##### 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 June 30, 2010
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File No. 000-31355
 BEACON ENTERPRISE SOLUTIONS GROUP, INC.
  Nevada
    
    81-0438093(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 
 
  þ o
  o þ
  o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)




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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
    
    
    29Item 4. Controls and Procedures
    
    
    37PART II: OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    39Item 4. Removed and Reserved
    
    
    39Item 5. Other information
    
    
    39Item 6. Exhibits
    
    
    39Signatures
    
    
    40EX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### Table of Contents



Beacon Enterprise Solutions Group, Inc. and Subsidiaries  Condensed Consolidated Balance Sheets  (all amounts in 000s except share and per share data)
 June 30,
    
    
    September 30,2010
    
    
    2009(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    411
    
    
    $
    227Accounts receivable, net
    
    
    4,115
    
    
    
    3,069Inventory, net
    
    
    502
    
    
    
    605Prepaid expenses and other current assets
    
    
    370
    
    
    
    388Current assets of discontinued operations
    
    
    678
    
    
    
    958Total current assets
    
    
    6,076
    
    
    
    5,247Property and equipment, net
    
    
    476
    
    
    
    336Goodwill
    
    
    2,792
    
    
    
    2,792Other intangible assets, net
    
    
    2,996
    
    
    
    3,342Other assets
    
    
    126
    
    
    
    117Other assets of discontinued operations
    
    
    
    
    
    
    980Total assets
    
    $
    12,466
    
    
    $
    12,814LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Short term credit obligations
    
    $
    
    
    
    $
    550Convertible notes payable
    
    
    
    
    
    
    298Bridge notes (net of $0 and $33 discounts)
    
    
    100
    
    
    
    167Current portion of long-term debt
    
    
    389
    
    
    
    475Accounts payable
    
    
    1,711
    
    
    
    2,074Accrued expenses
    
    
    799
    
    
    
    2,627Current
liabilities of discontinued operations
    
    
    7,738
    
    
    
    525Total current liabilities
    
    
    10,737
    
    
    
    6,716Long-term debt, less current portion
    
    
    500
    
    
    
    802Deferred tax liability
    
    
    148
    
    
    
    103Total liabilities
    
    
    11,385
    
    
    
    7,621Stockholders equityPreferred Stock: $0.01 par value, 5,000,000 shares
authorized, 1,041 and 3,436 shares outstanding in the
following classes:Series A convertible preferred stock, $1,000 stated value,
4,500 shares authorized, 30 and 1,984 shares issued and
outstanding at June 30, 2010 and September 30, 2009, respectively,
(liquidation preference $92)
    
    
    30
    
    
    
    1,984Series A-1 convertible preferred stock, $1,000 stated value,
1,000 shares authorized, 311 and 752 shares issued and
outstanding, at June 30, 2010 and September 30, 2009, respectively
(liquidation preference $423)
    
    
    311
    
    
    
    752Series B convertible preferred stock, $1,000 stated value, 4,000 shares
authorized, 700 shares issued and outstanding at June 30, 2010 and
September 30, 2009, respectively (liquidation preference $954)
    
    
    700
    
    
    
    700Common stock, $0.001 par value 70,000,000 shares
authorized, 37,376,396 and 24,655,990 shares issued and
outstanding at June 30, 2010 and September 30, 2009.
    
    
    37
    
    
    
    25Additional paid in capital
    
    
    36,847
    
    
    
    17,977Accumulated deficit
    
    
    (36,807
    )
    
    
    (16,255
    )Accumulated other comprehensive income (loss)
    
    
    (37
    )
    
    
    10Total stockholders equity
    
    
    1,081
    
    
    
    5,193Total liabilities and stockholders equity
    
    $
    12,466
    
    
    $
    12,814
  3




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##### Table of Contents



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 Three
    
    
    For the Nine
    
    
    For the Ninemonths ended
    
    
    months ended
    
    
    months ended
    
    
    months endedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net sales
    
    $
    3,546
    
    
    $
    3,039
    
    
    $
    9,687
    
    
    $
    7,118Cost of goods sold
    
    
    396
    
    
    
    1,281
    
    
    
    1,252
    
    
    
    2,892Cost of services
    
    
    1,088
    
    
    
    837
    
    
    
    3,724
    
    
    
    1,934Gross profit
    
    
    2,062
    
    
    
    921
    
    
    
    4,711
    
    
    
    2,292Operating expenseSalaries and benefits
    
    
    1,325
    
    
    
    1,019
    
    
    
    3,618
    
    
    
    2,791Employee share based compensation
    
    
    460
    
    
    
    167
    
    
    
    946
    
    
    
    318Selling, general and administrative
    
    
    1,203
    
    
    
    1,047
    
    
    
    3,902
    
    
    
    2,572Total operating expense
    
    
    2,988
    
    
    
    2,233
    
    
    
    8,466
    
    
    
    5,681Loss from operations
    
    
    (926
    )
    
    
    (1,312
    )
    
    
    (3,755
    )
    
    
    (3,389
    )Other expensesOther expenses
    
    
    (162
    )
    
    
    (222
    )
    
    
    (413
    )
    
    
    (661
    )Change in fair value of warrants
    
    
    
    
    
    
    
    
    
    
    (4,373
    )
    
    
    Total other expenses
    
    
    (162
    )
    
    
    (222
    )
    
    
    (4,786
    )
    
    
    (661
    )Net (loss) before income taxes
    
    
    (1,088
    )
    
    
    (1,534
    )
    
    
    (8,541
    )
    
    
    (4,050
    )Income tax
(expense) benefit
    
    
    (44
    )
    
    
    
    
    
    
    44
    
    
    
    Loss from continuing operations
    
    
    (1,132
    )
    
    
    (1,534
    )
    
    
    (8,497
    )
    
    
    (4,050
    )Loss from discontinued operations
    
    
    (7,623
    )
    
    
    
    
    
    
    (7,180
    )
    
    
    Net (loss)
    
    
    (8,755
    )
    
    
    (1,534
    )
    
    
    (15,677
    )
    
    
    (4,050
    )Series A, A-1 and B Preferred Stock:Contractual dividends
    
    
    (30
    )
    
    
    (160
    )
    
    
    (156
    )
    
    
    (411
    )Deemed dividends related to beneficial conversion feature
    
    
    (24
    )
    
    
    
    
    
    
    (93
    )
    
    
    (187
    )Net (loss) available to common stockholders
    
    $
    (8,809
    )
    
    $
    (1,694
    )
    
    $
    (15,926
    )
    
    $
    (4,648
    )Net loss per share to common stockholders  basic and dilutedNet loss per share from continuning operations
    
    $
    (0.03
    )
    
    $
    (0.11
    )
    
    $
    (0.29
    )
    
    $
    (0.32
    )Net loss per share from discontinuned operations
    
    
    (0.22
    )
    
    
    
    
    
    
    (0.24
    )
    
    
    $
    (0.25
    )
    
    $
    (0.11
    )
    
    $
    (0.53
    )
    
    $
    (0.32
    )Weighted average shares outstanding
basic and diluted
    
    
    34,049,390
    
    
    
    16,066,243
    
    
    
    30,528,800
    
    
    
    14,581,935Other Comprehensive loss, net of taxNet Loss
    
    $
    (8,809
    )
    
    $
    (1,694
    )
    
    $
    (15,926
    )
    
    $
    (4,648
    )Foreign currency translations adjustment
    
    
    (148
    )
    
    
    
    
    
    
    (47
    )
    
    
    Comprehensive loss
    
    $
    (8,957
    )
    
    $
    (1,694
    )
    
    $
    (15,973
    )
    
    $
    (4,648
    )
  4




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##### Table of Contents



Beacon Enterprise Solutions Group, Inc. and Subsidiaries  Condensed Consolidated Statement of Stockholders Equity  (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, 2009
    
    
    1,984
    
    
    $
    1,984
    
    
    
    752
    
    
    $
    752
    
    
    
    700
    
    
    $
    700
    
    
    
    24,655,990
    
    
    $
    25
    
    
    $
    17,977
    
    
    $
    (16,254
    )
    
    $
    10
    
    
    $
    5,194Cumulative effect of change in accounting principle -
fair value of warrants with anti dilutive rights
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,628
    )
    
    
    
    
    
    
    (4,628
    )Relcassification of derivative financial instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,095
    
    
    
    
    
    
    
    
    
    
    
    10,095Vested portion of share based
payments to employee for services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    946
    
    
    
    
    
    
    
    
    
    
    
    946Common Stock issued
in private placement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,795,295
    
    
    
    4
    
    
    
    1,884
    
    
    
    
    
    
    
    
    
    
    
    1,888Private placement offering costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (585
    )
    
    
    
    
    
    
    
    
    
    
    (585
    )Warrants issued for extension
of non-interest bearing note
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64
    
    
    
    
    
    
    
    
    
    
    
    64Warrants issued under consulting agreements
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    107
    
    
    
    
    
    
    
    
    
    
    
    107Common Stock issued for contingent earnout
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    175,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common Stock
issued for investor relations agreement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    
    
    
    
    44
    
    
    
    
    
    
    
    
    
    
    
    44Market value of Common stock
vested for investor relations agreement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    15Amortization
of non-employee stock options issued for performance of services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    19Conversion of preferred shares to common stock
    
    
    (1,993
    )
    
    
    (1,993
    )
    
    
    (462
    )
    
    
    (462
    )
    
    
    
    
    
    
    
    
    
    
    3,286,372
    
    
    
    3
    
    
    
    2,452Common Stock issued in warrant offering
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,738,966
    
    
    
    5
    
    
    
    3,626
    
    
    
    
    
    
    
    
    
    
    
    3,631Shares issued in conversion of bridge note
to common
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    183,620
    
    
    
    
    
    
    
    110
    
    
    
    
    
    
    
    
    
    
    
    110Cashless warrant exercises
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    441,153
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Series A Preferred Stock contractual
dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (76
    )
    
    
    
    
    
    
    (76
    )Series A Preferred Stock contractual
dividends paid in in kind
    
    
    39
    
    
    
    39
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39Series A-1 Preferred Stock contractual dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (48
    )
    
    
    
    
    
    
    (48
    )Series A-1 Preferred Stock contractual
dividends paid in in kind
    
    
    
    
    
    
    
    
    
    
    21
    
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21Series B Preferred Stock contractual
dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31
    )
    
    
    
    
    
    
    (31
    )Beneficial conversion feature -
deemed preferred stock dividend
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    93
    
    
    
    (93
    )
    
    
    
    
    
    
    Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (47
    )
    
    
    (47
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,677
    )
    
    
    
    
    
    
    (15,677
    )Balance at June 30, 2010
    
    
    30
    
    
    $
    30
    
    
    
    311
    
    
    $
    311
    
    
    
    700
    
    
    $
    700
    
    
    
    37,376,396
    
    
    $
    37
    
    
    $
    36,847
    
    
    $
    (36,807
    )
    
    $
    (37
    )
    
    $
    1,081
  5




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##### Table of Contents



Beacon Enterprise Solutions Group, Inc. and
Subsidiaries
Condensed Consolidated Statements of Cash Flows



(Unaudited)
(all amounts in 000s)
 For the Nine
    
    
    For the Ninemonths ended
    
    
    months endedJune 30,
    
    
    June 30,2010
    
    
    2009CASH FLOWS FROM OPERATING ACTIVITIESNet Loss
    
    $
    (15,677
    )
    
    $
    (4,050
    )Net loss from discontinued operations
    
    
    (7,180
    )Net loss from continuing operations
    
    
    (8,497
    )
    
    
    (4,050
    )Adjustments to reconcile net loss to net cash used in continuing operating activities:Change in reserve for obsolete inventory
    
    
    34
    
    
    
    99Change in reserve for doubtful accounts
    
    
    63
    
    
    
    80Depreciation and amortization
    
    
    527
    
    
    
    455Non-cash interest
    
    
    136
    
    
    
    429Share based payments
    
    
    1,131
    
    
    
    456Change in fair value of warrants with anti-dilution rights
    
    
    4,373
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    (1,109
    )
    
    
    (1,033
    )Inventory
    
    
    69
    
    
    
    (23
    )Prepaid expenses and other current assets
    
    
    9
    
    
    
    (500
    )Accounts payable
    
    
    (365
    )
    
    
    317Accrued expenses
    
    
    (1,907
    )
    
    
    372CASH USED FOR CONTINUING OPERATING ACTIVITIES
    
    
    (5,536
    )
    
    
    (3,398
    )CASH
PROVIDED (USED) FOR DISCONTINUED OPERATIONS
    
    
    843
    
    
    
    (321
    )NET CASH USED FOR OPERATING ACTIVITIES
    
    
    (4,693
    )
    
    
    (3,719
    )CASH FLOWS FROM INVESTING ACTIVITIESCapital expenditures
    
    
    (321
    )
    
    
    (119
    )Capital expenditures of discontinued operations
    
    
    (183
    )NET CASH USED IN INVESTING ACTIVITIES
    
    
    (504
    )
    
    
    (119
    )CASH FLOWS FROM CONTINUING FINANCING ACTIVITIESProceeds from sale of preferred stock, net of offering costs
    
    
    
    
    
    
    343Proceeds from sale of common stock, net of offering costs
    
    
    2,398
    
    
    
    3,773Proceeds from warrant exercises, net of offering costs
    
    
    3,631
    
    
    
    Proceeds from issuances of notes
    
    
    500
    
    
    
    500Payment of deferred financing costs
    
    
    
    
    
    
    (75
    )Payments proceeds under lines of credit
    
    
    (50
    )
    
    
    150Payment of other short term note
    
    
    (500
    )
    
    
    Repayment of convertible notes
    
    
    (298
    )
    
    
    Payments of notes payable
    
    
    (388
    )
    
    
    (741
    )Payments of capital lease obligation
    
    
    
    
    
    
    (12
    )NET CASH PROVIDED BY CONTINUING FINANCING ACTIVITIES
    
    
    5,293
    
    
    
    3,938Effect of exchange rate changes on cash and cash equivalents
    
    
    88
    
    
    
    NET INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    184
    
    
    
    100CASH AND CASH EQUIVALENTS -BEGINNING OF PERIOD
    
    
    227
    
    
    
    127CASH AND CASH EQUIVALENTS  END OF PERIOD
    
    $
    411
    
    
    $
    227Supplemental disclosuresCash paid for:Interest
    
    $
    127
    
    
    
    $142Income taxes
    
    $
    
    
    
    $
    
  6




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##### Table of Contents



BEACON ENTERPRISE SOLUTIONS GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(all amounts in 000s except share and per share data)
(Unaudited)
 NOTE 1  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Organization
   Basis of Presentation
  Principles of Consolidation
  7




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##### Table of Contents



Discontinued Operations
  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




---



##### Table of Contents



Professional Services Revenue
   Warranties
  Use of Estimates
  10




---



##### Table of Contents



Fair Value of Financial Assets and Liabilities
       Foreign Currency Reporting
  Net Loss per Share
  11




---



##### Table of Contents



TotalStock
    
    
    Common
    
    
    CommonOptions and
    
    
    Stock
    
    
    StockWarrants
    
    
    Equivalents
    
    
    EquivalentsSeries A Convertible Preferred Stock Warrants
    
    
    20,131
    
    
    
    40,263
    
    
    
    60,394Series A-1 Convertible Preferred Stock Warrants
    
    
    207,260
    
    
    
    414,518
    
    
    
    621,778Series B Convertible Preferred Stock Warrants
    
    
    350,000
    
    
    
    875,000
    
    
    
    1,225,000Common Stock Offering Warrants
    
    
    829,361
    
    
    
    
    
    
    
    829,361Placement Agent Warrants
    
    
    2,847,497
    
    
    
    
    
    
    
    2,847,497Affiliate Warrants
    
    
    55,583
    
    
    
    
    
    
    
    55,583Bridge Financings Warrants
    
    
    707,690
    
    
    
    166,667
    
    
    
    874,357Convertible Notes Payable Warrants
    
    
    50,000
    
    
    
    
    
    
    
    50,000Compensatory Warrants
    
    
    300,000
    
    
    
    
    
    
    
    300,000Equity Financing Arrangements Warrants
    
    
    2,272,433
    
    
    
    
    
    
    
    2,272,433Consulting Warrants
    
    
    2,500,000
    
    
    
    
    
    
    
    2,500,000Employee Stock Options
    
    
    3,571,866
    
    
    
    
    
    
    
    3,571,866Non-Employee Stock Options
    
    
    250,000
    
    
    
    
    
    
    
    250,00013,961,821
    
    
    
    1,496,448
    
    
    
    15,458,269
 Recent Accounting Pronouncements
    12




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##### Table of Contents



Revenue
Recognition Milestone Method (Topic 605): Milestone Method of Revenue Recognition.
  NOTE 2  LIQUIDITY, FINANCIAL CONDITION AND MANAGEMENTS PLANS
   13




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##### Table of Contents



NOTE 3  CONDENSED CONSOLIDATED BALANCE SHEET
 Accounts Receivable
  As of
    
    
    As ofJune 30,
    
    
    September 30,2010
    
    
    2009Accounts receivable
    
    $
    4,336
    
    
    $
    3,227Less: Allowance for doubtful accounts
    
    
    (221
    )
    
    
    (158
    )Accounts receivable, net
    
    $
    4,115
    
    
    $
    3,069
  As of
    
    
    As ofJune 30,
    
    
    September 30,2010
    
    
    2009Opening balance
    
    $
    (158
    )
    
    $
    (50
    )Add: Additions to reserve
    
    
    (105
    )
    
    
    (152
    )Less: charges
    
    
    42
    
    
    
    44Ending balance
    
    $
    (221
    )
    
    $
    (158
    )
  14




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##### Table of Contents



Inventory
  As of
    
    
    As ofJune 30,
    
    
    September 30,2010
    
    
    2009Inventory (principally parts and system components)
    
    $
    696
    
    
    $
    765Less: reserve for obsolete inventory
    
    
    (194
    )
    
    
    (160
    )Inventory
    
    $
    502
    
    
    $
    605
  As of
    
    
    As ofJune 30,
    
    
    September 30,2010
    
    
    2009Opening balance
    
    $
    (160
    )
    
    $
    (35
    )Add: additions to reserve
    
    
    (34
    )
    
    
    (144
    )Less: charges
    
    
    
    
    
    
    19Ending balance
    
    $
    (194
    )
    
    $
    (160
    )
 Other Intangible Assets
  As of
    
    
    As ofJune 30,
    
    
    September 30,2010
    
    
    2009Total
    
    
    TotalConsideration
    
    
    ConsiderationCustomer relationships
    
    $
    3,804
    
    
    $
    3,662Covenants not to compete
    
    
    500
    
    
    
    6424,304
    
    
    
    4,304Less: Accumulated amortization
    
    
    (1,308
    )
    
    
    (962
    )Intangibles, net
    
    $
    2,996
    
    
    $
    3,342
  15




---



##### Table of Contents



Accrued Expenses
  As of
    
    
    As ofJune 30,
    
    
    September 30,2010
    
    
    2009Compensation related
    
    $
    362
    
    
    $
    550Dividends
    
    
    134
    
    
    
    38Interest
    
    
    40
    
    
    
    123Warranty reserve
    
    
    34
    
    
    
    65Goods received not invoiced
    
    
    
    
    
    
    1,092Other
    
    
    229
    
    
    
    759$
    799
    
    
    $
    2,627
 Debt
  As of
    
    
    As ofJune 30,
    
    
    September 30,2010
    
    
    2009Lines of Credit and Short-Term Notes
    
    $
    
    
    
    $
    550Convertible Notes Payable
    
    $
    
    
    
    $
    298Bridge Note
    
    $
    100
    
    
    $
    167Integra Bank
    
    $
    353
    
    
    $
    439Acquistion notes (payable to the sellers
of the acquired businesses)ADSnetcurve
    
    
    17
    
    
    
    81Bell-Haun
    
    
    
    
    
    
    44CETCON
    
    
    319
    
    
    
    416Strategic Secured Note
    
    
    200
    
    
    
    297889
    
    
    
    1,277Less: current portion
    
    
    (389
    )
    
    
    (475
    )Non-current portion
    
    $
    500
    
    
    $
    802
 16




---



##### Table of Contents



Lines of Credit and Short-Term Notes
    Convertible Notes Payable
  Bridge Notes
  17




---



##### Table of Contents



Term Debt
  NOTE 4  DISCONTINUED OPERATIONS
    18




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##### Table of Contents



For the Three
    
    
    For the Ninemonths ended
    
    
    months endedJune 30,
    
    
    June 30,2010
    
    
    2010Net Sales
    
    $
    2,477
    
    
    $
    16,647Net loss before taxes
    
    
    (7,626
    )
    
    
    (7,180
    )Income taxes
    
    
    3
    
    
    
    Net loss from discontinued operations
    
    $
    (7,623
    )
    
    $
    (7,180
    )
  As of
    
    
    As ofJune 30,
    
    
    September 30,2010
    
    
    2009ASSETSCash
    
    $
    600
    
    
    $
    37Accounts
receivable
    
    
    78
    
    
    
    911Other current assets
    
    
    
    
    
    
    10Total current assets
    
    
    678
    
    
    
    958Property and equipment, net
    
    
    
    
    
    
    59Goodwill
    
    
    
    
    
    
    360Other intangible assets, net
    
    
    
    
    
    
    561Total assets
    
    $
    678
    
    
    $
    1,938LIABILITIESAccounts payable
    
    $
    5,886
    
    
    $
    104Accrued expenses
    
    
    1,852
    
    
    
    421Total liabilities
    
    $
    7,738
    
    
    $
    525
  NOTE 5  RELATED PARTY TRANSACTIONS
   NOTE 6  COMMITMENTS AND CONTINGENCIES
 Employment Agreements
  19




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##### Table of Contents



Operating Leases
  2011
    
    $
    1272012
    
    
    362013
    
    
    362014
    
    
    92015
    
    
    $
    208
 Engagement of Investor Relations Firm
   Consulting Agreement
  Expected
    
    
    
    
    
    
    Fair Value
    
    
    
    
    
    
    
    
    
    
    Risk-Free
    
    
    Value
    
    
    Amount toIssuance
    
    Quantity
    
    
    Life
    
    
    Strike
    
    
    of Common
    
    
    Volatility
    
    
    Dividend
    
    
    Interese
    
    
    per
    
    
    be chargedDate
    
    Vested
    
    
    (days)
    
    
    Price
    
    
    Stock
    
    
    Rate
    
    
    Yield
    
    
    Rate
    
    
    Warrant
    
    
    to compensation12/1/2009
    
    
    1,500,000
    
    
    
    1,825
    
    
    $
    1.00
    
    
    $
    0.81
    
    
    
    66.34
    %
    
    
    0
    %
    
    
    2.03
    %
    
    $
    0.42
    
    
    $
    62812/1/2009
    
    
    250,000
    
    
    
    1,825
    
    
    $
    1.50
    
    
    $
    0.81
    
    
    
    66.34
    %
    
    
    0
    %
    
    
    2.03
    %
    
    $
    0.34
    
    
    
    8612/1/2009
    
    
    250,000
    
    
    
    1,825
    
    
    $
    2.00
    
    
    $
    0.81
    
    
    
    66.34
    %
    
    
    0
    %
    
    
    2.03
    %
    
    $
    0.29
    
    
    
    7212/1/2009
    
    
    250,000
    
    
    
    1,825
    
    
    $
    2.25
    
    
    $
    0.81
    
    
    
    66.34
    %
    
    
    0
    %
    
    
    2.03
    %
    
    $
    0.27
    
    
    
    6712/1/2009
    
    
    250,000
    
    
    
    1,825
    
    
    $
    2.50
    
    
    $
    0.81
    
    
    
    66.34
    %
    
    
    0
    %
    
    
    2.03
    %
    
    $
    0.25
    
    
    
    622,500,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    915
 20




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##### Table of Contents



NOTE 7 STOCKHOLDERS EQUITY
 Authorized Capital
  Preferred Stock
     Preferred Stock Dividend
  Preferred Stock Conversions to Common Stock
  Completion of Common Stock and Warrant Offering
    21




---



##### Table of Contents



Cashless Warrant Conversions
  Derivative Financial Instruments
   October 12009Expected Life
    
    
    3.72Risk-free interest rate
    
    
    2.20
    %Dividend Yield
    
    
    0
    %Volatility
    
    
    66.34
    %Warrants issued with private placements
    
    
    9,979,577Fair value of warrants
    
    $
    4,628
  Expected Life
    
    
    5Risk-free interest rate
    
    
    2.69
    %Dividend Yield
    
    
    0
    %Volatility
    
    
    66.34
    %Weighted average unit fair value
    
    $
    0.47
  22




---



##### Table of Contents



March 30,2010Expected Life
    
    
    3.88Risk-free interest rate
    
    
    2.55
    %Dividend Yield
    
    
    0
    %Volatility
    
    
    65.40
    %Warrants issued with private placements (including
3,375,375 with a discounted exercise price of $0.10 per
share)
    
    
    12,291,827Fair value of warrants
    
    $
    10,095
   Issuance of non-employee compensatory options
  23




---



##### Table of Contents



NOTE 8  INCOME TAXES
     Beacon North
    
    
    BESG IrelandAmerica
    
    
    Ltd
    
    
    Beacon CZ
    
    
    ConsolidatedNet (loss) before taxes
    
    $
    (1,198
    )
    
    $
    145
    
    
    $
    (35
    )
    
    $
    (1,088
    )Effective tax rate
    
    
    0
    %
    
    
    25
    %
    
    
    20
    %Tax expense (benefit)
    
    $
    15
    
    
    $
    36
    
    
    $
    (7
    )
    
    $
    44
  Beacon North
    
    
    BESG IrelandAmerica
    
    
    Ltd
    
    
    Beacon CZ
    
    
    ConsolidatedNet (loss) before taxes
    
    $
    (8,196
    )
    
    $
    (324
    )
    
    $
    (21
    )
    
    $
    (8,541
    )Effective tax rate
    
    
    0
    %
    
    
    25
    %
    
    
    33
    %Tax expense (benefit)
    
    $
    44
    
    
    $
    (81
    )
    
    $
    (7
    )
    
    $
    (44
    )
 24




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##### Table of Contents



NOTE 9  EMPLOYEE BENEFIT PLANS
 Stock Options and Other Equity Compensation Plans
  November 11,
    
    
    January 22,
    
    
    February 5,
    
    
    March 22,2009
    
    
    2010
    
    
    2010
    
    
    2010Stock Price
    
    $
    0.90
    
    
    $
    1.07
    
    
    $
    1.07
    
    
    $
    1.38Expected Life
    
    
    10
    
    
    
    6.5
    
    
    
    6.5
    
    
    
    6.5Volatility
    
    
    66.34
    %
    
    
    65.40
    %
    
    
    65.40
    %
    
    
    65.40
    %Risk-free interest rate
    
    
    2.28
    %
    
    
    2.23
    %
    
    
    2.65
    %
    
    
    2.36
    %Dividend Yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Fair value of options
    
    $
    0.30
    
    
    $
    0.67
    
    
    $
    0.67
    
    
    $
    0.86
  May 27,
    
    
    June 1,
    
    
    June 6,2010
    
    
    2010
    
    
    2010Stock Price
    
    $
    1.40
    
    
    $
    1.36
    
    
    $
    1.60Expected Life
    
    
    7.2
    
    
    
    7.5
    
    
    
    5.5Volatility
    
    
    65.40
    %
    
    
    65.40
    %
    
    
    65.40
    %Risk-free interest rate
    
    
    2.18
    %
    
    
    2.09
    %
    
    
    1.95Dividend Yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Fair value of options
    
    $
    0.91
    
    
    $
    0.90
    
    
    $
    0.75
  Three Months
    
    
    Three Months
    
    
    Nine Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Non-Cash Share-Based Compensation ExpenseRestricted Stock
    
    $
    166
    
    
    $
    45
    
    
    $
    221
    
    
    $
    134Stock Options
    
    
    294
    
    
    
    122
    
    
    
    725
    
    
    
    184Total Stock Compensation Expense
    
    $
    460
    
    
    $
    167
    
    
    $
    946
    
    
    $
    318
 25




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##### Table of Contents



WeightedAverageWeighted
    
    
    
    
    
    
    RemainingNumber
    
    
    Average
    
    
    Intrinsic
    
    
    ContractualOf Options
    
    
    Exercise Price
    
    
    Value
    
    
    LifeOptions Outstanding at October 1, 2009
    
    
    3,200,900
    
    
    $
    1.19Granted
    
    
    1,335,000
    
    
    $
    1.44Forfeited
    
    
    (714,034
    )
    
    $
    (1.15
    )Options Outstanding at June 30, 2010
    
    
    3,821,866
    
    
    $
    1.48
    
    
    
    0.38
    
    
    
    6.87Exercisable, June 30, 2010
    
    
    1,908,462
    
    
    $
    0.85
    
    
    
    0.81
    
    
    
    8.41
    26




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##### Table of Contents



Restricted Stock
  Note 10  Segment Reporting
     United States
    
    
    Europe
    
    
    TotalNet sales
    
    $
    2,765
    
    
    $
    781
    
    
    $
    3,546Loss from operations
    
    
    (1,176
    )
    
    
    250
    
    
    
    (926
    )Other expense
    
    
    (22
    )
    
    
    (140
    )
    
    
    (162
    )Depreciation and amortization
    
    
    (205
    )
    
    
    (30
    )
    
    
    (235
    )Net (Loss) from continuing operations
    
    
    (1,213
    )
    
    
    81
    
    
    
    (1,132
    )Net (Loss) from discontinued
operations
    
    
    
    
    
    
    (7,623
    )
    
    
    (7,623
    )Assets
    
    
    9,312
    
    
    
    3,154
    
    
    
    12,466Goodwill
    
    
    2,792
    
    
    
    
    
    
    
    2,792Intangible Assets
    
    
    2,996
    
    
    
    
    
    
    
    2,996
 27




---



##### Table of Contents



United States
    
    
    Europe
    
    
    TotalNet sales
    
    $
    7,360
    
    
    $
    2,327
    
    
    $
    9,687Loss from operations
    
    
    (3,609
    )
    
    
    (146
    )
    
    
    (3,755
    )Other expense
    
    
    (214
    )
    
    
    (199
    )
    
    
    (413
    )Change in fair value of warrants
    
    
    (4,373
    )
    
    
    
    
    
    
    (4,373
    )Depreciation and amortization
    
    
    (509
    )
    
    
    (63
    )
    
    
    (572
    )Net (Loss) from continuing operations
    
    
    (8,240
    )
    
    
    (257
    )
    
    
    (8,497
    )Net (Loss) from discontinued
operations
    
    
    
    
    
    
    (7,180
    )
    
    
    (7,180
    )
  NOTE 11  SUBSEQUENT EVENTS
  28




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  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;
 
    
    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.
 29




---



##### Table of Contents



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.
  30




---



##### 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 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 and nine months ended June 30, 2010 and 2009
  North American Operations
 For the three months ended June 30,
    
    
    For the nine months ended June 30,2010
    
    
    
    
    2009
    
    
    
    
    
    
    
    
    2010
    
    
    
    
    2009North America
    
    
    
    
    North America
    
    
    
    
    change
    
    
    North America
    
    
    
    
    North America
    
    
    
    
    changeNet Sales
    
    $
    2,765
    
    100
    %
    
    $
    3,039
    
    100
    %
    
    $
    (274
    )
    
    $
    7,360
    
    100
    %
    
    $
    7,118
    
    100
    %
    
    $
    242Cost of goods sold
    
    
    393
    
    14
    %
    
    
    1,281
    
    42
    %
    
    
    (888
    )
    
    
    1,122
    
    15
    %
    
    
    2,892
    
    41
    %
    
    
    (1,770
    )Cost of services
    
    
    1,074
    
    39
    %
    
    
    837
    
    28
    %
    
    
    237
    
    
    
    3,009
    
    41
    %
    
    
    1,934
    
    27
    %
    
    
    1,075Gross profit
    
    
    1,298
    
    47
    %
    
    
    921
    
    30
    %
    
    
    377
    
    
    
    3,229
    
    44
    %
    
    
    2,292
    
    32
    %
    
    
    937Operating expenseSalaries and benefits
    
    
    1,611
    
    58
    %
    
    
    1,186
    
    39
    %
    
    
    425
    
    
    
    3,851
    
    52
    %
    
    
    3,109
    
    44
    %
    
    
    742Selling, general and administrative
    
    
    863
    
    31
    %
    
    
    1,047
    
    34
    %
    
    
    (184
    )
    
    
    2,987
    
    41
    %
    
    
    2,572
    
    36
    %
    
    
    415Net loss from operations
    
    
    (1,176
    )
NM
    
    
    
    (1,312
    )
NM
    
    
    
    136
    
    
    
    (3,609
    )
 NM
    
    
    
    (3,389
    )
NM
    
    
    
    (220
    )Other expense
    
    
    (22
    )
    
    
    
    
    (222
    )
    
    
    
    
    200
    
    
    
    (214
    )
    
    
    
    
    (661
    )
    
    
    
    
    447Change in fair value of warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,373
    )
    
    
    
    
    
    
    
    
    
    
    (4,373
    )Net loss income before taxes
    
    
    (1,198
    )
    
    
    
    
    (1,534
    )
    
    
    
    
    336
    
    
    
    (8,196
    )
    
    
    
    
    (4,050
    )
    
    
    
    
    (4,146
    )Income taxes
    
    
    (15
    )
    
    
    
    
    
    
    
    
    
    
    (15
    )
    
    
    (44
    )
    
    
    
    
    
    
    
    
    
    
    (44
    )Net (Loss) from continuing operations
    
    
    (1,213
    )
    
    
    
    
    (1,534
    )
    
    
    
    
    321
    
    
    
    (8,240
    )
    
    
    
    
    (4,050
    )
    
    
    
    
    (4,190
    )Net (Loss) from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net (Loss) Income
    
    $
    (1,213
    )
    
    
    
    $
    (1,534
    )
    
    
    
    $
    321
    
    
    $
    (8,240
    )
    
    
    
    $
    (4,050
    )
    
    
    
    $
    (4,190
    )
 31




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##### Table of Contents



32




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##### Table of Contents



European Operations
 For the three months ended June 30,
    
    
    For the nine months ended June 30,2010
    
    
    
    
    2009
    
    
    2010
    
    
    
    
    2009Europe
    
    
    
    
    Europe
    
    
    Europe
    
    
    
    
    EuropeNet Sales
    
    $
    781
    
    100
    %
    
    
    
    
    
    $
    2,327
    
    100
    %
    
    
    Cost of goods sold
    
    
    2
    
    2
    %
    
    
    
    
    
    
    129
    
    8
    %
    
    
    Cost of services
    
    
    13
    
    16
    %
    
    
    
    
    
    
    715
    
    44
    %
    
    
    Gross profit
    
    
    766
    
    82
    %
    
    
    
    
    
    
    1,483
    
    48
    %
    
    
    Operating expenseSalaries and benefits
    
    
    174
    
    209
    %
    
    
    
    
    
    
    713
    
    44
    %
    
    
    Selling, general and administrative
    
    
    342
    
    412
    %
    
    
    
    
    
    
    916
    
    56
    %
    
    
    Net Income
(loss) from operations
    
    
    250
    
    NM
    
    
    
    
    
    
    
    (146
    )
    NM
    
    
    
    Other expense
    
    
    (140
    )
    
    
    
    
    
    
    
    
    (199
    )
    
    
    
    
    Net Income
(loss) before taxes
    
    
    110
    
    
    
    
    
    
    
    
    
    (345
    )
    
    
    
    
    Income tax
(expense) benefit
    
    
    (29
    )
    
    
    
    
    
    
    
    
    88
    
    
    
    
    
    Net Income
(loss) from continuing operations
    
    
    81
    
    
    
    
    
    
    
    
    
    (257
    )Net loss from discontinued operations
    
    
    (7,623
    )
    
    
    
    
    
    
    
    
    (7,180
    )Net loss
    
    $
    (7,542
    )
    
    
    
    
    
    
    
    $
    (7,437
    )
    
    
    
    
    
    33




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##### Table of Contents



Liquidity and Capital Resources
         Off-Balance Sheet Arrangements
  34




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##### Table of Contents



Contractual Obligations as of June 30, 2010
  Years
    
    
    YearsContractual Obligations
    
    Total
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    ThereafterDebt obligations
    
    
    989
    
    
    $
    389
    
    
    $
    339
    
    
    $
    161
    
    
    $
    
    
    
    $
    100Interest obligations (1)
    
    
    78
    
    
    $
    51
    
    
    
    23
    
    
    
    4
    
    
    
    Operating lease obligations (2)
    
    
    208
    
    
    
    127
    
    
    
    36
    
    
    
    36
    
    
    
    9
    
    
    
    $
    1,275
    
    
    $
    567
    
    
    $
    398
    
    
    $
    201
    
    
    $
    9
    
    
    $
    100
 
 (1)
    
    Interest obligations assume Prime Rate of 3.25% at June
30, 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.   Customers
  35




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##### Table of Contents



Competition
  Employees
  Facilities
  Certain Relationships and Related Party Transactions
   36




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##### Table of Contents



Filing Status
  
 ITEM 4. CONTROLS AND PROCEDURES
  DISCLOSURE CONTROLS AND INTERNAL CONTROLS
    37




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##### Table of Contents



Changes in Internal Control over Financial Reporting
  38




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##### Table of Contents



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 39




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##### Table of Contents



Date: August 16, 2010
    Beacon Enterprise Solutions Group, Inc.By:
    /s/ Bruce WidenerBruce WidenerChief Executive Officer
and Chairman of the Board
of DirectorsandDate: August 16, 2010
    By:
    /s/ Michael GrendiMichael GrendiPrincipal Financial Officer 40