NOTE

BUSINESS COMBINATION, CONTINGENT CONSIDERATION AND DISPOSAL OF BRANCHES

Business Combinations

January

and

February 2019,

National Tax acquired certain assets of

three

tax preparation and accounting businesses that per accounting guidance were deemed to be a business combination. The consideration for the transactions consisted of cash payments at closing totaling

$387,000,

and contingent consideration payable in cash having a fair value of

$1,428,000,

for which liabilities (included in accounts payable and accrued expenses) were recognized based on the estimated acquisition date fair value of the potential earn-outs. The earn-outs are based on revenue, as defined in the acquisition agreements, during various periods following the closing. The fair values of the acquired assets totaling

$1,815,000

were allocated to customer relationships, which are being amortized over

seven

years.

December 2019,

January 2020

and

September 2020,

National Tax acquired certain assets of

three

tax preparation and accounting businesses that per accounting guidance were deemed to be a business combination. The consideration for the transactions consisted of cash payments at closing totaling

$582,000,

and contingent consideration payable in cash having a fair value of

$2,177,000,

for which a liability (included in contingent consideration) was recognized based on the estimated acquisition date fair value of the potential earn-outs. The earn-outs are based on revenue, as defined in the acquisition agreements, during various periods following the closing. The fair value of the acquired assets totaling

$2,759,000

was allocated to customer relationships, which are being amortized over

seven

years.

The contingent consideration liabilities recognized in the above acquisitions were valued using an income-based approach using unobservable inputs (Level

) and reflects the Company's own assumptions. The liabilities will be revalued at each Balance Sheet date with changes therein recorded in earnings. Results of operations of the acquired businesses are included in the accompanying consolidated statements of operations from the dates of acquisition and were

not

material. In addition, based on materiality, pro forma results are

not

presented.

Winslow acquisition

August 26, 2019,

the Company entered into a stock purchase agreement (as amended, the “Winslow Agreement” and the transactions contemplated thereunder, the “Winslow Acquisition”) whereby the Company agreed to acquire all of the outstanding equity interests (the “Purchased Shares”) of Winslow Evans & Crocker, Inc. (“WEC”), Winslow, Evans & Crocker Insurance Agency, Inc. (“WIA”), and Winslow Financial, Inc. (“WF” and collectively with WEC and WIA, the “Winslow Targets”). The Company entered into an amendment to the Winslow Agreement on

October 11, 2019,

to reflect certain clarifications to the terms of the Winslow Agreement as agreed to by the parties.

December 31, 2019,

the Company completed the acquisition of all of the outstanding equity interests of the Winslow Targets.

Under the terms of the Winslow Agreement, at the closing of the Winslow Acquisition, the Company acquired the Purchased Shares for an aggregate purchase price of approximately

$3.2

million paid at closing in cash, subject to certain adjustments, plus additional consideration to be based on (i) the amount of net operating capital of WEC and WF as of the closing, payable in

three

annual installments and

not

to exceed

$1.0

million in the aggregate, (ii) the aggregate pre-tax net income (loss) of the Winslow Targets through

September 22, 2022,

provided that such additional consideration shall

not

be less than

$1.5

million and shall

not

exceed

$3.0

million in the aggregate, and (iii) a portion of the synergies achieved through

September 20, 2022.

At the signing of the Winslow Agreement, the Company deposited

$500,000

into escrow, which was applied to the amount payable at closing.

WEC is a Boston-based, full-service investment firm established in

1991.

WEC is an SEC Registered Investment Advisor and a FINRA registered broker-dealer. More than

financial professionals including Certified Financial Planners, Investment Advisor Representatives, Financial Consultants, brokers and other specialists are part of the Winslow team. Located in the heart of the financial district in Boston, MA, the Company believes that WEC is a strategic location for the Company to build out its banking platform.

The acquisition was accounted for using the acquisition method of accounting under which assets and liabilities of the Winslow Targets were recorded at their respective fair values including an amount for goodwill representing the difference between the acquisition consideration and the fair value of the identifiable net assets. A deferred tax liability has been recorded for the excess of financial statement basis over tax basis of the acquired assets and assumed liabilities with a corresponding increase to goodwill. The goodwill attributable to the acquisition has been recorded as a non-current asset and is

not

amortized, but is subject to an annual review for impairment. Goodwill, which is non-deductible for income tax purposes, is part of the brokerage and advisory services segment.

The acquisition price was allocated to the tangible and identified intangible assets acquired and liabilities assumed as of the closing date. The fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed are based on management's estimates and assumptions. The estimated fair values of assets acquired and liabilities assumed are considered preliminary and are based on the most recent information available. The Company believes that the information provides a reasonable basis for assigning the fair values of assets acquired and liabilities assumed. Thus, the provisional measurements of fair value set forth below are subject to change. The Company expects to finalize the valuation as soon as practicable, but

not

later than

one

year from the acquisition date.

The table below summarizes the assets acquired and liabilities assumed in connection with the Winslow acquisition as of

December 31, 2019.

	Estimated Fair Value
Assets

Cash	$	1,111,000
Cash deposits with clearing organizations		207,000
Securities owned at fair value		1,111,000
Receivables from broker dealers and clearing organizations		49,000
Forgivable loans receivable		91,000
Other receivables, net		113,000
Prepaid expenses		432,000
Fixed assets, net		80,000
Intangible assets, net		4,400,000
Operating lease assets		1,823,000
Other assets		12,000
Total assets acquired		9,429,000

Liabilities
Securities sold, not yet purchased at fair value		203,000
Accrued commissions and payroll payable		390,000
Accounts payable and accrued expenses		188,000
Operating lease liabilities		1,823,000
Deferred tax liability		1,196,000
Other		215,000
Total liabilities assumed	$	4,015,000
Net identifiable assets acquired	$	5,414,000
Goodwill		2,680,000
Total Purchase price	$	8,094,000

The intangible assets as of the closing date of the acquisition included:		Amount

Customer relationships		4,100,000
Brand name		300,000
	$	4,400,000

Indications of fair value of the intangible assets acquired in connection with the acquisition were determined using either the income, market or replacement cost methodologies. The intangible assets are being amortized over periods which reflect the pattern in which economic benefits of the assets are expected to be realized. The customer relationships are being amortized on an accelerated basis over an estimated useful life of

twelve

years and the brand name is being amortized on a straight-line basis over

five

years.

Initial purchase price	$	3,200,000
Additional consideration payable (net operating capital)		873,000
Earnout (contingent consideration)		4,021,000
Total purchase price	$	8,094,000

Pro Forma Financial Information

The following table presents the unaudited pro forma combined results of operations of the Company and Winslow for the

twelve

months ended

September 30, 2020

and

2019

as if the acquisition of Winslow had occurred on

October 1, 2018.

The pro forma financial information is presented for informational purposes only and is

not

necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the Company's fiscal year

2019.

	Twelve Months Ended September 30,
	2020			2019
Net revenues	$	232,815,000		$	223,811,000
Net Income (Loss)	$	(6,187,000	)	$	869,000
Net Income (Loss) attributable to common stockholders	$	(5,911,000	)	$	(1,791,000	)

Net income (loss) per common share:
Basic	$	(0.44	)	$	(0.14	)
Diluted	$	(0.44	)	$	(0.14	)

United Advisors Acquisition

February 7, 2020,

the Company entered into a Stock Purchase Agreement with United Atlantic Capital, LLC, a New Jersey limited liability company, Mark H. Penske and Darin Pope to acquire all of the outstanding equity interests (collectively, the “Purchased Shares”) of Financial Services International Corporation, a Washington corporation (“FSIC”), United Advisor Services, LLC, a New Jersey limited liability company (“UAS”), and United Advisors, LLC, a New Jersey limited liability company (“UA” and collectively with FSIC and UAS, the “Group Companies”).

September 11, 2020,

the Company completed the acquisition of all of the outstanding equity interests of the Group Companies. At the closing, the Company acquired the Purchased Shares for a closing payment of

$3.0

million paid in cash. Under the Purchase Agreement, the Selling Parties are entitled to additional consideration of up to approximately

$4.5

million paid in

twelve

equal quarterly installment payments in cash, subject to certain adjustments.

UA is a New York-based, advisor and wealth management firm. UAS is an SEC Registered Investment Advisor and FSIC is a FINRA registered broker-dealer. More than

financial professionals are part of the United Advisors team.

The acquisition was accounted for using the acquisition method of accounting under which assets and liabilities of UA, UAS and FSIC were recorded at their respective fair values including an amount for goodwill representing the difference between the acquisition consideration and the fair value of the identifiable net assets. A deferred tax liability has been recorded for the excess of financial statement basis over tax basis of the acquired assets and assumed liabilities with a corresponding increase to goodwill. The goodwill attributable to the acquisition has been recorded as a non-current asset and is

not

amortized, but is subject to an annual review for impairment. Goodwill allocated to UA and UAS is deductible for income tax purposes and goodwill allocated to FSIC is non-deductible for income tax purposes. Goodwill is part of the brokerage and advisory services segment.

not

later than

one

year from the acquisition date.

The table below summarizes the assets acquired and liabilities assumed in connection with the United Advisors acquisition as of

September 11, 2020.

	Estimated Fair Value
Assets

Cash	$	16,000
Cash deposits with clearing organizations		33,000
Other receivables, net		86,000
Prepaid expenses		12,000
Intangible assets, net		2,025,000
Total assets acquired		2,172,000

Liabilities
Accounts payable and accrued expenses		7,000
Deferred tax liability		340,000
Other		86,000
Total liabilities assumed	$	433,000
Net identifiable assets acquired	$	1,739,000
Goodwill		4,803,000
Total Purchase price	$	6,542,000

The intangible assets as of the closing date of the acquisition included:	Amount

Customer relationships		1,960,000
Brand name		65,000
	$	2,025,000

twelve

years and the brand name is being amortized on a straight-line basis over

one

year.

Initial purchase price	$	2,790,000
Additional consideration payable		210,000
Contingent consideration		3,542,000
Total purchase price	$	6,542,000

Pro Forma Financial Information

The following table presents the unaudited pro forma combined results of operations of the Company and United Advisors for the

twelve

months ended

September 30, 2020

and

2019

as if the acquisition of United Advisors had occurred on

October 1, 2018.

The pro forma financial information is presented for informational purposes only and is

not

necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the Company's fiscal year

2019.

	Twelve Months Ended September 30,
	2020			2019
Net revenues	$	239,336,000		$	222,948,000
Net Income (Loss)	$	(7,960,000	)	$	2,468,000
Net Income (Loss) attributable to common stockholders	$	(7,684,000	)	$	(192,000	)

Net income (loss) per common share:
Basic	$	(0.57	)	$	(0.01	)
Diluted	$	(0.57	)	$	(0.01	)

Contingent Consideration

Set below are changes in the carrying value of contingent consideration for the years ended

September 30, 2020

and

2019

related to the acquisitions:

Fair value of contingent consideration at September 30, 2018		744,000
Fair value of contingent consideration in connection with 2019 acquisitions		1,428,000
Payments		(617,000	)
Change in fair value		65,000
Fair value of contingent consideration at September 30, 2019		1,620,000
Fair value of contingent consideration in connection with 2020 Tax & Accounting acquisitions		2,177,000
Fair value of contingent consideration in connection with Winslow acquisition		4,021,000
Fair value of contingent consideration in connection with UA acquisition		3,542,000
Payments		(730,000	)
Disposition/settlement of contingent consideration		(540,000	)
Change in fair value		311,000
Fair value of contingent consideration at September 30, 2020	$	10,401,000

Disposal of National Tax Branches

January 2020,

the Company sold

one

of its National Tax branches for a note in the aggregate principal amount of

$636,000

which, after allocating a portion of goodwill and unamortized intangibles of

$239,000

and

$100,000,

respectively, resulted in a gain on disposal of

$297,000.

Principal and interest on the note is payable monthly over

120

months with an interest rate of

per annum. Notes receivables are included in other receivables in the statement of financial condition.

Notes receivable outstanding at

September 30, 2020

and

2019

amounts to $

1,229,000

and $

665,000

, respectively, which is included in other receivables in the statements of financial condition.