Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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The following discussion and analysis should be read in conjunction with the condensed financial statements and the accompanying notes thereto and is qualified in its entirety by the foregoing and by more detailed financial information appearing elsewhere in this quarterly report on Form 10-Q. See "Financial Statements."
Overview
Concierge Technologies, Inc. (“Concierge”) or the (“Company”) conducts business through its wholly-owned operating subsidiaries operating in the U.S., New Zealand and Canada. The operations of the Company’s wholly-owned subsidiaries are more particularly described herein but are summarized as follows:
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Wainwright Holdings, Inc. (“Wainwright”), a U.S. based company, is the sole member of two investment services limited liability company subsidiaries that manages, operates or is an investment advisor to exchange traded funds organized as limited partnerships or investment trusts that issue shares that trade on the NYSE Arca stock exchange.
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Gourmet Foods, Ltd. (“Gourmet Foods”), a New Zealand based company, manufactures and distributes New Zealand meat pies on a commercial scale.
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Brigadier Security Systems (2000) Ltd. (“Brigadier”), a Canadian based company, sells and installs commercial and residential alarm monitoring systems.
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Kahnalytics, Inc. dba/Original Sprout (“Original Sprout”), a U.S. based company, is engaged in the wholesale distribution of hair and skin care products under the brand name Original Sprout on a global scale.
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Marygold & Co., ("Marygold") a newly formed U.S. based company, established by Concierge to explore opportunities in the financial technology ("Fintech") space, estimated to commence operations by August 2020.
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Because the Company conducts its businesses through its wholly-owned operating subsidiaries, the risks related to our wholly-owned subsidiaries are also risks that impact the Company's financial condition and results of operations. See, "Note 2. Summary of Significant Accounting Policies / Major Customers and Suppliers - Concentration of Credit Risk" in the consolidated financial statements for more information. The emergence of a novel coronavirus on a global scale, known as COVID-19, during the current quarter has had a nominal impact on our operations which varied from company to company. Overall, the effects of dealing with COVID-19 realized through social isolation, stay-at-home orders, shuttering of non-essential businesses and similar initiatives took effect on our areas of operation at such a late date in the month of March that the consolidated revenues were not significantly impacted. The financial risk to future operations is largely unknown, (refer to Part II, Item 1A, for further details.)
Results of Operations
Concierge and Subsidiaries
Financial summary and comparison data for the year-to-date operating results as of March 31, 2020.
The table below summarizes each of Concierges subsidiaries into one of two categories. The Wainwright business is included in the Financial Services columns and all other subsidiaries, including Gourmet, Brigadier, and Original Sprout in the Other Operating Units columns. Corporate expenses, including Marygold, are included in the Concierge Corporate columns.
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Financial Services
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Other Operating Units
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Concierge Corporate
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Consolidated
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($'s in thousands)
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For the Nine Months Ended March 31,
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For the Nine Months Ended March 31,
|
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For the Nine Months Ended March 31,
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For the Nine Months Ended March 31,
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2020
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|
2019
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Change
|
|
|
2020
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|
2019
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|
Change
|
|
|
2020
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|
2019
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Change
|
|
|
2020
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|
2019
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|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
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%
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|
|
|
|
|
|
|
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|
|
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%
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Revenue
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$
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8,867
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$
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11,730
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$
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(2,863
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)
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(24
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)%
|
|
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$
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8,856
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$
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8,400
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$
|
456
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5
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%
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
-
|
|
|
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$
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17,723
|
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$
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20,130
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$
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(2,407
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)
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(12
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)%
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% of total revenue
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|
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50
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%
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|
58
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%
|
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-
|
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(8
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)%
|
|
|
|
50
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%
|
|
42
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%
|
|
-
|
|
8
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%
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
-
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
-
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Cost of revenue
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|
|
-
|
|
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-
|
|
|
-
|
|
-
|
|
|
|
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5,244
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|
|
5,234
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|
|
10
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0
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%
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
-
|
|
|
|
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5,244
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|
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5,234
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$
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10
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0
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%
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Gross profit
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$
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8,867
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$
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11,730
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$
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(2,863
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)
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(24
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)%
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|
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$
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3,612
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$
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3,166
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$
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446
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14
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%
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|
|
|
-
|
|
|
-
|
|
|
-
|
|
-
|
|
|
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$
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12,479
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$
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14,896
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$
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(2,417
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)
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(16
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)%
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Operating expenses
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8,655
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10,744
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(2,089
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)
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(19
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)%
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|
|
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2,760
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|
|
2,423
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337
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14
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%
|
|
|
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1,287
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|
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942
|
|
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345
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37
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%
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|
|
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12,702
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14,109
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(1,407
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)
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(10
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)%
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% of total operating expenses
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68
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%
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76
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%
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-
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(8
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)%
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|
|
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22
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%
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|
17
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%
|
|
-
|
|
5
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%
|
|
|
|
10
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%
|
|
7
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%
|
|
-
|
|
3
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%
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
-
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Income (loss) from operations
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$
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212
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$
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986
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$
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(774
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)
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(78
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)%
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|
|
$
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852
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$
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743
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$
|
109
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|
15
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%
|
|
|
$
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(1,287
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)
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$
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(942
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)
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$
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(345
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)
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37
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%
|
|
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$
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(223
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)
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$
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787
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$
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(1,010
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)
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(128
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)%
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Other (expense) / income
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10
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(153
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)
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163
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107
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%
|
|
|
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(21
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)
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|
15
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|
|
(36
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)
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(240
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)%
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|
|
|
(6
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)
|
|
(35
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)
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|
29
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|
83
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%
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|
|
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(17
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)
|
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(173
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)
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156
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90
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%
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Income (loss) before income taxes
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$
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222
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$
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833
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$
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(611
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)
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(73
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)%
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|
|
$
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831
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|
$
|
758
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$
|
73
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|
10
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%
|
|
|
$
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(1,293
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)
|
$
|
(977
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)
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$
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(316
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)
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32
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%
|
|
|
$
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(240
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)
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$
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614
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$
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(854
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)
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(139
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)%
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For the Three Months Ended March 31, 2020 Compared to the Three Months Ended March 31, 2019
Revenue and Operating Income
Consolidated revenue for the three months ended March 31, 2020 was $5.9 million representing a $0.4 million decrease from the prior year revenue of $6.3 million. While net revenues decreased as a result of lower Fund assets under management ("AUM") from our fund management business by approximately $0.6 million for the three months ended March 31, 2020 as compared to the three months ended March 31, 2019, the corporation's revenues derived from its other operating units were up slightly by $0.2 million from the same prior year period, resulting in a net reduction to revenue in the current quarter of approximately 6%. Concierge produced an operating loss for the three months ended March 31, 2020 of ($181) thousand as compared to income of $162 thousand for the three months ended March 31, 2019. The decrease in operating income was primarily attributable to lower fund management revenue from Wainwright due to lower AUM.
Other Expenses
Other expenses for the three months ended March 31, 2020 and 2019, were ($27) thousand and ($2) thousand for the three months ended March 31, 2020 and 2019, respectively, resulting in a net income (loss) before income taxes of ($208) thousand and $160 thousand, respectively. Benefit (Provision) for income tax for the three months ended March 31, 2020 and 2019 were $191 thousand and ($84) thousand, respectively, resulting in net loss of ($17) thousand for the three months ended March 31, 2020 as compared to net income of $76 thousand for the three months ended March 31, 2019. The difference is primarily attributable to our United States operations through our Wainwright subsidiary.
Net Income (Loss)
Overall, the net income (loss) between the three months ended March 31, 2020 as compared to the three months ended March 31, 2019 decreased by approximately $93 thousand. The reduction in profits for the three months ended March 31, 2020 was primarily attributable to lower fund management revenue from Wainwright due to a lower amount of AUM, partially offset by decreases in Wainwright variable operating expenses, and general and administrative costs. Also contributing to the net loss were expenses related to the start up of our new subsidiary, Marygold & Co., as well as one-time expenses incurred in connection with investment banking and investor relations campaigns. After giving consideration to currency translation losses of $295,100 thousand our comprehensive loss for the three months ended March 31, 2020 was $312,336 thousand as compared to the three months ended March 31, 2019 where there was a currency translation gain of $45 thousand resulting in comprehensive income of $121 thousand. Comprehensive gain and loss are comprised of fluctuations in foreign currency exchange rates related to the effects in the valuation of our holdings in New Zealand and Canada.
For the Nine Months Ended March 31, 2020 Compared to the Nine Months Ended March 31, 2019
Revenue and Operating Income
Consolidated revenue for the nine months ended March 31, 2020 was $18 million representing a $2 million decrease from the prior year revenue of $20 million. While net revenues decreased as a result of lower Fund assets under management ("AUM") from our fund management business by approximately $3 million for the nine months ended March 31, 2020 as compared to the nine months ended March 31, 2019, the corporation's revenues derived from its other operating units increased $0.5 million, resulting in a net reduction in revenue of approximately $2.5 million. Concierge produced an operating (loss) income for the nine months ended March 31, 2020 of ($223) thousand as compared to $787 thousand for the nine months ended March 31, 2019. The decrease in operating income was primarily attributable to lower fund management revenue from Wainwright due to lower AUM.
Other Expenses
Other expenses for the nine months ended March 31, 2020 and 2019, were ($17) thousand and ($173) thousand for the nine months ended March 31, 2020 and 2019, respectively, resulting in a net loss before taxes of ($240) thousand and net income of $614 thousand, respectively. Benefit (Provision) for income tax for the nine months ended March 31, 2020 and 2019 were $202 thousand and ($190) thousand, respectively. The difference is primarily attributable to our United States operations through our Wainwright subsidiary.
Net Income (Loss)
Overall, the net income (loss) between the nine months ended March 31, 2020 as compared to the nine months ended March 31, 2019 decreased by approximately $462 thousand to approximately ($37) thousand loss from $425 thousand income. The reduction in profits for the nine months ended March 31, 2020 was primarily attributable to lower fund management revenue from Wainwright due to a lower amount of AUM, partially offset by decreases in Wainwright variable operating expenses, and general and administrative costs. Also contributing to the net loss were expenses related to the start up of our new subsidiary, Marygold & Co., as well as one-time expenses incurred in connection with employee incentive programs at the subsidiary level, coupled with one-time expenses incurred in connection with investment banking and investor relations campaigns. After giving consideration to currency translation losses of $126 thousand our comprehensive loss for the nine months ended March 31, 2020 was $163 thousand as compared to the nine months ended March 31, 2019 where there was a currency translation loss of ($14) thousand resulting in comprehensive income of $411 thousand. Comprehensive gain and loss are comprised of fluctuations in foreign currency exchange rates related to the effects in the valuation of our holdings in New Zealand and Canada.
Wainwright Holdings
Wainwright was founded as a holding company in March 2004 as a Delaware corporation with one subsidiary, Ameristock Corporation, which was an investment adviser to Ameristock Mutual Fund, Inc., a registered 1940 Act large cap value equity fund. In January 2010, Ameristock Corporation was spun off as a standalone company. In May 2005, USCF was formed as a single member limited liability company in the state of Delaware. In June 2013, USCF Advisers was formed as a Delaware limited liability company and in July 2014, was registered as an investment adviser under the Investment Advisers Act of 1940, as amended. In November 2013, the USCF Advisers board of managers formed USCF ETF Trust (“ETF Trust”) and in July 2016, the USCF Mutual Funds Trust (“Mutual Funds Trust” and together with “ETF Trust” the “Trusts”) both as open-end management investment companies registered under the Investment Company Act of 1940, as amended ("the 1940 Act"). The Trusts are authorized to have multiple segregated series or portfolios. Wainwright owns all of the issued and outstanding limited liability company membership interests of its subsidiaries, USCF and USCF Advisers, each a Delaware limited liability company and are affiliated companies. USCF serves as the general partner (“General Partner”) for various limited partnerships (“LP”) and sponsor (“Sponsor”) as noted below. USCF and USCF Advisers are subject to federal, state and local laws and regulations generally applicable to the investment services industry. USCF is a commodity pool operator (“CPO”) subject to regulation by the Commodity Futures Trading Commission (the "CFTC") and the National Futures Association (the “NFA”) under the Commodities Exchange Act (“CEA”). USCF Advisers is an investment adviser registered under the Investment Advisers Act of 1940, as amended and has registered as a CPO under the CEA. Exchange traded products (“ETPs”) issued or sponsored by USCF are required to be registered with the Securities and Exchange Commission (the “SEC”) in accordance with the Securities Act of 1933. Wainwright operates through USCF and USCF Advisers, which collectively operate eleven exchange-traded products ("ETPs") and exchange traded funds (“ETFs”) listed on they NYSE Arca, Inc. ("NYSE Arca") with a total of approximately $2.1 billion assets under management as of March 31, 2020. Wainwright and subsidiaries USCF and USCF Advisers are collectively referred to as “Wainwright” hereafter.
USCF is currently the General Partner in the following Securities Act of 1933 LP commodity based index funds and Sponsor (“Sponsor”) for the fund series within the United States Commodity Index Funds Trust (“USCIF Trust”) and the USCF Funds Trust (“USCF Funds Trust”):
USCF as General Partner for the following funds
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United States Oil Fund, LP (“USO”)
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Organized as a Delaware limited partnership in May 2005
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United States Natural Gas Fund, LP (“UNG”)
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Organized as a Delaware limited partnership in November 2006
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United States Gasoline Fund, LP (“UGA”)
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Organized as a Delaware limited partnership in April 2007
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United States Diesel Heating Oil Fund, LP (“UHN”)
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Organized as a Delaware limited partnership in April 2007; Liquidated September 12, 2018
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United States 12 Month Oil Fund, LP (“USL”)
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Organized as a Delaware limited partnership in June 2007
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United States 12 Month Natural Gas Fund, LP (“UNL”)
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Organized as a Delaware limited partnership in June 2007
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United States Short Oil Fund, LP (“DNO”)
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Organized as a Delaware limited partnership in June 2008; Liquidated September 12, 2018
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United States Brent Oil Fund, LP (“BNO”)
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Organized as a Delaware limited partnership in September 2009
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USCF as fund Sponsor - each a series within the USCIF Trust
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United States Commodity Index Funds Trust (“USCIF Trust”)
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A series trust formed in Delaware December 2009
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United States Commodity Index Fund (“USCI”)
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A commodity pool formed in April 2010 and made public August 2010
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United States Copper Index Fund (“CPER”)
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A commodity pool formed in November 2010 and made public November 2011
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United States Agriculture Index Fund (“USAG”)
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A commodity pool formed in November 2010 and made public April 2012; Liquidated September 12, 2018
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USCF as fund Sponsor - each a series within the USCF Funds Trust
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USCF Funds Trust (“USCF Funds Trust”)
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A series trust formed in Delaware March 2016
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United States 3X Oil Fund (“USOU”)
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A commodity pool formed in May 2017 and made public July 2017; Liquidated December 18, 2019
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United States 3X Short Oil Fund (“USOD”)
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A commodity pool formed in May 2017 and made public July 2017; Liquidated December 18, 2019
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USCF Advisers serves as the investment adviser to the fund(s) listed below within the Trusts and has overall responsibility for the general management and administration for the Trusts. Pursuant to the current Investment Advisory Agreements, USCF Advisers provides an investment program for the Trusts’ fund(s) and manages the investment of the assets.
Advisers as fund manager for each series within the USCF ETF Trust and the USCF Mutual Funds Trust:
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USCF ETF Trust (“ETF Trust”)
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Organized as a Delaware statutory trust in November 2013
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USCF SummerHaven SHPEI Index Fund ("BUY")
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Fund launched November 30, 2017
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USCF SummerHaven SHPEN Index Fund ("BUYN")
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Fund launched November 30, 2017; Liquidated May 6, 2020
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Stock Split Index Fund (“TOFR”)
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Fund launched September 2014; Liquidated October 20, 2017
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Restaurant Leaders Index Fund (“MENU”)
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Fund launched November 2016; Liquidated October 20, 2017
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USCF SummerHaven Dynamic Commodity Strategy No K-1 Fund
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Fund launched May 2018
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USCF Mutual Funds Trust ("Mutual Funds Trust")
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Organized as a Delaware statutory trust in July 2016
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USCF Commodity Strategy Fund ("USCFX" and "USCIX")
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Fund launched March 2017; Liquidated March 21, 2019
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All USCF funds and the Trusts' funds are collectively referred to as the “Funds” hereafter.
Wainwright’s revenue and expenses are primarily driven by the amount AUM. Wainwright earns monthly management and advisory fees based on agreements with each Fund as determined by the contractual basis point management fee structure in each agreement multiplied by the average AUM over the given period. Many of the company’s expenses are dependent upon the amount of AUM. These variable expenses include Fund administration, custody, accounting, transfer agency, marketing and distribution, and sub-adviser fees and are primarily determined by multiplying contractual fee rates by AUM. Total Operating Expenses are grouped into the following financial statement line items: General and Administrative, Marketing, Operations and Salaries and Compensation.
For the Three Months Ended March 31, 2020, Compared to the Three Months Ended March 31, 2019
Revenue
Average AUM for the three months ended March 31, 2020 was at $2.3 billion, as compared to approximately $2.6 billion from the three months ended March 31, 2019 primarily due to a decrease in USO, USCI and UNG AUM. As a result, the revenues from management and advisory fees decreased by approximately $0.6 million, or 16%, to $3.0 million for the three months ended March 31, 2020 as compared to the three months ended March 31, 2019 where revenues from management and advisory fees totaled $3.6 million.
Expenses
Wainwright’s total operating expenses for three months ended March 31, 2020 decreased by $0.4 million to $3.0 million, or approximately 10%, from $3.4 million for the three months ended March 31, 2019. Variable expenses, as described above, decreased by $0.4 million over the respective three-month period due to lower AUM which reduced variable marketing and distribution expenses, sub-advisory fees and other variable costs. General and Administrative expenses, excluding new fund development cost, were $0.6 million and $0.4 million for the three months ended March 31, 2020 and March 31, 2019, respectively. Expenses increased due to decreases in legal and professional fees related to moving to a new fund custodian, accounting and administrative bank during the quarter. Total marketing expenses decreased $0.1 million to $0.5 million for the three months ended March 31, 2020 as compared to the prior year period due to a decrease in marketing conference spend along with a small reduction in variable distribution costs as a result of lower AUM. Employee Salaries and Compensation expenses were approximately $1.2 million and $1.1 million for the three months ended March 31, 2020 and March 31, 2019, respectively, with the increase due to employer 401K contributions.
Income
Income (loss) before income taxes for the three months ended March 31, 2020 decreased $0.3 million to a ($0.1) million loss compared to $0.2 million in income for three months ended March 31, 2019 due to $0.6 million in lower revenue as a result of lower AUM, offset by a $0.4 million reduction in operating expenses.
For the Nine Months Ended March 31, 2020 Compared to the Nine Months Ended March 31, 2019
Revenue
Average AUM for the nine months ended March 31, 2020 was at $2.2 billion, as compared to approximately $2.8 billion from the nine months ended March 31, 2019 primarily due to a decrease in USO, USCI and UNG AUM. As a result, the revenues from management and advisory fees decreased by approximately $2.8 million, or 24%, to $8.9 million for the nine months ended March 31, 2020 as compared to the nine months ended March 31, 2019 where revenues from management and advisory fees totaled $11.7 million.
Expenses
Wainwright’s total operating expenses for nine months ended March 31, 2020 decreased by $2 million to $8.7 million, or approximately 19%, from $10.7 million for the nine months ended March 31, 2019. Variable expenses, as described above, decreased by $1.5 million over the respective nine-month period due to lower AUM which reduced variable marketing and distribution expenses, sub-advisory fees and other variable costs. General and Administrative expenses, excluding new fund development cost were $1.4 million and $1.5 million for the nine months ended March 31, 2020 and March 31, 2019, respectively. Total marketing expenses decreased $0.6 million to $1.4 million for the nine months ended March 31, 2020 as compared to the prior year period due to a decrease of $0.3 million in advertising and marketing conference spend along with a $0.2 million reduction in variable distribution costs as a result of lower AUM. Employee Salaries and Compensation expenses were approximately $3.3 million and $3.5 million for the nine months ended March 31, 2020 and March 31, 2019, respectively, with the decrease due to no bonuses for 2019.
Income
Income before income taxes for the nine months ended March 31, 2020 decreased $0.6 million to $0.2 million from $0.8 million for nine months ended March 31, 2019 due to $2.8 million in lower revenue as a result of lower AUM, offset by a $2 million reduction in operating expenses along with a decrease of $0.2 million in other expenses.
Gourmet Foods, Ltd.
Gourmet Foods Limited (“Gourmet Foods”), was organized in its current form in 2005 (previously known as Pats Pantry Ltd). Pats Pantry was founded in 1966 to produce and sell wholesale bakery products, meat pies and patisserie cakes and slices, in New Zealand. Gourmet Foods, located in Tauranga, New Zealand, sells substantially all of its goods to supermarkets and service station chains with stores located throughout New Zealand. Gourmet Foods also has a large number of smaller independent lunch bars, cafes and corner dairies among the customer list, however they comprise a relatively insignificant dollar volume in comparison to the primary accounts of large distributors and retailers.
Gourmet Foods operates exclusively in New Zealand and thus the New Zealand dollar is its functional currency. In order to consolidate Concierge’s reporting currency, the US dollar, with that of Gourmet Foods, Concierge records foreign currency translation adjustments and transaction gains and losses in accordance with ASC 830-30. The translation of New Zealand currency into U.S. dollars is performed for balance sheet accounts using the exchange rates in effect at the balance sheet date and for revenue and expense accounts using a weighted average exchange rate during the period. Gains and losses resulting from foreign currency translations are included in foreign currency translation (loss) gain on the Condensed Consolidated Statements of Comprehensive Income as well as accumulated other comprehensive (loss) income found on the Condensed Consolidated Balance Sheets.
For the Three Months Ended March 31, 2020, Compared to the Three Months Ended March 31, 2019
Revenue
Net revenues for the three months ended March 31, 2020 were $1.3 million with cost of goods sold of $0.9 million resulting in a gross profit of $0.4 million, or approximately 31% gross margin, as compared to the year ended March 31, 2019 where net revenues were $1.1 million and cost of goods sold were $0.7 million producing a gross profit of $0.4 million, or approximately 28%.
Expenses
General, administrative and selling expenses, including wages and marketing, for the three month periods ended March 31, 2020 and 2019 were $0.2 million and $0.2 million producing operating income of $0.2 million and $0.1 million, respectively, or approximately 12% net operating profit for the three months ended March 31, 2020 and 12% for the three months ended March 31, 2019. The depreciation expense, provision for income tax, and other income (expense) totaled approximately $0.1 million for the three months ended March 31, 2020 as compared to $0.1 million for the three months ended March 31, 2019.
Income
Income for the three months ended March 31, 2020, after expenses of approximately $0.3 million, resulted in an income of approximately $105 thousand before income tax provision of approximately $14 thousand resulted in a net income of approximately $92 thousand as compared to a net income of $64 thousand for the three months ended March 31, 2019. Overall, net profit margins for the comparative periods are consistent and differences are attributed to depreciation expense, varying income tax provisions and the fluctuation of currency exchange rates with the New Zealand dollar.
For the Nine Months Ended March 31, 2020 Compared to the Nine Months Ended March 31, 2019
Revenue
Net revenues for the nine months ended March 31, 2020 were $3.8 million with cost of goods sold of $2.7 million resulting in a gross profit of $1.1 million, or approximately 30% gross margin, as compared to the year ended March 31, 2019 where net revenues were $3.5 million and cost of goods sold were $2.5 million producing a gross profit of $1.0 million, or approximately 28%.
Expenses
General, administrative and selling expenses, including wages and marketing, for the nine month periods ended March 31, 2020 and 2019 were $0.6 million and $0.6 million producing operating income of $0.5 million and $0.4 million, respectively, or approximately 14% net operating profit for the nine months ended March 31, 2020 and 10% for the nine months ended March 31, 2019. The depreciation expense, provision for income tax, and other income (expense) totaled approximately $0.2 million for the nine months ended March 31, 2020 as compared to $0.2 million for the nine months ended March 31, 2019.
Income
Income for the nine months ended March 31, 2020, after expenses of approximately $0.8 million, resulted in approximately $0.4 million before income tax provision of approximately $43 thousand resulted in a net income of approximately $349 thousand as compared to a net income of $106 thousand for the nine months ended March 31, 2019. Overall, net profit margins for the comparative periods are consistent and differences are attributed to depreciation expense, varying income tax provisions and the fluctuation of currency exchange rates with the New Zealand dollar.
Brigadier Security Systems (2000) Ltd.
Brigadier Security Systems (2000) Ltd. (“Brigadier”) was founded in 1985 and through internal growth and acquisitions the core business of Brigadier began in 1998. Today Brigadier is one of the largest SecurTek security monitoring dealers in Saskatchewan with offices in both major urban areas of Regina (dba Elite Security Systems (2005) Ltd.) and Saskatoon. SecurTek is owned by SaskTel which is Saskatchewan's leading Information and Communications Technology (ICT) provider with over 1.4 million customer connections across Canada. Brigadier is also a Honeywell Certified Access Control Integrator, Kantech Corporate Certified Integrator and UTC Authorized dealer and the largest independent security contractor in the province. Brigadier provides comprehensive security solutions including access control, camera systems, fire alarm monitoring panels, and intrusion alarms to home and business owners as well as government offices, schools and public buildings. Brigadier typically sells hardware, installation service, and a monitoring contract to customers. Under the terms of its authorized dealer contract with the monitoring company, Brigadier earns monthly payments during the term of the monitoring contract in exchange for performance of customer service activities on behalf of the monitoring company.
Brigadier operates exclusively in Canada and thus the Canadian dollar is its functional currency. In order to consolidate Concierge’s reporting currency, the U.S. dollar, with that of Brigadier, Concierge records foreign currency translation adjustments and transaction gains and losses in accordance with ASC 830-30. The translation of Canadian currency into U.S. dollars is performed for balance sheet accounts using the exchange rates in effect at the balance sheet date and for revenue and expense accounts using a weighted average exchange rate during the period.
Gains and losses resulting from foreign currency translations are included in foreign currency translation (loss) gain on the Condensed Consolidated Statements of Comprehensive Income as well as accumulated other comprehensive (loss) income found on the Condensed Consolidated Balance Sheets.
For the Three Months Ended March 31, 2020 Compared to the Three Months Ended March 31, 2019
Revenue
Net revenues for the three months ended March 31, 2020 were $0.6 million with cost of goods sold recorded as approximately $0.3 million, resulting in a gross profit of approximately $0.3 million with a gross margin of approximately 54% as compared to the three months ended March 31, 2019 where net revenues were approximately $0.8 million with cost of goods sold of $0.4 million and a gross profit of $0.4 million, or approximately 45%.
Expenses
General, administrative and selling expenses for the three months ended March 31, 2020 were $0.3 million producing an operating profit of $0.1 million or approximately 10% as compared to the three months ended March 31, 2019 where operating profits were $0.1 million, or approximately 13%, with general, administrative and selling expenses of $0.3 million.
Income
Other expense comprised of depreciation, income tax, interest income, other income, and gain on sale of assets totaled approximately $17 thousand for the three months ended March 31, 2020 resulting in income after income taxes of approximately $41 thousand as compared to income after income taxes of approximately $78 thousand for the three months ended March 31, 2019 where other expense totaled $28 thousand.
For the Nine Months Ended March 31, 2020 Compared to the Nine Months Ended March 31, 2019
Revenue
Net revenues for the nine months ended March 31, 2020 were $2.1 million with cost of goods sold recorded as approximately $1.0 million, resulting in a gross profit of approximately $1.1 million with a gross margin of approximately 53% as compared to the nine months ended March 31, 2019 where net revenues were approximately $2.4 million with cost of goods sold of $1.3 million and a gross profit of $1.1 million, or approximately 45%.
Expenses
General, administrative and selling expenses for the nine months ended March 31, 2020 were $0.8 million producing an operating profit of $0.3 million or approximately 14% as compared to the nine months ended March 31, 2019 where operating profits were $0.4 million, or approximately 16%, with general, administrative and selling expenses of $0.7 million.
Income
Other expense comprised of depreciation, income tax, interest income, other income, and gain on sale of assets totaled approximately $82 thousand for the nine months ended March 31, 2020 resulting in income after income taxes of approximately $209 thousand as compared to income after income taxes of approximately $273 thousand for the nine months ended March 31, 2019 where other expense totaled $97 thousand.
Original Sprout
Kahnalytics was founded in 2015 and adopted the dba/Original Sprout in December 2017. Original Sprout formulates and packages various hair and skin care products that are 100% vegan, tested safe and non-toxic, and marketed globally through distribution networks to salons, resorts, grocery stores, health food stores, e-tail sites and on the company's website. The company operates from warehouse and sales offices located in San Clemente, CA, USA.
For the Three Months Ended March 31, 2020 Compared to the Three Months Ended March 31, 2019
Revenue
Net revenues for the three months ended March 31, 2020 were $1.1 million as compared to $0.7 million for the three months ended March 31, 2019. Cost of goods sold for the three months ended March 31, 2020 and 2019 were $0.6 million and $0.4 million, respectively, resulting in a gross profit of approximately $0.5 million and $0.3 million, respectively.
Expenses
General, administrative and selling expenses were approximately $0.3 million resulting in an operating income of approximately $184 thousand, or approximately 17%, as compared to $0.2 million of general, administrative and selling expenses resulting in $116 thousand for the three months ended March 31, 2019, or approximately 16%.
Income (Loss)
After consideration given to income tax provision, other income (expense), and depreciation expense, the net income for the three months ended March 31, 2020 was approximately $131 thousand as compared to $46 thousand income from the prior year comparable period.
For the Nine Months Ended March 31, 2020 Compared to the Nine Months Ended March 31, 2019
Revenue
Net revenues for the nine months ended March 31, 2020 were $2.9 million as compared to $2.5 million for the nine months ended March 31, 2019. Cost of goods sold for the nine months ended March 31, 2020 and 2019 were $1.6 million and $1.4 million, respectively, resulting in a gross profit of approximately $1.3 million and $1.1 million, respectively.
Expenses
General, administrative and selling expenses were approximately $0.9 million resulting in an operating income of approximately $0.4 million, or approximately 13%, as compared to $0.6 million of general, administrative and selling expenses resulting in $0.5 million for the nine months ended March 31, 2019, or approximately 18%.
Income
After consideration given to income tax provision, other income, and depreciation expense, the net income for the nine months ended March 31, 2020 was approximately $154 thousand as compared to $253 thousand from the prior year comparable period.
Plan of Operation for the Next Twelve Months
Our plan of operation for the next twelve months is to apply necessary resources, which may include experienced personnel, cash, or synergistic acquisitions made with cash, equity or debt, into growing each of our business units to their potential. Original Sprout is in the initial stages of transitioning from a largely boutique offering to a more mainstream product and as such we anticipate measurable growth in revenues for the coming years. Additionally, we are expecting moderate growth in Brigadier through focused management initiatives and consolidation within the security industry coupled with expanded product offerings. Similarly, we expect Gourmet Foods to be operating more efficiently under current management and continue to increase market share through additional product offerings and channels to market, including distribution in New Zealand of the products from Original Sprout. Wainwright will continue to develop innovative and new fund products to grow its portfolio. In addition to our long-term mission that is an acquisition strategy based upon identifying and acquiring profitable, mature, companies of a diverse nature and with in-place management that produces increased revenue streams, the Company is also focused upon building expertise and developing Fintech opportunities in the financial services sector. In a more general sense, the Company is characterizing its business in two categories; 1) financial services and 2) other operating units. The purpose is to isolate the cyclical nature of the financial services business from our other industry segments. As revenues from financial services fluctuate over time due to varying performance of the commodities markets, our other operations are expected to be stable and sustainable by comparison. By these initiatives we seek to:
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continue to gain market share for our wholly-owned subsidiaries’ areas of operation,
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increase our gross revenues and realize net operating profits,
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lower our operating costs by unburdening certain selling expenses to third party distributors,
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have sufficient cash reserves to pay down accrued expenses and losses,
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attract parties who have an interest in selling their privately held companies to us,
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achieve efficiencies in accounting and reporting through adoption of standards used by all subsidiaries on a consistent basis,
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strategically pursue additional company acquisitions, and
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explore opportunities as may present themselves in the Fintech space, including creation of new corporate entities such as Marygold as focused subsidiary holdings.
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Liquidity and Capital Resources
Concierge is a holding company that conducts its operations through its subsidiaries. At its holding-company level, its liquidity needs relate to operational expense, the funding of additional business acquisitions and new investment opportunities. Our operating subsidiaries' principal liquidity requirements arise from cash used in operating activities, debt service, and capital expenditures, including purchases of equipment and services, operating costs and expenses, and income taxes.
As of March 31, 2020, we had $6.0 million of cash and cash equivalents on a consolidated basis as compared to $6.5 million as of June 30, 2019.
During the current and past fiscal years combined, Concierge has invested approximately $3.5 million in cash towards purchasing and assimilating the Original Sprout assets into the Concierge Technologies group of companies. During the previous years ended June 30, 2016 through June 30, 2017, Concierge invested approximately $3.3 million in cash to acquire Gourmet Foods and Brigadier Security Systems as well as the acquisition through a stock-for-stock exchange of Wainwright, which provides a significant revenue stream and value. During the current nine month period ended March 31, 2020 we have invested cash and resources to the formation of our wholly-owned subsidiary, Marygold & Co., and its product development. Despite these cash investments, our working capital position remains strong at approximately $11.9 million and our position has strengthened year-to-year. Management forecasts Wainwright, Gourmet Foods, Brigadier and Original Sprout to all produce a profit during the coming fiscal year and the realization of those profits by Concierge is not expected to be significantly impacted by foreign currency fluctuations against the U.S. dollar during the period. While Concierge intends to maintain and improve its revenue stream from wholly owned subsidiaries, Concierge continues to pursue acquisitions of other profitable companies which meet its target profile. Provided Concierge’s subsidiaries continue to operate as they are presently, and are projected to operate, Concierge has sufficient capital to pay its operating expenses for the coming fiscal year and to adequately pursue its long term business objectives.
In relation to the adoption of ASC 842 (see Note 2), the Company recognized $1,150,916 of operating lease liabilities on July 1, 2019. The total amount due under these obligations was $847,203 and $0 as of March 31, 2020 and June 30, 2019, respectively. The obligations will amortize over the passage of time through the recognition of periodic rent expense. See Note 6 for further analysis of this obligation.
Borrowings
As of March 31, 2020, we had $1.0 million of related-party and third-party indebtedness on a consolidated basis as compared to $0.7 million as of June 30, 2019. Approximately US$361,149 is owed by Brigadier and secured with the land and building in Saskatoon purchased in July 2019. Concierge, without inclusion of its subsidiary companies, as of March 31, 2020 and June 30, 2019, had $0.6 million of related-party indebtedness. We are not required to make interest payments on our related party notes until the maturity date.
Current related party notes payable consist of the following:
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March 31,
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June 30,
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2020
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2019
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Notes payable to shareholder, interest rate of 8%, unsecured and payable on December 31, 2012 (past due)
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3,500
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3,500
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Notes payable to shareholder, interest rate of 4%, unsecured and payable on May 25, 2022
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250,000
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250,000
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Notes payable to shareholder, interest rate of 4%, unsecured and payable on April 8, 2022
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350,000
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350,000
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$
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603,500
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$
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603,500
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As of March 31, 2020, Brigadier had an outstanding principal balance of CD$512,138 (approx. US$361,150 translated as of March 31, 2020) related to the purchase of their Saskatoon office land and building. The Consolidated Balance Sheets as of March 31, 2020 and June 30, 2019 reflect the amount of the principal balance which is due within twelve months as a current liability of US$12,536 and a long term liability of US$348,614. As of June 30, 2019, the loan liability consisted of principal balances outstanding for vehicle purchases. The principal amounts under the loans which were due within twelve months were recorded in short term liabilities as US$26,241, and after twelve months as US$61,057. These loans were paid in full as of March 31, 2020, whereas there was no liability for the loan related to the property purchase as of June 30, 2019. Total interest on vehicle loans for the three and nine months ended March 31, 2020 was zero and US$753, respectively, as compared to the three and nine months ended March 31, 2019 of US$1,077 and US$4,209, respectively. Interest on the mortgage loan for the three and nine months ended March 31, 2020 was US$3,926 and US$12,173, respectively, with no mortgage interest being due prior to July 1, 2019.
Investments
Wainwright, from time to time, provides initial investments in the creation of ETF 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. As of March 31, 2020 and June 30, 2019 we have no such investments. These investments are described further in Note 7 to our Financial Statements.
Dividends
Our strategy on dividends is to declare and pay dividends only from retained earnings and only when our Board of Directors deems it prudent and in the best interests of the company to declare and pay dividends. We have paid no dividends and we do not expect to pay any dividends over the next fiscal year.