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 December 31, 2010.




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




9300
Shelbyville Road, Suite 1000, Louisville, KY 40222


(Address
of principal executive offices)




502-657-3500


(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
      Noþ




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




As of
February11, 2011, Beacon Enterprise Solutions Group, Inc. had a total of
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





PART
      I: FINANCIAL INFORMATIONItem
      1. Financial Statements
                  
                  3Item
      2. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations
                  
                  15Item
      4. Controls and Procedures
                  
                  19PART
      II: OTHER INFORMATIONItem
      1. Legal Proceedings
                  
                  21Item
      4. Removed and Reserved
                  
                  21Item
      5. Other information
                  
                  21Item
      6. Exhibits
                  
                  21Signatures
                  
                  22EX-31.1
                  
                  23EX-31.2
                  
                  24EX-32.1
                  
                  25EX-32.2
                  
                  26


Page
2





Beacon
Enterprise Solutions Group, Inc. and Subsidiaries


Condensed
Consolidated Balance Sheets


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





December
      31,
                                          
                                          
                                          September
      30,2010
                                          
                                          
                                          2010(unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
                                          
                                          $
                                          108
                                          
                                          
                                          $
                                          246Accounts
      receivable, net
                                          
                                          
                                          4,241
                                          
                                          
                                          
                                          4,535Inventory,
      net
                                          
                                          
                                          526
                                          
                                          
                                          
                                          557Prepaid
      expenses and other current assets
                                          
                                          
                                          608
                                          
                                          
                                          
                                          357Current
      assets of discontinued operations
                                          
                                          
                                          -
                                          
                                          
                                          
                                          133Total
      current assets
                                          
                                          
                                          5,483
                                          
                                          
                                          
                                          5,828Property
      and equipment, net
                                          
                                          
                                          385
                                          
                                          
                                          
                                          420Goodwill
                                          
                                          
                                          2,792
                                          
                                          
                                          
                                          2,792Other
      intangible assets, net
                                          
                                          
                                          2,947
                                          
                                          
                                          
                                          3,011Other
      assets
                                          
                                          
                                          27
                                          
                                          
                                          
                                          20Total
      assets
                                          
                                          $
                                          11,634
                                          
                                          
                                          $
                                          12,071LIABILITIES
      AND STOCKHOLDERS' EQUITY (DEFICIENCY)Current
      liabilities:Bridge
      note - related party
                                          
                                          $
                                          100
                                          
                                          
                                          $
                                          100Current
      portion of long-term debt
                                          
                                          
                                          261
                                          
                                          
                                          
                                          379Senior
      Secured Notes Payable, net of deferred debt discount of
$78
                                          
                                          
                                          1,473
                                          
                                          
                                          
                                          -Accounts
      payable
                                          
                                          
                                          2,368
                                          
                                          
                                          
                                          2,971Accrued
      expenses and other current liabilities
                                          
                                          
                                          1,952
                                          
                                          
                                          
                                          880Current
      liabilities of discontinued operations
                                          
                                          
                                          -
                                          
                                          
                                          
                                          8,558Total
      current liabilities
                                          
                                          
                                          6,154
                                          
                                          
                                          
                                          12,888Non-current
      Line of Credit - related party
                                          
                                          
                                          -
                                          
                                          
                                          
                                          630Long-term
      debt, less current portion
                                          
                                          
                                          136
                                          
                                          
                                          
                                          403Deferred
      tax liability
                                          
                                          
                                          167
                                          
                                          
                                          
                                          153Total
      liabilities
                                          
                                          
                                          6,457
                                          
                                          
                                          
                                          14,074Stockholders'
      equity (deficiency)Preferred
      Stock: $0.01 par value, 5,000,000 sharesauthorized,
      1,041 shares outstanding in thefollowing
      classes:Series
      A convertible preferred stock, $1,000 stated value,4,500
      shares authorized, 30 shares issued and outstandingat
      December 31, 2010 and September 30, 2010, respectively,(liquidation
      preference $94)
                                          
                                          
                                          30
                                          
                                          
                                          
                                          30Series
      A-1 convertible preferred stock, $1,000 stated value,1,000
      shares authorized, 311 shares issued and outstandingat
      December 31, 2010 and  September 30, 2010,
      respectively(liquidation
      preference $442)
                                          
                                          
                                          311
                                          
                                          
                                          
                                          311Series
      B convertible preferred stock, $1,000 stated value,4,000
      shares authorized, 700 shares issued and outstandingat
      December 31, 2010 and September 30, 2010, respectively,(liquidation
      preference $981)
                                          
                                          
                                          700
                                          
                                          
                                          
                                          700Common
      stock, $0.001 par value 70,000,000 shares authorized37,376,396
      shares issued and outstandingat
      December 31, 2010 and September 30, 2010, respectively.
                                          
                                          
                                          37
                                          
                                          
                                          
                                          37Additional
      paid in capital
                                          
                                          
                                          37,491
                                          
                                          
                                          
                                          37,137Accumulated
      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 except share and per share data)





For
      the Three
                                      
                                      
                                      For
      the ThreeMonths
      Ended
                                      
                                      
                                      Months
      EndedDecember
      31,
                                      
                                      
                                      December
      31,2010
                                      
                                      
                                      2009Net
      sales
                                      
                                      $
                                      3,974
                                      
                                      
                                      $
                                      2,873Cost
      of materials sold
                                      
                                      
                                      276
                                      
                                      
                                      
                                      483Cost
      of services
                                      
                                      
                                      2,523
                                      
                                      
                                      
                                      1,276Gross
      profit
                                      
                                      
                                      1,175
                                      
                                      
                                      
                                      1,114Operating
      expensesSalaries
      and benefits
                                      
                                      
                                      1,675
                                      
                                      
                                      
                                      1,041Selling,
      general and administrative
                                      
                                      
                                      888
                                      
                                      
                                      
                                      1,017Total
      operating expense
                                      
                                      
                                      2,563
                                      
                                      
                                      
                                      2,058Loss
      from operations
                                      
                                      
                                      (1,388
                                      )
                                      
                                      
                                      (944
                                      )Other
      expensesOther
      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 ondeconsolidation
      of $7,892 in the three months endedDecember
      31, 2010)
                                      
                                      
                                      7,892
                                      
                                      
                                      
                                      161Net
      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
      dilutedNet
      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 outstandingbasic
      and diluted
                                      
                                      
                                      37,376,396
                                      
                                      
                                      
                                      26,156,058Other
      comprehensive loss, net of taxNet
      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' Equity (Deficiency)


(Unaudited)


(all
amounts in 000's except share data)





Series
      A Convertible
                                        
                                        
                                        Series
      A-1 Convertible
                                        
                                        
                                        Series
      B Convertible
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        AccumulatedPreferred
      Stock
                                        
                                        
                                        Preferred
      Stock
                                        
                                        
                                        Preferred
      Stock
                                        
                                        
                                        Common
      Stock
                                        
                                        
                                        Additional
                                        
                                        
                                        
                                        
                                        
                                        Other$1,000
      Stated
                                        
                                        
                                        
                                        
                                        
                                        $1,000
      Stated
                                        
                                        
                                        
                                        
                                        
                                        $1,000
      Stated
                                        
                                        
                                        
                                        
                                        
                                        $0.001
      Par
                                        
                                        
                                        Paid-In
                                        
                                        
                                        Accumulated
                                        
                                        
                                        ComprehensiveShares
                                        
                                        
                                        Value
                                        
                                        
                                        Shares
                                        
                                        
                                        Value
                                        
                                        
                                        Shares
                                        
                                        
                                        Value
                                        
                                        
                                        Shares
                                        
                                        
                                        Value
                                        
                                        
                                        Capital
                                        
                                        
                                        Deficit
                                        
                                        
                                        Income
                                        
                                        
                                        TotalBalance
      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 basedpayments to employees for
      services
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        179
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        179Warrants
      issued under consulting agreements
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        46
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        46Amortization
      of market value of common stockvested for investor relations
      agreement
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        6
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        6Amortization
      of non-employee stock options issued for performance of
      services
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        15
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        15Warrants
      issued for credit facility
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        30
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        30Discount
      on senior secured notes payable
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        78
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        78Series
      A-1 Preferred Stock contractualdividends
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        (8
                                        )
                                        
                                        
                                        
                                        
                                        
                                        
                                        (8
                                        )Series
      A-1 Preferred Stock contractualdividends paid in in
      kind
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        (11
                                        )
                                        
                                        
                                        
                                        
                                        
                                        
                                        (11
                                        )Net
      income
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        6,257
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        6,257Net
      change in accumulated other comprehensive income
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        588
                                        
                                        
                                        
                                        588Balance
      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)





For
      the Three
                                                            
                                                            
                                                            For
      the ThreeMonths
      Ended
                                                            
                                                            
                                                            Months
      EndedDecember
      31,
                                                            
                                                            
                                                            December
      31,2010
                                                            
                                                            
                                                            2009CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      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
                                                            
                                                            
                                                            
                                                            12Change
      in reserve for doubtful accounts
                                                            
                                                            
                                                            37
                                                            
                                                            
                                                            
                                                            37Depreciation
      and amortization
                                                            
                                                            
                                                            132
                                                            
                                                            
                                                            
                                                            163Non-cash
      interest
                                                            
                                                            
                                                            26
                                                            
                                                            
                                                            
                                                            88Share
      based payments
                                                            
                                                            
                                                            276
                                                            
                                                            
                                                            
                                                            319Change
      in fair value of warrants with anti-dilution rights
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            24Amortization
      of deferred finance fees
                                                            
                                                            
                                                            14
                                                            
                                                            
                                                            
                                                            -Change
      in deferred tax liability
                                                            
                                                            
                                                            15
                                                            
                                                            
                                                            
                                                            -Changes
      in operating assets and liabilities:Accounts
      receivable
                                                            
                                                            
                                                            193
                                                            
                                                            
                                                            
                                                            589Inventory
                                                            
                                                            
                                                            16
                                                            
                                                            
                                                            
                                                            85Prepaid
      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
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            1,244NET
      CASH USED IN OPERATING ACTIVITIES
                                                            
                                                            
                                                            (556
                                                            )
                                                            
                                                            
                                                            (557
                                                            )CASH
      FLOWS FROM INVESTING ACTIVITIESCapital
      expenditures
                                                            
                                                            
                                                            (35
                                                            )
                                                            
                                                            
                                                            (168
                                                            )Capital
      expenditures of discontinued operations
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            (186
                                                            )NET
      CASH USED IN INVESTING ACTIVITIES
                                                            
                                                            
                                                            (35
                                                            )
                                                            
                                                            
                                                            (354
                                                            )CASH
      FLOWS FROM CONTINUING FINANCING ACTIVITIESProceeds
      from sale of common stock, net of offering costs
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            2,425Proceeds
      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
                                                            
                                                            
                                                            
                                                            1,482Effect
      of exchange rate changes on cash and cash equivalents
                                                            
                                                            
                                                            91
                                                            
                                                            
                                                            
                                                            5NET
      (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
                                                            
                                                            
                                                            (138
                                                            )
                                                            
                                                            
                                                            576CASH
      AND CASH EQUIVALENTS - BEGINNING OF PERIOD
                                                            
                                                            
                                                            246
                                                            
                                                            
                                                            
                                                            227CASH
      AND CASH EQUIVALENTS - END  OF PERIOD
                                                            
                                                            $
                                                            108
                                                            
                                                            
                                                            $
                                                            803Supplemental
      disclosuresCash
      paid for:Interest
                                                            
                                                            $
                                                            31
                                                            
                                                            
                                                            $
                                                            24Income
      taxes
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            -




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


Page
6


BEACON
ENTERPRISE SOLUTIONS GROUP, INC.





NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


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





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, on December 20, 2007.  In these footnotes to the
condensed consolidated financial statements, the terms “Company,” “Beacon,”
“we,” “us” or “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 for the three
months 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 December 31, 2010, Condensed Consolidated Statements of Operations
and Cash Flows for the three months ended December 31, 2010, and the Condensed
Consolidated Statement of Stockholders’ Equity for three months ended 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 months ended December 31, 2010 are not
necessarily indicative of results to be expected for the year ending
September 30, 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 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.




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,see Note 6.  As of December 31, 2010 we have received net
proceeds of $1,377 (gross proceeds of $1,551, less offering costs of
$174).


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 S.R.O., 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.




Reclassifications





Certain
amounts in the prior period financial statement have been reclassified to
conform to the current period presentation.





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 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





Accounts
receivable of $5,128 and $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.




We
establish an allowance for doubtful account based on our best estimate of the
amount of potential credit losses based on specific customer information and
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 after all means of collection
have been exhausted and the potential for recovery is considered remote. We
currently believe the majority of our receivables are collectible due to the
nature of the industry. The allowance for doubtful accounts amounted to $887 and
$866 as of 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 lower of cost
(first-in, first-out method) or market. In the case of slow moving items, we
calculate a reserve for obsolescence to reflect a reduced marketability for the
items. The actual percentage reserved will depend on the total quantity on hand,
its sales history, and expected near term sales prospects. The reserve for
obsolescence amounted to $165 and $150 as of December 31, 2010 and
September 30, 2010, respectively.





Net Loss 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 periods presented.  Diluted net income per share reflects the
potential dilution that could occur if securities or 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 net income (loss) available to common
stockholders per share for the three months ended 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 December 31, 2010 are as follows:




TotalStock
                        
                        
                        Common
                        
                        
                        CommonOptions
      and
                        
                        
                        Stock
                        
                        
                        StockWarrants
                        
                        
                        Equivalents
                        
                        
                        EquivalentsSeries
      A Convertible Preferred Stock with Warrants
                        
                        
                        20,131
                        
                        
                        
                        40,263
                        
                        
                        
                        60,394Series
      A-1 Convertible Preferred Stock with Warrants
                        
                        
                        207,260
                        
                        
                        
                        414,518
                        
                        
                        
                        621,778Series
      B Convertible Preferred Stock with Warrants
                        
                        
                        350,000
                        
                        
                        
                        875,000
                        
                        
                        
                        1,225,000Common
      Stock Offering Warrants
                        
                        
                        2,807,322
                        
                        
                        
                        -
                        
                        
                        
                        2,807,322Placement
      Agent Warrants
                        
                        
                        2,847,497
                        
                        
                        
                        -
                        
                        
                        
                        2,847,497Affiliate
      Warrants
                        
                        
                        55,583
                        
                        
                        
                        -
                        
                        
                        
                        55,583Bridge
      Financing
                        
                        
                        285,500
                        
                        
                        
                        166,667
                        
                        
                        
                        452,167Convertible
      Notes Payable Warrants
                        
                        
                        50,000
                        
                        
                        
                        -
                        
                        
                        
                        50,000Senior
      Secured Notes Payable Warrants
                        
                        
                        232,664
                        
                        
                        
                        -
                        
                        
                        
                        232,664Compensatory
      Warrants
                        
                        
                        300,000
                        
                        
                        
                        -
                        
                        
                        
                        300,000Equity
      Financing Arrangements Warrants
                        
                        
                        791,662
                        
                        
                        
                        -
                        
                        
                        
                        791,662Consulting
      Warrants
                        
                        
                        2,500,000
                        
                        
                        
                        
                        
                        
                        
                        2,500,000Employee
      Stock Options
                        
                        
                        4,193,648
                        
                        
                        
                        -
                        
                        
                        
                        4,193,648Non-Employee
      Stock Options
                        
                        
                        250,000
                        
                        
                        
                        -
                        
                        
                        
                        250,00014,891,267
                        
                        
                        
                        1,496,448
                        
                        
                        
                        16,387,715




Recently
Adopted Accounting Pronouncements





In
January 2010, the Financial Accounting Standards Board ("FASB") issued ASU
No. 2010-02, “Accounting and
Reporting for Decreases in Ownership of a Subsidiary- a Scope Clarificationto address implementation issues related to the changes in ownership
provisions in the Consolidation-Overall Subtopic (Subtopic 810-10) of the FASB Accounting Standards
Codification.Subtopic 810-10 establishes the accounting and reporting
guidance for noncontrolling interests and changes in ownership interests of a
subsidiary. An entity is required to deconsolidate a subsidiary when the entity
ceases to have a controlling financial interest in the subsidiary. Upon
deconsolidation of a subsidiary, an entity recognizes a gain or loss on the
transaction and 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 fair value of the retained investment in the subsidiary and its
carrying amount at the 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 subsidiary as an
equity transaction. See Note 4 for the impact on the condensed consolidated
financial statements as of December 31, 2010.




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.


Page
9





NOTE 4 —
            DISCONTINUED
      OPERATIONS




As
previously disclosed in the 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
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
      ofDecember
      31,
                        
                        
                        September
      30,2010
                        
                        
                        2010Compensation
      related
                        
                        $
                        742
                        
                        
                        $
                        483Customer
      deposits
                        
                        
                        498
                        
                        
                        
                        29Dividends
                        
                        
                        172
                        
                        
                        
                        153Interest
                        
                        
                        60
                        
                        
                        
                        50Other
                        
                        
                        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 financing fee of $174
which has been recognized as deferred finance fees and are be amortized ratably
over the life of the debt.




Using the
Black-Scholes model we have determined the fair value of 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 December 31, 2010 at $1,473 which is net of the
discount representing the allocation of the $78 relative fair value to the
warrants. We will record interest in the condensed consolidated statements of
operations as the discounted note is accreted to face value over the life of the
debt.


Page
10




Long Term Line of
Credit–
Related Party




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
method, 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.





NOTE 7 —
            RELATED
      PARTY TRANSACTIONS




The Company has obtained
insurance through an agency owned by one of its founding
stockholders/directors.  Insurance expense of $31and $45 was paid to the
agency for each of the three months ended December 31, 2010 and 2009,
respectively.





NOTE 8 —
            COMMITMENTS
      AND CONTINGENCIES




Litigation




On
September 7, 2010, Beacon was named a party in a lawsuit filed in Jefferson
Circuit Court in the State of Kentucky, seeking $270 plus other costs,
attorney’s fees and damages, regarding the Company's alleged conduct during the
course of the purchase of the assets and assumption of certain liabilities of
Strategic Communications, LLC.  Although the outcome of this matter cannot
be predicted at this time, Beacon believes this lawsuit is without merit. 
As of December 31, 2010, no provision has been made in the condensed
consolidated financial statements related to this 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.





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, is as
follows:




2011
                        
                        $
                        1952012
                        
                        
                        1162013
                        
                        
                        1162014
                        
                        
                        892015
                        
                        
                        80Thereafter
                        
                        
                        47$
                        643




Engagement of Investor
Relations Firms




On
December 17, 2009, we engaged 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 three months ended December
31, 2010, we recorded approximately $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, determined using the Black Scholes model. We are recognizing investor
relations expense ratably over a 60 month term. For the three months ended
December 31, 2010, we recorded approximately $46 of investor relation expense
related to these agreements.





NOTE 9 —
            STOCKHOLDERS’
      EQUITY




Preferred
Stock




Each
share of Series A, Series A-1 and Series B preferred stock has
voting rights equal to the 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 as
of December 31, 2010, are $45 for Series A, $43 for Series A-1 and $84
for Series B, respectively.




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
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 $0 and
$25 of deemed dividends for the three months ended 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.




Issuance
of non-employee compensatory options




During
the fiscal year ended September 30, 2010, in consideration for services, we
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 resulting in a fair value determination of
$188, to be recognized over a 36 month period. For the three months ended
December 31, 2010 we recognized share based compensation of $15 related to these
options.




Stock
Options and Other Equity Compensation Plans




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 140,000 and
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:




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


Page
12




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




For
      the Three
                            
                            
                            For
      the ThreeMonths
      Ended
                            
                            
                            Months
      EndedDecember
      31,
                            
                            
                            December
      31,2010
                            
                            
                            2009Non-Cash
      Share-Based Compensation ExpenseRestricted
      Stock
                            
                            $
                            -
                            
                            
                            $
                            45Stock
      Options
                            
                            
                            179
                            
                            
                            
                            200Total
      Stock Compensation Expense
                            
                            $
                            179
                            
                            
                            $
                            245




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





WeightedAverageWeighted
                  
                  
                  Remaining
                  
                  
                  AggregateNumber
                  
                  
                  Average
                  
                  
                  Contractual
                  
                  
                  IntrinsicOf Options
                  
                  
                  Exercise Price
                  
                  
                  Life
                  
                  
                  ValueOptions
      Outstanding at October 1, 2010
                  
                  
                  3,718,533
                  
                  
                  $
                  1.47Granted
                  
                  
                  725,115
                  
                  
                  $
                  0.93Forfeited
                  
                  
                  -
                  
                  
                  $
                  -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
                  
                  
                  $
                  -




As of
December 31, 2010, there was $1,841 in unamortized share-based compensation
cost. This cost is expected to be recognized over the remaining weighted average
vesting period of approximately 2 years.







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 two operating segments, North
America and Europe.  The Company’s chief decision-makers review financial
information presented on a consolidated basis, accompanied by disaggregated
information about 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 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
December 31, 2010 our segment results, net of Discontinued Operations (see Note
4 for more details) are as follows:


Page
13





United States
                  
                  
                  Europe
                  
                  
                  TotalNet
      sales
                  
                  $
                  2,710
                  
                  
                  $
                  1,264
                  
                  
                  $
                  3,974Loss
      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
                  
                  
                  
                  7,892Assets
                  
                  
                  9,391
                  
                  
                  
                  2,243
                  
                  
                  
                  11,634Capital
      expenditures
                  
                  
                  35
                  
                  
                  
                  -
                  
                  
                  
                  35Goodwill
                  
                  
                  2,792
                  
                  
                  
                  -
                  
                  
                  
                  2,792Intangible
      Assets
                  
                  
                  2,947
                  
                  
                  
                  -
                  
                  
                  
                  2,947




In our
European operations 96% of the net sales were generated by one customer for the
three months ended 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 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;





·
            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 1A “Risk Factors” in the
Company’s Current Report on Form 10-K filed on December 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.


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 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.




Organic Growth
Strategy




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




·
            Strengthening
      existing customer relationships to ensure we are their partner for all
      design, implementation and management of ITS infrastructure
      solutions.




·
            Add
      additional major account sales resources 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 months ended December 31, 2010 and 2009




In order
to best discuss and compare operations for the three month periods ended
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 December 31,2010
                    
                    
                    
                    
                    
                    2009North
      America
                    
                    
                    
                    
                    
                    North
      America
                    
                    
                    
                    
                    
                    changeNet
      Sales
                    
                    $
                    2,710
                    
                    
                    
                    100
                    %
                    
                    $
                    2,261
                    
                    
                    
                    100
                    %
                    
                    $
                    449Cost
      of materials sold
                    
                    
                    276
                    
                    
                    
                    10
                    %
                    
                    
                    483
                    
                    
                    
                    21
                    %
                    
                    
                    (207
                    )Cost
      of services
                    
                    
                    1,479
                    
                    
                    
                    55
                    %
                    
                    
                    941
                    
                    
                    
                    42
                    %
                    
                    
                    538Gross
      profit
                    
                    
                    955
                    
                    
                    
                    35
                    %
                    
                    
                    837
                    
                    
                    
                    37
                    %
                    
                    
                    118Operating
      expenseSalaries
      and benefits
                    
                    
                    1,560
                    
                    
                    
                    58
                    %
                    
                    
                    1,041
                    
                    
                    
                    46
                    %
                    
                    
                    519Selling,
      general and administrative
                    
                    
                    806
                    
                    
                    
                    30
                    %
                    
                    
                    950
                    
                    
                    
                    42
                    %
                    
                    
                    (144
                    )Intercompany
      services
                    
                    
                    (727
                    )
                    
                    
                    -27
                    %
                    
                    
                    (55
                    )
                    
                    
                    -2
                    %
                    
                    
                    (672
                    )Loss
      from operations
                    
                    
                    (684
                    )
                    
                    NM
                    
                    
                    
                    (1,099
                    )
                    
                    NM
                    
                    
                    
                    415Other
      expense
                    
                    
                    (184
                    )
                    
                    
                    
                    
                    
                    
                    (209
                    )
                    
                    
                    
                    
                    
                    
                    25Net
      loss before income taxes
                    
                    
                    (868
                    )
                    
                    
                    
                    
                    
                    
                    (1,308
                    )
                    
                    
                    
                    
                    
                    
                    440Income
      tax expense
                    
                    
                    (15
                    )
                    
                    
                    
                    
                    
                    
                    -
                    
                    
                    
                    
                    
                    
                    
                    (15
                    )Net
      loss from continuing operations
                    
                    
                    (883
                    )
                    
                    
                    
                    
                    
                    
                    (1,308
                    )
                    
                    
                    
                    
                    
                    
                    425Net
      loss from discontinued operations
                    
                    
                    -
                    
                    
                    
                    
                    
                    
                    
                    -
                    
                    
                    
                    
                    
                    
                    
                    -Net
      loss
                    
                    $
                    (883
                    )
                    
                    
                    
                    
                    
                    $
                    (1,308
                    )
                    
                    
                    
                    
                    
                    $
                    425




Net sales
from our North American operations the three months ended December 31, 2010 and
2009 was $2,710 and $2,261, or a 20% increase resulting from a focused market
development and customer penetration leading to additional work from existing
customers while creating new customer opportunities.




Cost of
goods sold for the three months ended December 31, 2010 and 2009 amounted to
$1,755 and $1,424, and consisted of $276 and $483 of material costs, $454 and
$570 of direct labor, $112 and $142 of direct project related costs, and $913
and $229 of subcontractor fees incurred in providing services.  The shift
in cost of goods sold 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 material costs.




Salaries
and benefits of approximately $1,560 and $1,041 for the three months ended
December 31, 2010 and 2009 consisted of salaries and wages of approximately $881
and $600, commissions and bonuses of $299 and $47, benefits and payroll taxes of
$187 and $149. Non-cash share-based compensation of $193 and $245 related
primarily to granted stock options is included in salaries and wages. While
headcount is relatively consistent, the increase in salaries is attributable to
a workforce shift to higher salaried professional administrative and management
workforce.


Page
16




Selling,
general and administrative expense for the three months ended December 31, 2010
and 2009 of approximately $806 and $950 include approximately $260 and $377 of
accounting, investor relations and professional fees, $37 of bad debt expense
for both period, $67 and $77 of office related expense, $62 and $87 of
telecommunications and data related expenses, $61 and $37 of travel related
expenses, $69 and $51 of expenses related to business insurance, depreciation
and amortization of $122 and $163, and $128 and $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
intercompany services of $727 and $55 charged to the European business for
administrative functions provided and are eliminated upon consolidation.




European
Operations




For
      the three months ended December 31,2010
                      
                      
                      
                      
                      
                      2009Europe
                      
                      
                      
                      
                      
                      Europe
                      
                      
                      
                      
                      
                      ChangeNet
      Sales
                      
                      $
                      1,264
                      
                      
                      
                      100
                      %
                      
                      $
                      612
                      
                      
                      
                      100
                      %
                      
                      $
                      652Cost
      of materials sold
                      
                      
                      -
                      
                      
                      
                      0
                      %
                      
                      
                      -
                      
                      
                      
                      0
                      %
                      
                      
                      -Cost
      of services
                      
                      
                      1,044
                      
                      
                      
                      83
                      %
                      
                      
                      335
                      
                      
                      
                      55
                      %
                      
                      
                      709Gross
      profit
                      
                      
                      220
                      
                      
                      
                      17
                      %
                      
                      
                      277
                      
                      
                      
                      45
                      %
                      
                      
                      (57
                      )Operating
      expense
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      0
                      %Salaries
      and benefits
                      
                      
                      115
                      
                      
                      
                      9
                      %
                      
                      
                      -
                      
                      
                      
                      
                      
                      
                      
                      115Selling,
      general and administrative
                      
                      
                      82
                      
                      
                      
                      6
                      %
                      
                      
                      67
                      
                      
                      
                      11
                      %
                      
                      
                      15Intecompany
      services
                      
                      
                      727
                      
                      
                      
                      58
                      %
                      
                      
                      55
                      
                      
                      
                      9
                      %
                      
                      
                      672Loss
      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
                      )
                      
                      
                      
                      
                      
                      
                      92Net
      (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
                      
                      
                      
                      
                      
                      
                      
                      161Net
      income
                      
                      $
                      7,140
                      
                      
                      
                      
                      
                      
                      $
                      277
                      
                      
                      
                      
                      
                      
                      $
                      (868
                      )




Net sales
from European operations the three months ended 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 activity in Europe with a proven services solution, we have been
able to leverage the experience to increase business from our largest
customer.




Cost of
services for the three months ended December 31, 2010 and 2009 amounted to
approximately $1,044 and $335 and consisted primarily of subcontractor
costs.  The significant increase in subcontractor costs during the 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 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 service delivered changed to a more subcontractor
intensive model.




Salaries
and benefits of approximately $115 for the three months ended 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 December 31, 2010
and 2009 was approximately $82 and $67.  Additionally, intercompany
services of $727 and $55 were charged to the European business for
administrative functions provided by the North American corporate office and
were eliminated upon consolidation.




Liquidity and Capital
Resources




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.


Page
17




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.




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.  As of December 31, 2010 we have received net proceeds of
$1,377 (gross proceeds of $1,551, less offering costs of $174).





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.




Off-Balance
Sheet Arrangements




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




Contractual
Obligations




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




Contractual
      Obligations
                  
                  Total
                  
                  
                  2011
                  
                  
                  2012
                  
                  
                  2013
                  
                  
                  2014
                  
                  
                  2015
                  
                  
                  ThereafterLong-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 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 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 are 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
year ending September 30, 2011 in cash, the total obligation would be $172
based on the number of shares of Series A, A-1 and B Preferred Stock
outstanding as of 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 be significant for the year ended
September 30, 2011 and could be curtailed 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 total sales. Although we expect to have a high degree of
customer concentration, our customer engagements are typically covered by
multi-year contracts or master service agreements under which we have been
operating for a number of years. In addition, current economic conditions could
harm the liquidity of and/or financial position of our customers or suppliers,
which could in turn cause such parties to fail to meet their contractual or
other obligations to us.




Employees




Beacon
currently employs approximately 110 people in the Columbus, OH, Louisville, KY,
Raritan, NJ, Cincinnati, OH and Prague, Czech Republic.




Facilities





Beacon’s
executive offices are located at 9300 Shelbyville Road, Suite 1000,
Louisville, KY 40222 in 2,142 square feet of office space leased on a month
to month basis. Additionally, we have offices in Louisville, KY consisting of
8,150 square feet of office space leased through February 28, 2011,
Cincinnati, OH consisting of 5,341 square feet of office space leased
through May 31, 2016, Columbus, OH consisting of 7,018 square feet leased
through December 31, 2014, and Prague, Czech Republic consisting of
approximately 2,100 square feet leased through 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 to the
agency for each of the three months ended December 31, 2010 and 2009,
respectively.




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 450 Fifth
Street, 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 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 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, 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 material weaknesses in internal control over
financial reporting and disclosure controls.  During the year ended
September 30, 2010, we took certain steps in an effort to correct 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 these steps have enabled us to improve our internal controls,
additional time is still required to fully document our systems, implement
control procedures and test their operating effectiveness before we can
definitively conclude that we have remediated our deficiencies.




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.
Additionally, we believe the addition of the aforementioned Chief Financial
Officer and Corporate Controller will enable us to continue implementing the
proper controls and making the necessary changes until these material weaknesses
are remediated.




Changes in Internal Control
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




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




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:
      February 14, 2011
              Beacon
      Enterprise Solutions Group, Inc.By:
              /s/
      Bruce WidenerBruce
      WidenerChief
      Executive Officer and Chairman of theBoard
      of DirectorsandDate:
      February 14, 2011
              By:
              /s/
      Michael GrendiMichael
      GrendiPrincipal
      Financial Officer


Page
22