Green Energy Management Services Holdings, Inc.

On March 17, 2015, we entered into the Advisory Services Agreement with Lotus pursuant to which Lotus agreed to (i) provide certain services (including consulting services) to, or on behalf of, the Company related to the Legalized Cannabis Business, and (ii) assist us in facilitating a Business Combination (as defined in the Advisory Services Agreement) as maybe permitted from time to time in the by applicable state and federal laws. Among other things, Lotus agreed to (a) assist us in identifying potential opportunities for the acquisition, licensing, and origination, of one or more Marijuana Facilities, (b) provide guidance, direction and know-how to us and/or other parties or persons designated by us related to the Legalized Cannabis Business, and (c) assist us with such other services related to the cannabis industry as we shall request, all as maybe permitted currently or maybe permitted from time to time in the future by applicable state and federal laws. In addition, for our benefit, Lotus agreed to complete all due diligence on each Marijuana Facility or such other entity or person as we request and provide us with guidance and direction regarding the following aspects of the Marijuana Facilities operations: manufacturing, medical sales, retail sales, regulation and licensing, compliance, operations, marketing, grow management, environmental controls and client retention (all of such services are collectively referred to as the “Services”).

In consideration of the Services, we agreed to pay Lotus (i) an advisory fee of $150 per hour for the first 100 hours of Services and after such time, such hourly rate as the parties may agree, (ii) a nonrefundable success fee of $25,000 for each acquired Marijuana Facility license or already established and licensed Marijuana Facility or any completed Business Combination consummated by us with the direct assistance and advice of Lotus, and (iii) a post-success services fee which shall be determined and agreed to by the parties under separate written agreements. We also agreed to issue to Erik Santus, a principal of Lotus, as of the date of the Advisory Services Agreement, warrants to purchase 1,250,000 restricted shares of our common stock, with each warrant being a 3-year cashless warrant to purchase one share of our common stock at an exercise price of $0.01 per share (the “Initial Warrants”). The Initial Warrants vested immediately. In addition, we agreed to issue to Mr. Santus warrants to purchase up to 2,000,000 restricted shares of our common stock, with each warrant being a 3-year cashless warrant to purchase one share of our common stock at an exercise price of $0.01 per share (the “Additional Warrants” and together with the Initial Warrants, the “Warrants”). The Additional Warrants are required to be issued upon the closing of one or more Opportunities (as defined below) and if the minimum value of such Opportunities aggregates to at least $2,000,000.

According to the Marijuana Business Factbook 2014 (a compilation of marijuana industry data published by the Marijuana Business Daily, a recognized authority on the emerging legal marijuana market) the U.S. market for legal medicinal and recreational marijuana is expected to reach $2.2-2.6 billion in 2014, $3.1-3.7 billion in 2015 and potentially exceed $8 billion by 2018 (many sources estimate the market to grow to $10 billion by 2018). Estimates from various sources for the size of the long term market range from $40-100 billion if Federal Prohibition is repealed and marijuana sales become legal in all 50 states and Washington D.C. (for perspective beer is approximately a $100 billion market, with wine just under $30 billion and coffee approximately $12 billion).

However, the state laws are in conflict with the federal Controlled Substances Act, which makes marijuana use and possession illegal on a national level. Marijuana is a schedule-I controlled substance and is illegal under federal law. Even in those states in which the use of marijuana has been legalized, its use remains a violation of federal law. Since federal law criminalizing the use of marijuana preempts state laws that legalize its use, strict enforcement of federal law regarding marijuana would likely result in our inability to proceed with our business plan. Continued development of the marijuana industry is dependent upon continued legislative authorization of marijuana at the state level. Any number of factors could slow or halt progress in this area. Further, progress, while encouraging, is not assured. While there may be ample public support for legislative action, numerous factors impact the legislative process. Any one of these factors could slow or halt use of marijuana, which would negatively impact our proposed business. Further, and while we do not intend to harvest, distribute or sell cannabis, by providing services to companies and people that are harvesting, distributing and selling cannabis, we could be deemed to be participating in marijuana cultivation, which remains illegal under federal law, and exposes us to potential criminal liability, with the additional risk that our equipment, systems and products could be subject to civil forfeiture proceedings. 

As used in this Annual Report, unless the context otherwise indicates, references to Green Energy Management Services Holdings, Inc.’s and its wholly owned subsidiary (collectively referred to as the “Company,” “we,” “us,” or “our”; references to “GEM” refer only to Green Energy Management Services, Inc., our wholly-owned subsidiary) business operations and operations results for the fiscal years ended December 31, 2014 and 2013 and as of March 17, 2015, refer to the Company and its prior business direction of engaging in the Energy Efficiency (as defined below) technology business. References to the “Company,” “we,” “our” or “us” refer to the Company’s business operations and financial results for the fiscal years ended December 31, 2014 and 2013 and for the period from January 1, 2015 to March 16, 2015. While the Company started investigating entering the cannabis industry in January 2015, references to the Company and the Company’s business operations and financial results after March 16, 2015 refer to the Company’s new business direction of being a technology service provider to the expanding legal cannabis industry, as currently permitted under the laws of certain states (including Colorado) and/or maybe permitted from time to time in the future by federal laws and in other states.  Prior to the Company’s change in business direction, in the first quarter of 2015, the Company engaged a consultant to conduct research efforts into the legal cannabis industry to determine what opportunities were available for the Company. In connection with the change of the Company’s business direction, on March 17, 2015, the Company entered into the Advisory Services Agreement with Lotus MMJ Consulting, LLC and contemporaneously executed the Asset Sale (See Note 15) relating to its Energy Efficiency business. The financial statements included in this Annual Report summarize the financial results of the Company for the fiscal years ended December 31, 2014 and 2013.

Barry P. Korn. Mr. Korn was appointed our Chief Executive Officer effective September 15, 2014, resigned on March 17, 2015 in connection with the Asset Sale, and was reappointed as our Interim Chief Executive Officer and appointed as our Acting Chief Financial Officer and Interim Chairman of the Board, effective as of April 10, 2015. From October 1975, Mr. Korn has been serving as the Managing Director of Barrett Capital Corporation (“BCC”), a banking and financial advisory firm specializing in debt and equity placement with an emphasis on asset based and energy efficiency financing. From November 2007 until March 2009, Mr. Korn was a Vice President of Webster Business Credit Corporation, the asset based lending division of Webster Bank, one of New England’s largest commercial banks, providing accounts receivable and inventory lines of credit. From December 2005 until October 2007, Mr. Korn was a Regional Marketing Director, Asset Based Lending, for New York City based Sterling National Bank, providing asset based lending, lease financing and other commercial banking services. Mr. Korn is a recognized expert in the financial services and clean energy fields and has been regularly interviewed by major media publications. Mr. Korn received his Bachelor of Science degree in Public Accounting from City College of the City University of New York and a Master’s degree in Finance and Investments from Bernard M. Baruch College (CUNY), Zicklin Graduate School of Business.