Notes
to the Consolidated Financial Statements
December
31, 2019
NOTE
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Organization
and Description of Business
GEX
Management, Inc. (“GEX”, the “Company”, “we”, “our”, “us”) is a professional
business services company that was originally formed in 2004 as Group Excellence Management, LLC d/b/a MyEasyHQ. The Company converted
from a limited liability company to a C corporation in March 2016, and changed its name to GEX Management, Inc. in April 2016.
The Company formed GEX Staffing, LLC (“GEX Staffing”) in March 2017. The initial funding and first transactions occurred
in GEX Staffing in September 2017. The consolidated financials include the accounts of GEX Staffing, LLC.
Material
Definitive Agreements
On
December 29, 2017 GEX purchased 100% of the membership interest in AMAST Consulting, LLC (“AMAST”), which owned a
multi-use office building in Lowell, Arkansas, which had an occupancy rate of 100% at the time of the acquisition. The terms of
the Agreement to purchase AMAST include the fulfillment of the lease obligations of the current tenants, as well as the assumption
of the debt that is collateralized by the building and associated property. The consolidated financials include the assets and
debt of AMAST.
On
May 2, 2018, the Company purchased a 25% interest in Payroll Express, LLC (PE), a California limited liability company for $500,000
in cash. The Company recognized this investment under the equity method due to its ability to exercise significant influence over
the operating and financial policies of PE. Additionally, the Company had the right, but not the obligation, to purchase an additional
26% interest under similar terms. On June 11, 2018, the Company paid $250,000 in cash to the owners of Payroll Express as a deposit
towards purchasing additional shares in PE and is recorded in Other Assets on the Balance Sheet
On
August 3, 2018, the Company entered into a Membership Interest Purchase Agreement with PE, pursuant to which the Company purchased
an additional 26 % of the membership interests of PE for a purchase price of (a) $250,000, plus (b) warrants (the
“Warrants”) to purchase 2,000,000 shares of the Company’s common stock. As a result of this transaction,
the Company owned a total of 51% of the membership interests of PE.
On
September 28, 2018, the Company, consummated a real property purchase and sale transaction (“Setco Property Purchase Transaction”)
with Setco International Forwarding Corporation, a Texas corporation (“Setco”), pursuant to which the Company purchased
a 16.84 acre tract of land from Setco, located at 13000 S. Lyndon B. Johnson Freeway in Dallas, Texas, for an aggregate purchase
price of $11,000,000, paid as follows:
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●
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$1,125,000,
by the Company’s execution and delivery of a Real Estate Lien Note made to Setco (the “September 2018 Note”);
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|
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●
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$4,875,000,
by the Company’s issuance to Setco of 15,000,000 shares of the Company’s common stock (valued at $0.325 per
share); and
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|
|
|
|
●
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$5,000,000,
by the Company’s transfer to Setco of the Company’s 51% ownership interest in Payroll Express.
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On
June 4, 2018, the Company entered into a discounted Promissory Note Payable with a principal balance of $500,000, and bearing
interest at a rate of 15% per annum. This note was personally guaranteed by Carl Dorvil, the Company’s former Chief Executive
Officer and principal shareholder and secured, among other things, certain liens and security interests including the Setco property
purchased on September 28, 2018. This note was due to be paid in full by August 1, 2018. The Company had been in negotiations
to restructure this loan, as it was originally intended as a bridge loan with a term of 57 days. Pursuant to these negotiations,
in August 2018, the maturity date on the note was extended to August 30, 2018. As of December 31, 2018, the Company failed to
pay the Principal Amount and, therefore, continued to be in default under the Note.
Subsequently
on March 5, 2019, the noteholder proceeded to execute its rights to enforce the liens on the Setco property through a foreclosure
process which resulted in the noteholder taking possession of the Setco property resulting in the elimination of the $500,000
Civitas note and any accrued interest on the principal amount and the elimination of $1,125,000 Setco real estate lien note made
to Setco along with any accrued interests from the Company books and with the elimination of the Setco property assets from the
company books.
On
February 8 2019, GEXM and the G&C Family LLC executed a “Deed in Lieu of Foreclosure” agreement the terms of which
would allow GEXM to release ownership of the Arkansas building under AMAST LLC to the G&C Family Group, LLC in return for
cancellation of the $1,300,000 real estate lien note secured by the building along with an and all accrued interest payable on
the note as of the date of the agreement and the elimination of the AMAST property related assets from the company books.
Basis
of Presentation
Our
financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”),
as well as the applicable regulations and rules of the Securities and Exchange Commission (“SEC”). This requires management
to make estimates and assumptions that affect the amounts reported in the financial statements and their accompanying notes. The
actual results could differ from those estimates
Principles
of Consolidation
The
consolidated financial statements include the accounts of GEX Management, Inc. and its wholly owned subsidiaries. Intercompany
accounts and transactions have been eliminated in consolidation.
There
have been no significant changes to our accounting policies that have a material impact on our financial statements and accompanying
notes.
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
Cash
and Cash Equivalents
Cash
and cash equivalents include cash in banks and short-term investments with original maturities of three months or less.
Accounts
Receivable
Accounts
receivable consists of accrued services and consulting receivables due from customers and are unsecured. The receivables are generally
due within 30 to 45 days after the date of the invoice. Accounts receivable is carried at their face amount, less an allowance
for doubtful accounts. GEX’s policy is not to charge interest on receivables after the invoice becomes past due. Write-offs
are recorded at the time when a customer receivable is deemed uncollectible.
Property
and Equipment
Property
and Equipment, net is carried at the cost of purchase, acquisition or construction, and is depreciated over the estimated useful
lives of the assets. Assets acquired in a business combination are stated at estimated fair value. Costs associated with repair
and maintenance are expensed as they are incurred. Costs associated with improvements which extend the life, increase the capacity
or improve the efficiency of our property and equipment are capitalized and depreciated over the remaining life of the related
asset. Depreciation and amortization are provided using the straight-line methods over the useful lives of the assets as follows:
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Useful
Life
|
Buildings
|
|
30
Years
|
Office
Furniture & Equipment
|
|
5
Years
|
Impairment
of Long-Lived Assets
The
Company records an impairment of long-lived assets used in operations, other than goodwill, and its equity method investments
when events or circumstances indicate that the asset might be impaired and the estimated undiscounted cash flows to be generated
by those assets over their remaining lives are less than the carrying amount of those items. The net carrying value of assets
not recoverable is reduced to fair value, which is typically calculated using the discounted cash flow method.
Revenue
Recognition
Effective
on January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with
Customers (Topic 606). ASU No. 2014-09 outlines a single, comprehensive revenue recognition model for revenue derived from contracts
with customers and it supersedes the prior revenue recognition guidance, including prior guidance that is industry-specific. Under
ASU No. 2014-09, an entity recognizes revenue for the transfer of promised goods or services to customers in an amount that reflects
the consideration for which the entity expects to be entitled in exchange for those goods or services. The Company adopted ASU
No. 2014-09 using the modified retrospective method, which applies to only the most current period presented in the financial
statements. There were no significant changes to the Company’s existing revenue recognition policies as a result of adopting
ASU 2014-09.
GEX
enters into contracts with its clients for professional services. GEX’s contract stipulates the rate and price charged to
each client. GEX’s contracts for these services are generally cancellable at any time by either party with 30-days’
written notice. GEX fulfills its performance obligations each month, and the contracts generally have a term of one year with
an automatic renewal after 12 months. The duration between invoicing and when GEX completes its contractual, performance obligations
are satisfied is not significant. For staffing and professional services payment is generally due 30 days after the invoice is
sent to the client. GEX does not have significant financing components or significant payment terms.
Staffing
Services and Professional Services
Staffing
services revenue is derived from supplying temporary staff to clients. Temporary staff generally consists of temporary workers
working under a contract for a fixed period of time, or on a specific client project. The temporary staff includes both GEX employees
and third-parties contracted by GEX.
Temporary
staff are provided to clients through a Staffing Service Agreement (‘SSA’) involving a specified service that the
temporary staff will provide to the client. When GEX is the principal or primary obligor for the temporary staff, GEX records
the gross amount of the revenue and expense from the SSA.
GEX
is generally the primary obligor when GEX is responsible for the fulfillment of services under the SSA, even if the temporary
staff are not employees of GEX. This typically occurs when GEX contracts third-parties to fulfill all or part of the SSA with
the client, but GEX remains the holder of the credit risk associated with the SSA, and GEX has total discretion in establishing
the pricing under the SSA.
All
other Professional Services revenues are recognized in the period the services are performed as stipulated in the client’s
Outsourcing Agreement, when the client is invoiced, and collectability is reasonably assured. Revenue recognition for arrangements
with multiple deliverables constituting a single unit of accounting is recognized generally over the greater of the term of the
arrangement or the expected period of performance.
Income
Taxes
The
Company uses the liability method in the computation of income tax expense and the current and deferred income taxes payable.
A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to
be realized.
Fair
Value Measurements
ASC
Topic 820 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and
requires certain disclosures about fair value measurements. In general, fair value of financial instruments is based upon quoted
market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed
models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial
instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the Company’s
credit worthiness, among other things, as well as unobservable parameters.
Earnings
Per Share
Earnings
per share are calculated in accordance with ASC 260 “Earnings per Share”. Basic income (loss) per share is computed
by dividing the period income (loss) available to common shareholders by the weighted average number of common shares outstanding.
Diluted earnings (loss) per share is computed by dividing the income (loss) available to common share holders by the weighted
average number of common shares outstanding plus additional common shares that would have been outstanding if dilutive potential
common shares had been issued. For purposes of this calculation, common stock dividends, warrants and options to acquire common
stock, would be considered common stock equivalents in periods in which they have a dilutive effect and are excluded from this
calculation in periods in which these are anti-dilutive to the net loss per share.
Earnings
per share information for the twelve months ended December 31, 2019 has been retroactively adjusted to reflect the stock split
that occurred in December 2017.
Reclassifications
Certain
prior year amounts have been reclassified to conform to the current year presentation. Such reclassifications have had no effect
on the financial position as of December 31, 2019 or operations or cash flows for the periods ended December 31 2018.
Going
Concern
To
date, the Company has funded its operations primarily through public and private offerings of common stock, our line of credit,
short- term discounted and convertible notes payable. The Company has identified several potential financing sources in order
to raise the capital necessary to fund operations through December 31, 2020.
In
addition to the aforementioned current sources of capital that will provide additional short-term liquidity, the Company is currently
exploring various other alternatives including debt and equity financing vehicles, strategic partnerships, government programs
that may be available to the Company, as well as trying to generate additional sales and increase margins. However, at this time
the Company has no commitments to obtain any additional funds, and there can be no assurance such funds will be available on acceptable
terms or at all. If the Company is unable to obtain additional funding and improve its operations, the Company’s financial
condition and results of operations may be materially adversely affected and the Company may not be able to continue operations,
which raises substantial doubt about its ability to continue as a going concern. Additionally, even if the Company raises sufficient
capital through additional equity or debt financing, strategic alternatives or otherwise, there can be no assurances that the
revenue or capital infusion will be sufficient to enable it to develop its business to a level where it will be profitable or
generate positive cash flow. If the Company raises additional funds through the issuance of equity or convertible debt securities,
the percentage ownership of our stockholders could be significantly diluted, and these newly issued securities may have rights,
preferences or privileges senior to those of existing stockholders. If the Company incurs additional debt, a substantial portion
of its operating cash flow may be dedicated to the payment of principal and interest on such indebtedness, thus limiting funds
available for business activities. The terms of any debt securities issued could also impose significant restrictions on the Company’s
operations. Broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating
performance, and may adversely impact our ability to raise additional funds. Similarly, if the Company’s common stock is
delisted from the public exchange markets, it may limit its ability to raise additional funds.
The
consolidated financial statements for the twelve months ended December 31, 2019 were prepared on the basis of a going concern
which contemplates that the Company will be able to realize assets and discharge liabilities in the normal course of business.
Accordingly, they do not give effect to adjustments that would be necessary should the Company be required to liquidate its assets.
The ability of the Company to meet its total liabilities of $5,326,398 and to continue as a going
concern is dependent upon the availability of future funding, continued growth in billings and sales contracts, and the Company’s
ability to profitably meet its after-sale service commitments with its existing customers. The financial statements do not include
any adjustments that might result from the outcome of these uncertainties.
In
addition, at this time we cannot predict the impact of COVID-19 on our ability to obtain financing necessary for the Company to
fund its working capital requirements. Also, it may hamper our efforts to comply with our filing obligations with the Securities
and Exchange Commission.
NOTE
2. OTHER CURRENT ASSETS
At
December 31, 2019 and December 31, 2018, Other Current Assets were as follows:
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|
December 31, 2019
|
|
|
December
31, 2018
|
|
Other Current Assets:
|
|
|
|
|
|
|
|
|
Prepaids and Debt Discounts
|
|
$
|
967,152
|
|
|
$
|
1,494,466
|
|
Other Current Assets
|
|
|
26,985
|
|
|
|
261,505
|
|
Total Other Current Assets
|
|
$
|
994,137
|
|
|
$
|
1,755,971
|
|
NOTE
3. STOCKHOLDERS’ EQUITY
General
The
Company filed Form S-1 with the Securities & Exchange Commission and it was declared effective on November 14, 2016 under
which the Company sold 188,059 shares for $282,089 in the first quarter under this registration statement. The Company effected
a 4 for 3 stock split in December 2017. All transaction have been adjusted to reflect this split.
The
Company issued 47,781 shares for services for a total of $74,750 during 2017.
On
May 15, 2017, GEX entered into a Conversion Agreement with two consultants that had a $45,000 balance with the Company. In accordance
with the terms and conditions of the Conversion Agreement, GEX issued a total of 40,000 shares of the Company’s common stock,
at a cost basis of $1.125 per share. The two consultants were issued 20,000 shares each of the total 40,000 shares issued by the
Company.
On
June 7, 2017, GEX entered into a Debt Conversion Agreement with the Company that purchased the Line of Credit Promissory Note
from the Company’s Chief Executive Officer. Under the terms and conditions of the Debt Conversion Agreement GEX issued 153,664
shares of its common stock, for the extinguishment of $345,745 in debt and accrued interest owed by GEX under the Line of Credit
as of the date of the Debt Conversion Agreement. The shares were valued at $1.125 per share. GEX recorded a gain on extinguishment
of debt in the amount of $172,872.
On
June 20, 2017, GEX entered into a Stock Purchase Agreement (“SPA”) with a third-party investor. Under the terms and
conditions of the SPA, GEX issued 19,003 shares of its common stock, for a total of $120,000.
On
June 20, 2017, GEX entered into an Advisory Agreement with a third-party advisory firm. Under the terms and conditions of the
Advisory Agreement, GEX paid a non-refundable retainer in the amount of $24,750 through the issuance of 3,334 shares of the Company’s
common stock.
On
July 20, 2017, GEX entered into a Stock Purchase Agreement with a third-party investor. Under the terms and conditions of the
SPA, GEX issued 12,668 shares of its common stock restricted pursuant to Rule 144 of the Securities Act of 1933 for a total of
$80,000.
On
September 20, 2017, GEX entered into Stock Purchase Agreements with two advisory board members. Under the terms and conditions
of the SPA’s, GEX issued 6,564 shares of its common stock, for a total of $32,000.
On
October 18, 2017, GEX entered into a Stock Purchase Agreements with one advisory board member. Under the terms and conditions
of the SPA, GEX issued 2,667 shares of its common stock restricted pursuant to Rule 144 of the Securities Act of 1933, as amended,
for a total of $13,000.
On
October 31, 2017 GEX entered into a Lease Agreement for office space in Fayetteville, Arkansas for 1,067 shares of its common
stock, restricted pursuant to Rule 144 of the Securities Act of 1933, as amended.
On
December 29, 2017 GEX entered into a SPA with a shareholder. Under the terms of the SPA, GEX issued 75,000 shares of its common
stock for a total of $300,000.
On
December 29, 2017 the Company acquired a 12,223 square foot, multi-use office building in Lowell, Arkansas through the purchase
of 100% of the member interest in AMAST Consulting, LLC for 200,000 shares of the Company’s common stock and assumption
of the outstanding mortgage.
During
the twelve months ended December 31, 2018, the Company issued the following unregistered securities. The issuance of securities
in connection with these transactions was exempt from registration under Section 4(a)(2) and/or Rule 506 of Regulation D as promulgated
by the Securities and Exchange Commission (the “SEC”) under of the Securities Act of 1933, as amended (the Securities
Act”), as transactions by an issuer not involving a public offering.
On
July 9, 2018, the Company issued 58,500 shares of common stock at no cost basis for consulting services. On July 19, 2018, the
Company issued 206,500 shares of common stock at no cost basis for consulting services. On July 25, 2018, the Company issued 12,668
shares of common stock at no cost basis for consulting services. On July 30, 2018, the Company issued 100,000 shares of common
stock at no cost basis for consulting services. On August 2, 2018, the Company issued 207,339 shares of common stock at no cost
basis in connection with issuance of a convertible note payable as a commitment fee. On August 7, 2018, the Company issued 50,000
shares of common stock at no cost basis for consulting services. On August 27, 2018, the Company issued 15,000 shares of common
stock at no cost basis for consulting services. On September 10, 2018, the Company issued 220,000 shares of common stock at no
cost basis for consulting services. On September 14, 2018, the Company issued 50,000 shares of common stock at no cost basis for
consulting services. On September 25, 2018, the Company issued 1,436 shares of common stock at no cost basis for consulting services.
On September 26, 2018, the Company issued 15,000,000 shares of common stock at no cost basis related to a real property purchase
acquisition transaction. On January 16, 2019, the Company issued 60,000 shares of common stock related to a convertible note conversion.
On January 21, 2019, the Company issued 538,095 shares of common stock related to a convertible note conversion. On January 29,
2019, the Company issued 120,000 shares of common stock related to a convertible note conversion. On February 13, 2019, the Company
issued 1,000,000 shares of common stock related to a convertible note conversion. On February 13, 2019, the Company issued 400,000
shares of common stock related to a convertible note conversion. On February 14, 2019, the Company issued 400,000 shares of common
stock related to a convertible note conversion. On February 19, 2019, the Company issued 670,000 shares of common stock related
to a convertible note conversion. On February 20, 2019, the Company issued 1,000,000 shares of common stock related to a convertible
note conversion. On February 20, 2019, the Company issued 1,000,000 shares of common stock related to a convertible note conversion.
On February 21, 2019, the Company issued 847,458 shares of common stock related to a convertible note conversion. On February
22, 2019, the Company issued 677,966 shares of common stock related to a convertible note conversion. On February 22, 2019, the
Company issued 1,129,944 shares of common stock related to a convertible note conversion. On February 22, 2019, the Company issued
300,000 shares of common stock related to a convertible note conversion. On February 25, 2019, the Company issued 2,300,000 shares
of common stock related to a convertible note conversion. On February 25, 2019, the Company issued 2,000,000 shares of common
stock related to a convertible note conversion. On February 26, 2019, the Company issued 1,140,000 shares of common stock related
to a convertible note conversion. On February 26, 2019, the Company issued 1,250,000 shares of common stock related to a convertible
note conversion. On February 27, 2019, the Company issued 2,535,211 shares of common stock related to a convertible note conversion.
On February 28, 2019, the Company issued 3,400,000 shares of common stock related to a convertible note conversion. On February
28, 2019, the Company issued 2,900,000 shares of common stock related to a convertible note conversion. As of March 2019, the
Company issued a total of 253,428,115 shares of common stock related to a convertible note conversion. In April 2019, the Company
issued a total of 131,889,069 shares of common stock related to several convertible note conversions. In May 2019, the Company
issued a total of 1,060,050,879 shares of common stock related to several convertible note conversions. In June 2019, the Company
issued a total of 1,611,151,427 shares of common stock related to warrants and convertible note conversions. In July 2019, the
Company issued a total of 1,852,682,044 shares of common stock related to warrants and convertible note conversions. In June 2019,
the Company issued a total of 1,611,151,427 shares of common stock related to warrants and convertible note conversions. In August
2019, the Company issued a total of 913,654,084 shares of common stock related to warrants and convertible note conversions. For
the three months ending September 30 2019, the Company issued a total of 2,766,336,128 shares of common stock related to convertible
notes and warrants.
As
of December 31, 2018, the Company was authorized to issue 200,000,000 common shares at a par value of $0.001 per share. In April
2018, the Company issued shares of 125,000 of common stock at $3.49 per share to a non-officer employee. As of December 31, 2018,
the Company was authorized to issue 20,000,000 preferred shares at a par value of $0.001 per share. At December 31, 2018 and December
31, 2017 there were no preferred shares outstanding.
Effective
February 19, 2019, the Board of Directors of the Company approved the authorization of eight hundred thousand (800,000) shares
of Series A1 Voting Preferred Stock (the “Series A1 Preferred Stock”) and approved the issuance to Srikumar Vanamali,
the Corporation’s Interim CEO and Executive Director, of four hundred thousand (400,000) shares of this Series A1 Preferred
Stock and approved the issuance to Shaheed Bailey, the Corporation’s Interim Chief Investment Officer and Director, of four
hundred thousand (400,000) shares of this Series A1 Preferred Stock. As a result of the issuance of the Series A1 Preferred Stock
Shares to Mr. Srikumar Vanamali and Mr Shaheed Bailey, Mr. Srikumar Vanamali and Mr. Shaheed Bailey obtained voting rights over
the Company’s outstanding voting stock on February 19, 2019, which provide them combined the right to vote up to 51% of
the total voting shares able to vote on any and all shareholder matters. As a result, Mr. Srikumar Vanamali and Mr. Shaheed Bailey
will exercise majority control in determining the outcome of all corporate transactions or other matters, including the election
of Directors, mergers, consolidations, the sale of all or substantially all of our assets, and also the power to prevent or cause
a change in control. In the event Mr. Srikumar Vanamali and Mr. Shaheed Bailey are no longer acting as Officers and Directors
of the Board of Directors of the Corporation, the shares of Series A1 Preferred Stock shall automatically, without any action
on the part of any party, or the Corporation, be deemed cancelled in their entirety. In relation to this, Form 3 was filed in
SEC for both Srikumar Vanamali and Shaheed Bailey related to the 10% Beneficial ownership on account of the majority voting control
through the preferred shares.
NOTE
4. NOTES PAYABLE
On April 26, 2018, the Company entered into two Securities Purchase
Agreements, pursuant to which the Company issued Convertible Promissory Notes (“the Notes”) with principal amounts
totaling up to $1,000,000, bearing interest at 10% per annum. The total amounts of the Notes that can be funded (consideration
that can be loaned to the Company) is up to $887,500, after discounts of $112,500 prorated over the term of the Notes. Amounts
borrowed by the Company mature in twelve months after the date of funding and can be prepaid up to six months after issuance subject
to prepayment penalties and approval by the Note holders. Any amounts outstanding on the Notes can be converted into Common Stock
at a conversion price of $2.50 per share for the first six months and at a discount of up to 50% thereafter to the then current
market value of the Company’s stock commencing six months after issuance. Conversion is at the sole discretion of the holders
of the Notes. In May 2018, the Company borrowed $200,000 under the Notes, and received $175,000 after giving effect to discounts
of 10% for each note and origination fees. The Company incurred a total of $5,000 related to origination fees on the Notes. Additionally,
the Company issued 50,000 warrant shares for debt issuance costs at an exercise price of $4.00 per share. The warrants are exercisable
for five years and had a fair market value of $31,852 on the date of issuance. The Notes bear interest at 10% per annum. On April
26, 2018, the Company entered into a convertible note payable for $146,681 bearing interest at 10% per annum. All principal and
interest is due on April 26, 2019.
On
April 26, 2018, the Company entered into a convertible note payable for $146,681 bearing interest at 10% per annum. All principal
and interest is due on April 26, 2019.
On
August 1, 2018, the Company entered into a convertible note payable for $226,000 bearing interest at 12% per annum. All principal
and interest is due on January 27, 2019. The note is convertible at the lesser of $2.50 per share or 65% of the market price on
the date of conversion. In connection with this note payable, on August 9, 2018, the Company issued 207,339 shares for its common
stock as a commitment fee.
On
August 8, 2018, the Company entered into a convertible note payable for $85,000 bearing interest at 10% per annum. All principal
and interest is due on August 8, 2019.
On
August 14, 2018, the Company entered into a convertible note payable for $250,000 bearing interest at 10% per annum. All principal
and interest is due on May 6, 2019.
On
August 24, 2018, the Company entered into a convertible note payable for $85,000 bearing interest at 10% per annum. All principal
and interest is due on August 24, 2019.
On
January 18 2019, the Company entered into a convertible note payable for $226,000 bearing interest at 12% per annum. All principal
and interest is due on July 18, 2019. In connection with this note payable, the Company issued 538,095 shares for its common stock
as a commitment fee.
On
February 15, 2019, the Company entered into a convertible note payable for $43,000 bearing interest at 10% per annum. All principal
and interest is due on February 15, 2020.
On
April 16, 2019, the Company entered into a convertible note payable for $38,000 bearing interest at 10% per annum. All principal
and interest is due on April 6, 2020.
NOTE
5. ACCOUNTS RECEIVABLE AND CONCENTRATION OF CREDIT RISK
As
of December 31, 2019, the company had $7,467 outstanding accounts receivable balance with its customers. As of December 31, 2018,
the company had $18,265 outstanding accounts receivable balance with its customers.
NOTE
6. PROPERTY AND EQUIPMENT
The
Company had the following property and equipment as of December 31, 2019 and December 31, 2018:
|
|
Dec 31, 2019
|
|
|
Dec 31, 2018
|
|
Land
|
|
$
|
-
|
|
|
$
|
11,335,278
|
|
Buildings
|
|
|
-
|
|
|
|
2,125,642
|
|
Office Equipment
|
|
|
7,435
|
|
|
|
5,935
|
|
Total Fixed Assets
|
|
|
7,435
|
|
|
|
13,400,408
|
|
Accumulated Depreciation
|
|
|
-
|
|
|
|
(70,502
|
)
|
Property and Equipment, net
|
|
$
|
7,435
|
|
|
$
|
13,396,353
|
|
NOTE
7. RELATED PARTY TRANSACTIONS
Policy
on Related Party Transactions
The
Company has a formal, written policy that includes procedures intended to ensure compliance with the related party provisions
in common practice for public companies. For purposes of the policy, a “related party transaction” is a transaction
in which the Company participates and in which a related party (including all of GEX’s directors and executive officers)
has a direct or indirect material interest. Any transaction exceeding the 1% threshold, and any transaction involving consulting,
financial advisory, legal or accounting services that could impair a director’s independence, must be approved by the Board
of Directors. Any related party transaction in which an executive officer or a Director has a personal interest, must be approved
by the Board of Directors, following appropriate disclosure of all material aspects of the transaction.
Related
Party Transactions
The Company did not have any related party
transactions during this reporting period.
NOTE
8: COMMITMENTS AND CONTINGENCIES
The
following are the minimum obligations under the lease related to the Company’s offices as of December 31, 2019:
Year ended
|
|
Amount
|
|
Remainder of 2019
|
|
$
|
35,400
|
|
Total
|
|
$
|
35,400
|
|
NOTE
9. ACQUISITIONS AND DIVESTITURES
On
December 29, 2017 GEX purchased 100% of the membership interest in AMAST Consulting, LLC (“AMAST”), which owned a
multi-use office building in Lowell, Arkansas, which had an occupancy rate of 100% at the time of the acquisition. The terms of
the Agreement to purchase AMAST include the fulfillment of the lease obligations of the current tenants, as well as the assumption
of the debt that is collateralized by the building and associated property. The consolidated financials include the assets and
debt of AMAST.
On
May 2, 2018, the Company purchased a 25% interest in Payroll Express, LLC (PE), a California limited liability company for $500,000
in cash. The Company recognized this investment under the equity method due to its ability to exercise significant influence over
the operating and financial policies of PE. Additionally, the Company had the right, but not the obligation, to purchase an additional
26% interest under similar terms. On June 11, 2018, the Company paid $250,000 in cash to the owners of Payroll Express as a deposit
towards purchasing additional shares in PE and is recorded in Other Assets on the Balance Sheet
On
August 3, 2018, the Company entered into a Membership Interest Purchase Agreement with PE, pursuant to which the Company purchased
an additional 26 % of the membership interests of PE for a purchase price of (a) $250,000, plus (b) warrants (the “Warrants”)
to purchase 2,000,000 shares of the Company’s common stock. As a result of this transaction, the Company owned a total of
51% of the membership interests of PE.
On
September 28, 2018, the Company, consummated a real property purchase and sale transaction (“Setco Property Purchase Transaction”)
with Setco International Forwarding Corporation, a Texas corporation (“Setco”), pursuant to which the Company purchased
a 16.84 acre tract of land from Setco, located at 13000 S. Lyndon B. Johnson Freeway in Dallas, Texas, for an aggregate purchase
price of $11,000,000, paid as follows:
|
●
|
$1,125,000,
by the Company’s execution and delivery of a Real Estate Lien Note made to Setco (the “September 2018 Note”);
|
|
|
|
|
●
|
$4,875,000,
by the Company’s issuance to Setco of 15,000,000 shares of the Company’s common stock (valued at $0.325 per
share); and
|
|
|
|
|
●
|
$5,000,000,
by the Company’s transfer to Setco of the Company’s 51% ownership interest in Payroll Express.
|
While
the Company intended to take advantage of the collateral provided by the Setco real estate to obtain loan against property for
working capital purposes as well as reduce high interest loan obligations related to Merchant Cash Advances, the prior management
was unable to secure required financing because of (1) challenges associated with identifying an investor who was ready to match
the valuation of $11,000,000 provided by the valuation company introduced by Setco for evaluating the property (2) feedback from
multiple lending sources related to the lack of readily available access to the property which would further depress the value
of the property against the established valuation by the valuation company, and (3) lack of sophisticated investors ready to invest
in the land at the valuation provided by the valuation company that would have provided the Company sufficient funds to immediately
take care of its short and long term debt obligations. As a result of this assessment and given failure to gain traction on the
intended but missed capital opportunity on account of potentially misleading information by a service provider, management is
currently reviewing with counsel available options to review and, if required, possibly seek damages from targeted parties to
compensate the firm for the damages incurred related to pursuing transaction options related to this potentially incorrect valuation.
On
June 4, 2018, the Company entered into a discounted Promissory Note Payable with a principal balance of $500,000, and bearing
interest at a rate of 15% per annum. This note was personally guaranteed by Carl Dorvil, the Company’s former Chief Executive
Officer and principal shareholder and secured, among other things, certain liens and security interests including the Setco property
purchased on September 28, 2019. This note was due to be paid in full by August 1, 2018. The Company had been in negotiations
to restructure this loan, as it was originally intended as a bridge loan with a term of 57 days. Pursuant to these negotiations,
in August 2018, the maturity date on the note was extended to August 30, 2018. As of December 31, 2018, the Company failed to
pay the Principal Amount and, therefore, continued to be in default under the Note.
Subsequently
on March 5, 2019, the noteholder proceeded to execute its rights to enforce the liens on the Setco property through a foreclosure
process which resulted in the noteholder taking possession of the Setco property resulting in the elimination of the $500,000
Civitas note and any accrued interest on the principal amount and the elimination of $1,125,000 Setco real estate lien note made
to Setco along with any accrued interests from the Company books and with the elimination of the Setco property assets from the
company books.
On
February 8 2019, GEXM and the G&C Family LLC executed a “Deed in Lieu of Foreclosure” agreement the terms of which
would allow GEXM to release ownership of the Arkansas building under AMAST LLC to the G&C Family Group, LLC in return for
cancellation of the $1,300,000 real estate lien note secured by the building along with an and all accrued interest payable on
the note as of the date of the agreement and the elimination of the AMAST property related assets from the company books.
NOTE
10. SUBSEQUENT EVENTS
On
March 4, 2020 the Securities and Exchange Commission (the “SEC”) issued an Order under Section 36 (Release No. 34-88318)
of the Securities Exchange Act of 1934 (“Exchange Act”) granting exemptions from specified provisions of the Exchange
Act and certain rules thereunder (the “Order”). The Order provides that a registrant (as defined in Exchange Act Rule
12b-2) subject to the reporting requirements of Exchange Act Section 13(a) or 15(d), and any person required to make any filings
with respect to such a registrant, is exempt from any requirement to file or furnish materials with the Commission under Exchange
Act Sections 13(a), 13(f), 13(g), 14(a), 14(c), 14(f), 15(d) and Regulations 13A, Regulation 13D-G (except for those provisions
mandating the filing of Schedule 13D or amendments to Schedule 13D), 14A, 14C and 15D, and Exchange Act Rules 13f-1, and 14f-1,
as applicable, where certain conditions are satisfied.
GEX
Management, Inc. (the “Company”) furnished detailed on its Current Report on Form 8-K filed on March 30, 2020 to indicate
its reliance on the Order in connection with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019
(the “Report”) due to the circumstances related to COVID-19. In particular, COVID-19 has caused severe disruptions
in transportation and limited access to the Company’s facilities resulting in limited support from its staff and professional
advisors. The Company has also closed its corporate offices and has requested all employees to work remotely until further notice.
Employees affected include certain of its key personnel responsible for assisting the Company in the preparation of its financial
statements. In view of these circumstances, the Company has been unable to timely provide its auditors and accountants with financial
records to provide consent, and therefore allow the Company to file a timely and accurate Annual Report on Form 10-K for its year
ended December 31, 2019 by the prescribed date without undue hardship and expense to the Company. This has, in turn, delayed the
Company’s ability to complete its audit and prepare the Report.
Subsequently,
the Company has relied on this exemption to file the Report no later than May 14, 2020 (which is 45 days from the Report’s
original filing deadline of March 30, 2020).