##### Table of Contents



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, 2009
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from _______________ to __________________
 Commission File No. 000-31355
 BEACON ENTERPRISE SOLUTIONS GROUP, INC.
  Nevada
    
    81-0438093(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 1311 Herr Lane, Suite 205, Louisville, KY 40223
 (Issuers telephone number)
  þ o
  o þ
  o o
  Large accelerated filer o
Accelerated filer o
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company þ




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##### 



PART I: FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    3Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    25Item 4. Controls and Procedures
    
    
    33PART II: OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    35Item 4. Submission of Matters to a Vote of Security Holders.
    
    
    35Item 6. Exhibits
    
    
    35Signatures
    
    
    36EX-10.1EX-31.1EX-31.2EX-32.1EX-32.2
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##### Table of Contents



Beacon Enterprise Solutions Group, Inc. and Subsidiaries
Condensed Consolidated Balances Sheet
 December 31,
    
    
    September 302009
    
    
    2009(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    2,647,484
    
    
    $
    264,338Accounts receivable, net
    
    
    2,847,849
    
    
    
    3,980,715Costs and estimated earning in excess of billings on uncompleted contracts
    
    
    2,122,852
    
    
    
    Inventory, net
    
    
    508,356
    
    
    
    604,622Prepaid expenses and other current assets
    
    
    624,938
    
    
    
    397,319Total current assets
    
    
    8,751,479
    
    
    
    5,246,994Property and equipment, net
    
    
    694,696
    
    
    
    394,571Goodwill
    
    
    3,151,948
    
    
    
    3,151,948Other intangible assets, net
    
    
    3,764,366
    
    
    
    3,903,124Other assets
    
    
    126,110
    
    
    
    117,111Total assets
    
    $
    16,488,599
    
    
    $
    12,813,748LIABILITIES AND
STOCKHOLDERS
EQUITYCurrent liabilities:Short term credit obligations
    
    $
    
    
    
    $
    550,000Convertible notes payable
    
    
    74,499
    
    
    
    297,999Bridge notes (net of $9,193 and $33,123 discounts)
    
    
    190,810
    
    
    
    166,879Current portion of long-term debt
    
    
    418,445
    
    
    
    475,348Accounts payable
    
    
    1,374,796
    
    
    
    2,176,845Income tax payable
    
    
    133,083
    
    
    
    97,581Contingent consideration payable
    
    
    145,189
    
    
    
    145,189Accrued expenses
    
    
    6,188,271
    
    
    
    2,644,280Customer Deposits
    
    
    238,573
    
    
    
    160,368Total current liabilities
    
    
    8,763,666
    
    
    
    6,714,489Long-term debt, less current portion
    
    
    689,824
    
    
    
    802,335Deferred tax liability
    
    
    103,484
    
    
    
    103,484Derivative liability
    
    
    5,745,486Total liabilities
    
    
    15,302,460
    
    
    
    7,620,308Stockholders equityPreferred Stock: $0.01 par value, 5,000,000 shares
authorized, 3,436 shares outstanding in the
following classes:Series A convertible preferred stock, $1,000 stated value,
4,121 shares authorized, 1,984 shares issued and
outstanding, at December 31, and September 30, 2009,
respectively, (liquidation preference $2,509,966)
    
    
    1,984,074
    
    
    
    1,984,074Series A-1 convertible preferred stock, $1,000 stated value,
885 shares authorized, 752 shares issued and
outstanding, at December 31, and September 30, 2009,
respectively, (liquidation preference $964,188)
    
    
    752,347
    
    
    
    752,347Series B convertible preferred stock, $1,000 stated value, 4,000 shares
authorized, 700 shares issued and outstanding at December 31 and
September 30, 2009, respectively (liquation preference $927,943)
    
    
    700,000
    
    
    
    700,000Common stock, $0.001 par value 70,000,000 shares
authorized, 28,483,490 and 24,655,990 shares issued and
outstanding at December 31, and September 30, 2009, respectively
    
    
    28,483
    
    
    
    24,656Additional paid in capital
    
    
    19,712,346
    
    
    
    17,977,046Accumulated deficit
    
    
    (21,985,803
    )
    
    
    (16,254,545
    )Accumulated other comprehensive (loss) income
    
    
    (5,308
    )
    
    
    9,862Total stockholders equity
    
    
    1,186,139
    
    
    
    5,193,440Total liabilities and stockholders equity
    
    $
    16,488,599
    
    
    $
    12,813,748
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##### Table of Contents



Beacon Enterprise Solutions Group, Inc. and Subsidiaries
Detailed Consolidated Statements of Operations
(Unaudited)
 For the three
    
    
    For the threemonths ended
    
    
    months endedDecember 31,
    
    
    December 31,2009
    
    
    2008Net sales
    
    $
    8,569,644
    
    
    $
    1,801,208Cost of goods sold
    
    
    5,433,914
    
    
    
    663,874Cost of Services
    
    
    1,371,378
    
    
    
    652,746Gross profit
    
    
    1,764,352
    
    
    
    484,588Operating expenseSalaries and Benefits
    
    
    1,311,032
    
    
    
    904,296Selling, general and administrative
    
    
    1,238,485
    
    
    
    675,430Total operating expense
    
    
    2,549,517
    
    
    
    1,579,726Loss from operations
    
    
    (785,165
    )
    
    
    (1,095,138
    )Other (expenses) incomeInterest expense
    
    
    (185,549
    )
    
    
    (213,337
    )Change in fair value of warrants
    
    
    (23,716
    )Interest income
    
    
    338
    
    
    
    167Total other (expenses)
    
    
    (208,927
    )
    
    
    (213,170
    )Net (loss) before income taxes
    
    
    (994,092
    )
    
    
    (1,308,308
    )Income taxes
    
    
    36,611
    
    
    
    Net (loss)
    
    
    (1,030,703
    )
    
    
    (1,308,308
    )Series A, A-1 and B Preferred Stock:Contractual dividends
    
    
    (47,596
    )
    
    
    (125,152
    )Deemed dividends related to beneficial conversion feature
    
    
    (25,429
    )
    
    
    (80,347
    )Net (loss) available to common stockholders
    
    $
    (1,103,728
    )
    
    $
    (1,513,807
    )Net loss per share to common stockholders  basic and diluted
    
    $
    (0.04
    )
    
    $
    (0.12
    )Weighted average shares outstanding
basic and diluted
    
    
    26,156,058
    
    
    
    12,556,459Other Comprehensive income, net of taxNet Loss
    
    $
    (1,103,728
    )
    
    $
    (1,513,807
    )Foreign currency translations adjustment
    
    
    (15,170
    )
    
    
    Comprehensive loss
    
    $
    (1,118,898
    )
    
    $
    (1,513,807
    )
  4




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##### Table of Contents



Beacon Enterprise Solutions Group, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders Equity
 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, 2009
    
    
    1,984
    
    
    $
    1,984,074
    
    
    
    752
    
    
    $
    752,347
    
    
    
    700
    
    
    $
    700,000
    
    
    
    24,655,990
    
    
    $
    24,657
    
    
    $
    17,977,046
    
    
    $
    (16,254,545
    )
    
    $
    9,862
    
    
    $
    5,193,440Cumulative effect of change in accounting principle 
fair value of warrants with anti dilutive rights (unaudited)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,627,530
    )
    
    
    
    
    
    
    (4,627,530
    )Vested portion of share based
payments to employee for services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    245,057
    
    
    
    
    
    
    
    
    
    
    
    245,057Common Stock issued
in private placement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,727,500
    
    
    
    3,726
    
    
    $
    1,884,034
    
    
    
    
    
    
    
    
    
    
    
    1,887,760Private placement offering costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (557,094
    )
    
    
    
    
    
    
    
    
    
    
    (557,094
    )Warrants issued for extension
of non-interest bearing note
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64,311
    
    
    
    
    
    
    
    
    
    
    
    64,311Warrants issued under consulting agreements
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,413
    
    
    
    
    
    
    
    
    
    
    
    25,413Common Stock issued
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    for investor relations agreement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    50
    
    
    
    44,450
    
    
    
    
    
    
    
    
    
    
    
    44,500Market value of common stock
issued for services under investor relations agreement.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    50
    
    
    
    (50
    )
    
    
    
    
    
    
    
    
    
    
    Amortization of share-based payment awards issued to
non-employees for serrvices
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,750
    
    
    
    
    
    
    
    
    
    
    
    3,750Series A Preferred Stock contractual
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,287
    )
    
    
    
    
    
    
    (18,287
    )Series A-1 Preferred Stock contractual
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,809
    )
    
    
    
    
    
    
    (18,809
    )Series B Preferred Stock contractualdividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,500
    )
    
    
    
    
    
    
    (10,500
    )Beneficial conversion feature 
deemed preferred stock dividend
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,429
    
    
    
    (25,429
    )
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,030,703
    )
    
    
    
    
    
    
    (1,030,703
    )Net change in accumulated other comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,170
    )
    
    
    (15,170
    )Balance at December 31, 2009 (unaudited)
    
    
    1,984
    
    
    $
    1,984,074
    
    
    
    752
    
    
    $
    752,347
    
    
    
    700
    
    
    $
    700,000
    
    
    $
    28,483,490
    
    
    $
    28,483
    
    
    $
    19,712,346
    
    
    $
    (21,985,803
    )
    
    $
    (5,308
    )
    
    $
    1,186,139
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Beacon Enterprise Solutions Group, Inc. and Subsidiaries
Consolidated Statement of Cash Flows
(unaudited)
 For the Three
    
    
    For the ThreeMonths Ended
    
    
    Months EndedDecember 31,
    
    
    December 31,2009
    
    
    2008CASH FLOWS FROM OPERATING ACTIVITIESNet loss
    
    $
    (1,030,703
    )
    
    $
    (1,308,308
    )Adjustments to reconcile net loss to net cash used in operating activities:Change in reserve for obsolete inventory
    
    
    11,655
    
    
    
    15,711Change in reserve for doubtful accounts
    
    
    37,940
    
    
    
    37,551Depreciation and Amortization
    
    
    192,074
    
    
    
    152,289Non-cash interest
    
    
    88,243
    
    
    
    162,936Share based payments
    
    
    318,720
    
    
    
    52,088Change in fair value of warrants with anti-dilution rights
    
    
    23,716Changes in operating assets and liabilities:
    
    
    Accounts receivable
    
    
    1,096,617
    
    
    
    80,579Estimated costs and earning in excess of billings on uncompleted contracts
    
    
    (2,122,852
    )
    
    
    80,579Inventory
    
    
    84,611
    
    
    
    7,005Prepaid expenses and other current assets
    
    
    (232,284
    )
    
    
    16,074Accounts payable
    
    
    (809,171
    )
    
    
    276,810Income tax payable
    
    
    36,611Customer deposits
    
    
    78,205
    
    
    
    153,879Other assets
    
    
    (9,000
    )
    
    
    9,589Accrued expenses
    
    
    3,483,499
    
    
    
    (315,354
    )NET CASH PROVIDED (USED) IN OPERATING ACTIVITIES
    
    
    1,247,882
    
    
    
    (578,572
    )CASH FLOWS FROM INVESTING ACTIVITIESCapital expenditures
    
    
    (353,922
    )
    
    
    (11,032
    )NET CASH USED IN INVESTING ACTIVITIES
    
    
    (353,922
    )
    
    
    (11,032
    )CASH FLOWS FROM FINANCING ACTIVITIESProceeds from private placement of common offering units, net of offering costs
    
    
    2,424,906
    
    
    
    726,817Proceeds from lines of credit
    
    
    
    
    
    
    120,000Repayment of short term credit obligations
    
    
    (550,000
    )Repayment of convertble notes
    
    
    (223,500
    )Payments of notes payable
    
    
    (169,417
    )
    
    
    (151,933
    )Payments of capital lease obligation
    
    
    
    
    
    
    (3,858
    )NET CASH PROVIDED BY FINANCING ACTIVITIES
    
    
    1,481,989
    
    
    
    691,026EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS
    
    
    7,196
    
    
    
    NET INCREASE IN CASH ANDCASH EQUIVALENTS
    
    
    2,383,146
    
    
    
    101,422CASH AND CASH EQUIVALENTS  BEGINNING OF PERIOD
    
    
    264,338
    
    
    
    127,373CASH AND CASH EQUIVALENTS  ENDING OF PERIOD
    
    $
    2,647,484
    
    
    $
    228,795Supplemental disclosuresCash paid for:Interest
    
    $
    24,357
    
    
    $
    35,889Income taxes
    
    $
    
    
    
    $
    
  6




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BEACON ENTERPRISE SOLUTIONS GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 NOTE 1  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Organization
   Symbiotec Solutions AG
   For thethree monthsDecember 31,2008(unaudited)Net sales
    
    $
    1,950,478Income (Loss) from operations
    
    
    (1,082,718
    )Net loss available to common stockholders 
    
    $
    (1,504,147
    )Net loss per share  basic and diluted
    
    $
    (0.12
    )Pro-forma weighted average shares outstanding
    
    
    12,956,459
  7




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Basis of Presentation
  Principles of Consolidation
  Revenue and Cost Recognition
   Construction Type Contracts
  8




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##### Table of Contents



Time and Materials Contracts
   Revenue Recognition (ASC Topic 605) Multiple-Deliverable Revenue Arrangements  a consensus of the
FASB EITF 00-21-1
 9




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Professional Services Revenue
   Warranties
  Use of Estimates
  10




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Fair Value of Financial Assets and Liabilities
        Quoted prices
    
    Significantin active
    
    other
    
    Significantmarkets for
    
    observable
    
    unobservableDecember 31,
    
    identical assets
    
    inputs
    
    inputs2009
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Liabilities:Fair value of warrant obligations
    
    
    5,745,486
    
    
    
    
    
    
    
    5,745,486
    
    
    
    
  Foreign Currency Reporting
  Net Loss Per Share
  11




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TotalStock
    
    Common
    
    CommonOptions and
    
    Stock
    
    StockWarrants
    
    Equivalents
    
    EquivalentsSeries A Convertible Preferred Stock
    
    
    2,666,666
    
    
    
    2,645,431
    
    
    
    5,312,097Series A-1 Convertible Preferred Stock
    
    
    533,333
    
    
    
    1,003,134
    
    
    
    1,536,467Series B Convertible Preferred Stock
    
    
    350,000
    
    
    
    875,000
    
    
    
    1,225,000Common Stock Offering Warrants
    
    
    6,100,964
    
    
    
    
    
    
    
    6,100,964Placement Agent
    
    
    2,967,664
    
    
    
    
    
    
    
    2,967,664Affiliate Warrants
    
    
    55,583
    
    
    
    
    
    
    
    55,583Bridge Financings
    
    
    1,348,500
    
    
    
    333,333
    
    
    
    1,681,833Convertible Notes Payable
    
    
    50,000
    
    
    
    99,332
    
    
    
    149,332Compensatory
    
    
    300,000
    
    
    
    
    
    
    
    300,000Equity Financing Arrangements
    
    
    766,663
    
    
    
    
    
    
    
    766,663Consulting Warrants
    
    
    2,500,000
    
    
    
    
    
    
    
    2,500,000Employee Stock Options
    
    
    3,200,900
    
    
    
    
    
    
    
    3,200,900Non-employee Stock Options
    
    
    100,000
    
    
    
    
    
    
    
    100,00020,940,273
    
    
    
    4,956,230
    
    
    
    25,896,503
 Subsequent Events
  Recent Accounting Pronouncements
   12




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NOTE 2  LIQUIDITY, FINANCIAL CONDITION AND MANAGEMENTS PLANS
  13




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NOTE 3  CONDENSED CONSOLIDATED BALANCE SHEET
 Accounts Receivable
  As of
    
    
    As ofDecember 31,
    
    
    September 30,2009
    
    
    2009Accounts receivable
    
    $
    3,043,560
    
    
    $
    4,138,486Less: Allowance for doubtful accounts
    
    
    (195,711
    )
    
    
    (157,771
    )Accounts receivable, net
    
    $
    2,847,849
    
    
    $
    3,980,715
  As of
    
    
    As ofDecember 31,
    
    
    September 30,2009
    
    
    2009Opening balance
    
    $
    (157,771
    )
    
    $
    (50,000
    )Add: Additions to reserve
    
    $
    (37,940
    )
    
    $
    (151,888
    )Less: charges
    
    
    
    
    
    
    44,117Ending balance
    
    $
    (195,711
    )
    
    $
    (157,771
    )
  14




---



##### Table of Contents



Inventory
  As of
    
    
    As ofDecember 31,
    
    
    Setember 30,2009
    
    
    2009Inventory (principally parts and system components)
    
    $
    680,510
    
    
    $
    765,121Less: reserve for obsolete inventory
    
    
    (172,154
    )
    
    
    (160,499
    )Inventory, non-current
    
    $
    508,356
    
    
    $
    604,622
  As of
    
    
    As ofDecember 31,
    
    
    Setember 30,2009
    
    
    2009Opening balance
    
    $
    (160,499
    )
    
    $
    (35,058
    )Less: charges
    
    
    11,655
    
    
    
    19,218Add: additions to reserve
    
    
    (23,310
    )
    
    
    (144,659
    )Ending balance
    
    $
    (172,154
    )
    
    $
    (160,499
    )
 Prepaid and other current assets
  As of
    
    
    As ofDecember 31,
    
    
    September 30,2009
    
    
    2009Investor relations
    
    
    245,000
    
    
    
    320,000Prepaid VAT
    
    
    169,067
    
    
    
    5,667Prepaid rent
    
    
    28,887Trade credits
    
    
    23,991
    
    
    
    24,689Other
    
    
    157,993
    
    
    
    46,963Ending balance
    
    $
    624,938
    
    
    $
    397,319
   15




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##### Table of Contents



Other Intangible Assets
  As of
    
    As ofDecember 31,
    
    September 30,2009
    
    2009Total
    
    TotalConsideration
    
    ConsiderationCustomer relationships
    
    
    4,153,174
    
    
    
    4,223,174Covenants not to compete
    
    
    712,300
    
    
    
    642,3004,865,474
    
    
    
    4,865,474Less: Accumulated amortization
    
    
    (1,101,108
    )
    
    
    (962,350
    )Intangibles, net
    
    
    3,764,366
    
    
    
    3,903,124
  Accrued Expenses
  As of
    
    
    As ofDecember 31,
    
    
    September 30,2009
    
    
    2009Goods received not invoiced
    
    $
    4,814,733
    
    
    $
    1,092,042Compensation related
    
    
    376,148
    
    
    
    559,782Severance and related
    
    
    46,712
    
    
    
    156,248Interest
    
    
    79,160
    
    
    
    122,660Sales taxes payable
    
    
    263,140
    
    
    
    66,798Warranty reserve
    
    
    50,072
    
    
    
    65,072Preferred stock dividends
    
    
    85,257
    
    
    
    37,962Other
    
    
    473,049
    
    
    
    543,716$
    6,188,271
    
    
    $
    2,644,280
 16




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##### Table of Contents



Debt
  As of
    
    
    As ofDecember 31,
    
    
    September 30,2009
    
    
    2009Lines of
Credit and
Short-Term Notes
    
    
    
    
    
    $
    550,000Convertible Notes Payable
    
    $
    74,499
    
    
    $
    297,999Bridge Note
    
    $
    190,810
    
    
    $
    166,879Integra Bank
    
    
    410,975
    
    
    
    439,367Acquistion notes
(payable to the
sellers of the acquired businesses)ADSnetcurve
    
    
    59,867
    
    
    
    80,922Bell-Haun
    
    
    
    
    
    
    43,985CETCON
    
    
    378,500
    
    
    
    416,404Strategic Secured Note
    
    
    258,927
    
    
    
    297,0051,108,269
    
    
    
    1,277,683Less: current portion
    
    
    (418,445
    )
    
    
    (475,348
    )Non-current portion
    
    $
    689,824
    
    
    $
    802,335
 Lines of Credit and Short-Term Notes
   Expected
    
    
    
    
    
    
    Fair Value
    
    
    
    
    
    
    
    
    
    
    Risk-Free
    
    
    Value
    
    
    Charge toVesting
    
    Quantity
    
    
    Life
    
    
    Strike
    
    
    of Common
    
    
    Volatility
    
    
    Dividend
    
    
    Interese
    
    
    per
    
    
    InterestDate
    
    Vested
    
    
    (days)
    
    
    Price
    
    
    Stock
    
    
    Rate
    
    
    Yield
    
    
    Rate
    
    
    Warrant
    
    
    Expense10/1/2009
    
    
    25,000
    
    
    
    1,825
    
    
    $
    1.00
    
    
    $
    1.22
    
    
    
    66.34
    %
    
    
    0
    %
    
    
    2.84
    %
    
    $
    0.75
    
    
    $
    18,84510/6/2009
    
    
    37,500
    
    
    
    1,825
    
    
    $
    1.00
    
    
    $
    0.95
    
    
    
    66.34
    %
    
    
    0
    %
    
    
    2.36
    %
    
    $
    0.53
    
    
    $
    19,79611/5/2009
    
    
    50,000
    
    
    
    1,825
    
    
    $
    1.00
    
    
    $
    0.93
    
    
    
    66.34
    %
    
    
    0
    %
    
    
    2.31
    %
    
    $
    0.51
    
    
    $
    25,670112,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    64,311
 17




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Convertible Notes Payable
  Bridge Notes
   Term Debt
  NOTE 5  RELATED PARTY TRANSACTIONS
   NOTE 6  COMMITMENTS AND CONTINGENCIES
 Employment Agreements
  18




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##### Table of Contents



Operating Leases
  2010
    
    
    136,1822011
    
    
    98,6842012
    
    
    15,9572013
    
    
    15,9572014
    
    
    15,957$
    282,737
 Engagement of Investor Relations Firm
   Consulting Agreement
  Expected
    
    
    
    
    
    
    Fair Value
    
    
    
    
    
    
    
    
    
    
    Risk-Free
    
    
    Value
    
    
    Charge toIssuance
    
    Quantity
    
    
    Life
    
    
    Strike
    
    
    of Common
    
    
    Volatility
    
    
    Dividend
    
    
    Interese
    
    
    per
    
    
    InterestDate
    
    Vested
    
    
    (days)
    
    
    Price
    
    
    Stock
    
    
    Rate
    
    
    Yield
    
    
    Rate
    
    
    Warrant
    
    
    Expense12/1/2009
    
    
    1,500,000
    
    
    
    1,825
    
    
    $
    1.00
    
    
    $
    0.81
    
    
    
    66.34
    %
    
    
    0
    %
    
    
    2.03
    %
    
    $
    0.42
    
    
    $
    627,60012/1/2009
    
    
    250,000
    
    
    
    1,825
    
    
    $
    1.50
    
    
    $
    0.81
    
    
    
    66.34
    %
    
    
    0
    %
    
    
    2.03
    %
    
    $
    0.34
    
    
    $
    85,52512/1/2009
    
    
    250,000
    
    
    
    1,825
    
    
    $
    2.00
    
    
    $
    0.81
    
    
    
    66.34
    %
    
    
    0
    %
    
    
    2.03
    %
    
    $
    0.29
    
    
    $
    72,27512/1/2009
    
    
    250,000
    
    
    
    1,825
    
    
    $
    2.25
    
    
    $
    0.81
    
    
    
    66.34
    %
    
    
    0
    %
    
    
    2.03
    %
    
    $
    0.27
    
    
    $
    67,02512/1/2009
    
    
    250,000
    
    
    
    1,825
    
    
    $
    2.50
    
    
    $
    0.81
    
    
    
    66.34
    %
    
    
    0
    %
    
    
    2.03
    %
    
    $
    0.25
    
    
    $
    62,4502,500,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    914,875
 19




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NOTE 7 STOCKHOLDERS EQUITY
 Authorized Capital
  Preferred Stock
     Preferred Stock Dividend
  Completion of Common Stock and Warrant Offering
   20




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##### Table of Contents



December 31,
    
    October 1,2009
    
    2009Expected Life
    
    4.90 years
    
    
    3.72Risk-free interest rate
    
    
    2.69
    %
    
    
    2.20
    %Dividend Yield
    
    
    0
    %
    
    
    0
    %Volatility
    
    
    66.34
    %
    
    
    66.34
    %No. of warrants
    
    
    12,291,827
    
    
    
    9,979,577Fair value of warrants
    
    $
    5,745,486
    
    
    $
    4,627,530
  Expected Life
    
    5 yearsRisk-free interest rate
    
    
    2.69
    %Dividend Yield
    
    
    0
    %Volatility
    
    
    66.34
    %Weighted Average Unit Fair Value
    
    $
    0.47
 21




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##### Table of Contents



December 31,
    
    October 1,2009
    
    2009Expected Life
    
    4.90 years
    
    
    3.72Risk-free interest rate
    
    
    2.69
    %
    
    
    2.20
    %Dividend Yield
    
    
    0
    %
    
    
    0
    %Volatility
    
    
    66.34
    %
    
    
    66.34
    %
 Issuance of non-employee compensatory options
  NOTE 8  INCOME TAXES
     22




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Beacon North
    
    BESG
    
    BeaconAmerica
    
    Ireland Ltd
    
    AG
    
    ConsolidatedNet (loss) income
before income tax
    
    
    (1,138,844
    )
    
    
    155,302
    
    
    
    (10,550
    )
    
    
    (994,092
    )Effective tax rate
    
    
    0
    %
    
    
    25
    %
    
    
    21
    %Tax expense
(benefit)
    
    
    
    
    
    
    38,827
    
    
    
    (2,216
    )
    
    
    36,611
  NOTE 9  EMPLOYEE BENEFIT PLANS
 Stock Options and Other Equity Compensation Plans
  Three Months
    
    
    Three MonthsEnded
    
    
    EndedDecember 31,
    
    
    December 31,2009
    
    
    2008Non-Cash Share-Based Compensation ExpenseRestricted Stock
    
    $
    45,101
    
    
    $
    45,101Stock Options
    
    
    199,956
    
    
    
    6,987Total Stock Compensation Expense
    
    $
    245,057
    
    
    $
    52,088
  WeightedAverageWeighted
    
    
    
    
    
    
    RemainingNumber
    
    
    Average
    
    
    Intrinsic
    
    
    ContractualOf Options
    
    
    Exercise Price
    
    
    Value
    
    
    LifeOptions Outstanding at October 1, 2009
    
    
    3,200,900
    
    
    $
    1.19Granted
    
    
    Forfeited
    
    
    Options Outstanding at December 31, 2009
    
    
    3,200,900
    
    
    $
    1.19
    
    
    
    0.12
    
    
    
    9.56Exercisable, December 31, 2009
    
    
    113,633
    
    
    $
    1.09
    
    
    
    0.08
    
    
    
    8.53
 23




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##### Table of Contents



Restricted Stock
  Note 10  Segment Reporting
     UnitedStates
    
    Europe
    
    TotalRevenue
    
    
    2,260,946
    
    
    
    6,308,698
    
    
    
    8,569,644(Loss) Income form
Operations
    
    
    (929,946
    )
    
    
    144,781
    
    
    
    (785,165
    )Interest Expense
    
    
    (185,182
    )
    
    
    (367
    )
    
    
    (185,549
    )Interest Income
    
    
    
    
    
    
    338
    
    
    
    338Depreciation and
Amortization
    
    
    (163,112
    )
    
    
    (28,962
    )
    
    
    (192,074
    )Net (Loss) Income
    
    
    (1,138,845
    )
    
    
    108,142
    
    
    
    (1,030,703
    )Assets
    
    
    10,048,699
    
    
    
    6,439,900
    
    
    
    16,488,599Goodwill
    
    
    2,791,648
    
    
    
    360,300
    
    
    
    3,151,948Intangible Assets
    
    
    3,226,476
    
    
    
    537,890
    
    
    
    3,764,366
 24




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##### Table of Contents



NOTE 17  SUBSEQUENT EVENTS
 Preferred Stock Conversion to Common Stock
  
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Company
 Cautionary Statements  Forward Outlook and Risks
  
    
    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;
 25




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##### Table of Contents




    
    ability to successfully integrate the operations of acquired businesses and achieve
expected synergies and operating efficiencies from the acquisitions, in each case within
expected time-frames or at all;
    
    changes in, or failure to comply with, existing governmental regulations; and
    
    changes in estimates and judgments associated with critical accounting policies and
estimates.
  Overview
  Acquisition Growth Strategy
 We are continuing to pursue mergers and acquisitions for a portion of our growth.
   
    
    Accretive to earnings in the first year.
    
    Strategic locations throughout the US and Europe where we have
significant concentrations of demand for our service offerings.
    
    Highly trained technical staff that can meet our internal requirements
and the requirements of our Global customers.
  26




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##### Table of Contents



Organic Growth Strategy
  
    
    The first strategy is to expand 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. This
has been initiated by the hiring of branch level account managers
focused on the sale of individual infrastructure services and the
global managed services offering. With reorganization of the
professional services team structure, it permits Beacon to accommodate
branch level services delivery to potential global clients.
    
    The second strategy is to continue to add regional branches to the
existing branches in Columbus and Cincinnati, Ohio, Louisville,
Kentucky and Raritan, NJ. The additional branches will be
strategically located to provide regional coverage and depth of
resources to support global client demand.
    
    The third strategy is to add regional and major account sales
resources in each new branch. This will facilitate the introduction of
Fortune 1000, Global 2000 and qualifying multi-national firms. We
refer to these current and future clients as Fortune 10000.
 Results of Operations
 For the three months ended December 31, 2009 and 2008
  NorthAmerica
    
    Europe
    
    TotalRevenue
    
    
    2,260,946
    
    
    
    6,308,698
    
    
    
    8,569,644Cost of Goods Sold
    
    
    482,805
    
    
    
    4,951,109
    
    
    
    5,433,914Cost of Services
    
    
    941,469
    
    
    
    429,909
    
    
    
    1,371,378Gross Margin
    
    
    836,672
    
    
    
    927,680
    
    
    
    1,764,352Operating expenseSalaries and Benefits
    
    
    1,040,631
    
    
    
    270,401
    
    
    
    1,311,032Selling, General and Administrative
    
    
    725,988
    
    
    
    512,497
    
    
    
    1,238,485(Loss) Income from Operations
    
    
    (929,946
    )
    
    
    144,781
    
    
    
    (785,165
    )Interest Expense
    
    
    (185,182
    )
    
    
    (367
    )
    
    
    (185,549
    )Change in Fair Value of Warrants
    
    
    (23,716
    )
    
    
    
    
    
    
    (23,716
    )Interest Income
    
    
    
    
    
    
    338
    
    
    
    338Net (Loss) Income before taxes
    
    
    (1,138,844
    )
    
    
    144,752
    
    
    
    (994,092
    )Income taxes
    
    
    
    
    
    
    36,611
    
    
    
    36,611Net (Loss) Income
    
    
    (1,138,844
    )
    
    
    108,141
    
    
    
    (1,030,703
    )
 27




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28




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##### Table of Contents




    
    Management makes certain estimates in the course of operations to anticipate business
situations; these include the following with a brief discussion of the basis of the estimate
used Revenue Recognition  We use information attained from the field engineers, project
managers, etc. to provide an estimate of the percentage completion for relevant
construction-type projects
 
    
    Reserve for obsolete inventory  We use a percentage of new material purchases as a basis
for establishing a reserve for obsolete inventory as the phone systems for which we carry
spare parts are discontinued and diminish in value to the marketplace.
 
    
    Allowance for doubtful accounts  We have a policy of reserving for uncollectible
accounts based on its best estimate of the amount of probable credit losses based on, among
other things, historical collection experience, a review of the current aging status of
customer receivables, a review of specific information for those customers deemed to be higher
risk and other external factors including the current economic environment and conditions in
the credit markets could affect the ability of our customers to make payments. We evaluate the
adequacy of the allowance for doubtful account at least quarterly.
 
    
    Intangible assets  Our amortizable intangible assets include customer relationships and
covenants not to compete. These costs are being amortized using the straight-line method over
their estimated useful lives. We are amortizing customer relationships on a straight line
basis over a 15 year estimated useful life. The covenants not to compete have been amortized
on a straight line basis over an estimated useful life of either twenty-four or thirty-six
months depending on the term specified in the covenant.
 Liquidity and Capital Resources
     29




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Off-Balance Sheet Arrangements
  30




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Contractual Obligations as of December 31, 2009
  Years
    
    
    YearsContractual Obligations
    
    Total
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    ThereafterLong-term debt obligations
    
    $
    689,824
    
    
    $
    386,140
    
    
    $
    269,997
    
    
    $
    33,687
    
    
    $
    Interest obligations (1)
    
    
    49,372
    
    
    
    37,074
    
    
    
    11,951
    
    
    
    347
    
    
    
    Operating lease obligations (2)
    
    
    146,555
    
    
    
    98,684
    
    
    
    15,957
    
    
    
    15,957
    
    
    
    15,957$
    885,751
    
    
    $
    521,898
    
    
    $
    297,905
    
    
    $
    49,991
    
    
    $
    15,957
    
    
    $
    
 
 (1)
    
    Interest obligations assume Prime Rate of 3.25% at
December 31, 2009. 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.   Working Capital
  Customers
  31




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Competition
  Employees
  Facilities
  Certain Relationships and Related Party Transactions
   32




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Filing Status
  
 ITEM 4(T). CONTROLS AND PROCEDURES
  DISCLOSURE CONTROLS AND INTERNAL CONTROLS
    33




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Changes in Internal Control Over Financial Reporting
  34




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##### Table of Contents



10.1
    
    Project Management Services Agreement dated November 6, 2009, by and between the Company
and Interxion.*
 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.**
 
 *
    
    Confidential treatment has been requested for the redacted portions of this agreement. A
complete copy of the agreement, including the redacted portions, has been filed separately with the
Securities and Exchange Commission.**
    
    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 35




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Date: February 16, 2009
    Beacon Enterprise Solutions Group, Inc.By:
    /s/ Bruce WidenerBruce WidenerChief Executive Officer and
Chairman of the Board of Directors
andDate: February 16, 2009
    By:
    /s/ Robert MohrRobert MohrPrincipal Financial Officer 36