Unassociated Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 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 No. 000-31355

BEACON ENTERPRISE SOLUTIONS GROUP, INC.

(Name of registrant in its charter)


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

9300 Shelbyville Road, Suite 1020, Louisville, KY 40222

(Address of principal executive offices)

502-657-3500

(Issuer’s telephone number)

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

Yes þ No ¨

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

Yes ¨ No þ

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ¨ No þ

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


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

As of May 12, 2011, Beacon Enterprise Solutions Group, Inc. had a total of 37,376,396 shares of common stock issued and outstanding.

Beacon Enterprise Solutions Group, Inc.

FORM 10-Q

For the fiscal three months ended March 31, 2011

INDEX

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements		3

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		16

Item 4. Controls and Procedures		21

PART II: OTHER INFORMATION

Item 1. Legal Proceedings		23

Item 4. Removed and Reserved		23

Item 5. Other information		23

Item 6. Exhibits		23

Signatures		24

EX-3.1

EX-3.2

EX-31.1

EX-31.2

EX-32.1

EX-32.2

Page 2

Beacon Enterprise Solutions Group, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(all amounts in 000's except share data)

	March 31,			September 30,
	2011			2010
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	646		$	246
Accounts receivable, net		3,745			4,535
Inventory, net		512			557
Prepaid expenses and other current assets		958			357
Current assets of discontinued operations		-			133
Total current assets		5,861			5,828
Property and equipment, net		389			420
Goodwill		2,792			2,792
Other intangible assets, net		2,882			3,011
Other assets		28			20
Total assets	$	11,952		$	12,071
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Bridge note - related party	$	100		$	100
Current portion of long-term debt		239			379
Senior Secured Notes Payable, net of unamortized deferred debt discount of $143		2,857			-
Accounts payable		2,401			2,971
Accrued expenses and other current liabilities		2,145			880
Current liabilities of discontinued operations		-			8,558
Total current liabilities		7,742			12,888
Non-current Line of Credit - related party		-			630
Long-term debt, less current portion		94			403
Deferred tax liability		182			153
Total liabilities		8,018			14,074
Stockholders' equity (deficiency)
Preferred Stock: $0.01 par value, 5,000,000 shares authorized, 1,216 and 1,041 shares outstanding in the following classes:
Series A convertible preferred stock, $1,000 stated value, 4,500 shares authorized, 30 shares issued and outstanding at March 31, 2011 and September 30, 2010, respectively, (liquidation preference $95).		30			30
Series A-1 convertible preferred stock, $1,000 stated value, 1,000 shares authorized, 311 shares issued and outstanding at March 31, 2011 and September 30, 2010, respectively, (liquidation preference $452).		311			311
Series B convertible preferred stock, $1,000 stated value, 4,000 shares authorized, 700 shares issued and outstanding at March 31, 2011 and September 30, 2010, respectively, (liquidation preference $994).		700			700
Series C-1 convertible preferred stock, $1,500 stated value, 400 shares authorized, 175 issued and outstanding at March 31, 2011 (liquidation preference $341)		263			-
Common stock, $0.001 par value 70,000,000 shares authorized 37,376,396 shares issued and outstanding at March 31, 2011 and September 30, 2010, respectively.		37			37
Additional paid in capital		37,881			37,137
Accumulated deficit		(35,326	)		(39,711	)
Accumulated other comprehensive income (loss)		38			(507	)
Total stockholders' equity (deficiency)		3,934			(2,003	)
Total liabilities and stockholders' equity	$	11,952		$	12,071

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

Page 3

Beacon Enterprise Solutions Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

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

	For the Three			For the Three			For the Six			For the Six
	Months Ended			Months Ended			Months Ended			Months Ended
	March 31			March 31			March 31			March 31
	2011			2010			2011			2010
Net sales	$	5,003		$	3,269		$	8,977		$	6,142
Cost of materials sold		350			374			626			857
Cost of services		3,253			1,360			5,776			2,636
Gross profit		1,400			1,535			2,575			2,649
Operating expenses
Salaries and benefits		1,863			1,738			3,538			2,779
Selling, general and administrative		980			1,682			1,868			2,699
Total operating expense		2,843			3,420			5,406			5,478
Loss from operations		(1,443	)		(1,885	)		(2,831	)		(2,829	)
Other expenses
Other expenses		(265	)		(65	)		(550	)		(250	)
Change in fair value of warrants		-			(4,349	)		-			(4,373	)
Total other expenses		(265	)		(4,414	)		(550	)		(4,623	)
Net loss before income taxes		(1,708	)		(6,299	)		(3,381	)		(7,452	)
Income tax benefit (expense)		(126	)		127			(88	)		88
Loss from continuing operations		(1,834	)		(6,172	)		(3,469	)		(7,364	)
Net income of discontinued operations		-			283			7,892			444
Net income (loss)		(1,834	)		(5,889	)		4,423			(6,920	)
Series A, A-1 and B Preferred Stock:
Contractual dividends		(19	)		(79	)		(38	)		(127	)
Deemed dividends related to beneficial conversion feature		-			(44	)		-			(69	)
Net income (loss) available to common stockholders	$	(1,853	)	$	(6,012	)	$	4,385		$	(7,116	)
Net income (loss) per share to common stockholders - basic and diluted
Net loss per share from continuing operations		(0.05	)		(0.20	)		(0.09	)		(0.26	)
Net income per share from discontinued operations		-			0.01			0.21			0.02
	$	(0.05	)	$	(0.19	)	$	0.12		$	(0.24	)
Weighted average shares outstanding basic and diluted		37,376,396			30,258,763			37,376,396			28,184,868
Other comprehensive loss, net of tax
Net income (loss)	$	(1,853	)	$	(6,012	)	$	4,385		$	(7,116	)
Foreign currency translations adjustment		(43	)		101			545			86
Comprehensive income (loss)	$	(1,896	)	$	(5,911	)	$	4,930		$	(7,030	)

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

Page 4

Beacon Enterprise Solutions Group, Inc. and Subsidiaries

Condensed Consolidated Statement of Stockholders' Equity (Deficiency)

(Unaudited)

(all amounts in 000's except share data)

	Series A Convertible				Series A-1 Convertible				Series B Convertible				Series C-1 Convertible													Accumulated
	Preferred Stock				Preferred Stock				Preferred Stock				Preferred Stock				Common Stock				Additional					Other
			$1,000 Stated				$1,000 Stated				$1,000 Stated				$1,500 Stated				$0.001 Par		Paid-In		Accumulated			Comprehensive
	Shares		Value		Shares		Value		Shares		Value		Shares		Value		Shares		Value		Capital		Deficit			Income			Total

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

Vested portion of share based payments to employees for services																						369								369
Warrants issued under consulting agreements																						91								91
Amortization of market value of common stock vested for investor relations agreement																						12								12
Amortization of non-employee stock options issued for performance of services																						31								31
Warrants issued for credit facility																						61								61
Discount on senior secured notes payable																						180								180
Series C-1 Preferred Stock issued in private placement														175		263														263
Series A Preferred Stock contractual dividends																								(2	)					(2	)
Series A-1 Preferred Stock contractual dividends																								(16	)					(16	)
Series B Preferred Stock contractual dividends																								(20	)					(20	)
Net income																								4,423						4,423
Net change in accumulated other comprehensive income																											545			545
Balance at December 31, 2010		30	$	30		311	$	311		700	$	700		175	$	263		37,376,396	$	37	$	37,881	$	(35,326	)	$	38		$	3,934

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

Page 5

Beacon Enterprise Solutions Group, Inc. and Subsidiäres

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(all amounts in 000's)

	For the Six			For the Six
	Months Ended			Months Ended
	March 31,			March 31,
	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	4,423		$	(6,920	)
Net income from discontinued Operations (including gain on deconsolidation of $7,892 for the six months ended March 31, 2011)		(7,892	)	$	(444	)
Net loss from continuing operations		(3,469	)		(7,364	)
Adjustments to reconcile net income (loss) to net cash used in continuing operating activities:
Change in reserve for obsolete inventory		30			23
Change in reserve for doubtful accounts		138			68
Depreciation and amortization		258			368
Non-cash interest		156			108
Share based payments		503			639
Amortization of deferred finance fees		84			-
Accretion of debt discount		37			-
Change in fair value of warrants with anti-dilution rights		-			4,373
Change in deferred tax liability		30			-
Changes in operating assets and liabilities:
Accounts receivable		739			926
Unbilled accounts receivable		-			(1,744	)
Inventory		15			85
Prepaid expenses and other assets		(360	)		(32	)
Accounts payable		(608	)		8
Accrued expenses		1,130			(939	)
CASH USED IN CONTINUING OPERATING ACTIVITIES		(1,317	)		(3,481	)
CASH PROVIDED BY DISCONTINUED OPERATIONS		-			3,129
NET CASH USED IN OPERATING ACTIVITIES		(1,317	)		(352	)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures		(95	)		(268	)
Capital expenditures of discontinued operations		-			(183	)
NET CASH USED IN INVESTING ACTIVITIES		(95	)		(451	)
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		-			2,091
Proceeds from issuance of notes		-			500
Proceeds from issuance of senior secured notes payable, net of offering costs		2,667			-
Proceeds from non-current line of credit - related party		310			-
Proceeds from sale of preferred stock		263			-
Payments on non-current line of credit - related party		(940	)		-
Payments on short term debt		-			(550	)
Repayment of convertible notes		-			(298	)
Payments of notes payable		(448	)		(261	)
NET CASH PROVIDED BY CONTINUING FINANCING ACTIVITIES		1,852			3,880
Effect of exchange rate changes on cash and cash equivalents		(40	)		89
NET INCREASE IN CASH AND CASH EQUIVALENTS		400			3,166
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD		246			264
CASH AND CASH EQUIVALENTS - END OF PERIOD	$	646		$	3,430
Supplemental disclosures
Cash paid for:
Interest	$	91		$	85
Income taxes	$	-		$	-

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

Page 6

BEACON ENTERPRISE SOLUTIONS GROUP, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

NOTE 1 — ORGANIZATION AND DESCRIPTION OF BUSINESS

Organization

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

Beacon provides 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 our global and regional clients.

Basis of Presentation

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

NOTE 2 —

LIQUIDITY AND FINANCIAL CONDITION

For the six months ended March 31, 2011, we generated net income of $4,423, which includes a gain on the deconsolidation of discontinued operations of $7,892 (see Note 4), non-cash expenses for share based compensation of $503, non-cash depreciation and amortization expense of $258, and other non-cash charges of $475. Cash used in continuing operations amounted to $1,317 for the six months ended March 31, 2011. Our accumulated deficit amounted to $35,326, while we had cash of $646 and a working capital deficit of $1,881.

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 being issued for each month the facility is outstanding. As of March 31, 2011, we have issued 120,000 warrants. Using the Black Scholes pricing model, we determined the fair value of the warrants and recorded as other expense of $30 and $61, respectively for the three and six months ended March 31, 2011. As of March 31, 2011, we do not have an outstanding balance under this facility. See Note 6.

Page 7

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. See Note 9 for more details. As of March 31, 2011, we completed the sale of 175 Series C-1 Units for an aggregate purchase price of $263 and are obligated to issue 175,000 warrants.

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

NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

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

Reclassifications

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

Use of Estimates

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

Accounts receivable

Accounts receivable of $4,771 and $5,401 as of March 31, 2011 and September 30, 2010, respectively include customer billings on invoices issued by us after the service is rendered or the sale earned. Credit is extended based on an evaluation of our customer’s financial condition and advance payment for services is generally required for many of our services.

We establish an allowance for doubtful accounts based on our best estimate of the amount of potential credit losses based on specific customer information and historical experience. Changes in economic conditions might result in changes to the estimated allowance. Account balances deemed to be uncollectible are charged to the allowance for doubtful accounts after all means of collection have been exhausted and the potential for recovery is considered remote. The allowance for doubtful accounts amounted to $1,026 and $866 as of March 31, 2011 and September 30, 2010, respectively.

Page 8

Inventory

Inventory consists of parts and system components of $692 and $707 as of March 31, 2011 and September 30, 2010, respectively, and is stated at the lower of cost (first-in, first-out method) or market. In the case of slow moving items, we calculate a reserve for obsolescence to reflect a reduced marketability for the items. The actual percentage reserved will depend on the total quantity on hand, its sales history, and expected near term sales prospects. The reserve for obsolescence amounted to $180 and $150 as of March 31, 2011 and September 30, 2010, respectively.

Net Loss Per Share

Basic net loss per share is computed by dividing net income or loss per share available to common stockholders by the weighted average shares of common stock outstanding for the periods presented. Diluted net income per share reflects the potential dilution that could occur if securities or other instruments to issue common stock were exercised or converted into common stock. Potentially dilutive securities, consisting of options and warrants, are excluded from the calculation of diluted per share data when they have an anti-dilutive effect or their per share exercise price is greater than the average market price of common stock during the periods presented. The computation of net income (loss) available to common stockholders per share for the three and six months ended March 31, 2011 and 2010, respectively, excludes potentially dilutive securities because their inclusion would be anti-dilutive.

Shares of common stock issuable upon conversion or exercise of potentially dilutive securities at March 31, 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-1 Convertible Preferred Stock with Warrants		175,000		350,000		525,000
Common Stock Offering Warrants		2,807,322		-		2,807,322
Placement Agent Warrants		2,847,497		-		2,847,497
Affiliate Warrants		55,583		-		55,583
Bridge Financing		285,500		166,667		452,167
Convertible Notes Payable Warrants		50,000		-		50,000
Senior Secured Notes Payable Warrants		449,999		-		449,999
Compensatory Warrants		300,000		-		300,000
Bonding Warrants		33,120		-		33,120
Equity Financing Arrangements Warrants		836,662		-		836,662
Consulting Warrants		2,500,000				2,500,000
Employee Stock Options		3,952,414		-		3,952,414
Non-Employee Stock Options		250,000		-		250,000
		15,120,488		1,846,448		16,966,936

Recently Adopted Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board ("FASB") issued ASU No. 2010-02, “Accounting and Reporting for Decreases in Ownership of a Subsidiary- a Scope Clarification to address implementation issues related to the changes in ownership provisions in the Consolidation-Overall Subtopic (Subtopic 810-10) of the FASB Accounting Standards Codification. Subtopic 810-10 establishes the accounting and reporting guidance for noncontrolling interests and changes in ownership interests of a subsidiary. An entity is required to deconsolidate a subsidiary when the entity ceases to have a controlling financial interest in the subsidiary. Upon deconsolidation of a subsidiary, an entity recognizes a gain or loss on the transaction and measures any retained investment in the subsidiary at fair value. The gain or loss includes any gain or loss associated with the difference between the fair value of the retained investment in the subsidiary and its carrying amount at the date the subsidiary is deconsolidated. In contrast, an entity is required to account for a decrease in its ownership interest of a subsidiary that does not result in a change of control of the subsidiary as an equity transaction. See Note 4 for the impact on the condensed consolidated financial statements as of March 31, 2011.

Page 9

In December 2010 the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 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 condensed consolidated financial statements upon adoption.

NOTE 4 — DISCONTINUED OPERATIONS

As previously disclosed in the Company’s Current Report on Form 10-Q filed on August 16, 2010, due to a contractual dispute with its one significant customer and the inability to reach a settlement, Datacenter Contractors AG’s (“DC”, formerly known as “Beacon Solutions AG”) Board has elected to discontinue DC’s operations. As a result, the net sales and expenses associated with DC have been reclassified as discontinued operations for the three months and six months ended March 31, 2011 and 2010, respectively in the condensed consolidated financial statements.

On December 14, 2010, Beacon announced that, as a result of DC’s inability to reach a settlement of unpaid invoices by its largest debtor, the DC Board has filed the relevant statutory notices with the local judge in Switzerland in accordance with its fiduciary obligations under Swiss law. As a result of this action, Beacon ceases to have a controlling financial interest in DC and therefore, in accordance with ASC 810-10-65, must deconsolidate the subsidiary from the condensed consolidated financial statements for the three and six months ended March 31, 2011. The resultant deconsolidation generated a net income of $0 and $7,892, respectively for the three and six months ended March 31, 2011 which is mainly composed of the elimination of the net liabilities of the discontinued DC operations from Beacon’s operations.

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

NOTE 5 —

ACCRUED EXPENSES

Accrued expenses consist of the following:

	As of		As of
	March 31,		September 30,
	2011		2010

Compensation related	$	1,141	$	483
Service delivery		578		-
Dividends		191		153
Interest		38		50
Other		197		194
	$	2,145	$	880

NOTE 6 —

NOTES PAYABLE AND LINE OF CREDIT – RELATED PARTY

Notes Payable

On November 23, 2010, we initiated a private placement (the “Placement”) of up to $3,000 of 12 month Senior Secured Notes (“Notes”) with warrants to purchase 150 shares of Beacon’s common stock at $0.40 per share for every $1 in principal invested 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 March 31, 2011 we have issued $3,000 of notes, 449,999 warrants and have recorded interest expense of $53. 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.

Page 10

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 Condensed Consolidated Balance Sheet as of March 31, 2011 at $2,857 which is net of the discount representing the allocation of the $180 relative fair value to the warrants. We recorded interest of $37 in the condensed consolidated statements of operations as accretion of the note discount as of March 31, 2011.

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 March 31, 2011, we have issued 120,000 warrants. Using the Black Scholes pricing model, we determined the fair value of the warrants and recorded as other expense of $30 and $61, respectively for the three and six months ended March 31, 2011. As of March 31, 2011, we do not have an outstanding balance under this facility.

NOTE 7 — RELATED PARTY TRANSACTIONS

The Company has obtained insurance through an agency owned by one of its founding stockholders/directors. Insurance expense of $52 and $33 was paid to the agency for each of the three months ended March 31, 2011 and 2010, respectively. Insurance expense of $83 and $78 was paid to the agency for each of the six months ended March 31, 2011 and 2010, respectively.

NOTE 8 — COMMITMENTS AND CONTINGENCIES

Litigation

On September 7, 2010, Beacon was named a party in a lawsuit filed in Jefferson Circuit Court in the State of Kentucky, seeking $270 plus other costs, attorney’s fees and damages, regarding the Company's alleged conduct during the course of the purchase of the assets and assumption of certain liabilities of Strategic Communications, LLC. Although the outcome of this matter cannot be predicted at this time, Beacon believes this lawsuit is without merit. As of March 31, 2011, no provision has been made in the condensed consolidated financial statements related to this action, as the Company believes that the ultimate disposition of this matter will not have a material adverse effect on the Company’s financial position or results of operations.

Operating Leases

The Company has entered into operating leases for office facilities in Louisville, KY, Columbus, OH, Cincinnati, OH, and Prague, Czech Republic. Rent expense for the three months ended March 31, 2011 and 2010, respectively amounted to $87 and $75. For the six months ended March 31, 2011 and 2010, rent expense was $137 and $123, 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, is as follows:

2011	$	131
2012		244
2013		236
2014		228
2015		184
Thereafter		82

	$	1,105

Engagement of Investor Relations Firm

On December 17, 2009, we engaged an investor relations firm for a twenty four month period, providing for compensation payable in 50,000 shares of fully vested non-forfeitable common stock with an aggregate fair value of $45. For the three months ended March 31, 2011 and 2010, we recorded approximately $6 and $0, respectively, of investor relations expense related to this agreement. For the six months ended March 31, 2011 and 2010, we recorded approximately $12 and $4, respectively, of investor relations expense related to this agreement.

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Engagement for Advisory Services

On January 1, 2009, we entered into a three year advisory agreement with a stockholder, whereby the party will provide corporate finance and business strategy advisory services pertaining to Beacon’s business affairs in the areas of business combinations, financing, etc. This agreement was subsequently extended to a total of 5 years in April 2010. We recorded $9 and $75 of professional fees expense under this agreement for the three months ended March 31, 2011 and 2010, respectively. We recorded $19 and $150 of professional fees expense under this agreement for the six months ended March 31, 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 three months ended March 31, 2011 and 2010, we recorded approximately $46 and $76, respectively of investor relation expense related to these agreements. For the six months ended March 31, 2011 and 2010, we recorded approximately $91 and $102, respectively of investor relation expense related to these agreements.

NOTE 9 — STOCKHOLDERS’ EQUITY

Preferred Stock

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. A Series C-1 Unit 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 March 31, 2011, we completed the sale of 175 Series C-1 Units for an aggregate purchase price of $263 and are obligated to issue 175,000 warrants.

Each share of Series A, Series A-1, Series B and Series C-1 preferred stock has voting rights equal to the equivalent number of common shares into which it is convertible. The holders of the Series A and Series A-1 are entitled to receive contractual cumulative dividends in preference to any dividend on the common stock at the rate of 10% per annum on the initial investment amount commencing on the date of issue. The holders of the Series B are entitled to receive contractual cumulative dividends in preference to any dividend on the common stock (but subject to the rights of the Series A and Series A-1) at the rate of 6% per annum on the initial investment amount commencing on the date of issue. The holders of the Series C-1 are entitled to receive contractual cumulative dividends in preference to any dividend on the common stock (but subject to the rights of the Series A, Series A-1, and Series B) 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 March 31, 2011, are $46 for Series A, $50 for Series A-1 and $95 for Series B, respectively. Due to the date of issuance of Series C-1, no dividends were earned or accrued as of March 31, 2011.

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

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

Preferred Stock Dividends

We follow the guidelines of ASC 505 Equity - Dividends and Stock Splits when accounting for pay-in-kind (“PIK”) dividends that are settled in convertible securities with beneficial conversion features. Therefore, we recorded $0 and $44 of deemed dividends for the three months ended March 31, 2011 and 2010, respectively, related to the conversion feature based on the difference between the effective conversion price of the conversion option and the fair value of the common stock on the PIK election dates. We recorded $0 and $69 of deemed dividends for the six months ended March 31, 2011 and 2010, respectively, related to the conversion feature based on the difference between the effective conversion price of the conversion option and the fair value of the common stock on the PIK election dates.

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Issuance of non-employee compensatory options

During the fiscal year ended September 30, 2010, in consideration for services, we granted options to purchase 250,000 shares of Common Stock vesting ratably over a 36 month period. We calculated the fair value of the options using the Black-Scholes option pricing model resulting in a fair value determination of $188, to be recognized over a 36 month period. For the three and six months ended March 31, 2011 we recognized share based compensation of $15 and $31, respectively related to these options.

Stock Options and Other Equity Compensation Plans

During the three months ended December 31, 2010, our Board of Directors authorized the grant of employee stock options to purchase an aggregate of 725,115 shares of common stock. The options have ten year terms with variable vesting periods between 3 and 5 years. We calculated the $447 fair value of the options using the Black-Scholes option pricing model with the assumptions shown below.

During the three months ended March 31, 2011, our Board of Directors authorized the grant of employee stock options to purchase an aggregate of 18,333 shares of common stock. The options have ten year terms and vest over 3 years. We calculated the $9 fair value of the options using the Black-Scholes option pricing model with the following assumptions:


	For the Three			For the Six
	Months Ended			Months Ended
	March 31,			March 31,
	2011			2011
Stock Price	$	0.51		$	0.51 - $0.63
Expected Life		6.5			5.5 - 7.5
Volatility		171	%		171% - 178	%
Risk-free interest rate		2.30	%		1.17% - 2.30	%
Dividend Yield		0	%		0	%
Fair value of options	$	0.49		$	0.49 - $0.62

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

	For the Three		For the Three		For the Six		For the Six
	Months Ended		Months Ended		Months Ended		Months Ended
	March 31,		March 31,		March 31,		March 31,
	2011		2010		2011		2010
Non-Cash Share-Based Compensation Expense
Restricted Stock	$	-	$	10	$	-	$	55
Stock Options		190		231		369		431
Total Stock Compensation Expense	$	190	$	241	$	369	$	486

A summary of the status of our stock option plan and the changes during the three and six months ended March 31, 2011, is presented in the table below:

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							Weighted
							Average
				Weighted			Remaining		Aggregate
	Number			Average			Contractual		Intrinsic
	Of Options			Exercise Price			Life		Value
Options Outstanding at October 1, 2010		3,718,533		$	1.47
Granted		743,448			0.92
Forfeited		(259,567	)		(0.80	)
Options Outstanding at March 31, 2011		4,202,414		$	1.59			8.76	$	-
Options Exercisable, March 31, 2011		1,226,796		$	1.19			8.36	$	-

As of March 31, 2011, there was $1,999 in unamortized share-based compensation cost. This cost is expected to be recognized over the remaining weighted average vesting period of approximately 2 years.

NOTE 10 — Segment Reporting

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

In accordance with ASC 280, the Company reports two operating segments, North America and Europe. The Company’s chief decision-makers review financial information presented on a consolidated basis, accompanied by disaggregated information about net sales and operating profit each year by operating segment. This information is used for purposes of allocating resources and evaluating financial performance.

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

The Company is organized primarily on the basis of operating units which are segregated by geography in the U.S. and Europe. For the three months ended March 31, 2011 our segment results, net of Discontinued Operations (see Note 4 for more details) are as follows:

	North America			Europe			Total
Net sales	$	2,468		$	2,535		$	5,003
(Loss) income from operations		(1,805	)		362			(1,443	)
Other (expense) income		(355	)		90			(265	)
Depreciation and amortization		(116	)		(10	)		(126	)
Net (loss) income from continuing operations		(2,176	)		342			(1,834	)
Assets		9,573			2,379			11,952
Capital expenditures		60			-			60
Goodwill		2,792			-			2,792
Intangible Assets		2,882			-			2,882

For the six months ended March 31, 2011 our segment results, net of Discontinued Operations are as follows:

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	North America			Europe			Total
Net sales	$	5,177		$	3,800		$	8,977
Loss from operations		(2,489	)		(342	)		(2,831	)
Other expense		(539	)		(11	)		(550	)
Depreciation and amortization		(238	)		(20	)		(258	)
Net loss from continuing operations		(3,059	)		(410	)		(3,469	)
Net income from discontinued operations		-			7,892			7,892
Capital Expenditures		95			-			95

For the six months ended March 31, 2011, one customer accounted for approximately 54% and 96% of our North American and European sales, respectively.

NOTE 11 —

SUBSEQUENT EVENTS

As of April 5, 2011, we completed the sale of 175 Series C-1 Units for an aggregate purchase price of $263 and are obligated to issue 175,000 warrants. This transaction completed the private placement.

On May 11, 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 May 11, 2011, we completed the sale of 100 Series C-2 Units for an aggregate purchase price of $150 and are obligated to issue 100,000 warrants.

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

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

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

Cautionary Statements — Forward Outlook and Risks

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

•

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

•

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

•

liability and other claims asserted against the Company;

•

ability to attract and retain qualified personnel;

•

availability and terms of capital;

•

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

•

ability of customers to pay for services;

•

business disruption due to natural disasters or terrorist acts;

•

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

•

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

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

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Overview

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

Organic Growth Strategy

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

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

Add additional major account sales resources to facilitate the introduction of Fortune 1000, Global 2000 and qualifying multi-national firms. We refer to these current and future clients as Fortune 10000.

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

Results of Operations

For the three and six months ended March 31, 2011 and 2010

In order to best discuss and compare operations for the three and six month periods ended March 31, 2011 and 2010 our North American and European operations will be presented and discussed separately.

North American Operations

	For the three months ended March 31,															For the six months ended March 31,
	2011						2010									2011						2010
	North America						North America						change			North America						North America						change

Net Sales	$	2,468			100	%	$	2,334			100	%	$	134		$	5,177			100	%	$	4,595			100	%	$	582
Cost of materials sold		335			14	%		246			11	%		89			611			12	%		729			16	%		(118	)
Cost of services		1,663			67	%		992			43	%		671			3,141			61	%		1,934			42	%		1,207
Gross profit		470			19	%		1,096			47	%		(626	)		1,425			28	%		1,932			42	%		(507	)
Operating expense
Salaries and benefits		1,752			71	%		1,198			51	%		554			3,312			64	%		2,239			49	%		1,073
Selling, general and administrative		751			30	%		1,307			56	%		(556	)		1,555			30	%		2,258			49	%		(703	)
Intercompany services		(228	)		-9	%		(334	)		-14	%		106			(953	)		-18	%		(558	)		-12	%		(395	)
Loss from operations		(1,805	)	NM				(1,075	)	NM				(730	)		(2,489	)	NM				(2,007	)	NM				(482	)
Other expense		(355	)					(7	)					(348	)		(539	)					(192	)					(347	)
Change in Fair Value of Warrants		-						(4,349	)					4,349			-						(4,373	)					4,373
Net loss before income taxes		(2,160	)					(5,431	)					3,271			(3,028	)					(6,572	)					3,544
Income tax expense		(16	)					(29	)					13			(31	)					(29	)					(2	)
Net loss from continuing operations		(2,176	)					(5,460	)					3,284			(3,059	)					(6,601	)					3,542
Net income from discontinued operations		-						-						-			-						-						-
Net loss	$	(2,176	)				$	(5,460	)				$	3,284		$	(3,059	)				$	(6,601	)				$	3,542

Net sales from our North American operations for the three months ended March 31, 2011 and 2010 was $2,468 and $2,334. Net sales from our North American operations for the six months ended March 31, 2011 and 2010 was $5,177 and $4,595. The increase in net sales in both periods was due to focused market development and customer penetration leading to additional work from existing and new customers.

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	For the three months ended March 31							For the six months ended March 31
	2011		2010					2011		2010
	North America		North America		Change			North America		North America		Change
Cost of services
Direct labor		375		544		(169	)		829		1,113		(284	)
Subcontractor		1,110		351		759			2,024		582		1,442
Project expenses		178		97		81			288		239		49
Total cost of services		1,663		992		671			3,141		1,934		1,207

Cost of services sold increased for the three and six months ended March 31, 2011 compared to the same period in 2010 as a result of 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 all periods in 2011 reflect a sales mix weighted toward our infrastructure management services business versus design and engineering services. This resulting product mix for the period contributed to an increase in subcontractor expenses in 2011 compared to the same periods in 2010.

Salaries and benefits of approximately $1,752 and $1,198 for the three months ended March 31, 2011 and 2010 consisted of salaries and wages of approximately $919 and $635, commissions and bonuses of $319 and $14, benefits and payroll taxes of $311 and $305. Non-cash share-based compensation of $203 and $244 related primarily to granted stock options is included in salaries and wages. Salaries and benefits of approximately $3,312 and $2,239 for the six months ended March 31, 2011 and 2010 consisted of salaries and wages of approximately $1,800 and $1,234, commissions and bonuses of $618 and $61, benefits and payroll taxes of $498 and $455. Non-cash share-based compensation of $396 and $489 related primarily to granted stock options is included in salaries and wages. While headcount is relatively consistent, the increase in salaries is attributable to a workforce shift to higher salaried professional administrative and management workforce.

Selling, general and administrative expense for the three months ended March 31, 2011 and 2010 of approximately $751 and $1,307 include approximately $167 and $462 of accounting, investor relations and professional fees, $35 and $30 of bad debt expense, $80 and $86 of office related expense, $70 and $86 of telecommunications and data related expenses, $94 and $179 of travel related expenses, $60 and $33 of expenses related to business insurance, depreciation and amortization of $116 and $170, and $129 and $261 of other administrative services. These costs were offset by intercompany services of $228 and $334 charged to the European business for administrative functions provided and are eliminated upon consolidation. Selling, general and administrative expense for the six months ended March 31, 2011 and 2010 of approximately $1,555 and $2,258 include approximately $427 and $839 of accounting, investor relations and professional fees, $72 and $67 of bad debt expense, $147 and $163 of office related expense, $132 and $173 of telecommunications and data related expenses, $155 and $216 of travel related expenses, $129 and $78 of expenses related to business insurance, depreciation and amortization of $238 and $333, and $255 and $389 of other administrative services. These costs were offset by intercompany services of $953 and $558 charged to the European business for administrative functions provided and are eliminated upon consolidation. The reduction selling, general and administrative costs reflects an ongoing, concerted effort to streamline operations and control costs while increasing the efficiency and scalability of Beacon’s office infrastructure.

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European Operations

	For the three months ended March 31,															For the six months ended March 31,
	2011						2010									2011						2010
	Europe						Europe						change			Europe						Europe						change

Net Sales	$	2,535			100	%	$	935			100	%	$	1,600		$	3,800			100	%	$	1,547			100	%	$	2,253
Cost of materials sold		15			1	%		128			14	%		(113	)		15			0	%		128			8	%		(113	)
Cost of services		1,590			63	%		368			39	%		1,222			2,635			69	%		702			45	%		1,933
Gross profit		930			37	%		439			47	%		491			1,150			30	%		717			46	%		433
Operating expense
Salaries and benefits		111			4	%		540			58	%		(429	)		226			6	%		540			35	%		(314	)
Selling, general and administrative		229			9	%		375			40	%		(146	)		313			8	%		441			29	%		(128	)
Intercompany services		228			9	%		334			36	%		(106	)		953			25	%		558			36	%		395
Income (loss) from operations		362		NM				(810	)	NM				1,172			(342	)	NM				(822	)	NM				480
Other income (expense)		90						(58	)					148			(11	)					(58	)					47
Change in Fair Value of Warrants		-						-						-			-						-						-
Net income (loss) before income taxes		452						(868	)					1,320			(353	)					(880	)					527
Income tax (expense) benefit		(110	)					156						(266	)		(57	)					117						(174	)
Net income (loss) from continuing operations		342						(712	)					1,054			(410	)					(763	)					353
Net income from discontinued operations		-						283						(283	)		7,892						444						7,448
Net loss	$	342					$	(429	)				$	771		$	7,482					$	(319	)				$	7,801

Net sales from European operations for the three months ended March 31, 2011 and 2010 was $2,535 and $935. Net sales from European operations for the six months ended March 31, 2011 and 2010 was $3,800 and $1,547 and show the growth in this segment as we solidify our foothold in Europe and further expand operations abroad. Now that we have a full fiscal year of activity in Europe with a proven services solution, we have been able to leverage the experience to increase business from our largest customer.

	For the three months ended March 31							For the six months ended March 31
	2011		2010					2011		2010
	Europe		Europe		Change			Europe		Europe		Change
Cost of services
Subcontractor		1,480		-		1,480			2,457		-		2,457
Project expenses		110		368		(258	)		178		702		(524	)
Total cost of services		1,590		368		1,222			2,635		702		1,933

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 shift in the type of sales being delivered in 2011 is primarily responsible for the increase in subcontractor cost incurred in 2011 in comparison with the same periods in 2010.

Additionally gross profit as a percentage of sales decreased significantly during the three and six months ended March 31, 2011 compared to 2010 due to the majority of work being completed in European countries with higher cost structures.

Salaries and benefits of approximately $111 and $540 for the three months ended March 31, 2011 and 2010 consisted of salaries and wages of $64 and $462, and $47 and $78 of related benefits. Salaries and benefits of approximately $226 and $540 for the six months ended March 31, 2011 and 2010 consisted of salaries and wages of $122 and $462, and $104 and $78 of related benefits.

Selling, general and administrative expense for the three months ended March 31, 2011 and 2010 was approximately $229 and $375. Additionally, intercompany services of $228 and $334 were charged to the European business for administrative functions provided by the North American corporate office and were eliminated upon consolidation. Selling, general and administrative expense for the six months ended March 31, 2011 and 2010 was approximately $313 and $441. Additionally, intercompany services of $953 and $558 were charged to the European business for administrative functions provided by the North American corporate office and were eliminated upon consolidation.

Liquidity and Capital Resources

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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 March 31, 2011, we have issued 120,000 warrants. Using the Black Scholes pricing model, we determined the fair value of the warrants and recorded as other expense of $30 and $61, respectively for the three and six months ended March 31, 2011. As of March 31, 2011, we do not have an outstanding balance under this facility. See Note 6.

On November 23, 2010, we initiated a private placement (the “Placement”) of up to $3,000 of 12 month Senior Secured Notes (“Notes”) with warrants to purchase 150 shares of Beacon’s common stock at $0.40 per share for every $1 in principal invested, and bear interest at 9% APR. The Placement will be made on a "best efforts" basis with a Minimum of $600 and a Maximum of $3,000. Net proceeds have been used to repay and replace an existing Senior Secured Bank Note totaling approximately $300 and will also be used for additional working capital. The Placement expired on March 30, 2011, the date the Maximum was raised, with net proceeds received of $2,667 (gross proceeds of $3,000 less offering costs of $333).

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. A Series C-1 Unit 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, 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 March 31, 2011, we completed the sale of 175 Series C-1Units for an aggregate purchase price of $263 and issued 175,000 warrants.

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

Off-Balance Sheet Arrangements

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

Contractual Obligations

The following is a summary of our contractual obligations as of March 31, 2011:

Contractual Obligations	Total		2011		2012		2013		2014		2015		Thereafter
Long-term debt obligations	$	3,433	$	3,339	$	94	$	-	$	-	$	-	$	-
Interest obligations (1)		290		287		3		-		-		-
Operating lease obligations (2)		1,105		131		244		236		228		184		82

	$	4,828	$	3,757	$	341	$	236	$	228	$	184	$	82

(1)	Interest obligations assume Prime Rate of 3.25% at March 31, 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% and Series B and C-1 Preferred Stock are payable quarterly at an annual rate of 6% in cash or the issuance of additional shares of Preferred Stock, at our option for Series A, A-1 and B. Series C-1 is payable in cash of additional stock at the holders discretion. If we were to fund dividends accruing during the year ending September 30, 2011 in cash, the total obligation would be $237 based on the number of shares of Series A, A-1, B and C-1 Preferred Stock outstanding as of March 31, 2011.

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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.

Customer Concentration

For the three months and six months ended March 31, 2011 our largest customer accounted for approximately 73% and 72% of total sales. Although we expect to have a high degree of customer concentration, our customer engagements are typically covered by multi-year contracts or master service agreements under which we have been operating for a number of years. In addition, current economic conditions could harm the liquidity of and/or financial position of our customers or suppliers, which could in turn cause such parties to fail to meet their contractual or other obligations to us.

Employees

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

Certain Relationships and Related Party Transactions

Filing Status

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

ITEM 4. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported within the periods specified in the rules and forms of the SEC. This information is accumulated and communicated to our executive officers to allow timely decisions regarding required disclosure. As of March 31, 2011, our Chief Executive Officer, who acts in the capacity of principal executive officer and our Chief Financial Officer who acts in the capacity of principal financial officer, have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and the Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of March 31, 2011, based on their evaluation of these controls and procedures required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15.

DISCLOSURE CONTROLS AND INTERNAL CONTROLS

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

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

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Although we believe that these steps have enabled us to improve our internal controls, additional time is still required to fully document our systems, implement control procedures and test their operating effectiveness before we can definitively conclude that we have remediated our deficiencies.

We believe that our internal control risks are sufficiently mitigated by the fact that our Chief Executive Officer and Chief Financial Officer review and approve substantially all of our major transactions and we have, when needed, hired outside experts to assist us with implementing complex accounting principles. Additionally, we believe the addition of the aforementioned Chief Financial Officer and Corporate Controller will enable us to continue implementing the proper controls and making the necessary changes until these material weaknesses are remediated.

Changes in Internal Control Over Financial Reporting

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

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PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 4. Removed and Reserved.

ITEM 5. Other Information

ITEM 6. EXHIBITS

3.1 Certificate of Designation of the Series C Preferred Stock.

3.2 Amendment No. 1 to the Certificate of Designation of the Series C Preferred Stock.

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

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

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

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

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

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SIGNATURES

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

Date: May 16, 2011	Beacon Enterprise Solutions Group, Inc.

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

		and

Date: May 16, 2011	By:	/s/ Michael Grendi
		Michael Grendi
		Principal Financial Officer

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