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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-K
 Mark One
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For The Fiscal Year Ended December 31, 2009
 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.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    11-3310798(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification Number)800 Westchester Avenue,
    
    10573Suite N501 Rye Brook, NY 10573
    
    (Zip Code)(Address of principal executive offices)
 (914) 922-7000  (Registrants telephone number, including area code)  Securities registered pursuant to Section 12(b) of the Act:
NONE
 Securities registered pursuant to Section 12(g) of the Act:
NONE
 Yes
o No
þ
 þ o
 þ o
 o o
 þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ
  NOT APPLICABLE because no public equity market exists for such shares, the aggregate market
value of the common stock held by non-affiliates of the Company is not determinable.
  Class
    
    Outstanding at March 29, 2010Series A common stock, $.01 par value
    
    
    9,333,680Series B common stock, $.01 par value
    
    
    360,050
 DOCUMENTS INCORPORATED BY REFERENCE
NONE.




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##### 



TABLE OF CONTENTS
 PagePART IItem 1. Business
    
    
    5Item 1A. Risk Factors
    
    
    33Item 1B. Unresolved Staff Comments
    
    
    45Item 2. Properties
    
    
    45Item 3. Legal Proceedings
    
    
    46Item 4. (Removed and Reserved)
    
    
    46PART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
    
    
    47Item 6. Selected Financial Data
    
    
    47Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    49Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    65Item 8. Financial Statements and Supplementary Data
    
    
    66Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    96Item 9A(T). Controls and Procedures
    
    
    96Item 9B. Other Information
    
    
    97PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    98Item 11. Executive Compensation
    
    
    105Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    112Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    115Item 14. Principal Accounting Fees and Services
    
    
    116PART IVItem 15. Exhibits, Financial Statement Schedules
    
    
    117Schedule II Valuation and Qualifying Accounts
    
    
    117Exhibit 3.1Exhibit 12.1Exhibit 21.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   3 8 3 8




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##### Table of Contents



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
  
    
    servicing our substantial indebtedness;
 
    
    our history of net losses;
 
    
    the elimination or relaxation of certain regulatory rights and protections;
 
    
    billing and other disputes with vendors;
 
    
    failure to maintain interconnection and service agreements with incumbent local exchange
and other carriers;
 
    
    the loss of customers in an adverse economic environment;
 
    
    regulatory uncertainties in the communications industry;
 
    
    system disruptions or the failure of our information systems to perform as expected;
 
    
    the failure to anticipate and keep up with technological changes;
 
    
    inability to provide services and systems at competitive prices;
 
    
    difficulties associated with collecting payment from incumbent local exchange carriers,
interexchange carriers and wholesale customers;
 
    
    the highly competitive nature of the communications market in which we operate including
competition from incumbents, cable operators and other new market entrants, and declining
prices for communications services;
 
    
    continued industry consolidation;
 
    
    restrictions in connection with our indenture governing the notes and credit agreement
governing the credit facility;
 
    
    government regulation;
 
    
    increased regulation of Internet-protocol-based service providers;
 
    
    vendor bills related to past periods;
 
    
    the ability to maintain certain real estate leases and agreements;
  3




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
    
    interruptions in the business operations of third party service providers;
 
    
    limits on our ability to seek indemnification for losses from individuals and entities
from whom we have acquired assets and operations;
 
    
    disruption and instability in the financial markets;
 
    
    the solvency and liquidity of the administrative agent and primary creditor under our
revolving credit facility;
 
    
    the financial difficulties by others in our industry;
 
    
    the failure to retain and attract management and key personnel;
 
    
    the failure to manage and expand operations effectively;
 
    
    the failure to successfully integrate future acquisitions, if any;
 
    
    misappropriation of our intellectual property and proprietary rights;
 
    
    the possibility of incurring liability for information disseminated through our network;
 
    
    service network disruptions due to software or hardware bugs of the network equipment;
and
 
    
    fraudulent usage of our network and services.
   4




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PART I
 
 Item 1. Business
 Company Overview
       5




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Industry Overview
   6




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Our Strengths
  Significant Growth Potential of Our Newer Product Offerings.
 Experience Integrating Companies and Providing New Services.
 Unique Integrated OSS Infrastructure.
 Award Winning Customer Service. ®
  7




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Facilities-Based Network Infrastructure.
 Experienced and Proven Senior Management Team.
 Our Markets
  Region
    
    MarketNew York Metro
    
    New York CityLong IslandWestchesterPennsylvania
    
    AllentownHarrisburgPhiladelphiaUpstate New York
    
    BuffaloSyracuseAlbanyMassachusetts
    
    Boston MetroWestern MANew Jersey
    
    Northern NJSouthern NJRhode Island
    
    Rhode IslandNew Hampshire
    
    New HampshireMaryland
    
    BaltimoreDelaware
    
    DelawareDistrict of Columbia
    
    District of ColumbiaNorthern Virginia
    
    Northern VirginiaConnecticut
    
    ConnecticutOfficeSuite Nationwide
    
    Nationwide
  8




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Our Customers
    Products and Services
    9




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Value-Added Products and Services
    
    Data Services
    
    Voice Services  Hosted VoIP solutions  Automated attendant  Unified messaging  Telecommuting  Integrated services  Traditional and converged telephone systems  Enhanced e-mail security  Managed firewall  Content filtering  Managed Wide Area Network  Local Area Network/Wide Area Network integration  Inside wiring  Data backup and recovery  Disaster recovery services  Unified Communications solutions  Fixed-Mobile Convergence solutions
    
      Dedicated Internet T-1 access  Broadband Internet access  Dial-up, DSL data service and Symmetric DSL Internet access  E-mail  Collocation  IP Virtual Private Networks (MPLS and Remote Access Switching)  Metro Ethernet Services
    
      Local, regional, domestic and international services  T-1 Primary rate interface and Session Initiation Protocol services  Private line  Voicemail  Caller identification  Call waiting  Call forwarding  Conference calling  VoIP  Toll free services
 Value-Added Products and Services
  Hosted VoIP Solutions.
  10




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Integrated Services.
 Managed Services.
 Data Services
  Voice Services
  Sales and Marketing
   11




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Customer Service and Retention
     12




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Network Deployment
  Voice and Data Switches
  Collocations and Edge Equipment
  On-Net (Lit) Buildings
   13




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ATM Backbone Network and IP Network Equipment
  Fiber Network and Fiber Equipment
  Feature/Application Servers
   Customer Access Methods
     14




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On-net T-1:
 On-net unbundled network element loops:
 Off-Net:
 Service Agreements with Carriers
     15




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Integrated OSS
   Sales, Order Entry and Provisioning Systems
     16




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Customer Relationship Management System
  Network Management Systems
  Billing System
  Cost Assurance System
   17




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Collections Management System
  Competition
  Regional Bell Operating Companies
   Competitive Local Exchange Carriers and New Market Entrants
    18




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Interexchange Carriers
  Data/Internet Services Providers
  Vendors, Installers and Communication Management Companies
  Intellectual Property
   Employees
   19




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Available Information
   Directors, Executive Officers and Corporate Governance  Code of Business Conduct
and Ethics
  20




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Regulation
 Overview
    Federal Regulation
   
    
    Reciprocal Compensation.Requires all incumbent local exchange carriers and competitive
local exchange carriers to complete calls originated by competing carriers under reciprocal
arrangements at prices based on a reasonable approximation of incremental cost or through
mutual exchange of traffic without explicit payment.
  21




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
    
    Resale.Requires all incumbent local exchange carriers and competitive local exchange
carriers to permit resale of their communications services without unreasonable or
discriminatory restrictions or conditions. In addition, incumbent local exchange carriers
are required to offer for resale, wholesale versions of all communications services that the
incumbent local exchange carrier provides at retail to subscribers that are not
telecommunications carriers at discounted rates, based on the costs avoided by the incumbent
local exchange carrier in the wholesale offering.
 
    
    Access to Rights-of-Way.Requires all incumbent local exchange carriers and competitive
local exchange carriers and any other public utility that owns or controls poles, conduits,
ducts, or rights-of-way used in whole or in part for wire communications, to permit
competing carriers (and cable television systems) access to those poles, ducts, conduits and
rights-of-way at regulated prices. Competitive local exchange carrier rates for access to
its poles, ducts, conduits and rights-of-way, however, are not regulated.
  Legislation.
 Unbundled Network Elements.
    22




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23




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Special Access.
  24




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Interconnection Agreements.
  Collocation.
 Regulation of Internet Service Providers.
  Long Distance Competition.
   25




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Detariffing.
 Intercarrier Compensation.
    26




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Verizon/MCI Merger.
 CALEA.
  Customer Proprietary Network Information.
  27




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Universal Service.
    Telephone Numbering.
    28




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Slamming.
 Taxes and Regulatory Fees.
 State Regulation
     29




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Local Regulation
  Regulation of VoIP
 Federal and State
   30




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31




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Other Domestic Regulation
   32




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Item 1A. Risk Factors
 Our business faces many risks. Accordingly, prospective investors and shareholders should
carefully consider the risks and uncertainties described below and the other information in this
report, including the consolidated financial statements and notes to consolidated financial
statements. If any of the following risks or uncertainties actually occurs, our business, financial
condition or results of operations would likely suffer. Additional risks and uncertainties not
presently known to us or that are not currently believed to be important to you also may adversely
affect our company.
 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 further downturn in general economic conditions
or in our business or changing market conditions and regulations.
  3 8
 We have a history of net losses and we may not be profitable in the future.
   33




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Our current billing disputes with our vendors may cause us to pay our vendors certain amounts of
money, which could materially adversely affect our business, financial condition, results of
operations and cash flows and which may cause us to be unable to meet certain financial covenants
related to our senior indebtedness.
  Elimination or relaxation of regulatory rights and protections could harm our business, results of
operations and financial condition.
   Regulation.
  34




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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 brand 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 incumbent local exchange carriers.
    To service our indebtedness, including our notes and credit facility, we will require a significant
amount of cash. The ability to generate cash depends on many factors beyond our control.
   35




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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.
   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.
     36




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If the incumbent local exchange carriers with which we have interconnection agreements engage in
anticompetitive practices or we experience difficulties in working with the incumbent local
exchange carriers, our ability to offer services on a timely and cost-effective basis will be
materially and adversely affected.
  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.
   37




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Regulation.
 Difficulties we may experience with incumbent local exchange carriers, interexchange carriers, and
wholesale customers over payment issues may harm our financial performance.
     38




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Continued industry consolidation could further strengthen our competitors, and could adversely
affect our prospects.
  Providers of VoIP service have been the target of recent intellectual property infringement
litigation that may materially and adversely affect our ability and/or the ability of other
providers to continue to sell or provide VoIP service.
    39




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The indenture governing the notes and the credit agreement governing our credit facility contain
restrictive 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 or sell our assets; and
 
    
    engage in any business other than activities related or complementary to communications.
  The communications industry faces significant regulatory uncertainties and the adverse resolution
of these uncertainties could harm our business, results of operations and financial condition.
   40




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Regulation.
 The effects of increased regulation of IP-based service providers are unknown.
  Declining prices for communications services could reduce our revenues and profitability.
  Certain real estate leases and agreements are important to our business and failure to maintain
such leases and agreements could adversely affect us.
   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 ability to
provide services to our customers could be materially and adversely affected.
   41




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The communications industry is undergoing rapid technological changes, and new technologies may be
superior to the technologies we use. We may fail to anticipate and keep up with such changes.
  Limits exist on our ability to seek indemnification for losses from individuals and entities from
whom we have acquired assets and operations.
  We are exposed to risks associated with disruption and instability in the financial markets.
   The financial difficulties faced by others in our industry could adversely affect our public image
and our financial results.
  If we are unable to retain and attract management and key personnel, we may not be able to execute
our business plan.
   42




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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.
   43




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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s 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;
 
    
    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.
   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.
    44




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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 interests of noteholders.
  
 Item 1B.
Unresolved Staff Comments
  
 Item 2. Properties
  ApproximateLocation
    
    LeaseExpiration
    
    
    Square 
FootageOffices:King of Prussia, PA
    
    January 2011
    
    
    
    102,085Rye Brook, NY
    
    May 2015
    
    
    
    57,293New York, NY
    
    September 2019
    
    
    
    28,567Newark, NJ
    
    April 2011
    
    
    
    24,819New York, NY
    
    April 2015
    
    
    
    21,111Quincy, MA
    
    September 2013
    
    
    
    14,637Melville, NY
    
    March 2011
    
    
    
    13,152Switches:New York, NY
    
    May 2012
    
    
    
    38,500Philadelphia, PA
    
    July 2023
    
    
    
    16,617Long Island City, NY
    
    October 2019
    
    
    
    12,144Charlestown, MA
    
    April 2010
    
    
    
    12,490Philadelphia, PA
    
    April 2010
    
    
    
    21,000Horsham, PA
    
    November 2010
    
    
    
    9,244Syracuse, NY
    
    October 2014
    
    
    
    8,000Philadelphia, PA
    
    January 2013
    
    
    
    5,928Herndon, VA
    
    June 2010
    
    
    
    5,000
  45




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Item 3. Legal Proceedings
    
 Item 4. (Removed and Reserved)
  46




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PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
   HoldersClass of Equity Security
    
    of 
RecordCommon stock A
    
    
    206Common stock B
    
    
    36Series A Preferred stock
    
    
    1Series A-1 Preferred stock
    
    
    1Series B Preferred stock
    
    
    132Series B-1 Preferred stock
    
    
    90Series C Preferred stock
    
    
    36
  
 Item 6. Selected Financial Data
 1 2
  47




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Years Ended December 31,2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009Statements of operations data:Revenues
    
    $
    240,396
    
    
    $
    272,653
    
    
    $
    448,774
    
    
    
    496,922
    
    
    
    456,452Operating expenses:Cost of revenues (1)
    
    
    115,214
    
    
    
    130,841
    
    
    
    234,166
    
    
    
    257,883
    
    
    
    225,431Selling, general and administrative (2)(3)
    
    
    96,439
    
    
    
    107,805
    
    
    
    166,231
    
    
    
    168,421
    
    
    
    154,722Depreciation and amortization
    
    
    45,756
    
    
    
    49,781
    
    
    
    75,980
    
    
    
    73,608
    
    
    
    49,922Impairment charges
    
    
    
    
    
    
    
    
    
    
    4,000
    
    
    
    
    
    
    
    Merger integration costs
    
    
    4,531
    
    
    
    1,430
    
    
    
    500
    
    
    
    
    
    
    
    Total operating expenses
    
    
    261,940
    
    
    
    289,857
    
    
    
    480,877
    
    
    
    499,912
    
    
    
    430,075Income (loss) from operations
    
    
    (21,544
    )
    
    
    (17,204
    )
    
    
    (32,103
    )
    
    
    (2,990
    )
    
    
    26,377Interest expense
    
    
    (17,842
    )
    
    
    (25,463
    )
    
    
    (34,390
    )
    
    
    (39,514
    )
    
    
    (39,197
    )Interest income
    
    
    458
    
    
    
    1,395
    
    
    
    1,489
    
    
    
    702
    
    
    
    112Other income (expense)
    
    
    
    
    
    
    21
    
    
    
    240
    
    
    
    (8
    )
    
    
    17Loss before provision for income taxes
    
    
    (38,928
    )
    
    
    (41,251
    )
    
    
    (64,764
    )
    
    
    (41,810
    )
    
    
    (12,691
    )Provision for income taxes
    
    
    
    
    
    
    (262
    )
    
    
    (726
    )
    
    
    (1,056
    )
    
    
    (1,179
    )Net loss
    
    
    (38,928
    )
    
    
    (41,513
    )
    
    
    (65,490
    )
    
    
    (42,866
    )
    
    
    (13,870
    )Dividends on preferred stock
    
    
    (22,002
    )
    
    
    (32,996
    )
    
    
    (55,031
    )
    
    
    (63,890
    )
    
    
    (71,909
    )Modification of preferred stock
    
    
    
    
    
    
    
    
    
    
    (95,622
    )
    
    
    
    
    
    
    Loss available to common shareholders
    
    $
    (60,930
    )
    
    $
    (74,509
    )
    
    $
    (216,143
    )
    
    $
    (106,756
    )
    
    $
    (85,779
    )Loss available per common share  basic and diluted
    
    $
    (9.54
    )
    
    $
    (10.07
    )
    
    $
    (23.09
    )
    
    $
    (11.03
    )
    
    $
    (8.85
    )Weighted average common shares outstanding  basic
and diluted
    
    
    6,385,863
    
    
    
    7,396,610
    
    
    
    9,359,132
    
    
    
    9,675,916
    
    
    
    9,687,714Statement of cash flow data:Cash flows provided by (used in):Operating activites
    
    $
    8,151
    
    
    $
    13,296
    
    
    $
    (2,663
    )
    
    $
    26,637
    
    
    $
    37,867Investing activities
    
    
    (20,731
    )
    
    
    (115,568
    )
    
    
    (88,935
    )
    
    
    (68,490
    )
    
    
    (33,894
    )Financing activities
    
    
    25,407
    
    
    
    129,471
    
    
    
    89,541
    
    
    
    23,541
    
    
    
    (4,175
    )December 31,2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009Balance Sheet data:Cash and cash equivalents
    
    $
    16,753
    
    
    $
    42,546
    
    
    $
    40,489
    
    
    $
    22,177
    
    
    $
    21,975Investment securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,533
    
    
    
    23,549Property and equipment, net
    
    
    39,547
    
    
    
    61,395
    
    
    
    77,373
    
    
    
    85,248
    
    
    
    86,875Goodwill
    
    
    27,964
    
    
    
    69,632
    
    
    
    96,154
    
    
    
    98,111
    
    
    
    98,238Total assets
    
    
    197,113
    
    
    
    317,666
    
    
    
    380,010
    
    
    
    355,006
    
    
    
    327,328Total debt, including current portion
    
    
    147,204
    
    
    
    217,769
    
    
    
    313,990
    
    
    
    336,778
    
    
    
    331,366Total stockholders equity
(deficiency)
    
    
    (12,572
    )
    
    
    20,470
    
    
    
    (22,715
    )
    
    
    (65,266
    )
    
    
    (79,146
    )
 
 (1)
    
    Exclusive of depreciation and amortization.(2)
    
    Includes share-based compensation of $673, $754, $2,552, $293 and $233 for the years ended
December 31, 2005, 2006, 2007, 2008 and 2009, respectively.(3)
    
    Includes software development expenses of $2,301, $1,819, $2,293, $1,639 and $1,843 for the
years ended December 31, 2005, 2006, 2007, 2008 and 2009 respectively.  48




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##### Table of Contents



Item 7. 
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 Selected Financial Data and the Consolidated Financial
Statements and Notes to Consolidated Financial Statements included elsewhere in this report.
Certain information contained in the discussion and analysis set forth below and elsewhere in this
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, prospective investors should specifically consider the various factors identified
in this 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.
Many of the amounts and percentages presented in this discussion and analysis have been rounded for
convenience of presentation, and all amounts are presented in thousands.
 Overview
      49




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##### Table of Contents



Results of Operations
  Years Ended December 31,2007
    
    
    2008
    
    
    2009Revenues:Voice and data services
    
    
    87.7
    %
    
    
    86.5
    %
    
    
    87.0
    %Wholesale
    
    
    2.8
    %
    
    
    3.8
    %
    
    
    4.4
    %Access
    
    
    5.6
    %
    
    
    5.8
    %
    
    
    5.2
    %Total network services
    
    
    96.1
    %
    
    
    96.1
    %
    
    
    96.6
    %Other
    
    
    3.9
    %
    
    
    3.9
    %
    
    
    3.4
    %Total revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Operating expenses:Network services
    
    
    49.9
    %
    
    
    49.5
    %
    
    
    47.9
    %Other cost of revenues
    
    
    2.3
    %
    
    
    2.4
    %
    
    
    1.5
    %Selling, general and administrative
    
    
    37.0
    %
    
    
    33.9
    %
    
    
    33.9
    %Depreciation and amortization
    
    
    16.9
    %
    
    
    14.8
    %
    
    
    10.9
    %Impairment charges
    
    
    0.9
    %
    
    
    0.0
    %
    
    
    0.0
    %Merger integration costs
    
    
    0.1
    %
    
    
    0.0
    %
    
    
    0.0
    %Total operating expenses
    
    
    107.1
    %
    
    
    100.6
    %
    
    
    94.2
    %Income (loss) from operations
    
    
    (7.1
    %)
    
    
    (0.6
    %)
    
    
    5.8
    %Interest expense
    
    
    (7.7
    %)
    
    
    (8.0
    %)
    
    
    (8.6
    %)Interest income
    
    
    0.3
    %
    
    
    0.1
    %
    
    
    0.0
    %Other income
    
    
    0.1
    %
    
    
    0.0
    %
    
    
    0.0
    %Loss before provision for income taxes
    
    
    (14.4
    %)
    
    
    (8.5
    %)
    
    
    (2.8
    %)Provision for income taxes
    
    
    (0.2
    %)
    
    
    (0.2
    %)
    
    
    (0.3
    %)Net loss
    
    
    (14.6
    %)
    
    
    (8.7
    %)
    
    
    (3.1
    %)
  50




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##### Table of Contents



Key Components of Results of Operations
 Revenues
   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 incumbent
local exchange carriers;
 
    
    leasing space, power and terminal connections in the incumbent local exchange carrier
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.
     51




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##### Table of Contents



Gross Profit (exclusive of depreciation and amortization)
   Years Ended December 31,2007
    
    
    2008
    
    
    2009Income (loss) from operations
    
    $
    (32,103
    )
    
    $
    (2,990
    )
    
    $
    26,377Add back non-gross profit items included in net loss:Impairment charges
    
    
    4,000
    
    
    
    
    
    
    
    Merger integration costs
    
    
    500
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    75,980
    
    
    
    73,608
    
    
    
    49,922Selling, general and administrative
    
    
    166,231
    
    
    
    168,421
    
    
    
    154,722Gross profit
    
    $
    214,608
    
    
    $
    239,039
    
    
    $
    231,021
     
    
    gross profit does not reflect our capital expenditures, future requirements for capital
expenditures or contractual commitments to purchase capital equipment;
 
    
    gross profit does not reflect the interest expense, or the cash requirements necessary to
service interest or principal payments, associated with our indebtedness;
 
    
    although depreciation and amortization are non-cash charges, the assets being depreciated
and amortized will likely have to be replaced in the future, and gross profit does not
reflect any cash requirements for such replacements; and
    
    gross profit does not reflect the SG&A expenses necessary to run our ongoing operations.
  52




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##### Table of Contents



Selling, General and Administrative
   Depreciation and Amortization
  Year Ended December 31, 2008 Compared to the Year Ended December 31, 2009
   Years Ended December 31,2008
    
    
    2009% of Total
    
    
    
    
    
    
    % of TotalAmount
    
    
    Revenues
    
    
    Amount
    
    
    Revenues
    
    
    % ChangeRevenues:Network services
    
    $
    477,576
    
    
    
    96.1
    %
    
    $
    440,928
    
    
    
    96.6
    %
    
    
    (7.7
    %)Other
    
    
    19,346
    
    
    
    3.9
    %
    
    
    15,524
    
    
    
    3.4
    %
    
    
    (19.8
    %)Total revenues
    
    $
    496,922
    
    
    
    100.0
    %
    
    $
    456,452
    
    
    
    100.0
    %
    
    
    (8.1
    %)Cost of revenues:Network services
    
    $
    246,019
    
    
    
    49.5
    %
    
    $
    218,674
    
    
    
    47.9
    %
    
    
    (11.1
    %)Other
    
    
    11,864
    
    
    
    2.4
    %
    
    
    6,757
    
    
    
    1.5
    %
    
    
    (43.0
    %)Total cost of
revenues
    
    $
    257,883
    
    
    
    51.9
    %
    
    $
    225,431
    
    
    
    49.4
    %
    
    
    (12.6
    %)Gross profit:Network services
    
    $
    231,557
    
    
    
    46.5
    %
    
    $
    222,253
    
    
    
    48.7
    %
    
    
    (4.0
    %)Other
    
    
    7,482
    
    
    
    1.6
    %
    
    
    8,767
    
    
    
    1.9
    %
    
    
    17.2
    %Total gross profit
    
    $
    239,039
    
    
    
    48.1
    %
    
    $
    231,021
    
    
    
    50.6
    %
    
    
    (3.4
    %)
   53




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##### Table of Contents



Revenues
  Years Ended December 31,2008
    
    
    2009% of Total
    
    
    
    
    
    
    % of TotalAmount
    
    
    Revenues
    
    
    Amount
    
    
    Revenues
    
    
    % ChangeRevenues:Voice and data services
    
    $
    429,754
    
    
    
    86.5
    %
    
    $
    397,274
    
    
    
    87.0
    %
    
    
    (7.6
    %)Wholesale
    
    
    19,096
    
    
    
    3.8
    %
    
    
    19,906
    
    
    
    4.4
    %
    
    
    4.2
    %Access
    
    
    28,726
    
    
    
    5.8
    %
    
    
    23,748
    
    
    
    5.2
    %
    
    
    (17.3
    %)Total network services
    
    
    477,576
    
    
    
    96.1
    %
    
    
    440,928
    
    
    
    96.6
    %
    
    
    (7.7
    %)Other
    
    
    19,346
    
    
    
    3.9
    %
    
    
    15,524
    
    
    
    3.4
    %
    
    
    (19.8
    %)Total revenues
    
    $
    496,922
    
    
    
    100.0
    %
    
    $
    456,452
    
    
    
    100.0
    %
    
    
    (8.1
    %)
  Cost of Revenues (exclusive of depreciation and amortization)
   54




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##### Table of Contents



Gross Profit (exclusive of depreciation and amortization)
  Selling, General and Administrative
  Depreciation and Amortization
  Interest
  Years Ended December 31,2008
    
    
    2009Interest expense
    
    $
    39,514
    
    
    $
    39,197Weighted average debt outstanding
    
    $
    315,988
    
    
    $
    330,711Effective interest rate
    
    
    12.5
    %
    
    
    11.9
    %
  55




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##### Table of Contents



Year Ended December 31, 2007 Compared to the Year Ended December 31, 2008
   Years Ended December 31,2007
    
    
    2008% of Total
    
    
    
    
    
    
    % of TotalAmount
    
    
    Revenues
    
    
    Amount
    
    
    Revenues
    
    
    % ChangeRevenues:Network services
    
    $
    431,314
    
    
    
    96.1
    %
    
    $
    477,576
    
    
    
    96.1
    %
    
    
    10.7
    %Other
    
    
    17,461
    
    
    
    3.9
    %
    
    
    19,346
    
    
    
    3.9
    %
    
    
    10.8
    %Total revenues
    
    $
    448,775
    
    
    
    100.0
    %
    
    $
    496,922
    
    
    
    100.0
    %
    
    
    10.7
    %Cost of revenues:Network services
    
    $
    223,745
    
    
    
    49.9
    %
    
    $
    246,019
    
    
    
    49.5
    %
    
    
    10.0
    %Other
    
    
    10,421
    
    
    
    2.3
    %
    
    
    11,864
    
    
    
    2.4
    %
    
    
    13.8
    %Total cost of
revenues
    
    $
    234,166
    
    
    
    52.2
    %
    
    $
    257,883
    
    
    
    51.9
    %
    
    
    10.1
    %Gross profit:Network services
    
    $
    207,569
    
    
    
    46.3
    %
    
    $
    231,557
    
    
    
    46.5
    %
    
    
    11.6
    %Other
    
    
    7,040
    
    
    
    1.6
    %
    
    
    7,482
    
    
    
    1.6
    %
    
    
    6.3
    %Total gross profit
    
    $
    214,609
    
    
    
    47.8
    %
    
    $
    239,039
    
    
    
    48.1
    %
    
    
    11.4
    %
  Revenues
  Years Ended December 31,2007
    
    
    2008% of Total
    
    
    
    
    
    
    % of TotalAmount
    
    
    Revenues
    
    
    Amount
    
    
    Revenues
    
    
    % ChangeRevenues:Voice and data services
    
    $
    393,269
    
    
    
    87.7
    %
    
    $
    429,754
    
    
    
    86.5
    %
    
    
    9.3
    %Wholesale
    
    
    12,693
    
    
    
    2.8
    %
    
    
    19,096
    
    
    
    3.8
    %
    
    
    50.4
    %Access
    
    
    25,352
    
    
    
    5.6
    %
    
    
    28,726
    
    
    
    5.8
    %
    
    
    13.3
    %Total network
services
    
    
    431,314
    
    
    
    96.1
    %
    
    
    477,576
    
    
    
    96.1
    %
    
    
    10.7
    %Other
    
    
    17,461
    
    
    
    3.9
    %
    
    
    19,346
    
    
    
    3.9
    %
    
    
    10.8
    %Total revenues
    
    $
    448,775
    
    
    
    100.0
    %
    
    $
    496,922
    
    
    
    100.0
    %
    
    
    10.7
    %
   56




---



##### Table of Contents



Cost of Revenues (exclusive of depreciation and amortization)
  Gross Profit (exclusive of depreciation and amortization)
  Selling, General and Administrative
   Depreciation and Amortization
   57




---



##### Table of Contents



Interest
  Years Ended December 31,2007
    
    
    2008Interest expense
    
    $
    34,390
    
    
    $
    39,514Weighted average debt outstanding
    
    $
    276,563
    
    
    $
    315,988Effective interest rate
    
    
    12.43
    %
    
    
    12.50
    %
 Off-Balance Sheet Arrangements
   Liquidity and Capital Resources
    58




---



##### Table of Contents



Disputes
   Credit Facility
       59




---



##### Table of Contents



2006 Note and 2007 Note Offerings
 3 8
 3 8 3 8
 3 8
   Year Ended December 31, 2008 Compared to the Year Ended December 31, 2009
 Cash Flows from Operating Activities
   60




---



##### Table of Contents



Cash Flows from Investing Activities
  Cash Flows from Financing Activities
  Year Ended December 31, 2007 Compared to Year Ended December 31, 2008
 Cash Flows from Operating Activities
  Cash Flows from Investing Activities
  Cash Flows from Financing Activities
   61




---



##### Table of Contents



Contractual Obligations
  Less Than 1
    
    
    
    
    
    
    
    
    
    
    More Than 5Total
    
    
    Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    Years113/8 senior secured notes due 2012
    
    $
    300,000
    
    
    $
    
    
    
    $
    300,000
    
    
    $
    
    
    
    $
    Cash interest for notes
    
    
    102,375
    
    
    
    34,125
    
    
    
    68,250
    
    
    
    
    
    
    
    Credit facility
    
    
    23,500
    
    
    
    
    
    
    
    23,500
    
    
    
    
    
    
    
    Cash interest for credit facility at current
rate of 5%
    
    
    1,955
    
    
    
    1,191
    
    
    
    764
    
    
    
    
    
    
    
    Capital lease obligations
    
    
    4,856
    
    
    
    3,080
    
    
    
    1,751
    
    
    
    25
    
    
    
    Operating leases
    
    
    45,931
    
    
    
    12,160
    
    
    
    14,116
    
    
    
    8,050
    
    
    
    11,605478,617
    
    
    
    50,556
    
    
    
    408,381
    
    
    
    8,075
    
    
    
    11,605Purchase commitment obligations:Communications commitment
    
    
    43,000
    
    
    
    22,262
    
    
    
    20,738
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    521,617
    
    
    $
    72,818
    
    
    $
    429,119
    
    
    $
    8,075
    
    
    $
    11,605
 New Accounting Standards
       62




---



##### Table of Contents



Application of Critical Accounting Policies and Estimates
   Revenue Recognition
  Accounts Receivable and Allowance for Doubtful Accounts
  Depreciation
  Impairment of Long-Lived Assets
   63




---



##### Table of Contents



Goodwill and Other Intangible Assets
  Disputes
   Income Taxes
   64




---



##### Table of Contents



Item 7A. Quantitative and Qualitative Disclosures About Market Risk
     3 8
   65




---



##### Table of Contents



Item 8. Financial Statements and Supplementary Data
 Index to Consolidated Financial Statements
 Managements Report on Internal Control over Financial Reporting
    
    
    67Report of Independent Registered Public Accounting Firm
    
    
    68Consolidated Balance Sheets at December 31, 2008 and 2009
    
    
    69Consolidated Statements of Operations for the years ended December 31, 2007, 2008 and 2009
    
    
    70Consolidated Statements of Stockholders Deficiency for the years ended December 31, 2007, 2008 and 2009
    
    
    71Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2008 and 2009
    
    
    72Notes to Consolidated Financial Statements
    
    
    73Financial Statement Schedule
    
    
    117
  66




---



##### Table of Contents



MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
 Internal Control  Integrated
Framework
  67




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Ernst & Young LLP
 
  68




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##### Table of Contents



BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
 
 Consolidated Balance Sheets
(in thousands, except share amounts)
 December 31,2008
    
    
    2009ASSETSCurrent assets:Cash and cash equivalents
    
    $
    22,177
    
    
    $
    21,975Certificates of deposit
    
    
    1,894
    
    
    
    1,878Investment securities
    
    
    23,533
    
    
    
    23,549Accounts receivable, less allowance for doubtful accounts of $4,332 and $7,942
    
    
    53,486
    
    
    
    41,388Other current assets
    
    
    8,898
    
    
    
    10,976Total current assets
    
    
    109,988
    
    
    
    99,766Property and equipment, net
    
    
    85,248
    
    
    
    86,875Goodwill
    
    
    98,111
    
    
    
    98,238Intangible assets, net of accumulated amortization of $150,556 and $51,728
    
    
    45,220
    
    
    
    27,484Other assets
    
    
    16,439
    
    
    
    14,965Total assets
    
    $
    355,006
    
    
    $
    327,328LIABILITIES AND STOCKHOLDERS DEFICIENCYCurrent liabilities:Accounts payable
    
    $
    8,230
    
    
    $
    9,196Accrued expenses and other current liabilities
    
    
    47,491
    
    
    
    35,630Taxes payable
    
    
    10,680
    
    
    
    12,768Deferred revenues
    
    
    10,459
    
    
    
    8,965Current portion of capital lease obligations and equipment notes
    
    
    4,142
    
    
    
    3,080Total current liabilities
    
    
    81,002
    
    
    
    69,639Long-term debt
    
    
    327,424
    
    
    
    326,510Deferred rent payable
    
    
    2,400
    
    
    
    3,343Deferred revenues
    
    
    1,508
    
    
    
    1,445Capital lease obligations and equipment notes, net of current portion
    
    
    5,212
    
    
    
    1,776Deferred income taxes payable
    
    
    2,071
    
    
    
    3,040Other
    
    
    655
    
    
    
    721Total liabilities
    
    
    420,272
    
    
    
    406,474Stockholders deficiency:Common stock A  $.01 par value; authorized 80,000,000 shares, issued 9,342,880 and 9,342,509 shares,
and outstanding 9,342,880 and 9,333,680 shares
    
    
    107
    
    
    
    107Common stock B  $.01 par value; authorized 10,000,000 shares, issued and outstanding 360,050 shares
    
    
    4
    
    
    
    4Series A Preferred stock  $.01 par value; authorized 89,526 shares, designated,
issued and outstanding 87,254 shares entitled in liquidation to $139,428 and $156,927
    
    
    1
    
    
    
    1Series A-1 Preferred stock  $.01 par value; authorized 105,000 shares, designated,
issued and outstanding 100,702 shares, entitled in liquidation to $160,917 and $181,114
    
    
    1
    
    
    
    1Series B Preferred stock  $.01 par value; authorized 93,180 shares, designated,
issued and outstanding 91,202 and 91,187 shares entitled in liquidation to $145,737 and $164,001
    
    
    1
    
    
    
    1Series B-1 Preferred stock  $.01 par value; authorized 86,000 shares, designated,
issued 64,986 shares, and outstanding 64,986 and 64,633 shares entitled in liquidation to $103,845 and $116,243
    
    
    1
    
    
    
    1Series C Preferred stock  $.01 par value; authorized 52,332 shares, designated,
issued and outstanding 14,402 shares entitled in liquidation to $15,577 and $18,466
    
    
    
    
    
    
    Additional paid-in capital
    
    
    140,563
    
    
    
    140,752Accumulated deficit
    
    
    (205,966
    )
    
    
    (219,836
    )Accumulated other comprehensive income
    
    
    22
    
    
    
    Treasury stock, at cost
    
    
    
    
    
    
    (177
    )Total stockholders deficiency
    
    
    (65,266
    )
    
    
    (79,146
    )Total liabilities and stockholders deficiency
    
    $
    355,006
    
    
    $
    327,328
   69




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##### Table of Contents



BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
 
 Consolidated Statements of Operations
(in thousands, except share amounts)
 Years Ended December 31,2007
    
    
    2008
    
    
    2009Revenues
    
    $
    448,774
    
    
    $
    496,922
    
    
    $
    456,452Operating expenses:Cost of revenues (exclusive of depreciation and amortization)
    
    
    234,166
    
    
    
    257,883
    
    
    
    225,431Selling, general and administrative (includes share-based
compensation of $2,552, $293 and $233)
    
    
    166,231
    
    
    
    168,421
    
    
    
    154,722Depreciation and amortization
    
    
    75,980
    
    
    
    73,608
    
    
    
    49,922Impairment charge
    
    
    4,000
    
    
    
    
    
    
    
    Merger integration costs
    
    
    500
    
    
    
    
    
    
    
    Total operating expenses
    
    
    480,877
    
    
    
    499,912
    
    
    
    430,075Income (loss) from operations
    
    
    (32,103
    )
    
    
    (2,990
    )
    
    
    26,377Interest expense
    
    
    (34,390
    )
    
    
    (39,514
    )
    
    
    (39,197
    )Interest income
    
    
    1,489
    
    
    
    702
    
    
    
    112Other income (expense)
    
    
    240
    
    
    
    (8
    )
    
    
    17Loss before provision for income taxes
    
    
    (64,764
    )
    
    
    (41,810
    )
    
    
    (12,691
    )Provision for income taxes
    
    
    (726
    )
    
    
    (1,056
    )
    
    
    (1,179
    )Net loss
    
    
    (65,490
    )
    
    
    (42,866
    )
    
    
    (13,870
    )Dividends on preferred stock
    
    
    (55,031
    )
    
    
    (63,890
    )
    
    
    (71,909
    )Modification of preferred stock
    
    
    (95,622
    )
    
    
    
    
    
    
    Loss available to common shareholders
    
    $
    (216,143
    )
    
    $
    (106,756
    )
    
    $
    (85,779
    )Loss available per common share  basic and diluted
    
    $
    (23.09
    )
    
    $
    (11.03
    )
    
    $
    (8.85
    )Weighted average common shares outstanding  basic and diluted
    
    
    9,359,132
    
    
    
    9,675,916
    
    
    
    9,687,714
   70




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##### Table of Contents



BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
 
 Consolidated Statements of Stockholders Deficiency
(in thousands, except share amounts)
 Years Ended December 31,2007
    
    
    2008
    
    
    2009Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    AmountSeries A common stockBalance at beginning of year
    
    
    8,871,427
    
    
    $
    102
    
    
    
    9,342,880
    
    
    $
    107
    
    
    
    9,342,880
    
    
    $
    107Cancellation of shares
    
    
    (97,435
    )
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    (371
    )
    
    
    Shares issued in InfoHighway acquistion
    
    
    568,888
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Treasury shares acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,829
    )
    
    
    Balance at end of year
    
    
    9,342,880
    
    
    
    107
    
    
    
    9,342,880
    
    
    
    107
    
    
    
    9,333,680
    
    
    
    107Series B common stockBalance at beginning of year
    
    
    
    
    
    
    
    
    
    
    360,050
    
    
    
    4
    
    
    
    360,050
    
    
    
    4Issuance of shares pursuant to management incentive plan
    
    
    360,050
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at end of year
    
    
    360,050
    
    
    
    4
    
    
    
    360,050
    
    
    
    4
    
    
    
    360,050
    
    
    
    4Series A Preferred stockBalance at beginning of year
    
    
    89,521
    
    
    
    1
    
    
    
    87,254
    
    
    
    1
    
    
    
    87,254
    
    
    
    1Cancellation of shares pursuant to management incentive plan
    
    
    (2,267
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at end of year
    
    
    87,254
    
    
    
    1
    
    
    
    87,254
    
    
    
    1
    
    
    
    87,254
    
    
    
    1Series A-1 Preferred StockBalance at beginning of year
    
    
    100,702
    
    
    
    1
    
    
    
    100,702
    
    
    
    1
    
    
    
    100,702
    
    
    
    1Balance at end of year
    
    
    100,702
    
    
    
    1
    
    
    
    100,702
    
    
    
    1
    
    
    
    100,702
    
    
    
    1Series B Preferred StockBalance at beginning of year
    
    
    92,832
    
    
    
    1
    
    
    
    91,202
    
    
    
    1
    
    
    
    91,202
    
    
    
    1Cancellation of shares
    
    
    (1,630
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15
    )
    
    
    Balance at end of year
    
    
    91,202
    
    
    
    1
    
    
    
    91,202
    
    
    
    1
    
    
    
    91,187
    
    
    
    1Series B-1 Preferred StockBalance at beginning of year
    
    
    42,231
    
    
    
    
    
    
    
    64,986
    
    
    
    1
    
    
    
    64,986
    
    
    
    1Shares issued in InfoHighway acquistion
    
    
    22,755
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Treasury shares acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (353
    )
    
    
    Balance at end of year
    
    
    64,986
    
    
    
    1
    
    
    
    64,986
    
    
    
    1
    
    
    
    64,633
    
    
    
    1Series C Preferred StockBalance at beginning of year
    
    
    
    
    
    
    
    
    
    
    14,402
    
    
    
    
    
    
    
    14,402
    
    
    
    Issuance of shares pursant to management incentive plan
    
    
    14,402
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at end of year
    
    
    14,402
    
    
    
    
    
    
    
    14,402
    
    
    
    
    
    
    
    14,402
    
    
    
    Additional paid-in capitalBalance at beginning of year
    
    
    
    
    
    
    117,689
    
    
    
    
    
    
    
    140,270
    
    
    
    
    
    
    
    140,563Stock based compensation
    
    
    
    
    
    
    2,388
    
    
    
    
    
    
    
    293
    
    
    
    
    
    
    
    233Repurchase of shares
    
    
    
    
    
    
    (1,538
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Shares issued in InfoHighway acquisition
    
    
    
    
    
    
    17,446
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Warrants issued in InfoHighway acquisition
    
    
    
    
    
    
    4,285
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cancellation of warrnats
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (44
    )Balance at end of year
    
    
    
    
    
    
    140,270
    
    
    
    
    
    
    
    140,563
    
    
    
    
    
    
    
    140,752Accumulated deficitBalance at beginning of year
    
    
    
    
    
    
    (97,323
    )
    
    
    
    
    
    
    (163,100
    )
    
    
    
    
    
    
    (205,966
    )Adoption of FIN 48
    
    
    
    
    
    
    (287
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    (65,490
    )
    
    
    
    
    
    
    (42,866
    )
    
    
    
    
    
    
    (13,870
    )Balance at end of year
    
    
    
    
    
    
    (163,100
    )
    
    
    
    
    
    
    (205,966
    )
    
    
    
    
    
    
    (219,836
    )Accumulated other comprehensive incomeBalance at beginning of year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22Unrealized gain on investment securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    Reclassification adjustment for realized gains incldued in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22
    )Balance at end of year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    Treasury stockBalance at beginning of year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Treasury shares acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (177
    )Balance at end of year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (177
    )Total stockholders deficiency
    
    
    
    
    
    $
    (22,715
    )
    
    
    
    
    
    $
    (65,266
    )
    
    
    
    
    
    $
    (79,146
    )
   71




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##### Table of Contents



BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
 
 Consolidated Statements of Cash Flows
(in thousands)
 Years Ended December 31,2007
    
    
    2008
    
    
    2009Cash flows from operating activitiesNet loss
    
    $
    (65,490
    )
    
    $
    (42,866
    )
    
    $
    (13,870
    )Adjustments to reconcile net loss to net cash provided by (used in) operating activities:Depreciation
    
    
    31,907
    
    
    
    32,322
    
    
    
    32,120Amortization and write-off of deferred financing costs
    
    
    2,437
    
    
    
    2,639
    
    
    
    2,625Amortization of intangible assets
    
    
    44,206
    
    
    
    41,221
    
    
    
    17,736Amortization of bond premium
    
    
    (435
    )
    
    
    (816
    )
    
    
    (914
    )Provision for doubtful accounts
    
    
    6,546
    
    
    
    5,539
    
    
    
    6,924Stock-based compensation
    
    
    2,552
    
    
    
    293
    
    
    
    233Deferred income taxes
    
    
    1,141
    
    
    
    930
    
    
    
    969Impairment charge
    
    
    4,000
    
    
    
    
    
    
    
    Other
    
    
    252
    
    
    
    55
    
    
    
    (591
    )Changes in operating assets and liabilities:Restricted cash
    
    
    460
    
    
    
    
    
    
    
    Accounts receivable
    
    
    (12,357
    )
    
    
    (1,887
    )
    
    
    5,174Other current assets
    
    
    1,854
    
    
    
    (1,899
    )
    
    
    (2,299
    )Other assets
    
    
    (2,178
    )
    
    
    (1,369
    )
    
    
    (619
    )Accounts payable
    
    
    (2,108
    )
    
    
    (3,806
    )
    
    
    966Accrued expenses and other current liabilities
    
    
    (17,301
    )
    
    
    (4,924
    )
    
    
    (9,973
    )Deferred revenues
    
    
    1,970
    
    
    
    1,433
    
    
    
    (1,557
    )Deferred rent
    
    
    (119
    )
    
    
    (228
    )
    
    
    943Net cash provided by (used in) operating activities
    
    
    (2,663
    )
    
    
    26,637
    
    
    
    37,867Cash flows from investing activitiesAcquisition, net of cash and restricted cash acquired
    
    
    (56,638
    )
    
    
    (4,953
    )
    
    
    (127
    )Purchases of property and equipment
    
    
    (30,418
    )
    
    
    (39,786
    )
    
    
    (33,747
    )Purchases of investment securities
    
    
    
    
    
    
    (23,500
    )
    
    
    (145,764
    )Sales of investment securities
    
    
    
    
    
    
    
    
    
    
    145,728Merger acquisition costs
    
    
    (1,768
    )
    
    
    (311
    )
    
    
    Other
    
    
    (111
    )
    
    
    60
    
    
    
    16Net cash used in investing activities
    
    
    (88,935
    )
    
    
    (68,490
    )
    
    
    (33,894
    )Cash flows from financing activitiesDrawdowns on revolving credit facility
    
    
    11,500
    
    
    
    23,902
    
    
    
    2,275Repayments of revolving credit facility
    
    
    (12,005
    )
    
    
    (402
    )
    
    
    (2,275
    )Proceeds from capital lease financing and equipment notes
    
    
    5,217
    
    
    
    3,789
    
    
    
    441Payments on capital lease obligations and equipment notes
    
    
    (3,760
    )
    
    
    (3,685
    )
    
    
    (4,284
    )Proceeds from issuance of long-term debt
    
    
    95,175
    
    
    
    
    
    
    
    Payment of deferred financing fees
    
    
    (4,883
    )
    
    
    
    
    
    
    Payments for shares purchased under management incentive plan
    
    
    (1,703
    )
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    (63
    )
    
    
    (332
    )Net cash provided by (used in) financing activities
    
    
    89,541
    
    
    
    23,541
    
    
    
    (4,175
    )Net decrease in cash and cash equivalents
    
    
    (2,057
    )
    
    
    (18,312
    )
    
    
    (202
    )Cash and cash equivalents at beginning of year
    
    
    42,546
    
    
    
    40,489
    
    
    
    22,177Cash and cash equivalents at end of year
    
    $
    40,489
    
    
    $
    22,177
    
    
    $
    21,975Supplemental disclosure of cash flow informationCash paid during the year for interest
    
    $
    32,008
    
    
    $
    37,581
    
    
    $
    38,146Cash paid during the year for taxes
    
    $
    164
    
    
    $
    151
    
    
    $
    210Supplemental schedule of non-cash informationEquity securities issued in connection with acquisition
    
    $
    21,742
    
    
    $
    
    
    
    $
    
   72




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##### Table of Contents



BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
 
 Notes to Consolidated Financial Statements
(in thousands, except share information)
 1. Organization and Description of Business
  2. Significant Accounting Policies
 Basis of Presentation
  Use of Estimates
  Fair Value Measurements
  Revenue Recognition
    73




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##### Table of Contents



BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
 Notes to Consolidated Financial Statements (continued)
(in thousands, except share information)
 2. Significant Accounting Policies (continued)
       Cost of Revenues
  Cash and Cash Equivalents
  Investment Securities
   74




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##### Table of Contents



BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
 Notes to Consolidated Financial Statements (continued)
(in thousands, except share information)
 2. Significant Accounting Policies (continued)
 Comprehensive Loss
  Years Ended December 31,2007
    
    
    2008
    
    
    2009Net loss
    
    $
    (65,490
    )
    
    $
    (42,866
    )
    
    $
    (13,870
    )Unrealized gain on investment securities
    
    
    
    
    
    
    22
    
    
    
    Reclassifaction adjustment for realized gains included in net loss
    
    
    
    
    
    
    
    
    
    
    (22
    )Comprehensive loss
    
    $
    (65,490
    )
    
    $
    (42,844
    )
    
    $
    (13,892
    )
 Accounts Receivable and Allowance for Doubtful Accounts
  Property and Equipment
  Impairment of Long-Lived Assets
   75




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##### Table of Contents



BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
 Notes to Consolidated Financial Statements (continued)
(in thousands, except share information)
 2. Significant Accounting Policies (continued)
 Goodwill
  Third Party Conversion Costs
  Debt Issuance Costs
  Significant Vendor
  Income Taxes
  Uncertainty in Income Taxes
    76




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##### Table of Contents



BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
 Notes to Consolidated Financial Statements (continued)
(in thousands, except share information)
 2. Significant Accounting Policies (continued)
 Stock-Based Compensation
  Software Development Costs
   Advertising
  Disputes
  Reclassifications
     77




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##### Table of Contents



BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
 Notes to Consolidated Financial Statements (continued)
(in thousands, except share information)
 3. Recent Accounting Pronouncements
     4. Acquisitions
 2008 Acquisition
    78




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##### Table of Contents



BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
 Notes to Consolidated Financial Statements (continued)
(in thousands, except share information)
 4. Acquisitions (continued)
 2007 Acquisition
   Cash paid, net of cash acquired of $7,841
    
    $
    56,638Equity securities issued, including warrants
    
    
    21,742Acquisition costs
    
    
    1,504$
    79,884
     79




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##### Table of Contents



BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
 Notes to Consolidated Financial Statements (continued)
(in thousands, except share information)
 4. Acquisitions (continued)
   Assets acquired, excluding cash:Accounts receivable
    
    $
    9,302Other current assets
    
    
    880Property and equipment
    
    
    17,435Goodwill
    
    
    26,258Customer-based intangibles
    
    
    46,800Other intangibles
    
    
    4,400Other non-current assets
    
    
    495Total assets acquired
    
    
    105,570Liabilities assumed:Current liabilities
    
    
    25,686Net assets acquired
    
    $
    79,884
  Revenues
    
    $
    498,965Net loss
    
    
    (75,703
    )Loss available per common share  basic and diluted
    
    
    (23.59
    )
  5. Other Assets
  December 31,2008
    
    
    2009Deferred carrier charges
    
    $
    934
    
    
    $
    2,433Prepaid expenses
    
    
    2,449
    
    
    
    3,990Other
    
    
    5,515
    
    
    
    4,553Total other current assets
    
    $
    8,898
    
    
    $
    10,976
  December 31,2008
    
    
    2009Deferred financing costs
    
    $
    9,518
    
    
    $
    7,424Lease security and carrier deposits
    
    
    2,274
    
    
    
    1,811Registration statement costs
    
    
    3,385
    
    
    
    3,669Other
    
    
    1,262
    
    
    
    2,061Total other non-current assets
    
    $
    16,439
    
    
    $
    14,965
  80




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##### Table of Contents



BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
 Notes to Consolidated Financial Statements (continued)
(in thousands, except share information)
 5. Other Assets (continued)
   6. Property and Equipment
  December 31,2008
    
    
    2009Network equipment
    
    $
    142,954
    
    
    $
    171,195Computer and office equipment
    
    
    20,512
    
    
    
    21,226Capitalized software costs
    
    
    13,371
    
    
    
    15,914Furniture and fixtures and other
    
    
    8,923
    
    
    
    10,002Leasehold improvements
    
    
    5,486
    
    
    
    6,713191,246
    
    
    
    225,050Less accumulated depreciation and
amortization
    
    
    (105,998
    )
    
    
    (138,175
    )$
    85,248
    
    
    $
    86,875
   7. Identifiable Intangible Assets and Goodwill
  Customer Relationships:
   81




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##### Table of Contents



BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
 Notes to Consolidated Financial Statements (continued)
(in thousands, except share information)
 7. Identifiable Intangible Assets and Goodwill (continued)
 Trademark:
     December 31,2008
    
    
    2009Gross
    
    
    
    
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Net Carrying
    
    
    Carrying
    
    
    Accumulated
    
    
    Net CarryingValue
    
    
    Amortization
    
    
    Value
    
    
    Value
    
    
    Amortization
    
    
    ValueCustomer relationships
    
    $
    187,467
    
    
    $
    (146,012
    )
    
    $
    41,455
    
    
    $
    71,812
    
    
    $
    (46,064
    )
    
    $
    25,748Trademarks
    
    
    7,400
    
    
    
    (3,635
    )
    
    
    3,765
    
    
    
    7,400
    
    
    
    (5,664
    )
    
    
    1,736Other
    
    
    909
    
    
    
    (909
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    195,776
    
    
    $
    (150,556
    )
    
    $
    45,220
    
    
    $
    79,212
    
    
    $
    (51,728
    )
    
    $
    27,484
   2010
    
    $
    12,4312011
    
    
    5,3052012
    
    
    3,4872013
    
    
    2,1942014
    
    
    1,569Thereafter
    
    
    2,498$
    27,484
  82




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##### Table of Contents



BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
 Notes to Consolidated Financial Statements (continued)
(in thousands, except share information)
 7. Identifiable Intangible Assets and Goodwill (continued)
  Balance at December 31, 2007
    
    $
    96,154Effects of 2008 acquisition
    
    
    2,185Other
    
    
    (228
    )Balance at December 31, 2008
    
    
    98,111Finalization of purchase price allocation
in connection with 2008 acquisition
    
    
    127Balance at December 31, 2009
    
    $
    98,238
 8. Accrued Expenses and Other Current Liabilities
  December 31,2008
    
    
    2009Recurring network costs
    
    $
    23,651
    
    
    $
    8,510Recurring operating accruals
    
    
    4,937
    
    
    
    6,212Accrued interest (a)
    
    
    11,485
    
    
    
    11,480Payroll related liabilities
    
    
    6,234
    
    
    
    6,701Other
    
    
    1,184
    
    
    
    2,727Total accrued expenses and other current
liabilities
    
    $
    47,491
    
    
    $
    35,630
 (a)
    
    Primarily represents accrued interest on the Senior Secured Notes and
the Revolving Credit Facility. Interest on the Senior Secured Notes is
paid semi-annually on March 1 and September 1 of each year. 9. Obligations Under Capital and Operating Leases
 Capital Leases
   83




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BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
 Notes to Consolidated Financial Statements (continued)
(in thousands, except share information)
 9. Obligations Under Capital and Operating Leases (continued)
  2010
    
    $
    3,6352011
    
    
    1,5992012
    
    
    3472013
    
    
    275,608Less amounts representing interest
    
    
    (752
    )4,856Less current portion
    
    
    (3,080
    )Capital lease obligations, net of current portion
    
    $
    1,776
 Operating Leases
  2010
    
    $
    12,1602011
    
    
    8,2812012
    
    
    5,8352013
    
    
    4,1702014
    
    
    3,880Thereafter
    
    
    11,605Total minimum lease payments
    
    $
    45,931
  2010
    
    $
    (549
    )2011
    
    
    (109
    )Total sublease rentals
    
    $
    (658
    )
   84




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BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
 Notes to Consolidated Financial Statements (continued)
(in thousands, except share information)
 10. Debt
 Senior Secured Notes
 3 8 3 8 3 4
 3 8
   Revolving $25,000 Senior Credit Facility
    85




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BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
 Notes to Consolidated Financial Statements (continued)
(in thousands, except share information)
 10. Debt (continued)
    11. Shareholders Deficiency
     86




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BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
 Notes to Consolidated Financial Statements (continued)
(in thousands, except share information)
 11. Shareholders Deficiency (continued)
      87




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##### Table of Contents



BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
 Notes to Consolidated Financial Statements (continued)
(in thousands, except share information)
 11. Shareholders Deficiency (continued)
     12. Stock Based Compensation
 Restricted Stock Awards
    88




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##### Table of Contents



BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
 Notes to Consolidated Financial Statements (continued)
(in thousands, except share information)
 12. Stock Based Compensation (continued)
  Weighted-AverageGrant DateSeries A and B
    
    
    Series C
    
    
    Series A and B
    
    
    Fair ValuePreferred
    
    
    Preferred
    
    
    Common
    
    
    Per UnitOutstanding December 31, 2006
    
    
    2,650
    
    
    
    
    
    
    
    66,250
    
    
    $
    502.43Grants
    
    
    
    
    
    
    14,402
    
    
    
    360,050
    
    
    
    137.50Forfeit/Cancel/Repurchase
    
    
    (2,650
    )
    
    
    
    
    
    
    (66,250
    )
    
    
    502.43Outstanding December 31, 2007
    
    
    
    
    
    
    14,402
    
    
    
    360,050
    
    
    
    137.50Grants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeit/Cancel/Repurchase
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding December 31, 2008
    
    
    
    
    
    
    14,402
    
    
    
    360,050
    
    
    
    137.50Grants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeit/Cancel/Repurchase
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding December 31, 2009
    
    
    
    
    
    
    14,402
    
    
    
    360,050
    
    
    $
    137.50
  Stock Option Awards
   Series C
    
    
    AveragePreferred
    
    
    Exercise PriceOutstanding December 31, 2006
    
    
    
    
    
    $
    Grants
    
    
    21,599
    
    
    
    137.50Forfeit/Cancel/Repurchase
    
    
    (699
    )
    
    
    137.50Outstanding December 31, 2007
    
    
    20,900
    
    
    
    137.50Grants
    
    
    
    
    
    
    Forfeit/Cancel/Repurchase
    
    
    (696
    )
    
    
    137.50Outstanding December 31, 2008
    
    
    20,204
    
    
    
    137.50Grants
    
    
    
    
    
    
    Forfeit/Cancel/Repurchase
    
    
    (146
    )
    
    
    137.50Outstanding December 31, 2009
    
    
    20,058
    
    
    $
    137.50
  89




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BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
 Notes to Consolidated Financial Statements (continued)
(in thousands, except share information)
 12. Stock Based Compensation (continued)
  13. Income Taxes
  Years Ended December 31,2007
    
    
    2008
    
    
    2009Current:Federal
    
    $
    (293
    )
    
    $
    (25
    )
    
    $
    State
    
    
    164
    
    
    
    151
    
    
    
    210(129
    )
    
    
    126
    
    
    
    210Deferred:Federal
    
    
    743
    
    
    
    808
    
    
    
    843State
    
    
    112
    
    
    
    122
    
    
    
    126855
    
    
    
    930
    
    
    
    969$
    726
    
    
    $
    1,056
    
    
    $
    1,179
  Years Ended December 31,2007
    
    
    2008
    
    
    2009Statutory federal income tax rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %State income tax, net of federal tax benefits
    
    
    (0.3
    %)
    
    
    (0.4
    %)
    
    
    (1.8
    %)Permanent items
    
    
    0.3
    %
    
    
    (1.2
    %)
    
    
    (3.6
    %)Valuation allowance
    
    
    (36.2
    %)
    
    
    (35.9
    %)
    
    
    (39.0
    %)Effective income tax rate
    
    
    (1.1
    %)
    
    
    (2.5
    %)
    
    
    (9.4
    %)
  90




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BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
 Notes to Consolidated Financial Statements (continued)
(in thousands, except share information)
 13. Income Taxes (continued)
  December 31,2008
    
    
    2009Deferred tax assets:CurrentAccounts receivable
    
    $
    4,565
    
    
    $
    6,301Deferred revenue
    
    
    4,577
    
    
    
    3,961Other
    
    
    789
    
    
    
    1,395Total deferred tax assets-current
    
    
    9,931
    
    
    
    11,657NoncurrentNet operating loss carry forwards
    
    
    52,157
    
    
    
    51,628Customer lists
    
    
    5,008
    
    
    
    6,724Trademark
    
    
    1,607
    
    
    
    1,811Other
    
    
    990
    
    
    
    2,634Total deferred tax assets-noncurrent
    
    
    59,762
    
    
    
    62,797Total deferred tax assets
    
    $
    69,693
    
    
    $
    74,454Deferred tax liabilities:NoncurrentCustomer Lists
    
    $
    11,098
    
    
    $
    7,637Other current liabilities
    
    
    
    
    
    
    716Trademark
    
    
    670
    
    
    
    276Goodwill
    
    
    2,071
    
    
    
    3,040Accelerated Depreciation
    
    
    13,282
    
    
    
    16,088Total deferred tax liabilities-noncurrent
    
    $
    27,121
    
    
    $
    27,757Net deferred tax assets  current:Deferred tax assets-current
    
    $
    9,931
    
    
    $
    11,657Valuation allowance
    
    
    (9,931
    )
    
    
    (11,657
    )Net current deferred tax assets
    
    $
    
    
    
    $
    Net deferred tax liabilities  noncurrent:Deferred tax assets-noncurrent
    
    $
    59,762
    
    
    $
    62,797Deferred tax liabilities-noncurrent
    
    
    (27,121
    )
    
    
    (27,757
    )Valuation allowance
    
    
    (34,712
    )
    
    
    (38,080
    )Net noncurrent deferred tax liabilities
    
    $
    (2,071
    )
    
    $
    (3,040
    )
   91




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BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
 Notes to Consolidated Financial Statements (continued)
(in thousands, except share information)
 14. Employee Savings and Retirement Plan
  15. Fair Values of Financial Instruments
   16. Commitments and Contingencies
     92




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BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
 Notes to Consolidated Financial Statements (continued)
(in thousands, except share information)
 16. Commitments and Contingencies (continued)
     17. Loss per share
  Years Ended December 31,2007
    
    
    2008
    
    
    2009Loss available to common shareholders (Numerator):Net loss
    
    $
    (65,490
    )
    
    $
    (42,866
    )
    
    $
    (13,870
    )Dividends on preferred stock
    
    
    (55,031
    )
    
    
    (63,890
    )
    
    
    (71,909
    )Modification of preferred stock
    
    
    (95,622
    )
    
    
    
    
    
    
    Loss available to common shareholders
    
    $
    (216,143
    )
    
    $
    (106,756
    )
    
    $
    (85,779
    )Shares (Denominator):Weighted average common shares outstanding:Class A common stock
    
    
    9,131,327
    
    
    
    9,342,880
    
    
    
    9,342,880Class B common stock
    
    
    227,805
    
    
    
    333,036
    
    
    
    344,834Weighted average common shares outstanding  basic
and diluted
    
    
    9,359,132
    
    
    
    9,675,916
    
    
    
    9,687,714Loss available per common share  basic and diluted
    
    $
    (23.09
    )
    
    $
    (11.03
    )
    
    $
    (8.85
    )
  93




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BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
 Notes to Consolidated Financial Statements (continued)
(in thousands, except share information)
 17. Loss per share (continued)
     18. Unaudited Quarterly Results of Operations
  2008Three Months EndedMarch 31,
    
    
    June 30,
    
    
    September 30
    
    
    December 31,Revenues(2)
    
    $
    122,782
    
    
    $
    127,339
    
    
    $
    124,405
    
    
    $
    122,396Cost of revenues (exclusive of depreciation and amortization)
    
    
    66,021
    
    
    
    65,427
    
    
    
    65,026
    
    
    
    61,409Income (loss) from operations
    
    
    (3,981
    )
    
    
    1,196
    
    
    
    800
    
    
    
    (1,005
    )Net loss
    
    
    (13,581
    )
    
    
    (9,030
    )
    
    
    (9,173
    )
    
    
    (11,082
    )Dividends on preferred stock
    
    
    (15,352
    )
    
    
    (15,730
    )
    
    
    (16,202
    )
    
    
    (16,688
    )Loss available to common shareholders
    
    $
    (28,933
    )
    
    $
    (24,760
    )
    
    $
    (25,375
    )
    
    $
    (27,770
    )Loss available per common share  basic and diluted (1)
    
    $
    (2.99
    )
    
    $
    (2.56
    )
    
    $
    (2.62
    )
    
    $
    (2.87
    )Weighted average common shares outstanding  basic and diluted
    
    
    9,667,680
    
    
    
    9,676,996
    
    
    
    9,679,455
    
    
    
    9,679,455
  94




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BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
 Notes to Consolidated Financial Statements (continued)
(in thousands, except share information)
 18. Unaudited Quarterly Results of Operations (continued)
 2009Three Months EndedMarch 31,
    
    
    June 30,
    
    
    September 30
    
    
    December 31,Revenues(2)
    
    $
    121,971
    
    
    $
    116,050
    
    
    $
    111,761
    
    
    $
    106,670Cost of revenues (exclusive of depreciation and amortization)
    
    
    61,651
    
    
    
    57,477
    
    
    
    54,844
    
    
    
    51,459Income from operations
    
    
    5,131
    
    
    
    6,699
    
    
    
    7,435
    
    
    
    7,112Net loss
    
    
    (5,105
    )
    
    
    (3,755
    )
    
    
    (2,838
    )
    
    
    (2,172
    )Dividends on preferred stock
    
    
    (17,188
    )
    
    
    (17,704
    )
    
    
    (18,235
    )
    
    
    (18,782
    )Loss available to common shareholders
    
    $
    (22,293
    )
    
    $
    (21,459
    )
    
    $
    (21,073
    )
    
    $
    (20,954
    )Loss available per common share  basic and diluted (1)
    
    $
    (2.30
    )
    
    $
    (2.21
    )
    
    $
    (2.17
    )
    
    $
    (2.16
    )Weighted average common shares outstanding  basic and diluted
    
    
    9,679,455
    
    
    
    9,688,771
    
    
    
    9,691,230
    
    
    
    9,691,230
 (1)
    
    The sum of quarterly per share amounts may not equal per share
amounts reported for year-to-date periods. This is due to changes
in the number of weighted-average shares outstanding and the
effects of rounding for each period.(2)
    
    The Company issues credits in an effort to acquire, retain and
incentivize its customers. The Company has historically
classified these credits in its selling, general and
administrative expenses. The Company has reclassified these
credits from selling, general and administrative expenses and is
now reflecting them as a reduction in revenue. As a result,
revenues and selling, general and administrative expenses have
been reduced by $761, $974, $1,130 and $948 for the quarters
ended March 31, June 30, September 30 and December 31, 2008,
respectively. Revenues and selling, general and administrative
expenses have been reduced by $736, $768 and $957 for the
quarters ended March 31, June 30 and September 30, 2009,
respectively. There has been no impact on the Companys income
(loss) from operations or net loss as a result of this change. As
of December 31, 2009, the Company recorded a $1,419 liability for
the estimated amount of credits to be issued in 2010, which
pertain to 2009. This liability was recorded a reduction in
revenue during the quarter ended December 31, 2009.  95




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Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
  
 Item 9A (T). Controls and Procedures
 (a) Evaluation of Disclosure Controls and Procedures
   (b) Managements Annual Report on Internal Control Over Financial Reporting
       96




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(c) Attestation Report of the Registered Public Accounting Firm
  (d) Changes in Internal Control Over Financial Reporting
  
 Item 9B. Other Information
   97




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PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance
    Name
    
    PositionMichael K. Robinson
    
    Chief Executive Officer, President and DirectorBrian P. Crotty
    
    Chief Operating OfficerCorey Rinker
    
    Chief Financial Officer, Treasurer and Assistant SecretaryCharles C. Hunter
    
    Executive Vice President, General Counsel and SecretaryKenneth A. Shulman
    
    Chief Technology Officer and Chief Information OfficerTerrence J. Anderson
    
    Executive Vice President  Corporate Development and Assistant TreasurerSteven F. Tunney
    
    Chairman of the BoardRichard W. Roedel
    
    Director and Chairman of the Audit CommitteeSamuel G. Rubenstein
    
    DirectorJohn S. Patton, Jr.
    
    DirectorB. Hagen Saville
    
    DirectorDavid C. Ruberg
    
    DirectorRobert Manning
    
    DirectorPeter J. Barris
    
    DirectorRaul Martynek
    
    Director
   98




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Biographies of Executive Officers
 Michael
K. Robinson, Chief Executive Officer, President and Director (53).
 Brian P. Crotty, Chief Operating Officer (39).
 Corey Rinker, Chief Financial Officer, Treasurer and Assistant Secretary (51).
 Charles C. Hunter, Executive Vice President, General Counsel and Secretary (57).
  99




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##### Table of Contents



Kenneth A. Shulman, Chief Technology Officer and Chief Information Officer (56).
 Terrence J. Anderson, Executive Vice President  Corporate Development and Assistant
Treasurer (43).
 Biographies of Directors
 Steven F. Tunney, Sr. (49).
 Richard W. Roedel (60).
  100




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##### Table of Contents



Samuel G. Rubenstein (48).
 B. Hagen Saville (48).
 John S. Patton, Jr. (51).
 Peter J. Barris (56).
  101




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David C. Ruberg (63).
 Robert Manning (50).
  Code of Business Conduct and Ethics
 www.broadviewnet.com www.broadviewnet.com
  102




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Board of Directors and Committees of the Board of Directors
      www.broadviewnet.com
 Compensation Committee Interlocks and Insider Participation
    103




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Indemnification
  Compensation Committee Report
   
  104




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Item 11. Executive Compensation
 COMPENSATION DISCUSSION & ANALYSIS
  Determination of Compensation
    Components of Compensation
    105




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##### Table of Contents



Base Salary
  Annual Bonuses
  4 01(k) Savings Plan
  Perquisites and Other Benefits
  Severance Benefits
   106




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SUMMARY COMPENSATION TABLE
  Bonus
    
    
    Stock Awards
    
    
    Option Awards
    
    
    All OtherName and Principal Position
    
    Year
    
    
    Salary
    
    
    (1)
    
    
    (2)
    
    
    (3)
    
    
    Compensation
    
    
    TotalMichael K. Robinson
    
    
    2009
    
    
    $
    450,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    95,843
    
    
    $
    545,843President and Chief
    
    
    2008
    
    
    
    436,264
    
    
    
    230,000
    
    
    
    
    
    
    
    
    
    
    
    120,446
    
    
    
    786,710Executive Officer
    
    
    2007
    
    
    
    400,000
    
    
    
    400,000
    
    
    
    506,413
    
    
    
    330,314
    
    
    
    91,955
    
    
    
    1,728,682Corey Rinker
    
    
    2009
    
    
    
    270,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    270,000Executive Vice President, Chief
    
    
    2008
    
    
    
    268,242
    
    
    
    80,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    348,242Financial Officer, Treasurer and
    
    
    2007
    
    
    
    260,000
    
    
    
    90,000
    
    
    
    149,600
    
    
    
    43,584
    
    
    
    80,898
    
    
    
    624,082Assistant SecretaryBrian P. Crotty
    
    
    2009
    
    
    
    335,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    335,000Chief Operating Officer
    
    
    2008
    
    
    
    328,736
    
    
    
    140,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    468,7362007
    
    
    
    310,000
    
    
    
    205,000
    
    
    
    367,538
    
    
    
    121,010
    
    
    
    77,417
    
    
    
    1,080,965Charles C. Hunter
    
    
    2009
    
    
    
    270,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    270,000Executive Vice President,
    
    
    2008
    
    
    
    265,000
    
    
    
    80,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    345,000General Counsel and Secretary
    
    
    2007
    
    
    
    250,000
    
    
    
    100,000
    
    
    
    139,975
    
    
    
    43,584
    
    
    
    
    
    
    
    533,559Terrence J. Anderson
    
    
    2009
    
    
    
    270,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    270,000Executive Vice President, Finance
    
    
    2008
    
    
    
    265,000
    
    
    
    80,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    345,000and Corporate Development
    
    
    2007
    
    
    
    250,000
    
    
    
    165,000
    
    
    
    315,288
    
    
    
    94,376
    
    
    
    
    
    
    
    824,664Ken A. Shulman
    
    
    2009
    
    
    
    270,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    270,000Executive Vice President, Chief
    
    
    2008
    
    
    
    265,000
    
    
    
    80,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    345,000Technology Officer and Chief
    
    
    2007
    
    
    
    250,000
    
    
    
    125,000
    
    
    
    200,888
    
    
    
    72,584
    
    
    
    
    
    
    
    648,472Information Officer
 
 (1)
    
    In 2010, the ad hoc compensation committee of the board of directors
approved a $2.0 million discretionary bonus pool that will be
allocated among our named executive officers and other employees. This
pool was established to reward these individuals for their efforts in
connection with continued progress with respect to improvement of
various operating metrics, including EBITDA margin and revenue
metrics. As of the date of this report, the portion of the pool that
will be allocated to each of our named executive officers as their
2009 annual bonuses has not been determined. We expect such amounts to
be determined in the second quarter of 2010 and will file a Form 8-K
promptly after this information is determined.(2)
    
    Represents the aggregate grant date fair value of awards granted to
our named executive officers, determined under FASB ASC Topic 718.
For information on the valuation assumptions with respect to awards
made, refer to note 12 of our consolidated financial
statements. The amounts above reflect the Companys aggregate
 expense for these awards and do not necessarily correspond
to the actual value that will be recognized by the named executive
officers. We did not grant any new stock awards since 2007.(3)
    
    Represents the aggregate grant date fair value of awards granted to
our named executive officers, determined under FASB ASC Topic 718.
For information on the valuation assumptions with respect to awards
made, refer to note 12 of our  consolidated financial
statements. The amounts above reflect the Companys aggregate
 expense for these awards and do not necessarily correspond
to the actual value that will be recognized by the named executive
officers. We did not grant any new option awards since 2007.(4)
    
    Represents company paid travel expenses of $21,000 and lodging
expenses of $31,110 incurred by Mr. Robinson during 2009, which were
grossed up by $43,733 to make him whole for taxes he was required to
pay.  107




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##### Table of Contents



Narrative Disclosure Relating to Summary Compensation Tables
 Chief Executive Officer Employment Agreement
   Employment Agreements with Other Named Executive Officers
    108




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##### Table of Contents



Management Incentive Plan
  OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
 Option Awards(1)
    
    
    Stock Awards(1)MarketNumber of
    
    
    Number of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ValueUnits
    
    
    Units
    
    
    
    
    
    
    
    
    
    
    Number of
    
    
    of UnitsUnderlying
    
    
    Underlying
    
    
    
    
    
    
    
    
    
    
    Units That
    
    
    ThatUnexercised
    
    
    Unexercised
    
    
    Option
    
    
    Option
    
    
    Have Not
    
    
    Have NotOptions
    
    
    Options
    
    
    Exercise
    
    
    Expiration
    
    
    Vested
    
    
    VestedName
    
    Vested
    
    
    Unvested(2)
    
    
    Price
    
    
    Date
    
    
    (2)
    
    
    (3)Michael K. Robinson
    
    
    4,061
    
    
    
    1,805
    
    
    $
    137.50
    
    
    
    3/30/2010
    
    
    
    
    
    
    $
    Corey Rinker
    
    
    516
    
    
    
    258
    
    
    
    137.50
    
    
    
    3/30/2010
    
    
    
    51
    
    
    
    7,013Brian P. Crotty
    
    
    1,432
    
    
    
    717
    
    
    
    137.50
    
    
    
    3/30/2010
    
    
    
    144
    
    
    
    19,800Charles C. Hunter
    
    
    516
    
    
    
    258
    
    
    
    137.50
    
    
    
    3/30/2010
    
    
    
    51
    
    
    
    7,013Terrence J. Anderson
    
    
    1,118
    
    
    
    558
    
    
    
    137.50
    
    
    
    3/30/2010
    
    
    
    111
    
    
    
    15,263Kenneth A. Shulman
    
    
    860
    
    
    
    429
    
    
    
    137.50
    
    
    
    3/30/2010
    
    
    
    86
    
    
    
    11,825
 
 (1)
    
    Securities granted under the MIP have been presented as units for
purposes of this table only. Each unit represents 1 share of Series C
preferred stock and 25 shares of Class B common stock. However, while
presented as a unit for convenience, the actual grants represent
separate and distinct securities for accounting and securities law
purposes.(2)
    
    The unvested portion of the award will vest at the end of March of 2010.(3)
    
    The market value of the shares assumes a price of $137.50 per unit,
which represents the fair market value of a unit as of December 31,
2009. Determined in reliance on a valuation performed in April 2007,
which was the last valuation performed by the Company.  109




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##### Table of Contents



OPTION EXERCISES AND STOCK VESTED DURING FISCAL YEAR
  Stock AwardsNumber ofClass or
    
    
    Units
    
    
    ValueSeries
    
    
    Acquired on
    
    
    RealizedName
    
    of Stock
    
    
    Vesting
    
    
    on VestingMichael K. Robinson
    
    
    
    
    
    
    
    
    
    $
    Corey Rinker
    
    
    (1
    )
    
    
    52
    
    
    
    7,150Brian P. Crotty
    
    
    (1
    )
    
    
    143
    
    
    
    19,663Charles C. Hunter
    
    
    (1
    )
    
    
    52
    
    
    
    7,150Terrence J. Anderson
    
    
    (1
    )
    
    
    112
    
    
    
    15,400Kenneth A. Shulman
    
    
    (1
    )
    
    
    86
    
    
    
    11,825
 
 (1)
    
    Securities granted under the MIP have been presented as units for
purposes of this table only. Each unit represents 1 share of Series C
preferred stock and 25 shares of Class B common stock. However, while
presented as a unit for convenience, the actual grants represent
separate and distinct securities for accounting and securities law
purposes. The market value of the units acquired upon vesting is based
on a unit price of $137.50 per unit. The amounts shown in the Value
Realized on Vesting column is calculated by multiplying the number of
units by the fair value of the underlying shares on the vesting date.  110




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##### Table of Contents



Potential Payments Upon Termination Or Change In Control
  Equity
    
    
    Value ofCash
    
    
    Acceleration
    
    
    TaxName
    
    Event
    
    
    Severance
    
    
    (1)
    
    
    Gross-Up
    
    
    TotalMichael K. Robinson
    
    Voluntary Termination
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Involuntary Termination
    
    
    765,000
    
    
    
    101,640
    
    
    
    
    
    
    
    866,640Death or Disability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Change in Control Termination
    
    
    765,000
    
    
    
    101,640
    
    
    
    
    
    
    
    866,640Corey Rinker
    
    Voluntary Termination
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Involuntary Termination
    
    
    270,000
    
    
    
    
    
    
    
    
    
    
    
    270,000Death or Disability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Change in Control Termination
    
    
    270,000
    
    
    
    21,540
    
    
    
    
    
    
    
    291,540Brian P. Crotty
    
    Voluntary Termination
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Involuntary Termination
    
    
    335,000
    
    
    
    
    
    
    
    
    
    
    
    335,000Death or Disability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Change in Control Termination
    
    
    335,000
    
    
    
    60,174
    
    
    
    
    
    
    
    395,174Charles C. Hunter
    
    Voluntary Termination
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Involuntary Termination
    
    
    270,000
    
    
    
    
    
    
    
    
    
    
    
    270,000Death or Disability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Change in Control Termination
    
    
    270,000
    
    
    
    21,540
    
    
    
    
    
    
    
    291,540Terrence J. Anderson
    
    Voluntary Termination
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Involuntary Termination
    
    
    270,000
    
    
    
    
    
    
    
    
    
    
    
    270,000Death or Disability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Change in Control Termination
    
    
    270,000
    
    
    
    46,683
    
    
    
    
    
    
    
    316,683Ken A. Shulman
    
    Voluntary Termination
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Involuntary Termination
    
    
    270,000
    
    
    
    
    
    
    
    
    
    
    
    270,000Death or Disability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Change in Control Termination
    
    
    270,000
    
    
    
    35,982
    
    
    
    
    
    
    
    305,982
 
 (1)
    
    The calculation of the value of the equity acceleration is determined
by calculating the number of units that would vest in connection with
the applicable event (each unit representing 1 share of Series C
preferred stock and 25 shares of Class B common stock) and multiplying
it by $56.31 in the case of an option award or $137.50 in the case of
a stock award, which represents the fair market value of a unit as of
the date of grant in April 2007. For additional information on the
calculation of the fair market value of stock award units or option
award units, please refer to note 12 of our consolidated
financial statements.(2)
    
    Pursuant to the terms of Mr. Robinsons employment agreement, in the
event that any payment under the agreements constitutes an excess
parachute payment under Section 280G of the Internal Revenue Code, he
will be entitled to a gross-up payment to cover the 20% excise tax
which may be imposed on such payment pursuant to Section 4999 of the
Internal Revenue Code (amount shown is estimate).  111




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##### Table of Contents



DIRECTOR COMPENSATION
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
  
    
    each stockholder known by us to beneficially own more than 5% of each class of our
outstanding stock;
 
    
    each of our directors and executive officers; and
 
    
    all directors and executive officers as a group.
   112




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##### Table of Contents



Class A
    
    
    
    
    
    
    
    
    
    
    Class BClass A
    
    
    Common Stock on an
    
    
    Class B
    
    
    Common Stock on anCommon Stock
    
    
    As-Converted Basis(1)
    
    
    Common Stock
    
    
    As-Converted Basis(1)Amount
    
    
    
    
    
    
    Amount
    
    
    
    
    
    
    Amount
    
    
    
    
    
    
    Amountand
    
    
    Percent of
    
    
    and
    
    
    Percent of
    
    
    and
    
    
    Percent of
    
    
    and
    
    
    Percent ofNature of
    
    
    Outstanding
    
    
    Nature of
    
    
    Outstanding
    
    
    Nature of
    
    
    Outstanding
    
    
    Nature of
    
    
    OutstandingBeneficial
    
    
    Shares
    
    
    Beneficial
    
    
    Shares
    
    
    Beneficial
    
    
    Shares
    
    
    Beneficial
    
    
    SharesOwnership
    
    
    of Class
    
    
    Ownership
    
    
    of Class
    
    
    Ownership
    
    
    of Class
    
    
    Ownership
    
    
    of ClassSteven F. Tunney(2)
    
    
    4,698,987
    
    
    
    50.3
    %
    
    
    11,459,788
    
    
    
    71.2
    %B. Hagen Saville(2)
    
    
    4,698,987
    
    
    
    50.3
    %
    
    
    11,459,788
    
    
    
    71.2
    %Samuel G. Rubenstein(2)
    
    
    4,698,987
    
    
    
    50.3
    %
    
    
    11,459,788
    
    
    
    71.2
    %John S. Patton, Jr(2)
    
    
    4,698,987
    
    
    
    50.3
    %
    
    
    11,459,788
    
    
    
    71.2
    %Robert Manning(3)
    
    
    1,508,506
    
    
    
    16.2
    %
    
    
    3,678,957
    
    
    
    32.0
    %Peter J. Barris(4)
    
    
    821,345
    
    
    
    8.8
    %
    
    
    2,003,102
    
    
    
    19.0
    %Michael Robinson(5)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    92,075
    
    
    
    26.4
    %
    
    
    186,519
    
    
    
    42.1
    %Brian Crotty(6)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    63,225
    
    
    
    18.1
    %
    
    
    128,077
    
    
    
    31.0
    %Terrence J. Anderson(7)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    54,550
    
    
    
    15.7
    %
    
    
    110,503
    
    
    
    27.3
    %Kenneth A. Shulman(8)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,375
    
    
    
    9.9
    %
    
    
    69,634
    
    
    
    18.2
    %Corey Rinker(9)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,925
    
    
    
    7.4
    %
    
    
    52,517
    
    
    
    14.0
    %Charles Hunter(10)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,175
    
    
    
    6.9
    %
    
    
    48,972
    
    
    
    13.1
    %Directors and Executive
Officers as a Group(11)
    
    
    7,028,838
    
    
    
    75.3
    %
    
    
    17,141,847
    
    
    
    88.1
    %
    
    
    294,325
    
    
    
    84.5
    %
    
    
    596,222
    
    
    
    91.7
    %MCG(2)
    
    
    4,698,987
    
    
    
    50.3
    %
    
    
    11,459,788
    
    
    
    71.2
    %Baker(3)
    
    
    1,508,506
    
    
    
    16.2
    %
    
    
    3,678,957
    
    
    
    32.0
    %NEA(4)
    
    
    821,345
    
    
    
    8.8
    %
    
    
    2,003,102
    
    
    
    19.0
    %Com Ventures(12)
    
    
    360,109
    
    
    
    3.9
    %
    
    
    878,236
    
    
    
    8.9
    %WPG(13)
    
    
    224,072
    
    
    
    2.4
    %
    
    
    546,469
    
    
    
    5.7
    %Apollo(14)
    
    
    163,161
    
    
    
    1.7
    %
    
    
    397,918
    
    
    
    4.2
    %Trimaran(15)
    
    
    127,499
    
    
    
    1.4
    %
    
    
    310,944
    
    
    
    3.3
    %
 
 (1)
    
    The calculation of Class A Common Stock on an As-Converted Basis includes all shares of Series A Preferred Stock, Series A-1 Preferred Stock, Series B Preferred Stock
and Series B-1 Preferred Stock and warrants and options convertible or exercisable into Class A Common Stock within 60 days of December 31, 2009. This does not include
shares of capital stock, warrants or options that are convertible or exercisable into Class A Common Stock upon a change of control or qualifying initial public
offering.The calculation of Class B Common Stock on an As-Converted Basis includes all shares of Series C Preferred Stock, warrants and options convertible or exercisable into
Class B Common Stock within 60 days of December 31, 2009. This does not include shares of capital stock, warrants or options that are convertible or exercisable into
Class B Common Stock upon a change of control or qualifying initial public offering.(2)
    
    MCG beneficially owns (i) 87,254 shares of our Series A Preferred Stock, which represents 100.0% of the outstanding shares of our Series A Preferred Stock and (ii)
100,702 shares of our Series A-1 Preferred Stock, which represents 100% of the outstanding shares of our Series A-1 Preferred Stock. Each of Mr. Tunney, Mr. Saville, Mr.
Rubenstein and Mr. Patton are officers of MCG Capital Corporation. By virtue of such relationship, each of Mr. Tunney, Mr. Saville, Mr. Rubenstein and Mr. Patton, may be
deemed to beneficially own the shares listed as beneficially owned by MCG. Each of Mr. Tunney, Mr. Saville, Mr. Rubenstein and Mr. Patton disclaims beneficial ownership
of such shares.(3)
    
    Baker beneficially owns (i) 38,119 shares of our Series B Preferred Stock, which represents 41.8% of the outstanding shares of our Series B Preferred Stock and (ii)
22,221 shares of our Series B-1 Preferred Stock, which represents 34.4% of the outstanding shares of our Series B-1 Preferred Stock. Mr. Manning is a manager of the
general partners of Baker Communications Fund, L.P. and Baker Communications Fund II (QP) L.P. By virtue of such relationship, Mr. Manning may be deemed to beneficially
own the shares listed as beneficially owned by Baker. Mr. Manning disclaims beneficial ownership of such shares.(4)
    
    NEA beneficially owns (i) 20,838 shares of our Series B Preferred Stock, which represents 22.9% of the outstanding shares of our Series B Preferred Stock and (ii) 12,016
shares of our Series B-1 Preferred Stock, which represents 18.6% of the outstanding shares of our Series B-1 Preferred Stock. Mr. Barris is the managing general partner
of New Enterprise Associates VII, L.P., New Enterprise Associates 9, L.P., New Enterprise Associates 10, L.P. and NEA Presidents Fund. By virtue of such relationship,
Mr. Barris may be deemed to beneficially own the shares listed as beneficially owned by NEA. Mr. Barris disclaims beneficial ownership of such shares.  113




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##### Table of Contents



(5)
    
    Mr. Robinson beneficially owns 3,683 shares of our Series C Preferred Stock, which represents 26.4% the outstanding shares of our Series C Preferred Stock.(6)
    
    Mr. Crotty beneficially owns 2,529 shares of our Series C Preferred Stock, which represents 18.1% of the outstanding shares of our Series C Preferred Stock.(7)
    
    Mr. Anderson beneficially owns 2,182 shares of our Series C Preferred Stock, which represents 15.7% of the outstanding shares of our Series C Preferred Stock.(8)
    
    Mr. Shulman beneficially owns 1,375 shares of our Series C Preferred Stock, which represents 9.9% of the outstanding shares of our Series C Preferred Stock.(9)
    
    Mr. Rinker beneficially owns 1,037 shares of our Series C Preferred Stock, which represents 7.4% of the outstanding shares of our Series C Preferred Stock.(10)
    
    Mr. Hunter beneficially owns 967 shares of our Series C Preferred Stock, which represents 6.9% of the outstanding shares of our Series C Preferred Stock.(11)
    
    The Directors and Executive Officers as a group beneficially own (i) 87,254 shares of our Series A Preferred Stock, which represents 100.0% of the outstanding shares of
our Series A Preferred Stock, (ii) 100,702 shares of our Series A-1 Preferred Stock, which represents 100% of the outstanding shares of our Series A-1 Preferred Stock,
(iii) 58,957 shares of our Series B Preferred Stock, which represents 64.7% of the outstanding shares of our Series B Preferred Stock, (iv) 34,237 shares of our Series
B-1 Preferred Stock, which represents 53.0% of the outstanding shares of our Series B-1 Preferred Stock and (v) 11,773 shares of our Series C Preferred Stock, which
represents 84.5% of the outstanding shares of our Series C Preferred Stock.(12)
    
    References to Com Ventures are to Communications Ventures II, L.P., ComVentures IV, L.P., Communications Ventures II Affiliates Fund, L.P., ComVentures IV CEO Fund,
L.P., and ComVentures IV Entrepreneurs Fund, L.P. Com Ventures beneficially owns (i) 10,191 shares of our Series B Preferred Stock, which represents 11.2% of the
outstanding shares of our Series B Preferred Stock and (ii) 4,213 shares of our Series B-1 Preferred Stock, which represents 6.5% of the outstanding shares of our Series
B-1 Preferred Stock.(13)
    
    References to WPG are to Weiss, Peck & Greer Venture Associates IV, L.L.C., WPG Enterprise Fund III, L.L.C., Weiss, Peck & Greer Venture Associates IV Cayman, L.P., and
WPG Information Sciences Entrepreneur Fund, L.P. WPG beneficially owns (i) 6,418 shares of our Series B Preferred Stock, which represents 7.0% of the outstanding shares
of our Series B Preferred Stock and (ii) 2,545 shares of our Series B-1 Preferred Stock, which represents 3.9% of the outstanding shares of our Series B-1 Preferred
Stock.(14)
    
    References to Apollo are to APEUREKAGGN, LLC. Apollo beneficially owns 6,526 shares of our Series B-1 Preferred Stock, which represents 10.1% of the outstanding shares
of our Series B-1 Preferred Stock.(15)
    
    References to Trimaran are to CIBC Capital Corporation, CIBC Employee Private Equity Fund, Trimaran Capital, LLC, Trimaran Fund II, LLC, and Trimaran Parallel Fund II,
LLC. Trimaran beneficially owns 5,100 shares of our Series B-1 Preferred Stock, which represents 7.9% of the outstanding shares of our Series B-1 Preferred Stock.  114




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##### Table of Contents



Securities authorized for issuance under equity compensation plans
 Equity Compensation Plan InformationNumber ofRemainingUnits Availablefor FutureNumber of
    
    
    Number
    
    
    Exercise Price
    
    
    IssuanceRestricted
    
    
    of
    
    
    of
    
    
    under EquityStock
    
    
    Options
    
    
    Outstanding
    
    
    CompensationPlan Category
    
    Units(1)
    
    
    Units(1)
    
    
    Option Units
    
    
    PlansEquity compensation plans approved by security holders(2)
    
    
    14,402
    
    
    
    20,058
    
    
    $
    137.50
    
    
    
    17,872Total
    
    
    14,402
    
    
    
    20,058
    
    
    $
    137.50
    
    
    
    17,872
 
 (1)
    
    Securities granted under the MIP have been presented as units for
purposes of this table only. Each unit represents 1 share of Series C
preferred stock and 25 shares of Class B common stock. However, while
presented as a unit for convenience, the actual grants represent
separate and distinct securities for accounting and securities law
purposes.(2)
    
    For a description of the material features of the MIP, see the section
entitled Executive Compensation  Compensation Discussion &
Analysis. 
 Item 13. Certain Relationships and Related Transactions, and Director Independence
 Amended and Restated Shareholders Agreement
      115




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##### Table of Contents



Employment Agreements
  Policies and Procedures Regarding Transactions with Related Persons
  Director Independence
  
 Item 14. Principal Accounting Fees and Services
  Years Ended December 31,2008
    
    
    2009Audit Fees
    
    $
    1,666
    
    
    $
    815Audit-Related Fees
    
    
    
    
    
    
    Tax Fees
    
    
    
    
    
    
    All Other Fees
    
    
    
    
    
    
    2Total Fees
    
    $
    1,666
    
    
    $
    817
   116




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##### Table of Contents



PART IV
 
 Item 15. Exhibits, Financial Statement Schedules
 
 Financial Statements and Schedules
           
 SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS
BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES
 Balance atBeginning of
    
    
    Charges to
    
    
    Other
    
    
    
    
    
    
    Balance atPeriod
    
    
    Expenses
    
    
    Accounts
    
    
    Deductions (b)
    
    
    End of PeriodAllowance for uncollectible accounts
receivable:Year Ended December 31, 2007
    
    $
    7,971
    
    
    $
    6,546
    
    
    $
    2,344
    a
    
    $
    (9,815
    )
    
    $
    7,046Year Ended December 31, 2008
    
    
    7,046
    
    
    
    5,539
    
    
    
    3,740
    
    
    
    (12,003
    )
    
    
    4,332Year Ended December 31, 2009
    
    
    4,332
    
    
    
    6,924
    
    
    
    2,936
    
    
    
    (6,240
    )
    
    
    7,942Valuation allowance for deferred tax assets:Year Ended December 31, 2007
    
    $
    974
    
    
    $
    
    
    
    $
    27,106
    c
    
    $
    
    
    
    $
    28,080Year Ended December 31, 2008
    
    
    28,080
    
    
    
    
    
    
    
    16,563
    
    
    
    
    
    
    
    44,643Year Ended December 31, 2009
    
    
    44,643
    
    
    
    
    
    
    
    5,094
    
    
    
    
    
    
    
    49,737
 (a)
    
    Allowance for Uncollectible Accounts Receivable includes $1,273 of allowances for
uncollectible accounts receivable as of acquisition dates from business combinations
occurring during the year ended December 31, 2007 and recoveries of amounts previously
written off.(b)
    
    Allowance for Uncollectible Accounts Receivable includes amounts written off as uncollectible.(c)
    
    Net effect of purchase accounting in relation to 2007 merger and current year activity. (b) Exhibits
 ExhibitNo.
    
    Description2.1
    
    
    Stock Purchase Agreement, dated as of June 26, 2006, by and among Broadview Networks Holdings, Inc., ATX
Communications, Inc., the stockholders of ATX Communications, Inc. and, for the limited purposes set forth
therein, Leucadia National Corporation.(a)2.2
    
    
    Agreement and Plan of Merger, dated as of February 23, 2007, by and among Broadview Networks Holdings, Inc.,
Eureka Acquisition Corporation, Eureka Broadband Corporation, the significant stockholders of Eureka Broadband
Corporation set forth therein and Jeffrey Ginsberg, as agent for the stockholders of Eureka Broadband
Corporation.(a)3.1
    
    
    Tenth Amended and Restated Certificate of Incorporation, dated May 31, 2007, of Broadview Networks Holdings,
Inc.*3.2
    
    
    Second Amended and Restated Bylaws of Broadview Networks Holdings, Inc.(a)4.1
    
    
    Indenture, dated as of August 23, 2006, by and among Broadview Networks Holdings, Inc., the Guarantors named
therein and The Bank of New York, as trustee.(a)4.2
    
    
    Supplemental Indenture, dated as of September 29, 2006, by and among Broadview Networks Holdings, Inc., the
Guarantors named therein and The Bank of New York, as trustee.(a)
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ExhibitNo.
    
    Description4.3
    
    
    Form of Exchange 113/8% Senior Secured Note due 2012.(a)4.4
    
    
    Form of Guarantee of Exchange 113/8% Senior Secured Note due 2012.(a)4.5
    
    
    Second Supplemental Indenture, dated as of May 14, 2007, by and among Broadview Networks Holdings, Inc., the
Guarantors named therein and The Bank of New York, as trustee.(a)4.6
    
    
    Third Supplemental Indenture, dated as of May 31, 2007, by and among Broadview Networks Holdings, Inc., the
Guarantors named therein and The Bank of New York, as trustee.(a)4.7
    
    
    Security Agreement, dated as of August 23, 2006, by and among by and among Broadview Networks Holdings, Inc,
the subsidiaries of Broadview Networks Holdings, Inc. named therein and The Bank of New York, as collateral
agent.(a)4.8
    
    
    Supplement to the Security Agreement, dated as of September 29, 2006, by and among Broadview Networks Holdings,
Inc, the subsidiaries of Broadview Networks Holdings, Inc. named therein and The Bank of New York, as
collateral agent.(a)4.9
    
    
    Second Supplement to the Security Agreement, dated as of May 31, 2007, by and among Broadview Networks
Holdings, Inc, the subsidiaries of Broadview Networks Holdings, Inc. named therein and The Bank of New York, as
collateral agent.(a)10.1
    
    
    Management Incentive Plan, dated as of February 9, 2007, of Broadview Networks Holdings, Inc.(a)10.2
    
    
    Employment Agreement, dated as of February 10, 2005, by and between Broadview Networks Holdings, Inc. and
Michael K. Robinson.(a)(c)10.3
    
    
    Employment Agreement, dated as of March 3, 1994, by and between Bridgecom Holdings, Inc. and Brian Crotty.(a)(c)10.4
    
    
    Employment Agreement, dated as of January 14, 2004, by and between Broadview Networks Holdings, Inc. and
Terrence J. Anderson.(a)(c)10.5
    
    
    Employment Agreement, dated as of January 14, 2005, by and between Broadview Networks Holdings, Inc. and
Kenneth Shulman.(a)(c)10.6
    
    
    Employment Agreement, dated as of March 3, 1994, by and between Bridgecom Holdings, Inc. and Charles
Hunter.(a)(c)10.7
    
    
    Employment Agreement, dated as of March 3, 2994, by and between Bridgecom Holdings, Inc. and Corey Rinker.(a)(c)10.8
    
    
    Credit Agreement, dated as of August 23, 2006, by and among Broadview Networks Holdings, Inc., Broadview
Networks, Inc., Broadview Networks of Massachusetts, Inc., Broadview Networks of Virginia, Inc., the Lenders
named therein, Jefferies & Company, Inc., as syndication agent, and The CIT Group/Business Credit, Inc., as
administrative agent, collateral agent and documentation agent.(a)10.9
    
    
    Collateral Agreement, dated as of August 23, 2006, by and among Broadview Networks Holdings, Inc., the
Subsidiary Grantors named therein and The CIT Group/Business Credit, Inc., as administrative agent.(a)10.10
    
    
    Supplement to the Collateral Agreement, dated as of October 20, 2006, by and among Broadview Networks Holdings,
Inc., the Subsidiary Grantors named therein and The CIT Group/Business Credit, Inc., as administrative
agent.(a)10.11
    
    
    Second Supplement to the Collateral Agreement, dated as of June 26, 2007, by and among Broadview Networks
Holdings, Inc., the Subsidiary Grantors named therein and The CIT Group/Business Credit, Inc., as
administrative agent.(a)10.12
    
    
    Guaranty Agreement, dated as of August 23, 2006, by and among the Subsidiary Grantors named therein and The CIT
Group/Business Credit, Inc., as administrative agent.(a)10.13
    
    
    Supplement to the Guaranty Agreement, dated as of October 20, 2006, by and among the Subsidiary Grantors named
therein and The CIT Group/Business Credit, Inc., as administrative agent.(a)10.14
    
    
    Second Supplement to the Guaranty Agreement, dated as of June 26, 2007, by and among the Subsidiary Grantors
named therein and The CIT Group/Business Credit, Inc., as administrative agent.(a)
  118




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ExhibitNo.
    
    Description10.15
    
    
    Intercreditor Agreement, dated as of August 23, 2006, by and among The CIT Group/Business Credit, Inc., as
administrative agent, The Bank of New York, as trustee, collateral agent and second priority agent, Broadview
Networks Holdings, Inc. and the Subsidiary Grantors named therein.(a)10.16
    
    
    Joinder to the Intercreditor Agreement, dated as of October 20, 2006, by and among The CIT Group/Business
Credit, Inc., as administrative agent, The Bank of New York, as trustee, collateral agent and second priority
agent, Broadview Networks Holdings, Inc. and the Subsidiary Grantors named therein.(a)10.17
    
    
    Amendment No. 1 to the Intercreditor Agreement, dated as of May 10, 2007, by and among The CIT Group/Business
Credit, Inc., as administrative agent, The Bank of New York, as trustee, collateral agent and second priority
agent, Broadview Networks Holdings, Inc. and the Subsidiary Grantors named therein.(a)10.18
    
    
    Joinder No. 2 to the Intercreditor Agreement, dated as of June 26, 2007, by and among The CIT Group/Business
Credit, Inc., as administrative agent, The Bank of New York, as trustee, collateral agent and second priority
agent, Broadview Networks Holdings, Inc. and the Subsidiary Grantors named therein.(a)10.19
    
    
    Third Amended and Restated Shareholders Agreement, by and among Broadview Networks Holdings, Inc. and the
shareholders named therein, dated as of May 31, 2007.(b)10.20
    
    
    Indemnity Escrow Agreement, dated May 31, 2007, between Broadview Networks Holdings, Inc., the agent for the
former stockholders of Eureka Broadband Corporation and JP Morgan Chase Bank, N.A.(b)10.21
    
    
    Escrow Agreement, dated September 29, 2006, by and among ATX Communications, Inc., LUK CLEC LLC, Broadview
Networks Holdings, Inc. and JPMorgan Chase Bank, N.A. (d)10.22
    
    
    1997 Stock Option Plan.(c)(d)10.23
    
    
    2000 Stock Option Plan.(c)(d)12.1
    
    
    Ratio of Earnings to Fixed Charges.*21.1
    
    
    Subsidiaries of Broadview Networks Holdings, Inc.*31.1
    
    
    Certification pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.*31.2
    
    
    Certification pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.*32.1
    
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.*32.2
    
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.*
 
 *
    
    Filed herewith.(a)
    
    Incorporated by reference to Broadview Networks Holdings, Inc.s Form
S-4/A filed on October 16, 2007 (File No. 333-142946).(b)
    
    Incorporated by reference to Broadview Networks Holdings, Inc.s Form
8-K filed on November 19, 2007 (File No. 333-142946).(c)
    
    Management contract or compensatory plan or arrangement.(d)
    
    Incorporated by reference to Broadview Networks Holdings, Inc.s Form
10-K filed on March 25, 2009 (File No. 333-147720).  119




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SIGNATURES
  BROADVIEW NETWORKS HOLDINGS, INC.By:
    /s/  Michael K. RobinsonName:
    Michael K. RobinsonTitle:
    Chief Executive Officer, President and Director  Signature
    
    Title
    
    Date/s/ Michael K. Robinson

Michael K. Robinson
    
    President, Chief Executive Officer, and Director
(Principal Executive Officer)
    
    March 29, 2010/s/ Corey Rinker

Corey Rinker
    
    Chief Financial Officer, Treasurer and Assistant Secretary
(Principal Financial and Accounting Officer)
    
    March 29, 2010/s/ Steven F. Tunney

Steven F. Tunney
    
    Director
    
    March 29, 2010/s/ Richard W. Roedel

Richard W. Roedel
    
    Director
    
    March 29, 2010/s/ Samuel G. Rubenstein

Samuel G. Rubenstein
    
    Director
    
    March 29, 2010/s/ John S. Patton, Jr.

John S. Patton, Jr.
    
    Director
    
    March 29, 2010/s/ B. Hagen Saville

B. Hagen Saville
    
    Director
    
    March 29, 2010/s/ David C. Ruberg

David C. Ruberg
    
    Director
    
    March 29, 2010/s/ Robert Manning

Robert Manning
    
    Director
    
    March 29, 2010/s/ Peter J. Barris

Peter J. Barris
    
    Director
    
    March 29, 2010/s/ Raul Martynek

Raul Martynek
    
    Director
    
    March 29, 2010
  120




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SUPPLEMENTAL INFORMATION TO BE FURNISHED
WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS
WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT
   121