Brookside Technology 10Q/A 2008 Q3 Quarterly report (amended)

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 September 30, 2008


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

For the transition period from to

Commission File Number 333-133253

BROOKSIDE TECHNOLOGY HOLDINGS CORP.

(Exact name of registrant as specified in its charter)


Florida		20-3634227

State or other jurisdiction of		(I.R.S. Employer
incorporation or organization		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. Yesþ Noo

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


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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

Number of shares outstanding of registrant’s class of common stock as of November 14, 2008: 139,887,040

Index


ITEM

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Item 2. Management’s Discussion and Analysis or Plan of Operation			28

Item 3. Quantitative and Qualitative Disclosures about Market Risk			34

Item 4. Controls and Procedures

Item 4(T) Controls and Procedures			34

PART II — OTHER INFORMATION			35

Item 1. Legal Proceedings			35

Item 1A. Risk Factors			35

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			35

Item 3. Defaults Upon Senior Securities			35

Item 4. Submission of Matters to a Vote of Securities Holders			35

Item 5. Other Information			35

Item 6. Exhibits			35
EX-31.1
EX-31.2
EX-32.1
EX-32.2

INTRODUCTORY NOTE

The Quarterly Report on Form 10-Q for the period ending September 30, 2008 is being amended to edit the descriptions of the Notes Payable in Note 6 — Long Term Debt in the Notes to Unaudited Financial Statements. The descriptions were changed as follows: (i) “Hilco Senior Convertible Note” was changed to Hilco Senior Note”; (ii) “DD Subordinated Convertible Note” was changed to “DD Subordinated Note”; (iii) “Vicis Senior Convertible Note” to “Vicis Note”; and (iv) “Chatham Senior Convertible Note” to Chatham Senior Note”. Since none of the aforementioned notes are or were convertible at any time, this new description more clearly reflects the type of notes they represent.

This Report on Form 10-Q 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 set forth under “Risk Factors” in our Form 10-KSB for the year ended December 31, 2007, 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.

BROOKSIDE TECHNOLOGY PARTNERS, INC
BALANCE SHEETS
As of September 30, 2008 and December 31, 2007


	September 30,			December 31,
	2008			2007
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	1,998,911		$	187,846
Restricted cash		1,250,000			—
Accounts receivable, net		4,070,738			2,113,675
Inventory, net		1,831,816			849,176
Deferred contract costs		48,283			89,922
Deferred finance charges, net of amortization		588,984			245,155
Prepaid expenses		129,666			40,954


Total current assets		9,918,398			3,526,728

Property and equipment
Office equipment		431,826			330,022
Furniture, fixtures and leasehold improvements		153,571			137,745
Vehicles		171,130			—

		756,527			467,767
Less: accumulated depreciation		(292,052	)		(194,089	)


Property and equipment, net		464,475			273,678


Goodwill		16,804,632			13,236,369
Intangible assets, net		965,044			510,868
Deposits and other assets		27,464			41,699


TOTAL ASSETS	$	28,180,013		$	17,589,342


LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Current liabilities
Accounts payable and accrued expenses	$	2,342,234		$	981,766
Billings in excess of revenues		4,081,735			1,776,271
Payroll liabilities		370,250			371,470
Current portion of long term debt		3,907,355			8,207,900
Other current liabilities		96,738			838,589


Total current liabilities		10,798,312			12,175,996

Long term debt, less current portion		3,501,866			1,850,183


Total liabilities		14,300,178			14,026,179


Stockholders’ equity
Series A Convertible Preferred Stock, 12,226,716 and 2,175,322 issued and outstanding at September 30, 2008 and December 31, 2007, respectively, at 8% dividend yield. Liquidation preference of $12,485,954 at September 30, 2008.		9,974,486			1,699,000
Common stock, $.01 par value, 1,000,000,000 shares authorized, 139,887,066 shares issued and outstanding at September 30, 2008 and 87,900,000 shares issued and outstanding at December 31, 2007, respectively		139,888			87,900
Additional paid in capital		19,873,900			11,313,358
Retained deficit		(16,108,439	)		(9,537,095	)


Total stockholders’ equity		13,879,835			3,563,163


TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	28,180,013		$	17,589,342

See accompanying notes and independent auditors’ report.

BROOKSIDE TECHNOLOGY PARTNERS, INC
STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 2008 and 2007


	Quarter Ended September 30,						Nine Months Ended September 30,
	2008			2007			2008			2007
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
REVENUES
Installation and other services	$	1,577,260		$	314,469		$	3,924,799		$	624,495
Equipment sales		4,079,863			612,567			10,473,837			1,303,980

Total revenues		5,657,123			927,036			14,398,636			1,928,475

COST OF SALES		3,175,528			555,217			7,656,333			1,146,865


GROSS PROFIT		2,481,595			371,819			6,742,303			781,610


OPERATING EXPENSES
General and administrative		1,878,775			841,130			5,624,261			1,634,398
Stock Compensation Expense		53,333			—			168,833			915,000
Depreciation expense		31,140			15,741			97,949			37,317

Total operating expenses		1,963,248			856,871			5,891,043			2,586,715


OTHER INCOME (EXPENSE)
Interest expense		(459,624	)		(34,838	)		(1,799,207	)		(61,395	)
Amortization expense		(1,003,282	)		(933,615	)		(3,673,806	)		(933,615	)
Gain on debt extinguishment		151,619			—			151,619			—
Other income (expenses), net		7,957			8,814			11,828			10,341

Total other income (expense)		(1,303,330	)		(959,639	)		(5,309,566	)		(984,669	)


LOSS BEFORE INCOME TAXES		(784,983	)		(1,444,691	)		(4,458,306	)		(2,789,774	)

Income tax benefit		—			—			—			—


NET LOSS	$	(784,983	)	$	(1,444,691	)	$	(4,458,306	)	$	(2,789,774	)


Preferred stock dividends and accretion of discount		(2,019,353	)		(43,506	)		(2,102,989	)		(96,350	)


Net loss attributable to common shareholders	$	(2,804,336	)	$	(1,488,197	)	$	(6,561,295	)	$	(2,886,124	)


Loss per share- basic and fully diluted	$	(0.028	)	$	(0.018	)	$	(0.071	)	$	(0.037	)


Weighted average shares outstandings		99,576,825			81,327,632			92,755,324			77,691,575

See accompanying notes and independent auditors’ report.

BROOKSIDE TECHNOLOGY PARTNERS, INC
STATEMENTS OF CASH FLOWS
For the Nine Months September 30, 2008 and 2007


	2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(4,458,306	)	$	(2,789,774	)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation		97,949			37,317
Amortization of debt discounts, deferred finance charges and intangibles		3,673,806			933,615
Non-cash interest expense		600,587			—
Stock based compensation		168,833			915,000
Gain on debt extinguishment		(151,619	)		—
(Increase) decrease in:
Accounts receivable		(780,671	)		(250,551	)
Inventory		(79,863	)		1,113,770
Deferred contract costs		41,639			10,883
Prepaid expenses		(73,584	)		(8,278	)
Deposits and other assets		41,699			23,703
Increase (decrease) in:
Accounts payable and accrued expenses		615,655			117,737
Accrued payroll liabilities		(43,743	)		236,754
Billings in excess of revenues		462,885			(1,291,783	)
Accrued warranty		—			(793	)
Other current liabilities		(65,469	)		(84,293	)

		4,508,104			1,753,081


NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		49,798			(1,036,693	)


CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment		(166,069	)		(56,632	)
Cash used for restricted cash		(1,250,000	)		—
Acquisition of US Voice & Data, LLC (“USVD”), net of $855,791 in cash received		—			(9,052,899	)
Acquisition of Standard Tel Networks, LLC (“STN”), net of $522,319 in cash received		(2,835,610	)		—


NET CASH USED IN INVESTING ACTIVITIES		(4,251,679	)		(9,109,531	)


CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long term debt		14,197,475			7,442,685
Cash paid for fees in conjunction with USVD acquisition financing		—			(463,000	)
Proceeds from Series B Stock financing (“Series B”)		—			3,000,000
Cash paid for fees in conjunction with Series B financing		—			(250,000	)
Deferred finance charges		(588,984	)		(349,538	)
Proceeds from issuance of series A preferred Stock net of issuance costs of $376,653		—			1,280,337
Proceeds from issuance of series A preferred Stock, in connection with the STN acquisition		2,500,000			—
Cash paid for fees in conjunction with the Share Exchange		—			(293,963	)
Repayment of long term debt		(10,095,545	)		(122,278	)


NET CASH PROVIDED BY FINANCING ACTIVITIES		6,012,946			10,244,243


NET INCREASE IN CASH		1,811,065			98,019

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		187,846			35,666

CASH AND CASH EQUIVALENTSAT END OF YEAR	$	1,998,911		$	133,685


SUPPLEMENTAL DISCLOSURE

Income taxes paid	$	—		$	—

Interest paid	$	(27,872	)	$	(34,838	)


Non-cash financing and investing activities
Exchange Transaction fee to Venture Fund II for consulting fees, paid in preferred stock	$	—		$	250,000

Accrual of preferred stock dividend	$	119,382		$	96,350

Accretion of Series A preferred stock beneficial conversion feature	$	1,983,607			—

Conversion accrued interest to series A preferred stock	$	676,383			—

Payment of notes payable paid in Preferred Stock	$	4,350,000		$	235,000

Conversion of series B preferred stock to series A preferred stock	$	3,000,000		$	—

Note Payable issued in USVD acquisition	$	—		$	3,100,000

Value of Common Stock issued in USVD acquisition	$	—		$	2,730,000

Conversion of note for 400,000 shares of common stock	$	—		$	60,000

Warrant value assigned	$	4,909,851		$	6,751,270

Beneficial conversion feature assigned to convertible debt	$	—		$	1,445,006

Accrued interest added to note payable balance	$	—		$	46,556

Value of Common Stock issued in STN acquisition	$	1,169,755		$	—

See accompanying notes and independent auditors’ report.

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 (“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-KSB for the fiscal year ended December 31, 2007. 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 September 30, 2008 and December 31, 2007, and the results of operations and cash flows for the quarters and nine months ended September 30, 2008 and 2007. The results of operations for the quarters and nine months ended September 30, 2008 are not necessarily indicative of the results that may be expected for the entire fiscal year.

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.

Headquartered in Huntington Beach, California, STN is an independent distributor of high quality, turnkey converged voice and data business communications products and services. STN has California offices in the San Francisco Bay Area, Sacramento, San Diego and headquartered in Huntington Beach.

Headquartered in Austin, Texas, Brookside Technology Partners is a provider and global managed service company 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. Brookside Technology Partners is recognized as a leading VoIP reseller and professional services vendor with over 300 BCM installations that have various forms of networked or VoIP functionality.

Headquartered in Louisville, Kentucky, USVD is a leading regional provider of telecommunication services including planning, design, installation and maintenance for the converged voice and data systems. USVD serves the Kentucky and Southern Indiana markets, operating out of offices in Louisville, Lexington and Indianapolis. USVD 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.

Collectively, the subsidiary companies market converged business communications products from Mitel, Inter-tel (owned by Mitel), Nortel and NEC. Combined this represents 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

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.

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 1 — Basis of Presentation and Nature of Business (continued)

Background/Name Change/Redomestication (continued)

Because Brookside Technology Partners was the accounting acquirer in the Share Exchange, management does not believe that it is informative or useful to compare Cruisestock’s historical results of operations with those of Brookside Technology Partners.

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 Over the Counter Bulletin Board (OTCBB) under the symbol: BKSD.

Stock Split

Concurrently with the Redomestication and as of the Effective Time:

	•		Each outstanding share of Cruisestock’s common stock, $0.001 per share, was automatically converted into seven shares of Brookside Technology Holdings Corp.’s common stock, $0.001 par value per share;

	•		Each outstanding share of Cruisestock’s series A preferred stock, $0.001 per share, was automatically converted into one share of Brookside Technology Holdings Corp.’s series A preferred stock, $0.001 par value per share;

	•		The price at which the series A preferred stock converts into common stock was automatically adjusted, on a proportionate basis, to account for the forward split of the common shares by reducing the current conversion price of $0.40 per share to $0.0571428; and

	•		The number of shares of common stock underlying all of Cruisestock’s outstanding options and warrants to purchase common stock, and the exercise price of such options and warrants, was automatically adjusted to account for the 7-for-1 common share stock split.

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.

Reverse Stock Split

On August 4, 2008, the Board of Directors has unanimously adopted a resolution approving, declaring advisable and recommending to the stockholders for their approval, and the shareholders of the Company who collectively own a majority of the outstanding shares of the Company’s Common Stock, Series A Preferred Stock and Series B Preferred Stock, voting as a single class on an as converted basis, have approved by written consent in lieu of a meeting, a reverse stock split of the Company’s Common Stock at a ratio between 1-for-10 and 1-for-100, as determined at the discretion of the Board of Directors to be in the best interests of the Company. The Board of Directors believes that approval of a range of reverse split ratios, rather than approval of a specific reverse split ratio, provides the Board of Directors with maximum flexibility to achieve the purposes of the reverse stock split. The Company’s Board of Directors may implement the reverse stock split at any time prior to December 31, 2008, after which time its authority to implement the reverse stock split shall expire, and may set the ratio of the reverse stock split within the ranges set forth above. The Board of Directors also has the right to abandon the reverse stock split at any time. The Board of Directors will aim to set the ratio at the lowest ratio that will achieve the purposes of the reverse stock split. The judgment of the Board of Directors as to the ratio shall be conclusive.

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 1 — Basis of Presentation and Nature of Business (continued)

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. The Amendment was approved and adopted by the shareholders of the Company on June 13, 2008.

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 the San Francisco Bay Area, 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 (the “Purchase Agreement”), 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. Collectively, the forgoing transactions are referred to in this Current Report as the “STN Acquisition.” Prior to the STN Acquisition, the Company did not have any relationship with the Seller Parties.

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 Convertible Preferred Stock (“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”). Furthermore, pursuant to the Vicis Agreement, all of 3,000,000 shares of the Company’s Series B Convertible Preferred Stock (“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 Redeemable Preferred Stock) was considered for investment in 5,500,000 shares of Series A Preferred 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 Preferred Stock and the warrants issued. The value assigned to the Series A Preferred Stock was reduced to zero as a result of a beneficial conversion feature.

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 their 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.

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.

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 1 — Basis of Presentation and Nature of Business (continued)

Vicis Equity Infusion (continued)

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.

Note 2 — Liquidity and Capital Resources

The Company completed the STN acquisition on September 23, 2008. As part of the acquisition, the Company was able to rearrange its debt and equity and obtain more favorable terms. The Company has a $2,000,000 line of credit with none outstanding and cash and cash equivalents of $1,998,911 at September 30, 2008. The Company sustained a loss for the nine months ended September 30, 2008 of approximately $4.5 million, sustained losses in 2007 and 2006 and has a retained deficit of approximately $16.1 million. These losses were primarily due to the amortization expense related to the accounting treatment of warrants issued in connection with the debt raised to fund the USVD acquisition. For the nine months ended September 30, 2008 the Company had cash flow from operations of $49,798. 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 on its credit lines. However, the recent economic downturn could have a material affect on its business operations.

Note 3 — 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. The following summarizes the more significant of these policies.

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 financial statements, to be cash equivalents.

Use of Estimates

The preparation of 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates.

Property and Equipment

Property and equipment are stated at cost. Depreciation and amortization are provided on a straight-line basis over the estimated useful lives of the assets. The following table shows estimated useful lives of property and equipment:


Classification		Useful Lives
Telecom equipment		3-5 years
Software		3-5 years
Computer equipment		3-5 years
Furniture, fixtures and leasehold improvements		2-7 years

The Company periodically evaluates the estimated useful lives used to depreciate its assets and the estimated amount of assets that will be abandoned or have minimal use in the future. While the Company believes its estimates of useful lives are reasonable, significant differences in actual experience or significant changes in assumptions may affect future depreciation expense.

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 3 — Significant Accounting Policies (continued)

Property and Equipment (continued)

Expenditures for maintenance and repairs are charged to expense as incurred. Major expenditures for additions, replacements and betterments are capitalized. When assets are sold, retired or fully depreciated, the cost, reduced by the related amount of accumulated depreciation, is removed from the accounts and any resulting gain or loss is recognized as income or expense.

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 September 30, 2008 and December 31, 2007.

The amounts reported for 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 September 30, 2008.

Inventories

Inventories are comprised primarily of telephone systems ordered for installations, and spare parts or common parts used in telephone system installations and are stated at the lower of cost (first-in, first out) or market through the use of an inventory valuation allowance. In order to assess the ultimate realization of inventories, the Company is required to make judgments as to future demand requirements compared to current or committed inventory levels. Allowance requirements generally increase as the projected demand requirement decreases due to market conditions, technological and product life cycle changes.

Redeemable Securities

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity” (SFAS 150). SFAS 150 requires issuers to classify as liabilities (or assets in some circumstances) three classes of freestanding financial instruments that embody obligations for the issuer. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003. The Company classified Series B Stock as a liability in the balance sheet and related accretion being charged to interest expense in the statement of operations. On July 3, 2008, pursuant to the Vicis Agreement, Vicis agreed to convert this Series B Stock to Series A Stock. The Series A Stock is not presently redeemable and has been classified in equity in the consolidated financial statements.

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 Preferred 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 30,197,023 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.

Pursuant to the Vicis Agreement, all the outstanding warrants have been re-priced to $0.03.

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 3 — Significant Accounting Policies (continued)

Redeemable Securities (continued)

Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, the holders of the shares of Series A Convertible Preferred 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 Convertible Preferred Stock, an amount for each share of Series A Convertible Preferred 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.

Convertible Securities With Beneficial Conversion Features

Under EITF No.00-27, “Application of EITF Issue No. 98-5, ‘Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Rates’, to Certain Convertible Instruments,” the Company considered the effect of a beneficial conversion feature of the Series A shares 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 shares 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 shares during the quarter ended September 30, 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.

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

•		The Company effecting a merger or consolidation with another entity

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

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

•		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.

During the nine months ended September 30, 2008, certain Series A Stockholders converted 474,990 shares of Series A Stock to 11,143,665 shares of the Company’s common stock.

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.

We have adopted a policy to review goodwill and indefinite-lived intangibles for impairment using a discounted cash flow approach that uses forward-looking information regarding market share, revenues and costs for the reporting unit as well as appropriate discount rates. As a result, changes in these assumptions could materially change the outcome of the reporting unit’s fair value determination in future periods, which could require a further permanent write-down of goodwill.

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 3 — Significant Accounting Policies (continued)

Extinguishment of Debt

Extinguishments of debt, unless the extinguishment is a troubled debt restructuring or a conversion by the holder pursuant to conversion privileges contained in the original debt issue, requires the difference between the net carrying amount of the extinguished debt and the reacquisition price of the extinguished debt to be recognized currently in income of the period of extinguishment. The reacquisition price of the extinguished debt is to be determined by the value of the common or preferred stock issued or the value of the debt—whichever is more clearly evident.

The extinguishment of convertible debt does not change the character of the security as between debt and equity at that time. Therefore, a difference between the cash acquisition price of the debt and its net carrying amount shall be recognized currently in income in the period of extinguishment as a loss or gain.

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 collectibility 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 are 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.

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 September 30, 2008, the Company has accrued $247,417 of warranty expense and $0 accrued at December 31, 2007. The Company’s warranty accrual takes into account the telecommunications equipment covered by original equipment manufacturer warranties. Prior to September 30, 2008, warranty costs not covered by the original equipment manufacturer warranty’s were not considered material the financial statements

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 3 — Significant Accounting Policies (continued)

Advertising

The Company recognizes advertising expenses as incurred.

Reclassifications

Certain prior year amounts have been reclassified to conform to the 2008 presentation.

Earnings Per Common Share

Basic and diluted net income per common share is presented in conformity with Statement of Financial Accounting Standards No. 128, Earnings Per Share (SFAS 128) for all periods presented. Basic earnings per share is based on the weighted effect of all common shares issued and outstanding, and is calculated by dividing net loss available to common stockholders by the weighted average shares outstanding during the period. Diluted earnings per share is calculated by dividing net loss available to common stockholders by the weighted average number of common shares used in the basic earnings per share calculation plus the number of common shares that would be issued assuming conversion of all potentially dilutive common shares outstanding. At September 30, 2007, there were potentially dilutive securities outstanding consisting of Series A Preferred stock, warrants, and stock options issued to employees. At September 30, 2008, there were potentially dilutive securities outstanding consisting of Series A Preferred Stock, convertible debt, warrants, and stock options issued to employees. The potential shares would be anti-dilutive during 2008 and as such have not been considered in the calculation of earnings per share. At September 30, 2008, the number of potentially dilutive shares, that are anti-dilutive at September 30, 2008 consists of 19,200,000 stock option shares, 12,226,716 series A preferred stock shares (exercisable into 407,557,200 common shares), and 544,440,793 common shares purchase warrants.

Recent Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business Combinations-Revised 2007. SFAS 141R provides guidance on improving the relevance, representational faithfulness, and comparability of information that a reporting entity provides in its financial reports about a business combination and its effects. SFAS 141R applies to business combinations where the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Brookside Technology Holdings Corp. is in the process of analyzing the effects SFAS 141R will have on the Company’s financial statements.

In April 2008, the FASB issued FSP 142-3,Determination of the Useful Life of Intangible Assets, (the“FSP”) which amends the factors that must be considered in developing renewal or extension assumptions used to determine the useful life over which to amortize the cost of a recognized intangible asset under SFAS No. 142. The FSP amends paragraph 11(d) of SFAS No. 142 to require an entity to consider its own assumptions about renewal or extension of the term of the arrangement, consistent with its expected use of the asset.

The FSP also requires the following incremental disclosures for renewable intangible assets:

	•		The weighted-average period prior to the next renewal or extension (whether explicit and implicit) for each major intangible asset class

	•		The entity’s accounting policy for the treatment of costs incurred to renew or extend the term of a recognized intangible asset

	•		For intangible asset renewed or extended during the period:

	•		For entities that capitalize renewal or extension costs, the costs incurred to review or extend the asset, for each major intangible asset class

	•		The weighted-average period prior to the next renewal or extension (whether explicit and implicit) for each major intangible asset class

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 3 — Significant Accounting Policies (continued)

Recent Accounting Pronouncements (continued)

The FSP is effective for financial statements for fiscal years beginning after December 15, 2008. The guidance for determining the useful life of a recognized intangible asset must be applied prospectively to intangible assets acquired after the effective date. Early adoption is prohibited. Accordingly, the FSP would not serve as a basis to change the useful life of an intangible asset that was acquired prior to the effective date (January 1, 2009 for a calendar year company). However, the incremental disclosure requirements described above would apply to all intangible assets, including those recognized in periods prior to the effective date of the FSP. The Company is currently evaluating the impact that the adoption of this FSP will have on its consolidated financial statements.

Fair Value Measurements

In February 2008, the FASB issued Staff Position (FSP) No. FAS 157-2, Effective Date of FASB Statement No. 157, which delays the effective date of SFAS No. 157 for all non-financial assets and non-financial liabilities, excluding those assets that are recognized or disclosed at fair value on a recurring basis for fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. According to Note 2- Recent Accounting Pronouncements in the Notes to Consolidated Financial Statements, the Company elected a partial deferral of SFAS No. 157 under the provisions of FSP No. FAS 157-2, associated with the measurement of fair value used when evaluating goodwill, other intangible assets and other long-lived assets for impairment. The company is currently evaluating the impact of FSP No. FAS 157-2 on its financial statements.

As described in “Adoption of New Accounting Standards,” the Company adopted SFAS No. 157 effective January 1, 2008. SFAS 157 established a framework for measuring fair value in GAAP and clarified the definition of fair value within that framework. SFAS 157 does not require assets and liabilities that were previously recorded at cost to be recorded at fair value or for assets and liabilities that are already required to be disclosed at fair value, SFAS 157 introduced, or reiterated, a number of key concepts which form the foundation of the fair value measurement approach to be used for financial reporting purposes. The fair value of the Company’s financial instruments reflects the amounts that the Company estimates to receive in connection with the sale of an asset or paid in connection with the transfer of a liability in an orderly transaction between market participants at the measurement date (exit price). SFAS 157 also established a fair value hierarchy that prioritizes the use of inputs used in valuation techniques into the following three levels:

Level 1—quoted prices in active markets for identical assets and liabilities.

Level 2—observable inputs other than quoted prices in active markets for identical assets and liabilities.

Level 3—unobservable inputs.

The adoption of FAS 157 did not have an effect on the Company’s financial condition or results of operations, but SFAS 157 introduced new disclosures about how we value certain assets and liabilities. Much of the disclosure is focused on the inputs used to measure fair value, particularly in instances where the measurement uses significant unobservable (Level 3) inputs. As of September 30, 2008, the Company did not have financial assets or liabilities that would require measurement on a recurring basis based on the guidance in SFAS 157. At September 30, 2008 all financial assets consisted of cash and cash equivalents at financial institutions in the United States.

Note 4 —Billings in Excess of Revenues

Billings in excess of revenues at September 30, 2008 and December 31, 2007 consisted of the following:


	Quarter ended		Year Ended
	September 30,		December 31,
	2008		2007
Customer deposits and deferred income on installation contracts	$	2,135,820	$	718,574
Deferred revenue on maintenance contracts		1,945,915		1,057,697

	$	4,081,735	$	1,776,271

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 5 —Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following:


	September 30,		December 31,
	2008		2007
Accounts payable, trade	$	1,769,104	$	981,766
Accrued warranty liability		247,417		—
Other accrued expenses		325,713		—

Total	$	2,342,234	$	981,766

Note 6 —Long Term Debt

Long-term debt as of September 30, 2008 and December 31, 2007 consisted of the following:


	September 30,		December 31,
	2008		2007
Note payable to an individual, unsecured, accruing interest at 2% per annum, with monthly payments of $5,215 due September 1, 2010	$	113,154	$	153,066
Note payable to executive officers and shareholders, unsecured, accruing interest at 0% per annum, due in installments over 3 years with a maturity date of September 30, 2010, less unamortized discount of $127,701 and $283,368, respectively		1,472,299		2,816,632
Notes payable to an individual, unsecured, accruing interest at 7% per annum, with monthly payments of $1,130 due May 1, 2011		33,819		40,361
Note payable to executive officer and shareholders, unsecured, accruing interest at 7% per annum, with monthly payments of $1,343, due September 1, 2009		21,765		28,558
Notes payable to shareholder, unsecured, accruing interest at 7% per annum, with monthly payments of $6,432 due June 1, 2010		132,437		176,547
Note payable to Vicis, secured by all assets of the Company, accruing interest at 10% per annum, principal and accrued interest due in full September 26, 2008. Principal amount due of $7,088,301. Formerly payable to Hilco Financial, LLC. Note was assigned to Vicis on June 18, 2008 and subsequently extinguished on September 23, 2008		—		3,235,930
Note payable to Dynamic Decisions Strategic Opportunities, unsecured, accruing interest at 10% per annum, total principal and accrued interest due September 26, 2008. Note was subsequently assigned to Vicis on July 3, 2008 and subsequently extinguished on September 30, 2008. This note had an unamortized discount of $403,677 at December 31, 2007		—		596,323
Series B Preferred Stock issued to Vicis Capital, unsecured, accruing interest at 16% per annum, matured on December 27, 2007, converted to series A preferred stock on July 3, 2008		—		3,000,000
Subordinated Note Payable to Vicis Capital Master Fund, accruing interest at 10%, maturing April 15, 2010, subordinated to the Chatham senior note. Net of discount of $151,619. (STN acquisition.)		1,348,381		—
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 $2,901,388. (STN acquisition)		4,098,612		—
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		57,034		—
Secured notes payable to GMAC, accruing interest at 9.25% with monthly payments of $2,272, maturing July 14, 2012. Notes are secured by vehicles		87,468		—
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		1,531		10,666
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		42,721		—

Total long term debt		7,409,221		10,058,083

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 6 —Long Term Debt (continued)


	September 30,			December 31,
	2008			2007
Less current portion		(3,907,355	)		(8,207,900	)

Long term portion	$	3,501,866,		$	1,850,183

Principal maturities of long-term debt as of September 30, 2008 are as follows:


Nine months Ending September 30,	Gross
2008	$	81,337
2009		4,141,644
2010		1,139,001
2011		5,208,401
2012		19,546

		10,589,929
Less: Unamortized discounts		3,180,708

Net of Discounts	$	7,409,221

Warrants Issued in Connection with Financing

In connection with the foregoing financing of the acquisition of USVD and STN, the Company issued debt at a discount.

A summary of the notes payable and discounts is as follows:

As a result of these contract provisions, the Hilco Senior Note balance at Inception (September 26, 2007) was adjusted as follows:


Notional balance of Hilco Senior Note	$	6,000,000
Adjustments:
Discount for warrant issued (based on relative fair value assigned)		(4,000,227	)
Discount for loan fees paid to Hilco on Note		(340,000	)

Hilco Senior Note balance, net of unamortized discount at September 26, 2007	$	1,659,773

On July 3, 2008, the Hilco Senior Note and warrants were assumed by Vicis.

As a result of these contract provisions, the DD Subordinated Note balance at Inception (August 31, 2007) was adjusted as follows:


Notional balance of DD Subordinated Note at August 31, 2007	$	1,000,000
Adjustments:
Discount for warrant (based on relative fair value assigned)		(696,049	)

DD Subordinated Note balance, net of unamortized discount at August 31, 2007	$	303,951

On July 3, 2008, the DD Subordinated Note and warrants were assumed by Vicis.

Warrants Issued in Connection with Financing (continued)

As a result of these contract provisions, the Series B Preferred stock balance at Inception (September 14, 2007) was adjusted as follows:


Notional balance of Series B Preferred stock	$	3,000,000
Adjustments:
Discount for warrants issued (based on relative fair value assigned)		(2,054,995	)
Discount for beneficial conversion feature (based on relative fair value assigned)		(695,005	)
Discount for loan fees paid to Vicis		(250,000	)

Series B Preferred Stock balance, net of unamortized discount at September 14, 2007	$	—

The Series B Preferred Stock and warrants were converted on July 3, 2008 to Series A Stock.

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 6 —Long Term Debt (continued)

As a result of these contract provisions, the USVD Seller’s Note balance at Inception (September 14, 2007) was adjusted as follows:


Notional balance of USVD Seller’s Note	$	3,100,000
Adjustments:
Discount for imputed interest		(352,066	)

USVD Seller’s Note balance, net of unamortized discount at September 14, 2007	$	2,747,934

USVD Seller’s Note at September 30, 2008-

The USVD Seller’s Note balance on the consolidated balance sheet as of September 30, 2008 is comprised of the following:


Notional balance of USVD Seller’s Note at September 30, 2008	$	1,600,000
Adjustments:
Unamortized discount		(127,701	)

USVD Seller’s Note balance, net of unamortized discount at September 30, 2008	$	1,472,299

The following assumptions were used in the preparation of the Warrant valuations using the Black-Scholes method, at inception (September 26, 2006), December 31, 2007 and February 13, 2007:


	Hilco Note			DD Sub Debt			Series B
Assumptions	Warrant			Warrant			Warrant
Dividend yield		0.00	%		0.00	%		0.00	%
Risk-free interest rate		4.21	%		4.21	%		4.21	%
Volatility		61.55	%		61.55	%		61.55	%
Expected Term	5 years			5 years			5 years

As previously reported, as of July 3, 2008, Vicis purchased and assumed from Hilco Financial, LLC (“Hilco”), the Company’s prior senior lender, and from Dynamic Decisions Growth Premium Fund (“DD”), the Company’s prior mezzanine lender, all their credit agreements, loans and promissory notes under which Hilco and DD had loaned to the Company representing an aggregate of $8,100,000 (“Vicis Debt”). In connection with the closing of the STN Acquisition and the Chatham Financing, Vicis and the Company entered into, and closed upon, a Securities Purchase and Loan Conversion Agreement, dated September 23, 2008, pursuant to which the Company, in full satisfaction of the Vicis Debt: (i) paid $2,250,000 in cash to Vicis; (ii) delivered to Vicis a subordinated note in the principal amount of $1,500,000, bearing interest at 10% and maturing on April 15, 2010; and (iii) converted the balance of the Vicis Debt (assumed from Hilco and DD), including all accrued interest of $676,384, in the combined aggregate amount of $5,026,384, into 5,026,384 shares of the Company’s Series A Convertible Preferred Stock. Vicis entered into a subordination agreement with Chatham, wherein Vicis agreed to subordinate the Vicis Subordinated Note to the Loans. As a result, all Prior Credit Documents have been terminated effective September 23, 2008.

The Company concluded that the cash and the Series A Stock exchanged for equal amounts of debt would result in no gain or loss on the extinguishment. The Company determined that the remaining $1,500,000 of debt at 15% per annum market rate had a fair value of $151,619 less than the new debt of $1,500,000 at 10% per annum actual rate due to the difference in interest rates. Therefore the Company recognized a gain on the extinguishment of $151,619. The Company determined that the new debt should be carried at its appropriate fair value and the difference to the old debt’s carrying value at exchange is a gain or loss on extinguishment.


Notional balance of Vicis Note	$	1,500,000
Adjustments:
Discount for warrant issued (based on relative fair value assigned)		(151,619	)

Vicis Note balance, net of unamortized discount at September 23, 2008	$	1,348,381

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 6 —Long Term Debt (continued)

Long-term Debt — Acquisition of STN

Concurrently with the closing of the STN Acquisition, the Company and its five subsidiaries (U.S. Voice and Data, LLC, Brookside Technology Partners, Inc., Acquisition Sub, Trans-West and STN (hereinafter, the Company and its five subsidiaries collectively are referred to as the “Borrowers”) entered into a Credit Agreement (the “Chatham Credit Agreement”) with Chatham Investment Fund III, LLC, Chatham Investment Fund III QP, LLC and Chatham Credit Management III, LLC (“Chatham”), pursuant to which Chatham agreed to provide a $7,000,000 term loan and a $2,000,000 revolving line of credit (collectively the “Loans”). The Loans are evidenced by a Term Note and a Revolving Note. As a condition precedent to the extension of the Loans: (a) the Company entered into a Pledge Agreement, dated September 23, 2008, pursuant to which the Company pledged the stock of each subsidiary owned by it as collateral to secure payment of the Loans; (b) the Company granted to Chatham a Warrant to purchase an aggregated of 140,930,835 shares of Company’s Common Stock (“Chatham Warrants”); and (c) the Company entered into a Warrant Purchase and Registration Rights Agreement, dated September 23, 2008, pursuant to which, among other things, the Company agreed to register the resale of the shares underlying the Chatham Warrants upon demand by Chatham. The Loans have a term of three years and bear interest, at the following rates: (i) with respect to the Revolving Note, LIBOR plus 4.00% per annum, and (ii) with respect to the Term Loan, LIBOR Rate plus 9.00% per annum. Additionally, the Chatham Credit Agreement contains standard representations, warranties and covenants that require the Company, on a consolidated basis, to maintain at the end of each month: (1) a fixed charge coverage ratio for the 12 months then ended of at least 1.75:1; and (2) a leverage ratio as of the last day of such fiscal month and for the 12 months then ended of not more than 3:1, in each case calculated as set forth in the Credit Agreement. The forgoing transactions (the “Chatham Financing”) were consummated on September 23, 2008. Prior to the closing of the Chatham Financing, the Company did not have any relationship with Chatham. The Company is currently in compliance with its debt covenants with Chatham and does not foresee non-compliance in the next 12 months.

As a result of the note provisions, the Notional balance of Chatham Senior Convertible Note balance at Inception (September 23, 2008) was adjusted as follows:


Notional balance of Chatham Senior Note	$	7,000,000
Adjustments:
Discount for warrant issued (based on relative fair value assigned)		(2,901,388	)

Chatham Senior Note balance, net of unamortized discount at September 23, 2008	$	4,098,612

The following assumptions were used in the preparation of the Warrant valuations using the Black-Scholes method, at inception (September 23, 2008):


	Chatham Note
Assumptions	Warrant
Dividend yield		0.00	%
Risk-free interest rate		4.21	%
Volatility		61.55	%
Expected Term	5 years

Change in unamortized discount and loan costs of the Convertible Note -

For the quarter and nine months ended September 30, 2008, the discount on the above Notes changed for amortization of discounts in connection with the notes. The total discount on the Convertible Notes changed from $8,338,342 at inception to $3,848,016 at December 31, 2007, then to $3,180,708 at September 30, 2008. There was $3,006,498 of new discounts generated in 2008. Unamortized discounts totaling $4,490,326 were amortized to expense over the terms of the notes during the year ended 2007, and $1,003,282 and $3,673,806 were amortized to expense during the quarter and nine months ended September 30, 2008, respectively.

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 7 — Commitments and Contingencies

Leases

On July 26, 2007, the Company entered into a 31 month lease for its Austin operations under a lease classified as an operating lease. Effective September 26, 2007, the Company assumed current operating leases for the three offices leased by USVD. On October 15, 2007, the Company entered into a 60 month lease for its headquarters in Clearwater, Florida effective December 1, 2007. Minimum lease obligations are as follows:


2008 (remaining portion)	$	130,814
2009		451,525
2010		302,583
2011		181,062
2012		76,870

Rental expense for operating leases for the quarters ended September 30, 2008 and 2007, was approximately $119,000 and $30,000, respectively. Rental expense for operating leases for the nine months ended September 30, 2008 and 2007, was approximately $335,000 and $43,000, respectively.

Liquidated Damages Under Registration Payment Arrangements

The Company has accrued $154,400, which is included in other current liabilities in the accompanying consolidated balance sheets for September 30, 2008 and December 31, 2007 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 preferred shares, conversion rights and warrants for common shares.

Litigation

The Company is not involved in any claims or legal actions, other than those that arise in the normal course of business.

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 8 — Series A 8% Convertible Preferred Stock

On July 3, 2008, the Company entered into a Securities Purchase Agreement (the “Vicis Agreement”), pursuant to which Vicis acquired (a) 2,500,000 shares of Series A Convertible Preferred Stock (“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. Furthermore, pursuant to the Vicis Agreement, all of 3,000,000 shares of the Company’s Series B Convertible Preferred 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 evaluated the issuance of the $5,500,000 ($2,500,000 in cash and $3,000,000 in principal on the Series B Redeemable Preferred Stock) for the 5,500,000 shares of Series A Preferred Stock and 250,000,0000 warrants to purchase common stock and assigned the values to the Series A and the warrants based on the relative fair values. The warrants were valued using the Black-Scholes valuation model, 0.0% dividend yield, a risk free rate of return of 4.21%, volatility of 181.04% and a five year term. Under EITF No.00-27, “Application of EITF Issue No. 98-5, ‘Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Rates’, to Certain Convertible Instruments,” the Company considered the effect of a beneficial conversion feature of the Series A shares issued and the conversion of the Series B stock to Series A. The Company has attributed a beneficial conversion feature of $1,983,607 to the Series A shares based upon the difference between the effective conversion price of those shares and the fair value of the Company’s common stock on the date of issuance of the Series A shares. The carrying value of the Series A shares was reduced to zero with a corresponding entry to additional paid in capital. The amount attributable to the beneficial conversion feature, $1,983,607 has

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

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

been recorded as a dividend to the holders of the Series A shares. Since the redemption requirement of the Series A shares is contingent on the occurrence of future events, the Company is not accreting the carrying value of the Series A shares to redemption value and will not do so until the occurrence of any one of those future events becomes probable.

Additionally, Vicis purchased and assumed from Hilco, the Company’s prior senior lender, and from DD, the Company’s prior mezzanine lender, all their credit agreements, loans and promissory notes under which Hilco and DD had loaned to the Company representing an aggregate of $8,100,000 (“Vicis Debt”). In connection with the closing of the STN Acquisition and the Chatham Financing, Vicis and the Company entered into, and closed upon, a Securities Purchase and Loan Conversion Agreement, dated September 23, 2008, pursuant to which the Company, in full satisfaction of the Vicis Debt: (i) paid $2,250,000 in cash to Vicis; (ii) delivered to Vicis a subordinated note in the principal amount of $1,500,000, bearing interest at 10% and maturing on April 15, 2010; and (iii) converted the balance of the Vicis Debt (assumed from Hilco and DD), including all accrued interest of $676,384, in the combined aggregate amount of $5,026,384, into 5,026,384 shares of the Company’s Series A Convertible Preferred Stock. Vicis entered into a subordination agreement with Chatham, wherein Vicis agreed to subordinate the Vicis Subordinated Note to the Loans. As a result, all Prior Credit Documents have been terminated effective September 23, 2008.

Note 9 — Related Party Transactions

The Company has notes payable to officers and shareholders of the Company. The balance of these notes payable was $1,754,201 and $3,305,105 at September 30, 2008 and December 31, 2007, respectively.

Note 10 — Cost of Sales

For the periods ended September 30, 2008 and 2007, costs of sales consisted of the following:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2008		2007		2008		2007
Equipment costs	$	2,474,018	$	493,614	$	6,188,871	$	1,021,798
Contract labor		17,322		41,005		131,743		85,797
Direct labor		259,876		—		748,761		—
Sales commissions and selling costs selling costs		42,310		15,277		68,411		22,439
Software assurances costs		283,052		—		286,875		—
Lite warranty costs		69,036		—		169,052		—
Other costs		29,914		5,321		62,620		16,831


	$	3,175,528	$	555,217	$	7,656,333	$	1,146,865

Note 11 — General and Administrative Expenses

For the Three and Nine months ended September 30, 2008 and 2007, general and administrative expenses consisted of the following:

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 11 — General and Administrative Expenses (continued)


	Three Months Ended				Nine months Ended
	September 30,				September 30,
	2008		2007		2008		2007
Employee compensation and benefits	$	853,885	$	470,361	$	2,457,672	$	1,062,769
Bad Debt Expense		1,293		—		2,029		—
Telephone		52,648		12,755		139,274		32,827
Travel expense		130,276		76,282		198,742		110,291
Occupancy		118,927		29,971		335,120		42,854
Professional fees		121,572		145,515		527,562		232,225
Other		600,174		106,246		1,963,862		153,432


	$	1,878,775	$	841,130	$	5,624,261	$	1,634,398

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 $35,649 and $0 for the quarters ended September 30, 2008 and 2007, respectively. The Company has made 401(k) matching contributions of $75,717 and $0 for the nine months ended September 30, 2008 and 2007, 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 $117,000 for the quarter ended September 30, 2008 and $11,000 for the quarter ended September 30, 2007 approximately $219,000 for the nine months ended September 30, 2008 and $22,000 for the nine months ended September 30, 2007 and such amounts have been included in employee compensation and benefits expense.

Note 13 — Acquisition of US Voice & Data, LLC

On September 26, 2007, the Company acquired all of the membership interest of USVD. The purchase price of $15,429,242 was paid through a combination of common stock, cash at closing and a seller note. Cash paid at closing was $9,938,690. The Company issued 7,000,000 shares of its common stock valued at $.335 per share on September 14, 2007. Also, the Company owes the Sellers a note payable of $3,100,000 with a maturity date of September 30, 2010, and an additional amount paid to Sellers of $356,160 in February 2008 based on a “true-up” calculation of net worth at September 14, 2007. Additionally, the Purchase Agreement provides the Sellers with the opportunity to earn additional stock or cash consideration in the form of a three-year performance based earnout. During the nine months ended September 30, 2008, the Company has repaid $1,500,000 on the note. The amount due as of September 30, 2008 is $1,600,000.

Additionally, the Company caused USVD, its new subsidiary, to enter into employment agreements with Michael P. Fischer and M. Scott Diamond, with initial terms of three years, pursuant to which they will serve as USVD’s CEO and COO, respectively. The employment agreements contain standard terms and provisions, including non competition and confidentiality provisions, provisions relating to early termination and constructive termination, and provide for an annual base salary and certain standard benefits.

A summary of the acquisition is as follows:

The Acquisition of USVD was accounted for under the purchase method of accounting that requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair market value. The judgments made in determining the estimated fair values assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact net income. Additional direct acquisition costs were unpaid at June 30, 2008 and may be paid in 2008 and 2009, if certain revenue targets are met. No amount has been recognized for their contingent earn out as of June 30, 2008. The purchase price was allocated to the assets acquired and liabilities assumed, based on estimated fair values at the date of the acquisition.

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 13 — Acquisition of US Voice & Data, LLC (continued)

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 (1). 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.

Operating results from the acquired business is included in the condensed consolidated statements of operations from the date of acquisition. A summary of the purchase price allocation is as follows:

(1)

An initial preliminary allocation has been made to intangible assets as of the December 31, 2007. Management will determine the proper value of intangible assets acquired from USVD, Inc. and allocate any additional adjustments of the goodwill to intangible assets within the twelve months after the acquisition date.

Operating results from the acquired business is included in the condensed consolidated statements of operations from the date of acquisition. A summary of the purchase price allocation is as follows:


Purchase price -
Cash paid	$	9,938,690
Stock issued		2,345,000
Notes payable issued to seller, net of discount		2,747,934
Additional amount due to seller		356,160
Legal & other acquisition costs		41,458

Acquisition costs		15,429,242
Net fair value of assets acquired and liabilities assumed		(1,592,873	)

Excess of cost over fair value of tangible assets acquired	$	13,836,369
Value assigned to customer contracts acquired		600,000

Goodwill acquired	$	13,236,369


Fair value of assets acquired and liabilities assumed -
Cash acquired	$	885,859
Accounts receivable		1,975,430
Inventory and work in progress		1,865,309
Property and equipment		203,249
Other assets		69,587
Accounts payable and accrued expenses		(529,903	)
Customer deposits and deferred income		(2,773,232	)
Other liabilities		(103,426	)

Net fair value of assets acquired and liabilities assumed	$	1,592,873

EBITDA Earnout to the Sellers of USVD:

Pursuant to the Stock Purchase Agreement the Company is required to pay the Seller’s (Scott Diamond and Mike Fischer) 50% of the amount of EBITDA earned by USVD in excess of $2,500,000 on an annual basis (Calendar Year) (the “EBITDA Earnout”). This EBITDA Earnout would be recorded as an increase to Goodwill, and a Current Liability. As of September 30, 2008, USVD has not met this target of $2500,000, therefore, we have not accrued for it. In addition, the Company paid $100,000 for non-compete agreements.

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 14 — Acquisition of Standard Tel Networks, LLC

At the closing of the STN Acquisition, the Company issued to the Seller Parties 40,843,376 shares of the Company’s common stock and paid to the Seller Parties $3,209,263 in cash. However, pursuant to the Purchase Agreement, one-half of such shares and $500,000 of the cash payment are being held in escrow subject to certain post-closing purchase price adjustments and indemnification obligations.

In connection with the STN acquisition, the Company entered into Restrictive Covenant Agreements with the Seller Parties, pursuant to which the Seller Parties, subject to certain limited exceptions, agree not to use or disclose confidential information belonging to the Company or STN and not to compete with the Company nor to solicit its customers or employees. Additionally, the Company caused STN to enter into an Employment Agreement with Michael Promotico, with an initial term of three years, pursuant to which he will serve as STN’s Chief Executive Officer (the “Employment Agreement”). The Employment Agreement contains standard terms and provisions, including non-competition and confidentiality provisions and provisions relating to early termination and constructive termination, and provides for an annual base salary, performance incentives, certain standard benefits and stock options at an exercise price equal to the fair market value of the shares on the closing date.

A summary of the acquisition is as follows:

The Acquisition of STN was accounted for under the purchase method of accounting that requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair market value. The judgments made in determining the estimated fair values assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact net income. Additional adjustments may be made to the purchase price based on EBITDA and net assets estimated at the time of acquisition. The purchase price was allocated to the assets acquired and liabilities assumed, based on estimated fair values at the date of the acquisition.

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 (1). 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.

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 14 — Acquisition of Standard Tel Networks, LLC (continued)

Operating results from the acquired business is included in the condensed consolidated statements of operations from the date of acquisition. A summary of the purchase price allocation is as follows:

(1)

An initial preliminary allocation has been made to intangible assets as of the September 30, 2008. Management will determine the proper value of intangible assets acquired from STN, LLC and allocate any additional adjustments of the goodwill to intangible assets within the twelve months after the acquisition date.

Operating results from the acquired business is included in the condensed consolidated statements of operations from the date of acquisition. A summary of the purchase price allocation is as follows:


Purchase price -
Cash paid	$	3,209,265
Stock issued		1,169,755
Legal & other acquisition costs		138,619

Acquisition costs		4,517,639

Net fair value of assets acquired and liabilities assumed		(49,375	)

Excess of cost over fair value of tangible assets acquired	$	4,468,264

Value assigned to customer contracts acquired		(900,000	)

Goodwill acquired	$	3,568,264


Fair value of assets acquired and liabilities assumed -
Cash acquired	$	522,319
Accounts receivable		1,176,392
Inventory and work in progress		902,777
Property and equipment		122,677
Other assets		42,593
Accounts payable and accrued expenses		(787,336	)
Customer deposits and deferred income		(1,842,579	)
Installment loan		(87,468	)

Net fair value of assets acquired and liabilities assumed	$	49,375

The following unaudited pro forma financial information presents the results of operations for the quarters and nine months ended September 30, 2008 and 2007 as if the acquisitions had occurred at the beginning of each period presented. The pro forma financial information has been adjusted for the effect of interest paid on the term loan and the reduced interest earned on cash used in the acquisition of USVD and STN. The pro forma financial information for the combined entities has been prepared for comparative purposes only and is not indicative of what actual results would have been if the acquisitions had taken place at the beginning of each period presented, or of future results.

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 14 — Acquisition of Standard Tel Networks, LLC


	(Unaudited)						(Unaudited)
	Three Months Ended						Nine months Ended
	September 30,						September 30,
	2008			2007			2008			2007

Pro forma net revenues	$	7,594,976		$	3,891,696		$	21,460,421		$	21,734,227
Pro forma net income (loss)		(1,056,987	)		(1,398,801	)		(4,661,891	)		(1,585,774	)


Pro forma net income per share:
Diluted	$	(0.01	)	$	(0.01	)	$	(0.05	)	$	(0.020	)

Note 15 — 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, we adopted the Brookside Technology Holdings Corp. (formerly Cruisestock, Inc) 2007 Stock Incentive Plan. The Stock Incentive Plan is discretionary and allows for an aggregate of up to 35,000,000 shares of our common stock to be awarded through incentive and non-qualified stock options and stock appreciation rights. The Stock Incentive Plan is administered by our 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 $53,333 and zero compensation expense for options for the quarters ended September 30, 2008 and 2007, respectively. For the nine months ended September 30, 2008 and 2007, the Company recognized $168,333 and $915,000, respectively.

A summary of the changes in the total stock options outstanding during the nine months ended September 30, 2008 follows:


			Weighted
			Average
	Options		Exercise Price
Outstanding at December 31, 2007		14,000,000	$	0.186
Granted		5,200,000	$	0.04
Forfeited or expired		—		—
Exercised		—		—
Outstanding at September 30, 2008		19,200,000	$	0.147
Vested and exercisable at September 30, 2008		13,983,333	$	0.162

The weighted average remaining term of the options is approximately 4 years at September 30, 2008. All stock options issued in 2007 had a exercise price of $0.186 per share. The grant date fair value was approximately $0.087 per share.

At September 30, 2008, there was $193,467 of total unrecognized compensation cost related to non-vested stock option awards that are expected to be recognized over a weighted-average period of 1-5 years.

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 16 — Warrants

Warrants

The following is a summary of the warrants outstanding as of September 30, 2008.


	Outstanding		Exercise Price
Series A *		24,327,753	$	0.03
Series B		37,498,836	$	0.03
Series C		5,329,534	$	0.03
Series D **		25,080,000	$	0.03
Series E		61,273,835	$	0.03
Series F		250,000,000	$	0.03
Chatham		140,930,835	$	0.03

Total warrants		544,440,793


*		Includes 2,628,917 penalty warrants

**		Includes 1,080,000 penalty warrants.

The Company has warrants, common stock options and convertible Series A preferred stock that could potentially convert to 1,111,085,033 shares of common stock. Currently, the Company has 1,000,0000 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 classified all warrants as permanent equity since the number of authorized shares is within the Company’s control.

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 financial statements and related notes for the periods ended December 31, 2007 and 2006 included in our Form 10-KSB, as filed with the Securities and Exchange Commission, as well as the information contained in the 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 ourForm 10-KSB for the year ended December 31, 2007, and elsewhere in this report.

General

Organizational History

Our company, Brookside Technology Holdings Corp. (formerly “Cruisestock, Inc.”), was incorporated in September, 2005 under the laws of the State of Texas. On February 21, 2007, through a series of transactions (the “Share Exchange”), we acquired Brookside Technology Partners, Inc. (“Brookside Technology Partners”), which was incorporated in December 2001 under the laws of the State of Texas. Prior to the Share Exchange, we were a development stage company and had not realized any revenues from our operations. As a result of the Share Exchange, (i) Brookside Technology Partners became our wholly-owned subsidiary, (ii) the former stockholders of Brookside Technology Partners obtained, collectively, the majority ownership of the outstanding common stock of our company and (iii) we succeeded to the business of Brookside Technology Partners as our sole business. From an accounting perspective, Brookside Technology Partners was the acquirer in the Exchange Transactions.

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

Stock Split

Concurrently with the Redomestication and as of the Effective Time:

	•		Each outstanding share of Cruisestock’s common stock, $0.001 per share, was automatically converted into seven shares of Brookside Technology Holdings Corp.’s common stock, $0.001 par value per share;

	•		Each outstanding share of Cruisestock’s series A preferred stock, $0.001 per share, was automatically converted into one share of Brookside Technology Holdings Corp.’s series A preferred stock, $0.001 par value per share;

	•		The price at which the series A preferred stock converts into common stock was automatically adjusted, on a proportionate basis, to account for the forward split of the common shares by reducing the current conversion price of $0.40 per share to $0.0571428, which was subsequently automatically adjusted down to $0.03 in conjunction with the Vicis Equity Infusion; and

	•		The number of shares of common stock underlying all of Cruisestock’s outstanding options and warrants to purchase common stock, and the exercise price of such options and warrants, was automatically adjusted to account for the 7-for-1 common share stock split.

In this Quarterly Report, whenever we refer to per share data, we are referring to shares outstanding after the Share Exchange and stock split.

On September 26, 2007, we acquired all of the membership interest of US Voice & Data, LLC, an Indiana Limited Liability Company (“USVD”) from The Michael P. Fischer Irrevocable Delaware Trust under Agreement dated April 5, 2007, and The M. Scott Diamond Irrevocable Delaware Trust under Agreement dated April 23, 2007 (the “Sellers”), pursuant to a Membership Interest Purchase Agreement closed on such date (the “Purchase Agreement”). USVD, headquartered in Louisville, Kentucky, with offices in Lexington, Kentucky and Indianapolis, Indiana, is a regional provider of

telecommunication services, including planning, design, installation and maintenance for converged voice and data systems. The purchase price of $15,429,242 was paid through a combination of common stock, cash and a seller note. Cash paid at closing was $9,938,690. Subsequent to the closing there was a $356,160 seller true-up, which was paid in February 2008. The Company issued 7,000,000 shares of its common stock valued at $.335 per share on September 14, 2007. Also, the Company owes the Sellers a note payable of $2,747,934, net of original issue discount of $352,066, with a maturity date of September 30, 2010. Additionally, the Purchase Agreement provides the Sellers with the opportunity to earn additional stock or cash consideration in the form of a three-year performance based EBITDA earnout.

Reverse Stock Split

Increase in Authorized Shares

Acquisition of Standard Tel Networks, LLC

Vicis Equity Infusion

In July 3, 2008, Brookside Technology Holdings Corp. (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 Convertible Preferred Stock (“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”). Furthermore, pursuant to the Vicis Agreement, all of 3,000,000 shares of the Company’s Series B Convertible Preferred Stock (“Series B Stock”) previously owned by Vicis were converted into 3,000,000 shares of Series A Stock. As a result, interest will accrue as a preferred stock dividend (payable in cash or common stock) at 8% versus 16%. 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.

Vicis also purchased and assumed from Hilco Financial, LLC (“Hilco”) and Dynamic Decisions (“DD”), and Hilco and DD assigned to Vicis, all credit agreements, loans and promissory notes under which Hilco and DD had loaned money to the Company. The Company consented to such assignments. Effective June 18, 2006, Vicis has reduced the interest rate to accrue at 10% and has waived all defaults. In connection with such assignments, Hilco transferred to Vicis their warrants to purchase 61,273,835 shares, of common stock of the Company.

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 and DD, 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.

Overview of Business

We are the holding company for Brookside Technology Partners, Inc, a Texas corporation (“Brookside Technology Partners”), and 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.

Results of Operations

The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the 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.

Revenues, Cost of Sales and Gross Margins

Total revenues from operations for the quarter ended September 30, 2008 were $5,657,123 compared to $927,036 reported for the same period in 2007, representing an increase of $4,730,087 or 510%. This increase in revenues is primarily due to acquisition of US Voice & Data, LLC (“USVD”), which accounted for $4,281,067 of the increase. $149,913 of the increase is due to the acquisition of Standard Tel Networks, LLC (“STN”), which closed on September 23, 2008 and had seven days of results from operations in the quarter. The remaining increase of $299,107 was due to the increase in revenues at Brookside Technology Partners, Inc (“Brookside Technology Partners”) as a result of sales initiatives put in place by management in 2008. Total revenues from operations for the nine months ended September 30, 2008 were $14,398,636 compared to $1,928,475 reported for the same period in 2007, representing an increase of $12,470,161 or 647%. This increase in revenues is primarily due to acquisition of USVD, which accounted for $11,607,281 of the increase. $149,913 of the increase is due to the acquisition of STN, which closed on September 23, 2008 and had seven days of results from operations in the period. The remaining increase of $712,967 was due to the increase in revenues at Brookside Technology Partners as a result of sales initiatives put in place by management in 2008.

Cost of sales was $3,175,528 for the quarter ended September 30, 2008 compared to $555,217 for the quarter ended September 30, 2007, an increase of $2,620,311 or 472%. This increase in cost of sales is in conjunction with the increase in revenues due to the acquisition of USVD, which accounted for $2,459,294 of the increase. $63,116 of the increase was due to the acquisition of STN. The remaining increase of $97,901 was due to the cost of goods sold associated with the increased revenues at Brookside Technology Partners. As a percentage of sales, cost of sales was 56% and 60% for the quarter ended September 30, 2008 and 2007, respectively. This decrease was primarily due to increased profit margin realized on sales consummated in the third quarter 2008 versus the comparative period in 2007. This improvement in cost of sales as a percentage of sales is primarily attributable to the Company’s universal focus on higher margin, application specific value added sales approach. Cost of sales was $7,656,333 for the nine months ended September 30, 2008 compared to $1,146,865 for the nine months ended September 30, 2007, an increase of $6,509,468 or 588%. This increase in cost of sales is is in conjunction with the increase in revenues due to the acquisition of USVD, which accounted for $6,077,410 of the increase. $63,116 of the increase was due to the acquisition of STN. The remaining increase of $368,942 was due to the cost of goods sold associated with the increased revenues at Brookside Technology Partners. As a percentage of sales, cost of sales was 53% and 59% for the quarter ended September 30, 2008 and 2007, respectively. This decrease was primarily due to increased profit margin realized on sales consummated in the first nine months of 2008 versus the comparative period in 2007. This improvement in cost of sales as a percentage of sales is primarily attributable to the Company’s universal focus on higher margin, application specific value added sales approach.

Our gross margin was 43.9% for the quarter ended September 30, 2008 compared to 40.1% for the quarter ended September 30, 2007. The increase in gross margin percentage is due primarily to the Company’s universal focus on higher margin, application specific value added sales approach. Our gross margin was 46.8% for the nine months ended September 30, 2008 compared to 40.5% for the nine months ended September 30, 2007. The increase in gross margin percentage is due primarily to the Company’s universal focus on higher margin, application specific value added sales approach.

General and Administrative Expenses

General and administrative expenses were $1,878,775 and $841,130 for the quarter ended September 30, 2008 and 2007, respectively. This represented an increase of $1,037,645. This increase in General and administrative expenses in 2008 was due primarily to the acquisition of USVD, which accounted for $803,072 of the increase. $93,482 of the increase was due to the acquisition of STN. The remaining increase of $141,091 was due primarily to increased salaries expense incurred in Brookside Technology Partners for the additional Regional Vice President and two additional sales people hired during the quarter ended September 30, 2008. General and administrative expenses were $5,624,261 and $1,634,398 for the nine months ended September 30, 2008 and 2007, respectively. This represented an increase of $3,989,863. This increase in General and administrative expenses in 2008 was due primarily to the acquisition of USVD, which accounted for $3,378,425 of the increase. $93,482 of the increase was due to the acquisition of STN. The remaining increase of $517,956 was due primarily to increased professional fees and executive salary expense incurred in Brookside Technology Holdings Corp during the nine months ended September 30, 2008 versus the comparable period in 2007.

Stock Compensation Expense

The Company incurred $53,333 and $0 in stock compensation expense for the quarter ended September 30, 2008 and 2007, respectively. This amount relates to the stock option agreement entered into with Michael Promotico, our Chief Executive Officer of STN. The Company incurred stock compensation expense of $168,833 and $915,000 for the nine months ended September 30, 2007 and 2008, respectively. The 2008 expense relates to the stock option agreements entered into with Dan Parker, the Regional Vice President for Brookside Technology Partners, Bonnie Parker, the Project Manager for Brookside Technology Partners, Michael Promotico and the vesting of 2,100,000 of George Pacinelli’s options in 2008. The 2007 charge of $915,000 relates to the stock option agreements entered into with George Pacinelli, our President, and Bryan McGuire, our Chief Financial Officer. Pursuant to Mr. Pacinelli’s stock option agreement, we granted to Mr. Pacinelli an option to purchase up to 7,000,000 shares of our common stock at an exercise price of $0.185714 per share (the “Pacinelli Options”). Pursuant to Mr. McGuire’s stock option agreement, we granted to Mr. McGuire an option to purchase up to 7,000,000 shares of our common stock at an exercise price of $0.185714 per share (the “McGuire Options”). Effective October 22, 2008 the McGuire Options and the Pacinelli Options were cancelled and new options were issued for the same amount of shares at an exercise price of $0.025 which all vest in one year (October 22, 2009). Pursuant to Mr. Parker’s stock option agreement, we granted to Mr. Parker an option to purchase up to 1,000,000 shares of our common stock at an exercise price of $0.05 per share (the “Dan Parker Options”). Pursuant to Ms. Parker’s stock option agreement, we granted to Ms. Parker an option to purchase up to 200,000 shares of our common stock at an exercise price of $0.05 per share (the “Bonnie Parker Options”). On September 23, 2008, the Company granted an option to Michael Promotico to purchase up to 4,000,000 shares of our common stock at an exercise price of $0.04 per share (the “Michael Promotico Options”). The Dan Parker Options, the Bonnie Parker Options, the Michael Promotico Options, the Pacinelli Options and the McGuire Options collectively hereinafter referred to as the “Options”. The Options are intended to qualify as incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, and were granted pursuant to our 2007 Stock Option Plan, pursuant to which we have reserved 35,000,000 shares of common stock for issuance to employees, directors and consultants. 250,000 of Mr. Parker’s options are vested and are exercisable, and the remaining 750,000 vest at 250,000 per year, through 2011. 50,000 of Ms. Parker’s options are vested and are exercisable, and the remaining 150,000 vest at 50,000 per year, through 2011. 1,333,333 of Mr. Promotico’s options are vested and are exercisable, and the remaining 2,666,666 vest at 1,333,333 per year, through 2010.

The Company recognizes employee stock based compensation in accordance with the adoption of SFAS 123R. The Company utilizes the Black-Scholes valuation model to value all stock options (the “Options”). Compensation for restricted stock awards is measured at fair value on the date of grant based on the number of shares expected to vest and the quoted market price of the Company’s common stock. Compensation cost for all awards will be recognized in earnings, net of estimated forfeitures, on a straight-line basis over the requisite service period. For the nine months ended September 30, 2007, the Company recognized $915,000 in Employee Stock Compensation Expense. The Company has unrecognized stock compensation expense of $193,467 that will be recognized to expense over the remaining vesting period.

Amortization Expense

The Company recognized $1,003,282, and $933,615 of amortization expense for the quarter ending September 30, 2008 and 2007, respectively, related to the accounting treatment of the warrants issued and amortization of intangible assets associated with the USVD acquisition. The Company recognized $3,673,806 and $933,615 of amortization expense for the nine months ending September 30, 2008 and 2207, respectively, related to the accounting treatment of the warrants issued and amortization of intangible assets associated with the USVD acquisition. At September 30, 2008, these amortization period for these warrants expired. However, the Company will be amortizing the discount related to the accounting treatment of warrants issued to Chatham Capital Management Fund III (“Chatham”) associated with the STN acquisition as well as the amortization of intangible assets acquired in the STN acquisition.

Interest Expense

Interest expense was $459,624 and $34,838 for the quarters ended September 30, 2008 and 2007, respectively, and $1,799,207 and $61,395 for the nine months ended September 30, 2008 and 2007. The increase is due primarily to the additional debt incurred with the acquisition of USVD.

Gain on Debt Extinguishment

The Company recognized a gain on debt extinguishment of $151,619, related to the refinancing/recapitalization of the notes payable due to Hilco Financial, LLC and Dynamic Decisions. This is further discussed in Note 6 — Long Term Debt footnote to the financial statements. There was no such gain in 2007.

Net Profit/Net Loss from Operations

We realized a net loss from operations of $784,983 for the quarter ended September 30, 2008 compared to a net loss from operations of $1,444,691 for the quarter ended September 30, 2007. This decrease in net loss from operations is primarily due to the increased revenues and gross margin primarily from the acquisition of USVD, partially offset by the increase in amortization expense of $69,667. We realized a net loss from operations of $4,458,306 for the nine months ended September 30, 2008 compared to a net loss from operations of $2,789,774 for the nine months ended September 30, 2007. This increase in net loss from operations is primarily due to the increase in amortization expense of $2,740,191 and an increase in interest expense to $1,799,207, respectively for the nine months ended September 30, 2008, partially offset by the decrease in stock compensation expense of $746,167 realized in the nine months ended September 30, 2008, versus the comparable period in 2007.

Liquidity and Capital Resources

The Company completed the STN acquisition on September 23, 2008. As part of the acquisition, the Company was able to rearrange its debt and equity and obtain more favorable terms. The Company has a $2,000,000 line of credit with none outstanding and cash and cash equivalents of $1,998,911 at September 30, 2008. The Company sustained a loss for the nine months ended September 30, 2008 of approximately $4.5 million, sustained losses in 2007 and 2006 and has a retained deficit of approximately $16.1 million. These losses were primarily due to the amortization expense related to the accounting treatment of warrants issued in connection with the debt raised to fund the USVD acquisition. Fro the nine months ended September 30, 2008 the Company had cash flow from operations of $49,798. 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 on its credit lines. However, the recent economic downturn could have a material affect on its business operations.

The Company intends to acquire other similar companies and will require additional funds either through borrowings or by raising additional equity.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our 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 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

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 4T. Controls and Procedures

Disclosure Controls and Procedures

Our management, including our Chief Executive 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 September 30, 2008, 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 September 30, 2008 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.

Changes in Internal Control Over Financial Reporting

During the most recent quarter ended September 30, 2008, the Company 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

None.

Item 1A. Risk Factors

Not applicable.

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/ Michael Nole
		Michael Nole, Chief Executive Officer
		(Principal Executive Officer)

Dated: November 18, 2008

Brookside Technology Inactive 10-Q/A2008 Q3 Quarterly report (amended)

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