Unassociated Document

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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

For the year ended September 30, 2011.

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

For the transition period from to

Commission File Number 000-31355

BEACON ENTERPRISE SOLUTIONS GROUP, INC.

(Exact name of registrant as specified in its charter)

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

9300 Shelbyville Road, Suite 1020, Louisville, KY		40222
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.001 par value.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

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

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

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates was $8,728 based on the price of Beacon Enterprise Solutions Group, Inc.’s common stock as of December 5, 2011, as reported on the OTC Bulletin Board.

The number of shares outstanding of Beacon Enterprise Solutions Group, Inc.’s common stock as of December 5, 2011 was 37,631,896.

DOCUMENTS INCORPORATED BY REFERENCE

Documents		Form 10-K Reference
None		Not Applicable

Beacon Enterprise Solutions Group, Inc.

FORM 10-K

For the fiscal year ended September 30, 2011

INDEX

		Page

PART I
Item 1	Business	3
Item 1A	Risk Factors	6
Item 2	Properties	9
Item 3	Legal Proceedings	9
Item 4	Removed and Reserved	10

PART II
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	10
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 8	Financial Statements and Supplementary Data	17
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	47
Item 9A	Controls and Procedures	47
Item 9B	Other Information	48

PART III
Item 10	Directors, Executive Officers and Corporate Governance	49
Item 11	Executive Compensation	51
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	63
Item 13	Certain Relationships and Related Transactions, and Director Independence	64
Item 14	Principal Accounting Fees and Services	65

PART IV
Item 15	Exhibits, Financial Statement Schedules	66
	Signatures	70

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PART I

Item 1. Business

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

General

The Company was originally formed to acquire companies that would allow it to serve the small and medium-sized business enterprises (the “SME Market”) on an integrated, turn-key basis from system design, procurement and installation through all aspects of providing network service and designing and hosting network applications. During the fiscal year ended September 30, 2010, in response to identification of a significant underserved market, our business strategy shifted to become a global leader in the design, implementation and management of high performance ITS infrastructure solutions. Beacon’s portfolio of ITS infrastructure services spans all professional and construction requirements for design, build and management of telecommunications, network and technology systems infrastructure, while continuing to provide managed information technology and telecommunications services in selected local markets.

For the purpose of this report on Form 10-K, all amounts are in thousands except share and per share data. Beacon generated net sales of $18,894 for the year ended September 30, 2011. For the year ended September 30, 2011, Beacon recognized net income of approximately $3,222. Total assets were $11, 922 as of September 30, 2011.

Operations

Services

Beacon provides global telecommunications and technology systems infrastructure services encompassing a comprehensive suite of consulting, design, installation, and infrastructure management offerings. Beacon’s portfolio of infrastructure services spans all professional and construction requirements for design, build and management of telecommunications, network and technology systems infrastructure. Professional services offered include consulting, engineering, program management, project management, construction services and infrastructure management services; these services are offered either as a comprehensive contract vehicle or as unbundled services

These services are provided to clients who require a global reach, proven experience and resources, and the consistent, predictable results that can only be offered by a single global company. Today’s global clients and international enterprises demand the competitive advantage obtained through outsourcing, without the additional cost, internal overhead and multiple points of failure that come from bidding for services from small regional professional services firms or contractors. Beacon offers companies a competitive, single-source advantage for consulting, design, implementation, program management, project management and managed services regardless of location. By overcoming the barriers to entry found in the telecommunications and technology systems channels, Beacon is offering the Fortune 1000 client a vehicle to more fully integrate global enterprise standards, reduce internal pressure on scarce IT and Facilities resources, reduce the risk that comes with multiple points of failure and increase operating income through the efficiencies that accompany true global strategic sourcing. Beacon offers this sourcing capability to our clients on a global, multi-national and regional basis.

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Management Services. In addition to offering consulting, design, engineering and installation of telecommunications and technology systems infrastructure, Beacon offers infrastructure management services to address planning, moves, adds and changes to their telecommunications and technology systems. This service effectively bundles together all Beacon infrastructure services and offers them to clients under global, multi-national or regional umbrella agreements. To protect client investments and reduce total cost of ownership; global, multi-national or regional infrastructure management services are designed to: (i) reduce internal cost and complexity for obtaining engineering, installation or management related expenses, (ii) facilitate enterprise-wide standardization, (iii) eliminate duplicated effort, (iv) protect warranties, and (v) reduce costs associated with moves, adds and changes. The previously unavailable data which may be extracted from the Beacon management system can provide strategic planning insight and empirical data for management decisions, including the viability of new enterprise initiatives. Infrastructure management services also allow the telecommunications and technology systems infrastructure to be maintained by a planned and budgeted continuum, rather than as a reaction to a series of disconnected projects. Although Beacon clients may begin by using one of our discrete, project-oriented services (described below), the business model indicates that they will frequently evolve into a global, multi-national or regional infrastructure management client.

Design, Engineering & Construction Services. The increasing economic, regulatory and environmental issues facing executives, IT and Facilities professionals has increased the number of complex technical and operational issues that need to be solved for each customer. In order to address these issues, Beacon has moved beyond the expected baseline of technical and educational requirements (Professional Engineer, RCDD, PMP, CPP, CISSP, etc.) into a new paradigm of cross-disciplinary business and technical professionals who understand the benefit of standardization, predictability and consistency when provided within a process-driven solution. Beacon provides each client with access to world-class engineering, design and installation resources, but offers them within a manner designed to permit a reduction in bottom line expenditures while reducing the workload of scarce internal resources. This contrasts the traditional bid mentality where clients lose any cost-benefit gained from the bid or proposal process, through increased pressure on internal resources needed to maintain the corporate standard while controlling the cost of administration of multiple vendors for identical tasks across a global enterprise. Beacon’s solution to the dramatic changes in world markets — geopolitical, macroeconomics, and technology, is to make business capability portable by providing the processes needed to make services delivery available on a global, multi-national or regional basis.

Special Services. Additionally, Beacon leverages existing areas of internal expertise for projects involving data centers and smart (intelligent) buildings/campuses/cities in both the federal and private space; the nature of these engagements are unique and as such qualify for designation as a Beacon Special Service. Data Center Special Services rely on existing expertise in consulting, design, project management, bid management and construction of data centers. Service delivery for data centers range from one or more compartmentalized professional services up to acting as the prime contractor for the construction or retrofit of the entire data center. The approach to smart or intelligent buildings/campuses/cities is primarily an engineering or design service, but can involve design/build projects. Enabled by the increasing availability of Internet compatible building systems, with demand created by pressure on building developers and managers to become more sensitive to energy management and reduction of carbon footprint for the built environment, the experience and knowledge required to design the infrastructure for the more than 15 low-voltage systems found in most offices are escalating in demand.

Customers

Because Beacon provides infrastructure management services to global and multi-national customers, the primary target clients can be defined as the Fortune 1000, or the broader Forbes Global 2000. Global clients may also elect to use Beacon’s services in an ala carte fashion, typically using Design & Engineering services which are more portable when used outside of an infrastructure managed services contract vehicle. The business model for global, multi-national, federal and regional clients who use one or more unbundled services allows for migration to a fully managed services offering where all services are offered under a single contractual umbrella.

Suppliers

Beacon establishes manufacturer, distributor and subcontractor relationships from the global perspective. The lack of competitors offering infrastructure management services with a global reach provides Beacon with a distinct advantage. In addition, the global managed services business model provides an exclusive client relationship which is also attractive to suppliers. Beacon has accounts with various suppliers that provide services, products and materials necessary to fulfill our services and the needs of our customers. Such services and products are typically available from more than one supplier and we routinely review our supplier relationships to determine which have the most attractive footprint, logistics offerings and volume-based pricing. We use multiple criteria to evaluate our suppliers and purchase with those that provide us with the best overall fit.

Beacon also engages professional and construction-related services firms as contractors in specialized geographical areas, the qualification and selection of these firms’ is based on the same stringent background, chemical screening (where permissible by law) and technical assessments used in the hiring of our employees. Contractors are held to the same high levels of service delivery, knowledge of customer and industry standards, and compliance with Beacon and industry best practices. Contractors are only used with customer knowledge and consent and in those cases when geographical challenges or special skills are needed and cannot be overcome with internal resources.

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Seasonality

Due to the breadth of services offered to Beacon clients, seasonality issues are minimal. Some seasonality deltas are noted between professional and construction services, however the volume core services and infrastructure management services tend to mitigate the seasonal differences for the unbundled services offered on a global or regional basis.

Customer Concentration

For the years ended September 30, 2011 and 2010, our largest customer accounted for approximately 78% and 64% of sales, respectively. Although we expect we will continue to have a high degree of customer concentration, our customer engagements are typically covered by multi-year contracts or master service agreements under which we have been operating for a number of years.

Competition

Beacon’s service delivery offerings, and therefore its competitors, can be divided into two broad categories. First, services that are offered individually, generally in response to the client needs for a single service within a single project or task, and secondly, services that are offered as a single source package (managed services and outsourcing) and delivered as part of a regional, national, multi-national or global contract, generally with a specified window of time. When offering a single service in response to a single project or task, there are numerous competitors. These tend to be mid- to small-sized competitors that are single site or confined to specific geographic regions and generally aggressively compete for private or publicly announced work. Further, they typically specialize in only one of multiple services the client may actually need. These smaller, single service competitors are generally viewed as being commoditized. Beacon’s model allows us to successfully leverage the bigger managed services offering and introduce scalability by allowing our clients the option to expand the number of services offered and the geography over which the service is delivered. By removing the business risk associated with having only a single service to offer to new and existing clients, it further allows Beacon to differentiate itself by offering a higher level of service with a more predictable price. So by leveraging the multi-service, global capabilities of Beacon, we attain a significant competitive edge for the first category of competitors, as well as reduce the pool of competitors for the full-spectrum managed infrastructure services offered across broad geographic areas. There are several national infrastructure firms that have the size and funding to become direct competitors, but by nature of their size and current business models they would experience significant internal resistance to change.

Employees

Beacon currently employs 76 people in offices located in Louisville, KY, Columbus, OH, Raritan, NJ, Cincinnati, OH and Prague, Czech Republic. None of Beacon’s employees is subject to a collective bargaining agreement.

Available Information

Our Internet address is www.askbeacon.com, where we make available, free of charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports, as soon as practicable after such reports are electronically filed with, or furnished to, the SEC. The SEC reports can be accessed through the “SEC Filings” link in the “Investor Relations” section of our website. Other information found on our website is not part of this or any other report we file with, or furnish to, the Securities and Exchange Commission, or the SEC.

Code of Ethics

We have adopted a Code of Ethics that applies to all of our directors, officers and employees. The Code is available on our website. If any waivers of the Code are granted, the waivers will be disclosed in an SEC filing on Form 8-K. Our website also includes the Charters of the Audit Committee and the Compensation Committee. Stockholders may request free copies of these documents by writing to Greg Guilford, 9300 Shelbyville Road, Suite 1020, Louisville, KY 40222, by calling 502-657-3500 or by sending an email request to greg.guilford@askbeacon.com.

The public may also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, at www.sec.gov.

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Item 1A. Risk Factors

You should carefully consider the risks described below together with all of the other information included in this report before making an investment decision with regard to our securities. The statements contained in or incorporated into this report that are not historic facts are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. If any of the following risks actually occurs, our business, financial condition or results of operations could be harmed. In that case, the trading price of Beacon Common Stock could decline, and you may lose all or part of your investment.

Risks Relating to the Business

In this discussion of the “Risks Relating to the Business,” unless otherwise noted or required by the context, references to “us,” “we,” “our,” “Beacon” and similar terms refer to Beacon, as defined above.

Beacon has a history of losses.

Beacon has incurred losses since its inception. While we expect to achieve a positive cash flow basis and have taken significant steps to do so, this may not occur. Our ability to operate profitably is dependent upon our ability to manage the portfolio of ITS infrastructure service offerings in an economically successful manner but, we may not be able to do this. Our prospects must be considered in light of the numerous risks, expenses, delays and difficulties frequently encountered in the competitive and high risk telecommunications and ITS services industry, as well as the risks generally inherent in the current economic environment. We may never achieve sustained recurring net sales and profitability on a consistent and growing basis.

Beacon may require additional financing.

Beacon may require additional capital to implement its long-term business plan. Such financing, if needed, may not be available to Beacon or, if it is, it may not be available on terms or at a valuation that would be beneficial to the interests of current stockholders. In this regard, failure by Beacon to secure additional financing, if needed, on favorable terms could have severe adverse consequences relative to Beacon’s ability to grow and/or fully leverage existing business relationships and agreements, which ultimately could mean that Beacon may not be viable.

Rapid technological change and obsolescence could adversely affect Beacon’s business.

Our business is subject to technological innovation, with such developments potentially adversely affecting the business and operations of Beacon in the future.

Beacon’s success depends upon agreements with third parties.

Our business plan relies upon working with third party vendors in multiple aspects of the business. The success of our plan assumes successful relationships with third party vendors for contractor services, network access and hardware and software products which Beacon utilizes and sells. If Beacon is unable to attract competent corporate partners, or if such partners’ efforts are inadequate, Beacon’s business could be harmed.

Beacon has operations outside the United States.

Part of our growth strategy relies on further development of operations outside the United States such international operations are subject to additional risks, including:

•

local political or economic instability;

•

changes in governmental regulation;

•

changes in import/export duties;

•

trade restrictions;

•

lack of experience in foreign markets;

•

difficulties and costs of staffing and managing operations in certain foreign countries;

•

work stoppages or other changes in labor conditions;

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•

difficulties in collecting accounts receivables on a timely basis or at all; and

•

adverse tax consequences or overlapping tax structures.

We plan to continue to market and sell our products internationally to respond to customer requirements and market opportunities. Establishing and maintaining operations in any foreign country or region presents risks such as those described above as well as risks specific to the particular country or region. In addition, until a payment history is established over time with customers in a new geography or region, the likelihood of collecting receivables generated by such operations could be less than expectations. As a result, there is a greater risk that reserves set with respect to the collection of such receivables may be inadequate. If our operations in any foreign country are unsuccessful, we could incur significant losses which may impact profitability.

Additionally, changes in policies or laws of the United States or foreign governments resulting in, among other things, changes in regulations and the approval process, higher taxation, currency conversion limitations, restrictions on fund transfers or the expropriation of private enterprises, could reduce the anticipated benefits of our international expansion. If we fail to realize the anticipated net sales growth of our international operations, our business and operating results could suffer.

Beacon’s business is subject to inherent risks including those arising from customer acceptance, lost customers, and market competition.

Customer Acceptance. Beacon’s intended customers may be unfamiliar with the services and technologies offered by Beacon for any number of reasons and therefore hesitant to use Beacon’s products and services. As a result, the sales cycle involved in obtaining new customers could be longer than initially forecasted. Beacon will need to educate customers as to the benefits of its products and services; this education may be costly and time consuming. Thus, Beacon cannot accurately forecast the timing and recognition of net sales from marketing of its products and services to new customers. Delays in market acceptance of Beacon’s products and services could harm Beacon’s profitability.

Lost Customers. There is no guarantee that customers will continue to use the services of Beacon. The business is inherently very competitive on certain commoditized aspects of our service offerings and Beacon may not be successful with its business model in retaining customers.

Competition. There are many companies operating in certain areas of Beacon’s basic market niche that have longer operating histories and greater financial, technical, marketing, sales, or other resources when compared to Beacon. While Beacon intends to enter into relationships with third parties to offset these competitive factors, there is no guarantee that Beacon will respond more effectively than its competitors to new or emerging products or changes in customer requirements. Increased competition, either from individual firms or collaborative ventures may harm Beacon’s ability to sell services on favorable terms, which in turn could lead to price cuts, reduced gross margins, or loss of market share. These factors could seriously harm Beacon’s business.

Beacon depends on its key employees.

Beacon is highly dependent on certain officers and employees. The loss of any of their services or Beacon’s inability to attract and retain other qualified employees could have an adverse impact on Beacon’s business and its ability to achieve its objectives. Beacon has employment and non-compete agreements with all key personnel. These agreements however will permit the employee to resign without cause at any time. Beacon may not be able to retain existing employees or be able to find, attract and retain other skilled personnel on acceptable terms.

Beacon has no patent protection for its products and services.

None of Beacon’s products or services is proprietary and, as a result, Beacon enjoys no patent protection. As a result, Beacon has a limited ability to protect what it does against infringement by others, including competitors who are larger and better capitalized.

Economic conditions could materially adversely affect us.

Our operations and performance depend significantly on national and worldwide economic conditions. Uncertainty about current national and global economic conditions poses a risk as consumers and businesses may postpone spending in response to tighter credit, negative financial news and/or declines in income or asset values, which could have a material negative effect on the demand for our products and services. Other factors that could influence demand include conditions in the real estate and mortgage markets, labor and healthcare costs, access to credit, consumer confidence, and other macroeconomic factors affecting consumer spending behavior. These and other economic factors could have a material adverse effect on demand for our products and services and on our financial condition and operating results.

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The current economic conditions have resulted in a tightening in the credit markets, a low level of liquidity in many financial markets, and extreme volatility in fixed income, credit, currency and equity markets. There could be a number of follow-on effects from the credit crisis and current economic environment on our business, including insolvency of key customers and suppliers and the inability for us to raise additional working capital to support the growth of our operations.

Beacon’s quarterly operating results may fluctuate significantly and will be difficult to predict.

Our results of operations may fluctuate from quarter to quarter as a result of a number of factors, including our services mix, development timeline and the rate at which customers accept our service offerings. Accordingly, our future operating results may be subject to variability from quarter to quarter and could be adversely affected in any particular quarter. It is possible that our operating results will be below the expectations of investors.

Catastrophic events or geo-political conditions may disrupt our business.

A disruption or failure of our systems or operations in the event of a major earthquake, weather event, cyber-attack, terrorist attack, or other catastrophic event could cause delays in completing sales, providing services or performing other mission-critical functions. A catastrophic event that results in the destruction or disruption of any of our critical business or information technology systems could harm our ability to conduct normal business operations and our operating results. Abrupt political change, terrorist activity, and armed conflict pose a risk of general economic disruption in affected countries, which may increase our operating costs. These conditions also may add uncertainty to the timing and budget for technology investment decisions by our customers.

Risks Relating to Ownership of Beacon Common Stock

No Assurances of a Public Market; Restrictions on Resale.

Although our Common Stock is currently traded on the OTC Bulletin Board (“OTC.BB”), trading may be extremely sporadic. A more active market for our common stock may not develop. Investors must be prepared to bear the economic risk of holding the securities for an indefinite period of time.

Potential dilution of outstanding options and warrants could interfere with Beacon’s ability to raise capital.

Beacon has outstanding options and warrants that are convertible into or exercisable for shares of our common stock. To the extent that outstanding options or warrants are exercised, dilution to the percentage ownership of Beacon’s shareholders will occur. In addition, the terms on which Beacon will be able to obtain additional equity capital may be adversely affected if the holders of outstanding options and warrants exercise them at a time when Beacon is able to obtain additional capital on terms more favorable to Beacon than those provided in the outstanding options and warrants.

The price of Beacon Common Stock may fluctuate significantly.

Stock of public companies can experience extreme price and volume fluctuations. These fluctuations often have been unrelated or out of proportion to the operating performance of such companies. Beacon expects its stock price to be similarly volatile. These broad market fluctuations may continue and could harm Beacon’s stock price. Any negative change in the public’s perception of the prospects of Beacon or companies in Beacon’s industry could also depress Beacon’s stock price, regardless of Beacon’s actual results. Factors affecting the trading price of Beacon’s common stock may include:

•

variations in operating results;

•

announcements of technological innovations, new products or product enhancements, strategic alliances or significant agreements by Beacon or by competitors;

•

recruitment or departure of key personnel;

•

litigation, legislation, regulation or technological developments that adversely affect Beacon’s business; and

•

market conditions in Beacon’s industry, the industries of their customers and the economy as a whole.

Further, the stock market in general, and securities of microcap companies in particular, can experience extreme price and volume fluctuations. Continued market fluctuations could result in extreme volatility in the price of the Beacon Common Stock, which could cause a decline in the value of Beacon Common Stock. You should also be aware that price volatility might be worse if the trading volume of the Beacon Common Stock is low.

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The SEC may limit the number of shares of Beacon Common Stock that may be registered for resale at any one time.

The Federal securities laws distinguish between a primary offering made by an issuer and a secondary offering made by an issuer on behalf of a selling shareholder. Recently, the SEC has made public statements indicating the SEC’s Division of Corporation Finance will question the ability of issuers to register shares for resale in a secondary offering where the number of shares offered exceed an estimated one-third of the total number of shares held by non-affiliates prior to the underlying private transaction. Although this position is not written or settled law, it is possible the SEC staff will view any resale offering by investors as an offering by Beacon and deem it a primary offering if the number of shares Beacon seeks to register exceeds the estimated one-third threshold. Even if the number of shares Beacon seeks to register is below the estimated one-third threshold, the SEC staff may still take the position that the offering is a primary offering rather than a secondary offering. In that event, Beacon may seek to register only a portion of its Common Stock at any one time and will only be able to register additional Common Stock after the passage of time and the sale of substantially all of the Registrable Securities subject to the previous registration statement.

Beacon Common Stock may be subject to Penny Stock Rules, which could affect trading.

Broker-dealer practices in connection with transactions in “penny stocks” are regulated by certain rules adopted by the SEC. Penny stocks generally are equity securities with a price of less than $5.00, subject to exceptions. The rules require that a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in connection with the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, the rules generally require that prior to a transaction in a penny stock the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the liquidity of penny stocks. If the Beacon Common Stock becomes subject to the penny stock rules, holders of Beacon Common Stock or other Beacon securities may find it more difficult to sell their securities.

Beacon’s operation as a public company subjects it to extensive corporate governance and disclosure regulations that will result in additional operating expenses.

As a public company, Beacon incurs significant legal and accounting expenses associated with its public company reporting requirements. Like many smaller public companies, Beacon faces a significant impact from required compliance with Section 404 of the Sarbanes-Oxley Act of 2002. Section 404 requires management of public companies to evaluate the effectiveness of internal control over financial reporting. The SEC has adopted rules implementing Section 404 for public companies as well as disclosure requirements. Any failure to implement effective or improved internal controls, or to resolve difficulties encountered in their implementation, could harm Beacon’s operating results, or cause a failure to meet reporting obligations or result in management assessing internal control over financial reporting as not sufficient. Any such result could cause investors to lose confidence in Beacon’s reported financial information, which could have a material adverse effect on its stock price.

Item 2. Properties

Beacon’s corporate and executive offices are located at 9300 Shelbyville Road, Suite 1020, Louisville, KY 40222 in approximately 4,000 square feet of office space leased through March 2016. Additionally, we have offices in Cincinnati, OH consisting of approximately 6,500 square feet of office space leased through May 2016, Columbus, OH consisting of approximately 3,000 square feet leased through February 2012, and Prague, Czech Republic consisting of approximately 4,700 square feet leased through June 2015. We believe our facilities are adequate for the continuing operations of our existing business.

Item 3. Legal Proceedings

On September 7, 2010, Beacon was named a party in a lawsuit filed in Jefferson Circuit Court in the State of Kentucky, seeking $270 plus other costs, attorney’s fees and damages, regarding the Company's alleged conduct during the course of the purchase of the assets and assumption of certain liabilities of Strategic Communications, LLC. As of September 30, 2011, this suit was settled by the primary parties with no payment required by the Company.

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During the year ended September 30, 2011, Beacon was named a party in a lawsuit filed in Swiss court, seeking approximately $232 of unpaid liabilities incurred in connection with the discontinued Datacenter Contractors AG (“DC”, formerly “Beacon Solutions AG”) subsidiary. Although the outcome of this matter cannot be predicted at this time, a motion to dismiss was filed in commercial court and our council has advised that our basis for procedural arguments is strong. As such no provision has been made in the consolidated financial statements related to this action as of September 30, 2011, as the Company believes that the ultimate disposition of this matter will not have a material adverse effect on the Company’s financial position or results of operations.

No other legal proceedings in the normal course of business are required to be disclosed under this Item 3.

Item 4. Removed and Reserved

Part II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stock, par value $.001 per share, has been traded on the OTC Bulletin Board, first under the symbol “BESG.OB” subsequently changed to the symbol “BEAC.OB,” since January 7, 2008. Prior to that time, our common stock was traded on the OTC Bulletin Board under the symbol “SGEG.OB.”

The public market for our stock is limited and sporadic. The following table sets forth, for the period indicated, the high and low last sale price for our common stock as reported on the OTC Bulletin Board:

Quarter Ended	High		Low

Fiscal 2010

December 31, 2009	$	1.01	$	0.81
March 31, 2010	$	1.50	$	1.02
June 30, 2010	$	1.53	$	1.01
September 30, 2010	$	1.10	$	0.35

Fiscal 2011

December 31, 2010	$	0.75	$	0.35
March 31, 2011	$	0.70	$	0.38
June 30, 2011	$	0.53	$	0.25
September 30, 2011	$	0.40	$	0.18

Holders

As of December 5, 2011, we had approximately 215 stockholders of record.

Dividends

We have not paid cash dividends on shares of our common stock and do not anticipate doing so in the foreseeable future. The payment of dividends on shares of our common stock will depend on earnings, financial condition and other business and economic factors affecting us at such time as our board of directors may consider relevant.

Under our Articles of Incorporation and the Certificates of Designation of Series B, C-1 and C-2 Preferred Stock, without the consent of holders of a majority of each Series of Preferred Stock, we may not pay any dividends upon shares of Common Stock until we have paid the aggregate accrued dividends upon such preferred stock and such amounts that the holders of such preferred stock would receive if they were to convert their shares of preferred stock into shares of common stock.

Page 10

Recent Sales of Unregistered Securities

Information related to sales of unregistered securities has been included in our Quarterly Reports on Form 10-Q for the periods ended December 31, 2009, March 31, 2010 and June 30, 2010, March 31, 2011 and June 30, 2011 as well as our Current Reports on Form 8-K filed October 2, 2009, October 15, 2009, October 19, 2009, November 3, 2009, November 12, 2009, November 24, 2009 and December 15, 2009 and May 30, 2011.

Securities Authorized for Issuance under Compensation Plans

At the Company’s annual meeting on May 26, 2011, shareholders approved a resolution to reserve and authorize an additional 1,000,000 shares under the 2008 Long-Term Incentive Compensation Plan, bringing the total reserved and authorized to 2,000,000.

Equity Compensation Plan Information

(a)

(b)

(c)

Number of securities to

Weighted-average

Number of securities remaining

be issued upon exercise

exercise price of

available for future issuance under

of outstanding options,

outstanding options,

equity compensation plans (excluding

As of September 30, 2011

warrants and rights

securities reflected in column (a))

Equity compensation plans approved by security holders

934,696

1.23

1,065,304

Issuer Purchases of Equity Securities

None.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

Cautionary Statements — Forward Outlook and Risks

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

Our business may be materially adversely affected by the current economic environment. The recent disruptions in both domestic and global financial and credit markets have significantly impacted domestic and global economic activity and led to an economic recession. As a result of these disruptions, our customers and markets have been adversely affected. If we experience reduced demand because of these disruptions in the macroeconomic environment, our business, results of operation and financial condition could be materially adversely affected. If we are unable to successfully anticipate changing economic and financial conditions, we may be unable to effectively plan for and respond to these changes and our business could be adversely affected;

Page 11

effects of competition in the markets in which we operate;

liability and other claims asserted against us;

ability to attract and retain qualified personnel;

availability and terms of capital;

loss of significant contracts or reduction in net sales associated with major customers;

ability of customers to pay for services;

business disruption due to natural disasters or terrorist acts;

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

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

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

For a detailed discussion of these and other factors that could cause our actual results to differ materially from the results contemplated by the forward-looking statements, please refer to Item 1(A) Risk Factors in this annual report on Form 10-K. The reader is encouraged to review the risk factors set forth therein. The reader should not place undue reliance on forward-looking statements, which speak only as of the date of this report. Except as required by law, we assume no responsibility for updating forward-looking statements to reflect unforeseen or other events after the date of this report.

Overview

The Company is a provider of global design, implementation and management of high performance Information Technology Systems (ITS) infrastructure solutions. Beacon’s portfolio of ITS infrastructure services spans all professional and construction requirements for design, build and management of telecommunications, network and technology systems infrastructure. Professional services offered include consulting, engineering, program management, project management, construction services and infrastructure management services. Beacon offers these services under a comprehensive contract vehicle or unbundled to some global and regional clients. Beacon also offers special services in support of qualified projects in the smart buildings/campuses/cities and data center verticals. Finally, Beacon provides managed information technology and telecommunications services in selected local markets.

Organic Growth Strategy

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

Expansion of our a la carte services offered to existing major national, multi-national and global clients who have not signed an infrastructure managed services agreement. This has been initiated reorganizing sales/marketing 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.

Additionally we have added regional and major account sales resources in each business unit. This will facilitate the introduction of Fortune 1000, Global 2000 and qualifying multi-national firms.

Results of Operations

For the years ended September 30, 2011 and 2010

In order to best discuss and compare operations for the years ended September 30, 2011 and 2010 our North American and European operations will be presented and discussed separately.

Page 12

North American Operations

	For the year ended September 30
	2011						2010
	North America						North America						Change

Net Sales	$	11,142			100	%	$	10,273			100	%	$	869
Cost of materials sold		1,207			11	%		1,405			14	%		(198	)
Cost of services		6,341			57	%		5,035			49	%		1,306
Gross profit		3,594			32	%		3,833			37	%		(239	)
Operating expense
Salaries and benefits		5,112			46	%		5,139			50	%		(27	)
Selling, general and administrative		3,024			27	%		4,043			39	%		(1,019	)
Intercompany services		(2,552	)		-23	%		(328	)		-3	%		(2,224	)
Non-cash loss from sale of unit		656						-						656
Loss from operations		(2,646	)	NM				(5,021	)	NM				2,375
Other expense		(1,022	)					(244	)					(778	)
Change if Fair Value of Warrants		-						(4,373	)					4,373
Net Loss before taxes		(3,668	)					(9,638	)					5,970

Income tax expense		(59	)					(49	)					(10	)

Net loss from continuing operations		(3,727	)					(9,687	)					5,960
Net income from discontinued operations		-						-
Net loss	$	(3,727	)				$	(9,687	)				$	5,960

Net sales from our North American operations for the years ended September 30, 2011 and 2010 was $11,142 and $10,273. Year to date sales growth of 8% reflects our ability to penetrate the market and increase understanding and acceptance of the value add and cost savings our service offerings provide.

	For the years ended September 30,
	2011		2010
	North America		North America		Change

Cost of services
Direct labor		1,639		1,884		(245	)
Subcontractor		4,231		2,745		1,486
Project expenses		471		406		65
Total cost of services		6,341		5,035		1,306

Cost of services increased for the years ended September 30, 2011 compared to the same period in 2010 as a result of increased volume and a shift in our business model whereby we utilize subcontractors to perform a larger portion of our service delivery as opposed to internal resources. This change in business model was also the source of the reduction in direct labor expenses in 2011 compared to the same period in 2010. In addition, sales in 2011 reflect a sales mix weighted toward our infrastructure management services business versus design and engineering services, which tend to be higher margin services, accounting for our overall margin decline.

Salaries and benefits of approximately $5,112 and $5,139 for the years ended September 30, 2011 and 2010 consisted of salaries and wages of approximately $3,326 and $2,913, benefits and payroll taxes of $968 and $943. Non-cash share-based compensation of $740 and $1,116 related primarily to granted stock options is included in salaries and wages and commissions and bonuses of $78 and $167. While headcount was reduced, the increase in salaries year to date is attributable to a workforce shift to a higher salaried professional administrative and management workforce, the increase in salaries being offset by reduced share based compensation expense due to vesting and option forfeitures through workforce attrition.

Page 13

	For the years ended September 30,
	2011		2010
	North America		North America		Change

Selling, general and administrative
Professional fees		808		1,352		(544	)
Travel		379		473		(94	)
Business Insurance		316		205		111
Depreciation and Amortization		311		551		(240	)
Office related		307		300		7
Telecommunications and data		206		345		(139	)
Bad debt		161		146		15
Other administrative services		536		671		(135	)
Total selling, general and administrative		3,024		4,043		(1,019	)

The reduction of selling, general and administrative costs reflects an ongoing, concerted effort to streamline operations and control costs, through negotiating fixed fee arrangements and eliminating duplicate or inefficient services, all the while increasing the efficiency and scalability of Beacon’s administrative infrastructure. Management continues to monitor expenses in relation to business volume to achieve optimum results.

Included in the loss from operations is a non-cash charge of $656 related to the sale of a unit in our middle market business. This transaction has allowed the company to reduce associated costs while continuing to move our focus to our core business.

European Operations

	For the year ended September 30
	2011						2010
	Europe						Europe						Change

Net Sales	$	7,752			100	%	$	3,723			100	%	$	4,029
Cost of materials sold		16			0	%		153			4	%		(137	)
Cost of services		4,610			59	%		1,487			40	%		3,123
Gross profit		3,126			40	%		2,083			56	%		1,043
Operating expense											0	%
Salaries and benefits		456			6	%		897						(441	)
Selling, general and administrative		960			12	%		1,516			41	%		(556	)
Intercompany services		2,552			33	%		328			9	%		2,224
Loss from operations		(842	)	NM				(658	)		-18	%		(184	)
Other expense		(119	)					(15	)	NM				(104	)

Net loss before taxes		(961	)					(673	)					(288	)

Income tax expense		18						(14	)					32

Net (loss) from continuing operations		(943	)					(687	)					(256	)
Net income (loss) from discontinued operations		7,892						(8,181	)					16,073
Net income (loss)	$	6,949					$	(8,868	)				$	15,817

Net sales from European operations for the years ended September 30, 2011 and 2010 was $7,752 and $3,723 and show the growth in this segment as our operations gain traction in Europe. The increase in net sales reflects our success in leveraging our experiences to increase business from our largest customer and gain access to new markets. We expect our ability to grow net sales in our European segment will continue as we onboard new programs and expand into new markets.

	For the years ended September 30,
	2011		2010
	Europe		Europe		Change

Cost of services
Direct Labor		260		-		260
Subcontractor		4,081		1,060		3,021
Project expenses		269		427		(158	)
Total cost of services		4,610		1,487		3,123

The increase in cost of services sold primarily reflects the increased net sales in Europe in 2011. In addition, the increase illustrates the maturing business in Europe and installation of our subcontractor business model. The volume and shift in work being delivered by subcontractors rather than internal resources is primarily responsible for the increase in subcontractor cost incurred in 2011, as a percentage of sales, in comparison with the same periods in 2010.

Page 14

Additionally, gross profit as a percentage of sales decreased significantly during year ended September 30, 2011 compared to 2010 due to the majority of work being completed in European countries with higher cost structures and change in product mix away from higher margin professional services toward our infrastructure management services, which typically are higher cost and lower margin because the work is delivered by subcontractors.

Salaries and benefits of approximately $456 and $897 for the years ended September 30, 2011 and 2010 consisted of salaries and wages of $217 and $734, and $239 and $163 of related benefits. The decrease in salaries resulting from reducing headcount in the European market based on our better understanding of staffing needs.

	For the years ended September 30,
	2011		2010
	Europe		Europe		Change

Selling, general and administrative
Bad debt		367		580		(213	)
Outside services		233		81		152
Professional fees		79		283		(204	)
Travel		63		266		(203	)
Office related		167		163		4
Other administrative services		51		143		(92	)
Total selling, general and administrative		960		1,516		(556	)

The overall decrease reflects our operating experience in Europe which we leveraged to improve the structure and operating efficiency of the administrative function.

Liquidity and Capital Resources

For the year ended September 30, 2011, we generated net income of $3,222, which includes income from discontinued operations of $7,892 (see Note 4), non-cash expenses for share based compensation of $1,022, non-cash depreciation and amortization expense of $350 and cash used in continuing operations amounting to $1,306. Our accumulated deficit amounted to $36,583, while we had cash of $861 and a working capital deficit of $2,169.

Financing transactions we completed during the year ended September 30, 2011 include the following:

On August 17, 2010 we entered into a long term line of credit facility with one of our directors for $4,000, the facility has an annual interest rate of 7.73% on any outstanding balance and a facility fee of the greater of $40 or 1% of the unused balance. Additionally, 15,000 warrants, with a five year term exercisable at $1.00 per share, per month are earned for each month the facility is outstanding. On August 12, 2011, the Company modified this agreement, extending the term another 24 months, and reducing the credit facility to $2,000, with an annual interest rate of 7.75% on any outstanding balance. On October 26, 2011, the Company has decided to terminate the long term line of credit facility and associated put right entered into on August 17, 2010 and revised August 12, 2011, with one of our directors. See Note 10 for additional details.

On March 25, 2011 Beacon offered in a private placement 350 units of preferred stock (the "Series C-1 Units"), to two existing shareholders, at a purchase price of $2 per Series C-1 Unit. As of June 30, 2011, we completed the sale of 350 Series C-1 Units for an aggregate purchase price of $526 and issued 350,000 warrants having a fair value, as determined using the Black Scholes pricing model, of $112

On May 4, 2011 Beacon offered in a private placement 100 units of preferred stock (the "Series C-2 Units"), at a purchase price of $2 per Series C-2 Unit, for an aggregate purchase price of $150 and issued 100,000 warrants having a fair value, as determined using the Black Scholes pricing model, of $32.

Page 15

In light of the recent progress we made in the execution of our business plan, the funding that occurred during the year, the proceeds from the Senior Secured Notes and C-3 private placement subsequent to year end (See Note 17 – Subsequent Events for information regarding additional financing) , we believe that our currently available cash and the funds expected to be generated from operations will enable us to operate our business and repay our debt obligations as they become due through October 1, 2012.

However, we may require additional capital in order to execute our business plan. If we are unable to raise additional capital, or encounter unforeseen circumstances that place constraints on our capital resources, we will be required to take various measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing our business development activities, suspending the pursuit of our business plan, and controlling overhead expenses. We cannot provide any assurance that we will raise additional capital. We have not secured any commitments for new financing at this time, nor can we provide any assurance that new financing will be available to us on acceptable terms, if at all.

Off-Balance Sheet Arrangements

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

Contractual Obligations as of September 30, 2011:

The following is a summary of our contractual obligations and their respective maturity dates as of September 30, 2011:

Contractual Obligations	Total		2012		2013		2014		2015		2016

Long-term debt obligations	$	3,304	$	3,280	$	24	$	-	$	-	$	-
Interest obligations (1)		279		279		-		-		-		-
Operating lease obligations (2)		1,002		243		243		239		198		79

	$	4,585	$	3,802	$	267	$	239	$	198	$	79

(1)	Interest obligations assume Prime Rate of 3.25% at September 30, 2011. Interest rate obligations are presented through the maturity dates of each component of long-term debt.

(2)

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

Dividends on Series A and A-1 Preferred Stock are payable quarterly at an annual rate of 10%, Series B, Series C-1 and C-2 Preferred Stock are payable quarterly at an annual rate of 6% in cash or the issuance of additional shares of Preferred Stock. If we were to fund dividends accruing during the year ending September 30, 2011 in cash, the total obligation would be $247 based on the number of shares of Series A, A-1, B, C-1 and C-2 Preferred Stock outstanding as of September 30, 2011.

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

Working Capital

As of September 30, 2011, our current liabilities exceed current assets by approximately $2,169 with the largest components being accounts payable and senior secured debt. The $100 bridge note recorded in current liabilities is convertible into common stock and the note agreement provides for vesting of additional warrants to purchase shares of common should the holders continue to hold the debt and immediate vesting of the additional warrants upon conversion.

Critical Accounting Policies and Estimates

We consider the following to be critical policies: revenue and cost recognition, share based payments, common stock purchase warrants and other derivative financial instruments and fair value of financial assets and liabilities.

Recent Accounting Pronouncements

The information contained in Note 3 to the accompanying consolidated financial statements included in Item 8 to this annual report is incorporated herewith by reference.

Page 16

Item 8. Financial Statements and Supplementary Data

Consolidated Financial Statements of Beacon Enterprise Solutions Group, Inc.

		Page

Report of Independent Registered Public Accounting Firm		18
Consolidated Balance Sheets as of September 30, 2011 and 2010		19
Consolidated Statements of Operations for the years ended September 30, 2011 and 2010		20
Consolidated Statement of Stockholders’ Equity (Deficiency) for the years ended September 30, 2011 and 2010		21
Consolidated Statements of Cash Flows for the years ended September 30, 2011 and 2010		22
Notes to Consolidated Financial Statements		23

Page 17

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Audit Committee of the

Board of Directors and Stockholders

Beacon Enterprise Solutions Group, Inc.

We have audited the accompanying consolidated balance sheets of Beacon Enterprise Solutions Group, Inc. and Subsidiaries (the “Company”) as of September 30, 2011 and 2010, and the related consolidated statements of operations, changes in stockholders’ equity (deficiency) and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Beacon Enterprise Solutions Group, Inc. and subsidiaries, as of September 30, 2011 and 2010, and the consolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

New York, NY

December 12, 2011

Page 18

Beacon Enterprise Solutions Group, Inc. and Subsidiaries

Consolidated Balance Sheets

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

	September 30,			September 30,
	2011			2010

ASSETS

Current assets:
Cash and cash equivalents	$	861		$	246
Accounts receivable, net		3,752			4,535
Inventory, net		-			557
Prepaid expenses and other current assets		1,345			357
Current assets of discontinued operations		-			133
Total current assets		5,958			5,828

Property and equipment, net		249			420
Goodwill		2,792			2,792
Other intangible assets, net		2,905			3,011
Other assets		18			20
Total assets	$	11,922		$	12,071

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)

Current liabilities:
Bridge note - related party	$	100		$	100
Current portion of long-term debt		180			379
Senior secured notes payable, net of unamortized deferred debt discount of $48		2,952			-
Accounts payable		3,204			2,971
Accrued expenses and other current liabilities		1,691			880
Current liabilities of discontinued operations		-			8,558
Total current liabilities		8,127			12,888

Non-current line of credit - related party		-			630
Long-term debt, less current portion		24			403
Deferred tax liability		212			153
Total liabilities		8,363			14,074

Stockholders' equity (deficiency)
Preferred Stock: $0.01 par value, 5,000,000 shares authorized, 1,491 and 1,041 shares issued and outstanding at September 30, 2011 and 2010, respectively, in the following classes:
Series A convertible preferred stock, $1,000 stated value, 4,500 shares authorized, 30 shares issued and outstanding at September 30, 2011 and 2010, respectively, (liquidation preference $96)		30			30
Series A-1 convertible preferred stock, $1,000 stated value, 1,000 shares authorized, 311 shares issued and outstanding at September 30, 2011 and 2010, respectively, (liquidation preference $471)		311			311
Series B convertible preferred stock, $1,000 stated value, 4,000 shares authorized, 700 shares issued and outstanding at September 30, 2011 and 2010, respectively, (liquidation preference $1,020)		700			700
Series C-1 convertible preferred stock, $1,500 stated value, 400 shares authorized, 350 issued and outstanding at September 30, 2011 (liquidation preference $703)		525			-
Series C-2 convertible preferred stock, $1,500 stated value, 2,000 shares authorized, 100 issued and outstanding at September 30, 2011 (liquidation preference $198)		150			-
Common stock, $0.001 par value 70,000,000 shares authorized 37,611,396 and 37,376,396 shares issued and outstanding at September 30, 2011 and 2010, respectively		38			37
Additional paid in capital		38,342			37,137
Accumulated deficit		(36,583	)		(39,711	)
Accumulated other comprehensive income (loss)		46			(507	)
Total stockholders' equity (deficiency)		3,559			(2,003	)
Total liabilities and stockholders' equity (deficiency)	$	11,922		$	12,071

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

Page 19

Beacon Enterprise Solutions Group, Inc. and Subsidiaries

Consolidated Statements of Operations

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

	For the			For the
	Year Ended			Year Ended
	September 30,			September 30,
	2011			2010
Net sales	$	18,894		$	13,996
Cost of goods sold		1,223			1,558
Cost of services		10,951			6,522
Gross profit		6,720			5,916
Operating expenses
Salaries and benefits		5,568			6,036
Selling, general and administrative		3,984			5,559
Loss on sale of unit		656			-
Total operating expenses		10,208			11,595
Loss from operations		(3,488	)		(5,679	)

Other expenses
Interest expense		(420	)		(241	)
Other expenses		(721	)		(18	)
Change in fair value of warrants		-			(4,373	)
Total other expenses		(1,141	)		(4,632	)

Net loss before income taxes		(4,629	)		(10,311	)

Income tax expense		(41	)		(63	)

Loss from continuing operations		(4,670	)		(10,374	)
Income (loss) from discontinued operations		7,892			(8,181	)

Net income (loss)		3,222			(18,555	)

Preferred Stock:
Contractual dividends		(94	)		(175	)
Deemed dividends related to beneficial conversion feature		-			(99	)
Net income (loss) available to common stockholders	$	3,128		$	(18,829	)

Net loss per share to common stockholders - basic and diluted
Net loss per share from continning operations		(0.12	)		(0.32	)
Net income (loss) per share from discontinued operations		0.21			(0.25	)
	$	0.09		$	(0.57	)

Weighted average shares outstanding basic and diluted		37,417,368			32,254,769

Other comprehensive income, net of tax
Net income (loss)	$	3,128		$	(18,829	)
Foreign currency translation adjustment		553			(28	)
Comprehensive income (loss)	$	3,681		$	(18,857	)

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

Page 20

Beacon Enterprise Solutions Group, Inc. and Subsidiaries

Consolidated Statement of Stockholders' Equity (Deficiency)

(all amounts in 000's except share data)

	Series A Convertible						Series A-1 Convertible						Series B Convertible				Series C-1 Convertible				Series C-2 Convertible														Accumulated
	Preferred Stock						Preferred Stock						Preferred Stock				Preferred Stock				Preferred Stock				Common Stock				Additional						Other
				$1,000 Stated						$1,000 Stated					$1,000 Stated				$1,000 Stated				$1,000 Stated				$0.001 Par		Paid-In			Accumulated			Comprehensive
	Shares			Value			Shares			Value			Shares		Value		Shares		Value		Shares		Value		Shares		Value		Capital			Deficit			Income			Total
Balance at September 30, 2009		1,984		$	1,984			752		$	752			700	$	700		-	$	-		-	$	-		24,655,990	$	25	$	17,977		$	(16,254	)	$	10		$	5,194

Cumulative effect of change in accounting principle - fair value of warrants with anti dilutive rights																																	(4,628	)					(4,628	)
Relcassification of derivative financial instruments																														10,095									10,095
Vested portion of share based payments to employee for services																														1,082									1,082
Common Stock issued in private placement																										3,795,295		4		1,884									1,888
Private placement offering costs																														(584	)								(584	)
Warrants issued for extension of non-interest bearing note																														64									64
Warrants issued under consulting agreements																														199									199
Common Stock issued for contingent earnout																										175,000
Common Stock issued for investor relations agreements																										100,000				66									66
Amortization of non-employee stock options issued for performance of services																														34									34
Conversion of preferred shares to common stock		(1,993	)		(1,993	)		(462	)		(462	)														3,286,372		3		2,452
Common Stock issued upon exercise of warrants																										4,738,966		5		3,659									3,664
Shares issued in conversion of bridge note to common																										183,620				110									110
Cashless warrant exercises																										441,153
Preferred Stock contractual dividends																																	(175	)					(175	)
Preferred Stock contractual dividends paid in kind		39			39			21			21																												60
Preferred stock deemed dividend																														99			(99	)

Foreign currency translation adjustment																																				(517	)		(517	)
Net loss																																	(18,555	)					(18,555	)

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

Vested portion of share based payments to employees for services																														688									688
Warrants issued under consulting agreements																														183									183
Amortization of market value of common stock vested for investor relations agreement																														23									23
Common Stock issued for investor relations agreements																										160,000		1		31									32
Amortization of non-employee stock options issued for performance of services																														63									63
Warrant issued for credit facility																														71									71
Discount on senior secured notes payable																														180									180
Warrants issued for construction bond																														15									15
Placement agent warrants																														-									-
Restricted stock issued for services																										75,000		-		19									19
Preferred Stock contractual dividends																																	(94	)					(94	)
Preferred Stock issued in private placement																		350		525		100		150															- 675
Private placement offering costs																														(68	)								(68	)

Net income																																	3,222						3,222
Net change in accumulated comprehensive income																																				553			553

Balance at September 30, 2011		30		$	30			311		$	311			700	$	700		350	$	525		100	$	150		37,611,396	$	38	$	38,342		$	(36,583	)	$	46		$	3,559
Common Stock issued for contingent earnout

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

Beacon Enterprise Solutions Group, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(all amounts in 000's)

	For the Year			For the Year
	Ended			Ended
	September 30,			September 30,
	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	3,222		$	(18,555	)
Net (income) loss from discontinued operations (including gain on deconsolidation of $7,892)		(7,892	)		8,181
Net loss from continuing operations		(4,670	)		(10,374	)
Adjustments to reconcile net income (loss) to net cash used in continuing operating activities:
Loss on sale of unit		656			-
Change in reserve for obsolete inventory		55			(10	)
Change in reserve for doubtful accounts		488			710
Depreciation and amortization		350			589
Non-cash interest		71			136
Share based payments		1,022			1,381
Amortization of deferred finance fees		250			-
Amortization of debt discount		132			-
Change in fair value of warrants with anti-dilution rights		-			4,373
Change in deferred tax liability		59			50
Changes in operating assets and liabilities:
Accounts receivable		281			(2,176	)
Inventory		(41	)		58
Prepaid expenses and other assets		(768	)		128
Accounts payable		234			897
Accrued expenses and other current liabilities		575			(1,900	)
CASH USED IN CONTINUING OPERATING ACTIVITIES		(1,306	)		(6,138	)
CASH PROVIDED BY DISCONTINUED OPERATIONS		-			1,298

NET CASH USED IN OPERATING ACTIVITIES		(1,306	)		(4,840	)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures		(118	)		(342	)
Capital expenditures of discontinued operations		-			(183	)
NET CASH USED IN INVESTING ACTIVITIES		(118	)		(525	)
CASH FLOWS FROM CONTINUING FINANCING ACTIVITIES
Proceeds from sale of common stock, net of offering costs		-			2,398
Proceeds from warrant exercises, net of offering costs		-			3,631
Proceeds from issuance of notes		-			765
Proceeds from issuance of senior secured notes payable, net of offering co		2,667			-
Proceeds from non-current line of credit - related party		310			630
Proceeds from sale of preferred stock, net of offering costs		607			-
Payments on non-current line of credit - related party		(940	)		(50	)
Payments on short term debt		-			(1,265	)
Repayment of convertible notes		-			(298	)
Payments of notes payable		(579	)		(496	)
NET CASH PROVIDED BY CONTINUING FINANCING ACTIVITIES		2,065			5,315
Effect of exchange rate changes on cash and cash equivalents		(26	)		69
NET INCREASE IN CASH AND CASH EQUIVALENTS		615			19
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD		246			227
CASH AND CASH EQUIVALENTS - END OF PERIOD	$	861		$	246
Supplemental disclosures
Cash paid for:
Interest	$	285		$	105
Income taxes	$	-		$	-
Non-cash investing and financing activites:
Conversion of debt to common stock	$	-		$	110
Settlement of account payable with common stock	$	-		$	235

Accrued dividends	$	247		$	154

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

BEACON ENTERPRISE SOLUTIONS GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 1 —

ORGANIZATION AND DESCRIPTION OF BUSINESS

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

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

NOTE 2 —

LIQUIDITY AND FINANCIAL CONDITION

For the year ended September 30, 2011, we generated net income of $3,222, which includes income from discontinued operations of $7,892 (see Note 4), non-cash expenses for share based compensation of 1,022, non-cash depreciation and amortization expense of $350 and cash used in continuing operations amounting to $1,306. Our accumulated deficit amounted to $36,583, while we had cash of $861 and a working capital deficit of $2,169.

On September 30, 2011, we sold a unit of our business that was deemed outside our core business. The resulting transaction consisted of disposing the inventory and related assets of the unit, for which we recognized a loss of $656, in exchange for a three year interest in the sales of the disposed unit.

Financing transactions we completed during the year ended September 30, 2011 include the following:

On March 25, 2011 Beacon offered in a private placement 350 units of preferred stock (the "Series C-1 Units"), to two existing stockholders, at a purchase price of $2 per Series C-1 Unit. See Note 8 for more details. As of June 30, 2011, we completed the sale of 350 Series C-1 Units for an aggregate purchase price of $525 and issued 350,000 warrants having a fair value, as determined using the Black Scholes pricing model, of $112

Based on the recent progress we made in the execution of our business plan, the funding that occurred during the year and subsequent funding, we believe that our currently available cash and the funds expected to be generated from operations will enable us to operate our business and repay our debt obligations as they become due through October 1, 2012. However, we may require additional capital in order to execute our business plan. If we are unable to raise additional capital, or encounter unforeseen circumstances that place constraints on our capital resources, we will be required to take various measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing our business development activities, suspending the pursuit of our business plan, and controlling overhead expenses. We cannot provide any assurance that we will raise additional capital. We have not secured any commitments for new financing at this time, nor can we provide any assurance that new financing will be available to us on acceptable terms, if at all.

NOTE 3 —

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

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

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

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

Discontinued Operations

For purposes of determining discontinued operations, the Company has determined Datacenter Contractors AG, included with our European segment, is a component of the Company within the context of ASC 205-20 Discontinued Operations. Transactions that result in the disposal of a component, thereby eliminating the cash flows of that component from our operations, and for which we have no continuing involvement are reported as discontinued operations. Consequently, the Company has classified the results of operations of Datacenter Contractors AG as discontinued operations for all periods presented.

Revenue and Cost Recognition

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

Construction Type Contracts

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

During the year ended September 30, 2010 we recognized approximately $16,948 of net sales under the aforementioned contract, which is reported in discontinued operations in the accompanying consolidated statement of operations (Note 4). We measured our progress on this contract through September 30, 2010 under the percentage-of-completion method of accounting in which sales value was estimated on the basis of physical completion to date (the total contract amount multiplied by percent of performance to date less revenues recognized in previous periods). We applied this method of measurement because management considered it to be the most objective measurement of progress in the circumstance.

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

As of September 30, 2011 we deconsolidated the results of this operation due to a cessation of control and recorded a gain of $7,892 in discontinued operations, which principally consists of the elimination of net liabilities of the operation (Note 4).

Time and Materials Contracts

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

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

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

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

We recognized approximately $135 and $614 from multiple element arrangements for the years ended September 30, 2011 and 2010, respectively and $13,746 and $7,737 from time and material contacts that did not include multiple-element arrangements for the years ended September 30, 2011 and 2010, respectively.

Professional Services Sales

We generally bill our customers for professional telecommunications and data consulting services based on hours of time spent on any given assignment at our hourly billing rates. As it relates to delivery of these services, we recognize sales under these arrangements as the work is performed and the customer has indicated their acceptance of services by approving a completion order. We generated approximately $5,013 and $5,645 of professional services sales during the years ended September 30, 2011 and 2010, respectively. The Company accounts for sales taxes collected on behalf of government authorities using the net method. Pursuant to this method, sales taxes are included in the amounts receivable and a payable is recorded for the amounts due to the government agencies.

Fair Value of Financial Assets and Liabilities

The carrying amounts of cash and cash equivalents, accounts payable and accrued liabilities approximate fair value due to the short-term nature of these instruments. The carrying amounts of our short term credit obligations approximate fair value because the effective yields on these obligations, which include contractual interest rates taken together with other features such as concurrent issuance of warrants and/or embedded conversion options, are comparable to rates of returns for instruments of similar credit risk.

The Company measures the fair value of financial assets and liabilities based on the guidance of ASC 820 “Fair Value Measurements and Disclosures” which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.

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

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

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

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

No such items existed as of September 30, 2011 or 2010.

Foreign Currency Reporting

The consolidated financial statements are presented in United States Dollars in accordance with ASC 830, “Foreign Currency Matters”. Accordingly, the Company’s subsidiaries, BESG Ireland Ltd, Datacenter Contractors AG and Beacon Solutions S.R.O. use the local currency (Euros, Swiss Francs and Czech Crowns, respectively) as their functional currencies. Assets and liabilities are translated at exchange rates in effect at the balance sheet date, and net sales and expense accounts are translated at average exchange rates during the period. Resulting translation adjustments of $46 and ($507) were recorded in comprehensive (loss) income in the accompanying consolidated balance sheets for the years ended September 30, 2011 and 2010.

Customer Concentration

For the years ended September 30, 2011 and 2010, our largest customer accounted for approximately 78% and 64% of sales, respectively. As of September 30, 2011 and 2010 the accounts receivable balance for this customer was $2,995 and $3,941, respectively. Although we expect we will continue to have a high degree of customer concentration our customer engagements are typically covered by multi-year contracts or master service agreements under which we have been operating for a number of years. In addition, current economic conditions could harm the liquidity of and/or financial position of our customers or suppliers, which could in turn cause such parties to fail to meet their contractual or other obligations to us.

Advertising costs are expensed as incurred. Advertising expense amounted to $6 and $38 for the years ended September 30, 2011 and 2010.

Cash and Cash Equivalents

Beacon considers all highly liquid investments purchased with an original maturity date of three months or less to be cash equivalents. Due to their short-term nature, cash equivalents, when they are carried, are carried at cost, which approximates fair value.

Accounts receivable include customer billings on invoices issued by us after the service is rendered or the sale earned. Credit is extended based on an evaluation of our customer’s financial condition and advance payment for services is generally required for many of our services. Credit losses have been provided for in the financial statements and are within management’s expectations.

We have established an allowance for doubtful accounts as an estimate of potential credit risk due to current market conditions. We perform ongoing credit evaluation of our customers’ financial condition when we deem appropriate. Beacon has a policy of reserving for uncollectible accounts 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 accounts at least quarterly.

Unfavorable changes in economic conditions might impact the amounts ultimately collected from our customers and therefore could result in changes to the estimated allowance and future results of operations could be materially affected. Account balances deemed to be uncollectible or otherwise settled with a customer are charged to the allowance for doubtful accounts after all means of collection have been exhausted and the potential for recovery is considered remote. We currently believe the majority of our receivables are collectible due to the nature of the industry. The allowance for doubtful accounts amounted to $1,365 and $866 as of September 30, 2011 and 2010, respectively.

Inventory, which consists of business telephone systems and associated equipment and parts, is stated at the lower of cost (first-in, first-out method) or market. In the case of slow moving items, we may write down or calculate a reserve to reflect a reduced marketability for the item. The actual percentage reserved will depend on the total quantity on hand, its sales history, and expected near term sales prospects. When we discontinue sales of a product, we will write down the value of inventory to an amount equal to its estimated net realizable value less all applicable disposition costs. Slow moving items include spare parts for older phone systems that we use to repair or upgrade customer phone systems. As of September 30, 2011, we have disposed of our inventory (Note 6).

Property and Equipment

Property and equipment is stated at cost, including any cost to place the property into service, less accumulated depreciation. Depreciation is recorded on a straight-line basis over the estimated useful lives of the assets which currently range from 3 to 5 years. Leasehold improvements are amortized over the shorter of their estimated useful lives or the term of the lease. Maintenance, repairs and minor replacements are charged to operations as incurred; major replacements and betterments are capitalized. The cost of any assets sold or retired and related accumulated depreciation are removed from the accounts at the time of disposition, and any resulting profit or loss is reflected in income or expense for the period.

Concentration of Credit Risk

Financial instruments that potentially expose the Company to concentrations of credit risk consist principally of cash and cash equivalents. We maintain our cash accounts at high quality financial institutions with balances, at times, in excess of federally insured limits. As of September 30, 2011 and 2010, we had no deposits in excess of federally insured limits. Management believes that the financial institutions that hold our deposits are financially sound and therefore pose minimal credit risk.

Goodwill and Intangible Assets

We account for goodwill and intangible assets in accordance with ASC 350 Intangibles - Goodwill and Other, ASU 2011-08 Intangibles – Goodwill and Other (Topic 350) – Testing Goodwill for Impairment. ASC 350 requires that goodwill and other intangibles with indefinite lives should be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset has decreased below its carrying value.

Goodwill represents the excess of the purchase price over the fair value of net assets acquired in business combinations. GAAP requires that goodwill be tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis and between annual tests when circumstances indicate that the recoverability of the carrying amount of goodwill may be in doubt. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value. Significant judgment is required to estimate the fair value of reporting units include estimating future cash flows, determining appropriate discount rates and other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment. Upon consideration of our operations, we have determined Beacon operates a single reporting unit.

We review goodwill for possible impairment by comparing the fair value of the reporting unit to the carrying value of the assets. If the fair value exceeds the carrying value of net asset, no goodwill impairment is deemed to exist, except in circumstances in which the carrying value is less than zero. If the carrying value of the reporting unit is less than zero or the fair value does not exceed the carrying value, goodwill is tested for impairment and written down to its implied value if it is determined to be impaired. Based on a review of the fair value of our reporting unit, no impairment is deemed to exist as of September 30, 2011 or 2010.

Given the current economic environment and the uncertainties regarding the potential impact on the Company’s business, if forecasted net sales and margin growth rates of our reporting units are not achieved, it is at least reasonably possible that triggering events could arise that would require us to evaluate the carrying amount of our goodwill for possible impairment prior to the next annual review that we would perform as of September 30, 2012. If a triggering event causes an impairment review to be required before the next annual review, it is not possible at this time to determine if an impairment charge would result or if such charge would be material.

Our amortizable intangible assets consist of customer relationships and covenants not to compete. These costs are being amortized using the straight-line method over their estimated useful lives. We amortize customer relationships on a straight line basis over a 15 year estimated useful life. The covenants not to compete are amortized on a straight line basis over a twenty four month estimated useful life. Amortization expense for the year ended September 30, 2011 and 2010 was $106 and $331.

We review the carrying value of intangibles and other long-lived assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets is measured by comparing the carrying amount of the asset or asset group to the undiscounted cash flows that the asset or asset group is expected to generate. If the undiscounted cash flows of such assets are less than the carrying amount, the impairment to be recognized is measured by the amount by which the carrying amount of the property, if any, exceeds its fair market value. No impairment was deemed to exist as of September 30, 2011 and 2010. We intend to re-evaluate the carrying amounts of our amortizable intangibles at least quarterly to identify any triggering events. As described above, if triggering events require us to undertake an impairment review, it is not possible at this time to determine whether it would be necessary to record a charge or if such charge would be material.

We apply the guidance enumerated in ASC 480 “Distinguishing Liabilities from Equity” when determining the classification and measurement of preferred stock. Preferred shares subject to mandatory redemption (if any) are classified as liability instruments and are measured at fair value. We classify conditionally redeemable preferred shares (if any), which includes preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control, as temporary equity. At all other times, we classify our preferred shares in stockholders’ equity. Our preferred shares do not feature any redemption rights within the holders’ control or conditional redemption features not within our control as of September 30, 2011 and 2010. Accordingly all issuances of preferred stock are presented as a component of consolidated stockholders’ equity (deficiency).

Convertible Instruments

We evaluate and account for conversion options embedded in convertible instruments in accordance with ASC 815 “Derivatives and Hedging Activities”.

Applicable generally acceptable accounting practices (“GAAP”) requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria includes circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. An exception to this rule when the host instrument is deemed to be conventional as that term is described under applicable GAAP.

We account for convertible instruments (when we have determined that the embedded conversion options should not be bifurcated from their host instruments) as follows. We record, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption. We also record, when necessary, deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of the transaction and the effective conversion price embedded in the preferred shares.

Common Stock Purchase Warrants and Other Derivative Financial Instruments

We classify as equity any contracts that (i) require physical settlement or net-share settlement or (ii) provides us a choice of net-cash settlement or settlement in our own shares (physical settlement or net-share settlement) providing that such contracts are indexed to the Company’s own stock as defined in ASC 815-40 (“Contracts in Entity’s Own Equity”). We classify as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside our control) or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). We assess classification of our common stock purchase warrants and other free standing derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required.

Our free standing derivatives consist of warrants to purchase common stock that we issued to three founding stockholders/directors and one independent qualified investor in connection with the Bridge Financing Facility and Bridge Notes described in Note 10, warrants issued pursuant to equity financing arrangements furnished by one of our directors as described in Note 12, warrants issued to the Series A, A-1, C-1 and C-2 Preferred Stock stockholders, and warrants issued to the placement agent and its affiliates in connection with various Private Placements described in Note 13. We evaluated the common stock purchase warrants to assess their proper classification in the balance sheet as of September 30, 2011 and 2010 using the applicable classification criteria enumerated under GAAP. We determined that the common stock purchase warrants do not feature any characteristics permitting net cash settlement at the option of the holders. Accordingly, these instruments have been classified in stockholders’ equity in the accompanying consolidated balance sheet as of September 30, 2011 and 2010.

Share-Based Payments

We account for share based payments in accordance with ASC 718 Compensation — Stock Payments which results in the recognition of expense under applicable GAAP and requires measurement of compensation cost for all share based payment awards at fair value on the date of grant and recognition of compensation expense over the service period for awards expected to vest. We calculate the fair value of stock options using the Black-Scholes option pricing model. The fair value of restricted stock is determined based on the number of shares granted and the fair value of our common stock on date of grant. The recognized expense is net of expected forfeitures.

We account for income taxes in accordance with ASC 740 “Income Taxes”. ASC 740 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statements and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. We also record a valuation allowance when we determine that it is more likely than not that all or a portion of deferred tax assets will not be realized. Under applicable GAAP it is difficult to conclude that a valuation allowance is not needed when there is negative evidence such as cumulative losses in recent years. Therefore, cumulative losses weigh heavily in the overall assessment. Accordingly, we have recorded a full valuation allowance against our net deferred tax assets. In addition, we expect to provide a full valuation allowance on future tax benefits until we can sustain a level of profitability that demonstrates our ability to utilize the assets, or other significant positive evidence arises that suggests our ability to utilize such assets. We will continue to re-assess our reserves on deferred income tax assets in future periods on a quarterly basis.

We also periodically evaluate whether we have any uncertain tax positions requiring accounting recognition in our financial statements. Under applicable GAAP, companies may recognize a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Applicable GAAP also provides guidance on the de-recognition of income tax liabilities, classification of interest and penalties on income taxes, and accounting for uncertain tax positions in interim period financial statements. Our policy is to record interest and penalties on uncertain tax provisions as a component of our income tax expense.

As described in Note 14, we completed our assessment of uncertain tax positions for the years ended September 30, 2011 and 2010, including the effects of the Share Exchange Transaction described in Note 1 and business combinations completed as described in Note 4. Based on this assessment, we have determined that we have no material uncertain income tax positions requiring recognition or disclosure for the years ended September 30, 2011 and 2010.

In many cases, our tax positions are related to tax years that remain subject to examination by relevant tax authorities. We file income tax returns in the United States (federal), Ireland and the Czech Republic as well as various state and local jurisdictions. In most instances, we are no longer subject to federal, state and local income tax examinations by taxing authorities for years prior to 2009.

Basic net income (loss) per share is computed by dividing net income (loss) per share available to common stockholders by the weighted average shares of common stock outstanding for the period and excludes any potentially dilutive securities. Diluted earnings per share reflect the potential dilution that would occur upon the exercise or conversion of all dilutive securities into common stock. The computation of income (loss) per share for the years ended September 30, 2011 and 2010 excludes potentially dilutive securities because their inclusion would be anti-dilutive.

Shares of common stock issuable upon conversion or exercise of potentially dilutive securities at September 30, 2011 are as follows:

					Total
	Stock		Common		Common
	Options and		Stock		Stock
	Warrants		Equivalents		Equivalents

Series A Convertible Preferred Stock with Warrants		20,131		40,263		60,394
Series A-1 Convertible Preferred Stock with Warrants		207,260		414,518		621,778
Series B Convertible Preferred Stock with Warrants		350,000		875,000		1,225,000
Series C Convertible Preferred Stock with Warrants		450,000		900,000		1,350,000
Common Stock Offering Warrants		2,807,322		-		2,807,322
Placement Agent Warrants		2,937,497		-		2,937,497
Affiliate Warrants		55,583		-		55,583
Bridge Financing		285,500		166,667		452,167
Convertible Notes Payable Warrants		50,000		-		50,000
Senior Secured Notes Payable Warrants		449,999		-		449,999
Compensatory Warrants		300,000		-		300,000
Bonding Warrants		33,120		-		33,120
Equity Financing Arrangements Warrants		881,662		-		881,662
Consulting Warrants		2,500,000				2,500,000
Employee Stock Options		3,434,696		-		3,434,696
Non-Employee Stock Options		250,000		-		250,000

		15,012,770		2,396,448		17,409,218

Recent Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income”, which is effective for annual reporting periods beginning after December 15, 2011. ASU 2011-05 will become effective for the Company on January 1, 2012. This guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. In addition, items of other comprehensive income that are reclassified to profit or loss are required to be presented separately on the face of the financial statements. This guidance is intended to increase the prominence of other comprehensive income in financial statements by requiring that such amounts be presented either in a single continuous statement of income and comprehensive income or separately in consecutive statements of income and comprehensive income. The adoption of ASU 2011-05 is not expected to have a material impact on our consolidated financial position or results of operations.

In September 2011, the FASB issued Accounting Standards Update No. 2011-08, Intangibles—Goodwill and Other (Topic 350)—Testing Goodwill for Impairment (ASU 2011-08), to simplify how entities test goodwill for impairment. ASU 2011-08 allows entities to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If a greater than 50 percent likelihood exists that the fair value is less than the carrying amount then a two-step goodwill impairment test as described in Topic 350 must be performed. The guidance provided by this update becomes effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, but early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position and results of operations.

In May 2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-04, “Fair Value Measurement (Topic 820) - Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs." This ASU addresses fair value measurement and disclosure requirements within Accounting Standards Codification ("ASC") Topic 820 for the purpose of providing consistency and common meaning between U.S. GAAP and IFRSs. Generally, this ASU is not intended to change the application of the requirements in Topic 820. Rather, this ASU primarily changes the wording to describe many of the requirements in U.S. GAAP for measuring fair value or for disclosing information about fair value measurements. This ASU is effective for periods beginning after December 15, 2011. It is not expected to have any impact on the Company’s consolidated financial statements or disclosures.

In December 2010 the FASB issued ASU 2010-28, “Intangibles — Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts”. ASU 2010-28 modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts by requiring an entity to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. This update will be effective for fiscal years beginning after December 15, 2010. The adoption of this pronouncement is not anticipated to have a material impact on the Company’s consolidated financial position and results of operations.

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

NOTE 4 —

DISCONTINUED OPERATIONS

On November 12, 2009, Datacenter Contractors AG (“DC”, formerly known as “Beacon Solutions AG”), a wholly owned subsidiary of BESG Ireland Ltd., entered into a two-phase project management services agreement for the design and construction of a data center in Zurich, Switzerland. DC’s operations principally consisted of services provided to one significant customer under a specific contract and were previously reported in the Company’s European operating segment. Phase 1 of the agreement was completed in June 2010. Phase 2 of the agreement relates to the completion of the data center and was valued to the Company at approximately $10,000 in net sales.

In June 2010, the customer notified the Company that it was terminating the agreement and cancelling Phase 2 due to a claimed breach. The Company and customer entered into negotiations regarding the possible continuation of the agreement which did not materialize. On December 14, 2010, Beacon announced that, as a result of DC’s inability to reach a settlement of unpaid invoices by its largest debtor, the DC Board has filed the relevant statutory notices with the local judge in Switzerland in accordance with its fiduciary obligations under Swiss law. As a result of this action, Beacon ceases to have a controlling financial interest in DC and therefore, in accordance with ASC 810-10-65, must deconsolidate the subsidiary from the consolidated financial statements for the year ended September 30, 2011. The resultant deconsolidation generated a net income of $7,892, for the ended September 30, 2011 which is mainly composed of the elimination of the net liabilities of the discontinued DC operations from Beacon’s operations.

The assets and liabilities of DC have been classified on the consolidated balance sheets as current assets and liabilities of discontinued operations. The assets and liabilities comprising the balances, as classified in our consolidated balance sheets, consist of:

	As of
	September 30,
	2010
ASSETS
Cash	$	46
Accounts receviable		87
Total assets	$	133
LIABILITIES
Accounts payable	$	7,554
Accrued expenses		1,004
Total liabilities	$	8,558

The following table presents the results of the discontinued operations.

	For the Year
	Ended
	September 30,
	2010

Net Sales	$	16,948

Net loss before taxes		(8,181	)
Income taxes		-
Net loss from discontinued operations	$	(8,181	)

As part of the discontinued operations, goodwill and intangible assets recorded as a result of the acquisition of Symbiotec Solutions AG were deemed impaired and therefore written off as of September 30, 2010 in the amount of $254 and $396, respectively

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

NOTE 5 —

ACCOUNTS RECEIVABLE

Accounts receivable consists of the following:

	As of			As of
	September 30,			September 30,
	2011			2010

Accounts receivable	$	5,117		$	5,401
Less: Allowance for doubtful accounts		(1,365	)		(866	)

Accounts receivable, net	$	3,752		$	4,535

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

	As of			As of
	September 30,			September 30,
	2011			2010

Opening balance		(866	)	$	(156	)
Add: additions to reserve		(520	)		(752	)
Less: charges		21			42

Ending balance	$	(1,365	)	$	(866	)

NOTE 6 —

INVENTORY, NET

Inventory as of September 30, 2010 consisted of the following:

	As of
	September 30,
	2010

Inventory (principally parts and system components)	$	707
Less: reserve for obsolete inventory		(150	)

Inventory	$	557

On September 30, 2011 the Company sold all of its remaining inventory to a purchaser that acquired certain assets and assumed certain contractual obligations to service specific contracts. Any consideration that the Company may receive is contingent upon the purchaser's ability to generate revenue in future periods. Accordingly, the Company recorded $656 as a component of its operating loss for the year ended September 30, 2011.

NOTE 7 —

PROPERTY AND EQUIPMENT, NET

Property and equipment consist of the following as of September 30, 2011 and 2010:

	September 30,			September 30,
	2011			2010

Equipment	$	530		$	500
Software		263			240
Furniture and Fixtures		60			58
Vehicles		19			82
Leasehold Improvements		12			19

	$	884		$	899
Less: Accumulated Depreciation		(635	)		(479	)

Fixed Assets, net	$	249		$	420

Depreciation amounted to approximately $245 and $258 for the years ended September 30, 2011 and 2010, respectively.

NOTE 8 —

INTANGIBLE ASSETS, NET

The following table is a summary of intangible assets:

	As of			As of
	September 30,			September 30,
	2011			2010

Goodwill	$	2,792		$	2,792
Customer relationships	$	3,804		$	3,804
Covenants not to compete		500			500

		4,304			4,304

Less: Accumulated amortization		(1,399	)		(1,293	)
Intangibles, net	$	2,905		$	3,011

The above noted intangible assets are being amortized on a straight-line basis. Customer relationships are being amortized over a 15 year useful life; contracts not to compete had been amortized over a 2 year useful life based on the estimated economic benefit. Amortization expense for the years ended September 30, 2011 and 2010 was $106 and $331.

The following is a summary of amortization expense for the next five fiscal years and thereafter:

Fiscal Year ended
September 30,

2012	$	254
2013		254
2014		254
2015		254
2016		254
Thereafter		1,635

	$	2,905

NOTE 9 —

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses consist of the following:

	As of		As of
	September 30,		September 30,
	2011		2010

Service delivery	$	568	$	123
Compensation related		334		483
Dividends		247		153
Interest		39		50
Other		503		71

	$	1,691	$	880

NOTE 10 —

NOTES PAYABLE, LONG TERM DEBT AND LINE OF CREDIT – RELATED PARTY

The following is a summary of our notes payable and long term debt:

	As of			As of
	September 30,			September 30,
	2011			2010

Bridge Note	$	100		$	100

Senior secured notes, net of unamortized deferred discount of $48	$	2,952		$	-

Integra Bank	$	-		$	323

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

CETCON		162			290
Strategic Secured Note		42			169

		204			782

Less: current portion		(180	)		(379	)

Non-current portion	$	24		$	403

Long term Line of Credit - related party	$	-		$	630

Short –Term Lines of Credit and Notes Payable

On February 8, 2010, we received $40 in loan proceeds and issued a related short-term promissory note with a 4% per annum interest rate and 1% origination fee. The note was paid in full on March 19, 2010.

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

Convertible Notes Payable

On January 22, 2009, Beacon entered into convertible notes payable with a group of private investors (the “Notes”) facilitated by a broker/dealer. Proceeds of the Notes were $500 in the aggregate. The Notes had an original maturity date of July 21, 2009 with interest payable at a fixed annual rate of 12.5% due monthly. The maturity date of the Notes was extended to January 21, 2010 with interest payable at a fixed annual rate of 15% per annum on the unpaid balance due on the note, which amounted to $298 at September 30, 2009. Each of the note holders also received a five-year warrant to purchase one share of Beacon Common Stock (the “Note Warrants”) at a purchase price of $1.00 per share per $10 of note principal (50,000 shares in the aggregate). We recorded aggregate discounts of $74 to the face value of the Notes based upon the relative fair values of the notes and the warrants and the effects of a beneficial conversion feature. The discount is being accreted over the life of the Notes which amounted to $74 through September 30, 2009 and is included as a component of interest expense in the accompanying Statement of Operations.

During the year ended September 30, 2010 we repaid the remaining principal and $1 of interest expense.

On March 31, 2010, a non-director Bridge Note holder elected to convert a convertible, demand note and accrued interest of $110 to 183,620 common shares. A remaining $100 note, held by a Director of the company, is presented as a current liability in our consolidated balance sheet as of September 30, 2011 and 2010, respectively.

We recorded contractual interest expense of approximately $3 and $5 for the years ended September 30, 2011 and 2010, respectively. We recorded aggregate accretion of the discount on these notes of approximately $0 and $33 for years ended September 30, 2011 and 2010, respectively which is classified as a component of interest expense in the accompanying Consolidated Statement of Operations. The discount relating to a beneficial conversion feature was recorded upon the original issuance of these notes and is fully amortized.

On March 14, 2008, Beacon and Integra Bank entered into a credit facility, under which we borrowed $600 at a 6.25% annual interest rate with monthly payments of $12 over a 60 month term that matures March 12, 2013 and collateralized by all business assets of the Company. On November 23, 2010 the note was paid in full. We recorded contractual interest expense of approximately $4 and $24 for the years ended September 30, 2011 and 2010, respectively.

On November 23, 2010, we initiated a private placement (the “Placement”) of up to $3,000 of 12 month Senior Secured Notes (“Notes”) with warrants to purchase 150 shares of Beacon’s common stock at $0.40 per share for every $1 in principal invested and bear interest at 9% APR due on various dates through March 30, 2012. The Placement was made on a "best efforts" basis with a Minimum of $600 and a Maximum of $3,000. Net proceeds have been used to repay and replace an existing Senior Secured Bank Note totaling approximately $300 and will also be used for additional working capital. The Placement expired on March 30, 2011, when the Maximum was attained. The notes are secured by all business assets of the Company, as defined. As of September 30, 2011 we have issued $3,000 of notes, 449,999 warrants and have recorded interest expense of $229. We incurred financing fees of $333 which have been recognized as deferred finance fees as part of prepaid expenses and are be amortized ratably over the life of the debt.

Using the Black-Scholes model we have determined the fair value of the issued warrants to be $205 and allocated the debt proceeds in accordance with the relative fair value method. The notes payable have been recorded on the consolidated balance sheet as of September 30, 2011 at $2,952 which is net of the discount representing the allocation of the $180 relative fair value to the warrants. For the year ended September 30, 2011, we recorded interest of $132 in the consolidated statements of operations as accretion of the note discount.

Long Term Line of Credit – Related Party

On August 17, 2010 we entered into a long term line of credit facility with one of our directors for $4,000, the facility has an annual interest rate of 7.73% on any outstanding balance and a facility fee of the greater of $40 or 1% of the unused balance. Additionally, 15,000 warrants, with a five year term at $1.00 per share, per month will be paid for each month the facility is outstanding. As of September 30, 2011 and 2010, we have an outstanding balance of $0 and $630, respectively leaving an unused amount of $4,000 and $3,370, which is presented as a non-current liability in our Consolidated Balance Sheet, as terms of the facility call for an 18 month maturity date. As of September 30, 2011, we have issued 165,000 warrants. Using the Black Scholes prices model, we determined the fair value of the warrants and recorded as other expense of $71 for the year ended September 30, 2011.

On August 12, 2011, the Company modified the agreement, extending the term another 24 months, and reducing the credit facility to $2,000, with an annual interest rate of 7.75% on any outstanding balance. For any outstanding balance at month end under the credit facility, the director will receive warrant coverage of 15% to purchase common shares of the Company at an exercise price of the then current stock price.

Additionally under the revised agreement, during the next 24 months the Company may require the director to purchase shares of Common Stock at the then current stock price. The aggregate purchase price of all shares purchased shall not exceed $2,000. For the dollar amount of Common Stock purchased, the director will receive warrant coverage of 15% to purchase shares of Common stock of the Company at an exercise price of the then current stock price. Finally, the Company’s Chief Executive Officer (CEO) agreed that, upon the exercise of the share purchase commitment in whole or in part by the Company, the director shall have the right to purchase up to 1,200,000 shares of Common Stock from the CEO for a purchase price of $0.01 per share.

On October 26, 2011, the Company elected to terminate this long term line of credit facility and associated put right.

During the years ended September 30, 2011 and 2010, Beacon paid approximately $578 and $379 in principal payments on our term debt. We recorded interest expense of approximately $32 and $73 for the years ended September 30, 2011 and 2010, respectively.

The following table summarizes the remaining debt principal payment obligations by year for the long-term debt:

For the Year ended
September 30,

2012	$	3,280
2013		24
	$	3,304

NOTE 11 —

RELATED PARTY TRANSACTIONS

Under a marketing agreement with a company owned by the wife of Beacon’s former president, we provided procurement and installation services as a subcontractor. We earned net sales of approximately $0 and $323 for procurement and installation services provided under this marketing agreement, of which $0 and $198 is recorded as accounts receivable in the accompanying consolidated balance sheets as of September 30, 2011 and 2010.

The Company has obtained insurance through an agency owned by one of its founding stockholders/directors. Insurance expense of $148 and $150 was paid to the agency for the years ended September 30, 2011 and 2010, respectively.

For the year ended September 30, 2011, in connection with a construction bond the Company obtained through an agency owned by one of its founding stockholders/directors, 33,120 warrants were issued to the agency. Using the Black Scholes pricing model, we determined the fair value of the warrants and recorded as an expense of $15.

NOTE 12 —

COMMITMENTS AND CONTINGENCIES

Employment Agreements

The Company has entered into at will employment agreements with five of its key executives with no specific expiration dates that provide for aggregate annual compensation of $752 and up to $1,232 of severance payments for termination without cause.

The Company has entered into operating leases for office facilities in Louisville, KY, Columbus, OH, Cincinnati, OH, and Prague, Czech Republic. Rent expense for the years ended September 30, 2011 and 2010 is being recorded on a straight line basis and amounted to $289 and $274, respectively. A summary of the minimum lease payments due on these operating leases exclusive of the Company’s share of operating expenses and other costs:

For the Year Ended
September 30,

2012	$	243
2013		243
2014		239
2015		198
2016		79
	$	1,002

Engagement of Investor Relations Firms

On January 20, 2009, we engaged an investor relations firm to aid us in developing a marketing plan directed at informing the investing public as to our business and increasing our visibility to FINRA registered broker/dealers, the investing public and other institutional investors and fund managers. On June 5, 2009, our Board of Directors authorized us to issue 150,000 shares of common stock to the same investor relations firm subject to the attainment of certain performance conditions. The performance based arrangement supersedes the previous agreement entered into on January 20, 2009. For the year ended September 30, 2010, a total of 50,000 shares with an aggregate fair value of $44 were earned. The common stock issued under this agreement was recorded as professional fees expense using the measurement principles enumerated under ASC 505 “Equity-Based Payment to Non-Employees”. The contract was terminated before any additional shares were earned.

On December 17, 2009, we engaged another investor relations firm for a twenty four month period, the commitment date being November 1, 2009, providing for compensation payable in 50,000 shares of fully vested non-forfeitable common stock with an aggregate fair value of $45. For years ended September 30, 2011 and 2010, we recorded approximately $22 and $23, respectively of investor relations expense related to this agreement.

On June 3, 2011, we engaged another investor relations firm providing for compensation payable in 75,000 shares of fully vested restricted common stock with an aggregate fair value of $19 which has been recorded as investor relations expense for the year ended September 30, 2011.

During the year ended September 30, 2011, we engaged additional investor relations firms for various time periods through September 30, 2012, the engagements include termination clauses with proper notice, and issued a combined 160,000 shares of fully vested restricted common stock with an aggregate fair value of $32 which has been recorded as investor relations expense for the year ended September 30, 2011.

Engagement for Advisory Services

On January 1, 2009, we entered into a three year advisory agreement with a certain stockholder, whereby the stockholder is providing corporate finance and business strategy advisory services in the areas of business combinations, financing, etc. The agreement provides for compensation of $25 per month, any part of which can be prepaid. During the year ended September 30, 2010 the agreement was extended to a total of 5 years. We recorded $36 and $167 of professional fees expense under this agreement for the years ended September 30, 2011 and 2010, respectively.

Consulting Agreement

On December 1, 2009, we entered into two 36 month consulting agreements, which were subsequently extended to 60 months in April 2010, issuing an aggregate of 2,500,000 consulting warrants. The warrants, issued on December 1, 2009 were fully vested upon issuance and have a fair value of $915, determined using the Black Scholes model. We are recognizing investor relations expense ratably over a 60 month term. For the years ended September 30, 2011 and 2010, we recorded approximately $183 and $191 of investor relation expense related to these agreements.

On March 2, 2010, we engaged another investor relations firm for a four month period, the commitment date being April 1, 2010, providing for compensation payable in cash plus 10,000 warrants to purchase common stock. For the year ended September 30, 2010, we recorded $8 of investor relations expense related to this agreement.

NOTE 13 —

STOCKHOLDERS’ EQUITY (DEFICIENCY)

Beacon is currently authorized to issue up to 70,000,000 shares of common stock, par value $0.001 per share, and 5,000,000 shares of convertible preferred stock, par value $0.01 per share, of which the following series have been designated: 4,500 shares of Series A, 1,000 shares of Series A-1, 4,000 shares of Series B, 400 shares of Series C-1 and 2,000 shares of Series C-2.

On March 25, 2011 Beacon offered in a private placement 350 units (the "Series C-1 Units"), to two existing shareholders, at a purchase price of $2 per Series C-1 Unit. Each Series C-1 Unit is comprised of (i) one (1) share of $2 Stated Value Series C-1 Convertible Preferred Stock (with each share having 130% nonparticipating liquidation preference, bearing dividends at a rate of 6% per annum payable quarterly in cash or additional Preferred Stock at the holder’s option and convertible at the holder’s discretion into 2,000 shares of the Company’s Common Stock, at a conversion price of $0.75, and (ii) a five (5) year warrant to purchase 1,000 shares of its Common Stock (each, an "Investor Warrant") at a purchase price of $0.75 per share (collectively the "Series C-1 Offering"). As of June 30, 2011, we completed the sale of 350 Series C-1 Units for an aggregate purchase price of $525 and issued 350,000 warrants having a fair value, as determined using the Black Scholes pricing model, of $112.

On May 4, 2011 Beacon offered in a private placement 100 units (the "Series C-2 Units"), at a purchase price of $2 per Series C-2 Unit. A Series C-2 Unit comprised of (i) one (1) share of $2 Stated Value Series C-2 Convertible Preferred Stock (with each share having 125% nonparticipating liquidation preference, bearing dividends at a rate of 6% per annum payable quarterly in cash or additional Preferred Stock at the company’s option and convertible at the holder’s discretion into 2,000 shares of the Company’s Common Stock, at a conversion price of $0.75, and (ii) a five (5) year warrant to purchase 1,000 shares of its Common Stock (each, an "Investor Warrant") at a purchase price of $0.75 per share (collectively the "Series C-2 Offering"). As of June 30, 2011, we completed the sale of 100 Series C-2 Units for an aggregate purchase price of $150 and issued 100,000 warrants having a fair value, as determined using the Black Scholes pricing model, of $32.

For services performed in connection with Series C private placements, Beacon paid a placement agent fee of $68 and issued 90,000 placement agent warrants. Using the Black Scholes pricing model, we determined the fair value of the warrants and recorded an expense of $29.

Each share of preferred stock has voting rights equal to the equivalent number of common shares into which it is convertible. The holders of the Series A and Series A-1 are entitled to receive contractual cumulative dividends in preference to any dividend on the common stock at the rate of 10% per annum on the initial investment amount commencing on the date of issue. The holders of the Series B, C-1 and C-2 are entitled to receive contractual cumulative dividends in preference to any dividend on the common stock (but subject to the rights of the previously issued series of preferred stock) at the rate of 6% per annum on the initial investment amount commencing on the date of issue. Such dividends are payable on January 1, April 1, July 1 and October 1 of each year. Dividends accrued but unpaid as of September 30, 2011, are $47, $66, $116, $16 and $2 for Series A, A-1, B, C-1 and C-2, respectively

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

Expected Life		5
Risk-free interest rate		2.69	%
Dividend Yield		0	%
Volatility		66.34	%
Weighted average unit fair value	$	0.47
Warrants Issued		2,312,250
Fair Value	$	1,094

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

	For the			For the
	year ended			year ended
	September 30,			September 30,
	2011			2010

Tax benefit at statutory rate		34.0	%		34.0	%
State income taxes, net of federal benefit		3.9			3.9
Foreign income taxes		(0.8	)		(0.1	)
Non-deductible meals & entertainment		(5.8	)		(17.1	)
Increase in valuation allowance		(32.2	)		(21.3	)

Effective income tax rate		(0.9	) %		(0.6	) %

	As of			As of
	September 30,			September 30,
	2011			2010

Deferred tax assets
Capitalized start up and organization costs	$	37		$	41
Other intangibles amortization		186			176
Accrued expenses		90			67
Bad debt reserve		156			99
Inventory obsolescence reserve		27			57
Share based payments		1,205			824
Sale of business unit		248			-
Net operating loss carryforwards		6,560			5,723

Total deferred tax assets		8,509			6,987
Less valuation allowance		(8,509	)		(6,987	)

Net deferred tax assets		-			-

Deferred tax liabilities
Tax-deductible goodwill		(212	)		(153	)

Total deferred tax liabilities		(212	)		(153	)

Total net deferred tax liability	$	(212	)	$	(153	)

													Fair Value of		Dividend
		Date of	Contractual		Conversion		Common		Closing		Fair Value		Contractual		Related to
Preferred	Date of	Election	Preferred		Price Per		Shares		Price on		of Underlying		Preferred		Beneficial
Stock	Contractual	(Commitment	Stock		Common		Underlying		Date of		Common		Stock		Conversion
Series	Dividend	Date)	Dividend		Share		Dividend		Election		Stock		Dividend		Feature

A	10/1/2009	9/9/2009	$	19	$	0.75		25	$	1.00	$	66	$	19	$	17
A	1/1/2010	2/4/2010	$	50	$	0.75		67	$	1.07	$	71	$	50	$	32
A	4/1/2010	2/4/2010	$	7	$	0.75		9	$	1.38	$	15	$	7	$	7
A	7/1/2010	6/3/2010	$	1	$	0.75		1	$	1.03	$	1	$	1	$	-
A-1	10/1/2009	9/9/2009	$	19	$	0.75		25	$	1.00	$	25	$	19	$	6
A-1	1/1/2010	2/4/2010	$	19	$	0.75		25	$	1.07	$	27	$	19	$	9
A-1	4/1/2010	2/4/2010	$	10	$	0.75		13	$	1.38	$	19	$	10	$	9
A-1	7/1/2010	6/3/2010	$	8	$	0.75		11	$	1.03	$	10	$	8	$	3
B	10/1/2009	9/9/2009	$	11	$	0.80		14	$	1.00	$	13	$	11	$	3
B	1/1/2010	2/4/2010	$	11	$	0.80		14	$	1.07	$	14	$	11	$	3
B	4/1/2010	2/4/2010	$	10	$	0.80		13	$	1.38	$	18	$	10	$	7
B	7/1/2010	6/3/2010	$	10	$	0.80		13	$	1.03	$	13	$	10	$	3

	Total For year end September 30, 2010		$	175			$	230			$	292			$	99

	2011			2010

Federal:
Current	$	-		$	-
Deferred		1,162			1,780

Total federal		1,162			1,780

State:
Current		-			-
Deferred		215			204

Total state		215			204

Foreign:
Current		18			(18	)
Deferred		87			171

		105			153

		1,481			2,137
Change in valuation allowance		(1,522	)		(2,200	)

Total provision	$	(41	)	$	(63	)

			Expected										Risk-Free			Value
Date	Quantity		Life		Strike					Dividend			Interest			Per		Aggregate
Earned	Issued		(days)		Price		Volatility			Yield			Rate			Option		Fair Value

11/12/2009		100,000		3,650	$	0.90		66.34	%		0	%		2.28	%	$	0.30	$	30
1/22/2010		60,000		2,373	$	1.07		65.40	%		0	%		2.23	%	$	0.67	$	40
2/5/2010		200,000		2,373	$	1.07		65.40	%		0	%		2.65	%	$	0.67	$	134
3/8/2010		25,000		2,373	$	1.38		65.40	%		0	%		2.36	%	$	0.86	$	22
5/27/2010		450,000		2,628	$	1.40		65.40	%		0	%		2.18	%	$	0.91	$	410
6/1/2010		400,000		2,738	$	1.36		65.40	%		0	%		2.09	%	$	0.90	$	360
6/6/2010		100,000		2,008	$	1.60		65.40	%		0	%		1.95	%	$	0.75	$	75

10/4/2010		140,000		2,008	$	0.63		78.35	%		0	%		1.17	%	$	0.60	$	84
10/31/2010		585,115		2,738	$	1.00		75.87	%		0	%		1.17	%	$	0.62	$	363
3/3/2011		18,333		2,373	$	0.51		70.76	%		0	%		2.30	%	$	0.49	$	9
6/14/2011		100,000		2,008	$	0.34		65.60	%		0	%		1.68	%	$	0.31	$	31
7/25/2011		2,392		2,738	$	1.00		75.87	%		0	%		1.17	%	$	0.62	$	1

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

Options Outstanding at October 1, 2009		3,200,900		$	1.19
Granted		1,335,000		$	1.31
Forfeited		(817,367	)	$	(1.03	)
Options Outstanding at October 1, 2010		3,718,533		$	1.47
Granted		845,840		$	0.93
Forfeited		(879,677	)	$	(0.98	)
Options Outstanding at September 30, 2011		3,684,696		$	1.42			8.21	$	-

Options Exercisable, September 30, 2011		1,841,865		$	1.23			7.92	$	-

For the year ended September 30, 2010:	North America			Europe			Total

Net sales	$	10,273		$	3,723		$	13,996
Loss from operations		(5,021	)		(658	)		(5,679	)
Other expense		(244	)		(15	)		(259	)
Change in fair value of warrants		(4,373	)		-			(4,373	)
Depreciation and amortization		(551	)		(73	)		(624	)
Net loss from continuing operations		(9,687	)		(687	)		(10,374	)
Net loss from discontinued operations		-			(8,181	)		(8,181	)

Assets		9,374			2,697			12,071
Capital expenditures		223			119			342
Capital expenditures of discontinued operations		-			183			183
Goodwill		2,792			-			2,792
Intangible Assets		3,011			-			3,011

For the year ended September 30, 2011:	North America			Europe			Total

Net sales	$	11,142		$	7,752		$	18,894
Loss from operations		(2,646	)		(842	)		(3,488	)
Other expense		(1,678	)		(119	)		(1,797	)
Depreciation and amortization		(311	)		(39	)		(350	)
Net loss from continuing operations		(3,727	)		(943	)		(4,670	)
Net income from discontinued operations		-			7,892			7,892

Assets		8,762			3,160			11,922
Capital expenditures		118			-			118
Goodwill		2,792			-			2,792
Intangible Assets		2,905			-			2,905

Name	Age	Title

Bruce Widener	50	Director, Chairman, Chief Executive Officer
J. Sherman Henderson III	69	Director
John D. Rhodes III	57	Director
Gerald Bowman	53	Chief Operating Officer
Victor Agruso	52	Chief Human Resource Officer
Michael Grendi	45	Chief Financial Officer, Treasurer and Secretary

Company Capitalization		Mr. Widener continued to demonstrate the ability to raise the capital needed to further the company’s operations.

Retain Excellent Team		Mr. Widener continued to attract and retain a strong management team with expertise at all levels of the organization.

															Change in
															Pension
															Value and
															Nonquali-
													Non-		fied
													Equity		Deferred	All
Name													Incentive		Compen-	Other
and								Stock		Option			Plan		sation	Compen-
Principal					Bonus ($)			Awards ($)		Awards ($)			Compensation		Earnings	sation			Total
Position	Year	Salary ($)			(1)					(2)			($)		($)	($)			($)
(A)	(B)	(C)			(D)			(E)		(F)			(G)		(H)	(I)			(J)

Bruce Widener	2011		261	(3)		-			-		-			-			16	(4)		277
Chairman, Chief Executive	2010		281	(5)		-			-		-			-			12	(6)		293

Gerald Bowman	2011		207	(7)		-			-		-			-			43	(8)		250
Chief Operating Officer and President	2010		160	(9)		-			-		227	(10)		-			12	(11)		399

Michael Grendi	2011		187	(12)		-			-		-			-			16	(13)		203
Chief Financial Officer Treasurer and Secretary	2010		105	(14)		-			-		315	(15)		-			5	(16)		425

Victor Agruso	2011		121	(17)		-			-		-			-			-			121
Chief Human Resource Officer	2010		31	(18)		-			-		105	(19)		-			6	(20)		142

Mark Gervasoni	2011		108	(21)		-			-		-			-			-			108
Chief Marketing and Sales Officer	2010		43	(22)		-			-		358	(23)		-			-			401

Robert Mohr	2011		20	(24)		-			-		-			-			-			20
Former Chief Accounting Officer, Treasurer and Secretary	2010		159	(25)		-			-		-			-			12	(26)		171

Richard C. Mills	2011		-			-			-		-			-			-			-
Former President	2010		105	(27)		40	(28)		-		-			-			6	(29)		151

										Termination
										by Company			Termination
										without Cause			following or
										or Executive			prior to a
										with Good			Change in
	Retirement			Death			Disability			Reason			Control
Benefit	($)			($)			($)			($)			($)

Cash Severance		-		$	240	(1)	$	240	(1)	$	720	(1)		-	(2)

Acceleration of
Restricted Stock		-			-			-			-			-	(2)

Acceleration of
Stock Options		-			-			-			-			-	(2)

Health & Welfare
Benefits		-	(3)		-	(3)		16	(3)		35	(3)		-	(2)

	Beneficial
	Common Share		% of
Name	Ownership		Class

Bruce Widener		3,254,167		7	%
John D. Rhodes III (1)		3,171,606		7	%
Richard C. Mills (2)		2,769,500		6	%
J. Sherman Henderson III (3)		1,035,000		2	%
Michael Grendi		166,667		0	%
Gerry Bowman		83,333		0	%
Victor Agruso		83,333		0	%
Directors and Named Executives Officers (as a group)		10,563,606		17	%

Bruce Widener
Chief Executive Officer and Chairman of the
Board of Directors

Signature	Title	Date


/s/ BRUCE WIDENER	Chief Executive Officer and	December 12, 2011
	Chairman of the Board
Bruce Widener	(Principal Executive Officer)

/s/ J. SHERMAN HENDERSON III	Director	December 12, 2011

J. Sherman Henderson III

/s/ DR. JOHN D. RHODES III	Director	December 12, 2011

Dr. John D. Rhodes III

/s/ S. SCOTT FITZPATRICK	Vice President Corporate Controller &	December 12, 2011
	Treasurer
S. Scott Fitzpatrick	(Principal Financial Officer)