Forward-Looking Statements
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") is intended to help you understand its historical
results of operations during the periods presented and its financial condition.
This MD&A should be read in conjunction with its financial statements and the
accompanying notes and contains forward-looking statements that involve risks
and uncertainties and assumptions that could cause its actual results to differ
materially from management's expectations. See the sections entitled
"Forward-Looking Statements" and "Risk Factors" included in this Form 10-Q for
the six months ended March 31, 2022.
Plan of Operations
Financial Gravity Companies, Inc. and Subsidiaries (the "Company") located in
Lakeway Texas. Operations are conducted through wholly owned subsidiaries.
Company supports investment advisors and provides tax professionals with a
turnkey family office charter. Company helps the tax professionals evolve from
the commoditized business of tax compliance to a Family Office Director that
runs and manages their own multi-family office. Family Office Directors are able
to leverage the Financial Gravity systems, technology, proprietary resources,
and deep domain expertise to bring an elevated and holistic financial service
experience to their clients that spans proactive tax planning, retirement and
estate planning, wealth management, and risk mitigation.
Financial Gravity's Subsidiaries:
Financial Gravity Asset Management, Inc. ("FGAM"), is an RIA, registered with
the Securities and Exchange Commission, and provides asset management services
to individuals and businesses. FGAM had in excess of $170,000,000 in assets
under management as of March 31, 2022.
Financial Gravity Enhanced Markets, LLC ("FGEM") is an insurance marketing
organization and provides insurance products and services to insurance agents or
agencies. The advisors with FGFOS access insurance and other related products
through FGEM.
Tax Master Network ("TMN") supports over 300 CPA and Enrolled Agent
professionals, training them to add crucial tax planning services to support
clients. TMN member customer base adds significant business development
opportunities for Company. TMN provides tax services, including its "Tax
Blueprint®" system which identifies strategies for lowering the client's taxes.
This presents Company with the opportunity to provide enhanced tax advice and
investment advisory services.
Financial Gravity Family Office Services, LLC ("FGFOS") is an RIA that offers
financial planning, and wealth management services to clients through investment
advisors. Many of the independent investment advisors are members of TMN that
are licensed to provide investment management advice. FGFOS provides support for
the multi-family offices run by the TMN members.
Financial Gravity Investment Services, LLC ("FGIS") is an office of Office of
Supervisory Jurisdiction that is affiliated with Kingswood U.S., a broker
dealer. FGIS will have a small number of registered representatives for
securities transactions that require a broker/dealer affiliation.
Forta Financial Group, Inc. ("Forta") has discontinued its broker/dealer and RIA
operations.
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Growth comes from the following activities:
Tax services and financial advisory services, including Tax Blueprint® and Tax
Operating System® services through TMN, as well as investment advisory services
by TMN subscribers to their clients through FGFOS.
Family Office Services including wealth management services through FGFOS,
investment advisory services through FGAM, insurance services through FGEM, and
stock brokerage services through FGIS.
Results of Operations for the three and six months ended March 31, 2022 compared
to the three and six months ended March 31, 2021
Revenues
For the three months ended March 31, 2022, revenue decreased approximately
$107,000 to approximately $1,575,000 from approximately $1,682,000 for the three
months ended March 31, 2021. The principal components of the decrease in revenue
are: reduction of revenue of approximately $650,000 from winding down of Forta,
an increase of revenue from FGFOS of approximately $380,000, increases in
revenue for FGAM and TMN of approximately $115,000, and minor changes in other
units as compared to the three months ended March 31, 2021. For the six months
ended March 31, 2022, revenue decreased approximately $218,000 to approximately
$3,171,000 from $3,389,673 for the six months ended March 31, 2021. The
principal components of the decrease in revenue are: decrease in revenue of
approximately $1,255,000 from winding down of Forta, increased investment
management revenue from FGAM of approximately $140,000, and increase in revenue
from FGFOS of approximately $720,000, an increase from insurance sales from FGEM
of approximately $260,000, and minor changes on other operating units as
compared to the six months ended March 31, 2021.
Operating Expenses
Cost of services activity increased approximately $252,000 to approximately
$274,700 for the three months ended March 31, 2022 from $22,683 for the three
months ended March 31, 2021. Cost of services activity increased approximately
$235,000 to approximately $293,000 for the six months ended March 31, 2022 from
$58,230 for the six months ended March 31, 2021. The three and six month
increases consist primarily of Forta's custodian's termination charge of
$250,000.
Professional services expenses include legal expense, professional fees, and
business consulting. Professional services expenses increased approximately
$26,000 to approximately $123,000 for the three months ended March 31, 2022 from
$97,074 for the three months ended March 31, 2021 This increase is primarily due
to an increase in legal fees and accounting arising from Forta operations.
Professional services expenses decreased approximately $9400 to approximately
$220,000 for the six months ended March 31, 2022 from $229,804 for the six
months ended March 31, 2021 This increase is primarily due to small increases in
legal fees and accounting arising from FGCO and Forta operations.
Depreciation and amortization expenses include depreciation on fixed assets and
amortization of definite lived intangibles. Depreciation and amortization
expenses decreased approximately $11,000 to approximately $21,000 for the three
months ended March 31, 2022 from $32,174 for the three months ended March 31,
2021. The decrease is due to deceleration of depreciation of certain assets.
Depreciation and amortization expenses decreased approximately $24,000 to
approximately $43,000 for the six months ended March 31, 2022 from $67,504 for
the six months ended March 31, 2021. The decrease is due to deceleration of
depreciation of certain assets.
General and administrative expenses decreased approximately $98,000 to
approximately $124,000 for the three months ended March 31, 2022 from $221,398
for the three months ended March 31, 2021. The decrease is primarily due to the
wind down of Forta. General and administrative expenses decreased approximately
$291,000 to approximately $267,000 for the six months ended March 31, 2022 from
approximately $558,100 for the six months ended March 31, 2021. The decrease is
primarily due to the winding down of Forta ($340,000 in reductions), and smaller
changes in overhead at the other operating units including: (FGCO -
approximately $98,000 in increases, and TMN - approximately $65,000 in
decreases).
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Marketing expenses increased approximately $29,000 to approximately $41,000 for
the three months ended March 31, 2022 from $12,234 for the three months ended
March 31, 2021 Marketing expenses increased by approximately $35,000 to
approximately $68,000 for the six months ended March 31, 2022 from $32,780 for
the six months ended March 31, 2021. The decreases are due to the Company
shutting down some previous marketing channels, while new channels have yet to
be identified and implemented.
Compensation expense decreased approximately $91,000 to approximately $1,309,000
for the three months ended March 31, 2022 from approximately $1,400,000 for the
three months ended March 31, 2021. The decrease was principally due to a
decrease at Forta as it winds down ($541,457) and the increased salary and
commission expense at FGCO (approximately $281,000) and FGFOS ($166,978) and
other smaller amounts at the other operating units. Compensation expense
decreased approximately $65,000 to approximately $2,670,000 for the six months
ended March 31, 2022 from approximately $2,735,000 for the six months ended
March 31, 2021. The decrease was principally due to a decrease at Forta as it
winds down ($1,035,839) and the increased salary and commission expense at FGCO
(approximately $581,000) and FGFOS ($351,483) and other smaller amounts at the
other operating units.
The Company experienced an increase in its net loss of approximately $293,000 to
a net loss of approximately $397,000 for the three months ended March 31, 2022
from a net loss of approximately $104,000 for the three months ended March 31,
2021. The Company experienced an increase in its net loss of approximately
$175,000 to a net loss of approximately $473,000 for the six months ended March
31, 2022 from a net loss of $298,147 for the six months ended March 31, 2021.
The changes are primarily attributable to the reasons noted above.
Significant Accounting Policies
Certain critical accounting policies affect the more significant judgments and
estimates used in the preparation of the Company's consolidated financial
statements. These policies are contained in Note 1 to the consolidated financial
statements.
Use of Estimates and Assumptions.
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates.
Revenue Recognition and Accounts Receivable.
The Company derives its revenues primarily from the following activities:
Investment Management Fees, Securities Brokerage Commissions, Tax Master Network
subscriptions, Tax Operating System subscriptions, Financial Advisor
subscriptions, Tax BluePrint sales, and Insurance Sales.
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.
Fees are generally paid quarterly, in advance, for each quarter or monthly in
arrears. Revenues are earned over the period in which the service is provided,
which is typically monthly.
The Company generates services income which is recognized when consulting and
other professional services are performed by the Company (primarily from TMN and
FGEM). Income is recognized as services are delivered.
Revenue represents gross billings less discounts, and are net of sales taxes, as
applicable. Amounts invoiced for work not yet completed are shown as contract
liabilities in the accompanying consolidated balance sheets.
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Accrued revenues are recorded for investment management fees that are paid in
arrears. The allowance for doubtful accounts was $0 and $0 as of March 31, 2022
and September 30, 2021, respectively.
In the normal course of business, the Company extends credit on an unsecured
basis to its customers, substantially all of whom are located in the United
States of America. The Company does not believe that it is exposed to any
significant risk of loss on accounts receivable.
FGAM, FGFOS and Forta generated investment management fees for services provided
by the Company. Investment management fees include fees earned from assets under
management by providing professional services to manage client investments.
Revenue is recognized as earned, at the end of each monthly period.
FGIS and Forta generated commission revenue from the sale of securities and
annuities and premiums on life insurance policies. The revenue is recognized
when commissions are earned, or when it is determined that annuities or
insurance products are sold, which is typically at trade date. Commissions are
received after products are sold, issued or in force.
FGEM generates revenue from insurance marketing services for insurance agents,
including sourcing of insurance policies through selling agreements. Revenue is
recognized when the policies have been accepted by the issuer and it is probable
the commission will be received.
Tax Master Network provides network subscription services to its TMN members
that are charged and collected on a month-to-month basis. None of these programs
come with a long-term commitment or contract, and there is no up-front payment
beyond the monthly subscription fee. Cancellations are processed within the
month requested and memberships are closed at the end of the period for which
the most recent payment was made. Members are not entitled to refunds for unused
memberships. Any subscription fees paid for a future period are deferred in the
financial statements. TMN also sells Tax Blueprint®. These are tax planning
strategies guides, to save customers taxes through the implementation of the
recommended tax strategies. After an initial assessment, the customers pay half
of the year one tax savings. A contract liability is recognized when the
customer payment is received. Revenue is deferred until the customer reviews and
accepts the final Tax Blueprint® document and returns an executed delivery
agreement.
Trade deferred revenue is carried only for subscription revenues not received in
the period they apply to. The allowance for doubtful accounts was $0 and $0 as
of March 31, 2022 and September 30, 2021 respectively.
In the normal course of business, the Company extends credit on an unsecured
basis to its customers, substantially all of whom are located in the United
States of America. The Company does not believe that it is exposed to any
significant risk of loss on accounts receivable.
Stock-Based Compensation.
The Company recognizes the fair value of stock-based compensation awards as
wages in the accompanying statements of operations for employee grants,
commissions for non-employee grants, and stock appreciation rights grants, on a
straight-line basis over the vesting period, using the Black-Scholes option
pricing model, which is based on risk-free rate of 0.59% in the quarter ended
March 31, 2022, dividend yield of 0%, expected life of 10 years and volatility
of 35% to 40% in 2021. SAR awards are new this year and are being treated as a
liability award while the options are being treated as equity awards. While the
fair value of the options are based on the Black Scholes assumptions included
here, the SAR awards are based on assumptions at period end and are treated as
liability awards. Forfeitures are recorded as they occur.
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Liquidity and Capital Resources
As of March 31, 2022, the Company had cash and cash equivalents of $177,887. The
net decrease in cash was approximately $128,000, primarily due to cash used in
operations.
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.
For the six months ended March 31, 2022, the Company reported $3,171,235 in
revenue, a net loss of $472,736, decrease of cash of $128,170, and an
accumulated deficit of $14,886,607. These operating results raise substantial
doubt about our ability to continue as a going concern. The financial statements
do not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of these uncertainties.
On February 2, 2021, Forta received a PPP loan in the amount of $422,900. This
PPP loan bears a fixed interest rate of 1% over a five-year term, is guaranteed
by the federal government, and does not require collateral. The SBA has informed
Forta that $339,070 of the outstanding principle is eligible for forgiveness.
Forta is evaluating the SBA's conclusion.
Company's plans for expansion include attracting additional clients through
marketing efforts with its current and future brokerage, investment management
and insurance agent representatives, as well as increasing the TMN membership.
Future growth plans will include efforts to increase tax and investment advisory
activity through TMN members. There is no guaranty that the Company will achieve
these objectives.
Off Balance Sheet Transactions and Related Matters
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.
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FINANCIAL GRAVITY COMPANIES, INC. 
