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 September 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)

 

Texas		56-2428818
(State or other jurisdiction of incorporation)		(IRS Employer Identification No.)

   

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:

 

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

 

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 November 9, 2017 there were 8,639,632 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

 

 

 

PART I

ITEM 1. FINANCIAL STATEMENTS

 

GEX Management, Inc.

Condensed Consolidated Balance Sheets

 

ASSETS

 

		Sept 30, 2017				Dec 31, 2016
		(Unaudited)
Current Assets:
Cash and Cash Equivalents		$	286,632			$	307,395
Accounts Receivable, net			31,218				100,820
Accounts Receivable – Related Party			—				23,500
Other Current Assets			113,260				959
Total Current Assets			431,110				432,674
Property and Equipment (Net)			4,444				1,106
Other Assets			3,700				—
TOTAL ASSETS		$	439,254			$	433,780
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current Liabilities:
Accounts Payable		$	68,100			$	3,832
Accrued Expenses			13,795				60,615
Accrued Expenses – Related Party			5,100				45,000
Accrued Interest Payable			5,138				21,952
Total Current Liabilities			92,133				131,399
Non-Current Liabilities
Notes Payable – Related Party			96,000				363,187
TOTAL LIABILITIES			188,133				494,586
SHAREHOLDERS’ EQUITY (DEFICIT)
Preferred Stock, $0.001 par value, 20,000,000 shares
authorized, 0 shares issued and outstanding			—				—
Common Stock, $0.001 par value, 200,000,000 shares
authorized, 8,638,832 and 8,241,015 shares issued and
Outstanding as September 30, 2017 and December 31, 2016, respectively			8,639				8,241
Additional Paid In Capital			1,183,456				377,144
Retained Deficit			(940,974	)			(446,191	)
TOTAL SHAREHOLDERS’ EQUITY (DEFICIT)			251,121				(60,806	)
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)		$	439,254			$	433,780

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements. 

 

 

 

GEX Management, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

 

		Three Months September 30, 2017				Three Months September 30, 2016				Nine Months September 30, 2017				Nine Months September 30, 2016
Revenues		$	2,495,135			$	31,455			$	5,489,763			$	107,703
Revenues – Related Party			10,000				15,580				74,000				262,385
Total Revenues (1)			2,505,135				47,035				5,563,763				370,088
Cost of Revenues			2,384,582				87,833				5,522,260				196,061
Gross Profit (Loss)			120,533				(40,798	)			41,503				174,027
Operating Expenses
Depreciation and Amortization			21,676				145				36,328				433
Selling and Advertising			78,521				2,667				108,875				2,678
General and Administrative			215,872				88,796				552,211				203,633
Total Operating Expenses			316,069				91,608				697,414				206,744
Total Operating Income (Loss)			(195,516	)			(132,406	)			(655,911	)			(32,717	)
Other Income (Expense)
Gain on Extinguishment of Debt			—				—				172,872				—
Interest Income			—				—				—				72
Interest (Expense)			(1,452	)			(11,130	)			(11,744	)			(34,316	)
Total Other Income (Expense)			(1,452	)			(11,130	)			161,128				(34,244	)
Net income (loss) before income taxes			(196,968	)			(143,536	)			(494,783	)			(66,961	)
Provision for income taxes			—				—				—				—
NET INCOME (LOSS)		$	(196,968	)		$	(143,536	)		$	(494,783	)		$	(66,961	)
BASIC and DILUTED
Weighted Average Shares Outstanding			8,632,432				8,000,000				8,498,281				8,000,000
Earnings (loss) per Share		$	(0.02	)		$	(0.01	)		$	(0.06	)		$	(0.01	)

 

⁽¹⁾ Gross billings of $3,244,664 and $47,035 less payroll and payroll tax cost related to PEO clients of $739,529 and $0 for the three months ended 2017 and 2016, respectively, and gross billings of $6,888,502 and $370,088 less payroll and payroll tax cost related to PEO clients of $1,324,739 and $0 for the nine months ended 2017 and 2016, respectively.

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

GEX Management, Inc.

Condensed Consolidated Statements of Cash Flow

(Unaudited)

 

		Nine Months Ended				Nine Months Ended
		September 30, 2017				September 30, 2016
Cash Flows (used by) Operating Activities:
Net Loss		$	(494,783	)		$	(66,961	)
Adjustments to reconcile net loss to net cash
(used in) operating activities:
Depreciation and Amortization			15,139				433
Shares Issued for Services			74,751				—
Bad Debt Expense			—				20,825
Gain on Extinguishment of Debt			(172,872	)			—
Changes in assets and liabilities:
Accounts receivable			69,602				(25,483	)
Accounts receivable – Related Party			23,500				(57,357	)
Other current assets			(89,165	)			—
Note Receivable – Related Party			—				15,500
Deposits			(3,700	)			—
Accounts Payable			64,268				13,500
Accounts payable – Related Party			(39,900	)			(137	)
Accrued expenses			(1,820	)			(14,325	)
Accrued interest payable			11,744				12,055
Net cash (used in) operating activities			(543,236	)			(101,950	)
Cash Flows from (used in) Investing Activities:
Purchase of customer contracts			(37,500	)			—
Purchase of fixed assets			(4,113	)			—
Net cash (used in) Investing Activities:			(41,613	)			—
Cash Flows from (used in) Financing Activities:
Proceeds from sale of common stock			514,086				—
Proceeds from notes payable – related party			50,000				268,527
Payments on notes payable – related party			—				(13,196	)
Payments on working capital loan			—				(75,444	)
Net cash provided by financing activities			564,086				179,887
NET INCREASE (DECREASE) IN CASH			(20,763	)			77,937
CASH AT BEGINNING OF PERIOD			307,395				2,837
CASH AT END OF PERIOD		$	286,632			$	80,774
SUPPLEMENTAL DISCLOSURES:
Income taxes paid		$	—			$	—
Interest paid		$	—			$	22,261
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Accounts Payable converted to Common Stock		$	45,000			$	—
Debt and Interest converted to Common Stock		$	345,745			$	—
Common Stock Issued for Services		$	74,751			$	—

 

 The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

GEX Management, Inc.

Notes to Condensed Consolidated Financial Statements

September 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 Company formed GEX Staffing, LLC (GEX Staffing) in March 2017. The initial funding and first transactions occurred in GEX Staffing in September 2017. The consolidated financials include the accounts of GEX Staffing, LLC. Staffing and PEO services make up a majority of our revenue.

 

Basis of Presentation

 

The accompanying financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America, or U.S. GAAP, and applicable rules and regulations of the Securities and Exchange Commission, or SEC, regarding interim financial reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP have been condensed or omitted, and accordingly the balance sheet as of December 31, 2016 has been derived from the audited consolidated financial statements at that date but does not include all of the information required by GAAP for complete consolidated financial statements. These unaudited condensed consolidated financial statements have been prepared on the same basis as the Company’s annual consolidated financial statements and, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for the fair statement of the Company’s condensed consolidated financial information. The results of operations for the nine months ended September 30, 2017 are not necessarily indicative of the results to be expected for the year ending December 31, 2017 or for any other interim period or for any other future year.

The accompanying interim unaudited condensed consolidated financial statements and related financial information should be read in conjunction with the audited financial statements and the related notes thereto for the year ended December 31, 2016 included in the Company’s Form 10-K, filed with the SEC on March 28, 2017.

 

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.

 

Property and Equipment

 

Property and Equipment are carried at the cost of acquisition or construction, and are depreciated over the estimated useful lives of the assets. Assets acquired in a business combination are stated at estimated fair value. Costs associated with repair and maintenance are expensed as they are incurred. Costs associated with improvements which extend the life, increase the capacity or improve the efficiency of our property and equipment are capitalized and depreciated over the remaining life of the related asset. Gains and losses on dispositions of equipment are in operating income. Depreciation and amortization are provided using the straight-line and accelerated methods over the estimated useful lives of the assets as follows:

 

Office Furniture & Equipment

5 Years

 

 

 

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 HR and benefits administration services, consulting related to employment and benefit law compliance and general employment consulting related fees. PEO service revenues are recognized in the period the PEO services are performed as stipulated in the Client Service Agreement (CSA), where these fees are fixed or determinable, when the PEO client is invoiced and collectability is reasonably assured.

 

GEX is not considered the primary obligor with respect to CEE’s payroll and payroll tax 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.

 

 

 

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 for $87,500. 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 system 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 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.

 

At September 30, 2017 and December 31, 2016 Other Current Assets were as follows:

 

		Sept 30, 2017				Dec 31, 2016
Other Current Assets:
Contract Purchase		$	12,500			$	—
Center Operating			76,562				—
OTC Markets			6,667				—
NMS Contract			17,531
Other Current Assets			—				959
Total Other Current Assets		$	113,260			$	959

 

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 September 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 first quarter under this registration statement.

 

The Company issued 33,334 for services at $1.50 per share for a total of $50,000 during the first quarter of 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, 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, 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.

 

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, 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.

 

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, for a total of $80,000.

 

On September 20, 2017, GEX entered into Stock Purchase Agreements (SPA) with two advisory board members. Under the terms and conditions of the SPA’s, GEX issued 4,923 shares of its common stock, for a total of $32,000.

 

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 September 30, 2017 and December 31, 2016 there were 8,638,832 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 September 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 September 30, 2017 and December 31, 2016 Notes Payable were as follows:

 

		Sept 30, 2017				Dec 31, 2016
Non-Current Note Payable(1):
Note Payable –6% interest rate, $1,000,000
Line of Credit, cancelled June 7, 2017 upon conversion of the $317,187
and accrued interest of $28,588 to common stock			—				317,187
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 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 7^th Agreement. Therefore, the Company recorded a gain on the extinguishment of debt in the amount of $172,872.

 

NOTE 6. ACCOUNTS RECEIVABLE AND CONCENTRATION OF CREDIT RISK

 

As of September 30, 2017 and December 31, 2016 one customer made up 80% and four customers made up 92% of the Company’s outstanding accounts receivable balance, respectively of which 0% and 19% were related party receivables as of September 30, 2017 and year ended December 31, 2016, respectively.

 

For the nine months ended September 30, 2017 and September 30, 2016 three customers accounted for 90% and four customers accounted for 87% of the Company’s net revenue, respectively of which 0% and 71% were related party revenues for the nine months ended September 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 September 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 September 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 nine months ended September 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 $74,000 and $68,492 for the nine months ended September 30, 2017 and 2016, respectively.

 

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 when Renaissance was a related party of $0 and $155,380 for the nine months ended September 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 September 30, 2017 and 2016 the balance payable under the two agreements to CFC was $0 and $45,000, respectively.

 

Revenues

 

For the nine months ended September 30, 2017 and 2016 the Company had revenues from related parties of $74,000 and $262,385, respectively.

 

For the nine months ended September 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 October 18, 2017, GEX entered into Stock Purchase Agreements (SPA) with one advisory board member. Under the terms and conditions of the SPA, GEX issued 2,000 shares of its common stock, restricted pursuant to Rule 144 of the Securities Act of 1933, as amended, for a total of $13,000.

 

On October 31, 2017 GEX entered into a Lease Agreement for office space in Fayetteville, Arkansas for 800 shares of its common stock, restricted pursuant to Rule 144 of the Securities Act of 1933, as amended.

 

 

 

 

 

 

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.

 

Results of Operations

 

The three and nine months ended September 30, 2017 compared to the three and nine months ended September 30, 2016

 

Revenue

 

Our revenue for the three months ended September 30, 2017 was $2,505,135 compared to $47,035 for the three months ended September 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 September 30, 2017 included gross PEO billings of $771,238 with $739,529 in related direct offsets resulting in recognizable PEO revenue under GAAP of $31,709. Other revenues for the three months included revenues from non-related entities of $2,453,426 and revenues from related entities of $10,000. This compares to our revenue for the same three months in 2016 of zero PEO billings and included revenues from non-related entities of $31,455 and revenues from related entities of $15,580.

 

For the nine months ended September 30, 2017 revenue was $5,563,763 compared to $370,088 for the nine months ended September 30, 2016. This 1,503% 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 and second quarters, which resulted in the expansion of our staffing services and our PEO service offering.

 

Revenue for the nine months ended September 30, 2017 included gross PEO billings of $1,384,017 with $1,324,739 in related direct offsets resulting in recognizable PEO revenue under GAAP of $59,278. Other revenues for the nine months included revenues from non-related entities of $5,430,485 and revenues from related entities of $74,000. This compares to our revenue for the same nine months in 2016 of zero PEO billings and included revenues from non-related entities of $107,703, revenues from related entities of $262,385. This shows our revenue from related entities has dropped to 1% in 2017 from 71% in 2016.

 

 

 

Cost of Revenues

 

Cost of revenue increased to $2,384,582 for the three months ended September 30, 2017 from $87,833 for the three months ended September 30, 2016. For the nine months ended September 30, 2017 cost of revenue was $5,522,260 compared to $196,061 for the nine months ended September 30, 2016. 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 $120,553 for the three months ended September 30, 2017 compared to a gross profit (loss) of $(40,798) for the same period in 2016. The increase in gross profit was due to the types of revenue we booked in the corresponding periods.

 

We had a gross profit of $41,503 for the nine months ended September 30, 2017 compared to a gross profit of $174,027 for the same period in 2016. The decrease in gross profit was due to the types of revenue we booked in the corresponding periods.

 

Operating Expense

 

Total operating expenses for the three months ended September 30, 2017 were $316,069 compared to the operating cost for the three months ended September 30, 2016 of $91,608. For the nine months ended September 30, 2017 operating expense was $697,414 compared to $206,744 for the nine months ended September 30, 2016. The increase was due to the increase in our business and the increased spending on infrastructure, and the hiring of new personnel.

 

Other Income (Expense)

 

Other expense for the three months ended September 30, 2017 was $1,452 consisting solely of interest expense compared to interest expense in the three months ended September 30, 2016 of $11,130. Other expense for the nine months ended September 30, 2017 was $161,128 consisting of interest expense of $11,744 and a gain on extinguishment of debt of $172,872, compared to other expense for the nine months ended September 30, 2016 of $(34,244) consisting of interest income of $72 and interest expense of $(34,316). 

 

Net Income (Loss)

 

Net (loss) for the three months ended September 30, 2017 was $(196,968) compared to a net loss of $(143,536) for the three months ended September 30, 2016. Net (loss) for the nine months ended September 30, 2017 was $(494,783) compared to a net loss of $(66,961) for the nine months ended September 30, 2016. 

 

Liquidity and Capital Resources

 

The Company has sufficient cash and liquidity for its operations. The Company has cash of $286,632 at September 30, 2017, due to the collections from its business and funds that were 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 December 31, 2016, the Company had a cash position of $307,395. Also at December 31, 2016, the Company had a total of $1,500,000 in lines of credit, and had used $363,187 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 September 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

 

Item 3. Defaults Upon Senior Securities

 

Not applicable

 

Item 4. Mine Safety Disclosures

 

Not applicable

 

Item 5. Other Information

 

Not applicable

 

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.

 

Exhibit	Number
31.1	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.
31.2	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.
32.1	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.
32.2	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.
101	XBRL

  

 

 

 

 

 

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:  November 9, 2017