Financial Gravity Companies, Inc. 10-Q

Item 1 - Financial Statements Financial Gravity Companies, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS June 30, 2022 (Unaudited) September 30, 2021 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 207,983 $ 306,057 Accrued revenues 214,566 270,428 Current right-of-use asset 71,209 112,469 Prepaid expenses and other current assets 52,764 153,047 TOTAL CURRENT ASSETS 546,522 842,001 Property and equipment, net 21,449 38,523 Proprietary content, net 32,864 81,958 Intellectual property 53,170 53,170 Right-of-use asset, net of current portion 114,941 156,863 Goodwill 3,176,767 3,176,767 TOTAL ASSETS $ 3,945,713 $ 4,349,282 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Accounts payable - trade $ 22,106 $ 32,747 Accrued expenses 1,485,555 1,082,979 Related party payables 61,156 66,432 Contract liabilities 58,821 66,654 Line of credit 49,944 52,932 Rent payable 88,008 90,941 Lease payable, current portion 72,160 133,078 Notes payable, current portion 49,778 45,412 TOTAL CURRENT LIABILITIES 1,887,528 1,571,175 Lease payable 125,798 193,073 Notes payable 83,830 433,341 TOTAL LIABILITIES 2,097,156 2,197,589 Commitments and Contingencies (see Note 10) – – STOCKHOLDERS' EQUITY: Common stock, $ 0.001 par value; 300,000,000 shares authorized; 91,806,983 shares issued and outstanding as of June 30, 2022, and 91,618,412 as of September 30, 2021 91,807 91,618 Additional paid-in capital 16,596,361 16,473,946 Accumulated deficit ( 14,839,611 ) ( 14,413,871 ) TOTAL STOCKHOLDERS' EQUITY 1,848,557 2,151,693 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,945,713 $ 4,349,282 The accompanying notes are an integral part of these consolidated financial statements. 3 Financial Gravity Companies, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS For the three months and nine months ended June 30, 2022 and 2021 (Unaudited) For the Three Months Ending For the Nine Months Ending June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021 REVENUE Broker dealer income $ 5,500 $ 244,470 $ 98,544 $ 767,284 Investment management fee 715,365 1,068,885 2,307,980 2,901,543 Service income 626,307 363,304 2,111,883 1,397,505 Total Revenue 1,347,172 1,676,659 4,518,407 5,066,332 Affiliate expense ( 158,291 ) – ( 237,857 ) – GROSS PROFIT 1,188,881 1,676,659 4,280,550 5,066,332 OPERATING EXPENSES Cost of services 9,533 29,166 302,981 87,396 Professional services 108,468 123,077 328,852 352,881 Depreciation and amortization 21,724 21,594 65,171 89,098 General and administrative 122,081 342,024 389,200 896,439 Marketing 23,188 23,249 91,029 56,029 Compensation 1,195,671 1,535,930 3,865,677 4,271,396 TOTAL OPERATING EXPENSES 1,480,665 2,075,040 5,042,910 5,753,239 LOSS FROM OPERATIONS ( 291,784 ) ( 398,381 ) ( 762,360 ) ( 686,907 ) OTHER INCOME (EXPENSE) Forgiveness of PPP Loan 339,070 661,045 339,070 661,045 Loss on impairment of Goodwill – ( 7,380,603 ) – ( 7,380,603 ) Interest expense ( 290 ) ( 1,538 ) ( 2,450 ) ( 3,808 ) TOTAL OTHER INCOME (EXPENSE), NET 338,780 ( 6,721,096 ) 336,620 ( 6,723,366 ) INCOME (LOSS) BEFORE INCOME TAXES 46,996 ( 7,119,477 ) ( 425,740 ) ( 7,410,273 ) PROVISION FOR INCOME TAXES – 7,634 – 4,033 NET INCOME (LOSS) 46,996 ( 7,111,843 ) ( 425,740 ) ( 7,406,240 ) BASIC NET INCOME (LOSS) PER SHARE $ 0.00 $ 0.00 $ 0.00 $ 0.00 The accompanying notes are an integral part of these consolidated financial statements. 4 Financial Gravity Companies, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY For the three month and nine-month periods ended June 30, 2022 and 2021 (Unaudited) Total Common Stock Additional Accumulated Stockholders' No. of Shares Amount Paid-in Capital Deficit Equity Balance at September 30, 2020 83,618,412 $ 83,618 $ 14,385,086 $ ( 6,990,790 ) $ 7,477,914 Stock-based employee compensation expense – – 24,464 – 24,464 Net loss – – – ( 194,360 ) ( 194,360 ) Balance at December 31, 2020 83,618,412 83,618 14,409,550 ( 7,185,150 ) 7,308,018 Stock-based employee compensation expense – – 41,622 – 41,622 Net loss – – – ( 103,787 ) ( 103,787 ) Balance at March 31, 2021 83,618,412 83,618 14,451,172 ( 7,288,937 ) 7,245,853 Stock-based employee compensation expense – – ( 5,107 ) – ( 5,107 ) Net loss – – – ( 7,111,843 ) ( 7,111,843 ) Balance at June 30, 2021 83,618,412 $ 83,618 $ 14,446,065 $ ( 14,400,780 ) $ 128,903 Balance at September 30, 2021 91,618,412 $ 91,618 $ 16,473,946 $ ( 14,413,871 ) $ 2,151,693 Stock-based employee compensation expense – – 16,644 – 16,644 Shares issued in lieu of rent 188,571 189 65,811 – 66,000 Net loss – – – ( 74,740 ) ( 74,740 ) Balance at December 31, 2021 91,806,983 91,807 16,556,401 ( 14,488,611 ) 2,159,597 Stock-based employee compensation expense – – 20,170 – 20,170 Net loss – – – ( 397,996 ) ( 397,996 ) Balance at March 31, 2022 91,806,983 91,807 16,576,571 ( 14,886,607 ) 1,781,771 Stock-based employee compensation expense – – 19,790 – 19,790 Net income – – – 46,996 46,996 Balance at June 30, 2022 91,806,983 $ 91,807 $ 16,596,361 $ ( 14,839,611 ) $ 1,848,557 The accompanying notes are an integral part of these consolidated financial statements. 5 Financial Gravity Companies, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended June 30, (Unaudited) Nine Months Ended June 30, 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 425,740 ) $ ( 7,406,240 ) Adjustments to Reconcile Net Loss to Net Cash Used In Operating Activities: Depreciation and amortization expense 65,171 89,098 Stock-based compensation 64,359 97,463 Non-cash rent expense 66,000 – Loss on impairment of Goodwill – 7,380,603 Forgiveness of PPP loans ( 339,070 ) ( 661,045 ) Changes in Assets and Liabilities: Accrued revenues 55,862 114,970 Right-of-use asset 83,182 64,962 Prepaid expenses and other current assets 100,283 ( 288,430 ) Accounts payable – trade ( 10,641 ) ( 73,976 ) Accrued expenses 394,821 239,818 Related party payables ( 5,276 ) ( 20,944 ) Contract liabilities ( 7,833 ) ( 14,007 ) Rent payable ( 2,933 ) 91,136 Lease payable ( 128,193 ) ( 45,410 ) NET CASH USED IN OPERATING ACTIVITIES ( 90,008 ) ( 432,002 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment ( 1,944 ) ( 3,537 ) Sale of property and equipment 2,941 – NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 997 ( 3,537 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from notes payable – 422,900 Payments on notes payable ( 6,075 ) ( 16,143 ) Proceeds from line of credit 2,353 – Payments on line of credit ( 5,341 ) ( 15,282 ) NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ( 9,063 ) 391,475 NET CHANGE IN CASH AND CASH EQUIVALENTS ( 98,074 ) ( 44,064 ) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 306,057 482,854 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 207,983 $ 438,790 Supplemental Disclosure of Cash Flow Information Cash paid during the period: Interest $ 290 $ 1,538 Income tax $ – $ – The accompanying notes are an integral part of these consolidated financial statements. 6 Financial Gravity Companies, Inc. and Subsidiaries 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. 7 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. 8 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. 9 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. 10 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 $ 1,347,172 1,347,000 in revenue, a net operating loss of approximately $ 292,000 , and net increase in cash of approximately $ 30,000 . For the nine months ended June 30, 2022, the Company reported approximately $ 4,518,407 4,518,000 in revenue, a net operating loss of approximately $ 762,000 , cash used of approximately $ 98,000 , and an accumulated deficit of approximately $ 14,839,611 14,840,000. These operating results raise doubt about our ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of these uncertainties. The Company’s plans for expansion include attracting additional clients through marketing efforts with its current and future brokerage, investment management and insurance agent representatives, as well as increasing the TMN membership and the investment advisory activity of the members to increase assets under management and the Company’s revenue. Future growth plans will include efforts to increase advisory headcount through recruiting of individual advisors and groups of advisors. There is no guaranty that the Company will achieve these objectives. 11 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 ) 12 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 13 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 ) 14 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 ) 15 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. 16 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 $ 49,944 48,744 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 17 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. 18 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. 19