BROADVIEW NETWORKS HOLDINGS INC, 424A, 2000-04-12

BROADVIEW NETWORKS HOLDINGS INC
424A, 2000-04-12
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)

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<PAGE>

File Pursuant to Rule 424A
Registration No. 333-96391

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus is not complete and may be +
+changed. These securities may not be sold until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+preliminary prospectus is not an offer to sell securities, and we are not +
+soliciting offers to buy these securities, in any jurisdiction where the +
+offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion. Dated April 7, 2000.
[LOGO OF BROADVIEW NETWORKS]
7,000,000 Shares

Broadview Networks Holdings, Inc.

Common Stock

-----------

This is an initial public offering of shares of common stock of Broadview
Networks Holdings, Inc. All of the 7,000,000 shares of common stock are being
sold by Broadview Networks.

Prior to this offering, there has been no public market for the common stock.
Broadview Networks currently anticipates that the initial public offering price
will be between $18.00 and $20.00 per share. Broadview Networks has applied for
quotation of the common stock on the Nasdaq National Market under the symbol
"BDVU."

See "Risk Factors" beginning on page 8 to read about factors you should
consider before buying shares of the common stock.

-----------

Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.

-----------

<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial public offering price............................ $ $
Underwriting discount.................................... $ $
Proceeds, before expenses, to Broadview Networks......... $ $
</TABLE>

To the extent that the underwriters sell more than 7,000,000 shares of common
stock, the underwriters have the option to purchase an additional 1,050,000
shares of common stock from Broadview Networks at the initial public offering
price less the underwriting discount.

-----------

The underwriters expect to deliver the shares of common stock on , 2000.

Goldman, Sachs & Co. Bear, Stearns & Co. Inc.
Donaldson, Lufkin & Jenrette

-----------

Prospectus dated , 2000.
<PAGE>

[INSIDE FRONT COVER]

[Examples of opening computer screens of our operating and customer care
systems]

<PAGE>

You should rely only on the information contained in this prospectus.
Broadview Networks has not authorized anyone to provide you with any other
information. Broadview Networks is offering to sell, and seeking offers to buy,
shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.

Until , 2000, all dealers that buy, sell or trade our
common stock, whether or not participating in this offering, may be required to
deliver a prospectus. This requirement is in addition to the dealers'
obligation to deliver a prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.

----------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 8
Use of Proceeds.......................................................... 14
Corporate Information.................................................... 14
Dividend Policy.......................................................... 14
Capitalization........................................................... 15
Dilution................................................................. 16
Selected Consolidated Financial Data..................................... 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business................................................................. 24
Management............................................................... 47
Certain Transactions..................................................... 56
Principal Stockholders................................................... 61
Description of Capital Stock............................................. 63
Shares Eligible for Future Sale.......................................... 69
Underwriting............................................................. 71
Legal Matters............................................................ 73
Experts.................................................................. 73
Where You Can Find More Information about Broadview Networks............. 73
Index to Financial Statements............................................ F-1
</TABLE>

1
<PAGE>

[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>

PROSPECTUS SUMMARY

This summary highlights information that is set forth in more detail later
in this prospectus. You should read the entire prospectus carefully, especially
"Risk Factors" beginning on page 8.

Broadview Networks

Overview

We are an electronically integrated communications provider, or e-ICP, a
new type of competitive communications carrier that can electronically connect
with the information systems of Bell Atlantic and other key suppliers, then
automatically process data from those suppliers and incorporate it into its own
systems. We offer high-speed internet access and services using digital
subscriber line, or DSL, technology, data services, and local, long-distance
and international voice service to small and medium-sized businesses, small
office/home office customers and communications-intensive residential consumers
in the northeastern United States.

Despite our limited operating history, as of December 31, 1999, we had
approximately 39,000 customers with approximately 72,000 access lines. In 1999,
our revenues were $37.2 million, compared with revenues of $10.9 million in
1998. As we grow and expand our network, we expect to incur significant
expenditures as well as continued operating losses and negative cash flow for
the next few years.

Our business is founded on the premise that a communications provider needs
integrated systems and highly-automated processes to cost-effectively meet
customers' needs in an increasingly competitive environment. As such, in
October 1996, we became the first company to implement software systems that
automatically and electronically process data from Bell Atlantic and
incorporate it directly into its network provisioning, billing and customer
care systems. We believe the level of electronic integration provided by our
proprietary OPENnet systems represents a significant improvement over the
electronic bonding traditionally used by competitive telephone carriers.

We have developed and implemented the following three customized processes,
collectively known as Smart/3/, by which we sell to customers, place them on
our network and provide them with customer care:

. SmarterAcquire. In order to provide services rapidly, generally within
five business days of taking an order, we initially resell the services
of Bell Atlantic and others. In comparison, we believe our competitors,
who put new customers directly onto their networks, typically experience
a delay of 20-30 business days in providing services.

. SmarterBuild. After we acquire a customer base in a particular
geographic area, we migrate our customers' lines in bulk from the Bell
Atlantic network onto our own network using a highly-automated,
efficient process we developed. We believe our unique high-volume
migration process reduces labor, time, cost, efforts and service
disruptions compared to companies who connect access lines to their
networks one at a time.

. SmarterCare. Our customer care associates, supported by our proprietary
systems, are able to address all customer care functions, including
service and features ordering, billing, service inquiry and account
administration. They are available to customers 24 hours a day, seven
days a week.

3
<PAGE>

Business Strategy

The key elements of our business strategy are:

. Focus on small and medium-sized businesses. We use a dedicated sales
force to target small and medium-sized businesses and address their
needs for simplicity and one-stop shopping by providing integrated
bundles of data and voice services which are invoiced on a single bill.

. Rapidly acquire customers and provide services with SmarterAcquire. We
will continue to use our systems and processes to rapidly enter new
markets and generate customer revenues.

. Increasingly focus on data services. We have recently begun our
commercial introduction of DSL-based services in New York, augmenting
our DSL-trained sales force with data sales specialists and installing
high-speed data switches.

. Foster customer loyalty by providing SmarterCare. We intend to further
enhance our customer care by permitting customers to interact directly
with our systems online, giving them a choice of self-service over the
internet or personalized attention from one of our customer care
associates.

. SmarterBuild our state of the art, scalable network. We will continue to
deploy our network assets in a particular location after we have
acquired a customer base, reducing our capital risk and producing an
improved return on invested capital.

. Capture market share through geographic expansion. We currently offer
services in New York and Massachusetts, and intend to expand our
operations into other markets within the Bell Atlantic region as well as
into selected other regions.

. Leverage the experience of our management team. Our eight executive
officers have an average of 18 years of experience in the communications
industry, and are former executives of companies including Bell
Atlantic, Teleport Communications Group, Covad, MFS Communications, AT&T
and MCI.

Recent Events

On March 31, 2000, we entered into a non-binding letter of intent with GE
Capital and First Union National Bank detailing a proposed senior credit
facility in an aggregate principal amount of $150 million. If finalized, it is
expected that the proceeds from this financing would be used in connection with
the deployment and expansion of our telecommunications network and that this
facility would replace our existing vendor credit facility with NTFC Capital
Corporation.

4
<PAGE>

The Offering

<TABLE>
<C> <S>
Common stock offered............................ 7,000,000 shares
Common stock to be outstanding after this
offering....................................... 32,627,116 shares
Over-allotment option........................... 1,050,000 shares
Proposed Nasdaq National Market symbol.......... BDVU
Use of proceeds................................. We currently intend to use
the net proceeds for
expansion and development of
our network infrastructure
and other general corporate
purposes including sales and
marketing, information
technology systems and the
funding of operating losses.
</TABLE>

Unless otherwise specifically stated, all information in this prospectus,
including the calculation of the number of shares to be outstanding after this
offering:

. reflects the automatic conversion of all outstanding shares of our
Series A convertible preferred stock, Series B convertible preferred
stock, Series C mandatorily redeemable convertible preferred stock and
Series D mandatorily redeemable convertible preferred stock into
17,561,703 shares of our common stock following the closing of this
offering;

. reflects the termination of the mandatory redemption feature of 370,000
shares of mandatorily redeemable common stock;

. assumes the underwriters do not exercise their over-allotment option;
and

. does not reflect shares that may be issued upon the exercise of
options.

5
<PAGE>

Summary Consolidated Financial Data

The following tables list our summary consolidated financial data. You
should read this information together with the consolidated financial
statements and the notes to those statements appearing elsewhere in this
prospectus and the information under "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

In the following table, "adjusted EBITDA" is defined as earnings before
interest income, income taxes, depreciation, amortization, and non-cash
compensation expense. EBITDA is a non-GAAP measure commonly used by investors
and analysts to analyze companies on the basis of operating performance,
leverage and liquidity. We present adjusted EBITDA, which is also a non-GAAP
measure, to enhance the understanding of our operating results. We believe
adjusted EBITDA is an indicator of our operating profitability since it
excludes items which are not directly attributable to our ongoing business
operations. Broadview Networks excludes non-cash compensation from adjusted
EBITDA because the nature of the charge is non-recurring and does not reflect
the ongoing performance of the business. However, adjusted EBITDA relies upon
management's judgment to determine which items are directly attributable to our
ongoing business operations and as such is subjective in nature. Neither EBITDA
nor adjusted EBITDA should be construed as an alternative to net income as an
indicator of a company's operating performance or as an alternative to cash
flow from operating, investing and financing activities as a measure of a
company's liquidity. For information about cash flows or results of operations
in accordance with generally accepted accounting principles, please see the
audited consolidated financial statements included elsewhere in this
prospectus.

The pro forma balance sheet data gives effect to the sale and issuance of
6,006,959 shares of Series D mandatorily redeemable convertible preferred stock
for net proceeds of $27.9 million and the assumed conversion of all preferred
stock and mandatorily redeemable common stock outstanding into shares of common
stock upon the completion of this offering.

The pro forma as adjusted balance sheet data gives effect to the sale of
7,000,000 shares of common stock in this offering, assuming an initial public
offering price of $19 per share and after deducting underwriting discounts and
commissions and estimated offering expenses of $2.2 million.

<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1997 1998 1999
------- ------- --------
(in thousands)
<S> <C> <C> <C>
Consolidated Statement of Operations Data:
Revenues, net..................................... $ 2,070 $10,866 $ 37,203
Operating expenses:
Cost of revenues (excluding depreciation and
amortization).................................... 1,759 9,507 33,965
Operating expenses (excluding non-cash
compensation and depreciation and amortization).. 1,503 10,172 29,406
Non-cash compensation............................. -- 495 10,920
Depreciation and amortization..................... 124 610 1,060
------- ------- --------
Total operating expenses........................ 3,386 20,784 75,351
------- ------- --------
Operating loss.................................... (1,316) (9,918) (38,148)
------- ------- --------
Net loss.......................................... $(1,302) $(9,711) $(37,631)
======= ======= ========
Other Consolidated Financial Data:
Capital expenditures.............................. $ 62 $ 601 $ 15,678
Cash used in operating activities................. (688) (9,309) (19,652)
Cash used in investing activities................. (249) (474) (14,252)
Cash provided by financing activities............. 1,416 12,064 36,424
Adjusted EBITDA................................... (1,192) (8,813) (26,168)
</TABLE>

6
<PAGE>

<TABLE>
<CAPTION>
December 31,
----------------------------
1999
Pro Forma
1999 as
1999 Pro Forma Adjusted
------- --------- ---------
(in thousands)

<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents......................... $ 5,572 $33,522 $155,012
Working capital................................... (1,292) 26,658 148,148
Total assets...................................... 30,709 58,659 180,149
Long-term obligations, less current portion....... 7,979 7,979 7,979
Mandatorily redeemable securities................. 44,068 -- --
Stockholders' equity (deficit).................... (36,675) 35,343 156,833
</TABLE>

7
<PAGE>

RISK FACTORS

You should carefully consider the risks described below before making an
investment decision. If any of the following risks actually occur, our
business, financial condition and results of operations would likely suffer. In
such case, the market price of our common stock could decline, and you may lose
all or part of your investment in our common stock.

Our limited operating history makes evaluating our performance and prospects
difficult

We were incorporated and began operations in March 1996. As a result of our
limited operating history, we have limited historical financial data on which
an evaluation of our performance or our prospects can be based. Our prospects
must be considered in light of the risks, expenses and difficulties frequently
encountered by companies in an early stage of development, particularly those
in new and rapidly evolving markets. To address these risks, we must, among
other things: expand the geographic coverage of our services; attract and
retain customers within our existing and new regions; increase awareness of our
services; respond to competitive developments; continue to attract, retain and
motivate qualified employees; continue to upgrade our technologies; incorporate
these technologies into our service offerings; and effectively manage our
expanding operations. Our inability to successfully address these risks could
have a material adverse effect on our business, prospects, operating results
and financial condition. In one or more future quarters, our results of
operations may fall below the expectations of securities analysts and
investors. This would likely materially adversely affect the market price of
our common stock.

We have a history of operating and net losses, cash used in operating
activities and negative adjusted EBITDA since our inception and we may not be
profitable in the future

We have experienced operating and net losses, cash used in operating
activities and negative adjusted EBITDA in each quarter since our inception.
The accumulated deficit at December 31, 1999 was $48,734,222. We may continue
to lose money for the forseeable future because we plan to continue to incur
significant expenses. If we cannot achieve or sustain operating income, net
income, cash provided by operating activities and positive adjusted EBITDA in
the future, we may not be able to meet our working capital requirements or pay
interest on our debt, which would have a material adverse effect on our
business, financial condition and results of operations and on the market price
of our common stock.

We have limited experience in offering DSL, internet and new communications
services and may be unable to do so successfully

Our strategy includes offering a full suite of communications services,
including high speed data services, some of which are based on DSL technology,
and internet service. We have limited experience providing these new services
and may be unable to do so successfully, which could damage our reputation and
the perception of our brand name. Our ability to offer a full suite of services
will depend on many factors, including our ability to:

.upgrade our network and install new equipment;

. successfully meet technical requirements with which we have had little
experience to date; and

. expand, train and manage our employee base.

Our failure to do any of these things effectively could materially
adversely affect our results of operations and the market price of our common
stock.

8
<PAGE>

If we do not receive market acceptance for our services, we may find it
difficult to achieve or sustain profitable operations

Although we currently sell our products and services in several of our
target markets, we do not have a significant market share in any of those
markets. Accordingly, the success of our service offerings and our ability to
achieve and sustain profitable operations will be dependent upon, among other
things, our ability to convince prospective customers to accept us as their new
provider of telecommunications services. The markets for competitive local and
long distance service, internet access and high-speed data communications,
including those services based on DSL technology, are in the early stages of
development. We may not receive market acceptance and prices and demand for our
services may not be sufficient to achieve or sustain profitable operations. If
the markets for our new services fail to develop, grow more slowly than
anticipated or become saturated with competitors, our ability to convince
prospective customers to use our telecommunications services could be
materially adversely affected.

If we are unable to obtain additional financing, we may be compelled to alter
our business strategy and our operations may suffer

In order to implement our business plan, or if our working capital needs
exceed our current expectations, we may need to raise additional capital from
debt or equity sources. Although we have entered into a non-binding letter of
intent for a proposed $150 million senior credit facility, there is no
guarantee that we will be able to finalize this proposed financing. If we are
not successful in raising sufficient debt or equity capital on a timely basis,
on acceptable terms, or at all, we could be compelled to alter our business
strategy, delay or abandon some of our future plans or expenditures, sell
assets or default on interest payments on our indebtedness. Any of these events
would have a material adverse effect on our business, financial condition and
results of operations and on the market price of our common stock.

It will be difficult to expand geographically unless we are able to attract and
retain sales, technical and management personnel and other employees

Difficulty in hiring and retaining personnel could delay or prevent the
execution of our plans to expand geographically and could materially adversely
affect us. In particular, we believe we will need to attract a significant
number of sales, customer service and technical personnel. Competition for
qualified personnel in the communications industry is intense.

Our success also depends to a significant extent upon the abilities and
continued efforts of our existing management team. We have employment
agreements with all of our executive officers. The loss of any member of our
management team could materially adversely affect us.

Our failure to sustain desired pricing levels could impair our ability to
achieve profitability or positive cash flow

Prices for communications services have historically fallen, a trend we
expect will continue. Accordingly, we cannot predict to what extent we may need
to reduce our prices to remain competitive or whether we will be able to
sustain future pricing levels as our competitors introduce competing services
or similar services at lower prices. Our failure to achieve or sustain market
acceptance at desired pricing levels could impair our ability to achieve
profitability or positive cash flow, which could have a material adverse effect
on our business, prospects, financial condition and results of operations.

The conduct of Bell Atlantic and other incumbent local exchange carriers could
cause us to lose customers

We are highly dependent on Bell Atlantic's willingness and ability to
provide us with the use of its local network lines and facilities, including
its leased telephone lines and interoffice transport

9
<PAGE>

facilities, in a timely, efficient and cost-effective manner. We have entered
into three interconnection agreements with Bell Atlantic covering the New York,
Massachusetts and Pennsylvania markets. The initial term of our New York
agreement expired on December 31, 1999, at which time the agreement was
automatically extended. It may be terminated by either party upon 90 days'
written notice. Our Massachusetts agreement will expire in April 2001, unless
either party requests negotiation prior to that time, in which case the
agreement would remain in effect until a new agreement is executed or an
arbitration decision is made by the Massachusetts Department of
Telecommunications and Energy. Our Pennsylvania agreement will expire in August
2000, unless either party requests renegotiation prior to that time, in which
case the agreement would remain in effect on a month to month basis until a new
agreement is reached or until the terms and conditions of an agreement are
resolved by the Pennsylvania Public Utility Commission. If these agreements are
terminated, Bell Atlantic is obligated to continue providing us with access to
its network but may do so under a new interconnection agreement, under standard
interconnection terms and conditions approved by regulators, or under tariff
terms and conditions available to all competitive communications providers,
otherwise known as competitive local exchange carriers, or CLECs, all of which
are or may be less favorable to us than the terms of our current agreements.
The provisions of our agreements are subject in their entirety to the
Telecommunications Act of 1996 and orders from other governmental regulatory
agencies. Bell Atlantic is, and will probably continue to be, both our largest
supplier and our largest competitor. As a result, Bell Atlantic has an inherent
conflict of interest in cooperating with us.

If we expand geographically, we will be similarly dependent on the
traditional telephone company, otherwise known as an incumbent local exchange
carrier, or ILEC, in each new market, and each ILEC will be similarly
conflicted. We cannot guarantee that Bell Atlantic or the ILEC in any of our
future markets will comply with state and federal regulations or contracts
governing its interactions with us, or will provide us with the cooperation we
require. Nor can we confirm that our existing interconnection agreements will
not be terminated or that we will be able to negotiate interconnection
agreements in the other markets in which we intend to offer local service. If
we are unable to obtain Bell Atlantic's cooperation, or secure or maintain
interconnection agreements, it could have a material adverse effect on our
business, prospects, financial condition and results of operations.

Any failure of our suppliers and other service providers to provide us with
services, equipment or access could affect our ability to provide quality
services to customers

We are highly dependent on third parties to supply us with services,
equipment and access. Occasionally we have experienced delays or other problems
in receiving these facilities and services. Any failure on the part of third
parties to adequately supply us or maintain the quality of their facilities and
services in the future could cause our customers to experience delays in
service and lower levels of customer care, which could cause them to switch to
other providers. We are particularly dependent on third parties because:

. We lease our transport capacity, including the transmission facilities
which give us access to our customers, from ILECs and other
competitive transport carriers;

. We resell, on a usage basis, regional, long distance, international
and internet services of traditional and new market suppliers. While
we plan to offer DSL services over our own facilities, we may still
selectively resell DSL services of other providers at the same time;

. Our DSL-enabled services depend on the quality of the telephone lines
and the ILECs' maintenance of such lines; and

. We rely on a single or limited number of vendors to supply key
components of our current and future network infrastructure, including
switching, access and networking equipment

10
<PAGE>

and DSL equipment that is currently under development and that we plan
to incorporate once it becomes commercially available.

Many of these entities are, or may become, our competitors. We cannot
assure you that we will be able to obtain use of these facilities or services
in a timely manner, on terms and in quantities satisfactory to us, or at all.

If we do not upgrade or modify our OPENnet software and Smart/3/ processes in
response to changing business conditions as we expand, we may not be able to
acquire, manage and service our customers

Our business strategy is largely based on our OPENnet software, our unique
Smart/3/ business processes and the level of integration that we have achieved
with Bell Atlantic in New York and Massachusetts and with other vendors. If
Bell Atlantic or our other key vendors modify or enhance their systems on
short or no notice, or we otherwise fail to keep our software synchronized
with that of our vendors, it may significantly impair our ability to add new
customers and care for and bill our existing customers.

In addition, in order to successfully execute our strategy of expanding
into other markets within the Bell Atlantic region and in selected other
regions, we will need to integrate with the ILEC in those areas. We have not
yet attempted to integrate with ILECs outside New York and Massachusetts and
will likely need to modify our software and processes in order to successfully
do so. An inability to adequately upgrade or modify OPENnet or our Smart/3/
processes could hurt our ability to acquire, manage or service our customers.

Failure of our software could increase our costs, disrupt our services and
reduce demand for our services

Our OPENnet software is subject to design, coding and other software
flaws. Although we have taken reasonable and necessary precautions, we are
also vulnerable to hackers, computer viruses and equipment failures, including
failures of our computers, servers and data networks. The occurrence of any of
these events could result in partial or total failure of our systems, loss or
diminution in service delivery performance, additional and unexpected expenses
to fund further systems development or to add programming personnel to
complete or correct development, and loss of revenue because of the inability
of customers to use our services.

Our ability to finance our future operations and engage in other business
activities may be restricted by the terms of our indebtedness

The covenants in our vendor financing facility and, if obtained, our
proposed senior credit facility may adversely affect our ability to finance
our future operations or capital needs or to engage in other business
activities that may be in the best interests of our stockholders. As a result,
these restrictive covenants could have a material adverse effect on our
business, financial condition and results of operations and on the market
price of our common stock.

The terms of our vendor financing facility with NTFC Capital Corporation
restrict, and in some cases significantly limit or prohibit our ability and
the ability of our subsidiaries to, among other things:

. pay dividends and make other distributions on capital stock and redeem
capital stock;

. incur additional indebtedness, create liens on our assets or assume
contingent obligations;

11
<PAGE>

. make investments, advances and loans;

. lease personal property;

. engage in transactions with our shareholders and affiliates;

. remove collateral from various locations;
. make capital expenditures inconsistent with the business plan we
submitted to NTFC Capital Corporation when we entered into the
facility;
. engage in mergers and consolidations; and
. sell assets outside the ordinary course of business.

If finalized, we expect that our proposed senior credit facility with GE
Capital and First Union National Bank would replace our vendor financing
facility. However, we also expect that any agreement entered into in connection
with this proposed financing would similarly restrict or prohibit our ability
and the ability of our subsidiaries to engage in these activities.

We are controlled by a limited number of stockholders whose interests may be
different from the interests of our public stockholders, which could depress
the price of our stock

Our executive officers, directors, significant stockholders and entities
affiliated with them will control approximately 67.9% of our common stock
following this offering. As a result, these stockholders will have significant
influence over our future operations and strategy, including the election of
directors and the approval of significant corporate transactions, which limits
the influence of our public stockholders and could depress the price of our
stock. Conflicts of interest between these stockholders and our public
stockholders may arise. For example, the interests of the institutional and
management stockholders regarding any proposed merger or sale of our company
may differ from the interests of our new public stockholders, especially if the
consideration to be paid for the common stock is less than the price paid by
public stockholders.

The telecommunications industry is undergoing rapid technological changes, and
our failure to keep up with such changes could cause us to lose customers and
impede our ability to attract new customers.

The telecommunications industry is undergoing rapid and significant changes
in technology, customer requirements and preferences and our failure to keep up
with such changes could cause us to lose customers and impede our ability to
attract new customers. In particular, DSL technology does not have widely
accepted standards, and alternative technologies for providing high speed data
transport may develop and be superior to the DSL technology on which we rely.
New technologies could also reduce the competitiveness of our OPENnet software
systems and our network. We may be required to select one technology over
another, but at a time when it would be impossible to predict with any
certainty which technology will prove to be the most economic, efficient or
capable of attracting customer usage. Subsequent technological developments may
require unbudgeted upgrades or additional products that could be expensive and
time consuming.

Future sales of our stock may lower our stock price

The market price of our common stock may fall significantly if existing
stockholders sell a large number of shares of our common stock in the market
following this offering, or investors perceive that such sales could occur.
Such sales also might make it more difficult for us to sell equity securities
in the future at a time and at a price that we believe is appropriate.
Immediately after this offering, there will be 32,627,116 shares of our common
stock outstanding. Of these shares, the 7,000,000 shares sold in this offering
will be available for immediate resale in the public market. The

12
<PAGE>

remaining 25,627,116 shares of common stock outstanding after this offering
will become available for resale in the public market, subject to applicable
volume and manner of sale restrictions under Rule 144, as follows:

<TABLE>
<CAPTION>
Number of
Date of First Availability for Resale Shares
------------------------------------- ----------
<S> <C>
Immediately after the date of this prospectus................ 224,044
----------
90 days after the date of this prospectus.................... 33,392
----------
At various times after 180 days from the date of this
prospectus.................................................. 25,369,680
----------
</TABLE>

In addition, the holders of 18,151,342 shares of common stock, including
shares in the preceding table, have contractual registration rights with
respect to their shares.

Our stock may be extremely volatile given the industry in which we operate

The market price at which our common stock will trade after this offering
is likely to be volatile. In particular, the stock market has experienced
extreme price and volume fluctuations affecting the stock of communications
companies. These fluctuations may be unrelated or disproportionate to our
performance, and may result in a significant decline in the trading price of
our common stock.

You will experience immediate and substantial dilution of $14.19 in the book
value of your investment

Investors purchasing shares in this offering will incur immediate and
substantial dilution of $14.19 in the book value of their investments because
the initial public offering price they pay will exceed the net tangible book
value per share of the shares they acquire. In large part, this dilution is due
to the fact that our existing stockholders paid significantly less than the
initial public offering price when they invested. To the extent outstanding
options to purchase common stock are exercised, investors will experience
further dilution.

FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements based on our current
expectations, assumptions, estimates and projections about us and our industry.
These forward-looking statements involve risks and uncertainties. Our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of various factors, including the risks faced by us
described above and elsewhere in this prospectus. We assume no obligation to
update publicly any forward-looking statements for any reason, even if new
information becomes available or other events occur in the future.

13
<PAGE>

USE OF PROCEEDS

The net proceeds from the sale of the 7,000,000 shares of common stock
being offered by us, at an assumed public offering price of $19.00 per share,
which is the midpoint of the offering range, less estimated underwriting
discounts and commissions and estimated offering expenses, are estimated to be
approximately $121,490,000, or $140,044,000 if the underwriters' overallotment
option is exercised in full.

We intend to use the net proceeds from this offering as follows:

--approximately $70.0 million to fund the expansion and development of
our network infrastructure.

--approximately $50.0 million to cover general corporate expenses,
including sales and marketing, information technology systems and the
funding of operating losses.

We may also use a portion of the net proceeds to acquire complementary
businesses, although we have no definitive agreements to do so at this time.
The amounts actually expended for these purposes will vary significantly
depending on a number of factors, including revenue growth, if any, and the
extent and timing of our entry into target markets and capital expenditures.

Prior to the application of the net proceeds from the offering as described
above, these proceeds will be invested in marketable, investment-grade
securities.

CORPORATE INFORMATION

We were incorporated in New York in March 1996 and converted to a Delaware
corporation in July, 1998. We hold a 100% interest in Broadview Networks, Inc.,
a New York corporation and our main operating subsidiary. Additionally, we hold
a 100% interest in Open Support Systems LLC, a Connecticut limited liability
company. Open Support Systems is the operating subsidiary that owns and has
developed the OPENnet software used by Broadview Networks, Inc. Prior to
October 1999, we operated under the name Coaxicom Inc., while Broadview
Networks, Inc. operated under the name Community Networks, Inc.

Our principal executive offices are located at 45-18 Court Square, Suite
300, Long Island City, New York 11101. Our telephone number at this location is
(718) 707-8800 and our internet address is www.broadviewnet.com. Information on
our internet website does not constitute part of this prospectus.

We have filed applications to register the Broadview Networks name and logo
as trademarks. Open Support Systems has filed applications to register OPENnet,
OPENorder, OPENfix, OPENbill, OPENcare, OPENcontact and OPENgateway as service
marks. Broadview Networks, Inc. has filed applications to register Smart/3/,
SmarterAcquire, SmarterBuild, SmarterCare, One Touch and One Touch Care as
service marks. Each trademark, trade name or service mark of any other company
appearing in this prospectus belongs to its holder.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our common stock. For
the foreseeable future we intend to retain our earnings for our operations and
the expansion of our business and do not expect to pay dividends on our common
stock. The payment of any future dividends will be at the discretion of our
board of directors and will depend on, among other factors, our earnings,
financial condition, capital requirements and general business outlook at the
time payment is considered. In addition, our ability to pay dividends will
depend on the amount of distributions, if any, received from our operating
subsidiaries, Broadview Networks, Inc. and Open Support Systems LLC or any of
our future operating subsidiaries. Our existing vendor financing facility with
NTFC Capital Corporation does, and any future indebtedness incurred by us may,
restrict our ability to pay dividends.

14
<PAGE>

CAPITALIZATION

The following cash and capitalization table sets forth:

. Our actual cash and capitalization as of December 31, 1999.

. Our pro forma cash and capitalization after giving effect to:

. the conversions of the Series A and B convertible preferred shares
into 3,446,070 and 1,838,799 shares of common stock, respectively;
and

. the conversion of the Series C mandatorily redeemable convertible
preferred shares into 6,269,875 shares of common stock; and

. the sale and issuance of 6,006,959 shares of Series D mandatorily
redeemable convertible preferred stock for $27,950,000, net of
issuance costs of $50,000 and their subsequent conversion into
6,006,959 shares of common stock; and

. the termination of the mandatorily redeemable feature of the
370,000 shares of common stock sold to an executive officer.

. Our pro forma, as adjusted, cash and capitalization to reflect the
issuance of 7,000,000 shares in this offering and the net proceeds
received of $121,490,000.

This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and related notes appearing elsewhere in this prospectus.

<TABLE>
<CAPTION>
December 31, 1999
--------------------------------
Pro Forma
Actual Pro Forma as Adjusted
-------- --------- -----------
<S> <C> <C> <C>
(in thousands)
Cash and cash equivalents...................... $ 5,572 $ 33,522 $155,012
======== ======== ========
Long-term obligations, including current
portion....................................... $ 8,798 $ 8,798 $ 8,798
-------- -------- --------
Mandatorily redeemable securities
Series C convertible preferred shares, $0.01
par value, 6,269,875 shares authorized,
issued and outstanding, actual; no shares
issued and outstanding, pro forma or pro
forma as adjusted............................ 38,888 -- --
Series D convertible preferred shares, $0.01
par value, 6,006,959 shares authorized; no
shares issued and outstanding actual, pro
forma or pro forma as adjusted............... -- -- --
Common stock, $0.01 par value, 370,000 shares
issued and outstanding actual, no shares
issued and outstanding pro forma or pro forma
as adjusted ................................. 5,180 -- --
-------- -------- --------
Total mandatorily redeemable securities...... 44,068 -- --
-------- -------- --------
Stockholders' equity (deficit)
Convertible preferred stock, $0.01 par value,
16,900,000 shares authorized; 17,600,000
shares authorized pro forma..................
Series A, $0.01 par value, 3,446,070 shares
authorized, issued and outstanding, actual;
no shares issued and outstanding, pro forma
or pro forma as adjusted..................... 35 -- --
Series B, $0.01 par value, 1,838,799 shares
authorized, issued and outstanding, actual;
no shares issued and outstanding, pro forma
or pro forma as adjusted..................... 18 -- --
Common stock, $0.01 par value, 32,000,000
shares authorized, 7,695,413 shares issued
and outstanding, actual; 36,000,000 shares
authorized, 25,627,116 shares issued and
outstanding, pro forma, and 32,627,116 shares
issued and outstanding pro forma as
adjusted..................................... 77 256 326
Receivable from officer for issuance of
stock........................................ (960) (960) (960)
Additional paid-in capital.................... 33,290 105,182 226,602
Deferred compensation......................... (20,401) (20,401) (20,401)
Accumulated deficit........................... (48,734) (48,734) (48,734)
-------- -------- --------
Total stockholders' equity (deficit)......... (36,675) 35,343 156,833
-------- -------- --------
Total capitalization......................... $ 16,191 $ 44,141 $165,631
======== ======== ========
</TABLE>

15
<PAGE>

DILUTION

Our pro forma net tangible book value as of December 31, 1999 was
$35,343,101 or $1.38 per share of outstanding common stock, after giving effect
to the adjustments shown in the pro forma column under "Capitalization." The
pro forma net tangible book value per share represents our total tangible
assets less total liabilities, divided by 25,627,116 shares of common stock
outstanding on a pro forma basis before the offering. Dilution per share
represents the difference between the amount per share paid by investors in
this offering and the pro forma net tangible book value per share after the
offering. After giving effect to this offering, the as adjusted pro forma net
tangible book value at December 31, 1999 would have been $156,833,101 or $4.81
per share. This represents an immediate increase in the net tangible book value
of $3.43 per share to existing stockholders and an immediate dilution in net
tangible book value of $14.19 per share to new investors purchasing shares at
the initial public offering price. The following table illustrates this per
share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price............................. $19.00
Pro forma net tangible book value per share as of December 31,
1999............................................................ $1.38
Increase in pro forma net tangible book value per share attribut-
able to this
offering....................................................... 3.43
-----
Pro forma net tangible book value per share after this offering... 4.81
------
Dilution per share to new investors............................... $14.19
======
</TABLE>

The following table summarizes on a pro forma basis, as of December 31,
1999, the number of shares of common stock purchased from Broadview Networks,
the total consideration paid and the average consideration paid per share by
our existing stockholders and by the new investors at an assumed initial public
offering price of $19.00 per share for shares purchased in this offering,
before deducting underwriting discounts and commissions and our offering
expenses.

<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ -------------------- Price Per
Number Percent Amount Percent Share
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........ 25,627,116 78.5% $ 73,712,477 35.7% $ 2.88
New investors................ 7,000,000 21.5 133,000,000 64.3 19.00
---------- ----- ------------ -----
Total...................... 32,627,116 100.0% $206,712,477 100.0%
========== ===== ============ =====
</TABLE>

The discussion above assumes no exercise of options after the date of this
offering. As of the date of this offering, an aggregate of 6,140,416 shares of
common stock were issuable following the exercise of outstanding employee and
director options issued under our 1997 and 2000 Stock Option Plans at an
average exercise price of $6.56 per share. If all options outstanding as of the
date of this offering were exercised, the net tangible book value per share
immediately after completion of this offering would be $5.09. This represents
an immediate increase in net tangible book value of $0.28 per share to
purchasers of common stock in this offering.

16
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The following tables present summary consolidated financial data for the
period from March 21, 1996 to December 31, 1996 and for the years ended
December 31, 1997 through 1999. The statement of operations, cash flow and
balance sheet data for the period from March 21, 1996 to December 31, 1996 and
for the years ending December 31, 1997 through 1999 have been derived from
financial statements, including those set forth elsewhere in this prospectus,
that have been audited by PricewaterhouseCoopers LLP, independent accountants.

See Note 2 to the consolidated financial statements appearing elsewhere in
this prospectus for an explanation of the method used to determine the number
of shares used to compute basic and diluted net loss per share in the following
tables.

17
<PAGE>

Period from
March 21, 1996 Year Ended December 31,
(inception) to ----------------------------------
December 31, 1996 1997 1998 1999
----------------- ---------- ---------- ----------
<S> <C> <C> <C>
(in thousands, except per share data)
Consolidated Statement
of Operations Data:
Revenues, net........... $ 4 $ 2,070 $ 10,866 $ 37,203
Operating expenses:
Cost of revenues (ex-
cluding depreciation
and amortization)...... 3 1,759 9,507 33,965
General and administra-
tive................... 95 1,024 4,555 16,288
Sales and marketing..... -- 449 4,181 11,034
Software development.... -- 30 1,436 2,084
Depreciation and amorti-
zation................. 1 124 610 1,060
Non-cash compensation... -- -- 495 10,920
---------- ---------- ---------- ----------
Total operating ex-
penses............... 99 3,386 20,784 75,351
---------- ---------- ---------- ----------
Operating loss.......... (95) (1,316) (9,918) (38,148)
Interest income......... 5 18 221 854
Interest expense........ -- (4) (14) (337)
---------- ---------- ---------- ----------
Net loss................ (90) (1,302) (9,711) (37,631)
Accretion of mandatorily
redeemable
preferred shares....... -- -- -- (11,092)
---------- ---------- ---------- ----------
Net loss applicable to
common stockholders.... $ (90) $ (1,302) $ (9,711) $ (48,723)
========== ========== ========== ==========
Basic and diluted net
loss per share......... $ (0.02) $ (0.24) $ (1.49) $ (6.73)
========== ========== ========== ==========
Shares used to compute
basic and diluted
net loss per share..... 3,850,844 5,391,317 6,510,871 7,238,631
Other Consolidated
Statement of Operations
Data:
Capital expenditures.... $ 14 $ 62 $ 601 $ 15,678
Cash used in operating
activities............. (95) (688) (9,309) (19,652)
Cash used in investing
activities............. (14) (249) (474) (14,252)
Cash provided by financ-
ing activities......... 401 1,416 12,064 36,424
Adjusted EBITDA......... (94) (1,192) (8,813) (26,168)
Consolidated Balance
Sheet Data:
Cash and cash equiva-
lents.................. 292 772 3,052 5,572
Working capital......... 289 (110) 2,605 (1,292)
Total assets............ 325 2,849 8,007 30,709
Long-term obligations,
less current portion... -- 22 84 7,979
Mandatorily redeemable
securities............. -- -- -- 44,068
Stockholders' equity
(deficit).............. 311 939 3,832 (36,675)
</TABLE>

18
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with
the financial statements and related notes and other detailed information
regarding Broadview Networks included elsewhere in this prospectus. The
discussion and analysis contains statements of a forward-looking nature
relating to future events or our future financial performance. Actual events or
results may differ materially from such statements. In evaluating these
statements, prospective investors should specifically consider the various
factors identified in this prospectus, including the matters described under
the caption "Risk Factors," which could cause actual results to differ
materially from those indicated in the forward-looking statements contained in
this prospectus.

Overview

We currently provide data, voice and internet services to small and medium-
sized businesses and residential customers. We began operations in 1996
reselling, under our own brand name, Bell Atlantic's local dial tone and
regional telecommunications services. In October 1999 we changed our brand name
to Broadview Networks from Community Networks.

In September 1999, in addition to providing our customers with resold
services through Bell Atlantic and other wholesale providers, we began
migrating customers onto our own network, incorporating various owned and
leased network components and operating as a network-based integrated service
provider. As a result, we now provide dial tone and features, such as call
waiting and caller ID, and an array of local, toll, long distance, data and
internet services over our own network. By moving customers onto our own
network, we are able to lower the direct costs of providing our services and
better manage our service offerings and quality of service.

As we implement our business strategy, we intend to continue to expand our
existing network, enhance our software systems, further automate our processes
and increase our sales force. We also intend to continue expanding our service
offerings, including the further deployment of high-speed internet and other
services using DSL technology, in order to maintain and enhance our position as
an integrated communications provider.

As we undertake these expansion plans and attempt to grow our revenue base,
we anticipate that we will incur significant expenditures and sustain continued
operating losses and negative cash flow from operations for the next few years.

Year Ended December 31, 1999 Compared To Year Ended December 31, 1998

Revenues, net. Net revenues increased 241% to $37.2 million for the year
ended December 31, 1999 from $10.9 million for the year ended December 31,
1998. Customer access lines served increased to 71,965 at December 31, 1999
from 32,832 at December 31, 1998. During 1999, we began to provide service
using our own network. We initiated the first conversion of access lines to our
network in September 1999 and had 8,201 lines on our network at December 31,
1999.

Cost of revenues. Cost of revenues for the year ended December 31, 1999
totaled $34.0 million, an increase of 258% from the $9.5 million incurred in
the corresponding period in 1998. Cost of revenues includes costs of wholesale
purchases of services from Bell Atlantic and other wholesale providers, and
costs of transport, leased telephone line charges, expenses for housing our
network equipment in Bell Atlantic's offices and termination of on-net traffic,
exclusive of depreciation and amortization. We also anticipate that costs of
services as a percentage of revenue will eventually decrease as a result of a
significant increase in the number of access lines converted to our network
services.

19
<PAGE>

Sales and marketing. Sales and marketing expenses increased by 162% to
$11.0 million for the year ended December 31, 1999 from $4.2 million for the
year ended December 31, 1998, and decreased as a percentage of revenues to
29.6% from 38.5% for the corresponding period. Within sales and marketing
expenses, the largest component is personnel and related expenses, which
includes wages and salaries, along with commissions earned by our sales force.
These expenses increased by 820% from 1998 to 1999, reflecting a significant
increase in sales personnel at December 31, 1999 over the prior year. Other
expenses included the costs of opening and maintaining 6 sales offices (4 at
December 31, 1998) in New York and Massachusetts.

We expect to further expand our sales force in 2000. Variable expenses,
including commissions paid to independent marketing representatives, are
expected to increase with future sales growth.

Software development. Software development expenditures increased 50% to
$2.1 million for the year ended December 31, 1999 from $1.4 million for the
year ended December 31, 1998. In 1999, we began to capitalize internal payroll
costs related to improvements to our software under Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." Therefore, we have capitalized $0.7 million of these
expenditures. Within software development expenses, the largest component is
personnel and related expenses, which includes wages and salaries. This element
of expense increased to $2.2 million from $1.2 million reflecting an
approximate 75% increase in employees at December 31, 1999 over the prior year.
We expect to continue to develop our software in order to increase its
capabilities and reinforce its reliability.

General and administrative. General and administrative expenses increased
by 254% to $16.3 million for the year ended December 31, 1999 from $4.6 million
for the year ended December 31, 1998. Within general and administrative
expenses, wages and salaries represent the majority of the costs. These
expenses increased by 152% from December 31, 1998 compared to December 31,
1999, reflecting an increase in the number of employees. The majority of the
increase in employees is a result of the significant expansion of our customer
service operation at December 31, 1999 over December 31, 1998. In addition, the
provision for doubtful accounts increased by 700% from $0.5 million in 1998 to
$4.0 million in 1999 while as a percentage of revenue, this expense increased
from 4.6% of revenue in 1998 to 10.8% of revenue in 1999. The increase resulted
from the rapid growth in operations prior to the establishment of formal client
acceptance, credit and collection procedures, which were implemented at the end
of the fourth quarter of 1999. We expect that with the implementation of formal
client acceptance, credit and collection procedures, bad debt expense as a
percentage of revenue will decline over time. Other expenses within general and
administrative expenses also increased, reflecting our ongoing growth.

Depreciation and amortization. Depreciation and amortization increased to
$1.1 million for the year ended December 31, 1999 from $0.6 million for the
year ended December 31, 1998, reflecting our network buildout, amortization of
software costs capitalized in connection with the implementation of Statement
of Position 98-1 and capital additions to our internal computer systems. At
December 31, 1999, we have one switch location and 20 colocation facilities in
service. Future depreciation expense will increase as assets related to our
network expansion plans are placed into service.

Non-cash compensation. During 1998 and 1999, we issued stock options and
common stock to employees which were treated for accounting purposes as priced
below the estimated fair value of our common stock at the date of grant or
issuance. We have determined that the non-cash deferred compensation relating
to the stock options granted were $22.3 million and $0.3 million for the years
ended December 31, 1999 and 1998, respectively. The deferred charge is being
amortized over the vesting period of the options, generally four years. In
addition, we issued common stock to certain executives during 1999, for which
non-cash compensation was recognized totalling $8.2 million in 1999. In
addition, in both 1999 and 1998 we recorded $0.5 million of non-cash
compensation arising from the acquisition of the remaining equity interest in
Open Support Systems LLC.

20
<PAGE>

Interest. Interest income, net of interest expense, increased to $0.5
million for the year ended December 31, 1999 from $0.2 million for the year
ended December 31, 1998. This increase resulted from interest earned on excess
invested funds averaging $9.6 million for the year ended December 31, 1999
increasing from $3.5 million for the year ended December 31, 1998.

Adjusted EBITDA. Adjusted EBITDA decreased to negative $26.2 million for
the year ended December 31, 1999 from negative $8.8 million for the year ended
December 31, 1998. This decrease was due to increased sales and marketing, the
deployment of our network, and increased operating, general and administrative
expenses as discussed above.

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

Revenues, net. Net revenues increased 419% to $10.9 million for the year
ended December 31, 1998 from $2.1 million for the year ended December 31, 1997.
Customer access lines in service increased to 32,832 at December 31, 1998 from
5,469 at December 31, 1997.

Cost of revenues. Cost of revenues for the year ended December 31, 1998
totaled $9.5 million, an increase of 428% from $1.8 million incurred for the
year ended December 31, 1997. This increase is due to the increased number of
customer access lines placed in service.

Sales and marketing. Sales and marketing expenses increased by 950% to $4.2
million for the year ended December 31, 1998 from $0.4 million for the year
ended December 31, 1997, and increased as a percentage of revenues to 38.5%
from 19.0% for the corresponding period. Within sales and marketing expenses,
the largest component is personnel and related expenses, which includes wages
and salaries, and sales commissions. These expenses increased by 379% from 1997
to 1998, reflecting a significant increase in sales employees. Other expenses
included agents' commissions, and the costs of opening and maintaining four
sales offices in New York.

Software development. On November 25, 1997, we formed Open Support Systems
LLC, which commenced operations in 1998, to develop operating software for our
company. Within software development expenses, the largest component is
personnel and related expenses, which includes wages and salaries. This element
of expense totalled $1.2 million for the year ended December 31, 1998,
reflecting the establishment of our internal development team.

General and administrative. General and administrative expenses increased
by 360% to $4.6 million for the year ended December 31, 1998 from $1.0 million
for the year ended December 31, 1997. Within general and administrative
expenses, wages and salaries represent the majority of the costs. These
expenses increased by 373% from 1997 to 1998, reflecting an increase in the
number of employees from December 31, 1997 to December 31, 1998. The majority
of the increase was a result of the expansion of customer service personnel in
1998 as compared to 1997. Other expenses within general and administrative
expenses increased as a result of our ongoing growth.

Depreciation and amortization. Depreciation and amortization increased to
$0.6 million for the year ended December 31, 1998 from $0.1 million for the
year ended December 31, 1997, reflecting the expansion of our two call center
facilities in Long Island City, New York and Syracuse, New York and capital
additions to our internal computer systems.

Non-cash compensation. In 1998, we recorded a non-cash compensation charge
of $0.5 million for deferred compensation resulting from the acquisition of the
remaining equity interest in Open Support Systems LLC and for the issuance of
stock options to employees which were treated, for accounting purposes, as
priced below the estimated fair value of our common stock at the date of grant
or issuance.

21
<PAGE>

Interest. Interest income, net of interest expense, increased to $0.2
million for the year ended December 31, 1998. This increase resulted from
interest earned on excess invested funds which averaged $3.5 million during
1998.

Adjusted EBITDA. Adjusted EBITDA decreased to negative $8.8 million for the
year ended December 31, 1998 from negative $1.2 million for the year ended
December 31, 1997. This decrease was due to increased sales and marketing,
software development and increased operating, general and administrative
expenses discussed above.

Liquidity and Capital Resources

Our operations require substantial capital investment for the acquisition
of telephony equipment and the construction and deployment of our network.
Capital expenditures for network construction were $13.0 million for the year
ended December 31, 1999. In addition, we invested $2.7 million in our call
center facilities and capital additions to internal computer systems during the
same period. We believe that the estimated net proceeds from this offering,
together with our existing assets, anticipated debt and expected revenues
growth, will be sufficient to fund our operations for at least the next 12
months. However, we anticipate the need for substantial additional amounts of
capital to fund the purchase of equipment necessary to continue to expand our
network in existing markets, in addition to the development of new products and
services. We expect to enter several new markets during the year 2000. We
expect to fund this requirement from cash on hand, vendor financing, leasing
arrangements and public or private debt and equity financing.

Since our inception through December 31, 1999, we have raised $4.6 million
from the private sale of common stock, including sales to some of our executive
officers.

In January and September 1998, we issued 3,446,070 and 1,838,799 shares of
Series A and B convertible preferred stock, respectively, for total net
proceeds of $11.9 million. The Series B shares carried warrants to purchase
612,183 shares of common stock for $0.001 per share. These shares and warrants
were sold to private investors.

In April 1999, we issued 6,269,875 shares of Series C mandatorily
redeemable convertible preferred stock at $4.47 per share for net proceeds of
$27.8 million. These shares were sold to private investors. Upon the issuance
of the Series C shares, the holders of the Series B shares exercised 459,139 of
the warrants described above and surrendered the balance of 153,044 warrants
for cancellation.

In February 2000, we issued 6,006,959 shares of Series D redeemable
convertible preferred stock at $4.66 per share for net proceeds of $28.0
million. These shares were sold to private investors.

In October 1999, we entered into a vendor credit facility to finance the
purchase of telecommunication equipment, related software and other associated
expenditures. The facility provides for an aggregate principal amount of $36.0
million, available for drawing on or before September 30, 2001. To secure the
loans, we have granted the lender a first priority collateralized interest in
the assets acquired with the loans. Loans must be repaid over a five-year
period from the date of the borrowing. As of December 31, 1999, we had $6.9
million outstanding under this credit facility.

On March 31, 2000, we entered into a non-binding letter of intent with GE
Capital and First Union National Bank detailing a proposed senior credit
facility in an aggregate principal amount of $150.0 million. If finalized, we
expect that the proceeds from this financing would be used in connection with
the deployment and expansion of our network and that this facility would
incorporate

22
<PAGE>

or replace our vendor credit facility. We have not entered into an agreement
with respect to this proposed financing,and there is no guarantee that we will
do so in the future.

The cost of deploying our network will depend on a variety of factors,
including our ability to meet our deployment schedules, negotiate favorable
prices for the purchase of additional equipment, the nature and penetration of
new services that we may offer, regulatory changes and changes in technology.
As a result, actual costs and revenues will vary from expected amounts,
possibly to a material degree, and these variations are likely to affect our
future capital requirements.

Accordingly, we cannot guarantee that our actual capital requirements will
not exceed the anticipated amounts described above. We cannot guarantee that we
will be successful in raising sufficient additional capital at all or on terms
acceptable to us.

Impact of the Year 2000 Issue

The year 2000 issue generally describes the various problems that have
resulted or may result from the improper processing of dates and date-sensitive
calculations by computers and other equipment as a result of computer hardware
and software using two digits to identify the year in a date. Those computers
and software need to be upgraded or replaced to accept four digit dates to
distinguish dates in the 21st century from dates in the 20th century. Even
after January 1, 2000, the problem could result in system failures or
miscalculations and cause disruptions in operations, including, among other
possible occurrences, the inability to process transactions, maintain proper
billing records, send invoices, provide data and voice communications services
or engage in similar normal business activities.

We have reviewed our computer systems to identify those areas that could be
affected by the year 2000 issue. Based on our assessments to date, we have not
experienced and believe that we will not experience any material disruption in
internal systems or information processing as a result of the year 2000 issue.
We may identify a significant internal or external year 2000 issue in the
future which, if not remediated in a timely manner, could have a material
adverse effect on our business, financial condition and results of operations.
If the systems of any of our customers and suppliers, particularly the ILECs,
long distance carriers and others on whose services we depend or with whom our
systems interface were to experience disruptions as a result of the year 2000
issue, it could have a material adverse effect on our business, financial
condition, and results of operations.

We have not incurred any significant costs in identifying or addressing
year 2000 issues other than the opportunity cost of the time spent by our
personnel. We do not anticipate any significant further costs in identifying or
addressing year 2000 issues.

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivatives and Hedging
Activities," which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. SFAS 133 is effective for all
fiscal quarters or fiscal years beginning after June 15, 2000, as amended by
SFAS 137, "Accounting for Derivative Instruments and Hedging Activities--
Deferral of the Effective Date of FASB Statement No. 133," issued in June 1999.
We do not expect the adoption of this statement to have a significant impact on
our results of operations, cash flows or financial position.

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<PAGE>

BUSINESS

The following discussion contains forward-looking statements based on our
current expectations, assumptions, estimates and projections about us and our
industry. These forward-looking statements involve risks and uncertainties. Our
actual results could differ materially from the forward-looking statements as a
result of various factors, including those described in the "Risk Factors"
section and elsewhere in this prospectus. In addition, the following discussion
includes market projections from industry sources which are based on data,
assumptions and methodologies compiled and applied by these sources and may not
be achieved. We assume no obligation to update any forward-looking statements
for any reason.

We are a holding company whose main assets are our wholly-owned
subsidiaries, Broadview Networks, Inc., an electronically integrated
communications provider and our main operating company, and Open Support
Systems LLC, the entity which has developed and owns the OPENnet software used
by Broadview Networks, Inc. The following discussion relates to the operations
of Broadview Networks, Inc. and Open Support Systems LLC, taken together as a
whole.

Overview

We are an electronically integrated communications provider, or e-ICP, a
new type of competitive communications carrier that can electronically connect
with the information systems of Bell Atlantic and other key suppliers, then
automatically process data from those suppliers and incorporate it into its own
systems. We have developed and implemented unique and scalable enterprise
management systems and software that are electronically integrated with the
systems of Bell Atlantic and other key suppliers. Our services include high-
speed internet access and services using digital subscriber line, or DSL,
technology, data services, and local, long-distance and international voice
services. We currently market bundles of these services to small and medium-
sized businesses, small office/home office customers and communications-
intensive residential consumers in the northeastern United States.

Our goals include increasing our revenues and market share by acquiring
customers quickly and efficiently, lowering our operating costs through further
automation and integration with our key suppliers and customers, and achieving
a higher return on capital than typically experienced in our industry by
deploying our network only after we have acquired a customer base in a market.
We plan to do this by leveraging our software systems, which we call OPENnet,
and our highly-automated business processes, which include SmarterAcquire,
SmarterBuild and SmarterCare, collectively referred to as Smart/3/.

In October 1996, we became the first integrated communications provider to
establish information systems capable of communicating with Bell Atlantic's
computer systems to execute multiple tasks, including retrieving customer
information, placing and tracking orders, testing customer lines and billing.
We believe that this level of electronic integration represents a significant
improvement over the electronic bonding used by traditional CLECs.

We initially provide our customers with services by reselling local, long
distance and data services of Bell Atlantic and others. This customer
acquisition process generally allows us to provide services within five
business days of taking an order. In comparison, we believe our competitors,
who put new customers directly onto their networks, typically experience a
delay of 20-30 business days in providing services.

We are rapidly deploying our network. Our network equipment is installed
and operational in 21 colocations, which are locations within the central
offices of traditional telephone companies. We expect to have approximately 100
colocations operational by the end of 2000 and approximately 200

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<PAGE>

by the end of 2001. After we deploy our network equipment in a colocation, we
migrate our customers' lines in bulk from the Bell Atlantic network onto our
own using a highly-automated, efficient process we developed. We believe our
unique high-volume migration process reduces labor, time, cost, errors and
service disruptions compared to companies who connect access lines to their
networks one at a time.

From the time we initially provide a customer with service, we provide
personalized, real time customer care. Each customer can interact with one of
our customer care associates, who can assist customers with a wide range of
functions, including service and feature ordering, billing, service inquiry and
account administration, with a unified look and feel, regardless of whether
their services are provided using our network or the Bell Atlantic network. We
believe that our enhanced capabilities allow us to provide a superior customer
care experience, and will help us increase customer retention and attract new
customers.

Despite our limited operating history, as of December 31, 1999, we had
approximately 39,000 customers with approximately 72,000 access lines,
primarily in New York City, Long Island, Buffalo, Syracuse and Albany, New
York, and Boston, Massachusetts. On that date, we were marketing our services
in over 80 central offices and had our network equipment deployed in 20 of
those offices. In 1999, our revenues were $37.2 million, compared with revenues
of $10.9 million in 1998. As we grow and expand our network, we expect to incur
significant expenditures as well as continued operating losses and negative
cash flow for the next few years.

Our Market Opportunity

The deregulation of the telecommunications industry and the surging demand
for internet and related data transmission services have created a significant
market opportunity for competitive providers of voice and data
telecommunications services. According to the FCC, the U.S. local and long
distance telecommunications market had revenues of approximately $166 billion
in 1998, $41 billion of which were generated within the Bell Atlantic region.
In addition, International Data Corporation, or IDC, has projected the U.S.
business market for DSL will reach $5.7 billion by 2003, of which we estimate
24%, or $1.4 billion, will be generated within the Bell Atlantic region.

We believe that within the telecommunications market our most attractive
opportunity consists of small and medium-sized businesses. Within the Bell
Atlantic region, there are approximately 1.8 million of these businesses with a
total of approximately 8 million lines, according to IDC and Bell Atlantic,
respectively. IDC has also reported that only 52% of small to medium-sized
businesses have internet access and 86% of these companies utilize dial-up
connections. We believe there is an opportunity to increase subscriptions to
the internet and high-speed data services such as DSL.

Additionally, census data shows that there are approximately 63 million
people living in the Bell Atlantic region, which contains 4 of 10 states
reporting the highest median personal income. We estimate that multi-line,
small office/home office, and other communications-intensive households
comprise approximately 35% of the total residential line base and have higher
than average telecommunications spending patterns.

We believe that these customers are underserved by incumbent carriers and
have significant unmet needs for simplicity and value. To meet these customers'
needs, we plan to offer a full range of bundled data and voice services with
attributes that are more attractive than traditional alternatives, as well as a
single point of contact for high-quality, personalized customer care.

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<PAGE>

Business Strategy

The key elements of our business strategy are:

Focus on small and medium-sized businesses

Small and medium-sized businesses have historically been underserved by
traditional local or long distance providers, who we believe have generally
found that it is not cost-effective to dedicate a significant amount of
resources to them. We believe that our OPENnet systems and Smart/3/ business
processes will enable us to achieve the efficiencies in sales, provisioning,
network deployment and customer care that are required to serve them
profitably.

In order to obtain a full package of internet, data and voice services, our
target customers have generally had to purchase services from several different
providers, internally integrate the services and receive and reconcile bills
from each provider. We use a dedicated sales force to target small and medium-
sized businesses, who have a need for simplicity and one-stop shopping. To meet
their needs, we combine our data and voice applications into integrated service
bundles invoiced on a single bill.

Rapidly acquire customers and provide services with SmarterAcquire

Our strategy for acquiring new customers and expanding our market share is
designed to generate revenues from targeted customers before we deploy
significant network capital in those markets. We accomplish this by entering a
specific geographic market and initially reselling Bell Atlantic's services to
our new customers. After aggregating a sufficient number of geographically
concentrated customers through resale to justify the capital investment, we
deploy our own network equipment in colocation facilities in the Bell Atlantic
central office serving the applicable geographic area. We then migrate the
customers in bulk onto our network with minimal disruption.

By initially providing service by reselling Bell Atlantic's services prior
to migrating customers onto our network, we typically generate revenues from
new customers within five business days of taking a customer's order. As a
result, we believe we lose significantly fewer customers than our competitors
from the time we write a new order to the time we bring the customers onto our
network. In addition to the revenue benefits, we believe this strategy allows
us to attract and retain high-quality, motivated sales professionals, because
they are able to receive commissions sooner, and on a greater percentage of
their customers' orders while spending less time rescheduling the initiation of
services to a customer and more time seeking to acquire additional accounts.

Furthermore, our SmarterAcquire strategy enables us to take advantage of
the pre-existing switching and transport network of Bell Atlantic. This
minimizes our need to spend capital in advance of orders and reduces our risk
of inefficient capital investments or stranded plant.

Increasingly focus on data services

We have recently begun commercial introduction of DSL-based services in New
York, augmenting our DSL-trained sales force with data sales specialists and
installing high-speed data switches. We will be building a systems integration
and vendor testing laboratory to analyze vendors' equipment and further refine
our network architecture prior to putting new services and equipment into
commercial production. Over time, we expect that our service mix and revenue
stream will increasingly shift to data and internet related services, and
expect that our network will seamlessly integrate data and voice traffic.

Foster customer loyalty by providing SmarterCare

Using OPENnet, we provide our customers with a single point of contact with
a customer care associate, 24 hours a day, seven days a week. This enables us
to better meet the needs of our

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<PAGE>

customers and increases customer retention. In addition, our SmarterCare
management process is designed to present customers with integrated ordering,
provisioning, billing and support functions that have a unified look and feel,
regardless of whether we are currently providing the customer with service
through our network or through resold Bell Atlantic services.

We are in the process of enhancing OPENnet to permit customers to interact
directly with our systems online. This will give them a choice of self-service
over the internet or personalized attention from one of our customer care
associates.

SmarterBuild our state of the art, scalable network

In building our network, we use a success-based capital investment strategy
of deploying network assets in a location only after we have acquired a
customer base. We own the intelligent components of our network, such as
switches, network electronics and software, but lease the readily-available
transport elements. We believe that this strategy provides us with significant
cost and time-to-market advantages. By owning our switches, we can configure
our network to provide high performance, high reliability and cost-effective
solutions for our customers' needs. By leasing our transport lines, we can
reduce up-front capital expenditures, rapidly enter new markets, and generate
positive cash flow more quickly. We also believe that leasing telephone lines
from an ILEC permits us to offer service ubiquitously within that ILEC's
central office, which leads to a larger addressable market than business models
which are based on building dedicated facilities to specific customers.

As we deploy our network, we transfer customer lines in bulk to our network
from Bell Atlantic's using a highly automated, efficient process that has
allowed us to achieve a successful transfer rate of over 90%, which we believe
is significantly higher than our competitors. Further, in those instances where
a successful transfer does not occur, we are able to quickly address the issue
because the lines are under our control. We believe this is a significant
competitive advantage given that a failure can cause a customer to lose service
for hours or even days. We are able to maintain our success rate because of our
high degree of integration with Bell Atlantic, which allows us to pre-test the
customer lines, isolate any potential problems, then do the transfers in a
highly-automated fashion. By migrating customers onto our network in bulk, we
also minimize the costs, and greatly reduce the labor, compared to other
companies who transfer customers one line at a time.

Our integrated network is designed to be flexible to support the rapid and
cost-effective introduction of new services and technologies. We have also
designed our network to be scalable; it can be replicated rapidly as we enter
new markets.

Capture market share through geographic expansion

We currently offer our services to small and medium-sized businesses and
communications-intensive households in New York and Massachusetts. We intend to
increase our current customer base by expanding our operations into other
markets within the Bell Atlantic region as well as into selected other regions.
We believe that the Northeast and mid-Atlantic regions are particularly
attractive due to a number of factors, including the population density and the
disproportional amount of telecommunications traffic that either originates,
terminates or transits within this area. We may also expand our operations
through acquisitions or strategic alliances with other communications
providers, though we have no current plans in this regard.

Leverage the experience of our management team

Our management team has significant experience in the communications
industry and software development in general, and, in particular, in the
critical functions of network operations and

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<PAGE>

development, sales and marketing, back office and systems development, high-
volume transactions, finance and customer service. Our eight executive
officers have an average of 18 years of experience in the communications
industry, and are former executives of companies including Bell Atlantic,
Teleport Communications Group, Covad, MFS Communications, AT&T and MCI. We
believe that the quality and experience of our management team will be
critical factors in the implementation of our growth strategy.

Target Markets

We primarily target the following three areas within the
telecommunications market:

Small businesses (1 to 20 lines) spending up to $1,500 a month on
communications

Small businesses are receptive to data and voice services that are simple
to understand and use and that save both time and money. They also prefer to
buy bundles of integrated services to reduce their number of vendors and
achieve better service levels. The needs of small businesses also generally
include fast access to emerging technologies, account management and
integrated solutions. Small business accounts primarily buy basic voice
services as well as high-speed internet access and applications. We believe
that this category will be our largest customer group.

Medium-sized businesses (21 to 150 lines) spending up to $10,000 a month
on communications

The needs of medium-sized businesses typically include fast access to new
technology, account management expertise, customized data and voice solutions,
and easy access to customer service and self-service tools for managing their
communications. These customers prefer bundles of integrated services and
fewer vendors, simpler invoices and better account management. Medium-sized
businesses typically purchase data connectivity as well as basic voice
services, network applications and high-speed internet access and
applications.

Communications-intensive households spending up to $200 a month on
communications

Small office/home office users and communications-intensive households buy
a range of voice services and features and internet services, including dial-
up access and broadband applications utilizing DSL technology.

Service Offerings

Our service offerings are being expanded to include a complete suite of
data, internet and voice applications. We have recently begun our introduction
of DSL-based services in New York, enabling us to offer a fully-integrated
bundle of voice and high-speed data access and broadband applications. While
today most of our customers are primarily voice users, we believe that with
the increasing demand for new applications such as internet access and e-
commerce, and the growing availability of broadband access as a result of DSL
technologies, over time many of our customers will increasingly shift to data
services, including voice over DSL and voice over the internet. As a result,
we anticipate that our product mix and revenue stream will increasingly shift
to these areas as well.

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<PAGE>

Our current and planned service offerings include the following:

<TABLE>
<S> <C> <C>
Segment Current Service Offerings Planned Service Offerings
Small and . Local Dial Tone . Web-based Self-Service
medium- . Custom Calling Features . Unified Messaging
sized businesses . Regional Toll Calls . Follow Me Services
. Long Distance . Conference Calling
. Toll Free Service . Prepaid Calling Cards
. Calling Cards . Virtual Private Networks
. Internet Service via DSL . Firewalls
. Dial-Up Internet Service . Transparent LAN Services
. Basic Web Hosting . Intranets and Application Hosting
. Virtual Key Service (City-Wide Centrex)
. Video Conferencing
. Advanced Web Hosting
Communications- . Local Dial Tone . Web-based Self-Service
intensive . Custom Calling Features . Prepaid Calling Cards
residential . Regional Toll Calls . Remote Office Connections
customers . Long Distance
. Internet Service via DSL
. Dial-Up Internet Service
. Personal Web Page Hosting
</TABLE>

Our pricing is designed to sell larger bundles of our more profitable
services. We provide incentives for longer contract terms and larger service
bundles. For example, a customer who signs a 12-month contract currently
receives a credit in the 13th month equal to their average monthly usage in the
preceding 12 months, and a residential customer who orders a bundle of local
and long distance service pays 10% less on recurring, monthly charges than
customers who take local service only. Customers who are on our network are
given incentives to try new features and network services. Communications-
intensive households are offered all-in-one, flat-priced bundles that maximize
value. We also have various customer retention programs.

Sales, Marketing and Customer Care

Sales channels

Our sales channels are tailored to the particular characteristics of each
of our targeted markets. We reach medium-sized businesses primarily through our
direct sales force of 128 account executives. Because these customers are
somewhat larger and often have more complex data networking needs than our
other customers, we are building a team of dedicated data sales specialists.
These specialists focus on the needs of the more data-intensive accounts within
this market. We reach small businesses through our direct sales force, our
telemarketing operations, as well as through independent channels such as our
independent agent network and our affiliate lead generation programs. Finally,
we reach communications-intensive households through targeted direct mail and
telemarketing campaigns, affinity marketing and traditional and on-line
advertising.

Direct sales channels. Our direct sales force markets our integrated
communications bundles directly to end users. We generally recruit and hire
direct sales representatives and account executives who have several years
experience in the telecommunications industry, typically with other CLECs and
integrated service providers.

Direct sales representatives are compensated on a salary and commission
basis that rewards meeting revenue and line acquisition goals and customer
longevity. Our compensation structure provides significant incentives for
selling larger bundles of higher-margin services provided over our network.

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<PAGE>

Since we have the ability to provide services to new customers in a matter
of days, we believe our sales force receives their commissions sooner and are
more productive because they spend less time rescheduling the provisioning of
services to a customer and more time seeking to acquire additional lines. As a
result, we believe we have a competitive advantage in our ability to attract
and retain the most productive and experienced communications sales
professionals. While we believe CLECs typically have large provisioning
backlogs and high sales force turnover, we have minimal provisioning backlogs
and, over the last year, have had less than 5% annual voluntary sales force
turnover.

Our direct sales force accounted for 50% of the lines we acquired in 1998
and 62% of the lines we acquired in 1999.

Indirect sales channels. We operate indirect sales channels in which we
market to end users through authorized agents, independent sales
representatives, resellers, associations and affinity groups. We generally
provide services under our own brand name to end users acquired for us by an
agent. We intend to offer unbranded and wholesale services to other
telecommunications companies, including value-added resellers, long distance
carriers, CLECs, internet service providers, wireless carriers, foreign
carriers desiring a presence in the U.S. market, out-of-region Regional Bell
Operating Companies and others that may incorporate our services with other
products and services for resale to various market segments. We are in
discussions with potential wholesale customers regarding possible commercial
and strategic relationships, which could potentially include our providing
telecommunications services as well as outsourcing the capabilities of our
OPENnet systems. We believe that providing wholesale services will allow us to
take full advantage of the scalability of our systems and processes.

In addition to traditional telecommunications agents, we make extensive use
of our affinity relationships with charitable organizations and professional
associations. We market through these organizations through a combination of
direct marketing and joint marketing designed to generate direct response
and/or leads for our account executives. Our Community Partnership program
includes approximately 600 organizations. This program generates sales leads
and we believe it improves our customer retention.

Indirect sales through agents, affinity and telemarketing agents accounted
for approximately 29% of our lines in both 1998 and 1999. Other channels,
including direct mail and direct response accounted for 21% of our lines in
1998 and 9% of our lines in 1999.

Marketing and advertising

In the competitive market for telecommunications services, speed to market
with new services, bundles, price plans and products are critical. We have
unified databases which are accessed by our billing and customer care system,
which enables us to bring new plans, products and promotions to market in a
matter of days.

Our marketing and advertising support our direct and indirect sales
channels and generate direct response sales of communications-intensive
residential households. Through direct mail, telemarketing, print, radio and
outdoor advertising, we seek to generate brand awareness as well as inbound
mail and telemarketing leads and orders. Our web site is another channel
through which we seek to generate commercial and residential leads and, in the
future, orders.

We market jointly with a number of market partners, including Nortel
Networks, which provides us with direct marketing support to co-market our
services that are supported by their voice and data switching equipment. We
have begun marketing efforts in support of the roll out of our integrated voice
and high-speed data services, including our DSL-based services.

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<PAGE>

Customer care

Using our SmarterCare processes, we aim to provide a superior level of
convenience and customer service in order to increase our customer retention.
Key elements of our service are an integrated billing platform, a simple but
comprehensive billing statement and comprehensive service from our customer
care associates and account managers. Our OPENnet software is designed to be
user-friendly and enable one of our customer care associates to perform all
customer service functions, including ordering services and features, account
administration, billing inquiries, and service calls. Our competitors typically
require customers to interact with different departments, primarily because of
organizational, system or software limitations. We believe that having a single
employee perform all customer service functions results in a more timely,
personalized customer service experience for our customers.

We operate two call centers staffed with fully-trained customer care
associates. Customer service is available 24 hours a day, seven days a week.
Customers with 10 or more lines are assigned a specific account manager and
given that person's name and direct, toll-free phone number. All of our
customer care associates and account managers receive three weeks of initial
in-house training followed by ongoing training.

Customer retention responsibility initially resides with our sales force,
then is transferred to our customer care associates.

We are currently developing the ability to extend OPENnet into web-based
interactions with customers. This would enable us to provide our customers with
a full range of web-based, self-service capabilities, including the ability to
see and pay their bills, add or subtract a service feature and initiate service
calls.

Enterprise Management System (OPENnet ) and Business Processes (Smart/3/)

Our business model is based on the benefits we obtain from the combination
of our OPENnet software and Smart/3/ business processes.

OPENnet software systems

In October 1996, we became the first integrated communications provider to
establish information systems capable of communicating with Bell Atlantic's
information systems for multiple tasks and on multiple levels.

Today, through our OPENnet software, we have a large number of interfaces
with the legacy systems of Bell Atlantic. These interfaces allow us to
electronically retrieve information contained in Bell Atlantic's systems and
automatically incorporate it directly into our acquisition, billing and
customer care systems. This minimizes the manual work required in our customer
acquisition process, which reduces our labor and order processing costs and
significantly reduces errors.

OPENnet electronically retrieves a customer service record from Bell
Atlantic, automatically translates Bell Atlantic's service order codes into
English descriptions of features and services, automatically builds customer
records in our systems, initiates services on the Bell Atlantic network, and
submits orders to Bell Atlantic to move customers from Bell Atlantic's switches
onto our own. Through real-time, electronically integrated transactions with
Bell Atlantic, including checking and reserving installation dispatch times,
diagnostic testing of a customer line and obtaining new telephone numbers, we
are able to take advantage of Bell Atlantic's existing systems and network
while at the same time maintaining our distinct customer service experience.

OPENnet also automatically handles many back office functions, including
nearly all aspects of generating our bills, tracking and invoicing all forms of
service and updating our accounts receivable. It processes usage data from
other carriers and from our own switching platforms and rates calls, calculates
taxes, applies any desired pricing plans or packaging plans and incorporates
local, long

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<PAGE>

distance, data and internet services onto a single monthly bill. In addition,
OPENnet allows one of our customer care associates to view a customer's bill
and apply payments and credits in real-time, while interacting with the
customer, and allows us to rapidly generate and modify our marketing offers and
service packages.

We believe our OPENnet system is flexible and can be readily modified as we
introduce new services and enter new markets.

Smart/3/ business processes

Our SmarterAcquire, SmarterBuild and SmarterCare, collectively referred to
as Smart/3/, business processes allow us to exploit the strengths of the
OPENnet software. The mechanisms by which these business processes have
automated and integrated the steps involved in acquiring new customers,
bringing those customers onto our network and performing customer care are
described below:

SmarterAcquire. Our direct sales force sells our services within a
prescribed geographic area surrounding a Bell Atlantic central office. Using
OPENnet, we initially provide new customers with service by reselling Bell
Atlantic services. We accomplish this by electronically retrieving Bell
Atlantic's customer service record, which contains the customer's service and
billing profile, and electronically incorporating it into our systems. This
automatically establishes our new customer's account and billing profile
without manual intervention. OPENnet also automatically generates the resale
order to Bell Atlantic and initiates billing the customer once Bell Atlantic
sends the completion of the resale order.

SmarterBuild. After we have accumulated a large number of resale customers
within a designated area, we utilize our OPENnet system and automated processes
to migrate these customers in groups of several hundred per colocation, often
doing several colocations simultaneously, compared with those who connect
access lines to their network one at a time. This has enabled us to achieve a
successful transfer rate of over 90%.

Prior to migrating a customer onto our network, we electronically perform
several tests across large groups of lines and identify those likely to have a
problem during the transfer process. We then remove these lines from the batch
scheduled to be transferred and address them individually, clearing the problem
before the next scheduled batch migration. We also automatically generate and
electronically process leased telephone line orders to Bell Atlantic, number
transfer instructions to the number portability administration center, switch
provisioning instructions to our switch and provide updates to emergency 911
bureaus.

This combination of electronic integration, pre-testing and high volume
coordinated cutovers eliminates the manual processing of orders, and greatly
reduces the physical work and the errors associated with migrating new
customers onto our own switching facilities. This process also helps us avoid
customer outages during the transfer. Outages are a prevalent problem in the
industry today and often lead to customer dissatisfaction and canceled orders.

SmarterCare. Using our SmarterCare processes, we aim to provide a superior
level of convenience and customer service in order to increase our customer
retention. Key elements of our service are an integrated billing platform, a
simple but comprehensive billing statement and comprehensive care from our
customer care associates and account managers. Our OPENnet software is designed
to be user-friendly and enable one of our customer care associates to perform
all customer service functions, including sales, ordering, account management,
billing inquiries and repair, while interacting with the customer. Our customer
care associates can provide equivalent customer service whether the customer is
on our network or provided with resold service using Bell Atlantic's network.

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<PAGE>

Network

Integrated network architecture

We provide services to our customers over a single integrated network that
supports local, long distance and high-speed data and internet services. Our
integrated network architecture includes customer premise equipment, leased
telephone lines, colocations, network equipment required to direct telephone
calls and data traffic, operating and application software and interoffice and
long distance transport facilities. We believe that the further integration of
our local, long distance and data networks and the adoption of emerging
technologies, particularly voice over DSL, will significantly reduce our cost
of providing a bundled service offering.

It is our strategy to own the intelligent and value-added components of our
network such as our hybrid voice and data switches while we lease readily
available facilities such as telephone lines and interoffice and long distance
transmission facilities. We are in the process of deploying DSL technology to
increase the data carrying capacity and bandwidth of the telephone lines we
lease, transforming them from narrowband to broadband. This will enable us to
provide a range of new services, including various high-speed data services and
internet capabilities.

Unlike other CLECs, we are able, through our Smart/3/ processes supported
by OPENnet, to aggregate new customers in an ILEC central office by initially
providing them with Bell Atlantic's resold services, and then migrate those
customers in bulk onto our network in a streamlined, cost-effective and
efficient process. This enables us to build up a customer base and revenue
stream before migrating this traffic onto our network just as the network
becomes ready, giving us faster utilization of our capital dollars.

Accessing the customer through leased telephone lines

Our integrated network begins with our customers. We connect them by
leasing the ILEC's telephone lines that run into homes and offices. Through our
processes, we are able to rapidly move the leased telephone lines from Bell
Atlantic's switch to our switch using our colocation equipment. By doing so, we
are able to avoid the capital outlay, operating expenses and delay associated
with deploying our own facilities to our customers' premises. To increase the
bandwidth of these lines from narrowband to broadband, we deploy DSL technology
at both ends of the lines -- at our colocation site and by placing a DSL modem
at the customer's location. By utilizing leased telephone lines, we also obtain
access and termination revenues from long distance carriers as if we owned the
lines.

To enable us to operate as a local carrier, and to send calls to and from
customers connected to Bell Atlantic's network, we have entered into three
interconnection agreements with Bell Atlantic covering the New York,
Massachusetts and Pennsylvania markets and plan to enter into additional
agreements with Bell Atlantic and ILECs in other markets as the deployment of
our network progresses. In addition to establishing the terms for network
interconnection, these agreements provide the terms under which we may
initially resell Bell Atlantic service to our customers. Our agreement covering
the New York market expired December 31, 1999 and was automatically renewed
according to its terms. It remains in effect until terminated by either party
after 90 days written notice to the other. Rates for Bell Atlantic's
telecommunications services are based on the interconnection agreement and
applicable federal and state tariffs. Our agreement covering the Massachusetts
market expires April 12, 2001, unless either party requests negotiation prior
to that time, in which case the agreement would remain in effect until a new
agreement is executed or an arbitration decision is entered. Rates are also
based on the interconnection agreement and applicable federal and state
tariffs. Our agreement covering the Pennsylvania market expires August 31,
2000, unless either party requests renegotiation prior to that time, in which
case the agreement would remain in effect on a month to month basis until a new
agreement is reached or until the terms and conditions of an agreement are
resolved by the Pennsylvania Public Utility

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<PAGE>

Commission. If these agreements are terminated, Bell Atlantic is obligated to
continue provide us with access to its network but may do so under a new
agreement. We are in the process of securing similar agreements with Bell
Atlantic for New Jersey, Virginia, Maryland, Rhode Island, Delaware,
Washington, D.C. and New Hampshire.

Our telephone lines are leased from Bell Atlantic in New York under tariff
regulations and in Massachusetts under the terms of our interconnection
agreement with Bell Atlantic.

Colocation facilities

Each leased telephone line we deploy is a direct connection from our
customer to one of our colocation sites located in the central office of the
ILEC. Within each colocation site, we have deployed or are in the process of
deploying Nortel's digital loop carrier system, which converts the analog voice
signal to digital data signals and compresses them for transmission to digital
central office switches, to transmit telephone calls. We have also deployed or
are deploying DSLAMS, which are devices that combine the data streams from many
high speed DSL telephone lines into a higher speed data stream destined for the
internet or other data networks to support our high-speed DSL service
offerings. This colocation architecture supports integrated data and voice
services and can be extended to support emerging applications as customer
requirements dictate.

We use Nortel Network's AccessNode equipment and we are an inaugural user
of Nortel's Universal Edge 9000 product line, which provides both voice and
data access and can be integrated with virtually any manufacturer's digital
switch. Since this equipment handles both traditional voice services and newer
DSL-type services, we are able to provide and administer these services to our
customers without having to incur the cost of installing separate systems.

Our network equipment is installed and operational in 21 colocations. We
expect to have approximately 100 operational colocations by the end of 2000 and
approximately 200 by the end of 2001. Until we have deployed the necessary
colocation facilities in a specific geographical region, our DSL services may
utilize the underlying network of another DSL provider.

Switches

We use Nortel DMS500 hybrid local and long distance switches. We have
deployed switches in Syracuse and New York City. We are installing Nortel
DMS500 digital switches in Boston and in the Philadelphia area. We anticipate
the Boston switch will be operational in the second quarter of 2000 and the
Philadelphia switch will be operational by the third quarter of 2000. Each
Nortel DMS500 switch acts as a centralized switching node connected to multiple
colocations and may service one or more metropolitan areas. Compared to the
more traditional network architecture, which requires a switch dedicated to
each metropolitan area, we believe our network architecture results in a more
efficient use of capital. In addition, each of these centralized switching
nodes serves as an interconnection and concentration point between our DSL and
data network and the public internet.

In conjunction with our deployment of DSL-based services, we are also
installing high-speed data switches known as ATM switches, which support
multiservice traffic switching and routing in each of our switching offices.

Transport facilities

We lease the broadband facilities that connect our colocations and switches
from both incumbent and competitive carriers using high capacity transmission
lines.

We resell the long distance services of Global Crossing, formerly known as
Frontier Corporation, including international call origination and termination
services, 800 services, calling cards, long distance directory assistance and
operator services. Our contract with Global Crossing expires in April 2001.

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Signaling System 7

The SS-7 signaling system reduces the time it takes to connect a call,
thereby enhancing overall network efficiencies and increased customer
satisfaction. SS-7 allows customers to keep their telephone number when they
transfer phone service from one service provider to another, which makes it
easier to migrate customers to our network and permits the use of all calling
features. It also enables us to offer advanced customer features like Enhanced
800 service and Caller ID With Name. We use Bell Atlantic's SS-7 network and
services.

Network management and operational support

We monitor our network from our New York City switching center and plan to
build a national network management center beginning in the first half of 2000.
This center is intended to have multiple functions. It will provide continuous
surveillance of all switching, colocation equipment and high-speed data
services equipment to ensure proper and efficient network function. When a
network alarm is received from any piece of equipment within our network, the
center will respond to isolate the cause and either switch to backup equipment
or dispatch technical assistance to the site. It is our goal to remedy any
network problems before they affect a customer's service. The network
management center will also be responsible for quality acceptance of all new
network locations being activated and for services being turned-up for
customers. We expect our network management center to become operational in the
third quarter of 2000.

Internet services

Consistent with our Smart/3/ business strategy, we construct, own and
operate those elements of our internet network that contain the intelligent
components and offer enhanced services to our customers. Our data centers
contain the various servers that provide the security, user authentication, e-
mail, domain-name translations, accounting, internet access, routing, web
hosting and other functions that are fundamental to serving high-speed and
dial-up internet customers.

Our dial-up internet access is provided by our own facilities, by AGIS
under a three-year contract that expires in July 2002 and by Net Access
Corporation under a month to month contract that is terminable by us upon 45
days written notice. AGIS and Net Access Corporation support dial-up access to
the internet nationwide. The minimum monthly cost of our contract with AGIS is
$17,100. The monthly cost of our contract with Net Access Corporation is based
on the volume of customers who access the service. There is no minimum
commitment. Our gateway to the internet as well as our internet addressing is
provided by Globix under a two-year contract that expires in September 2001.

Network security

Our network employs an authorized access architecture which utilizes an
automatic number identification security screening to ensure that only those
users who have subscribed to our services and have satisfied our credit and
provisioning criteria are allowed access to the network. We believe that this
architecture allows us to minimize fraud in a manner that is invisible to the
customer.

Anticipated network expansion

We plan to continue significant network expansion. We expect to obtain
additional colocations and to deploy switches and transport facilities in order
to support our strategies of capturing additional market share, expanding
geographically and continuing to move our customers' traffic onto our network.
Expansion of our network-based infrastructure with more colocations, voice and
data switches and DSL equipment will increase the proportion of our customer
traffic that is originated or terminated on our network, which we believe will
result in higher long-term operating margins and greater control over our
network operations.

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Competition

Our industry is highly competitive. We face a variety of existing and
potential competitors, many of whom aspire to offer multiple services in
integrated or non-integrated bundles or are potential replacements for our land
line-based services. These competitors include:

. The ILECs in our current and target markets, who aspire to become all
distance carriers;

. Long distance carriers who aspire to become all distance carriers;

. Other facility and non-facility-based voice and data CLECs;

. Larger and more competitive companies resulting from the continuing
trend toward business combinations and alliances in the communications
industry;

. New market entrants, including cable television companies, electric
utilities, fixed wireless-based providers (microwave, milliwave),
satellite-based operators and municipalities;

. Mobile voice and data wireless carriers, including cellular, PCS, and
paging companies; and

. Internet service providers who aspire to become all service carriers.

Our primary competitor in our existing markets, and most of our targeted
markets in the northeastern and mid-Atlantic United States, is Bell Atlantic.
If we expand beyond the Bell Atlantic region, our primary competitor in each of
those other markets will be another ILEC. Examples of other ILECs include:
BellSouth; GTE, which has agreed to merge with Bell Atlantic; SBC
Communications, which does business as Ameritech, Southwestern Bell, Pacific
Bell and Southern New England Telephone; and U S WEST, which has agreed to
merge with Qwest Communications.

On December 22, 1999, the FCC granted Bell Atlantic's application to offer
long distance services in New York. The FCC's approval was based on its
conclusion that Bell Atlantic had taken the required steps under the
Telecommunications Act to open the local phone market to competitors. AT&T and
Covad Communications have asked the U.S. Court of Appeals for the District of
Columbia to overturn the FCC decision on the grounds that Bell Atlantic has
not, in fact, sufficiently opened the local phone market to rivals. While the
case is pending before the Court of Appeals, Bell Atlantic will continue to
offer long distance services.

On March 9, 2000, following a month long investigation by the FCC into Bell
Atlantic's loss or mishandling of orders electronically submitted to the
company by Bell Atlantic's local service competitors, the FCC and Bell Atlantic
entered into a consent decree. Under the consent decree, Bell Atlantic agreed
to make a voluntary payment to the U.S. Treasury of $3.0 million, and
additional voluntary payments of up to $24.0 million if it fails to improve its
performance in processing orders.

The FCC's approval of Bell Atlantic's offering long distance services in
New York represents the first time since the breakup of AT&T that a Regional
Bell Operating Company is able to provide its in-region customers with both
local and long distance phone service. Non-Bell ILECs that were never part of
AT&T, such as GTE, are already allowed to offer long distance services without
having to prove that they have opened their local markets. Since Bell
Atlantic's bundle of local and long distance services will be in direct
competition with our core voice services, the FCC's approval increases the
level of competition we face in New York, our primary market. In addition, Bell
Atlantic is currently seeking approval to offer long distance services in
Massachusetts and is expected to seek approval in other states, including
Pennsylvania and New Jersey. In January 2000, SBC Communications filed an
application with the FCC to provide long distance services in Texas. The FCC
has 90 days to approve or deny SBC's application. Other Regional Bell Operating
Companies are expected to file similar applications for other states. If the
FCC approves these applications, the competition we face in the states in which
we operate or plan to operate will also increase.

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ILECs are generally required to file their prices, including any price
changes, with the state regulatory agencies in their service areas. The ILECs
have also been given some flexibility to respond to competition with lower
pricing. In most cases, proposals for lower pricing must also be filed with the
state regulatory commissions and the pricing must be made available to
similarly situated customers. We believe this provides a disincentive for the
ILECs to significantly vary or discount prices even in competitive situations.
However, similar obligations apply to us.

In March 1999, some of the ILECs requested, among other things, that the
FCC relax regulation of their provision of advanced data networks, which may
also be used for voice traffic. While the FCC denied those requests, it has
initiated a rule-making that is intended to establish the procedures and
safeguards necessary before these ILECs could, through separate subsidiary
companies, provide these services on a largely deregulated basis. If adopted,
these rules may provide additional opportunities for competition from these
ILECs. In March 1999, the FCC released an order addressing, among other things,
colocation rights of ILECs and CLECs offering advanced high-speed data
services, but deferred action on the ILEC separate subsidiary issue. SBC
Communications, in its agreement with the FCC regarding its acquisition of
Ameritech, agreed to form a separate subsidiary for data services. Bell
Atlantic, in connection with its FCC application to enter the long distance
market, also formed a separate data subsidiary, though it was not required to
do so by the FCC.

The ILECs offer a wider variety of services in a broader geographic area
than ours and have much greater financial, network and human resources than we
do. This may encourage an ILEC to subsidize the pricing for services with which
we compete with the profits of other services in which the ILEC remains the
dominant provider. We believe state regulators have exercised their enforcement
powers in a way that makes it unlikely the ILECs would be able to successfully
pursue this type of pricing strategy for an extended period.

We also face competition from a growing number of facility and non-facility
based CLECs and all distance integrated communications providers. There are
typically several CLECs and integrated communications providers competing in
each metropolitan market we serve or plan to enter. Examples of data and voice
CLECs in our markets include Adelphia Business Solutions, Allegiance Telecom,
Covad Communications Group, NEXTLINK Communications, NorthPoint Communications
Group, Rhythms NetConnections and Teleport Communications Group (a subsidiary
of AT&T). In some instances, these CLECs and integrated communications
providers have resources greater than ours and offer a wider range of services.
Many of the CLECs and integrated communications providers in our markets target
small and medium-sized business customers and a few target residential
customers.

We are increasingly competing with long distance carriers who also want to
be all distance providers and offer bundled services. A number of large long
distance carriers, such as AT&T, MCI WorldCom and Sprint, have introduced local
telecommunications services to compete with the ILECs and, therefore, with us.
These services include toll calling and other local calling services and
wireless services which are often bundled with the carrier's long distance
service. Large long distance carriers enjoy various competitive advantages due
to their vast financial and operating resources and brand name recognition. In
addition, we believe there is a risk the long distance carriers may subsidize
the pricing of their local services with profits from long distance services or
wireless services.

Government Regulation

The following summary of regulatory developments and legislation is not
complete. It does not describe all present and proposed federal, state and
local regulation and legislation affecting the telecommunications industry.
Existing federal and state regulations are currently subject to judicial

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proceedings, legislative hearings and administrative proposals that could
change, in varying degrees, the manner in which our industry operates. We
cannot predict the outcome of these proceedings or their impact on the
telecommunications industry or us.

Overview

Our services are subject to varying degrees of federal, state and local
regulation. The FCC exercises jurisdiction over all the facilities of, and
services offered by, telecommunications common carriers like us to the extent
our facilities provide, originate or terminate interstate or international
communications. Similarly, like most other CLECs and integrated service
providers, we are subject to various degrees of regulation in each state in
which we operate, under the jurisdiction of the pertinent state regulatory
commissions which retain jurisdiction over most of the same facilities and
services to the extent they are used to provide, originate or terminate
intrastate communications. The decisions of these regulatory bodies are subject
to judicial review, which makes it difficult for us to predict outcomes in this
area. We cannot guarantee that regulators or third parties will not raise
material issues with regard to our compliance or non-compliance with applicable
laws or regulations.

Federal regulation

We must comply with the requirements of common carriage under the
Communications Act of 1934. Comprehensive amendments to the Communications Act
of 1934 were made by the Telecommunications Act. The purpose of this
legislation was to significantly deregulate the telecommunications industry,
and foster increased competition among carriers. Because implementation of the
Telecommunications Act is subject to numerous federal and state policy rule-
making and judicial review, we cannot predict with certainty what its ultimate
effect on us will be. However, we believe we have obtained all Federal
approvals necessary to conduct our business as it is presently conducted.

Under the Telecommunications Act, any entity may enter a telecommunications
market, subject to reasonable state safety, quality and consumer protection
regulations. The Telecommunications Act makes local markets accessible by
requiring the ILEC to permit interconnection to its network and establishing
obligations of both ILECs and CLECs with respect to:

. Colocation of equipment. This allows companies like us to install and
maintain our own network equipment necessary for interconnection and
access to components of the ILECs' networks including voice, data
collection and distribution equipment and data direction equipment, in
ILEC central offices;

. Reciprocal compensation. This requires the ILECs and CLECs to
compensate each other for telecommunications traffic that originates
on the network of one carrier and is sent to the network of the other;

. Resale of service offerings. This requires CLECs and ILECs to make
their retail services available for resale. ILECs are required to
establish wholesale rates for these services to promote resale by
CLECs;

. Interconnection. This requires CLECs and ILECs to permit their
competitors to interconnect with their facilities. ILECs are required
to permit interconnection at any technically feasible point in the
ILECs' networks under nondiscriminatory rates, terms and conditions;

. Access to network elements. This requires the ILECs to let other
parties lease components of the ILEC's networks such as the telephone
lines that connect homes and offices to the ILEC central telephone
offices.

. Phone number transferability. This requires the ILECs and CLECs to
allow a customer to retain an existing phone number within the same
local area even if the customer changes telecommunications services
providers. All telecommunications carriers are required to contribute
to the shared industry costs of phone transferability;

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. Dialing parity. This requires the ILECs and CLECs to establish dialing
parity so that customers will not have to dial additional digits to
reach customers served by another carrier's network; and

. Access to rights-of-way. This requires the ILECs and CLECs to
establish non-discriminatory access to telephone poles, ducts,
conduits and rights-of-way.

ILECs are required to negotiate in good faith with other carriers that
request any or all of the arrangements discussed above. If a requesting carrier
is unable to reach an agreement with the ILEC within a prescribed time, either
carrier may request arbitration before the applicable state regulatory
commission. If an agreement still cannot be reached, carriers are forced to
abide by the obligations established by the applicable state commission.

We have entered into three interconnection agreements with Bell Atlantic
covering the New York, Massachusetts and Pennsylvania markets and plan to enter
into additional agreements with Bell Atlantic and ILECs in other markets as the
deployment of our network progresses. Our New York agreement with Bell Atlantic
may be terminated by either party upon 90 days notice to the other. Our
Massachusetts agreement will expire in April 2001, unless either party requests
renegotiation prior to that time, in which case the agreement would remain in
effect until a new agreement is executed or in the case of arbitration, the
effective date of an arbitration decision by the Massachusetts Department of
Telecommunications and Energy. Our Pennsylvania agreement will expire in
August 2000, unless either party requests renegotiation prior to that time, in
which case the agreement would remain in effect on a month to month basis until
a new agreement is reached or until the terms and conditions of an agreement
are resolved by the Pennsylvania Public Utility Commission. In addition to
establishing the terms for network interconnection, these agreements provide
the terms under which we may initially resell Bell Atlantic service to our
customers. The resale terms are expressly described in the Massachusetts and
Pennsylvania interconnection agreements. Rates are based on the interconnection
agreement and applicable state and federal tariffs. The New York agreement
references the resale terms stated in a tariff filed by Bell Atlantic in New
York. Rates are also based on the interconnection agreement and state and
federal tariffs.

The Telecommunications Act has resulted in comprehensive changes in the
regulatory environment for the communications industry and has materially
affected the competitive environment. The FCC is charged with establishing
guidelines to implement the Telecommunications Act. In August 1996, the FCC
released a decision, known as the Interconnection Decision, that established
rules for the interconnection requirements outlined above and provided
guidelines for the review and approval of interconnection agreements by state
commissions. The U.S. Court of Appeals for the Eighth Circuit vacated portions
of the Interconnection Decision. On January 25, 1999, the U.S. Supreme Court
reversed the Eighth Circuit and upheld the FCC's authority to issue regulations
governing pricing of leased telephone lines provided by the ILECs in
interconnection agreements. In addition, the Supreme Court affirmed an FCC rule
that allows requesting carriers to "pick and choose" the most attractive
portions of existing interconnection agreements with other carriers. The
Supreme Court did not, however, address other challenges raised about the FCC's
rules at the Eighth Circuit. These challenges will have to be addressed by the
Eighth Circuit in light of the Supreme Court's decision. In addition, the
Supreme Court disagreed with the standard applied by the FCC for determining
whether an ILEC should be required to provide a competitor with particular
leased telephone lines.

The FCC adopted a new standard in 1999 for analyzing leased telephone lines
as required by the Supreme Court. Applying this standard to the existing
network elements, the FCC concluded that ILECs would no longer be required to
provide directory assistance and operator services as network elements, though
they will continue to be available pursuant to tariff at different rates. The
FCC also removed leased switching as an element in the top 50 metropolitan
statistical areas where the ILECs

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are also providing certain other combinations of elements in a
nondiscriminating fashion. However, the FCC declined, except in limited
circumstances, to require ILECs to lease certain facilities used to provide
high-speed internet access and other data services.

The decisions of the Eighth Circuit and Supreme Court have not resolved the
uncertainty about the rules governing the pricing terms and conditions of
interconnection agreements. The Supreme Court's actions in particular may
affect the renegotiation of existing agreements. The ILECs may, as a result of
the Supreme Court reversal, seek to stop providing some leased telephone lines.
Although state commissions continue to implement and enforce interconnection
agreements, the Supreme Court ruling and future FCC and court rulings may
affect these commissions' authority to implement or enforce interconnection
agreements or lead to additional rule-making by the FCC. The resulting
uncertainty makes it difficult to predict whether we will be able to continue
to rely on our existing interconnection agreements or have the ability to
negotiate acceptable interconnection agreements in the future.

In addition to requiring the ILECs to open their networks to competitors
and reducing the level of regulation applicable to CLECs, the
Telecommunications Act also reduces the level of regulation that applies to the
ILECs, thereby increasing their ability to respond quickly in a competitive
market. For example, the FCC has applied "streamlined" tariff regulation of the
ILECs, which shortens the requisite waiting period before which tariff changes
may take effect. These developments enable the ILECs to change rates more
quickly in response to competitive pressures. The FCC has also adopted greater
price flexibility for the ILECs, subject to specified caps. This flexibility
may decrease our ability to effectively compete with the ILECs in our markets.

In March 1999, the FCC issued an order requiring ILECs to provide telephone
lines and colocation on more favorable terms than had previously been
available. The order permits colocation of equipment that could be used to more
efficiently provide advanced data services such as high-speed DSL-based
service, and requires less expensive colocation outside the traditionally
restricted area. These new forms of colocation will allow more space in an
ILEC's central office to be utilized for physical colocation. In the past when
an office reached full capacity, the only alternative was virtual colocation
whereby the ILEC took ownership of facilities dedicated for the CLEC's use. We
view virtual colocation as an inferior alternative since we would have to rely
on the ILEC to perform all provisioning and maintenance on our behalf.

On March 17, 2000, the D.C. Circuit Court vacated those portions of the
FCC's expanded colocation rules that permitted CLECs to colocate equipment that
contained functions in addition to those necessary for interconnection or
access to leased telephone lines. The Court, while upholding the FCC's
authority to require colocation, also rejected the FCC's effort to leave the
choice of space within the central office to the CLEC. The Court vacated the
FCC's rules in part and remanded to the FCC the issue of what equipment is
necessary for interconnection or access to leased elements.

In the March order, the FCC deferred action on its previous proposal to
permit ILECs to offer advanced data services through separate affiliates, free
from some of the obligations of the Telecommunications Act. In an August 1999
order, the FCC determined that services such as those based on DSL technology
are telecommunications services subject to regulation under sections 251 and
252 of the Telecommunications Act. In the August order, the FCC also included a
separate subsidiary proposal that would permit Regional Bell Operating
Companies to provide advanced services through a separate subsidiary. The FCC
has not acted on that proposal. Permitting ILECs to provision data services
through separate affiliates with fewer regulatory requirements could have a
material adverse impact on our ability to compete in the data services sector.
SBC, in connection with its acquisition of Ameritech, agreed with the FCC to
certain terms and conditions including the formation of a separate subsidiary
to offer DSL-based services. Also, Bell Atlantic, under FCC auspices,
volunteered to form a separate subsidiary to offer DSL based services in
conjunction with

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their application under the Telecommunications Act to offer long distance
services. These structural arrangements are subject to change through
additional proceedings at the FCC or judicial challenge.

The Telecommunications Act also gives the FCC authority to determine not to
regulate carriers if it believes regulation would not serve the public
interest. The FCC is charged with reviewing its regulations for continued
relevance on a regular basis. As a result of this mandate, a number of
regulations that apply to CLECs and integrated communications providers and
therefore to us have been and may in the future continue to be eliminated. We
cannot, however, guarantee that any regulations that are now or will in the
future be applicable to us will be eliminated.

Access reform

Our cost of providing long distance services, as well as revenues from
providing local services, will likely be affected by changes in the access
charge rates imposed by ILECs on long distance carriers for origination and
termination of calls over local facilities. The FCC has made major changes in
the interstate access charge structure. In a December 24, 1996 order, the FCC
removed restrictions on ILECs' ability to lower access prices and relaxed the
regulation of new switched access services in those markets where there are
other providers of access services. A May 16, 1997 order substantially
increased the amounts that ILECs subject to the FCC's price cap rules recover
through monthly flat-rate charges and substantially decreased the amounts that
these ILECs recover through traffic-sensitive (per minute) access. On August
19, 1998, the U.S. Court of Appeals for the Eighth Circuit upheld the FCC's
access charge reform rules.

On August 5, 1999, the FCC adopted an order granting ILECs additional
pricing flexibility, implementing certain access charge reforms, and seeking
comments on others. The order provides immediate regulatory relief to price cap
carriers and sets a framework of triggers to provide those companies with
greater pricing flexibility to set interstate access rates as competition
increases. The order also initiated a rulemaking to determine whether the FCC
should regulate the access charges of CLECs. If this increased pricing
flexibility for price cap ILECs is not effectively monitored, or if the FCC
regulates CLEC access charges, it could have a material adverse impact on our
ability to price our own interstate access services competitively.

Universal service

On May 8, 1997, the FCC issued an order establishing a significantly
expanded federal universal service subsidy regime. For example, the FCC
established new universal service funds to support telecommunications and
information services provided to qualifying schools and libraries and to rural
health care providers. The FCC also expanded the federal subsidies for local
exchange telephone services provided to low-income consumers and recently
doubled the size of the high-cost fund for non-rural carriers. Providers of
interstate telecommunications service, such as us and certain other entities,
must pay for these programs. Our contribution to these universal service funds
will be based on our telecommunications service end-user revenues. The
contribution level for each interstate provider is based upon its revenues for
the prior year. Contribution factors vary quarterly, the current contribution
rate is 5.7101% of interstate and international end user telecommunications
revenues. Contribution amounts may be billed to customers. We are unable to
quantify the amount of subsidy payments we will be required to make in the
future and the effect that these required payments will have on our financial
condition because of uncertainties concerning the size of the universal service
fund and the uncertainties surrounding the classification of certain services
as subject to the fund's revenue measures.

Several parties appealed the FCC's May 8, 1997 and subsequent orders. The
U.S. Court of Appeals for the Fifth Circuit upheld the May 8, 1997 order in
most respects, but has rejected the FCC's effort to base contributions in part
on intrastate revenues. The FCC's universal service

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program may also be altered as a result of the agency's reconsideration of its
policies, or by future Congressional action.

Line sharing

On November 18, 1999, the FCC adopted rules to promote competition for
advanced services by directing local telephone companies to share their
telephone lines with providers of high-speed internet access and other data
services. The FCC's order permits competitive carriers to obtain access to the
high-frequency portion of the local line over which an ILEC provides voice
services. This will enable competitive providers like ourselves to provide
certain DSL-based services over the same telephone lines that the ILECs
simultaneously use to provide basic telephone service. This technique is
referred to as line sharing.

Line sharing will permit customers to obtain innovative data services from
either incumbent or competitive carriers, without having to forego the
traditional voice services from their provider of choice. Since line sharing
allows customers to receive both services on the same line, it eliminates the
need for customers to procure a second line when they elect to receive data
service from an ILEC. By eliminating the need for a second line, line sharing
could have a positive effect on our ability to provision services quickly and
lower our costs of providing our customers with high-speed data and internet
applications.

The FCC has requested that state regulatory commissions adopt interim rules
implementing line sharing within 180 days after the effective date of the order
so that other parties such as ourselves may begin offering services as soon as
possible. We will be able to request negotiations on line sharing with the
ILECs, and if those negotiations fail, will be able to seek arbitration before
a state regulatory commission 180 days after filing our initial request. While
the FCC has set pricing guidelines for state regulators to follow when
implementing line sharing, pricing disputes, litigation and technical issues at
the state level are likely to delay broad implementation of the FCC line
sharing order past the FCC's 180 day goal.

As of December 3, 1999, one Regional Bell Operating Company, US West, has
agreed to interim line sharing terms with several CLECs in Minnesota. Under
that arrangement, the CLECs have agreed to pay $6.05 per shared line, which
represents a cost reduction of approximately 50% off the regular line rate. The
Minnesota Public Utilities Commission plans to hold hearings to discuss
permanent rates, which may end up being different than the interim rates. On
December 20, 1999, Bell Atlantic filed a tariff in New York which offers
carriers an interim discount of 50% off of the regular rate applicable to lines
that are capable of providing advanced data services. Bell Atlantic's discount
rate is subject to the New York Public Service Commission's authority to
prescribe permanent rates which may be different, and carriers are free to
negotiate different rates as well.

Reciprocal compensation

Reciprocal compensation is the compensation paid by one local exchange
carrier to complete local calls on another local exchange carrier's network. As
a result of the current regulatory environment and several trends in our
business, which are discussed below, we expect our revenues from reciprocal
compensation to be minimal.

Several ILECs have submitted challenges to state public utility commissions
and the courts as to whether reciprocal compensation is owed for internet bound
calls. Of the over 30 state commissions that have considered the issue, almost
all have upheld the requirement that the originating customer's carrier is
required to treat calls bound to internet service providers as all other local
calls and to pay reciprocal compensation for internet service provider-bound
traffic. In our target geographic areas, only Massachusetts and New Jersey are
not presently requiring reciprocal

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compensation for this traffic, at least pending negotiations and a further FCC
decision. However, South Carolina and Louisiana have also determined reciprocal
compensation is not owed. Many of these cases are now being appealed. To date
every district court and court of appeals that has reviewed these cases on the
merits, including the 5th, 7th and 9th Circuits, have determined reciprocal
compensation is owed. Other states that have not considered the issue to date
or reconsidered the issue may yet determine that no compensation is owed.

In addition, on February 26, 1999, the FCC issued a declaratory ruling and
Notice of Proposed Rulemaking concerning inbound internet service provider
traffic. The FCC concluded in its ruling that internet service provider traffic
is jurisdictionally mixed and largely interstate in nature, and thus within the
FCC's jurisdiction. The FCC also determined that no federal rule existed that
governed reciprocal compensation for internet service provider traffic at the
time existing interconnection agreements were negotiated and concluded that it
should permit states to determine whether reciprocal compensation should be
paid for calls to internet service providers under existing interconnection
agreements pending the adoption of a federal rule by the FCC. On March 24,
2000, the Court of Appeals vacated and remanded to the FCC its Declaratory
Ruling that internet bound calls are not local calls for which reciprocal
compensation is owed. The Court determined that the FCC had not provided a
reasonable basis for not treating the calls as local calls. On August 26th,
1999, the New York Public Service Commission adopted rules that allow carriers
to continue to collect compensation for internet-related calls but capped the
amount available based on traffic imbalances, thereby reducing the payments to
CLECs whose local and internet-based traffic is in excess of a 3:1 ratio.
However, the New York Public Service Commission also gave CLECs the opportunity
to rebut the presumption that its ratio should be 3:1 or lower by demonstrating
that their networks are intended to be robust, general purpose networks, not
designed primarily to service inbound traffic only. This decision may serve as
precedent for other state commissions seeking to reconcile the growth of
internet traffic and the increasingly larger payments owed by the ILECs to
competitive carriers serving internet service providers.

We currently do not collect reciprocal compensation from Bell Atlantic for
internet service provider-bound traffic in the states of Massachusetts and New
York. Under our current interconnection agreements with Bell Atlantic in both
of these states, we are not eligible to collect reciprocal compensation for
internet service provider-bound traffic. Thus, the uncertainty surrounding the
consideration of this issue by the states and the FCC does not have a
substantial impact on our current operations, although it could affect our
ability to collect reciprocal compensation for internet service provider-bound
traffic under interconnection agreements in new markets such as New Jersey,
Rhode Island, or Delaware.

Tariff and filing requirements

Non-dominant carriers, including us, must file tariffs with the FCC listing
the rates, terms and conditions of interstate and international services
provided by the carrier. On October 29, 1996, the FCC adopted an order in which
it eliminated the requirement that non-dominant interstate carriers maintain
tariffs on file with the FCC for domestic interstate services. The FCC's order
was issued relying on authority granted in the Telecommunications Act to
forebear from regulating any telecommunications services provider if specified
statutory analyses are satisfied. The FCC's order, however, was stayed by a
federal court. Accordingly, non-dominant interstate carriers, including us,
currently must continue to file interstate tariffs with the FCC until final
determination of the issue. Any challenges to these tariffs by regulators or
third parties could cause us to incur substantial legal and administrative
expenses.

In addition, periodic reports concerning carriers' interstate circuits and
deployment of network facilities also are required to be filed with the FCC.
The FCC generally does not exercise direct oversight over cost justification
and the level of charges for services of non-dominant carriers,

43
<PAGE>

although it has the power to do so. Recently it has suggested it may examine
the access rates charged by CLECs to long distance carriers. At the current
time, the FCC does not require competitive carriers to file tariffs with
respect to their interstate access services. Thus, we have not filed our rates
to provide internet connectivity through DSL products at this time, since the
FCC has classified this as an interstate access service. If, however, we begin
using DSL products to offer telecommuting services or other services that
involve high-speed connections between intrastate points, we may be required
to file tariffs with the state commissions with respect to such services.

The FCC may also impose prior approval requirements on transfers of
control and assignments of operating authorizations. Fines or other penalties
also may be imposed for violations of FCC rules or regulations. The FCC also
requires that certified carriers like us notify the FCC of foreign carrier
affiliations and secure a determination that such affiliations, if in excess
of a specified amount, are in the public interest.

Digital Wiretapping

The Communications Assistance to Law Enforcement Act, enacted in 1994,
CALEA, requires telecommunications carriers to make available certain
telecommunications capabilities to U.S. law enforcement officials to permit
those authorities to continue to intercept communications involving advanced
technologies such as digital and wireless transmission communications. CALEA
imposes certain obligations on carriers to ensure that their equipment,
facilities and services will meet capability and capacity requirements in
order to provide law enforcement agencies the ability to intercept wireline
and wireless communications transmitted over those carrier's networks. Courts
may impose fines of up to $10,000 per day on telecommunications carriers that
fail to meet the required capability functions, as determined by industry
standards. Under procedures specified in CALEA, the U.S. Department of Justice
recently filed a petition at the FCC challenging the technical capability
standard developed by the telecommunications industry. Because of the disputed
standard, several carriers sought an FCC extension of the October 25, 1998
capability compliance deadline. The FCC recently extended the compliance date
for the CALEA capability requirements to June 30, 2000 to permit manufacturers
sufficient time to develop CALEA compliant equipment. In the meantime, we
expect the FCC to shortly issue an order identifying the capabilities carriers
such as us will have to provide to law enforcement officials in order to meet
CALEA's requirements. Telecommunications carriers must also meet CALEA
capacity requirements mandating that by March 12, 2001, carriers enable a
specific number of simultaneous interceptions determined on a geographic
basis. We cannot predict the nature and extent of the impact the CALEA
requirements will have on us or on telecommunications carriers in general.

State regulation

Most states regulate entry into the markets for local exchange and other
intrastate telecommunications and data services, and states' regulation of
CLECs vary in their regulatory intensity. The majority of states require that
companies seeking to provide local exchange and other intrastate services
obtain authorization from a state regulatory body, such as a state public
utility commission. This authorization process generally requires the carrier
to demonstrate that it has sufficient financial, technical and managerial
capabilities and that granting the authorization will serve the public
interest. As of March 31, 2000, we had obtained local exchange certification
or were otherwise authorized to provide local exchange and intrastate long
distance service in New York, Massachusetts, Pennsylvania and Rhode Island.

We also have filed applications for local exchange and intrastate long
distance certification or other authorization in Delaware, Illinois, Maryland,
New Hampshire, New Jersey, Texas, Virginia, Michigan, the District of Columbia
and California. We expect to be granted the necessary approvals by mid-2000,
although we cannot guarantee this will occur. To the extent that an area
within a state in

44
<PAGE>

which we provide service is served by a small or rural exchange carrier not
currently subject to competition, we may not currently have authority to
provide service in those areas.

As an authorized local exchange carrier, we are and will continue to be
subject to the regulatory directives of each state in which we are and will be
certified. Most states require that competitive carriers such as ourselves
charge just and reasonable rates and not discriminate among similarly situated
customers. Other state requirements include the filing of periodic reports, the
payment of various regulatory fees and surcharges and compliance with service
standards and consumer protection rules.

States also often require prior approvals or notifications for certain
transfers of assets, customers, or ownership of local exchange companies and
for issuances by certified carriers of equity securities, notes or
indebtedness, although the terms of this offering do not require any prior
approval. States generally retain the right to sanction a carrier or to revoke
certifications if a carrier violates relevant laws and/or regulations. Delays
in receiving required regulatory approvals could also have a material adverse
effect on us.

In most states, certificated carriers like us are required to file tariffs
describing the terms, conditions, and prices for services which are classified
as intrastate. In some states, the required tariff may list a range of prices
for particular services, and in others, these prices can be set on an
individual customer basis. We may, however, be required to file tariff addenda
of the contract terms.

Under the Telecommunications Act, implementation of our plans to compete in
local markets is and will continue to be, to a certain extent, controlled by
the individual states. The states in which we operate or intend to operate have
taken regulatory and legislative action to open local communications markets to
various degrees of local exchange competition.

Local regulation

We are also subject to numerous local regulations, including building code
requirements, rights of way, franchises, taxes and surcharges and,
occasionally, requirements that we acquire emergency 911 authorizations from
local municipalities or 911 administrators. These regulations may vary greatly
from state to state and from city to city.

Intellectual Property Rights

We regard our copyrights, service marks, trademarks, trade secrets and
similar intellectual property as critical to our success. We rely upon a
combination of copyright law and contractual restrictions with employees,
customers and others to protect our rights. We do not currently hold any
patents. If we fail to adequately protect our rights, or if we become involved
in intellectual property litigation our business, financial condition and
results of operations could be materially and adversely affected.

Employees

As of December 31, 1999, we employed over 340 people. Our employees are not
unionized, and we believe our relations with our employees are good.

Legal Proceedings

We are occasionally a party to routine litigation and proceedings in the
ordinary course of business. We are not aware of any current or pending
litigation to which we are or may become a party that we believe could
materially adversely affect our results of operations or financial condition.

45
<PAGE>

Properties

We lease office space in a number of locations. In general, our sales
offices are short term leases. Our network facilities are typically ten year
leases with two five-year renewal options. As of March 31, 2000, our leased
properties were:

<TABLE>
<CAPTION>
Square
Location Feet Expiration of Lease Term Type of Facility
-------- ------ ------------------------ ----------------
<C> <C> <S> <C>
Long Island City, NY.. 35,100 Lease applicable to Headquarters,
20,000 square feet Customer Operations,
expires September 2004, Sales Office
with one five-year
renewal option

Long Island City, NY.. 21,000 July 2009, with two Network
five-year renewal
options

New York, NY.......... 17,600 April 2010, with one Future Headquarters
five-year renewal
option

Syracuse, NY.......... 8,000 August 2004, with two Customer Operations,
five-year renewal Sales Office
options

Syracuse, NY.......... 4,100 December 2000, no Vacant Space
renewal option

Syracuse, NY.......... 8,000 October 2009, with two Network
five-year renewal
options

Jericho, NY........... 2,200 May 2001, no renewal Sales Office
option

Albany, NY............ 1,900 October 2000, no renewal Sales Office
option

Buffalo, NY........... 2,300 January 2001, no renewal Sales Office
option

New York, NY.......... 2,800 January 2002, no renewal Sales Office
option

White Plains, NY...... 2,000 March 2001, no renewal Sales Office
option

Boston, MA............ 12,500 April 2010, with one Network, Sales Office
five-year renewal
option

Newark, NJ............ 24,800 10.5 years after Technology Lab,
facilities are ready, Offices
with one five-year
renewal option

Philadelphia, PA...... 26,000 July 2005, with one Sales, Customer
five-year renewal Operations, Network
option Operations Center

Philadelphia, PA...... 10,000 November 2010, with two Network
five-year renewal
options

Westport, CT.......... 6,000 April 2002, with one General Office Use
two-year renewal option
</TABLE>

The 35,100 square foot leased space in Long Island City is located in
different areas of a building and separated into four individual leases. The
20,000 square foot lease expires September 2004. The 7,600 square foot lease
expires December 2001. The 4,600 square foot lease expires July 2001. The 2,900
square foot lease is month-to-month. Only the 20,000 square foot lease has a
five year option to renew.

Our rent obligation under the 4,100 square foot Syracuse lease is paid by
224 Harrison Associates, LLC, the lessor of 224 Harrison in Syracuse, as a
condition of our entering into a lease with respect to the 224 Harrison
Property.

46
<PAGE>

MANAGEMENT

Executive Officers and Directors

Our executive officers and directors, and their ages as of the date of this
prospectus, are listed below:

<TABLE>
<CAPTION>
Name Age Position(s)
---- --- -----------
<C> <C> <S>
Vern M. Kennedy.................. 33 President, Chief Executive Officer and
Chairman of the Board of Directors
Joel D. Gross.................... 45 Chief Financial Officer and Executive
Vice President--Strategic Planning and
Corporate Development
Eric G. Roden.................... 44 Chief Operating Officer
Kenneth A. Shulman............... 46 Chief Technology Officer
Colm D. Kelly.................... 61 Chief Information Officer
George F. Holland................ 44 Executive Vice President--Sales and
Marketing
Terrence J. Anderson............. 33 Executive Vice President--Finance
Tracy W. Korman.................. 36 Executive Vice President--Customer
Relationship Management
Heidi B. Heiden (1).............. 61 Director
Stuart A. Mencher (2)............ 60 Director
Edward W. Scott (1)(2)........... 37 Director
Roland A. Van der Meer(1)........ 39 Director
</TABLE>
- --------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.

Vern M. Kennedy is one of our co-founders and has served as Chairman of the
board of directors, President and Chief Executive Officer since our inception
in March 1996. He was responsible for the initial design and development of
what have become our systems and processes. From July 1989 to January 1996, Mr.
Kennedy held various operations management positions at NYNEX (presently Bell
Atlantic Corporation). In his last position as Director of Operations, he was
responsible for field and center operations, process improvement and general
business management.

Joel D. Gross has served as our Chief Financial Officer and Executive Vice
President--Strategic Planning and Corporate Development since September 1999.
Mr. Gross has 22 years of telecommunications experience in finance, planning,
sales and marketing and other management functions. Prior to joining us, Mr.
Gross was Vice President of Corporate Strategy and Business Development for
AT&T since June 1998. From February 1993 to June 1998, he was Senior Vice
President of Corporate Development for Teleport Communications Group and a
member of the Executive Committee. He was Vice President and Senior Securities
Analyst for the telecommunications services sector for Donaldson, Lufkin &
Jenrette Securities from 1987 to 1993, and for Dean Witter Reynolds from 1985
to 1987. From 1978 to 1985, Mr. Gross held various management positions with
AT&T in sales, marketing, product management, regulatory affairs and systems
analysis.

Eric G. Roden has served as Chief Operating Officer since September 1998.
Mr. Roden has 16 years of management experience in operations and networks in
the telecommunications industry. From 1996 to 1998 he was general manager for
USN Communications. He was Vice President of Operations and Engineering for MFS
Communications from 1995 to 1996, and from 1993 to 1995, for Northeast
Networks. He also held senior management positions in engineering operations
and network management with Eastern Telelogic and ITT's U.S. Transmission
Systems, and served in the United States Marine Corps specializing in secure
data and voice communications for the Department of Defense.

47
<PAGE>

Kenneth A. Shulman joined us in December 1999 as Chief Technology Officer.
Mr. Shulman has 24 years of telecommunications experience in systems
engineering, network technology, planning and voice, data, and video
applications development. Prior to joining us, Mr. Shulman was Vice President
of Local Network Technology at AT&T since 1998. From 1987 to 1998, he held
various senior management positions in technology, network architecture,
engineering and planning at Teleport Communications Group, including Senior
Vice President and Chief Technology Officer and member of the Executive
Committee from 1995 to 1998. Prior to joining Teleport Communications Group, he
held network and systems engineering positions at MCI International, Bell
Communications Research and Bell Laboratories.

Colm D. Kelly is a co-founder of Open Support Systems and has served as
Vice President-- Development since our inception and as Chief Information
Officer since December 1999. Mr. Kelly has over 30 years of computer experience
in database development, programming and networking. From 1988 to 1997, he was
a founder and president of Unsel, which specialized in client/server database
and network applications to the telecommunications, banking and other
industries.

George F. Holland joined us in December 1999 as Executive Vice President--
Sales and Marketing. Mr. Holland has 21 years of telecommunications experience,
most recently serving as Senior Vice President of Covad Communications Group,
since 1998, where he was responsible for building a New York regional DSL
network. From 1997 to 1998, he was Senior Vice President for National Sales at
Toll Free Cellular. From 1995 to 1996, he was Chief Executive Officer of
Starlink Communications, where he was responsible for building a full service
long distance company. From 1979 to 1995, Mr. Holland held a number of
management positions with AT&T, including business sales, customer service,
product development and network operations.

Terrence J. Anderson is one of our co-founders and has served as Executive
Vice President-Finance since our inception in March 1996. He also served as a
Director from March 1996 to April 1999. From 1988 to 1995, Mr. Anderson was
employed at Chemical Bank, most recently as Vice President in the Media and
Telecommunications-Corporate Finance Group.

Tracy W. Korman is one of our co-founders and is Executive Vice President--
Customer Relationship Management. He conceived, designed and developed the
Broadview Networks brand. From December 1995 to October 1996, Mr. Korman was
Business Manager for Sales and Marketing at Bantam Doubleday Dell. He was a
consultant in the Strategy and Marketing and Media practices of Booz, Allen &
Hamilton from 1986 to December 1995.

Heidi B. Heiden became a director in January 2000. Mr. Heiden has held
senior technology management positions in several industries. From 1995 to
1999, he served as Senior Vice President, Operations and Technology of UUNET, a
unit of MCI WorldCom, where he was responsible for building and running the
network, customer support and information systems. From 1990 to 1995, he was a
Senior Operating Officer at Salomon Brothers. His prior experience includes
senior management roles with The Wollongong Group and Trusted Information
Systems. He also served in the US Army where he led various technology
programs, including the design and implementation of voice and data systems and
the Defense Data Network, the largest data system at the time and the basis of
what is now known as the internet.

Stuart A. Mencher became a director in January 2000. Mr. Mencher has held
several senior executive positions in the telecommunications and data
processing industries. From 1998 to 1999, he was Vice President of Strategic
Planning for AT&T Business Services. He was Senior Vice President of Sales and
Marketing for Teleport Communications Group and a member of the Executive
Committee from 1992 to 1998, where he was responsible for leading TCG's overall
market and sales channel development initiatives. His prior experience includes
strategic marketing, sales, customer service and general management roles with
MCI Communications, Motorola, AT&T Information Systems and IBM.

48
<PAGE>

Edward W. Scott has served as a director since April 1999. Mr. Scott is a
co-founder and general partner of the Baker Communications Fund, a private
equity fund that invests exclusively in communications equipment, services and
Internet applications companies. Mr. Scott has been a general partner of that
firm since 1996. From December 1990 until March 1996, Mr. Scott was a private
equity investor with the Apollo Investment Fund, L.P. Mr. Scott currently
serves on the board of directors of Akamai Technologies, Advanced Switching
Communications, DataStudy, Fort Point Partners, InterXion Holdings and
Style365.com.

Roland A. Van der Meer has served as a director since 1998. Mr. Van der
Meer is a general partner of ComVentures, a venture capital firm. From 1993 to
1997, he was also a partner at the venture firm Partech International. His
previous experience includes Hambrecht & Quist Venture Partners, GTE and
Sprint. Mr. Van der Meer is on the boards of Arbinet, Universal Access,
Chromatis, Dynamicsoft, Nisham Systems, Range Star International, SiteSmith,
Zantaz.com and Zoneworx.

Each officer serves at the discretion of our board of directors. Each
director serves until his successor is duly elected and qualified.

Board Composition

We have five individuals on our board of directors. The Board is divided
into three classes, with the term of office of the first class, which consists
solely of Mr. Kennedy, to expire at the first annual meeting of stockholders
after this offering which is expected to occur in 2000; the term of office of
the second class, which consists of Messrs. Van der Meer and Scott, to expire
at the second annual meeting of stockholders after this offering which is
expected to occur in 2001; and the term of office of the third class, which
consists of Messrs. Mencher and Heiden, to expire at the third annual meeting
of stockholders after this offering which is expected to occur in 2002. Each
term afterward will expire at each third succeeding annual meeting of
stockholders held after the meeting at which the director in question was
elected.

Election of Directors and Voting Agreement

Some of our stockholders have each agreed to vote all of their shares in
such a manner as to elect directors as follows: ComVentures, New Enterprise
Associates and Weiss, Peck & Greer Venture Partners collectively have the right
to designate one director and Baker Communications Fund, ComVentures, New
Enterprise Associates and Weiss, Peck & Greer Venture Partners collectively
have the right to designate one director. Under these arrangements, Mr. Van der
Meer and Mr. Scott have been elected to the board. Each group of stockholders
will lose its right to designate a director if its ownership of our common
stock falls below 5%.

Director Compensation

We reimburse non-employee directors for reasonable out-of-pocket expenses
incurred in attending meetings of the board of directors. We may, in our
discretion, grant stock options and other equity awards to our non-employee
directors from time to time, pursuant to our 2000 Stock Option Plan. Messrs.
Heiden and Mencher were each granted options to purchase 60,000 shares of
common stock pursuant to this plan. During 1999, we also granted 6,857 stock
options to Peter Lawson-Johnston, 11,405 stock options to Philip Smith and
22,808 stock options to Joseph Walsh. Messrs. Lawson-Johnston, Smith and Walsh
were non-employee directors at the time these options were granted under our
1997 Stock Option Plan, but are no longer members of our board of directors. We
pay the premiums on a directors and officers insurance policy covering all of
our directors.

49
<PAGE>

Committees of the Board of Directors

Our board of directors has established an audit committee and a
compensation committee. The functions of the audit committee will be to:

.recommend annually to our board of directors the appointment of our
independent auditors;

. discuss and review in advance the scope and the fees of our annual audit
and review the results thereof with our independent auditors;

.review and approve non-audit services of our independent auditors;

.review compliance with our existing major accounting and financial
reporting policies;

.review the adequacy of major accounting and financial reporting policies;

. review our management's procedures and policies relating to the adequacy
of our internal accounting controls and compliance with applicable laws
relating to accounting practices;

. review compliance with applicable Securities and Exchange Commission and
Nasdaq rules regarding audit committees;

.prepare a report for our annual proxy statement; and

.comply with any additional requirements set forth in the audit committee's
charter.

The three members of the audit committee are Messrs. Van der Meer, Heiden and
Scott, each of whom is an independent director.

Our compensation committee is also composed solely of independent
directors. The compensation committee establishes salaries, incentives and
other forms of compensation for our directors, executive officers and key
employees and administers our equity incentive plans and other incentive and
benefit plans. The two members of the compensation committee are Messrs.
Mencher and Scott.

Compensation Committee Interlocks and Insider Participation

No interlocking relationship exists between our board of directors and the
board of directors or compensation committee of any other company, nor has any
such interlocking relationship existed in the past. Mr. Scott is affiliated
with Baker Communications Fund, L.P., which is our largest stockholder. Baker
is also a party with the Company to the Securities Purchase Agreement and
Stockholders' Agreement dated April 23, 1999.

50
<PAGE>

Executive Compensation

The following table lists information concerning the compensation during
the years ended December 31, 1997, 1998 and 1999 of our Chief Executive Officer
and each of our other four most highly-compensated executive officers during
the year ended December 31, 1999 whose salary and bonus for 1999 equaled or
exceeded $100,000. These executive officers are collectively referred to as the
"Named Executive Officers."

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
-------------- Securities
Name and Principal Underlying All Other
Position Year Salary Bonus Options Compensation
- ------------------ ---- ------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Vern M. Kennedy......... 1997 25,000 0 0 0
Chairman, President and 1998 76,846 30,000 0 675
Chief Executive Officer 1999 147,512 41,250 0 2,613
Eric G. Roden........... 1997 0 0 0 0
Chief Operating Officer 1998 40,385 10,096 200,000 0
1999 156,923 32,484 0 0
Colm D. Kelly........... 1997 0 0 0 0
Chief Information
Officer 1998 176,576 0 0 11,142(1)
1999 190,000 0 0 1,054
Terence J. Anderson..... 1997 25,000 0 0 0
Executive Vice
President--Finance 1998 73,192 35,000 0 632
1999 115,000 28,875 60,000 2,100
Tracy W. Korman......... 1997 75,000 0 145,000 0
Executive Vice
President-- 1998 81,154 35,000 0 655
Customer Relationship
Management 1999 115,000 28,875 40,000 2,348
</TABLE>
- --------
(1) Includes a $10,000 consulting fee paid in 1998 for work done in the fourth
quarter of 1997.

OPTION GRANTS IN FISCAL 1999

The following table lists information as to stock options granted to
Terrence J. Anderson and Tracy W. Korman during the fiscal year ended December
31, 1999. Stock options were not granted to any other Named Executive Officer
during the fiscal year ended December 31, 1999. We have not granted any stock
appreciation rights. The potential realizable value is calculated based on the
term of the option at its time of grant. It is calculated assuming that the
fair market value of common stock on the date of grant equals the $19.00 mid-
range of the estimated initial public offering price and appreciates at the
indicated annual rate compounded annually for the entire term of the option and
that the option is exercised and sold on the last day of its term for the
appreciated stock price. These numbers are calculated based on the requirements
of the Securities and Exchange Commission and do not reflect our estimate of
future stock price growth. The percentage of total options granted to employees
in the last fiscal year is based on options to purchase an aggregate of
2,440,670 shares of common stock granted to our employees, including
management, during the year.

These options were granted on May 18, 1999 under the 1997 Stock Option
Plan, as amended. As of December 31, 1999, none of these options were
exercisable. 25% of the shares of common stock subject to these options become
exercisable on the first anniversary of the grant date, with the

51
<PAGE>

remainder vesting in equal monthly installments following the first
anniversary. All of the options have a term of nine years, subject to earlier
termination in some situations related to termination of employment.

<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Option
Individual Grants Term
------------------------------------------------------ ---------------------
Percentage of
Number of Total
Securities Options
Underlying Granted to Exercise
Options Employees in Price Per Expiration
Name Granted Fiscal Year Share Date 0% 5% 10%
- ---- ---------- ------------- --------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Terrence J. Anderson.... 60,000 2.46% $2.75 5/18/08 $975,000 $1,603,514 $2,523,060
Tracy W. Korman......... 40,000 1.64% $2.00 5/18/08 $680,000 $1,099,009 $1,712,040
</TABLE>

AGGREGATED STOCK OPTION EXERCISES IN FISCAL 1999
AND FISCAL YEAR-END OPTION VALUES

The following table lists information with respect to unexercised options
held by the Named Executive Officers as of December 31, 1999. All of these
options to purchase shares of our common stock were granted under our 1997
Stock Option Plan. Neither Vern M. Kennedy nor Colm D. Kelly held unexercised
options as of December 31, 1999. No Named Executive Officer exercised options
during the fiscal year ended December 31, 1999.

There was no public trading market for our common stock as of December 31,
1999. Accordingly, the values set forth below have been calculated on the basis
of an assumed initial public offering price of $19.00 per share, less the
applicable exercise price per share, multiplied by the number of shares
underlying the options.

<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options at
December 31, 1999 December 31, 1999
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Eric G. Roden............... 62,499 137,501 $1,078,108 $2,371,892
Terrence J. Anderson........ 0 60,000 $ -- $ 975,000
Tracy W. Korman............. 145,000 40,000 $2,629,996 $ 680,000
</TABLE>

Employment Agreements

We have employment agreements with each of our executive officers. The
following table shows information about the current compensation arrangements
under these employment agreements. Each agreement has an initial term and is
automatically extended for successive one-year periods after the initial term
unless we or the executive elects to terminate the agreement within 120 days
before the end of the term. If we terminate an executive's employment other
than for cause, death or disability or the executive terminates for a good
reason, we will pay the executive a lump sum amount equal to one-half of the
executive's annual base salary plus the executive's pro rata annual bonus. In
addition, any unvested stock options will continue to vest as if the executive
had remained employed for a period of twelve months following the date of
termination and the executive will continue to receive benefits for a period of
six months after the date of termination. If there is a change of control, all
of the executives' unvested stock options will become 100% vested.

52
<PAGE>

All of the options granted to executives were granted either under the 1997
Stock Option Plan or the 2000 Stock Option Plan. Some options were granted at
the time the executive was hired. Not all of these options were granted
pursuant to the employment agreements. However, all are subject to the change
of control provision within these agreements.

<TABLE>
<CAPTION>
Annual
Base Annual
Salary Bonus Options
Name Initial Term ($) (%) Granted
- ---- ------------------- ------- ------ -------
<S> <C> <C> <C> <C>
Vern M. Kennedy...................... 2/03/00 - 12/31/01 250,000 60 590,000
Joel D. Gross........................ 10/01/99 - 9/30/01 260,000 50 830,000
Terrence J. Anderson................. 2/03/00 - 12/31/01 175,000 45 210,000
Tracy W. Korman...................... 2/03/00 - 12/31/01 175,000 45 335,000
George F. Holland.................... 2/03/00 - 12/31/01 250,000 50 300,000
Kenneth A. Shulman................... 12/14/99 - 12/14/01 175,000 45 250,000
Eric G. Roden........................ 2/03/00 - 12/31/00 165,000 45 240,000
Colm D. Kelly........................ 2/03/00 - 12/31/00 200,000 20 50,000
</TABLE>

Employee Benefit Plans

1997 Stock Option Plan

Our 1997 Stock Option Plan was adopted by the board of directors on
February 10, 1997. There are a total of 4,100,000 shares of common stock
reserved for issuance under it. As of December 31, 1999, we have granted
options to purchase 4,011,865 shares under this plan, we have issued 121,392
shares in connection with the exercise of options granted under the plan and
options to purchase 252,270 shares have been forfeited by employees who left
our employ prior to such options vesting. At such date, options to purchase
3,638,203 shares were outstanding under the plan at an average exercise price
of $3.53 per share.

We have occasionally granted stock options under the plan in order to
provide certain officers, directors, employees, and consultants with a
competitive total compensation package and to reward them for their
contribution to our performance. These grants of stock options are designed to
align these individuals' interest with that of our stockholders.

Our board of directors administers the plan and establishes the terms of
the options and the dates after which they become exercisable. Options granted
under the plan generally become exercisable over a four-year period.

The price at which each share of common stock subject to an option granted
under the plan may be purchased is determined by our board of directors at the
time the option is granted. Options granted under the plan to employees may be,
in the discretion of the Board, either incentive stock options or nonqualified
options. Options granted to consultants or directors are nonqualified options.

No incentive stock option may be granted under the plan to any person who
has been appointed to serve on the board of directors effective as of a future
date until the date the appointment becomes effective. Nor may any incentive
stock option be granted to an employee who owns, directly or indirectly, more
than 10% of our voting stock, unless:

. the option price of the incentive stock option is fixed at not less
than 110% of the fair market value of the shares on the date it is
granted, and

. the incentive stock option is not exercisable more than five years
after the date it is granted.

Options granted under the plan generally are not transferable by the
optionee during his or her lifetime.

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<PAGE>

2000 Long-Term Incentive Plan

Our 2000 Long-Term Incentive Plan was adopted by the board of directors on
February 3, 2000. There are a total of 5,200,000 shares of common stock
reserved for issuance under it. Under the 2000 Plan, we may grant stock
options, stock appreciation rights and shares of common stock. As of February
3, 2000, we have granted options to purchase a total of 2,339,321 shares under
this plan at exercise prices ranging from $9.00 to $18.00 per share.

We will occasionally grant stock options, stock appreciation rights and
shares of common stock under the 2000 Plan in order to provide officers,
directors, employees, and consultants with a competitive total compensation
package and to reward them for their contribution to our performance. These
grants of stock options, stock appreciation rights and shares of common stock
will be designed to align these individuals' interest with that of our
stockholders.

The compensation committee of our board of directors administers the 2000
Plan and establishes the terms of the options and stock appreciation rights and
the dates after which they become exercisable. The exercise price of an option
or stock appreciation right granted under the 2000 Plan is determined by our
compensation committee at the time the option or stock appreciation right is
granted, but the exercise price will not be less than 100% of the fair market
value of the share of common stock on the date of the grant. Options granted
under the plan to employees may be, in the discretion of the board, either
incentive stock options or nonqualified options. Options granted to consultants
or directors are nonqualified options. Stock appreciation rights may be granted
in connection with options or may be granted as free-standing awards. If a
stock appreciation right is issued in connection with an option, the stock
appreciation right will expire when the related option expires and the exercise
of the stock appreciation right will result in the surrender of the related
option.

. the option price of the incentive stock option is fixed at not less
than 110% of the fair market value of the shares on the date it is
granted, and

. the incentive stock option is not exercisable more than five years
after the date it is granted.

Under the 2000 Plan, our compensation committee may grant common stock to
participants. The compensation committee establishes the size of the grant and
any limitations and restrictions on the grant. The total number of shares of
common stock that may be awarded under the plan is 1,000,000.

Options, stock appreciation rights and awards granted under the 2000 Plan
generally are not transferable by the recipient during his or her lifetime.

2000 Employee Stock Purchase Plan

Our 2000 Employee Stock Purchase Plan was adopted by our board of directors
on February 3, 2000. There are a total of 300,000 shares of common stock
available for sale. The purchase plan, which is intended to qualify as an
employee stock purchase plan within the meaning of Section 423 of the Internal
Revenue Code of 1986, is administered by our compensation committee. All
employees of Broadview Networks or any present or future subsidiary of
Broadview Networks designated by the board of directors may participate in the
purchase plan. The purchase plan permits eligible employees to purchase common
stock through payroll deductions, which may not exceed

54
<PAGE>

10% of an employee's compensation, subject to certain limitations. The purchase
plan will be implemented in a series of consecutive offering periods, each
approximately six months in duration. The purchase price of each share of
common stock under the purchase plan will be equal to 85% of the lesser of the
closing price per share of the common stock on the NASDAQ National Market
System on the start date of that offering period and on the date of termination
of the offering period. Employees may modify or end their participation in the
purchase plan at any time prior to the termination date of an offering period.
An employee's participation ends on the employee's termination of employment
with Broadview. The purchase plan will terminate in 2010 unless sooner
terminated by our board of directors.

401(k) Plan

We have adopted a tax-qualified employee savings and retirement plan
covering all of our full-time employees. Under the 401(k) plan, employees may
elect to reduce their current compensation up to the statutorily prescribed
annual limit and have the amount of such reduction contributed to the plan. We
match our employees' contributions up to a maximum amount of 50% of the first
3% of their base salaries by contributing cash to the 401(k) plan. The 401(k)
plan is intended to qualify under Section 401 of the Code so that contributions
by employees and us to the 401(k) plan, and income earned on plan
contributions, are not taxable to employees until withdrawn from the 401(k)
plan. The trustees under the 401(k) plan, at the direction of each participant,
invest such participant's assets in the plan in selected investment options.

55
<PAGE>

CERTAIN TRANSACTIONS

The Securities Purchase Agreement and Shareholders' Agreement

On April 23, 1999 we entered into a securities purchase agreement and a
shareholders' agreement with each of our preferred stockholders and our
founding stockholders in connection with our issuance of Series C preferred
stock. On February 2 and February 4, 2000, these agreements were both amended
in connection with our issuance of Series D preferred stock. On February 7,
2000, the shareholders' agreement was further amended in order to modify or
eliminate some of the rights previously granted. Under the shareholders'
agreement, as amended, these stockholders have preemptive rights, voting rights
and registration rights, and are subject to transfer restrictions, as described
below and elsewhere in this prospectus.

The securities purchase agreement contains standard representations and
warranties by us and confidentiality provisions and transfer restrictions.

The shareholders' agreement contains provisions relating to:

. Election of our directors. Following the closing of this offering the
holders of our Series A preferred stock and Series B preferred stock
collectively have the right to designate one director and the holders
of Series C preferred stock and Series D preferred stock collectively
have the right to designate one director. All of our preferred
stockholders and our founding stockholders have agreed to vote all of
their shares in such a manner as to elect these two designees as
directors.

. Preemptive rights with respect to new issuances of common stock. Each
preferred stockholder and founding stockholder generally has the right
to purchase its proportional share, based on its current percentage
ownership, of any capital stock issued by us. These rights have been
waived with respect to this offering and will terminate following the
closing of this offering.

. Source of financing. If we decide to seek equity financing (other than
in connection with this offering), all preferred stockholders have the
first right to make a firm offer to provide that financing on terms
satisfactory to us.

. Transfer restrictions relating to sales of shares of common stock by
the preferred stockholders and the founding stockholders including:

. Rights of first offer. If any preferred stockholder or founding
stockholder wishes to sell its shares, it must give us and the
other preferred stockholders and founding stockholders the
exclusive right, for a period of 15 business days, to purchase
from the selling stockholder any of our common stock held by the
selling stockholder or any stock or security convertible into or
exchangeable for our common stock.

. Tag along rights. If any preferred stockholder or founding
stockholder proposes to sell any of our securities, the other
preferred stockholders and founding stockholders have the right,
for a period of 30 days, to participate in the sale by selling a
proportional share of their stock on the same terms.

None of these provisions and restrictions, other than the preemptive
rights, will terminate on the completion of this offering. The rights and
obligations of the holders of Series A and Series B preferred stock will
terminate at the time they no longer collectively hold at least 5% of our
fully-diluted common stock. The rights and obligations of the holders of Series
C and Series D preferred stock will terminate at the time they no longer
collectively hold at least 5% of our fully-diluted common stock.

56
<PAGE>

Series C Bridge Financing

On February 26, 1999, we borrowed a total of $4 million from holders of
Series B preferred stock. This loan was evidenced by a demand note paying 5%
interest. Under the terms of the loan, we had the option of repaying the debt
in cash or in additional shares of Series B preferred stock, and the lenders
would be granted warrants to purchase common stock if the debt was not repaid
in full within 60 days. On April 23, 1999, the loan, including accrued
interest, was converted into shares of Series C preferred stock.

Registration Rights

We have granted registration rights to our preferred stockholders with
respect to the common stock they now hold and the common stock they will
receive following the closing of this offering. These holders have the benefit
of the following demand registration:

. The majority of the holders of Series C preferred shares and the
Series D preferred shares and the majority of the holders of Series A
preferred shares and the Series B preferred shares may each demand two
registrations on Form S-1 or, if available, on Form S-2 or S-3 or any
similar short form of registration. However, we are not obligated to
effect any demand registration within 120 days following the effective
date of a previous demand registration or other registration of our
securities that is an underwritten offering.

In addition, stockholders that have been granted registration rights have
unlimited piggyback registration rights under which they have the right to
request that we register their shares of common stock whenever we register any
of our securities under the Securities Act of 1933, following their written
request for inclusion within 30 days after the receipt of our notice, and the
registration form to be used may be used for the registration of their shares
of common stock. These piggyback registration rights will not, however, be
available in the following circumstances:

. If the piggyback registration is in connection with an underwritten
registration and the managing underwriter concludes that including
shares of common stock owned by holders of piggyback registration
rights would adversely affect the marketing of the securities to be
sold in the underwritten offering; or

. For registrations undertaken because of a demand registration.

Terms of Indebtedness

In October 1999 we entered into a Loan and Security Agreement with NTFC
Capital Corporation, which established a vendor financing facility in the
maximum principal amount of $36 million plus capitalized interest. Under the
terms of this facility, at least 60% of the aggregate principal amount we
borrow must be used for the purchase of Northern Telecom equipment and related
services associated with the installation and operation of Northern Telecom
equipment. As collateral, NTFC Capital Corporation obtained a continuing
security interest in all equipment financed or refinanced with proceeds from
the loan, all general intangibles and intangible property, and all proceeds. At
December 31, 1999, $6.9 million under the facility was outstanding with an
average interest rate of 11.7%.

The outstanding debt becomes due in monthly installments to be repaid by or
before November 1, 2007. Principal and capitalized interest on each advance is
payable according to the following amortization schedule. Interest is
capitalized and added to the principal amount over a twelve-month period. On
the last day of the 12th calendar month following the date of the advance, the
"conversion

57
<PAGE>

date," principal amounts and interest will be amortized and repaid monthly in
arrears over 48 consecutive months in payments of principal calculated as
follows:

. the first 12 payments of principal will each be equal to 0.833% of the
principal amount, including interest, of the advance as of the
conversion date;

. the next 12 payments will be each equal to 1.667% of the principal
amount, including interest, of the advance as of the conversion date;

. the next 12 payments will each be equal to 2.50% of the principal
amount, including interest, of the advance as of the conversion date;
and

. the next 12 payments will each be equal to 3.33% of the principal
amount, including interest, of the advance as of the conversion date.

The agreement contains various restrictive covenants, including among
others, limitations on our ability and the ability of our subsidiaries to do
the following things:

. Pay dividends and make other distributions on capital stock and redeem
capital stock. We may not make any equity payments to any person
without NTFC Capital Corporation's written consent.

. Incur additional indebtedness or refinance existing
indebtedness. Except for trade payables and various subordinated,
unsecured indebtedness, we may not incur additional indebtedness in
excess of certain limitations determined pursuant to our financial
covenants.

. Incur responsibility for contingent obligations. We may not assume
contingent obligations other than those contemplated by our agreement
with NTFC Capital Corporation.

. Create liens on our assets. We may not create liens on any of our
property except for:

. liens created by our agreement with NTFC Capital Corporation; and

. liens arising in the ordinary course of business and similar
encumbrances which do not materially detract from the value of our
property.

. Engage in transactions with stockholders and affiliates. Except for
employment agreements entered into in the ordinary course of business
and permitted disbursements to our subsidiaries, we may not enter into
any transactions, including loans or advances, with our affiliates.

. Make investments, advances and loans. Other than in the ordinary
course of business or as permitted disbursements to our subsidiaries,
we may not make any advance, loan, guarantee of indebtedness or
capital contribution to any person without the consent of NTFC Capital
Corporation.

. Enter into agreements to lease personal property. We may only enter
into leases of personal property in excess of $100,000 which are in
the ordinary course of business and after we comply with various
financial covenants listed in our agreement with NTFC Capital
Corporation.

. Remove collateral from various locations. We may not remove any
material part of the collateral under our agreement from specified
locations without written notice to NTFC Capital Corporation and
without ensuring the continuation of NTFC Capital Corporation's
perfected security interest in the collateral.

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<PAGE>

. Make capital expenditures inconsistent with our business plan. We may
not acquire any fixed or capital assets that are inconsistent with the
business plan we submitted to NTFC Capital Corporation.

. Transact business under assumed names. We may not transact business
under assumed names not listed in our agreement with NTFC Capital
Corporation.

. Engage in mergers and consolidations. We are limited in our ability to
enter into any transaction of merger, acquisition or consolidation, to
change our name, corporate structure or fiscal year or to modify our
organizational documents.

. Sell assets. We may only sell the collateral given to NTFC Capital
Corporation in the ordinary course of business or with the permission
of NTFC Capital Corporation.

Events of default under the vendor financing facility include, among other
things:

. payment defaults;

. covenant defaults;

. failure of conditions;

. involuntary and voluntary bankruptcy;

. non-compliance with governmental requirements; and

. default under third party agreements.

On March 31, 2000, we entered into a non-binding letter of intent with GE
Capital and First Union National Bank for a proposed senior credit facility in
an aggregate principal amount of $150 million. If finalized, we expect that
this facility would incorporate or replace our vendor credit facility and that
the proceeds from this financing would be used in connection with the
deployment and expansion of our telecommunications network. We also expect that
any agreement entered into in connection with the proposed financing would
contain customary restrictive covenants and events of default. We have not
entered into an agreement with respect to this proposed financing, and there is
no guarantee that we will do so in the future.

Stock Sales to Senior Management

On September 23, 1999, in connection with his hiring, Joel D. Gross was
granted an option to purchase 830,000 shares of common stock at an exercise
price of $3.75 per share. This option becomes exercisable over time, with the
initial 25%, or 207,500 shares, vesting upon the closing of this offering and
the remainder vesting in equal monthly installments following the first
anniversary of the grant date. On the same date, Mr. Gross also purchased
370,000 shares of common stock at a price of $3.75 per share, or an aggregate
purchase price of $1,387,500.

On February 2, 2000, in connection with our Series D preferred stock
financing, Baker Communications Fund, L.P. assigned a portion of its right to
purchase Series D preferred stock to Mr. Gross, who simultaneously exercised
that right and purchased 214,534 shares of Series D preferred stock for an
aggregate purchase price of $999,998.75.

On December 20, 1999, in connection with his hiring, Kenneth A. Shulman was
granted options to purchase 250,000 shares of common stock at an exercise price
of $6.40. This option becomes exercisable over time, with the initial 25%, or
62,500 shares, vesting upon the closing of this offering and the remainder
vesting in equal monthly installments following the first anniversary of the
grant date. On November 30, 1999, Mr. Shulman also purchased 100,000 shares of
common stock at a price of $6.40 per share or an aggregate purchase price of
$640,000.

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<PAGE>

On December 1, 1999, in connection with his hiring, George F. Holland was
granted an option to purchase 300,000 shares of common stock at a purchase
price of $6.40 per share. This option becomes exercisable over time, with the
initial 25%, or 75,000 shares, vesting on the first anniversary of the grant
date and the remainder vesting in equal monthly installments following the
first anniversary. On the same date, Mr. Holland also purchased 250,000 shares
of common stock at a price of $6.40 per share, or an aggregate purchase price
of $1,600,000. Mr. Holland paid $640,000 of the purchase price for 100,000 of
these shares in cash and paid the remaining $960,000 for 150,000 of these
shares with a full recourse promissory note.

Under the terms of the promissory note, Mr. Holland must pay us the
principal sum of $960,000, together with interest on the unpaid principal
balance at the rate of 6.47% per year, compounded annually, until the note is
paid in full. Principal and interest must be paid in full on December 1, 2009.
If Mr. Holland sells any of his shares, he must make a prepayment on the note
equal to the net proceeds of the sale. The note will become immediately due and
payable after an event of default, including default in payment or insolvency.
Mr. Holland may prepay the note in whole or in part at any time, without
penalty.

On February 3, 2000, several of our executive officers were granted options
to purchase shares of common stock at an exercise price of $9.00 per share
under the 2000 Long-Term Incentive Plan. Colm Kelly was granted options to
purchase 50,000 shares; Tracy Korman was granted options to purchase 150,000
shares; Vern Kennedy was granted options to purchase 590,000 shares; Eric Roden
was granted options to purchase 40,000 shares; and Terrence J. Anderson was
granted options to purchase 150,000 shares.

Stock Repurchase from Senior Management

On June 15, 1999, we repurchased 100,000 shares of common stock from
Terrence J. Anderson at an aggregate purchase price of $200,000.

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<PAGE>

PRINCIPAL STOCKHOLDERS

The following table lists various information with respect to the
beneficial ownership of our common stock as of March 15, 2000, adjusted to
reflect the sale of shares of common stock offered in this prospectus and the
related conversion into shares of common stock on a one-for-one share basis of
our Series A preferred stock, Series B preferred stock, Series C preferred
stock and Series D preferred stock immediately preceding this offering, by:

. each person or entity who is known by us to beneficially own five
percent or more of the outstanding shares of our common stock;

. each director;

. each Named Executive Officer; and

. all of our directors and executive officers as a group.

<TABLE>
<CAPTION>
Percentage of
Shares
Beneficially
Owned(1)(2)
Number of Shares -----------------
Beneficially Before After
Name Owned(1) Offering Offering
- ---- ---------------- -------- --------
<S> <C> <C> <C>
Baker Communications Fund, L.P.(3)......... 6,516,556 25.43% 19.97%
Communications Ventures II, L.P. .......... 2,991,159 11.67% 9.17%
Communications Ventures Affiliates Fund II,
L.P. ..................................... 245,098 * *
ComVentures, as a group(4)................. 3,236,257 12.63% 9.92%
New Enterprise Associates VII, L.P......... 3,228,998 12.60% 9.90%
NEA Presidents Fund........................ 47,859 * *
NEA Ventures 1998, L.P..................... 2,900 * *
New Enterprise Associates, as a group(5)... 3,279,757 12.80% 10.05%
WPG Enterprise Fund III, LLC............... 1,230,186 4.80% 3.77%
Weiss, Peck & Greer Venture Associates IV,
LLC....................................... 1,406,329 5.49% 4.31%
Weiss, Peck & Greer Venture Associates IV
Cayman, L.P. ............................. 177,581 * *
WPG Information Sciences Entrepreneur Fund,
L.P....................................... 52,067 * *
Weiss, Peck & Greer Venture Partners, as a
group(6).................................. 2,866,163 11.18% 8.78%
The State of Michigan Retirement
Systems(7)................................ 2,038,075 7.95% 6.25%
Vern M. Kennedy............................ 1,660,830 6.48% 5.09%
Eric G. Roden.............................. 83,332 * *
Colm D. Kelly.............................. 195,460 * *
Terrence J. Anderson....................... 730,270 2.85% 2.24%
Tracy W. Korman............................ 588,700 2.28% 1.80%
Heidi B. Heiden............................ 20,000 * *
Stuart A. Mencher.......................... 20,000 * *
Edward W. Scott(8)......................... 6,516,556 25.43% 19.97%
Roland A. Van der Meer(9).................. 3,236,257 12.63% 9.92%
Directors & Executive Officers as a group
(12 persons)(10).......................... 13,985,939 54.01% 42.52%
</TABLE>
- --------
* Less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Commission. In computing the number of shares beneficially owned by a
person and the percentage ownership of that person, shares of common stock
subject to options and warrants held by that person that are currently
exercisable or exercisable within 60 days of March 15, 2000 are deemed
outstanding. Such shares, however, are not deemed outstanding for the
purpose of computing the percentage ownership of any other person. Except
for Mr. Scott and Mr. Van der Meer, and as required by applicable
community property laws, each stockholder named in the table has sole
voting and investment power with respect to the shares set forth opposite
his or its name.

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<PAGE>

Except as indicated in the footnotes, the address of each of the persons
in this table is: c/o Broadview Networks Holdings, Inc., 45-18 Court
Square, Suite 300, Long Island City, New York 11101.
(2) Assumes no exercise of the underwriters' over-allotment option.
(3) Baker Communications Fund, L.P.'s address is c/o Baker Capital Corp., 540
Madison Avenue, New York, New York 10022.
(4) The ComVentures group consists of Communications Ventures II, L.P. and
Communications Ventures Affiliates Fund II, L.P. The address for each
entity in this group is c/o ComVentures, 505 Hamilton Avenue, Palo Alto,
California 94301.
(5) Represents 3,228,998 shares held by New Enterprise Associates VII, L.P.,
47,859 shares held by NEA Presidents Fund and 2,900 shares held by NEA
Ventures 1998, L.P. The general partner of New Enterprise Associates VII,
L.P. is NEA Partners VII, L.P. The general partner of NEA Presidents Fund
is NEA General Partners, L.P. The general partner of NEA Ventures 1998,
L.P. is Louis V. Van Dyck. The address for each New Enterprise Associates
entity in this group is c/o New Enterprise Associates, One Freedom Square,
11951 Freedom Drive, Suite 1240, Reston, Virginia 20190.
(6) Represents 1,230,186 shares held by WPG Enterprise Fund III, LLC,
1,406,329 shares held by Weiss, Peck & Greer Venture Associates IV, LLC,
177,581 shares held by Weiss, Peck & Greer Venture Associates IV Cayman,
L.P. and 52,067 shares owned by WPG Information Sciences Entrepreneur
Fund, L.P. WPG VC Fund Adviser, LLC is the Investment Advisory Member of
WPG Enterprise Fund III, LLC, Weiss, Peck & Greer, Venture Associates IV,
LLC and Weiss, Peck & Greer Venture Associates IV Cayman, L.P. WPG VC Fund
Adviser, LLC is the general partner of WPG Information Sciences
Entrepreneur Fund, L.P. Barry Eggers is the Managing Member of WPG VC Fund
Adviser, LLC. The address for each entity in this group is c/o Weiss, Peck
& Greer Venture Partners, 555 California Street, San Francisco, California
94104.
(7) The State Treasurer of the State of Michigan, as Custodian of the Michigan
Public School Employees' Retirement System, State Employees' Retirement
System and Michigan State Police Retirement System. The address for this
stockholder is Michigan Department of Treasury, Alternative Investment
Division, 2501 Coolridge Road, Suite 400, East Lansing, Michigan 48823.
(8) All of the shares indicated are owned by Baker Communications Fund, L.P.
Baker Capital Partners, LLC is general partner of Baker Communications
Fund, L.P. Edward W. Scott, a director of Broadview, is a general partner
of Baker Communications Fund, L.P. Mr. Scott disclaims beneficial
ownership of the shares held by Baker Communications Fund, L.P. except to
the extent of his pecuniary interest in Baker Communications Fund, L.P.
(9) All of the shares indicated are owned Communications Ventures II, L.P. and
Communications Ventures Affiliates Fund II, L. P. ComVen II, LLC is
general partner of both Communications Ventures II, L.P. and
Communications Ventures Affiliates Fund II, L.P. Roland A. Van der Meer is
a member of ComVen II, LLC. Mr. Van der Meer disclaims beneficial
ownership of the shares held by ComVen II, LLC except to the extent of his
pecuniary interest in ComVen II, LLC.
(10) Includes an aggregate of 8,333 shares of common stock subject to options
held by directors and executive officers which are exercisable within 60
days of February 5, 2000.

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<PAGE>

DESCRIPTION OF CAPITAL STOCK

The following summary of the terms of our capital stock is qualified in its
entirety by reference to the applicable provisions of Delaware law and our
certificate of incorporation and bylaws.

Our certificate of incorporation authorizes the issuance of up to 160
million shares of capital stock, consisting of 150 million shares of common
stock, par value $0.01 per share, and 10 million shares of preferred stock, par
value $0.01 per share.

The common stock and the preferred stock that may be issued under our
certificate of incorporation are described below.

Common Stock

Shares of common stock have the following rights, preferences and
privileges.

Voting Rights. Each outstanding share of common stock is entitled to one
vote on all matters submitted to a vote of our stockholders, including the
election of directors. There is no cumulative voting in the election of
directors.

Stockholders may not act by written consent and must act on all proposals
at an annual or special meeting.

Dividends, Distributions and Stock Splits. Holders of common stock are
entitled to receive dividends at the same rate if and when such dividends are
declared by our board of directors out of assets legally available therefor
after payment of dividends required to be paid on shares of preferred stock, if
any.

Liquidation. In the event of any dissolution, liquidation, or winding up of
our affairs whether voluntary or involuntary, after payment of our debts and
other liabilities and making provision for the holders of preferred stock, if
any, our remaining assets will be distributed ratably among the holders of the
common stock.

All shares of common stock outstanding are fully paid and nonassessable,
and all the shares of common stock to be outstanding upon completion of this
offering will be fully paid and nonassessable.

Preferred Stock

Shares of preferred stock have the following rights, preferences and
privileges. All outstanding shares of our Series A, Series B, Series C and
Series D preferred stock will be converted into 17,561,703 shares of common
stock following the closing of this offering.

Series A Convertible Preferred Stock. On January 29, 1998, we issued
3,446,070 shares of Series A convertible preferred stock to Communications
Ventures II, L.P., Communications Ventures Affiliates Fund II, L.P., New
Enterprise Associates VII, L.P., NEA Presidents Fund, NEA Ventures 1998, L.P.
WPG Enterprise Fund III, LLC, Weiss, Peck & Greer Venture Associates IV, LLC,
Weiss, Peck & Greer Venture Associates IV Cayman L.P. and WPG Information
Sciences Entrepreneur Fund L.P. for $5,970,384, net of $30,531 in fees and
expenses. The Series A preferred stock is convertible, at the option of the
holder, into shares of common stock at any time. The conversion price is $1.74,
subject to the investors' anti-dilution protection rights. The Series A
preferred stock automatically converts:

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<PAGE>

. after the closing of our registration statement on a Form S-1 at a per
share price of at least $6.97 or at an aggregate public offering price
of no less than $15.0 million, prior to underwriting, commissions and
expenses; or

. at the election of holders of a majority of the then outstanding Series
A preferred stock, voting together as a single class, at the current
conversion ratio. If we are liquidated, holders of Series A preferred
stock are entitled to receive, before any amount is paid to holders of
common stock but after payments to holders of Series C preferred stock
and Series D preferred stock, an amount per share equal to $1.74, as
adjusted for any stock dividends, combinations or splits, plus all
declared but unpaid dividends, if any. The Series A preferred stock
carries voting rights equal to one vote per share, on an as if converted
basis. Holders of the Series A preferred stock are entitled to receive
dividends at the discretion of our board of directors. No dividends have
been declared on the Series A preferred stock.

Series B Convertible Preferred Stock. On September 11, 1998, we issued
1,838,799 shares of Series B Convertible preferred stock to Communications
Ventures II, L.P., Communications Ventures Affiliates Fund II, L.P., New
Enterprise Associates VII, L.P., NEA Presidents Fund, WPG Enterprise Fund III,
LLC, Weiss Peck & Greer Venture Associates IV, LLC, Weiss Peck & Greer Venture
Associates IV Cayman L.P. and WPG Information Sciences Entrepreneur Fund, L.P.
for $5,969,470, net of $30,531 in fees and expenses. The Series B preferred
stock is convertible, at the option of the holder, into shares of common stock
at any time. The conversion price is $3.26, subject to the investors' anti-
dilution protection rights. The Series B preferred stock automatically
converts:

. at the election of holders of more than 50% of the then outstanding
Series B preferred stock, voting together as a single class, at the
current conversion ratio. In the event of liquidation, holders of Series
B preferred stock are entitled to receive, before any amount is paid to
holders of common stock, an amount per share equal to $3.26, as adjusted
for any stock dividends, combinations or splits, plus all declared but
unpaid dividends, if any. The Series B preferred stock carries voting
rights equal to one vote per share, on an as converted basis. Holders of
the Series B preferred stock are entitled to receive dividends at the
discretion of our board of directors. No dividends have been declared on
the Series B preferred stock.

Series C Mandatorily Redeemable Convertible Preferred Stock. On April 23,
1999 we issued 6,269,875 Series C mandatorily redeemable convertible preferred
stock to Baker Communications Fund, L.P., Communications Ventures II, L.P.,
Communications Ventures Affiliates Fund II, L.P., New Enterprise Associates
VII, L.P., WPG Enterprise Fund III, LLC, Weiss, Peck & Greer Venture Associates
IV Cayman, L.P. and WPG Information Sciences Entrepreneur Fund L.P. for
$27,795,875, net of $204,125 fees and expenses. This issue has a stated
liquidation preference of $4.46580 per share, plus all accrued and unpaid
dividends whether or not declared ("Series C liquidation preference") and is
senior in liquidation to the Series A preferred stock and Series B preferred
stock, and all common stock. Holders of the Series C preferred stock have the
right to convert their shares into common stock at any time. The conversion
price is $4.4658, subject to certain antidilution rights, as defined. Holders
of Series C preferred stock are entitled to receive, at the discretion of our
board of directors, cumulative preferential dividends at an annual rate of 8%
of the Series C liquidation preference. The Series C preferred stock carries
voting rights equal to one vote per share, on an as converted basis. In
addition, holders of Series C preferred stock, voting as a class, have veto
rights on specific corporate actions. At any time after April 23, 2005, the
Series C

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<PAGE>

preferred stock is redeemable at the option and written election of the holders
of at least 50% of the Series C preferred stock within one year of such
election at the greater of:

. the fair market value of the common stock underlying the Series C
preferred stock to be redeemed, as defined, or

. the aggregate Series C liquidation preference of the Series C preferred
stock to be redeemed. No dividends have been declared on the Series C
preferred stock.

Series D Mandatorily Redeemable Convertible Preferred Stock. On February 2
and February 4, 2000 we issued a total of 6,006,959 shares of Series D
mandatorily redeemable convertible preferred stock to Baker Communications
Fund, L.P., Joel Gross, the State Treasurer of the State of Michigan, as
Custodian of the Michigan Public School Employees' Retirement System, State
Employees' Retirement System and Michigan State Police Retirement System,
Communications Ventures II, L.P., Communications Ventures Affiliates Fund II,
L.P., New Enterprise Associates VII, L.P., WPG Enterprise Fund III, LLC, Weiss,
Peck & Greer Venture Associates IV Cayman, L.P. and WPG Information Sciences
Entrepreneur Fund L.P. for $27,950,000, net of approximately $50,000 fees and
expenses. This issue has a stated liquidation preference of $4.66126 per share,
plus all accrued and unpaid dividends whether or not declared ("Series D
liquidation preference") and is senior in liquidation to the Series A preferred
stock and Series B preferred stock, and all common stock. Holders of the Series
D preferred stock have the right to convert their shares into common stock at
any time. The conversion price is $4.66126, subject to certain antidilution
rights, as defined. Holders of Series D preferred stock are entitled to receive
when, as and if, dividends are declared by our board of directors, cumulative
preferential dividends at an annual rate of 8% of the Series D liquidation
preference. The Series D preferred stock carries voting rights equal to one
vote per share, on an as converted basis. In addition, holders of Series D
preferred stock, voting as a class, have veto rights on specific corporate
actions. At any time after April 23, 2005, the Series D preferred stock is
redeemable at the option and written election of the holders of a majority of
the Series D preferred stock within one year of the election at the greater of:

. the fair market value of the common stock underlying the Series D
preferred stock to be redeemed, or

. the aggregate Series D liquidation preference of the Series D preferred
stock to be redeemed. No dividends have been declared on the Series D
preferred stock.

New Preferred Stock. Upon the closing of this offering, the board of
directors will have the authority, without further action by the stockholders,
to issue up to 10 million shares of preferred stock, $0.01 par value, in one or
more series and to fix the designations, powers, preferences, privileges, and
relative participating options, or special rights and the qualifications,
limitations, or restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption and liquidation preferences, any or
all of which may be greater than the rights of the common stock. The board of
directors, without stockholder approval, can issue preferred stock with voting,
conversion, or other rights that could adversely affect the voting power and
other rights of the holders of common stock. Preferred stock could thus be
issued with terms calculated to delay or prevent a change in our control or
make removal of management more difficult. Additionally, the issuance of
preferred stock may have the effect of decreasing the market price of the
common stock, and may adversely affect the voting and other rights of the
holders of common stock. Upon the completion of this offering, there will be no
shares of preferred stock outstanding and we have no current plans to issue any
of the preferred stock.

Warrants

We granted warrants to purchase a total of 344,520 shares of common stock
to the purchasers of Series A preferred stock. Each warrant could be exercised
at any time after August 1, 1998 at a price of $0.01 per share. As of the
effective date of the re-incorporation of the Company in the State of Delaware,
the warrants were terminated.

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<PAGE>

We granted warrants to purchase a total of 612,183 shares of common stock
to the purchasers of Series B preferred stock. Each warrant could be exercised
at any time after the closing of the transaction at a price of $0.001 per
share. The fair value of the warrants at the time of grant was approximately
$1,065,000. As a result of the closing of the Series C preferred stock on April
23, 1999, 459,139 warrants issued to the investors of Series B preferred stock
were exercised for 459,139 shares of common stock and the balance of the
warrants was terminated.

Registration Rights of Certain Holders

We have granted registration rights to holders of our Series A preferred
stock, Series B preferred stock, Series C preferred stock and Series D
preferred stock who will become common stockholders upon effectiveness of this
offering when their preferred stock is converted to our common stock.

Delaware Anti-Takeover Law and Certain Charter and Bylaw Provisions

Section 203 of the Delaware General Corporation Law. We are subject to the
provisions of Section 203 of the Delaware General Corporation Law, an anti-
takeover law. In general, the statute prohibits a publicly-held Delaware
corporation from engaging in a business combination with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless:

. the transaction is approved by the board of directors prior to the
date the "interested stockholder" obtained such status;

. upon consummation of the transaction which resulted in the stockholder
becoming an "interested stockholder," the "interested stockholder,"
owned at least 85% of the voting stock of the corporation outstanding
at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned by:

(a)persons who are directors and also officers; and

(b) employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held subject
to the plan will be tendered in a tender or exchange offer; or

. on or subsequent to such date the "business combination" is approved
by the board of directors and authorized at an annual or special
meeting of stockholders by the affirmative vote of the holders of at
least two-thirds of the outstanding voting stock which is not owned by
the "interested stockholder."

A "business combination" is defined to include mergers, asset sales and
other transactions resulting in financial benefit to a stockholder. In general,
an "interested stockholder" is a person who, together with affiliates and
associates, owns or within three years did own, 15% or more of a corporation's
voting stock. The statute could prohibit or delay mergers or other takeover or
change in control attempts with respect to our company and, accordingly, may
discourage attempts to acquire us.

Stockholders may, by adopting an amendment to our certificate of
incorporation or bylaws, elect for us not to be governed by Section 203,
effective 12 months after adoption. Neither our certificate of incorporation
nor our bylaws exempt us from the restrictions imposed under Section 203 of the
Delaware General Corporation Law. It is anticipated that the provisions of
Section 203 of the Delaware General Corporation Law may encourage companies
interested in acquiring us to negotiate in advance with the board of directors
because the stockholder approval requirement would be avoided if a majority of
the directors then in office approve either the business combination or the
transaction that results in the stockholder becoming an interested stockholder.

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<PAGE>

Classified Board of Directors. Following completion of the offering, our
board of directors will be divided into three classes of directors. The first
class will consist of one director and the second and third classes will each
consist of two directors. Each class will serve a staggered three-year term. As
a result, only one or two members of the board of directors will be selected
each year, and a director will generally stand for election only once every
three years. The board of directors believes that a classified board will help
to assure the continuity and stability of the board and our business strategies
and policies. The classified board provision could have the effect, however, of
discouraging a third party from making a tender offer or otherwise attempting
to obtain control of our company, even though the attempt might be beneficial
to us and our stockholders. In addition, the classified board provision could
delay stockholders who do not agree with the policies of the board from
removing a majority of the board for two years. A vote of the holders of at
least two-thirds of our common stock is required to change the classified board
provision.

Other Provisions. Following completion of this offering, our certificate of
incorporation and bylaws will provide, in general, that:

. any vacancy or newly created directorship on the board of directors
will be filled by a majority of, the directors in office with any new
director to serve for the remaining term of the class of directors to
which he or she is elected;

. directors may be removed by our stockholders only for cause and by a
vote of the holders of at least two-thirds of our stock (both common
and preferred) entitled to vote generally in the election of directors
("voting stock");

. special meetings of stockholders may be called only by the board of
directors or a committee of the board of directors expressly
authorized to call a special meeting, and the business permitted to be
conducted at a special meeting is limited to business brought before
the meeting by the board of directors;

. election of directors and votes regarding amendments to the
certificate of incorporation or bylaws must be by written ballot; and

. stockholders may not act by written consent and must act on all
proposals at an annual or special meeting.

Our bylaws also require that stockholders wishing to bring any business,
including director nominations, before an annual meeting of stockholders
deliver written notice to us not later than 60 days or more than 90 days prior
to the date on which we first mailed our proxy materials for the prior year's
annual meeting of stockholders. If, however, our annual meeting is set for a
date that is not within 30 calendar days of the anniversary of the prior year's
meeting, notice by the stockholder must be delivered to us not later than the
close of business on the tenth day following the day on which we publicly
announce the date of our annual meeting. Our bylaws further require that the
notice by the stockholder list, among other things:

. A description of the business to be brought before the annual meeting,
including information with respect to a nominated director;

. The reasons for conducting the business at the meeting; and

. Specific information concerning the stockholder proposing the business
and the beneficial owner, if any, on whose behalf the proposal is
made.

Our certificate of incorporation and bylaws state that the provisions
summarized in this section and the provisions relating to the classification of
the board of directors may not be amended by our stockholders, nor may any
provision inconsistent with the certificate of incorporation or bylaws be
adopted by our stockholders, without the affirmative vote of the holders of at
least two-thirds of our voting stock, voting together as a single class.

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<PAGE>

The above provisions of our certificate of incorporation and bylaws
relating to removal of directors, special meetings of stockholders and advance
notice of stockholder proposals may discourage or make more difficult the
acquisition of control of us by means of a tender offer, open market purchase,
proxy contest or otherwise. These provisions may have the effect of
discouraging specific types of coercive takeover practices and inadequate
takeover bids and may encourage persons seeking to acquire control of us first
to negotiate with the board of directors. We believe that these measures will
benefit us and our stockholders by enhancing our ability to negotiate with the
proponent of any unfriendly or unsolicited proposal to acquire or restructure
us. We also believe that the benefits outweigh the disadvantages of
discouraging these proposals because, among other things, negotiation of these
proposals could result in better terms.

Limitation of Liability and Indemnification of Directors

Our certificate of incorporation provides for the indemnification of
directors to the fullest extent permissible under the Delaware General
Corporation Law. Among other things, our certificate of incorporation contains
provisions that eliminate a director's personal liability for monetary damages
resulting from a breach of fiduciary duty, except in circumstances involving
some wrongful acts, including:

. for any breach of the director's duty of loyalty to us or our
stockholders;

. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;

. under Section 174 of the Delaware General Corporation Law; or

. for any transaction from which the director derives an improper
personal benefit.

Our bylaws also contain provisions indemnifying our directors and officers
to the fullest extent permitted by the Delaware General Corporation Law.

We have also entered into a directors indemnification agreement with each
of our directors. Under the terms of each agreement, we agree to indemnify the
director to the fullest extent permitted by law, irrespective of whether the
indemnification is authorized by our certificate of incorporation, bylaws, or
Delaware General Corporation Law. We agree to indemnify each director for
expenses, including attorneys' fees, judgments and fines incurred with respect
to any litigation or proceeding related to the fact that the director is our
director or fiduciary. This includes indemnification for liability arising from
(i) the declaration of dividends to stockholders in the absence of a surplus,
(ii) the approval of the issuance of securities and the failure to register the
securities under relevant securities laws, and (ii) the approval of amendments
to stock option plans without obtaining necessary consents.

These provisions including the provisions of our certificate of
incorporation, do not limit or eliminate our rights or rights of any
stockholder to seek non-monetary relief, such as an injunction or rescission,
in the event of a breach of a director's fiduciary duty. These provisions will
not alter a director's liability under federal securities laws. We believe that
these provisions are necessary to attract and retain qualified individuals to
serve as directors and officers.

Listing

We have applied to have the common stock approved for quotation on the
Nasdaq National Market under the trading symbol "BDVU."

Transfer Agent and Registrar

The transfer agent and registrar for the common stock is EquiServe Trust
Company. Its address is 525 Washington Boulevard, Jersey City, NJ 07310, and
its telephone number at this location is (201) 324-1225.

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<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has not been any public market for the common
stock, and no prediction can be made as to the effect, if any, that market
sales of shares of common stock or the availability of shares of common stock
for sale will have on the market price of the common stock prevailing from time
to time. Nevertheless, sales of substantial amounts of common stock in the
public market, or the perception that such sales could occur, could adversely
affect the market price of the common stock and could impair our future ability
to raise capital through the sale of our equity securities.

Upon completion of this offering and the related conversion into shares of
common stock on a one-to-one basis of the Series A preferred stock, Series B
preferred stock, Series C preferred stock and Series D preferred stock, we will
have an aggregate of 32,627,116 shares of common stock outstanding, assuming no
exercise of the underwriters' over-allotment option and no exercise of
outstanding options. Of these outstanding shares, the 7,000,000 shares sold in
this offering will be freely tradable without restriction or further
registration under the Securities Act, except that any shares purchased by our
"affiliates," as that term is defined in Rule 144 promulgated under the
Securities Act, will be deemed "restricted securities," as defined in Rule 144,
and may only be sold in compliance with the limitations described below.
Restricted securities may be sold in the public market only if such securities
are registered under the Securities Act or if they qualify for an exemption
from registration under Rule 144, 144(k) or 701 promulgated under the
Securities Act, which rules are summarized below. Subject to the lock-up
agreements described below and the provisions of Rules 144, 144(k) and 701,
this leaves 25,627,116 additional shares eligible for sale in the public market
as follows:

<TABLE>
<CAPTION>
Number of
Shares Date of first availability for resale
---------- -------------------------------------
<C> <S>
224,044 Immediately after the date of this prospectus
33,392 90 days from the date of this prospectus (Rule 144)
25,369,680 At various times after 180 days from the date of this prospectus
(subject, in some cases, to volume limitations)
</TABLE>

Rule 144

In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person, or persons whose shares are required to
be aggregated, such as an affiliate, who has beneficially owned shares of our
common stock for at least one year would be entitled to sell, within any three-
month period, a number of shares that does not exceed the greater of

. 1% of the then outstanding shares of our common stock, which will
equal approximately 326,271 shares immediately after this offering, or

. the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of
a notice on Form 144 with respect to that sale.

Sales under Rule 144 are also subject to manner of sale restrictions and
notice requirements and to the availability of current public information about
us.

Rule 144(k)

Under Rule 144(k), a person who is not deemed to have been our affiliate at
any time during the 90 days preceding a sale and who has beneficially owned the
shares proposed to be sold for at

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<PAGE>

least two years would be entitled to sell such shares under Rule 144(k) without
regard to the volume, manner of sale and notice requirements mentioned above.
To the extent that shares were acquired from an affiliate, such person's
holding period for the purpose of effecting a sale under Rule 144 commences on
the date of transfer from the affiliate.

Rule 701

In general, under Rule 701 of the Securities Act as currently in effect,
any of our employees, consultants or advisors who purchase shares of our common
stock from us in connection with a compensatory stock or option plan or other
written agreement is eligible to resell those shares 90 days after the
effective date of this offering in reliance on Rule 144, but without compliance
with some of the restrictions, including the holding period, contained in Rule
144. As of the date of this prospectus, options to purchase a total of
6,140,416 shares of common stock are outstanding, of which 989,723 are
currently exercisable unless subject to the 180-day lock-up period described
below.

Within 180 days following the closing of this offering, we intend to file a
registration statement on Form S-8 to register for resale the 4.1 million
shares of common stock issued or reserved for issuance under our 1997 Stock
Option Plan and the 5.2 million shares of common stock issued or reserved for
issuance under our 2000 Long-Term Incentive Plan. Such registration statement
will automatically become effective upon filing. Accordingly, shares covered by
that registration statement will then be eligible for sale in the public
markets, unless these options are subject to vesting restrictions or the lock-
up agreements referred to below.

Lock-Up Agreements

Directors and officers and various stockholders who hold 25,369,680 shares
in the aggregate, together with the holders of options to purchase 4,502,370
shares of common stock, have agreed that they will not sell, directly or
indirectly, any shares of common stock, other than those obtained in the
directed share program, without the prior written consent of Goldman, Sachs &
Co. for a period of 180 days from the date of this prospectus.

We have agreed not to sell or otherwise dispose of any shares of common
stock during the 180-day period following the date of the prospectus without
Goldman Sachs' prior written consent, except we may issue, and grant options to
purchase, shares of common stock under the 2000 Long Term Incentive Plan and
2000 Employee Stock Purchase Plan.

Registration Rights

Following this offering, under various circumstances and subject to various
conditions, holders of 18,151,342 shares of our outstanding common stock prior
to this offering will have certain demand registration rights with respect to
their shares of common stock, subject to the 180 day lock-up arrangement
described above, to require that we register their shares of common stock under
the Securities Act, and they will have certain rights to participate in any
future registration of securities by us. We are not required to effect more
than an aggregate of three demand registrations on behalf of such holders.
These holders are subject to lock-up periods of not more than 180 days
following the date of this prospectus or any subsequent prospectus.

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<PAGE>

UNDERWRITING

Broadview Networks and the underwriters named below have entered into an
underwriting agreement with respect to the shares being offered. Subject to
certain conditions, each underwriter has severally agreed to purchase the
number of shares indicated in the following table. Goldman, Sachs & Co., Bear,
Stearns & Co. Inc. and Donaldson, Lufkin & Jenrette Securities Corporation are
the representatives of the underwriters.

<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
Goldman, Sachs & Co.........................................
Bear, Stearns & Co. Inc. ...................................
Donaldson, Lufkin & Jenrette Securities Corporation.........
---
Total.....................................................
===
</TABLE>

If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional
1,050,000 shares from Broadview Networks to cover such sales. They may exercise
that option for 30 days. If any shares are purchased pursuant to this option,
the underwriters will severally purchase shares in approximately the same
proportion as set forth in the table above.

The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by Broadview Networks. Such
amounts are shown assuming both no exercise and full exercise of the
underwriters' option to purchase additional shares.

<TABLE>
<CAPTION>
Paid by Broadview Networks
--------------------------
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per share.......................................... $ $
Total.............................................. $ $
</TABLE>

Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus.
Any shares sold by the underwriters to securities dealers may be sold at a
discount of up to $ per share from the initial public offering price. Any
such securities dealers may resell any shares purchased from the underwriters
to certain other brokers or dealers at a discount of up to $ per share from
the initial public offering price. If all of the shares are not sold at the
initial public offering price, the representatives may change the offering
price and the other selling terms.

Broadview Networks and its directors, officers and a majority of its
stockholders have agreed with the underwriters not to dispose of or hedge any
of its common stock or securities convertible into or exchangeable for shares
of common stock, other than shares obtained in the directed share program,
during the period from the date of this prospectus continuing through the date
180 days after the date of this prospectus, except with the prior written
consent of the representatives. This agreement does not apply to any existing
employee benefit plans. See "Shares Eligible for Future Sale" for a discussion
of certain transfer restrictions.

At Broadview Networks' request, the underwriters are reserving up to
350,000 shares of common stock for sale at the initial public offering price to
directors, officers, employees and friends through a directed share program.
The number of shares of common stock available for sale to the general public
in the offering will be reduced to the extent these persons purchase these
reserved shares. Any shares not so purchased will be offered by the
underwriters to the general public on the same basis as other shares offered
hereby.

Prior to the offering, there has been no public market for the shares. The
initial public offering price will be negotiated among Broadview Networks and
the representatives. Among the factors to be

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<PAGE>

considered in determining the initial public offering price of the shares, in
addition to prevailing market conditions, will be Broadview Networks'
historical performance, estimates of the business potential and earnings
prospects of Broadview Networks, an assessment of Broadview Networks'
management and the consideration of the above factors in relation to market
valuation of companies in related businesses.

Broadview Networks has applied for quotation of the common stock on the
Nasdaq National Market under the symbol "BDVU."

In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the common
stock while this offering is in progress.

The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares
sold by or for the account of such underwriter in stabilizing or short covering
transactions.

These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the
open market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.

The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.

A prospectus in electronic format may be made available on the websites
maintained by one or more underwriters or securities dealers. The underwriters
may agree to allocate a number of shares to underwriters for sale to their
online brokerage account holders. Internet distributions will be allocated by
the lead managers to underwriters that may make internet distributions on the
same basis as other allocations. In addition, shares may be sold by the
underwriters to securities dealers who resell shares to online brokerage
account holders.

Broadview Networks estimates that its share of the total expenses of this
offering, excluding underwriting discounts and commission, will be
approximately $2,200,000.

Broadview Networks has agreed to indemnify the separate underwriters
against various liabilities, including liabilities under the Securities Act of
1933.

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<PAGE>

LEGAL MATTERS

The validity of the shares of common stock offered in this prospectus will
be passed upon for Broadview Networks by Mayer, Brown & Platt, New York, New
York, and for the underwriters by Cravath, Swaine & Moore, New York, New York.

EXPERTS

The consolidated statements as of December 31, 1999 and 1998 and for each
of the three years in the period ended December 31, 1999 included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.

WHERE YOU CAN FIND MORE INFORMATION ABOUT BROADVIEW NETWORKS

We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the shares of
common stock offered in this prospectus. This prospectus does not contain all
of the information in the registration statement and the exhibits and schedules
contained in it. Various items are omitted following the rules and regulations
of the SEC. For further information with respect to Broadview Networks and the
common stock offered in this prospectus, reference is made to the registration
statement and the exhibits and schedules filed with it. Statements contained in
this prospectus as to the contents of any contract or any other document
referred to are not necessarily complete, and, in each instance that a copy of
the contract or other document has been filed as an exhibit to the registration
statement, reference is made to the exhibit filed, each relevant statement
being qualified in all respects by the reference.

A copy of the registration statement, and the exhibits and schedules
contained in it, may be inspected without charge at the public reference
facilities maintained by the SEC in Room 1024, 450 Fifth Street., N.W.,
Washington, D.C. 20549, and at the SEC's regional offices located at the
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and Seven World Trade Center, 13th Floor, New York, New York 10048, and copies
of all or any part of the registration statement may be obtained from these
offices upon the payment of the fees prescribed by the SEC. You may obtain
information about the operation of these public reference facilities by calling
the SEC at 1-800-SEC-0330. The SEC maintains a website that contains reports,
proxy and information statements and other information regarding registrants
that file electronically. The address of the site is http://www.sec.gov.

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<PAGE>

Broadview Networks Holdings, Inc. and Subsidiaries

Index to the Consolidated Financial Statements

Page

<TABLE>
<S> <C>
Report of Independent Accountants.......................................... F-2
Consolidated Balance Sheets at December 31, 1998 and 1999.................. F-3
Consolidated Statements of Operations for the years ended December 31,
1997, 1998 and 1999....................................................... F-4
Consolidated Statements of Mandatorily Redeemable Securities and
Stockholders' Equity (Deficit) for the years ended December 31, 1997, 1998
and 1999.................................................................. F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999....................................................... F-6
Notes to the Consolidated Financial Statements............................. F-7
</TABLE>

F-1
<PAGE>

Report of Independent Accountants

To the Board of Directors and Stockholders of
Broadview Networks Holdings, Inc. and Subsidiaries

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of mandatorily redeemable securities and
stockholders' equity (deficit) and cash flows present fairly, in all material
respects, the financial position of Broadview Networks Holdings, Inc. and its
subsidiaries as of December 31, 1998, and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.

/s/ PricewaterhouseCoopers LLP

New York, New York
February 4, 2000, except as to Note 18, which is as of April 4, 2000

F-2
<PAGE>

BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
Pro forma
December 31, as of
-------------------------- December 31,
1998 1999 1999
------------ ------------ ------------
Unaudited
See Note 2
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents.......... $ 3,052,524 $ 5,572,220
Accounts receivable, net of
allowance of $382,302 and
$1,302,491 at December 31, 1998
and 1999, respectively............ 3,171,920 6,552,341
Note receivable from officer....... -- 640,000
Other current assets............... 472,487 1,280,756
------------ ------------
Total current assets.............. 6,696,931 14,045,317
Restricted certificates of depos-
it................................ 100,000 434,000
Property and equipment, net........ 658,923 15,597,594
Intangible assets, net............. 319,923 --
Other assets....................... 231,198 632,115
------------ ------------
Total assets...................... $ 8,006,975 $ 30,709,026
============ ============
Liabilities, Mandatorily Redeemable
Securities and Stockholders' Equity
(Deficit)
Current liabilities:
Accounts payable................... $ 2,489,641 $ 5,817,458
Accrued and other current liabili-
ties.............................. 650,684 5,510,410
Payroll related liabilities........ 363,521 973,903
Taxes payable...................... 531,176 2,216,395
Capital lease obligations.......... 56,563 76,464
Current portions of long term debt
and payable....................... -- 742,268
------------ ------------
Total current liabilities......... 4,091,585 15,336,898
Long term payable.................. -- 1,049,397
Long term debt..................... -- 6,819,683
Capital lease obligations.......... 83,890 109,947
------------ ------------
83,890 7,979,027
------------ ------------
Total liabilities................. 4,175,475 23,315,925
Commitments and contingencies (see
Note 12)
Mandatorily redeemable securities:
Series C convertible preferred
stock, $.01 par value, 6,269,875
shares authorized, issued and
outstanding at December 31, 1999;
no pro forma shares issued and
outstanding....................... -- 38,888,367
Common Stock, $.01 par value,
370,000 shares issued and
outstanding at December 31, 1999;
no pro forma shares issued and
outstanding....................... -- 5,180,000
------------ ------------
Total mandatorily redeemable
securities....................... -- 44,068,367
Stockholders' equity (deficit):
Convertible preferred stock, $.01
par value 5,800,000 and 16,900,000
shares authorized at December 31,
1998 and 1999, respectively; pro
forma 17,600,000 shares authorized
Series A--3,446,070 shares issued
and outstanding at December 31,
1998 and 1999; no pro forma
shares issued and outstanding.... 34,461 34,461
Series B--1,838,799 shares issued
and outstanding at December 31,
1998 and 1999; no pro forma
shares issued and outstanding.... 18,388 18,388
Common stock, $.01 par value,
32,000,000 shares authorized,
6,980,882 and 7,695,413 shares
issued and outstanding at December
31, 1998 and 1999, respectively;
pro forma 36,000,000 shares
authorized, 25,627,116 shares
issued and outstanding............ 69,809 76,954 $ 256,271
Receivable from officer for
issuance of stock................. -- (960,000) (960,000)
Additional paid-in capital......... 15,596,004 33,290,153 105,182,052
Deferred compensation.............. (783,500) (20,401,000) (20,401,000)
Accumulated deficit................ (11,103,662) (48,734,222) (48,734,222)
------------ ------------ ------------
Total stockholders' equity (defi-
cit)............................. 3,831,500 (36,675,266) $ 35,343,101
------------ ------------ ------------
Total liabilities, mandatorily
redeemable securities and
stockholders equity (deficit).... $ 8,006,975 $ 30,709,026
============ ============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-3
<PAGE>

BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Revenues, net.......................... $ 2,070,264 $10,866,123 $ 37,203,295
Operating expenses:
Cost of revenues (excluding
depreciation and amortization)....... 1,759,426 9,506,778 33,964,926
General and administrative (excluding
$20,000 and $9,874,700 of non-cash
compensation in 1998 and 1999,
respectively)........................ 1,024,303 4,555,312 16,288,690
Sales and marketing (excluding
$482,275 of non-cash compensation in
1999)................................ 449,056 4,181,043 11,034,222
Software development (excluding
$475,500 and $563,025 of non-cash
compensation in 1998 and 1999,
respectively)........................ 30,000 1,435,650 2,083,658
Depreciation and amortization......... 123,715 610,157 1,059,569
Non-cash compensation................. -- 495,500 10,920,000
----------- ----------- ------------
Total operating expenses.............. 3,386,500 20,784,440 75,351,065
Operating loss........................ (1,316,236) (9,918,317) (38,147,770)
Interest income........................ 18,406 221,248 854,207
Interest expense....................... (4,221) (14,070) (336,997)
----------- ----------- ------------
Net loss............................. (1,302,051) (9,711,139) (37,630,560)
Accretion of Series C mandatorily
redeemable convertible preferred
shares to redemption value............ -- -- (11,092,492)
----------- ----------- ------------
Net loss applicable to common
stockholders.......................... $(1,302,051) $(9,711,139) $(48,723,052)
=========== =========== ============
Basic and diluted net loss per share
applicable to common shareholders..... $ (0.24) $ (1.49) $ (6.73)
=========== =========== ============
Weighted average common shares used in
computing basic and diluted net loss
per share applicable to common
stockholders.......................... 5,391,317 6,510,871 7,238,631
=========== =========== ============
Pro forma basic and diluted net loss
per common share (unaudited).......... $ (2.23)
============
Weighted average shares used in
computing pro forma basic and diluted
net loss per common share
(unaudited)........................... 16,864,162
============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-4
<PAGE>

The accompanying notes are an integral part of these consolidated financial
statements.
BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF MANDATORILY REDEEMABLE SECURITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)

<TABLE>
<CAPTION>
Mandatorily Redeemable Securities
---------------------------------------------------- -----------------------------------
Series C Series A and B
Convertible Total Convertible
Preferred Stock Common Stock Mandatorily Preferred Stock Common Stock
--------------------- ------------------ Redeemable ----------------- -----------------
Shares Amount Shares Amount Securities Shares Amount Shares Amount
--------- ----------- ------- ---------- ----------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1996............ 4,495,002 $44,950
Issuance of
common stock in
connection with
business
acquisition..... 290,000 2,900
Issuance of
common stock.... 1,441,300 14,413
Issuance of
common stock
options for non-
compete
agreements......
Issuance of
common stock
options for
consulting
services........
Net loss........
--------- ------- --------- -------
Balance at
December 31,
1997............ 6,226,302 62,263
Issuance of
common stock
options for
consulting
services........
Issuance of
restricted
common stock in
connection with
business
acquisition..... 551,580 5,516
Deferred
compensation
related to stock
options.........
Amortization of
deferred
compensation....
Issuance of
common stock.... 87,000 870
Exercise of
common stock
options......... 116,000 1,160
Issuance of
Series A
convertible
preferred
stock........... 3,446,070 $34,461
Issuance of
Series B
convertible
preferred
stock........... 1,838,799 18,388
Net loss........
--------- ------- --------- -------
Balance at
December
31,1998......... 5,284,869 52,849 6,980,882 69,809
Amortization of
deferred
compensation....
Purchase of
treasury stock..
Issuance of
common stock.... 370,000 $1,387,500 $ 1,387,500 250,000 2,500
Deferred
compensation
related to stock
options.........
Compensation
related to
issuance
of common stock
and common stock
options at below
estimated
fair value...... 3,792,500 3,792,500
Exercise of
common stock
options......... 5,392 54
Exercise of
common stock
warrants........ 459,139 4,591
Issuance of
Series C
mandatorily
redeemable
convertible
preferred
stock........... 6,269,875 $27,795,875 27,795,875
Accretion of
Series C
manditorily
redeemable
convertible
preferred stock
to redemption
value........... 11,092,492 11,092,492
Net loss........
--------- ----------- ------- ---------- ----------- --------- ------- --------- -------
Balance at
December
31,1999......... 6,269,875 $38,888,367 370,000 $5,180,000 $44,068,367 5,284,869 $52,849 7,695,413 $76,954
========= =========== ======= ========== =========== ========= ======= ========= =======
<CAPTION>
Stockholders' Equity (Deficit)
--------------------------------- ------------------------------------------------------
Receivable
from
Officer Total
Additional Treasury Stock for Stockholders'
Paid-in -------------------- Issuance Accumulated Deferred Equity
Capital Shares Amount of Stock Deficit Compensation (Deficit)
------------ --------- ---------- ----------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1996............ $ 356,200 $ (90,472) $ 310,678
Issuance of
common stock in
connection with
business
acquisition..... 297,100 300,000
Issuance of
common stock.... 1,405,587 1,420,000
Issuance of
common stock
options for non-
compete
agreements...... 199,386 199,386
Issuance of
common stock
options for
consulting
services........ 10,518 10,518
Net loss........ (1,302,051) (1,302,051)
------------ ------------- ------------- --------------
Balance at
December 31,
1997............ 2,268,791 (1,392,523) 938,531
Issuance of
common stock
options for
consulting
services........ 18,750 18,750
Issuance of
restricted
common stock in
connection with
business
acquisition..... 945,484 $ (951,000) --
Deferred
compensation
related to stock
options......... 328,000 (328,000) --
Amortization of
deferred
compensation.... 495,500 495,500
Issuance of
common stock.... 149,130 150,000
Exercise of
common stock
options......... (1,156) 4
Issuance of
Series A
convertible
preferred
stock........... 5,935,923 5,970,384
Issuance of
Series B
convertible
preferred
stock........... 5,951,082 5,969,470
Net loss........ (9,711,139) (9,711,139)
------------ ------------- ------------- --------------
Balance at
December
31,1998......... 15,596,004 (11,103,662) (783,500) 3,831,500
Amortization of
deferred
compensation.... 557,500 557,500
Purchase of
treasury stock.. (100,000) $(200,000) (200,000)
Issuance of
common stock.... 2,037,500 100,000 200,000 $(960,000) 1,280,000
Deferred
compensation
related to stock
options......... 22,335,000 (22,335,000) --
Compensation
related to
issuance
of common stock
and common stock
options at below
estimated
fair value...... 4,410,000 2,160,000 6,570,000
Exercise of
common stock
options......... 8,273 8,327
Exercise of
common stock
warrants........ (4,132) 459
Issuance of
Series C
mandatorily
redeemable
convertible
preferred
stock........... --
Accretion of
Series C
manditorily
redeemable
convertible
preferred stock
to redemption
value........... (11,092,492) (11,092,492)
Net loss........ (37,630,560) (37,630,560)
------------ --------- ---------- ----------- ------------- ------------- --------------
Balance at
December
31,1999......... $33,290,153 -- $ -- $(960,000) $(48,734,222) $(20,401,000) $(36,675,266)
============ ========= ========== =========== ============= ============= ==============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-5
<PAGE>

BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
<S> <C> <C> <C>
1997 1998 1999
----------- ----------- ------------
Cash flows from operating activities
Net loss.............................. $(1,302,051) $(9,711,139) $(37,630,560)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization....... 14,442 118,014 739,646
Amortization of intangible assets... 109,273 425,016 319,923
Provision for doubtful accounts..... 217,786 528,412 3,955,938
Non-cash compensation expense....... -- -- 8,202,500
Amortization of deferred compensa-
tion............................... -- 495,500 2,717,500
Imputed interest on long term pay-
able............................... 74,950
Interest on notes payable to stock-
holders............................ -- -- 30,685
Common stock options issued for con-
sulting
services........................... 10,518 18,750 --
Changes in assets and liabilities, net
of effects of business acquisition:
Accounts receivable................. (749,567) (2,800,175) (7,336,359)
Other current assets................ (62,846) (365,626) (808,269)
Other assets........................ 5,607 (181,907) (400,917)
Accounts payable.................... 510,650 1,484,365 3,327,817
Accrued and other current liabili-
ties............................... 333,212 226,380 4,859,726
Payroll related liabilities......... 60,323 303,198 610,382
Taxes payable....................... 165,001 149,902 1,685,219
----------- ----------- ------------
Net cash used in operating activi-
ties.............................. (687,652) (9,309,310) (19,651,819)
----------- ----------- ------------
Cash flows from investing activities
Purchase of restricted certificates of
deposit.............................. (100,000) -- (334,000)
Purchase of property and equipment.... (56,047) (473,717) (13,918,093)
Business acquisition, net of cash ac-
quired............................... (92,638) -- --
----------- ----------- ------------
Net cash used in investing activi-
ties.............................. (248,685) (473,717) (14,252,093)
----------- ----------- ------------
Cash flows from financing activities
Repayments of capital lease........... (3,931) (26,058) (61,828)
Proceeds from issuance of long term
debt................................. 6,883,960
Proceeds from exercise of common stock
options and warrants................. 8,786
Proceeds from issuance of mandatorily
redeemable common stock.............. 1,387,500
Proceeds from issuance of common
stock................................ 1,420,000 150,004 640,000
Repurchase treasury stock............. (200,000)
Proceeds from issuance of Series A and
B convertible preferred stock, net... -- 11,939,854 --
Proceeds from issuance of notes
payable to stockholders.............. -- -- 4,000,000
Proceeds from issuance of Series C
mandatorily redeemable convertible
preferred stock, net................. -- -- 23,765,190
----------- ----------- ------------
Net cash provided by financing ac-
tivities.......................... 1,416,069 12,063,800 36,423,608
----------- ----------- ------------
Net increase in cash and cash
equivalents....................... 479,732 2,280,773 2,519,696
Cash and cash equivalents, beginning of
period................................ 292,019 771,751 3,052,524
----------- ----------- ------------
Cash and cash equivalents, end of peri-
od.................................... $ 771,751 $ 3,052,524 $ 5,572,220
=========== =========== ============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-6
<PAGE>

BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.Organization and Nature of Business

Broadview Networks Holdings, Inc. (the "Company"), formerly Coaxicom, Inc.
(prior to the name change as of October 5, 1999), is a privately held
Delaware corporation originally incorporated in March 1996. The Company's
principal business consists of providing a complete line of local, long
distance, internet, and data services to customers within New York and
Massachusetts.

Effective September 30, 1997, the Company acquired Briar Joy Development
Corporation d/b/a SCC Telecommunications ("SCC"), a provider of commercial
and residential telecommunication services. On April 16, 1998, the name of
SCC was formally changed to Community Networks, Inc. ("CNI"). On October 5,
1999, the name of CNI was formally changed to Broadview Networks, Inc.
("BNI").

On November 25, 1997, the Company, together with three software engineers,
formed National CEJ, LLC ("CEJ") for the purpose of developing operating
software for the telecommunications industry. Concurrent with the formation
of CEJ, the Company obtained a 61% interest in CEJ. On January 29, 1998,
the Company issued 551,580 shares of its restricted common stock valued at
$951,000 to the three software engineers in exchange for their 39% interest
in CEJ and their agreement to continue to develop software for the Company
under two year employment agreements. On May 7, 1998 the name of CEJ was
formally changed to Open Support Systems LLC ("OSS").

2.Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, BNI and OSS. All significant
intercompany transactions have been eliminated in consolidation.

On June 29, 1998 the Company reorganized as a Delaware corporation, which
was effected in a manner so as to exchange each share of Coaxicom Inc., the
New York Corporation, for 290 shares of the Company. All share information
in the consolidated financial statements has been retroactively restated to
reflect the effect of this exchange as if it had occurred at the beginning
of the earliest period presented.

Revenue Recognition

The Company's revenue is derived from subscriber usage and fixed monthly
recurring fees. Revenue from subscriber usage is recognized when calls are
completed. Revenue from fixed monthly recurring fees is recognized when the
related services are performed. Unbilled revenue included in accounts
receivable represents revenue for earned services which will be billed in
the succeeding month and totaled $1,737,845 and $3,082,386 as of December
31, 1998 and 1999, respectively. Beginning August 1, 1999, the Company
began invoicing new customers one month in advance for recurring services
which resulted in deferred revenue of $188,107 at December 31, 1999.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. A significant
portion of cash balances are maintained with several high credit quality
financial institutions, which are members of the FDIC.

F-7
<PAGE>

BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Restricted Certificates of Deposit

At December 31, 1998 and 1999, the Company held bank certificates of deposit
which are restricted to cover letters of credit required as security by a
long distance carrier and the lease of premises housing a switch facility.

Property and Equipment

Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets. The
estimated useful life is three years for computer and office equipment, five
years for furniture and fixtures, and seven years for network equipment.
Leasehold improvements are amortized on a straight-line basis over the
shorter of their estimated useful lives or the related lease term.
Capitalized software costs are amortized on a straight-line basis over the
estimated useful life, typically two years. Construction in progress
includes amounts incurred in the Company's expansion of its network. The
amounts include switching and colocation equipment, switching and colocation
facilities design and other indirect costs, and colocation fees. The Company
has not capitalized interest to date since the construction period has been
short in duration and the related imputed interest expense incurred during
that period was insignificant. When construction of each switch or
colocation facility is complete the balance of the assets are transferred to
network equipment, and depreciated in accordance with the Company's policy.
Maintenance and repairs are expensed as incurred.

Intangible Assets

Intangible assets consist of customer lists and non-compete agreements. The
intangible assets were amortized over a period of two years using the
straight-line method and were fully amortized during 1999.

Impairment of Long-lived Assets

Long-lived assets, including intangibles, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. If the sum of the expected future
undiscounted cash flows is less than the carrying amount of the asset, a
loss is recognized for the difference between the fair value and carrying
value of the asset.

Income Taxes

The Company recognizes deferred taxes using the asset and liability method
of accounting for income taxes. Under the asset and liability method,
deferred income taxes are recognized for differences between the financial
reporting and tax bases of assets and liabilities at enacted statutory tax
rates in effect for the years in which the differences are expected to
reverse. The effect on deferred taxes of a change in tax rates is recognized
in income in the period that includes the enactment date. In addition,
valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized.

Stock-Based Compensation

The Company accounts for its employee stock option plans in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"). Under

F-8
<PAGE>

BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

APB 25, generally no compensation expense is recorded when the terms of the
award are fixed and the exercise price of the employee stock option equals
or exceeds the fair value of the underlying stock on the date of grant. The
Company adopted the disclosure-only provisions of Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). In accordance with SFAS 123, stock options
granted to non-employees are recorded at fair value.

Software Development Costs

On January 1, 1999, the Company adopted Statement of Position ("SOP") 98-1,
"Accounting for the Cost of Computer Software Developed or Obtained for
Internal Use." SOP 98-1 provides guidance for the accounting for computer
software developed or acquired for internal use including the requirement
to capitalize certain costs and amortization of these costs. Costs for
preliminary stage projects are expensed as incurred while application stage
projects are capitalized. The latter costs are typically internal payroll
costs of employees associated with the development of internal use computer
software. The Company commences amortization of the software on a straight-
line basis over the estimated useful life, typically two years, when it is
ready for intended use.

The Company expensed approximately $30,000, $1,435,000, and $2,084,000 of
software development costs for the years ended December 31, 1997, 1998 and
1999, respectively. During the year ended December 31, 1999, the Company
capitalized $667,212 of software development costs, and amortized $19,953
of these costs which are presented in property and equipment.

Advertising Costs

Advertising costs are charged to expense the first time the advertising
takes place and totaled approximately $288,000, $1,495,000, and $1,001,000
for the years ended December 31, 1997, 1998 and 1999, respectively.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles 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
financial statements and the reported amount of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.

Segment Reporting

In June 1997, the Financial Accounting Standards Board (the "FASB") issued
SFAS 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS 131 uses a management approach to report financial and
descriptive information about a Company's operating segments. Operating
segments are revenue-producing components of the enterprise for which
separate financial information is produced internally for the Company's
management. Under this definition, the Company operated, for all periods
presented, as a single segment.

F-9
<PAGE>

BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Comprehensive Income

In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income,"
which establishes standards for the reporting and display of comprehensive
income and its components in the financial statements. SFAS 130 was
effective for fiscal years beginning after December 15, 1997. Implementation
of this statement has not had an impact on the Company's financial
statements as the Company has no other comprehensive income to report.

Recent Accounting Pronouncements

In June 1998, FASB issued SFAS 133, "Accounting for Derivatives and Hedging
Activities," which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. SFAS 133 is effective for all
fiscal quarters or fiscal years beginning after June 15, 2000, as amended by
SFAS 137, "Accounting for Derivative Instruments and Hedging Activities--
Deferral of the Effective Date of FASB Statement No. 133," issued in June
1999. The Company does not expect the adoption of this statement to have a
significant impact on the Company's results of operations, cash flows or
financial position.

Net Loss Per Share

Basic net loss per common share is computed by dividing the net loss
applicable to common stockholders for the year by the weighted-average
number of common shares and mandatorily redeemable common shares outstanding
during the year. Diluted net loss per common share is computed by dividing
the net loss applicable to common stockholders for the year by the weighted-
average number of common and common stock equivalents, which include
unvested restricted common shares, common shares issuable upon the exercise
of stock options, warrants and upon conversion of the mandatorily redeemable
and convertible preferred shares outstanding during the year. Common stock
equivalents are excluded from the computation if their effect is
antidilutive.

At December 31, 1997, 1998, and 1999 523,875, 6,436,108 and 12,847,413
common stock equivalents, respectively, were excluded from basic and diluted
net loss per share calculation as their inclusion would have been
antidilutive. In addition, at December 31, 1999 13,241 incremental shares,
calculated under the reverse treasury stock method, related to the embedded
put option of the mandatorily redeemable common stock were excluded from the
computation of the diluted net loss per share as their inclusion would have
been antidilutive. The unaudited pro forma basic and diluted net loss per
share is computed by dividing the net loss by the sum of the weighted
average number of shares of common stock outstanding giving effect for the
one for one conversion into common stock of all 11,554,744 shares of the
Series A and Series B convertible preferred stock and Series C mandatorily
redeemable preferred stock, as if such conversions had occurred at the
beginning of the earliest period presented or issuance date if later.

As the calculation of the unaudited pro forma basic and diluted net loss per
common share includes the assumed conversion of all preferred stock that
will occur upon the consummation of an initial public offering, the
accretion to the redemption value related to the Series C preferred stock of
$11,092,492 has been excluded from the calculation of the net loss
applicable to common stockholders.

F-10
<PAGE>

BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

A reconciliation of the numerator and denominator used in the calculation
of basic and diluted and unaudited pro forma basic and diluted net loss
per common share is as follows:

<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Numerator:
Net loss.......................... $(1,302,051) $(9,711,139) $(37,630,560)
Accretion of mandatorily
redeemable preferred stock....... -- -- (11,092,492)
----------- ----------- ------------
Net loss applicable to common
stockholders..................... $(1,302,051) $(9,711,139) $(48,723,052)
=========== =========== ============
Denominator:
Weighted average shares of common
stock outstanding................ 5,391,317 6,510,871 7,137,999
Weighted average shares of
mandatorily redeemable common
stock............................ -- -- 100,632
----------- ----------- ------------
Weighted average common shares
used in computing basic and
diluted net loss per share....... 5,391,317 6,510,871 7,238,631
----------- ----------- ------------
Basic and diluted net loss per
common share..................... $ (0.24) $ (1.49) $ (6.73)
=========== =========== ============
Weighted average shares used in
computing basic and diluted net
loss per common share............ 7,238,631
Adjustment to reflect the assumed
conversion of all mandatorily
redeemable and convertible
preferred stock (unaudited)...... 9,625,531
------------
Weighted average shares used in
computing pro forma basic and
diluted net loss per common share
(unaudited)...................... 16,864,162
------------
Pro forma basic and diluted net
loss per common share
(unaudited)...................... $ (2.23)
============
</TABLE>

Pro Forma Stockholders' Equity (unaudited)

As described in Notes 16 and 17, upon completion of the Company's
qualified initial public offering, all of the mandatorily redeemable
preferred stock and convertible preferred stock outstanding as of the
closing date, will automatically be converted into an aggregate amount of
shares of common stock. In addition, the mandatory redemption feature of
the Series C and Series D preferred stock and the mandatorily redeemable
common stock will terminate upon completion of an initial public offering.
Unaudited pro forma shareholders' equity at December 31, 1999, as adjusted
for the conversion of the mandatorily redeemable convertible preferred
stock outstanding at December 31, 1999 and the termination of the
mandatorily redemption feature of the common shares, is presented in the
accompanying balance sheet.

F-11
<PAGE>

BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Reclassifications

Certain prior year balances have been reclassified to conform to current
year presentation.

3.Supplemental Cash Flow Information

<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1997 1998 1999
----------- -------- ----------
<S> <C> <C> <C>
Cash paid during the period for:
Interest.................................. $ 4,221 $ 14,070 $ 143,421
Supplemental noncash investing and
financing activities:
Common stock issued to an officer in
consideration of a note receivable....... -- -- $1,600,000
Conversion of notes payable, plus accrued
interest, to stockholders into Series C
mandatorily redeemable convertible
preferred stock.......................... -- -- $4,030,685
Equipment acquired under long term credit
(net of imputed interest in the amount of
$315,333)................................ -- -- $1,652,438
Equipment acquired under capital lease.... $ 6,108 $126,933 $ 107,786
Acquisition of business (net of cash
acquired):
Fair value of assets acquired............ $ 1,586,557
Fair value of liabilities assumed........ (1,193,919)
Common stock issued...................... (300,000)
-----------
$ 92,638
===========
</TABLE>

4.Risks and Uncertainties

The Company has experienced significant net operating losses and negative
cash flow since its inception. To date, the Company has funded its
operations and the construction of its network with external financing
through various preferred stock, common stock and debt issuances. The
Company's continued network deployment will require continued substantial
capital expenditures. The Company's ability to fund these expenditures is
dependent upon the Company raising substantial financing. Failure to raise
sufficient capital could compel the Company to delay or modify some of its
plans or expenditures. However, management believes that the Company's
current cash resources and credit facility together with anticipated equity
financing and expected revenue growth will be sufficient to fund the
Company's operations for the next twelve months (See Note 18).

The Company is dependent upon certain carriers for the provision of
telecommunications services to its customers. The Company's two largest
carriers accounted for approximately 84%, 88% and 90% of the costs incurred
by the Company to provide service to customers for the years ended December
31, 1997, 1998 and 1999, respectively.

5.Acquisition

On September 30, 1997, the Company acquired all of the outstanding shares
of common stock of BNI and settled certain outstanding debts of BNI for
290,000 shares of common stock and $180,000 cash. The total cost of
acquisition, accounted for using the purchase method, approximated
$504,000. The excess acquisition costs over the fair value of acquired net
assets of approximately $655,000 was allocated to an intangible for the
value of BNI's customer lists.

F-12
<PAGE>

BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The operating results of BNI have been included in the consolidated
statement of operations from the date of acquisition. Unaudited pro forma
results of operations as if the acquisition had taken place at the
beginning of 1997, would have been as follows: revenue of $4,284,000, net
loss of $1,630,000 and basic and diluted net loss per share of $0.30. Such
pro forma amounts are not necessarily indicative of the actual consolidated
results of operations that would have been reported as if the acquisition
had been effective as of the beginning of 1997.

In connection with the BNI acquisition, the Company granted two employees
of BNI, 191,690 fully vested common stock options with an exercise price of
$0.001 in respect of non-compete agreements signed by the employees. The
aggregate fair value of the options was $199,386, calculated using the
Black-Scholes option pricing model, based on the following assumptions:
risk free interest rate of 5%; expected life of five years; zero dividend
yield; and expected volatility of 75%. This amount was presented as an
intangible asset and was amortized over the two-year term of the
agreements.

6.Deferred Compensation

On January 29, 1998, the Company issued 551,580 shares of its restricted
common stock valued at $951,000 to certain employees in exchange for their
interest in OSS and their employment agreements to provide development
services for the Company for a period of two years. Under the restricted
common stock agreements, the Company has the right to buy back the unvested
portion of the restricted shares for nominal consideration upon voluntary
separation by the employee. The restricted common stock grants are being
recorded as deferred compensation and are being amortized as compensation
expense over the term of the employment agreements.

7.Property and Equipment

Property and equipment, at cost, consist of the following at December 31:

<TABLE>
<CAPTION>
1998 1999
--------- -----------
<S> <C> <C>
Computer and office equipment........................ $ 691,915 $ 1,664,022
Furniture and fixtures............................... 72,936 916,358
Network equipment.................................... -- 7,886,379
Leasehold improvements............................... 27,192 182,562
Capitalized software costs........................... -- 667,212
Construction in progress--network equipment.......... -- 5,153,827
--------- -----------
792,043 16,470,360
Less: Accumulated depreciation and amortization...... (133,120) (872,766)
--------- -----------
$ 658,923 $15,597,594
========= ===========
</TABLE>

Included in network equipment and construction in progress are colocation
fees that represent one time fees paid to incumbent local exchange carriers
for infrastructure improvements to their central offices to allow the
Company to install its equipment, which allows the Company to interconnect
with the carrier's network. Colocation fees amounted to $2,304,763 as of
December 31, 1999 and are being amortized over seven years. Included above
is equipment under capital lease of $133,041 and $240,827 as of December
31, 1998 and 1999, less accumulated depreciation and amortization of
$27,306 and $56,639, respectively.

F-13
<PAGE>

BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

8.Intangible Assets

Intangible assets consist of the following at December 31 (see Note 5):

<TABLE>
<CAPTION>
1998 1999
--------- --------
<S> <C> <C>
Customer lists.......................................... $ 654,826 $654,826
Non-compete agreements.................................. 199,386 199,386
--------- --------
854,212 854,212
Less: Accumulated amortization.......................... (534,289) (854,212)
--------- --------
$ 319,923 $ --
========= ========
</TABLE>

9.Obligations under Capital and Operating Leases

The future minimum lease payments under capital leases at December 31, 1999
are as follows:

<TABLE>
<S> <C>
Year ending December 31:
2000.............................................................. $ 81,380
2001.............................................................. 76,759
2002.............................................................. 58,640
2003.............................................................. 6,398
---------
Total minimum lease payments.................................... 223,177
Less: amounts representing interest............................... (36,766)
---------
$ 186,411
=========
</TABLE>

The Company rents office space and equipment under various operating
leases. The future minimum lease payments under operating leases at
December 31, 1999 are as follows:

<TABLE>
<S> <C>
Year ending December 31:
2000............................................................ $ 1,369,137
2001............................................................ 1,672,507
2002............................................................ 1,542,691
2003............................................................ 1,557,832
2004............................................................ 1,394,528
Thereafter...................................................... 6,106,821
-----------
Total minimum lease payments.................................. $13,643,516
===========
</TABLE>

Total rent expenses under these operating leases for the years ended
December 31, 1997, 1998 and 1999 amounted to $54,230, $208,013 and
$767,804, respectively.

10.Long-Term Debt

In October 1999, the Company entered into a seven-year, $36 million credit
facility with a major financial institution. Advances under the credit
facility are available through September 30, 2001 and may be used to fund
the purchase of certain network-related equipment and certain costs related
to the network implementation. The credit facility provides the lender with
a first priority

F-14
<PAGE>

BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

collateralized interest in all assets funded under the credit facility.
Interest on the credit facility is capitalized from the date of each
funding until December 1, 2001. At this time the Company will begin making
stepped principal payments with accrued interest for four years. At
December 31, 1999, $6.9 million under the facility was outstanding with an
average interest rate of 11.7%. In connection with the issuance of the
debt, the Company paid $540,000 as commitment fee, which is being amortized
over the life of the loan.

Under the terms of the credit facility agreement, the Company is required
to comply with certain financial covenants, including minimum revenues,
minimum gross margins, fixed charged coverage ratio (as defined), and
minimum leverage ratio. In addition, the Company may not make any equity
payments, including dividends, to any person without prior written consent
of the lender. As of December 31, 1999, the Company has met all required
covenants.

The maturities of long-term debt for the five years after December 31, 1999
are as follows:

<TABLE>
<S> <C>
2000.............................................................. $ 64,277
2001.............................................................. 835,545
2002.............................................................. 1,607,596
2003.............................................................. 2,378,942
Thereafter........................................................ 1,997,600
----------
Total............................................................ $6,883,960
==========
</TABLE>

11.Long-Term Payable

Under a purchase agreement with a vendor, the Company pays a specified
portion of each invoice within normal trade terms. The balance of each
invoice is due and payable in 18 months from the invoice date. These
balances are non-interest bearing and composed at December 31, 1999 as
follows:

<TABLE>
<S> <C>
Principal amount.............................................. $ 1,967,771
Less--unamortized discount based on imputed interest rate of
11.7%........................................................ (240,383)
-----------
1,727,388
Less--current maturities...................................... (677,991)
-----------
$ 1,049,397
===========
</TABLE>

12.Commitments and Contingencies

The Company purchases long distance services under a contract agreement
with one of its carriers. Minimum purchase requirements under this
agreement are $300,000 per month through April 2001.

During the year ended December 31, 1999, the Company entered into
employment agreements with seven 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
for a period of up to one year after termination if the employment
agreement of the executive is terminated without cause. The aggregate
future minimum commitments at December 31, 1999 under these employment
agreements are approximately $1,650,000 for annual base salary, $825,000
for severance payment and annual bonus, contingent upon performance goals,
of up to an additional 60% of the annual base salary.

F-15
<PAGE>

BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

13.Income Taxes

The components of the net deferred tax asset consist of the following at
December 31:

<TABLE>
<CAPTION>
1998 1999
----------- ------------
<S> <C> <C>
Accounts receivable............................... $ 129,983 $ 442,847
Intangible assets................................. 23,974 --
Deferred income................................... -- 102,000
Organization costs................................ 7,423 5,466
Conversion costs.................................. 12,916 58,843
Net operating loss carryforwards.................. 3,493,655 12,514,178
Other............................................. 7,028 21,898
----------- ------------
Total deferred tax assets........................ 3,674,979 13,145,232
----------- ------------
Accelerated depreciation.......................... (41,069) (283,384)
----------- ------------
Total deferred tax liabilities................... (41,069) (283,384)
----------- ------------
Net deferred tax asset........................... 3,633,910 12,861,848
Valuation allowance.............................. (3,633,910) (12,861,848)
----------- ------------
$ -- $ --
=========== ============
</TABLE>

At December 31, 1999, the Company had net operating loss carryforwards
totaling approximately $36.8 million, which expire at various times through
2019. Under Section 382 of the Internal Revenue code of 1986, as amended,
utilization of prior net operating losses is limited after an ownership
change, as defined. As a result, a portion of the net operating loss
carryforward is subject to substantial limitation due to ownership changes.
As each entity files separate federal and state tax returns, the net
operating losses may be used to offset taxable income of each separate
company. The Company has recorded a valuation allowance against the entire
amount of net deferred tax assets since management believes that based upon
available evidence, it is more likely than not that these assets will not
be realized.

F-16
<PAGE>

BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

14.Stock Options

In February 1997, the Company adopted the 1997 Stock Option Plan (the "1997
Plan"). The 1997 Plan provides for up to 2,900,000 shares for grants,
either as incentive stock options or as nonqualified stock options, to
purchase shares of the Company's common stock and for other stock-based
awards to officers, directors and key employees responsible for the
direction and management of the Company and to non-employee consultants and
independent contractors. In September 1999, the board of directors and
stockholders of the Company approved an increase in the number of shares
available under the 1997 Plan to 4,100,000 shares. The options generally
expire five years from the date of 100% vesting. The following information
relates to options issued under the Plan.

<TABLE>
<CAPTION>
Weighted Average
Exercise Price
Shares Per Share
--------- ----------------
<S> <C> <C>
Outstanding January 1, 1997...................... --
Granted.......................................... 554,325 $0.92
Exercised........................................ --
Forfeited........................................ --
---------
Outstanding January 1, 1998...................... 554,325 0.92
Granted.......................................... 975,800 1.74
Exercised........................................ (116,000) 0.00
Forfeited........................................ (126,600) 1.72
---------
Outstanding January 1, 1999...................... 1,287,525 1.55
Granted.......................................... 2,481,740 4.49
Exercised........................................ (5,392) 1.54
Forfeited........................................ (125,670) 2.42
---------
Outstanding December 31, 1999.................... 3,638,203 $3.53
========= =====
Shares exercisable at December 31, 1998.......... 539,025 $1.28
========= =====
Shares exercisable at December 31, 1999.......... 833,573 $1.47
========= =====
</TABLE>

The following table summarizes information about the stock options
outstanding at December 31, 1999:

<TABLE>
<CAPTION>
Weighted Average
Exercise Outstanding Remaining
Price Options Contractual Life Exercisable
-------- ----------- ---------------- -----------
<S> <C> <C> <C>
$0.01 75,690 7.7 75,690
0.34 29,000 7.1 29,000
0.86 165,300 7.3 165,300
1.72 410,431 8.0 301,527
1.75 814,691 9.0 211,819
2.00 162,600 9.5 3,000
2.75 60,000 9.4 --
3.45 43,500 7.7 43,500
3.75 860,870 9.7 800
6.40 954,788 9.8 2,604
9.00 61,333 9.9 333
--------- -------
3,638,203 833,573
========= =======
</TABLE>

F-17
<PAGE>

BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The following table is a summary of the weighted average exercise price and
grant date fair value of options granted to employees during the years
ended December 31 1997, 1998 and 1999:

<TABLE>
<CAPTION>
1997 1998 1999
-------------- -------------- ---------------
Exercise Fair Exercise Fair Exercise Fair
Price Value Price Value Price Value
-------- ----- -------- ----- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Exercise price less than fair
value of stock on date of
grant....................... $0.01 $1.04 $1.75 $1.24 $4.55 $10.24
Exercise price equal to fair
value of stock on date of
grant....................... 1.15 0.30 1.72 0.38 -- --
Exercise price greater than
fair value of stock on date
of grant.................... 3.45 -- -- -- -- --
</TABLE>

In general, the options vest 25% after one year and then in equal
installments every month for a period of 36 months. Upon a change of
control of the Company, the unvested portion of the options granted to
various executive officers will automatically become 100% vested.

In accordance with SFAS 123, the fair value of options granted to employees
is estimated using the minimum value method of the Black-Scholes option-
pricing model, which assumes no volatility. The assumptions used for grants
made in 1997, 1998 and 1999 were as follows: risk free interest rate of
approximately 6%, 5% and 5% for 1997, 1998 and 1999, respectively, zero
dividend yield and an expected life of 5 years for 1997, 1998 and 1999.

Had compensation cost been determined based upon the fair value method of
SFAS 123, the Company's net loss on a pro forma basis would have been
adjusted to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
December 31,
--------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Net loss applicable to common
stockholders:
As reported....................... $(1,302,051) $(9,711,139) $(48,723,052)
Pro forma......................... $(1,430,484) $(9,796,664) $(52,680,749)
Net loss per share applicable to
common stockholders:
As reported--basic and diluted.... $ (0.24) $ (1.49) $ (6.73)
Pro forma--basic and diluted...... $ (0.27) $ (1.51) $ (7.28)
</TABLE>

During 1998, the Company granted stock options to employees to purchase
shares of common stock at $1.75 exercise price per share. In connection
with these issuances, the Company recorded $328,000 of deferred
compensation and recognized $20,000 and $82,000 in 1998 and 1999,
respectively, as compensation expense. The deferred compensation is being
amortized over the vesting period, which is generally four years.

During 1999, the Company granted stock options to employees to purchase
shares of common stock at exercise prices ranging from $1.75-$9.00 per
share. In connection with these issuances, the Company recorded $22,335,000
of deferred compensation and recognized $2,160,000 in 1999 as compensation
expense. The deferred compensation is being amortized over the vesting
period, which is generally four years.

F-18
<PAGE>

BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The Company determined the amount of deferred compensation as the
difference between the estimated fair market value of the options granted
and the exercise price on the date of grant.

During 1997, in connection with the acquisition of BNI, 191,690 fully
vested stock options at an exercise price of $0.001 having an aggregate
estimated fair value of $199,386 were issued for two non-compete
agreements. This amount was deferred and amortized over the two year term
of the related agreements. In 1997 and 1998, the Company granted
consultants, for services rendered 48,772 and 87,000 stock options,
respectively, at an exercise price of $1.724. These options were fully
vested at the grant date and were recorded based on the fair value of the
invoiced services received, at $10,518 and $18,750, for the years ended
December 31, 1997 and 1998, respectively.

15.Employee Savings and Retirement Plan

The Company has a 401(k) plan that allows eligible employees to contribute
up to 15% of their salary, subject to annual limits. Under the plan,
eligible employees may defer a portion of their pretax salaries but not
more than the statutory limit. The Company matches the employees'
contributions, limited to a maximum of 1.5% of participants' eligible
compensation. The Company contributed approximately $0, $3,981 and $34,461
to the plan during the years ended December 31, 1997, 1998, and 1999,
respectively.

16.Mandatorily Redeemable Securities

Series C Mandatorily Redeemable Convertible Preferred Stock ("Series C")

On April 23, 1999, the Company issued 6,269,875 shares of Series C to
investors for $27,795,875, net of $204,125 issuance expense (including the
conversion of $4.0 million convertible promissory notes, bearing 5%
interest per annum, issued on February 1999). This issue has a stated
liquidation preference of $4.46580 per share, plus all accrued and unpaid
dividends whether or not declared ("Series C Liquidation Preference") and
is senior in liquidation to the Series A, Series B, and all common stock.
Holders of the Series C have the right to convert their shares into common
stock at any time. The conversion price is $4.4658, subject to certain
antidilution rights, as defined. Holders of Series C are entitled to
receive when, as and if, declared by the Company's board of directors,
cumulative preferential dividends at an annual rate of 8% of the Series C
Liquidation Preference. The Series C carries voting rights equal to one
vote per share, on an as converted basis. In addition, holders of Series C,
voting as a class, have veto rights on certain specific corporate actions
of the Company, as defined. At any time after April 23, 2005, the Series C
is redeemable at the option and written election of the holders of at least
50% of the Series C within one year of such election at the greater of (i)
the fair market value of the Common Stock underlying the Series C to be
redeemed, or (ii) the aggregate Series C Liquidation Preference of the
Series C to be redeemed, as defined.

The Series C issue provides an option, exercisable through February 15,
2000, under which the Series C holders may acquire 5,300,892 shares of
Series D Mandatorily Redeemable Convertible Preferred Stock ("Series D")
for $5.28213 per share. The Company allocated a portion of the Series C
proceeds to the Series D option based upon its relative fair value at the
time of the Series C issuance. The fair value of the Series D option was
determined to be approximately $5.3 million using the Black-Scholes options
pricing model and was based on the following assumptions: risk free
interest rate of 6%; expected life of ten months; zero dividend yield; and
expected volatility of 75%.

F-19
<PAGE>

BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Pursuant to the terms of the Series C agreement, the Company may cause the
outstanding shares of Series C to be automatically converted into common
stock at the Series C conversion price upon the consummation of an IPO in
which the gross proceeds to the Company are equal to or greater than $50.0
million and the price per share paid in the offering is greater than three
times the Series C conversion price of $4.4658 at December 31, 1999.

The carrying value of the Series C is being accreted to its redemption
value over the period from issuance through the earliest redemption date.
Accretion related to the Series C totaled $11,092,492 for the year ended
December 31, 1999.

Series D Mandatorily Redeemable Convertible Preferred Stock ("Series D")

The Series D issue will have a stated liquidation preference of $5.28213
per share, plus all accrued and unpaid dividends whether or not declared
("Series D Liquidation Preference") and is equal in seniority with the
Series C holders and is senior in liquidation to the Series A, Series B,
and all common stock. Holders of the Series D have the right to convert
their shares into common stock at any time. The conversion price is
$5.28213, subject to certain antidilution rights, as defined. Holders of
Series D are entitled to receive when, as and if, declared by the Company's
board of directors, cumulative preferential dividends at an annual rate of
8% of the Series D Liquidation Preference. The Series D carries voting
rights equal to one vote per share, on an as converted basis. In addition,
holders of Series D, voting as a class, have veto rights on certain
specific corporate actions of the Company, as defined. At any time after
April 23, 2005, the Series D is redeemable at the option and written
election of the holders of at least 50% of the Series D within one year of
such election at the greater of (i) the fair market value of the Common
Stock underlying the Series D to be redeemed, or (ii) the aggregate Series
D Liquidation Preference of the Series D to be redeemed, as defined. There
were no Series D issued or outstanding as of December 31, 1999 (See Note
18).

Pursuant to the terms of the Series D agreement, the Company may cause the
outstanding shares of Series D to be automatically converted into common
stock at the Series D conversion price upon the consummation of an IPO in
which the gross proceeds to the Company are equal to or greater than $50.0
million and the price per share paid in the offering is greater than three
times the Series D conversion price.

Mandatorily Redeemable Common Stock

On September 23, 1999, the Company sold 370,000 shares of common stock to
an executive officer of the Company for $1,387,500. In connection with this
transaction, the Company recorded compensation expense of $3,792,500
representing the difference between the estimated fair market value of the
common stock purchased and the amount paid. If the Company is not a public
Company after the executive's employment ends, after at least an initial
six month holding period, the executive may require the Company to purchase
the shares at their then fair market value as determined by an independent
appraiser.

17. Stockholders' Equity

Common Stock

On January 29, 1998, the Board of Directors amended the certificate of
incorporation to increase the authorized shares of Common Stock to an
aggregate of 14,500,000 shares with a par value

F-20
<PAGE>

BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

of $.01 and authorized 5,800,000 shares of Convertible Preferred Stock with
a par value of $.01. In April 1999, the Company amended its certificate of
incorporation and increased its authorized capital to 32,000,000 shares of
Common Stock, $.01 par value, and 16,900,000 shares of Convertible
Preferred Stock, $.01 par value, of which 3,446,070 shares were designated
as Series A, 1,838,799 shares were designated as Series B and 6,269,875
shares were designated as Series C.

In June 1999, the Company repurchased 100,000 shares of common stock for
$2.00 per share from an executive officer of the Company.

On December 1, 1999, the Company sold 250,000 shares of common stock to an
executive officer for $1.6 million of which $640,000 was paid in January
2000, with the balance of $960,000 under a 10 year full recourse note
bearing interest at 6.47% per annum. On November 30, 1999, the Company sold
100,000 shares of common stock to another executive officer of the Company
for $640,000. In connection with these transactions, the Company recorded
$4,410,000 of compensation expense representing the difference between the
estimated fair market value of the common stock purchased and the amount
paid.

Series A Convertible Preferred Stock ("Series A")

On January 29, 1998, the Company issued 3,446,070 shares of Series A to
investors for $5,970,384, net of $30,531 issuance expense. The Series A is
convertible, at the option of the holder, into shares of common stock at
any time. The conversion price is $1.74, subject to certain anti-dilution
protection rights. The Series A automatically converts (i) upon the closing
of the Company's registration statement on a Form S-1 at a per share price
of $6.97 or at an aggregate public offering price of no less than $15.0
million, prior to underwriting, commissions and expenses; or (ii) at the
election of holders of more than 50% of the then outstanding Series A,
voting together as a single class, at the current conversion ratio. In the
event of liquidation, holders of Series A are entitled to receive, before
any amount shall be paid to holders of Common Stock, an amount per share
equal to $1.74, as adjusted for any stock dividends, combinations or
splits, plus all declared but unpaid dividends, if any. The Series A
carries voting rights equal to one vote per share, on an as converted
basis. Holders of the Series A are entitled to receive dividends when, as
and if, declared by the Company's board of directors. As of December 31,
1999, no dividends have been declared.

Series B Convertible Preferred Stock ("Series B")
On September 11, 1998, the Company issued 1,838,799 shares of Series B to
investors for $5,969,470, net of $30,531 issuance expense. The Series B is
convertible, at the option of the holder, into shares of Common Stock at
any time. The conversion price is $3.26, subject to certain anti-dilution
protection rights. The Series B automatically converts (i) upon the closing
of the Company's registration statement on a Form S-1 at a per share price
of $6.97 or at an aggregate public offering price of no less than $15.0
million, prior to underwriting, commissions and expenses; or (ii) at the
election of holders of more than 50% of the then outstanding Series B,
voting together as a single class, at the current conversion ratio. In the
event of liquidation, holders of Series B are entitled to receive, before
any amount shall be paid to holders of Common Stock, an amount per share
equal to $3.26, as adjusted for any stock dividends, combinations or
splits, plus all declared but unpaid dividends, if any. The Series B

F-21
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BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

carries voting rights equal to one vote per share, on an as converted
basis. Holders of the Series B are entitled to receive dividends when, as
and if, declared by the Company's board of directors. As of December 31,
1999, no dividends have been declared.

Warrants
The Company granted the investors of Series A, warrants to purchase a total
of 344,520 shares of Common Stock at any time after August 1, 1998 at a
price of $0.01 per share. The fair value of the warrants at the time of
grant was determined to be approximately $596,000, using the Black-Scholes
option pricing model, based on the following assumptions: risk free
interest rate of 5%; expected life of eight months; zero dividend yield;
and expected volatility of 75%. As of the effective date of the re-
incorporation of the Company in the state of Delaware, the warrants were
terminated.

In connection with the Series B issuance, the Company granted the investors
of Series B, warrants to purchase a total of 612,183 shares of common stock
at any time after the closing of the transaction at a price of $0.001 per
share. The fair value of the warrants at the time of grant was
approximately $1,065,000, using the Black-Scholes option pricing model,
based on the following assumptions: risk free interest rate of 5%; expected
life of seven months; zero dividend yield; and expected volatility of 75%.
As a result of the closing of the Series C on April 23, 1999, 459,139
warrants issued to the investors of Series B were exercised for 459,139
shares of common stock and the balance of the warrants was terminated.

18. Subsequent Events
On February 2, 2000, the Company amended its certificate of incorporation
and increased its authorized capital to 36,000,000 shares of common stock,
$0.01 par value, and 17,600,000 shares of convertible preferred shares,
$0.01 par value.

In February 2000, the Company amended the Series D agreement such that the
purchase price per share and the number of shares to be purchased upon the
exercise of the option were changed to $4.66126 and 6,006,959 shares,
respectively. Concurrent with the amendment, the Company issued 6,006,959
shares of Series D to investors for $27,950,000, net of $50,000 issuance
expense. The Series D issue has a new stated liquidation preference of
$4.66126 per share, plus all accrued and unpaid dividends whether or not
paid. All other terms of the original Series D agreement remained
unchanged. The conversion price of $4.66126 represents a discount from the
market value of the common stock at the time of issuance. Accordingly, the
discount amount is considered incremental yield ("the beneficial conversion
feature"), to the preferred stockholders and has been accounted for as an
embedded dividend to preferred stockholders. Based on the conversion terms
of the Series D, an embedded dividend of approximately $32.3 million will
be added to the net loss in the calculation of net loss applicable to
common stockholders in the first quarter of 2000.

In connection with the Series D issuance, 214,534 shares of Series D were
purchased by an executive officer of the Company for approximately
$1,000,000. In connection with this transaction, the Company will record
compensation expense of approximately $3,075,000 in the first quarter of
2000, representing the difference between the estimated fair market value
of the Series D purchased and the amount paid.

During January 2000, the Company granted 270,900 stock options to employees
under the 1997 Plan to purchase shares of common stock at an exercise price
of $9.00 per share. In connection with this issuance, the Company will
record $2,709,000 of deferred compensation in 2000.

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BROADVIEW NETWORKS HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

On February 3, 2000, the board of directors approved a new stock option
plan (the "2000 Plan") that provides for up to 5,200,000 shares of common
stock for grant, either as incentive stock options or as nonqualified stock
options, to purchase shares of the Company's common stock and for other
stock-based awards to officers, directors and key employees responsible for
the direction and management of the Company and to non-employee consultants
and independent contractors. During February and March 2000, the Company
granted 2,339,321 options to employees and directors to purchase shares of
common stock at exercise prices ranging from $9.00 to $18.00 per share.

In connection with these awards, the Company will record approximately
$18,511,000 of deferred compensation which will be amortized over the
vesting period, which is generally four years. In addition, the board of
directors approved an Employee Stock Purchase plan to purchase up to
300,000 shares of common stock.

On March 31, 2000, the Company entered into a non-binding letter of intent
with GE Capital and First Union National Bank for a proposed senior credit
facility in an aggregate principal amount of $150 million. If finalized, it
is expected that the proceeds from this financing would be used in
connection with the deployment and expansion of the Company's
telecommunications network and that this facility would replace the
Company's existing vendor credit facility with NTFC Capital Corporation.

F-23
<PAGE>

[INSIDE BACK COVER]

[Map of our existing and planned networks]
<PAGE>

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No dealer, sales person or other person is authorized to give any
information or to represent anything not contained in this prospectus. You
must not rely on any unauthorized information or representations. This
prospectus is an offer to sell only the shares offered hereby, but only under
circumstances and in jurisdictions where it is lawful to do so. The
information contained in this prospectus is current only as of its date.

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TABLE OF CONTENTS

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Through and including [ ] , 2000, (the 25th day after the date of this
prospectus) all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to a dealer's obligation to deliver a prospectus when
acting as an underwriter and with respect to an unsold allotment or
subscription.

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7,000,000 Shares

Broadview Networks Holdings, Inc.

Common Stock

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[LOGO OF BROADVIEW NETWORKS]

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Goldman, Sachs & Co.

Bear, Stearns & Co. Inc.

Donaldson, Lufkin & Jenrette

Representatives of the Underwriters

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