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
1. NATURE OF BUSINESS
Financial Gravity Companies, Inc. and Subsidiaries (the “Company”)
are located in Lakeway, Texas. Operations are conducted through wholly owned subsidiaries. The Company supports investment advisors and
provides tax professionals with a turnkey family office charter. The 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 (“RIA”) 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 (“FGEM”) is an
insurance marketing organization and provides insurance products and services to insurance agents or agencies.
Financial Gravity Asset Management, Inc. (“FGAM”) is an
RIA. FGAM provides asset management services.
Forta Financial Group, Inc. has ended its broker/dealer and RIA operations,
and has no current operations.
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.
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 $99,000 from accrued expense in the report for March 31, 2021 to contract liabilities in the report for March 31, 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 March 31, 2021 to right-of-use
asset in the report for March 31, 2022. Compensation items classified as salaries and wages as of March 31, 2021, have been reclassified to compensation expense
on the consolidated statements of operations. For the period ending March 31, 2021, approximately $88,000 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 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-month periods
ended March 31, 2022 and 2021, the Company recorded amortization expense of $16,185. During the six-month periods ended March 31, 2022
and 2021, the Company recorded amortization expense of $32,729 and $28,777, respectively. Amortization expense related to this intangible
asset is included in the accompanying consolidated statements of operations. Accumulated amortization at March 31, 2022 was $475,871 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:
| Schedule of future amortization | |
| |
| 2022 | |
$ | 32,729 | |
| 2023 | |
| 16,500 | |
| Future amortization | |
$ | 49,229 | |
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 are not
amortized but are 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 March 31, 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 March 31, 2022.
Goodwill consists of the following:
| Schedule of goodwill | |
| | |
| |
| | |
March 31,
2022 | | |
September 30,
2021 | |
| TMN Goodwill | |
$ | 1,094,702 | | |
$ | 1,094,702 | |
| Company Goodwill (Net NCW/Vestus Transaction) | |
| 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 March 31, 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 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 91,806,983 for the three and six months ended March 31, 2022 and 83,618,412 for the three and six months ended March
31, 2021.
For the three and six months ended March 31, 2022, approximately 5,470,600
common stock equivalents were not added to the diluted average shares because inclusion of such equivalents would be antidilutive. For
the three and six months ended March 31, 2021, approximately 3,397,696 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 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 March 31, 2022, September 30, 2021, and March 31, 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 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 $425,259 and $516,865 for the three months ended March 31, 2022 and 2021, and $924,306 and $925,329
for the six months ended March 31, 2022 and 2021, respectively.
The Company received revenue from Forta’s operations for the
three and six months ended March 31, 2022 and 2021, respectively:
| Schedule of revenues from operations | |
| | |
| | |
| | |
| |
| | |
Six Months Ended March 31, 2022 | | |
Six Months Ended March 31, 2021 | | |
Three Months Ended
March 31, 2022 | | |
Three Months Ended
March 31, 2021 | |
| Commission-based transactions | |
$ | 76,980 | | |
$ | 907,330 | | |
$ | 37,255 | | |
$ | 254,716 | |
| Insurance and other service revenue | |
| 93,044 | | |
| 522,814 | | |
| 27,703 | | |
| 22,362 | |
| Investment advisory fees | |
| 72,992 | | |
| 38,373 | | |
| 37,400 | | |
| 476,774 | |
| Other | |
| – | | |
| 30,443 | | |
| – | | |
| – | |
| Total Forta Revenue | |
$ | 243,016 | | |
$ | 1,498,960 | | |
$ | 102,358 | | |
$ | 753,852 | |
The Company received revenue from TMN’s operations from the following
major sources for the three and six months ended March 31, 2022 and 2021, respectively:
| | |
Six Months Ended March 31, 2022 | | |
Six Months Ended March 31, 2021 | | |
Three Months Ended March 31, 2022 | | |
Three Months Ended March 31, 2021 | |
| TMN membership subscriptions | |
$ | 419,326 | | |
$ | 447,596 | | |
$ | 209,356 | | |
$ | 218,932 | |
| Tax Blueprints | |
| 142,500 | | |
| 165,000 | | |
| 82,500 | | |
| 37,500 | |
| Commissions/referrals | |
| 30,400 | | |
| 26,111 | | |
| 30,251 | | |
| 780 | |
| Total TMN Revenue | |
$ | 592,226 | | |
$ | 638,707 | | |
$ | 322,107 | | |
$ | 257,212 | |
The Company received revenue from FGEM’s operations from insurance
sales of $271,700 and $154,076 for the three months ended March 31, 2022 and 2021, and $588,122 and $326,677 for the six months ended
March 31, 2022 and 2021, respectively.
The Company received revenue from FGIS’s operations in the amount
of $2,203 and $0 for the three months ended March 31, 2022 and 2021, and $32,203 and $0 for the six months ended March 31, 2022 and 2021,
respectively.
Advertising and Marketing
Marketing costs are charged to operations when incurred. Marketing
expenses were $40,789 and $12,234 for the three months ended March 31, 2022 and 2021, and $67,841 and $32,780 for the six months ended
March 31, 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 March 31, 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 March 31, 2022,
the Company reported $1,575,341 in revenue, a net operating loss of $397,410, and cash used of $175,296. For the six months ended
March 31, 2022, the Company reported $3,171,235 in revenue, a net operating loss of $470,576, cash used of $128,170, and an
accumulated deficit of $14,886,607. 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.
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 guidance has been implemented for fiscal years beginning after
December 15, 2021.
3. SEGMENT REPORTING
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 MARCH 31, 2021
| Segment Reporting | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
Eliminations | | |
FGC | | |
Forta | | |
FGAM | | |
FGEM | | |
TMN | | |
TOTAL | |
| Income | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Broker dealer | |
$ | – | | |
$ | – | | |
$ | 254,716 | | |
$ | – | | |
$ | – | | |
$ | – | | |
$ | 254,716 | |
| Investment management fees | |
| – | | |
| – | | |
| 476,774 | | |
| 516,856 | | |
| – | | |
| – | | |
| 993,630 | |
| Service income | |
| – | | |
| – | | |
| 22,362 | | |
| – | | |
| 154,076 | | |
| 257,212 | | |
| 433,650 | |
| Income
from investment in subsidiaries | |
| 38,531 | | |
| (38,531 | ) | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | |
| Total Income | |
| 38,531 | | |
| (38,531 | ) | |
| 753,852 | | |
| 516,856 | | |
| 154,076 | | |
| 257,212 | | |
| 1,681,996 | |
| Gross Profit | |
| 38,531 | | |
| (38,531 | ) | |
| 753,852 | | |
| 516,856 | | |
| 154,076 | | |
| 257,212 | | |
| 1,681,996 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Expense | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Cost of services | |
| – | | |
| – | | |
| 13,386 | | |
| – | | |
| – | | |
| 9,297 | | |
| 22,683 | |
| Professional services | |
| – | | |
| 56,452 | | |
| 40,447 | | |
| – | | |
| 175 | | |
| – | | |
| 97,074 | |
| Depreciation and amortization | |
| – | | |
| 19,721 | | |
| 86 | | |
| – | | |
| – | | |
| 12,367 | | |
| 32,174 | |
| General and administrative | |
| – | | |
| 37,578 | | |
| 147,619 | | |
| 8,653 | | |
| 5,692 | | |
| 21,856 | | |
| 221,398 | |
| Marketing | |
| – | | |
| 3,180 | | |
| 1,741 | | |
| 132 | | |
| 454 | | |
| 6,727 | | |
| 12,234 | |
| Compensation
expense | |
| – | | |
| 484,697 | | |
| 612,265 | | |
| 192,462 | | |
| 35,011 | | |
| 76,250 | | |
| 1,400,685 | |
| Total Expense | |
| – | | |
| 601,628 | | |
| 815,544 | | |
| 201,247 | | |
| 41,332 | | |
| 126,497 | | |
| 1,786,248 | |
| Net Operating Income (Loss) | |
| 38,531 | | |
| (640,159 | ) | |
| (61,692 | ) | |
| 315,609 | | |
| 112,744 | | |
| 130,715 | | |
| (104,252 | ) |
| Interest expense | |
| – | | |
| (1,157 | ) | |
| – | | |
| – | | |
| – | | |
| – | | |
| (1,157 | ) |
| Income tax
revenue (expense) | |
| – | | |
| (21,539 | ) | |
| 23,161 | | |
| – | | |
| – | | |
| – | | |
| 1,622 | |
Total
Other Expense (Income) | |
| – | | |
| (22,696 | ) | |
| 23,161 | | |
| – | | |
| – | | |
| – | | |
| 465 | |
| Net Income/(Loss) | |
$ | 38,531 | | |
$ | (662,855 | ) | |
$ | (38,531 | ) | |
$ | 315,609 | | |
$ | 112,744 | | |
$ | 130,715 | | |
$ | (103,787 | ) |
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THREE MONTHS ENDED MARCH 31, 2022
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
Eliminations | | |
FGC | | |
Forta | | |
FGAM | | |
FGFOS | | |
FGEM | | |
TMN | | |
FGIS | | |
TOTAL | |
| Income | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Broker dealer | |
$ | – | | |
$ | – | | |
$ | 27,703 | | |
$ | – | | |
$ | – | | |
$ | – | | |
$ | – | | |
$ | – | | |
$ | 27,703 | |
| Investment management fees | |
| (72,926 | ) | |
| – | | |
| 37,255 | | |
| 425,259 | | |
| 323,130 | | |
| – | | |
| – | | |
| 2,203 | | |
| 714,921 | |
| Service income | |
| – | | |
| – | | |
| 37,400 | | |
| 144,434 | | |
| 57,076 | | |
| 271,700 | | |
| 322,107 | | |
| – | | |
| 832,717 | |
| Income from investment in subsidiaries | |
| 303,902 | | |
| (303,902 | ) | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | |
| Total Income | |
| 230,976 | | |
| (303,902 | ) | |
| 102,358 | | |
| 569,693 | | |
| 380,206 | | |
| 271,700 | | |
| 322,107 | | |
| 2,203 | | |
| 1,575,341 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Affiliate Expense | |
| (72,926 | ) | |
| – | | |
| – | | |
| 152,492 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 79,566 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Gross Profit | |
| 303,902 | | |
| (303,902 | ) | |
| 102,358 | | |
| 417,201 | | |
| 380,206 | | |
| 271,700 | | |
| 322,107 | | |
| 2,203 | | |
| 1,495,775 | |
| Expense | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Cost of services | |
| – | | |
| – | | |
| 250,000 | | |
| 11,763 | | |
| – | | |
| – | | |
| 12,902 | | |
| – | | |
| 274,665 | |
| Professional services | |
| – | | |
| 71,070 | | |
| 51,932 | | |
| 1,486 | | |
| (1,299 | ) | |
| – | | |
| – | | |
| – | | |
| 123,189 | |
| Depreciation and amortization | |
| – | | |
| 5,300 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 16,185 | | |
| – | | |
| 21,485 | |
| General and administrative | |
| – | | |
| 67,199 | | |
| 33,200 | | |
| 18,145 | | |
| (4,990 | ) | |
| 9,253 | | |
| 1,681 | | |
| – | | |
| 124,488 | |
| Marketing | |
| – | | |
| 29,910 | | |
| – | | |
| – | | |
| – | | |
| 681 | | |
| 10,198 | | |
| – | | |
| 40,789 | |
| Compensation expense | |
| – | | |
| 766,402 | | |
| 70,808 | | |
| 126,515 | | |
| 166,978 | | |
| 76,616 | | |
| 101,250 | | |
| – | | |
| 1,308,569 | |
| Total Expense | |
| – | | |
| 939,881 | | |
| 405,940 | | |
| 157,909 | | |
| 160,689 | | |
| 86,550 | | |
| 142,216 | | |
| – | | |
| 1,893,185 | |
| Net Operating Income (Loss) | |
| 303,902 | | |
| (1,243,783 | ) | |
| (303,582 | ) | |
| 259,292 | | |
| 219,517 | | |
| 185,150 | | |
| 179,891 | | |
| 2,203 | | |
| (397,410 | ) |
| Interest Expense | |
| – | | |
| (264 | ) | |
| (322 | ) | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| (586 | ) |
| Income Taxes | |
| – | | |
| | | |
| | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | |
Total Other Expense (Income) | |
| – | | |
| (264 | ) | |
| (322 | ) | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| (586 | ) |
| Net Income/(Loss) | |
$ | 303,902 | | |
$ | (1,244,047 | ) | |
$ | (303,904 | ) | |
$ | 259,292 | | |
$ | 219,517 | | |
$ | 185,150 | | |
$ | 179,891 | | |
$ | 2,203 | | |
$ | (397,996 | ) |
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR SIX MONTHS ENDED MARCH 31, 2021
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
Eliminations | | |
FGC | | |
Forta | | |
FGAM | | |
FGEM | | |
TMN | | |
TOTAL | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| Income | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Broker dealer | |
$ | – | | |
$ | – | | |
$ | 522,814 | | |
$ | – | | |
$ | – | | |
$ | – | | |
$ | 522,814 | |
| Investment management fees | |
| – | | |
| – | | |
| 907,330 | | |
| 925,329 | | |
| – | | |
| – | | |
| 1,832,659 | |
| Service income | |
| – | | |
| – | | |
| 68,816 | | |
| – | | |
| 326,677 | | |
| 638,707 | | |
| 1,034,200 | |
| Income from investment in subsidiaries | |
| (13,194 | ) | |
| 13,194 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | |
| Total Income | |
| (13,194 | ) | |
| 13,194 | | |
| 1,498,960 | | |
| 925,329 | | |
| 326,677 | | |
| 638,707 | | |
| 3,389,673 | |
| Gross Profit | |
| (13,194 | ) | |
| 13,194 | | |
| 1,498,960 | | |
| 925,329 | | |
| 326,677 | | |
| 638,707 | | |
| 3,389,673 | |
| Expense | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | |
| Cost of services | |
| – | | |
| – | | |
| 27,536 | | |
| 11,074 | | |
| – | | |
| 19,620 | | |
| 58,230 | |
| Professional services | |
| – | | |
| 114,751 | | |
| 87,939 | | |
| – | | |
| 175 | | |
| 26,939 | | |
| 229,804 | |
| Depreciation and amortization | |
| – | | |
| 54,978 | | |
| 159 | | |
| – | | |
| – | | |
| 12,367 | | |
| 67,504 | |
| General and administrative | |
| – | | |
| 82,190 | | |
| 382,305 | | |
| 12,208 | | |
| 9,320 | | |
| 72,143 | | |
| 558,166 | |
| Marketing | |
| – | | |
| 10,037 | | |
| 12,350 | | |
| 132 | | |
| 454 | | |
| 9,807 | | |
| 32,780 | |
| Compensation expense | |
| – | | |
| 904,971 | | |
| 1,236,262 | | |
| 312,772 | | |
| 85,461 | | |
| 196,000 | | |
| 2,735,466 | |
| Total Expense | |
| – | | |
| 1,166,927 | | |
| 1,746,551 | | |
| 336,186 | | |
| 95,410 | | |
| 336,876 | | |
| 3,681,950 | |
| Net Operating
Income/(Loss) | |
| (13,194 | ) | |
| (1,153,733 | ) | |
| (247,591 | ) | |
| 589,143 | | |
| 231,267 | | |
| 301,831 | | |
| (292,277 | ) |
| Interest Expense | |
| – | | |
| 2,270 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 2,270 | |
| Income Taxes | |
| – | | |
| 264,382 | | |
| (260,782 | ) | |
| – | | |
| – | | |
| – | | |
| 3,600 | |
| Total Other Expense (Income) | |
| – | | |
| 266,652 | | |
| (260,782 | ) | |
| – | | |
| – | | |
| – | | |
| 5,870 | |
| Net Income/(Loss) | |
$ | (13,194 | ) | |
$ | (1,420,385 | ) | |
$ | 13,191 | | |
$ | 589,143 | | |
$ | 231,267 | | |
$ | 301,831 | | |
$ | (298,147 | ) |
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR SIX MONTHS ENDED MARCH 31, 2022
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
Eliminations | | |
FGC | | |
Forta | | |
FGAM | | |
FGFOS | | |
FGEM | | |
TMN | | |
FGIS | | |
TOTAL | |
| Income | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Broker dealer | |
$ | – | | |
$ | – | | |
$ | 93,044 | | |
$ | – | | |
$ | – | | |
$ | – | | |
$ | – | | |
$ | – | | |
$ | 93,044 | |
| Investment
management fees | |
| (72,926 | ) | |
| – | | |
| 76,980 | | |
| 924,306 | | |
| 662,052 | | |
| – | | |
| – | | |
| 2,203 | | |
| 1,592,615 | |
| Service income | |
| – | | |
| – | | |
| 72,992 | | |
| 145,160 | | |
| 57,076 | | |
| 588,122 | | |
| 592,226 | | |
| 30,000 | | |
| 1,485,576 | |
| Income
from investment in subsidiaries | |
| 377,056 | | |
| (377,056 | ) | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | |
| Total Income | |
| 304,130 | | |
| (377,056 | ) | |
| 243,016 | | |
| 1,069,466 | | |
| 719,128 | | |
| 588,122 | | |
| 592,226 | | |
| 32,203 | | |
| 3,171,235 | |
| Affiliate expense | |
| (72,926 | ) | |
| – | | |
| – | | |
| 152,492 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 79,566 | |
| Gross Profit | |
| 377,056 | | |
| (377,056 | ) | |
| 243,016 | | |
| 916,974 | | |
| 719,128 | | |
| 588,122 | | |
| 592,226 | | |
| 32,203 | | |
| 3,091,669 | |
| Expense | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Cost of services | |
| – | | |
| (236 | ) | |
| 259,087 | | |
| 11,764 | | |
| – | | |
| – | | |
| 22,833 | | |
| – | | |
| 293,448 | |
| Professional services | |
| – | | |
| 97,977 | | |
| 119,935 | | |
| 3,186 | | |
| (1,299 | ) | |
| – | | |
| 585 | | |
| – | | |
| 220,384 | |
| Depreciation
and amortization | |
| – | | |
| 10,525 | | |
| 193 | | |
| – | | |
| – | | |
| – | | |
| 32,729 | | |
| – | | |
| 43,447 | |
| General
and administrative | |
| – | | |
| 175,870 | | |
| 39,545 | | |
| 28,477 | | |
| 1,722 | | |
| 15,264 | | |
| 6,241 | | |
| – | | |
| 267,119 | |
| Marketing | |
| – | | |
| 39,900 | | |
| – | | |
| – | | |
| – | | |
| 1,362 | | |
| 26,579 | | |
| – | | |
| 67,841 | |
| Compensation expense | |
| – | | |
| 1,485,953 | | |
| 200,434 | | |
| 287,437 | | |
| 351,483 | | |
| 152,949 | | |
| 191,750 | | |
| – | | |
| 2,670,006 | |
| Total
Expense | |
| – | | |
| 1,809,989 | | |
| 619,194 | | |
| 330,864 | | |
| 351,906 | | |
| 169,575 | | |
| 280,717 | | |
| – | | |
| 3,562,245 | |
| Net
Operating Income (Loss) | |
| 377,056 | | |
| (2,187,045 | ) | |
| (376,178 | ) | |
| 586,110 | | |
| 367,222 | | |
| 418,547 | | |
| 311,509 | | |
| 32,203 | | |
| (470,576 | ) |
| Total
Other Expense (Income) | |
| – | | |
| (553 | ) | |
| (1,607 | ) | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| (2,160 | ) |
| Net Income/(Loss) | |
$ | 377,056 | | |
$ | (2,187,598 | ) | |
$ | (377,785 | ) | |
$ | 586,110 | | |
$ | 367,222 | | |
$ | 418,547 | | |
$ | 311,509 | | |
$ | 32,203 | | |
$ | (472,736 | ) |
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following
at March 31:
| Schedule of property and equipment | |
| |
| | | |
| | |
| | |
Estimated Service Lives | |
2022 | | |
2021 | |
| | |
| |
| | |
| |
| Furniture, fixtures and equipment | |
2 to 5 years | |
$ | 63,498 | | |
$ | 58,691 | |
| Internally developed software | |
5 years | |
| 152,000 | | |
| 152,000 | |
| | |
| |
$ | 215,498 | | |
$ | 210,691 | |
| Less accumulated depreciation and amortization | |
| |
| (185,749 | ) | |
| (164,391 | ) |
| | |
| |
$ | 29,749 | | |
$ | 46,300 | |
Depreciation expenses was $5,300 and $10,718 during the three and
six months ended March 31, 2022 and $19,806 and $42,545 during the three and six months ended March 31, 2021, respectively.
| Schedule of intellectual property | |
| |
| Intellectual property consists of the following: | |
| |
| Intellectual property at September 30, 2021 | |
$ | 53,170 | |
| Intellectual property purchased at cost | |
| – | |
| Intellectual property at March 31, 2022 | |
$ | 53,170 | |
5. LEASES
The Company leases their office space through
an operating lease in Lakeway, Texas and Carmel, California, and an office lease in Cincinnati, Ohio. The Company had a lease in
Denver 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. The Company still carries $88,008 in rent payable related to the Denver lease on the
accompanying consolidated balance sheet. The Carmel lease is for a term that ends in June of 2023. The Company’s lease agreements
obligate the Company to pay real estate taxes, insurance, and certain maintenance costs, which are accounted for separately. The Lakeway,
Texas 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 and $22,500
for the three and six months ended March 31, 2022, respectively. 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 right-of-use asset and related lease liability.
Minimum future annual rental payments under non-cancelable
operating leases having original terms in excess of one year are as follows:
| Schedule of future minimum rental payments | |
| | |
| Maturity of lease payable: | |
| |
| 2022 | |
$ | 81,850 | |
| 2023 | |
| 49,024 | |
| 2024 | |
| 38,696 | |
| 2025 | |
| 39,610 | |
| 2026 | |
| 33,650 | |
| Thereafter | |
| – | |
| Total undiscounted lease payments | |
| 242,830 | |
| Less: Imputed interest | |
| (27,591 | ) |
| Present value of lease payable | |
$ | 215,239 | |
The weighted average discount rate is 6% and the remaining weighted
average lease term is 3.99 years.
6. LINE OF CREDIT
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 was 7.75% and 9.50% as of March 31, 2022 and 2021, respectively. This line of credit is supported
by the personal guarantee of John Pollock. The line of credit balance was $50,228 and $44,065 at March 31, 2022 and 2021, respectively,
and $52,932 at September 30, 2021.
7. NOTES PAYABLE
On April 19, 2019, the Company entered into
an unsecured Promissory Note Payable with Charles O’Banon, a customer, in the amount of $32,205 and was scheduled to mature in
April 2022. The balance of the note as of March 31, 2022 was $14,408. As of April 15, 2022 payments on the remaining balance of
$14,048 were reset at $500 (principal and interest), with a balloon payment of the outstanding balance due in April 2023. The
interest rate is 6% per annum (see Note 14).
On August 31, 2021, 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, bearing interest of 5%, payable over 26 months beginning on January
15, 2021 through February 15, 2023. The balance is $38,548 and $38,548 as of March 31, 2022 and September 30 2021, respectively. DuPriest
has agreed to a moratorium on payment on the note.
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.
The Company’s maturities of debt subsequent to March 31, 2022
are as follows:
| Schedule of debt maturities | |
| |
| 2022 | |
$ | 52,596 | |
| 2023 | |
| 0 | |
| 2024 | |
| 0 | |
| 2025 | |
| 0 | |
| 2026 | |
| 422,900 | |
| Total Debt maturities | |
| 475,496 | |
8. ACCRUED EXPENSES
Accrued expenses increased by approximately $125,000 for the six months
ending March 31, 2022 to approximately $1,208,000 from approximately $1,083,000 as of September 30, 2021. Accrued expenses consist of
the following at March 31, 2022:
| Schedule of accrued expenses | |
| | |
| |
| | |
March 31,
2022 | | |
September 30,
2021 | |
| SAR liability | |
$ | 61,042 | | |
$ | 61,763 | |
| Accrued payroll | |
| 160,275 | | |
| 42,858 | |
| Commissions payable | |
| 97,223 | | |
| 80,588 | |
| Accrued expenses | |
| 65,256 | | |
| 132,653 | |
| Other accounts payable - unissued stock | |
| 824,597 | | |
| 765,117 | |
| Accrued operating expenses | |
$ | 1,208,393 | | |
$ | 1,082,979 | |
9. INCOME TAXES
For the six months ending March 31, 2022 and 2021, the effective tax
rate of 0% varies from the U.S. federal statutory rate primarily due to state income taxes, net losses, certain nondeductible expenses,
and an increase in the valuation allowance associated with the net operating loss carryforwards. Our deferred tax assets related to net
operating loss carryforwards remain fully reserved due to uncertainty of utilization of those assets.
A deferred tax liability or asset is determined based on the difference
between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates which will be in effect when
these differences reverse. Deferred tax expense or benefit in the accompanying consolidated statements of operations are the result of
changes in the assets and liabilities for deferred taxes. The measurement of deferred tax assets is reduced, if necessary, by the amount
for any tax benefits that, based on available evidence, are not expected to be realized. Income tax expense is the current tax payable
or refundable for the year plus or minus the net change in the deferred tax assets and liabilities. Deferred income taxes of the Company
arise from the temporary differences between financial statement and income tax recognition of NOL carry-forwards.
The deferred tax assets and liabilities in the accompanying consolidated
balance sheets include the following components at March 31, 2022 and September 30, 2021:
| Schedule of deferred tax assets and liabilities |
|
|
|
|
|
|
|
|
| |
|
March 31,
2022 |
|
|
September 30,
2021 |
|
| Net non-current deferred tax assets: |
|
|
|
|
|
|
|
|
| Net operating loss carryforward |
|
$ |
1,413,196 |
|
|
$ |
1,328,093 |
|
| Amortization |
|
|
(8,383 |
) |
|
|
(8,770 |
) |
| Depreciation |
|
|
5,301 |
|
|
|
5,626 |
|
| Valuation allowance |
|
|
(1,410,114 |
) |
|
|
(1,324,949 |
) |
| 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, spread to the United States. The financial markets may demonstrate volatility in reaction to the virus outbreak.
Strain on companies in many sectors of the economy continue. It is unclear when these strains will end, 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.
11. STOCKHOLDERS’ EQUITY
Common Stock
The Company is authorized to issue up to 300,000,000 shares of common
stock, par value $0.001 per share.
12. STOCK OPTION PLAN
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 | |
| 7,310,196 | | |
$ | 1,106,764 | | |
| 0.24 | | |
| 95 months
| |
| Granted | |
| 60,866 | | |
| 5,824 | | |
| 0.50 | | |
| 108 months | |
| Exercised | |
| – | | |
| – | | |
| – | | |
| | |
| Canceled or expired | |
| (1,420,500 | ) | |
| (164,068 | ) | |
| 0.28 | | |
| | |
| Outstanding - March 31, 2022 | |
| 5,950,562 | | |
| 948,520 | | |
| 0.23 | | |
| 95 months | |
| Exercisable - March 31, 2022 | |
| 2,874,731 | | |
$ | 399,013 | | |
| 0.22 | | |
| 93 months | |
Unamortized share-based compensation was
$692,788
and $120,843
for the six months ended March 31, 2022 and 2021, respectively, and will be recognized over the next 5 years. During the six months
ended March 31, 2022 and 2021, 60,866
and 5,600,000
options and SARs were granted, respectively. SARs are recorded as a liability because there is a cash settlement option.
13. RELATED PARTY TRANSACTIONS
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 six months ended March 31, 2022
and 2021, 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 six months ended March 31, 2022 and 2021, 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 March 31, 2022 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.
14. SUBSEQUENT EVENTS
On April 15, 2022, the Company amended the O’Banon
note which extended the maturity date to April 2023 and requires minimum monthly payments of $500 (principal and interest), with a balloon
payment for any outstanding balance at maturity.