Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933
FINANCIAL GRAVITY COMPANIES, INC.
(Exact name of registrant
as specified in its charter)
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Nevada
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8742
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20-4057712
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(State of Incorporation)
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(Primary Standard
Industrial Classification Number)
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(IRS Employer
Identification Number)
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800 N. Watters Road
Suite 120
Allen, Texas 75013
469-342-9100
(Address, including zip code, and telephone
number, including area code,
of registrant's principal executive offices)
Please send copies of all communications
to:
BRUNSON CHANDLER & JONES, PLLC
175 South Main Street, Suite 1410
Salt Lake City, Utah 84111
801-303-5730
(Address, including zip code, and telephone,
including area code)
Approximate date of proposed sale to the
public:
From time to time after the effective date of this registration statement.
If any of the securities being registered
on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the
following box.
x
If this Form is filed to register additional
securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration statement for the same offering.
¨
If this Form is a post-effective amendment
filed pursuant to rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same offering.
¨
If this Form is a post-effective amendment
filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same offering.
¨
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. (Check one):
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Large accelerated filer
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o
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Accelerated filer
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o
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Non-accelerated filer
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o
(Do not check if a smaller reporting company)
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Smaller reporting company
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x
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Emerging growth company
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o
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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 7(a)(2)(B) of the Securities Act.
o
CALCULATION OF REGISTRATION FEE
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Title of Each Class of
securities to be registered
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Amount of
shares of
common stock
to be
registered
(1)
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Proposed
Maximum
Offering
Price Per
Share (2)
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Proposed
Maximum
Aggregate
Offering
Price
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Amount of
Registration
Fee (3)
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Common Stock
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6,000,000
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$0.80
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$4,800,000
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$556.32
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(1)
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In accordance with Rule 416(a),
this registration statement shall also cover an indeterminate number of shares that may be issued and resold resulting from
stock splits, stock dividends or similar transactions.
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(2)
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Based on the lowest traded price
of the Company’s common stock during the ten consecutive trading day period immediately preceding the filing of this
Registration Statement of $0.80. The shares offered hereunder may be sold by the selling stockholder from time to time in
the open market, through privately negotiated transactions, via a combination of these methods at market prices prevailing
at the time of sale, or at negotiated prices.
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(3)
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The fee is calculated by multiplying the aggregate offering amount by
.0001159, pursuant to Section 6(b) of the Securities Act of 1933.
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We hereby amend this registration
statement on such date or dates as may be necessary to delay our effective date until the registrant shall file a further amendment
which specifically states that this registration statement shall, thereafter, become effective in accordance with Section 8(a)
of the Securities Act of 1933, or until the registration statement shall become effective on such date as the Commission, acting
pursuant to Section 8(a) may determine.
PRELIMINARY
PROSPECTUS SUBJECT TO COMPLETION DATED SEPTEMBER ____, 2017
The information
in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed
with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities
and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted
Financial Gravity Companies, Inc.
6,000,000 Common Shares
The selling stockholder identified in this
prospectus may offer an indeterminate number of shares of the Company’s common stock, which will consist of up to 6,000,000
shares of common stock to be sold by the selling stockholder, GHS Investments LLC (“GHS”), pursuant to an Equity Financing
Agreement (the “Financing Agreement”) dated May 23, 2017. If issued presently, the 6,000,000 shares of common stock
registered for resale by GHS would represent 16.84% of the Company’s issued and outstanding shares of common stock as of
August 17, 2017.
The selling stockholder may sell all or
a portion of the shares being offered pursuant to this prospectus at fixed prices and prevailing market prices at the time of sale,
at varying prices, or at negotiated prices.
We will not receive any proceeds from the
sale of the shares of our common stock by GHS. However, we will receive proceeds from our initial sale of shares to GHS pursuant
to the Financing Agreement. We will sell shares of our common stock to GHS at a price equal to 80% of the average of the lowest
two (2) trading prices of our common stock during the ten (10) consecutive trading day period beginning on the date on which we
deliver a put notice to GHS (the “Market Price”).
GHS is an underwriter within the meaning
of the Securities Act of 1933, and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters”
within the meaning of the Securities Act of 1933 in connection with such sales. In such event, any commissions received by such
broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions
or discounts under the Securities Act of 1933.
Our common stock is traded on OTC Markets
under the symbol “FGCO”. On August 2, 2017, the last reported sale price for our common stock was $0.80 per share.
Prior to this offering, there has been
a very limited market for our securities. While our common stock is quoted on the OTC Markets, there has been negligible trading
volume. There is no guarantee that an active trading market for our common stock will develop.
This offering is highly speculative
and these securities involve a high degree of risk and should be considered only by persons who can afford the loss of their entire
investment. See “Risk Factors” beginning on page 5. Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
The date of this prospectus is September __, 2017.
Table of Contents
The following table of contents has been
designed to help you find information contained in this prospectus. We encourage you to read the entire prospectus.
We have not authorized any person to give you any supplemental
information or to make any representations for us. You should not rely upon any information about our company that is not contained
in this prospectus. Information contained in this prospectus may become stale. You should not assume the information contained
in this prospectus or any prospectus supplement is accurate as of any date other than their respective dates, regardless of the
time of delivery of this prospectus, any prospectus supplement or of any sale of the shares. Our business, financial condition,
results of operations, and prospects may have changed since those dates. The selling stockholder is offering to sell and is seeking
offers to buy shares of our common stock, only in jurisdictions where offers and sales are permitted.
In this prospectus, “Financial Gravity”
the “Company,” “we,” “us,” and “our” refer to Financial Gravity Companies, Inc.,
a Nevada corporation.
SUMMARY INFORMATION
You should carefully read all information
in the prospectus, including the financial statements and their explanatory notes under the Financial Statements section of this
prospectus prior to making an investment decision.
Company Organization
Financial Gravity Companies, Inc. 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
120, Allen, Texas 75013. The Company’s telephone number is 469-342-9100. The Company’s stock symbol is FGCO.
Our Business
The Company was incorporated in Nevada
on December 5, 2005 as Kat Racing, Inc. On January 4, 2013, the Articles of Incorporation were amended to change the name of the
Company to Prairie West Oil & Gas, Ltd. On July 26, 2013, the Articles of Incorporation were amended to change the name of
the Company to Pacific Oil Company. On October 31, 2016, following a reverse merger transaction (the “Merger”), the
Articles of Incorporation were amended to change the name of the Company to Financial Gravity Companies, Inc.
The accounting acquirer (legal acquiree)
in the Merger, Financial Gravity Holdings, Inc. (“Financial Gravity Holdings”), was incorporated in Texas on September
29, 2014. On the effective date of the Merger, the business of Financial Gravity Holdings became the only business of Pacific Oil
Company (currently named Financial Gravity Companies, Inc.).
Also pursuant to the Merger, each of the
shares of Financial Gravity Holdings common stock issued and outstanding prior to the Merger was automatically converted into and
exchangeable for an equivalent number of fully paid and non-assessable shares of Company common stock.
The accounting acquirer (legal acquiree)
in the reverse merger transaction, Financial Gravity Holdings, is now a subsidiary of the Company. Business Legacy, Inc., founded
in 2002, and Pollock Advisory Group, founded in 2007, were added on September 29, 2014, as subsidiaries. During fiscal year 2015,
the Company acquired as additional subsidiaries, Cloud9b2b, LLC and SASH Corporation (dba Metro Data Processing). During fiscal
year 2016, the Company acquired an additional subsidiary, Tax Coach Software, LLC. The Company and its subsidiaries deliver a wide
range of accounting, tax planning and management services to high net worth individuals and businesses nationwide.
Organic growth has come in four key areas.
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Tax Services, including Tax Blueprints and ongoing Tax Operating system services
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Wealth Management Services
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Other Products and Services (Insurance and other miscellaneous products and services).
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All future growth is expected to come from
these four key areas, as well as through organic growth, acquisitions, and strategic alliances.
Products and Services
The following outline briefly describes Financial Gravity’s
various subsidiaries and the products and services they offer:
Financial Gravity Operations,
Inc.
- Financial Gravity Operations manages operational expenses for the shared services of the subsidiaries.
Financial Gravity Tax, Inc. formerly
Business Legacy, Inc.
- Financial Gravity Tax is a bookkeeping, tax planning and payroll service provider for small
companies and individuals.
Financial Gravity Wealth, Inc. formerly
Pollock Advisory Group, Inc.
- Financial Gravity Wealth is a registered investment advisor and provides asset management
services.
Financial Gravity Business, LLC formerly
Cloud9b2b, LLC
- Financial Gravity Business provides business consulting services to Small Business Owners that identify
way to leverage a business’ current assets (people, platforms and processes) and reduce exposure to risk, both short-term
and long-term, while simplifying the business and increasing profitability.
Financial Gravity Ventures, LLC
formerly Cloud9Accelerator, LLC
- Financial Gravity Ventures holds acquired companies and business assets until they are
integrated into the main stream Financial Gravity business structure.
Sash Corporation dba Metro Data
Processing
- Metro Data Processing provides payroll services, software and support solutions to business owners.
Tax Coach Software, LLC
- Tax
Coach Software provides three primary services including monthly subscriptions to the “TaxCoach” software system, coaching
and email marketing services.
GHS Equity Financing Agreement and Registration
Rights Agreement
Summary of the Offering
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Shares currently outstanding:
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35,637,900
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Shares being offered:
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6,000,000
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Offering Price per share:
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The selling stockholder may sell all or a portion of the shares being offered pursuant to this prospectus at fixed prices, at prevailing market prices at the time of sale, at varying prices, or at negotiated prices.
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Use of Proceeds:
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The Company will not receive any proceeds from the sale of the shares of our common stock by the selling stockholder. However, we will receive proceeds from our initial sale of shares to GHS, pursuant to the Financing Agreement. The proceeds from the initial sale of shares will be used for the purpose of working capital and for potential acquisitions.
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OTC Markets Symbol:
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FGCO
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Risk Factors:
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See “Risk Factors” beginning on page 5 and the other information in this prospectus for a discussion of the factors you should consider before deciding to invest in shares of our common stock.
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Financial Summary
The tables and information below are
derived from our consolidated financial statements for the nine months ended June 30, 2017 and the audited consolidated
financial statements for the 12 months ended September 30, 2016. Our total stockholders’ equity as of June 30, 2017 was
$2,065,589. Our total stockholder’s equity as of September 30, 2016 was $1,724,436. As of June 30, 2017, we had cash on
hand of $154,468.
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June 30,
2017
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September 30,
2016
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Cash
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$
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154,468
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$
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132,803
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Total Assets
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$
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2,135,384
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$
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2,100,243
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Total Liabilities
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$
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395,086
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$
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375,807
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Total Stockholder’s Equity (Deficit)
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$
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1,740,298
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$
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1,724,436
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Statement of Operations
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Nine Months Ended
June 30,
2017
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Year Ended
September 30,
2016
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Revenue
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$
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2,560,113
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$
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2,756,999
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Total Expenses
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$
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3,238,229
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$
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4,883,663
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Net Loss for the Period
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$
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(720,502
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$
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(2,135,139
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Net Loss per Share
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$
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(0.02
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$
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(0.07
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Special
Information Regarding Forward-Looking Statements
Some of the statements in this prospectus
are “forward-looking statements.” These forward-looking statements involve certain known and unknown risks, uncertainties
and other factors which may cause our actual results, performance or achievements to be materially different from any future results,
performance or achievements expressed or implied by these forward-looking statements. These factors include, among others, the
factors set forth herein under “Risk Factors.” The words “believe,” “expect,” “anticipate,”
“intend,” “plan,” and similar expressions identify forward-looking statements. We caution you not to place
undue reliance on these forward-looking statements. We undertake no obligation to update and revise any forward-looking statements
or to publicly announce the result of any revisions to any of the forward-looking statements in this document to reflect any future
or developments.
RISK FACTORS
This investment has a high degree of
risk. Before you invest you should carefully consider the risks and uncertainties described below and the other information in
this prospectus. If any of the following risks actually occur, our business, operating results and financial condition could be
harmed and the value of our stock could go down. This means you could lose all or a part of your investment.
Risks Related to our Company
Our limited operating history may
not serve as an adequate basis to judge our future prospects and results of operations.
Financial Gravity has a relatively limited
operating history. Our limited operating history and the unpredictability of the wealth management industry make it difficult for
investors to evaluate our business. An investor in our securities must consider the risks, uncertainties and difficulties frequently
encountered by companies in rapidly evolving markets.
We will need
additional financing to implement our 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.
In particular, the Company will need additional financing to:
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Effectuate its business plan and further develop its product and service lines;
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Expand its facilities, human resources, and infrastructure; and
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Increase its marketing efforts and lead generation.
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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.
Our 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.
We may continue
to encounter substantial competition in our 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:
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lead generation and marketing costs;
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service delivery protocols;
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branded name advertising; and
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product and service pricing.
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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.
We may not
successfully manage our growth
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Our success will
depend upon the expansion of our operations and the effective management of our growth, which will place a significant strain on
our management and on our administrative, operational and financial resources. To manage this growth, we must expand our facilities,
augment our operational, financial and management systems, and hire and train additional qualified personnel. If we are unable
to manage our growth effectively, our business would be harmed.
We rely on key executive officers,
and their knowledge of our business and technical expertise would be difficult to replace.
We are highly dependent on our 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 we may not be able
to retain the services of our 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.
We may never pay dividends to our
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.
Our common stock is quoted through
the OTC Markets, which may have an unfavorable impact on our 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.
Our common
stock is subject to price volatility unrelated to our 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.
Our 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.
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.
Because we may never earn revenues from
our operations, our business may fail and investors may lose all of their investment in our company.
In addition to other information in this
current report, the following risk factors should be carefully considered in evaluating our business because such factors may have
a significant impact on our business, operating results, liquidity and financial condition. As a result of the risk
factors set forth below, actual results could differ materially from those projected in any forward-looking statements. Additional
risks and uncertainties not presently known to us, or that we currently consider to be immaterial, may also impact our business,
operating results, liquidity and financial condition. If any such risks occur, our business, operating results, liquidity,
and financial condition could be materially affected in an adverse manner. Under such circumstances, the trading price of our securities
could decline, and you may lose all or part of your investment.
We have limited revenues from
operations. We have yet to generate positive earnings and there can be no assurance we will ever operate
profitably. Our company has a limited operating history and has yet to launch its first commercial product. The
success of our company is significantly dependent on uncertain events, with respect to supply chain, system development, and
operation of the system on the scale we currently envision. If our business plan is not successful and we are not able to
operate profitably, our stock may become worthless and investors may lose all of their investment in our
Company. Should any of the following material risks occur, our business may experience catastrophic and
unrecoverable losses, as said risks may harm our current business operations, as well as any future results of operations,
resulting in the trading price of our common stock declining and a partial or complete loss of your
investment. It is important to note these risks are not the only ones we face. Additional risks not
presently known or that we currently consider to be immaterial may also impair our business operations and trading price of
our common stock.
We may not achieve profitability
or positive cash flow.
Our ability to achieve and maintain profitability
and positive cash flow will be dependent upon such factors as our ability to deliver quality risk management and custom app development
services. Based upon current plans, we expect to incur operating losses in future periods because we expect to incur expenses that
will exceed revenues for an unknown period of time. We cannot guarantee that we will be successful in generating sufficient revenues
to support operations in the future.
We have limited operating capital
and we may have to seek additional financing.
If we are unable to fund our operations
and, therefore, not be able to sustain future operations or support the manufacturing of additional systems, we may be required
to delay, reduce and/or cease our operations and/or seek bankruptcy protection.
We cannot assure anyone with any
degree of certainty that any necessary additional financing will be available on terms favorable to us, now or at any point
in the future. It may be a significant challenge to raise additional funds and there can be no assurance as to the
availability of additional financing or the terms upon which additional financing may be available. Even if we raise
sufficient capital through additional equity or debt financings, strategic alternatives or otherwise, there can be no
assurance the revenue or capital infusion will be sufficient to enable us to develop our business to a level where it will be
profitable or generate positive cash flow.
If we raise additional funds through the
issuance of equity or convertible debt securities, the percentage ownership of our stockholders could be significantly diluted,
and these newly issued securities may have rights, preferences or privileges senior to those of existing stockholders; and if we
incur additional debt, a substantial portion of our operating cash flow may be dedicated to the payment of principal and interest
on such indebtedness, thus limiting funds available for our business activities. The terms of any debt securities issued could
also impose significant restrictions on our operations.
If we and
our suppliers cannot obtain financing under favorable terms, and our clients are not able
to receive the requisite guarantees for payment to us, our business may be negatively impacted.
Markets for stock are highly volatile.
As a result of market volatility
in the U.S. and in international stock markets since 2008, a high degree of uncertainty
has been seen in the markets,
which may result in an increase in the return required by investors, with
respect to their expectations for the financing of our projects. Current and ongoing global conditions could lead to an
extended recession in the U.S. and around the world. We currently have no revenue producing assets, which may have
a materially adverse impact on our business and financial conditions and results, which places our investors at risk.
Capital and credit markets continue to
be unpredictable and the availability of funds from those markets is extremely uncertain. Further, arising from concerns
about the stability of financial markets generally and the solvency of borrowers specifically, the cost of accessing the credit
markets has increased as many lenders have raised interest rates, enacted tighter lending standards or altogether ceased to provide
funding to borrowers. Due to these capital and credit market conditions, we cannot be certain that funding will be available to
us in amounts or on terms that we believe are acceptable.
The market price of our common stock may
be adversely affected by market conditions affecting the stock markets in general, including price and trading fluctuations on
OTC Markets. Market conditions may result in volatility in the level of, and fluctuations in, the market prices of stocks
generally and, in turn, our common stock and sales of substantial amounts of our common stock in the market, in each case being
unrelated or disproportionate to changes in our operating performance.
The overall weakness in the economy has
recently contributed to the extreme volatility of the markets which may have an effect on the market price of our common stock.
Our stock price has been and could remain volatile, which could further adversely affect the market price of our stock, our ability
to raise additional capital and/or cause us to be subject to securities class action litigation.
We may also be subject to additional securities
class action litigation as a result of volatility in the price of our common stock, which could result in substantial costs and
a significant diversion of management’s time and attention and intellectual and capital resources and could harm our stock
price, business, prospects, and results of operations.
Sales of a significant number of shares
of our common stock could depress the market price of our common stock, which could happen in the public market at any time. These
sales, or the market perception that the holders of a large number of shares intend to sell shares, could reduce the market price
of our common stock. Should industry analysts choose not to publish or any time discontinue reporting on us, our business or our
market, or if they change their recommendations regarding our stock adversely, our stock price and trading volume could decline. Also,
the trading market for our common stock will be influenced by the research and reports that industry or securities analysts may
publish about us, our business, our market or our competitors. If any of the analysts who may cover us change their recommendation
regarding our stock adversely, or provide more favorable relative recommendations about our competitors, our stock price would
likely decline.
We may become subject to litigation.
There is the potential that we could be
party to disputes for which an adverse outcome could result in us incurring significant expenses, being liable for damages, and
subject to indemnification claims. In connection with any disputes or litigation in which we are involved, we may be forced
to incur costs and expenses in connection with defending ourselves or in connection with the payment of any settlement or judgment
or compliance with any injunctions in connection, therewith, if there is an unfavorable outcome. The expense of defending
litigation may be significant, as is the amount of time to resolve lawsuits unpredictable and defending ourselves may divert management’s
attention from the day-to-day operations of our business, which could adversely affect our business, results of operations, financial
condition, and cash flows. Additionally, an unfavorable outcome in any such litigation could have a material adverse
effect on our business, results of operations, financial condition and cash flows.
Product liability or defects could also
negatively impact our results of operations. The risk of product liability claims and associated adverse publicity is
possible in the development, manufacturing, marketing, and sale of our product offerings. Any liability for damages
resulting from malfunctions or design defects could be substantial and could materially adversely affect our business, financial
condition, results of operations and prospects.
Also, a highly-publicized problem, whether
actual or perceived, could adversely affect the market’s perception of our product, resulting in a decline in demand for
our product and could divert the attention of our management, having a materially adverse effect our business, financial condition,
results of operations and prospects.
Our success depends on attracting
and retaining key personnel.
Our future plans could be harmed if we
are unable to attract or retain key personnel, and our future success will depend, in part, on our ability to attract and retain
qualified management and technical personnel. Equally, our success depends on the ability of our management and employees
to interpret market data correctly and to interpret and respond to economic market and other conditions in order to locate and
adopt appropriate investment opportunities, monitor such investments, and ultimately, if required, to successfully divest such
investments. Further, no assurance can be given that our key personnel will continue their association or employment
with us or that replacement personnel with comparable skills can be found. We have sought to and will continue to ensure that management
and any key employees are appropriately compensated, however, their services cannot be guaranteed. If we are unable to attract
and retain key personnel, our business may be adversely affected.
We do not know whether we will be successful
in hiring or retaining qualified personnel, and our inability to hire qualified personnel on a timely basis, or the departure of
key employees, could materially and adversely affect our development and profitable commercialization plans, our business prospects,
results of operations, and financial condition.
Should we fail to maintain an
effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud, which
could harm our brand and operating results. Our compliance with the annual internal control report requirement for each
fiscal year will depend on the effectiveness of our financial reporting and data systems and controls. Inferior
internal controls could cause investors to lose confidence in our reported financial information, which could have a negative
effect on the trading price of our stock and our access to capital. In addition, our internal control systems rely on people
trained in the execution of the controls. Loss of these people or our inability to replace them with similarly skilled and
trained individuals or new processes in a timely manner could adversely impact our internal control mechanisms.
The requirements of being a public company
may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members
and officers. Compliance with these rules and regulations increase our legal and financial compliance costs, make some
activities more difficult, time-consuming or costly and increase demand on our systems and resources.
Protecting our intellectual property
is necessary to protect our brand.
We may not be able to protect important
intellectual property and we could incur substantial costs defending against claims that our products infringe on the proprietary
rights of others. Our ability to compete effectively will depend, in part, on our ability to protect our proprietary
system-level technologies, systems designs, and manufacturing processes.
We will rely on patents, trademarks,
and other policies and procedures related to confidentiality to protect our intellectual property. However, some of our
intellectual property is not covered by any patent or patent application. We could incur substantial costs in prosecuting or
defending patent infringement suits or otherwise protecting our intellectual property rights. While we have attempted to
safeguard and maintain our proprietary rights, we do not know whether we have been or will be completely successful in doing
so. Moreover, patent applications and enforcement, thereof, filed in foreign countries may be subject to laws, rules and
procedures that are substantially different from those of the United States, and any resulting foreign patents may be
difficult and expensive to enforce. We could incur substantial costs in prosecuting or defending trademark
infringement suits.
Further, our competitors may independently
develop or patent technologies or processes that are substantially equivalent or superior to ours. In the event we are
found to be infringing third party patents, we could be required to pay substantial royalties and/or damages, and we do not know
whether we will be able to obtain licenses to use such patents on acceptable terms, if at all.
Failure to obtain needed licenses could
delay or prevent the development, manufacture, or sale of our products, and could necessitate the expenditure of significant resources
to develop or acquire non-infringing intellectual property.
Asserting, defending and maintaining
our intellectual property rights could be difficult and costly and failure to do so may diminish our ability to compete
effectively and may harm our operating results. As a result, we may need to pursue legal action in the future to enforce our
intellectual property rights, to protect our trade secrets and domain names, and to determine the validity and scope of the
proprietary rights of others. If third parties prepare and file applications for trademarks used or registered by
us, we may oppose those applications and be required to participate in proceedings to determine the priority of rights to the
trademark.
Similarly, competitors may have filed applications
for patents, may have received patents and may obtain additional patents and proprietary rights relating to products or technology
that block or compete with ours. We may have to participate in interference proceedings to determine the priority of
invention and the right to a patent for the technology.
Confidentiality agreements to which we
are party may be breached, and we may not have adequate remedies for any breach. Also, our trade secrets may also be
known without breach of such agreements or may be independently developed by competitors. Inability to maintain the
proprietary nature of our technology and processes could allow our competitors to limit or eliminate any competitive advantages
we may have.
As part of our business strategy, we intend
to consider acquisitions of companies, technologies and products that we believe could improve our ability to compete in our core
markets or allow us to enter new markets. Acquisitions, involve numerous risks, any of which could harm our business,
including, difficulty in integrating the technologies, products, operations and existing contracts of a target company and realizing
the anticipated benefits of the combined businesses; difficulty in supporting and transitioning customers, if any, of the target
company; inability to achieve anticipated synergies or increase the revenue and profit of the acquired business; potential disruption
of our ongoing business and distraction of management; the price we pay or other resources that we devote may exceed the value
we realize; or the value we could have realized if we had allocated the purchase price or other resources to another opportunity
and inability to generate sufficient revenue to offset acquisition costs.
If we finance acquisitions by issuing equity
securities, our existing stockholders may be diluted; and as a result, if we fail to properly evaluate acquisitions or investments,
we may not achieve the anticipated benefits of any such acquisitions, and we may incur costs in excess of what we anticipate.
Risks associated with our Common
Stock
If we issue additional shares in
the future our existing shareholders will experience dilution.
Our certificate of incorporation authorizes
the issuance of up to 300,000,000 shares of common stock with a par value of $0.001. Our board of directors may choose to issue
some or all of such shares to acquire one or more businesses or to provide additional financing in the future. The issuance of
any such shares will result in a reduction of the book value and market price of the outstanding shares of our common stock. If
we issue any such additional shares, such issuance will cause a reduction in the proportionate ownership and voting power of all
current shareholders. Further, such issuance may result in a change of control of our corporation.
Trading on the OTC Markets may be
volatile and sporadic, which could depress the market price of our common stock and make it difficult for our stockholders to
resell their shares.
Our common stock is quoted on OTC Markets.
Trading in stock quoted on OTC Markets is often thin and characterized by wide fluctuations in trading prices due to many factors
that may have little to do with our operations or business prospects. This volatility could depress the market price of our common
stock for reasons unrelated to operating performance. Moreover, OTC Markets is not a stock exchange, and trading of securities
on the OTC Markets is often more sporadic than the trading of securities listed on a quotation system like NASDAQ or a stock
exchange like the American Stock Exchange. Accordingly, our shareholders may have difficulty reselling any of their shares.
Our stock is a penny stock. Trading
of our stock may be restricted by the SEC’s penny stock regulations and FINRA’s sales practice requirements, which
may limit a stockholder's ability to buy and sell our stock.
Our stock is a penny stock. The Securities
and Exchange Commission has adopted Rule 15g-9 which generally defines “penny stock” to be any equity security that has
a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions.
Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who
sell to persons other than established customers and “accredited investors”. The term “accredited investor”
refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or
annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to
a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form
prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market.
The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of
the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny
stock held in the customer's account. The bid and offer quotations, and the broker-dealer and salesperson compensation information,
must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing
before or with the customer's confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock
not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable
investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may
have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny
stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe
the penny stock rules discourage investor interest in, and limit the marketability of, our common stock.
FINRA sales practice requirements may also limit a stockholder's
ability to buy and sell our stock.
In addition to the “penny stock”
rules promulgated by the Securities and Exchange Commission (see above for a discussion of penny stock rules), FINRA rules require
that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment
is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers
must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and
other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced
securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend
that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on
the market for our shares.
Risks Related to the Offering
Our existing stockholders may experience
significant dilution from the sale of our common stock pursuant to the GHS Financing Agreement.
The sale of our common stock to GHS Investments
LLC in accordance with the Financing Agreement may have a dilutive impact on our shareholders. As a result, the market price of
our common stock could decline. In addition, the lower our stock price is at the time we exercise our put options, the more shares
of our common stock we will have to issue to GHS in order to exercise a put under the Financing Agreement. If our stock price decreases,
then our existing shareholders would experience greater dilution for any given dollar amount raised through the offering.
The perceived risk of dilution may cause
our stockholders to sell their shares, which may cause a decline in the price of our common stock. Moreover, the perceived risk
of dilution and the resulting downward pressure on our stock price could encourage investors to engage in short sales of our common
stock. By increasing the number of shares offered for sale, material amounts of short selling could further contribute to progressive
price declines in our common stock. GHS is not permitted to engage in short sales involving our common stock, or to engage in other
activities that could manipulate the market for our common stock, during the period commencing May 23, 2017 and continuing through
the termination of the Financing Agreement.
The issuance of shares pursuant
to the GHS Financing Agreement may have a significant dilutive effect.
The number of shares we issue pursuant
to the GHS Financing Agreement could have a significant dilutive effect upon our existing shareholders. Although the number of
shares that we may issue pursuant to the Financing Agreement will vary based on our stock price (the higher our stock price, the
fewer shares we have to issue), there may be a potential dilutive effect to our shareholders, based on different potential future
stock prices, if the full amount of the Financing Agreement is realized. Dilution is impacted by the number of shares of common
stock put to GHS, and the stock price which GHS is bound to pay for such shares, which is discounted to reflect a purchase price
of 80% of the average of the lowest two (2) trading prices during the pricing period.
GHS Investments LLC will pay less
than the then-prevailing market price of our common stock which could cause the price of our common stock to decline.
Our common stock to be issued under the
GHS Financing Agreement will be purchased at a twenty percent (20%) discount. Stated more precisely, GHS will pay eighty percent
(80%) of the average of the lowest two (2) trading prices during the ten consecutive trading days immediately preceding each notice
to GHS of an election to exercise our "put" right.
GHS has a financial incentive to sell our
shares immediately upon receiving them, to realize the profit between the discounted price and the then-current market price. If
GHS sells our shares, the price of our common stock may decrease. If our stock price decreases, GHS may have further incentive
to sell such shares to maximize its proceeds of sale. Accordingly, the discounted sales price in the Financing Agreement may cause
the price of our common stock to decline.
We may not have access to the full
amount under the Financing Agreement.
On August 2, 2017, the lowest traded price
of the Company’s common stock during the ten consecutive trading day period immediately preceding the filing of this Registration
Statement was $0.80. At that price, we would be able to sell shares to GHS under the Financing Agreement at the discounted price
of $0.64. At that discounted price, the 6,000,000 shares registered for issuance to GHS under the Financing Agreement would, if
sold by us to GHS, result in aggregate proceeds to the Company of $4,800,000. There is no assurance the price of our common stock
will remain the same as the current market price, or increase.
Unless an active trading market
develops for our securities, investors may not be able to sell their shares.
We are a reporting company and our common
shares are quoted on OTC Markets (OTC Pink) under the symbol “FGCO”. However, there is not currently an active trading
market for our common stock; and an active trading market may never develop or, if it does develop, may not be maintained. Failure
to develop or maintain an active trading market will have a generally negative effect on the price of our common stock, and you
may be unable to sell your common stock or any attempted sale of such common stock may have the effect of lowering the market price,
and therefore, your investment may be partially or completely lost.
Since our common stock is thinly
traded it is more susceptible to extreme rises or declines in price, and you may not be able to sell your shares at or above the
price paid.
Since our common stock is thinly traded
its trading price is likely to be highly volatile and could be subject to extreme fluctuations in response to various factors,
many of which are beyond our control, including (but not necessarily limited to):
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the trading volume of our shares;
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the number of securities analysts, market-makers and brokers following our common stock;
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new products or services introduced or announced by us or our competitors;
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actual or anticipated variations in quarterly operating results;
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conditions or trends in our business industries;
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announcements by us of significant contracts, acquisitions, strategic partnerships, joint ventures
or capital commitments;
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additions or departures of key personnel;
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sales of our common stock; and
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general stock market price and volume fluctuations of publicly-traded, and particularly microcap,
companies.
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Investors may have difficulty reselling
shares of our common stock, either at or above the price they paid for our stock, or even at fair market value. The stock markets
often experience significant price and volume changes that are not related to the operating performance of individual companies,
and because our common stock is thinly traded it is particularly susceptible to such changes. These broad market changes may cause
the market price of our common stock to decline regardless of how well we perform as a company. In addition, there is a history
of securities class action litigation following periods of volatility in the market price of a company’s securities. Although
there is no such litigation currently pending or threatened against us, such a suit against us could result in the incursion of
substantial legal fees, potential liabilities and the diversion of management’s attention and resources from our business.
Moreover, and as noted below, our shares are currently traded on the OTC Link (OTC Pink tier) and, further, are subject to the
penny stock regulations. Price fluctuations in such shares are particularly volatile and subject to potential manipulation by market-makers,
short-sellers and option traders.
USE OF PROCEEDS
The Company will use the proceeds from
the sale of the shares of common stock sold to GHS, for general corporate and working capital purposes, acquisitions of assets,
businesses or operations, or for other purposes that the Board of Directors, in good faith, deems to be in the best interest of
the Company.
DETERMINATION OF OFFERING PRICE
We have not set an offering price for the
shares registered hereunder, as the only shares being registered are those sold pursuant to the GHS Financing Agreement. GHS may
sell all or a portion of the shares being offered pursuant to this prospectus at fixed prices, at prevailing market prices at the
time of sale, at varying prices, or at negotiated prices.
DILUTION
Not applicable. The shares registered under
this registration statement are not being offered for purchase. The shares are being registered on behalf of the selling shareholder
pursuant to the GHS Financing Agreement.
SELLING SECURITY HOLDER
The selling stockholder identified in this
prospectus may offer and sell up to 6,000,000 shares of our common stock, which consists of shares of common stock to be initially
purchased by GHS pursuant to the Financing Agreement. If issued presently, the shares of common stock registered for resale by
GHS would represent 16.84% of our issued and outstanding shares of common stock as of August 17, 2017.
We may require the selling stockholder
to suspend the sales of the shares of our common stock being offered pursuant to this prospectus upon the occurrence of any event
that makes any statement in this prospectus or the related registration statement untrue in any material respect or that requires
the changing of statements in those documents in order to make statements in those documents not misleading.
The selling stockholder identified in
the table below may from time to time offer and sell under this prospectus any or all of the shares of common stock described
under the column “Shares of Common Stock Being Offered” in the table below.
GHS will be deemed to be an underwriter
within the meaning of the Securities Act. Any profits realized by the selling stockholder may be deemed to be underwriting commissions.
Information
concerning the selling stockholder may change from time to time and, if necessary, we will amend or supplement this prospectus
accordingly. We cannot give an estimate as to the number of shares of common stock that will actually be held by the selling stockholder
upon termination of this offering, because the selling stockholder may offer some or all of the common stock under the offering
contemplated by this prospectus or acquire additional shares of common stock. The total number of shares that may be sold hereunder
will not exceed the number of shares offered hereby. Please read the section entitled “Plan of Distribution” in this
prospectus.
The manner in which the selling stockholder
acquired or will acquire shares of our common stock is discussed below under “The Offering.”
The following table sets forth the name
of the selling stockholder, the number of shares of our common stock beneficially owned by such stockholder before this offering,
the number of shares to be offered for such stockholder’s account and the number and (if one percent or more) the percentage
of the class to be beneficially owned by such stockholder after completion of the offering. The number of shares owned are those
beneficially owned, as determined under the rules of the SEC, and such information is not necessarily indicative of beneficial
ownership for any other purpose. Under such rules, beneficial ownership includes any shares of our common stock as to which a person
has sole or shared voting power or investment power and any shares of common stock which the person has the right to acquire within
60 days of August 17, 2017, through the exercise of any option, warrant or right, through conversion of any security or pursuant
to the automatic termination of a power of attorney or revocation of a trust, discretionary account or similar arrangement, and
such shares are deemed to be beneficially owned and outstanding for computing the share ownership and percentage of the person
holding such options, warrants or other rights, but are not deemed outstanding for computing the percentage of any other person.
Beneficial ownership percentages are calculated based on 35,637,900 shares of our common stock outstanding as of August 17, 2017.
Unless otherwise set forth below, (a) the
persons and entities named in the table have sole voting and sole investment power with respect to the shares set forth opposite
the selling stockholder’s name, subject to community property laws, where applicable, and (b) no selling stockholder had
any position, office or other material relationship within the past three years, with us or with any of our predecessors or affiliates.
The number of shares of common stock shown as beneficially owned before the offering is based on information furnished to us or
otherwise based on information available to us at the timing of the filing of the registration statement of which this prospectus
forms a part.
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Shares Owned by the Selling Stockholder before the
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Shares of Common Stock Being
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Number of Shares to be Owned by Selling Stockholder After
the Offering and Percent of Total Issued and Outstanding Shares
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Name of Selling Stockholder
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Offering (1)
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Offered
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# of Shares(2)
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% of Class (2)
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GHS Investments LLC (3)
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0
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6,000,000 (4)
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0
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0%
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Notes:
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(1)
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Beneficial ownership is determined in accordance with Securities and Exchange Commission rules
and generally includes voting or investment power with respect to shares of common stock. Shares of common stock subject to options,
warrants and convertible debentures currently exercisable or convertible, or exercisable or convertible within 60 days, are counted
as outstanding. The actual number of shares of common stock issuable upon the conversion of the convertible debentures is subject
to adjustment depending on, among other factors, the future market price of our common stock, and could be materially less or more
than the number estimated in the table.
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(2)
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Because the selling stockholder may offer and sell all or only some portion of the 6,000,000 shares
of our common stock being offered pursuant to this prospectus and may acquire additional shares of our common stock in the future,
we can only estimate the number and percentage of shares of our common stock that the selling stockholder will hold upon termination
of the offering.
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(3)
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Mark Grober exercises voting and dispositive power with
respect to the shares of our common stock that are beneficially owned by GHS Investments LLC.
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(4)
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Consists of up to 6,000,000 shares of common stock to be sold by GHS pursuant to the Financing
Agreement.
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THE OFFERING
On May 23, 2017, we entered into an Equity
Financing Agreement (the “Financing Agreement”) with GHS Investments LLC (“GHS”). Although we are not required
to sell shares under the Financing Agreement, the Financing Agreement gives us the option to sell to GHS, up to $11,000,000 worth
of our common stock, in increments, over the period ending twenty-four (36) months after the date this Registration Statement is
deemed effective. $11,000,000 was stated to be the total amount of available funding in the Financing Agreement, because this was
the maximum amount that GHS agreed to offer us in funding. There is no assurance the market price of our common stock will increase
in the future. The number of common shares that remain issuable may not be sufficient, dependent upon the share price, to allow
us to access the full amount contemplated under the Financing Agreement. If the bid/ask spread remains the same we will not be
able to place puts for the full commitment under the Financing Agreement. Based on the lowest traded price of our common stock
during the ten (10) consecutive trading day period preceding August 2, 2017 of $0.80, the registration statement covers the offer
and possible sale of $4,800,000 worth of our shares.
The purchase price of the common stock
will be set at eighty percent (80%) of the average of the lowest two (2) trading prices of the common stock during the ten consecutive
trading day period immediately preceding the date on which the Company delivers a put notice to GHS. In addition, there is an ownership
limit for GHS of 9.99%.
GHS is not permitted to engage in short
sales involving our common stock, or to engage in other activities that could manipulate the market for our common stock, during
the period commencing May 23, 2017 and continuing through the termination of the Financing Agreement. In accordance with Regulation
SHO, however, sales of our common stock by GHS after delivery of a put notice of such number of shares reasonably expected to be
purchased by GHS under a put will not be deemed short sales.
In order for the Company’s exercise
of a put to be effective, we must deliver the documents, instruments and writings required under the Financing Agreement. GHS is
not required to purchase the put shares unless:
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Our registration statement with respect to the resale of the shares of common stock delivered in
connection with the applicable put shall have been declared effective;
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we shall have obtained all material permits and qualifications required by any applicable state
for the offer and sale of the registrable securities; and
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we shall have filed all requisite reports, notices, and other documents with the SEC in a timely
manner.
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As we draw down on the equity line of credit
reflected in the Financing Agreement, shares of our common stock will be sold into the market by GHS. The sale of these shares
could cause our stock price to decline. In turn, if our stock price declines and we issue more puts, more shares will come into
the market, which could cause a further drop in our stock price. The Company determines when and whether to issue a put to GHS,
so the Company will know precisely both the stock price used as the reference point, and the number of shares issuable to GHS upon
such exercise. You should be aware that there is an inverse relationship between the market price of our common stock and the number
of shares to be issued under the equity line of credit. We have no obligation to utilize the full amount available under the equity
line of credit.
Neither the Financing Agreement nor any
of our rights or GHS’s rights thereunder may be assigned to any other person.
PLAN OF DISTRIBUTION
The selling stockholder may, from time
to time, sell any or all of its shares of Company common stock on OTC Markets or any other stock exchange, market or trading facility
on which the shares of our common stock are traded, or in private transactions. These sales may be at fixed prices, prevailing
market prices at the time of sale, at varying prices, or at negotiated prices. The selling stockholder may use any one or more
of the following methods when selling shares:
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ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
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block trades in which the broker-dealer will attempt to sell the shares as agent but may position
and resell a portion of the block as principal to facilitate the transaction;
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purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
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privately negotiated transactions;
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broker-dealers may agree with the selling stockholders to sell a specified number of such shares
at a stipulated price per share; or
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a combination of any such methods of sale.
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Additionally, broker-dealers engaged by the selling stockholder may arrange for other brokers-dealers to participate in sales.
Broker-dealers may receive commissions or discounts from the selling stockholder (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this prospectus,
in the case of an agency transaction not in excess of a customary brokerage commissions in compliance with FINRA Rule 2440; and
in the case of a principal transaction, a markup or markdown in compliance with FINRA IM-2440.
GHS is an underwriter within the meaning
of the Securities Act of 1933, and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters”
within the meaning of the Securities Act of 1933 in connection with such sales. Any commissions received by such broker-dealers
or agents, and any profit on the resale of the shares purchased by them, may be deemed to be underwriting commissions or discounts
under the Securities Act of 1933. GHS has informed us that it does not have any written or oral agreement or understanding, directly
or indirectly, with any person to distribute the Company’s common stock. Pursuant to a requirement by FINRA, the maximum
commission or discount to be received by any FINRA member or independent broker-dealer may not be greater than 8% of the gross
proceeds received by us for the sale of any securities being registered pursuant to Rule 415 promulgated under the Securities Act
of 1933.
Discounts, concessions, commissions and
similar selling expenses, if any, attributable to the sale of shares will be borne by the selling stockholder. The selling stockholder
may agree to indemnify any agent, dealer, or broker-dealer that participates in transactions involving sales of the shares if liabilities
are imposed on that person under the Securities Act of 1933.
We are required to pay certain fees and
expenses incurred by us incident to the registration of the shares covered by this prospectus. We have agreed to indemnify the
selling stockholder against certain losses, claims, damages and liabilities, including liabilities under the Securities Act of
1933. We will not receive any proceeds from the resale of any of the shares of our common stock by the selling stockholder. We
will receive proceeds from the sale of our common stock to GHS under the Financing Agreement. Neither the Financing Agreement with
GHS nor any rights of the parties under the Financing Agreement with GHS may be assigned or delegated to any other person.
We have entered into an agreement with
GHS to keep this prospectus effective until GHS (i) has sold all of the common shares purchased by it under the Financing Agreement
and (ii) has no further right to acquire any additional shares of common stock under the Financing Agreement.
The resale shares will be sold only through
registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the
resale shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from
the registration or qualification requirement is available and is complied with.
Under applicable rules and regulations
under the Securities Exchange Act of 1934, any person engaged in the distribution of the resale shares may not simultaneously engage
in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M,
prior to the commencement of the distribution. In addition, the selling stockholders will be subject to applicable provisions of
the Securities Exchange Act of 1934 and the rules and regulations thereunder, including Regulation M, which may limit the timing
of purchases and sales of shares of the common stock by the selling stockholder or any other person. We will make copies of this
prospectus available to the selling stockholder.
DESCRIPTION OF SECURITIES TO
BE REGISTERED
General
We are authorized to issue an aggregate
of three hundred million (300,000,000) shares of common stock, $0.001 par value per share. As of August 17, 2017, we had 35,637,900
shares of common stock issued and outstanding.
Each share of common stock shall have one
(1) vote per share. Our common stock does not provide for preemptive, subscription or conversion rights and there are no redemption
or sinking fund provisions or rights. Our common stock holders are not entitled to cumulative voting for election of the Board
of Directors.
Dividends
We have not paid any cash dividends to
our shareholders. The declaration of any future cash dividends is at the discretion of our board of directors and depends upon
our earnings, if any, our capital requirements and financial position, general economic conditions, and other pertinent conditions.
It is our present intention not to pay any cash dividends in the foreseeable future, but rather to reinvest earnings, if any, in
our business operations.
Securities Authorized For Issuance Under Equity Compensation
Plans
The Company recognizes the fair value of
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 0.70% through 0.94% in 2016 and 1.15% in
2017, dividend yield of 0%, expected life of 2 years and volatility of 1.00.
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.
For each of the Company and Financial Gravity
Holdings, its subsidiary, no preferred shares are issued or outstanding as of June 30, 2017, September 30, 2016 and 2015, respectively.
Penny Stock Considerations
Our shares will be “penny stocks”
as that term is generally defined in the Securities Exchange Act of 1934 to mean equity securities with a price of less than $5.00
per share. Thus, our shares will be subject to rules that impose sales practice and disclosure requirements on broker-dealers who
engage in certain transactions involving a penny stock. Under the penny stock regulations, a broker-dealer selling a penny stock
to anyone other than an established customer must make a special suitability determination regarding the purchaser and must receive
the purchaser's written consent to the transaction prior to the sale, unless the broker-dealer is otherwise exempt.
In addition, under the penny stock regulations,
the broker-dealer is required to:
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Deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the
Securities and Exchange Commission relating to the penny stock market, unless the broker-dealer or the transaction is otherwise
exempt;
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Disclose commissions payable to the broker-dealer and our registered representatives and current
bid and offer quotations for the securities;
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Send monthly statements disclosing recent price information pertaining to the penny stock held
in a customer’s account, the account’s value, and information regarding the limited market in penny stocks; and
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Make a special written determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser’s written agreement to the transaction, prior to conducting any penny stock transaction in the
customer’s account.
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Because of these regulations, broker-dealers may encounter difficulties in their attempt to sell shares of our common stock, which
may affect the ability of selling shareholders or other holders to sell their shares in the secondary market, and have the effect
of reducing the level of trading activity in the secondary market. These additional sales practice and disclosure requirements
could impede the sale of our securities. In addition, the liquidity for our securities may be decreased, with a corresponding decrease
in the price of our securities. Our shares in all probability will be subject to such penny stock rules and our shareholders may
find it difficult to sell their securities.
INTERESTS OF NAMED EXPERTS AND
COUNSEL
The audited financial statements for the
Company for the years ended September 30, 2016 and 2015 included in this prospectus have been audited by
Whitley
Penn LLP
, an independent registered public accounting firm, to the extent and for the periods set forth in our report and
are incorporated herein in reliance upon such report given upon the authority of said firm as experts in auditing and accounting.
The legality of the shares offered under
this registration statement is being passed upon by Brunson Chandler, & Jones, PLLC.
INFORMATION WITH RESPECT TO
THE REGISTRANT
DESCRIPTION OF BUSINESS
The Company was incorporated in Nevada
on December 5, 2005 as Kat Racing, Inc. On January 4, 2013, the Articles of Incorporation were amended to change the name of the
Company to Prairie West Oil & Gas, Ltd. On July 26, 2013, the Articles of Incorporation were amended to change the name of
the Company to Pacific Oil Company. On October 31, 2016, following a reverse merger transaction (the “Merger”), the
Articles of Incorporation were amended to change the name of the Company to Financial Gravity Companies, Inc.
The accounting acquirer (legal acquiree)
in the Merger, Financial Gravity Holdings, Inc. (“Financial Gravity Holdings”), was incorporated in Texas on September
29, 2014. On the effective date of the Merger, the business of Financial Gravity Holdings became the only business of Pacific Oil
Company (currently named Financial Gravity Companies, Inc.).
Also pursuant to the Merger, each of the
shares of Financial Gravity Holdings common stock issued and outstanding prior to the Merger was automatically converted into and
exchangeable for an equivalent number of fully paid and non-assessable shares of Company common stock.
The accounting acquirer (legal acquiree)
in the reverse merger transaction, Financial Gravity Holdings, is now a subsidiary of the Company. Business Legacy, Inc., founded
in 2002, and Pollock Advisory Group, founded in 2007, were added on September 29, 2014, as subsidiaries. During fiscal year 2015,
the Company acquired as additional subsidiaries, Cloud9b2b, LLC and SASH Corporation (dba Metro Data Processing). During fiscal
year 2016, the Company acquired an additional subsidiary, Tax Coach Software, LLC. The Company and its subsidiaries deliver a wide
range of accounting, tax planning and management services to high net worth individuals and businesses nationwide.
Organic growth has come in four key areas.
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Tax Services, including Tax Blueprints and ongoing Tax Operating system services
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Wealth Management Services
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Other Products and Services (Insurance and other miscellaneous products and services).
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All future growth is expected to come from
these four key areas, as well as through organic growth, acquisitions, and strategic alliances.
Products and Services
The following outline briefly describes Financial Gravity’s
various subsidiaries and the products and services they offer:
Financial Gravity Operations, Inc.
Financial
Gravity Operations manages operational expenses for the shared services of the subsidiaries.
Financial Gravity Tax, Inc. formerly
Business Legacy, Inc.
Financial Gravity Tax is a bookkeeping, tax planning and payroll service provider for small
companies and individuals.
Financial Gravity Wealth, Inc. formerly
Pollock Advisory Group, Inc.
Financial Gravity Wealth is a registered investment advisor and provides asset management
services.
Financial Gravity Business, LLC formerly
Cloud9b2b, LLC
Financial Gravity Business provides business consulting services to Small Business Owners that identify
way to leverage a business’ current assets (people, platforms and processes) and reduce exposure to risk, both short-term
and long-term, while simplifying the business and increasing profitability.
Financial Gravity Ventures, LLC formerly
Cloud9Accelerator, LLC
Financial Gravity Ventures holds acquired companies and business assets until they are integrated
into the main stream Financial Gravity business structure.
Sash Corporation dba Metro Data
Processing
Metro Data Processing provides payroll services, software and support solutions to business owners.
Tax Coach Software, LLC
Tax
Coach Software provides three primary services including monthly subscriptions to the “TaxCoach” software system, coaching
and email marketing services.
Recent Developments
On December 20, 2016, the firm of Lane
Gorman Trubitt, LLC (“Lane Gorman”) resigned as auditors of Financial Gravity Companies, Inc. This action was in response
to concerns raised by the SEC about the independence of Lane Gorman Trubitt LLC based on the firm’s involvement in the preparation
of footnote disclosures on prior audit reports for the years ended December 31, 2015 and 2014. After discussions with SEC staff
the Company and Lane Gorman determined that resignation was the most prudent action to take, in order for the Company to timely
engage a new firm and complete a new audit of the
financial statements for the
two
years ended September 30, 2016 and 2015.
On December 26, 2016, the Company engaged
the firm of Whitley Penn LLP (“Whitley Penn”) as the new independent auditors for the years ended September 30, 2016
and 2015.
Competition
The market is comprised of a very large
selection of varied suppliers that provide financial advisory, accounting, and tax needs. These include accounting firms, certified
public accountants (“CPA's”), bookkeeping businesses, estate planners, lawyers, wealth management consultants, estate
offices, private offices, banks, and large financial institutions. However, many of these firms are either too big to provide the
customized services that small business owners are seeking, are too expensive, or simply do not have the customized services that
Financial Gravity offers to meet the needs of small business owners and high net worth individuals.
Financial Gravity has a unique product
and service delivery model that 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 its target sales and revenue.
In addition, Financial Gravity considers
a number of its small to medium-sized business competitors to potentially be attractive acquisition targets.
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 of 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
Financial Gravity has approximately 24
full-time employees. None of the Company’s employees are covered by a collective bargaining agreement. Financial Gravity
believes that it maintains good relations with its employees.
Legal Proceedings
From time to time, we are a party to or
otherwise involved in legal proceedings, claims and other legal matters, arising in the ordinary course of our business or otherwise.
A subsidiary of the Company is currently involved in one legal proceeding, the outcome of which will not be material to our ability
to operate or market our services, our consolidated financial position, results of operations or cash flows.
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.
Other Information
We have not been involved in a bankruptcy
receivership or similar proceeding. Additionally, we have not been involved in a reclassification, merger, consolidation, or purchase
or sale of a significant amount of assets not in the ordinary course of business.
Our independent registered public accounting
firm has issued an audit opinion for our Company that includes an explanatory paragraph expressing substantial doubt as to our
ability to continue as a going concern.
We are not a blank check registrant, as
that term is defined in Rule 419(a)(2) of Regulation C of the Securities Act of 1933, since we have a specific business plan or
purpose. We have not had preliminary contact or discussions with, nor do we have any present plans, proposals, arrangements or
understandings with, any representatives of the owners of any business or company regarding the possibility of an acquisition or
merger.
DESCRIPTION OF PROPERTY
The Company’s corporate offices are
located at 800 N Watters Road, Suite 120, Allen, Texas 75013, where Financial Gravity has 4,015 square feet of office space under
lease. Pursuant to an office lease dated December 3, 2013, Financial Gravity is required to make monthly lease payments of $6,995
per month (including operating expenses). The lease expires on October 31, 2018.
Metro Data Processing’s offices are
located at 1545 S. Harvard Avenue, Tulsa, Oklahoma 74112, where the company occupies 1,590 square feet of office space under lease.
Pursuant to an office lease dated September 10, 2015, Metro Data Processing is required to make monthly lease payments of $1,182
per month (including operating expenses). The lease automatically renews every 12 months.
Tax Coach Software’s offices are
located at 2619 Erie Ave., Suite 2D, Cincinnati, Ohio 75208. The company makes monthly lease payments of $1,250 per month (including
operating expenses) pursuant to a month to month lease agreement with a 30 day notice to terminate.
LEGAL PROCEEDINGS
From time to time, we are a party to or
otherwise involved in legal proceedings, claims and other legal matters, arising in the ordinary course of our business or otherwise.
A subsidiary of the Company is currently involved in one legal proceeding, the outcome of which will not be material to our ability
to operate or market our services, our consolidated financial position, results of operations or cash flows.
MARKET PRICE OF THE REGISTRANT’S
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Common Stock
Our common stock is currently quoted on
the OTC Markets under the symbol “FGCO”. Because we are quoted on the OTC Markets, our securities may be
less liquid, receive less coverage by security analysts and news media and generate lower prices than might otherwise be obtained
if they were listed on a national securities exchange.
The following table sets forth the high
and low closing prices for our common stock per quarter as reported by the OTC Markets based on our fiscal year end September 30,
2016 and 2015. These prices represent quotations between dealers without adjustment for retail mark-up, markdown or
commission and may not represent actual transactions.
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Fiscal Year 2016
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High
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Low
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First Quarter (Oct. 1, 2015 – Dec. 31, 2015)
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1.00
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0.02
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Second Quarter (Jan. 1, 2016 – Mar. 31, 2016)
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1.00
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0.01
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Third Quarter (Apr. 1, 2016 – June 30, 2016)
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1.00
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0.01
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Fourth Quarter (July 1, 2016 – Sep. 30, 2016)
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0.04
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0.011
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Fiscal Year 2015
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High
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Low
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First Quarter (Oct. 1, 2014 – Dec. 31, 2014)
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2.40
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1.00
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Second Quarter (Jan. 1, 2015 – Mar. 31, 2015)
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1.30
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0.051
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Third Quarter (Apr. 1, 2015– June 30, 2015)
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0.051
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0.01
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Fourth Quarter (July 1, 2015 – Sep. 30, 2015)
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0.30
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0.01
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Holders of Record
The approximate number of stockholders
of record of the Company’s Common Stock on August 17, 2017 was 83.
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.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
You should read the following discussion of our
financial condition and results of operations in conjunction with financial statements and notes thereto included elsewhere in
this prospectus. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our
actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute
to these differences include those discussed below and elsewhere in this prospectus, particularly in the section labeled “Risk
Factors.”
This section of the prospectus includes
a number of forward-looking statements that reflect our current views with respect to future events and financial performance.
Forward-looking statements are often identified by words like “believe,” “expect,” “estimate,”
“anticipate,” “intend,” “project,” and similar expressions, or words that, by their nature,
refer to future events. You should not place undue certainty on these forward-looking statements, which apply only as of the date
of this prospectus. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results
to differ materially from historical results or our predictions.
Plan of Operations
Financial Gravity
Companies, Inc. (“Financial Gravity”, “We” or the “Company”), based in Allen, Texas, was formed
specifically to be the parent company of several subsidiaries that provide integrated tax, business, and financial solutions. Financial
Gravity’s clients include small businesses, small business owners and high net worth individuals. The Company’s services
are focused on helping clients make more money and build wealth, most often with tax savings, lowering costs and improving efficiency.
In addition to expanding through client procurement and organic growth, Financial Gravity intends to make a number of acquisitions.
The primary acquisition targets currently include accounting, bookkeeping, and financial advisory firms. In fiscal year 2015 the
Company acquired two firms: Cloud9 Holdings Company (and its subsidiary Cloud9b2b) which was renamed Financial Gravity Business
and Sash Corporation, doing business as Metro Data Processing (a Tulsa, OK payroll processor). In fiscal year 2016 the Company
acquired Tax Coach Software LLC. The Company is actively identifying additional potential acquisition candidates to fuel more rapid
growth.
Financial Gravity’s Subsidiaries:
Financial Gravity Operations, Inc.
This entity was created
to raise capital to take the company public, and will be eliminated now that the public transaction is complete. This entity integrates
the delivery of Financial Gravity Tax, Business, and Wealth Solutions to our growing customer base around the country. This integration,
impossible to do for the small business marketplace until now, is what sets Financial Gravity apart from our peers. This integration
will now be handled by Financial Gravity Companies, Inc.
Financial Gravity Tax
Financial Gravity
has developed a precise procedure that has proven to be very successful in delivering lower taxes, higher profit, and greater wealth
for small business owners.
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. Next, Financial Gravity designs a unique "Tax Blueprint®" which identifies several strategies
for lowering the client's taxes.
The second step is
to use the client’s custom Tax Blueprint® to build that business entity and documentation that captures the identified
savings. This is called the Tax Operating System® (TOS). This process is repeated as required and tuned for optimal efficiency
thus ensuring that the client receives the best service and optimal solutions in the phases of the business cycle during the year.
Clients continue to pay a monthly or weekly subscription fee as part of their TOS service for ongoing tax planning, tax return
preparation, payroll and bookkeeping services.
This business unit
promises clients they’ll pay the lowest legal, moral and ethical taxes possible. Tax savings is the “tip of the spear”
in all our offerings. No company has ever successfully married tax, wealth and business solutions together for Small Business Owners
(SBOs) and high net worth individuals. Powered by our no-risk “2x Promise” (we guarantee to find double our initial
fee in tax savings), clients are quick to sign up for proactive tax planning. Lowering their personal taxes then fuels insurance,
wealth and business services sales. These multi-tiered sales provide a 4-8 times multiple to a typical accounting or bookkeeping
practice.
SBO’s
look for two things from a typical CPA and bookkeeping firm: (1) Lower personal income taxes: and (2) Numbers that help them run/grow
their business better. There is no national firm that provides these two services at any level. Our tax planning sets us apart
from typical accounting and tax preparation firms. We look forward to setting up a client’s business to be tax efficient.
The typical service model employed by CPA firms is oriented more toward compliance, which is the recording of historical data.
These providers work on historical records instead of looking forward to proactively plan. SBOs are growing more and more frustrated
with accountants who “put numbers in boxes” when what’s truly needed is a partner to help advise them in how
to be more efficient in their business. Many SBOs can’t read a P/L or Balance Sheet and even when they can, the data is often
too old to act on. As technology speeds up the pace of business, real time data is becoming more important. Most CPAs don’t
even calculate tax savings for their clients, as asking CPA’s to produce unique data to each client is outside the factory
mentality of the profession. Our average tax savings is over $20,000 per year per business owner. Financial Gravity Tax is pursuing
several M&A and/or partnership opportunities to deliver on the product Bookkeeping with Purpose®, that will help deliver
the promised tax savings and producer actionable real time data.
Financial Gravity Wealth
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. Financial Gravity Wealth is a Registered Investment Advisory (RIA) 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 a new ruling, scheduled to be phased in April 10, 2017 – Jan. 1, 2018, that will automatically
elevate all financial professionals who work with retirement plans or provide retirement planning advice to the level of a fiduciary,
bound legally and ethically to meet the standards of that status. While the status of this rule is uncertain following the election,
we are positioned to do what we have always done, control advisor fees and reduce one of the biggest “fees” in a mutual
fund and ETF portfolio, which is “tax friction”. These taxes erode about 1% per year in performance.
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, our status as an RIA
makes our firm very attractive to the most profitable clients.
Financial Gravity Business
The complexity of
Advanced Tax Planning next fuels Financial Gravity Business services. The first product that was developed with a partner is Advisor
Architect. This product is designed to help financial advisors and accountants run their businesses better. We intend to test the
service offering / coaching program with the first two markets where we have the most experience and then roll out the service
offering to other industries at a later date. Clients spend some of their tax savings from Financial Gravity Tax planning for these
services, rendering them “cost neutral”.
We have also developed
our Partner Programs that teach financial advisors how to serve an underserved community, the Small Business Owner. Financial Gravity
Business is the only non-product centric business system for financial advisors that helps them serve the needs of the small business
owner without needing to sell a financial services product like a life insurance policy or a 401(k) plan.
To broaden the skillset
of CPAs, we have created the Certified Tax Master® designation and partner program for CPA’s and Enrolled Agents (“EA’s”).
We will roll out this program in late May 2017. To our knowledge, there is no program offering like this of its kind available
elsewhere. This program was created in Financial Gravity Business, but will be sold and build revenue in the Tax Coach Software
platform.
Financial Gravity Ventures
This entity in our
corporate family employs our M&A 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 Coach Software
Tax Coach Software
(TCS) was a key acquisition in fiscal year 2016. TCS supports over 550 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 TCS customer base adds significant business development opportunities for Financial Gravity Wealth. We developed the Certified
Tax Master® for this group and rolled out new client systems in mid-2016.
Sash Corporation
Sash Corporation
dba Metro Data Processing, based in Tulsa, OK was the Company’s first acquisition. The Company has been a fixture in payroll
processing in the Tulsa area for years and should prove to be a compelling storefront to begin selling additional tax services.
We go to market primarily
via Financial Advisors and accountants. Our Partner Program is proven to provide financial professionals with recognized trademarked
service offerings, business support, and marketing materials. These trademarks/servicemarks include Financial Gravity®, Tax
Blueprint®, Tax Operating System®, Bookkeeping with Purpose®, Diversity Trinity®, Investor Peace University®,
Factor Based Investing™, Fractional Family Office®, TaxCoach™, and Certified Business Strategist™ offerings,
allowing financial professionals in our Partner Program to add additional value to their clients and their business.
Over the past few
years the Company has undertaken significant effort, and invested considerable capital, in order to attract and maintain a qualified
and capable staff, develop proprietary solutions, and implement systems, procedures, and infrastructure to execute the business
plan on a large scale. Given the short time frame this current market opportunity has existed and due to the complexity of the
model we have a significant competitive advantage over others who may try to execute the same business plan.
Results of Operations for the three months and nine months
ended June 30, 2017 compared to the three months and nine months ended June 30, 2016
Revenues
For the three months ended June 30, 2017,
revenue increased $124,395 or 17.9% to $819,419 from $695,024 for the three months ended June 30, 2016. For the nine months ended
June 30, 2017, revenue increased $624,602 or 32.3% to $2,560,113 from $1,935,511 for the nine months ended June 30, 2016. The increase
in revenue reflects increase in service income, primarily due to significant growth in partner programs, which resulted in an increase
in customer sales, and an increase in investment management fees because of significant growth in wealth clients.
Operating Expenses
Cost of services activity remained relatively
stable for the three months and nine months ended June 30, 2017 and 2016.
Professional services expenses include
merger costs, legal expense, professional fees, contract labor, business consulting, computer and internet expense, and earnest
money forfeited. Professional services expenses increased $86,048 or 36.1% to $324,296 for the three months ended June 30, 2017
from $238,248 for the three months ended June 30, 2016. This increase is primarily due to significant growth in our wealth management
and partner program, which resulted in an increase in commissions paid. Professional services expenses remained consistent for
the nine months ended June 30, 2017 from the nine months ended June 30, 2016.
Depreciation and amortization expenses
include depreciation on fixed assets and amortization of definite lived intangibles. Depreciation and amortization expenses decreased
$13,180 to $24,947 for the three months ended June 30, 2017 from $38,127 for the three months ended June 30, 2016. Depreciation
and amortization expenses decreased $41,029 to $74,391 for the nine months ended June 30, 2017 from $115,420 for the nine months
ended June 30, 2016. The decrease is primarily due to the fact that the Tax Coach Software prospect list was fully amortized by
September 30, 2016.
General and administrative expenses activity
remained relatively stable for the three months ended June 30, 2017 and 2016. General and administrative expenses increased $93,214
or 32% to $384,477 for the nine months ended June 30, 2017 from $291,263 for the nine months ended June 30, 2016. The increase
is primarily due to an increase in costs associated with the growth of the partner program.
Management fees – related party expenses
activity remained relatively stable for the three months and nine months ended June 30, 2017 and 2016.
Marketing expenses activity increased $24,586
or 23% to $131,508 for the three months ended June 30, 2017 from $106,922 for the three months ended June 30, 2016. The increase
is primarily due to an increase in expenses related to growing the partner program. Marketing expenses activity remained relatively
stable for the nine months ended June 30, 2017 and 2016.
Salaries and wages expenses activity increased
$53,248 or 11.2% to $530,125 for the three months ended June 30, 2017 from $476,877 for the three months ended June 30, 2016. The
increase is primarily due to an increase in investment management commissions. Salaries and wages expenses activity remained relatively
stable for the nine months ended June 30, 2017 and 2016.
The Company experienced a decrease in its
bottom line of $33,107 or 9.7% to a net loss of $375,291 for the three months ended June 30, 2017, from a net loss of $342,184
for the three months ended June 30, 2016, and an increase in its bottom line of $435,538 or 37.7% to a net loss of $720,502 for
the nine months ended June 30, 2017 from a net loss of $1,156,040 for the nine months ended June 30, 2016, primarily attributable
to the reasons noted above.
Results of Operations for the year
ended September 30, 2016 compared to the year ended September 30, 2015
Revenues
For the year ended
September 30, 2016, revenue increased $1,447,198 or 110.5% to $2,756,999 from $1,309,801 for the year ended September 30, 2015.
The increase in revenue reflects increase in service income, primarily new customer product and service sales, which more than
doubled over the same period. Revenues from Tax Services increased over 90%, while the acquisition of Tax Coach Software, LLC added
revenues of $394,814.
Operating Expenses
Professional services
expenses include merger costs, legal expense, professional fees, contract labor, business consulting, computer and internet expense,
and earnest money forfeited. Professional services expenses increased $785,073 or 173.6% to $1,237,221 for the year ended September
30, 2016 from $452,148 for the year ended September 30, 2015. This 173.6% increase is primarily attributable to the acquisition
of TaxCoach Software, LLC which added $493,484 in expenses.
Depreciation and
amortization expenses include depreciation on fixed assets and amortization of definite lived intangibles. Depreciation and amortization
expenses increased $153,258 to $153,547 for the year ended September 30, 2016 from $289 for the year ended September 30, 2015.
The increase is primarily due to the acquisition of Tax Coach that gave rise to an additional $1,094,702 in goodwill, $583,478
in intangible assets and $141,080 in fixed assets. These intangible and fixed assets had a corresponding depreciation and amortization
expense in the year ended September 30, 2016 of $151,122.
Impairment of
goodwill of $662,967 was made of the impairment of goodwill from the acquisitions of Cloud9B2B and MDP.
General and administrative
expenses decreased $2,698 or 0.7% to $408,537 for the year ended September 30, 2016 from $411,235 for the year ended September
30, 2015. General and Administrative activity remained relatively stable from fiscal 2015 to fiscal 2016.
Management fees
– related party expenses increased $57,676 or 37.1% to $213,333 for the year ended September 30, 2016 from $155,657 for the
year ended September 30, 2015. During the year ended September 30, 2015, the Company entered into a consulting agreement with BW3,
LLC, which is owned by John Pollock. BW3, LLC services include, but not limited to, providing weekly Podcasts, radio interviews,
public speaking, conference contribution, biweekly blogs, content for the newsletters, and other services. The variance is primarily
because the fees were paid for the twelve months ended September 30, 2016 vs only nine months for the year ended September 30,
2015.
Marketing expenses
increased $169,498 or 72.8% to $402,402 for the year ended September 30, 2016 from $232,904 for the year ended September 30, 2015.
During the year ended September 30, 2016, the Company began doing Press Releases and advertising on Facebook. In addition, the
Company engaged several consultants to assist leadership and build new business funnels in an effort to continue to grow revenue
streams.
Salaries and wages
expenses increased $783,146 or 82.7% to $1,730,278 for the year ended September 30, 2016 from $947,132 for the year ended September
30, 2015. During the year ended September 30, 2016, the number of clients increased which resulted in higher commissions paid.
Furthermore, commission rates increased in 2016 as sales representatives moved from salary plus commission to 100% commission.
The Company experienced
a decrease in its bottom line of $1,191,255 or 126.2% to a net loss of $2,135,139 for the year ended September 30, 2016 from a
net loss of $943,884 for the year ended September 30, 2015, 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 Financial Gravity’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.
Services income is recognized as consulting
and other professional services are performed by the Company.
Commission revenue is derived from the
sale of premiums on life insurance policies held by third parties. The revenue is recognized at the time the policy is issued.
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.
Trade accounts receivable are carried at
the invoiced amount less 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 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.
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
stock-based compensation awards as wages in the accompanying statements of operations on a straight-line basis over the vesting
period, using the Black-Scholes option pricing model, which is based on risk-free rates of from 0.97% in 2016 and 1.15% in 2017,
dividend yield of 0%, expected life of 2 years and volatility of 1.00.
Liquidity and Capital Resources
As of June 30, 2017, the Company had cash
and cash equivalents of $154,468. The increase of $21,665 in cash and cash equivalents from September 30, 2016 was due to net cash
used in operating activities of $648,936, offset by net cash provided by financing activities of $662,760 and net cash provided
by investing activities of $5,841.
Net cash used in operating activities was
$648,936 for the nine months ended June 30, 2017, compared to $1,001,559 net cash used in operating activities for the nine months
ended June 30, 2016. The net cash used in operating activities for the nine months ended June 30, 2017 was due to net loss of $720,502,
adjusted primarily by the following: (1) increases in depreciation and amortization of $74,391, stock compensation for services
provided by a third party of $50,000, accounts payable – trade of $4,203, accrued expenses of $27,377, and deferred revenue
of $30,148, (2) offset by decreases in trade accounts receivable of $66,985, prepaid expenses of $26,723, and pre-merger liabilities
of $18,845.
Net cash provided by investing activities
was $5,841 for the nine months ended June 30, 2017, compared to $22,737 of net cash provided by investing activities for the nine
months ended June 30, 2016. Investing activities for the nine months ended June 30, 2017 consisted of purchases of trademarks of
$50 and equipment of $4,109 offset by cash acquired for the sale of investments of $10,000.
Net cash provided by financing activities
was $662,760 for the nine months ended June 30, 2017, compared to net cash provided by financing activities of $398,131 for the
nine months ended June 30, 2016. Financing activities for the nine months ended June 30, 2017 consisted primarily of $625,000 in
proceeds from sales of common stock, $100,000 in proceeds from notes payable, $60,989 payments on notes payable, and $1,251 payments
on line of credit.
As shown below, at June 30, 2017, our contractual
cash obligations totaled approximately $242,089, 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
|
|
|
More than
5 years
|
|
|
Total
|
|
|
Line of credit
|
|
$
|
18,481
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
18,481
|
|
|
Notes payable
|
|
|
132,408
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
132,408
|
|
|
Operating leases
|
|
|
17,100
|
|
|
|
74,100
|
|
|
|
–
|
|
|
|
–
|
|
|
|
91,200
|
|
|
Total contractual cash obligations
|
|
$
|
167,989
|
|
|
$
|
74,100
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
242,089
|
|
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 our 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 our operations. Management 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.
Quantitative and Qualitative Disclosures About Market
Risk
Interest Rate Risk.
Our business
is leveraged and, accordingly, is sensitive to fluctuations in interest rates. Any significant increase in interest rates could
have a material adverse effect on our financial condition and ability to continue as a going concern.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Previous registered public accounting
firm
On December 20, 2016, the firm of Lane
Gorman Trubitt, LLC (“Lane Gorman”) resigned as auditors of Financial Gravity Companies, Inc. (the “Company”).
This action was in response to concerns about the independence of Lane Gorman based on the firm’s involvement in the preparation
of footnote disclosures on prior audit reports for the years ended December 31, 2015 and 2014. These concerns were highlighted
in comment letters received from the SEC dated November 8, 2016 and December 12, 2016. Lane Gorman determined that resignation
was the most prudent action to take, in order for the Company to timely engage a new firm and complete a new audit of the
financial
statements for the
two years ended September 30, 2016 and 2015.
Lane Gorman’s
reports
on the
Company’s
financial statements for the past two years did not
contain an adverse opinion or a disclaimer of opinion, nor were such reports qualified or modified as to uncertainty, audit scope,
or accounting principles.
During
the
Company’s
two most recent fiscal years and any subsequent interim period
preceding
Lane Gorman’s
resignation, there were no
disagreements with
Lane Gorman
on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure.
During
the
Company’s
two most recent fiscal years and any subsequent interim
period preceding
Lane Gorman’s
resignation
, there were no
“reportable events” (as described in paragraph (a)(1)(v) of Item 304 of Regulation S-K).
New registered public accounting
firm
On December 26, 2016 (the “Engagement
Date”), the Company engaged Whitley Penn LLP (“Whitley Penn”) as the new independent auditors for the years ended
September 30, 2016 and 2015. The decision to engage Whitley Penn as the Company’s independent registered public accounting
firm was approved by the Company’s Board of Directors.
During the two most recent fiscal years
and through the Engagement Date, the Company has not consulted with Whitley Penn regarding either:
|
|
1.
|
The application of accounting principles to any specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements, and neither a written report was provided to the Company nor oral advice was provided that Whitley Penn concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or
|
|
|
2.
|
Any matter that was either the subject of a “disagreement” (as defined in paragraph (a)(1)(iv) of Item 304 of Regulation S-K and the related instructions thereto) or a “reportable event” (as described in paragraph (a)(1)(v) of Item 304 of Regulation S-K).
|
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS,
AND CONTROL PERSONS
The Board of Directors elects our executive
officers annually. A majority vote of the directors who are in office is required to fill vacancies. Each director shall be elected
for the term of one year, and until his successor is elected and qualified, or until the earlier of his resignation or removal.
Information on our Board of Directors and executive officers is included below. Our executive officers are appointed annually by
our Board of Directors. Our executive officers hold their offices until they resign, are removed by the Board, or their successor
is elected and qualified.
Directors and Executive Officers
Set forth below is certain information regarding the persons
who currently serve as directors and executive officers.
|
Name
|
Age
|
Positions with the Company
|
|
John Pollock
|
50
|
Chairman of the Board, Chief Executive Officer
|
|
Paul Williams
|
60
|
Vice Chairman of the Board, Chief Financial Officer, Secretary and Treasurer
|
|
Dan Sundby
|
55
|
President, Chief Sales Officer
|
|
James F. Reggio
|
53
|
Chief Technology Officer and Chief Marketing Officer
|
|
Edward A. Lyon
|
52
|
Chief Tax Strategist and Board Member
|
|
George Crumley
|
49
|
Board Member, Assistant Secretary and Assistant Treasurer
|
|
Dave Crowley
|
60
|
Board Member
|
John Pollock
, 50, has been
CEO/Founder of Business Legacy, Inc. since 2002, Pollock Advisory Group since 2007 and he is currently CEO and Chairman of Financial
Gravity Companies, Inc. 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
|
Paul O. Williams
, 60, has
served on our Board of Directors and as Vice Chairman of the Board since 2015, has served as our Chief Financial Officer and Assistant
Secretary – Assistant Treasurer since 2016, and since August 2017 has served as Secretary 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. Through Bison Financial Group, Mr. Williams personally provides corporate financial
advisory and business development consulting services.
Mr. Williams also currently serves as Chairman
of the Board of the following private companies: Curtis Mathes, Inc. (since 2013); Championship Sports Group, Inc. (since 2012);
Triton Consolidated, Inc. (since 2016); Day One Consulting, Inc. (since 2016); and Investor Relations, Inc. (since 2016). Mr. Williams
also currently serves as Vice Chairman of the Board and Chief Financial Officer of Dynamic Chemical Solutions, Inc. (since 2016),
and is on the Board of Directors of the Frisco (Texas) Chamber of Commerce.
On behalf of Halo Companies, Inc. (OTC:
HALN), Mr. Williams has served as Vice Chairman of the Board, Treasurer, and Assistant Secretary from 2009 to Present, and Served
as Chief Financial Officer from 2009 to 2012 and from 2015 to Present. Halo Companies, Inc. is a nationwide distressed asset services
company, providing technology-driven asset management, portfolio due diligence, acquisition, repositioning and liquidation strategies
for the private investment and mortgage servicing industry.
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 30 years of business experience, primarily in capital markets, mergers, and acquisitions
|
|
|
·
|
Chief Executive Officer of Bison Financial Group, a corporate financial advisory and business development firm serving middle market growth companies
|
|
|
·
|
Has served as both officer and director of other public companies
|
|
|
·
|
Financial Gravity is the third public company for which Mr. Williams is serving 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
|
Daniel A. Sundby
, 55, has
served as our Chief Sales Officer since July of 2017 and was named President of Financial Gravity Companies in August. He graduated
from Brown Institute of Broadcasting in Minneapolis, Minnesota in 1981. Mr. Sundby has held sales and sales management positions
since 1981 in the Broadcast Advertising, Cash Flow Management, Financial Services, Insurance, Sales Training and New Home Building
fields. Mr. Sundby has been a featured national speaker with his seminar titled “Understanding Money” and also converted
the seminar content into a curriculum that he taught at private high schools and churches in Colorado. From 1991 to 2013 Mr. Sundby
owned and operated Sundby Associates, Inc., Insurance Green Marketing Group, and Pareto Sales Training, where he contracted with
insurance companies to recruit, train and lead national sales teams. Mr. Sundby also co-owned United Meridian Insurance, a property
& casualty agency in Colorado from January 2010 to December 2012, and served as sales manager for Fischer Homes from October
2014 to March 2017.
A. David Crowley
, 60, began
at Financial Gravity Companies as Chief Sales Officer in January 2013, has served on our Board of Directors and as Secretary of
the Board since January 2015, and served as our President and Chief Strategy Officer from June 2016 to August 2017. He graduated
from University of MO - Rolla with a BS in Electrical Engineering in June 1978 and the University of MN with an MS in Electrical
Engineering in April 1986. Mr. Crowley owned and operated Resonate, Inc., a management consulting and training company for small
business owners from July 1999 to July 2008, co-owned 80/20 Health Insurance, an insurance agency with over 20 field agents in
Colorado from January 2004 to December 2010 and co-owned United Meridian Insurance, a property & casualty agency in Colorado
from January 2010 to December 2012. Mr. Crowley’s specific experience, qualifications, attributes or skills that led to the
conclusion that he should serve as a director for the Company:
|
|
·
|
21 years as an Engineer with high technology computer company
|
|
|
·
|
10 years of project management and process engineering experience at General Motors helping develop their vehicle development process
|
|
|
·
|
5 years teaching graduate school Management Information Systems course at Walsh College
|
|
|
·
|
8 years of financial services experience in health, life and property & casualty insurance business
|
|
|
·
|
4 years of tax business experience with Financial Gravity developing the process that the company now uses to sell tax services to business owners and to expand nationally to financial advisors
|
Edward A. Lyon
, 52, has been
our 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
|
George E. Crumley
, 49, has
been on the Board of Directors since January 2015, and since August 2017 has served as Assistant Secretary and Assistant Treasurer.
From 1994 to 2007 he was a practicing litigation attorney with the law firm of Stradley & Wright in Dallas, Texas where he
was named partner in 2001. He formed Pittenger, Nuspl & Crumley in 2008 where he continues to practice, advising businesses
in matters including formation, contracts, employees, real estate and litigation among other areas of law. He received BA. and
J.D. degrees from Baylor University in 1989 and 1993, respectively. Mr. Crumley currently serves on the Board of Directors for
Legacy Christian Academy in Frisco, Texas. Mr. Crumley’s specific experience, qualifications, attributes or skills that led
to the conclusion that he should serve as a director for the Company:
|
|
·
|
23 years of experience in civil litigation and representing businesses with formation, contracts, lawsuits, employee disputes, real estate, and other matters.
|
James F. Reggio
, 53, has
been our Chief Marketing Officer & Chief Technology Officer since January of 2015 when he joined the company via the Cloud9
Holdings acquisition, where he served as CTO beginning in 2013. From 2006 – 2013, Mr. Reggio held various roles with EFA
Processing LP, including Chief Technology Officer, Senior Vice President of Technology, and Executive Vice President. Mr. Reggio
was principle with Exectech Consulting Services from 2004 – 2006. He served as Chief Information Officer of Affirmative Insurance
Holdings, Inc. from 2001 – 2004 and Chief Information Officer of Instant Insurance Holdings, Inc. from 1999 – 2001,
as well as Chief Information Officer and Vice President of The St. Paul Specialty Auto Group from 1997 – 1999. Mr. Reggio
received his BA in Computer Science from Western Michigan University in 1986, and currently serves as a board member for the Innovate
Flower Mound Entrepreneur Center, and is a managing partner in Tri-Liberty LLC and DayOne Consulting LLC.
Legal Proceedings
No officer, director, person nominated
for such positions, nor promoter or significant employee has been involved in the last ten years in any of the following:
|
|
·
|
Any bankruptcy petition filed by or against any business of which such person was a general partner
or executive officer either at the time of the bankruptcy or within two years prior to that time;
|
|
|
·
|
Any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding
traffic violations and other minor offense);
|
|
|
·
|
Being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated,
of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement
in any type of business, securities or banking activities;
|
|
|
·
|
Being found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity
Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed,
suspended, or vacated;
|
|
|
·
|
Having any government agency, administrative finding, order, decree, or sanction against them as
a result of their involvement in any type of business, securities, or banking activity;
|
|
|
·
|
Being the subject of a pending administrative proceeding related to their involvement in any type
of business, securities, or banking activity; and/or
|
|
|
·
|
Having any administrative proceeding been threatened against you related to their involvement in
any type of business, securities, or banking activity.
|
Audit Committee and Audit Committee Financial Expert
We do not presently have a separately constituted
audit committee of our Board of Directors. Nor do we have an audit committee “financial expert”. At present, our entire
Board of Directors acts as our audit committee. None of the members of our 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.
We have not retained an audit committee financial expert because we do not believe that we can do so without undue cost and expense.
Moreover, we believe that the present members of our Board of Directors, taken as a whole, have sufficient knowledge and experience
in financial affairs to effectively perform their duties.
Code of Ethics
We do not currently have a Code of Ethics
applicable to our principal executive, financial, and accounting officers.
Compliance with Section 16(a) of the Exchange Act
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 2016 and Forms 5 and amendments thereto furnished to us with respect to fiscal year 2016, or written representations
that Form 5 was not required for fiscal year 2016, 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.
EXECUTIVE COMPENSATION
The following table sets forth the compensation
paid to our executive officers during the twelve-month periods ended September 30, 2016 and 2015:
Summary Compensation Table
|
Name and
Principal
Position
|
Fiscal Year
Ended 9/30
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive
Plan
Compensation
($)
|
Nonqualified
Deferred
Compensation
Earnings
($)
|
All Other Compensation
($)
|
Total
($)
|
|
John Pollock(1)
|
2015
|
$95,833
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
$162,000
|
$257,833
|
|
|
CEO, Principal Executive Officer
|
2016
|
$100,000
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
$203,333
|
$303,333
|
|
|
Dave Crowley
|
2015
|
$70,576
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
$19,377
|
$89,953
|
|
|
President, CSO
|
2016
|
$100,000
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
$100,000
|
|
|
Edward A. Lyon(2),
|
2015
|
$3,500
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
$235,852
|
$239,352
|
|
|
CST
|
2016
|
$42,000
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
$198,000
|
$240,000
|
|
Narrative Disclosure to Summary Compensation
Table
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 with Tax Coach Software, LLC, a subsidiary of the Company. The Agreement was entered
into effective November 1, 2015, and provides for Mr. Lyon to serve as General Manager, responsible for supervising the business
and affairs of Tax Coach Software. The agreement has a three-year term, which may be extended. The agreement provides for base
salary of $42,000.00 per year, plus bonus. The annual bonus is the sum of the following: (i) for Tax Coach Software revenues in
excess of $850,000 and less than $950,000, forty percent (40%) of Tax Coach Software’s gross profit (as determined in accordance
with generally acceptable accounting principles, net of amounts paid under employment agreements and consulting agreements), plus
(ii) for Tax Coach Software revenues in excess of $950,000, twenty percent (20%) of Tax Coach Software’s gross profit (as
determined in accordance with generally acceptable accounting principles, net of amounts paid under employment agreements and consulting
agreements).
(1) For Mr. Pollock, the amount shown in the Summary Compensation
Table under the heading All Other Compensation represents amounts paid by Financial Gravity to a consulting firm owned and controlled
by Mr. Pollock, in compensation for services not related to his roles as an officer and director of Financial Gravity.
(2) For Mr. Lyon, the amount shown in the Summary Compensation
Table under the heading All Other Compensation represents amounts paid by Financial Gravity to a consulting firm owned and controlled
by Mr. Lyon, in compensation for services not related to his roles as an officer and director of Financial Gravity.
Outstanding Equity Awards at Fiscal
Year-End
No executive officer received any equity
awards, or holds exercisable or un-exercisable options, as of the year ended September 30, 2016.
Long-Term Incentive Plans
There are no arrangements or plans in which
we provide pension, retirement or similar benefits for directors or executive officers.
Compensation Committee
We currently do not have a compensation
committee of the Board of Directors. The Board of Directors as a whole determines executive compensation.
Compensation of Directors
|
Name and
Principal
Position
|
Fees Earned or Paid in Cash
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
All Other Compensation
($)
|
Total
($)
|
|
John Pollock
|
$100,000
|
-0-
|
-0-
|
$203,333
|
$303,333
|
|
Dave Crowley
|
$100,000
|
-0-
|
-0-
|
-0-
|
$100,000
|
|
Paul Williams
|
-0-
|
-0-
|
-0-
|
$49,000
|
$49,000
|
|
Edward A. Lyons
|
$42,000
|
-0-
|
-0-
|
$198,000
|
$240,000
|
|
George Crumley
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
Employment Contracts, Termination of Employment, Change-in-Control
Arrangements
There are no employment or other contracts
or arrangements with officers or Directors. There are no compensation plans or arrangements, including payments to be made by us,
with respect to our officers, Directors or consultants that would result from the resignation, retirement or any other termination
of service in respect of such Directors, officers or consultants. There are no arrangements for Directors, officers, employees
or consultants that would result from a change-in-control.
Corporate Governance
We have no members of our board of directors
considered to be “independent” as the term is used in Item 7(d)(3)(iv)(B) of Schedule 14A under the Securities Exchange
Act of 1934, as amended, and as defined by Rule 4200(a)(15) of the NASDAQ Marketplace Rules.
We do not have any standing audit, nominating
and compensation committees of the board of directors, or committees performing similar functions. We do not currently have a Code
of Ethics applicable to our principal executive, financial or accounting officers. All Board actions have been taken by written
action rather than formal meeting. All executive officers and employees have executed non-compete agreements as well as Foreign
Corruption Practices Act (FCPA) pledges.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS
The following table sets forth certain
information concerning the number of shares of our common stock owned beneficially as of August 17, 2017 by: (i) each of our
directors; (ii) each of our named executive officers; and (iii) each person or group known by us to beneficially own more than
5% of our outstanding shares of common stock. Unless otherwise indicated, the shareholders listed below possess sole
voting and investment power with respect to the shares they own. As of August 17, 2017, we had 35,637,900 shares of
common stock issued and outstanding.
Security Ownership of Certain Beneficial
Owners
|
Name and Address of Beneficial Owner (1)
|
Title of Class
|
|
Amount and Nature of
Beneficial Ownership (1)
(#)
|
|
|
Percent of Class (2)
(%)
|
|
|
John Pollock
|
Common
|
|
|
15,037,962
|
|
|
|
42.2%
|
|
|
Dave Crowley (2)
|
Common
|
|
|
3,000,000
|
|
|
|
8.42%
|
|
|
Keith
VandeStadt (2,4)
|
Common
|
|
|
2,821,500
|
|
|
|
7.92%
|
|
|
Edward A. Lyon (2)
|
Common
|
|
|
2,593,500
|
|
|
|
7.3%
|
|
|
Paul
Williams (2)
|
Common
|
|
|
1,896,414
|
|
|
|
5.32%
|
|
|
James F. Reggio
(2,3)
|
Common
|
|
|
778,100
|
|
|
|
2.18%
|
|
|
George Crumley (2)
|
Common
|
|
|
150,000
|
|
|
|
*
|
|
|
Directors & Officers as a group (seven persons)
|
Common
|
|
|
23,455,976
|
|
|
|
65.81%
|
|
_____________________________
(1) except as noted below, 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 120, Allen, Texas 75013.
(3) Includes 1,330 options that vested upon closing of the merger
on September 30, 2016.
(4) Non-director or executive officer with more than 5% ownership
* indicates an ownership percentage of less than one percent.
Changes in Control
There are no recent or present arrangements
or pledges of the Company's securities that would result in a change in control of the Company.
TRANSACTIONS WITH RELATED 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.
Bison Financial Group, whose Chief Executive
Officer is Mr. Paul Williams, has provided corporate financial advisory and business development services to the Company for a
flat fee of $5,000 per month. The provision of services commenced in 2014, during which time Mr. Williams had no formal affiliation
with the Company. The provision of services by Bison Financial Group continued in 2015, during which time the Company paid Bison
Financial Group an aggregate of $9,020. During 2015, Mr. Williams was appointed to the board of directors of the Company and consequently
became an affiliate of the Company. The provision of services by Bison Financial Group continued in 2016, during which time the
Company paid Bison Financial Group an aggregate of $49,000 for the years ended September 30, 2016. In 2016, Mr. Williams was appointed
as Chief Financial Officer of the Company.
Effective as of October 1, 2015, Financial
Gravity Holdings, a subsidiary of the Company, purchased all of the equity interests of Tax Coach Software, LLC, an Ohio limited
liability company, for aggregate consideration of 2,000,000 shares of the common stock of Financial Gravity (the “Tax Coach
Software Transaction”). The Purchase Agreement for the Tax Coach Software Transaction was amended effective as of March 25,
2016 to give effect to a three-for-one (3:1) forward split of the Financial Gravity Holdings common stock, bringing the aggregate
consideration to 6,000,000 shares of the common stock of Financial Gravity Holdings.
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 7.2% of the Company’s common stock as of September 30, 2016 (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 7.8% of the Company’s common stock as of September
30, 2016 (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 2016, Financial Gravity Holdings
paid
$218,990
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 2015, Financial Gravity Holdings
paid
$198,000
to Tax Tuneup, LLC, a consulting firm owned and controlled by Mr. Lyon,
in compensation for services not related to his roles as an officer and director. The services rendered to Financial Gravity Holdings
involved providing weekly content for company newsletters, hosting weekly events, hosting additional webinars as needed, and other
services agreed upon in writing.
On December 30, 2014, Financial Gravity
Holdings acquired 100% of the capital stock of Cloud9 Holdings Company. In consideration of such purchase, Financial Gravity Holdings
issued 1,314,477 shares of Financial Gravity Holdings common stock to the selling shareholder. The selling stockholder in the transaction
was Mr. Paul Boyd, then serving as Chief Operating Officer of the Company. The shares of Financial Gravity Holdings common stock
which served as the consideration in the transaction had an approximate value of $438,159. In connection with the transaction,
Financial Gravity Holdings also agreed to pay $132,682 of pre-existing expenses, including a payable to Mr. Boyd.
Director Independence
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, George Crumley, constituting one of the five 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 John Pollock, Dave Crowley, 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.
INDEX TO FINANCIAL STATEMENTS
Financial Gravity Companies, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
|
|
|
June 30, 2017
|
|
|
September 30, 2016
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
154,468
|
|
|
$
|
132,803
|
|
|
Trade accounts receivable
|
|
|
145,828
|
|
|
|
78,843
|
|
|
Accounts receivable - related party
|
|
|
4,506
|
|
|
|
4,506
|
|
|
Prepaid expenses
|
|
|
58,963
|
|
|
|
32,239
|
|
|
Total current assets
|
|
|
363,765
|
|
|
|
248,391
|
|
|
OTHER ASSETS
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
132,389
|
|
|
|
141,080
|
|
|
Investment
|
|
|
–
|
|
|
|
10,000
|
|
|
Customer relationships, net
|
|
|
25,256
|
|
|
|
33,675
|
|
|
Proprietary content, net
|
|
|
410,235
|
|
|
|
459,463
|
|
|
Trade name
|
|
|
69,300
|
|
|
|
69,300
|
|
|
Non-compete agreements, net
|
|
|
17,095
|
|
|
|
21,040
|
|
|
Trademarks
|
|
|
22,642
|
|
|
|
22,592
|
|
|
Goodwill
|
|
|
1,094,702
|
|
|
|
1,094,702
|
|
|
|
|
$
|
2,135,384
|
|
|
$
|
2,100,243
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
Accounts payable - trade
|
|
$
|
31,432
|
|
|
$
|
27,229
|
|
|
Accrued expenses
|
|
|
131,032
|
|
|
|
103,654
|
|
|
Deferred revenue
|
|
|
62,887
|
|
|
|
32,739
|
|
|
Line of credit
|
|
|
18,481
|
|
|
|
19,732
|
|
|
Notes payable
|
|
|
132,408
|
|
|
|
93,397
|
|
|
Pre-merger payables
|
|
|
18,846
|
|
|
|
99,056
|
|
|
Total current liabilities
|
|
|
395,086
|
|
|
|
375,807
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Common stock - 300,000,000 shares authorized; $0.001 par value
|
|
|
35,538
|
|
|
|
34,863
|
|
|
Additional paid-in capital
|
|
|
5,504,285
|
|
|
|
4,768,596
|
|
|
Accumulated deficit
|
|
|
(3,799,525
|
)
|
|
|
(3,079,023
|
)
|
|
Total stockholders’ equity
|
|
|
1,740,298
|
|
|
|
1,724,436
|
|
|
|
|
$
|
2,135,384
|
|
|
$
|
2,100,243
|
|
The accompanying notes are in integral part
of these consolidated financial statements.
Financial Gravity Companies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
For the Three Months Ended
June 30,
|
|
|
For the Nine Months Ended
June 30,
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
REVENUE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment management fees
|
|
$
|
277,519
|
|
|
$
|
229,949
|
|
|
$
|
913,022
|
|
|
$
|
684,653
|
|
|
Service income
|
|
|
540,400
|
|
|
|
450,032
|
|
|
|
1,601,560
|
|
|
|
1,205,384
|
|
|
Commissions
|
|
|
–
|
|
|
|
10,043
|
|
|
|
41,031
|
|
|
|
34,073
|
|
|
Rental income
|
|
|
1,500
|
|
|
|
5,000
|
|
|
|
4,500
|
|
|
|
11,400
|
|
|
Total revenue
|
|
|
819,419
|
|
|
|
695,024
|
|
|
|
2,560,113
|
|
|
|
1,935,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services
|
|
|
11,919
|
|
|
|
18,155
|
|
|
|
52,883
|
|
|
|
55,522
|
|
|
Professional services
|
|
|
324,296
|
|
|
|
238,248
|
|
|
|
953,947
|
|
|
|
871,696
|
|
|
Depreciation and amortization
|
|
|
24,947
|
|
|
|
38,127
|
|
|
|
74,391
|
|
|
|
115,420
|
|
|
General and administrative
|
|
|
107,669
|
|
|
|
106,845
|
|
|
|
384,477
|
|
|
|
291,263
|
|
|
Management fees - related party
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
153,000
|
|
|
|
163,333
|
|
|
Marketing
|
|
|
131,508
|
|
|
|
106,922
|
|
|
|
307,977
|
|
|
|
298,385
|
|
|
Salaries and wages
|
|
|
530,125
|
|
|
|
476,877
|
|
|
|
1,311,554
|
|
|
|
1,289,374
|
|
|
Total operating expenses
|
|
|
1,180,464
|
|
|
|
1,035,174
|
|
|
|
3,238,229
|
|
|
|
3,084,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss
|
|
|
(361,045
|
)
|
|
|
(340,149
|
)
|
|
|
(678,116
|
)
|
|
|
(1,149,482
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
–
|
|
|
|
–
|
|
|
|
191
|
|
|
|
–
|
|
|
Interest expense
|
|
|
(14,246
|
)
|
|
|
(2,035
|
)
|
|
|
(42,577
|
)
|
|
|
(6,558
|
)
|
|
Total other (expense) income
|
|
|
(14,246
|
)
|
|
|
(2,035
|
)
|
|
|
(42,386
|
)
|
|
|
(6,558
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(375,291
|
)
|
|
$
|
(342,184
|
)
|
|
$
|
(720,502
|
)
|
|
$
|
(1,156,040
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS PER SHARE - Basic and Diluted
|
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.04
|
)
|
The accompanying notes are in integral part
of these consolidated financial statements.
Financial Gravity Companies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
2017
|
|
|
2016
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(720,502
|
)
|
|
$
|
(1,156,040
|
)
|
|
Adjustments to reconcile net loss to net cash used in operating activities
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
74,391
|
|
|
|
115,420
|
|
|
Write off of fixed assets
|
|
|
–
|
|
|
|
15,787
|
|
|
Stock compensation for services provided by a third party
|
|
|
50,000
|
|
|
|
–
|
|
|
Services provided to relieve accounts receivable - other
|
|
|
–
|
|
|
|
(16,430
|
)
|
|
Changes in operating assets and liabilities, net of effects of purchase of subsidiaries
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
|
(66,985
|
)
|
|
|
43,876
|
|
|
Accounts receivable - related party
|
|
|
–
|
|
|
|
32,194
|
|
|
Prepaid expenses
|
|
|
(26,723
|
)
|
|
|
(94,158
|
)
|
|
Accounts payable – trade
|
|
|
4,203
|
|
|
|
(25,226
|
)
|
|
Accounts payable - related party
|
|
|
–
|
|
|
|
(2,300
|
)
|
|
Accrued expenses
|
|
|
27,377
|
|
|
|
(2,435
|
)
|
|
Deferred revenue
|
|
|
30,148
|
|
|
|
45,967
|
|
|
Pre-merger liabilities
|
|
|
(18,845
|
)
|
|
|
–
|
|
|
Net cash used in operating activities
|
|
|
(646,936
|
)
|
|
|
(1,001,559
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Cash from the sale of investment
|
|
|
10,000
|
|
|
|
–
|
|
|
Cash paid for purchase of property and equipment
|
|
|
(4,109
|
)
|
|
|
(15,572
|
)
|
|
Cash paid for purchase of subsidiary
|
|
|
–
|
|
|
|
(10,000
|
)
|
|
Deposit for future acquisition
|
|
|
–
|
|
|
|
50,000
|
|
|
Purchases of trademarks
|
|
|
(50
|
)
|
|
|
(1,692
|
)
|
|
Net cash provided by investing activities
|
|
|
5,841
|
|
|
|
22,737
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Borrowings from notes payable
|
|
|
100,000
|
|
|
|
–
|
|
|
Payments on notes payable
|
|
|
(60,989
|
)
|
|
|
–
|
|
|
Payments on line of credit
|
|
|
(1,251
|
)
|
|
|
20,416
|
|
|
Proceeds from the sale of common stock
|
|
|
625,000
|
|
|
|
377,715
|
|
|
Net cash provided by financing activities
|
|
|
662,760
|
|
|
|
398,131
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
21,665
|
|
|
|
(580,691
|
)
|
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
|
|
132,803
|
|
|
|
801,542
|
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$
|
154,468
|
|
|
$
|
220,851
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
40,637
|
|
|
$
|
2,555
|
|
|
Taxes
|
|
$
|
–
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash activities:
|
|
|
|
|
|
|
|
|
|
Common stock issued upon acquisition of: Tax Coach Software, LLC (Note 9)
|
|
$
|
–
|
|
|
$
|
1,904,620
|
|
|
Net assets (liabilities) assumed for purchase of: Tax Coach Software, LLC (Note 9)
|
|
$
|
–
|
|
|
$
|
809,918
|
|
|
Settlement of payables owed by legacy Pacific Oil Company Stockholders
|
|
$
|
61,365
|
|
|
$
|
–
|
|
The accompanying notes are in integral part
of these consolidated financial statements.
Financial Gravity Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NATURE OF BUSINESS
Financial Gravity Companies, Inc. and Subsidiaries
(“the Company”) is located in Allen, Texas. The wholly-owned subsidiaries of the organization include: Financial Gravity
Holdings, Inc., Financial Gravity Operations, Inc., Financial Gravity Tax, Inc., Financial Gravity Wealth, Inc., Cloud9 Holdings
Company, Financial Gravity Business, LLC, Financial Gravity Ventures, LLC., SASH Corporation (doing business as Metro Data Processing)
and Tax Coach Software, LLC.
On September 30, 2016, Financial Gravity
Holdings entered into a reverse merger transaction with Pacific Oil Company (the “Merger”). Pacific Oil Company was
incorporated in Nevada on December 5, 2005 as Kat Racing, Inc. On January 4, 2013, the Articles of Incorporation were amended to
change the name of the Company to Prairie West Oil & Gas, Ltd. On July 26, 2013, the Articles of Incorporation were amended
to change the name of the company to Pacific Oil Company. On October 31, 2016, following the Merger, the Articles of Incorporation
were amended to change the name of the Company to Financial Gravity Companies, Inc. On the effective date of the Merger, the business
of Financial Gravity Holdings became the only business of Pacific Oil Company (currently named Financial Gravity Companies, Inc.).
Financial Gravity Holdings is now a subsidiary
of the Company. 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.
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.
Financial Gravity Business, LLC. (“FGB”)
formerly Cloud9b2b, LLC (“Cloud9 B2B”) was acquired by Cloud9 Holdings Company effective December 31, 2014 and provides
business consulting services to Small Business Owners that identify ways to leverage a business’ current assets (people,
platforms and processes) and reduce exposure to risk, both short-term and long-term, while simplifying the business and increasing
profitability.
Financial Gravity Ventures, LLC. (“FGV”)
formerly Cloud9 Accelerator, LLC was acquired by Cloud9 Holdings Company effective December 31, 2014 and holds acquired companies
and business assets until they are integrated into the main stream Financial Gravity business structure. FGV does not have any
financial activity through June 30, 2017.
Effective January 1, 2015, Cloud9 assigned
100% of the membership interest in Cloud9 Accelerator, LLC and Cloud9b2b, to FGO.
Financial Gravity Tax, Inc. (“FG
Tax”) formerly Business Legacy, Inc., (“BLI”) was acquired by FGO for no cost effective January 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.
Financial Gravity Wealth, Inc. (“FG
Wealth”) formerly Pollock Advisory Group, Inc., (“PAG”) was acquired by FGO for no cost effective January 1,
2015 and is a registered investment advisor, located in Allen, Texas. PAG 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 is located in Tulsa, Oklahoma, and provides payroll services, software, and support solutions to business owners.
Tax Coach Software, LLC, an Ohio limited
liability company (“TCS”), was acquired effective October 1, 2015. The purchase was made by FGH. Located in Cincinnati,
Ohio, TCS 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 FGH, FGO, Cloud9 (from the date of acquisition), including Cloud9b2b and Cloud9 Accelerator, LLC, PAG (from the
date of acquisition), BLI (from the date of acquisition), TCS (from the date of acquisition), and MDP (from the date of acquisition),
(collectively referred to as “the Company”). All significant intercompany accounts and transactions have been eliminated
on consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid
investments with an initial maturity of three months or less, when purchased, to be cash equivalents. The Company maintains cash
balances at several financial institutions located throughout the United States, which at times may exceed insured limits. The
Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and
cash equivalents.
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. There was no allowance for doubtful accounts recorded as of June 30, 2017 and September 30, 2016.
In the normal course of business, the Company
may extend credit to its customers, on an unsecured basis, substantially all of whom are located in the United States of America.
The Company does not believe that it is exposed to any significant risk of loss on accounts receivable.
Prepaid Expenses
Prepaid expenses consist of expenses the
Company has paid for prior to the service or good being provided. These prepaid expenses will be recorded as expense at the time
the service has been provided.
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 income as incurred.
Customer Relationships
The customer relationships acquired as
part of the TCS purchase have been recognized in the accompanying consolidated balance sheets at $44,900, the value attributed
to such relationships on the date of the purchase (see Note 9). The customer relationships are being amortized on a straight-line
basis over a four-year estimated life. During each of the three and nine months ended June 30, 2017 and 2016, the Company recorded
amortization expense of $2,806 and $8,418, respectively, on this intangible asset, which is included in depreciation and amortization
expense in the accompanying consolidated statements of operations. Accumulated amortization at June 30, 2017 was $19,643 and $11,225
at September 30, 2016.
Proprietary Content
The proprietary content acquired as a part
of the TCS purchase has been recognized in the accompanying consolidated balance sheets at $525,100, the value attributed to such
content on the date of the purchase (see Note 9). The proprietary content is being amortized on a straight-line basis over an eight-year
estimated life. During each of the three and nine months ended June 30, 2017 and 2016, the Company recorded amortization expense
of $16,410 and $49,230, respectively, on this intangible asset, which is included in depreciation and amortization expense in the
accompanying consolidated statements of operations. Accumulated amortization at June 30, 2017 was $114,866 and $65,637 at September
30, 2016.
Trade Name
The trade name acquired as a part of the
TCS purchase has been recognized in the accompanying consolidated balance sheets at $69,300, the value attributed to such name
on the date of the purchase (see Note 9). Management has determined that the trade name has an indefinite life and does not consider
the value of the trade name recorded in the accompanying consolidated balance sheet to be impaired as of June 30, 2017.
Prospect List
The prospect list acquired as a part of
the TCS purchase has been recognized in the accompanying consolidated balance sheets at $53,800, the value attributed to such list
on the date of the purchase (see Note 9). The prospect list is being amortized on a straight-line basis over a one-year estimated
life. During the year ended September 30, 2016, the Company recorded the full amortization expense of $53,800 on this intangible
asset, which is included in depreciation and amortization expense in the accompanying consolidated statements of operations. Accumulated
amortization at September 31, 2016 was $53,800.
Non-compete Agreements
Non-compete agreements entered into as
a part of the TCS purchase have been recognized in the accompanying consolidated balance sheets at $26,300, the value attributed
to such agreements on the date of the purchase (see Note 9). The non-compete agreements are being amortized on a straight-line
basis over the five-year term of the non-compete clause of the agreement. During each of the three and nine months ended June 30,
2017 and 2016, the Company recorded amortization expense of $1,315 and $3,945, respectively, on this intangible asset, which is
included in depreciation and amortization expense in the accompanying consolidated statements of operations. Accumulated amortization
at June 30, 2017 was $9,205 and $5,260 at September 30, 2016.
Trademarks
The Company accounts for trademarks in
accordance with GAAP and accordingly, trademarks are stated at cost. Trademarks with indefinite lives are not amortized but are
tested for impairment at least annually. Management has determined that the trademarks have an indefinite life and do not consider
the value of trademarks recorded in the accompanying consolidated balance sheet to be impaired as of June 30, 2017.
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 its 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 its 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 its carrying value. Management does not consider the value of goodwill recorded for TCS in the
accompanying consolidated balance sheet to be impaired as of June 30, 2017, and September 30, 2016. However, goodwill attributed
to Cloud9 and MDP was deemed to be impaired during the year ended September 30, 2016 as the assumptions for what those entities
would be used for at acquisition had significantly changed and the valuation of those entities during the year did not support
the goodwill at acquisition.
The fair values of the assets acquired
and liabilities assumed were determined primarily using the income approach, which determines the fair value for the asset based
on the present value of cash flows projected to be generated by the asset. Projected cash flows are discounted at a rate of return
that reflects the relative risk of achieving the cash flow and the time value of money. The fair value of relationships was determined
by projecting expected cash flows and subtracting the portion of the cash flow derived by the relevant contributory assets.
The accompanying consolidated balance sheets,
consolidated statements of operations, changes in stockholders’ equity and cash flows include the results of operations of
the acquired subsidiaries from the date of acquisition.
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 June 30, 2017 and September
30, 2016.
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 2014 are still subject for examination by taxing authorities.
Losses Per Share
Basic earnings per common share is computed
by dividing net losses available to common stockholders by the weighted average number of common shares outstanding for the reporting
period. Average number of common shares were 34,973,013 and 31,990,466 for the three months ended June 30, 2017 and 2016, respectively.
Average number of common shares were 35,383,552 and 32,913,403 for the nine months ended June 30, 2017 and 2016, respectively.
For the nine months ended June 30, 2017
and 2016, approximately 2,340,171 and 2,200,346 shares of common stock underlying options and warrants, respectively, were not
added to the diluted average shares because inclusion of such shares would be antidilutive.
Revenue Recognition
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.
FG Tax and MDP generate service income
from consulting and other professional services performed.
Commission revenue is derived from the
sale of annuities and premiums on life insurance policies held by third parties. The revenue is recognized at the time the policy
is issued.
Revenue represents gross billings less
discounts, and is calculated 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 Coach Software has 3 types of
services that are charged and collected on a month to month subscription basis (Tax Coach 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.
Advertising
Advertising costs are charged to operations
when incurred. Advertising and marketing expense was $131,508 and $106,922 for the three months ended June 30, 2017 and 2016, respectively;
and $307,977 and $298,385 for the nine months ended June 30, 2017 and 2016, 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 from 0.97% in 2016 and 1.15% in 2017, dividend
yield of 0%, expected life of 2 years and volatility of 1.00.
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.
The Company is actively seeking growth
of its service offerings, both organically and via new client relationships. Management, in the ordinary course of business, is
trying to raise additional capital through sales of common stock as well as seeking financing via equity or debt, or both from
third parties. There are no assurances that additional financing will be available on favorable terms, or at all. If additional
financing is not available, the Company will need to reduce, defer or cancel development programs, planned initiatives and overhead
expenditures. The failure to adequately fund its capital requirements could have a material adverse effect on the Company’s
business, financial condition and results of operations. Moreover, the sale of additional equity securities to raise financing
will result in additional dilution to the Company’s stockholders, and incurring additional indebtedness could involve an
increased debt service cash obligation, the imposition of covenants that restrict the Company’s operations or the Company’s
ability to perform on its current debt service requirements. The consolidated financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a going concern.
Future Accounting Pronouncements
In November 2015, the FASB issued ASU No.
2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, part of the FASB’s simplification initiative.
ASU 2015-17 requires companies to classify deferred tax liabilities and assets as noncurrent. ASU 2015-17 is effective for fiscal
years beginning after December 15, 2018. The Company does not expect any significant financial impact to the financial statements
upon adoption of this standard.
In February 2016, the FASB issued ASU Update
No. 2016-02 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 2016-02 is effective for the years beginning after December 15, 2018
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 2016, the FASB issued ASU Update
No. 2016-07, 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 2016-07 is
effective for the years beginning after December 15, 2016. 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 2016, the FASB issued ASU Update
No. 2016-08, Revenue From Contracts with Customers (Topic 606). The amendments in this Update are intended to improve the operability
and understandability of the implementation guidance on principal versus agent considerations by clarifying the criteria in determining
a principal versus agent relationship. The core principle of the guidance is that an entity should recognize revenue to depict
the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects
to be entitled in exchange for those goods or services. To achieve this core principle, an entity should apply the following five
steps: (1) identify contracts with customers, (2) identify the performance obligations in the contracts, (3) determine the transaction
price, (4) allocate the transaction price to the performance obligation in the contract, and (5) recognize revenue as the entity
satisfies performance obligations. The new guidance is effective for annual reporting periods beginning after December 15, 2017,
including interim periods within that reporting period. Early application is permitted for annual reporting periods beginning after
December 15, 2016, including interim periods within that reporting period. We are currently evaluating what impact adoption of
this guidance will have on our financial position, results of operations, cash flows and disclosures. The Company does not expect
any significant financial impact to the financial statements upon adoption of this standard.
In March 2016, the FASB issued ASU Update
No. 2016-09, 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 2016-09 is effective for annual periods beginning
after December 15, 2016, 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.
|
|
2.
|
PROPERTY AND EQUIPMENT
|
Property and equipment consist of the following at June 30,
2017 and September 30, 2016:
|
|
|
Estimated
Service Lives
|
|
June 30,
|
|
|
September 30,
|
|
|
Furniture and fixtures
|
|
5 years
|
|
$
|
9,703
|
|
|
$
|
6,994
|
|
|
Internally developed software
|
|
10 years
|
|
|
152,000
|
|
|
|
152,000
|
|
|
|
|
|
|
|
161,703
|
|
|
|
158,994
|
|
|
Less accumulated depreciation and amortization
|
|
|
|
|
29,314
|
|
|
|
17,914
|
|
|
|
|
|
|
$
|
132,389
|
|
|
$
|
141,080
|
|
Depreciation expense was $3,800 during each of the three months
ended June 30, 2017 and 2016, respectively; and $11,400 during each of the nine months ended June 30, 2017 and 2016.
Trademarks consist of the following:
|
Trademarks at September 30, 2015
|
|
$
|
20,174
|
|
|
Trademarks purchased at cost
|
|
|
2,418
|
|
|
Trademarks at September 30, 2016
|
|
|
22,592
|
|
|
Trademarks purchased at cost
|
|
|
50
|
|
|
Trademarks at June 30, 2017
|
|
$
|
22,642
|
|
The Company has a revolving line of credit
with Wells Fargo Bank, N.A. in the amount of $55,000. 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 7.5%. This line of credit is collateralized by
the personal guarantee of the majority stockholder. Line of credit balance was $18,481 and $19,732 at June 30, 2017 and September
30, 2016, respectively.
With the acquisition of Tax Coach Software,
LLC, the Company also acquired a promissory note payable to The Huntington National Bank. The note permits maximum borrowings of
$100,000. Interest is paid monthly at prime plus 1.25% and the balance is due on demand. The facility matures in February 2018,
is collateralized by substantially all assets of Tax Coach Software, LLC, and is secured by a personal guarantee from Keith VandeStadt,
a significant stockholder of the Company. The balance outstanding under this note payable was $92,498 and $93,397 at June 30, 2017
and September 30, 2016, respectively.
The Company entered into a Business Loan
and Security Agreement to Small Business Financial Solutions, LLC, on October 28, 2016 in the amount of $100,000. The transaction
is structured as an advance against assets. The lender has a security interest in all collateral of the Company, and outstanding
under this note payable was $39,910 and $0 at June 30 2017, and September 30, 2016, respectively.
Accrued expenses consist of the following
at June 30, 2017 and September 30, 2016:
|
|
|
June 30, 2017
|
|
|
September 30, 2016
|
|
|
Accrued payroll
|
|
$
|
45,627
|
|
|
$
|
44,327
|
|
|
Accrued operating expenses
|
|
|
85,155
|
|
|
|
59,077
|
|
|
Deferred rent
|
|
|
250
|
|
|
|
250
|
|
|
|
|
$
|
131,032
|
|
|
$
|
103,654
|
|
For the three and nine months ended June
30, 2017 and 2016, the effective tax rate of 0% varies from the U.S. federal statutory rate primarily due to state income taxes,
net losses, certain nondeductible expenses and an increase in the valuation allowance associated with the net operating loss carryforwards.
Our deferred tax assets related to net operating loss carryforwards remain fully reserved due to uncertainty of utilization of
those assets.
A deferred tax liability or asset is determined
based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax
rates which will be in effect when these differences reverse. Deferred tax expense or benefit in the accompanying consolidated
statements of operations are the result of changes in the assets and liabilities for deferred taxes. The measurement of deferred
tax assets is reduced, if necessary, by the amount for any tax benefits that, based on available evidence, are not expected to
be realized. Income tax expense is the current tax payable or refundable for the year plus or minus the net change in the deferred
tax assets and liabilities. Deferred income taxes of the Company arise from the temporary differences between financial statement
and income tax recognition of NOL carry-forwards.
The deferred tax assets and liabilities
in the accompanying consolidated balance sheets include the following components at June 30, 2017 and September 30, 2016:
June 30,
2017
|
|
September 30,
2016
|
|
|
|
|
|
Net non-current deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Net operating loss carry-forward
|
|
$
|
1,336,430
|
|
|
$
|
924,304
|
|
|
Net non-current deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
11,957
|
|
|
|
109,471
|
|
|
Net
|
|
|
1,324,743
|
|
|
|
814,833
|
|
|
Less valuation allowance
|
|
|
(1,324,743
|
)
|
|
|
(814,833
|
)
|
|
Net deferred taxes
|
|
$
|
–
|
|
|
$
|
–
|
|
|
|
8.
|
COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS
|
Leases
The Company conducts operations from leased
premises. 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 three months ended June 30, 2017 and 2016 was $22,887 and $19,481,
respectively; and $45,088 and $39,717 for the nine months ended June 30, 2017 and 2016, 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.
Future minimum rental obligations as of
June 30, 2017 are as follows:
|
2017
|
|
$
|
17,100
|
|
|
2018
|
|
|
68,400
|
|
|
2019
|
|
|
5,700
|
|
|
|
|
$
|
91,200
|
|
Contingencies
Prior to the merger, Pacific Oil Company
had approximately $75,000 outstanding payables. A stock pledge from prior management has been earmarked to pay down the balance.
Management believes the amount is sufficient to pay the balance in full.
Legal Proceedings
From time to time, we are a party to or
otherwise involved in legal proceedings, claims and other legal matters, arising in the ordinary course of our business or otherwise.
A subsidiary of the Company is currently involved in one legal proceeding, the outcome of which will not be material to our ability
to operate or market our services, our consolidated financial position, results of operations or cash flows.
Business Acquisition – Tax Coach
Software, Inc.
Effective October 1, 2015, the Company
completed the acquisition of Tax Coach Software, LLC, an Ohio limited liability company (“Tax Coach Software”). The
purchase was made by Financial Gravity Holdings, Inc. Under the terms of the acquisition, the Company acquired 100% of Tax Coach
Software’s membership interests, for shares of common stock of the Company. The total number of shares of common stock issued
to the owners of Tax Coach Software was 6,000,000 shares (as amended), at par value of $0.00001 per share, in exchange for 100%
of the membership interests of Tax Coach Software. Goodwill, as a result of this acquisition, is not deductible for tax purposes.
Certificates representing the shares of
common stock which served as the purchase price, were required to be deposited in escrow as of the effective date of the acquisition.
As part of the purchase agreement documentation, the Sellers maintained the right to unwind the transaction under certain conditions
as described. The Sellers also retained all rights as shareholders while shares were held in escrow, including the right to vote.
Under the escrow agreement, if the average daily closing price of the shares for any continuous 10-day trading period equals or
exceeds $1.00 during the thirty-six months following October 28, 2015, the Company had the right to cause the shares deposited
in escrow to be distributed to the Sellers, terminating any right to unwind the transaction. If the shares did not trade as to
provide a closing price during the thirty-six months following October 28, 2015 or if the average daily closing price of the shares
for any continuous 10-day trading period failed to equal or exceed $1.00 during the thirty-six months following October 28, 2015,
then no later than five days following the conclusion of the thirty-six month period, the Sellers would have the right to unwind
the acquisition of Tax Coach Software by the Company and the Company would immediately transfer the ownership of Tax Coach Software
back to the Sellers in exchange for the return of common stock issued during the acquisition. The closing price was defined as
the last closing trade price for the shares on an electronic bulletin board as reported by Bloomberg or on the NASDAQ Capital Market
or the highest bid price as reported on “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.).
If listed for trading on the American or New York Stock Exchange during the thirty-six months following October 28, 2015 it will
be deemed to meet the $1.00 benchmark.
On November 11, 2016, the parties to the
escrow agreement agreed (in a Company Distribution Notice) that the average daily closing price of the shares had exceeded the
$1.00 threshold and accordingly, the shares were released from escrow and the right to unwind the Tax Coach Software acquisition
transaction terminated.
Three employment agreements were entered
into as a condition to the acquisition. Each agreement has an effective date as of November 1, 2015 and is effective for a period
of three years. Two employment agreements include a base salary of $42,000 per year, per employee. These same two agreements, include
a bonus that is calculated, for each employee, as the sum of 40% of the gross profit of Tax Coach Software for all revenues that
exceed $850,000 and are less than $950,000 and 20% of the gross profit of Tax Coach Software for all revenues earned in excess
of $950,000. One employment agreement includes a base salary of $60,000 per year. This same agreement, includes a bonus that is
calculated as the sum of 20% of the gross profit of Tax Coach Software for all revenues that exceed $850,000 and are less than
$950,000 and 10% of the gross profit of Tax Coach Software for all revenues earned in excess of $950,000. Gross profit is determined
in accordance with generally acceptable accounting principles, net of other amounts paid under employment and consulting agreements.
The agreements also include certain termination and non-compete clauses. Compensation during the month of October 2015 to be paid
to the three employees totals an aggregate amount of $49,150.
In addition to the referenced employment
agreements, three consulting agreements were entered into as a condition to the acquisition. Two agreements require certain services
at a fixed fee of $17,000 per month, per agreement, commencing on November 1, 2015 with a 90-day termination clause. One agreement
requires certain services at a fixed fee of $3,500 per month, commencing on November 1, 2015 with a 90-day termination clause.
$444,650 in professional fees were paid under these three agreements in the year ended September 30, 2016.
Tax Coach Software, located in Cincinnati,
Ohio, provides three primary services including monthly subscription revenue from the “Tax Coach” software system,
coaching revenue and email marketing services for customers.
The transaction resulted in a fair value of the acquisition
of $1,094,702 as follows:
|
Common stock issued in stock exchange at a value of $0.25 per share (as amended)
|
|
$
|
1,500,020
|
|
|
Additional paid in capital for the escrow agreement provision
|
|
|
404,600
|
|
|
Total value of the goodwill generated on acquisition
|
|
|
1,904,620
|
|
|
|
|
|
|
|
|
Intangible assets acquired
|
|
|
(719,400
|
)
|
|
Net tangible assets acquired
|
|
|
(90,518
|
)
|
|
Total assets acquired
|
|
|
(809,918
|
)
|
|
|
|
|
|
|
|
Total fair value of acquisition
|
|
$
|
1,094,702
|
|
The intangible assets were as follows:
|
Customer relationships
|
|
$
|
44,900
|
|
|
Proprietary content
|
|
|
525,100
|
|
|
Trade name
|
|
|
69,300
|
|
|
Prospect list
|
|
|
53,800
|
|
|
Non-compete agreements
|
|
|
26,300
|
|
|
Total intangible assets
|
|
$
|
719,400
|
|
The tangible assets acquired and liabilities assumed were as
follows:
|
Assets acquired:
|
|
|
|
|
Cash
|
|
$
|
57,025
|
|
|
Accounts receivable
|
|
|
15,476
|
|
|
Accounts receivable - other
|
|
|
5,408
|
|
|
Internally developed software
|
|
|
152,000
|
|
|
Total tangible assets
|
|
|
229,909
|
|
|
|
|
|
|
|
|
Liabilities assumed:
|
|
|
|
|
|
Accrued expenses
|
|
|
69,485
|
|
|
Note payable
|
|
|
69,906
|
|
|
Total liabilities
|
|
|
139,391
|
|
|
|
|
|
|
|
|
Net acquired assets
|
|
$
|
90,518
|
|
The primary asset acquired from Tax Coach
Software is the proprietary content which includes a comprehensive platform of tax planning strategies including marketing and
instructional guides. TCS will provide the Company with expertise in areas of service which expand beyond the Company’s current
service areas. The Company believes they will also be able to leverage the use of the proprietary content in maximizing the benefits
of consulting with customers. The acquisition of this entity increases the additional services the Company can provide to high
net worth individuals and business in accordance with its strategic business plan.
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.
For each of the Company and Financial Gravity
Holdings, its subsidiary, no preferred shares are issued or outstanding as of June 30, 2017 and September 30, 2016, respectively.
Warrants
As part of the sale of common shares starting
October 2016, the Company granted to investors who invest at value of $100,000 or above common stock purchase warrants (the “Warrants”).
In the quarter ended December 31, 2016 there were three individual investments of $100,000 for which the Company issued warrants
for the purchase of 75,000 shares of common stock of the Company at an exercise price of $1.25 per share for a 1-year term and
an additional 75,000 shares of common stock of the Company at an exercise price of $1.50 for a 2-year term. In the quarter ended
March 31, 2017 there were two individual investments of at least $100,000 for which the Company issued warrants for the purchase
of 50,000 shares of common stock of the Company at an exercise price of $1.25 per share for a 1-year term and an additional 50,000
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.
Private Placement Memorandum, Financial
Gravity Holdings
On October 31, 2014, Financial Gravity
issued a private placement memorandum (“PPM”) for stock purchases of up to 2,000,000 shares of common stock at a cost
of $1.00 and a par value of $0.00001, with a minimum purchase level of $50,000 per investor. The subscription period initially
expired June 30, 2015, however, the Board of Directors extended the offering period indefinitely, and increased the number of shares
authorized for sale under the PPM incrementally to accommodate additional investor interest.
During the years ended September 30, 2016
and 2015, 785,000 shares and 5,625,000 shares, respectively, were issued under the PPM for $535,000 and $1,875,000 of additional
paid-in capital at September 30, 2016 and 2015, respectively.
Additional Common Stock Issuances, Financial
Gravity Holdings
During the year ended September 30, 2016,
one of the founding members of Financial Gravity Holdings forfeited 2,926,294 common shares, in addition to the issuance of shares
sold under the PPM and common shares issued in connection with the Tax Coach Software, LLC acquisition.
Additional Common Stock Issuances, Financial
Gravity Companies, Inc
On April 1, 2017, the Company entered into
an agreement with FMW Media Works Corp (“FMW”), wherein FMW would provide television, production, and media analysis
to the Company. The Company issued 50,000 shares of common stock, worth $50,000, to FMW along with $3,500 cash as payment for services.
During the nine months ended June 30, 2017, the Company sold 675,000 shares of common stock for $625,000.
Stock Split, Financial Gravity Holdings
Effective October 20, 2015, Financial Gravity
Holdings declared a three for one stock split of its common stock. Upon the stock split, every one share of common stock issued
and outstanding was automatically reclassified and converted into three shares of common stock. The common stock retained a par
value of $0.00001 per share.
Effective February 27, 2015, the Company
established the 2015 Stock Option Plan (the “Plan”). The Board of Directors of the Company has the authority and discretion
to grant stock options. The maximum number of shares of stock that may be issued pursuant to the exercise of options under the
Plan is 9,000,000. Eligible individuals include any employee of the Company or any director, consultant, or other person providing
services to the Company. The expiration date and exercise price are as established by the Board of Directors of the Company. No
option may be issued under the Plan after February 27, 2017.
Effective November 22, 2016, the Company
established the 2016 Stock Option Plan (the “2016 Plan”). The Board of Directors of the Company has the authority and
discretion to grant stock options. The maximum number of shares of stock that may be issued pursuant to the exercise of options
under the 2016 Plan is 20,000,000. Eligible individuals include any employee of the Company or any director, consultant, or other
person providing services to the Company. The expiration date and exercise price are as established by the Board of Directors of
the Company. No option may be issued under the Plan after ten years from the date of adoption of the 2016 Plan.
|
|
|
Shares
Under
Option
|
|
|
Value of
Shares
Under
Option
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
|
Outstanding - September 30, 2015
|
|
|
1,500,996
|
|
|
$
|
7,359
|
|
|
$
|
0.33
|
|
|
|
|
|
|
Granted
|
|
|
1,024,400
|
|
|
$
|
19,677
|
|
|
|
1.00
|
|
|
|
102 months
|
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Canceled or expired
|
|
|
325,050
|
|
|
$
|
4,907
|
|
|
|
0.33
|
|
|
|
–
|
|
|
Outstanding - September 30, 2016
|
|
|
2,200,346
|
|
|
$
|
22,129
|
|
|
|
0.64
|
|
|
|
101 months
|
|
|
Granted
|
|
|
32,000
|
|
|
$
|
11,532
|
|
|
|
1.94
|
|
|
|
114 months
|
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Canceled or expired
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Outstanding - December 31, 2016
|
|
|
2,232,346
|
|
|
$
|
33,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable - December 31, 2016
|
|
|
2,200,346
|
|
|
|
|
|
|
|
0.64
|
|
|
|
97 months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
37,600
|
|
|
$
|
–
|
|
|
|
1.19
|
|
|
|
116 months
|
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
Canceled or expired
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
Outstanding - March 31, 2017
|
|
|
2,269,946
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable - March 31, 2017
|
|
|
2,215,379
|
|
|
|
|
|
|
|
0.64
|
|
|
|
100 months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
19,800
|
|
|
$
|
–
|
|
|
|
1.19
|
|
|
|
116 months
|
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
Canceled or expired
|
|
|
37,600
|
|
|
|
–
|
|
|
|
1.19
|
|
|
|
|
|
|
Outstanding - June 30, 2017
|
|
|
2,252,146
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable - June 30, 2017
|
|
|
2,215,171
|
|
|
|
|
|
|
|
0.65
|
|
|
|
100 months
|
|
All outstanding stock options at September
30, 2016 became immediately vested upon the completion of the reverse merger with Pacific Oil Company. Total compensation expense
of $22,129 for these options was included in salaries and wages in the year ended September 30, 2016.
There were 19,800 stock options granted
from the 2016 stock option plan in the three months ended June 30, 2017. There were 37,600 stock options cancelled from the 2016
stock option plan in the three months ended June 30, 2017. The unamortized value of these stock options is $0. There were 32,000
stock options granted from the 2016 stock option plan in the three months ended December 31, 2016. The unamortized value of these
stock options is $11,532 at June 30, 2017.
|
12.
|
RELATED PARTY TRANSACTIONS
|
Accounts receivable due from the majority
stockholder of the entity, included in accounts receivable – related party in the accompanying consolidated balance sheets
was $4,506 and $4,506 as of June 30, 2017 and September 30, 2016, respectively.
Management fees paid to the majority stockholder
of the entity, included as management fees - related party in the accompanying consolidated statement of operations were $50,000
and $50,000 for the three months ended June 30, 2017, and 2016, respectively; and $153,000 and $163,333 for the nine months ended
June 30, 2017, and 2016, respectively.
A board member who is also a stockholder
provided services to the Company. Expenses for these services totaled $0 and $15,000 for the three months ended June 30, 2017,
and 2016, respectively; and $9,000 and $40,000 for the nine months ended June 30, 2017, and 2016, respectively, and were included
as general and administrative expenses in the accompanying consolidated statement of operations.
Included in professional fees were consulting
fees paid to a related party as a condition to the TCS acquisition. Two agreements require certain services at a fixed fee of $16,500
per month, per agreement, commencing on November 1, 2015 with a 90-day termination clause. One agreement requires certain services
at a fixed fee of $3,500 per month, commencing on November 1, 2015 with a 90-day termination clause. $109,500 in professional fees
were paid under these 3 agreements for each of the three months ended June 30, 2017 and June 30, 2016, respectively. $225,600 in
professional fees were paid under these 3 agreements for each of the nine months ended June 30, 2017 and June 30, 2016, respectively.
On July 31, 2017, the Company entered into
a Promissory Note Payable to Fourly Enterprises, LLC (“Fourly”) in the amount of $50,000. The interest rate on the
note is 20%. The note matures on August 16, 2018. Fourly is owned by the majority stockholder of the Company.
On August 9, 2017, the Company entered
into a Promissory Note Payable to Elmer Fink (“Fink”) in the amount of $100,000. The interest rate on the note is 10%.
The note matures July 31, 2020.
Subsequent to June 30, 2017, the Company
has issued 100,000 common shares for $100,000. As part of the common stock issuance, the Company has issued 25,000 warrants excisable
at an exercise price of $1.25 per share and having 1-year term, plus an additional 25,000 warrants at an exercise price of $1.50
for a 2-year term.
Mr. Rick Johnson, Chief Operating Officer
of Financial Gravity Companies, Inc., has tendered his resignation effective August 4, 2017.
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and Stockholders
of
Financial Gravity Companies, Inc.
We have audited the accompanying consolidated
balance sheets of Financial Gravity Companies, Inc. (the “Company”), as of September 30, 2016 and 2015, and the related
consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended. The Company’s
management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.
The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of the Company, as of September 30,
2016 and 2015, 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.
The accompanying consolidated financial statements
have been prepared assuming that the entity will continue as a going concern. As discussed in Note 1 to the financial statements,
the entity 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 financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Whitley Penn LLP
Dallas, Texas
January 25, 2017
Financial Gravity Companies, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
As of September 30,
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
132,803
|
|
|
$
|
801,542
|
|
|
Trade accounts receivable
|
|
|
78,843
|
|
|
|
40,948
|
|
|
Accounts receivable - related party
|
|
|
4,506
|
|
|
|
29,326
|
|
|
Prepaid expenses
|
|
|
32,239
|
|
|
|
16,103
|
|
|
Total current assets
|
|
|
248,391
|
|
|
|
887,919
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
141,080
|
|
|
|
6,639
|
|
|
Investment
|
|
|
10,000
|
|
|
|
–
|
|
|
Customer relationships, net
|
|
|
33,675
|
|
|
|
–
|
|
|
Proprietary content, net
|
|
|
459,463
|
|
|
|
–
|
|
|
Trade name
|
|
|
69,300
|
|
|
|
–
|
|
|
Non-compete agreements, net
|
|
|
21,040
|
|
|
|
–
|
|
|
Deposits
|
|
|
–
|
|
|
|
50,000
|
|
|
Trademarks
|
|
|
22,592
|
|
|
|
20,174
|
|
|
Goodwill
|
|
|
1,094,702
|
|
|
|
662,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,100,243
|
|
|
$
|
1,627,699
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
Accounts payable - trade
|
|
$
|
27,229
|
|
|
$
|
82,703
|
|
|
Accounts payable - related party
|
|
|
–
|
|
|
|
2,300
|
|
|
Accrued expenses
|
|
|
103,654
|
|
|
|
46,400
|
|
|
Deferred revenue
|
|
|
32,739
|
|
|
|
–
|
|
|
Line of credit
|
|
|
19,732
|
|
|
|
–
|
|
|
Notes payable
|
|
|
93,397
|
|
|
|
–
|
|
|
Pre-merger payables
|
|
|
99,056
|
|
|
|
–
|
|
|
Total current liabilities
|
|
|
375,807
|
|
|
|
131,403
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Common stock - 300,000,000 shares authorized; $0.001 par value
|
|
|
34,863
|
|
|
|
28,389
|
|
|
Additional paid-in capital
|
|
|
4,768,596
|
|
|
|
2,411,791
|
|
|
Accumulated deficit
|
|
|
(3,079,023
|
)
|
|
|
(943,884
|
)
|
|
Total stockholders’ equity
|
|
|
1,724,436
|
|
|
|
1,496,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,100,243
|
|
|
$
|
1,627,699
|
|
The accompanying notes are in integral part
of these consolidated financial statements.
Financial Gravity Companies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended September
30,
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
REVENUE
|
|
|
|
|
|
|
|
|
|
Investment management fees
|
|
$
|
920,813
|
|
|
$
|
747,869
|
|
|
Service income
|
|
|
1,750,613
|
|
|
|
547,806
|
|
|
Commissions
|
|
|
69,073
|
|
|
|
8,126
|
|
|
Rental income
|
|
|
16,500
|
|
|
|
6,000
|
|
|
Total revenue
|
|
|
2,756,999
|
|
|
|
1,309,801
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
Cost of services
|
|
|
75,378
|
|
|
|
76,828
|
|
|
Professional services
|
|
|
1,237,221
|
|
|
|
452,148
|
|
|
Depreciation and amortization
|
|
|
153,547
|
|
|
|
289
|
|
|
Impairment of goodwill
|
|
|
662,967
|
|
|
|
–
|
|
|
General and administrative
|
|
|
408,537
|
|
|
|
411,235
|
|
|
Management fees - related party
|
|
|
213,333
|
|
|
|
155,657
|
|
|
Marketing
|
|
|
402,402
|
|
|
|
232,904
|
|
|
Salaries and wages
|
|
|
1,730,278
|
|
|
|
947,132
|
|
|
Total operating expenses
|
|
|
4,883,663
|
|
|
|
2,276,193
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss
|
|
|
(2,126,664
|
)
|
|
|
(966,392
|
)
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
–
|
|
|
|
27,383
|
|
|
Interest expense
|
|
|
(8,475
|
)
|
|
|
(4,875
|
)
|
|
Total other (expense) income
|
|
|
(8,475
|
)
|
|
|
22,508
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(2,135,139
|
)
|
|
$
|
(943,884
|
)
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS PER SHARE - Basic and Diluted
|
|
$
|
(0.07
|
)
|
|
$
|
(0.04
|
)
|
The accompanying notes are in integral part
of these consolidated financial statements.
Financial Gravity Companies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For the years ended September 30, 2016 and 2015
|
|
|
Number of Shares Issued and Outstanding
|
|
|
Common Stock Par Value Amount
|
|
|
Additional Paid-In Capital
|
|
|
Accumulated
Deficit
|
|
|
Total
|
|
|
Balance at September 30, 2014
|
|
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued
|
|
|
21,150,000
|
|
|
|
21,150
|
|
|
|
(20,445
|
)
|
|
|
–
|
|
|
|
705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued under a private placement memorandum
|
|
|
5,625,000
|
|
|
|
5,625
|
|
|
|
1,869,375
|
|
|
|
–
|
|
|
|
1,875,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued to non-employee directors
|
|
|
300,000
|
|
|
|
300
|
|
|
|
99,700
|
|
|
|
–
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued on acquisition of Cloud9 Holdings, LLC
|
|
|
1,314,477
|
|
|
|
1,314
|
|
|
|
436,845
|
|
|
|
–
|
|
|
|
438,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on acquisition of BLI and PAG
|
|
|
–
|
|
|
|
–
|
|
|
|
26,316
|
|
|
|
–
|
|
|
|
26,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(943,884
|
)
|
|
|
(943,884
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2015
|
|
|
28,389,477
|
|
|
|
28,389
|
|
|
|
2,411,791
|
|
|
|
(943,884
|
)
|
|
|
1,496,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued under a private placement memorandum
|
|
|
785,000
|
|
|
|
785
|
|
|
|
534,215
|
|
|
|
–
|
|
|
|
535,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued on acquisition of Tax Coach Software, LLC (shares placed in escrow)
|
|
|
6,000,000
|
|
|
|
6,000
|
|
|
|
1,898,620
|
|
|
|
–
|
|
|
|
1,904,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock surrendered by former officer
|
|
|
(2,926,294
|
)
|
|
|
(2,926
|
)
|
|
|
2,926
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock held by Pacific Oil Company (reverse merger)
|
|
|
2,614,717
|
|
|
|
2,615
|
|
|
|
(101,671
|
)
|
|
|
–
|
|
|
|
(99,056
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation
|
|
|
–
|
|
|
|
–
|
|
|
|
22,715
|
|
|
|
–
|
|
|
|
22,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(2,135,139
|
)
|
|
|
(2,135,139
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2016
|
|
|
34,862,900
|
|
|
$
|
34,863
|
|
|
$
|
4,768,596
|
|
|
$
|
(3,079,023
|
)
|
|
$
|
1,724,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are in integral part
of these consolidated financial statements.
Financial Gravity Companies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended September
30,
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,135,139
|
)
|
|
$
|
(943,884
|
)
|
|
Adjustments to reconcile net loss to net cash used in operating activities
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
153,547
|
|
|
|
289
|
|
|
Impairment of goodwill
|
|
|
662,967
|
|
|
|
–
|
|
|
Forfeiture of deposit for failed acquisition
|
|
|
50,000
|
|
|
|
–
|
|
|
Write off of fixed assets
|
|
|
–
|
|
|
|
15,787
|
|
|
Stock based compensation
|
|
|
22,715
|
|
|
|
100,000
|
|
|
Changes in operating assets and liabilities, net of effects of purchase of subsidiaries
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
|
(22,420
|
)
|
|
|
57,315
|
|
|
Accounts receivable - related party
|
|
|
30,228
|
|
|
|
(14,254
|
)
|
|
Prepaid expenses
|
|
|
(16,136
|
)
|
|
|
2,425
|
|
|
Accounts payable - trade
|
|
|
(55,474
|
)
|
|
|
32,560
|
|
|
Accounts payable - related party
|
|
|
(2,300
|
)
|
|
|
(48,700
|
)
|
|
Accrued expenses
|
|
|
(12,230
|
)
|
|
|
(112,056
|
)
|
|
Deferred revenue
|
|
|
32,739
|
|
|
|
–
|
|
|
Net cash used in operating activities
|
|
|
(1,291,503
|
)
|
|
|
(910,518
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Payments for purchase of investment
|
|
|
(10,000
|
)
|
|
|
–
|
|
|
Cash paid for purchase of property and equipment
|
|
|
(65
|
)
|
|
|
(7,942
|
)
|
|
Cash paid for purchase of MDP
|
|
|
–
|
|
|
|
(71,679
|
)
|
|
Cash acquired upon acquisition of subsidiaries
|
|
|
57,025
|
|
|
|
53,190
|
|
|
Deposit for future acquisition
|
|
|
–
|
|
|
|
(50,000
|
)
|
|
Purchases of trademarks
|
|
|
(2,419
|
)
|
|
|
(20,174
|
)
|
|
Net cash provided by (used in) investing activities
|
|
|
44,541
|
|
|
|
(96,605
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Borrowings on line of credit
|
|
|
24,391
|
|
|
|
–
|
|
|
Payments on line of credit
|
|
|
(900
|
)
|
|
|
(55,000
|
)
|
|
Borrowings on note payable
|
|
|
26,086
|
|
|
|
–
|
|
|
Payments on note payable
|
|
|
(6,354
|
)
|
|
|
–
|
|
|
Payments on capital lease obligations
|
|
|
–
|
|
|
|
(12,040
|
)
|
|
Proceeds from the sale of common stock
|
|
|
535,000
|
|
|
|
1,875,705
|
|
|
Net cash provided by financing activities
|
|
|
578,223
|
|
|
|
1,808,665
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(668,739
|
)
|
|
|
801,542
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
|
|
|
801,542
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF YEAR
|
|
$
|
132,803
|
|
|
$
|
801,542
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
5,921
|
|
|
$
|
4,401
|
|
|
Taxes
|
|
$
|
–
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash activities:
|
|
|
|
|
|
|
|
|
|
Common stock issued upon acquisition of:
|
|
|
|
|
|
|
|
|
|
Cloud9 Holdings Company (Note 9)
|
|
$
|
–
|
|
|
$
|
438,159
|
|
|
Tax Coach Software, LLC (Note 9)
|
|
$
|
1,904,620
|
|
|
$
|
–
|
|
|
Net assets (liabilities) assumed for purchase of:
|
|
|
|
|
|
|
|
|
|
Cloud9 Holdings Company (Note 9)
|
|
$
|
–
|
|
|
$
|
(154,210
|
)
|
|
Business Legacy, Inc. and Pollock Advisory Group, Inc. (Note 9)
|
|
$
|
–
|
|
|
$
|
26,316
|
|
|
Tax Coach Software, LLC (Note 9)
|
|
$
|
809,918
|
|
|
$
|
–
|
|
|
Payables owed by Pacific Oil Company
|
|
$
|
(99,056
|
)
|
|
$
|
–
|
|
|
Equity in escrow to offset payables owed by legacy Pacific Oil Company
|
|
$
|
99,056
|
|
|
$
|
–
|
|
|
Transfer of capital lease obligation to the majority member
|
|
$
|
–
|
|
|
$
|
17,543
|
|
The accompanying notes are in integral
part of these consolidated financial statements.
Financial Gravity Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NATURE OF BUSINESS
Financial Gravity Companies, Inc. and
Subsidiaries (“the Company”) is located in Allen, Texas. The wholly-owned subsidiaries of the organization include:
Financial Gravity Holdings, Inc., Financial Gravity Operations, Inc., Financial Gravity Tax, Inc., Financial Gravity Wealth, Inc.,
Cloud9 Holdings Company, Financial Gravity Business, LLC, Financial Gravity Ventures, LLC., SASH Corporation (doing business as
Metro Data Processing) and Tax Coach Software, LLC.
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.
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.
Financial Gravity Business, LLC. (“FGB”)
formerly Cloud9b2b, LLC (“Cloud9 B2B”) was acquired by Cloud9 Holdings Company effective December 31, 2014 and provides
business consulting services to Small Business Owners that identify ways to leverage a business’ current assets (people,
platforms and processes) and reduce exposure to risk, both short-term and long-term, while simplifying the business and increasing
profitability. FGB does not have any financial activity through September 30, 2016.
Financial Gravity Ventures, LLC. (“FGV”)
formerly Cloud9 Accelerator, LLC was acquired by Cloud9 Holdings Company effective December 31, 2014 and holds acquired companies
and business assets until they are integrated into the main stream Financial Gravity business structure. FGV does not have any
financial activity through September 30, 2016.
Effective January 1, 2015, Cloud9 assigned
100% of the membership interest in Cloud9 Accelerator, LLC and Cloud9b2b, to FGO.
Financial Gravity Tax, Inc. (“FG
Tax”) formerly Business Legacy, Inc., (“BLI”) was acquired by FGO for no cost effective January 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.
Financial Gravity Wealth, Inc. (“FG
Wealth”) formerly Pollock Advisory Group, Inc., (“PAG”) was acquired by FGO for no cost effective January 1,
2015 and is a registered investment advisor, located in Allen, Texas. PAG 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 is located in Tulsa, Oklahoma, and provides payroll services, software, and support solutions to business owners.
Tax Coach Software, LLC (“TCS”),
was acquired effective October 1, 2015, and is an Ohio limited liability company. The purchase was made by FGH. TCS, 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 FGH, FGO, Cloud9 (from the date of acquisition), including Cloud9b2b and Cloud9 Accelerator, LLC, PAG (from the
date of acquisition), BLI (from the date of acquisition), TCS (from the date of acquisition), and MDP (from the date of acquisition),
(collectively referred to as “the Company”). All significant intercompany accounts and transactions have been eliminated
on consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid
investments with an initial maturity of three months or less, when purchased, to be cash equivalents. The Company maintains cash
balances at several financial institutions located throughout the United States, which at times may exceed insured limits. The
Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and
cash equivalents.
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. There was no allowance for doubtful accounts recorded as of September 30, 2016 and 2015.
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 income as incurred.
Customer Relationships
The customer relationships acquired from
the TCS purchase have been recognized in the accompanying consolidated balance sheets at $44,900, the value attributed to it on
the date of the purchase (see Note 9). The customer relationships are being amortized on a straight-line basis over a four-year
estimated life. During the year ended September 30, 2016, 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, 2016 was $11,225.
Future amortization of customer relationships is estimated to
be as follows for the years ended September 30:
|
|
2017
|
|
|
$
|
11,225
|
|
|
|
2018
|
|
|
|
11,225
|
|
|
|
2019
|
|
|
|
11,225
|
|
|
|
|
|
|
$
|
33,675
|
|
Proprietary Content
The proprietary content acquired as a part
of the TCS purchase has been recognized in the accompanying consolidated balance sheets at $525,100, the value attributed to it
on the date of the purchase (see Note 9). The proprietary content is being amortized on a straight-line basis over an eight-year
estimated life. During the year ended September 30, 2016, 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, 2016 was $65,638.
Future amortization of proprietary content is estimated to
be as follows for the years ended September 30:
|
|
2017
|
|
|
$
|
65,638
|
|
|
|
2018
|
|
|
|
65,638
|
|
|
|
2019
|
|
|
|
65,638
|
|
|
|
2020
|
|
|
|
65,638
|
|
|
|
2021
|
|
|
|
65,638
|
|
|
|
Thereafter
|
|
|
|
131,273
|
|
|
|
|
|
|
$
|
459,463
|
|
Trade Name
The trade name acquired as a part of the
TCS purchase has been recognized in the accompanying consolidated balance sheets at $69,300, the value attributed to it on the
date of the purchase (see Note 9). Management has determined that the trade name has an indefinite life and does not consider the
value of the trade name recorded in the accompanying consolidated balance sheet to be impaired as of September 30, 2016.
Prospect List
The prospect list acquired as a part of
the TCS purchase has been recognized in the accompanying consolidated balance sheets at $53,800, the value attributed to it on
the date of the purchase (see Note 9). The prospect list is being amortized on a straight-line basis over a one-year estimated
life. During the year ended September 30, 2016, the Company recorded the full amortization expense of $53,800 on this intangible
asset, which is included in depreciation and amortization expense in the accompanying consolidated statements of operations. Accumulated
amortization at September 30, 2016 was $53,800.
Non-compete Agreements
Non-compete agreements established as a
part of the TCS purchase have been recognized in the accompanying consolidated balance sheets at $26,300, the value attributed
to them on the date of the purchase (see Note 9). 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 year ended September 30, 2016, 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, 2016 was $5,260.
Future amortization of the non-compete agreements is estimated
to be as follows for the years ended September 30:
|
|
2017
|
|
|
$
|
5,260
|
|
|
|
2018
|
|
|
|
5,260
|
|
|
|
2019
|
|
|
|
5,260
|
|
|
|
2020
|
|
|
|
5,260
|
|
|
|
|
|
|
$
|
21,040
|
|
Trademarks
The Company accounts for trademarks in
accordance with GAAP and accordingly, trademarks are stated at cost. Trademarks with indefinite lives are not amortized but are
tested for impairment at least annually. Management has determined that the trademarks have an indefinite life and do not consider
the value of trademarks recorded in the accompanying consolidated balance sheet to be impaired as of September 30, 2016 and 2015.
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 its 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 its 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 its carrying value. Management does not consider the value of goodwill recorded
for TCS in the accompanying consolidated balance sheet to be impaired as of September 30, 2016, and 2015. However, goodwill attributed
to Cloud9 and MDP was deemed to be impaired as that business offering has been discontinued.
The fair values of the assets acquired
and liabilities assumed were determined primarily using the income approach, which determines the fair value for the asset based
on the present value of cash flows projected to be generated by the asset. Projected cash flows are discounted at a rate of return
that reflects the relative risk of achieving the cash flow and the time value of money. The fair value of relationships were determined
by projecting expected cash flows and subtracting the portion of the cash flow derived by the relevant contributory assets.
The accompanying consolidated balance sheets,
consolidated statements of operations, changes in stockholders’ equity and cash flows include the results of operations of
the acquired subsidiaries from the date of acquisition.
Goodwill consists of the following:
|
Goodwill at September 30, 2014
|
|
$
|
–
|
|
|
Goodwill generated from acquisition of Cloud9 (see note 9)
|
|
|
592,369
|
|
|
Goodwill generated from acquisition of MDP (see note 9)
|
|
|
70,598
|
|
|
Goodwill at September 30, 2015
|
|
|
662,967
|
|
|
Goodwill generated from acquisition of TCS (see note 9)
|
|
|
1,094,702
|
|
|
Impairment of Cloud9
|
|
|
(592,369
|
)
|
|
Impairment of MDP
|
|
|
(70,598
|
)
|
|
Goodwill at September 30, 2016
|
|
$
|
1,094,702
|
|
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, 2016 and 2015.
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 2014 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 31,626,189 and 24,769,739 for years ended September 30, 2016 and 2015, respectively.
For the years ended September 30, 2016
and 2015, approximately 2,200,346 and 1,500,996 common stock options, respectively, were not added to the diluted average shares
because inclusion of such shares would be antidilutive.
Revenue Recognition
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.
FG Tax and MDP generate service income from its consulting and
other professional services performed.
Commission revenue is derived from the
sale of annuities and premiums on life insurance policies held by third parties. The revenue is recognized at the time the policy
is issued.
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.
TaxCoach Software has 3 types of
services that are charged and collected on a month to month subscription basis (TaxCoach 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.
Advertising
Advertising costs are charged to operations
when incurred. Advertising and marketing expense was $402,402 and $232,904 for the years ended September 30, 2016 and 2015, 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 from 0.70% in 2015 and 0.97% in 2016,
dividend yield of 0%, expected life of 2 years and volatility of 1.00.
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.
The Company is actively seeking growth
of its service offerings, both organically and via new client relationships. Management, in the ordinary course of business, is
trying to raise additional capital through sales of common stock as well as seeking financing via equity or debt, or both from
third parties. There are no assurances that additional financing will be available on favorable terms, or at all. If additional
financing is not available, the Company will need to reduce, defer or cancel development programs, planned initiatives and overhead
expenditures. The failure to adequately fund its capital requirements could have a material adverse effect on the Company’s
business, financial condition and results of operations. Moreover, the sale of additional equity securities to raise financing
will result in additional dilution to the Company’s stockholders, and incurring additional indebtedness could involve an
increased debt service cash obligation, the imposition of covenants that restrict the Company’s operations or the Company’s
ability to perform on its current debt service requirements. The consolidated financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a going concern.
Future Accounting Pronouncements
In April 2015, the FASB issued ASU No.
2015-15, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, part of
the FASB’s simplification initiative. ASU 2015-15 requires companies to present debt issuance costs the same way they currently
present debt discounts, as a direct deduction from the carrying value of that debt liability. ASU 2015-15 does not impact the recognition
and measurement guidance for debt issuance costs. ASU 2015-15 is effective for fiscal years beginning after December 15, 2015.
In November 2015, the FASB issued ASU No.
2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, part of the FASB’s simplification initiative.
ASU 2015-17 requires companies to classify deferred tax liabilities and assets as noncurrent. ASU 2015-17 is effective for fiscal
years beginning after December 15, 2018.
In February 2016, the FASB issued ASU
Update No. 2016-02 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 2016-02 is effective for the
years beginning after December 15, 2018 and for all periods presented. Early application of the amendments in this ASU is
permitted.
In March 2016, the FASB issued ASU Update
No. 2016-07, 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 2016-07 is
effective for the years beginning after December 15, 2016. Early application of the amendments in this ASU is permitted.
In March 2016, the FASB issued ASU
Update No. 2016-08, Revenue From Contracts with Customers (Topic 606). The amendments in this Update are intended to improve
the operability and understandability of the implementation guidance on principal versus agent considerations by clarifying
the criteria in determining a principal versus agent relationship. The core principle of the guidance is that an entity
should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core
principle, an entity should apply the following five steps: (1) identify contracts with customers, (2) identify the
performance obligations in the contracts, (3) determine the transaction price, (4) allocate the transaction price to the
performance obligation in the contract, and (5) recognize revenue as the entity satisfies performance obligations. The new
guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that
reporting period. Early application is permitted for annual reporting periods beginning after December 15, 2016, including
interim periods within that reporting period. We are currently evaluating what impact adoption of this guidance will have on
our financial position, results of operations, cash flows and disclosures.
In March 2016, the FASB issued ASU Update
No. 2016-09, 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 2016-09 is effective for annual periods beginning
after December 15, 2016, 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.
|
|
2.
|
PROPERTY AND EQUIPMENT
|
Property and equipment consist of the following at September
30:
|
|
|
Estimated
Service Lives
|
|
2016
|
|
|
2015
|
|
|
Furniture and fixtures
|
|
5 years
|
|
$
|
6,994
|
|
|
$
|
6,928
|
|
|
Internally developed software
|
|
10 years
|
|
|
152,000
|
|
|
|
–
|
|
|
|
|
|
|
|
158,994
|
|
|
|
6,928
|
|
|
Less accumulated depreciation and amortization
|
|
|
|
|
17,914
|
|
|
|
289
|
|
|
|
|
|
|
$
|
141,080
|
|
|
$
|
6,639
|
|
Depreciation expense was $17,625 and $289 during the years ended
September 30, 2016 and 2015, respectively.
Trademarks consist of the following:
|
Trademarks at September 30, 2014
|
|
$
|
–
|
|
|
Trademarks purchased from related party at cost
|
|
|
16,272
|
|
|
Trademarks purchased at cost
|
|
|
3,902
|
|
|
Trademarks at September 30, 2015
|
|
|
20,174
|
|
|
Trademarks purchased at cost
|
|
|
2,418
|
|
|
Trademarks at September 30, 2016
|
|
$
|
22,592
|
|
The Company has a revolving line of credit
with Wells Fargo Bank, N.A. in the amount of $55,000. 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 7.5%. This line of credit is collateralized by
the personal guarantee of the majority stockholder. Line of credit balance was $19,732 and $-0- for the years ended September 30,
2016 and 2015, respectively.
With the acquisition of Tax Coach
Software, LLC, the Company also acquired a promissory note payable to The Huntington National Bank. The note permits maximum
borrowings of $100,000. Interest is paid monthly at prime plus 1.25% and the balance is due on demand. The facility matures
in February 2017, is collateralized by substantially all assets of Tax Coach Software, LLC, and is secured by a personal
guarantee from Keith VandeStadt, a significant stockholder of the Company. The balance outstanding under this note payable
was $93,397 and $0 at September 30, 2016 and 2015, respectively.
Accrued expenses consist of the following
at September 30:
|
|
|
2016
|
|
|
2015
|
|
|
Accrued payroll
|
|
$
|
44,327
|
|
|
$
|
35,778
|
|
|
Accrued operating expenses
|
|
|
59,077
|
|
|
|
7,615
|
|
|
Deferred rent
|
|
|
250
|
|
|
|
3,007
|
|
|
|
|
$
|
103,654
|
|
|
$
|
46,400
|
|
The Company elected C Corporation tax status
upon inception in 2014. Net operating losses (“NOL”) since that date total $3,079,023 as of September 30, 2016, 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:
|
|
|
2016
|
|
|
2015
|
|
|
Tax benefit calculated at statutory rate
|
|
|
35%
|
|
|
|
35%
|
|
|
Changes to valuation allowance
|
|
|
(35%
|
)
|
|
|
(35%
|
)
|
|
Provision for income taxes
|
|
|
0%
|
|
|
|
0%
|
|
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:
|
|
|
2016
|
|
|
2015
|
|
|
Net non-current deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Net operating loss carry-forward
|
|
$
|
924,304
|
|
|
$
|
330,359
|
|
|
|
|
|
|
|
|
|
|
|
|
Net non-current deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
109,471
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
814,833
|
|
|
|
330,359
|
|
|
Less valuation allowance
|
|
|
(814,833
|
)
|
|
|
(330,359
|
)
|
|
Net deferred taxes
|
|
$
|
–
|
|
|
$
|
–
|
|
|
|
8.
|
COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS
|
Leases
The Company conducts operations from leased
premises. 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, 2016 and 2015 was $89,150 and $86,149, 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.
|
|
2017
|
|
|
$
|
81,902
|
|
|
|
2018
|
|
|
|
68,400
|
|
|
|
2019
|
|
|
|
5,700
|
|
|
|
|
|
|
$
|
156,002
|
|
Deposits
Deposits represented a down payment of
$50,000 made on a potential purchase at September 30, 2015. The application of the deposit to the purchase price was contingent
upon the completion of the acquisition. This acquisition did not take place and this deposit was ultimately forfeited during the
year ended September 30, 2016.
Contingencies
Under the terms of the TCS purchase agreement,
the common stock issued has been placed in escrow. The sellers maintain the right to unwind this transaction under certain conditions
(see Note 9).
Pacific Oil Company still has some outstanding
payables that the previous owners are in process of liquidating. Those liabilities have been shown here but are expected to be
settled by the previous owners. However, shares of the Company are being held in escrow to cover the chance that these liabilities
will ultimately have to be settled by the Company.
Legal Proceedings
From time to time, we are a party to or
otherwise involved in legal proceedings, claims and other legal matters, arising in the ordinary course of our business or otherwise.
A subsidiary of the Company is currently involved in one legal proceeding, the outcome of which will not be material to our ability
to operate or market our services, our consolidated financial position, results of operations or cash flows.
Business Acquisition – Cloud9
Effective December 31, 2014, the Company
completed the acquisition of Cloud9, a business consulting firm located in Allen, Texas. Under the terms of the acquisition, the
Company acquired 100% of Cloud9’s stock in a stock exchange. Total stock exchanged during the year ended September 30, 2015,
was approximately 1,314,477 shares, at par value of $0.001 per share, from the Company for all 40,000,000 shares of Cloud9. Goodwill,
as a result of this acquisition, is not deductible for tax purposes.
The transaction resulted in recording liabilities and goodwill
at a fair value of $592,369 as follows:
|
Common stock issued in stock exchange
|
|
$
|
438,159
|
|
|
Net liabilities assumed
|
|
|
154,210
|
|
|
Total value of the goodwill generated on acquisition
|
|
$
|
592,369
|
|
The tangible assets acquired and liabilities
assumed were as follows:
|
Assets acquired:
|
|
|
|
|
Cash
|
|
$
|
30,840
|
|
|
Accounts receivable
|
|
|
22,039
|
|
|
Prepaid expenses and deposits
|
|
|
7,000
|
|
|
Total tangible assets
|
|
|
59,879
|
|
|
|
|
|
|
|
|
Liabilities assumed:
|
|
|
|
|
|
Accounts payable
|
|
|
30,407
|
|
|
Accounts payable - intercompany eliminated upon consolidation
|
|
|
51,000
|
|
|
Accounts payable - related party
|
|
|
132,682
|
|
|
Total liabilities
|
|
|
214,089
|
|
|
|
|
|
|
|
|
Net acquired liabilities
|
|
$
|
(154,210
|
)
|
The primary asset acquired from Cloud9 is
the expertise of Cloud9, which the Company believes it will be able to leverage in maximizing the benefits of consulting with
customers. As of September 30, 2015, these factors contributed to a purchase price in excess of the fair value of
Cloud9’s tangible assets acquired, and, as a result, the Company has recorded goodwill in the amount of $592,369 in
connection with this transaction which is recorded in the accompanying consolidated balance sheets.
As noted in Note 1, the Company reviewed
the enterprise value of the Cloud9 entity in fiscal 2016 and determined that the value of Goodwill that was acquired was no longer
supported. As such, $592,369 was written off during the year ended September 30, 2016.
Business Acquisition – Business
Legacy, Inc. and Pollock Advisory Group, Inc.
Effective January 1, 2015 Financial Gravity
Operations, Inc. completed the acquisition of Business Legacy, Inc. and Pollock Advisory Group, Inc., related financial services
firms located in Allen, Texas. Under the terms of the acquisition, the Company acquired 100% of stock of Business Legacy, Inc.
and Pollock Advisory Group, Inc., wholly-owned entities of the majority stockholder of Financial Gravity Holdings, Inc. for no
cost.
The transaction resulted in recording a gain within APIC (as
the entities were under common control) of $26,316 as follows:
|
Net assets acquired
|
|
$
|
26,316
|
|
|
Total gain on bargain purchase generated at acquisition of entities under
common control
|
|
$
|
26,316
|
|
The tangible assets acquired and liabilities
assumed were as follows:
|
Assets acquired:
|
|
|
|
|
Cash
|
|
$
|
22,350
|
|
|
Accounts receivable
|
|
|
73,321
|
|
|
Accounts receivable - related party
|
|
|
9,272
|
|
|
Prepaid expenses
|
|
|
11,528
|
|
|
Fixed assets
|
|
|
32,316
|
|
|
Total tangible assets
|
|
|
148,787
|
|
|
|
|
|
|
|
|
Liabilities assumed:
|
|
|
|
|
|
Accounts payable
|
|
|
15,505
|
|
|
Accrued expenses
|
|
|
22,383
|
|
|
Line of credit
|
|
|
55,000
|
|
|
Capital lease obligations
|
|
|
29,583
|
|
|
Total liabilities
|
|
|
122,471
|
|
|
|
|
|
|
|
|
Net acquired assets
|
|
$
|
26,316
|
|
The primary asset acquired from Business
Legacy, Inc. and Pollock Advisory Group is the expertise in the respective area of service. The Company believes they will be able
to leverage this expertise in maximizing the benefits of consulting with customers. The acquisition of these two entities increases
the additional services the Company can provide to high net worth individuals and business in accordance with the strategic business
plan of the Company.
Business Acquisition – SASH Corporation
d.b.a. Metro Data Processing
Effective August 12, 2015, the Company
completed the acquisition of SASH Corporation, an Oklahoma corporation doing business as MDP. The purchase was made by a subsidiary
of the Company, Cloud9 Accelerator, LLC. Under the terms of the acquisition, the Company agreed to purchase 100% of stock of MDP
for $75,800. The terms also require two employees of MDP to continue working in their current role for a period of not less than
12 months and not less than 6 months for compensation of an amount that is not less than $30,000 and $24,000, respectively. Goodwill,
as a result of this acquisition, is not deductible for tax purposes.
MDP, located in Tulsa, Oklahoma, provides payroll services,
software, and support solutions to business owners. The transaction resulted in recording assets and goodwill at a fair value
of $70,598 as follows:
|
Cash consideration
|
|
$
|
75,800
|
|
|
Less: net assets acquired
|
|
|
(5,202
|
)
|
|
Total value of the goodwill generated on acquisition
|
|
$
|
70,598
|
|
The tangible assets acquired and liabilities
assumed were as follows:
|
Assets acquired:
|
|
|
|
|
Cash
|
|
$
|
4,121
|
|
|
Accounts receivable
|
|
|
2,903
|
|
|
Accounts receivable - other
|
|
|
5,800
|
|
|
Total tangible assets
|
|
|
12,824
|
|
|
|
|
|
|
|
|
Liabilities assumed:
|
|
|
|
|
|
Accounts payable
|
|
|
7,622
|
|
|
Total liabilities
|
|
|
7,622
|
|
|
|
|
|
|
|
|
Net acquired assets
|
|
$
|
5,202
|
|
The primary asset acquired from MDP is
the expertise in the respective area of service. The Company believes they will be able to leverage the expertise of MDP as a payroll
service provider in Oklahoma which will also allow for an expansion of services to provide further access to high net worth individuals
and businesses beyond the Dallas/Ft. Worth area in accordance with the strategic business plan of the Company.
As noted in Note 1, the Company reviewed
the enterprise value of the MDP entity in fiscal 2016 and determined that the value of Goodwill that was acquired was no longer
supported. As such, $70,598 was written off during the year ended September 30, 2016.
Business Acquisition – Tax Coach
Software, Inc.
Effective October 1, 2015, the Company
completed the acquisition of Tax Coach Software, LLC, an Ohio limited liability company (“Tax Coach Software”). The
purchase was made by Financial Gravity Holdings, Inc. Under the terms of the acquisition, the Company acquired 100% of Tax Coach
Software’s stock in a stock exchange. Total stock exchanged was 6,000,000 shares (as amended), at par value of $0.001 per
share, from the Company for 100% of the shares of Tax Coach Software. Goodwill, as a result of this acquisition, is not deductible
for tax purposes.
Certificates representing the shares were
required to be deposited in escrow as of the effective date of the acquisition. As part of the purchase agreement documentation,
the Sellers maintained the right to unwind the transaction under certain conditions as described. The Sellers also retained all
rights as shareholders while shares were held in escrow, including the right to vote. Under the escrow agreement, if the average
daily closing price of the shares for any continuous 10-day trading period equals or exceeds $1.00 during the thirty-six months
following October 28, 2015, the Company had the right to cause the shares deposited in escrow to be distributed to the Sellers,
terminating any right to unwind the transaction. If the shares did not trade as to provide a closing price during the thirty-six
months following October 28, 2015 or if the average daily closing price of the shares for any continuous 10-day trading period
failed to equal or exceed $1.00 during the thirty-six months following October 28, 2015, then no later than five days following
the conclusion of the thirty-six month period, the Sellers would have the right to unwind the acquisition of Tax Coach Software
by the Company and the Company would immediately transfer the ownership of Tax Coach Software back to the Sellers in exchange for
the return of common stock issued during the acquisition. The closing price was defined as the last closing trade price for the
shares on an electronic bulletin board as reported by Bloomberg or on the NASDAQ Capital Market or the highest bid price as reported
on “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If listed for trading on the American
or New York Stock Exchange during the thirty-six months following October 28, 2015 it will be deemed to meet the $1.00 benchmark.
On November 11, 2016, the parties to the
escrow agreement agreed (in a Company Distribution Notice) that the average daily closing price of the shares had exceeded the
$1.00 threshold and accordingly, the shares were released from escrow and the right to unwind the Tax Coach Software acquisition
transaction terminated.
Three employment agreements were made as
a condition to the acquisition. Each agreement has an effective date as of November 1, 2015 and is effective for a period of three
years. Two employee agreements include a base salary of $42,000 per year, per employee. These same two agreements, include a bonus
that is calculated, for each employee, as the sum of 40% of the gross profit of Tax Coach Software for all revenues that exceed
$850,000 and are less than $950,000 and 20% of the gross profit of Tax Coach Software for all revenues earned in excess of $950,000.
One employee agreement includes a base salary of $60,000 per year. This same agreement, includes a bonus that is calculated as
the sum of 20% of the gross profit of Tax Coach Software for all revenues that exceed $850,000 and are less than $950,000 and 10%
of the gross profit of Tax Coach Software for all revenues earned in excess of $950,000. Gross profit is determined in accordance
with generally acceptable accounting principles, net of other amounts paid under employment and consulting agreements. The agreements
also include other certain termination and non-compete clauses. Compensation during the month of October 2015 to be paid to the
three employees totals an aggregate amount of $49,150. Three consulting agreements were made as a condition to the acquisition.
Two agreements require certain services at a fixed fee of $17,000 per month, per agreement, commencing on November 1, 2015 with
a 90-day termination clause. One agreement requires certain services at a fixed fee of $3,500 per month, commencing on November
1, 2015 with a 90-day termination clause. $444,650 in professional fees were paid under these 3 agreements in the year ended September
30, 2016.
Tax Coach Software, located in Cincinnati,
Ohio, provides three primary services including monthly subscription revenue from the “Tax Coach” software system,
coaching revenue and email marketing services for customers.
The transaction resulted in a fair value of the acquisition of $1,094,702 as follows:
|
Common stock issued in stock exchange at a value of $0.25 per share (as amended)
|
|
$
|
1,500,020
|
|
|
Additional paid in capital for the escrow agreement provision
|
|
|
404,600
|
|
|
Total value of the goodwill generated on acquisition
|
|
|
1,904,620
|
|
|
|
|
|
|
|
|
Intangible assets acquired
|
|
|
(719,400
|
)
|
|
Net tangible assets acquired
|
|
|
(90,518
|
)
|
|
Total assets acquired
|
|
|
(809,918
|
)
|
|
|
|
|
|
|
|
Total fair value of acquisition
|
|
$
|
1,094,702
|
|
The intangible assets were as follows:
|
Customer relationships
|
|
$
|
44,900
|
|
|
Proprietary content
|
|
|
525,100
|
|
|
Trade name
|
|
|
69,300
|
|
|
Prospect list
|
|
|
53,800
|
|
|
Non-compete agreements
|
|
|
26,300
|
|
|
Total intangible assets
|
|
$
|
719,400
|
|
The tangible assets acquired and liabilities
assumed were as follows:
|
Assets acquired:
|
|
|
|
|
Cash
|
|
$
|
57,025
|
|
|
Accounts receivable
|
|
|
15,476
|
|
|
Accounts receivable - other
|
|
|
5,408
|
|
|
Internally developed software
|
|
|
152,000
|
|
|
Total tangible assets
|
|
|
229,909
|
|
|
|
|
|
|
|
|
Liabilities assumed:
|
|
|
|
|
|
Accrued expenses
|
|
|
69,485
|
|
|
Line of credit
|
|
|
69,906
|
|
|
Total liabilities
|
|
|
139,391
|
|
|
|
|
|
|
|
|
Net acquired assets
|
|
$
|
90,518
|
|
The primary asset acquired from Tax Coach
Software is the proprietary content which includes a comprehensive platform of tax planning strategies including marketing and
instructional guides. TCS will provide the Company with expertise in areas of service which expand beyond the Company’s current
service areas. The Company believes they will also be able to leverage the use of the proprietary content in maximizing the benefits
of consulting with customers. The acquisition of this entity increases the additional services the Company can provide to high
net worth individuals and business in accordance with its strategic business plan.
Supplemental Unaudited Pro Forma Information
As noted above, all acquisitions were
completed prior to or as of October 1, 2015. Accordingly, fiscal year 2016 includes the full impact of all the acquisitions. The
fiscal year 2015 acquisitions were effective at various parts of the year, and had each of the acquisitions been effective on
October 1, 2015, the revenue and net income/(loss) would be as follows:
|
|
|
As Reported
|
|
|
Cloud9
|
|
|
BLI
|
|
|
PAG
|
|
|
MDP
|
|
|
TCS
|
|
|
Pro Forma
|
|
|
|
|
FY 2015
|
|
|
10/1/14 -
12/30/14
|
|
|
10/1/14 -
12/30/14
|
|
|
10/1/14 -
12/31/14
|
|
|
10/1/14 -
8/11/15
|
|
|
10/1/14 -
9/30/15
|
|
|
FY 2015
|
|
|
Total Revenue
|
|
$
|
1,309,801
|
|
|
$
|
61,800
|
|
|
$
|
340,403
|
|
|
$
|
222,925
|
|
|
$
|
102,550
|
|
|
$
|
860,805
|
|
|
$
|
2,898,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (Loss) / Income
|
|
$
|
(943,884
|
)
|
|
$
|
(9,024
|
)
|
|
$
|
(52,446
|
)
|
|
$
|
62,548
|
|
|
$
|
12,468
|
|
|
$
|
395,007
|
|
|
$
|
(535,331
|
)
|
TCS net income includes expenses for the
amortization of the definite lived intangibles of $82,123. Operating expenses recognized in fiscal year 2015 were approximately
$4,000 for MDP and $660 for Cloud9. The BLI and PAG acquisitions each had immaterial amounts of operating expenses associated with
them. Operating expenses recognized in fiscal year 2016 were approximately $44,000 for TCS.
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.
For each of the Company and Financial Gravity
Holdings, its subsidiary, no preferred shares are issued or outstanding as of September 30, 2016 and 2015, respectively.
Private Placement Memorandum, Financial
Gravity Holdings
On October 31, 2014, Financial Gravity
issued a private placement memorandum (“PPM”) for stock purchases of up to 2,000,000 shares of common stock at a cost
of $1.00 and a par value of $0.00001, with a minimum purchase level of $50,000 per investor. The subscription period initially
expired June 30, 2015, however, the Board of Directors extended the offering period indefinitely, and increased the number of shares
authorized for sale under the PPM incrementally to accommodate additional investor interest.
During the years ended September 30, 2016
and 2015, 785,000 shares and 5,625,000 shares, respectively, were issued under the PPM for $535,000 and $1,875,000 of additional
paid-in capital at September 30, 2016 and 2015, respectively.
Additional Common Stock Issuances, Financial
Gravity Holdings
During the year ended September 30, 2015,
Financial Gravity Holdings issued 21,150,000 shares of common stock in addition to the shares sold under the PPM and common shares
issued in connection with the Cloud9 Holding Company acquisition that were discussed above. Also during September 30, 2015, 300,000
common shares were issued to two non-employee directors.
During the year ended September 30, 2016,
one of the founding members of Financial Gravity Holdings forfeited 2,926,294 common shares, in addition to the issuance of shares
sold under the PPM and common shares issued in connection with the Tax Coach Software, LLC acquisition, both of which are discussed
above.
Subsequent to September 30, 2016, Financial
Gravity Holdings has sold 350,000 shares of common stock.
Stock Split, Financial Gravity Holdings
Effective October 20, 2015, Financial Gravity
Holdings declared a three for one stock split of its common stock. Upon the stock split, every one share of common stock issued
and outstanding was automatically reclassified and converted into three shares of common stock. The common stock retained a par
value of $0.00001 per share.
Effective February 27, 2015, the Company
established the 2015 Stock Option Plan (the “Plan”). The Board of Directors of the Company has the authority and discretion
to grant stock options. 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. No option may be issued under
the Plan after February 27, 2017.
Stock option activity is summarized as follows:
|
|
|
2016
|
|
|
2015
|
|
|
|
|
Shares
Under
Option
|
|
|
Value of
Shares
Under
Option
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
|
Shares
Under
Option
|
|
|
Value of
Shares
Under
Option
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
|
Outstanding - beginning of year
|
|
|
1,500,996
|
|
|
$
|
7,359
|
|
|
$
|
0.33
|
|
|
|
|
|
|
|
–
|
|
|
|
|
|
|
$
|
–
|
|
|
|
–
|
|
|
Granted
|
|
|
1,024,400
|
|
|
$
|
19,677
|
|
|
|
1.00
|
|
|
|
111
months
|
|
|
|
1,520,196
|
|
|
$
|
7,649
|
|
|
|
0.33
|
|
|
|
119
months
|
|
|
Exercised
|
|
|
–
|
|
|
|
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
–
|
|
|
|
–
|
|
|
Canceled or expired
|
|
|
325,050
|
|
|
$
|
4,907
|
|
|
|
0.33
|
|
|
|
–
|
|
|
|
19,200
|
|
|
$
|
290
|
|
|
|
0.33
|
|
|
|
–
|
|
|
Outstanding - end of year
|
|
|
2,200,346
|
|
|
$
|
22,129
|
|
|
|
0.64
|
|
|
|
109
months
|
|
|
|
1,500,996
|
|
|
|
|
|
|
|
0.33
|
|
|
|
119
months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable - end of year
|
|
|
2,200,346
|
|
|
|
|
|
|
|
0.64
|
|
|
|
109
months
|
|
|
|
–
|
|
|
|
|
|
|
|
–
|
|
|
|
–
|
|
All outstanding stock options at September
30, 2016 became immediately vested upon the completion of the reverse merger with Pacific Oil Company. Total compensation expense
included in salaries and wages of previously unamortized stock compensation was $22,715 and $0 for the years ended September 30,
2016 and 2015, respectively.
|
|
12.
|
RELATED PARTY TRANSACTIONS
|
Effective December 31, 2014, the Company
acquired Cloud9 (see Note 9). The majority stockholder of Cloud9 Holdings Company is also a stockholder of the Company.
Effective January 1, 2015, the Financial
Gravity Operations, Inc. also acquired BLI and PAG (see Note 9). BLI and PAG were acquired at no cost from a major stockholder
of FGH.
Account receivable due for services performed
for a related party, included in accounts receivable – related party
in the accompanying consolidated
balance sheets was $-0- and $27,267 as of September 30, 2016, and 2015.
Accounts receivable due from the majority
stockholder of the entity, included in accounts receivable – related party in the accompanying consolidated balance sheets
was $4,506 and $2,059 as of September 30, 2016, and 2015.
The Company also has a payable due to a
stockholder related to payment for services provided and repayment for goods (as incurred through the acquisition of Cloud9) and
services purchased on behalf of the Company of approximately $-0- and $2,300 as of September 30, 2016 and 2015. This is included
in the consolidated balance sheets as accounts payable - related party.
Management fees paid to the majority stockholder
of the entity, included as management fees - related party in the accompanying consolidated statement of operations were $213,333
and $155,657 for fiscal 2016, and 2015.
A board member who is also a stockholder
provided services to the Company. Expenses for these services totaled $49,000 and $9,020 for the years ending September 30, 2016,
and 2015, respectively, and were included as general and administrative expenses in the accompanying consolidated statement of
operations.
In addition to the 350,000 common shares
issued subsequent to September 30, 2016 for $350,000 and the Company has issued 150,000 warrants exercisable for $206,250.
In December 2016, the Company’s
board authorized 20 million shares to be made available under a new Stock Option Plan.
PART II - INFORMATION NOT REQUIRED IN
PROSPECTUS
Item 13.
Other
Expenses of Issuance and Distribution
The following table is an itemization of all expenses, without
consideration to future contingencies, incurred or expected to be incurred by our Corporation in connection with the issuance and
distribution of the common shares being offered by this Prospectus. Items marked with an asterisk (*) represent estimated expenses.
We have agreed to pay all the costs and expenses of this offering except the GHS has agreed to pay the legal fees associated with
the preparation of this registration statement.
|
Item
|
|
Amount
|
|
|
SEC Registration Fee
|
|
$
|
556.32
|
|
|
Legal Fees and Expenses*
|
|
|
15,000
|
|
|
Accounting Fees and Expenses*
|
|
|
5,000
|
|
|
Miscellaneous*
|
|
|
5,000
|
|
|
Total*
|
|
$
|
25,556.32
|
|
Item
14. Indemnification of Officers and Directors
Pursuant to Section 78.7502 of the Nevada
Revised Statutes, we have the power to indemnify any person made a party to any lawsuit by reason of being a director or officer
of the Registrant, or serving at the request of the corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses (including attorneys’ fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. Our Bylaws provide that
the Registrant shall indemnify its directors and officers to the fullest extent permitted by Nevada law.
With regard to the foregoing provisions,
or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Securities Act of 1933, as amended, and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by a director, officer
or controlling person of the Corporation in the successful defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the common shares being registered, we will, unless in the opinion of our counsel
the matter has been settled by a controlling precedent, submit to a court of appropriate jurisdiction the question of whether such
indemnification by us is against public policy as expressed in the Securities Act of 1933, as amended, and will be governed by
the final adjudication of such case.
Item
15. Recent Sales of Unregistered Securities
Issuances by Pacific Oil Company
Pursuant to the Merger Agreement, effective
September 30, 2016 we issued to the former stockholders of Financial Gravity Holdings an aggregate of 32,248,183 shares of the
Company’s common stock. Such securities were not registered under the Securities Act of 1933. The issuance of these shares
was exempt from registration pursuant to Section 4(2) and Rule 501(a) of Regulation D promulgated by the Commission under the Securities
Act of 1933. We made this determination based on the representations of each former stockholder of Financial Gravity who voted
with respect to the Merger, which included, in pertinent part, that such stockholder is acquiring the shares of the Company’s
common stock for his, her or its sole account, for investment and not with a view to the resale or distribution thereof, and that
such stockholder either (A) is an “accredited investor,” as defined in Regulation D of the Securities Act, (B) has
such knowledge and experience in financial and business matters that the stockholder is capable of evaluating the merits and risks
of receiving the shares of the Company’s common stock, or (C) has appointed an appropriate person to act as the stockholder’s
purchaser representative in connection with evaluating the merits and risks of receiving the shares of the Company’s common
stock. Appropriate legends have been affixed to all shares of the Company’s common stock to be issued in such transaction.
Issuances by Financial Gravity Holdings
During the year ended September 30, 2015,
Financial Gravity Holdings, a subsidiary of the Company, issued 21,150,000 shares of common stock to the founding members of Financial
Gravity Holdings and also 5,625,000 shares of common stock to a number of accredited investors pursuant to a private placement,
for an aggregate price of approximately $1,875,000. Also during the year ended September 30, 2015, Financial Gravity Holdings issued
150,000 common shares to two non-employee directors (total of 300,000 shares), in lieu of stock option grants. Also during the
year ended September 30, 2015, Financial Gravity Holdings acquired 100% of the capital stock of Cloud9 Holdings Company. In consideration
of such purchase, the Company issued 1,314,477 shares of Company common stock to the selling shareholder (this number of
shares reflects the three-for-one (3:1) forward split effective March 25, 2016). The selling stockholder in the transaction was
Mr. Paul Boyd, then serving as Chief Operating Officer of the Company. The shares of Company common stock, which served as the
consideration in the transaction, had an approximate value of $438,159.
During the year ended September 30, 2016,
Financial Gravity Holdings issued an additional 785,000 shares of common stock to a number of accredited investors pursuant to
the private placement, for an aggregate price of $535,000. In January 2016 one of the founding members of Financial Gravity Holdings
forfeited 2,926,294 common shares. Also during the year ended September 30, 2016, Financial Gravity Holdings acquired 100% of the
capital stock of Tax Coach Software, LLC. In consideration of such purchase, Financial Gravity Holdings issued 6,000,000 shares
of common stock to the sellers.
Subsequent to September 30, 2016, an aggregate
of 725,000 shares of Company common stock have been sold.
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 Financial Gravity Holdings 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 Financial Gravity Holdings
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.
Item 16. Exhibits and Financial Statement
Schedules.
The following exhibits are
included as part of this Form S-1.
Item
17. Undertakings
The undersigned registrant hereby undertakes
|
|
1.
|
To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
|
|
|
i.
|
To include any Prospectus required by section 10(a)(3) of the Securities Act of 1933;
|
|
|
ii.
|
To reflect in the Prospectus
any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of Prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation
of Registration Fee” table in the effective registration statement.
|
|
|
iii.
|
To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
|
|
|
2.
|
That, for the purpose of determining
any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
|
|
|
3.
|
To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
|
|
|
4.
|
That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
|
|
|
i.
|
Any Preliminary Prospectus or
Prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
|
|
|
ii.
|
Any free writing Prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
|
|
|
iii.
|
The portion of any other free
writing Prospectus relating to the offering containing material information about the undersigned registrant or its securities
provided by or on behalf of the undersigned registrant; and
|
|
|
iv.
|
Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
|
|
|
5.
|
|
That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser: Each Prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than Prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or Prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or Prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or Prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
|
Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be permitted to our directors, officers and controlling persons, we have been advised
that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities
(other than the payment by us of expenses incurred or paid by a director, officer or controlling person of the corporation in the
successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection
with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by a controlling
precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by us is against public policy
as expressed in the Securities Act of 1933, as amended, and will be governed by the final adjudication of such case.
Financial Gravity Companies, Inc.
6,000,000 Common Shares
Dated September __, 2017
SIGNATURES
Pursuant to the requirements of the Securities
Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized on September 18, 2017.
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|
Financial Gravity Companies, Inc.
|
|
|
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|
|
/s/ John David Pollock
|
|
|
By: John David Pollock
|
|
|
Its: CEO
|
In accordance with the requirements of the Securities Act of
1933, this registration statement was signed by the following persons in the capacities and on the dates stated:
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Name
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|
Title
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|
Date
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|
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|
/s/ John David Pollock
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|
CEO, Director
|
|
September 18, 2017
|
|
|
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|
|
/s/ Paul Williams
|
|
CFO, Director
|
|
September 18, 2017
|
|
|
|
|
|
|
|
/s/ Arthur David Crowley
|
|
Director
|
|
September 18, 2017
|
|
|
|
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|
|
|
/s/ George E. Crumley
|
|
Director
|
|
September 18, 2017
|
|
|
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|
/s/ Edward A. Lyon
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|
Director
|
|
September 18, 2017
|
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Exhibit 10.1
EQUITY FINANCING AGREEMENT
This EQUITY FINANCING AGREEMENT
(this "Agreement"), dated as of May 23, 2017 (the "Execution Date"), is entered into by and between Financial
Gravity Companies, Inc., a Nevada corporation with its principal executive office at 800 N. Watters Road, Suite 120, Allen, TX
75013 (the "Company"), and GHS Investments, LLC, a Nevada limited liability company, with offices at 420 Jericho Turnpike,
Suite 207, Jericho, NY 11753 (the "Investor").
RECITALS:
WHEREAS, the parties desire
that, upon the terms and subject to the conditions contained herein, the Investor shall invest up to Eleven Million Dollars ($11,000,000)
(the "Commitment Amount"), from time to time over the course of thirty-six (36) months after an effective registration
of the underlying shares (the "Contract Period") to purchase the Company's common stock, par value $.001 per share (the
"Common Stock");
WHEREAS, such investments
will be made in reliance upon the exemption from securities registration afforded by Section 4(a)(2) of the Securities Act of 1933,
as amended (the
"1933 Act"),
Rule 506 of Regulation D promulgated by the SEC under the 1933 Act, and/or upon such
other exemption from the registration requirements of the 1933 Act as may be available with respect to any or all of the investments
in Common Stock to be made hereunder; and
WHEREAS, contemporaneously
with the execution and delivery of this Agreement, the parties hereto are executing and delivering a Registration Rights Agreement
substantially in the form attached hereto as
Exhibit A
(the
"Registration Rights Agreement")
pursuant
to which the Company has agreed to provide certain registration rights under the 1933 Act, and the rules and regulations promulgated
thereunder, and applicable state securities laws.
NOW THEREFORE, in consideration
of the foregoing recitals, which shall be considered an integral part of this Agreement, the covenants and agreements set forth
hereafter, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company
and the Investor hereby agree as follows:
SECTION I.
DEFINITIONS
For all purposes of and
under this Agreement, the following terms shall have the respective meanings below, and such meanings shall be equally applicable
to the singular and plural forms of such defined terms.
"1933 Act"
shall have the meaning set forth in
the recitals.
"1934 Act"
shall mean the
Securities Exchange Act of 1934, as amended, or any similar federal statute, and the rules and regulations of the SEC thereunder,
all as the same will then be in effect.
"Affiliate"
shall have the meaning set forth in
Section 5.7
.
"Agreement"
shall have the meaning set forth in
the preamble.
"Articles of Incorporation"
shall have the meaning
set forth in
Section 4.3
.
"By-laws"
shall have the meaning
set forth in
Section 4.3
.
"Closing"
shall have the meaning
set forth in
Section 2.4
.
"Closing Date"
shall have the meaning
set forth in
Section 2.4
.
"Commitment Fee"
shall have the
meaning set forth in
Section 2.7
.
"Common Stock"
shall have the meaning
set forth in the recitals.
"Control"
or
"Controls"
shall have the meaning set forth in
Section 5.7
.
"Effective Date"
shall mean the date the SEC declares effective under the 1933 Act the Registration Statement covering the Shares.
"Environmental Laws"
shall have
the meaning set forth in
Section 4.13
.
"Execution Date"
shall have the
meaning set forth in the preamble.
"Indemnified Liabilities"
shall
have the meaning set forth in
Section 10
.
"Indemnitees"
shall have the meaning
set forth in
Section 10
.
"Indemnitor"
shall have the meaning
set forth in
Section 10
.
"Ineffective Period"
shall mean any period of time that the Registration Statement or any supplemental registration statement becomes ineffective
or unavailable for use for the sale or resale, as applicable, of any or all of the Registrable Securities (as defined in the Registration
Rights Agreement) for any reason (or in the event the prospectus under either of the above is not current and deliverable) during
any time period required under the Registration Rights Agreement.
"Investor"
shall have the meaning
set forth in the preamble.
"Market Price"
shall mean the average of the two lowest trading prices of the Company's Common Stock during the Pricing Period.
"Material Adverse Effect"
shall
have the meaning set forth in
Section 4.1
.
"Maximum Common Stock Issuance"
shall have the meaning set forth
in
Section 2.5
.
"Open Period"
shall mean the period beginning on and including the Trading Day immediately following the Effective Date and ending on the
earlier to occur of (i) the date which is thirty six (36) months from the Effective Date; or (ii) termination of this Agreement
in accordance with
Section 8
.
"Pricing Period"
shall mean ten (10) consecutive trading days preceding the receipt of the applicable Put Notice.
"Principal Market"
shall mean
the New York Stock Exchange, the NYSE Amex, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market,
the OTC Markets or the OTC Bulletin Board, whichever is the principal market on which the Common Stock is listed.
"Prospectus"
shall mean the
prospectus, preliminary prospectus and supplemental prospectus used in connection with the Registration Statement.
"Purchase Amount"
shall mean
the total amount being paid by the Investor on a particular Closing Date to purchase the Shares.
"Purchase Price"
shall mean eighty percent (80%)
of the Market Price.
"Put"
shall mean the Company
is entitled to request equity investments (the "Put" or "Puts") by the Investor during the Contract Period,
pursuant to which the Company will issue Common Stock to the Investor with an aggregate Purchase Price equal to the value of the
Put, subject to a price per share calculation based on the Market Price.
"Put Amount"
shall mean the
total dollar amount requested by the Company pursuant to an applicable Put. The timing and amounts of each Put shall be at the
discretion of the Company. The maximum dollar amount of each Put will not exceed two hundred percent (200%) of the average of the
daily trading dollar volume for the Company's Common Stock during the ten (10) trading days preceding the Put Notice Date. No Put
will be made in an amount greater than two hundred and fifty thousand dollars ($250,000). Puts are further limited to the Investor
owning no more than 9.99% of the outstanding stock of the Company at any given time.
"Put Notice"
shall mean a
written notice sent to the Investor by the Company stating the Put Amount in U.S. dollars that the Company intends to sell to the
Investor pursuant to the terms of this Agreement and stating the current number of Shares issued and outstanding on such date.
"Put Notice Date"
shall mean
the Trading Day, as set forth below, on which the Investor receives a Put Notice.
"Put Restriction"
shall mean
a minimum of ten (10) days following a Put Notice Date. During this time, the Company shall not be entitled to deliver another
Put Notice.
"Put Shares Due"
shall have the meaning set forth
in
Section 2.4
.
"Registered Offering Transaction Documents"
shall mean this Agreement and the Registration Rights Agreement between the Company and the Investor as of the date herewith.
"Registration Rights Agreement"
shall have the
meaning set forth in the recitals.
"Registration Statement"
means
the registration statement of the Company on Form S-1 filed under the 1933 Act covering the Shares issuable hereunder.
"Related Party"
shall have the meaning set forth
in
Section 5.7
.
"Resolution"
shall have the meaning set forth in
Section 7.5
.
"SEC"
shall mean the U.S. Securities and Exchange
Commission.
"SEC Documents"
shall have the meaning set forth in
Section 4.6
.
"Settlement Date"
shall have the meaning set forth
in
Section 6.2
.
"Shares"
shall
mean the shares of the Company's Common Stock issued pursuant to the terms of this Agreement.
"Subsidiaries"
shall have the meaning
set forth in
Section 4.1
.
"Trading Day"
shall mean any day on which the Principal Market for the Common Stock is open for trading, from the hours of 9:30 am until
4:00 pm.
SECTION II
PURCHASE AND SALE OF COMMON
STOCK
2.1
PURCHASE AND SALE OF COMMON STOCK
.
Subject to the terms and conditions set forth herein, the Company shall issue and sell to the Investor, and the Investor shall
purchase from the Company, up to that number of Shares having an aggregate Purchase Price of Eleven Million Dollars ($11,000,000).
2.2
DELIVERY OF PUT NOTICES
. Subject
to the terms and conditions herein, and from time to time during the Open Period, the Company may, in its sole discretion, deliver
a Put Notice to the Investor which states the dollar amount (designated in U.S. Dollars), which the Company intends to sell to
the Investor on a Closing Date (the
"Put").
The Put Notice shall be in the form attached hereto as
Exhibit
C
and incorporated herein by reference. The price of the Put shall be eighty (80%) percent of the "Market Price",
which is the average of the two lowest trading prices of the Company's Common Stock during the ten (10) consecutive trading days
preceding the Put Notice Date, and such time frame is referred to as the Pricing Period. During the Open Period, the Company shall
not be entitled to submit a Put Notice until after the previous Closing has been completed. There will be a minimum of ten (10)
trading days between Put Notices.
2.3
CONDITIONS
TO INVESTOR'S OBLIGATION TO PURCHASE SHARES
.Notwithstanding anything to the contrary in this Agreement, the Company shall
not be entitled to deliver a Put Notice and the Investor shall not be obligated to purchase any Shares at a Closing unless all
of the following conditions are satisfied:
|
|
i.
|
a Registration Statement shall have been declared effective and shall remain effective and available
for the resale of all the Registrable Securities (as defined in the Registration Rights Agreement) at all times until the Closing
with respect to the subject Put Notice;
|
|
|
ii.
|
at all times during the period beginning on the related Put Notice Date and ending on and including
the related Closing Date, the Common Stock shall have been listed or quoted for trading on the Principal Market and shall not have
been suspended from trading thereon for a period of two (2) consecutive Trading Days during the Open Period, and the Company shall
not have been notified of any pending or threatened proceeding or other action to suspend the trading of the Common Stock;
|
|
|
iii.
|
the Company has complied with its obligations and is otherwise not in breach of or in default under,
this Agreement, the Registration Rights Agreement or any other agreement executed between the parties, which has not been cured
prior to delivery of the Investor's Put Notice Date;
|
|
|
iv.
|
no injunction shall have been issued and remain in force, and no action has been commenced by a
governmental authority which has not been stayed or abandoned, prohibiting the purchase or the issuance of the Shares;
|
|
|
v.
|
the Company has received commitments from the Section 16 officers of the Company, to not participate
in any trading of the Common Stock during the ten (10) trading days following each Closing Date; and
|
|
|
vi.
|
the issuance of the Shares will not violate any shareholder approval requirements of the Principal Market.
|
If any of the events described
in clauses (i) through (v) above occurs during a Pricing Period, then the Investor shall have no obligation to purchase the Put
Amount of Common Stock set forth in the applicable Put Notice.
2.4
MECHANICS OF PURCHASE OF SHARES BY INVESTOR
.
Subject to the satisfaction of the conditions set forth in Sections 2.5, 7 and 8 of this Agreement, at the end of the Pricing Period,
the Purchase Price shall be established and, at Closing, the number of Put Shares shall be delivered for a particular Put.
Each Closing ("Closing")
of a Put shall occur upon the first Trading Day following the completion of the Pricing Period (such date, the "Closing Date".
On each Closing Date, (i) the Company shall cause the Transfer Agent to electronically transmit the applicable Put Shares by crediting
the account of the Investor's broker with DTC through its Deposit Withdrawal Agent Commission ("DWAC") system, (ii) the
Investor's broker shall have received and approved the Put Shares (via confirmation in writing), and (iii) the Investor shall deliver
the Investment Amount specified in the Put Notice by wire transfer of immediately available funds to an account designated by the
Company. In addition, on or prior to each Closing Date, each of the Company and Investor shall deliver to each other all documents,
instruments and writings required to be delivered or reasonably requested by either of them pursuant to this Agreement in order
to implement and effect the transactions contemplated herein.
In the event that (i) a
Section 16 officer of the Company participates in any trading of the Common Stock during the ten (10) trading days following a
Closing Date (the "Trading Period") and (ii) at the time of such trading, the Investor then holds any Shares issued pursuant
to a Put Notice (the "Trading Period Shares"), then the Company shall issue additional Shares to the Investor on the
Trading Day immediately following the Trading Period (by crediting the account of the Investor's broker with DTC through its DWAC
system). The number of such additional Shares shall be determined by adjusting the Purchase Price (for that portion of the Put
represented by the Trading Period Shares) to equal the lowest volume-weighted average price of the Company's Common Stock during
the Trading Period.
2.5
OVERALL LIMIT ON COMMON STOCK
ISSUABLE
. Notwithstanding anything contained herein to the contrary, if during the Open Period the Company becomes listed on
an exchange which limits the number of shares of Common Stock that may be issued without shareholder approval, then the number
of Shares issuable by the Company and purchasable by the Investor, shall not exceed that number of the shares of Common Stock that
may be issuable without shareholder approval (the
"Maximum Common Stock Issuance").
If
such issuance of shares of Common Stock could cause a delisting on the Principal Market, then the Maximum Common Stock Issuance
shall first be approved by the Company's shareholders in accordance with applicable law and the By-laws and the Articles of Incorporation
of the Company, if such issuance of shares of Common Stock could cause a delisting on the Principal Market. The parties understand
and agree that the Company's failure to seek or obtain such shareholder approval shall in no way adversely affect the validity
and due authorization of the issuance and sale of Shares or the Investor's obligation in accordance with the terms and conditions
hereof to purchase a number of Shares in the aggregate up to the Maximum Common Stock Issuance, and that such approval pertains
only to the applicability of the Maximum Common Stock Issuance limitation provided in this
Section 2.5
.
2.6
LIMITATION
ON AMOUNT OF OWNERSHIP
. Notwithstanding anything to the contrary in this Agreement, in no event shall the Investor be entitled
to purchase that number of Shares, which when added to the sum of the number of shares of Common Stock beneficially owned (as such
term is defined under Section 13(d) and Rule 13d-3 of the 1934 Act), by the Investor, would exceed 9.99% of the number of shares
of Common Stock outstanding on the Closing Date, as determined in accordance with Rule 13d-1(j) of the 1934 Act.
2.7
COMMITMENT FEE
.
Upon the execution of this Agreement, the Company shall issue to the Investor a $30,000 Promissory Note as a commitment fee ("Commitment
Fee"). The Promissory Note shall mature nine (9) months from execution, provided that the Registration Statement has been
filed with the SEC.
SECTION
III
INVESTOR'S REPRESENTATIONS,
WARRANTIES AND COVENANTS
The Investor
represents and warrants to the Company, and covenants, that to the best of the Investor's knowledge:
3.1
SOPHISTICATED
INVESTOR
. The Investor has, by reason of its business and financial experience, such knowledge, sophistication and experience
in financial and business matters and in making investment decisions of this type that it is capable of (I) evaluating the merits
and risks of an investment in the Shares and making an informed investment decision; (II) protecting its own interest; and (III)
bearing the economic risk of such investment for an indefinite period of time.
3.2
AUTHORIZATION;
ENFORCEMENT
. This Agreement has been duly and validly authorized, executed and delivered on behalf of the Investor and is a
valid and binding agreement of the Investor enforceable against the Investor in accordance with its terms, subject as to enforceability
to general principles of equity and to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar
laws relating to, or affecting generally, the enforcement of applicable creditors' rights and remedies.
3.3
SECTION 9 OF
THE 1934 ACT
. During the term of this Agreement, the Investor will comply with the provisions of Section 9 of the 1934 Act,
and the rules promulgated thereunder, with respect to transactions involving the Common Stock.
3.4
ACCREDITED INVESTOR
.
Investor is an "Accredited Investor" as that term is defined in Rule 501(a) of Regulation D of the 1933 Act.
3.5
NO CONFLICTS
. The execution,
delivery and performance of the Registered Offering Transaction Documents by the Investor and the consummation by the Investor
of the transactions contemplated hereby and thereby will not result in a violation of the operating agreement or other organizational
documents of the Investor.
3.6
OPPORTUNITY TO DISCUSS
. The
Investor has received all materials relating to the Company's business, finance and operations which it has requested. The Investor
has had an opportunity to discuss the business, management and financial affairs of the Company with the Company's management,
on a confidential basis and consistent with the Confidentiality Agreement between the parties.
3.7
INVESTMENT PURPOSES
. The
Investor is purchasing the Shares for its own account for investment purposes and not with a view towards distribution and agrees
to resell or otherwise dispose of the Shares solely in accordance with the registration provisions of the 1933 Act (or pursuant
to an exemption from such registration provisions).
3.8
NO REGISTRATION AS A DEALER
.
The Investor is not required to be registered as a "dealer" under the 1934 Act, either as a result of its execution and
performance of its obligations under this Agreement or otherwise.
3.9
GOOD STANDING
. The Investor
is a limited liability company, duly organized, validly existing and in good standing in the State of its Nevada.
3.10
TAX LIABILITIES
. The Investor understands that
it is liable for its own tax liabilities.
3.11
REGULATION M
. The Investor will comply with Regulation
M under the 1934 Act, if applicable.
3.12
NO SHORT SALES
. No short
sales or other activities that could manipulate the market for the Common Stock, in violation of Rule 10b-5 promulgated under the
Securities Exchange Act of 1934, shall be permitted by the Investor or its affiliates during the period commencing on the Execution
Date and continuing through the termination of this Agreement.
SECTION IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in
the Schedules attached hereto, or as disclosed on the Company's SEC Documents, the Company represents and warrants to the Investor
that:
4.1
ORGANIZATION AND QUALIFICATION
.
The Company is a corporation duly organized and validly existing in good standing under the laws of the State of Nevada, and has
the requisite corporate power and authorization to own its properties and to carry on its business as now being conducted. Both
the Company and the companies it owns or controls
("Subsidiaries")
are duly qualified to do business and are in
good standing in every jurisdiction in which its ownership of property or the nature of the business conducted by it makes such
qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a Material
Adverse Effect. As used in this Agreement,
"Material Adverse Effect"
means a change, event, circumstance, effect
or state of facts that has had or is reasonably likely to have, a material adverse effect on the business, properties, assets,
operations, results of operations, financial condition or prospects of the Company and its Subsidiaries, if
any,
taken as a whole, or on the transactions contemplated hereby or by the agreements and instruments to be entered into in connection
herewith, or on the authority or ability of the Company to perform its obligations under the Registered Offering Transaction Documents.
4.2
AUTHORIZATION; ENFORCEMENT; COMPLIANCE
WITH OTHER INSTRUMENTS
.
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i.
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The Company has the requisite corporate power and authority to enter into and perform this Agreement
and the Registration Rights Agreement (collectively, the
"Registered Offering Transaction Documents"),
and to
issue the Shares in accordance with the terms hereof and thereof.
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ii.
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The execution and delivery of the Registered Offering Transaction Documents by the Company and
the consummation by it of the transactions contemplated hereby and thereby, including without limitation the issuance of the Shares
pursuant to this Agreement, have been duly and validly authorized by the Company's Board of Directors and no further consent or
authorization is required by the Company, its Board of Directors, or its shareholders.
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iii.
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The Registered Offering Transaction Documents have been duly and validly executed and delivered
by the Company.
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iv.
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The Registered Offering Transaction Documents constitute the valid and binding obligations of the
Company, enforceable against the Company in accordance with their terms, except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally, the enforcement of creditors' rights and remedies.
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4.3
CAPITALIZATION
.
As of the date hereof, the authorized capital stock of the Company consists of 300,000,000 shares of the Common Stock, par
value $.001 per share, of which as of the date hereof 34,862,900 shares are issued and outstanding. All of such outstanding
shares have been validlissued and are fully paid and nonassessable.
Except as disclosed in the
Company's publicly available filings with the SEC or as otherwise set forth on
Schedule 4.3:
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i.
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no shares of the Company's capital stock are subject to preemptive rights or any other similar
rights or any liens or encumbrances suffered or permitted by the Company;
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ii.
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there are no outstanding debt securities;
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iii.
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there are no outstanding options, warrants, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of
its Subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is
or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries;
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iv.
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there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated
to register the sale of any of their securities under the 1933 Act (except the Registration Rights Agreement);
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v.
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there are no outstanding securities of the Company or any of its Subsidiaries which contain any
redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company
or any of its Subsidiaries is or may become bound to redeem a security of the Company or any of its Subsidiaries;
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vi.
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there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance
of the Shares as described in this Agreement;
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vii.
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the Company does not have any stock appreciation rights or "phantom stock" plans or agreements or any similar plan
or agreement; and
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viii.
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there is no dispute as to the classification of any shares of the Company's capital stock.
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The Company has furnished
to the Investor, or the Investor has had access through EDGAR to, true and correct copies of the Company's Articles of Incorporation,
as in effect on the date hereof (the
"Articles of Incorporation"),
and the Company's By-laws, as in effect on
the date hereof (the
"By-laws"),
and the terms of all securities convertible into or exercisable for Common Stock
and the material rights of the holders thereof in respect thereto.
4.4
ISSUANCE OF SHARES
. The Company has reserved
the amount of Shares included in the Company's registration statement for issuance pursuant to the Registered Offering Transaction
Documents, and such Shares have been duly authorized for issuance and reserved (subject to adjustment pursuant to the Company's
covenant set forth in
Section 5.5
below) pursuant to this Agreement. Upon issuance in accordance with this Agreement, the
Shares will be validly issued, fully paid for and non-assessable and free from all taxes, liens and charges with respect to the
issuance thereof. In the event the Company cannot register a sufficient number of Shares for issuance pursuant to this Agreement,
the Company will use its best efforts to authorize and reserve for issuance the number of Shares required for the Company to perform
its obligations hereunder as soon as reasonably practicable.
4.5
NO
CONFLICTS
. The execution, delivery and performance of the Registered Offering Transaction Documents by the Company and
the consummation by the Company of the transactions contemplated hereby and thereby will not (i) result in a violation of the
Articles of Incorporation, any Certificate of Designations, Preferences and Rights of any outstanding series of preferred
stock of the Company, or the By-laws; or (ii) conflict with, or constitute a material default (or an event which with notice
or lapse of time or both would become a material default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, contract, indenture mortgage, indebtedness or instrument to which
the Company or any of its Subsidiaries is a party, or to the Company's knowledge result in a violation of any law, rule,
regulation, order, judgment or decree (including United States federal and state securities laws and regulations and the
rules and regulations of the Principal Market or principal securities exchange or trading market on which the Common Stock is
traded or listed) applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or
any of its Subsidiaries is bound or affected. Neither the Company nor any of its Subsidiaries is in violation of any term of,
or in default under, its respective organizational charter or bylaws, or any contract, agreement, mortgage, indebtedness,
indenture, instrument, judgment, decree or order or any statute, rule or regulation applicable to the Company or its
Subsidiaries, except for possible conflicts, defaults, terminations, amendments, accelerations, cancellations and violations
that would not individually or in the aggregate have or constitute a Material Adverse Effect. The business of the Company and
its Subsidiaries is not being conducted, and shall not be conducted, in violation of any law, statute, ordinance, rule, order
or regulation of any governmental authority or agency, regulatory or self-regulatory agency, or court, except for possible
violations the sanctions for which either individually or in the aggregate would not have a Material Adverse Effect. Except
as specifically contemplated by this Agreement and as required under the 1933 Act or any securities laws of any states, to
the Company's knowledge, the Company is not required to obtain any consent, authorization, permit or order of, or make any
filing or registration (except the filing of a registration statement as outlined in the Registration Rights Agreement
between the parties) with, any court, governmental authority or agency, regulatory or self-regulatory agency or other third
party in order for it to execute, deliver or perform any of its obligations under, or contemplated by, the Registered
Offering Transaction Documents in accordance with the terms hereof or thereof. All consents, authorizations, permits, orders,
filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or
effected on or prior to the date hereof and are in full force and effect as of the date hereof. The Company and its
Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing. The Company is not, and
will not be, in violation of the listing requirements of the Principal Market as in effect on the date hereof and on each of
the Closing Dates and is not aware of any facts which would reasonably lead to delisting of the Common Stock by the Principal
Market in the foreseeable future.
4.6
SEC
DOCUMENTS; FINANCIAL STATEMENTS
. As of the date hereof, the Company has filed all reports, schedules, forms, statements and
other documents required to be filed by it with the SEC pursuant to the reporting requirements of the 1934 Act (all of the foregoing
filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated
by reference therein, and amendments thereto, being hereinafter referred to as the
"SEC Documents").
The Company
has delivered to the Investor or its representatives, or they have had access through EDGAR to, true and complete copies of the
SEC Documents. As of their respective filing dates, the SEC Documents complied in all material respects with the requirements of
the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC or the time they were amended, if amended, contained any untrue statement of
a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. As of their respective dates, the financial statements
of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements
and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance
with generally accepted accounting principles consistently applied, by a firm that is a member of the Public Companies Accounting
Oversight Board
("PCAOB"),
during the periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes
or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as
of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments). No other written information provided by or on behalf of the Company to the
Investor which is not included in the SEC Documents, including, without limitation, information referred to in
Section 4.3
of this Agreement, contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements
therein, in the light of the circumstance under which they are or were made, not misleading. Neither the Company nor any of its
Subsidiaries or any of their officers, directors, employees or agents have provided the Investor with any material, nonpublic information
which was not publicly disclosed prior to the date hereof and any material, nonpublic information provided to the Investor by the
Company or its Subsidiaries or any of their officers, directors, employees or agents prior to any Closing Date shall be publicly
disclosed by the Company prior to such Closing Date.
4.7
ABSENCE OF CERTAIN CHANGES
.
Except as otherwise set forth in the SEC Documents, the Company does not intend to change the business operations of the Company
in any material way. The Company has not taken any steps, and does not currently expect to take any steps, to seek protection pursuant
to any bankruptcy law nor does the Company or its Subsidiaries have any knowledge or reason to believe that its creditors intend
to initiate involuntary bankruptcy proceedings.
4.8
ABSENCE OF LITIGATION AND/OR REGULATORY PROCEEDINGS
.
Except as set forth in the SEC Documents, there is no action, suit, proceeding, inquiry or investigation before or by any court,
public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of
Company or any of its Subsidiaries, threatened against or affecting the Company, the Common Stock or any of the Company's Subsidiaries
or any of the Company's or the Company's Subsidiaries' officers or directors in their capacities as such, in which an adverse decision
could have a Material Adverse Effect.
4.9
ACKNOWLEDGMENT REGARDING INVESTOR'S
PURCHASE OF SHARES
. The Company acknowledges and agrees that the Investor is acting solely in the capacity of an arm's length
Investor with respect to the Registered Offering Transaction Documents and the transactions contemplated hereby and thereby. The
Company further acknowledges that the Investor is not acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to the Registered Offering Transaction Documents and the transactions contemplated hereby and thereby and
any advice given by the Investor or any of its respective representatives or agents in connection with the Registered Offering
Transaction Documents and the transactions contemplated hereby and thereby is merely incidental to the Investor's purchase of the
Securities, and is not being relied on by the Company. The Company further represents to the Investor that the Company's decision
to enter into the Registered Offering Transaction Documents has been based solely on the independent evaluation by the Company
and its representatives.
4.10
NO UNDISCLOSED
EVENTS, LIABILITIES, DEVELOPMENTS OR CIRCUMSTANCES
. Except as set forth in the SEC Documents, as of the date hereof, no event,
liability, development or circumstance has occurred or exists, or to the Company's knowledge is contemplated to occur, with respect
to the Company or its Subsidiaries or their respective business, properties, assets, prospects, operations or financial condition,
that would be required to be disclosed by the Company under applicable securities laws on a registration statement filed with the
SEC relating to an issuance and sale by the Company of its Common Stock and which has not been publicly announced.
4.11
EMPLOYEE RELATIONS
. Neither
the Company nor any of its Subsidiaries is involved in any union labor dispute nor, to the knowledge of the Company or any of its
Subsidiaries, is any such dispute threatened. Neither the Company nor any of its Subsidiaries is a party to a collective bargaining
agreement, and the Company and its Subsidiaries believe that relations with their employees are good. No executive officer (as
defined in Rule 501(f) of the 1933 Act) has notified the Company that such officer intends to leave the Company's employ or otherwise
terminate such officer's employment with the Company.
4.12
INTELLECTUAL PROPERTY
RIGHTS
. The Company and its Subsidiaries own or possess adequate rights or licenses to use all trademarks, trade names, service
marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective businesses as now conducted. Except as set forth
in the SEC Documents, none of the Company's trademarks, trade names, service marks, service mark registrations, service names,
patents, patent rights, copyrights, inventions, licenses, approvals, government authorizations, trade secrets or other intellectual
property
rights necessary to conduct its business as now or as proposed to be conducted have expired
or terminated, or are expected to expire or terminate within two (2) years from the date of this Agreement. The Company and its
Subsidiaries do not have any knowledge of any infringement by the Company or its Subsidiaries of trademark, trade name rights,
patents, patent rights, copyrights, inventions, licenses, service names, service marks, service mark registrations, trade secret
or other similar rights of others, or of any such development of similar or identical trade secrets or technical information by
others and, except as set forth in the SEC Documents, there is no claim, action or proceeding being made or brought against, or
to the Company's knowledge, being threatened against, the Company or its Subsidiaries regarding trademark, trade name, patents,
patent rights, invention, copyright, license, service names, service marks, service mark registrations, trade secret or other infringement;
and the Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing. The
Company and its Subsidiaries have taken commercially reasonable security measures to protect the secrecy, confidentiality and value
of all of their intellectual properties.
4.13
ENVIRONMENTAL
LAWS
. The Company and its Subsidiaries (i) are, to the knowledge of the management and directors of the Company and its Subsidiaries,
in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of
human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental
Laws");
(ii) have, to the knowledge of the management and directors of the Company, received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct their respective businesses; and (iii) are in compliance,
to the knowledge of the management and directors of the Company, with all terms and conditions of any such permit, license or approval.
4.14
TITLE
.
The Company and its Subsidiaries have good and marketable title to all personal property owned by them which is material to the
business of the Company and its Subsidiaries, in each case free and clear of all liens, encumbrances and defects except such as
are described in the SEC Documents or such as do not materially affect the value of such property and do not interfere with the
use made and proposed to be made of such property by the Company or any of its Subsidiaries. Any real property and facilities
held under lease by the Company or any of its Subsidiaries are held by them under valid, subsisting and enforceable leases with
such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings
by the Company and its Subsidiaries.
4.15
INSURANCE
. Each of the Company's
Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts
as management of the Company reasonably believes to be prudent and customary in the businesses in which the Company and its Subsidiaries
are engaged. Neither the Company nor any of its Subsidiaries has been refused any insurance coverage sought or applied for and
neither the Company nor its Subsidiaries has any reason to believe that it will not be able to renew its existing insurance coverage
as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business
at a cost that would not have a Material Adverse Effect.
4.16
REGULATORY
PERMITS
. The Company and its Subsidiaries have in full force and effect all certificates, approvals, authorizations and permits
from the appropriate federal, state, local or foreign regulatory authorities and comparable foreign regulatory agencies, necessary
to own, lease or operate their respective properties and assets and conduct their respective businesses, and neither the Company
nor any such Subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate,
approval, authorization or permit.
4.17
INTERNAL ACCOUNTING
CONTROLS
. Except as otherwise set forth in the SEC Documents, the Company and each of its Subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's
general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles by a firm with membership to the PCAOB and to maintain asset accountability;
(iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect
to any differences. The Company's management has determined that the Company's internal accounting controls were not effective
as of the date of this Agreement as further described in the SEC Documents.
4.18
NO MATERIALLY ADVERSE
CONTRACTS, ETC
. Neither the Company nor any of its Subsidiaries is subject to any charter, corporate or other legal restriction,
or any judgment, decree, order, rule or regulation which in the judgment of the Company's officers has or is expected in the future
to have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a party to any contract or agreement which
in the judgment of the Company's officers has or is expected to have a Material Adverse Effect.
4.19
TAX STATUS
.
The Company and each of its Subsidiaries has made or filed all United States federal and state income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject, or timely filed appropriate extensions (unless and
only to the extent that the Company and each of its Subsidiaries has set aside on its books provisions reasonably adequate for
the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are
material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good
faith and has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods
to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim.
4.20
CERTAIN TRANSACTIONS
.
Except as set forth in the SEC Documents filed at least ten (10) days prior to the date hereof and except for arm's length transactions
pursuant to which the Company makes payments in the ordinary course of business upon terms no less favorable than the Company could
obtain from disinterested third parties, none of the officers, directors, or employees of the Company is presently a party to any
transaction with the Company or any of its Subsidiaries (other than for services as employees, officers and directors), including
any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or
personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge
of the Company, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner, such that disclosure would be required in the SEC Documents.
4.21
DILUTIVE
EFFECT
. The Company's executive officers and directors have studied and fully understand the nature of the transactions contemplated
by this Agreement and recognize that they will have a dilutive effect on the shareholders of the Company. The Board of Directors
of the Company has concluded, in its good faith business judgment, and with full understanding of the implications, that such issuance
is in the best interests of the Company. The Company specifically acknowledges that, subject to such limitations as are expressly
set forth in the Registered Offering Transaction Documents, its obligation to issue shares of Common Stock upon purchases pursuant
to this Agreement is absolute and
unconditional regardless of the dilutive effect that such issuance
may have on the ownership interests of other shareholders of the Company.
4.22
NO
GENERAL SOLICITATION
. Neither the Company, nor any of its affiliates, nor any person acting on its behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of Regulation D) in connection with the offer or sale of
the Common Stock to be offered as set forth in this Agreement.
4.23
NO
BROKERS, FINDERS OR FINANCIAL ADVISORY FEES OR COMMISSIONS
.No brokers, finders or financial advisory fees or commissions will
be payable by the Company, its agents or Subsidiaries, with respect to the transactions contemplated by this Agreement.
4.24
EXCLUSIVITY
.
The Company shall not pursue a similar Equity Financing transaction with any other party unless and until good faith negotiations
have terminated between the Investor and the Company or until such time as the registration statement has been declared effective
by the SEC.
SECTION V
COVENANTS OF THE COMPANY
5.1
BEST EFFORTS
.
The Company shall use all commercially reasonable efforts to timely satisfy each of the conditions set forth in
Section 7
of this Agreement.
5.2
REPORTING STATUS
.
Until one of the following occurs, the Company shall file all reports required to be filed with the SEC pursuant to the 1934 Act,
and the Company shall not terminate its status, or take an action or fail to take any action, which would terminate its status
as a reporting company under the 1934 Act: (i) this Agreement terminates pursuant to
Section 8
and the Investor has the
right to sell all of the Shares without restrictions pursuant to Rule 144 promulgated under the 1933 Act, or such other exemption,
or (ii) the date on which the Investor has sold all the Shares and this Agreement has been terminated pursuant to
Section 8
.
5.3
USE OF PROCEEDS
.
The Company will use the proceeds from the sale of the Shares (excluding amounts paid by the Company for fees as set forth in the
Registered Offering Transaction Documents) for general corporate and working capital purposes and acquisitions or assets, businesses
or operations or for other purposes that the Board of Directors, in good faith deem to be in the best interest of the Company.
5.4
FINANCIAL INFORMATION
.
During the Open Period, the Company agrees to make available to the Investor via EDGAR or other electronic means the following
documents and information: (i) within five (5) Trading Days after the filing thereof with the SEC, a copy of its Annual Reports
on Form 10-K, its Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K and any Registration Statements or amendments
filed pursuant to the 1933 Act; (ii) copies of any notices and other information made available or given to the shareholders of
the Company generally, contemporaneously with the making available or giving thereof to the shareholders; and (iii) within two
(2) calendar days of filing or delivery thereof, copies of all documents filed with, and all correspondence sent to, the Principal
Market, any securities exchange or market, or the Financial Industry Regulatory Authority, unless such information is material
nonpublic information.
5.5
RESERVATION
OF SHARES
. The Company shall take all action necessary to at all times have authorized, and reserved, the amount of Shares
included in the Company's registration statement for issuance pursuant to the Registered Offering Transaction Documents. In the
event that the
Company determines that it does not have a sufficient number of authorized shares of Common Stock to reserve
and keep available for issuance as described in this
Section 5.5,
the Company shall use all commercially reasonable efforts
to increase the number of authorized shares of Common Stock by seeking shareholder approval for the authorization of such additional
shares.
5.6
LISTING
. The Company shall
promptly secure and maintain the listing of all of the Registrable Securities (as defined in the Registration Rights Agreement)
on the Principal Market and each other national securities exchange and automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance), and shall maintain such listing of all Registrable Securities
from time to time issuable under the terms of the Registered Offering Transaction Documents. Neither the Company nor any of its
Subsidiaries shall take any action which would be reasonably expected to result in the delisting or suspension of the Common Stock
on the Principal Market (excluding suspensions of not more than one (1) Trading Day resulting from business announcements by the
Company). The Company shall promptly provide to the Investor copies of any notices it receives from the Principal Market regarding
the continued eligibility of the Common Stock for listing on such automated quotation system or securities exchange. The Company
shall pay all fees and expenses in connection with satisfying its obligations under this
Section 5.6
.
5.7
TRANSACTIONS WITH AFFILIATES
.
The Company shall not, and shall cause each of its Subsidiaries not to, enter into, amend, modify or supplement, or permit any
Subsidiary to enter into, amend, modify or supplement, any agreement, transaction, commitment or arrangement with any of its or
any Subsidiary's officers, directors, persons who were officers or directors at any time during the previous two (2) years, shareholders
who beneficially own 5% or more of the Common Stock, or Affiliates or with any individual related by blood, marriage or adoption
to any such individual or with any entity in which any such entity or individual owns a 5% or more beneficial interest (each a
"Related Party"),
except for (i) customary employment arrangements and benefit programs on reasonable terms, (ii)
any agreement, transaction, commitment or arrangement on an arms-length basis on terms no less favorable than terms which would
have been obtainable from a disinterested third party other than such Related Party, or (iii) any agreement, transaction, commitment
or arrangement which is approved by a majority of the disinterested directors of the Company. For purposes hereof, any director
who is also an officer of the Company or any Subsidiary of the Company shall not be a disinterested director with respect to any
such agreement, transaction, commitment or arrangement.
"Affiliate"
for purposes hereof means, with respect to
any person or entity, another person or entity that, directly or indirectly, (i) has a 5% or more equity interest in that person
or entity, (ii) has 5% or more common ownership with that person or entity, (iii) controls that person or entity, or (iv) is under
common control with that person or entity.
"Control"
or
"Controls"
for purposes hereof means
that a person or entity has the power, directly or indirectly, to conduct or govern the policies of another person or entity.
5.8
FILING OF FORM 8-K
. On or
before the date which is four (4) Trading Days after the Execution Date, the Company shall file a Current Report on Form 8-K with
the SEC describing the terms of the transaction contemplated by the Registered Offering Transaction Documents in the form required
by the 1934 Act, if such filing is required.
5.9
CORPORATE EXISTENCE
. The
Company shall use all commercially reasonable efforts to preserve and continue the corporate existence of the Company.
5.10
NOTICE OF CERTAIN
EVENTS AFFECTING REGISTRATION; SUSPENSION OF RIGHT TO MAKE A PUT
. The Company shall promptly notify the Investor upon the occurrence
of any of the following events in respect of a Registration Statement or related prospectus in respect of an offering of the Shares:
(i) receipt of any request for additional information by the SEC or any other
federal or state governmental
authority during the period of effectiveness of the Registration Statement, or any request for amendments or supplements to the
Registration Statement or related prospectus; (ii) the issuance by the SEC or any other federal or state governmental authority
of any stop order suspending the effectiveness of any Registration Statement or the initiation of any proceedings for that purpose;
(iii) receipt of any notification with respect to the suspension of the qualification or exemption from qualification of any of
the Shares for sale in any jurisdiction or the initiation or notice of any proceeding for such purpose; (iv) the happening of any
event that makes any statement made in such Registration Statement or related prospectus or any document incorporated or deemed
to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in the Registration
Statement, related prospectus or documents so that, in the case of a Registration Statement, it will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein
not misleading, and that in the case of the related prospectus, it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and (v) the Company's reasonable determination that a post-effective
amendment or supplement to the Registration Statement would be appropriate, and the Company shall promptly make available to Investor
any such supplement or amendment to the related prospectus. The Company shall not deliver to Investor any Put Notice during the
continuation of any of the foregoing events in this
Section 5.10
.
5.11
TRANSFER AGENT
. The Company shall
deliver instructions to its transfer agent to issue Shares to the Investor consistent with the issuance transactions contemplated
herein.
5.12
ACKNOWLEDGEMENT
OF TERMS
. The Company hereby represents and warrants to the Investor that: (i) it is voluntarily entering into this Agreement
of its own free will, (ii) it is not entering into this Agreement under economic duress, (iii) the terms of this Agreement are
reasonable and fair to the Company, and (iv) the Company has had independent legal counsel of its own choosing review this Agreement,
advise the Company with respect to this Agreement, and represent the Company in connection with this Agreement.
SECTION VI
CONDITIONS OF THE COMPANY'S
OBLIGATION TO SELL
The obligation
hereunder of the Company to issue and sell the Shares to the Investor is further subject to the satisfaction, at or before each
Closing Date, of each of the following conditions set forth below. These conditions are for the Company's sole benefit and may
be waived by the Company at any time in its sole discretion.
6.1 The Investor shall
have executed this Agreement and the Registration Rights Agreement and delivered the same to the Company.
6.2 The Investor shall
have delivered to the Company the Purchase Price for the Shares being purchased by the Investor.
6.3 No statute, rule,
regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court
or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by
this Agreement.
SECTION VII
FURTHER CONDITIONS OF THE
INVESTOR'S OBLIGATION TO PURCHASE
The obligation of the
Investor hereunder to purchase Shares is subject to the satisfaction, on or before each Closing Date, of each of the following
conditions set forth below.
7.1 The Company shall have executed
the Registered Offering Transaction Documents and delivered the same to the Investor.
7.2 The representations and warranties
of the Company shall be true and correct as of the date when made and as of the applicable Closing Date as though made at that
time, and the Company shall have performed, satisfied and complied with the covenants, agreements and conditions required by the
Registered Offering Transaction Documents to be performed, satisfied or complied with by the Company on or before such Closing
Date. The Investor may request an update as of such Closing Date regarding the representation contained in
Section 4.3
.
7.3 The Company shall have executed
and delivered to the Investor the certificates representing, or have executed electronic book-entry transfer of, the Shares (in
such denominations as the Investor shall request) being purchased by the Investor at such Closing.
7.4 The Board of Directors of the Company
shall have adopted resolutions consistent with
Section 4.2(ii)
(the
"Resolutions")
and such Resolutions
shall not have been amended or rescinded prior to such Closing Date.
7.5 No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority
of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement.
7.6 Within thirty (30) days after this
Agreement is executed, the Company agrees to use its best efforts to file with the SEC a registration statement covering the Shares
contemplated to be issued pursuant to the terms of this Agreement. Such registration statement shall conform to the requirements
of the rules and regulations of the SEC and the terms and conditions of this Agreement, and shall be reviewed and approved by the
Investor. The Company will take any and all steps necessary to have its registration statement declared effective by the SEC within
30 days but no more than 180 days after the Company has filed its registration statement. The Registration Statement shall be effective
on each Closing Date, and no stop order suspending the effectiveness of the Registration statement shall be in effect or, to the
Company's knowledge shall be pending or threatened. Furthermore, on each Closing Date (I) neither the Company nor the Investor
shall have received notice that the SEC has issued or intends to issue a stop order with respect to such Registration Statement
or that the SEC otherwise has suspended or withdrawn the effectiveness of such Registration Statement, either temporarily or permanently,
or intends or has threatened to do so (unless the SEC's concerns have been addressed), and (II) no other suspension of the use
or withdrawal of the effectiveness of such Registration Statement or related prospectus shall exist. At the time of each Closing,
the Registration Statement (including information or documents incorporated by reference therein) and any amendments or supplements
thereto shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading or which would require public disclosure or an update supplement to
the prospectus.
7.8 If applicable, the shareholders
of the Company shall have approved the issuance of any Shares in excess of the Maximum Common Stock Issuance in accordance with
Section 2.5
or the Company shall have obtained appropriate approval pursuant to the requirements of applicable state and
federal laws and the Company's Articles of Incorporation and By-laws.
7.9 The conditions to
such Closing set forth in
Section 2.3
shall have been satisfied on or before such Closing Date.
7.10 The Company shall
have certified to the Investor the number of Shares of Common Stock outstanding when a Put Notice is given to the Investor. The
Company's delivery of a Put Notice to the Investor constitutes the Company's certification of the existence of the necessary number
of shares of Common Stock reserved for issuance.
SECTION VIII
TERMINATION
This Agreement shall terminate upon any of the following
events:
8.1 when the Investor has purchased an aggregate
of Eleven Million Dollars ($11,000,000) in the Common Stock of the Company pursuant to this Agreement; or
8.2 on the date which is thirty-six (36)
months after the Effective Date; or
8.3 at such time that the Registration
Statement is no longer in effect.
Any and
all shares, or penalties, if any, due under this Agreement shall be immediately payable and due upon termination of this Agreement.
SECTION IX
SUSPENSION
This Agreement
shall be suspended upon any of the following events, and shall remain suspended until such event is rectified:
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i.
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The trading of the Common Stock is suspended by the SEC, the Principal Market or FINRA for a period of two (2) consecutive
Trading Days during the Open Period; or
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ii.
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The Common Stock ceases to be quoted, listed or traded on the Principal Market or the Registration
Statement is no longer effective (except as permitted hereunder). Immediately upon the occurrence of one of the above-described
events, the Company shall send written notice of such event to the Investor.
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SECTION X
INDEMNIFICATION
In
consideration of the parties mutual obligations set forth in the Registered Offering Transaction Documents, the Company ( the
"Indemnitor")
shall defend, protect, indemnify and hold harmless the Investor and all of the investor's shareholders, officers, directors,
employees, counsel, and direct or indirect investors and any of the foregoing persons' agents or other representatives (including,
without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the
"Indemnitees")
from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages,
and reasonable expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys' fees and disbursements (the
"Indemnified Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (I) any misrepresentation or
breach of
any representation or warranty made by the Indemnitor or any other certificate, instrument or document contemplated hereby or thereby;
(II) any breach of any covenant, agreement or obligation of the Indemnitor contained in the Registered Offering Transaction Documents
or any other certificate, instrument or document contemplated hereby or thereby; or (III) any cause of action, suit or claim brought
or made against such Indemnitee by a third party and arising out of or resulting from the execution, delivery, performance or enforcement
of the Registered Offering Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby,
except insofar as any such misrepresentation, breach or any untrue statement, alleged untrue statement, omission or alleged omission
is made in reliance upon and in conformity with information furnished by an Indemnitee to Indemnitor and specifically intended
for use in the preparation of any Registration Statement, preliminary prospectus, prospectus or amendments to the prospectus. To
the extent that the foregoing undertaking by the Indemnitor may be unenforceable for any reason, the Indemnitor shall make the
maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable
law. The indemnity provisions contained herein shall be in addition to any cause of action or similar rights Indemnitor may have,
and any liabilities the Indemnitor or the Indemnitees may be subject to.
SECTION XI
GOVERNING LAW; DISPUTES SUBMITTED TO ARBITRATION.
11.1
LAW GOVERNING THIS
AGREEMENT
. This Agreement shall be governed by and construed in accordance with the laws of the State of Nevada without regard
to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated
by this Agreement shall be brought only in the state or federal courts located in New York City, New York State. The parties to
this Agreement hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not
assert any defense based on lack of jurisdiction or venue or based upon
forum non conveniens
.
The parties executing this
Agreement and other agreements referred to herein or delivered in connection herewith on behalf of the Company agree to submit
to the in personam jurisdiction of such courts and hereby irrevocably waive trial by jury.
The prevailing party shall be entitled
to recover from the other party its reasonable attorney's fees and costs. In the event that any provision of this Agreement or
any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then
such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform
with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the
validity or enforceability of any other provision of any agreement. Each party hereby irrevocably waives personal service of process
and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Registered
Offering Transaction Documents by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence
of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any other manner permitted by law.
11.2
LEGAL FEES; AND
MISCELLANEOUS FEES
. Except as otherwise set forth in the Registered Offering Transaction Documents (including but not limited
to Section V of the Registration Rights Agreement), each party shall pay the fees and expenses of its advisers, counsel, the accountants
and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery
and performance of this Agreement. Any attorneys' fees and expenses incurred by either the Company or the Investor in connection
with the preparation, negotiation, execution and delivery of any amendments to this Agreement or relating to the enforcement of
the rights of any party, after the occurrence of any breach of the terms of this Agreement by another party or any default by another
party in respect of the transactions contemplated hereunder, shall be paid on demand by the party
which
breached this Agreement and/or defaulted, as the case may be. The Company shall pay all stamp and other taxes and duties levied
in connection with the issuance of any Shares.
11.3
COUNTERPARTS
.
This Agreement may be executed in any number of counterparts and by the different signatories hereto on separate counterparts,
each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute but one and the same instrument.
This Agreement may be executed by facsimile transmission, PDF, electronic signature or other similar electronic means with the
same force and effect as if such signature page were an original thereof.
11.4
HEADINGS;
SINGULAR/PLURAL
. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement. Whenever required by the context of this Agreement, the singular shall include the plural and
masculine shall include the feminine.
11.5
SEVERABILITY
.
If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability
of any provision of this Agreement in any other jurisdiction.
11.6
ENTIRE
AGREEMENT; AMENDMENTS
. This Agreement is the FINAL AGREEMENT between the Company and the Investor with respect to the terms
and conditions set forth herein, and, the terms of this Agreement may not be contradicted by evidence of prior, contemporaneous,
or subsequent oral agreements of the Parties. No provision of this Agreement may be amended other than by an instrument in writing
signed by the Company and the Investor, and no provision hereof may be waived other than by an instrument in writing signed by
the party against whom enforcement is sought. The execution and delivery of the Registered Offering Transaction Documents shall
not alter the force and effect of any other agreements between the Parties, and the obligations under those agreements.
11.7
NOTICES
.
Any notices or other communications required or permitted to be given under the terms of this Agreement must be in writing and
will be deemed to have been delivered (I) upon receipt, when delivered personally; (II) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (III) one (1)
day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive
the same. The addresses and facsimile numbers for such communications shall be:
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If to the Company:
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Financial Gravity Companies, Inc.
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Attn: John Pollock, CEO
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800 N. Watters Rd., Suite 120
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Allen, Texas 75013
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With a copy to:
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Scheef & Stone, LLP
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Attn: Roger Crabb
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500 North Akard, 2700 Ross Tower
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Dallas, Texas 75201
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Fax: 214.706.4242
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If to the Investor:
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GHS Investments, LLC
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420 Jericho Turnpike,
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Suite 207
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Jericho, NY 11753
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Fax: (212) 574-3326
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Each party shall provide
five (5) days prior written notice to the other party of any change in address or facsimile number.
11.8
NO ASSIGNMENT
. This Agreement may
not be assigned.
11.9
NO THIRD PARTY BENEFICIARIES
. This
Agreement is intended for the benefit of the parties hereto and is not for the benefit of, nor may any provision hereof be enforced
by, any other person, except that the Company acknowledges that the rights of the Investor may be enforced by its general partner.
11.10
SURVIVAL
. The representations
and warranties of the Company and the Investor contained in Sections 3 and 4, the agreements and covenants set forth in Sections
5 and 6, and the indemnification provisions set forth in
Section 10,
shall survive each of the Closings and the termination
of this Agreement.
11.11
PUBLICITY
.
The Investor acknowledges that this Agreement and all or part of the Registered Offering Transaction Documents may be deemed to
be "material contracts" as that term is defined by Item 601(b)(10) of Regulation S-K, and that the Company may therefore
be required to file such documents as exhibits to reports or registration statements filed under the 1933 Act or the 1934 Act.
The Investor further agrees that the status of such documents and materials as material contracts shall be determined solely by
the Company, in consultation with its counsel.
11.12
FURTHER ASSURANCES
.
Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver
all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry
out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.
11.13
NO STRICT CONSTRUCTION
.
The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and
no rules of strict construction will be applied against any party, as the parties mutually agree that each has had a full and fair
opportunity to review this Agreement and seek the advice of counsel on it.
11.14
REMEDIES
.
The Investor shall have all rights and remedies set forth in this Agreement and the Registration Rights Agreement, all rights and
remedies which the Investor has been granted at any time under any other agreement or contract, and all of the rights which the
Investor has by law. Any person having any rights under any provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by reason of any default or breach of any provision
of this Agreement, including the recovery of reasonable attorney's fees and costs, and to exercise all other rights granted by
law.
11.15
PAYMENT SET ASIDE
.
To the extent that the Company makes a payment or payments to the Investor hereunder or under the Registration Rights Agreement
or the Investor enforces or exercises its rights hereunder or thereunder, and such payment or payments or the proceeds of such
enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or
any other person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable
cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied
shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had
not occurred.
11.16
PRICING OF COMMON STOCK
. For purposes
of this Agreement, the price of the Common Stock shall be as reported by
www.otcmarkets.com
.
SECTION XII
NON-DISCLOSURE OF NON-PUBLIC INFORMATION
The Company shall not disclose
non-public information to the Investor, its advisors, or its representatives.
Nothing herein shall require
the Company to disclose non-public information to the Investor or its advisors or representatives, and the Company represents that
it does not disseminate non-public information to any investors who purchase stock in the Company in a public offering, to money
managers or to securities analysts. The Company will immediately notify the advisors and representatives of the Investor of any
event or the existence of any circumstance (without any obligation to disclose the specific event or circumstance) of which the
Company becomes aware, constituting non-public information (whether or not requested of the Company specifically or generally during
the course of due diligence by such persons or entities), which, if not disclosed in the prospectus included in the Registration
Statement, would cause such prospectus to include a material misstatement or to omit a material fact required to be stated therein
in order to make the statements therein, in light of the circumstances in which they were made, not misleading. Persons or entities
(other than the Investor) may obtain non-public information in the course of conducting due diligence in accordance with the terms
of this Agreement, and nothing herein shall prevent any such persons or entities from notifying the Company of their opinion (based
on such due diligence) that the Registration Statement contains an untrue statement of material fact or omits a material fact required
to be stated in the Registration Statement or necessary to make the statements contained therein, in light of the circumstances
in which they were made, not misleading.
SECTION XIII
ACKNOWLEDGEMENTS OF THE PARTIES
The parties hereto hereby
acknowledge and agree to the following: (i) the Investor makes no representations or covenants that it will not engage in trading
in the securities of the Company, other than the Investor will not short the Company's common stock or engage in other activities
that could manipulate the market for the Common Stock, in violation of Rule l0b-5 promulgated under the Securities Exchange Act
of 1934, at any time during this Agreement; (ii) the Company shall, by 8:30 a.m. EST on the fourth Trading Day following the date
hereof, file a current report on Form 8-K disclosing the material terms of the transactions contemplated hereby and in the other
Registered Offering Transaction Documents; (iii) the Company has not and shall not provide material non-public information to the
Investor unless prior thereto the Investor shall have executed a written agreement regarding the confidentiality and use of such
information; and (iv) the Company understands and confirms that the Investor will be relying on the acknowledgements set forth
in clauses (i) through (iii) above if the Investor effects any transactions in the securities of the Company.
[Signature page follows]
Your signature on
this Signature Page evidences your agreement to be bound by the terms and conditions of this Agreement as of the date first written
above. The undersigned signatory hereby certifies that it has read and understands this Agreement, and the representations made
by the undersigned in this Agreement are true and accurate, and agrees to be bound by its terms.
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GHS INVESTMENTS, LLC
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By: /
s/ Sarfraz Hajee
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Name: Sarfraz Hajee
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Title: Member
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FINANCIAL GRAVITY COMPANIES, INC.
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By:
/s/ John Pollock
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Name: John Pollock
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Title: CFO
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[SIGNATURE PAGE OF EQUITY FINANCING AGREEMENT]
Schedule 4.3
[to
be prepared by the Company]
LIST OF EXHIBITS
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EXHIBIT A
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Registration Rights Agreement
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EXHIBIT B
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Notice of Effectiveness
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EXHIBIT C
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Put Notice
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EXHIBIT D
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Put Settlement Sheet
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EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
See
attached
EXHIBIT B
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
Date:__________
Pacific Stock Transfer Company
6725 Via Austi Pkwy, Suite 300
Las Vegas, NV 89119
Attn: Michelle Husted
M ichelle@pacificstocktransfer.com
Re: Financial Gravity Companies,
Inc.
Ladies and Gentlemen:
We are
counsel to Financial Gravity Companies, Inc., a Nevada corporation (the "Company"), and have represented the Company
in connection with that certain Equity Financing Agreement (the "Investment Agreement") entered into by and among the
Company and GHS Investments, LLC (the "Investor") pursuant to which the Company has agreed to issue to the Investor shares
of the Company's common stock, $.001 par value per share (the "Common Stock") on the terms and conditions set forth in
the Investment Agreement. Pursuant to the Investment Agreement, the Company also has entered into a Registration Rights Agreement
with the Investor (the "Registration Rights Agreement") pursuant to which the Company agreed, among other things, to
register the Registrable Securities (as defined in the Registration Rights Agreement), including the shares of Common Stock issued
or issuable under the Investment Agreement under the Securities Act of 1933, as amended (the "1933 Act"). In connection
with the Company's obligations under the Registration Rights Agreement, on __________, 2017, the Company filed a Registration Statement
on Form S-1 (File No. -__________) (the "Registration Statement") with the Securities and Exchange Commission (the "SEC")
relating to the Registrable Securities which names the Investor as a selling shareholder thereunder.
In connection
with the foregoing, we advise you that a member of the SEC's staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at _____on _____, 20__ and we have no knowledge, after telephonic
inquiry of a member of the SEC's staff, that any stop order suspending its effectiveness has been issued or that any proceedings
for that purpose are pending before, or threatened by, the SEC, and the Registrable Securities are available for sale under the
1933 Act pursuant to the Registration Statement.
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Very truly yours,
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[Company Counsel]
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EXHIBIT C
FORM OF PUT NOTICE
Date:
RE: Put Notice Number __
Dear Mr./Ms.______________
This is to inform you that as of today, Financial Gravity Companies,
Inc., a Nevada corporation (the "Company"), hereby elects to exercise its right pursuant to the Equity Financing Agreement
to require GHS Investments, LLC to purchase shares of its common stock. The Company hereby certifies that:
The amount of this put is $__________
The Pricing Period runs from _____ until _____
The Purchase Price is: $__________
The number of Put Shares Due: ______________
The
current number of shares of common stock issued and outstanding is:
The number of shares currently available for issuance under the
S-1 is: __________
Regards,
Financial Gravity Companies, Inc.,
By:________________________
Name:
Title:
EXHIBIT D
PUT SETTLEMENT SHEET
Date:__________
Dear Mr.__________
Pursuant to the Put given by Financial Gravity
Companies, Inc., to GHS Investments, LLC ("GHS") on __________201_, we are now submitting the amount of common shares
for you to issue to GHS.
Please have a certificate bearing no restrictive legend totaling
__________ shares issued to GHS immediately and send via DWAC to the following account:
[INSERT]
If not DWAC eligible, please send FedEx Priority Overnight to:
[INSERT ADDRESS]
Once these shares are received by us, we will have the funds wired
to the Company.
Regards,
GHS INVESTMENTS, LLC
By:___________________
Name:
Title
