INTERCLOUD SYSTEMS, INC. - FORM 10-Q

Attached files

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EX-31.1 - CERTIFICATION - INTERCLOUD SYSTEMS, INC.	f10q0910ex31i_genesis.htm
EX-32.1 - CERTIFICATION - INTERCLOUD SYSTEMS, INC.	f10q0910ex32i_genesis.htm
EX-31.2 - CERTIFICATION - INTERCLOUD SYSTEMS, INC.	f10q0910ex31ii_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, 2010

[ ]	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 o No x

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. 109,473,976 shares of common stock are issued and outstanding as of January 26, 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.	12
Item 3.	Quantative and Qualitative Disclosures About Market Risk.	12
Item 4.	Controls and Procedures.	12
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings.	14
Item 1A.	Risk Factors.	14
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	14
Item 3.	Defaults Upon Senior Securities.	14
Item 4.	(Removed and Reserved).	14
Item 5.	Other Information.	14
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, 2009.

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, 2009 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, 2009. 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
-Unaudited-


	SEPTEMBER 30,			DECEMBER 31,
	2010			2009
Assets

Current Assets
Cash and cash equivalents	$	481,369		$	2,413
Accounts receivable		111,577			82,608
Costs and esimated earnings in excess of billings		1,125			-
Inventory		17,809			-
Loan receivable-employees		26,154			-
Prepaid expenses		185			-

Total Current Assets		638,218			85,021

Property & equipment, net		196,697			30,431

Deposits		7,926			-

Total Assets	$	842,841		$	115,452

Liabilities and Stockholders' Equity (Deficit)

Current liabilities
Bank overdraft	$	-		$	26
Accounts payable		319,119			270,819
Accrued expenses		107,710			115,673
Billings in excess of costs and estimated earnings		3,992
Bank debt, current portion		380,728			-
Note payable, UTA		1,000,000
Due to related parties		-			5,336
Notes payable, shareholder		194,471			-

Total Current Liabilities		2,006,021			391,854

Long term debt, net of current portion		22,254			-

Stockholders' Equity (Deficit):
Common stock, $.0001 par value, 500,000,000 shares
authorized; 166,290,500 shares issued and outstanding		16,629			16,109
Preferred stock, $.0001 par value, 50,000,000 authorized;
none issued or outanding		-			-
Additional paid-in-capital		6,766,318			4,585,376
Less: Subscription Stock Receivable		(4,800,000	)		(4,800,000	)
Accumulated deficit		(3,168,381	)		(77,887	)

Total Stockholders' (Deficit)		(1,185,434	)		(276,402	)

Total Liabilities and Stockholders' Equity (Deficit)	$	842,841		$	115,452

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,
	2010			2009			2010			2009

REVENUES:
Contract revenues	$	123,317		$	407,122		$	711,784		$	741,334

Cost of revenues		384,493			279,155			689,020			533,764

GROSS PROFIT		(261,176	)		127,967			22,764			207,570

EXPENSES
Depreciation and amortization		16,516			-			66,065			-
Stock compensation		2,460,000			-			2,460,000			-
General and administrative		318,583			106,007			532,842			162,411

TOTAL EXPENSES		2,795,099			106,007			3,058,907			162,411

INCOME (LOSS) FROM OPERATIONS		(3,056,276	)		21,960			(3,036,143	)		45,159

OTHER INCOME (EXPENSE)
Interest income		-			2,619			-			7,771
Interest expense		(23,925	)		(10,929	)		(54,351	)		(24,119	)
Other income		-			(2,792	)		-			4,868

TOTAL OTHER EXPENSE		(23,925	)		(11,102	)		(54,351	)		(11,480	)


NET LOSS	$	(3,080,201	)	$	10,859		$	(3,090,494	)	$	33,679

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

Weighted average number of common shares
outstanding		164,242,135			1,184,031			161,931,024			1,184,031

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,
	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss)	$	(3,090,494	)	$	33,679
Adjustments to reconcile net loss to net cash
used in operations:
Depreciation		66,065			-
Stock compensation		2,460,000			-
Changes in assets and liabilities:
Increase in accounts receivable		(28,969	)		(75,943	)
Increase in costs and estimated earnings in excess of billings		(1,125	)		-
Increase in inventory		(17,809	)		-
Increase in loan receivable-employee		(26,154	)		-
Increase in other assets		(8,111	)		(250	)
Increase in accounts payable and accrued expenses		40,339			55,294
Increase in billings in excess of costs and estimated earnings		3,992
Total adjustments		2,488,228			(20,899	)

NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES		(602,266	)		12,780

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment		(199,123	)		(15,377	)
NET CASH USED IN INVESTING ACTIVITIES		(199,123	)		(15,377	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft		(26	)		30
Proceeds from issuances of stock		-			145,554
Borrowings from banks		402,982			-
Borrowings from third party-UTA		960,000			-
Borrowings, net of payments to/ from related party		(82,611	)		(120,360	)
NET CASH PROVIDED BY FINANCING ACTIVITIES		1,280,345			25,224

NET INCREASE IN CASH		478,956			22,627

CASH - beginning of year		2,413			1,480

CASH - end of period	$	481,369		$	24,107


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid during the year for interest	$	37,505		$	-

Taxes paid	$	-		$	-

Noncash investing and financing activities:
Shareholder contribution of equipment	$	33,208		$	-

See Accompanying Notes to Condensed Consolidated Financial Statements

GENESIS GROUP HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 subsidiary Digital Comm, Inc. (“Digital”), all of which is 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, 2010 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, 2009 included in the Company’s 2009 Annual Report on Form 10-K, filed with the SEC.

On January 14, 2010, the Company entered into an agreement with Digital Comm, Inc. (“Digital”), a Florida corporation, originally formed on September 16, 2006. Under the terms of the agreement (the “Acquisition”) Genesis issued as consideration for all the business, assets and liabilities of Digital 50,000,000 shares of Genesis to the former stockholder of Digital. Upon consummation of the acquisition, Digital became a wholly owned subsidiary of Genesis, with the shareholder of Digital owning approximately 46% of Genesis. Under generally accepted accounting principles, the acquisition by Genesis of Digital is considered to be a capital transaction in substance, rather than a business combination. That is, the acquisition is equivalent to the acquisition by Genesis of Digital.

As the acquisition was a capital transaction, and not a business combination, there is no assigned goodwill or other intangible asset resulting from the acquisition. This transaction is reflected as a recapitalization, and is accounted for as a change in capital structure. Accordingly, the accounting for the acquisition is identical to that resulting from a reverse acquisition. Under reverse acquisition accounting, the comparative historical financial statements of Genesis, as the legal acquirer, are those of the accounting acquirer, Digital. The accompanying financial statements reflect the recapitalization of the stockholders’ equity as if the transactions occurred as of the beginning of the first period presented. Thus, the 50,000,000 shares of common stock issued to the former Digital stockholders are deemed to be outstanding for all periods reported prior to the date of the reverse acquisition.

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.

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.

GENESIS GROUP HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2. ACCOUNTING POLICIES (continued)

Recently Issued Accounting Pronouncements

There have been no recently issued accounting pronouncements that are expected to have a material effect on the Company’s consolidated condensed financial statements

3. 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, 2010, 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.

4. PROPERTY AND EQUIPMENT, NET

Property and equipment consist of the following:

	September 30, 2010			December 31, 2009
Vehicles	$	95,568		$	4,000
Computers and Office Equipment		23,202			7,771
Equipment		146,253			31,007
Small Tools		14,317			4,231

Total		279,340			47,009
Less accumulated depreciation		(82,643	)		(16,578	)

Property and equipment, net	$	196,697		$	30,431

5. BANK DEBT

Bank debt consists of the following:

	September 30, 2010			December 31, 2009
Installment note payable, payable monthly principle	$			$	-0-
and interest of $621.24, interest at 9.05%
secured by vehicle		28,614			-0-

Lines of credit, payable monthly principle
and interest , interest at 8.05%
guaranteed personally by principal shareholders		374,368			-0-

		402,982			-0-
Less: Current portions of debt		(380,728	)		-0-

Long term portion of bank debt	$	22,254		$	-0-

GENESIS GROUP HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

6. NOTE PAYABLE - ACQUISITION

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.

Under the terms of the loan agreement the Company was required to become current with its reporting requirements with the SEC by December 31, 2010; hence it is an event of default under the terms of the first $1 million note. The company has not been notified by the lender of this default and continues to work to cure this event of default.

7. NOTES PAYABLE – RELATED PARTY

Through the nine months ended September 30, 2010 the Company executed notes aggregating a total of $220,891 with its principal officer and shareholder. These unsecured notes are short-term borrowings with maturities of less then one year with an interest rate of 10%. The balance of these notes after repayments as of September 30, 2010 is $194,471.

8. 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, 2010 and September 30, 2009 the Company had net operating loss carryforwards (“NOL’s”) of approximately $3,100,000 and $34,000, which will be available to reduce future taxable income and expense through 2030.

9. COMMON STOCK

On August 30, 2010 Mr. Sands was issued 5,200,000 shares of its common stock that had been due to Mr. Sands, as compensation, both pursuant to the terms of his employment agreement and accrued salary. This issuance included 4,000,000 shares of the Company’s common stock valued at fair market value of the per share price totaling $2,400,000 as an incentive bonus at the time he entered into the agreement and an additional 1,200,000 shares of common stock issued in satisfaction of $60,000 of accrued but unpaid compensation due Mr. Sands under the terms of the agreement from the date of the agreement through August 2010.

10. COMMITMENTS AND CONTINGENCIES

Employment Agreements

In September 2009 the Company entered into a five year employment agreement with Mr. Gideon Taylor to serve as the Company’s Chief Executive Officer and a member of its Board of Directors. The terms of the agreement provides for automatic one year renewals after the initial term, annual compensation of $200,000 payable in cash; if the Company does not have sufficient cash flow to pay the compensation he is entitled to receive equity in lieu of the cash. He is also entitled to receive a bonus at the discretion of the Board of Directors of which he is the sole member and entitled to participate in any equity incentive plan that may be adopted, as well as participate in employee benefits and reimbursement of expenses.

In January 2010 the Company entered into a five year employment agreement with Mr. Billy D. Caudill to serve as the Company’s Chief Operating Officer and Secretary. The terms of the agreement provides for automatic one year renewals after the initial term, annual compensation of $200,000 payable in cash; if the Company does not have sufficient cash flow to pay the compensation he is entitled to receive equity in lieu of the cash. He is also entitled to receive a bonus an annual bonus equal to 5% of our EBITDA for the 12 month period ending December 31, payable in cash or stock at the discretion of our Board of Directors. He is entitled to a $1,000 per month car allowance, participate in any equity incentive plan we may adopt, participate in employee benefits and reimbursement of expenses. He is also entitled to receive an additional 25,000,000 shares of our common stock if we record $20 million of contracts and new company acquisitions during the first year of the term of the agreement.

GENESIS GROUP HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

10. COMMITMENTS AND CONTINGENCIES (continued)

In January 2010 the Company entered into a three year employment agreement with Mr. Lawrence Sands to serve as its Vice President of Mergers and Acquisitions. The terms of the agreement provides for automatic one year renewals after the initial term, annual compensation of $120,000 payable in cash; if the Company does not have sufficient cash flow to pay the compensation he is entitled to receive equity in lieu of the cash. Mr. Sands is also entitled to receive a bonus at the discretion of the Board of Directors, a $1,000 per month car allowance and to participate in any equity incentive plan the Company may adopt and to participate in employee benefits.

Rental

In July 2010 the Company entered into a rental operating lease covering its primary office facility, including corporate, in Boca Raton, Florida that has an original non-cancelable term of 5 years with a provision for early termination after 3 years. The lease contains renewal provisions and generally requires the Company to pay insurance, maintenance, and other operating expenses. The future minimum obligation during each year through fiscal 2014 and thereafter under the leases with non-cancelable terms in excess of one year is as follows:

	Future Minimum
	Lease Payments
2010	$	5,100
2011		20,400
2012		20,400
2013		20,400
2014		20,400
Total	$	86,700

Consulting Agreement

In October, 2010 we entered into a Consulting Agreement with Harpos Funding II, LLC under which it will provide us with financial advisory services, investment banking and other strategic advice under the terms of an agreement. As compensation for the advisory services, we agreed to issue it a to-be-created series of convertible preferred stock that will have 10 votes for each share and will be convertible into 5% of the common stock of our Company at a conversion price of $0.01 per share. We have not yet designated this series of preferred stock.

Under the terms of this agreement, we also guarantee that Harpos Funding II would receive a 10% per annum return for a minimum of three years on any investment it may make in our company, together with 75% warrant coverage; the minimum increments for funding are $250,000. To date, no investments have been made. In addition, any investments by Harpos Funding II that are accepted by the Company will contain a most favored nations clause and piggy back registration rights covering the shares underlying the warrants.

We also agreed that in the event any third parties make an investment in our company, that our Board accepts, that were directly or indirectly introduced to us by Harpos Funding II, and providing that the investments are in increments of not less than $250,000, we will pay Harpos Funding II a finder’s fee in an amount ranging from 3% to 5%, depending upon the amount of the investment. We further agreed to pay Harpos Funding II a finder’s fee of 2% on all debt we issue or restructure based upon the introductions by Harpos Funding II. Finally, we agreed to issue Harpos Funding II five year warrants exercisable at 110% of the offering price of the equity securities or conversion price of the debt securities.

11.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 $ 3,168,381and $77,887 at September 30, 2010 and December 31, 2009 respectively.

GENESIS GROUP HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

10. RISKS AND UNCERTAINTIES (continued)

Management plans to raise 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.

12. SUBSEQUENT EVENTS

The Company has evaluated subsequent events through January 26, 2011, which is the date the financial statements were issued, and has concluded that no such 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 six months ended September 30, 2010 and 2009 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, 2009 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 subsidiary (acquired through a reverse merger on January 14, 2010) for 2010 and 2009 re-casted for the acquisition and its liquidity and capital resources at September 30, 2010.

Results of Operations

The -70% and -4% decrease in Genesis’ revenues for the three month and nine month periods in 2010 from 2009 results primarily from the company expending its efforts during these periods to secure new local government contract jobs that were unsuccessful because of the company’s inability to secure performance bonding for such jobs versus a built-up of its existing on-going jobs.

Cost of revenues earned in 2010 for the three and nine month periods were 312% and 97% of revenues as compared to 72% and 69% in 2009. This increase in costs was the result of the Company’s shifting of hiring additional project management and its own field personnel versus subcontracting the work. Cost of revenues for 2010 primarily consisted of wages, subcontractor costs and general insurance. The expenses were not timely recouped as the Company was unable to proceed with the work due to its inability to secure proper performance bonding. Additionally, the Company had prepared for, and incurred expenses, on certain other contracts that did not timely proceed with their commencement. We also suffered increased expenses due to work stoppage that was incurred as a result of equipment failure and incurred unanticipated repairs.

Gross profit in 2010 for the three and nine month periods was -212% and 3% of revenues as compared to 31% and 28% of revenues in 2009 due primarily to the Company’s shift in labor utilization and overruns in cost of certain jobs requiring additional equipment rentals.

For the three month and nine month periods in 2010 the Company incurred $2,460,000 in stock compensation expense compared to none in 2009 from the issuance of 5,200,000 in shares of its common stock 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.

General and administrative expenses in 2010 for the three and six month periods were 258% and 75% of revenues versus 26% and 22% in 2009 and increased primarily from the hiring of additional personnel and resulting salaries and wages , travel , and insurance .

Interest expense increased 119% and 125% to $23,925 and $54,351 in 2010 from $10,929 and $24,119 in 2009 and relates primarily to borrowings from new bank borrowings and the principal shareholders which were repaid during the year.

Liquidity and Capital Resources

Liquidity is the ability of a company to generate sufficient cash to satisfy its needs for cash. At September 30, 2010 the Company had a working capital deficit of $1,367,803 as compared to a working capital deficit of $306,833 at December 31, 2009. This 345 percent decrease in working capital deficit is primarily the result of additional build-up of operations for pursuit of increased business in 2010 plus the inclusion of short-term borrowings from its principal shareholder that was partially offset by a reduction in accounts payable and accrued expenses.

Net cash used by operating activities for the nine months in 2010 was $602,266 which reflects the increases in accounts receivable offset by the increases in accounts payable and accrued expenses, as compared to net cash provided by operating activities $12,779 for the nine months ended 2009.

Net cash used by investing activities for the nine months ended 2010 was $199,123, which primarily consist of capital expenditures for equipment and machinery, as compared to $15,377 in 2009.

Net cash provided by financing activities for the nine months in 2010 was $1,280,345 which resulted primarily from the $1,000,000 working capital loan from UTA Capital, LLC compared to minus $25,224 in 2009.

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 on August 6, 2010, UTA Capital LLC provided a working capital loan to Genesis Group Holdings, Inc., 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 $960,000 net of fees which was recorded as an investment contribution by Genesis in Digital. It plans to draw upon the second $1million and has notified the lender of its intention.

Under the terms of the loan agreement the Company was required to become current with its reporting requirements with the SEC by December 31, 2010; hence it is an event of default under the terms of the first $1 million note. While we have not yet satisfied all those covenants, including the obligation to file all delinquent reports with the SEC, UTA Capital has agreed to allow us to borrow the second $1 million if we comply with all covenants as soon as possible. While we reasonably believe that we will satisfy the covenants and access the additional funds, if we should fail our inability to borrow the additional $1 million our ability to continue to grow our company would be adversely impacted.

The company has not been notified by the lender of this default and with the filing of this Form 10Q will have cured this event of default.

Recent Accounting Pronouncements

There have been no recently issued accounting pronouncements that are expected to have a material effect on the Company’s consolidated condensed 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

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. We expect to file all delinquent reports with the SEC prior to March 31, 2011.

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 August 30, 2010 we issued 5,200,000 shares of our common stock that had been due to Lawrence Sands an executive officer, as compensation, both pursuant to the terms of his employment agreement dated as of January, 2010 and accrued salary. This issuance included 4,000,000 shares of our common stock valued at $2,400,000 which were issued as an incentive for entering into an employment agreement with us and 1,200,000 shares issued in satisfaction of accrued but unpaid 2010 salary. 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
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.
January 26 ,2011	By: /s/ Gideon Taylor
	Gideon Taylor, Chief Executive Officer, principal financial and accounting officer

Attached files

INTERCLOUD SYSTEMS, INC. Reports

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