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EXCEL - IDEA: XBRL DOCUMENT - INTERCLOUD SYSTEMS, INC.Financial_Report.xls
EX-31.1 - RULE 13A-14(A)/ 15D-14(A) CERTIFICATION OF CHIEF EXECUTIVE OFFICER - INTERCLOUD SYSTEMS, INC.f10q0312ex31i_genesis.htm
EX-32.1 - SECTION 1350 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER - INTERCLOUD SYSTEMS, INC.f10q0312ex32i_genesis.htm
EX-31.2 - RULE 13A-14(A)/ 15D-14(A) CERTIFICATION OF PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER - INTERCLOUD SYSTEMS, INC.f10q0312ex31ii_genesis.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

(Mark One)
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, 2012

or

o
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.  172,039,031 shares of common stock are issued and outstanding as of May 1, 2012.
 
 
 

 

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.
14
Item 3.
Quantative and Qualitative Disclosures About Market Risk.
15
Item 4.
Controls and Procedures.
15
PART II - OTHER INFORMATION
Item 1.
Legal Proceedings.
16
Item 1A.
Risk Factors.
16
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
16
Item 3.
Defaults Upon Senior Securities.
16
Item 4.
(Removed and Reserved).
16
Item 5.
Other Information.
16
Item 6.
Exhibits.
17

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, 2011 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, 2011.  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.
 
 
2

 
 
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 subsidiaries Digital Comm Inc., a Florida corporation (“Digital Comm”), Tropical Communications, Inc. (Tropical”),  Rives-Montiero Leasing (“RML”) and our 49% owned subsidiary, Rives-Monteiro Engineering, LLC (“RME”).  In addition, when used herein and unless specifically set forth to the contrary, “2011” refers to the year ending December 31, 2011.

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


 
3

 
 

PART 1 - FINANCIAL INFORMATION

Item 1.   Financial Statements.

GENESIS GROUP HOLDINGS, INC.
 
CONSOLIDATED BALANCE SHEETS
 
   
             
   
March 31
   
DECEMBER 31,
 
   
2012
   
2011
 
    (unaudited)        
Assets  
             
Current Assets
           
Cash and cash equivalents
  $ 108,900     $ 89,285  
Accounts receivable
    625,491       347,607  
Inventory
    10,963       10,992  
Deferred loan costs
    54,420       53,848  
Other current assets
    2,149       8,701  
                 
Total Current Assets
    801,923       510,432  
                 
Property & equipment, net
    311,072       338,759  
                 
Goodwill
    717,236       636,736  
                 
Deposits
    309,749       304,084  
                 
Total Assets
  $ 2,139,980     $ 1,790,012  
                 
Liabilities and Stockholders' Deficiency
 
                 
Current liabilities
               
Accounts payable
  $ 447,724     $ 563,449  
Bank debt, current portion
    306,653       114,358  
Accrued expenses
    379,395       227,854  
Notes payable, related parties
    5,364       5,364  
Notes payable, other, current portion
    262,000       876,522  
                 
Total Current Liabilities
    1,401,136       1,787,547  
                 
Other Liabilities:
               
Bank debt, net of current portion
    551,824       698,289  
Notes payable, related parties, net of current
    105,694       110,293  
Notes payable, other,net of current portion
    1,182,568       825,761  
Derivative liability
    1,923       1,143  
                 
Total Other Liabilities
    1,842,009       1,635,487  
                 
Redeemable Series B, convertible preferred stock,
               
      $0.0001 par value, authorized 60,000 shares, 315 issued
    318,389       15,000  
                 
Stockholders' Deficiency:
               
Preferred stock, $.0001 par value, 50,000,000 authorized;
               
     Series A, convertible preferred stock,$0.0001 par value,
               
          authorized 20,000,000 shares, 2,000,000 and none issued
    200       200  
     Series C, convertible preferred stock, $0.0001 par value 10% cumulative,
               
          annual dividend$1,000 stated value, authorized
               
          1,500 shares, 800 shares and 0 shares issued and outstanding
    1       -  
     Series D, convertible preferred stock, 10% cumulative,
               
          annual dividend$1,000 stated value, authorized
               
          1,000 shares, 565.67  and 365.67 shares issued and outstanding,
    566       366  
Common stock, $.0001 par value,  500,000,000 shares
               
      authorized; 168,737,602 and 105,973,976 shares issued and
    25,873       15,873  
      outstanding (792,439 shares unissued at 3-31-2012 and 12-31-2011)
               
Additional paid-in-capital
    8,768,447       7,850,943  
Accumulated deficit
    (10,317,112 )     (9,620,926 )
                 
Total Genesis Holdings, Inc stockholders deficiency
    (1,522,025 )     (1,753,544 )
                 
Non-controlling interest
    100,471       105,522  
                 
Total Stockholders' Deficiency
    (1,421,554 )     (1,648,022 )
                 
Total Liabilities and Stockholders' Deficiency
  $ 2,139,980     $ 1,790,012  
 
See Accompanying Notes to Consolidated Financial Statements
 
 
4

 
 
GENESIS GROUP HOLDINGS, INC.
 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
(unaudited)
 
             
   
FOR THE THREE MONTHS ENDED
 
   
March 31
 
   
2012
   
2011
 
             
Revenues
  $ 1,520,035     $ 368,023  
                 
Cost of revenues earned
    864,680       355,868  
                 
Gross Profit
    655,355       12,155  
                 
                 
OPERATING EXPENSES
               
Depreciation and amortization
    14,208       6,500  
Salaries and wages
    423,829       104,335  
Stock compensation
    180,000       390,000  
General and administrative
    454,208       160,174  
                 
TOTAL OPERATING EXPENSES
    1,072,245       661,009  
                 
LOSS FROM OPERATIONS
    (416,890 )     (648,854 )
                 
OTHER (INCOME) EXPENSES
               
Unrealized loss on fair value of derivative
    (780 )     (805,549 )
Undistributed earnings from non-controlled subsidiary
    5,051       -  
Gain from disposal of capital equipment
    23,378       -  
Interest expense
    (306,945 )     (196,163 )
                 
TOTAL OTHER (INCOME)EXPENSE
    (279,296 )     (1,001,712 )
                 
                 
                 
NET  LOSS
  $ (696,186 )   $ (1,650,566 )
                 
LOSS PER COMMON SHARE
               
Basic and fully diluted
  $ (0.004 )   $ (0.02 )
                 
                 
Weighted average number of common shares
               
           outstanding-basic and diluted
    167,638,701       108,162,032  
 
See Accompanying Notes to Condensed Consolidated Financial Statements
 
 
5

 


GENESIS GROUP HOLDINGS, INC.
 
CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited)
 
             
             
   
FOR THE THREE MONTHS ENDED
 
CASH FLOWS FROM OPERATING ACTIVITIES:
 
March 31
 
   
2012
   
2011
 
Net loss
  $ (696,186 )   $ (1,650,566 )
Adjustments to reconcile net loss to net cash
               
used in operations:
               
Depreciation and amortization
    14,208       6,500  
Amortization of debt discount
    59,649       113,886  
Amortization of loan costs
    9,428       30,770  
Stock compensation for services
    180,000       390,000  
Increase in fair value of derivative liability
    780       805,549  
Income from non-controlled interest
    (5,051 )     -  
Changes in assets and liabilities:
               
Increase in accounts receivable
    (277,884 )     (96,060 )
Decrease in inventory and other
    6,581       1,247  
Increase in deposits
    (5,665 )     -  
Increase in accounts payable and accrued expenses
    35,816       87,246  
Total adjustments
   
17,862
      1,339,138  
                 
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES
    (678,324 )     (311,428 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Purchases of equipment
    (5,145 )     (14,877 )
Goodwill Adjustment
    (80,500 )     -  
Sale of equipment
    44,796       -  
NET CASH USED IN INVESTING ACTIVITIES
    (40,849 )     (14,877 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Proceeds from sale of common stock
    -       25,000  
Proceeds from sale of preferred stock
   
1,200,000
      -  
Financing costs associated with preferred stock
   
(185,079
)     -  
Increase in deferred loan costs
    (10,000 )     -  
Proceeds from bank borrowings
    71,000       123,000  
Repayments of notes payable
    (458,782 )     (4,804 )
Proceeds from notes payable
    121,649       155,000  
Proceeds from related party borrowings
    -       15,036  
NET CASH PROVIDED BY  FINANCING ACTIVITIES
    738,788       313,232  
                 
NET INCREASE (DECREASE) IN CASH
    19,615       (13,073 )
                 
CASH - beginning of year
    89,285       22,476  
                 
CASH - end of period
  $ 108,900     $ 9,403  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
               
                 
Cash paid during the period for interest
  $ 112,863     $ 97,293  
Taxes paid
  $ -     $ -  
                 
Noncash investing and financing activities:
               
                 
Common stock issued for loan modification
  $ -     $ 153,850  
Interest on preferred stock
  $ 17,722     $ -  
Preferred stock issued on debt conversion
  $ 18,450     $ -  
 
See Accompanying Notes to Condensed Consolidated Financial Statements
 
 
6

 
 
GENESIS GROUP HOLDINGS, INC.
NOTES TO 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.

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 and an earn-out provision for additional shares of stock in the Company based on a formula tied to future earnings of Tropical.

On December 29, 2011 the Company acquired a 49% stake in Rives Monteiro Engineering LLC. (“RME”), an engineering firm and certified woman owned business based in Tuscaloosa, Al.  The Company also acquired 100% of Rives Monteiro Leasing LLC an equipment provider for the cable-engineering services. The Company has an option to purchase the remaining 51% of RME.  The entire combined transaction was paid with 7.5 million shares of Common Stock in the Company, $100,000 in cash and an additional $0.2 million to be paid pursuant to a six month promissory note.

The total purchase price for the RM companies was $337,500 paid with $100,000 in cash, $200,000 pursuant to a six month promissory note and 7,500,000 shares of common stock in the Company valued at $.005 per share.  Pursuant to the Agreement and as a result of the acquisition of RM Leasing, the Company acquired, subject to certain bank liens, certain vehicles, machinery and equipment as well as existing business opportunities.  Additional compensation will be paid in the form of an earn-out as well as cashless warrants priced at $.30 per share for up to 500,000 additional shares, for each $500,000 in net income generated to the Company during the twenty four months following closing.

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

Principles of Consolidation and Accounting for Investments in Affiliate Company

The consolidated financial statements include the results of Genesis and its wholly subsidiaries Digital Comm, Inc. (“Digital”), Tropical Communications, Inc. (“Tropical”) and Rives-Monteiro Leasing Company (“RM Leasing”), and RM Engineering, an entity under common control which is consolidated in accordance with FASB guidance related to variable interest entities.  All intercompany accounts and transactions have been eliminated in consolidation.  The Company has the option to purchase the remaining ownership of RM Engineering for a de minimus amount.

We consolidate all variable interest entities (“VIEs”) where we are the primary beneficiary.  For VIEs, we assess whether we are the primary beneficiary as prescribed by the accounting guidance on the consolidation of VIEs. The primary beneficiary of a VIE is the party that has the power to to direct the activities that most significantly impact the performance of the entity and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the entity.  We consolidated RM Engineering because of our option to purchase the remaining 51% ownership of RM Engineering for a de minimus amount.

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 ended March 31, 2012 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, 2011 included in the Company’s 2011 Annual Report on Form 10-K, filed with the SEC.

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.

 
7

 
 
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 March 31, 2012, 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:
 
   
March 31,
   
December 31,
 
   
2012
   
2011
 
Vehicles
 
$
555,366
   
$
605,247
 
Computers and Office Equipment
   
75,963
     
91,098
 
Equipment
   
440,241
     
440,241
 
Small Tools
   
20,504
     
20,504
 
Total
   
1,092,074
     
1,157,089
 
                 
Less accumulated depreciation
   
(781,002
)
   
(818,331
)
                 
Property and equipment, net
 
$
311,072
   
$
338,759
 
 
Depreciation expense for the three months ended March 31, 2012 was $14,208, as compared t0 $6,500 in the same period of 2011.
 
 
 
8

 
 
GENESIS GROUP HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


4. BANK DEBT

Bank debt consists of the following:
 
    March 31, 2012     December 31, 2011  
             
Two installment notes payable, payable monthly principle
           
     and interest  of $621.24 and $533.24, interest at 9.05%
           
     and 0% secured by vehicle, maturing June 2015 and July 2016
  $ 48,498     $ 51,569  
                 
Three Lines of credit, payable monthly principle
               
    and interest, with  interest ranging 5.5% to 8.05%,
               
    guaranteed personally by principal shareholders,
               
    maturing July 2012, June 2015 and February 2020
    809,979       761,078  
      858,477       858,477  
Less: Current portion of debt
    (306,653 )     (114,348 )
Long term portion of bank debt
  $ 551,824     $ 698,289  
 
5.  NOTES PAYABLE – OTHER
 
Notes payable, other consist of the following:
 
    March 31, 2012     December 31, 2011  
             
Note payable, UTA refer to Note 7
  $ 551,171     $ 516,522  
                 
Promissory note, 6% interest, due June 2013
         
unsecured  (described further  below)
    631,397       825,761  
                 
8% convertible promissory notes, unsecured,
               
maturing November 2011, paid January 2012 through
         
May 2012
    32,500       112,500  
                 
Acquisition promissory note to former shareholders of
         
RM Engineering & Leasing, unsecured, non-interest,
         
Due March 2012 and June2012
    200,000       200,000  
                 
Promissory notes due on demand, due June 2011
         
non- interest, with 1,000,000 share equity component
    -0-       8,000  
                 
Promissory note, unsecured, non-interest due July 2011,
         
with 2,000,000  common shares equity component
    29,500       39,500  
                 
      1,444,568       1,702,283  
                 
Less: Current portion of debt
    (262,000 )     (876,522 )
                 
Long term portion of notes payable, other
  $ 1,182,568     $ 825,761  
 
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 March 31, 2012 the balances owed Tekmark and
 
 
9

 
 
GENESIS GROUP HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Munro Capital was $303,017 and $328,380, respectively.


6.
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.  The Company received an initial draw from the first $1 million note of $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 February 14, 2011, the Company and lender UTA Capital LLC, entered into First Loan Extension and Modification Agreements in connection with their existing note payable with a balance of $775,000 at December 31, 2010. The Modification Agreement provided for an extension of the original maturity date of the note from August 6, 2011 to September 30, 2011. In exchange for consenting to the 1st Modification Agreement the lender was granted 1,282,084 shares of the Company’s common stock. Additionally as additional consideration for the Company’s failure to satisfy a certain 1st amendment covenant, the lender was granted 500,000 shares of the Company’s common stock. As of December 31, 2011 these two additional grants of shares have not been issued however, reflected on the accompanying financial statements as if issued.

On June 25, 2011, the Company and lender UTA Capital LLC, entered into Second Loan Extension and Modification Agreements (“Modification Agreement. 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,
c)
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 have not been issued as of  December 31, 2011 however, they were recorded and valued at the fair market price on their date of  the loan modification as deferred loan cost and will be charged to loan cost expense over the remaining period of the loan.

 
10

 

GENESIS GROUP HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
6.
NOTE PAYABLE – UTA-(continued)

The 2nd 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.
 
In December 2011 the Company and lender UTA Capital LLC, entered into Third Loan Extension and Modification Agreements (“Modification Agreement”) in connection with their existing note payable with a balance of $775,000 at December 31, 2011. The Modification Agreement provided for:
 
a)
An extension of the original maturity date of the note from August 6, 2011 to January 31, 2013,
b)
A continuation in interest rate of 10% for the remainder of the loan,
c)
Commencing in January 2012, at each month end in which the Company has consolidated gross revenues of $800,000 or more, the Company shall pay UTA as a reduction of principal 5% of the gross consolidated revenues.
d)
A termination of the loan repayment requirements resulting from Tekmark financing pursuant to the Second Loan Extension, as described above, as it pertains to Tekmark financing on business with Verizon Wireless or Verizon Communications.

The 3rd 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 3rd Modification Agreement the lender was issued 292,439 shares of the Company’s common stock, a $25,000 principal payment and, an increase in the original warrant purchasing 20,952,381to 25,515,250 shares of common stock in Genesis exercisable at $0.15 per share.

7. DUE TO RELATED PARTY

This account is comprised of the following loans from related parties:

    March 31, 2012     December 31, 2011  
             
Principal shareholders of the Company, unsecured
           
Non-interest bearing, due on demand
  $ 1,635     $ 1,635  
                 
3rd Party promissory note with company under common
               
Ownership by officer and former owner of Tropical.
               
6.75% interest, monthly payments of interest only of
               
$1,007, unsecured and personally guaranteed by
               
Officer, due November 2016
    105,695       110.294  
                 
Officer and former owner of RM Leasing, unsecured
               
Non-interest bearing, due on demand
    3,728       3,728  
                 
     
111,058
      115,657  
                 
Less: Current portion of debt
    (5,364 )     (5,364 )
                 
Long term portion of notes payable, other
  $ 105,694     $ 110,293  
 
 
11

 
 
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 March 31, 2012 and December 31, 2011 amounted to $1,923 and $1,143, respectively. The increase of $780 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 March 31, 2012 and December 31, 2011 the Company had net operating loss carryforwards (“NOL’s”) of approximately $3,484,000 and $2,948,000, 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 January 6, 2012 in exchange for consenting to forgive his salary for 2011, the Company issued 5,000,000 shares at a fair market price of $.006 to a director of the Company.  The shares were recorded as stock compensation in 2011.

On January 17, 2012 the Company issued 5,000,000 shares of the Company’s common stock valued at the fair market price of $0.00369 per share in connection with loan provisions of a third party borrowing, recorded as loan cost expense.
 
11.  PREFERRED STOCK

In January 2012 the Company issued to a Director of the Company, 200 shares of Series D Preferred Stock in exchange for the director foregoing their 2011 compensation. The amount was recorded as compensation expense in 2011.
 
The Company issued to various investors in January 2012, 450 shares of Series C Preferred Stock in exchange for $450,000.
 
The Company issued to various investors in January 2012, 100 shares of Series B Preferred Stock in exchange for $100,000.
 
The Company issued to an investor in January 2012 100 shares of Series B Preferred Stock in exchange for $100,000.

In February 2012 the Company issued to various investors 250 shares of Series C Preferred Stock in exchange for $250,000.

In March 2012 the Company issued to various investors 100 shares of Series C Preferred Stock in exchange for $100,000.

The Company issued to various investors in March 2012, 200 shares of Series B Redeemable Preferred Stock in exchange for $200,000.
 
 
 
12

 

12.  STOCK COMPENSATION

For the three month period in 2012 the Company incurred $180,000 in stock compensation expense compared to 390,000 in 2011 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 and the issuance of 5,000,000 shares of common stock to one of the Company’s officers as compensation pursuant to the terms of his employment agreement.

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 $10,317,112 and $9,620,926 at March 31, 2012 and December 31, 2011 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 May 5, 2012, which is the date the financial statements were issued, and has concluded that only the following events or transactions took place which would require disclosure herein.

During April 2012, the Company issued 250 shares of Series C Preferred Stock to various investors in exchange for $250,000.
 
In April 2012 the Company issued 3,571,429 shares of the Company’s common stock valued at the fair market price of $0.0045 per share in connection with loan provisions of a third party borrowing, recorded as loan cost expense.
 
 
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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 months ended March 31, 2012 and 2011 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, 2011 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 2012 and 2011 and its liquidity and capital resources at March 31, 2012

Results of Operations
 
Revenues for the three month period in 2012 increased by approximately $1,152,000 or 313%, as compared to the same period in 2011 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 acquisitions of Tropical Communications, Inc. and Rives-Monteiro Engineering.  Tropical Communications and Rives-Monteiro Engineering accounted for approximately $800,000 of the increase in revenue.
 
                 Cost of revenues earned in 2012 increased approximately $509,000 or 143% for the three month period, versus 2011, and was 57% of revenues in 2012 as compared to 97% in 2011.  These increases in costs were the result of the Company’s acquisitions of Tropical Communications, Inc. and Rives-Monteiro Engineering, which accounted for approximately $376,000 of the increase.  The Company continued its efforts of cost containment and better utilization of its personnel. Cost of revenues for 2012 and 2011 primarily consisted of direct labor provided by employees, services provided by subcontractors, direct material and other related costs.  For a majority of the contract services we perform, our customers provide all necessary materials and we provide the personnel, tools and equipment necessary to perform installation and maintenance services.

For the three months ended March 31 period in 2012 the Company incurred $180,000 in stock compensation expense compared to $390,000 in 2011 from the issuance of 5,000,000 shares of its common stock to an officer of the Company in 2012 and 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 2011.  During the 2011 period the Company recognized $150,000 of expense related to a stock issuance to an officer in the first quarter of 2011 and, $240,000 of expense related to stock issuance to a consultant for services relating to corporate matters.
 
 
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For the three months ended March 31, 2012 salaries and wages increased approximately $319,000, or 306%, to approximately $424,000, the increase was primarily due to the acquisitions of Tropical Communications and Rives-Monteiro Engineering, which accounted for approximately $272,000 of the increase.

General and administrative costs include all of our corporate costs, as well as costs of our subsidiaries management personnel and administrative overhead.  These costs consist of office rental, legal, consulting and professional fees, travel costs and other costs that re not directly related to performance of our services under customer contracts. General and administrative expenses in 2012 for the three month period were 30% of revenues versus 43% in 2011.  The costs increased approximately $294,000 to approximately $454,000, and increased primarily from the hiring of additional personnel and resulting salaries and wages, travel, and insurance. The acquisitions of Tropical Communications and Rives-Monteiro Engineering accounted for approximately $341,000 of the increase.

Interest expense increased by approximately $111,000 to approximately $307,000 for the three month period ended March 31, 2012, primarily from the higher third party loans to finance the operations of the company.

The unrealized loss on the change in fair value of the derivative decreased to $780 as compared to $805,549 for the same period in 2011.
 
Liquidity and Capital Resources

Liquidity is the ability of a company to generate sufficient cash to satisfy its needs for cash. At March 31, 2012 the Company had a working capital deficit of approximately $599,000 as compared to a working capital deficit of approximately $1,277,000 at December 31, 2011. This 53 % decrease in working capital deficit is primarily the result of the issuance of preferred stock, which was used to repay borrowings of the Company

Net cash used by operating activities for the three months in 2012 was approximately $678,000 which reflects the increases in accounts receivable offset by the increases in accounts payable and accrued expenses, combined with the net loss for the period, as compared to net cash used by operating activities of approximately $311,000 for the three months ended 2011.  

Net cash used by investing activities for the three months ended 2012 was approximately $41,000, which primarily consists of capital expenditures for equipment and machinery, as compared to approximately $15,000 in 2011.

Net cash provided by financing activities for the three months in 2012 was approximately $739,000 which resulted primarily from proceeds from the sale of preferred stock, which was offset by the repayments of notes and loans payable compared to approximately $313,000 in 2011.

Our cash resources are 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

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.

 
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
 
 
15

 
 
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 have 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 six 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 January 6, 2012 in exchange for consenting to forgive his salary for 2011, the Company issued 5,000,000 shares at a fair market price of $.006 to a director of the Company.  The shares were recorded as stock compensation in 2011.

On January 17, 2012 the Company issued 5,000,000 shares of the Company’s common stock valued at the fair market price of $0.00369 per share in connection with loan provisions of a third party borrowing, recorded as loan cost expense.

In January 2012 the Company issued to a Director of the Company, 200 shares of Series D Preferred Stock in exchange for the director foregoing their 2011 compensation. The amount was recorded as compensation expense in 2011.
 
The Company issued to various investors in January 2012 550 shares of Series C Preferred Stock in exchange for $450,000.
 
The Company issued to various investors in Janaury 2012, 100 shares of Series B redeemable Preferred Stock in exchange for $100,000.
 
In February 2012 the Company issued to various investors 250 shares of Series C Preferred Stock in exchange for $250,000.
 
In March 2012 the Company issued to various investors 100 shares of Series C Preferred Stock in exchange for $100,000.

The Company issued to various investors in March 2012, 200 shares of Series B Redeemable Preferred Stock in exchange for $200,000.

 
Item 3.       Defaults Upon Senior Securities.

None

Item 4.       (Removed and Reserved).

Item 5.       Other Information.

None
 
 
16

 
 
Item 6.       Exhibits.

No.
Description
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


 
17

 
 
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.
May 10, 2012
By: /s/ Daniel J. Sullivan
 
Daniel J. Sullivan, Chief Financial Officer, principal financial and accounting officer

 
 
 
 
 
18