments received in advance of services performed are recorded as deferred revenues and recognized as revenue ratably over the service period. Our Shared Wireless Infrastructure segment offers to rent space, channels, and ports on our street level rooftops at a fixed monthly rent. Costs of revenues consists of expenses that are directly related to providing services to our customers, including Core Network expenses (tower and street level rooftop rent and utilities, bandwidth costs, maintenance and other) and Customer Network expenses (customer maintenance, non-installation fees and other customer specific expenses). We collectively refer to Core Network and Customer Network as our "Network," and Core Network costs and Customer Network costs as "Network Costs." When we first enter a new market, or expand in an existing market, we are required to incur up-front costs in order to be able to provide services to commercial customers. We refer to these activities as establishing a "Network Presence." For the Fixed Wireless segment, these costs include constructing Points-of-Presence ("PoPs") in buildings in which we have a lease agreement ("Company Locations") where we install a substantial amount of equipment in order to connect numerous customers to the Internet. For the Shared Wireless Infrastructure segment, these costs include installing numerous access points, backhaul, and other equipment on street level rooftops that we refer to as "Hotzones." The costs to build PoPs and construct Hotzones are capitalized and expensed over a five year period. In addition, we also enter into tower and roof rental agreements, secure bandwidth and incur other Network Costs. Once we have established a Network Presence in a new market or expanded our Network Presence in an existing market, we are capable of servicing a significant number of customers through that Network Presence. The variable cost to add new customers is relatively modest, especially compared to the upfront cost of establishing or expanding our Network Presence. However, we may experience variability in gross margins during periods in which we are expanding our Network Presence in a market. 14

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

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

General and administrative expenses include costs attributable to corporate overhead and the overall support of our operations. Salaries and other related payroll costs for executive management, finance, administration and information systems personnel are included in this category. Other costs include office rent, utilities and other facilities costs, accounting, legal and other professional services, and other general operating expenses. Overview - Fixed Wireless We provide fixed wireless broadband services to commercial customers and deliver access over a wireless network transmitting over both regulated and unregulated radio spectrum. Our service supports bandwidth on demand, wireless redundancy, virtual private networks, disaster recovery, bundled data and video services. We currently provide service to business customers in twelve metropolitan markets.



Market Information - Fixed Wireless

As of March 31, 2014, we operated in twelve metropolitan markets consisting of New York, Boston, Los Angeles, Chicago, San Francisco, Miami, Seattle, Dallas-Fort Worth, Houston, Philadelphia, Las Vegas-Reno and Providence-Newport. Although we provide services in multiple markets, these operations have been aggregated into one reportable segment based on the similar economic characteristics among all markets, including the nature of the services provided and the type of customers purchasing such services. The markets were launched at different times, and as a result, may have different operating metrics based on their size and stage of maturation. We incur significant up-front costs in order to establish a Network Presence in a new market. These costs include building PoPs and Network Costs. Other material costs include hiring and training sales and marketing personnel who will be dedicated to securing customers in that market. Once we have established a Network Presence in a new market, we are capable of servicing a significant number of customers. The rate of customer additions varies from market to market, and we are unable to predict how many customers will be added in a market during any specific period. We believe that providing operating information regarding each of our markets provides useful information to shareholders in understanding the leveraging potential of our business model and the operating performance of our mature markets. Set forth below is a summary of our operating performance on a per-market basis, and a description of how each category is determined.



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

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

Operating Costs: Represents costs that can be specifically allocated to a market which include direct sales personnel, certain direct marketing expenses, certain customer support and installation payroll expenses and third party commissions. Corporate: Includes corporate overhead and centralized activities which support our overall operations. Corporate overhead includes administrative personnel, including executive management, and other support functions such as information technology and facilities. Centralized operations include network operations, customer care, and the management of network assets.



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

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



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

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Three months ended March 31, 2014

Adjusted Cost of Operating Market Market Revenues Revenues Gross Margin Costs EBITDA New York $ 1,916,030$ 618,511$ 1,297,519$ 280,240$ 1,017,279 Los Angeles 2,039,758 561,310 1,478,448 468,298 1,010,150 Boston 1,534,256 393,615 1,140,641 196,710 943,931 Chicago 725,062 293,659 431,403 141,098 290,305 Miami 369,061 102,474 266,587 95,102 171,485 Houston 172,815 57,939 114,876 17,899 96,977 Las-Vegas-Reno 255,897 121,485 134,412 42,321 92,091 San Francisco 276,040 127,678 148,362 90,561 57,801 Providence-Newport 80,285 47,555 32,730 1,575 31,155 Dallas-Fort Worth 166,657 93,483 73,174 49,131 24,043 Seattle 64,934 47,831 17,103 5,586 11,517 Philadelphia 36,858 20,510 16,348 14,872 1,476 Nashville 1,904 12,642 (10,738 ) 2,331 (13,069 ) Total $ 7,639,557$ 2,498,692$ 5,140,865$ 1,405,724$ 3,735,141



Reconciliation of Non-GAAP Financial Measure to GAAP Financial Measure Adjusted market EBITDA

$



3,735,141

Fixed wireless, non-market specific Other expenses (234,354 ) Depreciation and amortization (2,537,873 ) Shared wireless infrastructure, net (3,943,039 ) Corporate (3,463,001 ) Other income (expense) (66,681 ) Net loss $ (6,509,807 )



Three months ended March 31, 2013

Adjusted Cost of Operating Market Market Revenues Revenues Gross Margin Costs EBITDA Los Angeles $ 2,069,824$ 529,767$ 1,540,057$ 411,463$ 1,128,594 Boston 1,669,439 330,279 1,339,160 214,620 1,124,540 New York 1,885,865 599,099 1,286,766 336,437 950,329 Chicago 913,199 305,649 607,550 113,759 493,791 Las Vegas-Reno 388,174 131,925 256,249 56,555 199,694 Miami 377,347 99,261 278,086 84,025 194,061 San Francisco 302,629 100,840 201,789 85,926 115,863 Providence-Newport 127,368 49,141 78,227 18,345 59,882 Seattle 137,037 45,685 91,352 39,177 52,175 Houston 52,985 21,016 31,969 12,720 19,249 Dallas-Fort Worth 171,352 88,781 82,571 75,459 7,112 Philadelphia 39,940 18,037 21,903 22,528 (625 ) Nashville 5,588 14,665 (9,077 ) 4,248 (13,325 ) Total $ 8,140,747$ 2,334,145$ 5,806,602$ 1,475,262$ 4,331,340



Reconciliation of Non-GAAP Financial Measure to GAAP Financial Measure Adjusted market EBITDA

$



4,331,340

Fixed wireless, non-market specific Other expenses (243,651 ) Depreciation and amortization (2,819,609 ) Shared wireless infrastructure, net (3,792,286 ) Corporate (4,004,313 ) Other income (expense) 902,213 Net loss $ (5,626,306 ) 16

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Overview - Shared Wireless Infrastructure

Our Shared Wireless Infrastructure segment offers a range of rental options on street level rooftops related to (i) the installation of customer owned Small Cells, (ii) Wi-Fi access and the offloading of mobile data, and (iii) backhaul, power and other related telecommunications. To date, our operating activities have been primarily focused in New York City, and to a lesser degree, San Francisco, Chicago, and Southern Florida. Costs incurred to establish and operate this business segment include (a) rent payments under lease agreements which provide us with the right to install wireless technology equipment and (b) construction of a carrier-class network to deliver the services being offered by our shared wireless segment. In June 2013, we entered into the Wi-Fi Agreement with a major cable operator (the "Cable Operator"). The Wi-Fi Agreement provides leased access to certain access points, primarily within New York City and Bergen County, New Jersey. The Cable Operator has a limited right to expand access in our other markets. The term of the Wi-Fi Agreement is for an initial three year period, and provides for automatic renewals for two additional years. In April 2014, we entered into a Wi-Fi Agreement with an international provider of Wi-Fi access services in major urban markets. This agreement provides leased access to access points within New York City, Chicago, San Francisco, and Miami. The term of the agreement is for an initial three year period, includes annual escalations of 2%, and provides for automatic annual renewals for two additional years.



Supplemental Segment Information

Operating information about each segment in accordance with GAAP is disclosed in Note 14 of the financial statements. In addition, we use other non-GAAP measurements to assess the operating performance of each segment. These non-GAAP financial measures are commonly used by investors, financial analysts, and rating agencies. Management believes that these non-GAAP financial measures should be available so that investors have the same data that management employs in assessing our overall operations. EBITDA, a non-GAAP financial measure, is calculated as net income (loss) before interest, income taxes, depreciation and amortization. We define Adjusted EBITDA as net income (loss) before interest, income taxes, depreciation and amortization expenses, excluding when applicable, stock-based compensation, deferred rent expense, other non-operating income or expenses as well as gain or loss on (i) disposal of property and equipment, (ii) nonmonetary transactions, and (iii) business acquisitions.



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

Three Months Ended March 31, 2014

Fixed Shared Wireless Wireless Infrastructure Corporate Total Operating Income (Loss) $ 1,008,883$ (3,989,008 )$ (3,463,001 )$ (6,443,126 ) Depreciation and amortization 2,537,873 940,938 216,604 3,695,415 Stock-based compensation - - 292,269 292,269 Loss on non-monetary transactions 67,568 - - 67,568 Deferred rent 6,753 72,815 (8,807 ) 70,761 Adjusted EBITDA 3,621,077 (2,975,255 ) (2,962,935 ) (2,317,113 ) Less: Capital expenditures 1,486,450 938,053 112,854 2,537,357 Net Cash Flow $ 2,134,627$ (3,913,308 )$ (3,075,789 )$ (4,854,470 )



Reconciliation of Adjusted EBITDA to Net Loss

Adjusted EBITDA $ (2,317,113 ) Depreciation and amortization (3,695,415 ) Stock-based compensation (292,269 ) Loss on non-monetary transactions (67,568 ) Deferred rent (70,761 ) Operating Income (Loss) (6,443,126 ) Interest income 7,420 Interest expense (70,471 ) Other income (expense), net (3,630 ) Net loss $ (6,509,807 ) 17

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Reconciliation of Net Cash Flow to Net Cash Used in Operating Activities

Net cash flow $ (4,854,470 ) Capital expenditures



2,537,357

Changes in operating assets and liabilities, net (2,647,764 ) Other, net (124,249 ) Net cash used in operating activities $ (5,089,126 )



Three Months Ended March 31, 2013

Fixed Shared Wireless Wireless Infrastructure Corporate Total Operating Income (Loss) $ 1,314,069$ (3,838,275 )$ (4,004,313 )$ (6,528,519 ) Depreciation and amortization 2,819,609 864,112 187,366 3,871,087 Stock-based compensation - - 396,481 396,481 Loss on property and equipment 39,227 2,724 - 41,951 Loss on non-monetary transactions 77,184 - - 77,184 Non-recurring expenses, primarily acquisition-related - - 65,400 65,400 Adjusted EBITDA 4,250,089 (2,971,439 ) (3,355,066 ) (2,076,416 ) Less: Capital expenditures 1,087,472 136,200 103,293 1,326,965 Net Cash Flow $ 3,162,617$ (3,107,639 )$ (3,458,359 )$ (3,403,381 )



Reconciliation of Adjusted EBITDA to Net Loss

Adjusted EBITDA $ (2,076,416 ) Depreciation and amortization (3,871,087 )



Non-recurring expenses, primarily acquisition-related (65,400 ) Stock-based compensation

(396,481 ) Loss on property and equipment (41,951 ) Loss on non-monetary transactions (77,184 ) Operating Income (Loss) (6,528,519 ) Interest income 154 Interest expense (35,768 ) Gain on business acquisition 941,457 Other income (expense), net (3,630 ) Net loss $ (5,626,306 )



Reconciliation of Net Cash Flow to Net Cash Used in Operating Activities

Net cash flow $ (3,403,381 ) Capital expenditures



1,326,965

Non-recurring expenses, primarily acquisition related (65,400 ) Changes in operating assets and liabilities, net (2,135,543 ) Other, net (145,368 ) Net cash used in operating activities $ (4,422,727 )



Three Months Ended March 31, 2014 Compared to Three Months Ended March 31, 2013

Revenues. Revenues totaled $8,379,906 during the three months ended March 31, 2014 compared to $8,299,223 during the three months ended March 31, 2013 representing an increase of $80,683, or 1%. Shared Wireless revenues totaled $740,349 during the three months ended March 31, 2014 compared to $158,476 during the three months ended March 31, 2013 representing an increase of $581,873, or greater than 100%. Substantially all of the increase related to revenues associated with a Wi-Fi service agreement signed with a major cable operator in June 2013. Fixed Wireless segment revenues totaled $7,685,526 during the three months ended March 31, 2014 compared to $8,186,736 during the three months ended March 31, 2013 representing a decrease of $501,210, or 6%. The decrease principally related to a 4% decrease in monthly recurring billings, lower short term contract revenues, and higher than normal customer churn (as further described below). 18

-------------------------------------------------------------------------------- Average revenue per user ("ARPU") for the Fixed Wireless segment totaled $758 as of March 31, 2014 compared to $727 as of March 31, 2013 representing an increase of $31, or 4%. ARPU for new customers totaled $636 during the quarter ended March 31, 2014 compared to $630 during the quarter ended March 31, 2013 representing an increase of $6, or 1%. The increase in ARPU primarily related to customers upgrading to higher bandwidth service which generates higher monthly recurring revenue. Customer churn, calculated as a percent of revenue lost on a monthly basis from customers terminating or reducing their recurring service level, totaled 2.33% during the three months ended March 31, 2014 compared to 1.63% during the three months ended March 31, 2013. Our goal is to maintain churn levels between 1.40% and 1.70% which we believe is below industry averages of approximately 2.00%. Churn levels can fluctuate from quarter to quarter depending upon whether customers move to a location not serviced by the Company, go out of business, or a myriad of other reasons. Churn has averaged 1.70% over the past 36 months and we do not believe that the higher than targeted churn level experienced in the first quarter of 2014 is indicative of any long term business developments or trends. We have recently formed a customer retention department which has adopted an active communications program with our customers and believe that these efforts will return churn levels to our targeted range. Cost of Revenues. Cost of revenues totaled $5,855,944 during the three months ended March 31, 2014 compared to $4,981,306 during the three months ended March 31, 2013 representing an increase of $874,638, or 18%. On a consolidated basis, gross margin during the three months ended March 31, 2014 was 30% as compared to 40% during the three months ended March 31, 2013 representing a decrease of 10 percentage points. Higher rent expense associated with both PoPs for the fixed wireless network and street level rooftops for the shared wireless infrastructure network increased cost of revenues by $209,455 and $714,214, respectively, and reduced gross margin by 2 and 9 percentage points, respectively. The increase for the fixed wireless network primarily related to lease amendments which provide for additional equipment to be installed for additional rent. The increase for the shared wireless network primarily related to a higher number of lease agreements in the 2014 period as compared to the 2013 period. These increases were partially offset by lower Customer Network and other costs which decreased by $49,031 and benefited gross margin by 1 percentage points. On a per market basis, the increase in cost of revenues is largely attributable to New York and Chicago which are two of the markets in which we have constructed a shared wireless infrastructure network. These two markets represented $699,793 or 80% of the total increase in cost of revenues for the three months ended March 31, 2014. Depreciation and Amortization. Depreciation and amortization totaled $3,695,415 during the three months ended March 31, 2014 compared to $3,871,087 during the three months ended March 31, 2013 representing a decrease of $175,672, or 5%. Depreciation expense totaled $3,110,389 during the three months ended March 31, 2014 compared to $3,118,487 during the three months ended March 31, 2013 representing a decrease of $8,098, or less than 1%. The net base of assets subject to depreciation was approximately $40 million during both the three months ended March 31, 2014 and 2013 resulting in depreciation expense which was comparable for both periods. Amortization expense totaled $585,026 during the three months ended March 31, 2014 compared to $752,600 during the three months ended March 31, 2013 representing a decrease of $167,574, or 22%. Amortization expense relates to customer related intangible assets recorded in connection with acquisitions and can fluctuate significantly from period to period depending upon the timing of acquisitions, the relative amounts of intangible assets recorded, and the amortization periods. The decrease was primarily related to the acquisition of One Velocity Inc. ("One Velocity") for which $232,953 of amortization expense was recognized in the 2013 period with zero recognized in the 2014 period as the related asset became fully amortized in November 2013. The decrease was partially offset by higher amortization expense associated with the Delos acquisition which was completed in February 2013, and for which $98,068 and $32,689 of expense was recorded in the 2014 and 2013 periods, respectively. Customer Support Services. Customer support services totaled $1,172,135 during the three months ended March 31, 2014 compared to $1,396,894 during the three months ended March 31, 2013 representing a decrease of $224,759, or 16%. The decrease was primarily related to lower payroll costs as average headcount totaled 66 during the 2014 period as compared to 77 during the 2013 period. Sales and Marketing. Sales and marketing expenses totaled $1,421,599 during the three months ended March 31, 2014 compared to $1,440,856 during the three months ended March 31, 2013 representing a decrease of $19,257, or 1%. Average headcount totaled 46 during the 2014 period as compared to 50 during the 2013 period representing a decrease of 4, or 8%. General and Administrative. General and administrative expenses totaled $2,677,939 during the three months ended March 31, 2014 compared to $3,137,599 during the three months ended March 31, 2013 representing a decrease of $459,660, or 15%. Payroll costs totaled $989,291 during the 2014 period compared to $1,126,417 during the 2013 period representing a decrease of $137,126, or 12%. The decrease primarily related to non-recurring bonuses related to a corporate financing and an acquisition that were completed in the 2013 period that were not applicable during the 2014 period. Stock-based compensation totaled $292,269 during the 2014 period compared to $396,481 during the 2013 period representing a decrease of $104,212, or 26%. Stock-based compensation can fluctuate significantly from period to period depending on the timing, quantity and valuation of stock option grants. Professional services expenses totaled $374,609 during the 2014 period compared to $447,926 during the 2013 period representing a decrease of $73,317, or 16%. The decrease primarily related to non-recurring expenses associated with the formation of Hetnets which were incurred in the 2013 period. Finally, facility expenses totaled $98,083 during the 2014 period compared to $163,909 during the 2013 period representing a decrease of $65,826, or 40%. The decrease related to the consolidation of the Company's corporate offices which was completed in the fourth quarter of 2013. Interest Income. Interest income totaled $7,420 during the three months ended March 31, 2014 compared to $154 during the three months ended March 31, 2013 representing an increase of $7,266, or greater than 100%. The increase relates to more interest earned on our cash accounts during the 2014 period. 19 -------------------------------------------------------------------------------- Interest Expense. Interest expense totaled $70,471 during the three months ended March 31, 2014 compared to $35,768 during the three months ended March 31, 2013 representing an increase of $34,703, or 97%. The increase in interest expense was primarily related to additional capital leases for network equipment and information technology infrastructure. Gain on Business Acquisition. There was no gain on business acquisition during the three months ended March 31, 2014 compared to $941,457 during the three months ended March 31, 2013. The gain in the 2013 period related to the acquisition of Delos in February 2013. The challenging economic environment during 2012 made it difficult for smaller companies like Delos to raise sufficient capital to sustain their growth. As a result, we were able to acquire the customer relationships and wireless network of Delos at a discounted price. Net Loss. Net loss totaled $6,509,807 during the three months ended March 31, 2014 compared to $5,626,306 during the three months ended March 31, 2013 representing an increase of $883,501, or 16%. Revenues increased by $80,683, or 1%, while operating expenses decreased by $4,710, or less than 1%. In addition, non-operating expense totaled $66,681 during the three months ended March 31, 2014 compared with non-operating income, primarily related to gain on business acquisition, of $902,213 during the three months ended March 31, 2013.



Liquidity and Capital Resources

We have historically met our liquidity and capital requirements primarily through the public sale and private placement of equity securities and debt financing. Changes in capital resources during the three months ended March 31, 2014 and 2013 are described below.

Net Cash Used in Operating Activities. Net cash used in operating activities for the three months ended March 31, 2014 totaled $5,089,126 compared to $4,422,727 for the three months ended March 31, 2013 representing an increase of $666,399, or 15%. Cash used in operations for the three months ended March 31, 2014 totaled $2,441,362 as compared to $2,287,184 for the three months ended March, 31, 2013. Changes in operating assets and liabilities generally represent timing differences regarding payments and receipts, and are normally not indicative of operating results. Changes in operating assets and liabilities used cash of $2,647,764 during the three months ended March 31, 2014 compared to $2,135,543 for the three months ended March 31, 2013. Net Cash Used in Investing Activities. Net cash used in investing activities for the three months ended March 31, 2014 totaled $1,689,140 compared to $975,853 for the three months ended March 31, 2013 representing an increase of $713,287, or 73%. Cash capital expenditures for the fixed wireless segment increased from $689,742 in the 2013 period to $1,307,376 in the 2014 period representing an increase of $617,634, or 90%. Cash capital expenditures for the shared wireless infrastructure segment increased from zero in the 2013 period to $701,501 in the 2014 period representing an increase of $701,501 or 100%. In addition, we received an incentive payment of $380,000 from our landlord in connection with entering a new lease agreement for our corporate offices. These funds were used to pay for qualified leasehold improvements to the facility. Finally, we paid cash of $225,000 for the acquisition of Delos in the 2013 period. There were no acquisitions in the 2014 period. Net Cash (Used In) Provided by Financing Activities. Net cash used in financing activities for the three months ended March 31, 2014 totaled $197,322 compared to net cash provided by financing activities of $30,575,672 for the three months ended March 31, 2013, representing a decrease of $30,772,994, or greater than 100%. The decrease was primarily related to net proceeds of $30,500,836 received in the first quarter of 2013 from the sale of 11,000,000 shares of our common stock at a public offering of $3.00 per share. Acquisition of Delos. In February 2013, we completed the acquisition of Delos which was based in the Houston, Texas area. The aggregate consideration for the acquisition included (i) approximately $225,000 in cash, (ii) 385,124 shares of common stock with a fair value of approximately $951,000 based on the market price of our common stock on the closing date, and (iii) approximately $166,000 in assumed liabilities. The acquisition of Delos was a business combination accounted for under the acquisition method.



Underwritten Offering. In the first quarter of 2013, we completed an underwritten offering of 11,000,000 shares of our common stock at a public offering price of $3.00 per share. The total gross proceeds of the offering were $33,000,000. Net proceeds were approximately $30,500,836 after underwriting discounts, commissions and offering expenses.

Working Capital. As of March 31, 2014, we had working capital of $18,937,133. Based on our current operating activities and plans, we believe our working capital position at the end of March 31, 2014 will enable us to meet our anticipated cash requirements for at least the next twelve months.

Contractual Obligations and Commitments

The following table summarizes our contractual obligations and other commitments as of March 31, 2014: Payments due by period Total 2014 2015 2016 2017 2018 Thereafter Capital leases $ 2,744,245$ 734,919$ 908,344$ 655,754$ 391,305$ 53,923 $ - Operating leases 61,941,323 13,877,896 17,296,665 15,980,241 10,476,902 3,182,292 1,127,327 Deferred payments 33,261 33,261 - - - - - Other 506,351 372,967 133,042 342 - - - Total $ 65,225,180$ 15,019,043$ 18,338,051$ 16,636,337$ 10,868,207$ 3,236,215$ 1,127,327 20

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

Operating Leases. We have entered into operating leases related to roof rights, towers, office space, and equipment leases under various non-cancelable agreements expiring through December 2020. Certain of these operating leases include extensions, at our option, for additional terms ranging from 1 to 25 years. Amounts associated with the extension periods have not been included in the table above as it is not presently determinable which options, if any, we will elect to exercise. Deferred Payments. We are making deferred payments to Pipeline as part of the consideration paid for the acquisition. There were 2 monthly payments of $16,630 remaining as of March 31, 2014. Other. In December 2013, we entered into a one year information technology infrastructure support agreement. The agreement became effective at the end of the first quarter of 2014. The quarterly payments are approximately $121,000 and will be paid through the first quarter of 2015.



Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the amounts of revenues and expenses. Critical accounting policies are those that require the application of management's most difficult, subjective or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that may change in subsequent periods. In preparing the financial statements, we utilize available information, including our past history, industry standards and the current economic environment, among other factors, in forming our estimates and judgments, giving appropriate consideration to materiality. Actual results may differ from these estimates. In addition, other companies may utilize different estimates which may impact the comparability of our results of operations to other companies in our industry. We believe that of our significant accounting policies, the following may involve a higher degree of judgment and estimation, or are fundamentally important to our business. Revenue Recognition. We normally enter into contractual agreements with our customers for periods ranging between one to three years. We recognize the total revenue provided under a contract ratably over the contract period including any periods under which we have agreed to provide services at no cost. Deferred revenues are recognized as a liability when billings are issued in advance of the date when revenues are earned. We recognize revenue when (i) persuasive evidence of an arrangement exists, (ii) delivery or installation has been completed, (iii) the customer accepts and verifies receipt, and (iv) collectability is reasonably assured. Long-Lived Assets. Long-lived assets with definite lives consist primarily of property and equipment, and intangible assets such as acquired customer relationships. Long-lived assets are evaluated periodically for impairment or whenever events or circumstances indicate their carrying value may not be recoverable. Conditions that would result in an impairment charge include a significant decline in the fair value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable. When such events or circumstances arise, an estimate of the future undiscounted cash flows produced by the asset, or the appropriate grouping of assets, is compared to the asset's carrying value to determine if impairment exists. If the asset is determined to be impaired, the impairment loss is measured based on the excess of its carrying value over its fair value. Assets to be disposed of are reported at the lower of their carrying value or net realizable value. Business Acquisitions. Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the fair value of the consideration transferred on the acquisition date. When we acquire a business, we assess the acquired assets and liabilities assumed for the appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions at the acquisition date. The excess of the total consideration transferred over the net identifiable assets acquired and liabilities assumed is recognized as goodwill. If the total consideration is lower than the fair value of the identifiable net assets acquired, the difference is recognized as a gain on business acquisition. Acquisition costs are expensed and included in general and administrative expenses in our condensed consolidated statements of operations. The highest level of judgment and estimation involved in accounting for business acquisitions relates to determining the fair value of the customer relationships and network assets acquired. In each of the five acquisitions completed over the past four years, the highest asset value has been allocated to the customer relationships acquired. Determining the fair value of customer relationships involves judgments and estimates regarding how long the customers will continue to contract services with us. During the course of completing five acquisitions, we have developed a database of historical experience from prior acquisitions to assist us in preparing future estimates of cash flows. Similarly, we have used our historical experience in building networks to prepare estimates regarding the fair value of the networks assets that we acquire. Goodwill. Goodwill represents the excess of the purchase price over the estimated fair value of identifiable net assets acquired in an acquisition. Goodwill is not amortized but rather is reviewed annually for impairment, or whenever events or circumstances indicate that the carrying value may not be recoverable. We initially perform a qualitative assessment of goodwill which considers macro-economic conditions, industry and market trends, and the current and projected financial performance of the reporting unit. No further analysis is required if it is determined that there is a less than 50 percent likelihood that the carrying value is greater than the fair value. 21

-------------------------------------------------------------------------------- Recent Accounting Pronouncements. No accounting pronouncements adopted during the three months ended March 31, 2014 had a material impact on our condensed consolidated financial statements. No new accounting pronouncements issued during the three months ended March 31, 2014 but not yet adopted are expected to have a material impact on our condensed consolidated financial statements.



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


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