The accompanying notes are an integral part of
these consolidated financial statements.
The accompanying notes are an integral part of
these consolidated financial statements.
The accompanying notes are an integral part of
these consolidated financial statements.
The accompanying notes are an integral part of
these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Financial Gravity Companies, Inc. and Subsidiaries (the “Company”)
located in Austin, Texas. Operations are conducted through wholly owned subsidiaries: Company, along with its subsidiary companies, 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.
Tax Master Network, LLC (“TMN”) services a network of over
300 accountants and tax preparers with three primary services including monthly subscriptions to the tax software systems, coaching and
email marketing services.
Financial Gravity Family Office Services, LLC (“FGFOS”)
is a registered investment advisor that offers investment management advice to clients through independent 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 Enhanced Markets, LLC, formerly MPath Advisors Resources,
LLC (“FGEM”) is an insurance marketing organization and provides insurance products and services to insurance agents or agencies.
Financial Gravity Asset Management, Inc., formerly Sofos Investment
Management, Inc. (“FGAM”) is a registered investment advisor. FGAM provides asset management services.
Forta Financial Group,
Inc. is a securities broker-dealer, a registered investment advisor and a licensed insurance agency. The Company previously decided to
end Forta’s broker/dealer operations and is in the process of completing that transition.
Financial Gravity Investment Services, LLC (“FGIS”) is
an 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.
|
|
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.
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 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.
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 months ended December 31, 2021 and 2020, the Company recorded amortization expense of $16,544,
respectively, on this intangible asset, which is included in depreciation and amortization expense in the accompanying consolidated statements
of operations. Accumulated amortization at December 31, 2021 was $459,687
and $443,143 at September 30, 2021.
Future amortization of proprietary content is estimated to be as follows
for the years ended September 30:
|
Schedule of future amortization
|
|
|
|
|
|
2022
|
|
$
|
49,273
|
|
|
2023
|
|
|
16,140
|
|
|
Future amortization
|
|
$
|
65,413
|
|
Intellectual Property
The Company accounts for intellectual property in accordance with GAAP
and accordingly, intellectual property are stated at cost. Intellectual property with indefinite lives are not amortized but are tested
for impairment at least annually. Management has determined that the intellectual property have an indefinite life and do not consider
the value of intellectual property recorded in the accompanying consolidated balance sheets to be impaired as of December 31, 2021 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, a two-step impairment test is performed. Management determined that no impairment was necessary
at December 31, 2021.
Goodwill consists of the following:
|
Schedule of goodwill
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2021
|
|
September 30,
2021
|
|
TMN Goodwill
|
|
$
|
1,094,702
|
|
|
$
|
1,094,702
|
|
|
Company Goodwill (Net NCW Transaction)
|
|
|
2,082,065
|
|
|
|
2,082,065
|
|
|
Company Goodwill (Forta Transaction)
|
|
|
–
|
|
|
|
–
|
|
|
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 (“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 were no uncertain tax positions or accrued interest or penalties as of December 31, 2021 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 returns since 2017 are still
subject for examination by taxing authorities.
Earnings Per Share
Basic earnings per common share is computed by dividing net earnings
available to common stockholders by the weighted average number of common shares outstanding for the reporting period. Average number
of common shares were 91,806,412 and 84,951,745 for the three months ended December 31, 2021 and 2020, respectively.
For the three months ended December 31, 2021, approximately
5,520,562 common stock equivalents were not added to the diluted average shares because inclusion of such equivalents would be
antidilutive. For the three months ended December 31, 2020, approximately 3,626,446 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, 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.
Accrued revenues are recorded for investment management fees that are
paid in arrears. The allowance for doubtful accounts was $0 and $0 as of December 30, 2021 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 generates 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, at the end of each monthly period.
Forta and FGIS generate 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 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 has five levels of network 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 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.
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 $499,047
and $408,473 for
the three months ended December 31, 2021 and 2020, respectively.
The Company received revenue from Forta’s operations for the
three months ended December 31:
|
Schedule of revenues from operations
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Investment Advisory fees
|
|
$
|
65,341
|
|
|
$
|
430,556
|
|
|
Commission-based transactions
|
|
|
35,592
|
|
|
|
268,098
|
|
|
Insurance and Other Service Revenue
|
|
|
39,724
|
|
|
|
46,454
|
|
|
Total Revenue
|
|
$
|
140,657
|
|
|
|
745,108
|
|
The Company received revenue from TMN’s operations from the
following major sources for the three months ended December 31:
|
|
|
2021
|
|
2020
|
|
TMN membership subscriptions
|
|
$
|
209,970
|
|
|
$
|
228,664
|
|
|
Tax Blueprints
|
|
|
60,000
|
|
|
|
127,500
|
|
|
Commissions/Referrals
|
|
|
149
|
|
|
|
25,331
|
|
|
Total
|
|
$
|
270,119
|
|
|
$
|
381,495
|
|
The Company received revenue from FGEM’s operations from insurance
sales of $316,422 and $172,602 for the three months ended December 31, 2021 and 2020, respectively.
Advertising and Marketing
Marketing costs are charged to operations when incurred. Marketing
expenses were $27,052 and $20,546 for the three months ended December 31, 2021 and 2020, respectively.
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 0.77% in the quarter ended December 31, 2021 and .59% in 2020, dividend yield of 0%, expected life of 10 years and volatility
of 86.17% in 2021 and 35% to 40% in 2020 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 generally accepted accounting principles in the United States (“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 December 31, 2021, the Company reported
$1,595,893 in revenue, a net operating loss of $73,166, cash generated of $49,897, and an accumulated deficit of $14,488,610. 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.
On May 8, 2020, the Company received a PPP loan in the amount of $283,345.
Additionally, on May 15, 2020, Forta received a PPP loan in the amount of $377,700. These loans have been forgiven. 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 loan may be forgiven, in part or whole, if the proceeds are used to retain
and pay employees and for other qualifying expenditures.
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 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.
Future Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13 Financial Instruments-Credit
Losses, which amends how entities will measure credit losses for most financial assets and certain other instruments that are not measured
at fair value through net income, which applies to trade accounts receivable and the calculation of the allowance for uncollectible accounts
receivable. The new standard will become effective for the Company for fiscal years beginning after December 31, 2020, with early adoption
permitted. In November of 2020, the FASB issued ASU 2020-10 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.
In January 2017, the FASB issued ASU No. 2017-04 Intangibles-Goodwill
and Other Simplifying the Test for Goodwill Impairment, which provides guidance to simplify the subsequent measurement of goodwill by
eliminating the Step 2 procedure from the goodwill impairment test. The new guidance is effective for the Company beginning October 1,
2023. The Company does not anticipate the adoption of ASU 2017-04 will have a material impact on the Company's financial condition or
results of operations.
We manage our business in reportable segments. Each of our active subsidiaries
is treated as a segment. We evaluate the performance of our operating segments based on a segment’s share of consolidated operating
income. Therefore, for instance, Company has determined that Forta will underperform and has decided to end its operations, which
is in progress.
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THREE MONTHS ENDED DECEMBER 31, 2020
|
Segment Reporting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
Eliminations
|
|
FGC
|
|
Forta
|
|
FGEM
|
|
FGAM
|
|
TMN
|
|
TOTAL
|
|
Broker Dealer
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
268,098
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
268,098
|
|
|
Service Income
|
|
|
–
|
|
|
|
–
|
|
|
|
46,454
|
|
|
|
172,602
|
|
|
|
408,473
|
|
|
|
381,495
|
|
|
|
600,550
|
|
|
Investment Management Fees
|
|
|
–
|
|
|
|
–
|
|
|
|
430,556
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
839,029
|
|
|
Income from Inv in Subsidiaries
|
|
|
(60,096
|
)
|
|
|
60,096
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
–
|
|
|
|
–
|
|
|
Total Income
|
|
|
(60,096
|
)
|
|
|
60,096
|
|
|
|
745,108
|
|
|
|
172,602
|
|
|
|
408,473
|
|
|
|
381,495
|
|
|
|
1,707,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
(60,096
|
)
|
|
|
60,096
|
|
|
|
745,108
|
|
|
|
172,602
|
|
|
|
408,473
|
|
|
|
381,495
|
|
|
|
1,707,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation Expense
|
|
|
–
|
|
|
|
420,274
|
|
|
|
623,997
|
|
|
|
50,450
|
|
|
|
120,311
|
|
|
|
119,750
|
|
|
|
1,334,782
|
|
|
Cost of services
|
|
|
–
|
|
|
|
–
|
|
|
|
14,150
|
|
|
|
–
|
|
|
|
11,074
|
|
|
|
10,324
|
|
|
|
35,547
|
|
|
Depreciation & Amortization
|
|
|
–
|
|
|
|
35,258
|
|
|
|
72
|
|
|
|
–
|
|
|
|
3,556
|
|
|
|
–
|
|
|
|
35,330
|
|
|
General and Administrative
|
|
|
–
|
|
|
|
44,612
|
|
|
|
234,683
|
|
|
|
3,628
|
|
|
|
–
|
|
|
|
50,287
|
|
|
|
336,766
|
|
|
Marketing
|
|
|
–
|
|
|
|
6,856
|
|
|
|
10,609
|
|
|
|
–
|
|
|
|
–
|
|
|
|
3,080
|
|
|
|
20,546
|
|
|
Professional Services
|
|
|
–
|
|
|
|
58,299
|
|
|
|
47,493
|
|
|
|
–
|
|
|
|
–
|
|
|
|
26,939
|
|
|
|
132,730
|
|
|
Total Expense
|
|
|
–
|
|
|
|
565,300
|
|
|
|
931,004
|
|
|
|
54,079
|
|
|
|
134,940
|
|
|
|
210,380
|
|
|
|
1,895,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Operating Income
|
|
|
(60,096
|
)
|
|
|
(505,204
|
)
|
|
|
(185,896
|
)
|
|
|
118,523
|
|
|
|
273,533
|
|
|
|
171,114
|
|
|
|
(188,024
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income/Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Expense
|
|
|
–
|
|
|
|
1,113
|
|
|
|
5,223
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
6,336
|
|
|
Net Other Income
|
|
|
–
|
|
|
|
(243,956
|
)
|
|
|
237,620
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(6,336
|
)
|
|
Net Income/(Loss)
|
|
$
|
|
|
|
$
|
(749,160
|
)
|
|
$
|
51,669
|
|
|
$
|
118,523
|
|
|
$
|
273,533
|
|
|
$
|
171,114
|
|
|
$
|
(194,360
|
)
|
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THREE MONTHS ENDED DECEMBER 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
Eliminations
|
|
FGC
|
|
Forta
|
|
FGAM
|
|
FGFOS
|
|
FGEM
|
|
TMN
|
|
FGIS
|
|
TOTAL
|
|
Broker Dealer
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
65,341
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
65,341
|
|
|
Service Income
|
|
|
–
|
|
|
|
–
|
|
|
|
35,592
|
|
|
|
726
|
|
|
|
–
|
|
|
|
316,422
|
|
|
|
270,119
|
|
|
|
30,000
|
|
|
|
652,859
|
|
|
Investment Management Fees
|
|
|
–
|
|
|
|
–
|
|
|
|
39,724
|
|
|
|
499,047
|
|
|
|
338,922
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
877,693
|
|
|
Income
from Inv in Subsidiaries
|
|
|
73,154
|
|
|
|
(73,154
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Total Income
|
|
|
73,154
|
|
|
|
(73,154
|
)
|
|
|
140,657
|
|
|
|
499,773
|
|
|
|
338,922
|
|
|
|
316,422
|
|
|
|
270,119
|
|
|
|
30,000
|
|
|
|
1,595,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
73,154
|
|
|
|
(73,154
|
)
|
|
|
140,657
|
|
|
|
499,773
|
|
|
|
338,922
|
|
|
|
316,422
|
|
|
|
270,119
|
|
|
|
30,000
|
|
|
|
1,595,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation Expense
|
|
|
–
|
|
|
|
719,551
|
|
|
|
129,616
|
|
|
|
160,923
|
|
|
|
184,519
|
|
|
|
76,344
|
|
|
|
90,500
|
|
|
|
–
|
|
|
|
1,361,452
|
|
|
Cost of services
|
|
|
–
|
|
|
|
(236
|
)
|
|
|
9,087
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
9,931
|
|
|
|
–
|
|
|
|
18,782
|
|
|
Depreciation & Amortization
|
|
|
–
|
|
|
|
5,224
|
|
|
|
194
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
16,544
|
|
|
|
–
|
|
|
|
21,962
|
|
|
Marketing
|
|
|
–
|
|
|
|
9,990
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
681
|
|
|
|
16,381
|
|
|
|
–
|
|
|
|
27,052
|
|
|
Professional Services
|
|
|
–
|
|
|
|
26,907
|
|
|
|
68,003
|
|
|
|
1,700
|
|
|
|
–
|
|
|
|
–
|
|
|
|
585
|
|
|
|
–
|
|
|
|
97,194
|
|
|
General and
Administrative
|
|
|
–
|
|
|
|
109,391
|
|
|
|
5,627
|
|
|
|
10,331
|
|
|
|
6,697
|
|
|
|
6,011
|
|
|
|
4,560
|
|
|
|
–
|
|
|
|
142,616
|
|
|
Total Expense
|
|
|
–
|
|
|
|
870,827
|
|
|
|
212,527
|
|
|
|
172,954
|
|
|
|
191,216
|
|
|
|
83,036
|
|
|
|
138,501
|
|
|
|
–
|
|
|
|
1,669,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Operating Income
|
|
|
73,154
|
|
|
|
(943,981
|
)
|
|
|
(71,870
|
)
|
|
|
326,819
|
|
|
|
147,706
|
|
|
|
233,386
|
|
|
|
131,618
|
|
|
|
30,000
|
|
|
|
(73,166
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income/Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other
Expense
|
|
|
–
|
|
|
|
288
|
|
|
|
1,285
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1,574
|
|
|
Net Income/(Loss)
|
|
$
|
73,154
|
|
|
$
|
(944,269
|
)
|
|
$
|
(73,155
|
)
|
|
$
|
326,819
|
|
|
$
|
147,706
|
|
|
$
|
233,386
|
|
|
$
|
131,618
|
|
|
$
|
30,000
|
|
|
$
|
(74,740
|
)
|
|
|
4.
|
PROPERTY AND EQUIPMENT
|
Property and equipment consist of the following at December 31:
|
Schedule of property and equipment
|
|
|
|
|
|
|
|
|
|
Estimated Service Lives
|
|
30-Dec-2021
|
|
30-Sep-2021
|
|
|
|
|
|
|
|
|
|
Furniture, fixtures and equipment
|
|
2 to 5 years
|
|
$
|
61,004
|
|
|
$
|
61,554
|
|
|
Internally developed software
|
|
5 years
|
|
|
152,000
|
|
|
|
152,000
|
|
|
|
|
|
|
|
213,004
|
|
|
|
213,554
|
|
|
Less accumulated depreciation and amortization
|
|
|
|
|
(180,449
|
)
|
|
|
(175,031
|
)
|
|
|
|
|
|
$
|
32,555
|
|
|
$
|
38,523
|
|
Depreciation expense was $5,418
and $22,738 during the three months ended
December 31, 2021 and 2020, respectively.
|
Schedule of intellectual property
|
|
|
|
INTELLECTUAL PROPERTY
|
|
|
|
Intellectual property consists of the following:
|
|
|
|
Intellectual property at September 30, 2021
|
|
$
|
53,170
|
|
|
Intellectual property purchased at cost
|
|
|
–
|
|
|
Intellectual property at December 31 2021
|
|
$
|
53,170
|
|
The Company leases their office space through an operating lease in
Lakeway, Texas and Carmel, California, and non-material offices leases in Cincinnati, Ohio. The Company had a lease in Denver lease agreement
with a lease term into 2024 and deferred for some past due lease obligations over the amended lease term, but that leased property has
been tendered back to the landlord. A gain of $43,027 was recognized on the tender of the lease to the landlord. The Company still carries
$88,008 in Deferred Rent related to the Denver lease on the balance sheet. The Carmel lease is for a term that ends in June of 2023. Company’s
lease agreements obligate the Company to pay real estate taxes, insurance, and certain maintenance costs, which are accounted for separately.
The Lakeway TX lease is for a term ending in January 2027. This lease obligates the Company to pay a share of certain common costs, including
maintenance, insurance, property taxes and utilities.
The Company’s lease agreements do not contain any material residual
value guarantees or material restrictive covenants. The Company determines if an arrangement is an operating lease at inception. Leases
with an initial term of 12 months or less are not recorded on the balance sheet. All other leases are recorded on the balance sheet as
right-of-use assets and lease liabilities for the lease term. Lease assets and lease liabilities are recognized at commencement date based
on the present value of lease payments over the lease term and include options to extend or terminate the lease when they are reasonably
certain to be exercised. The present value of lease payments is determined primarily using the incremental borrowing rate based on the
information available at lease commencement date. The Company’s operating lease expense is recognized on a straight-line basis over
the lease term and is recorded in general and administrative expenses.
Company assumed an existing lease in Carmel CA upon the merger with
NCW/Vestus. The lease runs through June 2023. The total rent expense for the Carmel lease was $11,250 for the three months ended December
31, 2021. There are renewal options at the end of this lease. At this time, renewal is uncertain. A discount rate of 6% was used in determining
the lease asset and liability.
Minimum future annual rental payments under non-cancelable operating
leases having original terms in excess of one year are as follows:
|
Schedule of operating
leases
|
|
|
|
Rental Payments
|
|
|
|
2022
|
|
$
|
58,214
|
|
|
2023
|
|
|
71,062
|
|
|
2024
|
|
|
38,236
|
|
|
2025
|
|
|
39,152
|
|
|
2026
|
|
|
40,072
|
|
|
2027
|
|
|
13,400
|
|
|
Total Rental payments
|
|
|
260,136
|
|
|
Interest
|
|
|
30,974
|
|
|
Net Rental payments
|
|
$
|
229,162
|
|
The weighted average discount rate is 6% and the remaining weighted
average lease term is 4.04 years.
The Company has a revolving line of credit with Wells Fargo Bank, N.A.
in the amount of $67,500. 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 9.5%. This line of credit is supported by the personal guarantee of John Pollock. Line of credit
balance was $51,776 and $49,145 at December 31, 2021 and 2020, respectively, and $52,932 at September 30, 2021.
On April 19, 2019, the Company entered into an unsecured Promissory
Note Payable with Charles O’Banon (“O’Banon”), a customer, in the amount of $32,205. The note is in settlement
of tax penalties and interest he incurred, that were proximately caused by the Company’s actions. The monthly principal and interest
payments are $623, with a balloon payment of $14,048 in April 2022. The note is being repaid over 36 months and bears an interest rate
of 6%. The Company has instituted abatement efforts on O’Banon’s behalf, with the taxing authority, however the abatement
was denied. The outstanding balance on December 31, 2021 and September 30, 2021, was $15,689 and $17,305, respectively.
On August 31, 2020, the Company entered into an agreement with John
DuPriest (DuPriest), a former officer of Forta, in settlement pursuant to employment termination. The parties entered into an unsecured
promissory note to DuPriest in the amount of $52,000.00, bearing interest of 5%, payable over 26 months beginning with January 15, 2021
through February 15, 2023. The balance is $38,548 and $38,548 as of December 31, 2021 and September 30 2021, respectively.
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 loans may be forgiven, in part or whole, if the proceeds are used
to retain and pay employees and for other qualifying expenditures. The Company expects that the proceeds of the PPP loans will be eligible
for forgiveness. However, Forta will end its operation and will be dissolved.
The Company’s maturities of debt subsequent to December 31,
2021 are as follows:
|
Schedule of debt maturities
|
|
|
|
|
|
2022
|
|
$
|
47,946
|
|
|
2023
|
|
|
6,290
|
|
|
2024
|
|
|
–
|
|
|
2025
|
|
|
–
|
|
|
2026
|
|
|
422,900
|
|
|
Total Debt maturities
|
|
$
|
477,136
|
|
Accrued expenses increased by $54,101
for the three months ending December 31, 2021 to $1,137,080
from $1,082,979 as of September 30, 2021.
Accrued expenses consist of the following at December 31:
|
Schedule of accrued expenses
|
|
|
|
|
|
|
|
|
|
December 31, 2021
|
|
|
September 30, 2021
|
|
|
SAR Liability
|
|
$
|
93,554
|
|
|
$
|
61,763
|
|
|
Accrued payroll
|
|
|
142,898
|
|
|
|
42,858
|
|
|
Commissions payable
|
|
|
100,642
|
|
|
|
80,588
|
|
|
Assurance and tax fees
|
|
|
52,500
|
|
|
|
90,000
|
|
|
TBP Commissions
|
|
|
1,250
|
|
|
|
–
|
|
|
Credit card processing fees
|
|
|
2,909
|
|
|
|
2,909
|
|
|
Accrued Tech costs
|
|
|
44,208
|
|
|
|
39,743
|
|
|
Other Accounts payable
|
|
|
699,117
|
|
|
|
765,117
|
|
|
Accrued operating expenses
|
|
$
|
1,137,080
|
|
|
$
|
1,082,979
|
|
For
the three months ending December 31, 2021 and 2020, 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 December 31, 2021 and September 30, 2021:
|
Schedule of deferred tax assets and liabilities
|
|
|
|
|
|
|
|
December 31, 2021
|
|
September 30, 2021
|
|
Net non-current deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
$
|
1,334,019
|
|
|
$
|
1,328,093
|
|
|
Amortization
|
|
|
(8,576
|
)
|
|
|
(8,770
|
)
|
|
Depreciation
|
|
|
5,463
|
|
|
|
5,625
|
|
|
Valuation allowance
|
|
|
(1,330,906
|
)
|
|
|
(1,324,948
|
)
|
|
Net deferred taxes
|
|
$
|
–
|
|
|
$
|
–
|
|
|
|
10.
|
COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS
|
From time to time, the Company is a party to or otherwise involved
in legal proceedings, claims and other legal matters, arising in the ordinary course of its business or otherwise. It is management’s
opinion that there are no legal proceedings the outcome of which will be material to its ability to operate or market its services, its
consolidated financial position, operating results or cash flows.
In December 2021, a new variant of the novel strain of coronavirus,
referred to as COVID-19, has spread to the United States.
The financial markets may demonstrate volatility in reaction to the
virus outbreak. There has been considerable strain on companies in many sectors of the economy. Investors suffered significant decreases
in the value of their investment portfolios, and the economy has significantly shut down. It is unclear when the economy will start up
again, and the lingering effects are not known. During periods of high volatility and uncertainty many investors choose to stop ongoing
investment activity and sit on the sidelines until the markets become more stable.
The Company’s revenues are adversely affected when investors
reduce their investment activities. In addition, part of Company’s revenues is based upon the value of assets under management.
If the investment portfolios of clients decrease in value, the fees charged for investment advice also decreases.
The Company could be affected by lack of access to its offices, although
that seems to have had little short-term impact as employees have succeeded in maintaining productivity while working remotely. The long-term
effects, however, may present significant issues.
Any significant shutdown of the economy for a sustained period will
affect the Company’s revenue which could lead to losses.
Common Stock
The Company is authorized to issue up to 300,000,000 shares of common
stock, par value $0.001 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, 2018.
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
and stock appreciation rights (SARs). 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.
|
Schedule of option activity
|
|
|
|
|
|
|
|
|
|
|
|
Shares under
Option
|
|
Value of Shares
under Option
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining
Contractual Life
|
|
Outstanding - September 30, 2021
|
|
|
7,260,196
|
|
|
$
|
550,455
|
|
|
$
|
0.17
|
|
|
|
106 months
|
|
|
Granted
|
|
|
60,866
|
|
|
$
|
1,361,200
|
|
|
$
|
0.4
|
|
|
|
115 months
|
|
|
Exercised
|
|
|
0
|
|
|
$
|
–
|
|
|
$
|
0
|
|
|
|
|
|
|
Canceled or expired
|
|
|
(1,340,500
|
)
|
|
$
|
1,845,870
|
|
|
$
|
0.44
|
|
|
|
4 months
|
|
|
Outstanding - December 31, 2021
|
|
|
5,980,562
|
|
|
|
47,340
|
|
|
|
|
|
|
|
98 months
|
|
|
Exercisable - December 31, 2021
|
|
|
1,761,393
|
|
|
|
|
|
|
$
|
0.25
|
|
|
|
94 months
|
|
Unamortized share-based compensation expense as of December 31, 2021
amounted to $692,788 which is expected to be recognized over the next 5 years.
Total compensation expense, included in salaries and
wages, of previously unamortized stock compensation was $48,436 and $60,170 for the three months ended December 31, 2021 and 2020.
On November 27, 2020, the 2016 Plan was amended to allow grants of
other equity related rights, including Stock Appreciation Rights. During the three months ended December 31, 2021, 60,866
and 0 options and SARs were granted,
respectively. There were no awards issued during the three months ended December 31, 2020. SARs are recorded as a liability because there
is a cash settlement option.
|
|
13.
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RELATED PARTY TRANSACTIONS
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Included in compensation expenses for TMN were consulting fees
paid to a related party as a condition to the TMN acquisition. One agreement is with Tax Tuneup, LLC which is owned by Ed Lyon, the
CEO of TMN. Through this arrangement, Tax Tuneup, LLC provides consulting services to TMN, including updating of the tax strategies
to comply with tax law and rules. The payments each month are $16,500. The total paid under this agreement in the three months ended
December 31, 2021 and 2020 respectively, were $49,500 and $49,500. The other agreement is with Vandata, LLC, which is owned by Keith
Vandestadt who provides consulting services to TMN and is paid $5,000 per month, for a total of $15,000 in the three months ended
December 31, 2021 and 2020, respectively. Vandata, LLC is also owed $10,000 for services previously rendered.
On April
12, 2019, the Company entered into a loan agreement with John Pollock, Executive Vice President of the Company. The note
bears interest at 2.76%,
and was originally to be repaid in six equal installments of $2,520,
beginning July 1, 2019. The last two payments have been deferred, with the balance still accruing interest. The balance of the loan
at December 31, 2021 and September 30, 2021 was $5,332
and $5,296,
respectively. In addition, Company owes $50,750
to a company owned by Mr. Pollock for consulting services. Payments are not being made at this time on this obligation.
In January 2022, Forta’s clearing firm sent a notice of termination,
and has assessed a termination fee of $250,000 as per its contractual right. Forta does not have the resources to pay the termination
fee, and the clearing firm will apply all cash balances that it holds to the payment of the termination fee. That will result in the transfer
of in excess of $100,000 from Forta to the clearing firm and increase liabilities in the net amount of approximately $150,000. In addition,
Forta has violated its net capital requirements with FINRA and Forta has shut down its broker dealer operations. Forta’s application
to terminate its FINRA registration was accepted in January, retroactive to October 2020. Management is considering dissolving Forta,
and that decision will likely be made next fiscal quarter.