The accompanying notes are an integral part of these unaudited consolidated financial statements.
The accompanying notes are an integral part of these unaudited consolidated financial statements.
The accompanying notes are an integral part of these unaudited consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
(UNAUDITED)
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 (“Brigadier”), a Canadian based company, sells and installs commercial and residential alarm monitoring systems.
|
|
●
|
Original Sprout ("Original Sprout"), a U.S. based company operating under Kahnalytics, Inc., also a U.S. based company which no longer has significant operations, is engaged in the wholesale distribution of hair and skin care products under the brand name Original Sprout on a global scale.
|
See “Note
13.
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”). The information included in this Form
10
-Q should be read in conjunction with information included in the Company’s
2017
annual report on Form
10
-K filed on
October 13, 2017
with the U.S. Securities and Exchange Commission.
Principles of Consolidation
The accompanying condensed consolidated financial statements, which are referred herein as the “Financial Statements” include the accounts of Concierge and its wholly owned subsidiaries, Wainwright, Gourmet Foods, Brigadier and Original Sprout.
Wainwright was acquired during the prior fiscal year. Due to the commonality of ownership and control between the
two
companies, the transaction has been accounted for as a transaction between entities under common control (Refer to Note
13
of the Financial Statements). The accompanying Financial Statements as of
March 31, 2018
and
June 30, 2017
include the assets, liabilities and the results of operations of Wainwright at carrying amounts as though the transaction and exchange of equity interests has occurred at the beginning of the comparative period, or
July 1, 2016.
All significant inter-company transactions and accounts have been eliminated in consolidation.
Use of Estimates
The preparation of the Financial Statements are in conformity with U.S. GAAP which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid debt instruments with original maturities of
three
months or less. The Company maintains its cash and cash equivalents in financial institutions in the United States, Canada, and New Zealand. Accounts in the United States are insured by the Federal Deposit Insurance Corporation up to
$250,000
per depositor, and accounts in Canada are insured by the Canada Deposit Insurance Corporation up to
CD$100,000
per depositor. Accounts in New Zealand are uninsured. The Company has, at times, held deposits in excess of insured amounts, but the Company does
not
expect any losses in such accounts.
Accounts Receivable - Related Parties and Accounts Receivable, net
Accounts receivable - related parties, consist of fund asset management fees receivable from the Wainwright business. Management fees receivable generally consist of
one
month of management fees which are collected in the month after they are earned. As of
March 31, 2018
and
June 30, 2017,
there is
no
allowance for doubtful accounts as all amounts are deemed collectible.
Accounts receivable, net, consist of receivables from the Brigadier, Gourmet Foods and Original Sprout businesses. The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management regularly reviews the composition of accounts receivable and analyzes customer credit worthiness, customer concentrations, current economic trends and changes in customer payment patterns. Reserves are recorded primarily on a specific identification basis. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. As of
March 31, 2018
and
June 30, 2017,
the Company had
$46,550
and
nil,
respectively, recorded in doubtful accounts.
Major Customers & Suppliers – Concentration of Credit Risk
Concierge, through Original Sprout, is dependent upon its relationship with a product packaging company who, at the direction of Original Sprout, manufactures the products, packages them in appropriate containers, and delivers the finished goods to Original Sprout for distribution to its customers. All of Original Sprout’s products are currently produced by this packaging company, although if this relationship were to fail there are other similar packaging companies available to Original Sprout at competitive pricing. For the current
three
and
nine
month periods, Original Sprout, which was acquired on
December 18, 2017,
included only
103
days of operations in our financial statements. As a result, a list of major customers over the
nine
month time period would
not
be indicative of actual concentration of risk with regard to sales revenues or accounts receivable and is therefore omitted. For the current
three
month period
no
single customer accounted for over
10%
of Original Sprout's total sales revenues.
Concierge, through Brigadier, is dependent upon its contractual relationship with the alarm monitoring company who purchases the monitoring contracts and provides monitoring services to Brigadier’s customers. Sales revenues derived from this customer, which includes contracts and recurring monthly residuals from monitoring contracts, totaled
51%
of the total revenues for the
three
months ended
March 31, 2018
and
39%
for the
nine
months ended
March 31, 2018
as compared to
46
% of the total revenues for the
three
month period ended
March 31, 2017
and
44%
for the
nine
month period ended
March 31, 2017,
respectively, while accounting for approximately
38%
and
40%
of accounts receivable as of
March 31, 2018
and
June 30, 2017,
respectively. Sales to
one
large customer totaled
16%
of the total revenues for the
nine
months ended
March 31, 2018,
but were insignificant for other comparison periods and
not
likely to repeat on a regular basis.
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
three
months ended
March 31, 2018
and
2017,
our largest customer in the grocery industry, who operates through a number of independently branded stores, accounted for approximately
22
% and
17
%, respectively, of our gross sales revenues as compared to
20%
and
18%,
respectively, for the
nine
months ended
March 31, 2018
and
2017.
The same customer accounted for
31%
and
26%
of our accounts receivable for as of
March 31, 2018
and
June 30, 2017,
respectively. The
second
largest customer in the grocery industry accounted for approximately
12
% and
11%
of our gross revenues for the
three
and
nine
month periods ended
March 31, 2018,
respectively, as compared to
10
% and
11%
of gross revenues for the
three
and
nine
month periods ended
March 31, 2017.
The same customer accounted for
14%
of our accounts receivable as of
March 31, 2018
compared to
11%
as of
June 30,
2017.
In the gasoline convenience store market we supply
two
major channels. The largest is a marketing consortium of gasoline dealers who, for the
three
and
nine
months ended
March 31, 2018
accounted for approximately
42
% and
42%,
respectively, of our gross sales revenues as compared to
44
% and
43%
for the
three
and
nine
months ended
March 31, 2017.
No
single member of the consortium is responsible for a significant portion of our accounts receivable. The
second
largest are independent operators accounting for less than
10%
of gross sales however
no
single independent operator is responsible for a significant portion of our accounts receivable. The
third
category of independent retailers and cafes accounted for the balance of our gross sales revenue however the group is fragmented and
no
one
customer accounts for a significant portion of our revenues or accounts receivable. 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.
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
three
and
nine
month revenues as of
March 31, 2018
and
March 31, 2017
along with the accounts receivable at
March 31, 2018
as compared with
June 30, 2017
as depicted below.
|
|
Three Months Ended
March 31, 2018
|
|
|
Three Months Ended
March 31, 2017
|
|
|
|
Revenue
|
|
|
Revenue
|
|
Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USO
|
|
$
|
2,187,506
|
|
|
|
50
|
%
|
|
$
|
3,226,589
|
|
|
|
57
|
%
|
USCI
|
|
|
1,038,924
|
|
|
|
24
|
%
|
|
|
1,128,905
|
|
|
|
20
|
%
|
UNG
|
|
|
648,691
|
|
|
|
15
|
%
|
|
|
739,810
|
|
|
|
13
|
%
|
All Others
|
|
|
470,113
|
|
|
|
11
|
%
|
|
|
541,707
|
|
|
|
10
|
%
|
Total
|
|
$
|
4,345,234
|
|
|
|
100
|
%
|
|
$
|
5,637,011
|
|
|
|
100
|
%
|
|
|
Nine
Months Ended
March 31, 2018
|
|
|
Nine
Months Ended
March 31, 2017
|
|
|
|
Revenue
|
|
|
Revenue
|
|
Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USO
|
|
$
|
7,630,965
|
|
|
|
53
|
%
|
|
$
|
10,529,803
|
|
|
|
57
|
%
|
USCI
|
|
|
2,996,917
|
|
|
|
21
|
%
|
|
|
3,825,555
|
|
|
|
21
|
%
|
UNG
|
|
|
2,220,710
|
|
|
|
16
|
%
|
|
|
2,457,919
|
|
|
|
13
|
%
|
All Others
|
|
|
1,500,214
|
|
|
|
10
|
%
|
|
|
1,664,209
|
|
|
|
9
|
%
|
Total
|
|
$
|
14,348,806
|
|
|
|
100
|
%
|
|
$
|
18,477,486
|
|
|
|
100
|
%
|
|
|
March 31, 2018
|
|
|
June 30, 2017
|
|
|
|
Accounts Receivable
|
|
|
Accounts Receivable
|
|
Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USO
|
|
$
|
714,883
|
|
|
|
50
|
%
|
|
$
|
1,060,421
|
|
|
|
60
|
%
|
USCI
|
|
|
371,206
|
|
|
|
26
|
%
|
|
|
317,032
|
|
|
|
18
|
%
|
UNG
|
|
|
191,580
|
|
|
|
13
|
%
|
|
|
217,760
|
|
|
|
12
|
%
|
All Others
|
|
|
164,948
|
|
|
|
11
|
%
|
|
|
167,058
|
|
|
|
10
|
%
|
Total
|
|
$
|
1,442,617
|
|
|
|
100
|
%
|
|
$
|
1,762,271
|
|
|
|
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
nine
months ended
March 31, 2018
and
2017
impairment to inventory value was recorded as
$0
and
$2,090,
respectively. An assessment is made at the end of each fiscal year to determine what inventory items have remained in stock from the close of the previous fiscal year. If such items exist, either a reserve is established to reduce inventory value by the value of these items, or these items are removed from the inventory valuation and recorded as an expense. For the nine months ended
March 31, 2018
and
March 31, 2017,
the expense for slow moving or obsolete inventory was
$0
and
$36,239,
respectively. As of
March 31, 2018
and
June 30, 2017
there was
no
reserve established for slow moving inventory valuation.
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 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
nine
months ended
March 31, 2018
or for the year ended
June 30, 2017.
Goodwill
Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in a purchase businesses combination. Goodwill is tested for impairment on an annual basis during the
fourth
quarter of our fiscal year, or more frequently if events or changes in circumstances indicate that the carrying amount of goodwill
may
be impaired. The goodwill impairment test is a
two
-step test. Under the
first
step, the fair value of the reporting unit is compared with its carrying value including goodwill. If the fair value of the reporting unit exceeds its carrying value, step
two
does
not
need to be performed. If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit and the enterprise must perform step
two
of the impairment test. Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill. There was
no
impairment recorded for the three or
nine
months ended
March 31, 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
nine
months ended
March 31, 2018
or for the year ended
June 30, 2017.
Investments and Fair Value of Financial Instruments
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) on the condensed consolidated statements of comprehensive 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. There were
no
transfers between levels during the
nine
months ended
March 31, 2018
and
2017.
Revenue Recognition
Revenue consists of fees earned through management of investment funds, sale of gourmet meat pies and related bakery confections in New Zealand, security alarm system installation and monitoring service in Canada, and wholesale distribution of hair and skin care products. Revenue is accounted for net of sales taxes, sales returns, trade discounts. Revenue is recognized when persuasive evidence of an arrangement exists, the price is fixed or determinable, the delivery has occurred,
no
other significant obligations of the Company exist, and collectability is probable. Product is considered delivered to the customer once it has been shipped and title, risk of loss and rewards of ownership have been transferred. For most of the Company’s product sales or services, these criteria are met at the time the product is shipped, the subscription period commences, or the management fees are accrued.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. A valuation allowance is provided for deferred tax assets if it is more likely than
not
that these items will either expire before the Company is able to realize their benefits or if future deductibility is uncertain.
When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than
not
that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are
not
offset or aggregated with other positions. Tax positions that meet the more-likely-than-
not
recognition threshold are measured as the largest amount of tax benefit that is more than
50
percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Applicable interest and penalties associated with unrecognized tax benefits are classified as additional income taxes in the statements of operations.
Marketing and Advertising Costs
The Company expenses the cost of marketing and advertising as incurred. Marketing and advertising costs for the
three
and
nine
months ended
March 31, 2018
were approximately
$1.0
million and
$2.7
million, respectively, as compared to approximately
$0.9
million and
$2.7
million for the
three
and
nine
month periods ended
March 31, 2017.
Other Comprehensive Income (Loss)
Foreign Currency Translation
We record foreign currency translation adjustments and transaction gains and losses in accordance with ASC
830
-
30,
Foreign Currency Translation
. The accounts of Gourmet Foods use the New Zealand dollar as the functional currency. The accounts of Brigadier Security System use the Canadian dollar as the functional currency. Assets and liabilities are translated at the exchange rate on the balance sheet date, and operating results are translated at the weighted average exchange rate throughout the period. Foreign currency transaction gains and (losses) can also occur if a transaction is settled in a currency other than the entity's functional currency. Accumulated currency translation gains and (losses) are classified as an item of accumulated other comprehensive income (loss) in the stockholders’ equity section of the consolidated balance sheet. Other comprehensive income, foreign currency translation (loss) gain was approximately ($
31
) thousand and
$15
thousand for the
three
months ended
March 31, 2018
and
2017,
respectively, and approximately (
$91
)
thousand and (
$106
) thousand for the
nine
months ended
March 31, 2018
and
2017,
respectively.
Investment Valuation
Other comprehensive income attributed to changes in the valuation of short-term investments held for sale by Wainwright was approximately
$269
thousand and
$39
thousand for the
three
months ended
March 31, 2018
and
2017,
respectively, and approximately $224 thousand and
$32
thousand for the
nine
months ended
March 31, 2018
and
2017.
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
17
of the 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 each of the
three
and
nine
months ended
March 31, 2018
and
2017,
a determination was made that
no
adjustments were necessary, except for the amount provisionally recorded to goodwill as related to the purchase of assets by Original Sprout. After the results of an independent valuation of the identifiable intangible assets were known, the Company's subsidiary Original Sprout restated its purchase price allocation in accordance with the table found in Note
13
to these financial statements.
Recent Accounting Pronouncements
The Company has reviewed new accounting pronouncements issued between
October 13, 2017,
the filing date of our most recent prior Annual Report on Form
10
-K, and the filing date of this Quarterly Report on Form
10
-Q and has determined that
no
pronouncements 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.
NOTE
3.
|
BASIC AND DILUTED NET INCOME PER SHARE
|
Basic net income per share is based upon the weighted average number of common shares outstanding. Diluted net income per share is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.
Diluted net income per share reflects the effects of shares potentially issuable upon conversion of convertible preferred stock.
The components of basic and diluted earnings per share were as follows:
|
|
For the Three Months Ended
March 31, 2018
|
|
|
|
Net Income
|
|
|
Shares
|
|
|
Per Share
|
|
Basic income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
779
|
|
|
|
29,559,139
|
|
|
$
|
0.00
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock Series B
|
|
|
-
|
|
|
|
8,739,020
|
|
|
|
-
|
|
Diluted income per share
|
|
$
|
779
|
|
|
|
38,298,159
|
|
|
$
|
0.00
|
|
|
|
For the Three Months Ended
March 31, 2017
|
|
|
|
Net Income
|
|
|
Shares
|
|
|
Per Share
|
|
Basic income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,044,521
|
|
|
|
29,559,139
|
|
|
$
|
0.04
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock Series B
|
|
|
-
|
|
|
|
8,739,020
|
|
|
|
-
|
|
Diluted income per share
|
|
$
|
1,044,521
|
|
|
|
38,298,159
|
|
|
$
|
0.03
|
|
|
|
For the
Nine
Months Ended
March 31, 2018
|
|
|
|
Net Income
|
|
|
Shares
|
|
|
Per Share
|
|
Basic income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
850,380
|
|
|
|
29,559,139
|
|
|
$
|
0.03
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock Series B
|
|
|
-
|
|
|
|
8,739,020
|
|
|
|
-
|
|
Diluted income per share
|
|
$
|
850,380
|
|
|
|
38,298,159
|
|
|
$
|
0.02
|
|
|
|
For the
Nine
Months Ended
March 31, 2017
|
|
|
|
Net Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,367,432
|
|
|
|
29,559,139
|
|
|
$
|
0.11
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock Series B
|
|
|
-
|
|
|
|
8,739,020
|
|
|
|
-
|
|
Diluted income per share
|
|
$
|
3,367,432
|
|
|
|
38,298,159
|
|
|
$
|
0.09
|
|
Inventories consisted of the following as of:
|
|
March
31,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Raw materials
|
|
$
|
49,234
|
|
|
$
|
43,088
|
|
Supplies and packing materials
|
|
|
320,666
|
|
|
|
125,241
|
|
Finished goods
|
|
|
574,486
|
|
|
|
275,945
|
|
Total
|
|
$
|
944,386
|
|
|
$
|
444,274
|
|
NOTE
5.
|
PROPERTY AND EQUIPMENT, NET
|
Property, plant and equipment consisted of the following as of:
|
|
March
31,
2018
|
|
|
June 30,
2017
|
|
Plant and equipment
|
|
$
|
1,551,476
|
|
|
$
|
1,460,180
|
|
Furniture and office equipment
|
|
|
177,831
|
|
|
|
162,781
|
|
Vehicles
|
|
|
367,112
|
|
|
|
185,866
|
|
Total property, plant and equipment, gross
|
|
|
2,096,419
|
|
|
|
1,808,827
|
|
Accumulated depreciation
|
|
|
(904,008
|
)
|
|
|
(649,362
|
)
|
Total property, plant and equipment, net
|
|
$
|
1,192,411
|
|
|
$
|
1,159,465
|
|
For the
three
and
nine
month periods ended
March 31, 2018
depreciation expense for property, plant and equipment totaled
$90,306
and
$259,460,
respectively, as compared to
$83,215
and
$223,188
for the
three
and
nine
month periods ended
March 31, 2017,
respectively.
NOTE
6.
|
INTANGIBLE ASSETS
|
Intangible assets consisted of the following as of:
|
|
March
31,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Brand name
|
|
$
|
1,142,123
|
|
|
$
|
402,123
|
|
Domain name
|
|
|
36,913
|
|
|
|
36,913
|
|
Customer relationships
|
|
|
700,252
|
|
|
|
500,252
|
|
Non-compete agreement
|
|
|
274,982
|
|
|
|
84,982
|
|
Recipes and formulas
|
|
|
1,221,601
|
|
|
|
21,601
|
|
Total
|
|
|
3,375,871
|
|
|
|
1,045,871
|
|
Less : accumulated amortization
|
|
|
(317,875
|
)
|
|
|
(146,595
|
)
|
Net intangibles
|
|
$
|
3,057,996
|
|
|
$
|
899,276
|
|
CUSTOMER RELATIONSHIPS
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.
|
|
March
31,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Customer relationships
|
|
$
|
700,252
|
|
|
|
500,252
|
|
Less: accumulated amortization
|
|
|
(105,300
|
)
|
|
|
(59,684
|
)
|
Total customer relationships, net
|
|
$
|
594,952
|
|
|
|
440,568
|
|
BRAND NAME
On
August 11, 2015,
the Company acquired Gourmet Foods. The fair value on the acquired brand name was estimated to be
$61,429
and is amortized over the remaining useful life of
10
years. On
June 2, 2016,
the Company acquired Brigadier Security Systems. The fair value on the acquired brand name was estimated to be
$340,694
and is amortized over the remaining useful life of
10
years. On
December 18, 2017
the Company’s wholly-owned subsidiary, Kahnalytics, Inc., acquired the assets of Original Sprout LLC. The fair value of the acquired brand name was determined to be
$740,000
and is amortized over the remaining useful life of
10
years.
|
|
March
31,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Brand name
|
|
$
|
1,142,123
|
|
|
$
|
402,123
|
|
Less: accumulated amortization
|
|
|
(99,729
|
)
|
|
|
(48,660
|
)
|
Total brand name, net
|
|
$
|
1,042,394
|
|
|
$
|
353,463
|
|
DOMAIN NAME
On
August 11, 2015,
the Company acquired Gourmet Foods. 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.
|
|
March
31,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Domain name
|
|
$
|
36,913
|
|
|
$
|
36,913
|
|
Less: accumulated amortization
|
|
|
(17,118
|
)
|
|
|
(11,576
|
)
|
Total brand name, net
|
|
$
|
19,795
|
|
|
$
|
25,337
|
|
RECIPES AND FORMULAS
On
August 11, 2015,
the Company acquired Gourmet Foods. The fair value on the recipes was estimated to be
$21,601
and is amortized over the remaining useful life of
5
years. On
December 18, 2017
the Company’s wholly-owned subsidiary, Kahnalytics, Inc., acquired the assets of Original Sprout LLC. The fair value of the acquired recipes and formulas was determined to be
$1,200,000
and is amortized over the remaining useful life of
8
years.
|
|
March
31,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Recipes and formulas
|
|
$
|
1,221,601
|
|
|
$
|
21,601
|
|
Less: accumulated amortization
|
|
|
(53,829
|
)
|
|
|
(8,257
|
)
|
Total recipes and formulas, net
|
|
$
|
1,167,772
|
|
|
$
|
13,344
|
|
NON-COMPETE AGREEMENT
On
June 2, 2016,
the Company acquired Brigadier Security Systems. The fair value on the acquired non-compete agreement was estimated to be
$84,982
and is amortized over the remaining useful life of
5
years. On
December 18, 2017
the Company’s wholly-owned subsidiary, Kahnalytics, Inc., acquired the assets of Original Sprout LLC. The fair value of the acquired non-compete agreement was determined to be
$190,000
and is amortized over the remaining useful life of
5
years.
|
|
March
31,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Non-compete agreement
|
|
$
|
274,982
|
|
|
$
|
84,982
|
|
Less: accumulated amortization
|
|
|
(41,900
|
)
|
|
|
(18,418
|
)
|
Total non-compete agreement, net
|
|
$
|
233,082
|
|
|
$
|
66,564
|
|
AMORTIZATION EXPENSE
The total intangible amortization expense for the
three
and
nine
months ended
March 31, 2018
was
$111,324
and
$171,280,
respectively, as compared to
$29,327
and
$89,284,
respectively, for the
three
and
nine
months ended
March 31, 2017.
Estimated amortization expenses of intangible assets for the next
five
fiscal years, are as follows:
Years Ending June 30,
|
|
Expense
|
|
2018
|
|
$
|
102,097
|
|
2019
|
|
|
409,508
|
|
2020
|
|
|
409,508
|
|
2021
|
|
|
399,219
|
|
2022
|
|
|
380,809
|
|
Thereafter
|
|
|
1,356,855
|
|
Total
|
|
$
|
3,057,996
|
|
NOTE
7.
|
INVESTMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
|
Wainwright, from time to time, provides initial investments in the creation of ETP funds that Wainwright manages. Wainwright classifies these investments as current assets as these investments are generally sold within
one
year from the balance sheet date. Investments in which
no
controlling financial interest or significant influence exists are recorded at fair value with unrealized holding gains and losses included in accumulated other comprehensive income (loss) as a component of stockholders’ equity, except for unrealized losses determined to be other-than-temporary, which are included in the consolidated statements of operations and comprehensive income (loss). Investments in which
no
controlling financial interest exists, but significant influence exists are recorded as per the equity method of investment accounting. As of
March 31, 2018
and
June 30, 2017,
there were
no
investments requiring the equity method investment accounting.
Investments measured at estimated fair value consist of the following as of
March 31, 2018
and
June 30, 2017:
|
|
March 31, 2018
|
|
|
|
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated Fair
Value
|
|
Money market funds
|
|
$
|
180,045
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
180,045
|
|
USCF mutual fund investment
|
|
|
2,500,000
|
|
|
|
216,640
|
|
|
|
-
|
|
|
|
2,716,640
|
|
Hedged asset
|
|
|
437,100
|
|
|
|
-
|
|
|
|
(221,743
|
)
|
|
|
215,357
|
|
Other equities
|
|
|
1,577
|
|
|
|
-
|
|
|
|
(513
|
)
|
|
|
1,064
|
|
Total investments
|
|
$
|
3,118,722
|
|
|
$
|
216,640
|
|
|
$
|
(222,256
|
)
|
|
|
3,113,106
|
|
|
|
June 30, 2017
|
|
|
|
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated Fair
Value
|
|
Money market funds
|
|
$
|
86,204
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
86,204
|
|
USCF mutual fund investment
|
|
|
2,500,000
|
|
|
|
-
|
|
|
|
(49,080
|
)
|
|
|
2,450,920
|
|
MENU ETF investment
|
|
|
768,427
|
|
|
|
41,473
|
|
|
|
-
|
|
|
|
809,900
|
|
Hedged asset
|
|
|
187,000
|
|
|
|
43,746
|
|
|
|
-
|
|
|
|
230,746
|
|
Other equities
|
|
|
1,577
|
|
|
|
-
|
|
|
|
(598
|
)
|
|
|
979
|
|
Total investments
|
|
$
|
3,543,208
|
|
|
$
|
85,219
|
|
|
$
|
(49,678
|
)
|
|
$
|
3,578,749
|
|
The following tables summarize the valuation of the Company’s securities at
March 31, 2018
and
June 30, 2017
using the fair value hierarchy:
|
|
March 31, 2018
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Money market funds
|
|
$
|
180,045
|
|
|
$
|
180,045
|
|
|
$
|
-
|
|
|
$
|
-
|
|
USCF mutual fund investment
|
|
|
2,716,640
|
|
|
|
2,716,640
|
|
|
|
-
|
|
|
|
-
|
|
Hedge asset
|
|
|
215,357
|
|
|
|
-
|
|
|
|
215,357
|
|
|
|
-
|
|
Other equities
|
|
|
1,064
|
|
|
|
1,064
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
3,113,106
|
|
|
$
|
2,897,749
|
|
|
$
|
215,357
|
|
|
$
|
-
|
|
|
|
June 30, 2017
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Money market funds
|
|
$
|
86,204
|
|
|
$
|
86,204
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Mutual fund investment
|
|
|
2,450,920
|
|
|
|
2,450,920
|
|
|
|
-
|
|
|
|
-
|
|
ETF investment
|
|
|
809,900
|
|
|
|
809,900
|
|
|
|
-
|
|
|
|
-
|
|
Hedge asset
|
|
|
230,746
|
|
|
|
-
|
|
|
|
230,746
|
|
|
|
-
|
|
Other equities
|
|
|
979
|
|
|
|
979
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
3,578,749
|
|
|
$
|
3,348,003
|
|
|
$
|
230,746
|
|
|
$
|
-
|
|
During the
three
and
nine
months ended
March 31, 2018
and
2017,
there were
no
transfers between Level
1
and Level
2.
Other Current Assets
Other current assets totaling
$543,128
as of
March 31, 2018
and
$369,599
as of
June 30, 2017
are comprised of various components as listed below.
|
|
March
31,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and deposits
|
|
$
|
438,128
|
|
|
$
|
212,301
|
|
Notes receivable
|
|
|
-
|
|
|
|
150,000
|
|
Other current assets
|
|
|
105,000
|
|
|
|
7,298
|
|
Total
|
|
$
|
543,128
|
|
|
$
|
369,599
|
|
Restricted Cash
At
March 31, 2018
Gourmet Foods had on deposit
NZ$20,000
(approximately
US$14,486
) securing a lease bond for
one
of its properties. The same amount was posted at
June 30, 2017
and translated to approximately
US$14,870.
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
$518,710
and
$509,538
at
March 31, 2018
and
June 30, 2017,
respectively, were attributed to Wainwright and Original Sprout and consisted of
|
(i)
|
$500,000
as of
March 31, 2018
and
June 30, 2017
representing
10%
equity investment in a registered investment adviser accounted for on a cost basis,
|
|
(ii)
|
and
$18,710
as of
March 31, 2018
and
$9,538
at
June 30, 2017
representing deposits and prepayments of rent.
|
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 March 31, 2018 were $915,790 as compared to $498,973 at June 30, 2017. The change is attributed to the purchase of assets by Original Sprout as further detailed in Note 13 to the Financial Statements.
NOTE
10.
|
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
|
Accounts payable and accrued expenses consisted of the following:
|
|
March
31,
2018
|
|
|
June 30,
2017
|
|
Accounts payable
|
|
$
|
1,244,032
|
|
|
$
|
1,781,772
|
|
Accrued interest
|
|
|
50,636
|
|
|
|
32,410
|
|
Taxes payable
|
|
|
2,413
|
|
|
|
123
|
|
Deferred rent
|
|
|
6,441
|
|
|
|
13,402
|
|
Accrued payroll and vacation pay
|
|
|
143,309
|
|
|
|
349,507
|
|
Other accrued expenses
|
|
|
1,239,733
|
|
|
|
665,641
|
|
Total
|
|
$
|
2,686,564
|
|
|
$
|
2,842,855
|
|
NOTE
11.
|
RELATED PARTY TRANSACTIONS
|
Notes Payable - Related Parties
Current related party notes payable consist of the following:
|
|
March
31,
2018
|
|
|
June 30,
2017
|
|
|
|
|
|
|
|
|
|
|
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
three
and
nine
months ended
March 31, 2018
were
$5,987
and
$18,227,
respectively, and for the
three
and
nine
months ended
March 31, 2017
the interest expense (as adjusted) for all related party notes were
$5,987
and
$18,227,
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
$4.3
million and
$14.3
million for the
three
and
nine
months ended
March 31, 2018,
respectively, were earned from these related parties as compared to
$5.6
million and
$18.5
million for the
three
and
nine
month periods ended
March 31, 2017.
Accounts receivable, totaling
$1.4
million and
$1.8
million as of
March 31, 2018
and
June 30, 2017,
respectively, were owed from these related parties. Fund expense waivers, totaling
$0.2
million and
$0.6
million for the
three
and
nine
months ended
March 31, 2018,
respectively, were incurred on behalf of these related parties as compared to
$0.3
million and
$0.8
million for the
three
and
nine
month periods ended
March 31, 2017.
Waivers payable, totaling
$1.1
million and
$0.6
million as of
March 31, 2018
and
June 30, 2017,
respectively, were owed to these related parties. Fund expense waivers and fund expense limitation obligations are defined under Note
16
to the Financial Statements.
As of
March 31, 2018,
Brigadier had, in the aggregate, an outstanding principal balance of
CD$272,745
(approx.
US$211,514
) 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
March 31, 2018
and
June 30, 2017
reflect the amount of the principal balance which is due within
twelve
months as a current liability of
US$47,067
and
US$17,388,
respectively. Principal amounts under the loans which is due after
twelve
months are recorded in long term liabilities as
US$164,447
and
US$72,605
at
March 31, 2018
and
June 30, 2017
respectively. Interest on the loans is expensed or accrued as it becomes due. Total interest on all vehicle loans for the
three
and
nine
months ended
March 31, 2018
and was US$
2,630
and $
7,596
, respectively, as compared to
$0
and
$0
for the
three
and
nine
month periods ended
March 31, 2017.
NOTE
13.
|
BUSINESS COMBINATIONS
|
Acquisition of the assets of The Original Sprout, LLC
Kahnalytics, Inc., a wholly owned subsidiary of Concierge Technologies domiciled in California, was founded during
May 2015
for the purpose of carrying on the residual business from the disposal of Concierge Technologies' former subsidiary, Wireless Village dba/Janus Cam. As that business segment slowly wound down over the ensuing
two
years, management began a search for another business opportunity for Kahnalytics. Accordingly, on
December 18, 2017,
Kahnalytics acquired all of the assets of The Original Sprout, LLC, a California limited liability company. Simultaneous with the acquisition, Kahnalytics registered a "doing business as" (or "dba") name of “Original Sprout” and transitioned its business to the manufacture, warehousing and wholesale distribution of non-toxic, all-natural, hair and skin care products under the brand name Original Sprout. The acquisition by Kahnalytics was financed through a non-interest bearing note from Concierge Technologies. The purchase price was approximately
$3.5
million with payments to be made over the course of a
twelve
-month period and per the estimated allocation as depicted in the following table.
Item
|
|
Amount
|
|
Inventory
|
|
$
|
371,866
|
|
Accounts receivable
|
|
|
288,804
|
|
Furniture, fixtures and equipment
|
|
|
1,734
|
|
Pre-payments of inventory
|
|
|
8,775
|
|
Discount on installment payments**
|
|
|
64,176
|
|
Intangible assets*
|
|
|
2,330,000
|
|
Goodwill
|
|
|
416,817
|
|
Total Purchase Price
|
|
$
|
3,482,172
|
|
*See Note
6
for further detail of intangible assets acquired
**This amount represents a discount on installment payments and is charged to interest expense as incurred.
On the closing date of the transaction,
December 18, 2017,
Kahnalytics paid
$982,172
in cash towards the purchase price and deposited an additional
$1,250,000
in an attorney-held client trust account to be released to the sellers, subject to any downward purchase price adjustment, on
May 18, 2018.
The balance of the purchase price,
$1,250,000,
subject to downward adjustment for prior payments which, as of
March 31, 2018,
resulted in a balance of
$1,227,500,
is due by
January 5, 2019
and is secured by a promissory note from Kahnalytics and a corporate guarantee from Concierge Technologies.
Supplemental Pro Forma Information
The following unaudited supplemental pro forma information for the three and nine month periods ending March 31, 2018 and 2017, assumes the acquisition of the Original Sprout LLC assets had occurred as of July 1, 2016, giving effect on a pro forma basis to purchase accounting adjustments such as depreciation of property and equipment, amortization of intangible assets, and acquisition related costs. The pro forma data is for informational purposes only and may not necessarily reflect the actual results of operations had the assets of Original Sprout LLC been operated as part of the company since July 1, 2016. Furthermore, the pro forma results do not intend to predict the future results of operations of the Company.
The following table presents consolidated unaudited results of operations for the three and nine month periods ended March 31, 2018 and 2017 assuming the acquisition of the Original Sprout LLC assets had occured as of July 1, 2016.
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
Nine Months Ended
|
|
|
|
March 31, 2018
|
|
|
March 31, 2017
|
|
|
March 31, 2018
|
|
|
March 31, 2017
|
|
|
|
Pro Forma
(
1)
|
|
|
Pro Forma
(
1)
|
|
|
Pro Forma
(
1)
|
|
|
Pro Forma
(
1)
|
Net Revenues
|
|
$
|
6,789,936
|
|
$
|
8,301,608
|
|
$
|
23,467,041
|
|
$
|
27,119,965
|
Net Income
|
|
$
|
277,471
|
|
$
|
1,060,745
|
|
$
|
1,436,402
|
|
$
|
3,445,010
|
Basic Earnings per Share
|
|
$
|
0.01
|
|
$
|
0.04
|
|
$
|
0.05
|
|
$
|
0.12
|
Diluted Earnings per Share
|
|
$
|
0.01
|
|
$
|
0.03
|
|
$
|
0.04
|
|
$
|
0.09
|
(
1)
Includes the operation of the assets acquired from Original Sprout on a consolidated basis and the estimated transaction costs, amortization of intangible assets, and estimated income tax.
Wainwright Holdings, Inc.
On
December 9, 2016,
the Company closed a Stock Purchase Agreement (the “Purchase Agreement”), by and among the Company and Wainwright and each of the shareholders of Wainwright common stock (the “Wainwright Sellers”), pursuant to which the Wainwright Sellers agreed to sell, and the Company agreed to purchase
1,741
shares of Wainwright common stock, par value
$0.01
per share, (the “Wainwright Common Stock”), which represents all of the issued and outstanding Wainwright Common Stock, in exchange for: (i)
27,293,330
shares (as adjusted approximately for the
1
for
30
reverse stock split effective on
December 15, 2017)
of Company Common Stock, and (ii)
311,804
(as adjusted approximately for the
1
for
30
reverse stock split effective on
December 15, 2017)
shares of Company Preferred Stock (which preferred shares are convertible into approximately
6,236,079
shares of Company Common Stock). Wainwright and the Company have a commonality of ownership and control as represented by the shareholdings, either directly or beneficially, of Nicholas Gerber and Scott Schoenberger as a group pursuant to the aforementioned Purchase Agreement and a voting agreement which gives them control of over
50%
of Wainwright and over
50%
of Concierge both before and after the business combination. Accordingly, the acquisition has been recorded as a transaction between entities under common control in the accompanying financial statements. Further, the accompanying financial statements have been adjusted to include the carrying value of assets, liabilities, equity and operations of Wainwright as if the transaction had concluded on
July 1, 2015.
The Wainwright assets, liabilities and shareholders' equity were recorded at their historical values with
no
step-up or adjustment to fair market value.
NOTE
14.
|
STOCKHOLDERS' EQUITY
|
Reverse Stock Split
On
November 17, 2017,
the Board of Directors (the “Board’) of the Company approved the implementation of a
one
-for-
thirty
(
1:30
) reverse stock split of all of the Company’s issued and outstanding common and preferred stock (the “Reverse Stock Split”). The Reverse Stock Split became effective when trading opened on
December 15, 2017.
The Reverse Stock Split was previously approved by the Company’s shareholders pursuant to a majority written consent and by the Board pursuant to unanimous written consent on
February 13, 2017.
The approvals provided discretion to the Board to implement the Reverse Stock Split by the end of
2017.
The number of the Company’s authorized shares of common stock did
not
change. All figures have been presented on the basis of reverse split where ever applicable for all the periods presented in these financial statements.
Convertible Preferred Stock
Series B Voting, Convertible Preferred Stock is convertible into
20
shares of common stock and carries a vote of
20
shares of common stock in all matters brought before the shareholders for a vote. The Series B stock is eligible for conversion only after the elapse of
270
days from the date of issuance has transpired, and provided there are sufficient authorized, unissued, shares of common stock available to convert all shares of Series B Voting, Convertible Preferred Stock.
Prior to the Reverse Stock Split, the Company did
not
have sufficient authorized, unissued, shares of common stock available to convert all shares of Series B Voting, Convertible Preferred Stock. Accordingly, the Series B Voting, Convertible Preferred Stock was reclassified to the mezzanine section as a contingent liability on the Company’s prior Consolidated Balance Sheets with other equity accounts being adjusted to reflect the historical cost basis of Wainwright. As a result of the Reverse Stock Split, sufficient shares were made available to allow for conversion of the Series B Voting, Convertible, Preferred Stock such that the shares have been reclassified to the equity section of the Consolidated Balance Sheet as of
March 31, 2018.
The Company accounts for income taxes under the asset and liability method, which recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the tax bases of assets and liabilities and their financial statement reported amounts, and for net operating losses and tax credit carryforwards. Deferred income 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 Company records a valuation allowance against deferred tax assets when it is more likely than
not
that such asset will
not
be realized. The Company continues to monitor the likelihood that it will be able to recover its deferred tax assets. If recovery is
not
likely, the Company must increase its provision for income taxes by recording a valuation allowance against the deferred tax assets.
The Company accounts for uncertain tax positions in accordance with the authoritative guidance on income taxes under which the Company
may
only recognize or continue to recognize tax positions that meet a "more likely than
not"
threshold. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes.
As of
March 31, 2018,
the Company's total unrecognized tax benefits were approximately
$0.2
million, which would affect the effective tax rate if recognized. The Company will recognize interest and penalties, when they occur, related to uncertain tax provisions as a component of tax expense. There is
no
interest or penalties to be recognized for the
nine
month periods ended
March 31, 2018
or
2017.
The Company is required to make its best estimate of the annual effective tax rate for the full fiscal year and use that rate to provide for income taxes on a current year-to-date basis. The Company recorded a tax provision of
$1.1
million and
$1.7
million from its operations for the
nine
months ended
March 31, 2018
and
March 31, 2017,
respectively. Substantially all of the Company's tax expense is borne in the U.S. The effective tax rate for the
nine
months ended
March 31, 2018
and
2017
differed from the statutory rate primarily due to the net charge related to the Tax Cuts and Jobs Act ("TCJA") and the mix of non-deductible items.
On
December 22, 2017,
the TCJA was enacted into law, which significantly changes existing U.S. tax law and includes numerous provisions that affect the Company, such as imposing a
one
-time transition tax on deemed repatriation of deferred foreign income, reducing the U.S. federal statutory tax rate, and adopting a territorial tax system. The TCJA requires a
one
-time transition tax on deferred foreign income
not
previously subject to U.S. income tax at a rate of
15.5%
for foreign cash and certain other net current assets, and
8%
on the remaining income. The TCJA also reduces the U.S. federal statutory tax rate from
35%
to
21%
effective
January 1, 2018.
For fiscal year
2018,
the blended U.S. federal statutory tax rate is
28%.
This is the result of using the tax rate of
35%
for the
first
and
second
quarter of fiscal year
2018
and the reduced tax rate of
21%
for the
third
and
fourth
quarter of fiscal year
2018.
The TCJA includes a provision to tax global intangible low-taxed income (“GILTI”) of foreign subsidiaries and a base erosion anti-abuse tax (“BEAT”) measure that taxes certain payments between a U.S. corporation and its subsidiaries. The GILTI and BEAT provisions of the TCJA will be effective beginning
July 1, 2018.
The TCJA is effective in the
second
quarter of fiscal year
2018.
During the
second
quarter of fiscal year
2018,
the Company recorded a charge of
$0.05
million related to the TCJA, due to the impact of the
one
-time transition tax on the deemed repatriation of deferred foreign income of
$1.0
million.
To calculate the transition tax, the Company estimated the deferred foreign income for fiscal year
2017
and the
first
and
second
quarter of fiscal year
2018
because these tax returns are
not
complete or due. The fiscal year
2017
and fiscal year
2018
taxable income will be known once the respective tax returns are complete and filed.
In addition, the Company recorded a
$0.5
million expense during the
second quarter ended December 31, 2017
from the impact of changes in the tax rate, primarily on deferred tax assets and liabilities, which was included in provision for income taxes on the consolidated income statements and deferred income taxes on the consolidated balance sheet. The remeasurement of the deferred taxes reflects the reduced rate that will apply when these deferred taxes are settled or realized in future periods.
The Company is subject to income taxes in the U.S. federal, various states, Canada and New Zealand tax jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. The Company’s tax years
2014
through
2017
will remain open for examination by the federal and state authorities which is
three
and
four
years, respectively. The Company’s tax years from acquisition through
2017
remain open for examination by Canada and New Zealand authorities which is
four
years. As of
March 31, 2018,
there were
no
active taxing authority examinations.
NOTE
16.
|
COMMITMENTS AND CONTINGENCIES
|
Lease Commitments
The Company leases various facilities and offices throughout the world including the following subsidiary locations:
Gourmet Foods has operating leases for its office, factory and warehouse facilities located in Tauranga, New Zealand, as well as for certain equipment including vehicles. These leases are generally for
three
-year terms, with options to renew for additional
three
-year periods. The leases mature between
August 2018
and
August 2021,
and require monthly rental payments of approximately
US$11,712
translated to U.S. currency as of
March 31, 2018.
Brigadier leases office and storage facilities in Saskatoon and Regina, Saskatchewan. As of
March 31, 2018,
only the Saskatoon facility has an extended lease where the minimum lease obligations require monthly payments of approximately
US$4,377
translated to U.S. currency as of
March 31, 2018.
Original Sprout currently leases office and warehouse space in San Clemente, CA with a lease agreement until
March 1, 2021.
The total amount of rent expense for the
three
and
nine
month periods ended
March 31, 2018
was
$26,438
and
$28,769
respectively. The lease will require monthly payments of approximately
$7,805
with increases annually thereafter.
Wainwright leases office space in Oakland, California under an operating lease, which expires in
October 2018.
Rent expense was
$36,549
and
$108,890
for the
three
and
nine
months ended
March 31, 2018,
respectively.
Future minimum consolidated lease payments for Concierge and its subsidiaries are as follows:
Year Ended June 30,
|
|
Lease Amount
|
|
2018
|
|
$
|
103,576
|
|
2019
|
|
|
187,493
|
|
2020
|
|
|
114,289
|
|
2021
|
|
|
76,951
|
|
2022
|
|
|
1,789
|
|
Total minimum lease commitment
|
|
$
|
484,098
|
|
Additionally, Gourmet Foods entered into a General Security Agreement in favor of the Gerald O’Leary Family Trust and registered on the Personal Property Securities Register for a priority sum of
NZ$110,000
(approximately
US$79,675
) to secure the lease of its primary facility. In addition, a
NZ$20,000
(approximately
US$14,486
) bond has been posted through ANZ Bank and secured with a cash deposit of equal amount to secure a separate facilities lease. The General Security Agreement and the cash deposit will remain until such time as the respective leases are satisfactorily terminated in accordance with their terms. Interest from the cash deposit securing the lease accumulates to the benefit of Gourmet Foods and is listed as a component of interest income/expense on the accompanying Consolidated Statements of Operations.
Other Agreements and Commitments
USCF Advisers has entered into expense limitation agreements with
one
of the funds it manages under which USCF Advisers has agreed to waive, reimburse fees or pay fund expenses in order to limit the fund’s total annual operating expenses to certain threshold amounts. The USCF Commodity Strategy Fund expense limitation agreement remains in effect until
July 31, 2018
and limits fund expenses to
1.30%
and
0.95%
of the funds average daily net assets for the Class A and Class I shares classes, respectively. After such dates, USCF Advisers
may
terminate the expense limitation agreements at any time upon
not
less than
90
days’ notice to the respective fund trust boards.
USCF manages
seven
funds which have expense waiver provisions, whereby USCF will reimburse funds when fund expenditure levels exceed certain thresholds amounts. As of
March 31, 2018
and
June 30, 2017
the expense waiver payable was
$1,055,162
and
$589,093,
respectively. Expense waiver expense for the
three
and
nine
months ended
March 31, 2018
was
$189,846
and
$597,069,
respectively, as compared to
$289,233
and
$779,688
for the
three
and
nine
months ended
March 31, 2017.
However, USCF has
no
obligation to continue such payments into subsequent periods.
Litigation
From time to time, the Company is involved in legal proceedings arising mainly from the ordinary course of its business. In management’s opinion, the legal proceedings are
not
expected to have a material effect on the Company’s financial position or results of operations.
Retirement Plan
Wainwright's wholly owned subsidiary USCF, has a
401
(k) Profit Sharing Plan covering its employees who are over
21
years of age and who have completed a minimum of
1,000
hours of service and have worked for USCF for
one
or more years. Participants
may
make contributions pursuant to a salary reduction agreement. In addition, USCF makes an annual safe harbor matching contribution. Annual profit sharing contributions paid totaled approximately
$84
thousand and
$63
thousand for each of the years ended
June 30, 2017
and
2016,
respectively.
NOTE
17.
|
SEGMENT REPORTING
|
With the acquisition of Wainwright Holdings, Gourmet Foods, Ltd., Brigadier, and the launch of the Original Sprout business unit of Kahnalytics, the Company has identified
four
segments for its products and services; U.S.A. investment fund management, U.S.A. beauty products, New Zealand food industry and Canada security alarm monitoring. Our reportable segments are business units located in different global regions. The Company’s operations in the U.S.A. include the manufacture and wholesale distribution of all-natural hair and skin care products by Original Sprout and the income derived from management of various investment funds by our subsidiary Wainwright. In New Zealand operations include the production, packaging and distribution on a commercial scale of gourmet meat pies and related bakery confections through our wholly owned subsidiary Gourmet Foods, Ltd. and in Canada we provide security alarm system installation and monitoring to residential and commercial customers sold through our wholly owned subsidiary Brigadier. Separate management of each segment is required because each business unit is subject to different operational issues and strategies due to their particular regional location. The Company accounts for intra-company sales and expenses as if the sales or expenses were to
third
parties and eliminates them in the consolidation. Amounts are adjusted for currency translation as of the balance sheet date and presented in US dollars.
The following table presents a summary of identifiable assets as of March 31, 2018 and June 30, 2017:
|
|
|
March 31, 2018
|
|
|
|
June 30, 2017
|
Identifiable assets:
|
|
|
|
|
|
|
|
Corporate headquarters
|
|
$
|
2,273,894
|
|
|
$
|
3,302,979
|
U.S.A.: beauty products and other
|
|
|
3,622,879
|
|
|
|
89,459
|
U.S.A.: fund management
|
|
|
12,544,679
|
|
|
|
12,721,559
|
New Zealand: food industry
|
|
|
2,151,768
|
|
|
|
2,203,725
|
Canada: security alarm monitoring
|
|
|
1,645,368
|
|
|
|
1,278,161
|
Consolidated total
|
|
$
|
22,238,588
|
|
|
$
|
19,595,883
|
The following table presents a summary of operating information for the
three
months ended
March 31, 2018
and
2017:
|
|
Three Months
Ended
March
31, 2018
|
|
|
Three Months
Ended
March
31, 2017
|
|
Revenues from unaffiliated customers:
|
|
|
|
|
|
|
|
|
U.S.A. : beauty products and other
|
|
$
|
654,842
|
|
|
$
|
26,999
|
|
U.S.A. : investment fund management
|
|
|
4,345,234
|
|
|
|
5,637,011
|
|
New Zealand : food industry
|
|
|
1,236,137
|
|
|
|
1,127,950
|
|
Canada : security alarm monitoring
|
|
|
553,723
|
|
|
|
702,178
|
|
Consolidated total
|
|
$
|
6,789,936
|
|
|
$
|
7,494,138
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income:
|
|
|
|
|
|
|
|
|
Corporate headquarters
|
|
$
|
(184,497
|
)
|
|
$
|
(368,319
|
)
|
U.S.A. : beauty products and other
|
|
|
(104,387
|
)
|
|
|
266
|
|
U.S.A. : investment fund management
|
|
|
198,781
|
|
|
|
1,346,294
|
|
New Zealand : food industry
|
|
|
102,186
|
|
|
|
8,911
|
|
Canada : security alarm monitoring
|
|
|
(11,304
|
)
|
|
|
57,369
|
|
Consolidated total
|
|
$
|
779
|
|
|
$
|
1,044,521
|
|
The following table presents a summary of operating information for the
nine
months ended
March 31, 2018
and
2017:
|
|
Nine
Months
Ended
March
31,
2018
|
|
|
Nine Months
Ended
March
31,
2017
|
|
Revenues from unaffiliated customers:
|
|
|
|
|
|
|
|
|
U.S.A. : beauty products and other
|
|
$
|
765,833
|
|
|
$
|
116,566
|
|
U.S.A. : investment fund management
|
|
|
14,348,806
|
|
|
|
18,477,486
|
|
New Zealand : food industry
|
|
|
3,752,093
|
|
|
|
3,524,527
|
|
Canada : security alarm monitoring
|
|
|
2,527,958
|
|
|
|
2,313,713
|
|
Consolidated total
|
|
$
|
21,394,690
|
|
|
$
|
24,432,292
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income:
|
|
|
|
|
|
|
|
|
Corporate headquarters
|
|
$
|
(686,055
|
)
|
|
$
|
(706,225
|
)
|
U.S.A. : beauty products and other
|
|
|
(130,473
|
)
|
|
|
(32,601
|
)
|
U.S.A. : investment fund management
|
|
|
1,226,349
|
|
|
|
3,832,526
|
|
New Zealand : food industry
|
|
|
121,016
|
|
|
|
1,263
|
|
Canada : security alarm monitoring
|
|
|
319,543
|
|
|
|
272,469
|
|
Consolidated total
|
|
$
|
850,380
|
|
|
$
|
3,367,432
|
|
The following table represents the property, plant and equipment in use at each of the Company's locations as of
March 31, 2018
and
June 30, 2017:
|
|
|
As of March 31, 2018
|
|
|
|
As of June 30, 2017
|
|
Asset Location
|
|
|
|
|
|
|
|
|
Corporate headquarters
|
|
$
|
14,305
|
|
|
$
|
13,810
|
|
U.S.A. : beauty products and other
|
|
|
4,424
|
|
|
|
2,690
|
|
U.S.A. : investment fund management
|
|
|
-
|
|
|
|
-
|
|
New Zealand : food industry
|
|
|
1,701,282
|
|
|
|
1,583,631
|
|
Canada : security alarm monitoring
|
|
|
376,408
|
|
|
|
208,696
|
|
Total All Locations
|
|
|
2,096,419
|
|
|
|
1,808,827
|
|
Less accumulated depreciation
|
|
|
(904,008
|
)
|
|
|
(649,362
|
)
|
Net property, plant and equipment
|
|
$
|
1,192,411
|
|
|
$
|
1,159,465
|
|
NOTE
18.
|
SUBSEQUENT EVENTS
|
The Company evaluated subsequent events for recognition and disclosure through the date the financial statements were issued or filed. Other than what is noted below nothing has occurred outside normal operations since the required recognition or disclosure in these financial statements.
As it relates to Wainwright, on May 3, 2018, the ETF Trust launched a new fund, the USCF SummerHaven Dynamic Commodity Strategy No K-1 Fund ("SDCI"), with initial investor seed capital of $6.6 million.
Wainwright's USCF subsidiary entered into a new office lease for its California corporate office in April 2018. The 63 month lease commences October 1, 2018 with annual rents ranging from $143,500 to $163,500 totaling approximately $762,500 over the lease term.