##### Table of Contents

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FORM 10-Q



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SECURITIES AND EXCHANGE
COMMISSION

WASHINGTON, DC 20549

(Mark One)

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

For the quarterly period ended September 30, 2007

OR



| ̈ | 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 0-13716



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NORTH PITTSBURGH SYSTEMS, INC.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Pennsylvania                                                   |  | 25-1485389                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

4008 Gibsonia Road, Gibsonia, Pennsylvania 15044-9311

(Address of principal executive offices)

(Zip Code)

724.443.9600

(Registrants telephone number, including area code)

No Change

(Former name, former address and former fiscal year, if changed since last report)



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Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90
days.    YES  x    NO ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer
and large accelerated filer in Rule 12b-2 of the Act. (Check one):

Large accelerated ̈Accelerated filer  x    Non-accelerated filer ̈

Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).    YES ̈NO  x

The number of shares of the registrants Common Stock (par value $.15625 per share) outstanding as of November 5,
2007 was 15,005,000.



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##### Table of Contents

TABLE OF CONTENTS



|           |  |                                                                                                            |  |     
|---------- |  | ---------------------------------------------------------------------------------------------------------- |  | ----
|           |  |                                                                                                            |  | Page
|PART I     |  | Financial Information                                                                                      |  |     
|           |  |                                                                                                           
|           |  | Report of Independent Registered Public Accounting Firm                                                    |  | 3   
|           |  |                                                                                                           
|Item 1.    |  | Financial Statements (Unaudited)                                                                           |  | 4   
|           |  |                                                                                                           
|           |  | Condensed Consolidated Statements of IncomeFor the three and nine months ended September 30, 2007 and 2006 |  | 4   
|           |  |                                                                                                           
|           |  | Condensed Consolidated Balance SheetsSeptember 30, 2007 and December 31, 2006                              |  | 5   
|           |  |                                                                                                           
|           |  | Condensed Consolidated Statements of Cash FlowsFor the nine months ended September 30, 2007 and 2006       |  | 7   
|           |  |                                                                                                           
|           |  | Notes to Condensed Consolidated Financial Statements                                                       |  | 8   
|           |  |                                                                                                           
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                      |  | 15  
|           |  |                                                                                                           
|Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                                                 |  | 35  
|           |  |                                                                                                           
|Item 4.    |  | Controls and Procedures                                                                                    |  | 35  
|           |  |                                                                                                           
|PART II    |  | Other Information                                                                                          |  |     
|           |  |                                                                                                           
|Item 1.    |  | Legal Proceedings                                                                                          |  | 36  
|           |  |                                                                                                           
|Item 1A.   |  | Risk Factors                                                                                               |  | 36  
|           |  |                                                                                                           
|Item 6.    |  | Exhibits                                                                                                   |  | 36  
|           | 
|SIGNATURES |  | 40                                                                                                        



2



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##### Table of Contents

PART I

FINANCIAL INFORMATION

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

North Pittsburgh Systems, Inc.:

We have reviewed the
condensed consolidated balance sheet of North Pittsburgh Systems, Inc. and subsidiaries (the Company) as of September 30, 2007, the related condensed consolidated statements of income for the three-month and nine-month periods ended
September 30, 2007 and 2006, and the related condensed consolidated statements of cash flows for the nine-month periods ended September 30, 2007 and 2006. These condensed consolidated financial statements are the responsibility of the
Companys management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board
(United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit
conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express
such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated
financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously
audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of North Pittsburgh Systems, Inc. and subsidiaries as of December 31, 2006, and the related consolidated
statements of income, shareholders equity and comprehensive income, and cash flows for the year then ended (not presented herein); and in our report dated March 16, 2007, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2006, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has
been derived.



|                        
|------------------------
|KPMG LLP                
|                        
|Pittsburgh, Pennsylvania
|November 9, 2007        



3



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##### Table of Contents

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income (Unaudited)

(Amounts in Thousands  Except Per Share Data)



|                                                                                                         |  |                                        |        |   |                                        |   |        |      |  |   |        |   |  |   |        |  
|-------------------------------------------------------------------------------------------------------- |  | -------------------------------------- | ------ | - | -------------------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                                                         |  | For the Three MonthsEnded September 30 |        |   | For the Nine Months Ended September 30 |  
|                                                                                                         |  | 2007                                   |        |   | 2006                                   |   |        | 2007 |  |   | 2006   |  
|Operating revenues:                                                                                      |  |                                        |        |   |                                        |   |        |      |  |   |        |   |  |   |        |  
|Local network services                                                                                   |  | $                                      | 6,877  |   |                                        | $ | 7,385  |      |  | $ | 20,808 |   |  | $ | 22,499 |  
|Long distance and access services                                                                        |  |                                        | 13,384 |   |                                        |   | 14,666 |      |  |   | 41,324 |   |  |   | 45,142 |  
|Directory advertising, billing and other services                                                        |  |                                        | 310    |   |                                        |   | 337    |      |  |   | 933    |   |  |   | 1,065  |  
|Other operating revenues                                                                                 |  |                                        | 3,079  |   |                                        |   | 3,020  |      |  |   | 9,323  |   |  |   | 9,126  |  
|                                                                                                         |  |                                        |        |   |                                        |   |        |      |  |   |        |   |  |   |        |  
|Total operating revenues                                                                                 |  |                                        | 23,650 |   |                                        |   | 25,408 |      |  |   | 72,388 |   |  |   | 77,832 |  
|                                                                                                         |  |                                        |        |  
|Operating expenses:                                                                                      |  |                                        |        |   |                                        |   |        |      |  |   |        |   |  |   |        |  
|Network and other operating expenses (exclusive of depreciation and amortization shown separately below) |  |                                        | 14,360 |   |                                        |   | 15,764 |      |  |   | 43,483 |   |  |   | 46,667 |  
|Depreciation and amortization                                                                            |  |                                        | 3,583  |   |                                        |   | 3,316  |      |  |   | 10,671 |   |  |   | 9,685  |  
|Operating taxes                                                                                          |  |                                        | 681    |   |                                        |   | 801    |      |  |   | 2,443  |   |  |   | 2,694  |  
|Strategic alternatives expenses                                                                          |  |                                        | 1,472  |   |                                        |   |       |      |  |   | 2,189  |   |  |   |       |  
|Curtailment and special termination benefit expenses                                                     |  |                                        |       |   |                                        |   |       |      |  |   | 6,468  |   |  |   |       |  
|                                                                                                         |  |                                        |        |   |                                        |   |        |      |  |   |        |   |  |   |        |  
|Total operating expenses                                                                                 |  |                                        | 20,096 |   |                                        |   | 19,881 |      |  |   | 65,254 |   |  |   | 59,046 |  
|                                                                                                         |  |                                        |        |   |                                        |   |        |      |  |   |        |   |  |   |        |  
|Net operating income                                                                                     |  |                                        | 3,554  |   |                                        |   | 5,527  |      |  |   | 7,134  |   |  |   | 18,786 |  
|                                                                                                         |  |                                        |        |  
|Other income (expense), net:                                                                             |  |                                        |        |   |                                        |   |        |      |  |   |        |   |  |   |        |  
|Interest expense                                                                                         |  |                                        | (283   | ) |                                        |   | (353   | )    |  |   | (890   | ) |  |   | (1,069 | )
|Interest income                                                                                          |  |                                        | 602    |   |                                        |   | 634    |      |  |   | 1,793  |   |  |   | 1,915  |  
|Equity income of affiliated companies                                                                    |  |                                        | 2,495  |   |                                        |   | 2,134  |      |  |   | 7,355  |   |  |   | 6,359  |  
|Gain on redemption of investment                                                                         |  |                                        |       |   |                                        |   |       |      |  |   |       |   |  |   | 19,622 |  
|Sundry expense, net                                                                                      |  |                                        | (23    | ) |                                        |   | (46    | )    |  |   | (65    | ) |  |   | (68    | )
|                                                                                                         |  |                                        |        |   |                                        |   |        |      |  |   |        |   |  |   |        |  
|Total other income (expense), net                                                                        |  |                                        | 2,791  |   |                                        |   | 2,369  |      |  |   | 8,193  |   |  |   | 26,759 |  
|                                                                                                         |  |                                        |        |   |                                        |   |        |      |  |   |        |   |  |   |        |  
|Income from continuing operations before income taxes                                                    |  |                                        | 6,345  |   |                                        |   | 7,896  |      |  |   | 15,327 |   |  |   | 45,545 |  
|Provision for income taxes                                                                               |  |                                        | 2,336  |   |                                        |   | 3,304  |      |  |   | 6,101  |   |  |   | 18,975 |  
|                                                                                                         |  |                                        |        |   |                                        |   |        |      |  |   |        |   |  |   |        |  
|Income from continuing operations                                                                        |  |                                        | 4,009  |   |                                        |   | 4,592  |      |  |   | 9,226  |   |  |   | 26,570 |  
|                                                                                                         |  |                                        |        |   |                                        |   |        |      |  |   |        |   |  |   |        |  
|Discontinued operations:                                                                                 |  |                                        |        |   |                                        |   |        |      |  |   |        |   |  |   |        |  
|Income from operations of business systems, net of income tax expense of $0, $1, $0 and $6               |  |                                        |       |   |                                        |   | 3      |      |  |   |       |   |  |   | 9      |  
|                                                                                                         |  |                                        |        |   |                                        |   |        |      |  |   |        |   |  |   |        |  
|Net income                                                                                               |  | $                                      | 4,009  |   |                                        | $ | 4,595  |      |  | $ | 9,226  |   |  | $ | 26,579 |  
|                                                                                                         |  |                                        |        |   |                                        |   |        |      |  |   |        |   |  |   |        |  
|Weighted average common shares outstanding                                                               |  |                                        | 15,005 |   |                                        |   | 15,005 |      |  |   | 15,005 |   |  |   | 15,005 |  
|                                                                                                         |  |                                        |        |   |                                        |   |        |      |  |   |        |   |  |   |        |  
|Basic and diluted earnings per share:                                                                    |  |                                        |        |   |                                        |   |        |      |  |   |        |   |  |   |        |  
|Income from continuing operations                                                                        |  | $                                      | .27    |   |                                        | $ | .31    |      |  | $ | .61    |   |  | $ | 1.77   |  
|Income from discontinued operations                                                                      |  |                                        |       |   |                                        |   |       |      |  |   |       |   |  |   |       |  
|                                                                                                         |  |                                        |        |   |                                        |   |        |      |  |   |        |   |  |   |        |  
|Net income per share                                                                                     |  | $                                      | .27    |   |                                        | $ | .31    |      |  | $ | .61    |   |  | $ | 1.77   |  
|                                                                                                         |  |                                        |        |   |                                        |   |        |      |  |   |        |   |  |   |        |  
|Dividends per share                                                                                      |  | $                                      | .20    |   |                                        | $ | .20    |      |  | $ | .60    |   |  | $ | 1.59   |  
|                                                                                                         |  |                                        |        |   |                                        |   |        |      |  |   |        |   |  |   |        |  

See accompanying notes to unaudited condensed consolidated financial statements.



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NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Amounts in Thousands)



|                                                                                 |  |                         |         |              |   |        
|-------------------------------------------------------------------------------- |  | ----------------------- | ------- | ------------ | - | -------
|                                                                                 |  | (Unaudited)Sept. 302007 |         | Dec. 31 2006
|ASSETS                                                                           |  |                         |         |              |   |        
|Current Assets:                                                                  |  |                         |         |              |   |        
|Cash and temporary investments                                                   |  | $                       | 46,629  |              | $ | 49,518 
|Marketable securities available for sale                                         |  |                         | 577     |              |   | 559    
|Accounts receivable:                                                             |  |                         |         |              |   |        
|Customers, net of allowance for doubtful accounts of $452 and $583, respectively |  |                         | 5,271   |              |   | 5,500  
|Access services, settlements and other                                           |  |                         | 4,927   |              |   | 5,814  
|Unbilled revenues                                                                |  |                         | 268     |              |   | 261    
|Prepaid expenses                                                                 |  |                         | 1,445   |              |   | 869    
|Inventories of construction and operating materials and supplies                 |  |                         | 1,826   |              |   | 1,848  
|Deferred income taxes                                                            |  |                         | 578     |              |   | 890    
|                                                                                 |  |                         |         |              |   |        
|Total current assets                                                             |  |                         | 61,521  |              |   | 65,259 
|                                                                                 |  |                         |         |              |   |        
|Property, plant and equipment:                                                   |  |                         |         |              |   |        
|Land                                                                             |  |                         | 475     |              |   | 475    
|Buildings                                                                        |  |                         | 16,077  |              |   | 15,716 
|Equipment                                                                        |  |                         | 227,674 |              |   | 219,778
|Assets held under capital lease                                                  |  |                         | 10,498  |              |   | 10,498 
|                                                                                 |  |                         |         |              |   |        
|                                                                                 |  |                         | 254,724 |              |   | 246,467
|                                                                                 |  |                        
|Less accumulated depreciation and amortization                                   |  |                         | 184,578 |              |   | 174,798
|                                                                                 |  |                         |         |              |   |        
|                                                                                 |  |                         | 70,146  |              |   | 71,669 
|                                                                                 |  |                        
|Construction in progress                                                         |  |                         | 2,569   |              |   | 3,683  
|                                                                                 |  |                         |         |              |   |        
|Total property, plant and equipment, net                                         |  |                         | 72,715  |              |   | 75,352 
|                                                                                 |  |                        
|Investments                                                                      |  |                         | 17,362  |              |   | 15,446 
|Intangible assets, net                                                           |  |                         | 106     |              |   | 128    
|Deferred income taxes                                                            |  |                         | 3,879   |              |   |       
|Other assets                                                                     |  |                         | 1,417   |              |   | 1,248  
|                                                                                 |  |                         |         |              |   |        
|Total assets                                                                     |  | $                       | 157,000 |              | $ | 157,433
|                                                                                 |  |                         |         |              |   |        

(Continued)



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##### Table of Contents

NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Amounts in Thousands)



|                                                                                     |  |                          |         |   |              |   |         |  
|------------------------------------------------------------------------------------ |  | ------------------------ | ------- | - | ------------ | - | ------- | -
|                                                                                     |  | (Unaudited) Sept. 302007 |         |   | Dec. 31 2006 |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                 |  |                          |         |   |              |   |         |  
|Current liabilities:                                                                 |  |                          |         |   |              |   |         |  
|Current portion of long-term debt                                                    |  | $                        | 3,085   |   |              | $ | 3,085   |  
|Obligation under capital lease                                                       |  |                          | 1,020   |   |              |   | 965     |  
|Accounts payable                                                                     |  |                          | 3,136   |   |              |   | 3,447   |  
|Advance billings                                                                     |  |                          | 1,953   |   |              |   | 2,028   |  
|Dividend payable                                                                     |  |                          | 3,001   |   |              |   | 3,001   |  
|Other accrued liabilities                                                            |  |                          | 3,122   |   |              |   | 2,865   |  
|Federal and state income taxes                                                       |  |                          | 242     |   |              |   | 3,424   |  
|Accrued pension and postretirement benefits                                          |  |                          | 1,162   |   |              |   | 696     |  
|                                                                                     |  |                          |         |   |              |   |         |  
|Total current liabilities                                                            |  |                          | 16,721  |   |              |   | 19,511  |  
|                                                                                     |  |                          |         |   |              |   |         |  
|                                                                                     |  |                         
|Long-term debt                                                                       |  |                          | 13,113  |   |              |   | 15,427  |  
|Obligation under capital lease                                                       |  |                          | 2,027   |   |              |   | 2,790   |  
|Deferred income taxes                                                                |  |                          |        |   |              |   | 2,234   |  
|Accrued pension and postretirement benefits                                          |  |                          | 23,348  |   |              |   | 15,481  |  
|Other liabilities                                                                    |  |                          | 1,033   |   |              |   | 694     |  
|                                                                                     |  |                          |         |   |              |   |         |  
|Total liabilities                                                                    |  |                          | 56,242  |   |              |   | 56,137  |  
|                                                                                     |  |                          |         |   |              |   |         |  
|Shareholders equity:                                                                |  |                          |         |   |              |   |         |  
|Capital stock: authorized 50,000 shares:                                             |  |                          |         |   |              |   |         |  
|Common stock, par value $0.15625; issued 15,040 shares and outstanding 15,005 shares |  |                          | 2,350   |   |              |   | 2,350   |  
|Preferred stock, par value $1.00; none issued                                        |  |                          |        |   |              |   |        |  
|Capital in excess of par value                                                       |  |                          | 2,215   |   |              |   | 2,215   |  
|Retained earnings                                                                    |  |                          | 101,748 |   |              |   | 101,525 |  
|Less cost of treasury stock (35 shares)                                              |  |                          | (508    | ) |              |   | (508    | )
|Accumulated other comprehensive loss                                                 |  |                          | (5,047  | ) |              |   | (4,286  | )
|                                                                                     |  |                          |         |   |              |   |         |  
|Total shareholders equity                                                           |  |                          | 100,758 |   |              |   | 101,296 |  
|                                                                                     |  |                          |         |   |              |   |         |  
|Total liabilities and shareholders equity                                           |  | $                        | 157,000 |   |              | $ | 157,433 |  
|                                                                                     |  |                          |         |   |              |   |         |  

See accompanying notes to unaudited condensed consolidated financial statements.



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##### Table of Contents

NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Amounts in Thousands)



|                                                                                  |  |                                       |         |   |      |   |         |  
|--------------------------------------------------------------------------------- |  | ------------------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                  |  | For the Nine MonthsEnded September 30 |        
|                                                                                  |  | 2007                                  |         |   | 2006 |  
|Cash from operating activities:                                                   |  |                                       |         |   |      |   |         |  
|Net income                                                                        |  | $                                     | 9,226   |   |      | $ | 26,579  |  
|Income from discontinued operations                                               |  |                                       |        |   |      |   | (9      | )
|                                                                                  |  |                                       |         |   |      |   |         |  
|Income from continuing operations                                                 |  |                                       | 9,226   |   |      |   | 26,570  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                       |         |   |      |   |         |  
|Depreciation and amortization                                                     |  |                                       | 10,671  |   |      |   | 9,685   |  
|Gain on redemption of investment                                                  |  |                                       |        |   |      |   | (19,622 | )
|Curtailment and special termination benefits                                      |  |                                       | 6,468   |   |      |   |        |  
|Equity income of affiliated companies                                             |  |                                       | (7,355  | ) |      |   | (6,359  | )
|Deferred income taxes                                                             |  |                                       | (5,261  | ) |      |   | (292    | )
|Changes in assets and liabilities:                                                |  |                                       |         |   |      |   |         |  
|Accounts receivable and unbilled revenues                                         |  |                                       | 1,109   |   |      |   | 208     |  
|Inventories                                                                       |  |                                       | 22      |   |      |   | (813    | )
|Prepaid expenses and other assets                                                 |  |                                       | (745    | ) |      |   | (498    | )
|Accounts payable and advance billings                                             |  |                                       | (386    | ) |      |   | (125    | )
|Other accrued liabilities                                                         |  |                                       | 596     |   |      |   | (478    | )
|Accrued pension and postretirement benefits                                       |  |                                       | 546     |   |      |   | (888    | )
|Federal and state income taxes                                                    |  |                                       | (3,182  | ) |      |   | 391     |  
|Other, net                                                                        |  |                                       | 20      |   |      |   | 47      |  
|                                                                                  |  |                                       |         |   |      |   |         |  
|Total adjustments                                                                 |  |                                       | 2,503   |   |      |   | (18,744 | )
|                                                                                  |  |                                       |         |   |      |   |         |  
|Net cash provided by operating activities from continuing operations              |  |                                       | 11,729  |   |      |   | 7,826   |  
|                                                                                  |  |                                       |         |   |      |   |         |  
|                                                                                  |  |                                      
|Cash provided by (used for) investing activities:                                 |  |                                       |         |   |      |   |         |  
|Expenditures for property and equipment                                           |  |                                       | (8,032  | ) |      |   | (12,404 | )
|Purchase of customer accounts                                                     |  |                                       |        |   |      |   | (148    | )
|Distributions from affiliated companies                                           |  |                                       | 5,439   |   |      |   | 5,414   |  
|Proceeds from redemption of investment                                            |  |                                       |        |   |      |   | 19,622  |  
|                                                                                  |  |                                       |         |   |      |   |         |  
|Net cash provided by (used for) investing activities from continuing operations   |  |                                       | (2,593  | ) |      |   | 12,484  |  
|                                                                                  |  |                                       |         |   |      |   |         |  
|                                                                                  |  |                                      
|Cash used for financing activities:                                               |  |                                       |         |   |      |   |         |  
|Cash dividends                                                                    |  |                                       | (9,003  | ) |      |   | (23,708 | )
|Payments of capital lease obligation                                              |  |                                       | (708    | ) |      |   | (663    | )
|Retirement of debt                                                                |  |                                       | (2,314  | ) |      |   | (2,314  | )
|                                                                                  |  |                                       |         |   |      |   |         |  
|Net cash used for financing activities from continuing operations                 |  |                                       | (12,025 | ) |      |   | (26,685 | )
|                                                                                  |  |                                       |         |   |      |   |         |  
|Cash used for continuing operations                                               |  |                                       | (2,889  | ) |      |   | (6,375  | )
|                                                                                  |  |                                      
|Cash provided by discontinued operations:                                         |  |                                       |         |   |      |   |         |  
|Cash provided by operating activities from discontinued operations                |  |                                       |        |   |      |   | 195     |  
|Cash provided by investing activities from discontinued operations                |  |                                       |        |   |      |   | 161     |  
|                                                                                  |  |                                       |         |   |      |   |         |  
|Net cash provided by discontinued operations                                      |  |                                       |        |   |      |   | 356     |  
|                                                                                  |  |                                       |         |   |      |   |         |  
|Net decrease in cash and temporary investments                                    |  |                                       | (2,889  | ) |      |   | (6,019  | )
|                                                                                  |  |                                      
|Cash and temporary investments at beginning of period                             |  |                                       | 49,518  |   |      |   | 55,567  |  
|                                                                                  |  |                                       |         |   |      |   |         |  
|Cash and temporary investments at end of period                                   |  | $                                     | 46,629  |   |      | $ | 49,548  |  
|                                                                                  |  |                                       |         |   |      |   |         |  
|Supplemental disclosure of cash flow information:                                 |  |                                       |         |   |      |   |         |  
|Interest paid                                                                     |  | $                                     | 903     |   |      | $ | 1,082   |  
|Income taxes paid                                                                 |  | $                                     | 14,017  |   |      | $ | 18,885  |  

See accompanying notes to unaudited condensed consolidated financial statements.



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NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)

(Amounts in Thousands Except Per Share Data)

(1) Basis of Presentation and Consolidation

The condensed consolidated financial statements included
herein have been prepared by North Pittsburgh Systems, Inc. (hereafter referred to as the Registrant, the Company, NPSI, we, us or our), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Consolidated
herein are the financial results of the Companys wholly owned subsidiaries, North Pittsburgh Telephone Company (North Pittsburgh), Penn Telecom, Inc. (Penn Telecom) and Pinnatech, Inc. (Pinnatech). Certain information and footnote disclosures
normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. Nevertheless, the Company believes that its disclosures herein
are adequate to make the information presented not misleading and, in the opinion of management, all adjustments, including those pertaining to normal recurring accruals, necessary to present fairly the results of operations for the interim periods
have been reflected. These condensed consolidated financial statements should be read in conjunction with the financial statements and the notes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31,
2006 (2006 Form 10-K) filed with the Securities and Exchange Commission.

The preparation of the condensed consolidated financial
statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. The estimates and assumptions used in the
accompanying condensed consolidated financial statements are based upon managements evaluation of the relevant facts and circumstances as of the date of the financial statements. Actual results may differ from the estimates and assumptions
used in preparing the accompanying condensed consolidated financial statements.

(2) Merger Agreement with Consolidated Communications

On July 1, 2007, the Company and Consolidated Communications Holdings, Inc. (Consolidated) entered into an Agreement and Plan of Merger (the
Merger Agreement), pursuant to which the Company would become a wholly owned subsidiary of Consolidated. Pursuant to the Merger Agreement, at the effective time of the merger, each issued and outstanding share of Company common stock (other than
shares held in the Companys treasury or owned by any subsidiary of the Company, Consolidated, or any subsidiary of Consolidated) will be converted into the right to receive either (i) $25.00 in cash, without interest, or
(ii) 1.1061947 shares of Consolidated common stock. The Companys shareholders will be entitled to make an election, with respect to each of their Company shares, to receive either cash or Consolidated common stock as described in the
preceding sentence, subject to proration so that 80% of the Companys shares will be converted in the merger into the right to receive cash and 20% of the Companys shares will be converted in the merger into the right to receive
Consolidated common stock. The share exchange ratio is fixed and is not subject to any collars. The merger will be a taxable transaction for U.S. federal income tax purposes and, accordingly, shareholders will not receive any portion of the merger
consideration on a tax-free basis.

The merger is expected to close either in the fourth quarter of 2007 or first quarter of 2008, subject
to certain customary conditions, including approvals from federal and state regulators and the Companys shareholders. On November 13, 2007, the Company will hold its annual meeting of shareholders, at which the Companys shareholders will
consider a proposal to approve and adopt the Merger Agreement. The Federal Communications Commission (FCC) has approved the transfer of control of the Company to Consolidated, and the Federal Trade Commission has granted early termination of the
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. Action by the Pennsylvania Public Utility Commission (PA PUC) with respect to the transfer of control to Consolidated of the Companys regulated subsidiaries, North
Pittsburgh and Penn Telecom, is pending. Seven parties filed either formal protests or petitions to intervene in the PA PUC proceeding. North Pittsburgh, Penn Telecom, Consolidated and four protesting or intervening parties filed a joint petition
for PA PUC approval of a settlement agreement that requests the PA PUC to issue an order approving the merger application, and three parties have withdrawn their protests or petitions to intervene. As a consequence, there no longer is any party in
the PA PUC proceeding opposing the merger or the settlement. Approval of the merger by Consolidateds stockholders is not required, and the merger is not subject to a financing condition.

The Merger Agreement contains certain termination rights and provides that, upon the termination of the Merger Agreement under specified circumstances,
the Company will be required to pay Consolidated a termination fee of $11,250 and also to reimburse Consolidated for its actual and reasonable documented out-of-pocket expenses incurred in connection with the Merger Agreement on or prior to the
termination of the Merger Agreement, up to a maximum amount of $1,500 of such expenses.

(3) Strategic Alternatives Fees and Commitments

In connection with the Companys activities that have resulted in or were pursuant to the Merger Agreement with Consolidated, the Company incurred
costs of $1,472 and $2,189 related to financial advisory, legal and other fees for the three and nine months ended September 30, 2007, respectively. Pursuant to the Companys engagement letter with its financial advisor, Evercore Group
L.L.C. (Evercore), the Company has agreed to pay Evercore an advisory fee of approximately $4,100, (i) $100 of which was paid to Evercore upon signing the engagement letter in May 2007, (ii) $500 of which was paid to Evercore when it
delivered its written fairness opinion dated July 1, 2007 and (iii) the remainder of which is contingent upon, and payable upon, consummation of the merger contemplated by the Merger Agreement. The amount of the Evercore advisory fee may
be adjusted depending on the price of Consolidateds common stock prior to the consummation of the merger. The Company has also agreed to reimburse Evercore for its reasonable out-of-pocket expenses (including legal fees) incurred in performing
its services.



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Pursuant to the Companys Shareholder Approval Bonus Plan, if the Companys shareholders
approve and adopt the Merger Agreement, the Company will be obligated to pay a bonus of $975 to each of the Companys seven executive officers who is a full-time employee of the Company and/or its subsidiaries on the date of such shareholder
approval. Such bonuses, which would aggregate $6,825 for all seven executive officers, would be payable within 30 days after approval of the Merger Agreement by the Companys shareholders and are not contingent on securing regulatory approval
or the actual completion of the merger contemplated by the Merger Agreement. No amounts have been accrued in the accompanying condensed consolidated financial statements as of September 30, 2007 pending the aforementioned shareholder vote.

(4) Comprehensive Income

Statement of
Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income, establishes requirements for disclosure of comprehensive income. The objective of SFAS No. 130 is to report all changes in equity that result from
transactions and economic events other than transactions with owners. Comprehensive income is the total of net income and all other non-owner changes in equity. The reconciliation of net income to comprehensive income is as follows:



|                                                                                                        |  |                                        |       |                                        |      |   |       |  |   |       |   |  |   |       
|------------------------------------------------------------------------------------------------------- |  | -------------------------------------- | ----- | -------------------------------------- | ---- | - | ----- |  | - | ----- | - |  | - | ------
|                                                                                                        |  | For the Three MonthsEnded September 30 |       | For the Nine Months Ended September 30
|                                                                                                        |  | 2007                                   |       |                                        | 2006 |   | 2007  |  |   | 2006 
|Net income                                                                                              |  | $                                      | 4,009 |                                        |      | $ | 4,595 |  | $ | 9,226 |   |  | $ | 26,579
|Unrealized gain (loss) on marketable securities including reclassification adjustments, net of tax      |  |                                        | (9    | )                                      |      |   | 12    |  |   | 10    |   |  |   | 22    
|Pension liability adjustment, net of tax                                                                |  |                                        |      |                                        |      |   | 100   |  |   | (927  | ) |  |   | 100   
|Amortization of prior services costs and recognized actuarial losses included in net income, net of tax |  |                                        | 50    |                                        |      |   |      |  |   | 156   |   |  |   |      
|                                                                                                        |  |                                        |       |                                        |      |   |       |  |   |       |   |  |   |       
|Comprehensive income                                                                                    |  | $                                      | 4,050 |                                        |      | $ | 4,707 |  | $ | 8,465 |   |  | $ | 26,701
|                                                                                                        |  |                                        |       |                                        |      |   |       |  |   |       |   |  |   |       

(5) Postretirement Benefits

Substantially all employees of North Pittsburgh are covered by a noncontributory, defined benefit retirement plan (Pension Plan). The benefits are based on each employees years of service and compensation. North
Pittsburghs funding policy is to contribute an amount annually that satisfies at least the minimum funding required under the Employee Retirement Income Security Act of 1974. The assets of the Pension Plan are held in a trust and are invested
in a variety of equity and fixed income securities.

Pursuant to North Pittsburghs collective bargaining agreement negotiated during
2004, eligibility for the Pension Plan is limited to those employees whose active service with North Pittsburgh commenced prior to November 1, 2004. Any employees hired on or after November 1, 2004 are not eligible to participate in the
Pension Plan. Instead, for those employees covered by the collective bargaining agreement but hired on or after November 1, 2004, North Pittsburgh contributes an amount equal to 2% of the employees gross wages into a union sponsored
401(k) plan.

Effective December 31, 2006, the Company amended the Pension Plan to freeze the benefit accruals for participants not
covered by the collective bargaining agreement. Concurrent with the benefit freeze under the Pension Plan, the Company amended the North Pittsburgh 401(k) plan to enhance the Companys contribution formula for those North Pittsburgh employees
not covered by the collective bargaining agreement.

North Pittsburgh also has a nonqualified supplemental pension plan (Restoration Plan)
covering certain former and current employees. The Restoration Plan restores the benefits that are precluded under the Pension Plan by Internal Revenue Service limits on compensation and benefits applicable to qualified pension plans and by the
exclusion of bonus and certain other compensation from the Pension Plans definition of earnings. Concurrent with the benefit freeze under the Pension Plan, the Restoration Plan was amended to provide the benefit amounts that would be payable
to the Restoration Plans participants if the Pension Plan had not been amended to freeze benefit accruals as of December 31, 2006. The amendment to the Restoration Plan also froze eligibility for participation in the Restoration Plan to
those persons participating in it as of December 31, 2006. The combined costs and obligations associated with the Pension Plan and Restoration Plan are included in the Pension Benefits table that follows.

Eligible retirees of North Pittsburgh are provided healthcare benefits under an unfunded plan until the retiree reaches Medicare eligibility (currently
65 years of age) and life insurance



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benefits based on a specified percentage of preretirement salary until the retiree reaches the age of 65, at which time the coverage is limited to $5. The
costs and obligations associated with these plans are included in the Other Postretirement Benefits table that follows.

Components of Net Periodic Benefit Cost:

The following tables summarize the components of net periodic benefits cost of
pension and other postretirement benefits:



|                                                                       |  |                                |        |   |                                |   |      |      |  |   |        |   |  |   |        |  
|---------------------------------------------------------------------- |  | ------------------------------ | ------ | - | ------------------------------ | - | ---- | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                       |  | Pension Benefits               |       
|                                                                       |  | Three Months EndedSeptember 30 |        |   | Nine Months Ended September 30 |  
|                                                                       |  | 2007                           |        |   | 2006                           |   |      | 2007 |  |   | 2006   |  
|Service cost                                                           |  | $                              | 233    |   |                                | $ | 394  |      |  | $ | 701    |   |  | $ | 1,183  |  
|Interest cost                                                          |  |                                | 888    |   |                                |   | 793  |      |  |   | 2,556  |   |  |   | 2,377  |  
|Expected return on plan assets                                         |  |                                | (1,007 | ) |                                |   | (883 | )    |  |   | (2,997 | ) |  |   | (2,651 | )
|Amortization of prior service cost                                     |  |                                | 53     |   |                                |   | 33   |      |  |   | 159    |   |  |   | 101    |  
|Recognized actuarial loss                                              |  |                                | 18     |   |                                |   | 117  |      |  |   | 52     |   |  |   | 353    |  
|                                                                       |  |                                |        |   |                                |   |      |      |  |   |        |   |  |   |        |  
|Net periodic benefit cost                                              |  | $                              | 185    |   |                                | $ | 454  |      |  | $ | 471    |   |  | $ | 1,363  |  
|                                                                       |  |                                |        |   |                                |   |      |      |  |   |        |   |  |   |        |  
|Additional expense due to curtailment and special termination benefits |  | $                              |       |   |                                | $ |     |      |  | $ | 2,869  |   |  | $ |       |  
|                                                                       |  |                                |        |   |                                |   |      |      |  |   |        |   |  |   |        |  
|                                                                       | 
|                                                                       |  | Other Postretirement Benefits  |       
|                                                                       |  | Three Months EndedSeptember 30 |        |   | Nine Months EndedSeptember 30  |  
|                                                                       |  | 2007                           |        |   | 2006                           |   |      | 2007 |  |   | 2006   |  
|Service cost                                                           |  | $                              | 65     |   |                                | $ | 93   |      |  | $ | 198    |   |  | $ | 279    |  
|Interest cost                                                          |  |                                | 209    |   |                                |   | 180  |      |  |   | 578    |   |  |   | 538    |  
|Amortization of prior service cost                                     |  |                                | 1      |   |                                |   |     |      |  |   | 3      |   |  |   | 2      |  
|Recognized actuarial loss                                              |  |                                | 13     |   |                                |   | 77   |      |  |   | 52     |   |  |   | 233    |  
|                                                                       |  |                                |        |   |                                |   |      |      |  |   |        |   |  |   |        |  
|Net periodic benefit cost                                              |  | $                              | 288    |   |                                | $ | 350  |      |  | $ | 831    |   |  | $ | 1,052  |  
|                                                                       |  |                                |        |   |                                |   |      |      |  |   |        |   |  |   |        |  
|Additional expense due to curtailment and special termination benefits |  | $                              |       |   |                                | $ |     |      |  | $ | 3,599  |   |  | $ |       |  
|                                                                       |  |                                |        |   |                                |   |      |      |  |   |        |   |  |   |        |  

The additional expense due to curtailment and special termination benefits was a result of the
voluntary early retirement incentive program that extended through March 31, 2007 at our North Pittsburgh subsidiary. This program and the associated workforce reduction and business restructuring is described in more detail in Note 9 in these
Notes to Condensed Consolidated Financial Statements.

Employer Contributions:

Because of the elective tax-deductible contributions made to the Pension Plan by North Pittsburgh from 2003 through 2006, the above average returns of the
Pension Plans assets over the course of the past several years and the freezing of benefit accruals for non-bargaining unit employees effective December 31, 2006, no minimum contribution is required for the Pension Plan in 2007 because
North Pittsburgh has a $6,900 funding credit. With the completion of the voluntary early retirement incentive program that extended through March 31, 2007, we are in the process of re-evaluating the funded status of the Pension Plan and,
subsequent to the completion of the re-evaluation, will make a decision at a later point in 2007 as to what amount of contribution, if any, we will make to the Pension Plan during 2007.

Contributions for the other postretirement benefit plans are made on a pay-as-you-go basis, with total contributions of $752 having been made during the
nine-month period ended September 30, 2007.

(6) Transactions with Related Parties

We paid $277 and $2 for the three-month periods, and $519 and $116 for the nine-month periods, ended September 30, 2007 and 2006, respectively, to
the law firms of two members of the Board of Directors for various legal services. As of September 30, 2007, we owed approximately $358 to the law firms for services rendered.



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In addition, in the ordinary course of business, we both provide and receive telecommunication transport
services from Boulevard Communications, LLP (Boulevard), a Competitive Access Provider (CAP) jointly owned by us and a company in the Armstrong Holdings, Inc. group of companies. Total revenues recognized from providing services to Boulevard were
approximately $9 and $6 for the three-month periods, and $22 and $19 for the nine-month periods, ended September 30, 2007 and 2006, respectively. Total expenses incurred from receiving services from Boulevard were approximately $24 and $25 for
the three-month periods, and $73 and $88 for the nine-month periods, ended September 30, 2007 and 2006, respectively.

(7) Income Taxes

The Company adopted Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income
Taxes  an Interpretation of Financial Accounting Standards Board Statement No. 109 (FIN 48), on January 1, 2007. The adoption of FIN 48 resulted in no cumulative effect adjustment to our beginning retained earnings.

Our liability for uncertain tax positions was $1,201 as of January 1, 2007, the date of the adoption of FIN 48. Of this amount, $511 of the
unrecognized tax benefits, if eventually recognized, would result in a reduction to our effective tax rate. The remaining $690 of unrecognized tax benefits, if eventually recognized, would not result in a reduction to our effective tax rate as it
related solely to temporary differences. The total amount of unrecognized tax benefits decreased to $378 at September 30, 2007, primarily due to the tax benefit recognized from the expiration of the federal statute of limitations for an
uncertain tax position taken on the 2003 tax return and to the favorable resolution of an accounting method change that was under discussion with the Internal Revenue Service. Of the $823 decrease in unrecognized tax benefits recorded since
January 1, 2007, $133 resulted in a reduction to our effective tax rate. The remaining $690 resulted in no reduction to our effective tax rate as it related only to temporary differences.

In accordance with the Companys accounting policy, accrued interest and penalties related to uncertain tax positions are recorded as a component of
income tax expense. As of January 1, 2007, $339 was accrued for the possible payment of interest and penalties. The total amount of interest and penalties related to uncertain tax positions decreased to $150 at September 30, 2007,
primarily due to the recognition of the uncertain tax positions as described in the previous paragraph.

The liabilities for uncertain tax
positions of $378 and their associated accrued interest and penalties of $150 as of September 30, 2007 are reported in other liabilities (non-current) in the Condensed Consolidated Balance Sheets included in this Part 1, Item 1 in this
Form 10-Q. Consistent with the provisions of FIN 48, we reclassified the $1,201 of uncertain tax positions and $339 of accrued interest and penalties that existed at December 31, 2006 from a current to a non-current liability because any
related payment of cash was not anticipated within one year of the balance sheet date.

We file income tax returns, including returns for
our subsidiaries, in the U.S. federal jurisdiction and Pennsylvania tax jurisdiction. The periods subject to examination for the Companys federal income tax returns are the 2004 through 2006 tax years. The periods subject to examination for
the Companys Pennsylvania income tax returns are the 2002 through 2006 tax years.

The remaining $378 of unrecognized tax benefits as
of September 30, 2007 relate to certain distributions from investments. No amounts of this liability are currently expected to decrease by the end of 2007.

(8) Discontinued Operations

On December 30, 2005, Penn Telecom sold its business telecommunications equipment
operations (business systems) for $31 in cash and a $247 promissory note issued by the purchaser. As the $247 promissory note did not bear any interest, the Company recorded the original book value of the note receivable to be $229, with the $18
differential from the face value of the note recorded as imputed interest income as earned. Summarized financial information for discontinued operations for the three and nine-month periods ended September 30, 2007 and 2006 were as follows:



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|                                                        |  |                                |   |      |                               |    |      |  |      |   |  |   |    |  
|------------------------------------------------------- |  | ------------------------------ | - | ---- | ----------------------------- | -- | ---- |  | ---- | - |  | - | -- | -
|                                                        |  | Three Months EndedSeptember 30 |   |      | Nine Months EndedSeptember 30 |   
|                                                        |  | 2007                           |   | 2006 |                               |    | 2007 |  | 2006 |  
|Interest income                                         |  | $                              |  |      | $                             | 4  |      |  | $    |  |  | $ | 15 |  
|                                                        |  |                                |   |      |                               |    |      |  |      |   |  |   |    |  
|Income from discontinued operations before income taxes |  |                                |  |      |                               | 4  |      |  |      |  |  |   | 15 |  
|                                                        |  |                                |   |      |                               |    |      |  |      |   |  |   |    |  
|Income tax expense                                      |  |                                |  |      |                               | (1 | )    |  |      |  |  |   | (6 | )
|                                                        |  |                                |   |      |                               |    |      |  |      |   |  |   |    |  
|Income from discontinued operations, net of taxes       |  | $                              |  |      | $                             | 3  |      |  | $    |  |  | $ | 9  |  
|                                                        |  |                                |   |      |                               |    |      |  |      |   |  |   |    |  

Installment payments on the promissory note of $34, $71, $71 and $71 were received by Penn Telecom
in April, June, September, and December of 2006, respectively. The $195 of cash provided by operating activities from discontinued operations for the nine-month period ended September 30, 2006, as reported on the Condensed Consolidated
Statements of Cash Flows included in this Part I, Item 1 in this Form 10-Q, consisted of net income from discontinued operations of $9 and the collection of business systems customer accounts receivable of $288 offset partially by the payment
of $102 of business systems obligations outstanding at December 31, 2005. The customer accounts receivable collected were not assigned as part of the asset purchase agreement.

(9) Workforce Reduction and Business Restructuring

On November 15, 2006, we announced an
amendment to the North Pittsburgh Pension Plan that froze benefit accruals for non-bargaining unit participants in the Pension Plan effective December 31, 2006. Concurrently, we also announced a voluntary early retirement incentive program for
eligible non-bargaining unit participants in the Pension Plan. This early retirement incentive program extended through March 31, 2007. This incentive program enhanced a participants retirement benefit calculation by adding three
additional years of service to the participants actual service. In addition, for purposes of determining early retirement eligibility and any reduction for early benefit commencement, three years were added to both the age and years of service
of the Pension Plan participant who elected to take advantage of the early retirement incentive program. Of the Pension Plan participants eligible to participate in the early retirement incentive program, 40 employees elected to retire and receive
this enhanced benefit on or before March 31, 2007.

We completed a re-measurement of our Pension Plan and postretirement healthcare
and life insurance plans at March 31, 2007, and we recorded $6,468 in curtailment and special termination benefit expenses associated with the early retirement incentive program. Cash flows from operations were not impacted by these charges
because there were no cash severance or lump sum benefit options or enhancements associated with the voluntary early retirement incentive program. We have realized immediate ongoing annual cost savings of approximately $2,600 as a result of this
program and corresponding reduction in personnel, and we estimate an ultimate annual cost savings of approximately $3,300 once fully phased-in. The difference between the immediate cost savings and the fully phased-in cost savings reflects the fact
that we are incurring some costs for temporary part-time help, outside contractors and overtime during a transition in which the Company restructures to absorb the workload associated with those 40 employees who retired as part of the voluntary
early retirement incentive program.

In addition to the non-executive employees eligible to participate in the early retirement incentive
program through the Pension Plan, 6 executive officers, all of whom participate in North Pittsburghs Restoration Plan, were eligible to participate in the early retirement incentive program. The Restoration Plan was amended to extend the
voluntary early retirement incentive program to Restoration Plan participants, with the only difference being that the qualifying participants in the Restoration Plan have until March 31, 2008 to retire under the program. As of the date of this
Form 10-Q report, no qualifying participants in the Restoration Plan had elected to retire under this early retirement incentive program. We therefore currently do not know how many, if any, of the eligible Restoration Plan participants will elect
to retire under this early retirement incentive program, and we therefore are unable to determine the one time costs, if any, associated with this early retirement incentive program for qualifying participants of the Restoration Plan or the
potential ongoing annual savings, if any, that may result from any potential related reduction in personnel.

(10) Contingency

On October 23, 2006, Verizon Pennsylvania, Inc., along with a number of its affiliated companies, filed a formal complaint with the PA PUC claiming
that Penn Telecoms intrastate switched access rates are higher than those of the Incumbent Local Exchange Carrier (ILEC) in the corresponding service area and therefore are in alleged violation of a new Pennsylvania statute. The statutory
provision that Verizon cites was



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enacted as part of Pennsylvanias Act 183 of 2004. The current tariffed Penn Telecom switched access rates were filed and reviewed by the PA PUC and
permitted to go into effect prior to the passage of that new statute. Consequently, we believe that Penn Telecoms current rates were Commission permitted rates prior to enactment of the new legislation and therefore are grandfathered in place.
Further, the Act 183 provisions allow Competitive Local Exchange Carrier (CLEC) rates to be higher than the corresponding ILECs rates so long as the CLEC can demonstrate that the higher access rates are cost justified. We engaged a consulting
firm to develop a study of Penn Telecoms costs of providing intrastate access services and have submitted that study as part of our evidentiary presentation in the Verizon proceeding before the PA PUC. We believe that the cost study
demonstrates that the current Penn Telecom rates are indeed cost justified. However, the PA PUC has not yet determined a cost study methodology for use in supporting CLEC intrastate switched access rates in general, and it is therefore unknown at
this time whether the PA PUC will approve the cost study methodology used by Penn Telecom to support its intrastate access rates. Verizons original claim requested a refund of $480, exclusive of interest, from access billings through August
2006. In a letter dated January 30, 2007, Verizon notified Penn Telecom that it was revising its complaint to reflect a more current alleged over-billing calculation that resulted in a revised claim of $1,346, exclusive of interest, through
December 2006, which claim includes amounts from certain affiliates that had not been included in the original calculation. Verizon has further updated its claim due to the passage of additional months under dispute to $1,559, exclusive of interest,
through May 2007; such updated claim was included in Verizons main brief filed with the PA PUC on September 13, 2007. Based solely on our interpretation of the Verizon complaint and the underlying methodologies and calculations used by
Verizon in arriving at their $1,559 claim through May 2007, we estimate that the amount of such claim would be approximately $1,715, exclusive of interest, through September 30, 2007. We believe that Penn Telecoms switched access rates
are permissible, and we are vigorously opposing this complaint. In the event we are not successful in this proceeding, Penn Telecoms operations could be materially adversely impacted by not only the refund sought by Verizon but more
importantly by the prospective decreases in access revenues resulting from the change in its intrastate access rates, which would apply not only to Verizon and its affiliated companies that are parties to the complaint filed with the PA PUC but also
to all other carriers on a non-discriminatory basis. We preliminarily estimate that the decrease in our annual revenues and pre-tax income would be approximately $1,200 on a static basis (meaning keeping access minutes of use (MOUs) constant) if
Verizon were to prevail completely in its complaint.

Penn Telecom is not alone in having intrastate access rates that are higher than
those of the ILEC in the corresponding service area in which the CLEC operates. A number of CLECs in the state of Pennsylvania have intrastate access rates in excess of their respective incumbents. Verizon filed similar formal complaints with
the PA PUC against two of Pennsylvanias other largest CLECs, in February and April of 2007, respectively.

Verizon and its affiliated
companies have continued to pay all amounts billed by Penn Telecom, including the disputed amounts. Therefore, except for invoices that may be outstanding in the normal course of business on customary thirty-day payment terms, there are no amounts
contained in our accounts receivable balance as of September 30, 2007 related to this dispute. In addition, as it is our belief that Penn Telecoms access rates are justified, we have not established an accrued liability related to
Verizons claim. In the event that we are not successful in this proceeding, we may be required to record reductions in revenue in subsequent periods for all or part of the amount of Verizons outstanding claim as of September 30,
2007. Furthermore, if we are not successful in this proceeding, there exists a risk that other carriers may file against us claims similar to those of Verizon, and we may ultimately be liable for amounts in excess of the $1,559 claimed through May
2007 ($1,715 estimated through September 2007) solely by Verizon and its affiliated companies.

(11) Rural Telephone Bank Stock Redemption

On January 30, 2006, North Pittsburgh executed a Stock Redemption Agreement between the Rural Telephone Bank (RTB) and North
Pittsburgh. The RTB had decided to liquidate and dissolve, and the redemption of the RTB stock was a required part of that liquidation. North Pittsburgh owned $19,622 in par value of RTB stock, with $19,572 of the par value in the form of RTB Class
C stock and $50 in the form of RTB Class B stock. On April 11, 2006, North Pittsburgh received its payment of $19,622 for the redemption of its RTB stock and recognized a gain in the amount of the total proceeds ($19,622) received for its RTB
stock.

(12) Special Dividend

On April 20, 2006, our Board of Directors declared a special 100thanniversary common stock dividend of $1.00 per share, which was paid on May 15, 2006 to shareholders of record on May 1, 2006. The $1.00 per share amounted to an aggregate
cash distribution of $15,005.

(13) Accounting Changes and Recent Accounting Pronouncements

In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS
No. 159). SFAS No. 159 allows entities the option



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to measure eligible financial instruments at fair value as of specified dates. Such election, which may be applied on an instrument by instrument basis, is
typically irrevocable once elected. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007 and early application is allowed under certain circumstances. The Company is currently evaluating the impact, if any, SFAS
No. 159 may have on the Companys consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements (SFAS No. 157). SFAS No. 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and expands disclosures about fair value measurements.
SFAS No. 157 is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. We are currently evaluating the impact, if any, SFAS No. 157 may have on the Companys consolidated
financial statements.

In June 2006, the FASB ratified the Emerging Issues Task Force (EITF) consensus on EITF Issue No. 06-3
How Taxes Collected From Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation) (EITF 06-3). The scope of EITF 06-3 includes any tax assessed by a
governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer, and provides that a company may adopt a policy of presenting taxes either on a gross basis  that is, including the taxes within
revenue  or on a net basis. For any such taxes that are reported on a gross basis, a company should disclose the amounts of those taxes for each period for which an income statement is presented if those amounts are significant. EITF 06-3 is
effective for financial reports for interim periods and annual reporting periods beginning after December 15, 2006. The Company adopted EITF 06-3 on January 1, 2007. The Company collects various taxes that fall under the scope of EITF 06-3
on services provided and is accounting for and reporting them on a net basis.

The Company adopted FIN 48 on January 1, 2007. FIN 48
clarifies the accounting and reporting for uncertainties in income taxes recognized in a companys financial statements. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement
of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition issues. In May 2007, the FASB released
FASB Staff Position FIN 48-1, Definition of Settlement in FASB Interpretation No. 48 (FSP FIN 48-1). FSP FIN 48-1 provides guidance on how a company should determine whether a tax position is effectively settled for the purpose of
recognizing previously unrecognized tax benefits. Please refer to Note 7 in these Notes to Condensed Consolidated Financial Statements for additional information, including the effects of adoption of FIN 48 on the Companys consolidated
financial statements.



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PART I

Item 2. Managements Discussion and Analysis of Financial Condition

and Results of Operations

(Amounts in Thousands Except Per Share Data and Operating Statistics)

Cautionary Language Concerning Forward-Looking Statements

In addition to historical information,
this Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (Section 27A) and Section 21E of the Securities Exchange Act of 1934 (Section 21E) regarding
events, financial trends and critical accounting policies that may affect our future operating results, financial position and cash flows. We intend that such forward-looking statements be subject to the safe harbors within Section 27A and
Section 21E as provided by the Private Securities Litigation Act of 1995.

Forward-looking statements are usually accompanied by words
such as believes, anticipates, expects, estimates, intends or similar words or expressions. Such statements are based on our assumptions and estimates and are subject to risks and
uncertainties. You should understand that various factors, including (but not limited to) those items discussed below and elsewhere in this document, could cause our actual results to differ materially from the results expressed in or implied by
these forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which are current only as of the date of this filing. We disclaim any intention or obligation to update or revise any
forward-looking statements, whether as a result of new information, future events or otherwise.

While the following list of risks and
uncertainties is not exhaustive, some factors, in addition to those contained throughout this document, that could affect future operating results, financial position and cash flows and could cause actual results to differ materially from those
expressed in or implied by the forward-looking statements are:



| |  |  | a change in economic conditions in the markets in which we operate;
| | - |  | -------------------------------------------------------------------



| |  |  | government and regulatory policies at both the federal and state levels;
| | - |  | ------------------------------------------------------------------------



| |  |  | unanticipated higher capital spending for, or delays in, the deployment of new technologies;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | the pricing and availability of equipment, materials and inventories;
| | - |  | ---------------------------------------------------------------------



| |  |  | changes in the competitive environment in which we operate, including the intensity of competitive activity, pricing pressures and new and/or alternative product
offerings;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to continue to successfully penetrate our edge-out markets;
| | - |  | -----------------------------------------------------------------------



| |  |  | risks associated with the proposed merger with Consolidated Communications Holdings, Inc., including failure to consummate or a delay in consummating the merger.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

We also refer you to the section titled Risk Factors under Item 1A of our 2006 Form 10-K and the
section titled Legal Proceedings under Part II, Item 1 of this Form 10-Q for additional discussions concerning items which pose risks and uncertainties that could affect our future results.

Overview

We are a telecommunications company with
annualized revenues of approximately $100 million. Our original core business, which dates back to 1906, consisted primarily of providing telecommunications services in our ILEC territory, which today covers approximately 285 square miles and is
located north of the City of Pittsburgh, Pennsylvania. In 1995, as the Internet was still in its relatively early stages, we purchased a small Internet Service Provider (ISP) as a segue into that area of the communications marketplace. During 1999,
we began to expand our business beyond our ILEC territory via a CLEC edge-out strategy. In addition, from 1997 through 2001, we invested approximately $83 million in our ILEC territory to upgrade the majority of our network and to deploy a Carrier
Serving Area (CSA) architecture in order to allow us to offer advanced broadband products. Starting in 2006 we began expanding on this CSA architecture by deploying fiber even deeper into our ILEC network, thereby allowing us to significantly
upgrade our data products and services.

Today, the investments that we have made to develop our Internet related products, to expand our
business via our edge-out strategy and to modernize our network for advanced



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broadband products have provided the majority of our new sources of revenue. The great majority of our revenues are generated based on services with monthly
recurring fees and are therefore not subject to large short-term fluctuations.

In addition to our core businesses described above, we also
derive a portion of our net income and cash flow from our limited partner interests in three wireless partnerships, all of which are majority owned and operated by Verizon Wireless. These partnerships, which have their origin in the 1980s with the
allocation by the FCC of B licenses, cover territories which overlap the majority of our ILEC and edge-out markets.

General Description of Our Company
and Business

The Registrant, organized May 31, 1985, is a holding company. Its predecessor, North Pittsburgh Telephone Company
(North Pittsburgh), a telephone public utility incorporated in 1906, became a wholly owned subsidiary of the Registrant on May 31, 1985. Penn Telecom, Inc. (Penn Telecom) became a wholly owned subsidiary of the Registrant on January 30,
1988. Prior to this date, Penn Telecom was a wholly owned subsidiary of North Pittsburgh. Penn Telecom is certificated as a CAP, a CLEC and an Interexchange Carrier (IXC) and has entered into these businesses. Pinnatech, Inc. (Pinnatech), a wholly
owned subsidiary of the Registrant, formed in 1995, principally provides Internet and broadband related services. The Registrant, North Pittsburgh, Penn Telecom and Pinnatech operate under the provisions of the Pennsylvania Business Corporation Law.

North Pittsburgh Telephone Company

North Pittsburgh, our ILEC, was founded in 1906 and operates in an approximately 285 square mile territory in Western Pennsylvania, which includes portions of Allegheny, Armstrong, Butler and Westmoreland Counties. As
of September 30, 2007, we served 59,311 business and residential access lines in our ILEC territory. Over the past decade, our ILEC territory has experienced very robust population growth due to the continued expansion of suburban communities
into our serving area, with the southernmost point of our territory only 12 miles from the City of Pittsburgh. Growth in business activity in our ILEC territory has accompanied the population growth.

Compared to other ILECs, the majority of which serve territories that are very rural, our ILEC benefits from the favorable demographics associated with
the population and business growth that has accompanied the continued development of suburban communities north of the City of Pittsburgh. These favorable demographics, however, also put our ILEC in a much more competitive situation than many of its
peers due to the fact that our competitors also view these demographics to be an attractive market. The national wireless companies have built robust networks that cover the majority of our ILEC territory. In addition, the two cable companies that
overlay the majority of our territory each launched, in 2006, aggressive triple play packages of voice, video and broadband service. In general, these cable companies have very modernized networks, a high percentage of homes passed and a high
penetration rate for their video services. The launch of voice offerings by our cable competitors has been the primary cause for the acceleration in our access line attrition from a loss of 1,898 lines, or 2.6%, during 2005 to an access line loss of
7,092, or 10.1%, during 2006. Our most recent access line loss rate in our ILEC territory of 883 lines and 1,352 lines for the second and third quarters of 2007, respectively, have improved from the 1,771 lines lost in the first quarter of 2007 and
3,030 lines lost in the fourth quarter of 2006, which was the first full quarter that number portability was available to our cable competitors. Although our ILEC access line loss rate has shown improvement from the initial period in which number
portability became available to some of our main competitors, the loss rate will most likely still be higher than we historically experienced prior to the entrance of our cable competitors into the telephony market in 2006. CLECs are not a
significant competitive factor at the present time due to some of the protections still granted to our ILEC as a rural company, but CLECs more likely than not will become a larger competitive force in the future as some of the regulatory barriers to
entry will most likely diminish. Even Verizon, which has core properties to the south and west of our ILEC territory, has become a competitive force as a result of its recent acquisition of MCI, which has CLEC authority in many parts of the state of
Pennsylvania, including our ILEC territory.

North Pittsburgh operates a 100% digital switching network, comprised of nine central offices
and 86 CSAs. The core of the network consists of two main host switches, a Nortel DMS 500 and a Nortel DMS 100. Our CSA architecture, in which nearly all loop lengths are kept to 12,000 feet or less, has enabled us to provide Digital Subscriber Line
(DSL) service to 100% of our access lines. In addition, we have deployed fiber optic cable extensively throughout the network, resulting in a 100% Synchronous Optical Network (SONET) that supports all of the inter-office and host-remote links as
well as the majority of business parks within our ILEC serving area. In 2006, we embarked on a capital construction project to further deploy fiber closer to the homes and businesses that we serve. We have continued our fiber deployment in 2007 and
now have fiber provisioned to within 5,000 feet of approximately 95% of our addressable access lines. This deployment of fiber will allow us to provision DSL connections with speeds ranging between 20 to 25 megabits per second, a substantial
increase over our current maximum speed of 3 megabits



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per second. During 2006, we also upgraded our data transmission network to a gigabit Ethernet backbone using a Multiple Protocol Label Switching (MPLS)
network that will more efficiently and effectively handle the increased bandwidth demands of our network, especially our next-generation DSL products as well as our business class Ethernet offerings. We believe that these investments will enable us
to offer products and services that will satisfy the growing customer demand for broadband and multi-megabit services, which we believe is a key factor for our future success.

Penn Telecom

Penn Telecom furnishes
telecommunication and broadband services south of North Pittsburghs territory to customers in Pittsburgh and its surrounding suburbs as well as north of North Pittsburghs territory in the City of Butler and its surrounding areas. Verizon
is the ILEC in the Pittsburgh area, while Embarq (formerly Sprint) is the ILEC in the City of Butler and its surrounding areas. Our CLEC operation follows a true edge-out strategy, in which it has leveraged North Pittsburghs
network, human capital skills and reputation in the surrounding markets.

We operate an extensive SONET optical network with over 300 route
miles of fiber optic facilities in the Pittsburgh metropolitan market. We have physical collocation in 27 Verizon central offices and one Embarq central office and primarily serve our customers using unbundled network element (UNE) loops.
Twenty-seven of these collocations are connected to our SONET using a combination of leased and owned fiber optic facilities. In the Pittsburgh market, a carrier hotel that we operate serves as the hub for the fiber optic network. In addition, we
also offer space in the carrier hotel to ISPs, IXCs, other CLECs and other customers who need a carrier-class location to house voice and data equipment as well as gain access to a number of networks, including ours. In the City of Butler, we have
overbuilt a portion of the Embarq distribution plant in the central business district and continue to expand these facilities as we increase our penetration of the Butler area business market.

Our sales strategy in our edge-out markets has been to focus on small to mid-sized business
customers (defined as 5 to 500 lines), educational institutions and healthcare facilities, offering local and long distance voice services as well as broadband services including DSL and multi-megabit metro Ethernet. Our fiber-based network,
comprised of multiple rings, enables us to compete against Verizon and other CAPs by offering high capacity special access circuits (from DS-1s up to OC-48s) to IXCs, ISPs and even other CLECs. We have also deployed an MPLS network to handle the
core routing and transport of our metro Ethernet in the First Mile products, as it provides a much more efficient method of aggregating, transporting and managing our Ethernet offerings. As of September 30, 2007, Penn Telecom served 42,317
access lines and 25,485 access line equivalents1, for a grand total of 67,802 equivalent access lines.2Over the course of the last twelve months, Penn Telecom has added 494 access lines and 3,585 access line equivalents.

In addition to the CLEC operations, Penn Telecom also provides long distance services. Prior to our CLEC operations, the majority of our long distance
customers resided in our ILEC market. However, with the growth of our CLEC customer base and the effective bundling of toll with local dial tone services, we have been able to greatly expand this service offering throughout Western Pennsylvania.

Pinnatech

Pinnatech,
an ISP doing business under the Nauticom name, furnishes Internet access and broadband services in Western Pennsylvania. We serve the majority of our DSL and other broadband customers over our ILEC and CLEC networks with Pinnatech serving as the ISP
providing a gateway to the Internet. In addition, Pinnatech also provides virtual hosting services, collocation services, web page design and e-commerce enabling technologies to customers.

Employees

At September 30,
2007, the Company, through all of its subsidiaries, employed 298 persons. Approximately 32% of the Companys employees are covered under collective bargaining agreements. In October 2004, North Pittsburghs bargaining employees ratified a
new labor contract with the Communications Workers of America (CWA) that was effective through September 30, 2007. In October 2007, that labor contract was extended for a one-year period, to September 30, 2008. Also, in September 2005,
Penn Telecoms bargaining employees ratified a labor contract with the CWA that will remain in effect until August 31, 2008.

---

|1 | Access line equivalents represent a conversion of data circuits to an access line basis and are presented for comparability purposes. Equivalents are calculated by converting data
circuits (basic rate interface (BRI), primary rate interface (PRI), DSL, DS-1 and DS-3) and SONET-based (optical) services (OC-3 and OC-48) to the equivalent of an access line. While the revenues generated by access line equivalents have a
directional relationship with these counts, growth rates cannot be compared on an equivalent basis.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2 | Equivalent access lines include access lines and access line equivalents.
|- | -------------------------------------------------------------------------



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Additional Information

For a more complete understanding of our business, industry, principal services rendered, properties and other interests, we suggest you read our
2006 Form 10-K. There have been no significant changes in the mode of conducting business or the properties owned by the Company or its subsidiaries since the filing of that Form 10-K report. Current updates to the regulatory environment under which
our subsidiaries operate can be found below in the Regulatory Environment section of this Managements Discussion and Analysis of Financial Condition and Results of Operations.

Industry Dynamics

The overall structure of the
telecommunications industry has been rapidly changing. There has been consolidation among the largest companies, with the two largest IXCs (AT&T and MCI) being acquired by SBC (newly renamed AT&T) and Verizon, respectively. The new AT&T
subsequently purchased BellSouth, which resulted in consolidation of both wireline and wireless assets. The wireless sector has also been consolidating, spurred by the Sprint-Nextel combination and the subsequent acquisitions of many of the former
Sprint and Nextel independent affiliates. The telecommunications industry is also being greatly impacted by the emergence of new entrants into the market, such as cable companies that are offering triple play packages of voice, video and broadband
services.

Demand for the traditional voice telecommunications business has been negatively impacted by the proliferation of wireless
services and their one-rate bundled pricing plans that include large (if not unlimited) buckets of minutes, by the popularity of alternative communication technologies such as email and instant messaging and by technological advances such as cable
modems and DSL that obviate the need for secondary, and in some cases primary, access lines. The numerous sources of new competition for almost all aspects of the voice telecommunications market have resulted in price decreases for many voice
products and services.

Broadband growth has been a bright spot in the overall industry during the past several years. However, the
broadband market is very competitive, with little differentiation to the end-user customer between products offered by telephone and cable companies and alternative broadband providers. As such, pricing has been the main focus in winning new
customers and retaining existing customers. Although the costs to deliver broadband technologies have decreased over the past several years, profit margins have continued to be squeezed by pricing decreases to customers.

The proliferation of broadband access has also resulted in new competition from innovative technologies, such as Voice over Internet Protocol (VoIP),
that threaten to further decrease the revenues received from the traditional voice business. Besides potentially displacing the need for a secondary or primary line, the potential regulatory definition and classification of VoIP services (which
takes on many forms) may have a significant impact on the current access compensation structure.

Regulation and Competition

The telecommunications industry has been greatly impacted by the passage of the Telecommunications Act of 1996 (the 1996 Act), which was the legislative
instrument that opened the industry to significantly greater competition. The degree and pace at which markets have been experiencing competition have varied, with most of the original regulatory barriers to entry removed in the markets served by
the countrys largest local exchange carriers, also referred to as the Regional Bell Operating Companies (RBOCs). Smaller rural companies, such as our ILEC, North Pittsburgh, were given regulatory relief in the form of exemptions and temporary
suspensions from many of the competitive portions of the 1996 Act in order to allow state regulators sufficient time to examine the public policy implications of allowing competition in rural areas and, if deemed in the public interest, to allow
smaller companies to gradually prepare for competition and to restructure rates. Although we still maintain in our ILEC territory some of the regulatory protections against non-facilities based competition, we expect that over time these protections
will be reduced or entirely eliminated.

While the 1996 Act has placed a higher degree of uncertainty on our future revenue streams and
margins in our ILEC territory, it has given us the opportunity to selectively expand outside of that territory by taking advantage of the pro-competitive aspects of the 1996 Act. We have pursued an edge-out strategy into Pittsburgh and its
surrounding communities as well as into the City of Butler and its surrounding areas, leveraging the network, human capital skills and solid reputation of our traditional ILEC business.

The 1996 Act primarily deals with regulations concerning intra-modal competitionthat is, competition among traditional wireline companies. At the
same time, however, we have begun to experience a great deal of inter-modal competition from wireless carriers and cable companies. We



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view these facilities based competitors to be the most formidable, as these companies totally bypass our existing networks.

Highlights and Outlook

Net income for the nine-month
period ended September 30, 2007 was $9,226, or $.61 per share, as compared to $26,579, or $1.77 per share, for the comparable prior year period. Significant items that were not routine in nature impacted both periods. As discussed in more
detail in Note 9 of the Notes to Condensed Consolidated Financial Statements included in Part 1, Item 1 in this Form 10-Q, we recorded $6,468 in curtailment and special termination benefit expenses during the first quarter of 2007 that were
associated with the election by 40 employees to retire under the voluntary early retirement incentive program that was in place through March 31, 2007 at our North Pittsburgh subsidiary. On an after tax basis, the curtailment and special
termination benefit expenses resulted in a $3,784 decrease in net income recorded for the nine-month period ended September 30, 2007. Also, in connection with activities that resulted in or were pursuant to the Merger Agreement with
Consolidated, we incurred strategic alternatives expenses of $2,189 related to financial advisory, legal and other fees during the second and third quarters of 2007; on an after tax basis, these expenses reduced net income recorded for the
nine-month period ended September 30, 2007 by $1,281. With respect to the prior year comparable period, as discussed in more detail in Note 11 of the Notes to Condensed Consolidated Financial Statements included in Part 1, Item 1 in this
Form 10-Q, our North Pittsburgh subsidiary received its redemption payment of $19,622 from the RTB during the second quarter of 2006. We recognized a gain in the full amount of the proceeds received, which, on an after tax basis, contributed $11,479
to the net income recorded for the nine-month period ended September 30, 2006. The remainder of the decrease in net income was primarily attributable to the decline in revenues discussed below.

Revenues for the nine-month period ended September 30, 2007 decreased $5,444, or 7.0%, from the prior year comparable period. Revenues continue to
be negatively affected by the competition experienced in our ILEC territory, as the two main cable companies whose service areas overlap the majority of our ILEC territory launched their own proprietary voice services in the beginning of 2006. Over
the past twelve-month period, we experienced a 7,036, or 10.6%, access line decrease in our ILEC territory. The addition of 494 access lines in our CLEC edge-out markets over that same twelve-month period was not enough to offset the loss of access
lines in our ILEC market, resulting in a $1,238 decrease in local dial tone revenues during the nine-months ended September 30, 2007. The effect of competition, however, has been more pronounced on our toll revenues. We experienced a $1,591
decrease in such revenues in the nine-months ended September 30, 2007 as compared to the prior year comparable period. We have been aggressive in promoting newer calling plans with either unlimited or flat rate toll at different tiered MOU
levels in order to match competitive offerings. By doing so, we have actually been very successful in winning customers in our ILEC territory from the traditional IXCs, although this is detrimental in the short-term to our originating access
revenues. In addition, we have been aggressive in marketing these newer plans to our existing toll customers, who may have been on higher rated calling plans. As a result of the combination of winning toll customers away from the traditional IXCs
and the conversion of existing customers on higher rated plans, we have experienced an approximate 3,800 subscriber line increase to our unlimited packaged plan, 1000 anytime minutes plan and 250 anytime minutes plan in our ILEC territory over the
past twelve-month period. These plans, however, have been aggressively priced to compete with plans marketed by our competitors, such as wireless carriers, VoIP providers and the two main cable companies in our ILEC territory. For instance, in 2005,
we charged over $55.00 on average for the individual services that now comprise our unlimited calling plan (local dial tone, toll and enhanced features). Today, we have priced our unlimited calling plan at $39.95, with a six-month promotional price
of $29.95 (as a stand-alone service) or $19.95 (when combined with DSL). Although our proactive approach to signing up customers to these newer priced plans most likely has resulted in an acceleration of our revenue decrease in the short-term, we
believe that these customers will have less incentive to switch to one of our competitors offerings in the future and that our strategy will ultimately prove beneficial to our long-term results, especially when considering the other revenue
sources (such as local dial tone revenues, access revenues and Universal Service Fund (USF) revenues) that we lose if a customer switches to a competitor.

In addition, access revenues have decreased from the prior year comparable period, mostly due to a decrease in overall access MOUs on our network and from a decrease in revenues recognized from the National Exchange
Carrier Association (NECA) pool in which our ILEC, North Pittsburgh, participates. Broadband growth has been a bright spot, although the $213 increase in broadband revenues for the first nine months of 2007 over the prior year comparable period was
not enough to offset the impact of the above-mentioned effects of the decreases in local dial tone, toll and access revenues.

For the
remainder of 2007, we believe that revenues will continue to trail those amounts earned during the comparable 2006 period due to multiple factors. First, as discussed in more detail in the Regulatory Environment section below in this
Item 2 of this Form 10-Q, interstate revenues for our ILEC will be negatively impacted by both the normal modifications to the NECA average schedule formulas as well as the structural changes to those formulas that were made by the NECA tariff
filing for the July 1, 2006 through June 30, 2007 period as well as from the modifications to the average schedule formulas made by the NECA filing for the July 1, 2007



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through June 30, 2008 period. Second, as noted above, we have seen intense competition in our ILEC market over the last fifteen months as the two cable
companies that overlap the majority of our incumbent market have launched and are heavily promoting their proprietary telecommunications offerings. Our ILEC continues to enjoy several forms of regulatory protection regarding non-facilities based
competition, and the entry into our market by the cable companies marks the first main thrust of competition from non-wireless service providers, other than the competition we have experienced in the past and continue to experience from facilities
based CAPs competing for larger business customers. We have also begun to experience some competition from CLECs, as several have recently negotiated interconnection agreements and have begun to offer services to customers within our ILECs
territory. Our most recent access line loss rate in our ILEC territory of 883 lines and 1,352 lines for the second and third quarters of 2007, respectively, improved from the 1,771 lines lost in the first quarter of 2007 and 3,030 lines lost in the
fourth quarter of 2006, which was the first full quarter in which number portability was available to our cable competitors. Although our ILEC access line loss rate has shown improvement from the initial period that number portability became
available to some of our main competitors, the loss rate will most likely still be higher than we historically experienced prior to the entrance of our cable competitors into the telephony market in 2006. In addition, pricing pressures are
anticipated to continue for the majority of the products and services that we provide.

We expect that new revenue generation will continue
to be driven by the addition of new customers in our edge-out markets, by the introduction of new products and services and by further broadband penetration. The capital investments that we have made in 2006 and continue to make in 2007 to push
fiber deeper into our ILEC network will allow us to commercially deploy our next generation DSL product during the fourth quarter of 2007. We have been achieving speeds ranging from 20 to 25 megabits per second in our current trials and we
anticipate launching enhanced broadband services on a broader base in the fourth quarter of 2007, with additional deployments throughout 2008. In addition, we have seen robust growth in our multi-megabit metro Ethernet product, which we expect will
continue throughout the remainder 2007. We will continue to focus to an even greater extent on bundled product offerings, which we anticipate will continue to drive value to our customers and serve as a tool for retention of our existing customer
base. We have also introduced a business grade VoIP product, which we anticipate will enable us to further penetrate our existing edge-out markets as well as allow us to expand into adjacent new markets that previously were less attractive from a
full facilities based edge-out approach.

With the backdrop of the decreases in revenues resulting from the loss of access lines in our
ILEC territory and the negative developments we have been experiencing with respect to our access revenues, we have been working diligently on expense reduction initiatives. First, during 2006, we restructured our healthcare plans, which, once
restructured, were put through a competitive bidding process with various healthcare providers. As a result, our overall costs associated with our healthcare plans for active employees decreased by approximately $900 on an annualized basis,
effective with the plans years beginning January 1, 2007. Second, we restructured the postretirement benefit plans at our North Pittsburgh subsidiary by amending North Pittsburghs Pension Plan to freeze the future pension benefit
accrual effective December 31, 2006 for those employees not covered by the collective bargaining agreement. The freezing of the benefit accrual was partially offset by an enhanced formula for employer contributions into the North Pittsburgh
401(k) plan. As a result of the net effects of the amendments to the Pension Plan and 401(k) plan, the positive impact of the Pension Plans 14% return on plan assets experienced in 2006, and the positive impact experienced in our
postretirement healthcare plan from the aforementioned decrease in healthcare costs effective January 1, 2007, our costs associated with postretirement benefits decreased by approximately $1,040 in the first nine months of 2007 over the prior
year comparable period (exclusive of the one-time charges associated with the early retirement incentive program discussed immediately below). Finally, as discussed in more detail in Note 9 to the Condensed Consolidated Financial Statements included
in Part 1, Item 1 in this Form 10-Q, we implemented a voluntary early retirement incentive program for certain eligible non-union employees of North Pittsburgh through March 31, 2007. There were 40 employees who elected to retire under the
voluntary early retirement incentive program, and we recorded $6,468 in curtailment and special termination benefit expenses associated with those retirements and a corresponding re-measurement of the North Pittsburgh Pension Plan and postretirement
healthcare and life insurance plans. Cash flows from operations were not impacted by these charges during the first nine months of 2007 because there were no cash severance or lump sum benefit options or enhancements associated with the voluntary
early retirement incentive program. We have realized immediate ongoing annual cost savings of approximately $2,600 as a result of this program and corresponding reduction in personnel, and we estimate an ultimate annual cost savings of approximately
$3,300 once fully phased-in.

We have also benefited from investments we made in the last two decades in three wireless partnerships, all
of which today are majority owned and operated by Verizon Wireless. Instead of deploying the majority of our investment capital into forming and operating our own wireless business, in which we would have been at a tremendous disadvantage competing
in a market dominated by national carriers with billions of dollars in capital resources, we alternatively invested in three wireless partnerships serving Pittsburgh and other portions of Western Pennsylvania. Total equity income recorded from our
investments in the wireless partnerships increased $1,022 in the first nine months of 2007 over the comparable prior year period.



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Results of Operations

The following discussion should be read in conjunction with our condensed consolidated financial statements, and the notes thereto, included in this quarterly report and with our audited financial statements, and
notes thereto, included in our 2006 Form 10-K.

Nine Months Ended September 30, 2007 and 2006

Net income for the nine-month period ended September 30, 2007 was $9,226, or $.61 per share, compared to net income of $26,579, or $1.77 per share,
for the comparable prior year period. The decrease in net income was attributable to the following factors:

Operating Revenues

For the nine-month period ended September 30, 2007, total operating revenues decreased $5,444, or 7.0%, from the comparable period in
2006. This decrease was the result of decreases in local network services revenues of $1,691 (7.5%), long distance and access services revenues of $3,818 (8.5%) and directory advertising, billing and other services revenues of $132 (12.4%),
offset partially by an increase in other operating revenues of $197 (2.2%).

Decreases in local network services revenues of $1,691, or
7.5%, were primarily attributable to the following factors:



| |  |  | Local dial tone revenues decreased $1,238 as a result of total access lines (including CLEC) decreasing by 6,542 lines, or 6.0%, from 108,170 access lines as of
September 30, 2006 to 101,628 access lines as of September 30, 2007. More specifically, the total decrease was a result of a 7,036 access line decrease in our ILEC market offset partially by a 494 access line increase in our edge-out
markets.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Enhanced feature revenues (which include revenues from custom calling features such as voicemail, caller ID, call waiting, etc.) decreased $354, mostly as a result
of deep discounts offered on these services when a customer subscribes to one of our bundled calling plans. The decline in access lines has also contributed to a decrease in enhanced feature revenues.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Local reciprocal compensation revenues earned from terminating local traffic generated mostly from data PRIs decreased by $133. The consolidation of our ISP
customer base, which has led to the elimination of redundant and excess facilities, the general decline in the dial-up Internet market and the migration of some ISP customers to managed host providers have led to the decline in data PRIs and their
associated MOUs.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The decrease in long distance and access
services revenues3of $3,818, or 8.5%, was primarily attributable to the following factors:



| |  |  | Access revenues decreased $2,876, primarily due to the following factors:
| | - |  | -------------------------------------------------------------------------



| |  |  | During the first nine months of 2007, three factors impacted North Pittsburghs interstate access revenues recognized from the NECA pool. First, as described
in more detail in the Regulatory Environment section below in this Item 2 of this Form 10-Q, interstate revenues for North Pittsburgh were negatively impacted by both the normal annual modifications to the NECA average schedule
formulas as well as the structural changes to those formulas that became effective July 1, 2006 (for the fiscal year July 1, 2006 through June 30, 2007 tariff filing) and July 1, 2007 (for the fiscal year July 1, 2007
through June 30, 2008 tariff filing). Revenues for the nine-month period ended September 30, 2007 decreased by approximately $1,030 as a result of the changes to the average schedule formulas. Second, average schedule formulas are driven
by demand data, the most important of which are access lines and interstate access MOUs. In conjunction with the access line and interstate access MOU decreases experienced by North Pittsburgh, its revenue requirement from the NECA average schedules
decreased by approximately $700 for the first nine months of 2007 on a static basis (meaning keeping the average schedule formulas consistent with those respective formulas in effect during the first nine months of 2006; as such, this $700 decrease
is related solely to demand data and is exclusive of the $1,030
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|3 | The Company records and allocates into three main components the elements that comprise the long distance and access services revenue category. The first category, access revenues,
reflects mainly per MOU sensitive access charges, universal service revenues received by the Company and end-user interstate access line charges assessed on customer bills. The second category, special access, reflects the revenues received from
high capacity circuits (primarily DS-1s, DS-3s and OC-3s) that are: 1) provided directly to end-user customers, in both the Companys ILEC and CLEC territories; 2) provisioned to other telecommunication carriers for connection to their end-user
customers; or 3) provisioned for inter-office trunking and transport and are billed under the special access tariff. The third category, toll, represents amounts billed to end-users for metro-area, intraLATA, interLATA and international calls.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | decrease attributable to the change in the average schedule formulas discussed above). Third, the revenue generated by the NECA traffic sensitive pool has
recently been lower than that amount which the pool would be authorized to earn at its traditional 11.25% rate of return. We estimate that North Pittsburghs revenues have been negatively impacted by approximately $320 during the nine-month
period ended September 30, 2007 as a result of this under earnings in the NECA traffic sensitive pool.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We have experienced a decrease in overall access MOUs on our network. Part of the decrease in revenues derived from billing access MOUs to IXCs is due to our
cannibalization of originating access MOUs on our ILEC network as a result of our increased penetration of toll subscribers in our ILEC territory. We have been aggressive in promoting calling plans with either unlimited or flat rate toll at
different tiered MOU levels and thereby have won a greater share of subscribers from traditional IXCs. Although total access lines in our ILEC market decreased by 7,036 lines over the past twelve months, actual toll MOUs generated by our customers
in our ILEC market during the first nine months of 2007 increased by approximately 4.5 million MOUs over the prior year comparable period. This resulted in a shift in revenues received previously in the form of originating access from IXCs to
toll revenues received directly from our end-user customers. We estimate that this cannibalization of originating access MOUs accounted for approximately $235 of the decrease in access revenues. Absent this cannibalization, access MOUs decreased by
approximately 6%, which is commensurate with the overall decrease in aggregate access lines we experienced over the last twelve months in combination with the industry-wide shifting of wireline telephony voice MOUs to wireless and alternative
communication technologies such as email, instant messaging and VoIP.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Overall toll revenues decreased $1,591. We have continued to be successful in bundling toll in our edge-out markets (in which the number of access lines grew by
494), with nearly an 84% subscription rate. In addition, as mentioned above, we have also been successful in winning customers in our ILEC territory from the traditional IXCs and have been very proactive in an effort to switch our existing toll
customers to our newer calling plans. These plans, however, have been aggressively priced to compete with plans marketed by our competitors, such as wireless carriers, VoIP providers and the two main cable companies in our ILEC territory, which have
recently launched their own telephone services. Although our proactive approach to signing up customers to these lower priced plans most likely has resulted in an acceleration of our revenue decrease in the short-term, we believe that these
customers will have less incentive to switch to one of our competitors offerings in the future and that our strategy will ultimately prove beneficial to our long-term results, especially when considering the other revenue sources (such as
local dial tone revenues, access revenues and USF revenues) that we lose if a customer switches to a competitor. We do expect, though, that over the short-term our toll revenue will continue to be negatively impacted by our proactive conversion of
customers to our newer calling plans and that, over the long-term, pricing pressures on toll will continue to put downward pressure on the average effective revenue per MOU we receive.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Partially offset by:



| |  |  | Revenues generated from special access circuits increased approximately $649, mostly as a result of increases in the number of DS-1 and DS-3 circuits sold in our
ILEC territory. There has been an increase in trunking from wireless carriers and, with continued business growth in our ILEC territory, an increase in special access circuits ordered by large IXCs to corporate accounts. Special access revenues were
also positively impacted by an increase in revenues earned from early termination charges on circuits that were removed prior to the end of their contracted terms.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The decrease in directory advertising, billing and other services revenues of $132 was mostly a result of the prior year period including a positive $74
true-up of North Pittsburghs revenue earned from its 2005 directory book upon final settlement with its directory partner. In addition, revenues earned from carrier billing and collection services decreased $35.

The increase in other operating revenues of $197, or 2.2%, was primarily due to a $213 increase in DSL and multi-megabit metro Ethernet revenues.
Combined DSL lines (both wholesale and retail) sold increased from 15,389 as of September 30, 2006 to 16,860 as of September 30, 2007. Also, our multi-megabit metro Ethernet product, which is currently geared mostly for business
applications and can deliver speeds from 1 to 100 megabits, has experienced growth. Other operating revenues for the nine-month period ended September 30, 2007 was also positively impacted by a $124 increase in structured wiring revenues. These
increases were partially offset by a $123 decrease in dial-up Internet revenues.



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Operating Expenses and Net Operating Income

For the nine-month period ended September 30, 2007, total operating expenses increased $6,208, or 10.5%, from the comparable period in 2006. The
change was the result of strategic alternatives expenses of $2,189 and curtailment and special termination benefit expenses of $6,468 recognized during the first nine months of 2007 and an increase in depreciation and amortization expenses of $986
(10.2%), offset partially by decreases in network and other operating expenses of $3,184 (6.8%) and operating taxes of $251 (9.3%).

The $2,189 of strategic alternatives expenses was incurred in connection with the activities that have resulted in or were pursuant to the Merger Agreement with Consolidated and relate to financial advisory, legal and other fees for
services rendered during the second and third quarters of 2007.

The $6,468 of curtailment and special termination benefit expenses
was a direct result of the election of 40 employees to retire under the voluntary early retirement incentive program that was in place through March 31, 2007 at our North Pittsburgh subsidiary, as discussed in more detail in Note 9 of the Notes
to Condensed Consolidated Financial Statements included in Part 1, Item 1 in this Form 10-Q.

The increase in consolidated
depreciation and amortization expenses of $986, or 10.2%, was predominately due to the growth in our depreciable asset base (gross property, plant and equipment), which grew by $12,149 over the course of the past twelve months. Furthermore, a higher
ratio of new additions to our depreciable asset base consisted of data-centric equipment, which has shorter useful lives than our average depreciable base.

The decrease in network and other operating expenses of $3,184, or 6.8%, was primarily due to the following factors:



| |  |  | A combined labor and benefit expenses decrease of approximately $3,200, or 15%, for the nine-month period ended September 30, 2007 over the comparable period
in 2006. Current benefit expenses were a contributing factor to the decrease, as we experienced decreases in medical insurance premiums of approximately $875 as the result of the restructuring and subsequent competitive bidding of our healthcare
plans and an overall reduction in the number of employees. Postretirement benefit expenses, as described in more detail primarily in Note 5 of the Notes to Condensed Consolidated Financial Statements included in Part 1, Item 1 of this Form
10-Q, decreased by approximately $1,040 (excluding the additional expense due to curtailment and special termination benefits that are classified as a separate line item and are described separately above) in the first nine months of 2007 over the
prior year comparable period. Wages also declined by approximately $1,260 as a result of a reduction in headcount, offset partially by the normal year over year wage increases.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | An approximate $465 decrease in direct costs associated with provisioning our CLEC access lines and access line equivalents, toll subscribers in both our ILEC and
CLEC markets and broadband subscribers across all subsidiaries. Such direct costs include fees paid for leasing unbundled network elements in the portions of our edge-out markets that we do not provision over our own facilities and fees paid to
terminate local, toll and Internet traffic. The decrease primarily relates to the fact that the prior year included costs associated with the re-provisioning of CLEC circuits in conjunction with the final terms of the FCCs Triennial Review
Order as well as the fact that we have completed several network optimization projects in both our ILEC and CLEC territories in the current year.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Total operational support system (OSS) expenses decreased approximately $325, mostly as a result of costs incurred in the second and third quarters of 2006
associated with the migration to a new billing system at one of our subsidiaries.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Partially offset by:



| |  |  | An approximate $675 increase in professional services rendered during the first nine months of 2007, primarily related to increases in legal, Securities and
Exchange Commission reporting and human resources expenses.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The decrease in operating taxes of $251 was mainly due to a
$143 decrease in Pennsylvania gross receipts tax expense as a result of the decline in revenues described above as well as a $101 decrease in Pennsylvania capital stock tax as a result of a decrease in the millage rate for 2007.

Overall, the decrease in total operating revenues of $5,444 coupled with the increase in total operating expenses of $6,208 resulted in an $11,652
decrease in net operating income for the nine-month period ended September 30, 2007 over the comparable prior year period. As discussed above, two primary contributing factors to the decrease in net operating income were



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the $2,189 of strategic alternatives expenses and the $6,468 of curtailment and special termination benefit expenses recorded in connection with the
retirements under the voluntary early retirement incentive program. Operating income from all other sources for the nine-month period ended September 30, 2007 declined $2,995, or 15.9%, over the comparable prior year period.

Other Items

Interest expense
decreased for the nine-month period ended September 30, 2007 by $179 from the comparable prior year period due to the continued scheduled pay-down of our Federal Financing Bank (FFB) notes and capital lease obligations.

Interest income decreased by $122 for the nine-month period ended September 30, 2007 from the comparable prior year period due to a decline in the
average invested cash balance during the first nine months of 2007. The decrease in the average invested cash balance was partially offset by increases in the average interest rate received on our temporary investments. Our average interest rate
earned on temporary investments was 5.2% during the nine-month period ended September 30, 2007 as compared to 4.8% during the comparable prior year period.

Equity income of affiliated companies increased $996 in the nine-month period ended September 30, 2007 over the comparable prior year period, due mainly to a $1,022, or 16.1%, increase in the amount of income
generated from the Companys limited partner interests in three wireless partnerships. These partnerships, all of which are majority owned and operated by Verizon Wireless, have continued to show strong growth in number of customers and
operating results. Customer growth for the Pittsburgh SMSA, RSA 6 I and RSA 6 II partnerships over the last twelve months was 11%, 21% and 11%, respectively. In addition, equity income was positively impacted by $111 as a result of the additional
2.3825% interest in the RSA 6 I partnership that North Pittsburgh purchased in December of 2006.

Gain on redemption of investment, which
totaled $19,622, reflects the gain recognized in the second quarter of 2006 from the redemption of our North Pittsburgh subsidiarys RTB stock (as discussed in more detail in Note 11 of the Notes to Condensed Consolidated Financial Statements
included in Part 1, Item 1 in this Form 10-Q).

The changes in sundry expense (net) were not material.

Income Taxes

Federal and state
income tax expense from continuing operations was $6,101 for the nine-month period ended September 30, 2007 as compared to $18,975 for the prior year comparable period. The effective tax rate on income from continuing operations was 39.8% for
the nine-month period ended September 30, 2007 as compared to 41.7% for the prior year comparable period. The decrease in the effective tax rate was predominately due to decreases in the liability for unrecognized tax benefits and related
accrued interest and penalties that reduced our tax expense by $254 for the nine-month period ended September 30, 2007, as described in more detail in Note 7 of the Notes to Condensed Consolidated Financial Statements included in Part 1,
Item 1 of this Form 10-Q.

Three Months Ended September 30, 2007 and 2006

Fluctuations in revenue, operating expenses and other income (expenses) for the three-month period ended September 30, 2007, as compared to the same
quarterly period in 2006, were generally attributable to the same reasons discussed in the nine-month comparison above, with the exception of the following:

The effective tax rate on income from continuing operations was 36.8% for the three-month period ended September 30, 2007 as compared to 41.8% for the same quarterly period in 2006 and as compared to 39.8% for
the nine-month period ended September 30, 2007. The lower effective tax rate for the quarterly period as compared to the 2007 year-to-date period was due to the fact that decreases in the liability for unrecognized tax benefits and related
accrued interest and penalties that reduced our tax expense by $254 for the nine-month period ended September 30, 2007 consisted of a $42 increase in such liabilities during the first two quarters of 2007 and a $296 decrease in such liabilities
recorded during the third quarter of 2007.

Liquidity and Capital Resources



|                                              |  |                  |        |                  |   |       
|--------------------------------------------- |  | ---------------- | ------ | ---------------- | - | ------
|                                              |  | September 302007 |        | December 31 2006
|Cash and temporary investments                |  | $                | 46,629 |                  | $ | 49,518
|Working capital                               |  | $                | 44,800 |                  | $ | 45,748
|Long-term debt (including current maturities) |  | $                | 16,198 |                  | $ | 18,512

Cash and temporary investments were $46,629 at September 30, 2007 as compared to $49,518 at
December 31, 2006. The decrease was a result of cash flows used for investing and



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financing activities exceeding the cash flows provided by operating activities. Cash flows from operating activities from continuing operations were $11,729
for the nine-month period ended September 30, 2007, a $3,903 increase from the comparable prior year period. The increase in cash flows from operating activities from continuing operations was partially due to the fact that we made $2,700 of
contributions into the North Pittsburgh Pension Plan in the first nine months of 2006. Because of the elective tax-deductible contributions made by North Pittsburgh from 2003 through 2006, the above average returns of the Pension Plans assets
over the course of the past several years and the freezing of Pension Plan benefit accruals for non-bargaining unit employees effective December 31, 2006, no minimum contribution to the Pension Plan is required for 2007 because North Pittsburgh
has a $6,900 funding credit. Second, SFAS 95, Statement of Cash Flows, prescribes that all income taxes paid be classified as operating cash outflows, regardless of whether the underlying transactions or events which produced the taxable
income were operating, investing or financing in nature. Although the $19,622 in cash received by North Pittsburgh in conjunction with the redemption of its RTB stock in the second quarter of 2006 is classified as cash provided by investing
activities, the approximate $4,640 in taxes paid through September 30, 2006 in association with this transaction, therefore, are classified in operating activities. Similarly, we made a payment in the amount of approximately $1,960 during the
second quarter of 2007 associated with our final tax obligation from the RTB stock redemption. As such, cash flows from operating activities from continuing operations for the nine-months ended September 30, 2007 benefited from approximately
$2,680 less in income taxes paid relating to the RTB stock redemption. Third, cash flows from operating activities from continuing operations for the nine-month period ended September 30, 2007 also benefited from approximately $1,128 less in
non-RTB related federal and state income tax extension and return payments as compared to the prior year nine-month period. The three specific factors mentioned above were partially offset by the fact that cash expenditures, constituting $1,616 of
the $2,189 in strategic alternatives expenses recorded during 2007, were made as of September 30, 2007. In addition, cash flows from all other operating activities from continuing operations decreased $989 as a result of a decrease in cash
operating income during the first nine months of 2007.

Cash flows used for investing activities from continuing operations were $2,593 for
the nine-month period ended September 30, 2007, a $15,077 change from the $12,484 of cash flows provided by investing activities from continuing operations for the comparable prior year period. The decrease was primarily the result of the
$19,622 in proceeds received from the redemption of North Pittsburghs RTB stock in the second quarter of 2006, partially offset by a $4,372 reduction in expenditures for capital additions. The majority of the decrease in expenditures for
capital additions is due to the fact that the nine-month period ended September 30, 2006 included higher levels of OSS expenditures associated with a billing system conversion made during 2006 as well as expenditures related to the installation
of a gigabit Ethernet core transmission backbone. In addition, only nominal expenditures associated with our routing and server capacity additions were made during the first nine months of 2007, because we purchased new core routers and additional
server capacity in 2006. Distributions received from affiliated companies increased $25 due to a $225 increase in the distributions received from our investments in three wireless partnerships as they experienced a continued improvement in their
income and cash flows generated, offset partially by a $200 decrease in distributions from our investment in Boulevard. The total amount of distributions received for the nine-month period ended September 30, 2007 was impacted by the fact that
the quarterly distribution we normally receive from the Pittsburgh SMSA partnership during the third quarter was not received until October 1, 2007; such distribution amounted to $1,260.

We expended $12,025 during the nine-month period ended September 30, 2007 for financing activities from continuing operations, which included cash
dividends and the scheduled repayments of debt and capital lease obligations. The amount was $14,660 lower than the prior year period, mostly as a result of a $14,705 decrease in dividends paid by reason of a $15,005 ($1.00 per share) special
dividend we paid in the second quarter of 2006, offset partially by a $300 increase in regular quarterly dividends paid during the first nine months of 2007 over the regular quarterly dividends paid during the prior year comparable period.

Temporary excess funds were invested in short-term cash equivalents that provide immediate liquidity for scheduled tax payment due dates,
debt principal payments, dividend payment dates and other predictable cash needs.

Working capital levels at September 30, 2007
decreased $948 from December 31, 2006. Although we experienced a $2,889 decrease in cash as described above, a portion of those cash expenditures related to the payment of current liabilities (primarily income tax liabilities) that were
outstanding at December 31, 2006 and therefore had a neutral impact on overall working capital levels.

The decrease in long-term debt
was a result of scheduled principal repayments of $2,314 during the nine-month period ended September 30, 2007. We funded 100% of our 2007 year-to-date expenditures for property and equipment from operations cash flows and cash reserves.
Therefore, no additional advances were requested from our available debt facilities. In 1996, North Pittsburgh was granted approval for a loan from the FFB guaranteed by the Rural Utilities Service (RUS) in the maximum principal amount of $75,000.
The total amount outstanding at September 30, 2007 to the FFB under this loan was $16,198, with all advances having a maturity date of



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December 31, 2012. The unadvanced amount of this facility as of September 30, 2007 was $34,764. North Pittsburgh can draw against this facility
through June 30, 2012 for qualified capital expenditure projects, as defined in the loan agreement, to furnish and improve telephone service in rural areas. As of September 30, 2007, North Pittsburgh had approximately $5,708 of qualified
capital expenditures that were eligible to be drawn against this facility.

The notes payable to the FFB are secured by a supplemental
Mortgage Agreement executed by North Pittsburgh, which provides that substantially all of the assets of North Pittsburgh, which approximate a net book value of $84,134, are subject to a lien or a security interest. Such agreement contains
restrictions regarding dividends and other distributions by North Pittsburgh. Under these restrictions, unless certain working capital levels, net worth levels and interest expense ratios are maintained, North Pittsburgh is not permitted to pay
dividends on its capital stock (other than in shares of capital stock), or make any other distributions to its shareholder, or purchase, redeem or retire any of its capital stock or make any investment in affiliated companies. As a result of these
restrictions, approximately $16,253 of North Pittsburghs retained earnings were available for dividends and other distributions to the Registrant as of September 30, 2007. The Registrant has no restrictions on the amount of its retained
earnings that are available for dividends and other distributions to its shareholders. Based on the respective financial calculations as of September 30, 2007, the aforementioned restrictions on North Pittsburghs dividends and
distributions to the Registrant would not have caused a restriction in our ability to pay dividends and other distributions to our shareholders in the full amount of the $46,629 of our consolidated cash and temporary investments available as of
September 30, 2007. Although as of September 30, 2007, there existed no such restrictions from our debt agreement, the Merger Agreement with Consolidated restricts our ability to pay dividends after the quarterly dividend paid on
October 15, 2007 to shareholders of record on October 1, 2007 or to make any other forms of distributions to shareholders in general.

North Pittsburgh also has available through June of 2009 a $10,000 line of credit with the Rural Telephone Finance Cooperative at a rate of prime plus 1-1/2%. No borrowings have been taken against the line of credit and there are no
commitment fees associated with it.

Without giving any effect to the proposed merger with Consolidated, we expect cash flows provided by
operating activities and cash reserves over the next twelve months to be sufficient to service long-term debt and capital lease obligations, to pay dividends (although the payment of dividends after October 15, 2007, is subject to the aforementioned
restrictions imposed by the Merger Agreement with Consolidated through the term of the Merger Agreement) and to finance all capital projects. We initially projected a capital expenditure program for 2007 in the range of $14,000 to $15,000, which
would have represented a $1,000 to $2,000 decrease over those amounts expended in 2006. Total capital expenditures through September 30, 2007 were $8,032. The $1,000 to $2,000 decrease in expected expenditures for 2007, as initially projected,
was mostly due to the fact that 2006 contained higher levels of OSS expenditures associated with the billing system conversion during 2006 as well as the fact that we expect only nominal expenditures associated with our routing and server capacity
additions during 2007 because we purchased new core routers and additional server capacity in 2006. Our capital program for 2007 continues the program we started in 2006 to deploy fiber deeper into our ILEC network, which will enable us to provide
more advanced data offerings and potentially other broadband based product offerings throughout the majority of our ILEC territory. Approximately 95% of our addressable ILEC access lines are currently served by loops that have fiber built to within
5,000 feet of the premise, and we expect to complete the build out of the remainder of our ILEC territory by the end of 2007. In addition, our 2007 capital program included the beginning of the deployment of our next generation Digital Subscriber
Line Access Multiplexer (DSLAMs), which should be able to deliver speeds of between 20 to 25 megabits per second, a substantial improvement over our current 3 megabit product. However, because of the considerations and activities that have resulted
in the Merger Agreement with Consolidated, we delayed our final vendor selection and commencement of DSLAM deployments that we originally projected to occur during the second quarter of 2007. The DSLAM is a critical component of the overall
broadband network, which is the fundamental basis for the deployment of services such as video. Consequently, vendor and product alignment of all the multiple elements of a video transmission is essential. We now have finalized vendor selection, and
we expect to deploy our next generation DSLAMs in the fourth quarter of 2007. We would expect that our fourth quarter capital expenditures will be higher than those amounts expended in each of the first three quarters of 2007, although depending
upon the lead time in which the DSLAMS can be delivered and installation can be accomplished, it is possible that some of the expenditures that we originally projected as part of our 2007 capital plan will be deferred until 2008. In addition,
several million dollars of our anticipated 2007 capital expenditure program relate to success-based customer additions in our CLEC edge-out markets that require capital and network capacity additions. Any substantial variations from our underlying
customer addition projections could cause the success-based capital expenditures to deviate from those amounts included in our capital expenditure projections above.

We refer you to our Managements Discussion and Analysis of Financial Condition and Results of Operations section of our 2006 Form 10-K for a disclosure and discussion of our aggregate contractual obligations and
purchase commitments as of December 31, 2006. Scheduled payments of $3,035, $1,012, $277 and $1,746 were made to reduce the outstanding long-term debt (principal and interest), capital lease, operating lease and OSS obligations, respectively,
during the first nine months of 2007. We refer you to Notes 2 and 3 of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q for



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information about contingent obligations under the Merger Agreement, the Companys engagement letter with its financial advisor and the Companys
Shareholder Approval Bonus Plan.

Critical Accounting Policies

Certain accounting policies are very important to the portrayal of our financial condition and results of operations and require managements most subjective or complex judgments. These policies are as follows:

Revenue Recognition

Revenues are recognized when local network, long distance, and access services are provided. Local service, intrastate long distance and intrastate access service revenues are subject to the jurisdiction of the PA PUC. Interstate long
distance and interstate access service revenues are subject to the jurisdiction of the FCC. Directory advertising revenues are recognized ratably over the period related to the directory publication.

Our North Pittsburgh subsidiary receives a portion of its interstate access revenues from pooling arrangements in which it participates with other
telephone companies. Such pools, which are administrated by NECA, are funded by access service charges regulated by the FCC. Revenues earned through these pooling arrangements, which are based on nationwide average costs of the pooling companies
applied to certain projected demand quantities, are initially recorded based on estimates and are subject to adjustments that may either increase or decrease the final amount of interstate revenues realized for a given period. Management monitors
the activity of the pools and establishes accruals, if deemed necessary, for estimated obligations to the pool. The calculations used to record these revenues are complex and involve a variety of estimates, and it is therefore possible that the
ultimate amount realized from the pools could differ materially from our estimates, although historically we usually have not experienced significant out-of-period adjustments to our revenues as a result of participating in these pools.

Valuation of Accounts Receivable

We review accounts receivable to determine which are doubtful of collection. In making the determination of the appropriate allowance for doubtful accounts, we consider our accounts receivable aging schedules, history of write-offs and
relationships with our customers and the overall credit worthiness of our customers.

Income Taxes

In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We consider the scheduled reversal of deferred
tax liabilities, projected future taxable income and tax planning strategies in making this assessment.

Pension and Other
Postretirement Benefits

We calculate the costs of providing retiree benefits under the provisions of SFAS No. 87 and SFAS
No. 106. The key assumptions used in making these calculations are disclosed in Note 6 to our consolidated financial statements included in our 2006 Form 10-K. The most significant of these assumptions are the discount rate used to value the
future obligation, expected return on plan assets and health care cost trend rates. We select discount rates commensurate with current market interest rates on high-quality, fixed-rate debt securities. In doing so, we match our estimated benefit
plan cash flows to that of the average of two published yield curves, those being the Citigroup Pension Discount Curve and the Mercer Yield Curve. The expected return on assets is based on our current view of the long-term returns on assets held by
the plan, which is influenced by the historical performance of plan assets, asset allocation and third-party studies. The medical cost trend rate is based on our actual medical claims and future projections of medical cost trends.

The judgments used in applying the above policies are based on our evaluation of the relevant facts and circumstances as of the date of the financial
statements. Actual results may differ from those estimates.

Regulatory Environment

Both North Pittsburgh and Penn Telecom are subject to regulatory oversight by the PA PUC for intrastate services and the FCC for interstate services. The
PA PUC and the FCC have broad powers of supervision and regulation over public utilities with respect to service and facilities, rates and charges, securities, the encumbering or disposition of public utility properties, accounting and various other
matters.



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Federal Regulatory Matters

The FCC regulates the rates, the system of financial accounts for reporting purposes, rules for interconnection with other carriers, universal service
funding, certain aspects of service quality, the use of numbering resources, compliance with the Communications Assistance for Law Enforcement Act (CALEA), and other aspects related to North Pittsburghs and Penn Telecoms provision of
interstate services.

Interconnection Rules

In 1996, Congress passed the 1996 Act, which has the goal of opening the telecommunications industry to further competition for all services, including the local exchange market. The 1996 Act prohibits state
legislative or regulatory restrictions or barriers to entry regarding the provision of local telephone service. It also requires most ILECs to interconnect with the networks of other telecommunications carriers, unbundle their services into network
elements, offer their telecommunications services at wholesale rates in order to permit the resale of such services and allow other telecommunications carriers to locate equipment on their premises. Local exchange telephone carriers are also
required to compensate each other for the transport and termination of calls. The FCC has issued a number of Rulemakings that continue to implement the requirements of the 1996 Act and are intended to facilitate the resale of services at wholesale
rates and provide for local number portability (LNP), dialing parity, interconnection to any requesting carrier and access to network elements.

North Pittsburghs wireline operations are considered Rural under the 1996 Act and therefore are exempt from certain of the above-mentioned obligations unless, in response to a bona fide request for interconnection, the PA PUC removes
that exemption. More specifically, pursuant to the rural exemption provision of Section 251(f)(1) of the 1996 Act, North Pittsburgh is currently exempted from offering collocation, UNEs, wholesale discounts and certain other requirements of the
1996 Act which originally pertained only to non-rural ILECs. However, upon a petition by a potential competitor, the PA PUC may remove North Pittsburghs rural exemption if it finds that the competitors proposal is not unduly economically
burdensome to North Pittsburgh, is technically feasible and is consistent with the universal service provisions of the 1996 Act. The burden of proof in such a proceeding rests with the competitor. The rural exemption does not, however, prevent
facilities-based competition in North Pittsburghs service area.

North Pittsburgh has interconnected with several facilities-based
CLECs that offer competitive services to customers within the North Pittsburgh service territory.

Triennial Review Order and Related
Matters

On February 20, 2003, the FCC issued its Triennial Review Order (TRO) regarding the 1996 Act. In that Order, the FCC
eliminated unbundling requirements for ILECs in regard to broadband services provided over fiber facilities but continued to require unbundled access to mass-market narrowband loops. In addition, ILECs were not required to unbundle packet switching
services. The FCC further found that the high frequency portion of the loop, also referred to as line sharing, was no longer required to be provided as a UNE and that requirement would therefore be phased out over three years. As noted below, other
aspects of the original TRO filing were later remanded back to the FCC.

On March 2, 2004, the U. S. Court of Appeals for the District
of Columbia issued a decision in response to a number of court appeals filed in regard to the FCCs TRO. In that ruling, the court upheld the FCCs rules in regard to the FCCs conclusion that ILECs need not unbundle broadband loops
provided through the utilization of new technologies such as hybrid fiber/coaxial cable and fiber-to-the-home. Subsequent FCC orders have also relieved incumbents of the unbundling requirements for fiber-to-the-curb loops, where fiber is extended to
within 500 feet of a customer premises. The court also agreed with the FCC that ILECs need not provide line sharing. However, the court vacated and remanded a number of other FCC rules promulgated in the original TRO, including those pertaining to
the availability of the local switching UNE (UNE-P).

On February 4, 2005, the FCC in response to the Court of Appeals decision
released its Order on Remand, setting forth final rules regarding the unbundling obligations of the ILECs. The FCCs revised UNE rules now state that CLECs are not impaired without unbundled access to the UNE-P combination comprised of Local
Switching and UNE Loop, or Shared Transport, Call Related Databases, or Signaling Networks used in connection with Local Switching. In addition, the FCC found that CLECs are not impaired at certain Wire Center locations in regard to high bandwidth
(DS-1 and DS-3) loops, dark fiber loops and interoffice transport facilities based on such criteria as the number of Business Lines and Fiber-Based collocators within the wire center.

On February 14, 2005, a number of parties filed a supplementary petition with the U.S. Court of Appeals for the District of Columbia, again seeking
a writ of mandamus to compel the FCC to follow the Courts previous directive in its earlier remand decision. The parties filing the petition claim that the final FCC rules are still flawed and not in compliance with the Courts decision.
Action by the Court on this petition is still pending.



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The final FCC rules regarding the unbundling of various network elements did not have an impact on our
ILEC operations, because we are not required to offer UNEs to competitors as long as we retain our rural exemption. In regard to our CLEC operations, because we do not currently utilize line sharing and utilize our own switching for business
customers that are served by high-capacity loops, the elimination of these network elements had no effect on our operations or revenues from our existing customer base.

In July of 2005, we executed a three-year commercial agreement with Verizon that has set the terms of the pricing and provisioning of lines served utilizing UNE-P. We currently provision 8% of our CLEC access lines
(or 3% of our consolidated access lines) utilizing UNE-P. Although the costs for UNE-P will increase over time pursuant to the terms of the agreement, our relatively low use of UNE-P and our ability to migrate some of the lines to alternative
provisioning methodologies will limit the overall impact on our current cost structure. With respect to the rules concerning access to unbundled high capacity loops, interoffice transport facilities and dark fiber, we have experienced moderate
increases in the overall cost to provision such loops and facilities as a result of the FCCs Order on Remand.

On September 6,
2006, Verizon filed a Petition with the FCC requesting that they forbear from applying a number of regulations to the Verizon operations in six major metropolitan markets, one of which was the Pittsburgh market area. In addition to seeking
forbearance from dominant carrier tariffing requirements, price cap regulations, comparably efficient interconnection and open network architecture requirements, Verizon also sought forbearance from applying loop and transport unbundling
regulations, claiming that there was sufficient competition in the Pittsburgh market, which no longer necessitated the application of these rules. Should the FCC approve the Verizon petition for forbearance, our CLEC may no longer be eligible to
obtain loops and transport on an unbundled basis and may have to convert all existing unbundled loops and transport it orders from Verizon to an alternative pricing arrangement, presumably at rates close to or equal to special access rates for these
services. The effect of the grant of the petition would be to greatly increase our CLECs costs to purchase these services. A number of parties have filed in opposition to this Petition, because it seeks essentially to deconstruct many of the
fundamental principles of the 1996 Act passed by Congress. As a result of the filings in opposition, the proceeding has been extended by the FCC to allow it to solicit more comments from interested parties before making a final ruling on the
Petition.

Intercarrier Compensation and Universal Service

On February 10, 2005, the FCC issued a Further Notice of Proposed Rulemaking (FNPRM) in regard to the rules governing intercarrier compensation for
the various types of traffic exchanged by telecommunications carriers. Under the current rules, rates charged for traffic vary by the type and/or the jurisdiction of the traffic. The FCC is considering replacing this current system of payments with
a uniform regime under which all types of traffic are compensated at a unitary rate. In that proceeding, the FCC is seeking comment on seven comprehensive reform proposals that have been submitted to the FCC from industry participants and other
interested parties. The FCCs goal is to put in place an intercarrier compensation mechanism that encourages the development of efficient competition, that preserves universal service support which ensures affordable rates in rural and high
cost areas, that is technologically and competitively neutral and that minimizes regulatory intervention and enforcement and relies on commercially negotiated contracts rather than rules and regulations. Both North Pittsburgh and Penn Telecom
receive a large percentage of their revenues from intercarrier compensation payments, and the outcome of this proceeding therefore may have a large impact on their revenue streams. In addition, because universal service funding will be affected by
any change in the current intercarrier compensation system, North Pittsburghs universal service funding from both the interstate and intrastate jurisdictions may be affected by the outcome of this proceeding.

On February 12, 2004, the FCC issued a Notice of Proposed Rulemaking (NPRM) in regard to examining the regulatory treatment of VoIP. While the FCC
indicated its preference for minimal regulation, it also recognized the need to ensure that the provision of VoIP is consistent with social objectives including universal service, emergency 911, law enforcement access, consumer protection and
disability access.

Prior to the FCCs issuance of the NPRM regarding VoIP, several companies had petitioned the FCC for declaratory
rulings that their specific service offerings, which utilize Internet Protocol (IP) in some portion of the service, were exempt from access charges. In one case, the FCC ruled that access charges do apply to toll calls that originate or terminate on
the Public Switched Telephone Network (PSTN) even if some portion of the call is transported utilizing IP. In the second case, the FCC ruled that voice-calling services utilizing IP between two broadband connections to the Internet and which do not
utilize the PSTN at either end were exempt from access charges.

While these two FCC rulings have addressed the applicability of access
charges to specific services that utilize IP to provide voice or toll calling services, various questions regarding the full scope of regulations that will apply in general to VoIP services are still unresolved and will be



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addressed in the VoIP NPRM. Certain specific issues regarding the application of access charges to VoIP and enhanced services may also be addressed prior to
completion of the VoIP NPRM proceeding as a result of several other petitions that are currently pending before the FCC. The outcome of these petitions and the NPRM proceeding will affect North Pittsburgh and Penn Telecom because: 1) VoIP services
compete directly with the local and toll service offerings of North Pittsburgh and Penn Telecom, 2) we are a provider of VoIP services, and 3) both North Pittsburgh and Penn Telecom receive a portion of their revenues from access charges, the
applicability of which to various forms of IP and enhanced services traffic is being reviewed in these petitions and the NPRM. Because the outcomes of the petitions and the NPRM proceeding are unknown at this time, we are unable to determine the
effect such actions may have on our operations and revenues.

In February of 2002, the FCC issued a FNPRM regarding the possible
reformation of the system for assessing and recovering USF monies. In that proceeding, the FCC asked for comment on whether it should assess carrier contributions based on the number and capacity of connections that contributing carriers provide to
customers, rather than on the current method, which is based on the interstate revenues they earn. In June of 2006, the FCC released an Order and NPRM in response to the February 2002 FNPRM. In that Order, the FCC made what it characterized as
interim modifications to the existing approach for assessing contributions to the federal USF. The key changes to USF funding implemented in the Order were to: 1) raise the interim wireless safe harbor interstate percentage from its then current
28.5 percent level to 37.1 percent; and 2) establish a USF contribution obligation for providers of interconnected VoIP service. The raising of the wireless safe harbor rate and the assessment of interconnected VoIP providers will have the effect of
mitigating any potential impact on the assessment rate of the fund caused by the elimination of contributions to the USF by carriers that have chosen to no longer offer their wireline broadband services on a common carrier basis as a result of the
FCCs August 2005 Wireline Broadband Order. However, the FCC declined to make any further changes in the USF contribution assessment methodology at that time, noting that a consensus approach to fundamental reform had not developed yet and that
they would continue to address the challenges of fundamental reform. In the Order, the FCC also issued a NPRM and asked for comments from interested parties in regard to any potential further refinements to both the safe harbor rules for wireless
and the assessment on VoIP services.

While the record has now closed on the FNPRM, the FCC has not yet taken any further action in regard
to universal service funding issues addressed in that proceeding. Consequently, the proposed changes that were the subject of the February 2002 FCC FNPRM regarding fundamental reform of the USF are still pending and unresolved at this time and we
are unable to determine the effect the FCCs actions with respect to these proposals may have on our operations and revenues.

On
August 11, 2006, the Federal-State Joint Board on Universal Service issued a Notice seeking comment on the merits of using auctions to determine and distribute universal service support. Effective July 1, 2007, North Pittsburghs
annual receipts approximate $2,025 of Interstate Common Line Support (ICLS) in the federal jurisdiction, down from approximately $2,750 of annual receipts for the fiscal July 1, 2006 through June 30, 2007 period. As ICLS is processed
through the NECA pool for North Pittsburgh, this decrease in ICLS receipts is part of, not in addition to, the decreases in the NECA average schedule formulas discussed in more detail in the North Pittsburghs Interstate Revenue
Requirement section immediately following this paragraph. In the initial round of the Joint Board proceeding, over 60 parties filed comments with the FCC. As expected, there were parties in support of, and parties in opposition to, the use of
auctions in regard to USF determination and distribution. Reply comments in the proceeding were due November 8, 2006. The Joint Board has not yet issued any recommendation to the FCC in regard to the proceeding. Should the Joint Board issue a
recommendation to the FCC regarding the proceeding and should the FCC take any future action based on that recommendation regarding universal service funding, which might include the use of auctions to determine USF support amounts, North Pittsburgh
may be negatively affected because in such an auction another company may underbid the current support amounts North Pittsburgh receives, thereby causing North Pittsburgh to either lower its bid below the current amount it receives or potentially
lose its federal USF support.

North Pittsburghs Interstate Revenue Requirement

North Pittsburgh participates as an average schedule company in the interstate tariff and settlement pooling process that is administered by NECA, which
means North Pittsburghs interstate settlements are determined by formulas based on a statistical sampling of the allocation of costs to the interstate jurisdiction of comparable companies that perform cost studies.

With respect to NECAs average schedule formulas for the July 1, 2006 through June 30, 2007 period, NECA not only made changes to the
average schedule formulas based on the normal annual projected changes in cost and demand for the July 1, 2006 through June 30, 2007 period but also implemented some structural changes to the formulas in order to more closely align average
schedule company settlements to the companies estimated interstate revenue requirements based on statistical sampling. Although settlement rates for average schedule



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companies on an overall basis decreased by about 1.7% (assuming constant demand), some companies with larger study areas (based on access line size), such as
North Pittsburgh, experienced a significant decrease in settlements, while many companies with smaller study areas experienced an increase. The formulas also reflected the trend of reduced access minutes.

Due to the significant decrease in interstate settlements that would be experienced by some companies because of these changes, the NECA filing
recommended, and the FCC approved, a two-year phase in of the reduction in settlements resulting from the structural changes in the formulas.

As a relatively large average schedule company, North Pittsburgh was affected by these reductions in settlements. The formulas will cause a reduction of approximately $210 per month (or approximately $2.5 million annually) in North
Pittsburghs interstate settlements when the reductions are fully phased in. The projected $210 per month reduction consists of two elements: an approximately $60 per month decrease related to the normal year-over-year changes in overall
average schedule formulas and an approximately $150 per month decrease related to the structural changes to the formulas. The $60 per month decrease that pertains to the normal changes in the formulas resulted in an immediate decrease in settlement
revenues effective July 1, 2006. Under the two-year phase-in of the reduction in settlements relating to the structural changes in the formulas approved by the FCC, the $150 per month decrease related to the structural changes has not been
recognized in its entirety immediately; rather, that reduction is being phased in ratably over a twenty-four month period of time ending June 30, 2008.

On December 21, 2006, NECA filed with the FCC its most recent annual proposed modifications of the average schedule formulas. In that filing, NECA proposed to revise the formulas for average schedule interstate
settlement disbursements for interstate access services provided during the period July 1, 2007 through June 30, 2008. In this filing, NECA again not only proposed changes to the average schedule formulas based on the normal projected
changes in cost and demand for the July 1, 2007 through June 30, 2008 period but also proposed additional structural changes to the formulas in order to more closely align average schedule company settlements to the companies
estimated interstate revenue requirements based on statistical sampling.

In this filing, NECA proposed lowering the settlement rates for
all average schedule companies, which resulted in a proposed overall decrease of approximately 7.27%, assuming constant demand; however, the individual impact on each average schedule company would depend on its size and demand characteristics, with
the majority of companies experiencing a decrease in settlements in a range between 5% and 15%. According to NECA, the proposed decreases reflect ongoing overall reduced cost levels of average schedule companies as well as decreases associated with
structural changes to the Line Haul Distance Sensitive formula, which reimburses companies for the costs of transporting interstate calls.

Due to the significant decrease in interstate settlements that would be experienced by some companies, the NECA filing, similar to the previous years filing, also recommended that the FCC consider implementing a two-year phase-in of
the reduction in settlements. The filing included a detailed procedure on how that phase-in might be accomplished.

On June 8, 2007,
the FCC issued an order approving the NECA-proposed revised average schedule formulas for the July 1, 2007 through June 30, 2008 period, as well as the proposed two-year phase-in. The new formulas will cause a reduction of approximately
$100 per month (or approximately $1.2 million annually) in North Pittsburghs interstate settlements when the reductions are fully phased in. This estimated reduction is related solely to the proposed changes for the average schedule formulas
proposed by NECA in its filing for the July 1, 2007 through June 30, 2008 period and is independent of the reduction in settlements already being experienced by North Pittsburgh from the average schedule formulas being phased in pursuant
to NECAs filing with respect to the July 1, 2006 through June 30, 2007 period (discussed above). The projected $100 per month reduction consists of two elements: an approximately $40 per month decrease related to the normal
year-over-year changes in overall average schedule formulas and an approximately $60 per month decrease related to the structural change to the Line Haul Distance Sensitive formula. Similar to the first phase-in plan, the $60 per month decrease
related to the structural change will not be recognized in its entirety immediately; rather, the reduction is being phased in ratably over a twenty-four month period of time beginning July 1, 2007.

In summary, we estimate that North Pittsburghs annual revenues realized through the NECA average schedule formulas will eventually decrease by
approximately $3,700 on an annualized basis (assuming constant demand data) as a result of the changes made to both the July 1, 2006 through June 30, 2007 and July 1, 2007 through June 30, 2008 average schedule formulas. Revenues
for the first nine months of 2007 were negatively impacted by approximately $1,030 as compared to the prior year comparable period because of these normal and structural changes to the NECA average schedule formulas. The full impact of the changes
in the average schedules will be realized starting July 1, 2009.

We continue to monitor whether or not it is advantageous for North
Pittsburgh to participate in the NECA pool as an average schedule company or, alternatively, to become a cost company



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subject to its own individual cost and demand data studies. It is important to note that as an average schedule company, North Pittsburghs interstate
revenues and earnings can be subject to more volatility than those of comparable cost companies due to the lack of an exact relationship between the actual cost structure and demand data of an average schedule company such as North Pittsburgh and
its ultimate settlement pursuant to average schedules.

State Regulatory Matters

The PA PUC regulates the rates, the system of financial accounts for reporting purposes, certain aspects of service quality, billing procedures, universal
service funding and other aspects related to North Pittsburghs and Penn Telecoms provision of intrastate services. In addition, the PA PUC sets the rates and terms for interconnection between carriers within the guidelines ordered by the
FCC.

Price Regulation

Effective January 22, 2001, under a statutory framework referred to as Chapter 30, North Pittsburgh moved from rate-of-return regulation in the intrastate jurisdiction to an alternative form of regulation, which was a price cap plan.
Under North Pittsburghs price cap plan, rates for non-competitive intrastate services were allowed to increase based on an index that measures economy-wide price increases less a productivity offset. In return for approval of the alternative
form of regulation, North Pittsburgh committed to continue to upgrade its network in the future to ensure that all its customers would have access to broadband services. The original Chapter 30 legislation expired due to legislative sunset
provisions on December 31, 2003.

On November 30, 2004, Act 183 was signed into law in Pennsylvania. Act 183 implemented new
Chapter 30 legislation, which continued many aspects of the former Chapter 30 provisions (as described above) but also added some options for ILECs in regard to alternative regulation. Under the new Act 183, ILECs may commit to accelerate the
deployment of broadband service capability to their entire service area and in exchange receive a reduction in, or elimination of, the productivity offset in their price index formula.

On February 25, 2005, North Pittsburgh filed an Amended Alternative Form of Regulation and Network Modernization Plan with the PA PUC pursuant to
Act 183. In that filing, in addition to modifying its prior Chapter 30 Plan to comport with the new statute, North Pittsburgh committed to accelerate its deployment of a ubiquitous broadband network throughout its entire service area from the
previous commitment date of December 31, 2015 to December 31, 2008. In return for making this commitment, North Pittsburgh is no longer subject to a productivity offset when calculating the Price Stability Index component of its annual
price stability mechanism filing. As a result of this commitment to accelerate its network deployment, North Pittsburgh also does not have to contribute to certain new public policy funding obligations that were instituted as part of Act 183. On
June 2, 2005, the PA PUC approved North Pittsburghs amended plan with no significant changes. North Pittsburgh is already in the process of upgrading its broadband infrastructure for general business and competitive purposes, and we do
not anticipate that the acceleration of our broadband commitment date under our amended Network Modernization Plan will require any material additional amount of capital expenditures from what otherwise is planned to be spent in the normal course of
business.

Other State Regulatory Matters

In an order adopted August 26, 1999 and entered September 30, 1999, the PA PUC as part of a proceeding that resolved a number of pending issues ordered ILECs, including North Pittsburgh, to rebalance and
lower intrastate toll and switched access rates. In that same order, the PA PUC also created a Pennsylvania Universal Service Fund (PA USF) to help offset the loss of ILEC revenues due to the reduction in toll and access rates. In 2003, the PA PUC
ordered ILECs to further rebalance and reduce intrastate access charges and left the PA USF in place pending further review.

On
December 16, 2004, the PA PUC adopted an Order instituting an investigation regarding the intrastate access charges and intraLATA toll rates of rural carriers in Pennsylvania and the effect on those charges and rates if the PA PUC were to
reduce disbursements from the PA USF to the rural carriers or if it were to broaden the base of contributors to include carriers that do not currently pay into the fund. The proceeding, which is subject to a stay order, will also address the
ramifications of changes to the Pennsylvania Public Utility Code set forth in Act 183 that affect access rate setting for both Local Exchange Carriers (LECs) and CLECs. Under the Act 183 changes to the Public Utility Code, the PA PUC may not require
a LEC to reduce intrastate access rates except on a revenue neutral basis. The Act 183 changes also set limits on a CLECs ability to charge intrastate access rates higher than the rates charged by the ILEC serving the area in which the CLEC is
offering service unless such rates are cost justified. The procedures regarding the PA PUCs implementation of these rate setting limitations will be determined in this access charge and USF proceeding.



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This proceeding may affect both North Pittsburghs and Penn Telecoms ability to set access
charge rates. The proceeding also may affect the amount of funding that North Pittsburgh receives from the PA USF and the amounts that North Pittsburgh and Penn Telecom contribute to that fund. Currently, North Pittsburghs annual receipts from
and contributions to the PA USF total $5,215 and $305, respectively. Penn Telecom receives no funding from the PA USF but currently contributes $170 on an annual basis. In 2005, a number of parties to the proceeding filed a petition asking that the
PA PUC delay any action in regard to the PA USF and intrastate access charges until such time as the FCC takes action in regard to intercarrier compensation issues. On August 11, 2005, the PA PUC adopted an Order, which was entered on
August 30, 2005, in which it granted a stay of the investigative proceeding for a period not to exceed twelve months, unless further extended by the PA PUC, or until the FCC issues its ruling in its Unified Intercarrier Compensation proceeding,
whichever occurs earlier. On August 30, 2006, a number of parties, including North Pittsburgh, filed a joint motion with the PA PUC requesting a further stay of an additional twelve months to allow the FCC to complete its proceeding regarding
intercarrier compensation reform because the FCC action may impact intrastate access rates. The motion for stay was opposed by a number of parties. However, on November 15, 2006, the PA PUC entered an order granting the request for stay pending
the outcome of the FCC Unified Intercarrier Compensation proceeding or for one year, whichever is earlier. The current PA USF has been continued under the existing regulations during the period of the stay. On October 16, 2007, a number of
parties, including North Pittsburgh, filed a joint motion with the PA PUC requesting another further stay of an additional twelve months to allow the FCC to complete its intercarrier compensation proceeding. The motion for stay is still pending
before the PA PUC.

As described in more detail in Note 10 of the Notes to Condensed Consolidated Financial Statements included in Part I,
Item 1 and also discussed in Part II, Item 1 Legal Proceedings, of this Form 10-Q, on October 23, 2006, Verizon Pennsylvania, Inc., along with a number of its affiliated companies, filed a formal complaint with the PA PUC
claiming that Penn Telecoms intrastate switched access rates are higher than those of the ILEC in the corresponding service area and therefore are in violation of Act 183. Verizons most recent official claim for refund of Penn
Telecoms intrastate access billings amounted to $1,559, exclusive of interest, through May 2007. Based solely on our interpretation of the Verizon complaint and the underlying methodologies and calculations used by Verizon in arriving at their
$1,559 claim, exclusive of interest, through May 2007, we estimate that the amount of such claim would be approximately $1,715 through September 30, 2007, exclusive of interest. For reasons discussed in more detail in the afore-referenced Note
10 of the Notes to Condensed Consolidated Financial Statements included Part I, Item 1 of in this Form 10-Q, we believe that Penn Telecoms switched access rates are cost justified and permissible, and we are vigorously opposing this
complaint. In the event we are not successful in this proceeding, however, Penn Telecoms operations could be materially adversely impacted by not only the refund sought by Verizon but more importantly by the prospective decreases in access
revenues resulting from the change in its intrastate access rates, which would apply not only to Verizon and its affiliated companies that are parties to the complaint filed with the PA PUC but also to all other carriers on a non-discriminatory
basis. We preliminarily estimate that the decrease in our annual revenues and pre-tax income would be approximately $1,200 on a static basis (meaning keeping access MOUs constant) if Verizon were to prevail completely in its complaint.



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Recent Accounting Pronouncements

In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS No. 159). SFAS No. 159 allows entities the option to measure
eligible financial instruments at fair value as of specified dates. Such election, which may be applied on an instrument by instrument basis, is typically irrevocable once elected. SFAS No. 159 is effective for fiscal years beginning after
November 15, 2007 and early application is allowed under certain circumstances. The Company is currently evaluating the impact, if any, SFAS No. 159 may have on the Companys consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No. 157). SFAS No. 157 defines fair value,
establishes a framework for measuring fair value under generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years. We are currently evaluating the impact, if any, SFAS No. 157 may have on the Companys consolidated financial statements.

In June 2006, the FASB ratified the Emerging Issues Task Force (EITF) consensus on EITF Issue No. 06-3 How Taxes Collected From Customers and Remitted to Governmental Authorities Should Be Presented in the
Income Statement (That Is, Gross versus Net Presentation) (EITF 06-3). The scope of EITF 06-3 includes any tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer,
and provides that a company may adopt a policy of presenting taxes either on a gross basis  that is, including the taxes within revenue  or on a net basis. For any such taxes that are reported on a gross basis, a company should disclose
the amounts of those taxes for each period for which an income statement is presented if those amounts are significant. EITF 06-3 is effective for financial reports for interim periods and annual reporting periods beginning after December 15,
2006. The Company adopted EITF 06-3 on January 1, 2007. The Company collects various taxes that fall under the scope of EITF 06-3 on services provided and is accounting for and reporting them on a net basis.

The Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes  an Interpretation of FASB Statement
No. 109 (FIN 48) on January 1, 2007. FIN 48 clarifies the accounting and reporting for uncertainties in income taxes recognized in a companys financial statements. FIN 48 prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods,
disclosure and transition issues. In May 2007, the FASB released FASB Staff Position FIN 48-1, Definition of Settlement in FASB Interpretation No. 48 (FSP FIN 48-1). FSP FIN 48-1 provides guidance on how a company should determine
whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. Please refer to Note 7 of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 in this Form 10-Q
for additional information, including the effects of adoption of FIN 48 on the Companys consolidated financial statements.



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PART I



|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

There have been no material changes in reported market risks faced by the Company since the end of the Companys preceding fiscal year on December 31, 2006.



|Item 4. | Controls and Procedures
|------- | -----------------------

Under the supervision and
with the participation of the Companys management, including the Companys Chief Executive Officer and Chief Financial Officer, the Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures
as of the end of the period covered by this Quarterly Report on Form 10-Q, and, based on their evaluation, the Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures are effective.

There was no change in the Companys internal control over financial reporting that occurred during the Companys last fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.



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PART II

OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

As reported in Part I,
Item 3 of our 2006 Form 10-K, on October 23, 2006, Verizon Pennsylvania, Inc., along with a number of its affiliated companies, filed a formal complaint with the PA PUC claiming that Penn Telecoms intrastate switched access rates are
higher than those of the ILEC in the corresponding service area and therefore are in violation of Act 183. Verizons original claim requested a refund of $480, exclusive of interest, from access billings through August 2006.

As also reported in our 2006 Form 10-K and Part II, Item 1 of our Quarterly Report on Form 10-Q for the quarterly periods ended March 31, 2007
and June 30, 2007, in a letter dated January 30, 2007, Verizon notified Penn Telecom that its claim for intrastate access billings through December 31, 2006 was $1,346, exclusive of interest, which claim includes amounts from certain
affiliates that had not been included in the original calculation. Verizon further updated its claim due to the passage of additional months under dispute to $1,559, exclusive of interest, through May 2007; such updated claim was included in
Verizons main brief filed with the PA PUC on September 13, 2007. Based solely on our interpretation of the Verizon complaint and the underlying methodologies and calculations used by Verizon in arriving at their $1,559 claim through May
2007, we estimate that the amount of such claim would be approximately $1,715 through September 30, 2007, exclusive of interest.

Additional information about this formal complaint and claim by Verizon and affiliated companies is provided in Part I, Item 3 of our 2006 Form 10-K and in Note 10 to the Condensed Consolidated Financial Statements included in Part I,
Item 1 of this Form 10-Q.



|Item 1A. | Risk Factors
|-------- | ------------

In addition to other information set
forth in this report, we refer you to the discussion in Item 1A, Risk Factors, in our 2006 Form 10-K. As of the date of this Form 10-Q report, there have been no material changes in the non-regulatory related risk factors previously
disclosed in our 2006 Form 10-K, other than risks associated with the proposed merger with Consolidated, including failure to consummate or a delay in consummating the merger. Due to the fact that our companies operate in a heavily regulated
environment, we provide, and encourage you to read, the updated discussion of the rules and regulations under which we operate included in the section titled Regulatory Environment in Part 1, Item 2 in this Form 10-Q. That section
includes discussion of newly enacted or proposed rules and regulations, or interpretations of such rules and regulations by federal and state commissions or judicial bodies, which may have a material impact on our financial condition and/or
operations. As noted in the discussion in Item 1A of our 2006 Form 10-K, the items identified in that discussion are what we deem to be particularly noteworthy. We do not represent that the list captures every possible existing or foreseeable
factor or risk. Additional risks and uncertainties not currently known to us or that we currently deem not to be material also may, at some future point, materially adversely affect our business, financial condition and/or operating results.



|Item 6. | Exhibits
|------- | --------

Exhibits Index for Quarterly Reports on Form 10-Q.



|            |  |                                                                                                                                                                                    |  |                                                                                                                                                                  
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Subject                                                                                                                                                                            |  | Applicability                                                                                                                                                    
|(2)         |  | Agreement and Plan of Merger, dated as of July 1, 2007, by and among North Pittsburgh Systems, Inc., Consolidated Communications Holdings, Inc. and Fort Pitt Acquisition Sub Inc. |  | Provided as Exhibit 2.1 to the Current Report on Form 8-K of the Registrant filed on July 17, 2007 and Incorporated Herein by Reference Thereto.                 
|            |  |                                                                                                                                                                                   
|(3)(i)      |  | (a)     Articles of Incorporation                                                                                                                                                  |  | Provided as Exhibit 3(i) to the Registrants Quarterly Report on Form 10-Q for the quarter ended September 30, 2003 and Incorporated Herein by Reference Thereto.
|            |  |                                                                                                                                                                                   
|            |  | (b)     Articles of Amendment to Articles ofIncorporation, effective October 17, 2007                                                                                              |  | Provided as Exhibit 3(i).1 to the Current Report on Form 8-K of the Registrant filed on October 19, 2007 and Incorporated Herein by Reference Thereto.           



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|            |  |                                                                                                                                                                     |  |                                                                                                                                                                                                                     
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Subject                                                                                                                                                             |  | Applicability                                                                                                                                                                                                       
|(3)(ii)     |  | Amended and Restated By-Laws                                                                                                                                        |  | Provided as Exhibit 3(ii) to the Current Report on Form 8-K of the Registrant filed on March 27, 2007 and Incorporated Herein by Reference Thereto.                                                                 
|            |  |                                                                                                                                                                    
|(4)         |  | Instruments defining the rights of security holders, including indentures                                                                                           |  |                                                                                                                                                                                                                     
|            |  |                                                                                                                                                                    
|            |  | (a)     Agreement of Reorganization and Plan of Merger                                                                                                              |  | Provided in Registration of Securities of Certain Successor Issuers on Form 8-B filed on June 25, 1985 and Incorporated Herein by Reference Thereto.                                                                
|            |  |                                                                                                                                                                    
|            |  | (b)     Rights Agreement dated as of September 25, 2003 between North Pittsburgh Systems, Inc. and Wells Fargo Bank
Minnesota, N.A., As Rights Agent                |  | Provided as Exhibit 1 to the Registration of Certain Classes of Securities on Form 8-A of the Registrant filed on October 3, 2003 and Incorporated Herein by Reference
Thereto.                                     
|            |  |                                                                                                                                                                    
|            |  | (c)     Amendment No. 1 to Rights Agreement, dated as of July 1, 2007, between North Pittsburgh Systems, Inc. and
Wells Fargo Bank Minnesota, N.A., As Rights Agent |  | Provided as Exhibit 4.1 to the Current Report on Form 8-K of the Registrant filed on July 5, 2007 and Incorporated Herein by Reference Thereto.                                                                     
|            |  |                                                                                                                                                                    
|(10)        |  | Material contracts                                                                                                                                                  |  |                                                                                                                                                                                                                     
|            |  |                                                                                                                                                                    
|            |  | (a)     Form of Amended and Restated Executive Employment Agreement                                                                                                 |  | Provided as Exhibit 10 to the Registrants Quarterly Report on Form 10-Q for the quarter ended March 31, 2002 (Securities and Exchange Commission File Number 0-13716) and
Incorporated Herein by Reference Thereto.
|            |  |                                                                                                                                                                    
|            |  | (b)     Form of Executive Retention Payment Program Agreement                                                                                                       |  | Provided as Exhibit 10(b) to the Registrants Annual Report on Form 10-K for the year ended December 31, 2003 and Incorporated Herein by Reference Thereto.                                                         
|            |  |                                                                                                                                                                    
|            |  | (c)     Form of Extension of Amended and Restated Executive Employment Agreement and Retention Payment
Program                                                      |  | Provided as Exhibit 10(c) to the Registrants Annual Report on Form 10-K for the year ended December 31, 2003 and Incorporated Herein by Reference Thereto.                                                         
|            |  |                                                                                                                                                                    
|            |  | (d)     2005 Executive Officers Bonus Plan                                                                                                                          |  | Provided as Exhibit 99.1 to the Current Report on Form 8-K of the Registrant filed on August 24, 2005 and Incorporated Herein by Reference Thereto.                                                                 
|            |  |                                                                                                                                                                    
|            |  | (e)     Stock Redemption Agreement dated as of November 10, 2005 between North Pittsburgh Telephone Company and The
Rural Telephone Bank                            |  | Provided as Exhibit 99.1 to the Current Report on Form 8-K of the Registrant filed on February 1, 2006 and Incorporated Herein by Reference Thereto.                                                                
|            |  |                                                                                                                                                                    
|            |  | (f)      2006 Executive Officers Bonus Plan                                                                                                                         |  | Provided as Exhibit 99.1 to the Current Report on Form 8-K of the Registrant filed on April 5, 2006 and Incorporated Herein by Reference Thereto.                                                                   
|            |  |                                                                                                                                                                    
|            |  | (g)     Form of Indemnification Agreement dated July 1, 2007                                                                                                        |  | Provided as Exhibit 10.1 to the Current Report on Form 8-K of the Registrant filed on July 5, 2007 and Incorporated Herein by Reference Thereto.                                                                    



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|            |  |                                                                                                                                                                                                       |  |                                                                                                                                                  
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Subject                                                                                                                                                                                               |  | Applicability                                                                                                                                    
|            |  | (h)     Executive Employment Agreements dated July 1, 2007 between North Pittsburgh Telephone Company and North
Pittsburgh Systems, Inc., on the one hand, and Kevin J. Albaugh, on the other hand    |  | Provided as Exhibit 10.1 to the Current Report on Form 8-K of the Registrant filed on July 6, 2007 and Incorporated Herein by Reference Thereto. 
|            |  |                                                                                                                                                                                                      
|            |  | (i)      Executive Employment Agreement dated July 1, 2007 between North Pittsburgh Telephone Company and North
Pittsburgh Systems, Inc., on the one hand, and N. William Barthlow, on the other hand |  | Provided as Exhibit 10.2 to the Current Report on Form 8-K of the Registrant filed on July 6, 2007 and Incorporated Herein by Reference Thereto. 
|            |  |                                                                                                                                                                                                      
|            |  | (j)      Executive Employment Agreement dated July 1, 2007 between North Pittsburgh Telephone Company and North
Pittsburgh Systems, Inc., on the one hand, and Allen P. Kimble, on the other hand     |  | Provided as Exhibit 10.3 to the Current Report on Form 8-K of the Registrant filed on July 6, 2007 and Incorporated Herein by Reference Thereto. 
|            |  |                                                                                                                                                                                                      
|            |  | (k)     Executive Employment Agreement dated July 1, 2007 between North Pittsburgh Telephone Company and North
Pittsburgh Systems, Inc., on the one hand, and Frank A. Macefe, on the other hand      |  | Provided as Exhibit 10.4 to the Current Report on Form 8-K of the Registrant filed on July 6, 2007 and Incorporated Herein by Reference Thereto. 
|            |  |                                                                                                                                                                                                      
|            |  | (l)      Executive Employment Agreement dated July 1, 2007 between North Pittsburgh Telephone Company and North
Pittsburgh Systems, Inc., on the one hand, and Albert W. Weigand, on the other hand   |  | Provided as Exhibit 10.5 to the Current Report on Form 8-K of the Registrant filed on July 6, 2007 and Incorporated Herein by Reference Thereto. 
|            |  |                                                                                                                                                                                                      
|            |  | (m)    Executive Employment Agreement dated July 1, 2007 between North Pittsburgh Telephone Company and North Pittsburgh
Systems, Inc., on the one hand, and Matthew D. Poleski, on the other hand    |  | Provided as Exhibit 10.6 to the Current Report on Form 8-K of the Registrant filed on July 6, 2007 and Incorporated Herein by Reference Thereto. 
|            |  |                                                                                                                                                                                                      
|            |  | (n)     Executive Employment Agreement dated July 1, 2007 between North Pittsburgh Telephone Company and North
Pittsburgh Systems, Inc., on the one hand, and Harry R. Brown, on the other hand       |  | Provided as Exhibit 10.7 to the Current Report on Form 8-K of the Registrant filed on July 6, 2007 and Incorporated Herein by Reference Thereto. 
|            |  |                                                                                                                                                                                                      
|            |  | (o)     2007 Executive Officers Bonus Plan                                                                                                                                                            |  | Provided as Exhibit 10.8 to the Current Report on Form 8-K of the Registrant filed on July 6, 2007 and Incorporated Herein by Reference Thereto. 
|            |  |                                                                                                                                                                                                      
|            |  | (p)     North Pittsburgh Systems, Inc. Shareholder Approval Bonus Plan                                                                                                                                |  | Provided as Exhibit 10.9 to the Current Report on Form 8-K of the Registrant filed on July 6, 2007 and Incorporated Herein by Reference Thereto. 
|            |  |                                                                                                                                                                                                      
|            |  | (q)     North Pittsburgh Telephone Company Retirement Income Restoration Plan as Amended and Restated as of July 1,
2007                                                                              |  | Provided as Exhibit 10.10 to the Current Report on Form 8-K of the Registrant filed on July 6, 2007 and Incorporated Herein by Reference Thereto.
|            |  |                                                                                                                                                                                                      
|(11)        |  | Statement re computation of per share earnings                                                                                                                                                        |  | Attached Hereto                                                                                                                                  
|            |  |                                                                                                                                                                                                      
|(15)        |  | Letter re unaudited interim financial information                                                                                                                                                     |  | Not Applicable                                                                                                                                   



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##### Table of Contents

|            |  |                                                                                                                                                                                 |  |                
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------
|Exhibit No. |  | Subject                                                                                                                                                                         |  | Applicability  
|(18)        |  | Letter re change in accounting principles                                                                                                                                       |  | Not Applicable 
|            |  |                                                                                                                                                                                
|(19)        |  | Report furnished to securities holders                                                                                                                                          |  | Not Applicable 
|            |  |                                                                                                                                                                                
|(22)        |  | Published report regarding matters submitted to vote of security holders                                                                                                        |  | Not Applicable 
|            |  |                                                                                                                                                                                
|(23)        |  | Consents of experts and counsel                                                                                                                                                 |  | Not Applicable 
|            |  |                                                                                                                                                                                
|(24)        |  | Power of attorney                                                                                                                                                               |  | Not Applicable 
|            |  |                                                                                                                                                                                
|(31(i).1)   |  | Certification of President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                |  | Attached Hereto
|            |  |                                                                                                                                                                                
|(31(i).2)   |  | Certification of Vice President, Treasurer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                |  | Attached Hereto
|            |  |                                                                                                                                                                                
|(32.1)      |  | Certification of President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                 |  | Attached Hereto
|            |  |                                                                                                                                                                                
|(32.2)      |  | Certification of Vice President, Treasurer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  | Attached Hereto



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                       |  |  |  |  |  |                                                                    
|---------------------- |  |  |  |  |  | -------------------------------------------------------------------
|                       |  |  |  |  |  | NORTH PITTSBURGH SYSTEMS, INC.                                     
|                       |  |  |  |  |  | (Registrant)                                                       
|                       |  |  | 
|Date: November 9, 2007 |  |  |  |  |  | /s/ H. R. Brown                                                    
|                       |  |  |  |  |  | H. R. Brown, President and Chief Executive Officer                 
|                       |  |  | 
|Date: November 9, 2007 |  |  |  |  |  | /s/ M. D. Poleski                                                  
|                       |  |  |  |  |  | M. D. Poleski, Vice President, Treasurer andChief Financial Officer



40