NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Concierge
Technologies, Inc., (the “Company”), a Nevada
corporation, was originally incorporated in California on August
18, 1993 as Fanfest, Inc. On March 20, 2002, the Company changed
its name to Concierge Technologies, Inc. The Company’s
principal operations include the purchase and sale of digital
equipment through its wholly owned subsidiaries
Wireless Village doing
business as Janus Cam (until its disposal as of May 7, 2015),
Gourmet Foods, a manufacturer and distributor of meat pies in New
Zealand, Brigadier Security Systems, a provider of security alarm
installation and monitoring located in Canada, and
Kahnalytics, Inc. a California corporation providing vehicle-based
live streaming video and event recording to online
subscribers.
NOTE
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts
of Concierge Technologies, Inc., and its wholly owned subsidiaries,
Kahnalytics, Gourmet Foods, Ltd., Brigadier Security Systems and
Wireless Village (discontinued on May 7, 2015). All significant
intercompany accounts and transactions have been eliminated in
consolidation.
Use
of Estimates
The
preparation of consolidated financial statements is in conformity
with accounting principles generally accepted in the United States
of America which requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Cash
and Cash Equivalents
For
purposes of the consolidated statement of cash flows, cash
equivalents include all highly liquid debt instruments with
original maturities of three months or less which are not securing
any corporate obligations.
Concentrations
of Risk
The
Company maintains cash balances at a financial institution
headquartered in San Diego, California. Accounts are insured by the
Federal Deposit Insurance Corporation up to $250,000 per depositor.
The Company’s uninsured cash balance in the United States was
$33,026 at June 30, 2016. Cash balances in Canada are maintained at
a financial institution in Saskatoon, Saskatchewan. Each account is
insured up to CD$100,000 by Canada Deposit Insurance Corporation
(CDIC). The Company’s uninsured cash balance in Canada was
CD$123,311 (approximately US$95,190) at June 30, 2016.
Balances at
financial institutions within certain foreign countries, including
New Zealand where the Company maintains cash balances, are not
covered by insurance. As of June 30, 2016, the Company had
uninsured deposits related to cash deposits in uninsured accounts
maintained within foreign entities of approximately $568,427. The
Company has not experienced any losses in such
accounts.
CONCIERGE
TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Major
customers & suppliers
Concierge, through
Kahnalytics as a licensed user of a proprietary software
application, is dependent on the continued support of this online
platform and the adherence to the license contract terms between
Kahnalytics and the foreign-based licensor. Kahnalytics is also
largely dependent on its single-source sales channel to continue to
expand its dealer network of resellers who, in turn, activate
subscribers to the Kahnalytics service. Hardware sold by
Kahnalytics is currently supplied by one source, however in the
event this source proves to be inadequate there are other
alternative sources of equal or comparable devices as needed by
Kahnalytics. During the fiscal year ended June 30, 2015 Kahnalytics
had just one customer accounting for 100% of its sales.
Correspondingly, Kahnalytics had only two suppliers of the hardware
it sold with the larger of the suppliers accounting for 92% of the
cost of goods sold for fiscal year ended June 30, 2015. Sales of
these products were discontinued during the current fiscal
year.
Concierge, through
Brigadier Security Systems, is dependent upon its contractual
relationship with the alarm monitoring company who purchases the
monitoring contracts and provides monitoring services to
Brigadier’s customers. In the event this contract is
terminated Brigadier would be compelled to find an alternate source
of alarm monitoring, or establish such a facility itself.
Management believes that the contractual relationship is
sustainable, and has been for many years, with alternate solutions
available should the need arise. Sales to the two largest customers
totaled 55% of the total revenues for the one-month period ended
June 30, 2016, and accounted for approximately 38.6% of accounts
receivable as of the balance sheet date of June 30,
2016.
Concierge, through
Gourmet Foods, has three major customer groups comprising the gross
revenues to Gourmet Foods; 1) grocery, 2) gasoline convenience
stores, 3) independent retailers. The grocery and food industry is
dominated by several large chain operations, which are customers of
Gourmet Foods, and there are no long term guarantees that these
major customers will continue to purchase products from Gourmet
Foods, however the relationships have been in place for sufficient
time to give management reasonable confidence in their continuing
business. For the 11-month period ending and balance sheet date of
June 30, 2016, our largest customer in the grocery industry, who
operates through a number independently branded stores, accounted
for approximately 14% of our gross sales revenues and 34% of our
accounts receivable. The second largest in the grocery industry
accounted for approximately 10% of our gross revenues and 12% of
our accounts receivable. In the gasoline convenience store market
we supply two major accounts. The largest is a marketing consortium
of gasoline dealers accounting for approximately 44% of our gross
sales revenues and 24% of our accounts receivable. The second
largest are independent operators accounting for approximately 13%
of gross sales and 17% of accounts receivable. The third category
of independent retailers accounted for the balance of our gross
sales revenue however the group is fragmented and no one customer
accounts for a significant portion of our revenues. Gourmet Foods
is not dependent upon any one major supplier as many alternative
sources are available in the local market place should the need
arise.
CONCIERGE
TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Allowance
for Doubtful Debts
The
Company maintains an allowance for doubtful accounts for estimated
losses inherent in its accounts receivable portfolio. In
establishing the required allowance, management regularly reviews
the composition of accounts receivable and analyzes customer credit
worthiness, customer concentrations, current economic trends and
changes in customer payment patterns. Reserves are recorded
primarily on a specific identification basis. Account balances are
charged off against the allowance after all means of collection
have been exhausted and the potential for recovery is considered
remote. As of June 30, 2016 and 2015, the Company had recorded
allowance for doubtful accounts of $3,600 and $Nil,
respectively.
Inventory
Inventories are
valued at the lower of cost (determined on a FIFO basis) or market.
Inventories include product cost, inbound freight and warehousing
costs. Management compares the cost of inventories with the market
value and an allowance is made for writing down the inventories to
their market value, if lower. During the year ended June 30, 2016,
the Company incurred an impairment loss of $48,330 due to valuing
inventory at market which was lower than cost.
Property
and Equipment
Property and
equipment are stated at cost. Expenditures for maintenance and
repairs are charged to earnings as incurred; additions, renewals
and improvements are capitalized. When property and equipment are
retired or otherwise disposed of, the related cost and accumulated
depreciation are removed from the respective accounts, and any gain
or loss is included in operations. Depreciation is computed using
various methods over an estimated useful life of the
asset.
Category
|
|
Estimated Useful
Life
|
|
|
|
Computer Equipment
& Software
|
|
3 to 5
Years
|
Office
furniture and equipment:
|
|
3 to 5
Years
|
Autos
|
|
3 to 5
Years
|
Intangible
Assets
Intangible assets
consist of brand names, domain names, recipes, non-compete
agreements and customer lists. Intangible assets with finite lives
are amortized over the estimated useful life and are evaluated for
impairment at least on an annual basis and whenever events or
changes in circumstances indicate that the carrying value may not
be recoverable. The Company assesses recoverability by determining
whether the carrying value of such assets will be recovered through
the discounted expected future cash flows. If the future discounted
cash flows are less than the carrying amount of these assets, the
Company recognizes an impairment loss based on the excess of the
carrying amount over the fair value of the assets.
CONCIERGE
TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Goodwill
Goodwill represents
the excess of the aggregate purchase price over the fair value of
the net assets acquired in a purchase businesses combination.
Goodwill is reviewed for impairment on an annual basis, or more
frequently if events or changes in circumstances indicate that the
carrying amount of goodwill may be impaired. The goodwill
impairment test is a two-step test. Under the first step, thefair
value of the reporting unit is compared with its carrying value
including goodwill. If the fair value of the reporting unit exceeds
its carrying value, step two does not need to be performed. If the
fair value of the reporting unit is less than its carrying value,
an indication of goodwill impairment exists for the reporting unit
and the enterprise must perform step two of the impairment test.
Under step two, an impairment loss is recognized for any excess of
the carrying amount of the reporting unit’s goodwill over the
implied fair value of that goodwill. The implied fair value of
goodwill is determined by allocating the fair value of the
reporting unit in a manner similar to a purchase price allocation.
The residual fair value after this allocation is the implied fair
value of the reporting unit goodwill.
Impairment of Long-Lived Assets
The
Company tests long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable through the estimated undiscounted
cash flows expected to result from the use and eventual disposition
of the assets. Whenever any such impairment exists, an impairment
loss will be recognized for the amount by which the carrying value
exceeds the fair value.
Fair
Value of Financial Instruments
The
Company's financial instruments primarily consist of cash and cash
equivalents, accounts receivable, and accounts
payable.
The
three levels are defined as follows:
Level
1: Quoted prices in active markets for identical assets or
liabilities.
Level
2: Inputs other than Level 1 that are observable, either directly
or indirectly, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or
liabilities.
Level
3: Unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets
or liabilities.
As of
the balance sheet dates, the estimated fair values of the financial
instruments were not materially different from their carrying
values as presented on the balance sheet. This is primarily
attributed to the short maturities of these
instruments.
CONCIERGE
TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue
primarily consists of sale of gourmet meat pies and related bakery
confections in New Zealand,
security
alarm system installation and monitoring in
Canada and sale
of mobile video recording devices and gathering of live-streaming
video recording data displayed online to subscribers in the U.S.A.
Revenue is accounted for net of sales taxes, sales returns, trade
discounts. Revenue is recognized when persuasive evidence of an
arrangement exists, the price is fixed or determinable, the
delivery has occurred, no other significant obligations of the
Company exist, and collectability is probable. Product is
considered delivered to the customer once it has been shipped and
title, risk of loss and rewards of ownership have been
transferred. For most of the Company’s product sales,
these criteria are met at the time the product is
shipped.
Share-based
Compensation
The
Company measures stock-based compensation cost at the grant date
based on the fair value of the award and recognize it as expense
over the applicable vesting period of the stock award using the
straight-line method.
Income
Taxes
Income
taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carry
forwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered
or settled. The effect of a change in tax rates on deferred tax
assets and liabilities is recognized in income in the period that
includes the enactment date. A valuation allowance is provided for
deferred tax assets if it is more likely than not that these items
will either expire before the Company is able to realize their
benefits or if future deductibility is uncertain.
When
tax returns are filed, it is highly certain that some positions
taken would be sustained upon examination by the taxing
authorities, while others are subject to uncertainty about the
merits of the position taken or the amount of the position that
would be ultimately sustained. The benefit of a tax position is
recognized in the financial statements in the period during which,
based on all available evidence, management believes it is more
likely than not that the position will be sustained upon
examination, including the resolution of appeals or litigation
processes, if any. Tax positions taken are not offset or aggregated
with other positions. Tax positions that meet the
more-likely-than-not recognition threshold are measured as the
largest amount of tax benefit that is more than 50 percent likely
of being realized upon settlement with the applicable taxing
authority. The portion of the benefits associated with tax
positions taken that exceeds the amount measured as described above
is reflected as a liability for unrecognized tax benefits in the
balance sheets along with any associated interest and penalties
that would be payable to the taxing authorities upon examination.
Applicable interest and penalties associated with unrecognized tax
benefits are classified as additional income taxes in the
statements of operations.
Advertising
Costs
The
Company expenses the cost of advertising as incurred. Advertising
costs for the years ended June 30, 2016 and 2015 were
negligible.
Other
Comprehensive Income (Loss) and Foreign Currency
Translation
We
record foreign currency translation adjustments and transaction
gains and losses in accordance with SFAS 52, Foreign Currency
Translation. The accounts of Gourmet Foods, Ltd. use the New
Zealand dollar as the functional currency. The accounts of
Brigadier Security System use the Canadian dollar as the functional
currency. Assets and liabilities are translated at the exchange
rate on the balance sheet date, and operating results are
translated at the average exchange rate throughout the period.
Accumulated translation loss classified as an item of accumulated
other comprehensive loss in the stockholders’ equity section
of the consolidated balance sheet was $29,503 as of June 30,
2016.
Statement
of Cash Flows
The
Company’s cash flows from operations are calculated based
upon the local currencies. As a result, amounts related to assets
and liabilities reported on the statement of cash flows will not
necessarily agree with changes in the corresponding balances on the
consolidated balance sheet.
Segment
Reporting
The
Company defines operating segments as components about which
separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performances. The Company
allocates its resources and assesses the performance of its sales
activities based on the geographic locations of its subsidiaries
(see Note 20).
Business
Combinations
We
allocate the fair value of purchase consideration to the tangible
assets acquired, liabilities assumed and intangible assets acquired
based on their estimated fair values. The excess of the fair value
of purchase consideration over the fair values of these
identifiable assets and liabilities is recorded as goodwill. Such
valuations require management to make significant estimates and
assumptions, especially with respect to intangible assets.
Significant estimates in valuing certain intangible assets include,
but are not limited to, future expected cash flows from acquired
users, acquired trade names from a market participant perspective,
useful lives and discount rates. Management’s estimates of
fair value are based upon assumptions believed to be reasonable,
but which are inherently uncertain and unpredictable and, as a
result, actual results may differ from estimates. During the
measurement period, which is one year from the acquisition date, we
may record adjustments to the assets acquired and liabilities
assumed, with the corresponding offset to goodwill. Upon the
conclusion of the measurement period, any subsequent adjustments
are recorded to earnings.
Reclassifications
Certain
2015 balances have been reclassified to conform to the 2016
presentation
CONCIERGE
TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Recent
Accounting Pronouncements
In May
2014, the (“FASB”) issued Accounting Standards Update
(“ASU”) 2014-09, Revenue from Contracts with Customers,
which provides a single comprehensive model for entities to use in
accounting for revenue arising from contracts with customers and
will supersede most current revenue recognition guidance. The
standard’s core principle is that a company will recognize
revenue when it transfers promised goods or services to customers
in an amount that reflects the consideration to which the company
expects to be entitled in exchange for those goods or services. In
August 2015, the FASB deferred the effective date of the new
revenue standard by one year, which will make it effective for the
Company in the first quarter of its fiscal year ending June 30,
2019. The Company is currently in the process of evaluating the
impact of adoption of this ASU on its consolidated financial
statements.
In June
2014, the FASB issued Accounting Standards Update No. 2014-12,
Compensation — Stock Compensation (Topic 718), Accounting for
Share-Based Payments When the Terms of an Award Provide That a
Performance Target Could Be Achieved after the Requisite Service
Period (a consensus of the FASB Emerging Issues Task Force) (ASU
2014-12). The guidance applies to all reporting entities that grant
their employees share-based payments in which the terms of the
award provide that a performance target that affects vesting could
be achieved after the requisite service period. The amendments
require that a performance target that affects vesting and
thatcould be achieved after the requisite service period be treated
as a performance condition. For all entities, the amendments in
this update are effective for annual periods and interim periods
within those annual periods beginning after December 15, 2015.
Earlier adoption is permitted. The effective date is the same for
both public business entities and all other entities. The Company
is currently evaluating the impact of adopting ASU 2014-12 on the
Company’s results of operations or financial
condition.
In
August 2014, the FASB issued Accounting Standards Update No.
2014-15, Presentation of Financial Statements – Going Concern
(Subtopic 205-40), Disclosure of Uncertainties about an
Entity’s Ability to Continue as a Going Concern (ASU
2014-15). The guidance in ASU 2014-15 sets forth management’s
responsibility to evaluate whether there is substantial doubt about
an entity’s ability to continue as a going concern as well as
required disclosures. ASU 2014-15 indicates that, when preparing
financial statements for interim and annual financial statements,
management should evaluate whether conditions or events, in the
aggregate, raise substantial doubt about the entity’s ability
to continue as a going concern for one year from the date the
financial statements are issued or are available to be issued. This
evaluation should include consideration of conditions and events
that are either known or are reasonably knowable at the date the
financial statements are issued or are available to be issued, as
well as whether it is probable that management’s plans to
address the substantial doubt will be implemented and, if so,
whether it is probable that the plans will alleviate the
substantial doubt. ASU 2014-15 is effective for annual periods
ending after December 15, 2016, and interim periods and annual
periods thereafter. Early application is permitted. The adoption of
this guidance is not expected to have a material impact on the
Company’s consolidated financial statements.
In
January 2015, the FASB issued Accounting Standards Update No.
2015-01, Income Statement – Extraordinary and Unusual items
(Subtopic 225-20), Simplifying Income Statement Presentation by
Eliminating the Concept of Extraordinary Items (ASU 2015-01). The
amendment eliminates from U.S. GAAP the concept of extraordinary
items. This guidance is effective for the Company in the first
quarter of fiscal 2017. Early adoption is permitted and allows the
Company to apply the amendment prospectively or retrospectively.
The adoption of this guidance is not expected to have a material
impact on the Company’s consolidated financial
statements.
CONCIERGE
TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
February 2015, FASB issued ASU No. 2015-02, (Topic 810): Amendments
to the Consolidation Analysis. ASU No. 2015-02 provides amendments
to respond to stakeholders’ concerns about the current
accounting for consolidation of certain legal entities.
Stakeholders expressed concerns that GAAP might require a reporting
entity to consolidate another legal entity in situations in which
the reporting entity’s contractual rights do not give it the
ability to act primarily on its own behalf, the reporting entity
does not hold a majority of the legal entity’s voting rights,
or the reporting entity is not exposed to a majority of the legal
entity’s economic benefits or obligations. ASU No. 2015-02 is
effective for annual periods, and interim periods within those
annual periods, beginning after December 15, 2015. The adoption of
this guidance is not expected to have a material impact on the
Company’s results of operations, financial position or
disclosures.
In
April 2015, FASB issued ASU No. 2015-03, (Subtopic
835-30): Simplifying the Presentation of Debt Issuance
Costs. ASU No. 2015-03 provides guidance that will require
debt issuance costs related to a recognized debt liability to be
presented in the balance sheet as a direct deduction from the
carrying amount of that debt liability. ASU No. 2015-03 affects
disclosures related to debt issuance costs but does not affect
existing recognition and measurement guidance for these items. ASU
No. 2015-03 is effective for annual periods, and interim periods
within those annual periods, beginning after December 15, 2015. The
adoption of this guidance is not expected to have a material impact
on the Company’s results of operations, financial position or
disclosures.
In
April 2015, FASB issued ASU No. 2015-05, (Subtopic
350-40): Customer’s Accounting for Fees Paid in a Cloud
Computing Arrangements. ASU No. 2015-05 provides guidance on a
customer’s accounting for fees paid in a cloud computing
arrangement, which includes software as a service, platform as a
service, infrastructure as a service, and other similar hosting
arrangements. ASU No. 2015-05 is effective for annual periods, and
interim periods within those annual periods, beginning after
December 15, 2015. The adoption of this guidance is not expected to
have a material impact on the Company’s results of
operations, financial position or disclosures.
In
September 2015, the Financial Accounting Standards Board
(“FASB”) issued ASU No. 2015-16, Business
Combinations (Topic 805) Simplifying the Accounting for
Measurement-Period Adjustments.” ASU No. 2015-06
simplifies the accounting for measurement-period adjustments
attributable to an acquisition. Under prior guidance, adjustments
to provisional amounts during the measurement period that arise due
to new information regarding acquisition date circumstances must be
made retrospectively with a corresponding adjustment to goodwill.
The amended guidance requires an acquirer to record adjustments to
provisional amounts made during the measurement period in the
period that the adjustment is determined. The adjustments should
reflect the impact on earnings of changes in depreciation,
amortization, or other income effects, if any, as if the accounting
hadbeen completed as of the acquisition date. Additionally, amounts
recorded in the current period that would have been reflected in
prior reporting periods if the adjustments had been recognized as
of the acquisition date must be disclosed either on the face of the
income statement or in the notes to financial statements. This
guidance is effective prospectively for interim and annual periods
beginning after December 15, 2015 and early application is
permitted. The impact of the guidance on our financial condition,
results of operations and financial statement disclosures will
depend on the level of acquisition activity performed by the
Company.
CONCIERGE
TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
November 2015, the Financial Accounting Standards Board (FASB)
issued ASU 2015-17, “Balance Sheet Classification of Deferred
Taxes” (ASU 2015-17), which changes how deferred taxes are
classified on the balance sheet and is effective for financial
statements issued for annual periods beginning after December 15,
2016, with early adoption permitted. ASU 2015-17 requires all
deferred tax assets and liabilities to be classified as
non-current. The adoption of this guidance is not expected to have
a material impact on the Company’s results of operations,
financial position or disclosures.
In
January 2016, the FASB issued ASU 2016-01, “Recognition and
Measurement of Financial Assets and Financial Liabilities”
(ASU 2016-01), which requires equity investments that are not
accounted for under the equity method of accounting to be measured
at fair value with changes recognized in net income and updates
certain presentation and disclosure requirements. ASU 2016-01 is
effective beginning after December 15, 2017. The adoption of this
guidance is not expected to have a material impact on the
Company’s results of operations, financial position or
disclosures.
In
February 2016, the FASB issued ASU No. 2016-02,
“Leases,” which requires lessees to recognize
right-of-use assets and lease liabilities, for all leases, with the
exception of short-term leases, at the commencement date of each
lease. This ASU requires lessees to apply a dual approach,
classifying leases as either finance or operating leases based on
the principle of whether or not the lease is effectively a financed
purchase by the lessee. This classification will determine whether
lease expense is recognized based on an effective interest method
or on a straight-line basis over the term of the lease. This ASU is
effective for annual periods beginning after December 15, 2018 and
interim periods within those annual periods.Early adoption is
permitted. The amendments of this update should be applied using a
modified retrospective approach, which requires lessees and lessors
to recognize and measure leases at the beginning of the earliest
period presented. The Company is currently evaluating the impact of
the adoption of this standard on its consolidated financial
statements.
In
March 2016, the FASB issued Accounting Standards Update 2016-07,
Investments- Equity Method and Joint Ventures: Simplifying the
Transition to the Equity Method of Accounting (“ASU
2016-07”). ASU 2016-07 eliminates the requirement to apply
the equity method of accounting retrospectively when a reporting
entity obtains significant influence over a previously held
investment. ASU 2016-07 is effective for fiscal years beginning
after December 15, 2016, including interim periods within those
fiscal years. We are currently evaluating the impact the adoption
of this standard would have on our financial condition, results of
operations and cash flows.
In
March 2016, the FASB issued ASU 2016-09, “Improvements to
Employee Share-Based Payment Accounting.” The guidance
simplifies accounting for share-based payments, most notably by
requiring all excess tax benefits and tax deficiencies to be
recorded as income tax benefits or expense in the income statement
and by allowing entities to recognize forfeitures of awards when
they occur. This new guidance is effective for annual reporting
periods beginning after December 15, 2016 and may be adopted
prospectively or retroactively. We are currently evaluating the
impact the adoption of this standard would have on our financial
condition, results of operations and cash flows.
CONCIERGE
TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
No
other recently issued accounting pronouncements are expected to
have a material impact on the Company’s consolidated
financial statements.
NOTE
3. BASIC AND DILUTED NET LOSS PER SHARES
Basic
net loss per share is based upon the weighted average number of
common shares outstanding. Diluted net loss per share is based on
the assumption that all dilutive convertible shares and stock
options were converted or exercised. Dilution is computed by
applying the treasury stock method. Under this method, options and
warrants are assumed to be exercised at the beginning of the period
(or at the time of issuance, if later), and as if funds obtained
thereby were used to purchase common stock at the average market
price during the period.
Diluted
net loss per share for the year ended June 30, 2016 did not reflect
the effects of shares potentially issuable upon conversion of
convertible notes & preferred stock. These potentially issuable
shares would have an anti-dilutive effect on the Company’s
net loss per share in 2016. Diluted net income per share for the
year ended June 30, 2015 reflected the effects of shares actually
potentially issuable upon conversion of convertible preferred
stock.
The
components of basic and diluted earnings per share were as
follows:
|
For the year ended
June 30, 2016
|
|
|
Shares
|
|
Basic loss per
share:
|
|
|
|
Net loss available
to common shareholders
|
$
(81,952
)
|
67,953,870
|
$
(0.00
)
|
Effect of dilutive
securities
|
|
|
|
Preferred stock
Series B
|
-
|
|
|
Convertible
Debt
|
-
|
|
|
Diluted loss per
share
|
$
(81,952
)
|
67,953,870
|
$
(0.00
)
|
|
For the year ended
June 30, 2015
|
|
|
|
|
Basic income per
share:
|
|
|
|
Net income
available to common shareholders
|
$
14,191
|
47,229,336
|
$
0.00
|
Effect of dilutive
securities
|
|
|
|
Preferred stock
Series B
|
|
37,745,637
|
|
Convertible
Debt
|
|
-
|
|
Diluted income per
share
|
$
14,191
|
84,974,973
|
$
0.00
|
CONCIERGE
TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
4. GOING CONCERN
The
accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. The Company has an
accumulated deficit of $6,431,522 as of June 30 2016, including a
net loss of $81,952 during the year ended June 30, 2016. The
historical losses have adversely affected the liquidity of the
Company. Although losses are expected to be curtailed during the
coming fiscal year due to the increasing revenues of its wholly
owned subsidiary Kahnalytics, along with the acquisition of revenue
producing subsidiaries, the Company faces continuing significant
business risks, which include, but are not limited to, its ability
to maintain vendor and supplier relationships by making timely
payments when due, continue product research and development
efforts at Kahnalytics, and successfully compete for customers
within the areas of interest for its Canadian and New Zealand held
subsidiaries.
In view
of the matters described in the preceding paragraph, recoverability
of a major portion of the recorded asset amounts shown in the
accompanying balance sheet is dependent upon continued operations
of the Company, which in turn is dependent upon the Company’s
ability to increase profitability from its subsidiary operations,
obtain financing, and succeed in its future operations. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or
amounts or classification of liabilities that might be necessary
should the Company be unable to continue as a going
concern.
Management has
taken the following steps to revise its operating and financial
requirements, which it believes are sufficient to provide the
Company with the ability to continue as a going concern. Management
devoted considerable effort from inception through the period ended
June 30, 2016, towards (i) sourcing additional working capital
including $1,600,000 debt issuance completed during the year ended
June 30, 2016, (ii) management of accrued expenses and accounts
payable, (iii) divestiture of non-revenue producing subsidiaries,
(vi) acquisition of profit producing subsidiaries such as Gourmet
Foods and Brigadier Security Systems, and (v) other business
combinations between entities where we have a common controlling
interest such as Wainwright Holdings.
Management believes
that the above actions will allow the Company to continue
operations for the next 12 months.
NOTE
5.
INVENTORIES
Inventories
consisted of the following:
|
|
|
|
|
|
Raw
materials
|
$
50,023
|
$
-
|
Supplies and
packing materials
|
77,497
|
-
|
Finished
goods
|
357,351
|
85,849
|
|
484,871
|
85,849
|
Less : Impairment
of Finished Goods
|
(48,330
)
|
-
|
Total
|
$
436,541
|
$
85,849
|
CONCIERGE
TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. PROPERY AND EQUIPMENT
Property, Plant and
Equipment consisted of the following as of June 30, 2016 and
2015.
|
|
|
Plant and
Equipment
|
$
1,477,411
|
$
-
|
Furniture &
Office Equipment
|
119,123
|
12,910
|
Vehicles
|
58,850
|
-
|
Total Property and
Equipment, Gross
|
1,655,384
|
12,910
|
|
(488,691
)
|
(12,910
)
|
Total Property and
Equipment, Net
|
$
1,166,693
|
$
-
|
For
the years ended June 30, 2016 and 2015, depreciation expense
totaled $226,556 and $0, respectively.
NOTE 7. INTANGIBLE ASSETS
Intangible
assets consisted of the following:
|
|
|
|
|
|
Brand
name
|
$
402,123
|
$
-
|
Domain
name
|
36,913
|
-
|
Customer
relationships
|
500,252
|
-
|
Non-compete
agreement
|
84,982
|
-
|
Recipes
|
21,601
|
-
|
Total
|
1,045,871
|
-
|
Less
: Accumulated Amortization
|
(27,658
)
|
-
|
Net
Intangibles
|
$
1,018,213
|
$
-
|
CUSTOMER
RELATIONSHIP
On
August 11, 2105, the Company acquired Gourmet Foods, Ltd. The fair
value on the acquired customer relationships was estimated to be
$66,153 and is amortized over the remaining useful life of 10
years. On June 2, 2016, the Company acquired Brigadier Security
Systems. The fair value on the acquired customer relationships was
estimated to be $434,098 and is amortized over the remaining useful
life of 10 years.
|
|
|
Customer
relationships
|
$
500,252
|
-
|
Less:
accumulated amortization
|
9,659
|
-
|
Total
customer relationships, net
|
$
490,593
|
-
|
CONCIERGE
TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
BRAND
NAME
On
August 11, 2105, the Company acquired Gourmet Foods, Ltd. The fair
value on the acquired brand name was estimated to be $61,429 and is
amortized over the remaining useful life of 10 years. On June 2,
2016, the Company acquired Brigadier Security Systems. The fair
value on the acquired brand name was estimated to be $340,694 and
is amortized over the remaining useful life of 10
years.
|
|
|
Brand
name
|
$
402,123
|
-
|
Less:
accumulated amortization
|
8,447
|
-
|
Total
brand name, net
|
$
393,696
|
-
|
DOMAIN
NAME
On
August 11, 2105, the Company acquired Gourmet Foods, Ltd. The fair
value on the acquired domain name was estimated to be $21,601 and
is amortized over the remaining useful life of 5 years. On June 2,
2016, the Company acquired Brigadier Security Systems. The fair
value on the acquired domain name was estimated to be $15,312 and
is amortized over the remaining useful life of 5
years.
|
|
|
Domain
Name
|
$
36,913
|
-
|
Less:
accumulated amortization
|
4,193
|
-
|
Total
brand name, net
|
$
32,720
|
-
|
RECIPES
On
August 11, 2105, the Company acquired Gourmet Foods, Ltd. The fair
value on the recipes was estimated to be $21,601 and is amortized
over the remaining useful life of 5 years.
|
|
|
|
|
|
Recipes
|
$
21,601
|
$
-
|
Less: accumulated
amortization
|
3,937
|
-
|
Total Recipes,
net
|
$
17,664
|
-
|
NON-COMPETE
AGREEMENT
On
June 2, 2016, the Company acquired Brigadier Security Systems. The
fair value on the acquired non-compete agreement was estimated to
be $104,122 and is amortized over the remaining useful life of 5
years.
|
|
|
Non-compete
agreement
|
$
84,982
|
-
|
Less:
accumulated amortization
|
1,421
|
-
|
Total non-compete
agreement, net
|
$
83,561
|
-
|
AMORTIZATION
EXPENSE
Estimated
amortization expenses of intangible assets for the next five twelve
months periods ended June 30, are as follows:
CONCIERGE
TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ending
June 30,
|
|
2017
|
$
118,937
|
2018
|
$
118,937
|
2019
|
$
118,937
|
2020
|
$
118,937
|
2021
|
$
109,385
|
NOTE 8. GOODWILL
Goodwill
represents the excess of the aggregate purchase price over the fair
value of the net assets acquired in business combinations. Goodwill
comprised of the following amounts:
|
|
|
|
|
|
Trained workforce
– Gourmet Foods
|
$
51,978
|
$
-
|
Trained workforce -
Brigadier
|
75,795
|
-
|
Goodwill –
Gourmet Foods
|
45,669
|
-
|
Goodwill -
Brigadier
|
45,814
|
-
|
|
$
219,256
|
$
-
|
The
Company tests for goodwill impairment at each reporting unit. There
was no goodwill impairment for the year ended June 30,
2016.
NOTE
9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable
and accrued expenses consisted of the following:
|
|
|
Accounts
payable
|
$
288,170
|
$
108,860
|
Accrued
judgment
|
135,000
|
135,000
|
Accrued
interest
|
13,918
|
781
|
Taxes
Payable
|
167,683
|
-
|
Accrued Payroll and
Vacation Pay
|
127,271
|
-
|
Accrued
Expenses
|
265,502
|
24,860
|
Total
|
$
997,644
|
$
269,501
|
NOTE
10. NOTES PAYABLE - RELATED PARTY
Notes
Payable - Related Parties
Current
related party notes payable consist of the following:
|
|
|
Notes payable to
shareholder, interest rate of 10%, unsecured and payable on July
31, 2004 (past due)
|
$
5,000
|
$
5,000
|
Notes payable to
shareholder, interest rate of 8%, unsecured and payable on December
31, 2012 (past due)
|
3,500
|
3,500
|
Notes payable to
affiliate of director/shareholder, interest rate of 4%, unsecured
and payable on June 30, 2017
|
300,000
|
-
|
|
$
308,500
|
$
8,500
|
On
January 1, 2013 we consolidated all outstanding notes payable due a
related party into one loan agreement containing certain conversion
features whereby the note holder could convert the principal amount
of the loan, $204,700 comprised of the sum total of the principal
amounts of the individual notes, $122,000, plus $82,700 in accrued
interest applicable to those notes, together with accrued interest
on the principal at the rate of 4.944% per annum, into shares of
our common stock at the conversion rate of $0.02 per share. On
December 19, 2014 we entered into an amendment to the debenture
that allowed for the maturity date to be extended to June 1, 2015
and provided the Company rights to settle the debenture in full,
upon completion of an equity investment in excess of $1,500,000, by
payment of $122,000 in cash and issuance of 8,270,000 shares of
common stock valued at $0.01 per share to the debenture holder. On
January 26, 2015 we exercised those rights and paid the debenture
in full. The transaction resulted in a gain on the issuance of
shares of $69,861. which was recorded in additional paid in capital
account as the transaction was with a related party.
On
February 13, 2015 the Company repaid the outstanding notes due to
two related parties totaling $21,000 in principal and $4,000 in
accrued interest. A total of $5,086 in accrued interest was
forgiven by the noteholders in settlement of the debt.
Interest expense
for all related party notes payable for the year ended June 30,
2016 amounted to $782 and was $781 for the year ended June 30, 2015
for Concierge Technologies.
NOTE
11. NOTE PAYABLE
On
November 8, 2013 Wireless Village entered into a short term Note
Agreement with an unaffiliated individual in the amount of $50,000,
the proceeds of which were used to pay down inventory purchase
costs. Interest on the Note accrued at the rate of 10% per annum
and was payable in monthly installments with a maturity date of
February 19, 2014 payable by Wireless Village. On February 19, 2014
the unaffiliated individual agreed to extend the maturity date to
June 1, 2014 and the Company agreed to pay a loan commitment fee of
1.5%, or $750. By agreement, that fee was paid by the issuance of
53,571 shares of common stock with a market value on the date of
issuance of $0.014 per share. The note was subsequently extended to
mature on January 5,2015, and then again to mature on February 27,
2015 provided Concierge Technologies guaranteed the repayment on
behalf of Wireless Village. A fee in the amount of 1%, or $500, was
paid in cash to the noteholder by Wireless Village in exchange for
the agreement to extend the maturity date. On February 13, 2015 the
note was repaid in full by Concierge Technologies.
On
December 24, 2014 the Company entered into an unsecured promissory
note agreement with an unaffiliated individual for the principal
amount of $35,000 plus interest to accrue at the rate of 6% per
annum on the unpaid principal. The note and accrued interest was
due and payable on or before June 30, 2015. The proceeds of the
loan were reserved in anticipation of the need to pay a convertible
debenture maturing in January 2015. On January 26, 2015 the
noteholder became an investor and shareholder of the Company and
the amount of $35,000 due under the note agreement was repaid as a
credit to the amount of funds due per the stock subscription
agreement. No interest was accrued or paid on the
note.
An
unsecured loan in the amount of $8,500 due a former director and
shareholder who is now deceased has been reclassified as a note due
unrelated party. The note is interest free, not deemed assignable
to successors by the Company, and held as a contingent liability
until resolved.
NOTE
12. CONVERTIBLE DEBENTURES – RELATED PARTY
On
January 27, 2016 the Company entered into a convertible promissory
note (the “Promissory Note”) with Wainwright Holdings,
an affiliate of our shareholder and C.E.O., that resulted in the
funding of $450,000. The Promissory Note bears interest at four
percent (4%) per annum and increases to eight percent (8%) in the
event of default by the Company. The Company and the noteholder
negotiated the interest rate at arm’s length relying upon the
available market rate for long-term deposits at financial
institutions as well as the current rate of return realized by the
noteholder for cash deposits currently held. Larger deposits
traditionally fall into a “Jumbo” rate category with
marginally higher returns. Interest ranged from annual percentage
rates of .01% at the lowest to 1.75% at the highest. Recognizing
the unsecured nature of the promissory note, and the historical
record of continued operating losses by the Company, a rate of 4
percent annual interest was agreed upon in light of the heightened
default risk over traditional investment instruments. The
Promissory Note may be prepaid at any time in whole or in part by
the Company and is convertible into restricted common stock of the
Company at the election of Promissory Note holder on the date which
is 180 days following issuance of the Promissory Note at a
conversion price of $0.10 per share. The conversion price is
subject to adjustment for mergers, consolidations, share exchanges,
recapitalizations or similar events. The Promissory Note matures
five (5) years from issuance and is unsecured. Proceeds from the
Promissory Note are intended to be used for transactions involving
acquisitions of unrelated companies by Concierge Technologies that
meet the criteria as determined by the Board of Directors. There
was no beneficial conversion feature identified as of the date of
issuance of the Promissory Note.
On
April 8, 2016 the Company entered into a convertible promissory
note (the “Promissory Note”) with Gerber Irrevocable
Family Trust, an affiliate of our shareholder and C.E.O., that
resulted in the funding of $350,000. The Promissory Note bears
interest at four percent (4%) per annum and increases to eight
percent (8%) in the event of default by the Company. The Company
and the noteholder negotiated the interest rate at arm’s
length relying upon the available market rate for long-term
deposits at financial institutions as well as the current rate of
return realized by the noteholder for cash deposits currently held.
Larger deposits traditionally fall into a “Jumbo” rate
category with marginally higher returns. Interest ranged from
annual percentage rates of .01% at the lowest to 1.75% at the
highest. Recognizing the unsecured nature of the promissory note,
and the historical record of continued operating losses by the
Company, a rate of 4 percent annual interest was agreed upon in
light of the heightened default risk over traditional investment
instruments. The Promissory Note may be prepaid at any time in
whole or in part by the Company and is convertible into restricted
common stock of the Company at the election of Promissory Note
holder on the date which is 180 days following issuance of the
Promissory Note at a conversion price of $0.13 per share. The
conversion price is subject to adjustment for mergers,
consolidations, share exchanges, recapitalizations or similar
events. The Promissory Note matures five (5) years from issuance
and is unsecured. Proceeds from the Promissory Note are intended to
be used for transactions involving acquisitions of unrelated
companies by Concierge Technologies that meet the criteria as
determined by the Board of Directors. There was no beneficial
conversion feature identified as of the date of issuance of the
Promissory Note.
On May
25, 2016 the Company entered into a convertible promissory note
(the “Promissory Note”) with Wainwright Holdings, an
affiliate of our shareholder and C.E.O., that resulted in the
funding of $250,000. The Promissory Note bears interest at four
percent (4%) per annum and increases to eight percent (8%) in the
event of default by the Company. The Company and the noteholder
negotiated the interest rate at arm’s length relying upon the
available market rate for long-term deposits at financial
institutions as well as the current rate of return realized by the
noteholder for cash deposits currently held. Larger deposits
traditionally fall into a “Jumbo” rate category with
marginally higher returns. Interest ranged from annual percentage
rates of .01% at the lowest to 1.75% at the highest. Recognizing
the unsecured nature of the promissory note, and the historical
record of continued operating losses by the Company, a rate of 4
percent annual interest was agreed upon in light of the heightened
default risk over traditional investment instruments. The
Promissory Note may be prepaid at any time in whole or in part by
the Company and is convertible into restricted common stock of the
Company at the election of Promissory Note holder on the date which
is 180 days following issuance of the Promissory Note at a
conversion price of $0.13 per share. The conversion price is
subject to adjustment for mergers, consolidations, share exchanges,
recapitalizations or similar events. The Promissory Note matures
five (5) years from issuance and is unsecured. Proceeds from the
Promissory Note are intended to be used for transactions involving
acquisitions of unrelated companies by Concierge Technologies that
meet the criteria as determined by the Board of Directors. There
was no beneficial conversion feature identified as of the date of
issuance of the Promissory Note.
On May
25, 2016 the Company entered into a convertible promissory note
(the “Promissory Note”) with Schoenberger Family Trust,
an affiliate of our shareholder and director, that resulted in the
funding of $250,000. The Promissory Note bears interest at four
percent (4%) per annum and increases to eight percent (8%) in the
event of default by the Company. The Company and the noteholder
negotiated the interest rate at arm’s length relying upon the
available market rate for long-term deposits at financial
institutions as well as the current rate of return realized by the
noteholder for cash deposits currently held. Larger deposits
traditionally fall into a “Jumbo” rate category with
marginally higher returns. Interest ranged from annual percentage
rates of .01% at the lowest to 1.75% at the highest. Recognizing
the unsecured nature of the promissory note, and the historical
record of continued operating losses by the Company, a rate of 4
percent annual interest was agreed upon in light of the heightened
default risk over traditional investment instruments. The
Promissory Note may be prepaid at any time in whole or in part by
the Company and is convertible into restricted common stock of the
Company at the election of Promissory Note holder on the date which
is 180 days following issuance of the Promissory Note at a
conversion price of $0.13 per share. The conversion price is
subject to adjustment for mergers, consolidations, share exchanges,
recapitalizations or similar events. The Promissory Note matures
five (5) years from issuance and is unsecured. Proceeds from the
Promissory Note are intended to be used for transactions involving
acquisitions of unrelated companies by Concierge Technologies that
meet the criteria as determined by the Board of Directors. There
was no beneficial conversion feature identified as of the date of
issuance of the Promissory Note.
Interest expense
for all related party convertible debentures, for the year ended
June 30, 2016 amounted to $13,136 and was $5,102 for the year ended
June 30, 2015.
NOTE13.
CONVERTIBLE DEBENTURE
On February 18, 2014 the Company entered into a series of
agreements, including a convertible debenture, that resulted in a
funding of $53,000. The debenture is convertible, at the option of
the debenture holder, to restricted common shares after August 18,
2014 at a conversion price calculated on a prescribed discount to
the trailing 10-day volume weighted average market price
(“VWAP”) of our shares on the date of conversion.
During the initial 6 months from the date of the note the Company
may repay the principal plus accrued interest at the rate of 8% per
annum by applying a pre-payment penalty determined on a sliding
scale tied to the aging of the note. After the initial 6-month
period has elapsed the Company may not repay the note until its
maturity date on November 18, 2014 at which time the note principal
andinterest will become due and payable without pre-payment
penalty. The Company identified embedded derivatives related to the
convertible debenture. During the quarter ended September 30, 2014,
at the election of the debenture holder, the Company
converted$28,000 of the principal to equity through issuance of
4,346,247 shares of common stock. During the quarter ended December
31, 2014, at the election of the debenture holder, the Company
converted $25,000 of the principal plus $2,120 of accrued interest
to equity through issuance of 5,424,000 shares of common stock. The
debenture has been paid in full as of June 30, 2015.
On
March 28, 2014 the Company entered into a series of agreements,
including a convertible debenture, that resulted in a funding of
$32,500. The note is convertible, at the option of the debenture
holder, to restricted common shares after September 23, 2014 at a
conversion price calculated on a prescribed discount to the
trailing 10-day VWAP of our shares on the date of conversion.
During the initial 6 months from the date of the note the Company
may repay the principal plus accrued interest at the rate of 8% per
annum by applying a pre-payment penalty determined on a sliding
scale tied to the aging of the note. After the initial 6-month
period has elapsed the Company may not repay the note until its
maturity date on January 2, 2015 at which time the note principal
and interest will become due and payable without pre-payment
penalty. The Company identified embedded derivatives related to the
convertible debenture. As of June 30, 2015 the debenture was repaid
in full with cash of $32,500 plus accrued interest of
$1,995.
On
April 25, 2014 the Company entered into a series of agreements,
including a convertible debenture, that resulted in a funding of
$32,500. The note is convertible, at the option of the debenture
holder, to unregistered common shares after October 22, 2014 at a
conversion price calculated on a prescribed discount to the
trailing 10-day VWAP of our shares on the date of conversion.
During the initial 6 months from the date of the note the Company
may repay the principal plus accrued interest at the rate of 8% per
annum by applying a pre-payment penalty determined on a sliding
scale tied to the aging of the note. After the initial 6-month
period has elapsed the Company may not repay the note until its
maturity date on January 25, 2015 at which time the note principal
and interest will become due and payable without pre-payment
penalty. The Company identified embedded derivatives related to the
convertible debenture. As of June 30, 2015 the debenture was repaid
in full with cash of $32,500 plus accrued interest of
$1,995.
The
Company identified embedded derivatives related to all the three
convertible debenture mentioned above. The embedded
derivatives included certain conversion features. The
accounting treatment of derivative financial instruments required
that the Company record the derivatives at their fair values as of
the inception date and at fair value as of each subsequent balance
sheet date. Any change in fair value was recorded as
non-operating, non-cash income or expense at each reporting
date. If the fair value of the derivatives was higher at
the subsequent balance sheet date, the Company recorded a
non-operating, non-cash charge. If the fair value of the
derivatives was lower at the subsequent balance sheet date, the
Company recorded non-operating, non-cash income. The
derivatives were classified as short-term liabilities. The
debentures were repaid in full with cash as of June 30, 2015 and
the derivative liability was eliminated on the consolidated balance
sheet at June 30, 2015.
NOTE
14. EQUITY TRANSACTIONS
Shares
issued for cash
On
January 26, 2015, the Company issued, in the aggregate, 400,000,000
shares of common stock for $1,160,000 to two separate trust
entities. The beneficiaries of the trusts were subsequently
appointed directors on the Company’s board of directors and
the Company’s Chief Executive Officer.
On
January 26, 2015, the Company also issued 32,451,499 shares, in the
aggregate, of Series B Voting, Convertible Preferred stock at
$0.0567per share for $1,840,000 to the same entities as described
in the preceding paragraph. Each share of Series B Voting,
Convertible Preferred stock has twenty votes on all matters
submitted to a vote of the common stockholders and is convertible
into twenty shares of common stock at any time after the issuance
date. The beneficial conversion feature on the Series B Voting,
Convertible Preferred shares issued were valued at $1,470,053 on
the issuance date and accounted for as a deemed
dividend.
Common
stock issued in conversion of preferred stock
During
the year ended June 30, 2015, the company issued 88,127,280 shares
of common stock for two conversions totaling 4,406,363 shares of
Series B Voting, Convertible Preferred stock. The Company also
converted 206,186 shares of its Series A Voting, Convertible
Preferred stock to 1,030,930 shares of common stock.
Shares
issued for debt settlement
The
Company issued a total of 18,040,247 shares of common stock for
conversion of debentures (notes 10, 11, 13).
Shares
cancelled in connection with disposal of subsidiary
On May
7, 2015 completed the sale of its wholly owned subsidiary, Wireless
Village, and cancelled 68,000,000 shares of common stock as
consideration (Note 18). The shares were valued at the fair market
price on the closing date of the transaction.
Reverse
Stock Split
On
November 11, 2015, the Board of Directors (the “Board’)
of the Company approved the implementation of a one-for-ten (1:10)
reverse stock split of all of the Company’s issued and
outstanding common and preferred stock (the “Reverse Stock
Split”). The Reverse Stock Split became effective when
trading opened on December 15, 2015. The Reverse Stock Split was
previously approved by the Company’s shareholders pursuant to
a majority written consent and by the Board pursuant to unanimous
written consent on February 26, 2015. The approvals provided
discretion to the Board to implement the Reverse Stock Split by the
end of 2015.
The number of the
Company’s authorized shares of common stock did not
change.
All figures have been presented on the basis of
reverse split where ever applicable for all the periods presented
in these financial statements.
NOTE
15. INCOME TAXES
The
following table summarizes income before income taxes
|
|
|
|
|
US
|
$
(324,936
)
|
$
14,191
|
Canada
|
43,646
|
-
|
New
Zealand
|
295,359
|
-
|
Income before
income taxes
|
$
14,070
|
$
14,191
|
Income
Tax Provision
Provision for income tax as listed on the Consolidated Statements
of Operations for the years ended June 30, 2016 and 2015 are
$95,222 and $Nil, respectively.
Provision for taxes
consisted of the following:
|
|
|
|
|
US
operations
|
$
800
|
$
-
|
Foreign
operations
|
95,222
|
-
|
|
$
96,022
|
$
-
|
Deferred
income tax assets and liabilities
Deferred income tax
assets and liabilities arise from temporary differences associated
with differences between the financial statements and tax basis of
assets and liabilities, as measured by the enacted tax rates which
are expected to be in effect when these differences reverse.
Deferred tax assets and liabilities are classified as current or
non-current, depending on the classification of the assets or
liabilities to which they relate. Deferred tax assets and
liabilities not related to an asset or liability are classified as
current or non-current depending on the periods in which the
temporary differences are expected to reverse.
Through June 30, 2015, the Company incurred net operating losses
for tax purposes of approximately $5,033,209 which was increased to
$5,309,789 due to operating losses of $276,580 for the year ended
June 30, 2016. The net operating loss carryforward for federal and
state purposes may be used to reduce taxable income through the
year 2035.
The gross deferred tax asset balance as of June 30, 2016 is
approximately $2,113,296. A 100% valuation allowance has been
established against the deferred tax assets, as the utilization of
the loss carry forward cannot be reasonably assured.
Components of the deferred tax assets are limited to the Company's
net operating loss carryforwards, and are presented as follows at
June 30:
|
|
|
Deferred
tax assets:
|
|
|
US
|
$
2,113,296
|
$
2,003,217
|
Canada
|
|
|
Cumulative
eligible capital
|
8,449
|
-
|
Property,
plant & equipment
|
(1,856
)
|
-
|
Deferred
tax liability
|
(2,357
)
|
-
|
New
Zealand
|
|
-
|
Inventory
|
(4,048
)
|
-
|
Accrued
expenses
|
23,549
|
-
|
Total
Deferred Tax Assets
|
2,137,033
|
2,003,217
|
Valuation
allowance, US
|
(2,113,296
)
|
(2,003,217
)
|
|
|
|
Net
deferred tax assets
|
$
23,737
|
$
-
|
Tax
Rate Reconciliation
Differences between
the benefit from income taxes and income taxes at the statutory
federal income tax rate are as follows for the years ended June
30:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
expense (benefit) at federal statutory rate
|
$
(96,803
)
|
-35.0
%
|
$
28,617
|
-35.0
%
|
State
taxes, net of federal benefit
|
(13,276
)
|
-4.8
%
|
7,228
|
.-8.8
%
|
Beneficial
conversion expense
|
-
|
|
(27,028
)
|
8.4
%
|
Minimum
franchise tax
|
800
|
0.3
%
|
-
|
0.0
%
|
Change
in valuation allowance
|
110,076
|
39.8
%
|
(8,816
)
|
35.4
%
|
Foreign
earnings taxed at different rates
|
97,857
|
28.9
%
|
-
|
-
|
Other
adjustments – foreign
|
(2,635
)
|
-0.9
%
|
-
|
-
|
Foreign
tax at effective tax rate
|
$
96,022
|
28.4
%
|
$
-
|
0.0
%
|
The
Company records a liability for uncertain tax positions when it is
probable that a loss has been incurred and the amount can be
reasonably estimated. The Company recognizes interest accrued
related to unrecognized tax benefits in interest expense and
penalties in operating expenses.
NOTE
16.
FAIR
VALUE MEASUREMENT
The
Company adopted the provisions of ASC 825-10 on January 1,
2008. ASC 825-10 defines fair value as the price that
would be received from selling an asset or paid to transfer a
liability in an orderly transaction between market participants at
the measurement date. When determining the fair value
measurements for assets and liabilities required or permitted to be
recorded at fair value, the Company considers the principal or most
advantageous market in which it would transact and considers
assumptions that market participants would use when pricing the
asset or liability, such as inherent risk, transfer restrictions,
and risk of non-performance. ASC 825-10 establishes a
fair value hierarchy that requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs when
measuring fair value. ASC 825-10 establishes three
levels of inputs that may be used to measure fair
value:
Level
1 - Quoted prices in active markets for identical assets or
liabilities;
Level
2 - Observable inputs other than Level 1 prices, such as
quoted prices for similar assets or liabilities; quoted prices in
markets with insufficient volume or infrequent transactions (less
active markets); or model-derived valuations in which all
significant inputs are observable or can be derived principally
from or corroborated by observable market data for substantially
the full term of the assets or liabilities; and
Level
3 - Unobservable inputs to the valuation methodology that are
significant to the measurement of fair value of assets or
liabilities.
To
the extent that valuation is based on models or inputs that are
less observable or unobservable in the market, the determination of
fair value requires more judgment. In certain cases, the
inputs used to measure fair value may fall into different levels of
the fair value hierarchy. In such cases, for disclosure
purposes, the level in the fair value hierarchy within which the
fair value measurement is disclosed and is determined based on the
lowest level input that is significant to the fair value
measurement.
Upon
adoption of ASC 825-10, there was no cumulative effect adjustment
to beginning retained earnings and no impact on the consolidated
financial statements.
The
carrying value of the Company’s cash and cash equivalents,
accounts receivable, accounts payable, short-term borrowings, and
other current assets and liabilities approximate fair value,
because of their short-term maturity.
Items
recorded or measured at fair value on a recurring basis in the
accompanying consolidated financial statements consisted of the
following items as of June 30, 2015:
Quoted
Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
–
|
$
-
|
$
-
|
$
-
|
|
Roll-forward of Balance
|
|
|
|
Derivative
liability for Convertible Debentures
|
67,571
|
|
|
|
Change in value of
derivative liability during the period ended June 30,
2015
|
-67,571
|
|
|
|
Balance, June 30,
2015
|
-
|
|
|
|
The Company's derivative liability was valued using pricing models,
and the Company generally uses similar models to value similar
instruments. Where possible, the Company verifies the
values produced by its pricing models to market
prices. Valuation models require a variety of inputs,
including contractual terms, market prices, yield curves, credit
spreads, measures of volatility, and correlations of such
inputs. These financial liabilities do not trade in
liquid markets, and, as such, model inputs cannot generally be
verified and do involve significant management
judgment. Such instruments are typically classified
within Level 3 of the fair value hierarchy. The change
in fair value of the derivative liability is included as a
component of other income in the consolidated statements of
operations. The derivative liability was calculated using the
Black-Scholes option-pricing model with the following assumptions:
expected lives range of less than a month; 110.48% stock price
volatility; risk-free interest rate of 0.110% and no dividends
during the expected term.
NOTE
17.
BUSINESS
COMBINATIONS
On May
28, 2015 Concierge Technologies, Inc. (the “Company”)
entered into an agreement to acquire the assets of Gourmet Foods,
Ltd., a New Zealand corporation, subject to satisfactory completion
of due diligence and other customary criteria for a transaction of
this kind. Gourmet Foods is a baker of New Zealand meat pies and
other confections distributed to major grocery stores, convenience
stores, restaurants and other retailers throughout New Zealand. The
Company placed a cash deposit with Gourmet Foods in accordance with
the provisions of the asset purchase agreement, however the parties
later elected to change the nature of the transaction to a stock
purchase agreement. The Stock Purchase Agreement (the
“SPA”) was entered into on July 28, 2015 and was set to
close on July 31, 2015 subject to final adjustments to accounts
receivable, accounts payable, inventory, employee entitlements and
other current assets and liabilities. The Company paid a purchase
consideration of NZ$2,597,535 (approximately US$1,753,428) in cash.
An independent evaluation was conducted in order to obtain a fair
market value of the fixed assets and intangible assets acquired.
The excess of the fair value of purchase consideration over the
fair values of these identifiable assets and liabilities is
recorded as goodwill.
On
August 11, 2015 the parties reached agreement to close the SPA
based on the balance sheet information as of July 31, 2015, subject
to further adjustments if necessary once certain balances became
known without dispute, and the Company remitted the remainder of
the purchase price in cash to an account in New Zealand established
for the benefit of the shareholders of Gourmet Foods, Ltd. The
operations of Gourmet Foods, Ltd. was consolidated going forward
with those of the Company as of August 1, 2015.
The
following table summarizes the value of the net assets acquired as
of the Acquisition Date:
Cash
|
$
50,695
|
Accounts
Receivable
|
259,662
|
Prepaid
Expenses
|
11,246
|
Inventory
|
256,271
|
Property and
Equipment
|
1,207,762
|
Intangible
Assets
|
170,784
|
Goodwill
|
97,647
|
Total
Assets
|
$
2,054,067
|
|
|
Accounts
Payable
|
$
253,951
|
Employee
Entitlements
|
46,688
|
Total
Liabilities
|
$
300,639
|
|
|
Consideration
Paid for Net Assets
|
$
1,753,428
|
On June
2, 2016 the Company closed a Stock Purchase Agreement transaction
which resulted in the acquisition of all the outstanding and issued
stock of Brigadier Security Systems, a Canadian corporation located
in Saskatoon, Saskatchewan. The total purchase price was
CD$2,010,266 (approximately US$1,540,830) in cash, payable in
several stages. As of June 30, 2016, consideration of CD$1,000,000
(US$756,859) was paid in cash and CD$733,000 (US$569,935) was
deposited in an attorney client trust account in Canadian currency
(to be paid to Brigadier, on the 183rd day following the Closing
Date if net sales meeting the minimum threshold of $1,500,000 CDN
(the "Sales Goal") is achieved; if the Sales Goal is not reached by
the l83rd day following the Closing Date, then the payment is to be
remitted on the 365th day following the Closing Date). The audit of
Brigadier resulted in an upwards adjustment of the purchase price
by CD$277,266 (US$214,035) which has been recorded as of June 30,
2016 as Purchase Consideration Payable and was subsequently paid in
October 2016. Under the acquisition method of accounting, the total
purchase consideration is allocated to Brigadier Security Systems
net tangible and intangible assets acquired and liabilities assumed
based on their estimated fair values as of the acquisition date.
The excess of the fair value of purchase consideration over the
fair values of these identifiable assets and liabilities is
recorded as goodwill. The following table summarizes the value of
the net assets acquired as of the Acquisition Date:
Assets
|
|
Cash
|
80,391
|
Accounts
Receivable
|
431,656
|
Inventory
|
238,148
|
Prepaid
Expenses & Other Assets
|
20,001
|
Property,
plant and equipment
|
20,455
|
Intangible
Assets
|
875,087
|
Goodwill
|
121,609
|
|
|
Total Assets
|
1,787,348
|
|
|
Liabilities
|
|
Accounts
Payable
|
187,925
|
Income
Tax Payable
|
55,953
|
Customer
Deposits
|
2,640
|
|
|
Total Liabilities
|
246,518
|
|
|
Consideration paid for net assets
|
1,540,830
|
NOTE 18.
DISCONTINUED
OPERATIONS
On February 26, 2015,
the Company entered into a Stock Redemption Agreement with two of
its shareholders (the “Shareholders”) and its
wholly-owned subsidiary Wireless Village, Inc. dba Janus Cam
(“Janus Cam”), a Nevada corporation (the
“Agreement”) whereby the Company will cancel 68,000,000
shares of the Company’s common stock held by the Shareholders
in exchange for all of the outstanding shares of common stock of
Wireless Village held by the Company and the forgiveness of certain
“Inter-Company Debt” of $344,052 advanced to Janus Cam
by the Company (the
“Transaction”).
On May 7, 2015, the Company completed the closing
of the transaction.
Assets
of the divested subsidiary consisted of the following as of May 7,
2015:
|
|
Cash and cash
equivalents
|
$
130,052
|
Accounts
receivable, net
|
66,015
|
Due from related
party
|
167,443
|
Inventory,
net
|
190,499
|
Pre-Paid inventory,
advance to supplier
|
219,149
|
Payroll
advance
|
1,935
|
Current assets of
subsidiary
|
$
775,093
|
Security
deposits
|
11,222
|
Equipment
|
2,483
|
Network/office
equipment
|
34,589
|
Accumulated
depreciation
|
(30,820
|
Non-Current assets
of subsidiary
|
$
17,473
|
Total Assets of
subsidiary
|
$
792,567
|
Liabilities
of the divested subsidiary consisted of the following:
|
|
Accounts
payable
|
$
285,512
|
Sales tax
liability
|
3,914
|
CA income tax
provision
|
-
|
Payroll taxes
payable
|
529
|
Total Accrued
Expenses
|
289,955
|
Customer
advances
|
82,475
|
Notes
payable-related parties
|
-
|
Notes
payable
|
-
|
Debt payable to
Concierge
|
344,052
|
Total liabilities
of subsidiary
|
$
716,482
|
Net income and gain from the sale of subsidiary
The
common shares redeemed in the transaction were valued at the fair
market price of $0.0089 on the date of closing resulting in
$605,200 in consideration. The debt payable to Concierge amounting
to $344,052 as of the closing date was forgiven. The disposal of
subsidiary resulted in a gain on disposal of $109,600. The income
from discontinued operations for the period July 1, 2014 through
May 7, 2015 was $108,807 resulting in a total gain on the disposal
of the subsidiary of $218,407.
NOTE
19. COMMITMENTS AND CONTINGENCIES
Gourmet
Foods. Ltd. (“GFL”) has operating leases for its
office, factory and warehouse facilities located in Tauranga, New
Zealand, as well as for certain equipment including vehicles. These
leases are generally for three-year terms, with options to renew
for additional three-year periods. The leases mature between
September 2016 and August 2021, and require monthly rental payments
of approximately US$11,225 per month translated to US currency as
of June 30, 2016.
Future
minimum lease payments for Gourmet Foods are as
follows:
|
|
2017
|
$
134,705
|
2018
|
134,705
|
2019
|
59,480
|
2020
|
18,353
|
2021
|
9,197
|
2022
|
2,299
|
Total
Minimum Lease Commitment
|
$
358,739
|
GFL
entered into a General Security Agreement in favor of the Gerald
O’Leary Family Trust and registered on the Personal Property
Securities Register for a priority sum of NZ$110,000 (approximately
US$84,915) to secure the lease of its primary facility. In
addition, a NZ$20,000 (approximately US$15,439) bond has been
posted through ANZ Bank and secured with a cash deposit of equal
amount to secure a separate facilities lease. The General Security
Agreement and the cash deposit will remain until such time as the
respective leases are satisfactorily terminated in accordance with
their terms. Interest from the cash deposit securing the lease
accumulates to the benefit of GFL and is listed as a component of
interest income/expense on the accompanying Consolidated Statements
of Operations.
Brigadier Security
Systems (“BSS”) leases office and storage facilities in
Saskatoon, Saskatchewan as well as vehicles used for installations
and service and various office equipment. The minimum lease
obligations through their expiry dates are indicated as below and
require monthly payments of approximately US$11,883.
Future
minimum lease payments for Brigadier Security Systems are as
follows:
|
|
2017
|
$
86,438
|
2018
|
33,753
|
2019
|
30,940
|
Total Minimum Lease
Commitment
|
$
151,131
|
Litigation
On May
6, 2002, a default judgment was awarded to Brookside Investments
Ltd. against, jointly and severally, Concierge, Inc., Allen E.
Kahn, and The Whitehall Companies in the amount of $135,000 plus
legal fees. As of May 7, 2012, the judgment had lapsed due to the
passage of time and the creditor’s failure to renew. Although
a new court action would be required by the plaintiff in order to
seek legal remedies, the Company has accrued the amount of $135,000
in the accompanying financial statements as accrued expenses as of
June 30, 2016.
NOTE
20. SEGMENT REPORTING
With the acquisition of Gourmet Foods, Ltd. and
Brigadier Security Systems, the Company has identified three
segments for its products and services;U.S.A., New Zealand and
Canada. Our reportable segments are business units located in
different global regions.
The Company’s operations in
the U.S.A. include the gathering of live-streaming video recording
data displayed online to subscribers through its wholly owned
subsidiary Kahnalytics, Inc., in New Zealand include the
production, packaging and distribution on a commercial scale of
gourmet meat pies and related bakery confections through its wholly
owned subsidiary Gourmet Foods, Ltd.
and in Canada security alarm system installation
and monitoring sold through its wholly owned subsidiary Brigadier
Security Systems to residential and commercial customers. Separate
management of each segment is required because each business unit
is subject to different operational issues and strategies due to
their particular regional location. The Company accounts for
intra-company sales and expenses as if the sales or expenses were
to third parties and eliminates them in the consolidation. Amounts
are adjusted for currency translation as of the balance sheet date
and presented in US dollars.
The
following table presents a summary of identifiable assets as of
June 30, 2016 and June 30, 2015:
|
|
|
Identifiable
assets:
|
|
|
Corporate
headquarters
|
$
1,521,210
|
$
2,132,164
|
U.S.A.
|
87,790
|
202,095
|
New
Zealand
|
2,199,128
|
-
|
Canada
|
956,855
|
-
|
Consolidated
|
$
4,764,983
|
$
2,334,259
|
|
|
|
The
following table presents a summary of operating information for the
year ended June 30, 2016: (note: New Zealand is for a period of 11
months since acquisition and Canada is for a period of 1 month
since acquisition)
|
|
|
Revenues from
unaffiliated customers:
|
|
|
U.S.A. : data
streaming and hardware
|
$
120,430
|
$
223,565
|
New Zealand : Food
Industry
|
3,756,402
|
|
Canada
|
348,553
|
|
Consolidated
|
$
4,225,385
|
$
223,565
|
|
|
|
Net income (loss)
after taxes:
|
|
|
Corporate
headquarters
|
$
(265,123
)
|
$
24,523
|
U.S.A. : Mobile
video recording devices
|
(60,612
)
|
(10,332
)
|
New Zealand : Food
Industry
|
214,467
|
|
Canada : Security
alarm system
|
29,316
|
|
Consolidated
|
$
(81,952
)
|
$
14,191
|
The
following table presents a summary of capital expenditures for the
year ended June 30:
|
|
|
Capital
expenditures:
|
|
|
Corporate
headquarters
|
$
902
|
$
-
|
U.S.A
|
-
|
-
|
New
Zealand
|
102,760
|
-
|
Canada
|
-
|
-
|
Consolidated
|
$
103,662
|
$
-
|
NOTE
21. SUBSEQUENT EVENTS
On
September 19, 2016, the Company entered into a conditional Stock
Purchase Agreement (the “Agreement”), dated September
19, 2016, with Wainwright Holdings, Inc., a Delaware corporation
(“Wainwright”) and certain shareholders of Wainwright
(the “Sellers”), pursuant to which the Sellers
conditionally agreed to sell, and the Company conditionally agreed
to purchase, shares representing approximately 97% of the total
issued and outstanding common stock of Wainwright (the
“Wainwright Shares”). The Company intends to make an
offer to acquire the remaining Wainwright shares of common stock
prior to the Closing.
As a
result of the transaction, current shareholders of Wainwright will
become shareholders of the Company. Mr. Gerber, along with certain
family members and certain other Wainwright shareholders, currently
own the majority of the common stock in the Company as well as
Wainwright. Following the closing of this transaction, he and those
shareholders will continue to own the majority of the Company
voting shares.
Wainwright owns all
of the issued and outstanding limited liability company membership
interests of United States Commodity Funds LLC, a Delaware limited
liability company (“USCF”) and USCF Advisers, LLC
(“USCF Advisers”). USCF is a commodity pool operator
registered with the Commodity Futures Trading Commission. USCF
Advisers is an SEC registered investment adviser. USCF and USCF
Advisers act as the advisers to the Funds set forth in the
Agreement (each, a “Fund”, and collectively, the
“Funds”).
The
Closing shall occur on the later of (i) the date that is two
Business Days following the date on which the last of the
conditions to Closing set forth in Articles VIII and IX of the
Agreement have been satisfied or, to the extent permitted by
applicable Legal Requirements, waived by the relevant party, (ii)
the 21st calendar following the date on which the Definitive
Schedule 14C was mailed to the Concierge Shareholders, and (iii)
such other time and date as the parties may agree.
The
conditions to the Closing of the Contemplated Transaction are more
particularly described in Articles VIII and IX of Exhibit 10.1
which is attached to the Form 8K submitted on September 19, 2016
and incorporated herein by this reference. The conditions to the
Closing include, but are not limited to, the Company’s
receipt of a Fairness Opinion to the effect that, as of the date of
the Agreement, and based upon and subject to the limitations and
assumptions set forth in such opinion, the Purchase Price to be
paid by the Company pursuant to the Agreement is fair, from a
financial point of view, to the holders of shares of the
Company.
There
is no guarantee that the Closing of the Contemplated Transaction
will occur either as provided for in the Agreement or at all. There
is no guarantee that either the Company or Wainwright will fulfill
all conditions to Closing and that if not fulfilled, that either
party will waive the outstanding condition to Closing.
On
October 11, 2016 the Company made the adjusted payment of
CD$277,266, recorded as Purchase Consideration Payable of
US$241,035 in the accompanying financial Statements for the year
ended June 30, 2016.