Financial Gravity Companies, Inc. and Subsidiaries
The accompanying notes are a n integral part of
these consolidated financial statements.
Financial Gravity Companies, Inc. and Subsidiaries
The accompanying notes are an integral part of
these consolidated financial statements.
Financial Gravity Companies, Inc. and Subsidiaries
The accompanying notes are an integral part of
these consolidated financial statements.
Financial Gravity Companies, Inc. and Subsidiaries
The accompanying notes are in integral par these
consolidated financial statements
Financial Gravity Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Financial Gravity Companies, Inc., and subsidiaries
(the “Company”) is headquartered in Austin Texas, with locations in Allen, Texas, Denver, Colorado and Cincinnati, Ohio. The
currently operating wholly owned subsidiaries of the Company include:
Sofos Investments, Inc. (“Sofos”).
Sofos is a registered investment advisor (“RIA”), registered with the Securities and Exchange Commission, and provides asset
management services to individuals and businesses, including money management, financial planning, and wealth management. Sofos commenced
its money management services in late 2020, and by June 30, 2021 had in excess of $150,000,000 in assets under management.
Tax Master Network, LLC, runs the Tax Master Network®
(“TMN”) that provides four primary services including monthly subscriptions to the TMN systems, coaching and marketing services.
TMN currently supports over 300 Certified Public Accountants (“CPA”) and Enrolled Agent professionals, training them to support
clients through tax planning services. TMN has developed the Certified Tax Master® that includes client acquisition and retention
systems. TMN also offers tax planning services through the Tax Blueprint®, which includes an extensive individualized review and assessment
of the client’s tax situation. The initial assessment sets the requirements for a custom Tax Blueprint® for each client to use
as guide to implementation of the identified tax savings strategies. Finally, TMN offers the Tax Operating System, which is a system for
integrating and executing tax planning strategies.
TMN also provides CPAs, Enrolled Agents, and other
tax professionals a system for marketing, selling, and fulfilling tax-planning engagements. The system rests on two proprietary SAAS-based
applications, the Tax Ninja software, which uses non-technical language in written reports introducing clients to tax-saving concepts
and strategies; and the Tax Operating System®, which automates implementation of tax strategies. The system also includes: 1) marketing
and practice-management tools and resources; 2) access to the Technical Training Center and the Sales Training Center to support members;
3) the monthly Fueled program which promotes personal development education; 4) the weekly Tax Beat client newsletter (a client newsletter);
and 5) the Certified Tax Master® designation (which identifies members as offering special training not usually available to clients).
TMN membership also includes the option to participate in the Financial Advisor Technical Education (FATE) program, which serves two goals:
1) it helps tax planners do a better job helping clients manage tax exposure in their investment portfolios; and 2) it gives members a
proprietary "done for you" path into the investment advisory business.
MPath Advisor Resources, LLC (“MPath”)
MPath is an insurance marketing organization and provides insurance products and services to insurance agents or agencies. This is a new
venture that will be focused upon insurance marketing and will capture business synergies in the sale of insurance products by financial
advisors with TMN and with Forta.
Forta Financial Group, Inc. (“Forta”)
is a broker-dealer, a registered investment advisor, and a licensed insurance agent. It primarily operates in Colorado and has independent
advisors and representatives in other states.
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
A summary of the significant accounting policies
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 its subsidiaries. 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 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. Cash does not include the
net capital deposit of approximately $100,000 at First Clearing, which is recorded on the balance sheet with prepaid expenses and other
current assets.
Noncash financing and investing activities on
the Statement of Cash Flows includes $661,045 of debt forgiveness related to PPP loans for the three and nine months ended June 30, 2021.
Receivables
Trade accounts receivable are carried at the invoiced
amount less an estimate made for doubtful accounts based on management’s review of outstanding balances. The collectability of the
Company’s accounts receivable is reviewed on an ongoing basis, using historical payment trends and a review of specific accounts.
Accounts receivable are written off after all reasonable collection efforts have been exhausted and when management determines the amounts
to be uncollectible. Recoveries of receivables previously written off are recorded when received. The allowance for doubtful accounts
was $0 as of June 30, 2021 and September 30, 2020, respectively.
In the normal course of business, the Company
may extend credit to its customers, on an unsecured basis, substantially all of whom are in the United States of America. The Company
does not believe that it is exposed to any significant risk of loss on accounts receivable.
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. This
asset group also includes an accrued income asset, for Investment Management Fees, which are billed and collected in arrears. The Accrued
Income balance as of June 30, 2021 is $285,175. This accounting is pursuant to recently revised accounting policies, which improve reporting
accuracy, and as such, there are no prior meaningful comparative balances. The Company will report comparative balances when available.
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 and nine Months ended June 30, 2021 and 2020, the Company recorded amortization expense of $16,364 and $16,320 for the three
months, and $49,903 and $49,138 for the nine months, respectively, on this intangible asset, which is included in depreciation and amortization
expense in the accompanying consolidated statements of operations. Accumulated amortization at June 30, 2021 was $426,598 and $377,505
at September 30, 2020.
Future amortization of proprietary content is
estimated to be as follows for the years ended September 30:
Schedule of future amortization
|
|
|
|
|
2021
|
|
$
|
16,185
|
|
2022
|
|
|
64,740
|
|
2023
|
|
|
17,577
|
|
Future amortization
|
|
$
|
98,502
|
|
Non-compete Agreements
Non-compete agreements entered into as a part
of the TMN purchase have been recognized in the accompanying consolidated balance sheets at $26,300, the value attributed to such agreements
on the date of the purchase. The non-compete agreements are being amortized on a straight-line basis over the five-year term of the non-compete
clause of the agreement. During each of the three months ended June 30, 2021 and 2020, the Company recorded amortization expense of $0
and $1,308 respectively. During each of the nine months ended June 30, 2021 and 2020, the Company recorded amortization expense of $0
and $3,938 respectively on this intangible asset, which is included in depreciation and amortization expense in the accompanying consolidated
statements of operations. Accumulated amortization was $26,300 at September 30, 2020. This asset is fully amortized and written off, at
September 30, 2020.
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 June 30, 2021 and September 30, 2020.
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 its carrying amount, an impairment test is performed. Management determined, by assessing the qualitative factors,
that it is more likely than not that the fair value of the Forta reporting unit is less than its carrying value and that the goodwill
associated with the Forta reporting unit has been fully impaired. As such, Management has written off the full amount, $7,380,603, of
the recorded goodwill associated with the Forta reporting unit as of June 30, 2021. The factors that Company considered included
the loss of investment advisors to competitors or to retirement resulting in substantially reduced revenue and lowered prospects for growth,
and the number of claims by former clients that will divert assets away from operations.
Goodwill consists
of the following:
Schedule of goodwill
|
|
|
|
|
|
|
|
|
|
|
June 30,
2021
|
|
|
September 30,
2020
|
|
TMN Goodwill
|
|
$
|
1,094,702
|
|
|
$
|
1,094,702
|
|
Forta Goodwill
|
|
|
–
|
|
|
|
7,380,603
|
|
Total Goodwill
|
|
$
|
1,094,702
|
|
|
$
|
8,475,305
|
|
Income Taxes
The Company records federal and state income,
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 was no accrued interest, penalties or uncertain tax positions as of June 30, 2021
and September 30, 2020.
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 2016 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 83,618,412 and 83,618,412 for the three and nine Months ended June 30, 2021, respectively, and 72,018,838
and 51,669,659 for the three and nine Months Ended June 30, 2020, respectively.
For the three and nine Months ended June 30, 2021,
approximately 4,466,284 and 4,466,284, respectively, common stock equivalents were not added to the diluted average shares because inclusion
of such equivalents would be antidilutive. For the three and nine Months Ended June 30, 2020, approximately 1,351,323 and 1,351,323, respectively,
common stock equivalents were not added to the diluted average shares because inclusion of such equivalents would be antidilutive.
Revenue Recognition
The Company adopted the Financial Accounting Standards
Board ("FASB") issued Accounting Standards Updates (“ASU”) ASU 2014-09, Revenue from Contracts with Customers October
1, 2019 on a modified basis. As the initial adoption of the standard did not have a material impact on the Company's financial condition
or results of operations, no cumulative effect was recognized at the date of initial application. The Company also had no significant
changes to systems, processes, or controls.
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 through Forta. 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.
Revenue represents gross billings less discounts,
and are net of sales taxes, as applicable. Amounts invoiced for work not yet completed are shown as deferred revenue in the accompanying
consolidated balance sheets.
Trade accounts receivable are carried only for
investment management fees that are billed to and paid by customers. Currently the Company has the ability to pull all fees from the client
accounts, and no trade accounts receivable are carried. Client fees due on accounts the Company can pull the fees from, are carried in
Accrued Income. The allowance for doubtful accounts was $0 and $0 as of June 30, 2021 and 2020, respectively.
Sofos generates investment management fees for
money management services and investment advisory services based upon assets under management. Revenue is recognized as earned, at the
end of each month.
Forta generates commission revenue from the sale
of securities, annuities and premiums on life insurance policies held by third parties. The revenue is recognized on a trade date basis
for commissions on securities sales and upon acceptance of insurance policies by insurers.
MPath generates revenue from insurance marketing
services for insurance agents, including sourcing of insurance policies through selling agreements.
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 Sofos’
operations for the nine months ended June 30, 2021 and 2020, respectively, $1,479,481 and $1,019,505, and for the three months ended June
30, 2021 and 2020, respectively, $554,152 and $243,622.
The Company received revenue from Forta’s
operations for the nine months and three months ended June 30, 2021 including:
Schedule of revenues from operations
|
|
|
|
|
|
|
|
|
Investment Advisory fees
|
|
$
|
515,415
|
|
|
$
|
1,422,745
|
|
Commission-based transactions
|
|
|
244,470
|
|
|
|
767,284
|
|
Insurance and Other Service Revenue
|
|
|
45,753
|
|
|
|
114,570
|
|
Other
|
|
|
–
|
|
|
|
–
|
|
Total Revenue
|
|
$
|
805,639
|
|
|
$
|
2,304,598
|
|
The Company received revenue from TMN’s
operations from the following major sources for the nine months and three months ended June 30:
Schedule of revenues from operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
TMN membership subscriptions
|
|
$
|
205,871
|
|
|
$
|
178,463
|
|
|
$
|
653,467
|
|
|
$
|
529,500
|
|
Tax Blueprints
|
|
|
67,500
|
|
|
|
47,500
|
|
|
|
232,500
|
|
|
|
134,000
|
|
Commissions/Referrals and Other
|
|
|
5,043
|
|
|
|
41,239
|
|
|
|
31,154
|
|
|
|
63,450
|
|
Total
|
|
$
|
278,415
|
|
|
$
|
267,202
|
|
|
$
|
917,121
|
|
|
$
|
726,950
|
|
The Company received revenue from MPath’s
operations from insurance sales of $365,131 and $0 for the nine months ended June 30, 2021 and 2020, respectively, and $38,453 and $0
for the three months ended June 30, 2021 and 2020, respectively.
Advertising and Marketing
Marketing costs are charged to operations when
incurred. Marketing expenses were $56,029 and $90,999 for the nine months ended June 30, 2021 and 2020, respectively, and $23,249 and
$56,865 for the three months ended June 30, 2021 and 2020, respectively.
Stock-Based Compensation
For the three months ended June 30, 2021, the
Company reported stock based compensation of $63,508, and for the nine months ended June 30, 2021 $183,751, respectively. For the three
and nine months ended June 30, 2020 the Company reported stock based compensation of $50,885 and $67,136, respectively.
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,
2020, 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 nine months ended June 30, 2021, the Company reported $5,066,332
in revenue, a net loss of $7,406,240, which included the write off of Company’s goodwill related to the investment in Forta of $7,380,603,
income recognized from the forgiveness of PPP loans of $661,045, net cash used in operations of $412,807 , cash used in financing activities
of $288,762, purchases of assets of $3540, and an accumulated deficit of $14,397,029. These operating results raise substantial doubt
about our ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future
effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome
of these uncertainties.
On February 2, 2021 Forta received a PPP loan
in the amount of $422,900. This PPP loan bears a fixed interest rate of 1% over a five-year term, is guaranteed by the federal government,
and does not require collateral. The loan 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 full proceeds of the PPP loan will be eligible for forgiveness.
Company’s plans for expansion include attracting
additional clients through marketing efforts with its current and future 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 individuals 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. In November of 2019, the FASB issued ASU 2019-10 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. Adoption of ASU 2017-04 does not have a material impact
on the Company's financial condition or results of operations.
We manage our business in four 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, the tax unit, Financial Gravity Tax (“FGT”), was sold in
October of 2020 because the Company did not see growth potential in the unit’s accounting and direct tax advice operations. Certain
growth operations of the tax unit, including the tax operating system, have been taken over by TMN.
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THREE MONTHS ENDED JUNE 30, 2020
Segment Reporting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FGC
|
|
|
Forta
|
|
|
MPath
|
|
|
Sofos
|
|
|
TMN
|
|
|
TOTAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broker Dealer
|
|
$
|
–
|
|
|
$
|
151,569
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
151,569
|
|
Service Income
|
|
|
–
|
|
|
|
10,737
|
|
|
|
30,133
|
|
|
|
11,380
|
|
|
|
267,202
|
|
|
|
319,452
|
|
Investment Management Fees
|
|
|
–
|
|
|
|
244,227
|
|
|
|
–
|
|
|
|
232,243
|
|
|
|
–
|
|
|
|
476,470
|
|
Total Income
|
|
|
–
|
|
|
|
406,533
|
|
|
|
30,133
|
|
|
|
243,622
|
|
|
|
267,202
|
|
|
|
947,491
|
|
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation Expense
|
|
|
408,387
|
|
|
|
261,426
|
|
|
|
–
|
|
|
|
103,835
|
|
|
|
93,681
|
|
|
|
867,330
|
|
Cost of services
|
|
|
–
|
|
|
|
11,007
|
|
|
|
–
|
|
|
|
–
|
|
|
|
6,652
|
|
|
|
17,659
|
|
Depreciation Amortization
|
|
|
38,636
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
38,636
|
|
General and Administrative
|
|
|
62,817
|
|
|
|
82,884
|
|
|
|
2,244
|
|
|
|
17,440
|
|
|
|
2,698
|
|
|
|
168,084
|
|
Marketing
|
|
|
31,636
|
|
|
|
7,414
|
|
|
|
–
|
|
|
|
15,639
|
|
|
|
2,175
|
|
|
|
56,865
|
|
Professional Services
|
|
|
34,258
|
|
|
|
27,171
|
|
|
|
–
|
|
|
|
251
|
|
|
|
–
|
|
|
|
61,681
|
|
Total Expense
|
|
|
575,734
|
|
|
|
389,902
|
|
|
|
2,244
|
|
|
|
137,165
|
|
|
|
105,206
|
|
|
|
1,210,254
|
|
Net Operating Income
|
|
|
(575,734
|
)
|
|
|
16,631
|
|
|
|
27,889
|
|
|
|
106,458
|
|
|
|
161,996
|
|
|
|
(262,763
|
)
|
Other Income
|
|
|
(20,747
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(20,747
|
)
|
Total Other Income
|
|
|
(20,747
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(20,747
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
12,341
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
12,341
|
|
Income Taxes
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total Other Expense
|
|
|
12,341
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
12,341
|
|
Net Other Income/(Loss)
|
|
|
(8,406
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(8,406
|
)
|
Net Income/(Loss)
|
|
$
|
(584,140
|
)
|
|
$
|
16,631
|
|
|
$
|
27,889
|
|
|
$
|
106,458
|
|
|
$
|
161,996
|
|
|
$
|
(271,170
|
)
|
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THREE MONTHS ENDED JUNE 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FG
Companies
|
|
|
Forta
|
|
|
Sofos
|
|
|
Mpath
|
|
|
TMN
|
|
|
TOTAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broker Dealer
|
|
$
|
–
|
|
|
$
|
244,470
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
244,470
|
|
Service Income
|
|
|
–
|
|
|
|
45,753
|
|
|
|
683
|
|
|
|
38,453
|
|
|
|
278,415
|
|
|
|
363,304
|
|
Investment Management Fees
|
|
|
–
|
|
|
|
515,415
|
|
|
|
553,469
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1,068,884
|
|
Total Income
|
|
|
–
|
|
|
|
805,638
|
|
|
|
554,152
|
|
|
|
38,453
|
|
|
|
278,415
|
|
|
|
1,676,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation Expense
|
|
|
484,310
|
|
|
|
723,069
|
|
|
|
219,200
|
|
|
|
10,850
|
|
|
|
98,500
|
|
|
|
1,535,929
|
|
Cost of services
|
|
|
–
|
|
|
|
18,310
|
|
|
|
–
|
|
|
|
–
|
|
|
|
10,856
|
|
|
|
29,166
|
|
Depreciation & Amortization
|
|
|
5,105
|
|
|
|
125
|
|
|
|
–
|
|
|
|
–
|
|
|
|
16,364
|
|
|
|
21,594
|
|
General and Administrative
|
|
|
119,793
|
|
|
|
190,687
|
|
|
|
4,462
|
|
|
|
7,386
|
|
|
|
19,695
|
|
|
|
342,023
|
|
Marketing
|
|
|
7,488
|
|
|
|
5,233
|
|
|
|
–
|
|
|
|
681
|
|
|
|
9,846
|
|
|
|
23,248
|
|
Professional Services
|
|
|
54,551
|
|
|
|
49,690
|
|
|
|
3,889
|
|
|
|
–
|
|
|
|
14,947
|
|
|
|
123,077
|
|
Total Expense
|
|
|
671,247
|
|
|
|
987,114
|
|
|
|
227,551
|
|
|
|
18,917
|
|
|
|
170,208
|
|
|
|
2,075,037
|
|
Net Ordinary Income
|
|
|
(671,247
|
)
|
|
|
(181,476
|
)
|
|
|
326,601
|
|
|
|
19,536
|
|
|
|
108,207
|
|
|
|
(398,379
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Forgiveness
|
|
|
283,345
|
|
|
|
377,700
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
661,045
|
|
Total Other Income
|
|
|
283,345
|
|
|
|
377,700
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
661,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
903
|
|
|
|
635
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1,538
|
|
Income Taxes
|
|
|
(64,562
|
)
|
|
|
56,928
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(7,634
|
)
|
Loss on impairment of Goodwill
|
|
|
7,380,603
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
7,380,603
|
|
Total Other Expense
|
|
|
7,316,944
|
|
|
|
57,563
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
7,374,507
|
|
Net Other Income
|
|
|
(7,033,599
|
)
|
|
|
320,137
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(6,713,462
|
)
|
Net Income/(Loss)
|
|
$
|
(7,704,846
|
)
|
|
$
|
138,661
|
|
|
$
|
326,601
|
|
|
$
|
19,536
|
|
|
$
|
108,207
|
|
|
$
|
(7,111,843
|
)
|
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR NINE MONTHS ENDED JUNE 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FGC
|
|
|
FGT
|
|
|
Forta
|
|
|
MPath
|
|
|
Sofos
|
|
|
TMN
|
|
|
TOTAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broker Dealer
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
151,569
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
151,569
|
|
Service Income
|
|
|
(3,263
|
)
|
|
|
69,721
|
|
|
|
10,737
|
|
|
|
30,133
|
|
|
|
39,545
|
|
|
|
726,950
|
|
|
|
873,824
|
|
Investment Management Fees
|
|
|
–
|
|
|
|
–
|
|
|
|
244,227
|
|
|
|
–
|
|
|
|
979,959
|
|
|
|
–
|
|
|
|
1,224,187
|
|
Total Income
|
|
|
(3,263
|
)
|
|
|
69,721
|
|
|
|
406,533
|
|
|
|
30,133
|
|
|
|
1,019,505
|
|
|
|
726,950
|
|
|
|
2,249,580
|
|
Gross Profit
|
|
|
(3,263
|
)
|
|
|
69,721
|
|
|
|
406,533
|
|
|
|
30,133
|
|
|
|
1,019,505
|
|
|
|
726,950
|
|
|
|
2,249,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation Expense
|
|
|
1,120,858
|
|
|
|
(78
|
)
|
|
|
261,426
|
|
|
|
1,972
|
|
|
|
385,049
|
|
|
|
245,186
|
|
|
|
2,014,413
|
|
Cost of services
|
|
|
–
|
|
|
|
4,410
|
|
|
|
11,007
|
|
|
|
–
|
|
|
|
–
|
|
|
|
28,899
|
|
|
|
44,317
|
|
Depreciation Amortization
|
|
|
72,094
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
14,350
|
|
|
|
86,443
|
|
General and Administrative
|
|
|
211,992
|
|
|
|
1,620
|
|
|
|
82,884
|
|
|
|
2,655
|
|
|
|
25,235
|
|
|
|
23,772
|
|
|
|
348,158
|
|
Marketing
|
|
|
54,899
|
|
|
|
2,411
|
|
|
|
7,414
|
|
|
|
–
|
|
|
|
20,158
|
|
|
|
6,117
|
|
|
|
90,999
|
|
Professional Services
|
|
|
212,815
|
|
|
|
–
|
|
|
|
27,171
|
|
|
|
–
|
|
|
|
897
|
|
|
|
2,997
|
|
|
|
243,881
|
|
Total Expense
|
|
|
1,672,658
|
|
|
|
8,363
|
|
|
|
389,903
|
|
|
|
4,627
|
|
|
|
431,339
|
|
|
|
321,320
|
|
|
|
2,828,211
|
|
Net Operating Income
|
|
|
(1,675,922
|
)
|
|
|
61,358
|
|
|
|
16,631
|
|
|
|
25,506
|
|
|
|
588,166
|
|
|
|
405,630
|
|
|
|
(578,631
|
)
|
Other Income
|
|
|
129,253
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
129,253
|
|
Total Other Income
|
|
|
129,800
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
129,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
5,678
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(55
|
)
|
|
|
5,624
|
|
Income Taxes
|
|
|
–
|
|
|
|
–
|
|
|
|
(14,123
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(14,123
|
)
|
Total Other Expense
|
|
|
5,678
|
|
|
|
–
|
|
|
|
(14,123
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
(55
|
)
|
|
|
(8,500
|
)
|
Net Other Income/(Loss)
|
|
|
124,122
|
|
|
|
–
|
|
|
|
14,123
|
|
|
|
–
|
|
|
|
–
|
|
|
|
55
|
|
|
|
138,300
|
|
Net Income/(Loss)
|
|
$
|
(1,548,980
|
)
|
|
$
|
61,358
|
|
|
$
|
30,754
|
|
|
$
|
25,506
|
|
|
$
|
588,166
|
|
|
$
|
405,685
|
|
|
$
|
(437,511
|
)
|
CONSOLIDATING STATEMENTS
OF OPERATIONS
FOR NINE MONTHS ENDED JUNE 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FG Companies
|
|
|
Forta
|
|
|
Sofos
|
|
|
Mpath
|
|
|
TMN
|
|
|
TOTAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broker Dealer
|
|
$
|
–
|
|
|
$
|
767,284
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
767,284
|
|
Service Income
|
|
|
–
|
|
|
|
114,570
|
|
|
|
683
|
|
|
|
365,131
|
|
|
|
917,121
|
|
|
|
1,397,505
|
|
Investment Management Fees
|
|
|
–
|
|
|
|
1,422,745
|
|
|
|
1,478,798
|
|
|
|
–
|
|
|
|
–
|
|
|
|
2,901,543
|
|
Total Income
|
|
|
–
|
|
|
|
2,304,599
|
|
|
|
1,479,481
|
|
|
|
365,131
|
|
|
|
917,121
|
|
|
|
5,066,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation Expense
|
|
|
1,389,281
|
|
|
|
1,959,331
|
|
|
|
531,973
|
|
|
|
96,311
|
|
|
|
294,500
|
|
|
|
4,271,396
|
|
Cost of services
|
|
|
0
|
|
|
|
45,846
|
|
|
|
11,074
|
|
|
|
–
|
|
|
|
30,476
|
|
|
|
87,396
|
|
Depreciation & Amortization
|
|
|
60,083
|
|
|
|
284
|
|
|
|
–
|
|
|
|
–
|
|
|
|
28,731
|
|
|
|
89,098
|
|
General and Administrative
|
|
|
201,983
|
|
|
|
569,240
|
|
|
|
16,670
|
|
|
|
16,707
|
|
|
|
91,839
|
|
|
|
896,439
|
|
Marketing
|
|
|
17,525
|
|
|
|
17,584
|
|
|
|
132
|
|
|
|
1,135
|
|
|
|
19,653
|
|
|
|
56,029
|
|
Professional Services
|
|
|
169,302
|
|
|
|
137,628
|
|
|
|
3,889
|
|
|
|
175
|
|
|
|
41,886
|
|
|
|
352,880
|
|
Total Expense
|
|
|
1,838,174
|
|
|
|
2,729,913
|
|
|
|
563,738
|
|
|
|
114,328
|
|
|
|
507,085
|
|
|
|
5,753,238
|
|
Net Ordinary Income
|
|
|
(1,838,174
|
)
|
|
|
(425,314
|
)
|
|
|
915,743
|
|
|
|
250,803
|
|
|
|
410,036
|
|
|
|
(686,906
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Forgiveness
|
|
|
283,345
|
|
|
|
377,700
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
661,045
|
|
Total Other Income
|
|
|
283,345
|
|
|
|
377,700
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
661,045
|
|
|
|
|
283,345
|
|
|
|
377,700
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
661,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
3,173
|
|
|
|
635
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
3,808
|
|
Income Taxes
|
|
|
199,820
|
|
|
|
(203,854
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(4,034
|
)
|
Loss on impairment of Goodwill
|
|
|
7,380,603
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
7,380,603
|
|
Total Other Expense
|
|
|
7,583,596
|
|
|
|
(203,219
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
7,380,377
|
|
Net Other Income
|
|
|
(7,300,251
|
)
|
|
|
580,919
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(6,719,332
|
)
|
Net Income/(Loss)
|
|
$
|
(9,138,425
|
)
|
|
$
|
155,605
|
|
|
$
|
915,743
|
|
|
$
|
250,803
|
|
|
$
|
410,036
|
|
|
$
|
(7,406,240
|
)
|
On May 21, 2020 the Company acquired 100% of the
stock of Forta. Forta is a broker dealer, registered investment advisor and an insurance brokerage, subject to FINRA, SEC and insurance
regulation. Forta’s financial performance is included in Company’s consolidated statements starting as of May 21, 2020.
The Company acquired Forta in May of 2020 in exchange for 45,785,879
shares of Company common stock. A liability of $699,117 has been recorded for 4,178,564 shares of common stock related to the acquisition
remaining to be issued as of December 31, 2020. Forta is a broker dealer, and its acquisition presented the Company with an opportunity
to compete in the broker dealer market, and to try to grow in this area of financial services.
Assets Acquired and Liabilities Assumed
Forta Financial Group, Inc.
Assets Acquired and Liabilities Assumed
As of May 21, 2020
Assets Acquired and Liabilities Assumed
|
|
|
|
|
PURCHASE PRICE
|
|
$
|
7,652,415
|
|
ASSETS
|
|
|
|
|
Current Assets
|
|
|
|
|
Cash
|
|
|
710,154
|
|
Accounts Receivable
|
|
|
20,882
|
|
Other Current Assets
|
|
|
135,056
|
|
Total Current Assets
|
|
|
866,093
|
|
Other Assets
|
|
|
582,330
|
|
TOTAL ASSETS
|
|
|
1,448,423
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
Liabilities
|
|
|
|
|
Current Liabilities
|
|
|
|
|
Total Accounts Payable
|
|
|
18,215
|
|
Total Other Current Liabilities
|
|
|
710,131
|
|
Total Current Liabilities
|
|
|
728,346
|
|
Long-Term Liabilities
|
|
|
|
|
Total Long-Term Liabilities
|
|
|
448,265
|
|
Total Liabilities
|
|
|
1,176,611
|
|
Goodwill
|
|
$
|
7,380,603
|
|
5.
|
PROPERTY AND EQUIPMENT
|
Property and equipment consist of the following at June 30:
Schedule of property and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
Service Lives
|
|
June 30,
2021
|
|
|
September 30,
2020
|
|
Furniture, fixtures and equipment
|
|
2 to 5 years
|
|
$
|
60,442
|
|
|
$
|
407,580
|
|
Internally developed software
|
|
5 years
|
|
|
152,000
|
|
|
|
152,000
|
|
|
|
|
|
|
212,442
|
|
|
|
559,580
|
|
Less accumulated depreciation and amortization
|
|
|
|
|
(169,621
|
)
|
|
|
(477,868
|
)
|
|
|
|
|
$
|
42,821
|
|
|
$
|
81,712
|
|
Depreciation expense was $5,230 and $21,009 for
the three months ended June 30, 2021 and 2020, respectively. Depreciation expense was $47,775 and $33,367 during the nine months ended
June 30, 2021 and 2020 respectively.
Intellectual property consists of the following:
Schedule of intellectual property
|
|
|
|
|
Intellectual property at September 30, 2020
|
|
$
|
53,170
|
|
Intellectual property purchased at cost
|
|
|
–
|
|
Intellectual property at June 30, 2021
|
|
$
|
53,170
|
|
In February 2016, the FASB issued ASU 2016-02
Leases, which changed financial reporting as it relates to leasing transactions to recognize a lease liability, measured on a discounted
basis; and a right-of-use asset, for the lease term. In July 2018, the FASB issued ASU No. 2018-10 Codification Improvements to Topic
842, Leases and ASU No. 2018-11 Leases (Topic 842): Targeted Improvements. In March 2020, the FASB issued ASU No. 2020-1 Codification
Improvements to Topic 842, Leases. The Company adopted these ASUs on October 1, 2019 on a modified retrospective basis. The Company did
not elect the hindsight practical expedient and did elect the package of practical expedients to not reassess prior conclusions related
to contracts containing leases, lease classification and initial direct costs for all leases. The initial adoption of the standard recognized
right-of-use assets of $323,097 and lease liabilities of $337,454 on the Company’s statement of financial position with no impact
on the Company's results of operations. The Company had no significant changes to processes or controls.
The Company leases their office space through
an operating lease in Denver Colorado runs through 2024 and non-material offices leases in Cincinnati, Ohio, and short-term tenancies
in Austin, Texas, Allen, Texas and Loveland, Colorado. Company’s lease agreements obligate the Company to pay real estate taxes,
insurance, and certain maintenance costs, which are accounted for separately. 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.
The Company also leases certain equipment under
operating leases.
Total Company rent expense for the three months
ended June 30, 2021 and 2020 respectively was $106,543, and $59,115. Total Company rent expense for the nine months ended June 30, 2021
and 2020, respectively was $241,168 and $123,703. The rent expense for the three and nine months ended June 30, 2021 include a final settlement
of the termination of the Allen lease, of $66,000. The Forta lease for its Greenwood Village premises was renegotiated. As part of the
lease amendment entered into with the lessor in December 2020, the rent owed for September to December 2020 was deferred and will be paid
over the term of the amended lease.” The difference between rental expense and rental payments is recorded as deferred rent in the
accompanying consolidated balance sheets. Management expects that in the normal course of business, leases will be renewed or replaced
by other leases. Company also has short term leases that are insignificant in its other locations.
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 for operating leases
|
|
|
|
|
|
|
Denver Lease
|
|
Rental Payments
|
|
|
|
|
2021
|
|
$
|
49,129
|
|
2022
|
|
|
139,721
|
|
2023
|
|
|
141,630
|
|
2024
|
|
|
47,369
|
|
|
|
|
|
|
Total Rental Payments
|
|
$
|
377,849
|
|
Less: Deferred Rent
|
|
|
(99,742
|
)
|
Interest
|
|
|
(24,631
|
)
|
Net Rental Payments
|
|
$
|
253,476
|
|
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 $38,830 and $54,112 at June 30, 2021 and September 30, 2020, respectively.
On April 19, 2020, 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 June 30, 2021 and September 30, 2020, were $18,897 and $23,534 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 at June 30, 2021 and September 30, 2020 were $40,494 and $52,000, 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, are 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. The Company expects that the full proceeds of the PPP loans will be eligible for forgiveness, which
would result in an increase in capital.
Two PPP loans received in May 2020 were forgiven
in April 2021, $283,345, and in June 2021, $377,700, resulting in income from those forgivenesses.
The Company’s maturities of debt subsequent
to June 30, 2021 are as follows:
Schedule of debt maturities
|
|
|
|
|
2021
|
|
$
|
254,238
|
|
2022
|
|
|
217,611
|
|
2023
|
|
|
10,442
|
|
Total debt
|
|
$
|
482,291
|
|
Accrued expenses increased by $225,359
for the nine months ending June 30, 2021 to $1,292,751
from $1,067,392 as of September 30, 2020. Accrued
expenses consist of the following at June 30:
Schedule of accrued expenses
|
|
|
|
|
|
|
|
|
|
|
30-Jun-21
|
|
|
30-Sep-20
|
|
SAR Liability
|
|
$
|
154,567
|
|
|
$
|
31,793
|
|
Accrued payroll
|
|
|
138,096
|
|
|
|
105,458
|
|
Commissions payable
|
|
|
80,586
|
|
|
|
16,783
|
|
State Tax liability
|
|
|
0
|
|
|
|
3,165
|
|
Federal Tax liability
|
|
|
0
|
|
|
|
3,355
|
|
Credit Cards
|
|
|
(401
|
)
|
|
|
12,798
|
|
Other Accounts payable
|
|
|
765,117
|
|
|
|
699,117
|
|
Accrued operating expenses
|
|
|
97,345
|
|
|
|
194,923
|
|
Accrued E&O liability
|
|
|
82,752
|
|
|
|
–
|
|
Total accrued expenses
|
|
$
|
1,318,062
|
|
|
$
|
1,067,392
|
|
For the three months ending June 30, 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 June 30, 2021 and September 30, 2020:
Schedule of deferred tax assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
30-Jun-21
|
|
|
30-Sep-20
|
|
Net non-current deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carry-forward
|
|
$
|
1,250,479
|
|
|
$
|
1,314,515
|
|
Property and equipment
|
|
|
4,329
|
|
|
|
4,329
|
|
Total
|
|
|
1,254,808
|
|
|
|
1,318,844
|
|
Net non-current deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
(7,221
|
)
|
|
|
(7,221
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
1,247,587
|
|
|
|
1,311,623
|
|
Less valuation allowance
|
|
|
(1,247,588
|
)
|
|
|
(1,311,623
|
|
Net deferred taxes
|
|
$
|
–
|
|
|
$
|
–
|
|
12.
|
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.
Forta has 16 pending FINRA claims that arise from
the sale to clients of alternative investments (REITs, Business Development Loan Funds, and Oil and Gas securities). Most of the claims
arise from investments prior 2015. None of the registered representatives that recommended these alternative investments is currently
associated with Forta. The total amount of the pending claims is in excess of $3,000,000 and the Company is in the process of determining
the best approach to respond to the claims. Based on the status of the claims with FINRA, management cannot reasonably estimate
a potential range of losses or settlements of the claims. Forta is evaluating how best to resolve the claims. Forta no longer generates
significant revenue from brokerage activity like the sale of alternative investments and the continuing need for a broker dealer will
be evaluated by Company.
In December 2020, a novel strain of coronavirus,
referred to as COVID-19, was reported to have surfaced in Wuhan, China. Since then, COVID-19 has spread to other countries, including
the United States. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. Further, the President of the
United States declared the COVID-19 pandemic a national emergency. States in which we operate declared states of emergency related to
the spread of COVID-19 and issued executive orders directing individuals to stay at their place of residence for an indefinite period
of time.
The financial markets demonstrated significant
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. While the economy
has reopened, the Delta variant may impact the Company. 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.
During the nine months ended June 30, 2021 the
Company sold 0 shares, for $0 and during the nine months Ended June 30, 2020, respectively, the Company sold 75,757, for $25,000.
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.
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 0.834%, dividend yield of 0%, expected life of 10 years and volatility of 35% to 40% in 2020 and 87.67%
in 2021. 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.
Stock option and stock appreciation rights activity
is summarized as follows:
Schedule of option activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Under Option
|
|
|
Value of Shares Under Option
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Contractual Life
|
Outstanding - September 30, 2019
|
|
|
2,788,476
|
|
|
|
550,455
|
|
|
$
|
0.29
|
|
|
81 months
|
Granted
|
|
|
5,600,000
|
|
|
|
1,361,200
|
|
|
$
|
0.23
|
|
|
108 months
|
Exercised
|
|
|
(116,375
|
)
|
|
|
(13,850
|
)
|
|
$
|
0.09
|
|
|
87 months
|
Canceled or expired
|
|
|
(1,299,405
|
)
|
|
|
(1,845,870
|
)
|
|
$
|
0.27
|
|
|
|
Outstanding - September 30, 2020
|
|
|
6,972,696
|
|
|
|
51,935
|
|
|
$
|
0.17
|
|
|
100 months
|
Granted
|
|
|
187,500
|
|
|
|
45,956
|
|
|
$
|
0.25
|
|
|
118 months
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
|
$
|
–
|
|
|
|
Canceled or expired
|
|
|
–
|
|
|
|
–
|
|
|
$
|
–
|
|
|
|
Outstanding - June 30, 2021
|
|
|
7,160,196
|
|
|
|
97,891
|
|
|
$
|
0.23
|
|
|
98 months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable - June 30, 2021
|
|
|
2,693,912
|
|
|
|
|
|
|
$
|
0.25
|
|
|
85 months
|
Unamortized share-based compensation expense as
of June 30, 2021 amounted to $382,874 which is expected to be recognized over the next 4.3068 years.
Total compensation expense, included in salaries
and wages, of previously unamortized stock compensation for the three months ended June 30, 2021 and 2020 was $54,034 and $50,885, respectively,
and for the nine months ended June 30, 2021 and 2020, respectively, was $158,184 and $67,136.
On November 27, 2019, the 2016 Plan was
amended to allow grants of other equity related rights, including Stock Appreciation Rights. During the three and nine months ended June
30, 2021, 0 and 0 options and SARs were granted, respectively.
15.
|
RELATED PARTY TRANSACTIONS
|
As a result of the acquisition of the TMN business
in 2016, the Company is obligated to make payments to TaxTuneup, LLC, which is an entity owned by Edward A. Lyon (a current board member),
each month totaling $16,500. The total paid under these agreements was $49,500 and $49,500 for the three months ended June 30,2021 and
2020 respectively, and $148,500 and $148,500 for the nine months ended June 30, 2021 and 2020 respectively.
On April 12, 2020, the Company entered into a
loan agreement with John Pollock, Executive Vice President of the Company. The note bears interest at 2.76% and will be repaid in six
equal installments of $2,520, beginning July 1, 2020. The balance of the loan at June 30, 2021 was $5,259 and at September 30, 2020 was
$5,152.
In addition, there are payables owed to Mr. Pollock
of approximately $51,000 related to services rendered by him to Company, and $10,000 owed to a former principal of TMN for services rendered.
There is no specific due date on these obligations, but Company plans are substantial reductions in the amounts owing this fiscal year.
In March 1, 2021 Company entered into a
merger agreement with NCW Group, Inc. The consummation of the merger was completed in July of 2021 and Company issued 8,000,000 shares
of its common stock in exchange for 100% ownership of the NCW Group, Inc. The owners of the two companies and some staff have become employees
of Company , and NCW has ceased to exist.
The number of FINRA claims against Forta has increased
to 22 as of August 2021. The claims that arise from the sale to clients of alternative investments (REITs, Business Development Loan Funds,
and Oil and Gas securities). Most of the claims arise from investments prior 2015. None of the registered representatives that recommended
these alternative investments is currently associated with Forta. The total amount of the pending claims is in excess of $3,000,000 and
the Company is in the process of determining the best approach to respond to the claims. Based on the status of the claims with FINRA,
management cannot reasonably estimate a potential range of losses or settlements of the claims. Forta is evaluating how best to resolve
the claims. Forta no longer generates significant revenue from brokerage activity like the sale of alternative investments and the continuing
need for a broker dealer will be evaluated by Company.