Form 10-Q GEX MANAGEMENT, INC. For: Mar 31
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended
OR
For the transition period from ______to_____
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(Exact name of registrant as specified in its charter)
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or other jurisdiction of incorporation) |
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Employer Identification No.) |
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(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| OTC Pink |
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
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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 ☐ | |
| Smaller
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Emerging
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As of August 4, 2022 there were shares of the registrant’s common stock outstanding.
GEX MANAGEMENT, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022
TABLE OF CONTENTS
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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 for the fiscal year ended December 31, 2021, which we filed with the SEC on July 21, 2022 (“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.
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GEX MANAGEMENT, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
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GEX Management, Inc.
Consolidated Balance Sheets
(Unaudited)
| March 31, 2022 | December 31, 2021 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and Cash Equivalents | $ | $ | ||||||
| Accounts Receivable, net | ||||||||
| Other Current Assets | ||||||||
| Total Current 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 and shares issued and Outstanding as March 31, 2022 and December 31, 2021, respectively | ||||||||
| Additional Paid In Capital | ||||||||
| Retained Deficit | ( | ) | ( | ) | ||||
| TOTAL SHAREHOLDERS’ EQUITY (DEFICIT) | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) | ||||||||
See accompanying notes to the unaudited consolidated financial statements.
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GEX Management, Inc.
Consolidated Statements of Operations (Unaudited)
| Three Months Ended | Three Months Ended | |||||||
| March 31, 2022 | March 31, 2021 | |||||||
| Revenues | $ | $ | ||||||
| Cost of Revenues | ||||||||
| Gross Profit (Loss) | ||||||||
| Depreciation and Amortization | ||||||||
| General and Administrative | ||||||||
| Total Operating Expenses | ||||||||
| Total Operating Income (Loss) | ( | ) | ||||||
| Other Income (Expense) | ||||||||
| Income (Expense) from Other | ( | ) | ||||||
| Interest Income( Expenses) | ( | ) | ( | ) | ||||
| Net Other Income (Expense) | ( | ) | ( | ) | ||||
| NET INCOME (LOSS) | ( | ) | ( | ) | ||||
| BASIC and DILUTED | ||||||||
| Weighted Average Shares Outstanding | ||||||||
| Earnings (loss) per Share | $ | ( | ) | $ | ( | ) | ||
See accompanying notes to the unaudited consolidated financial statements.
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GEX Management, Inc.
Consolidated Statement of Changes in Shareholders’ (Deficit)
| Preferred | Common | Additional Paid-In- | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Issuance of Common Shares for Debt Conversions | ||||||||||||||||||||||||||||
| Net Loss | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Issuance of Common Shares for exercise of cashless warrants | - | ( | ) | |||||||||||||||||||||||||
| Issuance of Common Shares for debt conversions | - | |||||||||||||||||||||||||||
| Net Loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
See accompanying notes to the unaudited consolidated financial statements.
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GEX Management, Inc.
Consolidated Statements of Cash Flows (Unaudited)
| Three Months Ended | Three Months Ended | |||||||
| March 31, 2022 | Mar 31, 2021 | |||||||
| Cash Flows (used by) Operating Activities: | ||||||||
| Net Loss | $ | ( | ) | ( | ) | |||
| Adjustments to reconcile net loss to net cash (used in) operating activities: | ||||||||
| Depreciation and Amortization | ||||||||
Amortization of debt discount | ||||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Other current assets | ( | ) | ||||||
| Other liabilities | ||||||||
| Accounts Payable | ||||||||
| Accrued expenses and other payables | ||||||||
| Net cash (used in) operating activities | ( | ) | ||||||
| Cash Flows from (used in) Investing Activities: | ||||||||
| Net cash (used in) Investing Activities: | ||||||||
| Cash Flows from (used in) Financing Activities: | ||||||||
| Proceeds from short term notes payable (net) | ||||||||
| Net cash provided by financing activities | ||||||||
| NET INCREASE (DECREASE) IN CASH | ||||||||
| CASH AT BEGINNING OF PERIOD | ||||||||
| CASH AT END OF PERIOD | ||||||||
Supplemental Cash Flow Disclosures: | ||||||||
| Cash paid for taxes | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
Noncash Investing and Financing: |
| |||||||
| Conversion of notes payable and accrued interest | $ | $ | ||||||
| Cashless exercise of warrants | $ | $ | ||||||
See accompanying notes to the unaudited consolidated financial statements.
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GEX Management, Inc.
Notes
to Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2022 and 2021
(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.
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 management of GEX under the leadership of 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. 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 globally 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 $
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Material Definitive Agreements
No Material Agreements have been executed by the Company during this reporting period.
Basis of Presentation
Our financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”), as well as the applicable regulations and rules of the Securities and Exchange Commission (“SEC”). This requires management to make estimates and assumptions that affect the amounts reported in the financial statements and their accompanying notes. The actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of GEX Management, Inc. and its wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.
There have been no significant changes to our accounting policies that have a material impact on our financial statements and accompanying notes.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash in banks and short-term investments with original maturities of three months or less.
Accounts Receivable
Accounts receivable consists of accrued services and consulting receivables due from customers and are unsecured. The receivables are generally due within 30 to 45 days after the date of the invoice. Accounts receivable is carried at their face amount, less an allowance for doubtful accounts. GEX’s policy is not to charge interest on receivables after the invoice becomes past due. Write-offs are recorded at the time when a customer receivable is deemed uncollectible.
Related Parties
Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal with if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests.
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. The duration between invoicing and when GEX completes its contractual, performance obligations are satisfied is not significant. For staffing and professional services payment is generally due 30 days after the invoice is sent to the client. GEX does not have significant financing components or significant payment terms.
Staffing Services and Professional Services
Staffing services revenue is derived from supplying temporary staff to clients. Temporary staff generally consists of temporary workers working under a contract for a fixed period of time, or on a specific client project. The temporary staff includes both GEX employees and third-parties contracted by GEX.
Temporary staff are provided to clients through a Staffing Service Agreement (‘SSA’) involving a specified service that the temporary staff will provide to the client. When GEX is the principal or primary obligor for the temporary staff, GEX records the gross amount of the revenue and expense from the SSA.
GEX is generally the primary obligor when GEX is responsible for the fulfillment of services under the SSA, even if the temporary staff are not employees of GEX. This typically occurs when GEX contracts third-parties to fulfill all or part of the SSA with the client, but GEX remains the holder of the credit risk associated with the SSA, and GEX has total discretion in establishing the pricing under the SSA.
All other Professional Services revenues are recognized in the period the services are performed as stipulated in the client’s Outsourcing Agreement, when the client is invoiced, and collectability is reasonably assured. Revenue recognition for arrangements with multiple deliverables constituting a single unit of accounting is recognized generally over the greater of the term of the arrangement or the expected period of performance.
Income Taxes
The Company uses the liability method in the computation of income tax expense and the current and deferred income taxes payable. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.
Fair Value Measurements
ASC Topic 820 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and requires certain disclosures about fair value measurements. In general, fair value of financial instruments is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the Company’s credit worthiness, among other things, as well as unobservable parameters.
Earnings per share 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.
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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 of the Company.
Note 2. 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.
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 and three months ended March 31, 2022 were prepared on
the basis of a going concern which contemplates that the Company will be able to realize assets and discharge liabilities in the normal
course of business. Accordingly, they do not give effect to adjustments that would be necessary should the Company be required to liquidate
its assets. The ability of the Company to meet its total liabilities of $
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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NOTE 3. STOCKHOLDERS’ EQUITY
During
the 3 months ended March 31, 2022, the Company issued shares of common stock for conversions of notes payable for total principal
and accrued interest of
During the 3 months ended March 31, 2022, the Company issued shares of common stock for the exercise of warrants on a cashless basis.
NOTE 4. NOTES PAYABLE
In 2018, the Company entered into several notes secured by future receivables of the Company. The Lender declared
bankruptcy and the Company has made no payments on the notes since fiscal year 2019. The notes are recorded on the balance sheet in the
amount of $
On
June 9, 2021, the Company entered into a convertible promissory note in the amount of $
On
June 25, 2021 the Company entered into a convertible promissory note in the amount of $
On
July 8, 2021 the Company entered into a convertible promissory note in the amount of $
On August 9, 2021 the Company entered
into a convertible promissory note in the amount of $
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On
August 9, 2021 the Company entered into a convertible promissory note in the amount of $
On
August 10, 2021, the Company entered into a convertible promissory note in the amount of $
On
August 10, 2021, the Company entered into a convertible promissory note in the amount of $
On
August 20, 2021, the Company entered into a convertible promissory note in the amount of $
On
September 1, 2021, the Company entered into a convertible promissory note in the amount of $
On
September 1, 2021, the Company entered into a convertible promissory note in the amount of $
On
September 1, 2021, the Company entered into a convertible promissory note in the amount of $
On
September 1, 2021, the Company entered into a convertible promissory note in the amount of $
On
September 2, 2021, the Company entered into a convertible promissory note in the amount of $
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On
September 8, 2021, the Company entered into a convertible promissory note in the amount of $
On
September 8, 2021, the Company entered into a convertible promissory note in the amount of $
On
September 9, 2021, the Company entered into a convertible promissory note in the amount of $
On
October 5, 2021, the Company entered into a convertible promissory note in the amount of $
On
October 5, 2021, the Company entered into a convertible promissory note in the amount of $
During
the three months ended March 31, 2022, the Company recognized a total of $
During
the three months ended March 31, 2022, the Company recognized a total of $
NOTE 5. RELATED PARTY TRANSACTIONS
On
March 1, 2015, the Company entered into a Line of Credit Agreement with P413 at an interest rate of
The
Company owed a director of the Company $
NOTE 6. COMMITMENTS AND CONTINGENCIES
Litigation
From time to time, claims are made against the Company in the ordinary course of its business, which could result in litigation. Claims and associated litigation are subject to inherent uncertainties and unfavorable outcomes could occur, such as monetary damages, fines, penalties, or injunctions prohibiting the Company from selling one or more products or engaging in other activities. The occurrence of an unfavorable outcome in any specific period could have a material adverse effect on the Company’s results of operations for that period or future periods.
In 2019, a judgement was received against
the Company awarding EMA Financial, a former note holder of the Company, settlement of default notes payable, accrued interest and fees
in the amount of $
NOTE 7. SUBSEQUENT EVENTS
In
April 2022, the Company issued common shares in conversion of notes payable in the amount of $
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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, 2021.
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 March 31, 2022 compared to the three months ended March 31, 2021
Revenue
Our revenue for the three months ended March 31, 2022 was $518,861 compared to $173,763 for the three months ended March 31, 2021. This strong 200%+ 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 under the guidance of the President and Director of GEX Consulting Business Practices, Sri Vanamali.
Operating Expense
Total operating expenses for the three months ended March 31, 2022 was $271,376 compared to the operating cost for the three months ended March 31, 2022 of $441,711. The lower expenses for this period are due to there being no depreciation an amortization during the period and less administrative costs during the current period.
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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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 Chief Executive Officer / 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 / 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 ineffective.
Changes in Internal Control over Financial Reporting
There has been no changes in our internal control procedures over financial reporting identified in connection with the evaluation we conducted of the effectiveness of our internal control over financial reporting as of March 31, 2020, that occurred during our first quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
| 17 |
PART II – OTHER INFORMATION
ITEM 1. 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 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 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 resolution a 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.
ITEM 5. OTHER INFORMATION
None
| 18 |
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 |
Description | ||
| 31.1/31.2 | * | 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 | ||
| 32.1/32.2 | * | 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 101.SCH 101.CAL 101.DEF 101.LAB 101.PRE |
* * * * * * |
Inline XBRL Instance Document Inline XBRL Taxonomy Extension Schema Document Inline XBRL Taxonomy Extension Calculation Linkbase Document Inline XBRL Taxonomy Extension Definition Linkbase Document Inline XBRL Taxonomy Extension Label Linkbase Document Inline XBRL Taxonomy Extension Presentation Linkbase Document | ||
| 104 | * | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| 19 |
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: Aug 8, 2022 | By: | /s/ Joseph Frontiere |
| Name: | Joseph Frontiere | |
| Title: | Chief Executive Officer | |
| 20 |
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 quarterly report on Form 10-Q 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: Aug 8, 2022 | /s/ Joseph Frontiere |
| Joseph Frontiere | |
| Chief Executive Officer |
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 Quarterly Report on Form 10-Q of GEX Management, Inc. (the “Company”), for the quarter ended March 31, 2022, 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: Aug 8, 2022 | By: | /s/ Joseph Frontiere |
| Name: | Joseph Frontiere | |
| Title: | Chief Executive Officer |
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