Annual Report (10-k)

Date : 09/30/2019 @ 8:05PM
Source : Edgar (US Regulatory)
Stock : Concierge Technologies, Inc. (QB) (CNCG)
Quote : 1.45  0.0 (0.00%) @ 9:21PM

Annual Report (10-k)

 

Table of Contents

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE FISCAL YEAR ENDED JUNE 30, 2019

or

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

Concierge Technologies, Inc.

(Exact name of registrant as specified in its charter)

 

 

Nevada

(state of incorporation)

000-29913

(Commission File Number)

90-1133909

(IRS Employer I.D. Number)

1202 Puerta Del Sol

San Clemente, CA 92673

Tel: 866.800.2978

Fax: 888.312.0124

____________________________________________________

(Address and telephone number of registrant's principal

executive offices and principal place of business)

 

Securities registered pursuant to Section 12(b) of the Act:

 
     

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

None.

   

 

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, $0.001 par value

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [ ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer     

Non-accelerated filer

☐    (Do not check if a smaller reporting company)

 

 

 

Smaller reporting company

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐   Yes     ☒   No

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was $8,386,366 based upon the per share price of $1.39, as reported by our trading exchange platform, OTC Markets, for the common stock as of December 31, 2018, the last business day of the registrant’s most recently completed second fiscal quarter, multiplied by the approximate number of shares of common stock held by persons other than executive officers, directors and five percent stockholders of the registrant without conceding that any such person is an “affiliate” of the registrant for purposes of the federal securities laws.

 

As of September 27, 2019, there were 37,412,519 shares of the registrant's Common Stock, $0.001 par value, issued and outstanding.  In addition, we have 53,032 shares of Series B Convertible, Voting, Preferred Stock issued and outstanding on September 27, 2019. Series B Preferred stock is convertible, under certain conditions, to 20 shares of common stock for each share of Series B Preferred stock. Each share of Series B Preferred stock votes as 20 shares of common stock.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

None

 

 

 

 

TABLE OF CONTENTS

 

PART I

 

 

 

 

 

ITEM 1  Business

 

4

 

 

 

ITEM 1A Risk Factors   10
     
ITEM 1B Unresolved Staff Comments   12
     

ITEM 2  Properties

 

12

 

 

 

ITEM 3  Legal Proceedings

 

12

 

 

 

ITEM 4  Mine Safety Disclosures 

 

12

 

 

 

PART II

 

 

 

 

 

ITEM 5  Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities

 

13

 

 

 

ITEM 6 Selected Financial Data 

 

15

 

 

 

ITEM 7  Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

15

 

 

 

ITEM 7A Quantitative and Qualitative Disclosures About Market Risk   22
     

ITEM 8  Financial Statements and Supplementary Data

 

22

 

 

 

ITEM 9  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

23

 

 

 

ITEM 9A Controls and Procedures

 

23

 

 

 

ITEM 9B Other Information   23
     

PART III

 

 

 

 

 

ITEM 10 Directors, Executive Officers, and Corporate Governance

 

24

 

 

 

ITEM 11 Executive Compensation

 

28

 

 

 

ITEM 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

29

 

 

 

ITEM 13 Certain Relationships and Related Transactions, and Director Independence

 

30

 

 

 

ITEM 14 Principal Accounting Fees and Services

 

31

 

 

 

PART IV

 

 

 

 

 

ITEM 15 Exhibits, Financial Statement Schedules

 

32

     
ITEM 16 Form 10-K Summary   33

 

 

 

 

 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Annual Report on Form 10-K contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “would,” “shall,” “might,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. Forward-looking statements contained in this Annual Report on Form 10-K include, but are not limited to, statements about:

 

 

our future financial performance, including our revenue, cost of revenue, gross profit, gross margin, operating expenses, ability to generate positive cash flow, and ability to achieve and maintain profitability;

 

the sufficiency of our cash and cash equivalents to meet our working capital, capital expenditure, and liquidity needs;

 

our operating subsidiaries' ability to attract and retain customers to use our products, to optimize the pricing for our products, to expand our sales to our customers, and to convince our existing customers to renew subscriptions;

 

the evolution of technologies affecting our operating subsidiaries' products and markets;

 

our operating subsidiaries' ability to innovate and provide a superior user experience and our intentions and strategy with respect thereto;

 

our operating subsidiaries' ability to successfully penetrate enterprise markets;

 

our operating subsidiaries' ability to successfully expand in our existing markets and into new markets, including international markets;

 

the attraction and retention of key personnel;

 

our ability to effectively manage our growth and future expenses;

 

worldwide economic conditions and their impact on spending; and

 

and our operating subsidiaries' ability to comply with modified or new laws and regulations applying to our business, including privacy and data security regulations.

 

We caution you that the foregoing list does not contain all of the forward-looking statements made with respect to us and our operating subsidiaries in this Annual Report on Form 10-K.

 

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Annual Report on Form 10-K primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, operating results, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the section titled “Risk Factors”. Moreover, we and our subsidiaries operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Annual Report on Form 10-K. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.

 

The forward-looking statements made in this Annual Report on Form 10-K relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Annual Report on Form 10-K to reflect events or circumstances after the date of this Annual Report on Form 10-K or to reflect new information or the occurrence of unanticipated events, except as required by law. We and our subsidiaries may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.

 

 

PART I

 

ITEM 1.            BUSINESS.

 

General

 

Concierge Technologies, Inc., (the “Company” or “Concierge”), a Nevada corporation, which was incorporated on April 20, 2005, 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 and exchange traded products 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 in December 2017.

 

See “Note 12. Business Combinations” to our audited financial statements included elsewhere in this annual report 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.  Across Concierge and its subsidiaries, the Company employs 90 full-time employees.

 

Subsidiary Business Overview

 

Wainwright

 

On December 9, 2016, Concierge acquired all of the issued and outstanding stock in Wainwright which is controlled by our CEO and majority shareholder Nicholas Gerber and another Concierge shareholder, Scott Schoenberger, a member of our board of directors. Wainwright operates through USCF and USCF Advisers, which collectively operate 13 exchange traded products (“ETPs”) and exchange traded funds (“ETFs”) listed on the NYSE Arca, Inc. ("NYSE Arca") with a total of approximately $2.4 billion in assets under management as of June 30, 2019. Wainwright earns revenues through its subsidiaries' contractual agreements providing investment management and advisory services in exchange for management fees charged against the funds. Wainwright’s operating subsidiaries focus primarily on providing investment advisory services to funds that invest in a broad base or single commodity, particularly in oil, natural gas, gasoline and metals. Concierge acquired Wainwright in a stock-for-stock exchange for (i) 27,293,333 (as adjusted approximately for the 1 for 30 reverse stock split of our outstanding shares of common and preferred stock effective on December 15, 2017, (the "2017 Reverse Stock Split")) shares of our common stock and (ii) 311,804 (as adjusted approximately for the 2017 Reverse Stock Split) shares of our Series B Voting, Convertible, Preferred stock (which preferred shares are convertible into approximately 6,236,079 shares of Company Common Stock). (See Note 13 to our Financial Statements)

 

 

Services and Customers

 

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:

United States Oil Fund, LP (“USO”)

Organized as a Delaware limited partnership in May 2005

United States Natural Gas Fund, LP (“UNG”)

Organized as a Delaware limited partnership in November 2006

United States Gasoline Fund, LP (“UGA”)

Organized as a Delaware limited partnership in April 2007

United States Diesel Heating Oil Fund, LP (“UHN”)

Organized as a Delaware limited partnership in April 2007; Liquidated September 12, 2018

United States 12 Month Oil Fund, LP (“USL”)

Organized as a Delaware limited partnership in June 2007

United States 12 Month Natural Gas Fund, LP (“UNL”)

Organized as a Delaware limited partnership in June 2007

United States Short Oil Fund, LP (“DNO”)

Organized as a Delaware limited partnership in June 2008; Liquidated September 12, 2018

United States Brent Oil Fund, LP (“BNO”)

Organized as a Delaware limited partnership in September 2009

USCF as fund Sponsor - each a series within the USCIF Trust

United States Commodity Index Funds Trust (“USCIF Trust”)

A series trust formed in Delaware December 2009

United States Commodity Index Fund (“USCI”)

A commodity pool formed in April 2010 and made public August 2010

United States Copper Index Fund (“CPER”)

A commodity pool formed in November 2010 and made public November 2011

United States Agriculture Index Fund (“USAG”)

A commodity pool formed in November 2010 and made public April 2012; Liquidated September 12, 2018

USCF as fund Sponsor - each a series within the USCF Funds Trust

USCF Funds Trust (“USCF Funds Trust”)

A series trust formed in Delaware March 2016

United States 3X Oil Fund (“USOU”)

A commodity pool formed in May 2017 and made public July 2017

United States 3X Short Oil Fund (“USOD”)

A commodity pool formed in May 2017 and made public July 2017

 

 

USCF Advisers serves as the investment adviser to the funds 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’ funds 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:

USCF ETF Trust (“ETF Trust”)

Organized as a Delaware statutory trust in November 2013  

             USCF SummerHaven SHPEI Index Fund ("BUY")

       Fund launched November 30, 2017

             USCF SummerHaven SHPEN Index Fund ("BUYN")

       Fund launched November 30, 2017

Stock Split Index Fund (“TOFR”)

Fund launched September 2014; Liquidated October 20, 2017

Restaurant Leaders Index Fund (“MENU”)

Fund launched November 2016; Liquidated October 20, 2017

             USCF SummerHaven Dynamic Commodity Strategy No K-1 Fund

       Fund launched May 2018

USCF Mutual Funds Trust ("Mutual Funds Trust")

Organized as a Delaware statutory trust in July 2016  

USCF Commodity Strategy Fund ("USCFX" and "USCIX")

Fund launched March 2017; Liquidated March 21, 2019

 

All USCF funds and the Trusts' funds are collectively referred to as the “Funds” hereafter.

 

As of and for the years ended June 30, 2019 and 2018 approximately 89% of Wainwright’s revenue and accounts receivable were attributed to its three largest funds United States Oil Fund, LP, United States Natural Gas Fund, LP and United States Commodity Index Fund.

 

Competition

 

Wainwright faces competition from other commodity fund managers, which include larger, better financed companies that offer products similar to Wainwright’s. Many of these competitors have substantially greater financial, technical, and human resources than Wainwright does, as well as greater experience in the discovery and development of products and the commercialization of those products. Our competitors’ products may be more effective, or more effectively marketed and sold, than any products we may commercialize. Wainwright will continue to develop and consider new fund opportunities identified through its research efforts and review of market needs. However, the cost of launching and seeding new funds is dependent upon existing and new capital resources. The ability to successfully launch new funds competing with much larger financial institutions with greater financial and human capital will be challenging.

 

Regulation

 

Wainwright’s operating subsidiaries, 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. 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 exchange traded funds and a mutual fund (liquidated during the current fiscal year) registered with the SEC under the Investment Company Act of 1940.

 

 

Employees

 

Wainwright’s operating subsidiaries employ approximately 15 persons, a majority of whom are located in Walnut Creek, California. The operating subsidiaries are responsible for the retention of sub-advisers to manage the investments of each managed Funds’ assets in conformity with their respective investment policies if the operating subsidiary does not provide those services directly. Wainwright’s operating subsidiaries may also retain third-parties to provide custody, distribution, fund administration, transfer agency, and all other non-distribution related services necessary for each fund to operate. Wainwright, through its operating subsidiaries, bears all of its own costs associated with providing these advisory services and the expenses of the members of the board of directors of each fund who are affiliated with Wainwright.

 

Intellectual Property

 

Wainwright subsidiary USCF owns registered trademarks for USCF and USCF Advisers.  The funds USCF is a general partner or sponsor of each have registered trademarks owned by USCF. Additionally, USCF was granted two patents Nos. 7,739,186 and 8,019,675, for systems and methods for an exchange traded fund (ETF) that tracks the price of one or more commodities.

 

Gourmet Foods

 

Gourmet Foods, Ltd. (“Gourmet Foods”), was organized in its current form in 2005 (previously known as Pats Pantry Ltd) and acquired by Concierge in August 2015. 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.

 

Products and Customers

 

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. The grocery and food industry is dominated by several large chain operations, which are customers of Gourmet Foods, and there are no long term guarantees that these major customers will continue to purchase products from Gourmet Foods, however the relationships have been in place for sufficient time to give management reasonable confidence in their continuing business.

 

For the year ended and balance sheet date of June 30, 2019, Gourmet Foods’ largest customer in the grocery industry, who operates through a number of independently branded stores, accounted for approximately 22% of Gourmet Foods sales revenues and 28% of Gourmet Foods accounts receivable as compared to 21% and 33% for the prior year ended June 30, 2018, respectively. The second largest in the grocery industry accounted for approximately 12% of Gourmet Foods sales revenues for the year ended June 30, 2019 as compared to 12% for the year ended June 30, 2018. This same group accounted for 19% of Gourmet Foods accounts receivable as of June 30, 2019 as compared to 16% as of June 30, 2018. 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, 2019, accounted for approximately 43% of Gourmet Foods’ gross sales revenues as compared to 41% for the year ended June 30, 2018. 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 remaining 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.

 

Sources and Availability of Materials

 

Gourmet Foods is not dependent upon any one major supplier as many alternative sources are available in the local market place should the need arise. However, the unavailability of, or increase in price in, any of the ingredients on which Gourmet Foods relies to produce its products could harm its operating results for such period.

 

Competition

 

Gourmet Foods faces competition from other commercial-scale manufacturers of meat pies located in New Zealand and Australia. Competitors’ products may be more effective, or more effectively marketed and sold, than any products Gourmet Foods may commercialize. Larger competitors in New Zealand also enjoy a wider and more entrenched market share making it particularly difficult for us to penetrate certain market segments and, even if penetrated, might make it difficult to maintain. In an effort to expand its market presence and limit competitive interference, Gourmet Foods from time to time attempts to acquire other commercial-scale manufacturers of meat pies or confections. A recent attempt at such an acquisition was made during the current fiscal year, however failed subsequent to June 30, 2019 due to unsatisfactory results of due diligence discovery. (See Note 17 to the Consolidated Financial Statements)

 

 

Seasonality

 

The location of Gourmet Foods in the southern hemisphere provides them with a warm Christmas holiday season and some increased business as customers tend to be traveling and purchase more ready-to-eat foods. Although this increase in sales is observable, it is not deemed significant and the opposing seasons to the northern hemisphere work to offset any corresponding down turn in revenues for Brigadier, our Canadian subsidiary, during winter months. Overall, the consolidated business does not experience any material seasonality due to Gourmet Foods.

 

Regulation

 

In New Zealand our subsidiary, Gourmet Foods, is required to have certain permits from health regulatory agencies and export permits for certain products it chooses to export. Gourmet Foods is also subject to local regulations as are usual and customary for those in the food processing, manufacturing and distribution business.

 

Intellectual Property

 

Gourmet Foods, Ponsonby Pies and Pat’s Pantry are all registered trademarks of Gourmet Foods, Ltd.

 

Employees

 

Gourmet Foods employs approximately 45 persons in New Zealand.

 

Brigadier

 

On June 2, 2016, Concierge acquired all of the issued and outstanding stock in Brigadier, a Canadian corporation headquartered in Saskatoon, Saskatchewan. Brigadier sells and installs alarm monitoring and security systems to commercial and residential customers under brand names "Brigadier Security Systems" and "Elite Security" throughout the province of Saskatchewan with offices in Saskatoon and Regina.

 

Services, Products and Customers

 

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, ULC certified fire alarm panels, and intrusion alarms to home and business owners as well as government offices, schools and public buildings. Brigadier typically sells hardware to customers and brokers a 24/7 monitoring of their premises. The contract for monitoring the premises is typically supported by SecurTek, who pays Brigadier a monthly maintenance and support fee for each contract remaining in effect.

 

Concierge, through Brigadier, is partially dependent upon its contractual relationship with the alarm monitoring company who provides monitoring services to Brigadier’s customers. In the event this contract is terminated, Brigadier would be compelled to find an alternate source of alarm monitoring, or establish such a facility itself. Management believes that the contractual relationship is sustainable, and has been for many years, with alternate solutions available should the need arise. Sales to the largest customer, which includes contracts and recurring monthly support fees, totaled 46% and 41% of the total Brigadier revenues for the years ended June 30, 2019 and June 30, 2018, respectively. The same customer accounted for approximately 37% of Brigadier's accounts receivable as of the balance sheet date of June 30, 2019 as compared to 35% as of June 30, 2018. Another large account, which has been a significant customer this fiscal year, contributed 12% of the total sales revenues for the year ended June 30, 2019 and nil for the year ended June 30, 2018. There were no accounts receivable from this customer as of the years ended June 30, 2019 or June 30, 2018.

 

Sources and Availability of Materials

 

Brigadier purchases alarm panels, digital and analog cameras, mounting hardware and accessory items needed to complete security installations from a variety of sources. The manufacture of electronic items such as those sought by Brigadier has expanded to a global scale thus providing Brigadier with a broad choice of suppliers. Brigadier bases its vendor selection on several criteria including: price, availability, shipping costs, quality, suitability for purpose and the technical support of the manufacturer.

 

Competition

 

Although it holds a dominant market position in the province of Saskatchewan, Brigadier faces competition from larger, better financed companies that offer similar products and services. In addition, it is possible that Brigadier may face increasing competition as disruptive technologies enter the market. However, with respect to the market share it currently enjoys, Brigadier expects that their core customers will remain loyal and that an opportunity exists to capitalize on the deployment of new technologies. Brigadier's management will continue efforts to capture additional customers through organic growth and a focus on quality.

 

 

Seasonality

 

Brigadier, due to its location in the province of Saskatchewan, Canada, is far enough north that winter weather has a negative effect on its ability to complete some installations, particularly those involving new construction. For this reason, the period from November through March typically produces less revenue than comparison periods during other seasons of the year. Although this decrease in sales is observable, the downturn in sales revenues for the winter months at Brigadier are offset in large part by the increase in revenues for our subsidiary Gourmet Foods in the Southern Hemisphere. Overall, the consolidated business does not experience any material seasonality due to Brigadier Security Systems.

 

Employees

 

Brigadier employs approximately 21 persons in Canada.

 

Original Sprout

 

Kahnalytics was founded in 2015 and adopted the dba/Original Sprout in December 2017 (see Note 12 to the Consolidated Financial Statements). For the year ended June 30, 2017  (prior to the acquisition of the Original Sprout assets), Kahnalytics had incurred de minimis operating losses insignificant to the overall enterprise. Prior to the acquisition of the Original Sprout assets, and as of June 30, 2017, the residual business the company was founded to oversee was being wound down and management expected to transition focus to another industry. As of June 30, 2018, this legacy business had been completely wound down.  Accordingly, the results of operations for the twelve-month period ending June 30, 2018 reflects only two quarters of business operations with the newly acquired assets and should not be viewed as indicative of a full twelve-month period of operations. Similarly, there is no meaningful comparative data for the twelve-month period ending June 30, 2018 as the business included nominal subscription sales to a web hosted service and not the wholesale distribution of beauty products as it currently exists. 

 

Products and Customers

 

Original Sprout sells its products through 3 channels to market: 1) direct sales to end users via online shopping cart, 2) distributors who, in turn, sell to other retailers or wholesalers, and 3) to retail stores selling to end users.

 

For the year ended June 30, 2018, Original Sprout, which operated with its current product offering for only 194 days, is not indicative of historical or future operations. For the actual concentration of risk with respect to the current business, focus is given for the period from July 1, 2018 through June 30, 2019 and no comparison exists for the prior year period as only partial business in this sector was conducted by Original Sprout. Among thousands of customers, Original Sprout does have several major accounts with distributors however only one account represented 10% of our annual sales revenues. There were 3 major distributor accounts, all current, representing 25%, 17%, and 12% for a total of 54% of all accounts receivable as of June 30, 2019 as compared to 10%, 20% and 3%respectively as of June 30, 2018.

 

Sources and Availability of Materials

 

Concierge, through Original Sprout, is dependent upon its relationship with a product packaging company who, at the direction of Original Sprout, produces the products in accordance with proprietary formulas, 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. Because of the nature of the Original Sprout product ingredients, some of the ingredients may, at times, be difficult to source in timely fashion or at the expected price point. To safeguard against this possibility Original Sprout endeavors to maintain at least a 90-day supply of all products in stock. Estimating and maintaining a reserve stock account is not a guarantee that a shortage of ingredient supplies will not affect production such that Original Sprout will not exhaust its reserves or be unable to fulfill customer orders.

 

Competition

 

Original Sprout manufactures and distributes only 100% vegan, safe and non-toxic, hair and skin care products which we believe differentiate it significantly from other main-stream products. The use of organic and natural extracts is a growing trend in the U.S. and abroad, and other established brands are beginning to make products for this market. As more entrants to the high-end, vegan, hair care segment come into existence it is inevitable that some will be better financed and have more brand recognition and resources than those of Original Sprout. Original Sprout is focused on promoting its own brand name as a recognized pioneer in 100% vegan, safe, effective, hair care products through recruitment of addition distributors, nationwide retail stores, and increased social media presence with the expectation that establishing brand awareness will allow the continued growth of annual revenues and market share protection, though there can be no guarantees that such efforts will be sufficient to offset the effects of competition in the future.

 

 

Seasonality

 

There is no significant seasonality for sales of products for Original Sprout, though sales will fluctuate around traditional holidays, and certain products, such as sun screen, will be lower in winter months than in summer months. Overall, the consolidated business does not experience any material seasonality due to Original Sprout.

 

Regulation

 

In the U.S. our subsidiary, Original Sprout, is not required to have permits for distribution of its products, however it chooses to gain recognition from certain testing laboratories and other quasi-regulatory agencies for compliance with accepted standards for hair and skin care ingredients and lack of toxic chemicals in their formulas and processes. For export, Original Sprout is often compelled to submit its products to foreign government agencies or certified laboratories for ingredient testing prior to being accepted for import as a “safe” product. The Original Sprout products comply with all applicable regulations, both domestic and foreign, in areas where they are sold or distributed.

 

Intellectual Property

 

The formulations and ingredient percentages of the many products of Original Sprout are considered its intellectual property, though many cannot be patented, they are maintained as confidential. The names "Original Sprout", "D’Organiques Original Sprout" are registered trademarks of Original Sprout.

 

Employees

 

Original Sprout employees 9 persons on a full time basis at its location in San Clemente, California.

 

Available Information

 

We maintain a website at www.conciergetechnology.net. We make available free of charge on or through our website our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as soon as reasonably practicable after we electronically file or furnish such materials to the SEC. The information on our website is not incorporated by reference in this annual report on Form 10-K.  In addition, the U.S. Securities and Exchange Commission ("SEC") maintains an Internet site at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC, from which investors can electronically access Concierge's SEC filings.

 

ITEM 1A.       RISK FACTORS  

 

Concierge and its subsidiaries (referred to herein as “we,” “us,” “our” or similar expressions) are subject to certain risks and uncertainties in its business operations which are described below. The risks and uncertainties described below are not the only risks we face. Additional risks and uncertainties that are presently unknown or are currently deemed immaterial may also impair our business operations. The following risk factors should be read in connection with the other information included in this annual report on Form 10-K, including Management’s Discussion and Analysis of Financial Condition and Results of Operations and our financial statements and the related notes.

 

 

Risks Related to our Business and Structure

 

Concierge is a holding company and its only material assets are its cash in hand, equity interests in its operating subsidiaries and its other investments. As a result, Concierge’s principal source of cash flow is distributions from its subsidiaries and its subsidiaries may be limited by law and by contract in making distributions to Concierge.

 

As a holding company, Concierge's assets are its cash and cash equivalents, the equity interests in its subsidiaries and other investments.

 

The principal source of cash flow is distributions from our subsidiaries. Thus, our ability to finance future acquisitions or develop new projects is dependent on the ability of our subsidiaries to generate sufficient net income and cash flows to make upstream cash distributions to us. Our subsidiaries are separate legal entities, and although they may be wholly-owned or controlled by us, they have no obligation to make any funds available to us, whether in the form of loans, dividends, distributions or otherwise. The ability of our subsidiaries to distribute cash to us are and will remain subject to, among other things, restrictions that are contained in each subsidiaries’ financing agreements, availability of sufficient funds and applicable state laws and regulatory restrictions.

 

Claims of creditors of our subsidiaries generally will have priority as to the assets of such subsidiaries over our claims and claims of our creditors and stockholders. To the extent our cash flow is dependent on our subsidiaries ability to make distributions to us could materially limit our ability to grow, pursue business opportunities or make acquisitions that could be beneficial to our businesses.

 

We are dependent on certain key personnel, the loss of which may adversely affect our financial condition or results of operations.

 

Major capital allocation decisions and investment decisions are made by Chief Executive Officer and Chairman of the Board of Directors, Nicholas Gerber, with consultation from key personnel, from our management team and the executive management team from our subsidiaries. The executive management teams that lead the Company and our subsidiaries are also highly experienced and possess extensive skills in their industry. If Mr. Gerber were to become unavailable, there could be a material adverse impact on our operations. However, the Company’s Board of Directors have the power and authority to fill a vacancy left by Mr. Gerber. The ability to retain key personnel is important to our success and future growth. Competition for these professionals can be intense, and we may not be able to retain and motivate our existing officers and senior employees, and continue to compensate such individuals competitively. The unexpected loss of the services of one or more of these individuals could have a detrimental effect on our operations and negatively impact our financial condition or results of operations of our businesses, and could hinder the ability of our business and our subsidiaries to effectively compete in the various industries in which we operate.

 

We need qualified personnel to manage and operate our subsidiaries.

 

Our decentralized business model requires that we retain qualified and competent managers to continue day-to-day operations of our subsidiaries and continue business operations in a changing political, business or regulatory environment. Our subsidiaries require qualified and competent personnel to execute their business plans and continue servicing their clients, suppliers and other stakeholders. Our inability to attract and retain qualified personnel to operate our business subsidiaries could negatively impact our operating results and our overall financial condition that is important to our success and future growth.

 

Cyber Security Risks

 

The efficient operation of our businesses is dependent on computer hardware and software systems. Unauthorized computer infiltration, denial-of-service attacks, phishing efforts, unauthorized access, malicious software codes, computer viruses or other such harmful computer campaigns may negatively impact our business causing significant disruptions to our business operations. We expect that we may be subject to a cyber-attack in some form or fashion in the future as such attacks become more sophisticated and frequent to all industries and all businesses of every size. There can be no assurance that our cyber-security measures and technology will adequately protect us from these and other risks, including external risks such as natural disasters and power outages and internal risks such as insecure coding and human error.

 

Although we have undertaken steps to prevent and mitigate cyber risks, there is no guarantee that our efforts will prevent cyber-attacks perpetrated against our information systems which could result in loss of assets and critical information, theft of intellectual property or inappropriate disclosure of confidential information and could expose us to remediation costs and reputational damage which could adversely affect our business in ways that cannot be predicted at this time. Any of these risks could materially affect our results of operations and consolidated financial results.

 

 

Future acquisitions or business opportunities could involve unknown risks that could harm our business and adversely affect our financial condition and results of operations.

 

We are a holding company that owns interests in a number of different businesses. We have in the past, and intend in the future, to acquire businesses that involve unknown risks, some of which will be particular to the industry in which the investment or acquisition targets operate, including risks in industries with which we are not familiar or experienced. There can be no assurance our due diligence investigations will identify every matter that could have a material adverse effect on us or the entities that we may acquire. We may be unable to adequately address the financial, legal and operational risks raised by such investments or acquisitions, especially if we are unfamiliar with the relevant industry, which can lead to significant losses on material investments. The realization of any unknown risks could expose us to unanticipated costs and liabilities and prevent or limit us from realizing the projected benefits of the investments or acquisitions, which could adversely affect our financial condition and liquidity. In addition, our financial condition, results of operations and the ability to service our debt may be adversely impacted depending on the specific risks applicable to any business we invest in or acquire and our ability to address those risks.

 

We could consume resources in researching acquisitions, business opportunities or financings and capital market transactions that are not consummated, which could materially adversely affect subsequent attempts to locate and acquire or invest in another business.

 

We are a holding company in the business of owning diverse and profitable businesses. Our business model also encompasses researching and investigating new acquisitions and business opportunities to support the growth of our Company. With each new contemplated acquisition or business opportunity, there are resources that must be allocated towards acquisition or engaging in a new business opportunity such as, the negotiation, drafting and execution of relevant agreements, disclosure documents and other instruments with respect to such transaction and may require substantial management time and attention and substantial costs for financial advisors, accountants, attorneys and other advisors. If a decision is made not to consummate a specific acquisition, business opportunity or financing and capital market transaction, the costs incurred up to that point for the proposed transaction likely would not be recoverable. Furthermore, even if an agreement is reached relating to a specific acquisition, investment target or financing, we may fail to consummate the investment or acquisition for any number of reasons, including those beyond our control. Any such event could consume significant management time and result in a loss to us of the related costs incurred, which could adversely affect our financial position and our ability to consummate other acquisitions and investments.

 

ITEM 1B.       UNRESOLVED STAFF COMMENTS

 

Not applicable.

 

ITEM 2.          PROPERTIES

 

As of June 30, 2019 the Company did not own any plants or real property.  However, on July 2, 2019, Brigadier finalized the purchase of its office facility and land located in Saskatoon for CAN $750,000 (Approximately US$572,858), funded by a bank loan of CAN$525,000 (approximately US$401,000) and CAN$225,000 (approximately US$171,858) in cash. The bank loan matures in 5 years and bears interest at the annual rate of 4.14%. See Note 17-Subsequent Events.

 

Facilities

 

Administrative offices are co-located in the facility leased by our subsidiary, Original Sprout, whose mailing address is 1202 Puerta Del Sol, San Clemente, California 92673. Our wholly-owned subsidiary, Brigadier, rents facilities in Saskatoon and Regina, Canada. Our wholly-owned subsidiary, Gourmet Foods, rents facilities in Tauranga, New Zealand. Wainwright leases office space in Walnut Creek, California. We believe that the facilities described herein are adequate for our current and immediately foreseeable operating needs.

 

ITEM 3.          LEGAL PROCEEDINGS

 

From time to time, the Company is involved in legal proceedings arising mainly from the ordinary course of its business. Currently, there are no legal proceedings pending.

 

ITEM 4.         MINE SAFETY DISCLOSURES

 

Not applicable.

 

 

PART II

 

ITEM 5.          MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Our Common Stock presently trades on the OTC Markets QB Exchange. The high and low bid prices, as reported by OTC Markets, are as follows for fiscal years ended June 30, 2018 and 2019. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. The prices are adjusted for the 1:30 reverse stock split effectuated on December 15, 2017.

 

 

 

High

 

 

Low

 

 

 

Calendar 2017

 

3rd Quarter

 

$

1.79

 

 

$

1.17

 

4th Quarter

 

$

2.15

 

 

$

1.22

 

 

 

 

 

 

 

 

 

 

 

 

Calendar 2018

 

1st Quarter

 

$

1.61

 

 

$

1.21

 

2nd Quarter

 

$

1.41

 

 

$

0.90

 

3rd Quarter

 

$

1.23

 

 

$

0.55

 

4th Quarter

 

$

1.85

 

 

$

0.86

 

 

 

 

 

 

 

 

 

 

 

 

Calendar 2019

 

1st Quarter

 

$

1.40

 

 

$

0.80

 

2nd Quarter

 

$

1.30

 

 

$

0.65

 

 

Holders

 

On September 27, 2019, there were approximately 365 registered holders of record of our common stock.

 

Dividends

 

We have declared no dividends for the current year nor do we expect to in the foreseeable future. Our ability to pay dividends is subject to limitations imposed by Nevada law. Under Nevada law, dividends may be paid to the extent that a corporation’s assets exceed its liabilities and it is able to pay its debts as they become due in the usual course of business. Under Nevada law, a company - such as our company - can pay dividends only

 

 

from retained earnings, and

 

 

no distribution can be made, if after giving it effect,

 

 

the corporation would not be able to pay its debts as they become due in the usual course of business; or

 

 

except as otherwise specifically allowed by the articles of incorporation, the corporation’s total assets would be less than the sum of its total liabilities plus the amount that would be needed, if the corporation were to be dissolved at the time of distribution, to satisfy the preferential rights upon dissolution of stockholders whose preferential rights are superior to those receiving the distribution.

 

Our strategy on dividends is to declare and pay dividends only from retained earnings and only when our Board of Directors deems it prudent and in the best interests of the company to declare and pay dividends.

 

Penny Stock Regulations

 

Our common stock trades on the OTC Markets QB Exchange at a price less than $5 a share and therefore is subject to the rules governing "penny stocks."

 

A "penny stock" is any stock that:

 

 

sells for less than $5 a share.

 

is not listed on an exchange or authorized for quotation on The NASDAQ Stock Market, and

 

is not a stock of a "substantial issuer." We currently have net tangible assets of at least $2 million which would qualify us as a “substantial issuer”.

 

There are statutes and regulations of the Commission that impose a strict regimen on brokers that recommend penny stocks.

 

 

The Penny Stock Suitability Rule

 

Before a broker-dealer can recommend and sell a penny stock to a new customer who is not an institutional accredited investor, the broker-dealer must obtain from the customer information concerning the person's financial situation, investment experience and investment objectives. Then, the broker-dealer must "reasonably determine" (1) that transactions in penny stocks are suitable for the person and (2) that the person, or his advisor, is capable of evaluating the risks in penny stocks.

 

After making this determination, the broker-dealer must furnish the customer with a written statement setting forth the basis for this suitability determination. The customer must sign and date a copy of the written statement and return it to the broker-dealer.

 

Finally, the broker-dealer must also obtain from the customer a written agreement to purchase the penny stock, identifying the stock and the number of shares to be purchased.

 

The above exercise delays a proposed transaction. It causes many broker-dealer firms to adopt a policy of not allowing their representatives to recommend penny stocks to their customers.

 

The Penny Stock Suitability Rule, described above, and the Penny Stock Disclosure Rule, described below, do not apply to the following:

 

 

transactions not recommended by the broker-dealer,

 

sales to institutional accredited investors,

 

transactions in which the customer is a director, officer, general partner, or direct or indirect beneficial owner of more than 5 percent of any class of equity security of the issuer of the penny stock that is the subject of the transaction, and

 

transactions in penny stocks by broker-dealers whose income from penny stock activities does not exceed five percent of their total income during certain defined periods.

 

The Penny Stock Disclosure Rule

 

Another Commission rule - the Penny Stock Disclosure Rule - requires a broker-dealer, who recommends the sale of a penny stock to a customer in a transaction not exempt from the suitability rule described above, to furnish the customer with a "risk disclosure document." This document is set forth in a federal regulation and contains the following information:

 

 

A statement that penny stocks can be very risky, that investors often cannot sell a penny stock back to the dealer that sold them the stock,

 

A warning that salespersons of penny stocks are not impartial advisers but are paid to sell the stock,

 

The statement that federal law requires the salesperson to tell the potential investor in a penny stock,

 

the "offer" and the "bid" on the stock, and

 

the compensation the salesperson and his firm will receive for the trade,

 

An explanation that the offer price and the bid price are the wholesale prices at which dealers are willing to sell and buy the stock from other dealers, and that in its trade with a customer the dealer may add a retail charge to these wholesale prices,

 

A warning that a large spread between the bid and the offer price can make the resale of the stock very costly,

 

Telephone numbers a person can call if he or she is a victim of fraud,

 

Admonitions -

 

 

to use caution when investing in penny stocks,

 

to understand the risky nature of penny stocks,

 

to know the brokerage firm and the salespeople with whom one is dealing, and

 

to be cautious if one’s salesperson leaves the firm.

 

Finally, the customer must be furnished with a monthly statement including prescribed information relating to market and price information concerning the penny stocks held in the customer's account.

 

 

Effects of the Rule

 

The above penny stock regulatory scheme is a response by the Congress and the Commission to known abuses in the telemarketing of low-priced securities by "boiler shop" operators. The scheme imposes market impediments on the sale and trading of penny stocks. It has a limiting effect on a stockholder's ability to resell a penny stock.

 

Our shares likely will trade below $5 a share on the OTC Markets exchange and be, for some time at least, shares of a "penny stock" subject to the trading market impediments described above.

 

Recent Sales of Unregistered Securities; Outstanding Stock Options

 

The Company sold no shares of any class of stock, nor issued any securities within the last two years up to and including June 30, 2019 apart from the conversion of 383,919 issued shares of our Series B Voting, Convertible, Preferred stock to 7,678,380 shares of unregistered common stock. Subsequent to June 30, 2019, the Company issued 175,000 shares of restricted common stock to Maxim Partners LLC (see Note 17 to the Consolidated Financial Statements). The Company has no stock option plan nor any outstanding stock warrants.

 

ITEM 6.          SELECTED FINANCIAL DATA

 

Not applicable.

 

ITEM 7.          MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis should be read in conjunction with the 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 annual report on Form 10-K. See "Consolidated Financial Statements."

 

Introduction

 

Concierge Technologies, Inc. (“Concierge”) or the (“Company”) conducts business through its wholly-owned operating subsidiaries operating in the U.S., New Zealand and Canada. 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 that manages, operates or is an investment advisor to exchange traded funds organized as limited partnerships or investment trusts that issue shares that 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 as of December 18, 2017.

 

Because the Company conducts its businesses through its wholly-owned operating subsidiaries, the risks related to our wholly-owned subsidiaries are also risks that impact the Company's financial condition and results of operations.  See, "Note 2. Summary of Significant Accounting Policies / Major Customers and Suppliers - Concentration of Credit Risk" in the consolidated financial statements for more information.

 

Critical Accounting Policies

 

A summary of our significant accounting policies is described in detail in Note 2 to our Consolidated Financial Statements.

 

 

Plan of Operation for the Next Twelve Months

 

Our plan of operation for the next twelve months is to apply necessary resources, which may include experienced personnel, cash, or synergistic acquisitions made with cash, equity or debt, into growing each of our business units to their potential. Original Sprout is in the initial stages of transitioning from a largely boutique offering to a more mainstream product and as such we anticipate measurable growth in revenues for the coming years. Additionally, we are expecting moderate growth in Brigadier through focused management initiatives and consolidation within the security industry coupled with expanded product offerings. 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. In addition to our long-term mission that is an acquisition strategy based upon identifying and acquiring profitable, mature, companies of a diverse nature and with in-place management that produces increased revenue streams, the Company is also focused upon building expertise and developing FinTech opportunities in the financial services sector. In a more general sense, the Company is characterizing its business in two categories; 1) financial services and 2) other operating units. The purpose is to isolate the cyclical nature of the financial services business from our other industry segments. As revenues from financial services fluctuate over time due to varying performance of the commodities markets, our other operations are expected to be stable and sustainable by comparison. By these initiatives we seek to:

 

 

continue to gain market share for our wholly-owned subsidiaries’ areas of operation,

 

increase our gross revenues and realize net operating profits,

 

lower our operating costs by unburdening certain selling expenses to third party distributors,

 

have sufficient cash reserves to pay down accrued expenses,

 

attract parties who have an interest in selling their privately held companies to us,

 

achieve efficiencies in accounting and reporting through consolidated operations of our subsidiaries from a management perspective,

 

strategically pursue additional company acquisitions, and

  invest in the development of FinTech opportunities in the financial services space.

 

Results of Operations

 

Concierge and Subsidiaries

 

For the Year Ended June 30, 2019 Compared to the Year Ended June 30, 2018

 

Financial Summary

 

The table below summarizes each of Concierges subsidiaries into one of two categories. The Wainwright business is included in the Financial Services columns and all other subsidiaries, including Gourmet, Brigadier, and Original Sprout in the Other Operating Units columns. Corporate expenses are included in the Concierge Corporate columns. Note that our subsidiary Original Sprout shows operating results for only six months of the 2018 year which accounts for, in part, the increase in revenues and profits for 2019 over the 2018 year.

 

($’s in thousands)

Financial Services

Other Operating Units

Concierge Corporate

Consolidated

 

2019

2018

Change

2019

2018

Change

2019 2018 Change

2019

2018

Change

      $ %     $ %     $ %     $ %

Revenue

 $15,021

$18,744

($3,723)

(20%)

 $11,928

 $9,967

 $1,961

20%        

 $26,949

$28,711

 ($1,762)

(6%)

% of total revenue

56%

65%

 

(9%)

44%

35%

 

9%                

Cost of revenue

 

 

 

 

 $6,936

$5,915 $1,021 17%         $6,936 $5,915 $1,021 17%

Gross profit

$15,021 $18,744 ($3,723) (20%)

$4,992

$4,052 

$940

23%         $20,013 $22,796 ($2,783) (12%)
Operating expenses $14,095 $15,527 ($1,432) (9%) $3,950 $3,488 $462 13% $1,212 $974 $238 24% $19,257 $19,989 ($732) (4%)

% of total operating expenses

73% 78%   (5%) 21% 17%   4% 6% 5%   1%        
Income (loss) from operations $926 $3,217 ($2,291) (71%) $1,042 $564 $478 85% ($1,212) ($974) ($238) (24%) $756 $2,807 ($2,051) (73%)

Other (expense) / income 

    ( $148)

 ($324)

   $176

54%

      $25

$43 ($18) (42%) ($24) ($25) $1 4% ($147) ($306) $159 (52%)

Income (loss) before income taxes

     $778

$2,893

($2,115)

(73%)

      $1,067

      $607

$460 76% ($1,236) ($999) ($237) (24%) $609 $2,501 ($1,892) (76%)

 

                               

 

 Revenue and Operating Income

 

Consolidated revenue for the year ended June 30, 2019 was $26.9 million representing a $1.8 million decrease from the prior year revenue of $28.7 million. While net revenues decreased as a result of lower Fund assets under management ("AUM") from our fund management business by approximately $3.7 million for the year ended June 30, 2019 as compared to the year ended June 30, 2018, the corporation's revenues derived from its other operating units increased by approximately $1.9 million over the same period, resulting in a net reduction to revenue in fiscal year 2019 of approximately 6%. Concierge produced an operating income for the year ended June 30, 2019 of $0.8 million as compared to $2.8 million for the year ended June 30, 2018. This represents a decrease in operating income of $2.0 million for the year ended June 30, 2019 when compared to the year ended June 30, 2018 of approximately 73%. The decrease in operating income was primarily attributable to lower fund management revenue from Wainwright due to lower AUM.

 

 

Other Expenses 

 

Other expense, including provision for income tax of $0.3 million and $0.8 million, for the years ended June 30, 2019 and 2018 were $0.5 million and $1.1 million for the years ended June 30, 2019 and 2018, respectively, resulting in a net income of $0.3 million and $1.7 million, respectively. After giving consideration to currency translation losses of $45 thousand our comprehensive income for the year ended June 30, 2019 was $0.2 million as compared to the year ended June 30, 2018 where there was a currency translation loss of $214 thousand and a short-term investment valuation increase of $244 thousand resulting in comprehensive income of $1.8 million. Comprehensive gain and loss are comprised of fluctuations in foreign currency exchange rates and effects in the valuation of our holdings in New Zealand and Canada.

 

Net Income

 

Overall, the net income between the year ended June 30, 2019 as compared to the year ended June 30, 2018 decreased by approximately $1.4 million or approximately 85% to approximately $0.3 million. The reduction in profits for the year ended June 30, 2019 was primarily attributable to lower fund management revenue from Wainwright due to a lower amount of AUM, partially offset by decreases in Wainwright variable operating expenses, and general and administrative costs.

 

Income Tax

 

Provision for income tax for the years ended June 30, 2019 and 2018 are $0.3 million and $0.8 million, respectively, primarily attributable to our United States operations through our Wainwright subsidiary. 

 

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.  As of June 30, 2018, USCF Advisers advises three 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:

United States Oil Fund, LP (“USO”)

Organized as a Delaware limited partnership in May 2005

United States Natural Gas Fund, LP (“UNG”)

Organized as a Delaware limited partnership in November 2006

United States Gasoline Fund, LP (“UGA”)

Organized as a Delaware limited partnership in April 2007

United States Diesel Heating Oil Fund, LP (“UHN”)

Organized as a Delaware limited partnership in April 2007; Liquidated September 12, 2018

United States 12 Month Oil Fund, LP (“USL”)

Organized as a Delaware limited partnership in June 2007

United States 12 Month Natural Gas Fund, LP (“UNL”)

Organized as a Delaware limited partnership in June 2007

United States Short Oil Fund, LP (“DNO”)

Organized as a Delaware limited partnership in June 2008; Liquidated September 12, 2018

United States Brent Oil Fund, LP (“BNO”)

Organized as a Delaware limited partnership in September 2009

USCF as fund Sponsor - each a series within the USCIF Trust

United States Commodity Index Funds Trust (“USCIF Trust”)

A series trust formed in Delaware December 2009

United States Commodity Index Fund (“USCI”)

A commodity pool formed in April 2010 and made public August 2010

United States Copper Index Fund (“CPER”)

A commodity pool formed in November 2010 and made public November 2011

United States Agriculture Index Fund (“USAG”)

A commodity pool formed in November 2010 and made public April 2012; Liquidated September 12, 2018

USCF as fund Sponsor - each a series within the USCF Funds Trust:

USCF Funds Trust (“USCF Funds Trust”)

A series trust formed in Delaware March 2016

United States 3X Oil Fund (“USOU”)

A commodity pool formed in May 2017 and made public July 2017

United States 3X Short Oil Fund (“USOD”)

A commodity pool formed in May 2017 and made public July 2017

 

 

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:

USCF ETF Trust (“ETF Trust”)

Organized as a Delaware statutory trust in November 2013  

             USCF SummerHaven SHPEI Index Fund ("BUY")

Fund launched November 30, 2017

             USCF SummerHaven SHPEN Index Fund ("BUYN")

Fund launched November 30, 2017

             Stock Split Index Fund (“TOFR”)

Fund launched September 2014; Liquidated October 20, 2017

             Restaurant Leaders Index Fund (“MENU”)

Fund launched November 2016; Liquidated October 20, 2017

                      USCF SummerHaven Dynamic Commodity Strategy No K-1 Fund

         Fund launched May 2018

USCF Mutual Funds Trust ("Mutual Funds Trust")

Organized as a Delaware statutory trust in July 2016  

            USCF Commodity Strategy Fund ("USCFX" and "USCIX")

Fund launched March 2017; Liquidated March 21, 2019

 

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 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 Year Ended June 30, 2019, Compared to the Year Ended June 30, 2018

 

Revenue

 

Average AUM for the year ended June 30, 2019 was at $2.7 billion, as compared to approximately $3.4 billion from the year ended June 30, 2018 primarily due to a decrease in USO,USCI and UNG AUM. As a result, the revenues from management and advisory fees decreased by approximately $3.7 million, or 20%, to $15.0 million for the year ended June 30, 2019 as compared to the year ended June 30, 2018 where revenues from management and advisory fees totaled $18.7 million.

 

Expenses

 

Wainwright’s total operating expenses for year ended June 30, 2019 decreased by $1.4 million to $14.1 million, or approximately 10%, from $15.5 million for the year ended June 30, 2018. Variable expenses, as described above, decreased by $0.8 million over the respective twelve-month period due to due to lower AUM which reduced variable marketing and distribution expenses, sub-advisory fees and other variable costs. General and Administrative expenses decreased $0.4 million to $2.1 million for the year ended June 30, 2019 from $2.5 million for the year ended June 30, 2018 due to decreases in legal and professional fees and new fund startup expenses. Total marketing expenses decreased $0.8 million to $2.5 million for the year ended June 30, 2019 as compared to the prior year period due to a decrease of $0.4 million in advertising and marketing conferences along with a  $0.4 million reduction in variable distribution costs as a result of lower AUM. Employee Salaries and Compensation expenses were approximately $4.8 million and $4.6 million for the years ended June 30, 2019 and June 30, 2018, respectively, due to accrued vacation and small increases in annual compensation offset by a reduction in annual bonuses.

 

Income

 

Income before income taxes for the year ended June 30, 2019 decreased $2.1 million to $0.8 million from $2.9 million for year ended June 30, 2018 due to $3.7 million in lower revenue as a result of lower AUM, offset by a $1.4 million  reduction in operating expenses along with a decrease of $0.2 million in other 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 foreign currency translations are included in foreign currency translation (loss) gain on the Consolidated Statements of Comprehensive Income as well as accumulated other comprehensive (loss) income found on the Consolidated Balance Sheets.

 

 

For the Year Ended June 30, 2019, Compared to the Year Ended June 30, 2018

 

Revenue

 

Net revenues for the year ended June 30, 2019 were $4.7 million with cost of goods sold of $3.3 million resulting in a gross profit of $1.4 million as compared to the year ended June 30, 2018 where net revenues were $5.0 million; cost of goods sold were $3.5 million; and gross profit was $1.5 million.

 

Expenses

 

General, administrative and selling expenses, including wages and marketing, for the years ended June 30, 2019 and 2018 were $1 million and $1.1 million producing operating income of $0.4 million and $0.4 million, respectively, or approximately 9% net operating profit for 2019, 8% for 2018. The depreciation expense, incentive bonus, and other income (expense) totaled approximately $0.4 million for the year ended June 30, 2019 as compared to $0.3 million for the year ended June 30, 2018. 

 

Income

 

Income for the year ended June 30, 2019, after expenses of approximately $0.4 million, resulted in approximately $46 thousand before income tax provision of approximately $59 thousand resulted in a net loss of approximately $13 thousand as compared to a net income of $99 thousand for the year ended June 30, 2018. Overall, net profit margins for the comparative periods are consistent and differences are attributed to depreciation expense, varying income tax provisions 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, fire alarm panels, and intrusion alarms to home and business owners as well as government offices, schools and public buildings. Brigadier typically sells hardware, installation service, 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 foreign currency translations are included in foreign currency translation (loss) gain on the Consolidated Statements of Comprehensive Income as well as accumulated other comprehensive (loss) income found on the Consolidated Balance Sheets.

For the Year Ended June 30, 2019, Compared to the Year Ended June 30, 2018

Revenue

 

Net revenues for the year ended June 30, 2019 were $3.6 million with cost of goods sold recorded as approximately $1.6 million, resulting in a gross profit of approximately $1.9 million with a gross margin of approximately 54% as compared to the year ended June 30, 2018 where net revenues were approximately $3.3 million with cost of goods sold of $1.5 million and a gross profit of $1.8 million, or approximately 55%.

 

 

Expenses

 

General, administrative and selling expenses for the year ended June 30, 2019 were $1.4 million producing an operating profit of $0.6 million or approximately 15% as compared to the year ended June 30, 2018 where operating profits were $0.4 million, or approximately 13%, with general, administrative and selling expenses of $1.4 million.

 

Income

 

Other expense comprised of depreciation, income tax, interest income, other income, and gain on sale of assets totaled approximately $145 thousand for the year ended June 30, 2019 resulting in income after income taxes of approximately $0.4 million as compared to income after income taxes of approximately $0.4 million for the year ended June 30, 2018 where other expense totaled $31 thousand.

 

Original Sprout

 

Kahnalytics was founded in 2015 and adopted the dba/Original Sprout in December 2017 (see Note 12 to the Consolidated Financial Statements). For the year ended June 30, 2017 (prior to the acquisition of the Original Sprout assets), Kahnalytics had incurred de minimis operating losses insignificant to the overall enterprise. Prior to the acquisition of the Original Sprout assets, and as of June 30, 2017, the residual business the company was founded to oversee was being wound down and management expected to transition focus to another industry. As of June 30, 2018, this legacy business had been completely wound down.  Accordingly, the results of operations for the twelve-month period ending June 30, 2018 reflects only two quarters of business operations with the newly acquired assets and should not be viewed as indicative of a full twelve-month period of operations. Similarly, there is no meaningful comparative data for the twelve-month period ending June 30, 2018 as the business included nominal subscription sales to a web hosted service and not the wholesale distribution of beauty products as it currently exists. As a result, only the operating results for the twelve months ended June 30, 2019 are included below. Pro forma results for the fiscal year ended June 30, 2018 are included in Note 12.

 

For the Year Ended June 30, 2019

 

Revenue

 

Net revenues for the year ended June 30, 2019 were $3.6 million with cost of goods sold recorded as approximately $2 million resulting in a gross profit of approximately $1.6 million and a gross margin of approximately 46%. Pro forma results for the year ended June 30, 2018 are included in Note 12.

 

Expenses

 

General, administrative and selling expenses were approximately $0.9 million resulting in an operating income of approximately $0.7 million or approximately 20%.

 

Income

 

After consideration given to income tax provision, other income, and depreciation expense, the net income for the year ended June 30, 2019 was approximately $0.4 million.

 

 

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 expense, the funding of additional business acquisitions and new investment opportunities. 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 June 30, 2019, we had $6.5 million of cash and cash equivalents on a consolidated basis as compared to $7.5 million as of June 30, 2018. The reduction in cash was due to a reduction in net income as well as cash paid for a prior year acquisition. Additionally, the movement of $0.75 million from administrative cash accounts to interest bearing investment accounts along with a reduction in current liabilities from payments made during the year ended June 30, 2019 had an impact on the June 30, 2019 cash balance.

 

During the current and past fiscal years combined, Concierge has invested approximately $3.5 million in cash towards purchasing and assimilating the Original Sprout assets into the Concierge Technologies group of companies. During the previous years ended June 30, 2016 through June 30, 2017, Concierge invested approximately $3.3 million in cash to acquire Gourmet Foods and Brigadier Security Systems as well as the acquisition through a stock-for-stock exchange of Wainwright, which provides a significant revenue stream and value. Despite these cash investments, our working capital position remains strong at $12.3 million and our position has strengthened year-to-year. Management forecasts Wainwright, Gourmet Foods, Brigadier and Original Sprout to all produce a profit during the coming fiscal year and the realization of those profits by Concierge is not expected to be significantly impacted by foreign currency fluctuations against the U.S. dollar during the period. While Concierge intends to maintain and improve its revenue stream from wholly owned subsidiaries, Concierge continues to pursue acquisitions of other profitable companies which meet its target profile. Provided Concierge’s subsidiaries continue to operate as they are presently, and are projected to operate, Concierge has sufficient capital to pay its general and administrative expenses for the coming fiscal year and to adequately pursue its long term business objectives.

 

Borrowings

 

As of June 30, 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 June 30, 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:

 

 

 

June 30, 2019

 

 

June 30, 2018

 

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

 

 

As of June 30, 2019, Brigadier had, in the aggregate, an outstanding principal balance of CD$114,292 (approx. US$87,297) 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, 2019 and June 30, 2018 reflect the amount of the principal balance which is due within twelve months as a current liability of US$26,241 and US$46,705, respectively. Principal amounts under the loans which is due after twelve months are recorded in long term liabilities as US$61,057 and US$149,491 at June 30, 2019 and June 30, 2018 respectively. Interest on the loans is expensed or accrued as it becomes due. Total interest on all vehicle loans for the years ended June 30, 2019 and 2018 was US$5,197 and US$4,209, respectively.

 

 

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

 

On November 17, 2017 our Board and the majority stockholders 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 on December 15, 2017 and all share amounts have been retroactively adjusted for this reverse stock split.

 

Dividends

 

Our strategy on dividends is to declare and pay dividends only from retained earnings and only when our Board of Directors deems it prudent and in the best interests of the company to declare and pay dividends. We have paid no dividends and we do not expect to pay any dividends over the next fiscal year.

 

Off-Balance Sheet Arrangements

 

At June 30, 2019, and as of September 30, 2019, we have not entered into any transaction, agreement or other contractual arrangement with an entity unconsolidated with us under which we have:

 

 

An obligation under a guarantee contract,

 

A retained or contingent interest in assets transferred to the unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to such entity for such assets,

 

An obligation, including a contingent obligation, arising out of a variable interest in an unconsolidated entity that is held by, and material to, us where such entity provides financing, liquidity, market risk or credit risk support to, or engages in leasing, hedging, or research and development services with us.

 

ITEM 7A.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 8.          FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Our financial statements appear as follows:

 

Report of Independent Registered Public Accounting Firm

 

F-1

Consolidated Balance Sheets, as of June 30, 2019 and 2018

 

F-2

Consolidated Statements of Operations for the years ended June 30, 2019 and 2018

 

F-3

Consolidated Statements of Comprehensive Income for the years ended June 30, 2019 and 2018

 

F-4

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity for the years ended June 30, 2019 and 2018

 

F-5

Consolidated Statements of Cash Flows, for the years Ended June 30, 2019 and 2018

 

F-6

Notes to Consolidated Financial Statements

 

F-7

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Board of Directors and
Stockholders of Concierge Technologies, Inc. and Subsidiaries

 

Opinion on the Consolidated Financial Statements

 

We have audited the accompanying consolidated balance sheets of Concierge Technologies, Inc. and its subsidiaries (the "Company") as of June 30, 2019 and 2018, the related consolidated statements of operations, comprehensive income, convertible preferred stock and stockholders’ equity, and cash flows for each of the two years in the period ended June 30, 2019, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2019 and 2018, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2019, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

 

/s/ BPM LLP

 

 

San Francisco, California

September 30, 2019

 

We have served as the Company's auditor since 2017.

 

 

 

CONCIERGE TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

   

June 30, 2019

   

June 30, 2018

 
                 

ASSETS

 
                 

CURRENT ASSETS

               

Cash and cash equivalents

  $ 6,481,815     $ 7,524,114  

Accounts receivable, net

    939,649       1,068,240  

Accounts receivable - related parties

    1,037,146       1,458,159  

Inventories

    1,008,662       931,065  

Prepaid income tax and tax receivable

    1,754,369       2,138,636  

Investments

    3,756,596       3,204,005  

Other current assets

    546,105       374,617  

Total current assets

    15,524,342       16,698,836  
                 

Restricted cash

    13,436       13,536  

Property and equipment, net

    757,014       1,080,471  

Goodwill

    915,790       915,790  

Intangible assets, net

    2,659,723       2,995,231  

Deferred tax assets, net

    859,696       865,120  

Other assets, long - term

    523,607       532,165  

Total assets

  $ 21,253,608     $ 23,101,149  
                 

LIABILITIES AND STOCKHOLDERS' EQUITY

 
                 

CURRENT LIABILITIES

               

Accounts payable and accrued expenses

  $ 2,867,081     $ 3,249,387  

Expense waivers – related parties

    325,821       662,650  

Purchase consideration payable

    -       1,205,000  

Notes payable - related parties

    3,500       3,500  

Equipment loans, current portion

    26,241       46,705  

Total current liabilities

    3,222,643       5,167,242  
                 

LONG TERM LIABILITIES

               

Notes payable - related parties

    600,000       600,000  

Equipment loans, net of current portion

    61,057       149,491  

Deferred tax liabilities

    176,578       208,419  

Total liabilities

    4,060,278       6,125,152  
                 

STOCKHOLDERS' EQUITY

               

Preferred stock, $0.001 par value; 50,000,000 authorized

               

Series B: 53,032 issued and outstanding at June 30, 2019 and 436,951 at June 30, 2018

    53       437  

Common stock, $0.001 par value; 900,000,000 shares authorized; 37,237,519 shares issued and outstanding at June 30, 2019 and 29,559,139 at June 30, 2018

    37,237       29,559  

Additional paid-in capital

    9,178,838       9,186,132  

Accumulated other comprehensive (loss) income

    (175,659

)

    148,808  

Retained earnings

    8,152,861       7,611,061  

Total stockholders' equity

    17,193,330       16,975,997  

Total liabilities and stockholders' equity

  $ 21,253,608     $ 23,101,149  

 

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, 2019

   

June 30, 2018

 
                 
                 

Net revenue

               

Fund management - related party

  $ 15,021,439     $ 18,744,313  

Food products

    4,747,358       4,968,158  

Security systems

    3,558,580       3,303,584  

Beauty products and other

    3,621,246       1,694,534  

Net revenue

    26,948,623       28,710,589  
                 

Cost of revenue

    6,936,421       5,914,719  
                 

Gross profit

    20,012,202       22,795,870  
                 
                 

Operating expense

               

General and administrative expense

    4,205,389       4,828,241  

Fund operations

    4,494,001       4,933,437  

Marketing and advertising

    2,910,447       3,554,507  

Depreciation and amortization

    702,320       576,674  

Salaries and compensation

    6,944,457       6,096,232  

Total operating expenses

    19,256,614       19,989,091  
                 

Income from operations

    755,588       2,806,779  
                 
                 

Other (expense) income:

               

Other (expense) income

    (484,028

)

    (316,337

)

Interest and dividend income

    366,796       111,929  

Interest expense

    (29,493

)

    (101,089

)

Total other (expense) income, net

    (146,725

)

    (305,497 )
                 

Income before income taxes

    608,863       2,501,282  
                 

Provision of income taxes

    347,014       766,596  
                 

Net income

  $ 261,849     $ 1,734,686  
                 

Weighted average shares of common stock

               

Basic

    32,588,418       29,559,139  

Diluted

    38,298,159       38,298,159  
                 

Net income per common share

               

Basic

  $ 0.01     $ 0.06  

Diluted

  $ 0.01     $ 0.05  

 

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, 2019

   

June 30, 2018

 
                 

Net income

  $ 261,849     $ 1,734,686  
                 

Other comprehensive income (loss):

               

Foreign currency translation (loss) gain

    (44,516

)

    (214,284

)

Changes in short-term investment valuation

    -       243,754  

Comprehensive income

  $ 217,333     $ 1,764,156  

 

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

FOR THE YEARS ENDED JUNE 30, 2019 AND 2018

 

 

 

Preferred Stock

(Series B)

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of

Shares

 

 

Amount

 

 

Number of

Shares

 

 

Par

Value

 

 

Additional

Paid - in

Capital

 

 

Accumulated

Other Comprehensive Income (Loss)

 

 

 

Retained

Earnings

 

 

Total

Stockholders' Equity

 

Balance at July 1, 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

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(214,284

)

 

 

-

 

 

 

(214,284

)

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

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

 

(Loss) on currency translation

                                         

 

(44,516

)

         

 

(44,516

)

Reclassification of investment gains

                                         

 

(279,951

)

   

279,951

     

-

 

Conversion of preferred shares

 

 

(383,919

)

 

 

(384

)

   

7,678,380

     

7,678

   

 

(7,294

)

                   

-

 

Net income

                                                    261,849       261,849  

Balance at June 30, 2019

   

53,032

   

$

53

     

37,237,519

   

$

37,237

   

$

9,178,838

   

($

175,659

)

 

$

8,152,861

   

$

17,193,330

 

 

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

 
   

2019

   

2018

 

CASH FLOWS FROM OPERATING ACTIVITIES:

               

Net income

  $ 261,849     $ 1,734,686  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Depreciation and amortization

    702,320       576,674  

Deferred taxes

    (26,417 )     564,992  

Bad debt expense

    2,075       51,747  

Unrealized loss on investments

    1,995       359,666  
Realized (gain) on sale of investments     (30,718 )     (3,592 )

(Gain) on disposal of equipment

    (3,369

)

    (8,364

)

                 

(Increase) decrease in current assets:

               

Accounts receivable, net

    128,105       7,137  

Accounts receivable - related party

    421,013       304,112  

Prepaid income taxes and tax receivable

    421,845       (906,085

)

Inventories

    (79,127

)

    (162,388

)

Other current assets

    (161,254 )     4,045  

Increase (decrease) in current liabilities:

               

Accounts payable and accrued expenses

    (425,690

)

    406,126  

Expense waiver -  related party

    (336,829

)

    73,557  

Net cash provided by operating activities

    875,798       3,002,313  
                 

CASH FLOWS FROM INVESTING ACTIVITIES:

               

Cash paid for acquisition of business assets

    (1,205,000

)

    (2,277,172

)

Purchase of equipment - net of disposals

    (50,165

)

    (318,064

)

Sale of investments

    3,230,891       1,372,019  

Purchase of investments

    (3,754,132

)

    (1,109,596

)

Net cash used in investing activities

    (1,778,406

)

    (2,332,813

)

                 

CASH FLOWS FROM FINANCING ACTIVITIES:

               

Proceeds of equipment loan

    -       178,604  

Repayment of equipment loan

    (108,898

)

    (67,660 )

Net cash (used in) provided by financing activities

    (108,898

)

    110,944  
                 
                 
                 

Effect of exchange rate change on cash, cash equivalents and restricted cash

    (30,893

)

    13,184  
                 

NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

    (1,042,399

)

    793,628  
                 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING BALANCE

    7,537,650       6,744,022  
                 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, ENDING BALANCE

  $ 6,495,251     $ 7,537,650  
                 
                 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

               

Cash paid during the period for:

               

Interest paid

  $ 29,493     $ -  

Income taxes paid

  $ 202,363     $ 965,272  

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.

 

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, net and Accounts Receivable - Related Parties

 

Accounts receivable, net, consist of receivables from the Brigadier, Gourmet Foods and Original Sprout businesses. Management regularly reviews the composition of accounts receivable and analyzes customer credit worthiness, customer concentrations, current economic trends and changes in customer payment patterns to determine whether or not an account should be deemed uncollectible. Reserves, if any, are recorded 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, 2019 and June 30, 2018, the Company had $2,075 and $51,747, respectively, listed as doubtful accounts.

 

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, 2019, and June 30, 2018, there is no allowance for doubtful accounts as all amounts are deemed collectible.

 

Major Customers and Suppliers – Concentration of Credit Risk

 

Concierge, through Brigadier, is partially dependent upon its contractual relationship with the alarm monitoring company who provides monitoring services to Brigadier’s customers. In the event this contract is terminated, Brigadier would be compelled to find an alternate source of alarm monitoring, or establish such a facility itself. Management believes that the contractual relationship is sustainable, and has been for many years, with alternate solutions available should the need arise. Sales to the largest customer, which includes contracts and recurring monthly support fees, totaled 46% and 41% of the total Brigadier revenues for the years ended June 30, 2019 and June 30, 2018, respectively. The same customer accounted for approximately 37% of Brigadier's accounts receivable as of the balance sheet date of June 30, 2019 as compared to 35% as of June 30, 2018. Another large account, which has been a significant customer this fiscal year, contributed 12% of the total sales revenues for the year ended June 30, 2019 and nil for the year ended June 30, 2018. There were no accounts receivable from this customer as of June 30, 2019 or 2018.

 

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. The grocery and food industry is dominated by several large chain operations, which are customers of Gourmet Foods, and there are no long term guarantees that these major customers will continue to purchase products from Gourmet Foods, however the relationships have been in place for sufficient time to give management reasonable confidence in their continuing business.

 

For the year ended and balance sheet date of June 30, 2019, Gourmet Foods’ largest customer in the grocery industry, who operates through a number of independently branded stores, accounted for approximately 22% of Gourmet Foods sales revenues and 28% of Gourmet Foods accounts receivable as compared to 21% and 33% for the prior year ended June 30, 2018, respectively. The second largest in the grocery industry accounted for approximately 12% of Gourmet Foods sales revenues for the year ended June 30, 2019 as compared to 12% for the year ended June 30, 2018. This same group accounted for 19% of Gourmet Foods accounts receivable as of June 30, 2019 as compared to 16% as of June 30, 2018. 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, 2019, accounted for approximately 43% of Gourmet Foods’ gross sales revenues as compared to 41% for the year ended June 30, 2018. 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 remaining 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 consistently accounts for over 10% of the gross revenues, though due to timing of deliveries one customer accounted for approximately 10% of our gross revenues for the year ended June 30, 2019. There were 3 major distributor accounts, all current, representing 25%, 17%, and 12% for a total of 54% of all accounts receivable as of June 30, 2019. Original Sprout is partially 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, 2019 and June 30, 2018 as depicted below.

 

   

Year ended June 30, 2019

   

Year ended June 30, 2018

 
   

Revenue

   

Revenue

 

Fund

                               

USO

  $ 7,308,354       49

%

  $ 9,752,223       52

%

USCI

    4,051,605       27

%

    4,253,921       23

%

UNG

    1,922,596       13

%

    2,753,723       15

%

All Others

    1,738,884       11

%

    1,984,446       10

%

Total

  $ 15,021,439       100

%

  $ 18,744,313       100

%

 

 

   

June 30, 2019

   

June 30, 2018

 
   

Accounts Receivable

   

Accounts Receivable

 

Fund

                               

USO

  $ 526,981       51

%

  $ 674,535       46

%

USCI

    236,251       23

%

    431,288       30

%

UNG

    141,413       13

%

    182,399       12

%

All Others

    132,501       13

%

    169,937       12

%

Total

  $ 1,037,146       100

%

  $ 1,458,159       100

%

 

Inventories

 

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, 2019 and 2018 impairment to inventory value was recorded as $0 and $0, 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. For the years ended June 30, 2019 and June 30, 2018, the expense for slow-moving or obsolete inventory was $10,317 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, 2019 or for the year ended June 30, 2018.

 

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 years ended June 30, 2019 and 2018

 

 

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, 2019 or 2018.

 

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) which is included as part of other (expense) income. 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 maintenance services in Canada, and wholesale distribution of hair and skin care products. Revenue is accounted for net of sales taxes, sales returns, trade discounts. The performance obligation is satisfied when the product 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. For our Brigadier subsidiary in Canada, the Company operates under contract with an alarm monitoring company that pays a percentage of their recurring monitoring fee to Brigadier in exchange for continued customer service and support functions with respect to each customer maintained under contract by the monitoring company. 

 

Recently Adopted Accounting Pronouncements - In May 2014, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance that set forth a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The Company adopted this new standard and its related amendments as of July 1, 2018 using the modified retrospective transition method, whereby the cumulative effect of initially applying the new standard recognized as an adjustment to the opening balance of stockholders equity. Results for reporting periods commencing on or after July 1, 2018 are presented under the new standard, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for that prior period. The impact of adoption did not have a material effect on our financial results. The adoption of the new standard impacted the identification of separate obligations for certain sales of security systems and related monitoring sales. The Company generates revenue, in part, through contractual monthly recurring fees received for providing ongoing customer support services to monitoring company clientele. The five-step process governing contract revenue reporting includes:

 

1. Identifying the contract(s) with customers

2. Identifying the performance obligations in the contract

3. Determining the transaction price

4. Allocate the transaction price to the performance obligations in the contract

5. Recognize revenue when or as the performance obligation is satisfied

 

Transactions involve security systems that are sold outright to the customer where the Company's performance obligations include customer support services and the sale and installation of the security systems. For such arrangements, the Company allocates a portion of the transaction price to each performance obligation based on a relative stand-alone selling price. Revenue associated with the sale and installation of security systems is recognized once installation is complete, and is reflected as security system revenue in the Consolidated Statements of Operations. Revenue associated with customer support services is recognized as those services are provided, and is included as a component of security system revenue in the Consolidated Statements of Operations, which for the year ended June 30, 2019, were approximately US$352,249, or approximately 10% of the total security system revenues. These revenues for the year ended June 30, 2019 account for approximately 1% of total consolidated revenues. None of the other subsidiaries of the Company generate revenues from long term contracts.

 

Because the Company has no contract with the end user, and the monthly payments for customer support services are made to the Company by the monitoring company who has a contract with the end user, and end user customers are subject to cancellation through no control of the Company; therefore, no deferred revenues or contingent liability reserves have been established with respect to these contracts. The services are deemed delivered as the obligation is acknowledged on a monthly basis.

 

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, 2019 and 2018 were $2.9 million and $3.6 million, respectively.

 

Other Comprehensive Income (Loss)

 

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.

 

Short-Term Investment Valuation

 

In January 2016, the FASB issued authoritative guidance related to the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. Under the new guidance, equity investments with readily determinable fair values, except those accounted for under the equity method, will be measured at fair value with changes in fair value recognized in earnings rather than other comprehensive income (loss). In addition, this update clarifies the guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from the unrealized losses on certain debt securities. The Company adopted this guidance effective on July 1, 2018. See Recent Accounting Pronouncements below related to July 1, 2018 reclassification of accumulated other comprehensive income to retained earnings. Besides this reclassification there was no material impact to Consolidated Financial Statements as a result of the adoption.

 

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, 2019 and 2018 a determination was made that no adjustments were necessary.

 

Recent Accounting Pronouncements adopted during the year ended June 30, 2019  

 

On July 1, 2018 the Company adopted ASU 2016-01 Financial Instruments - Recognition and Measurement of Financial Assets and Financial Liabilities and Accounting Standards Codification ("ASC") 606 - Revenue from Contracts with Customers ("ASC 606"). A summary of the effects of the initial adoption of ASU 2016-01 and ASC 606 follows:

 

   

ASU 2016-01

   

ASC 606

   

Total

 

Increase (decrease):

                       

Assets

  $ -     $ -     $ -  

Liabilities

  $ -     $ -     $ -  

Accumulated other comprehensive income

  $ (279,951

)

  $ -     $ (279,951

)

Retained earnings

  $ 279,951     $ -     $ 279,951  

 

The above (“ASU 2016-01”) entry reclasses accumulated gains from changes in short-term investment valuations previously recorded in comprehensive income to retained earnings. ASU 2016-01 requires that unrealized gains and losses arising from changes in market values of our investments in equity securities be recorded in the condensed consolidated statements of operations rather than in accumulated other comprehensive income (loss) on the balance sheet. Prior to July 1, 2018 investment gains and losses related to equity securities were reflected on the condensed consolidated statements of comprehensive income.

 

The Company has reviewed new accounting pronouncements issued between September 28, 2018, 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 new pronouncements, apart from Topic 842 described below, issued are relevant to the Company, and/or have, or will have, a material impact on the Company’s consolidated financial position, results of operations or disclosure requirements.

 

On July 1, 2019, the Company adopted FASB ASU 2016-02, Leases (Topic 842), which supersedes the requirements in Topic 840, Leases. The objective of Topic 842 is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. It is expected that assets and liabilities will increase based on the present value of remaining lease payments for leases in place at the adoption date; however, based on the current level of long term leases in place, this is not material to the Company’s results of operations or financial position. See Note 15 for information on existing leases.

 

 

 

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, 2019

 
   

Net Income

   

Shares

   

Per Share

 

Basic income per share:

                       

Net income available to common shareholders

  $ 261,849       32,588,418     $ 0.01  

Effect of dilutive securities

    -       -       -  

Preferred stock Series B

    -       5,709,741       -  

Diluted income per share

  $ 261,849       38,298,159     $ 0.01  

 

   

For the year ended June 30, 2018

 
   

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  

 

 

NOTE 4.          INVENTORIES

 

Inventories for Gourmet Foods, Brigadier and Original Sprout consisted of the following totals:

 

   

June 30,

   

June 30,

 
   

2019

   

2018

 

Raw materials

  $ 208,284     $ 195,674  

Supplies and packing materials

    188,035       142,257  

Finished goods

    612,343       593,134  

Total inventories

  $ 1,008,662     $ 931,065  

 

 

 

NOTE 5.          PROPERTY AND EQUIPMENT

 

Property, plant and equipment consisted of the following as of June 30, 2019 and 2018:

 

   

June 30, 2019

   

June 30, 2018

 

Plant and equipment

  $ 1,511,629     $ 1,487,568  

Furniture and office equipment

    188,370       171,978  

Vehicles

    332,672       351,381  

Total property and equipment, gross

    2,032,671       2,010,927  

Accumulated depreciation

    (1,275,657

)

    (930,456

)

Total property and equipment, net

  $ 757,014     $ 1,080,471  

 

For the years ended June 30, 2019 and 2018, depreciation expense for property, plant and equipment totaled $366,812 and $342,628, respectively. 

 

 

NOTE 6.          INTANGIBLE ASSETS

 

Intangible assets consisted of the following:

 

   

June 30, 2019

   

June 30, 2018

 

Customer relationships

  $ 700,252     $ 700,252  

Brand name

    1,142,122       1,142,122  

Domain name

    36,913       36,913  

Recipes

    1,221,601       1,221,601  

Non-compete agreement

    274,982       274,982  

Total

    3,375,870       3,375,870  

Less : accumulated amortization

    (716,147

)

    (380,639

)

Net intangibles

  $ 2,659,723     $ 2,995,231  

 

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, 2019

   

June 30, 2018

 

Customer relationships

  $ 700,252       700,252  

Less: accumulated amortization

    (203,492

)

    (124,895

)

Total customer relationships, net

  $ 496,760       575,357  

 

 

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, 2019

   

June 30, 2018

 

Brand name

  $ 1,142,122     $ 1,142,122  

Less: accumulated amortization

    (129,084

)

    (88,872

)

Total brand name, net

  $ 1,013,038     $ 1,053,250  

 

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, 2019

   

June 30, 2018

 

Domain name

  $ 36,913     $ 36,913  

Less: accumulated amortization

    (26,341

)

    (18,958

)

Total brand name, net

  $ 10,572     $ 17,955  

 

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, 2019

   

June 30, 2018

 

Recipes and formulas

  $ 1,221,601     $ 1,221,601  

Less: accumulated amortization

    (246,622

)

    (92,303

)

Total recipes and formulas, net

  $ 974,979     $ 1,129,298  

 

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, 2019

   

June 30, 2018

 

Non-compete agreement

  $ 274,982     $ 274,982  

Less: accumulated amortization

    (110,608

)

    (55,612

)

Total non-compete agreement, net

  $ 164,374     $ 219,370  

 

AMORTIZATION EXPENSE

 

The total amortization expense for intangible assets for the years ended June 30, 2019 and June 30, 2018 was $335,508 and $234,046, 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

 

2020

  $ 335,508  

2021

    326,034  

2022

    306,809  

2023

    286,507  

2024

    268,809  

Thereafter

    1,136,056  

Total

  $ 2,659,723  

 

 

NOTE 7.          OTHER ASSETS

 

Other Current Assets

 

Other current assets totaling $546,105 as of June 30, 2019 and $374,617 as of June 30, 2018 are comprised of various components as listed below.

 

   

As of June 30, 2019

   

As of June 30, 2018

 

Prepaid expenses

  $ 462,215     $ 358,869  

Other current assets

    83,890       15,748  

Total

  $ 546,105     $ 374,617  

 

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 included in comprehensive income (loss) through June 30, 2018 and subsequently through earnings in accordance with ASU 2016-01. As of June 30, 2019 and June 30, 2018, investments were approximately $3.8 million and $3.2 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, 2019 and June 30, 2018, there were no investments requiring the equity method investment accounting.

 

Investments measured at estimated fair value consist of the following as of June 30, 2019 and June 30, 2018:

 

   

As of June 30, 2019

 
   

Cost

   

Gross

Unrealized

Gains

   

Gross

Unrealized

Losses

   

Estimated

Fair

Value

 

Money market funds

  $ 3,005,182     $ -     $ -     $ 3,005,182  

Other short term investments

    749,988       -       (739

)

    749,249  

Other equities

    3,421       -       (1,256

)

    2,165  

Total short-term investments

  $ 3,758,591     $ -     $ (1,995

)

  $ 3,756,596  

 

 

   

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  

 

 

The following tables summarize the valuation of the Company’s securities at June 30, 2019 and June 30, 2018 using the fair value hierarchy:

 

   

As of June 30, 2019

 
   

Total

   

Level 1

   

Level 2

   

Level 3

 

Money market funds

  $ 3,005,182     $ 3,005,182     $ -     $ -  

Other short term investments

    749,249       749,249       -       -  

Other equities

    2,165       2,165       -       -  

Total

  $ 3,756,596     $ 3,756,596     $ -     $ -  

 

 

   

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     $ -  

 

During the years ended June 30, 2019 and 2018, there were no transfers between Level 1 and Level 2.

 

Restricted Cash

 

At June 30, 2019 and 2018, Gourmet Foods had on deposit approximately NZ$20,000 (approximately US$13,437 and US$13,536, respectively after currency translation) 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 $523,607 and $532,165 at June 30, 2019 and June 30, 2018, respectively, were attributed to Wainwright and Original Sprout and consisted of

 

(i)

$500,000 as of June 30, 2019 and June 30, 2018 representing 10% equity investment in a registered investment adviser accounted for on a cost basis,

 

(ii)

and $23,607 as of June 30, 2019 and $32,165 at June 30, 2018 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, 2019 and 2018 were $915,790 and $915,790, respectively.

 

Goodwill is comprised of the following amounts:

 

   

As of June 30, 2019

   

As of June 30, 2018

 
                 

Goodwill – Original Sprout

  $ 416,817     $ 416,817  

Goodwill – Gourmet Foods

    147,628       147,628  

Goodwill - Brigadier

    351,345       351,345  

Total

  $ 915,790     $ 915,790  

 

The Company tests for goodwill impairment at each reporting unit. There was no goodwill impairment for the year ended June 30, 2019 or June 30, 2018.

 

 

 

NOTE 9.          ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

Accounts payable and accrued expenses consisted of the following:

 

   

June 30, 2019

   

June 30, 2018

 

Accounts payable

  $ 1,720,902     $ 1,935,645  

Accrued interest

    117,555       56,689  

Taxes payable

    181,563       3,938  

Deferred rent

    37,076       3,681  

Accrued payroll, vacation and bonus payable

    345,520       299,630  

Accrued expenses

    464,465       949,804  

Total

  $ 2,867,081     $ 3,249,387  

 

 

NOTE 10.         RELATED PARTY TRANSACTIONS

 

Notes Payable - Related Parties

 

Current related party notes payable consist of the following:

 

   

June 30, 2019

   

June 30, 2018

 

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, 2019 and 2018 was $24,280 and $24,280, respectively. 

 

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 $15.0 million and $18.7 million for the years ended June 30, 2019 and 2018, respectively, were earned from these related parties. Accounts receivable, totaling $1.0 million and $1.5 million as of June 30, 2019 and June 30, 2018, respectively, were owed from these related parties. Fund expense waivers, totaling $0.3 million and $0.7 million and fund expense limitation amounts, totaling $0.2 million and $0.5 million, for the years ended June 30, 2019 and 2018, respectively, were incurred on behalf of these related parties. Waivers payable, totaling $0.3 million and $0.7 million as of June 30, 2019 and June 30, 2018, 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, 2019, Brigadier had, in the aggregate, an outstanding principal balance of CD$114,292 (approx. US$87,297) 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, 2019 and June 30, 2018 reflect the amount of the principal balance which is due within twelve months as a current liability of US$26,241 and $46,705, respectively. Principal amounts under the loans which is due after twelve months are recorded in long term liabilities as US$61,057 and $149,491 for the years ended June 30, 2019 and 2018 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, 2019 was US$5,197 and $12,662 for the year ended June 30, 2018.

 

 

 

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.