Financial Gravity Companies, Inc. 10-K/A

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES. Market Information The Company’s Common Stock is currently traded in the over-the-counter market and quoted under the symbol FGCO. The following are the high and low sales prices for the Company’s Common Stock for the periods reflected below: Fiscal Year Ended September 30, 2018 High Low First Quarter $ 1.50 $ 0.04 Second Quarter $ 0.50 $ 0.06 Third Quarter $ 0.33 $ 0.05 Fourth Quarter $ 0.10 $ 0.05 Fiscal Year Ended September 30, 2019 High Low First Quarter $ 0.10 $ 0.07 Second Quarter $ 0.54 $ 0.08 Third Quarter $ 0.40 $ 0.17 Fourth Quarter $ 0.51 $ 0.18 The above prices reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not represent actual transactions. Holders The approximate number of stockholders of record of the Company’s Common Stock on September 30, 2019 was 74. Dividends The Company has never paid any cash dividends on its common stock, and it is anticipated that none will be paid in the foreseeable future. Recent Sales/Issuance of Unregistered Securities On September 30, 2019, the Company entered into a merger agreement with Forta, to acquire Forta in exchange for Company stock. The merger is awaiting FINRA approval. When approved, the Forta shareholders will own more than 50% of the Company. John Pollock will remain the largest individual shareholder. During the year ended September 30, 2018 an aggregate of 100,000 shares of the Company’s common stock have been sold for $100,000. During the year ended September 30, 2019 the Company issued 5,598,133 shares of common stock in exchange for $1,007,664 in promissory notes. The sales of the securities identified above were made pursuant to privately negotiated transactions that did not involve a public offering of securities and, accordingly, the Company believes that these transactions were exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof. Each investor represented that such investor either (A) is an “accredited investor,” (B) has such knowledge and experience in financial and business matters that the investor is capable of evaluating the merits and risks of acquiring the shares of the Company’s common stock, or (C) appointed an appropriate person to act as the investor’s purchaser representative in connection with evaluating the merits and risks of acquiring the shares of the Company’s common stock. The investors received written disclosures that the securities had not been registered under the Securities Act and that any resale must be made pursuant to a registration or an available exemption from such registration. All of the foregoing securities are deemed restricted securities for purposes of the Securities Act. 6 The Company’s option grants were effected pursuant to Rule 701 promulgated under the Securities Act. Repurchases of Equity Securities The Company did not repurchase any of its equity securities during the years ended September 30, 2019 or 2018. Item 6. SELECTED FINANCIAL DATA. Not applicable. Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Forward-Looking Statements The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help you understand its historical results of operations during the periods presented and its financial condition. This MD&A should be read in conjunction with its financial statements and the accompanying notes and contains forward-looking statements that involve risks and uncertainties and assumptions that could cause its actual results to differ materially from management’s expectations. See the sections entitled “Forward-Looking Statements” and “Risk Factors” above. Plan of Operations Financial Gravity is a parent company of best of breed financial services companies including brokerage, wealth management, estate planning, family office services, risk management, business and personal tax planning, business consulting, and financial advisor services. Financial Gravity's mission is to synergistically bring together companies that create symbiotic advantages to each other in order to bring a complete financial experience to the clients that we serve. Financial Gravity’s Subsidiaries: Financial Gravity Holdings, Inc. Dissolved February 13, 2019. Financial Gravity Operations, Inc . Dissolved February 12, 2019. Sofos, Inc. (formerly Financial Gravity Wealth, Inc.) After saving thousands in taxes, clients are happy to trust us with the management of their wealth, especially when treated to a different wealth management experience. Sofos is a Registered Investment Advisory firm. An RIA is an advisor or firm engaged in financial planning and wealth management business and is registered either with the Securities and Exchange Commission “SEC” or state securities authorities. An RIA has a fiduciary duty to his or her clients, which means that he or she has a fundamental obligation to provide suitable investment advice and always act in the clients’ best interests. The Department of Labor’s fiduciary rule is officially dead. The fiduciary rule, also known officially as the “Conflict of Interest” rule, stated advisers have to give conflict-free advice on retirement accounts, putting their clients’ needs ahead of their own potential compensation. 7 Although the Department of Labor’s Fiduciary Rule was struck down by the Fifth Circuit Court, we will still maintain the fiduciary standard as a company, because we think it is best for the client. Only 5% of all financial planners are RIAs. The advantage of the RIA model is lower cost to the client. Also, since RIAs are not compensated by commissions on financial products, their advice is considered less biased and more accurate. Coupled with tax savings, its status as a RIA makes the Company very attractive to the most profitable clients. MPath Advisor Resources, LLC (formerly Financial Gravity Business, LLC) (“MPath”) MPath is an insurance marketing organization and provides insurance products and services to insurance agents or agencies. Financial Gravity Ventures, LLC This entity in the Company’s corporate family employs its merger strategy to acquire talent and build wealth for Financial Gravity Companies, Inc. and acquired companies. As mentioned earlier, Financial Gravity is pursuing several acquisition opportunities. Tax Master Network, LLC Tax Master Network “TMN” was a key acquisition in fiscal year 2016. TMN supports over 300 CPA and Enrolled Agent professionals, training them to add crucial tax planning services to support clients. Not only did this acquisition bring high-end tax planning to Financial Gravity, but the TMN customer base adds significant business development opportunities for Financial Gravity Wealth. The Company developed the Certified Tax Master® for this group and rolled out new client systems in mid-2016. TMN also provides tax services through its “Tax Blueprint®” system which identifies several strategies for lowering the client's taxes. Financial Gravity Tax, Inc. has no current operations. It sold its bookkeeping and tax preparation business October 31, 2019, and all other operations are consolidated into TMN. Sash Corporation dba Metro Data Processing Sash Corporation dba Metro Data Processing, based in Tulsa, OK was the Company’s first acquisition and Metro Data Processing is based in Tulsa, OK. The client list was sold to ADP in 2018. This entity is now inactive and awaiting dissolution. Results of Operations for the year ended September 30, 2019 compared to the year ended September 30, 2018 Revenues For the year ended September 30, 2019, revenue increased $188,055 to $4,075,048 from $3,886,993 for the year ended September 30, 2018. The principal drivers for this are an increase in insurance sales commission of $300,773, offset by a decrease in Tax BluePrint sales of $179,800. Operating Expenses Professional services expenses include consulting fees, legal expense, professional fees, and business consulting. Professional services expenses decreased $683,437 to $141,835 for the year ended September 30, 2019 from $827,272 for the year ended September 30, 2018. Professional and consulting expenses decreased by $521,502 in 2019 compared to 2018. 8 Depreciation and amortization expenses include depreciation on fixed assets and amortization of definite lived intangibles. Depreciation and amortization expenses increased $75,948 to $189,070 for the year ended September 30, 2019 from $113,122 for the year ended September 30, 2018. The increase is primarily due to a one-time charge, in 2019, to amortization related to the impairment of a Trade Name, in the amount of $69,300. General and administrative expenses decreased $214,092 to $533,805 for the year ended September 30, 2019 from $747,897 for the year ended September 30, 2018. The largest changes were a decrease in travel of $158,957 and bad debt expense $21,876. Marketing expenses decreased $135,401 to $131,529 for the year ended September 30, 2019 from $266,930 for the year ended September 30, 2018. The decrease is primarily due to consolidating outside vendors used and bringing marketing efforts in-house. Salaries and wages expenses increased $242,248 to $3,501,744 for the year ended September 30, 2019 from $3,259,446 for the year ended September 30, 2018. The increase is primarily due to an increase in stock option expense of $158,331, and an overall increase in commissions of $149,817. The Company experienced a decrease in net loss of $897,147 to a net loss of $623,485 for the year ended September 30, 2019 from a net loss of $1,520,632 for the year ended September 30, 2018, primarily attributable to the reasons noted above. Significant Accounting Policies Certain critical accounting policies affect the more significant judgments and estimates used in the preparation of the Company’s consolidated financial statements. These policies are contained in Note 1 to the consolidated financial statements. Use of Estimates and Assumptions. The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Revenue Recognition and Accounts Receivable. Investment management fees are recognized as services are provided by the Company. Investment management fees include fees earned from assets under management by providing professional services to manage clients’ investments. Revenues are recognized in the period earned. Services income is recognized as consulting and other professional services are performed by the Company. Income is recognized as services are delivered. Commission revenue is derived from the sale of premiums on life insurance policies held by third parties. The revenue is recognized as received from the insurer, issuer. Revenue represents gross billings less discounts, net of sales tax, as applicable. Amounts invoiced for work not yet completed are shown as deferred revenue in the accompanying consolidated balance sheets. Tax Master Network has 3 types of services that are charged and collected on a month to month subscription basis (Tax Master Network basic membership, All-Stars coaching, and Wire Service weekly broadcast email). None of these programs come with a long-term commitment or contract, and there is no up-front payment beyond the monthly subscription fee. Cancellations are processed within the month requested and memberships are closed at the end of the period for which the most recent payment was made. Members are not entitled to refunds for unused memberships. 9 Trade accounts receivable are carried only for subscription revenues not received in the period they apply to. The allowance for doubtful accounts was $0 and $21,876 as of September 30, 2019 and 2018, respectively. In the normal course of business, the Company extends credit on an unsecured basis to its customers, substantially all of whom are located in the United States of America. The Company does not believe that it is exposed to any significant risk of loss on accounts receivable. Stock-Based Compensation. The Company recognizes the fair value of the stock-based compensation awards as wages in the accompanying statements of operations on a straight-line basis over the vesting period based on the Black-Scholes option pricing model based on a risk-free rate of 1.50% to 2.89% in 2019 and 1.49% to 2.55% in 2018, dividend yield of 0%, expected life of 10 years and volatility of 25.32% to 34.05%. Liquidity and Capital Resources As of September 30, 2019, the Company had cash and cash equivalents of $36,053. The increase of $3,833 in cash and cash equivalents from September 30, 2018 was due to net cash provided by operating activities of $89,640, net cash used in investing activities of $43,582, and net cash used in financing actives of $42,225. Net cash provided by operating activities was $89,640 for the year ended September 30, 2019, compared to $1,097,020 net cash used in operating activities for the year ended September 30, 2018. The net cash provided by operating activities for the year ended September 30, 2019 was due to net loss of $623,485, adjusted primarily by the following: increases in depreciation and amortization of $75,948, stock based compensation of $364,814, stock options issued in exchange for services and in Trade accounts receivable, $131,470. The Net operating loss was also adjusted for decreases in accounts payable – trade of $127,997, decrease in accounts receivable related party, $1,791, decreases in prepaid expenses, $13,647, decreases in accrued expenses, $75,283, and increases in deferred revenue, $33,333. Net cash used in investing activities was $43,582 for the year ended September 30, 2019, compared to net cash used in investing activities of $60,639 for the year ended September 30, 2018. The Company purchased more equipment and trademarks during the year ended September 30, 2018. Net cash used in financing activities was $42,225 for the year ended September 30, 2019, compared to net cash provided by financing activities of $745,459 for the year ended September 30, 2018. Financing activities for the year ended September 30, 2019 consisted primarily of borrowings from Notes payable of $202,205 and payments on notes payable of $248,703. As shown below, at September 30, 2019, its contractual cash obligations totaled approximately $560,786 all of which consisted of operating lease obligations and debt principal. Payments due by period Contractual obligations Less than 1 year 1-3 years 4-5 years Total Notes payable $ 13,393 $ 23,534 $ – $ 36,927 Operating leases 123,144 304,212 32,584 459,940 Line of Credit 63,919 – – 63,919 Total contractual cash obligations $ 200,456 $ 327,746 $ 32,584 $ 560,786 10 The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the Company will need additional financing to fund additional material capital expenditures and to fully implement its business plan. There are no assurances that additional financing will be available on favorable terms, or at all. If additional financing is not available, the Company will need to reduce, defer or cancel development programs, planned initiatives and overhead expenditures as a way to supplement the cash flows generated by operations. The Company has a backlog of fees under contract in addition to the Company’s accounts receivable balance. The failure to adequately fund its capital requirements could have a material adverse effect on its business, financial condition and results of operations. Moreover, the sale of additional equity securities to raise financing will result in additional dilution to the Company’s stockholders and incurring additional indebtedness could involve the imposition of covenants that restrict its operations. Management, in the normal course of business, is trying to raise additional capital through sales of common stock as well as seeking financing from third parties, via both debt and equity, to balance the Company’s cash requirements and to finance specific capital projects. Off Balance Sheet Transactions and Related Matters Other than operating leases discussed in Note 8 to the consolidated financial statements, there are no off-balance sheet transactions, arrangements, obligations (including contingent obligations), or other relationships with unconsolidated entities or other persons that have, or may have, a material effect on financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources of the Company. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Interest Rate Risk. The Company’s business is leveraged and, accordingly, is sensitive to fluctuations in interest rates. Any significant increase in interest rates could have a material adverse effect on its financial condition and ability to continue as a going concern. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The financial statements required by this item are included in this report in Part IV, Item 15. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None.