Financial Gravity Companies, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
|
|
March 31,
2017
|
|
|
September 30,
2016
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
399,768
|
|
|
$
|
132,803
|
|
Trade accounts receivable
|
|
|
245,745
|
|
|
|
78,843
|
|
Accounts receivable - related party
|
|
|
4,506
|
|
|
|
4,506
|
|
Prepaid expenses
|
|
|
56,982
|
|
|
|
32,239
|
|
Total current assets
|
|
|
707,001
|
|
|
|
248,391
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
134,857
|
|
|
|
141,080
|
|
Investment
|
|
|
10,000
|
|
|
|
10,000
|
|
Customer relationships, net
|
|
|
28,063
|
|
|
|
33,675
|
|
Proprietary content, net
|
|
|
426,644
|
|
|
|
459,463
|
|
Trade name
|
|
|
69,300
|
|
|
|
69,300
|
|
Non-compete agreements, net
|
|
|
18,410
|
|
|
|
21,040
|
|
Trademarks
|
|
|
22,642
|
|
|
|
22,592
|
|
Goodwill
|
|
|
1,094,702
|
|
|
|
1,094,702
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,511,619
|
|
|
$
|
2,100,243
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable - trade
|
|
$
|
49,956
|
|
|
$
|
27,229
|
|
Accrued expenses
|
|
|
100,045
|
|
|
|
103,654
|
|
Deferred revenue
|
|
|
79,988
|
|
|
|
32,739
|
|
Line of credit
|
|
|
18,620
|
|
|
|
19,732
|
|
Notes payable
|
|
|
159,730
|
|
|
|
93,397
|
|
Pre-merger payables
|
|
|
37,691
|
|
|
|
99,056
|
|
Total current liabilities
|
|
|
446,030
|
|
|
|
375,807
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Common stock - 300,000,000 shares authorized; $0.001 par value
|
|
|
35,488
|
|
|
|
34,863
|
|
Additional paid-in capital
|
|
|
5,454,336
|
|
|
|
4,768,596
|
|
Accumulated deficit
|
|
|
(3,424,235
|
)
|
|
|
(3,079,023
|
)
|
Total stockholders’ equity
|
|
|
2,065,589
|
|
|
|
1,724,436
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,511,619
|
|
|
$
|
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
March 31,
|
|
|
For the Six Months Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
REVENUE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment management fees
|
|
$
|
391,123
|
|
|
$
|
224,718
|
|
|
$
|
635,502
|
|
|
$
|
454,704
|
|
Service income
|
|
|
543,199
|
|
|
|
368,109
|
|
|
|
1,061,160
|
|
|
|
755,352
|
|
Commissions
|
|
|
31,875
|
|
|
|
13,366
|
|
|
|
41,031
|
|
|
|
24,030
|
|
Rental income
|
|
|
1,500
|
|
|
|
7,000
|
|
|
|
3,000
|
|
|
|
6,400
|
|
Total revenue
|
|
|
967,697
|
|
|
|
613,193
|
|
|
|
1,740,693
|
|
|
|
1,240,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services
|
|
|
20,707
|
|
|
|
20,036
|
|
|
|
40,964
|
|
|
|
37,367
|
|
Professional services
|
|
|
359,557
|
|
|
|
290,682
|
|
|
|
629,651
|
|
|
|
633,448
|
|
Depreciation and amortization
|
|
|
24,767
|
|
|
|
38,127
|
|
|
|
49,444
|
|
|
|
77,293
|
|
General and administrative
|
|
|
154,982
|
|
|
|
125,428
|
|
|
|
276,808
|
|
|
|
184,418
|
|
Management fees - related party
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
103,000
|
|
|
|
113,333
|
|
Marketing
|
|
|
74,591
|
|
|
|
75,964
|
|
|
|
176,469
|
|
|
|
191,464
|
|
Salaries and wages
|
|
|
403,710
|
|
|
|
397,266
|
|
|
|
781,429
|
|
|
|
812,496
|
|
Total operating expenses
|
|
|
1,088,314
|
|
|
|
997,503
|
|
|
|
2,057,765
|
|
|
|
2,049,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss
|
|
|
(120,617
|
)
|
|
|
(384,310
|
)
|
|
|
(317,072
|
)
|
|
|
(809,333
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
–
|
|
|
|
–
|
|
|
|
191
|
|
|
|
–
|
|
Interest expense
|
|
|
(16,328
|
)
|
|
|
(1,968
|
)
|
|
|
(28,331
|
)
|
|
|
(4,523
|
)
|
Total other (expense) income
|
|
|
(16,328
|
)
|
|
|
(1,968
|
)
|
|
|
(28,140
|
)
|
|
|
(4,523
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(136,945
|
)
|
|
$
|
(386,278
|
)
|
|
$
|
(345,212
|
)
|
|
$
|
(813,856
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS PER SHARE - Basic and Diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.03
|
)
|
The accompanying notes
are in integral part of these consolidated financial statements.
Financial Gravity Companies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
Six Months Ended March 31,
(Unaudited)
|
|
|
|
2017
|
|
|
2016
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(345,212
|
)
|
|
$
|
(813,856
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
49,444
|
|
|
|
77,293
|
|
Write off of fixed assets
|
|
|
–
|
|
|
|
15,787
|
|
Services provided to relieve accounts receivable - other
|
|
|
–
|
|
|
|
(18,869
|
)
|
Changes in operating assets and liabilities, net of effects of purchase of subsidiaries
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
|
(166,902
|
)
|
|
|
(14,218
|
)
|
Accounts receivable - related party
|
|
|
–
|
|
|
|
32,544
|
|
Prepaid expenses
|
|
|
(24,742
|
)
|
|
|
(46,094
|
)
|
Accounts payable - trade
|
|
|
22,727
|
|
|
|
31,368
|
|
Accounts payable - related party
|
|
|
–
|
|
|
|
(2,300
|
)
|
Accrued expenses
|
|
|
(3,609
|
)
|
|
|
4,534
|
|
Deferred revenue
|
|
|
47,249
|
|
|
|
12,000
|
|
Net cash used in operating activities
|
|
|
(421,045
|
)
|
|
|
(721,811
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Cash paid for purchase of property and equipment
|
|
|
(2,161
|
)
|
|
|
(15,787
|
)
|
Cash paid for purchase of subsidiary
|
|
|
–
|
|
|
|
(10,000
|
)
|
Deposit for future acquisition
|
|
|
–
|
|
|
|
50,000
|
|
Purchases of trademarks
|
|
|
(50
|
)
|
|
|
(79
|
)
|
Net cash (used in) provided by investing activities
|
|
|
(2,211
|
)
|
|
|
24,134
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds from notes payable
|
|
|
100,000
|
|
|
|
25,101
|
|
Payments on note payable
|
|
|
(33,667
|
)
|
|
|
–
|
|
Payments on line of credit
|
|
|
(1,112
|
)
|
|
|
–
|
|
Proceeds from the sale of common stock
|
|
|
625,000
|
|
|
|
217,326
|
|
Net cash provided by financing activities
|
|
|
690,221
|
|
|
|
242,427
|
|
|
|
|
|
|
|
|
|
|
TOTAL INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
266,965
|
|
|
|
(455,249
|
)
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
|
|
132,803
|
|
|
|
801,542
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$
|
399,768
|
|
|
$
|
346,293
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
26,267
|
|
|
$
|
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 March 31, 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 March 31, 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 six months ended March 31, 2017 and 2016, the Company recorded amortization
expense of $2,806 and $5,612, respectively, on this intangible asset, which is included in depreciation and amortization expense
in the accompanying consolidated statements of operations. Accumulated amortization at March 31, 2017 was $16,837 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 six months ended March 31, 2017 and 2016, the Company recorded amortization expense
of $16,410 and $32,820, respectively, on this intangible asset, which is included in depreciation and amortization expense in the
accompanying consolidated statements of operations. Accumulated amortization at March 31, 2017 was $98,456 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 March 31, 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 30, 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 six months ended March 31, 2017 and
2016, the Company recorded amortization expense of $1,315 and $2,630, respectively, on this intangible asset, which is included
in depreciation and amortization expense in the accompanying consolidated statements of operations. Accumulated amortization at
March 31, 2017 was $7,890 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 March 31, 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 March 31, 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 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.
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 March 31, 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 34,886,089 and 34,438,494 for the three months ended March 31, 2017 and 2016, respectively.
Average number of common shares were 35,137,625 and 33,208,763 for the six months ended March 31, 2017 and 2016, respectively.
For the three and six months ended March 31,
2017 and 2016, approximately 2,203,813 and 2,420,396 common stock 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 $74,591 and $75,964 for the three months ended March 31, 2017 and 2016, respectively;
and $176,469 and $191,464 for the six months ended March 31, 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 March 31, 2017
and September 30, 2016:
|
|
Estimated
Service Lives
|
|
March 31,
|
|
|
September 30,
|
|
Furniture and fixtures
|
|
5 years
|
|
$
|
8,371
|
|
|
$
|
6,994
|
|
Internally developed software
|
|
10 years
|
|
|
152,000
|
|
|
|
152,000
|
|
|
|
|
|
|
160,371
|
|
|
|
158,994
|
|
Less accumulated depreciation and amortization
|
|
|
|
|
25,514
|
|
|
|
17,914
|
|
|
|
|
|
$
|
134,857
|
|
|
$
|
141,080
|
|
Depreciation expense was $3,800 during each of the three months
ended March 31, 2017 and 2016, respectively; and $7,600 during each of the six months ended March 31, 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 March 31, 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 $18,620 and $19,732 at March 31, 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 $92,798 and $93,397 at March 31,
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 $66,932 and $0 at March 31 2017, and September 30, 2016, respectively.
Accrued expenses consist of the following at
March 31, 2017 and September 30, 2016:
|
|
March 31,
2017
|
|
|
September 30,
2016
|
|
Accrued payroll
|
|
$
|
25,816
|
|
|
$
|
44,327
|
|
Accrued operating expenses
|
|
|
73,979
|
|
|
|
59,077
|
|
Deferred rent
|
|
|
250
|
|
|
|
250
|
|
|
|
$
|
100,045
|
|
|
$
|
103,654
|
|
For the three and six months ended March 31,
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 March 31, 2017 and September 30, 2016:
|
|
March 31,
2017
|
|
|
September 30,
2016
|
|
Net non-current deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carry-forward
|
|
$
|
1,198,482
|
|
|
$
|
924,304
|
|
|
|
|
|
|
|
|
|
|
Net non-current deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
11,957
|
|
|
|
109,471
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
1,186,525
|
|
|
|
814,833
|
|
Less valuation allowance
|
|
|
(1,186,525
|
)
|
|
|
(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 March 31, 2017 and 2016 was $22,887 and $19,481,
respectively; and $45,088 and $39,717 for the six months ended March 31, 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 March
31, 2017 are as follows:
2017
|
|
$
|
34,200
|
|
2018
|
|
|
68,400
|
|
2019
|
|
|
5,700
|
|
|
|
$
|
108,300
|
|
Contingencies
Pacific Oil Company has outstanding payables
that the previous owners are in process of liquidating. These liabilities have been recorded 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 – 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 March 31, 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.
During the three and six months ended March
31, 2017, Financial Gravity Holdings has sold 275,000 and 625,000, respectively, shares of common stock for $275,000 and $625,000,
respectively.
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
|
|
|
105 months
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
–
|
Canceled or expired
|
|
|
325,050
|
|
|
$
|
4,907
|
|
|
|
0.33
|
|
|
–
|
Outstanding - September 30, 2016
|
|
|
2,200,346
|
|
|
$
|
22,129
|
|
|
|
0.64
|
|
|
103 months
|
Granted
|
|
|
12,000
|
|
|
$
|
11,532
|
|
|
|
0.04
|
|
|
117 months
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
Canceled or expired
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
Outstanding - December 31, 2016
|
|
|
2,212,346
|
|
|
$
|
33,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable - December 31, 2016
|
|
|
2,200,346
|
|
|
|
|
|
|
|
0.64
|
|
|
100 months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
37,600
|
|
|
$
|
–
|
|
|
|
1.19
|
|
|
119 months
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
Canceled or expired
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
Outstanding - March 31, 2017
|
|
|
2,249,946
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable - March 31, 2017
|
|
|
2,203,813
|
|
|
|
|
|
|
|
0.64
|
|
|
103 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 37,600 stock options granted from
the 2016 stock option plan in the three months ended March 31, 2017. The unamortized value of these stock options is $0. There
were 12,000 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 March 31, 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 March 31, 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 March 31, 2017, and 2016, respectively; and $103,000 and $113,333 for the six months ended
March 31, 2017, and 2016, respectively.
A board member who is also a stockholder provided
services to the Company. Expenses for these services totaled $15,000 and $15,000 for the three months ended March 31, 2017, and
2016, respectively; and $30,000 and $30,000 for the six months ended March 31, 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 March 31, 2017 and March 31, 2016, respectively. $225,600
in professional fees were paid under these 3 agreements for each of the three months ended March 31, 2017 and March 31, 2016, respectively.