Gex Management, Inc 10-K for FY2021
Gex Management, Inc. (GXXM)
About this 10-K
Gex Management, Inc filed this 10-K on July 21, 2022, covering the fiscal year ended December 31, 2021 (FY2021).
Headline figures
Fiscal year ended December 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.32M
- up 75.3% from $750.68K a year earlier
- Net loss
- $6.05M
- compared with a net loss of $224.95K a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the Fiscal Year Ended
For the Transition Period from ______________to ______________
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
(Address of Principal Executive Offices)
Registrant’s
telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, Par value $0.001
Indicate
by a check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act. Yes ☐
Indicate
by a check mark whether the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Securities Exchange
Act. Yes ☐
Indicate
by check mark whether the registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports) (2) has been
subject to such filing requirement for the past 90 days.
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).
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
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.
| Large Accelerated Filer | ☐ | Accelerated Filer | ☐ |
| ☐ | Smaller Reporting Company | ||
| Emerging growth company |
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 ☐
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 July 19, 2022, the Registrant had shares of common stock outstanding.
TABLE OF CONTENTS
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FORWARD-LOOKING STATEMENTS
For purposes of this Annual Report, the terms “GEX,” “GEX Management,” “the Company,” “we,” “us,” and “our,” refer to GEX Management, Inc., a Texas Corporation, and its consolidated subsidiaries unless the context clearly indicates otherwise. Included in this Annual Report are “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 or by the U.S. Securities and Exchange Commission in its rules, regulations and releases, regarding, among other things, all statements other than statements of historical facts contained in this report, including statements regarding our future financial position, business strategy and plans and objectives of management for future operations. The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “will,” “expect” and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. In addition, our past results of operations do not necessarily indicate our future results.
From time to time, we also provide forward-looking statements in other materials we release to the public, as well as oral forward-looking statements. Such statements relate to our current expectations, projections and assumptions about our business, the economy and future events or conditions. They do not relate strictly to historical or current facts.
Forward-looking statements are not guarantees and involve risks, uncertainties and assumptions that are difficult to predict. Actual results may differ materially from past results and from those indicated by such forward-looking statements if known or unknown risks or uncertainties materialize, or if underlying assumptions prove inaccurate. These risks and uncertainties include, among other things:
| ■ | our ability to execute our business plans or growth strategy; | |
| ■ | the nature of investment and acquisition opportunities we are pursuing, and the successful execution of such investments and acquisitions; | |
| ■ | our ability to successfully integrate acquired businesses and realize synergies; | |
| ■ | variations in our results of operations; | |
| ■ | our ability to accurately forecast the revenue under our contracts; | |
| ■ | competition for our services; | |
| ■ | our failure to maintain a high level of client retention or the unexpected reduction in scope or termination of key contracts with major clients; | |
| ■ | client dissatisfaction, our non-compliance with contractual provisions or regulatory requirements; | |
| ■ | our inability to manage our relationships with our clients; | |
| ■ | pending or threatened litigation; | |
| ■ | unfavorable outcomes in legal proceedings; | |
| ■ | our ability to generate sufficient cash to cover our interest and principal payments under our note payable, or to borrow or use credit; | |
| ■ | unexpected changes in tax laws, regulations or guidance and unexpected changes in our effective tax rate; and | |
| ■ | the market price of our common stock. |
Other sections of this report may include additional factors which could adversely affect our business and financial performance. New risk factors emerge from time to time and it is not possible for us to anticipate all the relevant risks to our business, and we cannot assess the impact of all such risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ materially from those contained in any forward-looking statements. Those factors include, among others, those matters disclosed in this Annual Report on Form 10-K.
Except as otherwise required by applicable laws and regulations, we undertake no obligation to publicly update or revise any forward-looking statements or the risk factors described in this report, whether as a result of new information, future events, changed circumstances or any other reason after the date of this report. Neither the Private Securities Litigation Reform Act of 1995 nor Section 27A of the Securities Act of 1933 provides any protection to us for statements made in this report. You should not rely upon forward-looking statements as predictions of future events or performance. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.
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PART I
ITEM 1. BUSINESS
History and Development of Business
GEX Management, Inc. was originally formed in 2004 by Carl Dorvil 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.
GEX Management initially began operations as a Professional Services Company providing back office support to 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. Over the next 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 2019, the current management of GEX under the guidance of CEO, Sri Vanamali, set strategic goals to revise the business model to expand into areas of higher margin and growth particularly in the area of Technology and Strategy Consulting Services. As a result of management efforts, GEX Management was invited in February 2019 to be a Preferred Supplier to Insight Global (www.insightglobal.com), one of the world’s largest Managed Service Providers (MSPs) to Fortune 100 Companies in the Enterprise Technology Consulting space. The first consultant that GEX hired through this Preferred Supplier initiative was successfully placed at a large PA based financial services firm to provide Business and Quality Analysis professional services to the client. Subsequently, GEX placed its second enterprise consultant at the world’s leading Fortune 100 CRM Company at its headquarters in San Francisco and subsequently several more highly skilled Enterprise Technology Consultants at leading Fortune 500 retail, healthcare, manufacturing and technology clients across the country .. As a direct result of the high market demand for experienced technology consultants via its multiple supplier programs, the GEX team has interviewed and is in the process of procuring 45 highly experienced enterprise technology consultants with expertise across a wide array of functions (Enterprise Architects, Project Managers, Systems Integration Developers, Quality Assurance Specialists and Business Systems Analysts) who have been identified for various short to long term projects and are expected to be fully staffed by its corporate clients by Q4 2021. Additionally, GEX plans to hire and place more than 100 enterprise consultants over the next 18 - 24 month period to satisfy its growing pipeline of future contracts. As a result of these market initiatives, GEX forecasts to potentially achieve approximately $20- $25M in gross billings over the next 18-24 month period, assuming all projected contracts are fully placed on projects that have been currently identified by the GEX supplier program pipeline and businesses begin to re-open as the pandemic related restrictions are removed.
In Q4 2019, GEX signed a contract with one of the fastest growing, VC backed social video platform to provide key corporate and strategy consulting services – an initiative that the CEO was personally involved with in developing and growing the strategic business relationship over the last two years. This contract has resulted in enormous growth opportunities for GEX and is expected to significantly expand growth in future periods as well. GEX has also signed additional contracts to provide interim “CFO” and “CEO” consulting services to various high growth public and private companies, resulting in doubling of sales within a year and achieving an astounding double digit expansion in gross margins despite the pandemic related recessionary business environment. Furthermore, GEX is in talks with multiple companies to identify synergistic acquisition opportunities to fuel organic and inorganic growth and fulfil the corporate objective of becoming a top tier business and technology focused firm while also developing a long term and sustainable technology centric business model. Management expects these growth initiatives to help the firm eventually achieve strong and stable revenue growth while also achieving sustainable long term profitability by targeting a higher margin, lower cost model and relying on less expensive debt instruments to help reduce the burden across the firm’s capital structure.
In addition to these planned strategic growth initiatives which had started to build momentum in 2019 and gained significant traction in 2021, 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 significantly reduce the overall debt and debt like instruments on the balance sheet through strategic conversions of convertible notes to common equity initiated by the convertible note issuers throughout 2019, 2020 and 2021 and settlement or elimination of certain MCA and debt like instruments. This focus on balance sheet cleanup and to stay significantly “asset-lite” is expected to achieve material results by Q2 2022, at which point GEX would be primed for its next phase of strategic growth initiatives by deploying equity and non-toxic debt instruments towards organic and inorganic opportunities. Finally, management believes that the material elimination of MCA and 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. While management efforts to settle these instruments are aggressively underway, the inability or failure by the firm to completely address any toxic debt 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. As part of this long term strategy, management has already begin putting processes in place to protect the company via a robust internal restructuring program and will be announcing the outcome of these intra-company restructuring efforts that will protect the interests of investors and shareholders alike over the long term and also streamline the corporate structure to be synergistic with the management’s long term vision for the company.
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Business Operations
GEX Management is a progressive and growing provider of business services, consulting and staffing solutions to corporations across the nation. We provide both long and short-term consulting and staffing solution services, including corporate consulting, enterprise strategy and technology consulting, enterprise project management; grey, white and blue collar staffing solutions and Human Capital Management (HCM) solution capabilities.
GEX Management is strategically purposed to provide tailored business service products and services to our clients. Our client-responsive approach is a key differentiator in the industry.
Specific services are described below:
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Business Strategy
Our objective is to become a leading management consulting, technology and business services company, and to continuously expand our client base. We seek to achieve this objective by continuing to implement our business strategy, which includes the primary elements enumerated below.
Marketing and Sales
Our comprehensive marketing efforts are fluid, adaptive, and results-driven. They comprise both traditional and non- traditional channels including print collateral, website, video, PowerPoint presentations, digital ads, social media posts and press releases. We likewise employ a small sales team. We strategically target large and medium sized businesses
that require the services we provide. Previously, a significant amount of corporate revenue has been derived through client referrals and management’s personal relationships. Our plan is to continue to leverage these important relationships while expanding our brand reach by means of integrated marketing campaigns, more timely, informative, and effectual messaging, and greater collaboration between marketing and sales in order to increase both client and sales growth.
Industry and Competitors
The Professional Staffing industry is highly fragmented, resulting in robust competition. Competition affects our success in both the market segments we currently serve, as well as the new market segments we may enter in the future. We compete with several large management and technology consulting companies that provide identical services to those GEX Management provides; some offer additional services. The financial and marketing resources of some of our competitors exceed those of GEX Management. Businesses primarily select a service provider based on price point/value, innovative/flexible product offerings, and quality of customer service.
Environmental Concerns
As a professional services company, federal, state or local laws that regulate the discharge of materials into the environment do not impact us.
Other Events
The occurrence of an uncontrollable event such as the COVID-19 pandemic may negatively affect our operations. A pandemic typically results in social distancing, travel bans and quarantine, and this may limit access to our facilities, customers, management, support staff and professional advisors. These factors, in turn, may not only impact our operations, financial condition and demand for our goods and services but our overall ability to react timely to mitigate the impact of this event. In addition, at this time we cannot predict the impact of COVID-19 on our ability to obtain financing necessary for the Company to fund its working capital requirements. Also, it may hamper our efforts to comply with our filing obligations with the Securities and Exchange Commission.
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Number of Employees
As of December 31, 2021, we had 15 full time employees.
ITEM 1A. RISK FACTORS
As a Smaller Reporting Company, we are not required to provide the information required by this item.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Corporate Office
As of December 31, 2021, GEX’s corporate offices were located at 3662 W. Camp Wisdom Road, Dallas, Texas 75237.
Other Property
As of December 31, 2021, GEX does not have interest in material assets involving real estate and fixed equipment.
ITEM 3. LEGAL PROCEEDINGS
It is possible that from time to time in the ordinary course of business we may be or we may have been involved in legal proceedings, lawsuits or investigations, which could potentially have an adverse impact on our reputation, business and financial condition and divert the attention of our management from the operation of our business. In the opinion of our Board of Directors, any such legal proceedings or lawsuits that we have been involved with in the past or may be involved with are not expected to have a material adverse effect on our financial situation or results of operations.
ITEM 5. 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 MCAs. 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 GEX 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 management has also hired a legal team to contest some of these Confession of Judgements which the management believes were incorrectly filed by the MCAs. The potential inability of the Company to satisfy these MCA obligations or settle 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 all resolutiona in a timely manner, there can be no guarantee that such a settlement will be reached any time soon.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is included in the OTC Pink Sheets, under the symbol GXXM. The table below summarizes the high and low closing sales prices per share for our common stock for the periods indicated, as reported on OTC. These amounts have been adjusted to reflect the 4 for 3 stock split of our common stock effected on December 12, 2017 and the 1 for 10,000 reverse stock split of our common stock effected on May 18 2020. The Company began trading on June 13, 2017 and therefore has no activity prior to the Quarter ended June 30, 2017.
| Quarter Ended | March 31, | June 30, | September 30, | December 31, | ||||||||||||
| Fiscal Year 2021 | ||||||||||||||||
| High | $ | 0.012 | $ | 0.006 | $ | 0.08 | $ | 0.055 | ||||||||
| Low | $ | 0.008 | $ | 0.005 | $ | 0.06 | $ | 0.043 | ||||||||
| Fiscal Year 2020 | ||||||||||||||||
| High | $ | 1.0 | $ | 1.0 | $ | 1.0 | $ | 0.0620 | ||||||||
| Low | $ | 0.3 | $ | 0.5 | $ | 0.0260 | $ | 0.0203 | ||||||||
| Fiscal Year 2019 | ||||||||||||||||
| High | $ | 0.002 | $ | 0.0002 | $ | 0.0001 | $ | 0.0001 | ||||||||
| Low | $ | 0.0016 | $ | 0.0001 | $ | 0.0001 | $ | 0.0001 | ||||||||
| Fiscal Year 2018 | ||||||||||||||||
| High | $ | 3.48 | $ | 1.86 | $ | 1.15 | $ | 0.212 | ||||||||
| Low | $ | 3.408 | $ | 1.50 | $ | 1.15 | $ | 0.212 | ||||||||
| Fiscal Year 2017 | ||||||||||||||||
| High | $ | — | $ | 8.60 | $ | 10.50 | $ | 8.25 | ||||||||
| Low | $ | — | $ | 1.40 | $ | 6.02 | $ | 3.41 | ||||||||
Shareholders
As of December 31, 2021, there were approximately 86 holders of record of our common stock. This number does not include shareholders for whom shares were held in “nominee” or “street name.”
Dividends
No Dividends were declared for the Fiscal year 2021.
ITEM 6. SELECTED FINANCIAL DATA
As a Smaller Reporting Company, we are not required to report selected financial data.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our Business
GEX Management is a management consulting and technology business services company providing client employers and their employees with a broad portfolio of related products and services. We provide both long and short-term consulting solution services, including enterprise strategy and technology consulting, enterprise project management; and Human Capital Management (HCM) solution capabilities.
Business Operations
GEX Management works continuously to expand its service offerings to its clients in order to assist them to achieve their respective business goals. Our unique and tailored approach, coupled with an ever-expanding array of services, has significantly differentiated the Company from competitors. GEX likewise distinguished itself in the market via accessible and exceptional client support ensuring that we will not only gain new clients but will retain those we currently have, resulting in long-term sustainability. Clients typically initiate service by means of a three-month agreement with the Company. The contract thereby automatically renews until terminated with a 30-day notice by either party.
Critical Accounting Policies
The Company’s financial statements were prepared in conformity with U.S. generally accepted accounting principles. As such, management is required to make certain estimates, judgments and assumptions that they believe are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expense during the periods presented.
Revenue Recognition
Staffing Services and Professional Services
Staffing services revenue is derived from supplying temporary staff to clients. Temporary staff generally consists of temporary workers working under a contract for a fixed period of time, or on a specific client project. The temporary staff includes both GEX employees and third-parties contracted by GEX.
Temporary staff are provided to clients through a Staffing Service Agreement (‘SSA’) involving a specified service that the temporary staff will provide to the client. When GEX is the principal or primary obligor for the temporary staff, GEX records the gross amount of the revenue and expense from the SSA.
GEX is generally the primary obligor when GEX is responsible for the fulfillment of services under the SSA, even if the temporary staff are not employees of GEX. This typically occurs when GEX contracts third-parties to fulfill all or part of the SSA with the client, but GEX remains the holder of the credit risk associated with the SSA, and GEX has total discretion in establishing the pricing under the SSA.
All other Professional Services revenues are recognized in the period the services are performed as stipulated in the client’s Outsourcing Agreement, when the client is invoiced, and collectability is reasonably assured. Revenue recognition for arrangements with multiple deliverables constituting a single unit of accounting is recognized generally over the greater of the term of the arrangement or the expected period of performance.
All staffing and consulting workers are completely vetted by the company to ensure their employment terms are in adherence to all applicable state. federal and immigration laws. Additionally, GEX Management carries professional liability and fidelity/crime insurance to protect against risks involving working at third party client locations that require the workers to handle sensitive client data and equipment.
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Results of Operations for the Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020
Revenues
Revenues for the year ended December 31, 2021 and 2020 were $1,315,669 and $750,682, respectively. The 75% increase in year over year sales is attributable to a significant expansion in client footprints, aggressive business development efforts and a focus on higher end management and technology consulting business expansion and growth opportunities. Additionally, the management has put in processes in place to strengthen internal controls such as, (1) adherence to established contract markups through enforcement of systematic and auto-invoicing processes to minimize manual errors and enforcing timely invoice submission to clients (2) frequent follow ups by the executive management team to ensure invoices and receivables are tracked and closed in a timely manner, and (3) timely alerts to customers to notify on upcoming billing cycles and payment dues. All of these efforts have resulted in a strong
Cost of Services and Gross Profit
The Company’s gross profit in 2021 was $820,971 compared to $636,965 in 2020. The 29% increase in gross margin was primarily due to signing more consulting contracts in 2021 compared to 2020 and also significant cost rationalization efforts associated with customer contracts relating to our business services in 2021 compared to 2020 and prior periods.
Operating Expense
Total operating expense in the years ended December 31, 2021 and 2020 were $824,441 and $680,202 respectively. The increased expenses reflects the increased operating expenses associated with higher staff addition and costs related to greater volume of customer contracts relating to our business services in 2021 compared to 2020
Net Loss
Net loss for the years ended December 31, 2021 and 2020 was $160,214 and $224,947 , respectively. The lower losses for 2021 compared to 2020 was attributable to lower non-operating expenses and derivative losses in 2021 compared to 2020.
Liquidity and Capital Resources
The Company has identified several potential financing sources in order to raise the capital necessary to fund operations through December 31, 2022. 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. However, the opportunity to make a significant return for our investors is 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. Management intends to move away from these expensive debt like obligations and rely on other traditional and non-traditional debt instruments primarily in the form of convertible notes as well as explore 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 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.
In addition, at this time we cannot predict the impact of COVID-19 on our ability to obtain financing necessary for the Company to fund its working capital requirements.
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A summary of our cash flows for the twelve months ended December 31, was as follows:
| 2021 | 2020 | |||||||
| Net cash used in operating activities | $ | (2,140,047 | ) | $ | (461,038 | ) | ||
| Net cash used in investing activities | - | - | ||||||
| Net cash provided by financing activities | 2,271,043 | 461,038 | ||||||
| Net increase(decrease) in cash and cash equivalents | $ | 130,997 | $ | 2,378 | ||||
Net cash in operating activities was a use of $2,140,047 for the twelve months ended December 31, 2021 as compared to $461,038 cash in operating activities for the twelve months ended December 31, 2020. The increase in cash used in operating activities was in part due to higher operating expenses in 2021 as the Company focused on significantly expanding the business development effort, streamlined operating costs, marketed high margin customer contracts, deployed business acquisition capital and rationalizing expenses to support long term growth.
Net cash provided by financing activities of $2,271,043 for the twelve months ended December 31, 2021 was primarily from debt /debt like instruments in the balance sheet.
Net cash used in investing activities for the twelve months ended December 31, 2021 was $0.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company’s financial statements as of December 31, 2017 had been audited by Pinnacle Accountancy Group of Utah (a d/b/a of Heaton & Company, PLLC, “Heaton & Co”) independent registered public accountants.
On August 21, 2019, the Board of Directors of GEX Management, Inc (the “Company”) approved the engagement of Slack and Company, LLC (“Slack & Co.”) as the Company’s new independent registered public accounting firm for the year ending December 31, 2018.
On January 15, 2020, the Board of Directors of GEX Management, Inc (the “Company”) approved the re-engagement of Slack and Company, LLC (“Slack & Co.”) as the Company’s independent registered public accounting firm for the year ending December 31, 2019.
On January 15, 2021, the Board of Directors of GEX Management, Inc (the “Company”) approved the re-engagement of Slack and Company, LLC (“Slack & Co.”) as the Company’s independent registered public accounting firm for the year ending December 31, 2020.
On January 15, 2022, the Board of Directors of GEX Management, Inc (the “Company”) approved the engagement of Hudgens CPA (“Hudgens”) as the Company’s independent registered public accounting firm for the year ending December 31, 2020.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
During the year ended December 31, 2020 and December 31, 2021, there were no (1) disagreements (as defined in Item 304(a)(1)(iv) of Regulation S-K and related instructions) with Hudgens on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Hudgens, would have caused Hudgens to make reference to the subject matter of the disagreement in their reports, or (2) reportable events (as defined in Item 304(a)(1)(v) of Regulation S-K). The audit reports of Hudgens on the Company’s consolidated financial statements for the year ended December 31, 2021 and December 31 2020, did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles.
The Company has provided Hudgens with a copy of the disclosures it is making in this Current Report on Form 10-K prior to its filing with the Securities and Exchange Commission (“SEC”)
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
In accordance with Exchange Act Rules 13a-15 and 15a-15, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Interim Chief Investment Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Interim Chief Investment Officer concluded that our disclosure controls and procedures were effective as of December 31, 2021.
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Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with generally accepted accounting principles in the United States of America. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements. Because of inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to change in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As part of its review into the company’s past operational and financial controls, current management identified a pattern of inconsistent application of established practices by the prior finance executive team related to managing and executing contractual obligations and related book keeping practices. Lack of easily accessible expense records and failure to match certain contract terms to invoices have resulted in higher costs and missed profit opportunities despite the company recording strong sales during these periods. Additionally, lack of certain documentation related to terms and invoices have introduced challenges to performing accurate and timely audit and review of financial books of records by both current management and the newly introduced independent audit firm.
Despite these past challenges, management has taking extraordinary steps to mitigate this risk by (1) reviewing the book of records for the entire fiscal year and ensuring journal entries are accurately documented for all past transactions and bank statement records are matched with book entries and corrected as needed to reflect accurate records (2) perform comprehensive review of invoices and receivables and write-off long standing receivables as bad expense if required based on detailed analysis (3) transition towards automatic bank feeds to the book of records and away from the past practice of manual book entries of bank deposits or withdrawals which are subject to human errors and prone to transactions risks. Management is confident that these changes would help mitigate the potential risks related to internal controls going forward.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting identified in connection with the evaluation we conducted of the effectiveness of our internal control over financial reporting as of December 31, 2020, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations
Control systems, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control systems’ objectives are being met. Further, the design of any control systems must reflect the fact that there are resource constraints, and the benefits of all controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple errors or mistakes. Control systems can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
ITEM 9B. OTHER INFORMATION
None.
| 12 |
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, 2021.
| Name | Age | Position | Held Since | |||
| Joseph Frontiere | 32 | CEO & CFO | October 2021 | |||
| 3662 W. Camp Wisdom Road | ||||||
| Dallas, Texas 75237 | ||||||
| Sri Vanamali | 39 | President, Director | October 2018 | |||
| 3662 W. Camp Wisdom Road | ||||||
| Dallas, Texas 75237 | ||||||
| Shaheed Bailey | 35 | Director | October 2018 | |||
| 3662 W. Camp Wisdom Road | ||||||
| Dallas, TX 75237 |
Joseph Frontiere, age 32, had been serving as CEO and CFO of the Company since October 2021. From August 3, 2021, to the present, Mr. Frontiere has served as Chairman, CEO and CFO of Quad M. Solutions, IncMr. Frontiere previously served as COO of a private company engaged in A.I. and has extensive experience as a business development executive focusing on financing and acquisitions. From June 2010 through September 2012, he served as a CEO of Lord Global, a company that provided strategic consulting services.
Srikumar Vanamali, age 39, is an experienced post-MBA executive with close to 20 years of top-tier, diverse experience in strategy and technology consulting, compliance 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 a private equity principal and an investment banker at NMS Capital, a L.A.-based 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 Chief Executive Officer and Executive Director for GEX Management, Inc., and currently serves in the role of President.
Shaheed Bailey, age 34, had been serving as Managing Partner of Greenpoint Capital Partners., a private equity 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.
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.
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Board of Directors
Our Board of Directors currently consists of two members. 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 Nominating 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 |
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 current 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);
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(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.
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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
Compensation 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, 2021 and 2020 in all capacities for the accounts of our executives, including the Chief Executive Officer (“CEO”) and Interim Chief Operating Officer (“Interim COO”):
The following officers received the following compensation for the years ended December 31, 2020. 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 | ||||||||||
| Joseph Frontiere, | 2021 | - | None | None | None | None | None | None | ||||||||||
| CEO, CFO | 2020 | - | None | None | None | None | None | None | ||||||||||
| Sri Vanamali, | 2021 | $ | 200,000 | None | None | None | None | None | None | |||||||||
| President | 2020 | $ | 200,000 | None | None | None | None | None | None | |||||||||
| Shaheed Bailey, | 2019 | - | None | None | None | None | None | None | ||||||||||
| Interim Chief Investment Officer | 2019 | - | None | None | None | None | None | None | ||||||||||
| 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, President | 300,000 | None | None | $ | 1 | N/A | None | |||||||||
| Shaheed Bailey, Interim CIO | 300,000 | None | None | $ | 1 | N/A | None | |||||||||
Employment Agreements
We have employment agreements in place with each of the above referenced officers of the Company.
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Compensation 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
The following table lists the number of shares of Common Stock of our Company and, with respect to our officers, directors and principal stockholder, shares of our Super Voting Preferred Stock, as of May 14, 2020 that are beneficially owned by (i) each person or entity known to our Company to be the beneficial owner of more than 5% of the outstanding Common Stock; (ii) each officer and director of our Company; and (iii) all officers and directors as a group. Information relating to beneficial ownership of Common Stock and Super Voting Preferred Stock by our principal stockholders and management is based upon information furnished by each person using “beneficial ownership” concepts under the rules of the Securities and Exchange Commission. Under these rules, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or direct the voting of the security, or investment power, which includes the power to vote or direct the voting of the security. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within sixty (60) days. Under the rules of the SEC, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which he/she may not have any pecuniary beneficial interest. Except as noted below, each person has sole voting and investment power. Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the shares. Except as otherwise indicated, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of our common stock held by them.
| Name of Stockholder | Number of Shares of Common Stock | Number of Super Voting Preferred Stock | Number of Votes Held by Common Stockholders |
Percentage of Voting Equity (1)(3) | ||||||||||||
| Joseph Frontiere, (1) | 0 | 400,000 | 0 | 25.5 | % | |||||||||||
| Sri Vanamali (2) | 0 | 400,000 | 0 | 25.5 | % | |||||||||||
| All directors and officers as a group (2 persons) | 0 | 800,000 | 51.0 | % | ||||||||||||
| Total | 0 | 800,000 | 0 | 51.0 | % | |||||||||||
| (1) | Based upon 415,106,933 shares of Common Stock and 800,000 Super Voting Preferred Stock issued and outstanding as of July 19, 2022, Mr. Frontiere’s voting stock represents 25.5% or 105,852,267 shares of voting capital stock. Mr. Frontiere is the CEO of the Company. |
| (2) | Based upon 415,106,933 shares of Common Stock and 800,000 Super Voting Preferred Stock issued and outstanding as of July 19, 2022. Mr. Vanamali’s voting stock is 25.5% or 105,852,267 shares of voting capital stock. Mr. Vanamali is the President of the Company. |
| (3) | Includes shares of Common Stock and Super Voting Preferred Stock owned by our officers and directors as a group (2 persons). |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS AND DIRECTOR INDEPENDENCE
The Company does not have any related party transactions at this time.
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 incurred 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, 2021, was $15,000.
Audit Related Fees
None.
Tax Fees
None.
All Other Fees
None.
| 17 |
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibits
| 31.1 | Certification of the Company’s Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1 | Certification of the Company’s Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| 18 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on July 20, 2022.
| GEX Management, Inc. | ||
| By: | /s/ Joseph Frontiere | |
| Joseph Frontiere | ||
| Chairman, CEO and CFO | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned hereunto duly authorized.
| Name | Title | Date | |||
| By: | /s/ Joseph Frontiere | Chairman, CEO and CFO | July 20, 2022 | ||
| Joseph Frontiere | |||||
| By: | /s/ Sri Vanamali | President, Director | July 20, 2022 | ||
| Sri Vanamali | |||||
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GEX MANAGEMENT, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| 20 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To The Board of Directors and Stockholders of
GEX Management, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheet of GEX Management, Inc. (the Company) as of December 31, 2021 and 2020, and the related statement of operations, stockholders’ deficit, and cash flows for the two years ended December 31, 2021, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the two years ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
Going Concern Matter
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. We have determined that there were no critical audit matters.
| /s/
|
|
| www.hudgenscpas.com | |
| We have served as the Company’s auditor since 2021. | |
| July 20,2022 |
| 21 |
GEX Management, Inc.
Consolidated Balance Sheets
December 31, 2021 and 2020
| 2021 | 2020 | |||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Other current assets and prepaids | ||||||||
| Total Current Assets | $ | $ | ||||||
| Other assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Shareholders’ Deficit | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Related party payables | ||||||||
| Accrued expenses | ||||||||
| Accrued interest payable | ||||||||
| Convertible notes payable, net | ||||||||
| Settlement Payable | ||||||||
| Line of credit – related party | ||||||||
| Notes Payable | ||||||||
| Total Current Liabilities | ||||||||
| Total Liabilities | ||||||||
| Shareholders’ Deficit | ||||||||
| Common Stock, $ par value | ||||||||
| Additional Paid-In-Capital | ||||||||
| Accumulated Deficit | ( | ) | ( | ) | ||||
| Total Shareholders’ (Deficit) | ( | ) | ( | ) | ||||
| Total Liabilities and Shareholders’ Equity (Deficit) | $ | $ | ||||||
See accompanying notes to the consolidated financial statements.
| 22 |
GEX Management, Inc.
Consolidated Statements of Operations Years Ended
December 31, 2021 and 2020
| 2021 | 2020 | |||||||
| Revenues | $ | $ | ||||||
| Cost of Revenues | ||||||||
| Gross Profit | ||||||||
| Operating Expenses: | ||||||||
| General and administrative | ||||||||
| Total Operating Expenses | ||||||||
| Total Operating Loss | ( | ) | ( | ) | ||||
| Other Income (Expense) | ||||||||
| Gain (loss) on Extinguishment of Debt | ( | ) | ||||||
| Impairment expense | ( | ) | ||||||
| Interest Expense | ( | ) | ( | ) | ||||
| Derivative Gain (Losses) | ( | |||||||
| Other Income (Expense) | ( | ) | ) | |||||
| Net Other Income (Expense) | ( | ) | ( | |||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Income per common share: | ||||||||
| Net loss per common share – basic and diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted Average Shares: | ||||||||
| Basic and diluted | ||||||||
See accompanying notes to the consolidated financial statements.
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GEX Management, Inc.
Consolidated Statement of Changes in Shareholders’ Equity (Deficit)
Years Ended December 31, 2021 and 2020
| Common | Additional Paid-In- | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance at December 31, 2020 | ( | ) | $ | ( | ) | |||||||||||||||
| Balance | ( | ) | $ | ( | ) | |||||||||||||||
| Beneficial Conversion Feature | ||||||||||||||||||||
| Issuance of Common Shares for Debt Conversions | ||||||||||||||||||||
| Net Loss | ( | ) | ( | ) | ||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Balance | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
See accompanying notes to the consolidated financial statements.
| 24 |
GEX Management, Inc.
Consolidated Statements of Cash Flow
Years Ended December 31, 2021 and 2020
| 2021 | 2020 | |||||||
| Operating Activities: | ||||||||
| Net Loss | $ | ( | ) | ( | ) | |||
| Adjustments to reconcile net loss to net cash used by operating activities: | ||||||||
| Depreciation and Amortization | ||||||||
| Gain/loss on Extinguishment of Debt | ||||||||
| Amortization of debt discount | ||||||||
| Impairment | ||||||||
| Stock based compensation | ||||||||
| Gain /Loss on Derivative Instruments | ( | ) | ||||||
| Change in Assets and Liabilities: | ||||||||
| Accounts Receivable | ( | ) | ||||||
| Other Current Assets | ||||||||
| Other Assets | ( | ) | ||||||
| Accounts Payable | ||||||||
| Accrued Expenses | ( | ) | ||||||
| Accrued Interest Payable | ( | ) | ||||||
| Net Cash Used by Operating Activities | $ | ( | ) | ( | ) | |||
| Financing Activities: | ||||||||
| Proceeds from convertible notes payable | ||||||||
| Net Cash Provided by Financing Activities | $ | $ | ||||||
| Net increase in cash and cash equivalents | $ | $ | ||||||
| Cash and cash equivalents | ||||||||
| Cash and cash equivalents at beginning of year | ||||||||
| Cash and cash equivalents at end of year | $ | $ | ||||||
| Supplemental Disclosures: | ||||||||
| Non-Cash Investing and Financing Activities: | ||||||||
| Common Shares Issued for Debt Conversions | $ | $ | ||||||
| Beneficial conversion feature | $ | |||||||
See accompanying notes to the consolidated financial statements.
| 25 |
GEX Management, Inc.
Notes to the Consolidated Financial Statements
December 31, 2021
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.
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
| 26 |
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. The Company had
Accounts Receivable
Accounts receivable consists of accrued services and consulting receivables due from customers. 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. Write-offs are recorded at the time when a customer receivable is deemed uncollectible.
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.
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Revenue Recognition
GEX enters into contracts with its clients for professional services. GEX’s contract stipulates the rate and price charged to each client. GEX’s contracts for these services are generally cancellable at any time by either party with 30-days’ written notice. GEX fulfills its performance obligations each month, and the contracts generally have a term of one year with an automatic renewal after 12 months.
Staffing Services and Professional Services
Staffing services revenue is derived from supplying temporary staff to clients. Temporary staff generally consists of temporary workers working under a contract for a fixed period of time, or on a specific client project. The temporary staff includes both GEX employees and third-parties contracted by GEX.
Temporary staff are provided to clients through a Staffing Service Agreement (‘SSA’) involving a specified service that the temporary staff will provide to the client. When GEX is the principal or primary obligor for the temporary staff, GEX records the gross amount of the revenue and expense from the SSA.
GEX is generally the primary obligor when GEX is responsible for the fulfillment of services under the SSA, even if the temporary staff are not employees of GEX. This typically occurs when GEX contracts third-parties to fulfill all or part of the SSA with the client, but GEX remains the holder of the credit risk associated with the SSA, and GEX has total discretion in establishing the pricing under the SSA.
All other Professional Services revenues are recognized in the period the services are performed as stipulated in the client’s Outsourcing Agreement, when the client is invoiced, and collectability is reasonably assured. Revenue recognition for arrangements with multiple deliverables constituting a single unit of accounting is recognized generally over the greater of the term of the arrangement or the expected period of performance.
Income Taxes
The Company uses the liability method in the computation of income tax expense and the current and deferred income taxes payable. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.
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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 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.
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, 2021 or operations or cash flows for the periods ended December 31 2021.
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, 2021.
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, 2021 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 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. STOCKHOLDERS’ EQUITY
General
On September 21, 2020, the Company issued shares of common stock related to a convertible note conversion.
On September 23, 2020, the Company issued shares of common stock related to a convertible note conversion.
On September 24, 2020, the Company issued shares of common stock related to a convertible note conversion.
On September 25, 2020, the Company issued shares of common stock related to a convertible note conversion.
On September 29, 2020, the Company issued shares of common stock related to a convertible note conversion.
On October 6, 2020, the Company issued shares of common stock related to a convertible note conversion.
On October 16, 2020, the Company issued shares of common stock related to a convertible note conversion.
On November 2, 2020, the Company issued shares of common stock related to a convertible note conversion.
On December 3, 2020, the Company issued shares of common stock related to a convertible note conversion.
On December 8, 2020, the Company issued shares of common stock related to a convertible note conversion.
On December 10, 2020, the Company issued shares of common stock related to a convertible note conversion.
On December 10, 2020, the Company issued shares of common stock related to a convertible note conversion.
On December 14, 2020, the Company issued shares of common stock related to a convertible note conversion.
On December 15, 2020, the Company issued shares of common stock related to a convertible note conversion.
On December 17, 2020, the Company issued shares of common stock related to a convertible note conversion.
On December 21, 2020, the Company issued shares of common stock related to a convertible note conversion.
On December 15, 2020, the Company issued shares of common stock related to a convertible note conversion.
On December 24, 2020, the Company issued shares of common stock related to a convertible note conversion.
On December 24, 2020, the Company issued shares of common stock related to a convertible note conversion.
On December 28, 2020, the Company issued shares of common stock related to a convertible note conversion.
On December 29, 2020, the Company issued shares of common stock related to a convertible note conversion.
On December 30, 2020, the Company issued shares of common stock related to a convertible note conversion.
On December 31, 2020, the Company issued shares of common stock related to a convertible note conversion.
In January 2021, the Company issued a total of shares of common stock related to a convertible note conversions.
In February 2021, the Company issued a total of shares of common stock related to a convertible note conversions.
In March 2021, the Company issued a total of shares of common stock related to a convertible note conversions.
In April 2021, the Company issued a total of shares of common stock related to convertible notes.
In May 2021, the Company issued a total of shares of common stock related to convertible notes.
In June 2021, the Company issued a total of shares of common stock related to convertible notes.
In July 2021, the Company issued a total of shares of common stock related to convertible notes.
In August 2021, the Company issued a total of shares of common stock related to convertible notes.
In September 2021, the Company issued a total of shares of common stock related to convertible notes.
In December 2021, the Company issued a total of shares of common stock related to convertible notes.
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NOTE 3. NOTES PAYABLE
On
April 26, 2018, the Company entered into two Securities Purchase Agreements, pursuant to which the Company issued Convertible Promissory
Notes (“the Notes”) with principal amounts totaling up to $
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 $
On
April 26, 2018, the Company entered into a convertible note payable for $
On
August 8, 2018, the Company entered into a convertible note payable for $
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NOTE 4. 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
NOTE 5. SUBSEQUENT EVENTS
On January 4, 2022, the Company issued shares of common stock related to a convertible note conversion.
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EXHIBIT 31.1/31.2
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT AND RULE 13A-14(A)
OR 15D-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, Joseph Frontiere, certify that:
| 1. | I have reviewed this annual report on Form 10-K of GEX Management, Inc. | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | |
| 5. | I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): | |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. | |
| Date: July 20, 2022 | /s/ Joseph Frontiere |
| Joseph Frontiere | |
| Chairman, CEO and CFO |
EXHIBIT 32.1/32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of GEX Management, Inc. (the “Company”), for the financial year ended December 31, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Joseph Frontiere, Chief Executive Officer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
| Date: July 20, 2022 | By: | /s/ Joseph Frontiere |
| Name: | Joseph Frontiere | |
| Title: | Chairman, CEO and CFO |