BROOKSIDE TECHNOLOGY HOLDINGS, CORP. - FORM 10-Q/A

Attached files

file	filename
EX-31.1 - EX-31.1 - BROOKSIDE TECHNOLOGY HOLDINGS, CORP.	g22021exv31w1.htm
EX-32.2 - EX-32.2 - BROOKSIDE TECHNOLOGY HOLDINGS, CORP.	g22021exv32w2.htm
EX-32.1 - EX-32.1 - BROOKSIDE TECHNOLOGY HOLDINGS, CORP.	g22021exv32w1.htm
EX-31.2 - EX-31.2 - BROOKSIDE TECHNOLOGY HOLDINGS, CORP.	g22021exv31w2.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A- Amendment No. 1

(Mark One)


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

For the quarterly period ended June 30, 2009


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

For the transition period from to

Commission File Number 0-52702

BROOKSIDE TECHNOLOGY HOLDINGS CORP.

(Exact name of registrant as specified in its charter)


Florida		20-3634227

State or other jurisdiction of incorporation or organization		(I.R.S. Employer Identification No.)

15500 Roosevelt Blvd, Suite 101
Clearwater, FL 33760
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code (727) 535-2151

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

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


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

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

Number of shares outstanding of registrant’s class of common stock as of August 14, 2009: 146,657,102

Index


ITEM

PART I — FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements	4

Item 2.	Management’s Discussion and Analysis Financial Condition and Results of Operation	35

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	42

Item 4.	Controls and Procedures	42

Item 4(T)	Controls and Procedures	42

PART II — OTHER INFORMATION		44

Item 1.	Legal Proceedings	44

Item 1A.	Risk Factors	45

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45

Item 3.	Defaults Upon Senior Securities	45

Item 4.	Submission of Matters to a Vote of Securities Holders	45

Item 5.	Other Information	45

Item 6.	Exhibits	45
EX-31.1
EX-31.2
EX-32.1
EX-32.2

EXPLANATORY NOTE

Brookside Technology Holdings Corp. is filing this Amendment No. 1 to its Quarterly Report on Form 10-Q for the three and six months ended June 30, 2009, which was originally filed with the Securities and Exchange Commission on August 14, 2009 (“Original Form 10-Q”), to amend Item 2 “Description of Business”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”), Item 1 “Financial Statements and Supplementary Data”, Item 4T “Controls and Procedures.” Additionally, the Registrant added Note 2 regarding the restatement of the Registrant’s financial statements and revised Note 1, Note 3, Note 4 and Note 8.

As discussed in Note 1 to the Financial Statements, on November 16, 2009, Brookside Technology Holdings Corp and its Board of Directors, after consultation with Brookside Technology Holdings Corp’s independent registered public accounting firm, concluded that Brookside Technology Holdings Corp would amend its annual report on Form 10-K for the year ended December 31, 2008 and restate its financial statements and financial information for the year ended December 31, 2008. Brookside Technology Holdings Corp concluded that it should have been accounting for certain warrants as a liability under EITF Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed to and Potentially Settled in a Company’s Own Stock, due to the cash redemption rights included in the warrant agreements. The treatment and effect to the financial statements is further discussed in Note 2. In prior 10-K filings for years ended 2007 and 2008 and related quarterly filings, the Company had incorrectly accounted for these warrants resulting in not recording the quarterly change in estimated fair value of the warrants as derivative financial instruments. Please refer to Note 2 of these financial statements for a detailed discussion of the impact on the Company’s quarterly financial information.

For the convenience of the reader, this Form 10-Q/A sets forth the Original Form 10-Q, as amended hereby, in its entirety. However, this Form 10-Q/A amends and restates only Items 1, 2, and 4T of the Original Form 10-Q, in each case solely as a result of and to reflect the adjustments discussed above and more fully in Note 2 of the accompanying financial statements, and no other information in the Original Form 10-Q is amended hereby.

As required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended, new certifications by Brookside Technology Holdings Corp’s principal executive officer and principal financial officer are being filed with this new Form 10-Q/A as Exhibits 31.1 and 32.1.

This Amendment does not reflect events occurring after the filing of the Form 10-Q or modify or update those disclosures as affected by subsequent events. Except as described above, no other modifications or changes have been made to the Form 10-Q as originally filed or the Exhibits filed therewith. Other events occurring after the filing of the Form 10-Q or other disclosures necessary to reflect subsequent events have been addressed in the Company’s reports filed with the Securities and Exchange Commission subsequent to the filing of the Form 10-Q.

This Report on Form 10-Q/A for Brookside Technology Holdings Corp. (“we,” “us,” or the “Company”) may contain forward-looking statements. You can identify these statements by forward-looking words such as “may,” “will,” “expect,” “intend,” “anticipate,” “believe,” “estimate,” and “continue” or similar words. Forward-looking statements include information concerning possible or assumed future business success or financial results. You should read statements that contain these words very carefully because they discuss future expectations and plans, which contain projections of future results of operations or financial condition or state other forward-looking information. We believe that it is important to communicate future expectations to investors. However, there may be events in the future that we are not able to accurately predict or control. Accordingly, we do not undertake any obligation to update any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

The forward-looking statements contained herein are based on current expectations that involve a number of risks and uncertainties including those set forth under “Risk Factors” in our Form 10-K for the year ended December 31, 2008, as filed with the Securities and Exchange Commission, and any other periodic reports filed with the Securities and Exchange Commission. Accordingly, to the extent that this Quarterly Report contains forward-looking statements regarding the financial condition, operating results, business prospects or any other aspect of the Company, please be advised that the Company’s actual financial condition, operating results and business performance may differ materially from that projected or estimated by the Company in its forward-looking statements.

Item 1. Consolidated Financial Statements

BROOKSIDE TECHNOLOGY HOLDINGS CORP
CONSOLIDATED BALANCE SHEETS
As of June 30, 2009 and December 31, 2008


	June 30,			December 31,
	2009 (Unaudited)
	(Restated)			2008
ASSETS
Current assets
Cash and cash equivalents	$	692,678		$	835,525
Cash collateral account		395,194			368,666
Restricted cash		361,097			1,366,666
Accounts receivable, net		3,611,339			4,225,692
Inventory		1,911,718			1,652,300
Deferred contract costs		37,283			107,382
Deferred finance charges, net of amortization		437,920			536,085
Prepaid expenses		96,246			79,493


Total current assets		7,543,475			9,171,809

Property and equipment
Office equipment		522,496			444,590
Vehicles		105,901			171,131
Furniture, fixtures and leasehold improvements		169,365			155,151

		797,762			770,872
Less: accumulated depreciation		(387,679	)		(326,383	)

Property and equipment, net		410,083			444,489

Goodwill		16,980,030			16,918,396
Intangible assets, net		225,000			731,710
Deposits and other assets		85,867			27,735


TOTAL ASSETS	$	25,244,455		$	27,294,139


LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities
Accounts payable and accrued expenses	$	2,016,019		$	2,211,611
Billings in excess of revenues		2,728,379			2,620,857
Payroll liabilities		705,489			851,833
Current portion of long term debt		1,842,454			2,669,177
Income taxes payable		4,000			164,000
Other current liabilities		288,724			228,390

Total current liabilities		7,585,065			8,745,868
Long term debt, less current portion		5,586,460			5,053,135
Deriviative financial instruments at fair value		7,512,529			12,016,463

Total liabilities		20,684,054			25,815,466

Stockholders’ equity
Series A convertible preferred stock, 15,000,000 authorized, 13,191,716 and 12,216,716 issued and outstanding at June 30, 2009 and December 31, 2008, respectively, at 8% dividend yield. Liquidation preference of $14,296,120 and $12,832,595 at June 30, 2009 and December 31, 2008, respectively.		7,281,412			6,812,914
Common stock, $.01 par value, 1,000,000,000 shares authorized, 146,657,102 and 140,228,340 shares issued and outstanding at June 30, 2009 and December 31, 2008, respectively.		146,657			140,229
Additional paid in capital		11,853,637			11,885,674
Accumulated deficit		(14,721,305	)		(17,360,144	)

Total stockholders’ equity		4,560,401			1,478,673

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	25,244,455		$	27,294,139

See accompanying notes to these unaudited consolidated financial statements.

BROOKSIDE TECHNOLOGY HOLDINGS CORP
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Six Months Ended June 30, 2009 and 2008
Unaudited


	Quarter Ended June 30,						Six Months Ended June 30,
	2009			2008			2009			2008
	(Restated)			(Restated)			(Restated)			(Restated)
REVENUES
Installation and other services	$	1,505,267		$	1,335,230			3,078,444		$	2,347,539
Equipment sales		3,038,784			3,198,217			6,466,906			6,393,974

Total revenues		4,544,051			4,533,447			9,545,350			8,741,513
COST OF SALES		1,696,552			2,250,924			3,972,732			4,480,805


GROSS PROFIT		2,847,499			2,282,523			5,572,618			4,260,708


OPERATING EXPENSES
General and administrative		2,840,295			2,116,496			5,950,392			3,860,986
Depreciation expense		35,731			29,341			70,863			66,809

Total operating expenses		2,876,026			2,145,837			6,021,255			3,927,795


OTHER INCOME (EXPENSE)
Interest expense		(479,446	)		(664,130	)		(912,255	)		(1,339,583	)
Amortization expense of loan discount and intangibles		(516,713	)		(1,763,143	)		(993,387	)		(3,500,410	)
Finance expense on derivitives		(925,571	)		—			(925,571	)		—
Gain on change in fair value of derivitive financial instruments		5,751,603			2,063,130			6,429,505			6,219,821
Other income (expense), net		(7,538	)		408			(5,923	)		3,871

Total other income (expense)		3,822,335			(363,735	)		3,592,369			1,383,699


INCOME (LOSS) BEFORE INCOME TAXES		3,793,808			(227,049	)		3,143,732			1,716,612
Provision for income taxes		—			—			—			—

NET INCOME (LOSS)	$	3,793,808		$	(227,049	)		3,143,732		$	1,716,612


Preferred Stock Dividends		(244,190	)		(40,430	)		(488,524	)		(83,936	)

Net income (loss) attributable to common shareholders	$	3,549,618		$	(267,479	)		2,655,208		$	1,632,676


Loss per share- basic	$	0.03		$	(0.00	)		0.02		$	0.02

Weighted average shares outstanding—basic		141,810,791			90,714,185			141,023,937			89,307,092

Loss per share- fully diluted	$	0.00		$	(0.00	)		0.00		$	0.00

Weighted average shares outstanding—fully diluted		1,391,504,369			90,714,185			1,376,783,935			1,310,978,692

See accompanying notes to these unaudited consolidated financial statements.

BROOKSIDE TECHNOLOGY HOLDINGS CORP
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 2009 and 2008
Unaudited


	2009			2008
	(Restated)			(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	3,143,732		$	1,716,612

Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		70,863			66,809
Amortization of loan discounts and intangibles		993,387			3,500,410
Non-cash interest expense		232,544			518,069
Finance expense on derivitives		925,571			—
Gain on change in fair value of derivitive financial instruments		(6,429,505	)		(6,219,821	)
Loss on disposal of fixed assets		6,717			—
Bad debt expense		26,700			—
Stock based compensation		24,364			115,500
(Increase) decrease in:
Accounts receivable		587,653			(714,549	)
Inventory		(259,418	)		(283,631	)
Deferred contract costs		70,099			(526	)
Prepaid expenses		(16,753	)		(23,700	)
Deposits and other assets		(58,132	)		(54,418	)
Increase (decrease) in:
Accounts payable and accrued expenses		(195,592	)		754,624
Accrued payroll liabilities		(146,344	)		20,166
Billings in excess of revenues		107,522			209,928
Income taxes payable		(160,000	)		—
Other current liabilities		43,966			(59,790	)

		(4,176,358	)		(2,170,929	)

NET CASH USED IN OPERATING ACTIVITIES		(1,032,626	)		(454,317	)

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment		(43,174	)		(83,912	)
Cash used for restricted cash		(26,528	)
Cash used for cash collateral		(233,334	)		—
Cash provided by cash collateral		1,238,903			—
Deposits and other assets related to the acquisition of Standard Tel Networks, LLC (“STN”)		—			(65,000	)
Acquisition of US Voice & Data, LLC (“USVD”) additional EBITDA Earnout		(61,634	)		—

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES		874,233			(148,912	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long term debt		464,891			6,958,275
Proceeds from issuance of Series A preferred stock, net of issuance costs of $70,000		930,000			—
Repayment of long term debt		(1,379,345	)		(6,309,073	)

NET CASH PROVIDED BY FINANCING ACTIVITIES		15,546			649,202

NET INCREASE (DECREASE) IN CASH		(142,847	)		45,973
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		835,525			187,846

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	692,678		$	233,819

SUPPLEMENTAL DISCLOSURE
Income taxes paid	$	—		$	(364,690	)

Interest paid	$	679,711		$	(17,147	)

Non-cash financing and investing activities
Accretion of preferred stock dividend	$	488,524		$	83,936

Accrued interest added to note payable balance	$	—		$	503,893

Cashless exercise of warrants	$	3,857		$	—

Accrual for derivitive financial intruments at fair value	$	1,925,571			—

Conversion of series A preferred stock to common stock	$	20,026		$	260,328

See accompanying notes to these unaudited consolidated financial statements.

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 1 — Basis of Presentation and Nature of Business

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Brookside Technology Holdings Corp., a Florida corporation (the “Company”), have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete consolidated financial statements. These unaudited condensed consolidated financial statements and related notes should be read in conjunction with the Company’s Form 10-K for the fiscal year ended December 31, 2008. In the opinion of management, these unaudited condensed consolidated financial statements reflect all adjustments that are of a normal recurring nature and which are necessary to present fairly the financial position of the Company as of June 30, 2009 and December 31, 2008, and the results of operations and cash flows for the quarters and six months ended June 30, 2009 and 2008. The results of operations for the quarter and six months ended June 30, 2009 are not necessarily indicative of the results that may be expected for the entire fiscal year.

Operations

Brookside Technology Holdings Corp., (the “Company”), is the holding company for Brookside Technology Partners, Inc., a Texas corporation (“Brookside Technology Partners”), US Voice & Data, LLC, an Indiana Limited Liability Company (“USVD”), Standard Tel Acquisitions, Inc, a California Corporation (“Acquisition Sub”), Trans-West Network Solutions, Inc., (“Trans-West”), a California Corporation and Standard Tel Networks, LLC, a California Limited Liability Company (“STN”) and all operations are conducted through these wholly owned subsidiaries.

Collectively, the subsidiary companies are providers of converged business communications products and services from Mitel, Inter-tel (owned by Mitel), Nortel and NEC. The Company, as the 2^nd largest MITEL dealer, is recognized as a Diamond Dealer. The Company combines technical expertise in a range of communications products, including IP-enabled platforms, wired and wireless IP and digital endpoints and leading edge communications applications to create converged voice, video and data networks that help businesses increase efficiency and optimize revenue opportunities, critical for success in today’s competitive business environment. Specializing in selling, designing, analyzing and implementing converged Voice over IP (VoIP), data and wireless business communications systems and solutions for commercial and state/government organizations of all types and sizes in the United States, the Company has offices that provide a national footprint. Headquartered in Huntington Beach, California, STN has offices in the San Francisco Bay Area, Sacramento, and San Diego. Headquartered in Austin, Texas, Brookside Technology Partners serves the Texas market. Headquartered in Louisville, Kentucky, USVD serves the Kentucky and Southern Indiana markets, operating out of offices in Louisville, Lexington and Indianapolis. Combined, revenues from new implementations represent approximately 50% of the Company’s revenues with the remaining 50% generated by service, support, maintenance and other recurring revenues from our existing customer base.

Restatement of Prior Periods

On November 16, 2009, the Company concluded that it should have been accounting for certain warrants as a liability under EITF Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed to and Potentially Settled in a Company’s Own Stock, (EITF 00-19) due to the cash redemption rights included in the warrant agreements. The treatment and effect to the financial statements is further discussed in Note 2. In prior 10-Q quarterly filings, and quarterly information filed for three months ended March 31, and the three and six months ended June 30, 2009, the Company had incorrectly accounted for these warrants resulting in not recording the quarterly change in estimated fair value of the warrants as derivative financial instruments. Please refer Note 2 of these financial statements for a detailed discussion of the impact on the Company’s quarterly financial information.

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 1 — Nature of Business (continued)

Background/Name Change/Redomestication

Cruisestock, Inc, (“Cruisestock”) was incorporated in September 2005 under the laws of the State of Texas. Immediately prior to February 21, 2007, it was a shell corporation with no significant operations or assets. On February 21, 2007, Cruisestock acquired all of the stock of Brookside Technology Partners, a Texas corporation, in a transaction where the shareholders of Brookside Technology Partners exchanged all of their shares for shares of common stock of Cruisestock (the “Share Exchange”). As a result, Brookside Technology Partners became a wholly owned subsidiary of Cruisestock. However, from an accounting perspective, Brookside Technology Partners was the acquirer in the Share Exchange.

Redomestication

Subsequent to the Share Exchange, on July 6, 2007 (the “Effective Time”), Cruisestock changed its name to Brookside Technology Holdings Corp. and redomesticated in Florida. The name change and redomestication were accomplished by merging Cruisestock into a newly-formed, Florida wholly-owned subsidiary, with the subsidiary being the surviving entity (the “Redomestication”).

The Company’s common stock is quoted on the NASDAQ Over-the-Counter Bulletin Board (OTCBB) under the symbol: “BKSD”.

US Voice & Data, LLC

The Company has a wholly-owned subsidiary, US Voice & Data, LLC, an Indiana Limited Liability Company (“USVD”). USVD, headquartered in Louisville, Kentucky, with offices in Lexington, Kentucky and Indianapolis, Indiana, is a leading regional provider of telecommunication services, including planning, design, installation and maintenance for converged voice and data systems.

Acquisition of Standard Tel Networks, LLC

On September 23, 2008, the Company, through its wholly-owned subsidiary, Standard Tel Acquisitions, Inc. (“Acquisition Sub”), acquired Standard Tel Networks, LLC (“STN”), an independent distributor of high quality, turnkey converged voice and data business communications products and services headquartered in Huntington Beach, CA, and having other California offices in the San Francisco Bay Area, Sacramento, and San Diego. This acquisition was structured as the acquisition of (a) all of the stock of Trans-West Network Solutions, Inc. (“Trans-West”) from the shareholders of Trans-West (the “Trans-West Shareholders”) and (b) all of the membership interest of STN owned by ProLogic Communication, Inc. (“ProLogic” and collectively with the Trans-West Shareholders, the “Seller Parties”). Trans-West, a holding company with no operations, owned eighty percent (80%) of the membership interest of STN and ProLogic owned the other twenty percent (20%), and, accordingly, the Company now controls one hundred percent (100%) of STN. Collectively, the forgoing transactions are referred to in these financial statements as the “STN Acquisition.” Prior to the STN Acquisition, the Company did not have any relationships with the Seller Parties.

Operating results from the acquired business, STN, are included in the condensed consolidated statements of operations from the date of acquisition (September 23, 2008). Accordingly, the three and six months ended June 30, 2008 has no operation activity related to STN.

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 2 — Restatement of Prior Periods

The Company has restated its financial statements from the amounts previously reported by filing this amended Quarterly Report on Form 10-Q/A. The restatement adjustments correct for the establishment of a “Derivative financial instruments at fair value” liability on the Consolidated Balance Sheets of $7,512,529 and $12,016,463 as of June 30, 2009 and December 31, 2008, respectively. Additionally, the Company recorded the related “Finance expense on derivatives” of $925,571 and $0 for the three and six months ended June 30, 2009 and 2008, respectively. The Company also recorded a “Gain on change in fair value of derivative financial instruments” of $5,751,603 and $2,063,130 for the three months ended June 30, 2009 and 2008, respectively, and $6,429,505 and $6,219,821 for the six months ended June 30, 2009 and 2008, respectively, on the Consolidated Statements of Operations. Following is a summary of the restatement adjustments:


	As Reported			Adjustments			As Restated
June 30, 2009 Summary Balance Sheet	(Unaudited)			(Unaudited)			(Unaudited)

Current assets	$	7,543,475			—		$	7,543,475
Property and equipment, net		410,083			—			410,083
Goodwill		16,980,030			—			16,980,030
Intangible assets, net		225,000			—			225,000
Deposits and other assets		85,867			—			85,867

Total assets	$	25,244,455			—		$	25,244,455


Current liabilities:
Accounts payable and accrued expenses	$	2,016,019			—		$	2,016,019
Billings in excess of revenues		2,728,379			—			2,728,379
Payroll liabilities		705,489			—			705,489
Current portion of long term debt		1,842,454			—			1,842,454
Income taxes payable		4,000			—			4,000
Other current liabilities		288,724			—			288,724

Total current liabilities		7,585,065			—			7,585,065
Long-term debt, less current portion		5,586,460			—			5,586,460
Derivative financial instruments at Fair value		—	(1)		7,512,529			7,512,529

Total Liabilities		13,171,525			7,512,529			20,684,054
Stockholders’ equity:
Series A convertible preferred stock		9,531,980	(2)		(2,250,568	)		7,281,412
Common stock		146,657			—			146,657
Additional paid-in capital		22,353,864	(3)		(10,500,227	)		11,853,637
Accumulated deficit		(19,959,571	) (4)		5,238,266			(14,721,305	)

Total stockholders’ equity		12,072,930			(7,512,529	)		4,560,401

Total liabilities and stockholders’ equity	$	25,244,455			—		$	25,244,455


(1)		— Fair value of derivative financial instruments at June 30, 2009 based on Black-Scholes model valuation.

(2)		— Amount of beneficial conversion feature eliminated as debt was reduced to zero as fair value of derivatives was recorded as a liability.

(3)		— Represents the initial entries to record the fair value of derivatives at issuance date.

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 2 — Restatement of Prior Periods (Continued)

(4)

— Represents the total of amortization of additional discount on debt, finance expense on derivatives, reversal of beneficial conversion feature and gain on change in fair value of derivatives since issuance of warrants.


Three Months Ended June 30, 2009 Summary	As Reported					Adjustments			As Restated
Consolidated Statement of Operations:	(Unaudited)					(Unaudited)			(Unaudited)

Installation and other services	$	1,505,267					—		$	1,505,267
Equipment sales		3,038,784					—			3,038,784

Total revenues		4,544,051					—			4,544,051
Cost of sales		1,696,552					—			1,696,552

Gross Profit		2,847,499					—			2,847,499
Operating Expenses:
General and administrative		2,840,295					—			2,840,295
Depreciation		35,731					—			35,731

Total operating expenses		2,876,026					—			2,876,026

Other Income (Expense):							—
Interest expense		(479,446	)				—			(479,446	)
Amortization expense of loan discount and intangibles		(516,713	)				—			(516,713	)
Finance expense on derivatives		—		(A	)		(925,571	)		(925,571	)
Gain on change in fair value of derivative Financial instruments		—		(B	)		5,751,603			5,751,603
Gain on extinguishment of debt		—					—			—
Other income (expense), net		(7,538	)				—			(7,538	)

Total other expenses		(1,003,697	)				4,826,032			3,822,335

Loss Before Income Taxes		(1,032,224	)				4,826,032			3,793,808
Provision for Income Taxes		—					—			—

Net Loss	$	(1,032,224	)			$	4,826,032		$	3,793,808

Preferred Stock Dividends		(511,151	)	(C	)		266,961			(244,190	)

Net loss attributable to common Shareholders	$	(1,543,375	)			$	5,092,993		$	3,549,618

Income (loss) loss per share-basic	$	(0.01	)			$	0.04		$	0.03

Weighted average shares outstanding-basic		141,810,791								141,810,791

Income (loss) loss per share-fully diluted	$	(0.01	)			$	0.01		$	0.00

Weighted average shares outstanding-fully diluted		141,810,791								1,391,504,369


(A)		— Financing expense recognized for warrants at fair value in excess of face amount of debt.

(B)		— Change in fair value of derivatives.

(C)		— Amount of beneficial conversion feature eliminated as debt was reduced to zero as fair value of derivative was recorded as a liability.

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 2 — Restatement of Prior Periods (Continued)


Six Months Ended June 30, 2009 Summary	As Reported					Adjustments			As Restated
Consolidated Statement of Operations:	(Unaudited)					(Unaudited)			(Unaudited)

Installation and other services	$	3,078,444					—		$	3,078,444
Equipment sales		6,466,906					—			6,466,906

Total revenues		9,545,350					—			9,545,350
Cost of sales		3,972,732					—			3,972,732

Gross Profit		5,572,618					—			5,572,618
Operating Expenses:
General and administrative		5,950,392					—			5,950,392
Depreciation		70,863					—			70,863

Total operating expenses		6,021,255					—			6,021,255

Other Income (Expense):							—
Interest expense		(912,255	)				—			(912,255	)
Amortization expense of loan discount and intangibles		(993,387	)				—			(993,387	)
Finance expense on derivatives		—		(A	)		(925,571	)		(925,571	)
Gain on change in fair value of derivative Financial instruments		—		(B	)		6,429,505			6,429,505
Gain on extinguishment of debt		—					—			—
Other income (expense), net		(5,923	)				—			(5,923	)

Total other expenses		(1,911,565	)				5,503,934			3,592,369

Loss Before Income Taxes		(2,360,202	)				5,503,934			3,143,732
Provision for Income Taxes		—					—			—

Net Loss	$	(2,360,202	)			$	5,503,934		$	3,143,732

Preferred Stock Dividends		(755,485	)	(C	)		266,961			(488,524	)

Net loss attributable to common Shareholders	$	(3,115,687	)			$	5,770,895		$	2,655,208

Income (loss) per share-basic	$	(0.02	)			$	0.04		$	0.02

Weighted average shares outstanding-basic		141,023,937								141,023,937

Income (loss) per share-fully diluted	$	(0.02	)			$	0.02		$	0.00

Weighted average shares outstanding-fully diluted		141,023,937								1,376,783,935


(A)		— Financing expense recognized for warrants at fair value in excess of face amount of debt.

(B)		— Change in fair value of derivatives.

(C)		— Amount of beneficial conversion feature eliminated as debt was reduced to zero as fair value of derivative was recorded as a liability.


Summary Statement of Cash Flows for the Six
Months Ended June 30, 2009:	As Reported			Adjustments		As Restated

Net Cash Used in Operating Activities	$	(1,032,626	)		—	$	(1,032,626	)
Net Cash Provided by Investing Activities		874,233			—		874,233
Net Cash Provided by Financing Activities		15,546			—		15,546

Decrease in cash		(142,847	)		—		(142,847	)
Cash at Beginning of Period		835,525			—		835,525

Cash at End of Period	$	692,678			—	$	692,678

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 2 — Restatement of Prior Periods (Continued)


December 31, 2008 Summary Consolidated
Balance Sheet	As Reported					Adjustments			As Restated

Current assets	$	9,171,809					—		$	9,171,809
Property and equipment, net		444,489					—			444,489
Goodwill		16,918,396					—			16,918,396
Intangible assets, net		731,710					—			731,710
Deposits and other assets		27,735					—			27,735

Total assets	$	27,294,139					—		$	27,294,139


Current liabilities:
Accounts payable and accrued expenses	$	2,211,611					—		$	2,211,611
Billings in excess of revenues		2,620,857					—			2,620,857
Payroll liabilities		851,833					—			851,833
Current portion of long term debt		2,669,177					—			2,669,177
Income taxes payable		164,000					—			164,000
Other current liabilities		228,390					—			228,390

Total current liabilities		8,745,868					—			8,745,868
Long-term debt, less current portion		5,053,135					—			5,053,135
Derivative financial instruments at Fair value		—		(1	)		12,016,463			12,016,463

Total Liabilities		13,799,003					12,016,463			25,815,466
Stockholders’ equity (deficit):
Series A convertible preferred stock		8,796,521		(2	)		(1,983,607	)		6,812,914
Common stock		140,229					—			140,229
Additional paid-in capital		21,385,901		(3	)		(9,500,227	)		11,885,674
Accumulated deficit		(16,827,515	)	(4	)		(532,629	)		(17,360,144	)

Total stockholders’ equity (deficit)		13,495,136		(4	)		(12,016,463	)		1,478,673

Total liabilities and stockholders’ Equity (deficit)	$	27,294,139					—			27,294,139


(1)		— Fair value of derivative financial instruments at December 31, 2008 based on Black-Scholes model valuation.

(2)		— Amount of beneficial conversion feature eliminated as debt was reduced to zero as fair value of derivatives was recorded as a liability.

(3)		— Represents the initial entries to record the fair value of derivatives at issuance date.

(4)		— Represents the total of amortization of additional discount on debt, finance expense on derivatives, reversal of beneficial conversion feature and gain on change in fair value of derivatives since issuance of warrants.

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 2 — Restatement of Prior Periods (Continued)


Year Ended December 31, 2008 Summary
Consolidated Statement of Operations:	As Reported					Adjustments			As Restated

Installation and other services	$	5,327,723					—		$	5,327,723
Equipment sales		16,381,884					—			16,381,884

Total revenues		21,709,607					—			21,709,607
Cost of sales		11,160,248					—			11,160,248

Gross Profit		10,549,359					—			10,549,359
Operating Expenses:							—
General and administrative		8,851,632								8,851,632
Depreciation		132,294								132,294

Total operating expenses		8,983,926					—			8,983,926

Other Income (Expense):							—
Interest expense		(2,041,393	)				—			(2,041,393	)
Amortization expense of loan discount and intangibles		(4,358,031	)	(A	)		(1,244,830	)		(5,602,861	)
Finance expense on derivatives		—		(B	)		(4,156,069	)		(4,156,069	)
Gain on change in fair value of derivative Financial instruments		—		(C	)		5,245,207			5,245,207
Gain on extinguishment of debt		151,619					—			151,619
Other income, net		15,582					—			15,582

Total other expenses		(6,232,223	)				(155,692	)		(6,387,915	)

Loss Before Income Taxes		(4,666,790	)				(155,692	)		(4,822,482	)
Provision for Income Taxes		(164,000	)				—			(164,000	)

Net Loss	$	(4,830,790	)			$	(155.692	)	$	(4,986,482	)

Preferred Stock Dividends		(2,459,630	)	(D	)		1,983,607			(476,023	)

Net loss attributable to common Shareholders	$	(7,290,420	)			$	1,827,915		$	(5,462,505	)

Loss per share-basic and fully diluted	$	(0.070	)			$	0.018		$	(0.052	)

Weighted average shares outstanding		104,802,022								104,802,022


(A)		— Additional discount on debt being amortized.

(B)		— Financing expense recognized for warrants at fair value in excess of face amount of debt.

(C)		— Change in fair value of derivatives.

(D)		— Amount of beneficial conversion feature eliminated as debt was reduced to zero as fair value of derivative was recorded as a liability.


Summary Statement of Cash Flows for the
Year Ended December 31, 2008:	As Reported			Adjustments		As Restated

Net Cash Used in Operating Activities	$	(332,352	)		—	$	(332,352	)
Net Cash Used in Investing Activities		(4,862,410	)		—		(4,862,410	)
Net Cash Provided by Financing Activities		5,842,441			—		5,842,441

Increase in cash		647,679			—		647,679
Cash at Beginning of Period		187,846			—		187,846

Cash at End of Period	$	835,525			—	$	835,525

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 2 — Restatement of Prior Periods (Continued)

The Company issued the following warrants in conjunction with various financing related activities:


			2008 Vicis
	Hilco		Financing
Financing	$	6,000,000	$	5,500,000

Total number of warrants		61,273,872		250,000,000
Exercise Price	$	0.137	$	0.03
Term of warrants (years)		5		5
Debt issuance costs	$	1,659,773	$	—
Face value of debt/equity	$	4,340,227	$	5,500,000
Fair value of derivative at Inception	$	18,008,466	$	9,656,069
Financing expense recorded	$	12,348,466	$	4,156,069

The above amounts have been classified as derivative financial instruments because of the put provisions inherent in the redemption provision included in the warrant agreements and recorded at issuance as a liability for “Derivative financial instruments at estimated fair value” on the Company’s balance sheet in accordance with the current authoritative guidance including EITF 00-19. In accordance with provisions of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, (SFAS 133) the Company is required to adjust the carrying value of the above warrants to its fair value at each balance sheet date and recognize any change since the prior balance sheet date as a component of other expense or income. In valuing the above warrants, the Company used the Black-Scholes model. Changes in warrant liabilities for 2008 were as follows:


	2008
	3/31/08			6/30/08			9/30/08		12/31/08
	(Unaudited)			(Unaudited)			(Unaudited)		(Unaudited)
Derivative financial instrument at opening balance sheet date	$	7,605,601		$	3,448,910		$	1,385,780	$	11,967,175
Fair value of new derivative during the period		—			—			9,656,069		—
Change in estimated fair market value of derivative financial instrument		(4,156,691	)		(2,063,130	)		925,326		49,288

Derivative financial instrument at closing balance sheet date	$	3,448,910		$	1,385,780		$	11,967,175	$	12,016,463

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 2 — Restatement of Prior Periods (Continued)

Effects of recording the above discussed derivatives at fair value on the applicable previously issued unaudited quarterly financial statements for June 30, 2008 and March 31, 2009 are as follows:

Period ended June 30, 2008:


	As Reported			Adjustments			As Restated
Balance Sheet as of June 30, 2008	(Unaudited)			(Unaudited)			(Unaudited)

Total current assets	$	4,420,853			—		$	4,420,853
Total other assets		13,818,289			—			13,818,289

Total Assets	$	18,239,142			—		$	18,239,142

Total current liabilities	$	17,199,245			—		$	17,199,245
Long-term debt		1,044,607			(414,944	)		629,663
Derivative financial instruments at Fair value		—			1,385,780			1,385,780

Total Liabilities		18,243,852			970,836			19,214,688

Total stockholders’ equity (deficit)		(4,710	)		(970,836	)		(975,546	)

Total Liabilities and Stockholders’ Equity (Deficit)	$	18,239,142			—		$	18,239,142


Summary Consolidated Statement of
Operations for the Three Months	As Reported			Adjustments		As Restated
Ended June 30, 2008:	(Unaudited)			(Unaudited)		(Unaudited)

Total revenues	$	4,533,447			—	$	4,533,447
Total cost of goods sold		2,250,924			—		2,250,924

Gross profit		2,282,523			—		2,282,523
Total operating expenses		2,145,837			—		2,145,837
Total other expenses		(2,011,922	)		1,648,187		(363,735	)

Net income (loss)		(1,875,236	)		1,648,187		(227,049	)

Preferred stock dividends		(40,430	)		—		(40,430	)

Net income (loss) attributable to common Shareholders	$	(1,915,666	)		1,648,187		(267,479	)
Net income (loss) per share-basic	$	(0.021	)		0.018	$	(0.003	)

Weighted average shares outstanding-basic		90,714,185			—		90,714,185


Summary Statement of Cash Flows for the	As Reported			Adjustments		As Restated
Period Ended June 30, 2008:	(Unaudited)			(Unaudited)		(Unaudited)

Net Cash Used in Operating Activities	$	(454,317	)		—	$	(454,317	)
Net Cash Used in Investing Activities		(148,912	)		—		(148,912	)
Net Cash Provided by Financing Activities		649,202			—		649,202

Increase in cash		45,973			—		45,973
Cash at Beginning of Period		187,846			—		187,846

Cash at End of Period	$	233,819			—	$	233,819

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 2 — Restatement of Prior Periods (Continued)

Period ended March 31, 2009:


	As Reported		Adjustments			As Restated
Balance Sheet as of March 31, 2009	(Unaudited)		(Unaudited)			(Unaudited)

Total current assets	$	7,558,238		—		$	7,558,238
Total other assets		17,968,291		—			17,968,291

Total Assets	$	25,526,529		—		$	25,526,529

Total current liabilities	$	7,945,896		—		$	7,945,896
Long-term debt		5,412,900		—			5,412,900
Derivative financial instruments at Fair value		—		11,338,561			11,338,561

Total Liabilities		13,358,796		11,338,561			24,697,357

Total stockholders’ equity (deficit)		12,167,733		(11,338,561	)		829,172

Total Liabilities and Stockholders’ Equity	$	25,526,529		—		$	25,526,529


Summary Consolidated Statement of Operations for	As Reported			Adjustments		As Restated
the Three Months Ended March 31, 2009:	(Unaudited)			(Unaudited)		(Unaudited)

Total revenues	$	5,001,299			—	$	5,001,299
Total cost of goods sold		2,276,180			—		2,276,180

Gross profit		2,725,119			—		2,725,119
Total operating expenses		3,145,229			—		3,145,229
Total other expenses		(907,868	)		677,902		(229,966	)

Net loss		(1,327,978	)		677,902		(650,076	)

Preferred stock dividends		(244,334	)		—		(244,334	)

Net loss attributable to common Shareholders	$	(1,572,312	)		677,902		(894,410	)
Net income loss per share-basic and fully diluted	$	(0.01	)		0.00	$	(0.01	)

Weighted average shares outstanding		140,228,340			—		140,228,340


Summary Statement of Cash Flows for the	As Reported			Adjustments		As Restated
Period Ended March 31, 2009:	(Unaudited)			(Unaudited)		(Unaudited)

Net Cash Used in Operating Activities	$	(59,417	)		—	$	(59,417	)
Net Cash Provided by Investing Activities		401,968			—		401,968
Net Cash Used in Financing Activities		(513,601	)		—		(513,601	)

Decrease in cash		(171,050	)		—		(171,050	)
Cash at Beginning of Period		1,204,191			—		1,204,191

Cash at End of Period	$	1,033,141			—	$	1,033,141

The determination of fair value includes significant estimates by management including volatility of the Company’s common stock, interest rates, and the probability of redemption or a future dilutive financing transaction among other items. The recorded value of the derivative financial instrument can fluctuate significantly based on fluctuations in the fair value of the Company’s common stock, as well as in the volatility of the stock price during the term used for observation and the term remaining for exercise of these warrants. The fluctuation in estimated fair value may be significant from period to period which in turn may have a significant impact on reported financial condition and results of operations.

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 2 — Restatement of Prior Periods (Continued)

In prior 10-K filings for the year ended 2008 and related quarterly filings, the Company had incorrectly accounted for these warrants resulting in not recording the quarterly change in estimated fair value of derivative financial instruments. Accordingly the impact on the Company’s quarterly financial information is as follows:


	For the Three Months Ended 2009 (Unaudited)
	3/31/09			6/30/09
Net loss, as previously reported	$	(1,327,978	)	$	(1,032,224	)
Net income (loss), as restated	$	(650,076	)	$	3,793,808
Total liabilities, as previously reported	$	13,358,796		$	13,171,525
Total liabilities, as restated	$	24,697,357		$	20,684,054
Total equity (deficit), as previously Reported	$	12,167,733		$	12,072,930
Total equity (deficit), as restated	$	829,172		$	4,560,401


	For the Three Months Ended 2008 (Unaudited) Year Ended
	3/31/08			6/30/08			9/30/08			12/31/08
Net loss, as previously reported	$	(1,798,087	)	$	(1,875,236	)	$	(784,983	)	$	(4,830,790	)
Net income (loss), as restated	$	1,943,661		$	(227,049	)	$	(6,281,322	)	$	(4,986,482	)
Total liabilities, as previously reported	$	15,911,754		$	18,243,852		$	14,300,178		$	13,799,003
Total liabilities, as restated	$	18,530,777		$	19,214,688		$	26,267,353		$	25,815,466
Total equity (deficit), as previously Reported	$	1,765,075		$	(4,710	)	$	13,879,835		$	13,495,136
Total equity (deficit), as restated	$	(853,948	)	$	(975,546	)	$	1,912,660		$	1,478,673

Note 3 — Liquidity and Capital Resources

These consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and settlement of obligations in the normal course of business. The Company generated significant net losses in the prior three fiscal years.

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 3 — Liquidity and Capital Resources (continued)

Additionally, effective June 1, 2009, the Company entered into a Securities Purchase Agreement with Vicis Capital Master Fund, a sub-trust of Vicis Capital Series Master Trust, and the Company’s largest preferred stockholder (“Vicis”), pursuant to which Vicis invested an additional $1,000,000 in the Company and the Company issued to Vicis 1,000,000 shares of the Company’s Series A Convertible Preferred Stock and a warrant to purchase 100,000,000 shares of Common Stock at an exercise price of $0.01 per share.

Although the Company had net income for the three months and six months ended June 30, 2009 of approximately $3.8 million and $3.1 million, respectively, this was due primarily to the non-cash gain (loss) on change in fair market value of derivative financial instruments as a result of the accounting treatment of Derivative financial instruments at estimated fair value” on the Company’s balance sheet in accordance with the current authoritative guidance including EITF 00-19. In addition, the Company has a retained deficit of approximately $14.7 million. For the six months ended June 30, 2009, the Company had net cash used in operations of approximately $1.0 million. Historically, the Company has relied on borrowings and equity financings to maintain its operations. The Company believes it has enough cash to operate for the coming year with its cash on hand, cash to be generated from operations and the borrowing availability with its lenders. However, the recent economic downturn could have a material effect on its business operations. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

Management is focused on managing costs in line with estimated total revenues for the balance of fiscal 2009 and beyond, including contingencies for cost reductions if projected revenues are not fully realized. However, there can be no assurance that anticipated revenues will be realized or that the Company will successfully implement its plans. Additionally, the Company is in discussions with its senior and subordinated lender regarding obtaining additional financing to execute its business plan.

Note 4 — Significant Accounting Policies

The accounting and reporting policies of the Company conform to U.S. generally accepted accounting principles (GAAP) and to the practices within the telecommunications industry. There have been no significant changes in the Company’s significant accounting policies during the three and six months ended June 30, 2009 compared to what was previously disclosed in the Company’s Annual Report on 10-K/A for the year ended December 31, 2008.

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 4 — Significant Accounting Policies (continued)

Principles of Consolidation

The consolidated financial statements include the accounts of Brookside Technology Holdings Corp. and its wholly-owned subsidiaries, certain of which are Brookside Technology Partners, Inc., US Voice & Data, LLC, an Indiana Limited Liability Company, Standard Tel Acquisitions, Inc a California Corporation, Trans-West Network Solutions, Inc, a California Corporation and Standard Tel Networks, LLC, a California Limited Liability Company. All significant intercompany balances and transactions have been eliminated in consolidation.

Cash Equivalents

For purposes of the statements of cash flows, the Company considers short-term investments, which may be withdrawn at any time without penalty, and restricted cash, which will become available within one year from the date of the condensed consolidated financial statements, to be cash equivalents.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates. The Company believes its estimates of allowance for doubtful accounts, inventory reserves and the fair value of stock options and warrants, as further discussed below, to be the most sensitive estimates impacting financial position and results of operations.

Financial Instruments and Credit Risk

Financial instruments that potentially subject the Company to credit risk include cash and cash equivalents, accounts receivable and unbilled receivables from customers. Cash is deposited in demand accounts in federally insured domestic institutions to minimize risk. Accounts receivable and unbilled receivables are generally unsecured. With respect to accounts receivable and unbilled receivables, the Company performs ongoing credit evaluations of customers and generally does not require collateral.

Receivables are concentrated with a small number of customers. The Company maintains reserves for potential credit losses on customer accounts when deemed necessary. There were no allowances for credit losses at June 30, 2009 and December 31, 2008.

The amounts reported for cash and cash equivalents, receivables, accounts payable, and accrued liabilities are considered to approximate their market values based on comparable market information available at the respective balance sheet dates and their short-term nature. The Company believes that the notes payable fair values approximate their notional value at June 30, 2009.

Inventory Reserves

Each quarter, the Company evaluates its inventories for excess quantities and obsolescence. Inventories that are considered obsolete are written off. Remaining inventory balances are adjusted to approximate the lower of cost or market value. The valuation of inventories at the lower of cost or market requires the use of estimates as to the amounts of current inventories that will be sold. These estimates are dependent on management’s assessment of current and expected orders from the Company’s customers.

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 4 — Significant Accounting Policies (continued)

Allowance for Doubtful Accounts

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company’s allowance for doubtful accounts is management’s best estimate of losses resulting from the inability of the Company’s customers to make their required payments. The Company maintains an allowance for doubtful accounts based on a variety of factors, including historical experience, length of time receivables are past due, current economic trends and changes in customer payment behavior. Also, the Company records specific provisions for individual accounts when management becomes aware of a customer’s inability to meet its financial obligations to the Company, such as in the case of bankruptcy filings or deterioration in the customer’s operating results or financial position. If circumstances related to a customer change, the Company’s estimates of the recoverability of the receivables would be further adjusted

Convertible Securities With Beneficial Conversion Features

Warrant Valuation and Beneficial Conversion Feature. The Company calculates the fair value of warrants issued with convertible securities (preferred stock or debt) using the Black Scholes valuation method. The total proceeds received in the sale of preferred stock or debt and related warrants is allocated among these financial instruments based on their relative fair values. The debt discount arising from assigning a portion of the total proceeds to the warrants issued is recognized as interest expense from the date of issuance to the earlier of the maturity date of the debt or the conversion dates using the effective yield method. Additionally, when issuing convertible debt, including convertible debt issued with detachable warrants, the Company tests for the existence of a beneficial conversion feature in accordance with Financial Accounting Standards Board (“FASB”) Emerging Issues Task Force Issue (“EITF”) No. 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios, and FASB EITF No. 00-27, Application of Issue No. 98-5 to Certain Convertible Instruments (EITF No. 00-27). The Company records the amount of any beneficial conversion feature (“BCF”), calculated in accordance with these accounting standards, whenever it issues convertible debt that has conversion features at fixed rates that are in the money using the effective per share conversion price when issued. The calculated amount of the BCF is accounted for as a contribution to additional paid-in capital and as a debt discount that is recognized as interest expense from the date of issuance to the earlier of the maturity date of the debt or the conversion dates using the effective yield method. The maximum amount of BCF that can be recognized is limited to the amount that will reduce the net carrying amount of the debt to zero.

Under EITF No. 00-27, the Company considered the effect of a beneficial conversion feature of the Series A Stock issued in the December 2007 private placement and subsequently issued to Vicis during 2008. During 2008, the Company has attributed a beneficial conversion feature of $1,983,607 to the Series A Stock based upon the difference between the relative fair value assigned to costs in Series A Stock and the discount assigned to the warrants and zero (minimum basis). The amount attributable to the beneficial conversion feature has been recorded as a dividend to the holders of the Series A Stock during the year ended December 31, 2008. Since the redemption requirement of the Series A Stock is contingent on the occurrence of future events, the Company is not accreting the carrying value of the Series A Stock to redemption value and will not do so until the occurrence of any one of those future events becomes probable.

Derivative Financial Instruments at Fair Value. Amounts have been classified as derivative financial instruments because of the put provisions inherent in the redemption provision included in the Hilco and Vicis warrant agreements and recorded at issuance as a liability for “Derivative financial instruments at estimated fair value” on the Company’s balance sheet in accordance with the current authoritative guidance including EITF 00-19. In accordance with provisions of SFAS 133, the Company is required to adjust the carrying value of the above warrants to its fair value at each balance sheet date and recognize any change since the prior balance sheet date as a component of other expense or income. In valuing the above warrants, the Company used the Black-Scholes model.

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 4 — Significant Accounting Policies (continued)

The Company’s Series A Stock is redeemable under certain conditions, including:

o		The Company effecting a merger or consolidation with another entity

o		The Company sells all or substantially all of the Company’s assets

o		The Company’s shareholders approve a tender or exchange offer, or

o		The Company’s holders of the common stock exchange their shares for securities or cash

Accordingly, upon the occurrence of any one of these events, the Series A Stock will become redeemable and the Company will accrete the carrying value of the Series A Stock to redemption value at that time.

Goodwill and Intangibles

Goodwill represents the acquisition costs in excess of the fair value of net tangible and intangible assets of the businesses purchased. This premium paid for the acquisitions is based on management’s belief that the acquired technologies, businesses and engineering talent were of strategic importance in the Company’s growth strategy. Intangible assets consist primarily of the value of intellectual property, customer relationships, non-compete agreements, trademarks and goodwill. Goodwill is evaluated annually for impairment, or earlier if indications of impairment exist. The determination as to whether or not goodwill or other intangible assets have become impaired involves a significant level of judgment in the assumptions underlying the approach used to determine the value of the reporting units. Changes in operating strategy and market conditions could significantly impact these judgments and require adjustments to recorded amounts of intangible assets.

The Company does an annual testing of goodwill in accordance with provisions of SFAS 144, “Accounting for the Impairment or Disposal of Long Lived Assets”. In accordance with these provisions, the Company performs testing of goodwill for impairment by comparing the fair value of the reporting unit with its carrying value including goodwill. If the fair value of the reporting unit exceeded the carrying value including goodwill, no further testing for goodwill was deemed necessary. Goodwill is comprised of two reporting units:

1. Goodwill relating to acquisition of USVD

2. Goodwill relating to acquisition of STN

As the STN acquisition was consummated during September 2008, the Company did not perform the impairment testing for goodwill. The Company tested goodwill relating to USVD by comparing the fair value of USVD (which is a separate reporting entity) with the carrying value, including goodwill. Based on testing, the Company assessed the fair value of USVD at December 31, 2008 to be approximately $13.7 million compared to the net book value of the Company of $13.6 million. The fair value of the reporting entity was based on EBITDA for the year ended December 31, 2008, which was approximately $3.0 million. With a multiple of 4.5 times, which is consistent with the amount paid for the STN acquisition and is less than the multiple paid for USVD, the fair value was deemed to be approximately $13.7 million. Accordingly, the Company concluded that no impairment of goodwill exists as of December 31, 2008.

Every quarter, the Company reassesses the impact of the economic downtown and changes in market conditions in the assessment of the changes to fair value computation for the above acquisitions. This was reflected in the Company’s assessment of fair value computation of USVD where the Company used a lower multiple of EBITDA in computation of fair value due to economic downtown and changes in market conditions. The Company will continue to reassess the assumptions underlying the Company’s valuation approach.

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 4 — Significant Accounting Policies (continued)

Impairment of Long-lived Assets and Long-lived Assets to be Disposed of

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair market value less costs to sell. There were no impairments to long-lived assets as of December 31, 2008 and 2007.

Revenue Recognition

The Company derives its revenues primarily from sales of converged VoIP telecommunications equipment and professional services implementation/installation, data and wireless equipment and installation, recurring maintenance/managed service and network service agreements and other services. The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” (“SAB 101”), as amended by SAB No. 104 “Revenue Recognition, Corrected Copy” (“SAB 104”). Under SAB 101 and SAB 104, revenue is recognized when there is persuasive evidence of an arrangement, delivery has occurred or services have been rendered, the sales price is determinable, and collectability is reasonably assured. Sales are recorded net of discounts, rebates, and returns.

The Company primarily applies the percentage-of-completion method and generally recognizes revenue based on the relationship of total costs incurred to total projected costs. Profits expected to be realized on such contracts are based on total estimated sales for the contract compared to total estimated costs, including warranty costs, at completion of the contract. These estimates are reviewed and revised periodically throughout the lives of the contracts, and adjustments to profits resulting from such revisions are made cumulative to the date of the change. Provision for anticipated losses on uncompleted contracts is made in the period in which such losses become evident.

Revenue from contracts that contain multiple elements that are not accounted for under the percentage-of-completion method is accounted for in accordance with Emerging Issues Task Force (“EITF”) Issue No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” Revenue from these contracts is allocated to each respective element based on each element’s relative fair value, if determinable, and is recognized when the respective revenue recognition criteria for each element are fulfilled. The Company recognizes revenue from the equipment sales and installation services using the percentage of completion method. The services for maintaining the systems the Company installs are sold as a stand-alone contract and treated according to the terms of the contractual arrangements then in effect. Revenue from this service is generally recognized over the term of the subscription period or the terms of the contractual arrangements then in effect. A majority of equipment sales and installation services revenues are billed in advance on a monthly basis based upon the fixed price, and are included both accounts receivable and deferred income on the accompanying balance sheets. Direct costs incurred on such contracts are deferred until the related revenue is recognized and are included in deferred contract costs on the accompanying balance sheets. The Company also provides professional services (maintenance/managed services) on a fixed price basis. These services are billed as bundles and or upon completion of the services.

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 4 — Significant Accounting Policies (continued)

Warranty Reserves

Reserves are provided for estimated warranty costs when revenue is recognized. The costs of warranty obligations are estimated based on warranty policy or applicable contractual warranty, historical experience of known product failure rates and use of materials and service delivery charges incurred in correcting product failures. Specific warranty accruals may be made if unforeseen technical problems arise. If actual experience, relative to these factors, adversely differs from these estimates, additional warranty expense may be required. At June 31, 2009 and 2008, the Company has accrued $188,108 and $0, respectively. The Company’s warranty accrual takes into account the telecommunications equipment covered by original equipment manufacturer warranties. Prior to December 31, 2008, warranty costs not covered by the original equipment manufacturer warranty were not considered material to the condensed consolidated financial statements.

Reclassifications

Certain prior year amounts have been reclassified to conform to the 2009 presentation.

Income taxes

Income taxes are accounted for under the asset and liability method. Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. In estimating future tax consequences, the Company generally considers all expected future events other than enactments of changes in tax laws or rates. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income or expense in the period that includes the enactment date.

The Company records a valuation allowance to reduce its deferred assets when it is more likely than not that some portion or all of the deferred tax assets will expire before realization of the benefit or that future deductibility is not probable. The ultimate realization of the deferred tax assets depends on the Company’s ability to generate sufficient future taxable income. Accordingly, establishment of the valuation allowance requires the Company’s management to use estimates and make assumptions regarding significant future events.

The Company evaluates its tax positions under FASB Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes. Accordingly, the Company’s management first determines whether it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position. Any tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the condensed consolidated financial statements. Each identified tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement. No such tax positions were identified during the three and six months ended June 30, 2009 and 2008.

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 4 — Significant Accounting Policies (continued)

Earnings Per Common Share

Basic net income (loss) per share is based upon the weighted average number of shares of common stock outstanding. Diluted net income (loss) per share is based on the assumption that options, warrants and other instruments convertible into common stock are included in the calculation of diluted net income (loss) per share, except when their effect would be anti-dilutive. For instruments in which consideration is to be received for exercise, such as options or warrants, dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of actual issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Cumulative dividends on the Company’s cumulative convertible preferred stock, although not declared, constitute a preferential claim against future dividends, if any, and are treated as an incremental decrease in net income from continuing operations or increase in net loss from continuing operations for purposes of determining basic and diluted net income (loss) from continuing operations per common share.

At June 30, 2009, there were potentially dilutive securities outstanding consisting of Series A Stock, warrants, and stock options issued to employees. The potential shares would be anti-dilutive during the three and six months ended June 30, 2009 and 2008, and as such, have not been considered in the calculation of earnings per share. At June 30, 2009, the number of potentially dilutive shares that are anti-dilutive consisted of 19,200,000 stock option shares, 13,191,716 Series A Stock (exercisable into 1,319,171,600 common shares), and 745,800,996 common shares purchase warrants (which would be net share settled). At June 30, 2008, there were potentially dilutive securities outstanding consisting of Series A Stock, convertible debt, warrants, and stock options issued to employees of 14,000,000.

Derivatives

A derivative is an instrument whose value is “derived” from an underlying instrument or index such as a future, forward, swap, option contract, or other financial instrument with similar characteristics, including certain derivative instruments embedded in other contracts (“embedded derivatives”) and for hedging activities. As a matter of policy, the Company does not invest in separable financial derivatives or engage in hedging transactions. However, complex transactions that the Company entered into in order to finance its operations and acquisitions, and the subsequent restructuring of such debt transactions, involved financial instruments containing certain features that have resulted in the instruments being deemed derivatives or containing embedded derivatives. The Company may engage in other similar complex equity or debt transactions in the future, but not with the intention to enter into derivative instruments. Derivatives and embedded derivatives, if applicable, are measured at fair value and marked to market through earnings, as required by SFAS No. 133. However, such new and/or complex instruments may have immature or limited markets. As a result, the pricing models used for valuation often incorporate significant estimates and assumptions, which may impact the level of precision in the financial statements.

Stock Based Compensation

The Company recognizes the compensation cost relating to share-based payment transactions in accordance with provisions of SFAS No. 123 (revised 2004), Share-Based Payment. The cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity award). The Company recorded $7,420 and $0 for stock compensation cost for the three months ended June 30, 2009 and 2008, respectively. The Company recorded $24,364 and $0 for stock compensation cost for the six months ended June 30, 2009 and 2008, respectively.

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 4 — Significant Accounting Policies (continued)

Recent Accounting Pronouncements

In February 2008, the FASB issued FSP FAS 157-2, “Effective Date of FASB Statement No 157” (“FSP FAS 157-2”). FSP FAS 157-2 delayed the effective date for SFAS 157 for certain non-financial assets and non-financial liabilities, including goodwill and other intangible assets. The Company’s adoption of FSP FAS 157-2 in first quarter 2009 did not have a material effect on its condensed consolidated financial statements.

In April 2008, the FASB issued FASB Staff Position No. 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP 142-3”). FSP 142-3 amends the factors to be considered in developing renewal or extension assumptions used to determine the useful life of intangible assets under SFAS No. 142, “Goodwill and Other Intangible Assets.” The intent of FSP 142-3 is to improve the consistency between the useful life of an intangible asset and the period of expected cash flows used to measure its fair value. FSP 142-3 was effective for first quarter 2009. The Company does not expect FSP 142-3 to have a material impact on the accounting for future acquisitions or renewals of intangible assets, but the potential impact is dependent upon the acquisitions of intangible assets in the future.

In April 2009, the FASB issued FASB Staff Position No. 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP 157-4”). FSP 157-4 provides guidance on (1) estimating the fair value of an asset or liability when the volume and level of activity for the asset or liability have significantly decreased and (2) identifying transactions that are not orderly. FSP 157-4 is effective for interim and annual periods ending after June 15, 2009. The Company is in the process of evaluating the impact of FSP 157-4, but does not expect it to have a material impact on the Company’s condensed consolidated financial statements.

In April 2009, the FASB issued FASB Staff Position No. 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP 107-1”). FSP 107-1 requires disclosures about the fair value of financial instruments in interim reporting periods of publicly traded companies as well as in annual financial statements. FSP 107-1 is effective for interim periods ending after June 15, 2009. The Company is in the process of evaluating the impact of FSP 107-1, but does not expect it to have a material impact on the Company’s condensed consolidated financial statements.

In June 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (“SFAS 168”), effective for financial periods ending after September 15, 2009. SFAS 168 states that the FASB Accounting Standards Codification will become the authoritative source of U. S. generally accepted accounting principles (“U.S. GAAP”) and will supersede all then existing non-SEC accounting and reporting standards. The Company plans to adopt SFAS 168 in the third quarter of 2009 and does not expect adoption to have a material effect on the Company’s results of operations or financial position.

In May 2009, the FASB issued SFAS No. 165, Subsequent Events (“SFAS 165”), effective for financial periods ending after June 15, 2009. SFAS 165 established principles and requirements for subsequent events, including the period after the balance sheet date during which management of a reporting entity shall evaluate events for potential disclosure in the financial statements, the circumstances that warrant disclosure, and the specific disclosure requirements for transactions that occur after the balance sheet date. The Company has adopted SFAS 165 in the second quarter of 2009. The implementation of SFAS 165 did not have a material effect on the Company’s results of operations and financial position. The Company evaluated all events or transactions that occurred after June 30, 2009 up through August 11, 2009, the date it issued these financial statements. During this period we did not have any material recognizable subsequent events.

In June 2008, the FASB issued FSP EITF No. 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (“FSP EITF 03-6-1”). This FSP provides that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and should be included in the computation of earnings per share under the two-class method. The Company has adopted FSP EITF

03-6-1 in the first quarter of 2009. The implementation of FSP EITF 03-6-1 does not have a material impact on the calculation or reporting of the Company’s earnings per share.

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 4 — Significant Accounting Policies (continued)

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (“SFAS 141(R)”). SFAS 141(R) established requirements for an acquirer to record assets acquired, liabilities assumed, and any related noncontrolling interest related to the acquisition of a controlled subsidiary, measured at fair value as of the acquisition date. The Company has adopted SFAS 141(R) in the first quarter of 2009. The implementation of SFAS 141(R) did not have a material effect on the Company’s results of operations and financial position.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements (“SFAS 160”). SFAS 160 amends Accounting Research Bulletin 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary, and for the deconsolidation of a subsidiary. Specifically, SFAS 160 clarifies that noncontrolling interests in a subsidiary should be reported as equity in the consolidated financial statements. The Company has adopted SFAS 160 in the first quarter of 2009. Implementation of SFAS 160 did not have a material effect on the Company’s results of operations and financial position.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force (“EITF”), the American Institute of Certified Public Accountants (“AICPA”), and the SEC did not or are not believed by management to have a material impact on the Company’s present condensed consolidated financial statements.

Note 5 —Billings in Excess of Revenues

Billings in excess of revenues at June 30, 2009 and December 31, 2008 consisted of the following:


	Six Months		Year Ended
	ended June 30,		December 31,
	2009		2008
Customer deposits and deferred income on installation contracts	$	1,007,015	$	1,683,266
Deferred revenue on maintenance contracts		1,721,364		937,591

	$	2,728,379	$	2,620,857

Note 6 —Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following:


	June 30,		December 31,
	2009		2008
Accounts payable, trade	$	1,636,495	$	1,857,905
Accrued warranty liability		188,108		231,906
Other accrued expenses		191,416		121,800

Total	$	2,016,019	$	2,211,611

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 7 —Long Term Debt

Long-term debt as of June 30, 2009 and December 31, 2008 consisted of the following:


	June 30,			December 31,
	2009			2008
Note payable to an individual, unsecured, accruing interest at 2% per annum, with monthly payments of $5,215 due May 1, 2010.	$	82,869		$	98,049
Note payable to former officers and shareholders, unsecured, accruing interest at 0% per annum, due in installments over 3 years with a maturity date of September 26, 2009, less unamortized discount of $0 and $75,812, respectively.		850,000			1,524,188
Notes payable to an individual, unsecured, accruing interest at 7% per annum, with monthly payments of $1,130 due May 1, 2011.		28,143			31,006
Note payable to executive officer and shareholders, unsecured, accruing interest at 7% per annum, with monthly payments of $968, due September 1, 2010.		16,945			16,945
Notes payable to shareholder, unsecured, accruing interest at 7% per annum, with monthly payments of $6,432 due June 1, 2010.		97,982			115,360
Subordinated Note Payable to Vicis Capital Master Fund, accruing interest at 10%, maturing April 15, 2010, subordinated to the Chatham senior note. Net of unamortized discount of $60,349 and $118,917, respectively (STN acquisition.)		1,439,651			1,381,083
Senior note payable, Chatham Investment Fund III, LLC and Chatham Investment Fund III QP, LLC, accruing interest at the LIBOR rate plus 9.00%, payments of $83,333 beginning on the first of the month after 6 months from the closing date, with the balance due on the third anniversary of the closing date of September 23, 2008, net of unamortized discount of $2,171,374 and $2,658,050, respectively (STN acquisition)		4,843,581			4,380,916
Secured notes payable to Enterprise Fleet Services, accruing interest at 5% per annum, with monthly payments of $1,476, maturing June 1, 2010. Notes are secured by vehicles.		43,005			60,617
Secured notes payable to GMAC, accruing interest at 9.25% with monthly payments of $2,272, paid in full in June 2009 and refinanced as an operating lease. Notes are secured by vehicles.		—			82,673
Secured notes payable to Huntington Bank, accruing interest at a prime rate plus 3.73% with monthly payments of $383, with a maturity date of March 28, 2009. Note is secured by a vehicle.		—			1,007
Secured notes payable to NEC Financial Services, accruing interest at 11.25% with monthly payments of $1,128, with a maturity date of February 25, 2011. Note is secured by testing equipment.		26,738			30,468

Total long term debt		7,428,914			7,722,312
Less current portion		(1,842,454	)		(2,669,177	)

Long term portion	$	5,586,460		$	5,053,135

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 7 —Long Term Debt (Continued)

Principal maturities of long-term debt as of June 30, 2009 are as follows:


Years Ending December 31,	Gross
2009	$	1,842,454
2010		2,617,931
2011		5,200,252
2012		—
2013		—

		9,660,637
Less: Unamortized discounts		(2,231,723	)

Net of Discounts	$	7,428,914

Change in unamortized discount and loan costs of the Note —

For the six months ended June 30, 2009, the discount on the above Notes changed for amortization of discounts in connection with the notes. The total discount on the Notes changed from $9,998,115 at inception to $3,848,016 at December 31, 2007, then to $2,852,779 at December 31, 2008, then to $2,231,723 at June 30, 2009. There was $3,006,498 of new discounts generated in 2008 in connection with valuing the Chatham Warrants issued with Chatham credit facility. Unamortized discounts totaling $4499,760 were amortized to expense over the terms of the notes during the year ended 2007, $4,358,031 was amortized to expense during the year ended December 31, 2008 and $621,052 was amortized to expense during the six months ended June 30, 2009. Total amortization expense was $296,543 and $1,657,109 for the three months ended June 30, 2009 and 2008, respectively. Total amortization expense was $621,052 and $3,288,342 for the six months ended June 30, 2009 and 2008, respectively. In addition to the amortization of discounts in connection with the notes as discussed above, amortization expense also included amortization of intangible assets which totaled $273,376 and $157,923 for the three months ended June 30, 2009 and 2008, respectively and $506,712 and $315,846 for the six months ended June 30, 2009.

Note 8 — Commitments and Contingencies

Leases

The Company has entered into operating lease agreements for its corporate offices and equipment. Minimum lease obligations are as follows:


2009	$	557,543
2010		331,734
2011		212,427
2012		171,997
2013		—

Rental expense for operating leases for the three months ended June 30, 2009 and 2008, was approximately $164,000 and $108,000, respectively. Rental expense for operating leases for the six months ended June 30, 2009 and 2008, was approximately $340,000 and $216,000, respectively.

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 8 — Commitments and Contingencies (continued)

Liquidated Damages Under Registration Payment Arrangements

The Company has accrued $154,400 which is included in other current liabilities in the accompanying condensed consolidated balance sheets for June 30, 2009 and December 31, 2008 related to expected liquidated damages that will be paid in cash or by issuance of additional common shares or warrants for common shares under various registration rights agreements related to common shares, conversion rights and warrants for preferred shares.

Litigation

As previously disclosed, in 2007, the Company purchased USVD from the Michael P. Fischer Irrevocable Delaware Trust and the M. Scott Diamond Irrevocable Delaware Trust (the “USVD Sellers”) pursuant to a Membership Purchase Agreement between the Company and the USVD Sellers, dated September 26, 2007 (the “USVD Agreement”). The original purchase price was $15,429,242. As of June 30, 2009, the Company has paid to the USVD Sellers a total of $14,533,690, representing 94% of all sums payable under the USVD Agreement.

In addition, in connection with the acquisition of USVD, Messrs. Fischer and Diamond were provided employment agreements, pursuant to which they held the positions of CEO and COO, respectively at USVD. The employee agreements provided Messrs. Fischer and Diamond with annual base salaries of $105,000 and $145,000, respectively. As a result, until recently, the Company relied on Messrs. Fischer and Diamond to continue to operate USVD.

However, on May 12, 2009, Messrs. Fischer and Diamond notified the Company that they consider their employment to be “constructively terminated” as a result of the Company having failed to pay them, collectively, an EBITDA earn-out payment of approximately $289,000 they claim they were due on April 30, 2009. Since such time, Messrs. Fischer and Diamond have not shown up to work and they have ceased performing any employment duties.

As discussed further under “Business” and “Management’s Discussion and Analysis,” USVD’s revenues while under the direction of Messrs. Fischer & Diamond, for the six months ended June 30, 2009 were approximately $2,700,000 lower than its earnings in the same period in 2008. This decrease adversely impacted the Company’s liquidity and subsequently the Company’s largest equity investor, Vicis, provided an additional capital infusion. Also, the Company and its primary lender, Chatham, have made modifications to the Company’s credit facility.

Fortunately, USVD’s first quarter decreased earnings are offset by increased earnings provided by STN, as well as increased earnings at USVD for the second quarter under the direction of Brookside Technology Holdings Corp’s management and other existing USVD and STN senior managers, discussed further under “Business” and “Management’s Discussion and Analysis.” However, while the Company may have this offset from these combined strong earnings, Messrs. Fischer’s and Diamond’s earn-outs were to be based solely on USVD’s EBITDA. Given USVD’s performance under Messrs. Fischer’s and Diamond’s stewardship prior to May 12, 2009, it is presently unclear whether they would have earned any future earn-out payments subsequent to their alleged constructive terminations.

In addition to their alleged constructive termination, Messrs. Fischer and Diamond claim that their Restrictive Covenant Agreement entered into as part of their Employment Agreements signed with the Company at the time of the USVD acquisition are now null and void and that, accordingly, they are free to compete with the Company and USVD, and to solicit USVD employees. Subsequent to the departures of Messrs. Fischer and Diamond, on May 26, 2009, several USVD employees, mostly sales personnel, entered the USVD premises unescorted and removed Company and personal belongings in connection with their resignations from USVD and their new employment with a new company named Unified Technologies, which the

Company believes is owned by Messrs. Fischer and Diamond and/or some of their family members, either directly or indirectly.

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 8 — Commitments and Contingencies (continued)

In response to the actions of Messrs. Fischer and Diamond and certain former USVD employees, the Company has worked diligently to secure USVD and its assets, employees, vendors, partners and customers. USVD’s employees, vendors, partners and customers have reconfirmed their support and loyalty to USVD, despite the fact that many of them have been solicited by Unified Technologies.

On July 17, 2009, the USVD Sellers filed a civil action in the Circuit Court of Jefferson County, Kentucky, alleging that the Company breached the USVD Agreement by failing to pay the previously mentioned $289,000 EBITDA earn-out payment they claim they was due on April 30, 2009, in addition to $1,750,000 of other future payments they claim they are entitled to accelerate as a result of such alleged breach. The lawsuit calls for an acceleration of all money owed to the USVD Sellers including: $850,000 Seller Note, $289,000 accrued EBITDA earn-out and an additional $900,000 Minimum Cash Payments in connection with future estimations of earn-outs yet to be earned. The Company has a note payable — USVD Sellers included in its long-term debt of $850,000 as well as an accrual for the $289,000 accrued 2008 earn-out payment that the USVD Sellers, Messrs. Fischer and Diamond, claim is due to them.

The Company is currently analyzing the forgoing civil action and, since their departures, has been aggressively investigating the actions undertaken by of Messrs. Fischer and Diamond, as well as the former USVD employees, both before and after their resignations. The litigation is in its early stages, and it is premature to project its outcome. The Company intends to vigorously defend the Circuit Court action and to pursue all available defenses, claims and counter claims against the USVD Sellers, Messrs. Fischer and Diamond, former USVD employees and others.

Risk Management

The Company maintains various forms of insurance that the Company’s management believes are adequate to reduce the exposure to property and general liability risks to an acceptable level.

Note 9 — Related Party Transactions

The Company has notes payable to officers and shareholders of the Company. The balance of these notes payable was $964,927 and $1,732,305 at June 30, 2009 and December 31, 2008, respectively.

Note 10 — Series A 8% Convertible Preferred Stock

The Company is authorized to issue 50,000,000 shares of preferred stock with a par value of $0.001 per share. The Company’s preferred stock may be divided into such series as may be established by the Board of Directors. The Board of Directors may fix and determine the relative rights and preferences of the shares of any series established.

The conversion price of the Series A Stock and the exercise price of the Warrants are subject to adjustment in certain instances, including the issuance by the Company of securities with a lower conversion or exercise price, which occurred as part of the USVD financings and STN financings and acquisition. The Series A Stock has voting rights equivalent to the 1,319,171,600 shares of common stock into which it can convert. The Series A stockholders also must approve any change to the Company’s Articles of Incorporation.

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 10 — Series A 8% Convertible Preferred Stock (continued)

Effective June 1, 2009, the Company entered into a Securities Purchase Agreement with Vicis Capital Master Fund, a sub-trust of Vicis Capital Series Master Trust, and the Company’s largest preferred stockholder (“Vicis”), pursuant to which Vicis invested an additional $1,000,000 in the Company and the Company issued to Vicis 1,000,000 shares of the Company’s Series A Convertible Preferred Stock and a warrant to purchase 100,000,000 shares of Common Stock at an exercise price of $0.01 per share. Pursuant to this event, all the outstanding warrants have been re-priced to $0.01 and all conversion prices on the Series A Stock have been reduced to $0.01.

Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, the holders of the shares of Series A Stock shall be paid, before any payment shall be paid to the holders of common stock, or any other stock ranking on liquidation junior to the Series A Stock, an amount for each share of Series A Stock held by such holder equal to the sum of (1) the Stated Value thereof and (2) an amount equal to dividends accrued but unpaid thereon, computed to the date payment thereof is made available.

During the quarter ended June 30, 2009, Series A stockholder converted 25,000 shares of Series A Stock to 2,571,307 shares of the Company’s common stock.

Note 11 — Cost of Sales

For the periods ended June 30, 2009 and 2008, costs of sales consisted of the following:


	Three Months Ended June 30,				Six Months Ended June 30,
	2009		2008		2009		2008
Equipment costs	$	1,178,861	$	1,854,207	$	2,938,072	$	3,714,853
Contract labor		18,610		36,210		24,225		114,421
Direct labor		328,881		257,677		663,820		488,885
Sales commissions and selling costs		132,779		22,666		261,173		26,101
Lite warranty costs		24,101		—		55,020		—
Other costs		13,320		80,164		30,422		136,545


	$	1,696,552	$	2,250,924	$	3,972,732	$	4,480,805

Note 12 — Employee Benefit Plan

USVD, the Company’s subsidiary, has a 401(k) profit sharing plan (the Plan) and other employee health and benefit plans. The Plan allows all eligible employees to defer a portion of their income on a pretax basis through contributions to the Plan.

The Company has made 401(k) matching contributions of $21,830 and $35,649 for the three months ended June 30, 2009 and 2008, respectively. The Company made 401(k) matching contributions of $53,397 and $75,717 for the six months ended June 30, 2009 and 2008, respectively.

The Company provides group health and other benefits to its employees through plans that cover all employees that elect to be covered. The Company’s share of group health care costs was approximately $155,000 and $117,000 for the three months ended June 30, 2009 and 2008, respectively, and approximately $302,000 and $219,000 for the six months ended June 30, 2009 and 2008, respectively. Such amounts have been included in employee compensation and benefits expense.

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 13 — Acquisition of Standard Tel Networks, LLC

An initial preliminary allocation has been made to intangible assets as of the December 31, 2008. Management will determine the proper value of intangible assets acquired from STN and allocate any additional adjustments of the goodwill to intangible assets within the twelve months after the acquisition date.

Note 14 — Stock-Based Compensation

The following disclosures provide information regarding the Company’s stock-based compensation awards, all of which are classified as equity awards in accordance with SFAS No. 123(R):

Stock options.

The Company grants stock options to employees that allow them to purchase shares of the Company’s common stock. Options are also granted to members of the Board of Directors. The Company determines the fair value of stock options at the date of grant using the Black-Scholes valuation model. Most options vest annually over a three-year service period. The Company will issue new shares upon the exercise of stock options.

2007 Stock Incentive Plan

Effective April 19, 2007, the Company adopted the Brookside Technology Holdings Corp. (formerly Cruisestock, Inc) 2007 Stock Incentive Plan (the “Stock Incentive Plan”). The Stock Incentive Plan is discretionary and allows for an aggregate of up to 35,000,000 shares of the Company’s common stock to be awarded through incentive and non-qualified stock options and stock appreciation rights. The Stock Incentive Plan is administered by the Board of Directors, which has exclusive discretion to select participants who will receive the awards and to determine the type, size and terms of each award granted.

The Company recognized $7,420 and $0 compensation expense for options for the three months ended June 30, 2009 and 2008, respectively. The Company recognized $24,364, and $0 compensation expense for options for the six months ended June 30, 2009 and 2008, respectively.

A summary of the changes in the total stock options outstanding during the six months ended June 30, 2009 is as follows:


				Weighted
				Average
	Options			Exercise Price
Outstanding at December 31, 2007		14,000,000		$	0.186
Cancelled during 2008		(14,000,000	)	$	0.186
Granted during 2008		19,200,000		$	0.03
Forfeited or expired		—			—
Exercised		—			—

Outstanding at December 31, 2008		19,200,000		$	0.03
Granted during 2009		—			—
Forfeited or expired		—			—
Exercised		—			—

Outstanding at June 30, 2009		19,200,000		$	0.03
Vested and exercisable at June 30, 2009		1,933,333		$	0.04

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 14 — Stock-Based Compensation (continued)

Total stock options vested as of June 30, 2009 is 1,933,333. The remaining vesting period is as follows:


Number of Shares	Year Vested
15,333,333		2009
1,633,334		2010
300,000		2011

The weighted average remaining term of the options is approximately 9.2 years at June 30, 2009. Options issued in 2008 had an exercise price ranging from $0.03 to $0.05 per share. The grant date fair value for 2008 options were $0.03 to $0.05 per share. At June 30, 2009, there was $479,514 of total unrecognized compensation cost related to non-vested stock option awards that are expected to be recognized over a period of 2 years. The Company has stock options outstanding with an intrinsic value of $210,000 at June 30, 2009 and December 31, 2008, respectively.

Note 15 — Warrants

Warrants

The following is a summary of the warrants outstanding as of June 30, 2009.


	Outstanding		Exercise Price
Series A *		71,631,216	$	0.01
Series B		80,896,508	$	0.01
Series C		15,988,602	$	0.01
Series D **		25,080,000	$	0.01
Series E		61,273,835	$	0.01
Series F		350,000,000	$	0.01
Chatham		140,930,835	$	0.01

Total warrants		745,800,996


*		Includes 2,628,917 penalty warrants

**		Includes 1,080,000 penalty warrants.

During the three and six months ended June 30, 2009, a warrant holder converted through a cashless exercise of the warrants held, to 3,857,455 shares of common stock.

The Company has warrants, common stock options and Series A Stock that could potentially convert to 2,230,829,698 shares of common stock. Currently, the Company has 1,000,000,000 shares authorized. EITF 00-19: Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock addresses issues relating to financial instruments that must be settled in with the Company’s common stock. In some circumstances if the Company does not have enough authorized shares, outstanding common stock warrants could be classified as liabilities. The Company has continued to classify all warrants and Series A stock as permanent equity. The Company’s Board of Directors has stated their intention to increase the number of authorized shares by December 31, 2009. This would require approval of the shareholders of the Company who own a majority of the outstanding shares of the Company’s common stock, and Series A Stock, voting as a

single class on a converted basis. Currently, Vicis owns the majority of the voting shares. The Company has obtained representation from Vicis that it will support the increase in authorized shares and will not convert its Series A Preferred shares to common stock until such time the Company has sufficient authorized shares available. As such, the Company believes that it can settle all remaining convertible securities by settlement (including net share settlement) within the currently authorized shares.

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 16 — Intangible Assets

Intangible assets represent amounts acquired in the acquisitions of USVD and STN and consist of the following as of June 30, 2009:


	Gross Carrying		Accumulated
	Amount		Amortization		Life (years)
Purchased customer contracts — USVD	$	600,000	$	600,000		1
Purchased customer contracts — STN		900,000		675,000		1
Non-compete agreements		100,000		100,000		3


	$	1,600,000	$	1,375,000

Six months ended December 31, 2009 Amortization Expense			$	498,376

Item 2. Management’s Discussion and Analysis or Plan of Operations

The information presented in this section should be read in conjunction with our audited consolidated financial statements and related notes for the periods ended December 31, 2008 and 2007 included in our Form 10-K, as filed with the Securities and Exchange Commission, as well as the information contained in the consolidated financial statements, including the notes thereto, appearing in this report. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in the section entitled “Risk Factors” of our Form 10-K for the year ended December 31, 2008, and elsewhere in this report.

General

Organizational History and Operations

We are the holding company for Brookside Technology Partners, Inc, a Texas corporation (“Brookside Technology Partners”), US Voice & Data, LLC, an Indiana Limited Liability Company (“USVD”), Standard Tel Acquisitions, Inc., a California Corporation (“Acquisition Sub”), Trans-West Network Solutions, Inc., (“Trans-West”), a California Corporation and Standard Tel Networks, LLC, a California Limited Liability Company (“STN”) and all operations are conducted through these (five) wholly owned subsidiaries.

Collectively, the subsidiary companies are providers of converged business communications products and services from Mitel, Inter-tel (owned by Mitel), Nortel and NEC. The Company, is the 2^nd largest MITEL dealer in the United States, and is recognized by Mitel as a Diamond Dealer. The Company combines technical expertise in a range of communications products, including IP-enabled platforms, wired and wireless IP and digital endpoints and leading edge communications applications to create converged voice, video and data networks that help businesses increase efficiency and optimize revenue opportunities, critical for success in today’s competitive business environment. Specializing in selling, designing, analyzing and implementing converged Voice over IP (VoIP), data and wireless business communications systems and solutions for commercial and state/government organizations of all types and sizes in the United States, the Company has offices that provide a national footprint. Headquartered in Huntington Beach, California, STN has offices in the San Francisco Bay Area, Sacramento, and San Diego. Headquartered in Austin, Texas, Brookside Technology Partners serves the Texas market. Headquartered in Louisville, Kentucky, USVD serves the Kentucky and Southern Indiana markets, operating out of offices in Louisville, Lexington and Indianapolis. Combined, new implementations represent approximately 50% of the Company’s revenues with the remaining 50% generated by service, support, maintenance and other recurring revenues from our existing customer base.

Background/Name Change/Redomestication

The Company’s common stock is quoted on the Over the Counter Bulletin Board (OTCBB) under the symbol: BKSD.

Acquisition of USVD

On September 26, 2007, the Company acquired all of the membership interest of US Voice & Data, LLC, an Indiana Limited Liability Company (“USVD”). USVD, headquartered in Louisville, Kentucky, with offices in Lexington, Kentucky and Indianapolis, Indiana, is a leading regional provider of telecommunication services, including planning, design, installation and maintenance for converged voice and data systems.

Increase in Authorized Shares

On August 4, 2008, the Company filed Articles of Amendment to its Articles of Incorporation (the “Amendment”) with the Florida Department of State increasing the number of shares of common stock that the Company has the authority to issue from Two Hundred and Fifty Million (250,000,000) shares to One Billion (1,000,000,000) shares.

Vicis Equity Infusion

On July 3, 2008, the Company entered into a Securities Purchase Agreement (the “Vicis Agreement”) with Vicis Capital Master Fund, a sub-trust of Vicis Capital Series Master Trust (“Vicis”), pursuant to which Vicis acquired (a) 2,500,000 shares of Series A Stock; and (b) a warrant (the “Warrant”) to purchase 250,000,000 shares of common stock of the Company at $0.03 per share (the “Exercise Price”), for an aggregate purchase price of $2,500,000 (“Vicis Equity Infusion”). The warrant included a put provision inherent in the redemption provision included in the warrant agreements and recorded at issuance as a liability for “Derivative financial instruments at estimated fair value” on the Company’s balance sheet in accordance with the current authoritative guidance including EITF 00-19. In accordance with provisions of SFAS 133, the Company is required to adjust the carrying value of the above warrants to its fair value at each balance sheet date and recognize any change since the prior balance sheet date as a component of other expense or income. In valuing the above warrants the company used the Black-Scholes model. The warrant included a redemption right, payable in cash upon the future occurrence of a change in control. As such, the Company recorded a derivative financial instrument at fair value of $9,656,069 in connection with this transaction.

Furthermore, pursuant to the Vicis Agreement, all of the 3,000,000 shares outstanding of the Company’s Series B Stock) previously owned by Vicis were converted into 3,000,000 shares of Series A Stock. Accordingly, the Company no longer has any outstanding shares of Series B Stock. The Exercise Price is subject to a price adjustment from time to time upon the occurrence of certain events set forth in the Warrant.

The Company accounted for these two transactions as one event for accounting purposes. The $5,500,000 ($2,500,000 in cash and $3,000,000 of principal of Series B Stock) was considered for investment in 5,500,000 shares of Series A Stock and 250,000,000 warrants to purchase common stock. Initially the $5,500,000 was allocated based on the relative fair value of the Series A Stock and the warrants issued. Subsequently the amount was restated with $5.5 million in Series A Stock being reduced to zero and the fair value of the warrant of $9,656,069 being established.

Vicis also purchased and assumed from Hilco Financial, LLC (“Hilco”), and Hilco assigned to Vicis, all credit agreements, loans and promissory notes under which Hilco had loaned money to the Company. The Company consented to such assignments. In connection with such assignments, Hilco transferred to Vicis its warrants to purchase 61,273,835 shares of common stock of the Company. In addition, Vicis purchased and assumed from Dynamic Decisions (“DD”), and DD assigned to Vicis, all credit agreements, loans and promissory notes under which DD had loaned money to the Company. The Company consented to such assignments. The warrant included a put provision inherent in the redemption provision included in the warrant agreements and recorded at issuance as a liability for “Derivative financial instruments at estimated fair value” on the Company’s balance sheet in accordance with the current authoritative guidance including EITF 00-19. In accordance with provisions of SFAS 133, the Company is required to adjust the carrying value of the above warrants to its fair value at each balance sheet date and recognize any change since the prior balance sheet date as a component of other expense or income. In valuing the above warrants, the Company used the Black-Scholes model. The warrant included a redemption right, payable in cash upon the future occurrence of a change in control. As such, the Company recorded a derivative financial instrument at fair value of $18,008,466 in connection with this transaction on September 26, 2007.

All Warrants and Series A Stock each contain provisions that limit their holders ability to exercise and convert, as applicable, the Warrant and Series A Stock to the extent that, after such conversion/exercise, the sum of the number of shares of common

stock beneficially owned by the holder would result in beneficial ownership by any holder and its affiliates of more than 4.99% of the outstanding shares of common stock.

As a result of Vicis equity infusion described above, the exercise price of all of the Company’s outstanding warrants, including the warrants transferred to Vicis from Hilco, has been reset to $0.03 pursuant to the price protection provisions of those warrants. Additionally, the conversion price of all outstanding shares of Series A Stock, including those previously owned by Vicis, has been reset to $0.03 pursuant to the price protection provisions of the Series A Stock.

Acquisition of Standard Tel Networks, LLC

On September 23, 2008, Brookside Technology Holdings Corp. (the “Company), through its wholly owned subsidiary, Standard Tel Acquisitions, Inc. (“Acquisition Sub”), acquired Standard Tel Networks, LLC (“STN”), an independent distributor of high quality, turnkey converged voice and data business communications products and services with California offices in Sacramento, San Diego and headquartered in Huntington Beach. The acquisition was conducted pursuant to a previously-disclosed Stock and Membership Interest Purchase Agreement dated July 17, 2008, and was structured as the acquisition of (a) all of the stock of Trans-West Network Solutions, Inc. (“Trans-West”) from the shareholders of Trans-West (the “Trans-West Shareholders”) and (b) all of the membership interest of STN owned by ProLogic Communication, Inc. (“ProLogic” and collectively with the Trans-West Shareholders, the “Seller Parties”). As previously reported, Trans-West, a holding company with no operations, owns eighty percent (80%) of the membership interest of STN and ProLogic owned the other twenty percent (20%), and, accordingly, the Company now owns (directly, in part, and indirectly through Trans West, in other part) one hundred percent (100%) of STN.

Effective June 1, 2009, the Company entered into a Securities Purchase Agreement with Vicis, pursuant to which Vicis invested an additional $1,000,000 in the Company and the Company issued to Vicis 1,000,000 shares of the Company’s Series A Convertible Preferred Stock and a warrant to purchase 100,000,000 shares of Common Stock at an exercise price of $0.01 per share. The warrant included a put provision inherent in the redemption provision included in the warrant agreements and recorded at issuance as a liability for “Derivative financial instruments at estimated fair value” on the Company’s balance sheet in accordance with the current authoritative guidance including EITF 00-19. In accordance with provisions of SFAS 133, the Company is required to adjust the carrying value of the above warrants to its fair value at each balance sheet date and recognize any change since the prior balance sheet date as a component of other expense or income. In valuing the above warrants the company used the Black-Scholes model. The warrant included a redemption right, payable in cash upon the future occurrence of a change in control. As Such, the company recorded a derivative financial instrument at fair value of $1,925,571 in connection with this transaction.

Results of Operations

The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the condensed consolidated financial statements included herewith. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future.

Restatement of Prior Periods

On November 16, 2009, and as a result of comments the Company received from the SEC as a result of the SEC’s review of the Company’s Form 10-K for the year ended December 31, 2008 and Form 10-Q for the period ended June 30, 2009, the Company’s board of directors concluded that its previously issued financial statements for the years ended December 31, 2007 and 2008, and each interim quarter contained within such years, and for the quarters ended March 31, 2009 and June 30, 2009, should no longer be relied upon because of the forgoing error regarding the accounting of such warrants. The board of directors discussed the forgoing matters with the Company’s independent accountant.

Accordingly the impact on the Company’s quarterly financial information is as follows:


	For the Three Months Ended 2008
	3/31/08			6/30/08			9/30/08			12/31/08

Net loss, as previously reported	$	(1,798,087	)	$	(1,875,236	)	$	(784,983	)	$	(4,830,790	)
Net income (loss), as restated	$	1,943,661		$	(227,049	)	$	(6,281,322	)	$	(4,986,482	)
Total liabilities, as previously reported	$	15,911,754		$	18,243,852		$	14,300,178		$	13,799,003
Total liabilities, as restated	$	18,530,777		$	19,214,688		$	26,267,353		$	25,815,466
Total equity (deficit), as previously reported	$	1,765,075		$	(4,710	)	$	13,879,835		$	13,495,136
Total equity (deficit), as restated	$	(853,948	)	$	(975,546	)	$	1,912,660		$	1,478,673


	For the Three Months Ended 2009
	3/31/09			6/30/09

Net loss, as previously reported	$	(1,327,978	)	$	(1,032,224	)
Net income (loss), as restated	$	(650,076	)	$	3,793,808
Total liabilities, as previously reported	$	13,358,796		$	13,171,525
Total liabilities, as restated	$	24,697,357		$	20,684,054
Total equity (deficit), as previously reported	$	12,167,733		$	12,072,930
Total equity (deficit), as restated	$	829,172		$	4,560,401

Revenues, Cost of Sales and Gross Margins

Total revenues from operations for the quarter ended June 30, 2009 were $4,544,051 compared to $4,533,447 reported for the same period in 2008, representing an increase of $10,604. This increase in revenues is primarily due to acquisition of STN, which accounted for a total increase $2,096,017 of total revenues. This increase was partially offset by a decrease in revenues from USVD and Brookside Technology Partners. While the Company believes that a portion of this decrease in earnings may be due to general market and economic conditions, however, as discussed further under “Legal Proceedings,” the Company is aggressively investigating the actions of certain former employees of USVD undertaken both before and after their resignations from USVD. The Company has since successfully hired sales and sales management personnel and transitioned operations and administrative management.

Total revenues from operations for the six months ended June 30, 2009 were $9,545,350 compared to $8,741,513 reported for the same period in 2008, representing an increase of $803,837, or 9%. This increase in revenues is primarily due to acquisition of STN, which accounted for an increase $4,281,956 of total revenues. This increase was partially offset by a decrease in revenues from USVD and Brookside Technology Partners. While the Company believes that a portion of this decrease in earnings may be due to general market and economic conditions, however, as discussed further under “Legal Proceedings,” the Company is aggressively investigating the actions of certain former employees of USVD undertaken both before and after their resignations from USVD. In addition, during the first quarter 2009, USVD’s Kentucky region experienced ice storms and other harsh weather which caused lengthy power outages for two weeks, which impacted recurring and new sales business that resulted in much less business activity for USVD and will not be recovered. The Company has since successfully hired sales and sales management personnel and transitioned operations and administrative management.

Cost of sales was $1,696,552 for the quarter ended June 30, 2009 compared to $2,250,924 for the quarter ended June 30, 2008, a decrease of $554,372 or 25%. This decrease was due to less cost of sales associated with the decrease in revenues for USVD and Brookside Technology Partners discussed above. The decrease in cost of sales was partially offset by the increase in cost of sales, in conjunction with the increased revenues due to the acquisition of STN, which experienced an increase in cost of sales of $777,881. As a percentage of sales, cost of sales was 37% and 50% for the quarters ended June 30, 2009 and 2008, respectively. This decrease was primarily due to increased profit margin realized on sales consummated in the second quarter 2009 versus the comparative period in 2008. This improvement in cost of sales as a percentage of sales is primarily

attributable to the Company’s multi-faceted and differentiated approach, “Teleficiency”TM , a universal focus on higher margin, application specific value added business and technology solutions.

Cost of sales was $3,972,732 for the six months ended June 30, 2009 compared to $4,480,805 for the six months ended June 30, 2008, a decrease of $508,073 or 11%. The decrease was due to less cost of sales associated with the decrease in revenues for USVD and Brookside Technology Partners discussed above. The decrease in cost of sales was partially offset by the increase in cost of sales, in conjunction with the increased revenues due to the acquisition of STN, which accounted for $1,591,607 of the increase. As a percentage of sales, cost of sales was 42% and 51% for the six months ended June 30, 2009 and 2008, respectively. This decrease was primarily due to increased profit margin realized on sales consummated in the first six months of 2009 versus the comparative period in 2008. This improvement in cost of sales as a percentage of sales is primarily attributable to the Company’s multi-faceted and differentiated approach, “Teleficiency“TM , a universal focus on higher margin, application specific value added business and technology solutions.

Our gross margin was 63% for the quarter ended June 30, 2009 compared to 50% for the quarter ended June 30, 2008. The increase in gross margin as a percentage of sales is due primarily to the Company’s multi-faceted and differentiated approach, “Teleficiency“TM , a universal focus on higher margin, application specific value added business and technology solutions.

Our gross margin was 58% for the six months ended June 30, 2009 compared to 49% for the quarter ended June 30, 2008. The significant improvement in gross margin percentage is due primarily to the Company’s multi-faceted and differentiated approach, “Teleficiency“TM , a universal focus on higher margin, application specific value added business and technology solutions.

General and Administrative Expenses

General and administrative expenses were $2,840,295 and $2,116,496 for the quarters ended June 30, 2009 and 2008, respectively. This represented an increase of $723,799 or 34%. This increase in general and administrative expenses in 2009 was due primarily to the acquisition of STN, which accounted for $1,113,732 of the increase. This was partially offset by the decrease in general and administrative expenses at USVD and Brookside Technology Partners of $295,797 due to organizational sizing and direct cost cutting to reduce general and administrative expenses, and the decrease in stock compensation expense of $91,136.

General and administrative expenses were $5,950,392 and $3,860,986 for the six months ended June 30, 2009 and 2008, respectively. This represented an increase of $2,089,406 or 54%. This increase in general and administrative expenses in 2009 was due primarily to the acquisition of STN, which accounted for $2,323,884 of the increase, partially offset by the decrease in general and administrative expenses at USVD and Brookside Technology Partners of $234,478.

Amortization Expense

The Company recognized $516,713, and $1,763,143 of amortization expense for the quarters ended June 30, 2009 and 2008, respectively, related to the accounting treatment of the warrants issued and amortization of intangible assets associated with the USVD and STN acquisitions. The decrease in amortization expense of $1,246,430 for the quarter ended June 30, 2009 versus the comparative period in 2008, is primarily due to the amortization of the warrants issued in conjunction with the USVD acquisition being fully amortized as of September 26, 2008.

The Company recognized $993,387 and $3,500,410 of amortization expense for the six months ended June 30, 2009 and 2008, respectively, related to the accounting treatment of the warrants issued and amortization of intangible assets associated with the USVD and STN acquisitions. The decrease in amortization expense of $2,507,023 for the six months ended June 30, 2009 versus the comparative period in 2008, is primarily due to the amortization of the warrants issued in conjunction with the USVD acquisition being fully amortized as of September 26, 2008.

Interest Expense

Interest expense was $479,446 and $664,130 for the quarters ended June 30, 2009 and 2008, respectively. This decrease of $184,684 was due primarily to the debt restructuring incurred with the USVD acquisition to Series A Stock. This decrease was partially offset by the additional debt incurred with the acquisition of STN.

Interest expense was $912,255 and $1,339,583 for the six months ended June 30, 2009 and 2008, respectively. This decrease of $427,328 was due primarily to the debt restructuring incurred with the USVD acquisition to Series A Stock. This decrease was partially offset by the additional debt incurred with the acquisition of STN.

Gain on Change in Fair Value of Derivative Financial Instruments

Gain on change in fair market value of derivative financial instruments was $5,751,603 and 2,063,130 for the quarters ended June 30, 2009 and 2008, respectively. This is an increase in gain of $3,688,473. This is due to the decrease in fair value of the warrants pursuant to valuation using the Black-Scholes Model.

Gain on change in fair market value of derivative financial instruments was $6,429,505 and $6,219,821 for the six months ended June 30, 2009 and 2008, respectively. This is an increase in gain of $209,684. This is due to the decrease in fair market value of the warrants pursuant to valuation using the Black-Scholes Model.

Finance Expense on Derivatives

Finance expense on derivatives was $925,571 and $0 for the quarter ended June 30, 2009 and 2008, respectively. This represents an increase of $925,571. This is due to the 100,000,000 warrants issued in June 2009 resulting in an expense of $925,571 and no new issuance of derivatives financial instruments in the comparable period in 2008.

Finance expense on derivatives was $925,571 and $0 for the six months ended September 30, 2009 and 2008, respectively, resulting in an increase of $925,571. This increase is due to the 100,000,000 warrants issued in June 2009 which resulted in an finance expense on derivatives of $925,571 and no new issuance of derivatives financial instruments in the comparable period in 2008.

Net Income/Net Loss

We realized net income of $3,793,808 for the quarter ended June 30, 2009 compared to a net loss of $227,049 for the quarter ended June 30, 2008. This represents an increase in net income of $4,020,857. This increase in net income is primarily due to the increase in gain on change in fair market value of derivative financial instruments of $3,688,473 as discussed above, the decrease in amortization expense of $1,246,430, partially offset by the increase in general and administrative expenses of $723,799.

We realized net income of $3,143,732 for the six months ended June 30, 2009 compared to a net income of $1,716,612 for the six months ended June 30, 2008. This represents an increase in net income of $1,427,120. This increase in net income is primarily due to the decrease in amortization expense of $2,507,023 and the increase in gain on change in fair market value of derivative financial instruments of $209,684 as discussed above, the increase in gross profit of $1,311,910 partially offset by the increase in general and administrative expense of $2,089,406.

Liquidity and Capital Resources

The Company has cash and cash equivalents of $692,678 at June 30, 2009. Additionally, effective August 13, 2009, the Company and its senior creditor, Chatham Credit Management III, LLC (“Chatham”), entered into a letter agreement pursuant to which, among other things, Chatham waived all existing defaults of the Company’s senior credit facility, and agreed to suspend the compliance of the minimum fixed charge coverage ratio and maximum leverage ratio contained in the credit agreement. The Company is in full compliance with its financial covenants under this agreement. Additionally, effective June 1, 2009, the Company entered into a Securities Purchase Agreement with Vicis Capital Master Fund, a sub-trust of Vicis Capital Series Master Trust, and the Company’s largest preferred stockholder (“Vicis”), pursuant to which Vicis invested an additional $1,000,000 in the Company and the Company issued to Vicis 1,000,000 shares of the Company’s Series A Convertible Preferred Stock and a warrant to purchase 100,000,000 shares of Common Stock at an exercise price of $0.01 per share.

Although the Company had net income for the three months and nine months ended September 30, 2009 of approximately $3.8 million and $3.1 million, respectively, this was due primarily to the non-cash gain on change in fair market value of derivative financial instruments as a result of the accounting treatment of Derivative financial instruments at estimated fair value” on the Company’s balance sheet in accordance with the current authoritative guidance including EITF 00-19. In addition, the Company has a retained deficit of approximately $14.7 million. For the six months ended June 30, 2009, the Company had

net cash used in operations of approximately $1.0 million. Historically, the Company has relied on borrowings and equity financings to maintain its operations. The Company believes it has enough cash to operate for the coming year with its cash on hand, cash to be generated from operations and the borrowing availability with its lenders. However, the recent economic downturn could have a material effect on its business operations. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. For a description of those estimates, see Note 3, Significant Accounting Policies, contained in the explanatory notes to our consolidated financial statements contained in this Report. On an ongoing basis, we evaluate our estimates, including those related to reserves, deferred tax assets and valuation allowance, and impairment of long-lived assets. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions; however, we believe that our estimates, including those for the above described items, are reasonable.

Revenue Recognition

The Company derives its revenues primarily from sales of converged VOIP telecommunications equipment and professional services implementation/installation, data and wireless equipment and installation, recurring maintenance/managed service and network service agreements and other services. The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” (“SAB 101”), as amended by SAB No. 104 “Revenue Recognition, Corrected Copy” (“SAB 104”). Under SAB 101 and SAB 104, revenue is recognized when there is persuasive evidence of an arrangement, delivery has occurred or services have been rendered, the sales price is determinable, and collectability is reasonably assured. Sales are recorded net of discounts, rebates, and returns.

Revenue from contracts that contain multiple elements that are not accounted for under the percentage-of-completion method is accounted for in accordance with Emerging Issues Task Force (“EITF”) Issue No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” Revenue from these contracts is allocated to each respective element based on each element’s relative fair value, if determinable, and is recognized when the respective revenue recognition criteria for each element are fulfilled. The Company’s recognizes revenue from the equipment sales and installation services using the percentage of completion method. The services for maintaining the systems we install are sold as a stand-alone contract and treated according to the terms of the contractual arrangements then in effect. Revenue from this service is generally recognized over the term of the subscription period or the terms of the contractual arrangements then in effect. A majority of equipment sales and installation services revenues are billed in advance on a monthly basis based upon the fixed price, and are included both accounts receivable and deferred income on the accompanying balance sheets. Direct costs incurred on such contracts are deferred until the related revenue is recognized and are included in deferred contract costs on the accompanying balance sheets. The Company also provides professional services (maintenance/managed services) on a fixed price basis. These services are billed as bundles and or upon completion of the services.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

As a Smaller Reporting Company as defined Rule 12b-2 of the Exchange Act and in item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this Item 3.

Item 4. Controls and Procedures

Item 4T. Controls and Procedures

Disclosure Controls and Procedures

Our management, including our Chief Executive Officer and Chief Financial Officer (our Principal Executive Officer and Principal Financial Officer), has evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended), as of the period ended June 30, 2009, the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were not effective as of June 30, 2009 to ensure the timely collection, evaluation and disclosure of information relating to our company that would potentially be subject to disclosure under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. This is based on the following three extraordinary events:

(1)

On November 17, 2009, and as a result of comments the Company received from the SEC in connection with the SEC’s review of the Company’s Form 10-K for the year ended December 31, 2008 and Form 10-Q for the period ended June 30, 2009, the Company’s board of directors concluded that the Company’s previously issued financial statements for the years ended December 31, 2007 and 2008, and each interim quarter contained within such years, and for the quarters ended March 31, 2009 and June 30, 2009, should no longer be relied upon because of an error contained therein regarding the accounting of certain warrants issued in connection with certain financings, which warrants should have been accounted for as a liability under EITF 00-19 based on their fair value as of the date of their issuance because they contain put provisions requiring the Company to redeem the warrants under certain circumstances. The board of directors discussed the forgoing matters with its Chief Financial Officer and the Company’s independent accountant.

(2)

As disclosed in Note 2 to the Financial Statements, the Company was not in compliance with the leverage ratio imposed by the Chatham Senior Loan in the first quarter of 2009. The Company’s management and board of directors devoted a significant amount of time to the negotiation of a modification to the ratio requirement and to the impact the Company’s non-compliance was having on its liquidity. As further disclosed in Note 2 to the Financial Statements, effective August 13, 2009, among other things, Chatham agreed to suspend the Company’s obligation to comply with the leverage and debt coverage ratios for the period July 31, 2009 through June 30, 2010.

(3)

On May 12, 2009, Messers. Fischer and Diamond ceased working for the USVD, alleging that their employment was “constructively terminated” and that their non-competition agreements were null and void. Shortly thereafter, several other USVD employees resigned from USVD and went to work for a new company, which the Company believes is owned by Messers. Fischer & Diamond and/or some of their family members, either directly or indirectly. This new company shortly thereafter began soliciting the Company’s vendors and customers. As a result, management and the board of directors were required to personally devote a significant amount of time and effort to stabilize the situation at USVD.

As a result of the foregoing unique demands incurred in 2009, the audit committee and management were not able to perform in a complete manner the disclosure controls and procedures in order to determine that such disclosure controls and procedures were effective for the quarter ended June 30, 2009.

While Management is making best efforts to restore the controls and processes during the fourth quarter, no assurances can be made at this stage that we will be in compliance with internal control procedures required by Sarbanes-Oxley for the year ending December 31, 2009

Changes in Internal Control Over Financial Reporting

During the six months ended June 30, 2009, the Company has hired accounting consultants to augment its accounting staff and accounting and reporting capabilities. Management believes these are material changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act).

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

As discussed further above under “Business” and “Management’s Discussion and Analysis,” USVD’s revenues, under the direction of Messrs. Fischer and Diamond, for the six months ended June 30, 2009 were approximately $2,700,000 lower than its earnings in the same period in 2008. This decrease adversely impacted the Company’s liquidity and subsequently the Company’s largest equity investor, Vicis, provided an additional capital infusion. Also, the Company and its primary lender, Chatham, have made modifications to the Company’s credit facility.

Fortunately, USVD’s first quarter decreased earnings are offset by increased earnings provided by STN, as well as increased earnings at USVD for the second quarter under the direction of Brookside Technology Holdings Corp’s management and other existing USVD and STN senior managers, discussed further above under “Business” and “Management’s Discussion and Analysis.” However, while the Company may have this offset from these combined strong earnings, Messrs. Fischer’s and Diamond’s earn-outs were to be based solely on USVD’s EBITDA. Given USVD’s performance under Messrs. Fischer’s and Diamond’s stewardship prior to May 12, 2009, it is presently unclear whether they would have earned any future earn-out payments subsequent to their alleged constructive terminations.

payable — USVD Sellers included in its long-term debt of $850,000 as well as an accrual for the $289,000 accrued 2008 earn-out payment that the USVD Sellers, Messrs. Fischer and Diamond, claim is due to them.

Item 1A. Risk Factors

No changes from prior disclosure.

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

The information required by this Item 2 was previously disclosed and included in Current Reports on Form 8-K filed by the Company.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

None.

Item 6. EXHIBITS


Exhibit 31.1	—	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.

Exhibit 31.2	—	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.

Exhibit 32.1	—	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.2	—	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

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


	Brookside Technology Holdings Corp
	By:	/s/ Bryan McGuire
		Bryan McGuire, Chief Financial Officer
		(Principal Financial Officer)

Dated: February 8, 2010

BROOKSIDE TECHNOLOGY HOLDINGS, CORP. - FORM 10-Q/A - February 8, 2010

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