Financial Gravity Companies, Inc 10-K for FY2019
Financial Gravity Companies, Inc. (FGCO)
About this 10-K
Financial Gravity Companies, Inc filed this 10-K on January 13, 2020, covering the fiscal year ended September 30, 2019 (FY2019).
Headline figures
Fiscal year ended September 30, 2019, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $4.08M
- up 4.8% from $3.89M a year earlier
- Net loss
- $623.49K
- compared with a net loss of $1.52M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2019
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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 | 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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [_] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes [_] No [X]
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, a 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.
| 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]
As of September 30, 2019, the aggregate market value of the registrant’s Common Stock held by non-affiliates of the issuer was approximately $3,046,000 based on the last sales price of the issuer’s Common Stock, as reported by OTC Markets. This amount excludes the market value of all shares as to which any executive officer, director or person known to the registrant to be the beneficial owner of at least 5% of the registrant’s Common Stock may be deemed to have sole or shared voting power.
The number of shares outstanding of the registrant’s Common Stock as of December 31, 2019 was 41,524,589.
DOCUMENTS INCORPORATED BY REFERENCE
Listed below are documents incorporated herein by reference and the part of this Report into which each such document is incorporated:
None
FINANCIAL GRAVITY COMPANIES, INC.
FORM 10-K
| i |
Certain statements contained in this Report that are not statements of historical fact constitute “forward-looking statements.” Words such as “may,” “seek,” “expect,” “anticipate,” “estimate,” “project,” “budget,” “goal,” “forecast,” “anticipate,” “intend,” “plan,” “may,” “will,” “could,” “should,” “strategy,” “believes,” “predicts,” “potential,” “continue,” and similar expressions are intended to identify such forward-looking statements but are not the exclusive means of identifying such statements. Although the Company believes that the current views and expectations reflected in these forward-looking statements are reasonable, those views and expectations, and the Company’s future plans, operations, business strategies, operating results and financial position, are inherently subject to risks, uncertainties, and other factors, many of which are not under the Company’s control. Those risks, uncertainties, and other factors could cause the actual results to differ materially from those in the forward-looking statements. Those risks, uncertainties, and factors (including the risks contained in the section of this report titled “Risk Factors”) that could cause the Company’s actual results, performance or achievements to differ materially from those described or implied in the forward-looking statements and its goals and strategies to not be achieved. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this Report. The Company expressly disclaims any obligation to release publicly any updates or revisions to these forward-looking statements to reflect any change in its views or expectations. The Company can give no assurances that such forward-looking statements will prove to be correct.
| ii |
General
Financial Gravity Companies, Inc. (“Financial Gravity” or the “Company”) was incorporated under the laws of the State of Nevada on December 5, 2005. Its principal executive offices are located at 800 N. Watters Rd., Suite 150, Allen, Texas 75013. The Company’s telephone number is 800-588-3893. The Company’s stock symbol is FGCO.
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.
Unless otherwise provided in footnotes, all references from this point forward in this Report to “Financial Gravity,” “we,” “us,” “our company,” “our,” or the “Company” refer to the combined Financial Gravity Companies, Inc. entity, together with its subsidiaries.
Business Overview
On October 31, 2016, following a reverse merger transaction with Pacific Oil Company, the Articles of Incorporation were amended to change the name of the Company to Financial Gravity Companies, Inc.
Sofos Investments, Inc. (formerly Financial Gravity Wealth, Inc.), Financial Gravity Tax, Inc., MPath Advisor Resources, LLC (formerly Financial Gravity Business, LLC), Financial Gravity Ventures, LLC and Tax Master Network, LLC, are Company subsidiaries that deliver a wide range of investment and financial advice, support for financial advisors, tax planning and management services to high net worth individuals and businesses nationwide.
On September 30, 2019, the Company entered into an agreement to acquire 100% of the shares of stock of Presidential Brokerage, Inc, a California corporation (“Forta”). Subsequent to the entering into the agreement, Forta changed it’s name to Forta Financial Group, Inc. (“Forta”). Upon completion of the acquisition of the Forta stock, Forta will become a wholly owned subsidiary of the Company. Forta is a broker-dealer, a registered investment advisor, and a licensed insurance agent. It primarily operates in Colorado. The merger is subject to FINRA approval and will be finalized upon such approval.
The following outline briefly describes Financial Gravity’s various subsidiaries and the products and services they offer:
Sofos Investments, Inc. (Financial Gravity Wealth, Inc.) (“Sofos”) Sofos is a registered investment advisor (“RIA”), registered with the Securities and Exchange Commission, and provides asset management services to individuals and businesses, including financial planning, wealth management and money management.
Financial Gravity Tax, Inc. Financial Gravity Tax was a tax planning service provider for small companies and individuals. The Tax Operating System, is a system for integrating and executing tax planning strategies. This is offered via subscription for member tax professionals. Financial Gravity Tax had a small bookkeeping and payroll service businesses, but those business lines were either sold or shut down in 2019. The business lines and customers of Financial Gravity Tax was sold in October 2019 and the legal entity isn’t active currently.
Tax Master Network, LLC Tax Master Network® provides three primary services including monthly subscriptions to the Tax Master Network systems, coaching and email marketing services. Tax Master Network (“TMN”) currently supports over 300 Certified Public Accountants (“CPA”) and Enrolled Agent professionals, training them to add crucial tax planning services to support clients. TMN has developed the Certified Tax Master® for this group and includes client acquisition and retention systems. TMN also offers tax planning services through the Tax Blueprint®. The process begins with an extensive and comprehensive review of the client’s needs. This assessment sets the requirements for the program that is subsequently developed. The second step is to use the client’s custom Tax Blueprint® to capture the identified tax savings. The Tax Blueprint® is delivered to the client as a guide to implementation of the identified tax savings strategies.
| 1 |
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. Financial Gravity Ventures was established to hold acquired companies and business assets until they are integrated into the mainstream Financial Gravity business structure.
Sash Corporation dba Metro Data Processing, based in Tulsa, OK was the Company’s first acquisition and Metro Data Processing was based in Tulsa, OK. The client list was sold to ADP in 2018. This entity is now inactive and awaiting dissolution.
Fortan Financial Group, Inc. (formerlyh Presidential Brokerage, Inc.) On September 30, 2019, the Company entered into a merger agreement with Forta, to acquire Forta in exchange for Company stock. The merger is awaiting FINRA approval. When approved, the Forta shareholders will own more than 50% of the Company. Forta is a broker dealer, registered investment advisor and an insurance brokerage, subject to FINRA, SEC and insurance regulation.
Organic growth has come in three key areas.
| • | Tax Services and financial advisory services, including Tax Blueprint® and ongoing Tax Operating System® services | |
| • | Brokerage and Wealth Management Services – and brokerage services after the Forta acquisition and money management services. | |
| • | Other Products and Services (Insurance and other miscellaneous products and services). |
All future growth is expected to come from these key areas, organic growth, acquisitions, and strategic alliances.
Competition
The market is comprised of a very large selection of varied suppliers that provide investment advisory and brokerage, financial advisory, accounting, and tax services. These include accounting firms, tax preparers, estate planners, lawyers, wealth management advisors, banks, and large financial institutions. However, many of these firms are not able to provide the customized services that small business owners are seeking, or simply do not have each of the customized services that Financial Gravity offers to meet the needs of small business owners and high net worth individuals at the price that Financial Gravity offers.
Financial Gravity’s service delivery model has been proven to work over the past years. Financial Gravity believes that its superior products, services and overall customer service will enable it to achieve sales and revenue growth.
Intellectual Property
Financial Gravity maintains copyrights or trademarks on all of its printed marketing materials, the financialgravity.com website and other web pages, and proprietary software. Financial Gravity’s goal is to preserve its trade secrets and operate without infringing on the proprietary rights of other parties.
To help protect its proprietary know-how, which is not patentable, Financial Gravity currently relies and will in the future rely on trade secret protection and confidentiality agreements to protect its interests. To this end, Financial Gravity requires all its employees, consultants, advisors and other contractors to enter into confidentiality agreements that prohibit the disclosure of confidential information and, where applicable, require disclosure and assignment to Financial Gravity of the ideas, developments, discoveries and inventions important to its business.
Employees
As of September 30, 2019, the Company had approximately 17 full-time employees. None of the Company’s employees are covered by a collective bargaining agreement. The Company believes that it maintains good relations with its employees.
Legal Proceedings
From time to time, the Company is a party to or otherwise involved in legal proceedings, claims and other legal matters, arising in the ordinary course of its business or otherwise. It is management’s opinion that there are no legal proceedings the outcome of which will be material to its ability to operate or market its services, its consolidated financial position, operating results or cash flows.
| 2 |
Government Regulation
The services provided by Financial Gravity, through its subsidiaries, are extensively regulated by federal and state authorities in the United States. Financial Gravity believes it is in compliance with federal and state qualification and registration requirements in order that it may continue to provide services to its clients consistent with applicable laws and regulations.
The Company’s limited operating history may not serve as an adequate basis to judge its future prospects and results of operations. Financial Gravity has a relatively limited operating history. Its limited operating history and the unpredictability of the wealth management and insurance industries make it difficult for investors to evaluate its business. An investor in its securities must consider the risks, uncertainties and difficulties frequently encountered by companies in rapidly evolving markets.
The Company will need additional financing to implement its business plan. The Company will need additional financing to fully implement its business plan in a manner that not only continues to expand an already established direct-to-consumer approach, but also allows the Company to establish a stronger brand name in all the areas in which it operates, and to attract new advisors, insurance professionals and tax service providers. In particular, the Company will need additional financing to:
| · | Effectuate its business plan and further develop its product and service lines; | |
| · | Expand its facilities, human resources, and infrastructure; and | |
| · | Increase its marketing efforts and lead generation. |
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 the imposition of covenants that restrict the Company’s operations.
The Company’s products and services are subject to changes in applicable laws and regulations. The Company’s business is particularly subject to changing federal and state laws and regulations related to the provision of financial services to consumers. The Company’s continued success depends in part on its ability to anticipate and respond to these changes, and the Company may not be able to respond in a timely or commercially appropriate manner. If the Company fails to adjust its products and services in response to changing legal and/or regulatory requirements, the ability to deliver its products and services may be hindered, which in turn could have an adverse effect on the Company’s business, financial condition and results of operations.
The Company may continue to encounter substantial competition in its business. The Company believes that existing and new competitors will continue to improve their products and services, as well as introduce new products and services with competitive price and performance characteristics. The Company expects that it must continue to innovate, and to invest in product development and productivity improvements, to compete effectively in the several markets in which the Company participates. The Company’s competitors could develop a more efficient product or service or undertake more aggressive and costly marketing campaigns than those implemented by the Company, which could adversely affect the Company’s marketing strategies and have an adverse effect on the Company's business, financial condition and results of operations.
Important factors affecting the Company's current ability to compete successfully include:
| · | lead generation and marketing costs; | |
| · | service delivery protocols; | |
| · | branded name advertising; and | |
| · | product and service pricing. |
| 3 |
In periods of reduced demand for the Company's products and services, the Company can either choose to maintain market share by reducing product and service pricing to meet the competition, or maintain its product and service pricing, which would likely sacrifice market share. Sales and overall profitability may be reduced in either case. In addition, there can be no assurance that additional competitors will not enter the Company's existing markets, or that the Company will be able to continue to compete successfully against its competition.
The Company may not successfully manage its growth. The Company’s success will depend upon the expansion of its operations and the effective management of its growth, which will place a significant strain on its management and on its administrative, operational and financial resources. To manage this growth, it must expand its facilities, augment its operational, financial and management systems, and hire and train additional qualified personnel. If it is unable to manage its growth effectively, its business would be harmed.
The Company relies on key executive officers, and their knowledge of its business and technical expertise would be difficult to replace. The Company is highly dependent on its executive officers. If one or more of the Company's senior executives or other key personnel are unable or unwilling to continue in their present positions, the Company may not be able to replace them easily or at all, and the Company’s business may be disrupted. Competition for senior management personnel is intense, the pool of qualified candidates is very limited, and it may not be able to retain the services of its senior executives or attract and retain high-quality senior executives in the future. Such failure could have a material adverse effect on the Company's business, financial condition and results of operations.
The Company may never pay dividends to its common stockholders. The Company currently intends to retain its future earnings to support operations and to finance expansion; accordingly, the Company does not anticipate paying any cash dividends in the foreseeable future.
The declaration, payment and amount of any future dividends on common stock will be at the discretion of the Company's Board of Directors, and will depend upon, among other things, earnings, financial condition, capital requirements, level of indebtedness and other considerations the Board of Directors considers relevant. There is no assurance that future dividends will be paid on common stock or, if dividends are paid, the amount thereof.
The Company’s common stock is quoted through the OTC Markets, which may have an unfavorable impact on its stock price and liquidity. The Company’s common stock is quoted on the OTC Markets, which is a significantly more limited market than the New York Stock Exchange or NASDAQ. The trading volume may be limited by the fact that many major institutional investment funds, including mutual funds, follow a policy of not investing in OTC Markets stocks and certain major brokerage firms restrict their brokers from recommending OTC Markets stocks because they are considered speculative and volatile.
The trading volume of the Company’s common stock has been and may continue to be limited and sporadic. As a result, the quoted price for the Company’s common stock on the OTC Markets may not necessarily be a reliable indicator of its fair market value.
Additionally, the securities of small capitalization companies may trade less frequently and in more limited volume than those of more established companies. The market for small capitalization companies is generally volatile, with wide price fluctuations not necessarily related to the operating performance of such companies.
The Company’s common stock is subject to price volatility unrelated to its operations. The market price of the Company’s common stock could fluctuate substantially due to a variety of factors, including market perception of the Company’s ability to achieve its planned growth, operating results of the Company and of other companies in the same industry, trading volume in the Company’s common stock, changes in general conditions in the economy and the financial markets or other developments affecting the Company or its competitors.
The Company’s common stock is classified as a “penny stock.” Rule 3a51-1 of the Securities Exchange Act of 1934 establishes the definition of a “penny stock,” for purposes relevant to us, as any equity security that has a minimum bid price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to a limited number of exceptions which are not available to us. It is likely that the Company’s common stock will be considered to be a penny stock for the immediately foreseeable future.
| 4 |
For any transaction involving a penny stock, unless exempt, the penny stock rules require that a broker or dealer approve a person’s account for transactions in penny stocks and the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person’s account for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience and objectives of the investor, make a reasonable determination that transactions in penny stocks are suitable for that person, and make a reasonable determination that that person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also provide disclosure to its customers, prior to executing trades, about the risks of investing in penny stocks in both public offerings and in secondary trading, the commissions payable to both the broker-dealer and the registered representative, and the rights and remedies available to an investor in cases of fraud in penny stock transactions.
Because of these regulations, broker-dealers may not wish to furnish the necessary paperwork and disclosures and/or may encounter difficulties in their attempt to buy or sell shares of the Company’s common stock, which may in turn affect the ability of Company stockholders to sell their shares.
Accordingly, the penny stock classification adversely affects any market liquidity for the Company’s common stock and subjects the shares to certain risks associated with trading in penny stocks. These risks include difficulty for investors in purchasing or disposing of shares, difficulty in obtaining accurate bid and ask quotations, difficulty in establishing the market value of the shares, and a lack of securities analyst coverage.
The Company’s common stock is subject to dilution. Company’s plan for increasing revenue is to recruit advisors and other professionals. Some of these recruits may be granted stock options or stock rights. These shares are among the shares reserved in Company’s stock option plan (see compensation plans discussion).
Item 1B. UNRESOLVED STAFF COMMENTS.
None.
The Company’s corporate offices are located at 800 N. Watters Rd. Suite 150, Allen, TX 75013.
Tax Master Network’s offices are located at 3825 Edwards Rd., Suite 103, Cincinnati, OH 45209.
From time to time, the Company is a party to or otherwise involved in legal proceedings, claims and other legal matters, arising in the ordinary course of its business or otherwise. It is management’s opinion that there are no legal proceedings the outcome of which will be material to its ability to operate or market its services, its consolidated financial position, operating results or cash flows.
See Note 8 to the consolidated financial statements in Part II, Item 8 of this Form 10-K for more information.
Item 4. MINE SAFETY DISCLOSURES.
Not applicable.
| 5 |
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES.
Market Information
The Company’s Common Stock is currently traded in the over-the-counter market and quoted under the symbol FGCO. The following are the high and low sales prices for the Company’s Common Stock for the periods reflected below:
| Fiscal Year Ended September 30, 2018 | High | Low | ||||||
| First Quarter | $ | 1.50 | $ | 0.04 | ||||
| Second Quarter | $ | 0.50 | $ | 0.06 | ||||
| Third Quarter | $ | 0.33 | $ | 0.05 | ||||
| Fourth Quarter | $ | 0.10 | $ | 0.05 | ||||
| Fiscal Year Ended September 30, 2019 | High | Low | ||||||
| First Quarter | $ | 0.10 | $ | 0.07 | ||||
| Second Quarter | $ | 0.54 | $ | 0.08 | ||||
| Third Quarter | $ | 0.40 | $ | 0.17 | ||||
| Fourth Quarter | $ | 0.51 | $ | 0.18 | ||||
The above prices reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not represent actual transactions.
Holders
The approximate number of stockholders of record of the Company’s Common Stock on September 30, 2019 was 74.
Dividends
The Company has never paid any cash dividends on its common stock, and it is anticipated that none will be paid in the foreseeable future.
Recent Sales/Issuance of Unregistered Securities
On September 30, 2019, the Company entered into a merger agreement with Forta, to acquire Forta in exchange for Company stock. The merger is awaiting FINRA approval. When approved, the Forta shareholders will own more than 50% of the Company. John Pollock will remain the largest individual shareholder.
During the year ended September 30, 2018 an aggregate of 100,000 shares of the Company’s common stock have been sold for $100,000.
During the year ended September 30, 2019 the Company issued 5,598,133 shares of common stock in exchange for $1,007,664 in promissory notes.
The sales of the securities identified above were made pursuant to privately negotiated transactions that did not involve a public offering of securities and, accordingly, the Company believes that these transactions were exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof. Each investor represented that such investor either (A) is an “accredited investor,” (B) has such knowledge and experience in financial and business matters that the investor is capable of evaluating the merits and risks of acquiring the shares of the Company’s common stock, or (C) appointed an appropriate person to act as the investor’s purchaser representative in connection with evaluating the merits and risks of acquiring the shares of the Company’s common stock. The investors received written disclosures that the securities had not been registered under the Securities Act and that any resale must be made pursuant to a registration or an available exemption from such registration. All of the foregoing securities are deemed restricted securities for purposes of the Securities Act.
| 6 |
The Company’s option grants were effected pursuant to Rule 701 promulgated under the Securities Act.
Repurchases of Equity Securities
The Company did not repurchase any of its equity securities during the years ended September 30, 2019 or 2018.
Item 6. SELECTED FINANCIAL DATA.
Not applicable.
Item 7. 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” above.
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, 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.
| 7 |
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.
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 year ended September 30, 2019 compared to the year ended September 30, 2018
Revenues
For the year ended September 30, 2019, revenue increased $188,055 to $4,075,048 from $3,886,993 for the year ended September 30, 2018. The principal drivers for this are an increase in insurance sales commission of $300,773, offset by a decrease in Tax BluePrint sales of $179,800.
Operating Expenses
Professional services expenses include consulting fees, legal expense, professional fees, and business consulting. Professional services expenses decreased $683,437 to $141,835 for the year ended September 30, 2019 from $827,272 for the year ended September 30, 2018. Professional and consulting expenses decreased by $521,502 in 2019 compared to 2018.
| 8 |
Depreciation and amortization expenses include depreciation on fixed assets and amortization of definite lived intangibles. Depreciation and amortization expenses increased $75,948 to $189,070 for the year ended September 30, 2019 from $113,122 for the year ended September 30, 2018. The increase is primarily due to a one-time charge, in 2019, to amortization related to the impairment of a Trade Name, in the amount of $69,300.
General and administrative expenses decreased $214,092 to $533,805 for the year ended September 30, 2019 from $747,897 for the year ended September 30, 2018. The largest changes were a decrease in travel of $158,957 and bad debt expense $21,876.
Marketing expenses decreased $135,401 to $131,529 for the year ended September 30, 2019 from $266,930 for the year ended September 30, 2018. The decrease is primarily due to consolidating outside vendors used and bringing marketing efforts in-house.
Salaries and wages expenses increased $242,248 to $3,501,744 for the year ended September 30, 2019 from $3,259,446 for the year ended September 30, 2018. The increase is primarily due to an increase in stock option expense of $158,331, and an overall increase in commissions of $149,817.
The Company experienced a decrease in net loss of $897,147 to a net loss of $623,485 for the year ended September 30, 2019 from a net loss of $1,520,632 for the year ended September 30, 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.
Investment management fees are recognized as services are provided by the Company. Investment management fees include fees earned from assets under management by providing professional services to manage clients’ investments. Revenues are recognized in the period earned.
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.
| 9 |
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 $21,876 as of September 30, 2019 and 2018, 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.
Stock-Based Compensation.
The Company recognizes the fair value of the stock-based compensation awards as wages in the accompanying statements of operations on a straight-line basis over the vesting period based on the Black-Scholes option pricing model based on a risk-free rate of 1.50% to 2.89% in 2019 and 1.49% to 2.55% in 2018, dividend yield of 0%, expected life of 10 years and volatility of 25.32% to 34.05%.
Liquidity and Capital Resources
As of September 30, 2019, the Company had cash and cash equivalents of $36,053. The increase of $3,833 in cash and cash equivalents from September 30, 2018 was due to net cash provided by operating activities of $89,640, net cash used in investing activities of $43,582, and net cash used in financing actives of $42,225.
Net cash provided by operating activities was $89,640 for the year ended September 30, 2019, compared to $1,097,020 net cash used in operating activities for the year ended September 30, 2018. The net cash provided by operating activities for the year ended September 30, 2019 was due to net loss of $623,485, adjusted primarily by the following: increases in depreciation and amortization of $75,948, stock based compensation of $364,814, stock options issued in exchange for services and in Trade accounts receivable, $131,470. The Net operating loss was also adjusted for decreases in accounts payable – trade of $127,997, decrease in accounts receivable related party, $1,791, decreases in prepaid expenses, $13,647, decreases in accrued expenses, $75,283, and increases in deferred revenue, $33,333.
Net cash used in investing activities was $43,582 for the year ended September 30, 2019, compared to net cash used in investing activities of $60,639 for the year ended September 30, 2018. The Company purchased more equipment and trademarks during the year ended September 30, 2018.
Net cash used in financing activities was $42,225 for the year ended September 30, 2019, compared to net cash provided by financing activities of $745,459 for the year ended September 30, 2018. Financing activities for the year ended September 30, 2019 consisted primarily of borrowings from Notes payable of $202,205 and payments on notes payable of $248,703.
As shown below, at September 30, 2019, its contractual cash obligations totaled approximately $560,786 all of which consisted of operating lease obligations and debt principal.
| Payments due by period | ||||||||||||||||
| Contractual obligations | Less than 1 year | 1-3 years | 4-5 years | Total | ||||||||||||
| Notes payable | $ | 13,393 | $ | 23,534 | $ | – | $ | 36,927 | ||||||||
| Operating leases | 123,144 | 304,212 | 32,584 | 459,940 | ||||||||||||
| Line of Credit | 63,919 | – | – | 63,919 | ||||||||||||
| Total contractual cash obligations | $ | 200,456 | $ | 327,746 | $ | 32,584 | $ | 560,786 | ||||||||
| 10 |
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.
Off Balance Sheet Transactions and Related Matters
Other than operating leases discussed in Note 8 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Interest Rate Risk. The Company’s 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 its financial condition and ability to continue as a going concern.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements required by this item are included in this report in Part IV, Item 15.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
Item 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure 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 September 30, 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.
| 11 |
Management’s Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. Responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of control procedures. The objectives of internal control include providing management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management’s authorization and recorded properly to permit the preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States. The Company’s Chief Executive Officer and Chief Financial Officer assessed the effectiveness of its internal control over financial reporting as of September 30, 2019. In making this assessment, its management used the criteria based on the framework in Internal Control - Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2019, its internal control over financial reporting was not effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with US generally accepted accounting principles. The Company’s Chief Executive Officer and Chief Financial Officer reviewed the results of their assessment with its board of directors.
Based on its evaluation under this framework, management concluded that its internal control over financial reporting was not effective as of the evaluation date due to the factors stated below.
| · | Insufficient Resources: The Company has inadequate number of personnel with requisite expertise in the key functional areas of finance and accounting to be able to have appropriately designed and operating entity level controls including risk assessment; information and communication; monitoring; and financial reporting. |
| · | Inadequate Segregation of Duties: The Company has inadequate number of personnel to properly segregate duties to implement control procedures. |
This annual report does not include an attestation report of its Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
Inherent Limitations on Effectiveness of Controls
Internal control over financial reporting has inherent limitations which include but is not limited to the use of independent professionals for advice and guidance, interpretation of existing and/or changing rules and principles, segregation of management duties, scale of organization, and personnel factors. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely basis, however these inherent limitations are known features of the financial reporting process and it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control over Financial Reporting
During the period covered by this report, the following change was made in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting:
| · | The Company has implemented a robust check disbursement policy that includes the following key control points: first, the controller who handles check disbursements is not an authorized signer on any bank account and cannot sign checks; second, any disbursement amount less than $5,000.00 requires written approval from one (1) member of the leadership team; third, any disbursement amount of more than $5,000.00 and equal to or less than $24,999.99 requires written approval of two (2) members of the leadership team; fourth, any disbursement amount of $25,000.00 or more requires approval by the Board of Directors; and fifth, all disbursements are reviewed and approved by the Chief Operating Officer. As an additional control, all disbursement checks are signed by the CEO when available, and if the CEO is unable to sign, disbursement checks are signed by a member of the leadership team. All disbursements are controlled through a formal check disbursement process that includes an official check disbursement request form. This form is reviewed and signed by the appropriate parties as referenced above. The leadership team currently comprises the following members: The Chief Executive Officer, the Chief Operating Officer, the Chief Financial Officer, the Chief Tax Strategist, the Chief Sales Officer, and the Director of Operations. |
| 12 |
None.
| 13 |
Item 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.
Directors and Executive Officers
Set forth below is certain information regarding the persons who were directors and executive officers at any time during the fiscal year 2019.
| Name | Age | Position with the Company | ||
| Scott Winters | 49 | Co-Chairman of the Board, Chief Executive Officer | ||
| John Pollock | 52 | Co-Chairman of the Board, Executive Vice President - Sales | ||
| Paul Williams | 63 | Vice Chairman of the Board, Chief Financial Officer, Secretary and Treasurer | ||
| Jennifer Winters | 47 | Secretary, Executive Vice President | ||
| Dan Sundby | 56 | Former Chief Sales Officer | ||
| Edward A. Lyon | 54 | Chief Tax Strategist and Board Member | ||
| George Crumley | 51 | Former Assistant Secretary, former Assistant Treasurer and former Board Member | ||
| Gary Nemer | 73 | Board Member | ||
| David Myers | 67 | Board Member | ||
| Michael Ashby | 66 | Board Member | ||
| Todd Bourgeois | 58 | Board Member | ||
| Debbie Buckner | 56 | Former President, former Chief Operating Officer, and former Board Member |
Scott Winters, 49, August 15, 2019, Financial Gravity Companies, Inc. (the “Company”) appointed Mr. Scott Winters, age 49, to serve as Chief Executive Officer and Co-Chairman of the Board for the Company. Prior to joining the Company, from 2016 to present, Mr. Winters has served as Owner of Presidential Wealth Management, an investment advisory and wealth management firm. From 2003 to 2017 Mr. Winters was CEO, Chairman of the Board and Co-Founder of Eqis Capital Management, also an investment advisory, and wealth management firm.
John Pollock, 52, was CEO/Founder of Business Legacy, Inc. from 2002, Pollock Advisory Group from 2007, was the former CEO and Chairman of Financial Gravity Companies, Inc. (the Company), and is currently Co-Chairman of the Board and Executive Vice President – Sales. Mr. Pollock’s specific experience, qualifications, attributes or skills that led to the conclusion that he should serve as a director for the Company:
| · | Has served as CEO and Chairman of Financial Gravity since its inception until August 2019. |
| · | A seasoned manager |
Paul O. Williams, 63, has served on the Financial Gravity Companies, Inc. (OTC: FGCO) Board of Directors and as Vice Chairman of the Board since 2015, and has served as our Chief Financial Officer and Secretary – Treasurer from 2016 until August 2019. He currently still serves as Vice-Chairman, Chief Financial Officer and Treasurer. He graduated from Austin College in Sherman, Texas in 1978 and the Institute for Organization Management in Washington, DC in 1982. Since 2007, Mr. Williams has served as Chief Executive Officer of Bison Financial Group, Inc., a corporate financial advisory and business development firm serving middle market growth companies.
Mr. Williams also serves as an officer and director of two other public companies. On behalf of Worldwide Specialty Chemicals, Inc. based in Dallas, TX, Mr. Williams has served as Vice Chairman of the Board and Chief Financial Officer since 2019. On behalf of Light Engine Design Corp. (OTC: TLED) based in Phoenix, AZ, Mr. Williams has served as Chairman of the Board and Chief Financial Officer since 2018.
Mr. Williams also serves as an officer and director of three other private companies. Mr. Williams currently serves as: Vice Chairman of the Board of Dynamic Chemical Solutions, Inc. in Frisco, Texas since 2016; Chairman of the Board & Chief Financial Officer of Curtis Mathes, Inc. in Frisco, Texas since 2013.
| 14 |
Within the last five years, on behalf of Halo Companies, Inc. (OTC: HALN), Mr. Williams previously served as Vice Chairman of the Board, Treasurer, and Assistant Secretary from 2009 to 2018, and served as Chief Financial Officer from 2009 to 2012 and from 2015 to 2018.
The breadth of Mr. Williams’ entrepreneurial and financial services experience led the Board of Directors to the conclusion that he is qualified to serve as a director for the Company. Mr. Williams’ specific experience, qualifications, attributes or skills that led to the conclusion that he should serve as a director for the Company:
| · | Over 40 years of business experience, primarily in capital markets, mergers, and acquisitions |
| · | Has served as both officer and director of other public companies |
| · | Financial Gravity is the fourth public company for which Mr. Williams has served as Chief Financial Officer |
| · | Within the last 5 years, Mr. Williams served as Vice-Chairman of the Board and Chief Financial Officer at Halo Companies, Inc., a public company, and Chairman of the Board and Chief Financial Officer of Light Engine Design Corp., a public company |
Dan Sundby, 56 served as Chief Sales Officer for Financial Gravity until March 2019.
Edward A. Lyon, 54, has been the Company’s Chief Tax Strategist and a Director since October 2015. From 2005 until 2015, he was Partner-in-Charge of Content at Tax Coach Software, which he founded in 2005. Mr. Lyon received a B.A. in History from Hamilton College in 1986 and a J.D. from the University of Cincinnati College of Law in 1991. Mr. Lyon’s specific experience, qualifications, attributes or skills that led to the conclusion that he should serve as a director for the Company:
| · | The founder of Tax Coach Software, managing the company for 11 years |
| · | A deep knowledge of accounting and financial services industries |
| · | A nationally-recognized expert on tax planning |
| · | The author of 8 books, and has appeared on over 500 radio and television broadcasts to speak about his areas of expertise |
Jennifer Winters, 47, August 27th, the Board appointed Jennifer Winters to serve as Corporate Secretary. She will also serve as Executive Vice President. In order for Jennifer Winters to assume the role of Corporate Secretary, Mr. Paul Williams relinquished that role. Mr. Williams will continue to serve the Company as Vice Chairman of the Board, Chief Financial Officer and Treasurer. Mrs. Winters is an accomplished executive, having served as a Co-Founder of Eqis Holdings, Inc. from 2007 to 2017. She also served on their Board of Directors from 2010 to 2017. In addition, she served as Chief Compliance Officer of Eqis Captial Management, Inc. from 2007 to 2015. She also served as their Executive Vice President from 2015 to 2017. Jennifer Winters is the spouse of Scott Winters, the Chief Executive Officer of the Company.
George E. Crumley, 51, was on the Board of Directors from January 2015 until March of 2019.
Gary Nemer, 73, From 2016 to present, Mr. Nemer has served as a Board Member and Chairman of the Board of Directors of Presidential Brokerage, Inc., an investment advisory and wealth management firm. Mr. Nemer also serves on the Board of Directors of Eqis Capital Management, also an investment advisory and wealth management firm. Mr. Nemer graduated from the USC Gould School of Law at the University of Southern California and is a practicing attorney in the San Francisco area.
| 15 |
David Myers, 67, has been on the Board of Directors since August 28, 2019. From 2013 to March 2019, he served as Vice President, Strategy & Analytics for McGraw-Hill Education, a learning science company and one of the “big three” educational publishers that provide customized educational content, software, and services for pre-K through postgraduate education. At McGraw-Hill, he was responsible for market analytics, market research, pricing strategy, business and competitive intelligence, state adoption planning and strategic planning. From 2011 to 2013, Mr. Myers served as Senior Manager, Business Development for Mimio Interactive Teaching Technologies, which provides innovative, engaging, and affordable educational technology and solutions that provide a better way to learn. At Mimio, he was responsible for developing a team and implementing a suite of business intelligence programs (market research, competitive intelligence, global market share and financial scenario models). Mr. Myers’ specific experience, qualifications, attributes or skills that led to the conclusion that he should serve as a director for the Company:
| · | A deep understanding of the role technology plays as an enabler of competitive business advantage | |
| · | Deep experience building and leading skilled teams | |
| · | Adept at applying marketing analytics, market research, pricing strategy and competitive intelligence to the strategic planning for enterprises | |
| · | Skills in team-building, analytics, operations and organizational optimization |
Michael Ashby, 66, has been on the Board of Directors since August 28, 2019. Since March 2015, he has managed a variety of consulting engagements -- both domestic and internationally – through his personal consulting company. In January 2015, he served as a consultant for Ashby OpsComm, an industrial consulting and engineering firm. In that role, Mr. Ashby as Startup Manager for the Al Hosn super sour gas plant startup in the UAE – and successfully brought on line the largest sour gas processing plant in the world with no major incidents. Mr. Ashby also spent over a decade with Occidental Petroleum in a series of management roles with ever-growing responsibility, most recently as World Wide Engineering Chief of Surface Operations and Engineering responsible for operations and technical support of all business units across the globe. Mr. Ashby’s specific experience, qualifications, attributes or skills that led to the conclusion that he should serve as a director for the Company:
| · | Decades of experience working in complex project management | |
| · | Strong people skills at all levels of an organization, from front-line workers to senior management | |
| · | Superior planning and execution skills |
Todd Bourgeois, 58, has been on the Board of Directors since August 28, 2019. Mr. Bourgeois has had a long career with Coca-Cola Bottlers, Inc. (from 1982 forward), most recently as Vice President of Business Integration for Coca-Cola Southwest Beverages. In his most recent role, Mr. Bourgeois was responsible for leading a team that spearheaded all Critical Business Transformation Projects throughout Coca Cola Southwest Beverages, Inc. including formulation of ROI Synergy initiatives as well as Operational Plans for execution of these projects. He reported directly to the CEO of Coca-Cola Southwest Beverages and managed a Team of Project Coordinators, Analysts and multiple external consultant teams (McKinsey, Deloitte, Accenture). Mr. Bourgeois’ specific experience, qualifications, attributes or skills that led to the conclusion that he should serve as a director for the Company:
| · | Over 30 years of experience managing diverse teams for a broad range of business improvement projects | |
| · | Experience managing large sales and marketing organizations |
Debbie Buckner, 56, was on the Board of Directors from August 28, 2018 through August 22, 2019.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires officers, directors and persons who beneficially own more than 10% of a class of our equity securities registered under the Exchange Act to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to us during fiscal year 2019 and Forms 5 and amendments thereto furnished to us with respect to fiscal year 2019, or written representations that Form 5 was not required for fiscal year 2019, we believe that all Section 16(a) filing requirements applicable to each of our officers, directors and greater-than-ten percent stockholders were fulfilled in a timely manner. We have notified all known beneficial owners of more than 10% of our common stock of their requirement to file ownership reports with the Securities and Exchange Commission.
| 16 |
Code of Ethics
The Company has adopted a code of ethics that applies to its principal executive, financial, and accounting officers and is included as an exhibit with this filing.
No Committees of the Board of Directors; No Financial Expert
The Company does not presently have a separately constituted audit committee, compensation committee, nominating committee, executive committee or any other committees of its Board of Directors. Nor does it have an audit committee “financial expert”. At present, its entire Board of Directors acts as its audit committee. None of the members of its Board of Directors meets the definition of “audit committee financial expert” as defined in Item 407(d) of Regulation S-K promulgated by the Securities and Exchange Commission. It has not retained an audit committee financial expert because it does not believe that it can do so without undue cost and expense. Moreover, it believes that the present members of the Board of Directors, taken as a whole, have sufficient knowledge and experience in financial affairs to effectively perform their duties.
Item 11. EXECUTIVE COMPENSATION.
Summary Compensation Table
The particulars of compensation paid to the following persons during the fiscal period ended September 30, 2019 and 2018 are set out in the summary compensation table below:
| · | our Chief Executive Officer (Principal Executive Officer); | |
| · | our Chief Financial Officer (Principal Financial Officer); | |
| · | each of our three most highly compensated executive officers, other than the Principal Executive Officer and the Principal Financial Officer, who were serving as executive officers at the end of the fiscal year ended September 30, 2019 and 2018; and | |
| · | up to two additional individuals for whom disclosure would have been provided under the item above but for the fact that the individual was not serving as our executive officer at the end of the fiscal year ended September 30, 2019 and 2018. |
(collectively, the “Named Executive Officers”):
| 17 |
SUMMARY COMPENSATION TABLE
| Name and Principal Position | Year | Salary | Bonus | Stock Awards | Option Awards | All Other | Total | |||||||||||||||||||
| Scott Winters | 2019 | $ | 31,250 | – | – | – | – | $ | 31,250 | |||||||||||||||||
| CEO, Principal Executive Officer*** | 2018 | – | – | – | – | – | – | |||||||||||||||||||
| John Pollock | 2019 | $ | 52,994 | – | – | – | $ | 152,250 | $ | 205,244 | ||||||||||||||||
| Executive Vice President – Sales*** | 2018 | $ | 23,660 | – | – | – | $ | 203,000 | $ | 226,660 | ||||||||||||||||
| Debbie Buckner | 2019 | $ | 137,500 | $ | 214,594 | $ | 352,094 | |||||||||||||||||||
| President and Chief Operating Officer | ||||||||||||||||||||||||||
| Paul Williams | 2019 | $ | 96,000 | – | – | – | – | $ | 96,000 | |||||||||||||||||
| CFO, Principal Financial Officer | 2018 | $ | 96,000 | – | – | – | – | $ | 96,000 | |||||||||||||||||
| Dan Sundby | ||||||||||||||||||||||||||
| Former CSO**** | 2018 | $ | 132,797 | $ | 15,000 | – | $ | 116,292 | – | $ | 264,089 | |||||||||||||||
| Dave Crowley | 2019 | $ | 30,000 | $ | 81,666 | – | – | – | $ | 111,666 | ||||||||||||||||
| Former Principal Advisor**** | 2018 | $ | 258,158 | $ | 20,000 | – | – | – | $ | 278,158 | ||||||||||||||||
| Edward A. Lyon | 2019 | $ | 42,000 | – | – | – | $ | 198,000 | $ | 240,000 | ||||||||||||||||
| CTS | 2018 | $ | 42,000 | – | – | – | $ | 198,000 | $ | 240,000 | ||||||||||||||||
***Current salary is $250,000 annually, with no other compensation.
****Separated in March 2019.
(1) The Company recognizes the fair value of the stock-based compensation awards as wages in the accompanying statements of operations on a straight-line basis over the vesting period based on the Black-Scholes option pricing model based on a risk-free rate from 1.50% to 2.89% in 2019 and 1.49% to 2.55% in 2018, dividend yield of 0%, expected life of 10 years and volatility of 25.32% to 34.05%. The aggregate grant date fair value of the option award is $232,596, to be recognized over the term of the option award.
Except as described below, none of the Named Executive Officers has an employment agreement.
Edward A. Lyon, a member of the Board of Directors, is party to an employment agreement. which provides for base salary of $42,000 per year, plus management fees of $198,000 annually, paid semi-monthly. Mr. Lyon serves as the General Manager, responsible for supervising the business and affairs of Tax Master Network.
(*) For Mr. Pollock, the amount shown in the Summary Compensation Table under the heading All Other Compensation represents amounts paid by the Company to a consulting firm owned and controlled by Mr. Pollock, in compensation for services not related to his roles as an officer and director of the Company.
(**) For Mr. Lyon, the amount shown in the Summary Compensation Table under the heading All Other Compensation represents amounts paid by the Company to a consulting firm owned and controlled by Mr. Lyon, in compensation for services not related to his roles as an officer and director of the Company.
Summary Compensation
Except as described above, the Company has no employment agreements with any of its Directors or executive officers.
For the fiscal year ended September 30, 2019, no outstanding stock options or other equity-based awards were re-priced or otherwise materially modified. No stock appreciation rights have been granted to any of the Directors or executive officers and none of the Directors or executive officers exercised any stock options or stock appreciation rights. There are no non-equity incentive plan agreements with any of the Directors or executive officers.
| 18 |
Outstanding Equity Awards at Fiscal Year-end
Dan Sundby has options currently vesting and the options are fully vested.
Compensation of Directors
This section is not applicable as there was no director compensation for year ended September 30, 2019.
Employment Contracts, Termination of Employment, Change-in-Control Arrangements
Certain executives have compensation agreements that include payments to be made by us upon termination of service without cause, up to one year of annual salary. There are no arrangements for Directors, officers, employees or consultants that would result from a change-in-control, other than vesting as described in the stock option grant agreement and plan.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information with respect to the beneficial ownership, as of September 30, 2019, of the Company’s common stock, which is the Company’s only outstanding class of voting securities, and the voting power resulting from such beneficial ownership, by
| 19 |
| Beneficial Owner (1) | Amount of Beneficial Ownership (1) | Percentage of Shares | ||||||
| John Pollock (2) | 15,060,462 | 36.3% | ||||||
| Dave Crowley (2, 4) | 3,000,000 | 7.2% | ||||||
| Keith VandeStadt (2, 4, 5) | 2,821,500 | 6.8% | ||||||
| Edward A. Lyon (2) | 2,593,500 | 6.3% | ||||||
| Paul Williams (2) | 1,900,927 | 4.7% | ||||||
| Michael Ashby (2, 6) | 1,346,806 | 3.2% | ||||||
| Dan Sundby (2, 3) | 354,167 | * | ||||||
| Todd Bourgeois (2, 7) | 325,000 | * | ||||||
| George Crumley (2, 5) | 150,000 | * | ||||||
| David Myers (2, 5) | 150,000 | * | ||||||
| Debbie Buckner (2) | – | – | ||||||
| Directors and executive officers as group (nine persons) | 21,880,862 | 52.8% | ||||||
| (1) | Each beneficial owner has sole voting and investment power with respect to all shares attributable to that owner. |
| (2) | The address for each such beneficial owner is 800 N. Watters Road, Suite 150, Allen, Texas 75013. |
| (3) | Includes 291,667 shares subject to options that are currently vested, plus an additional 208,333 shares subject to options that vest within 10 months not used. |
| (4) | Non-director or executive officer with more than 5% ownership. |
| (5) | Represents shares subject to options that are currently vested. | |
| (6) | Includes 150,000 shares subject to options that are currently vested, and 1,196,806 shares of common stock. | |
| (7) | Includes 175,000 shares subject to options that are currently vested, and 150,000 shares of common stock. | |
| (8) | Scott Winters has 75,000 fully vested stock options. |
| * | indicates an ownership percentage of less than one percent. |
Changes in Control
On September 30, 2019, the Company entered into a merger agreement with Forta Financial Group, Inc. (formerly Presidential Brokerage, Inc.) (“Forta”), to acquire Forta in exchange for Company stock. The merger is awaiting FINRA approval. When approved, the Forta shareholders will own more than 50% of the Company. John Pollock will remain the largest shareholder.
Securities authorized for issuance under equity compensation plans.
| 20 |
The following table provides information as of the end of the most recently completed fiscal year, with respect to Company compensation plans (including individual compensation arrangements) under which equity securities of the Company are authorized for issuance.
| Equity Compensation Plan Information | ||||||||||||||||
| A (1) | B | C | ||||||||||||||
| Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights |
Weighted average exercise price of outstanding options, warrants and rights |
Number of securities remaining available for future issuance under equity compensation plan (excluding securities reflected in Column A) |
|||||||||||||
| Equity compensation plans approved by security holders (2015 Stock Option Plan) | - | (2,4) | $ | – | – | (4) | ||||||||||
| Equity compensation plans not approved by security holders (2016 Stock Option Plan)(6) | 20,000,000 | (3) | 0.20 | 13,239,354 | (5) | |||||||||||
| Total | 20,000,000 | (4) | $ | 0.20 | 13,239,354 | |||||||||||
| (1) | As consequence of the Merger, outstanding options of the 2015 Plan in the amount of 2,200,346 of the Company’s shares have vested. | |
| (2) | Shares subject to stock options under 2015 Stock Option Plan. | |
| (3) | Shares subject to stock options under 2016 Stock Option Plan. | |
| (4) | The 2015 Stock Option Plan was replaced by the 2016 Stock Option Plan. | |
| (5) | Shares available for grant of stock options to employees, directors and consultants under the 2016 Stock Option Plan. | |
| (6) | Subsequent to the fiscal year end, the 2016 Stock Option has been amended to the 2016 Omnibus Incentive Plan, adding Stock Appreciation Rights (“SAR”) as incentive offerings. Since the amendment, SAR grants have been issued as incentive offerings to advisors for affiliating with the Company. |
Following is a brief description of the material features of each compensation plan under which equity securities of the Company are authorized for issuance. The 2015 Stock Option Plan and the 2016 Stock Option Plan were adopted without approval of Company security holders.
The Company has granted stock options to certain employees and contractors under its 2015 Stock Option Plan, assumed from Financial Gravity Holdings and under its 2016 Stock Option Plan. The Company is authorized to issue an aggregate of 20,000,000 options, of which 13,239,354 remain available for issuance at September 30, 2019, as non- statutory (non-qualified) stock options, under the 2016 Stock Option Plan. Currently outstanding options under the 2015 and 2016 Stock Option Plans vest over a period of no greater than two years and expire ten years from the grant date.
| 21 |
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. Transactions with Related Persons, Promoters and Certain Control Persons
Except as set forth below, none of the Company’s directors or officers, nor any person who beneficially owns, directly or indirectly, shares carrying more than 10% of the voting rights attached to the Company’s shares, nor any relative or spouse of any of the foregoing persons, has had any material interest, direct or indirect, in any transaction to which the Company was a party, and in which the amount involved exceeds the lesser of (i) $120,000 or (ii) one percent of the average of the Company’s total assets at year-end for the last two completed fiscal years.
Company entered into an agreement to purchase 100% of the stock of Forta. Scott Winters, Gary Nemer and William Nelson, Jr. own, in aggregate, in excess of 80% of the shares of stock of Forta. Neither Mr. Winters nor Mr. Nemer voted as Board Members on the approval of the acquisition of Forta stock.
TaxTuneup, LLC, which is an entity owned by Mr. Edward A. Lyon, a current director of the Company, received approximately 43% of the shares of Financial Gravity Holdings issued in the Tax Coach Software Transaction, then having an approximate value of $864,500. As a consequence of such issuance, Mr. Lyon is the beneficial owner of 6.8% of the Company’s common stock as of September 30, 2019 (after giving effect to the Merger).
Additionally, Van Data, LLC, which is an entity owned Keith VandeStadt, a greater than 5% beneficial shareholder of the Company, received approximately 47% of the shares of Financial Gravity Holdings issued in the Tax Coach Software Transaction, then having an approximate value of $940,500. As a consequence of such issuance, Mr. VandeStadt is the beneficial owner of 7.4% of the Company’s common stock as of September 30, 2019 (after giving effect to the Merger).
In the Tax Coach Software Transaction, the shares of Financial Gravity Holdings common stock received by TaxTuneup, LLC (owned by Mr. Lyon), do not include any of the shares of Financial Gravity Holdings common stock received by Van Data, LLC (owned by Mr. VandeStadt). Their respective holdings of Company common stock are completely separated.
During fiscal 2019 and 2018, TaxTuneup, LLC, an entity owned by Mr. Edward A. Lyon, received the sums of $198,000 and $198,000, respectively, from the Company, in compensation for strategic tax planning recommendations and research, business consulting and writing of books and tax planning and Tax Master Network® related content.
During fiscal year 2019 and 2018, the Company paid $60,000 and $138,980, respectively, to Van Data, LLC, a consulting firm owned and controlled by Keith VandeStadt, in compensation for maintaining the Tax Coach Software application and data, making enhancements and modifications to software as needed, maintaining server platform and web environment, applying updates to licensed content, and other services agreed upon in writing.
During fiscal 2019 and 2018, a company owned and controlled by Mr. John Pollock (Fourly Enterprises, LLC) received the sum of $152,500 and $203,000, respectively, from the Company, in compensation for strategic business planning and consulting, business development, process and technology development.
| 22 |
Director Independence; Board Leadership Structure
The Company’s common stock is quoted through the OTC System. For purposes of determining whether members of the Company’s Board of Directors are “independent,” the Company’s Board utilizes the standards set forth in the NASDAQ Stock Market Marketplace Rules. At present, the Company’s entire Board serves as its Audit, Compensation and Nominating Committees. The Company’s Board of Directors has determined that, of the Company’s present directors, each of Gary Nemer, David Myers, Michael Ashby, and Todd Bourgeois, constituting four of the eight members of the Board, is an “independent director,” as defined under NASDAQ’s Marketplace Rules, for purposes of qualifying as independent members of the Board and an Audit, Compensation and Nominating Committee of the Board, but that Scott Winters, John Pollock, Paul Williams and Edward A. Lyon are not “independent directors” since they currently serve as executive officers of the Company.
The Company’s Board of Directors is of the view that the current leadership structure is suitable for the Company at its present stage of development, and that the interests of the Company are best served by the combination of the roles of Chairman of the Board and Chief Executive Officer.
As a matter of regular practice, and as part of its oversight function, the Company’s Board of Directors undertakes a review of the significant risks in respect of the Company’s business. Such review is conducted in concert with outside professionals (including legal counsel) with expertise in substantive areas germane to the Company’s business. With the Company’s current governance structure, the Company’s Board of Directors and senior executives are, by and large, the same individuals, and consequently, there is not a significant division of oversight and operational responsibilities in managing the material risks facing the Company.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The following information summarizes the fees billed to us by Whitley Penn LLP for professional services rendered for the fiscal years ended September 30, 2019 and 2018, respectively.
Audit Fees. Fees billed for services by Whitley Penn LLP were $76,177 for fiscal year 2019 and $103,238 for fiscal year 2018. Audit fees include fees associated with the annual audit and the reviews of the Company’s quarterly reports on Form 10-Q, and other SEC filings.
Audit-Related Fees. None
Tax Fees. Fees billed or remainder to be billed for tax services by Whitley Penn LLP were $13,500 for fiscal year 2019 and $13,500 for fiscal year 2018
All Other Fees. None
Consistent with SEC policies regarding auditor independence, the audit committee has responsibility for appointing, setting compensation, approving and overseeing the work of the independent auditor. In recognition of this responsibility, the audit committee pre-approves all audit and permissible non-audit services provided by the independent auditor. The Board of Directors serves as the audit committee for the Company.
| 23 |
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) Financial Statements and financial statement schedules
| (1) | and (2) The financial statements and financial statement schedules required to be filed as part of this report are set forth in Item 8 of Part II of this report. |
(3) Exhibits. See Item 15(b) below.
(b) Exhibits required by Item 601 of Regulation S-K
| Exhibit No. | Description |
| 14.1 | Code of Ethics |
| 31.1 | Sarbanes-Oxley Section 302(a) Certification of John Pollock |
| 31.2 | Sarbanes-Oxley Section 302(a) Certification of Paul Williams |
| 32.1 | Sarbanes-Oxley Section 906 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: January 13, 2020 | By: | /s/ Scott Winters | |
| Scott Winters | |||
| Chief Executive Officer | |||
| (Principal Executive Officer) | |||
| Date: January 13, 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 | January 13, 2020 | |
| Scott Winters | (principal executive officer) | ||
| /s/ Paul Williams | Vice Chairman, CFO | January 13, 2020 | |
| Paul Williams | (principal financial officer) | ||
| /s/ John Pollock | Co-Chairman, EVP | January 13, 2020 | |
| John Pollock | |||
| /s/ Jennifer Winters | Secretary, EVP, Director | January 13, 2020 | |
| Jennifer Winters | |||
| /s/ Edward A. Lyon | Director | January 13, 2020 | |
| Edward A. Lyon | |||
| /s/ William R. Nelson | Director | January 13, 2020 | |
| William R. Nelson | |||
| 25 |
FINANCIAL GRAVITY COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
SEPTEMBER 30, 2019 AND 2018
CONTENTS
| F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Financial Gravity Companies, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Financial Gravity Companies, Inc. (the “Company”), as of September 30, 2019 and 2018, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2019 and 2018, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Emphasis of Matter
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company's auditor since 2016.
/s/ Whitley Penn LLP
Dallas, Texas
December 30, 2019
| F-2 |
Financial Gravity Companies, Inc. and Subsidiaries
As of September 30,
| 2019 | 2018 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | 36,053 | $ | 32,220 | ||||
| Trade accounts receivable, net | 147,377 | 15,907 | ||||||
| Accounts receivable - related party | – | 1,791 | ||||||
| Prepaid expenses and other current assets | 12,010 | 25,657 | ||||||
| Total current assets | 195,440 | 75,575 | ||||||
| OTHER ASSETS | ||||||||
| Property and equipment, net | 139,991 | 138,286 | ||||||
| Customer relationships, net | – | 11,225 | ||||||
| Proprietary content, net | 262,550 | 328,188 | ||||||
| Trade name | – | 69,300 | ||||||
| Non-compete agreements, net | 5,260 | 10,520 | ||||||
| Intellectual Property | 53,170 | 48,940 | ||||||
| Goodwill | 1,094,702 | 1,094,702 | ||||||
| TOTAL ASSETS | $ | 1,751,113 | $ | 1,776,736 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable - trade | $ | 174,749 | $ | 105,435 | ||||
| Accrued expenses | 146,872 | 132,989 | ||||||
| Deferred revenue | 94,733 | – | ||||||
| Line of credit | 63,919 | 59,646 | ||||||
| Notes payable | 13,393 | 356,173 | ||||||
| Total current liabilities | 493,666 | 654,243 | ||||||
| NOTES PAYABLE | 23,534 | 676,233 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Common stock, $0.001 par value; 300,000,000 shares authorized; 41,436,033 shares issued and outstanding as of September 30, 2019 and 35,837,900 shares issued and outstanding as of September 30, 2018 | 41,436 | 35,838 | ||||||
| Additional paid-in capital | 7,391,592 | 5,986,052 | ||||||
| Accumulated deficit | (6,199,115 | ) | (5,575,630 | ) | ||||
| Total stockholders’ equity | 1,233,913 | 446,260 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 1,751,113 | $ | 1,776,736 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-3 |
Financial Gravity Companies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended September 30,
| 2019 | 2018 | |||||||
| REVENUE | ||||||||
| Investment management fees | $ | 1,884,117 | $ | 1,775,838 | ||||
| Commissions and Service income | 2,190,931 | 2,111,155 | ||||||
| Total revenue | 4,075,048 | 3,886,993 | ||||||
| OPERATING EXPENSES | ||||||||
| Cost of services | 54,927 | 85,998 | ||||||
| Professional services | 141,835 | 827,272 | ||||||
| Depreciation and amortization | 189,070 | 113,122 | ||||||
| General and administrative | 533,805 | 747,897 | ||||||
| Marketing | 131,529 | 266,930 | ||||||
| Salaries and wages | 3,501,744 | 3,259,446 | ||||||
| Total operating expenses | 4,552,910 | 5,300,665 | ||||||
| Net operating loss | (477,862 | ) | (1,413,672 | ) | ||||
| OTHER EXPENSE | ||||||||
| Interest expense | (145,623 | ) | (106,960 | ) | ||||
| Total other expense | (145,623 | ) | (106,960 | ) | ||||
| NET LOSS | $ | (623,485 | ) | $ | (1,520,632 | ) | ||
| LOSS PER SHARE - Basic and Diluted | $ | (0.02 | ) | $ | (0.04 | ) | ||
The accompanying notes are an integral part of these consolidated financial statements.
| F-4 |
Financial Gravity Companies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For the years ended September 30, 2019 and 2018
| Number of Shares Issued and Outstanding | Common Stock Par Value Amount | Additional Paid-In-Capital | Accumulated Deficit | Total | ||||||||||||||||
| Balance at September 30, 2017 | 35,737,900 | $ | 35,738 | $ | 5,679,668 | $ | (4,054,998 | ) | $ | 1,660,408 | ||||||||||
| Common stock issued under a private placement memorandum | 100,000 | 100 | 99,900 | – | 100,000 | |||||||||||||||
| Stock based employee compensation expense | – | – | 206,484 | – | 206,484 | |||||||||||||||
| Net Loss | – | – | – | (1,520,632 | ) | (1,520,632 | ) | |||||||||||||
| Balance at September 30, 2018 | 35,837,900 | $ | 35,838 | $ | 5,986,052 | $ | (5,575,630 | ) | $ | 446,260 | ||||||||||
| Stock based employee compensation expense | _ | _ | 364,814 | – | 364,814 | |||||||||||||||
| Stock options in lieu of expenses, as marketing expenses | – | – | 38,660 | – | 38,660 | |||||||||||||||
| Common stock issued upon conversion of debt | 5,598,133 | 5,598 | 1,002,066 | – | 1,007,664 | |||||||||||||||
| Net Loss | – | – | – | (623,485 | ) | (623,485 | ) | |||||||||||||
| Balance at September 30, 2019 | 41,436,033 | $ | 41,436 | $ | 7,391,592 | $ | (6,199,115 | ) | $ | 1,234,023 | ||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-5 |
Financial Gravity Companies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended September 30,
| 2019 | 2018 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | (623,485 | ) | $ | (1,520,632 | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities | ||||||||
| Depreciation and amortization | 189,070 | 113,122 | ||||||
| Common stock issued in exchange for services | 38,660 | – | ||||||
| Stock based compensation | 364,814 | 206,484 | ||||||
| Bad debt expense | – | 21,876 | ||||||
| Changes in operating assets and liabilities | ||||||||
| Trade accounts receivable, net | (131,470 | ) | 72,012 | |||||
| Accounts receivable - related party | 1,791 | 2,715 | ||||||
| Prepaid expenses | 13,647 | 38,946 | ||||||
| Accounts payable - trade | 127,997 | 53,621 | ||||||
| Accrued expenses | 75,283 | 10,437 | ||||||
| Deferred revenue | 33,333 | (95,601 | ) | |||||
| Net cash provided by (used in) operating activities | 89,640 | (1,097,020 | ) | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Cash paid for purchase of property and equipment | (39,353 | ) | (41,783 | ) | ||||
| Purchases of trademarks | (4,229 | ) | (18,856 | ) | ||||
| Net cash used in investing activities | (43,582 | ) | (60,639 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Borrowings from line of credit | 14,521 | 77,561 | ||||||
| Payments on line of credit | (10,248 | ) | (110,089 | ) | ||||
| Borrowings from note payable | 202,205 | 740,000 | ||||||
| Payments on note payable | (248,703 | ) | (62,013 | ) | ||||
| Proceeds from the sale of common stock | – | 100,000 | ||||||
| Net cash (used in) provided by financing activities | (42,225 | ) | 745,459 | |||||
| TOTAL CHANGE IN CASH AND CASH EQUIVALENTS | 3,833 | (412,200 | ) | |||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR | 32,220 | 444,420 | ||||||
| CASH AND CASH EQUIVALENTS AT END OF YEAR | $ | 36,053 | $ | 32,220 | ||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid during the year for: | ||||||||
| Interest | $ | 101,061 | $ | 95,756 | ||||
| Accrued interest converted to equity | $ | 58,683 | $ | – | ||||
| Notes payable converted to equity | $ | 948,981 | $ | – | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-6 |
Financial Gravity Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NATURE OF BUSINESS
Financial Gravity Companies, Inc. and Subsidiaries (the “Company”) 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, 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).
Financial Gravity Holdings, Inc. (“FGH”) was established on September 29, 2014 to engage in the acquisition and integration of financial and other businesses which will deliver a wide range of accounting, tax planning and management services to high net worth individuals and businesses in the Dallas/Fort Worth region, with further expansion into other markets in accordance with its long-term growth rate and strategic business plan. FGH was merged into the Company, February 13, 2019 and subsequently dissolved.
Financial Gravity Operations, Inc. (“FGO”) was established as a wholly-owned subsidiary of FGH in Texas on September 29, 2014. FGO did not have any activity through September 30, 2014. Activity commenced in 2015 for FGO related to the management of operational expenses for the shared services of the subsidiaries. FGO was merged into the FGH, February 12, 2019 and subsequently dissolved.
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. (“FGV”) formerly Cloud9 Accelerator, LLC was acquired by Cloud9 Holdings Company (Cloud9) effective December 31, 2014 and holds acquired companies and business assets until they are integrated into the main stream Financial Gravity business structure. FGV did not have any financial activity through September 30, 2019.
Financial Gravity Tax, Inc. (“FG Tax”) formerly Business Legacy, Inc., (“BLI”) was acquired by FGO for no cost effective December 1, 2015 and is located in Allen, Texas. BLI is a bookkeeping, tax planning, tax preparation, and payroll service provider to small companies and individuals. FG Tax was sold October 31, 2019.
Sofos, Inc. (formerly Financial Gravity Wealth, Inc.) (“Sofos”) Sofos is a registered investment advisor, located in Allen, Texas. Sofos provides asset management services.
SASH Corporation, an Oklahoma corporation doing business as Metro Data Processing (“MDP”) was acquired August 12, 2015. The purchase was made by Cloud9Accelerator, LLC. MDP was located in Tulsa, Oklahoma, and provided payroll services, software, and support solutions to business owners. This business was sold during fiscal 2019 for a net gain of $28,585. MDP is inactive and awaiting dissolution.
Tax Master Network, LLC (“TMN”), was acquired effective October 1, 2015, and is an Ohio limited liability company. The purchase was made by FGH. TMN, located in Cincinnati, Ohio, provides three primary services including monthly subscriptions to the “Tax Coach” software system, coaching and email marketing services.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting polices consistently applied in the preparation of the accompanying consolidated financial statement 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 Financial Gravity Companies, FGW, FGT, and TMN , (collectively referred to as the “Company”). All significant intercompany accounts and transactions have been eliminated on consolidation.
| F-7 |
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.
Trade Accounts Receivable
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 and $21,876 as of September 30, 2019 and 2018, 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 they are 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.
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.
Property and equipment operated under material leases which transfer substantially all benefits and risks associated with the assets to the Company are capitalized. An asset and liability equal to the present or fair value, if appropriate, of minimum payments over the term of the leases are recorded. Amortization of the asset is computed using the straight-line method. Expenses associated with all other leases (operating leases) are charged to expense as incurred.
Customer Relationships
The customer relationships acquired from the TMN purchase have been recognized in the accompanying consolidated balance sheets at $44,900, the value attributed to it on the date of the purchase. The customer relationships are being amortized on a straight-line basis over a four- year estimated life. During the years ended September 30, 2019 and 2018, the Company recorded amortization expense of $11,225 on this intangible asset, which is included in depreciation and amortization expense in the accompanying consolidated statements of operations. Accumulated amortization at September 30, 2019 and 2018 was $44,900, and $33,675 respectively. This has been fully amortized as of September 30, 2019.
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 it on the date of the purchase. The proprietary content is being amortized on a straight-line basis over an eight- year estimated life. During the years ended September 30, 2019 and 2018, the Company recorded amortization expense of $65,638 on this intangible asset, which is included in depreciation and amortization expense in the accompanying consolidated statements of operations. Accumulated amortization at September 30, 2019 and 2018 was $262,550 and $196,912, respectively.
| F-8 |
Future amortization of proprietary content is estimated to be as follows for the years ended September 30:
| 2020 | $ | 65,638 | ||
| 2021 | 65,638 | |||
| 2022 | 65,638 | |||
| 2023 | 65,636 | |||
| $ | 262,550 |
Trade Name
The trade name acquired as a part of the TMN purchase has been recognized in the accompanying consolidated balance sheets at $69,300, the value attributed to it on the date of the purchase. Management has determined that the trade name had no future value and considers the value of the trade name recorded in the accompanying consolidated balance sheet to be impaired as of September 30, 2019. Accordingly, this asset was fully written off in 2019.
Non-compete Agreements
Non-compete agreements established as a part of the TMN purchase have been recognized in the accompanying consolidated balance sheets at $26,300, the value attributed to them 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 the years ended September 30, 2019 and 2018, the Company recorded amortization expense of $5,260 on this intangible asset, which is included in depreciation and amortization expense in the accompanying consolidated statements of operations. Accumulated amortization at September 30, 2019 and 2018 was $21,040 and $15,780, respectively.
Future amortization of the non-compete agreements is estimated to be as follows for the years ended September 30:
| 2020 | $ | 5,260 |
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 sheet to be impaired as of September 30, 2019 and 2018.
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 September 30, 2019, and 2018.
Goodwill consists of the following:
| Goodwill at September 30, 2018 | $ | 1,094,702 | ||
| Goodwill at September 30, 2019 | $ | 1,094,702 |
| F-9 |
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 September 30, 2019 and 2018.
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 37,825,239 and 35,830,228 for years ended September 30, 2019 and 2018, respectively.
For the years ended September 30, 2019 and 2018, approximately 2,788,476 and 3,361,538 common stock options, respectively, and 25,000 and 200,000 warrants, respectively, were not added to the diluted average shares because inclusion of such shares would be antidilutive.
Revenue Recognition
The Company adopted the Financial Accounting Standards Board ("FASB") issued Accounting Standards Updates (“ASU”) ASU 2014-09, Revenue from Contracts with Customers October 1, 2018 on a modified basis. As the initial adoption of the standard did not have a material impact on the Company's financial condition or results of operations, no cumulative effect was recognized at the date of initial application. The Company also had no significant changes to systems, processes, or controls.
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.
FG Wealth 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. Revenue is recognized as earned, at the end of each period.
FG Tax generates service income from its consulting and other professional services performed. Revenue recognized as service is provided.
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 received from insurers and issuers of the products.
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.
| F-10 |
Advertising
Advertising costs are charged to operations when incurred. Advertising and marketing expense were $131,529 and $266,930 for the years ended September 30, 2019 and 2018, respectively.
Stock-Based Compensation
The Company recognizes the fair value of the stock-based compensation awards as wages in the accompanying statements of operations on a straight-line basis over the vesting period based on the Black-Scholes option pricing model based on a risk-free rate of 1.50% to 2.89% in 2019 and 1.49% to 2.55% in 2018, dividend yield of 0%, expected life of 10 years and volatility of 25.32% to 34.05%.
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.
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 (“SEC”) on September 18, 2017. The agreement was approved by the SEC November 13, 2018. 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.
| F-11 |
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.
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 with the fourth quarter of 2020. The Company does not anticipate the adoption of ASU 2017-04 will have a material impact on the Company's financial condition or results of operations.
In February 2018, the FASB issued ASU Update No. 2018-02 Leases (Topic 842). Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP - which requires only capital leases to be recognized on the balance sheet - the new ASU will require both types of leases to be recognized on the balance sheet. ASU 2018-02 is effective for the years beginning after December 31, 2019 and for all periods presented. Early application of the amendments in this ASU is permitted. The Company does not expect any significant financial impact to the financial statements upon adoption of this standard.
In March 2018, the FASB issued ASU Update No. 2018-07, Investments – Equity Method and Joint Ventures (Topic 323). The amendments in this Update eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. ASU 2018-07 is effective for the years beginning after December 31, 2018. Early application of the amendments in this ASU is permitted. The Company does not expect any significant financial impact to the financial statements upon adoption of this standard.
In March 2018, the FASB issued ASU Update No. 2018-09, Compensation – Stock Compensation (Topic 718). The amendments in this Update are to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2018-09 is effective for annual periods beginning after December 31, 2018, and interim periods within those annual periods. The Company has yet to do a full analysis on the impact this will have but will do during the next fiscal year. The Company does not expect any significant financial impact to the financial statements upon adoption of this standard.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at September 30:
| Estimated Service Lives | 2019 | 2018 | ||||||||
| Furniture, fixtures and equipment | 2 to 5 years | $ | 93,073 | $ | 53,271 | |||||
| Internally developed software | 10 years | 152,000 | 152,000 | |||||||
| 245,073 | 205,721 | |||||||||
| Less accumulated depreciation and amortization | 105,082 | 67,435 | ||||||||
| $ | 139,991 | $ | 138,286 | |||||||
Depreciation expense was $37,647 and $31,899 during the years ended September 30, 2019 and 2018, respectively.
| F-12 |
3. INTELLECTUAL PROPERTY
Intellectual property consists of the following:
| Trademarks at September 30, 2017 | $ | 30,085 | ||
| Trademarks purchased at cost | 18,855 | |||
| Trademarks at September 30, 2018 | $ | 48,940 | ||
| Trademarks purchased at cost | 4,230 | |||
| Trademarks at September 30, 2019 | $ | 53,170 |
4. 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 $63,919 and $59,646 for the years ended September 30, 2019 and 2018, respectively.
5. NOTES PAYABLE
On August 9, 2017 the Company entered into a Promissory Note Payable with Elmer Fink (Fink) in the amount of $100,000. The interest rate on the note is 10%. First year payment is equal to 10% of the loan value. A second-year payment equal to 10% of the loan was issued on December 1, 2019 with monthly principal and interest of $4,614 starting on year three. The remaining principal and accrued interest of this note is due on the maturity date, July 15, 2021. On December 1, 2019, the original note payable was amended. Payments from December 2019, through July 2019 to be interest only. Full principal and interest payments to commence August 9, 2019 until maturity, when all remaining principal and interest will be due and payable. On June 15, 2019, Fink and the Company entered into an agreement to convert the note into common shares of the Company and the note and accrued interest were settled in full as of that date. The outstanding balance was $0 and $100,000 at September 30, 2019 and 2018, respectively.
On August 9, 2017 the Company entered into a Promissory Note Payable with Mike and Terri Ashby (Ashby) in the amount of $100,000. The interest rate on the note was 10%. First year payment was equal to 10% of the loan value with monthly principal and interest of $4,614 starting on year two. The remaining principal and accrued interest of this note was due on the maturity date, August 15, 2020. On December 31, 2019, the original note payable was amended. The new interest rate on the note is 15%. The remaining principal and accrued interest of this note is now due on the maturity date, July 15, 2022. A second-year payment equal to 15% of the loan was issued on February 6, 2019 with monthly principal and interest of $4,614 starting on year three. On June 15, 2019, Ashby and the Company entered into an agreement to convert the note into common shares of the Company and the note and accrued interest were settled in full as of that date. The outstanding balance was $0 and $92,406 at September 30, 2019 and 2018, respectively.
On September 5, 2017 the Company entered into a Promissory Note Payable with Heleon Investment Company, Ltd. (Heleon) in the amount of $100,000. The interest rate on the note is 10%. First year payment is equal to 10% of the loan value with monthly principal and interest of $4,614 starting on year two. The remaining principal and accrued interest of this note is due on the maturity date, August 15, 2020. On December 31, 2019, the original note payable was amended. The new interest rate on the note is 15%. Payment on the note is deferred until December 31, 2020. Interest for the deferment period will be capitalized into the amount due, December 31, 2020, resulting in a new Amount Due. The New Amount Due plus interest will amortize over the following 24 months, with the first payment due December 31, 2020. On June 15, 2019, Heleon and the Company entered into an agreement to convert the note into common shares of the Company and the note and accrued interest were settled in full as of that date. The outstanding balance was $0 and $100,000 at September 30, 2019 and 2018, respectively.
On October 2, 2017 the Company entered into a Promissory Note Payable with Indy and Sybil Bally (Bally) in the amount of $100,000. The interest rate on the note was 10%. First year payment was equal to 10% of the loan value with monthly principal and interest of $4,614 starting on year two. The remaining principal and accrued interest of this note is due on the maturity date, October 2, 2020. On December 20, 2019, the original note payable was amended. The new interest rate on the note is 15%. Payment on the note is deferred until February 2, 2020. Interest for the deferment period will be capitalized into the amount due, February 2, 2020, resulting in a new Amount Due. The New Amount Due plus interest will amortize over the following 24 months, with the first payment due February 2, 2020. On June 15, 2019, Bally and the Company entered into an agreement to convert the note into common shares of the Company and the note and accrued interest were settled in full as of that date. The outstanding balance was $0 and $100,000 at September 30, 2019 and 2018, respectively.
| F-13 |
On October 2, 2017 the Company entered into a Promissory Note Payable with Paul Frueh (Frueh) in the amount of $100,000. The interest rate on the note is 10%. First year payment is equal to 10% of the loan value with monthly principal and interest of $4,614 starting on year two. The remaining principal and accrued interest of this note is due on the maturity date, October 20, 2020. On June 15, 2019, Frueh and the Company entered into an agreement to convert the note into common shares of the Company and the note and accrued interest were settled in full as of that date. The outstanding balance was $0 and $100,000 at September 30, 2019 and 2018, respectively.
On November 2, 2017 the Company entered into a Promissory Note Payable with Michael and Donna Dade (Dade) in the amount of $340,000. The interest rate on the note was 10%. First year payment was equal to 10% of the loan value with monthly principal and interest of $15,689 starting on year two. The remaining principal and accrued interest of this note is due on the maturity date, October 20, 2020. On December 20, 2019, the original note payable was amended. The new interest rate on the note is 15%. Payment on the note is deferred until February 20, 2020. Interest for the deferment period will be capitalized into the amount due, February 20, 2020, resulting in a new Amount Due. The New Amount Due plus interest will amortize over the following 24 months, with the first payment due February 20, 2020. On June 15, 2019, Dade and the Company entered into an agreement to convert the note into common shares of the Company and the note and accrued interest were settled in full as of that date. The outstanding balance was $0 and $340,000 at September 30, 2019 and 2018, respectively.
On March 15, 2018 the Company entered into a Promissory Note Payable with Helen Janssen (Janssen) in the amount of $200,000. The interest rate on the note is 10%. First year payment is equal to 10% of the loan value with monthly principal and interest of $9,229 starting on year two. The remaining principal and accrued interest of this note is due on the maturity date, February 15, 2021. On December 31, 2019, the original note payable was amended. The new interest rate on the note is 15%. Payment on the note is deferred until February 15, 2020. Interest for the deferment period will be capitalized into the amount due, February 15, 2020, resulting in a new Amount Due. The New Amount Due plus interest will amortize over the following 24 months, with the first payment due February 15, 2020. On June 15, 2019, Janssen and the Company entered into an agreement to convert the note into common shares of the Company and the note and accrued interest were settled in full as of that date. The outstanding balance was $0 and $200,000 at September 30, 2019 and 2018, respectively.
On November 29, 2018 the Company entered into a Promissory Note Payable with Knight Capital in the amount of $155,000. There is no interest rate associated with this note. The repayment streams for this are calculated from a factoring of the receivables sold, and are payable in daily payments of $1,504 and is due on the maturity date, July 11, 2019. The outstanding balance was $0 at September 30, 2019.
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 September 30, 2019 and 2018, was $29,401 and $0 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 is scheduled to be repaid in full by December 1, 2019. The outstanding balance on September 30, 2019 and 2018, was $7,526 and $0 respectively.
The Company’s maturities of debt subsequent to September 30, 2019 are as follows:
| 2020 | $ | 13,393 | ||
| 2021 | 6,229 | |||
| 2022 | 17,305 | |||
| $ | 36,927 |
| F-14 |
6. ACCRUED EXPENSES
Accrued expenses consist of the following at September 30:
| 2019 | 2018 | |||||||
| Accrued payroll | $ | 19,502 | $ | 19,689 | ||||
| Accrued operating expenses | 113,013 | 113,300 | ||||||
| Deferred rent | 14,357 | – | ||||||
| $ | 146,872 | $ | 132,989 | |||||
7. INCOME TAXES
The Company elected C Corporation tax status from inception. Net operating losses (“NOL”) since that date total $5,624,574 as of September 30, 2019 and may be carried forward to offset future taxable income; accordingly, no current provision for income tax has been recorded in the accompanying statements of operations. NOL carry-forward benefits begin to expire in 2035.
The following table summarizes the difference between the actual tax provision and the amounts obtained by applying the statutory tax rates to the income or loss before income taxes for the years ended September 30:
| 2019 | 2018 | |||||||
| Tax benefit calculated at statutory rate | 21.00% | 24.25% | ||||||
| Expense not deductible | (1.83% | ) | (0.16% | ) | ||||
| State tax, net of federal benefit | – | (0.45% | ) | |||||
| Effect of rate change | – | (26.99% | ) | |||||
| Changes to valuation allowance | (19.17% | ) | 3.35% | |||||
| Provision for income taxes | –% | –% | ||||||
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 September 30:
| 2019 | 2018 | |||||||
| Net non-current deferred tax assets: | ||||||||
| Net operating loss carry-forward | $ | 1,181,160 | $ | 1,098,314 | ||||
| Property and equipment | 6,921 | 3,456 | ||||||
| 1,188,081 | 1,101,770 | |||||||
| Net non-current deferred tax liabilities: | ||||||||
| Intangible assets | 10,319 | 7,996 | ||||||
| Net | 1,177,762 | 1,093,774 | ||||||
| Less valuation allowance | (1,177,762 | ) | (1,093,774 | ) | ||||
| Net deferred taxes | $ | – | $ | – | ||||
| F-15 |
The Tax Cuts and Jobs Act (the “Tax Act”), which was enacted December 22, 2018, reduced the corporate income tax rate effective December 1, 2019 from 35% to 21%. Among the other significant tax law changes that potentially affect the Company are the limitations on the deduction for interest incurred in 2019 or later of up to 70% of its taxable income for the carryforward year and the limitation of the utilization of post 2018 net operating loss carryforwards. The Company does not anticipate material changes to its income tax provision as a result of the passage of the Tax Act until pretax law change net operating losses are fully utilized or expire in 2026. The Company has remeasured certain deferred federal tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. The deferred tax assets of the Company were reduced by $408,041 as a result of this remeasurement. This change was fully offset by the corresponding change in the valuation allowance. The Company is still analyzing certain aspects of the Tax Act, and refining its calculations, which could potentially affect the measurement of those balances or potentially give rise to new deferred tax amounts. The Company’s estimates may also be affected in the future as the Company gains a more thorough understanding of the Tax Act, and how the individual states are implementing this new law.
8. COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS
Leases
The Company conducts operations from leased premises leased through 2024. Some of these leases provide for payment of taxes, insurance, utilities and maintenance. The Company also leases certain equipment under operating leases. Total rent expense for the years ended September 30, 2019 and 2018 was $135,041 and $118,126, respectively. Rent expense is recorded on a straight-line basis over the term of the lease. The difference between rental expense and rental payments is recorded as deferred rent within accrued expenses in the accompanying consolidated balance sheets. Management expects that in the normal course of business, leases will be renewed or replaced by other leases.
Minimum future annual rental payments under non-cancelable operating leases having original terms in excess of one year are as follows:
| 2020 | $ | 123,144 | ||
| 2021 | 110,444 | |||
| 2022 | 96,016 | |||
| 2023 | 97,752 | |||
| Thereafter | 32,584 | |||
| $ | 459,940 |
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. Management does not believe that there are any current, material legal proceedings ongoing at this time.
9. 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.
Preferred Stock
The Company does not have a preferred stock authorization in its articles of incorporation.
Financial Gravity Holdings, a subsidiary of the Company, has authorized the issuance of up to 10,000,000 shares of preferred stock, by action of the Board of Directors. The preferred stock authorization has not been formalized via the filing of an amendment to the certificate of formation of Financial Gravity Holdings. The rights and obligations of the preferred stock are as determined by the Board of Directors at the time of issuance. Financial Gravity Holdings was dissolved February 13, 2019.
| F-16 |
For each of the Company and Financial Gravity Holdings, its subsidiary, there were no preferred shares issued or outstanding as of September 30, 2019 and 2018.
Warrants
In the three months ended December 31, 2017, an aggregate of 100,000 shares of the Company’s common stock had been sold for $100,000 for which the Company issued warrants for the purchase of 25,000 shares of common stock of the Company at an exercise price of $1.25 per share for a 1 year term and an additional 25,000 shares of common stock of the Company at an exercise price of $1.50 for a 2-year term.
The Company follows the provisions of ASC 815, “Derivatives and Hedging”. ASC 815 requires freestanding contracts that are settled in a company’s own stock to be designated as an equity instrument, assets or liability. Under the provisions of ASC 815, a contract designated as an asset, or liability must be initially recorded and carried at fair value until the contract meets the requirements for classification as equity, until the contract is exercised or until the contract expires. However, the Company determined that these warrants should be accounted for as equity and as such no determination of fair value was necessary.
Additional Common Stock Issuances
During the years ended September 30, 2019 and 2018, 0 and 100,000 shares were issued, for $0 and $100,000 respectively.
10. STOCK OPTION PLAN
Effective February 27, 2015, the Company established the 2015 Stock Option Plan (the “2015 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 and exercised 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. The last date any options were granted under the 2015 Plan was March 14, 2016.
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 and exercised under the 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. The first date any options were granted under the 2016 Plan was December 19, 2016.
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 | 2,817,146 | $ | 317,561 | $ | 0.67 | 101 months | ||||||||||
| Granted | 895,000 | 119,736 | 0.27 | 113 months | ||||||||||||
| Exercised | – | – | – | – | ||||||||||||
| Canceled or expired | 80,596 | 20,052 | 0.27 | – | ||||||||||||
| Outstanding - September 30, 2018 | 3,361,538 | 417,245 | 0.58 | 101 months | ||||||||||||
| Granted | 2,269,650 | 472,048 | 0.21 | 113 months | ||||||||||||
| Exercised | – | – | – | |||||||||||||
| Canceled or expired | 3,112,712 | 338,838 | 0.24 | |||||||||||||
| Outstanding - September 30, 2019 | 2,788,476 | $ | 550,455 | $ | 0.29 | 99 months | ||||||||||
| Exercisable - September 30, 2019 | 2,707,209 | $ | 0.29 | 98 months | ||||||||||||
All outstanding 2015 Plan stock options at September 30, 2016 became immediately vested upon the completion of the reverse merger with Pacific Oil Company. Most of the stock options granted under the 2016 Plan have 2-year vesting periods but there were 650,000 and 20,000 options that vested at issuance during fiscal 2018 and 2019, respectively. Total compensation expense included in salaries and wages of previously unamortized stock compensation was $364,814 and $206,484 for the years ended September 30, 2019 and 2018, respectively. Unamortized share-based compensation expense as of September 30, 2019 amounted to $12,871 which is expected to recognize over the next 1.84 years.
| F-17 |
11. RELATED PARTY TRANSACTIONS
Accounts receivable due from the largest stockholder of the entity, included in accounts receivable – related party in the accompanying consolidated balance sheets was $0 and $1,791 as of September 30, 2019 and September 30, 2018, respectively.
Management fees paid to the majority stockholder of the entity, included in salaries and wages in the accompanying consolidated statements of operations were $152,500 and $203,000 for fiscal 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 fiscal 2019 and 2018 respectively, were $258,000 and $403,160.
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 September 30, 2019 was $7,526.
12. SUBSEQUENT EVENTS
September 30, 2019, the Company entered into a merger agreement with Forta Financial Group, Inc. (formerly Presidential Brokerage, Inc.) (“Forta”), to acquire Forta in exchange for Company stock. 45,797,684 shares of Financial Gravity Companies, Inc. will be issued in exchange for the stock of Forta. Companies will assume approximately $860,000 of Forta debt and receive approximately $1,220,000 in Forta assets. Subsequent to September 30, 2019, the Company applied to FINRA for approval of the merger. The merger is subject to FINRA approval and will be finalized upon such approval.
| F-18 |
Exhibit 14.1
Financial Gravity Companies, Inc.
Code of Ethics and
Conflict of Interests Policy
for Members of the Board of Directors
The Board of Directors (the “Board”) of Financial Gravity Companies, Inc. (the “Corporation”) has adopted this Code of Ethics (the “Code”). Each member of the Board (a “Director”) is expected to abide by this Code.
This Code is intended:
(a) to focus each Director on his/her duties and responsibilities as a director of a publicly held corporation;
(b) to assist the Directors in the recognition of, and resolution of, ethical issues; and
(c) to further promote a culture of honesty, accountability and integrity.
No code or policy can anticipate every situation that may arise. Accordingly, this Code is intended to serve as a source of guiding principles. A guiding principle for each Director is that a Director (a) should exhibit the highest standards of business and professional integrity and (b) should avoid even the appearance of improper behavior.
A Director is encouraged to bring questions about particular circumstances that may implicate one or more of the provisions of this Code to the attention of the Chairman of the Board.
| A. | Conflicts of interests |
1. Board members have a paramount interest in promoting and preserving the interests of the stockholders of the Corporation. Directors should avoid any conflict of interest. Any situation that involves, or may be perceived as involving, a conflict between (a) the interests of the Corporation and its stockholders and (b) a Director’s personal interests or the interests of a constituency which has designated the Director, should be disclosed to the Chairman. In addition, Directors must disclose information regarding their financial interests in organizations that do business with the Corporation.
2. Once a Director has disclosed a conflict or potential conflict of interest, that Director will refrain from voting on any issue before the Board that creates the conflict or potential conflict of interest.
3. A Director will not knowingly engage in any conduct or activity that is inconsistent with, or disruptive of, the Corporation’s best interests or its relationship with any person or entity.
4. A Director, or any member of his or her immediate family, should not accept a substantial gift from a third party where the gift is given in order to influence the Director’s actions as a member of the Board. Such a gift should likewise be declined when its acceptance would give the appearance of a conflict of interest.
5. Directors should not accept compensation for services performed for or on behalf of the Corporation from any source other than the Corporation.
| B. | Corporate Opportunities. |
Directors may not (a) take for their advantage, business opportunities that are substantially related to the Corporation’s business or (b) compete with the Corporation for business opportunities that are substantially related to the Corporation’s business; provided, however, if the disinterested Directors determine that the Corporation will not pursue such an opportunity, the Director is free to take advantage of, or otherwise compete for, such opportunity.
| 1 |
| C. | Confidentiality |
Directors should maintain the confidentiality of information entrusted to them by the Corporation and any other confidential information about the Corporation that comes to them in their capacity as a Director, except when disclosure is authorized by the Corporation or legally mandated. For purposes of this Code, “confidential information” includes all non-public information relating to the Corporation.
| D. | Compliance with laws, rules and regulations. |
Directors shall comply with all laws, rules and regulations applicable to the Corporation.
| E. | Encouraging the reporting of any illegal or unethical behavior. |
Directors will ensure the Corporation adopts policies and procedures that are designed to:
1. encourage employees to talk to supervisors, managers and other appropriate personnel when in doubt about the best course of action in a particular situation;
2. encourage employees to report violations of laws, rules, or regulations to appropriate personnel; and
3. make clear that the Corporation will not allow retaliation for reports that are made in good faith.
| F. | Compliance Procedures. |
Directors should communicate any suspected violations of this Code promptly to the Chairman. Suspected violations will be investigated by the Board or its designees and appropriate action will be taken in the event it is determined that a violation has occurred.
| G. | Fair Dealing |
Directors will make every reasonable effort to deal fairly with the Corporation’s customers, suppliers and employees. No Director should take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts or any other intentional unfair-dealing practice.
| H. | Protection and Proper Use of the Corporation’s Assets |
Directors may not use the Corporation’s assets, labor or information for personal use, unless such use is approved by the Chairman or is part of a compensation or expense reimbursement available to all of the Directors.
| I. | Annual Review/Waiver |
The Board of Directors will review and reassess the adequacy of the Code annually and make any amendments to it as the Board deems appropriate.
Only the Board of Directors may approve any waiver of the Code with respect to any Director. Such a waiver must be promptly disclosed to the Company’s stockholders.
| 2 |
Exhibit 31.1
Certification of the Principal Executive Officer
I, Scott Winters, Chief Executive Officer, certify that:
| 1. | I have reviewed this annual report on Form 10-K 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 quarter (the registrant’s fourth fiscal quarter 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: January 13, 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 annual report on Form 10-K 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 quarter (the registrant’s fourth fiscal quarter 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: January 13, 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 Annual Report of Financial Gravity Companies, Inc. (the “Company”) on Form 10-K for the year ended September 30, 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: January 13, 2020 | By: / s / Scott Winters |
| Scott Winters | |
| Chief Executive Officer | |
|
(Principal Executive Officer)
| |
| Date: January 13, 2020 | By: / s / Paul Williams |
| Paul Williams | |
| Chief Financial Officer | |
| (Principal Financial Officer) |