Financial Gravity Companies, Inc.: Form 10-K for the period ended Sep 30, 2021

General

Financial Gravity Companies, Inc. (the “Company”) is headquartered in Austin Texas, with locations in Denver, Colorado, Monterey, California and Cincinnati, Ohio. Company, along with its subsidiary companies, supports investment advisors and provides tax professionals with a turnkey family office charter. Company helps the tax professionals evolve from the commoditized business of tax compliance to a Family Office Director that runs and manages their own multi-family office. Family Office Directors are able to leverage the Financial Gravity systems, technology, proprietary resources, and deep domain expertise to bring an elevated and holistic financial service experience to their clients that spans proactive tax planning, retirement and estate planning, wealth management, and risk mitigation.

The currently operating wholly owned subsidiaries of the Company include:

Tax Master Network, LLC, runs the Tax Master Network® (“TMN”) that provides four primary services including monthly subscriptions to the TMN systems, coaching and marketing services. TMN currently supports over 300 Certified Public Accountants (“CPA”) and Enrolled Agent professionals, training them to support clients through tax planning services. TMN has developed the Certified Tax Master® that includes client acquisition and retention systems. TMN also offers tax planning services through the Tax Blueprint®, which includes an extensive individualized review and assessment of the client’s tax situation. The initial assessment sets the requirements for a custom Tax Blueprint® for each client to use as guide to implementation of the identified tax savings strategies. Finally, TMN offers the Tax Operating System, which is a system for integrating and executing tax planning strategies.

TMN also provides CPAs, Enrolled Agents, and other tax professionals a system for marketing, selling, and fulfilling tax-planning engagements. The system rests on two proprietary SAAS-based applications, the Tax Ninja software, which uses non-technical language in written reports introducing clients to tax-saving concepts and strategies; and the Tax Operating System®, which automates implementation of tax strategies. The system also includes: 1) marketing and practice-management tools and resources; 2) access to the Technical Training Center and the Sales Training Center to support members; 3) the monthly Fueled program which promotes personal development education; 4) the weekly Tax Beat client newsletter (a client newsletter); and 5) the Certified Tax Master® designation (which identifies members as offering special training not usually available to clients). TMN membership also includes the option to participate in the Financial Advisor Technical Education (FATE) program, which serves two goals: 1) it helps tax planners do a better job helping clients manage tax exposure in their investment portfolios; and 2) it gives members a proprietary "done for you" path into the investment advisory business.

Financial Gravity Family Office Services, LLC (“FGFOS”) is a registered investment advisor that offers investment management advice to clients through independent investment advisors. Many of the independent investment advisors are members of TMN that are licensed to provide investment management advice. FGFOS provides support for the multi-family offices run by the TMN members.

Financial Gravity Asset Management, Inc., formerly Sofos Investment Management, Inc. (“FGAM”) is a registered investment advisor, registered with the Securities and Exchange Commission, and provides asset management services to individuals and businesses, including money management, financial planning, and wealth management. FGAM commenced its money management services in late 2020, and by September 30, 2021 had in excess of $170,000,000 in assets under management.

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. This is a new venture that will be focused upon insurance marketing and will capture business synergies in the sale of insurance products by financial advisors with TMN and with Forta.

Forta Financial Group, Inc. (“Forta”) is a broker-dealer, a registered investment advisor, and a licensed insurance agent. It primarily operates in Colorado and has independent advisors and representatives in other states. As explained below, management has determined that Forta’s broker/dealer business is no longer viable and has decided to discontinue Forta’s broker/dealer operations. Company is in the process of completing that transition.

Competition

The market is comprised of a very large selection of varied suppliers that provide investment advisory and brokerage, financial advisory, accounting, and tax services. These include accounting firms, tax preparers, estate planners, lawyers, wealth management advisors, banks, and large financial institutions. However, many of these firms are not able to provide the customized services that small business owners are seeking, or simply do not have each of the customized services that Financial Gravity offers to meet the needs of small business owners and high net worth individuals at the price that Financial Gravity offers.

Financial Gravity’s service delivery model has been proven to work over the past years. Financial Gravity believes that its superior products, services and overall customer service will enable it to achieve sales and revenue growth.

Intellectual Property

Financial Gravity maintains copyrights or trademarks on all of its printed marketing materials, the financialgravity.com website and other web pages, and proprietary software. Financial Gravity’s goal is to preserve its trade secrets and operate without infringing on the proprietary rights of other parties.

To help protect its proprietary know-how, which is not patentable, Financial Gravity currently relies and will in the future rely on trade secret protection and confidentiality agreements to protect its interests. To this end, Financial Gravity requires all its employees, consultants, advisors and other contractors to enter into confidentiality agreements that prohibit the disclosure of confidential information and, where applicable, require disclosure and assignment to Financial Gravity of the ideas, developments, discoveries and inventions important to its business.

Employees

As of September 30, 2021, the Company had approximately 27 full-time employees. None of the Company’s employees are covered by a collective bargaining agreement. The Company believes that it maintains good relations with its employees.

Government Regulation

The services provided by Financial Gravity, through its subsidiaries, are extensively regulated by federal and state authorities in the United States. Financial Gravity believes it is in compliance with federal and state qualification and registration requirements in order that it may continue to provide services to its clients consistent with applicable laws and regulations.

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:

• Effectuate its business plan and further develop its product and service lines;
• 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.

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.

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.

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.

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.

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.

• Insufficient Resources: The Company has inadequate number of personnel with requisite expertise in the key functional areas of finance and accounting to be able to have appropriately designed and operating entity level controls including risk assessment; information and communication; monitoring; and financial reporting.
• Inadequate Segregation of Duties: The Company has inadequate number of personnel to properly segregate duties to implement control procedures.

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.