10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Mark One

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

For The Quarterly Period Ended September 30, 2016

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from to

Commission File Number 333-142946

Broadview Networks Holdings, Inc.

(Exact name of registrant as specified in its charter)

Delaware	11-3310798
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
800 Westchester Avenue,
Suite N501 Rye Brook, NY 10573	10573
(Address of principal executive offices)	(Zip code)

(914) 922-7000

(Registrant’s telephone number, including area code)

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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer o	Non-accelerated filer þ	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes o No o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at October 27, 2016
Common Stock, $.01 par value per share	9,999,945

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements	4
Condensed Consolidated Balance Sheets as of September 30, 2016 (unaudited) and December 31, 2015	4
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2016 and 2015	5
Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015	6
Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3. Quantitative and Qualitative Disclosures About Market Risk	24
Item 4. Controls and Procedures	24
PART II - OTHER INFORMATION
Item 1. Legal Proceedings	25
Item 1A. Risk Factors	25
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3. Defaults Upon Senior Securities	25
Item 4. Mine Safety Disclosures	25
Item 5. Other Information	25
Item 6. Exhibits	26
Signatures	27
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
Exhibit 101.INS
Exhibit 101.SCH
Exhibit 101.CAL
Exhibit 101.LAB
Exhibit 101.PRE
Exhibit 101.DEF

2

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains both historical and forward-looking statements. All statements other than statements of historical fact included in this report that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements including, in particular, the statements about our plans, objectives, strategies and prospects regarding, among other things, our financial condition, results of operations and business. We have identified some of these forward-looking statements with words like “believe,” “may,” “will,” “should,” “expect,” “intend,” “plan,” “predict,” “anticipate,” “estimate” or “continue” and other words and terms of similar meaning. These forward-looking statements may be contained throughout this report, including but not limited to statements under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These forward-looking statements are based on current expectations about future events affecting us and are subject to uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control and could cause our actual results to differ materially from those matters expressed or implied by forward-looking statements. Many factors mentioned in our discussion in this report will be important in determining future results. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Our plans and objectives are based, in part, on assumptions involving the execution of our stated business plan and objectives. Forward-looking statements (including oral representations) are only predictions or statements of current plans, which we review and update regularly. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties, including, among other things, risks associated with:

• highly competitive nature of the communications market;

• failure to anticipate and keep up with technological changes;

• governmental regulatory oversight;

• elimination or relaxation of certain regulatory rights and protections;

• regulatory uncertainties in the communications industry;

• continued industry consolidation;

• failure to manage and expand operations effectively;

• failure to retain and attract management and key personnel;

• failure to maintain interconnection and service agreements with incumbent local exchange carriers;

• difficulties in working with incumbent local exchange carriers;

• reliance on a limited number of non-ILEC third party service providers;

• system disruptions or the failure of our information systems to perform as expected;

• ability to maintain real estate leases at switch sites;

• loss of a substantial number of customers;

• failure to successfully integrate future acquisitions;

• claims of intellectual property infringement;

• misappropriation of our intellectual property and proprietary rights;

• liability for information disseminated through our network;

• our history of net losses;

• billing disputes with carrier vendors;

• difficulties collecting payment from carrier and wholesale customers;

• liability associated with periodic audits conducted by State Taxing and other Authorities;

• declining prices for communications services;

• impact of debt facilities on operating flexibility; and

• our ability to service our substantial indebtedness.

Because our actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements, we cannot give any assurance that any of the events anticipated by these forward-looking statements will occur or, if any of them do, what impact they will have on our business, results of operations and financial condition. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We do not undertake any obligation to update these forward-looking statements to reflect new information, future events or otherwise, except as may be required under federal securities laws.

3

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Broadview Networks Holdings, Inc.

Condensed Consolidated Balance Sheets

(dollars in thousands, except par value)

	September 30, 2016			December 31, 2015
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	23,404		$	15,173
Certificates of deposit	1,022			1,022
Accounts receivable, less allowance for doubtful accounts of $6,598 and $7,967	21,679			23,225
Other current assets	8,660			6,460
Total current assets	54,765			45,880
Property and equipment, net	50,648			54,125
Goodwill	98,238			98,238
Intangible assets, net	774			1,376
Other assets	3,219			3,258
Total assets	$	207,644		$	202,877
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
Current liabilities:
Accounts payable	$	4,336		$	4,714
Accrued expenses and other current liabilities	19,768			15,809
Taxes payable	5,643			4,752
Deferred revenues	8,951			9,175
Current portion of capital lease obligations	203			253
Total current liabilities	38,901			34,703
10.5% senior secured notes	150,000			150,000
Revolving credit facility	11,500			12,500
Deferred rent payable	4,143			4,626
Deferred revenues	891			899
Capital lease obligations, net of current portion	205			225
Deferred income taxes payable	9,583			8,856
Other	1,902			1,875
Total liabilities	217,125			213,684
Stockholders’ deficiency:
Common stock - $.01 par value; authorized 19,000,000 shares, issued and outstanding 9,999,945 shares	100			100
Preferred stock — $.01 par value; authorized 1,000,000 shares, issued and outstanding no shares	—			—
Additional paid-in capital	306,792			306,792
Accumulated deficit	(316,373		)	(317,699		)
Total stockholders’ deficiency	(9,481		)	(10,807		)
Total liabilities and stockholders’ deficiency	$	207,644		$	202,877

See notes to unaudited condensed consolidated financial statements.

4

Broadview Networks Holdings, Inc.

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(dollars in thousands)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Revenues	$	72,837		$	73,040		$	217,628		$	218,971
Operating expenses:
Cost of revenues (exclusive of depreciation and amortization)	30,382			32,101			92,508			97,982
Selling, general and administrative	29,617			31,188			88,558			93,430
Depreciation and amortization	6,995			7,348			21,305			22,157
Total operating expenses	66,994			70,637			202,371			213,569
Income from operations	5,843			2,403			15,257			5,402
Interest expense	(4,650		)	(4,019		)	(13,041		)	(12,260		)
Interest income	11			6			29			19
Income (loss) before provision for income taxes	1,204			(1,610		)	2,245			(6,839		)
Provision for income taxes	(289		)	(332		)	(919		)	(1,078		)
Net income (loss)	915			(1,942		)	1,326			(7,917		)
Other comprehensive income	—			—			—			—
Comprehensive income (loss)	$	915		$	(1,942	)	$	1,326		$	(7,917	)

See notes to unaudited condensed consolidated financial statements.

5

Broadview Networks Holdings, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(dollars in thousands)

	Nine Months Ended September 30,
	2016			2015
Cash flows from operating activities
Net income (loss)	$	1,326		$	(7,917	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation	20,703			21,315
Amortization of intangible assets	602			842
Provision for doubtful accounts	706			688
Deferred income taxes	727			727
Other	27			47
Changes in operating assets and liabilities:
Accounts receivable	840			(2,659		)
Other current assets	(2,697		)	1,012
Other assets	39			(12		)
Accounts payable	(378		)	371
Accrued expenses, other current liabilities and taxes payable	4,850			4,698
Deferred revenues	(232		)	(288		)
Deferred rent payable	(483		)	(203		)
Net cash provided by operating activities	26,030			18,621
Cash flows from investing activities
Purchases of property and equipment	(16,729		)	(19,652		)
Other	—			251
Net cash used in investing activities	(16,729		)	(19,401		)
Cash flows from financing activities
Repayments of revolving credit facility	(1,000		)	(2,000		)
Proceeds from capital lease financing	118			338
Payments on capital lease obligations	(188		)	(247		)
Net cash used in financing activities	(1,070		)	(1,909		)
Net increase (decrease) in cash and cash equivalents	8,231			(2,689		)
Cash and cash equivalents at beginning of period	15,173			14,457
Cash and cash equivalents at end of period	$	23,404		$	11,768

See notes to unaudited condensed consolidated financial statements.

6

Broadview Networks Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(dollars in thousands)

1. Organization and Description of Business

Basis of Presentation

Broadview Networks Holdings, Inc. (the “Company”) is a leading cloud-based service provider of communications and information technology solutions to small and medium sized business and enterprise customers nationwide. After several years of development, the Company began providing cloud-based unified communication services in 2005 and later introduced into its product portfolio a variety of cloud-based computing solutions. Today, the Company offers a full suite of cloud-based systems and services under the brand OfficeSuite^® to customers nationwide. The Company has one reportable segment.

The accompanying unaudited condensed consolidated financial statements have been prepared based upon Securities and Exchange Commission (“SEC”) rules that permit reduced disclosure for interim periods. These financial statements reflect all adjustments necessary for a fair presentation of the results of operations and financial condition for the interim periods shown, including normal recurring accruals and other items. The results for interim periods are not necessarily indicative of results for the full year. For a more complete discussion of significant accounting policies and certain other information, the Company’s interim unaudited condensed financial statements should be read in conjunction with its audited financial statements as of and for the year ended December 31, 2015 contained in the Company’s Form 10-K filed with the SEC on March 15, 2016. The condensed consolidated interim financial statements include both the Company’s accounts and the accounts of its wholly-owned subsidiaries. All significant intercompany transactions have been eliminated in consolidation. The Company has evaluated the impact of subsequent events through the date the condensed consolidated financial statements were filed with the SEC.

The preparation of the condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Management periodically reviews such estimates and assumptions as circumstances dictate. Actual results could differ from those estimates.

2. Fair Value of Financial Instruments

The Company’s financial instruments include cash and cash equivalents, certificates of deposit, trade accounts receivable, accounts payable, revolving credit facility and long-term debt. The Company’s available cash balances are invested on a short-term basis (generally overnight) and, accordingly, are not subject to significant risks associated with changes in interest rates. All of the Company’s cash flows are derived from operations within the United States and are not subject to market risk associated with changes in foreign exchanges rates. The carrying amounts of the Company’s cash and cash equivalents, certificates of deposit, trade accounts receivable and accounts payable reported in the condensed consolidated balance sheets as of September 30, 2016 and December 31, 2015 were deemed to approximate fair value because of their liquidity and short-term nature.

The Company had outstanding borrowings of $11,500 and $12,500 on its revolving credit facility as of September 30, 2016 and December 31, 2015, respectively. The carrying amount of this debt is deemed to approximate its fair value due to its variable interest rate and its relative short term nature. The fair value of the Company’s 10.5% Senior Secured Notes due 2017 (the “Notes”) was $147,608 and $134,230 at September 30, 2016 and December 31, 2015, respectively, which was based on the most recent publicly quoted prices of the Notes as of such dates. These are considered to be Level 1 inputs.    

7

Broadview Networks Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(dollars in thousands)

3. Recent Accounting Pronouncements

In May 2014, a comprehensive update on the accounting standard for revenue recognition was issued. This update affects any entity that enters into contracts with customers to transfer goods or services. Under this new guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This update is effective for annual periods beginning on or after December 15, 2017. Early adoption is permitted only as of annual periods beginning on or after December 15, 2016. The Company is currently evaluating the potential impact of adopting this standard and cannot yet determine the impact of its adoption on its operating results and financial position. Nor has the Company determined its method of adoption, either full retrospective approach or the modified retrospective approach.

In August 2014, the accounting standard which provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements was updated. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern. The update applies to all entities and is effective for annual periods ending after December 15, 2016. Early adoption is permitted. The Company is currently evaluating the potential impact of adopting this standard and does not expect it to have any impact on the Company’s operating results and financial position.

In February 2016, the accounting standard which provides guidance on accounting for leases was updated. The new standard requires entities to recognize assets and liabilities for leases with lease terms of more than 12 months. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease, which is consistent with current GAAP. However, the new standard will require both types of leases to be recognized on the balance sheet. For public companies, the update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the potential impact of adopting this standard and cannot yet determine the impact of its adoption on its operating results and financial position.

8

Broadview Networks Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(dollars in thousands)

4. Commitments and Contingencies

The Company has employment agreements with certain key executives. These agreements provide for base salaries and performance bonuses over periods ranging from one to two years. These employment agreements also provide for severance compensation ranging from 6 to 24 months after termination.

The Company has standby letters of credit outstanding of $509, which are fully collateralized by domestic certificates of deposit.

The Company has, in the ordinary course of its business, disputed certain billings from carriers and has recorded the estimated settlement amount of the disputed balances. The settlement estimate is based on various factors, including historical results of prior dispute settlements. The amount of such charges in dispute at September 30, 2016 was $11,233. The Company believes that the ultimate settlement of these disputes will be at amounts less than the amount disputed and has accrued the estimated settlement in accrued expenses and other current liabilities at September 30, 2016. It is possible that actual settlements of such disputes may differ from these estimates and the Company may settle at amounts greater than the estimates.

The Company has entered into a commercial agreement with its principal vendor under which it purchases certain services that it had previously leased under the unbundled network platform provisions of the Telecommunications Act of 1996. The Company has also entered into multiple tariffed agreements with its principal vendor under which the Company purchases special access services.  During 2016, the Company entered into an extension of a commercial agreement with its principal vendor expiring in 2019.

The Company is, in the ordinary course of business, under audit with several state and local taxing authorities, including an examination to determine the Company's compliance with applicable escheat laws. The Company is complying with all examinations. Any estimated liabilities are included in taxes payable at September 30, 2016. It is possible that actual settlements may differ from these estimates and the Company may settle at amounts greater than the estimates. The Company does not believe that the ultimate outcome of any such audits will result in any liability that would have a material adverse effect on its financial condition, results of operations or cash flows.

9

Broadview Networks Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(dollars in thousands)

5. Debt

The Company has $150,000 of 10.5% Senior Secured Notes due on November 15, 2017 (the “Notes”) outstanding. The Company may redeem the Notes, at its option, in whole or in part at any time prior to November 15, 2017, upon not less than 30 days' or more than 60 days’ notice, at the following redemption prices (expressed as percentages of the principal amount thereof) set forth below:

Year	Percentage
42 months to 54 months following the Issue Date	102	%
54 months to 60 months following the Issue Date	100	%

The Notes are fully, unconditionally and irrevocably guaranteed on a senior secured basis, jointly and severally, by each of the Company's existing and future domestic restricted subsidiaries, which includes all subsidiaries as of September 30, 2016. Broadview Networks Holdings, Inc. is a holding company and depends on dividends and other distributions from its subsidiaries to generate the funds necessary to meet its obligations, including its required obligations under the Notes. Each of the Company’s subsidiaries is a legally distinct entity, and while the Company’s subsidiaries have guaranteed the Notes, such guarantees are subject to risks. The issuer has no independent assets or operations and any subsidiaries of the issuer other than the subsidiaries guarantors are minor. The Notes and the guarantees rank senior in right of payment to all existing and future subordinated indebtedness of the Company and its subsidiary guarantors, as applicable, and equal in right of payment with all existing and future senior indebtedness of the Company and of such subsidiaries.

The Notes and the guarantees are secured by a lien on substantially all of the Company’s assets provided, however, that pursuant to the terms of the intercreditor agreement, the security interest in those assets consisting of receivables, inventory, deposit accounts, securities accounts and certain other assets that secure the Notes and the guarantees are contractually subordinated to a lien thereon that secures the Company’s revolving credit facility with an aggregate principal amount of $25,000 and certain other permitted indebtedness. Any outstanding amounts under this facility are subject to a borrowing base limitation based on an advance rate of 85% of the amount of eligible receivables, as defined. The Company's borrowing base has limited the availability to $17,800, of which $11,500 was outstanding as of September 30, 2016.

6. Income Taxes

At September 30, 2016, the Company had net operating loss carryforwards (“NOLs”) available totaling approximately $183,050 which begin to expire in 2022. The Company has provided a full valuation allowance against its net deferred tax assets, of which the NOLs are the primary component, because management does not believe it is more likely than not that this asset will be realized. If the Company achieves profitability, the net deferred tax assets may be available to offset future income tax liabilities.

10

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and Notes to the Unaudited Condensed Consolidated Financial Statements included elsewhere in this quarterly report and our Form 10-K for the year ended December 31, 2015 filed with the Securities and Exchange Commission (the “SEC”). Certain information contained in the discussion and analysis set forth below and elsewhere in this quarterly report, including information with respect to our plans and strategies for our business and related financing, includes forward-looking statements that involve risk and uncertainties. In evaluating such statements, existing and prospective investors should specifically consider the various factors identified in this quarterly report that could cause results to differ materially from those expressed in such forward-looking statements, including matters set forth in our Form 10-K for the year ended December 31, 2015 filed with the SEC. Many of the amounts and percentages presented in this discussion and analysis have been rounded for convenience of presentation, and all amounts included in tables are presented in thousands.

Overview

We are a leading provider of cloud-based unified communication services (“UCaaS”) and information technology solutions to small and medium sized businesses (“SMB”) and enterprise customers nationwide. We offer a broad suite of cloud-based systems and services under the brand OfficeSuite® to our end-user customers nationwide. Our end-user customers have approximately 174,000 active licenses on our flagship product OfficeSuite® Phone. OfficeSuite® Phone comprises a growing percentage of our overall recurring revenue and the vast majority of our existing cloud-based revenue stream. In addition, we generate revenue from third-party service providers utilizing our technology and OfficeSuite® Phone on a white-label or wholesale basis. These third-party service providers offer services to their own end-user customers located in Canada, certain European countries and the United States with a similar number of currently active licenses.

We benefit from software development expertise, proprietary technology and a strong next-generation network infrastructure. This allows us to offer our customers more than just cloud-based services, but additionally products that include advanced, converged communications services and network access by leveraging our network infrastructure, on a cost-effective basis. We have provided cloud-based services in the Northeast and Mid-Atlantic United States since 2005 and offered cloud-based services nationwide since late 2009. Prior to 2009, our focus had been solely on markets across 10 states, including the major metropolitan markets of New York, Boston, Philadelphia, Baltimore and Washington, D.C. These markets remain important markets for us and we have the majority of our sales efforts focused on these markets. We sell through multiple channels including our direct sales force, our channel partners which offers all of our end-user products in the Northeast and Mid-Atlantic regions and our cloud products nationwide, our inside sales channel, and our wholesale channel which provides our services to other carriers and resellers.

As of September 30, 2016, we provided our services to over 20,000 business customers nationwide. For the nine months ended September 30, 2016, approximately 88% of our total revenue was generated from end-users in a wide array of industries, including professional services, health care, education, manufacturing, real estate, retail, automotive, non-profit groups and others. For the same period, approximately 12% of our total revenue was generated from wholesale, carrier access and other market channels. For the nine months ended September 30, 2016, we generated revenues of $217.6 million and Adjusted EBITDA of $36.9 million. For more information, see the “Adjusted EBITDA Presentation” later in this section.

For the nine months ended September 30, 2016, and the years ended December 31, 2015 and 2014, we recorded operating income of $15.3 million, $8.0 million and $8.9 million, respectively. For the nine months ended September 30, 2016 we recorded net income of $1.3 million and for the years ended December 31, 2015 and 2014, net losses of $9.8 million and $9.2 million, respectively. We continue to search for ways of increasing operating efficiencies that could potentially offset continued pressures on revenue and margin. We have also developed new technology and products that are being sold through new and existing sales channels that are growing, which may increase revenues and gross margin.

11

Our business is subject to several macro trends, some of which negatively affect our operating performance. Among these negative trends are lower wireline voice usage per customer, which translates into less usage-based revenue and lower unit pricing for certain services. In addition, we continue to face other industry-wide trends including rapid technology changes and overall increases in competition from existing large competitors such as Verizon Communications, Inc. (“Verizon”) and established cable operators, competitive local exchange carriers and newer entrants such as cloud, wireless and other service providers. These factors are partially mitigated by several positive factors.  These include a more stable customer base, increasing revenue per customer due to the trend of customers buying more products from us as we deploy new technology and expand our offerings, higher contribution margins for our cloud services, a focus on larger customers and an overall increase in demand for data, managed and cloud-based services.  Although our overall revenue has declined, we have partially mitigated the impact of the revenue decline on our overall operating results by various price increases, revenue assurance efforts, reducing costs of revenue and certain of our selling, general and administrative (“SG&A”) costs, and by the achievement of certain operating efficiencies throughout the organization.

As of September 30, 2016, we had approximately 150 sales, sales management and sales support employees, including approximately 110 quota-bearing representatives in all sales channels, the majority of whom target SMB and enterprise customers in the Northeast and Mid-Atlantic regions. We also offer our OfficeSuite® cloud-based solutions, including our OfficeSuite^® Phone product, on a nationwide basis, where we sell through channel partners, VARs/nationwide distributors/strategic partners and web channels.

We focus our sales efforts on selling cloud-based services to communications intensive business customers who purchase multiple products, many of whom have multiple locations. These customers generally purchase higher margin services in multi-year contracts, and consequently maintain higher retention rates. Historically, our focus was on providing T-1- and IP-based products as well as our cloud-based services.

For the nine months ended September 30, 2016, revenue from customers purchasing T-1- and IP-based products and cloud-based services, including cloud-based computing services and cloud related access, represented 84% of our end-user revenue with the remaining 16% of end-user revenue coming from customers purchasing only traditional services. Of the 84% of end-user revenue from customers purchasing T-1- and IP-based products and cloud-based services, 34% of end-user revenue was generated by cloud-based services, 34% of end-user revenue was generated by other T-1- and IP-based products, and 16% of end-user revenue was generated by traditional voice services provided to those customers purchasing T-1- and IP-based products and cloud-based services. For the same period, T-1- and IP-based products and cloud-based services represented approximately 87% of new end-user sales, with typical incremental gross profit margins in excess of 60%. Sales of cloud-based services, including sales of both cloud-based computing services and cloud related access, represented approximately 65% of new end-user sales while other T-1- and IP-based products represented 22% of new end-user sales. Since 2012, cloud-based products and services have grown at 14% compounded annual growth rate (“CAGR”). In the 3rd quarter of 2016 relative to the 3rd quarter of 2015, our end-user pure cloud revenue grew 21% and our end-user cloud access grew 6%, resulting in overall end-user cloud revenue growth of 17%.

Our facilities-based network encompasses approximately 3,000 route miles of metro and long-haul fiber including both owned and dark fiber, primarily pursuant to IRU's and 254 colocations. Our network architecture pairs the strength of a traditional infrastructure with IP and MPLS platforms. These platforms, in conjunction with our software development expertise and proprietary technology, allow us to offer a product line that includes advanced, converged services, such as our cloud-based solutions, Virtual Private Network (“VPN”) and complex multi-location services, on a cost effective basis. Our network topology incorporates metro Ethernet over Copper (“EoC”) access technology, enabling us to provide multi-megabit data services through copper loops to customers from selected major metropolitan colocations, resulting in lower costs and higher margins. In addition, we are able to deliver our cloud-based communications services nationwide utilizing partner carriers for last-mile access and via customer provided access, i.e. bring your own broadband. A significant portion of our customer base has been migrated to our IP- and multiprotocol label switching (“MPLS”)-based infrastructure, which enhances the performance of our network.

Following the restructuring of our balance sheet in the third quarter of 2012, we began making incremental investments in various organic revenue growth initiatives, including enhancements to our direct sales force and channel partners programs, marketing support, product development and software development for our hosted Voice Over Internet Protocol (“VoIP”) product offering. The total cost of these initiatives is substantial, representing several million dollars of incremental spending. These investments are likely to continue as we maintain our focus on potential growth initiatives.

12

As a result of these initiatives, our recent levels of new customers, sales activations, backlog pending activation and customer and revenue retention have improved. Because of these and other factors, we believe we are in a period of relative revenue and EBITDA stability, and will continue to focus on further accelerating the growth of our cloud revenue stream. However, during the transition to improving results, we may continue to experience some volatility due to several factors, including but not limited to our ongoing growth investments and the occurrence of certain non-recurring items that affect our results.

13

Results of Operations

The following table sets forth, for the periods indicated, certain financial data as a percentage of total revenues.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Revenues:
Voice and data services:
Cloud	29.4	%	25.2	%	28.7	%	24.4	%
NonCloud	54.6	%	59.9	%	56.1	%	60.5	%
Ancillary	4.0	%	2.6	%	3.1	%	2.7	%
Voice and data services	88.0	%	87.7	%	87.9	%	87.6	%
Wholesale	9.3	%	9.0	%	9.2	%	8.9	%
Access	1.8	%	2.0	%	2.1	%	2.2	%
Total network services	99.1	%	98.7	%	99.2	%	98.7	%
Other	0.9	%	1.3	%	0.8	%	1.3	%
Total revenues	100.0	%	100.0	%	100.0	%	100.0	%
Operating expenses:
Network services	41.6	%	43.7	%	42.4	%	44.4	%
Other cost of revenues	0.1	%	0.2	%	0.1	%	0.3	%
Selling, general and administrative	40.7	%	42.7	%	40.7	%	42.7	%
Depreciation and amortization	9.6	%	10.1	%	9.8	%	10.1	%
Total operating expenses	92.0	%	96.7	%	93.0	%	97.5	%
Income from operations	8.0	%	3.3	%	7.0	%	2.5	%
Interest expense, net of interest income	(6.3	)%	(5.5	)%	(6.0	)%	(5.5	)%
Income (loss) before provision for income taxes	1.7	%	(2.2	)%	1.0	%	(3.1	)%
Provision for income taxes	(0.4	)%	(0.5	)%	(0.4	)%	(0.5	)%
Net income (loss)	1.3	%	(2.7	)%	0.6	%	(3.6	)%

Key Components of Results of Operations

Revenues

Our revenues, as detailed in the table above, consist primarily of network services revenues, which consists primarily of voice and data managed and cloud-based services, wholesale services and access services. Voice and data services consist of local dial tone, long distance and data services, as well as managed and cloud-based services. Wholesale services consist of voice and data services, cloud-based services, and transport services provided to other carriers, as well as data colocation services provided to end users and other carriers. Similar to our end-user revenue, greater than 20% of our wholesale revenue stream consists of cloud-based services. Carrier access services include carrier access and reciprocal compensation revenue, which consists primarily of usage charges that we bill to other carriers to originate and terminate their calls from and to our customers. Network services revenues represents a predominantly recurring revenue stream linked to our end-user and wholesale customers.

14

For the nine months ended September 30, 2016 approximately 88% of our total revenue was generated from end-user customer voice and data products and services. Revenue from data and integrated voice/data products, including cloud-based services and T-1/T-3 and other managed services has been trending to an increasing percentage of our overall revenue over the past several years, while voice revenues have been declining primarily due to the decline in revenue from traditional voice services, or Plain Old Telephone Services (“POTS”). Our cloud-based revenues have grown from 2012 to 2016 at a 14% CAGR. As a result, the average quarterly decline in our core voice and data revenue, which excludes certain ancillary voice and data revenue components, has improved significantly over the past several years. We expect our voice and data revenue will continue to be characterized by significant growth in our end-user cloud revenue offsetting most, if not all, of the decline in our traditional revenue streams. Our cloud-based products and services comprised approximately 34% of our end-user revenue and approximately 65%of new end-user sales for the nine months ended September 30, 2016. We continue to focus on cloud-based, data and managed services as growth opportunities as we expect the industry to trend toward lower usage components of legacy products such as long distance and local usage. This lower usage is primarily driven by trends toward customers using more online and wireless communications and bundling of minutes of usage in product offerings.

Cost of Revenues (exclusive of depreciation and amortization)

Our network services cost of revenues consists primarily of both the cost of operating our network facilities and the costs related to our off-net customers. Determining our cost of revenues requires significant estimates. The network components for our facilities-based business include the cost of:

• leasing local voice grade loops and digital lines which connect our customers to our network;

• leasing high capacity digital lines that connect our switching equipment to our colocations;

• leasing high capacity digital lines and related trunking that interconnect our network with the ILECs and other carrier partners;

• leasing space, power and terminal connections in the ILEC central offices for colocating our equipment;

• signaling system network connectivity;

• leasing space and purchasing power to support our various switch site locations; and

• Internet transit and peering, which is the cost of delivering Internet traffic from our customers to the public Internet.

The costs to obtain local loops, digital lines and high capacity digital interoffice transport facilities from the ILECs vary by carrier and state, are governed by our various ILEC interconnection agreements and other ILEC contracts and tariffs and are regulated under federal and state laws. Within our footprint we often obtain local loops, T-1 lines and interoffice transport capacity from the ILECs. We also obtain interoffice facilities from carriers other than the ILECs, where possible, in order to lower costs and improve network redundancy; however, in many cases, the ILECs are our only source for local loops and T-1 lines. We have entered into agreements with cable providers as another alternative for local loops. We do not expect these extensions to materially impact our future financial condition, results of operations, of cash flows.

Our off-net network services cost of revenues consists of amounts we pay to Verizon, Frontier Communications Corporation, Fairpoint Communications, Inc. (“FairPoint”) and AT&T, Inc. (“AT&T”) pursuant to our commercial agreements with them. Rates for such services are prescribed in the commercial agreements and available for the term of the agreements. The FairPoint commercial agreement operates on a month-to-month basis. Our Verizon commercial agreement expires in 2019.  The Company has also entered into multiple tariffed agreements with Verizon under which the Company purchases special access services as well as an associated commercial agreement pursuant to which the Company takes a variety of high-bandwidth services; these agreements have substantial revenue commitments.  These tariffed agreements and associated commercial agreement expire at the end of 2017.  The Frontier Communications Corporation agreement expires in October 2017, as does the AT&T agreement.

Our network services cost of revenues also include the fees we pay for long distance, data and other services. We have entered into long-term wholesale purchasing agreements for these services. Some of these agreements contain significant termination penalties and/or minimum volume commitments.

15

Gross Profit (exclusive of depreciation and amortization)

Gross profit (exclusive of depreciation and amortization), referred to herein as “gross profit”, as presented in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, represents income from operations, before depreciation and amortization and SG&A. Gross profit is a non-GAAP financial measure used by our management, together with financial measures prepared in accordance with GAAP such as revenue, cost of revenue, and income from operations to assess our historical and prospective operating performance.

The following table sets forth, for the periods indicated, a reconciliation of gross profit to income from operations as income from operations is calculated in accordance with GAAP:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Income from operations	$	5,843		$	2,403		$	15,257		$	5,402
Add back non-gross profit items included in income from operations:
Depreciation and amortization	6,995			7,348			21,305			22,157
Selling, general and administrative	29,617			31,188			88,558			93,430
Gross profit	$	42,455		$	40,939		$	125,120		$	120,989
Percentage of total revenue	58.3		%	56.1		%	57.5		%	55.3		%

Gross profit is not a financial measurement prepared in accordance with GAAP. See “Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Components of Result of Operations — Gross Profit (exclusive of depreciation and amortization)” in our Form 10-K for the year ended December 31, 2015 for our reasons for including gross profit data in this quarterly report and for material limitations with respect to the usefulness of this measurement.

Selling, General and Administrative

Selling, General and Administrative is comprised primarily of salaries and related expenses, software development expenses, occupancy costs, sales and marketing expenses, commission expenses, bad debt expense, billing expenses, professional services expenses, and insurance expenses.

Determining our allowance for doubtful accounts receivable requires significant estimates. In determining the proper level for the allowance we consider factors such as historical collections experience, the aging of the accounts receivable portfolio and economic conditions. We perform a credit review process on each new significant customer that involves reviewing the customer’s current service provider bill and payment history, matching customers with national databases for delinquent customers and, in some cases, requesting credit reviews through Dun & Bradstreet Corporation.

During the latter part of 2012, and continuing through today, we launched several new initiatives directed at supporting our revenue growth initiatives.  These included recruiting expenses for new sales personnel, new quota bearing sales personnel and sales management, purchasing lead generation data bases, increasing support for channel sales, increasing software and systems development teams for OfficeSuite® and costs associated with a new sales and customer relationship management software package implementation.

Depreciation and Amortization

Our depreciation and amortization expense includes depreciation for network related voice and data equipment, fiber, back-office systems, third party conversion costs, furniture, fixtures, leasehold improvements, office equipment and computers and amortization of intangibles associated with mergers, acquisitions and software development costs.

16

Adjusted EBITDA Presentation

Adjusted EBITDA as presented in this Management’s Discussion and Analysis of Financial Condition and Results of Operations represents net loss before depreciation and amortization, interest income and expense, provision for income taxes, and other non-recurring items described in the table below that are not part of our core operations. Adjusted EBITDA is not a measure of financial performance under GAAP. Adjusted EBITDA is a non-GAAP financial measure used by our management, together with financial measures prepared in accordance with GAAP such as net income (loss), income from operations and revenues, to assess our historical and prospective operating performance.

The following table sets forth, for the periods indicated, a reconciliation of Adjusted EBITDA to net loss as net loss is calculated in accordance with GAAP:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Net income (loss)	$	915		$	(1,942	)	$	1,326		$	(7,917	)
Add back non-EBITDA items included in net loss:
Depreciation and amortization	6,995			7,348			21,305			22,157
Interest expense, net of interest income	4,639			4,013			13,012			12,241
Provision for income taxes	289			332			919			1,078
EBITDA	12,838			9,751			36,562			27,559
Severance and related separation costs	—			46			—			193
Professional fees related to strategic initiatives	—			463			271			463
Costs associated with early termination of lease, net	—			—			91			—
Adjusted EBITDA	$	12,838		$	10,260		$	36,924		$	28,215
Percentage of total revenues	17.6		%	14.0		%	17.0		%	12.9		%

For more information regarding Adjusted EBITDA data, and for material limitations with respect to the usefulness of this measurement, see the section of the Form 10-K for the year ended December 31, 2015 entitled “Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Components of Results of Operations — Adjusted EBITDA Presentation”.

17

Three Months Ended September 30, 2016 Compared to Three Months Ended September 30, 2015

Set forth below is a discussion and analysis of our results of operations for the three months ended September 30, 2016 and 2015.

The following table provides a breakdown of components of our gross profit for the three months ended September 30, 2016 and 2015:

	Three Months Ended September 30,
	2016				2015
	Amount		% of Total Revenues		Amount		% of Total Revenues		% Change
Revenues:
Network services	$	72,216	99.1	%	$	72,125	98.7	%	0.1	%
Other	621		0.9	%	915		1.3	%	(32.1	)%
Total revenues	72,837		100.0	%	73,040		100.0	%	(0.3	)%
Cost of revenues:
Network services	30,298		41.6	%	31,910		43.7	%	(5.1	)%
Other	84		0.1	%	191		0.3	%	(56.0	)%
Total cost of revenues	30,382		41.7	%	32,101		43.9	%	(5.4	)%
Gross profit:
Network services	41,918		57.5	%	40,215		55.1	%	4.2	%
Other	537		0.8	%	724		1.0	%	(25.8	)%
Total gross profit	$	42,455	58.3	%	$	40,939	56.1	%	3.7	%

Revenues

Revenues for the three months ended September 30, 2016 and 2015 were as follows:

	Three Months Ended September 30,
	2016				2015
	Amount		% of Total Revenues		Amount		% of Total Revenues		% Change
Revenues:
Voice and data services:
Cloud	$	21,422	29.4	%	$	18,374	25.2	%	16.6	%
NonCloud	39,777		54.6	%	43,777		59.9	%	(9.1	)%
Ancillary	2,866		4.0	%	1,880		2.6	%	52.4	%
Voice and data services	64,065		88.0	%	64,031		87.7	%	0.1	%
Wholesale	6,760		9.3	%	6,607		9.0	%	2.3	%
Access	1,391		1.8	%	1,487		2.0	%	(6.5	)%
Total network services	72,216		99.1	%	72,125		98.7	%	0.1	%
Other	621		0.9	%	915		1.3	%	(32.1	)%
Total revenues	$	72,837	100.0	%	$	73,040	100.0	%	(0.3	)%

Revenues from voice and data services were unchanged between 2015 and 2016. Within voice and data services, revenues from cloud-based services increased $3.0 million, or 16.6%. This increase is due to our expanded efforts on selling our cloud-based services. Revenues from core voice and data services, excluding cloud-based services, decreased $4.0 million, or 9.1%. The decrease in non-cloud core services was due to: i) a lower number of lines and customers, ii) lower usage revenue per customer and iii) lower prices per unit for certain traditional services. Ancillary voice and data revenues increased $1.0 million primarily due to nonrecurring revenue. Wholesale revenues increased by $0.2 million or 2.3%. Access revenues decreased by $0.1 million, or 6.5%, due to several factors, including: i) lower per-minute rates charged to carriers as a result of Federal Communications Commission-mandated rate decreases, offset by ii) increased levels of traffic to which access charges are applicable. Other revenues decreased $0.3 million between 2015 and 2016 as a result of a reduction in certain non-recurring ancillary revenues associated with our contracting traditional revenue stream.

18

Cost of Revenues (exclusive of depreciation and amortization)

Cost of revenues were $30.4 million for the three months ended September 30, 2016, a decrease of 5.4% from $32.1 million for the same period in 2015. The decrease is primarily due to the increased proportion of cloud-based services, the identification and elimination of certain inefficiencies in our operating platforms, and negotiations of lower costs from our vendors. As a percentage of revenues, cost of revenues decreased to 41.7% for the three months ended September 30, 2016 from 43.9% for the same period in 2015.

Gross Profit (exclusive of depreciation and amortization)

Gross profit was $42.5 million for the three months ended September 30, 2016, an increase of 3.7% from $40.9 million for the same period in 2015. As a percentage of revenues, gross profit increased to 58.3% in 2016 from 56.1% in 2015. We are focusing sales initiatives towards increasing the amount of cloud-based services, as we believe that these initiatives will produce incrementally higher margins than those currently reported from traditional voice services. In addition, as we continue to drive additional cost saving initiatives, including provisioning customers to our on-net facilities, identifying additional inaccuracies in billing from existing carriers, renegotiating existing agreements and executing new agreements with additional vendors, we believe that our gross profit as a percentage of revenue will continue to improve over time.

Selling, General and Administrative

SG&A expenses were $29.6 million, 40.7% of revenues, for the three months ended September 30, 2016, a decrease of 5.0% from $31.2 million, 42.7% of revenues, for the same period in 2015. This decrease is primarily due to i) $1.3 million reduction in headcount and related expenses, along with ii) $0.3 million net reductions in various other expenses.

We continue to seek additional cost savings in various categories including headcount and professional services.

Depreciation and Amortization

Depreciation and amortization expense was $7.0 million for the three months ended September 30, 2016, a decrease of 4.8% from $7.3 million for the same period in 2015. This decrease in depreciation and amortization expense is primarily the result of property and equipment becoming fully depreciated in 2015.

Interest

Interest expense was $4.6 million for the three months ended September 30, 2016 an increase of 15.7% from $4.0 million for the same period in 2015. The increase is primarily due to the recording of non-debt related interest expense associated with contingent liabilities. Our effective annual interest rates for the three months ended September 30, 2016 and 2015 are as follows:

	Three Months Ended September 30,
	2016			2015
Interest expense	$	4,650		$	4,019
Weighted average debt outstanding	$	161,881		$	160,452
Effective interest rate (1)	11.49		%	10.02		%

⁽¹⁾ Without the additional non-debt related interest expense as described above, the effective interest rate was 10.44% for the three months ended September 30, 2016.

19

Nine Months Ended September 30, 2016 Compared to Nine Months Ended September 30, 2015

Set forth below is a discussion and analysis of our results of operations for the nine months ended September 30, 2016 and 2015.

The following table provides a breakdown of components of our statements of operations for the nine months ended September 30, 2016 and 2015:

	Nine Months Ended September 30,
	2016				2015
	Amount		% of Total Revenues		Amount		% of Total Revenues		% Change
Revenues:
Network services	$	215,849	99.2	%	$	216,056	98.7	%	(0.1	)%
Other	1,779		0.8	%	2,915		1.3	%	(39.0	)%
Total revenues	217,628		100.0	%	218,971		100.0	%	(0.6	)%
Cost of revenues:
Network services	92,362		42.4	%	97,248		44.4	%	(5.0	)%
Other	146		0.1	%	734		0.3	%	(80.1	)%
Total cost of revenues	92,508		42.5	%	97,982		44.7	%	(5.6	)%
Gross profit:
Network services	123,487		56.8	%	118,808		54.3	%	3.9	%
Other	1,633		0.8	%	2,181		1.0	%	(25.1	)%
Total gross profit	$	125,120	57.5	%	$	120,989	55.3	%	3.4	%

Revenues

Revenues for the nine months ended September 30, 2016 and 2015 were as follows:

	Nine Months Ended September 30,
	2016				2015
	Amount		% of Total Revenues		Amount		% of Total Revenues		% Change
Revenues:
Voice and data services:
Cloud	$	62,379	28.7	%	$	53,476	24.4	%	16.6	%
NonCloud	122,126		56.1	%	132,575		60.5	%	(7.9	)%
Ancillary	6,847		3.1	%	5,841		2.7	%	17.2	%
Voice and data services	191,352		87.9	%	191,892		87.6	%	(0.3	)%
Wholesale	19,939		9.2	%	19,559		8.9	%	1.9	%
Access	4,558		2.1	%	4,605		2.2	%	(1.0	)%
Total network services	215,849		99.2	%	216,056		98.7	%	(0.1	)%
Other	1,779		0.8	%	2,915		1.3	%	(39.0	)%
Total revenues	$	217,628	100.0	%	$	218,971	100.0	%	(0.6	)%

Revenues from voice and data services have decreased $0.5 million or 0.3% between 2015 and 2016. Within voice and data services, revenues from cloud-based services increased $8.9 million, or 16.6%. This increase is due to our expanded efforts on selling our cloud-based services. Revenues from core voice and data services, excluding cloud-based services decreased $10.4 million, or 7.9% due to: i) a lower number of lines and customers, ii) lower usage revenue per customer, and iii) lower prices per unit for certain traditional services. Ancillary voice and data revenue increased $1 million due to nonrecurring revenue.  Wholesale revenues increased by $0.4 million or 1.9%. The increase is attributable to growth from new customers and included some non-recurring revenue.Carrier access revenues, which includes a net negative change in non-recurring amounts, decreased by 1.0%. Excluding the non-recurring revenue, core access revenues increased due to several factors, including: increasing levels of traffic to which access charges are applicable, offset by lower per-minute rates charged to carriers as a result of Federal Communications Commission-mandated rate decreases. Other revenues decreased $1.1 million or 39% between 2015 and 2016 as a result of a reduction in certain non-recurring ancillary revenues associated with our contracting traditional revenue stream.

20

Cost of Revenues (exclusive of depreciation and amortization)

Cost of revenues were $92.5 million for the nine months ended September 30, 2016, a decrease of 5.6% from $98.0 million for the same period in 2015. The decrease is primarily due to the increased proportion of cloud-based services, the identification and elimination of certain inefficiencies in our operating platforms, and negotiations of lower costs from our vendors. As a percentage of revenues, cost of revenues decreased to 42.5% in 2016 from 44.7% in 2015.

Gross Profit (exclusive of depreciation and amortization)

Gross profit was $125.1 million for the nine months ended September 30, 2016, an increase of 3.4% from $121.0 million for the same period in 2015. As a percentage of revenues, gross profit increased to 57.5% in 2016 from 55.3% in 2015. We are focusing sales initiatives towards increasing the amount of cloud-based services, as we believe that these initiatives will produce incrementally higher margins than those currently reported from traditional voice services. In addition, as we continue to drive additional cost saving initiatives, including provisioning customers to our on-net facilities, identifying additional inaccuracies in billing from existing carriers, renegotiating existing agreements and executing new agreements with additional vendors, we believe that our gross profit as a percentage of revenue will continue to improve over time.

Selling, General and Administrative

SG&A expenses were $88.6 million, 40.7% of revenues, for the nine months ended September 30, 2016, a decrease of 5.2% from $93.4 million, 42.7% of revenues, for the same period in 2015. This decrease is primarily due to i) $2.9 million reduction in headcount and related expenses, ii) $0.8 million reduction in repairs and contract maintenance, and iii) $1.1 million net reductions in various other expenses.

We continue to seek additional cost savings in various categories including headcount and professional services.

Depreciation and Amortization

Depreciation and amortization expense was $21.3 million for the nine months ended September 30, 2016, a decrease of 3.8% from $22.2 million for the same period in 2015. This decrease in depreciation and amortization expense is primarily the result of property and equipment becoming fully depreciated in 2015.

Interest

Interest expense was $13.0 million for the nine months ended September 30, 2016, an increase of 6.4% from $12.3 million for the same period in 2015. The increase is primarily due to the recording of non-debt related interest expense associated with contingent liabilities. Our effective annual interest rates for the nine months ended September 30, 2016 and 2015 are as follows:

	Nine Months Ended September 30,
	2016			2015
Interest expense	$	13,041		$	12,260
Weighted average debt outstanding	$	161,834		$	160,443
Effective interest rate (1)	10.74		%	10.19		%

⁽¹⁾ Without the additional non-debt related interest expense as described above, the effective interest rate was 10.39% for the nine months ended September 30, 2016.

21

Off-Balance Sheet Arrangements

We have no special purpose or limited purpose entities that provide off-balance sheet financing, liquidity, or market or credit risk support, and we do not currently engage in hedging, research and development services, or other relationships that expose us to any liabilities that are not reflected on the face of our financial statements.

Liquidity and Capital Resources

Our principal sources of liquidity are cash from operations, cash and cash equivalents on hand and a revolving credit facility. Our revolving credit facility has a current maximum availability of $25.0 million and is due in October 2017. Any outstanding amounts under the revolving credit facility are subject to a borrowing base limitation based on an advance rate of 85% of the amount of eligible receivables, as defined. Our borrowing base has limited our availability to $17.8 million, of which $11.5 million was outstanding as of September 30, 2016. In addition to our normal operating requirements, our short-term liquidity needs consist of interest on the Notes, which are due in November 2017, capital expenditures and working capital. As of September 30, 2016, our $23.4 million of cash and cash equivalents was being held in several large financial institutions, although most of our balances exceed the Federal Deposit Insurance Corporation insurance limits. We anticipate that our current cash and cash equivalents balances, along with cash generated from operations, will be sufficient to meet working capital requirements for at least the next twelve months.

As of September 30, 2016, we will require approximately $23.6 million in cash to service the interest due on the Notes throughout the remaining life of the Notes. For the nine months ended September 30, 2016, the Company incurred capital expenditures of $16.7 million. Fixed and success-based capital expenditures will continue to be a significant use of liquidity and capital resources. A majority of our planned capital expenditures are “success-based” expenditures, meaning that they are directly linked to new revenue.

Disputes

We continue to be involved in a variety of disputes with multiple carrier vendors relating to billings of approximately $11.2 million as of September 30, 2016. While we hope to resolve these disputes through negotiation, we may be compelled to arbitrate these matters. We believe we have accrued an amount appropriate to settle all outstanding disputed charges. However, it is possible that the actual settlement of any outstanding disputes may differ from our reserves and that we may settle at amounts greater than the estimates. We believe we will have sufficient cash on hand to fund any differences between our expected and actual settlement amounts. In the event that disputes are not resolved in our favor and we are unable to pay the vendor charges in a timely manner, the vendor may deny us access to the network facilities that we require to serve our customers. If the vendor notifies us of an impending “embargo” of this nature, we may be required to notify our customers of a potential loss of service, which may cause a substantial loss of customers. It is not possible at this time to predict the outcome of these disputes.

Nine Months Ended September 30, 2016 Compared to Nine Months Ended September 30, 2015

Cash Flows from Operating Activities

Cash provided by operating activities was $26.0 million for the nine months ended September 30, 2016, compared to $18.6 million for the same period in 2015. This increase in cash flow from operating activities is primarily due to higher consolidated earnings and timing differences.

Cash Flows from Investing Activities

Cash used in investing activities was $16.7 million for the nine months ended September 30, 2016, compared to $19.4 million for the same period in 2015. The change in cash flow from investing activities was primarily due to a decrease in capital expenditures of $2.9 million.

Cash Flows from Financing Activities

Cash flows used in financing activities was $1.1 million for the nine months ended September 30, 2016, compared to $1.9 million for the same period in 2015. The change in cash flows from financing activities was primarily due to lower repayments on our revolving credit facility in 2016.

22

Application of Critical Accounting Policies and Estimates

The preparation of the consolidated financial statements in accordance with GAAP requires us to make judgments, estimates and assumptions regarding uncertainties that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. We use historical experience and all available information to make these judgments and estimates and actual results could differ from those estimates and assumptions that are used to prepare our financial statements at any given time. Despite these inherent limitations, management believes that Management’s Discussion and Analysis of Financial Condition and Results of Operations and the accompanying Unaudited Condensed Consolidated Financial Statements and Notes to Unaudited Condensed Consolidated Financial Statements provide a meaningful and fair perspective of our financial condition and our operating results.

We consider an accounting estimate to be critical if it requires assumptions to be made that were uncertain at the time the estimate was made and changes in the estimate or different estimates that could have been selected could have a material impact on our consolidated results of operations or financial condition.

For more information, see the section of our Form 10-K for the year ended December 31, 2015 entitled “Management's Discussion and Analysis of Financial Condition and Results of Operations — Application of Critical Accounting Policies and Estimates”.

Other Matters

At September 30, 2016, we had NOLs available totaling approximately $183.1 million, which begin to expire in 2022. As of September 30, 2016, we have provided a full valuation allowance against the net deferred tax asset, of which the NOLs are the primary component, because we do not believe it is more likely than not that this asset will be realized. If we achieve profitability, the net deferred tax assets may be available to offset future income tax liabilities.

23

Item 3. Quantitative and Qualitative Disclosures About Market Risk

In the normal course of business, our financial position is subject to a variety of risks, such as the collectability of our accounts receivable and the recoverability of the carrying values of our long-term assets. Our debt obligations consist primarily of the Notes with a fixed interest rate. We are not exposed to market risks from changes in foreign currency exchange rates or commodity prices. We do not hold any derivative financial instruments nor do we hold any securities for trading or speculative purposes.

We continually monitor the collectability of our accounts receivable and have not noted any significant changes in our collections as a result of current economic and market conditions. We believe that our allowance for doubtful accounts is adequate as of September 30, 2016. Should the market conditions worsen or should our customers’ ability to pay decrease, we may be required to increase our allowance for doubtful accounts, which would result in a charge to our SG&A expenses.

Our available cash balances are invested on a short-term basis (generally overnight) and, accordingly, are not subject to significant risks associated with changes in interest rates. Substantially all of our cash flows are derived from our operations within the United States and we are not subject to market risk associated with changes in foreign exchange rates.

The fair value of the Notes at September 30, 2016, was approximately $147.6 million and was based on publicly quoted market prices. The Notes, like all fixed rate securities, are subject to interest rate risk and will fall in value if market interest rates increase.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As of the end of the period covered by this report, our management carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15 and 15d-15. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2016. For information regarding the Company's annual assessment of the effectiveness of internal control over financial reporting, see our Form 10-K for the year ended December 31, 2015.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

24

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

We are not currently a party to any material legal action. We are, however, party to certain legal actions arising in the ordinary course of business. We are also involved in certain billing and contractual disputes with our vendors. We do not believe that the ultimate outcome of any of the foregoing actions will result in any liability that would have a material adverse effect on our financial condition, results of operations or cash flows.

For more information, see the section entitled “Management's Discussion and Analysis of Financial Condition and Results of Operations” and our Form 10-K for the year ended December 31, 2015.

Item 1A. Risk Factors

There have been no material changes in our risk factors from those set forth in our Form 10-K for the year ended December 31, 2015, which should be read in conjunction with this report.

These risks are not the only risks that we face.  Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

None.

25

Item 6. Exhibits

The following exhibits are filed herewith:

Exhibit No.	Description
31.1	Certification of the Company’s Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Company’s Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of the Company’s Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of the Company’s Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL INSTANCE DOCUMENT
101.SCH	SCHEMA DOCUMENT
101.CAL	CALCULATION LINKBASE DOCUMENT
101.LAB	LABELS LINKBASE DOCUMENT
101.PRE	PRESENTATION LINKBASE DOCUMENT
101.DEF	DEFINITION LINKBASE DOCUMENT

26

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, on October 27, 2016.

BROADVIEW NETWORKS HOLDINGS, INC.
By:	/s/ Michael K. Robinson
	Name:	Michael K. Robinson
	Title:	Chief Executive Officer, President and Director
By:	/s/ Corey Rinker
	Name:	Corey Rinker
	Title:	Chief Financial Officer, Executive Vice President, Treasurer and Assistant Secretary

27

EXHIBIT INDEX

Exhibit No.	Description
31.1	Certification of the Company’s Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Company’s Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of the Company’s Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of the Company’s Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL INSTANCE DOCUMENT
101.SCH	SCHEMA DOCUMENT
101.CAL	CALCULATION LINKBASE DOCUMENT
101.LAB	LABELS LINKBASE DOCUMENT
101.PRE	PRESENTATION LINKBASE DOCUMENT
101.DEF	DEFINITION LINKBASE DOCUMENT

28

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Michael K. Robinson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Broadview Networks Holdings, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Michael K. Robinson  

Michael K. Robinson 

Chief Executive Officer, President and Director 

Date: October 27, 2016

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Corey Rinker, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Broadview Networks Holdings, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Corey Rinker  

Corey Rinker 

Chief Financial Officer, Treasurer and

Assistant Secretary 

Date: October 27, 2016

EX-32.1

Exhibit 32.1

CERTIFICATIONS PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael K. Robinson, the Chief Executive Officer of Broadview Networks Holdings, Inc. (the “Company”), hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

• The Form 10-Q of the Company for the three months ended September 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Form 10-Q”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

• The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Michael K. Robinson  

Michael K. Robinson 

Chief Executive Officer, President and Director 

Date: October 27, 2016

EX-32.2

Exhibit 32.2

CERTIFICATIONS PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Corey Rinker, the Chief Financial Officer of Broadview Networks Holdings, Inc. (the “Company”), hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

• The Form 10-Q of the Company for the three months ended September 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Form 10-Q”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

• The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Corey Rinker  

Corey Rinker 

Chief Financial Officer, Treasurer and

Assistant Secretary 

Date: October 27, 2016

XML

Document and Entity Information Document - shares	9 Months Ended
	Sep. 30, 2016	Oct. 27, 2016
Entity Information [Line Items]
Entity Registrant Name	BROADVIEW NETWORKS HOLDINGS INC
Entity Central Index Key	0001104358
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Document Type	10-Q
Document Period End Date	Sep. 30, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q3
Amendment Flag	false
Entity Common Stock, Shares Outstanding		9,999,945

XML

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Current assets:
Cash and cash equivalents	$ 23,404	$ 15,173
Certificates of deposit	1,022	1,022
Accounts receivable, less allowance for doubtful accounts of $6,598 and $7,967	21,679	23,225
Other current assets	8,660	6,460
Total current assets	54,765	45,880
Property and equipment, net of accumulated depreciation of $306,890 and $286,187	50,648	54,125
Goodwill	98,238	98,238
Intangible assets, net of accumulated amortization of $49,626 and $44,139	774	1,376
Other assets	3,219	3,258
Total assets	207,644	202,877
Current liabilities:
Accounts payable	4,336	4,714
Accrued expenses and other current liabilities	19,768	15,809
Taxes payable	5,643	4,752
Deferred revenues	8,951	9,175
Current portion of capital lease obligations	203	253
Total current liabilities	38,901	34,703
Long-term Debt	150,000	150,000
Revolving credit facility	11,500	12,500
Deferred rent payable	4,143	4,626
Deferred revenues	891	899
Capital lease obligations, net of current portion	205	225
Deferred income taxes payable	9,583	8,856
Other	1,902	1,875
Total liabilities	217,125	213,684
Stockholders’ deficiency:
Common stock	100	100
Preferred stock	0	0
Additional paid-in capital	306,792	306,792
Accumulated deficit	(316,373)	(317,699)
Total stockholders’ deficiency	(9,481)	(10,807)
Total liabilities and stockholders’ deficiency	$ 207,644	$ 202,877

XML

Condensed Consolidated Balance Sheets Parentheticals - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Allowance for doubtful accounts	$ 6,598	$ 7,460
Intangible asset accumulated amortization	$ 49,626	$ 44,139
Common Stock [Member]
Common Stock, Par or Stated Value Per Share	$ 0.01	$ 0.01
Common stock, shares authorized	19,000,000	19,000,000
Common stock, shares outstanding	9,999,945	9,999,945
Preferred Stock [Member]
Preferred Stock, Par or Stated Value Per Share	$ 0.01	$ 0.01
Preferred stock, shares authorized	1,000,000	1,000,000

XML

Unaudited Condensed Consolidated Statements of Operations - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Revenues	$ 72,837	$ 73,040	$ 217,628	$ 218,971
Operating expenses:
Cost of revenues (exclusive of depreciation and amortization)	30,382	32,101	92,508	97,982
Selling, general and administrative	29,617	31,188	88,558	93,430
Depreciation and amortization	6,995	7,348	21,305	22,157
Total operating expenses	66,994	70,637	202,371	213,569
Income from operations	5,843	2,403	15,257	5,402
Interest expense	(4,650)	(4,019)	(13,041)	(12,260)
Interest income	11	6	29	19
Loss before provision for income taxes	1,204	(1,610)	2,245	(6,839)
Provision for income taxes	(289)	(332)	(919)	(1,078)
Net loss	915	(1,942)	1,326	(7,917)
Other comprehensive income	0	0	0	0
Comprehensive Income (Loss)	$ 915	$ (1,942)	$ 1,326	$ (7,917)

XML

Unaudited Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Cash flows from operating activities
Net income (loss)	$ 1,326	$ (7,917)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation	20,703	21,315
Amortization of intangible assets	602	842
Provision for doubtful accounts	706	688
Deferred income taxes	727	727
Other	27	47
Changes in operating assets and liabilities:
Accounts receivable	840	(2,659)
Other current assets	(2,697)	1,012
Other assets	39	(12)
Accounts payable	(378)	371
Accrued expenses, other current liabilities and taxes payable	4,850	4,698
Deferred revenues	(232)	(288)
Deferred rent payable	(483)	(203)
Net cash provided by operating activities	26,030	18,621
Cash flows from investing activities
Purchases of property and equipment	(16,729)	(19,652)
Other	0	251
Net cash used in investing activities	(16,729)	(19,401)
Cash flows from financing activities
Repayments of revolving credit facility	(1,000)	(2,000)
Proceeds from capital lease financing	118	338
Payments on capital lease obligations	(188)	(247)
Net cash provided by (used in) financing activities	(1,070)	(1,909)
Net decrease in cash and cash equivalents	8,231	(2,689)
Cash and cash equivalents at beginning of period	15,173	14,457
Cash and cash equivalents at end of period	$ 23,404	$ 11,768

XML

Organization and Description of Business

9 Months Ended

Sep. 30, 2016

Organization and Description of Business [Abstract]

Business Description and Basis of Presentation [Text Block]

Organization and Description of Business

Basis of Presentation

Broadview Networks Holdings, Inc. (the “Company”) is a leading cloud-based service provider of communications and information technology solutions to small and medium sized business and enterprise customers nationwide. After several years of development, the Company began providing cloud-based unified communication services in 2005 and later introduced into its product portfolio a variety of cloud-based computing solutions. Today, the Company offers a full suite of cloud-based systems and services under the brand OfficeSuite^® to customers nationwide. The Company has one reportable segment.

The accompanying unaudited condensed consolidated financial statements have been prepared based upon Securities and Exchange Commission (“SEC”) rules that permit reduced disclosure for interim periods. These financial statements reflect all adjustments necessary for a fair presentation of the results of operations and financial condition for the interim periods shown, including normal recurring accruals and other items. The results for interim periods are not necessarily indicative of results for the full year. For a more complete discussion of significant accounting policies and certain other information, the Company’s interim unaudited condensed financial statements should be read in conjunction with its audited financial statements as of and for the year ended December 31, 2015 contained in the Company’s Form 10-K filed with the SEC on March 15, 2016. The condensed consolidated interim financial statements include both the Company’s accounts and the accounts of its wholly-owned subsidiaries. All significant intercompany transactions have been eliminated in consolidation. The Company has evaluated the impact of subsequent events through the date the condensed consolidated financial statements were filed with the SEC.

The preparation of the condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Management periodically reviews such estimates and assumptions as circumstances dictate. Actual results could differ from those estimates.

XML

Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2016

Fair Value of Financial Instruments [Abstract]

Fair Value Disclosures [Text Block]

Fair Value of Financial Instruments

The Company’s financial instruments include cash and cash equivalents, certificates of deposit, trade accounts receivable, accounts payable, revolving credit facility and long-term debt. The Company’s available cash balances are invested on a short-term basis (generally overnight) and, accordingly, are not subject to significant risks associated with changes in interest rates. All of the Company’s cash flows are derived from operations within the United States and are not subject to market risk associated with changes in foreign exchanges rates. The carrying amounts of the Company’s cash and cash equivalents, certificates of deposit, trade accounts receivable and accounts payable reported in the condensed consolidated balance sheets as of September 30, 2016 and December 31, 2015 were deemed to approximate fair value because of their liquidity and short-term nature.

The Company had outstanding borrowings of $11,500 and $12,500 on its revolving credit facility as of September 30, 2016 and December 31, 2015, respectively. The carrying amount of this debt is deemed to approximate its fair value due to its variable interest rate and its relative short term nature. The fair value of the Company’s 10.5% Senior Secured Notes due 2017 (the “Notes”) was $147,608 and $134,230 at September 30, 2016 and December 31, 2015, respectively, which was based on the most recent publicly quoted prices of the Notes as of such dates. These are considered to be Level 1 inputs.

XML

Recent Accounting Pronouncements

9 Months Ended

Sep. 30, 2016

New Accounting Pronouncements and Changes in Accounting Principles [Abstract]

New Accounting Pronouncements and Changes in Accounting Principles [Text Block]

Recent Accounting Pronouncements

In May 2014, a comprehensive update on the accounting standard for revenue recognition was issued. This update affects any entity that enters into contracts with customers to transfer goods or services. Under this new guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This update is effective for annual periods beginning on or after December 15, 2017. Early adoption is permitted only as of annual periods beginning on or after December 15, 2016. The Company is currently evaluating the potential impact of adopting this standard and cannot yet determine the impact of its adoption on its operating results and financial position. Nor has the Company determined its method of adoption, either full retrospective approach or the modified retrospective approach.

In August 2014, the accounting standard which provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements was updated. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern. The update applies to all entities and is effective for annual periods ending after December 15, 2016. Early adoption is permitted. The Company is currently evaluating the potential impact of adopting this standard and does not expect it to have any impact on the Company’s operating results and financial position.

In February 2016, the accounting standard which provides guidance on accounting for leases was updated. The new standard requires entities to recognize assets and liabilities for leases with lease terms of more than 12 months. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease, which is consistent with current GAAP. However, the new standard will require both types of leases to be recognized on the balance sheet. For public companies, the update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the potential impact of adopting this standard and cannot yet determine the impact of its adoption on its operating results and financial position.

XML

Commitments and Contingencies

9 Months Ended

Sep. 30, 2016

Commitments and Contingencies [Abstract]

Commitments and Contingencies Disclosure [Text Block]

Commitments and Contingencies

The Company has employment agreements with certain key executives. These agreements provide for base salaries and performance bonuses over periods ranging from one to two years. These employment agreements also provide for severance compensation ranging from 6 to 24 months after termination.

The Company has standby letters of credit outstanding of $509, which are fully collateralized by domestic certificates of deposit.

The Company has, in the ordinary course of its business, disputed certain billings from carriers and has recorded the estimated settlement amount of the disputed balances. The settlement estimate is based on various factors, including historical results of prior dispute settlements. The amount of such charges in dispute at September 30, 2016 was $11,233. The Company believes that the ultimate settlement of these disputes will be at amounts less than the amount disputed and has accrued the estimated settlement in accrued expenses and other current liabilities at September 30, 2016. It is possible that actual settlements of such disputes may differ from these estimates and the Company may settle at amounts greater than the estimates.

The Company has entered into a commercial agreement with its principal vendor under which it purchases certain services that it had previously leased under the unbundled network platform provisions of the Telecommunications Act of 1996. The Company has also entered into multiple tariffed agreements with its principal vendor under which the Company purchases special access services.  During 2016, the Company entered into an extension of a commercial agreement with its principal vendor expiring in 2019.

The Company is, in the ordinary course of business, under audit with several state and local taxing authorities, including an examination to determine the Company's compliance with applicable escheat laws. The Company is complying with all examinations. Any estimated liabilities are included in taxes payable at September 30, 2016. It is possible that actual settlements may differ from these estimates and the Company may settle at amounts greater than the estimates. The Company does not believe that the ultimate outcome of any such audits will result in any liability that would have a material adverse effect on its financial condition, results of operations or cash flows.

XML

Debt

9 Months Ended

Sep. 30, 2016

Long-term Debt, Unclassified [Abstract]

Debt Disclosure [Text Block]

Debt

The Company has $150,000 of 10.5% Senior Secured Notes due on November 15, 2017 (the “Notes”) outstanding. The Company may redeem the Notes, at its option, in whole or in part at any time prior to November 15, 2017, upon not less than 30 days' or more than 60 days’ notice, at the following redemption prices (expressed as percentages of the principal amount thereof) set forth below:

Year	Percentage
42 months to 54 months following the Issue Date	102	%
54 months to 60 months following the Issue Date	100	%

The Notes are fully, unconditionally and irrevocably guaranteed on a senior secured basis, jointly and severally, by each of the Company's existing and future domestic restricted subsidiaries, which includes all subsidiaries as of September 30, 2016. Broadview Networks Holdings, Inc. is a holding company and depends on dividends and other distributions from its subsidiaries to generate the funds necessary to meet its obligations, including its required obligations under the Notes. Each of the Company’s subsidiaries is a legally distinct entity, and while the Company’s subsidiaries have guaranteed the Notes, such guarantees are subject to risks. The issuer has no independent assets or operations and any subsidiaries of the issuer other than the subsidiaries guarantors are minor. The Notes and the guarantees rank senior in right of payment to all existing and future subordinated indebtedness of the Company and its subsidiary guarantors, as applicable, and equal in right of payment with all existing and future senior indebtedness of the Company and of such subsidiaries.

The Notes and the guarantees are secured by a lien on substantially all of the Company’s assets provided, however, that pursuant to the terms of the intercreditor agreement, the security interest in those assets consisting of receivables, inventory, deposit accounts, securities accounts and certain other assets that secure the Notes and the guarantees are contractually subordinated to a lien thereon that secures the Company’s revolving credit facility with an aggregate principal amount of $25,000 and certain other permitted indebtedness. Any outstanding amounts under this facility are subject to a borrowing base limitation based on an advance rate of 85% of the amount of eligible receivables, as defined. The Company's borrowing base has limited the availability to $17,800, of which $11,500 was outstanding as of September 30, 2016.

XML

Income Taxes

9 Months Ended

Sep. 30, 2016

Income Taxes [Abstract]

Income Tax Disclosure [Text Block]

Income Taxes

At September 30, 2016, the Company had net operating loss carryforwards (“NOLs”) available totaling approximately $183,050 which begin to expire in 2022. The Company has provided a full valuation allowance against its net deferred tax assets, of which the NOLs are the primary component, because management does not believe it is more likely than not that this asset will be realized. If the Company achieves profitability, the net deferred tax assets may be available to offset future income tax liabilities.

XML

Organization and Description of Business Organization and Description of Business (Details)	9 Months Ended
	Sep. 30, 2016
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Number of Reportable Segments	1

XML

Fair Value of Financial Instruments Fair Value of Financial Instruments (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015	Nov. 13, 2012
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Revolving credit facility	$ 11,500	$ 12,500
Senior Secured Notes, 10.5% Due 2017 [Member] | Preferred Stockholders [Member] | Support Agreement [Member] | Senior Notes [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Debt Instrument, Interest Rate, Stated Percentage			10.50%
Revolving Credit Facility [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Revolving credit facility	11,500	12,500
Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Senior Notes, Noncurrent	$ 147,608	$ 134,230

XML

Commitments and Contingencies Commitments and Contingencies (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2016 USD ($)
Letters of Credit Outstanding, Amount	$ 509
Disputes [Member]
Commitments and Contingencies	$ 11,233
Minimum [Member]
Employee Agreement, Severance Compensation, Term	6 months
Maximum [Member]
Employee Agreement, Severance Compensation, Term	24 months

XML

Debt Debt (Details) - USD ($) $ in Thousands	6 Months Ended	9 Months Ended
	Jun. 30, 2016	Sep. 30, 2016	Dec. 31, 2012	Nov. 13, 2012	Oct. 03, 2012
Debt Instrument [Line Items]
Line of Credit Facility, Maximum Borrowing Capacity		$ 25,000
Senior Secured Notes, 10.5% Due 2017 [Member] | Preferred Stockholders [Member] | Support Agreement [Member] | Senior Notes [Member]
Debt Instrument [Line Items]
Debt Instrument, Face Amount					$ 150,000
Debt Instrument, Interest Rate, Stated Percentage				10.50%
42 Months to 54 Months Following Issue Date [Member] | Senior Secured Notes, 10.5% Due 2017 [Member] | Preferred Stockholders [Member] | Support Agreement [Member] | Senior Notes [Member]
Debt Instrument [Line Items]
Debt Instrument, Redemption Prices as a Percentage of Principal			102.00%
54 Months to 60 Months Following Issue Date [Member] | Senior Secured Notes, 10.5% Due 2017 [Member] | Preferred Stockholders [Member] | Support Agreement [Member] | Senior Notes [Member]
Debt Instrument [Line Items]
Debt Instrument, Redemption Prices as a Percentage of Principal			100.00%
Minimum [Member] | 42 Months to 54 Months Following Issue Date [Member] | Senior Secured Notes, 10.5% Due 2017 [Member] | Preferred Stockholders [Member] | Support Agreement [Member] | Senior Notes [Member]
Debt Instrument [Line Items]
Debt Instrument, Debt Redemption Term	42 months
Minimum [Member] | 54 Months to 60 Months Following Issue Date [Member] | Senior Secured Notes, 10.5% Due 2017 [Member] | Preferred Stockholders [Member] | Support Agreement [Member] | Senior Notes [Member]
Debt Instrument [Line Items]
Debt Instrument, Debt Redemption Term	54 months
Maximum [Member] | 42 Months to 54 Months Following Issue Date [Member] | Senior Secured Notes, 10.5% Due 2017 [Member] | Preferred Stockholders [Member] | Support Agreement [Member] | Senior Notes [Member]
Debt Instrument [Line Items]
Debt Instrument, Debt Redemption Term	54 months
Maximum [Member] | 54 Months to 60 Months Following Issue Date [Member] | Senior Secured Notes, 10.5% Due 2017 [Member] | Preferred Stockholders [Member] | Support Agreement [Member] | Senior Notes [Member]
Debt Instrument [Line Items]
Debt Instrument, Debt Redemption Term	60 months
Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Line of Credit Facility, Borrowing Base Limitation, Percentage of Eligible Receivables		85.00%
Line of Credit Facility, Current Borrowing Capacity		$ 17,800
Long-term Line of Credit		$ 11,500

XML

Income Taxes Income Taxes (Details) $ in Thousands	Sep. 30, 2016 USD ($)
Operating Loss Carryforwards [Line Items]
Operating Loss Carryforwards	$ 183,050