INTERCLOUD SYSTEMS, INC. - FORM 10-Q

Attached files

file	filename
EXCEL - IDEA: XBRL DOCUMENT - INTERCLOUD SYSTEMS, INC.	Financial_Report.xls
EX-32.1 - CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT - INTERCLOUD SYSTEMS, INC.	f10q0911ex32i_genesis.htm
EX-31.2 - CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT - INTERCLOUD SYSTEMS, INC.	f10q0911ex31ii_genesis.htm
EX-10.14 - MASTER LOAN AGREEMENT - INTERCLOUD SYSTEMS, INC.	f10q0911ex10xiv_genesis.htm
EX-31.1 - CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT - INTERCLOUD SYSTEMS, INC.	f10q0911ex31i_genesis.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

Form 10-Q

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

For the quarterly period ended SEPTEMBER 30, 2011

[ ]	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________ to __________________________

Commission file number: 000-32037

GENESIS GROUP HOLDINGS, INC

(Name of registrant as specified in its charter)

Delaware	65-0908171
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

2500 N. Military Trail, Suite 275, Boca Raton, FL	33431
(Address of principal executive offices)	(Zip Code)

(561) 988-1988

(Registrant's telephone number, including area code)

not applicable

(Former name, former address and former fiscal year, if changed since last report)

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 x No o

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.

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	x

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

Yes o No x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 133,955,064 shares of common stock are issued and outstanding as of October 31, 2011.

TABLE OF CONTENTS

		Page No.
PART I. - FINANCIAL INFORMATION
Item 1.	Financial Statements.	4
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	13
Item 3.	Quantative and Qualitative Disclosures About Market Risk.	14
Item 4.	Controls and Procedures.	14
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings.	15
Item 1A.	Risk Factors.	15
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	15
Item 3.	Defaults Upon Senior Securities.	16
Item 4.	(Removed and Reserved).	16
Item 5.	Other Information.	16
Item 6.	Exhibits.	16

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This report contains forward-looking statements. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors which may cause 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 forward-looking statements include, among others, the following:

•

delays or difficulties related to the commencement or completion of contracts, including additional costs, reductions in revenues or the payment of completion penalties or liquidated damages;

•

actions of suppliers, subcontractors, customers, competitors, banks, surety providers and others which are beyond our control including suppliers' and subcontractor's failure to perform;

•

the effects of estimates inherent in our percentage-of-completion accounting policies including onsite conditions that differ materially from those assumed in our original bid, contract modifications, mechanical problems with our machinery or equipment and effects of other risks discussed in this document;

•

cost escalations associated with our fixed-unit price contracts, including changes in availability, proximity and cost of materials such as steel, concrete, aggregate, oil, fuel and other construction materials and cost escalations associated with subcontractors and labor;

•

our dependence on a few significant customers;

•

adverse weather conditions - although we prepare our budgets and bid contracts based on historical rain and snowfall patterns, the incident of rain, snow, hurricanes, etc., may differ significantly from these expectations;

•

the presence of competitors with greater financial resources than we have and the impact of competitive services and pricing;

•

changes in general economic conditions and resulting reductions or delays, or uncertainties regarding governmental funding for infrastructure services;

•

adverse economic conditions in our markets;

•

our ability to successfully identify, complete and integrate acquisitions;

•

citations and fines issued by any government authority;

•

risks associated with the terms of the Note and Warrant Purchase Agreement with UTA Capital LLC, and

•

the other factors discussed in more detail in Item 1A. —Risk Factors contained in our Annual Report on Form 10-K for the year ended December 31, 2010.

Forward-looking statements are typically identified by use of terms such as “may”, “could”, “should”, “expect”, “plan”, “project”, “intend”, “anticipate”, “believe”, “estimate”, “predict”, “potential”, “pursue”, “target” or “continue”, the negative of such terms or other comparable terminology, although some forward-looking statements may be expressed differently. The forward-looking statements contained in this report are largely based on our expectations, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors. Although we believe such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. In addition, management’s assumptions about future events may prove to be inaccurate. Management cautions all readers that the forward-looking statements contained in this report are not guarantees of future performance, and we cannot assure any reader that such statements will be realized or the forward-looking events and circumstances will occur. Actual results may differ materially from those anticipated or implied in the forward-looking statements. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. You should also consider carefully the statements under Item 1A. Risk Factors appearing in our Annual Report on Form 10-K for the year ended December 31, 2010 which address additional factors that could cause our actual results to differ from those set forth in the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements and readers should carefully review this report in its entirety, including the risks described in Item 1A. - Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2010. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.

OTHER PERTINENT INFORMATION

Unless specifically set forth to the contrary, when used in this report the terms “Genesis", "we"", "our", the "Company" and similar terms refer to Genesis Group Holdings, Inc., a Delaware corporation, and wholly owned subsidiary Digital Comm Inc., a Florida corporation (“Digital Comm”). In addition, when used herein and unless specifically set forth to the contrary, “2009” refers to the year ended December 31, 2009 and “2010” refers to the year ending December 31, 2010.

The information which appears on our web site at www.digitalcomminc.com is not part of this report.

PART 1 - FINANCIAL INFORMATION

Item 1. Financial Statements.

GENESIS GROUP HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS


	SEPTEMBER 30,			DECEMBER 31,
	2011			2010
Assets	Unaudited

Current Assets
Cash and cash equivalents	$	92,177		$	22,476
Accounts receivable		392,328			148,811
Inventory		21,238			13,235
Deferred loan costs		76,925			-
Prepaid expenses		87,018			-

Total Current Assets		669,686			184,522

Property & equipment, net		272,971			237,935

Deposits		147,130			7,926

Total Assets	$	1,089,787		$	430,383

Liabilities and Stockholders' Deficiency

Current liabilities
Accounts payable	$	470,539		$	294,689
Bank debt, current portion		115,532			64,105
Accrued expenses		328,400			151,497
Notes payable, related parties		480,367			348,471
Notes payable, other, current portion		781,130			509,268

Total Current Liabilities		2,175,968			1,368,030

Other Liabilities:
Bank debt, net of current portion		529,527			229,542
Notes payable, other,net of current portion		220,000			-
Derivative liability		954,454			459,897

Total Other Liabilities		1,703,981			689,439

Stockholders' Deficiency:
Common stock, $.0001 par value, 500,000,000 shares
authorized; 133,955,064 and 105,973,976 shares issued and		13,396			10,597
outstanding (3,270,000 shares issuable)
Preferred stock, $.0001 par value, 50,000,000 authorized;
none issued or outanding (15,000 shares issuable)		15			-
Additional paid-in-capital		3,209,885			581,800
Accumulated deficit		(6,013,458	)		(2,219,483	)

Total Stockholders' Deficiency		(2,790,162	)		(1,627,086	)

Total Liabilities and Stockholders' Deficiency	$	1,089,787		$	430,383

See Accompanying Notes to Condensed Consolidated Financial Statements

GENESIS GROUP HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-Unaudited-




	FOR THE THREE MONTHS ENDED						FOR THE NINE MONTHS ENDED
	SEPTEMBER 30,						SEPTEMBER 30,
	2011			2010			2011			2010

Revenues	$	1,515,003		$	123,317		$	2,703,830		$	711,784
Cost of revenues earned		711,401			384,493			1,513,058			689,020

GROSS PROFIT		803,602			(261,176	)		1,190,772			22,764

OPERATING EXPENSES
Depreciation and amortization		14,916			16,516			28,066			66,065
Salaries and wages		901,345			-			1,018,074			-
Stock compensation		-			2,460,000			930,000			2,460,000
General and administrative		267,050			318,583			1,081,273			532,842

TOTAL OPERATING EXPENSES		1,183,311			2,795,099			3,057,413			3,058,907

INCOME (LOSS) FROM OPERATIONS		(379,709	)		(3,056,275	)		(1,866,640	)		(3,036,143	)

OTHER EXPENSES
Unrealized (gain)loss on fair value of derivative		(2,158,137	)		-			494,557			-
Interest expense		334,698			23,925			1,097,762			54,351

TOTAL OTHER (INCOME)EXPENSE		(1,823,439	)		23,925			1,592,319			54,351

NET INCOME ( LOSS)	$	1,443,730		$	(3,080,200	)	$	(3,458,961	)	$	(3,090,494	)

LOSS PER COMMON SHARE
Basic and fully diluted	$	0.01		$	(0.02	)	$	(0.03	)	$	(0.02	)


Weighted average number of common shares
outstanding-basic and diluted		132,358,358			164,242,135			118,663,137			161,931,024

See Accompanying Notes to Condensed Consolidated Financial Statements

GENESIS GROUP HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
Unaudited-

	FOR THE NINE MONTHS ENDED
	SEPTEMBER 30,
	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss	$	(3,458,961	)	$	(3,090,494	)
Adjustments to reconcile net loss to net cash
used in operations:
Depreciation and amortization		28,066			66,065
Amortization of debt discount		537,591			-
Amortization of loan costs		568,931			-
Stock compensation for services		930,000			2,460,000
Increase in fair value of derivative liability		494,557			-
Changes in assets and liabilities:
Increase in accounts receivable		(243,517	)		(28,969	)
Increase in loan receivable-employee		-			(26,154	)
Decrease in inventory and other		(106,605	)		(27,045	)
Increase in accounts payable and accrued expenses		352,753			44,331
Total adjustments		2,561,776			2,488,228

NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES		(897,185	)		(602,266	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment		(63,102	)		(199,123	)
NET CASH USED IN INVESTING ACTIVITIES		(63,102	)		(199,123	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft		-			(26	)
Proceeds from sale of common stock		283,496			-
Borrowings from bank, net of $14,528 in payments		108,472			402,982
Borrowings from third parties, net of $77,600 in payments		620,103			960,000
Borrowings from related party, net of $4,500 in payments		17,917			(82,611	)
NET CASH PROVIDED BY FINANCING ACTIVITIES		1,029,988			1,280,345

NET INCREASE (DECREASE) IN CASH		69,701			478,956

CASH - beginning of year		22,476			2,413

CASH - end of period	$	92,177		$	481,369

See Accompanying Notes to Condensed Consolidated Financial Statements

GENESIS GROUP HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. ACCOUNTING POLICIES

Basis of Presentation

Genesis Group Holdings, Inc. (formerly known as Genesis Realty Group, Inc.) (“Genesis” or “the Company”) was incorporated on November 22, 1999 under the laws of the State of Delaware. The Company is a provider of specialty contracting services, primarily in the installation of fiber optic telephone cable. These services are provided throughout the United States and include engineering, construction, maintenance and installation services to telecommunications providers, underground facility locating services to various utilities including telecommunications providers, and other construction and maintenance services to electric and gas utilities and others.

The condensed consolidated financial statements include the results of Genesis and its subsidiaries Digital Comm, Inc. (“Digital”) and Tropical Communications, Inc. (“Tropical”), all of which are wholly-owned. All intercompany accounts and transactions have been eliminated and the financial statements reflect all adjustments, consisting of only normal recurring accruals which are, in the opinion of management, necessary for a fair presentation of such statements. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). However, the financial statements do not include all of the financial information and footnotes required by GAAP for complete financial statements. Additionally, the results of operations for the three and nine months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the entire year. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2010 included in the Company’s 2010 Annual Report on Form 10-K, filed with the SEC.

On January 14, 2010 Genesis Group Holdings, Inc. (“Genesis” and “the Company”) acquired all the outstanding shares of Digital Comm, Inc. (“Digital”), a Florida Corporation, in exchange for 50,000,000 shares of Genesis. Digital was originally formed on September 13, 2006 and, on January 14, 2010 was reorganized as a wholly owned subsidiary of Genesis.

For financial accounting purposes, the Merger was treated as a recapitalization of Genesis Group Holdings, Inc with the former stockholders of Genesis Group Holdings, Inc retaining approximately 20% of the outstanding stock. This transaction has been accounted for as a reverse acquisition and accordingly the transaction has been treated as a recapitalization of Digital Comm, Inc., with Digital Comm, Inc. as the accounting acquirer. The historical financial statements are a continuation of the financial statements of the accounting acquirer, and any difference of the capital structure of the merged entity as compared to the accounting acquirer’s historical capital structure is due to the recapitalization of the acquired entity.

On August 22, 2011 the Company acquired 100% interest in Tropical Communications, Inc. (“Tropical”), a Florida corporation, based in Miami, Florida. Tropical is a State licensed Low Voltage and Underground contractor and provides services to construct, install, optimize and maintain structured cabling for commercial and governmental entities in the South Florida area. . The purchase price for Tropical was $72,000 paid with 1,000,000 shares of common stock in the Company valued at $.072 per share , an earn-out provision for additional shares of stock in the Company based on a formula tied to future earnings of Tropical, and an employment agreement.

Unless the context otherwise requires, the terms “Company,” “we,” “our,” and “us,” means Genesis Holdings, Inc. and its consolidated subsidiary.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and reporting period. Accordingly, actual results could differ from those estimates.

GENESIS GROUP HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. ACCOUNTING POLICIES (continued)

Segment Information

The Company operates in one reportable segment as a specialty contractor, providing engineering, construction, maintenance and installation services to telecommunications providers, underground facility locating services to various utilities including telecommunications providers, and other construction and maintenance services to electric and gas utilities and others. All of the Company’s operating segments have been aggregated into one reporting segment due to their similar economic characteristics,

products and production methods, and distribution methods.

Recently Issued Accounting Pronouncements

In May 2011, the FASB issued guidance and clarification about the application of existing fair value measurements and disclosure requirements. This guidance will be effective for interim and fiscal periods beginning after December 15, 2011. We will review the requirements under the standard to determine what impacts, if any, the adoption would have on our consolidated financial statements.

2. GOING CONCERN

The Company has suffered losses from operations that may raise doubt about the Company's ability to continue as a going concern. As of September 30, 2011, the Company has both negative working capital and continued net losses. The Company may raise capital through the sale of its equity securities, through debt securities, or through borrowings from principals and/or financial institutions. Management believes that actions presently being taken to obtain additional funding provide the opportunity for the Company to continue as a going concern. There can be no assurance that additional financing which is necessary for the Company to continue its business will be available to the Company on acceptable terms, or at all. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

3. PROPERTY AND EQUIPMENT, NET

Property and equipment consist of the following:

	September 30,			December 31,
	2011			2010
Vehicles	$	120,462		$	95,568
Computers and Office Equipment		36,632			24,367
Equipment		296,037			146,253
Small Tools		20,505			14,183
Total		473,636			280,371

Less accumulated depreciation		(200,665	)		(42,436	)

Property and equipment, net	$	272,971		$	237,935

4. NOTES PAYABLE – RELATED PARTY

The Company periodically receives borrowings from its principal officers and board director. These unsecured notes are short-term borrowings with maturities of less than one year with an interest rate of 10%. The balance of these notes after repayments as of September 30, 2011 and December 31, 2010 is $480,367 and $348,471, respectively.

GENESIS GROUP HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5. BANK DEBT

Bank debt consists of the following:

	September 30, 2011			December 31, 2010

Installment note payable, payable monthly principle
and interest of $621.24, interest at 9.05%
secured by vehicle, maturing June 2015	$	23,575		$	27,396

Four Lines of credit, payable monthly principle
and interest, with interest ranging 8.05% to 9.75%,
guaranteed personally by principal shareholders,
maturing June 2015 and February 2020		621,484			266,251
		645,059			293,647
Less: Current portion of debt		(69,119	)		(64,105	)
Long term portion of bank debt	$	575,940		$	229,542

6. NOTES PAYABLE – OTHER

Notes payable, other consist of the following:

	September 30, 2011			December 31, 2010
Note payable, UTA (net of discount of $425,837 and
$265,732, respectively) refer to Note 7	$	349,163		$	509,628

Promissory note, 6% interest, maturing two years
unsecured (described further below)		449,073			- 0 -

8% convertible promissory notes, unsecured,
maturing November 2011		109,994			- 0 -

Promissory note, 5% interest rate, due on demand		2,900			- 0 -

Two promissory notes due on demand, non- interest		43,000			- 0 -

Promissory note, unsecured, non-interest due July 2011,
with 2,000,000 common shares equity component		47,000			- 0 -

		1,001,130			509,628

Less: Current portion of debt		(781,130	)		(509,628	)

Long term portion of notes payable, other	$	220,000		$	- 0 -

On July 5, 2011the Company entered into a definitive master funding agreement (“Master Agreement”) with Tekmark® Global Solutions, LLC (“Tekmark”) and Munro Capital Inc. (“Munro Capital”). Pursuant to the parties’ Master Agreement, the Company is receiving financing in the original principal amount of up to $2,000,000 from Tekmark and a line of credit in the original principal amount of up to $1,000,000 from Munro Capital. Both financings covered are pursuant to Promissory Notes with two year terms, interest at 1% per month. Tekmark funding is secured by the Company’s accounts receivable. Funding by Tekmark will be in the form of payroll funding support for specific and approved customers of Digital. As of September 30, 2011 the balances owed Tekmark and Munro Capital was $204,073 and $245,000, respectively, combined $449,073 as reflected above.

GENESIS GROUP HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

7. NOTE PAYABLE - UTA

On August 6, 2010, UTA Capital LLC provided a working capital loan to Genesis Group Holdings, Inc., the parent company of Digital, with Digital also as an additional borrower. The loan is evidenced by a Note and Warrant Purchase Agreement between Digital and Genesis and UTA Capital, LLC dated August 6, 2010. The Agreement calls for two senior bridge notes in the amount of $1 million each, for an aggregate principal amount of $2 million. The notes are each one year amortized term notes bearing interest at 10% per annum. Additionally, the parent company issued to UTA Capital, LLC warrants to purchase 20,952,381 shares of common stock in Genesis exercisable at $0.15 per share which provide for a cashless exercise. The Company received an initial draw from the first $1 million note $960,000 net of fees which was recorded as an investment contribution by Genesis in Digital.

Additionally, the parent company issued to UTA Capital, LLC warrants purchasing 20,952,381 shares of common stock in Genesis exercisable at $0.15 per share which provide for a cashless exercise. Pursuant to generally accepted accounting standards, the relative fair value of the warrant was calculated using the Black-Scholes Option Valuation Model. This amount, totaling approximately $455,540, has been recorded as a debt discount and charged to interest expense over the life of the promissory note.

On June 25, 2011, the Company and lender UTA Capital LLC, entered into Second Loan Extension and Modification Agreements (“Modification Agreement”) in connection with their existing note payable with a balance of $775,000 at December 31, 2010. The Modification Agreement provided for:

a)	An extension of the original maturity date of the note from August 6, 2011 to July 30, 2012,

b)	A continuation in interest rate of 10% for the remainder of the loan,

After the Initial Period, all monthly cash receipts from purchase orders financed pursuant to the Master Agreement entered on June 30, 2011 between the Company and Tekmark beginning August 2011, after reduction for payroll expenses and fees paid to Tekmark relating to the Tekmark financing, will be distributed at the end of each month in the following order of priority:

i.	On August 31, 2011 and September 30, 2011, first $50,000 to the Company and $35,000 to UTA as a reduction of principal, and of any remaining balance 40% to the Company and 60% to UTA as a reduction of principal.

ii.	On October 31, 2011 and November 30, 2011, and on the last day of each following month, first $50,000 to the Company and $50,000 to UTA as a reduction of principal, and of any remaining balance 50% to the Company and 50% to UTA as a reduction of principal.

As of October 3, 2011 the Company has not achieved in excess of $50,000 in monthly profit and therefore, has not been obligated to pay down any principal to UTA as described above, other than interest payments.

d)	Commencing in January 2012, at each month end in which the Company has consolidated gross revenues of $500,000 or more, the Company shall pay UTA as a reduction of principal, the greater of $50,000 or 10% of the gross consolidated revenues.

The 2nd Modification Agreement also provided for certain repayments of the loan in the event the Company secures additional equity and/or financing. In exchange for consenting to the 2nd Modification Agreement the lender was issued 292,439 shares of the Company’s common stock; and a continuing provision of additional shares to be issued to the lender to maintain ownership of 1% of the company’s total outstanding shares until the loan is repaid. The additional shares of common stock were unissued as of September 30, 2011 and will be recorded and valued at the fair market price on their date of issue as deferred loan cost and will be charged to loan cost expense over the remaining period of the loan.

Additionally, the warrants held by UTA representing 16% of the Company’s fully diluted common shares, pursuant to the loan agreement, increased to 41,458,121 (from 20,952,381)shares of common stock in Genesis exercisable at $0.15 per share which provide for a cashless exercise. Using professional standards, the relative fair value of the warrant was calculated using the Black-Scholes Option Valuation Model. This additional amount, totaling approximately $1,847,145, has been recorded as a debt discount as of June 30, 2011 that will be charged to interest expense over the life of the promissory note.

The Modification Agreement also provided for certain repayments of the loan in the event the Company secures additional equity and/or financing. Additionally in exchange for consenting to the Modification Agreement the lender was issued 1,282,094 shares of the Company’s common stock; and a continuing provision of additional shares to be issued to the lender to maintain ownership of 1% of the company’s total outstanding shares until the loan is repaid. The additional shares of common stock were recorded and valued at the fair market price on their date of issue as deferred loan cost and will be charged to loan cost expense over the remaining period of the loan. The parties are currently discussing an additional modification of the agreement to facilitate the growth of the Company.

GENESIS GROUP HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

8. DERIVATIVE LIABILITY

The Company analyzed the Note and Purchase Warrant Agreement referred to in Note 6 based on the provisions of ASC 815-15 and determined that the conversion option of the loan agreement qualifies as an embedded derivative.

The fair value upon inception of the embedded derivatives are calculated using the Black-Scholes option pricing model and determined to total $3,489,379 and recorded as embedded derivative liabilities. The embedded derivatives are revalued at the end of each reporting period and any resulting gain or loss is recognized as a current period charge to the statement of operations.

The Company accounts for the embedded conversion features included in its common stock as well as the related warrants as derivative liabilities. The aggregate fair value of derivative liabilities as of September 30, 2011 and December 31, 2010 amounted to $954,454 and $459,897, respectively. The increase of $494,557 in the fair value of the derivative liability between the respective periods is included in other expense.

9. INCOME TAXES

No provisions for income taxes have been made because the Company has sustained cumulative losses since the commencement of operations. As of September 30, 2011 and December 31, 2010 the Company had net operating loss carryforwards (“NOL’s”) of approximately $6,100,000 and $1,219,000, which will be available to reduce future taxable income and expense through 2031, subject to limitations pursuant to IRC Section 382 in the event of a more than fifty percent change of ownership.

10. COMMON STOCK

On February 14, 2011 in exchange for consenting to the Modification Agreement the lender, UTA Capital LLC, the Company issued 1,282,094 shares of the Company’s common stock valued at the fair market price of $0.12 per share and recorded as deferred loan cost and amortized as interest expense over the remaining term of the loan.

On February 28, 2011, the Company sold 138,888 shares of common stock to a third party for $25,000. The shares were issued on June 20, 2011.

On May 16, 2011 and June 20, 2011 the Company issued 4,000,000 shares of the Company’s common stock valued at the fair market price of $0.06 per share in connection with loan provisions of a third party borrowing, recorded as loan cost expense.

On June 3, 2011 the Company’s Board of Directors authorized the issuance of 2,000,000 shares and 8,500,000 shares of the Company’s common stock valued at the fair market price of $0.06 per share to 42 wireless division employees and three of the Company’s principal officers, respectively, as bonus compensation shares and recorded in the accompanying financial statements as stock compensation expense.

On June 3, 2011 the Company issued 2,000,000 shares of the Company’s common stock valued at the fair market price of $0.06 per share in connection with loan provisions of a third party borrowing, recorded as loan cost expense.

On July 5, 2011 the Company sold 3,270,000 shares of the company’s common stock to lender Tekmark for $30,000 as an equity investment.

On July 26, 2011the Company issued 1,000,000 to Interactive Business Alliance in exchange for consulting services relating to public relations valued at the fair market price of $0.11 per share.

On August 11 and August 25, 2011, the Company issued 683,116 shares of common stock for $32,500 in debt conversion to a third party lender.

GENESIS GROUP HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

10. COMMON STOCK (continued)

On September 30, 2011 the Company issued 1,000,000 shares of common stock valued at the fair market value price of $0.072 per share as acquisition cost to one principal in connection with the purchase of Tropical Communications, Inc.

11. PREFERRED STOCK

The Company issued to lender/investor Munro Capital 15,000 shares of Series A Preferred Stock for $15,000.

12. STOCK COMPENSATION

For the nine month period in 2011 the Company incurred $930,000 in stock compensation expense compared to $-0- in 2010 from the issuance of 5,200,000 in shares of its common stock in 2010 that had been due to one of the Company’s officers, as compensation, both pursuant to the terms of his employment agreement and accrued salary plus the issuance of 10,500,000 bonus compensation shares to employees and officers.

Additionally, the Company recognized $240,000 in stock expense for services provided by a consultant for advice on various corporate matters.

13. RISKS AND UNCERTAINTIES

The Company is subject to risk and uncertainty common to start-up companies including, but not limited to, successful development, promotion, and sale of services, and expansion of market coverage.

As reflected in the accompanying financial statements, the Company has incurred significant losses from operations and negative operating cash flows, which have been financed primarily by proceeds from stock and debt issuance. As a result the Company had accumulated deficits of $6,013,458 and $2,219,483 at September 30, 2011 and December 31, 2010 respectively.

Management plans to continue raising additional working capital and funds for the continued development of its contracts for services through public sale of the Company's common stock, debt securities or borrowing from financial institutions. Management is also attempting to expand the number of job contracts which could increase cash flow during early stages of sales growth. No assurance can be given that the Company will successfully expand its number of third party jobs or that sufficient capital can be raised to support those contracts.

14. SUBSEQUENT EVENTS

The Company has evaluated subsequent events through November 9, 2011, which is the date the financial statements were issued, and has concluded that no events or transactions took place which would require disclosure herein.

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

The following discussion of our financial condition and results of operation for the three and nine months ended September 30, 2011 and 2010 should be read in conjunction with the unaudited financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Item 1A. Risk Factors appearing in our Annual Report on Form 10-K for the year ended December 31, 2010 as previously filed with the Securities and Exchange Commission. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

Overview

Genesis Group Holdings, Inc. (formerly known as Genesis Realty Group, Inc.) (“Genesis” or “the Company”) is a provider of specialty contracting services, primarily in the installation of fiber optic telephone cable. These services are provided throughout the United States and include engineering, construction, maintenance and installation services to telecommunications providers, underground facility locating services to various utilities including telecommunications providers, and other construction and maintenance services to electric and gas utilities and others.

The following discussions compare the consolidated financial results of Genesis and its wholly owned subsidiaries for 2011 and 2010 and its liquidity and capital resources at September 30, 2011.

Results of Operations

Revenues for the three and nine month periods in 2011 increased by $1,391,686 and $1,992,046, respectively or 1,129% and 280%, respectively, as compared to the same periods in 2010 which results primarily from the company’s continued successful efforts during the current period working with Verizon Wireless pursuant to a master contract with the Digital subsidiary and, the inclusion of revenues from the recent acquisition of Tropical Communications, Inc.

Cost of revenues earned in 2011 increased $326,908 or 85% and $824,038 or 120% for the three and nine month periods, respectively, versus 2010, and was 47% and 56% of revenues in 2011 as compared to 312% and 97% in 2010. These changes in costs of revenues were the result of the hiring of additional field personnel and equipment repairs required to service the increased business. Cost of revenues for 2010 primarily consisted of wages, subcontractor costs and general insurance.

For the nine month September 30 period in 2011 the Company incurred $540,000 in stock compensation expense compared to $2,460,000 in 2010 from the issuance of 2,000,000 shares of its common stock to employees and 8,500,000 shares of its common stock to three of the officers of the Company as award based compensation. During the 2011 period the Company also recognized $150,000 of expense related to a stock issuance to an officer in the first quarter 2011 and, $240,000 of expense related to stock issuance to a consultant for services relating to corporate matters.

General and administrative expenses in 2011 for the three and nine month periods were 18% and 40% of revenues versus 258% and 75% in 2010 and increased primarily from the hiring of additional personnel and resulting salaries and wages , travel , and insurance .

GAAP operating income (loss) was -$379,709 and -$1,866,641 for the three and nine month periods in 2011, representing a GAAP operating margin of -25% and -69%, respectively and increases of -88% and -39% compared to the same periods of 2010.

Non-GAAP operating income (loss) was -$379,709 and -$936,641 for the three and nine month periods in 2011, representing a non-GAAP operating margin of -25% and -35%, respectively and increases of -36% and 36% compared to the same periods of 2010. Non-GAAP operating income and operating margin exclude stock-based compensation expense.

The Company also recorded $2,158,137 in unrealized gain for the three months in 2011 from the decrease in carrying value of the derivative liability associated with warrants issued to third party lender UTA Capital LLC in conjunction with the acquisition borrowings for Digital.

Interest expense increased $310,773 and $1,043,411 or 22% and 41% of revenues for the three and nine month periods in 2011, respectively, compared to 19% and 8% of revenues for each of the comparable periods in 2010. The increases in interest expense relates primarily to new debt undertaken from bank and third party borrowings.

Liquidity and Capital Resources

Liquidity is the ability of a company to generate sufficient cash to satisfy its needs for cash. At September 30, 2011 the Company had a working capital deficit of $1,506,282 as compared to a working capital deficit of $1,183,508 at December 31, 2010. This 27 % increase in working capital deficit is primarily the result of additional build-up of operations for pursuit of increased wireless business in 2011 plus the inclusion of short-term borrowings from third parties and its principal shareholders.

Net cash used by operating activities for the nine months in 2011 was $897,185 which reflects the increases in accounts receivable offset by the increases in accounts payable and accrued expenses, as compared to net cash used by operating activities $602,266 for the nine months ended 2010.

Net cash used by investing activities for the nine months ended 2011 was $63,102, which primarily consists of capital expenditures for equipment and machinery, as compared to $199,123 in 2010.

Net cash provided by financing activities for the nine months in 2011 was $1,029,988 which resulted primarily from bank and third party borrowings compared to $1,280,345 in 2010.

Our cash resources were not sufficient to meet anticipated working capital requirements for at least the following three to four months. Accordingly, to resolve this shortfall in liquidity the Company continues to pursue an aggressive course to raise funds from borrowings and capital raises, although there can be no assurances that the Company will be successful in its efforts.

Recent Accounting Pronouncements

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable for a smaller reporting company.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Based on his evaluation as of the end of the period covered by report, our Chief Executive Officer who also serves as our Chief Financial Officer has concluded that our disclosure controls and procedures were not effective such that the information relating to our company, required to be disclosed in our Securities and Exchange Commission reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) is accumulated and communicated to our management to allow timely decisions regarding required disclosure as a result of material weaknesses in our disclosure controls and procedures. The material weaknesses relate to our inability to timely file our reports and other information with the SEC as required under Section 13 of the Securities Exchange Act of 1934. To remediate the material weaknesses in disclosure controls and procedures related to our inability to timely file reports and other information with the SEC, we hired experienced accounting personnel to assist with filings and financial record keeping.

Changes in Internal Control over Financial Reporting

There have been no changes in internal control over financial reporting that occurred during the nine months covered by this report that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

None

Item 1A. Risk Factors.

Not applicable for a smaller reporting company.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

On February 14, 2011 in exchange for consenting to the Modification Agreement the lender, UTA Capital LLC, the Company issued 1,282,094 shares of the Company’s common stock valued at the fair market price of $0.12 per share. The recipient was an accredited investor and the issuance was exempt from registration under the Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of that act. The recipient had access to business and financial information concerning our company, was able to bear the economic risk of an investment in our securities and acquired with securities solely for his account for personal investment and not with a view to, or for resale in connection with, any distribution.

On February 22, 2011the Company issued 2,000,000 to consultant Birbragher Ins Trust in exchange for consulting services relating to corporate matters valued at the fair market price of $0.12 per share. The recipient was an accredited investor and the issuance was exempt from registration under the Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of that act. The recipient had access to business and financial information concerning our company, was able to bear the economic risk of an investment in our securities and acquired with securities solely for his account for personal investment and not with a view to, or for resale in connection with, any distribution.

On February 28, 2011, the Company sold 138,888 shares of common stock to a third party for $25,000 or $0.18 per share. The recipient was an accredited investor and the issuance was exempt from registration under the Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of that act. The recipient had access to business and financial information concerning our company, was able to bear the economic risk of an investment in our securities and acquired with securities solely for his account for personal investment and not with a view to, or for resale in connection with, any distribution. Such shares were issued on June 20, 2011.

On May 16, 2011 and June 20, 2011 the Company issued 4,000,000 shares of the Company’s common stock valued at the fair market price of $0.06 per share to a third party lender in connection with loan provisions of a third party borrowing. The recipient was an accredited investor and the issuance was exempt from registration under the Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of that act. The recipient had access to business and financial information concerning our company, was able to bear the economic risk of an investment in our securities and acquired with securities solely for his account for personal investment and not with a view to, or for resale in connection with, any distribution.

On June 3, 2011 the Company’s Board of Directors authorized the issuance of 2,000,000 restricted shares and 8,500,000 restricted shares of the Company’s common stock valued at the fair market price of $0.06 per share to 42 wireless division employees and three of the company’s principal officers, respectively, as bonus compensation shares. The recipients were accredited investors and the issuance was exempt from registration under the Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of that act. The recipients had access to business and financial information concerning our company, and were able to bear the economic risk of an investment in our securities and acquired with securities solely for his account for personal investment and not with a view to, or for resale in connection with, any distribution.

On June 3, 2011 the Company issued 2,000,000 shares of the Company’s common stock valued at the fair market price of $0.06 per share to a third party lender in connection with loan provisions of a third party borrowing. The recipient was an accredited investor and the issuance was exempt from registration under the Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of that act. The recipient had access to business and financial information concerning our company, was able to bear the economic risk of an investment in our securities and acquired with securities solely for his account for personal investment and not with a view to, or for resale in connection with, any distribution.

On July 5, 2011 the Company issued 3,270,000 shares of the Company’s common stock for $30,000 in equity investment to a third party lender contemporaneous to a third party borrowing. The recipient was an accredited investor and the issuance was exempt from registration under the Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of that act. The recipient had access to business and financial information concerning our company, was able to bear the economic risk of an investment in our securities and acquired with securities solely for his account for personal investment and not with a view to, or for resale in connection with, any distribution.

On July 26, 2011the Company issued 1,000,000 shares of the Company’s common stock to Interactive Business Alliance in exchange for consulting services relating to public relations valued at the fair market price of $0.11 per share. The recipient was an accredited investor and the issuance was exempt from registration under the Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of that act. The recipient had access to business and financial information concerning our company, was able to bear the economic risk of an investment in our securities and acquired with securities solely for his account for personal investment and not with a view to, or for resale in connection with, any distribution.

On August 11 and August 25, 2011, the Company issued 683,116 shares of common stock for $32,500 in debt conversion to a third party lender. The recipient was an accredited investor and the issuance was exempt from registration under the Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of that act. The recipient had access to business and financial information concerning our company, was able to bear the economic risk of an investment in our securities and acquired with securities solely for his account for personal investment and not with a view to, or for resale in connection with, any distribution.

On August 12, 2011 the Company issued 2,107,000 shares of common stock valued at the fair market value price of $0.06 per share to three principals in connection with the pending acquisition of Premier Cable Designs, Inc. The shares were issued as an advance payment pending the closing and recorded as a deposit in the accompanying financial statements. The recipient was an accredited investor and the issuance was exempt from registration under the Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of that act. The recipient had access to business and financial information concerning our company, was able to bear the economic risk of an investment in our securities and acquired with securities solely for his account for personal investment and not with a view to, or for resale in connection with, any distribution.

On September 30, 2011 the Company issued 1,000,000 shares of common stock valued at the fair market value price of $0.072 per share to one principal in connection with the acquisition of Tropical Communications, Inc. The recipient was an accredited investor and the issuance was exempt from registration under the Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of that act. The recipient had access to business and financial information concerning our company, was able to bear the economic risk of an investment in our securities and acquired with securities solely for his account for personal investment and not with a view to, or for resale in connection with, any distribution.

Item 3. Defaults Upon Senior Securities.

None

Item 4. (Removed and Reserved).

Item 5. Other Information.

None

Item 6. Exhibits.

No.	Description
10.14	Master Loan Agreement dated June 24, 2011 with Tekmark Global Solutions, LLC and MMDGenesis LLC *
31.1	Rule 13a-14(a)/ 15d-14(a) Certification of Chief Executive Officer *
31.2	Rule 13a-14(a)/ 15d-14(a) Certification of principal financial and accounting officer *
32.1	Section 1350 Certification of Chief Executive Officer and principal financial and accounting officer *

* filed herewith

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.

	GENESIS GROUP HOLDINGS, INC.
November 16 ,2011	By: /s/ Gideon Taylor
	Gideon Taylor, Chief Executive Officer, principal financial and accounting officer

INTERCLOUD SYSTEMS, INC. - FORM 10-Q - November 16, 2011

Attached files

INTERCLOUD SYSTEMS, INC. Reports