Indicate by check
mark whether the registrant has submitted electronically on its corporate Web site, if any, every Interactive Data File
required to be submitted 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 such files).
Yes
[X] 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,” “smaller reporting company” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Aggregate market value
of the voting stock held by non-affiliates of the registrant as of March 30, 2019: $ 697,361.
Indicate the number
of Shares of outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date: As of April
1, 2019, the Registrant had 348,680,636 shares of common stock outstanding.
PART
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The
following table lists the names and ages of the executive officers and directors a of the Company as of December 31, 2018. The
directors will continue to serve until the next annual shareholders meeting, or until their successors are elected and qualified.
All Directors have been elected to serve through the 2019 annual meeting. All officers serve at the discretion of the Chairman
of the Board of Directors, and members of the Board of Directors.
Name
|
|
Age
|
|
Position
|
|
Held Since
|
Srikumar Vanamali
|
|
39
|
|
Executive Director, Interim
|
|
October 2018
|
12001 N. Central Expy. Suite 825
|
|
|
|
CEO, Interim CFO
|
|
|
Dallas, Texas 75243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shaheed Bailey
|
|
32
|
|
Director, Interim
|
|
October 2018
|
12001 N. Central Expy. Suite 825
|
|
|
|
CIO
|
|
|
Dallas, TX 75243
|
|
|
|
|
|
|
*On
October 15, 2018, , the prior Officers of the Company including Carl Dorvil (CEO), Chelsea Christopherson (COO) and Dario Saintus
(Interim CFO) resigned as Officers of the Company and at the same time , Srikumar Vanamali and Shaheed Bailey were appointed as
Officers and members to the Board of Directors of the Company.
Srikumar
Vanamali
:
Srikumar
Vanamali, 37, is an experienced post-MBA executive with 15 years of top-tier, diverse experience in strategy and technology consulting,
investment banking and professional business services. Mr. Vanamali has been leading the Company’s Corporate Strategy functions
since June 2018. Prior to that, from January 2017 through May 2018, he worked as an investment banker at NMS Capital, a L.A.-based
investment banking firm focusing on capital markets and M&A. Before joining NMS Capital, he was a Management Consultant for
Sharp Decisions Inc, a business services company through which he provided consulting services to Toyota Financial Services from
November 2014 through December 2016. Prior to this, he was a Consultant and Technology Lead at Infosys, a global consulting firm,
from November 2003 through June 2012. Mr. Vanamali earned a Bachelor’s in Engineering, Computer Science from the University
of Madras, in Chennai, Tamil Nadu, India, in 2003, and an MBA from UCLA Anderson School of Management, in Los Angeles, California,
in 2014.
In
October 2018, Mr. Vanamali became the Executive Director and Interim Chief Executive Officer and Director for GEX Management,
Inc., and currently serves in these roles.
Shaheed
Bailey
:
Shaheed
Bailey, 32, had been serving as Managing Partner and Chief Executive Officer of Veterans Capital Inc., a consulting firm that
helps middle market companies raise equity/debt capital and locate strategic and value strategic acquisitions, and provides consulting
for cost cutting, tax savings and growth strategies since October 2012. Prior to that, from June 2010 through September 2012,
he served as a Sales Consultant/Partner for Sales Consultants of Morris County, a company that provided strategic consulting services.
Before joining Sales Consultants of Morris County, he was a Private Banker with Wells Fargo Bank from July 2008 through April
2010. In October 2018, Mr. Bailey became the Interim Chief Investment Officer and Director for GEX Management, Inc., and
currently serves in these roles.
On October 15, 2018, Carl Dorvil resigned
as Chief Executive Officer of the Company. In connection with his resignation, Mr. Dorvil relinquished his role as “Principal
Executive Officer” of the Company for SEC reporting purposes. Mr. Dorvil also resigned as the Company’s Chairman of
the Board of Directors as of such date. Mr. Dorvil’s resignation was for personal reasons and was not the result of a disagreement
with the Company on any matter relating to the Company’s operations, policies, or practices. In connection with Mr. Dorvil’s
resignation, his Employment Agreement with the Company, dated June 26, 2017, was deemed to be terminated.
In connection with his resignation, on
October 15, 2018, the Company entered into a Separation Letter and General Release Agreement with Mr. Dorvil (the “Dorvil
Separation Agreement”), pursuant to which the Company agreed to pay Mr. Dorvil severance pay of three (3) months’
salary, in the aggregate amount of $37,500 (less standard withholding and applicable deductions), in consideration for his general
release of the Company and certain related parties from any claims he may have against them. The severance payment is payable
within 14 days from the date of Mr. Dorvil’s execution of the Dorvil Separation Agreement. The Company also agreed to reimburse
Mr. Dorvil for all unreimbursed travel and business expenses to which Mr. Dorvil is entitled. The Dorvil Separation Agreement
also contains standard provisions related to confidentiality and non-disparagement.
On October 15, 2018, Dario Saintus resigned
as Interim Chief Financial Officer of the Company. In connection with his resignation, Mr. Saintus relinquished his role as “Principal
Accounting Officer” of the Company for SEC reporting purposes. Mr. Saintus also resigned as member of the Company’s
Board as of such date. Mr. Saintus’s resignation was for personal reasons and was not the result of a disagreement with
the Company on any matter relating to the Company’s operations, policies, or practices. In connection with Mr. Saintus’s
resignation, his Employment Agreement with the Company, dated May 4, 2018, was deemed to be terminated.
In connection with his resignation, on
October 15, 2018, the Company entered into a Separation Letter and General Release Agreement with Mr. Saintus (the “Saintus
Separation Agreement”), pursuant to which the Company agreed to pay Mr. Saintus severance pay of three (3) months’
salary, in the aggregate amount of $9,000 (less standard withholding and applicable deductions), in consideration for his general
release of the Company and certain related parties from any claims he may have against them. The severance payment is payable
within 14 days from the date of Mr. Saintus’s execution of the Saintus Separation Agreement. The Company also agreed to
reimburse Mr. Saintus for all unreimbursed travel and business expenses to which Mr. Saintus is entitled. The Saintus Separation
Agreement also contains standard provisions related to confidentiality and non-disparagement.
On October 15, 2018, Chelsea Christopherson
resigned as President and Chief Operating Officer of the Company. Ms. Christopherson also resigned as member of the Company’s
Board as of such date. Ms. Christopherson’s resignation was for personal reasons and was not the result of a disagreement
with the Company on any matter relating to the Company’s operations, policies, or practices. In connection with Ms. Christopherson’s
resignation, her Employment Agreement with the Company, dated June 26, 2017, was deemed to be terminated.
In connection with her resignation, on
October 15, 2018, the Company entered into a Separation Letter and General Release Agreement with Ms. Christopherson (the “Christopherson
Separation Agreement”), pursuant to which the Company agreed to pay Ms. Christopherson severance pay of three (3) months’
salary, in the aggregate amount of approximately $25,000 (less standard withholding and applicable deductions), in consideration
for her general release of the Company and certain related parties from any claims she may have against them. The severance payment
is payable within 14 days from the date of Ms. Christopherson’s execution of the Christopherson Separation Agreement. The
Company also agreed to reimburse Ms. Christopherson for all unreimbursed travel and business expenses to which Ms. Christopherson
is entitled. The Christopherson Separation Agreement also contains standard provisions related to confidentiality and non-disparagement.
On October 15, 2018, Srikumar Vanamali
was appointed as a member of the Board, to fill one of the vacancies created by the resignations described above. In addition,
upon effectiveness of the resignations described above, Mr. Vanamali was appointed as the Company’s Executive Director,
Interim Chief Executive Officer, President, Interim Chief Financial Officer, Secretary and Treasurer, to serve in such offices
at the pleasure of the Board, and until his successor has been appointed by the Board. In connection with his appointment as Interim
Chief Executive Officer and Interim Chief Financial Officer of the Company, Mr. Vanamali was designated as the Company’s
“Principal Executive Officer” and “Principal Financial and Accounting Officer,” respectively, for SEC
reporting purposes,
In connection with his appointment as Executive
Director and Interim Chief Executive Officer of the Company, the Company (a) agreed to pay Mr. Vanamali an annual base salary
of $100,000, and (b) issued Mr. Vanamali 300,000 non-statutory stock options (the “Vanamali Stock Options”), exercisable
at $1.00 per share, all of which stock options vested upon the date of grant.
On October 15, 2018, Shaheed Bailey was
appointed as a member of the Board, to fill one of the vacancies created by the resignations described above. In addition, upon
effectiveness of the resignations described above, Mr. Bailey was appointed as the Company’s Interim Chief Investment Officer,
to serve in such offices at the pleasure of the Board, and until his successor has been appointed by the Board.
In connection with his appointment as Interim
Chief Investment Officer of the Company, the Company agreed to issue Mr. Bailey 300,000 non-statutory stock options, exercisable
at $1.00 per share, all of which stock options vested upon the date of grant.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires our executive officers
and directors, and persons who beneficially own more than ten percent of our common stock, to file initial reports
of ownership and reports of changes in ownership with the SEC. Executive officers, directors and greater than ten percent
beneficial owners are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.
We
believe that as of the date of this report they were all current in their 16(a) reports.
Board
of Directors
Our
Board of Directors currently consists of two members. Our directors serve one-year terms. Our Board of Directors has affirmatively
determined that there are currently no independent directors serving on our board.
Committees
of the Board of Directors
Audit
Committee
We
do not have a standing audit committee of the Board of Directors. Management has determined not to establish an audit committee
at present because of our limited resources and limited operating activities do not warrant the formation of an audit committee
or the expense of doing so. We do not have a financial expert serving on the Board of Directors or employed as an officer
based on management’s belief that the cost of obtaining the services of a person who meets the criteria for a financial
expert under Item 401(e) of Regulation S is beyond its limited financial resources and the financial skills of such
an expert are simply not required or necessary for us to maintain effective internal controls and procedures for financial
reporting in light of the limited scope and simplicity of accounting issues raised in its financial statements at this stage
of its development.
Governance
,
Compensation and Nominatin
g
Committee
We
do not have a standing governance, compensation and nominating committee of the Board of Directors. Management has determined
not to establish governance, compensation and nominating committee at present because of our limited resources and limited operations
do not warrant such a committee or the expense of doing so.
Code
of Ethics
The
Company has adopted the following code of ethics for officers, directors and employees:
-
|
Show
respect towards others in the workplace
|
-
|
Conduct
all business activities in a fair and ethical manner
|
-
|
Work
dutifully and responsibly for the Company’s shareholders and stakeholders
|
The
Company has provided its code of ethics on its website, of which a copy can be obtained by visiting http://www.gexmanagement.com
or by calling the Company at 877.210.4396.
Limitation
of Liability of Directors
Pursuant
to the Texas Business Organizations Code, our Amended and Restated Articles of Incorporation exclude personal liability for our
Directors for monetary damages based upon any violation of their fiduciary duties as Directors, except as to liability for
any breach of the duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation
of law, or any transaction from which a Director receives an improper personal benefit. This exclusion of liability does
not limit any right which a Director may have to be indemnified and does not affect any Director’s liability
under federal or applicable state securities laws.
Legal
Proceedings
During
the past ten years, none of our present or former directors, executive officers or persons nominated to become directors
or executive officers:
(1)
A petition under the Federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal
agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which
he was a general partner at or within two years before the time of such filing, or any corporation or business association
of which he was an executive officer at or within two years before the time of such filing;
(2)
Such person was convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic
violations and other minor offenses);
(3)
Such person was the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities:
(i)
Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker,
leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person
of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person,
director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing
any conduct or practice in connection with such activity;
(ii)
Engaging in any type of business practice; or
(iii)
Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation
of Federal or State securities laws or Federal commodities laws;
(4)
Such person was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal
or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity
described in paragraph (f)(3)(i) of this section, or to be associated with persons engaged in any such activity;
(5)
Such person was found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal
or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed,
suspended, or vacated;
(6)
Such person was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to
have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading
Commission has not been subsequently reversed, suspended or vacated;
(7)
Such person was the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding,
not subsequently reversed, suspended or vacated, relating to an alleged violation of:
(i)
Any Federal or State securities or commodities law or regulation; or
(ii)
Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary
or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist
order, or removal or prohibition order; or
(iii)
Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
(8)
Such person was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any
self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered
entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association,
entity or organization that has disciplinary authority over its members or persons associated with a member.
Material
Changes to the Procedures by which Security Holders May Recommend Nominees
There
have been no material changes to the procedures by which security holders may recommend nominees to the registrants Board of Directors.
ITEM
11. EXECUTIVE COMPENSATION
Com
p
ensation
of Executive Officers
The
following summary compensation table sets forth all compensation awarded to, earned by, or paid to the named executive officers
paid by us during the fiscal years ended December 31, 2018 in all capacities for the accounts of our executives, including
the Interim Chief Executive Officer (“Interim CEO”) and Interim Chief Operating Officer (“Inteim COO”):
The
following officers received the following compensation for the years ended December 31, 2018. These officers have employment
contracts with the Company.
Name and principal position
|
|
Year
|
|
|
Salary
|
|
|
Bonus
|
|
|
Stock Awards
|
|
Option Awards
|
|
|
Non-equity
incentive plan compensation
|
|
Nonqualified
deferred compensation
|
|
All other compensation
|
Srikumar Vanamali,
|
|
|
2018
|
|
|
$
|
100,000
|
|
|
|
None
|
|
|
None
|
|
|
300,000
|
|
|
None
|
|
None
|
|
None
|
Interim CEO/President
|
|
|
2017
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
N/A
|
|
N/A
|
Shaheed Bailey,
|
|
|
2018
|
|
|
|
-
|
|
|
|
None
|
|
|
None
|
|
|
300,000
|
|
|
None
|
|
None
|
|
None
|
Interim Chief Investment Officer
|
|
|
2017
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
Option
Awards
|
|
Stock
Awards
|
Name
and principal position
|
|
Number
of Securities Underlying Unexercised options (#) exercisable
|
|
|
Number
of Securities Underlying Unexercised options (#) Unexercisable
|
|
Equity
incentive plan awards
|
|
Option
exercise
price
|
|
|
Option
expiration
date
|
|
Number
of share awards that have not vested
|
Srikumar
Vanamali, Interim CEO/President
|
|
|
300,000
|
|
|
None
|
|
None
|
|
$
|
1
|
|
|
N/A
|
|
None
|
Shaheed
Bailey, Interim CIO
|
|
|
300,000
|
|
|
None
|
|
None
|
|
$
|
1
|
|
|
N/A
|
|
None
|
Em
p
lo
y
ment
A
g
reements
We
have employment agreements in place with each of the above referenced officers of the Company.
Com
p
ensation
of Directors
Directors
do not receive any compensation for their services as directors. The Board of Directors has the authority to establish the compensation
of directors. No amounts have been paid to, or accrued to, directors in such capacity.
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
As
of December 31, 2018, the following persons were known to have owned 5% or more of GEX Management’s Common Stock,
as well as the Company’s officers and directors.
Name
and Address of Beneficial Owner,
Officer
or Director
|
|
Amount
Beneficially
Owned
|
|
|
Percent
of Class
|
|
Carl
Dorvil
|
|
|
6,438,788
|
|
|
|
20.79
|
%
|
SETCO
Holding
|
|
|
15,000,000
|
|
|
|
48.43
|
%
|
Directors
and Officers as a Group
1
|
|
|
N/A
|
|
|
|
N/A
|
%
|
|
|
|
|
|
|
|
|
|
Directors
and Officers as a Group
|
|
|
|
|
|
|
|
|
12001
N. Central Expy., Suite 825
|
|
|
|
|
|
|
|
|
Dallas,
Texas 75243
|
|
|
|
|
|
|
|
|
1
The Current Board of Directors comprising of Srikumar Vanamali and Shaheed Bailey did not own GEX Common Stock as of December
31, 2018.
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS AND DIRECTOR INDEPENDENCE
On March 1, 2015, the Company entered into
a Loan Agreement with P413 Management, LLC (“P413”). P413 agreed to loan the Company up to $500,000 at a rate of 6%.
On November 1, 2017, this line of credit was increased to $1,000,000. On September 1, 2018, P413 extended a $1,000,000
line of credit to GEX Staffing, Inc. under the same terms. GEX shareholder, Carl Dorvil, is a majority member interest owner in
P413. These lines of credits have a balance of $1,168,933 and $352,100 at December 31, 2018 and 2017, respectively.
The LOCs are due and payable on September 1, 2019.
The
Company does not have any independent directors serving on the Board of Directors.
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit
Fees
The
aggregate fees billed for professional services rendered by our auditors, for the audit of our annual financial statements
and review of the financial statements included in our Form S-1, Form 10-K and Form 10-Q or services that are normally provided
by the accountant in connection with statutory and regulatory filings or engagements for the year ended December 31, 2018
and 2017 was $38,000 and $21,000.
Audit
Related Fees
None.
Tax
Fees
None.
All
Other Fees
None.
Notes
to the Consolidated Financial Statements
December
31, 2018
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.
On
January 25, 2017, GEX obtained its license to operate as a Professional Employer Organization (“PEO”), and we began
offering PEO services in April 2017. 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. Staffing and PEO services make up a majority of our revenue.
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. The Warrants were exercisable for a period of 24 months from the date of issuance. The
Warrants provided for the purchase of shares of the Company’s Common Stock an exercise price of $1.06 per share. The Warrants
were exercisable for cash, or on a cashless basis. The number of shares of Common Stock to be deliverable upon exercise of the
Warrants were subject to adjustment for subdivision or consolidation of shares and other standard dilutive event.
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 .
|
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. The Company incurred $108,646 of bad debt expense for the twelve months ended
December 31, 2018.
Equity
Method Investments
The
Company has accounted for its investment in Payroll Express, LLC (“PE”), a Santa Clara, CA based professional services
firm that provides a wide array of back office and managed services related to medical staffing needs for its healthcare clients
that includes clinical practices and Ambulatory Surgery Centers (ASCs), as an equity method investment due to its ability to assert
significant influence over PE’s operational and financial policies. This investment was initially accounted for at cost.
The Company recognizes its proportionate share of PE’s earnings (after the effect of basis differences) as an increase in
its Investment in PE and as Income from Investment in PE.
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:
|
|
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, staffing and/or PEO 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 the Company’s PEO services, payment is generally due on the
date the invoice is sent to the client. 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.
GEX’s
revenue is generally recognized ratably, month-to-month as co-employees or staffed employees perform their service at the client’s
worksite. Generally, GEX’s PEO clients are invoiced concurrently with each payroll of its co-employees, and clients that
utilize GEX’s staffing and back office services are billed concurrently with each payroll or on a monthly basis.
PEO
Services
Professional
Employment Organization (“PEO”) service revenues represent the fees charged to clients for administering payroll and
payroll tax transactions for our clients’ Co-Employed Employees (“CEEs”), access to our HR and benefits administration
services, consulting related to employment and benefit law compliance and general employment consulting related fees. PEO service
revenues are recognized in the period the PEO services are performed as stipulated in the Client Service Agreement (“CSA”),
where these fees are fixed or determinable, when the PEO client is invoiced and collectability is reasonably assured.
GEX
is not considered the primary obligor with respect to CEE’s payroll and payroll tax, and insurance payments and therefore,
these payments are not reflected as either revenue or expense in our statements of operations.
PEO-related
revenues also include revenues generated from insurance administration for our PEO clients. These insurance-related revenues include
insurance-related billings, as well as administrative fees that GEX collects from PEO clients and withholds from CEEs for health
benefit insurance plans provided by third-party insurance carriers. Insurance-related revenues are recognized over the period
the insurance coverage is provided and where collectability is reasonably assured.
Sta
f
fin
g
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, 2018 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, 2017 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 September 30, 2019.
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, 2018 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 $10,530,913 at December 31, 2018, 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.
NOTE
2. OTHER CURRENT ASSETS
At
December 31, 2018 and December 31, 2017, Other Current Assets were as follows:
|
|
December
31, 2018
|
|
|
December
31, 2017
|
|
Other Current Assets:
|
|
|
|
|
|
|
|
|
Prepaids and Debt Discounts
|
|
$
|
2,304,819
|
|
|
$
|
116,623
|
|
Other Current Assets
|
|
|
645,788
|
|
|
|
2,709
|
|
Acquired Customer Contracts
|
|
|
-
|
|
|
|
37,500
|
|
Accumulated Amortization
|
|
|
-
|
|
|
|
(68,083
|
)
|
Total Other Current
Assets
|
|
$
|
2,950,607
|
|
|
$
|
88,749
|
|
In
2017, the Company purchased customer contracts on March 31, 2017 and started amortizing those contracts in April 2017 along with
other contracts entered into in the 2nd quarter of 2017. The Company fully amortized the contracts at December 31, 2017 so it
recorded no amortization in the twelve months ended December 31, 2018.
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.
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. The Company recognized
compensation expense of $450,650 recorded in General and Administrative Expenses on the Consolidated Statement of Operations for
the nine months ended September 30, 2018. At December 31, 2018 and December 31, 2017, there were 30,971,181 and 11,797,231 common
shares outstanding, respectively.
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. The preferred stock ranks senior to the common stock
of the Company in each case with respect to dividend distributions and distributions of assets upon the liquidation, dissolution
or winding up of the Company whether voluntary or involuntary.
Warrants
In
May 2018, the Company issued 50,000 warrant shares related to the issuance of convertible notes payable. These warrants have a
five- year term with a conversion price of $4.00 per common share. In June 2018, the Company issued 40,000 warrant shares related
to the issuance of a note payable. These warrants have a two-year term with a conversion price of $1.66 per common share. In June
2018, the Company issued 40,000 warrant shares related to the issuance of a note payable. These warrants have a two-year term
with a conversion price of $1.66 per common share.. In Aug 2018, the Company issued 25,000 warrant shares related to the issuance
of a note payable. These warrants have a two-year term with a conversion price of $4 per common share. In Aug 2018, the Company
issued 10,000 warrant shares related to the issuance of a note payable. These warrants have a two-year term with a conversion
price of $4 per common share. In Aug 2018, the Company issued 2,000,000 warrant shares related to the transaction for Payroll
Express. These warrants have a two-year term with a conversion price of $1.04 per common share.
The
following table outlines the activity relative to these warrants for the 12 months ended December 31, 2018:
|
|
|
|
|
Weighted-
|
|
|
|
Number
of
|
|
|
Average
|
|
|
|
Warrant
Shares
|
|
|
Exercise
Price
|
|
Outstanding, at December 31, 2017
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
2,125,000
|
|
|
|
1.19
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited or expired
|
|
|
-
|
|
|
|
-
|
|
Outstanding, at
end of period
|
|
|
2,125,000
|
|
|
|
1.19
|
|
Exercisable, at
December 31, 2018
|
|
|
2,125,000
|
|
|
$
|
1.19
|
|
The
following table summarizes the warrants outstanding as of December 31, 2018:
Exercise
Prices
|
|
|
Number of Warrants
Outstanding
|
|
|
Weighted - Average Remaining Contractual
Life of Warrants
Outstanding
|
|
Number of Warrants
Exercisable
|
|
$
|
4.00
|
|
|
|
85,000
|
|
|
4.84 years
|
|
|
85,000
|
|
$
|
1.66
|
|
|
|
40,000
|
|
|
1.52 years
|
|
|
40,000
|
|
|
1.06
|
|
|
|
2,000,000
|
|
|
1,92 years
|
|
|
2,000,000
|
|
|
|
|
|
|
2,125,000
|
|
|
|
|
|
2,125,000
|
|
NOTE
4. NOTES PAYABLE
At
December 31, 2018 and December 31, 2017, Notes Payable were as follows:
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
Note Payable: Real Estate Lien
|
|
|
|
|
|
|
|
|
Interest at 4.5%; $9,540 monthly principal & interest;
|
|
|
|
|
|
|
|
|
Balloon payment due March 22, 2022
|
|
$
|
1,195,159
|
|
|
$
|
1,310,920
|
|
|
|
|
|
|
|
|
|
|
Notes Payable: Merchant Cash Advance
|
|
|
4,484,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note Payable:
|
|
|
|
|
|
|
|
|
Principal and interest
|
|
|
465,142
|
|
|
|
-
|
|
Interest at 15%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Notes Payable:
|
|
|
|
|
|
|
|
|
Principal and interest
|
|
|
972,952
|
|
|
|
-
|
|
Interest at 10%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Line of Credit - Relate ; Due April
1, 2020
|
|
|
1,168,933
|
|
|
|
352,100
|
|
Interest at 6%
|
|
|
|
|
|
|
|
|
Total Notes Payable
|
|
|
8,286,332
|
|
|
|
1,663,020
|
|
Less Current Portion
|
|
|
(6,026,039
|
)
|
|
|
(56,649
|
)
|
Long-term Notes Payable
|
|
$
|
2,260,293
|
|
|
$
|
1,606,371
|
|
On
March 6, 2018, the Company entered into an Agreement to sell $1,066,050 of the Company’s future receipts for $772,500 to
provide liquidity for the Company’s expansion opportunities. On April 18, 2018, the Company entered into an Agreement to sell $490,000
of the Company’s future accounts receivable for $350,000. On April 25, 2018, the Company entered into an Agreement to sell
$299,800 of the Company’s future accounts receivable for $200,000. On April 25, 2018, the Company entered into an Agreement
to sell $374,750 of the Company’s future accounts receivable for $250,000. On May 31, 2018, the Company sold $583,600 of
its future accounts receivable for $400,000. On June 14, 2018, the Company entered into an Agreement to sell $299,800 of the Company’s
future receivables for $200,000. On June 27, 2018, the Company sold $909,350 of its future accounts receivable for $650,000. On
July 9, 2018, the Company entered into a discounted Note Payable agreement to sell its future accounts receivable of $246,500
for $170,000. On July 10, 2018, the Company entered into a discounted note payable agreement to sell $437,700 of its future accounts
receivable for $300,000. On July 23, 2018, the Company entered into a discounted Note Payable agreement to sell its future accounts
receivable of $246,500 for $170,000. On July 31, 2018, the Company entered into a discounted Note Payable agreement to sell its
future accounts receivable of $539,640 for $360,000. On August 14, 2018, the Company entered into a discounted Note Payable agreement
to sell its future accounts receivable of $149,900 for $100,000. On August 17, 2018, the Company entered into a discounted Note
Payable agreement to sell its future accounts receivable of $149,900 for $100,000. On August 24, 2018, the Company entered into
a discounted Note Payable agreement to sell its future accounts receivable of $224,850 for $150,000.
On
August 29, 2018, the Company entered into a factoring agreement with Complete Business Solutions (“CBSG”) wherein
CBSG will work as a strategic partner with the Company to provide liquidity for working capital and the Company’s expansion
opportunities (organic and inorganic) on an ongoing basis.
As a result of this, the company obtained weekly disbursement
related to sale of future receivables for $300,205 on Aug 29, 2018, $300,205 on Sep 5, 2018, $270,793 on Sep 12, 2018, $257,765
on Sep 19, 2018, $204,015 on Sep 26, 2018, $165,087 on Oct 3, 2018, $152,075 on Oct 10, 2018, $152,075 on Oct 17, 2018, $152,075
on Oct 24, 2018, $152,075 on Oct 31, 2018, $282,000 on Nov 2, 2018, $186,245 on Nov 7, 2018, $195,780 on Nov 14, 2018, $187,495
on Nov 28, 2018, $173,586 on Dec 5, 2018, $167,075 on Dec 12, 2018, $167,075 on Dec 19, 2018 and $167,075 on Dec 26, 2018.
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 Notes are personally guaranteed by Carl Dorvil and by Chelsea Christopherson, who are currently beneficiary shareholders
with the Company and previously held the positions of CEO and COO respectively. 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. The note is convertible at $2.50 per share.
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. The note is convertible at $2.50 per share.
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 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. The note is convertible at $2.50 per share.
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. The note is convertible at $2.50 per share.
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 is personally guaranteed by Carl Dorvil, beneficiary shareholder
and former CEO of the Company. In connection with this note, the Company issued 40,000 warrant shares for its common stock. The
exercise price for the warrants is $1.66 per common share and the warrants expire in 24 months from date of issuance. This note
was due to be paid in full by August 1, 2018. The Company is currently 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 with negotiations underway to extend the tenure.
The Real Estate Lien Note related to the Arkansas
building property had a balance of $1,195,159. The following is a schedule of the minimum principal payments that were
required under the loan as of December 31, 2018:
Year
Ended
|
|
Amount
|
|
Remainder of 2018
|
|
$
|
-
|
|
2019
|
|
|
61,967
|
|
2020
|
|
|
64,813
|
|
2021
|
|
|
67,791
|
|
2022
|
|
|
70,906
|
|
2023 and beyond
|
|
|
929,682
|
|
Total
|
|
$
|
1,195,159
|
|
NOTE
5. ACCOUNTS RECEIVABLE AND CONCENTRATION OF CREDIT RISK
On December 31, 2017, the company had 91.532
outstanding accounts receivable balance with its customers.
As
of December 31, 2018, the company had no outstanding accounts receivable balance with its customers.
In
September, the Company terminated contract with 2 customers who accounted for 83% of the Company’s net staffing revenue
for the twelve months ended December 31, 2018. While the Company is having ongoing discussions with the customers to renegotiate
the contracts on more favorable terms compared to the previous service agreement, there is no guarantee that these contracts will
be signed in the future.
NOTE
6. PROPERTY AND EQUIPMENT
The
Company had the following property and equipment as of December 31, 2018 and December 31, 2017:
|
|
Dec
31, 2018
|
|
|
Dec
31, 2017
|
|
Land
|
|
$
|
11,333,778
|
|
|
$
|
333,778
|
|
Buildings
|
|
|
2,125,642
|
|
|
|
2,125,642
|
|
Office Equipment
|
|
|
5,935
|
|
|
|
5,844
|
|
Total Fixed Assets
|
|
|
13,400,408
|
|
|
|
2,465,264
|
|
Accumulated Depreciation
|
|
|
(64,947
|
)
|
|
|
(1,887
|
)
|
Property and Equipment,
net
|
|
$
|
13,335,461
|
|
|
$
|
2,463,377
|
|
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
Debt
A
g
reements
On March 1, 2015 the Company entered into
a Line of Credit Agreement with P413 at an interest rate of 6%. This line of credit has a balance of $1,168,933 and $352,100
at December 31, 2018 and December 31, 2017, respectively. On May 2, 2018, this line of credit was extended to April 1, 2020. On
September 1, 2018, the line of credit was extended to September 1, 2020.
Professional
Service A
g
reements
On
March 1, 2015 the Company entered into an Outsourcing Agreement with P413 Management, LLC (“P413”) to provide back
office services to P413. The Company reported no revenues under this Agreement for the twelve months ended December 31, 2018 and
2017, respectively.
On September 1, 2015 the Company entered into
an Outsourcing Agreement with Vicar Capital Advisors, LLC (“Vicar”) to provide back office services to Vicar. As
of December 31, 2017 and 2016 Vicar had an outstanding balance owed to the Company of $30,771 and $23,500, respectively. The
Company reported no revenues under this Agreement for the twelve months ended December 31, 2018.
Revenues
For the twelve months ended December 31, 2018
and 2017, the Company had $0 and $104,000 revenues from related parties, respectively.
NOTE
8: COMMITMENTS AND CONTINGENCIES
The
following are the minimum obligations under the lease related to the Company’s Corporate office as of December 31, 2018:
Year
ended
|
|
Amount
|
|
Remainder of 2018
|
|
$
|
-
|
|
2019
|
|
|
60,225
|
|
Total
|
|
$
|
60,225
|
|
The
Company owns a multi-use office building in Lowell, Arkansas which is leased to various tenants. The minimum rental income to
be collected as of December 31, 2018 is as follows:
Year
Ended
|
|
Amount
|
|
Remainder of 2018
|
|
$
|
-
|
|
2019
|
|
|
128,157
|
|
2020
|
|
|
37,616
|
|
Total
|
|
$
|
202,001
|
|
The
Company recognized rental income of $280,092 for the twelve months ended December 31, 2018. The Company recognized and no rental
income for the twelve months ended December 31, 2017.
NOTE
9. ACQUISITIONS AND DIVESTITURES
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. The Warrants were exercisable for a period of 24 months from the date of issuance. The
Warrants provided for the purchase of shares of the Company’s Common Stock an exercise price of $1.06 per share. The Warrants
were exercisable for cash, or on a cashless basis. The number of shares of Common Stock to be deliverable upon exercise of the
Warrants were subject to adjustment for subdivision or consolidation of shares and other standard dilutive event.
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.
|
In
connection with the Setco Property Purchase Transaction consummated on September 28, 2018, the Company had previously deposited
with Setco an earnest money escrow payment of $25,000 (“Escrow Deposit”). At the closing of the Property Purchase
Transaction, (a) the Company paid real estate taxes due for the Property of approximately $784, and (b) approximately $7,559 of
fees were applied to the Escrow Deposit. As a result, Setco owes the Company approximately $18,225. The September 2018 Note had
a principal balance of $1,125,000, and a stated maturity date of October 5, 2018. The Principal Amount of the September 2018 Note
bears interest at a rate of 18% per annum (in this case, the “Interest”), which is also payable on the Maturity Date.
The Company failed to pay Setco the Principal Amount and accrued and unpaid Interest due under the September 2018 Note on the
stated Maturity Date and, therefore, is in default under the September 2018 Note. The Company’s obligations to repay amounts
due under the September 2018 Note are secured by the Property, and the Company has executed and delivered the September 2018 Deed
of Trust, with Setco as the beneficiary.
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.
NOTE
10. SUBSEQUENT EVENTS
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, Civitas proceeded
to execute its rights to enforce the liens on the Setco property through a foreclosure process which resulted in Civitas 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.
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.
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.
On March 16, 2019, the PEO license associated
with GEX Management and registered with the Texas Department of Licensing and Regulation expired. Given the PEO business contributed
to less than 5% of gross revenue historically for the firm and given the firm’s strategic focus is towards Staffing and
Consulting revenue streams for 2019, management has decided to not renew the license at this time but will reserve the option
for future renewal based on the appropriate business opportunity.
As
of March 30, 2019, the Company has defaulted on the lease payable for the corporate offices located in 12001, N Central Expressway,
Suite #825. Dallas TX 75243 for the months of January and February 2019. The Company is currently negotiating the lease renewal
terms while also exploring alternate cost-efficient office spaces and is expected to reach a lease settlement agreement and decision
related to the location of its future corporate offices on or before May 1, 2019