UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended ~~June 30, 2010~~December 31, 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 No. 000-31355

BEACON ENTERPRISE SOLUTIONS GROUP, INC.

(Name of registrant in its charter)


Nevada		81-0438093
~~(State~~(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

~~1311 Herr Lane,~~

9300 Shelbyville Road, Suite ~~205,~~1000, Louisville, KY ~~40223~~
~~(Address~~40222

(Address of principal executive offices)

502-657-3500
~~(Issuer’s~~

(Issuer’s telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yesþ Noo

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

Yeso Noþ

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yeso Noo þ

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


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

As of ~~August 13, 2010,~~February11, 2011, Beacon Enterprise Solutions Group, Inc. had a total of ~~37,607,231~~37,376,396 shares of common stock issued and outstanding.

Beacon Enterprise Solutions Group, Inc.

FORM 10-Q

For the fiscal three months ended December 31, 2010

INDEX

~~TABLE OF CONTENTS~~


PART I: FINANCIAL INFORMATION

Item 1. Financial Statements			3

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			29	15

Item 4. Controls and Procedures			37	19

PART II: OTHER INFORMATION

Item 1. Legal Proceedings			39	21

Item 4. Removed and Reserved			39	21

Item 5. Other information			39	21

Item 6. Exhibits			39	21

Signatures		22

~~Signatures~~ EX-31.1		23

40EX-31.2		24

~~EX-31.1~~EX-32.1		25
~~EX-31.2~~
~~EX-32.1~~EX-32.2
~~EX-32.2~~	26

~~PART I: FINANCIAL INFORMATION~~

Page 2

~~ITEM 1. FINANCIAL STATEMENTS~~

Beacon Enterprise Solutions Group, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(all amounts in ~~000’s~~000's except share and per share data)

June 30, September 30,
2010 2009
(unaudited)
ASSETS

Current assets:
Cash and cash equivalents $ 411 $ 227
Accounts receivable, net 4,115 3,069
Inventory, net 502 605
Prepaid expenses and other current assets 370 388
Current assets of discontinued operations 678 958

Total current assets 6,076 5,247

Property and equipment, net 476 336
Goodwill 2,792 2,792
Other intangible assets, net 2,996 3,342
Other assets 126 117
Other assets of discontinued operations 980

Total assets $ 12,466 $ 12,814

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Short term credit obligations $ — $ 550
Convertible notes payable — 298
Bridge notes (net of $0 and $33 discounts) 100 167
Current portion of long-term debt 389 475
Accounts payable 1,711 2,074
Accrued expenses 799 2,627
Current liabilities of discontinued operations 7,738 525

Total current liabilities 10,737 6,716

Long-term debt, less current portion 500 802
Deferred tax liability 148 103

Total liabilities 11,385 7,621

Stockholders’ equity
Preferred Stock: $0.01 par value, 5,000,000 shares authorized, 1,041 and 3,436 shares outstanding in the following classes:
Series A convertible preferred stock, $1,000 stated value, 4,500 shares authorized, 30 and 1,984 shares issued and outstanding at June 30, 2010 and September 30, 2009, respectively, (liquidation preference $92) 30 1,984
Series A-1 convertible preferred stock, $1,000 stated value, 1,000 shares authorized, 311 and 752 shares issued and outstanding, at June 30, 2010 and September 30, 2009, respectively (liquidation preference $423) 311 752
Series B convertible preferred stock, $1,000 stated value, 4,000 shares authorized, 700 shares issued and outstanding at June 30, 2010 and September 30, 2009, respectively (liquidation preference $954) 700 700
Common stock, $0.001 par value 70,000,000 shares authorized, 37,376,396 and 24,655,990 shares issued and outstanding at June 30, 2010 and September 30, 2009. 37 25
Additional paid in capital 36,847 17,977
Accumulated deficit (36,807 ) (16,255 )
Accumulated other comprehensive income (loss) (37 ) 10

Total stockholders’ equity 1,081 5,193

Total liabilities and stockholders’ equity $ 12,466 $ 12,814

	December 31,			September 30,
	2010			2010
	(unaudited)
ASSETS

Current assets:
Cash and cash equivalents	$	108		$	246
Accounts receivable, net		4,241			4,535
Inventory, net		526			557
Prepaid expenses and other current assets		608			357
Current assets of discontinued operations		-			133
Total current assets		5,483			5,828

Property and equipment, net		385			420
Goodwill		2,792			2,792
Other intangible assets, net		2,947			3,011
Other assets		27			20
Total assets	$	11,634		$	12,071

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)

Current liabilities:
Bridge note - related party	$	100		$	100
Current portion of long-term debt		261			379
Senior Secured Notes Payable, net of deferred debt discount of $78		1,473			-
Accounts payable		2,368			2,971
Accrued expenses and other current liabilities		1,952			880
Current liabilities of discontinued operations		-			8,558
Total current liabilities		6,154			12,888

Non-current Line of Credit - related party		-			630
Long-term debt, less current portion		136			403
Deferred tax liability		167			153
Total liabilities		6,457			14,074

Stockholders' equity (deficiency)
Preferred Stock: $0.01 par value, 5,000,000 shares
authorized, 1,041 shares outstanding in the
following classes:
Series A convertible preferred stock, $1,000 stated value,
4,500 shares authorized, 30 shares issued and outstanding
at December 31, 2010 and September 30, 2010, respectively,
(liquidation preference $94)		30			30
Series A-1 convertible preferred stock, $1,000 stated value,
1,000 shares authorized, 311 shares issued and outstanding
at December 31, 2010 and September 30, 2010, respectively
(liquidation preference $442)		311			311
Series B convertible preferred stock, $1,000 stated value,
4,000 shares authorized, 700 shares issued and outstanding
at December 31, 2010 and September 30, 2010, respectively,
(liquidation preference $981)		700			700
Common stock, $0.001 par value 70,000,000 shares authorized
37,376,396 shares issued and outstanding
at December 31, 2010 and September 30, 2010, respectively.		37			37
Additional paid in capital		37,491			37,137
Accumulated deficit		(33,473	)		(39,711	)
Accumulated other comprehensive income (loss)		81			(507	)
Total stockholders' equity (deficiency)		5,177			(2,003	)
Total liabilities and stockholders' equity	$	11,634		$	12,071

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

Page 3

Beacon Enterprise Solutions Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

(all amounts in ~~000’s~~000's except share and per share data)

For the Three For the Three For the Nine For the Nine
months ended months ended months ended months ended
June 30, June 30, June 30, June 30,
2010 2009 2010 2009
Net sales $ 3,546 $ 3,039 $ 9,687 $ 7,118

Cost of goods sold 396 1,281 1,252 2,892
Cost of services 1,088 837 3,724 1,934

Gross profit 2,062 921 4,711 2,292

Operating expense
Salaries and benefits 1,325 1,019 3,618 2,791
Employee share based compensation 460 167 946 318
Selling, general and administrative 1,203 1,047 3,902 2,572

Total operating expense 2,988 2,233 8,466 5,681

Loss from operations (926 ) (1,312 ) (3,755 ) (3,389 )

Other expenses
Other expenses (162 ) (222 ) (413 ) (661 )
Change in fair value of warrants — — (4,373 ) —

Total other expenses (162 ) (222 ) (4,786 ) (661 )

Net (loss) before income taxes (1,088 ) (1,534 ) (8,541 ) (4,050 )

Income tax (expense) benefit (44 ) — 44 —

Loss from continuing operations (1,132 ) (1,534 ) (8,497 ) (4,050 )
Loss from discontinued operations (7,623 ) — (7,180 ) —

Net (loss) (8,755 ) (1,534 ) (15,677 ) (4,050 )

Series A, A-1 and B Preferred Stock:
Contractual dividends (30 ) (160 ) (156 ) (411 )
Deemed dividends related to beneficial conversion feature (24 ) — (93 ) (187 )

Net (loss) available to common stockholders $ (8,809 ) $ (1,694 ) $ (15,926 ) $ (4,648 )

Net loss per share to common stockholders — basic and diluted
Net loss per share from continuning operations $ (0.03 ) $ (0.11 ) $ (0.29 ) $ (0.32 )
Net loss per share from discontinuned operations (0.22 ) — (0.24 ) —

$ (0.25 ) $ (0.11 ) $ (0.53 ) $ (0.32 )

Weighted average shares outstanding basic and diluted 34,049,390 16,066,243 30,528,800 14,581,935

Other Comprehensive loss, net of tax
Net Loss $ (8,809 ) $ (1,694 ) $ (15,926 ) $ (4,648 )
Foreign currency translations adjustment (148 ) — (47 ) —

Comprehensive loss $ (8,957 ) $ (1,694 ) $ (15,973 ) $ (4,648 )

	For the Three			For the Three
	Months Ended			Months Ended
	December 31,			December 31,
	2010			2009
Net sales	$	3,974		$	2,873
Cost of materials sold		276			483
Cost of services		2,523			1,276

Gross profit		1,175			1,114
Operating expenses
Salaries and benefits		1,675			1,041
Selling, general and administrative		888			1,017
Total operating expense		2,563			2,058
Loss from operations		(1,388	)		(944	)

Other expenses
Other expenses		(285	)		(185	)
Change in fair value of warrants		-			(24	)
Total other expenses		(285	)		(209	)

Net loss before income taxes		(1,673	)		(1,153	)

Income tax benefit (expense)		38			(39	)

Loss from continuing operations		(1,635	)		(1,192	)
Net income of discontinued operations (including gain on
deconsolidation of $7,892 in the three months ended
December 31, 2010)		7,892			161

Net income (loss)		6,257			(1,031	)

Series A, A-1 and B Preferred Stock:
Contractual dividends		(19	)		(48	)
Deemed dividends related to beneficial conversion feature		-			(25	)

Net income (loss) available to common stockholders	$	6,238		$	(1,104	)

Net income (loss) per share to common stockholders - basic and diluted
Net loss per share from continuing operations	$	(0.04	)	$	(0.05	)
Net income per share from discontinued operations		0.21			0.01
	$	0.17		$	(0.04	)

Weighted average shares outstanding
basic and diluted		37,376,396			26,156,058

Other comprehensive loss, net of tax
Net income (loss)	$	6,238		$	(1,104	)
Foreign currency translations adjustment		(102	)		(15	)
Comprehensive income (loss)	$	6,136		$	(1,119	)

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

Page 4

Beacon Enterprise Solutions Group, Inc. and Subsidiaries

Condensed Consolidated Statement of ~~Stockholders’~~Stockholders' Equity
~~(unaudited)~~
(Deficiency)

(Unaudited)

(all amounts in ~~000’s~~000's except share data)

Series A Convertible Series A-1 Convertible Series B Convertible Accumulated
Preferred Stock Preferred Stock Preferred Stock Common Stock Additional Other
$1,000 Stated $1,000 Stated $1,000 Stated $0.001 Par Paid-In Accumulated Comprehensive
Shares Value Shares Value Shares Value Shares Value Capital Deficit Income Total
Balance at September 30, 2009 1,984 $ 1,984 752 $ 752 700 $ 700 24,655,990 $ 25 $ 17,977 $ (16,254 ) $ 10 $ 5,194
Cumulative effect of change in accounting principle - fair value of warrants with anti dilutive rights (4,628 ) (4,628 )
Relcassification of derivative financial instruments 10,095 10,095
Vested portion of share based payments to employee for services 946 946
Common Stock issued in private placement 3,795,295 4 1,884 1,888
Private placement offering costs (585 ) (585 )
Warrants issued for extension of non-interest bearing note 64 64
Warrants issued under consulting agreements 107 107
Common Stock issued for contingent earnout 175,000 — — —
Common Stock issued for investor relations agreement 50,000 — 44 — 44
Market value of Common stock vested for investor relations agreement 50,000 — 15 15
Amortization of non-employee stock options issued for performance of services 19 19
Conversion of preferred shares to common stock (1,993 ) (1,993 ) (462 ) (462 ) 3,286,372 3 2,452
Common Stock issued in warrant offering 4,738,966 5 3,626 3,631
Shares issued in conversion of bridge note to common 183,620 — 110 110
Cashless warrant exercises 441,153 — — —
Series A Preferred Stock contractual dividends (76 ) (76 )
Series A Preferred Stock contractual dividends paid in in kind 39 39 39
Series A-1 Preferred Stock contractual dividends (48 ) (48 )
Series A-1 Preferred Stock contractual dividends paid in in kind 21 21 21
Series B Preferred Stock contractual dividends (31 ) (31 )
Beneficial conversion feature - deemed preferred stock dividend 93 (93 ) —

Foreign currency translation adjustment (47 ) (47 )
Net loss (15,677 ) (15,677 )

Balance at June 30, 2010 30 $ 30 311 $ 311 700 $ 700 37,376,396 $ 37 $ 36,847 $ (36,807 ) $ (37 ) $ 1,081

	Series A Convertible				Series A-1 Convertible				Series B Convertible													Accumulated
	Preferred Stock				Preferred Stock				Preferred Stock				Common Stock				Additional					Other
			$1,000 Stated				$1,000 Stated				$1,000 Stated				$0.001 Par		Paid-In		Accumulated			Comprehensive
	Shares		Value		Shares		Value		Shares		Value		Shares		Value		Capital		Deficit			Income			Total

Balance at September 30, 2010		30	$	30		311	$	311		700	$	700		37,376,396	$	37	$	37,137	$	(39,711	)	$	(507	)		(2,003	)

Vested portion of share based payments to employees for services																		179								179
Warrants issued under consulting agreements																		46								46
Amortization of market value of common stock vested for investor relations agreement																		6								6
Amortization of non-employee stock options issued for performance of services																		15								15
Warrants issued for credit facility																		30								30
Discount on senior secured notes payable																		78								78
Series A-1 Preferred Stock contractual dividends																				(8	)					(8	)
Series A-1 Preferred Stock contractual dividends paid in in kind																				(11	)					(11	)

Net income																				6,257						6,257
Net change in accumulated other comprehensive income																							588			588

Balance at December 31, 2010		30	$	30		311	$	311		700	$	700		37,376,396	$	37	$	37,491	$	(33,473	)	$	81		$	5,177

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

Page 5

Beacon Enterprise Solutions Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(all amounts in ~~000’s)~~000's)

For the Nine For the Nine
months ended months ended
June 30, June 30,
2010 2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (15,677 ) $ (4,050 )
Net loss from discontinued operations (7,180 )

Net loss from continuing operations (8,497 ) (4,050 )

Adjustments to reconcile net loss to net cash used in continuing operating activities:
Change in reserve for obsolete inventory 34 99
Change in reserve for doubtful accounts 63 80
Depreciation and amortization 527 455
Non-cash interest 136 429
Share based payments 1,131 456
Change in fair value of warrants with anti-dilution rights 4,373 —
Changes in operating assets and liabilities:
Accounts receivable (1,109 ) (1,033 )
Inventory 69 (23 )
Prepaid expenses and other current assets 9 (500 )
Accounts payable (365 ) 317
Accrued expenses (1,907 ) 372

CASH USED FOR CONTINUING OPERATING ACTIVITIES (5,536 ) (3,398 )
CASH PROVIDED (USED) FOR DISCONTINUED OPERATIONS 843 (321 )

NET CASH USED FOR OPERATING ACTIVITIES (4,693 ) (3,719 )
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (321 ) (119 )
Capital expenditures of discontinued operations (183 )

NET CASH USED IN INVESTING ACTIVITIES (504 ) (119 )

CASH FLOWS FROM CONTINUING FINANCING ACTIVITIES

Proceeds from sale of preferred stock, net of offering costs — 343
Proceeds from sale of common stock, net of offering costs 2,398 3,773
Proceeds from warrant exercises, net of offering costs 3,631 —
Proceeds from issuances of notes 500 500
Payment of deferred financing costs — (75 )
Payments proceeds under lines of credit (50 ) 150
Payment of other short term note (500 ) —
Repayment of convertible notes (298 ) —
Payments of notes payable (388 ) (741 )
Payments of capital lease obligation — (12 )

NET CASH PROVIDED BY CONTINUING FINANCING ACTIVITIES 5,293 3,938

Effect of exchange rate changes on cash and cash equivalents 88 —

NET INCREASE IN CASH AND CASH EQUIVALENTS 184 100

CASH AND CASH EQUIVALENTS -BEGINNING OF PERIOD 227 127

CASH AND CASH EQUIVALENTS — END OF PERIOD $ 411 $ 227

Supplemental disclosures

Cash paid for:

Interest $ 127 $142

Income taxes $ — $ —

	For the Three			For the Three
	Months Ended			Months Ended
	December 31,			December 31,
	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	6,257		$	(1,031	)
Net (income) loss from discontinued operations (including gain on deconsolidation of $7,892 for the three months ended December 31, 2010)		(7,892	)	$	(161	)
Net loss from continuing operations		(1,635	)		(1,192	)

Adjustments to reconcile net income (loss) to net cash used in continuing operating activities:
Change in reserve for obsolete inventory		15			12
Change in reserve for doubtful accounts		37			37
Depreciation and amortization		132			163
Non-cash interest		26			88
Share based payments		276			319
Change in fair value of warrants with anti-dilution rights		-			24
Amortization of deferred finance fees		14			-
Change in deferred tax liability		15			-
Changes in operating assets and liabilities:
Accounts receivable		193			589
Inventory		16			85
Prepaid expenses and other assets		(100	)		(58	)
Accounts payable		(575	)		(730	)
Accrued expenses		1,030			(1,138	)
CASH USED IN CONTINUING OPERATING ACTIVITIES		(556	)		(1,801	)
CASH PROVIDED BY DISCONTINUED OPERATIONS		-			1,244
NET CASH USED IN OPERATING ACTIVITIES		(556	)		(557	)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures		(35	)		(168	)
Capital expenditures of discontinued operations		-			(186	)
NET CASH USED IN INVESTING ACTIVITIES		(35	)		(354	)
CASH FLOWS FROM CONTINUING FINANCING ACTIVITIES
Proceeds from sale of common stock, net of offering costs		-			2,425
Proceeds from issuance of senior secured notes payable, net of offering costs		1,377			-
Proceeds from non-current line of credit - related party		310			-
Payments on non-current line of credit - related party		(940	)		-
Payments on short term debt		-			(550	)
Repayment of convertible notes		-			(224	)
Payments of notes payable		(385	)		(169	)

NET CASH PROVIDED BY CONTINUING FINANCING ACTIVITIES		362			1,482

Effect of exchange rate changes on cash and cash equivalents		91			5

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(138	)		576
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD		246			227
CASH AND CASH EQUIVALENTS - END OF PERIOD	$	108		$	803

Supplemental disclosures

Cash paid for:
Interest	$	31		$	24
Income taxes	$	-		$	-

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

Page 6

BEACON ENTERPRISE SOLUTIONS GROUP, INC. ~~AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(~~all amounts~~Amounts in ~~000’s~~thousands, except share and per share data)
~~(Unaudited)~~

~~NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES~~

~~Organization~~

NOTE 1 —

ORGANIZATION AND DESCRIPTION OF BUSINESS

Organization

The condensed consolidated financial statements presented are those of Beacon Enterprise Solutions Group, Inc., which was originally formed in the State of Indiana on June 6, 2007 and combined with Suncrest Global Energy Corp., a Nevada corporation, ~~and its subsidiaries, hereinafter referred~~on December 20, 2007. In these footnotes to as the condensed consolidated financial statements, the terms “Company,” “Beacon,” “we,” ~~us,”~~“us” or ~~“ours.”~~“our” mean Beacon Enterprise Solutions Group, Inc. and all subsidiaries included in our condensed consolidated financial statements.

Beacon provides global, international and regional telecommunications and technology systems infrastructure services, encompassing a comprehensive suite of consulting, design, installation, and infrastructure management offerings. Beacon’s portfolio of infrastructure services spans all professional and construction requirements for design, build and management of telecommunications, network and technology systems infrastructure. Professional services offered include consulting, engineering, program management, project management, construction services and infrastructure management services. Beacon offers these services under either a comprehensive contract option or unbundled to some global and regional clients.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements ~~as of June 30, 2010 and 2009 and~~ for the three ~~and nine~~ months ~~then~~ ended December 31, 2010 have been prepared in accordance with the accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission (“SEC”) and on the same basis as the annual audited consolidated financial statements. The unaudited Condensed Consolidated Balance Sheet as of ~~June 30,~~December 31, 2010, Condensed Consolidated Statements of Operations ~~for the three~~ and ~~nine months ended June 30, 2010 and 2009 and Condensed Consolidated Statement of~~ Cash Flows for the ~~nine~~three months ended ~~June 30,~~December 31, 2010, ~~and 2009,~~ and the Condensed Consolidated Statement of Stockholders’ Equity for ~~nine~~three months ended ~~June 30,~~December 31, 2010 are unaudited, but include all adjustments, consisting only of normal recurring adjustments, which Beacon considers necessary for a fair presentation of the financial position, operating results and cash flows for the period presented. The results for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2010 are not necessarily indicative of results to be expected for the year ending September 30, ~~2010~~2011 or for any future interim period. The accompanying condensed consolidated financial statements should be read in conjunction with Beacon’s consolidated financial statements and notes thereto included in Beacon’s Annual Report on Form 10-K, which was filed with the SEC on December ~~29, 2009.~~16, 2010.

NOTE 2 —

LIQUIDITY AND FINANCIAL CONDITION

We generated net income of $6,257, which includes a gain on the deconsolidation of discontinued operations of $7,892 (see Note 4), non-cash expenses for share based compensation of $276, non-cash depreciation and amortization expense of $132, and other non-cash charges of $107. Cash used for continuing operations amounted to $556 for the three months ended December 31, 2010. Our accumulated deficit amounted to $33,473, while we had cash of $108 and a working capital deficit of $671.

On August 17, 2010 we entered into a long term line of credit facility with one of our directors for $4,000, the facility has an annual interest rate of 7.73% on any outstanding balance and a facility fee of the greater of $40 or 1% of the unused balance. Additionally, 15,000 warrants, with a five year term at $1.00 per share, per month will be paid for each month the facility is outstanding. As of December 31, 2010, we have issued 75,000 warrants. Using the Black Scholes pricing model, we have determined the warrants have a fair value of $30 which has been recorded as other expense for the three months ended December 31, 2010. As of December 31, 2010, we do not have an outstanding balance under this facility. See Note 6.

Page 7

Based on the recent progress we made in the execution of our business plan, we believe that our currently available cash, availability of aforementioned credit line and cash received from the issuance of notes payable, and funds we expect to generate from operations will enable us to operate our business and repay our debt obligations as they become due through January 1, 2012. However, we may require additional capital in order to execute our business plan. If we are unable to raise additional capital, or encounter unforeseen circumstances that place constraints on our capital resources, we will be required to take various measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing our business development activities, suspending the pursuit of our business plan, and controlling overhead expenses. We cannot provide any assurance that we will raise additional capital. We have not secured any commitments for new financing at this time, nor can we provide any assurance that new financing will be available to us on acceptable terms, if at all.
NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The condensed consolidated financial statements include the accounts of Beacon Enterprise Solutions Group, Inc., a Nevada corporation and its wholly-owned subsidiaries including BESG Ireland Ltd. and Beacon Solutions ~~AG acquired on July 29, 2009 (see Note 4)~~S.R.O., ~~BESG Ireland Ltd and Beacon CZ,~~ which began operations November 1, 2009 and January 1, 2010, respectively. Additionally Datacenter Contractors AG (formerly Beacon Solutions AG) acquired on July 29, 2009 and discontinued as of June 30, 2010, has been deconsolidated as of December 31, 2010 due to cessation of controlling financial interest in the subsidiary (see Note 4). All significant intercompany accounts and transactions have been eliminated in consolidation.

~~Discontinued Operations~~

~~For purposes of determining discontinued operations,~~Reclassifications

Certain amounts in the Company has determined Beacon AG, included with our European segment, is a component of the Company within the context of ASC 205-20 Discontinued Operations. A component of an entity comprises operations and cash flows that can be clearly distinguished operationally and forprior period financial ~~reporting purposes from the rest of the Company (see Note 4).~~

~~Revenue and Cost Recognition~~

Beacon applies the revenue recognition principles set forth under the Securities and Exchange Commission’s Staff Accounting Bulletin (“SAB”) 104 with respect to all of our revenue. Accordingly, we recognize revenue when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the vendor’s fee is fixed or determinable, and (iv) collectability is reasonably assured. Accordingly, it is our policy to determine the method of accounting for each of our contracts at the inception of the arrangement and account for similar types of contracts using consistent methodologies of accounting within the GAAP hierarchy. A discussion of our specific revenue recognition policies by category is as follows:

~~Construction Type Contracts~~

~~On November 6, 2009 we entered into an approximately $25,000 fixed price construction type contract, pursuant to which we~~statement have been ~~engaged~~reclassified to act as the general contractor in the construction of a data center that we expect to complete in two phases through October 2010. The contract provides for a contingent penalty of 0.3% per month if the contract is not completed by an agreed upon date, not to exceed 10% of the total contract price. We evaluated this contract at the inception of the arrangement to determine the proper method of accounting based on the highest level of literature within the GAAP hierarchy. We determined that the nature of our work under this contact falls within the scope of a “construction type” contract for which revenue would most appropriately be recognized using the percentage of completion method of accounting.

During the three and nine months ended June 30, 2010 we recognized approximately $2,447 and $16,647 of revenues under the aforementioned contract, which is reported as discontinued operations in the accompanying Condensed Consolidated Statement of Operations and Note 4. We measured our progress on this contract through June 30, 2010 under the percentage-of-completion method of accounting in which the estimated sales value is determined on the basis of physical completion to date (the total contract amount multiplied by percent of performance to date less sales value recognized in previous periods). We adopted this method of measurement because management considers this method the most objective measurement of progress in this circumstance.

~~When applicable we also record losses on contracts in progress during the period in which it is determined that a loss would be incurred on a construction type contract.~~

Two vendors providing materials to us under this contract requested that we direct our customer to remit payments for these materials, which amount to approximately $4,553 directly to them. Notwithstanding this arrangement, we are still the primary obligor to our customer and have general inventory risk for such purchases, which are being made under our purchase orders. Accordingly, we are recording all revenues under this contract gross as a principal.

~~Time and Materials Contracts~~

Our time and materials type contracts principally include business telephone and data system installation contracts completed in time frames of several weeks to 60 or 90 days. Under these types of contracts, we generally design the system using in-house engineering labor, provide non-proprietary materials supplied by an original equipment manufacturer (“OEM”) and install the equipment using in-house or subcontracted labor. We occasionally sell extended warranties on certain OEM supplied equipment; however the OEM is the primary obligor under such warranty coverage and the amount of revenue we receive from such warranties is insignificantconform to the arrangements. Our contracts clearly specify deliverables, selling prices and scheduled dates of completion. We also generally require our customers to provide us with a 70% deposit that we initially record as a liability and apply to subsequent billings. Title and risk of loss on materials that we supply to our customers under these arrangements is transferred to the customer at the time of delivery. Our contracts are cancelable upon 60 days notice by either party; however, completion of the work we perform under these contracts, which occurs in a predictable sequence, is within our control at all times. Amounts we bill for delivered elements are not subject to concession or contingency based upon the completion of undelivered elements specified in our contracts.current period presentation.

We account for voice and data installation contracts as multiple—deliverable revenue arrangements. Prior to October 1, 2009 we accounted for multiple-deliverable revenue arrangements using the relative fair value method of accounting, which requires companies to have vendor specific objective evidence (“VSOE”) of fair value in order for deliverables to be considered a unit of accounting and to use the residual method of allocating arrangement consideration to undelivered elements. We recognize revenue for delivered elements under these arrangements based on the amount of arrangement considered allocated to the delivered element once all of the criteria for revenue recognition have been met.

~~In October 2009, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2009-13~~~~Revenue Recognition (ASC Topic 605) Multiple-Deliverable Revenue Arrangements — a consensus of the FASB EITF 00-21-1~~(“ASU 2009-13”). ASU 2009-13, requires the use of the relative selling price method of allocating arrangement consideration to units of accounting in a multiple-deliverable revenue arrangement and eliminates the residual method. This new accounting principle establishes a hierarchy to determine the selling price to be used for allocating arrangement consideration to deliverables as follows: (i) vendor-specific objective evidence of selling price (“VSOE”), (ii) third-party evidence of selling price (“TPE”), and (iii) best estimate of the selling price (“ESP”). ASU 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010; however, companies may elect to apply this guidance retrospectively or early adopt this guidance subject to the transition and disclosure guidelines specified in ASC 605-25-65-1.

Effective October 1, 2009, we elected to early adopt ASU No. 2009-13 for all multiple-element revenue arrangements entered into on or after October 1, 2009. Using this method, we designate deliverables within the arrangement as units of accounting when they are (a) deemed to have stand alone value and (b) if the arrangement includes a general right of return relative to the delivered item, delivery or performance of the undelivered items is considered probable and substantially in our control. ASU No. 2009-13 no longer requires companies to have VSOE of fair value in order for a deliverable to be considered a unit of accounting. The adoption of ASU No. 2009-13 has not had a material effect on the manner in which we designate units of accounting or allocate arrangement consideration to such units because the selling prices of our deliverables, which is the principal factor that differentiates the two accounting standards, generally approximates fair value.

We recognized approximately $167 and $580 from multiple element arrangements for the three months ended June 30, 2010 and 2009, respectively. Additionally, we recognized approximately $390 and $1,274 from multiple element arrangements for the nine months ended June 30, 2010 and 2009, respectively.

We recognized $1,401 and $1,550 from time and material contacts that did not included multiple-element arrangements for the three months ended June 30, 2001 and 2009, respectively. Additionally, we recognized $4,519 and $3,200 from time and material contacts that did not included multiple-element arrangements for the three months ended June 30, 2001 and 2009, respectively.

~~Professional Services Revenue~~

We generally bill our customers for professional telecommunications and data consulting services based on hours of time spent on any given assignment at our hourly billing rates. As it relates to delivery of these services, we recognize revenue under these arrangements as the work is performed and the customer has indicated their acceptance of services by approving a completion order. We generated approximately $1,980 and $909 of professional services revenue during the three months ended June 30, 2010 and 2009, respectively. We generated approximately $4,780 and $2,644 of professional services revenue during the nine months ended June 30, 2010 and 2009, respectively.

The Company accounts for sales taxes collected on behalf of government authorities using the net method. Pursuant to this method, sales taxes are included in the amounts receivable and a payable is recorded for the amounts due to the government agencies.

~~Warranties~~

Beacon warranties all phone system installations for 1 year. We have a low rate of claims with respect to warranties. Accordingly we have accrued $34 and $47 as of June 30, 2010 and 2009, respectively.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP 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 dates of the financial statements and the reported amounts of ~~revenues~~net sales and expenses during the reporting period. Actual results could differ from those estimates. These estimates and assumptions include valuing equity securities and derivative financial instruments issued as purchase consideration in business combinations and/or in financing transactions and in share based payment arrangements, accounts receivable reserves, inventory reserves, deferred taxes and related valuation allowances, allocating the purchase price to the fair values of assets acquired and liabilities assumed in business combinations (including separately identifiable intangible assets and goodwill) and estimating the fair values of long lived assets to assess whether impairment charges may be necessary. Certain of our estimates, including accounts receivable and inventory reserves and the carrying amounts of intangible assets could be affected by external conditions including those unique to our industry and general economic conditions. It is reasonably possible that these external factors could have an effect on our estimates that could cause actual results to differ from our estimates. We re-evaluate all of our accounting estimates at least quarterly based on these conditions and record adjustments, when necessary.

Accounts receivable

~~Fair Value~~

Accounts receivable of ~~Financial Assets~~$5,128 and ~~Liabilities~~$5,401 as of December 31, 2010 and September 30, 2010, respectively include customer billings on invoices issued by us after the service is rendered or the sale earned. Credit is extended based on an evaluation of our customer’s financial condition and advance payment for services is generally required for many of our services.

~~The carrying amounts~~

We establish an allowance for doubtful account based on our best estimate of ~~cash~~the amount of potential credit losses based on specific customer information and ~~cash equivalents,~~historical experience. Changes in economic conditions might result in changes to the estimated allowance. Account balances deemed to be uncollectible are charged to the allowance for doubtful accounts ~~payable~~after all means of collection have been exhausted and ~~accrued liabilities approximate fair value~~the potential for recovery is considered remote. We currently believe the majority of our receivables are collectible due to the ~~short-term~~ nature of ~~these instruments.~~the industry. The ~~carrying amounts~~allowance for doubtful accounts amounted to $887 and $866 as of ~~our short term credit obligations approximate fair value because~~December 31, 2010 and September 30, 2010, respectively.

Page 8

Inventory

Inventory consisted of parts and system components of $691 and $707 as of December 31, 2010 and September 30, 2010, respectively is stated at the ~~effective yields on these obligations, which include contractual interest rates taken together with other features such as concurrent issuance~~lower of ~~warrants and/~~cost (first-in, first-out method) or ~~embedded conversion options, are comparable~~market. In the case of slow moving items, we calculate a reserve for obsolescence to ~~rates of returns~~reflect a reduced marketability for ~~instruments of similar credit risk.~~

the items. The ~~Company measures the fair value of financial assets and liabilities based~~actual percentage reserved will depend on the ~~guidance~~total quantity on hand, its sales history, and expected near term sales prospects. The reserve for obsolescence amounted to $165 and $150 as of ~~ASC 820 “Fair Value Measurements~~December 31, 2010 and ~~Disclosures” which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.~~September 30, 2010, respectively.

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:

~~Level 1 — quoted prices in active markets for identical assets or liabilities~~

~~Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable~~

~~Level 3 — inputs that are unobservable (for example cash flow modeling inputs based on assumptions)~~

~~Foreign Currency Reporting~~

The condensed consolidated financial statements are presented in United States Dollars in accordance with ASC 830, “Foreign Currency Matters”. Accordingly, the Company’s subsidiaries, BESG Ireland Ltd, Beacon AG and Beacon CZ use the local currency (Euros, Swiss Francs and Czech Crowns, respectively) as their functional currencies. Assets and liabilities are translated at exchange rates in effect at the balance sheet date, and revenue and expense accounts are translated at average exchange rates during the period. Resulting translation adjustments of ($148) and ($47) were recorded in comprehensive loss in the accompanying Condensed Consolidated Statements of Operations for the three and nine months ended June 30, 2010.

Net Loss ~~per~~Per Share

Basic net loss per share is computed by dividing net income or loss per share available to common stockholders by the weighted average shares of common stock outstanding for the ~~period and excludes any potentially dilutive securities.~~periods presented. Diluted ~~earnings~~net income per share ~~reflect~~reflects the potential dilution that ~~would~~could occur ~~upon the exercise~~if securities or ~~conversion of all dilutive securities~~other instruments to issue common stock were exercised or converted into common stock. Potentially dilutive securities, consisting of options and warrants, are excluded from the calculation of diluted per share data when they have an anti-dilutive effect or their per share exercise price is greater than the average market price of common stock during the periods presented. The computation of ~~loss~~net income (loss) available to common stockholders per share for the three ~~and nine month periods~~months ended ~~June 30,~~December 31, 2010 and 2009, respectively, excludes potentially dilutive securities because their inclusion would be anti-dilutive.

Shares of common stock issuable upon conversion or exercise of potentially dilutive securities at ~~June 30,~~December 31, 2010 are as follows:

Total
Stock Common Common
Options and Stock Stock
Warrants Equivalents Equivalents
Series A Convertible Preferred Stock Warrants 20,131 40,263 60,394
Series A-1 Convertible Preferred Stock Warrants 207,260 414,518 621,778
Series B Convertible Preferred Stock Warrants 350,000 875,000 1,225,000
Common Stock Offering Warrants 829,361 — 829,361
Placement Agent Warrants 2,847,497 — 2,847,497
Affiliate Warrants 55,583 — 55,583
Bridge Financings Warrants 707,690 166,667 874,357
Convertible Notes Payable Warrants 50,000 — 50,000
Compensatory Warrants 300,000 — 300,000
Equity Financing Arrangements Warrants 2,272,433 — 2,272,433
Consulting Warrants 2,500,000 — 2,500,000
Employee Stock Options 3,571,866 3,571,866
Non-Employee Stock Options 250,000 — 250,000

13,961,821 1,496,448 15,458,269

~~Recent~~

Total
Stock Common Common
Options and Stock Stock
Warrants Equivalents Equivalents

Series A Convertible Preferred Stock with Warrants 20,131 40,263 60,394
Series A-1 Convertible Preferred Stock with Warrants 207,260 414,518 621,778
Series B Convertible Preferred Stock with Warrants 350,000 875,000 1,225,000
Common Stock Offering Warrants 2,807,322 - 2,807,322
Placement Agent Warrants 2,847,497 - 2,847,497
Affiliate Warrants 55,583 - 55,583
Bridge Financing 285,500 166,667 452,167
Convertible Notes Payable Warrants 50,000 - 50,000
Senior Secured Notes Payable Warrants 232,664 - 232,664
Compensatory Warrants 300,000 - 300,000
Equity Financing Arrangements Warrants 791,662 - 791,662
Consulting Warrants 2,500,000 2,500,000
Employee Stock Options 4,193,648 - 4,193,648
Non-Employee Stock Options 250,000 - 250,000
14,891,267 1,496,448 16,387,715

Recently Adopted Accounting Pronouncements

In ~~December 2007,~~January 2010, the ~~FASB~~Financial Accounting Standards Board ("FASB") issued ~~new accounting guidance, under ASC Topic 805 on business combinations, which established principles~~ASU No. 2010-02, “Accounting and ~~requirements as~~ Reporting for Decreases in Ownership of a Subsidiary- a Scope Clarification to ~~how acquirers recognize and measure~~address implementation issues related to the changes in ~~these financial statements the identifiable assets acquired, the liabilities assumed, non-controlling interests and goodwill acquired~~ownership provisions in the ~~business combination or a gain from a bargain purchase. This guidance is effective for business combinations with an acquisition date on or after the beginning~~Consolidation-Overall Subtopic (Subtopic 810-10) of the first annual reporting period beginning on or after December 15, 2008. The Company adopted this guidance on October 1, 2009, which will have an impact on the Company’s accounting for any future business acquisitions.

~~In December 2007, the~~ FASB ~~issued new accounting guidance, under ASC Topic 810 on consolidations, which~~Accounting Standards Codification. Subtopic 810-10 establishes the accounting and reporting guidance for ~~non-controlling~~noncontrolling interests and changes in ~~a subsidiary and the deconsolidation~~ownership interests of a subsidiary. ~~This guidance requires (a)~~An entity is required to deconsolidate a subsidiary when the ~~ownership interest in the subsidiary held by parties other than the parent~~entity ceases to be clearly identified and presented in the consolidated balance sheet within equity, but separate from the parent’s equity, (b) the amount of consolidated net income attributable to the parent and to the non-controlling interest to be clearly identified and presented on the face of the consolidated statement of operations and (c) changes inhave a ~~parent’s ownership interest while the parent retains its~~ controlling financial interest in ~~its~~the subsidiary. Upon deconsolidation of a subsidiary, ~~to be accounted for consistently. Entities must provide sufficient disclosures that clearly identify~~an entity recognizes a gain or loss on the transaction and ~~distinguish~~measures any retained investment in the subsidiary at fair value. The gain or loss includes any gain or loss associated with the difference between the ~~interests~~fair value of the ~~parent~~retained investment in the subsidiary and its carrying amount at the ~~interests~~date the subsidiary is deconsolidated. In contrast, an entity is required to account for a decrease in its ownership interest of a subsidiary that does not result in a change of control of the ~~non-controlling owners. This guidance is effective~~subsidiary as an equity transaction. See Note 4 for ~~financial statements issued for fiscal years beginning on or after December 15, 2008, and interim periods within those fiscal years. The Company adopted this guidance on October 1, 2009 will have an~~the impact on the ~~Company’s accounting for any future business acquisitions involving non-controlling interest and deconsolidation of subsidiaries.~~

In December 2008, the FASB issued ASC 815-40 “Contracts in Entity’s own Equity”. This issue addresses the determination of whether an instrument (or an embedded feature) is indexed to an entity’s own stock. This issue is effective for financial statements issued for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years. Under this guidance, instruments which do not have fixed settlement provisions are deemed to be derivative instruments. The effects of having adopted this pronouncement effective October 1, 2009 are discussed in Note 6.

In June 2008, the FASB issued new accounting guidance, under ASC Topic 260 on earnings per share, related to the determination of whether instruments granted in share-based payment transactions are participating securities. This guidance clarifies that all outstanding unvested share-based payment awards that contain rights to non-forfeitable dividends participate in undistributed earnings with common shareholders. Awards of this nature are considered participating securities and the two-class method of computing basic and diluted earnings per share must be applied. This guidance is effective for financial statements issued for fiscal years beginning on or after December 15, 2008, and interim periods within those fiscal years. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.

In November 2008, the FASB issued new accounting guidance, under ASC Topic 323 on investments— equity method and joint ventures, relating to the accounting for equity method investments. This guidance addresses how the initial carrying value of an equity method investment should be determined, how it should be tested for impairment, and how changes in classification from equity method to cost method should be treated. This guidance is effective on a prospective basis in fiscal years beginning on or after December 15, 2008, and interim periods within those fiscal years. The Company expects this guidance to have an impact on its accounting for any future investments in joint ventures or other investments using the equity method of accounting.

In August 2009, the FASB issued ASU No. 2009-05, Fair Value Measurements and Disclosures (Topic 820) — Measuring Liabilities at Fair Value. This Accounting Standards Update amends Subtopic 820-10, Fair Value Measurements and Disclosures Overall, to provide guidance on the fair value measurement of liabilities. The adoption of ASU 2009-05 is not expected to have a material impact on our condensed consolidated financial ~~statements.~~statements as of December 31, 2010.

~~In March 2010, the FASB issued Accounting Standards Update (ASU) No. 2010-17,~~~~Revenue Recognition— Milestone Method (Topic 605): Milestone Method of Revenue Recognition.~~This standard provides that the milestone method is a valid application of the proportional performance model for revenue recognition if the milestones are substantive and there is substantive uncertainty about whether the milestones will be achieved. Determining whether a milestone is substantive requires judgment that should be made at the inception of the arrangement. To meet the definition of a substantive milestone, the consideration earned by achieving the milestone (1) would have to be commensurate with either the level of effort required to achieve the milestone or the enhancement in the value of the item delivered, (2) would have to relate solely to past performance, and (3) should be reasonable relative to all deliverables and payment terms in the arrangement. No bifurcation of an individual milestone is allowed and there can be more than one milestone in an arrangement. The new standard is effective for interim and annual periods beginning on or after June 15, 2010. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s condensed consolidated financial position and results of operations.

Other accounting standards that have been issued or proposed by the FASB and SEC and/or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the condensed consolidated financial statements upon adoption.

~~NOTE 2 — LIQUIDITY, FINANCIAL CONDITION AND MANAGEMENT’S PLANS~~

Page 9

NOTE 4 —

DISCONTINUED OPERATIONS

~~For~~

As previously disclosed in the ~~nine~~Company’s Current Report on Form 10-Q filed on August 16, 2010, due to a contractual dispute with its one significant customer and the inability to reach a settlement, Datacenter Contractors AG’s (“DC”, formerly known as “Beacon Solutions AG”) Board has elected to discontinue DC’s operations. As a result, the net sales and expenses associated with DC have been reclassified as discontinued operations for the three months ended ~~June 30,~~December 31, 2009 in the condensed consolidated financial statements.

On December 14, 2010, Beacon announced that, as a result of DC’s inability to reach a settlement of unpaid invoices by its largest debtor, the DC Board has filed the relevant statutory notices with the local judge in Switzerland in accordance with its fiduciary obligations under Swiss law. As a result of this action, Beacon ceases to have a controlling financial interest in DC and therefore, in accordance with ASC 810-10-65, must deconsolidate the subsidiary from the condensed consolidated financial statements for the three months ended December 31, 2010. The resultant deconsolidation generated a net income of $7,892 which is mainly composed of the elimination of the net liabilities of the discontinued DC operations from Beacon’s operations.

We accounted for the filing under the guidance of ASU No. 2010-02, “Accounting and Reporting for Decreases in Ownership of a Subsidiary- a Scope Clarification” which requires an entity to deconsolidate a subsidiary when the entity ceases to have a controlling financial interest in the subsidiary.

NOTE 5 —

ACCRUED EXPENSES

Accrued expenses consist of the following:

	As of		As of
	December 31,		September 30,
	2010		2010

Compensation related	$	742	$	483
Customer deposits		498		29
Dividends		172		153
Interest		60		50
Other		480		165
	$	1,952	$	880

NOTE 6 —

NOTES PAYABLE AND LINE OF CREDIT – RELATED PARTY

Notes Payable

On November 23, 2010, we initiated a private placement (the “Placement”) of up to $3,000 of 12 month Senior Secured Notes (“Notes”) with warrants to purchase 150 shares of Beacon’s common stock at $0.40 per share for every $1 in principal invested. The Notes bear interest at 9% APR. The Placement will be made on a "best efforts" basis with a Minimum of $600 and a Maximum of $3,000. Net proceeds have been used to repay and replace an existing Senior Secured Bank Note totaling approximately $300 and will also be used for additional working capital. The Placement will expire on the sooner of (a) March 15, 2011 if the Minimum has not been met or (b) the date that the Maximum has been raised. The Notes have not been and will not be registered under the 1933 Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. The notes are secured by all business assets of the Company, as defined. As of December 31, 2010 we have issued $1,551 of notes, 232,664 warrants and have recorded interest expense of $18. We incurred ~~a net loss~~financing fee of ~~$15,677~~$174 which ~~includes a loss from discontinued operations~~has been recognized as deferred finance fees and are be amortized ratably over the life of ~~$7,180 (see Note 4 for more details), a mark to market adjustment on~~the debt.

Using the Black-Scholes model we have determined the fair value of ~~common stock purchase~~the issued warrants to be $78 and allocated the debt proceeds in accordance with the relative fair value method. The notes payable have been recorded on the Condensed Consolidated Balance Sheet as of $4,373, and cash used in continuing operations of approximately $4,693 for the nine months ended June 30, 2010. Our accumulated deficit amounted to approximately $36,807. We had cash and cash equivalents of $411 at June 30, 2010 and a working capital deficit of $4,661.

The results for the nine months ended June 30, 2010 contain nine months of results from our European operations which generated sales of $2,237 with a gross margin of 64%. The European margin increased from 16% for the six months ended MarchDecember 31, 2010 ~~due to separation~~at $1,473 which is net of the ~~low margin discontinued operations and is more reflective~~discount representing the allocation of ~~continuing~~the $78 relative fair value to the warrants. We will record interest in the condensed consolidated statements of operations as ~~we narrow our European focus on core business.~~

~~While North American net sales for~~ the ~~nine months ended June 30, 2010 was only marginally ahead~~discounted note is accreted to face value over the life of the nine months ended June 30, 2009, the gross margin grew to 44% from 31%. This margin gain can be attributed to changing our product mix away from material and labor intensive services, to higher margin telecommunications and technology systems infrastructure and managed services which involve a higher leveldebt.

Page 10

Long Term Line of professional services and significantly reduced material requirements. This change is represented by a decrease in costs of goods sold of 61% and an increase in cost of services of 56% for the nine months ended June 30, 2010 as compared to the nine months ended June 30, 2009.Credit – Related Party

On August ~~16,~~17, 2010 we entered into a long term line of credit facility with one orof our directors ~~agreed to provide us with a four million dollar credit facility. The term is up to 18 months with~~for $4,000, the facility has an annual interest rate of 7.73% on any outstanding balance and a facility fee of the greater of ~~forty thousand dollars~~$40 or 1% ~~on any~~of the unused balance. ~~In addition, this director will receive fifteen thousand~~Additionally, 15,000 warrants, ~~(five~~with a five year term at $1.00 per ~~share)~~share, per month will be paid for each month the facility is outstanding. ~~The facility is secured by a pledge of common stock held by our Chief Executive Officer.~~

Based on the recent progress we made in the execution of our business plan, we believe that our currently available cash, the funds we expect to generate from operations and the proceeds of our equity financing activities will enable us to effectively operate our business and repay our debt obligations as they become due through June 30, 2011. However, we will require additional capital in order to execute our long term business plan. If we are unable to raise additional capital, or encounter unforeseen circumstances that place constraints on our capital resources, we will be required to take various measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing our business development activities, suspending the pursuit of our business plan, and controlling overhead expenses. We cannot provide any assurance that we will raise additional capital, nor can we provide any assurance that new financing will be available to us on acceptable terms, if at all.

~~NOTE 3 — CONDENSED CONSOLIDATED BALANCE SHEET~~

~~Accounts Receivable~~

~~Accounts receivable consists of the following:~~

As of As of
June 30, September 30,
2010 2009
Accounts receivable $ 4,336 $ 3,227
Less: Allowance for doubtful accounts (221 ) (158 )

Accounts receivable, net $ 4,115 $ 3,069

~~Additions and charges to the allowance for doubtful accounts consist of the following:~~

As of As of
June 30, September 30,
2010 2009
Opening balance $ (158 ) $ (50 )
Add: Additions to reserve (105 ) (152 )
Less: charges 42 44

Ending balance $ (221 ) $ (158 )

As of ~~June 30,~~December 31, 2010, ~~our accounts receivable include concentration~~we have issued 75,000 warrants. Using the Black Scholes method, we have determined the warrants have a fair value of ~~receivables from Johnson & Johnson of $3,193.~~

~~Inventory~~

~~Inventory consists of the following:~~

As of As of
June 30, September 30,
2010 2009
Inventory (principally parts and system components) $ 696 $ 765
Less: reserve for obsolete inventory (194 ) (160 )

Inventory $ 502 $ 605

~~Additions and charges to the reserve for obsolete inventory:~~

As of As of
June 30, September 30,
2010 2009
Opening balance $ (160 ) $ (35 )
Add: additions to reserve (34 ) (144 )
Less: charges — 19

Ending balance $ (194 ) $ (160 )

~~Other Intangible Assets~~

~~Other Intangible Assets consists of the following:~~

As of As of
June 30, September 30,
2010 2009
Total Total
Consideration Consideration
Customer relationships $ 3,804 $ 3,662
Covenants not to compete 500 642

4,304 4,304

Less: Accumulated amortization (1,308 ) (962 )

Intangibles, net $ 2,996 $ 3,342

~~Amortization~~$30 which has been recorded as other expense ~~of approximately $136 and $115 was recognized~~ for the three months ended ~~June 30, 2010 and 2009, respectively. Amortization expense for the nine months ended June 30, 2010 and 2009 was approximately $346.~~

~~Accrued Expenses~~

~~Accrued expenses consist of:~~

As of As of
June 30, September 30,
2010 2009
Compensation related $ 362 $ 550
Dividends 134 38
Interest 40 123
Warranty reserve 34 65
Goods received not invoiced — 1,092
Other 229 759

$ 799 $ 2,627

~~Debt~~

~~Below is a summary of the current and non-current debt outstanding:~~

As of As of
June 30, September 30,
2010 2009
Lines of Credit and Short-Term Notes $ — $ 550

Convertible Notes Payable $ — $ 298

Bridge Note $ 100 $ 167

Integra Bank $ 353 $ 439

Acquistion notes (payable to the sellers of the acquired businesses)

ADSnetcurve 17 81
Bell-Haun — 44
CETCON 319 416
Strategic Secured Note 200 297

889 1,277

Less: current portion (389 ) (475 )

Non-current portion $ 500 $ 802

~~Lines of Credit and Short-Term Notes~~

On December ~~16, 2009, we repaid the remaining principal balance of $50 due under a line of credit with a maturity date previously extended through December 30, 2009.~~

On August 7, 2009, we entered into a non-interest bearing note with one of our directors in the amount of $500 with a due date of September 9, 2009. The note contained a provision requiring written demand for repayment on or after the maturity date.31, 2010. As of ~~June 30, 2010 no written demand was received. During the nine months ended June 30,~~December 31, 2010, we exercised a contractual right to convert the note into a demand obligation that would become payable within a 5 day period following written notice of such demand. We paid a fee equal to $88 in cash and issueddo not have an ~~additional 112,500 common stock purchase warrants exercisable for $1.00 per share to the lender/director upon the occurrence of~~outstanding balance under this ~~event, for which we recognized non-cash interest of $64 for the fair value of the warrants. The note was paid in full on December 17, 2009.~~facility.

NOTE 7 —

RELATED PARTY TRANSACTIONS

On February 26, 2010, we received $500 in loan proceeds and issued a related short-term, non-interest bearing promissory note, which is secured but subordinate to all existing senior debt outstanding. Terms of the note include a principal payment of $250 on March 31, 2010 with the balance of $250, in addition to a $10 origination fee, to be paid on April 30, 2010. In agreement with the note holder, the March 31, 2010 payment was extended through and paid on April 1, 2010. The remaining $250 plus $10 origination fee was paid on April 30, 2010.

~~Convertible Notes Payable~~

On January 22, 2009, Beacon entered into convertible notes payable with a group of private investors (the “Notes”) facilitated by a broker/dealer. Proceeds of the Notes were $500 in the aggregate. The Notes had an original maturity date of July 21, 2009 with interest payable at a fixed annual rate of 12.5% due monthly. The maturity date of the Notes was extended to January 21, 2010 with interest payable at a fixed annual rate of 15% per annum on the unpaid balance due on the note, which amounted to $298 at September 30, 2009. During the nine months ended June 30, 2010 we repaid the remaining principal and recognized $1 of interest expense.

~~Bridge Notes~~

On November 15, 2007, we issued $200 of convertible notes payable (the “Bridge Notes”) in a separate debt financing. Of this amount, $100 of the Bridge Notes was issued to one of our directors. The holders of the Bridge Notes pursuant to three separate amendments completed through November 20, 2008, agreed unconditionally not to demand repayment of the notes before June 30, 2010. On March 31, 2010, the non-director Bridge Note holder elected to convert the unpaid principal and accrued interest of $110 to 183,620 common shares. Accordingly, the remaining $100 note is presented as a current liability in our Condensed Consolidated Balance Sheet as of June 30, 2010.

We recorded contractual interest expense of approximately $0 and $6 for the three months ended June 30, 2010 and 2009, respectively. We recorded contractual interest expense of approximately $4 and $19 for the nine months ended June 30, 2010 and 2009, respectively. Further, we recorded aggregate accretion of the discount on these notes of approximately $0 and $24 for the three months ended June 30, 2010 and 2009, respectively which is classified as a component of interest expense in the accompanying Condensed Consolidated Statement of Operations. We recorded aggregate accretion of the discount on these notes of approximately $33 and $72 for the nine months ended June 30, 2010 and 2009, respectively which is classified as a component of interest expense in the accompanying Condensed Consolidated Statement of Operations. The discount relating to a beneficial conversion feature was recorded upon the original issuance of these notes and is fully amortized.

~~Term Debt~~

During the nine months ended June 30, 2010, Beacon paid approximately $388 of principal due on our term debt. We recorded interest expense of approximately $17 and $47 for the three months ended June 30, 2010 and 2009, respectively. We recorded interest expense of approximately $58 and $85 for the nine months ended June 30, 2010 and 2009, respectively.

~~NOTE 4 — DISCONTINUED OPERATIONS~~

As previously disclosed in the Company’s Current Report on Form 8-K filed on November 12, 2009, Beacon Solutions AG, a wholly owned subsidiary of Beacon, entered into a project management services agreement with Interxion for the design and construction of a data center in Zurich, Switzerland. Phase 1 of the agreement relates to the first 2,500 square feet of the facility and the Company maintains that Phase 1 was completed in June 2010. Phase 2 of the agreement relates to the completion of the data center and was valued to the Company at approximately $10,000 in revenue. Beacon Solutions AG’s operations consist solely of the Interxion contract and have previously been presented in the Company’s European operating segment.

In June 2010, Interxion notified the Company that it was terminating the agreement due to breach and cancelling Phase 2. Interxion and the Company entered into negotiations regarding the possible continuation of the agreement, but as of the date of the filing of this report, the negotiations to continue the agreement have ceased. Therefore, the Company is presenting the results of operations of Beacon Solutions AG as discontinued operations.

The net loss from discontinued operations is a result of non-payment for services the Company performed before the cancellation; the Company is pursuing various avenues to attempt to remedy the non-payment for services. Revenue and expenses associated with Beacon Solutions AG have been reclassified as discontinued operations for all periods presented in the condensed consolidated financial statements.

~~The following table presents the results of the discontinued operations.~~

For the Three For the Nine
months ended months ended
June 30, June 30,
2010 2010
Net Sales $ 2,477 $ 16,647
Net loss before taxes (7,626 ) (7,180 )
Income taxes 3 —

Net loss from discontinued operations $ (7,623 ) $ (7,180 )

The assets and liabilities of Beacon AG have been classified on the Condensed Consolidated Balance Sheets as Current assets and liabilities of discontinued operations. The assets and liabilities comprising the balances, as classified in our Condensed Consolidated Balance Sheets, consist of:

As of As of
June 30, September 30,
2010 2009
ASSETS
Cash $ 600 $ 37
Accounts receivable 78 911
Other current assets — 10

Total current assets 678 958
Property and equipment, net 59
Goodwill — 360
Other intangible assets, net — 561

Total assets $ 678 $ 1,938

LIABILITIES
Accounts payable $ 5,886 $ 104
Accrued expenses 1,852 421

Total liabilities $ 7,738 $ 525

As part of the discontinued operations, goodwill and intangible assets recorded as a result of the acquisition of Symbiotec Solutions AG were deemed impaired and therefore written off as of June 30, 2010 in the amount of $241 and $423, respectively.

NOTE 8 —

COMMITMENTS AND CONTINGENCIES

Litigation

On September 7, 2010, Beacon was ~~approximately $46 and $23, respectively, and $123 and $88 respectively for the nine months ended June 30, 2010 and 2009, and is included~~named a party in ~~selling, general and administrative expense~~a lawsuit filed in Jefferson Circuit Court in the ~~accompanying Condensed Consolidated Statements~~State of ~~Operations.~~

~~Under a marketing agreement with a company owned by~~Kentucky, seeking $270 plus other costs, attorney’s fees and damages, regarding the ~~spouse~~Company's alleged conduct during the course of ~~Beacon’s former president, we provide procurement~~the purchase of the assets and ~~installation services as a subcontractor. We earned net sales~~assumption of ~~approximately $109 and $424 for procurement and installation services provided under~~certain liabilities of Strategic Communications, LLC. Although the outcome of this marketing agreement for the three months ended June 30, 2010 and 2009, respectively. For the nine months ended June 30, 2010 and 2009, respectively we earned net sales of approximately $164 and $818 for procurement and installation services provided undermatter cannot be predicted at this ~~marketing agreement.~~time, Beacon believes this lawsuit is without merit. As of ~~June 30,~~December 31, 2010, ~~and September 30, 2009, respectively, we had accounts receivable of approximately $133 and $465 with respect~~no provision has been made in the condensed consolidated financial statements related to this ~~marketing agreement.~~action, as the Company believes that the ultimate disposition of this matter will not have a material adverse effect on the Company’s financial position or results of operations.

~~NOTE 6 — COMMITMENTS AND CONTINGENCIES~~

~~Employment Agreements~~Operating Leases

The Company has entered into at will employment agreements with five of its key executives with no specific expiration dates that provide for aggregate annual compensation of $840 and up to $1,230 of severance payments for termination without cause.

~~Operating Leases~~

The Company has entered into operating leases for office facilities in Louisville, KY, Columbus, OH Cincinnati, OH, and Prague, Czech Republic. Rent expense for the three months ended December 31, 2010 and 2009, respectively amounted to $50 and $48. A summary of the minimum lease payments due on these operating leases, exclusive of the Company’s share of operating expenses and other ~~costs:~~costs, is as follows:

2011 $ 127
2012 36
2013 36
2014 9
2015 —

$ 208

2011 $ 195
2012 116
2013 116
2014 89
2015 80
Thereafter 47
$ 643

Engagement of Investor Relations ~~Firm~~Firms

On January 20, 2009, we engaged an investor relations firm to aid us in developing a marketing plan directed at informing the investing public as to our business and increasing our visibility to FINRA registered broker/dealers, the investing public and other institutional investors and fund managers. On June 5, 2009, our Board of Directors authorized us to issue 150,000 shares of common stock to the same investor relations firm subject to the attainment of certain performance conditions. The performance based arrangement supersedes the previous agreement entered into on January 20, 2009. For the three months ended June 30, 2010 no shares were deemed to have been earned as of the date of issuance. For the nine months ended June 30, 2010 50,000 shares with an aggregate fair value of $45 were deemed to have been earned as of the date of issuance. The common stock issued under this agreement was recorded as professional fees expense using the measurement principles enumerated under ASC 505 “Equity-Based Payment to Non-Employee”.

On December 17, 2009, we engaged ~~another~~an investor relations firm for a twenty four month period, the commitment date being November 1, 2009, providing for compensation payable in 50,000 shares of fully vested non-forfeitable common stock with an aggregate fair value of $45. For ~~the~~ three ~~and nine~~ months ended ~~June 30,~~December 31, 2010, we recorded approximately ~~$11 and $15~~$6 of investor relations expense related to this agreement.

Engagement for Advisory Services

On January 1, 2009, we entered into a three year advisory agreement with a stockholder, whereby the party will provide corporate finance and business strategy advisory services pertaining to Beacon’s business affairs in the areas of business combinations, financing, etc. This agreement was subsequently extended to a total of 5 years in April 2010. We recorded $9 of professional fees expense under this agreement for the three months ended December 31, 2010.

Page 11

Consulting Agreement

On December 1, 2009, we entered into two 36 month consulting agreements, which were subsequently extended to 60 months in April 2010, issuing an aggregate of 2,500,000 consulting warrants. The warrants, issued on December 1, 2009 were fully vested upon issuance and have a fair value of $915, as determined using the Black Scholes ~~model with assumptions indicated in the table below, as of December 1, 2009 of which we will recognize~~model. We are recognizing investor relations expense ratably over a 60 month term. For the three ~~and nine~~ months ended ~~June 30,~~December 31, 2010, we recorded approximately ~~$45 and $107~~$46 of investor relation expense related to these agreements.

Expected Fair Value Risk-Free Value Amount to
Issuance Quantity Life Strike of Common Volatility Dividend Interese per be charged
Date Vested (days) Price Stock Rate Yield Rate Warrant to compensation
12/1/2009 1,500,000 1,825 $ 1.00 $ 0.81 66.34 % 0 % 2.03 % $ 0.42 $ 628
12/1/2009 250,000 1,825 $ 1.50 $ 0.81 66.34 % 0 % 2.03 % $ 0.34 86
12/1/2009 250,000 1,825 $ 2.00 $ 0.81 66.34 % 0 % 2.03 % $ 0.29 72
12/1/2009 250,000 1,825 $ 2.25 $ 0.81 66.34 % 0 % 2.03 % $ 0.27 67
12/1/2009 250,000 1,825 $ 2.50 $ 0.81 66.34 % 0 % 2.03 % $ 0.25 62

2,500,000 $ 915

~~NOTE 7— STOCKHOLDERS’ EQUITY~~

~~Authorized Capital~~

NOTE 9 —

STOCKHOLDERS’ EQUITY

The Company is currently authorized to issue up to 70,000,000 shares of common stock, par value $0.001 per share, and 5,000,000 shares of preferred stock, par value $0.01 per share, of which three series have been designated: 4,500 shares of Series A Convertible

Preferred Stock ~~1,000 shares of Series A-1 Convertible Preferred Stock, and 4,000 shares of Series B Convertible Preferred Stock.~~

~~Preferred Stock~~

Each share of Series A, Series A-1 and Series B preferred stock has voting rights equal to anthe equivalent number of common shares into which it is convertible. The holders of the Series A and Series A-1 are entitled to receive contractual cumulative dividends in preference to any dividend on the common stock at the rate of 10% per annum on the initial investment amount commencing on the date of issue. The holders of the Series B are entitled to receive contractual cumulative dividends in preference to any dividend on the common stock (but subject to the rights of the Series A and Series A-1) at the rate of 6% per annum on the initial investment amount commencing on the date of issue. Such dividends are payable on January 1, April 1, July 1 and October 1 of each year. Dividends accrued but unpaid ~~on June 30,~~as of December 31, 2010, are ~~$43~~$45 for Series A, ~~$27~~$43 for Series A-1 and ~~$63~~$84 for Series B, respectively.

The Series A, A-1 and B Preferred Stock also contains a right of redemption in the event of liquidation or a change in control. The redemption feature provides for payment of 125% of the face value plus any accrued unpaid dividends in the event of bankruptcy, change of control, or any actions to take the Company private. The amount of the redemption preference is $92, $423 and $954 for the Series A, A-1, and B preferred, respectively, as of June 30, 2010.

The Company applies the classification and measurement principles enumerated in ASC 815 with respect to accounting for its issuances of the Series A, A-1, and B preferred stock. The Company is required, under Nevada law, to obtain the approval of its Board of Directors in order to effectuate a merger, consolidation or similar event resulting in a more than 50% change in control or a sale of all or substantially all of its assets.

We evaluate convertible preferred stock at each reporting date for appropriate balance sheet classification.

Preferred Stock ~~Dividend~~Dividends

We follow the guidelines of ASC 505 Equity - Dividends and Stock Splits when accounting for pay-in-kind (“PIK”) dividends that are settled in convertible securities with beneficial conversion features. Therefore, we recorded ~~$24~~$0 and ~~$0 as~~$25 of deemed dividends for the three months ended ~~June 30,~~December 31, 2010 and 2009, respectively, related to the conversion feature based on the difference between the effective conversion price of the conversion option and the fair value of the common stock on the PIK election dates. For the nine months ended June 30, 2010 and 2009, we recorded $93 and $187, respectively as deemed dividends related to the conversion feature based on the difference between the effective conversion price of the conversion option and the fair value of the common stock on the election dates.

~~Preferred Stock Conversions to Common Stock~~

~~For the nine months ended June 30, 2010, holders of our Preferred Stock elected to convert 1,993 shares of Series A and 462 shares of A-1 Preferred Stock into 3,286,372 shares of our common stock.~~

~~Completion of Common Stock and Warrant Offering~~

On September 18, 2009, Beacon commenced a Private Placement of up to $3,000 of common units at a price of $.80 per unit. Each Unit consists of (I) one share of Common Stock, and (ii) a five year warrant to purchase one-half share of Common Stock (each, a “Common Offering Warrant”) at a purchase price of $1.00 per share (collectively the “Common Offering”). In the event that the Common Offering is oversubscribed, we may sell and issue up to an additional 1,250,000 Common Units.

The September Common Offering expired on December 15, 2009. During the nine months ended June 30, 2010, we sold 3,795,295 Common Units to accredited investors for net proceeds of $2,398 (gross proceeds of $2,983, less offering costs of $585). We issued to certain agents who represented us in sales of the units, warrants to purchase 448,500 shares of our common stock.

The Common Offering Warrants issued to agents and investors in this transaction each have a five year exercise period and an exercise price of $1.00 per share of Common Stock, payable in cash on the exercise date or cashless conversion if a registration statement or current prospectus covering the resale of the shares underlying the Common Offering Warrants is not effective or available at any time more than six months after the date of issuance of the Common Offering Warrants. The warrants feature standard anti-dilution provisions for stock splits, stock dividends and similar types of recapitalization events. These warrants also featured weighted average price protection for subsequent issuances of equity securities at prices more favorable than the exercise price stipulated in these warrants. This provision was rescinded during the quarter ended March 31, 2010, for additional information see the Derivative Financial Instruments disclosure below. In addition, the Company has agreed to use its best efforts to file a registration statement for the resale of any shares issued and shares underlying common stock purchase warrants issued in these private placements.

These registration rights do not provide for the Company to incur any penalties for its failure to file, cause or maintain the effectiveness of such registration statements; however, the Company is subject to a penalty in the amount of 2% of the gross proceeds per month in the event it fails to maintain compliance with the Exchange Act reporting requirements. The Company believes it is probable that it will not incur any such penalties.

~~Cashless Warrant Conversions~~

For the nine months ended June 30, 2010 holders of 1,597,007 Common Stock Warrants elected to exercise the cashless conversion options thereby redeeming 450,072 shares, including 432,259 shares issued upon the exercise of 1,512,907 warrants as described below.

~~Derivative Financial Instruments~~

As described in Note 1, we were required to adopt certain changes in the derivative accounting rules that required us to (i) reclassify certain common stock purchase warrants we issued in financing transaction completed prior to October 1, 2009 from stockholders equity to liabilities at fair value as of October 1, 2009, (ii) record all new issuances of derivatives that do not have fixed settlement provisions as liabilities and (iii) mark to market all such derivatives to fair value through March 30, 2010, which immediately precedes the date on which the removal of anti-dilution provisions in our derivative financial instruments became effective.

Effective October 1, 2009, the Company reclassified the fair value of all common stock purchase warrants issued prior to October 1, 2009 from equity to liabilities at their aggregate fair value of $4,628. We recorded a corresponding charge to the accumulated deficit to recognize the cumulative effects of having adopted this accounting policy. We calculated the adoption date fair values for these derivatives using the Black-Scholes option pricing model with the following weighted average assumptions:

October 1
2009
Expected Life 3.72
Risk-free interest rate 2.20 %
Dividend Yield 0 %
Volatility 66.34 %
Warrants issued with private placements 9,979,577
Fair value of warrants $ 4,628

We also performed a classification assessment of the common stock warrants issued to investors and agents in the common units offering described above on their respective dates of issuance. We determined that the common stock purchase warrants, as originally issued, did not contain fixed settlement provisions because the strike price was subject to adjustment in the event we subsequently issued equity securities or equity linked securities with exercise prices lower than the exercise price of these warrants. Accordingly, we allocated $1,094 of the offering proceeds to the fair value of the warrants on their respective dates of issuance and recorded them as liabilities in our Condensed Consolidated Balance Sheet through the date on which the removal of anti-dilution provisions in our derivative financial instruments became effective. We calculated the issuance date fair values of these derivatives using the Black-Scholes option pricing model with the following weighted average assumptions:

Expected Life 5
Risk-free interest rate 2.69 %
Dividend Yield 0 %
Volatility 66.34 %
Weighted average unit fair value $ 0.47

On March 8, 2010, the Company announced an offer to the holders of its warrants that contain anti-dilution protection providing them with the option of (i) exercising their warrants for cash at discount of $0.10 off the contractual exercise price, (ii) exercising their warrants pursuant to a cashless exercise provision at the contractual exercise price (which results in a net share settlement) , or (iii) consent to the elimination of the anti-dilution protection clause that caused the warrants not to be indexed to the Company’s own stock. As of March 31, 2010, a required majority of warrant holders consented to the removal of anti-dilutions provisions which resulted in the elimination of such anti-dilution provisions.

On March 30, 2010, immediately prior to the completion of our offer to the warrant holders, we marked all remaining derivative financial instruments to fair value, including the warrants exercised for cash at a discount of $0.10 off the contractual exercise price. The aggregate fair value of all such warrants amounted to $10,095. We calculated the fair values these derivatives using the Black-Scholes option pricing model with the following weighted average assumptions:

March 30,
2010
Expected Life 3.88
Risk-free interest rate 2.55 %
Dividend Yield 0 %
Volatility 65.40 %
Warrants issued with private placements (including 3,375,375 with a discounted exercise price of $0.10 per share) 12,291,827
Fair value of warrants $ 10,095

On March 31, 2010, we reclassified the warrant liability on our balance sheet to stockholders’ equity. The difference between the aggregate fair value of the warrants reclassified to liabilities on October 1, 2009, which amounted to $10,095, and the total fair value of warrants reclassified to liabilities as of October 1, 2009 and additional warrants issued between October 1, 2009 and March 30, 2010 amounted to approximately $4,373 and is reflected as the change in fair value of warrants in the accompanying Condensed Consolidated Statement of Operations for the nine months ended June 30, 2010.

As of June 30, 2010, pursuant to this offer, the Company issued 4,738,966 shares of common stock. Those warrant holders who elected to exercise these instruments for cash at a $0.10 discount from the contractual exercise price. Net proceeds from these exercises amounted $3,626 (gross proceeds of $4,331 less costs of $705). The Company also issued 423,331 net shares of common stock to warrant holders electing to exercise 1,481,965 warrants pursuant to the cashless exercise alternative.

Issuance of non-employee compensatory options

During the fiscal year ended September 30, 2010, in consideration for services, we ~~have~~ granted options to purchase 250,000 shares of Common Stock vesting ratably over a 36 month period. We calculated the fair value of the options using the Black-Scholes option pricing model ~~with the following assumptions: Stock price — $.54, Volatility — 66.34%, Risk —free interest rate — 2.09%, Expected life — 120 months and Dividend yield — 0.00%,~~ resulting in a fair value determination of $188, to be recognized over a 36 month period. For the three ~~and nine~~ months ~~ending June 30,~~ended December 31, 2010 we recognized share based compensation ~~expense~~ of ~~approximately $16 and $19 respectively,~~$15 related to these options.

~~NOTE 8 — INCOME TAXES~~

We calculate our interim tax provision in accordance with the provisions of ASC 740-270, “Income Taxes; Interim Reporting.” For interim periods, we estimate our annual effective income tax rate and apply the estimated rate to our year-to-date income or loss before income taxes. We also compute the tax provision or benefit related to items we report separately and recognize the items net of their related tax effect in the interim periods in which they occur. We also recognize the effect of changes in enacted tax laws or rates in the interim periods in which the changes occur.

In computing the annual estimated effective tax rate we make certain estimates and judgments, such as estimated annual taxable income or loss, the nature and timing of permanent and temporary differences between taxable income for financial reporting and tax reporting, and the recoverability of deferred tax assets. Our estimates and assumptions may change as new events occur, additional information is obtained, or as the tax environment changes.

As of September 30, 2009, we have approximately $10,600 of federal and state net operating loss carryforwards, available to offset future taxable income, if any. These carryforwards expire in 2023 through 2029. Deferred tax liabilities represent the difference between the financial reporting and income tax bases of the tax deductible goodwill, which is an asset with an indefinite life and therefore cannot be used to offset net deferred tax assets for purposes of establishing a valuation allowance.

~~For the three months ended June 30, 2010, we recorded a net income tax expense of $44 comprised of the following:~~

Beacon North BESG Ireland
America Ltd Beacon CZ Consolidated
Net (loss) before taxes $ (1,198 ) $ 145 $ (35 ) $ (1,088 )

Effective tax rate 0 % 25 % 20 %

Tax expense (benefit) $ 15 $ 36 $ (7 ) $ 44

~~For the nine months ended June 30, 2010, we recorded a net income tax benefit of ($44) comprised of the following:~~

Beacon North BESG Ireland
America Ltd Beacon CZ Consolidated
Net (loss) before taxes $ (8,196 ) $ (324 ) $ (21 ) $ (8,541 )

Effective tax rate 0 % 25 % 33 %

Tax expense (benefit) $ 44 $ (81 ) $ (7 ) $ (44 )

~~For Beacon North America we did not recognize a tax benefit due to the related valuation allowance.~~

The tax charge for Beacon North America represents an increase in the deferred tax liability for tax deductible goodwill, which has an indefinite life and is therefore not being netted against other deferred tax assets with finite lives.

~~NOTE 9 — EMPLOYEE BENEFIT PLANS~~

Stock Options and Other Equity Compensation Plans

~~On November 12, January 22, February 5 and March 22,~~

During the three months ended December 31, 2010, our Board of Directors authorized the Company to grant two tranches of employee stock options to purchase ~~100,000, 60,000, 200,000~~140,000 and ~~25,000~~585,115 shares of common stock, respectively. The options have ten year terms and vest over 5 and 3 year periods, respectively. We calculated the fair value of the options using the Black-Scholes option pricing model with the following assumptions:

November 11, January 22, February 5, March 22,
2009 2010 2010 2010
Stock Price $ 0.90 $ 1.07 $ 1.07 $ 1.38
Expected Life 10 6.5 6.5 6.5
Volatility 66.34 % 65.40 % 65.40 % 65.40 %
Risk-free interest rate 2.28 % 2.23 % 2.65 % 2.36 %
Dividend Yield 0 % 0 % 0 % 0 %
Fair value of options $ 0.30 $ 0.67 $ 0.67 $ 0.86

	For the Three
	Months Ended
	December 31,
	2010
Stock Price	$	0.63
Expected Life		5.5 - 7.5
Volatility		178	%
Risk-free interest rate		1.17	%
Dividend Yield		0	%
Fair value of options		$0.60 - $0.62

Page 12

On May 27, June 1, and June 6, 2010, our Board of Directors authorized the Company to grant employee stock options to purchase 450,000, 400,000, and 100,000 shares of common stock respectively. We calculated the fair value of the options using the Black-Scholes option pricing model with the following assumptions:

May 27, June 1, June 6,
2010 2010 2010
Stock Price $ 1.40 $ 1.36 $ 1.60
Expected Life 7.2 7.5 5.5
Volatility 65.40 % 65.40 % 65.40 %
Risk-free interest rate 2.18 % 2.09 % 1.95
Dividend Yield 0 % 0 % 0 %
Fair value of options $ 0.91 $ 0.90 $ 0.75

We recognized non-cash share-based employee compensation expenses as follows:

��
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2010 2009 2010 2009
Non-Cash Share-Based Compensation Expense

Restricted Stock $ 166 $ 45 $ 221 $ 134
Stock Options 294 122 725 184

Total Stock Compensation Expense $ 460 $ 167 $ 946 $ 318

	For the Three		For the Three
	Months Ended		Months Ended
	December 31,		December 31,
	2010		2009

Non-Cash Share-Based Compensation Expense

Restricted Stock	$	-	$	45
Stock Options		179		200
Total Stock Compensation Expense	$	179	$	245

A summary of the status of our stock option plan and the changes during the ~~nine~~three months ended ~~June 30,~~December 31, 2010, is presented in the table below:

Weighted
Average
Weighted Remaining
Number Average Intrinsic Contractual
Of Options Exercise Price Value Life
Options Outstanding at October 1, 2009 3,200,900 $ 1.19
Granted 1,335,000 $ 1.44
Forfeited (714,034 ) $ (1.15 )

Options Outstanding at June 30, 2010 3,821,866 $ 1.48 0.38 6.87

Exercisable, June 30, 2010 1,908,462 $ 0.85 0.81 8.41

					Weighted
					Average
			Weighted		Remaining		Aggregate
	Number		Average		Contractual		Intrinsic
	Of Options		Exercise Price		Life		Value

Options Outstanding at October 1, 2010		3,718,533	$	1.47
Granted		725,115	$	0.93
Forfeited		-	$	-
Options Outstanding at December 31, 2010		4,443,648	$	2.40		8.97	$	-

Options Exercisable, December 31, 2010		1,301,799	$	1.18		8.50	$	-

We value stock options using the Black-Scholes option-pricing model. In determining the expected term, we separate groups of employees that have historically exhibited similar behavior with regard to option exercises and post-vesting cancellations. The option-pricing model requires the input of subjective assumptions, such as those listed below. The volatility rates are based on historical stock prices of similarly situated companies and expectations of the future volatility of the Company’s common stock. The expected life of options granted are based on historical data, which to date is a partial option life cycle, adjusted for the remaining option life cycle by assuming ratable exercise of any unexercised vested options over the remaining term. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The total expense to be recorded in future periods will depend on several variables, including the number of share-based awards.

~~Shares granted vest 33% annually as of the anniversary of the grant through 2011 and carry a ten year contractual term.~~ As of ~~June 30, 2010, 1,908,462 shares were vested. As of June 30,~~December 31, 2010, there was ~~approximately $1,774~~$1,841 in ~~non-cash~~unamortized share-based compensation ~~cost related to non-vested awards not yet recognized in our Condensed Consolidated Statements of Operations.~~cost. This cost is expected to be recognized over the remaining weighted average ~~remaining~~ vesting period of ~~4.4~~approximately 2 years.

Richard C. Mills, the president of the Company, resigned effective May 15, 2010. Pursuant to the separation agreement with the Company, 210,750 additional shares of restricted common stock granted on December 5, 2007 were vested and the options granted on May 8, 2009 became exercisable with respect to 500,000 shares of common stock for a five year period beginning on the effective date of the termination. The modification resulted in an expense of $93 for the three and nine months ended June 30, 2010.

~~Restricted Stock~~

Prior to adoption of the 2008 Incentive Plan, on December 5, 2007, we issued 782,250 shares of restricted common stock with an aggregate fair value of $667 to our then president in exchange for $156. Immediately upon the sale, 150,000 shares vested with the remaining shares vesting in quantities of 210,750 shares on each of December 20, 2008, 2009 and 2010. As of May 2010 upon the president’s termination of employment, the remaining non-vested shares immediately vested and the expense recognized. We recognized $166 and $45 of share-based compensation expense during the three months ended June 30, 2010 and 2009, respectively, in connection with this grant. We recognized $221 and $135 of share-based compensation expense during the nine months ended June 30, 2010 and 2009, respectively, in connection with this grant.

~~Note 10 — Segment Reporting~~

NOTE 10 —

Segment Reporting

In accordance with ASC 280 “Segment Reporting,” our operating segments are those components of our business for which separate and discrete financial information is available and is used by our chief operating decision makers, or decision-making group, in making decisions on how we allocate resources and assess performance.

In accordance with ASC 280, the Company reports ~~three~~two operating segments, ~~as a result of having completed the Symbiotec acquisition on July 29, 2009~~North America and ~~opening the BESG Ireland Ltd office. Prior to the Symbiotec Solutions AG acquisition, we operated as a single segment.~~Europe. The Company’s chief decision-makers review financial information presented on a consolidated basis, accompanied by disaggregated information about ~~revenue~~net sales and operating profit each year by operating segment. This information is used for purposes of allocating resources and evaluating financial performance.

The accounting policies of the segments are the same as those described in the “Summary of Significant Accounting Policies.” Segment data includes segment ~~revenue,~~net sales, segment operating profitability, and total assets by segment. Shared corporate operating expenses are reported in the United States (“U.S.”) segment.

The Company is organized primarily on the basis of operating units which are segregated by geography in the U.S. and Europe. For the three months ended ~~June 30,~~December 31, 2010 our segment results, net of Discontinued Operations (see Note 4 for more details) are as follows:

United States Europe Total
Net sales $ 2,765 $ 781 $ 3,546
Loss from operations (1,176 ) 250 (926 )
Other expense (22 ) (140 ) (162 )
Depreciation and amortization (205 ) (30 ) (235 )
Net (Loss) from continuing operations (1,213 ) 81 (1,132 )
Net (Loss) from discontinued operations (7,623 ) (7,623 )

Assets 9,312 3,154 12,466
Goodwill 2,792 — 2,792
Intangible Assets 2,996 — 2,996

~~For the nine months ended June 30, 2010, our segment results were as follows:~~

United States Europe Total
Net sales $ 7,360 $ 2,327 $ 9,687
Loss from operations (3,609 ) (146 ) (3,755 )
Other expense (214 ) (199 ) (413 )
Change in fair value of warrants (4,373 ) — (4,373 )
Depreciation and amortization (509 ) (63 ) (572 )
Net (Loss) from continuing operations (8,240 ) (257 ) (8,497 )
Net (Loss) from discontinued operations — (7,180 ) (7,180 )

Page 13

	United States			Europe			Total

Net sales	$	2,710		$	1,264		$	3,974
Loss from operations		(684	)		(704	)		(1,388	)
Other expense		(184	)		(101	)		(285	)
Depreciation and amortization		(122	)		(10	)		(132	)
Net loss from continuing operations		(883	)		(752	)		(1,635	)
Net loss from discontinued operations		-			7,892			7,892

Assets		9,391			2,243			11,634
Capital expenditures		35			-			35
Goodwill		2,792			-			2,792
Intangible Assets		2,947			-			2,947

In our European operations ~~over 90%~~96% of the net sales ~~was~~were generated by one customer for the three ~~and nine~~ months ended ~~June 30, 2010, while in North America one customer accounted for approximately 47%~~December 31, 2010.

NOTE 11 —

SUBSEQUENT EVENTS

As of February 11, 2011 we have received additional net proceeds of $825 (gross proceeds of $927 less offering costs of $102 and ~~49% of net sales, respectively.~~

~~NOTE 11 — SUBSEQUENT EVENTS~~issued 139,110 warrants related to the Senior Secured Notes.

Management has evaluated all subsequent events or transactions occurring through the date the financial statements were issued.

Page 14

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Beacon Enterprise Solutions Group, Inc. and subsidiaries (collectively the “Company”) is a provider of global, international and regional telecommunications and technology systems infrastructure services, encompassing a comprehensive suite of consulting, design, installation, and infrastructure management offerings. Beacon’s portfolio of infrastructure services spans all professional and construction requirements for design, build and management of telecommunications, network and technology systems infrastructure. Professional services offered include consulting, engineering, program management, project management, construction services and infrastructure management services. Beacon offers these services under a comprehensive contract vehicle or unbundled to some global and regional clients. Beacon also offers special services in support of qualified projects in the smart buildings/campuses/cities and data center verticals. Finally, Beacon provides managed information technology and telecommunications services in selected local markets. In this report, the terms “Company,” “Beacon,” “we,” “us” or “our” mean Beacon Enterprise Solutions Group, Inc. and all subsidiaries included in our consolidated financial statements.

Cautionary Statements — Forward Outlook and Risks

Certain statements contained in this quarterly report on Form 10-Q, including, without limitation, statements containing the words “believes,” “anticipates,” “intends,” “expects,” “assumes,” “trends” and similar expressions, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based upon the Company’s current plans, expectations and projections about future events. However, such statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These factors include, among others, the following:

	•	·	general economic and business conditions, such as the current global recession, that may affect demand for our services and products and the ability of our customers to pay for such services and products;

	•	·	effects of competition in the markets in which the Company operates;

	•	·	liability and other claims asserted against the Company;

	•	·	ability to attract and retain qualified personnel;

	•	·	availability and terms of capital;

	•	·	loss of significant contracts or reduction in revenue associated with major customers;

	•	·	ability of customers to pay for services;

•

business disruption due to natural disasters or terrorist acts;

•		ability to successfully integrate the operations of acquired businesses and achieve expected synergies and operating efficiencies from the acquisitions, in each case within expected time-frames or at all;

•	·	changes in, or failure to comply with, existing governmental regulations; and

•

changes in estimates and judgments associated with critical accounting policies and estimates.

For a detailed discussion of these and other factors that could cause the Company’s actual results to differ materially from the results contemplated by the forward-looking statements, please refer to Item ~~2.01~~1A “Risk Factors” in the Company’s Current Report on Form ~~8-K~~10-K filed on December ~~28, 2007.~~16, 2010. The reader is encouraged to review the risk factors set forth therein. The reader should not place undue reliance on forward-looking statements, which speak only as of the date of this report. Except as required by law, the Company assumes no responsibility for updating forward-looking statements to reflect unforeseen or other events after the date of this report.

~~Overview~~

Page 15

Overview

Beacon was formed for the purpose of acquiring and consolidating regional telecom businesses and service platforms into an integrated, national provider of high quality voice, data and VOIP communications to small and medium-sized business enterprises (the “SME Market”). The Company was originally formed to acquire companies that would allow it to serve the SME Market on an integrated, turn-key basis from system design, procurement and installation through all aspects of providing network service and designing and hosting network applications. In response to identification of a significant ~~un-served~~under-served market, our business strategy has shifted to become a leading provider of global, international and regional telecommunications and technology systems infrastructure services, encompassing a comprehensive suite of consulting, design, installation, and infrastructure management offerings, while continuing to provide managed information technology and telecommunications services in selected local markets.

~~Acquisition Growth Strategy~~

~~We are continuing to pursue mergers and acquisitions for a portion of our growth.~~

~~A key component of our growth strategy is through strategic acquisitions. These potential acquisition candidates must meet specific criteria including the following;~~

	•		~~Accretive to earnings in the first year.~~

	•		~~Strategic locations throughout the US and Europe where we have significant concentrations of demand for our service offerings.~~

	•		~~Highly trained technical staff that can meet our internal requirements and the requirements of our Global customers.~~

We may not be successful in our search for potential acquisition candidates that are acceptable for our business model, or we may not be successful in our attempts to acquire new businesses that we have identified as attractive acquisition candidates.

Organic Growth Strategy

With respect to our plans to increase ~~revenue~~net sales organically, we have identified, and are currently pursuing, several significant ~~strategies;~~strategies including:

	•·		~~The first strategy is~~Strengthening existing customer relationships to ~~expand the a la carte services offered to existing major national, multi-national~~ensure we are their partner for all design, implementation and ~~global clients who have not already signed an~~management of ITS infrastructure managed services agreement. This has been initiated by the hiring of branch level account managers focused on the sale of individual infrastructure services and the global managed services offering. With reorganization of the professional services team structure, it permits Beacon to accommodate branch level services delivery to potential global clients.solutions.

	•·		~~The second strategy is to add regional branches to the existing branches in Columbus and Cincinnati, Ohio, Louisville, Kentucky and Raritan, NJ. The~~Add additional ~~branches will be strategically located to provide regional coverage and depth of resources to support global client demand.~~

	•		~~The third strategy is to add regional and~~ major account sales resources ~~in each new branch. This will~~to facilitate the introduction of Fortune 1000, Global 2000 and qualifying multi-national firms. We refer to these current and future clients as Fortune 10000.

Continued expansion of the a la carte services offered to existing major national, multi-national and global clients who have not already signed an infrastructure managed services agreement.

Results of Operations

For the three ~~and nine~~ months ended ~~June 30,~~December 31, 2010 and 2009

~~Operations for the three and nine months ended June 30, 2010 include our fully consolidated European operations, which began in the fourth quarter of the fiscal year ended September 30, 2009.~~

In order to best discuss and compare operations for the three ~~and nine~~ month periods ended ~~June 30,~~December 31, 2010 and 2009 our North American and European operations will be presented and discussed separately.

North American Operations

For the three months ended June 30, For the nine months ended June 30,
2010 2009 2010 2009
North America North America change North America North America change
Net Sales $ 2,765 100 % $ 3,039 100 % $ (274 ) $ 7,360 100 % $ 7,118 100 % $ 242
Cost of goods sold 393 14 % 1,281 42 % (888 ) 1,122 15 % 2,892 41 % (1,770 )
Cost of services 1,074 39 % 837 28 % 237 3,009 41 % 1,934 27 % 1,075

Gross profit 1,298 47 % 921 30 % 377 3,229 44 % 2,292 32 % 937

Operating expense
Salaries and benefits 1,611 58 % 1,186 39 % 425 3,851 52 % 3,109 44 % 742
Selling, general and administrative 863 31 % 1,047 34 % (184 ) 2,987 41 % 2,572 36 % 415

Net loss from operations (1,176 ) NM (1,312 ) NM 136 (3,609 ) NM (3,389 ) NM (220 )

Other expense (22 ) (222 ) 200 (214 ) (661 ) 447
Change in fair value of warrants — — (4,373 ) (4,373 )

Net loss income before taxes (1,198 ) (1,534 ) 336 (8,196 ) (4,050 ) (4,146 )

Income taxes (15 ) — (15 ) (44 ) (44 )
Net (Loss) from continuing operations (1,213 ) (1,534 ) 321 (8,240 ) (4,050 ) (4,190 )
Net (Loss) from discontinued operations — — — — — —

Net (Loss) Income $ (1,213 ) $ (1,534 ) $ 321 $ (8,240 ) $ (4,050 ) $ (4,190 )

	For the three months ended December 31,
	2010						2009
	North America						North America						change

Net Sales	$	2,710			100	%	$	2,261			100	%	$	449
Cost of materials sold		276			10	%		483			21	%		(207	)
Cost of services		1,479			55	%		941			42	%		538
Gross profit		955			35	%		837			37	%		118
Operating expense
Salaries and benefits		1,560			58	%		1,041			46	%		519
Selling, general and administrative		806			30	%		950			42	%		(144	)
Intercompany services		(727	)		-27	%		(55	)		-2	%		(672	)
Loss from operations		(684	)	NM				(1,099	)	NM				415
Other expense		(184	)					(209	)					25
Net loss before income taxes		(868	)					(1,308	)					440

Income tax expense		(15	)					-						(15	)

Net loss from continuing operations		(883	)					(1,308	)					425
Net loss from discontinued operations		-						-						-
Net loss	$	(883	)				$	(1,308	)				$	425

Net sales from our North American operations the three months ended ~~June 30,~~December 31, 2010 and 2009 was ~~approximately $2,765~~$2,710 and ~~$3,039, consisting of approximately $533~~$2,261, or a 20% increase resulting from a focused market development and $664 of engineering and design services, $717 and $246 of managed services, and $1,515 and $2,129 of business telephone and data system installations, infrastructure, Information Transport Systems Managed Services, and time and materials services. Net salescustomer penetration leading to additional work from our North American operations for the nine months ended June 30, 2010 and 2009 was approximately $7,360 and $7,118, consisting of approximately $1,341 and $1,939 of engineering and design services, $1,234 and $705 of managed services, and $4,785 and $4,474 of business telephone and data system installations, infrastructure, Information Transport Systems Managed Services, and time and materials servicesexisting customers while creating new customer opportunities.

Cost of goods sold for the three months ended ~~June 30,~~December 31, 2010 and 2009 amounted to ~~approximately $1,467~~$1,755 and ~~$2,118,~~$1,424, and consisted of ~~approximately $393~~$276 and ~~$1,117~~$483 of ~~equipment~~material costs, $454 and ~~materials used in business telephone systems installations, infrastructure, information transport systems and time and material parts used in services, $410 and $517~~$570 of direct labor, ~~$106~~$112 and ~~$99~~$142 of direct project related costs, and ~~$558~~$913 and ~~$385~~$229 of subcontractor fees incurred in providing services. The shift in cost of goods sold ~~components comparison displays~~from materials to services reflects our maturation into a professional services firm whereby Beacon is using more subcontractors for installation services, and they bear the changing product mix in North America from high cost, labor intensive regional phone system sales, installation and support to an infrastructure and Information Transport Systems product and service offering, accounted for as Time and Material Contracts. The result being lower cost of goods sold and gross margin improvement. Cost of goods sold for the nine months ended June 30, 2010 and 2009 amounted to approximately $4,131 and $4,826, and consisted of approximately $1,122 and $2,548 of equipment and materials used in business telephone systems installations, infrastructure, and time and material parts used in services, $1,523 and $1,432 of direct labor, $347 and $278 of direct project related costs, and $1,139 and $568 of subcontractor fees incurred in providing services. The cost of goods sold components comparison displays the changing product mix in North America from high cost, labor intensive regional phone system sales, installation and support to an infrastructure and Information Transport Systems product offering, accounted for as Time and Material Contracts. The result being lower cost of goods sold and gross margin improvement.costs.

Salaries and benefits of approximately ~~$1,611~~$1,560 and ~~$1,186~~$1,041 for the three months ended ~~June 30,~~December 31, 2010 and 2009 consisted of salaries and wages of approximately ~~$845~~$881 and ~~$705,~~$600, commissions and bonuses of ~~$58~~$299 and ~~$135,~~$47, benefits ~~of $124~~ and ~~$82,~~ payroll taxes of ~~$108~~$187 and ~~$97, and non-cash~~$149. Non-cash share-based compensation of ~~$476~~$193 and ~~$167~~$245 related primarily to granted stock options ~~granted during these periods. Salaries and benefits of approximately $3,851 and $3,109 for the nine months ended June 30, 2010 and 2009 consisted of~~is included in salaries and ~~wages of approximately $2,200~~wages. While headcount is relatively consistent, the increase in salaries is attributable to a workforce shift to higher salaried professional administrative and $1,929, commissions and bonuses of $118 and $248, benefits of $246 and $332, payroll taxes of $323 and $280, and non-cash share-based compensation of $964 and $320 related primarily to stock options granted during the period.management workforce.

Page 16

Selling, general and administrative expense for the three months ended ~~June 30,~~December 31, 2010 and 2009 of approximately ~~$863~~$806 and ~~$1,047~~$950 include approximately ~~$240~~$260 and ~~$441~~$377 of accounting, investor relations and professional fees, ~~$39 and $35~~$37 of bad debt expense ~~$48~~for both period, $67 and ~~$45~~$77 of ~~rent~~office related expense, ~~$92~~$62 and ~~$78~~$87 of telecommunications and data related expenses, ~~$129~~$61 and ~~$78~~$37 of travel related expenses, ~~$62~~$69 and ~~$57~~$51 of expenses related to business insurance, ~~$29 and $48 of miscellaneous outside services,~~ depreciation and amortization of ~~$175~~$122 and ~~$153,~~$163, and ~~$119~~$128 and ~~$112~~$121 of other administrative services. The reduction in these costs reflects a concerted effort to streamline operations and control costs while increasing the efficiency and scalability of Beacon’s office infrastructure. These costs were offset by ~~a corporate royalty~~intercompany services of ~~$70~~$727 and $0$55 charged to the European business for administrative functions provided and isare eliminated upon consolidation. ~~Selling, general and administrative expense for~~

European Operations

	For the three months ended December 31,
	2010						2009
	Europe						Europe						Change

Net Sales	$	1,264			100	%	$	612			100	%	$	652
Cost of materials sold		-			0	%		-			0	%		-
Cost of services		1,044			83	%		335			55	%		709
Gross profit		220			17	%		277			45	%		(57	)
Operating expense											0	%
Salaries and benefits		115			9	%		-						115
Selling, general and administrative		82			6	%		67			11	%		15
Intecompany services		727			58	%		55			9	%		672
Loss from operations		(704	)	NM				155			25	%		(859	)
Other expense		(101	)					-		NM				(101	)
Net loss before taxes		(805	)					155						(960	)

Income tax benefit (expense)		53						(39	)					92

Net (loss) income from continuing operations		(752	)					116						(868	)
Net income from discontinued operations including gain on deconsolidation of $7,892 in the three months ended December 31, 2010		7,892						161
Net income	$	7,140					$	277					$	(868	)

Net sales from European operations the ~~nine~~three months ended ~~June 30,~~December 31, 2010 and 2009 was $1,264 and $612 and show the growth in this segment as we solidify our foothold in Europe and further expand operations abroad. Now that we have a full fiscal year of approximately $2,987 and $2,572 include approximately $1,078 and $992 of accounting, investor relations and professional fees, $105 and $106 of bad debt expense, $138 and $135 of rent expense, $265 and $180 of telecommunications and data related expenses, $345 and $167 of travel related expenses, $79 and $0 of recruiting expense, $140 and $130 of expenses relatedactivity in Europe with a proven services solution, we have been able to leverage the experience to increase business insurance, $61 and $127 of miscellaneous outside services, depreciation and amortization of $509 and $454, and $470 and $281 of other administrative services. These costs were offset by a corporate royalty of $203 and $0 charged to the European business for administrative functions provided and is eliminated upon consolidation.from our largest customer.

~~Other expense~~

Cost of services for the three months ended ~~June 30,~~December 31, 2010 and 2009 of approximately $22 and $222 is comprised of interest expense in relation to notes payable issued in connections with our Phase I acquisitions. Other expense for the nine months ended June 30, 2010 and 2009 of approximately $4,587 and $661 includes interest expense of $214 and $661 related to notes payable issued in connection with our Phase I acquisitions and approximately $4,373 and $0 of non-cash expense related to the change in fair value of warrants with anti-dilution features.

~~European Operations~~

For the three months ended June 30, For the nine months ended June 30,
2010 2009 2010 2009
Europe Europe Europe Europe
Net Sales $ 781 100 % — $ 2,327 100 % —
Cost of goods sold 2 2 % — 129 8 % —
Cost of services 13 16 % — 715 44 % —

Gross profit 766 82 % — 1,483 48 % —

Operating expense
Salaries and benefits 174 209 % — 713 44 % —
Selling, general and administrative 342 412 % — 916 56 % —

Net Income (loss) from operations 250 NM — (146 ) NM —

Other expense (140 ) — (199 ) —

Net Income (loss) before taxes 110 — (345 ) —

Income tax (expense) benefit (29 ) — 88 —

Net Income (loss) from continuing operations 81 (257 )
Net loss from discontinued operations (7,623 ) (7,180 )

Net loss $ (7,542 ) — $ (7,437 ) —

Net of the Discontinued Operations (see Note 4 for more details), our expansion into Europe, which began in the fourth quarter of the fiscal year ended September 30, 2009, has generated net sales of approximately $781 for the three months ended June 30, 2010 consisting of approximately $728 of professional services, and $53 of time and material services. Net of the Discontinued Operations (see Note 4 for more details), for the nine months ended June 30, 2010 our European operations have generated net sales of approximately $2,327 consisting of approximately $2,201 of professional services, and $126 of time and material services.

~~Cost of goods sold for the three months ended June 30, 2010~~ amounted to approximately ~~$15~~$1,044 and $335 and consisted primarily of subcontractor costs. ~~For~~The significant increase in subcontractor costs during the ~~nine~~quarter was primarily due to work being completed in European countries with higher cost structures. In addition,the nature/type of service delivered changed to a more subcontractor intensive model.

Gross profit as a percentage of sales decreased significantly during the three months ended ~~June 30,~~December 31, 2010 compared to 2009 due to the majority of work being completed in European countries with higher cost structures. In addition, the nature/type of ~~goods sold amounted~~service delivered changed to ~~$844 and consisted primarily of~~a more subcontractor ~~costs of approximately $352, direct project related costs of $363 and materials costs of $129.~~ intensive model.

Salaries and benefits of approximately ~~$174 and $713~~$115 for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2010 and 2009 consisted of salaries and related benefits. For the comparative three months ended December 31, 2009 we had not yet hired employees in the European segment.

Selling, general and administrative expense for the three months ended ~~June 30,~~December 31, 2010 and 2009 was approximately ~~$342, including approximately $48~~$82 and $67. Additionally, intercompany services of ~~accounting~~$727 and professional fees primarily related to the organization of the European operations, $112 of travel related expenses, $31 of outside services, $17 of rent and other office related supplies, $27 of telecommunications and data related expenses, depreciation and amortization of $30 and $7 of miscellaneous other expenses incurred to establish operations. Additionally a corporate royalty of $70$55 were charged to the European business for administrative functions provided by the North American corporate office ~~is recorded~~ and were eliminated upon consolidation. Selling, general and administrative expense for the nine months ended June 30, 2010 was approximately $916, including approximately $258 of accounting and professional fees, $160 of travel related expenses, $43 of recruiting expenses, $49 of rent and other office related supplies, $51 of telecommunications and data related expenses, depreciation and amortization of $63 and $89 of miscellaneous other expenses incurred to establish operations. Additionally a corporate royalty of $203 charged to the European business for administrative functions provided by the North American corporate office is recorded and eliminated upon consolidation.

Liquidity and Capital Resources

~~For the nine months ended June 30, 2010, we incurred a~~

We generated net ~~loss~~income of ~~$15,677,~~$6,257, which includes a ~~loss from~~gain on the deconsolidation of discontinued operations of ~~$7,180~~$7,892 (see Note 44), non-cash expenses for ~~more details), a mark~~share based compensation of $276, non-cash depreciation and amortization expense of $132, and other non-cash charges of $107. Cash used for continuing operations amounted to ~~market adjustment on the fair value of common stock purchase warrants of $4,373, and cash used in operations of approximately $4,693~~$556 for the ~~nine~~three months ended ~~June 30,~~December 31, 2010. Our accumulated deficit amounted to ~~approximately $36,807. We~~$33,473, while we had cash ~~and cash equivalents~~ of ~~$411 at June 30, 2010~~$108 and a working capital deficit of ~~$4,661.~~$671.

Page 17

While North American net sales for the nine months ended June 30, 2010 was only marginally ahead of the nine months ended June 30, 2009, the gross margin grew to 44% from 31%. This margin gain can be attributed to changing our product mix away from material and labor intensive services, to higher margin telecommunications and technology systems infrastructure and managed services which involve a higher level of professional services and significantly reduced material requirements. This change is represented by a decrease in costs of goods sold of 61% and an increase in cost of services of 56% for the nine months ended June 30, 2010 as compared to the nine months ended June 30, 2009.

For the nine months ended June 30, 2010, net cash used in operating activities of $4,693 consisted primarily of a net loss of approximately $15,677, $7,180 of which was attributable to discontinued operations, an increase in accounts receivables of $1,109 and a decrease in accrued expenses and account payable of $1,907 and $365, respectively. Additionally, a mark to market adjustment on the fair value of common stock purchase warrants of $4,373, non-cash share based compensation increase of $1,131 and cash provided by discontinued operations of $843 offset the cash usage.

Cash used in investing activities of $504 consisted of capital expenditures of $321 related to our overall continuing operations and $183 of capital expenditures related to the discontinued operations.

Cash provided by financing activities of $5,293 was derived primarily from approximately $2,398 of net proceeds from the sale of common stock, net proceeds from warrant conversions of $3,631, proceeds of $500 from issuance of short term notes, and offset by repayments of bridge, convertible and note payables of $1,236.

On August ~~16,~~17, 2010 we entered into a long term line of credit facility with one orof our directors ~~agreed to provide us with a four million dollar credit facility. The term is up to 18 months with~~for $4,000, the facility has an annual interest rate of 7.73% on any outstanding balance and a facility fee of the greater of ~~forty thousand dollars~~$40 or 1% ~~on any~~of the unused balance. ~~In addition, this director will receive fifteen thousand~~Additionally, 15,000 warrants, ~~(five~~with a five year term at $1.00 per ~~share)~~share, per month will be paid for each month the facility is outstanding. ~~The facility is secured by~~As of December 31, 2010, we have issued 75,000 warrants. Using the Black Scholes pricing model, we have determined the warrants have a ~~pledge~~fair value of $30 which has been recorded as other expense for the three months ended December 31, 2010. As of December 31, 2010, we do not have an outstanding balance under this facility.

Based on the recent progress we made in the execution of our business plan, we believe that our currently available cash, availability of aforementioned credit line and cash received from the issuance of notes payable, and funds we expect to generate from operations ~~and the proceeds of our equity financing activities~~ will enable us to ~~effectively~~ operate our business and repay our debt obligations as they become due through ~~June 30, 2011.~~January 1, 2012. However, we ~~will~~may require additional capital in order to execute our ~~long term~~ business plan. If we are unable to raise additional capital, or encounter unforeseen circumstances that place constraints on our capital resources, we will be required to take various measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing our business development activities, suspending the pursuit of our business plan, and controlling overhead expenses. We cannot provide any assurance that we will raise additional ~~capital,~~capital. We have not secured any commitments for new financing at this time, nor can we provide any assurance that new financing will be available to us on acceptable terms, if at all.

Off-Balance Sheet Arrangements

We have four operating lease commitments for real estate used for office space and production facilities.

Contractual Obligations ~~as of June 30, 2010~~

The following is a summary of our contractual obligations as of ~~June 30,~~December 31, 2010:

Years Years
Contractual Obligations Total 2011 2012 2013 2014 Thereafter
Debt obligations 989 $ 389 $ 339 $ 161 $ — $ 100
Interest obligations (1) 78 $ 51 23 4 —
Operating lease obligations (2) 208 127 36 36 9 —

$ 1,275 $ 567 $ 398 $ 201 $ 9 $ 100

Contractual Obligations	Total		2011		2012		2013		2014		2015		Thereafter

Long-term debt obligations	$	2,048	$	1,912	$	136	$	-	$	-	$	-	$	-
Interest obligations (1)		167		162		5		-		-		-
Operating lease obligations (2)		643		195		116		116		89		80		47

	$	2,858	$	2,269	$	257	$	116	$	89	$	80	$	47


(1)		Interest obligations assume Prime Rate of 3.25% at ~~June 30,~~December 31, 2010. Interest rate obligations are presented through the maturity dates of each component of long-term debt.

(2)

Operating lease obligations represent payment obligations under non-cancelable lease agreements classified as operating ~~leases.~~leases and disclosed pursuant to ASC 840 “Accounting for Leases,” as may be modified or supplemented. These amounts are not recorded as liabilities as of the current balance sheet date.

Dividends on Series A and A-1 Preferred Stock are payable quarterly at an annual rate of 10% and Series B Preferred Stock isare payable quarterly at an annual rate of 6%, in cash or the issuance of additional shares of Series A, A-1 and B Preferred Stock, at our option. If we were to fund dividends accruing during the ~~twelve months ended June~~year ending September 30, ~~2010~~2011 in cash, the total obligation would be ~~$545~~$172 based on the number of shares of Series A, A-1 and B Preferred Stock outstanding as of ~~June 30, 2009.~~December 31, 2010.

We currently anticipate the cash requirements for capital expenditures, operating lease commitments and working capital will likely be funded with our existing fund sources and cash provided from operating activities. In the aggregate, total capital expenditures are not expected to ~~exceed $750~~be significant for the ~~twelve months~~year ended ~~June~~September 30, 2011 and ~~can~~could be curtailed ~~based on actual results~~should we experience a shortfall in expected financing.

Page 18

Customer Concentration

For the three months ended December 31, 2010 our largest customer accounted for approximately 61% of ~~operations.~~

~~Customers~~

~~Because Beacon provides infrastructure management services~~total sales. Although we expect to ~~global and multi-national clients, the primary target clients can be defined as the Fortune 1000,~~have a high degree of customer concentration, our customer engagements are typically covered by multi-year contracts or ~~the broader Forbes Global 2000. Global clients may also elect to use Beacon’s services in an a la carte fashion, typically using Design & Engineering services~~master service agreements under which are more portable when used outside of an infrastructure managed services contract vehicle. The business model for global, multi-national and regional clients who use one or more unbundled services allows for migration to a fully managed services offering where all services are offered under a single contractual umbrella. At the beginning of FY 2010, Beacon unveiled a regional branch business model that allowed larger local companies, especially those with multiple sites to leverage the same consulting, design, contracting, project management or even infrastructure management services offered to our global clients. This regional branch model allows smaller companies whowe have no interest in global managed infrastructure services, or who want to sample Beacon’s services to do so with minimal risk associated with a long term contract. Further, this regional branch model allows Beacon to increase the depth of resources across a given country or region, adding scalability to global and multi-national service delivery, while providing an intake vehicle for future global clients.

~~Competition~~

~~Beacon’s service delivery offerings, and therefore its competitors, can be divided into two broad categories. First, services that are offered individually, generally in response to the client needs~~been operating for a single service within a single project and secondly, services that are offered as a single source package (managed services and outsourcing) and delivered as part of a regional, national, multi-national or global contract, generally with a specified window of time vs. for a single project or task. When offering a single service in response to a single project, there are numerous competitors. These mid to small-sized competitors tend to be single site or confined to small geographic regions and generally aggressively compete for private or publicly announced work. Further, they typically specialize in and are good at only one service out of the 5 or 6 that the client may actually need. These smaller, single service competitors are generally viewed as being commoditized. Beacon’s Branch model allows us to successfully leverage the bigger managed services offering and introduce scalability by allowing our clients the option to expand the number of ~~services offered and~~years. In addition, current economic conditions could harm the ~~geography over~~liquidity of and/or financial position of our customers or suppliers, which ~~the service is delivered. By removing the business risk associated with having only a single service~~could in turn cause such parties to ~~offer~~fail to ~~new and existing clients, it further allows Beacon~~meet their contractual or other obligations to differentiate itself by offering a higher level of service with a more predictable price. So by leveraging the multi-service, global capabilities of Beacon, this provides a significant competitive edge for the first category of competitors, but reduces the pool of competitors for the full-spectrum managed infrastructure services offered across broad geographic areas. There are several national infrastructure firms, such as Black Box and Netversant that have the size and possibly the funding to become direct competitors, but by nature of their size and current business models they would experience significant internal resistance to change. Their past successes in the narrowly focused services arena, combined with their size would provide internal and external barriers to entry, and may well convert many potential competitors into clients as the value of the expanded Beacon managed services model gains wider recognition and market share.

~~Employees~~us.

Employees

Beacon currently employs approximately 98110 people 92 in the Columbus, OH, Louisville, KY, Raritan, NJ, ~~and~~ Cincinnati, OH ~~markets. Beacon currently employs 6 in~~and Prague, Czech Republic. ~~None of Beacon’s employees is subject to a collective bargaining agreement.~~

~~Facilities~~

Facilities

Beacon’s executive offices are located at ~~1311 Herr Lane,~~9300 Shelbyville Road, Suite ~~205,~~1000, Louisville, KY 40222 in 2,142 square feet of office space leased ~~through March 30, 2010, extended thereafter~~ on a month to month basis. Additionally, we have offices in Louisville, KY consisting of 8,150 square feet of office space leased through ~~December 31, 2010,~~February 28, 2011, Cincinnati, OH consisting of ~~3,675~~5,341 square feet of office space leased through ~~October~~May 31, ~~2010,~~2016, Columbus, OH consisting of 7,018 square feet leased through December 31, 2014, and Prague, Czech Republic consisting of approximately ~~2,109~~2,100 square feet leased through ~~July 31,~~June 30, 2011. We believe our facilities are adequate for the continuing operations of our existing business.

Certain Relationships and Related Party Transactions

The Company has obtained insurance through an agency owned by one of its founding stockholders/directors. Insurance expense of $31 and $45 was paid ~~through~~to the agency for each of the three months ended ~~June 30,~~December 31, 2010 and 2009, was approximately $46 and $23, respectively, and $123 and $88 respectively for the nine months ended June 30, 2010 and 2009, and is included in selling, general and administrative expense in the accompanying Condensed Consolidated Statements of Operations.respectively.

Under a marketing agreement with a company owned by the spouse of Beacon’s former president, we provide procurement and installation services as a subcontractor. We earned net sales of approximately $109 and $424 for procurement and installation services provided under this marketing agreement for the three months ended June 30, 2010 and 2009, respectively. For the nine months ended June 30, 2010 and 2009, respectively we earned net sales of approximately $164 and $817 for procurement and installation services provided under this marketing agreement. As of June 30, 2010 and 2009, respectively, we had accounts receivable of approximately $133 and $467 with respect to this marketing agreement.

Filing Status

Beacon Enterprise Solutions Group, Inc., a Nevada corporation has in the past filed reports with the SEC and will continue to do so as Beacon. You can read and copy any materials we file with the SEC at its Public Reference Room at ~~100 F~~450 Fifth Street, ~~NE,~~NW, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Commission, including us.

ITEM 4. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported within the periods specified in the rules and forms of the SEC. This information is accumulated and communicated to our executive officers to allow timely decisions regarding required disclosure. As of ~~June 30,~~December 31, 2010, our Chief Executive Officer, who acts in the capacity of principal executive officer and our Chief Financial Officer who acts in the capacity of principal financial officer, have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and the Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of ~~June 30,~~December 31, 2010, based on their evaluation of these controls and procedures required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15.

DISCLOSURE CONTROLS AND INTERNAL CONTROLS

Disclosure controls are designed with the objective of ensuring that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Internal controls are procedures which are designed with the objective of providing reasonable assurance that our transactions are properly authorized, recorded and reported and our assets are safeguarded against unauthorized or improper use, to permit the preparation of our financial statements in conformity with generally accepted accounting principles, including all applicable SEC regulations.

Page 19

As of September 30, ~~2009,~~2010, management of our Company had reported at previous dates of assessment that we identified various deficiencies in our accounting processes and procedures that constitute a material ~~weakness~~weaknesses in internal control over financial reporting and disclosure controls. ~~We took certain steps during~~During the year ended September 30, ~~2009~~2010, we took certain steps in an effort to correct ~~previously reported~~these material weaknesses, including hiring a Chief Financial Officer and Corporate Controller, both whom have significant experience with publicly held companies. The addition of the Corporate Controller has allowed us to implement more complete segregation of duties while also dedicating a resource solely to financial and SEC reporting.

Although we believe that ~~include, among other things, consolidating all legacy~~these steps have enabled us to improve our internal controls, additional time is still required to fully document our systems, ~~into a single unified accounting system, hiring additional personnel~~implement control procedures and ~~undertaking the process of documenting our controls; however, we still need to make substantial progress in these areas~~test their operating effectiveness before we can definitively conclude that we have remediated our ~~material weaknesses.~~deficiencies.

Management has specifically observed that the Company’s accounting systems and current staffing resources in the Company’s finance department are currently insufficient to support the complexity of our financial reporting requirements. The Company has in the past, and is continuing to experience difficulty in (i) closings its books and records at quarterly and annual reporting periods on a timely basis, (ii) generating data in a form and format that facilitates the timely analysis of information needed to produce financial reports and (iii) applying complex accounting and financial reporting disclosure rules as required under various aspects of GAAP and SEC reporting regulations such as those relating to accounting for business combinations, stockholders equity transactions, derivatives and income taxes. The Company also has limited segregation of duties and it is becoming increasingly necessary for the Company to divide certain custodial, recordkeeping and authorization functions between its Chief Financial Officer, Controller, and supporting staff to mitigate the risk of material misstatements.

We believe that our internal control risks are sufficiently mitigated by the fact that our Chief Executive Officer and Chief Financial Officer review and approve substantially all of our major transactions and we have, when needed, hired outside experts to assist us with implementing complex accounting principles. WeAdditionally, we believe ~~that our weaknesses in internal control over financial reporting and our disclosure controls relate in part to~~ the ~~fact that we are an emerging business with limited personnel. Management and the audit committee~~addition of the ~~Board of Directors believe that the company must allocate additional human~~aforementioned Chief Financial Officer and financial resources to address these matters. Accordingly, during the quarter ended March 31, 2010 the Company began the process of monitoring its current reporting systems and its personnel and hired a corporate controller to support the Company in its compliance process. The Company intendsCorporate Controller will enable us to continue implementing the proper controls and making the necessary changes until ~~its~~these material weaknesses are remediated.

Changes in Internal Control ~~over~~Over Financial Reporting

There were no changes in our internal control over financial reporting during our last fiscal quarter that materially affected or are reasonably likely to materially affect our internal control over financial reporting.

Page 20

PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

~~None.~~

We are subject to various legal proceedings in the normal course of business, none of which is required to be disclosed under this Item 1.

ITEM 4. Removed and Reserved.

ITEM 5. Other Information

~~Regarding the termination of the Company’s agreement with Interxion, Note 4 to the Company’s condensed consolidated financial statements is hereby incorporated by reference.~~

Richard C. Mills, the president of the Company, resigned effective May 15, 2010. Pursuant to the separation agreement with the Company, 210,750 additional shares of restricted common stock granted on December 5, 2007 were vested and the option granted on May 8, 2009 became exercisable with respect to 500,000 shares of common stock for a five year period beginning on the effective date of the termination.

ITEM 6. EXHIBITS


31.1		Certification of Principal Executive Officer, pursuant to Rules 13a-14(a) of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Principal Financial Officer, pursuant to Rules 13a-14(a) of the Sarbanes-Oxley Act of 2002.

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

32.2

Certification of Principal Financial Officer, pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

*
*		This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934

Page 21

SIGNATURES

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


Date: ~~August 16, 2010~~ February 14, 2011	Beacon Enterprise Solutions Group, Inc.

	By:	/s/ Bruce Widener
		Bruce Widener
		Chief Executive Officer and Chairman of the
		Board of Directors


		and

Date: ~~August 16, 2010~~ February 14, 2011	By:	/s/ Michael Grendi
		Michael Grendi
		Principal Financial Officer

Page 22


	June 30,			September 30,
	2010			2009
	(unaudited)
ASSETS

Current assets:
Cash and cash equivalents	$	411		$	227
Accounts receivable, net		4,115			3,069
Inventory, net		502			605
Prepaid expenses and other current assets		370			388
Current assets of discontinued operations		678			958

Total current assets		6,076			5,247

Property and equipment, net		476			336
Goodwill		2,792			2,792
Other intangible assets, net		2,996			3,342
Other assets		126			117
Other assets of discontinued operations					980

Total assets	$	12,466		$	12,814


LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Short term credit obligations	$	—		$	550
Convertible notes payable		—			298
Bridge notes (net of $0 and $33 discounts)		100			167
Current portion of long-term debt		389			475
Accounts payable		1,711			2,074
Accrued expenses		799			2,627
Current liabilities of discontinued operations		7,738			525

Total current liabilities		10,737			6,716


Long-term debt, less current portion		500			802
Deferred tax liability		148			103

Total liabilities		11,385			7,621


Stockholders’ equity
Preferred Stock: $0.01 par value, 5,000,000 shares authorized, 1,041 and 3,436 shares outstanding in the following classes:
Series A convertible preferred stock, $1,000 stated value, 4,500 shares authorized, 30 and 1,984 shares issued and outstanding at June 30, 2010 and September 30, 2009, respectively, (liquidation preference $92)		30			1,984
Series A-1 convertible preferred stock, $1,000 stated value, 1,000 shares authorized, 311 and 752 shares issued and outstanding, at June 30, 2010 and September 30, 2009, respectively (liquidation preference $423)		311			752
Series B convertible preferred stock, $1,000 stated value, 4,000 shares authorized, 700 shares issued and outstanding at June 30, 2010 and September 30, 2009, respectively (liquidation preference $954)		700			700
Common stock, $0.001 par value 70,000,000 shares authorized, 37,376,396 and 24,655,990 shares issued and outstanding at June 30, 2010 and September 30, 2009.		37			25
Additional paid in capital		36,847			17,977
Accumulated deficit		(36,807	)		(16,255	)
Accumulated other comprehensive income (loss)		(37	)		10

Total stockholders’ equity		1,081			5,193

Total liabilities and stockholders’ equity	$	12,466		$	12,814


	For the Three			For the Three			For the Nine			For the Nine
	months ended			months ended			months ended			months ended
	June 30,			June 30,			June 30,			June 30,
	2010			2009			2010			2009
Net sales	$	3,546		$	3,039		$	9,687		$	7,118

Cost of goods sold		396			1,281			1,252			2,892
Cost of services		1,088			837			3,724			1,934


Gross profit		2,062			921			4,711			2,292

Operating expense
Salaries and benefits		1,325			1,019			3,618			2,791
Employee share based compensation		460			167			946			318
Selling, general and administrative		1,203			1,047			3,902			2,572

Total operating expense		2,988			2,233			8,466			5,681

Loss from operations		(926	)		(1,312	)		(3,755	)		(3,389	)


Other expenses
Other expenses		(162	)		(222	)		(413	)		(661	)
Change in fair value of warrants		—			—			(4,373	)		—

Total other expenses		(162	)		(222	)		(4,786	)		(661	)


Net (loss) before income taxes		(1,088	)		(1,534	)		(8,541	)		(4,050	)

Income tax (expense) benefit		(44	)		—			44			—


Loss from continuing operations		(1,132	)		(1,534	)		(8,497	)		(4,050	)
Loss from discontinued operations		(7,623	)		—			(7,180	)		—


Net (loss)		(8,755	)		(1,534	)		(15,677	)		(4,050	)

Series A, A-1 and B Preferred Stock:
Contractual dividends		(30	)		(160	)		(156	)		(411	)
Deemed dividends related to beneficial conversion feature		(24	)		—			(93	)		(187	)


Net (loss) available to common stockholders	$	(8,809	)	$	(1,694	)	$	(15,926	)	$	(4,648	)


Net loss per share to common stockholders — basic and diluted
Net loss per share from continuning operations	$	(0.03	)	$	(0.11	)	$	(0.29	)	$	(0.32	)
Net loss per share from discontinuned operations		(0.22	)		—			(0.24	)		—

	$	(0.25	)	$	(0.11	)	$	(0.53	)	$	(0.32	)


Weighted average shares outstanding basic and diluted		34,049,390			16,066,243			30,528,800			14,581,935


Other Comprehensive loss, net of tax
Net Loss	$	(8,809	)	$	(1,694	)	$	(15,926	)	$	(4,648	)
Foreign currency translations adjustment		(148	)		—			(47	)		—

Comprehensive loss	$	(8,957	)	$	(1,694	)	$	(15,973	)	$	(4,648	)


					Total
	Stock		Common		Common
	Options and		Stock		Stock
	Warrants		Equivalents		Equivalents
Series A Convertible Preferred Stock Warrants		20,131		40,263		60,394
Series A-1 Convertible Preferred Stock Warrants		207,260		414,518		621,778
Series B Convertible Preferred Stock Warrants		350,000		875,000		1,225,000
Common Stock Offering Warrants		829,361		—		829,361
Placement Agent Warrants		2,847,497		—		2,847,497
Affiliate Warrants		55,583		—		55,583
Bridge Financings Warrants		707,690		166,667		874,357
Convertible Notes Payable Warrants		50,000		—		50,000
Compensatory Warrants		300,000		—		300,000
Equity Financing Arrangements Warrants		2,272,433		—		2,272,433
Consulting Warrants		2,500,000		—		2,500,000
Employee Stock Options		3,571,866				3,571,866
Non-Employee Stock Options		250,000		—		250,000

		13,961,821		1,496,448		15,458,269


			Expected				Fair Value								Risk-Free			Value		Amount to
Issuance	Quantity		Life		Strike		of Common		Volatility			Dividend			Interese			per		be charged
Date	Vested		(days)		Price		Stock		Rate			Yield			Rate			Warrant		to compensation
12/1/2009		1,500,000		1,825	$	1.00	$	0.81		66.34	%		0	%		2.03	%	$	0.42	$	628
12/1/2009		250,000		1,825	$	1.50	$	0.81		66.34	%		0	%		2.03	%	$	0.34		86
12/1/2009		250,000		1,825	$	2.00	$	0.81		66.34	%		0	%		2.03	%	$	0.29		72
12/1/2009		250,000		1,825	$	2.25	$	0.81		66.34	%		0	%		2.03	%	$	0.27		67
12/1/2009		250,000		1,825	$	2.50	$	0.81		66.34	%		0	%		2.03	%	$	0.25		62

		2,500,000																		$	915


	October 1
	2009
Expected Life		3.72
Risk-free interest rate		2.20	%
Dividend Yield		0	%
Volatility		66.34	%
Warrants issued with private placements		9,979,577
Fair value of warrants	$	4,628


Expected Life		5
Risk-free interest rate		2.69	%
Dividend Yield		0	%
Volatility		66.34	%
Weighted average unit fair value	$	0.47


	March 30,
	2010
Expected Life		3.88
Risk-free interest rate		2.55	%
Dividend Yield		0	%
Volatility		65.40	%
Warrants issued with private placements (including 3,375,375 with a discounted exercise price of $0.10 per share)		12,291,827
Fair value of warrants	$	10,095


	Beacon North			BESG Ireland
	America			Ltd			Beacon CZ			Consolidated
Net (loss) before taxes	$	(1,198	)	$	145		$	(35	)	$	(1,088	)

Effective tax rate		0	%		25	%		20	%


Tax expense (benefit)	$	15		$	36		$	(7	)	$	44


	November 11,			January 22,			February 5,			March 22,
	2009			2010			2010			2010
Stock Price	$	0.90		$	1.07		$	1.07		$	1.38
Expected Life		10			6.5			6.5			6.5
Volatility		66.34	%		65.40	%		65.40	%		65.40	%
Risk-free interest rate		2.28	%		2.23	%		2.65	%		2.36	%
Dividend Yield		0	%		0	%		0	%		0	%
Fair value of options	$	0.30		$	0.67		$	0.67		$	0.86


	May 27,			June 1,			June 6,
	2010			2010			2010
Stock Price	$	1.40		$	1.36		$	1.60
Expected Life		7.2			7.5			5.5
Volatility		65.40	%		65.40	%		65.40	%
Risk-free interest rate		2.18	%		2.09	%		1.95
Dividend Yield		0	%		0	%		0	%
Fair value of options	$	0.91		$	0.90		$	0.75

								��
	Three Months		Three Months		Nine Months		Nine Months
	Ended		Ended		Ended		Ended
	June 30,		June 30,		June 30,		June 30,
	2010		2009		2010		2009
Non-Cash Share-Based Compensation Expense

Restricted Stock	$	166	$	45	$	221	$	134
Stock Options		294		122		725		184


Total Stock Compensation Expense	$	460	$	167	$	946	$	318


	For the three months ended June 30,													For the nine months ended June 30,
	2010					2009								2010					2009
	North America					North America					change			North America					North America					change
Net Sales	$	2,765		100	%	$	3,039		100	%	$	(274	)	$	7,360		100	%	$	7,118		100	%	$	242
Cost of goods sold		393		14	%		1,281		42	%		(888	)		1,122		15	%		2,892		41	%		(1,770	)
Cost of services		1,074		39	%		837		28	%		237			3,009		41	%		1,934		27	%		1,075

Gross profit		1,298		47	%		921		30	%		377			3,229		44	%		2,292		32	%		937

Operating expense
Salaries and benefits		1,611		58	%		1,186		39	%		425			3,851		52	%		3,109		44	%		742
Selling, general and administrative		863		31	%		1,047		34	%		(184	)		2,987		41	%		2,572		36	%		415

Net loss from operations		(1,176	)	NM			(1,312	)	NM			136			(3,609	)	NM			(3,389	)	NM			(220	)

Other expense		(22	)				(222	)				200			(214	)				(661	)				447
Change in fair value of warrants		—										—			(4,373	)									(4,373	)

Net loss income before taxes		(1,198	)				(1,534	)				336			(8,196	)				(4,050	)				(4,146	)

Income taxes		(15	)				—					(15	)		(44	)									(44	)
Net (Loss) from continuing operations		(1,213	)				(1,534	)				321			(8,240	)				(4,050	)				(4,190	)
Net (Loss) from discontinued operations		—					—					—			—					—					—

Net (Loss) Income	$	(1,213	)			$	(1,534	)			$	321		$	(8,240	)			$	(4,050	)			$	(4,190	)


			Years		Years
Contractual Obligations	Total		2011		2012		2013		2014		Thereafter
Debt obligations		989	$	389	$	339	$	161	$	—	$	100
Interest obligations (1)		78	$	51		23		4		—
Operating lease obligations (2)		208		127		36		36		9		—

	$	1,275	$	567	$	398	$	201	$	9	$	100