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EX-31.1 - EXHIBIT 31.1 - Green Energy Management Services Holdings, Inc.ex31_1.htm
EX-10.24 - EXHIBIT 10.24 - Green Energy Management Services Holdings, Inc.ex10_24.htm


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
(Mark One)
 
þ     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2011
 
or
 
o     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from            to
 
Commission file number: 000-33491
 
Green Energy Management Services Holdings, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
 
75-2873882
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
     
381 Teaneck Road
   
Teaneck, New Jersey
  07666
(Address of principal executive offices)
 
(Zip Code)
 
(201) 530-1200
 (Registrant’s telephone number, including area code)
 
 (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   þ   or   No   o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes   þ or   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 þ
       
 
 
(Do not check if a smaller
reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o or No  þ
 
There were 443,977,432 shares of the registrant’s common stock, $0.0001 par value, outstanding as of August 12, 2011.
 


 
 

 
 
GREEN ENERGY MANAGEMENT SERVICES HOLDINGS, INC.
 
TABLE OF CONTENTS
 
 
 
Page
 
PART I. FINANCIAL INFORMATION
 
 
 
 
Item 1.
1
 
 
 
 
1
 
 
 
 
2
 
 
 
 
3
 
 
 
 
4
 
 
 
 
5
 
 
 
Item 2.
10
 
 
 
Item 3.
14
 
 
 
Item 4.
14
 
 
 
 
PART II. OTHER INFORMATION
 
 
 
 
Item 1.
16
 
 
 
Item 1A.
16
 
 
 
Item 2.
17
 
 
 
Item 3.
18
 
 
 
Item 4.
18
 
 
 
Item 5.
18
 
 
 
Item 6.
18
 

PART I: FINANCIAL INFORMATION
 
Item 1.    Financial Statements
 
GREEN ENERGY MANAGEMENT SERVICES HOLDINGS, INC.
 
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

 
 
June 30,
   
December 31,
 
 
 
2011
   
2010
 
ASSETS
 
 
   
 
 
Current
 
 
   
 
 
Cash
  $ 28,476     $ 896,057  
Contract receivables
    10,491       23,638  
Prepaid expenses
    52,033       58,052  
Deferred project costs - Current
    138,686       39,114  
Other current assets
    132,430       111,292  
                 
Total Current Assets
    362,116       1,128,153  
                 
Property and equipment-net
    69,021       79,202  
Deferred project costs
    837,477       243,955  
Licensing agreements
    641,920       673,600  
Other assets
    9,612       9,612  
                 
Total Assets
  $ 1,920,146     $ 2,134,522  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
               
LIABILITIES
               
Current
               
Accounts payable - trade
  $ 772,405     $ 428,155  
Line of Credit - Related Party
    500,000       -  
Bridge loan payable - Related Party
    108,000       -  
Note payable - Current portion
    11,531       11,440  
Other accrued liabilities
    571,911       181,003  
                 
Total Current Liabilities
    1,963,847       620,598  
                 
Note payable - Long-term portion
    36,344       40,855  
                 
Total Liabilities
    2,000,191       661,453  
                 
STOCKHOLDERS' EQUITY (DEFICIT)
               
Common stock, $0.0001 par value, 500,000,000 shares authorized;443,977,432 and 442,403,636 shares issued and outstanding on June 30, 2011 and December 31, 2010, respectively
    44,397       44,240  
Additional paid-in capital
    15,543,444       3,600,362  
Subscription receivable
    (50,000 )     (50,000 )
Retained deficit
    (15,617,886 )     (2,121,533 )
                 
Total Stockholders' Equity (Deficit)
    (80,045 )     1,473,069  
                 
Total Liabilities & Stockholders' Equity (Deficit)
  $ 1,920,146     $ 2,134,522  

See accompanying notes to unaudited condensed consolidated financial statements.
 
 
GREEN ENERGY MANAGEMENT SERVICES HOLDINGS, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

 
 
Three Months Ended June 30,
   
Six Months Ended June 30,
 
 
 
2011
   
2010
   
2011
   
2010
 
 
 
 
   
 
   
 
   
 
 
Contract revenue earned
  $ 4,308     $ 89,584     $ 8,615     $ 291,311  
Cost of revenue earned
    1,985       101,364       3,969       270,163  
                                 
Gross profit
    2,323       (11,780 )     4,646       21,148  
                                 
Selling, general and administrative expenses
    764,932       323,682       13,442,440       402,063  
Depreciation and Amortization expense
    15,446       3,279       41,340       7,847  
Loss on sale of assets
    -       -       5,573       800  
                                 
Operating loss
    (778,055 )     (338,741 )     (13,484,707 )     (389,562 )
                                 
Interest expense, net
    10,002       5,123       11,646       8,274  
                                 
Total other expenses
    10,002       5,123       11,646       8,274  
                                 
Net loss before income taxes
    (788,057 )     (343,864 )     (13,496,353 )     (397,836 )
                                 
Income taxes
    -       -       -       -  
                                 
Net loss
  $ (788,057 )   $ (343,864 )   $ (13,496,353 )   $ (397,836 )
                                 
Net loss per common share - basic and diluted
  $ (0.00 )   $ (0.00 )   $ (0.03 )   $ (0.00 )
                                 
Weighted average number of common shares outstanding
    443,964,245       351,691,756       443,408,363       351,691,756  
 
See accompanying notes to unaudited condensed consolidated financial statements.
 
 
GREEN ENERGY MANAGEMENT SERVICES HOLDINGS, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)

 
 
Six Months Ended June 30,
 
 
 
2011
   
2010
 
Cash flows from operating activities:
 
 
   
 
 
Net loss for the period
  $ (13,496,353 )   $ (397,836 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
               
Depreciation and amortization
    41,340       7,847  
Stock-based compensation
    224,069       -  
Warrant-based consulting fees
    11,719,170       -  
Loss on disposition of asset
    5,573       800  
Net change in assets and liabilities:
               
Contract receivables
    13,147       144,689  
Prepaid expenses
    6,019       3,710  
Deferred project costs
    (452,715 )     -  
Other current assets
    (21,138     -  
Other assets
    -       (6,878 )
Accounts payable - trade
    (136,129     72,068  
Accrued liabilities
    390,908       220,084  
Net cash provided by (used in) operating activities
    (1,706,109 )     44,484  
                 
Cash flows from investing activities:
               
Purchase of property & equipment, net of dispositions
    (5,052 )     (800 )
Net cash provided by investing activites
    (5,052 )     (800 )
                 
Cash flows from financing activities:
               
Borrowings under line of credit
    500,000       5,614  
Borrowings under loan from affiliates
    108,000       -  
Cash received from Nyserda funding
    240,000       -  
Repayments and distributions to shareholders
    -       (56,296 )
Repayments of debt on installment notes
    (4,420 )     (5,237 )
                 
Net cash provided by (used in) financing activities
    843,580       (55,919 )
                 
Net decrease in cash
    (867,581 )     (12,235 )
Cash - beginning of period
    896,057       18,241  
                 
Cash - end of period
  $ 28,476     $ 6,006  
                 
Supplemental disclosure of cash flow information:
               
Cash payments for interest
  $ 4,705     $ 8,602  
Deferred project costs included in accounts payable   $ 480,379     $ -  
 
See accompanying notes to unaudited condensed consolidated financial statements.
 
 
GREEN ENERGY MANAGEMENT SERVICES HOLDINGS, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Six Months Ended June 30, 2011
(Unaudited)

               
Additional
          Retained        
    Common Stock     Paid-in    
Subscription
    Earnings        
   
Shares
    Amount     Capital     Receivable     (Deficit)    
Total
 
 
 
 
   
 
   
 
   
 
   
 
   
 
 
Balance as of December 31, 2010
    442,403,636       44,240     $ 3,600,362     $ (50,000 )   $ (2,121,533 )   $ 1,473,069  
 
                                               
Common stock issued as compensation for
employment at $0.15 per share
    1,373,796       137       205,932                       206,069  
 
                                               
Option issued for lending commitment
                    11,719,170                       11,719,170  
 
                                               
Common stock issued as compensation for Directors serving on the Board of Directors at $0.09 per share
    200,000       20       17,980                       18,000  
 
                                               
Net loss for the Six Months Ended June 30, 2011
                                    (13,496,353 )     (13,496,353 )
 
                                               
Balance as of June 30, 2011
    443,977,432     $ 44,397     $ 15,543,444     $ (50,000 )   $ (15,617,886 )   $ (80,045 )
 
See accompanying notes to unaudited condensed consolidated financial statements.
 
 
GREEN ENERGY MANAGEMENT SERVICES HOLDINGS, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1. Basis of Presentation
 
The unaudited condensed consolidated financial statements included herein have been prepared by Green Energy Management Services Holdings, Inc. (which, together with its consolidated subsidiary, is referred to as the “Company”, “we”, “us” or “our”) pursuant to the rules and regulations of the Securities and Exchange Commission. The financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of such information. All such adjustments are of a normal recurring nature. Certain information and footnote disclosures, including a description of significant accounting policies normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to such rules and regulations. The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. These interim financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010, which was filed with the Securities and Exchange Commission on March 31, 2011. The results of operations for the three and six months ended June 30, 2011 are not necessarily indicative of the results for any subsequent periods or the entire fiscal year ending December 31, 2011.
 
Earnings per share
 
“Net loss per common share - basic and diluted” is calculated by dividing net income available to common stockholders by the weighted average number of shares of the Company’s common stock outstanding during the period. Diluted earnings per share reflect the potential dilution that could occur if our share-based awards and convertible securities were exercised or converted into common stock.  The dilutive effect of the Company’s share-based awards is computed using the treasury stock method, which assumes all share-based awards are exercised and the hypothetical proceeds from exercise are used to purchase common stock at the average market price during the period.  The incremental shares (difference between shares assumed to be issued versus purchased), to the extent they would have been dilutive, are included in the denominator of the diluted EPS calculation.

“Net loss per common share — diluted” for each of the three and six months ended June 30, 2011 was the same as “Net loss per common share — basic” as the Company reported a net loss and, therefore, the effect of all potentially dilutive securities on the net loss would have been anti-dilutive.  As of June 30, 2011, there were 78,348,959 potential common shares issuable upon the exercise of the Option (as defined below) excluded from the calculation of “Net loss per common share — diluted” because their impact would be anti-dilutive due to the Company’s net loss. The Option vested immediately upon issuance on June 27, 2011, and effective as of March 3, 2011, and the holder of the Option may exercise it at any time during the term of the Commitment Letter (as defined below), at an exercise price of $10,949,490. The Option may be exercised in part or in full and the aggregate option exercise price will be adjusted proportionately for any partial exercise of the Option. The Option may also be exercised on a cashless basis.  For the periods ended June 30, 2010, there were no common share equivalents.

The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on its results of operations, financial position or cash flow.

Note 2. Organization of the Company and Going Concern

Organization of the Company

Green Energy Management Services, Inc.

Green Energy Management Services, Inc. (“GEM”) was incorporated pursuant to the laws of the State of Delaware in March 2010.  GEM is primarily involved in the distribution of energy efficient lighting units and water saving devices to end users who utilize substantial quantities of electricity and water.  GEM maintains business operations with several locations in the United States, distributing products and services to municipal and commercial customers.  Industry participants focus on assisting clients effectively maximize their energy efficiency potential and couples that with maximizing their renewable energy potential.
 
Green Energy Management Services Holdings, Inc.

The Company was incorporated pursuant to the laws of the State of Delaware in December 1996 under the name “Citadel Security Software Inc.”  The Company was formally principally engaged in the marketing and licensing of security software products to large enterprises and government agencies.  On October 2, 2006, the Company entered into an asset purchase agreement with McAfee, Inc. (“McAfee”).  On December 1, 2006, the Company’s stockholders approved a plan of liquidation and dissolution and on December 2, 2006 and on December 4, 2006, the Company completed the sale of substantially all of its assets to McAfee.  On December 12, 2006, the Company changed its name to “CDSS Wind Down Inc.” Following the sale of substantially all of its assets, the Company had no active business operations.  During 2009, the Company’s board of directors considered alternatives to liquidating, including the possibility of seeking potential merger or acquisition targets.  On November 16, 2009, the Company’s board of directors elected to terminate the plan of liquidation and dissolution.  On August 20, 2010, GEM and the Company’s then newly-created wholly-owned subsidiary, CDSS Merger Corporation, merged with and into GEM and GEM, as the surviving corporation, became a wholly-owned subsidiary of the Company (the “Merger”).
 
 
Going Concern

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying condensed consolidated financial statements, we have generated minimal revenues in the first half of 2011 and we have a working capital deficit as of June 30, 2011. These factors raise substantial doubt about our ability to continue as a going concern.

Since June 2011 to the date of this report, all of the Company’s officers, directors and employees have agreed to defer a substantial portion of their compensation due from the Company. In addition, our Chairman, President and CEO has deferred his entire salary due from April 7, 2011 to the date of this report. In addition, certain consulting expenses due from the Company are being paid by a member of the Company’s Board of Directors. As of July 31, 2011, total deferred salaries and estimated payroll taxes were approximately $113,000. Total consulting expenses advanced by the member of the Company’s Board of Directors is approximately $20,000. The Company plans to pay the deferred salaries and advanced expenses with proceeds from borrowings or the possible sale of energy efficiency contracts owned by the Company.
 
Our ability to continue existence is dependent upon our continuing efforts to implement our new business strategy, management’s ability to achieve profitable operations and/or upon our ability to obtain additional financing to carry out our business plan. We intend to fund our operations through equity and/or debt financing arrangements and any revenues generated in the future. However, there can be no assurance that these arrangements, if any, will be sufficient to fund our ongoing capital expenditures, working capital, and other cash requirements. The outcome of these matters cannot be predicted at this time.

There can be no assurance that any additional financings will be available to us on satisfactory terms and conditions, if at all. In the event we are unable to continue as a going concern, we may elect or be required to seek protection from our creditors by filing a voluntary petition in bankruptcy or may be subject to an involuntary petition in bankruptcy. To date, management has not considered this alternative, nor does management view it as a likely occurrence.

The accompanying condensed consolidated financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classification of liabilities that may result should we be unable to continue as a going concern.

Note 3. Commitments and Contingencies
 
Legal Matters

From time to time, we may become involved in litigation relating to claims arising out of our operations in the normal course of business. No legal proceedings, government actions, administrative actions, investigations or claims are currently pending against us or involve us which, in the opinion of our management, could reasonably be expected to have a material adverse effect on our business or financial condition.

There are currently no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material interest adverse to us.

The PMP Agreement

Pursuant to the PMP Agreement, commencing on September 15, 2010, GEM agreed to pay Mr. Bocos a monthly consulting fee of $8,000.

Long Term Debt

The maturities of the note for the Auto Loan (as defined below) payable, affiliate bridge loan payable and bridge loan payable at June 30, 2011 are as follows:


 
 
6/30/2012
   
6/30/2013
   
6/30/2014
   
6/30/2015
   
6/30/2016
   
Total
 
 
 
 
   
 
   
 
   
 
   
 
   
 
 
Note payable
  $ 11,531     $ 11,989     $ 12,465     $ 11,890     $ -     $ 47,875  
Credit line
    500,000       -       -       -       -       500,000  
Due to affiliates
    108,000       -       -       -       -       108,000  
 
                                               
Total
  $ 619,531     $ 11,989     $ 12,465     $ 11,890     $ -     $ 655,875  
 
                                               
Interest expense
  $ 65,046     $ 1,181     $ 705     $ 183     $ -     $ 67,114  
 
Operating leases

Rental expense for leases was $43,812 and $10,050 for the six months ended June 30, 2011 and 2010, respectively, and $22,650 and $5,025 for the three months ended June 30, 2011, respectively. Commencing August 1, 2011, the Company has terminated its month-to-month lease for the Sunrise Office and is leasing approximately 1,500 square feet of office space in Miami, Florida (Miami) at lease payments of $2,150 per month.  The Miami lease expires on July 31, 2012 and may be terminated with 60 days notice at the option of the landlord.

Issuance of Common Stock to Green RG

Pursuant to the license and marketing agreement that we entered into with Green RG, we may be required to issue to Green RG between 10 million and 30 million restricted shares of our common stock, based on the achievements of certain performance thresholds. We intend to agree with certain of our existing stockholders to issue such shares to Green RG. However, there are no formal agreements in place to obtain such shares nor can we provide any assurance that any of our existing stockholders will agree to provide such shares. We do not expect that we will be issuing any additional shares as a result of this transaction as we intend to agree with an existing stockholder of our Company for such stockholders to transfer the required shares to Green RG, however, there are presently no formal agreements in place to obtain such shares nor can we provide any assurance that any of our existing stockholders will agree to provide such shares. As of June 30, 2011, no shares have been issued to Green RG.
 
Issuance of the Option to Financial Partners Funding, LLC

See Note 4. Issuance of the Option and Stock-Based Compensation.

SEM Consulting Agreement

On March 3, 2011, we entered into a Consulting Services Agreement (the “SEM Consulting Agreement”) with SE Management Consultants, Inc., a Florida corporation (“SEM”).  Pursuant to the SEM Consulting Agreement, SEM will advise us on business development, marketing, investor relations, financial matters and other related business matters in consideration of (i) a monthly management fee of  $15,000 payable from March 1, 2011 to August 31, 2011, (ii) a monthly management fee of  $25,000 payable from September 1, 2011 to February 29, 2012, and (iii) an amount equal to 1/1000 of our gross sales for the previous 12 months from March 1, 2012.  Such management fee cannot be less than $15,000 per month and is capped at $75,000 per month at any time during the term of the SEM Consulting Agreement.  GEM will also reimburse SEM for all of its reasonable business expenses incurred directly on behalf of GEM.

On April 26, 2011, we entered into a one-year consulting agreement with Watz Enterprises LLC, a related party. See Note 5. Related Party Transactions.

Note 4.  Issuance of the Option and Stock-Based Compensation

Issuance of the Option to Financial Partners Funding, LLC

On March 3, 2011 (the “Effective Date”), GEM entered into a Commitment Letter (the “Commitment Letter”) with Financial Partners Funding, LLC, a Florida limited liability company (“FPF”). Pursuant to the Commitment Letter, FPF agreed to commit up to $200,000,000 in equipment leases to finance third-party purchases of GEM’s lighting and Airlock products, subject to certain funding conditions, including FPF’s due diligence and approval of the third party lessees. FPF has an exclusive right to finance such third-party purchases of GEM’s products, however, GEM has the right to hold discussions with third-party financing entities. In the event that GEM is offered financing on terms more beneficial than those offered by FPF, FPF has the right of first refusal to offer financing on similar terms. FPF has no obligation to finance any particular transaction or proposed lease. GEM also agreed to reimburse FPF $50,000 in costs and expenses incurred by FPF in connection with its due diligence review of GEM’s products, which amount will be paid from the proceeds of the first lease financed by FPF. The Commitment Letter will remain in effect for 48 months from the Effective Date, unless terminated earlier pursuant to its terms.
 
 
As required under the Commitment Letter, on June 27, 2011, the Company issued to FPF an option, dated as of March 3, 2011, which upon exercise, entitles FPF to purchase up to 15% of the then outstanding common stock of the Company (the “Option”) at an aggregate exercise price of $10,949,490 (the “Option Price”). The Option may be exercised in part or in full at any time during the 48-month period commencing on the Effective Date and the Option Price will be adjusted proportionately for any partial exercise of the Option. The Option may also be exercised on a cashless basis. Pursuant to the terms of the Commitment Letter, in the event that the Commitment Letter is terminated or GEM meets the funding threshold described in the Commitment Letter and FPF does not fund the qualified projects, FPF agreed to return all or a portion of the Option that FPF would not be entitled to exercise as a result of such termination or failure to fund. The Option does not grant FPF any voting rights or other rights as a stockholder of the Company until the Option is exercised, and upon exercise, only for such exercised portion of the Option. The Option vested immediately as of the Effective Date.

Pursuant to the Commitment Letter and the Option, the Company also agreed to (x) file a registration statement to register the shares underlying the Option (the “Option Shares”) for resale under the Securities Act of 1933, as amended (the “Securities Act”), within six months of the Effective Date (the “Resale Registration Statement”), and (y) keep such Resale Registration Statement effective until the Option Shares may be sold without limitation under the Securities Act. FPF agreed to waive the provision in the Commitment Letter which required the Company to increase the number of its authorized shares of common stock to 1 billion. FPF agreed not to sell, transfer, convey or pledge the Option Shares for a period of 12 months from March 2, 2011, without the prior written consent of the Company.

As of June 30, 2011, FPF had the right to exercise the Option to purchase 78,348,958 shares of the Company’s common stock, assuming 100% of the Option was exercised. We reported $5,294 and $0 in Option-based compensation expenses for consultants for the three months ended June 30, 2011 and 2010, respectively, and $11,719,170 and $0 for the six months ended June 30, 2011 and 2010, respectively.

Because the Option was fully vested and non-forfeitable at the time of grant, the fair value of the Option was measured and expensed on the date of grant pursuant to ASC Topic 505, subtopic 50, Equity-Based Payments to Non-Employees (formerly Emerging Issues Task Force No. 96-18, Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Services).

All charges for the Option have been determined under the fair value method using the Black-Scholes option-pricing model with the assumptions set forth below.  The Company believes that the valuation technique and the approach utilized to develop the underlying assumptions are appropriate in calculating the fair values of the Option.  Estimates of fair value are not intended to predict actual future events or the value ultimately realized by the holder of the Option.
 
 
 
For the six months ended
 
 
 
June 30, 2011
 
 
 
 
 
Expected dividend yields
 
Zero
 
Expected volatility
    299 %
Risk-free interest rate
    1.67 %
Expected term
 
4 years
 
 
 
 
Number of Shares Underlying Option
 
 
Weighted Average Exercise price
 
 
 
 
 
 
 
 
 
Balance at January 1, 2011
 
 
0
 
 
NA
 
Deemed Granted
 
 
78,348,958
 
 
$
0.14
 
Balance at June 30, 2011
 
 
78,348,958
 
 
$
0.14
 

Other Issuances of Common Stock

On March 2, 2011, we issued 1,373,796 restricted shares of our common stock pursuant to our obligation under an employment agreement with our former Senior Vice President, Strategic and Business Development.  The shares were valued at $206,069 based upon the value per share of our common stock on the date of grant.
 
On April 6, 2011, we issued 200,000 restricted shares of our common stock to a member of our Board of Directors in accordance with our directors’ compensation policy.  The shares were valued at $18,000 based upon the value per share of our common stock on the date of grant.

 
Note 5.  Related Party Transactions
 
As of March 31, 2011, GEM entered into a $500,000 Line of Credit Agreement (the “LoC Agreement”) with a related-party lender, pursuant to which the lender initially advanced to GEM $100,000, evidenced by a promissory note of the same amount dated as of equal date. During the second quarter ended June 30, 2011, we borrowed the balance of $400,000 available under the LoC Agreement. The note bears interest at a rate of 12% per year, with interest on the note paid monthly in arrears. The note matures on March 31, 2012 and constitutes an unsecured obligation of GEM. We used the proceeds from the loan for project financing and general corporate purposes. The related-party lender is controlled by Ronald P. Ulfers, Jr., the Chairman, President and Chief Executive Officer and a director of the Company.
 
On April 26, 2011, we entered into a one-year consulting agreement (the “Watz Agreement”). Watz Enterprises LLC. (“Watz”) is a greater than 5% stockholder of the Company. Under the Watz Agreement, Watz agreed to advise us on business development and marketing matters in exchange for (i) a one-time payment of $65,000 and (ii) a monthly management fee of $25,000 payable from June 16, 2011 to May 15, 2012.  Within 60 days of the expiration of the Watz Agreement, the Watz Agreement will automatically renew on a month-to-month basis and can be terminated with 10 days notice by either us or Watz. The managing member of Watz is the brother-in-law of Michael Samuel, our former Chairman, President and CEO and current member of the Board of Directors.

On June 28, 2011, certain of our affiliates and a consultant of the Company (the “Lenders”) provided us with a short-term bridge loan in the amount of $108,000 (the “Loan”).  The Loan was not evidenced by a promissory note and does not bear interest.  We intend to repay the Loan from the proceeds of a third-party financing that we hope to obtain during the third quarter of 2011.  There can be no assurance as to the amount of any such financing or that any such financing will be available to us within such period, on satisfactory terms and conditions or at all.  If we do not receive such financing proceeds, we intend to proceed to negotiate terms of repayment of the Loan with the Lenders and to execute formal Loan documentation.  We used the proceeds of the Loan for project financing and general corporate purposes.

Note 6.  Loss on Sale of Assets

The Company sold construction service vehicles for losses of $5,573 and $800 during the six months ended June 30, 2011 and 2010, respectively  There were no cash proceeds from the dispositions.

Note 7.  Payments from the Nyserda

During April 2011, we received $240,000 from the New York State Energy Research and Development Authority (the “Nyserda”) under the American Recovery and Reinvestment Act as the first progress payment under the lighting retrofit and maintenance agreement (the “Riverbay Agreement”), dated November 2, 2010.  Pursuant to the Riverbay Agreement, we agreed to provide energy management lighting installation and related services to Riverbay Fund, Inc. (“Riverbay”), the management company of Co-op City, located in Bronx, a borough of New York City. We will receive a total of $800,000, based upon meeting certain installation milestones, plus approximately an additional $15,000 per month over the term of the Riverbay Agreement.

Note 8.  Subsequent Events

On July 28 and August 10, 2011, certain affiliates and a consultant provided us an additional short-term bridge loan totaling $72,900, which does not bear interest, on substantially the same terms as the June 28, 2011 affiliates’ bridge loan.

On August 5, 2011, we received an additional $240,000 from the Nyserda as the second progress payment under the Riverbay Agreement.
 
 
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Green Energy Management Services Holdings, Inc. (the “Company,” “we,” “us” or “our”) should be read in conjunction with our unaudited condensed consolidated financial statements, related notes, and other financial information appearing elsewhere in this Quarterly Report on Form 10-Q (this “Report”) and our other filings with the Securities and Exchange Commission (the “SEC”). Certain statements we make in this Report constitute “forward-looking statements” that must be understood in the context of numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section of our Annual Report on Form 10-K filed with the SEC on March 31, 2011 (the “Annual Report”) and this Report. See “Special Note Regarding Forward-Looking Statements and Projections” in “Part II — Other Information,” of this Report. Our results may differ materially from those anticipated in any forward-looking statements.

Company Overview

We are a full service energy management company based in the Eastern United States.  As a legacy business of Southside, we also may provide residential and commercial electrical contractor services, although we had no revenues from such business for the periods ended June 30, 2011.  During the second half of 2010, we underwent a significant shift in our business strategy away from the former Southside Electric Corporation, Inc., a New Jersey corporation (“Southside”), contracting business to the new strategy of Energy Efficiency and energy management (as discussed below). As a result, all of our resources have been devoted to procuring new contracts pursuant to this new strategy. Consistent with our new strategy, we entered into a number of agreements during the fourth quarter of 2010 and the first half of 2011, including as discussed below under “Recent Developments” in our Quarterly Report on Form 10-Q filed with the SEC on May 16, 2011 (the “March 2011 10-Q”) and in the notes to our condensed consolidated financial statements.

We provide our clients all forms of solutions to maximize the level of efficiency (“Energy Efficiency”) which can be achieved given the current technologies available to Green Energy Management Services, Inc. (“GEM”), our wholly-owned subsidiary, mainly based in two functional areas: (i) energy efficient lighting upgrades; and (ii) energy generation from natural resources which are naturally replenished (“Renewable Energy”). We are primarily engaged in the distribution of energy efficient lighting units to end users who utilize substantial quantities of electricity. We maintain our business operations on a nationwide basis, distributing products and services to municipal and commercial customers. We purchase products from outside suppliers and utilize outside contractors to complete customer projects.  Industry participants focus on assisting clients to effectively maximize Energy Efficiency and couple that with maximizing their utilization of Renewable Energy. We also provide our clients with water conservation solutions, primarily under long-term, fixed-price contracts, using our Turnkey Solution. We offer our customers a patented water valve technology which has the ability to reduce residential and commercial water usage by reducing the amount of air passing through the pipes while maintaining water pressure.

In the Energy Efficiency arena, we concentrate our marketing efforts within geographic regions exhibiting higher than average per kilowatt hour utility rates and water utilization rates and having energy customers who consume higher than average quantities of energy and water. We develop an Energy Efficiency/energy management program which, potentially, provides end-users alternatives to decrease their energy consumption. Additionally, in many instances, we assume the management and maintenance of our clients’ lighting needs which affords our clients greater labor efficiencies. Our water conservation solutions typically do not require further maintenance during the life of the contract.

Recent Developments

During April 2011, we received $240,000 from the New York State Energy Research and Development Authority (the “Nyserda”) under the American Recovery and Reinvestment Act as the first progress payment under the lighting retrofit and maintenance agreement (the “Riverbay Agreement”), dated November 2, 2010.  Pursuant to the Riverbay Agreement, we agreed to provide energy management lighting installation and related services to Riverbay Fund, Inc. (“Riverbay”), the management company of Co-op City, located in Bronx, a borough of New York City. We will receive a total of $800,000, based upon meeting certain installation milestones, plus approximately an additional $15,000 per month over the term of the Riverbay Agreement.  On August 5, 2011, we received an additional $240,000 from the Nyserda as the second progress payment under the Riverbay Agreement.

On April 26, 2011, we entered into a one-year consulting agreement (the “Watz Agreement”). Watz Enterprises LLC. (“Watz”) is a greater than 5% stockholder of the Company. Under the Watz Agreement, Watz agreed to advise us on business development and marketing matters in exchange for (i) a one-time payment of $65,000 and (ii) a monthly management fee of $25,000 payable from June 16, 2011 to May 15, 2012.
 
On May 3, 2011, we entered into a Water Management Agreement (the “WM Agreement”) with the Riverbay Corporation (“Riverbay”) to provide energy management water valve installation services to Riverbay. The WM Agreement entails GEM’s installation of 26 proprietary water valves (the “Units”) in 13 residential structures for Co-op City (the “Project”), the largest residential development in the United States, located in The Bronx, New York (the “City”), operated by Riverbay. In consideration for the installation of the Units, during the term of the WM Agreement, Riverbay agreed to remit to GEM 50% of the monthly cost savings achieved within the Project. The total water and sewer costs incurred by Co-op City are estimated at $14 million per year. Subject to satisfaction of the applicable conditions of the WM Agreement and solely based upon GEM’s internal estimates, GEM anticipates that such payments to GEM would range between $100,000 and $150,000 per month over the term of the WM Agreement. There can be no assurance that such payments would amount to such monthly total and such payments may vary to a substantial degree on a month-to-month basis.
 
 
During the second quarter ended June 30, 2011, we borrowed the balance of $400,000 available under the Line of Credit Agreement, dated as of March 31, 2011 (the “LoC Agreement”), evidenced by a promissory note issued by us to the lender. The note bears interest at a rate of 12% per year, with interest on the note paid monthly in arrears. The note matures on March 31, 2012 and constitutes an unsecured obligation of GEM. We used the proceeds from the loan for project financing and general corporate purposes.

Since June 2011 to the date of this Report, all of our officers, directors and employees have agreed to defer a substantial portion of their compensation due from our Company, our Chairman, President and CEO has deferred his entire salary due from April 7, 2011 to the date of this Report and certain consulting expenses due from our Company are being paid by a member of our Board of Directors. For a complete discussion of these payment deferments, please see below under “Going Concern”.

Results of Operations

Results of Operations for the three and six months ended June 30, 2011 and 2010
 
During the second half of 2010, we underwent a significant shift in our business strategy away from the former Southside contracting business to our new strategy of Energy Efficiency and energy management products. As a result, all of our resources have been since devoted to procuring new contracts pursuant to this new focus. Consistent with this new strategy, we entered into a number of agreements during the fourth quarter of 2010 and the first half of 2011, including as discussed above under “Recent Developments” in our March 2011 10-Q, and began recognizing revenues from our first new contract during the first half of 2011. We continue to provide residential and commercial electrical contractor services and intend to do so in the future.

Contract revenue earned for the three and six months ended June 30, 2011 was $4,308 and $8,615, respectively, as compared to contract revenue of $89,584 and $291,311 earned for the three and six months ended June 30, 2010, respectively. All of the contract revenue earned during 2010 was derived from our residential and commercial electrical contractor business and we had no contract revenue earned from our new Energy Efficiency and energy management business during 2010. Contract revenue earned decreased $85,276 and $282,696, or 95.2% and 97.0%, respectively, for the three and six months ended June 30, 2011 as compared to same period in 2010. The revenue decrease for the three and six months ended June 30, 2011 was primarily due to a larger number of projects in process and completed in 2010 versus no residential and minimal commercial electrical contracts pending or completed during the first half of 2011 as we continue to transition from our contracting business to our Energy Efficiency and energy management business.  During the three and six months ended June 30, 2011, we completed none and 1 contract, respectively, as compared to 4 and 27 contracts during the three and six months ended June 30, 2010, respectively. Until its acquisition by GEM in May 2010, Southside primarily operated as a commercial and residential electrical contractor, and in light of GEM’s change in business strategy, we continue to encounter significant difficulties securing new business and adopting to its new Energy Efficiency solutions market.

Cost of revenue earned was $1,985 and $3,969, respectively, or 46.1% of contract revenue earned, for each of the three and six months ended June 30, 2011, as compared to $101,364 and $270,163, or 113.1% and 92.7%, of contract revenue earned for the three and six months ended June 30, 2010, respectively. Cost of revenues earned related entirely to our Energy Efficiency and energy management businesses for 2011 versus 2010, which was related entirely to our residential and commercial electrical contractor business. Cost of revenue earned decreased substantially in 2011 due to our change of business strategy. Cost of revenue earned includes materials purchases, subcontractor expenses for installation and our employee compensation and benefits.
 
Gross profit for the three and six months ended June 30, 2011 was $2,323 and $4,646, respectively, as compared to ($11,780) and $21,148 for the three and six months ended June 30, 2010, respectively. The decrease in gross profit for the six months ended June 30, 2011 is directly attributable to the change of the nature of our business away from us being a commercial and residential electrical contractor to establishing the new business focus of providing our customers with Energy Efficiency and energy management solutions.  The increase in gross profit for the three months ended June 30, 2011 as compared to 2010 was attributable to the completion of certain projects in the 2010 period that incurred cost overruns.  Those cost overruns were reflected in the quarter ended June 30, 2010 period.

Selling, general and administrative expenses for the three and six months ended June 30, 2011 were $764,932 and $13,442,440, respectively, as compared to $323,682 and $402,063 for the three and six months ended June 30, 2010, respectively. The increase of $441,250 for the three months ended June 30, 2011, as compared to the same period in 2010 is primarily attributable to the increase in consulting and professional fees of approximately $221,000, increase in salaries and benefits of approximately $110,000,  increase in travel and entertainment expenses of approximately $58,000, increase in insurance expenses of approximately $17,000,  increase in amortization of licensing fees of approximately $31,000 and increase in office, advertising and other operating expenses, net, of approximately $2,000. The increase in salaries and benefits was primarily attributable to the hiring of new employees and salary increases for existing employees during the six months ended June 30, 2011.  The increase in consulting and professional fees was primarily attributable to the expenses associated with being a publicly-traded company and outsourcing certain sales and administrative functions.
 

The increase in selling, general and administrative expenses of $13,040,377 for the six months ended June 30, 2011 as compared to the same period in 2010 is primarily attributable to the value of $11,713,876 for the Option issued to FPF on June 27, 2011 and effective as of March 3, 2011, in conjunction with a FPF’s lending commitment agreement entered into with us, deemed as non-cash consulting fees, increase in other consulting and professional fees of approximately $773,000, increase in salaries and benefits of approximately $283,000, increase in travel and entertainment expenses of approximately $95,000, increase in insurance expenses of approximately $35,000, increase in research and development expenses incurred for our licensed water technology of approximately $34,000, increase in amortization of licensing fees of approximately $32,000 and increase in office, advertising and other operating expenses of approximately $74,000. The increase in consulting and professional fees is attributable to becoming a publicly traded company, issuance of restricted stock for fees and outsourcing certain company functions.  The increase in travel and entertainment is attributable to having multiple company locations and pursuing business opportunities outside the local areas.  The increase in insurance expenses is attributable to insuring ongoing installation projects and other general insurance.  The increase in research and development expenses is attributable to improving the design and performance of our water valve technology. The increase in salaries and benefits was primarily attributable to the hiring of new employees and salary increases for existing employees during the six months ended June 30, 2011.

Our operating losses for the three and six months ended June 30, 2011 were $778,055 and $13,484,707, respectively, as compared to operating losses of $338,741 and $389,562 for the three and six months ended June 30, 2010, respectively. The substantially larger operating losses are primarily attributable to us incurring increased selling, general and administrative expenses which increased by $441,250 and $13,040,377 for the three and six months ended June 30, 2011, respectively, for the reasons discussed above.

Interest expense, net, and total other expenses for the three and six months ended June 30, 2011 were $10,002 and $11,646, respectively, versus $5,123 and $8,274 for the three and six months ended June 30, 2010, respectively. Interest expense, net, increased as a result of an increase in the principal amount borrowed under the line of credit used to fund materials purchases and overhead expenses offset by the decrease in principal balance on the Auto Loan (as defined below).  The increase in interest expense, net, for the six months ended June 30, 2011 was due to the increase in borrowings during the second quarter of 2011 partially offset by interest income earned with excess cash invested in money market funds.

We incurred net losses of $788,057 and $13,496,353 for the three and six months ended June 30, 2011, respectively, as compared to net losses of $343,864 and $397,836 for the three and six months ended June 30, 2010, respectively. The substantial increase in our net losses for the periods ended June 30, 2011 were primarily attributable to non-cash consulting expenses associated with the issuance of the Option to FPF, expenses associated with becoming a publicly-traded company and salaries and related expenses associated with expanding our consultants, management and operating teams as discussed above. The net loss per share, basic and diluted, for the three and six months ended June 30, 2011 was $0.00 and $0.03, respectively, as compared to $0.00 and $0.00 for the three and six months ended June 30, 2010, respectively, based upon the net losses being offset by a very large number of weighted average shares of our common stock outstanding.

Liquidity and Capital Resources

As of June 30, 2011, we had negative working capital of $1,601,731, as compared to working capital of $507,555 at December 31, 2010. Cash was $28,476 as of June 30, 2011, as compared to $896,057 at December 31, 2010. The decrease in cash is attributable to the increased expenses of approximately $1,500,000 resulting from additional substantial expenses associated with being a publicly traded company and increased salaries and related expenses associated with expanding our consultants, management and operating teams, as discussed above, of which $933,000 is associated with the purchase of lighting and water savings equipment and payments for labor for pending Energy Efficiency contract, offset by net proceeds of $500,000 borrowed under the LoC Agreement from March through June 2011, net proceeds of $108,000 borrowed from certain affiliates and a consultant of the Company, proceeds of $240,000 as the second progress payment under the Riverbay Agreement, which was offset deferred project costs, an increase in accrued liabilities of approximately $391,000 and an increase in trade payables of approximately $340,000.

We also financed the purchase of a vehicle through Mercedes-Benz Financial (the “Auto Loan”). The Auto Loan bears interest at 3.9% per annum and is due on April 28, 2015. The balance of the Auto Loan as of August 13, 2011 is $47,805. This liability was incurred prior to the share exchange between Southside and GEM.
 
We borrowed $500,000 under our LoC Agreement through June 2011 and obtained a short-term bridge loan in the amount of $108,000 from certain of our affiliates and a consultant of the Company. In addition, on July 28 and August 10, 2011, certain  affiliates and a consultant of the Company provided us an additional short-term bridge loan totaling $72,900, on substantially the same terms as the June 2011 affiliates’ bridge loan. We expect to make additional investments for equipment and inventory of approximately $50,000 during the next twelve months to service our potential new contract customers. We anticipate that our existing resources and net proceeds from these private placements will partially assist us with making these additional investments and to satisfy our working capital requirements for at least the next twelve months. In addition, despite having minimal contract revenues for the six month period ended June 30, 2011, we expect that as we progress with the shift in our business strategy away from the former Southside contracting business to the new strategy of Energy Efficiency and energy management, and receive payments from Riverbay pursuant to the Riverbay Agreement and the Riverbay Water Agreement (as discussed above under “Recent Developments”), and generate contract revenues from operations in the second half of 2011, if any, such efforts and revenues will also contribute to satisfy our working capital requirements during the next twelve months. Our ultimate success, however, will likely depend on our ability to raise additional capital. We may be required to pursue sources of additional capital through various means, including joint venture projects and debt and/or equity financing. Future financing through equity investments is likely to be dilutive to existing stockholders. There can be no assurance that additional funds will be available when needed from any source, if at all, or, if available, will be available on terms that are acceptable to us.
 
Although we will not receive any proceeds or cash under the Commitment Letter entered into with FPF, we hope that it will provide us with increased liquidity relating to a potential increase in contract revenue earned resulting from our products sold to customers through third-party leases financed by FPF.

As of August 10, 2011, we have cash of approximately $40,000, trade receivables of approximately $11,000, a receivable of $50,000 due from a former affiliate and we have entered into two lighting contracts and one water efficiency project to sell our Energy Efficiency products which are estimated to generate monthly revenues of approximately $170,000. We believe that we will be able to sustain our current level of operations for approximately the next twelve months with the funds that we currently have on hand, the anticipated third party financing to monetize the revenues we expect to receive under the Riverbay Agreement and the remaining future payments due from New York State Energy Research and Development Authority (“Nyserda”).

Going Concern

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying condensed consolidated financial statements, we have generated minimal revenues in the first half of 2011 and we have a working capital deficit as of June 30, 2011. These factors raise substantial doubt about our ability to continue as a going concern.

Since June 2011 to the date of this Report, all of our officers, directors and employees have agreed to defer a substantial portion of their compensation due from the Company. In addition, our Chairman, President and CEO has deferred his entire salary due from April 7, 2011 to the date of this Report. In addition, certain consulting expenses due from the Company are being paid by a member of our Board of Directors. As of July 31, 2011, total deferred salaries and estimated payroll taxes were approximately $113,000. Total consulting expenses advanced by the member of our Board of Directors is approximately $20,000. We plan to pay the deferred salaries and advanced expenses with proceeds from borrowings or the possible sale of energy efficiency contracts owned by us.
 
Our ability to continue existence is dependent upon our continuing efforts to implement our new business strategy, management’s ability to achieve profitable operations and/or upon our ability to obtain additional financing to carry out our business plan. We intend to fund our operations through equity and/or debt financing arrangements and any revenues generated in the future. However, there can be no assurance that these arrangements, if any, will be sufficient to fund our ongoing capital expenditures, working capital, and other cash requirements. The outcome of these matters cannot be predicted at this time.

There can be no assurance that any additional financings will be available to us on satisfactory terms and conditions, if at all. In the event we are unable to continue as a going concern, we may elect or be required to seek protection from our creditors by filing a voluntary petition in bankruptcy or may be subject to an involuntary petition in bankruptcy. To date, management has not considered this alternative, nor does management view it as a likely occurrence.

The accompanying condensed consolidated financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classification of liabilities that may result should we be unable to continue as a going concern.

Recent Accounting Pronouncements

For the six months ended June 30, 2011, there were no accounting standards, pronouncements or interpretations issued by the FASB or the SEC that are expected to have a material impact on our financial position, operations or cash flows or present or future consolidated financial statements.
 
 Summary of Significant Accounting Policies and Estimates
 
Recognition of Income on Electrical Contracting Contracts
 
 
We are on the percentage of completion method for recognizing profits on fixed price contracts for financial reporting purposes and on the cash basis method for income tax purposes. Estimates of percentage of completion are based on direct costs incurred to date as a percentage of the latest estimate of total costs anticipated. This method is used because management considers costs incurred to be the best available measure of progress on these contracts. Because of the inherent uncertainties in estimating costs, it is at least reasonably possible that our estimates of costs and revenues will change in the near future. Provisions for anticipated losses on contracts are made when such losses become apparent. Profits on cost-plus contracts are recognized as costs are incurred for both financial reporting purposes and income tax purposes.

Recognition of Income on Energy Efficiency Contracts

We will begin to recognize income on energy efficiency contracts once the contract has been completed. Once the contract is completed, we will recognize income over the life of the contract on a periodic basis relating to either amounts dictated by the contract or computed, based upon our share of the savings associated with the contract. We will recognize income for tax purposes on a cash basis for energy efficiency contracts.

Estimates

Management uses estimates and assumptions in preparing financial statements.  Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses.  Actual results could differ from those estimates.  Costs to complete or estimated profits on uncompleted lump-sum contracts are management’s best estimate based on facts and circumstances at that time.

Deferred Costs

We capitalize costs associated with contracts that will generate future revenues from energy savings. These contracts will span between five and ten years.  These deferred costs will be amortized over the life of the contract once we begin to recognize revenues from the applicable contract(s).

Impairment of long-lived assets

We account for impairment of plant and equipment and amortizable intangible assets in accordance with the standard of “Accounting for Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of”, which requires us to evaluate a long-lived asset for recoverability when there is event or circumstance that indicate the carrying value of the asset may not be recoverable. An impairment loss is recognized when the carrying amount of a long-lived asset or asset group is not recoverable (when carrying amount exceeds the gross, undiscounted cash flows from use and disposition) and is measured as the excess of the carrying amount over the asset’s (or asset group’s) fair value.

Concentration of Customers

For each of the three and six months ended June 30, 2011, we earned 100% of our contract revenue from one customer. For the three and six months ended June 30, 2010, we had 5 and 3 customers, respectively, that, in total, represented 10% and 10%, of contract revenue, respectively. Based upon our change of business strategy, we will seek to conduct business with customers serviced by Southside but there is no guarantee that these customers will require our Energy Efficiency services and/or products.

Share-Based Compensation

We account for share-based compensation by using the number of shares issued times the price of our common stock on either the date of issuance or date of approval by our board of directors (the “Board”). Share-based compensation is recognized upon vesting.

Item 3.    Quantitative and Qualitative Disclosures about Market Risk
 
Not required for smaller reporting companies.

Item 4.    Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures

An evaluation was performed under the supervision of our management, including our Chief Executive Officer and Chief Financial Officer (principal financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Annual Report. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that, as of June 30, 2011, our disclosure controls and procedures were effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

 
Limitations on Effectiveness of Controls and Procedures
 
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Our control systems are designed to provide such reasonable assurance of achieving their objectives.  Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls 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. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Changes in Internal Controls Over Financial Reporting

An evaluation was performed under the supervision of our management, including our Chief Executive Officer and Chief Financial Officer, of whether any change in our internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) occurred during the quarter ended June 30, 2011. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that the following is the significant change in our internal controls over financial reporting that occurred during the period covered by this Report that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting:

 
·
we outsourced our bookkeeping and accounting functions to our accounting consultant.  As a result, we terminated our bookkeeper effective July 15, 2011.  This provides us more senior professional attention to maintaining our books and records in conjunction with oversight from our Chief Financial Officer.
 
We implemented these measures, as well as certain others as reported in our Annual Report, following the merger of CDSS Wind Down, Inc. and GEM to address the material weaknesses in our internal control over financial reporting that we identified by our former management as part of its evaluation of our disclosure controls and procedures as of the end of certain of our reporting periods prior to the merger, which weaknesses related to our documentation and a lack of segregation of duties due to our limited size. If and when our financial position improves, we intend to hire additional financial reporting, internal controls and other finance personnel in order to develop and implement appropriate internal controls and reporting procedures. If and when implemented, the internal department will be responsible for performing regular internal audit over financial functions and other operation functions.
 
 
 
PART II. OTHER INFORMATION
 
Special Note Regarding Forward-Looking Statements and Projections
 
This Report may contain certain “forward-looking statements” as such term is defined by the SEC in its rules, regulations and releases, which represent our expectations or beliefs, including, but not limited to, statements concerning our operations, economic performance, financial condition, growth and acquisition strategies, investments and future operational plans, such as those disclosed under the caption “Risk Factors” appearing in the section captioned “Risk Factors” of our Annual Report. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” “might,” or “continue” or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. These statements, by their nature, involve substantial risks and uncertainties, certain of which are beyond our control, and actual results may differ materially depending on a variety of important factors, including uncertainty related to acquisitions, governmental regulation and any other factors discussed in our filings with the SEC. Except as required by law, we undertake no responsibility or obligation to update publicly these forward-looking statements, but may do so in the future in written or oral statements. Investors should take note of any future statements made by us or on our behalf.
 
Item 1.    Legal Proceedings
 
From time to time, we may become involved in litigation relating to claims arising out of our operations in the normal course of business. No legal proceedings, government actions, administrative actions, investigations or claims are currently pending against us or involve us which, in the opinion of our management, could reasonably be expected to have a material adverse effect on our business or financial condition.
 
There are currently no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material interest adverse to us.
 
Item 1A.   Risk Factors
 
In addition to other information set forth in this Report, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors,” in our Annual Report, which could materially affect our business, financial condition or results of operations. Except as set forth below, there have been no material changes to our risk factors from those described in our Annual Report.
 
Risks Relating to Our Business
 
Because we have a limited operating history, have yet to attain profitable operations and will need additional financing to fund our businesses, there is substantial doubt about our ability to continue as a going concern, and our ultimate success may depend upon our ability to raise additional capital.
 
The condensed consolidated financial statements for the six months ended June 30, 2011 have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. As of June 30, 2011, we had a negative working capital of $1,601,731, as compared to working capital of $507,555 as of December 31, 2010. For the three and six months ended June 30, 2011, we incurred net losses of $788,057 and $13,496,353, respectively, as compared to net losses of $343,864 and $397,836 for the three and six months ended June 30, 2010, respectively. As of June 30, 2011, we had cash of approximately $28,000. Despite raising net proceeds from our July 2010, August 2010 and November 2010 private placements in the aggregate amount of $2,500,000, borrowing $500,000 under the LoC Agreement through June 2011, and borrowing $115,900 from certain of our affiliates and a consultant of the Company, we may not be able to execute our current business plan and fund business operations long enough to achieve profitability. Our future is dependent upon our ability to obtain additional financing and upon the future success of our business. The financial statements included in this Annual Report do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event we cannot continue in existence. In addition, the report of our independent registered public accounting firm on our December 31, 2010 consolidated financial statements contained in our Annual Report includes an explanatory paragraph indicating that there is substantial doubt about our ability to continue as a going concern due to recurring losses.
 
Our ability to continue as a going concern will be determined by our ability to obtain additional funding or generate sufficient revenues to cover our operating expenses. We may be required to pursue sources of additional capital through various means, including joint venture projects and debt or equity financings. Future financings through equity investments are likely to be dilutive to existing stockholders. Also, the terms of securities we may issue in future capital transactions may be more favorable for our new investors. Newly issued securities may include preferences, superior voting rights, the issuance of warrants or other derivative securities, and the issuances of incentive awards under equity employee incentive plans, which may have additional dilutive effects. Further, we may incur substantial costs in pursuing future capital and/or financing, including investment banking fees, legal fees, accounting fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we may issue, such as convertible notes and warrants, which will adversely impact our financial condition and results of operations. There can be no assurance that any additional financings will be available to us on satisfactory terms and conditions, if at all. In addition, our ability to obtain needed financing may be impaired by such factors as the condition of the economy and capital markets, both generally and specifically in our industry, and the fact that we are not profitable, which could impact the availability or cost of future financings.
 
 
As a consequence, our ability to continue as a going concern is dependent on a number of factors. The outcome of these matters is dependent on factors outside of our control and cannot be predicted at this time. If the amount of capital we are able to raise from financing activities, together with our revenues from operations, is not sufficient to satisfy our capital needs, even to the extent that we reduce our operations accordingly, we may be required to cease operations. To date, management has not considered this alternative, nor does management view it as a likely occurrence.
 
Difficult conditions in the global capital markets and the economy generally may materially adversely affect our business, results of operations and our ability to raise additional capital.
 
Our results of operations are materially affected by conditions in the global capital markets and the economy generally, both in the U.S. and elsewhere around the world. The stress experienced by global capital markets that began in the second half of 2007 continued throughout 2009. Recently, concerns over inflation, energy costs, geopolitical issues, the availability and cost of credit, the U.S. mortgage market, a declining real estate market in the U.S. and events associated with the U.S. Government having approached its existing statutory limit on the amount of permissible federal debt have contributed to increased volatility and diminished expectations for the economy and the markets going forward. These factors, combined with volatile oil prices, declining business and consumer confidence and increased unemployment, have precipitated an economic slowdown and a global recession. Domestic and international equity markets have been experiencing heightened volatility and turmoil. These events and the continuing market upheavals may have an adverse effect on our business. In the event of extreme prolonged market events, such as the global credit crisis, we could incur significant losses. The ongoing worldwide financial and credit crisis may continue indefinitely.  Because the future of our business will depend on our ability to raise additional capital, we may not be able to execute our current business plan and fund business operations long enough to achieve profitability.  In addition, many of our customers rely on external funding to complete their construction and renovation projects.  During the three and six months ended June 30, 2011, our revenues decreased by $85,276 and $282,696, or 95.2% and 97.0%, respectively, as compared to the same period in 2010, primarily due to a larger number of projects in process and completed in 2010 versus no residential and commercial electrical contracts pending or completed during the first half of 2011, as we continued to transition from our contracting business to our Energy Efficiency and energy management business. As a result, because we may not be able to generate sufficient revenues and income, we will need to obtain additional funding to cover our operating expenses and, to conserve capital, we may be forced to curtail our current business activities or cease operations entirely.
 
Risks Relating to our Organization and our Common Stock
 
Over 37.5% of our shares of our common stock are controlled by affiliates of Ronald P. Ulfers, Jr., our Chairman, President and Chief Executive Officer and a member of our Board, certain members of our Board and certain employees of GEM, which may influence the election of directors and the outcome of matters submitted to our stockholders.
 
Affiliates of Ronald P. Ulfers, Jr., our Chairman, President and Chief Executive Officer, directly own approximately 63.9 million shares, which represent approximately 14.4% of our common stock outstanding as of August 13, 2011. In addition, (i) an affiliate of Michael Samuel, a member of our Board, directly owns approximately 45.6 million shares, (ii) an affiliate of John Morra III, the President and Director of Project Development of GEM, owns approximately 38.2 million shares, and (iii) an affiliate of Oren Moskowitz, the Chief Technology Officer of GEM, owns approximately 18.9 million shares, respectively, which represent approximately 10.3%, 8.6% and 4.3%, respectively, of our common stock outstanding as of such date.  Therefore,  these officers, directors and employees of GEM and/or their affiliates, collectively beneficially own collectively approximately 166.7 million shares, which represent approximately 37.6% of our common stock outstanding as of August 13, 2011.  As a result, these stockholders may have the ability to significantly influence the outcome of issues submitted to our stockholders.  The interests of these stockholders may not always coincide with our interests or the interests of other stockholders, and these stockholders may act in a manner that advances their best interests and not necessarily those of our other stockholders.  As a consequence, it may be difficult for investors to remove our management. The ownership of these stockholders could also deter unsolicited takeovers, including transactions in which stockholders might otherwise receive a premium for their shares over then current market prices.
 
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds
 
Issuance of Unregistered Securities
 
Other than as disclosed in our Current Reports on Form 8-K filed since January 1, 2011 and as otherwise described below, there have been no other sales or issuances of unregistered securities that were not registered under the Securities Act of 1933, as amended (the “Securities Act”).
 
 
On April 6, 2011, we issued 200,000 restricted shares of our common stock to a member of our Board of Directors in accordance with our directors compensation policy.  The shares were valued at $18,000 based upon the value per share of our common stock on the date of issuance.
 
Purchases of Equity Securities by the Issuer and Affiliated Purchasers.
 
None.
 
Item 3.    Defaults upon Senior Securities
 
None.
 
Item 4.    (Removed and Reserved)
 
Item 5.    Other Information
 
On July 28 and August 10, 2011, certain affiliates and a consultant provided us an additional short-term bridge loan totaling $72,900, which does not bear interest, on substantially the same terms as the June 28, 2011 affiliates’ bridge loan.  The Company plans to use the proceeds of this loan for project financing and general corporate purposes.

Item 6.    Exhibits
 
Exhibit Number
 
Description of Exhibit
 
Incorporated by Reference to the Following
Documents
2.1
 
Merger Agreement, dated as of April 29, 2010, by and among CDSS Wind Down, Inc., CDSS Merger Corporation and Green Energy Management Services, Inc.
 
Current Report on Form 8-K (File No. 000-33491), filed March 31, 2010, Exhibit 10.1
2.2
 
Amendment No. 1 to the Merger Agreement, dated as of April 30, 2010, by and among CDSS Wind Down, Inc., CDSS Merger Corporation and Green Energy Management Services, Inc.
 
Current Report on Form 8-K (File No. 000-33491), filed April 30, 2010, Exhibit 10.1
2.3
 
Amendment No. 2 to the Merger Agreement, dated as of June 16, 2010, by and among CDSS Wind Down, Inc., CDSS Merger Corporation and Green Energy Management Services, Inc.
 
Current Report on Form 8-K (File No. 000-33491), filed June 18, 2010, Exhibit 10.1
2.4
 
Amendment No. 3 to the Merger Agreement, effective as of July 22, 2010, by and among CDSS Wind Down, Inc., CDSS Merger Corporation and Green Energy Management Services, Inc.
 
Supplement to Definitive Information Statement on Schedule 14C (No. 000-33491), filed July 26, 2010, Annex 1
2.5
 
Certificate of Merger filed with the Secretary of State of the State of Delaware on August 20, 2010, effecting the merger of CDSS Merger Corporation and Green Energy Management Services, Inc.
 
Current Report on Form 8-K (File No. 000-33491), filed August 28, 2010 Exhibit 2.5
3.1
 
Amended and Restated Certificate of Incorporation of CDSS Wind Down, Inc.
 
Registration Statement on Form 10-SB (File No. 000-33491), filed January 11, 2002, Exhibit 3.1
3.2
 
Certificate of Amendment to the Certificate of Incorporation of CDSS Wind Down, Inc., filed with the Secretary of State of the State of Delaware on August 18, 2010, effecting the 1 for 3 reverse stock split of all of CDSS Wind Down, Inc.’s common stock
 
Current Report on Form 8-K (File No. 000-33491), filed August 28, 2010 Exhibit 3.2
3.3
 
Certificate of Amendment to the Certificate of Incorporation of CDSS Wind Down, Inc., filed with the Secretary of State of the State of Delaware on August 18, 2010, increasing the number of authorized shares of common stock from 100,000,000 to 500,000,000 and reducing the par value per share from $0.01 to $0.0001 per share.
 
Current Report on Form 8-K (File No. 000-33491), filed August 28, 2010 Exhibit 3.3
3.4
 
Amended and Restated Bylaws of CDSS Wind Down, Inc.
 
Registration Statement on Form 10-SB (File No. 000-33491), filed January 11, 2002, Exhibit 3.2
3.5
 
Certificate of Amendment to the Certificate of Incorporation of CDSS Wind Down, Inc. filed with the Secretary of State of the State of Delaware on September 20, 2010, changing the name of the Company to Green Energy Management Services Holdings, Inc.
 
Registration Statement on Form S-1 (File No. 333-169496) filed September 20, 2010, Exhibit 10.9
 
 
4.1
 
Option, dated as of March 3, 2011, issued to Financial Partners Funding, LLC.
 
Current Report on Form 8-K/A, Amendment No. 1 (File No. 000-33491), filed July 8, 2011, Exhibit 4.1
10.1
 
Form of Subscription Agreement for shares of common stock, between CDSS Wind Down, Inc. and a certain investor party thereto.
 
Current Report on Form 8-K (File No. 000-33491), filed August 4, 2009, Exhibit 10.1
10.2
 
Form of Subscription Agreement for convertible notes, among CDSS Wind Down, Inc. and certain investors party thereto.
 
Current Report on Form 8-K (File No. 000-33491), filed August 4, 2009, Exhibit 10.2
10.3
 
Form of convertible Promissory Note.
 
Current Report on Form 8-K (File No. 000-33491), filed August 4, 2009, Exhibit 10.3
10.4†
 
Employment Agreement, dated as of August 20, 2010, between Michael Samuel and CDSS Wind Down, Inc.
 
Current Report on Form 8-K (File No. 000-33491), filed August 26, 2010, Exhibit 10.4
10.5†
 
Employment Agreement, dated as of April 15, 2010, between Robert Weinstein and Green Energy Management Services, Inc.
 
Current Report on Form 8-K (File No. 000-33491), filed August 26, 2010, Exhibit 10.5
10.6
 
Promissory Note, dated as of July 29, 2010, issued by Green Energy Management Services, Inc. to CDSS Wind Down Inc.
 
Current Report on Form 8-K (File No. 000-33491), filed August 4, 2009, Exhibit 10.6
10.7
 
Stockholders’ Agreement, dated as of August 20, 2010, by and among by and among CDSS Wind Down, Inc., Green Energy Management Services, Inc., Michael Samuel, Ice Nine, L.L.C. and the persons identified on Exhibit A thereto.
 
Current Report on Form 8-K (File No. 000-33491), filed August 26, 2010, Exhibit 10.7
10.8
 
Promissory Note, dated as of August 20, 2010, issued by Green Energy Management Services, Inc. to CDSS Wind Down Inc.
 
Current Report on Form 8-K (File No. 000-33491), filed August 26, 2010, Exhibit 10.8
10.9†
 
Employment Agreement, dated as of May 15, 2010, between John Morra III and Green Energy Management Services, Inc.
 
Registration Statement on Form S-1 (File No. 333-169496) filed September 20, 2010, Exhibit 10.9
10.10
 
Technology License Agreement by and between PMP Pool Maintenance Protection, Inc., Juan Carlos Bocos and Green Energy Management Services, Inc. dated September 29, 2010.
 
Registration Statement on Form S-1/A (File No. 333-169496) filed October 28, 2010, Exhibit 10.9
10.11
 
Southside Electric Inc. Promissory Note – PNC Bank.
 
Registration Statement on Form S-1 (File No. 333-169496) filed November 24, 2010, Exhibit 10.11
10.12
 
Southside Electric Inc. Security Agreement – PNC Bank.
 
Registration Statement on Form S-1 (File No. 333-169496) filed November 24, 2010, Exhibit 10.12
10.13
 
Southside Electric Inc. Guaranty – PNC Bank.
 
Registration Statement on Form S-1 (File No. 333-169496) filed November 24, 2010, Exhibit 10.13
10.14
 
Sales Commission Agreement, dated October 26, 2010, by and between Claudio Castella and Green Energy Management Services, Inc.
 
Registration Statement on Form S-1 (File No. 333-169496) filed November 24, 2010, Exhibit 10.14
10.15
 
Sales and User Agreement, dated as of November 2, 2010, by and between The Riverbay Fund, Inc. and Green Energy Management Services, Inc.
 
Registration Statement on Form S-1 (File No. 333-169496) filed November 24, 2010, Exhibit 10.15
10.16
 
License and Marketing Agreement, dated as of September 30, 2010, by and between GEM RG, Inc., Green RG, Inc., Alfred Meyer and Horn illegible, Inc.
 
Registration Statement on Form S-1 (File No. 333-169496) filed November 24, 2010, Exhibit 10.16
10.17
 
Form of Stock Transfer Agreement.
 
Registration Statement on Form S-1 (File No. 333-169496) filed November 24, 2010, Exhibit 10.17
10.18
 
Consulting Services Agreement, dated as of February 1, 2011, by and between Titan Management and Consulting LLC and Green Energy Management Services Holdings, Inc.
 
Annual Report on Form 10-K (File No. 000-33491), filed March 21, 2011, Exhibit 10.18
10.19
 
Sales Agency Agreement, dated as of February 1, 2011, by and between Titan Management and Consulting LLC and Green Energy Management Services Holdings, Inc.
 
Annual Report on Form 10-K (File No. 000-33491), filed March 21, 2011, Exhibit 10.19
10.20
 
Commitment Letter, dated as of March 3, 2011, by and between Financial Partners Funding, LLC and Green Energy Management Services, Inc.
 
Annual Report on Form 10-K (File No. 000-33491), filed March 21, 2011, Exhibit 10.20
 
 
10.21
 
Consulting Services Agreement, effective as of March 3, 2011, by and between SE Management Consultants, Inc. and Green Energy Management Services, Inc.
 
Annual Report on Form 10-K (File No. 000-33491), filed March 21, 2011, Exhibit 10.21
10.22
 
Sales Agency Agreement, effective as of March 3, 2011, by and between Energy Sales Solutions, LLC and Green Energy Management Services, Inc.
 
Annual Report on Form 10-K (File No. 000-33491), filed March 21, 2011, Exhibit 10.22
10.23
 
Settlement Agreement, dated as of March 26, 2011, by and among Titan Management and Consulting, L.L.C., Anthony Corso and Green Energy Management Services, Inc.
 
Annual Report on Form 10-K (File No. 000-33491), filed March 21, 2011, Exhibit 10.23
 
Water Management Agreement, dated as of May 3, 2011, by and between Green Energy Management Services, Inc. and Riverbay Corporation.
 
*
 
Certification of CEO Pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
*
 
Certification of CFO Pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
*
 
Certification of CEO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
**
 
Certification of CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
**
101.INS
 
XBRL Instance Document.
 
**
101.SCH
 
XBRL Taxonomy Extension Schema Document.
 
**
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document.
 
**
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document.
 
**
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document.
 
**
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document.
 
**
 ____________________________
Management contract or compensatory plan or arrangement
*
Filed herewith
**
Furnished 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.
 
 
GREEN ENERGY MANAGEMENT SERVICES HOLDINGS, INC.
     
Dated: August 15, 2011
By:
/s/ Robert Weinstein
    Name: Robert Weinstein
   
Title:   Chief Financial Officer
   
(Principal Financial Officer and Principal Accounting Officer)
 
 
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