FORM 10-Q

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 March 31, 2009


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

For the transition period from _________ to _________

Commission File Number 333-133253

BROOKSIDE TECHNOLOGY HOLDINGS CORP.

(Exact name of registrant as specified in its charter)


Florida		20-3634227

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

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

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

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

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

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

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o
(Do not check if a smaller reporting company)

Smaller reporting company þ

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

Number of shares outstanding of registrant’s class of common stock as of May 15, 2009: 140,228,340

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. We do not undertake any obligation to update any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

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

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


	March 31,			December 31,
	2009 (Unaudited)			2008
ASSETS
Current assets
Cash and cash equivalents	$	638,565		$	835,525
Cash collateral account		394,576			368,666
Restricted cash		850,000			1,366,666
Accounts receivable, net		3,369,848			4,225,692
Inventory		1,603,130			1,652,300
Deferred contract costs		13,016			107,382
Deferred finance charges, net of amortization		487,002			536,085
Prepaid expenses		202,101			79,493

Total current assets		7,558,238			9,171,809

Property and equipment
Office equipment		492,624			444,590
Vehicles		171,131			171,131
Furniture, fixtures and leasehold improvements		160,652			155,151

		824,407			770,872
Less: accumulated depreciation		(361,986	)		(326,383	)

Property and equipment, net		462,421			444,489

Goodwill		16,980,030			16,918,396
Intangible assets, net		498,376			731,710
Deposits and other assets		27,464			27,735

TOTAL ASSETS	$	25,526,529		$	27,294,139


LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Current liabilities
Accounts payable and accrued expenses	$	2,140,026		$	2,211,611
Billings in excess of revenues		2,522,838			2,620,857
Payroll liabilities		711,285			851,833
Current portion of long term debt		2,120,322			2,669,177
Income taxes payable		162,700			164,000
Other current liabilities		288,725			228,390

Total current liabilities		7,945,896			8,745,868
Long term debt, less current portion		5,412,900			5,053,135

Total liabilities		13,358,796			13,799,003


Stockholders’ equity (deficit)
Series A convertible preferred stock, 15,000,000 authorized, 12,216,716 issued and outstanding at March 31, 2009 and December 31, 2008 at 8% dividend yield. Liquidation preference of $13,076,929 and $12,832,595 at March 31, 2009 and December 31, 2008, respectively.		9,040,855			8,796,521
Common stock, $.01 par value, 1,000,000,000 shares authorized, 140,228,340 shares issued and outstanding at March 31, 2009 and December 31, 2008		140,229			140,229
Additional paid in capital		21,402,845			21,385,901
Accumulated deficit		(18,416,196	)		(16,827,515	)

Total stockholders’ equity		12,167,733			13,495,136

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	25,526,529		$	27,294,139

See accompanying notes to these unaudited consolidated financial statements.

BROOKSIDE TECHNOLOGY HOLDINGS CORP
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 2009 and 2008
Unaudited


	March 31,
	2009			2008
REVENUES
Installation and other services	$	1,573,177		$	1,012,309
Equipment sales		3,428,122			3,195,757

Total revenues		5,001,299			4,208,066
COST OF SALES		2,276,180			2,229,881


GROSS PROFIT		2,725,119			1,978,185

OPERATING EXPENSES
General and administrative		3,110,097			1,744,490
Depreciation expense		35,132			37,468

Total operating expenses		3,145,229			1,781,958


OTHER INCOME (EXPENSE)
Interest expense		(432,809	)		(675,453	)
Amortization expense of loan discount and intangibles		(476,674	)		(1,322,324	)
Other income, net		1,615			3,463

Total other expense		(907,868	)		(1,994,314	)

LOSS BEFORE INCOME TAXES		(1,327,978	)		(1,798,087	)
Provision for income taxes		—			—

NET LOSS	$	(1,327,978	)	$	(1,798,087	)

Preferred Stock Dividends		(244,334	)		(43,506	)

Net loss attributable to common shareholders	$	(1,572,312	)	$	(1,841,593	)


Loss per share-basic and fully diluted	$	(0.01	)	$	(0.02	)

Weighted average shares outstanding		140,228,340			87,900,000

See accompanying notes to these unaudited consolidated financial statements.

BROOKSIDE TECHNOLOGY HOLDINGS CORP
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 2009 and 2008
Unaudited


	2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(1,327,978	)	$	(1,798,087	)

Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		35,132			37,468
Amortization of loan discounts and intangibles		476,674			1,322,324
Non-cash interest expense		130,254			258,076
Bad debt expense		26,450			—
Stock based compensation		16,944			—
(Increase) decrease in:
Accounts receivable		829,394			(154,548	)
Inventory		49,170			(269,840	)
Deferred contract costs		94,366			41,575
Prepaid expenses		(122,608	)		(7,753	)
Deposits and other assets		271			6,509
Increase (decrease) in:
Accounts payable and accrued expenses		(71,585	)		385,560
Accrued payroll liabilities		(140,548	)		42,229
Billings in excess of revenues		(98,019	)		190,170
Income taxes payable		(1,300	)		—
Other current liabilites		43,966			(321,789	)

		1,268,561			1,529,981

NET CASH USED IN OPERATING ACTIVITIES		(59,417	)		(268,106	)

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment		(53,064	)		(83,911	)
Cash used for restricted cash		(233,334	)		—
Cash provided by restricted cash		750,000			—
Acquisition of US Voice & Data, LLC (“USVD”) additional EBITDA Earnout		(61,634	)		—

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES		401,968			(83,911	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long term debt		285,253			3,862,760
Repayment of long term debt		(798,854	)		(3,609,596	)

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		(513,601	)		253,164

NET DECREASE IN CASH		(171,050	)		(98,853	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		1,204,191			187,846

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	1,033,141		$	88,993

SUPPLEMENTAL DISCLOSURE
Income taxes paid	$	—		$	—

Interest paid	$	302,555		$	9,237

Non-cash financing and investing activities
Accretion of preferred stock dividend	$	244,334			43,506

Accrued interest added to note payable balance	$	35,253		$	246,228

See accompanying notes to these unaudited consolidated financial statements.

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 1 — Basis of Presentation and Nature of Business

Basis of Presentation

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

Operations

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

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

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 1 — Nature of Business (continued)

Background/Name Change/Redomestication

Brookside Technology Holdings Corporation was originally incorporated in Texas in September 2005 under the name Cruisestock, Inc., (“Cruisestock”). Brookside Technology Partners, Inc., a Texas Corporation (“BTP”), was incorporated and began operations in the State of Texas. BTP completed a reverse merger transaction on February 21, 2007 with Cruisestock, a public “shell company”. On February 21, 2007, Brookside Technology Holdings Corporation (formerly known as “Cruisestock”), acquired all the outstanding shares of BTP in a reverse merger (the “Merger”). Effective with the merger, the directors and management of BTP thereupon became the directors and management of Brookside Technology Holdings Corporation. BTP has been considered the acquirer in this transaction, accounted for as a recapitalization. The business of BTP is now the sole business of the Company. BTP remains a wholly-owned subsidiary of Brookside Technology Holdings Corporation.

Redomestication

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

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

US Voice & Data, LLC

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

Acquisition of Standard Tel Networks, LLC

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

Operating results from the acquired business, STN, is included in the condensed consolidated statements of operations from the date of acquisition (September 23, 2008). Accordingly, the first quarter of 2008 has no operation activity related to STN.

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 2 — Liquidity and Capital Resources

The Company completed the STN acquisition on September 23, 2008. As part of the acquisition, the Company was able to rearrange its debt and equity and obtain more favorable terms. The Company has a $2,000,000 line of credit with $250,000 outstanding and cash and cash equivalents of $1,033,141 at March 31, 2009. The Company is in default in its debt which will limit the Company’s ability to borrow under its line of credit. The Company sustained a loss for the three months ended March 31, 2009 of approximately $1.3 million, sustained losses in 2008 and 2007 and has a retained deficit of approximately $18.4 million. These losses were primarily due to the amortization expense related to the accounting treatment of warrants issued in connection with the debt raised to fund the USVD acquisition. For the three months ended March 31, 2009, the Company had net cash used in operations of $59,417. Historically, the Company has relied on borrowings and equity financings to maintain its operations. The Company believes it has enough cash to operate for the coming year with its cash on hand, cash to be generated from operations and the borrowing availability on its credit lines. However, the recent economic downturn could have a material effect on its business operations.

The Company is in discussions with its senior lender to obtain a waiver of the default as well as in discussions with its senior and subordinated lender regarding obtaining additional financing.

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 months ended March 31, 2009 compared to what was previously disclosed in the Company’s Annual Report on 10-K for the year ended December 31, 2008.

Principles of Consolidation

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

Cash Equivalents

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

Use of Estimates

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

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 3 — Significant Accounting Policies (continued)

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 March 31, 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 March 31, 2009.

Convertible Securities With Beneficial Conversion Features

Under EITF No. 00-27, ” Application of EITF Issue No. 98-5, ‘Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Rates’, to Certain Convertible Instruments,” the Company considered the effect of a beneficial conversion feature of the Series A Stock issued in the December 2007 private placement and subsequently issued to Vicis during 2008. During 2008, the Company has attributed a beneficial conversion feature of $1,983,607 to the Series A Stock based upon the difference between the relative fair value assigned to costs in Series A Stock and the discount assigned to the warrants and zero (minimum basis). The amount attributable to the beneficial conversion feature has been recorded as a dividend to the holders of the Series A Stock during the year ended December 31, 2008. Since the redemption requirement of the Series A Stock is contingent on the occurrence of future events, the Company is not accreting the carrying value of the Series A Stock to redemption value and will not do so until the occurrence of any one of those future events becomes probable.

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

• The Company effecting a merger or consolidation with another entity

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

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

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

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

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 3 — Significant Accounting Policies (continued)

Goodwill and Intangibles

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

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

Revenue Recognition

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

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

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

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 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 March 31, 2009 and 2008, the Company has accrued $244,646 and $0, respectively. The Company’s warranty accrual takes into account the telecommunications equipment covered by original equipment manufacturer warranties. Prior to December 31, 2008, warranty costs not covered by the original equipment manufacturer warranty were not considered material to the consolidated financial statements.

Advertising

The Company recognizes advertising expenses as incurred.

Reclassifications

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

Income taxes

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

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

The Company evaluates its tax positions under FASB Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes. Accordingly, the Company’s management first determines whether it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position. Any tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the consolidated condensed 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 months ended March 31, 2009 and 2008.

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 3 — Significant Accounting Policies (continued)

Earnings Per Common Share

Basic and diluted net income per common share is presented in conformity with Statement of Financial Accounting Standards No. 128, Earnings Per Share (SFAS 128) for all periods presented. Basic earnings per share is based on the weighted effect of all common shares issued and outstanding, and is calculated by dividing net loss available to common stockholders by the weighted average shares outstanding during the period. Diluted earnings per share is calculated by dividing net loss available to common stockholders by the weighted average number of common shares used in the basic earnings per share calculation plus the number of common shares that would be issued assuming conversion of all potentially dilutive common shares outstanding.

At March 31, 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 months ended March 31, 2009 and 2008, and as such, have not been considered in the calculation of earnings per share. At March 31, 2009, the number of potentially dilutive shares that are anti-dilutive consisted of 19,200,000 stock option shares, 12,216,716 Series A Stock (exercisable into 407,223,867 common shares), and 544,440,793 common shares purchase warrants (which would be net share settled). At March 31, 2008, there were potentially dilutive securities outstanding consisting of Series A Stock, convertible debt, warrants, and stock options issued to employees of 14,000,000.

Stock Based Compensation

The Company recognizes the compensation cost relating to share-based payment transactions in accordance with provisions of SFAS No. 123 (revised 2004), Share-Based Payment. The cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity award). The Company recorded $16,944 and $0 for stock compensation cost for the three months ended March 31, 2009 and 2008, respectively.

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 3 — Significant Accounting Policies (continued)

Recent Accounting Pronouncements

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

In December 2007, the FASB issued SFAS 141(R), “Business Combinations”, and SFAS 160, “Non-controlling Interests in Consolidated Financial Statements”, which affect the accounting for business combinations and the reporting of non-controlling interests in consolidated financial statements. These statements became effective for fiscal years beginning after December 15, 2008, and will principally affect the Company’s accounting relating to future acquisitions. The Company’s adoption of these statements in first quarter 2009 did not have any effect on its consolidated financial statements.

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

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

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

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

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 6 —Long Term Debt

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


	March 31, 2009			December 31, 2008
Note payable to an individual, unsecured, accruing interest at 2% per annum, with monthly payments of $5,215 due May 1, 2010.	$	82,869		$	98,049
Note payable to executive 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 $23,923 and $75,812, respectively.		826,077			1,524,188
Notes payable to an individual, unsecured, accruing interest at 7% per annum, with monthly payments of $1,130 due May 1, 2011.		28,143			31,006
Note payable to executive officer and shareholders, unsecured, accruing interest at 7% per annum, with monthly payments of $968, due September 1, 2010.		16,945			16,945
Notes payable to shareholder, unsecured, accruing interest at 7% per annum, with monthly payments of $6,432 due June 1, 2010.		97,982			115,360
Subordinated Note Payable to Vicis Capital Master Fund, accruing interest at 10%, maturing April 15, 2010, subordinated to the Chatham senior note. Net of unamortized discount of $89,632 and $118,917, respectively. (STN acquisition.)		1,410,368			1,381,083
Senior note payable, Chatham Investment Fund III, LLC and Chatham Investment Fund III QP, LLC, accruing interest at the LIBOR rate plus 9.00%, payments of $83,333 beginning on the first of the month after 6 months from the closing date, with the balance due on the third anniversary of the closing date of September 23, 2008, net of unamortized discount of $2,414,712 and $2,658,050, respectively. (STN acquisition)		4,659,507			4,380,916
Senior line of credit, Chatham Investment Fund III, LLC and Chatham Investment Fund III QP, LLC, accruing interest at LIBOR rate plus 4.00%, principal due on September 23, 2011.		250,000			—
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.		56,188			60,617
Secured notes payable to GMAC, accruing interest at 9.25% with monthly payments of $2,272, maturing July 14, 2012. Notes are secured by vehicles.		77,670			82,673
Secured notes payable to Huntington Bank, accruing interest at a prime rate plus 3.73% with monthly payments of $383, with a maturity date of March 28, 2009. Note is secured by a vehicle.		624			1,007
Secured notes payable to NEC Financial Services, accruing interest at 11.25% with monthly payments of $1,128, with a maturity date of February 25, 2011. Note is secured by testing equipment.		26,849			30,468

Total long term debt		7,533,223			7,722,312
Less current portion		(2,120,322	)		(2,669,177	)

Long term portion	$	5,412,900		$	5,053,135

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 6 —Long Term Debt (Continued)

Principal maturities of long-term debt as of March 31, 2009 are as follows:


Years Ending December 31,	Gross
2009	$	2,120,322
2010		2,639,001
2011		5,282,620
2012		19,546
2013		—

		10,061,489
Less: Unamortized discounts		(2,528,266	)

Net of Discounts	$	7,533,223

Warrants Issued in Connection with Financing

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

Change in unamortized discount and loan costs of the Note —

For the quarter ended March 31, 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 $8,338,342 at inception to $3,848,016 at December 31, 2007, then to $2,852,779 at December 31, 2008, then to $2,528,266 at March 31, 2009. There was $3,006,498 of new discounts generated in 2008 in connection with valuing the Chatham Warrants issued with Chatham credit facility. Unamortized discounts totaling $4,490,326 were amortized to expense over the terms of the notes during the year ended 2007, $3,711,578 was amortized to expense during the year ended December 31, 2008 and $324,512 was amortized to expense during the three months ended March 31, 2009. Total amortization expense was $324,512 and $1,216,290 for the three months ended March 31, 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 $233,336 and $149,589 for the three months ended March 31, 2009 and 2008, respectively.

Note 7 — Commitments and Contingencies

Leases

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


2009	$	557,543
2010		353,510
2011		169,138
2012		158,176
2013		—

Rental expense for operating leases for the three months ended March 31, 2009 and 2008, was approximately $176,000 and $108,000, respectively

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 7 — 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 consolidated balance sheets for March 31, 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

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

Risk Management

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

Note 8 — Related Party Transactions

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

Note 9 — 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 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 407,223,867 shares of common stock into which it can convert. The Series A stockholders also must approve any change to the Company’s Articles of Incorporation.

Pursuant to the Vicis Agreement, all the outstanding warrants have been re-priced to $0.03 and all conversion prices on the Series A Stock have been reduced to $0.03.

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.

No Series A Stock were converted into common stock during the first quarter of 2009.

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 10 — Cost of Sales

For the three months ended March 31, 2009 and 2008, costs of sales consisted of the following:


	March 31,
	2009		2008

Equipment costs	$	1,759,211	$	1,860,646
Contract labor		5,615		78,211
Direct labor		334,939		231,208
Sales commissions and selling costs		128,394		3,435
Software assurances costs		—		—
Lite warranty costs		30,919		—
Other costs		17,102		56,381


	$	2,276,180	$	2,229,881

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 $31,567 and $1,251 for the three months ended March 31, 2009 and 2008, respectively.

The Company provides group health and other benefits to its employees through plans that cover all employees that elect to be covered. The Company’s share of group health care costs was approximately $147,000 and $142,000 for the three months ended March 31, 2009 and 2008, respectively, and such amounts have been included in employee compensation and benefits expense.

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 12 — Acquisition of Standard Tel Networks, LLC

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

Note 13 — Stock-Based Compensation

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

Stock options.

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

2007 Stock Incentive Plan

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

The Company recognized $16,944, and $0 compensation expense for options for the three months ended March 31, 2009 and 2008, respectively.

A summary of the changes in the total stock options outstanding during the three months ended March 31, 2009 is as follows:


				Weighted
				Average
	Options			Exercise Price

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

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

Outstanding at March 31, 2009		19,200,000		$	0.03
Vested and exercisable at March 31, 2009		1,633,333		$	0.04

Total stock options vested as of March 31, 2009 is 1,633,333. The remaining vesting period is as follows:


Number of Shares	Year Vested

15,633,333		2009

1,633,333		2010

300,000		2011

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 13 — Stock-Based Compensation (continued)

The weighted average remaining term of the options is approximately 9.4 years at March 31, 2009. Options issued in 2008 had an exercise price ranging from $0.03 to $0.05 per share. The grant date fair value for 2008 options were $0.03 to $0.05 per share. At March 31, 2009, there was $486,934 of total unrecognized compensation cost related to non-vested stock option awards that are expected to be recognized over a period of 2 years. The Company has stock options outstanding with an intrinsic value of $210,000 at March 31, 2009 and December 31, 2008, respectively.

Note 14 — Warrants

Warrants

The following is a summary of the warrants outstanding as of March 31, 2009.


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

Total warrants		544,440,793


*		Includes 2,628,917 penalty warrants

**		Includes 1,080,000 penalty warrants.

The Company has warrants, common stock options and Series A Stock that could potentially convert to 1,111,085,033 shares of common stock. Currently, the Company has 1,000,000,000 shares authorized. EITF 00-19: Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock addresses issues relating to financial instruments that must be settled in with the Company’s common stock. In some circumstances if the Company does not have enough authorized shares, outstanding common stock warrants could be classified as liabilities. The Company has classified all warrants as permanent equity since the number of authorized shares is within the Company’s control. The Company can settle all convertible securities by settlement (including net share settlement) within the currently authorized shares. The Company’s Board of Directors may implement a reverse stock split or increase the number of authorized shares. This would require approval of the shareholders of the Company who own a majority of the outstanding shares of the Company’s common stock, and Series A Stock, voting as a single class on a converted basis.

Brookside Technology Holdings Corp.
Notes to Unaudited Consolidated Financial Statements

Note 15 — Intangible Assets

Intangible assets represent amounts acquired in the acquisitions of USVD and STN and consist of the following as of March 31, 2009:


	Gross Carrying		Accumulated
	Amount		Amortization		Life (years)

Purchased customer contracts — USVD	$	600,000	$	600,000		1
Purchased customer contracts — STN		900,000		450,000		1
Non-compete agreements		100,000		51,624		3


	$	1,600,000	$	1,101,624


Estimated Amortization Expense
2009			$	475,002
2010				23,374

			$	498,376

Note 16 — Subsequent Events

The Chatham Credit Agreement contains standard representations, warranties and covenants that require the Company, on a consolidated basis, to maintain at the end of each month: (1) a fixed charge coverage ratio for the 12 months then ended of at least 1.75:1; and (2) a leverage ratio as of the last day of such fiscal month and for the 12 months then ended of not more than 3:1, in each case calculated as set forth in the Credit Agreement. The Company is not in compliance with the leverage ratio nor the fixed charge coverage ratio as of March 31, 2009 and the subsequent reporting period ending April 30, 2009. In accordance with terms of the Chatham Senior Loan credit facility, the Company can only borrow up to three times its trailing twelve months EBITDA, calculated monthly. The Company is in discussions with Chatham to obtain a waiver of the default, as well as discussions with Chatham and Vicis regarding liquidity needs.

In a letter dated May 12, 2009, Michael Fischer and Scott Diamond, the CEO and COO of U.S. Voice and Data, one of the Company’s subsidiaries, informed the Company that it is their position that the Company’s alleged failure to pay to them approximately $280,000 on or before April 30, 2009, which they claim was due to them pursuant to the membership purchase agreement between them and the Company, constitutes a constructive termination of their employment agreements, giving rise to certain rights under their employment agreements, the membership purchase agreement and other related agreements. The Company is assessing its rights and remedies in light of this letter. The Company will continue the operations of U.S. Voice and Data in a consistent manner that is seamless to its employees, vendors and customers.

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

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

General

Organizational History and Operations

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

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

Background/Name Change/Redomestication

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.

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

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

Acquisition of USVD

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

Increase in Authorized Shares

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

Vicis Equity Infusion

On July 3, 2008, the Company entered into a Securities Purchase Agreement (the “Vicis Agreement”) with Vicis Capital Master Fund, a sub-trust of Vicis Capital Series Master Trust (“Vicis”), pursuant to which Vicis acquired (a) 2,500,000 shares of Series A Stock; and (b) a warrant (the “Warrant”) to purchase 250,000,000 shares of common stock of the Company at $0.03 per share (the “Exercise Price”), for an aggregate purchase price of $2,500,000 (“Vicis Equity Infusion”). Furthermore, pursuant to the Vicis Agreement, all of the 3,000,000 shares outstanding of the Company’s Series B Stock) previously owned by Vicis were converted into 3,000,000 shares of Series A Stock. Accordingly, the Company no longer has any outstanding shares of Series B Stock. The Exercise Price is subject to a price adjustment from time to time upon the occurrence of certain events set forth in the Warrant.

The Company accounted for these two transactions as one event for accounting purposes. The $5,500,000 ($2,500,000 in cash and $3,000,000 of principal of Series B Stock) was considered for investment in 5,500,000 shares of Series A Stock and 250,000,000 warrants to purchase common stock. Initially the $5,500,000 was allocated based on the relative fair value of the Series A Stock and the warrants issued. The value assigned to the Series A Stock was reduced to zero as a result of a beneficial conversion feature.

Vicis also purchased and assumed from Hilco Financial, LLC (“Hilco”), and Hilco assigned to Vicis, all credit agreements, loans and promissory notes under which Hilco had loaned money to the Company. The Company consented to such assignments. In connection with such assignments, Hilco transferred to Vicis its warrants to purchase 61,273,835 shares of common stock of the Company. In addition, Vicis purchased and assumed from Dynamic Decisions (“DD”), and DD assigned to Vicis, all credit agreements, loans and promissory notes under which DD had loaned money to the Company. The Company consented to such assignments.

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

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

Acquisition of Standard Tel Networks, LLC

On September 23, 2008, Brookside Technology Holdings Corp. (the “Company), through its wholly owned subsidiary, Standard Tel Acquisitions, Inc. (“Acquisition Sub”), acquired Standard Tel Networks, LLC (“STN”), an independent distributor of high quality, turnkey converged voice and data business communications products and services with California offices in 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

Revenues, Cost of Sales and Gross Margins

Total revenues from operations for the quarter ended March 31, 2009 were $5,001,299 compared to $4,208,066 reported for the same period in 2008, representing an increase of $793,233 or 19%. This increase in revenues is primarily due to acquisition of STN, which accounted for $2,185,939 of the increase. This increase was partially offset by the decrease in revenues from USVD and Brookside Technology Partners which experienced decreased revenues in 2009 of $1,125,844 and $266,862, respectively. This decrease is primarily due to companies not fully committing to capital purchases due to market uncertainty. In addition, the Kentucky region experienced ice storms and other harsh weather in the first quarter of 2008 which caused power outages for two weeks, which resulted in much less business activity for USVD.

Cost of sales was $2,276,180 for the quarter ended March 31, 2009 compared to $2,229,881 for the quarter ended March 31, 2008, an increase of $46,299 or 2%. This increase in cost of sales is in conjunction with the increase in revenues due to the acquisition of STN, which accounted for $813,726 of the increase. This increase was partially offset by the decrease in cost of sales at USVD and Brookside Technology Partners which experienced decreased cost of sales in 2009 of $550,557 and $216,870, respectively. These decreases were due to less cost of sales associated with the decrease in revenues for USVD and Brookside Technology Partners discussed above. As a percentage of sales, cost of sales was 46% and 53% for the quarters ended March 31, 2009 and 2008, respectively. This decrease was primarily due to increased profit margin realized on sales consummated in the first quarter 2009 versus the comparative period in 2008. This improvement in cost of sales as a percentage of sales is primarily attributable to the Company’s universal focus on higher margin, application specific value added sales approach.

Our gross margin was 54% for the quarter ended March 31, 2009 compared to 47% for the quarter ended March 31, 2008. The increase in gross margin percentage is due primarily to the Company’s universal focus on higher margin, application specific value added sales approach.

General and Administrative Expenses

General and administrative expenses were $3,110,097 and $1,744,490 for the quarters ended March 31, 2009 and 2008, respectively. This represented an increase of $1,365,607 or 78%. This increase in general and administrative expenses in 2009 was due primarily to the acquisition of STN, which accounted for $1,210,152 of the increase.

Amortization Expense

The Company recognized $476,674, and $1,322,324 of amortization expense for the quarters ending March 31, 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 $845,650 for the quarter ending March 31, 2009 versus the comparable period in 2008, is primarily due to the amortization of the warrants issued in conjunction with the USVD acquisition being fully amortized as of September 26, 2008.

Interest Expense

Interest expense was $432,809 and $675,453 for the quarters ended March 31, 2009 and 2008, respectively. The decrease is due primarily to the restructure of the debt incurred with the USVD acquisition to Series A Stock. This decrease was partially offset by the additional debt incurred with the acquisition of STN.

Net Profit/Net Loss from Operations

We realized a net loss from operations of $1,327,978 for the quarter ended March 31, 2009 compared to a net loss from operations of $1,798,087 for the quarter ended March 31, 2008. This decrease in net loss from operations is primarily due to the decrease in amortization expense of $845,650, the increase in gross profit of $746,934 and the decrease in interest expense, partially offset by the increase in general and administrative expense of $1,365,607.

Liquidity and Capital Resources

The Company completed the STN acquisition on September 23, 2008. As part of the acquisition, the Company was able to rearrange its debt and equity and obtain more favorable terms. The Company has a $2,000,000 line of credit with $250,000 outstanding and cash and cash equivalents of $1,033,141 at March 31, 2009. The Company is in technical default on its debt. This will have an impact on its ability to borrow on the line of credit. The Company sustained a loss for the three months ended March 31, 2009 of approximately $1.3 million, sustained losses in 2008 and 2007 and has a retained deficit of approximately $18.4 million. These losses were primarily due to the amortization expense related to the accounting treatment of warrants issued in connection with the debt raised to fund the USVD acquisition. For the three months ended March 31, 2009, the Company had net cash used in operations of $59,417. Historically, the Company has relied on borrowings and equity financings to maintain its operations. The Company believes it has enough cash to operate for the coming year with its cash on hand, cash to be generated from operations and the borrowing availability on its credit lines. However, the recent economic downturn could have a material effect on its business operations.

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

Critical Accounting Policies

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

Revenue Recognition

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

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 management, including our Chief Executive Officer and Chief Financial Officer (our Principal Executive Officer and Principal Financial Officer), has evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended), as of the period ended March 31, 2009, the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were not effective as of March 31, 2009 to ensure the timely collection, evaluation and disclosure of information relating to our company that would potentially be subject to disclosure under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Changes in Internal Control Over Financial Reporting

During the most recent quarter ended March 31, 2009, the Company hired accounting consultants to augment its accounting staff and accounting and reporting capabilities. Management believes these are material changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act).

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

No changes from prior disclosure.

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

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

Item 3. Defaults Upon Senior Securities

None.

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

None.

Item 5. Other Information

None.

Item 6. EXHIBITS

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

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

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

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


	Quarter ended		Year Ended
	March 31,		December 31,
	2009		2008
Customer deposits and deferred income on installation contracts	$	1,382,386	$	1,683,266
Deferred revenue on maintenance contracts		1,140,452		937,591

	$	2,522,838	$	2,620,857


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

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ITEM

PART I — FINANCIAL INFORMATION

	Item 1.	Consolidated Financial Statements	4

	Item 2.	Management’s Discussion and Analysis or Plan of Operation	23

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	28

	Item 4.	Controls and Procedures

	Item 4(T)	Controls and Procedures	28

PART II — OTHER INFORMATION

	Item 1.	Legal Proceedings	29

	Item 1A.	Risk Factors	29

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29

	Item 3.	Defaults Upon Senior Securities	29

	Item 4.	Submission of Matters to a Vote of Securities Holders	29

	Item 5.	Other Information	29

	Item 6.	Exhibits	29
EX-31.1
EX-31.2
EX-32.1
EX-32.2