GEX MANAGEMENT, INC. - Quarter Report: 2017 June (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark
One)
[ X
] QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly
period ended June 30, 2017
OR
[ ]
TRANSITION REPORT UNDER SECTION 13
OF 15(d) OF THE EXCHANGE ACT OF 1934
Commission File
Number 333-213470
GEX
MANAGEMENT, INC.
(Exact name of
registrant as specified in its charter)
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Texas
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56-2428818
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(State
or other jurisdiction of incorporation)
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(IRS
Employer Identification No.)
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12001 N. Central Expressway, Suite
825
Dallas, Texas
75243
(Address of
principal executive offices)
(877)
210-4396
(Issuer's telephone
number)
(Former name,
former address and former fiscal year, if changed since last
report)
Indicate by check
mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes
[X] No [ ]
Indicate by check
mark whether the registrant has submitted electronically and posted
on its corporate website, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of
Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such
files). Yes [X] No [ ]
Indicate by check
mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated
filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange
Act:
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Large
Accelerated Filer [ ]
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Accelerated
Filer [ ]
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Non-Accelerated
Filer [ ]
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Smaller
Reporting Company [X]
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Indicate by check
mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of August 3,
2017 there were 8,633,909 shares of the registrant’s common
stock, par value $0.001 per share, outstanding.
1
PART I
ITEM 1. FINANCIAL
STATEMENTS
GEX Management, Inc.
Balance Sheets
ASSETS
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June
30, 2017
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Dec
31, 2016
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(Unaudited)
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Current
Assets:
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Cash
and Cash Equivalents
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$249,823
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$307,395
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Accounts
Receivable, net
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112,430
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100,820
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Accounts
Receivable – Related Party
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28,000
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23,500
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Other
Current Assets
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67,886
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959
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Total
Current Assets
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458,139
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432,674
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Property, Plant and
Equipment (Net)
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818
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1,106
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Other
Assets
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5,590
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—
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TOTAL
ASSETS
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$464,547
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$433,780
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LIABILITIES
AND SHAREHOLDERS’ EQUITY (DEFICIT)
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Current
Liabilities:
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Accounts
Payable
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$15,547
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$3,832
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Accrued
Expenses
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13,225
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60,615
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Accrued
Expenses – Related Party
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—
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45,000
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Accrued
Interest Payable
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3,686
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21,952
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Total
Current Liabilities
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32,458
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131,399
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Non-Current
Liabilities
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Notes
Payable – Related Party
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96,000
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363,187
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TOTAL
LIABILITIES
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128,458
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494,586
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SHAREHOLDERS’
EQUITY (DEFICIT)
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Preferred
Stock, $0.001 par value, 20,000,000 shares
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authorized,
0 shares issued and outstanding
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—
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—
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Common
Stock, $0.001 par value, 200,000,000 shares
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authorized,
8,624,408 and 8,241,015 shares issued and
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Outstanding
as June 30, 2017 and December 31, 2016, respectively
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8,624
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8,241
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Additional
Paid In Capital
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1,071,471
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377,144
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Retained
Deficit
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(744,006)
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(446,191)
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TOTAL
SHAREHOLDERS’ EQUITY (DEFICIT)
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336,089
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(60,806)
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TOTAL LIABILITIES
AND SHAREHOLDERS’ EQUITY (DEFICIT)
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$464,547
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$433,780
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The accompanying
notes are an integral part of these financial
statements.
2
GEX Management, Inc.
Statements of Operations
(Unaudited)
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Three Months
June 30, 2017
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Three Months
June 30, 2016
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Six Months
June 30, 2017
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Six Months
June 30, 2016
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Revenues
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$2,843,988
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$13,705
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$2,994,628
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$76,248
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Revenues –
Related Party
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44,000
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225,655
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64,000
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246,805
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Total
Revenues (1)
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2,887,988
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239,360
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3,058,628
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323,053
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Cost of
Revenues
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2,839,028
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65,156
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3,137,678
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108,228
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Gross Profit
(Loss)
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48,960
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174,204
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(79,050)
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214,825
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Operating
Expenses
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Depreciation
and Amortization
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14,508
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144
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14,652
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288
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Selling
and Advertising
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20,027
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—
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30,354
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11
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General
and Administrative
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164,551
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56,234
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336,339
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114,837
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Total
Operating Expenses
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199,086
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56,378
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460,395
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115,136
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Total
Operating Income (Loss)
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(150,126)
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117,826
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(470,302)
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99,689
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Other Income
(Expense)
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Gain
on Extinguishment of Debt
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172,872
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—
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172,872
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—
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Interest
Income
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—
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24
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—
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72
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Interest
(Expense)
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(4,919)
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(10,503)
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(10,292)
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(23,186)
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Total
Other Income (Expense)
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167,953
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(10,479)
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162,580
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(23,114)
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Net income (loss)
before income taxes
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17,827
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107,347
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(297,815)
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76,575
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Provision for
income taxes
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—
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—
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—
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—
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NET INCOME
(LOSS)
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$17,827
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$107,347
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$(297,815)
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$76,575
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BASIC and
DILUTED
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Weighted Average
Shares Outstanding
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8,500,634
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8,000,000
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8,419,535
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8,000,000
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Earnings per
Share
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$0.00
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$0.01
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$(0.04)
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$0.01
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(1)
Gross
billings of $3,473,198 and $239,360 less payroll and payroll tax
cost related to PEO clients of $585,210 and $0 for the three months
ended 2017 and 2016, respectively, and gross billings of $3,643,838
and $323,053 less payroll and payroll tax cost related to PEO
clients of $585,210 and $0 for the six months ended 2017 and 2016,
respectively.
The accompanying
notes are an integral part of these financial
statements.
3
GEX Management, Inc.
Statements of Cash Flow
(Unaudited)
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Six
Months Ended
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Six
Months Ended
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June
30, 2017
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June
30, 2016
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Cash Flows (used
by) Operating Activities:
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Net
Income (Loss)
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$(297,815)
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$76,575
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Adjustments to
reconcile net income (loss) to net cash
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(used
in) operating activities:
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Depreciation
and Amortization
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14,652
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288
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Shares
Issued for Services
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74,751
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—
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Gain
on Extinguishment of Debt
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(172,872)
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—
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Changes in assets
and liabilities:
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Accounts
receivable
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(11,610)
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(36,257)
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Accounts
receivable – Related Party
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(4,500)
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(168,728)
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Other
current assets
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(43,791)
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—
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Deposits
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(5,590)
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(27,500)
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Accounts
Payable
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11,715
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—
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Accounts
payable – Related Party
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—
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(137)
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Accrued
expenses
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(47,390)
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(14,325)
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Accrued
interest payable
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10,292
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6,608
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Net
cash (used in) operating activities
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(472,158)
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(163,476)
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Cash Flows from
(used in) Investing Activities:
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Purchase
of customer contracts
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(37,500)
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—
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Net cash (used in)
Investing Activities:
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(37,500)
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—
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Cash Flows from
(used in) Financing Activities:
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Proceeds
from sale of common stock
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402,086
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—
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Proceeds
from notes payable – related party
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50,000
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231,504
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Payments
on notes payable – related party
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—
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(13,196)
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Payments
on working capital loan
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—
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(51,922)
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Net cash provided
by financing activities
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452,086
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166,386
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NET INCREASE
(DECREASE) IN CASH
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(57,572)
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2,910
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CASH AT BEGINNING
OF PERIOD
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307,395
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2,837
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CASH AT END OF
PERIOD
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$249,823
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$5,747
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SUPPLEMENTAL
DISCLOSURES:
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Income
taxes paid
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$—
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$—
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Interest
paid
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$—
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$23,186
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NON-CASH INVESTING
AND FINANCING ACTIVITIES:
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Accounts
Payable converted to Common Stock
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$45,000
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$—
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Debt
and Interest converted to Common Stock
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$345,745
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$—
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Common
Stock Issued for Services
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$74,751
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$—
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The accompanying notes are an
integral part of these financial statements.
4
GEX Management, Inc.
Notes to Financial
Statements
June 30, 2017
(Unaudited)
NOTE 1. DESCRIPTION OF BUSINESS AND SIGNIFICANT
ACCOUNTING POLICIES
Organization and Description of
Business
GEX Management,
Inc., a Texas corporation (the “Company,”
“GEX,” “we,” “our,”
“us,” and words of similar import) is a Professional
Employer Organization (PEO) and Professional 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 corporation in March of 2016, and changed its name to
GEX Management, Inc. in April of 2016. GEX provides PEO services
and a variety of professional services to support the human
resources and back office needs of companies in a variety of
industries. Some of the main professional services we provide
include: IT support, accounting and bookkeeping, human resources,
business consultation and optimization and staffing.
On January 25,
2017, GEX obtained its license to operate as a Professional
Employer Organization, and we began offering PEO services in April
2017. The staffing and PEO services make up a majority of our
revenue.
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 that are applicable
to interim financial reporting. 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. Management has made all
adjustments necessary so that the financial statements are
presented fairly in all material respects.
There have been no
significant changes to our accounting policies that have a material
impact on our financial statements and accompanying
notes.
The results of
operations for the three and six months ended June 30, 2017 are not
necessarily indicative of the operating results to be expected for
the year ending December 31, 2017 or future operations. These
interim financial statements are condensed and should be read in
conjunction with the Company’s latest annual report on Form
10-K and interim disclosures generally do not repeat those in the
annual statements.
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.
Revenue
Recognition
PEO Services
Professional
Employment Organization (PEO) service revenues represent the fees
charged to clients for administering payroll and payroll tax
transactions for our clients’ Co-Employed Employees (CEEs),
access to our Human Resources Information System technology
(MyEasyHR), access to our HR and benefits administration services,
consulting related to employment and benefit law compliance and
general employment consulting related fees. PEO service revenues
are recognized in the period the PEO services are performed as
stipulated in the Client Service Agreement (CSA), where these fees
are fixed or determinable, when the PEO client is invoiced and
collectability is reasonably assured.
5
GEX is not
considered the primary obligor with respect to CEE’s payroll
and payroll tax payments and therefore, these payments are not
reflected as either revenue or expense in our statements of
operations.
PEO-related
revenues also include revenues generated from insurance
administration for our PEO clients. These insurance-related
revenues include insurance-related billings, as well as
administrative fees that GEX collects from PEO clients and
withholds from CEEs for health benefit insurance plans provided by
third-party insurance carriers. Insurance-related revenues are
recognized in the period amounts are due and where collectability
is reasonably assured.
Staffing Services and Professional
Services
Staffing services
revenue is derived from supplying temporary staff to clients.
Temporary staff generally consists of temporary workers working
under a contract for a fixed period of time, or on a specific
client project. The temporary staff includes both GEX employees and
third-parties contracted by GEX.
Temporary staff are
provided to clients through a Staffing Service Agreement (SSA)
involving a specified service that the temporary staff will provide
to the client. When GEX is the principal or primary obligor for the
temporary staff, GEX records the gross amount of the revenue and
expense from the SSA.
GEX is generally
the primary obligor when GEX is responsible for the fulfillment of
services under the SSA, even if the temporary staff are not
employees of GEX. This typically occurs when GEX contracts
third-parties to fulfill all or part of the SSA with the client,
but GEX remains the holder of the credit risk associated with the
SSA, and GEX has total discretion in establishing the pricing under
the SSA.
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.
Recently Issued Accounting
Pronouncements
The Financial
Accounting Standards Board (“FASB”) issued Accounting
Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic
606) in May 2014. ASU No. 2014-09 outlines a single,
comprehensive revenue recognition model for revenue derived from
contracts with customers and it supersedes the most current revenue
recognition guidance. This includes current guidance that is
industry-specific. Under ASU No. 2014-09, an entity recognizes
revenue for the transfer of promised goods or services to customers
in an amount that reflects the consideration for which the entity
expects to be entitled in exchange for those goods or services. ASU
No. 2014-09 is effective for annual reporting periods beginning
after December 15, 2017. Earlier adoption is permitted as of annual
reporting periods beginning after December 15, 2016. Companies may
use either a full retrospective or a modified retrospective
approach to adopt ASU No. 2014-09. GEX plans to adopt ASU 2014-09
effective January 1, 2018. We intend to use the modified
retrospective method. Since we intend to use the modified
retrospective method, the guidance will be applied to only our most
current period presented in the financial statements. We will
continue to analyze this model, but we expect our revenue
recognition policies to remain substantially unchanged as a result
of adopting ASU 2014-09. Furthermore, we do not anticipate
significant changes will result in our business relating to the
adoption of ASU 2014-09.
6
NOTE 2. OTHER CURRENT
ASSETS
On March 9, 2017
GEX entered into a Contract Purchase Agreement with another
Professional Employer Organization for the purchase of three client
service agreements. Under the terms of this Agreement, GEX paid
$37,500 in cash. The cost of the Contract Purchase Agreement will
be amortized over nine months, the term of the contract, starting
in April 2017.
In April 2017, GEX
entered into an Agreement with Center Operating Company, L.P.
(Center Operating) for the rental of a box at a local arena for
marketing and promotion and covers the eight month seasons starting
in September 2017. The payment terms include an initial deposit of
$10,000 in April 2017, and three payments of $25,833 in September
2017, December 2017 and February 2018. This Agreement will be
charged to advertising and marketing expense over the eight month
season at $10,938 per month.
In May 2017, GEX
entered into an Agreement with OTC Market Group Inc. (OTC Markets)
to trade the Company’s common stock on the OTCQB tier of the
OTC Markets trading exchange under the symbol “GXXM.”
In accordance with the terms and conditions of this Agreement, GEX
paid $10,000 for a term of one year that began in June 2017. The
Agreement is being amortized over the life of the Agreement
starting in June 2017.
On June 20, 2017,
GEX entered into an Advisory Agreement with NMS Capital Advisor,
LLC (NMS). NMS is a full service Investment Bank that will provide
financial advisory services to GEX. Under the terms and conditions
of the Advisory Agreement, GEX paid $24,750.00 through the issuance
of 2,500 shares of the Company’s common stock. The term of
the Advisory Agreement is for one year starting on June 20, 2017,
and it is being amortized over that period.
NOTE 3. EARNINGS PER SHARE
Earnings per share
are calculated in accordance with ASC 260 “Earnings per Share.” The
weighted average number of common shares outstanding during each
period is used to compute basic earnings (loss) per
share. Diluted earnings per share are computed using the
weighted average number of shares and potentially dilutive common
shares outstanding. Potentially dilutive common shares are
additional common shares assumed to be exercised. As of June 30,
2017 the Company had no agreements for the issuance of dilutive
shares.
NOTE 4. STOCKHOLDERS’
EQUITY
Transactions
The Company filed
Form S-1 with the Securities & Exchange Commission and it was
declared effective on November 14, 2016 under which the Company
sold 188,059 shares for $282,089 in the three months ended March
31, 2017 under this registration statement.
The Company issued
33,334 for services at $1.50 per share for a total of $50,000
during the three months ended March 31, 2017.
On May 15, 2017,
GEX entered into a Conversion Agreement with two consultants that
had a $45,000 balance with the Company. In accordance with
the terms and conditions of the Conversion Agreement, GEX issued a
total of 30,000 shares of the Company's common stock, restricted
pursuant to Rule 144 of the Securities Act of 1933, as amended, at
a cost basis of $1.50 per share. The two consultants were issued
15,000 shares each of the total 30,000 shares issued by the
Company.
On June 7, 2017,
GEX entered into a Debt Conversion Agreement with the Company that
purchased the Line of Credit Promissory Note from the
Company’s Chief Executive Officer. Under the terms and
conditions of the Debt Conversion Agreement GEX issued 115,248
shares of its common stock, restricted pursuant to Rule 144 of the
Securities Act of 1933, as amended, for the extinguishment of
$345,745 in debt and accrued interest owed by GEX under the Line of
Credit as of the date of the Debt Conversion
Agreement.
7
On June 20, 2017,
GEX entered into a Stock Purchase Agreement (SPA) with a
third-party investor. Under the terms and conditions of the SPA,
GEX issued 14,252 shares of its common stock, restricted pursuant
to Rule 144 of the Securities Act of 1933, as amended, for a total
of $120,000.
On June 20, 2017,
GEX entered into an Advisory Agreement with NMS Capital Advisor,
LLC (NMS). Under the terms and conditions of the Advisory
Agreement, GEX paid a non-refundable retainer in the amount of
$24,750 through the issuance of 2,500 shares of the Company’s
common stock, restricted pursuant to Rule 144 of the Securities Act
of 1933, as amended.
General
The Company is
authorized to issue 200,000,000 common shares at a par value of
$0.001 per share. These shares have full voting
rights. At June 30, 2017 and December 31, 2016 there
were 8,624,408 and 8,241,015 common shares outstanding,
respectively.
The Company is
authorized to issue 20,000,000 preferred shares at a par value of
$0.001 per share. These shares have full voting
rights. At June 30, 2017 and December 31, 2016 there
were 0 preferred shares outstanding. The preferred stock ranks
senior to the common stock of the Company in each case with respect
to dividend distributions and distributions of assets upon the
liquidation, dissolution or winding up of the Company whether
voluntary or involuntary.
NOTE 5. NOTES PAYABLE
At June 30, 2017
and December 31, 2016 Notes Payable were as follows:
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June
30, 2017
|
Dec
31, 2016
|
|
Non-Current Note
Payable(1):
|
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|
|
Note Payable
–6% interest rate, $1,000,000
|
|
|
|
Line
of Credit, due March 31, 2019
|
—
|
317,187
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|
Non-Current Note
Payable:
|
|
|
|
Note Payable-
Related Party, 6% interest rate, $500,000
|
|
|
|
Line
of Credit, due March 31, 2019
|
96,000
|
46,000
|
|
Total Notes
Payable
|
$96,000
|
$363,187
|
(1)
On
December 31, 2016 the Note Payable and accrued interest was
recorded as owed to a related party, the Company’s CEO, Carl
Dorvil. On April 11, 2017 Mr. Dorvil sold the Line of Credit
Promissory Note to an unrelated third-party.
On June 7, 2017 GEX
entered into a Debt Conversion Agreement and issued 115,248 shares
of its common stock in exchange for the extinguishment of the debt
in the amount of $317,187 and accrued interest of $28,558 totaling
$345,745. The Debt Conversion Agreement was incorporated by
reference to Exhibit 10.2 to the Company’s Form 8-K filed
with the SEC on June 9, 2017.
The Company sold
429,074 shares at $1.50 per share for a total of $643,611 under its
offering for shares registered on Form S-1. The closing of this
offering was disclosed on its Form 8-K filed with the SEC on March
29, 2017. This established the $1.50 value of the Company’s
common stock prior to trading on an over-the-counter market.
Trading commenced on June 13, 2017 subsequent to the June
7th
Agreement. Therefore, the Company recorded a gain on the
extinguishment of debt in the amount of $172,872.
8
NOTE 6. ACCOUNTS RECEIVABLE AND CONCENTRATION
OF CREDIT RISK
As of June 30, 2017
and December 31, 2016 four customers made up 98% and 92% of the
Company’s outstanding accounts receivable balance,
respectively of which 34% and 19% were related party receivables as
of June 30, 2017 and year ended December 31, 2016,
respectively.
For the three
months ended June 30, 2017 and June 30, 2016 two customers
accounted for 77% and four customers accounted for 94% of the
Company’s net revenue, respectively of which 0% and 36% were
related party revenues for the periods ended June 30, 2017 and
2016, respectively.
For the six months
ended June 30, 2017 and June 30, 2016 four customers accounted for
94% and four customers accounted for 91% of the Company’s net
revenue, respectively of which 0% and 73% were related party
revenues for the six months ended June 30, 2017 and 2016,
respectively.
NOTE 7. RELATED PARTY
TRANSACTIONS
Policy on
Related Party Transactions
The Company has a
formal, written policy that includes procedures intended to ensure
compliance with the related party provisions in common practice for
public companies. For purposes of the policy, a “related
party transaction” is a transaction in which the Company
participates and in which a related party (including all of
GEX’s directors and executive officers) has a direct or
indirect material interest. Any transaction exceeding the 1%
threshold, and any transaction involving consulting, financial
advisory, legal or accounting services that could impair a
director’s independence, must be approved by the Board of
Directors. Any related party transaction in which an executive
officer or a Director has a personal interest, must be approved by
the Board of Directors, following appropriate disclosure of all
material aspects of the transaction.
Related Party
Transactions
Debt
Agreements
On March 1, 2015
the Company entered into a Loan Agreement with its CEO, Carl
Dorvil. Mr. Dorvil agreed to loan the Company up to $1,000,000 at a
rate of 6%. This loan has a balance of $0 and $317,187 at June 30,
2017 and December 31, 2016, respectively (see Note 6).
On March 1, 2015
the Company entered into a Loan Agreement with P413. P413 agreed to
loan the Company up to $500,000 at a rate of 6%. GEX’s CEO,
Carl Dorvil, is a majority member interest owner in P413. This loan
has a balance of $96,000 and $46,000 at June 30, 2017 and December
31, 2016, respectively.
Professional Service
Agreements
On March 1, 2015
the Company entered into an Outsourcing Agreement with P413
Management, LLC (“P413”) to provide back office
services to P413. GEX’s CEO, Carl Dorvil, is a majority
member interest owner in P413. The Company reported revenues under
this Agreement of $0 and $38,513 for the six months ended June 30,
2017 and 2016, respectively.
On September 1,
2015 the Company entered into an Outsourcing Agreement with Vicar
Capital Advisors, LLC (“Vicar”) to provide back office
services to Vicar. GEX’s CEO, Carl Dorvil, is a majority
member interest owner in Vicar. The Company reported revenues under
this Agreement of $64,000 and $68,492 for the six months ended June
30, 2017 and 2016, respectively.
9
On August 1, 2014
the Company entered into an Outsourcing Agreement with Renaissance
Global Marketing, LLC (“Renaissance”) to provide back
office services to Renaissance. GEX’s CEO, Carl Dorvil was
formally a minority member interest owner in Renaissance. The
Company reported revenues under this Agreement of $1,116 and
$133,987 for the six months ended June 30, 2017 and 2016. The
Company ceased being a related party in 2016.
The Company entered
into a Consulting Agreement with Capital Financial Consultants,
Inc. for $30,000 and $22,500 for the year ended December 31, 2016.
A GEX officer’s family member owns Capital Financial
Consultants, Inc. As of June 30, 2017 and 2016 the balance payable
under the two agreements to CFC was $0 and $45,000,
respectively.
Revenues
For the six months
ended June 30, 2017 and 2016 the Company had revenues from related
parties of $64,000 and $246,805, respectively.
For the six months
ended June 30, 2017 and 2016 the Company performed back office
services for Diversity In Promotions in the amount of $0 and
$6,000, respectively.
NOTE 8. SUBSEQUENT EVENTS
On July 20, 2017,
GEX entered into a Stock Purchase Agreement (SPA) with a
third-party investor. Under the terms and conditions of the SPA,
GEX issued 9,501 shares of its common stock, restricted pursuant to
Rule 144 of the Securities Act of 1933, as amended, for a total of
$80,000.
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 Form
10-K for the year ended December 31, 2016.
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 Professional
Employer Organization (PEO), Staffing and Professional Services
Company that provides services and general business consulting to
companies for a variety of their “back office” 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: IT support, accounting and
bookkeeping, human resources and business consultation and
optimization.
10
Results of Operations
The three and six months ended June 30, 2017
compared to the three and six months ended June 30,
2016
Revenue
Our revenue for the
three months ended June 30, 2017 was $2,887,988 compared to
$239,360 for the three months ended June 30, 2016 due to an
increase in customer contracts relating to staffing services, as
well as entering into contracts with clients for PEO services under
our recently issued PEO licenses. This complemented our staffing
sales efforts.
Revenue for the
three months ended June 30, 2017 included gross PEO billings of
$611,806 with $585,210 in related direct offsets resulting in
recognizable PEO revenue under GAAP of $25,596. Other revenues for
the three months included revenues from non-related entities of
$2,813,492 and revenues from related entities of $48,000. This
compares to our revenue for the same three months in 2016 of zero
PEO billings and included revenues from non-related entities of
$13,705 and revenues from related entities of
$225,655.
For the six months
ended June 30, 2017 revenue was $3,058,628 compared to $323,053 for
the six months ended June 30, 2016. This 847% increase was due to
the deployment of the IPO capital in the Company’s first
quarter, which allowed GEX to hire more employees. The additional
employees focused on the onboarding of additional clients in the
first quarter, which resulted in the expansion of our staffing
services and the implementation of our PEO service
offering.
Revenue for the six
months ended June 30, 2017 included gross PEO billings of $611,806
with $585,210 in related direct offsets resulting in recognizable
PEO revenue under GAAP of $25,596. We had no PEO billings in the
first quarter of 2017. Other revenues for the six months included
revenues from non-related entities of $2,964,132 and revenues from
related entities of $64,000. This compares to our revenue for the
same six months in 2016 of zero PEO billings and included revenues
from non-related entities of $76,248, revenues from related
entities of $246,805. This shows our revenue from related entities
has dropped to 2% in 2017 from 76% in 2016.
Cost of Revenues
Cost of revenue
increased to $2,839,028 for the three months ended June 30, 2017
from $65,156 for the three months ended June 30, 2016. For the six
months ended June 30, 2017 cost of revenue was $3,137,678 compared
to $108,228 for the six months ended June 30, 2017. This was
primarily due to two reasons. First, the company increased its
staffing services with both new and existing clients. Second, the
Company focused on the development of infrastructure and personnel
in order to handle the new contracts.
Gross Profit
We had a gross
profit of $48,690 for the three months ended June 30, 2017 compared
to a gross profit of $174,204 for the same period in 2016. The
decrease in gross profit was due to the types of revenue we booked
in the corresponding periods.
We had a gross
profit (loss) of $(79,050) for the six months ended June 30, 2017
compared to a gross profit of $218,825 for the same period in 2016.
The negative gross profit was due to the Company absorbing
additional expenses in the first quarter (we had a negative gross
profit of $(128,010) in anticipation of our subsequent
growth.
Operating Expense
Total operating
expenses for the three months ended June 30, 2017 were $199,086
compared to the operating cost for the three months ended June 30,
2016 of $56,378. For the six months ended June 30, 2017 operating
expense was $381,345 compared to $115,136 for the six months ended
June 30, 2016. The increase was due to the increase in our business
and the increased spending on infrastructure, and the hiring of new
personnel, as we continue to prepare for additional
growth.
11
Other Income (Expense)
Other expense for the three months ended June 30,
2017 was $167,953 consisting of interest expense of $(4,919) and a
gain on extinguishment of debt of $172,872, compared to other
expense for the three months ended June 30, 2016 of $(10,479)
consisting of interest income of $24 and interest expense of
$(10,503).
Net Income (Loss)
Net income for the
three months ended June 30, 2017 was $17,827 compared to a net loss
of $107,347 for the three months ended June 30, 2016. Net loss
for the six months ended June 30, 2017 was $297,815 compared to a
net income of $76,575 for the six months ended June 30,
2016.
Liquidity and Capital
Resources
The Company has
sufficient cash and liquidity for its operations. The Company has
cash of $249,823 at June 30, 2017, due to the collections from
accounts receivable and money that was raised in its initial public
offering that closed on March 28, 2017. The Company also has
$404,000 available to draw down on its line of credit.
At June 30, 2016,
the Company had a cash position of $5,747. Also at June 30, 2016,
the Company had a total of $1,500,000 in lines of credit, and had
used $326,164 at the same date.
ITEM 3: Quantitative and Qualitative
Disclosures about Market Risk
Not applicable.
ITEM 4: Controls and
Procedures
Evaluation of Disclosure Controls and
Procedures
We carried out an
evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) as of June 30, 2017. This
evaluation was accomplished under the supervision and with the
participation of our chief executive officer/principal executive
officer, and chief financial officer/principal accounting officer
who concluded that our disclosure controls and procedures are
effective due to the increased staff, software and other
infrastructure deployed in this reporting period that allowed for
the segregation of duties.
Changes in Internal Controls over Financial
Reporting
Other than our
increase in staff, software upgrades and increased infrastructure,
we have not made any changes in our internal controls over
financial reporting that occurred during the period covered
by this report on Form 10-Q that has materially affected, or
is reasonably likely to materially affect, our internal
control over financial reporting.
PART II – OTHER
INFORMATION
Item 1. Legal Proceedings
None
Item 2. Unregistered Sales of Equity Securities
and Use of Proceeds
Not
applicable
12
Item 3. Defaults Upon Senior
Securities
Not
applicable
Item 4. Mine Safety
Disclosures
Not
applicable
Item 5. Other Information
Not
applicable
13
Item 6. Exhibits
A list of exhibits
filed with this report is listed in the Index following the
signature page, and they are incorporated into this Item 6 by
reference.
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Exhibit
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Number
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Certification
of Chief Executive Officer, pursuant to Rule 13a-14(a) of the
Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act
of 2002.
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Certification
of Chief Financial Officer, pursuant to Rule 13a-14(a) of the
Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act
of 2002.
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Certification
of Chief Executive Officer, pursuant to 18 United States Code
Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act
of 2002.
|
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Certification
of Chief Financial Officer, pursuant to 18 United States Code
Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act
of 2002.
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101
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XBRL
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SIGNATURES
Pursuant to the
requirements of the Securities Exchange Act of 1934, the Registrant
has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GEX MANAGEMENT, INC.
By: /s/ Clayton
Carter
Clayton Carter,
Chief Financial Officer
Date: August
3, 2017
14