CONCIERGE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
9.
RELATED
PARTY TRANSACTIONS
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
|
Notes payable to
shareholder, interest rate of 8%, unsecured and payable on December
31, 2012 (past due)
|
3,500
|
3,500
|
|
$
3,500
|
$
8,500
|
On July
7, 2016 the Company repaid the outstanding note due to a related
party totaling $5,000 in principal and $5,000 in accrued interest.
A total of $2,075 in accrued interest was forgiven by the
noteholder in settlement of the debt.
Interest
expense for all related party notes for the three-month period
ending December 31, 2016 and 2015 were $71 and $197 respectively
and for the respective six months ended December 31, 2016 and 2015
the interest expense was $141 and $393.
Convertible Promissory Note Payable – Related
Parties
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 CEO, 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.
CONCIERGE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 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 three
months ended December 31, 2016 and 2015 amounted to $2,521 and was
$0 respectively.
Wainwright - Related Party Transactions
The
Funds managed by USCF and Advisers are deemed by management to be
related parties. The Company’s Wainwright revenues, totaled
$12,840,475 and $10,941,614 for the six months ended
December 31, 2016 and 2015, respectively, were earned from
these related parties. Accounts receivable, totaling $2,202,684 and
$2,124,105 as of December 31, 2016 and June 30, 2016,
respectively, were owed from these related parties. Fund expense
waivers, totaling $490,455 and $363,768 for the six months ended
December 31, 2016 and 2015, respectively, were incurred on
behalf of these related parties. Waivers payable, totaling $939,385
and $448,930 as of December 31, 2016 and June 30, 2016,
respectively, were owed to these related parties.
CONCIERGE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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
11.
BUSINESS
COMBINATIONS
On May
28, 2015, 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.
The 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. The
Sales Goal was achieved and the payment was released on November
23, 2016. 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 September 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 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
|
CONCIERGE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On
December 9, 2016 the Company closed a Stock Purchase Agreement (the
“Purchase Agreement”), by and among the Company and
Wainwright and each of the shareholders of Wainwright common stock
(the “Wainwright Sellers”), pursuant to which the
Wainwright Sellers agreed to sell, and the Company agreed to
purchase 1,741 shares of Wainwright common stock, par value $0.01
per share, (the “Wainwright Common Stock”), which
represents all of the issued and outstanding Wainwright Common
Stock, in exchange for: (i) 818,799,976 shares of Company Common
Stock, and (ii) 9,354,119 shares of Company Preferred Stock (which
preferred shares are convertible into 187,082,377 shares of Company
Common Stock). Wainwright and the Company have a commonality of
ownership and control as represented by the shareholdings, either
directly or beneficially, of Nicholas Gerber and Scott Schoenberger
as a group pursuant to the aforementioned Purchase Agreement and a
voting agreement which gives them control of over 50% of Wainwright
and over 50% of Concierge both before and after the business
combination. Accordingly, the acquisition has been recorded as a
transaction between entities under Common Control in the
accompanying financial statements . Further, the accompanying
financial statements have been adjusted to include the carrying
value of assets, liabilities, equity and operations of Wainwright
as if the transaction had concluded on July 1, 2015.
The
unaudited pro forma financial information below represents the
combined results of our operations together with those of
Wainwright and as if the Gourmet Foods Limited and Brigadier
acquisition had occurred at the beginning of the periods presented.
The unaudited pro forma financial information is presented for
informational purposes only and is not indicative of the results of
operations that would have occurred if the acquisitions had taken
place at the beginning of the period presented, nor is it
indicative of future operating results.
|
3-mo ended December 31, 2015
|
6-mo ended December 31, 2015
|
Revenue
|
$
7,538,894
|
$
14,624,581
|
Income
from Operations
|
1,780,144
|
3,847,213
|
Net
Income
|
$
1,009,341
|
$
2,438,998
|
Net
Income per share available to common stockholders, basic and
diluted
|
$
0.00
|
$
0.00
|
NOTE
12.
COMMITMENTS
AND CONTINGENCIES
Lease
Commitments
Gourmet
Foods 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 August 2018 and August 2021, and
require monthly rental payments of approximately US$10,891
translated to U.S. currency as of December 31, 2016.
Future
minimum lease payments for Gourmet Foods are as
follows:
Year Ended June 30,
|
|
2017
|
$
65,345
|
2018
|
130,690
|
2019
|
57,707
|
2020
|
17,806
|
2021
|
1,487
|
Total
Minimum Lease Commitment
|
$
273,035
|
CONCIERGE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following table presents a summary of operating information for
the six months ended December 31, 2016 and 2015: (note: New Zealand
interest were present for only 5 months in 2015 and Canadian
interests had not yet been acquired in
2015)
|
6-Months Ended
December 31, 2016
|
6-Months Ended
December 31, 2015
|
Revenues from
unaffiliated customers:
|
|
|
U.S.A. : data
streaming and hardware
|
$
89,566
|
$
117,700
|
U.S.A. : investment
fund management
|
12,840,475
|
10,941,614
|
New Zealand : Food
Industry
|
2,394,081
|
1,610,923
|
Canada : Security
alarm monitoring
|
1,641,660
|
-
|
Consolidated
|
$
16,965,782
|
$
12,670,237
|
|
|
|
Net income (loss)
after taxes:
|
|
|
Corporate
headquarters
|
$
(337,906
)
|
$
(117,161
)
|
U.S.A. : data
streaming and hardware
|
(32,867
)
|
(1,817
)
|
U.S.A. : investment
fund management
|
2,486,232
|
2,376,828
|
New Zealand : Food
Industry
|
(7,640
)
|
28,244
|
Canada : Security
alarm monitoring
|
219,121
|
-
|
Consolidated
|
$
2,326,940
|
$
2,286,094
|
The
following table presents a summary of capital expenditures for the
six months ended December 31:
Capital
expenditures:
|
|
|
Corporate
headquarters
|
$
-
|
$
863
|
New
Zealand
|
43,049
|
109,722
|
Canada
|
4,297
|
-
|
Consolidated
|
$
47,346
|
$
110,585
|
NOTE
15.
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
wherever applicable for all the periods presented in these
financial statements.
Item
2.
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
The
following discussion and analysis should be read in conjunction
with the condensed financial statements and the accompanying notes
thereto and is qualified in its entirety by the foregoing and by
more detailed financial information appearing elsewhere in this
quarterly report on Form 10-Q. See "Financial
Statements."
Forward-Looking Information
This
quarterly report on Form 10-Q, including this
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” contains
forward-looking statements regarding the plans and objectives of
management for future operations. This information may involve
known and unknown risks, uncertainties and other factors that may
cause Concierge Technologies, Inc.’s (“Concierge”
or the “Company”) actual results, performance or
achievements to be materially different from future results,
performance or achievements expressed or implied by any
forward-looking statements. Forward-looking statements, which
involve assumptions and describe Concierge’s future plans,
strategies and expectations, are generally identifiable by use of
the words “may,” “will,”
“should,” “expect,”
“anticipate,” “estimate,”
“believe,” “intend” or
“project,” the negative of these words, other
variations on these words or comparable terminology. These
forward-looking statements are based on assumptions that may be
incorrect, and Concierge cannot assure investors that the
projections included in these forward-looking statements will come
to pass. Concierge’s actual results could differ materially
from those expressed or implied by the forward-looking statements
as a result of various factors.
Concierge
has based the forward-looking statements included in this quarterly
report on Form 10-Q on information available to it on the date of
this quarterly report on Form 10-Q, and Concierge assumes no
obligation to update any such forward-looking
statements. Although Concierge undertakes no obligation to
revise or update any forward-looking statements, whether as a
result of new information, future events or otherwise, investors
are advised to consult any additional disclosures that Concierge
may make directly to them or through reports that Concierge in the
future files with the U.S. Securities and Exchange Commission
(the “SEC”), including annual reports on Form 10-K,
quarterly reports on Form 10-Q and current reports on Form
8-K.
Some of
the information contained in this Management’s Discussion and
Analysis of Financial Condition and Results of Operations and
elsewhere in this report includes forward-looking statements based
on our current management’s expectations. There can be no
assurance that actual results, outcomes or business conditions will
not differ materially from those projected or suggested in such
forward-looking statements as a result of various factors,
including, among others, our limited operating history,
unpredictability of future operating results, competitive pressures
and the other potential risks and uncertainties.
Introduction
Concierge Technologies, Inc. (“Concierge”) or the
(“Company”) conducts business through its wholly-owned
operating subsidiaries operating in the U.S., New Zealand and
Canada, respectively. The operations of the Company’s
wholly-owned subsidiaries are more particularly described herein
but are summarized as follows:
●
Kahnalytics,
Inc. (“Kahnalytics”), a U.S. based company, captures
and presents data from vehicle-mounted camera devices equipped for
live-streaming.
●
Gourmet
Foods, Ltd. (“GFL”), a New Zealand based company,
manufactures and distributes New Zealand meat pies on a commercial
scale.
●
Brigadier
Security Systems (“Brigadier”), a Canadian based
company, sells and installs commercial and residential alarm
monitoring systems.
●
Wainwright
Holdings Inc. (“Wainwright”), a U.S. based company,
manages investment funds primarily in the commodities and futures
financial markets.
Results of Operations
Kahnalytics
The six months ended December 31, 2016 involved a different
business model than that of the corresponding period in 2015. By
obtaining an exclusive software license and partnering with a
camera importer/distributor as a channel-to-market, Kahnalytics
began the business of hosting a web-based server that subscribers
could access to view their camera video files, vehicle location,
speed and event triggers in real time. To facilitate the sales
process and entice customers to the online subscription service,
Kahnalytics implemented a hardware subsidy program and offered a
wireless data plan that was resold to subscribers of the service,
called the Kahnalytics Fleet Management Service or
“FMS”. Two types of services were offered, 1) a FMS
basic subscription plan where subscribers provided their own
wireless connection to the FMS and 2) a FMS data plan where
subscribers were provided hardware needed to connect wirelessly to
the Internet and also charged a monthly fee for the air time usage.
Kahnalytics also charged a subsidized price of $50 per each
wireless hardware device used in creating the wireless connection.
Kahnalytics purchases data plans from a network reseller and, in
turn, resells that plan to its subscribers.
During the six months ended December 31, 2015, Kahnalytics
purchased cameras, various other hardware items, and installation
services for sale to specific insurance companies, and ultimately
for installation into insured’s vehicles. The hardware items
were either listed in inventory if held beyond the close of the
current accounting period, or summarized as “cost of goods
sold” when sold. Inventory orders which had been paid for, or
partially paid for, in advance of receipt are classified as
“Advance to Suppliers.” Generally, hardware is sold to
customers who require delivery and installation of the product in
their vehicles. The charges for services such as these are included
in the bundled, installed, sales price reflected on sales invoices
and accounts receivable.
Due to
these differences in the business model of Kahnalytics, the
comparative results below will not be a true representation of
Kahnalytics operating trends.
For the Three Months Ended December 31, 2016 Compared to the Three
Months Ended December 31, 2015
For the three months ended December 31, 2016 sales of FMS basic
subscriptions were $2,667 and FMS data plans were $20,685. There
were no FMS related subscription sales for the three months ended
December 31, 2015. Hardware sales of wireless connection devices
for the three months ended December 31, 2016 were $1,688 as
compared to $0 for the three months ended December 31, 2015. Other
income for the three months ended December 31, 2016 was $7 for
reimbursed shipping charges as compared to $81 for the three months
ended December 31, 2015 as an adjustment to sales tax
liability.
Net loss for the three months ended December 31, 2016 after income
tax of $800 and a downward revaluation to inventory as a result of
selling subsidies of $2,774 was $16,036 as compared to a net loss
for the three months ended December 31, 2015 of $4,181 after income
tax provision of $800.
No sales were recorded for the three-month period ended December
31, 2015, apart from a refund of $3,500. Total revenues (including
other income) for the three month periods ended December 31, 2016
and 2015 were $25,046 and ($3,419) respectively.
For the Six Months Ended December 31, 2016 Compared to the Six
Months Ended December 31, 2015
For the six months ended December 31, 2016 sales of FMS basic
subscriptions were $4,825 and FMS data plans were $31,980. There
were no FMS related subscription sales for the six months ended
December 31, 2015. Hardware sales of wireless connection devices
for the six months ended December 31, 2016 were $10,637 as compared
to $0 for the three months ended December 31, 2015. Other income
for the six months ended December 31, 2016 was $7 for reimbursed
shipping charges as compared to $81 for the three months ended
December 31, 2015 as an adjustment to sales tax liability. Obsolete
camera inventory was also liquidated during the six months ended
December 31, 2016 for a total of $42,124. Total revenues (including
other income) for the six month periods ended December 31, 2016 and
2015 were $89,573 and $117,781 respectively.
Net loss for the six months ended December 31, 2016 after income
tax of $800 and a downward revaluation to inventory as a result of
selling subsidies of $2,774 was $32,867, as compared to a net loss
for the six months ended December 31, 2015 of $1,817 after income
tax provision of $800.
Accounts receivable as of December 31, 2016 were $43,805 as
compared to $2,640 as of June 30, 2016. The difference is
attributed to the sale of discontinued hardware at a discount to a
distributor on a deferred payment plan rather than any significant
change in the aging of accounts receivable.
Gourmet Foods, Ltd.
Gourmet
Foods Limited (“GFL”), was organized in its current
form in 2005 (previously known as Pats Pantry Ltd). Pats Pantry was
founded in 1966 to produce and sell wholesale bakery products, meat
pies and patisserie cakes and slices, in New Zealand. Gourmet
Foods, located in Tauranga, New Zealand, sells substantially all of
its goods to supermarkets and service station chains with stores
located throughout New Zealand. Gourmet Foods also has a large
number of smaller independent lunch bars, cafes and corner dairies
among the customer list, however they comprise a relatively
insignificant dollar volume in comparison to the primary accounts
of large distributors and retailers. Concierge purchased all of the
issued and outstanding shares of Gourmet Foods as of August 1, 2015
even though the transaction did not officially close until August
11, 2015.
The
accompanying financial statements include the operations of Gourmet
Foods for the period August 1, 2015 through December 31, 2015 as
compared to the operations for the period July 1, 2016 through
December 31, 2016. Due to these differences in the accounting
periods, the comparative results below will not be a true
representation of GFL’s operating trends.
Gourmet
Foods operates exclusively in New Zealand and thus the New Zealand
dollar is its functional currency. In order to consolidate
Concierge’s reporting currency, the US dollar, with that of
Gourmet Foods, Concierge records foreign currency translation
adjustments and transaction gains and losses in accordance with
SFAS 52,
Foreign Currency
Translation
. The translation of New Zealand currency into
U.S. dollars is performed for balance sheet accounts using the
exchange rates in effect at the balance sheet date and for revenue
and expense accounts using a weighted average exchange rate during
the period. Gains and losses resulting from the foreign currency
translations are included in Accumulated Other Comprehensive
Expense found on the Condensed Consolidated Balance
Sheets.
For the Three Months Ended December 31, 2016 Compared to the Three
Months Ended December 31, 2015
Net
revenues for the three months ended December 31, 2016 were
$1,203,521 with cost of goods sold of $839,571, resulting in a
gross profit of $363,950 for an approximate 30% gross margin as
compared to net revenues for the three months ended December 31,
2015 of $996,564 with a cost of goods sold for the three months
ended December 31, 2015 of $683,345 producing a 31% gross profit of
$313,219.
General
and administrative expenses for the three months ended December 31,
2016 were $117,272 plus depreciation expense of $69,872, marketing
expense $96,847, wages $56,840 and interest income of $378
producing a pre-tax net income of $23,498 as compared to a pre-tax
net income of $41,598 for the three months ended December 31, 2015.
General and administrative expenses for the three months ended
December 31, 2015 were $145,862, marketing expense $2,530, wages
$66,702, and depreciation was $58,450 which produced an operating
income of $39,675 before interest income of $1,183, other income of
$740 and income tax provision of $11,647.
Overall,
profit margins for the comparative periods are consistent and
differences are attributed to depreciation expense, varying income
tax provisions and the strengthening of the U.S. dollar against New
Zealand currency during the current period.
For the Six Months Ended December 31, 2016 Compared to the Five
Months Ended December 31, 2015
Net
revenues for the six months ended December 31, 2016 were $2,394,081
with cost of goods sold of $1,646,370 resulting in a gross profit
of $747,711 as compared to the five months ended December 31, 2015
where net revenues were $1,610,923; cost of goods sold were
$1,134,086; and gross profit was $476,837.
General
and administrative expenses for the six months ended December 31,
2016 and 2015 were $355,988 and $253,608, respectively, plus
marketing expenses of $107,101 compared to $2,702, and wages of
$162,388 compared to $86,396 producing operating incomes of
$122,234 and $134,130, respectively, or approximately 5% net
operating profit for six months ended December 31, 2016 as compared
to 8% for the five months ended December 31, 2015.
The
depreciation expense, income tax provision and other income totaled
$129,873 for the six months ended December 31, 2016 as a compared
to $105,410 for the five months ended December 31, 2015, resulting
in a net loss of $7,640 as compared to a net income of $28,721,
respectively.
Accounts
receivable as of December 31, 2016 were $301,002 as compared to
$285,673 at June 30, 2016.
Overall,
profit margins for the comparative periods are consistent and
differences are attributed to depreciation expense, varying income
tax provisions and the strengthening of the US dollar against New
Zealand currency during the current period.
Brigadier Security Systems
Brigadier
Security Systems (“Brigadier”) was founded in 1985 and
through internal growth and acquisitions the core business of
Brigadier began in 1998. Today Brigadier is one of the largest
SecurTek dealers in Saskatchewan with offices in both major urban
areas of Regina (under the fictitious business name of “Elite
Security”) and Saskatoon. Brigadier is also a Honeywell
Certified Access Control Distributor, Kantech Global Dealer and UTC
Interlogix Security Pro dealer and the largest independent security
contractor in the province. Brigadier provides comprehensive
security solutions including access control, camera monitoring,
motion detection, and intrusion alarms to home and business owners
as well as government offices, schools and public buildings.
Brigadier typically sells hardware to customers and a full-time
monitoring of the premises. The contract for monitoring the premise
is then conveyed to a third-party telecom in exchange for an
upfront payment and recurring residuals based on subscriber
contracts.
The
accompanying Condensed Consolidated Statements of Operations
include the operations of Brigadier only for the three and six
months ended December 31, 2016 because Concierge did not acquire
Brigadier until June 2, 2016, and thus there is no comparison data
to be supplied for the three and six months ended December 31,
2015.
Brigadier
operates exclusively in Canada and thus the Canadian dollar is its
functional currency. In order to consolidate Concierge’s
reporting currency, the US dollar, with that of Brigadier,
Concierge records foreign currency translation adjustments and
transaction gains and losses in accordance with SFAS 52, Foreign
Currency Translation. The translation of Canadian currency into
U.S. dollars is performed for balance sheet accounts using the
exchange rates in effect at the balance sheet date and for revenue
and expense accounts using a weighted average exchange rate during
the period. Gains and losses resulting from the foreign currency
translations are included in Accumulated Other Comprehensive
Expense found on the Condensed Consolidated Balance
Sheets.
Brigadier purchases various component parts and accessories
anticipated to be required in near-term installations of systems
pursuant to sales forecasts. These parts are listed in inventory
until sold, which is determined by a sales contract, delivery of
the product, and a reasonable expectation of payment under typical
terms of sale are in evidence. Inventories are valued at the lower
of cost (determined on a FIFO basis) or market. Inventories include
product cost, inbound freight and warehousing costs. Concierge
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.
For the Three Months Ended December 31, 2016
Net sales for the three months ended December 31, 2016 were
$827,910 with cost of goods sold recorded as $201,000, resulting in
a gross profit of $626,910 with a gross margin of approximately
76%.
General and administrative expenses for the three months ended
December 31, 2016 were $104,026 plus marketing expense $44,252 and
wages $335,457 providing net operating income before income tax
provision, depreciation and other income and expense of $143,173 or
approximately 17%.
The depreciation expense for
Brigadier
for the three months ended December 31, 2016 was
$1,262; income tax provision at December 31, 2016 was $38,393;
interest income was $31; commission income was $204; and gain on
disposal of fixed assets was $1,849 resulting in a net profit of
$105,603.
For the Six Months Ended December 31, 2016
The net sales for the six months ended December 31, 2016 were
$1,641,224 with cost of goods sold recorded as $431,572, resulting
in a gross profit of $1,209,651 with a gross margin of
approximately 74%.
General and administrative expenses for the six months ended
December 31, 2016 were $902,409 plus marketing expense $50,547 and
wages $662,234 providing net operating income before tax provision,
depreciation and other income and expense of $307,242 or
approximately 19%.
The depreciation expense for Brigadier for the six months ended
December 31, 2016 was $2,386; income tax provision for the six
months ended December 31, 2016 at $80,379; interest expense was
$279; commission income was $436; and loss on disposal of fixed
assets was $6,220, resulting in a net profit of
$219,121.
Accounts receivable at December 31, 2016 were $404,616 as compared
to $550,907 at June 30, 2016.
Wainwright Holdings
Wainwright was founded in March 2004 as a Delaware corporation with
one subsidiary, Ameristock Corporation, which was an investment
adviser to Ameristock Mutual Fund, Inc., a registered 1940 Act
large cap value equity fund. In January 2010, Ameristock
Corporation was spun off as a standalone company. In May 2005,
United States Commodity Funds, LLC (“USCF”), a
wholly-owned subsidiary of Wainwright, was formed as a single
member limited liability company in the State of Delaware. USCF is
a registered commodity pool operator with the Commodity Futures
Trading Commission (“CFTC”) and a member of the
National Futures Association (“NFA”) and serves as the
General Partner (“General Partner”) for various limited
partnerships (“LP”) as noted below. In June 2013, USCF
Advisers, LLC (“Advisers”), a wholly-owned subsidiary
of Wainwright, was formed as a Delaware limited liability company
and in July 2014, was registered as an investment adviser under the
Investment Advisers Act of 1940, as amended. In November 2013, the
Advisers board of managers formed USCF ETF Trust (“ETF
Trust”) as an open-end management investment company
registered under the Investment Company Act of 1940, as amended
('the 1940 Act"). In October 2016, the Advisers board of managers
formed USCF Mutual Funds Trust as an open-end management investment
company registered under the 1940 Act. Wainwright and subsidiaries
USCF and Advisers are collectively referred to as the
“Wainwright” hereafter.
Wainwright’s operating activities consist primarily of
providing management and investment advisory services to eleven
public LP funds and two exchange-traded funds
(“ETF’s”).
USCF is currently the General Partner in the following Securities
Act of 1933 LP commodity based index funds and Sponsor
(“Sponsor”) for the fund series within the United
States Commodity Index Funds Trust (“USCIF
Trust”):
USCF as General Partner for the following Funds
|
United
States Oil Fund, LP (“USO”)
|
Organized
as a Delaware limited partnership in May 2005
|
United
States Natural Gas Fund, LP (“UNG”)
|
Organized
as a Delaware limited partnership in November 2006
|
United
States Gasoline Fund, LP (“UGA”)
|
Organized
as a Delaware limited partnership in April 2007
|
United
States Diesel Heating Oil Fund, LP (“UHN”)
|
Organized
as a Delaware limited partnership in April 2007
|
United
States 12 Month Oil Fund, LP (“USL”)
|
Organized
as a Delaware limited partnership in June 2007
|
United
States 12 Month Natural Gas Fund, LP
(“UNL”)
|
Organized
as a Delaware limited partnership in June 2007
|
United
States Short Oil Fund, LP (“DNO”)
|
Organized
as a Delaware limited partnership in June 2008
|
United
States Brent Oil Fund, LP (“BNO”)
|
Organized
as a Delaware limited partnership in September 2009
|
USCF as fund Sponsor - each a series within the USCIF
Trust
|
United
States Commodity Index Funds Trust (“USCI
Trust”)
|
A
series trust formed in Delaware December 2009
|
United
States Commodity Index Fund (“USCI”)
|
A
commodity pool formed in April 2010 and made public August
2010
|
United
States Copper Index Fund (“CPER”)
|
A
commodity pool formed in November 2010 and made public November
2011
|
United
States Agriculture Index Fund (“USAG”)
|
A
commodity pool formed in November 2010 and made public April
2012
|
United
States Metal Index Fund (“USMI”)
|
A
commodity pool formed in November 2010, and made public June 2012,
ceased trading and liquidated March 2015
|
USCF
Canadian Crude Oil Index Fund (“UCCO”)
|
UCCO is
currently in registration and has not yet commenced
operations.
|
In addition, USCF is the sponsor of the USCF Funds Trust, a
Delaware statutory trust, and each of its series, the REX S&P
MLP Fund, the REX S&P MLP Inverse Fund, the United States 3X
Oil Fund and the United States 3X Short Oil Fund, all of which are
funds that are currently in registration and have not commenced
operations.
Advisers serves as the investment adviser to the fund(s) within the
ETF Trust and has overall responsibility for the general management
and administration of the ETF Trust. Pursuant to the current
Investment Advisory Agreement, Advisers provides an investment
program for the ETF Trust fund(s) and manages the investment of the
assets.
Advisers as fund manager for each series within the ETF
Trust
|
Equity
ETF Trust (“ETF Trust”)
|
Organized
as a Delaware statutory trust in November 2013
|
Stock
Split Index Fund (“TOFR”)
|
Fund
launched September 2014
|
Restaurant
Leaders Index Fund (“MENU”)
|
Fund
launched November 2016
|
All USCF funds and ETF Trust or Advisers funds are collectively
referred to as the “Funds” hereafter.
For the Three Months Ended December 31, 2016, Compared to the Three
Months Ended December 31, 2015
Wainwright’s revenue and expenses are primarily driven by the
amount of Fund assets under management (“AUM”).
Wainwright earns monthly management and advisory fees based on
agreements with each Fund as determined by the contractual basis
point management fee structure in each agreement multiplied by the
average AUM over the given period. Many of the company’s
expenses are dependent upon the amount of AUM. These variable
expenses include Fund administration, custody, accounting, transfer
agency, marketing and distribution, and sub-adviser fees and are
primarily determined by multiplying contractual fee rates by
AUM.
Average AUM for the three months ended December 31, 2016 increased
to $4.849 billion, or 13.7%, from the three month average of $4.265
billion for the three months ended December 31, 2015. As a result
of increased AUM revenues increased 14.6%, or $0.827 million, to
$6.473 million from $5.646 million over the respective three month
period.
Wainwright’s total operating expenses for three months ended
December 31, 2016 increased $0.932 million to $4.862 million, or
23.7%, from $3.930 million for the three months ended December 31,
2015. Variable expenses, as described above, increased $0.273
million over the respective three month period as a result of
increased AUM. Wainwright also incurred one-time professional fees
of $0.231 million during the current quarter as part of the
acquisition by Concierge. Other expense increases for the three
months ended December 31, 2016 as compared to the three months
ended December 31, 2015 included increases in employee headcount
compared to the prior year, $0.100 million increase in marketing
spend and $0.145 million in other professional service and general
and administrative expenses.
Net income before taxes for the three months ended December 31,
2106 decreased $0.108 million to $1.611 million from $1.719 million
for the three months ended December 31, 2015. The decrease was
primarily due to one-time acquisition expenses and an increase in
employee headcount from filling two previously open positions and
hiring for two new positions.
For the Six Months Ended December 31, 2016, Compared to the Six
Months Ended December 31, 2015
Average AUM for the six months ended December 31, 2016 increased to
$4.804 billion, or 17.4%, from the six month average of $4.093
billion for the six months ended December 31, 2015. As a result of
increased AUM revenues increased 17.4%, or $1.899 million, to
$12.841 million from $10.942 million over the respective six month
period.
Wainwright’s total operating expenses for six months ended
December 31, 2016 increased $1.570 million to $8.785 million, or
21.8%, from $7.215 million for the six months ended December 31,
2015. Variable expenses, as described above, increased $0.716
million over the respective six month period as a result of
increased AUM. Wainwright also incurred one-time professional fees
of $0.231 million during the six month ended December 31, 2016 as
part of the acquisition by Concierge. Other expense increases for
the six months ended December 31, 2016 as compared to the six
months ended December 31, 2015 included increases in new fund
startup costs of $0.195 million compared to the prior year, $0.159
million increase in marketing spend, an increase of $0.127 million
in Fund expense waiver reimbursements based on contractual expense
thresholds for certain funds, and $0.142 million in other
professional service and general and administrative
expenses.
Net income before taxes for the six months ended December 31, 2106
increased $0.325 million to $4.056 million from $3.731 million for
six months ended December 31, 2015 due to increases in AUM
partially offset by one-time acquisition expenses.
Concierge Technologies and Subsidiaries
With
the acquisition of Wainwright, where Wainwright and Concierge have
a commonality of ownership and control as represented by the
shareholdings, the acquisition has been recorded as a transaction
between entities under Common Control on the Condensed Consolidated
Balance Sheets of the Company. Further, the Condensed Consolidated
Statements of Operations and Comprehensive Income have been
adjusted to include the carrying value of operations of Wainwright
as if the transaction had concluded on July 1, 2015.
For the Three Months Ended December 31, 2016 Compared to the Three
Months Ended December 31, 2015
Concierge
incurred an operating income (before provisions for income taxes,
other income and expenses, and other comprehensive gains/losses)
for the three months ended December 31, 2016 of $1,606,559 as
compared to an operating income of $1,707,299 for the three months
ended December 31, 2015 of $1,707,299. This represents a decrease
in operating income of $100,740 over the three months ended
December 31, 2016 when compared to the three months ended December
31, 2015.
Other
income and (expenses) for the three months ended December 31, 2016
and 2015 were ($3,075) and $6,116, where the expense realized in
2016 was primarily a result of interest accruing on outstanding
loan balances that did not exist for the same period in 2015.
Income tax provisions for the three months ended December 31, 2016
and 2015 were $587,038 and $764,340, respectively, resulting in a
net income of $1,016,446 and $949,074, respectively. After giving
consideration to currency translation gain of $4,714, the
comprehensive income for the three months ended December 31, 2016
was $1,021,161 as compared to the three months ended December 31,
2015, where currency translation gain of $69,847 resulted in a
comprehensive income of $1,018,921.
Overall,
the net income, before currency translation gains and losses,
between the three months ended December 31, 2016 as compared to the
three months ended December 31, 2015 increased by $67,372 or
approximately 7%. Contributing to the difference in net income
between the comparison periods is the absence of Brigadier Security
Systems and their contributing revenues for the entirety of the
2015 period and, reducing the increase in profits, are the one-time
transaction costs to acquire the aforementioned subsidiaries plus
the transaction cost to acquire Wainwright during the current
period.
For the Six Months Ended December 31, 2016 Compared to the Six
Months Ended December 31, 2015
Concierge
incurred an operating income (before provisions for income taxes,
other income and expenses, and other comprehensive gains/losses)
for the six months ended December 31, 2016 of $3,982,862 as
compared to an operating income of $3,643,763 for the six months
ended December 31, 2015. This represents an increase in operating
income of $339,099 over the six months ended December 31, 2016 when
compared to the six months ended December 31, 2015, or
approximately 9%.
Other
income for the six months ended December 31, 2016 and 2015 were
$1,127 and $7,689, where the interest expense recorded in 2016 was
primarily a result of accruing interest on outstanding loan
balances that did not exist for the same period in 2015. Income tax
provisions for the six months ended December 31, 2016 and 2015 were
$1,657,049 and $1,365,368, respectively, resulting in a net income
of $2,326,940 and $2,286,094, respectively. After giving
consideration to currency translation loss of $92,581 the
comprehensive income for the six months ended December 31, 2016 was
$2,234,359 as compared to the six months ended December 31, 2015
where the currency translation loss was $16,357 and the
comprehensive income was $2,269,737. Comprehensive loss is
comprised of fluctuations in foreign currency exchange rates and
effects the valuation of our holdings in New Zealand and Canada as
a result.
Overall,
the net income, before currency translation gains and losses,
between the six months ended December 31, 2016 as compared to the
six months ended December 31, 2015 increased by $40,846 or
approximately 1.7%. Contributing to the difference in net income
are (i) the presence of our subsidiary Gourmet Foods for only five
months of the 2015 period and (ii) the absence of Brigadier
Security Systems for the entirety of the 2015 period. Reducing the
increase in profits for the six months ended December 31, 2016 are
the one-time transaction costs to acquire the aforementioned
subsidiaries plus the transaction cost to acquire Wainwright during
the six months ended December 31, 2016.
Liquidity
During
the previous 12 months Concierge has invested approximately $3.5
million in cash towards purchasing and assimilating Gourmet Foods
and Brigadier Security Systems into the Concierge Technologies
group of companies. Concierge also acquired Wainwright, which
provides a significant revenue stream and value. Concierge
continues to pursue alternative business strategies with
Kahnalytics and intends to grow that opportunity as the situation
develops while limiting its capital expenditures. Management
forecasts Wainwright, Gourmet Foods and Brigadier to all produce a
profit during the current fiscal year and the realization of those
profits by Concierge is not expected to be significantly impacted
by foreign currency fluctuations against the U.S. dollar during the
current fiscal year. While Concierge intends to maintain and
improve its revenue stream from wholly owned subsidiaries,
Concierge continues to pursue acquisitions of other profitable
companies which meet its target profile. Management believes these
acquisitions can be completed with available cash resources with no
further equity dilution or debt instruments. Provided
Concierge’s subsidiaries continue to operate as they are
presently, and are projected to operate, Concierge has sufficient
capital to pay its general and administrative expenses for the
coming fiscal year and to adequately pursue its long term business
objectives.
Item
3.
Quantitative
and Qualitative Disclosures about Market Risk.
Concierge
is a smaller reporting company and is not required to provide the
information required by this item.
Item 4.
Controls
and Procedures
Disclosure Controls and Procedures
Concierge
maintains disclosure controls and procedures that are designed to
provide reasonable assurances that the information required to be
disclosed in Concierge’s periodic reports filed or submitted
under the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time period specified
in the SEC’s rules and forms.
The
duly appointed officers of Concierge, including its chief executive
officer and chief financial officer, who perform
functions equivalent to those of a principal executive officer and
principal financial officer of Concierge if Concierge had any
officers, have evaluated the effectiveness of Concierge’s
disclosure controls and procedures and have concluded
that the disclosure controls and procedures of Concierge have
been effective as of the end of the period covered by this
quarterly report on Form 10-Q.
Change in Internal Control Over Financial Reporting
There
were no significant changes in the Company's internal control over
financial reporting during the period covered by this report that
have materially affected, or are reasonably likely to materially
affect our internal controls over financial reporting.