##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549-0001
 FORM 10-Q
 (MARK ONE)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2007
 OR
 o
    
    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 333-142946
 BROADVIEW NETWORKS HOLDINGS, INC.
  Delaware
    
    11-3310798(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification Number)800 Westchester Ave., Suite N501Rye Brook, NY
    
    10573(Address of principal executive offices)
    
    (zip code)
 (914) 922-7000
 o þ
  o o þ
 o þ




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##### 



BROADVIEW NETWORKS HOLDINGS, INC.
Index to Quarterly Report on Form 10-Q
For the Quarterly Period Ended September 30, 2007
 PagePART I  FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (unaudited)
    
    
    4Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    24Item 4.
    
    Controls and Procedures
    
    
    25PART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    25Item 1A.
    
    Risk Factors
    
    
    25Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    40Item 3.
    
    Defaults Upon Senior Securities
    
    
    40Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    40Item 5.
    
    Other Information
    
    
    40Item 6.
    
    Exhibits
    
    
    40EX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32: CERTIFICATIONS
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
  
    
    ILECs, with which we have interconnection agreements, leveraging their historical
monopoly position;
    
    the ability to provide services and systems at competitive prices;
    
    difficulties associated with collecting payment from ILECs, IXCs and wholesale
customers;
    
    risks associated with billing and other disputes;
    
    risks associated with bills related to past periods;
    
    risks associated with interruptions in the business operations of third party service
providers;
    
    the ability to maintain certain real estate leases and agreements critical to our
business and results of operations;
    
    the loss of our customers;
    
    the highly competitive nature of the communications market in which we operate and
declining prices for communications services;
    
    risks associated with continued industry consolidation;
    
    the failure to anticipate and keep up with technological changes;
    
    risks associated with the recent intellectual property infringement litigation of
certain VoIP providers;
    
    the failure to retain and attract management and key personnel;
    
    risks associated with system disruptions or the failure of our information systems to
perform as expected;
    
    the failure to manage and expand operations effectively;
    
    the failure to efficiently integrate InfoHighway into our operations; or the failure to
successfully engage in future acquisitions;
    
    the ability to seek indemnification for losses from individuals and entities from whom
we have acquired assets and operations;
    
    risks associated with our substantial indebtedness;
    
    risks associated with the financial difficulties by others in our industry;
    
    risks associated with our history of operating losses;
    
    risks associated with declining prices for communications services;
    
    misappropriation of our intellectual property and proprietary rights; and
    
    the possibility of incurring liability for information disseminated through our network.
  3




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. Financial Statements
 Broadview Networks Holdings, Inc.
Condensed Consolidated Balance Sheets
 September 30,
    
    
    December 31,2007
    
    
    2006unaudited(In thousands, except shareand per share amounts)AssetsCurrent assets:Cash and cash equivalents
    
    $
    29,470
    
    
    $
    43,952Restricted cash
    
    
    423
    
    
    
    460Accounts receivable, less allowance for doubtful accounts of
$8,909 and $7,971
    
    
    58,842
    
    
    
    41,313Other current assets
    
    
    9,703
    
    
    
    8,308Total current assets
    
    
    98,438
    
    
    
    94,033Property and equipment, net
    
    
    76,398
    
    
    
    61,395Goodwill
    
    
    94,925
    
    
    
    69,632Intangible assets, net of accumulated amortization of $97,032
and $65,128
    
    
    103,244
    
    
    
    79,848Other assets
    
    
    16,390
    
    
    
    13,417Total assets
    
    $
    389,395
    
    
    $
    318,325Liabilities and stockholders (deficit) equityCurrent liabilities:Accounts payable
    
    $
    13,879
    
    
    $
    12,684Accrued expenses and other current liabilities
    
    
    37,271
    
    
    
    47,506Taxes payable
    
    
    10,093
    
    
    
    8,604Deferred revenues
    
    
    9,496
    
    
    
    8,019Current portion of capital lease obligations and equipment notes
    
    
    3,294
    
    
    
    3,084Total current liabilities
    
    
    74,033
    
    
    
    79,897Long-term debt
    
    
    304,829
    
    
    
    210,000Deferred rent payable
    
    
    2,927
    
    
    
    2,747Capital lease obligations and equipment notes, net of current portion
    
    
    6,130
    
    
    
    4,685Deferred income taxes payable
    
    
    1,920
    
    
    
    Other
    
    
    573
    
    
    
    526Total liabilities
    
    
    390,412
    
    
    
    297,855Stockholders (deficit) equity:Common stock A$.01 par value; authorized 80,000,000, issued and
outstanding 9,345,353 shares and 8,871,427 shares, respectively
    
    
    107
    
    
    
    102Common stock B$.01 par value; authorized 10,000,000, issued and
outstanding 360,050 shares and 0 shares, respectively
    
    
    4
    
    
    
    Series A Preferred stock$.01 par value; authorized 89,526
shares, designated, issued and outstanding 87,254 shares and
89,521 shares, respectively
    
    
    1
    
    
    
    1Series A-1 Preferred stock$.01 par value; authorized 105,000
shares, designated, issued and outstanding 100,702 shares
    
    
    1
    
    
    
    1Series B Preferred stock$.01 par value; authorized 93,180
shares, designated, issued and outstanding 91,301 shares and
92,832 shares, respectively
    
    
    1
    
    
    
    1Series B-1 Preferred stock$.01 par value; authorized 86,000
shares, designated, issued and outstanding 64,986 shares and
42,231 shares, respectively
    
    
    1
    
    
    
    Series C
Preferred stock  $.01 par value, authorized 52,332
shares, designated, issued and outstanding 14,402 shares
    
    
    
    
    
    
    Additional paid-in capital
    
    
    142,077
    
    
    
    117,689Accumulated deficit
    
    
    (143,209
    )
    
    
    (97,324
    )Total stockholders (deficit) equity
    
    
    (1,017
    )
    
    
    20,470Total liabilities and stockholders (deficit) equity
    
    $
    389,395
    
    
    $
    318,325
 See notes to unaudited condensed consolidated financial statements
 4




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Broadview Networks Holdings, Inc.
Unaudited Condensed Consolidated Statements of Operations
(in thousands)
 Three months ended Sept. 30,
    
    Nine months ended Sept. 30,2007
    
    2006
    
    2007
    
    2006Revenue, net
    
    $
    123,652
    
    
    $
    57,675
    
    
    $
    325,998
    
    
    $
    176,421Operating Expenses:Cost of revenues (exclusive of depreciation and
amortization)
    
    
    64,890
    
    
    
    24,354
    
    
    
    168,136
    
    
    
    80,284Selling, general and administrative
    
    
    42,157
    
    
    
    23,968
    
    
    
    118,526
    
    
    
    70,080Stock based compensation
    
    
    226
    
    
    
    163
    
    
    
    2,340
    
    
    
    591Software development
    
    
    647
    
    
    
    203
    
    
    
    1,811
    
    
    
    1,201Depreciation and amortization
    
    
    21,760
    
    
    
    11,723
    
    
    
    55,507
    
    
    
    34,542Merger integration costs
    
    
    87
    
    
    
    680
    
    
    
    503
    
    
    
    1,068Total operating expenses
    
    
    129,767
    
    
    
    61,091
    
    
    
    346,823
    
    
    
    187,766Operating loss
    
    
    (6,115
    )
    
    
    (3,416
    )
    
    
    (20,825
    )
    
    
    (11,345
    )Other income
    
    
    130
    
    
    
    
    
    
    
    226
    
    
    
    Interest expense
    
    
    (9,919
    )
    
    
    (8,369
    )
    
    
    (25,146
    )
    
    
    (18,400
    )Interest income
    
    
    449
    
    
    
    706
    
    
    
    1,160
    
    
    
    928Loss before provision for income taxes
    
    
    (15,455
    )
    
    
    (11,079
    )
    
    
    (44,585
    )
    
    
    (28,817
    )Benefit (provision) for income taxes
    
    
    465
    
    
    
    
    
    
    
    (1,013
    )
    
    
    Net loss
    
    $
    (14,990
    )
    
    $
    (11,079
    )
    
    $
    (45,598
    )
    
    $
    (28,817
    )
 See notes to unaudited condensed consolidated financial statements
 5




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Broadview Networks Holdings, Inc.
Unaudited Condensed Consolidated Statements of Stockholders (Deficit) Equity
(in thousands, except share amounts)
 Shares
    
    AmountSeries A common stockBalance at December 31, 2006
    
    
    8,871,427
    
    
    $
    102Repurchase of shares under Management Incentive Plan (MIP)
    
    
    (94,962
    )
    
    
    (1
    )Shares issued in InfoHighway acquisition
    
    
    568,888
    
    
    
    6Balance at September 30, 2007
    
    
    9,345,353
    
    
    $
    107Series B common StockBalance at December 31, 2006
    
    
    
    
    
    
    Shares issued under MIP
    
    
    360,050
    
    
    
    4Balance at September 30, 2007
    
    
    360,050
    
    
    $
    4Series A preferred stockBalance at December 31, 2006
    
    
    89,521
    
    
    $
    1Repurchase of shares under MIP
    
    
    (2,267
    )
    
    
    Balance at September 30, 2007
    
    
    87,254
    
    
    $
    1Series A-1 preferred stockBalance at December 31, 2006
    
    
    100,702
    
    
    $
    1Current period activity
    
    
    
    
    
    
    Balance at September 30, 2007
    
    
    100,702
    
    
    $
    1Series B preferred stockBalance at December 31, 2006
    
    
    92,832
    
    
    $
    1Repurchase of shares under MIP
    
    
    (1,531
    )
    
    
    Balance at September 30, 2007
    
    
    91,301
    
    
    $
    1Series B-1 preferred stockBalance at December 31, 2006
    
    
    42,231
    
    
    $
    Shares issued in InfoHighway acquisition
    
    
    22,755
    
    
    
    1Balance at September 30, 2007
    
    
    64,986
    
    
    $
    1Series C preferred stockBalance at December 31, 2006
    
    
    
    
    
    $
    Shares issued under MIP
    
    
    14,402
    
    
    
    Balance at September 30, 2007
    
    
    14,402
    
    
    $
    Additional paid-in capitalBalance at December 31, 2006
    
    
    
    
    
    $
    117,689Stock based compensation
    
    
    
    
    
    
    2,176Repurchase of shares under MIP
    
    
    
    
    
    
    (1,538
    )Shares issued in InfoHighway acquisition
    
    
    
    
    
    
    17,446Warrants issued in InfoHighway acquisition
    
    
    
    
    
    
    6,304Balance at September 30, 2007
    
    
    
    
    
    $
    142,077Accumulated deficitBalance at December 31, 2006
    
    
    
    
    
    $
    (97,324
    )Adoption of FIN 48
    
    
    
    
    
    
    (287
    )Net loss
    
    
    
    
    
    
    (45,598
    )Balance at September 30, 2007
    
    
    
    
    
    $
    (143,209
    )Total stockholders deficit
    
    
    
    
    
    $
    (1,017
    )
 See notes to unaudited condensed consolidated financial statements
 6




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Broadview Networks Holdings, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
 Nine
months ended September 30,2007
    
    2006Cash flows from operating activities:Net loss
    
    $
    (45,598
    )
    
    $
    (28,817
    )Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:Depreciation
    
    
    23,602
    
    
    
    12,856Amortization and write-off of deferred financing costs
    
    
    1,605
    
    
    
    1,795Amortization of intangible assets
    
    
    31,904
    
    
    
    21,685Amortization of bond premium
    
    
    (359
    )
    
    
    Provision for doubtful accounts
    
    
    4,187
    
    
    
    2,838Noncash subordinated debt interest
    
    
    
    
    
    
    4,920Stock based compensation
    
    
    2,340
    
    
    
    591Deferred income taxes
    
    
    1,040
    
    
    
    Other
    
    
    392
    
    
    
    (1,511
    )Changes in Assets & Liabilities:Accounts receivable
    
    
    (12,415
    )
    
    
    (1,655
    )Other current assets
    
    
    (223
    )
    
    
    (1,726
    )Other assets
    
    
    (185
    )
    
    
    (448
    )Restricted cash
    
    
    37
    
    
    
    Accounts payable
    
    
    (5,968
    )
    
    
    1,701Accrued expenses and other current liabilities
    
    
    (23,064
    )
    
    
    (5,362
    )Taxes payable
    
    
    (1,530
    )
    
    
    (2,990
    )Deferred revenue
    
    
    1,319
    
    
    
    16Deferred rent
    
    
    (160
    )
    
    
    446Other liabilities
    
    
    (240
    )
    
    
    Net cash (used in) provided by operating activities
    
    
    (23,316
    )
    
    
    4,339Cash flows from investing activities:Merger acquisition costs
    
    
    (1,939
    )
    
    
    (409
    )Acquisition, net of cash and restricted cash acquired
    
    
    (58,462
    )
    
    
    (88,787
    )Purchase of property & equipment
    
    
    (21,093
    )
    
    
    (14,646
    )Net cash used in investing activities
    
    
    (81,494
    )
    
    
    (103,842
    )Cash flows from financing activities:Proceeds from capital lease financing and equipment notes
    
    
    4,653
    
    
    
    4,064Payments on capital lease obligations and equipment notes
    
    
    (3,022
    )
    
    
    (2,496
    )Repayments of long-term debt
    
    
    
    
    
    
    (84,000
    )Repayments on revolving credit facility
    
    
    (8,956
    )
    
    
    Proceeds from issuance of subordinated debt
    
    
    
    
    
    
    10,000Repayment of subordinated debt
    
    
    
    
    
    
    (972
    )Proceeds from issuance of long-term debt
    
    
    95,175
    
    
    
    210,000Drawdowns on revolving credit facility
    
    
    8,500
    
    
    
    Payment of subordinated debt conversion fees
    
    
    
    
    
    
    (1,531
    )Payment of deferred financing fees
    
    
    (4,319
    )
    
    
    (8,453
    )Payments for shares purchased under MIP
    
    
    (1,703
    )
    
    
    Net cash provided by financing activities
    
    
    90,328
    
    
    
    126,612Net (decrease) increase in cash and cash equivalents
    
    
    (14,482
    )
    
    
    27,109Cash and cash equivalents at beginning of period
    
    
    43,952
    
    
    
    16,753Cash and cash equivalents at end of period
    
    $
    29,470
    
    
    $
    43,862
 See notes to unaudited condensed consolidated financial statements
 7




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Broadview Networks Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except where noted, and share and per share amounts)
 1. Organization and Description of Business
 Basis of Presentation
   2. Significant Accounting Policies
 Goodwill and Other Intangible Assets
 Goodwill and Other Intangible Assets
  Uncertainty in Income Taxes
 Accounting for Uncertainty in Income Taxes
 Disputes
  8




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2.
Significant Accounting Policies (continued)
 Comprehensive Income
  Use of Estimates
  3. Acquisition Agreement
 Business Combinations .
  Recognition of Liabilities in Connection with a Purchase Business
Combination
  Assets acquired:Cash and cash equivalents
    
    $
    7,841Restricted cash
    
    
    422Accounts receivable
    
    
    9,302Other current assets
    
    
    1,172Property and equipment
    
    
    17,435Goodwill
    
    
    22,474Customer-based intangibles
    
    
    43,000Other intangibles
    
    
    12,300Other non-current assets
    
    
    72Total assets acquired
    
    
    114,018
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3.
Acquisition Agreement (continued)
 Liabilities assumed:Current liabilities
    
    
    25,433Other liabilities
    
    
    348Total liabilities assumed
    
    
    25,781Net assets acquired
    
    $
    88,237
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues
    
    $
    123,652
    
    
    $
    128,537
    
    
    $
    373,804
    
    
    $
    382,732Net loss
    
    
    (14,990
    )
    
    
    (18,679
    )
    
    
    (55,693
    )
    
    
    (48,322
    )
 4. Identifiable Intangible Assets and Goodwill
  Customer Relationships
 Trademark:
     September 30,
    
    
    December 31,2007
    
    
    2006Customer base
    
    $
    180,067
    
    
    $
    137,067Trademarks
    
    
    19,300
    
    
    
    7,000Other
    
    
    909
    
    
    
    909Less accumulated amortization
    
    
    (97,032
    )
    
    
    (65,128
    )Net intangible assets
    
    $
    103,244
    
    
    $
    79,848
 10




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4.
Identifiable Intangible Assets and Goodwill (continued)
  Balance at December 31, 2006
    
    $
    69,632Acquisition of InfoHighway
    
    
    24,022Other
    
    
    1,271Balance at September 30, 2007
    
    $
    94,925
 5. Accrued Expenses and Other Current Liabilities
  September 30,
    
    
    December 31,2007
    
    
    2006Recurring network costs and other operating accruals
    
    $
    26,878
    
    
    $
    14,211Carrier settlements (a)
    
    
    
    
    
    
    15,186Accrued interest (b)
    
    
    2,844
    
    
    
    8,615Merger transaction costs (c)
    
    
    2,702
    
    
    
    2,999Payroll related liabilities
    
    
    4,698
    
    
    
    6,320Other
    
    
    150
    
    
    
    175Total accrued expenses and other current liabilities
    
    $
    37,272
    
    
    $
    47,506
 
 a)
    
    In February 2007, we finalized a settlement with our major telecommunications supplier
and paid $15,200 to extinguish approximately $39,000 of outstanding disputes. Additional
disputes with this and other suppliers are included in accounts payable and accrued
expenses and other current liabilities.b)
    
    Principally represents accrued interest on the Senior Secured Notes. Interest is paid
semi-annually on March 1 and September 1 of each year.c)
    
    Balance consists principally of liabilities of $1,277 for severance costs associated
with the May 2007 acquisition of InfoHighway and $686 from the September 2006 acquisition
of ATX Communications, Inc., and liabilities of $669 for lease termination costs associated
with the January 2005 acquisition by Bridgecom Holdings, Inc. of Broadview Networks
Holdings, Inc. During the nine months ended September 30, 2007, we paid $1,847of severance
costs and $112 of lease termination costs.The accrual for merger transaction costs consists of the following: ATX
    
    
    InfoHighway
    
    
    LeaseSeverance
    
    
    Severance
    
    
    Termination
    
    
    Other
    
    
    TotalBalance at December 31, 2006
    
    $
    1,810
    
    
    $
    
    
    
    $
    781
    
    
    $
    408
    
    
    $
    2,999Additions
    
    
    
    
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    
    2,000Payments
    
    
    (1,124
    )
    
    
    (723
    )
    
    
    (112
    )
    
    
    (338
    )
    
    
    (2,297
    )Balance at September 30, 2007
    
    $
    686
    
    
    $
    1,277
    
    
    $
    669
    
    
    $
    70
    
    
    $
    2,702
 6. Debt
 Senior Secured $210,000 Notes
  11




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6.
Debt (continued)
     Senior Secured $90,000 Notes
    Revolving $25,000 Senior Credit Facility
    12




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##### Table of Contents



6.
Debt (continued)
   7. Commitments and Contingencies
    8. Income Taxes
  Accounting for Uncertainty in Income
Taxes
  9. Stock Based Compensation
 Management Incentive Plan
  13




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9.
Stock Based Compensation (continued)
   14




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ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following discussion and analysis of our financial condition and results of operations
should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and
Notes to Unaudited Condensed Consolidated Financial Statements included elsewhere in this quarterly
report. Certain information contained in the discussion and analysis set forth below and elsewhere
in this quarterly report, including information with respect to our plans and strategies for our
business and related financing, includes forward-looking statements that involve risk and
uncertainties. In evaluating such statements, readers should specifically consider the various
factors identified in this quarterly report that could cause results to differ materially from
those expressed in such forward-looking statements, including matters set forth in the section
entitled Risk Factors.
 Overview
      15




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Key Components of Results of Operations
 Revenues
    16




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Cost of Revenues (exclusive of depreciation and amortization)
  
    
    leasing local loops and digital T-1 lines which connect our customers to our
network;
    
    leasing high capacity digital lines that connect our switching equipment to our
collocations;
    
    leasing high capacity digital lines that interconnect our network with the ILECs;
    
    leasing space, power and terminal connections in the ILEC central offices for
collocating our equipment;
    
    signaling system network connectivity; and
    
    Internet transit and peering, which is the cost of delivering Internet traffic from
our customers to the public Internet.
     Selling, General and Administrative
   Depreciation and Amortization
  17




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Results of Operations
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Statement of operations data:RevenuesVoice and data
    
    
    88.9
    %
    
    
    90.0
    %
    
    
    90.3
    %
    
    
    88.2
    %Wholesale
    
    
    1.9
    
    
    
    6.0
    
    
    
    2.4
    
    
    
    5.5Access
    
    
    6.0
    
    
    
    5.2
    
    
    
    5.6
    
    
    
    5.7Network services
    
    
    96.8
    
    
    
    101.2
    
    
    
    98.3
    
    
    
    99.4Other
    
    
    3.2
    
    
    
    -1.2
    
    
    
    1.7
    
    
    
    0.6Total revenues
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Operating expenses:Network costs
    
    
    52.1
    
    
    
    41.2
    
    
    
    51.1
    
    
    
    44.6Other costs of revenue
    
    
    0.4
    
    
    
    1.0
    
    
    
    0.5
    
    
    
    0.9Sales, general and administrative
    
    
    34.0
    
    
    
    41.5
    
    
    
    36.3
    
    
    
    39.7Software development
    
    
    0.5
    
    
    
    0.4
    
    
    
    0.5
    
    
    
    0.7Depreciation and amortization
    
    
    17.7
    
    
    
    20.3
    
    
    
    17.1
    
    
    
    19.6Non-cash compensation
    
    
    0.2
    
    
    
    0.3
    
    
    
    0.7
    
    
    
    0.3Merger integration costs
    
    
    0.1
    
    
    
    1.2
    
    
    
    0.2
    
    
    
    0.6Total operating expenses
    
    
    105.0
    
    
    
    105.9
    
    
    
    106.4
    
    
    
    106.4Loss from operations
    
    
    -5.0
    
    
    
    -5.9
    
    
    
    -6.4
    
    
    
    -6.4Interest expense
    
    
    8.0
    
    
    
    14.5
    
    
    
    7.7
    
    
    
    10.4Interest income
    
    
    -0.4
    
    
    
    -1.2
    
    
    
    -0.4
    
    
    
    -0.5Other income
    
    
    -0.1
    
    
    
    0.0
    
    
    
    -0.1
    
    
    
    0.0Loss before provision for income taxes
    
    
    -12.6
    
    
    
    -19.2
    
    
    
    -13.7
    
    
    
    -16.3Provision (benefit) for income taxes
    
    
    -0.4
    
    
    
    0.0
    
    
    
    0.3
    
    
    
    0.0Net loss
    
    
    -12.2
    %
    
    
    -19.2
    %
    
    
    -14.0
    %
    
    
    -16.3
    %
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Statement of operations data:Revenues:Network services
    
    $
    119,713
    
    
    $
    58,353
    
    
    $
    320,489
    
    
    $
    175,281Other
    
    
    3,939
    
    
    
    (678
    )
    
    
    5,509
    
    
    
    1,140Total revenues
    
    
    123,652
    
    
    
    57,675
    
    
    
    325,998
    
    
    
    176,421Cost of revenues:Network costs
    
    
    64,400
    
    
    
    23,800
    
    
    
    166,606
    
    
    
    78,697Other
    
    
    490
    
    
    
    554
    
    
    
    1,530
    
    
    
    1,587Total cost of revenues
    
    
    64,890
    
    
    
    24,354
    
    
    
    168,136
    
    
    
    80,284Gross profit:Network costs
    
    
    55,313
    
    
    
    34,553
    
    
    
    153,883
    
    
    
    96,584Other
    
    
    3,449
    
    
    
    (1,232
    )
    
    
    3,979
    
    
    
    (447
    )Total gross profit
    
    $
    58,762
    
    
    $
    33,321
    
    
    $
    157,862
    
    
    $
    96,137
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Three months ended September 30, 2007 compared to three months ended September 30, 2006
 Revenues
  2007
    
    
    2006
    
    
    % ChangeRevenuesVoice and data
    
    $
    109,888
    
    
    $
    51,920
    
    
    
    111.6
    %Wholesale
    
    
    2,400
    
    
    
    3,455
    
    
    
    -30.5Access
    
    
    7,425
    
    
    
    2,978
    
    
    
    149.3Network services
    
    
    119,713
    
    
    
    58,353
    
    
    
    105.2Other
    
    
    3,939
    
    
    
    (678
    )
    
    
    681.0Total revenues
    
    $
    123,652
    
    
    $
    57,675
    
    
    
    114.4
    %
  Cost of Revenues (exclusive of depreciation and amortization)
  Gross Profit (exclusive of depreciation and amortization)
  SG&A
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Depreciation and Amortization
  Interest
  Nine months ended September 30, 2007 compared to nine months ended September 30, 2006
 Revenues
  2007
    
    
    2006
    
    
    % ChangeRevenuesVoice and data
    
    $
    294,565
    
    
    $
    155,600
    
    
    
    89.3
    %Wholesale
    
    
    7,803
    
    
    
    9,620
    
    
    
    -18.9Access
    
    
    18,121
    
    
    
    10,061
    
    
    
    80.1Network services
    
    
    320,489
    
    
    
    175,281
    
    
    
    82.8Other
    
    
    5,509
    
    
    
    1,140
    
    
    
    383.2Total revenues
    
    $
    325,998
    
    
    $
    176,421
    
    
    
    84.8
    %
  Cost of Revenues (exclusive of depreciation and amortization)
  Gross Profit (exclusive of depreciation and amortization)
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SG&A
  Depreciation and Amortization
  Interest
  Off-Balance Sheet Arrangements
  Liquidity and Capital Resources
  Existing Credit Facility
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Senior Secured Notes Offerings
   Exchange Offer
   Nine months ended September 30, 2007 compared to nine months ended September 30, 2006
 Cash Flows Provided by (Used in) Operating Activities
  Cash Flows Provided by (Used in) Investing Activities
  Cash Flows Provided by (Used in) Financing Activities
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Capital Expenditures
  Application of Critical Accounting Policies and Estimates
   Revenue Recognition
    Accounts Receivable and Allowance for Doubtful Accounts
  Impairment of Long-Lived Assets
 Accounting for the Impairment or Disposal of Long-Lived Assets.
 
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Goodwill and Other Intangible Assets
 Goodwill
and Other Intangible Assets,
  Disputes
  Risk Factors  Risks
Relating to Our Business  Our current billing disputes with our vendors may cause us to pay our
vendors certain amounts of money and could materially adversely affect our business
  Risk Factors  Risks Related to Our
Business  Our ability to provide our services and systems at competitive prices is dependent on
our ability to negotiate and enforce favorable interconnections and other agreements
 Uncertainty in Income Taxes
 Accounting for Uncertainty in Income Taxes
 
 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
  
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ITEM 4: Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Controls Over Financial Reporting
  
 PART II. OTHER INFORMATION
 
 ITEM 1. Legal Proceedings
 Risk Factors  Risks
Relating to our Business  Our current billing disputes with our vendors may cause us to pay our
vendors certain amounts of money and could materially adversely affect our business Risk
Factors  Risks Relating to our Business  Our ability to provide our services and systems at
competitive prices is dependent on our ability to negotiate and enforce favorable interconnection
and other agreements
 
 ITEM 1A. Risk Factors
 All of these risk factors should be carefully considered. In addition, readers should consider
carefully the information included elsewhere in this quarterly report. Our industry is highly
competitive and changes rapidly. Sometimes new risks emerge and management may not be able to
anticipate all of them or be able to predict how they impact our business and financial
performance. In order to better evaluate the Risks Related to our Industry and Risks Related to
our Business, readers may wish to refer to the section entitled Regulation in the Companys Form
S-4 Registration Statement filed on October 16, 2007.
 Risks Related to Our Industry
 We are subject to substantial government regulation that may restrict our ability to provide local
services and may increase the costs we incur to provide these services.
 
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The communications industry faces significant regulatory uncertainties and the resolution of these
uncertainties could harm our business, results of operations and financial condition.
  
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Elimination or Relaxation of Regulatory Rights and Protections could harm our business, results of
operations and financial condition.
   The effects of increased regulation of IP-based service providers are unknown.
  Risks Related to Our Business
 If the ILECs with which we have interconnection agreements engage in anticompetitive practices or
we experience difficulties in working with the ILECs, our business will be adversely affected.
  Our ability to provide our services and systems at competitive prices is dependent on our ability
to negotiate and enforce favorable interconnection and other agreements.
 
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Difficulties we may experience with ILECs, interexchange carriers, or IXCs, and wholesale
customers over payment issues may harm our financial performance.
     
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Our current billing disputes with our vendors may cause us to pay our vendors certain amounts of
money and could materially adversely affect our business.
  Our vendors periodically issue substantial bills related to services provided during past
periods.
  We depend on a limited number of third party service providers for long distance and other
services, and if any of these providers were to experience significant interruptions in its
business operations, or were to otherwise cease to provide such services to us, our business could
be materially and adversely affected.
  Certain real estate leases and agreements are critical to our business and results of operations
and failure to maintain such leases and agreements could adversely affect us.
   
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Our business, results of operations and financial condition could be adversely affected if our
customers terminate their at-will contracts or are migrated by sales agents to another carrier.
   The communications market in which we operate is highly competitive, and we may not be able to
compete effectively against companies that have significantly greater resources than we do, which
could cause us to lose customers and impede our ability to attract new customers.
  
    
    long-standing relationships and strong reputation with customers;
    
    financial, technical, marketing, personnel and other resources substantially
greater than ours;
    
    more funds to deploy communications services and systems that compete with ours;
    
    the potential to subsidize competitive services with revenue from a variety of
businesses;
    
    anticipated increased pricing flexibility and relaxed regulatory oversight;
    
    larger networks; and
    
    benefits from existing regulations that favor the ILECs.
   Continued industry consolidation could further strengthen our competitors, and could adversely
affect our prospects.
  
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The communications industry is undergoing rapid technological changes, and new technologies may be
superior to the technologies we use. Our failure to anticipate and keep up with such changes could
have a material adverse effect on our business, results of operations and financial condition.
  Providers of VoIP service have been the target of recent intellectual property infringement
litigation that may materially and adversely affect our business.
  If we are unable to retain and attract management and key personnel, we may not be able to execute
our business plan.
   System disruptions or the failure of our information systems to perform as expected could result
in increased capital expenditures, customer and vendor dissatisfaction, loss of business or the
inability to add new customers or additional services, all of which would adversely affect our
business and results of operations.
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Our success depends on the ability to manage and expand operations effectively.
  
    
    offer high-quality, reliable services at reasonable costs;
    
    introduce new technologies;
    
    install and operate telecommunications switches and related equipment;
    
    lease access to suitable transmission facilities at competitive prices;
    
    scale operations;
    
    obtain successful outcomes in disputes and in litigation, rule-making, legislation
and regulatory proceedings;
    
    successfully negotiate, adopt or arbitrate interconnection agreements with other
carriers;
    
    acquire necessary equipment, software and facilities;
    
    integrate existing and newly acquired technology and facilities, such as switches
and related equipment;
    
    evaluate markets;
    
    add products;
    
    monitor operations;
    
    control costs;
    
    maintain effective quality controls;
    
    hire, train and retain qualified personnel;
    
    enhance operating and accounting systems;
    
    address operating challenges;
    
    adapt to market and regulatory developments; and
    
    obtain and maintain required governmental authorizations.
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Failure to successfully and efficiently integrate InfoHighway into our operations may adversely
affect our operations and financial condition.
  
    
    retaining existing employees;
    
    transitioning the branding of the acquired company to Broadview;
    
    persuading employees of Broadview and the acquired companies that the business
cultures are compatible, maintaining morale, and retaining and integrating key employees;
    
    incorporating new facilities into our business operations;
    
    coordinating sales and marketing functions;
    
    combining products and services;
    
    integrating systems; and
    
    maintaining our standards, controls, procedures, and policies.
  We may engage in future acquisitions that are not successful or fail to integrate acquired
businesses into our operations, which may adversely affect our competitive position and growth
prospects.
   
    
    integrating that business personnel, services, products or technologies into our
operations;
    
    retaining key personnel of the acquired business;
    
    failing to adequately identify or assess liabilities of that business;
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##### Table of Contents




    
    failing to achieve the forecasts we used to determine the purchase price of that
business; and
    
    diverting our managements attention from the normal daily operation of our
business.
   Limits exist on our ability to seek indemnification for losses from individuals and entities from
whom we have acquired assets and operations, which could materially adversely affect our business.
  Our substantial indebtedness may restrict our operating flexibility, could adversely affect our
financial health and could prevent us from fulfilling our financial obligations.
  
    
    make it more difficult for us to satisfy our current and future debt obligations;
    
    make it more difficult for us to obtain additional financing for working capital,
capital expenditures, acquisitions or general corporate purposes;
    
    require us to dedicate a substantial portion of our cash flows from operating
activities to the payment of principal and interest on our indebtedness, thereby reducing
the funds available to us for our operations and other purposes, including investments in
service development, capital spending and acquisitions;
    
    place us at a competitive disadvantage to our competitors who are not as highly
leveraged as we are;
    
    make us vulnerable to interest rate fluctuations, if we incur any indebtedness that
bears interest at variable rates;
    
    impair our ability to adjust to changing industry and market conditions; and
    
    make us more vulnerable in the event of a downturn in general economic conditions
or in our business or changing market conditions and regulations.
 The financial difficulties faced by others in our industry could adversely affect our public image
and our financial results.
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We have a history of operating losses and we may not be profitable in the future.
  Declining prices for communications services could reduce our revenues and profitability.
  Misappropriation of our intellectual property and proprietary rights could impair our competitive
position, and defending against intellectual property infringement and misappropriation claims
could be time consuming and expensive and, if we are not successful, could cause substantial
expenses and disrupt our business.
   As an Internet access provider, we may incur liability for information disseminated through our
network.
  MCG, Baker, NEA and other significant investors control us, and their interests as equity holders
may conflict with yours as a creditor.
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##### Table of Contents



Risks Related to the Notes and our Revolving Credit Facility
 Our high level of debt may adversely affect our ability to satisfy our obligations under the
outstanding notes and our revolving credit facility.
  Broadview Networks Holdings, Inc., the issuer of the notes, is a holding company, and its ability
to make any required payment on the notes is dependent on the operations of and the distribution
of funds from its subsidiaries.
  To service our indebtedness, including the notes, we will require a significant amount of cash.
The ability to generate cash depends on many factors beyond our control.
   Despite our substantial level of indebtedness, we may still incur significantly more debt, which
could exacerbate any or all of the risks described above.
  There may not be sufficient collateral to pay all or any portion of the notes.
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The notes and our existing credit facility contain restrictive, financial and operating covenants
that limit our operating flexibility, and we may obtain a credit facility in the future that may
include similar or additional restrictions.
  
    
    incur or guarantee additional indebtedness or issue preferred stock;
    
    pay dividends or distributions on, or redeem or repurchase, capital stock;
    
    create liens with respect to our assets;
    
    make investments, loans or advances;
    
    prepay subordinated indebtedness;
    
    enter into transactions with affiliates;
    
    merge, consolidate, reorganize or sell our assets; and
    
    engage in any business other than activities related or complementary to
communications.
  Holders of notes will not control decisions regarding collateral.
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Rights of holders of notes in the collateral may be adversely affected by bankruptcy proceedings.
  Rights of holders of notes in the collateral may be adversely affected by the failure to perfect
liens on certain collateral acquired in the future.
  Our ability to repurchase notes with cash upon a change of control may be limited.
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Federal and state statutes allow courts, under specific circumstances, to void guarantees and
require holders of notes to return payments received from guarantors.
  
    
    received less than reasonably equivalent value or fair consideration for the
incurrence of the guarantee;
    
    was insolvent or rendered insolvent by reason of the incurrence of the guarantee;
    
    was engaged in a business or transaction for which the guarantors remaining assets
constituted unreasonably small capital; or
    
    intended to incur, or believed that it would incur, debts beyond its ability to pay
those debts as they mature.
   
    
    the sum of its debts, including contingent liabilities, was greater than the fair
saleable value of all of its assets;
    
    the present fair saleable value of its assets was less than the amount that would
be required to pay its probable liability on its existing debts, including contingent
liabilities, as they became absolute and mature; or
    
    it could not pay its debts as they become due.
    Changes in respect of the public debt ratings of the notes may materially and adversely
affect the availability, the cost and the terms and conditions of our debt.
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ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 ITEM 3. Defaults Upon Senior Securities
  
 ITEM 4. Submission of Matters to a Vote of Security Holders
  
 ITEM 5. Other Information
  
 ITEM 6. Exhibits
  Exhibit No.
    
    Description of Exhibit31.1
    
    Certification of the Companys Chief Executive
Officer pursuant to Securities Exchange Act
Rules 13a-14(a) and 15d-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of the Companys Chief Financial
Officer pursuant to Securities Exchange Act
Rules 13a-14(a) and 15d-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.32
    
    Certification of the Companys Chief Executive
Officer and Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
 
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SIGNATURES
   BROADVIEW NETWORKS HOLDINGS, INC.By:

/s/  Michael K. RobinsonName:
    Michael K. RobinsonTitle:
    Chief Executive Officer and PresidentBy:

/s/  Corey
RinkerName:
    Corey RinkerTitle:
    Chief Financial Officer, Treasurer and Assistant Secretary 
 41