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EX-31.1 - CERTIFICATION - Green Energy Management Services Holdings, Inc.f10q0314ex31i_greenenergy.htm
EX-32.2 - CERTIFICATION - Green Energy Management Services Holdings, Inc.f10q0314ex32ii_greenenergy.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 For the quarterly period ended March 31, 2014
 
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.)
 
 
 
450 7th Ave, 39th Floor
 
 
New York, New York
 
10123
(Address of principal executive offices)
 
(Zip Code)

(212) 974-3435
(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. x  Yes   o No
 
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). x  Yes   o  No
 
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
       
 
 
(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). o  Yes    x  No

There were 65,418,448 shares of the registrant’s common stock, $0.0001 par value, outstanding as of May 19, 2014.
 


 
 

 
 
GREEN ENERGY MANAGEMENT SERVICES HOLDINGS, INC.
TABLE OF CONTENTS
 
 
Page
PART I. FINANCIAL INFORMATION
 
 
 
Item 1.     Financial Statements
3
 
 
Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations
11
 
 
Item 3.     Quantitative and Qualitative Disclosures About Market Risk
14
 
 
Item 4.     Controls and Procedures
14
 
 
PART II. OTHER INFORMATION
 
 
 
Item 1.     Legal Proceedings
15
 
 
Item 1A.  Risk Factors
15
 
 
Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds
15
 
 
Item 3.     Defaults Upon Senior Securities
16
 
 
Item 4.     Mine Safety Disclosures
16
 
 
Item 5.     Other Information
16
 
 
Item 6.     Exhibits
16

 
2

 

PART I.  FINANCIAL INFORMATION
 
Item 1.
Financial Statements
 
GREEN ENERGY MANAGEMENT SERVICES HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
   
March 31,
2014
   
December 31,
2013
 
ASSETS
           
Current assets:
           
  Cash
    5,815       15,102  
  Prepaid expenses
    20,482       46,515  
  Deferred project costs - current
    -       33,431  
  Other current assets
    6,000       6,000  
     Total current assets
    32,297       101,048  
                 
Property and equipment-net
    7,222       8,242  
Deferred project costs
    -       247,646  
    Total non-current assets
    7,222       255,888  
             Total assets
    39,519       356,936  
                 
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
               
Current liabilities:
               
  Advances - related parties
    28,500       28,500  
  Notes payable
    16,710       41,786  
  Bridge loan payable - related parties, net of discount of $0 and $310,000, respectively
    826,657       979,157  
  Derivative liability
    324,261       163,299  
  Accounts payable - trade
    697,010       714,884  
  Other accrued liabilities
    2,503,906       2,479,384  
     Total current liabilities
    4,397,044       4,407,010  
                 
Long-term liabilities:
               
  Promissory notes
    170,000       120,000  
     Total long-term liabilities
    170,000       120,000  
                 
Total liabilities
    4,567,044       4,527,010  
                 
Stockholders' deficit
               
Series A convertible preferred stock, $0.0001 par value, 50,000 shares authorized, 1,700 and 1,200 shares issued and outstanding on March 31,2014 and December 31, 2013, respectively
    -       -  
Common stock, $0.0001 par value, 500,000,000 shares authorized; 65,418,448 and 65,418,448 shares issued and outstanding on March 31, 2014 and December 31, 2013, respectively
    6,542       6,542  
Additional paid in capital
    20,856,120       20,856,120  
Accumulated deficit
    (25,390,187 )     (25,032,736 )
    Total stockholders' deficit
    (4,527,525 )     (4,170,074 )
        Total liabilities and stockholders' deficit
    39,519       356,936  
 
See accompanying notes to unaudited consolidated financial statements
 
 
3

 
 
GREEN ENERGY MANAGEMENT SERVICES HOLDINGS, INC.  
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  
(Unaudited)  
 
   
Three Months Ended
March 31,
 
   
2014
   
2013
 
Income:
           
Revenue earned
    315,195       66,816  
                 
Cost of revenue earned
    309,465       8,355  
Selling, general and administrative expenses
    184,726       303,925  
Depreciation and amortization expense
    1,020       1,019  
       Operating loss
    (180,016 )     (246,483 )
Other income (expense)
               
Other income
    8,049       -  
Interest expense, net
    (24,522 )     (331,813 )
Loss on derivative liability
    (160,962 )     (1,659,737 )
Total other expenses
    (177,435 )     (1,991,550 )
                 
Net loss
    (357,451 )     (2,238,033 )
                 
Net loss per common share - basic and diluted
    (0.01 )     (0.05 )
                 
Weighted average number of common shares outstanding
    65,418,448       44,611,465  
 
See accompanying notes to unaudited consolidated financial statements
 
 
4

 
 
GREEN ENERGY MANAGEMENT SERVICES HOLDINGS, INC.  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
(Unaudited)  
 
   
Three Months Ended
March 31,
 
   
2014
   
2013
 
Cash flows from operating activities:
           
Net loss for the period
    (357,451 )     (2,238,033 )
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation and amortization
    1,020       1,019  
Amortization of debt discount
    -       310,000  
Loss on derivative liability
    160,962       1,659,737  
Stock-based compensation
    -       4,000  
Net change in assets and liabilities:
               
(Increase) decrease in contract receivables
    -       64,800  
(Increase) Decrease in prepaid expenses
    26,033       35,363  
Decrease in deferred project costs
    281,077       8,355  
(Increase)  in other current assets
    -       (2,500 )
Increase (decrease) in accounts payable - trade
    (17,874 )     25,046  
Increase in accrued liabilities
    24,522       80,312  
Net cash provided by (used in) operating activities
    118,289       (51,901 )
                 
Cash flows from financing activities:
               
Borrowings under bridge loans from related parties
    -       12,500  
Borrowings from third parties
    50,000       -  
Repayment of notes payable
    (25,076 )     (9,746 )
Repayment of bridge loans from related parties
    (152,500 )     -  
                 
Net cash provided by (used in) financing activities
    (127,576 )     2,754  
                 
Net decrease in cash
    (9,287 )     (49,147 )
Cash - beginning of period
    15,102       49,147  
                 
Cash - end of period
    5,815       -  
                 
Supplemental disclosure of cash flow information:
               
Cash payments for interest
    -       -  
 
See accompanying notes to unaudited consolidated financial statements
 
 
5

 
 
GREEN ENERGY MANAGEMENT SERVICES HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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, Green Energy Management Services, Inc. (“GEM”), is referred to herein as the “Company”, “we”, “us” or “our”) pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”).  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 our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (the “Annual Report”), which was filed with the SEC on May 13, 2014.  The results of operations for the three months ended March 31, 2014 are not necessarily indicative of the results for any subsequent periods or the entire fiscal year ending December 31, 2013.
 
Note 2. Organization of the Company and Going Concern
 
Organization of the Company
 
We were incorporated pursuant to the laws of the State of Delaware in December 1996.  GEM was incorporated pursuant to the laws of the State of Delaware in March 2010.  We are a full service energy management company based in New York, New York engaged in the business of Energy Efficiency products and system (as discussed below) through GEM, our operating subsidiary.   We currently use commissioned sales representatives to market our products and services.  Our two functional businesses are energy saving lighting products utilizing LED’s (Light Emitting Diodes) and the GEM Water Management System which utilizes water conservation technology (collectively, “Energy Efficiency”). We have successfully deployed these savings measures at Co-op City in the Bronx, New York, one of the world’s largest cooperative housing developments spread out among 15,000 residential units and 35 high rise buildings.
 
We offer our clients all forms of solutions to maximize the level of Energy Efficiency which can be achieved given the current technologies available to us mainly based in two functional areas: (i) energy efficient lighting upgrades and (ii) water management system solutions.  For the energy saving lighting products market, we provide energy efficient lighting units and services to end users who utilize substantial quantities of electricity.  Our energy managing products and services are primarily sold to municipal and commercial customers.   For the water conservation technology market, we provide our clients with water conservation solutions, primarily under long-term, fixed-price contracts, offering them water valve technology, which has the ability to reduce residential and commercial water usage.  We generally install all of our clean technology at our cost and our revenues are derived from the shared savings with the owner of the project.  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.  

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.
 
Going Concern
 
The accompanying unaudited condensed consolidated financial statements included herein 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 unaudited condensed consolidated financial statements, we have generated a net loss of $357,451 in the first three months of 2014 and we have a working capital deficit of $4,367,747 as of March 31, 2014.  These factors raise substantial doubt about our ability to continue as a going concern.
 
Our ability to continue our existence and business operations is dependent upon our continuing efforts to implement our new business strategy, management’s ability to achieve meaningful 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, any revenues generated in the future and any loan arrangements that may be provided to us by our affiliates.  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.
 
 
6

 
 
The accompanying unaudited 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.  Other than as set forth below, 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.
 
On September 8, 2011, an action entitled Cooper Electric Supply Co. v. Southside Electric, Inc. was filed in the Superior Court of New Jersey.  GEM succeeded to the business of Southside Electric, Inc. (“Southside”) pursuant to a share exchange between Southside and the Company in May of 2010.  We were served in October 2011.  The plaintiff asserts damages in the amount of approximately $23,700 for non-payment for goods supplied by the plaintiff to Southside.  Our management believes the resolution of this matter will not materially affect our financial position, results of operations or liquidity.  As of March 31, 2014, we have paid $9,000 towards the amount of damages claimed by the plaintiff and the remainder is reflected in accounts payable at March 31, 2014 and December 31, 2013.
 
On September 26, 2011, the landlord for our former Teaneck, New Jersey office filed a complaint for unpaid rent and legal fees of $15,179 in Superior Court of New Jersey.  A judgment was granted in his favor in such amount.  This amount was accrued in accounts payable at March 31, 2014 and December 31, 2013.

The PMP Agreement
 
On September 29, 2010, GEM entered into a technology license agreement (the “PMP Agreement”) with PMP and Juan Carlos Bocos, the inventor of the water management technology.  Effective as of February 23, 2012, we entered into a technology assignment agreement with PMP and Mr. Bocos, pursuant to which we acquired the rights to a patent application utilized in certain water valves used in our Energy Efficiency solutions.  Pursuant to the technology assignment agreement, GEM was to pay Mr. Bocos a monthly consulting fee of $8,000; however the parties continue their discussions and an agreement resolving all disputes between the parties has not yet been entered into.  Therefore, our title to the intellectual property covering the water valves may be subject to future claims challenging our ownership.
 
Operating leases
 
In October 2011, we moved our corporate office to Baton Rouge, Louisiana.  At the time we were utilizing office space, at no charge, from our former CFO.  Rent expense for 2011 totaled $90,437.  Of that amount, $0 is included in accrued expenses at March 31, 2014 and December 31, 2013.  In connection with the appointment of our new CFO effective as of October 11, 2013, we moved our corporate office to New York, NY.  We are utilizing office space, at no charge, from our current CFO. 

Warranty

We provide a limited product warranty against defects in materials and workmanship for water valves installed by us.  We accrue for estimated warranty costs at the time of revenue recognition and record the expense of such accrued liabilities as a component of cost of sales.  Estimated warranty costs are based on historical product data and anticipated future costs.  Should actual failure rates differ significantly from estimates, the impact of these unforeseen costs would be recorded as a change in estimate in the period identified.  The changes in the carrying amount of accrued warranty reserves, for the first three months ended March 31, 2014 is as follows:
 
Warranty liability at December 31, 2013
  $
274,806
 
Additional warranty liability accrued
   
-
 
Warranty costs incurred
   
-
 
Balance at March 31, 2014
  $
274,806
 

 
7

 

ESS Sales Agency Agreement
 
Effective as of March 3, 2011, GEM entered into a Sales Agency Agreement (the “Sales Agreement”) with Energy Sales Solutions, LLC, a Florida limited liability company (“ESS”) and an affiliate of FPF.  Pursuant to the Sales Agreement, ESS agreed to serve, on a non-exclusive basis, as GEM’s sales representative for the solicitation and acceptance of orders for GEM’s entire line of energy-efficient, lighting products and other products and services offered by GEM (the “Products”), in the United States, Canada, and the Caribbean.  GEM agreed to pay ESS a commission of 10% of the gross sales of the Products generated by or on behalf of ESS.  GEM and ESS can each terminate the Sales Agreement immediately for “cause” (as defined in the Sales Agreement).
 
Patterson Consulting Agreement

On October 1, 2013, we entered into a Consulting Agreement (the “Consulting Agreement”) with an affiliate of former Governor Patterson (the “Consultant”), pursuant to which the Consultant agreed to provide to us certain marketing and sales advisory services and other consulting services.  The effective date of the Consulting Agreement was September 1, 2013.  The Consulting Agreement will continue unless terminated by either party with prior written notice.  Under the terms of the Consulting Agreement, we agreed to pay the Consultant (i) $2,500 for the month of September 2013 and a quarterly cash payment of $15,000, in arrears, for each calendar quarter in which the Consultant provides such services to us, and (ii) a commission of 10% of the gross sales of the products generated by or on behalf of leads provided by the Consultant.  We also agreed to issue to the Consultant 100,000 shares of our restricted common stock for each of the 4 calendar quarters (or pro-rata thereof for a shorter period) in which the Consultant provides such services to us.  As of March 31, 2014, 200,000 shares have been accrued and will be issued to the Consultant in the immediate future.
 
Joint Referral Partner Agreement

In connection with the sale of 12 Units (as defined below) of our securities to the Investor, effective as of November 20, 2013, we and the Investor entered into an Exclusive Joint Referral Partner Agreement (the “JRP Agreement”).  Pursuant to the JRP Agreement, we granted to the Investor an exclusive right to perform construction management services for us in the states of New York, New Jersey and Connecticut, and the Investor agreed to provide to us certain construction management services (including marketing expertise, introduction to business opportunities and energy efficiency programs, analysis of our industry and competitors, assistance in developing corporate partnerships relationships and development of a collaborative joint marketing program, and such other assistance and advise with respect to the services that the Investor is currently providing or may provide in the future as we may request (collectively, the “Services”).  As compensation for the Services, we agreed to pay the Investor a consulting fee in the amount of up to 10% of the Net Revenue (as defined in the JRP Agreement) we receive from the projects that we are directly introduced to by the Investor (excluding opportunities currently available to us).  In lieu of such fee, we may offer to the Investor the option, at our sole discretion, to receive the fee in the form of shares of our common stock for up to 20% of the fee.  The price per share of common stock shall be valued based on a 20% discount to the volume weighted average price during the 30 days preceding such payment date.  The Investor also agreed to pay us a sales fee not to exceed 10% of the net amount of revenues (as provided in the JRP Agreement) that the Investor receives from renovation, construction, development, construction management or other construction agreements that are entered into by the Investor as a result of a direct introduction by us (excluding opportunities currently available to the Investor).
 
Note 4. Prepayment Under the Water Management Agreement
 
In February 2014, Riverbay approved Change Order #2 to the water management agreement, pursuant to which we received a discounted buyout amount of $280,000 in lieu of the remaining amount of $355,000 due to date to us under the water management agreement and that the installed water valves used in the Project were now a property of Riverbay.  The payment was made to us in February 2014. As a result of the settlement of such payment, we recognized in full all deferred project costs associated with the agreement, in the amount of $281,077 to cost of revenue earned.
 
Note 5. Debt and Preferred Stock Issuance
 
Debt Financing

As of March 31, 2011, GEM entered into the $500,000 Line of Credit Agreement pursuant to 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 repayment of the note was originally due on March 31, 2012.  The parties are in discussions to extend the maturity date of the loan. See Note 15 for more detail.  This balance was outstanding at March 31, 2014 and December 31, 2013.
 
During the year ended December 31, 2012, certain of our affiliates, a consultant of our Company and a related party provided us with short-term bridge loans in aggregate amount of $280,000 (the “Loans”).  The Loans were not evidenced by promissory notes and do not bear interest.   At December 31, 2013, there was a balance owed of $171,300.  

During the year ended December 31, 2013, we borrowed an additional $23,500 from related parties related to invoices that were paid by the former CFO, and repaid $45,000 of amounts previously borrowed from related parties.

During the year ended December 31, 2012, we borrowed $310,000 from a director of our Company and issued a promissory note to such party dated December 31, 2012.  The note initially matured on February 28, 2013; however, per the terms of the note, it automatically was extended until the date when we consummate a debt and/or equity financing resulting in gross proceeds to us of at least $310,000.  The related debt discount of $310,000 was fully amortized to interest expense during the year ended December 31, 2013.  During the year ended December 31, 2013, we borrowed an additional $288,857 from the director, including the $1,000 advance above, and repaid $340,000 of the aggregate outstanding amount and $13,722 of accrued interest on the loans.
 
 
8

 

In the first quarter ended March 31, 2014 we repaid $150,000 of previously borrowed funds from related parties.

As of March 31, 2014, the balance of notes payable to related parties, including advances, was $871,867.  We are currently engaged in negotiations to extend the term of notes payable to certain related parties.

Debt and Preferred Stock Financing

On February 8, 2014, we sold to a certain accredited investor 5 units of our securities (the “Units”) at a purchase price of $10,000 per Unit, for aggregate gross proceeds of $50,000.  Each Unit consisted of (i) a promissory note in the principal amount of $10,000 (collectively the “Note”), and (ii) 100 shares of our preferred stock, $0.0001 par value per share (the “Preferred Stock”, and together with the Notes, the “Securities”), with each share of Preferred Stock convertible at any time prior to the 2nd anniversary of their issuance date, in whole or in part, at the investor’s option, into 500 shares of our common stock without the payment of any additional consideration (the “Conversion Shares”).  As a result, we issued to the investor a Note in the principal amount of $50,000 and 500 shares of our Series A Preferred Stock (as described below).  The debt discount of $50,000 will be fully amortized to interest expense during the year ended December 31, 2014.  For the quarter ended March 31, 2014, we amortized $24,522 to interest expenses.  We used the net proceeds of the sale of the Securities for general working capital.

The Note bears a 16.5% interest rate and matures 2 years from the date of issuance, provided that for each share of Preferred Stock that is converted by the investor pursuant to its terms, the outstanding principal amount of the Note shall be automatically reduced by an amount equal to (x) $100 for (y) each one (1) converted share of Preferred Stock.  The interest payable on the Note will accrue until the earlier of payment or conversion of the corresponding part of the shares of Preferred Stock and will be payable in cash, or at the discretion of the Investor, in shares of our common stock (the “Interest Shares”) at a conversion price of $0.20 per share (subject to adjustment as provided in the Note).  We may prepay at any time any portion of the principal amount of the Note.  The Note contains customary events of default upon the occurrence of which, subject to any cure period, the full principal amount of the Note, together with any other amounts owing in respect thereof, to the date of such event of default, shall become immediately due and payable without any action on the part of the Investor.  The Conversion Shares and the Interest Shares have piggyback registration rights.

Prior to the sale of the Preferred Stock to the investor, on November 26, 2013, we filed a Certificate of Designation of Series A Convertible Preferred Stock (the “Certificate of Designation”) with the Secretary of State of the State of Delaware.  Pursuant to the terms of the Certificate of Designation, among other things:
 
 
·
we designated a series of its Preferred Stock as Series A Convertible Preferred Stock, $0.0001 par value per share (the “Series A Preferred Stock”) and the number of shares so designated was 50,000;
     
 
·
the holders of Series A Convertible Preferred Stock are not entitled to any preferential payments by reason of their ownership thereof;
     
 
·
except as provided by law or by the other provisions of our Certificate of Incorporation, on any matter presented to our stockholders for their action or consideration at any meeting of our stockholders (or by written consent of stockholders in lieu of meeting), the holders of Series A Preferred Stock are not entitled to vote on such matters (until their Series A Preferred Stock is converted into our common stock);
     
 
·
the holders of Series A Convertible Preferred Stock have conversion rights as summarized above; and
     
 
·
the number of shares of common stock issuable upon the conversion of the Series A Convertible Preferred Stock is subject to adjustment in the event of any change in the common stock, including changes by reason of stock dividends, stock splits, reclassifications, mergers, consolidations or other changes in the capitalization of common stock.

A copy of the Certificate of Designations, as filed with the Secretary of State of the State of Delaware, is incorporated by reference as an exhibit to the Annual Report.  The disclosure contained in this Note 5 does not purport to be a complete description of the Certificate of Designation and is qualified in its entirety by reference to the Certificate of Designation, which is incorporated herein by reference.

Note 6.  Derivative Liability

As described in Note 7, Debt, Warrants and Preferred Stock Issuance of our Annual Report, we issued a total of 23,711,052 warrants on December 31, 2012.  Pursuant to ASC 815, the reset provision contained in the warrants qualifies the warrants for derivative accounting.  In addition, the derivative liability must be marked-to-market each reporting period and the change in its fair value will be recorded in our statement of income. On the date of the issuance, the fair value of the derivative liability was $474,203, which was calculated using the Black-Scholes model based upon the following assumptions: expected volatility of 419.44%, discount rate of 0.36%, expected term of three years and no dividends.
 
$427,450 of the fair value was attributable to warrants issued to Water Tech as additional consideration for the $310,000 note discussed above.  As the fair value of the warrants was higher than the face value of the note, a debt discount of $310,000 was recorded on the note with the additional $117,450 of fair value recorded as a loss on derivative liability during the year ended December 31, 2012.  The entire debt discount was amortized during the first quarter of 2013.  The remaining $46,753 of the fair value of the warrants was attributable to warrants issued to the Investor as additional consideration for the $50,000 note discussed above.  The fair value was recorded as a debt discount on the note and was fully amortized during the year ended December 31, 2012.

During the year ended December 31, 2013, Water Tech exercised 19,035,638 warrants on a cashless basis, which had a fair value of $1,332,360 on the date of exercise, and received 18,790,174 restricted shares of our common stock as a result. The fair value was extinguished to additional paid-in capital on our consolidated balance sheets. At March 31, 2014 and December 31, 2013, the total fair value of the remaining outstanding warrants was $324,261 and $163,299.  The total change in fair value, less the warrant exercise, was $160,962, which was recognized as a loss on our condensed consolidated statements of operations.
 
 
9

 
 
We measure fair value in accordance with a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 Measurements) and the lowest priority to unobservable inputs (Level 3 measurements).  The three levels of the fair value hierarchy are described below:
 
Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical unrestricted assets or liabilities;
 
Level 2 – Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
 
Level 3 – Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
 
The following table sets forth our financial assets and liabilities measured at fair value by level within the fair value hierarchy as of December 31, 2013 and March 31, 2014, respectively. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
                         
Derivative liabilities
 
$
-
   
$
-
   
$
163,299
   
$
163,299
 
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
                         
Derivative liabilities
 
$
-
   
$
-
   
$
324,261
   
$
324,261
 

The following table presents a roll-forward of the derivative liability measured at fair value by level within the fair value hierarchy as of December 31, 2013 and March 31, 2014, respectively.  Derivative liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

Beginning derivative liability at December 31, 2013
  $ 163,299  
Recognition of new derivative liability
    -  
Mark-to-market loss
    160,962  
Warrant exercises
    -  
Ending derivative liability at March 31, 2014
  $ 324,261  
 
As described in Note 5. Debt and Preferred Stock Issuance, on February 8, 2014 we issued to a certain investor 500 shares of our Series A Preferred Stock as part of the sale of the Units.  Even though we identified conversion features embedded within Series A Preferred Stock, we have determined that the features associated with the embedded conversion option should not be accounted for at fair value as a derivative liability.
 
Note 7. Common Stock and Preferred Stock

Stock-Based Compensation

We periodically grant restricted equity or equity awards to our employees, directors and consultants.  We are required to make estimates of the fair value of the related instruments when granted and recognize expense over the period benefited, usually the vesting period. During the three months ended March 31, 2014, we did not issue any shares of our common stock for services.

Preferred Stock

As described above in Note 5. Debt and Preferred Stock Issuance, on February 8, 2014 we issued to a certain investor Units at a purchase price of $10,000 per Unit, for aggregate gross proceeds of $50,000.  Each Unit consisted of (i) a Note in the principal amount of $10,000 and (ii) 100 shares of our Series A Preferred Stock.  As a result, we issued to the investor a Note in the principal amount of $50,000 and 500 shares of our Series A Convertible Preferred Stock
 
A summary of our preferred stock issuances for the quarter ended March 31, 2014 is set forth below:
 
   
Shares
   
Conversion
Price
 
Outstanding at December 31, 2013
   
1,200
   
 $
0.20
 
Granted
   
500
     
0.20
 
Converted
   
     
 
Forfeited as a result of Note prepayment
   
     
 
Outstanding at March 31, 2014
   
1,700
   
$
  0.20
 
 
Note 8. Related Party Transactions and Debt Repayment
 
In the first quarter ended March 31, 2014 we repaid $152,500 of previously borrowed funds from related parties.  Please also see Note 5. Debt and Preferred Stock Issuance.

As of March 31, 2014, the balance of notes payable to related parties, including advances, is $855,157.
 
Note 9. Subsequent Events
 
Subsequent to March 31, 2014, we borrowed an aggregate of approximately of $26,000.  The loans were not evidenced by promissory notes and the parties have yet to formalize the terms of the loans, such as the interest rate or maturity date. We are currently negotiating with the lender to formalize the terms of the loans.
 
 
10

 
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Special Note Regarding Forward-Looking Statements
 
This Quarterly Report on Form 10-Q (this “Quarterly Report”) may contain certain “forward-looking statements” as such term is defined by the U.S. Securities and Exchange Commission (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 Green Energy Management Services Holdings, Inc.’s (which, together with Green Energy Management Services, Inc. (“GEM”), its consolidated subsidiary, is referred to herein as the “Company”, “we”, “us” or “our”) Annual Report on Form 10-K filed with the SEC on May 13, 2014 (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.  This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section should be read in conjunction with our unaudited condensed consolidated financial statements, related notes, and other financial information appearing elsewhere in this Quarterly Report and our other filings with the SEC.

Company Overview
 
We are a full service energy management company based in New York, New York engaged in the business of Energy Efficiency products and system (as discussed below).  We currently use commissioned sales representatives to market our products and services.  Our two functional businesses are energy saving lighting products utilizing LED’s (Light Emitting Diodes) and the GEM Water Management System which utilizes water conservation technology (collectively, “Energy Efficiency”).  We have successfully deployed these savings measures at Co-op City in the Bronx, New York, one of the world’s largest cooperative housing developments spread out among 15,000 residential units and 35 high rise buildings.  As we proceed with our Energy Efficiency business, we hope to enter into sales agreements with new customers in the 2014 fiscal year and secure additional business opportunities in the Energy Efficiency solutions market from existing partners, as well as progress with the Co-op City project, subject to the availability of sufficient financial resources.  However, there can be no assurance that we will be able to enter into any such new agreements or that any such agreements will be on terms favorable to us.

We offer our clients all forms of solutions to maximize the level of Energy Efficiency which can be achieved given the current technologies available to us mainly based in two functional areas: (i) energy efficient lighting upgrades and (ii) water management system solutions (the “Water Management Technology”).  For the energy saving lighting products market, we provide energy efficient lighting units and services to end users who utilize substantial quantities of electricity.  Our energy managing products and services are primarily sold to municipal and commercial customers.   For the water conservation technology market, we provide our clients with water conservation solutions, primarily under long-term, fixed-price contracts, offering them water valve technology, which has the ability to reduce residential and commercial water usage.  We generally install all of our clean technology at our cost and our revenues are derived from the shared savings with the owner of the project.  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.

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.  Our technology reduces electricity usage by as much as 50% - 70% depending on the lighting replacement product, while the water management system can effectively reduce consumption and sewage by as much as 20%.  We generally install all of our clean technology at our cost and share the savings with the owner of the project.  The savings revenues vary from product to product but we generally expect to receive at least 50% of the savings.

Recent Developments – Financings
 
In February 2014, Riverbay Corporation (“Riverbay”) approved and signed Change Order #2 to the water management agreement, pursuant to which we received a discounted buyout amount of $280,000 in lieu of the remaining amount of $355,000 due to us at the time of the buyout under the water management agreement with Riverbay with respect to the installed water valves.
 
 
11

 
 
On February 8, 2014, we sold to a certain accredited investor 5 units of our securities (the “Units”) at a purchase price of $10,000 per Unit, for aggregate gross proceeds of $50,000.  Each Unit consists of (i) a promissory note (the “Note”) in the principal amount of $10,000, and (ii) one 100 shares of our Series A Convertible Preferred Stock, with each share of Preferred Stock convertible at any time prior to the 2nd anniversary of their issuance date, in whole or in part, at the investor’s option, into 500 shares of our common stock without the payment of additional consideration.  As a result, we issued to the investor a Note in the principal amount of $50,000 and 500 shares of Series A Convertible Preferred Stock.  We used the net proceeds from the sale of the Units as general working capital.

In the first quarter ended March 31, 2014 we did not borrow any additional funds from related parties for working capital purposes and repaid $152,500 of previously borrowed funds from related parties.  Subsequently, in April and May 2014, we borrowed an aggregate of approximately $26,000 from an unrelated third party to use as working capital.

Results of Operations
 
Three months ended March 31, 2014 as compared with the three months ended March 31, 2013
 
Revenue earned for the three months ended March 31, 2014 was $315,195, as compared to revenue earned of $66,816 for the three months ended March 31, 2013.  The increase of $248,379 for the three months ended March 31, 2014, as compared to the same period in 2013, was due to the discounted buyout amount of $280,000 in lieu of the remaining amount of $355,000 due to us at the time of the buyout under the water management agreement with respect to the installed water valves and such valves installed in the project are now a property of Riverbay.

Cost of revenue earned was $309,465, or 98%, of our revenue earned for the three months ended March 31, 2014, as compared to 8,355, or 13%, of our revenue earned for the three months ended March 31, 2013.  Cost of revenue earned in the first quarter of 2014 and 2013 was related to our Energy Efficiency and water management businesses, as well as recognition of all deferred project costs on the monetization of the amounts due to us at the time of buyout under the Riverbay water management agreement. Gross profit for the three months ended March 31, 2014 was $5,730, as compared to $58,461 for the three months ended March 31, 2013.  The decrease in gross profit in the three months ended March 31, 2014 is attributable to higher revenues earned during such period, offset by an increase in cost of revenues, as compared to the same period in 2013.

Selling, general and administrative expenses for the three months ended March 31, 2014 were $184,726, as compared to the selling, general and administrative expenses of $303,925 for the same periods in 2013.  The decrease of $119,199 for the three months ended March 31, 2014, as compared to the same period in 2013 is primarily attributable to a decrease in salaries and compensation expenses of $19,750, a decrease of $51,000 in consulting expenses, and a decrease of $72,130 in professional legal and accounting expenses.

Our operating loss for the three months ended March 31, 2014 was $180,016, as compared to an operating loss of $246,483 for the three months ended March 31, 2013.  The decrease in the operating loss for the three months ended March 31, 2014 is primarily attributable to an increase in our revenues as a result of the discounted buyout amount of $280,000 in lieu of the remaining amount of $355,000 due to us at the time of the buyout under the water management agreement with respect to the installed water valves.
 
Interest expense, net, for the three months ended March 31, 2014 was $24,522 as compared to $331,813, for the same period in 2013.  Interest expense, net, for the three months ended March 31, 2014 substantially decreased as a result of us paying loans from related parties during the three months ended March 31, 2014, which were used partially to fund our overhead expenses (of which $152,500 was repaid during the three months ended March 31, 2014).

Loss on derivative liability for the three months ended March 31, 2014 was $160,962 as compared to $1,659,737 for the same period in 2013.  The decrease in loss on derivative liability of $1,498,775 is due to calculating the fair value of the derivative liabilities associated with the warrants issued as additional consideration to the notes payable to related parties, which warrants were partially exercised in the second quarter of 2013.  See Note 6 to our condensed consolidated financial statements included herein for further information.
 
We incurred a net loss of $357,451 for the three months ended March 31, 2014, as compared to a net loss of $2,238,033 for the three months ended March 31, 2013.  The decrease in our net loss for the three months ended March 31, 2014 was attributable to the factors discussed above.  The net loss per share, basic and diluted, was $0.01 per share for the three months ended March 31, 2014, as compared to a net loss of $0.05 per share for the three months ended March 31, 2013.

Liquidity and Capital Resources
 
As of March 31, 2014, we had a negative working capital of $4,364,747, as compared to a negative working capital of $4,305,962 at December 31, 2013.  The decrease in negative working capital is primarily due to the amounts spent on installation and project costs as noted above, a decrease in bridge loans from related parties of $152,500 as a result of repayments, offset by increases in the derivative liability of $160,962, as well as recognition in full of all deferred project costs of $281,077 on monetization of the Riverbay water management contract.. We had $5,815 in cash at March 31, 2014, as compared to $15,102 at December 31, 2013.  The decrease in cash is attributable to the repayment of our debt, including debt held by related parties, and increased cost of revenue, offset by higher gross profit of the installations completed in the first quarter of 2014.
 
 
12

 

On February 8, 2014, we sold to a certain accredited investor 5 Units at a purchase price of $10,000 per Unit, for aggregate gross proceeds of $50,000.  As a result, we issued to the investor a Note in the principal amount of $50,000 and 500 shares of Series A Convertible Preferred Stock.  We used the net proceeds from the sale of the Units as general working capital.

In February 2014, Riverbay approved Change Order #2 to the water management agreement, pursuant to which we received a discounted buyout amount of $280,000 in lieu of the remaining amount of $355,000 due to date to us under the water management agreement and that the installed water valves used in the Project were now a property of Riverbay.  The payment was made to us in February 2014. As a result of the settlement of the contract, we recognized in full all deferred project costs associated with the contract, in the amount of $281,077.

In the first quarter ended March 31, 2014 we did not borrow any additional funds from related parties for working capital purposes and repaid $150,000 of previously borrowed funds from related parties.  Subsequently, in April and May 2014, we borrowed an aggregate of approximately $26,000 from an unrelated third party to use as working capital.

As of May 15, 2014, we have cash of approximately $33 and trade receivables of approximately $0.  If and when we are able to secure additional funds, we will continue to install water valves and be eligible for shared savings with respect to future work that we expect to perform on the Project.  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 and the collection of monthly revenue amounts under our water management agreement with Riverbay.  However, these funds will be insufficient to fully implement our business plan, satisfy our prior outstanding obligations, including our expenses and deferred salaries of our employees.  Accordingly and to fully execute our business plan and reach the planned amount of revenues, we will require additional capital to meet our financial commitments and to continue to execute our business plan, build our operations and become profitable. As a result, our auditors have issued a going concern opinion in conjunction with their audit of our December 31, 2013 consolidated financial statements.

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 a small amount of revenue in the first three months of 2014 and we have a working capital deficit of $4,364,747 as of March 31, 2014.  These factors raise substantial doubt about our ability to continue as a going concern.
 
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.
 
The accompanying unaudited 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 three months ended March 31, 2014, 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
 
There are no material changes from the significant accounting policies or estimates set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our December 31, 2013 financial statements included in our Annual Report.  Please refer to our Annual Report for disclosures regarding the critical accounting policies related to our business.

Off-Balance Sheet Arrangements
 
None.
 
 
13

 
 
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 Quarterly Report.  Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that, as of March 31, 2014, our disclosure controls and procedures were not 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.  To mitigate the current limited resources and limited employees, we rely heavily on direct management oversight of transactions, along with the use of legal and outsourced accounting professionals.
 
As discussed in our Quarterly Report on Form 10-Q for the three months ended March 31, 2012, in the first quarter of 2012 we implemented certain measures to address the material weaknesses in our internal control over financial reporting and weaknesses related to our documentation and a lack of segregation of duties due to our limited size.  Such material weaknesses continue as of the date of this Quarterly Report.  If and when our financial position improves, we intend to hire additional personnel to further remedy former deficiencies.  As we progress with our business operations, and subject to receiving additional funding, we expect to increase our number of employees, which, we believe, will enable us to implement adequate segregation of duties within the internal control framework.
 
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 Control 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 March 31, 2014.  Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that there were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
 
14

 
 
PART II.  OTHER INFORMATION
 
Item 1.
Legal Proceedings
 
The information set forth under “Note 3. Commitments and Contingencies — Legal Matters” contained in the “Notes to Unaudited Condensed Consolidated Financial Statements” of this Quarterly Report is incorporated by reference in response to this Item.
 
Item 1A.
Risk Factors
 
In addition to other information set forth in this Quarterly 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 the 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.

Our unaudited condensed consolidated financial statements for the three and three months ended March 31, 2014 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 March 31, 2014, we had a working capital deficit of $4,364,747 and for the three months ended March 31, 2014, we incurred a net loss of $357,451.  As of May 15, 2014, we had cash of $33.  Notwithstanding us raising $50,000 in the first quarter of 2014, receiving in the first quarter of 2014 a discounted buyout amount of $280,000 in lieu of the remaining amount of $355,000 due to us at the time of the buyout under the water management agreement with respect to the installed water valves and borrowing approximately $26,000 from an unrelated third party in April and May 2014, due to the critical need of cash, 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 unaudited financial statements included in this Quarterly 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, 2013 consolidated financial statements 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 achieve meaningful revenues and profitability and/or ability to obtain additional funding to cover our operating expenses.  We may be required to pursue sources of additional capital through various means, including joint venture projects and substantially dilutive 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 substantially 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 and have no material revenues, 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.

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
Issuance of Unregistered Securities
 
None.
 
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
 
None.
 
 
15

 
 
Item 3.
Defaults Upon Senior Securities
 
GEM continues to be in default under the terms of the unsecured promissory notes issued under the $500,000 Line of Credit Agreement entered into with a related-party lender.  As of June 30, 2011, GEM entered into the $500,000 Line of Credit Agreement pursuant to 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, GEM 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 repayment of the notes was due on March 31, 2012 and June 30, 2012, respectively. The notes were not extended and are currently in default. This balance was outstanding at March 31, 2014 and December 31, 2013.  As of March 31, 2014, the balance of notes payable to related parties, including advances, was $668,800.  Upon an event of default, the holder of the notes may require GEM to redeem all or a portion of the notes.  We intend to pay off the notes, including all accrued interest due thereon, as and when funding or revenues permit.

Item 4.
Mine Safety Disclosures
 
Not applicable.
 
Item 5.
Other Information
 
None.

Item 6.
Exhibits
 
In reviewing the agreements included as exhibits to this Quarterly Report, please remember that they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about our Company or the other parties to the agreements.  The agreements may contain representations and warranties by each of the parties to the applicable agreement.  These representations and warranties have been made solely for the benefit of the parties to the applicable agreement and:

 
·
should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;
     
 
·
have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;
     
 
·
may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and
     
 
·
were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.
 
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time.  Additional information about our Company may be found elsewhere in this Quarterly Report and our other public filings, which are available without charge through the SEC’s website at http://www.sec.gov.
 
 
16

 
 
The following exhibits are included as part of this report:

Exhibit
Number
 
 
Description of Exhibits
 
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., 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. 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., 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
3.6
 
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Green Energy Management Services Holdings, Inc., effecting the 1-for-10 reverse stock split of all of Green Energy Management Services Holdings, Inc.’s common stock.
 
Current Report on Form 8-K (File No. 000-33491), filed October 25, 2012, Exhibit 3(i)1
3.7
 
Certificate of Designation of Series A Convertible Preferred Stock.
 
Annual Report on Form 10-K (File No. 000-33491), filed May 13, 2014, Exhibit 3.7
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
         
4.2
 
Common Stock Purchase Warrant, dated December 31, 2012, issued to Water Tech World Wide, LLC
 
Schedule 13D (File No. 005-380257), filed February 27, 2013, Exhibit B
4.3
 
Common Stock Purchase Warrant (2nd Warrant), dated December 31, 2012, issued to Water Tech World Wide, LLC
 
Schedule 13D (File No. 005-380257), filed February 27, 2013, Exhibit C
10.1
 
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
10.2
 
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
10.3
 
Technology Assignment by and between PMP Pool Maintenance Protection, Juan Carlos Bocos and Green Energy Management Services, Inc. dated February 23, 2011
 
Annual Report on Form 10-K (File No.000-33491), filed April 16, 2012, Exhibit 10.20
10.4
 
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 31, 2011, Exhibit 10.20
 
 
17

 
 
Exhibit
Number
 
Description of Exhibits
 
Incorporated by Reference to the Following Documents
10.5
 
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 31, 2011, Exhibit 10.21
10.6
 
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 31, 2011, Exhibit 10.22
10.7
 
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 31, 2011, Exhibit 10.23
10.8
 
Line of Credit Agreement dated as of March 31, 2012 by and between Clearwater Financial Advisors, L.L.C. and Green Energy Management Services, Inc.
 
Annual Report on Form 10-K (File No. 000-33491), filed April 16, 2012, Exhibit 10.26
10.9
 
Water Management Agreement, dated as of May 3, 2011, by and between Green Energy Management Services, Inc. and Riverbay Corporation
 
Quarterly Report on Form 10-Q (File No. 000-33491), filed August 15, 2011, Exhibit 10.24
10.10
 
8% Secured Promissory Note, dated December 31, 2012, issued to Water Tech World Wide, LLC
 
Schedule 13D (File No. 005-380257), filed February 27, 2013, Exhibit A
10.11
 
Settlement and Release Agreement, dated as of August 26, 2013, by and among the Company and Mark Deleonardis, Watz Enterprises, L.L.C. and their affiliates
 
Quarterly Report on Form 10-Q (File No. 000-33491), filed November 19, 2013, Exhibit 10.13
10.12
 
Settlement and Release Agreement, dated as of August 26, 2013, by and among the Company and Jay Ennis, Financial Partners Funding, LLC and their affiliates
 
Quarterly Report on Form 10-Q (File No. 000-33491), filed November 19, 2013, Exhibit 10.14
10.13
 
Settlement and Release Agreement, dated as of August 26, 2013, by and among the Company and John Mora and his affiliates
 
Quarterly Report on Form 10-Q (File No. 000-33491), filed November 19, 2013, Exhibit 10.15
10.14
 
Form of Subscription Agreement to purchase the Company’s Units consisting of a 16.5% Promissory Note and Shares of Preferred Stock
 
Annual Report on Form 10-K (File No. 000-33491), filed May 13, 2014, Exhibit 10.14
10.15
 
Form of the Company’s 16.5% Promissory Note issued as part of the Units
 
Annual Report on Form 10-K (File No. 000-33491), filed May 13, 2014, Exhibit 10.15
10.16†
 
Consulting Agreement with Selig & Associates, dated as of September 19, 2013
 
Annual Report on Form 10-K (File No. 000-33491), filed May 13, 2014, Exhibit 10.16
21.1
 
Subsidiaries of the Company
 
Annual Report on Form 10-K (File No. 000-33491), filed April 16, 2012, Exhibit 21.1
31.1
 
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.
 
*
31.2
 
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.
 
*
32.1
 
Certification of CEO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
**
32.2
 
Certification of 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.INS
 
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 required to be filed as an exhibit pursuant to the requirements of Item 15(a)(3) of Form 10-K.
*
Filed herewith.
 
**
Furnished herewith.

 
18

 
 
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:  May 22, 2014
By:
/s/ John Tabacco
 
 
Name:
John Tabacco
 
 
Title:
President and Chief Executive Officer
 
 
 
GREEN ENERGY MANAGEMENT SERVICES HOLDINGS, INC.
 
 
 
Dated:  May 22, 2014
By:
/s/ David Selig
 
 
Name:
David Selig
 
 
Title:
Chief Financial Officer
 
 
 
(Principal Financial Officer and Principal Accounting Officer)
 
 
 19