UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
DC 20549





FORM
10-Q





(Mark
One)





x QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES
EXCHANGE ACT OF 1934





For
the quarterly period ended December 31, 2008





OR





 ̈ TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES
EXCHANGE ACT OF 1934





For the
transition period from _____________ to ______________





COMMISSION
FILE NUMBER 0-28579





BERLINER
COMMUNICATIONS, INC.


(Exact
Name of Registrant as Specified in Its Charter)





Delaware
              
              75-2233445(State
      or Other Jurisdiction of Incorporation)
              
              (I.R.S.
      Employer Identification No.)





97
Linden Avenue


Elmwood
Park, New Jersey 07407


(Address
of Principal Executive Offices)





(201)
791-3200


(Registrant’s
Telephone Number, Including Area Code)





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





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 definition of “accelerated filer”  and
“smaller reporting company” in Rule 12b-2 of the Exchange Act.





Larger
      accelerated filer  ̈
            Accelerated
      filer  ̈Non-accelerated
      filer  ̈
            Smaller
      reporting company x





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





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





On
February 13, 2009, 26,515,732 shares of the registrant's common stock, $0.00002
par value per share, were outstanding.








BERLINER
COMMUNICATIONS, INC.





QUARTERLY
REPORT ON FORM 10-Q


INDEX





PAGE NO.PART
      I:
                FINANCIAL
      INFORMATIONItem
      1.
                Financial
      StatementsConsolidated
      Balance Sheets as of  December 31, 2008 (Unaudited), and June
      30, 2008
                
                3Consolidated
      Statements of Operations for the three and six months ending December 31,
      2008 and 2007 (Unaudited)
                
                4Consolidated
      Statements of Cash Flows for the six months ending December 31, 2008 and
      2007 (Unaudited)
                
                5Consolidated
      Statement of Stockholders' Equity (Unaudited)
                
                7Notes
      to Consolidated Financial Statements
                
                8Item
      2.
                Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                
                21Item
      3.
                Quantitative
      and Qualitative Disclosures About Market Risk
                
                29Item
      4T.
                Controls
      and Procedures
                
                29PART
      II:
                OTHER
      INFORMATIONItem
      1.
                Legal
      Proceedings
                
                30Item
      1A.
                Risk
      Factors
                
                30Item
      2.
                Unregistered
      Sale of Equity Securities and Use of Proceeds
                
                31Item
      3.
                Defaults
      Upon Senior Securities
                
                31Item
      4.
                Submission
      of Matters to a Vote of Securities Holders
                
                31Item
      5.
                Other
      Information
                
                32Item
      6.
                Exhibits
                
                32SIGNATURES
                
                33


2





BERLINER
COMMUNICATIONS, INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS


(Amounts
in thousands)





December 31,
                          
                          
                          June 30,2008
                          
                          
                          2008(Unaudited)ASSETSCURRENT
      ASSETSCash
      and cash equivalents
                          
                          $
                          2,222
                          
                          
                          $
                          3,173Accounts
      receivable, net of allowance for doubtful accounts of  $712 at
      December 31, 2008 and  $830 at June 30, 2008,
      respectively
                          
                          
                          20,802
                          
                          
                          
                          31,189Inventories
                          
                          
                          951
                          
                          
                          
                          1,012Deferred
      tax assets - current
                          
                          
                          1,109
                          
                          
                          
                          536Prepaid
      expenses and other current assets
                          
                          
                          1,083
                          
                          
                          
                          76226,167
                          
                          
                          
                          36,672Property
      and equipment, net
                          
                          
                          2,585
                          
                          
                          
                          2,924Amortizable
      intangible assets, net
                          
                          
                          648
                          
                          
                          
                          816Goodwill
                          
                          
                          2,284
                          
                          
                          
                          2,084Deferred
      tax assets - long-term
                          
                          
                          636
                          
                          
                          
                          505Other
      assets
                          
                          
                          281
                          
                          
                          
                          268Total
      Assets
                          
                          $
                          32,601
                          
                          
                          $
                          43,269LIABILITIES
      AND STOCKHOLDERS' EQUITYCURRENT
      LIABILITIESAccounts
      payable
                          
                          $
                          3,302
                          
                          
                          $
                          4,820Accrued
      liabilities
                          
                          
                          5,669
                          
                          
                          
                          11,919Accrued
      income taxes
                          
                          
                          -
                          
                          
                          
                          1,849Line
      of credit
                          
                          
                          -
                          
                          
                          
                          217Current
      portion of long-term debt
                          
                          
                          1,154
                          
                          
                          
                          1,133Current
      portion of capital lease obligations
                          
                          
                          111
                          
                          
                          
                          11810,236
                          
                          
                          
                          20,056Long-term
      debt, net of current portion
                          
                          
                          321
                          
                          
                          
                          467Long-term
      capital lease obligations, net of current portion
                          
                          
                          248
                          
                          
                          
                          305Other
      long-term liabilities
                          
                          
                          124
                          
                          
                          
                          104Total
      liabilities
                          
                          
                          10,929
                          
                          
                          
                          20,932COMMITMENTSSTOCKHOLDERS'
      EQUITYCommon
      stock
                          
                          
                          1
                          
                          
                          
                          1Additional
      paid-in capital
                          
                          
                          23,193
                          
                          
                          
                          22,630Accumulated
      deficit
                          
                          
                          (1,522
                          )
                          
                          
                          (294
                          )Total
      stockholders' equity
                          
                          
                          21,672
                          
                          
                          
                          22,337Total
      liabilities and stockholders' equity
                          
                          $
                          32,601
                          
                          
                          $
                          43,269





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


3





BERLINER
COMMUNICATIONS, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF OPERATIONS


(Unaudited)


(Amounts
in thousands, except per share data)





Three months ended
                  
                  
                  Six months endedDecember 31,
                  
                  
                  December 31,2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Revenue
                  
                  $
                  14,535
                  
                  
                  $
                  52,133
                  
                  
                  $
                  27,621
                  
                  
                  $
                  75,275Costs
      of revenue
                  
                  
                  10,898
                  
                  
                  
                  34,423
                  
                  
                  
                  18,373
                  
                  
                  
                  51,048Gross
      margin
                  
                  
                  3,637
                  
                  
                  
                  17,710
                  
                  
                  
                  9,248
                  
                  
                  
                  24,227Selling,
      general and administrative expenses
                  
                  
                  5,450
                  
                  
                  
                  7,618
                  
                  
                  
                  10,643
                  
                  
                  
                  13,074Depreciation
      and amortization
                  
                  
                  325
                  
                  
                  
                  284
                  
                  
                  
                  628
                  
                  
                  
                  512(Gain)
      loss on sale of fixed assets
                  
                  
                  (5
                  )
                  
                  
                  -
                  
                  
                  
                  (5
                  )
                  
                  
                  8Income
      (loss) from operations
                  
                  
                  (2,133
                  )
                  
                  
                  9,808
                  
                  
                  
                  (2,018
                  )
                  
                  
                  10,633Other
      (income) expenseInterest
      expense
                  
                  
                  47
                  
                  
                  
                  339
                  
                  
                  
                  107
                  
                  
                  
                  689Amortization
      of deferred financing fees and accretion of debt discount
                  
                  
                  15
                  
                  
                  
                  348
                  
                  
                  
                  30
                  
                  
                  
                  721Financing
      fees
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  36Interest
      income
                  
                  
                  (21
                  )
                  
                  
                  (17
                  )
                  
                  
                  (52
                  )
                  
                  
                  (26
                  )Other
                  
                  
                  (16
                  )
                  
                  
                  -
                  
                  
                  
                  (356
                  )
                  
                  
                  (6
                  )Income
      (loss) before income taxes
                  
                  
                  (2,158
                  )
                  
                  
                  9,138
                  
                  
                  
                  (1,747
                  )
                  
                  
                  9,219Income
      tax (benefit) expense
                  
                  
                  (844
                  )
                  
                  
                  3,692
                  
                  
                  
                  (519
                  )
                  
                  
                  3,734Net
      income (loss)
                  
                  $
                  (1,314
                  )
                  
                  $
                  5,446
                  
                  
                  $
                  (1,228
                  )
                  
                  $
                  5,485Net
      income (loss) per share:Basic
                  
                  $
                  (0.05
                  )
                  
                  $
                  0.32
                  
                  
                  $
                  (0.05
                  )
                  
                  $
                  0.32Diluted
                  
                  $
                  (0.05
                  )
                  
                  $
                  0.21
                  
                  
                  $
                  (0.05
                  )
                  
                  $
                  0.22Weighted
      average number of shares outstanding:Basic
                  
                  
                  26,467
                  
                  
                  
                  17,082
                  
                  
                  
                  26,365
                  
                  
                  
                  17,082Diluted
                  
                  
                  26,467
                  
                  
                  
                  27,005
                  
                  
                  
                  26,365
                  
                  
                  
                  26,979





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


4




BERLINER
COMMUNICATIONS, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Amounts
in thousands)


(Unaudited)





Six months endedDecember 31,2008
                      
                      
                      2007Cash
      flows from operating activities:Net
      income (loss)
                      
                      $
                      (1,228
                      )
                      
                      $
                      5,485Adjustments
      to reconcile net income (loss) to net cash (used in) provided by operating
      activities:Depreciation
      and amortization
                      
                      
                      628
                      
                      
                      
                      512Amortization
      of deferred financing fees
                      
                      
                      30
                      
                      
                      
                      191Bad
      debt expense
                      
                      
                      186
                      
                      
                      
                      30Stock-based
      compensation
                      
                      
                      417
                      
                      
                      
                      79(Gain)
      loss on sale of fixed assets
                      
                      
                      (5
                      )
                      
                      
                      8Accretion
      of interest from warrants and debt discount
                      
                      
                      20
                      
                      
                      
                      530Financing
      fees
                      
                      
                      -
                      
                      
                      
                      26Deferred
      tax assets, net
                      
                      
                      (704
                      )
                      
                      
                      (644
                      )Changes
      in operating assets and liabilities:Accounts
      receivable
                      
                      
                      10,488
                      
                      
                      
                      (26,825
                      )Inventories
                      
                      
                      60
                      
                      
                      
                      (301
                      )Prepaid
      expenses and other current assets
                      
                      
                      295
                      
                      
                      
                      (106
                      )Other
      assets
                      
                      
                      (13
                      )
                      
                      
                      188Accounts
      payable
                      
                      
                      (1,516
                      )
                      
                      
                      8,314Accrued
      liabilities
                      
                      
                      (6,384
                      )
                      
                      
                      11,838Accrued
      income taxes
                      
                      
                      (1,849
                      )
                      
                      
                      4,006Net
      cash provided by operating activities
                      
                      
                      425
                      
                      
                      
                      3,331Cash
      flows from investing activities:Purchases
      of property and equipment
                      
                      
                      (279
                      )
                      
                      
                      (623
                      )Proceeds
      from the sale of property and equipment
                      
                      
                      8
                      
                      
                      
                      12Cash
      paid for acquisitions and transaction costs
                      
                      
                      (200
                      )
                      
                      
                      (39
                      )Net
      cash used in investing activities
                      
                      
                      (471
                      )
                      
                      
                      (650
                      )Cash
      flows from financing activities:Proceeds
      from line of credit
                      
                      
                      40,335
                      
                      
                      
                      47,657Repayment
      of line of credit
                      
                      
                      (40,552
                      )
                      
                      
                      (50,541
                      )Repayment
      of long-term debt
                      
                      
                      (770
                      )
                      
                      
                      (342
                      )Repayment
      of capital leases
                      
                      
                      (64
                      )
                      
                      
                      (29
                      )Proceeds
      from exercise of warrants
                      
                      
                      146
                      
                      
                      
                      -Net
      cash used in by financing activities
                      
                      
                      (905
                      )
                      
                      
                      (3,255
                      )Net
      decrease in cash and cash equivalents
                      
                      
                      (951
                      )
                      
                      
                      (574
                      )Cash
      and cash equivalents at beginning of period
                      
                      
                      3,173
                      
                      
                      
                      2,483Cash
      and cash equivalents at end of period
                      
                      $
                      2,222
                      
                      
                      $
                      1,909





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


5





BERLINER
COMMUNICATIONS, INC. AND SUBSIDIARIES


CONSOLIDATES
STATEMENTS OF CASH FLOWS


(Amounts
in thousands)


(Unaudited)





Six months endedDecember 31,2008
                
                
                2007Supplemental
      cash flow information:Interest
      paid
                
                $
                67
                
                
                $
                422Income
      taxes paid
                
                $
                2,030
                
                
                $
                371Non-cash
      investing and financing activities:Assets
      purchased under capital leases
                
                $
                -
                
                
                $
                258




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


6





BERLINER
COMMUNICATIONS, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY


(Amounts
in thousands except share and per share data)


(Unaudited)





Common Stock100,000,000 shares authorized
                
                Additional
                
                
                
                
                Total$0.00002 par value
                
                Paid-in
                
                Accumulated
                
                Stockholders'Shares
                
                Amount
                
                Capital
                
                Deficit
                
                EquityBalance
      at June 30, 2008
                
                
                26,190,732
                
                
                $
                1
                
                
                $
                22,630
                
                
                $
                (294
                )
                
                $
                22,337Stock-based
      compensation
                
                
                
                
                
                
                
                
                
                
                281
                
                
                
                
                
                
                
                281Exercise
      of Warrants
                
                
                200,000
                
                
                
                
                
                
                
                146
                
                
                
                
                
                
                
                146Issuance
      of Director Shares
                
                
                125,000
                
                
                
                
                
                
                
                136
                
                
                
                
                
                
                
                136Net
      loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (1,228
                )
                
                
                (1,228
                )Balance
      at December 31, 2008
                
                
                26,515,732
                
                
                $
                1
                
                
                $
                23,193
                
                
                $
                (1,522
                )
                
                $
                21,672





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


7


BERLINER
COMMUNICATIONS, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(Amounts
in thousands except for share and per share data)





1.
            Business





Berliner
Communications, Inc. was originally incorporated in Delaware in 1987 as Adina,
Inc. (“Adina”). Adina’s corporate existence was permitted to lapse in February
of 1996 and in August of 1999 was reinstated as eVentures Group, Inc.
(“eVentures”).  In December of 2000, eVentures changed its name to
Novo Networks, Inc. (“Novo”).





On
February 18, 2005, Novo entered into an asset purchase agreement with the former
Berliner Communications, Inc., currently named Old Berliner,
Inc.  (“Old Berliner”) and BCI Communications, Inc.(“BCI”), a Delaware
corporation and our wholly-owned subsidiary.  As part of this
transaction, BCI acquired (the “Acquisition”) the operations and substantially
all of the assets and liabilities of Old Berliner. On September 16, 2005, Novo
changed its name to Berliner Communications, Inc. (“Berliner”). Berliner is now
the public reporting entity, and all of our operations are run out of Berliner’s
wholly-owned subsidiary, BCI. Unless the context otherwise requires, references
to “we”, “us”, “our” and “the Company” refer to Berliner and its consolidated
subsidiary BCI.





Prior to
the Acquisition, Old Berliner provided wireless carriers with comprehensive site
acquisition, construction and zoning services. Old Berliner was founded in 1995,
and over the course of the following years, its service offerings were expanded
to include radio frequency and network design and engineering, infrastructure
equipment construction and installation, radio transmission base station
modification and project management services. With the consummation of the
Acquisition, BCI carried on the operations of Old Berliner.





On
February 19, 2007, we acquired substantially all of the assets of Comtech
Systems, Inc.





On
February 28, 2007, BCI entered into an Asset Purchase Agreement (the “Digitcom
Asset Purchase Agreement”) with Digital Communication Services, Inc.
(“Digitcom”) and its affiliates for the purchase of certain of its assets in
Arlington, Texas. This acquisition expanded our presence in Texas and the
Midwest markets.





On April
16, 2007, we entered into an Asset Purchase Agreement with Radian Communication
Services, Inc. (“Radian”) to purchase certain of the U.S. assets and operations
of Radian and assume certain liabilities of Radian.  This acquisition
expanded our presence in the Los Angeles, California, Las Vegas, Nevada, and
Seattle, Washington markets, and added offices in Salem, Oregon and Tempe,
Arizona.





On
November 1, 2008, we entered into an Agreement with T3 Communications, Inc. to
purchase certain of its assets and operations.  This acquisition
provided our Specialty Communications Services Division with additional
resources and a regional presence in the Southeast.





The
results of these acquired businesses have been incorporated into our
consolidated financial statements since the dates of acquisition.





The
Company operates in two business segments: (1) infrastructure construction and
technical services and (2) site acquisition and zoning.





2.
            Basis
      of Presentation





The
accompanying unaudited consolidated financial statements as of December 31,
2008, and for the three and six months ended December 31, 2008, and 2007,
respectively, have been prepared by us pursuant to the interim financial
statements rules and regulations of the United States Securities and Exchange
Commission (“SEC”). In our opinion, the accompanying unaudited consolidated
financial statements include all adjustments necessary to present fairly the
results of our operations and cash flows at the dates and for the periods
indicated.  The results of operations for the interim periods are not
necessarily indicative of the results for the full fiscal year.  The
accompanying unaudited consolidated financial statements should be read in
conjunction with the audited consolidated financial statements included in our
Annual Report on Form 10-K for the fiscal year ended June 30,
2008.


8


BERLINER
COMMUNICATIONS, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(Amounts
in thousands except for share and per share data)




3.
            Accounting
      Policies





Basis of Presentation, 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. Actual results could differ from those estimates.
Major assets and liabilities that are subject to estimates include allowance for
doubtful accounts, goodwill and other acquired intangible assets, deferred tax
assets and certain accrued and contingent liabilities. One of the more
significant processes requiring estimates is percentage-of-completion of
construction projects.





We
recognize revenue and profit on our contracts as the work progresses using the
percentage-of-completion method of accounting. Under this method, contracts in
progress are valued at cost plus accrued profits less earned revenue and
progress payments on uncompleted projects. This method relies on estimates of
total expected contract revenue and costs.





Principles
of Consolidation





The
consolidated financial statements include our accounts and the accounts of our
wholly-owned subsidiary. All significant intercompany accounts and transactions
have been eliminated in consolidation.





Cash
and Cash Equivalents





We
consider all highly liquid instruments purchased with an original maturity of
three months or less to be cash equivalents. Cash and cash equivalents are
stated at cost, which approximates fair value. The Company’s cash and cash
equivalents are invested in investment-grade, short-term investment instruments
with high quality financial institutions.





Accounts
Receivable, Allowance for Doubtful Accounts





Accounts
receivable are customer obligations for services sold to such customers under
normal trade terms. The Company’s customers are primarily communications
carriers, corporate and government customers, located primarily in the U.S. The
Company performs periodic credit evaluations of its customers’ financial
condition. The Company provides allowances for doubtful accounts. Provisions for
doubtful accounts are recorded in selling, general and administrative expenses.
The adequacy of the reserve is evaluated using several factors including length
of time a receivable is past due, changes in the customer’s credit worthiness,
customer’s payment history, the length of the customer’s relationship with the
Company, current industry trends and the current economic climate.





Inventories





Inventories,
which consist mainly of parts and raw materials, are stated at the lower of cost
or market. Cost is determined using the average cost method.





Prepaid
Expenses and Other Assets





Prepaid
expenses are recorded as assets and expensed in the period in which the related
services are received. At December 31, 2008 and June 30, 2008, current prepaid
expenses and other current assets totaled approximately $1.1 million and $0.8
million, respectively, and consisted mainly of insurance and deferred financing
fees.  Other non-current assets of approximately $0.3 million at
December 31, 2008 and $0.3 million at June 30, 2008 are mainly deposits for our
office and warehouse locations.


9


BERLINER
COMMUNICATIONS, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(Amounts
in thousands except for share and per share data)





Property
and Equipment





Property
and equipment consist of automobiles and trucks, equipment, computer equipment
and software, furniture and fixtures, buildings, land and leasehold
improvements. Each class of asset is recorded at cost and depreciated using the
straight-line method over their estimated useful lives which range from a period
of three to five years. Leasehold improvements are amortized over the term of
the lease or the estimated useful life, whichever is shorter. Buildings are
amortized over 27.5 years. Maintenance and repairs are charged to expense as
incurred. Significant renewals and betterments are capitalized. At the time of
retirement or other disposition of property and equipment, the cost and
accumulated depreciation are removed from the accounts and any resulting gain or
loss is reflected in operations.





Goodwill
and Other Intangible Assets





In
accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible
Assets” (“SFAS 142”), goodwill and indefinite lived intangible assets are
no longer amortized but are assessed for impairment on at least an annual basis.
SFAS 142 also requires that intangible assets with definite useful lives be
amortized over their respective estimated useful lives to their estimated
residual values, and reviewed for impairment.





SFAS 142
requires that goodwill be tested at least annually, utilizing a two-step
methodology. The initial step requires the Company to determine the fair value
of the business acquired (reporting unit) and compare it to the carrying value,
including goodwill, of such business. If the fair value exceeds its carrying
value, no impairment loss is recognized. However, if the carrying value of the
reporting unit exceeds its fair value, the goodwill of the unit may be impaired.
The amount, if any, of the impairment is then measured in the second step, based
on the excess, if any, of the reporting unit’s carrying value of goodwill over
its implied value.





The
Company determines the fair value of the business acquired (reporting units) for
purposes of this test primarily using indications of value determined by the use
of Guideline Public Company and Precedent Transactions Analyses. The fair value
of the Company’s reporting units derived using the aforementioned analyses
exceeded the carrying values of the reporting units at January 31, 2008.
Accordingly, step two was unnecessary and no impairment charge was recognized in
the consolidated statements of income for the three and six months ended
December 31, 2008. On an ongoing basis, the Company expects to perform its
annual impairment test at January 31 absent any interim impairment
indicators.





Revenue
Recognition





Site
acquisition and zoning services revenue is based upon output measures using
contract milestones as the basis. Revenue from infrastructure equipment
construction and installation contracts, which are generally completed within 90
days, is recorded under the percentage-of-completion method based on the
percentage that total direct costs incurred to date bear to estimated total
costs at completion. Losses are recognized when such losses become known. All
other revenue is recognized as work is performed.





Unbilled
receivables represent revenue on uncompleted infrastructure equipment
construction and installation contracts that are not yet billed or billable,
pursuant to contract terms. Deferred revenues principally represent the value of
services to customers that have been billed as of the balance sheet date but for
which the requisite services have not yet been rendered.





Earnings Per
Share




We
calculate earnings per share in accordance with Statement of Financial
Accounting Standards No. 128, Earnings Per Share (“EPS”)
(“SFAS 128”). SFAS 128 requires dual presentation of basic EPS and diluted EPS
on the face of the income statement for all entities with complex capital
structures.  Basic EPS is computed as net income divided by the
weighted average number of common shares outstanding for the
period.  Diluted EPS reflects the potential dilution that could occur
from common shares issuable through stock options, warrants and convertible
debentures.





The
weighted average number of common shares utilized in the earnings per share
computation for the three months ended December 31, 2008 and 2007 was 26,466,547
and 17,081,786respectively. The
weighted average number of common shares utilized in the earnings per share
computation for the six months ended December 31, 2008 and 2007 was 26,364,509
and 17,081,786respectively.


10


BERLINER
COMMUNICATIONS, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(Amounts
in thousands except for share and per share data)





The
following table sets forth the computations of basic and diluted earnings per
share:





Three months ended
                
                
                Six months endedDecember 31,
                
                
                December 31,2008
                
                
                2007
                
                
                2008
                
                
                2007Basic
      earnings per share:Numerator:Net
      income (loss) allocable to common shareholders
                
                $
                (1,314
                )
                
                $
                5,446
                
                
                $
                (1,228
                )
                
                $
                5,485Denominator:Weighted
      average common shares outstanding
                
                
                26,467
                
                
                
                17,082
                
                
                
                26,365
                
                
                
                17,082Net
      income (loss) per share - basic
                
                $
                (0.05
                )
                
                $
                0.32
                
                
                $
                (0.05
                )
                
                $
                0.32





Three months ended
                    
                    
                    Six months endedDecember 31,
                    
                    
                    December 31,2008
                    
                    
                    2007
                    
                    
                    2008
                    
                    
                    2007Diluted
      earnings per share:Numerator:Net
      income (loss) allocable to common shareholders
                    
                    $
                    (1,314
                    )
                    
                    $
                    5,446
                    
                    
                    $
                    (1,228
                    )
                    
                    $
                    5,485Plus:
      Interest expense on convertible debt net of income taxes
                    
                    
                    -
                    
                    
                    
                    288
                    
                    
                    
                    -
                    
                    
                    
                    574Net
      income (loss) allocable to common shareholders
                    
                    $
                    (1,314
                    )
                    
                    $
                    5,734
                    
                    
                    $
                    (1,228
                    )
                    
                    $
                    6,059Denominator:Weighted
      average common shares outstanding
                    
                    
                    26,467
                    
                    
                    
                    17,082
                    
                    
                    
                    26,365
                    
                    
                    
                    17,082Effect
      of dilutive securities:Stock
      options
                    
                    
                    -
                    
                    
                    
                    517
                    
                    
                    
                    -
                    
                    
                    
                    508Warrants
                    
                    
                    -
                    
                    
                    
                    3,406
                    
                    
                    
                    -
                    
                    
                    
                    3,389Convertible
      Debt
                    
                    
                    -
                    
                    
                    
                    6,000
                    
                    
                    
                    -
                    
                    
                    
                    6,000Weighted
      average common shares outstanding assuming dilution
                    
                    
                    26,467
                    
                    
                    
                    27,005
                    
                    
                    
                    26,365
                    
                    
                    
                    26,979Net
      income (loss) per share - diluted
                    
                    $
                    (0.05
                    )
                    
                    $
                    0.21
                    
                    
                    $
                    (0.05
                    )
                    
                    $
                    0.22





Common
share equivalents consist of stock options and warrants (for which we used the
treasury stock method) and convertible notes payable (for which we used the “if
converted” method). For the three months ended December 31, 2007, there were
483,190 stock options excluded from the computation of diluted net income per
share because the exercise price of these was greater than the average market
price of the Company’s common stock during the period, and therefore the effect
is antidilutive.





For the
six months ended December 31, 2007, there were 655,920 stock options excluded
from the computation of diluted net income per share because the exercise price
of these was greater than the average market price of the Company’s common stock
during the period, and therefore the effect is antidilutive.


11





BERLINER
COMMUNICATIONS, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(Amounts
in thousands except for share and per share data)





Fair
Value of Financial Instruments





The
Company adopted SFAS No. 157, "Fair Value Measurements"
(“SFAS 157”) for cash and cash equivalents effective January 1, 2008. This
pronouncement defines fair value, establishes a framework for measuring fair
value, and requires expanded disclosures about fair value measurements. SFAS 157
emphasizes that fair value is a market-based measurement, not an entity-specific
measurement, and defines fair value as the price that would be received to sell
an asset or transfer a liability in an orderly transaction between market
participants at the measurement date. SFAS 157 discusses valuation techniques,
such as the market approach (comparable market prices), the income approach
(present value of future income or cash flow) and the cost approach (cost to
replace the service capacity of an asset or replacement cost), which are each
based upon observable and unobservable inputs. Observable inputs reflect market
data obtained from independent sources, while unobservable inputs reflect the
Company’s market assumptions. SFAS 157 utilizes a fair value hierarchy that
prioritizes inputs to fair value measurement techniques into three broad
levels:





Level
      1:
            Observable
      inputs such as quoted prices for identical assets or liabilities in active
      markets.Level
      2:
            Observable
      inputs other than quoted prices that are directly or indirectly observable
      for the asset or liability, including quoted prices for similar assets or
      liabilities in active markets; quoted prices for similar or identical
      assets or liabilities in markets that are not active; and model-derived
      valuations whose inputs are observable or whose significant value drivers
      are observable.Level
      3:
            Unobservable
      inputs that reflect the reporting entity’s own
  assumptions.




The
Company’s investment in overnight money market institutional funds, which
amounted to $1.2 million at December 31, 2008, is included in cash and cash
equivalents on the accompanying balance sheets and is classified as a Level 1
asset.





The
Company’s consolidated balance sheets include the following financial
instruments: short-term cash investments, trade accounts receivable and trade
accounts payable. The Company believes the carrying amounts in the financial
statements approximates the fair value of these financial instruments due to the
relatively short period of time between the origination of the instruments and
their expected realization or the interest rates which approximate current
market rates.





Concentration
of Credit Risk





Financial
instruments which potentially subject the Company to concentration of credit
risk consist principally of temporary cash investments and accounts receivable.
The Company does not enter into financial instruments for trading or speculative
purposes.





Stock-based
Compensation




We
elected to adopt Statement of Financial Accounting Standard No. 123 (revised
2004), Share Based
Payment (“SFAS 123R”) using a modified prospective application, whereby
the provisions of the SFAS 123R applied going forward only from the date of
adoption to new (issued subsequent to July 1, 2005) stock option awards, and for
the portion of any previously issued and outstanding stock option awards for
which the requisite service is rendered after the date of adoption. All of our
previously issued options had fully vested prior to July 1, 2005.





Compensation
expense must be recognized for any awards modified, repurchased or cancelled
after the date of adoption. Under the modified prospective application, no
restatement of previously issued results is required.




We use
the Black-Scholes Merton option-pricing model to measure fair value. This is the
same method we used in prior years for disclosure purposes.





Recently
Issued Accounting Pronouncements





In
September 2006, the Financial Accounting Standards Board ("FASB") issued SFAS
157 which is intended to increase consistency and comparability in fair value
measurements by defining fair value, establishing a framework for measuring fair
value and expanding disclosures about fair value measurements. The provisions of
SFAS No. 157, which are effective for financial statements issued for the fiscal
years beginning after November 15, 2008, and interim periods within those fiscal
years except as it relates to financial assets and liabilities, which we adopted
effective January 1, 2008. The Company has determined that the impact of SFAS
157 will not have a material effect to the financial statements taken as a
whole.


12


BERLINER
COMMUNICATIONS, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(Amounts
in thousands except for share and per share data)





In
February 2007, the FASB issued Statement of Financial Accounting Standards No.
159, The Fair Value Option for
Financial Assets and Financial Liabilities("SFAS 159"). This statement
permits companies to choose to measure many financial assets and liabilities at
fair value. Unrealized gains and losses on items for which the fair value option
has been elected are reported in earnings. We adopted SFAS 159 on July 1,
2008.  This adoption was not material to the financial statements
taken as a whole.





In
December 2007, the FASB issued Statement of Financial Accounting Standards No.
160, Noncontrolling Interests
in Consolidated Financial Statements, an amendment of ARB No. 51 (“SFAS
160”). This statement amends ARB No. 51 to establish accounting and reporting
standards for the noncontrolling interest (minority interest) in a subsidiary
and for the deconsolidation of a subsidiary. Upon its adoption, noncontrolling
interests will be classified as equity in our consolidated balance sheets.
Income and comprehensive income attributed to noncontrolling interests will be
included in our consolidated statements of operations and our consolidated
statements of equity. SFAS 160 is effective for fiscal years beginning after
December 15, 2008. This statement shall be applied prospectively as of the
beginning of the fiscal year in which this Statement is initially applied,
except for the presentation and disclosure requirements which must be applied
retrospectively for all periods presented.





In
December 2007, the FASB issued Statement of Financial Accounting Standards No.
141 (Revised), Business
Combinations (“SFAS 141R”). This statement provides companies with
principles and requirements on how an acquirer recognizes and measures in its
financial statements the identifiable assets acquired, liabilities assumed, and
any noncontrolling interest in the acquiree as well as the recognition and
measurement of goodwill acquired in a business combination. The statement also
requires certain disclosures to enable users of the financial statements to
evaluate the nature and financial effects of the business combination.
Acquisition costs associated with the business combination will generally be
expensed as incurred. SFAS 141R is effective for business combinations occurring
in fiscal years beginning after December 15, 2008. Early adoption of this
statement is not permitted.





In
February 2008, the FASB issued FASB Staff Position FAS No. 142-3, Determination of the Useful Life of
Intangible Assets(“FSP FAS 142-3”). This pronouncement amends FASB
Statement No. 142, Goodwill
and Other Intangible Assets, regarding the factors that should be
considered in developing the useful lives for intangible assets with renewal or
extension provisions. FSP FAS 142-3 requires an entity to consider its own
historical experience in renewing or extending similar arrangements, regardless
of whether those arrangements have explicit renewal or extension provisions,
when determining the useful life of an intangible asset. In the absence of such
experience, an entity shall consider the assumptions that market participants
would use about renewal or extension, adjusted for entity-specific factors. FSP
FAS 142-3 also requires an entity to disclose information regarding the extent
to which the expected future cash flows associated with an intangible asset are
affected by the entity’s intent and/or ability to renew or extend the
arrangement. FSP FAS 142-3 will be effective for qualifying intangible assets
acquired by the Company on or after July 1, 2009. The application of FSP FAS
142-3 is not expected to have a material impact on the Company’s results of
operations, cash flows or financial positions; however, it could impact future
transactions entered into by the Company.





In June
2008, the FASB ratified EITF Issue No. 07-5, Determining Whether an Instrument
(or an Embedded Feature) is Indexed to an Entity’s Own Stock(“EITF
07-5”). EITF 07-5 provides that an entity should use a two step approach to
evaluate whether an equity-linked financial instrument (or embedded feature) is
indexed to its own stock, including evaluating the instrument’s contingent
exercise and settlement provisions. It also clarifies on the impact of foreign
currency denominated strike prices and market-based employee stock option
valuation instruments on the evaluation. EITF 07-5 is effective for fiscal years
beginning after December 15, 2008. The Company is currently assessing the
impact, if any, on its consolidated financial position and results of
operations.





In May
2008, the FASB issued FASB Staff Position APB No. 14-1, Accounting for Convertible Debt
Instruments that May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement) (“APB 14-1”), which applies to convertible debt that includes
a cash conversion feature. Under APB 14-1, the liability and equity components
of convertible debt instruments within the scope of this pronouncement shall be
separately accounted for in a manner that will reflect the entity’s
nonconvertible debt borrowing rate when interest cost is recognized in
subsequent periods. APB 14-1 is effective for fiscal years beginning after
December 15, 2008. The Company is currently assessing the impact of the adoption
of APB 14-1 on the Company’s financial position or results of
operations.


13


BERLINER
COMMUNICATIONS, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(Amounts
in thousands except for share and per share data)





4.
            Accounts
      Receivable and Concentration of Credit
Risk





Accounts
receivable at December 31, 2008, and June 30, 2008, consist of the
following:




December 31,
                    
                    
                    June 30,2008
                    
                    
                    2008Accounts
      receivable
                    
                    $
                    15,286
                    
                    
                    $
                    23,870Unbilled
      receivables
                    
                    
                    6,228
                    
                    
                    
                    8,14921,514
                    
                    
                    
                    32,019Allowance
      for doubtful accounts
                    
                    
                    (712
                    )
                    
                    
                    (830
                    )Total
                    
                    $
                    20,802
                    
                    
                    $
                    31,189





Unbilled
receivables principally represent the value of services rendered to customers
not billed as of the balance sheet date.  Unbilled receivables are
generally billed within three months subsequent to the provision of the
services. Unbilled receivables include deferred revenue which represent amounts
that have been billed to customers as of the balance sheet date but for which
the requisite services have not yet been rendered. The total amount of deferred
revenue included in unbilled receivables was $0.2 million and $0.8 million at
December 31, 2008 and June 30, 2008, respectively.





For the
three months ended December 31, 2008, we derived 73% of our total revenue from
our six largest customers, and these customers represented 64% of our accounts
receivable.  Of those customers, three of them individually
represented greater than 5%of net revenue, one of
them represented 10% of our net revenue, one of them represented 13% of net
revenue and one of them represented 28% of our net revenue for the period. For
the three months ended December 31, 2007, we derived 99% of our total revenue
from our two largest customers.  Of those customers, one of them
represented 11% of net revenue for the period and one of them represented
88%of net revenue
for the period.





For the
six months ended December 31, 2008, we derived 72% of our total revenue from our
six largest customers, and these customers represented 66% of our accounts
receivable.  Of those customers, three of them individually
represented greater than 5%of net revenue, one of
them represented 13% of our net revenue, one of them represented 17% of net
revenue and one of them represented 25% of our net revenue for the period. For
the six months ended December 31, 2007, we derived 90% of our total revenue from
our two largest customers.  Of those customers, one of them
represented 5% of net revenue for the period and one of them represented
85%of net revenue
for the period.





5.
            Inventories





Inventories
totaled approximately $1.0 million as of December 31, 2008, and June 30, 2008.
Inventories, which consist mainly of parts and raw materials, are stated at the
lower of cost or market. Cost is determined using the average cost
method.





6.
            Non-Current
      Assets





Non-current
assets include amortizable intangible assets consisting of customer
relationships and covenants not to compete. These assets, together with
goodwill, were the result of the allocation of the purchase price for the
Digitcom and Radian acquisitions. Amortization expense related to amortizable
intangible assets was $0.1 million for the three months ended December 31, 2008
and 2007, and $0.2 million for the six months ended December 31, 2008 and
2007.





In
November 2008, we entered into an Agreement with T3 Communications, Inc. to
purchase certain of its assets and operations. There were no tangible assets
acquired, therefore, the acquisition price of $0.2 million has been
preliminarily allocated to Goodwill.


14


BERLINER
COMMUNICATIONS, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(Amounts
in thousands except for share and per share data)





Intangible
assets subject to amortization are amortized based upon the assets’ estimated
useful lives. Customer relationships have estimated useful lives of 70 months
and covenants not to compete have estimated useful lives of approximately 45
months. We will continue to evaluate the estimated useful lives on an ongoing
basis.





7.
            Accrued
      Liabilities




Accrued
liabilities at December 31, 2008, and June 30, 2008, consist of the
following:





December 31,
                  
                  
                  June 30,2008
                  
                  
                  2008Employee
      compensation
                  
                  $
                  1,269
                  
                  
                  $
                  2,998Construction
      costs
                  
                  
                  3,663
                  
                  
                  
                  8,107Other
                  
                  
                  737
                  
                  
                  
                  814$
                  5,669
                  
                  
                  $
                  11,919




Accrued
construction costs are reported net of amounts deferred in the calculation of
percentage of completion for our construction projects. The amount of deferred
expense included in accrued construction costs was $0.5 million and $0.8 million
at December 31, 2008 and June 30, 2008, respectively.




8.
            Income
      Taxes




We
adopted FIN 48 on July 1, 2007. We recognize interest, if any, as interest
expense, and penalties, if any, as a component of selling, general and
administrative expense in our consolidated financial statements. We file a
consolidated U.S. federal income tax return as well as income tax returns for
several state jurisdictions, of which New Jersey is the most significant. We
currently do not have any income tax returns which are under audit. Income tax
returns remain open for examination under U.S. and state statutes for years
ended June 30, 2005 and thereafter.




We
recorded an income tax benefit of $0.8 million and an income tax expense of $3.7
million for the three months ended December 31, 2008 and 2007, respectively, and
an income tax benefit of $0.5 million and an income tax expense of $3.7 million
for the six months ended December 31, 2008 and 2007,
respectively.  Included in the income tax expense for the first
quarter of fiscal 2009 is approximately $0.2 million representing an adjustment
to certain items previously considered deductible to our fiscal year end 2008
income tax expense. This amount was not material to either our income tax
expense or net income for the fiscal year end 2008. This amount is reflected as
a current tax expense for the six months ended December 31, 2008.




9.
            Line
      of Credit




PNC
Bank, National Association Facility





On April
17, 2008, our wholly owned subsidiary BCI Communications, Inc. (“BCI”), as
borrower, became obligated under a Revolving Credit and Security Agreement (the
“PNC Facility”) with PNC Bank, National Association (“PNC”) and such other
lenders as may thereafter become a party to the PNC Facility (collectively, the
“Lenders”).  Under the terms of the PNC Facility, BCI is entitled to
request that the Lenders make revolving advances to BCI from time to time in an
amount up to the lesser of (i) 85% of the value of certain receivables owned by
BCI and approved by the Lenders as collateral or (ii) a total of $15.0
million.  Such revolving advances were used by BCI to repay existing
indebtedness owed to Presidential Financial Corporation of Delaware Valley
(“Presidential”), pay fees and expenses relating to entering into the PNC
Facility and provide for BCI’s working capital needs and shall be used to assist
in the acquisition of companies engaged in the same line of business as
BCI.


15


BERLINER
COMMUNICATIONS, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(Amounts
in thousands except for share and per share data)




Interest
on the revolving advances shall accrue (a) for domestic rate loans, at a rate
per annum equal to the higher of (i) the base commercial lending rate of PNC as
publicly announced to be in effect from time to time, or (ii) the federal funds
open rate plus 1/2 of 1%, and (b) for Eurodollar rate loans, at a rate per annum
equal to (i) the rate at which U.S. dollar deposits are offered by leading banks
in the London interbank deposit market (as displayed by Bloomberg), divided by
(ii) one minus the reserve percentage requirement as determined by the Board of
Governors of the Federal Reserve System.  Such amounts are secured by
a blanket security interest in favor of the Lenders that covers all of BCI’s
receivables, equipment, general intangibles, inventory, investment property,
certain real property, certain leasehold interests, all subsidiary stock,
records and other property and proceeds of all of the foregoing.




The term
of the PNC Facility is three years and shall terminate on April 17,
2011.  BCI may terminate the PNC Facility at any time upon sixty (60)
days’ prior written notice and upon payment in full of the obligations owing
under the PNC Facility or any related documents.  Upon such early
termination by BCI, BCI shall pay the Lenders an early termination fee in an
amount equal to (y) one half of one percent (0.50%) of $15.0 million if the
early termination occurs on or before April 16, 2009, and (z) three eighths of
one percent (0.375%) of $15.0 million if the early termination occurs on or
after April 17, 2009 or on or before April 16, 2010.  During the term
of the PNC Facility, BCI shall observe certain customary financial covenants,
including maintaining a Fixed Charge Coverage Ratio (as that term is defined in
the PNC Facility) of not less than 1.10 to 1.00.  On February 13,
2009, we determined that we were no longer in compliance with the Fixed Charge
Coverage Ratio covenant.  A violation of this financial covenant,
unless waived by the Lenders, constitutes an event of default under the PNC
Facility, giving the Lenders the right to (i) accelerate all of BCI’s
indebtedness and any interest accrued thereon under the PNC Facility, (ii)
terminate the PNC Facility, (iii) refuse to make any additional advances under
the PNC Facility, and (iv) exercise any and all other rights or remedies as
provided for in the PNC Facility including, but not limited to, increasing the
interest rate for revolving Domestic Loans (as defined in the PNC Facility) by
two percent (2%) per annum.  As of February 17, 2009, there were no
outstanding amounts borrowed under the PNC Facility, but there may be in the
future if we elect to draw upon the line.  While we do not expect the
Lenders to immediately terminate the PNC Facility or demand immediate repayment
of the outstanding debt, if any, as a result of the aforementioned event of
default, the Lenders have the right to do so.




BCI is in
discussion with the Lenders to waive the current non-compliance with the
financial covenant and enter into an amendment to the PNC
Facility.  While BCI expects to negotiate an acceptable resolution,
there can be no assurance that BCI will be able to negotiate a waiver or an
amendment, or that such waiver or amendment will be on terms acceptable to
BCI.  If BCI is unable to obtain a waiver from or enter into an
amendment with the Lenders, it could have a material adverse effect on our
financial position and our ability to execute our growth plans.




In
connection with the closing of the PNC Facility, Berliner Communications, Inc.
became obligated under that certain Guaranty and Suretyship Agreement (the
“Guaranty”), dated April 17, 2008, in favor of the Lenders, pursuant to which we
unconditionally guaranteed and became surety for the prompt payment and
performance of all loans, advances, debts, liabilities, obligations, covenants
and duties owing by BCI to PNC as agent for the benefit of the Lenders, of any
kind or nature, present or future, whether direct or indirect, absolute or
contingent, joint or several, due or to become due, now existing or hereafter
arising, to the Lenders by BCI.  In the event BCI is unable to pay any
amounts owed to the Lenders, we would be liable, pursuant to the Guaranty, for
such amounts upon the same terms and conditions as BCI would be
liable.




Along
with the PNC Facility, BCI entered into a Revolving Credit Note (the “PNC Note”)
with the Lenders, pursuant to which, BCI agreed to repay the Lenders the
principal amount of $15.0 million or, if different from such amount, the unpaid
balance of advances due and owing to PNC under the PNC Facility, plus interest
on the principal amount from time to time outstanding until such principal
amount is paid in full, at the applicable interest rates in accordance with the
provisions of the PNC Facility.  The PNC Note is subject to mandatory
prepayment upon default under the terms of the agreement and may be voluntarily
prepaid, in whole or in part, on the terms and conditions set forth in the PNC
Facility.  Upon the occurrence of an event of default due to
bankruptcy or BCI’s inability to pay, the PNC Note shall immediately become due
and payable, without notice.  Other uncured defaults under the PNC
Facility or any related document shall cause the PNC Note to be declared
immediately due and payable, without notice, in accordance with the terms of the
PNC Facility.  Notwithstanding the foregoing, all outstanding
principal and interest are due and payable on April 17, 2011.  The
balance outstanding at December 31, 2008 and June 30, 2008 was $0 and $0.2
million, respectively.


16


BERLINER
COMMUNICATIONS, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(Amounts
in thousands except for share and per share data)





10.
            Stock-Based
      Compensation





At
December 31, 2008, we sponsored two stock option plans, the 1999 Omnibus
Securities Plan (the “1999 Plan”) and the 2001 Equity Incentive Plan (the “2001
Plan”), collectively (the “Plans”). We have elected to account for those Plans
under SFAS 123R.





The Plans
provide for the grant of incentive stock options and non-qualified stock
options. The terms of the options are set by our Board of Directors. The options
expire no later than ten years after the date the stock option is granted. The
number of shares authorized for grants under the Plans is 15% of the total
outstanding common stock as computed by the Company as fully diluted, provided
that no more than 4 million options can be “incentive” stock options. The 2001
Plan provides for the grant of a maximum of 40,000 incentive stock options that
expire no later than ten years after the date the stock option is
granted.





Our Board
of Directors, in the case of executive officer and director grants, and the
stock plan committee of our Board of Directors, in the case of other grants, is
responsible for determining the type of award, when and to whom awards are
granted, the number of shares and terms of the awards and the exercise
price.  The options are exercisable for a period not to exceed ten
years from the date of the grant, unless otherwise approved by the
committee.  Vesting periods range from immediately vesting to vesting
annually over four years.





Stock-based
compensation expense of approximately $0.2 million and $28 thousand was recorded
during the three months ended December 31, 2008, and 2007, respectively and $0.3
million and $0.1 million during the six months ended December 31, 2008 and 2007,
respectively.  The fair value of each stock option grant is estimated
on the grant date using the Black-Scholes Merton option-pricing model with the
following assumptions: dividend yield of 0%; expected volatility of between 64%
and 67% (derived from peer company implied estimated volatility); expected term
of 6.25 years (based on our best estimate since we do not have adequate
historical data); and risk-free interest rate between 2.06% and 3.06% based on
the yield at the time of grant of a U.S. Treasury security with an equivalent
remaining term.





The
following table summarizes share-based award activity under our stock option
plans:




2001 Plan
                                  
                                  
                                  1999 Plan
                                  
                                  
                                  Non-PlanWeighted
                                  
                                  
                                  
                                  
                                  
                                  Weighted
                                  
                                  
                                  
                                  
                                  
                                  WeightedAverage
                                  
                                  
                                  
                                  
                                  
                                  Average
                                  
                                  
                                  
                                  
                                  
                                  AverageNumber
                                  
                                  
                                  Exercise
                                  
                                  
                                  Number
                                  
                                  
                                  Exercise
                                  
                                  
                                  Number
                                  
                                  
                                  Exerciseof Shares
                                  
                                  
                                  Price
                                  
                                  
                                  of Shares
                                  
                                  
                                  Price
                                  
                                  
                                  of
      Shares
                                  
                                  
                                  PriceBalance
      at June 30, 2008
                                  
                                  
                                  16,891
                                  
                                  
                                  $
                                  1,387.50
                                  
                                  
                                  
                                  1,413,685
                                  
                                  
                                  $
                                  3.37
                                  
                                  
                                  
                                  18,704
                                  
                                  
                                  $
                                  6,786.00Options
      granted at fair value
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  923,326
                                  
                                  
                                  
                                  1.43
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Options
      exercised
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Options
      cancelled
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (84,727
                                  )
                                  
                                  
                                  1.12
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Outstanding
      at December  31, 2008
                                  
                                  
                                  16,891
                                  
                                  
                                  $
                                  1,387.50
                                  
                                  
                                  
                                  2,252,284
                                  
                                  
                                  $
                                  2.66
                                  
                                  
                                  
                                  18,704
                                  
                                  
                                  $
                                  6,786.00Exercisable
      at December 31, 2008
                                  
                                  
                                  16,891
                                  
                                  
                                  $
                                  1,387.50
                                  
                                  
                                  
                                  1,087,196
                                  
                                  
                                  $
                                  4.08
                                  
                                  
                                  
                                  18,704
                                  
                                  
                                  $
                                  6,786.00




17


BERLINER
COMMUNICATIONS, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(Amounts
in thousands except for share and per share data)





Nonvested
options activity:




2001 Plan
                              
                              
                              1999 Plan
                              
                              
                              Non-PlanWeighted
                              
                              WeightedAverage
                              
                              AverageNumber
                              
                              
                              Number
                              
                              Exercise
                              
                              Fair
                              
                              
                              Numberof Shares
                              
                              
                              of Shares
                              
                              Price
                              
                              Value
                              
                              
                              of SharesBalance
      at June 30, 2008
                              
                              
                              -
                              
                              
                              
                              631,613
                              
                              
                              $
                              1.14
                              
                              
                              $
                              0.81
                              
                              
                              
                              -Options
      granted at fair value
                              
                              
                              -
                              
                              
                              
                              923,326
                              
                              
                              
                              1.43
                              
                              
                              
                              0.65
                              
                              
                              
                              -Options
      vested
                              
                              
                              -
                              
                              
                              
                              (323,952
                              )
                              
                              
                              1.26
                              
                              
                              
                              0.62
                              
                              
                              
                              -Options
      cancelled
                              
                              
                              -
                              
                              
                              
                              (65,899
                              )
                              
                              
                              1.17
                              
                              
                              
                              0.67
                              
                              
                              
                              -Outstanding
      at December 31, 2008
                              
                              
                              -
                              
                              
                              
                              1,165,088
                              
                              
                              $
                              1.33
                              
                              
                              $
                              0.75
                              
                              
                              
                              -





At
December 31, 2008, the range of exercise prices, weighted average exercise price
and weighted average remaining contractual life for options outstanding are as
follows:





Options Outstanding and ExercisableWeightedWeighted
                    
                    AverageAverage
                    
                    RemainingNumber
                    
                    
                    
                    Exercise
                    
                    ContractualOption Price Range
                    
                    of Shares
                    
                    Exercisable
                    
                    Price
                    
                    Life2001
      Plan
                    
                    
                    
                    $
                    1,387.50
                    
                    16,890
                    
                    16,890
                    
                    $
                    1,387.50
                    
                    2.03
      Years1999
      Plan
                    $
                    0.30
                    to
                    $
                    0.81
                    
                    665,750
                    
                    650,500
                    
                    $
                    0.49
                    
                    7.39
      Years$
                    0.90
                    to
                    $
                    1.48
                    
                    1,582,534
                    
                    432,696
                    
                    $
                    1.33
                    
                    9.12
      Years$
                    7.05
                    
                    167
                    
                    167
                    
                    $
                    7.05
                    
                    5.54
      Years$
                    8.01
                    
                    250
                    
                    250
                    
                    $
                    8.01
                    
                    5.16
      Years$
                    16.50
                    
                    2,417
                    
                    2,417
                    
                    $
                    16.50
                    
                    1.52
      Years$
                    3,000.00
                    
                    1,167
                    
                    1,167
                    
                    $
                    3,000.00
                    
                    0.77
      YearsNon-Plan
                    
                    
                    
                    $
                    3,600.00
                    
                    636
                    
                    636
                    
                    $
                    3,600.00
                    
                    1.19
      Years$
                    6,900.00
                    
                    18,067
                    
                    18,067
                    
                    $
                    6,900.00
                    
                    1.26
      Years





11.
            Related
      Party Transactions





Pursuant
to the provisions of the Note Purchase Agreement dated December 29, 2006 (the
“Note Purchase Agreement”) between us and Sigma Opportunity Fund, LLC (“Sigma”),
so long as Sigma beneficially owns at least 5% of our outstanding common stock,
Sigma has the right to nominate one director to our Board of Directors. On
December 29, 2006, Sigma nominated, and our Board of Directors appointed, Thom
Waye to serve as a member of our Board of Directors as a Class III director,
with his term expiring at the 2008 annual meeting. We are obligated to use our
best efforts to cause Mr. Waye, as well as all reasonably suited future
designees, to continue to serve on our Board of Directors. We paid Sigma $0 and
$53 thousand during the three months ended December 31, 2008 and 2007,
respectively, and $0 and $0.1 million during the six months ended December 31,
2008 and 2007, respectively, in interest on a note payable to Sigma. We paid Mr.
Waye $21 thousand and $12 thousand during the three months ended December 31,
2008 and 2007, respectively, and $21 thousand and $13 thousand during the six
months ended December 31, 2008 and 2007, respectively, for his service as a
director pursuant to our standard non-employee director compensation program. In
addition, we issued 25,000 shares of our common stock to each of Mr. Waye and
all of our outside independent directors. The value of the stock issued to each
director was $28 thousand at the time of issuance.


18


BERLINER
COMMUNICATIONS, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(Amounts
in thousands except for share and per share data)





On
February 15, 2007, we entered into a Joinder Agreement to the Note Purchase
Agreement with Sigma Berliner, LLC, (“Sigma Berliner”) an affiliate of Sigma and
Thom Waye, and issued a note to Sigma Berliner in the principle amount of $1.5
million (the “Sigma Berliner Note”) and a warrant to purchase 750,000 shares of
our common stock. This transaction was the result of Sigma exercising a right
that Sigma negotiated as part of a December 29, 2006 transaction, at a time at
which it was not an affiliate of Berliner. During the three and six months ended
December 31, 2008 and 2007, we paid Sigma Berliner $0 and $26 thousand, and $0
and $52 thousand, respectively, in interest on the Sigma Berliner
Note.





On
September 9, 2008, we entered into an Agreement and Plan of Reorganization (the
“Plan”) consisting of a one-for-one share exchange with Old Berliner, Inc. (“Old
Berliner”), our then-largest stockholder.  For a description of this
transaction, see Note 14.





12.           Legal
Proceedings





We and
our subsidiaries are involved in legal proceedings from time to time, none of
which we believe, if decided adversely to us, would have a material adverse
effect on our business, financial condition or results of
operations.




13.           Segment
Financial Data




We
currently report our financial results on the basis of two reportable segments:
(1) infrastructure construction and technical services and (2) site acquisition
and zoning.  The segments are determined in accordance with how
management views and evaluates our business based on the aggregation criteria as
outlined in FASB Statement No. 131, “Disclosures about Segments of an
Enterprise and Related Information.”  Operating income, as presented
below, is defined as gross margin less selling, general and administrative
expenses, depreciation and amortization, and loss on sale of fixed
assets.  We do not identify or allocate assets, including capital
expenditures, by operating segment.  Accordingly, assets are not
reported by segment because the information is not available and is not reviewed
in the evaluation of segment performance or in making decisions in the
allocation of resources.   Selected segment financial information
for the three and six months ended December 31, 2008, and 2007, is presented
below:




Three Months Ended December 31,2008
                    
                    
                    2007Infrastructure
                    
                    
                    Site
                    
                    
                    
                    
                    
                    Infrastructure
                    
                    
                    SiteConstruction
                    
                    
                    Acquisition
                    
                    
                    Total
                    
                    
                    Construction
                    
                    
                    Acquisition
                    
                    
                    TotalRevenue
                    
                    $
                    13,035
                    
                    
                    $
                    1,500
                    
                    
                    $
                    14,535
                    
                    
                    $
                    44,433
                    
                    
                    $
                    7,700
                    
                    
                    $
                    52,133Cost
      of revenue
                    
                    
                    10,138
                    
                    
                    
                    760
                    
                    
                    
                    10,898
                    
                    
                    
                    29,228
                    
                    
                    
                    5,195
                    
                    
                    
                    34,423Gross
      margin
                    
                    
                    2,897
                    
                    
                    
                    740
                    
                    
                    
                    3,637
                    
                    
                    
                    15,205
                    
                    
                    
                    2,505
                    
                    
                    
                    17,710Selling,
      general and administrative expenses
                    
                    
                    5,576
                    
                    
                    
                    (126
                    )
                    
                    
                    5,450
                    
                    
                    
                    6,552
                    
                    
                    
                    1,066
                    
                    
                    
                    7,618Depreciation
      and amortization
                    
                    
                    291
                    
                    
                    
                    34
                    
                    
                    
                    325
                    
                    
                    
                    235
                    
                    
                    
                    49
                    
                    
                    
                    284Gain
      on sale of fixed assets
                    
                    
                    (4
                    )
                    
                    
                    (1
                    )
                    
                    
                    (5
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Operating
      income
                    
                    $
                    (2,966
                    )
                    
                    $
                    833
                    
                    
                    $
                    (2,133
                    )
                    
                    $
                    8,418
                    
                    
                    $
                    1,390
                    
                    
                    $
                    9,808




19


BERLINER
COMMUNICATIONS, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Amounts
in thousands except for share and per share data)


Six Months Ended December 31,2008
                    
                    
                    2007Infrastructure
                    
                    
                    Site
                    
                    
                    
                    
                    
                    Infrastructure
                    
                    
                    SiteConstruction
                    
                    
                    Acquisition
                    
                    
                    Total
                    
                    
                    Construction
                    
                    
                    Acquisition
                    
                    
                    TotalRevenue
                    
                    $
                    24,751
                    
                    
                    $
                    2,870
                    
                    
                    $
                    27,621
                    
                    
                    $
                    62,918
                    
                    
                    $
                    12,357
                    
                    
                    $
                    75,275Cost
      of revenue
                    
                    
                    17,529
                    
                    
                    
                    844
                    
                    
                    
                    18,373
                    
                    
                    
                    42,064
                    
                    
                    
                    8,984
                    
                    
                    
                    51,048Gross
      margin
                    
                    
                    7,222
                    
                    
                    
                    2,026
                    
                    
                    
                    9,248
                    
                    
                    
                    20,854
                    
                    
                    
                    3,373
                    
                    
                    
                    24,227Selling,
      general and administrative expenses
                    
                    
                    10,297
                    
                    
                    
                    346
                    
                    
                    
                    10,643
                    
                    
                    
                    11,048
                    
                    
                    
                    2,026
                    
                    
                    
                    13,074Depreciation
      and amortization
                    
                    
                    563
                    
                    
                    
                    65
                    
                    
                    
                    628
                    
                    
                    
                    417
                    
                    
                    
                    95
                    
                    
                    
                    512Loss
      (gain) on sale of fixed assets
                    
                    
                    (4
                    )
                    
                    
                    (1
                    )
                    
                    
                    (5
                    )
                    
                    
                    6
                    
                    
                    
                    2
                    
                    
                    
                    8Operating
      income
                    
                    $
                    (3,634
                    )
                    
                    $
                    1,616
                    
                    
                    $
                    (2,018
                    )
                    
                    $
                    9,383
                    
                    
                    $
                    1,250
                    
                    
                    $
                    10,633





14.           Subsequent
Event





Reorganization
of Old Berliner, Inc.





On
September 9, 2008, we entered into the Plan consisting of a one-for-one share
exchange with Old Berliner.  The transaction, which was approved by
the Old Berliner stockholders on January 30, 2009, was designed to simplify our
ownership structure, increase the number of shares in our “public float”, and we
expect it may also improve liquidity for our stockholders.





The Plan
calls for us and Old Berliner to exchange substantially all the assets of Old
Berliner, which consist primarily of 13,104,644 shares of our common stock, in
exchange for 13,104,644 newly issued shares of our common stock (the “Issued
Shares”). Pursuant
to the Plan, on February 4, 2009, Old Berliner transferred 13,104,644 shares of
our common stock for 13,104,644 newly issued shares of our common
stock.  Old Berliner will no longer engage in any business and will
now promptly liquidate and dissolve as a corporation and, after making provision
for any existing liabilities, whether fixed or contingent, distribute its assets
to the shareholders of Old Berliner in complete cancellation and redemption of
their shares of Old Berliner capital stock.





We
continue to have the same number of shares outstanding as we had prior to the
February 4, 2009 exchange.  Because of the large number of
shareholders of Old Berliner with no affiliation to us, we expect this
transaction to potentially increase our public float by approximately 5 million
shares.  Under the Plan, we did not assume any liabilities or
obligations of Old Berliner, but each of us and Old Berliner has agreed to
indemnify the other party and its successors and assigns against losses and
damages incurred by any one party for any breach of any of the representations,
warranties, covenants or agreements made by the other party pursuant to the
Plan.





Rich
Berliner, our Chief Executive Officer, President and Chairman of our Board of
Directors, is also the Chief Executive Officer, President and Chairman of the
Board of Old Berliner and owned 57.4% of the outstanding common stock of Old
Berliner.  Old Berliner, at the time the transaction was approved,
held 49.4% of our outstanding stock.  Therefore, Mr. Berliner had the
power to control Old Berliner, and, through Old Berliner, had effective control
of us. We expect Mr. Berliner to beneficially own approximately 28.5%
of our outstanding stock after the distribution of the assets of Old Berliner is
complete.


20


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





Cautionary
Statement for the Purposes of the “Safe Harbor” Provisions of the Private
Securities Litigation Reform Act of 1995




Certain
information included in this Quarterly Report on Form 10-Q (the “Quarterly
Report”) and in our other reports, SEC filings, statements and presentations is
forward-looking within the meaning of the Private Securities Litigation Reform
Act of 1995, including, but not limited to, statements concerning our
anticipated operating results, financial resources, growth and expansion and the
ability to obtain new contracts.  Such forward-looking information
involves important risks and uncertainties that could significantly affect
actual results and cause them to differ materially from expectations expressed
herein and in other reports, SEC filings, statements and
presentations.   Therefore, this Quarterly Report should only be
read in context described under “Forward-Looking Statements” and “Risk Factors”
below.





Forward-Looking
Statements





The SEC
encourages companies to disclose forward-looking information so that investors
and stockholders can better understand a company’s future prospects and make
investment decisions.  “Forward-looking” statements appear throughout
this Quarterly Report.  We have based these forward-looking statements
on our current expectations and projections about future events.  We
have attempted, wherever possible, to identify such statements by using words
such as 
“anticipates,”
“estimates,”“expects,”
“projects,” “intends,” “plans,” “believes” and words and terms of similar
substance in connection with any discussions of future operating or financial
performance.




The
important factors listed in Part II, Item 1A of this Quarterly Report and in our
Annual Report on Form 10-K for our fiscal year ended June 30, 2008 (the “Annual
Report”) under the heading entitled “Risk Factors,” as well as all other
cautionary language in this Quarterly Report, provide examples of risks,
uncertainties and events that may cause actual results to differ materially from
the expectations described in these “forward-looking” statements.  It
is important to note that the occurrence of the events described in these
considerations and elsewhere in this Quarterly Report and our Annual Report
could have an adverse effect on the business, results of operations or financial
condition of the entity affected.




Forward-looking
statements in this Quarterly Report include, without limitation, statements
concerning:




·
            our
      ability to generate future revenue;


§
            our
      financial condition and strategic
direction;


§
            our
      future capital requirements and our ability to satisfy our capital
      needs;




§
            our
      ability to adequately staff our service
  offerings;


§
            the
      potential for cost overruns and costs incurred upon failing to meet agreed
      standards;


§
            opportunities
      for us from new and emerging wireless
  technologies;


§
            our
      ability to obtain additional
financing;


§
            our
      growth strategy;


§
            trends
      in the wireless telecommunications
industry;




§
            our
      competitive position; and


§
            other
      statements that contain words like“believe,”
      “anticipate,” “expect” and similar expressions are also used to identify
      forward-looking statements.





It is
important to note that all of our forward-looking statements are subject to a
number of risks, assumptions and uncertainties, such as (and in no particular
order):





·
            risks
      related to our recent decrease in
revenue;


§
            risks
      related to our ability to secure an amendment to our credit facility with
      PNC Bank;§
            risks
      related to the market for our
shares;


§
            risks
      related to disruptions in the global capital
  markets;


§
            risks
      related to a concentration of revenue from a small number of
      customers;


§
            risks
      associated with competition in the wireless telecommunications
      industry;


§
            risks
      that we will not be able to generate positive cash
  flow;


§
            risks
      that we may not be able to obtain additional
  financing;




21




§
            risks
      that we will not be able to take advantage of new and emerging wireless
      technologies; and


§
            risks
      that we will be unable to adequately staff our service
      offerings.





This list
is only an example of the risks that may affect the forward-looking statements.
If any of these risks or uncertainties materialize (or if they fail to
materialize), or if the underlying assumptions are incorrect, then actual
results may differ materially from those projected in the forward-looking
statements.




Additional
factors that could cause actual results to differ materially from those
reflected in the forward-looking statements include, without limitation, those
discussed elsewhere in this Quarterly Report.  It is important not to
place undue reliance on these forward-looking statements, which reflect our
analysis, judgment, belief or expectation only as of the date of this Quarterly
Report. We undertake no obligation to publicly revise these forward-looking
statements to reflect events or circumstances that arise after the date of this
Quarterly Report.





Summary of Operating
Results





The
following table presents consolidated selected financial information. The
statement of operations data for the three and six months ended December 31,
2008, and 2007, has been derived from our unaudited consolidated financial
statements that, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, necessary to state fairly the
data for such period.  We operate in two reportable segments: (1)
infrastructure construction and technical services, and (2) site acquisition and
zoning to wireless communications carriers.





All
amounts presented herein are expressed in thousands, except share and per-share
data, unless otherwise specifically noted.





Three months ended
                                                                                                        
                                                                                                        Six months endedDecember 31,
                                                                                                        
                                                                                                        December 31,2008
                                                                                                        
                                                                                                        2007
                                                                                                        
                                                                                                        2008
                                                                                                        
                                                                                                        2007Statement of Operations Data:Revenue
                                                                                                        
                                                                                                        $
                                                                                                        14,535
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        52,133
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        27,621
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        75,275Gross
      margin
                                                                                                        
                                                                                                        
                                                                                                        3,637
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        17,710
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        9,248
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        24,227Operating
      income (loss)
                                                                                                        
                                                                                                        
                                                                                                        (2,133
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        9,808
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (2,018
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        10,633Net
      income (loss)
                                                                                                        
                                                                                                        
                                                                                                        (1,314
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        5,446
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (1,228
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        5,485Net
      income (loss) per shareBasic
                                                                                                        
                                                                                                        $
                                                                                                        (0.05
                                                                                                        )
                                                                                                        
                                                                                                        $
                                                                                                        0.32
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        (0.05
                                                                                                        )
                                                                                                        
                                                                                                        $
                                                                                                        0.32Diluted
                                                                                                        
                                                                                                        $
                                                                                                        (0.05
                                                                                                        )
                                                                                                        
                                                                                                        $
                                                                                                        0.21
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        (0.05
                                                                                                        )
                                                                                                        
                                                                                                        $
                                                                                                        0.22December 31,
                                                                                                        
                                                                                                        June 30,2008
                                                                                                        
                                                                                                        2008Balance
      Sheet Data:Current
      assets
                                                                                                        
                                                                                                        $
                                                                                                        26,167
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        36,672Total
      assets
                                                                                                        
                                                                                                        
                                                                                                        32,601
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        43,269Current
      liabilities
                                                                                                        
                                                                                                        
                                                                                                        10,236
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        20,056Long-term
      debt, net of debtdiscount
      and current portion
                                                                                                        
                                                                                                        
                                                                                                        569
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        772Stockholder's
      equity
                                                                                                        
                                                                                                        
                                                                                                        21,672
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        22,337




22





Three
months ended December 31, 2008, compared to three months ended December 31,
2007


(Amounts
in Thousands Unless Otherwise Stated)





Revenue





Three months endedDecember 31,2008
                    
                    2007
                    
                    (Decrease)Infrastructure
      construction and technical services
                    
                    $
                    13,035
                    
                    
                    $
                    44,433
                    
                    
                    $
                    (31,398
                    )Site
      acquisition and zoning
                    
                    
                    1,500
                    
                    
                    
                    7,700
                    
                    
                    
                    (6,200
                    )Total
                    
                    $
                    14,535
                    
                    
                    $
                    52,133
                    
                    
                    $
                    (37,598
                    )





We had
revenue of $14.5million for the three
months ended December 31, 2008, versus $52.1 million for the three months ended
December 31, 2007.  This represents a decrease of $37.6 million, or
72%. Revenue from infrastructure construction and technical services decreased
$31.4 million from $44.4 million, or 71% for the three months ended December 31,
2008 as compared to the three months ended December 31, 2007. Revenue from site
acquisition and zoning decreased $6.2 million from $7.7 million, or 81%, for the
three months ended December 31, 2008 as compared to the three months ended
December 31, 2007. This decrease in revenue is related to several
factors:




·
            Our
      largest customer during fiscal 2008, Sprint Nextel, cancelled purchase
      orders for work previously awarded to us, and asked us to delay the
      completion of other purchase orders.  These cancellations and
      delays were related to Sprint’s sale of its fourth generation, or 4G,
      WiMax networks business to Clearwire Communications, and were unrelated to
      our performance on these projects. This impacted our financial results in
      the quarters ended September 30 and December 31, 2008 and we expect it to
      continue to impact our financial results in the third and fourth quarter
      of fiscal 2009.  We have received purchase orders related to the
      continuation of this work, and while we believe the 4G project will be a
      large one, we cannot predict with certainty when this work will pick-up
      again in earnest, or to what extent we will be asked to provide services
      to support this network build-out.




·
            We
      had an extraordinarily strong second quarter of fiscal 2008 because of a
      significant push by our then-largest customer to complete a large number
      of jobs during this period.  As previously reported, we did not
      expect to match such results again this
quarter.




Going
forward, the general downturn in national and global economic conditions
may impact us and possibly our customers, subcontractors, vendors and suppliers,
but we cannot predict the extent of this impact at this time.  We are
seeing some pricing pressure in some of our service lines, but we believe this
is attributable to a shift in our customer base and not necessarily economic
conditions.  In addition, bidding for some new projects has become
more competitive.  At the same time we are continuing to win new work
across the country. Therefore, while we do not expect our quarterly revenue
for the remainder of fiscal 2009 to match our revenue for the same periods in
fiscal 2008, we do not expect it to decline sequentially during the third and
fourth quarters of fiscal 2009 because of the new business we have been
awarded.




Historically
we win and begin projects on an irregular basis, and, therefore, we have seen in
normal economic conditions considerable variability in our historic quarterly
results.  In light of this, and the broad-based uncertainty
surrounding general economic conditions, we expect to continue to see
significant quarterly variability throughout our fiscal 2009 and beyond.
Therefore, we consider our annual results to be the most appropriate measure for
evaluating our business.  We expect our fiscal 2009 annual results to
be significantly lower than our fiscal 2008 financial results, primarily because
of the above referenced factors.  However, we believe our overall
financial position is strong, we have a diverse and growing customer base, and
we have developed a platform for sustained and continued long-term growth beyond
fiscal 2009.




We
recognize revenues from contracts from infrastructure construction and technical
services and site acquisition and zoning on the percentage-of-completion method
of accounting.




23




Cost
of Revenue


Three months endedDecember 31,2008
                    
                    2007
                    
                    (Decrease)Infrastructure
      construction and technical services
                    
                    $
                    10,138
                    
                    
                    $
                    29,228
                    
                    
                    $
                    (19,090
                    )Site acquisition
      and zoning
                    
                    
                    760
                    
                    
                    
                    5,195
                    
                    
                    
                    (4,435
                    )Total
                    
                    $
                    10,898
                    
                    
                    $
                    34,423
                    
                    
                    $
                    (23,525
                    )





Our cost
of revenue was $10.9million and $34.4
million for the three months ended December 31, 2008 and 2007,
respectively.  This represents a decrease of $23.5 million, or 68%,
during a period when revenue decreased 72%. These amounts represent 75% and 66%
of total revenue for the three months ended December 31, 2008 and 2007,
respectively.




Cost of
revenue for infrastructure construction and technical services decreased $19.1
million from $29.2 million for the three months ended December 31, 2007 to $10.1
million for the three months ended December 31, 2008. This represents a decrease
of 65% during a period when corresponding revenue decreased 71%.




Cost of
revenue for site acquisition and zoning decreased $4.4 million from $5.2 million
for the three months ended December 31, 2007 to $0.8 million for the three
months ended December 31, 2008. This represents a decrease of 85% during a
period when corresponding revenue decreased 81%.




Gross
Margin





Three months endedDecember 31,2008
                  
                  2007
                  
                  (Decrease)Infrastructure
      construction and technical services
                  
                  $
                  2,897
                  
                  
                  $
                  15,205
                  
                  
                  $
                  (12,308
                  )Site
      acquisition and zoning
                  
                  
                  740
                  
                  
                  
                  2,505
                  
                  
                  
                  (1,765
                  )$
                  3,637
                  
                  
                  $
                  17,710
                  
                  
                  $
                  (14,073
                  )





Our gross
margin for the three months ended December 31, 2008, was $3.6 million as
compared to $17.7million for the three
months ended December 31, 2007.  Our gross margin as a percentage of
revenue was approximately 25% for the three months ended December 31, 2008, as
compared to 34% for the three months ended December 31, 2007.




In light
of the current telecommunications market and economic conditions in general, we
have decided to market our services more aggressively than we have in the past.
Competition has increased and many of our customers are exploring ways to reduce
costs, which could impact pricing for some services. This has led to a decrease
in our gross profit margins, which we believe will continue to be lower than our
historic margins at least through the end of fiscal 2009.





Selling,
General and Administrative Expenses





Selling,
general and administrative expenses for the three months ended December 31, 2008
were $5.5 million as compared to $7.6 million for the three months ended
December 31, 2007. This represents an overall decrease of $2.1 million, or 28%,
which consists primarily of decreases in insurance and professional fees of $0.6
million, rent and other occupancy costs of $0.3 million and payroll related
expenses of $1.5 million.





Depreciation
and Amortization





Depreciation
recorded on fixed assets during the three months ended December 31, 2008 totaled
approximately $0.2 million as compared to $0.2 million for the three months
ended December 31, 2007. Amortization of intangible assets acquired as a result
of the Digitcom and Radian acquisitions resulted in amortization expense of
approximately $0.1 million in both of the three months ended December 31, 2008
and 2007, respectively.




24




Interest
Expense





We
recognized $47 thousand in interest expense during the three months ended
December 31, 2008 as compared to $0.3 million during the three months ended
December 31, 2007.  This 84% decrease was primarily caused by the
conversion in June 2008 of our 7% Subordinated Convertible Note with Sigma and
the other participating noteholders and the reduced usage of our line of credit
with PNC.





Amortization
of Deferred Financing Fees and Accretion of Debt Discount





We
recognized $15 thousand and $0.3 million in amortization of deferred financing
fees and interest accretion caused by the issuance of warrants related to our
financing transactions with Sigma and the other participating noteholders during
the three months ended December 31, 2008 and 2007, respectively.





Income
Taxes




We
recorded income tax benefit of $0.8 million and income tax expense of $3.7
million for the three months ended December 31, 2008 and 2007, respectively. The
effective income tax rate for the three months ended December 31, 2008 was 39%
as compared to 40% for the three months ended December 31, 2007.




At June
30, 2008, we had net operating loss carryforwards for federal and state income
tax purposes of approximately $1.2 million expiring in 2026, which may be
applied against future taxable income.  We can only utilize certain
NOL’s of approximately $64 thousand per year due to limitations as a result of
the Acquisition (see Note 1 of our Consolidated Financial
Statements).




Six
months ended December 31, 2008, compared to six months ended December 31,
2007


(Amounts
in Thousands Unless Otherwise Stated)





Revenue


Six months endedDecember 31,2008
                    
                    2007
                    
                    (Decrease)Infrastructure
      construction and technical services
                    
                    $
                    24,751
                    
                    
                    $
                    62,918
                    
                    
                    $
                    (38,167
                    )Site
      acquisition and zoning
                    
                    
                    2,870
                    
                    
                    
                    12,357
                    
                    
                    
                    (9,487
                    )Total
                    
                    $
                    27,621
                    
                    
                    $
                    75,275
                    
                    
                    $
                    (47,654
                    )





We had
revenue of $27.6million for the six
months ended December 31, 2008, versus $75.3 million for the six months ended
December 31, 2007.  This represents a decrease of $47.7 million, or
63%. Revenue from infrastructure construction and technical services decreased
$38.2 million from $62.9 million, or 61% for the six months ended December 31,
2008 as compared to the six months ended December 31, 2007. Revenue from site
acquisition and zoning decreased $9.5 million from $12.4 million, or 77%, for
the six months ended December 31, 2008 as compared to the six months ended
December 31, 2007. This decrease in revenue is related to several
factors:




·
            Our
      largest customer during fiscal 2008, Sprint Nextel, cancelled purchase
      orders for work previously awarded to us, and asked us to delay the
      completion of other purchase orders.  These cancellations and
      delays were related to Sprint’s sale of its fourth generation, or 4G,
      WiMax networks business to Clearwire Communications, and were unrelated to
      our performance on these projects. This impacted our financial results in
      the quarters ended September 30 and December 31, 2008 and we expect it to
      continue to impact our financial results in the third and fourth quarter
      of fiscal 2009.  We have received purchase orders related to the
      continuation of this work, and while we believe the 4G project will be a
      large one, we cannot predict with certainty when this work will pick-up
      again in earnest, or to what extent we will be asked to provide services
      to support this network build-out.




25




·
            We
      had an extraordinarily strong second quarter of fiscal 2008 because of a
      significant push by our then-largest customer to complete a large number
      of jobs during this period.  As previously reported, we did not
      expect to match such results again this
quarter.




Going
forward, the general downturn in national and global economic conditions may
impact us and possibly our customers, subcontractors, vendors and suppliers, but
we cannot predict the extent of this impact at this time.  We are
seeing some pricing pressure in some of our service lines, but we believe this
is attributable to a shift in our customer base and not necessarily economic
conditions.  In addition, bidding for some new projects has become
more competitive.  At the same time we are continuing to win new work
across the country.  Therefore, while we do not expect our quarterly
revenue for the remainder of fiscal 2009 to match our revenue for the same
periods in fiscal 2008, we do not expect it to decline sequentially during the
third and fourth quarters of fiscal 2009 because of the new business we have
been awarded.




We
recognize revenues from contracts from infrastructure construction and technical
services and site acquisition and zoning on the percentage-of-completion method
of accounting.




Cost
of Revenue


Six months endedDecember 31,2008
                    
                    2007
                    
                    (Decrease)Infrastructure
      construction and technical services
                    
                    $
                    17,529
                    
                    
                    $
                    42,064
                    
                    
                    $
                    (24,535
                    )Site
      acquisition and zoning
                    
                    
                    844
                    
                    
                    
                    8,984
                    
                    
                    
                    (8,140
                    )Total
                    
                    $
                    18,373
                    
                    
                    $
                    51,048
                    
                    
                    $
                    (32,675
                    )





Our cost
of revenue was $18.4million and $51.0
million for the six months ended December 31, 2008 and 2007,
respectively.  This represents a decrease of $32.7 million, or 64%,
during a period when revenue decreased 63%. These amounts represent 67% and 68%
of total revenue for the six months ended December 31, 2008 and 2007,
respectively.




Cost of
revenue for infrastructure construction and technical services decreased $24.5
million from $42.1 million for the six months ended December 31, 2007 to $17.5
million for the six months ended December 31, 2008. This represents a decrease
of 58% during a period when corresponding revenue decreased 61%.




Cost of
revenue for site acquisition and zoning decreased $8.1 million from $9.0 million
for the six months ended December 31, 2007 to $0.8 million for the six months
ended December 31, 2008. This represents a decrease of 91% during a period when
corresponding revenue decreased 77%.




Gross
Margin


Six months endedDecember 31,2008
                  
                  2007
                  
                  (Decrease)Infrastructure
      construction and technical services
                  
                  $
                  7,222
                  
                  
                  $
                  20,854
                  
                  
                  $
                  (13,632
                  )Site
      acquisition and zoning
                  
                  
                  2,026
                  
                  
                  
                  3,373
                  
                  
                  
                  (1,347
                  )$
                  9,248
                  
                  
                  $
                  24,227
                  
                  
                  $
                  (14,979
                  )





Our gross
margin for the six months ended December 31, 2008 decreased 62% to $9.2 million
as compared to $24.2million for the six
months ended December 31, 2007.  Our gross margin as a percentage of
revenue was approximately 33% for the six months ended December 31, 2008, as
compared to 32% for the six months ended December 31, 2007.




Selling,
General and Administrative Expenses





Selling,
general and administrative expenses for the six months ended December 31, 2008
were $10.6 million as compared to $13.1 million for the six months ended
December 31, 2007. This represents an overall decrease of $2.5 million, or 19%,
which consists primarily of decreases in insurance and professional fees of $0.7
million, rent and other occupancy costs of $0.4 million and payroll related
expenses of $1.2 million.




26




Depreciation
and Amortization





Depreciation
recorded on fixed assets during the six months ended December 31, 2008 totaled
approximately $0.5 million as compared to $0.4 million for the six months ended
December 31, 2007. Amortization of intangible assets acquired as a result of the
Digitcom and Radian acquisitions resulted in amortization expense of
approximately $0.2 million in both of the six months ended December 31, 2008 and
2007, respectively.





Interest
Expense





We
recognized $0.1 million in interest expense during the six months ended December
31, 2008 as compared to $0.7 million during the six months ended December 31,
2007.  This 86% decrease was primarily caused by the conversion in
June 2008 of our 7% Subordinated Convertible Note with Sigma and the other
participating noteholders and the reduced usage of our line of credit with
PNC.





Amortization
of Deferred Financing Fees and Accretion of Debt Discount





We
recognized $30 thousand and $0.7 million in amortization of deferred financing
fees and interest accretion caused by the issuance of warrants related to our
financing transactions with Sigma and the other participating noteholders during
the six months ended December 31, 2008 and 2007, respectively.





Income
Taxes




We
recorded an income tax benefit of $0.5 million and an income tax expense of $3.7
million for the six months ended December 31, 2008 and 2007, respectively. The
effective income tax rate for the six months ended December 31, 2008 was 30% as
compared to 40% for the six months ended December 31, 2007.  Included
in the income tax expense for the first quarter of fiscal 2009 is approximately
$0.2 million representing an adjustment to certain items previously considered
deductible  to our fiscal year end 2008 income tax expense. This
amount was not material to either our income tax expense or net income for
fiscal 2008. This amount is reflected as a current tax expense for the six
months ended December 31, 2008.




Liquidity
and Capital Resources





At
December 31, 2008, we had consolidated current assets of approximately
$26.2 million, including cash and cash equivalents of approximately $2.2
million and net working capital of approximately
$15.9 million.  Historically, we have funded our operations
primarily through operating cash flow, the proceeds of private placements of our
common stock and borrowings under loan arrangements. The principal use of cash
during the six months ended December 31, 2008 was to pay income taxes and to
fund the payments in accounts payable and accrued expenses.





On April
17, 2008, our wholly owned subsidiary BCI Communications, Inc. (“BCI”), as
borrower, became obligated under a Revolving Credit and Security Agreement (the
“PNC Facility”) with PNC Bank, National Association (“PNC”) and such other
lenders as may thereafter become a party to the PNC Facility (collectively, the
“Lenders”).  Under the terms of the PNC Facility, BCI is entitled to
request that the Lenders make revolving advances to BCI from time to time in an
amount up to the lesser of (i) 85% of the value of certain receivables owned by
BCI and approved by the Lenders as collateral or (ii) a total of $15.0
million.  Such revolving advances were used by BCI to repay existing
indebtedness owed to Presidential, pay fees and expenses relating to entering
into the PNC Facility and provide for BCI’s working capital needs and shall be
used to assist in the acquisition of companies engaged in the same line of
business as BCI.




Interest
on the revolving advances shall accrue (a) for domestic rate loans, at a rate
per annum equal to the higher of (i) the base commercial lending rate of PNC as
publicly announced to be in effect from time to time, or (ii) the federal funds
open rate plus 1/2 of 1%, and (b) for Eurodollar rate loans, at a rate per annum
equal to (i) the rate at which U.S. dollar deposits are offered by leading banks
in the London interbank deposit market (as displayed by Bloomberg), divided by
(ii) one minus the reserve percentage requirement as determined by the Board of
Governors of the Federal Reserve System.  Such amounts are secured by
a blanket security interest in favor of the Lenders that covers all of BCI’s
receivables, equipment, general intangibles, inventory, investment property,
certain real property, certain leasehold interests, all subsidiary stock,
records and other property and proceeds of all of the foregoing.




27




The term
of the PNC Facility is three years and shall terminate on April 17,
2011.  BCI may terminate the PNC Facility at any time upon sixty (60)
days’ prior written notice and upon payment in full of the obligations owing
under the PNC Facility or any related documents.  Upon such early
termination by BCI, BCI shall pay the Lenders an early termination fee in an
amount equal to (y) one half of one percent (0.50%) of $15.0 million if the
early termination occurs on or before April 16, 2009, and (z) three eighths of
one percent (0.375%) of $15.0 million if the early termination occurs on or
after April 17, 2009 or on or before April 16, 2010.  During the term
of the PNC Facility, BCI shall observe certain customary financial covenants,
including maintaining a Fixed Charge Coverage Ratio (as that term is defined in
the PNC Facility) of not less than 1.10 to 1.00.  On February 13,
2009, we determined that we were no longer in compliance with the Fixed Charge
Coverage Ratio covenant.  A violation of this financial covenant,
unless waived by the Lenders, constitutes an event of default under the PNC
Facility, giving the Lenders the right to (i) accelerate all of BCI’s
indebtedness and any interest accrued thereon under the PNC Facility, (ii)
terminate the PNC Facility, (iii) refuse to make any additional advances under
the PNC Facility, and (iv) exercise any and all other rights or remedies as
provided for in the PNC Facility including, but not limited to, increasing the
interest rate for revolving Domestic Loans (as defined in the PNC Facility) by
two percent (2%) per annum.  As of February 17, 2009, there were no
outstanding amounts borrowed under the PNC Facility, but there may be in the
future if we elect to draw upon the line.  While we do not expect the
Lenders to immediately terminate the PNC Facility or demand immediate repayment
of the outstanding debt, if any, as a result of the aforementioned event of
default, the Lenders have the right to do so.




BCI is in
discussion with the Lenders to waive the current non-compliance with the
financial covenant and enter into an amendment to the PNC
Facility.  While BCI expects to negotiate an acceptable resolution,
there can be no assurance that BCI will be able to negotiate a waiver or an
amendment, or that such waiver or amendment will be on terms acceptable to
BCI.  If BCI is unable to obtain a waiver from or enter into an
amendment with the Lenders, it could have a material adverse effect on our
financial position and our ability to execute our growth plans.




On
February 28, 2007, in connection with the Asset Purchase Agreement with
Digitcom, J&J Leasing Partnership and the shareholders of Digitcom for the
purchase certain of the assets of Digitcom, we issued a promissory note to
J&J Leasing Partnership (the“J&J Note”) in the
amount of $1.75 million. The principal amount and any accrued and unpaid
interest thereon is due and payable quarterly for a three year period ending on
March 1, 2010. The outstanding principal amount of the J&J Note bears
interest at the rate of 8.25% per year. The J&J Note is secured by certain
land and buildings sold to us by J&J Leasing Partnership. The balance
outstanding at December 31, 2008 was $0.7 million.





Our
ability to satisfy our current obligations is dependent upon our cash on hand,
borrowings under our credit facility with PNC, and the operations of BCI. Our
current obligations consist of capital expenditures, debt service and funding
working capital. In the event we do not generate positive cash flow, or if we
incur unanticipated expenses for operations and are unable to acquire additional
capital or financing, or we are unable to obtain a waiver of our default under
the PNC Facility, we will likely have to reassess our strategic direction, make
significant changes to our business operations and substantially reduce our
expenses until such time as we achieve positive cash flow. Our ability to raise
additional capital or financing, if necessary, may be negatively impacted by
recent downturns in the capital markets and the U.S. economy in general. In
addition, the cancellation and/or deferral of a number of projects from our
largest customer may have a material impact on our ability to generate
sufficient cash flow in future periods. Cost saving strategies may be necessary
if we do not obtain orders from other customers sufficient to replace these
projects.





As of
December 31, 2008, our backlog was approximately $9.7 million as compared to
$15.2 million as of June 30, 2008.  During the fourth quarter of
fiscal 2008 and continuing into the first quarter of fiscal 2009, our largest
customer notified us to delay completing certain purchase orders, and has
cancelled other existing purchase orders. We believe substantially all of our
backlog at December 31, 2008 will be filled within the fiscal year ending June
30, 2009.





The net
cash provided by (used in)operating, investing
and financing activities for the six months ended December 31, 2008 and 2007, is
summarized below:




Six months endedDecember 31,2008
                  
                  2007Net
      cash provided by operating activities
                  
                  $
                  425
                  
                  
                  $
                  3,331Net
      cash used in investing activities
                  
                  
                  (471
                  )
                  
                  
                  (650
                  )Net
      cash used in financing activities
                  
                  
                  (905
                  )
                  
                  
                  (3,255
                  )




28




Cash
provided by operating activities.




Net cash
provided by operating activities in the six months ended December 31, 2008 and
2007 was approximately $0.4 million and $3.3 million,
respectively.   During the six months ended December 31, 2008,
cash flow used in operating activities primarily resulted from operating loss,
net of non-cash charges, of approximately $0.6 million, which represents a
decrease of $6.9 million from the six months ended December 31, 2007. This
decrease was primarily caused by net loss of $1.2 million as compared to net
income of $5.5 million. We also realized a decrease in accounts receivable of
approximately $10.5 million due to increased collections and decreased revenue
during the six months ended December 31, 2008. These were partly offset by
decreases in accounts payable of approximately $1.5 million and accrued
liabilities of approximately $6.4 million.In the six months ended
December 31, 2007, cash used in operating activities primarily resulted from
operating income, net of non-cash charges, of $6.2 million, an increase in
accounts receivable of $26.8 million which were partly offset by increases in
accounts payable of $8.3 million and accrued liabilities of $11.8
million.




Cash
used in investing activities.




Net cash
used in investing activities decreased 28% to approximately $0.5 million and
$0.7 million in the six months ended December 31, 2008 and 2007, respectively.
During the six months ended December 31, 2008, cash used in investing activities
was primarily used for the purchase of fixed assets and the acquisition of
certain assets and operations of T3 Communications, Inc.  During the
six months ended December 31, 2007, cash used in investing activities was
primarily used for the purchase of fixed assets.




Cash
used in financing activities.




Net cash
used in financing activities in the six months ended December 31, 2008 and 2007
was approximately $0.9 million  and $3.3 million,
respectively.  During the six months ended December 31, 2008, net cash
used in financing activities consisted primarily of repayment of long-term debt
related to the Digitcom acquisition and other short-term financing of $0.8
million and repayment of our line of credit of $0.2 million. During the six
months ended December 31, 2007, net cash used in financing activities consisted
primarily of net repayments against our credit facility of $2.9 million and
reductions of other debt obligations of approximately $0.3 million.




We
believe our existing cash and cash equivalents, and our line of credit, once we
obtain a waiver of our default as expected, will be sufficient to meet our cash
requirements in the near term. Our future capital requirements will depend on
many factors, including our rate of revenue growth, the timing and extent of
capital expenditures to support our contracts and expansion of sales and
marketing. We cannot assure that additional equity or debt financing will be
available on acceptable terms, or at all. We expect our sources of liquidity
beyond twelve months will be our then current cash balances, funds from
operations, if any, our then current PNC credit facility and any additional
equity or credit facilities we can arrange.





Item
      3.
            Quantitative
      and Qualitative Disclosures About Market
Risk





Not
applicable.




Item
      4T.
            Controls
      and Procedures




Our
Principal Executive Officer and Principal Financial Officer have evaluated the
effectiveness of our and BCI’s disclosure controls and procedures as defined in
Rules 13a-15(e) and 15(d)-15(e) of the Securities Exchange Act of
1934.  Based upon that evaluation, such officers have concluded that
our disclosure controls and procedures are effective, as of the end of the
period covered by this report, in timely alerting them to material information
relating to us (including our consolidated subsidiaries) required to be included
in this Quarterly Report.  There have been no significant changes in
our internal controls over financial reporting or in other factors, which could
significantly affect such internal controls, subsequent to the date that we
carried out our evaluation.




29




PART
II:  OTHER INFORMATION




Item
      1.
            Legal
      Proceedings





We and
our subsidiaries are involved in legal proceedings from time to time, none of
which we believe, if decided adversely to us or our subsidiaries, would have a
material adverse effect on our business, financial condition or results of
operations.




Item
1A. Risk
Factors




Our
revenue has declined significantly, and if we are not able to grow our revenue
as expected, we will need to cut costs dramatically to maintain
profitability.





We had
revenue of $27.6 million for the six months ended December 31, 2008, versus
$75.3 million for the six months ended December 31, 2007. The quarterly
variability of our business and economic conditions in general make it difficult
to  predict when or if future revenue growth will begin.   If we
are not able to grow our revenues over time,  we will need to cut costs
dramatically to maintain profitability, which could result in delays in
implementing our business plans.   If revenue declines further, or if
our expected growth does not occur soon enough, we may not be able to maintain
profitability at all.





The
closing of the Agreement and Plan of Reorganization between us and Old Berliner,
Inc. and Old Berliner’s distribution of registered shares of our common stock to
the Old Berliner stockholders will create a significant additional amount of
shares of our common stock eligible for future sale, and this may adversely
affect the market price of our common stock.




After the
closing of the Agreement and Plan of Reorganization, approximately 5.6 million
additional shares of our common stock will be held by
non-affiliates.  The market price of our common stock could decline as
a result of sales of a large number of those shares in the market or the
perception that these sales could occur.  These sales, or the
possibility these sales could occur, also might make it more difficult for us to
sell equity securities in the future at a time and at a price that we deem
appropriate.




We generate a substantial portion of
our revenue from a limited number of customers, and if our relationships
with such customers were harmed, our business would
suffer.




For the
six months ended December 31, 2008, we derived 72% of our total revenue from our
six largest customers, and these customers represented 66% of our accounts
receivable.  Of those customers, three of them individually
represented greater than 5%of net revenue, one of
them represented 13% of our net revenue, one of them represented 17% of net
revenue and one of them represented 25% of our net revenue for the period. For
the six months ended December 31, 2007, we derived 90% of our total revenue from
our two largest customers.  Of those customers, one of them
represented 5% of net revenue for the period and one of them represented
85%of net revenue
for the period.





As of and
for the year ended June 30, 2008, we derived 84% of our total revenues from our
two largest customers, and those customers represented 62% of our accounts
receivable.  During the year ended June 30, 2008, Sprint Nextel
Corporation represented 77% and Metro PCS represented 7% of our total
revenues.  While we have diversified our customer base significantly,
Sprint Nextel has cancelled purchase orders associated with its sale of its
fourth generation, or 4G, Wimax network business to Clearwire Communications,
and we may not be able to replace this revenue going forward.





We
believe that a limited number of clients will continue to be the source of a
substantial portion of our revenue for the foreseeable future.  Key
factors in maintaining our relationships with such customers include, without
limitation, our performance on individual contracts and the strength of our
professional reputation.  To the extent that our performance does not
meet client expectations, or our reputation or relationships with one or more
key customers are impaired, this could cause a significant decrease in our
revenue, which would negatively impact our ability to generate
income.  In addition, our key customers could slow or stop spending on
initiatives related to projects we are performing for them, which could be
impacted by the increased difficulty in the credit markets as a result of the
recent economic crisis, and this, while outside our control, could materially
impair our operating results.




30




We may experience significant
fluctuations in our quarterly results as a result of uncertainties relating to our
ability to generate additional revenue, manage expenditures and other factors, some
of which are outside of our control.




Our
operating results have varied considerably in the past, and may continue to do
so, due to a number of factors. Many of these factors are outside our control
and include, without limitation, the following:




·
            financing provided to customers
      and potential customers, particularly in light of tight credit markets and
      other factors associated with current economic
      conditions;





·
            the commencement, progress,
      completion or termination of contracts during any particular quarter, for
      example, the cancellation of purchase orders by our largest customer
      significantly impacted our financial results for the first half of fiscal
      2009;





·
            the availability of equipment to
      deploy new technologies, such as 4G and
  broadband;




·
            the growth rate of wireless
      subscribers, which has a direct impact on the rate at which new cell sites
      are developed and built; and





·
            telecommunications market
      conditions and economic conditions
  generally.




Due to
these factors, our results for a particular quarter, and therefore, our combined
results for that same period, may not meet the expectations of investors, which
could cause the price of our common stock to decline significantly.




We
are in default under our credit facility with PNC Bank, and this could severely
impact our ability to grow our business and execute our business plan should we
be unable to obtain a waiver of this default.




On
February 13, 2009, we determined that we were no longer in compliance with the
Fixed Charge Coverage Ratio covenant in our credit facility with PNC Bank (the
"PNC Facility").  The Lenders under the PNC Facility now have the
right to (i) accelerate all of BCI’s indebtedness and any interest accrued
thereon under the PNC Facility, (ii) terminate the PNC Facility, (iii) refuse to
make any additional advances under the PNC Facility, and (iv) exercise any and
all other rights or remedies as provided for in the PNC Facility including, but
not limited to, increasing the interest rate for revolving Domestic Loans (as
defined in the PNC Facility) by two percent (2%) per annum.  While we
do not expect the Lenders to immediately terminate the PNC Facility or demand
immediate repayment of the outstanding debt and payment of accrued interest
thereon, as a result of the aforementioned event of default, the Lenders have
the right to do so.   As of February 17, 2009, there were no
outstanding amounts borrowed under the PNC Facility, but there may be in the
future if we elect to draw upon the line. PNC could then terminate our line of
credit if we remain in default, and execute additional remedies pursuant to the
terms of the PNC Facility, including demanding repayment of outstanding amounts
due under the line at that time.  In this circumstance, if we do not
have sufficient funds to make this payment, we could be forced into
insolvency.  Even if we were to pay off the line, we might not be able
to access the line of credit for additional funds going forward,
and  this could severely impact our ability to grow our business and
execute our business plan.




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





None.





Item
      3.
            Defaults
      Upon Senior Securities





None.





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





We held
our Annual Meeting of Stockholders on December 5, 2008. At this meeting, the
stockholders voted in favor of the following items listed in the Proxy Statement
dated October 16, 2008:




31




(1)
            Election
      of Directors:





Nominee
                  
                  For
                  
                  
                  AgainstMark
      Dailey
                  
                  
                  23,178,500
                  
                  
                  
                  23,116Thom
      Waye
                  
                  
                  23,178,500
                  
                  
                  
                  23,116





(2)
            Ratification
      of the selection of BDO Seidman, LLP as our independent auditors for the
      fiscal year ended June 30, 2009:





For
                  
                  Against
                  
                  
                  Abstain23,201,237
                  
                  
                  22
                  
                  
                  
                  357





Item
      5.
            Other
      Information





None





Item
      6.
            Exhibits





(a)
            Exhibits





31.1
                
                Certification
      of the Principal Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002. *31.2
                
                Certification
      of the Principal Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002. *32.1
                
                Certification
      of our Principal Executive Officer and Principal Financial Officer
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.
*




* Filed
herewith.




32





SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, Berliner
Communications, Inc. has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.




BERLINER
      COMMUNICATIONS, INC.Date:
      February 17, 2009
            By:
            /s/ Richard B.
      BerlinerRichard
      B. BerlinerChief
      Executive Officer(Principal
      Executive Officer)Date:
      February 17, 2009
            By:
            /s/ Raymond A. Cardonne,
      Jr.Raymond
      A. Cardonne, Jr.Chief
      Financial Officer and Treasurer(Principal
      Financial Officer)




33