##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 COMMISSION FILE NUMBER 0-28579
 BERLINER COMMUNICATIONS, INC.
  Delaware
(State or Other Jurisdiction of Incorporation)
    
    75-2233445
(I.R.S. Employer Identification No.)
 20 Bushes Lane
Elmwood Park, New Jersey 07407
 (201) 791-3200
 þ o
 o þ
 o þ




---



BERLINER COMMUNICATIONS, INC.
 QUARTERLY REPORT FORM 10-Q
INDEX
 PAGE NO.PART I: FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets as of September 30, 2005 and June 30, 2005
    
    
    3Consolidated Statements of Operations for the three months ended September 30, 2005, and 2004
    
    
    4Consolidated Statements of Cash Flows for the three months ended September 30, 2005, and 2004
    
    
    5Consolidated Statements of Stockholders Equity
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    10Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    19Item 4. Controls and Procedures
    
    
    19PART II: OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    19Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
    
    
    19Item 3. Defaults Upon Senior Securities
    
    
    19Item 4. Submission of Matters to a Vote of Securities Holders
    
    
    19Item 5. Other Information
    
    
    19Item 6. Exhibits
    
    
    19SIGNATURES
    
    
    20Certification of the Principal Executive Officer Pursuant to Section 302Certification of the Principal Financial & Accounting Officer Pursuant to Section 302Certification Pursuant to Section 906
  2




---



##### Table of Contents



BERLINER COMMUNICATIONS, INC.
 
 CONSOLIDATED BALANCE SHEETS
 September 30,
    
    
    June 30,2005
    
    
    2005(Unaudited)ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    454,010
    
    
    $
    402,432Accounts receivable, net of allowance for doubtful
accounts of $135,821 at September 30, 2005 and
$91,572 at June 30, 2005
    
    
    7,354,138
    
    
    
    5,261,311Inventories
    
    
    480,517
    
    
    
    506,615Prepaid expenses and other current assets
    
    
    420,675
    
    
    
    516,8428,709,340
    
    
    
    6,687,200LONG-TERM ASSETSProperty and equipment, net
    
    
    519,310
    
    
    
    469,855Other assets
    
    
    254,122
    
    
    
    359,139$
    9,482,772
    
    
    $
    7,516,194LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABLILITIESLine of credit
    
    $
    546,340
    
    
    $
    493,824Current portion of long-term debt
    
    
    513,436
    
    
    
    425,964Current portion of capital lease obligations
    
    
    34,962
    
    
    
    39,596Accounts payable
    
    
    2,937,986
    
    
    
    2,209,775Accrued liabilities
    
    
    3,248,143
    
    
    
    2,285,8897,280,867
    
    
    
    5,455,048LONG-TERM LIABILITIESLong-term debt, net of current portion
    
    
    113,319
    
    
    
    243,942Long-term capital lease obligations, net of current portion
    
    
    19,940
    
    
    
    10,068133,259
    
    
    
    254,010COMMITMENTS
    
    
    
    
    
    
    STOCKHOLDERS EQUITYPreferred stock
    
    
    
    
    
    
    79Common stock
    
    
    341
    
    
    
    13Additional paid-in capital
    
    
    12,922,080
    
    
    
    12,922,329Accumulated deficit
    
    
    (10,853,775
    )
    
    
    (11,115,285
    )2,068,646
    
    
    
    1,807,136$
    9,482,772
    
    
    $
    7,516,194
 The accompanying notes are an integral part of these financial statements.
 3




---



##### Table of Contents



BERLINER COMMUNICATIONS, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Three months endedSeptember 30,2005
    
    
    2004(Unaudited)
    
    
    (Unaudited)Revenues
    
    $
    8,657,365
    
    
    $
    3,838,201Costs of revenues
    
    
    6,217,550
    
    
    
    2,236,953Gross margin
    
    
    2,439,815
    
    
    
    1,601,248Selling, general and administrative expenses
    
    
    2,043,747
    
    
    
    1,523,466Depreciation and amortization
    
    
    61,136
    
    
    
    82,721(Gain) loss on sale of fixed assets
    
    
    (250
    )
    
    
    3,552Income (loss) from operations
    
    
    335,182
    
    
    
    (8,491
    )Other (income) expenseInterest expense
    
    
    9,571
    
    
    
    13,011Interest income
    
    
    (2,846
    )
    
    
    (546
    )Loss in equity of investments
    
    
    65,747
    
    
    
    Other
    
    
    400
    
    
    
    Income (loss) before income taxes
    
    
    262,310
    
    
    
    (20,956
    )Income tax expense
    
    
    800
    
    
    
    9,000Net income (loss)
    
    $
    261,510
    
    
    $
    (29,956
    )Deemed Series B and D preferred dividends
    
    
    19,935,779
    
    
    
    Net loss allocable to common shareholders
    
    $
    (19,674,269
    )
    
    $
    (29,956
    )Net loss per share  basic and diluted
    
    $
    (5.90
    )
    
    $
    (0.44
    )Weighted average number of shares
outstanding  basic and diluted
    
    
    3,335,393
    
    
    
    67,414
 The accompanying notes are an integral part of these financial statements.
 4




---



##### Table of Contents



BERLINER COMMUNICATIONS, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Three months endedSeptember 30,2005
    
    
    2004(Unaudited)
    
    
    (Unaudited)Cash flows from operating activitiesNet income (loss)
    
    $
    261,510
    
    
    $
    (29,956
    )Adjustments to reconcile net income (loss)
to net cash provided by operationsDepreciation
    
    
    61,136
    
    
    
    82,721Loss in equity of investments
    
    
    65,747
    
    
    
    Bad debt expense
    
    
    44,186
    
    
    
    42,190(Gain) loss on sale of fixed assets
    
    
    (250
    )
    
    
    3,552Changes in operating assets and liabilitiesAccounts receivable
    
    
    (2,137,012
    )
    
    
    440,188Inventories
    
    
    26,097
    
    
    
    24,111Prepaid expenses and other current assets
    
    
    96,167
    
    
    
    (97
    )Other assets
    
    
    39,270
    
    
    
    Accounts payable
    
    
    728,211
    
    
    
    (397,377
    )Accrued liabilities
    
    
    962,254
    
    
    
    (80,336
    )Net cash provided by operating
activities
    
    
    147,316
    
    
    
    84,996Cash flow from investing activitiesPurchase of property and equipment
    
    
    (110,592
    )
    
    
    (10,788
    )Proceeds from the sale of property and equipment
    
    
    250
    
    
    
    1,000Net cash used in investing activities
    
    
    (110,342
    )
    
    
    (9,788
    )Cash flows from financing activitiesProceeds from line of credit
    
    
    798,011
    
    
    
    671,460Proceeds from long-term debt
    
    
    44,033
    
    
    
    Proceeds from capital leases
    
    
    17,370
    
    
    
    Repayment of line of credit
    
    
    (745,496
    )
    
    
    (698,633
    )Repayment of long-term debt
    
    
    (87,185
    )
    
    
    (3,700
    )Repayment of capital leases
    
    
    (12,129
    )
    
    
    (21,005
    )Net cash provided by (used in) financing
activities
    
    
    14,604
    
    
    
    (51,878
    )Net increase in cash and cash equivalents
    
    
    51,578
    
    
    
    23,330Cash and cash equivalents at beginning of period
    
    
    402,432
    
    
    
    211,162Cash and cash equivalents at end of period
    
    $
    454,010
    
    
    $
    234,492Supplemental disclosure of cash flow informationInterest paid
    
    $
    9,571
    
    
    $
    13,009Income taxes paid
    
    $
    800
    
    
    $
    1,706
 The accompanying notes are an integral part of these financial statements.
 5




---



##### Table of Contents



BERLINER COMMUNICATIONS, INC.
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 Preferred Stock
    
    
    Common Stock25,000,000 shares authorized;
    
    
    200,000,000 shares authorized
    
    
    Additional
    
    
    
    
    
    
    Total$0.00002 par value
    
    
    $0.00002 par value
    
    
    Paid-in
    
    
    Accumulated
    
    
    StockholdersShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    EquityBalance at June 30, 2005
    
    
    3,927,642
    
    
    
    79
    
    
    
    666,667
    
    
    $
    13
    
    
    $
    12,922,329
    
    
    $
    (11,115,285
    )
    
    $
    1,807,136Deemed dividend in the conversion of
the Series B and Series D Convertible
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,915,843Preferred Stock
    
    
    (13,973
    )
    
    
    
    
    
    
    996,788,940
    
    
    
    19,936
    
    
    
    (19,935,779
    )
    
    
    
    
    
    
    Conversion of Series E Convertible
Preferred Stock
    
    
    (3,913,669
    )
    
    
    (79
    )
    
    
    3,913,668,046
    
    
    
    78,273
    
    
    
    (78,194
    )
    
    
    
    
    
    
    Reverse stock split of one share for every
300 shares on September 30, 2005
    
    
    
    
    
    
    
    
    
    
    (4,894,088,796
    )
    
    
    (97,881
    )
    
    
    97,881
    
    
    
    
    
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    261,510
    
    
    
    261,510Balance at September 30, 2005
    
    
    
    
    
    $
    
    
    
    
    17,034,857
    
    
    $
    341
    
    
    $
    12,922,080
    
    
    $
    (10,853,775
    )
    
    $
    2,068,646
 The accompanying notes are an integral part of these financial statements.
 6




---



##### Table of Contents



BERLINER COMMUNICATIONS, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. History and Description of Business
    2. Basis of Presentation
   3. Accounting Policies
 Use of Estimates.
 Revenue Recognition.
 7




---



##### Table of Contents



Risks and Uncertainties.
 Income (Loss) Per Share
  Stock-based Compensation.
 4. Accounts Receivable
  September 30,
    
    
    June 30,2005
    
    
    2005(Unaudited)Accounts receivable
    
    $
    6,019,651
    
    
    $
    4,209,743Unbilled receivables
    
    
    1,470,308
    
    
    
    1,143,1407,489,959
    
    
    
    5,352,883Allowance for doubtful accounts
    
    
    (135,821
    )
    
    
    (91,572
    )Total
    
    $
    7,354,138
    
    
    $
    5,261,311
   8




---



##### Table of Contents



5. Inventories
  6. Accrued Liabilities
  September 30,
    
    
    June 30,2005
    
    
    2005(Unaudited)Employee compensation
    
    $
    329,649
    
    
    $
    192,702Constructions costs
    
    
    2,809,073
    
    
    
    1,937,786Other
    
    
    109,421
    
    
    
    155,401$
    3,248,143
    
    
    $
    2,285,889
 7. Revolving Credit Facility
   8. Recapitalization of Berliner Communications
  
    
    To increase the aggregate number of shares that we will have the authority to
issue from 225,000,000 to 6,600,000,000 shares, of which 6,000,000,000 shares will
be shares of Common Stock, and 600,000,000 shares will be shares of Preferred
Stock;
    
    To change our name from Novo Networks, Inc. to Berliner Communications, Inc.;
    
    To amend the Certificate of Designation, Preferences and Rights of Series B
Convertible Preferred Stock to reduce the conversion price of the Series B
Convertible Preferred Stock to $0.014018, and thereby increase the number of shares
of Common Stock issuable upon conversion of such shares of the Series B Convertible
Preferred Stock to 321,015,546 (in the quarter ended September 30, 2005, we
recorded a deemed dividend of approximately $6.4 million due to the reduction in
the conversion price that appears on the accompanying Consolidated Statement of
Operations in computing the net loss allocable to common shareholders);
    
    To amend the Certificate of Designation, Preferences and Rights of Series D
Convertible Preferred Stock to reduce the conversion price of the Series D
Convertible Preferred Stock to $0.014018, and thereby increase the number of shares
of Common Stock issuable upon conversion of such shares of the Series D Convertible
Preferred Stock to 675,773,394 (in the quarter ended September
 9




---



##### Table of Contents



30, 2005, we
recorded a deemed dividend of approximately $13.5 million due to the reduction in
the conversion price that appears on the accompanying Consolidated Statement of
Operations in computing the net loss allocable to common shareholders);
    
    To provide that, upon the filing of the Certificate of Amendment, all shares of
the Series B Convertible Preferred Stock, Series D Convertible Preferred Stock, and
Series E Convertible Preferred Stock will be automatically converted into Common
Stock;
    
    To effect a 1:300 reverse stock split, such that the outstanding shares of
Common Stock and Convertible Preferred Stock will be reclassified and one new share
of Common Stock will be issued for every 300 shares of existing Common Stock (which
has been retroactively reflected in the accompanying Balance Sheet); and
    
    To amend the Certificate of Incorporation, such that, after giving effect to the
reverse stock split, the aggregate number of shares that we will have the authority
to issue is 22,000,000 shares, of which 20,000,000 shares will be shares of Common
Stock, and 2,000,000 shares will be shares of Preferred Stock.
  9. Related Party Transactions
  10. Legal Proceedings
  
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Cautionary Statement for the Purposes of the Safe Harbor Provisions of the Private Securities
Litigation Reform Act of 1995
  Forward-Looking Statements
  10




---



##### Table of Contents




    
    our financial condition and strategic direction;
    
    our ability to continue as a going concern;
    
    our future capital requirements and our ability to satisfy our capital needs;
    
    the potential generation of future revenues;
    
    BCIs ability to adequately staff its service offerings;
    
    opportunities for BCI from new and emerging wireless technologies;
    
    our discussions with Presidential, or some other lender, to obtain additional financing;
    
    our growth strategy for BCI;
    
    trends in the wireless telecommunications industry;
    
    key drivers of change in BCIs business;
    
    BCIs position in the wireless telecommunications industry;
    
    BCIs competitive position; and
    
    other statements that contain words like believe, anticipate, expect and similar
expressions are also used to identify forward-looking statements.
  
    
    risks inherent in our ability to continue as a going concern;
    
    risks associated with competition in the wireless telecommunications sector we entered
with the acquisition of the Berliner Assets;
    
    risks associated with our ability to monetize or capitalize on our interest in Paciugo;
    
    risks that we will not be able to generate positive cash flow with the acquisition of the Berliner Assets;
    
    BCIs function as an early stage company;
    
    risk that we may not be able to obtain additional financing from Presidential or any other lender;
    
    risks associated with Old Berliners history of losses;
    
    risks related to a concentration in revenues from a small number of customers;
    
    risks that BCI will not be able to take advantage of new and emerging wireless technologies; and
    
    risks that BCI will be unable to adequately staff its service offerings.
   Business Risk Factors
 Our shareholders may not realize any benefit from our transaction with Old Berliner.
  We, in essence, are an early stage company. Therefore, in light of its anticipated significance,
our business prospects are difficult to evaluate.
  11




---



##### Table of Contents




    
    adapt and successfully execute an evolving and unpredictable business model;
    
    attract necessary working capital;
    
    establish, train and manage a larger and more productive workforce;
    
    develop meaningful customer and vendor relationships;
    
    provide services that consistently meet customer demands in a rapidly evolving industry;
    
    implement and improve operational, financial and management systems and processes;
    
    respond effectively to competitive developments; and
    
    otherwise manage and adapt to changing operations.
  We may need additional financing, almost immediately, to grow our business.
  Old Berliner has a history of losses and we anticipate that our combined operations will generate
losses in the short term.
  If the percentage of our revenues derived from construction-related activities increases, our gross
margins may suffer.
  In any given year, we derive a significant portion of our revenues from a limited number of
projects, and, if we are unable to replace such jobs upon completion, we would have a significant
decrease in our revenues, which would negatively impact our operating results.
  12




---



##### Table of Contents



We generate a substantial portion of our revenues from a limited number of customers, and if our
relationships with such customers were harmed, our business would suffer.
  If we experience delays and or defaults in customer payments, we could be unable to cover all
expenditures.
  Many of our customers face difficulties in obtaining financing to fund the expansion of their
wireless networks, which may reduce demand for our services.
 .
 If we are unable to collect receivables from our smaller customers, our operating results may be
materially harmed.
  New technologies may reduce the demand for our services.
  Further delays in the adoption and deployment of next generation wireless networks could negatively
affect the demand for our services and our ability to grow our revenues.
  13




---



##### Table of Contents



We bear the risk of cost overruns in some of our contracts.
  If we guarantee the timely completion or performance standard of a project, we could incur
significant, additional costs.
  The nature of our engineering and construction business exposes us to potential liability claims
and contract disputes that may negatively affect our results of operations.
  We maintain a workforce based upon current and anticipated workloads. If we do not receive future
contract awards or if these awards are delayed, significant costs may result.
  We may not be able to hire or retain sufficient number of qualified engineers and other employees
to meet our contractual obligations or maintain the quality of our services.
  14




---



##### Table of Contents



Intense competition in the engineering and construction industry could reduce our market share.
  Past and future environmental, safety and health regulations could impose on us significant
additional costs that negatively affect our operations.
  We are vulnerable to the cyclical nature of the market we serve.
  We may experience significant fluctuations in our quarterly results as a result of uncertainties
relating to our ability to generate additional revenues, manage expenditures and other factors,
certain of which are outside of our control.
  
    
    financing provided to potential customers;
    
    the commencement, progress, completion or termination of contracts during any particular quarter;
    
    the availability of equipment to deploy new technologies, such a 3G and broadband;
    
    the growth rate of wireless subscribers, which has a direct impact on the rate at which
new cell sites are developed and built; and
    
    telecommunications market conditions and economic generally.
  Because Old Berliner experienced, and we expect to continue to experience, long sales cycles, we
expect to incur significant costs to generate new business and our customer base may not experience
growth commensurate with such costs.
  15




---



##### Table of Contents



Summary of Operating Results
   Three months endedSeptember 30,2005
    
    
    2004(Unaudited)
    
    
    (Unaudited)Revenues
    
    $
    8,657,365
    
    
    $
    3,838,201Costs of revenues
    
    
    6,217,550
    
    
    
    2,236,953Gross margin
    
    
    2,439,815
    
    
    
    1,601,248Selling, general and administrative expenses
    
    
    2,043,747
    
    
    
    1,523,466Depreciation and amortization
    
    
    61,136
    
    
    
    82,721(Gain) loss on sale of fixed assets
    
    
    (250
    )
    
    
    3,552Income (loss) from operations
    
    
    335,182
    
    
    
    (8,491
    )Other (income) expenseInterest expense
    
    
    9,571
    
    
    
    13,011Interest income
    
    
    (2,846
    )
    
    
    (546
    )Loss in equity of investments
    
    
    65,747
    
    
    
    Other
    
    
    400
    
    
    
    Income (loss) before income taxes
    
    
    262,310
    
    
    
    (20,956
    )Income tax expense
    
    
    800
    
    
    
    9,000Net income (loss)
    
    $
    261,510
    
    
    $
    (29,956
    )Deemed Series B and D preferred dividends
    
    
    19,935,779
    
    
    
    Net loss allocable to common shareholders
    
    $
    (19,674,269
    )
    
    $
    (29,956
    )Net loss per share  basic and diluted
    
    $
    (5.90
    )
    
    $
    (0.44
    )Weighted average number of shares
outstanding  basic and diluted
    
    
    3,335,393
    
    
    
    67,414
 Three months ended September 30, 2005, Compared to Three months ended September 30, 2004
 Since the Acquisition is being accounted for as a recapitalization of Old Berliner, the following
discussion is based upon the operations of us for the three months ended September 30, 2005, as
compared to the historical operations for Old Berliner for the three months ended September 30,
2004. Accordingly, no distinction is made between us, Berliner Communications and BCI for the
purposes of following period to period comparison.
 Revenues
 16




---



##### Table of Contents



Cost of Revenues
 Gross Margin.
 Selling, General and Administrative Expenses
  Depreciation and Amortization
 Loss in Equity Investments
 Income Taxes.
 Liquidity and Capital Resources
  17




---



##### Table of Contents



18




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
  
 PART II: OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
  31.1
    
    Certification of the Principal Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of the Principal Financial and Accounting Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 19




---



##### Table of Contents



SIGNATURES
  BERLINER COMMUNICATIONS, INC.Date: November 14, 2005
    
    By:
    
    /s/ Richard B. BerlinerRichard B. BerlinerChief Executive Officer(Principal Executive Officer)Date: November 14, 2005
    
    By:
    
    /s/ Patrick G. MackeyPatrick G. MackeySenior Vice President(Principal Financial and Accounting Officer)
 20