SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Jun. 30, 2022

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the significant accounting polices consistently applied in the preparation of the accompanying consolidated financial statements 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 Financial Gravity Companies, FGAM, FGEM, TMN. FGIS, FGFOS and Forta (collectively referred to as the “Company”). All significant intercompany accounts and transactions have been eliminated on consolidation.

Reclassifications to Prior Period Financial Statements and Adjustments

Certain items from prior reporting periods were reclassified in the financial statements for the current year presentation. These do not have a material impact on the consolidated balance sheets, statements of operations, or statements of cash flow. For instance, an adjustment has been made to the accompanying consolidated statements of cash flows changing the classification of approximately $14,000 from deferred revenue in the report for June 30, 2021 to contract liabilities in the report for June 30, 2022. An adjustment has been made to the accompanying balance sheet and consolidated statements of cash flows changing the classification of right to use lease in the report for June 30, 2021 to right-of-use asset in the report for June 30, 2022. Compensation items classified as salaries and wages as of June 30, 2021, have been reclassified to compensation expense on the consolidated statements of operations. For the period ending June 30, 2021, approximately $91,000 was reclassified from deferred rent to rent payable on the consolidated balance sheet.

These changes in classification does not affect previously reported operating activities or financial position of the Company.

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.

Prepaid Expenses and Other Current Assets

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 expenses 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.

Proprietary Content

The proprietary content acquired as a part of the TMN purchase has been recognized in the accompanying consolidated balance sheets at $525,100, the value attributed to it on the date of the purchase. The proprietary content is being amortized on a straight-line basis over an eight- year estimated life. During each of the three-month periods ended June 30, 2022 and 2021, the Company recorded amortization expense of approximately $16,000. During the nine-month periods ended June 30, 2022 and 2021, the Company recorded amortization expense of approximately $50,000 each period. Amortization expense related to this intangible asset is included in the accompanying consolidated statements of operations. Accumulated amortization at June 30, 2022 was $492,236 and $443,142 at September 30, 2021. Future amortization of proprietary content is estimated to be as follows for the years ended September 30:

Future amortization of proprietary content is estimated to be as follows for the years ended September 30:

2022	$	16,364
2023		16,500
Future amortization	$	32,864

Intellectual Property

The Company accounts for intellectual property in accordance with GAAP and accordingly, intellectual property is stated at cost. Intellectual property with indefinite lives is not amortized but is tested for impairment at least annually. Management has determined that the intellectual property has an indefinite life and does not consider the value of intellectual property recorded in the accompanying consolidated balance sheets to be impaired as of June 30, 2022 and September 30, 2021.

Goodwill

The Company conducts ongoing annual impairment assessments, 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: macroeconomic 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 it is carrying amount, an impairment test is performed. Management determined that no impairment was necessary at June 30, 2022.

Goodwill consists of the following:

	June 30, 2022		September 30, 2021
TMN Goodwill	$	1,094,702	$	1,094,702
Company Goodwill		2,082,065		2,082,065
Total Goodwill	$	3,176,767	$	3,176,767

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 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 were no uncertain tax positions or accrued interest or penalties as of June 30, 2022 and September 30, 2021.

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 income tax returns since 2019 are still subject to 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 was 91,806,983 and 91,712,697 for the three and nine months ended June 30, 2022 and 83,618,412 for the three and nine months ended June 30, 2021.

For the three and nine months ended June 30, 2022, approximately 2,905,998 common stock equivalents were not added to the diluted average shares because inclusion of such equivalents would be antidilutive. For the three and nine months ended June 30, 2021, approximately 1,351,323 common stock equivalents were not added to the diluted average shares because inclusion of such equivalents would be antidilutive.

Revenue Recognition

The Company derives its revenues primarily from the following activities: Investment Management Fees, Securities Brokerage Commissions, Tax Master Network 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 monthly in arrears. Revenues are earned over the period in which the service is provided.

The Company generates services revenue which is recognized when consulting and other professional services are performed by the Company (primarily from TMN and FGEM). Revenue is recognized as services are delivered.

The Company generates subscription revenue primarily from TMN. Revenue 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.

Accrued revenues are recorded for investment management fees that are paid in arrears and are generally collected within a few days of month end by debiting client accounts held by a custodian. The allowance for doubtful accounts was $0 as of June 30, 2022, September 30, 2021, and June 30, 2021. In the normal course of business, the Company extends credit on an unsecured basis to its customers as fees accrue during a month. The Company does not believe that it is exposed to any significant risk of loss on accruing fees.

FGAM and FGFOS generate investment management fees for services provided by the Company to clients. Investment management fees include fees earned from assets under management by providing professional services to manage client investments. Revenue is recognized as earned and billed at the end of each monthly period. FGAM shares certain clients with FGFOS and the professional fees charges to the FGFOS client accounts is treated as affiliate expense to FGAM and revenue to FGFOS.

FGIS generates 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 the trade date. Commissions are collected 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 subscription services 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 strategy guides, to save customers taxes through the implementation of the recommended tax strategies. After an initial assessment, the customers pay a fixed fee based on TMN's estimate of potential future 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.

The Company received revenue from FGAM’s operations that are primarily from investment management fees, including money management fees. Investment management fees are based upon a percentage of assets under management and totaled $376,000 and $554,000 for the three months ended June 30, 2022 and 2021, and $1,445,000 and $1,479,000 for the nine months ended June 30, 2022 and 2021, respectively.

The Company received revenue from Forta’s operations that totaled approximately $36,000 and $806,000 for the three months ended June 30, 2022 and 2021, and $279,000 and $2,305,000 for the nine months ended June 30, 2022 and 2021, respectively.

The Company received service revenue from TMN’s operations of $238,000 and $278,000 for the three months ended June 30, 2022 and 2021, and $831,000 and $917,000 for the nine months ended June 30, 2022 and 2021, respectively.

The Company received revenue from FGEM’s operations from insurance sales of approximately $220,000 and $38,000 for the three months ended June 30, 2022 and 2021, and approximately $808,000 and $365,000 for the nine months ended June 30, 2022 and 2021, respectively.

The Company received revenue from FGIS’s operations in the amount of $0 and $0 for the three months ended June 30, 2022 and 2021, and approximately $32,000 and $0 for the nine months ended June 30, 2022 and 2021, respectively.

Advertising and Marketing

Marketing costs are charged to operations when incurred. Marketing expenses were approximately $23,200 for both the three months ended June 30, 2022 and 2021, and approximately $91,000 and $56,000 for the nine months ended June 30, 2022 and 2021, respectively.

Compensation Expense

The Company includes in Compensation all salaries, wages, employee benefits, payroll costs, payroll taxes, commissions to employees and to independent investment advisors and related party consultants, and stock-based compensation. This is a reclassification from prior periods’ salary and wages on the consolidated statements of operations.

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 0.77% in the quarter ended June 30, 2022 and 0.59% in 2021, dividend yield of 0%, expected life of 10 years and volatility of 86.17% in 2022 and 35% to 40% in 2021 respectively. SAR awards 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.

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.

Adjustments

The accompanying unaudited consolidated financial statements have been prepared by the Company in accordance with GAAP, pursuant to the applicable rules and regulations of the SEC. The information furnished herein reflects all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary to present a fair statement of the financial position and operating results of the Company as of and for the respective periods. However, these operating results are not necessarily indicative of the results expected for a full fiscal year or any other future period. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted pursuant to such rules and regulations. However, management of the Company believes, to the best of their knowledge, that the disclosures herein are adequate to make the information presented not misleading. The Company has determined that there were no subsequent events that would require adjustments to the accompanying consolidated financial statements through the date the financial statements were issued. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the fiscal year ended September 30, 2021, included in its Annual Report on Form 10-K.

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.

For the three months ended June 30, 2022, the Company reported approximately $1,347,000 in revenue, a net operating loss of approximately $292,000, and net increase in cash of approximately $30,000. For the nine months ended June 30, 2022, the Company reported approximately $4,518,000 in revenue, a net operating loss of approximately $762,000, cash used of approximately $98,000, and an accumulated deficit of approximately $14,840,000. These operating results raise 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.

The 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 and the investment advisory activity of the members to increase assets under management and the Company’s revenue. Future growth plans will include efforts to increase advisory headcount through recruiting of individual advisors and groups of advisors. There is no guaranty that the Company will achieve these objectives.

Recent Accounting Pronouncements

In November of 2021, the FASB issued ASU 2021-10 Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, which deferred the effective date of ASU Topic No. 2016-13 to fiscal years beginning after December 15, 2022. The Company is currently evaluating the impact of the adoption of this accounting guidance will have on the consolidated financial statements. Since the Company currently uses an expected loss from customers method, the Company does not anticipate the adoption of ASU 2016-13 will have a material impact on the Company's financial condition or results of operations.