Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Forward-Looking Statements
The following Management’s Discussion
and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help you understand its historical
results of operations during the periods presented and its financial condition. This MD&A should be read in conjunction with
its financial statements and the accompanying notes and contains forward-looking statements that involve risks and uncertainties
and assumptions that could cause its actual results to differ materially from management’s expectations. See the sections
entitled “Forward-Looking Statements” and “Risk Factors” above.
Plan of Operations
Financial Gravity Companies, Inc. (“Financial Gravity”,
“We” or the “Company”), based in Austin, Texas, was formed specifically to be the parent company of several
subsidiaries that provide integrated tax, investment, business, and financial solutions. Financial Gravity’s clients include
small businesses, small business owners and high and middle net worth individuals. The Company’s services are focused on
helping clients build wealth, most often with investment advice, tax savings, lowering costs and improving efficiency. In addition
to expanding through client procurement and organic growth, Financial Gravity intends to pursue acquisitions. The primary acquisition
targets currently include individuals and groups that provide investment and financial advice. The Company is actively identifying
potential acquisition candidates to fuel more rapid growth.
Financial Gravity’s Subsidiaries and Reportable Segments:
The following outline briefly describes Financial Gravity’s
active subsidiaries and the products and services they offer:
Sofos Investments, Inc. Sofos is a registered investment advisor
(“RIA”), registered with the Securities and Exchange Commission, and provides asset management services to individuals
and businesses, including financial planning, wealth management and money management. Sofos commenced its money management services
in late 2019, and by September 2020 was approaching $100,000,000 in assets under management.
Tax Master Network, LLC (“TMN”) through the Tax
Master Network® provides monthly subscriptions services to the TMN systems, coaching and marketing services to over 300 Certified
Public Accountants (“CPA”) and Enrolled Agent professionals, training them to add crucial tax planning services to
support clients. TMN’s tax planning services include the Tax Blueprint®, Certified Tax Master®, and the Tax Operating
System. In addition, TMN will be launching new efforts to increase subscribers, including a revamped tax operating system and financial
advisor business development programs that will assist TMN subscribers in increasing their business activity. The goal is to provide
TMN subscribers with a platform for them to enhance their business opportunities in the areas of investment and financial advice
and to increase their effectiveness as tax advisors to small businesses and individuals.
MPath Advisor Resources, LLC (“MPath”) MPath is
an insurance marketing organization and provides insurance products and services to insurance agents or agencies. This is a new
venture that will be focused upon insurance marketing and will capture business synergies in the sale of insurance products by
financial advisors with TMN and with Forta.
Forta Financial Group, Inc. (“Forta”) Forta is a
broker dealer, registered investment advisor and an insurance brokerage, subject to FINRA, SEC and insurance regulation. The goal
is to have Forta focus on attracting independent advisors and to support TMN members as they grow their financial advisory businesses.
Forta is implementing plans to recruit independent advisors.
Growth comes from the following reportable segments:
Tax services and financial advisory services, including Tax
Blueprint® and Tax Operating System® services through TMN, as well as investment advisory services by TMN subscribers to
their clients.
Brokerage and wealth management services through Forta and money
management and investment advisory services through Sofos. Other products and services include insurance and other miscellaneous
products and services.
Future growth is expected to come from these key areas, organic
growth, acquisitions, and strategic alliances.
Business Acquisition and Disposition
The Company acquired Forta in 2020 in exchange
for stock. Forta is a broker dealer, and its acquisition presented the Company with an opportunity to compete in the broker dealer
market, and to try to grow in this area of financial services. Forta also has key employees who assumed vital executive leadership
roles, including key executives who will focus on improving operations and growth opportunity. Forta also contributed key operating
assets, including in excess of $700,000 in cash, and annual revenues in excess of $3,000,000.
The Company disposed of its tax unit. The
tax unit has the tax operating system, but that could be run more effectively by TMN, so the decision was made to transfer that
activity to the TMN. The tax unit was left with minor tax and accounting operations, and those activities did not present a significant
upside to the Company.
Revenues
For the year ended September 30, 2020, revenue decreased $387,568
to $3,687480 from $4,075,048 for the year ended September 30, 2019. The principal drivers for this are a decrease in revenue from
the discontinued tax operations of $649,830 and reduced revenue from reduction of the number of advisors at Sofos of $1,112,944,
as well as some minor non-recurring revenue at Financial Gravity, offset by an increase in revenue from Forta of $1,270,339, an
increase in revenue from TMN of $35,844, an increase of revenue from MPath of $73,882. The combined revenue for the Company includes
only the revenue from Forta since May 21, 2020. Forta generated in excess of $2 million of revenue from October 1, 2019 through
May 20, 2020 (the day prior to the acquisition of Forta). On a twelve-month pro forma basis that included Forta’s revenue,
the Company would have generated in excess of $6,000,000 in revenue, or approximately $2,000,000 in annualized increased revenue.
Operating Expenses
Cost of services increased by $18,144 to
$73,071 for the year ended September 30, 2020 from $54,927 for the year ended September 30, 2019, primarily due increased costs
at Forta of $33,784, offset by decreases at Financial Gravity ($5,946), discontinued tax operations ($21,355), and increase at
TMN of $8,891.
Professional services expenses include
consulting fees, legal expense, professional fees, and business consulting. Professional services expenses increased $233,528 to
$375,263 for the year ended September 30, 2020 from $141,835 for the year ended September 30, 2019. The increase included professional
fees at Forta of $93,095, an increase in professional fees at Financial Gravity of $321,761 (including adjustments in 2019 for
accrual of expenses that were greater than the fees incurred), offset by decreases in professional fees at Sofos of $73,793, at
TMN of $69,516, and at the discontinued tax practice of $43,526.
Depreciation and amortization expenses
include depreciation on fixed assets and amortization of definite lived intangibles. Depreciation and amortization expenses decreased
$22,282 to $166,586 for the year ended September 30, 2020 from $189,070 for the year ended September 30, 2019. The decrease is
primarily due to an increase of expense at Financial Gravity of $152,173 (including the full impairment of Trademarks ($69,000),
offset by a decrease at TMN of $159,602, a small decrease at Sofos of $4,165, and a decrease at the discontinued tax practice of
$10,953.
General and administrative expenses increased
$138,979 to $672,784 for the year ended September 30, 2020 from $533,805 for the year ended September 30, 2019. The increase is
primarily due increased costs at Forta of $275,272, and Financial Gravity, offset by decreases at other subsidiaries including
the discontinued tax department operations ($163,452), Sofos reductions due to fewer advisors and at TMN aggregating approximately
($250,000).
Marketing expenses decreased $6,368 to $125,161 for the year ended
September 30, 2020 from $131,529 for the year ended September 30, 2019. The decrease is primarily due to a reduction of costs
at the discontinued tax operations of ($22,788), and reductions in outside vendors by bringing marketing efforts in-house at TMN
($76,678) and Sofos ($15,838), offset by an increase in marketing expenses at Forta of $20,568, at Financial Gravity $85,110,
and at MPath $3300. The variance in expenses also reflects a change in marketing efforts influenced by Covid 19 restrictions that
shut down some previous marketing channels and a move toward the independent advisor model at Forta where advisors cover their
own marketing expenses.
Compensation expenses decreased $315,438
to $3,186,305 for the year ended September 30, 2020 from $3,501,744 for the year ended September 30, 2019. The decrease is primarily
due to an increase in executive compensation at Financial Gravity of $1,580,121, the increase of compensation at Forta of $808,670
that includes commissions, and a small increase at MPath, offset by a decrease in compensation at the discontinued tax operations
of $1,023,467, Sofos of $917,359 that includes reduction in commissions, at TMN of $703,375 related to reduction in employees and
outsourced services and a move toward the independent advisor model at Forta where advisors cover their own marketing expenses.
The Company experienced an increase in
net loss of $168,190 to a net loss of $791,675 for the year ended September 30, 2020 from a net loss of $623,485 for the year
ended September 30, 2019, primarily attributable to the reasons noted above. The variance in loss for the period also reflects
the impact of Covid-19 related reduction in marketing and face to face sales, which impacted revenues. This was offset by the
sale of the tax unit for $150,000.
Significant Accounting Policies
Certain critical accounting policies affect
the more significant judgments and estimates used in the preparation of the Company’s consolidated financial statements.
These policies are contained in Note 1 to the consolidated financial statements.
Use of Estimates and Assumptions.
The preparation of consolidated financial
statements in conformity with accounting principles generally accepted in the United States of America requires management to make
estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported period.
Actual results could differ from those estimates.
Revenue Recognition and Accounts Receivable.
Investment management fees are recognized
as services are provided by the Company. Investment management fees include fees earned from assets under management by providing
professional services to manage clients’ investments. Fees are generally paid quarterly, five days before each quarter-end
or monthly in arrears. Revenues are recognized in the period earned.
The Company earns commission when it buys
and sells securities and various insurance products on behalf of its customers. Each time a customer enters into a buy or sell
transaction, the Company charges a commission. Commissions and related clearing expenses are recorded on the trade date (the date
that the Company fills the trade order by finding and contracting with a counterparty and confirms the trade with the customer),
and commission revenue from the sale of premiums on life insurance policies is recognized as received from the insurer, issuer.
The Company generates services income which
is recognized as consulting and other professional services are performed by the Company. Income is recognized as services are
delivered. Revenue represents gross billings less discounts, net of sales tax, as applicable. Amounts invoiced for work not yet
completed are shown as deferred revenue in the accompanying consolidated balance sheets. Trade accounts receivable are carried
only for investment management fees that are paid in arrears. The allowance for doubtful accounts was $0 and $0 as of September
30, 2020 and 2019, respectively. In the normal course of business, the Company extends credit on an unsecured basis to its customers,
substantially all of whom are located in the United States of America. The Company does not believe that it is exposed to any significant
risk of loss on accounts receivable.
The Company received revenue from Sofos’
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 $1,255,457 for the fiscal year after elimination of intercompany
accounts.
The Company received revenue from Forta’s
operations from (the date of the merger) from the following sources from May 21, 2020 through fiscal year ending September 30,2020
including:
Investment Advisory fees $ 757,290
Commission-based transactions 436,024
Insurance and Other Service Revenue 77,024
TMN has 3 types of services that are charged
and collected on a month-to-month subscription basis (TMN basic membership, All-Stars coaching, and Wire Service weekly broadcast
email). 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.
The Company received revenue from TMN’s
operations from the following sources during the fiscal year ending September 30,2020 including:
TMN membership subscriptions: $ 733,838
Commissions/Referrals: 61,889
Miscellaneous: (1,715 )
The Company received revenue from MPath’s
operations from insurance sales of $73,882 during the fiscal year ending September 30,2020.
The total of all revenue also includes
approximately $70,000 from discontinued operations and minor non-recurring revenue.
Stock-Based Compensation.
The Company
recognizes the fair value of stock-based compensation awards as wages in the accompanying statements of operations for employee
grants, commissions for non-employee grants, and stock appreciation rights grants, on a straight-line basis over the vesting period,
using the Black-Scholes option pricing model, which is based on risk-free rate of 1.32% in the year ended September 30, 2020 and
1.50% to 2.89% in 2019, dividend yield of 0%, expected life of 10 years and volatility of 159% in 2020 and volatility of 25% to
34.05% in 2019.
Liquidity and Capital Resources
As of September 30, 2020, the Company had
cash and cash equivalents of $482,854, as compared $36,053 as of September 30, 2019. The increase of $446,801 in cash and cash
equivalents from September 30, 2019 was due to net cash provided financing from Paycheck Protection Program (“PPP”)
through loans to Financial Gravity of $283,345, and other sources of cash as per the Financial Gravity’s Statement of Cash
Flows, including approximately $700,000 in cash at Forta at the May 21, 2020 merger date.
As shown below, at September 30, 2020,
Financial Gravity’s contractual cash obligations totaled approximately $970,741 all of which consisted of operating lease
obligations and debt principal.
Payments due by period
Contractual obligations Less than 1 year 1-3 years 4-5 years Total
The accompanying consolidated financial
statements have been prepared assuming that the Company will continue as a going concern, which contemplates the Company will need
additional financing to fund additional material capital expenditures and to fully implement its business plan. There are no assurances
that additional financing will be available on favorable terms, or at all. If additional financing is not available, the Company
will need to reduce, defer or cancel development programs, planned initiatives and overhead expenditures as a way to supplement
the cash flows generated by operations. The Company has a backlog of fees under contract in addition to the Company’s accounts
receivable balance. The failure to adequately fund its capital requirements could have a material adverse effect on its business,
financial condition and results of operations. Moreover, the sale of additional equity securities to raise financing will result
in additional dilution to the Company’s stockholders and incurring additional indebtedness could involve the imposition of
covenants that restrict its operations. Management, in the normal course of business, is trying to raise additional capital through
sales of common stock as well as seeking financing from third parties, via both debt and equity, to balance the Company’s
cash requirements and to finance specific capital projects.
Off Balance Sheet Transactions and Related Matters
There are no off-balance sheet transactions,
arrangements, obligations (including contingent obligations), or other relationships with unconsolidated entities or other persons
that have, or may have, a material effect on financial condition, changes in financial condition, revenues or expenses, results
of operations, liquidity, capital expenditures or capital resources of the Company.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
Interest Rate Risk. The Company’s
business is leveraged and, accordingly, is sensitive to fluctuations in interest rates. Any significant increase in interest rates
could have a material adverse effect on its financial condition and ability to continue as a going concern.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements required by this
item are included in this report in Part IV, Item 15.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
Item 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
The Company’s Chief Executive Officer
and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures as of September
30, 2020. The term “disclosure controls and procedures,” as defined in Rule 13a-15(e) under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to
ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Management
recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of
achieving their objectives and management necessarily applies its judgment in evaluating the cost benefit relationship of possible
controls and procedures. Based on its evaluation, management concluded as of September 30, 2020 that its disclosure controls and
procedures were not effective because of material weaknesses in our internal control over financial reporting, described below
in Management’s Report on Internal Control Over Financial Reporting. Notwithstanding the identified material weaknesses,
management believes the financial statements included in this Annual Report on Form 10-K fairly represent in all material respects
our financial condition, results of operations and cash flows at and for the periods presented in accordance with U.S. GAAP.
Management’s Report on Internal
Control Over Financial Reporting
The Company’s management is responsible
for establishing and maintaining adequate internal control over financial reporting. Responsibility, estimates and judgments by
management are required to assess the expected benefits and related costs of control procedures. The objectives of internal control
include providing management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized
use or disposition, and that transactions are executed in accordance with management’s authorization and recorded properly
to permit the preparation of consolidated financial statements in conformity with accounting principles generally accepted in the
United States. The Company’s Chief Executive Officer and Chief Financial Officer assessed the effectiveness of its internal
control over financial reporting as of September 30, 2020. In making this assessment, its management used the criteria based on
the framework in Internal Control - Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of
the Treadway Commission. The Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of September
30, 2020, its internal control over financial reporting was not effective in providing reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with US generally accepted
accounting principles. The Company’s Chief Executive Officer and Chief Financial Officer reviewed the results of their assessment
with its board of directors.
Based on its evaluation under this framework,
management concluded that its internal control over financial reporting was not effective as of the evaluation date due to the
factors stated below.
This annual report does not include an
attestation report of its Company’s independent registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting
firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report
in this annual report.
Inherent Limitations on Effectiveness
of Controls
Internal control over financial reporting
has inherent limitations which include but is not limited to the use of independent professionals for advice and guidance, interpretation
of existing and/or changing rules and principles, segregation of management duties, scale of organization, and personnel factors.
Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in
judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion
or improper management override. Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements on a timely basis, however these inherent limitations are known features of the financial reporting process
and it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control over Financial
Reporting
During the period covered by this report,
the following change was made in the Company’s internal control over financial reporting that have materially affected, or
are reasonably likely to materially affect, the Company’s internal control over financial reporting:
Item 9B. OTHER INFORMATION.
None.
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.
Directors and Executive Officers
Set forth below is certain information
regarding the persons who were directors and executive officers at any time during the fiscal year 2020.
Name Age Position with the Company
Scott Winters 50 Chairman of the Board, Chief Executive Officer
John Pollock 53 Executive Vice President – Sales, MPath CEO and Board Member
Jennifer Winters 48 Secretary, Chief Operating Officer and Board Member
Edward A. Lyon 56 Chief Tax Strategist, TMN CEO and Board Member
William Nelson, Jr. 50 Chief Investment Officer, Sofos CEO and Board Member
Gary Nemer 74 Chief Legal Counsel, Head of Accounting Services
Scott Winters, August 15, 2019, Financial
Gravity Companies, Inc. (the “Company”) appointed Mr. Scott Winters to serve as Chief Executive Officer and Co-Chairman
of the Board for the Company. Prior to joining the Company, from 2016 to present, Mr. Winters was a major stockholder of Presidential
Brokerage, Inc., a broker dealer and investment advisory firm. From 2003 to 2017 Mr. Winters was CEO, Chairman of the Board and
Co-Founder of Eqis Capital Management, an investment advisory and wealth management firm.
John Pollock was CEO/Founder of
Business Legacy, Inc. from 2002, Pollock Advisory Group from 2007, was the former CEO and Chairman of Financial Gravity
Companies, Inc. (the Company), and is currently Co-Chairman of the Board and Executive Vice President – Sales. Mr.
Pollock served as CEO and Chairman of Financial Gravity since its inception until August 2019 and has been a major
shareholder of the Company.
Paul O. Williams, 64, has served on
the Financial Gravity Companies, Inc. (OTCQB: FGCO) Board of Directors and as Vice Chairman since 2015, and has served as our
Chief Financial Officer & Secretary – Treasurer from 2016 until August 2019. He currently still serves as
Vice-Chairman, Chief Financial Officer & Treasurer. He graduated from Austin College in Sherman, Texas in 1978 and the
Institute for Organization Management in Washington, DC in 1982. Since 2007, Mr. Williams has served as Chief Executive
Officer of Bison Financial Group, Inc., a corporate financial advisory and business development firm serving middle market
growth companies.
Mr. Williams also serves as an officer
and director of two other public companies. On behalf of Curtis Mathes Corporation (OTC: TLED) based in Frisco, TX since 2013,
Mr. Williams currently serves as Chairman, Chief Executive Officer & Chief Financial Officer. On behalf of Lux Amber Corp.
(OTC: LXAM) based in Frisco, TX since 2017, Mr. Williams currently serves as Vice Chairman, President & Chief Financial Officer.
Mr. Williams also serves as an officer
and director of three other private companies. Mr. Williams currently serves as: Vice Chairman of Dynamic Chemical Solutions,
Inc. in Frisco, TX since 2016; Chairman, Co-Chief Executive Officer & Chief Financial Officer of Platinum BioSciences, Inc.
in Prosper, TX since 2019; and Chairman & Chief Financial Officer of Pruven Industries, Inc. in Plano, TX since 2020.
Edward A. Lyon has been the Company’s
Chief Tax Strategist and a Director since October 2015. From 2005 until 2015, he was Partner-in-Charge of Content at Tax Coach
Software, which he founded in 2005. Mr. Lyon received a B.A. in History from Hamilton College in 1986 and a J.D. from the University
of Cincinnati College of Law in 1991. Mr. Lyon’s specific experience, qualifications, attributes or skills that led to the
conclusion that he should serve as a director for the Company.
Jennifer Winters August 27th, the Board
appointed Jennifer Winters to serve as Corporate Secretary. She will also serve as Executive Vice President. Mrs. Winters served
as a Co-Founder of Eqis Holdings, Inc. from 2007 to 2017. She also served on their Board of Directors from 2010 to 2017. In addition,
she served as Chief Compliance Officer of Eqis Capital Management, Inc. from 2007 to 2015. She also served as their Executive
Vice President from 2015 to 2017. Jennifer Winters is the spouse of Scott Winters, the Chief Executive Officer of the Company.
William Nelson, Jr. appointed to serve
as Chief Executive Officer of Sofos Investment, Inc., Company’s money management subsidiary. Prior to joining the Company,
from 2016 to present, Mr. Nelson was a major stockholder of Presidential Brokerage, Inc., a broker dealer and investment advisory
firm. From 2003 to 2017 Mr. Winters was the Chief Investment Officer, Board Member and Co-Founder of Eqis Capital Management,
an investment advisory and wealth management firm.
Gary Nemer, 74,
Mr. Nemer serves as Chief Legal Counsel of Company and as a Board Member of Forta.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), requires officers, directors and persons who beneficially own more than
10% of a class of our equity securities registered under the Exchange Act to file reports of ownership and changes in ownership
with the Securities and Exchange Commission. Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to us
during fiscal year 2020 and Forms 5 and amendments thereto furnished to us with respect to fiscal year 2020, or written representations
that Form 5 was not required for fiscal year 2020, we believe that all Section 16(a) filing requirements applicable to each of
our officers, directors and greater-than-ten percent stockholders were fulfilled in a timely manner. We have notified all known
beneficial owners of more than 10% of our common stock of their requirement to file ownership reports with the Securities and Exchange
Commission.
Code of Ethics
The Company has adopted a code of ethics
that applies to its principal executive, financial, and accounting officers and is included as an exhibit with this filing.
No Committees of the Board of Directors; No Financial
Expert
The Company does not presently have a separately
constituted audit committee, compensation committee, nominating committee, executive committee or any other committees of its Board
of Directors. Nor does it have an audit committee “financial expert”. At present, its entire Board of Directors acts
as its audit committee. None of the members of its Board of Directors meets the definition of “audit committee financial
expert” as defined in Item 407(d) of Regulation S-K promulgated by the Securities and Exchange Commission. It has not retained
an audit committee financial expert because it does not believe that it can do so without undue cost and expense. Moreover, it
believes that the present members of the Board of Directors, taken as a whole, have sufficient knowledge and experience in financial
affairs to effectively perform their duties.
Item 11. EXECUTIVE COMPENSATION.
Summary Compensation Table
The particulars of compensation paid to
the following persons during the fiscal period ended September 30, 2020 and 2019 are set out in the summary compensation table
below:
· our Chief Executive Officer (Principal Executive Officer);
· our Chief Financial Officer (Principal Financial Officer);
(collectively, the “Named Executive
Officers”):
SUMMARY COMPENSATION TABLE
Name and Principal Position Year Salary Option/SAR Awards(1) All Other Total
__________________________
(1) 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 1.32% in the quarter ended June 30, 2020 and 1.50% to 2.89% in 2019, dividend yield of 0%, expected
life of 10 years and volatility of 159% in 2020 and volatility of 25% to 34.05% in 2019.
Each of the Named Executive Officers has an employment agreement.
Edward A. Lyon, a member of the Board of Directors, is party to an employment agreement. which provides for base salary of $42,000
per year, plus management fees of $198,000 annually, paid semi-monthly. Mr. Lyon serves as the General Manager, responsible for
supervising the business and affairs of Tax Master Network.
Summary Compensation
For the fiscal year ended September 30,
2020, no outstanding stock options or other equity-based awards were re-priced or otherwise materially modified. There are no non-equity
incentive plan agreements with any of the Directors or executive officers.
Outstanding Equity Awards at Fiscal Year-end
The following stock option and stock appreciation rights granted
to executive officers are outstanding:
Issue Date Expiry Date Issued To Current Strike Price Issued Awards
Compensation of Directors
This section is not applicable as there was no director compensation
for year ended September 30, 2020.
Employment Contracts, Termination of Employment, Change-in-Control
Arrangements
Certain executives have compensation agreements
that include payments to be made by us upon termination of service without cause, up to one year of annual salary. There are no
arrangements for Directors, officers, employees or consultants that would result from a change-in-control, other than vesting as
described in the stock option grant agreement and plan.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain
information with respect to the beneficial ownership, as of September 30, 2020, of the Company’s common stock, which is the
Company’s only outstanding class of voting securities, and the voting power resulting from such beneficial ownership, by
Beneficial Owner (1) Amount of Beneficial Ownership (1) Percentage of Shares
Directors and executive officers as group (six persons) 60,665,903 72.6%
___________________________
(2) Non-director or executive officer with more than 5% ownership.
(3) Scott Winters has 75,000 fully vested stock options.
Changes in Control
On May 21, 2020, the Company merged with
Forta. The Forta shareholders will own more than 50% of the Company. John Pollock is currently the largest shareholder.
Securities authorized for issuance under equity compensation
plans.
The following table provides information
as of the end of the most recently completed fiscal year, with respect to Company compensation plans (including individual compensation
arrangements) under which equity securities of the Company are authorized for issuance.
Equity Compensation Plan Information
A (1) B C
_____________________
(1) Shares subject to stock options under 2016 Stock Option Plan.
(2) The 2015 Stock Option Plan was replaced by the 2016 Stock Option Plan.
The 2015 Stock Option Plan was adopted
without approval of Company security holders, the 2016 Stock Option, as amended and restated, was adopted with approval of Company
security holders.
The Company has granted stock options to
certain employees and contractors under its 2015 Stock Option Plan, assumed from Financial Gravity Holdings and under its 2016
Stock Option Plan. The Company is authorized to issue an aggregate of 20,000,000 options, of which 13,027,304 remain available
for issuance at September 30, 2020 under the 2016 Stock Option Plan. Currently outstanding options under the 2015 and 2016 Stock
Option Plans vest over a period of no greater than five years and expire ten years from the grant date.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
AND DIRECTOR INDEPENDENCE. Transactions with Related Persons, Promoters and Certain Control Persons
Except as set forth below, none of the
Company’s directors or officers, nor any person who beneficially owns, directly or indirectly, shares carrying more than
10% of the voting rights attached to the Company’s shares, nor any relative or spouse of any of the foregoing persons, has
had any material interest, direct or indirect, in any transaction to which the Company was a party, and in which the amount involved
exceeds the lesser of (i) $120,000 or (ii) one percent of the average of the Company’s total assets at year-end for the last
two completed fiscal years.
The following Directors of Financial Gravity
received shares in the merger transaction: Scott Winters 13,705,176 and William Nelson, Jr. 13,705,176 shares.
TaxTuneup, LLC, which is an entity owned
by Mr. Edward A. Lyon, a current director of the Company, received shares of Financial Gravity Holdings issued in the transaction
by which Financial Gravity acquired TMN, then having an approximate value of $864,500. As a consequence of such issuance, Mr. Lyon
is the beneficial owner of 3.1% of the Company’s common stock as of September 30, 2020.
During fiscal year 2020 and 2019, TaxTuneup,
LLC, an entity owned by Mr. Edward A. Lyon, received the sums of $198,000 and $198,000, respectively, from the Company, in compensation
for strategic tax planning recommendations and research, business consulting and writing of books and tax planning and TMN related
content.
Director Independence; Board Leadership Structure
The Company’s common stock is quoted
through the OTC System. For purposes of determining whether members of the Company’s Board of Directors are “independent,”
the Company’s Board utilizes the standards set forth in the NASDAQ Stock Market Marketplace Rules. At present, the Company’s
entire Board serves as its Audit, Compensation and Nominating Committees. The Company’s Board of Directors does not have
any independent members for purposes of qualifying as independent members of the Board and an Audit, Compensation and Nominating
Committee of the Board as defined under NASDAQ’s Marketplace Rules.
The Company’s Board of Directors
is of the view that the current leadership structure is suitable for the Company at its present stage of development, and that
the interests of the Company are best served by the combination of the roles of Chairman of the Board and Chief Executive Officer.
As a matter of regular practice, and as
part of its oversight function, the Company’s Board of Directors undertakes a review of the significant risks in respect
of the Company’s business. Such review is conducted in concert with outside professionals (including legal counsel) with
expertise in substantive areas germane to the Company’s business. With the Company’s current governance structure,
the Company’s Board of Directors and senior executives are, by and large, the same individuals, and consequently, there is
not a significant division of oversight and operational responsibilities in managing the material risks facing the Company.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The following information summarizes
amounts expensed for services provided us by Whitley Penn LLP for assurance and tax services, and Weaver Tidwell, LLP assurance
services for the fiscal years ended September 30, 2020 and 2019, respectively.
Assurance Services. Fees expensed for services by Whitley Penn LLP were $83,035 for fiscal year 2020
and $76,177 for fiscal year 2019. Assurance fees include fees associated with the annual audit and the reviews of the Company’s
quarterly reports on Form 10-Q, and other SEC filings. Fees expensed for service by Weaver Tidwell, LLP related to the 2020 Forta
FINRA audit and the audit, third quarter 10-Q and the 8-K filings of the Company and its subsidiaries were $102,000.
Tax Fees. Fees expensed for tax services
by Whitley Penn LLP were $28,500 in fiscal year 2020 and $13,500 for fiscal year 2019.
All Other Fees.
None
Consistent with SEC policies regarding
auditor independence, the audit committee has responsibility for appointing, setting compensation, approving and overseeing the
work of the independent auditor. In recognition of this responsibility, the audit committee pre-approves all audit and permissible
non-audit services provided by the independent auditor. The Board of Directors serves as the audit committee for the Company.
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) Financial Statements and financial statement
schedules
(3) Exhibits. See Item 15(b) below.
(b) Exhibits required by Item 601 of Regulation S-K
Exhibit No. Description
14.1 Code of Ethics
23.1 Consent of Whitley Penn LLP
31.1 Sarbanes-Oxley Section 302(a) Certification of John Pollock
31.2 Sarbanes-Oxley Section 302(a) Certification of Paul Williams
32.1 Sarbanes-Oxley Section 906 Certifications
101.INS XBRL Instance Document
101.SCH XBRL Schema Document
101.CAL XBRL Calculation Linkbase Document
101.DEF XBRL Definition Linkbase Document
101.LAB XBRL Label Linkbase Document
101.PRE XBRL Presentation Linkbase Document
SIGNATURES
Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: January 11, 2021 By: /s/ Scott Winters
Scott Winters
Chief Executive Officer
(Principal Executive Officer)
Date: January 11, 2021 By: /s/ Paul Williams
Paul Williams
Chief Financial Officer
(Principal Financial Officer)
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
Date: January 11, 2021 By: /s/ Scott Winters
Scott Winters
Chief Executive Officer
(Principal Executive Officer)
Date: January 11, 2021 By: /s/ Paul Williams
Paul Williams
Chief Financial Officer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Signature Capacity Date
/s/ Scott Winters CEO, Chairman of the Board January 11, 2021
Scott Winters (principal executive officer)
/s/ Paul Williams Vice Chairman, CFO January 11, 2021
Paul Williams (principal financial officer)
/s/ Edward A. Lyon Director January 11, 2021
Edward A. Lyon
/s/ John Pollock Director January 11, 2021
John Pollock
/s/ Jennifer Winters Director January 11, 2021
Jennifer Winters
/s/ William Nelson Director January 11, 2021
William Nelson, Jr.
FINANCIAL GRAVITY COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AND
REPORTS OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRMS
SEPTEMBER 30, 2020 AND 2019
CONTENTS
Page
REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS F-2
CONSOLIDATED FINANCIAL STATEMENTS F-3
CONSOLIDATED BALANCE SHEETS F-3
CONSOLIDATED STATEMENTS OF OPERATIONS F-4
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY F-5
CONSOLIDATED STATEMENTS OF CASH FLOW F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and Stockholders
of
Financial Gravity Companies, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheet of Financial Gravity Companies, Inc. (the “Company”), as of September 30, 2020, and the related consolidated
statements of operations, stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively
referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of September 30, 2020 and the results of their operations and their
cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Emphasis of Matter
The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
As discussed in Note 1 to the consolidated financial statements, the Company incurred a net loss and a net use of operating cash
in the current year and currently has a retained deficit that raises substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do
not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have,
nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required
to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures
to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures
in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable
basis for our opinion.
We have served as the Company's auditor
since 2020.
Fort Worth, Texas
January 11, 2021
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and Stockholders
of
Financial Gravity Companies, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheets of Financial Gravity Companies, Inc. (the “Company”), as of September 30, 2019, and the related consolidated
statements of operations, stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively
referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of September 30, 2019, and the results of their operations and
their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Emphasis of Matter
The accompanying consolidated financial
statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated
financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial
doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note
1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with