FGCO 8-K/A
Financial Gravity Companies, Inc. (FGCO)
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 21, 2020
Financial Gravity Companies, Inc. –
(Exact name of registrant as specified in its charter)
Nevada –
(State or other jurisdiction of incorporation)
| 333-144504– | 20-4057712 – |
| (Commission File Number) | (IRS Employer Identification No.) |
12600 Hill Country Blvd., Suite R-275, Bee Cave, Texas 78738
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (800) 588-3893
800 N. Watters Rd., Suite 150, Allen, Texas 75013 .
Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered |
| N/A | N/A | N/A |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).
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.☐
Explanatory Note
This Form 8-K/A is filed as an amendment (“Amendment No. 1”) to the Current Report on Form 8-K filed by Financial Gravity Companies, Inc. (the “Company”) on May 29, 2020 (the “Original 8-K”). Pursuant to an Agreement and Plan of Merger dated September 30, 2019 (as amended), by and among the Company, its subsidiary FG Newco, Inc. (“FG Newco”), and Forta Financial Group, Inc. (“FFGI”), FG Newco merged with and into FFGI, with FFGI remaining as the surviving corporation.
This Amendment No. 1 amends Item 9.01 of the Original 8-K to include the financial statements of FFGI and the pro forma financial information, which were not previously filed with the Original 8-K. Except as stated in this Explanatory Note, no other information contained in the Original 8-K is changed.
Item 9.01. Financial Statements and Exhibits.
(a) Financial statements of businesses acquired
The financial statements for FFGI required under Item 9.01(a) of Form 8-K are attached as Exhibits 99.4 to this Amendment No. 1.
(b) Pro forma financial information
The pro forma financial information required under Item 9.01(b) of Form 8-K is attached as Exhibit 99.5 to this Amendment No. 1.
(d) Exhibits
* Filed herewith
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Financial Gravity Companies, Inc. | |||||
| (Registrant) | |||||
| By: |
/s/Scott Winters | ||||
| Name: | Scott Winters | ||||
| Title: | Chief Executive Officer | ||||
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Exhibit 99.3
PRESIDENTIAL BROKERAGE, INC.
Report of Independent Registered Public
Accounting Firm
on Financial Statements and Supplemental
Schedules for the Fiscal Period Ended September 30, 2019
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PRESIDENTIAL BROKERAGE, INC.
TABLE OF CONTENTS
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Certified Public Accountants
650 S. Cherry Street, Suite 1050
Denver, Colorado 80246
(303) 393-0888
FAX (303) 893-0894
www.hhcpafirm.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
of Presidential Brokerage, Inc.
Greenwood Village, Colorado
Opinion on the Financial Statements
We have audited the accompanying statement of financial condition of Presidential Brokerage, Inc. (an S-Corporation) as of September 30, 2019, the related statements of operations, changes in shareholders' equity, and cash flows for the period of January 1, 2019 through September 30, 2019, and the related notes and schedules (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of Presidential Brokerage, Inc. as of September 30, 2019, and the results of its operations and its cash flows for the period January 1, 2019 through September 30, 2019 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of Presidential Brokerage, Inc.'s management. Our responsibility is to express an opinion on Presidential Brokerage, Inc.'s financial statements based on our audit. 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 Presidential Brokerage, Inc. 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 audit 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. Our audit 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 include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements. We believe that our audit provides a reasonable basis for our opinion.
Auditor's Report on Supplemental Information
The supplementary information contained in Schedules I and II has been subjected to audit procedures performed in conjunction with the audit of Presidential Brokerage, Inc.'s financial statements. The supplementary information is the responsibility of Presidential Brokerage, Inc.'s management. Our audit procedures included determining whether the supplementary information reconciles to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the supplementary information. In forming our opinion on the supplementary information, we evaluated whether the supplementary information, including its form and content, is presented in conformity with 17 C.F.R. Section 240.17a-5. In our opinion, the supplementary information contained in Schedules I and II is fairly stated, in all material respects, in relation to the financial statements as a whole.
/s/ Harding& Hittesdorf, P.C.
HARDING AND HITTESDORF, P.C.
Certified Public Accountants
We have served as Presidential Brokerage, Inc.'s auditor since 2009.
Denver, Colorado
November 29, 2019
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PRESIDENTIAL BROKERAGE, INC.
STATEMENT OF FINANCIAL CONDITION
SEPTEMBER 30, 2019
ASSETS
| Cash and cash equivalents | $ | 224,137 | ||
| Due from clearing house | 38,052 | |||
| Accrued revenue | 21,017 | |||
| Payroll Advances | 2,500 | |||
| Prepaid Expenses | 39,215 | |||
| Office equipment, furniture and leasehold improvements, at cost, less accumulated depreciation of $318,856 | 4,900 | |||
| Clearing deposit | 100,434 | |||
| Deposit | 38,995 | |||
| Operating Lease Right of Use Asset | 678,779 | |||
| TOTAL ASSETS | $ | 1,148,030 |
The accompanying notes are an integral part of these financial statements.
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PRESIDENTIAL BROKERAGE, INC.
STATEMENT OF FINANCIAL CONDITION
SEPTEMBER 30, 2019
LIABILITIES AND STOCKHOLDERS' EQUITY
| Accounts payable | $ | 22,578 | ||
| Accrued expenses | 17,139 | |||
| Accrued contingent liability | 71,975 | |||
| Commissions payable | 71,999 | |||
| Operating Lease liabilities | 678,778 | |||
| TOTAL LIABILITIES | 862,469 | |||
| COMMITMENT (Note 4) | ||||
| STOCKHOLDERS' EQUITY: | ||||
| Common stock, at a stated value of $0.05 per share; authorized 10,000,000 shares, 6,971,874 shares issued and outstanding | 354,343 | |||
| Treasury Stock | (1,001 | ) | ||
| Additional paid in capital | 921,193 | |||
| Retained deficit | (988,975 | ) | ||
| TOTAL STOCKHOLDERS' EQUITY | 285,560 | |||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 1,148,030 |
The accompanying notes are an integral part of these financial statements.
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PRESIDENTIAL BROKERAGE, INC.
FOR THE PERIOD JANUARY 1, 2019 - SEPTEMBER 30, 2019
| REVENUES: | ||||
| Total services | $ | 2,714,247 | ||
| TOTAL REVENUE | 2,714,247 | |||
| OPERATING EXPENSES: | ||||
| Salaries and commissions | 1,521,544 | |||
| Rent | 306,481 | |||
| Advertising | 126,355 | |||
| Payroll and other taxes | 111,995 | |||
| Other operating | 164,042 | |||
| Office expense | 4,470 | |||
| Insurance | 65,699 | |||
| Outside services | 110,005 | |||
| Brokerage charges | 151,075 | |||
| Telephone | 37,312 | |||
| Registration fees | 31,113 | |||
| Client costs | 32,001 | |||
| Travel and entertainment | 46,698 | |||
| Depreciation | 8,194 | |||
| TOTAL EXPENSES | 2,716,982 | |||
| NET LOSS | $ | (2,735 | ) |
The accompanying notes are an integral part of these financial statements.
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PRESIDENTIAL BROKERAGE, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
| Common Stock | Treasury Stock | Retained | ||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Earnings | Total | ||||||||||||||||||||||
| BALANCE, JANUARY 1, 2019 | 6,675,349 | $ | 354,343 | – | $ | – | $ | 921,193 | $ | (986,239 | ) | $ | 289,297 | |||||||||||||||
| Stock repurchase | 296,525 | – | (296,525 | ) | 51,999 | – | – | – | ||||||||||||||||||||
| Net loss | – | – | – | – | (2,735 | ) | (2,735 | ) | ||||||||||||||||||||
| BALANCE,SEPTEMBER 30, 2019 | 6,971,874 | $ | 354,343 | (296,525 | ) | $ | 51,999 | $ | 921,193 | $ | (988,974 | ) | $ | 286,562 | ||||||||||||||
The accompanying notes are an integral part of these financial statements.
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PRESIDENTIAL BROKERAGE, INC.
FOR THE PERIOD JANUARY 1, 2019 - SEPTEMBER 30, 2019
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||
| Net income | $ | (2,735 | ) | |
| Non-cash items: | ||||
| Depreciation | 8,194 | |||
| Increase (decrease) in cash resulting from change in: | ||||
| Due from clearing house | 70,702 | |||
| Prepaid Expenses | (33,799 | ) | ||
| Accrued revenue | 122 | |||
| Accounts payable | (50,961 | ) | ||
| Accrued expenses | 45,616 | |||
| Commissions payable | (52,438 | ) | ||
| NET CASH USED FOR OPERATING ACTIVITIES | (15,299 | ) | ||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||
| Purchase of office equipment and leasehold improvements | (13,095 | ) | ||
| Deposit paid | (6,426 | ) | ||
| NET CASH USED FOR INVESTING ACTIVITIES | (19,521 | ) | ||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||
| Treasury Stock Sale and Repurchase | 51,999 | |||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | 51,999 | |||
| NET INCREASE IN CASH AND CASH EQUIVALENTS | 17,179 | |||
| CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR | 206,958 | |||
| CASH AND CASH EQUIVALENTS, END OF YEAR | $ | 224,137 |
The accompanying notes are an integral part of these financial statements.
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PRESIDENTIAL BROKERAGE, INC.
PERIOD ENDED SEPTEMBER 30, 2019
| 1. | Summary of Significant Accounting Policies |
Organization
Presidential Brokerage, Inc. (an S corporation) (the "Company") was incorporated in the state of California on June 25, 1991. The Company is a registered broker-dealer with the Securities and Exchange Commission ("SEC") and with the Financial Industry Regulatory Authority ("FINRA"). The Company is also a member of the Securities Investor Protection Corporation ("SIPC"). The Company's securities is limited to introducing and forwarding securities on a fully disclosed basis to a carrying broker-dealer. The Company as a matter of policy does not hold funds or securities for customers or owe money or securities to customers.
Cash and Cash Equivalents
Investments with original maturities of three months or less are classified as cash equivalents.
Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated principally by the straight-line method over a useful life of five to seven years. Leasehold improvements are amortized over the life of the lease. Maintenance and repairs are expensed as incurred. Major betterments are capitalized. The Company takes advantage of Internal Revenue Code Section 179 allowing depreciation write-offs of up to $1,000,000 in year of acquisition. This method of writing off up to $1,000,000 in the year of acquisition is not a generally accepted accounting principle; however, the GAAP calculated depreciation did not vary materially from the tax method considering the financial statements taken as a whole.
Fiscal Year Change
Effective September 30, 2019 the Company changed its fiscal year end from December 31 to September 30. Accordingly, these financial statements represent the period from January 1, 2019 to September 30, 2019.
Income Taxes
The Company, with consent of its shareholders, has elected under the Internal Revenue Code to be an S corporation. In lieu of corporation income taxes, the shareholders of an S corporation are taxed on their proportionate share of the Company's taxable income. Therefore, no provision or liability for federal income taxes has been included in these financial statements. However, the Company operates in California which imposes a minimum franchise tax of $800.
The Company records a liability for uncertain tax positions when it is more likely than not that a tax position would not be sustained if examined by the taxing authority. The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. The Company's evaluation on September 30, 2019 revealed no uncertain tax positions that would have a material impact on the financial statements. The Company does not believe that any reasonably possible changes will occur within the next twelve months that will have a material impact on the financial statements.
Interest and penalties associated with the Company's tax positions are reflected as interest expense in the financial statements. There were no interest or penalties incurred during the fiscal year ended September 30, 2019.
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PRESIDENTIAL BROKERAGE, INC.
NOTES TO FINANCIAL STATEMENTS
PERIOD ENDED SEPTEMBER 30, 2019
| 1. | Summary of Significant Accounting Policies (Continued) |
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of temporary cash investments. The Company restricts temporary cash investments to financial institutions with high credit standing. Such temporary cash investments are often in excess of the FDIC insurance limit.
Advertising Costs
Advertising costs are expensed as incurred.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
Subsequent Events
Management has evaluated events thorough the auditors' report date, which is the date the financial statements were available to be issued. There were no material subsequent events that required recognition or additional disclosure in these financial statements.
Financial Advisory Services and Revenue Recognition
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)." This ASU, as amended, provides comprehensive guidance on the recognition of revenue from customers arising from transfer of goods and services, guidance on accounting for certain contract costs, and new disclosures. The company adopted this ASU in January 2019 using a modified retrospective approach. The ASU did not have a material impact on the Company's financial condition, results of operations or cash flows for the period ending September 30, 2019.
The Company offers clients a wide range of investment services that includes money management, comprehensive financial planning, and tax planning and preparation. Clients can choose from an array of services that best fits their situation, each having a separate fee structure. The annual fees for Investment Advisory Services for retail clients are based upon a percentage of assets under management and generally range from 0.50% to 2.00%. Some clients have elected to pay commissions in lieu of advisory fees. In those cases, the client does not pay an annual fee for Investment Advisory Services. Generally, fees for Investment Advisory Services are billed quarterly five days before each quarter-end. Fees are calculated based upon the value plus accrued interest.
The Company provides investment advisory services on a daily basis. The Company believes the performance obligation for providing advisory services is satisfied over time because the customer is receiving and consuming the benefits as they are provided by the Company. Fee arrangements are based on a percentage applied to the customer's assets under management. Fees are received quarterly and are recognized as revenue at that time as they relate specifically to the services provided in that period, which are distinct from the services provided in other periods.
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PRESIDENTIAL BROKERAGE, INC.
NOTES TO FINANCIAL STATEMENTS
PERIOD ENDED SEPTEMBER 30, 2019
| 1. | Summary of Significant Accounting Policies (Continued) |
Brokerage Services and Revenue Recognition
The Company buys and sell securities on behalf of its customers. Each time a customer enters into a buy or sell transaction, the Company charges a commission. Commissions and related clearing expenses are recorded on the trade date (the date that the Company fills the trade order by finding and contracting with a counterparty and confirms the trade with the customer). The Company believes that the performance obligation is satisfied on the trade date because that is when the underlying financial instrument or purchaser is identified, the pricing is agreed upon, and the risks and rewards of ownership have been transferred to or from the customer.
| 2. | Statutory Requirements |
Pursuant to Rule 15c3-1 of the Securities Exchange Act of 1934, the Company is required to maintain minimum net capital of $100,000. At September 30, 2019, the Company's net capital was $199,949.
The Company is exempt from certain provisions of Rule 15c3-3 of the Securities Exchange Act of 1934. Such exemption is in accordance with paragraph (k) (2) (ii) of the Rule.
| 3. | Retirement Plan |
The Company provides a 401(k) profit sharing plan which covers substantially all employees. Participating employees may elect to contribute, on a tax-deferred basis, a portion of their compensation in accordance with Section 401(k) of the Internal Revenue Code. The Company does not match contributions.
| 4. | Commitment and Contingencies |
Lease Commitment
The non-cancellable Denver lease expired May 31, 2014. The Company signed a third amendment to a non-cancellable lease effective September, 2013, referred to as an Expansion Lease for additional rentable space through May, 2021. Monthly rent is $27,000.
The Company signed a lease agreement for an executive office in Colorado Springs effective July 2018 for a 6 month term and renewed the lease on January 1, 2019 for 6 months ending on June 30, 2019. It was renewed July 1, 2019 for a 6 month term ending on December 31, 2019. The monthly rent is $875.
The Loveland, Colorado lease was signed in July, 2011. Monthly rent was $7,765. The lease expired on January 31, 2019. The Company signed a sub-lease to relocate the Loveland office effective January 1, 2019 for a 14 month term expiring on February 29, 2020. The monthly rent is $5,363. A new lease was signed starting March 1, 2020 through August 31, 2021 with a monthly rent of $6,426.
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PRESIDENTIAL BROKERAGE, INC.
NOTES TO FINANCIAL STATEMENTS
PERIOD ENDED SEPTEMBER 30, 2019
| 4. | Commitment and Contingencies (Continued) |
Lease Commitment (Continued)
The Company recognizes and measures its leases in accordance with FASB ASC 842, Leases. The Company is a lessee in two noncancelable operating leases for office space. The Company determines if an arrangement is a lease, or contains a lease, at inception of a contract and when the terms of an existing contract are changed. The Company recognizes a lease liability and a right of use (ROU) asset at the commencement date of the lease. The lease liability is initially and subsequently recognized based on the total value of its future lease payments. Variable payments are included in the future lease payments when those variable payments depend on an index or a rate. The ROU asset is subsequently measured throughout the lease term at the amount of the remeasured lease liability (i.e., present value of the remaining lease payments), plus unamortized initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received, and any impairment recognized. Lease cost for lease payments is recognized on a straight-line basis over the lease term.
The Company has elected, for all underlying classes of assets, to not recognize ROU assets and lease liabilities for short-term leases that have a lease term of 12 months or less at lease commencement, and do not include an option to purchase the underlying asset that the Company is reasonably certain to exercise. We recognize lease cost associated with our short-term leases on a straight-line basis over the lease term.
The Company has an obligation as a lessee for office space with initial noncancelable terms in excess of one year. The Company classified this lease as an operating lease. These leases generally contain renewal options for periods ranging from two to five years. Because the Company is not reasonably certain to exercise these renewal options, the optional periods are not included in determining the lease term, and associated payments under these renewal options are excluded from lease payments. The Company's leases do not include termination options for either party to the lease or restrictive financial or other covenants. Payments due under the lease contracts include fixed payments. The Company's office space leases require it to make variable payments for the Company's proportionate share of the building's property taxes, insurance, and common area maintenance. These variable lease payments are not included in lease payments used to determine lease liability and are recognized as variable costs when incurred.
The components of lease cost for the year ended September 30, 2019 are as follows:
| Operating lease cost | $ | 289,687 | ||
| Variable lease cost | $ | 16,794 | ||
| Total lease cost | $ | 306,481 |
Amounts reported in the consolidated balance sheet as of September 30, 2019 were as follows:
| Operating leases: | ||||
| Operating lease ROU assets | $ | 678,778 | ||
| Operating lease liabilities | $ | 678,778 | ||
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PRESIDENTIAL BROKERAGE, INC.
NOTES TO FINANCIAL STATEMENTS
PERIOD ENDED SEPTEMBER 30, 2019
| 4. | Commitment and Contingencies (Continued) |
Lease Commitment (Continued)
Other information related to leases as of September 30, 2019 was as follows:
Supplemental cash flow information:
| Cash paid for amounts included in the measurement of lease liabilities: | |||||
| Operating cash flow from operating leases | $ | 131,722 | |||
| ROU assets obtained in exchange for lease obligations: | |||||
| Operating leases | $ | 810,500 | |||
| Reductions to ROU assets resulting from reductions to lease obligations: | |||||
| Operating leases | $ | (131,722 | ) | ||
| Weighted average remaining lease term: | |||||
| Operating leases | 2.5 years | ||||
| Weighted average discount rate: | |||||
| Operating leases | 0% | ||||
Amounts disclosed for ROU assets obtained in exchange for lease obligations and reductions to ROU assets resulting from reductions to lease obligations include amounts added to or reduced from the carrying amount of ROU assets resulting from new leases, lease modifications or reassessments.
Maturities of lease liabilities under noncancelable operating leases as of September 30, 2019 are as follows:
| 2020 | $ | 398,422 | ||
| 2021 | 280,356 | |||
| Total lease liabilities | $ | 678,778 |
Contingencies
The Company is from time to time subject to claims and suits arising in the ordinary course of its business. The Company accrues for potential liabilities involved in these matters as they become known and can be reasonably estimated. For the fiscal year ended September 30, 2019, the Company has accrued a liability of $71,975 for potential claims.
| 5. | Common Stock Issued and Repurchased |
During 2019 the firm reissued common shares from Treasury totaling 323,525 to a former employee as a reversal of a repurchase initiated in 2018. Accordingly, a $52,000 note payable to the former employee was also reversed.
During 2019 the firm repurchased shares from one employee. The total number of shares repurchased were 27,000 at a cost of $1 and were place in Treasury in anticipation of future reissuance.
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PRESIDENTIAL BROKERAGE, INC.
SUPPLEMENTAL SCHEDULE OF COMPUTATION
OF NET CAPITAL,
MINIMUM NET CAPITAL REQUIRED, AND AGGREGATE INDEBTEDNESS
SEPTEMBER 30, 2019
COMPUTATION OF NET CAPITAL AND MINIMUM NET CAPITAL REQUIRED
| STOCKHOLDERS' EQUITY | $ | 285,560 | ||
| DEDUCTIONS: | ||||
| Non-allowable assets | (85,611 | ) | ||
| NET CAPITAL | $ | 199,949 | ||
| MINIMUM NET CAPITAL REQUIRED (greater of 6-2/3% of aggregate indebtedness or $100,000) | $ | 100,000 | ||
| AGGREGATE INDEBTEDNESS | ||||
| TOTAL AGGREGATE INDEBTEDNESS | $ | 183,691 | ||
| RATIO OF AGGREGATE INDEBTEDNESS TO NET CAPITAL | 91.87 |
There were no material differences between the above net capital computation and the corresponding computation included in the Company's Form X-17A-5 Part IIA.
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Certified Public Accountants
650 S. Cherry Street, Suite 1050
Denver, Colorado 80246
(303) 393-0888
FAX (303) 393-0894
www.hhcpafirm.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
of Presidential Brokerage, Inc.
We have reviewed management's statements, included in the accompanying Exemption Report, in which (1) Presidential Brokerage, Inc. identified the following provisions of 17 C.F.R. § 15c3-3(k) under which Presidential Brokerage, Inc. claimed an exemption from 17 C.F.R. § 240.15c3-3: (k)(2)(ii) (exemption provisions) and (2) Presidential Brokerage, Inc. stated that Presidential Brokerage,. Inc. met the identified exemption provisions throughout the most recent fiscal year without exception. Presidential Brokerage, Inc. 's management is responsible for compliance with the exemption provisions and its statements.
Our review was conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States) and, accordingly, included inquiries and other required procedures to obtain evidence about Presidential Brokerage, Inc.’s compliance with the exemption provisions. A review is substantially less in scope than an examination, the objective of which is the expression of an opinion on management's statements. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to management's statements referred to above for them to be fairly stated, in all material respects, based on the provisions set forth in paragraph (k)(2)(ii) of Rule 15c3-3 under the Securities Exchange Act of 1934.
/s/ Harding& Hittesdorf, P.C.
HARDING AND HITTESDORF, P.C.
Denver, Colorado
November 29, 2019
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Certified Public Accountants
650 S. Cherry Street, Suite 1050
Denver, Colorado 80246
(303) 393-0888
FAX (303) 393-0894
www.hhcpafirm.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON APPLYING AGREED-UPON PROCEDURES
Board of Directors of Presidential Brokerage, Inc.
We have performed the procedures included in Rule 17a-5(e)(4) under the. Securities Exchange Act of 1934 and in the Securities Investor Protection Corporation (SIPC) Series 600 Rules, which are enumerated below and were agreed to by Presidential Brokerage, Inc. and the SIPC, solely to assist you and SIPC in evaluating Presidential Brokerage, Inc.'s compliance with the applicable instructions of General Assessment Reconciliation (Form SIPC-7) for the period ended September 30, 2019. Presidential Brokerage, Inc.'s management is responsible for its Form SIPC-7 and for its compliance with those requirements. This agreed-upon procedures engagement was conducted in accordance with standards established by the Public Company Accounting Oversight Board (United States) and in accordance with attestation standards established by the American Institute of Certified Public Accountants. The sufficiency of these procedures is solely the responsibility of those parties specified in this report. Consequently, we make no representation regarding the sufficiency of the procedures described below either for the purpose Va. which this report has been requested or for any other purpose. The procedures we performed and our findings are as follows:
| 1. | Compared the listed assessment payments in the Form SIPC-7 with respective cash disbursement records entries, noting no differences; |
| 2. | Compared the Total Revenue amount reported on the Annual Audited Report Form X-17A-5 Part III for the period ended September 30, 2019 with the Total Revenue amount reported in the Form SIPC-7 for the period ended September 30, 2019, noting a $2,766 difference; |
| 3. | Compared any adjustments reported in the Form S1PC-7 with supporting schedules and working papers, noting a $269 difference; |
| 4. | Recalculated the arithmetical accuracy of the calculations reflected in the Form SIPC-7 and in the related schedules and working papers supporting the adjustments, noting a $270 difference; and |
| 5. | Compared the amount of any overpayment applied to the current assessment with the Form SIPC-7 on which was originally computed, noting no differences. |
We were not engaged to and did not conduct an examination or review, the objective of which would be the expression of an opinion or conclusion, respectively, on Presidential Brokerage Inc.'s compliance with the applicable instructions of the Form SIPC-7 for the period ended September 30, 2019. Accordingly, we do not express such an opinion or conclusion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you.
This report is intended solely for the information and use of Presidential Brokerage, Inc.'s and the SIPC and is not intended to be and should not be used by anyone other than these specified parties.
/s/ Harding& Hittesdorf, P.C.
HARDING AND HITTESDORF, P.C.
Denver, Colorado
November 29, 2019
| 16 |
PRESIDENTIAL BROKERAGE, INC.
Report of Independent Registered Public
Accounting Firm
on Financial Statements and Supplemental
Schedules for the Year Ended December 31, 2018
| 17 |
PRESIDENTIAL BROKERAGE, INC.
TABLE OF CONTENTS
| 18 |
Certified Public Accountants
650 S. Cherry Street, Suite 1050
Denver, Colorado 80246
(303) 393-0888
FAX (303) 393-0894
www.hhcpafirm.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Presidential Brokerage, Inc.
Greenwood Village, Colorado
Opinion on the Financial Statements
We have audited the accompanying statement of financial condition of Presidential Brokerage, Inc. (an S-Corporation) as of December 31, 2018, the related statements of operations, changes in stockholders' equity, changes in liabilities subordinated to claims of general creditors, and cash flows for the year then ended, and the related notes and schedules (collectively referred to as the financial statements). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Presidential Brokerage, Inc. as of December 31, 2018, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of Presidential Brokerage, Inc.'s management. Our responsibility is to express an opinion on Presidential Brokerage, Inc.'s financial statements based on our audit. 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 Presidential Brokerage, Inc. in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCA0B.
We conducted our audit 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. Our audit 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 include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements. We believe that our audit provides a reasonable basis for our opinion.
Auditor's Report on Supplemental Information
The supplementary information contained in Schedules I and II has been subjected to audit procedures performed in conjunction with the audit of Presidential Brokerage, Inc.'s financial statements. The supplementary information is the responsibility of Presidential Brokerage, Inc.'s management. Our audit procedures included determining whether the supplementary information reconciles to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the supplementary information. In forming our opinion on the supplementary information, we evaluated whether the supplementary information, including its form and content, is presented in conformity with 17 C.F.R. Section 240.17a-5. In our opinion, the supplementary information contained in Schedules I and II is fairly stated, in all material respects, in relation to the financial statements as a whole.
/s/ Harding& Hittesdorf, P.C.
HARDING AND HITTESDORF, P.C.
Certified Public Accountants
We have served as Presidential Brokerage, Inc.'s auditor since 2009.
Denver, Colorado
February 28, 2019
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PRESIDENTIAL BROKERAGE, INC
STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 2018
ASSETS
| CURRENT ASSETS: | ||||
| Cash and cash equivalents | $ | 206,958 | ||
| Due from clearing house | 108,754 | |||
| Accrued revenue | 21,139 | |||
| Prepaid Expenses | 5,417 | |||
| Total Current Assets | 342,268 | |||
| PROPERTY AND EQUIPMENT, at cost | ||||
| Office equipment and furniture | 311,013 | |||
| Less accumulated depreciation | (311,013 | ) | ||
| Total Property and Equipment | – | |||
| OTHER ASSETS: | ||||
| Clearing deposit | 100,434 | |||
| Deposit | 32,569 | |||
| Total Other Assets | 133,003 | |||
| TOTAL ASSETS | $ | 475,271 |
The accompanying notes are an integral part of these financial statements.
| 20 |
PRESIDENTIAL BROKERAGE, INC.
STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 2018
LIABILITIES AND STOCKHOLDERS' EQUITY
| CURRENT LIABILITIES: | ||||
| Accounts payable | $ | 73,539 | ||
| Accrued expenses | 27,148 | |||
| Accrued contingent liability | 22,000 | |||
| Commissions payable | 116,288 | |||
| Total Current Liabilities | 238,975 | |||
| COMMITMENT (Note 4) | ||||
| STOCKHOLDERS' EQUITY: | ||||
| Common stock, at a stated value of $0.05 per share; authorized 10,000,000 shares, 1,764,333 shares issued and outstanding | 354,343 | |||
| Treasury Stock | (53,000 | ) | ||
| Additional paid in capital | 921,193 | |||
| Retained deficit | (986,239 | ) | ||
| Total Stockholders' Equity | 236,297 | |||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 475,272 |
The accompanying notes are an integral part of these financial statements.
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PRESIDENTIAL BROKERAGE, INC.
FOR THE YEAR ENDED DECEMBER 31, 2017
| REVENUES: | ||||
| Total services | $ | 3,538,748 | ||
| TOTAL REVENUE | 3,538,748 | |||
| OPERATING EXPENSES: | ||||
| Salaries and commissions | 2,575,119 | |||
| Rent | 539,710 | |||
| Advertising | 194,668 | |||
| Payroll and other taxes | 183,073 | |||
| Other operating | 75,094 | |||
| Office expense | 73,339 | |||
| Insurance | 92,194 | |||
| Outside services | 83,945 | |||
| Brokerage charges | 123,338 | |||
| Telephone | 42,188 | |||
| Registration fees | 53,221 | |||
| Client costs | 5,030 | |||
| Travel and entertainment | 37,351 | |||
| Depreciation | 2,350 | |||
| TOTAL EXPENSES | 4,080,619 | |||
| NET LOSS | $ | (541,872 | ) |
The accompanying notes are an integral part of these financial statements.
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PRESIDENTIAL BROKERAGE, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
| Common Stock | Treasury Stock | Paid-in | Retained | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Earnings | Total | ||||||||||||||||||||||
| BALANCE, JANUARY 1, 2018 | 1,764,333 | $ | 88,976 | – | $ | – | $ | 533,596 | $ | (444,367 | ) | $ | 178,205 | |||||||||||||||
| Stock repurchase | (396,317 | ) | – | 396,317 | (53,000 | ) | – | – | – | |||||||||||||||||||
| Stock purchase | 5,307,333 | 265,367 | – | – | 337,597 | – | 602,964 | |||||||||||||||||||||
| Capital contribution | – | – | – | – | 50,000 | – | 50,000 | |||||||||||||||||||||
| Net loss | – | – | – | – | – | (541,872 | ) | (541,872 | ) | |||||||||||||||||||
| BALANCE, DECEMBER 31, 2018 | 6,675,349 | $ | 354,343 | 396,317 | $ | 53,000 | ) | $ | 921,193 | $ | (986,239 | ) | $ | 289,297 | ||||||||||||||
The accompanying notes are an integral part of these financial statements.
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PRESIDENTIAL BROKERAGE, INC.
STATEMENT OF CHANGES IN LIABILITIES
SUBORDINATED TO CLAIMS OF CREDITORS
| All Satisfactory Subordinated Debt | Debt that Qualifies as Equity Capital | |||||||
| BALANCE, JANUARY I, 2018 | $ | 403,000 | $ | 403,000 | ||||
| Increases: Debt issued and accrued interest | – | – | ||||||
| Decreases: Debt Converted to common stock | (403,000 | ) | (403,000 | ) | ||||
| BALANCE, DECEMBER 31, 2018 | $ | – | $ | – | ||||
The accompanying notes are an integral part of these financial statements.
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PRESIDENTIAL BROKERAGE, INC.
FOR THE YEAR ENDED DECEMBER 31, 2018
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||
| Net income | $ | (541,872 | ) | |
| Increase (decrease) in cash resulting from change in: | ||||
| Due from clearing house | (62,661 | ) | ||
| Prepaid Expenses | (5,417 | ) | ||
| Accrued revenue | (2,053 | ) | ||
| Accounts payable | 20,647 | |||
| Accrued expenses | 5,410 | |||
| Accrued client cost | 2,000 | |||
| Commissions payable | 92,081 | |||
| NET CASH PROVIDED BY OPERATING ACTIVITIES | (491,864 | ) | ||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||
| Deposits | 2,926 | |||
| NET CASH PROVIDED BY INVESTING ACTIVITIES | 2,926 | |||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||
| Subordinated note conversion | (403,000 | ) | ||
| Treasury Stock Repurchase | (53,000 | ) | ||
| Proceeds from issuance of stock | 602,964 | |||
| Paid In Capital | 50,000 | |||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | 196,964 | |||
| NET INCREASE IN CASH AND CASH EQUIVALENTS | (291,974 | ) | ||
| CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR | 498,932 | |||
| CASH AND CASH EQUIVALENTS, END OF YEAR | $ | 206,958 |
The accompanying notes are an integral part of these financial statements.
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PRESIDENTIAL BROKERAGE, INC.
YEAR ENDED DECEMBER 31, 2018
| 1. | Summary of Significant Accounting Policies |
Organization
Presidential Brokerage, Inc. (an S corporation) (the "Company") was incorporated in the state of California on June 25, 1991. The Company is a registered broker-dealer with the Securities and Exchange Commission ("SEC") and with the Financial Industry Regulatory Authority ("FINRA"). The Company is also a member of the Securities Investor Protection Corporation ("SIPC"). The Company's securities business is limited to introducing and forwarding securities on a fully disclosed basis to a carrying broker-dealer. The Company as a matter of policy does not hold funds or securities for customers or owe money or securities to customers.
Revenue Recognition
Securities transactions and the related revenues and expenses are reflected in the financial statements on a settlement date basis, which is generally three business days after the trade date. Revenues and expenses on a trade date basis are not materially different from revenues and expenses on a settlement date basis.
Cash and Cash Equivalents
Investments with original maturities of three months or less are classified as cash equivalents.
Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated principally by the straight-line method over a useful life of five to seven years. Leasehold improvements are amortized over a seven year life. Maintenance and repairs are expensed as incurred. Major betterments are capitalized. The Company takes advantage of Internal Revenue Code Section 179 allowing depreciation write-offs of up to $1,000,000 in year of acquisition. This method of writing off up to $1,000,000 in the year of acquisition is not a generally accepted accounting principle; however, the GAAP calculated depreciation did not vary materially from the tax method considering the financial statements taken as a whole.
Income Taxes
The Company, with consent of its shareholders, has elected under the Internal Revenue Code to be an S corporation. In lieu of corporation income taxes, the shareholders of an S corporation are taxed on their proportionate share of the Company's taxable income. Therefore, no provision or liability for federal income taxes has been included in these financial statements. However, the Company operates in California which imposes a minimum franchise tax of $800.
The Company records a liability for uncertain tax positions when it is more likely than not that a tax position would not be sustained if examined by the taxing authority. The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. The Company's evaluation on December 31, 2018 revealed no uncertain tax positions that would have a material impact on the financial statements. The Company does not believe that any reasonably possible changes will occur within the next twelve months that will have a material impact on the financial statements.
Interest and penalties associated with the Company's tax positions are reflected as interest expense in the financial statements. There were no interest or penalties incurred during the year ended December 31, 2018.
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PRESIDENTIAL BROKERAGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2018
| 1. | Summary of Significant Accounting Policies (Continued) |
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of temporary cash investments. The Company restricts temporary cash investments to financial institutions with high credit standing. Such temporary cash investments are often in excess of the FDIC insurance limit.
Advertising Costs
Advertising costs are expensed as incurred.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
Subsequent Events
Management has evaluated events thorough the auditors' report date, which is the date the financial statements were available to be issued. There were no material subsequent events that required recognition or additional disclosure in these financial statements.
| 2. | Statutory Requirements |
Pursuant to Rule 15c3-1 of the Securities Exchange Act of 1934, the Company is required to maintain minimum net capital of $100,000. At December 31, 2018, the Company's net capital was $198,311.
The Company is exempt from certain provisions of Rule I 5c3-3 of the Securities Exchange Act of 1934. Such exemption is in accordance with paragraph (k) (2) (ii) of the Rule.
| 3. | Retirement Plan |
The Company provides a 401(k) profit sharing plan which covers substantially all employees. Participating employees may elect to contribute, on a tax-deferred basis, a portion of their compensation in accordance with Section 401(k) of the Internal Revenue Code. The Company does not match contributions.
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PRESIDENTIAL BROKERAGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2018
| 4. | Commitment and Contingencies |
Lease Commitment
The Company incurred rental expense of $539,710 in 2018 under four operating lease agreements for office space in Denver, Loveland, Colorado Springs.
The non-cancellable Denver lease expired May 31, 2014. The Company signed a third amendment to a non-cancellable lease effective September, 2013, referred to as an Expansion Lease for additional rentable space through May, 2021. Monthly rent is $27,000.
The Company signed a lease agreement for the Colorado Springs location effective July, 2013. Monthly rent was $12,875. The lease term was 60 months and expired June 30, 2018. The Company signed a lease agreement for an executive office in Colorado Springs effective July 2018 for a 6 month term and renewed the lease on January I, 2019 for 6 months ending on June 30, 2019. The monthly rent is $875.
The Loveland, Colorado lease was signed in July, 2011. Monthly rent is $7,765. The lease expired on January 31, 2019. The Company signed a sub-lease to relocate the Loveland office effective January 1, 2019 for a 14 month term expiring on February 29, 2020. The monthly rent is $5,363.
Future minimum lease payments under these leases through May, 2021 are:
| 2019 | $ | 396,008 | ||
| 2020 | 334,726 | |||
| 2021 | 135,000 | |||
| $ | 865,734 |
Contingencies
The Company is from time to time subject to claims and suits arising in the ordinary course of its business. The Company accrues for potential liabilities involved in these matters as they become known and can be reasonably estimated. For the year ended December 31, 2018, the Company has accrued a liability of $22,000 for potential claims.
| 5. | Common Stock Issued and Repurchased |
During 2018 the firm issued common shares totaling 5,307,332 to the new investors described in Note 7. Accordingly, $265,367 was allocated to common stock with a stated value of $.05 per share and $337,597 was allocated to additional paid in capital.
During 2018 the firm repurchased shares from two employees where no longer employed by the firm. The total number of shares repurchased were 396,317 at a cost of $53,000 and were place in Treasury in anticipation of future reissuance.
In September 2018 there was a net capital contribution in the amount of $50,000 with no shares issued.
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PRESIDENTIAL BROKERAGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2018
| 6. | Subordinated Loan Agreement-Control # 3A-E-SLA-1408797 |
Lender: Presidential Holding, LLC
Maturity Date: September 30, 2020
Amount: $400,000
Interest rate: 3%
CRD # 28784
An agreement was entered into on September 15, 2017 between Presidential Holding, LLC (the lender) and Presidential Brokerage, Inc. (the Broker/Dealer). FINRA approved the agreement October 2, 2017 (the effective date). Appendix D of SEC Rule 15c3-1 requires the prior written approval of FINRA before any repayment of the subordinated agreement can be made. Accordingly, unsecured advances to the lender during the term of the agreement are not permitted. The proceeds shall be dealt with in all respects as capital of the Broker/Dealer, and is subject to the risks of the business, and the Broker/Dealer has the right to deposit the proceeds into accounts of Presidential Brokerage, Inc. The proceeds shall be maintained as capital subject to the provisions of paragraph (e) of Rule 15c3-1.
Effective January 2018 the subordinated loans were reassigned to the three investors in the investor group individually. In May 2018, following the approval of the CMA by FINRA, the three subordinated loans were converted to equity capital as described in Note 5.
| 7. | Change of Control |
The Company and a majority of the Shareholders (including all officers) entered into an agreement by which new investors and key personnel ended up purchasing 5,657,332 common shares, including the issuance of the 350,000 additional shares. This transaction represents 80% of the issued shares of the Company, leaving the current Shareholders with 1,414,333 shares or 20% of the issued shares of the Company. The transactions herein was to be done in three phases: first, a $200,000 purchase of 350,000 common shares, or 20% of the outstanding shares by Gary Nemer (later equally divided between Gary Nemer, Scott Winters and William Nelson). This was completed July 31, 2017. Second, funding of the Equity Subordinated Loan Obligation of $400,000 effective date Oct. 2, 2017. Third phase is the Conversion and full satisfaction of the Equity Sub Loan Obligations in consideration for the issuance of 5,307,332 remaining Investor Shares along with funding of the of the additional equity investment of $200,000 upon FINRA CMA approval, which was completed with the conversion of the Equity Sub Loans in May 2018 and the additional equity investment of $200,000 in May and June 2018.
| 29 |
PRESIDENTIAL BROKERAGE, INC.
SUPPLEMENTAL SCHEDULE OF COMPUTATION
OF NET CAPITAL,
MINIMUM NET CAPITAL REQUIRED, AND AGGREGATE INDEBTEDNESS
DECEMBER 31, 2018
COMPUTATION OF NET CAPITAL AND MINIMUM NET CAPITAL REQUIRED
| STOCKHOLDERS' EQUITY | $ | 236,297 | ||
| DEDUCTIONS: | ||||
| Non-allowable assets | (37,986 | ) | ||
| NET CAPITAL | 198,311 | |||
| MINIMUM NET CAPITAL REQUIRED (greater of 6-2/3% of aggregate indebtedness or $100,000) | 100 000 | |||
| AGGREGATE INDEBTEDNESS | ||||
| TOTAL AGGREGATE INDEBTEDNESS | $ | 239,036 | ||
| RATIO OF AGGREGATE INDEBTEDNESS TO NET CAPITAL | 120.54 |
There were no material differences between the above net capital computation and the corresponding computation included in the Company's Form X-17A-5 Part IIA.
| 30 |
SCHEDULE I
PRESIDENTIAL BROKERAGE, INC.
COMPUTATION FOR DETERMINATION
OF RESERVE REQUIREMENTS
FOR BROKERS AND DEALERS PURSUANT TO RULE 15c3-3
DECEMBER 31, 2018
The Company is exempt from the provisions of Rule 15c3-3 of the Securities Exchange Act of 1934, since the Company's activities are limited to those which qualify for an exemption under paragraph (k) (2) (ii) of the Rule.
| 31 |
Certified Public Accountants
650 S. Cherry Street, Suite 1050
Denver, Colorado 80246
(303) 393-0888
FAX (303) 393-0894
www.hhcpafirm.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
of Presidential Brokerage, Inc.
We have reviewed management's statements, included in the accompanying Exemption Report, in which (1) Presidential Brokerage, Inc. identified the following provisions of 17 C.F.R. § 15c3-3(k) under which Presidential Brokerage, Inc. claimed an exemption from 17 C.F.R. § 240.15c3-3: (k)(2)(ii) (exemption provisions) and (2) Presidential Brokerage, Inc. stated that Presidential Brokerage, Inc. met the identified exemption provisions throughout the most recent fiscal year without exception. Presidential Brokerage, Inc. 's management is responsible for compliance with the exemption provisions and its statements.
Our review was conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States) and, accordingly, included inquiries and other required procedures to obtain evidence about Presidential Brokerage, Inc.'s compliance with the exemption provisions. A review is substantially less in scope than an examination, the objective of which is the expression of an opinion on management's statements. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to management's statements referred to above for them to be fairly stated, in all material respects, based on the provisions set forth in paragraph (k)(2)(ii) of Rule 15c3-3 under the Securities Exchange Act of 1934.
/s/ Harding& Hittesdorf, P.C.
HARDING A HITTESDORF, P.C.
Denver, Colorado
February 28, 2019
| 32 |
Exhibit 99.4
The Notes from the audited financial statements in Exhibit 99.3 are incorporated and are applicable to the unaudited financial statements in this Exhibit.
Forta Financial Group, Inc.
Condensed Balance Sheets
June 30, 2020 | June 30, 2019 | |||||||
| Unaudited | Unaudited | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Total Bank Accounts | $ | 565,834 | $ | 192,614 | ||||
| Total Accounts Receivable | 30,328 | – | ||||||
| Total Other Current Assets | 164,519 | 112,577 | ||||||
| Total Current Assets | 760,681 | 305,191 | ||||||
| Fixed Assets | – | – | ||||||
| Total Fixed Assets | – | 7,842 | ||||||
| Other Assets | – | – | ||||||
| Total Other Assets | 516,469 | 133,003 | ||||||
| TOTAL ASSETS | 1,277,150 | 446,036 | ||||||
| LIABILITIES AND EQUITY | ||||||||
| Liabilities | ||||||||
| Current Liabilities | ||||||||
| Total Accounts Payable | 17,254 | 9,213 | ||||||
| Other Current Liabilities | 214,846 | 172,892 | ||||||
| Total Current Liabilities | 232,100 | 182,104 | ||||||
| Long-Term Liabilities | ||||||||
| Total Long-Term Liabilities | 760,104 | – | ||||||
| Total Liabilities | 992,204 | 182,104 | ||||||
| Equity | ||||||||
| 300 Common stock | 354,343 | 354,343 | ||||||
| 303 Treasury Stock | (1,001 | ) | (1,001 | ) | ||||
| 305 Paid In Capital | 921,193 | 921,193 | ||||||
| 32000 Retained Earnings | (988,975 | ) | (1,023,225 | ) | ||||
| Net Income | (614 | ) | 12,622 | |||||
| Total Equity | 284,946 | 263,932 | ||||||
| TOTAL LIABILITIES AND EQUITY | $ | 1,277,150 | $ | 446,036 | ||||
| 1 |
Forta Financial Group, Inc.
Condensed Statements of Operations
Nine Months Ending June 30, 2020 Unaudited | Nine Months Ending June 30, 2019 Unaudited | |||||||
| Income | ||||||||
| Revenue | $ | 2,737,721 | $ | 3,108,246 | ||||
| Gross Profit | 2,737,721 | 3,108,246 | ||||||
| Expenses | ||||||||
| Marketing | 118,269 | 89,719 | ||||||
| Compensation | 1,728,617 | 1,695,485 | ||||||
| General & Administrative | 864,152 | 1,268,486 | ||||||
| Depreciation Expense | 6,182 | 4,900 | ||||||
| Legal Services | 6,986 | 16,529 | ||||||
| Total Expenses | 2,724,206 | 3,075,120 | ||||||
| Net Operating Income | 13,515 | 33,126 | ||||||
| Other Expenses | ||||||||
| Income Taxes | 893 | 33,740 | ||||||
| Total Other Expenses | 893 | 33,740 | ||||||
| Net Other Income | (893 | ) | (33,740 | ) | ||||
| Net Loss | $ | 12,622 | $ | (614 | ) | |||
| 2 |
Forta Financial Group, Inc.
Statement of Cash Flows
| Nine Months Ending June 30, 2020 | Nine Months Ending June 30, 2019 | |||||||
| Unaudited | Unaudited | |||||||
| OPERATING ACTIVITIES | ||||||||
| Net Loss | $ | 12,622 | $ | (614 | ) | |||
| Adjustments to reconcile Net Loss to Net Cash provided by operations: | ||||||||
| Accounts Receivable | – | (30,328 | ) | |||||
| Accrued Revenue | (6,438 | ) | (59,677 | ) | ||||
| Advances to Employees | – | 2,500 | ||||||
| Due from clearing house | (6,010 | ) | (7,383 | ) | ||||
| Prepaid Expenses | 229 | 20,825 | ||||||
| Accounts Payable | (179 | ) | (5,324 | ) | ||||
| 401k Payable | 1,072 | 722 | ||||||
| Accrued Payroll Taxes | 152 | (1,226 | ) | |||||
| Federal Income Tax Payable | – | 11,799 | ||||||
| Other Accrued Liabilities | 1,475 | (12,611 | ) | |||||
| Payable to Advisors:Accrued Revenue Payable | (18,252 | ) | 1,742 | |||||
| Payable to Advisors:Commissions Payable - Internal advisors | 9,403 | (9,860 | ) | |||||
| Payable to Advisors:Commissions payable - External advisors | 19,998 | – | ||||||
| Payroll Payable | 16,238 | – | ||||||
| Payroll Taxes | 4,402 | – | ||||||
| Vacation Pay Liability | 4,212 | 30,125 | ||||||
| Prepaid Income | – | 3,000 | ||||||
| State Corp. Tax Liability | – | 10,044 | ||||||
| Total Adjustments to reconcile Net Income to Net Cash provided by operations: | 6,304 | (25,654 | ) | |||||
| Net cash provided by operating activities | 18,925 | (26,268 | ) | |||||
| INVESTING ACTIVITIES | ||||||||
| Leasehold Improvements | (7,842 | ) | 4,900 | |||||
| – | (20,000 | ) | ||||||
| Deposits | (5,364 | ) | 5,364 | |||||
| Net cash provided by investing activities | (13,206 | ) | (9,736 | ) | ||||
| FINANCING ACTIVITIES | ||||||||
| Treasury Stock | (1 | ) | – | |||||
| Net cash provided by financing activities | 5,719 | 377,700 | ||||||
| Net cash increase for period | 5,718 | 341,696 | ||||||
| Cash at beginning of period | 186,895 | 224,137 | ||||||
| Cash at end of period | $ | 192,614 | $ | 565,834 | ||||
| 3 |
Exhibit 99.5
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS OF FINANCIAL GRAVITY COMPANIES, INC. AND SUBSIDIARIES FOR THE NINE MONTHS ENDED JUNE 30, 2020 AND FISCAL YEAR END 2019.
The accompanying unaudited pro forma condensed combined financial statement of Financial Gravity Companies, Inc. (“FGCO” or the “Company”) is presented to illustrate the estimated effects of the acquisition of 100% of the stock of Forta Financial Group, Inc. (“Forta” or “FFGI”), which closed on May 21, 2020 (the “acquisition” or the “transaction”) on the historical financial position and results of operations of the Company.
The unaudited pro forma condensed combined statement of operations is based upon and derived from and should be read in conjunction with the historical audited financial statements of the Company for the year ended September 30, 2019, the historical unaudited financial statements of the Company for the six months ended March 31, 2020, and the historical unaudited financial statements of Forta for the nine months ended June 30, 2020.
The unaudited pro forma condensed combined statement of operations for the nine months ended June 30, 2020 assumes that the acquisition was completed on October 1, 2019.
The Company has determined that the acquisition of Forta’s stock constitutes a business combination as defined by Accounting Standards Codification 805, Business Combinations (“ASC 805”). Under ASC 805, the assets and liabilities of Forta are recorded at the acquisition date fair values. Any excess of the purchase price over the fair value of assets acquired and liabilities assumed is recognized as goodwill. Fair values of assets and liabilities are determined based on the requirements of ASC 820, Fair Value Measurements and Disclosures. The fair values of Forta’s assets and liabilities are based on the preliminary estimates of fair values as of the acquisition date.
The pro forma adjustments are preliminary and are based upon available information and certain assumptions described in the accompanying notes to the unaudited pro forma combined financial information that management believes are reasonable under the circumstances. Actual results may differ materially from the assumptions within the accompanying unaudited pro forma combined financial information. Management believes the fair values recognized for the assets acquired and liabilities assumed are based on reasonable estimates and assumptions. Preliminary fair value estimates may change as additional information becomes available. There can be no assurance that the final determination will not result in material changes from these preliminary amounts.
As of the effective time of the acquisition assets are required to be measured at fair value and these acquired assets could include assets that are not intended to be used or sold or that are intended to be used in a manner other than their highest and best use. Management is working on identification and fair value of identified intangible assets.
The fair value of identifiable assets was determined primarily using book value. The value of goodwill was determined by using the market value of the stock as of the date of the close of the merger, and verifying that the result was supported by forecasts of all expected future cash flows. Some of the more significant assumptions include: the amount and timing of projected future cash flows and the discount rate selected to measure the risks inherent in the future cash flows. The final valuation is expected to be completed within 12 months from the completion of the acquisition. The Company does not expect goodwill be deductible for tax purposes.
The unaudited pro forma condensed combined financial statements have been prepared by management in accordance with the Article 11 of Regulation S-X, and are not necessarily indicative of the combined financial position or results of operations that would have been realized had the acquisition occurred as of the dates indicated, nor are they meant to be indicative of any anticipated combined financial position or future results of operations that the Company will experience after the acquisition. In addition, the accompanying unaudited pro forma combined statement of operations does not include any pro forma adjustments to reflect operational efficiencies, expected cost savings or economies of scale which may be achievable or the impact of any non-recurring charges and one-time transaction related costs that result directly from the transaction. The historical consolidated financial information has been adjusted to give effect to pro forma events that are (1) directly attributable to the acquisitions, (2) factually supportable, and (3) with respect to the unaudited pro forma condensed combined statement of operations, expected to have continuing impact on the combined results of operations.
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This unaudited pro forma condensed combined financial information should be read in conjunction with:
The Company’s historical audited financial statements and accompanying notes as of and for the year ended September 30, 2019 included in the Company’s Annual Report on Form 10-K, filed with the Securities Exchange Commission (the “SEC”) on January 13, 2020.
The Company’s historical unaudited financial statements and accompanying notes as of and for the six months ended March 31, 2020 included in the Company’s Quarterly Report on Form 10-Q, filed with the SEC on May 29, 2020.
Forta’s audited financial statements for the fiscal years ended December 31, 2018 and September 30, 2019, that are attached as Exhibit 99.3 to this FORM 8-K/A (Amendment No. 1).
Forta’s unaudited condensed financial statements for the nine months ended June 30, 2020 attached as Exhibit 99.4 to this FORM 8-K/A (Amendment No. 1).
Description of Transaction
On September 30, 2019, the Company entered into an Agreement and Plan of Merger with Forta and a wholly owned subsidiary of the Company, providing for the acquisition of Forta (the “Merger Agreement”). Pursuant to the Merger Agreement, and upon the terms and subject to the conditions described therein, the Company acquired all the issued and outstanding shares of Forta’s common stock.
The following table summarizes the preliminary fair value of assets and liabilities of Forta as of May 21, 2020:
| PURCHASE PRICE | $ | 7,600,415 | ||
| ASSETS | ||||
| Current Assets | ||||
| Cash | 710,154 | |||
| Accounts Receivable | 20,882 | |||
| Other Current Assets | 135,056 | |||
| Total Current Assets | 866,093 | |||
| Other Assets | 582,330 | |||
| TOTAL ASSETS | 1,448,423 | |||
| LIABILITIES | ||||
| Liabilities | ||||
| Current Liabilities | ||||
| Total Accounts Payable | 18,215 | |||
| Total Other Current Liabilities | 739,579 | |||
| Total Current Liabilities | 757,793 | |||
| Long-Term Liabilities | ||||
| Total Long-Term Liabilities | 448,265 | |||
| Total Liabilities | $ | 1,206,058 | ||
| Goodwill | $ | 7,358,050 |
The estimated fair values of the assets acquired, and liabilities assumed, will be finalized as further information is received regarding these items and analysis of this information is completed.
Forta’s results of operations have been included in the pro forma statement of operation for the nine months ending June 30, 2020 prospectively from the assumed date of acquisition of October 1, 2019, and the Company’s operations for the same period. Also included is the unaudited consolidated balance sheet of the Company as of June 30, 2020, which includes Forta. The Notes from the audited financial statements in Exhibit 99.3 are incorporated and are applicable to the unaudited financial statements in this Exhibit.
Pro forma operating results have been prepared by adjusting historical results to include Forta’s results of operations. The unaudited pro forma results of operations presented do not necessarily reflect the results of operations that would have resulted had the acquisition been completed at the beginning of October 1, 2019, nor does it indicate the results of operations in future periods. Additionally, the unaudited pro forma results do not include the impact of possible business model changes, nor does it consider any potential impacts of current market conditions on revenues, reduction of expenses, asset dispositions, or other factors. The impact of these items could alter the following pro forma results:
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FINANCIAL GRAVITY COMPANIES, INC.
UNAUDITED PRO FORMA
CONSOLIDATED BALANCE SHEETS
| As of June 30, 2020 | As of September 30, 2019 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | 629,322 | $ | 260,190 | ||||
| Trade accounts receivable, net | 81,000 | 147,377 | ||||||
| Prepaid expenses and other current assets | 315,901 | 112,795 | ||||||
| Total current assets | 1,026,223 | 520,362 | ||||||
| OTHER ASSETS | ||||||||
| Property and equipment, net | 88,452 | 144,890 | ||||||
| Right to use lease asset | 382,404 | 678,778 | ||||||
| Deposits | 139,429 | |||||||
| Proprietary content, net | 213,412 | 262,550 | ||||||
| Non-compete agreements, net | 1,322 | 5,260 | ||||||
| Intellectual property | 53,170 | 53,171 | ||||||
| Goodwill | 8,452,752 | 1,094,702 | ||||||
| TOTAL ASSETS | $ | 10,217,735 | $ | 2,899,143 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable – trade | $ | 67,948 | $ | 197,327 | ||||
| 84,801 | – | |||||||
| Accrued expenses and other current liabilities | 1,134,582 | 307,985 | ||||||
| Contract liabilities | 70,070 | 94,733 | ||||||
| Line of credit | 58,985 | 63,919 | ||||||
| 382,404 | – | |||||||
| Notes payable | 667,181 | 13,393 | ||||||
| Total current liabilities | 2,465,971 | 677,357 | ||||||
| Notes payable - net of current | 18,896 | 23,534 | ||||||
| Lease liability - non-current | – | 678,778 | ||||||
| Total non-current liabilities | 18,896 | 702,312 | ||||||
| Total Liabilities | 2,484,867 | 1,379,669 | ||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Common stock, $0.001 par value; 300,000,000 shares authorized; 83,023,048 shares issued and outstanding as of June 30, 2020 and 41,436,033 shares issued and outstanding as of September 30, 2019 | 83,023 | 395,779 | ||||||
| Treasury Stock | (1,001 | ) | ||||||
| Additional paid-in capital | 14,286,471 | 8,312,785 | ||||||
| Accumulated deficit | (6,636,626 | ) | (7,188,090 | ) | ||||
| Total stockholders’ equity | 7,732,868 | 1,519,473 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 10,217,735 | $ | 2,899,143 | ||||
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FINANCIAL GRAVITY COMPANIES, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2019
| Income | ||||
| Service Income | $ | 2,194,265 | ||
| Investment Management Fees | 1,779,117 | |||
| Total Income | 7,635,879 | |||
| Gross Profit | 7,635,879 | |||
| Expense | ||||
| Compensation Expense | 5,626,092 | |||
| Cost of services | 54,927 | |||
| Depreciation & Amortization | 198,193 | |||
| General and Administrative | 1,759,285 | |||
| Marketing | 281,070 | |||
| Professional Services | 156,546 | |||
| Total Expense | 8,076,113 | |||
| Net Ordinary Income | (440,234 | ) | ||
| Other Expense | ||||
| Interest Expense | 145,623 | |||
| Income Taxes | 893 | |||
| Other Expense | 2,484 | |||
| Total Other Expense | 149,000 | |||
| Net Other Income | (149,000 | ) | ||
| Net Income | $ | (589,234 | ) |
Derived from the audited statements of Financial Gravity and Forta
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FINANCIAL GRAVITY COMPANIES, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 2020
Forta (A) |
Financial Gravity (B) |
Combined | ||||||||||
| Income | ||||||||||||
| Investment Management Fees | $ | 3,108,246 | $ | 859,754 | $ | 859,754 | ||||||
| Service Income | – | 979,959 | 4,088,206 | |||||||||
| Total Revenue | 3,108,246 | – | 4,927,760 | |||||||||
| Gross Profit | 3,108,246 | – | 4,927,760 | |||||||||
| Expense | ||||||||||||
| Compensation Expense | 1,695,484 | 1,752,987 | 3,448,472 | |||||||||
| Cost of services | 139,847 | 33,309 | 173,157 | |||||||||
| Depreciation & Amortization | 4,900 | 86,443 | 91,344 | |||||||||
| General and Administrative | 906,878 | 265,749 | 1,172,628 | |||||||||
| Marketing | 89,168 | 84,036 | 173,205 | |||||||||
| Professional Services | 237,364 | 216,709 | 454,074 | |||||||||
| Total Expense | 3,073,644 | 2,439,233 | 5,512,879 | |||||||||
| Net Ordinary Income | 34,601 | (599,521 | ) | (564,920 | ) | |||||||
| Other Income/Expense | – | 135,919 | 135,919 | |||||||||
| Total Other Income | – | 135,919 | 135,919 | |||||||||
| Total Other Expense | – | 5,030 | – | |||||||||
| Net Other Income | – | – | 130,889 | |||||||||
| Net Income | $ | 34,601 | $ | (468,632 | ) | $ | (434,031 | ) | ||||
| Net income (loss) per common share: | $ | 0 | $ | 0 | $ | 0 | ||||||
| A | Derived from the unaudited statement of operations of Forta for the nine months ended June 30, 2020 |
| B | Derived from the unaudited statement of operations of the Company for the nine months ended June 30, 2020 |
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