Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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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."
Overview
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:
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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.
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Gourmet Foods, Ltd. (“Gourmet Foods”), a New Zealand based company, manufactures and distributes New Zealand meat pies on a commercial scale.
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Brigadier Security Systems (“Brigadier”), a Canadian based company, sells and installs commercial and residential alarms and monitoring systems.
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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 in 2017 after transitioning to the current business of distributing hair and skin care products.
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Results of Operations
Concierge and Subsidiaries
For the Three Months Ended March 31, 201
9
Compared to the Three Months Ended March 31, 201
8
Operating Income
Concierge produced an operating income for the three months ended March 31, 2019 of approximately $0.2 million as compared to approximately $0.2 million for the three months ended March 31, 2018.
Other Expenses and Income Taxes
Other (expense) were ($3) thousand and ($199) thousand for the three months ended March 31, 2019 and 2018, respectively. Provision for income taxes of $84 thousand compared to $23 thousand for the three months ended March 31, 2019 and 2018, respectively, was a result of new federal income tax laws taking effect as of January 1, 2018, but having an effect on tax provisions recorded for prior quarters and the overall estimated tax for the fiscal year ending June 30, 2018. After recording a provision for income tax, net income for the three month periods ended March 31, 2019 and 2018 was $76 thousand and $0.8 thousand, respectively. After giving consideration to currency translation gains of approximately $45 thousand, the comprehensive income for the three months ended March 31, 2019 was approximately $121 thousand as compared to the three months ended March 31, 2018 where the currency translation loss was approximately ($52) thousand, the changes in short term investment valuation was approximately $269 thousand, and the comprehensive income was approximately $218 thousand.
For the Nine Months Ended March 31, 201
9
Compared to the Nine Months Ended March 31, 201
8
Operating Income
Concierge produced an operating income for the nine months ended March 31, 2019 of approximately $0.8 million as compared to approximately $2.2 million for the nine months ended March 31, 2018. This represents a decrease in operating income of approximately $1.4 million for the nine months ended March 31, 2019 when compared to the nine months ended March 31, 2018, or approximately 65%. The decrease in operating income is attributed to lower Wainwright revenue due to lower assets under management.
Other Expenses and Income Taxes
Other expenses were ($173) thousand and ($240) thousand for the nine months ended March 31, 2019 and 2018, respectively. A reduction in provision for income taxes to $0.2 million compared to $1.1 million was recorded for the nine months ended March 31, 2019 and 2018, respectively. The resulting net income for the nine months ended March 31, 2019 and 2018 was $0.4 million and $0.9 million, respectively. After giving consideration to currency translation loss of approximately $14 thousand, the comprehensive income for the nine months ended March 31, 2019 was approximately $0.4 million as compared to the nine months ended March 31, 2018 where the currency translation loss was approximately ($55) thousand, the gains in short term investment valuation were approximately $189 thousand, and the comprehensive income was approximately $1 million.
Wainwright Holdings
Wainwright was founded as a holding company 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, USCF was formed as a single member limited liability company in the state of Delaware. In June 2013, USCF Advisers 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 USCF Advisers board of managers formed USCF ETF Trust (“ETF Trust”) and in July 2016, the USCF Mutual Funds Trust (“Mutual Funds Trust” and together with “ETF Trust” the “Trusts”) both as open-end management investment companies registered under the Investment Company Act of 1940, as amended ("the 1940 Act"). The Trusts are authorized to have multiple segregated series or portfolios. Wainwright owns all of the issued and outstanding limited liability company membership interests of its subsidiaries, USCF and USCF Advisers, each a Delaware limited liability company and are affiliated companies. USCF serves as the general partner (“General Partner”) for various limited partnerships (“LP”) and sponsor (“Sponsor”) as noted below. USCF and USCF Advisers are subject to federal, state and local laws and regulations generally applicable to the investment services industry. USCF is a commodity pool operator (“CPO”) subject to regulation by the Commodity Futures Trading Commission (the "CFTC") and the National Futures Association (the “NFA”) under the Commodities Exchange Act (“CEA”). USCF Advisers is an investment adviser registered under the Investment Advisers Act of 1940, as amended and has registered as a CPO under the CEA. Exchange traded products (“ETPs”) issued or sponsored by USCF are required to be registered with the Securities and Exchange Commission (the “SEC”) in accordance with the Securities Act of 1933. USCF Advisers advises two exchange traded funds (“ETFs”) and one commodity mutual fund registered with the SEC under the Investment Company Act of 1940. Wainwright and subsidiaries USCF and USCF Advisers are collectively referred to as “Wainwright” hereafter.
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”) and the USCF Funds Trust (“USCF Funds Trust”):
USCF as General Partner for the following funds
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United States Oil Fund, LP (“USO”)
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Organized as a Delaware limited partnership in May 2005
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United States Natural Gas Fund, LP (“UNG”)
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Organized as a Delaware limited partnership in November 2006
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United States Gasoline Fund, LP (“UGA”)
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Organized as a Delaware limited partnership in April 2007
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United States Diesel Heating Oil Fund, LP (“UHN”)
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Organized as a Delaware limited partnership in April 2007; Liquidated September 12, 2018
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United States 12 Month Oil Fund, LP (“USL”)
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Organized as a Delaware limited partnership in June 2007
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United States 12 Month Natural Gas Fund, LP (“UNL”)
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Organized as a Delaware limited partnership in June 2007
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United States Short Oil Fund, LP (“DNO”)
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Organized as a Delaware limited partnership in June 2008; Liquidated September 12, 2018
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United States Brent Oil Fund, LP (“BNO”)
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Organized as a Delaware limited partnership in September 2009
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USCF as fund Sponsor - each a series within the USCIF Trust
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United States Commodity Index Funds Trust (“USCIF Trust”)
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A series trust formed in Delaware December 2009
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United States Commodity Index Fund (“USCI”)
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A commodity pool formed in April 2010 and made public August 2010
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United States Copper Index Fund (“CPER”)
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A commodity pool formed in November 2010 and made public November 2011
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United States Agriculture Index Fund (“USAG”)
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A commodity pool formed in November 2010 and made public April 2012; Liquidated September 12, 2018
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USCF as fund Sponsor - each a series within the USCF Funds Trust
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USCF Funds Trust (“USCF Funds Trust”)
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A series trust formed in Delaware March 2016
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United States 3X Oil Fund (“USOU”)
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A commodity pool formed in May 2017 and made public July 2017
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United States 3X Short Oil Fund (“USOD”)
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A commodity pool formed in May 2017 and made public July 2017
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USCF Advisers serves as the investment adviser to the fund(s) listed below within the Trusts and has overall responsibility for the general management and administration for the Trusts. Pursuant to the current Investment Advisory Agreements, USCF Advisers provides an investment program for the Trusts’ fund(s) and manages the investment of the assets.
Advisers as fund manager for each series within the USCF ETF Trust and the USCF Mutual Funds Trust
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USCF ETF Trust (“ETF Trust”)
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Organized as a Delaware statutory trust in November 2013
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USCF SummerHaven SHPEI Index Fund ("BUY")
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Fund launched November 30, 2017
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USCF SummerHaven SHPEN Index Fund ("BUYN")
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Fund launched November 30, 2017
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Stock Split Index Fund (“TOFR”)
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Fund launched September 2014; Liquidated October 20, 2017
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Restaurant Leaders Index Fund (“MENU”)
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Fund launched November 2016; Liquidated October 20, 2017
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USCF SummerHaven Dynamic Commodity Strategy No K-1 Fund
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Fund launched May 2018
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USCF Mutual Funds Trust ("Mutual Funds Trust")
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USCF Commodity Strategy Fund ("USCFX" and "USCIX")
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Fund launched March 2017; Liquidated March 21, 2019
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All USCF funds and the Trusts' funds are collectively referred to as the “Funds” hereafter.
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. Total Operating Expenses are grouped into the following financial statement line items: General and Administrative, Marketing, Operations and Salaries and Compensation.
For the Three Months Ended March 31, 201
9
, Compared to the Three Months Ended March 31, 201
8
Revenue
Average AUM for the three months ended March 31, 2019 decreased to $2.6 billion, or 19%, from the three-month average of $3.2 billion for the three months ended March 31, 2018 due to fund redemption (outflow) trading activity exceeding fund creation (inflow) activity in our larger commodity funds. As a result of decreased AUM, revenue decreased 18%, or $0.78 million, to $3.57 million from $4.35 million over the respective three-month period.
Expenses
Wainwright’s total operating expenses for three months ended March 31, 2019 decreased by $0.61 million to $3.37 million, or 15%, from $3.98 million for the three months ended March 31, 2018. Variable expenses, as described above, decreased $0.16 million over the respective three-month period due to lower overall AUM. General and Administrative expenses decreased $0.14 million to $0.55 million for the three months ended March 31, 2019 from $0.69 million for the three months ended March 31, 2018 due to lower fund expense waivers, professional fees and T&E expenses. Marketing expenses had a decrease of $0.34 million to $0.58 million for the three months ended March 31, 2019 as compared to the comparable prior year period due to a reduction in advertising expenses and variable distribution costs as a result of lower AUM. Employee salaries and compensation expenses were approximately $1.07 million for the three months ended March 31, 2019 compared to $1.04 million for the comparable prior year period.
Income
Income before taxes for the three months ended March 31, 2019 decreased $5 thousand to $0.19 million from $0.20 million for three months ended March 31, 2018 primarily due to the $0.78 million decrease in revenue, offset by decreases in operations expenses, marketing and advertising expenses, and general and administrative expenses mentioned above.
For the Nine Months Ended March 31, 201
9
, Compared to the Nine Months Ended March 31, 201
8
Revenue
Average AUM for the nine months ended March 31, 2019 decreased to $2.8 billion, or 21%, from the nine-month average of $3.5 billion for the nine months ended March 31, 2018. As a result of decreased AUM, revenues decreased 18%, or $2.62 million, to $11.73 million from $14.35 million over the respective nine-month period.
Expenses
Wainwright’s total Operating Expenses for nine months ended March 31, 2019 decreased by $1.16 million to $10.74 million, or 10%, from $11.90 million for nine months ended March 31, 2018. Variable expenses, as described above, decreased $0.34 million over the respective nine-month period due to lower overall AUM. General and Administrative expenses decreased $0.42 million to $1.59 million for the nine months ended March 31, 2019 from $2.01 million for the nine months ended March 31, 2018 due to decreases in fund expense waiver reimbursements based on contractual expense thresholds for certain funds, lower new fund start up expensesand T&E expenses, partially offset by an increase in professional fees. Marketing expenses had a decrease of $0.63 million to $2.01 million for the nine months ended March 31, 2019 as compared to the comparable prior year period due to lower advertising expenses and lower variable distribution cost as a result of lower AUM.. Employee Salaries and Compensation expenses were $3.46 million, or $35 thousand lower, for the nine months ended March 31, 2019 as compared to the comparable prior year period.
Income
Income before taxes for the nine months ended March 31, 2019 decreased $1.31 million to $0.83 million from $2.14 million for the nine months ended March 31, 2018 primarily due to the $2.62 million decrease in revenue partially offset by decreases in operations expenses and in general and administrative expenses.
Gourmet Foods, Ltd.
Gourmet Foods Limited (“Gourmet Foods”), 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.
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 ASC 830-30. 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 Income found on the Consolidated Balance Sheets.
For the Three Months Ended March 31, 201
9
Compared to the Three Months Ended March 31, 201
8
Net revenues for the three months ended March 31, 2019 were $1.1 million with cost of goods sold of $0.7 million resulting in a gross profit of $0.4 million as compared to the three months ended March 31, 2018 where net revenues were $1.2 million; cost of goods sold were $0.8 million; and gross profit was $0.4 million.
General, administrative and selling expenses, including wages and marketing, for the three months ended March 31, 2019 and the three months ended March 31, 2018 were $0.2 million and $0.3 million producing operating income of $138 thousand and $160 thousand, respectively, or approximately 12% net operating profit for three months ended March 31, 2019 as compared to 13% for the three months ended March 31, 2018.
The depreciation expense, income tax provision and other income totaled $74 thousand for the three months ended March 31, 2019 as compared to $58 thousand for the three months ended March 31, 2018, resulting in income after income taxes of approximately $64 thousand as compared to income after income taxes of approximately $102 thousand, respectively.
For the Nine Months Ended March 31, 201
9
Compared to the Nine Months Ended March 31, 201
8
Net revenues for the nine months ended March 31, 2019 were $3.5 million with cost of goods sold of $2.5 million resulting in a gross profit of $1 million as compared to the nine months ended March 31, 2018 where net revenues were $3.8 million; cost of goods sold were $2.6 million; and gross profit was $1.2 million.
General, administrative and selling expenses, including wages and marketing, for the nine months ended March 31, 2019 and the nine months ended March 31, 2018 were $0.6 million and $0.9 million producing operating income of $333 thousand and $325 thousand, respectively, or approximately 10% net operating profit for nine months ended March 31, 2019 as compared to 9% for the nine months ended March 31, 2018.
The depreciation expense, income tax provision and other income totaled $225 thousand for the nine months ended March 31, 2019 as compared to $204 thousand for the nine months ended March 31, 2018, resulting in income after income taxes of approximately $106 thousand as compared to income after income taxes of approximately $121 thousand, respectively.
Overall, net profit margins for the comparative periods are consistent and differences are attributed to depreciation expense, varying income tax expense and the fluctuation of currency exchange rates with the New Zealand dollar.
Brigadier Security Systems (2000) Ltd.
Brigadier Security Systems (2000) Ltd. (“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 security monitoring dealers in Saskatchewan with offices in both major urban areas of Regina (dba Elite Security Systems (2005) Ltd.) and Saskatoon. SecurTek is owned by SaskTel which is Saskatchewan's leading Information and Communications Technology (ICT) provider with over 1.4 million customer connections across Canada. Brigadier is also a Honeywell Certified Access Control Integrator, Kantech Corporate Certified Integrator and UTC Interlogix authorized dealer and the largest independent security contractor in the province. Brigadier provides comprehensive security solutions including access control, camera systems, and intrusion alarms to home and business owners as well as government offices, schools and public buildings. Brigadier typically sells hardware and a monitoring contract to customers. Under the terms of its authorized dealer contract with the monitoring company, Brigadier earns monthly payments during the term of the monitoring contract in exchange for performance of customer service activities on behalf of the monitoring company.
Brigadier operates exclusively in Canada and thus the Canadian dollar is its functional currency. In order to consolidate Concierge’s reporting currency, the U.S. dollar, with that of Brigadier, Concierge records foreign currency translation adjustments and transaction gains and losses in accordance with ASC 830-30. 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 Income found on the Consolidated Balance Sheets.
For the Three Months Ended March 31, 201
9
Compared to the Three Months Ended March 31, 201
8
Net revenues for the three months ended March 31, 2019 were $0.8 million with cost of goods sold recorded as $0.4 million, resulting in a gross profit of $0.4 million, or approximately 45%, as compared to the three months ended March 31, 2018 where net revenues were $0.6 million with cost of goods sold of $0.3 million and a gross profit of $0.3 million, or approximately 50%. The decrease in gross profit margin for the current period is due to changes in accounting guidelines whereby certain operating expenses have now been reclassified to cost of goods sold, thus reducing gross profit and operating expenses equally with no effect to overall operating income.
General, administrative and selling expenses for the three months ended March 31, 2019 were $0.3 million producing an operating profit of $107 thousand or approximately 13% as compared to the three months ended March 31, 2018 where general, administrative and selling expenses of $0.3 million produced an operating loss of $26 thousand, or approximately (5%).
Other income comprised of depreciation, income tax, interest income, commission income and gain on sale of assets totaled $28 thousand for the three months ended March 31, 2019 resulting in income after income taxes of $78 thousand as compared to a net loss of $11 thousand for the three months ended March 31, 2018 where other expense totaled $14 thousand.
For the Nine Months Ended March 31, 201
9
Compared to the Nine Months Ended March 31, 201
8
Net revenues for the nine months ended March 31, 2019 were $2.4 million with cost of goods sold recorded as approximately $1.3 million, resulting in a gross profit of approximately $1.1 million, or approximately 45%, as compared to the nine months ended March 31, 2018 where net revenues were approximately $2.5 million with cost of goods sold of $1.2 million and a gross profit of $1.3 million, or approximately 50%.
General, administrative and selling expenses for the nine months ended March 31, 2019 were $0.7 million producing an operating profit of $0.4 million or approximately 16% as compared to the nine months ended March 31, 2018 where operating profits were $0.4 million, or approximately 16%, with general, administrative and selling expenses of $0.8 million.
Other expense comprised of depreciation, income tax, interest income, commission income and gain on sale of assets totaled $97 thousand for the nine months ended March 31, 2019 resulting in income after income taxes of $0.3 million as compared to income after income taxes of $0.3 million for the nine months ended March 31, 2018 where other expense totaled $75 thousand.
Original Sprout
Kahnalytics was founded in 2015 and adopted the dba/Original Sprout in December 2017 (see Note 13 to the Consolidated Financial Statements). For the three and six month periods ended December 31, 2017, Kahnalytics had incurred de minimis operating losses insignificant to the overall enterprise. Prior to the acquisition of the Original Sprout assets on December 18, 2017, and as of December 31, 2017, the residual business the company was founded to oversee was being wound down as management made preparations to transition focus to another industry. As a result, there is no meaningful comparative data for the nine month period ending March 31, 2018 as business operations did not begin until the end of December 2017.
For the Three Months Ended March 31, 2019 Compared to the Three Months Ended March 31, 2018
Net revenues for the three months ended March 31, 2019 were approximately $750 thousand with cost of goods sold recorded of approximately $422 thousand producing a gross profit of approximately $328 thousand and a gross margin of approximately 44% as compared to net revenues of $655 thousand, cost of goods sold $344 thousand and a gross profit of approximately $311 thousand, or gross margin of 47%, for the three months ended March 31, 2018. General, administrative and selling expenses for the three month periods ended March 31, 2019 and 2018 were approximately $212 thousand and $267 thousand, respectively, resulting in an operating income of approximately $116 thousand and $44 thousand, respectively, or 16% and 7%. For the three month periods ended March 31, 2019 and 2018, other income and expenses including income tax provision, depreciation and amortization of intangible assets, and interest charges totaled approximately $70 thousand and $148 thousand, respectively. The net income for the three month period ended March 31, 2019 was approximately $46 thousand as compared to a loss for the three month period ending March 31, 2018 of approximately $104 thousand.
For the Nine Months Ended March 31, 2019
Net revenues for the nine months ended March 31, 2019 were $2.5 million with cost of goods sold recorded of approximately $1.4 million producing a gross profit of approximately $1.1 million and a gross margin of approximately 44%. General, administrative and selling expenses were approximately $0.6 million, resulting in an operating income of approximately $0.5 million or 18%. After consideration given to other income and expenses, including income tax expense, depreciation and amortization of intangible assets, and interest charges of approximately $218 thousand, the net income for the nine months ended March 31, 2019 was approximately $0.3 million.
Plan of Operation for the Next Twelve Months
Our plan of operation for the next twelve months is to apply necessary resources into the business of Original Sprout to grow that business segment to its potential. Additionally, we are expecting moderate growth in Brigadier through focused management initiatives and consolidation within the security industry. Similarly, we expect Gourmet Foods to be operating more efficiently under current management and continue to increase market share through additional product offerings and channels to market, including distribution in New Zealand of the products from Original Sprout. Wainwright will continue to develop innovative and new fund products to grow its portfolio. Our long-term mission is to continue with our acquisition strategy by identifying and acquiring profitable, mature, companies of a diverse nature and with in-place management to produce increasing revenue streams. By these initiatives we hope to:
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continue to gain market share for our wholly-owned subsidiaries’ areas of operation,
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increase our gross revenues and realize net operating profits,
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lower our operating costs by unburdening certain selling expenses to third party distributors,
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become less reliant on any one industry segment for our working capital,
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attract parties who have an interest in selling their privately held companies to us,
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achieve efficiencies in accounting and reporting through consolidated operations of our subsidiaries from a management perspective, and
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strategically pursue additional company acquisitions.
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Liquidity and Capital Resources
Concierge is a holding company that conducts its operations through its subsidiaries. At its holding-company level, its liquidity needs relate to operational expenses and the funding of additional business acquisitions. Our operating subsidiaries' principal liquidity requirements arise from cash used in operating activities, debt service, and capital expenditures, including purchases of equipment and services, operating costs and expenses, and income taxes.
As of March 31, 2019, we had $8.7 million of cash and cash equivalents on a consolidated basis as compared to $7.5 million as of June 30, 2018. Over the nine month period ending March 31, 2019, we have also reduced our liability balances in accounts payable, equipment loans and purchase price payable resulting in an increase in stockholder equity of approximately $0.5 million. The Company continued to build working capital over the nine month period ending March 31, 2019 by approximately $0.8 million to $12.3 million, or 7%, over the $11.5 million recorded as of June 30, 2018.
Borrowings
As of March 31, 2019, we had $0.7 million of related-party and third-party indebtedness on a consolidated basis as compared to $0.8 million as of June 30, 2018. Concierge, without inclusion of its subsidiary companies, as of March 31, 2019 and June 30, 2018, had $0.6 million of indebtedness. We are not required to make interest payments on our notes until the maturity date.
Current related party notes payable consist of the following:
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March 31,
2019
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June 30,
2018
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Notes payable to shareholder, interest rate of 8%, unsecured and payable on December 31, 2012 (past due)
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3,500
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3,500
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Notes payable to shareholder, interest rate of 4%, unsecured and payable on May 25, 2022
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250,000
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250,000
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Notes payable to shareholder, interest rate of 4%, unsecured and payable on April 8, 2022
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350,000
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350,000
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$
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603,500
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$
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603,500
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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 percent 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.
During the prior eighteen months, our subsidiary Brigadier has been purchasing new service vehicles to replace the aging leased vehicle fleet. The new vehicles are, in part, financed by a Saskatchewan-based bank through an installment loan agreement related to each vehicle collateralized individually as the vehicles are delivered. As of March 31, 2019, Brigadier had, in the aggregate, an outstanding principal balance of CD$122,643 (approximately US$91,923). The loan principal together with interest is amortized over 60 equal monthly installments. (Refer to Note 12 in the Consolidated Financial Statements)
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. These investments are described further in Note 7 to our Financial Statements.
Reverse Stock Split
Our Board and the majority stockholders previously approved the adoption of a one-for-thirty (1:30) reverse stock split whereby each thirty shares of our common stock and Series B Preferred stock issued and outstanding as of the record date established by the Board shall be combined into one share of common stock or preferred stock, as applicable (the “Reverse Stock Split”). The Reverse Stock Split became effective as of December 15, 2017. All share-based numbers have been retroactively adjusted for the reverse stock split. See Note 14 to our Financial Statements.