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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period fromto
 Commission File Number 0-52702
 BROOKSIDE TECHNOLOGY HOLDINGS CORP.
  Florida
    
    20-3634227State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization
    
    Identification No.)
 
  þ o
 o o
  Large accelerated filer o
    
    Accelerated filero
    
    Non-accelerated filer   o(Do not check if a smaller reporting company)
    
    Smaller reporting company þ
 o þ




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##### 



Index
 ITEMPART
I  FINANCIAL INFORMATIONItem 1.
Consolidated Financial StatementsItem 2. Managements Discussion and Analysis Financial Condition and Results of OperationItem 3. Quantitative and Qualitative Disclosures about Market RiskItem 4(T) Controls and ProceduresPART II  OTHER INFORMATIONItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales of Equity Securities and Use of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Submission of Matters to a Vote of Securities HoldersItem 5. Other InformationItem 6. ExhibitsEX-31.1EX-31.2EX-32.1EX-32.2
  2




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3




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BROOKSIDE TECHNOLOGY HOLDINGS CORP  CONSOLIDATED BALANCE SHEETS
As of September 30, 2009 and December 31, 2008  Unaudited
 September 30,
    
    
    December 31,2009
    
    
    2008 (Restated)ASSETSCurrent assetsCash and cash equivalents
    
    $
    329,913
    
    
    $
    835,525Restricted cash
    
    
    361,097
    
    
    
    1,366,666Cash collateral account
    
    
    175,324
    
    
    
    368,666Accounts receivable, net
    
    
    3,087,155
    
    
    
    4,225,692Inventory
    
    
    1,855,494
    
    
    
    1,652,300Deferred contract costs
    
    
    15,610
    
    
    
    107,382Deferred finance charges, net of amortization
    
    
    388,838
    
    
    
    536,085Prepaid expenses
    
    
    68,778
    
    
    
    79,493Total current assets
    
    
    6,282,209
    
    
    
    9,171,809Property and equipmentOffice equipment
    
    
    532,228
    
    
    
    444,590Vehicles
    
    
    105,901
    
    
    
    171,131Furniture, fixtures and leasehold improvements
    
    
    169,365
    
    
    
    155,151807,494
    
    
    
    770,872Less: accumulated depreciation
    
    
    (424,923
    )
    
    
    (326,383
    )Property and equipment, net
    
    
    382,571
    
    
    
    444,489Goodwill
    
    
    16,980,030
    
    
    
    16,918,396Intangible assets, net
    
    
    
    
    
    
    731,710Deposits and other assets
    
    
    88,295
    
    
    
    27,735TOTAL ASSETS
    
    $
    23,733,105
    
    
    $
    27,294,139LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable and accrued expenses
    
    $
    2,256,586
    
    
    $
    2,211,611Billings in excess of revenues
    
    
    2,052,369
    
    
    
    2,620,857Payroll liabilities
    
    
    535,675
    
    
    
    851,833Current portion of long term debt
    
    
    6,395,386
    
    
    
    2,669,177Income taxes payable
    
    
    1,638
    
    
    
    164,000Other current liabilities
    
    
    288,725
    
    
    
    228,390Total current liabilities
    
    
    11,530,379
    
    
    
    8,745,868Long term debt, less current portion
    
    
    1,597,837
    
    
    
    5,053,135Derivative financial instruments at fair value
    
    
    3,619,902
    
    
    
    12,016,463Total liabilities
    
    
    16,748,118
    
    
    
    25,815,466Stockholders equity (deficit)Series A convertible preferred stock, 15,000,000 authorized,
13,191,716 and 12,216,716 issued and outstanding at September
30, 2009 and
December 31, 2008, respectively, at 8% dividend yield.
Liquidation preference of $14,559,954 and $12,832,595 at
September 30, 2009 and December 31, 2008, respectively.
    
    
    7,545,246
    
    
    
    6,812,914Common stock, $.01 par value, 1,000,000,000 shares
authorized, 146,657,102 and 140,228,340 shares issued and
outstanding at June 30, 2009 and December 31, 2008, respectively.
    
    
    146,657
    
    
    
    140,229Additional paid in capital
    
    
    11,881,763
    
    
    
    11,885,674Accumulated deficit
    
    
    (12,588,679
    )
    
    
    (17,360,144
    )Total stockholders equity
    
    
    6,984,987
    
    
    
    1,478,673TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    23,733,105
    
    
    $
    27,294,139
  4




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BROOKSIDE TECHNOLOGY HOLDINGS CORP
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 2009 and 2008
Unaudited
 Quarter Ended September 30,
    
    
    Nine Months Ended September 30,2009
    
    
    2008 (Restated)
    
    
    2009
    
    
    2008 (Restated)REVENUESInstallation and other services
    
    $
    1,844,238
    
    
    $
    1,577,260
    
    
    
    4,922,682
    
    
    $
    3,924,799Equipment sales
    
    
    2,525,490
    
    
    
    4,079,863
    
    
    
    8,992,396
    
    
    
    10,473,837Total revenues
    
    
    4,369,728
    
    
    
    5,657,123
    
    
    
    13,915,078
    
    
    
    14,398,636COST OF SALES
    
    
    1,743,472
    
    
    
    3,175,528
    
    
    
    5,716,204
    
    
    
    7,656,333GROSS PROFIT
    
    
    2,626,256
    
    
    
    2,481,595
    
    
    
    8,198,874
    
    
    
    6,742,303OPERATING EXPENSESGeneral and administrative
    
    
    2,960,994
    
    
    
    1,932,108
    
    
    
    8,911,386
    
    
    
    5,793,094Depreciation expense
    
    
    37,241
    
    
    
    31,140
    
    
    
    108,104
    
    
    
    97,949Total operating expenses
    
    
    2,998,235
    
    
    
    1,963,248
    
    
    
    9,019,490
    
    
    
    5,891,043OTHER INCOME (EXPENSE)Interest expense
    
    
    (663,478
    )
    
    
    (874,568
    )
    
    
    (1,575,733
    )
    
    
    (3,044,037
    )Amortization expense of loan discount and intangibles
    
    
    (468,339
    )
    
    
    (1,003,282
    )
    
    
    (1,461,726
    )
    
    
    (3,673,806
    )Finance expense on derivatives
    
    
    
    
    
    
    (4,156,069
    )
    
    
    (925,571
    )
    
    
    (4,156,069
    )Gain (loss) on change in fair value
of derivative financial instruments
    
    
    3,892,627
    
    
    
    (925,326
    )
    
    
    10,322,132
    
    
    
    5,294,495Gain on debt extinguishment
    
    
    
    
    
    
    151,619
    
    
    
    
    
    
    
    151,619Other income (expense), net
    
    
    4,934
    
    
    
    7,957
    
    
    
    (989
    )
    
    
    11,828Total other income (expense)
    
    
    2,765,744
    
    
    
    (6,799,669
    )
    
    
    6,358,113
    
    
    
    (5,415,970
    )INCOME (LOSS) BEFORE INCOME TAXES
    
    
    2,393,765
    
    
    
    (6,281,322
    )
    
    
    5,537,497
    
    
    
    (4,564,710
    )Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    NET INCOME (LOSS)
    
    $
    2,393,765
    
    
    $
    (6,281,322
    )
    
    
    5,537,497
    
    
    $
    (4,564,710
    )Preferred Stock Dividends
    
    
    (263,834
    )
    
    
    (35,746
    )
    
    
    (752,328
    )
    
    
    (119,382
    )Net income (loss) attributable to common shareholders
    
    $
    2,129,931
    
    
    $
    (6,317,068
    )
    
    
    4,785,169
    
    
    $
    (4,684,092
    )Earnings (loss) per share- basic
    
    $
    0.01
    
    
    $
    (0.06
    )
    
    
    0.03
    
    
    $
    (0.05
    )Weighted average shares outstanding
    
    
    146,657,102
    
    
    
    99,576,825
    
    
    
    142,922,293
    
    
    
    92,755,324Earnings
(loss) per share- diluted
    
    $
    0.00
    
    
    $
    (0.06
    )
    
    
    0.00
    
    
    $
    (0.05
    )Weighted average shares outstanding
    
    
    1,146,828,702
    
    
    
    99,576,825
    
    
    
    1,408,256,897
    
    
    
    92,755,324
  5




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BROOKSIDE TECHNOLOGY HOLDINGS CORP
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 2009 and 2008
Unaudited
 20082009
    
    
    (Restated)CASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)
    
    $
    5,537,497
    
    
    $
    (4,564,710
    )Adjustments to reconcile net income (loss) to net
cash provided by (used) in operating activities:Depreciation
    
    
    108,104
    
    
    
    97,949Amortization of loan discounts and intangibles
    
    
    1,461,724
    
    
    
    3,673,806Non-cash interest expense
    
    
    310,907
    
    
    
    1,845,417Loss on disposal of fixed assets
    
    
    6,717
    
    
    
    Bad debt expense
    
    
    176,358
    
    
    
    Stock based compensation
    
    
    52,491
    
    
    
    168,833Gain (loss) on change in fair market value
of derivative financial instruments
    
    
    (9,396,561
    )
    
    
    (1,138,426
    )Gain on debt extinguishment
    
    
    
    
    
    
    (151,619
    )(Increase) decrease in:Accounts receivable
    
    
    962,179
    
    
    
    (780,671
    )Inventory
    
    
    (203,194
    )
    
    
    (79,863
    )Deferred contract costs
    
    
    91,772
    
    
    
    41,639Prepaid expenses
    
    
    10,715
    
    
    
    (73,584
    )Deposits and other assets
    
    
    (60,560
    )
    
    
    41,699Increase (decrease) in:Accounts payable and accrued expenses
    
    
    44,975
    
    
    
    615,655Accrued payroll liabilities
    
    
    (316,158
    )
    
    
    (43,743
    )Billings in excess of revenues
    
    
    (568,488
    )
    
    
    462,885Income taxes payable
    
    
    (162,362
    )
    
    
    Other current liabilities
    
    
    46,660
    
    
    
    (65,469
    )(7,434,721
    )
    
    
    4,614,508NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
    
    
    (1,897,224
    )
    
    
    (49,798
    )CASH FLOWS FROM INVESTING ACTIVITIESAcquisition of equipment
    
    
    (52,901
    )
    
    
    (166,069
    )Cash used for restricted cash
    
    
    (233,334
    )
    
    
    (1,250,000
    )Cash provided by restricted cash
    
    
    1,238,903Cash used for cash collateral
    
    
    (25,000
    )
    
    
    (366,877
    )Cash provided by cash collateral
    
    
    218,342
    
    
    
    366,877Acquisition of Standard Tel Networks, LLC (STN), net of $855,791 in cash received
    
    
    
    
    
    
    (2,835,610
    )Acquisition of US Voice & Data, LLC (USVD) additional EBITDA Earnout
    
    
    (61,634
    )
    
    
    NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
    
    
    1,084,376
    
    
    
    (4,251,679
    )CASH FLOWS FROM FINANCING ACTIVITIESProceeds from long term debt
    
    
    779,588
    
    
    
    14,197,475Proceeds from issuance of Series A preferred stock, net of issuance costs of $70,000
    
    
    930,000
    
    
    
    Deferred finance charges
    
    
    
    
    
    
    (588,984
    )Proceeds from issuance of Series A preferred stock in connection with the STN
acquisition
    
    
    
    
    
    
    2,500,000Repayment of long term debt
    
    
    (1,402,352
    )
    
    
    (10,095,545
    )NET CASH PROVIDED BY FINANCING ACTIVITIES
    
    
    307,236
    
    
    
    6,012,946NET INCREASE (DECREASE) IN CASH
    
    
    (505,612
    )
    
    
    (1,811,065
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
    
    
    835,525
    
    
    
    187,846CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    329,913
    
    
    $
    1,998,911SUPPLEMENTAL DISCLOSUREIncome taxes paid
    
    $
    2,362
    
    
    $
    Interest paid
    
    $
    809,611
    
    
    $
    (27,872
    )Non-cash financing and investing activitiesAccretion of preferred stock dividend
    
    $
    485,367
    
    
    $
    119,382Accrued interest added to note payable balance
    
    $
    455,215
    
    
    $
    Value of common stock issued in STN acquisition
    
    $
    
    
    
    $
    1,169,755Cashless exercise of warrants
    
    $
    3,857
    
    
    $
    Accrual for derivative financial instruments at fair value
    
    $
    1,925,571
    
    
    $
    9,656,069Conversion of series A preferred stock to common stock
    
    $
    20,026
    
    
    $
    
  6




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Brookside Technology Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
 Note 1  Basis of Presentation and Nature of Business
 Basis of Presentation
  Operations
  nd
   7




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Brookside Technology Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
 Note 1  Nature of Business (continued)
 Redomestication
   US Voice & Data, LLC
  Acquisition of Standard Tel Networks, LLC
   Restatement of Prior Periods
  Note 2  Liquidity and Capital Resources
  8




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Brookside Technology Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
 Note 2  Liquidity Capital Resources (continued)
     Note 3  Significant Accounting Policies
  Principles of Consolidation
  9




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##### Table of Contents



Brookside Technology Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
 Note 3  Significant Accounting Policies (continued)
  Cash Equivalents
  Use of Estimates
  Financial Instruments and Credit Risk
    Inventory Reserves
  Allowance for Doubtful Accounts
  10




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Brookside Technology Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
 Note 3  Significant Accounting Policies (continued)
  Convertible Securities With Beneficial Conversion Features
 Warrant Valuation and Beneficial Conversion Feature
  Derivative Financial Instruments at Fair Value
  o
    
    The Company effecting a merger or consolidation with another entityo
    
    The Company sells all or substantially all of the Companys assetso
    
    The Companys shareholders approve a tender or exchange offer, oro
    
    The Companys holders of the common stock exchange their shares for securities or cash
  Goodwill and Intangibles
  11




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Brookside Technology Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
 Note 3  Significant Accounting Policies (continued)
    Revenue Recognition
    12




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##### Table of Contents



Brookside Technology Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
 Note 3  Significant Accounting Policies (continued) Warranty Reserves
  Reclassifications
  Income taxes
    Earnings Per Common Share
  13




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##### Table of Contents



Brookside Technology Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
 Note 3  Significant Accounting Policies (continued)
  Derivatives
  Stock Based Compensation
 Share-Based Payment.
 14




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##### Table of Contents



Brookside Technology Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
 Note 3  Significant Accounting Policies (continued)
     *
    
    FSP No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for
the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are
Not Orderly (ASC Topic 820-10-65-4);*
    
    FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial
Instruments (ASC Topic 825-10-65-1); and*
    
    FSP No. FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments (ASC Topic 320-10-65-1).
        15




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Brookside Technology Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
 Note 3  Significant Accounting Policies (continued)
 Note 4  Accounts Payable and Accrued Expenses
  September 30,
    
    
    December 31,2009
    
    
    2008Accounts payable, trade
    
    $
    1,767,093
    
    
    $
    1,857,905Accrued warranty liability
    
    
    156,974
    
    
    
    231,906Other accrued expenses
    
    
    332,519
    
    
    
    121,800Total
    
    $
    2,256,586
    
    
    $
    2,211,611
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##### Table of Contents



Brookside Technology Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
 Note 5  Long Term Debt
  September 30,
    
    
    December 31,2009
    
    
    2008Note payable to an individual, unsecured, accruing interest at 2% per annum, with monthly
payments of $5,215 due May 1, 2010.
    
    $
    82,869
    
    
    $
    98,049Note payable to former officers and shareholders, unsecured, accruing interest at 0% per
annum, due in installments over 3 years with a maturity date of September 26, 2009, less
unamortized discount of $0 and $75,812, respectively (the Seller Note). This note is
involved in the litigation with the USVD Sellers (See Note 7  Commitments and
Contingencies).
    
    
    850,000
    
    
    
    1,524,188Notes payable to an individual, unsecured, accruing interest at 7% per annum, with monthly
payments of $1,130 due May 1, 2011.
    
    
    28,143
    
    
    
    31,006Note payable to executive officer and shareholders, unsecured, accruing interest at 7% per
annum, with monthly payments of $968, due September 1, 2010.
    
    
    16,945
    
    
    
    16,945Notes payable to shareholder, unsecured, accruing interest at 7% per annum, with monthly
payments of $6,432 due June 1, 2010.
    
    
    97,982
    
    
    
    115,360Subordinated Note Payable to Vicis Capital Master Fund, accruing interest at 10%, maturing
September 30, 2010, subordinated to the Chatham senior note. Net of unamortized discount
of $31,067 and $118,917, respectively (STN acquisition).
    
    
    1,468,933
    
    
    
    1,381,083Senior 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
$1,928,037 and $2,658,050, respectively (STN acquisition), all classified as current.
    
    
    5,401,613
    
    
    
    4,380,916Secured 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.
    
    
    16,350
    
    
    
    60,617Secured notes payable to GMAC, accruing interest at 9.25% with monthly payments of $2,272,
paid in full in June 2009 and refinanced as an operating lease. Notes are secured by
vehicles.
    
    
    
    
    
    
    82,673Secured 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.
    
    
    
    
    
    
    1,007Secured 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.
    
    
    30,388
    
    
    
    30,468Total long term debt
    
    
    7,993,223
    
    
    
    7,722,312Less current portion
    
    
    (6,395,386
    )
    
    
    (2,669,177
    )Long term portion
    
    $
    1,597,837
    
    
    $
    5,053,135
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##### Table of Contents



Brookside Technology Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
 Note 5  Long Term Debt (Continued)
  Years Ending December 31,
    
    Gross2009
    
    $
    6,395,3862010
    
    
    1,611,0762011
    
    
    14,0222012
    
    
    3,8062013
    
    
    8,024,290Less: Unamortized discounts
    
    
    (31,067
    )Net of Discounts
    
    $
    7,993,223
 Change in unamortized discount and loan costs of the Note 
  Note 6  Commitments and Contingencies
 Leases
  2009
    
    $
    557,5432010
    
    
    331,7342011
    
    
    212,4272012
    
    
    171,9972013
    
    
    
  18




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##### Table of Contents



Brookside Technology Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
 Note 6  Commitments and Contingencies (continued)
 Liquidated Damages Under Registration Payment Arrangements
  Litigation
       19




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##### Table of Contents



Brookside Technology Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
 Note 6  Commitments and Contingencies (continued)
    Risk Management
  Note 7  Related Party Transactions
  20




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##### Table of Contents



Brookside Technology Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
 Note 8  Series A 8% Convertible Preferred Stock
      Note 9  Cost of Sales
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    20062009
    
    
    2008
    
    
    2009
    
    
    2008Equipment costs
    
    $
    1,063,545
    
    
    $
    2,474,018
    
    
    $
    4,001,617
    
    
    $
    6,188,871Contract labor
    
    
    
    
    
    
    17,322
    
    
    
    24,225
    
    
    
    131,743Direct labor
    
    
    341,339
    
    
    
    259,876
    
    
    
    1,005,158
    
    
    
    748,761Software assurance costs
    
    
    174,890
    
    
    
    283,052
    
    
    
    174,891
    
    
    
    286,875Sales commissions and
selling costs
    
    
    146,028
    
    
    
    42,310
    
    
    
    407,201
    
    
    
    68,411Lite warranty costs
    
    
    12,784
    
    
    
    69,036
    
    
    
    67,804
    
    
    
    169,052Other costs
    
    
    4,886
    
    
    
    29,914
    
    
    
    35,308
    
    
    
    62,620$
    1,743,472
    
    
    $
    3,175,528
    
    
    $
    5,716,204
    
    
    $
    7,656,333
 21




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##### Table of Contents



Brookside Technology Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
 Note 10  Employee Benefit Plan
    Note 11  Acquisition of Standard Tel Networks, LLC
  Note 12  Stock-Based Compensation
  Stock options.
  2007 Stock Incentive Plan
   22




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##### Table of Contents



Brookside Technology Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
 Note 12  Stock-Based Compensation (continued)
  WeightedAverageOptions
    
    
    Exercise PriceOutstanding at December 31, 2007
    
    
    14,000,000
    
    
    $
    0.186Cancelled during 2008
    
    
    (14,000,000
    )
    
    $
    0.186Granted during 2008
    
    
    19,200,000
    
    
    $
    0.03Forfeited or expired
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Outstanding at December 31, 2008
    
    
    19,200,000
    
    
    $
    0.03Granted during 2009
    
    
    2,000,000
    
    
    $
    0.01Forfeited or expired
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Outstanding at September 30, 2009
    
    
    21,200,000
    
    
    $
    0.03Vested and exercisable at September 30, 2009
    
    
    3,381,944
    
    
    $
    0.03
  Number of Shares
    
    Year Vested14,408,333
    
    
    
    20092,633,334
    
    
    
    2010688,889
    
    
    
    20117,500
    
    
    
    2012
  23




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##### Table of Contents



Brookside Technology Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
 Note 13  Warrants
 Warrants
  Outstanding
    
    Exercise PriceSeries A *
    
    
    71,631,216
    
    
    $
    0.01Series B
    
    
    80,896,508
    
    
    $
    0.01Series C
    
    
    15,988,602
    
    
    $
    0.01Series D **
    
    
    25,080,000
    
    
    $
    0.01Series E
    
    
    61,273,835
    
    
    $
    0.01Series F
    
    
    350,000,000
    
    
    $
    0.01Chatham
    
    
    140,930,835
    
    
    $
    0.01Total warrants
    
    
    745,800,996
 
 *
    
    Includes 2,628,917 penalty warrants**
    
    Includes 1,080,000 penalty warrants.   Note 14  Restatement of Prior Periods
  2008 Vicis
    
    2009 VicisHilco
    
    Financing
    
    FinancingFinancing
    
    $
    6,000,000
    
    
    $
    5,500,000
    
    
    $
    1,000,000Total number of warrants
    
    
    61,273,872
    
    
    
    250,000,000
    
    
    
    100,000,000Exercise Price
    
    $
    0.137
    
    
    $
    0.03
    
    
    $
    0.01Term of warrants (years)
    
    
    5
    
    
    
    5
    
    
    
    5Debt issuance costs
    
    $
    1,659,773
    
    
    $
    
    
    
    $
    Face value of debt/equity
    
    $
    4,340,227
    
    
    $
    5,500,000
    
    
    $
    1,000,000Fair value of derivative at
inception
    
    $
    18,008,466
    
    
    $
    9,656,069
    
    
    $
    1,925,571Financing expense recorded
    
    $
    12,348,466
    
    
    $
    4,156,069
    
    
    $
    925,571
 24




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##### Table of Contents



Brookside Technology Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
 Note 14  Restatement of Prior Periods (continued)
  20083/31/08
    
    6/30/08
    
    9/30/08
    
    12/31/08Derivative financial instrument at
opening balance sheet date
    
    $
    7,605,601
    
    
    $
    3,448,910
    
    
    $
    1,385,780
    
    
    $
    11,967,175Fair value of new derivative during
the period
    
    
    
    
    
    
    
    
    
    
    9,656,069
    
    
    
    Change in
estimated fair value
of derivative financial instrument
    
    
    (4,156,691
    )
    
    
    (2,063,130
    )
    
    
    925,326
    
    
    
    49,288Derivative financial instrument at
closing balance sheet date
    
    $
    3,448,910
    
    
    $
    1,385,780
    
    
    $
    11,967,175
    
    
    $
    12,016,463
 20093/31/09
    
    6/30/09
    
    9/30/09Derivative financial instrument at
opening balance sheet date
    
    $
    12,016,463
    
    
    $
    11,338,561
    
    
    $
    7,512,529Fair value of new derivative
during the
period
    
    
    
    
    
    
    1,925,571
    
    
    
    Change in estimated fair
value
of derivative financial instrument
    
    
    (677,902
    )
    
    
    (5,751,603
    )
    
    
    (3,892,627
    )Derivative financial instrument at
closing balance sheet date
    
    $
    11,338,561
    
    
    $
    7,512,529
    
    
    $
    3,619,902
  25




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##### Table of Contents



Brookside Technology Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
 Note 14  Restatement of Prior Periods (continued)
  For the Three Months Ended 2008
    
    Year Ended,3/31/08
    
    6/30/08
    
    9/30/08
    
    12/31/08Net loss, as previously reported
    
    $
    (1,798,087
    )
    
    $
    (1,875,236
    )
    
    $
    (784,983
    )
    
    $
    (4,830,790
    )Net income (loss), as restated
    
    $
    1,943,661
    
    
    $
    (227,049
    )
    
    $
    (6,281,322
    )
    
    $
    (4,986,482
    )Total liabilities, as previously reported
    
    $
    15,911,754
    
    
    $
    18,243,852
    
    
    $
    14,300,178
    
    
    $
    13,799,003Total liabilities, as restated
    
    $
    18,530,777
    
    
    $
    19,214,688
    
    
    $
    26,267,353
    
    
    $
    25,815,466Total equity (deficit), as previously
reported
    
    $
    1,765,075
    
    
    $
    (4,710
    )
    
    $
    13,879,835
    
    
    $
    13,495,136Total equity (deficit), as restated
    
    $
    (853,948
    )
    
    $
    (975,546
    )
    
    $
    1,912,660
    
    
    $
    1,478,673
 For the Three Months Ended 20093/31/09
    
    6/30/09
    
    9/30/09Net loss, as previously reported
    
    $
    (1,327,978
    )
    
    $
    (1,032,224
    )
    
    
    N/ANet income (loss), as restated
    
    $
    (650,076
    )
    
    $
    3,793,808
    
    
    $
    2,393,765Total liabilities, as previously reported
    
    $
    13,358,796
    
    
    $
    13,171,525
    
    
    
    N/ATotal liabilities, as restated
    
    $
    24,697,357
    
    
    $
    20,684,054
    
    
    $
    16,748,118Total equity (deficit), as previously
reported
    
    $
    12,167,733
    
    
    $
    12,072,930
    
    
    
    N/ATotal equity (deficit), as restated
    
    $
    829,172
    
    
    $
    4,560,401
    
    
    $
    6,984,987
 Note 15  Intangible Assets
  Gross Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Life (years)Purchased customer contracts  USVD
    
    $
    600,000
    
    
    $
    600,000
    
    
    
    1Purchased customer contracts  STN
    
    
    900,000
    
    
    
    900,000
    
    
    
    1Non-compete agreements
    
    
    100,000
    
    
    
    100,000
    
    
    
    3$
    1,600,000
    
    
    $
    1,600,000Nine months ended September 31, 2009
Amortization Expense
    
    
    
    
    
    $
    731,712
 26




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Brookside Technology Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
 Note 16  Subsequent Event
  27




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##### Table of Contents



Item 2. Managements Discussion and Analysis or Plan of Operations
 The information presented in this section should be read in conjunction with our audited
consolidated financial statements and related notes for the periods ended December 31, 2008 and
2007 included in our Form 10-K , as filed with the Securities and Exchange Commission, as well as
the information contained in the consolidated financial statements, including the notes thereto,
appearing in this report. This discussion contains forward-looking statements reflecting our
current expectations that involve risks and uncertainties. Actual results and the timing of events
may differ materially from those contained in these forward-looking statements due to a number of
factors, including those discussed in the section entitled Risk Factors of our Form 10-K for the
year ended December 31, 2008, and elsewhere in this report.
 General
 Organizational History and Operations
  nd
 Background/Name Change/Redomestication
    28




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Acquisition of USVD
  Increase in Authorized Shares
  Vicis Equity Infusion
     29




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##### Table of Contents



Acquisition of Standard Tel Networks, LLC
   Results of Operations
  30




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##### Table of Contents



Restatement of Prior Periods
   For the Three Months Ended 20083/31/08
    
    6/30/08
    
    9/30/08
    
    12/31/08Net loss, as previously reported
    
    $
    (1,798,087
    )
    
    $
    (1,875,236
    )
    
    $
    (784,983
    )
    
    $
    (4,830,790
    )Net income (loss), as restated
    
    $
    1,943,661
    
    
    $
    (227,049
    )
    
    $
    (6,281,322
    )
    
    $
    (4,986,482
    )Total liabilities, as previously reported
    
    $
    15,911,754
    
    
    $
    18,243,852
    
    
    $
    14,300,178
    
    
    $
    13,799,003Total liabilities, as restated
    
    $
    18,530,777
    
    
    $
    19,214,688
    
    
    $
    26,267,353
    
    
    $
    25,815,466Total equity (deficit), as previously
reported
    
    $
    1,765,075
    
    
    $
    (4,710
    )
    
    $
    13,879,835
    
    
    $
    13,495,136Total equity (deficit), as restated
    
    $
    (853,948
    )
    
    $
    (975,546
    )
    
    $
    1,912,660
    
    
    $
    1,478,673
 For the Three Months Ended 20093/31/09
    
    6/30/09
    
    9/30/09Net loss, as previously reported
    
    $
    (1,327,978
    )
    
    $
    (1,032,224
    )
    
    
    N/ANet income (loss), as restated
    
    $
    (650,076
    )
    
    $
    3,793,808
    
    
    $
    2,393,765Total liabilities, as previously reported
    
    $
    13,358,796
    
    
    $
    13,171,525
    
    
    
    N/ATotal liabilities, as restated
    
    $
    24,697,357
    
    
    $
    20,684,054
    
    
    $
    16,748,118Total equity (deficit), as previously
reported
    
    $
    12,167,733
    
    
    $
    12,072,930
    
    
    
    N/ATotal equity (deficit), as restated
    
    $
    829,172
    
    
    $
    4,560,401
    
    
    $
    6,984,987
 Revenues, Cost of Sales and Gross Margins
   31




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General and Administrative Expenses
   32




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##### Table of Contents



Amortization Expense
   Interest Expense
   Gain (loss) on Change in Fair Value of Derivative Financial Instruments
   Finance Expense on Derivatives
   Net Income/Net Loss
  33




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##### Table of Contents



Liquidity and Capital Resources
     Critical Accounting Policies
  34




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##### Table of Contents



Revenue Recognition
    
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
  
 Item 4T. Controls and Procedures
 Disclosure Controls and Procedures
  (1)
    
    On November 17, 2009, and as a result of comments the Company received from the SEC in
connection with the SECs review of the Companys Form 10-K for the year ended December 31,
2008 and Form 10-Q for the period ended June 30, 2009, the Companys board of directors
concluded that the Companys previously issued financial statements for the years ended
December 31, 2007 and 2008, and each interim quarter contained within such years, and for
the quarters ended March 31, 2009 and June 30, 2009, should no longer be relied upon
because of an error contained therein regarding the accounting of certain warrants issued
in connection with certain financings, which warrants should have been accounted for as a
liability under EITF 00-19 based on their fair value as of the date of their issuance
because they contain put provisions requiring the Company to redeem the warrants under
certain circumstances. The board of directors discussed the forgoing matters with its Chief
Financial Officer and the Companys independent
accountant.(2)
    
    As disclosed in Note 2 to the condensed consolidated financial statements, the Company was not in
compliance with the leverage ratio imposed by the Chatham Senior Loan in the first
quarter of 2009. The Companys management and board of directors devoted a significant
amount of time to the negotiation of a modification to the ratio requirement and to the
impact the Companys non-compliance was having on its liquidity. As further disclosed
in Note 2 to the Financial Statements, effective August 13, 2009, among other things,
Chatham agreed to suspend the Companys obligation to comply with the leverage and debt
coverage ratios for the period July 31, 2009 through September 30, 2010.
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##### Table of Contents



(3)
    
    On May 12, 2009, Messers. Fischer and Diamond ceased working for the USVD,
alleging that their employment was constructively terminated and that their
non-competition agreements were null and void. Shortly thereafter, several other USVD
employees resigned from USVD and went to work for a new company, which the Company
believes is owned by Messers. Fischer & Diamond and/or some of their family members,
either directly or indirectly. This new company shortly thereafter began soliciting
the Companys vendors and customers. As a result, management and the board of
directors were required to personally devote a significant amount of time and effort to
stabilize the situation at USVD.
   Changes in Internal Control Over Financial Reporting
  36




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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
         37




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##### Table of Contents



Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. EXHIBITS
 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.
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SIGNATURES
  Brookside Technology Holdings CorpBy:
    
    /s/ Bryan McGuireBryan McGuire, Chief Financial Officer(Principal Financial Officer)Dated: November 19, 2009
 39