For the Six-Month Periods Ended December 31,
		2018				2017
Net Income		$	348,667			$	849,601
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization			349,096				228,024
Unrealized loss on sale of investments			314,313				38,558
Unrealized loss (gain) on disposal of equipment			1,434				(1,660	)
(Increase) decrease in current assets:
Accounts receivable			142,174				(7,309	)
Accounts receivable - related party			226,377				159,844
Deferred taxes, net			-				449,458
Prepaid income taxes			(64,010	)			(355,753	)
Inventory			(306,271	)			(155,030	)
Other current assets			178,635				184,567
Increase (decrease) in current liabilities:
Accounts payable & accrued expenses			(309,587	)			(427,525	)
Expense waivers payable - related party			(273,655	)			277,224
Net cash provided by operating activities			607,173				1,239,999
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisition of business assets			(45,000	)			(2,232,172	)
Purchase of equipment-net of disposals			(8,984	)			(246,699	)
Sale of investments			180,000				1,072,019
Purchase of investments			(346,759	)			(981,361	)
Net cash used in investing activities			(220,743	)			(2,388,213	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of equipment loan			(96,525	)			(21,787	)
Proceeds from equipment loan			-				178,604
Net cash (used in) provided by financing activities			(96,525	)			156,817
Effect of exchange rate change on cash and cash equivalents			(30,515	)			(111,990	)
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH			259,390				(1,103,387	)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING BALANCE			7,524,114				6,730,486
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, ENDING BALANCE		$	7,783,504			$	5,627,099
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Purchase consideration payable (see Note 13)		$	-			$	1,250,000
Income taxes paid - U.S.		$	43,000			$	960,800

---

 

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 which manage, operate or are 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. ("Kahnalytics") 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 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 2018 Form 10 -K filed on September 28, 2018 with the U.S. Securities and Exchange Commission.

 

Principles of Consolidation

 

The accompanying condensed consolidated financial statements, which are referred to 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. The Company does not currently maintain an allowance for doubtful accounts as it believes all accounts are collectible. 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 December 31, 2018 and June 30, 2018, the Company had nil 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 December 31, 2018, and June 30, 2018, there is no allowance for doubtful accounts as all amounts are deemed collectible.

 

Major Customers & Suppliers – Concentration of Credit Risk

 

Concierge, through Brigadier, is dependent upon its contractual relationship with an alarm monitoring company who pays Brigadier for supplying and installing alarm systems and continues to remit monthly recurring revenues in exchange for customer service and support functions. Sales to the largest customer, which includes system installations and recurring monthly payments, totaled 53% and 27% of the total Brigadier revenues for the three month periods ended December 31, 2018 and 2017, respectively, and for the six month periods ended December 31, 2018 and December 31, 2017, 55% and 36% respectively. The same customer accounted for approximately 35% of Brigadier's accounts receivable as of the balance sheet date of December 31, 2018 as compared to 35 % as of June 30, 2018. No other single customer accounted for more than 9% of the total Brigadier revenues for the three and six months ended December 31, 2018, nor of the accounts receivable as of December 31, 2018 or June 30, 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 three months ended December 31, 2018 and 2017, our largest customer in the grocery industry, who operates through a number of independently branded stores, accounted for approximately 20% and 17%, respectively, of our gross sales revenues as compared to 22% and 16%, respectively, for the six months ended December 31, 2018 and 2017. The same customer accounted for 28% and 33% of our accounts receivable as of December 31, 2018 and June 30, 2018, respectively. The second largest in the grocery industry accounted for approximately 12% and 12% of our gross revenues for the three and six month periods ended December 31, 2018, respectively, as compared to 11% and 11% of gross revenues for the three and six month periods ended December 31, 2017. The same customer accounted for 14% of our accounts receivable for as of December 31, 2018 compared to 16% as of June 30, 2018. 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 six months ended December 31, 2018 accounted for approximately 44% and 43%, respectively, of our gross sales revenues as compared to 44% and 42% for the three and six months ended December 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 one buyer in the group was responsible for 11% of accounts receivable as of December 31, 2018 compared with an insignificant amount as of June 30, 2018. No other member of the group 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.

 

Concierge, through Original Sprout, has thousands of customers and, from time to time, certain of them become significant during specific reporting periods, but may not be significant during other periods. Original Sprout had two significant customers for the six month period ended December 31, 2018. The largest customer accounted for 11% and the second largest for 10% of gross revenues with accounts receivable of an insignificant amount and 19%, respectively, as of the balance sheet date of December 31, 2018 as compared to 2 0% and 10% respectively as of June 30, 2018. For the three month period ending December 31, 2018, there were two other customers, apart from those of the six-month period, whose purchases totaled 13% and 10% of the three-month gross revenues, but were insignificant for the six month period ending December 31, 2018, with accounts receivable at December 31, 2018 of zero and 18%, respectively, as compared to zero and 13% respectively at June 30, 2018. There is no comparison data for the prior year as the business operation was only begun as of December 18, 2017. Original Sprout is dependent upon its relationship with a product packaging company who, at the direction of Original Sprout, manufactures the products, packages them in appropriate containers, and delivers the finished goods to Original Sprout for distribution to its customers. All of Original Sprout’s products are currently produced by this packaging company, although if this relationship were to fail there are other similar packaging companies available to Original Sprout at competitive pricing.

 

 

For our subsidiary, Wainwright, the concentration of risk and the relative reliance on major customers are found within the various funds it manages and the associated three and six months revenues as of December 31, 2018 and December 31, 2017 along with the accounts receivable at December 31, 2018 as compared with the year ended June 30, 2018 as depicted below.

 

		Three Months Ended December 31 , 2018								Three Months Ended December 31 , 2017
		Revenue								Revenue
Fund
USO		$	1,853,481				47	%		$	2,499,615				52	%
USCI			1,095,830				28	%			979,375				20	%
UNG			572,526				14	%			874,162				18	%
All Others			417,167				11	%			492,472				10	%
Total		$	3,939,004				100	%		$	4,845,624				100	%

 

 

		Six Months Ended December 31, 2018								Six Months Ended December 31, 2017
		Revenue								Revenue
Fund
USO		$	3,838,402				47	%		$	5,443,460				54	%
USCI			2,349,689				29	%			1,957,993				20	%
UNG			1,077,388				13	%			1,572,018				16	%
All Others			896,509				11	%			1,030,101				10	%
Total		$	8,161,988				100	%		$	10,003,572				100	%

 

 

		December 3 1 , 2018								June 30, 2018
		Accounts Receivable								Accounts Receivable
Fund
USO		$	583,979				47	%		$	674,535				46	%
USCI			334,497				27	%			431,288				30	%
UNG			180,633				15	%			182,399				12	%
All Others			132,673				11	%			169,937				12	%
Total		$	1,231,782				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 inventories are written down to their net realizable value, if lower. For the six months ended December 31, 2018 and December 31, 2017 impairment to inventory value was recorded as $0 and $0, respectively. An assessment is made at the end of each reporting period to determine what inventory items have remained in stock from the close of the corresponding prior year reporting period. 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 six months ended December 31, 2018 and December 31, 2017, the expense for slow moving or obsolete inventory was $0 and $0, respectively. As of December 31, 2018, and year ended June 30, 2018 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 six months ended December 31, 2018 or December 31, 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 six months ended December 31, 2018 or 2017.

 

Impairment of Long-Lived Assets

 

The Company tests long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value. There was no impairment recorded for the six months ended December 31, 2018 or 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 operations. Prior to the adoption of Accounting Standards Update ("ASU") 2016 - 01 (see accounting pronouncements below) such changes were recorded 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 six months ended December 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 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. 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. 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 alarm revenue in the Condensed 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 alarm revenue in the Condensed Consolidated Statements of Operations, which for the three and six months ended December 31, 2018, were approximately $185 thousand and $555 thousand, respectively, or approximately 26% and 36%, of the total security alarm revenues. These revenues for the three and six months ended December 31, 2018 account for approximately 3% and 4%, respectively, 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. Other impacts due to adoption of the new standard include a reclassification of certain expenses from selling, general and administrative expense to cost of goods sold. These reclassifications applied to all expenses that are incurred due to receipt of revenues or recording of a sales invoice and included such items as sales commissions, credit card processing fees, technician wages for warranty services, out-bound shipping, and customer support functions. The overall effect was a slight increase to cost of goods sold and an equal reduction in selling, general and administrative expenses with no change in operating income. These reclassifications were applied to all subsidiary companies and had no material effect on a consolidated basis to our condensed consolidated statements of operations.

 

 

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 six months ended December 31, 2018 were $0.8 million and $1.6 million, respectively, as compared to $0.9 million and $1.7  million for the three and six month periods ended December 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 (loss), foreign currency translation loss was approximately $47  thousand and $46  thousand for the three months ended December 31, 2018 and 2017, respectively, and approximately $59 thousand and $39 thousand for the six months ended December 31, 2018 and 2017, respectively.

 

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 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 six months ended December 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

 

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 Quarterly Report on Form 10 -Q and has determined that no new 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: 

 

		Three Months Ended December 31 , 2018
		Net Income				Shares				Per Share
Basic income per share:
Net income		$	63,161				29,559,139			$	0.00
Effect of dilutive securities
Preferred stock Series B			-				8,739,020				-
Diluted income per share		$	63,161				38,298,159			$	0.00

 

		Three Months Ended December 31 , 2017
		Net Income				Shares				Per Share
Basic loss per share:
Net income		$	(22,103	)			29,559,139			$	(0.00	)
Effect of dilutive securities
Preferred stock Series B			-				-				-
Diluted income per share		$	(22,103	)			29,559,139			$	(0.00	)

 

 

		Six Months Ended December 31, 2018
		Net Income				Shares				Per Share
Basic income per share:
Net income		$	348,667				29,559,139			$	0.01
Effect of dilutive securities
Preferred stock Series B			-				8,739,020				-
Diluted income per share		$	348,667				38,298,159			$	0.01

 

		Six Months Ended December 31, 2017
		Net Income				Shares				Per Share
Basic income per share:
Net income		$	849,601				29,559,139			$	0.03
Effect of dilutive securities
Preferred stock Series B			-				8,739,020				-
Diluted income per share		$	849,601				38,298,159			$	0.02

 

 

 

 

NOTE 5.

PROPERTY AND EQUIPMENT, NET

 

Property, plant and equipment consisted of the following as of:

 

		December 31 , 2018				June 30, 2018
Plant and equipment		$	1,496,077			$	1,487,568
Furniture and office equipment			179,387				171,978
Vehicles			322,624				351,381
Total property, plant and equipment, gross			1,998,088				2,010,927
Accumulated depreciation			(1,082,782	)			(930,456	)
Total property, plant and equipment, net		$	915,306			$	1,080,471

 

For the three and six month periods ended December 31, 2018 depreciation expense for property, plant and equipment totaled $90,091 and $179,963, respectively, as compared to $85,276 and $168,067 for the three and six month periods ended December 31, 2017, respectively. 

 

 

 

NOTE 6.

INTANGIBLE ASSETS

 

Intangible assets consisted of the following as of:

 

		December 3 1 ,				June 30,
		2018				2018
Brand name		$	1,142,122			$	1,142,122
Domain name			36,913				36,913
Customer relationships			700,252				700,252
Non-compete agreement			274,982				274,982
Recipes and formulas			1,221,601				1,221,601
Total			3,375,870				3,375,870
Less: accumulated amortization			(549,772	)			(380,639	)
Net intangibles		$	2,826,098			$	2,995,231

 

 

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.

 

		December 31 ,				June 30,
		2018				2018
Customer relationships		$	700,252				700,252
Less: accumulated amortization			(164,516	)			(124,895	)
Total customer relationships, net		$	535,736				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 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 of 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 use of the brand and move towards establishment of an alternate product offering. Therefore, the Company will test for impairment of the brand name “Original Sprout” at each reporting interval with no amortization recognized. As of December 31, 2018 no impairment was recorded.

 

		December 31 ,				June 30,
		2018				2018
Brand name		$	1,142,122			$	1,142,122
Less: accumulated amortization			(109,142	)			(88,872	)
Total brand name, net		$	1,032,980			$	1,053,250

 

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.

 

		December 31 ,				June 30,
		2018				2018
Domain name		$	36,913			$	36,913
Less: accumulated amortization			(22,680	)			(18,958	)
Total brand name, net		$	14,233			$	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.

 

		December 31 ,				June 30,
		2018				2018
Recipes and formulas		$	1,221,601			$	1,221,601
Less: accumulated amortization			(170,098	)			(92,303	)
Total recipes and formulas, net		$	1,051,503			$	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.

 

		December 31 ,				June 30,
		2018				2018
Non-compete agreement		$	274,982			$	274,982
Less: accumulated amortization			(83,336	)			(55,612	)
Total non-compete agreement, net		$	191,646			$	219,370

  

AMORTIZATION EXPENSE

 

The total intangible amortization expense for the three and six months ended December 31, 2018 was $84,567 and $169,133, respectively, as compared to $29,979  and $59,957, respectively, for the three and six months ended December 31, 2017.

 

Estimated amortization expenses of intangible assets are as follows:

 

Years Ending June 30,		Expense
2019		$	166,375
2020			335,508
2021			325,678
2022			306,809
2023			286,507
Thereafter			1,405,221
Total		$	2,826,098

 

 

 

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 exists, but significant influence exists are recorded as per the equity method of investment accounting. As of December 31, 2018, and June 30, 2018, there were no investments requiring the equity method investment accounting.

 

With respect to ASU 2016 - 01, we reclassified net after-tax unrealized gains on equity securities as of June 30, 2018 from accumulated other comprehensive income to retained earnings. We continue to carry our investments in equity securities at fair value and there is no change to the asset values or total shareholders’ equity that we would have otherwise recorded. Beginning July 1, 2018 we are including unrealized gains and losses arising from the changes in the fair values of our equity securities as a component of investment gains and losses in the condensed consolidated statements of operations. ASU 2016 - 01 prohibited the restatement of prior year financial statements and for periods ending prior to 2018, unrealized gains and losses from the changes in fair value of available-for-sale equity securities were recorded in other comprehensive income.

 

Investments measured at estimated fair value consist of the following as of December 31, 2018 and June 30, 2018:

 

 

		December 31 , 2018
		Cost				Gross Unrealized Gains				Gross Unrealized Losses				Estimated Fair Value
Money market funds		$	314			$	-			$	-			$	314
USCF mutual fund investment			2,846,759				-				(434,769	)			2,411,990
Hedged asset			523,100				119,055				-				642,155
Other equities			3,421				-				(1,427	)			1,994
Total investments		$	3,373,594			$	119,055			$	(436,196	)		$	3,056,453

 

 

		June 30, 2018
		Cost				Gross Unrealized Gains				Gross Unrealized Losses				Estimated Fair Value
Money market funds		$	180,138			$	-			$	-			$	180,138
USCF 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 investments		$	3,204,815			$	280,480			$	(281,290	)		$	3,204,005

 

The following tables summarize the valuation of the Company’s securities at December 31, 2018 and June 30, 2018 using the fair value hierarchy:

 

		December 31 , 2018
		Total				Level 1				Level 2				Level 3
Money market funds		$	314			$	314			$	-			$	-
USCF mutual fund investment			2,411,990				2,411,990				-				-
Hedge asset			642,155				-				642,155				-
Other equities			1,994				1,994				-				-
Total		$	3,056,453			$	2,414,298			$	642,155			$	-

 

		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 six months ended December 31, 2018 and 2017, there were no transfers between Level 1 and Level 2.

 

 

 

NOTE 8.

OTHER ASSETS

 

Other Current Assets

 

Other current assets totaling $195,590 as of December 31, 2018 and $374,617 as of June 30, 2018 are comprised of various components as listed below.

 

		December 31 ,				June 30,
		2018				2018
Prepaid expenses and deposits		$	182,242			$	358,869
Other current assets			13,348				15,748
Total		$	195,590			$	374,617

 

Restricted Cash

 

At December 31, 2018 Gourmet Foods had on deposit NZ$20,000 (approximately US$13,423 ) securing a lease bond for one of its properties. The same amount was posted at June 30, 2018 and translated to approximately US$13,536. 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 at December 31, 2018 and $532,165 at June 30, 2018, were attributed to Wainwright and Original Sprout and consisted of

 

	(i)	$500,000 as of December 31, 2018 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 December 31, 2018 and $32,165 as of June 30, 2018 representing deposits and prepayments of rent.

 

 

 

NOTE 9.

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 December 31, 2018 and June 30, 2018 were $915,790.

 

Goodwill is comprised of the following amounts:

 

		December 31 , 2018				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 evaluates goodwill impairment annually, or more frequently, any time events or circumstances change that would indicate it is more likely than not that the reporting unit carrying value exceeds its fair value. There was no goodwill impairment for the six months ended December 31, 2018 or 2017.

 

 

 

 

NOTE 11.

RELATED PARTY TRANSACTIONS

 

Notes Payable - Related Parties

 

Current related party notes payable consists of the following:

 

  

Interest expense for all related party notes for the three and six months ended December 31, 2018 was $6,120 and $12,240, respectively, as compared to $6,120  and $12,240, respectively, for the three and six months ended December 31, 2017.

 

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 $3.9 million and $8.2 million for the three and six months ended December 31, 2018, respectively, as compared to $4.9  million and $10.0  million, respectively, for the three and six months ended December 31, 2017. Accounts receivable, totaling $1.2 million and $1.5 million as of December 31, 2018 and June 30, 2018, respectively, were owed from these related parties. Fund expense waivers, totaling $0.1 million and $0.2 million for the three and six months ended December 31, 2018, respectively, as compared to $0.2 million and $0.4 million for the three and six months ended December 31, 2017, respectively, were incurred on behalf of these related parties. Waivers payable, totaling $0.4 million and $0.7 million as of December 31, 2018 and June 30, 2018, respectively, were owed to these related parties. Fund expense waivers and fund expense limitation obligations are defined under Note 16 to the Financial Statements.

 

 

 

NOTE 12.

EQUIPMENT LOANS

 

As of December 31, 2018, Brigadier had, in the aggregate, an outstanding principal balance of CD$130,901 (approx. US$96,149 ) 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 December 31, 2018 and June 30, 2018 reflect the amount of the principal balance which is due within twelve months as a current liability of US$24,675 and US$46,705, respectively. Principal amounts under the loans which is due after twelve months are recorded in long term liabilities as US$71,474 and US$149,491 at December 31, 2018 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 three and six months ended December 31, 2018 was US$1,133 and US$3,137, respectively, as compared to US$2,712 and US$4,866, respectively, for the three and six months ended December 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 June 18, 2018. The amount was subsequently remitted to the sellers on July 9, 2018. The balance of the purchase price, $1,250,000, subject to downward adjustment for prior payments which, as of December 31, 2018, resulted in a balance of $1,160,000, 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 six months ending December 31, 2018 and 2017, assumes the acquisition of the Original Sprout LLC assets had occurred as of July 1, 2017, 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, 2017. 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 six months ended December 31, 2018 and 2017 assuming the acquisition of the Original Sprout LLC assets had occurred as of July 1, 2017.

 

		Three Months Ended				Three Months Ended				Six Months Ended				Six Months Ended
		December 31, 2018				December 31, 2017				December 31, 2018				December 31, 2017
		Actual				Pro Forma (1)				Actual				Pro Forma (1)
Net Revenues		$	6,695,940			$	8,262,974			$	13,862,578			$	16,388,117
Net Income		$	63,161			$	64,118			$	348,667			$	1,013,864
Basic Earnings per Share		$	0.00			$	0.00			$	0.01			$	0.03
Diluted Earnings per Share		$	0.00			$	0.00			$	0.01			$	0.03

^{( 1 )}  Includes the operation of the assets acquired from Original Sprout on a consolidated basis without the actual transaction costs, but inclusive of amortization of intangible assets, and estimated income tax.

 

 

 

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 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

 

Each issued Series B Voting, Convertible Preferred Stock is convertible into 20 shares of common stock and carries a vote of 20 shares of common stock in all matters brought before the shareholders for a vote.

 

 

 

NOTE 15.

INCOME TAXES

 

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 December 31, 2018, the Company's total unrecognized tax benefits were approximately $0.3 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 six months ended December 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 $0.1 million and $1.1  million for the six months ended December 31, 2018 and 2017, respectively. The effective tax rate for the six months ended December 31, 2018 and 2017 differed from the statutory rate primarily due to the mix of non-deductible items. The effective tax rate could fluctuate in the future due to changes in the taxable income mix between various jurisdictions.

 

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 U.S. tax years 2014 through 2018 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 2018 remain open for examination by Canada and New Zealand authorities which is four years. As of December 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 October 2018 and August 2021, and require monthly rental payments of approximately US$11,122 translated to U.S. currency as of December 31, 2018.

 

Brigadier leases office and storage facilities in Saskatoon and Regina, Saskatchewan. The minimum lease obligations require monthly payments of approximately US$5,358 translated to U.S. currency as of December 31, 2018.

 

Original Sprout currently leases office and warehouse space in San Clemente, CA under a three -year lease agreement expiring or renewing at March 1, 2021. Minimum monthly lease payments are approximately $7,805 with increases annually.

 

Wainwright leases office space in Walnut Creek, California under an operating lease which expires in December 2024. Minimum monthly lease payments are approximately $12,000 with increases annually.

 

For the three and six months ended December 31, 2018, the combined lease payments of the Company and its subsidiaries totaled $92,428 and $160,276, respectively, as compared to $75,862 and $152,389, respectively, for the three and six months ended December 31, 2017.

 

Future minimum consolidated lease payments for Concierge and its subsidiaries are as follows:

 

Year Ended June 30,		Lease Amount
2019		$	224,930
2020			354,365
2021			319,256
2022			178,506
2023			167,334
2024			84,317
Total minimum lease commitment		$	1,328,708

 

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$73,821 ) to secure the lease of its primary facility. In addition, a NZ$20,000 (approximately US$13,423 ) 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 remained 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. 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 December 31, 2018, and December 31, 2017 the expense waiver payable was $0.4 million and $0.9  million, respectively. However, USCF has no obligation to continue such payments into subsequent periods.

 

Litigation

 

From time to time, the Company is involved in legal proceedings arising mainly from the ordinary course of its business. In management’s opinion, the legal proceedings are not expected to have a material effect on the Company’s financial position or results of operations.

 

 

Retirement Plan

 

Wainwright's wholly owned subsidiary USCF, has a 401 (k) Profit Sharing Plan covering its employees who are over 21 years of age and who have completed a minimum of 1,000 hours of service and have worked for USCF for one or more years. Participants may make contributions pursuant to a salary reduction agreement. In addition, USCF makes an annual safe harbor matching contribution. There were no annual profit sharing contributions paid during the six months ended December 31, 2018 and 2017.

 

 

 

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 installations. 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 maintenance services 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 December 31, 2018 and June 30, 2018:

 

		As of December 31 , 2018				As of June 30, 2018
Identifiable assets
Corporate headquarters		$	2,519,101			$	2,123,048
U.S.A. : fund management			12,639,815				13,563,773
U.S.A. : beauty products			4,061,676				3,739,979
New Zealand: food industry			1,824,754				1,959,486
Canada: security alarm			1,617,473				1,714,863
Consolidated		$	22,662,819			$	23,101,149

 

The following table presents a summary of operating information for the three months ended December 31, 2018 and 2017:

 

		Three Months Ended December 31 , 2018				Three Months Ended December 31 , 2017
Revenues
U.S.A. : beauty products and other		$	897,457			$	88,486
U.S.A. : investment fund management - related party			3,939,004				4,845,624
New Zealand : food industry			1,145,410				1,235,192
Canada : security alarm			714,069				1,196,215
Consolidated total		$	6,695,940			$	7,365,517
Net income (loss)
Corporate headquarters		$	(334,703	)		$	(700,146	)
U.S.A. : beauty products and other			98,893				(30,071	)
U.S.A. : investment fund management			220,648				474,172
New Zealand : food industry			24,868				11,311
Canada: security alarm			53,455				222,631
Consolidated total		$	63,161			$	(22,103	)

 

 

The following table presents a summary of operating information for the six months ended December 31, 2018 and 2017:

 

		Six Months Ended December 31 , 2018				Six Months Ended December 31 , 2017
Revenues
U.S.A. : beauty products and other		$	1,799,786			$	110,990
U.S.A. : investment fund management - related party			8,161,988				10,003,572
New Zealand : food industry			2,339,704				2,497,653
Canada : security alarm			1,561,100				1,976,116
Consolidated total		$	13,862,578			$	14,588,331
Net income (loss)
Corporate headquarters		$	(675,564	)		$	(1,372,747	)
U.S.A. : beauty products and other			207,285				(26,086	)
U.S.A. : investment fund management			579,940				1,898,300
New Zealand : food industry			41,453				18,830
Canada: security alarm			195,553				331,304
Consolidated total		$	348,667			$	849,601

 

The following table represents the property, plant and equipment in use at each of the Company's locations as of December 31, 2018 and June 30, 2018:

 

		As of December 31 , 2018				As of June 30, 2018
Asset location
Corporate headquarters		$	14,305			$	14,305
U.S.A. : beauty products and other			8,181				5,244
U.S.A. : investment fund management			-				-
New Zealand : food industry			1,640,528				1,627,545
Canada : security alarm			335,074				363,833
Total all locations			1,998,088				2,010,927
Less accumulated depreciation			(1,082,782	)			(930,456	)
Net property, plant and equipment		$	915,306			$	1,080,471