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.
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.
Forta Financial Group, Inc. (“Forta”)
has ended its broker/dealer and RIA operations and has no current operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting polices
consistently applied in the preparation of the accompanying consolidated financial statements in accordance with accounting principles
generally accepted in the United States of America (“GAAP”) is as follows.
Basis of Consolidation
The consolidated financial statements include
the accounts of Financial Gravity Companies, FGAM, FGEM, TMN. FGIS, FGFOS and Forta (collectively referred to as the “Company”).
All significant intercompany accounts and transactions have been eliminated on consolidation.
Reclassifications to Prior Period Financial
Statements and Adjustments
Certain items from prior reporting periods were
reclassified in the financial statements for the current year presentation. These do not have a material impact on the consolidated balance
sheets, statements of operations, or statements of cash flow. For instance, an adjustment has been made to the accompanying consolidated
statements of cash flows changing the classification of approximately $14,000 from deferred revenue in the report for June 30, 2021 to
contract liabilities in the report for June 30, 2022. An adjustment has been made to the accompanying balance sheet and consolidated statements
of cash flows changing the classification of right to use lease in the report for June 30, 2021 to right-of-use asset in the report for
June 30, 2022. Compensation items classified as salaries and wages as of June 30, 2021, have been reclassified to compensation expense
on the consolidated statements of operations. For the period ending June 30, 2021, approximately $91,000 was reclassified from deferred
rent to rent payable on the consolidated balance sheet.
These changes in classification does not affect
previously reported operating activities or financial position of the Company.
Cash and Cash Equivalents
The Company considers all highly liquid investments
with an initial maturity of three months or less, when purchased, to be cash equivalents. The Company maintains cash balances at several
financial institutions located throughout the United States, which at times may exceed insured limits. The Company has not experienced
any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.
Prepaid Expenses and Other Current Assets
Prepaid expenses consist of expenses the Company
has paid for prior to the service or good being provided. These prepaid expenses will be recorded as expense at the time the service has
been provided.
Property and Equipment
Property and equipment are stated at cost, less
accumulated depreciation. Depreciation is provided in amounts sufficient to relate the cost of depreciable assets to earnings over their
estimated service lives by the straight-line method.
Maintenance and repairs are charged to expenses
as incurred; major repairs and replacements are capitalized. When items of property or equipment are sold or retired, the related cost
and accumulated depreciation are removed from the accounts and any gain or loss is included in operations.
Proprietary Content
The proprietary content acquired as a part of
the TMN purchase has been recognized in the accompanying consolidated balance sheets at $525,100, the value attributed to it on the date
of the purchase. The proprietary content is being amortized on a straight-line basis over an eight- year estimated life. During each of
the three-month periods ended June 30, 2022 and 2021, the Company recorded amortization expense of approximately $16,000. During the nine-month
periods ended June 30, 2022 and 2021, the Company recorded amortization expense of approximately $50,000 each period. Amortization expense
related to this intangible asset is included in the accompanying consolidated statements of operations. Accumulated amortization at June
30, 2022 was $492,236 and $443,142 at September 30, 2021. Future amortization of proprietary content is estimated to be as follows for
the years ended September 30:
Future amortization of proprietary content is
estimated to be as follows for the years ended September 30:
| Schedule of future amortization | |
| | |
| 2022 | |
$ | 16,364 | |
| 2023 | |
| 16,500 | |
| Future amortization | |
$ | 32,864 | |
Intellectual Property
The Company accounts for intellectual property
in accordance with GAAP and accordingly, intellectual property is stated at cost. Intellectual property with
indefinite lives is not amortized but is tested for impairment at least annually. Management has determined that the intellectual property
has an indefinite life and does not consider the value of intellectual property recorded in the accompanying consolidated balance
sheets to be impaired as of June 30, 2022 and September 30, 2021.
Goodwill
The Company conducts ongoing annual impairment
assessments, at the reporting unit level, of its recorded goodwill. The Company assesses qualitative factors in order to determine whether
it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The qualitative factors evaluated
by the Company include: macroeconomic conditions of the local business environment, overall financial performance, and other entity specific
factors as deemed appropriate. If, through this qualitative assessment, the conclusion is made that it is more likely than not that a
reporting unit’s fair value is less than it is carrying amount, an impairment test is performed. Management determined that no impairment
was necessary at June 30, 2022.
Goodwill consists of the following:
| Schedule of goodwill | |
| | |
| |
| | |
June 30, 2022 | | |
September 30, 2021 | |
| TMN Goodwill | |
$ | 1,094,702 | | |
$ | 1,094,702 | |
| Company Goodwill | |
| 2,082,065 | | |
| 2,082,065 | |
| Total Goodwill | |
$ | 3,176,767 | | |
$ | 3,176,767 | |
Income Taxes
The Company accounts for federal and state income taxes pursuant to
GAAP, which requires an asset and liability approach for financial accounting and reporting for income taxes based on tax effects of differences
between the financial statement and tax basis of assets and liabilities.
The Company accounts for all uncertain tax positions in accordance
with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 740 – Income Taxes (“ASC
740”). ASC 740 provides guidance on de-recognition, classification, interest and penalties and disclosure related to uncertain income
tax positions. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax
expense. There were no uncertain tax positions or accrued interest or penalties as of June 30, 2022 and September 30, 2021.
From time to time, the Company is audited by taxing
authorities. These audits could result in proposed assessments of additional taxes. The Company believes that its tax positions comply
in all material respects with applicable tax law. However, tax law is subject to interpretation, and interpretations by taxing authorities
could be different from those of the Company, which could result in the imposition of additional taxes. The Company’s federal income
tax returns since 2019 are still subject to examination by taxing authorities.
Earnings Per Share
Basic earnings per common share is computed by
dividing net earnings available to common stockholders by the weighted average number of common shares outstanding for the reporting period.
Average number of common shares was 91,806,983 and 91,712,697 for the three and nine months ended June 30, 2022 and 83,618,412 for the
three and nine months ended June 30, 2021.
For the three and nine months ended June 30, 2022,
approximately 2,905,998 common stock equivalents were not added to the diluted average shares because inclusion of such equivalents would
be antidilutive. For the three and nine months ended June 30, 2021, approximately 1,351,323 common stock equivalents were not added to
the diluted average shares because inclusion of such equivalents would be antidilutive.
Revenue Recognition
The Company derives its revenues primarily from
the following activities: Investment Management Fees, Securities Brokerage Commissions, Tax Master Network subscriptions, Financial Advisor
subscriptions, Tax BluePrint sales, and Insurance Sales.
Investment management fees are recognized as services
are provided by the Company. Investment management fees include fees earned from assets under management by providing professional services
to manage clients’ investments. Fees are generally paid monthly in arrears. Revenues are earned over the period in which the service
is provided.
The Company generates services revenue which is
recognized when consulting and other professional services are performed by the Company (primarily from TMN and FGEM). Revenue is recognized
as services are delivered.
The Company generates subscription revenue primarily
from TMN. Revenue is recognized as services are delivered.
Revenue represents gross billings less discounts,
and are net of sales taxes, as applicable. Amounts invoiced for work not yet completed are shown as contract liabilities in the accompanying
consolidated balance sheets.
Accrued revenues are recorded for investment management
fees that are paid in arrears and are generally collected within a few days of month end by debiting client accounts held by a custodian.
The allowance for doubtful accounts was $0 as of June 30, 2022, September 30, 2021, and June 30, 2021. In the normal course of business,
the Company extends credit on an unsecured basis to its customers as fees accrue during a month. The Company does not believe that it
is exposed to any significant risk of loss on accruing fees.
FGAM and FGFOS generate investment management
fees for services provided by the Company to clients. Investment management fees include fees earned from assets under management by providing
professional services to manage client investments. Revenue is recognized as earned and billed at the end of each monthly period. FGAM
shares certain clients with FGFOS and the professional fees charges to the FGFOS client accounts is treated as affiliate expense to FGAM
and revenue to FGFOS.
FGIS generates commission revenue from the sale
of securities and annuities and premiums on life insurance policies. The revenue is recognized when commissions are earned, or when it
is determined that annuities or insurance products are sold, which is typically at the trade date. Commissions are collected after products
are sold, issued or in force.
FGEM generates revenue from insurance marketing
services for insurance agents, including sourcing of insurance policies through selling agreements. Revenue is recognized when the policies
have been accepted by the issuer and it is probable the commission will be received.
Tax Master Network provides subscription services
that are charged and collected on a month-to-month basis. None of these programs come with a long-term commitment or contract, and there
is no up-front payment beyond the monthly subscription fee. Cancellations are processed within the month requested and memberships are
closed at the end of the period for which the most recent payment was made. Members are not entitled to refunds for unused memberships.
Any subscription fees paid for a future period are deferred in the financial statements. TMN also sells Tax Blueprint®. These are
tax planning strategy guides, to save customers taxes through the implementation of the recommended tax strategies. After an initial
assessment, the customers pay a fixed fee based on TMN's estimate of potential future savings. A contract liability is recognized when
the customer payment is received. Revenue is deferred until the customer reviews and accepts the final Tax Blueprint® document and
returns an executed delivery agreement.
The Company received revenue from FGAM’s
operations that are primarily from investment management fees, including money management fees. Investment management fees are based upon
a percentage of assets under management and totaled $376,000 and $554,000 for the three months ended June 30, 2022 and 2021, and $1,445,000
and $1,479,000 for the nine months ended June 30, 2022 and 2021, respectively.
The Company received revenue from Forta’s
operations that totaled approximately $36,000 and $806,000 for the three months ended June 30, 2022 and 2021, and $279,000 and $2,305,000
for the nine months ended June 30, 2022 and 2021, respectively.
The Company received service revenue from TMN’s
operations of $238,000 and $278,000 for the three months ended June 30, 2022 and 2021, and $831,000 and $917,000 for the nine months ended
June 30, 2022 and 2021, respectively.
The Company received revenue from FGEM’s
operations from insurance sales of approximately $220,000 and $38,000 for the three months ended June 30, 2022 and 2021, and approximately
$808,000 and $365,000 for the nine months ended June 30, 2022 and 2021, respectively.
The Company received revenue from FGIS’s
operations in the amount of $0 and $0 for the three months ended June 30, 2022 and 2021, and approximately $32,000 and $0 for the nine
months ended June 30, 2022 and 2021, respectively.
Advertising and Marketing
Marketing costs are charged to operations when
incurred. Marketing expenses were approximately $23,200 for both the three months ended June 30, 2022 and 2021, and approximately $91,000
and $56,000 for the nine months ended June 30, 2022 and 2021, respectively.
Compensation Expense
The Company includes in Compensation all salaries,
wages, employee benefits, payroll costs, payroll taxes, commissions to employees and to independent investment advisors and related party
consultants, and stock-based compensation. This is a reclassification from prior periods’ salary and wages on the consolidated statements
of operations.
The Company recognizes the fair value of stock-based
compensation awards as wages in the accompanying statements of operations for employee grants, commissions for non-employee grants, and
stock appreciation rights grants, on a straight-line basis over the vesting period, using the Black-Scholes option pricing model, which
is based on risk-free rate of 0.77% in the quarter ended June 30, 2022 and 0.59% in 2021, dividend yield of 0%, expected life of 10 years
and volatility of 86.17% in 2022 and 35% to 40% in 2021 respectively. SAR awards are being treated as a liability award while the options
are being treated as equity awards. While the fair value of the options are based on the Black Scholes assumptions included here, the
SAR awards are based on assumptions at period end and are treated as liability awards. Forfeitures are recorded as they occur.
Use of Estimates
The preparation of the consolidated financial
statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported assets and liabilities
and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues
and expenses during the reporting period. Actual results could differ from these estimates.
Adjustments
The accompanying unaudited consolidated financial
statements have been prepared by the Company in accordance with GAAP, pursuant to the applicable rules and regulations of the SEC. The
information furnished herein reflects all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management,
necessary to present a fair statement of the financial position and operating results of the Company as of and for the respective periods.
However, these operating results are not necessarily indicative of the results expected for a full fiscal year or any other future period.
Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been
omitted pursuant to such rules and regulations. However, management of the Company believes, to the best of their knowledge, that the
disclosures herein are adequate to make the information presented not misleading. The Company has determined that there were no subsequent
events that would require adjustments to the accompanying consolidated financial statements through the date the financial statements
were issued. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated
financial statements of the Company for the fiscal year ended September 30, 2021, included in its Annual Report on Form 10-K.
Going Concern
The accompanying consolidated financial statements
have been prepared assuming that the Company will continue as a going concern, which contemplates the Company will need to manage additional
asset units under contract and/or additional financing to fully implement its business plan, including continued growth and establishment
of a stronger brand.
For the three months ended June 30, 2022, the
Company reported approximately $1,347,1721,347,000 in revenue, a net operating loss of approximately $292,000, and net increase in cash of approximately
$30,000. For the nine months ended June 30, 2022, the Company reported approximately $4,518,4074,518,000 in revenue, a net operating loss of approximately
$762,000, cash used of approximately $98,000, and an accumulated deficit of approximately $14,839,61114,840,000. These operating results raise doubt
about our ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future
effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome
of these uncertainties.
The Company’s plans for expansion include
attracting additional clients through marketing efforts with its current and future brokerage, investment management and insurance agent
representatives, as well as increasing the TMN membership and the investment advisory activity of the members to increase assets under
management and the Company’s revenue. Future growth plans will include efforts to increase advisory headcount through recruiting
of individual advisors and groups of advisors. There is no guaranty that the Company will achieve these objectives.
Recent Accounting Pronouncements
In November of 2021, the FASB issued ASU 2021-10
Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, which
deferred the effective date of ASU Topic No. 2016-13 to fiscal years beginning after December 15, 2022. The Company is currently evaluating
the impact of the adoption of this accounting guidance will have on the consolidated financial statements. Since the Company currently
uses an expected loss from customers method, the Company does not anticipate the adoption of ASU 2016-13 will have a material impact on
the Company's financial condition or results of operations.
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 JUNE 30, 2021
| Segment Reporting | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
FGC | | |
Forta | | |
FGAM (Sofos) | | |
FGEM (MPath) | | |
TMN | | |
TOTAL | |
| Income | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Broker Dealer | |
$ | – | | |
$ | 244,470 | | |
$ | – | | |
$ | – | | |
$ | – | | |
$ | 244,470 | |
| Investment Management Fees | |
| – | | |
| 515,416 | | |
| 553,469 | | |
| – | | |
| – | | |
| 1,068,885 | |
| Service Income | |
| – | | |
| 45,753 | | |
| 683 | | |
| 38,453 | | |
| 278,415 | | |
| 363,304 | |
| Total Revenue | |
| – | | |
| 805,639 | | |
| 554,152 | | |
| 38,453 | | |
| 278,415 | | |
| 1,676,659 | |
| Gross Profit | |
| – | | |
| 805,639 | | |
| 554,152 | | |
| 38,453 | | |
| 278,415 | | |
| 1,676,659 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Expense | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Cost of services | |
| – | | |
| 18,310 | | |
| – | | |
| – | | |
| 10,856 | | |
| 29,166 | |
| Professional services | |
| 54,551 | | |
| 49,690 | | |
| 3,889 | | |
| – | | |
| 14,947 | | |
| 123,077 | |
| Depreciation and amortization | |
| 5,105 | | |
| 125 | | |
| – | | |
| – | | |
| 16,364 | | |
| 21,594 | |
| General and administrative | |
| 119,793 | | |
| 190,688 | | |
| 4,462 | | |
| 7,386 | | |
| 19,695 | | |
| 342,024 | |
| Marketing | |
| 7,488 | | |
| 5,234 | | |
| – | | |
| 681 | | |
| 9,846 | | |
| 23,249 | |
| Compensation expense | |
| 484,310 | | |
| 723,070 | | |
| 219,200 | | |
| 10,850 | | |
| 98,500 | | |
| 1,535,930 | |
| Total Expense | |
| 671,247 | | |
| 987,117 | | |
| 227,551 | | |
| 18,917 | | |
| 170,208 | | |
| 2,075,040 | |
| Net Operating Income (Loss) | |
| (671,247 | ) | |
| (181,478 | ) | |
| 326,601 | | |
| 19,536 | | |
| 108,207 | | |
| (398,381 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Other Income | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| PPP 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 tax revenue (expense) | |
| 64,562 | | |
| (56,928 | ) | |
| – | | |
| – | | |
| – | | |
| 7,634 | |
| Loss on impairment of Goodwill | |
| (7,380,603 | ) | |
| – | | |
| – | | |
| – | | |
| – | | |
| (7,380,603 | ) |
| Net Other Expense | |
| (7,316,944 | ) | |
| (57,563 | ) | |
| – | | |
| – | | |
| – | | |
| (7,374,507 | ) |
| Net Income/(Loss) | |
$ | (7,704,846 | ) | |
$ | 138,659 | | |
$ | 326,601 | | |
$ | 19,536 | | |
$ | 108,207 | | |
$ | (7,111,843 | ) |
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THREE MONTHS ENDED JUNE 30, 2022
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
Eliminations | | |
FGC | | |
Forta | | |
FGAM (Sofos) | | |
FGFOS | | |
FGEM (MPath) | | |
TMN | | |
FGIS | | |
TOTAL | |
| Income | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Broker Dealer | |
$ | – | | |
$ | – | | |
$ | 5,500 | | |
$ | – | | |
$ | – | | |
$ | – | | |
$ | – | | |
$ | – | | |
$ | 5,500 | |
| Investment Management Fees | |
| (76,275 | ) | |
| – | | |
| 10,535 | | |
| 271,217 | | |
| 509,888 | | |
| – | | |
| – | | |
| – | | |
| 715,365 | |
| Service Income | |
| – | | |
| – | | |
| 20,223 | | |
| 104,803 | | |
| 42,958 | | |
| 219,982 | | |
| 238,341 | | |
| – | | |
| 626,307 | |
| Income from investment in subsidiaries | |
| (327,624 | ) | |
| 327,624 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | |
| Total Revenue | |
| (403,899 | ) | |
| 327,624 | | |
| 36,258 | | |
| 376,020 | | |
| 552,846 | | |
| 219,982 | | |
| 238,341 | | |
| – | | |
| 1,347,172 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Affiliate expense | |
| 76,275 | | |
| – | | |
| – | | |
| (234,566 | ) | |
| – | | |
| – | | |
| – | | |
| – | | |
| (158,291 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Gross Profit | |
| (327,624 | ) | |
| 327,624 | | |
| 36,258 | | |
| 141,454 | | |
| 552,846 | | |
| 219,982 | | |
| 238,341 | | |
| – | | |
| 1,188,881 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Expense | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Cost of services | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 9,533 | | |
| – | | |
| 9,533 | |
| Professional services | |
| – | | |
| 89,892 | | |
| 4,120 | | |
| 261 | | |
| – | | |
| – | | |
| 14,195 | | |
| – | | |
| 108,468 | |
| Depreciation and amortization | |
| – | | |
| 5,360 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 16,364 | | |
| – | | |
| 21,724 | |
| General and administrative | |
| – | | |
| 89,904 | | |
| 18,206 | | |
| 15,801 | | |
| (3,572 | ) | |
| 5,219 | | |
| 1,386 | | |
| (4,863 | ) | |
| 122,081 | |
| Marketing | |
| – | | |
| 20,291 | | |
| 69 | | |
| – | | |
| – | | |
| 735 | | |
| 2,093 | | |
| – | | |
| 23,188 | |
| Compensation expense | |
| – | | |
| 781,490 | | |
| 25,239 | | |
| 25,567 | | |
| 187,614 | | |
| 103,761 | | |
| 72,000 | | |
| – | | |
| 1,195,671 | |
| Total Expense | |
| – | | |
| 986,937 | | |
| 47,634 | | |
| 41,629 | | |
| 184,042 | | |
| 109,715 | | |
| 115,571 | | |
| (4,863 | ) | |
| 1,480,665 | |
| Net Operating Income (Loss) | |
| (327,624 | ) | |
| (659,313 | ) | |
| (11,376 | ) | |
| 99,825 | | |
| 368,804 | | |
| 110,267 | | |
| 122,770 | | |
| 4,863 | | |
| (291,784 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Other Income | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| PPP Loan forgiveness | |
| – | | |
| – | | |
| 339,070 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 339,070 | |
| Total Other Income | |
| – | | |
| – | | |
| 339,070 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 339,070 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Other Expense | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Interest Expense | |
| – | | |
| (218 | ) | |
| (72 | ) | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| (290 | ) |
| Income Taxes | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | |
| Net Other Expense | |
| – | | |
| (218 | ) | |
| (72 | ) | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| (290 | ) |
| Net Income/(Loss) | |
$ | (327,624 | ) | |
$ | (659,531 | ) | |
$ | 327,622 | | |
$ | 99,825 | | |
$ | 368,804 | | |
$ | 110,267 | | |
$ | 122,770 | | |
$ | 4,863 | | |
$ | 46,996 | |
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR NINE MONTHS ENDED JUNE 30, 2021
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
Eliminations | | |
FGC | | |
Forta | | |
FGAM (Sofos) | | |
FGEM (MPath) | | |
TMN | | |
TOTAL | |
| Income | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Broker Dealer | |
$ | – | | |
$ | – | | |
$ | 767,284 | | |
$ | – | | |
$ | – | | |
$ | – | | |
$ | 767,284 | |
| Investment Management Fees | |
| – | | |
| – | | |
| 1,422,745 | | |
| 1,478,798 | | |
| – | | |
| – | | |
| 2,901,543 | |
| Service Income | |
| – | | |
| – | | |
| 114,570 | | |
| 683 | | |
| 365,131 | | |
| 917,121 | | |
| 1,397,505 | |
| Total Revenue | |
| – | | |
| – | | |
| 2,304,599 | | |
| 1,479,481 | | |
| 365,131 | | |
| 917,121 | | |
| 5,066,332 | |
| Gross Profit | |
| – | | |
| – | | |
| 2,304,599 | | |
| 1,479,481 | | |
| 365,131 | | |
| 917,121 | | |
| 5,066,332 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Expense | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Cost of services | |
| – | | |
| – | | |
| 45,846 | | |
| 11,074 | | |
| – | | |
| 30,476 | | |
| 87,396 | |
| Professional services | |
| – | | |
| 169,303 | | |
| 137,628 | | |
| 3,889 | | |
| 175 | | |
| 41,886 | | |
| 352,881 | |
| Depreciation and 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 | |
| Compensation expense | |
| – | | |
| 1,389,281 | | |
| 1,959,331 | | |
| 531,973 | | |
| 96,311 | | |
| 294,500 | | |
| 4,271,396 | |
| Total Expense | |
| – | | |
| 1,838,175 | | |
| 2,729,913 | | |
| 563,738 | | |
| 114,328 | | |
| 507,085 | | |
| 5,753,239 | |
| Net Operating Income (Loss) | |
| – | | |
| (1,838,175 | ) | |
| (425,314 | ) | |
| 915,743 | | |
| 250,803 | | |
| 410,036 | | |
| (686,907 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Other Income | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| PPP Loan forgiveness | |
| – | | |
| 283,345 | | |
| 377,700 | | |
| – | | |
| – | | |
| – | | |
| 661,045 | |
| Total Other Income | |
| – | | |
| 283,345 | | |
| 377,700 | | |
| – | | |
| – | | |
| – | | |
| 661,045 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Other Expense | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Interest expense | |
| – | | |
| (3,173 | ) | |
| (635 | ) | |
| – | | |
| – | | |
| – | | |
| (3,808 | ) |
| Income tax revenue (expense) | |
| – | | |
| (199,821 | ) | |
| 203,854 | | |
| – | | |
| – | | |
| – | | |
| 4,033 | |
| Loss on impairment of Goodwill | |
| – | | |
| (7,380,603 | ) | |
| – | | |
| – | | |
| – | | |
| – | | |
| (7,380,603 | ) |
| Net Other Expense | |
| – | | |
| (7,583,597 | ) | |
| 203,219 | | |
| – | | |
| – | | |
| – | | |
| (7,380,378 | ) |
| Net Income/(Loss) | |
$ | – | | |
$ | (9,138,427 | ) | |
$ | 155,605 | | |
$ | 915,743 | | |
$ | 250,803 | | |
$ | 410,036 | | |
$ | (7,406,240 | ) |
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR NINE MONTHS ENDED JUNE 30, 2022
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
Eliminations | | |
FGC | | |
Forta | | |
FGAM (Sofos) | | |
FGFOS | | |
FGEM (MPath) | | |
TMN | | |
FGIS | | |
TOTAL | |
| Income | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Broker Dealer | |
$ | – | | |
$ | – | | |
$ | 98,544 | | |
$ | – | | |
$ | – | | |
$ | – | | |
$ | – | | |
$ | – | | |
$ | 98,544 | |
| Investment Management Fees | |
| (149,201 | ) | |
| – | | |
| 87,517 | | |
| 1,195,522 | | |
| 1,171,939 | | |
| – | | |
| – | | |
| 2,203 | | |
| 2,307,980 | |
| Service Income | |
| – | | |
| – | | |
| 93,216 | | |
| 249,963 | | |
| 100,033 | | |
| 808,104 | | |
| 830,567 | | |
| 30,000 | | |
| 2,111,883 | |
| Income from investment in subsidiaries | |
| 49,432 | | |
| (49,432 | ) | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | |
| Total Revenue | |
| (99,769 | ) | |
| (49,432 | ) | |
| 279,277 | | |
| 1,445,485 | | |
| 1,271,972 | | |
| 808,104 | | |
| 830,567 | | |
| 32,203 | | |
| 4,518,407 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Affiliate expense | |
| 149,201 | | |
| – | | |
| – | | |
| (387,058 | ) | |
| – | | |
| – | | |
| – | | |
| – | | |
| (237,857 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Gross Profit | |
| 49,432 | | |
| (49,432 | ) | |
| 279,277 | | |
| 1,058,427 | | |
| 1,271,972 | | |
| 808,104 | | |
| 830,567 | | |
| 32,203 | | |
| 4,280,550 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Expense | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Cost of services | |
| – | | |
| (237 | ) | |
| 259,087 | | |
| 11,764 | | |
| – | | |
| – | | |
| 32,367 | | |
| – | | |
| 302,981 | |
| Professional services | |
| – | | |
| 187,869 | | |
| 124,055 | | |
| 3,447 | | |
| (1,299 | ) | |
| – | | |
| 14,780 | | |
| – | | |
| 328,852 | |
| Depreciation and amortization | |
| – | | |
| 15,884 | | |
| 194 | | |
| – | | |
| – | | |
| – | | |
| 49,093 | | |
| – | | |
| 65,171 | |
| General and administrative | |
| – | | |
| 266,495 | | |
| 57,032 | | |
| 44,278 | | |
| (1,851 | ) | |
| 20,483 | | |
| 7,626 | | |
| (4,863 | ) | |
| 389,200 | |
| Marketing | |
| – | | |
| 60,192 | | |
| 69 | | |
| – | | |
| – | | |
| 2,097 | | |
| 28,671 | | |
| – | | |
| 91,029 | |
| Compensation expense | |
| – | | |
| 2,267,444 | | |
| 225,662 | | |
| 313,004 | | |
| 539,097 | | |
| 256,720 | | |
| 263,750 | | |
| – | | |
| 3,865,677 | |
| Total Expense | |
| – | | |
| 2,797,647 | | |
| 666,099 | | |
| 372,493 | | |
| 535,947 | | |
| 279,300 | | |
| 396,287 | | |
| (4,863 | ) | |
| 5,042,910 | |
| Net Operating Income (Loss) | |
| 49,432 | | |
| (2,847,079 | ) | |
| (386,822 | ) | |
| 685,934 | | |
| 736,025 | | |
| 528,804 | | |
| 434,280 | | |
| 37,066 | | |
| (762,360 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Other Income | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| PPP Loan forgiveness | |
| – | | |
| – | | |
| 339,070 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 339,070 | |
| Total Other Income | |
| – | | |
| – | | |
| 339,070 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 339,070 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Other Expense | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Interest Expense | |
| – | | |
| (771 | ) | |
| (1,679 | ) | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| (2,450 | ) |
| Income Taxes | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | |
| Net Other Expense | |
| – | | |
| (771 | ) | |
| (1,679 | ) | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| (2,450 | ) |
| Net Income/(Loss) | |
$ | (49,432 | ) | |
$ | (2,847,850 | ) | |
$ | (49,431 | ) | |
$ | 685,934 | | |
$ | 736,025 | | |
$ | 528,804 | | |
$ | 434,280 | | |
$ | 37,066 | | |
$ | (425,740 | ) |
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following
at:
| Schedule of property and equipment | |
| |
| | | |
| | |
| | |
Estimated Service Lives | |
June 30, 2022 | | |
September 30, 2021 | |
| | |
| |
| | |
| |
| Furniture, fixtures, and equipment | |
2 to 5 years | |
$ | 60,556 | | |
$ | 61,554 | |
| Internally developed software | |
5 Years | |
| 152,000 | | |
| 152,000 | |
| | |
| |
| 212,556 | | |
| 213,554 | |
| Less accumulated depreciation and amortization | |
| |
| (191,107 | ) | |
| (175,031 | ) |
| | |
| |
$ | 21,449 | | |
$ | 38,523 | |
Depreciation expenses was $5,359
and $16,077 during the three and nine months ended
June 30, 2022 and $5,230 and $47,775
during the three and nine months ended June 30, 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 June 30, 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.
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 | |
| |
| Rental Payments | |
| |
| 2022 | |
$ | 87,429 | |
| 2023 | |
| 38,005 | |
| 2024 | |
| 38,924 | |
| 2025 | |
| 39,841 | |
| 2026 | |
| 23,555 | |
| Total undiscounted lease payments | |
| 227,754 | |
| Less imputed interest | |
| (29,796 | ) |
| Present value of lease payments | |
$ | 197,958 | |
The weighted average discount rate is 6%
based Company’s expected borrowing rate and the remaining weighted average lease term is 2.79
years.
The Company incurred lease expense for its operating leases of $24,637
and $33,151 during the three and nine months ended June 30, 2022 and $102,784 and $241,167 during the three and nine months ended June
30, 2021 which was included in “General and administrative” expense on the accompanying consolidated statements of operations.
Included in lease expense in fiscal year 2021 was unpaid rent of $66,000 which was relieved by the issuance of stock in lieu of unpaid
rent in the amount of $66,000 during the nine months ended 2022.
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 June 30, 2022 and 2021, respectively. This line of credit is supported
by the personal guarantee of John Pollock. The line of credit balance was $49,94448,744 and $52,932 at June 30, 2022 and September 30, 2021,
respectively.
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 June 30, 2022 was $11,230. 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.
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 June 30, 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 principal is forgiven.
The Company’s maturities of debt subsequent
to June 30, 2022 are as follows:
| Schedule of debt maturities | |
| | |
| 2022 | |
$ | 49,778 | |
| 2023 | |
| – | |
| 2024 | |
| – | |
| 2025 | |
| – | |
| 2026 | |
| 83,830 | |
| Total Debt maturities | |
$ | 133,608 | |
8. ACCRUED EXPENSES
Accrued expenses consist of the following at June 30, 2022 and as
of September 30, 2021:
| Schedule of accrued expenses | |
| | |
| |
| | |
June 30, | | |
September 30, | |
| | |
2022 | | |
2021 | |
| SAR liability | |
$ | 69,518 | | |
$ | 61,763 | |
| Accrued payroll | |
| 308,470 | | |
| 42,858 | |
| Commissions payable | |
| 139,616 | | |
| 80,588 | |
| Accrued expenses | |
| 699,117 | | |
| 132,653 | |
| Other accounts payable - unissued stock | |
| 268,834 | | |
| 765,117 | |
| Accrued operating expenses | |
$ | 1,485,555 | | |
$ | 1,082,979 | |
9. INCOME TAXES
For the nine-months ending June 30, 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 June 30, 2022 and September 30, 2021:
| Schedule of deferred tax assets and liabilities | |
| | |
| |
| Net non-current deferred tax assets: | |
June 30, 2022 | | |
September 30, 2021 | |
| Net operating loss carryforward | |
$ | 1,464,707 | | |
$ | 1,328,093 | |
| Amortization | |
| (8,189 | ) | |
| (8,770 | ) |
| Depreciation | |
| 5,139 | | |
| 5,625 | |
| Valuation allowance | |
| (1,461,657 | ) | |
| (1,324,948 | ) |
| Net deferred taxes | |
$ | – | | |
$ | – | |
10. COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS
From time to time, the Company is a party to or otherwise involved
in legal proceedings, claims and other legal matters, arising in the ordinary course of its business or otherwise. It is management’s
opinion that there are no legal proceedings the outcome of which will be material to its ability to operate or market its services, its
consolidated financial position, operating results or cash flows.
In December 2021, a new variant of the novel strain
of coronavirus, referred to as COVID-19, 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, stock appreciation rights (SARs), and other forms of equity grants. 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 Plan | | |
Value of Shares under Option Plan | | |
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 | | |
| 5,844 | | |
| 0.5 | | |
108 months |
| Exercised | |
| – | | |
| – | | |
| – | | |
|
| Canceled or expired | |
| (1,420,500 | ) | |
| (164,068 | ) | |
| 0.28 | | |
|
| Outstanding - June 30, 2022 | |
| 5,950,562 | | |
| 948,520 | | |
| 0.23 | | |
92 months |
| Exercisable - June 30, 2022 | |
| 3,044,564 | | |
| 425,021 | | |
| 0.22 | | |
90 months |
Unamortized share-based compensation was
$523,370
and $382,874
at June 30, 2022 and 2021, respectively, and will be recognized over the next 7.9 years. During the nine months ended June 30, 2022
and 2021, 60,866
and 0
options and SARs were granted, respectively. 60,866 in SAR grants have a participation price that was always above the market value
and therefore there is no current value. 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 nine months ended June 30, 2022
and 2021, respectively, was $193,500 and $193,500. 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 $45,000 in the nine months ended June 30, 2022 and 2021, respectively.
Vandata, LLC is also owed $5,000 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 June 30, 2022 and September 30, 2021 was $5,406 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.
Executives of the Company have elected to forego
a portion of their compensation. Company recognizes the compensation as an expense and the obligation as deferred compensation. As of
June 30, 2022, the amount of that deferred compensation obligation is approximately $50,000.
14. SUBSEQUENT EVENTS
As of the date of this report there were no subsequent
events which required recognition, adjustment to, or disclosure in the accompanying consolidated financial statements.