Amended Quarterly Report (10-q/a)

Date : 08/28/2019 @ 5:33PM
Source : Edgar (US Regulatory)
Stock : Gex Management, Inc. (QB) (GXXM)
Quote : 0.0001  0.0 (0.00%) @ 12:00AM

Amended Quarterly Report (10-q/a)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q/A

(Amendment No. 2)

 

(Mark One)

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2019

 

OR

 

[  ] TRANSITION REPORT UNDER SECTION 13 OF 15(d) OF THE EXCHANGE ACT OF 1934

 

For the transition period from _______________to _______________

 

Commission File Number 001-38288

 

GEX MANAGEMENT, INC.

(Exact name of registrant as specified in its charter)

 

Texas   56-2428818

(State or other jurisdiction

of incorporation)

 

(IRS Employer

Identification No.)

 

1701W. Northwest Highway

Grapevine, Texas 76051

(Address of principal executive offices)

 

(877) 210-4396

(Issuer’s telephone number)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large Accelerated Filer [  ] Accelerated Filer [  ]  
Non-Accelerated Filer [  ] Smaller Reporting Company [X] Emerging Growth Company [X]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

As of August 15, 2019 there were 4,989,854,055 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

 

 

 

     

 

 

EXPLANATORY NOTE

 

This Amendment No. 2 (“Amendment No. 2”) to the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2019 of GEX Management, Inc. (the “Company”) filed with the Securities and Exchange Commission on August 19, 2019 (the “Form 10-Q”), is to amend Part I (Item 1 and 2) with the updated Financial Statements and related informed as reviewed by the Independent Registered Public Accounting Firm per the requirements of Form 10-Q.

 

In addition to amending Items 1 and 2 of Part I with updated Financial Statements, this Amendment amends Item 6 of Part II to include new certifications being provided with this Amendment pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 
 

 

GEX MANAGEMENT, INC.

 

FORM 10-Q/A

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019

 

TABLE OF CONTENTS

 

    PAGE
PART I - FINANCIAL INFORMATION  
Item 1. Financial Statements (Unaudited) 3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 20
Item 3. Quantitative and Qualitative Disclosures About Market Risk 21
Item 4. Controls and Procedures 21
     
PART II - OTHER INFORMATION  
Item 1. Legal Proceedings 22
Item 1A. Risk Factors 22
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Mine Safety Disclosures 22
Item 5. Other Information 22
Item 6. Exhibits 23
     
SIGNATURES 24

 

  2  
 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2018, which we filed with the SEC on August 26, 2019 (“Annual Report”), as updated in subsequent filings we have made with the SEC. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the periods presented have been reflected herein. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year.

 

  3  
 

 

GEX MANAGEMENT, INC.

 

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

TABLE OF CONTENTS

 

  Page
Condensed Consolidated Financial Statements (Unaudited)  
Condensed Consolidated Balance Sheets as of June 30, 2019 (Unaudited) and December 31, 2018 5
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2019 and 2018 (Unaudited) 6
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018 (Unaudited) 7
Notes to Condensed Consolidated Financial Statements (Unaudited) 8

 

  4  
 

 

GEX Management, Inc.

Condensed Consolidated Balance Sheets

 

    June 30, 2019     December 31, 2018  
      (Unaudited)       (Audited)  
ASSETS                
Current Assets:                
Cash and Cash Equivalents   $ 22,944     $ 30,242  
Accounts Receivable, net     5,387       18,265  
Accounts Receivable - Related Party     -       -  
Other Current Assets     1,667,587       1,755,971  
Total Current Assets     1,695,918       1,804,477  
                 
Property and Equipment (Net)     7,435       13,396,353  
Other Assets     3,300,593       3,406,093  
                 
TOTAL ASSETS   $ 5,003,946     $ 18,606,923  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)                
                 
Current Liabilities:                
Accounts Payable   $ 20,206     $ 22,705  
Accrued Expenses and Other Current Liabilities   $ 447,564       1,525,830  
Derivative Liability     913,315       931,315  
Accrued Interest Payable     175,828       149,817  
Notes Payable Current Portion     4,789,907       6,049,047  
Total Current Liabilities     6,346,821       8,678,715  
                 
Non-Current Liabilities                
Notes Payable     -       1,254,289  
Other Non-Current Liabilities     -       -  
Line of Credit     483,677       542,978  
Total Long Term Liabilities     483,677       1,797,267  
                 
TOTAL LIABILITIES     6,830,497       10,475,982  
                 
SHAREHOLDERS’ EQUITY (DEFICIT)                
Preferred Stock, $0.001 par value, 20,000,000 shares authorized, 0 shares issued and outstanding                
Common Stock, $0.001 par value, 15,000,000,000 shares authorized, 3,137,172,011 and 30,90,637 shares issued and Outstanding as June 30, 2019 and December 31, 2018, respectively     1,938,784       46,575  
Additional Paid In Capital     3,072,263       14,503,021  
Accumulated Deficit     (6,837,599 )     (6,418,655 )
TOTAL SHAREHOLDERS’ EQUITY (DEFICIT)     1,826,552       8,130,941  
                 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)     5,003,946       18,606,923  

 

  5  
 

 

GEX Management, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

 

    Three Months Ended    

Three Months

Ended

   

Six Months

Ended

   

Six Months

Ended

 
    June 30, 2019     June 30, 2018     June 30, 2019     June 30, 2018  
                         
Revenues   $ 162,435       3,093,230     $ 247,284     $ 6,669,781  
Revenues - Related Party     -       -       0       -  
Total Revenues (1)     162,435       3,093,230       247,284       6,669,781  
                                 
Cost of Revenues     47,440       2,639,182       87,195       6,088,274  
Gross Profit (Loss)     114,995       454,048       160,089       581,507  
                                 
Operating Expenses                                
Depreciation and Amortization     52,750       14,654       109,512       34,307  
Selling and Advertising     -       45,098       -       98,448  
General and Administrative     58,967       1,240,379       190,444       1,806,772  
Total Operating Expenses     111,717       1,300,131       299,956       1,939,527  
                                 
Total Operating Income (Loss)     3,278       (846,083 )     (139,867 )     (1,358,020 )
                                 
Gain on Extinguishment of Debt     -       0       -       -  
Gain of Disposition of Asset     -       35,197       -       35,197  
Derivative Gain (Loss)     -       (20,455 )     -       (20,455 )
Income from Other     -       0       -       -  
Interest Income(Expenses)     (64,527 )     (693,172 )     (126,007 )     (737,055 )
Net Other Income (Expense)     (126,369 )     678,430       (194,363 )     (722,313 )
                                 
Net income (loss) before income taxes     (123,091 )     (1,524,513 )     (334,230 )     (2,080,333 )
Provision for income taxes     -       -       -       -  
Net Income Attributable to Non Controlling Interest     -       -       -       0  
NET INCOME (LOSS)     (123,091 )     (1,524,513 )     (334,230 )     (2,080,333 )
                                 
BASIC and DILUTED                                
Weighted Average Shares Outstanding     3,137,172,011       11,900,256       3,137,172,011       11,805,401  
Earnings (loss) per Share     0.0000038       (0.13 )   $ (0.00001 )   $ (0.18 )

 

  6  
 

 

GEX Management, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

    Six Month Ended     Six Month Ended  
    Jun-19     Jun-18  
Cash Flows (used by) Operating Activities:                
Net Income/ Loss   $ (334,230 )     (2,080,333 )
Adjustments to reconcile net loss to net cash (used in) operating activities:                
Depreciation and Amortization     109,512       34,307  
Shares Issued for Services             436,250  
Warrants issued for debt issuance costs     -       78,751  
Derivative Loss             20,455  
Gain on Sale of Investment             -  
Gain on Extinguishment of Debt     -       -  
Bad Debt Expense             92,102  
Changes in assets and liabilities:                
Accounts receivable     12,877       (393,987 )
Accounts receivable - Related Party             30,771  
Other current assets/liabilities     88,384       23,155  
Other Assets/Liabilities     3,371,781       (10,351 )
Accounts Payable     (2,499 )     12,744  
Accrued expenses and other payables     (1,078,266 )     100,630  
Accrued interest payable     26,011       11,456  
Net cash (used in) operating activities     2,193,570       (1,644,050 )
                 
Cash Flows from (used in) Investing Activities:                
Purchase of customer contracts     -       -  
Acquisition of equity interest             (500,000 )
Deposit for purchase of equity             (250,000 )
Purchase of fixed assets     -       -  
Net cash (used in) Investing Activities:     -       (750,000 )
                 
Cash Flows from (used in) Financing Activities:                
Proceeds from common stock/ APIC             -  
Proceeds (payments) notes payable – related party     -       (133,500 )
Payments/Proceeds on long term debt     (1,313,590 )     (29,157 )
Payments/Proceeds from short term notes payable (net)     (1,259,141 )     2,548,716  
Net cash provided by financing activities     (2,572,731 )     2,386,059  
                 
NET INCREASE (DECREASE) IN CASH     (379,161 )     (7,991 )
CASH AT BEGINNING OF PERIOD     402,105       410,096  
                 
CASH AT END OF PERIOD     22,944       402,105  

 

  7  
 

 

GEX Management, Inc.

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended June 30, 2019 and 2018

(Unaudited)

 

NOTE 1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

 

Organization and Description of Business

 

GEX Management, Inc. was originally formed in 2004 as Group Excellence Management, LLC. d/b/a MyEasyHQ. In March of 2016, it was converted from a limited liability company into a C corporation and changed its name to GEX Management, Inc. in April of 2016. GEX Management obtained its license to operate as a Professional Employer Organization (PEO), and established GEX Staffing, LLC, a wholly owned subsidiary of GEX Management, in March 2017 in order to begin distinguishing its staffing and PEO operations.

 

Carl Dorvil founded Group Excellence, LLC, a tutoring and mentoring company, from his dorm room at Southern Methodist University in 2004. Group Excellence provided tutoring and mentoring services to students with the goal of inspiring young persons to pursue high personal and academic achievement. The company quickly grew to more than six hundred employees. In 2011, Group Excellence was on Inc. 500’s annual list of the 500 fastest growing private companies in the United States.

 

In response to rapid growth, Mr. Dorvil developed GEX Management to facilitate the back-office functions of his company. GEX Management provided Group Excellence, LLC with human resources, IT, accounting/bookkeeping, social media, payroll, and conducted a majority of the overall operations of the company. Mr. Dorvil sold Group Excellence, LLC in 2011 but maintained ownership of GEX Management, which continued as a Professional Services Company providing back office support to the tutoring company, as well as third-party clients. In 2016 GEX Management revised its business model to provide staffing and back-office services to a wide variety of industries in order to expand the Company’s footprint, thereby building on the previous 12-year history of exceptional client service. On February 23, 2018, the US Secretary of Commerce, Wilbur Ross, mentioned at the “African American Leaders in the White House: Education, Business and Policy” that Dorvil was “the youngest African American CEO ever to take a company public in U.S. history.”

 

Over the last few years, GEX Management experienced tremendous growth in sales and customer pipeline - staffing business grew by over 1600%+ from 2016 to 2017 with the firm being named among the “fastest growing public companies in the North Texas region” by the Dallas Morning News, while also significantly expanding its client footprints across multiple staffing, business consulting and PEO opportunities.

 

In September 2018, the Company terminated contracts with two customers who accounted for over 83% of the Company’s net staffing revenue, resulting in significant loss of revenue to the company in Q4 2018 and Q1 2019. The termination of these and other contracts was attributable to the increased business risk associated with Merchant Cash Advance contracts requiring attachment of future receivables of customer receipts with the MCA institutions as well as a result of management decision to move away from low margin, high cost contracts which were deemed detrimental to the company’s sustained operability and profitability in the long run.

 

  8  
 

 

Despite these setbacks, the current management, has set strategic goals in 2019 to expand into areas of higher margin and higher growth categories particularly in the space of IT and Management Consulting as well as identify synergistic opportunities within the healthcare sector to deliver significant cost rationalization, benefits and integrated staffing solutions to clients and customers alike. As a result of management efforts towards achieving this strategic goal, GEX Management was invited in February to be a Preferred Supplier to Insight Global (www.insightglobal.com), one of the largest Managed Service Providers (MSPs) to Fortune 100 Companies in the Enterprise Technology Consulting and Staffing solutions space. This has resulted in a significant new business development opportunity for GEX that is expected to yield a strong revenue and growth pipeline with sales expected to pick up momentum in Q3 and Q4 2019. The first technology consultant that GEX hired through this Preferred Supplier initiative has been successfully placed at a large PA based financial services firm to provide Business and Quality Analysis professional services to the client and the company has acquired a second contract with a large Florida based travel technology firm with a large potential pipeline to place IT consultants; additional contract hires are expected to follow suit with sales expected to significantly pick up during the second half of the year as a result of GEX sales and recruiting efforts for preferred placement opportunities across the country. To accelerate these efforts, GEX has partnered with a reputed, Delaware based Recruitment Process Outsourcing (RPO) firm to bring in highly experienced IT strategy recruitment consultants to work with the GEX sales team to rapidly place qualified candidates to these active positions and start building out the revenue pipeline – these efforts are expected to show results starting Q3/Q4 2019 and continue into 2020 in line with the strategic plan outlined at the beginning of the year. Additionally, GEX executed a strategic staffing agreement with a leading Ohio based Healthcare group to deliver staffing, HR management, payroll processing and benefit administration services to the client’s healthcare and clinical practice centers in the mid-west region which has begun to show results in Q2 2019. Furthermore, GEX is in talks with multiple staffing and consulting companies to identify synergistic acquisition opportunities to help compensate for the lost revenue and growth momentum in Q4 2018 and Q1 2019 due to the contract terminations and regain its position as one of the fastest growing staffing businesses in the local and national markets while also developing a long term and sustainable business pipeline model. Management expects these and other potential organic and inorganic growth initiatives to help the firm eventually achieve strong and stable revenue growth while also help move towards profitability by targeting a higher margin, lower cost business model and relying on less expensive debt instruments to help reduce the burden across the firm’s capital structure while maximizing efficient use of operating capital during future periods.

 

In addition to these planned strategic growth initiatives which are expected to fully materialize starting with the second half of 2019, management has been focusing on materially improving its balance sheet by significantly reducing or eliminating the debt or debt like instruments related to convertible notes and asset related liens introduced in 2018 while simultaneously exploring opportunities to reduce or eliminate the high interest MCA related toxic debt instruments that resulted in significant interest expenses to the company and a burden to operating capital. As part of this balance sheet “clean-up” initiative, 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 any and all accrued interest payable on the note as of the date of the agreement. Additionally, on March 5, 2019, one of GEX’s promissory note holders proceeded to execute its rights to enforce the liens on the Setco property through a foreclosure process which resulted in the note holder taking possession of the Setco property resulting in the elimination of a $500,000 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. Furthermore, GEX has been able to reduce the overall convertible notes burden on the balance sheet by over 40% of the principal outstanding balance through strategic conversions of these notes to common equity initiated by the convertible note issuers throughout Q1 2019, thus demonstrating a strong market interest by retail and institutional investors in the GEX growth platform evidenced by the record high market volume of GEX trading stock in the OTC markets - this momentum is expected to sustain through 2019 and beyond as a result of these management growth initiatives and the continued support of investors and shareholders alike. Finally, management believes that the material reduction of MCA related debt like instruments will be a critical first step prior to rebuilding a robust revenue pipeline as this will require strong working capital and favorable leverage covenants to sustain operations in the long term as well as reduce liabilities related to attachment to future receivables. The inability or failure by the firm to immediately address these toxic MCA instruments could result in management pursuing a restructuring program or similar initiatives to bring the balance sheet within reasonable covenant parameters to allow the firm to continue operating efficiently in the coming years without exposing future customers to significant business risks associated with these toxic instruments.

 

  9  
 

 

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.

 

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.

 

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.

 

The accompanying interim, unaudited consolidated financial statements and related financial information should be read in conjunction with the audited financial statements and the related notes thereto for the year ended December 31, 2017 included in the Company’s Annual Report on Form 10-K, filed with the SEC on April 10, 2018. All adjustments necessary for a fair statement of the results for the interim periods have been made. All adjustments are of a normal and recurring nature.

 

  10  
 

 

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. No bad debt expense was incurred for the 6 months ended June 30, 2019.

 

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.

 

  11  
 

 

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.

 

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.

 

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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 three months ended June 30, 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 June 30, 2019 or operations or cash flows for the periods ended June 30, 2019.

 

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, 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 three months ended June 30, 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 as of June 30, 2019, 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.

 

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NOTE 2. OTHER CURRENT ASSETS

 

At June 30, 2019 and December 31, 2018, Other Current Assets were $1,667,587 and $1,755,971 respectively. Current Assets primarily comprised of Debt Fees and Debt Discounts related to MCAs and Derivative Assets.

 

At June 30, 2019 and December 31, 2018, Other Assets were $3,300,593 and $3,406,093 respectively. Other Assets primarily comprised of long term Consulting Contracts that had been capitalized on the Balance Sheet and Amortized over their lives over a period of 3-5 years depending on the length of the specific contract.

 

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.

 

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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. For the three months ending June 30 2019, the Company issued a total of 2,803,091,375 shares of common stock related to convertible notes and warrants.

 

  15  
 

 

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.

 

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 period ended June 30, 2019:

 

          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 March 31, 2019     2,125,000     $ 1.19  

 

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The following table summarizes the warrants outstanding as of March 31, 2019:

 

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

 

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.

 

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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.

 

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.

 

NOTE 5. ACCOUNTS RECEIVABLE AND CONCENTRATION OF CREDIT RISK

 

As of June 30, 2019, the company had $5,387 outstanding accounts receivable balance with its customers. As of December 31, 2018, the company had $18,265 in accounts receivable balance with its customers.

 

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NOTE 6. PROPERTY AND EQUIPMENT

 

As a result of the foreclosure actions related to the AMAST and Setco properties, the Company did not own material fixed assets as of June 30, 2019 compared to December 31, 2018:

 

    June 30, 2019     Dec 31, 2018  
Land   $ -     $ 11,333,778  
Buildings     -       2,125,642  

 

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 Agreements

 

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 Agreements

 

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 three and nine months ended September 30, 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. The Company reported no revenues under this Agreement for the three months ended June 30, 2019.

 

Revenues

 

For the three months ended June 30, 2019 the Company had no revenues from related parties.

 

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 2019   $ 60,225  
         
Total   $ 60,225  

 

NOTE 9. ACQUISITIONS AND DIVESTITURES

 

None during the current reporting period

 

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ITEM 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

You should read the following discussion of our financial condition and results of operations in conjunction with our financial statements and the related notes included elsewhere in this report and in our Annual Report on Form 10-K for the year ended December 31, 2018.

 

Forward-Looking Statements

 

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements are often identified by the use of words such as, but not limited to, “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “seek,” “should,” “strategy,” “target,” “will,” “would” and similar expressions or variations intended to identify forward-looking statements. These statements are not guarantees of future performance, but are based on management’s expectations as of the date of this report and assumptions that are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements. All information provided in this report is as of the date of this report and the Company undertakes no duty to update this information except as required by law.

 

General

 

GEX Management, Inc., a Texas corporation (the “Company,” “GEX,” “we,” “our,” “us,” and words of similar import) is a Staffing and Professional Services Company that provides services and general business consulting to companies for a variety of their staffing needs. We generate substantially all of our revenue from the staffing and other professional services we offer. These professional services, in addition to staffing, include: Strategy and technology consulting, accounting and bookkeeping, human resources and business consultation and optimization.

 

Results of Operations

 

The three months ended June 30, 2019 compared to the three months ended Jnue 30, 2018

 

Revenue

 

Our revenue for the three months ended June 30, 2019 was $162,435 compared to $3,093,230 for the three months ended June 30, 2018. This drastic fall in revenue, was primarily due to termination of contracts with two customers who accounted for over 83% of the Company’s net staffing revenue, resulting in significant loss of revenue to the company in Q4 2018 and Q1 2019. The termination of these and other contracts was attributable to the increased business risk associated with Merchant Cash Advance contracts requiring attachment of future receivables of customer receipts with the MCA institutions as well as a result of management decision to move away from low margin, high cost contracts which were deemed detrimental to the company’s sustained operability and profitability in the long run.

 

Operating Expense

 

Total operating expenses for the three months ended June 30, 2019 was $111,717 compared to the operating cost for the three months ended June 30, 2018 of $1,300,131. This reduction in operating expenses was primarily due to the cost rationalization initiatives by the current management.

 

Liquidity and Capital Resources

 

The Company has identified several potential financing sources in order to raise the capital necessary to fund operations through November 30, 2019. Management believes that it has been historically difficult for minority and women owned businesses to get access to reasonably price capital at scale which creates an opportunity to invest into these companies and receive a greater than average return for our shareholders. That said, being a minority owned business ourselves it comes at no surprise to management that we are having difficulty accessing reasonably priced capital. However, the opportunity to make a significant return for our investors was so overwhelmingly compelling that management had in the past taken short term working capital loans against future receivables in order to timely fund the growth of the company. However, because of the highly irregular and unregulated nature of the Merchant Cash Advance industry which also resulted in significant harm to the company’s revenue stream and client contract relationships, current management has taken the decision to move away from these cash advance opportunities introduced by the prior finance teams and will, going forward, primarily rely on more traditional and regulated sources of financing available within the investment and regulated capital markets. As an alternative to MCA financing, 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, the Company’s financial condition and results of operations may be materially adversely affected and the Company may not be able to continue operations.

 

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.

 

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Off-Balance Sheet Arrangements

 

We have not entered into any off-balance sheet financing arrangements and have not formed any special purpose entities. We have not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.

 

Contractual Obligations

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Management is responsible for establishing and maintaining adequate disclosure controls and procedures as defined in Rules 13a-15 (e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to management, including our Interim Chief Executive Officer and Interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure and to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Our management, under the supervision and with the participation of our Interim Chief Executive Officer and Interim Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Based upon this assessment, we determined that as of the end of period covered by this quarterly report on Form 10-Q our disclosure controls and procedures were not effective because there exist material weaknesses affecting our internal control over financial reporting.

 

Changes in Internal Control over Financial Reporting

 

Other than the material weaknesses as described above, there has been no other changes in our internal control procedures over financial reporting (except as described in the previous section) identified in connection with the evaluation we conducted of the effectiveness of our internal control over financial reporting as of March 31, 2018, that occurred during our first quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

We have not been served with any lawsuit or received official notice on legal proceedings to which we are a party or of which any of our property is the subject nor are we subject to any material proceedings that are contemplated by any governmental authority at this time.

 

ITEM 1A. RISK FACTORS

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Not applicable

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

In connection with the Merchant Cash Advances, the company has occasionally defaulted on making certain daily interest payments as a result of lack of immediate access to capital to fulfill short term payment obligations related to these debt like instruments. As a result of these defaults in timely payments, Confession of Judgements have been filed by some of these MCAs in the New York district courts and GEXM is currently in the process of negotiating settlement terms on monies owed to these parties.

 

As a result of the highly irregular and unregulated nature of the Merchant Cash Advance industry, current management has taken the decision to move away from these cash advance opportunities introduced by the prior finance teams and will, going forward, solely rely on more traditional and regulated sources of financing available within the investment and regulated capital markets. Additionally, current management has determined it to be necessary to cease active business discussions with MCAs and proceed with settlement discussions to reduce or eliminate the monies owed to the MCAs and related parties in a timely manner. The potential inability of the Company to satisfy these MCA obligations in a timely manner could result in a significant impact on the financial and operational health of the company which could also potentially result in the company pursuing Chapter 11 bankruptcy and /or similar legal avenues if it is not able to settle these outstanding MCA obligations in a timely manner. While the management team has already begun these settlement conversations and is hopeful of reaching a resolution in a timely manner, there can be no guarantee that such a settlement will be reached any time soon.

 

On account of the management decision to cease business discussion with most MCA groups and because of the lack of regulatory oversight in the MCA industry’s record keeping practices which could result in wrong or misleading data for balance confirmation or audit purposes, the management has relied solely on bank statement records and prior management inputs in determining the balance outstanding with MCAs as presented in the financial statements and believe this to be accurate to best of their knowledge based on internally available information.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None

 

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ITEM 6. EXHIBITS

 

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

 

should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;
   
have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;
   
may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and
   
were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

 

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about the Company may be found elsewhere in this Form 10-Q and the Company’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov.

 

The following exhibits are included as part of this report:

 

Exhibit No.   SEC Report Reference No.   Description
         
31.1   *   Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1   *   Certifications of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS   *   XBRL Instance Document
101.SCH   *   XBRL Taxonomy Extension Schema Document
101.CAL   *   XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF   *   XBRL Taxonomy Extension Definition Linkbase Document
101.LAB   *   XBRL Taxonomy Extension Label Linkbase Document
101.PRE   *   XBRL Taxonomy Extension Presentation Linkbase Document

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  GEX MANAGEMENT, INC.
     
Dated: August 28, 2019 By: /s/ Srikumar Vanamali
  Name: Srikumar Vanamali
  Title: Executive Director, Interim Chief Executive Officer, President, Interim Chief Financial Officer, Secretary and Treasurer (Principal Executive Officer and Principal Financial and Accounting Officer)

 

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