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

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended ~~September~~March 3031, ~~2009~~2010


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

For the transition period from to

Commission File Number 0-52702

BROOKSIDE TECHNOLOGY HOLDINGS CORP.

(Exact name of registrant as specified in its charter)

Florida		20-3634227
State or other jurisdiction of		(I.R.S. Employer
State or other jurisdiction of incorporation or organization		(I.R.S. Employer Identification No.)
incorporation or organization		Identification No.)

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

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

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

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

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

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

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

Number of shares outstanding of registrant’s class of common stock as of ~~November~~May 1814, ~~2009~~2010: ~~168~~ 182,~~996~~579,~~962~~405

Index

ITEM PART I — FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Item 2. Management’s Discussion and Analysis Financial Condition and Results of Operation Item 3. Quantitative and Qualitative Disclosures about Market Risk Item 4(T) Controls and Procedures PART II — OTHER INFORMATION Item 1. Legal Proceedings Item 1A. Risk Factors Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Submission of Matters to a Vote of Securities Holders Item 5. Other Information Item 6. Exhibits EX-31.1 EX-31.2 EX-32.1 EX-32.2


ITEM

PART I – FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements

Item 2. Management’s Discussion and Analysis Financial Condition and Results of Operation			28

Item 3. Quantitative and Qualitative Disclosures about Market Risk			35

Item 4(T) Controls and Procedures			35

PART II – OTHER INFORMATION

Item 1. Legal Proceedings			38

Item 1A. Risk Factors			39

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			39

Item 3. Defaults Upon Senior Securities			39

Item 4. Submission of Matters to a Vote of Securities Holders			39

Item 5. Other Information			39

Item 6. Exhibits			39
EX-31.1
EX-31.2
EX-32.1
EX-32.2

INTRODUCTORY NOTE

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

The forward-looking statements contained herein are based on current expectations that involve a number of risks and uncertainties including those set forth under “Risk Factors” in our Form 10-K for the year ended December 31, ~~2008~~2009, as filed with the Securities and Exchange Commission, and any other periodic reports filed with the Securities and Exchange Commission. Accordingly, to the extent that this Quarterly Report contains forward-looking statements regarding the financial condition, operating results, business prospects or any other aspect of the Company, please be advised that the Company’s actual financial condition, operating results and business performance may differ materially from that projected or estimated by the Company in its forward-looking statements.

On November 16, 2009, the Company concluded that it should have been accounting for certain warrants as a liability under EITF 00-19, due to the cash redemption rights included in the warrant agreements. The treatment and effect to the financial statements is further discussed in Note 14. In prior 10-K filings for years ended 2007 and 2008 and related quarterly filings, and quarterly information filed for three months ended March 31, June 30, and September 30, 2009, the Company had incorrectly accounted for these warrants resulting in not recording the quarterly change in estimated fair value of derivative financial instruments. Please refer Note 14 of these financial statements for a detailed discussion of the impact on the Company’s quarterly financial information.

BROOKSIDE TECHNOLOGY HOLDINGS CORP CONSOLIDATED BALANCE SHEETS As of ~~September~~March 3031, ~~2009~~2010 and December 31, ~~2008~~2009 ~~Unaudited~~

	September 30,			December 31,
	March 31,			December 31,
	2009			2008 (Restated)
	2010 (Unaudited)			2009
ASSETS
Current assets
Cash and cash equivalents	$	~~329~~95,~~913~~090		$	~~835~~196,~~525~~424
Restricted cash		361,097			1,366,666
Cash collateral account		361,097			361,097
Cash collateral account		175,324			368,666
Accounts receivable, net		2,228,717			2,908,056
Accounts receivable, net		3,087,155			4,225,692
Inventory		2,309,874			2,011,052
Inventory		1,855,494			1,652,300
Deferred contract costs		25,946			7,937
Deferred contract costs		15,610			107,382
Deferred finance charges, net of amortization		290,674			339,756
Deferred finance charges, net of amortization		388,838			536,085
Prepaid expenses		43,272			69,541
Prepaid expenses		68,778			79,493
Total current assets		5,354,670			5,893,863
Total current assets		6,282,209			9,171,809
Property and equipment
Office equipment		~~532~~628,~~228~~566			~~444~~645,~~590~~506
Vehicles		105,901			171,131
Furniture, fixtures and leasehold improvements		169,365			169,364
Furniture, fixtures and leasehold improvements		169,365			155,151
		797,931			814,870
		807,494			770,872
Less: accumulated depreciation		(482,507	)		(459,059	)
Less: accumulated depreciation		(424,923	)		(326,383	)
Property and equipment, net		315,424			355,811
Property and equipment, net		382,571			444,489
Goodwill		11,659,254			11,659,254
Goodwill		16,980,030			16,918,396
Intangible assets, net		—			—
Intangible assets, net		—			731,710
Deposits and other assets		28,267			28,267
Deposits and other assets		88,295			27,735
TOTAL ASSETS	$	17,357,615		$	17,937,195
TOTAL ASSETS	$	23,733,105		$	27,294,139
LIABILITIES AND STOCKHOLDERS’ DEFICIT
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Current liabilities
Accounts payable and accrued expenses	$	23,~~256~~221,~~586~~588		$	2,~~211~~728,~~611~~404
Billings in excess of revenues		2,~~052~~252,~~369~~255			2,~~620~~350,~~857~~065
Payroll liabilities		~~535~~544,~~675~~821			~~851~~443,~~833~~945
Current portion of long term debt		62,~~395~~599,~~386~~345			28,~~669~~413,~~177~~200
Income taxes payable		196,~~638~~700			~~164~~96,~~000~~700
Other current liabilities		288,725			~~228~~288,~~390~~724
Total current liabilities		119,~~530~~003,~~379~~434			814,~~745~~321,~~868~~038
Long term debt, less current portion		16,~~597~~179,~~837~~289			517,~~053,135~~392
Derivative financial instruments at fair value		36,~~619~~269,~~902~~909			126,~~016~~437,~~463~~547
Total liabilities		1621,~~748~~452,~~118~~632			2520,~~815~~775,~~466~~977
Stockholders’ equity (deficit)
Stockholders’ deficit
Series A convertible preferred stock, 15,000,000 authorized, 13,191,716 and 12,216,716 issued and outstanding at September 30, 2009 and December 31, 2008, respectively, at 8% dividend yield. Liquidation preference of $14,559,954 and $12,832,595 at September 30, 2009 and December 31, 2008, respectively.		7,545,246			6,812,914
Series A convertible preferred stock, 15,000,000 authorized, 13,106,716 issued and outstanding at March 31, 2010 and December 31, 2009, at 8% dividend yield. Liquidation preference of $15,000,115 and $14,738,181 at March 31, 2010 and December 31, 2009, respectively.		8,002,320			7,740,386
Common stock, $.01 par value, 1,000,000,000 shares authorized, 146,657,102 and 140,228,340 shares issued and outstanding at June 30, 2009 and December 31, 2008, respectively.		146,657			140,229
Common stock, $.01 par value, 10,000,000,000 shares authorized, 182,579,405 and 178,079,405 shares issued and outstanding at March 31, 2010 and December 31, 2008, respectively		182,580			178,080
Additional paid in capital		11,881,763			11,885,674
Additional paid-in capital		11,991,804			11,943,670
Accumulated deficit		(1224,~~588~~271,~~679~~721	)		(1722,~~360~~700,~~144~~918	)
Total stockholders’ equity		6,984,987			1,478,673
Total stockholders’ deficit		(4,095,017	)		(2,838,782	)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	23,733,105		$	27,294,139
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	17,357,615		$	17,937,195

See accompanying notes toand ~~these~~independent ~~unaudited~~auditors’ ~~consolidated financial statements~~report.

BROOKSIDE TECHNOLOGY HOLDINGS CORP CONSOLIDATED STATEMENTS OF OPERATIONS For the Three ~~and Nine~~ Months Ended ~~September~~March 3031, ~~2009~~2010 and ~~2008~~2009 Unaudited

	Quarter Ended September 30,						Nine Months Ended September 30,
	March 31,
	2009			2008 (Restated)			2009			2008 (Restated)
	2010			2009
REVENUES
Installation and other services	$	12,~~844~~090,~~238~~145		$	1,~~577~~573,~~260~~177			~~4,922,682~~		$	~~3,924,799~~
Equipment sales		21,~~525~~581,~~490~~930			43,~~079~~428,~~863~~122			~~8,992,396~~			~~10,473,837~~
Total revenues		43,~~369~~672,~~728~~075			5,~~657~~001,~~123~~299			~~13,915,078~~			~~14,398,636~~
COST OF SALES		1,~~743~~560,~~472~~663			32,~~175~~276,~~528~~180			~~5,716,204~~			~~7,656,333~~
GROSS PROFIT		2,~~626~~111,~~256~~412			2,~~481~~725,~~595~~119			~~8,198,874~~			~~6,742,303~~
OPERATING EXPENSES
General and administrative		2,~~960~~844,~~994~~914			13,~~932~~110,~~108~~097			~~8,911,386~~			~~5,793,094~~
Depreciation expense		3728,~~241~~545			3135,~~140~~132			~~108,104~~			~~97,949~~
Total operating expenses		2,~~998~~873,~~235~~459			13,~~963~~145,~~248~~229			~~9,019,490~~			~~5,891,043~~
OTHER INCOME (EXPENSE)
Interest expense		(~~663~~442,~~478~~981	)		(~~874~~432,~~568~~809	)		~~(1,575,733~~	)		~~(3,044,037~~	)
Amortization expense of loan discount and intangibles		(~~468~~243,~~339~~338	)		(1476,~~003,282~~674	)		~~(1,461,726~~	)		~~(3,673,806~~	)
Finance expense on derivatives		—			(4,156,069	)		(925,571	)		(4,156,069	)
Gain on change in fair value of derivative financial instruments		167,639			677,902
Gain (loss) on change in fair value of derivative financial instruments		3,892,627			(925,326	)		10,322,132			5,294,495
Other income (expense), net		(10,275	)		1,615
Gain on debt extinguishment		—			151,619			—			151,619
Total other income (expense)		(528,955	)		(229,966	)
Other income (expense), net		4,934			7,957			(989	)		11,828
LOSS BEFORE INCOME TAXES		(1,291,002	)		(650,076	)
Total other income (expense)		2,765,744			(6,799,669	)		6,358,113			(5,415,970	)
Provision for income taxes		(22,214	)		—
INCOME (LOSS) BEFORE INCOME TAXES		2,393,765			(6,281,322	)		5,537,497			(4,564,710	)
NET LOSS	$	(1,313,216	)	$	(650,076	)
Provision for income taxes		—			—			—			—
Preferred Stock Dividends		(261,934	)		(244,334	)
NET INCOME (LOSS)	$	2,393,765		$	(6,281,322	)		5,537,497		$	(4,564,710	)
Net loss attributable to common shareholders	$	(1,575,150	)	$	(894,410	)
Preferred Stock Dividends		(263,834	)		(35,746	)		(752,328	)		(119,382	)
Loss per share- basic and fully diluted	$	(0.009	)	$	(0.006	)
Net income (loss) attributable to common shareholders	$	2,129,931		$	(6,317,068	)		4,785,169		$	(4,684,092	)
Weighted average shares outstanding		174,667,048			140,228,340
Earnings (loss) per share- basic	$	0.01		$	(0.06	)		0.03		$	(0.05	)
Weighted average shares outstanding		146,657,102			99,576,825			142,922,293			92,755,324
Earnings (loss) per share- diluted	$	0.00		$	(0.06	)		0.00		$	(0.05	)
Weighted average shares outstanding		1,146,828,702			99,576,825			1,408,256,897			92,755,324

See accompanying notes toand ~~these~~independent ~~unaudited~~auditors’ ~~consolidated financial statements~~report.

BROOKSIDE TECHNOLOGY HOLDINGS CORP CONSOLIDATED STATEMENT OF CASH FLOWS For the ~~Nine~~Three Months Ended ~~September~~March 3031, ~~2009~~2010 and ~~2008~~2009 Unaudited

				2008
	2010			2009
	2009			(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	5,537,497		$	(4,564,710	)
Net loss	$	(1,313,216	)	$	(650,076	)
Adjustments to reconcile net income (loss) to net cash provided by (used) in operating activities:
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		~~108~~28,~~104~~545			9735,~~949~~132
Amortization of loan discounts and intangibles		1243,~~461,724~~338			3476,~~673,806~~674
Non-cash interest expense		~~310~~50,~~907~~865			1130,~~845,417~~254
Loss on disposal of fixed assets		6,717			—
Gain on change in fair value of derivative financial instruments		(167,639	)		(677,902	)
Bad debt expense		176,358			—
Gain on disposal of asset		11,848			—
Stock based compensation		52,491			168,833
Bad debt expense		116,465			26,450
Gain (loss) on change in fair market value of derivative financial instruments		(9,396,561	)		(1,138,426	)
Stock based compensation		22,357			16,944
Gain on debt extinguishment		—			(151,619	)
(Increase) decrease in:
Accounts receivable		~~962~~562,~~179~~875			~~(780~~829,~~671~~394	)
Inventory		(~~203~~298,~~194~~822	)		~~(79~~49,~~863~~170	)
Deferred contract costs		91(18,~~772~~009	)		4194,~~639~~366
Prepaid expenses		1026,~~715~~269			(73122,~~584~~608	)
Deposits and other assets		~~(60,560~~—	)		~~41,699~~271
Increase (decrease) in:
Accounts payable and accrued expenses		44493,~~975~~184			~~615~~(71,~~655~~585	)
Accrued payroll liabilities		~~(316~~100,~~158~~876	)		(43140,~~743~~548	)
Billings in excess of revenues		(~~568~~97,~~488~~810	)		~~462~~(98,~~885~~019	)
Income taxes payable		~~(162,362~~—	)		—(1,300	)
Other current liabilities		~~46,660~~—			~~(65~~43,~~469~~966	)
		(7,434,721	)		4,614,508
		1,074,342			590,659
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		(1,897,224	)		(49,798	)
NET CASH USED IN OPERATING ACTIVITIES		(238,874	)		(59,417	)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment		~~(52,901~~—	)		(~~166~~53,~~069~~064	)
Cash used for restricted cash		~~(233,334~~—	)		(1233,~~250,000~~334	)
Cash provided by restricted cash		~~1,238,903~~—			750,000
Cash used for cash collateral		(25,000	)		(366,877	)
Acquisition of US Voice & Data, LLC (“USVD”) additional EBITDA Earnout		—			(61,634	)
Cash provided by cash collateral		218,342			366,877
NET CASH PROVIDED BY INVESTING ACTIVITIES		—			401,968
Acquisition of Standard Tel Networks, LLC (“STN”), net of $855,791 in cash received		—			(2,835,610	)
Acquisition of US Voice & Data, LLC (“USVD”) additional EBITDA Earnout		(61,634	)		—
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES		1,084,376			(4,251,679	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long term debt		~~779~~151,~~588~~900			14285,~~197,475~~253
Proceeds from issuance of Series A preferred stock, net of issuance costs of $70,000		930,000			—
Repayment of long term debt		(14,360	)		(798,854	)
Deferred finance charges		—			(588,984	)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		137,540			(513,601	)
Proceeds from issuance of Series A preferred stock in connection with the STN acquisition		—			2,500,000
NET DECREASE IN CASH		(101,334	)		(171,050	)
Repayment of long term debt		(1,402,352	)		(10,095,545	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		196,424			1,204,191
NET CASH PROVIDED BY FINANCING ACTIVITIES		307,236			6,012,946
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	95,090		$	1,033,141
NET INCREASE (DECREASE) IN CASH		(505,612	)		(1,811,065	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		835,525			187,846
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	329,913		$	1,998,911
SUPPLEMENTAL DISCLOSURE
Income taxes paid	$	222,~~362~~214		$	—
Interest paid	$	~~809~~493,~~611~~846		$	~~(27~~302,~~872~~555	)
Non-cash financing and investing activities
Accretion of preferred stock dividend	$	~~485~~261,~~367~~934		$	~~119~~244,~~382~~334
Accrued interest added to note payable balance	$	~~455~~75,~~215~~302		$	—35,253
Value of common stock issued in STN acquisition	$	—		$	1,169,755
Conversion of note payable and accrued interest to common stock		30,277			—
Cashless exercise of warrants	$	3,857		$	—
Accrual for derivative financial instruments at fair value	$	1,925,571		$	9,656,069
Conversion of series A preferred stock to common stock	$	20,026		$	—

See accompanying notes toand ~~these~~independent ~~unaudited~~auditors’ ~~consolidated financial statements~~report.

Brookside Technology Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements

Note 1 — Basis of Presentation and Nature of Business

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Brookside Technology Holdings Corp., a Florida corporation (the “Company”), have been prepared in accordance with the ~~instructions~~rules toand regulations of the Securities and Exchange Commission (“SEC”). The financial statements and notes are presented as permitted on Form 10-Q and do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete consolidated financial statements. These unaudited condensed consolidated financial statements and related notes should be read in conjunction with the Company’s Form 10-K for the fiscal year ended December 31, 2009. In the opinion of management, these unaudited condensed consolidated financial statements reflect all adjustments that are of a normal recurring nature and which are necessary to present fairly the financial position of the Company as of ~~September~~March 3031, ~~2009~~ 2010 and December 31, ~~2008~~2009, and the results of operations and cash flows for the quarters ~~and nine months~~ ended ~~September 30~~March 31, ~~2009~~ 2010 and ~~2008~~2009. The results of operations for the quarter ~~and nine months~~ ended ~~September~~March 3031, ~~2009~~2010 are ~~not~~ not necessarily indicative of the results that may be expected for the entire fiscal year. The balance sheet at December 31, 2009 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

Operations

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

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

Background/Name Change/Redomestication

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

Brookside Technology Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements

Note 1 — Nature of Business (continued)

Redomestication

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

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

US Voice & Data, LLC

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

~~Acquisition of~~ Standard Tel Networks, LLC

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

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

Restatement of Prior Periods

On November 16, 2009, the Company concluded that it should have been accounting for certain warrants as a liability under EITF 00-19, due to the cash redemption rights included in the warrant agreements. The treatment and effect to the financial statements is further discussed in Note 14. In prior 10-K filings for years ended 2007 and 2008 and related quarterly filings, and quarterly information filed for three months ended March 31, June 30, and September 30, 2009, the Company had incorrectly accounted for these warrants resulting in not recording the quarterly change in estimated fair value of the warrants as derivative financial instruments. Please refer Note 14 of these financial statements for a detailed discussion of the impact on the Company’s quarterly financial information.

Note 2 — Liquidity and Capital Resources

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

The Company has cash and cash equivalents of $95,090 at March 31, 2010. Additionally, effective April 12, 2010, Vicis Capital Master Fund, a sub-trust of Vicis Capital Series Master Trust, and the Company’s largest preferred shareholder (“Vicis”), invested an additional $3 million in equity and converted its subordinated promissory note, in the original principal amount of $1.5 million plus accrued interest of $237,083, into 4,737,083 shares of Series A convertible preferred stock of the Company and a warrant to purchase 473,708,300 shares of common stock at an exercise price of $0.01 per share. The warrant includes a redemption right, payable in cash upon the future occurrence of a change in control. The warrant also includes a put provision inherent in the redemption provision; therefore, the warrant is recorded at issuance as a liability for “Derivative financial instruments at estimated fair value” on the Company’s balance sheet in accordance with the current authoritative guidance. The Company is required to adjust the carrying value of the above warrants to its fair value at each balance sheet date and recognize any change since the prior balance sheet date as a component of other expense or income. In valuing the above warrants, the Company used the Black-Scholes model. As such, the Company recorded a derivative financial instrument at fair value of $4,336,103 in connection with this transaction in April 2010.

Brookside Technology Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements

Note 2 — Liquidity and Capital Resources (continued)

~~The Company has cash and cash equivalents of $329~~Additionally,~~913~~ atthe ~~September 30,~~Company ~~2009.~~entered ~~Additionally, effective~~into ~~August 13,~~a ~~2009,~~loan ~~the~~amendment ~~Company~~with ~~and~~ its senior ~~creditor~~lender, Chatham Credit Management III, LLC ~~(“Chatham”)~~, ~~further updated its letter agreement dated May 29, 2009 pursuant to which, among other things, Chatham agreed, for~~ the ~~period~~Company’s ~~July 31,~~senior ~~2009~~lender ~~through September 30, 2010~~ (“~~Agreement Period~~Chatham Capital”), towhich ~~suspend~~restructured the Company’s ~~compliance~~senior ~~of the minimum fixed charge coverage ratio and maximum leverage ratio contained in the~~ credit ~~agreement.~~facility ~~The Company and Chatham agreed~~ to, aamong ~~temporary minimum~~other ~~earnings before interest~~things, ~~taxes,~~waive ~~depreciation~~of ~~and~~all ~~amortization~~prior ~~covenant~~defaults, ~~(“Modified~~extend ~~EBITDA~~the ~~Covenant”)~~term ~~for~~of ~~this~~the ~~Agreement~~senior ~~Period.~~loan Atto September 3023, ~~2009~~2012, ~~the~~and ~~Company~~eliminate isand/or ~~not~~modified incertain ~~compliance with~~financial ~~this Modified EBITDA Covenant under this agreement~~covenants. ~~As a result, all principal due to Chatham has~~ ~~been reclassified as a current liability.~~

~~Additionally,~~The ~~effective June 1, 2009, the~~ Company ~~entered~~had ~~into~~ a ~~Securities~~net ~~Purchase~~loss ~~Agreement~~for ~~with Vicis~~the ~~Capital~~three ~~Master~~months ~~Fund~~ended March 31, a2010 ~~sub-trust~~and 2009 of ~~Vicis~~approximately ~~Capital~~$1.3 million ~~Series Master~~and ~~Trust~~$650,000, ~~and the Company’s largest preferred stockholder (“Vicis”)~~respectively, ~~pursuant~~and tohas ~~which~~a ~~Vicis~~retained ~~invested~~deficit anof ~~additional~~approximately $~~1,000,000~~24.3 million as of inMarch 31, ~~the~~2010. ~~Company~~The ~~and~~current ~~the~~period ~~Company~~net ~~issued~~loss towas ~~Vicis~~primarily ~~1,000,000~~the ~~shares~~result of the ~~Company’s~~decrease ~~Series A~~in revenues ~~Convertible~~of ~~Preferred Stock (“Series~~$1.3 Amillion ~~Stock”)~~in ~~and~~the afirst ~~warrant~~quarter toending ~~purchase 100~~March 31,~~000,000~~ ~~shares~~2010 ~~of Common~~versus ~~Stock~~the atcomparable anperiod ~~exercise~~in ~~price of $0~~2009.01 This ~~per~~decrease ~~share.~~is ~~The~~due ~~warrant~~primarily ~~included~~to athe ~~put~~uncertainty ~~provision inherent~~ in the ~~redemption~~market ~~provision~~due ~~included~~to in the ~~warrant~~poor ~~agreements~~economy. ~~and~~For ~~recorded~~the three atmonths ~~issuance~~ended ~~as a~~March 31, ~~liability~~2010, ~~for~~the ~~“Derivative~~Company ~~financial~~had ~~instruments~~net atcash ~~estimated~~used ~~fair~~in ~~value”~~operations onof approximately $229,000. Historically, the Company’s ~~balance sheet~~has inrelied ~~accordance~~on ~~with~~borrowings ~~the~~and ~~current~~equity ~~authoritative~~financings ~~guidance~~to ~~including~~maintain ~~EITF 00-19~~its operations. InWith ~~accordance with~~the ~~provisions~~additional of$3 million ~~SFAS~~equity investment ~~133~~on April 12, 2010, the Company isbelieves ~~required~~it tohas ~~adjust~~enough ~~the~~cash ~~carrying~~to ~~value~~operate offor the ~~above~~coming ~~warrants~~year towith its ~~fair~~cash ~~value~~on athand, ~~each~~cash ~~balance~~to ~~sheet~~be ~~date~~generated ~~and~~from ~~recognize~~operations ~~any~~and ~~change since~~ the ~~prior~~borrowing availability ~~balance~~with ~~sheet~~its ~~date~~lenders. asHowever, aif ~~component~~the ofrecent ~~other~~economic ~~expense~~downturn orcontinues ~~income.~~then Init ~~valuing~~could ~~the~~have ~~above~~a ~~warrants the~~material ~~company~~effect ~~used~~on ~~the~~its ~~Black-Scholes~~business ~~model~~operations. The ~~warrant~~accompanying ~~included~~unaudited acondensed ~~redemption~~consolidated ~~right,~~financial statements ~~payable~~do innot ~~cash~~include ~~upon~~ any adjustments relating to the ~~future~~recoverability ~~occurrence~~and classification of asset acarrying ~~change~~amounts inor ~~control.~~the Asamount ~~such,~~and ~~the~~classification ~~Company~~of ~~recorded~~liabilities athat ~~derivative~~might ~~financial instrument~~result atshould ~~fair~~the Company ~~value~~be ofunable ~~$1,925,571~~to incontinue ~~connection~~as ~~with~~a ~~this~~going ~~transaction~~concern.

~~The~~Management ~~Company~~is ~~had~~focused net income for the three months and nine months ended September 30, 2009 of approximately $2.4 million and $5.5 million, respectively, and has a retained deficit of approximately $12.6 million. This net income was primarily the result of the gains on ~~change~~managing ~~in fair~~costs ~~value of derivative financial instruments recognized~~ in ~~2009~~line ~~in connection~~ with ~~the restatement~~estimated oftotal ~~the~~revenues ~~financial~~for ~~statements as further discussed in Note 14. For~~ the ~~nine~~balance ~~months ended September 30, 2009, the Company had net cash used in operations~~ of ~~approximately $1.9~~ ~~million.~~fiscal ~~Historically,~~2010 ~~the Company has relied on borrowings~~ and ~~equity~~beyond, ~~financings~~including tocontingencies ~~maintain its operations. The Company believes it has enough cash to operate~~ for ~~the~~cost ~~coming~~reductions ~~year~~if ~~with~~projected ~~its~~revenues ~~cash~~are onnot ~~hand,~~fully ~~cash to be generated from operations and the borrowing availability with its lenders~~realized. However, ~~the~~there ~~recent~~can ~~economic~~be ~~downturn~~no ~~could~~assurance ~~have~~that aanticipated ~~material~~revenues ~~effect~~will onbe ~~its~~realized ~~business operations. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts~~ or ~~the amount and classification of~~ ~~liabilities~~ that ~~might result should~~ the Company bewill ~~unable~~successfully toimplement ~~continue~~its ~~as a going concern~~plans.

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

Note 3 — Significant Accounting Policies

The accounting and reporting policies of the Company conform to U.S. generally accepted accounting principles (GAAP) and to the practices within the telecommunications industry. There have been no significant changes in the Company’s significant accounting policies during the three ~~and nine~~ months ended ~~September~~ March 3031, ~~2009~~2010 compared to what was previously disclosed in the Company’s Annual Report on 10-K for the year ended December 31, ~~2008~~2009.

Principles of Consolidation

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

Use of Estimates

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

Brookside Technology Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements

Note 3 — Significant Accounting Policies (continued)

~~Company,~~Financial ~~Standard Tel Acquisitions, Inc a California Corporation, Trans-West Network Solutions,~~Instruments ~~Inc, a California Corporation and Standard Tel Networks, LLC, a California Limited Liability Company. All significant intercompany balances and transactions have been eliminated in consolidation.~~

~~Cash~~The ~~Equivalents~~amounts reported for cash and cash equivalents, receivables, accounts payable, and accrued liabilities are considered to approximate their market values based on comparable market information available at the respective balance sheet dates and their short-term nature. The Company believes that the notes payable fair values approximate their notional value at March 31, 2010.

~~For~~Redeemable ~~purposes of the statements of cash flows, the Company considers short-term investments,~~Securities ~~purchased with a remaining maturity at purchase of three months or less, to be cash equivalents. Restricted cash and deposits in the cash collateral account are not considered to be cash equivalents.~~

~~Use~~The authoritative guidance requires issuers to classify as liabilities (or assets in some circumstances) certain classes of ~~Estimates~~freestanding financial instruments that embody obligations for the issuer. The Series A Stock is not presently redeemable and has been classified in equity in the unaudited condensed consolidated financial statements.

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

Financial Instruments and Credit Risk

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

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

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

Inventory Reserves

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

Allowance for Doubtful Accounts

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company’s allowance for doubtful accounts is management’s best estimate of losses resulting from the inability of the Company’s customers to make their required payments. The Company maintains an allowance for doubtful accounts based on a variety of factors, including historical experience, length of time receivables are past due, current economic trends and changes in customer payment behavior. Also, the Company records specific provisions for individual accounts when management becomes aware of a

Brookside Technology Holdings Corp. Notes to Unaudited Condensed Consolidated Financial Statements

Note 3 — Significant Accounting Policies (continued)

customer’s inability to meet its financial obligations to the Company, such as in the case of bankruptcy filings or deterioration in the customer’s operating results or financial position. If circumstances related to a customer change, the Company’s estimates of the recoverability of the receivables would be further adjusted

Convertible Securities With Beneficial Conversion Features

~~Warrant~~Under ~~Valuation~~authoritative ~~and~~guidance, ~~Beneficial~~the ~~Conversion Feature. The~~ Company ~~calculates~~considered the ~~fair~~effect ~~value~~ of ~~warrants~~ ~~issued~~a ~~with~~beneficial ~~convertible~~conversion ~~securities~~feature of ~~(preferred stock or debt) using~~ the ~~Black~~Series A ~~Scholes valuation~~Stock ~~method.~~issued ~~The total proceeds received~~ in the ~~sale~~December 2007 ofprivate ~~preferred~~placement ~~stock or debt~~ and ~~related warrants~~subsequently ~~is allocated among these financial instruments based on their relative fair values. The debt discount arising from assigning a portion of the total proceeds to the warrants~~ issued isto ~~recognized~~Vicis asduring ~~interest~~2008. ~~expense~~Since ~~from~~ the ~~date~~redemption ofrequirement ~~issuance to the earlier~~ of the ~~maturity~~Series A ~~date~~Stock ofis ~~the debt~~contingent oron the ~~conversion dates using the effective yield method. Additionally, when issuing~~ ~~convertible~~occurrence ~~debt,~~of ~~including~~future ~~convertible debt issued with detachable warrants~~events, the Company ~~tests~~is ~~for the~~not ~~existence~~accreting ~~of a beneficial conversion feature. The Company records~~ the ~~amount~~carrying ofvalue any beneficial conversion feature (“BCF”), calculated in accordance with these accounting standards, whenever it issues convertible debt that has conversion features at fixed rates that are in the money using the effective per share conversion price when issued. The calculated amount of the ~~BCF~~Series A ~~is accounted for as a contribution~~ Stock to ~~additional~~redemption ~~paid-in capital~~value and aswill anot ~~debt~~do ~~discount~~so ~~that~~until ~~is recognized as interest expense from~~ the ~~date~~occurrence of ~~issuance~~any ~~to the~~one ~~earlier~~ of ~~the~~those ~~maturity~~future ~~date of the debt or the conversion dates using the effective yield~~events ~~method.~~becomes ~~The maximum amount of BCF that can be recognized is limited to the amount that will reduce the net carrying amount of the debt to zero~~probable.

~~The~~Derivative ~~Company~~Financial ~~considered~~Instruments ~~the~~at ~~effect~~Fair ~~of a beneficial conversion feature of the Series A Stock issued in the December 2007 private placement and subsequently issued to Vicis during 2008~~Value. ~~During 2008, the Company has attributed a beneficial conversion feature of $0 to the~~ Series A Stock based upon the difference between the relative fair value assigned to costs in Series A Stock and the discount assigned to the warrants and zero (minimum basis). Since the redemption requirement of the Series A Stock is contingent on the occurrence of future events, the Company is not accreting the carrying value of the Series A Stock to redemption value and will not do so until the occurrence of any one of those future events becomes probable.

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

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

o		The Company effecting a merger or consolidation with another entity

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

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

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

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

~~Goodwill and Intangibles~~ 10

Goodwill represents the acquisition costs in excess of the fair value of net tangible and intangible assets of the businesses purchased. This premium paid for the acquisitions is based on management’s belief that the acquired technologies, businesses and engineering talent were of strategic importance in the Company’s growth strategy. Intangible assets consist primarily of the

Brookside Technology Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements

Note 3 — Significant Accounting Policies (continued)

~~value of intellectual property, customer relationships, non-compete agreements, trademarks and~~Warrants goodwill. Goodwill is evaluated annually for impairment, or earlier if indications of impairment exist. The determination as to whether or not goodwill or other intangible assets have become impaired involves a significant level of judgment in the assumptions underlying the approach used to determine the value of the reporting units. Changes in operating strategy and market conditions could significantly impact these judgments and require adjustments to recorded amounts of intangible assets.

~~The~~In 2009, the Company ~~has~~also adopted athe ~~policy~~requirements toof ~~review~~ASC ~~goodwill~~815 Derivatives and ~~indefinite-lived~~Hedging Activities ~~intangibles~~that ~~for~~revised ~~impairment using~~the definition of “indexed to a ~~discounted~~company’s ~~cash~~own ~~flow~~stock” ~~approach~~for ~~that~~purposes ~~uses~~of continuing ~~forward-looking~~classification ~~information~~of ~~regarding~~derivative ~~market~~contracts ~~share,~~in equity. Derivative contracts may be classified ~~revenues~~in ~~and~~equity ~~costs~~only ~~for~~when ~~the~~they ~~reporting~~are ~~unit~~both asindexed ~~well~~to asa ~~appropriate~~company’s ~~discount~~own ~~rates~~stock and meet certain conditions for equity classification. AsUnder athe ~~result~~revised definition, an instrument (or embedded feature) would be ~~changes~~considered inindexed ~~these~~to ~~assumptions~~an ~~could~~entity’s ~~materially~~own ~~change~~stock if its settlement amount will equal the ~~outcome~~difference between the fair value of ~~the~~a ~~reporting~~fixed ~~unit~~number of the entity’s ~~fair~~equity ~~value~~shares and a fixed monetary amount. ~~determination~~The inCompany ~~future~~was ~~periods~~unable to classify 3,990,635 ~~which~~warrants ~~could~~in ~~require~~equity abecause ~~further~~they ~~permanent~~embodied ~~write~~anti-~~down~~dilution protections ofthat ~~goodwill~~did not achieve the fixed-for-fixed definition.

~~The~~Goodwill Company amortizes the cost of other intangibles, that are not deemed indefinite, over their estimated useful lives. Amortizable intangible assets are tested for impairment based on undiscounted cash flows and, ~~if impaired, written down to fair value based on either discounted~~Intangibles ~~cash flows, appraised values or other market-based information.~~

~~Revenue~~The ~~Recognition~~Company follows ASC 350, which requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually in accordance with ASC 350. ASC 350 also requires that intangible assets with finite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with ASC 360, “Accounting for the Impairment or Disposal of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” The determination as to whether or not goodwill or other intangible assets have become impaired involves a significant level of judgment in the assumptions underlying the approach used to determine the value of the reporting units. Changes in operating strategy and market conditions could significantly impact these judgments and require adjustments to recorded amounts of intangible assets. The Company determines impairment by comparing the fair value of the goodwill, using a combination of approaches including the net present value of discounted cash flow method, with the carrying amount of that goodwill. The Company’s impairment assessment involves estimating the future cash flows of its intangible assets including its eventual disposition. An impairment loss recognized is measured as the amount by which the carrying amount of the intangible asset exceeds its fair value. The Company conducts impairment testing annually, unless information during the year becomes available that requires an earlier evaluation of impairment. Based on a net realizable value analysis for the year ended December 31, 2009, goodwill from the acquisitions of USVD and STN was determined to be partially impaired. Therefore, an impairment of goodwill in the amount of $5,320,775 was recognized in 2009. The balance of goodwill at March 31, 2010 and December 31, 2009 was $11,659,254. The Company determined that no additional impairment of goodwill exists at March 31, 2010.

The Company ~~derives~~acquired ~~its~~other ~~revenues~~intangible ~~primarily~~assets from ~~sales~~the acquisitions of ~~converged~~USVD ~~VoIP~~and ~~telecommunications~~STN consisting of ~~equipment~~purchased contracts and ~~professional~~non-compete ~~services~~contracts. ~~implementation/installation,~~Under ~~data~~ASC ~~and~~350, ~~wireless~~other ~~equipment~~intangible ~~and~~assets acquired ~~installation,~~including ~~recurring~~purchased ~~maintenance/managed~~contracts ~~service~~are ~~and~~considered ~~network~~to ~~service~~have ~~agreements~~a ~~and~~finite ~~other services~~life. ~~The~~Management ~~Company~~has ~~recognizes~~estimated ~~revenue when~~the ~~there~~useful islife ~~persuasive~~to ~~evidence~~be ofone anyear ~~arrangement,~~and ~~delivery~~amortized ~~has~~such ~~occurred~~costs oron ~~services~~a ~~have~~straight-line ~~been~~basis over this period. ~~rendered,~~The Company evaluates the ~~sales~~periods ~~price~~of isamortization ~~determinable,~~continually ~~and~~to ~~collectability~~determine iswhether ~~reasonably~~later ~~assured~~events or circumstances require revised estimates of useful lives. ~~Sales~~The ~~are~~Company concluded that its other ~~recorded~~intangible ~~net~~assets ofwere ~~discounts,~~not ~~rebates,~~impaired and ~~returns~~all of the other intangible assets were fully amortized as of December 31, 2009.

~~The Company primarily applies the percentage-of-completion method and generally recognizes revenue~~11 based on the relationship of total costs incurred to total projected costs. Profits expected to be realized on such contracts are based on total estimated sales for the contract compared to total estimated costs, including warranty costs, at completion of the contract. These estimates are reviewed and revised periodically throughout the lives of the contracts, and adjustments to profits resulting from such revisions are made cumulative to the date of the change. Provision for anticipated losses on uncompleted contracts is made in the period in which such losses become evident.

Revenue from contracts that contain multiple elements that are not accounted for under the percentage-of-completion method are accounted for in accordance with “Accounting for Revenue Arrangements with Multiple Deliverables.” Revenue from these contracts is allocated to each respective element based on each element’s relative fair value, if determinable, and is recognized when the respective revenue recognition criteria for each element are fulfilled. The Company recognizes revenue from the equipment sales and installation services using the percentage of completion method. The services for maintaining the systems the Company installs are sold as a stand-alone contract and treated according to the terms of the contractual arrangements then in effect. Revenue from this service is generally recognized over the term of the subscription period or the terms of the contractual arrangements then in effect. A majority of equipment sales and installation services revenues are billed in advance on a monthly basis based upon the fixed price, and are included in both accounts receivable and deferred income on the accompanying balance sheets. Direct costs incurred on such contracts are deferred until the related revenue is recognized and are included in deferred contract costs on the accompanying balance sheets. The Company also provides professional services (maintenance/managed services) on a fixed price basis. These services are billed as bundles and or upon completion of the services.

Brookside Technology Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements

Note 3 — Significant Accounting Policies (continued) ~~Warranty Reserves~~

Reserves are provided for estimated warranty costs when revenue is recognized. The costs of warranty obligations are estimated based on warranty policy or applicable contractual warranty, historical experience of known product failure rates and use of materials and service delivery charges incurred in correcting product failures. Specific warranty accruals may be made if unforeseen technical problems arise. If actual experience, relative to these factors, adversely differs from these estimates, additional warranty expense may be required. At September 30, 2009 and 2008, the Company has accrued $156,974 and $247,417, respectively. The Company’s warranty accrual takes into account the telecommunications equipment covered by original equipment manufacturer warranties.

Reclassifications

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

Income taxes

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

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

The Company evaluates its tax positions under the authoritative guidance. Accordingly, the Company’s management first determines whether it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position. Any tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the ~~condensed consolidated~~ financial statements. Each identified tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement. No such tax positions were identified during the ~~three~~periods ~~and~~ended ~~nine~~March 31, ~~months~~2010 ~~ended~~and ~~September~~December 3031, 2009. The Company files tax returns in the U.S. federal and ~~2008~~state jurisdictions.

Earnings Per Common Share

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

At March 31, 2010, there were potentially dilutive securities outstanding consisting of Series A Stock, warrants, and stock options issued to employees. At March 31, 2010, the number of potentially dilutive shares consisted of 31,760,000 stock option shares, 13,106,716 Series A Stock (exercisable into 1,310,671,600 common shares), and 1,124,975,474 common shares purchase warrants. At December 31, 2009, there were potentially dilutive securities outstanding consisting of Series A Stock, convertible debt, warrants, and stock options issued to employees of 1,303,281,724.

Brookside Technology Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements

Note 3 — Significant Accounting Policies (continued)

At September 30, 2009, there were potentially dilutive securities outstanding consisting of Series A Stock, warrants, and stock options issued to employees. The potential shares would be anti-dilutive during the three and nine months ended September 30, 2008 and dilutive for the three and nine months ended September 30, 2009, and as such, have not been considered in the calculation of earnings per share for 2008. At September 30, 2009, the number of potentially dilutive shares that are anti-dilutive consisted of 21,200,000 stock option shares, 13,191,716 Series A Stock (exercisable into 1,319,171,600 common shares), and 745,800,996 common shares purchase warrants (which would be net share settled). At September 30, 2008, there were potentially dilutive securities outstanding consisting of Series A Stock, convertible debt, warrants, and stock options issued to employees of 19,200,000. On November 19, 2009, shareholders representing a majority of the Company’s shares entitled to vote at a meeting executed and delivered to the Company written consents in lieu of a meeting approving an increase in the Company’s authorized shares of Common Stock from 1,000,000,000 to 10,000,000,000.

Derivatives

A derivative is an instrument whose value is “derived” from an underlying instrument or index such as a future, forward, swap, option contract, or other financial instrument with similar characteristics, including certain derivative instruments embedded in other contracts (“embedded derivatives”) and for hedging activities. As a matter of policy, the Company does not invest in separable financial derivatives or engage in hedging transactions. However, complex transactions that the Company entered into in order to finance its operations and acquisitions, and the subsequent restructuring of such debt transactions, involved financial instruments containing certain features that have resulted in the instruments being deemed derivatives or containing embedded derivatives. The Company may engage in other similar complex equity or debt transactions in the future, but not with the intention to enter into derivative instruments. Derivatives and embedded derivatives, if applicable, are measured at fair value and marked to market through earnings. However, such new and/or complex instruments may have immature or limited markets. As a result, the pricing models used for valuation often incorporate significant estimates and assumptions, which may impact the level of precision in the financial statements.

Stock Based Compensation

The Company ~~recognizes~~follows the provisions of ASC 718-10 “Share-Based Payment”, which requires recognition of stock-based compensation ~~cost~~expense ~~relating~~for toall share-based ~~payment~~payments ~~transactions~~based ~~in accordance~~on ~~with~~fair ~~provisions~~value. ofASC ~~Share~~718-~~Based~~10, defines ~~Payment.~~fair ~~The~~value-based ~~cost~~methods ~~is measured~~of ataccounting ~~the~~for ~~grant~~stock ~~date~~options and other equity instruments, which measures compensation costs based on the ~~calculated~~estimated fair value of the award, and ~~is recognized as~~recognizes anthat ~~expense~~cost over the ~~employee’s requisite~~ service period (generally the vesting period of the equity award). ~~The~~ASC ~~Company~~505-50, “Accounting ~~recorded~~for ~~$18~~Equity Instruments That Are Issued to Other Than Employees for Acquiring,~~605~~ ~~and~~or ~~$53~~in Conjunction with Selling,~~333~~ Goods, or Services” (“ASC 505-50”), establishes the measurement principles for ~~stock~~transactions ~~compensation~~in ~~cost~~which equity instruments are issued in exchange for the ~~three~~receipt ~~months~~of goods or services. The Company has relied ~~ended~~upon ~~September 30,~~the ~~2009~~guidance provided under ASC 505-50 to determine the measurement date and ~~2008,~~the ~~respectively~~fair value re-measurement principles to be applied. The Company ~~recorded~~recognizes ~~$52~~compensation costs,~~491~~ ~~and~~net ~~$168~~of an estimated forfeiture rate,~~833~~ ~~for~~on a pro rata basis over the requisite service period of each vesting ~~stock~~tranche ~~compensation~~of ~~cost~~each ~~for~~award. The Company uses the ~~nine~~Black-Scholes ~~months~~option ~~ended~~valuation ~~September 30,~~model ~~2009~~in ~~and~~estimating ~~2008,~~the fair ~~respectively~~value of options or warrants.

Brookside Technology Holdings Corp. Notes to Unaudited Condensed Consolidated Financial Statements

Note 3 — Significant Accounting Policies (continued)

Recent Accounting Pronouncements

~~The~~Fair ~~FASB~~Value ~~issued ASC No. 350-30, previously referred to as SFAS 142-3, Determination of the Useful~~Measures Life of Intangible Assets. ASC No. 350-30 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under ASC 350 Intangibles — Goodwill and Other. ASC No. 350-30 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The Company does not expect ASC No. 350-30 to have a material impact on the accounting for future acquisitions or renewals of intangible assets, but the potential impact is dependent upon the acquisitions of intangible assets in the future.

InEffective ~~June 2008,~~ the ~~FASB~~first ~~issued~~quarter ~~FASB~~of ~~Staff~~fiscal ~~Position (FSP) Emerging Issues Task Force (EITF) 03-6-1~~2010, ~~“Determining~~ ~~Whether~~the ~~Instruments~~Company ~~Granted~~adopted inrevised ~~Share-Based~~accounting ~~Payment~~guidance ~~Transactions~~for ~~Are Participating~~the ~~Securities”~~fair ~~(ASC~~value ~~Topic~~measurement ~~260-10-55).~~and ~~ACS~~disclosure ~~Topic~~of ~~260~~its ~~addresses~~nonfinancial ~~whether~~assets ~~instruments~~and ~~granted~~nonfinancial inliabilities, ~~share-based~~except ~~payment~~for ~~transactions~~items that are ~~participating~~recognized ~~securities~~or ~~prior~~disclosed toat ~~vesting~~fair ~~and,~~value ~~therefore, need to be included~~ in the ~~earnings~~financial ~~allocation~~statements inon ~~computing earnings per share under the two-class~~a ~~method~~recurring asbasis ~~described in SFAS No. 128, “Earnings Per Share”~~ (~~ASC~~at ~~Topic~~least ~~260~~annually). ~~Under~~The ~~the~~adoption ~~guidance~~ of ~~ASC~~ ~~Topic~~this ~~260-10-55,~~accounting ~~unvested~~guidance ~~share-based~~did ~~payment~~not ~~awards~~have ~~that contain non-forfeitable rights to~~a ~~dividends~~material orimpact ~~dividend~~on ~~equivalents (whether paid or unpaid) are participating securities and must be included in~~ the ~~computation of earnings per share pursuant to the two-class method. All prior period earnings per share information must be adjusted retrospectively. The~~ Company ~~adopted ASC Topic 260-10-55 as of January 1, 2009. The Company~~’s ~~adoption~~financial ofposition ~~these~~or ~~statements~~results ~~in the first quarter~~ of ~~2009 did not have any effect on its condensed consolidated financial statements~~operations.

InAccounting ~~April 2009,~~Guidance ~~the~~Not ~~FASB~~Yet ~~issued three FSPs intended to provide additional application guidance and~~Effective ~~enhance disclosures regarding fair value measurements and impairments of securities.~~

*In ~~FSP~~April 2010, the FASB issued ASU No. 2010-17 ~~FAS~~which ~~157-4,~~establishes ~~“Determining~~authoritative ~~Fair~~guidance ~~Value~~permitting use ~~When~~of the ~~Volume~~milestone ~~and~~method ~~Level~~ of ~~Activity~~revenue recognition for ~~the~~research ~~Asset~~or development arrangements that contain payment provisions or ~~Liability~~consideration ~~Have~~contingent ~~Significantly~~on ~~Decreased~~the ~~and~~achievement ~~Identifying~~of ~~Transactions~~specified ~~That~~events. ~~Are~~This guidance ~~Not~~is ~~Orderly”~~effective ~~(ASC~~for ~~Topic~~milestones ~~820-10-65-4);~~achieved *in ~~FSP~~fiscal ~~No.~~years ~~FAS~~beginning ~~107-1~~on ~~and~~or ~~APB~~after ~~28-1~~June 15, ~~“Interim~~2010 and ~~Disclosures~~allows ~~about~~for ~~Fair~~either ~~Value~~prospective ofor ~~Financial~~retrospective ~~Instruments”~~application, ~~(ASC~~with ~~Topic~~early ~~825-10-65-1);~~adoption ~~and~~permitted. Management *is ~~FSP~~currently ~~No.~~evaluating ~~FAS~~the ~~115-2~~impact ~~and~~that ~~FAS~~adoption ~~124-2,~~of ~~“Recognition~~this ~~and~~guidance ~~Presentation~~will ofhave ~~Other-Than-Temporary~~on ~~Impairments”~~the Company’s ~~(ASC~~unaudited ~~Topic~~condensed ~~320-10-65-1)~~consolidated financial statements.

~~ASC~~In ~~Topic~~January 2010, ~~820-10-65-4~~the ~~provides~~FASB ~~additional~~issued ~~guidance~~ASU ~~for~~2010-06 ~~estimating~~to improve disclosures about fair value inmeasurements. ASU ~~accordance~~2010-06 ~~with SFAS~~clarifies ~~No. 157,~~certain ~~“Fair~~existing ~~Value~~disclosures ~~Measurements”~~and ~~(ASC~~requires ~~Topic~~new ~~820),~~disclosure ~~when~~regarding significant ~~the~~transfers ~~value~~in and ~~level~~out of ~~activity~~Level ~~for the~~1 ~~asset~~and orLevel ~~liability~~2 ~~have~~of ~~significantly~~fair ~~decreased~~value inmeasurements ~~relation~~and tothe ~~normal~~reasons for ~~market~~the ~~activity~~transfer. ~~ASC Topic~~The ~~820-10-65-4~~amendments ~~also~~in ~~includes~~ASU ~~guidance~~2010-06 onwill ~~identifying~~be ~~circumstances~~effective ~~that~~for ~~indicate~~fiscal ayears ~~transaction~~beginning after isDecember 15, ~~not~~2010, ~~orderly.~~and ~~The~~for ~~Company~~interim ~~adopted~~periods ~~ASC~~within ~~Topic~~those ~~820-10-65-4~~fiscal ~~as of March 30, 2009~~periods. AsThe ~~the~~Company ~~new~~believes that ~~standard~~ASU ~~only~~2010-06 ~~clarified~~will ~~existing~~not ~~guidance,~~have ~~there~~a ~~was no~~ material ~~effect~~impact on ~~the~~its ~~Company’s~~fair ~~condensed consolidated~~value ~~financial statements and notes~~measurements.

~~ASC~~In ~~Topic 825-10-65-1 amends FASB Statement No.~~October ~~107~~2009, ~~“Disclosures~~the ~~about~~FASB ~~Fair~~issued ~~Value~~ASU of2009-14 ~~Financial Instruments”~~to (amend ASC ~~Topic 825)~~605, to“Revenue ~~require~~Recognition.” ~~disclosures~~The amendments ~~about~~in ~~fair~~this ~~value~~update ofchange ~~financial~~the ~~instruments~~accounting model for ~~interim~~ ~~reporting~~revenue ~~periods~~arrangements ofthat ~~publicly~~include ~~traded~~both tangible ~~companies~~products asand ~~well~~software aselements. inThe ~~annual~~amendments ~~financial~~in ~~statements. This~~ASU ~~new~~2009-14 ~~standard~~will ~~also~~be ~~amends~~effective ~~Accounting~~for ~~Principles~~us beginning ~~Board (APB)~~January ~~Opinion No. 28~~1, ~~“Interim Financial Reporting” (ASC Topic 270)~~2011, towith ~~require~~early ~~those~~adoption ~~disclosures in summarized financial information at interim reporting periods~~permitted. The Company ~~adopted~~is ~~ASC~~currently ~~Topic~~evaluating ~~825-10-65-1 as of March 30, 2009. This~~the ~~pronouncement~~impact ~~has~~these noamendments ~~impact~~will have on ~~the~~its ~~Company’s~~unaudited ~~current~~ condensed consolidated financial statements when they become effective.

~~ASC~~In ~~Topic~~October 2009, ~~320-10-65-1 amends~~ the ~~other-than-temporary~~FASB ~~impairment~~issued ~~guidance~~ASU ~~for~~2009-13 ~~debt~~amending ~~securities~~ASC ~~to make~~605 ~~the~~related ~~guidance more operational and~~ to ~~improve~~revenue ~~the~~arrangements ~~presentation~~with multiple ~~and~~deliverables. ~~disclosure~~Among of other~~-than-temporary~~ ~~impairments~~things, onASU ~~debt~~2009-13 ~~and~~provides ~~equity~~guidance ~~securities~~for entities in determining the ~~financial~~selling ~~statements.~~price ~~This new~~of ~~standard~~a ~~does~~deliverable ~~not~~and ~~amend~~clarifies ~~existing~~that ~~recognition~~the ~~and~~allocation ~~measurement~~of ~~guidance~~revenue ~~related to~~is ~~other~~based on entity-specific assumptions rather than~~-temporary~~ ~~impairments~~assumptions of ~~equity~~a ~~securities~~marketplace participant. The Company ~~adopted~~is ~~ASC~~currently ~~Topic~~evaluating ~~320-10-65-1 as~~the ofimpact ~~March 30,~~ASU 2009.-13 ~~This~~will ~~pronouncement~~have ~~has no impact~~ on ~~the~~its ~~Company’s~~unaudited condensed ~~current~~ consolidated financial statements when it becomes effective on January 1, 2011. Early adoption is permitted.

~~In June 2009, the FASB issued SFAS No. 165, “Subsequent Events” (ASC Topic 855). ASC Topic 855~~13 establishes the criteria for subsequent events, including: (a) the period after the balance sheet date during which management of a reporting entity shall evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; (b) the circumstances under which an entity shall recognize events or transactions occurring after the balance sheet date in its financial statements; and (c) the disclosures that an entity shall make about events or transactions that occurred after the balance sheet date. The Company adopted ASC Topic 855 as of June 30, 2009. The adoption of this pronouncement did not have a material impact on the Company’s condensed consolidated financial statements.

In June 2009, the Financial Accounting Standards Board (“FASB”) issued its Accounting Standards Codification (“ASC”), codifying all previous sources of accounting principles into a single source of authoritative, nongovernmental U.S. generally accepted accounting principles (“U.S. GAAP”). Although the ASC supersedes all previous levels of authoritative accounting standards, it did not affect accounting principles under U.S. GAAP. The Company adopted the codification effective September 30, 2009.

In June 2009, the FASB amended its existing standards related to the consolidation of variable interest entities, which is effective for interim and annual fiscal periods beginning after November 15, 2009. The new standard requires entities to analyze whether their variable interests give it a controlling financial interest of a variable interest entity (VIE) and outlines what defines a primary beneficiary. The new standard amends GAAP by: (a) changing certain rules for determining whether an entity is a VIE; (b) replacing the quantitative approach previously required for determining the primary beneficiary with a more qualitative approach; and (c) requiring entities to continuously analyze whether they are the primary beneficiary of a VIE among other amendments. The new standard also requires enhanced disclosures regarding an entity’s involvement in a VIE. It is possible that application of this new standard will change our assessment of whether or not we are the primary beneficiary of any VIEs with which we are involved. The Company is currently evaluating the impact of this standard on our condensed consolidated financial statements.

In September 2009, the Emerging Issues Task Force (EITF) issued guidance related to Revenue Recognition that amends the previous guidance on arrangements with multiple deliverables. This guidance provides principles and application guidance on whether multiple deliverables exist, how the arrangement should be separated, and how the consideration should be allocated. It also clarifies the method to allocate revenue in an arrangement using the estimated selling price. This guidance is effective for the Company as of January 1, 2011 and is not expected to be material to the Company’s consolidated financial position or results of operations.

Brookside Technology Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements

Note 3 — Significant Accounting Policies (continued)

~~Note~~Other 4ASU’s —that ~~Accounts~~have ~~Payable~~been issued or proposed by the FASB ASC that do not require adoption until a future date and ~~Accrued~~are ~~Expenses~~not expected to have a material impact on the financial statements upon adoption.

Note 4 —Billings in Excess of Revenues

Billings in excess of revenues at March 31, 2010 and December 31, 2009 consisted of the following:


	March 31,		December 31,
	2010		2009
Customer deposits and deferred income on installation contracts	$	213,196	$	247,682
Deferred revenue on maintenance contracts		2,039,059		2,102,383


	$	2,252,255	$	2,350,065

Note 5 —Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following:

	September 30,		December 31,
	March 31,		December 31,
	2009		2008
	2010		2009
Accounts payable, trade	$	12,~~767~~626,~~093~~982	$	12,~~857~~175,~~905~~376
Accrued warranty liability		156,974		231,906
Accrued interest		319,182		306,954
Other accrued expenses		332,519		121,800
Accrued warranty liability		154,231		154,231
Total	$	2,256,586	$	2,211,611
Other accrued expenses		121,193		91,843
Total	$	3,221,588	$	2,728,404

1614

Brookside Technology Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements

Note 56 — Long Term Debt

Long-term debt as of ~~September~~March 3031, ~~2009~~2010 and December 31, ~~2008~~2009 consisted of the following:

	September 30,			December 31,
	March 31,			December 31,
	2009			2008
	2010			2009
Note payable to an individual, unsecured, accruing interest at 2% per annum, with monthly payments of $5,215 due May 1, 2010.	$	82,869		$	9882,~~049~~869
Note payable to former officers and shareholders, unsecured, accruing interest at 0% per annum, due in installments over 3 years with a maturity date of September 26, 2009, less unamortized discount of $0 and $75,812, respectively (the “Seller Note”). This note is involved in the litigation with the USVD Sellers (See Note 7 — Commitments and Contingencies).		850,000			1,524,188
Note payable to USVD Sellers, unsecured, accruing interest at 0% per annum, due in installments over 3 years with a maturity date of September 26, 2009. Currently in litigation. Please see Note 7 — Commitments and Contingencies — Litigation.		850,000			850,000
Notes payable to an individual, unsecured, accruing interest at 7% per annum, with monthly payments of $1,130 due May 1, 2011.		28,143			31,006
Notes payable to an individual, unsecured, accruing interest at 7% per annum, with monthly payments of $1,130 due May 1, 2011. On March 15, 2010, the Company converted this note payable, which had a balance of $28,143 plus accrued interest of $2,134, to 4,500,000 in common stock.		—			28,143
Note payable to executive officer and shareholders, unsecured, accruing interest at 7% per annum, with monthly payments of $968, due September 1, 2010.		16,945			16,945
Notes payable to shareholder, unsecured, accruing interest at 7% per annum, with monthly payments of $6,432 due June 1, 2010.		97,982			115,360
Notes payable to shareholder, unsecured, accruing interest at 7% per annum, with monthly payments of $6,432 due June 1, 2010. Balance paid in full in April 2010. Please see Note 17 — Subsequent Events.		97,982			97,982
Subordinated Note Payable to Vicis Capital Master Fund, accruing interest at 10%, maturing September 30, 2010, subordinated to the Chatham senior note. Net of unamortized discount of $31,067 and $118,917, respectively (STN acquisition).		1,468,933			1,381,083
Subordinated Note Payable to Vicis Capital Master Fund, accruing interest at 10%, maturing April 15, 2010, subordinated to the Chatham senior note. Net of discount of $0 and $1,784, respectively. (STN acquisition.) Balance converted to Series A Stock in April 2010. Please see note 17 — Subsequent Events.		1,500,000			1,498,216
Senior note payable, Chatham Investment Fund III, LLC and Chatham Investment Fund III QP, LLC, accruing interest at the LIBOR rate plus 9.00%, payments of $83,333 beginning on the first of the month after 6 months from the closing date, with the balance due on the third anniversary of the closing date of September 23, 2008, net of unamortized discount of $1,928,037 and $2,658,050, respectively (STN acquisition), all classified as current.		5,401,613			4,380,916
Senior note payable, Chatham Investment Fund III, LLC and Chatham Investment Fund III QP, LLC, accruing interest at the LIBOR rate plus 9.00%, monthly principal payments of $83,333 beginning March 2011, with the balance due on the third anniversary of the closing date of September 23, 2012, net of unamortized discount of $1,441,361 and $1,684,699, respectively. (STN acquisition)		6,139,148			5,820,507
Secured notes payable to Enterprise Fleet Services, accruing interest at 5% per annum, with monthly payments of $1,476, maturing June 1, 2010. Notes are secured by vehicles.		16,350			60,617
Secured notes payable to Enterprise Fleet Services, accruing interest at 5% per annum, with monthly payments of $4,941, with various maturities ranging from August 2010 through May 2012. Notes are secured by vehicles.		62,097			11,446
Secured notes payable to GMAC, accruing interest at 9.25% with monthly payments of $2,272, paid in full in June 2009 and refinanced as an operating lease. Notes are secured by vehicles.		—			82,673
Secured notes payable to NEC Financial Services, accruing interest at 11.25% with monthly payments of $1,128, with a maturity date of February 25, 2011. Note is secured by testing equipment.		29,593			24,484
Secured notes payable to Huntington Bank, accruing interest at a prime rate plus 3.73% with monthly payments of $383, with a maturity date of March 28, 2009. Note is secured by a vehicle.		—			1,007
Total long term debt		8,778,634			8,430,592
Secured notes payable to NEC Financial Services, accruing interest at 11.25% with monthly payments of $1,128, with a maturity date of February 25, 2011. Note is secured by testing equipment.		30,388			30,468
Less current portion		(2,599,345	)		(8,413,200	)
Total long term debt		7,993,223			7,722,312
Long term portion	$	6,179,289		$	17,392
Less current portion		(6,395,386	)		(2,669,177	)
Long term portion	$	1,597,837		$	5,053,135

17Principal maturities of long-term debt as of March 31, 2010 are as follows:


Years Ending December 31,	Gross
2010	$	2,599,345
2011		866,690
2012		6,753,960
2013		—
2014		—

		10,219,995
Less: Unamortized discounts		(1,441,361	)

Net of Discounts	$	8,778,634

Brookside Technology Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements

Note 56 — Long Term Debt (Continued)

~~Principal~~Change ~~maturities~~in ofunamortized ~~long-term~~discount ~~debt~~and asloan costs of ~~September 30,~~the ~~2009~~Note ~~are as follows:~~—

Years Ending December 31,	Gross
2009	$	6,395,386
2010		1,611,076
2011		14,022
2012		3,806
2013		—
		8,024,290
Less: Unamortized discounts		(31,067	)
Net of Discounts	$	7,993,223

For the three months ended March 31, 2010, the discount on the above notes changed due to amortization of discounts in connection with the notes. The total discount on the notes changed from $8,338,342 at inception to $1,441,361 at March 31, 2010. Unamortized discounts totaling total amortization expense were $243,338 and $476,674 for the three months ended March 31, 2010 and 2009, respectively. In addition to the amortization of discounts in connection with the notes as discussed above, amortization expense also included amortization of intangible assets which totaled $0 and $476,674 for the three months ended March 31, 2010 and 2009, respectively.

~~Change~~Note in7 ~~unamortized~~— ~~discount~~Commitments and ~~loan costs of the Note –~~Contingencies

For the nine months ended September 30, 2009, the discount on the above Notes changed for amortization of discounts in connection with the notes. The total discount on the Notes changed from $9,998,115 at inception to $3,848,016 at December 31, 2007, then to $2,852,779 at December 31, 2008, then to $31,067 at September 30, 2009. There was $3,006,498 of new discounts generated in 2008 in connection with valuing the Chatham Warrants issued with Chatham credit facility. A total of $3,711,578 was amortized to expense during the year ended December 31, 2008 and $730,014 was amortized to expense during the nine months ended September 30, 2009. Total amortization expense was $108,962 and $925,193 for the three months ended September 30, 2009 and 2008, respectively. Total amortization expense was $893,676 and $3,383,649 for the nine months ended September 30, 2009 and 2008, respectively. In addition to the amortization of discounts in connection with the notes as discussed above, amortization expense also included amortization of intangible assets which totaled $225,000 and $129,978 for the three months ended September 30, 2009 and 2008, respectively and $731,712 and $445,824 for the nine months ended September 30, 2009.

Note 6 — Commitments and Contingencies

Leases

~~The~~On July 26, 2007, the Company ~~has~~entered into a 31 month lease for its Austin operations under a lease classified as an operating lease. Effective September 26, 2007, the Company assumed current operating leases for the three offices leased by USVD. On October 15, 2007, the Company entered into a 60 month lease for its headquarters in Clearwater, Florida effective December 1, 2007. On June 15, 2009, the Company entered into a new lease for its Sacramento operations for 28 months under a lease classified as an operating lease. ~~agreements~~On September 7, 2009 the Company extended the lease for its ~~corporate~~San ~~offices~~Diego ~~and~~operations ~~equipment~~for 60 months under a lease classified as an operating lease. Minimum lease obligations for the years ending December 31st are as follows:

2009	$	557,543
2010 (remainder)	$	304,478
2010		331,734
2011		311,194
2011		212,427
2012		282,794
2012		171,997
2013		135,524
2013		—
2014		46,766

Rental expense for operating leases for the three months ended ~~September~~March 3031, ~~2009~~2010 and ~~2008~~2009, was approximately $~~149~~237,000 and $~~119~~176,000, respectively. ~~Rental expense for operating leases for the nine~~ ~~months ended September 30, 2009 and 2008, was approximately $489,000 and $335,000, respectively.~~

18Liquidated Damages Under Registration Payment Arrangements

The Company has accrued $154,400 which is included in other current liabilities in the accompanying consolidated balance sheets for March 31, 2010 and December 31, 2009 related to expected liquidated damages that will be paid in cash or by issuance of additional common shares or warrants for common shares under various registration rights agreements related to common shares, conversion rights and warrants for preferred shares.

Brookside Technology Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements

Note 67 — Commitments and Contingencies (continued)

Liquidated Damages Under Registration Payment Arrangements

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

Litigation

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

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

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

~~As discussed further under “Business” and “Management’s Discussion and Analysis,”~~ USVD’s revenues ~~for~~ ~~the~~until ~~six months ended June~~May 3012, 2009, while under the direction of Messrs. Fischer & Diamond, ~~were~~ were approximately $2,700,000 lower than its revenues in the same period in 2008. This decrease adversely impacted the Company’s liquidity and subsequently the Company’s largest equity investor, Vicis, provided an additional capital infusion to meet working capital needs. Also, the Company and its primary lender, Chatham, have made modifications to the Company’s credit facility as a result of decreased revenues.

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

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

19In response to the actions of Messrs. Fischer and Diamond and certain former USVD employees, the Company has worked diligently to secure USVD and its assets, employees, vendors, partners and customers. USVD’s employees, vendors, partners and customers have reconfirmed their support and loyalty to USVD, despite the fact that many of them have been solicited by Messrs. Fischer and Diamond and certain former USVD employees.

Brookside Technology Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements

Note 67 — Commitments and Contingencies (continued)

InOn ~~response~~July 17, to2009, the ~~actions~~USVD ofSellers ~~Messrs. Fischer~~filed ~~and~~a ~~Diamond~~civil ~~and~~action ~~certain~~in ~~former~~the ~~USVD~~Circuit ~~employees~~Court of Jefferson County, Kentucky, alleging that the Company ~~has~~breached ~~worked~~the ~~diligently~~USVD Agreement by failing to ~~secure~~pay ~~USVD~~the ~~and~~previously mentioned ~~its~~$289,000 ~~assets~~EBITDA earn-out payment they claim they was due on April 30, ~~employees~~2009, ~~vendors~~in addition to $1,750,000 ~~partners~~of ~~and~~other future payments they claim they are entitled to accelerate as a result of ~~customers~~such alleged breach. The lawsuit calls for an acceleration of all money owed to the USVD’s ~~employees~~Sellers including: the $850,000 ~~vendors~~Seller Note, ~~partners~~the $289,000 accrued EBITDA earn-out and ~~customers~~an ~~have~~additional $900,000 ~~reconfirmed~~in ~~their~~Minimum ~~support~~Cash Payments (as defined by the employment agreements of Messrs. Fischer and ~~loyalty~~Diamond) in connection with future estimations of earn-outs yet to be earned. The Company has a note payable — USVD Sellers included in its long-term debt of $850,000, ~~despite~~as well as an accrual for the ~~fact~~$289,000 ~~that~~accrued ~~many~~2008 ofearn-out ~~them~~payment ~~have~~that ~~been~~the ~~solicited~~USVD bySellers, Messrs. Fischer and Diamond, claim ~~and~~is ~~certain~~due ~~former~~to ~~USVD employees~~them.

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

On October 8, 2009 filed an answer and counter-claim to the USVD Sellers civil action discussed above. This answer and counter-claim outlines, among other things, the Company’s arguments for defense as well as the Company’s claims of breaches of fiduciary duty and other common law, contractual, quasi-contractual, and statutory claims against former employees of USVD. During their periods of employment, various employees of USVD who are now employees of a competitor, engaged in a variety of acts and omissions in breach of their legal duties to USVD and Brookside, including but not limited to (1) failure of the CEO and COO to fulfill their contractual duties under their Employment Agreements; (2) acts by these and other employees with fiduciary duties to act in the best interests of the company as opposed to their individual self-interests or the interests of third parties, in company matters; (3) destruction and/or seizure of proprietary documents and information belonging to USVD for the benefit of a competitor; and (4) failure by sales personnel to reimburse USVD for funds advanced on sales on behalf of USVD which were not consummated prior to their departures. The Company is continuing to analyze the forgoing civil action and continues to aggressively investigate the actions undertaken by of Messrs. Fischer and Diamond, as well as the former USVD employees, both before and after their resignations. The litigation is in its early stages, and it is premature to project its outcome. The Company continues to vigorously defend the Circuit Court action and to pursue all available defenses, claims and counter claims against the USVD Sellers, Messrs. Fischer and Diamond, and certain former USVD employees.

Risk Management

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

Note 78 — Related Party Transactions

The Company has notes payable to officers and shareholders of the Company. The balance of these notes payable was $964,927 at March 31, 2010 and December 31, 2009. These notes consist of (i) a note payable to executive officer and shareholder in the amount of $116,~~732~~945 at March 31,~~305~~ 2010 and December 31, 2009, unsecured, accruing interest at 7% per annum, with monthly payments of $968, due September 301, 2010 (ii) a note payable to shareholder in the amount of $97,982 at March 31, 2010 and December 31, 2009, unsecured, accruing interest at 7% per annum, with monthly payments of $6,432, balance paid in full on April 12, 2010 (see Note 17 — Subsequent Events) and (iii) a note payable to shareholders in the amount of $850,000 at March 31, 2010 and December 31, ~~2008~~2009, unsecured, ~~respectively~~accruing interest at 0% per annum, due in installments over three years with a maturity date of September 26, 2009, currently in litigation (see Note 7 — Commitments and Contingencies - Litigation.

2018

Brookside Technology Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements

Note 89 — Series A 8% Convertible Preferred Stock

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

The conversion price of the ~~Series A~~Preferred Stock and the exercise price of the Warrants are subject to adjustment in certain instances, including the issuance by the Company of securities with a lower conversion or exercise price, which occurred as part of the USVD financings and STN financings and acquisition. The Series A Stock has voting rights equivalent to the 1,~~319~~310,~~171~~671,600 shares of common stock into which it can convert. The Series A stockholders also must approve any change to the Company’s Articles of Incorporation.

~~Effective~~On ~~June~~July 13, ~~2009~~2008, the Company entered into a Securities Purchase Agreement (the “Vicis Agreement”) with Vicis Capital Master Fund, a sub-trust of Vicis Capital Series Master Trust, ~~and the Company’s largest preferred stockholder~~ (“Vicis”), pursuant to which Vicis ~~invested~~acquired ~~an additional $1~~(a) 2,~~000~~500,000 ~~in the Company and the Company issued to Vicis 1,000,000~~ shares of ~~the Company’s~~ Series A ~~Convertible Preferred~~ Stock ; and (b) a warrant (the “Warrant”) to purchase ~~100~~250,000,000 shares of ~~Common~~common ~~Stock~~stock atof anthe ~~exercise~~Company ~~price~~at of $0.0103 per share. ~~Pursuant~~(the “Exercise ~~to this event~~Price”), ~~all~~for ~~the~~an ~~outstanding~~aggregate ~~warrants~~purchase ~~have~~price ~~been~~of ~~re-priced to~~ $~~0.01~~2,500,000 ~~and~~(“Vicis ~~all conversion~~Equity ~~prices on the Series A Stock have been reduced to $0~~Infusion”).~~01.~~ The warrant included a put provision inherent in the redemption provision included in the warrant agreements and recorded at issuance as a liability for “Derivative financial instruments at estimated fair value” on the Company’s balance sheet in accordance with the current authoritative guidance ~~including EITF 00-19~~. In ~~accordance~~The ~~with provisions of SFAS 133, the~~ Company is required to adjust the carrying value of the above warrants to its fair value at each balance sheet date and recognize any change since the prior balance sheet date as a component of other expense or income. In valuing the above warrants the ~~Company~~company used the Black-Scholes model. The warrant included a redemption right, payable in cash upon the future occurrence of a change in control. As such, the Company recorded a derivative financial instrument at fair value of $12,~~925~~162,~~571~~879 in connection with this transaction.

Effective June 1, 2009, the Company entered into a Securities Purchase Agreement with Vicis Capital Master Fund, a sub-trust of Vicis Capital Series Master Trust, and the Company’s largest preferred stockholder (“Vicis”), pursuant to which Vicis invested an additional $1,000,000 in the Company and the Company issued to Vicis 1,000,000 shares of the Company’s Series A Stock and a warrant to purchase 100,000,000 shares of Common Stock at an exercise price of $0.01 per share. Pursuant to this event, all the outstanding warrants have been re-priced to $0.01 and all conversion prices on the Series A Stock have been reduced to $0.01. The warrant included a put provision inherent in the redemption provision included in the warrant agreements and recorded at issuance as a liability for “Derivative financial instruments at estimated fair value” on the Company’s balance sheet in accordance with the current authoritative guidance. In accordance with provisions of the authoritative guidance, the Company is required to adjust the carrying value of the above warrants to its fair value at each balance sheet date and recognize any change since the prior balance sheet date as a component of other expense or income. In valuing the above warrants the Company used the Black-Scholes model. The warrant included a redemption right, payable in cash upon the future occurrence of a change in control. As such, the Company recorded a derivative financial instrument at fair value of $898,756 in connection with this transaction.

Pursuant to the Vicis Agreement, all the outstanding warrants have been re-priced to $0.01 and all conversion prices on the Series A Stock have been reduced to $0.01.

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

~~During the nine months ended September 30, 2009, a Series A stockholder converted 25,000 shares of~~19 ~~Series A Stock to 2,571,307 shares of the Company’s common stock.~~

Note 9 — Cost of Sales

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2006				2006
	2009		2008		2009		2008
Equipment costs	$	1,063,545	$	2,474,018	$	4,001,617	$	6,188,871
Contract labor		—		17,322		24,225		131,743
Direct labor		341,339		259,876		1,005,158		748,761
Software assurance costs		174,890		283,052		174,891		286,875
Sales commissions and selling costs		146,028		42,310		407,201		68,411
Lite warranty costs		12,784		69,036		67,804		169,052
Other costs		4,886		29,914		35,308		62,620
	$	1,743,472	$	3,175,528	$	5,716,204	$	7,656,333

Brookside Technology Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements

Note 109 — ~~Employee~~Series A ~~Benefit~~8% ~~Plan~~Convertible Preferred Stock (continued)

In June 2009, the Company evaluated the issuance of 5,500,000 shares of Series A Stock for $5,500,000 ($2,500,000 in cash and $3,000,000 in reclassification of principal on the Series B Stock to Series A Stock) and 250,000,0000 warrants to purchase common stock and assigned the values to the Series A Stock and the warrants based on the relative fair values. The warrants were valued using the Black-Scholes valuation model, 0.0% dividend yield, a risk free rate of return of 4.21%, volatility of 181.04% and a five year term. The Company considered the effect of a beneficial conversion feature of the Series A shares issued and the conversion of the Series B Stock to Series A Stock. The Company has attributed no beneficial conversion feature to the Series A Stock because the fair value of the warrants issued were recorded as a derivative liability. The carrying value of the Series A Stock was reduced to zero. Since the redemption requirement of the Series A Stock is contingent on the occurrence of future events, the Company is not accreting the carrying value of the Series A Stock to redemption value and will not do so until the occurrence of any one of those future events becomes probable.

Note 10 — Cost of Sales

For the three months ended March 31, 2010 and 2009, costs of sales consisted of the following:


	March 31,
	2010		2009
Equipment costs	$	903,040	$	1,759,211
Contract labor		2,600		5,615
Direct labor		503,641		334,939
Sales commissions and selling costs		122,069		128,394
Lite warranty costs		23,429		30,919
Other costs		5,884		17,102


	$	1,560,663	$	2,276,180

Note 11 — Employee Benefit Plan

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

The Company has made 401(k) matching contributions of $129,~~491~~925 and $3531,~~649~~567 for the three months ~~ended~~ ~~September 30, 2009 and 2008, respectively. The Company made 401(k) matching contributions of $65,888 and $75,717 for the nine months~~ ended ~~September~~ March 3031, ~~2009~~2010 and ~~2008~~2009, respectively.

The Company provides group health and other benefits to its employees through plans that cover all employees that elect to be covered. The Company’s share of group health care costs was approximately $~~124~~112,000 and $~~117~~147,000 for the three months ended ~~September~~March 3031, ~~2009~~2010 and ~~2008~~2009, respectively, and ~~approximately~~such ~~$426,000 and $219,000 for the nine months ended September 30, 2009 and 2008, respectively. Such~~ amounts have been included in employee compensation and benefits expense.

~~Note 11 — Acquisition of Standard Tel Networks, LLC~~20

Brookside Technology Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements

Note 12 — Stock-Based Compensation

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

Stock options.

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

2007 Stock Incentive Plan

Effective April 19, 2007, the Company adopted the Brookside Technology Holdings Corp. (formerly Cruisestock, Inc) 2007 Stock Incentive Plan (the “Stock Incentive Plan”). The Stock Incentive Plan is discretionary and allows for an aggregate of up to ~~100~~35,000,000 shares of the Company’s common stock to be awarded through incentive and non-qualified stock options and stock appreciation rights. The Stock Incentive Plan is administered by the Board of Directors, which has exclusive discretion to select participants who will receive the awards and to determine the type, size and terms of each award granted.

The Company recognized $1822,~~605~~357 and $5316,~~333~~944 compensation expense for options for the three months ended ~~September~~March 3031, ~~2009~~2010 and ~~2008~~2009, respectively. ~~The Company recognized $52,491, and $168,333~~ ~~compensation expense for options for the nine months ended September 30, 2009 and 2008, respectively.~~

22Effective March 17, 2010, the Company issued to several of its non-executive employees 10,560,000 stock options. The stock options vest over three years, and have a strike price of $.01 per share, the fair value of the Company’s common stock at issuance date. The Company recognized employee stock option expense of $2,924 in March 2010 for these options. The Company determines the fair value of stock options at the date of grant using the Black-Scholes valuation model. Most options vest annually over a three-year service period. The Company will issue new shares upon the exercise of stock options.

A summary of the changes in the total stock options outstanding during the three months ended March 31, 2010 follows:


			Weighted
			Average
	Options		Exercise Price
Outstanding at December 31, 2009		21,200,000	$	0.03
Granted during 2010		10,560,000	$	0.01
Forfeited or expired		—		—
Exercised		—		—

Outstanding at March 31, 2010		31,760,000	$	0.02
Vested and exercisable at March 31, 2010		18,266,667	$	0.03

Brookside Technology Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements

Note 12 — Stock-Based Compensation (continued)

AThe ~~summary~~weighted average remaining term of the ~~changes~~options is approximately 9.1 years at March 31, 2010. Options issued in ~~the~~2010 had an exercise price of $0.01 per share. The grant date fair value for 2010 options was $0.01 per share. At March 31, 2010, there was approximately $227,000 of total unrecognized compensation cost related to non-vested stock option awards that are expected to be recognized over a period of 2 years. The Company has stock options outstanding ~~during~~with ~~the~~an ~~nine~~intrinsic value ~~months~~of ~~ended September~~$182,667 at March 3031, ~~2009~~2010. isThe Options vest as follows:

				Weighted
Number of Shares	Year Vested
				Average
2,633,333	2010 (Remainder)
	Options			Exercise Price
3,820,000		2011
Outstanding at December 31, 2007		14,000,000		$	0.186
3,520,000		2012
Cancelled during 2008		(14,000,000	)	$	0.186
3,520,000		2013
Granted during 2008		19,200,000		$	0.03
Forfeited or expired		—			—
Exercised		—			—
Outstanding at December 31, 2008		19,200,000		$	0.03
Granted during 2009		2,000,000		$	0.01
Forfeited or expired		—			—
Exercised		—			—
Outstanding at September 30, 2009		21,200,000		$	0.03
Vested and exercisable at September 30, 2009		3,381,944		$	0.03

~~Total~~Valuation ~~stock options vested as of September 30, 2009 is 3,381,944. The remaining vesting period is~~Assumptions ~~as follows:~~

Number of Shares		Year Vested
	14,408,333		2009
	2,633,334		2010
	688,889		2011
	7,500		2012

The Company estimates the forfeiture rate based on past turnover data. The rate used in the three months ended March 31, 2010 and 2009 was minimal. Forfeiture rate is the estimated percentage of options granted that are expected to be forfeited or cancelled on an annual basis before becoming fully vested.

The ~~weighted~~assumptions ~~average~~used ~~remaining~~for ~~term of~~ the ~~options~~three ismonths ~~approximately~~ended ~~9.1~~March ~~years at September 30~~31, ~~2009.~~ ~~Options~~2010 ~~issued in 2008~~ and 2009 ~~had~~and anthe ~~exercise price ranging from $0.01 to $0.05 per share.~~resulting ~~The~~estimates ~~grant~~of ~~date~~weighted-average fair value ~~for 2008 options were $0.01 to $0.05~~ per share. ~~At September 30, 2009, there was $471,303~~ of ~~total unrecognized compensation cost related to non-vested stock option awards that are expected to be recognized over a period of 2 years. The Company has stock~~ options ~~outstanding~~ ~~with~~granted ~~an intrinsic value of $0~~ and ~~$210,000~~shares atpurchased during ~~September 30,~~these ~~2009~~periods ~~and~~were ~~December 31,~~as ~~2008,~~follows: ~~respectively.~~


	Three Months Ended
	March 31,
	2010			2009
Employee stock options:
Dividend yield		0.0	%		0.0	%
Volatility factor		181.0	%		176.1	%
Risk-free interest rate		2.38	%		4.70	%
Expected term (years)		10			10
Weighted-average fair value of options granted during the periods	$	0.01		$	0.01

In estimating the expected term, the Company used ten years. The annual risk free rate of return was based on the U.S. Treasury constant maturity rates with similar terms to the expected term of the stock option awards. The Company based the determination of expected volatility on the Company’s historical stock price volatility over the expected term.

Brookside Technology Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements

Note 12 — Stock-Based Compensation (continued)

The stock based compensation expense under ASC 718 that has been reported in the consolidated statements of operations is as follows:


	Three Months Ended March 31,
	2010		2009
Stock-based compensation expense by caption:
Cost of sales	$	—	$	—

Selling, general and administrative		22,357		16,944

Total stock-based compensation expense	$	22,357	$	16,944

For stock subject to vesting, the Company utilized the “straight-line” method for allocating compensation cost by period.

Note 13 — Warrants

Warrants

The following is a summary of the warrants outstanding as of ~~September~~March 3031, ~~2009~~2010.

	Outstanding		Exercise Price
Series A *		7169,~~631~~583,~~216~~968	$	0.01
Series B		8077,~~896~~081,~~508~~260	$	0.01
Series C		1513,~~988~~662,~~602~~105	$	0.01
Series D **		25,080,000	$	0.01
Series E		61,273,835	$	0.01
Series F		350,000,000	$	0.01
Chatham		140,930,835	$	0.01
Total warrants		~~745~~737,~~800~~612,~~996~~003


*		Includes 2,628,917 penalty warrants

**		Includes 1,080,000 penalty warrants.

~~During~~No ~~the~~warrants ~~nine~~were ~~months~~exercised ~~ended~~during ~~September 30, 2009, a warrant holder converted through a cashless exercise of~~ the ~~warrants~~three ~~held,~~months toended 3March 31,~~857,455~~ ~~shares~~2010 ofand ~~common stock~~2009.

~~The~~Note ~~Company~~14 ~~has~~— ~~warrants,~~Goodwill ~~common stock options~~ and ~~Series A~~Purchased ~~Stock~~Intangible ~~that could potentially convert to~~Assets 1,938,169,761 shares of common stock. On November 19, 2009, shareholders representing a majority of the Company’s shares entitled to vote at a meeting executed and delivered to the Company written consents in lieu of a meeting approving an increase in the Company’s authorized shares of Common Stock from 1,000,000,000 to 10,000,000,000.

~~Note 14 — Restatement of Prior Periods~~(a) Goodwill

The following table presents the goodwill allocated to the Company’s reportable segments as of and during the three months ended March 31, 2010 and December 31, 2009:


	Balance at				Balance at
	Dec. 31, 2009		Impairment		March 31, 2010
USVD	$	8,204,318	$	—	$	8,204,318
STN		3,454,936		—		3,454,936
Total	$	11,659,254	$	—	$	11,659,254

Brookside Technology Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements

Note 14 — Goodwill and Purchased Intangible Assets (continued)

(b) Purchased Intangible Assets

Intangible assets represent amounts acquired in the acquisitions of USVD and STN and were fully amortized as of March 31, 2010 and December 31, 2009.

Amortization expense related to these intangible assets was $0 and $225,000 for the three months ended March 31, 2010 and 2009, respectively. Amortization expense is included in amortization expense of loan discount and intangibles in the accompanying unaudited condensed consolidated statements of operations.

Note 15 — Derivative Financial Instruments at Fair Value

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

			2008 Vicis		2009 Vicis
	2007 Original						2009
	Hilco		Financing		Financing
	Series A				2008 Vicis		Vicis
Financing	$	6,000,000	$	5,500,000	$	1,000,000
	Shareholders		Hilco		Financing		Financing
Total number of warrants		61,273,872		250,000,000		100,000,000
Financing	$	1,280,237	$	6,000,000	$	5,500,000	$	1,000,000
Exercise Price	$	0.137	$	0.03	$	0.01
Total number of warrants		475,478,304		61,273,872		250,000,000		100,000,000
Term of warrants (years)		5		5		5
Exercise Price	$	.01	$	0.137	$	0.03	$	0.01
Debt issuance costs	$	1,659,773	$	—	$	—
Term of warrants (years)		3-5		5		5		5
Face value of debt/equity	$	4,340,227	$	5,500,000	$	1,000,000
Debt issuance costs	$	554,996	$	1,659,773	$	—	$	—
Fair value of derivative at inception	$	18,008,466	$	9,656,069	$	1,925,571
Face value of debt/equity	$	2,141,990	$	4,340,227	$	5,500,000	$	1,000,000
Financing expense recorded	$	12,348,466	$	4,156,069	$	925,571
Fair value of derivative at Inception	$	2,886,233	$	18,008,466	$	9,656,069	$	1,925,571
Financing expense recorded	$	2,886,233	$	12,348,466	$	4,156,069	$	925,571

Brookside Technology Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements

Note 1415 — ~~Restatement~~Derivative ofFinancial ~~Prior~~Instruments ~~Periods~~at Fair Value (continued)

The above amounts have been classified as derivative financial instruments because of the put provisions inherent in the redemption provision included in the warrant agreements and recorded at issuance as a liability for “Derivative financial instruments at estimated fair value” on the Company’s balance sheet in accordance with the current authoritative guidance ~~including EITF 00-19. In accordance with provisions of SFAS 133~~, whereby the Company is required to adjust the carrying value of the above warrants to its fair value at each balance sheet date and recognize any change since the prior balance sheet date as a component of other expense or income. In valuing the above warrants, the Company used the Black-Scholes model. Changes in warrant liabilities for ~~2009~~2010 and ~~2008~~2009 were as follows:

	2008
	2009
	3/31/08			6/30/08			9/30/08			12/31/08
	3/31/09			6/30/09			9/30/09			12/31/09
Derivative financial instrument at opening balance sheet date	$	712,~~605~~016,~~601~~463		$	311,~~448~~338,~~910~~561		$	17,~~385~~512,~~780~~529		$	113,~~967~~619,~~175~~902
Fair value of new derivative during the period		—			—			9,656,069			—
Fair value of new derivative During the period		—			1,925,571			—			2,886,233
Change in estimated fair value of derivative financial instrument		(4,156,691	)		(2,063,130	)		925,326			49,288
Change in estimated fair market Value of derivative financial Instrument		(677,902	)		(5,751,603	)		(3,892,627	)		(68,588	)
Derivative financial instrument at closing balance sheet date	$	311,~~448~~338,~~910~~561		$	17,~~385~~512,~~780~~529		$	113,~~967~~619,~~175~~902		$	126,~~016~~437,~~463~~547

	2009
	3/31/10
	3/31/09			6/30/09			9/30/09
Derivative financial instrument at opening balance sheet date	$	6,437,547
Derivative financial instrument at opening balance sheet date	$	12,016,463		$	11,338,561		$	7,512,529
Fair value of new derivative during the Period		—
Fair value of new derivative during the period		—			1,925,571			—
Change in estimated fair market Value of derivative financial instrument		(167,639	)
Change in estimated fair value of derivative financial instrument		(677,902	)		(5,751,603	)		(3,892,627	)
Derivative financial instrument at Closing balance sheet date	$	6,269,909
Derivative financial instrument at closing balance sheet date	$	11,338,561		$	7,512,529		$	3,619,902

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

Brookside Technology Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements

Note 1416 — ~~Restatement~~Segment ~~of Prior Periods (continued)~~Information

InThe ~~prior~~Company ~~10-K~~conducts ~~filings~~business ~~for~~nationally ~~the~~and ~~years~~is ~~ended~~primarily ~~2007~~managed ~~and~~on ~~2008~~a ~~and~~geographic ~~related~~basis ~~quarterly~~through ~~filings, and~~its ~~quarterly~~two ~~information~~primary ~~filed~~wholly-owned ~~for~~subsidiaries. ~~three~~The ~~months~~Company’s ~~ended~~management ~~March 31,~~makes ~~June 30,~~financial ~~and~~decisions ~~September 30, 2009, the~~and ~~Company~~allocates ~~had~~resources ~~incorrectly~~based ~~accounted~~on ~~for~~the ~~these~~information ~~warrants~~it ~~resulting~~receives infrom ~~not~~its ~~recording~~internal ~~the~~management ~~quarterly~~system. Sales ~~change~~are inattributed ~~estimated~~to ~~fair~~either ~~value~~STN, ofUSVD ~~derivative~~or ~~financial~~BTP ~~instruments.~~based ~~Accordingly the impact~~ on the ~~Company’s~~ ~~quarterly~~order ~~financial information is as follows:~~placement.

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

Based on the Company’s organization, the Company operates in three business segments: STN, USVD and BTP/BKSD. STN is headquartered in Huntington Beach, California, and has offices in Sacramento and San Diego. USVD is headquartered in Louisville, Kentucky, and serves the Kentucky and Southern Indiana markets, operating out of offices in Louisville, Lexington and Indianapolis. BTP is located in Austin, Texas and BKSD, the Company’s corporate office, is headquartered in Clearwater, Florida.

	For the Three Months Ended 2009
	3/31/09			6/30/09			9/30/09
Net loss, as previously reported	$	(1,327,978	)	$	(1,032,224	)		N/A
Net income (loss), as restated	$	(650,076	)	$	3,793,808		$	2,393,765
Total liabilities, as previously reported	$	13,358,796		$	13,171,525			N/A
Total liabilities, as restated	$	24,697,357		$	20,684,054		$	16,748,118
Total equity (deficit), as previously reported	$	12,167,733		$	12,072,930			N/A
Total equity (deficit), as restated	$	829,172		$	4,560,401		$	6,984,987

The Company’s chief operating decision makers utilize both revenue and income (loss) before income taxes, in assessing performance and making overall operating decisions and resource allocations. The BTP/BKSD segment represents corporate selling, general and administrative expenses and interest expense for the Company, as well as the results of operations for BTP, Inc. The Company does not allocate general corporate sales and marketing, or general and administrative expenses to USVD and STN in this internal management system because management does not include the information in its measurement of the performance of the operating segments. In addition, the Company does not allocate amortization of acquisition-related intangible assets, share-based compensation expense, and certain other items to the net income (loss) for USVD and STN because management does not include this information in its measurement of the performance of the operating segments.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies (Note 153). —Information ~~Intangible~~about ~~Assets~~the Company’s segments is as follows (in thousands):

~~Intangible~~Three ~~assets~~months ~~represent~~ended ~~amounts acquired in the acquisitions of USVD and STN and consist of the following as of September~~March 3031, ~~2009~~2010:

	Gross Carrying		Accumulated
			Income (loss)			Net Fixed
	Amount		Amortization			Life (years)
	Revenue		before income taxes			Assets
Purchased customer contracts — USVD	$	600,000	$	600,000			1
STN	$	1,483	$	(316	)	$	67
Purchased customer contracts — STN		900,000		900,000			1
USVD		1,975		40			188
Non-compete agreements		100,000		100,000			3
BTP/BKSD		214		(1,015	)		61
	$	13,~~600,000~~672	$	(1,~~600,000~~291	)	$	316
Nine months ended September 31, 2009 Amortization Expense			$	731,712

Three months ended March 31, 2009:


			Income (loss)			Fixed
	Revenue		before income taxes			Assets
STN	$	2,186	$	151		$	123
USVD		2,609		60			254
BTP/BKSD		206		(861	)		85

	$	5,001	$	(650	)	$	462

Other Segment Information

The majority of the Company’s assets, excluding cash and cash equivalents and investments, as of March 31, 2010 and December 31, 2009 are all located in the U.S. For the three months ended March 31, 2010 and 2009, no single customer accounted for 10% or more of the Company’s net sales.

Brookside Technology Holdings Corp.
Notes to Unaudited Condensed Consolidated Financial Statements

Note 1617 — Subsequent ~~Event~~Events

On ~~November~~April 1912, ~~2009~~2010, ~~shareholders representing a majority of~~ the Company’s ~~shares~~paid ~~entitled~~in tofull ~~vote at~~ a ~~meeting~~note ~~executed~~payable ~~and delivered~~ to ~~the~~shareholder ~~Company~~which ~~written~~had ~~consents in lieu of~~ a ~~meeting~~balance ~~approving an increase in the Company’s authorized shares~~ of ~~Common Stock~~ ~~from 1~~$97,~~000,000,000~~982 tofor ~~10,000,000,000~~payment ~~and~~of ~~to increase the aggregate shares available to be issued under the Stock Incentive Plan from 35~~$50,000~~,000 to 100,000,000~~.

On April 12, 2010, the Company’s board of directors increased the authorized shares of its Series A Stock from fifteen million (15,000,000) shares to twenty million (20,000,000) shares.

Vicis Purchase of 3,000,000 Shares of Series A Stock

Effective April 12, 2010, the Company entered into a Securities Purchase Agreement with Vicis, pursuant to which Vicis invested an additional $3,000,000 in the Company and the Company issued to Vicis 3,000,000 shares of the Company’s Series A Stock and converted its subordinated note, pursuant to which the Company owed Vicis $1,737,083, into an additional 1,737,083 shares of Series A Stock of the Company. In connection therewith, the Company issued to Vicis a Warrant to purchase up to 473,308,300 shares of Common Stock of the Company at an exercise price of $0.01 per share. The warrant included a redemption right, payable in cash upon the future occurrence of a change in control. The warrant also included a put provision inherent in the redemption provision; therefore, the warrant is recorded at issuance as a liability for “Derivative financial instruments at estimated fair value” on the Company’s balance sheet in accordance with the current authoritative guidance. The Company is required to adjust the carrying value of the above warrants to its fair value at each balance sheet date and recognize any change since the prior balance sheet date as a component of other expense or income. In valuing the above warrants, the Company used the Black-Scholes model. As such, the Company recorded a derivative financial instrument at fair value of $4,336,103 in connection with this transaction on April 12, 2010.

Chatham Default Waiver

On April 12, 2010, Company restructured its senior credit facility. Among other things, the Amendment Agreement waives all prior defaults under the Company’s senior credit facility, extends the term of the senior loan to September 23, 2012, eliminates and/or modifies certain financial covenants and agrees to suspend the compliance of the minimum fixed charge coverage ratio and maximum leverage ratio contained in the credit agreement. The Company is in full compliance with its financial covenants under this agreement. In connection therewith, the Company executed and delivered an Amended and Restated Term note to Chatham and issued to Chatham a Warrant to purchase up to 506,906,835 shares of common stock of the Company. The Company is required to adjust the carrying value of the above warrants to its fair value at each balance sheet date and recognize any change since the prior balance sheet date as a component of other expense or income. In valuing the above warrants, the Company used the Black-Scholes model. As such, the Company recorded a derivative financial instrument at fair value of $3,659,707 in connection with this transaction on April 12, 2010.

In accordance with Accounting Standards Codification 855, Subsequent Events (“ASC 855”), the Company has evaluated events through May 14, 2010, the date these condensed consolidated financial instruments were issued.

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

The information presented in this section should be read in conjunction with our audited consolidated financial statements and related notes for the periods ended December 31, ~~2008~~2009 and ~~2007~~2008 included in our Form 10-K, as filed with the Securities and Exchange Commission, as well as the information contained in the consolidated financial statements, including the notes thereto, appearing in this report. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in the section entitled “Risk Factors” of our Form 10-K for the year ended December 31, ~~2008~~2009, and elsewhere in this report.

General

~~Organizational~~DESCRIPTION ~~History~~OF ~~and~~BROOKSIDE ~~Operations~~TECHNOLOGY HOLDINGS CORP.’S BUSINESS

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

~~Collectively,~~Brookside ~~the~~Technology ~~subsidiary~~Holdings ~~companies are providers of converged business communications products and services from Mitel~~Corp., ~~Inter-tel~~ (~~owned~~the ~~by Mitel~~“Company”), ~~Nortel and NEC. The Company,~~ is the ~~2nd~~ ~~largest~~holding ~~MITEL~~company ~~dealer~~for ~~in the United States, and is recognized by Mitel as a Diamond~~Brookside ~~Dealer.~~Technology ~~The Company combines technical expertise in a range of communications products~~Partners, ~~including IP-enabled platforms~~Inc, ~~wired~~a ~~and~~Texas ~~wireless~~corporation IP(“Brookside ~~and~~Technology ~~digital endpoints and leading edge communications applications to create converged voice~~Partners”), ~~video~~US ~~and~~Voice ~~data~~& ~~networks that help businesses increase efficiency and optimize revenue opportunities~~Data, ~~critical for success in today’s competitive business~~ ~~environment. Specializing in selling~~LLC, ~~designing,~~an ~~analyzing~~Indiana ~~and~~Limited ~~implementing~~Liability ~~converged~~Company ~~Voice over IP~~ (~~VoIP~~“USVD”), ~~data~~Standard ~~and~~Tel ~~wireless business communications systems and solutions for commercial and state/government organizations of all types and sizes in the United States~~Acquisitions, ~~the Company has offices that provide a national footprint~~Inc. ~~Headquartered in Huntington Beach~~, ~~California,~~a ~~STN has~~California ~~additional~~Corporation ~~offices~~(“Acquisition inSub”), ~~Sacramento~~Trans-West ~~and~~Network ~~San Diego. Headquartered in Austin~~Solutions, ~~Texas, Brookside Technology Partners serves the Texas market~~Inc. ~~Headquartered in Louisville~~, ~~Kentucky~~(“Trans-West”), ~~USVD~~a ~~serves the~~California ~~Kentucky~~Corporation and ~~Southern~~Standard ~~Indiana~~Tel ~~markets~~Networks, ~~operating out of offices in Louisville~~LLC, ~~Lexington~~a ~~and Indianapolis.~~California ~~Combined,~~Limited ~~new~~Liability ~~implementations represent approximately 50% of the~~ Company’s ~~revenues~~(“STN”). All ~~with~~operations ~~the~~are ~~remaining~~conducted ~~50%~~through ~~generated~~these by(five) wholly ~~service,~~owned ~~support, maintenance and other recurring revenues from our existing customer base~~subsidiaries.

Collectively, the subsidiary companies are providers of converged business communications products and services from Mitel, Inter-tel (owned by Mitel), Nortel and NEC. We are the 2^nd largest MITEL dealer in the United States, and is recognized by Mitel as a Platinum ELITE Partner. We combine technical expertise in a range of communications products, including IP-enabled platforms, wired and wireless IP and digital endpoints and leading edge communications applications to create converged voice, video and data networks that help businesses increase efficiency and optimize revenue opportunities, critical for success in today’s competitive business environment. Specializing in selling, designing, analyzing and implementing converged Voice over IP (VoIP), data and wireless business communications systems and solutions for commercial and state/government organizations of all types and sizes in the United States, we have offices that provide a national footprint. Headquartered in Huntington Beach, California, STN has offices in the Sacramento, and San Diego. Headquartered in Austin, Texas, Brookside Technology Partners serves the Texas market. Headquartered in Louisville, Kentucky, USVD serves the Kentucky and Southern Indiana markets, operating out of offices in Louisville, Lexington and Indianapolis. Combined, new implementations represent approximately 70% of our revenues with the remaining 30% generated by service, support, maintenance and other recurring revenues from our existing customer base.

Background/Name Change/Redomestication

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

Acquisition of USVD

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

Increase in Authorized Shares

On August 4, 2008, the Company filed Articles of Amendment to its Articles of Incorporation (the “Amendment”) with the Florida Department of State increasing the number of shares of common stock that the Company has the authority to issue from Two Hundred and Fifty Million (250,000,000) shares to One Billion (1,000,000,000) shares. On November 19, 2009, shareholders representing a majority of the ~~Company’s~~our shares entitled to vote at a meeting executed and delivered to ~~the~~us ~~Company~~ written consents in lieu of a meeting approving an increase in our ~~the Company’s~~ authorized shares of ~~Common Stock~~common stock from one billion (1,000,000,000) shares to ten billion (10,000,000,000) shares.

Vicis Equity Infusion

On July 3, 2008, ~~the~~we ~~Company~~ entered into a Securities Purchase Agreement (the “Vicis Agreement”) with Vicis Capital Master Fund, a sub-trust of Vicis Capital Series Master Trust (“Vicis”), pursuant to which Vicis acquired (a) 2,500,000 shares of Series A Stock; and (b) a warrant (the “Warrant”) to purchase 250,000,000 shares of our common stock ~~of the Company~~ at $0.03 per share (the “Exercise Price”), for an aggregate purchase price of $2,500,000 (“Vicis Equity Infusion”). The warrant included a put provision inherent in the redemption provision included in the warrant agreements and recorded at issuance as a liability for “Derivative financial instruments at estimated fair value” on ~~the Company’s~~ our balance sheet in accordance with the current authoritative ~~guidance~~ ~~including EITF 00-19~~guidance. InWe ~~accordance~~are ~~with provisions of SFAS 133, the Company is~~ required to adjust the carrying value of the above warrants to its fair value at each balance sheet date and recognize any change since the prior balance sheet date as a component of other expense or income. In valuing the above warrants, ~~the~~we ~~company~~ used the Black-Scholes model. The warrant included a redemption right, payable in cash upon the future occurrence of a change in control. As such, ~~the Company~~we recorded a derivative financial instrument at fair value of $92,~~656~~162,~~069~~879 in connection with this transaction.

~~Furthermore,~~Vicis ~~pursuant~~also topurchased ~~the~~and ~~Vicis~~assumed ~~Agreement,~~from ~~all~~Hilco ofFinancial, ~~the~~LLC 3(“Hilco”),~~000,000~~ ~~shares~~and ~~outstanding~~Hilco ofassigned ~~the~~to Vicis, ~~Company’s~~all ~~Series B~~credit ~~Stock)~~agreements, ~~previously~~loans ~~owned~~and bypromissory ~~Vicis~~notes ~~were~~under ~~converted~~which ~~into~~Hilco ~~3,000,000~~had ~~shares~~loaned ofmoney ~~Series~~to us. We Aconsented ~~Stock~~to such assignments. ~~Accordingly~~In connection with such assignments, ~~the~~Hilco ~~Company~~transferred noto ~~longer~~Vicis ~~has~~its warrants ~~any~~to ~~outstanding~~purchase 61,273,835 shares of ~~Series B~~our ~~Stock~~common stock. ~~The Exercise~~ ~~Price~~In isaddition, ~~subject~~Vicis topurchased aand assumed ~~price~~from ~~adjustment~~Dynamic ~~from~~Decisions ~~time~~(“DD”), and DD assigned to ~~time~~Vicis, ~~upon~~all ~~the~~credit, ~~occurrence~~loans ofand ~~certain~~promissory ~~events~~notes ~~set~~under ~~forth~~which inDD ~~the~~had ~~Warrant~~loaned money to us. We consented to such assignments.

~~The~~All ~~Company~~Warrants ~~accounted~~and ~~for~~Series A ~~these~~Stock ~~two~~contain ~~transactions~~provisions asthat ~~one~~limit ~~event~~their ~~for~~holders ~~accounting~~ability ~~purposes.~~to ~~The~~exercise and $5convert,~~500,000~~ ~~($2~~as applicable,~~500,000~~ inthe ~~cash~~Warrant and ~~$3,000,000 of principal of~~ Series BA Stock) ~~was~~to ~~considered~~the ~~for investment~~extent ~~in 5~~that,~~500,000~~ ~~shares~~after ~~of Series A Stock and 250~~such conversion/exercise,~~000,000~~ ~~warrants to purchase common stock. Initially~~ the ~~$5,500,000~~sum ~~was~~of ~~allocated based on~~ the ~~relative~~number ~~fair~~of ~~value~~shares of ~~the~~common ~~Series A~~stock ~~Stock~~beneficially ~~and the~~owned ~~warrants~~by ~~issued. Subsequently~~ the holder ~~amount~~would ~~was~~result ~~restated~~in ~~with~~beneficial ~~$5.5 million~~ownership inby ~~Series A~~any ~~Stock being~~holder ~~reduced~~and toits ~~zero~~affiliates ~~and~~of ~~the~~more ~~fair~~than ~~value~~4.99% of the ~~warrant~~outstanding shares of ~~$9,656,069~~common ~~being established~~stock.

~~Vicis~~As ~~also~~a ~~purchased~~result ~~and~~of ~~assumed~~Vicis ~~from~~equity ~~Hilco~~infusion ~~Financial,~~described ~~LLC (“Hilco”)~~above, ~~and~~the ~~Hilco~~exercise ~~assigned~~price toof ~~Vicis,~~ all ~~credit~~of ~~agreements,~~our ~~loans and promissory notes under which Hilco had loaned money to the~~outstanding ~~Company. The Company consented to such assignments. In connection with such assignments, Hilco transferred to Vicis its~~ warrants ~~to purchase 61~~,~~273,835~~ ~~shares~~including ~~of common stock of~~ the ~~Company.~~warrants ~~In addition,~~transferred ~~Vicis purchased and assumed from Dynamic Decisions (“DD”), and DD assigned~~ to Vicis, ~~all credit~~from ~~agreements~~Hilco, ~~loans~~has ~~and~~been ~~promissory~~reset ~~notes under which DD had loaned money~~ to ~~the Company~~$0.03 ~~The~~pursuant ~~Company consented~~ to ~~such assignments. The warrant included a put provision inherent in~~ the ~~redemption~~ ~~provision~~price ~~included~~protection in the warrant agreements and recorded at issuance as a liability for “Derivative financial instruments at estimated fair value” on the Company’s balance sheet in accordance with the current authoritative guidance including EITF 00-19. In accordance with provisions of ~~SFAS~~those ~~133~~warrants. Additionally, the ~~Company~~conversion isprice ~~required to adjust the carrying value~~ of ~~the above warrants~~all tooutstanding ~~its~~shares ~~fair value at each balance sheet date and recognize any change since the prior balance sheet date as a component~~ of ~~other~~Series A ~~expense or income. In valuing the above warrants~~Stock, ~~the~~including ~~Company~~those ~~used~~previously ~~the Black-Scholes~~owned ~~model.~~by ~~The warrant included a redemption right~~Vicis, ~~payable~~has inbeen ~~cash~~reset ~~upon the future~~to ~~occurrence of a change in control~~$0.03 Aspursuant ~~such,~~to the ~~Company~~price ~~recorded~~protection aprovisions ~~derivative financial instrument at fair value~~ of ~~$18,008,466~~the ~~in connection with this transaction on September~~Series ~~26,~~A ~~2007~~Stock.

Acquisition of Standard Tel Networks, LLC

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

~~All~~RECENT ~~Warrants and Series A Stock each contain provisions that limit their holders ability to~~DEVELOPMENTS exercise and convert, as applicable, the Warrant and Series A Stock to the extent that, after such conversion/exercise, the sum of the number of shares of common stock beneficially owned by the holder would result in beneficial ownership by any holder and its affiliates of more than 4.99% of the outstanding shares of common stock.

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

~~Acquisition~~Effective June 1, 2009, we entered into a Securities Purchase Agreement with Vicis, pursuant to which Vicis invested an additional $1,000,000 in the Company and we issued to Vicis 1,000,000 shares of ~~Standard~~our ~~Tel~~Series A ~~Networks~~Convertible Preferred Stock and a warrant to purchase 100,000,000 ~~LLC~~shares of common stock at an exercise price of $0.01 per share. The warrant included a put provision inherent in the redemption provision included in the warrant agreements and recorded at issuance as a liability for “Derivative financial instruments at estimated fair value” on our balance sheet in accordance with the current authoritative guidance. We are required to adjust the carrying value of the above warrants to its fair value at each balance sheet date and recognize any change since the prior balance sheet date as a component of other expense or income. In valuing the above warrants, we used the Black-Scholes model. The warrant included a redemption right, payable in cash upon the future occurrence of a change in control. As such, we recorded a derivative financial instrument at fair value of $898,756 in connection with this transaction.

OnAdditionally, ~~September~~effective April 2312, ~~2008~~2010, ~~Brookside~~we ~~Technology~~entered ~~Holdings~~into ~~Corp.~~a ~~(the~~Securities ~~“Company),~~Purchase ~~through~~Agreement ~~its~~with ~~wholly owned subsidiary~~Vicis, pursuant ~~Standard~~to ~~Tel~~which ~~Acquisitions,~~Vicis ~~Inc.~~invested ~~(“Acquisition~~an ~~Sub”)~~additional $3,000,000 ~~acquired~~in ~~Standard~~the ~~Tel~~Company ~~Networks, LLC~~and ~~(“STN”),~~we anissued ~~independent~~to ~~distributor~~Vicis 3,000,000 shares of ~~high~~our ~~quality,~~Series A ~~turnkey~~Stock ~~converged voice~~ and ~~data~~a ~~business communications~~warrant ~~products~~to ~~and~~purchase ~~services~~300,000,000 ~~with~~shares ~~California~~of ~~offices~~Common inStock at ~~Sacramento,~~an ~~San~~exercise ~~Diego~~price ~~and headquartered~~of in$0.01 ~~Huntington~~per ~~Beach~~share. The ~~acquisition~~warrant ~~was~~included ~~conducted~~a ~~pursuant~~put toprovision ainherent ~~previously-disclosed~~in the ~~Stock~~redemption ~~and~~provision ~~Membership~~included ~~Interest~~in ~~Purchase~~the ~~Agreement~~warrant ~~dated~~agreements ~~July 17, 2008,~~ and ~~was~~recorded ~~structured~~at issuance as ~~the~~a liability for ~~acquisition~~“Derivative offinancial ~~(a) all~~instruments ofat ~~the~~estimated ~~stock~~fair ofvalue” ~~Trans-West~~on ~~Network~~our ~~Solutions,~~balance ~~Inc.~~sheet ~~(“Trans-West”)~~in ~~from~~accordance ~~the~~with ~~shareholders~~the ofcurrent ~~Trans-West~~authoritative ~~(the~~guidance. ~~“Trans-West~~We ~~Shareholders”)~~are ~~and~~required ~~(b) all~~to ofadjust the ~~membership~~carrying ~~interest~~ value of ~~STN~~the ~~owned~~above warrants byto ~~ProLogic~~its ~~Communication,~~fair ~~Inc.~~value ~~(“ProLogic”~~at each balance sheet date and ~~collectively~~recognize ~~with~~any change since the ~~Trans-West~~prior ~~Shareholders,~~balance ~~the~~sheet ~~“Seller~~date ~~Parties”).~~as Asa ~~previously~~component ~~reported,~~of ~~Trans-West,~~other aexpense ~~holding~~or ~~company~~income. ~~with~~In ~~no operations~~valuing the above warrants, ~~owns~~we used ~~eighty~~the ~~percent~~Black-Scholes ~~(80%)~~model. ofThe ~~the~~warrant ~~membership~~included ~~interest~~a ofredemption ~~STN~~right, ~~and~~payable ~~ProLogic~~in ~~owned~~cash upon the ~~other~~future ~~twenty~~occurrence ~~percent~~of ~~(20%),~~a ~~and,~~change ~~accordingly,~~in ~~the~~control. ~~Company~~As ~~now~~such, ~~owns~~we ~~(directly,~~recorded ina ~~part,~~derivative ~~and~~financial instrument ~~indirectly~~at ~~through~~fair ~~Trans~~value ~~West~~of $4,336,103 in ~~other~~connection ~~part)~~with ~~one~~this ~~hundred~~transaction ~~percent~~in ~~(100%) of STN~~April 2010.

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

Results of Operations

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

Revenues, Cost of Sales and Gross Margins

Total revenues from operations for the three months ended March 31, 2010 were $3,672,075 compared to $5,001,299 reported for the same period in 2009, a decrease of `$1,329,224 or 26.6%. This decrease in revenues is primarily due to the decreased sales activity experienced in all of our subsidiary entities in 2010 versus the comparable period in 2009. This is due primarily due to general market and economic conditions being unfavorable in 2010.

Cost of sales was $1,560,663 for the three months ended March 31, 2010 compared to $2,276,180 reported for the same period in 2009, a decrease of $715,517 or 31.4%. Total cost of sales decreased due to decreased revenues discussed above while cost of sales decreased as a percentage of total sales. As a percentage of sales, cost of sales was 42.6% and 45.5% for the three months ended March 31, 2010 and 2009, respectively. This improvement in cost of sales as a percentage of sales is primarily attributable to the Company’s multi-faceted and differentiated approach, “Teleficiency”™, a universal focus on higher margin, approach specific, value added business and technology solutions.

Gross margin was $2,111,412 or 57.5% as a percentage of revenue for the three months ended March 31, 2010 compared to $2,725,119 or 54.4% as a percentage of revenue reported for the same period in 2009. The increase in the gross margin as a percentage of revenue is due primarily to our multi-faceted and differentiated approach, “Teleficiency”™, a universal focus on higher margin, approach specific, value added business and technology solutions.

~~Restatement~~General ofand ~~Prior~~Administrative ~~Periods~~Expenses

OnGeneral ~~November 16, 2009,~~ and asadministrative aexpenses ~~result~~were of$2,844,914 ~~comments~~and ~~the~~$3,110,097 ~~Company received from the SEC as a result of the SEC’s review of the Company’s Form 10-K~~ for the ~~year~~three months ended ~~December~~ March 31, ~~2008~~2010 and ~~Form 10-Q for the period ended June 30~~2009, ~~2009~~respectively, ~~the~~representing ~~Company’s~~an ~~board~~decrease of ~~directors concluded that its previously issued financial statements for the years ended December 31~~$265,183. ~~2007~~The ~~and~~decrease ~~2008,~~in ~~and~~2010 ~~each~~was ~~interim~~due ~~quarter~~primarily ~~contained~~due ~~within~~to ~~such~~organizational ~~years,~~sizing and ~~for~~direct ~~the~~cost ~~quarters~~cutting ~~ended~~to ~~March 31,~~reduce ~~2009~~general and ~~June 30, 2009,~~administrative ~~should no longer be relied upon because of the forgoing error regarding the accounting of such warrants~~expenses. ~~The~~Our ~~board~~management ofcontinues ~~directors~~to ~~discussed~~evaluate ~~the~~expenses ~~forgoing~~in ~~matters~~line with ~~the~~revenues ~~Company’s~~to ~~independent~~determine ~~accountant~~additional cost cutting.

~~Accordingly~~Rental ~~the~~expense ~~impact~~for onoperating leases for the ~~Company’s~~three ~~quarterly~~months ~~financial~~ended ~~information~~March 31, 2010 and 2009 was $230,518 and $175,513 respectively, representing an increase of $55,005. The increase is asprimarily ~~follows:~~due to the increase in leased vehicles.

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

Amortization Expense

	For the Three Months Ended 2009
	3/31/09			6/30/09			9/30/09
Net loss, as previously reported	$	(1,327,978	)	$	(1,032,224	)		N/A
Net income (loss), as restated	$	(650,076	)	$	3,793,808		$	2,393,765
Total liabilities, as previously reported	$	13,358,796		$	13,171,525			N/A
Total liabilities, as restated	$	24,697,357		$	20,684,054		$	16,748,118
Total equity (deficit), as previously reported	$	12,167,733		$	12,072,930			N/A
Total equity (deficit), as restated	$	829,172		$	4,560,401		$	6,984,987

We recognized $243,338 and $476,674 of amortization expense for the three months ending March 31, 2010 and 2009, respectively. This represented a decrease of $233,336. The decrease is due primarily to the full amortization in 2009 of customer contracts purchased with the STN acquisition and classified as intangible assets.

~~Revenues,~~Interest ~~Cost of Sales and Gross Margins~~Expense

~~Total~~Interest ~~revenues~~expense ~~from~~was ~~operations for the quarter ended September 30, 2009 were~~ $4442,~~369,728~~981 ~~compared~~and to $5432,~~657,123~~809 ~~reported~~ for the ~~same~~three ~~period~~months inended ~~2008~~March 31, ~~representing~~2010 aand ~~decrease of $1~~2009,~~287,395, or 23%.~~ ~~This decrease in revenues is primarily due to the decreased sales activity at USVD experienced in 2009 versus the comparable period in 2008~~respectively. This ~~decrease~~increase ~~was partially offset by the acquisition~~ of ~~STN, which added~~ $110,~~965,413~~172 tois ~~the Company’s total revenues for the quarter ended September 30, 2009. While the Company believes that a portion of this decrease in earnings may be~~ due toprimarily ~~general market and economic conditions, however, as discussed further under “Legal Proceedings,” the Company has taken action and continues~~ to ~~aggressively investigate~~ the ~~actions of~~interest ~~certain~~charged ~~former employees~~on ~~of USVD undertaken both before and after their resignations from USVD. Since~~ the ~~departure~~ ~~of the former USVD employees, the Company has successfully hired sales and sales~~increasing ~~management~~debt ~~personnel~~balance ~~and~~with ~~transitioned~~Chatham ~~USVD~~in ~~operations and administrative management to the Company’s management team~~2010.

~~Total~~Gain ~~revenues~~on ~~from~~Change ~~operations for the nine months ended September 30, 2009 were $13,915,078 compared to $14,398,636 reported for the same period~~ in ~~2008,~~Fair ~~representing~~Value ~~a decrease~~ of ~~$483,558, or~~Derivative ~~3%.~~Financial ~~This decrease in revenues is due primarily to decreased sales activity at USVD in 2009~~Instruments versus 2008. This decrease in revenues was partially offset by the acquisition of STN, which added $6,350,369 to the Company’s total revenues for the nine months ended September 30, 2009. While the Company believes that a portion of this decrease in earnings may be due to general market and economic conditions as discussed further under “Legal Proceedings,” the Company has taken action and continues to aggressively investigate the actions of certain former employees of USVD undertaken both before and after their resignations from USVD. In addition,

Gain on change in fair market value of derivative financial instruments was $167,639 and $677,902 for the three months ended March 31, 2010 and 2009, respectively. This is a decrease in gain of $510,263. This is due to the decrease in fair market value of the warrants pursuant to valuation using the Black-Scholes Model. The fair value of the derivative liability decreased as a result of a decline in the market price of our common stock.

Loss on Impairment of Goodwill

We performed an analysis to ascertain the potential impairment to the current carrying value of goodwill at December 31, 2009. Management considered an analysis based on discounted cash flow and a market based approach to be the most applicable. This analysis was based on projected cash flows for the three months ended 2010 through 2013, with a residual value of 4.5 times the earnings before interest, taxes, depreciation and amortization (“EBITDA”). This multiple approximates the actual negotiated average purchase price of STN and USVD by the Company, negotiated at arms-length. In order to achieve these future cash flows, we added an assumption for an initial investment of $1,000,000 in 2010.

Based on these assumptions, we calculated the value of goodwill to be $11,659,254. Since the carrying value of goodwill was $16,980,029, an adjustment for impairment of long-lived assets of $5,320,775 was made at December 31, 2009. There was no loss for impairment of goodwill for the three months ended March 31, 2010.

Income Taxes

Provision for income taxes was $22,214 and $0 for the three months ended March 31, 2009 and 2008, respectively. This expense relates to state income tax due for the three months ended March 31, 2010 and 2009, respectively.

Effective at the beginning of the first quarter of 2007, we adopted the authoritative guidance regarding the accounting for uncertainty in income taxes. The authoritative guidance contains a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. As a result of the implementation of FIN 48, we have not changed any of our tax accrual estimates. We file U.S. federal and U.S. state tax returns. For state tax returns, we are generally no longer subject to tax examinations for years prior to 2006.

~~during~~Net ~~the~~(Income) ~~first~~Loss quarter of 2009, USVD’s Kentucky region experienced ice storms and other harsh weather which caused lengthy power outages for two weeks, which impacted recurring and new sales business that resulted in less business activity for USVD and will not be recovered. The Company has successfully hired sales and sales management personnel and transitioned USVD operations and administrative management to the Company’s management team.

~~Cost~~Net ofloss ~~sales~~ was $1,~~743~~313,~~472~~216 ~~for~~and ~~the quarter ended September 30, 2009 compared to~~ $3650,~~175,528~~076 for the ~~quarter~~three months ended ~~September~~March 3031, ~~2008,~~2010 aand ~~decrease of $1~~2009,~~432,056 or 45%~~ respectively. This ~~decrease~~represents ~~was~~an ~~due to less cost of sales associated with the decrease in revenues for the Company discussed above. The decrease in cost of sales was partially offset by the~~ increase in ~~cost~~net ofloss ~~sales, in conjunction with the increased revenues due to the acquisition~~ of ~~STN, which added cost of sales in the amount of~~ $~~761~~663,~~990~~140. ~~As a percentage of sales, cost of sales was 40% and 56% for the quarters ended September 30, 2009 and 2008, respectively.~~ This ~~decrease~~increase ~~was~~is primarily due to ~~increased~~the ~~profit margin~~decrease ~~realized on sales consummated~~ in ~~the~~revenues ~~third~~discussed ~~quarter~~above ~~2009~~and ~~versus~~ the ~~comparative~~decrease ~~period~~ in ~~2008.~~ ~~This~~gain ~~improvement~~on change in ~~cost~~fair ofvalue ~~sales as a percentage~~ of ~~sales is primarily attributable to the~~ ~~Company’s~~derivative ~~multi-faceted~~financial ~~and~~instruments ~~differentiated~~of ~~approach~~$510, ~~“Teleficiency”™, a universal focus on higher margin, application specific value added business and technology solutions~~263.

~~Cost~~Liquidity of sales was $5,716,204 for the nine months ended September 30, 2009 compared to $7,656,333 for the nine months ended September 30, 2008, a decrease of $1,940,129 or 25%. The decrease was due to less cost of sales associated with the decrease in revenues for the Company discussed above. The decrease in cost of sales was partially offset by the increase in cost of sales, in conjunction with the increased revenues due to the acquisition of STN, which accounted for $2,353,697 of the increase. As a percentage of sales, cost of sales was 41% and ~~53%~~Capital ~~for the nine months ended~~Resources September 30, 2009 and 2008, respectively. This decrease was primarily due to increased profit margin realized on sales consummated in the first nine months of 2009 versus the comparative period in 2008. This improvement in cost of sales as a percentage of sales is primarily attributable to the Company’s multi-faceted and differentiated approach, “Teleficiency”™, a universal focus on higher margin, application specific value added business and technology solutions.

~~Our~~Additional ~~gross margin was 60% for the quarter ended September 30, 2009 compared to 44% for the quarter~~Capital ended September 30, 2008. The increase in gross margin as a percentage of sales is due primarily to the Company’s multi-faceted and differentiated approach, “Teleficiency”™, a universal focus on higher margin, application specific value added business and technology solutions.

~~Our~~To ~~gross~~the ~~margin~~extent ~~was~~that ~~59%~~additional ~~for~~capital is raised through the ~~nine~~sale ~~months~~of ~~ended~~our ~~September 30~~equity or equity-related securities of our subsidiaries, ~~2009~~the ~~compared~~issuance of our securities could result in dilution to ~~47%~~our stockholders. ~~for~~No assurance can be given that we will have access to the ~~nine~~capital markets in the ~~months~~future, ~~ended~~or ~~September 30~~that financing will be available on terms acceptable to satisfy our cash requirements, implement ~~2008.~~our ~~The~~business ~~significant~~strategies, ~~improvement~~and inmeet ~~gross~~the ~~margin~~restrictive ~~percentage~~requirements isof ~~due~~the debenture financing ~~primarily~~described above. If we are unable to access the ~~Company’s~~capital ~~multi-faceted~~markets ~~and~~or ~~differentiated~~obtain ~~approach,~~acceptable ~~“Teleficiency”™~~financing, our aresults ~~universal~~of operations and financial condition could be materially and adversely affected. We ~~focus~~may onbe ~~higher~~required ~~margin~~to raise substantial additional funds through other means. In 2009, ~~application~~we ~~specific~~did ~~value~~not generate ~~added~~sufficient ~~business~~revenues ~~and~~from ~~technology~~our ~~solutions~~commercial operations associated with product sales. Management will seek to raise additional capital through one or more equity or debt financings or have discussions with certain investors with regard thereto. We cannot assure our stockholders that our revenues will be sufficient to fund our operations.

~~General~~In April 2010, we obtained an additional $3 million in equity financing, which we believe will be sufficient to meet our working capital needs for the next 12 months. However, if our revenues continue to be insufficient and ~~Administrative~~if ~~Expenses~~adequate funds are not available to us, we may be required to curtail operations significantly or to obtain funds through entering into arrangements with collaborative partners or others that may require us to relinquish rights to sell certain of our technologies or products.

~~General~~We ~~and~~had ~~administrative~~a ~~expenses~~net ~~were~~loss $2for the three months ended March 31,~~960,994~~ ~~and~~2010 of approximately $1~~,932,108~~.3 million ~~for~~and have an accumulated deficit of approximately $24.3 million. For the ~~quarters~~three months ended ~~September 30~~March 31, ~~2009 and 2008~~2010, we ~~respectively.~~had ~~This~~net ~~represented~~cash anused ~~increase~~in operations of approximately $1239,~~028~~000. Historically,~~886~~ orwe ~~53%.~~have ~~This~~relied ~~increase~~on inborrowings ~~general~~ and ~~administrative~~equity ~~expenses~~financings into ~~2009~~maintain ~~was~~our ~~due~~operations. ~~primarily~~We tobelieve ~~the~~we ~~acquisition~~have ofenough ~~STN,~~cash ~~which~~to ~~accounted~~operate for $1the coming year with our cash on hand,~~214,891~~ ofcash ~~the~~to ~~increase.~~be ~~This~~generated ~~was~~from ~~partially~~operations ~~offset~~and bythe borrowing availability with our lenders. However, the ~~decrease~~recent ineconomic ~~general~~downturn ~~and~~could have a ~~administrative~~material ~~expenses~~effect ~~due~~on toour ~~organizational~~business ~~sizing~~operations. ~~and~~The ~~direct~~accompanying ~~cost~~unaudited ~~cutting~~condensed consolidated financial statements do not include any adjustments relating to ~~reduce~~the ~~general~~recoverability and ~~administrative~~classification ~~expenses.~~of ~~The~~asset ~~Company’s~~carrying ~~management~~amounts ~~continues~~or tothe ~~evaluate~~amount ~~expenses~~and inclassification ~~line~~of ~~with~~liabilities that might ~~revenues~~result should we be unable to ~~determine~~continue ~~additional~~as ~~cost~~a ~~cutting~~going concern.

~~General~~Management ~~and~~is ~~administrative~~focused ~~expenses~~on ~~were~~managing ~~$8,911,386~~costs ~~and~~in ~~$5,793,094~~line ~~for~~with ~~the~~estimated ~~nine~~total ~~months~~revenues ~~ended September 30,~~for ~~2009~~2010 and ~~2008~~beyond, ~~respectively. This represented an increase of $3,118,292 or 54%.~~ ~~This~~including ~~increase~~contingencies ~~in general and administrative expenses in 2009 was due primarily to the acquisition of STN, which accounted~~ for ~~$3,538,775~~cost ofreductions ~~the~~if ~~increase,~~projected ~~partially~~revenues ~~offset~~are bynot ~~the~~fully ~~decrease~~realized. ~~in general~~However, ~~and~~there ~~administrative~~can ~~expenses~~be ~~due~~no toassurance ~~organizational~~that ~~sizing~~anticipated ~~and~~revenues ~~direct~~will ~~cost~~be ~~cutting~~realized toor ~~reduce~~that ~~general and~~we ~~administrative~~will ~~expenses of $420,483. The Company’s management continues to evaluate expenses~~successfully inimplement ~~line~~our ~~with revenues to determine additional cost cutting~~plans.

The following table presents a summary of our net cash provided by (used in) operating, investing and financing activities:


	Three Months Ended March 31
Category	2010			2009
Net cash used in operating activities	$	(238,874	)		(59,417	)
Net cash provided by investing activities		—			401,968
Net cash provided by (used in) financing activities		137,540			(513,601	)

Net increase (decrease) in cash	$	(101,334	)	$	(171,050	)

For the three months ended March 31, 2010 and 2009, we did not have sufficient revenues to cover our incurred expenses. Our management recognizes that we must generate additional resources to enable us to pay our obligations as they come due, and that we must ultimately successfully implement our business plan and achieve profitable operations. We cannot assure you that we will be successful in any of these activities. Should any of these events not occur, our financial condition will be materially adversely affected.

~~Amortization~~The ~~Expense~~time required for us to become profitable from operations is highly uncertain, and we cannot assure you that we will achieve or sustain operating profitability or generate sufficient cash flow to meet our planned capital expenditures, working capital and debt service requirements. If required, our ability to obtain additional financing from other sources also depends on many factors beyond our control, including the state of the capital markets and the prospects for our business. The necessary additional financing may not be available to us or may be available only on terms that would result in further dilution to the current owners of our common stock.

~~The~~We ~~Company~~cannot ~~recognized~~assure ~~$468,339,~~you ~~and~~that ~~$1,003,282~~we ofwill ~~amortization~~generate ~~expense~~sufficient ~~for~~cash ~~the~~flow ~~quarters~~from ~~ended~~operations or obtain ~~September 30,~~additional ~~2009~~financing to meet scheduled debt payments and ~~2008,~~financial ~~respectively,~~covenants. ~~related~~If we fail to ~~the~~make any ~~accounting~~required ~~treatment~~payment ofunder the ~~warrants issued~~agreements and ~~amortization~~related ofdocuments ~~intangible~~governing ~~assets~~our ~~associated~~indebtedness or fail to comply with the ~~USVD~~financial and ~~STN~~operating ~~acquisitions.~~covenants ~~The decrease~~contained in ~~amortization~~them, ~~expense~~we ofwould ~~$534,943~~be ~~for~~in ~~the~~default. ~~quarter~~The financial ~~ended~~statements ~~September 30,~~do ~~2009~~not ~~versus~~include ~~the comparative~~any ~~period~~adjustments into ~~2008,~~reflect isthe ~~primarily~~possible ~~due~~effects toon recoverability ~~the~~and ~~amortization~~classification of assets or the ~~warrants~~amounts ~~issued~~and inclassification of liabilities, which ~~conjunction~~may ~~with~~result from the ~~USVD~~inability ~~acquisition~~of ~~being~~the ~~fully~~Company ~~amortized~~to continue as ofa ~~September 26,~~going ~~2008~~concern.

~~The~~Net ~~Company~~Cash ~~recognized~~Used $1,461,726 and $3,673,806 of amortization expense for the nine months ended September 30, 2009 and 2008, respectively, related to the accounting treatment of the warrants issued and amortization of intangible assets associated with the USVD and STN acquisitions. The decrease in ~~amortization expense of $2,212,080 for the nine months ended September 30, 2009 versus~~Operations ~~the comparative period in 2008, is primarily due to the amortization of the warrants issued in conjunction with the USVD acquisition being fully amortized as of September 26, 2008.~~

~~Interest~~Net ~~Expense~~cash used in operating activities for the fiscal three months ended March 31, 2010 was $238,874, compared with net cash used in operating activities of $59,417 during the same period for 2009, an increase in the use of cash for operating activities of $179,457 (302.03%). The increase in the use of cash is due to: (i) a decrease in revenue of $1,340,459, partially offset by a decrease in cost of sales of $715,523 and (ii) also partially offset by a net increase in components of operating assets and liabilities of $784,138.

~~Interest~~Net ~~expense~~Cash ~~was~~Used $663,478 and $874,568 for the quarters ended September 30, 2009 and 2008, respectively. This decrease of $211,090 was due primarily to the decrease on amortization of warrants due to the final amortization of the Hilco debt discount associated with the USVD acquisition in ~~the~~Investing ~~amount being charged to interest expense in the third quarter 2008. This~~Activities ~~decrease was partially offset by additional debt incurred with the acquisition of STN on September 23, 2008.~~

~~Interest~~Net ~~expense~~cash provided by investing activities was $~~1,575,733~~0 and $3401,~~044,037~~968 for the ~~nine~~three months ended ~~September~~March 3031, 2010 ~~2009~~ and ~~2008~~ 2009, respectively. This represents a decrease of $1401,~~468,304~~968. This was due ~~primarily~~ to the ~~effect of the debt~~decrease ~~restructuring incurred with the USVD acquisition to Series A Stock~~ in ~~June 2008~~net ~~and~~cash ~~the~~generated ~~decrease~~from ~~on amortization~~restricted ofcash ~~warrants due to the final amortization of the Hilco debt discount associated with the USVD acquisition~~ in the amount ~~being~~of ~~charged~~$516,666, ~~to interest expense in the third quarter 2008. This decrease was~~ partially offset by ~~the~~purchases of ~~additional~~fixed ~~debt~~assets ~~incurred~~of ~~with~~53,064 ~~the~~for ~~acquisition~~fiscal of2009, ~~STN~~versus 2010.

~~Gain~~Net ~~(loss) on~~Cash ~~Change~~Provided inby ~~Fair~~Financing ~~Value of Derivative Financial Instruments~~Activities

~~Gain~~Net ~~(loss) on~~cash ~~change~~provided inby ~~fair value~~(used ofin) ~~derivative~~financing ~~financial~~activities ~~instruments~~ was $3137,~~892,627~~540 ~~and ($925,326)~~ for the ~~quarters~~three months ended ~~September 30~~March 31, ~~2009~~2010 and ~~2008~~$(513,601) ~~respectively.~~for ~~This~~the iscomparable anperiod ~~increase~~ in ~~gain~~2009, or an increase of $4651,~~817,953.~~141 (126.8%). This is primarily due to ~~the~~payments ~~decrease~~on inlong-term ~~fair~~debt ~~value~~ of $798,854 made during the ~~warrants~~three ~~pursuant~~months ended toMarch 31, ~~valuation~~2009 ~~using~~versus $0 for the ~~Black-Scholes~~comparable ~~Model~~period in 2010.

~~Gain~~Cash ~~(loss) on change in fair value of derivative financial instruments was $10,322,132~~ and ~~$5,294,495~~ ~~for~~Cash ~~the nine months ended September 30, 2009 and 2008, respectively. This is an~~Equivalents ~~increase in gain of $5,027,637. This is due to the decrease in fair value of the warrants pursuant to valuation using the Black-Scholes Model.~~

~~Finance~~Our ~~Expense~~cash onand ~~Derivatives~~cash equivalents decreased the three months ended March 31, 2010 by $101,334 (79%). As outlined above, the decrease in cash and cash equivalents for the current fiscal period was the result of; (i) cash used in operating activities of $228,301, and (ii) cash provided by financing activities of $126,967.

~~Finance~~At ~~expense~~March 31, on2010, ~~derivatives~~we ~~was~~had a working capital deficit of $03,648,764, ~~and~~compared with a working capital deficit of $8,427,175 at December 31, 2009, a decrease in working capital deficit of $4,~~156~~778,~~069~~411 (56.4%). ~~for~~For the ~~quarter~~three months ended ~~September~~March 3031, ~~2009~~2010, ~~and~~overall current assets decreased $554,666, ~~2008~~including decreases in cash and cash equivalents, ~~respectively.~~restricted ~~This~~cash, ~~represents~~receivables, and deferred contract costs with specific increases in current liabilities of trade payables due to a shortage in working capital and current portion of long-term debt. The decrease in cash is the net result of our $4operating,~~156,069~~ investing and financing activities outlined above. ~~This~~Our isrevenue ~~due~~generating toactivities during the ~~250~~period,~~000~~ as in previous year,~~000~~ have not produced sufficient funds for profitable ~~warrants~~operations, ~~issued~~and inwe ~~July~~have incurred operating losses for the three months ended March ~~2008~~31, ~~resulting~~2010 and the year ended December 31, 2009. Accordingly, we have continued to utilize the cash raised in anour financing ~~expense~~activities ofto $4fund our operations. In addition to raising cash through additional financing activities,~~156~~ we have supplemented,~~069~~ and noexpect ~~new~~to ~~issuance~~continue to supplement, our future working capital needs through the extension of trade payables and increases in accrued expenses. In view of these matters, ~~derivatives~~realization ~~financial~~of ~~instruments~~certain of the assets in the ~~comparable~~accompanying ~~period~~balance sheet is dependent upon our continued operations, which in ~~2009~~turn is dependent upon our ability to meet our financial requirements, raise additional financing, and the success of our future operations.

Finance expense on derivatives was $925,571 and $4,156,069 for the nine months ended September 30, 2009 and 2008, respectively, resulting in an increase of $3,230,498. This decrease is due to the 100,000,000 warrants issued in June 2009 which resulted in an finance expense on derivatives of $925,571 versus the 250,000,000 warrants issued in July 2008 resulting in an expense of $4,156,069.

Net Income/Net Loss

We realized net income of $2,393,765 for the quarter ended September 30, 2009 compared to a net loss of $6,281,322 for the quarter ended September 30, 2008. This represents an increase in net income of $8,675,087. This increase in net income is primarily due to the increase in gain (loss) on change in fair value of derivative financial instruments of $8,974,022 as discussed above, the decrease in amortization expense of $534,943, partially offset by the decrease in revenues of $1,287,395 and the increase in general and administrative expenses of $1,028,886.

We realized net income of $5,537,497 for the nine months ended September 30, 2009 compared to a net loss of $4,564,710 for the nine months ended September 30, 2008. This represents an increase in net income of $10,102,207. This increase in net income is primarily due to the increase in gain (loss) on change in fair value of derivative financial instruments of $8,258,135 as discussed above, the increase in gross profit of $1,456,571 and the decrease in amortization expense of $2,212,080 partially offset by the increase in general and administrative expense of $3,118,292.

Liquidity and Capital Resources

The Company has cash and cash equivalents of $329,913 at September 30, 2009. Additionally, effective August 13, 2009, the Company and its senior creditor, Chatham Credit Management III, LLC (“Chatham”), further updated its letter agreement dated May 29, 2009 pursuant to which, among other things, Chatham agreed, for the period July 31, 2009 through September 30, 2010 (“Agreement Period”) to suspend the Company’s compliance of the minimum fixed charge coverage ratio and maximum leverage ratio contained in the credit agreement. The Company and Chatham agreed to a temporary minimum earnings before interest, taxes, depreciation and amortization covenant (“Modified EBITDA Covenant”) for this Agreement Period. At September 30, 2009, the Company is not in compliance with this Modified EBITDA Covenant under this agreement. As a result, all principal due to Chatham has been reclassified as a current liability.

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

Although the Company had net income for the three months and nine months ended September 30, 2009 of approximately $2.4 million and $5.5 million, respectively, this was due primarily to the non-cash gain (loss) on change in fair value of derivative financial instruments as a result of the accounting treatment of derivative financial instruments at estimated fair value on the Company’s balance sheet in accordance with the current authoritative guidance including EITF 00-19. In addition, the Company has a retained deficit of approximately $12.6 million. For the nine months ended September 30, 2009, the Company had net cash used in operations of approximately $1.9 million. Historically, the Company has relied on borrowings and equity financings to maintain its operations. The Company believes it has enough cash to operate for the coming year with its cash on hand, cash to be generated from operations and the borrowing availability with its lenders. However, the recent economic downturn could have a material effect on its business operations. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

Critical Accounting Policies

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

Revenue Recognition

We derive our revenues primarily from sales of converged VoIP telecommunications equipment and professional services implementation/installation, data and wireless equipment and installation, recurring maintenance/managed service and network service agreements and other services. We recognize revenue in accordance with ASC 605, Revenue Recognition. Under the authoritative guidance, revenue is recognized when there is persuasive evidence of an arrangement, delivery has occurred or services have been rendered, the sales price is determinable, and collectability is reasonably assured. Sales are recorded net of discounts, rebates, and returns.

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

Revenue from contracts that contain multiple elements that are not accounted for under the percentage-of-completion method are accounted for in accordance with the authoritative guidance. Revenue from these contracts is allocated to each respective element based on each element’s relative fair value, if determinable, and is recognized when the respective revenue recognition criteria for each element are fulfilled. We recognize revenue from the equipment sales and installation services using the percentage of completion method. The services for maintaining the systems we install are sold as a stand-alone contract and treated according to the terms of the contractual arrangements then in effect. Revenue from this service is generally recognized over the term of the subscription period or the terms of the contractual arrangements then in effect. A majority of equipment sales and installation services revenues are billed in advance on a monthly basis based upon the fixed price, and are included both accounts receivable and deferred income on the accompanying balance sheets. Direct costs incurred on such contracts are deferred until the related revenue is recognized and are included in deferred contract costs on the accompanying balance sheets. We also provide professional services (maintenance/managed services) on a fixed price basis. These services are billed as bundles and or upon completion of the services.

Stock-Based Compensation. We adopted on January 1, 2006, the provisions of ASC 718-10, which requires recognition of stock-based compensation expense for all share-based payments based on fair value. ASC 718-10, “Share-Based Payment” defines fair value-based methods of accounting for stock options and other equity instruments. This method measures compensation costs based on the estimated fair value of the award and recognizes that cost over the service period. We also consider ASC 505-50, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods, or Services” (“ASC 505-50”), establishes the measurement principles for transactions in which equity instruments are issued in exchange for the receipt of goods or services. We rely upon the guidance provided under ASC 505-50 to determine the measurement date and the fair value re-measurement principles to be applied. We recognize compensation costs, net of an estimated forfeiture rate, on a pro rata basis over the requisite service period of each vesting tranche of each award. We consider voluntary termination behavior as well as trends of actual option forfeitures when estimating the forfeiture rate.

~~Revenue~~Valuation ~~Recognition~~of Long-Lived Assets Including Acquired Intangibles. We evaluate the carrying value of long-lived assets for impairment, whenever events or changes in circumstances indicate that the carrying value of an asset within the scope of ASC 360-10, “Accounting of the Impairment or Disposal of Long-Lived Assets” may not be recoverable. Our assessment for impairment of assets involves estimating the undiscounted cash flows expected to result from use of the asset and its eventual disposition. An impairment loss recognized is measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset, and considers year-end the date for its annual impairment testing.

~~The~~In ~~Company~~2007 ~~derives~~and ~~its~~2008, ~~revenues~~we ~~primarily~~completed ~~from~~the ~~sales~~acquisitions of ~~converged~~USVD ~~VOIP telecommunications equipment~~ and ~~professional~~STN. ~~services~~These ~~implementation/installation,~~transactions ~~data~~were ~~and wireless equipment and~~accounted ~~installation,~~for ~~recurring~~as ~~maintenance/managed~~a ~~service~~business ~~and network service agreements and other services~~combination. The ~~Company~~purchase ~~recognizes~~price ~~revenue~~for ~~when there~~these isassets ~~persuasive~~and ~~evidence~~liabilities ofassumed ~~an arrangement, delivery has occurred or services have been~~were ~~rendered,~~allocated ~~the~~to ~~sales~~acquired ~~price~~intangible isassets ~~determinable, and collectability is reasonably assured~~(e. ~~Sales are recorded net of discounts~~g., ~~rebates,~~purchased contracts) and ~~returns~~goodwill.

~~The~~Impairment ~~Company~~of ~~primarily~~Excess ~~applies~~of Purchase Price Over Net Assets Acquired. We follow the ~~percentage-~~provisions of ASC 805-~~completion~~10, ~~method~~“Business Combinations” and ~~generally~~ASC ~~recognizes~~350-10, ~~revenue based~~“Goodwill onand ~~the~~Other ~~relationship~~Intangible ofAssets.” ~~total~~These statements ~~costs~~establish ~~incurred~~financial toaccounting ~~total~~and ~~projected~~reporting ~~costs~~standards for acquired goodwill. Specifically, ~~Profits~~the ~~expected~~standards toaddress how acquired intangible assets should be accounted for both at ~~realized~~the ontime ~~such~~of ~~contracts~~acquisition ~~are~~and ~~based~~after onthey ~~total~~have ~~estimated~~been ~~sales~~recognized ~~for~~in the ~~contract~~financial ~~compared~~statements. Pursuant to ~~total estimated~~ASC ~~costs~~350-10, ~~including~~goodwill ~~warranty~~must ~~costs,~~be atevaluated ~~completion~~for ofimpairment ~~the~~and ~~contract~~is not amortized. ~~These~~Excess ~~estimates~~of ~~are~~purchase ~~reviewed~~price ~~and~~over ~~revised~~net ~~periodically~~assets ~~throughout~~acquired (“goodwill”) represents the ~~lives~~excess of acquisition purchase price over the ~~contracts~~fair value of the net assets acquired. To the extent possible, ~~and~~a ~~adjustments~~portion toof ~~profits~~the excess ~~resulting~~purchase ~~from~~price ~~such~~is ~~revisions~~assigned ~~are~~to ~~made~~identifiable ~~cumulative~~intangible toassets. We determine impairment by comparing the ~~date~~fair value of the ~~change~~goodwill, using primarily the undiscounted cash flow method, with the carrying amount of that goodwill. ~~Provision~~Impairment ~~for~~is tested annually or whenever indicators of ~~anticipated~~impairment ~~losses~~arise. Based on ~~uncompleted~~a ~~contracts~~net isrealizable ~~made~~value inanalysis as of December 31, 2009, it was determined that the ~~period~~asset inwas ~~which~~fully ~~such~~partially ~~losses~~impaired ~~become~~and we took an approximately $5.3 million ~~evident~~write-off for the impairment of goodwill.

Revenue from contracts that contain multiple elements that are not accounted for under the percentage-of-completion method are accounted for in accordance with “Accounting for Revenue Arrangements with Multiple Deliverables.” Revenue from these contracts is allocated to each respective element based on each element’s relative fair value, if determinable, and is recognized when the respective revenue recognition criteria for each element are fulfilled. The Company’s recognizes revenue from the equipment sales and installation services using the percentage of completion method. The services for maintaining the systems we install are sold as a stand-alone contract and treated according to the terms of the contractual arrangements then in effect. Revenue from this service is generally recognized over the term of the subscription period or the terms of the contractual arrangements then in effect. A majority of equipment sales and installation services revenues are billed in advance on a monthly basis based upon the fixed price, and are included both accounts receivable and deferred income on the accompanying balance sheets. Direct costs incurred on such contracts are deferred until the related revenue is recognized and are included in deferred contract costs on the accompanying balance sheets. The Company also provides professional services (maintenance/managed services) on a fixed price basis. These services are billed as bundles and or upon completion of the services.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

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

Item 4T. Controls and Procedures

Disclosure Controls and Procedures

~~Our~~As ~~management,~~of ~~including~~the ~~our~~end of the period covered by this Report, the Chief Executive Officer and Chief Financial Officer ~~(our~~of ~~Principal Executive~~the ~~Officer~~Company ~~and~~(the ~~Principal~~“Certifying ~~Financial Officer~~Officers”), ~~has~~conducted ~~evaluated~~evaluations ~~our~~of the Company’s disclosure controls and procedures. ~~(as~~As defined in Rules 13a-15(e) and 15d-15(e) ofunder the Securities Exchange Act of 1934, as amended), ~~as of~~ (the ~~period~~“Exchange ~~ended September 30~~Act”), ~~2009,~~ the ~~period~~term ~~covered~~“disclosure bycontrols ~~this~~and procedures” ~~Quarterly~~means ~~Report~~controls ~~on Form~~and ~~10-Q.~~other ~~Based~~procedures ~~upon~~of an issuer that ~~evaluation,~~are ~~our~~designed ~~principal~~to ~~executive~~ensure ~~officer~~the information ~~and~~required ~~principal~~to ~~financial officer~~be ~~have~~disclosed ~~concluded~~by ~~that~~the ~~our~~issuer ~~disclosure~~in ~~controls~~the ~~and~~reports ~~procedures~~that ~~were~~it ~~not~~files ~~effective~~or assubmits ofunder ~~September 30,~~the ~~2009~~Exchange toAct ~~ensure~~is ~~the~~recorded, ~~timely collection~~processed, ~~evaluation~~summarized and ~~disclosure~~reported, ofwithin ~~information relating~~the totime ~~our~~periods ~~company~~specified in ~~that~~the ~~would~~Securities ~~potentially~~and beExchange ~~subject~~Commission’s to(“SEC”) ~~disclosure~~rules ~~under~~and ~~the~~forms. ~~Securities Exchange~~Disclosure ~~Act~~controls ofand procedures ~~1934~~include, aswithout ~~amended~~limitation, controls and ~~the~~procedures ~~rules~~designed ~~and~~to ~~regulations~~ensure ~~promulgated~~that ~~thereunder~~information required isto ~~recorded, processed,~~be ~~summarized~~disclosed ~~and~~by ~~reported~~an ~~within~~issuer in the ~~time~~reports ~~periods~~that ~~specified~~it infiles ~~Securities~~or ~~and~~submits under the Exchange ~~Commission~~Act ~~rules~~is accumulated and ~~forms.~~communicated ~~This~~to isthe ~~based~~issuer’s onmanagement, including the ~~following~~Certifying ~~three~~Officers, to ~~events:~~allow timely decisions regarding required disclosure.

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

Based on this evaluation, the Certifying Officers determined that, as of the end of the period covered by this Report, the Company’s disclosure controls and procedures were not effective to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and to ensure that information required to be disclosed by the Company in the Reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding disclosure.

Although the Certifying Officers have determined that our disclosure controls and procedures were not effective, management continues to believe that refinement to our disclosure controls and procedures is an ongoing progress. The Audit Committee believes we should continue the following activities: (a) additional education and professional development for our accounting

~~(3)~~and Onother staff ~~May~~on ~~12,~~new ~~2009, Messers. Fischer~~ and ~~Diamond~~existing ~~ceased~~applicable ~~working~~SEC ~~for~~filing ~~the USVD~~requirements, ~~alleging~~certain ~~that~~applicable ~~their~~SEC ~~employment was “constructively terminated” and that their non-competition agreements were null and void. Shortly thereafter~~disclosure requirements, ~~several other USVD employees resigned from USVD~~ and ~~went to work for a new company, which~~ the ~~Company~~timing ~~believes is owned by Messers. Fischer & Diamond and/or some~~ of ~~their~~the ~~family~~filing ~~members~~thereof, ~~either~~and ~~directly~~(b) reviewing orRegulation S-X ~~indirectly. This new company shortly thereafter began soliciting the Company’s vendors~~ and ~~customers.~~Regulation S-K Asdisclosure ~~a result~~requirements, ~~management~~SEC ~~and~~staff ~~the~~guidance ~~board of directors were required to personally devote a significant amount of time~~ and ~~effort~~interpretations torelated ~~stabilize the situation at USVD~~thereto.

AsManagement’s aAnnual ~~result~~Report ofon ~~the~~Internal ~~foregoing~~Control ~~unique~~Over ~~demands~~Financial ~~incurred in 2009, the audit committee and management~~Reporting were not able to perform in a complete manner the disclosure controls and procedures in order to determine that such disclosure controls and procedures were effective for the quarter ended September 30, 2009.

~~While~~ Our management is ~~making~~responsible ~~best~~for ~~efforts~~establishing ~~to restore the controls~~ and ~~processes~~ ~~during~~maintaining ~~the~~adequate ~~fourth~~internal ~~quarter,~~control ~~no assurances can be made at~~over ~~this~~financial ~~stage~~reporting ~~that~~(as wedefined ~~will be~~ in ~~compliance with internal control procedures required by Sarbanes~~Rules13a-~~Oxley~~15(f) ~~for~~of the ~~year~~Securities ~~ending~~Exchange ~~December 31~~Act of 1934, ~~2009~~as amended).

~~Changes~~Our internal control over financial reporting is a process designed by, and under the supervision of, its principal executive and principal financial officers, or person performing similar functions, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in ~~Internal~~accordance ~~Control~~with ~~Over~~generally ~~Financial~~accepted ~~Reporting~~accounting principles in the United States of America. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

~~During~~Because ~~the~~of ~~nine~~its ~~months~~inherent ~~ended September 30~~limitations, ~~2009,~~internal ~~the~~control ~~Company~~over ~~has~~financial ~~hired~~reporting ~~accounting~~may ~~consultants~~not toprevent or ~~augment~~detect ~~its~~misstatements. ~~accounting~~Also, ~~staff~~projections ~~and~~of ~~accounting~~any ~~and~~evaluation ~~reporting~~of ~~capabilities.~~effectiveness ~~Management~~to ~~believes~~future ~~these~~ periods are subject ~~material~~to ~~changes~~the inrisk ~~our~~that ~~internal~~controls ~~control~~may ~~over~~become ~~financial~~inadequate ~~reporting~~because ~~(as~~of ~~defined~~changes in ~~Rule 13a-15(f)~~conditions, or that ~~and~~the ~~15d-15(f)~~degree ~~under~~of compliance with the ~~Exchange~~policies ~~Act)~~or procedures may deteriorate.

Under the supervision of and with the participation of the Chief Executive Officer and the Chief Financial Officer, our management conducted an assessment of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and guidance provided by SEC Staff on internal controls. Based on this assessment, our management has concluded that, as of March 31, 2010, our internal control over financial reporting was not effective.

We evaluated the design and operation of our disclosure controls and procedures as of December 31, 2009 to determine whether they were effective in ensuring that we disclose the required information in a timely manner and in accordance with the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the rules and forms of the Securities and Exchange Commission. Management, including our principal financial officer, supervised and participated in the evaluation. Our principal executive officer and principal financial officer concluded based on their review that:

We had previously not treated the valuation of the put provision in some of our warrants properly. We concluded that it was necessary to record a liability for derivative financial instruments because of the put provisions inherent in the redemption provision included in the warrant agreements and recorded at issuance as a liability for “Derivative financial instruments at estimated fair value” on our balance sheet in accordance with the current authoritative guidance including EITF 00-19. In accordance with provisions of SFAS 133, we are required to adjust the carrying value of the above warrants to its fair value at each balance sheet date and recognize any change since the prior balance sheet date as a component of other expense or income.

Our review was concluded in November 2009 after the filing of our 10-K/A for the 2008 fiscal year and after the filings of our 10-Q/A for the quarters ended March 31, 2009 and June 30, 2009, but before the filing of our 10-Q for the quarter ended September 30, 2009. As a result of our evaluation, we concluded that our year-end financial statements for 2008 and 2007 did require restatement adjustments to correct for the establishment of a “Derivative financial instruments at fair value” liability on the Consolidated Balance Sheets of $12,016,463 and $7,605,601 as of December 31, 2008 and 2007, respectively, the related “Finance expense on derivatives” of $4,156,069 and $12,348,466 for the years ended December 31, 2008 and 2007, respectively, an addition to Amortization expense of $1,244,830 and $414,943 for the years ended December 31, 2008 and 2007, respectively and “Gain on change in fair value of derivative financial instruments” of $5,245,207 and 10,402,865 for the years ended December 31, 2008 and 2007, respectively on the Consolidated Statements of Operations. Following discussions regarding the matter with our independent auditors and our audit committee, the amounts of the adjustment were deemed

~~PART~~material IIbased –on ~~OTHER~~quantitative ~~INFORMATION~~factors. However, in order to provide the utmost transparency with respect to our financial statements we decided to restate voluntarily our financial results for the years ended December 31, 2008 and 2007.

In order to correct for this misstatement for future issuance of warrants, we have established an additional more thorough review process of the warrants and the accounting treatment of such with our third party consultant and our internal accounting staff and management. This review will carefully examine and review the language in the warrant agreement, with a clear understanding of the accounting ramifications of such language.

Based upon the corrective action taken, our restatement of our 2008 and 2007 financial results through the filing of a report on Form 10-K/A, our principal executive officer, and principal financial officer were able to conclude that our financial statements for three months ended March 31, 2010 and 2009, as well as the balance sheet for the year ended December 31, 2009, as included in our report on this Form 10-K, fairly present in all material respects, the financial condition, results of operations and cash flows of Brookside Technology Holdings Corp.

In accordance with the internal control reporting requirements of the SEC, management completed an assessment of the adequacy of our internal control over financial reporting as of March 31, 2010. In making this assessment, management used the criteria set forth in Internal Control — Integrated Framework by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and the SEC’s guide entitled “Sarbanes-Oxley Section 404: A Guide for Small Business. As a result of this assessment and based on the criteria in the COSO framework and SEC guidance, management has concluded that, as of March 31, 2010, our internal control over financial reporting was ineffective. This annual report does not include an attestation report of the Company’s registered independent public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered independent public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Quarterly Report on Form 10-Q.

Changes in Internal Control Over Financial Reporting

During the three months ended March 31, 2010, there have been no material changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act).

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

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

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

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

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

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

In addition to their alleged constructive termination, Messrs. Fischer and Diamond claim that their Restrictive Covenant Agreement entered into as part of their Employment Agreements signed with ~~the~~us ~~Company~~ at the time of the USVD acquisition are now null and void and that, accordingly, they are free to compete with ~~the~~us ~~Company~~ and USVD, and to solicit USVD employees. Subsequent to the departures of Messrs. Fischer and Diamond, on May 26, 2009, several USVD employees, mostly sales personnel, entered the USVD premises unescorted and removed Company and personal belongings in connection with their resignations from USVD and their new employment with a new company, which ~~the Company~~we ~~believes~~believe is owned by Messrs. Fischer and Diamond and/or some of their family members, either directly or indirectly.

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

3738

connection with future estimations of earn-outs yet to be earned. ~~The~~We ~~Company~~have ~~has~~ a note payable ~~– USVD~~— USVD Sellers included in its long-term debt of $850,000 as well as an accrual for the $289,000 ~~accrued~~ accrued 2008 earn-out payment that the USVD Sellers, Messrs. Fischer and Diamond, claim is due to them.

On October 8, 2009, we filed an answer and counter-claim to the USVD Sellers civil action discussed above. This answer and counter-claim outlines, among other things, the Company’s arguments for defense as well as the Company’s claims of breaches of fiduciary duty and other common law, contractual, quasi-contractual, and statutory claims against former employees of USVD. During their periods of employment, various employees of USVD who are now employees of a competitor, engaged in a variety of acts and omissions in breach of their legal duties to USVD and Brookside, including but not limited to (1) failure of the CEO and COO to fulfill their contractual duties under their Employment Agreements; (2) acts by these and other employees with fiduciary duties to act in the best interests of the company as opposed to their individual self-interests or the interests of third parties, in company matters; (3) destruction and/or seizure of proprietary documents and information belonging to USVD for the benefit of a competitor; and (4) failure by sales personnel to reimburse USVD for funds advanced on sales on behalf of USVD which were not consummated prior to their departures. The Company is continuing to analyze the forgoing civil action and continues to aggressively investigate the actions undertaken by of Messrs. Fischer and Diamond, as well as the former USVD employees, both before and after their resignations. The litigation is in its early stages, and it is premature to project its outcome. The Company continues to vigorously defend the Circuit Court action and to pursue all available defenses, claims and counter claims against the USVD Sellers, Messrs. Fischer and Diamond, and certain former USVD employees.

Item 1A. Risk Factors

No changes from prior disclosure.

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

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

Item 3. Defaults Upon Senior Securities

None.

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

None.

Item 5. Other Information

None.

Item 6. EXHIBITS

Exhibit 31.1	~~Exhibit 31.1~~—	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.	–	~~Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.~~
Exhibit 31.2	~~Exhibit 31.2~~—	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.	–	~~Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.~~
Exhibit 32.1	~~Exhibit 32.1~~—	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	–	~~Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~
Exhibit 32.2	~~Exhibit 32.2~~—	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	–	~~Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~

3839

SIGNATURES

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


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

39Dated: May 14, 2010

Brookside Technology Holdings Corp

/s/ Bryan McGuire

Bryan McGuire, Chief Financial Officer

(Principal Financial Officer)

Dated: November 19, 2009

Filing Compare · BROOKSIDE TECHNOLOGY HOLDINGS, CORP.