June 30, 2019				June 30, 2018
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	6,481,815			$	7,524,114
Accounts receivable, net			939,649				1,068,240
Accounts receivable - related parties			1,037,146				1,458,159
Inventories			1,008,662				931,065
Prepaid income tax and tax receivable			1,754,369				2,138,636
Investments			3,756,596				3,204,005
Other current assets			546,105				374,617
Total current assets			15,524,342				16,698,836
Restricted cash			13,436				13,536
Property and equipment, net			757,014				1,080,471
Goodwill			915,790				915,790
Intangible assets, net			2,659,723				2,995,231
Deferred tax assets, net			859,696				865,120
Other assets, long - term			523,607				532,165
Total assets		$	21,253,608			$	23,101,149
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses		$	2,867,081			$	3,249,387
Expense waivers – related parties			325,821				662,650
Purchase consideration payable			-				1,205,000
Notes payable - related parties			3,500				3,500
Equipment loans, current portion			26,241				46,705
Total current liabilities			3,222,643				5,167,242
LONG TERM LIABILITIES
Notes payable - related parties			600,000				600,000
Equipment loans, net of current portion			61,057				149,491
Deferred tax liabilities			176,578				208,419
Total liabilities			4,060,278				6,125,152
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value; 50,000,000 authorized
Series B: 53,032 issued and outstanding at June 30, 2019 and 436,951 at June 30, 2018			53				437
Common stock, $0.001 par value; 900,000,000 shares authorized; 37,237,519 shares issued and outstanding at June 30, 2019 and 29,559,139 at June 30, 2018			37,237				29,559
Additional paid-in capital			9,178,838				9,186,132
Accumulated other comprehensive (loss) income			(175,659	)			148,808
Retained earnings			8,152,861				7,611,061
Total stockholders' equity			17,193,330				16,975,997
Total liabilities and stockholders' equity		$	21,253,608			$	23,101,149

---

 

---

 

---

 

---

 

---

 

NOTE 1.     ORGANIZATION AND DESCRIPTION OF BUSINESS

 

Concierge Technologies, Inc., (the “Company” or “Concierge”), a Nevada corporation, operates through its wholly owned subsidiaries who are engaged in varied business activities. The operations of the Company’s wholly-owned subsidiaries are more particularly described herein but are summarized as follows:

 

	●	Wainwright Holdings, Inc. (“Wainwright”), a U.S. based company, is the sole member of two investment services limited liability company subsidiaries, United States Commodity Funds LLC (“USCF”), and USCF Advisers LLC (“USCF Advisers”), each of which manages, operates or is an investment advisor to exchange traded funds organized as limited partnerships or investment trusts that issue shares which trade on the NYSE Arca stock exchange.
	●	Gourmet Foods, Ltd. (“Gourmet Foods”), a New Zealand based company, manufactures and distributes New Zealand meat pies on a commercial scale.
	●	Brigadier Security Systems (2000) Ltd. (“Brigadier”), a Canadian based company, sells and installs commercial and residential alarm monitoring systems.
	●	Kahnalytics, Inc. dba/Original Sprout (“Original Sprout”), a U.S. based company, is engaged in the wholesale distribution of hair and skin care products under the brand name Original Sprout on a global scale. The former business of Kahnalytics, providing live-streaming mobile video on a subscription basis, was insignificant and was terminated after transitioning to the current business of distributing hair and skin care products.

 

See “Note 12. Business Combinations” for a description of the terms of our acquisitions for our operating businesses.

 

Concierge manages its operating businesses on a decentralized basis. There are no centralized or integrated operational functions such as marketing, sales, legal or other professional services and there is little involvement by Concierge’s management in the day-to-day business affairs of its operating subsidiary businesses. Concierge’s corporate management is responsible for capital allocation decisions, investment activities and selection and retention of the Chief Executive to head each of the operating subsidiaries. Concierge's corporate management is also responsible for corporate governance practices, monitoring regulatory affairs, including those of its operating businesses and involvement in governance-related issues of its subsidiaries as needed.

 

 

NOTE 2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation and Accounting Principles

 

The Company has prepared the accompanying financial statements on a consolidated basis. In the opinion of management, the accompanying consolidated balance sheets and related statements of income and comprehensive income, and cash flows include all adjustments, consisting only of normal recurring items, necessary for their fair presentation, prepared on an accrual basis, in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

 

Principles of Consolidation

 

The accompanying condensed consolidated financial statements, which are referred herein as the “Financial Statements” include the accounts of Concierge and its wholly owned subsidiaries, Wainwright, Gourmet Foods, Brigadier and Original Sprout.

 

All significant inter-company transactions and accounts have been eliminated in consolidation.

 

Use of Estimates

 

The preparation of the Financial Statements are in conformity with U.S. GAAP which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

 

Cash and Cash Equivalents

 

Cash and cash equivalents include all highly liquid debt instruments with original maturities of three months or less. The Company maintains its cash and cash equivalents in financial institutions in the United States, Canada, and New Zealand. Accounts in the United States are insured by the Federal Deposit Insurance Corporation up to $250,000 per depositor, and accounts in Canada are insured by the Canada Deposit Insurance Corporation up to CD$100,000 per depositor. Accounts in New Zealand are uninsured. The Company has, at times, held deposits in excess of insured amounts, but the Company does not expect any losses in such accounts.

 

Accounts Receivable, net and Accounts Receivable - Related Parties

 

Accounts receivable, net, consist of receivables from the Brigadier, Gourmet Foods and Original Sprout businesses. Management regularly reviews the composition of accounts receivable and analyzes customer credit worthiness, customer concentrations, current economic trends and changes in customer payment patterns to determine whether or not an account should be deemed uncollectible. Reserves, if any, are recorded on a specific identification basis. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. As of June 30, 2019 and June 30, 2018, the Company had $2,075 and $51,747, respectively, listed as doubtful accounts.

 

Accounts receivable - related parties, consist of fund asset management fees receivable from the Wainwright business. Management fees receivable generally consist of one month of management fees which are collected in the month after they are earned. As of June 30, 2019, and June 30, 2018, there is no allowance for doubtful accounts as all amounts are deemed collectible.

 

Major Customers and Suppliers – Concentration of Credit Risk

 

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

 

Concierge, through Gourmet Foods, has three major customer groups comprising the gross revenues to Gourmet Foods; 1) grocery, 2) gasoline convenience stores, and 3) independent retailers. The grocery and food industry is dominated by several large chain operations, which are customers of Gourmet Foods, and there are no long term guarantees that these major customers will continue to purchase products from Gourmet Foods, however the relationships have been in place for sufficient time to give management reasonable confidence in their continuing business.

 

For the year ended and balance sheet date of June 30, 2019, Gourmet Foods’ largest customer in the grocery industry, who operates through a number of independently branded stores, accounted for approximately 22% of Gourmet Foods sales revenues and 28% of Gourmet Foods accounts receivable as compared to 21% and 33% for the prior year ended June 30, 2018, respectively. The second largest in the grocery industry accounted for approximately 12% of Gourmet Foods sales revenues for the year ended June 30, 2019 as compared to 12% for the year ended June 30, 2018. This same group accounted for 19% of Gourmet Foods accounts receivable as of June 30, 2019 as compared to 16% as of June 30, 2018. In the gasoline convenience store market Gourmet Foods supplies two major channels. The largest is a marketing consortium of gasoline dealers operating under the same brand who, for the year ended and balance sheet date of June 30, 2019, accounted for approximately 43% of Gourmet Foods’ gross sales revenues as compared to 41% for the year ended June 30, 2018. No single member of the consortium is responsible for a significant portion of Gourmet Foods’ accounts receivable. The third category of independent retailers and cafes accounted for the remaining balance of Gourmet Foods’ gross sales revenue, however the group members are independently owned and individually responsible for their financial obligations with no one customer accounting for a significant portion of revenues or accounts receivable.

 

Concierge, through Original Sprout, is not dependent upon any one customer or group of customers as no single customer or buying group consistently accounts for over 10% of the gross revenues, though due to timing of deliveries one customer accounted for approximately 10% of our gross revenues for the year ended June 30, 2019. There were 3 major distributor accounts, all current, representing 25%, 17%, and 12% for a total of 54% of all accounts receivable as of June 30, 2019. Original Sprout is partially dependent upon its relationship with a product packaging company who, at the direction of Original Sprout, manufactures the products, packages them in appropriate containers, and delivers the finished goods to Original Sprout for distribution to its customers. All of Original Sprout’s products are currently produced by this packaging company, although if this relationship were to fail there are other similar packaging companies available to Original Sprout at competitive pricing.

 

For our subsidiary, Wainwright, the concentration of risk and the relative reliance on major customers are found within the various funds it manages and the associated 12 month revenues and accounts receivable – related parties as of June 30, 2019 and June 30, 2018 as depicted below.

 

		Year ended June 30, 2019								Year ended June 30, 2018
		Revenue								Revenue
Fund
USO		$	7,308,354				49	%		$	9,752,223				52	%
USCI			4,051,605				27	%			4,253,921				23	%
UNG			1,922,596				13	%			2,753,723				15	%
All Others			1,738,884				11	%			1,984,446				10	%
Total		$	15,021,439				100	%		$	18,744,313				100	%

 

 

		June 30, 2019								June 30, 2018
		Accounts Receivable								Accounts Receivable
Fund
USO		$	526,981				51	%		$	674,535				46	%
USCI			236,251				23	%			431,288				30	%
UNG			141,413				13	%			182,399				12	%
All Others			132,501				13	%			169,937				12	%
Total		$	1,037,146				100	%		$	1,458,159				100	%

 

Inventories

 

Inventories, consisting primarily of food products and packaging in New Zealand, hair and skin care finished products and components in the U.S. and security system hardware in Canada, are valued at the lower of cost (determined on a FIFO basis) or net realizable value. Inventories include product cost, inbound freight and warehousing costs where applicable. Management compares the cost of inventories with the net realizable value and an allowance is made for writing down the inventories to their net realizable value, if lower. For the years ended June 30, 2019 and 2018 impairment to inventory value was recorded as $0 and $0, respectively. An assessment is made at the end of each fiscal year to determine what slow-moving inventory items, if any, should be deemed obsolete and written down to their estimated net realizable value. For the years ended June 30, 2019 and June 30, 2018, the expense for slow-moving or obsolete inventory was $10,317 and $0, respectively.

 

Property and Equipment

 

Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and leasehold improvements are capitalized. Office furniture and equipment include office fixtures, computers, printers and other office equipment plus software and applicable packaging designs. Leasehold improvements, which are included in plant and equipment, are depreciated over the shorter of the useful life of the improvement and the length of the lease. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation is computed using the straight line method over the estimated useful life of the asset (see Note 5 to the Consolidated Financial Statements). 

 

Category		Estimated Useful Life (in years)
Plant and equipment:			5	to	10
Furniture and office equipment:			3	to	5
Vehicles			3	to	5

 

Intangible Assets

 

Intangible assets consist of brand names, domain names, recipes, non-compete agreements and customer lists. Intangible assets with finite lives are amortized over the estimated useful life and are evaluated for impairment at least on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The Company assesses recoverability by determining whether the carrying value of such assets will be recovered through the discounted expected future cash flows. If the future discounted cash flows are less than the carrying amount of these assets, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the assets. There was no impairment recorded for the year ended June 30, 2019 or for the year ended June 30, 2018.

 

Goodwill

 

Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in a purchase businesses combination. Goodwill is tested for impairment on an annual basis during the fourth quarter of our fiscal year, or more frequently if events or changes in circumstances indicate that the carrying amount of goodwill may be impaired. The goodwill impairment test is a two-step test. Under the first step, the fair value of the reporting unit is compared with its carrying value including goodwill. If the fair value of the reporting unit exceeds its carrying value, step two does not need to be performed. If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit and the enterprise must perform step two of the impairment test. Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill. There was no impairment recorded for the years ended June 30, 2019 and 2018

 

 

Impairment of Long-Lived Assets

 

The Company tests long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value. There was no impairment recorded for the years ended June 30, 2019 or 2018.

 

Investments and Fair Value of Financial Instruments

 

Short-term investments are classified as available-for-sale securities. The Company measures the investments at fair value at period end with any changes in fair value reflected as unrealized gains or (losses) which is included as part of other (expense) income. The Company values its investments in accordance with Accounting Standards Codification ("ASC") 820 – Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurement. The changes to past practice resulting from the application of ASC 820 relate to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurement. ASC 820 establishes a fair value hierarchy that distinguishes between: (1) market participant assumptions developed based on market data obtained from sources independent of the Company (observable inputs) and (2) The Company’s own assumptions about market participant assumptions developed based on the best information available under the circumstances (unobservable inputs). The three levels defined by the ASC 820 hierarchy are as follows:

 

Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

 

Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 assets include the following: quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs).

 

Level 3 – Unobservable pricing input at the measurement date for the asset or liability. Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available.

 

In some instances, the inputs used to measure fair value might fall within different levels of the fair value hierarchy. The level in the fair value hierarchy within which the fair value measurement in its entirety falls shall be determined based on the lowest input level that is significant to the fair value measurement in its entirety.

 

 

Revenue Recognition

 

Revenue consists of fees earned through management of investment funds, sale of gourmet meat pies and related bakery confections in New Zealand, security alarm system installation and maintenance services in Canada, and wholesale distribution of hair and skin care products. Revenue is accounted for net of sales taxes, sales returns, trade discounts. The performance obligation is satisfied when the product has been shipped and title, risk of loss and rewards of ownership have been transferred. For most of the Company’s product sales or services, these criteria are met at the time the product is shipped, the subscription period commences, or the management fees are accrued. For our Brigadier subsidiary in Canada, the Company operates under contract with an alarm monitoring company that pays a percentage of their recurring monitoring fee to Brigadier in exchange for continued customer service and support functions with respect to each customer maintained under contract by the monitoring company. 

 

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

 

1. Identifying the contract(s) with customers

2. Identifying the performance obligations in the contract

3. Determining the transaction price

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

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

 

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

 

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

 

Income Taxes

 

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. A valuation allowance is provided for deferred tax assets if it is more likely than not that these items will either expire before the Company is able to realize their benefits or if future deductibility is uncertain.

 

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Applicable interest and penalties associated with unrecognized tax benefits are classified as additional income taxes in the statements of operations.

 

 

Advertising Costs

 

The Company expenses the cost of advertising as incurred. Marketing and advertising costs for the years ended June 30, 2019 and 2018 were $2.9 million and $3.6 million, respectively.

 

Other Comprehensive Income (Loss)

 

Foreign Currency Translation

 

We record foreign currency translation adjustments and transaction gains and losses in accordance with ASC 830-30, Foreign Currency Translation. The accounts of Gourmet Foods use the New Zealand dollar as the functional currency. The accounts of Brigadier Security System use the Canadian dollar as the functional currency. Assets and liabilities are translated at the exchange rate on the balance sheet date, and operating results are translated at the weighted average exchange rate throughout the period. Foreign currency transaction gains and (losses) can also occur if a transaction is settled in a currency other than the entity's functional currency. Accumulated currency translation gains and (losses) are classified as an item of accumulated other comprehensive income (loss) in the stockholders’ equity section of the consolidated balance sheet.

 

Short-Term Investment Valuation

 

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

 

Segment Reporting

 

The Company defines operating segments as components about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performances. The Company allocates its resources and assesses the performance of its sales activities based on the geographic locations of its subsidiaries (Refer to Note 16 of the Consolidated Financial Statements).

 

Business Combinations

 

We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired users, acquired trade names from a market participant perspective, useful lives and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed. For the years ended June 30, 2019 and 2018 a determination was made that no adjustments were necessary.

 

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

 

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

 

		ASU 2016-01				ASC 606				Total
Increase (decrease):
Assets		$	-			$	-			$	-
Liabilities		$	-			$	-			$	-
Accumulated other comprehensive income		$	(279,951	)		$	-			$	(279,951	)
Retained earnings		$	279,951			$	-			$	279,951

 

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

 

The Company has reviewed new accounting pronouncements issued between September 28, 2018, the filing date of our most recent prior Annual Report on Form 10-K, and the filing date of this Annual Report on Form 10-K, and has determined that no new pronouncements, apart from Topic 842 described below, issued are relevant to the Company, and/or have, or will have, a material impact on the Company’s consolidated financial position, results of operations or disclosure requirements.

 

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

---

 

NOTE 3.          BASIC AND DILUTED NET LOSS PER SHARE

 

Basic net loss per share is based upon the weighted average number of common shares outstanding. Diluted net loss per share is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. The Company does not have any options or warrants.

 

Diluted net income per share reflects the effects of shares actually potentially issuable upon conversion of convertible preferred stock.

 

The components of basic and diluted earnings per share were as follows:

 

		For the year ended June 30, 2019
		Net Income				Shares				Per Share
Basic income per share:
Net income available to common shareholders		$	261,849				32,588,418			$	0.01
Effect of dilutive securities			-				-				-
Preferred stock Series B			-				5,709,741				-
Diluted income per share		$	261,849				38,298,159			$	0.01

 

		For the year ended June 30, 2018
		Net Income				Shares				Per Share
Basic income per share:
Net income available to common shareholders		$	1,734,686				29,559,139			$	0.06
Effect of dilutive securities			-				-				-
Preferred stock Series B			-				8,739,020				-
Diluted income per share		$	1,734,686				38,298,159			$	0.05

 

 

NOTE 4.          INVENTORIES

 

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

 

		June 30,				June 30,
		2019				2018
Raw materials		$	208,284			$	195,674
Supplies and packing materials			188,035				142,257
Finished goods			612,343				593,134
Total inventories		$	1,008,662			$	931,065

 

 

 

NOTE 5.          PROPERTY AND EQUIPMENT

 

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

 

		June 30, 2019				June 30, 2018
Plant and equipment		$	1,511,629			$	1,487,568
Furniture and office equipment			188,370				171,978
Vehicles			332,672				351,381
Total property and equipment, gross			2,032,671				2,010,927
Accumulated depreciation			(1,275,657	)			(930,456	)
Total property and equipment, net		$	757,014			$	1,080,471

 

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

 

NOTE 6.          INTANGIBLE ASSETS

 

Intangible assets consisted of the following:

 

		June 30, 2019				June 30, 2018
Customer relationships		$	700,252			$	700,252
Brand name			1,142,122				1,142,122
Domain name			36,913				36,913
Recipes			1,221,601				1,221,601
Non-compete agreement			274,982				274,982
Total			3,375,870				3,375,870
Less : accumulated amortization			(716,147	)			(380,639	)
Net intangibles		$	2,659,723			$	2,995,231

 

CUSTOMER RELATIONSHIP

 

On August 11, 2015, the Company acquired Gourmet Foods. The fair value on the acquired customer relationships was estimated to be $66,153 and is amortized over the remaining useful life of 10 years. On June 2, 2016, the Company acquired Brigadier Security Systems. The fair value on the acquired customer relationships was estimated to be $434,099 and is amortized over the remaining useful life of 10 years. On December 18, 2017 the Company’s wholly-owned subsidiary, Kahnalytics, Inc., acquired the assets of Original Sprout LLC. The fair value of the acquired customer relationships was determined to be $200,000 and is amortized over the remaining useful life of 7 years.

 

		June 30, 2019				June 30, 2018
Customer relationships		$	700,252				700,252
Less: accumulated amortization			(203,492	)			(124,895	)
Total customer relationships, net		$	496,760				575,357

 

 

BRAND NAME

 

On August 11, 2015, the Company acquired Gourmet Foods. The fair value on the acquired brand name was estimated to be $61,429 and is amortized over the remaining useful life of 10 years. On June 2, 2016, the Company acquired Brigadier Security Systems. The fair value on the acquired brand name was estimated to be $340,694 and is amortized over the remaining useful life of 10 years. On December 18, 2017 the Company’s wholly-owned subsidiary, Kahnalytics, Inc., acquired the assets of Original Sprout LLC. The fair value of the acquired brand name was determined to be $740,000 and is considered to have an indefinite life. Unlike the brand names Gourmet Foods and Brigadier Security Systems, Original Sprout is an actual product name and recognized associated brand that is identifiable to consumers of the product and is the basis of the value proposition. That brand name will forever be associated with the product offering unless and until such time in the future as the Company may elect to discontinue the use of the brand and move towards establishment of an alternative product offering. Therefore, the Company will test for impairment of the brand name "Original Sprout" at each reporting interval with no amortization recognized.

 

		June 30, 2019				June 30, 2018
Brand name		$	1,142,122			$	1,142,122
Less: accumulated amortization			(129,084	)			(88,872	)
Total brand name, net		$	1,013,038			$	1,053,250

 

DOMAIN NAME

 

On August 11, 2015, the Company acquired Gourmet Foods, Ltd. The fair value on the acquired domain name was estimated to be $21,601 and is amortized over the remaining useful life of 5 years. On June 2, 2016, the Company acquired Brigadier Security Systems. The fair value on the acquired domain name was estimated to be $15,312 and is amortized over the remaining useful life of 5 years.

 

		June 30, 2019				June 30, 2018
Domain name		$	36,913			$	36,913
Less: accumulated amortization			(26,341	)			(18,958	)
Total brand name, net		$	10,572			$	17,955

 

RECIPES AND FORMULAS

 

On August 11, 2015, the Company acquired Gourmet Foods. The fair value on the recipes was estimated to be $21,601 and is amortized over the remaining useful life of 5 years. On December 18, 2017 the Company’s wholly-owned subsidiary, Kahnalytics, Inc., acquired the assets of Original Sprout LLC. The fair value of the acquired recipes and formulas was determined to be $1,200,000 and is amortized over the remaining useful life of 8 years. 

 

		June 30, 2019				June 30, 2018
Recipes and formulas		$	1,221,601			$	1,221,601
Less: accumulated amortization			(246,622	)			(92,303	)
Total recipes and formulas, net		$	974,979			$	1,129,298

 

NON-COMPETE AGREEMENT

 

On June 2, 2016, the Company acquired Brigadier Security Systems. The fair value on the acquired non-compete agreement was estimated to be $84,982 and is amortized over the remaining useful life of 5 years. On December 18, 2017 the Company’s wholly-owned subsidiary, Kahnalytics, Inc., acquired the assets of Original Sprout LLC. The fair value of the acquired non-compete agreement was determined to be $190,000 and is amortized over the remaining useful life of 5 years.

 

		June 30, 2019				June 30, 2018
Non-compete agreement		$	274,982			$	274,982
Less: accumulated amortization			(110,608	)			(55,612	)
Total non-compete agreement, net		$	164,374			$	219,370

 

AMORTIZATION EXPENSE

 

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

 

 

Estimated amortization expenses of intangible assets for the next five twelve-month periods ending June 30, are as follows:

 

Years Ending June 30,		Expense
2020		$	335,508
2021			326,034
2022			306,809
2023			286,507
2024			268,809
Thereafter			1,136,056
Total		$	2,659,723

 

 

NOTE 7.          OTHER ASSETS

 

Other Current Assets

 

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

 

		As of June 30, 2019				As of June 30, 2018
Prepaid expenses		$	462,215			$	358,869
Other current assets			83,890				15,748
Total		$	546,105			$	374,617

 

Investments

 

Wainwright, from time to time, provides initial investments in the creation of ETP funds that Wainwright manages. Wainwright classifies these investments as current assets as these investments are generally sold within one year from the balance sheet date. Investments in which no controlling financial interest or significant influence exists are recorded at fair value included in comprehensive income (loss) through June 30, 2018 and subsequently through earnings in accordance with ASU 2016-01. As of June 30, 2019 and June 30, 2018, investments were approximately $3.8 million and $3.2 million, respectively. Investments in which no controlling financial interest exists, but significant influence exists are recorded as per the equity method of investment accounting. As of June 30, 2019 and June 30, 2018, there were no investments requiring the equity method investment accounting.

 

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

 

		As of June 30, 2019
		Cost				Gross Unrealized Gains				Gross Unrealized Losses				Estimated Fair Value
Money market funds		$	3,005,182			$	-			$	-			$	3,005,182
Other short term investments			749,988				-				(739	)			749,249
Other equities			3,421				-				(1,256	)			2,165
Total short-term investments		$	3,758,591			$	-			$	(1,995	)		$	3,756,596

 

 

		As of June 30, 2018
		Cost				Gross Unrealized Gains				Gross Unrealized Losses				Estimated Fair Value
Money market funds		$	180,138			$	-			$	-			$	180,138
USCI mutual fund investment			2,500,000				280,480				-				2,780,480
Hedged asset			523,100				-				(280,761	)			242,339
Other equities			1,577				-				(529	)			1,048
Total short-term investments		$	3,204,815			$	280,480			$	(281,290	)		$	3,204,005

 

 

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

 

		As of June 30, 2019
		Total				Level 1				Level 2				Level 3
Money market funds		$	3,005,182			$	3,005,182			$	-			$	-
Other short term investments			749,249				749,249				-				-
Other equities			2,165				2,165				-				-
Total		$	3,756,596			$	3,756,596			$	-			$	-

 

 

		As of June 30, 2018
		Total				Level 1				Level 2				Level 3
Money market funds		$	180,138			$	180,138			$	-			$	-
Mutual fund investment			2,780,480				2,780,480				-				-
Hedge asset			242,339				-				242,339				-
Other equities			1,048				1,048				-				-
Total		$	3,204,005			$	2,961,666			$	242,339			$	-

 

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

 

Restricted Cash

 

At June 30, 2019 and 2018, Gourmet Foods had on deposit approximately NZ$20,000 (approximately US$13,437 and US$13,536, respectively after currency translation) securing a lease bond for one of its properties. The cash securing the bond is restricted from access or withdrawal so long as the bond remains in place.

 

Long - Term Assets

 

Other long term assets totaling $523,607 and $532,165 at June 30, 2019 and June 30, 2018, respectively, were attributed to Wainwright and Original Sprout and consisted of

	(i)	$500,000 as of June 30, 2019 and June 30, 2018 representing 10% equity investment in a registered investment adviser accounted for on a cost basis,
	(ii)	and $23,607 as of June 30, 2019 and $32,165 at June 30, 2018 representing deposits and prepayments of rent.