Financial Gravity Companies, Inc 10-Q for FY2020 Q1
Financial Gravity Companies, Inc. (FGCO)
About this 10-Q
Financial Gravity Companies, Inc filed this 10-Q on March 3, 2020, covering the quarter ended December 31, 2019 (FY2020 Q1).
Headline figures
Quarter ended December 31, 2019, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $841.75K
- down 15.8% from $999.27K a year earlier
- Net loss
- $12.04K
- compared with a net loss of $199.37K a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the three months ended December 31, 2019
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Financial Gravity Companies, Inc.
(Exact name of registrant as specified in its charter)
| Nevada | 001-34770 | 20-4057712 |
| (State or other jurisdiction of incorporation or organization) |
(Commission File No.) |
(IRS Employee Identification No.) |
800 N. Watters Rd., Suite 150, Allen, Texas 75013
(Address of Principal Executive Offices)
469-342-9100
(Issuer Telephone number)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each Class | Trading Symbol | Name of each exchange on which registered |
| N/A | N/A |
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 par value
Indicate by check mark whether the issuer: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [_]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)
| Large accelerated filer [_] | Accelerated filer [_] | |
| Non-accelerated filer [_] | Smaller reporting company [X] | |
| Emerging growth company [_] |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [_]
Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes [_] No [X]
The number of shares outstanding of the registrant’s Common Stock as of March 3, 2020 was 41,524,589.
FINANCIAL GRAVITY COMPANIES, INC.
FORM 10-Q
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PART I - FINANCIAL INFORMATION
Financial Gravity Companies, Inc. and Subsidiaries
| December 31, 2019 | September 30, 2019 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | 45,229 | $ | 36,053 | ||||
| Trade accounts receivable, net | 134,501 | 147,377 | ||||||
| Prepaid expenses and other current assets | 39,264 | 12,010 | ||||||
| Total current assets | 218,994 | 195,440 | ||||||
| OTHER ASSETS | ||||||||
| Property and equipment, net | 135,913 | 139,991 | ||||||
| Right to use lease asset | 300,144 | – | ||||||
| Proprietary content, net | 246,141 | 262,550 | ||||||
| Non-compete agreements, net | 3,495 | 5,260 | ||||||
| Intellectual property | 53,170 | 53,170 | ||||||
| Goodwill | 1,094,702 | 1,094,702 | ||||||
| TOTAL ASSETS | $ | 2,052,559 | $ | 1,751,113 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable - trade | $ | 220,355 | $ | 174,749 | ||||
| Accrued expenses | 105,777 | 146,872 | ||||||
| Deferred revenue | 66,685 | 94,733 | ||||||
| Line of credit | 62,019 | 63,919 | ||||||
| Lease liability - current | 86,535 | – | ||||||
| Notes payable | 11,013 | 13,393 | ||||||
| Total current liabilities | 552,384 | 493,666 | ||||||
| Notes payable - net of current | 21,528 | 23,534 | ||||||
| Lease liability - non-current | 227,966 | – | ||||||
| Total non-current liabilities | 249,494 | 23,534 | ||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Common stock, $0.001 par value; 300,000,000 shares authorized; 41,524,589 shares issued and outstanding as of December 31, 2019 and 41,436,033 shares issued and outstanding as of September 30, 2019 | 41,525 | 41,436 | ||||||
| Additional paid-in capital | 7,420,313 | 7,391,592 | ||||||
| Accumulated deficit | (6,211,157 | ) | (6,199,115 | ) | ||||
| Total stockholders’ equity | 1,250,681 | 1,233,913 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 2,052,559 | $ | 1,751,113 | ||||
The accompanying notes are in integral part of these consolidated financial statements.
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Financial Gravity Companies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Three Months Ended | ||||||||
| December 31, | ||||||||
| 2019 | 2018 | |||||||
| REVENUE | ||||||||
| Investment management fees | $ | 408,096 | $ | 422,430 | ||||
| Service income | 433,654 | 576,835 | ||||||
| Total revenue | 841,750 | 999,265 | ||||||
| OPERATING EXPENSES | ||||||||
| Cost of services | 12,012 | 13,805 | ||||||
| Professional services | 115,333 | 64,814 | ||||||
| Depreciation and amortization | 26,022 | 28,802 | ||||||
| General and administrative | 98,831 | 146,952 | ||||||
| Marketing | 21,113 | 31,644 | ||||||
| Salaries and wages | 578,812 | 871,196 | ||||||
| Total operating expenses | 852,123 | 1,157,213 | ||||||
| Net operating loss | (10,373 | ) | (157,948 | ) | ||||
| OTHER EXPENSE | ||||||||
| Interest expense | (1,669 | ) | (41,424 | ) | ||||
| Total other expense | (1,669 | ) | (41,424 | ) | ||||
| NET LOSS | $ | (12,042 | ) | $ | (199,372 | ) | ||
| LOSS PER SHARE - Basic and Diluted | $ | (0.00 | ) | $ | (0.01 | ) | ||
The accompanying notes are an integral part of these consolidated financial statements.
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Financial Gravity Companies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For the three-month periods ended December 31, 2019 and 2018
(Unaudited)
| Number of Shares Issued and Outstanding | Common Stock Par Value Amount | Additional Paid-In-Capital | Accumulated Deficit | Total | ||||||||||||||||
| Balance at September 30, 2018 | 35,837,900 | $ | 35,838 | $ | 5,986,052 | $ | (5,575,630 | ) | $ | 446,260 | ||||||||||
| Stock based employee compensation expense | – | – | 48,254 | – | 48,254 | |||||||||||||||
| Net loss | – | – | – | (199,372 | ) | (199,372 | ) | |||||||||||||
| Balance at December 31, 2018 | 35,837,900 | $ | 35,838 | $ | 6,034,306 | $ | (5,775,002 | ) | $ | 295,142 | ||||||||||
| Balance at September 30, 2019 | 41,436,033 | $ | 41,436 | $ | 7,391,592 | $ | (6,199,115 | ) | $ | 1,233,913 | ||||||||||
| Stock based employee compensation expense | – | – | 3,810 | – | 3,810 | |||||||||||||||
| Stock options exercised | 12,799 | 13 | (13 | ) | – | – | ||||||||||||||
| Private Placement stock issue | 75,757 | 76 | 24,924 | 25,000 | ||||||||||||||||
| Net loss | – | – | – | (12,042 | ) | (12,042 | ) | |||||||||||||
| Balance at December 31, 2019 | 41,524,589 | $ | 41,525 | $ | 7,420,313 | $ | (6,211,157 | ) | $ | 1,250,681 | ||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
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Financial Gravity Companies, Inc. and Subsidiaries
Three Months Ended December 31,
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| 2019 | 2018 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | (12,042 | ) | $ | (199,372 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Depreciation and amortization | 26,022 | 28,802 | ||||||
| Stock based compensation | 7,085 | 48,254 | ||||||
| Right of use of lease asset | 23,136 | – | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Receivables | 12,877 | 15,191 | ||||||
| Accounts receivable - related party | – | 1,791 | ||||||
| Prepaid expenses | (27,254 | ) | (1,403 | ) | ||||
| Accounts payable - trade | 45,605 | 48,822 | ||||||
| Accrued expenses and other liabilities | (30,013 | ) | 50,665 | |||||
| Deferred revenue | (28,048 | ) | – | |||||
| Lease liability | (23,136 | ) | – | |||||
| Net cash used in operating activities | (5,768 | ) | (7,250 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Cash paid for purchase of property and equipment | (3,770 | ) | (8,700 | ) | ||||
| Net cash used in investing activities | (3,770 | ) | (8,700 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Borrowings from lines of credit | 1,502 | – | ||||||
| Proceeds from notes payable | – | 155,000 | ||||||
| Payments on notes payable | (4,386 | ) | (81,291 | ) | ||||
| Payments on line of credit | (3,402 | ) | (2,911 | ) | ||||
| Proceeds from the sale of common stock | 25,000 | – | ||||||
| Net cash provided by financing activities | 18,714 | 70,798 | ||||||
| TOTAL INCREASE IN CASH AND CASH EQUIVALENTS | 9,176 | 54,848 | ||||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 36,053 | 32,220 | ||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 45,229 | $ | 87,068 | ||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | 1,689 | 39,959 | ||||||
| Taxes | – | – | ||||||
The accompanying notes are in integral part of these consolidated financial statements.
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Financial Gravity Companies,
Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NATURE OF BUSINESS
Financial Gravity is a parent company of best of breed financial services companies including brokerage, wealth management, estate planning, family office services, risk management, business and personal tax planning, business consulting, and financial advisor services. Financial Gravity's mission is to synergistically bring together companies that create symbiotic advantages to each other in order to bring a complete financial experience to the clients that we serve.
Financial Gravity Companies, Inc. and Subsidiaries (the “Company”) is located in Allen, Texas. The wholly-owned subsidiaries of the organization include: Financial Gravity Holdings, Inc. (dissolved February 13, 2019), Financial Gravity Operations, Inc. (dissolved February 12, 2019), Financial Gravity Tax, Inc (sold October 31, 2019)., Sofos Investments, Inc. (formerly Financial Gravity Wealth, Inc.), MPath Advisor Resources, LLC. (formerly Financial Gravity Business, LLC), Financial Gravity Ventures, LLC., Tax Master Network, LLC, and SASH Corporation (inactive and awaiting dissolution).
| 1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
A summary of the significant accounting polices consistently applied in the preparation of the accompanying consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) is as follows.
Basis of Consolidation
The consolidated financial statements include the accounts of its subsidiaries. All significant intercompany accounts and transactions have been eliminated on consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an initial maturity of three months or less, when purchased, to be cash equivalents. The Company maintains cash balances at several financial institutions located throughout the United States, which at times may exceed insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.
Receivables
Trade accounts receivable are carried at the invoiced amount less an estimate made for doubtful accounts based on management’s review of outstanding balances. The collectability of the Company’s accounts receivable is reviewed on an ongoing basis, using historical payment trends and a review of specific accounts. Accounts receivable are written off after all reasonable collection efforts have been exhausted and when management determines the amounts to be uncollectible. Recoveries of receivables previously written off are recorded when received. The allowance for doubtful accounts was $0 as of December 31, 2019 and September 30, 2019, respectively.
In the normal course of business, the Company may extend credit to its customers, on an unsecured basis, substantially all of whom are located in the United States of America. The Company does not believe that it is exposed to any significant risk of loss on accounts receivable.
Prepaid Expenses
Prepaid expenses consist of expenses the Company has paid for prior to the service or good being provided. These prepaid expenses will be recorded as expense at the time the service has been provided.
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Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation. Depreciation is provided in amounts sufficient to relate the cost of depreciable assets to earnings over their estimated service lives by the straight-line method.
Maintenance and repairs are charged to earnings as incurred; major repairs and replacements are capitalized. When items of property or equipment are sold or retired, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is included in operations.
Leases
In February 2016, the FASB issued ASU 2016-02 Leases, which changed financial reporting as it relates to leasing transactions to recognize a lease liability, measured on a discounted basis; and a right-of-use asset, for the lease term. In July 2018, the FASB issued ASU No. 2018-10 Codification Improvements to Topic 842, Leases and ASU No. 2018-11 Leases (Topic 842): Targeted Improvements. In March 2019, the FASB issued ASU No. 2019-1 Codification Improvements to Topic 842, Leases. The Company adopted these ASUs on October 1, 2019 on a modified retrospective basis. The Company did not elect the hindsight practical expedient and did elect the package of practical expedients to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs for all leases. The initial adoption of the standard recognized right-of-use assets of $323,097 and lease liabilities of $337,454 on the Company’s statement of financial position with no impact on the Company's results of operations. The Company had no significant changes to processes or controls.
The Company leases all their office space through an operating lease, which expires at January 31, 2024. Many of the lease agreements obligate the Company to pay real estate taxes, insurance and certain maintenance costs, which are accounted for separately. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. The Company determines if an arrangement is an operating lease at inception. Leases with an initial term of 12 months or less are not recorded on the balance sheet. All other leases are recorded on the balance sheet as right-of-use assets and lease liabilities for the lease term. Lease assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term and include options to extend or terminate the lease when they are reasonably certain to be exercised. The present value of lease payments is determined primarily using the incremental borrowing rate based on the information available at lease commencement date. The Company’s operating lease expense is recognized on a straight-line basis over the lease term and is recorded in general and administrative expenses.
Proprietary Content
The proprietary content acquired as a part of the TMN purchase has been recognized in the accompanying consolidated balance sheets at $525,100, the value attributed to such content on the date of the purchase. The proprietary content is being amortized on a straight-line basis over an eight-year estimated life. During each of the three months ended December 31, 2019 and 2018, the Company recorded amortization expense of $16,410 on this intangible asset, which is included in depreciation and amortization expense in the accompanying consolidated statements of operations. Accumulated amortization at December 31, 2019 was $278,959 and $262,550 at September 30, 2019.
Non-compete Agreements
Non-compete agreements entered into as a part of the TMN purchase have been recognized in the accompanying consolidated balance sheets at $26,300, the value attributed to such agreements on the date of the purchase. The non-compete agreements are being amortized on a straight-line basis over the five-year term of the non-compete clause of the agreement. During each of the three months ended December 31, 2019 and 2018, the Company recorded amortization expense of $1,315 on this intangible asset, which is included in depreciation and amortization expense in the accompanying consolidated statements of operations. Accumulated amortization at December 31, 2019 was $22,355 and $21,040 at September 30, 2019.
| 8 |
Intellectual Property
The Company accounts for intellectual property in accordance with GAAP and accordingly, intellectual property are stated at cost. Intellectual property with indefinite lives are not amortized but are tested for impairment at least annually. Management has determined that the intellectual property have an indefinite life and do not consider the value of intellectual property recorded in the accompanying consolidated balance sheets to be impaired as of December 31, 2019 and September 30, 2019.
Goodwill
Goodwill represents the excess of the value of the purchase price and related costs over the identifiable assets from business acquisitions. The Company conducts an annual impairment assessment, at the reporting unit level, of its recorded goodwill. The Company assesses qualitative factors in order to determine whether it is more likely than not that the fair value of a reporting unit is less than it is carrying amount. The qualitative factors evaluated by the Company include: macro-economic conditions of the local business environment, overall financial performance, and other entity specific factors as deemed appropriate. If, through this qualitative assessment, the conclusion is made that it is more likely than not that a reporting unit’s fair value is less than it is carrying amount, a two-step impairment test is performed. Management determined, by assessing the qualitative factors, that it is more likely than not that the fair value of the reporting unit is greater than it carries value. Management does not consider the value of goodwill recorded for TMN in the accompanying consolidated balance sheets to be impaired as of December 31, 2019 and September 30, 2019.
Income Taxes
The Company accounts for federal and state income taxes pursuant to GAAP, which requires an asset and liability approach for financial accounting and reporting for income taxes based on tax effects of differences between the financial statement and tax basis of assets and liabilities.
The Company accounts for all uncertain tax positions in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740 – Income Taxes (“ASC 740”). ASC 740 provides guidance on de-recognition, classification, interest and penalties and disclosure related to uncertain income tax positions. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. There was no accrued interest or penalties as of December 31, 2019 and September 30, 2019.
From time to time, the Company is audited by taxing authorities. These audits could result in proposed assessments of additional taxes. The Company believes that its tax positions comply in all material respects with applicable tax law. However, tax law is subject to interpretation, and interpretations by taxing authorities could be different from those of the Company, which could result in the imposition of additional taxes. The Company’s Federal returns since 2016 are still subject for examination by taxing authorities.
Earnings Per Share
Basic earnings per common share is computed by dividing net earnings available to common stockholders by the weighted average number of common shares outstanding for the reporting period. Average number of common shares were 41,495,070 and 35,837,900 for the three months ended December 31, 2019 and 2018, respectively.
For the three months ended December 31, 2019, approximately 2,161,605 common stock equivalents were not added to the diluted average shares because inclusion of such equivalents would be antidilutive. For the three months ended December 31, 2018, approximately 3,840,121 common stock equivalents were not added to the diluted average shares because inclusion of such equivalents would be antidilutive.
| 9 |
Revenue Recognition
The Company derives its revenues primarily from six components: Investment Management Fees, Tax Master Network subscriptions, Tax Operating System subscriptions, Financial Advisor subscriptions, Tax BluePrint sales, and Insurance Sales.
Sofos Investments, Inc. generates investment management fees for services provided by the Company. Investment management fees include fees earned from assets under management by providing professional services to manage client investments. Investment management fees are calculated as a percentage of assets under management for the period. Investment management fees are Revenue is recognized as earned, at the end of each period. Fees are withdrawn from investor assets monthly, in arrears.
Financial Gravity Tax, Inc. generates service income from its consulting and other professional services performed. Revenue recognized as service is provided. Subscription income is billed to client credit card monthly, on the monthly anniversary of client sign-up.
Commission revenue is derived from the sale of annuities and premiums on life insurance policies held by third parties. The revenue is recognized when commissions are earned from insurers and issuers of the products. Commissions are received after products are issued and in force.
Revenue represents gross billings less discounts, and are net of sales taxes, as applicable. Amounts invoiced for work not yet completed are shown as deferred revenue in the accompanying consolidated balance sheets.
Tax Master Network has five levels of services that are charged and collected on a month to month subscription basis. None of these programs come with a long-term commitment or contract, and there is no up-front payment beyond the monthly subscription fee. Cancellations are processed within the month requested and memberships are closed at the end of the period for which the most recent payment was made. Members are not entitled to refunds for unused memberships. Any subscription fees paid for a future period are deferred in the financial statements. TMN also sells Tax Blueprint®. These are tax planning strategies guides, to save customers taxes through the implementation of the recommended tax strategies. After an initial assessment, the customers pay half of the year one tax savings. Revenue is deferred until the customer reviews and accepts the final Tax Blueprint® document and returns an executed delivery agreement. Subscription income is billed to client credit card monthly, on the monthly anniversary of client sign-up. TBP sales are billed to the client after a preliminary assessment and client approval to move forward. Revenue recognized in 2020, that was included in the deferred revenue liability at the beginning of the year, is $61,400.
Advertising
Advertising costs are charged to operations when incurred. Advertising and marketing expense were $21,113 and $31,644 for the three months ended December 31, 2019 and 2018, respectively.
Stock-Based Compensation
The Company recognizes the fair value of stock-based compensation awards as wages in the accompanying statements of operations for employee grants, commissions for non-employee grants, and stock appreciation rights grants, on a straight-line basis over the vesting period, using the Black-Scholes option pricing model, which is based on risk-free rate of 2.89% rates in 2020 and 1.49% to 2.55% in 2019, dividend yield of 0%, expected life of 10 years and volatility of 35% to 40%.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
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Adjustments
The accompanying unaudited consolidated financial statements have been prepared by the Company in accordance with generally accepted accounting principles in the United States (“GAAP”), pursuant to the applicable rules and regulations of the SEC. The information furnished herein reflects all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary to present a fair statement of the financial position and operating results of the Company as of and for the respective periods. However, these operating results are not necessarily indicative of the results expected for a full fiscal year or any other future period. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted pursuant to such rules and regulations. However, management of the Company believes, to the best of their knowledge, that the disclosures herein are adequate to make the information presented not misleading. The Company has determined that there were no subsequent events that would require disclosure or adjustments to the accompanying consolidated financial statements through the date the financial statements were issued. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the fiscal year ended September 30, 2019, included in its Annual Report on Form 10K.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the Company will need to manage additional asset units under contract and/or additional financing to fully implement its business plan, including continued growth and establishment of a stronger brand.
On May 23, 2017, the Company and GHS Investments, LLC (“GHS Investments”) entered into an Equity Financing Agreement (the “Agreement”). The Agreement was filed as an exhibit to a registration statement on Form S-1, filed with the Securities and Exchange Commission on September 18, 2017. The Agreement contemplates a series of transactions, pursuant to which the Company will “put” shares of its common stock to GHS in consideration of the payment to the Company of eighty percent (80%) of the “Market Price” of such shares. “Market Price” shall mean the average of the two lowest trading prices of the Company’s Common Stock during the ten (10) consecutive trading days preceding the receipt of the applicable put notice. Accordingly, on each instance the Company exercises a put option, the Company will know in advance, both the number of shares issuable upon exercise of the put option, and the dollar amount of the purchase price for such shares. The maximum purchase price for shares to be purchased by GHS Investments under the Agreement is $11,000,000. To facilitate the sale of the shares so purchased by GHS Investments, the Company agreed to file a registration statement with the Securities and Exchange Commission. The Company also entered into a Registration Rights Agreement with GHS Investments, pursuant to which the Company has agreed to provide certain registration rights under the Securities Act of 1933, the rules and regulations promulgated thereunder, and applicable state securities laws. The Agreement will terminate (i) when GHS Investments has purchased an aggregate of $11,000,000 of the common stock of the Company, or (ii) 36 months after the effective date of the Agreement, or (iii) at such time that the registration statement is no longer in effect.
Additionally, the Company is also actively seeking growth of its service offerings, both organically and via new client relationships. Management, in the ordinary course of business, is trying to raise additional capital through sales of common stock as well as seeking financing via equity or debt, or both from third parties. There are no assurances that additional financing will be available on favorable terms, or at all. If additional financing is not available, the Company will need to reduce, defer or cancel development programs, planned initiatives and overhead expenditures. The failure to adequately fund its capital requirements could have a material adverse effect on the Company’s business, financial condition and results of operations. Moreover, the sale of additional equity securities to raise financing will result in additional dilution to the Company’s stockholders and incurring additional indebtedness could involve an increased debt service cash obligation, the imposition of covenants that restrict the Company’s operations or the Company’s ability to perform on its current debt service requirements. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Future Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13 Financial Instruments-Credit Losses, which amends how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income, which applies to trade accounts receivable and the calculation of the allowance for uncollectible accounts receivable. The new standard will become effective for the Company for annual and interim periods beginning after December 31, 2019, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this accounting guidance will have on the consolidated financial statements. Since the Company currently uses an expected losses from customers method, the Company does not anticipate the adoption of ASU 2016-13 will have a material impact on the Company's financial condition or results of operations.
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In January 2017, the FASB issued ASU No. 2017-04 Intangibles-Goodwill and Other Simplifying the Test for Goodwill Impairment, which provides guidance to simplify the subsequent measurement of goodwill by eliminating the Step 2 procedure from the goodwill impairment test. The new guidance is effective for the Company beginning October 1, 2020.
| 2. | PROPERTY AND EQUIPMENT |
Property and equipment consist of the following at December 31, 2019 and September 30, 2019:
| Estimated Service Lives | December 31, 2019 | September 30, 2019 | ||||||||
| Furniture, fixtures and equipment | 2 - 5 years | $ | 93,234 | $ | 93,073 | |||||
| Internally developed software | 10 years | 152,000 | 152,000 | |||||||
| 245,234 | 245,073 | |||||||||
| Less accumulated depreciation and amortization | 109,321 | 105,082 | ||||||||
| $ | 135,913 | $ | 139,991 | |||||||
Depreciation expense was $6,167 and $8,272 during the three months ended December 31, 2019 and 2018, respectively.
| 3. | INTELLECTUAL PROPERTY |
Intellectual property consists of the following:
| Trademarks at September 30, 2018 | $ | 48,940 | ||
| Trademarks purchased at cost | 4,230 | |||
| Trademarks at September 30, 2019 | 53,170 | |||
| Trademarks purchased at cost | – | |||
| Trademarks at December 31, 2019 | $ | 53,170 |
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| 4. | LEASES |
At December 31, 2019, the remaining lease term and weighted average discount rate for operating leases was 4.3 years and 10%, respectively. For the three months ended December 31, 2019, the Company's cash paid for the operating lease was $23,136.
The undiscounted annual future minimum lease payments consist of the following at:
| December 31, 2019 | ||||
| 2020 | $ | 69,408 | ||
| 2021 | 92,544 | |||
| 2022 | 96,016 | |||
| 2023 | 105,898 | |||
| 2024 | 32,584 | |||
| Total lease payments | $ | 396,450 | ||
| Interest | (81,949 | ) | ||
| Present values of lease liabilities | $ | 314,501 | ||
| 5. | LINE OF CREDIT |
The Company has a revolving line of credit with Wells Fargo Bank, N.A. in the amount of $67,500. Amounts drawn under this line of credit are due on demand, and monthly interest and principal payments are required. The interest rate on the line of credit is 9.5%. This line of credit is collateralized by the personal guarantee of the majority stockholder. Line of credit balance was $62,019 and $63,919 at December 31, 2019 and September 30, 2019, respectively.
| 6. | NOTES PAYABLE |
On April 19, 2019 the Company entered into a Promissory Note Payable with Charles O’Banon (“O’Banon”), a customer, in the amount of $32,205. The note is in settlement of tax penalties and interest he incurred, that were proximately caused by the Company’s actions. The monthly principal and interest payments are $623, with a balloon payment of $14,048 in April 2022. The note is being repaid over 36 months and bears an interest rate of 6%. The Company has instituted abatement efforts on O’Banon’s behalf, with the taxing authority. Should the abatement efforts be successful, all monies paid O’Banon by the Company shall be returned. Should the abatement efforts result in mitigation, any monies paid by the Company, in excess of the mitigated amounts, shall be returned. The outstanding balance on December 31, 2019 and September 30, 2019 was $27,483, and $29,401 respectively.
On April 12, 2019, the Company entered into a promissory note payable with a related party, John Pollock, the current EVP, in the amount of $15,000, and bears interest at 2.76%. The note was originally scheduled to be repaid in full by December 1, 2019. The Company is currently working on extending this repayment period. The outstanding balance on December 31, 2019 and September 30, 2019, was $5,058, and $7,529 respectively.
| 13 |
The Company’s maturities of debt subsequent to December 31, 2019 are as follows:
| 2020 | $ | 9,008 | ||
| 2021 | 6,229 | |||
| 2022 | 17,304 | |||
| $ | 32,541 |
| 7. | ACCRUED EXPENSES |
Accrued expenses consist of the following at December 31, and September 30, 2019:
| December 31, 2019 | September 30, 2019 | |||||||
| Accrued payroll | $ | – | $ | 19,502 | ||||
| Accrued operating expenses | 105,777 | 113,013 | ||||||
| Deferred rent | – | 14,357 | ||||||
| $ | 105,777 | $ | 146,872 | |||||
| 8. | INCOME TAXES |
For the three months ended December 31, 2019 and 2018, the effective tax rate of 0% varies from the U.S. federal statutory rate primarily due to state income taxes, net losses, certain nondeductible expenses, changes in the federal statutory rate are from 35% to 21%, and an increase in the valuation allowance associated with the net operating loss carryforwards. Our deferred tax assets related to net operating loss carryforwards remain fully reserved due to uncertainty of utilization of those assets.
A deferred tax liability or asset is determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. Deferred tax expense or benefit in the accompanying consolidated statements of operations are the result of changes in the assets and liabilities for deferred taxes. The measurement of deferred tax assets is reduced, if necessary, by the amount for any tax benefits that, based on available evidence, are not expected to be realized. Income tax expense is the current tax payable or refundable for the year plus or minus the net change in the deferred tax assets and liabilities. Deferred income taxes of the Company arise from the temporary differences between financial statement and income tax recognition of NOL carry-forwards.
The deferred tax assets and liabilities in the accompanying consolidated balance sheets include the following components at December 31, 2019 and September 30, 2019:
| December 31, | September 30, | |||||||
| Net deferred tax assets: | ||||||||
| Net operating loss carry-forward | $ | 1,185,045 | $ | 1,181,160 | ||||
| Property and equipment | 7,787 | 6,921 | ||||||
| Total | 1,192,832 | 1,188,081 | ||||||
| Net deferred tax liabilities: | ||||||||
| Intangible assets | 10,513 | 10,319 | ||||||
| Net | 1,182,319 | 1,177,762 | ||||||
| Less valuation allowance | (1,182,319 | ) | (1,177,762 | ) | ||||
| Net deferred taxes | $ | – | $ | – | ||||
| 14 |
| 9. | COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS |
Legal Proceedings
From time to time, we are a party to or are otherwise involved in legal proceedings, claims and other legal matters, arising in the ordinary course of our business or otherwise. The legal proceedings that the Company is involved in, the outcomes are considered to be immaterial to our ability to operate or market our services, our consolidated financial position, results of operations or cash flows.
| 10. | STOCKHOLDERS’ EQUITY |
Common Stock
The Company is authorized to issue up to 300,000,000 shares of common stock, par value $0.001 per share.
During the three months ended December 31, 2019 and 2018, the Company sold 75,757 shares and 0 shares, respectively, for $25,000 and $0, respectively.
| 15 |
| 11. | STOCK OPTION PLAN |
Effective February 27, 2015, the Company established the 2015 Stock Option Plan (the “Plan”). The Board of Directors of the Company has the authority and discretion to grant stock options and stock appreciation rights (SARs). The maximum number of shares of stock that may be issued pursuant to the exercise of options and SARs under the Plan is 9,000,000. Eligible individuals include any employee of the Company or any director, consultant, or other person providing services to the Company. The expiration date and exercise price are as established by the Board of Directors of the Company. No option may be issued under the Plan after February 27, 2018.
Effective November 22, 2016, the Company established the 2016 Stock Option Plan (the “2016 Plan”). The Board of Directors of the Company has the authority and discretion to grant stock options. The maximum number of shares of stock that may be issued pursuant to the exercise of options under the 2016 Plan is 20,000,000. Eligible individuals include any employee of the Company or any director, consultant, or other person providing services to the Company. The expiration date and exercise price are as established by the Board of Directors of the Company. No option may be issued under the Plan after ten years from the date of adoption of the 2016 Plan.
November 27, 2019 the Plan was amended to allow grant of Stock Appreciation Rights. During the three months ended December 31, 2019, one SAR was granted, and determinable. $3,385 in stock based compensation expense was recorded during the period for this SAR. The expense recorded to SAR liability, because there is a cash settlement option for the SAR’s. No other aspects of the plan were amended.
Stock option activity is summarized as follows:
| Shares Under Option | Value of Shares Under Option | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life | |||||||||||||
| Outstanding - September 30, 2017 | 2,817,158 | 317,561 | 0.67 | 98 months | ||||||||||||
| Granted | 895,000 | 119,736 | 0.27 | 110 months | ||||||||||||
| Exercised | – | – | – | – | ||||||||||||
| Canceled or expired | 80,596 | 20,052 | 0.27 | – | ||||||||||||
| Outstanding - September 30, 2018 | 3,631,562 | 417,245 | 0.58 | 98 months | ||||||||||||
| Granted | 2,269,650 | 472,048 | 0.21 | 110 months | ||||||||||||
| Exercised | – | – | – | |||||||||||||
| Canceled or expired | 3,112,712 | 338,838 | 0.24 | |||||||||||||
| Outstanding - September 30, 2019 | 2,788,500 | 550,455 | 0.29 | 99 months | ||||||||||||
| Granted | 500,000 | 0 | 0.44 | 120 months | ||||||||||||
| Exercised | 12,799 | 139 | 0.06 | 97 months | ||||||||||||
| Canceled or expired | 1,114,072 | 258,203 | 0.23 | |||||||||||||
| Outstanding - December 31, 2019 | 2,161,629 | 292,391 | 0.25 | 94 months | ||||||||||||
| Exercisable - December 31, 2019 | 1,642,381 | 0.17 | 86 months | |||||||||||||
Total compensation expense, included in salaries and wages, of previously unamortized stock compensation was $7,085 and $48,254 for the three months ended December 31, 2019 and 2018, respectively. Unamortized share-based compensation expense as of December 31, 2019 amounted to $5,633 which is expected to be recognized over the next 1.5 years.
| 16 |
| 12. | RELATED PARTY TRANSACTIONS |
Management fees paid to the largest stockholder of the entity, included as salaries and wages in the accompanying consolidated statements of operations were $0 and $43,500 for three months ended December 31, 2019 and 2018, respectively.
Included in salaries and wages were consulting fees paid to a related party as a condition to the TMN acquisition. The agreement requires payments each month totaling $21,500. The total paid under this agreement in the three months ended December 31, 2019 and 2018 respectively, were $21,500 and $43,500.
On April 12, 2019 the Company entered into a loan agreement with John Pollock, Executive Vice President of the Company. The note bears interest at 2.76%, and will be repaid in six equal installments of $2,520, beginning July 1, 2019. The balance of the loan at December 31, 2019 was $5,058 and at September 30, 2019 was $7,526 and is included in notes payable on the accompanying balance sheets.
| 17 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help you understand its historical results of operations during the periods presented and its financial condition. This MD&A should be read in conjunction with its financial statements and the accompanying notes and contains forward-looking statements that involve risks and uncertainties and assumptions that could cause its actual results to differ materially from management’s expectations. See the sections entitled “Forward-Looking Statements” and “Risk Factors” included in the Annual Report on Form 10K for the fiscal year ended September 30, 2019.
Plan of Operations
Financial Gravity is a parent company of best of breed financial services companies including brokerage, wealth management, estate planning, family office services, risk management, business and personal tax planning, business consulting, and financial advisor services. Financial Gravity's mission is to synergistically bring together companies that create symbiotic advantages to each other in order to bring a complete financial experience to the clients that we serve.
Financial Gravity’s Subsidiaries:
Financial Gravity Holdings, Inc.
Dissolved February 13, 2019.
Financial Gravity Operations, Inc.
Dissolved February 12, 2019.
Sofos Investments, Inc. (formerly Financial Gravity Wealth, Inc.)
After saving thousands in taxes, clients are happy to trust us with the management of their wealth, especially when treated to a different wealth management experience. Sofos is a Registered Investment Advisory firm. An RIA is an advisor or firm engaged in financial planning and wealth management business and is registered either with the Securities and Exchange Commission “SEC” or state securities authorities. An RIA has a fiduciary duty to his or her clients, which means that he or she has a fundamental obligation to provide suitable investment advice and always act in the clients’ best interests.
The Department of Labor’s fiduciary rule is officially dead. The fiduciary rule, also known officially as the “Conflict of Interest” rule, stated advisers have to give conflict-free advice on retirement accounts, putting their clients’ needs ahead of their own potential compensation.
Although the Department of Labor’s Fiduciary Rule was struck down by the Fifth Circuit Court, we will still maintain the fiduciary standard as a company, because we think it is best for the client.
Only 5% of all financial planners are RIAs. The advantage of the RIA model is lower cost to the client. Also, since RIAs are not compensated by commissions on financial products, their advice is considered less biased and more accurate. Coupled with tax savings, its status as a RIA makes the Company very attractive to the most profitable clients.
| 18 |
MPath Advisor Resources, LLC (formerly Financial Gravity Business, LLC) (“MPath”) MPath is an insurance marketing organization and provides insurance products and services to insurance agents or agencies.
Financial Gravity Ventures, LLC
This entity in the Company’s corporate family employs its merger strategy to acquire talent and build wealth for Financial Gravity Companies, Inc. and acquired companies. As mentioned earlier, Financial Gravity is pursuing several acquisition opportunities.
Tax Master Network, LLC
Tax Master Network “TMN” was a key acquisition in fiscal year 2016. TMN supports over 300 CPA and Enrolled Agent professionals, training them to add crucial tax planning services to support clients. Not only did this acquisition bring high-end tax planning to Financial Gravity, but the TMN customer base adds significant business development opportunities for Financial Gravity Wealth. The Company developed the Certified Tax Master® for this group and rolled out new client systems in mid-2016. TMN also provides tax services through its “Tax Blueprint®” system which identifies several strategies for lowering the client's taxes.
Financial Gravity Tax, Inc. has no current operations. It sold its bookkeeping and tax preparation business October 31, 2019, and all other operations are consolidated into TMN.
Sash Corporation dba Metro Data Processing
Sash Corporation dba Metro Data Processing, based in Tulsa, OK was the Company’s first acquisition and Metro Data Processing is based in Tulsa, OK. The client list was sold to ADP in 2018. This entity is now inactive and awaiting dissolution.
Results of Operations for the three months ended December 31, 2019 compared to the three months ended December 31, 2018
Revenues
For the three months ended December 31, 2019, revenue decreased $157,515 to $841,750 from $999,265 for the three months ended December 31, 2018. The principal components of the decrease in revenue are: the sale Financial Gravity Tax, causing a decrease in revenue of $50,666, to $69,593 in revenue during the three months ended December 31, 2019 compared to $120,259 in the three months ended December 31, 2018; TBP Revenue decreased $86,000 to $24,000 for the three months ended December 31, 2019 compared to $110,000 in the three months ended December 31, 2018; Investment Management Fees decreased $14,335 to $408,096 for the three months ended December 31, 2019 compared to $422,430 for the three months ended December 31, 2018.
| 19 |
Operating Expenses
Cost of services activity decreased $1,793 to $12,012 for the three months ended December 31, 2019 from $13,805 for the three months ended December 31, 2018. The cost of services is credit card processing fees.
Professional services expenses include legal expense, professional fees, and business consulting. Professional services expenses increased $50,519 to $115,333 for the three months ended December 31, 2019 from $64,814 for the three months ended December 31, 2018. This increase is primarily due to an increase in legal fees of $45,856.
Depreciation and amortization expenses include depreciation on fixed assets and amortization of definite lived intangibles. Depreciation and amortization expenses decreased $2,780 to $26,022 for the three months ended December 31, 2019 from $28,802 for the three months ended December 31, 2018. The decrease is due to some assets becoming fully depreciated.
General and administrative expenses decreased $48,121 to $98,831 for the three months ended December 31, 2019 from $146,952 for the three months ended December 31, 2018. The decrease is primarily due to a decrease in technology expenses of $28,873 and a decrease in insurance expenses of $9,052.
Marketing expenses decreased $10,531 to $21,113 for the three months ended December 31, 2019 from $31,644 for the three months ended December 31, 2018. The decrease is due to the Company shutting down some previous marketing channels, while new channels have yet to be identified and implemented.
Salaries and wages expenses decreased $292,384 to $578,812 for the three months ended December 31, 2019 from $871,196 for the three months ended December 31, 2018. The overall decrease was principally due to decreases in Salaries and Wages – Outsourced, $160,465, Commissions, $118,999, and Stock based compensation, $41,169.
The Company experienced a decrease in its net loss of $187,330 to a net loss of $12,042 for the three months ended December 31, 2019 from a net loss of $199,372 for the three months ended December 31, 2018, primarily attributable to the reasons noted above.
Significant Accounting Policies
Certain critical accounting policies affect the more significant judgments and estimates used in the preparation of the Company’s consolidated financial statements. These policies are contained in Note 1 to the consolidated financial statements.
Use of Estimates and Assumptions.
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.
Revenue Recognition and Accounts Receivable.
The Company derives its revenues primarily from six components: Investment Management Fees, Tax Master Network subscriptions, Tax Operating System subscriptions, Financial Advisor subscriptions, Tax BluePrint sales, and Insurance Sales.
| 20 |
Sofos Investments, Inc. generates investment management fees for services provided by the Company. Investment management fees include fees earned from assets under management by providing professional services to manage client investments. Investment management fees are calculated as a percentage of assets under management for the period. Investment management fees are Revenue is recognized as earned, at the end of each period. Fees are withdrawn from investor assets monthly, in arrears.
Financial Gravity Tax, Inc. generates service income from its consulting and other professional services performed. Revenue recognized as service is provided. Subscription income is billed to client credit card monthly, on the monthly anniversary of client sign-up.
Commission revenue is derived from the sale of annuities and premiums on life insurance policies held by third parties. The revenue is recognized when commissions are earned from insurers and issuers of the products. Commissions are received after products are issued and in force.
Revenue represents gross billings less discounts, and are net of sales taxes, as applicable. Amounts invoiced for work not yet completed are shown as deferred revenue in the accompanying consolidated balance sheets.
Tax Master Network has five levels of services that are charged and collected on a month to month subscription basis. None of these programs come with a long-term commitment or contract, and there is no up-front payment beyond the monthly subscription fee. Cancellations are processed within the month requested and memberships are closed at the end of the period for which the most recent payment was made. Members are not entitled to refunds for unused memberships. Any subscription fees paid for a future period are deferred in the financial statements. TMN also sells Tax Blueprint®. These are tax planning strategies guides, to save customers taxes through the implementation of the recommended tax strategies. After an initial assessment, the customers pay half of the year one tax savings. Revenue is deferred until the customer reviews and accepts the final Tax Blueprint® document and returns an executed delivery agreement. Subscription income is billed to client credit card monthly, on the monthly anniversary of client sign-up. TBP sales are billed to the client after a preliminary assessment and client approval to move forward. Revenue recognized in 2020, that was included in the deferred revenue liability at the beginning of the year.
Services income is recognized as consulting and other professional services are performed by the Company. Income is recognized as services are delivered.
Commission revenue is derived from the sale of premiums on life insurance policies held by third parties. The revenue is recognized as received from the insurer, issuer.
Revenue represents gross billings less discounts, net of sales tax, as applicable. Amounts invoiced for work not yet completed are shown as deferred revenue in the accompanying consolidated balance sheets.
Tax Master Network has 3 types of services that are charged and collected on a month to month subscription basis (Tax Master Network basic membership, All-Stars coaching, and Wire Service weekly broadcast email). None of these programs come with a long-term commitment or contract, and there is no up-front payment beyond the monthly subscription fee. Cancellations are processed within the month requested and memberships are closed at the end of the period for which the most recent payment was made. Members are not entitled to refunds for unused memberships.
Trade accounts receivable are carried only for subscription revenues not received in the period they apply to. The allowance for doubtful accounts was $0 and $0 as of December 31, 2019 and September 30, 2019, respectively.
In the normal course of business, the Company extends credit on an unsecured basis to its customers, substantially all of whom are located in the United States of America. The Company does not believe that it is exposed to any significant risk of loss on accounts receivable.
| 21 |
Stock-Based Compensation.
The Company recognizes the fair value of stock-based compensation awards as wages in the accompanying statements of operations for employee grants, commissions for non-employee grants, and stock appreciation rights grants, on a straight-line basis over the vesting period, using the Black-Scholes option pricing model, which is based on risk-free rate of 2.89% rates in 2020 and 1.49% to 2.55% in 2019, dividend yield of 0%, expected life of 10 years and volatility of 35% to 40%.
Liquidity and Capital Resources
As of December 31, 2019, the Company had cash and cash equivalents of $45,229. The increase of $9,176 in cash and cash equivalents from September 30, 2019 was due to net cash used in operating activities of $5,768 and net cash used in investing activities of $3,770, and net cash provided by financing activities of $18,714.
Net cash used in operating activities was $5,768 for the three months ended December 31, 2019, compared to $7,250 net cash used in operating activities for the three months ended December 31, 2018. The net cash provided by operating activities for the three months ended December 31, 2019 was due to net loss of $12,042 adjusted primarily by the following: (1) depreciation and amortization of $26,022, stock based compensation of $7,085, decrease in Right of use of lease asset of $23,166, increase in accounts payable of $45,605, increase in prepaid expenses of $27,254, an decrease in accrued expenses of $30,013, an decrease in deferred revenue of $28,048, decrease in trade accounts receivable of $12,877 and a decrease in the Lease liability $23,136.
Net cash provided by financing activities was $18,714 for the three months ended December 31, 2019, compared to net cash provided by financing activities of $70,798 for the three months ended December 31, 2018. Financing activities for the three months ended December 31, 2019 consisted primarily of proceeds from the sale of common stock of $25,000, $1,502 in proceeds from the line of credit; offset with payments made to reduce the Company’s debt obligations in the amount of $7,788.
As shown below, at December 31, 2019, our contractual cash obligations totaled approximately $89,502, all of which consisted of debt principal.
| Payments due by period | ||||||||||||||||
| Contractual obligations | Less than 1 year | 1-3 years | 4-5 years | Total | ||||||||||||
| Notes payable | $ | 11,013 | $ | 21,528 | $ | – | $ | 32,541 | ||||||||
| Lease liability | 92,544 | 263,176 | 32,584 | 388,304 | ||||||||||||
| Line of Credit | 62,019 | – | – | 62,019 | ||||||||||||
| Total contractual cash obligations | $ | 165,576 | $ | 284,704 | $ | 32,584 | $ | 482,864 | ||||||||
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the Company will need additional financing to fund additional material capital expenditures and to fully implement its business plan. There are no assurances that additional financing will be available on favorable terms, or at all. If additional financing is not available, the Company will need to reduce, defer or cancel development programs, planned initiatives and overhead expenditures as a way to supplement the cash flows generated by operations. The Company has a backlog of fees under contract in addition to the Company’s accounts receivable balance. The failure to adequately fund its capital requirements could have a material adverse effect on its business, financial condition and results of operations. Moreover, the sale of additional equity securities to raise financing will result in additional dilution to the Company’s stockholders and incurring additional indebtedness could involve the imposition of covenants that restrict its operations. Management, in the normal course of business, is trying to raise additional capital through sales of common stock as well as seeking financing from third parties, via both debt and equity, to balance the Company’s cash requirements and to finance specific capital projects.
| 22 |
Off Balance Sheet Transactions and Related Matters
Other than operating leases discussed in Note 4 to the consolidated financial statements, there are no off-balance sheet transactions, arrangements, obligations (including contingent obligations), or other relationships with unconsolidated entities or other persons that have, or may have, a material effect on financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources of the Company.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk. Our business is leveraged and, accordingly, is sensitive to fluctuations in interest rates. Any significant increase in interest rates could have a material adverse effect on our financial condition and ability to continue as a going concern.
Item 4. Controls and Procedures
The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures as of December 31, 2019. The term “disclosure controls and procedures,” as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures. Based on its evaluation, management concluded as of September 30, 2019 that its disclosure controls and procedures were not effective because of material weaknesses in our internal control over financial reporting, described below in Management’s Report on Internal Control Over Financial Reporting. Notwithstanding the identified material weaknesses, management believes the financial statements included in this Annual Report on Form 10-K fairly represent in all material respects our financial condition, results of operations and cash flows at and for the periods presented in accordance with U.S. GAAP.
| 23 |
From time to time, we are a party to or otherwise involved in legal proceedings, claims and other legal matters, arising in the ordinary course of our business or otherwise. A subsidiary of the Company is currently involved in one legal proceeding, the outcome of which will not be material to our ability to operate or market our services, our consolidated financial position, results of operations or cash flows.
No changes from September 30, 2019 10-K annual report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
None
None
| 31.1 | Rule 13a-14(a) Certification of the Principal Executive Officer. |
| 31.2 | Rule 13a-14(a) Certification of the Principal Financial Officer. |
| 32 | Section 1350 Certifications. |
| 101.INS | XBRL Instance Document |
| 101.SCH | XBRL Schema Document |
| 101.CAL | XBRL Calculation Linkbase Document |
| 101.DEF | XBRL Definition Linkbase Document |
| 101.LAB | XBRL Label Linkbase Document |
| 101.PRE | XBRL Presentation Linkbase Document |
| 24 |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Date: March 3, 2020 | By: /s/ Scott Winters |
| Scott Winters | |
| Chief Executive Officer | |
| (Principal Executive Officer) | |
| Date: March 3, 2020 | By: /s/ Paul Williams |
| Paul Williams | |
| Chief Financial Officer | |
| (Principal Financial Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Capacity | Date | |
| /s/ Scott Winters | Co-Chairman, CEO | March 3, 2020 | |
| Scott Winters | (principal executive officer) | ||
| /s/ Paul Williams | Vice Chairman, CFO | March 3, 2020 | |
| Paul Williams | (principal financial officer) | ||
| /s/ John Pollock | Co-Chairman, EVP | March 3, 2020 | |
| John Pollock | |||
| /s/ Edward A. Lyon | Director | March 3, 2020 | |
| Edward A. Lyon | |||
| /s/ Jennifer Winters | Director | March 3, 2020 | |
| Jennifer Winters | |||
| /s/ William R. Nelson | Director | March 3, 2020 | |
| William R. Nelson | |||
| 25 |
Exhibit 31.1
Certification of the Principal Executive Officer
I, Scott Winters, Chief Executive Officer, certify that:
| 1. | I have reviewed this three months report on Form 10-Q of Financial Gravity Companies, 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. | The registrant’s other certifying officer and I are 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 our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us 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 our 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 our 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 three months (the registrant’s fourth fiscal three months in the case of the annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the 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: March 3, 2020 | By: /s/ Scott Winters |
| Scott Winters | |
| Chief Executive Officer | |
| (Principal Executive Officer) |
Exhibit 31.2
Certification of the Principal Financial Officer
I, Paul Williams, Chief Financial Officer, certify that:
| 1. | I have reviewed this three months report on Form 10-Q of Financial Gravity Companies, 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. | The registrant’s other certifying officer and I are 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 our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us 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 our 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 our 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 three months (the registrant’s fourth fiscal three months in the case of the annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the 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: March 3, 2020 | By: /s/ Paul Williams | |
| Paul Williams | ||
| Chief Financial Officer | ||
| (Principal Financial Officer) |
Exhibit 32.1
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 three months Report of Financial Gravity Companies, Inc. (the “Company”) on Form 10-Q for the three months ended December 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Scott Winters, Principal Executive Officer, and I, Paul Williams, Principal 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, to the best of my knowledge:
| 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. |
| Date: March 3, 2020 | By: | /s/ Scott Winters | |
| Scott Winters | |||
| Chief Executive Officer | |||
| (Principal Executive Officer) | |||
| Date: March 3, 2020 | By: | /s/ Paul Williams | |
| Paul Williams | |||
| Chief Financial Officer | |||
| (Principal Financial Officer) |