CONCIERGE TECHNOLOGIES, INC. AND SUBSIDIARIES
|
CONSOLIDATED BALANCE SHEETS
|
|
|
June 30, 2018
|
|
|
June 30, 2017
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
7,524,114
|
|
|
$
|
6,730,486
|
|
Accounts receivable, net
|
|
|
1,068,240
|
|
|
|
871,570
|
|
Accounts receivable - related parties
|
|
|
1,458,159
|
|
|
|
1,762,271
|
|
Inventories
|
|
|
931,065
|
|
|
|
444,274
|
|
Prepaid income tax and tax receivable
|
|
|
2,138,636
|
|
|
|
1,276,540
|
|
Investments
|
|
|
3,204,005
|
|
|
|
3,578,749
|
|
Other current assets
|
|
|
374,617
|
|
|
|
369,599
|
|
Total current assets
|
|
|
16,698,836
|
|
|
|
15,033,489
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
13,536
|
|
|
|
14,870
|
|
Property and equipment, net
|
|
|
1,080,471
|
|
|
|
1,159,465
|
|
Goodwill
|
|
|
915,790
|
|
|
|
498,973
|
|
Intangible assets, net
|
|
|
2,995,231
|
|
|
|
899,276
|
|
Deferred tax assets, net
|
|
|
865,120
|
|
|
|
1,480,272
|
|
Other assets, long - term
|
|
|
532,165
|
|
|
|
509,538
|
|
Total assets
|
|
$
|
23,101,149
|
|
|
$
|
19,595,883
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES, CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
3,249,387
|
|
|
$
|
2,842,855
|
|
Expense waivers – related parties
|
|
|
662,650
|
|
|
|
589,093
|
|
Purchase consideration payable
|
|
|
1,205,000
|
|
|
|
-
|
|
Notes payable - related parties
|
|
|
3,500
|
|
|
|
3,500
|
|
Equipment loans
|
|
|
46,705
|
|
|
|
17,388
|
|
Total current liabilities
|
|
|
5,167,242
|
|
|
|
3,452,836
|
|
|
|
|
|
|
|
|
|
|
LONG TERM LIABILITIES
|
|
|
|
|
|
|
|
|
Notes payable - related parties
|
|
|
600,000
|
|
|
|
600,000
|
|
Equipment loans, net of current portion
|
|
|
149,491
|
|
|
|
72,605
|
|
Deferred tax liabilities
|
|
|
208,419
|
|
|
|
258,601
|
|
Total liabilities
|
|
|
6,125,152
|
|
|
|
4,384,042
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Note15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible preferred stock, $0.001 par value; 50,000,000 shares authorized Series B: 0 issued and outstanding at June 30, 2018 and 436,951 at June 30, 2017
1
|
|
|
-
|
|
|
|
2,011,934
|
|
|
|
|
-
|
|
|
|
2,011,934
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value; 50,000,000 authorized
|
|
|
|
|
|
|
|
|
Series B: 436,951 issued and outstanding at June 30, 2018 and 0 at June 30, 2017
|
|
|
437
|
|
|
|
-
|
|
Common stock, $0.001 par value; 900,000,000 shares authorized; 29,559,139 shares issued and outstanding at June 30, 2018 and June 30, 2017
1
|
|
|
29,559
|
|
|
|
29,559
|
|
Additional paid-in capital
|
|
|
9,186,132
|
|
|
|
7,174,635
|
|
Accumulated other comprehensive income
|
|
|
148,808
|
|
|
|
119,338
|
|
Retained earnings
|
|
|
7,611,061
|
|
|
|
5,876,375
|
|
Total stockholders' equity
|
|
|
16,975,997
|
|
|
|
13,199,907
|
|
Total liabilities, convertible preferred stock, and stockholders' equity
|
|
$
|
23,101,149
|
|
|
$
|
19,595,883
|
|
1
Share amounts adjusted for 1:30 reverse stock split
(Note 13)
The accompanying notes are an integral part of these consolidated financial statements.
|
CONCIERGE TECHNOLOGIES, INC. AND SUBSIDIARIES
|
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
June 30, 201
8
|
|
|
June 30, 201
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
|
|
|
|
|
|
|
Fund management - related party
|
|
$
|
18,744,313
|
|
|
$
|
23,926,065
|
|
Food products
|
|
|
4,968,158
|
|
|
|
4,791,996
|
|
Security alarm monitoring
|
|
|
3,303,584
|
|
|
|
3,136,733
|
|
Beauty products and other
|
|
|
1,694,534
|
|
|
|
156,327
|
|
Net revenue
|
|
|
28,710,589
|
|
|
|
32,011,121
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
5,914,719
|
|
|
|
4,850,231
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
22,795,870
|
|
|
|
27,160,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense
|
|
|
|
|
|
|
|
|
General and administrative expense
|
|
|
4,828,241
|
|
|
|
5,627,235
|
|
Fund operations
|
|
|
4,933,437
|
|
|
|
5,431,408
|
|
Marketing and advertising
|
|
|
3,554,507
|
|
|
|
3,434,228
|
|
Depreciation and amortization
|
|
|
576,674
|
|
|
|
418,840
|
|
Salaries and compensation
|
|
|
6,096,232
|
|
|
|
5,519,079
|
|
Total operating expenses
|
|
|
19,989,091
|
|
|
|
20,430,790
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
2,806,779
|
|
|
|
6,730,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income:
|
|
|
|
|
|
|
|
|
Other (expense) income
|
|
|
(316,337
|
)
|
|
|
64,039
|
|
Interest and dividend income
|
|
|
111,929
|
|
|
|
3,177
|
|
Interest expense
|
|
|
(101,089
|
)
|
|
|
(21,582
|
)
|
Total other (expense) income, net
|
|
|
(305,497
|
)
|
|
|
45,634
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
2,501,282
|
|
|
|
6,775,734
|
|
|
|
|
|
|
|
|
|
|
Provision of income taxes
|
|
|
766,596
|
|
|
|
1,589,403
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,734,686
|
|
|
$
|
5,186,331
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock
1
|
|
|
|
|
|
|
|
|
Basic
|
|
|
29,559,139
|
|
|
|
29,559,139
|
|
Diluted
|
|
|
38,298,159
|
|
|
|
38,298,159
|
|
|
|
|
|
|
|
|
|
|
Net income per common share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.06
|
|
|
$
|
0.18
|
|
Diluted
|
|
$
|
0.05
|
|
|
$
|
0.14
|
|
1
Share amounts adjusted for 1:30 reverse stock split (Note 13)
The accompanying notes are an integral part of these consolidated financial statements.
|
CONCIERGE TECHNOLOGIES, INC. AND SUBSIDIARIES
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
June 30, 201
8
|
|
|
June 30, 201
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,734,686
|
|
|
$
|
5,186,331
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Foreign currency translation (loss) gain
|
|
|
(214,284
|
)
|
|
|
113,444
|
|
Changes in short-term investment valuation
|
|
|
243,754
|
|
|
|
36,197
|
|
Comprehensive income
|
|
$
|
1,764,156
|
|
|
$
|
5,335,972
|
|
The accompanying notes are an integral part of these consolidated financial statements.
|
CONCIERGE TECHNOLOGIES, INC. AND SUBSIDIARIES
|
CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
|
FOR THE YEARS ENDED JUNE 30, 201
8
AND 201
7
|
|
|
Preferred Stock
(Series B)
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Amount
|
|
|
Number of
Shares
|
|
|
Par
Value
|
|
|
Additional
Paid - in
Cap
it
al
|
|
|
Accumulated
Other Comprehensive (Loss) Income
|
|
|
Accumulated
Retained
Earnings
|
|
|
Total
Stockholders' Equity
|
|
Balance at July 1, 2016
|
|
|
436,951
|
|
|
$
|
2,011,934
|
|
|
|
29,559,139
|
|
|
$
|
29,559
|
|
|
$
|
7,174,635
|
|
|
$
|
(30,303
|
)
|
|
$
|
690,044
|
|
|
$
|
7,863,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in investment valuation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
36,197
|
|
|
|
-
|
|
|
|
36,197
|
|
Gain on currency translation for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
113,444
|
|
|
|
-
|
|
|
|
113,444
|
|
Net income for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,186,331
|
|
|
|
5,186,331
|
|
Balance at June 30, 2017
|
|
|
436,951
|
|
|
$
|
2,011,934
|
|
|
|
29,559,139
|
|
|
$
|
29,559
|
|
|
$
|
7,174,635
|
|
|
$
|
119,338
|
|
|
$
|
5,876,375
|
|
|
$
|
13,199,907
|
|
Reclassification of Series B Preferred stock par value
(1)
|
|
|
-
|
|
|
|
437
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
437
|
|
Reclassification of Series B Preferred stock to additional paid-in capital
(1)
|
|
|
-
|
|
|
|
(2,011,497
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
2,011,497
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,011,497
|
|
Stockholders' equity following reverse stock split
(1)
|
|
|
436,951
|
|
|
|
437
|
|
|
|
29,559,139
|
|
|
$
|
29,559
|
|
|
$
|
9,186,132
|
|
|
$
|
119,338
|
|
|
$
|
5,876,375
|
|
|
|
15,211,841
|
|
Change in investment valuation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
243,754
|
|
|
|
-
|
|
|
|
243,754
|
|
(Loss) on currency translation for the year ended June 30, 2018
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(214,284
|
)
|
|
|
-
|
|
|
|
(214,284
|
)
|
Net income for the year ended June 30, 2018
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,734,686
|
|
|
|
1,734,686
|
|
Balance at June 30, 2018
|
|
|
436,951
|
|
|
$
|
437
|
|
|
|
29,559,139
|
|
|
$
|
29,559
|
|
|
$
|
9,186,132
|
|
|
$
|
148,808
|
|
|
$
|
7,611,061
|
|
|
$
|
16,975,997
|
|
Note (1) Upon issuance of the preferred shares in the Wainwright acquisition, the Company no longer had sufficient authorized, unissued, common stock to allow for Series B conversion. Accordingly, the Series B was reclassified to the mezzanine section. On December 15, 2017 a 1:30 reverse stock split was completed and allowed for the Series B shares to be moved from the mezzanine section to stockholders' equity. All share amounts have been adjusted for the reverse stock split (Note 13).
The accompanying notes are an integral part of these consolidated financial statements.
|
CONCIERGE TECHNOLOGIES, INC. AND SUBSIDIARIES
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
For the years ended
|
|
|
|
201
8
|
|
|
201
7
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,734,686
|
|
|
$
|
5,186,331
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
576,674
|
|
|
|
418,840
|
|
Deferred taxes
|
|
|
564,992
|
|
|
|
(314,294
|
)
|
Bad debt expense
|
|
|
51,747
|
|
|
|
-
|
|
Loss (gain) on sale of investments
|
|
|
356,074
|
|
|
|
(2,399
|
)
|
(Gain) on disposal of equipment
|
|
|
(8,364
|
)
|
|
|
(4,341
|
)
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in current assets:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
7,137
|
|
|
|
(24,890
|
)
|
Accounts receivable - related party
|
|
|
304,112
|
|
|
|
361,834
|
|
Prepaid income taxes
|
|
|
(906,085
|
)
|
|
|
(918,230
|
)
|
Inventory
|
|
|
(162,388
|
)
|
|
|
(2,109
|
)
|
Other current assets
|
|
|
4,045
|
|
|
|
(101,725
|
)
|
Increase (decrease) in current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
406,126
|
|
|
|
449,756
|
|
Expense waivers payable - related party
|
|
|
73,557
|
|
|
|
140,163
|
|
Conversion of loan to other income
|
|
|
-
|
|
|
|
(8,500
|
)
|
Net cash provided by operating activities
|
|
|
3,002,213
|
|
|
|
5,180,436
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Cash paid for acquisition of business assets
|
|
|
(2,277,172
|
)
|
|
|
(214,035
|
)
|
Purchase of equipment - net of disposals
|
|
|
(318,064
|
)
|
|
|
(259,017
|
)
|
Sale of investments
|
|
|
1,372,019
|
|
|
|
227,632
|
|
Purchase of investments
|
|
|
(1,109,596
|
)
|
|
|
(3,766,111
|
)
|
Net cash used in investing activities
|
|
|
(2,332,813
|
)
|
|
|
(4,011,531
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds of equipment loan
|
|
|
178,604
|
|
|
|
88,383
|
|
Repayment of equipment loan
|
|
|
(67,660
|
)
|
|
|
-
|
|
Repayment of loans from related parties
|
|
|
-
|
|
|
|
(5,000
|
)
|
Net cash provided by financing activities
|
|
|
110,944
|
|
|
|
83,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate change on cash and cash equivalents
|
|
|
13,184
|
|
|
|
24,090
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
|
|
|
793,628
|
|
|
|
1,276,378
|
|
|
|
|
|
|
|
|
|
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING BALANCE
|
|
|
6,730,486
|
|
|
|
5,454,107
|
|
|
|
|
|
|
|
|
|
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, ENDING BALANCE
|
|
$
|
7,524,114
|
|
|
$
|
6,730,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
-
|
|
|
$
|
5,000
|
|
Income taxes paid, U.S.
|
|
$
|
965,272
|
|
|
$
|
2,475,800
|
|
Purchase consideration payable (see Note 12)
|
|
$
|
1,205,000
|
|
|
$
|
-
|
|
The accompanying notes are an integral part of these consolidated financial statements.
|
NOTE
1.
ORGANIZATION AND DESCRIPTION OF BUSINESS
Concierge Technologies, Inc., (the “Company” or “Concierge”), a Nevada corporation, operates through its wholly owned subsidiaries who are engaged in varied business activities. The operations of the Company’s wholly-owned subsidiaries are more particularly described herein but are summarized as follows:
|
●
|
Wainwright Holdings, Inc. (“Wainwright”), a U.S. based company, is the sole member of
two
investment services limited liability company subsidiaries, United States Commodity Funds LLC (“USCF”), and USCF Advisers LLC (“USCF Advisers”), each of which manages, operates or is an investment advisor to exchange traded funds organized as limited partnerships or investment trusts that issue shares which trade on the NYSE Arca stock exchange.
|
|
●
|
Gourmet Foods, Ltd. (“Gourmet Foods”), a New Zealand based company, manufactures and distributes New Zealand meat pies on a commercial scale.
|
|
●
|
Brigadier Security Systems (
2000
) Ltd. (“Brigadier”), a Canadian based company, sells and installs commercial and residential alarm monitoring systems.
|
|
●
|
Kahnalytics, Inc. dba/Original Sprout (“Original Sprout”), a U.S. based company, is engaged in the wholesale distribution of hair and skin care products under the brand name Original Sprout on a global scale. The former business of Kahnalytics, providing live-streaming mobile video on a subscription basis, was insignificant and was terminated after transitioning to the current business of distributing hair and skin care products.
|
See “Note
12.
Business Combinations” for a description of the terms of our acquisitions for our operating businesses.
Concierge manages its operating businesses on a decentralized basis. There are
no
centralized or integrated operational functions such as marketing, sales, legal or other professional services and there is little involvement by Concierge’s management in the day-to-day business affairs of its operating subsidiary businesses. Concierge’s corporate management is responsible for capital allocation decisions, investment activities and selection and retention of the Chief Executive to head each of the operating subsidiaries. Concierge's corporate management is also responsible for corporate governance practices, monitoring regulatory affairs, including those of its operating businesses and involvement in governance-related issues of its subsidiaries as needed.
NOTE
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Accounting Principles
The Company has prepared the accompanying financial statements on a consolidated basis. In the opinion of management, the accompanying consolidated balance sheets and related statements of income and comprehensive income, and cash flows include all adjustments, consisting only of normal recurring items, necessary for their fair presentation, prepared on an accrual basis, in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Principles of Consolidation
The accompanying condensed consolidated financial statements, which are referred herein as the “Financial Statements” include the accounts of Concierge and its wholly owned subsidiaries, Wainwright, Gourmet Foods, Brigadier and Original Sprout.
Wainwright was acquired during the prior fiscal year. Due to the commonality of ownership and control between the
two
companies, the transaction has been accounted for as a transaction between entities under common control (Refer to Note
12
of the Consolidated Financial Statements). The accompanying Financial Statements as of
June 30, 2018
and
June 30, 2017
include the assets, liabilities and the results of operations of Wainwright at carrying amounts as though the transaction and exchange of equity interests has occurred at the beginning of the comparative period, or
July 1, 2016.
All significant inter-company transactions and accounts have been eliminated in consolidation.
Use of Estimates
The preparation of the Financial Statements are in conformity with U.S. GAAP 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
Cash and cash equivalents include all highly liquid debt instruments with original maturities of
three
months or less. The Company maintains its cash and cash equivalents in financial institutions in the United States, Canada, and New Zealand. Accounts in the United States are insured by the Federal Deposit Insurance Corporation up to
$250,000
per depositor, and accounts in Canada are insured by the Canada Deposit Insurance Corporation up to
CD$100,000
per depositor. Accounts in New Zealand are uninsured. The Company has, at times, held deposits in excess of insured amounts, but the Company does
not
expect any losses in such accounts.
Accounts Receivable, Related Parties and Accounts Receivable, net
Accounts receivable -related parties, consist of fund asset management fees receivable from the Wainwright business. Management fees receivable generally consist of
one
month of management fees which are collected in the month after they are earned. As of
June 30, 2018
and
June 30, 2017,
there is
no
allowance for doubtful accounts as all amounts are deemed collectible.
Accounts receivable, net, consist of receivables from the Brigadier, Gourmet Foods and Original Sprout businesses. 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, 2018
and
June 30, 2017,
the Company had
$51,747
and
nil,
respectively, recorded in doubtful accounts.
Major Customers and Suppliers – Concentration of Credit Risk
Concierge, through Brigadier, is dependent upon its contractual relationship with the alarm monitoring company who purchases the monitoring contracts and provides monitoring services to Brigadier’s customers. Sales to the largest customer, which includes contracts and recurring monthly residuals, totaled
41%
and
46%
of the total Brigadier revenues for the years ended
June 30, 2018
and
June 30, 2017,
respectively. The same customer accounted for approximately
35%
of Brigadier's accounts receivable as of the balance sheet date of
June 30, 2018
as compared to
40%
as of
June 30, 2017.
Another large account, which is
not
expected to be a recurring customer, contributed
13%
of the total sales revenues for the year ended
June 30, 2018
and approximately
7%
of the accounts receivable as of
June 30, 2018.
There were
no
significant sales to this customer for the year ended
June 30, 2017.
Concierge, through Gourmet Foods, has
three
major customer groups comprising the gross revenues to Gourmet Foods;
1
) grocery,
2
) gasoline convenience stores, and
3
) independent retailers. For the year ended and balance sheet date of
June 30, 2018,
Gourmet Foods’ largest customer in the grocery industry, who operates through a number of independently branded stores, accounted for approximately
21%
of Gourmet Foods sales revenues and
33%
of Gourmet Foods accounts receivable as compared to
18%
and
26%
for the prior year ended
June 30, 2017,
respectively. The
second
largest in the grocery industry accounted for approximately
12%
of Gourmet Foods sales revenues for the year ended
June 30, 2018
as compared to
11%
for the year ended
June 30, 2017.
This same group accounted for
16%
of Gourmet Foods accounts receivable as of
June 30, 2018
as compared to
11%
as of
June 30, 2017.
In the gasoline convenience store market Gourmet Foods supplies
two
major channels. The largest is a marketing consortium of gasoline dealers operating under the same brand who, for the year ended and balance sheet date of
June 30, 2018,
accounted for approximately
41%
of Gourmet Foods’ gross sales revenues as compared to
43%
for the year ended
June 30, 2017.
No
single member of the consortium is responsible for a significant portion of Gourmet Foods’ accounts receivable. The
third
category of independent retailers and cafes accounted for the balance of Gourmet Foods’ gross sales revenue, however the group members are independently owned and individually responsible for their financial obligations with
no
one
customer accounting for a significant portion of revenues or accounts receivable.
Concierge, through Original Sprout, is
not
dependent upon any
one
customer or group of customers as
no
single customer or buying group accounts for over
10%
of the gross revenues.There were
3
major distributor accounts, all current, representing
10%,
13%,
and
20%
for a total of
43%
of all accounts receivable as of June
30,
2018.
There is
no
comparison data for the prior year as the business operation was only begun as of December
18,
2017.
Original Sprout is dependent upon its relationship with a product packaging company who, at the direction of Original Sprout, manufactures the products, packages them in appropriate containers, and delivers the finished goods to Original Sprout for distribution to its customers. All of Original Sprout’s products are currently produced by this packaging company, although if this relationship were to fail there are other similar packaging companies available to Original Sprout at competitive pricing.
For our subsidiary, Wainwright, the concentration of risk and the relative reliance on major customers are found within the various funds it manages and the associated
12
month revenues and accounts receivable – related parties as of
June 30, 2018
and
June 30, 2017
as depicted below.
|
|
Year
ended June 30, 201
8
|
|
|
Year ended June 30, 2017
|
|
|
|
Revenue
|
|
|
Revenue
|
|
Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USO
|
|
$
|
9,752,223
|
|
|
|
52
|
%
|
|
$
|
13,761,317
|
|
|
|
58
|
%
|
USCI
|
|
|
4,253,921
|
|
|
|
23
|
%
|
|
|
4,865,171
|
|
|
|
20
|
%
|
UNG
|
|
|
2,753,723
|
|
|
|
15
|
%
|
|
|
3,118,432
|
|
|
|
13
|
%
|
All Others
|
|
|
1,984,446
|
|
|
|
10
|
%
|
|
|
2,181,145
|
|
|
|
9
|
%
|
Total
|
|
$
|
18,744,313
|
|
|
|
100
|
%
|
|
$
|
23,926,065
|
|
|
|
100
|
%
|
|
|
June 30, 201
8
|
|
|
June 30, 201
7
|
|
|
|
Accounts Receivable
|
|
|
Accounts Receivable
|
|
Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USO
|
|
$
|
674,535
|
|
|
|
46
|
%
|
|
$
|
1,060,421
|
|
|
|
60
|
%
|
USCI
|
|
|
431,288
|
|
|
|
30
|
%
|
|
|
317,032
|
|
|
|
18
|
%
|
UNG
|
|
|
182,399
|
|
|
|
12
|
%
|
|
|
217,760
|
|
|
|
12
|
%
|
All Others
|
|
|
169,937
|
|
|
|
12
|
%
|
|
|
167,058
|
|
|
|
10
|
%
|
Total
|
|
$
|
1,458,159
|
|
|
|
100
|
%
|
|
$
|
1,762,271
|
|
|
|
100
|
%
|
Inventor
ies
Inventories, consisting primarily of food products and packaging in New Zealand, hair and skin care finished products and components in the U.S. and security system hardware in Canada, are valued at the lower of cost (determined on a FIFO basis) or net realizable value. Inventories include product cost, inbound freight and warehousing costs where applicable. Management compares the cost of inventories with the net realizable value and an allowance is made for writing down the inventories to their net realizable value, if lower. For the years ended
June 30, 2018
and
2017
impairment to inventory value was recorded as
$0
and
$2,090,
respectively. An assessment is made at the end of each fiscal year to determine what slow-moving inventory items, if any, should be deemed obsolete and written down to their estimated net realizable value. As of
June 30, 2018
and
June 30, 2017,
the expense for slow-moving or obsolete inventory was
$0
and
$0,
respectively.
Property and Equipment
Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and leasehold improvements are capitalized. Office furniture and equipment include office fixtures, computers, printers and other office equipment plus software and applicable packaging designs. Leasehold improvements, which are included in plant and equipment, are depreciated over the shorter of the useful life of the improvement and the length of the lease. 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 the straight line method over the estimated useful life of the asset (see Note
5
to the Consolidated Financial Statements).
Category
|
|
Estimated Useful Life (in years)
|
|
Plant and equipment:
|
|
|
5
|
to
|
10
|
|
Furniture and office equipment:
|
|
|
3
|
to
|
5
|
|
Vehicles
|
|
|
3
|
to
|
5
|
|
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. There was
no
impairment recorded for the year ended
June 30, 2018
or for the year ended
June 30, 2017.
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 tested for impairment on an annual basis during the
fourth
quarter of our fiscal year, 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, the fair 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. There was
no
impairment recorded for the year ended
June 30, 2018
or for the year ended
June 30, 2017
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. There was
no
impairment recorded for the years ended
June 30, 2018
or
2017.
Investments and Fair Value of Financial Instruments
Short-term investments are classified as available-for-sale securities. The Company measures the investments at fair value at period end with any changes in fair value reflected as unrealized gains or (losses). The Company values its investments in accordance with Accounting Standards Codification ("ASC")
820
– Fair Value Measurements and Disclosures (“ASC
820”
). ASC
820
defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurement. The changes to past practice resulting from the application of ASC
820
relate to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurement. ASC
820
establishes a fair value hierarchy that distinguishes between: (
1
) market participant assumptions developed based on market data obtained from sources independent of the Company (observable inputs) and (
2
) The Company’s own assumptions about market participant assumptions developed based on the best information available under the circumstances (unobservable inputs). The
three
levels defined by the ASC
820
hierarchy are as follows:
Level
1
– Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level
2
– Inputs other than quoted prices included within Level
1
that are observable for the asset or liability, either directly or indirectly. Level
2
assets include the following: quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are
not
active, inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs).
Level
3
– Unobservable pricing input at the measurement date for the asset or liability. Unobservable inputs shall be used to measure fair value to the extent that observable inputs are
not
available.
In some instances, the inputs used to measure fair value might fall within different levels of the fair value hierarchy. The level in the fair value hierarchy within which the fair value measurement in its entirety falls shall be determined based on the lowest input level that is significant to the fair value measurement in its entirety.
Revenue Recognition
Revenue consists of fees earned through management of investment funds, sale of gourmet meat pies and related bakery confections in New Zealand, security alarm system installation and monitoring service in Canada, and wholesale distribution of hair and skin care products. Revenue is accounted for net of sales taxes, sales returns, and 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 or services, these criteria are met at the time the product is shipped, the subscription period commences, or the management fees are accrued.
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. Marketing and advertising costs for the years ended
June 30, 2018
and
2017
were
$3.6
million and
$3.4
million, respectively.
Other Comprehensive Income (Loss) and Foreign Currency Translation
Foreign Currency Translation
We record foreign currency translation adjustments and transaction gains and losses in accordance with ASC
830
-
30,
Foreign Currency Translation
. The accounts of Gourmet Foods 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 weighted average exchange rate throughout the period. Foreign currency transaction gains and (losses) can also occur if a transaction is settled in a currency other than the entity's functional currency. Accumulated currency translation gains and (losses) are classified as an item of accumulated other comprehensive income (loss) in the stockholders’ equity section of the consolidated balance sheet. Other comprehensive income, foreign currency translation (loss) gain was approximately (
$214
) thousand and
$113
thousand for the years ended
June 30, 2018
and
2017,
respectively.
Short-term Investment Valuation
Other comprehensive income attributed to changes in the valuation of short-term investments held for sale by Wainwright was approximately
$244
thousand and
$36
thousand for the years ended
June 30, 2018
and
2017,
respectively.
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 (Refer to Note
16
of the Consolidated Financial Statements).
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. For the years ended
June 30, 2018
and
2017
a determination was made that
no
adjustments were necessary.
Recent Accounting Pronouncements adopted Subsequent to
June 30, 2017
The Company has reviewed new accounting pronouncements issued between
October 13, 2017,
the filing date of our most recent prior Annual Report on Form
10
-K, and the filing date of this Annual Report on Form
10
-K and has determined that
no
pronouncements issued are relevant to the Company, other than as listed below, have, or will have, a material impact on the Company’s consolidated financial position, results of operations or disclosure requirements.
In
May 2014,
the FASB issued ASU
No.
2014
-
09
(Topic
606
)
—Revenue from Contracts with Customers
and several amendments thereafter (“ASU
2014
-
09”
), which provides guidance for revenue recognition that will supersede the revenue recognition requirements in Topic
605,
and most industry specific guidance. The core principle for ASU
2014
-
09
is that revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. ASU
2014
-
09
is effective for annual reporting periods beginning after
December 15, 2017 and interim periods within those annual periods.
The Company does
not
anticipate that the adoption of the amendments will have a material impact on the Consolidated Financial Statements.
In
January 2016,
the FASB issued ASU
2016
-
01
, Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities
which amends the guidance related to the classification and measurement of investments in equity securities. The guidance requires equity investments (except those accounted for under the equity method of accounting, certain cost method investments, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. The ASU will also amend the guidance related to the presentation of certain fair value changes for financial liabilities measured at fair value and certain disclosure requirements associated with the fair value of financial instruments. The ASU is effective for the Company for fiscal years beginning after
December 15, 2017,
including interim periods within those fiscal years. The adoption of the ASU will impact the Company’s recording of unrealized gains and losses on its investments on the Statement of Operations, rather than on the Statement of Comprehensive income, beginning in the
first
quarter of the fiscal year ended
June 30, 2019.
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.
NOTE
3.
BASIC AND DILUTED NET LOSS PER SHARE
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. The Company does
not
have any options or warrants.
Diluted net income per share reflects 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, 201
8
|
|
|
|
Net Income
|
|
|
Shares
|
|
|
Per Share
|
|
Basic income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
1,734,686
|
|
|
|
29,559,139
|
|
|
$
|
0.06
|
|
Effect of dilutive securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Preferred stock Series B
|
|
|
-
|
|
|
|
8,739,020
|
|
|
|
-
|
|
Diluted income per share
|
|
$
|
1,734,686
|
|
|
|
38,298,159
|
|
|
$
|
0.05
|
|
|
|
For the year ended June 30, 201
7
|
|
|
|
Net Income
|
|
|
Shares
|
|
|
Per Share
|
|
Basic income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
5,186,331
|
|
|
|
29,559,139
|
|
|
$
|
0.18
|
|
Effect of dilutive securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Preferred stock Series B
|
|
|
-
|
|
|
|
8,739,020
|
|
|
|
-
|
|
Diluted income per share
|
|
$
|
5,186,331
|
|
|
|
38,298,159
|
|
|
$
|
0.14
|
|
NOTE
4.
INVENTORIES
Inventories consisted of the following:
|
|
June 30,
|
|
|
June 30,
|
|
|
|
201
8
|
|
|
201
7
|
|
Raw materials
|
|
$
|
195,674
|
|
|
$
|
43,088
|
|
Supplies and packing materials
|
|
|
142,257
|
|
|
|
125,241
|
|
Finished goods
|
|
|
593,134
|
|
|
|
275,945
|
|
Total inventories
|
|
$
|
931,065
|
|
|
$
|
444,274
|
|
NOTE
5.
PROPERTY AND EQUIPMENT
Property, plant and equipment consisted of the following as of
June 30, 2018
and
2017:
|
|
June 30, 201
8
|
|
|
June 30, 201
7
|
|
Plant and equipment
|
|
$
|
1,487,568
|
|
|
$
|
1,460,180
|
|
Furniture and office equipment
|
|
|
171,978
|
|
|
|
162,781
|
|
Vehicles
|
|
|
351,381
|
|
|
|
185,866
|
|
Total property and equipment, gross
|
|
|
2,010,927
|
|
|
|
1,808,827
|
|
Accumulated depreciation
|
|
|
(930,456
|
)
|
|
|
(649,362
|
)
|
Total property and equipment, net
|
|
$
|
1,080,471
|
|
|
$
|
1,159,465
|
|
For the years ended
June 30, 2018
and
2017,
depreciation expense for property, plant and equipment totaled $
342,628
and
$299,903,
respectively.
NOTE
6.
INTANGIBLE ASSETS
Intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
June 30, 201
8
|
|
|
June 30, 201
7
|
|
Customer relationships
|
|
$
|
700,252
|
|
|
$
|
500,252
|
|
Brand name
|
|
|
1,142,122
|
|
|
|
402,123
|
|
Domain name
|
|
|
36,913
|
|
|
|
36,913
|
|
Recipes
|
|
|
1,221,601
|
|
|
|
21,601
|
|
Non-compete agreement
|
|
|
274,982
|
|
|
|
84,982
|
|
Total
|
|
|
3,375,870
|
|
|
|
1,045,871
|
|
Less : accumulated amortization
|
|
|
(380,639
|
)
|
|
|
(146,595
|
)
|
Net intangibles
|
|
$
|
2,995,231
|
|
|
$
|
899,276
|
|
CUSTOMER RELATIONSHIP
On
August 11, 2015,
the Company acquired Gourmet Foods. 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
$434,099
and is amortized over the remaining useful life of
10
years. On
December 18, 2017
the Company’s wholly-owned subsidiary, Kahnalytics, Inc., acquired the assets of Original Sprout LLC. The fair value of the acquired customer relationships was determined to be
$200,000
and is amortized over the remaining useful life of
7
years.
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
|
June 30, 201
7
|
|
Customer relationships
|
|
$
|
700,252
|
|
|
|
500,252
|
|
Less: accumulated amortization
|
|
|
(124,895
|
)
|
|
|
(59,684
|
)
|
Total customer relationships, net
|
|
$
|
575,357
|
|
|
|
440,568
|
|
BRAND NAME
On
August 11, 2015,
the Company acquired Gourmet Foods. 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. On
December 18, 2017
the Company’s wholly-owned subsidiary, Kahnalytics, Inc., acquired the assets of Original Sprout LLC. The fair value of the acquired brand name was determined to be
$740,000
and is considered to have an indefinite life. Unlike the brand names Gourmet Foods and Brigadier Security Systems, Original Sprout is an actual product name and recognized associated brand that is identifiable to consumers of the product and is the basis of the value proposition. That brand name will forever be associated with the product offering unless and until such time in the future as the Company may elect to discontinue the use of the brand and move towards establishment of an alternative product offering. Therefore, the Company will test for impairment of the brand name "Original Sprout" at each reporting interval with
no
amortization recognized.
|
|
|
|
|
|
|
|
|
June 30, 201
8
|
|
|
June 30, 201
7
|
|
Brand name
|
|
$
|
1,142,122
|
|
|
$
|
402,123
|
|
Less: accumulated amortization
|
|
|
(88,872
|
)
|
|
|
(48,660
|
)
|
Total brand name, net
|
|
$
|
1,053,250
|
|
|
$
|
353,463
|
|
DOMAIN NAME
On
August 11, 2015,
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.
|
|
|
|
|
|
|
|
|
June 30, 201
8
|
|
|
June 30, 201
7
|
|
Domain name
|
|
$
|
36,913
|
|
|
$
|
36,913
|
|
Less: accumulated amortization
|
|
|
(18,958
|
)
|
|
|
(11,576
|
)
|
Total brand name, net
|
|
$
|
17,955
|
|
|
$
|
25,337
|
|
RECIPES AND FORMULAS
On
August 11, 2015,
the Company acquired Gourmet Foods. The fair value on the recipes was estimated to be
$21,601
and is amortized over the remaining useful life of
5
years. On
December 18, 2017
the Company’s wholly-owned subsidiary, Kahnalytics, Inc., acquired the assets of Original Sprout LLC. The fair value of the acquired recipes and formulas was determined to be
$1,200,000
and is amortized over the remaining useful life of
8
years.
|
|
|
|
|
|
|
|
|
June 30, 201
8
|
|
|
June 30, 201
7
|
|
Recipes and formulas
|
|
$
|
1,221,601
|
|
|
$
|
21,601
|
|
Less: accumulated amortization
|
|
|
(92,303
|
)
|
|
|
(8,257
|
)
|
Total recipes and formulas, net
|
|
$
|
1,129,298
|
|
|
$
|
13,344
|
|
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
$84,982
and is amortized over the remaining useful life of
5
years. On
December 18, 2017
the Company’s wholly-owned subsidiary, Kahnalytics, Inc., acquired the assets of Original Sprout LLC. The fair value of the acquired non-compete agreement was determined to be
$190,000
and is amortized over the remaining useful life of
5
years.
|
|
|
|
|
|
|
|
|
June 30, 201
8
|
|
|
June 30, 201
7
|
|
Non-compete agreement
|
|
$
|
274,982
|
|
|
$
|
84,982
|
|
Less: accumulated amortization
|
|
|
(55,612
|
)
|
|
|
(18,418
|
)
|
Total non-compete agreement, net
|
|
$
|
219,370
|
|
|
$
|
66,564
|
|
AMORTIZATION EXPENSE
The total amortization expense for intangible assets for the years ended
June 30, 2018
and
June 30, 2017
was
$234,046
and
$118,937,
respectively.
Estimated amortization expenses of intangible assets for the next
five twelve
-month periods ending
June 30,
are as follows:
Years Ending June 30,
|
|
Expense
|
|
2019
|
|
$
|
335,508
|
|
2020
|
|
|
335,508
|
|
2021
|
|
|
325,678
|
|
2022
|
|
|
306,809
|
|
2023
|
|
|
286,507
|
|
Thereafter
|
|
|
1,405,221
|
|
Total
|
|
$
|
2,995,231
|
|
NOTE
7.
OTHER ASSETS
Other Current Assets
Other current assets totaling
$374,617
as of
June 30, 2018
and
$369,599
as of
June 30, 2017
are comprised of various components as listed below.
|
|
|
|
|
|
|
|
|
As of June 30, 201
8
|
|
|
As of June 30, 201
7
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
-
|
|
|
$
|
183,634
|
|
Prepaid expenses
|
|
|
358,869
|
|
|
|
28,667
|
|
Other current assets
|
|
|
15,748
|
|
|
|
7,298
|
|
Notes receivable
|
|
|
-
|
|
|
|
150,000
|
|
Total
|
|
$
|
374,617
|
|
|
$
|
369,599
|
|
Investments
Wainwright, from time to time, provides initial investments in the creation of ETP funds that Wainwright manages. Wainwright classifies these investments as current assets as these investments are generally sold within
one
year from the balance sheet date. Investments in which
no
controlling financial interest or significant influence exists are recorded at fair value with unrealized holding gains and losses included in accumulated other comprehensive income (loss) as a component of stockholders’ equity, except for unrealized losses determined to be other-than-temporary, which are included in the consolidated statements of operations and comprehensive income (loss). As of
June 30, 2018
and
June 30, 2017,
investments were approximately
$3.2
million and
$3.6
million, respectively. Investments in which
no
controlling financial interest exists, but significant influence exists are recorded as per the equity method of investment accounting. As of
June 30, 2018
and
June 30, 2017,
there were
no
investments requiring the equity method investment accounting.
Investments measured at estimated fair value consist of the following as of
June 30, 2018
and
June 30, 2017:
|
|
As of June 30, 2018
|
|
|
|
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair
Value
|
|
Money market funds
|
|
$
|
180,138
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
180,138
|
|
USCI mutual fund investment
|
|
|
2,500,000
|
|
|
|
280,480
|
|
|
|
-
|
|
|
|
2,780,480
|
|
Hedged asset
|
|
|
523,100
|
|
|
|
-
|
|
|
|
(280,761
|
)
|
|
|
242,339
|
|
Other equities
|
|
|
1,577
|
|
|
|
-
|
|
|
|
(529
|
)
|
|
|
1,048
|
|
Total short-term investments
|
|
$
|
3,204,815
|
|
|
$
|
280,480
|
|
|
$
|
(281,290
|
)
|
|
|
3,204,005
|
|
|
|
As of June 30, 2017
|
|
|
|
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair
Value
|
|
Money market funds
|
|
$
|
86,204
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
86,204
|
|
USCI mutual fund investment
|
|
|
2,500,000
|
|
|
|
-
|
|
|
|
(49,080
|
)
|
|
|
2,450,920
|
|
MENU ETF investment
|
|
|
768,427
|
|
|
|
41,473
|
|
|
|
-
|
|
|
|
809,900
|
|
Hedged asset
|
|
|
187,000
|
|
|
|
43,746
|
|
|
|
-
|
|
|
|
230,746
|
|
Other equities
|
|
|
1,577
|
|
|
|
-
|
|
|
|
(598
|
)
|
|
|
979
|
|
Total short-term investments
|
|
$
|
3,543,208
|
|
|
$
|
85,219
|
|
|
$
|
(49,678
|
)
|
|
|
3,578,749
|
|
The following tables summarize the valuation of the Company’s securities at
June 30, 2018
and
June 30, 2017
using the fair value hierarchy:
|
|
As of June 30
, 2018
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Money market funds
|
|
$
|
180,138
|
|
|
$
|
180,138
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Mutual fund investment
|
|
|
2,780,480
|
|
|
|
2,780,480
|
|
|
|
-
|
|
|
|
-
|
|
Hedge asset
|
|
|
242,339
|
|
|
|
-
|
|
|
|
242,339
|
|
|
|
-
|
|
Other equities
|
|
|
1,048
|
|
|
|
1,048
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
3,204,005
|
|
|
$
|
2,961,666
|
|
|
$
|
242,339
|
|
|
$
|
-
|
|
|
|
As of June 30, 2017
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Money market funds
|
|
$
|
86,204
|
|
|
$
|
86,204
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Mutual fund investment
|
|
|
2,450,920
|
|
|
|
2,450,920
|
|
|
|
-
|
|
|
|
-
|
|
ETF investment
|
|
|
809,900
|
|
|
|
809,900
|
|
|
|
-
|
|
|
|
-
|
|
Hedge asset
|
|
|
230,746
|
|
|
|
-
|
|
|
|
230,746
|
|
|
|
-
|
|
Other equities
|
|
|
979
|
|
|
|
979
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
3,578,749
|
|
|
$
|
3,348,003
|
|
|
$
|
230,746
|
|
|
$
|
-
|
|
During the years ended
June 30, 2018
and
2017,
there were
no
transfers between Level
1
and Level
2.
Restricted Cash
At
June 30, 2018,
Gourmet Foods had on deposit approximately
NZ$20,000
(approximately
US$13,536
) securing a lease bond for
one
of its properties. The cash securing the bond is restricted from access or withdrawal so long as the bond remains in place.
Long - Term Assets
Other long term assets totaling
$532,165
and
$509,538
at
June 30, 2018
and
June 30, 2017,
respectively, were attributed to Wainwright and Original Sprout and consisted of
|
(i)
|
$500,000
as of
June 30, 2018
and
June 30, 2017
representing
10%
equity investment in a registered investment adviser accounted for on a cost basis,
|
|
(ii)
|
and
$32,165
as of
June 30, 2018
and
$9,538
at
June 30, 2017
representing deposits and prepayments of rent.
|
NOTE
8.
GOODWILL
Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in business combinations. The amounts recorded in goodwill for
June 30, 2018
and
2017
were
$915,790
and
$498,973,
respectively. The change is attributed to the purchase of assets by Original Sprout as further detailed in Note
12
to the Financial Statements.
Goodwill is comprised of the following amounts:
|
|
As of June 30,
2018
|
|
|
As of June 30,
201
7
|
|
|
|
|
|
|
|
|
|
|
Goodwill – Original Sprout
|
|
|
416,817
|
|
|
|
-
|
|
Goodwill – Gourmet Foods
|
|
|
147,628
|
|
|
|
147,628
|
|
Goodwill - Brigadier
|
|
|
351,345
|
|
|
|
351,345
|
|
Total
|
|
$
|
915,790
|
|
|
$
|
498,973
|
|
The Company tests for goodwill impairment at each reporting unit. There was
no
goodwill impairment for the year ended
June 30, 2018 or June 30, 2017.
NOTE
9.
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following:
|
|
June 30, 201
8
|
|
|
June 30, 2017
|
|
Accounts payable
|
|
$
|
1,935,645
|
|
|
$
|
1,781,772
|
|
Accrued interest
|
|
|
56,689
|
|
|
|
32,410
|
|
Taxes payable
|
|
|
3,938
|
|
|
|
123
|
|
Deferred rent
|
|
|
3,681
|
|
|
|
13,402
|
|
Accrued payroll and vacation pay
|
|
|
299,630
|
|
|
|
349,507
|
|
Accrued expenses
|
|
|
949,804
|
|
|
|
665,641
|
|
Total
|
|
$
|
3,249,387
|
|
|
$
|
2,842,855
|
|
NOTE
10.
RELATED PARTY TRANSACTIONS
Notes Payable - Related Parties
Current related party notes payable consist of the following:
|
|
June 30, 201
8
|
|
|
June 30, 201
7
|
|
Notes payable to shareholder, interest rate of 8%, unsecured and payable on December 31, 2012 (past due)
|
|
|
3,500
|
|
|
|
3,500
|
|
Notes payable to shareholder, interest rate of 4%, unsecured and payable on May 25, 2022
|
|
|
250,000
|
|
|
|
250,000
|
|
Notes payable to shareholder, interest rate of 4%, unsecured and payable on April 8, 2022
|
|
|
350,000
|
|
|
|
350,000
|
|
|
|
$
|
603,500
|
|
|
$
|
603,500
|
|
Interest expense for all related party notes for the years ended
June 30, 2018
and
2017
was
$24,280
and
$18,999,
respectively.
Promissory Note Payable – Related Parties
On
April 8, 2016
and
May 25, 2016,
the Company entered into convertible promissory note agreements (the “Promissory Notes”) with the Gerber Irrevocable Family Trust, an affiliate of our shareholder and CEO, that resulted in the funding of
$350,000
and with the Schoenberger Family Trust, an affiliate of our shareholder and director, that resulted in the funding of
$250,000,
respectively. The Promissory Notes bear interest at
four
percent (
4%
) per annum and increases to
nineteen
percent (
19%
) 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
0.01%
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%
annual interest was agreed upon in light of the heightened default risk over traditional investment instruments. There was
no
beneficial conversion feature identified as of the date of issuance of the Promissory Notes.
In connection with the acquisition of Wainwright on
December 9, 2016
the Promissory Notes were subsequently amended to remove the conversion feature. The maturity date and interest rate remain the same and the liability is now reflected on the condensed consolidated balance sheet as a component of Notes payable-related parties.
Interest expense for all related party convertible debentures for the years ended
June 30, 2018
and
2017
was accrued in interest expense for Notes payable-related parties.
Wainwright - Related Party Transactions
The Funds managed by USCF and USCF Advisers are deemed by management to be related parties. The Company’s Wainwright revenues, totaling
$18.7
million and
$23.9
million for the years ended
June 30, 2018
and
2017,
respectively, were earned from these related parties. Accounts receivable, totaling
$1.5
million and
$1.8
million as of
June 30, 2018
and
June 30, 2017,
respectively, were owed from these related parties. Fund expense waivers, totaling
$0.7
million and
$0.8
million and fund expense limitation amounts, totaling
$0.5
million and
$0.4
million, for the years ended
June 30, 2018
and
2017,
respectively, were incurred on behalf of these related parties. Waivers payable, totaling
$0.7
million and
$0.6
million as of
June 30, 2018
and
June 30, 2017,
respectively, were owed to these related parties. Fund expense waivers and fund expense limitation obligations are defined under Note
15
to the Consolidated Financial Statements.
NOTE
11.
EQUIPMENT LOANS
As of
June 30, 2018,
Brigadier had, in the aggregate, an outstanding principal balance of
CD$257,826
(approx.
US$196,196
) related to new vehicle purchases. For each vehicle purchased, the loan principal together with interest is amortized over
60
equal monthly installments. The Consolidated Balance Sheets as of
June 30, 2018
and
June 30, 2017
reflect the amount of the principal balance which is due within
twelve
months as a current liability of
US$46,705
and
$17,388,
respectively. Principal amounts under the loans which is due after
twelve
months are recorded in long term liabilities as
US$149,491
and
$72,605
for the years ended
June 30, 2018
and
2017
respectively. Interest on the loans is expensed or accrued as it becomes due. Total interest on all vehicle loans for the year ended
June 30, 2018
was
US$12,662
and
$1,656
for the year ended
June 30, 2017.
NOTE
12.
BUSINESS COMBINATION
Acquisition of the assets of The Original Sprout, LLC
Kahnalytics, Inc., a wholly owned subsidiary of Concierge Technologies domiciled in California, was founded during
May 2015
for the purpose of carrying on the residual business from the disposal of Concierge Technologies' former subsidiary, Wireless Village dba/Janus Cam. As that business segment slowly wound down over the ensuing
two
years, management began a search for another business opportunity for Kahnalytics. Accordingly, on
December 18, 2017,
Kahnalytics acquired all of the assets of The Original Sprout, LLC, a California limited liability company. Simultaneous with the acquisition, Kahnalytics registered a "doing business as" (or "dba") name of “Original Sprout” and transitioned its business to the manufacture, warehousing and wholesale distribution of non-toxic, all-natural, hair and skin care products under the brand name Original Sprout. The acquisition by Kahnalytics was financed through a non-interest bearing note from Concierge Technologies. The purchase price was approximately
$3.5
million with payments to be made over the course of a
twelve
-month period and per the estimated allocation as depicted in the following table.
Item
|
|
Amount
|
|
Inventory
|
|
$
|
371,866
|
|
Accounts receivable
|
|
|
288,804
|
|
Furniture, fixtures and equipment
|
|
|
1,734
|
|
Pre-payments of inventory
|
|
|
8,775
|
|
Discount on installment payments**
|
|
|
64,176
|
|
Intangible assets*
|
|
|
2,330,000
|
|
Goodwill
|
|
|
416,817
|
|
Total Purchase Price
|
|
$
|
3,482,172
|
|
*See Note
6
for further detail of intangible assets acquired.
**This amount represents a discount on installment payments and was charged to interest expense.
On the closing date of the transaction,
December 18, 2017,
Kahnalytics paid
$982,172
in cash towards the purchase price and deposited an additional
$1,250,000
in an attorney-held client trust account to be released to the sellers, subject to any downward purchase price adjustment, on
June 18, 2018.
As of
June 30, 2018
the sellers had
not
yet executed the proper documents to release the payment and the funds remained in the attorney client trust account as of
June 30, 2018.
The balance of the purchase price,
$1,250,000,
subject to downward adjustment for prior payments which, as of
June 30, 2018,
resulted in a balance of
$1,205,000
due by
January 5, 2019
and is secured by a promissory note from Kahnalytics and a corporate guarantee from Concierge Technologies.
Supplemental Pro Forma Information (Unaudited)
The following unaudited supplemental pro forma information for the years ended
June 30, 2018
and
2017
assumes the acquisition of the Original Sprout LLC assets had occurred as of
July 1, 2016,
giving effect on a pro forma basis to purchase accounting adjustments such as depreciation of property and equipment, amortization of intangible assets, and acquisition related costs. The pro forma data is for information purposes only and
may
not
necessarily reflect the actual results of operations had the assets of Original Sprout LLC been operated as part of the Company since
July 1, 2016.
Furthermore, the pro forma results do
not
intend to predict the future results of operations of the Company.
The following table presents consolidated unaudited results of operations for the years ended
June 30, 2018
and
2017,
assuming the acquisition of the Original Sprout LLC assets had occurred on
July 1, 2016.
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
June 30, 2018
|
|
|
June 30, 2017
|
|
|
|
Pro Forma
(1)
|
|
|
Pro Forma
(1)
|
|
Net Revenues
|
|
$
|
30,782,940
|
|
|
$
|
35,702,686
|
|
Net Income
|
|
$
|
2,044,203
|
|
|
$
|
5,352,2211
|
|
Basic Earnings per Share
|
|
$
|
0.07
|
|
|
$
|
0.18
|
|
Diluted Earnings per Share
|
|
$
|
0.05
|
|
|
$
|
0.14
|
|
|
(
1
)
|
Includes the operation of the assets acquired from Original Sprout LLC on a consolidated basis and the estimated transaction costs, amortization of intangible assets, and estimated income tax.
|
Wainwright Holdings, Inc.
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)
27,293,330
shares (as adjusted approximately for the
1
for
30
reverse stock split effective on
December 15, 2017 (the "2017 Reverse Stock Split"))
of Company Common Stock, and (ii)
311,804
(as adjusted approximately for the
2017 Reverse Stock Split)
shares of Company Preferred Stock (which preferred shares are convertible into approximately
6,236,079
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 Wainwright assets, liabilities and shareholders' equity were recorded at their historical values with
no
step-up or adjustment to fair market value.
NOTE
13.
STOCKHOLDERS' EQUITY
Reverse Stock Split
On
November 17, 2017,
the Board of Directors (the “Board’) of the Company approved the implementation of a
one
-for-
thirty
(
1:30
) 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, 2017.
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 13, 2017.
The approvals provided discretion to the Board to implement the Reverse Stock Split by the end of
2017.
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.
Convertible Preferred Stock
All of the issued Series B Voting, Convertible Preferred Stock is convertible into
20
shares of common stock and carries a vote of
20
shares of common stock in all matters brought before the shareholders for a vote.
Prior to the Reverse Stock Split, the Company did
not
have sufficient authorized, unissued, shares of common stock available to convert all shares of Series B Voting, Convertible Preferred Stock. Accordingly, the Series B Voting, Convertible Preferred Stock was reclassified to the mezzanine section as a contingent liability on the Company’s prior Consolidated Balance Sheets with other equity accounts being adjusted to reflect the historical cost basis of Wainwright. As a result of the Reverse Stock Split, sufficient shares were made available to allow for conversion of the Series B Voting, Convertible, Preferred Stock such that the shares have been reclassified to the equity section of the Consolidated Balance Sheet as of
June 30, 2018.
Accumulated Other Comprehensive Income
The following table presents activity for the years ending
June 30, 2018
and
June 30, 2017:
|
|
|
|
|
|
Balance as of June 30, 2016
|
|
|
|
|
$
|
(30,303
|
)
|
Change in short-term investment valuation before reclassification to earnings
|
|
|
|
|
|
36,197
|
|
Foreign currency translation gain
|
|
|
|
|
|
113,444
|
|
Balance as of June 30, 2017
|
|
|
|
|
|
119,338
|
|
Change in short-term investment valuation before reclassification to earnings
|
|
|
|
|
|
329,629
|
|
Foreign currency translation (loss)
|
|
|
|
|
|
(214,284
|
)
|
Change in short-term investment valuation due to reclassification to earnings
|
|
|
|
|
|
(85,875
|
)
|
Balance as of June 30, 2018
|
|
|
|
|
$
|
148,808
|
|
NOTE
14.
INCOME TAXES
The following table summarizes income before income taxes:
|
|
Years Ended June 30,
|
|
|
|
201
8
|
|
|
2017
|
|
U.S.
|
|
$
|
2,276,390
|
|
|
$
|
6,227,200
|
|
Foreign
|
|
|
224,892
|
|
|
|
548,534
|
|
Income before income taxes
|
|
$
|
2,501,282
|
|
|
$
|
6,775,734
|
|
Income Tax Provision
Provision for income tax as listed on the Consolidated Statements of Operations for the years ended
June 30, 2018
and
2017
are
$766,596
and
$1,589,403,
respectively.
Provision for taxes consisted of the following:
|
|
Years Ended June 30,
|
|
|
|
201
8
|
|
|
201
7
|
|
U.S. operations
|
|
$
|
658,293
|
|
|
$
|
1,419,051
|
|
Foreign operations
|
|
|
108,303
|
|
|
|
170,352
|
|
Total
|
|
$
|
766,596
|
|
|
$
|
1,589,403
|
|
Provisions for income tax consisted of the following as of the years ended:
For the year ended:
|
|
June 30,
201
8
|
|
|
June 30,
201
7
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
572,227
|
|
|
$
|
1,573,044
|
|
States
|
|
|
(510,765
|
)
|
|
|
138,728
|
|
Foreign
|
|
|
140,142
|
|
|
|
191,948
|
|
Total current
|
|
|
201,604
|
|
|
|
1,903,720
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
502,364
|
|
|
|
(173,657
|
)
|
States
|
|
|
94,467
|
|
|
|
(119,064
|
)
|
Foreign
|
|
|
(31,839
|
)
|
|
|
(21,596
|
)
|
Total deferred
|
|
|
564,992
|
|
|
|
(314,317
|
)
|
Total
|
|
$
|
766,596
|
|
|
$
|
1,589,403
|
|
Tax effects of temporary differences that give rise to significant portions of the Company’s deferred tax assets for the years ended
June 30, 2018
and
2017
are presented below:
For the year ended:
|
|
June 30,
201
8
|
|
|
June 30,
201
7
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Property and equipment and intangible assets - U.S.
|
|
$
|
745,420
|
|
|
$
|
1,291,927
|
|
Net operating loss
|
|
|
3,646
|
|
|
|
111,698
|
|
Capital loss carryover
|
|
|
10,337
|
|
|
|
-
|
|
Accruals, reserves and other - foreign
|
|
|
13,494
|
|
|
|
31,840
|
|
Accruals, reserves and other - U.S.
|
|
|
104,607
|
|
|
|
73,884
|
|
Gross deferred tax assets
|
|
|
877,504
|
|
|
|
1,509,349
|
|
Less valuation allowance
|
|
|
(12,384
|
)
|
|
|
(29,077
|
)
|
Total deferred tax assets
|
|
$
|
865,120
|
|
|
$
|
1,480,272
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Intangible assets - foreign
|
|
$
|
(208,419
|
)
|
|
$
|
(258,601
|
)
|
Total deferred tax liabilities
|
|
$
|
(208,419
|
)
|
|
$
|
(258,601
|
)
|
The Company’s accounting for deferred taxes involves the evaluation of a number of factors concerning the realizability of the Company’s net deferred tax assets. The Company primarily considered such factors as the Company’s history of operating losses; the nature of the Company’s deferred tax assets and the timing, likelihood and amount, if any, of future taxable income during the periods in which those temporary differences and carryforwards become deductible. At present, the Company does believe that it is more likely than
not
that the deferred tax assets will be realized, however, a partial valuation allowance was established for capital loss carryforwards. The valuation allowance decreased by
$16,693
during the year ended
June 30, 2018
and decreased by
$1,203,456
during the year ended
June 30, 2017.
On
December 22, 2017,
the Tax Cuts and Jobs Act (TCJA) was enacted into law, which significantly changes existing U.S. tax law and includes numerous provisions that affect our business, such as imposing a
one
-time transition tax on deemed repatriation of deferred foreign income, reducing the U.S. federal statutory tax rate, and adopting a territorial tax system. The TCJA required us to incur a
one
-time transition tax on deferred foreign income
not
previously subject to U.S. income tax at a rate of
15.5%
for foreign cash and certain other net current assets, and
8%
on the remaining income. The TCJA also reduced the U.S. federal statutory tax rate from
35%
to
21%
effective
January 1, 2018.
For fiscal year
2018,
our blended U.S. federal statutory tax rate is
27.5%.
This is the result of using the tax rate of
34%
for the
first
and
second
quarter of fiscal year
2018
and the reduced tax rate of
21%
for the
third
and
fourth
quarter of fiscal year
2018.
The TCJA includes a provision to tax global intangible low-taxed income (“GILTI”) of foreign subsidiaries and a base erosion anti-abuse tax (“BEAT”) measure that taxes certain payments between a U.S. corporation and its foreign subsidiaries. The GILTI and BEAT provisions of the TCJA will be effective for us beginning
July 1, 2018.
The TCJA was effective for fiscal year
2018.
As of
June 30, 2018,
we have
not
completed our accounting for the estimated tax effects of the TCJA. During fiscal year
2018,
we recorded a provisional net charge of
$506,017
related to the TCJA based on reasonable estimates for those tax effects. Due to the timing of the enactment and the complexity in applying the provisions of the TCJA, the provisional net charge is subject to revisions as we continue to complete our analysis of the TCJA, collect and prepare necessary data, and interpret any additional guidance issued by the U.S. Treasury Department, Internal Revenue Service (“IRS”), FASB, and other standard-setting and regulatory bodies. Adjustments
may
materially impact our provision for income taxes and effective tax rate in the period in which the adjustments are made. Our accounting for the estimated tax effects of the TCJA will be completed during the measurement period, which is
not
expected to extend beyond
one
year from the enactment date. The impacts of our estimates are described further below.
During fiscal year
2018,
we recorded an estimated net charge of
$1,112
related to the TCJA, due to the impact of the
one
-time transition tax on the deemed repatriation of deferred foreign income.
We have
not
yet completed our accounting for the transition tax as our analysis of deferred foreign income is
not
complete. To calculate the transition tax, we estimated our deferred foreign income for fiscal year
2018
because these tax returns are
not
complete or due. Fiscal year
2018
taxable income will be known once the respective tax returns are completed and filed.
In addition, we recorded an estimated
$504,905
expense in fiscal year
2018
from the impact of changes in the tax rate, primarily on deferred tax assets and liabilities. We remeasured our deferred taxes to reflect the reduced rate that will apply when these deferred taxes are settled or realized in future periods.
The TCJA subjects a U.S. corporation to tax on its GILTI. Due to the complexity of the new GILTI tax rules, we are continuing to evaluate this provision of the TCJA and the application of GAAP.
Income tax expense (benefit) for the years ended
June 30, 2018
and
December 31, 2017
differed from the amounts computed by applying the statutory federal income tax rate of
34%
to pretax income (loss) as a result of the following:
For the year ended:
|
|
June 30, 2018
|
|
|
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
Federal tax expense (benefit) at statutory rate
|
|
$
|
687,853
|
|
|
$
|
2,321,442
|
|
State income taxes
|
|
|
(437,242
|
)
|
|
|
(27,503
|
)
|
Permanent differences
|
|
|
(46,251
|
)
|
|
|
399,639
|
|
Deferred tax impact of the Tax Act
|
|
|
504,905
|
|
|
|
-
|
|
U.S. toll charge (net of FTC)
|
|
|
1,112
|
|
|
|
-
|
|
Change in valuation allowance
|
|
|
9,761
|
|
|
|
(1,128,464
|
)
|
Foreign rate differential
|
|
|
46,458
|
|
|
|
24,289
|
|
Total tax expense
|
|
$
|
766,596
|
|
|
$
|
1,589,403
|
|
For the year ended:
|
|
June 30, 2018
|
|
|
June 30, 2017
|
|
|
|
%
|
|
|
%
|
|
Federal tax expense (benefit) at statutory rate
|
|
|
27.50%
|
|
|
|
34.00%
|
|
State income taxes
|
|
|
(17.48%
|
)
|
|
|
(0.40%
|
)
|
Permanent differences
|
|
|
(1.85%
|
)
|
|
|
5.85%
|
|
Deferred tax impact of the Tax Act
|
|
|
20.19%
|
|
|
|
-
|
|
Foreign rate differential
|
|
|
1.86%
|
|
|
|
0.36%
|
|
U.S. toll charge (net of FTC)
|
|
|
0.04%
|
|
|
|
-
|
|
Change in valuation allowance
|
|
|
0.39%
|
|
|
|
(16.53%
|
)
|
Total tax expense
|
|
|
30.65%
|
|
|
|
23.28%
|
|
Tax positions are evaluated in a
two
-step process. The Company
first
determines whether it is more likely than
not
that a tax position will be sustained upon examination. If a tax position meets the more-likely-than-
not
recognition threshold it is then measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than
50%
likely of being realized upon ultimate settlement. The aggregate changes in the balance of gross unrecognized tax benefits, which includes interest and penalties, for the years ended
June 30, 2018
and
2017
are as follows:
Balance at June 30, 2017
|
|
$
|
206,046
|
|
Additions based on tax positions taken during a prior period
|
|
|
-
|
|
Reductions based on tax positions taken during a prior period
|
|
|
-
|
|
Additions based on tax positions taken during the current period
|
|
|
58,497
|
|
Reductions based on tax positions taken during the current period
|
|
|
-
|
|
Reductions related to settlement of tax matters
|
|
|
-
|
|
Reductions related to a lapse of applicable statute of limitations
|
|
|
-
|
|
Balance at June 30, 2018
|
|
$
|
264,543
|
|
The Company files income tax returns in the United States, and various state and foreign jurisdictions. The federal, state and foreign income tax returns are subject to tax examinations for the tax years
2014
through
2017
as of year ended
June 30, 2018.
To the extent the Company has tax attribute carry forwards, the tax years in which the attribute was generated
may
still be adjusted upon examination by the U.S. Internal Revenue Service, state or foreign tax authorities to the extent utilized in a future period. There were
no
ongoing examinations by taxing authorities as of
June 30, 2018.
The Company had
$251,946
of unrecognized tax benefits as of
June 30, 2018
and
$206,
046
as of
June 30, 2017
that if recognized would affect the effective tax rate. The Company does
not
anticipate a significant change to its unrecognized tax benefits in the year ending
June 30, 2018.
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of
June 30, 2018,
and
June 30, 2017,
the Company accrued and recognized as a liability
$12,597
and
$0,
respectively, of interest and penalties related to uncertain tax positions.
NOTE
15.
COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases various facilities and offices throughout the world including the following subsidiary locations:
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$11,216
translated to U.S. currency as of
June 30, 2018.
Brigadier leases office and storage facilities in Saskatoon and Regina, Saskatchewan. The minimum lease obligations require monthly payments of approximately
US$5,551
translated to U.S. currency as of
June 30, 2018.
Original Sprout currently leases office and warehouse space in San Clemente, CA under a
three
-year lease agreement expiring or renewing at
March 1, 2021.
Minimum monthly lease payments are approximately
$7,805
with increases annually.
Wainwright leases office space in Oakland, California under an operating lease, which expires in
October 2018
and will commence with a new operating lease in
October 2018
for office space in Walnut Creek, California which expires in
December 2024.
Minimum monthly lease payments are approximately
$12,000
with increases annually.
For the years ended
June 30, 2018
and
2017,
the combined lease payments of the Company and its subsidiaries totaled
$254,150
and
$199,227,
respectively.
Future minimum consolidated lease payments for Concierge and its subsidiaries are as follows:
Year Ended June 30,
|
|
Lease Amount
|
|
2019
|
|
$
|
407,212
|
|
2020
|
|
|
355,331
|
|
2021
|
|
|
320,137
|
|
2022
|
|
|
178,716
|
|
2023
|
|
|
167,409
|
|
2024
|
|
|
84,336
|
|
Total minimum lease commitment
|
|
$
|
1,513,141
|
|
Additionally, Gourmet Foods 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$74,448
) to secure the lease of its primary facility. In addition, a
NZ$20,000
(approximately
US$13,536
) 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 Gourmet Foods and is listed as a component of interest income/expense on the accompanying Consolidated Statements of Operations.
Other Agreements and Commitments
USCF Advisers has entered into expense limitation agreements with
one
of the funds it manages under which USCF Advisers has agreed to waive, reimburse fees or pay fund expenses in order to limit the fund’s total annual operating expenses to certain threshold amounts. The USCF Commodity Strategy Fund expense limitation agreement remains in effect until
July 31, 2018
and limits fund expenses to
1.30%
and
0.95%
of the funds average daily net assets for the Class A and Class I shares classes, respectively. After such dates, USCF Advisers
may
terminate the expense limitation agreements at any time upon
not
less than
90
days’ notice to the respective fund trust boards.
USCF manages
seven
funds which have expense waiver provisions, whereby USCF will reimburse funds when fund expenditure levels exceed certain thresholds amounts. As of
June 30, 2018
and
June 30, 2017
the expense waiver payable was
$662,650
and
$589,093,
respectively. However, USCF has
no
obligation to continue such payments into subsequent periods.
Litigation
From time to time, the Company is involved in legal proceedings arising mainly from the ordinary course of its business. In management’s opinion, the legal proceedings are
not
expected to have a material effect on the Company’s financial position or results of operations.
Retirement Plan
Wainwright's wholly owned subsidiary USCF, has a
401
(k) Profit Sharing Plan covering its employees who are over
21
years of age and who have completed a minimum of
1,000
hours of service and have worked for USCF for
one
or more years. Participants
may
make contributions pursuant to a salary reduction agreement. In addition, USCF makes an annual safe harbor matching contribution. Annual profit sharing contributions paid totaled approximately
$95
thousand and
$84
thousand for each of the years ended
June 30, 2018
and
2017,
respectively.
NOTE
16.
SEGMENT REPORTING
With the acquisition of Wainwright Holdings, Gourmet Foods, Ltd., Brigadier, and the launch of the Original Sprout business unit of Kahnalytics, the Company has identified
four
segments for its products and services; U.S.A. investment fund management, U.S.A. beauty products, New Zealand food industry and Canada security alarm monitoring. Our reportable segments are business units located in different global regions. The Company’s operations in the U.S.A. include the manufacture and wholesale distribution of all-natural hair and skin care products by Original Sprout and the income derived from management of various investment funds by our subsidiary Wainwright. In New Zealand operations include the production, packaging and distribution on a commercial scale of gourmet meat pies and related bakery confections through our wholly owned subsidiary Gourmet Foods, Ltd. and in Canada we provide security alarm system installation and monitoring to residential and commercial customers sold through our wholly owned subsidiary Brigadier. 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, 2018
and
June 30, 2017:
|
|
|
|
|
|
|
|
|
As of June 30, 201
8
|
|
|
As of June 30, 201
7
|
|
|
|
|
|
|
|
|
|
Identifiable assets:
|
|
|
|
|
|
|
|
|
Corporate headquarters
|
|
$
|
2,123,048
|
|
|
$
|
3,302,979
|
|
U.S.A. : fund management
|
|
|
13,563,773
|
|
|
|
12,721,559
|
|
U.S.A. : beauty products
|
|
|
3,739,979
|
|
|
|
89,459
|
|
New Zealand: food industry
|
|
|
1,959,486
|
|
|
|
2,203,725
|
|
Canada: security alarm
|
|
|
1,714,863
|
|
|
|
1,278,161
|
|
Consolidated
|
|
$
|
23,101,149
|
|
|
$
|
19,595,883
|
|
The following table presents a summary of operating information for the years ended
June 30, 2018
and
June 30, 2017:
|
|
Year Ended
June 30, 201
8
|
|
|
Year Ended
June 30, 201
7
|
|
Revenues from unaffiliated customers:
|
|
|
|
|
|
|
|
|
U.S.A. : beauty products
|
|
$
|
1,694,534
|
|
|
$
|
156,327
|
|
U.S.A. : investment fund management
|
|
|
18,744,313
|
|
|
|
23,926,065
|
|
New Zealand : food industry
|
|
|
4,968,158
|
|
|
|
4,791,996
|
|
Canada : security alarm
|
|
|
3,303,584
|
|
|
|
3,136,733
|
|
Consolidated
|
|
$
|
28,710,589
|
|
|
$
|
32,011,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) after taxes:
|
|
|
|
|
|
|
|
|
Corporate headquarters
|
|
$
|
(744,992
|
)
|
|
$
|
(669,040
|
)
|
U.S.A. : beauty products
|
|
|
42,702
|
|
|
|
(25,500
|
)
|
U.S.A. : investment fund management
|
|
|
1,950,711
|
|
|
|
5,524,285
|
|
New Zealand : food industry
|
|
|
99,398
|
|
|
|
13,983
|
|
Canada : security alarm
|
|
|
386,867
|
|
|
|
342,603
|
|
Consolidated
|
|
$
|
1,734,686
|
|
|
$
|
5,186,331
|
|
The following table presents a summary of net capital expenditures for the year ended
June 30:
|
|
201
8
|
|
|
201
7
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
U.S.A. : corporate headquarters
|
|
$
|
495
|
|
|
$
|
-
|
|
U.S.A. : beauty products
|
|
|
2,707
|
|
|
|
2,690
|
|
U.S.A.: investment fund management
|
|
|
-
|
|
|
|
-
|
|
New Zealand: food industry
|
|
|
165,414
|
|
|
|
155,620
|
|
Canada: security alarm
|
|
|
149,449
|
|
|
|
100,707
|
|
Consolidated
|
|
$
|
318,064
|
|
|
$
|
259,017
|
|
The following table represents property, plant and equipment in use at each of the Company's locations as of
June 30:
|
|
2018
|
|
|
2017
|
|
Asset Location:
|
|
|
|
|
|
|
|
|
U.S.A. : corporate headquarters
|
|
$
|
14,305
|
|
|
$
|
13,180
|
|
U.S.A. : beauty products
|
|
|
5,244
|
|
|
|
2,690
|
|
U.S.A.: investment fund management
|
|
|
-
|
|
|
|
-
|
|
New Zealand: food industry
|
|
|
1,627,545
|
|
|
|
1,583,631
|
|
Canada: security alarm
|
|
|
363,833
|
|
|
|
208,696
|
|
Total All Locations
|
|
|
2,010,927
|
|
|
|
1,808,827
|
|
Less accumulated depreciation
|
|
|
(930,456
|
)
|
|
|
(649,362
|
)
|
Net property, plant and equipment
|
|
$
|
1,080,471
|
|
|
$
|
1,159,465
|
|
NOTE
17.
SUBSEQUENT EVENTS
The Company evaluated subsequent events for recognition and disclosure through the date the financial statements were issued or filed. Nothing has occurred outside normal operations since that required recognition or disclosure in these financial statements other than the items noted below.
On
August 7, 2018,
the Board of Directors of USCF authorized and approved the closing and liquidation each of USAG, DNO and UHN together with a plan of liquidation for each of USAG, DNO and UHN. Each of the United States Commodity Index Funds Trust, of which USAG is a series, DNO and UHN filed a current report on Form
8
-K dated
August 8, 2018
with the SEC that included, as an exhibit, the press release, the applicable plan of liquidation, and, in the case of DNO and UHN, a copy of the notice regarding the liquidation sent to its shareholders. The liquidation date for these funds was
September 12, 2018
and the proceeds of the liquidation were sent to shareholders on or about
September 13, 2018.