Item 1A. RISK FACTORS.
The Company’s limited operating history may not serve as
an adequate basis to judge its future prospects and results of operations. Financial Gravity has a relatively limited operating
history. Its limited operating history and the unpredictability of the wealth management and insurance industries make it difficult for
investors to evaluate its business. An investor in its securities must consider the risks, uncertainties and difficulties frequently encountered
by companies in rapidly evolving markets.
The Company will need additional financing to implement its business
plan. The Company will need additional financing to fully implement its business plan in a manner that not only continues to expand
an already established direct-to-consumer approach, but also allows the Company to establish a stronger brand name in all the areas in
which it operates, and to attract new advisors, insurance professionals and tax service providers. In particular, the Company will need
additional financing to:
· Expand its facilities, human resources, and infrastructure; and
· Increase its marketing efforts and lead generation.
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. The failure to adequately fund its capital requirements could have
a material adverse effect on the Company’s 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 the Company’s operations.
The Company’s products and services are subject to changes
in applicable laws and regulations. The Company’s business is particularly subject to changing federal and state
laws and regulations related to the provision of financial services to consumers. The Company’s continued success depends in part
on its ability to anticipate and respond to these changes, and the Company may not be able to respond in a timely or commercially appropriate
manner. If the Company fails to adjust its products and services in response to changing legal and/or regulatory requirements, the ability
to deliver its products and services may be hindered, which in turn could have an adverse effect on the Company’s business, financial
condition and results of operations.
The Company may continue to encounter substantial
competition in its business. The Company believes that existing and new competitors will continue to improve their products
and services, as well as introduce new products and services with competitive price and performance characteristics. The Company expects
that it must continue to innovate, and to invest in product development and productivity improvements, to compete effectively in the several
markets in which the Company participates. The Company’s competitors could develop a more efficient product or service or undertake
more aggressive and costly marketing campaigns than those implemented by the Company, which could adversely affect the Company’s
marketing strategies and have an adverse effect on the Company's business, financial condition and results of operations.
Important factors affecting the Company's current
ability to compete successfully include:
· lead generation and marketing costs;
· service delivery protocols;
· branded name advertising; and
· product and service pricing.
In periods of reduced demand for the Company's
products and services, the Company can either choose to maintain market share by reducing product and service pricing to meet the competition,
or maintain its product and service pricing, which would likely sacrifice market share. Sales and overall profitability may be reduced
in either case. In addition, there can be no assurance that additional competitors will not enter the Company's existing markets, or that
the Company will be able to continue to compete successfully against its competition.
The Company may not successfully manage
its growth. The Company’s success will depend upon the expansion of its operations and the effective management of
its growth, which will place a significant strain on its management and on its administrative, operational, and financial resources. To
manage this growth, it must expand its facilities, augment its operational, financial and management systems, and hire and train additional
qualified personnel. If it is unable to manage its growth effectively, its business would be harmed.
The Company relies on key executive officers,
and their knowledge of its business and technical expertise would be difficult to replace. The Company is highly dependent
on its executive officers. If one or more of the Company's senior executives or other key personnel are unable or unwilling to continue
in their present positions, the Company may not be able to replace them easily or at all, and the Company’s business may be disrupted.
Competition for senior management personnel is intense, the pool of qualified candidates is very limited, and it may not be able to retain
the services of its senior executives or attract and retain high-quality senior executives in the future. Such failure could have a material
adverse effect on the Company's business, financial condition and results of operations.
The Company may never pay dividends to its
common stockholders. The Company currently intends to retain its future earnings to support operations and to finance expansion;
accordingly, the Company does not anticipate paying any cash dividends in the foreseeable future.
The declaration, payment, and amount of any future
dividends on common stock will be at the discretion of the Company's Board of Directors, and will depend upon, among other things, earnings,
financial condition, capital requirements, level of indebtedness and other considerations the Board of Directors considers relevant. There
is no assurance that future dividends will be paid on common stock or, if dividends are paid, the amount thereof.
The Company’s common stock is quoted
through the OTC Markets, which may have an unfavorable impact on its stock price and liquidity. The Company’s common
stock is quoted on the OTC Markets, which is a significantly more limited market than the New York Stock Exchange or NASDAQ. The trading
volume may be limited by the fact that many major institutional investment funds, including mutual funds, follow a policy of not investing
in OTC Markets stocks and certain major brokerage firms restrict their brokers from recommending OTC Markets stocks because they are considered
speculative and volatile.
The trading volume of the Company’s common
stock has been and may continue to be limited and sporadic. As a result, the quoted price for the Company’s common stock on the
OTC Markets may not necessarily be a reliable indicator of its fair market value.
Additionally, the securities of small capitalization
companies may trade less frequently and in more limited volume than those of more established companies. The market for small capitalization
companies is generally volatile, with wide price fluctuations not necessarily related to the operating performance of such companies.
The Company’s common stock is subject
to price volatility unrelated to its operations. The market price of the Company’s common stock could fluctuate substantially
due to a variety of factors, including market perception of the Company’s ability to achieve its planned growth, operating results
of the Company and of other companies in the same industry, trading volume in the Company’s common stock, changes in general conditions
in the economy and the financial markets or other developments affecting the Company or its competitors.
The Company’s common stock is classified
as a “penny stock.” Rule 3a51-1 of the Securities Exchange Act of 1934 establishes the definition of a “penny
stock,” for purposes relevant to us, as any equity security that has a minimum bid price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to a limited number of exceptions which are not available to us. It is likely that
the Company’s common stock will be considered to be a penny stock for the immediately foreseeable future.
For any transaction involving a penny stock, unless
exempt, the penny stock rules require that a broker or dealer approve a person’s account for transactions in penny stocks and the
broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny
stock to be purchased. In order to approve a person’s account for transactions in penny stocks, the broker or dealer must obtain
financial information and investment experience and objectives of the investor, make a reasonable determination that transactions in penny
stocks are suitable for that person, and make a reasonable determination that that person has sufficient knowledge and experience in financial
matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also provide disclosure
to its customers, prior to executing trades, about the risks of investing in penny stocks in both public offerings and in secondary trading,
the commissions payable to both the broker-dealer and the registered representative, and the rights and remedies available to an investor
in cases of fraud in penny stock transactions.
Because of these regulations, broker-dealers may
not wish to furnish the necessary paperwork and disclosures and/or may encounter difficulties in their attempt to buy or sell shares of
the Company’s common stock, which may in turn affect the ability of Company stockholders to sell their shares.
Accordingly, the penny stock classification adversely
affects any market liquidity for the Company’s common stock and subjects the shares to certain risks associated with trading in
penny stocks. These risks include difficulty for investors in purchasing or disposing of shares, difficulty in obtaining accurate bid
and ask quotations, difficulty in establishing the market value of the shares, and a lack of securities analyst coverage.
The Company’s common stock is subject
to dilution. Company’s plan for increasing revenue is to recruit advisors and other professionals. Some of these recruits
may be granted stock options or stock rights. These shares are among the shares reserved in Company’s stock option plan (see compensation
plans discussion).
FINRA Arbitrations.Forta
had over 20 FINRA claims pending in 2021 that arise from the sale to clients of alternative investments (REITs, Business Development
Loan Funds, and Oil and Gas securities). These income generating investments did not do as well as the stock markets, and the
performance has lagged the market. While the exposure on these cases would not be material, the costs of defense for legal fees may
be substantial. As part of its annual review of the performance of its subsidiaries, Company has decided to discontinue
Forta’s broker/dealer operation and that transition is now in progress.
The Company’s performance may be affected
by COVID-19. December 2019, a novel strain of coronavirus, referred to as COVID-19, was reported to have surfaced in Wuhan, China.
Since then, COVID-19 has spread to other countries, including the United States. In March 2020, the World Health Organization declared
the COVID-19 outbreak a pandemic. The financial markets demonstrated significant volatility in reaction to the virus outbreak, and new
variants may contribute to volatility. The effects of such COVID-19 variants on the economy are not known. During periods of high volatility
and uncertainty many investors choose to stop ongoing investment activity. Revenues of the Company are adversely affected when investors
reduce their investment activities. In addition, over 50%t of Company’s revenues is based upon the value of assets under management.
If the investment portfolios of clients decrease in value, investment management fees may also decrease. Any significant shutdown of the
economy for a sustained period will affect the Company’s revenue which could lead to losses.
Item 1B. UNRESOLVED STAFF COMMENTS.
None.
Item 2. PROPERTIES.
The Company’s corporate offices are located at 2501 Ranch Road
620 South, Suite 110, Lakeway, Texas 78734.
TMN’s offices are located in Cincinnati,
OH.
Forta has offices in Greenwood Village, Colorado.
Company has offices in Carmel, California.
Item 3. LEGAL PROCEEDINGS.
Legal Proceedings
From time to time, we are a party to or
otherwise involved in legal proceedings, claims and other legal matters, arising in the ordinary course of our business or
otherwise. During 2021, Forta had over 20 FINRA arbitrations that were pending. The claims arise from the sale to clients of
alternative investments (REITs, Business Development Loan Funds, and Oil and Gas securities). Most of the claims arise from
investments prior 2015. None of the registered representatives that recommended these alternative investments is currently
associated with Forta. Many of the claims have been settled, and most of the remaining claims are in settlement discussions. The
total amount of the currently pending claims may exceed the amount of insurance available. Forta no longer generates significant
revenue from brokerage activity like the sale of alternative investments. As part of its annual review of performance of its
subsidiaries, Company has decided to discontinue Forta’s broker/dealer operations and that transition is now in progress.
Item 4. MINE SAFETY DISCLOSURES.
Not applicable.
PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES.
Market Information
The Company’s Common Stock is currently traded in the over-the-counter
market and quoted under the symbol FGCO.
Holders
The approximate number of stockholders of record of the Company’s
Common Stock on September 30, 2021 was 87.
Dividends
The Company has never paid any cash dividends on its common stock,
and it is anticipated that none will be paid in the foreseeable future.
Recent Sales/Issuance of Unregistered Securities
During the year ended September 30, 2021, 8,000,000 shares of common
stock were issued in connection with the NCW acquisition transaction. During the year ended September 30, 2020, an aggregate of 75,757
shares of the Company’s common stock have been sold for $25,000, 116,375 shares in stock options were exercised for $182 and 382,931
shares were issued for $50,000 in services rendered to the Company.
As a result of the merger
with Forta, 41,607,315 shares of stock have been issued to Forta shareholders as of September 30, 2021 with a total of 4,178,564 that
remain unissued. As a result of the merger with NCW Group, Inc., 8,000,000 shares were issued to NCW shareholders as of September 30,
2021.
The sales of the securities identified above were made pursuant to
privately negotiated transactions that did not involve a public offering of securities and, accordingly, the Company believes that these
transactions were exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof. Each investor represented
that such investor either (A) is an “accredited investor,” (B) has such knowledge and experience in financial and business
matters that the investor is capable of evaluating the merits and risks of acquiring the shares of the Company’s common stock, or
(C) appointed an appropriate person to act as the investor’s purchaser representative in connection with evaluating the merits and
risks of acquiring the shares of the Company’s common stock. The investors received written disclosures that the securities had
not been registered under the Securities Act and that any resale must be made pursuant to a registration or an available exemption from
such registration. All of the foregoing securities are deemed restricted securities for purposes of the Securities Act.
The Company’s option grants were effected
pursuant to Rule 701 promulgated under the Securities Act.
Repurchases of Equity Securities
The Company did not repurchase any of its equity securities during
the years ended September 30, 2020 or 2019.
Item 6. SELECTED FINANCIAL DATA.
Not applicable.
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.
Financial Gravity’s Subsidiaries and Reportable Segments:
The following outline briefly describes Financial Gravity’s active
subsidiaries and the products and services they offer:
Tax Master Network, LLC, runs the Tax Master Network® (“TMN”)
that provides four primary services including monthly subscriptions to the TMN systems, coaching and marketing services. TMN currently
supports over 300 Certified Public Accountants (“CPA”) and Enrolled Agent professionals, training them to support clients
through tax planning services. TMN’s tax planning services include the Tax Blueprint®, Certified Tax Master®, and the Tax
Operating System. In addition, TMN has launched 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.
Financial Gravity Family Office Services, LLC
(“FGFOS”) is a registered investment advisor (“RIA”) that offers financial planning, and wealth management services
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 Asset Management, Inc., formerly
Sofos Investment Management, Inc. (“FGAM”), is an RIA, registered with the Securities and Exchange Commission, and provides
asset management services to individuals and businesses. FGAM had in excess of $170,000,000 in assets under management as of September
30, 2021.
Financial Gravity Enhanced Markets, LLC, formerly,
MPath Advisor Resources, LLC (“FGEM”) is an insurance marketing organization and provides insurance products and services
to insurance agents or agencies. The advisors with FGFOS access insurance and other related products through FGEM.
Forta Financial Group, Inc.
(“Forta”) is a broker-dealer, a registered investment advisor, and a licensed insurance agent. It primarily operates in
Colorado. As part of its annual review of the performance of its subsidiaries, Company has decided to discontinue Forta’s
broker/dealer operations, and is in the process of completing that transition.
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 through
FGFOS.
Family Office Services including wealth management services through
FGFOS, investment advisory services through FGAM, and insurance services through FGEM.
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. However, management has determined that Forta should discontinue operations and Forta is being shut down. The goodwill attributed
to the Forta acquisition has been written off in 2021.
In March 1, 2021 Company entered into a merger
agreement with NCW Group, Inc. Company issued 8,000,000 shares of its common stock in exchange for 100% ownership of the stock of NCW
Group, Inc. The owners of NCW and some staff have resigned from NCW and are employees of Forta. The transaction included transfer of client
accounts from NCW to Forta and Sofos. This will generate approximately $500,000 in recurring annual revenue. The value of the assets is
based upon the value of the recurring revenue, which is $2,000,000 in aggregate, which is the market value of 8 million shares at the
time of issuance (July 26, 2021). The purchase price is allocated to Goodwill.
Revenues
For the year ended September 30, 2021, revenue increased approximately
$3,000,000 to $6,672,793 from $3,687480 for the year ended September 30, 2020. The principal drivers for this are an increase in revenue
from Forta of approximately $1,625,000, from FGAM of approximately $680,000, from FGEM of approximately $460,000 and from TMN of approximately
$150,000. However, management has determined that Forta’s broker/dealer business is no longer viable and has decided to discontinue
Forta’s operations, as a result of which Forta will no longer substantially contribute to Company’s revenue.
Operating Expenses
Cost of services increased by $33,559 to $106,630
for the year ended September 30, 2021 from $73,071 for the year ended September 30, 2020, primarily due increased costs at Forta of approximately
$22,000, and approximately $11,000 at FGAM.
Professional services expenses include consulting
fees, legal expense, professional fees, and business consulting increased approximately $21,000 to $396,755 for the year ended September
30, 2021 from $375,363 for the year ended September 30, 2020. The primary source of the increase was legal fees at Forta related to FINRA
claims, reductions of audit and legal fees at Company of approximately $35,000, outside tax preparation fees related to TMN of approximately
$40,000, and small increases in expense at the other subsidiaries.
Depreciation and amortization expenses include
depreciation on fixed assets and amortization of definite lived intangibles. Depreciation and amortization expenses decreased approximately
$55,000 to $111,052 for the year ended September 30, 2021 from $166,586 for the year ended September 30, 2020. The decrease is primarily
due to an decrease of expense at Financial Gravity of approximately $86,000, offset by an increase at TMN of approximately $30,000.
General and administrative expenses increased
approximately $470,000 to $1,141,570 for the year ended September 30, 2021 from $672,784 for the year ended September 30, 2020. The increase
is primarily due increased costs at Forta of approximately $730,000 (reflected a full twelve months of operations), offset by decreases
at other subsidiaries including decreases at FGAM of approximately $255,000.
Marketing expenses decreased approximately $47,000
to approximately $78,000 for the year ended September 30, 2021 from $125,161 for the year ended September 30, 2020. The decrease is primarily
due to a reduction of costs at Company of approximately $59,000, and net increases at the subsidiaries of approximately $12,000. The variance
in expenses reflects a change in marketing efforts influenced by the move toward the independent advisor model at the subsidiaries.
Compensation expenses increased approximately
$2,350,000 to approximately $5,540,000 for the year ended September 30, 2021 from $3,186,305 for the year ended September 30, 2020. The
increase is primarily due to an increase in executive compensation at Financial Gravity of approximately $443,000, the increase of compensation
at Forta of approximately $1,627,000 that includes a full twelve months, and increases at FGEM and FGAM reflected increased commissions
from higher revenue by independent advisors of approximately $260,000.
The Company experienced an increase in net loss
of approximately $6,630,000 to a net loss of approximately $7,423,000 for the year ended September 30, 2021 from a net loss of $791,675
for the year ended September 30, 2020, primarily attributable to a decrease in ordinary loss of approximately $208,000 for the reasons
noted above, and the write-off of Goodwill of $7,380,603, offset by the income related to forgiveness of PPP loans of $661,045.
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 the policy is accepted by the insurer.
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 contract liabilities in the accompanying consolidated balance sheets. Accrued revenue is carried only for investment management fees
that are paid in arrears. The allowance for doubtful accounts was $0 and $0 as of September 30, 2021 and 2020, 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 FGAM 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 $2,076,383 for the fiscal year ending September 30, 2021, and $1,395,877 for the fiscal year ending
September 30, 2020.
The Company received revenue from Forta’s
operations during the fiscal year ending September 30, 2021, and from May 21, 2020 through fiscal year ending September 30, 2020 including:
TMN charges month-to-month subscription fees to
its members. None of these subscription 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 30,2021 including:
The Company received revenue from FGEM’s
operations from insurance sales of $536,990 during the fiscal year ending September 30, 2021 from $73,882 in fiscal year 2020.
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 0.88% in the year ended September 30, 2021 and 1.32% in 2020, dividend yield of 0%, expected life of 10
years and volatility of 87.68% in 2021 and volatility of 159% in 2020.
Liquidity and Capital Resources
As of September 30, 2021, the Company had cash
and cash equivalents of $306,057, as compared $482,854 as of September 30, 2020. The decrease of $176,797 in cash and cash equivalents
from September 30, 2020 was due to cash used in operations.
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. Interest rate increases may create market
risks. Some clients may choose to limit their exposure to the stock market and this 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,
2021. 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, 2021 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, 2021. 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, 2021, 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 Company
continued to review and improve 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 2021.
Name Age Position with the Company
Scott Winters 51 Chairman of the Board, Chief Executive Officer
John Pollock 55 Executive Vice President – Sales, FGEM CEO and Board Member
Jennifer Winters 50 Secretary, Chief Operating Officer and Board Member
Edward A. Lyon 57 Chief Tax Strategist, TMN CEO and Board Member
William Nelson, Jr. 50 Chief Investment Officer, FGAM CEO and Board Member
Gary Nemer 75 Chief Financial Officer and Chief Legal Counsel
Mark Williams 46 Board Member
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 2021.
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 serves as Corporate Secretary
and Chief Operating Officer. Mrs. Winters was a Co-Founder of Eqis Holdings, Inc.. She also served on the Eqis Board of Directors from
2010 to 2017, and as Chief Compliance Officer of Eqis Capital Management, Inc. from 2007 to 2015. Jennifer Winters is the spouse of Scott
Winters, the Chief Executive Officer of the Company.
William Nelson, Jr. served as Chief Executive
Officer of FGAM for part of the reporting period and was and is FGAM’s Chief Investment Officer. 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. Nelson was the Chief Investment Officer, Board Member and Co-Founder of Eqis Capital Management, an investment advisory
and wealth management firm.
Gary Nemer serves as Chief Legal Counsel and Chief
Financial Officer of Company.
Mark Williams is a Board Member of Company and
was the former founding and majority shareholder of NCW.
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 2021 and Forms 5 and amendments thereto
furnished to us with respect to fiscal year 2021, or written representations that Form 5 was not required for fiscal year 2021, 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, 2021 and 2020 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
__________________________
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 years ended September 30, 2021 and 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 years ended September 30, 2021 and 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, 2021, of the Company’s common stock, which is the Company’s
only outstanding class of voting securities, and the voting power of management resulting from such beneficial ownership:
Directors and executive officers as group (seven persons) 64,102,822 70%
(2) Non-director executive officer with more than 5% ownership.
(3) Scott Winters has 75,000 fully vested stock options.
Changes in Control
None.
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 12,739,804 remain available for issuance at September
30, 2021 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.
In 2020, the following Officers and Directors
of Financial Gravity received shares in the merger transaction: Scott Winters 13,705,176 shares and William Nelson, Jr. 13,705,176 shares.
Jennifer Winters is an Officer and Director and the spouse of Scott Winters.
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% of the Company’s common stock as of September 30, 2021.
During fiscal year 2021 and 2020, 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.
Mr. Lyon also received compensation from the Company, for a total compensation of $258,000 and $253,000 in 2021 and 2020, respectively.
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, 2021 and 2020, respectively.
Assurance Services. Fees expensed for services
by Whitley Penn LLP were $3,250 for fiscal year 2021 and $83,035 for fiscal year 2020. 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 2021 Forta FINRA audit and the audit, the 2021 10-Q and the 8-K filings of the Company and its subsidiaries
were $154,825.
Tax Fees. Fees expensed for tax services by Whitley
Penn LLP were $0 in fiscal year 2021 and $28,500 for fiscal year 2020. Fees expensed for tax services by Weaver Tidwell, LLP were $20,500.
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
(1)and (2) The financial statements and financial statement schedules required to be filed as part of this report are set forth in Item 8 of Part II of this report.
(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
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.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document