UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended |
OR
☐ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to . |
Commission File Number: 000-29913
CONCIERGE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Nevada | 90-1133909 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
29115 Valley Center Rd. K-206
Valley Center, CA 92082
866-800-2978
Fax: 888.312.0124
(Address and telephone number of registrant's principal
executive offices and principal place of business)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or smaller reporting company, or an emerging growth company.
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | (Do not check if a smaller reporting company) | Smaller reporting company | ☒ | ||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
The registrant had 886,753,847 shares of the Registrant’s Common Stock, $0.001 par value, outstanding and 13,108,474 shares of its Series B Convertible, Voting, Preferred Stock par value $0.001.
Table of Contents
Page | |
4 | |
4 | |
5 | |
6 | |
7 | |
8 | |
21 | |
Item 3. Quantitative and Qualitative Disclosures About Market | 26 |
26 | |
26 | |
26 | |
26 | |
Item 2. Unregistered Sales of Equity Securities and Use of | 26 |
26 | |
26 | |
26 | |
27 | |
29 |
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to Financial Statements
• | our future financial performance, including our revenue, cost of revenue, gross profit, gross margin, operating expenses, ability to generate positive cash flow, and ability to achieve and maintain profitability; | ||
• | the sufficiency of | cash equivalents to meet our working capital, capital expenditure, and liquidity needs; | |
• | our ability to attract and retain customers to use our products, to optimize the pricing for our products, to expand our sales to our customers, and to convince our existing customers to renew subscriptions; | ||
• | the evolution of | markets; | |
• | our ability to innovate and provide a superior user experience and our intentions and strategy with respect thereto; | ||
• | our ability to successfully penetrate enterprise markets; | ||
• | our ability to successfully expand in our existing markets and into new markets, including international markets; | ||
• | the attraction and retention of key personnel; | ||
• | our ability to effectively manage our growth and future expenses; | ||
• | worldwide economic conditions and their impact on spending; and | ||
• | our ability to comply with modified or new laws and regulations applying to our business, including privacy and data security regulations. |
We caution you that the State of California for the purpose of taking on the segment of the business retained in the spinoff of Janus Cam and to direct resources towards the further development of data processing capabilities intended for risk management used by vehicle insurance companies. As of September 30, 2016, Kahnalytics ended its sale of camera hardware to insurance companies and began providing an online platform where subscribers to the Kahnalytics Fleet Management Service (“FMS”) can track their vehicles, view event video clips, see programmable alert functions and use the live-streaming function to operate in-vehicle cameras in real time.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and outstanding stock in Gourmet Foods, Ltd., a New Zealand corporation (“Gourmet Foods”) located in Tauranga, a commercial-scale manufacturer of New Zealand meat pies under the brand names “Ponsonby Pies”projections about future events and “Pat’s Pantry”. Gourmet Foods distributes its products through major grocery store chains, convenience stores, small restaurantstrends that we believe may affect our business, financial condition, operating results, and gasoline station markets.prospects. The purchase price of $1,753,428 was paid in cash.
The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to commercial and residential customers under brand names “Brigadier Security Systems” and “Elite Security” throughout the province of Saskatchewan with offices in Saskatoon and Regina. The purchase price of $1,540,829 was paid in cash.
December 31, 2016 | June 30, 2016 | |
| ASSETS | As Adjusted | |
| CURRENT ASSETS: | ||
| Cash & cash equivalents | $7,080,786 | $5,454,107 |
| Accounts receivable, net | 749,423 | 839,220 |
| Accounts receivable, related parties | 2,202,684 | 2,124,105 |
| Inventory, net | 496,037 | 436,541 |
| Investments | 837,546 | 993 |
| Other current assets | 1,263,521 | 755,509 |
| Total current assets | 12,629,997 | 9,610,477 |
| Restricted cash | 13,847 | - |
| Property and equipment, net | 1,036,045 | 1,166,693 |
| Goodwill | 219,256 | 219,256 |
| Intangible assets - net | 958,256 | 1,018,213 |
| Long term assets | 1,723,342 | 1,526,154 |
| Total assets | $16,580,743 | $13,540,793 |
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||
| CURRENT LIABILITIES: | ||
| Accounts payable and accrued expenses | $2,941,669 | $2,396,017 |
| Accounts payable, related parties | 939,385 | 448,930 |
| Purchase consideration payable | - | 214,035 |
| Notes payable - related parties | 3,500 | 8,500 |
| Notes payable | 8,500 | 8,500 |
| Convertible Promissory Notes Payable - related parties, net | 600,000 | 600,000 |
| Total liabilities | 4,493,054 | 3,675,982 |
Commitments & Contingencies | ||
| Convertible, Preferred stock, 50,000,000 authorized par $0.001 | ||
Series B: 13,108,474 issued and outstanding at December 31, 2016 and June 30, 2016 | 13,108 | 13,108 |
13,108 | 13,108 | |
| STOCKHOLDERS' EQUITY | ||
| Common stock, $0.001 par value; 900,000,000 shares authorized; 886,753,846 shares issued and outstanding at December 31, 2016 and at June 30, 2016 | 886,754 | 886,754 |
| Additional paid-in capital | 9,058,605 | 9,058,605 |
| Accumulated other comprehensive income (loss) | (99,702) | (29,503) |
| Retained Earnings (Accumulated Deficit) | 2,228,923 | (64,154) |
| Total Stockholders' equity | 12,074,580 | 9,851,702 |
| Total liabilities and Stockholders' equity | $16,580,743 | $13,540,793 |
The accompanying notes are an integral part of these unaudited consolidated financial statements. | ||
For the Three-Month Periods Ending | For the Six-Month Periods Ending | |||
December 31, | December 31, | |||
2016 | 2015 | 2016 | 2015 | |
As Adjusted | As Adjusted | |||
| Net revenue | ||||
| Fund management - Related Party | $6,472,531 | $5,645,696 | $12,840,475 | $10,941,614 |
| Food products | 1,203,521 | 996,563 | 2,394,081 | 1,610,923 |
| Security alarm monitering | 828,114 | - | 1,641,660 | - |
| Other | 25,039 | (3,500) | 89,566 | 117,700 |
| Net revenue | 8,529,205 | 6,638,759 | 16,965,782 | 12,670,237 |
| Cost of revenue | 1,077,615 | 680,083 | 2,190,634 | 1,248,184 |
| Gross profit | 7,451,590 | 5,958,676 | 14,775,148 | 11,422,053 |
| Operating expense | ||||
| General & administrative expense | 1,447,595 | 1,103,195 | 2,731,254 | 3,788,994 |
| Fund operations | 1,335,265 | 1,029,646 | 2,769,467 | 1,029,646 |
| Marketing | 1,051,152 | 729,691 | 1,831,683 | 1,345,440 |
| Depreciation | 101,188 | 58,487 | 199,830 | 96,676 |
| Salaries and compensation | 1,909,832 | 1,330,358 | �� 3,260,053 | 1,517,535 |
| Total Operating Expenses | 5,845,031 | 4,251,378 | 10,792,286 | 7,778,291 |
| Income from operations | 1,606,559 | 1,707,299 | 3,982,862 | 3,643,762 |
| Other income (expense) | ||||
| Other income | 2,636 | 4,512 | 6,816 | 4,393 |
| Interest Income | - | 1,604 | - | 3,297 |
| Interest expense | (5,711) | - | (5,689) | - |
| Total other expense | (3,075) | 6,116 | 1,127 | 7,689 |
| Income before income taxes | 1,603,484 | 1,713,414 | 3,983,989 | 3,651,452 |
| Provision of income taxes | (587,038) | (764,340) | (1,657,049) | (1,365,358) |
| Net Income | $1,016,446 | $949,074 | $2,326,940 | $2,286,094 |
| Other Comprehensive Income (Loss) | ||||
| Foreign currency translation gain (loss) | 4,714 | 69,847 | (92,581) | (16,357) |
| Comprehensive Income | $1,021,161 | $1,018,921 | $2,234,359 | $2,269,737 |
| Weighted average shares of common stock | ||||
| Basic | 886,753,846 | 886,753,846 | 886,753,846 | 886,753,846 |
| Diluted | 1,153,666,000 | 1,148,923,323 | 1,153,666,000 | 1,148,923,323 |
| Net income per common share | ||||
| Basic | $0.00 | $0.00 | $0.00 | $0.00 |
| Diluted | $0.00 | $0.00 | $0.00 | $0.00 |
September 30, 2017 | June 30, 2017 | |||||||
ASSETS | ||||||||
(Unaudited) | (Audited) | |||||||
CURRENT ASSETS: | ||||||||
Cash and cash equivalents | $ | 7,329,365 | $ | 6,730,486 | ||||
Accounts receivable, net | 785,455 | 871,570 | ||||||
Accounts receivable, related parties | 1,646,503 | 1,762,271 | ||||||
Inventory, net | 782,268 | 444,274 | ||||||
Prepaid income tax and tax receivable | 1,180,646 | 1,276,540 | ||||||
Investments | 3,556,997 | 3,578,749 | ||||||
Other current assets | 315,838 | 369,599 | ||||||
Total current assets | 15,597,072 | 15,033,489 | ||||||
Restricted cash | 14,618 | 14,870 | ||||||
Property and equipment, net | 1,301,343 | 1,159,465 | ||||||
Goodwill | 498,973 | 498,973 | ||||||
Intangible assets, net | 869,297 | 899,276 | ||||||
Deferred tax assets, net | 1,502,116 | 1,480,272 | ||||||
Other assets, long - term | 509,538 | 509,538 | ||||||
Total assets | $ | 20,292,957 | $ | 19,595,883 | ||||
LIABILITIES, CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS' EQUITY | ||||||||
CURRENT LIABILITIES: | ||||||||
Accounts payable and accrued expenses | $ | 2,435,500 | $ | 2,842,855 | ||||
Expense waivers - related parties | 648,117 | 589,093 | ||||||
Notes payable - related parties | 3,500 | 3,500 | ||||||
Equipment loans | 38,140 | 17,388 | ||||||
Total current liabilities | 3,125,257 | 3,452,836 | ||||||
LONG TERM LIABILITIES | ||||||||
Notes payable - related parties | 600,000 | 600,000 | ||||||
Equipment loans | 226,946 | 72,605 | ||||||
Deferred tax liabilities | 258,601 | 258,601 | ||||||
Total liabilities | 4,210,804 | 4,384,042 | ||||||
Commitments and contingencies | ||||||||
Convertible preferred stock, 50,000,000 authorized par $0.001 | ||||||||
Series B convertible preferred stock: 13,108,474 issued and outstanding at September 30, 2017 and June 30, 2017 | 2,011,934 | 2,011,934 | ||||||
| 2,011,934 | 2,011,934 | |||||||
STOCKHOLDERS' EQUITY | ||||||||
Common stock, $0.001 par value; 900,000,000 shares authorized; 886,753,847 shares issued and outstanding at September 30, 2017 and June 30, 2017 | 886,754 | 886,754 | ||||||
Additional paid-in capital | 6,317,440 | 6,317,440 | ||||||
Accumulated other comprehensive income (loss) | 117,946 | 119,338 | ||||||
Retained earnings (accumulated deficit) | 6,748,079 | 5,876,375 | ||||||
Total stockholders' equity | 14,070,219 | 13,199,907 | ||||||
Total liabilities, convertible preferred stock, and stockholders' equity | $ | 20,292,957 | $ | 19,595,883 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
(Unaudited) |
Three Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
(As Adjusted) | ||||||||
Net revenue | ||||||||
Fund management - related party | $ | 5,157,948 | $ | 6,367,944 | ||||
Food products | 1,294,290 | 1,205,639 | ||||||
Security alarm monitoring | 789,192 | 825,065 | ||||||
Other | 22,855 | 64,527 | ||||||
Net revenue | 7,264,285 | 8,463,175 | ||||||
Cost of revenue | 1,271,524 | 1,271,091 | ||||||
Gross profit | 5,992,761 | 7,192,084 | ||||||
Operating expense | ||||||||
General and administrative expense | 1,239,944 | 1,452,048 | ||||||
Fund operations | 1,276,543 | 1,434,202 | ||||||
Marketing | 841,975 | 770,366 | ||||||
Depreciation and amortization | 114,736 | 99,512 | ||||||
Salaries and compensation | 1,130,133 | 1,055,752 | ||||||
Total operating expenses | 4,603,331 | 4,811,880 | ||||||
Income from operations | 1,389,430 | 2,380,204 | ||||||
Other (expense) income | ||||||||
Other (expense) income | (12,049 | ) | 4,916 | |||||
Interest income | 2,188 | - | ||||||
Interest expense | (11,098 | ) | (13,256 | ) | ||||
Total other (expense), net | (20,959 | ) | (8,340 | ) | ||||
Income before income taxes | 1,368,471 | 2,371,864 | ||||||
Provision of income taxes | 496,767 | 1,070,605 | ||||||
Net income | $ | 871,704 | $ | 1,301,259 | ||||
Weighted - average shares of common stock | ||||||||
Basic | 886,753,847 | 886,753,847 | ||||||
Diluted | 1,148,923,324 | 1,148,923,324 | ||||||
Net income per common share | ||||||||
Basic | $ | 0.00 | $ | 0.00 | ||||
Diluted | $ | 0.00 | $ | 0.00 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
(Unaudited) |
Three Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
(As Adjusted) | ||||||||
Net income | $ | 871,704 | $ | 1,301,259 | ||||
Other comprehensive income (loss): | ||||||||
Foreign currency translation gain (loss) | 42,705 | (9,915 | ) | |||||
Changes in short - term investment valuation | (44,097 | ) | (694 | ) | ||||
Comprehensive income | $ | 870,312 | $ | 1,290,650 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
(Unaudited) |
Three Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
(As Adjusted) | ||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income | $ | 871,704 | $ | 1,301,259 | ||||
Adjustments to reconcile net income to net cash provided by operating activities | ||||||||
Depreciation and amortization | 114,736 | 99,512 | ||||||
Realized loss on sale of investments | 35,803 | - | ||||||
Realized (gain) loss on disposal of equipment | (1,680 | ) | 8,183 | |||||
(Increase) decrease in current assets: | ||||||||
Accounts receivable | 98,528 | 32,688 | ||||||
Accounts receivable - related party | 115,768 | 72,444 | ||||||
Deferred taxes | (21,844 | ) | 133,227 | |||||
Prepaid income taxes | 37,455 | 892,143 | ||||||
Inventory | (331,430 | ) | (8,519 | ) | ||||
Other assets | 54,826 | (94,949 | ) | |||||
Increase (decrease) in current liabilities: | ||||||||
Accounts payable and accrued expenses | (377,801 | ) | (316,118 | ) | ||||
Expense waivers payable - related party | 59,023 | 251,802 | ||||||
Net cash provided by operating activities | 655,088 | 2,371,672 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of equipment | (237,924 | ) | (40,357 | ) | ||||
Sale of investments | 79,655 | - | ||||||
Purchase of investments | (102,000 | ) | - | |||||
Net cash used in investing activities | (260,269 | ) | (40,357 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from equipment loan | 178,604 | - | ||||||
| Repayment of equipment loan | (7,368 | ) | ||||||
Loans from related parties | - | (5,000 | ) | |||||
Net cash provided by (used in) financing activities | 171,236 | (5,000 | ) | |||||
Effect of exchange rate change on cash and cash equivalents | 32,824 | (30,040 | ) | |||||
NET INCREASE IN CASH AND CASH EQUIVALENTS | 598,879 | 2,296,275 | ||||||
CASH AND CASH EQUIVALENTS, BEGINNING BALANCE | 6,730,486 | 5,454,107 | ||||||
CASH AND CASH EQUIVALENTS, ENDING BALANCE | $ | 7,329,365 | $ | 7,750,382 | ||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||
Cash paid during the period for: | ||||||||
Interest paid - U.S. | $ | - | $ | 5,000 | ||||
Income taxes paid - U.S. | $ | 430,800 | $ | 800 | ||||
The accompanying notes are an integral part of these unaudited |
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIALS STATEMENTS |
For the Six-Month Periods Ended December 30, | ||
2016 | 2015 | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | As Adjusted | |
| Net Income | $2,326,940 | $2,286,094 |
Adjustments to reconcile net income to net cash provided by operating activities | ||
| Depreciation and amortization | 199,830 | 96,676 |
| Loss on disposal of equipment | 6,220 | - |
| (Increase) decrease in current assets: | ||
| Accounts receivable | 62,600 | 189,464 |
| Accounts receivable - related party | (78,579) | (194,989) |
| Deferred taxes | (197,188) | 362,883 |
| Prepaid income taxes | (437,499) | 263,368 |
| Inventory | (74,549) | 74,140 |
| Other assets | (86,423) | (14,115) |
| Increase (decrease) in current liabilities: | ||
| Accounts payable & accrued expenses | 601,393 | 435,981 |
| Expense waivers payable - related party | 490,455 | 360,973 |
| Net cash provided by operating activities | 2,813,200 | 3,860,475 |
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||
| Cash paid for acquisition of subsidiary net of subsidiary cash acquired | (214,035) | (1,519,802) |
| Purchase of equipment | (47,346) | (110,585) |
| Purchase of investments | (842,994) | (493,047) |
| Net cash used in investing activities | (1,104,374) | (2,123,434) |
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||
| Repayment of related party loan | (5,000) | - |
| Purchase of treasury stock | - | (2,200,557) |
| Net cash used in financing activities | (5,000) | (2,200,557) |
| Effect of exchange rate change on cash and cash equivalents | (77,147) | (27,677) |
| NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS | 1,626,679 | (491,193) |
| CASH & CASH EQUIVALENTS, BEGINNING BALANCE | 5,454,107 | 3,353,274 |
| CASH & CASH EQUIVALENTS, ENDING BALANCE | $7,080,786 | $2,862,081 |
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||
| Cash paid during the period for: | ||
| Interest paid | $5,000 | $- |
| Income taxes paid | $2,200,800 | $2,110,000 |
The accompanying notes are an integral part of these unaudited consolidated financial statements. | ||
NOTE 1. | ORGANIZATION AND DESCRIPTION OF BUSINESS |
Concierge Technologies, Inc., (the “Company” or “Concierge”), a Nevada corporation, was originally incorporatedoperates through its wholly owned subsidiaries who are engaged in California on Augustvaried 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 that trade on the NYSE Arca stock exchange. | |
● | Gourmet Foods, Ltd. (“Gourmet Foods”), a New Zealand based company, manufactures and distributes New Zealand meat pies on a commercial scale. | |
● | Brigadier Security Systems (“Brigadier”), a Canadian based company, sells and installs commercial and residential alarm monitoring systems. | |
● | Kahnalytics, Inc. (“Kahnalytics”), a U.S. based company, captures and presents data from vehicle-mounted camera devices equipped for live-streaming. This business is being allowed to atrophy as customer contracts expire and management expects to be able to exit the industry within the coming fiscal year. |
See “Note 13. Business Combinations” for a description of the terms of our acquisition of our operating businesses. On October 18, 1993 as Fanfest, Inc. On March 20, 2002,2017, the Company, changed its namethrough Kahnalytics, entered into an agreement to Concierge Technologies, Inc.acquire the assets of The Company’s principal operations include Wainwright Holdings, Inc. a Delaware corporation (“Wainwright”). Wainwright is a holding company that currently holds both United States Commodity FundsOriginal Sprout, LLC, (“USCF”) and USCF Advisers LLC (“Advisers”), an investment adviser registered under the Investment Advisers Act of 1940, as amended; Gourmet Foods, Ltd. (“Gourmet Foods”), a manufacturer and distributor of meat pies in New Zealand; Brigadier Security Systems (2000) Ltd. (“Brigadier”), a provider of security alarm installation and monitoring located in Canada; and Kahnalytics, Inc. a California corporation(“Kahnalytics”limited liability company (“Original Sprout”), providing vehicle-based live streaming videowhich engages in the manufacture and event recordingsale of organic, non-toxic, all natural hair care, bath, skin, and styling products. See “Note 18. Subsequent Events” for more information.
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 online subscribers.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 condensed consolidated basis. In the opinion of management, the accompanying unaudited condensed consolidated balance sheets and related interim 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”). Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with information included in the Company’s 20162017 Form 10-K filed on October 21, 201613, 2017 with the U.S. Securities and Exchange Commission.
Principles of Consolidation
The accompanying unaudited condensed consolidated interim 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 Kahnalytics.
Wainwright was acquired during the current quarter (Refer to Note 11).prior fiscal year. Due to the commonality of ownership and control between the two companies, the transaction has been accounted for as a transaction between entities under common control. As a result,control (Refer to Note 13 of the assets and liabilities of Wainwright have been considered at their carrying amounts.
The accompanying Financial Statements as of December 31, 2016September 30, 2017 and June 30, 2016 and for the three and six month periods ending December 31, 2016 and 20152017 include the assets, liabilities and the results of operations of Wainwright at carrying amounts as though the transaction and exchange of equity interests has occurred at the beginning of the comparative period.
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 Foreign Currency
For the periods ended December 31, 2016 and June 30, 2016, other comprehensive loss consisted of unrealized losses on investments and accumulated translation losses as noted above. Accumulated translation loss, classified as an item of accumulated other comprehensive loss in the stockholders’ equity sectionpurposes of the consolidated balance sheet, was $99,702 asstatement of December 31, 2016.
Concierge’s corporate office maintains cash balances at a financial institution headquartered in San Diego, California. Accounts are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 per depositor. The corporation’s uninsured cash balance in the United States was $0$2.4 million at December 31, 2016.September 30, 2017. The Company’s subsidiary, Wainwright, also maintains cash balances at various high credit quality institutions and from time to time those deposits exceed the FDIC coverage amount of $250,000. As of December 31, 2016September 30, 2017 the uninsured amount for Wainwright subsidiaries totaled $5,673,920,approximately $3.2 million, though no losses have been realized and none are expected. Cash balances in Canada are maintained at a financial institution in Saskatoon, Saskatchewan by the Company’s subsidiary.subsidiary, Brigadier. Each account is insured up to CD$100,000 by Canada Deposit Insurance Corporation (CDIC). The Company’s subsidiary, Brigadier, had an uninsured cash balance in Canada of approximately CD$438,0670.7 million (approximately US$325,988)0.6 million) at December 31, 2016.September 30, 2017. Balances at financial institutions within certain foreign countries, including New Zealand, where the Company’s subsidiary, Gourmet Foods, maintains cash balances, are not covered by insurance. As of December 31, 2016,September 30, 2017, the Company’s subsidiary, Gourmet Foods, had uninsured deposits related to cash deposits in uninsured accounts maintained within foreign entities of approximately $335,010.NZ$0.6 million (approximately US$0.5 million). The Company has not experienced any losses in such accounts.
Accounts Receivable, Related Parties
Accounts receivable, primarily consistsrelated 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.
Accounts receivable, net, consist of receivables from the Bridagier, Gourmet Foods and recordsKahnalytics businesses. The Company maintains an allowance for anydoubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management regularly reviews the composition of accounts receivable and analyzes customer credit worthiness, customer concentrations, current economic trends and changes in customer payment patterns. Reserves are recorded primarily on a specific identification basis. Account balances that are determined to be uncollectible.charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. As of December 31, 2016September 30, 2017 and June 30, 2016, the Company considered all remaining accounts receivable to be fully collectible.
Major Customers & Suppliers – Concentration of Credit Risk
Concierge, through Brigadier, is dependent upon its contractual relationship with the alarm monitoring company who purchases the monitoring contracts and provides monitoring services to Brigadier’sBrigadier’s customers. InThe information included in this Form 10-Q should be read in conjunction with information included 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 thatCompany’s Annual Report on Form 10-K filed on October 13, 2017 with the contractual relationship is sustainable,U.S. Securities and has been for many years, with alternate solutions available should the need arise.Exchange Commission. Sales to the two largest customers,customer, which includesinclude contracts and recurring monthly residuals from the monitoring company, totaled 53%49% of the totalBrigadier revenues for the sixthree months ended December 31, 2016,September 30, 2017, and accounted for approximately 26%32% of accounts receivable for the three months ended September 30, 2017 as compared to 48% of the balance sheet dateBrigadier revenues and approximately 28% of December 31,accounts receivables for the three months ended September 30, 2016.
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.business For the six-month period ending and balance sheet date of December 31, 2016, ourthree months ended September 30, 2017, the largest customer in the grocery industry, who operates through a number of independently branded stores, accounted for approximately 18%22% of ourGourmet Foods' gross sales revenues and 29%25% of ourGourmet Foods' accounts receivable.receivable as compared to 20% and 27% respectively for the three months ended September 30, 2016. The second largest in the grocery industry accounted for approximately 12% and 11% of ourGourment Foods' gross revenues but less than 10%and 14% and 9% of ourGourmet Foods' accounts receivable.receivable for the three months ended September 30, 2017 and 2016 respectively. In the gasoline convenience store market we supplyGourmet Foods supplies two major accounts.channels. The largest is a marketing consortium of gasoline dealers accountingwho for the three months ended September 30, 2017 accounted for approximately 42%41% of ourGourmet Foods' gross sales revenues and 26%as compared to 41% for the three months ended September 30, 2016. No single member of ourthe consortium is responsible for a significant portion of Gourmet Foods' accounts receivable. The second largest are independent operators accounting for less than 10% of Gourmet Foods' gross sales, but approximately 15%however no single independent operator is responsible for a significant portion of Gourmet Foods' accounts receivable. The third category of independent retailers and cafes accounted for the balance of ourGourmet Foods' gross sales revenue, however the group is fragmented and no one customer accounts for a significant portion of our revenues.
For our subsidiary, Wainwright, the concentration of risk and the relative reliance on major customers are found within the various funds it managesmanages and the associated three month revenues as of September 30, 2017 and 2016, and accounts receivable as of December 31, 2106at September 30, 2017 and June 30, 20162017 as depicted below.
December 31, 2016 | ||
| Fund | Accounts Receivable | |
| USO | $1,256,213 | 57% |
| USCI | 445,163 | 20% |
| UNG | 303,354 | 14% |
| All Others | 197,954 | 9% |
| Total | $2,202,684 | 100% |
June 30, 2016 | ||
| Fund | Accounts Receivable | |
| USO | $1,245,396 | 59% |
| USCI | 400,258 | 19% |
| UNG | 280,431 | 13% |
| All Others | 198,020 | 9% |
| Total | $2,124,105 | 100% |
Three Months Ended September 30, 2017 | Three Months Ended September 30, 2016 | |||||||||||||||
Revenue | Revenue | |||||||||||||||
Fund | ||||||||||||||||
USO | $ | 2,943,844 | 57 | % | $ | 3,619,261 | 57 | % | ||||||||
USCI | 978,617 | 19 | % | 1,373,276 | 21 | % | ||||||||||
UNG | 697,856 | 14 | % | 823,113 | 13 | % | ||||||||||
All Others | 537,631 | 10 | % | 552,294 | 9 | % | ||||||||||
Total | $ | 5,157,948 | 100 | % | $ | 6,367,944 | 100 | % | ||||||||
September 30, 2017 | June 30, 2017 | |||||||||||||||
Accounts Receivable | Accounts Receivable | |||||||||||||||
Fund | ||||||||||||||||
USO | $ | 906,096 | 55 | % | $ | 1,060,421 | 60 | % | ||||||||
USCI | 322,929 | 20 | % | 317,032 | 18 | % | ||||||||||
UNG | 240,475 | 14 | % | 217,760 | 12 | % | ||||||||||
All Others | 177,003 | 11 | % | 167,058 | 10 | % | ||||||||||
Total | $ | 1,646,503 | 100 | % | $ | 1,762,271 | 100 | % | ||||||||
Inventory
Inventories, consisting primarily of food products and packaging in New Zealand and security system hardware in Canada, are valued at the lower of cost (determined on a FIFO basis) or market. Inventories include product cost, inbound freight and warehousing costs. Management compares the cost of inventories with the market value and an allowance is made for writing down the inventories to their market value, if lower. For comparative purposes, prior year’s Financial Statementsthe three months ended September 30, 2017 and 2016 impairment to inventory value was recorded as $0 and $684, respectively. An assessment is made at the end of each reporting period to determine what inventory items have been reclassified to conform to report classificationsremained in stock from the close of the current year.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and leasehold improvements are capitalized. Office furniture and equipment include office fixtures, computers, printers and other office equipment plus software and applicable packaging designs. Leasehold improvements, which are included in plant and equipment, are depreciated over the shorter of the useful life of the improvement and the length of the lease. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation is computed using the straight line method over the estimated useful life of the asset (see Note 5 to the Financial Statements).
Category |
| Estimated Useful Life (in years) |
| |||
Plant and equipment: |
|
| 5 | to | 10 |
|
Furniture and office equipment: |
|
| 3 | to | 5 |
|
Vehicles |
|
| 3 | to | 5 |
|
Intangible Assets
Intangible assets consist of brand names, domain names, recipes, non-compete agreements and customer lists. Intangible assets with Customers, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goodsfinite lives are amortized over the estimated useful life and are evaluated for impairment at least on an annual basis and whenever events or services are transferred to customerschanges in an amountcircumstances indicate that reflects the consideration to which an entity expects tocarrying value may not be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. This pronouncement is effective for annualreporting periods beginning after December 15, 2016, and is to be applied using one of two retrospective application methods, with early application not permitted.recoverable. The Company is currently evaluating the impact of the pending adoption of ASU 2014-09 on its consolidated financial statements.
December 31, 2016 | June 30, 2016 | |
As Adjusted | ||
| Raw materials | $46,711 | $50,023 |
| Supplies and packing materials | 119,734 | 77,497 |
| Finished goods | 332,366 | 357,351 |
498,811 | 484,871 | |
| Less impairment finished goods | (2,774) | (48,330) |
| Total | $496,037 | $436,541 |
December 31, 2016 | June 30, 2016 | |
As Adjusted | ||
| Plant and Equipment | $1,236,138 | $1,477,411 |
| Furniture & Office Equipment | 146,076 | 119,123 |
| Vehicles | 82,491 | 58,850 |
| Total Property and Equipment, Gross | 1,464,705 | 1,655,384 |
| Accumulated Depreciation | (428,660) | (488,691) |
| Total Property and Equipment, Net | $1,036,045 | $1,166,693 |
Goodwill
Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in business combinations.a purchase businesses combination. Goodwill comprisedis 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 following amounts:
December 31, 2016 | June 30, 2016 | |
As Adjusted | ||
| Trained workforce – Gourmet Foods | $51,978 | $51,978 |
| Trained workforce - Brigadier | 75,795 | 75,795 |
| Goodwill – Gourmet Foods | 45,669 | 45,669 |
| Goodwill - Brigadier | 45,814 | 45,814 |
$219,256 | $219,256 |
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 three months ended September 30, 2017 or 2016.
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) on the condensed consolidated statements of comprehensive income. The Company values its investments in accordance with Accounting Standards Codification ("ASC") 820 – Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurement. The changes to past practice resulting from the application of ASC 820 relate to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurement. ASC 820 establishes a fair value hierarchy that distinguishes between: (1) market participant assumptions developed based on market data obtained from sources independent of the Company (observable inputs) and (2) The Company’s own assumptions about market participant assumptions developed based on the best information available under the circumstances (unobservable inputs). The three levels defined by the ASC 820 hierarchy are as follows:
Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 assets include the following: quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs).
Level 3 – Unobservable pricing input at the measurement date for the asset or liability. Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available.
In some instances, the inputs used to measure fair value might fall within different levels of the fair value hierarchy. The level in the fair value hierarchy within which the fair value measurement in its entirety falls shall be determined based on the lowest input level that is significant to the fair value measurement in its entirety.
Revenue Recognition
Revenue consists of fees earned through management of investment funds, sale of gourmet meat pies and related bakery confections in New Zealand, security alarm system installation and monitoring service in Canada, and subscriptions to gathering of live-streaming video recording data displayed online to users. Revenue is accounted for net of sales taxes, sales returns, trade discounts. Revenue is recognized when persuasive evidence of an arrangement exists, the price is fixed or determinable, the delivery has occurred, no other significant obligations of the Company exist, and collectability is probable. Product is considered delivered to the customer once it has been shipped and title, risk of loss and rewards of ownership have been transferred. For most of the Company’s product sales or services, these criteria are met at the time the product is shipped, the subscription period commences, or the management fees are accrued.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. A valuation allowance is provided for deferred tax assets if it is more likely than not that these items will either expire before the Company is able to realize their benefits or if future deductibility is uncertain.
When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Applicable interest and penalties associated with unrecognized tax benefits are classified as additional income taxes in the statements of operations.
Advertising Costs
The Company expenses the cost of advertising as incurred. Advertising costs for the three months ended September 30, 2017 and 2016 was $0.8 million for both periods.
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 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 translation gains and (losses) classified as an item of accumulated other comprehensive income (loss) in the stockholders’ equity section of the consolidated balance sheet was approximately $43 thousand and ($10) thousand for the three months ended September 30, 2017 and 2016, respectively. For the three months ended September 30, 2017 and 2016 there were no material transactional gains or losses.
Short-term Investment Valuation
Other comprehensive income (loss) attributed to changes in the valuation of short-term investments held by Wainwright was approximately ($44) thousand and ($1) thousand for the three months ended September 30, 2017 and 2016, respectively.
Segment Reporting
The Company defines operating segments as components about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performances. The Company allocates its resources and assesses the performance of its sales activities based on the geographic locations of its subsidiaries (Refer to Note 17 of the Financial Statements).
Business Combinations
We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired users, acquired trade names from a market participant perspective, useful lives and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed. For the each of the three months ended September 30, 2017 and 2016, a determination was made that no adjustments were necessary.
Reclassifications
For comparative purposes, certain 2016 Financial Statements have been reclassified to conform to report classifications of the current year after giving consideration to the acquisition of Wainwright as a pooling of interests under common control.
Recent Accounting Pronouncements
The Company has reviewed new accounting pronouncements issued between October 13, 2017, the filing date of our most recent prior Annual Report on Form 10-K, and the filing date of this Quarterly Report on Form 10-Q and has determined that no pronouncements issued are relevant to the Company, and/or have a material impact on the Company’s consolidated financial position, results of operations or disclosure requirements.
NOTE 3. BASIC AND SUBSIDIARIES
Basic net income per share is based upon the weighted average number of common shares outstanding. Diluted net income per share is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.
Diluted net income per share reflects the effects of shares potentially issuable upon conversion of convertible preferred stock.
The components of basic and diluted earnings per share were as follows:
For the Three Months Ended September 30, 2017 | ||||||||||||
Net Income | Shares | Per Share | ||||||||||
Basic income per share: | ||||||||||||
Net income available to common shareholders | $ | 871,704 | 886,753,847 | $ | 0.00 | |||||||
Effect of dilutive securities | ||||||||||||
Preferred stock Series B | - | 262,169,477 | 0.00 | |||||||||
Diluted income per share | $ | 871,704 | 1,148,923,324 | $ | 0.00 | |||||||
For the Three Months Ended September 30, 2016 | ||||||||||||
Net Income | Shares | Per Share | ||||||||||
Basic income per share: | ||||||||||||
Net income available to common shareholders | $ | 1,301,259 | 886,753,847 | $ | 0.00 | |||||||
Effect of dilutive securities | ||||||||||||
Preferred stock Series B | - | 262,169,477 | 0.00 | |||||||||
Diluted income per share | $ | 1,301,259 | 1,148,923,324 | $ | 0.00 | |||||||
NOTE 4. INVENTORIES
Inventories consisted of the following as of:
September 30, | June 30, | |||||||
2017 | 2017 | |||||||
Raw materials | $ | 45,305 | $ | 43,088 | ||||
Supplies and packing materials | 110,693 | 125,241 | ||||||
Finished goods | 626,270 | 278,035 | ||||||
| 782,268 | 446,364 | |||||||
Less: Impairment of finished goods | - | (2,090 | ) | |||||
Total | $ | 782,268 | $ | 444,274 | ||||
NOTE 5. PROPERTY AND EQUIPMENT
Property, plant and equipment consisted of the following as of:
September 30, 2017 | June 30, 2017 | |||||||
Plant and equipment | $ | 1,478,122 | $ | 1,460,180 | ||||
Furniture and office equipment | 173,290 | 162,781 | ||||||
Vehicles | 377,960 | 185,866 | ||||||
Total property and equipment, gross | 2,029,372 | 1,808,827 | ||||||
Accumulated depreciation | (728,029 | ) | (649,362 | ) | ||||
Total property and equipment, net | $ | 1,301,343 | $ | 1,159,465 | ||||
For the three month periods ended September 30, 2017 and 2016, depreciation expense for property, plant and equipment totaled $84,757 and $69,533, respectively.
NOTE 6.
Intangible assets consisted of the following:following as of:
September 30, | June 30, | |||||||
2017 | 2017 | |||||||
Brand name | $ | 402,123 | $ | 402,123 | ||||
Domain name | 36,913 | 36,913 | ||||||
Customer relationships | 500,252 | 500,252 | ||||||
Non-compete agreement | 84,982 | 84,982 | ||||||
Recipes | 21,601 | 21,601 | ||||||
Total | 1,045,871 | 1,045,871 | ||||||
Less : accumulated amortization | (176,574 | ) | (146,595 | ) | ||||
Intangibles, net | $ | 869,297 | $ | 899,276 | ||||
December 31, 2016 | June 30, 2016 | |
As Adjusted | ||
| Brand name | $402,123 | $402,123 |
| Domain name | 36,913 | 36,913 |
| Customer relationships | 500,252 | 500,252 |
| Non-compete agreement | 84,982 | 84,982 |
| Recipes | 21,601 | 21,601 |
| Total | 1,045,871 | 1,045,871 |
| Less : Accumulated Amortization | (87,615) | (27,658) |
| Net Intangibles | $958,256 | $1,018,213 |
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$66,154 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 $434,098 and is amortized over the remaining useful life of 10 years.
December 31, 2016 | June 30, 2016 | |
As Adjusted | ||
| Customer relationships | $500,252 | $500,252 |
| Less: accumulated amortization | (34,877) | (9,659) |
| Total customer relationships, net | $465,375 | $490,593 |
September 30, | June 30, | |||||||
2017 | 2017 | |||||||
Customer relationships | $ | 500,252 | 500,252 | |||||
Less: accumulated amortization | (72,293 | ) | (59,684 | ) | ||||
Total customer relationships, net | $ | 427,959 | 440,568 | |||||
BRAND NAME
On August 11, 2015, the Company acquired Gourmet Foods. The fair value on the acquired brand name was estimated to be $61,429 and is amortized over the remaining useful life of 10 years. On June 2, 2016, the Company acquired Brigadier Security Systems. The fair value on the acquired brand name was estimated to be $340,694 and is amortized over the remaining useful life of 10 years.
December 31, 2016 | June 30, 2016 | |
As Adjustsed | ||
| Brand name | $402,123 | $402,123 |
| Less: accumulated amortization | (28,719) | (8,447) |
| Total brand name, net | $373,404 | $393,696 |
September 30, | June 30, | |||||||
2017 | 2017 | |||||||
Brand name | $ | 402,123 | $ | 402,123 | ||||
Less: accumulated amortization | (58,795 | ) | (48,660 | ) | ||||
Total brand name, net | $ | 343,328 | $ | 353,463 | ||||
DOMAIN NAME
On August 11, 2015, the Company acquired Gourmet Foods. The fair value on the acquired domain name was estimated to be $21,601 and is amortized over the remaining useful life of 5 years. On June 2, 2016, the Company acquired Brigadier Security Systems. The fair value on the acquired domain name was estimated to be $15,312 and is amortized over the remaining useful life of 5 years.
December 31, 2016 | June 30, 2016 | |
As Adjusted | ||
| Domain Name | $36,913 | $36,913 |
| Less: accumulated amortization | (7,915) | (4,193) |
| Total brand name, net | $28,998 | $32,720 |
September 30, | June 30, | |||||||
2017 | 2017 | |||||||
Domain name | $ | 36,913 | $ | 36,913 | ||||
Less: accumulated amortization | (13,437 | ) | (11,576 | ) | ||||
Total brand name, net | $ | 23,476 | $ | 25,337 | ||||
RECIPES
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.
December 31, 2016 | June 30, 2016 | |
As Adjusted | ||
| Recipes | $21,601 | $21,601 |
| Less: accumulated amortization | (6,115) | (3,937) |
| Total Recipes, net | $15,486 | $17,664 |
September 30, | June 30, | |||||||
2017 | 2017 | |||||||
Recipes | $ | 21,601 | $ | 21,601 | ||||
Less: accumulated amortization | (9,347 | ) | (8,257 | ) | ||||
Total recipes, net | $ | 12,254 | $ | 13,344 | ||||
NON-COMPETE AGREEMENT
On June 2, 2016, the Company acquired Brigadier Security Systems. The fair value on the acquired non-compete agreement was estimated to be $104,122$84,982 and is amortized over the remaining useful life of 5 years.
September 30, | June 30, | |||||||
2017 | 2017 | |||||||
Non-compete agreement | $ | 84,982 | $ | 84,982 | ||||
Less: accumulated amortization | (22,702 | ) | (18,418 | ) | ||||
Total non-compete agreement, net | $ | 62,280 | $ | 66,564 | ||||
December 31, 2016 | June 30, 2016 | |
As Adjusted | ||
| Non-compete agreement | $84,982 | $84,982 |
| Less: accumulated amortization | (9,989) | (1,421) |
| Total non-compete agreement, net | $94,993 | $83,561 |
AMORTIZATION EXPENSE
The total amortization expense for the sixthree months ended December 31,September 30, 2017 and 2016 was $59,957. No amortization was taken for the comparison period ending December 31, 2015.
| Years Ending December 31, | Expense |
| 2017 | $118,937 |
| 2018 | $118,937 |
| 2019 | $118,937 |
| 2020 | $115,291 |
| 2021 | $98,536 |
As of December 31, | As of June 31, | |
2016 | 2016 | |
As Adjusted | ||
| Deferred tax asset | $12,727 | $19,501 |
| PrePaid expenses | 319,868 | 242,582 |
| PrePaid income tax | 930,926 | 493,427 |
| Notes receivable | 150,000 | 150,000 |
| Total | $1,263,521 | $755,509 |
Years Ending September 30, | Expense | |||
2018 | $ | 118,937 | ||
2019 | 118,937 | |||
2020 | 117,469 | |||
2021 | 103,592 | |||
2022 | 90,237 | |||
Thereafter | 320,125 | |||
Total | $ | 869,297 | ||
NOTE 7. | INVESTMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS |
Wainwright, from time to time, provides initial investments in the creation of ETFETP funds that Wainwright manages. Wainwright classifies these investments as current assets as these investments are generally sold within one year from the balance sheet date. Investments in which no controlling financial interest or significant influence exists are recorded at fair value with unrealized holding gains and losses included in accumulated other comprehensive income (loss) as a component of stockholders’stockholders’ equity, except for unrealized losses determined to be other-than-temporary, which are included in the condensed consolidated statements of operations and comprehensive income (loss). As ofSeptember 30, 2017 and June 30, 2017, investments were approximately $3.6 million at each period end, respectively. Investments in which no controlling financial interest exists, but significant influence exists are recorded as per the Equity Methodequity method of Investment.investment accounting. As of December 31, 2016September 30, 2017 and June 30, 2017, there were no investments requiring the equity method investment accounting.
Investments measured at estimated fair value consist of the following as of September 30, 2017 and June 30, 2017:
September 30, 2017 | ||||||||||||||||
Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||
Money market funds | $ | 6,549 | $ | - | $ | - | $ | 6,549 | ||||||||
USCI mutual fund investment | 2,500,000 | 49,840 | - | 2,549,840 | ||||||||||||
MENU ETF investment | 768,427 | - | (1,297 | ) | 767,130 | |||||||||||
Hedge asset | 289,000 | - | (56,562 | ) | 232,438 | |||||||||||
Other equities | 1,577 | - | (537 | ) | 1,040 | |||||||||||
Total short-term investments | $ | 3,565,553 | $ | 49,840 | $ | (58,396 | ) | 3,556,997 | ||||||||
June 30, 2017 | ||||||||||||||||
Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||
Money market funds | $ | 86,204 | $ | - | $ | - | $ | 86,204 | ||||||||
USCI mutual fund investment | 2,500,000 | - | (49,080 | ) | 2,450,920 | |||||||||||
MENU ETF investment | 768,427 | 41,473 | - | 809,900 | ||||||||||||
Hedge asset | 187,000 | 43,746 | - | 230,746 | ||||||||||||
Other equities | 1,577 | - | (598 | ) | 979 | |||||||||||
Total short-term investments | $ | 3,543,208 | $ | 85,219 | $ | (49,678 | ) | $ | 3,578,749 | |||||||
The following tables summarize the valuation of the Company’s securities at September 30, 2017 and June 30, 2017 using the fair value hierarchy:
September 30, 2017 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Money market funds | $ | 6,549 | $ | 6,549 | $ | - | $ | - | ||||||||
Mutual fund investment | 2,549,840 | 2,549,840 | - | - | ||||||||||||
ETF investment | 767,130 | 767,130 | - | - | ||||||||||||
Hedge asset | 232,438 | - | 232,438 | - | ||||||||||||
Other equities | 1,040 | 1,040 | - | - | ||||||||||||
Total | $ | 3,556,997 | $ | 3,324,559 | $ | 232,438 | $ | - | ||||||||
June 30, 2017 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Money market funds | $ | 86,204 | $ | 86,204 | $ | - | $ | - | ||||||||
Mutual fund investment | 2,450,920 | 2,450,920 | - | - | ||||||||||||
ETF investment | 809,900 | 809,900 | - | - | ||||||||||||
Hedge asset | 230,746 | - | 230,746 | - | ||||||||||||
Other equities | 979 | 979 | - | - | ||||||||||||
Total | $ | 3,578,749 | $ | 3,348,003 | $ | 230,746 | $ | - | ||||||||
During the three months ended September 30, 2017 and 2016, investmentsthere were no transfers between Level 1 and Level 2.
NOTE 8. | OTHER ASSETS, RESTRICTED CASH, AND LONG-TERM ASSETS |
Other Current Assets
Other current assets totaling $315,838 as of September 30, 2017 and $369,599 as of June 30, 2017 are approximately $0.8 million and $1 thousand, respectively.comprised of various components as listed below.
September 30, | June 30, | |||||||
2017 | 2017 | |||||||
Prepaid expenses and deposits | 151,983 | 212,301 | ||||||
Notes receivable | 150,000 | 150,000 | ||||||
Other current assets | 13,855 | 7,298 | ||||||
Total | $ | 315,838 | $ | 369,599 | ||||
Restricted Cash
At December 31, 2016September 30, 2017 Gourmet Foods had on deposit NZ$20,000 (approximately US$13,847)14,618) securing a lease bond for one of its properties. The same amount was posted at June 30, 2017 and translated to approximately US$14,870. The cash securing the bond is restricted from access or withdrawal so long as the bond remains in place. There was no bond posted by Gourmet Foods at June 30, 2016, thus the restricted cash amount was zero.
Long-Term Assets
Other long-term assets totaling $1,723,342 and $1,526,154,$509,538 at December 31, 2016September 30, 2017 and June 30, 2016, respectively,2017 were attributed to Wainwright and consisted of
(i) | $500,000 as of September 30, 2017 and June 30, 2017 representing 10% investment in a registered investment adviser accounted for on a cost basis, |
(ii) | and $9,538 as of September 30, 2017 and June 30, 2017 in other assets. |
NOTE 9. | GOODWILL |
Goodwill represents the excess of December 31, 2016 and Junethe aggregate purchase price over the fair value of the net assets acquired in business combinations. There was no goodwill impairment for the three months ended September 30, 2016 representing 10% equity investment in a registered investment adviser accounted for on a cost basis,
NOTE 10. | ACCOUNTS PAYABLE AND ACCRUED EXPENSES |
Accounts payable and accrued expenses included related party payables, consisted of the following:
December 31, 2016 | June 30, 2016 | |
As Adjusted | ||
| Accounts payable | $1,140,125 | $1,044,026 |
| Accrued judgment | 135,000 | 135,000 |
| Accrued interest | 20,369 | 5,238 |
| Taxes payable | 627,920 | 769,224 |
| Expense waiver – Funds (related party) | 939,385 | 448,930 |
| Deferred rent | 16,943 | 19,202 |
| Accrued payroll and vacation | 580,054 | 127,271 |
| Accrued expenses | 421,258 | 295,955 |
| Total | $3,881,054 | $2,844,847 |
September 30, 2017 | June 30, 2017 | |||||||
Accounts payable | $ | 1,421,291 | $ | 1,781,772 | ||||
Accrued interest | 38,916 | 32,410 | ||||||
Taxes payable | - | 123 | ||||||
Deferred rent | 11,632 | 13,402 | ||||||
Accrued payroll and vacation pay | 436,094 | 349,507 | ||||||
Accrued expenses | 527,567 | 665,641 | ||||||
Total | $ | 2,435,500 | $ | 2,842,855 | ||||
NOTE 11. | RELATED PARTY TRANSACTIONS |
Notes Payable - Related Parties
Current related party notes payable consist of the following:
December 31, 2016 | June 30, 2016 | |
As Adjusted | ||
| Notes payable to shareholder, interest rate of 10%, unsecured and payable on July 31, 2004 (past due) | $- | $5,000 |
| Notes payable to shareholder, interest rate of 8%, unsecured and payable on December 31, 2012 (past due) | 3,500 | 3,500 |
$3,500 | $8,500 |
September 30, 2017 | June 30, 2017 | |||||||
Notes payable to shareholder, interest rate of 8%, unsecured and payable on December 31, 2012 (past due) | $ | 3,500 | $ | 3,500 | ||||
Notes payable to shareholder, interest rate of 4%, unsecured and payable on May 25, 2022 | 250,000 | 250,000 | ||||||
Notes payable to shareholder, interest rate of 4%, unsecured and payable on April 8, 2022 | 350,000 | 350,000 | ||||||
| $ | 603,500 | $ | 603,500 | |||||
Interest expense for all relatedrelated party notes for the three-month period ending December 31, 2016 and 2015 were $71 and $197 respectively and for the respective six months ended December 31, 2016 and 2015 the interest expense was $141 and $393.
Wainwright - Related Party Transactions
The Funds managed by USCF and USCF Advisers are deemed by management to be related parties. The Company’sCompany’s Wainwright revenues, totaled $12,840,475totaling $5.2 million and $10,941,614$6.4 million for the sixthree months ended December 31,September 30, 2017 and 2016, and 2015, respectively, were earned from these related parties. Accounts receivable, totaling $2,202,684$1.6 million and $2,124,105$1.8 million as of December 31, 2016September 30, 2017 and June 30, 2016,2017, respectively, were owed from these related parties. Fund expense waivers, totaling $490,455$0.2 million and $363,768$0.3 million, and fund expense limitation amounts, totaling $0.1 million, for the sixthree months ended December 31,September 30, 2017 and 2016, and 2015, respectively, were incurred on behalf of these related parties. Waivers payable, totaling $939,385 and $448,930$0.6 million as of December 31, 2016September 30, 2017 and June 30, 2016,2017, respectively, were owed to these related parties.
NOTE 10.
As of September 30, 2017, Brigadier had, in the amountaggregate, an outstanding principal balance of $8,500 due a former director and shareholder whoCD$330,490 (approx. US$265,086) related to new vehicle purchases. For each vehicle purchased, the loan principal together with interest is now deceased has been reclassified as a note due unrelated party.amortized over 60 equal monthly installments. The note is interest free, not deemed assignable to successors by the Company, and held as a contingent liability until resolved.
NOTE 13. | |
BUSINESS COMBINATION | |
Wainwright Holdings, Inc.
On December 9, 2016, the Company closed a Stock Purchase Agreement (the “Purchase Agreement”), by and among the Company and Wainwright and each of the shareholders of Wainwright common stock (the “Wainwright Sellers”), pursuant to which the Wainwright Sellers agreed to sell, and the Company agreed to purchase 1,741 shares of Wainwright common stock, par value $0.01 per share, (the “Wainwright Common Stock”), which represents all of the issued and outstanding Wainwright Common Stock, in exchange for: (i) 818,799,976 shares of Company Common Stock, and (ii) 9,354,119 shares of Company Preferred Stock (which preferred shares are convertible into 187,082,377 shares of Company Common Stock). Wainwright and the Company have a commonality of ownership and control as represented by the shareholdings, either directly or beneficially, of Nicholas Gerber and Scott Schoenberger as a group pursuant to the aforementioned Purchase Agreement and a voting agreement which gives them control of over 50% of Wainwright and over 50% of Concierge both before and after the business combination. Accordingly, the acquisition has been recorded as a transaction between entities under Common Controlcommon control in the accompanying financial statements .statements. Further, the accompanying financial statements have been adjusted to include the carrying value of assets, liabilities, equity and operations of Wainwright as if the transaction had concluded on July 1, 2015.
NOTE 14. STOCKHOLDERS' EQUITY
Reverse Stock Split
On November 11, 2015, the combined resultsBoard of our operations together with those of Wainwright and as if the Gourmet Foods Limited and Brigadier acquisition had occurred at the beginningDirectors (the “Board’) of the periods presented. The unaudited pro forma financial information is presented for informational purposes only and is not indicativeCompany approved the implementation of a one-for-ten (1:10) reverse stock split of all of the results of operations that would have occurred if the acquisitions had taken place at the beginning of the period presented, nor is it indicative of future operating results.
3-mo ended December 31, 2015 | 6-mo ended December 31, 2015 | |
| Revenue | $7,538,894 | $14,624,581 |
| Income from Operations | 1,780,144 | 3,847,213 |
| Net Income | $1,009,341 | $2,438,998 |
| Net Income per share available to common stockholders, basic and diluted | $0.00 | $0.00 |
| Year Ended June 30, | Lease Amount |
| 2017 | $65,345 |
| 2018 | 130,690 |
| 2019 | 57,707 |
| 2020 | 17,806 |
| 2021 | 1,487 |
| Total Minimum Lease Commitment | $273,035 |
Year Ended June 30, | Lease Amount |
| 2017 | $23,524 |
| 2018 | 32,537 |
| 2019 | 29,826 |
| Total Minimum Lease Commitment | $85,887 |
| Year ended June 30, | Lease Amount |
| 2017 | $66,002 |
| 2018 | 134,645 |
| 2019 | 45,322 |
| Total minimum lease commitment | $245,969 |
Our Board and the majority of stockholders have approved the adoption of a one-for-thirty (1:30) reverse stock split whereby each thirty shares of our common stock and Series B preferred stock, issued and outstanding as of the record date established by Board, shall be combined into one share of common stock or preferred stock, as applicable. The reverse stock split will become effective as determined by the Board in its discretion at any time prior to December 31, 20162017.
Convertible Preferred Stock
Series B Voting, Convertible, Preferred Stock ("Series B Stock") is convertible into 20 shares of common stock and 2015, respectively.
Mezzanine Presentation
Upon issuance of the preferred shares in the Wainwright acquisition, the Company no longer had sufficient authorized, unissued common stock to allow for Series B Stock conversion. Accordingly, the Series B Stock was reclassified to the mezzanine section of the condensed consolidated balance sheets. Other equity accounts have been adjusted to reflect the historical cost basis of Wainwright.
NOTE 15. | INCOME TAXES |
The Company accounts for income taxes under the asset and liability method, which recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the tax bases of assets and liabilities and their financial statement reported amounts, and for net operating losses and tax credit carryforwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company records a valuation allowance against deferred tax assets when it is more likely than not that such asset will not be realized. The Company continues to monitor the likelihood that it will be able to recover its deferred tax assets. If recovery is not likely, the Company must increase its provision for income taxes by recording a valuation allowance against the deferred tax assets.
The Company accounts for uncertain tax positions in accordance with the authoritative guidance on income taxes under which the Company may only recognize or continue to recognize tax positions that meet a "more"more likely than not" threshold. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes.
As of December 31, 2016,September 30, 2017, the Company's total unrecognized tax benefits were approximately $29,000,approximately $0.2 million, which would affect the effective tax rate if recognized. The Company will recognize interest and penalties, when they occur, related to uncertain tax provisions as a component of tax expense. There is no interest or penalties to be recognized for the quarter ended December 31,September 30, 2017 or 2016.
The Company is required to make its best estimate of the annual effective tax rate for the full fiscal year and use that rate to provide for income taxes on a current year-to-date basis. The Company recorded a tax provision of $1.7$0.5 million and $1.4$1.1 million from its continuing operations for the six months ended December 31, 2016 and December 31, 2015, respectively. The Company recorded a tax provision of $0.6 million and $0.8 million from its continuing operations for the three months ended December 31,September 30, 2017 and 2016, and December 31, 2015, respectively. The effective tax rate for the six months ended December 31, 2016 and three months ended September 30, 2017 and 2016 differed from the statutory rate primarily due to the mix of non-deductible meals and entertainment expenses, imputed interest income and decrease in valuation allowance.items. The effective tax rate could fluctuate in the future due to changes in the taxable income mix between various jurisdictions.
The Company is subject to income taxes in the U.S. federal, jurisdictionvarious states, Canada and various stateNew Zealand tax jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. The Company’sCompany’s tax years 20122013 through 20162017 will remain open for examination by the federal and state authorities forwhich is three and four years, respectively. The Company’s tax years from acquisition through 2017 remain open for examination by Canada and New Zealand authorities which is four years. As of December 31, 2016,September 30, 2017, there were no active taxing authority examinations.
NOTE 16. | COMMITMENTS AND CONTINGENCIES |
Lease Commitments
Gourmet Foods has operating leases for its office, factory and warehouse facilities located in Tauranga, New Zealand, as well as for certain equipment including vehicles. These leases are generally for three-year terms, with options to renew for additional three-year periods. The leases mature between August 2018 and August 2021, and require monthly rental payments of approximately US$11,651 translated to U.S. currency as of September 30, 2017.
Future minimum lease payments for Gourmet Foods are as follows:
Year Ended June 30, | Lease Amount | |||
2018 | $ | 104,860 | ||
2019 | 62,299 | |||
2020 | 18,390 | |||
2021 | 10,680 | |||
2022 | 1,780 | |||
Total minimum lease commitment | $ | 198,009 | ||
Gourmet Foods entered into a General Security Agreement in favor of the Gerald O’Leary Family Trust and registered on the Personal Property Securities Register for a priority sum of NZ$110,000 (approximately US$79,264) to secure the lease of its primary facility. In addition, a NZ$20,000 (approximately US$14,615) bond has been posted through ANZ Bank and secured with a cash deposit of equal amount to secure a separate facilities lease. The General Security Agreement and the cash deposit will remain until such time as the respective leases are satisfactorily terminated in accordance with their terms. Interest from the cash deposit securing the lease accumulates to the benefit of Gourmet Foods and is listed as a component of interest income/expense on the accompanying Consolidated Statements of Operations.
Brigadier leases office and storage facilities in Saskatoon and Regina, Saskatchewan. Only the Saskatoon facility has an extended lease where the minimum lease obligations through their expiry dates are indicated as below and require monthly payments of approximately US$4,527 translated to U.S. currency as of September 30, 2017.
Future minimum lease payments for Brigadier are as follows:
Year Ended June 30, | Lease Amount | |||
2018 | $ | 26,303 | ||
2019 | 32,148 | |||
Total minimum lease commitment | $ | 58,451 | ||
The total amount of rent paid by our foreign subsidiaries, including the minimum lease payments as noted above, for the three months ended September 30, 2017 translated to U.S. currency as of the balance sheet date was $41,201 as compared to the three month period ended September 30, 2016 of $36,257.
Wainwright leases office space in Oakland, California under an operating lease, which expires in October 2018. Rent expense was approximately $36,000 and $35,000 for the three months ended September 30, 2017 and 2016, respectively.
Future minimum rental payments required under the operating lease, which has remaining non-cancellable lease terms in excess of one year, are as follows:
Year ended June 30, | Lease Amount | |||
2018 | $ | 102,000 | ||
2019 | 45,000 | |||
Total minimum lease commitment | $ | 147,000 | ||
Other Agreements and Commitments
USCF Advisers has entered into expense limitation agreements with three of the funds it manages under which USCF Advisers has agreed to waive, reimburse fees or pay fund expenses in order to limit the fund’s total annual operating expenses to certain threshold amounts. Two of the funds, TOFR and MENU, are covered by an agreement which remain in effect until October 31, 2017 and limit the funds' expenses to 0.55% and 0.65%, respectively, for each of their average daily net asset values. The third fund, USCF Commodity Strategy Fund, expense limitation agreement remains in effect until July 31, 2018 and limits fund expenses to 1.30% and 0.95% of the funds' average daily net assets for the Class A and Class I shares classes, respectively. After such dates, USCF Advisers may terminate the expense limitation agreements at any time upon not less than 90 days’ notice to the respective fund trust boards. Please refer to Note 18 regarding liquidation of TOFR and MENU subsequent to quarter end.
USCF manages seven funds which have expense waiver provisions, whereby USCF will reimburse funds when fund expenditure levels exceed certain thresholds amounts. As of September 30, 2017 and June 30, 2017 the expense waiver payable was $648,117 and $589,093, respectively. Expense waiver expense for the three months ended September 30, 2017 and 2016 was approximately $190,000 and $252,000, respectively. However, USCF has no obligation to continue such payments into subsequent periods.
Litigation
From time to time, the Company is involved in legal proceedings arising mainly from the ordinary course of its business. In management’s opinion, the legal proceedings are not expected to have a material effect on the Company’s financial position or results of operations.
Retirement Plan
Wainwright's wholly owned subsidiary USCF, has a 401(k) Profit Sharing Plan covering its employees who are over 21 years of age and who have completed a minimum of 1,000 hours of service and have worked for USCF for one or more years. Participants may make contributions pursuant to a salary reduction agreement. In addition, USCF makes a safe harbor matching contribution. There were no matching contributions paid the three months ended September 30, 2017 and 2016, respectively.
NOTE 17. | SEGMENT REPORTING |
With the acquisition of Wainwright Holdings, Gourmet Foods, Ltd. and Brigadier, the Company has identified four segments for its products and services; U.S. investment fund management, U.S. data streaming and hardware, New Zealand and Canada. Our reportable segments are business units located in different global regions. The Company’sCompany’s operations in the U.S.A. include the gathering of live-streaming video recording data displayed online to subscribers through our wholly owned subsidiary Kahnalytics, Inc. and the income derived from management of various investment funds by our subsidiary Wainwright. In New Zealand operations include the production, packaging and distribution on a commercial scale of gourmet meat pies and related bakery confections through our wholly owned subsidiary Gourmet Foods, Ltd. and in Canada we provide security alarm system installation and monitoring to residential and commercial customers sold through our wholly owned subsidiary Brigadier. Separate management of each segment is required because each business unit is subject to different operational issues and strategies due to their particular regional location. The Company accounts for intra-company sales and expenses as if the sales or expenses were to third parties and eliminates them in the consolidation. Amounts are adjusted for currency translation as of the balance sheet date and presented in US dollars.
The following table presents a summary of identifiable assets as of September 30, 2017 and June 30, 2017:
September 30, 2017 | June 30, 2017 | |||||||
Identifiable assets: | ||||||||
Corporate headquarters | $ | 4,012,745 | $ | 3,302,979 | ||||
U.S.A. : investment fund management | 12,233,436 | 12,721,559 | ||||||
U.S.A. : data streaming and hardware | 93,367 | 89,459 | ||||||
New Zealand: food industry | 1,989,295 | 2,203,725 | ||||||
Canada: security alarm monitoring | 1,964,114 | 1,278,161 | ||||||
Consolidated total | $ | 20,292,957 | $ | 19,595,883 | ||||
The following table presents a summary of identifiable assets as of December 31, 2016 and June 30, 2016:
As of December 31, 2016 | As of June 30, 2016 | |
As Adjusted | ||
| Identifiable assets: | ||
| Corporate headquarters | $1,299,226 | $1,521,210 |
| U.S.A. : fund management | 12,167,931 | 8,575,810 |
| U.S.A. : data streaming | 82,032 | 87,790 |
| New Zealand | 1,916,937 | 2,199,128 |
| Canada | 1,114,617 | 956,855 |
| Consolidated | $16,580,743 | $13,540,793 |
Three-Months Ended September 30, 2017 | Three-Months Ended September 30, 2016 | |||||||
Revenues from unaffiliated customers: | ||||||||
U.S.A. : data streaming and hardware | $ | 22,855 | $ | 64,528 | ||||
U.S.A. : investment fund management | 5,157,948 | 6,367,944 | ||||||
New Zealand : food industry | 1,294,290 | 1,205,638 | ||||||
Canada : security alarm monitoring | 789,192 | 825,065 | ||||||
Consolidated total | $ | 7,264,285 | $ | 8,463,175 | ||||
Net income (loss) after taxes: | ||||||||
Corporate headquarters | $ | (160,339 | ) | $ | (189,442 | ) | ||
U.S.A. : data streaming and hardware | 2,539 | (16,832 | ) | |||||
U.S.A. : investment fund management | 930,726 | 1,417,515 | ||||||
New Zealand : food industry | 4,789 | (25,107 | ) | |||||
Canada : security alarm monitoring | 93,989 | 115,125 | ||||||
Consolidated total | $ | 871,704 | $ | 1,301,259 | ||||
3-Months Ended December 31, 2016 | 3-Months Ended December 31, 2015 | |
| Revenues from unaffiliated customers: | As Adjusted | |
| U.S.A. : data streaming and hardware | $25,039 | $(3,500) |
| U.S.A. : investment fund management | 6,472,531 | 5,645,696 |
| New Zealand : Food Industry | 1,203,521 | 996,563 |
| Canada : Security alarm monitoring | 828,114 | - |
| Consolidated | $8,529,205 | $6,638,759 |
| Net income (loss) after taxes: | ||
| Corporate headquarters | $(158,990) | $(43,459) |
| U.S.A. : data streaming and hardware | (16,035) | (4,181) |
| U.S.A. : investment fund management | 1,068,716 | 966,764 |
| New Zealand : Food Industry | 17,154 | 29,950 |
| Canada : Security alarm monitoring | 105,603 | - |
| Consolidated | $1,016,446 | $949,074 |
6-Months Ended December 31, 2016 | 6-Months Ended December 31, 2015 | |
| Revenues from unaffiliated customers: | As Adjusted | |
| U.S.A. : data streaming and hardware | $89,566 | $117,700 |
| U.S.A. : investment fund management | 12,840,475 | 10,941,614 |
| New Zealand : Food Industry | 2,394,081 | 1,610,923 |
| Canada : Security alarm monitoring | 1,641,660 | - |
| Consolidated | $16,965,782 | $12,670,237 |
| Net income (loss) after taxes: | ||
| Corporate headquarters | $(337,906) | $(117,161) |
| U.S.A. : data streaming and hardware | (32,867) | (1,817) |
| U.S.A. : investment fund management | 2,486,232 | 2,376,828 |
| New Zealand : Food Industry | (7,640) | 28,244 |
| Canada : Security alarm monitoring | 219,121 | - |
| Consolidated | $2,326,940 | $2,286,094 |
The following table presents a summary of capital expenditures for the sixthree months ended December 31:
| Capital expenditures: | 2016 | 2015 |
| Corporate headquarters | $- | $863 |
| New Zealand | 43,049 | 109,722 |
| Canada | 4,297 | - |
| Consolidated | $47,346 | $110,585 |
Capital expenditures: | Three Months Ended September 30, 2017 | Three Months Ended September 30, 2016 | ||||||
New Zealand : food industry | $ | 50,031 | $ | 40,357 | ||||
Canada : security alarm monitoring | 187,893 | - | ||||||
Consolidated total | $ | 237,924 | $ | 40,357 | ||||
NOTE 15.
The Company evaluated subsequent events for recognition and disclosure through the date the financial statements were issued or filed. Nothing has occurred outside normal operations since that required recognition or disclosure in these financial statements other than the items noted below.
On November 11, 2015, the Board of Directors (the “Board’) ofOctober 18, 2017, through its wholly owned subsidiary Kahnalytics, the Company approvedentered into an Asset Purchase Agreement which, if effectuated, will result in the implementation of a one-for-ten (1:10) reverse stock splitpurchase of all of the assets of The Original Sprout LLC, a California limited liability company, which engages in the manufacture and sale of organic, non-toxic, all natural hair care, bath, skin, and styling products, by Kahnalytics. The purchase price of approximately $3.6 million will be paid in cash by Kahnalytics through funds advanced by Concierge Technologies in the form of an intercompany loan. Closing of the proposed transaction, which is structured as an asset purchase falling under California Bulk Sales guidelines, is subject to satisfaction of certain closing conditions and disclosures which are usual and customary for transactions of this nature. For details, refer to the Company’s issuedForm 8-K filed with the SEC on October 20, 2017 and outstanding common and preferred stock (the “Reverse Stock Split”). The Reverseincorporated by reference herein.
As it relates to Wainwright, on September 22, 2017 the board of trustees of the USCF ETF Trust approved a plan for the liquidation of the Stock Split became effective when trading opened on December 15, 2015. The Reverse Stock Split was previously approved byIndex Fund (“TOFR”) and the Company’s shareholders pursuant toUSCF Restaurant Leaders Index Fund (“MENU”), each a majority written consent and byseries (or the Board pursuant to unanimous written consent on February 26, 2015. The approvals provided discretion to the Board to implement the Reverse Stock Split by the end of 2015. The number“Funds”) of the Company’s authorized sharesUSCF ETF Trust, as a result of common stock did not change. All figures have been presented on the basislow asset levels and lack of reverse split wherever applicablegrowth for alleach fund. On October 20, 2017 the periods presented inFunds concluded their liquidation plan with each Fund distributing its remaining net asset value to shareholders. Also, as of October 31, 2017 the expense limitation agreements associated with these funds expired with no significant additional financial statements.
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, respectively. The operations of the Company’sCompany’s wholly-owned subsidiaries are more particularly described herein but are summarized as follows:
● | Wainwright Holdings, Inc. (“Wainwright”), a U.S. based company, is the sole member of two investment services limited liability company subsidiaries that manages, operates or is an investment advisor to exchange traded funds organized as limited partnerships or investment trusts that issue shares that trade on the NYSE Arca stock exchange. | |
● | Gourmet Foods, Ltd. (“Gourmet Foods”), a New Zealand based company, manufactures and distributes New Zealand meat pies on a commercial scale. | |
● | Brigadier Security Systems (“Brigadier”), a Canadian based company, sells and installs commercial and residential alarm monitoring systems. | |
● | Kahnalytics, Inc. (“Kahnalytics”), a U.S. based company, captures and presents data from vehicle-mounted camera devices equipped for live-streaming. This business is being allowed to atrophy as customer contracts expire and management expects to be able to exit the industry within the coming fiscal year. |
Results of Operations
Concierge and Subsidiaries
With the acquisition of Wainwright, where Wainwright and Concierge have a different business model than thatcommonality of ownership and control as represented by the shareholdings, the acquisition has been recorded as a transaction between entities under common control on the Consolidated Balance Sheets of the corresponding period inCompany. Further, the Consolidated Statements of Operations and Comprehensive Income have been adjusted to include the carrying value of operations of Wainwright as if the transaction had concluded on July 1, 2015. By obtaining an exclusive software license and partnering with a camera importer/distributor as a channel-to-market, Kahnalytics began the business of hosting a web-based server that subscribers could access to view their camera video files, vehicle location, speed and event triggers in real time. To facilitate the sales process and entice customers to the online subscription service, Kahnalytics implemented a hardware subsidy program and offered a wireless data plan that was resold to subscribers of the service, called the Kahnalytics Fleet Management Service or “FMS”. Two types of services were offered, 1) a FMS basic subscription plan where subscribers provided their own wireless connection to the FMS and 2) a FMS data plan where subscribers were provided hardware needed to connect wirelessly to the Internet and also charged a monthly fee for the air time usage. Kahnalytics also charged a subsidized price of $50 per each wireless hardware device used in creating the wireless connection. Kahnalytics purchases data plans from a network reseller and, in turn, resells that plan to its subscribers.
For the Three Months Ended December 31, 2016September 30, 2017 Compared to the Three Months Ended December 31, 2015
Operating Income
Concierge produced an operating income for the three months ended December 31, 2016 salesSeptember 30, 2017 of FMS basic subscriptions were $2,667 and FMS data plans were $20,685. There were no FMS related subscription salesapproximately $1.4 million as compared to approximately $2.4 million for the three months ended December 31, 2015. Hardware salesSeptember 30, 2016. This represents a decrease in operating income of wireless connection devicesapproximately $1.0 million for the three months ended December 31, 2016 were $1,688 asSeptember 30, 2017 when compared to $0the three months ended September 30, 2016, or approximately 42%. The decrease in operating income is primarily attributable to lower Wainwright revenue as well as increased advertising and marketing costs during the current year connected to the launching of new product offerings.
Other Expenses
Other expenses were $21 thousand and $8 thousand for the three months ended December 31, 2015. OtherSeptember 30, 2017 and 2016, respectively. A reduction in provision for income taxes of $0.5 million compared to $1.1 million for the three months ended September 30, 2017 and 2016, respectively, was a result of lower operating income in the current period resulting in a net income of $0.9 million and $1.3 million, respectively. After giving consideration to currency translation gains of $43 thousand and changes in short-term investment valuations of ($44) thousand, the comprehensive income for the three months ended December 31, 2016September 30, 2017 was $7 for reimbursed shipping charges$0.9 million as compared to $81the three months ended September 30, 2016 where the currency translation loss was ($10) thousand, the changes in short term investment valuation was ($1) thousand, and the comprehensive income was $1.3 million.
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 and 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. USCF Advisers advises two exchange traded funds (“ETFs”) and one commodity mutual fund registered with the SEC under the Investment Company Act of 1940. Wainwright and subsidiaries USCF and USCF Advisers are collectively referred to as “Wainwright” hereafter.
USCF is currently the General Partner in the following Securities Act of 1933 LP commodity based index funds and Sponsor (“Sponsor”) for the fund series within the United States Commodity Index Funds Trust (“USCIF Trust”) and the USCF Funds Trust (“USCF Funds Trust”):
USCF as General Partner for the following funds | |
United States Oil Fund, LP (“USO”) | Organized as a Delaware limited partnership in May 2005 |
United States Natural Gas Fund, LP (“UNG”) | Organized as a Delaware limited partnership in November 2006 |
United States Gasoline Fund, LP (“UGA”) | Organized as a Delaware limited partnership in April 2007 |
United States Diesel Heating Oil Fund, LP (“UHN”) | Organized as a Delaware limited partnership in April 2007 |
United States 12 Month Oil Fund, LP (“USL”) | Organized as a Delaware limited partnership in June 2007 |
United States 12 Month Natural Gas Fund, LP (“UNL”) | Organized as a Delaware limited partnership in June 2007 |
United States Short Oil Fund, LP (“DNO”) | Organized as a Delaware limited partnership in June 2008 |
United States Brent Oil Fund, LP (“BNO”) | Organized as a Delaware limited partnership in September 2009 |
USCF as fund Sponsor - each a series within the USCIF Trust | |
United States Commodity Index Funds Trust (“USCIF Trust”) | A series trust formed in Delaware December 2009 |
United States Commodity Index Fund (“USCI”) | A commodity pool formed in April 2010 and made public August 2010 |
United States Copper Index Fund (“CPER”) | A commodity pool formed in November 2010 and made public November 2011 |
United States Agriculture Index Fund (“USAG”) | A commodity pool formed in November 2010 and made public April 2012 |
USCF as fund Sponsor - each a series within the USCF Funds Trust | |
USCF Funds Trust (“USCF Funds Trust”) | A series trust formed in Delaware March 2016 |
United States 3X Oil Fund (“USOU”) | A commodity pool formed in May 2017 and made public July 2017 |
United States 3X Short Oil Fund (“USOD”) | A commodity pool formed in May 2017 and made public July 2017 |
The USCIF Trust currently has a new fund, USCF Canadian Crude Oil Index Fund (“UCCO”), in registration and has not commenced operations.
In addition, USCF is the sponsor of the USCF Funds Trust, a Delaware statutory trust, and each of its series, the REX S&P MLP Fund and the REX S&P MLP Inverse Fund, which are currently in registration and have not commenced operations (together, the “REX Funds”).
USCF Advisers serves as the investment adviser to the fund(s) 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 Trust and the USCF Mutual Funds Trust | |
USCF ETF Trust (“ETF Trust”) | Organized as a Delaware statutory trust in November 2013 |
Stock Split Index Fund (“TOFR”) | Fund launched September 2014; Liquidated October 20, 2017 |
Restaurant Leaders Index Fund (“MENU”) | Fund launched November 2016; Liquidated October 20, 2017 |
USCF Mutual Funds Trust ("Mutual Funds Trust") | |
USCF Commodity Strategy Fund ("USCFX" and "USCIX") | Fund launched March 2017 |
All USCF funds and the Trusts' funds are collectively referred to as the “Funds” hereafter. (See Note 18 to the consolidated financial statements for updates on fund launches or liquidations)
For the Three Months Ended September 30, 2017, Compared to the Three Months Ended September 30, 2016
Wainwright’s revenue and expenses are primarily driven by the amount of Fund assets under management (“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 and Distribution, Operations and Salaries and Compensation.
Average AUM for the three months ended December 31, 2015 as an adjustmentSeptember 30, 2017 decreased to sales tax liability.
Wainwright’s total Operating Expenses for three months ended September 30, 2017 decreased by $0.26 million to $3.66 million, or 7%, from $3.92 million for the three months ended December 31, 2015 of $4,181 after income tax provision of $800.
Net income before taxes for the sixthree months ended December 31, 2015 of $1,817 after income tax provision of $800.
Gourmet Foods, Ltd.
Gourmet Foods Limited (“GFL”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. Concierge purchased all of the issued and outstanding shares of Gourmet Foods as of August 1, 2015 even though the transaction did not officially close until August 11, 2015.
Gourmet Foods operates exclusively in New Zealand and thus the New Zealand dollar is its functional currency. In order to consolidate Concierge’sConcierge’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 SFAS 52, Foreign Currency Translation.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 the foreign currency translations are included in Accumulated Other Comprehensive Expense found on the Condensed Consolidated Balance Sheets.
For the Three Months Ended December 31, 2016September 30, 2017 Compared to the Three Months Ended December 31, 2015
Net revenues for the three months ended December 31, 2016September 30, 2017 were $1,203,521$1.3 million with cost of goods sold of $839,571,$0.9 million resulting in a gross profit of $363,950 for an approximate 30% gross margin$0.4 million as compared to the three months ended September30, 2016 where net revenues were $1.2 million; cost of goods sold were $0.8 million; and gross profit was $0.4 million.
General, administrative and selling expenses, including wages and marketing, for the three months ended September 30, 2017 and the three months ended September 30, 2016 were $0.3 million and $0.4 million producing operating income of $82 thousand and $30 thousand, respectively, or approximately 6% net operating profit for three months ended September 30, 2017 as compared to 2% for the three months ended December 31, 2015 of $996,564 with a cost of goods sold for the three months ended December 31, 2015 of $683,345 producing a 31% gross profit of $313,219.
The depreciation expense, income tax provision and other income totaled $129,873$78 thousand for the sixthree months ended December 31, 2016September 30, 2017 as a compared to $105,410$55 thousand for the fivethree months ended December 31, 2015,September 30, 2016, resulting in a net lossincome of $7,640approximately $7 thousand as compared to a net incomeloss of $28,721,$25 thousand, respectively.
The gross profits and total revenues are consistent between the comparison periods and the differences in net income are attributed to stepped-up depreciation expense, varying income tax provisions and the strengtheningfluctuation of currency exchange rates with the US dollar against New Zealand currency during the current period.
Brigadier Security Systems
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 (under the fictitious business name of “Elite Security”) and Saskatoon. SecurTek is owned by Saskatchewan's publicly-owned telecommunications utility with well over 100,000 customers across Canada. Brigadier is also a Honeywell Certified Access Control Distributor, Kantech Global Dealer and UTC Interlogix Security Pro dealer and the largest independent security contractor in the province. Brigadier provides comprehensive security solutions including access control, camera monitoring, motion detection, and intrusion alarms to home and business owners as well as government offices, schools and public buildings. Brigadier typically sells hardware to customers and a full-time monitoring of the premises. The contract for monitoring the premisepremises` is then conveyed to a third-party telecom in exchange for an upfront payment and recurring residuals based on subscriber contracts.
Brigadier operates exclusively in Canada and thus the Canadian dollar is its functional currency. In order to consolidate Concierge’sConcierge’s reporting currency, the USU.S. dollar, with that of Brigadier, Concierge records foreign currency translation adjustments and transaction gains and losses in accordance with SFAS 52, Foreign Currency Translation.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 the foreign currency translations are included in Accumulated Other Comprehensive Expense found on the Condensed Consolidated Balance Sheets.
For the Three Months Ended December 31,September 30, 2017Compared to the Three Months Ended September 30, 2016
Net revenues for the three months ended December 31, 2016September 30, 2017 were $827,910$0.8 million with cost of goods sold recorded as $201,000,$0.3 million, resulting in a gross profit of $626,910$0.5 million with a gross margin of approximately 76%.
General, administrative and general and administrative expenses.
Other expense comprised of depreciation, income tax, interest income, commission income and gain on sale of $69,847 resulted in a comprehensive income of $1,018,921.
Kahnalytics, Inc.
Kahnalytics was established in 2015 increased by $67,372 or approximately 7%. Contributingto carry on the residual business of Janus Cam (a previously wholly-owned subsidiary in the camera business) after disposal of that subsidiary. For the years ended June 30, 2017 and 2016, the Company has incurred de minimis operating losses insignificant to the difference in net income betweenoverall enterprise. As of June 30, 2017, the comparison periodsbusiness is being wound down and management expects operations within the absenceindustry of Brigadier Security Systemsmobile video and their contributing revenueslive-streaming data to be eliminated during the current fiscal year.
Plan of Operation for the entiretyNext Twelve Months
Our plan of operation for the 2015 periodnext twelve months is to transition our Kahnalytics subsidiary into a more profitable industry sector through acquisition or business combination thus stemming losses and reducinggrowing revenues. Additionally, we are expecting moderate growth in Brigadier through focused management initiatives and consolidation within the security industry. 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. Wainwright will continue to develop innovative and new fund products to grow its portfolio. Our long-term mission is to continue with our acquisition strategy by identifying and acquiring profitable, mature, companies of a diverse nature and with in-place management to produce increasing revenue streams. By these initiatives we hope to:
● | continue to gain market share for our wholly owned subsidiaries’ areas of operation, |
● | increase our gross revenues and realize net operating profits, |
● | lower our operating costs by unburdening certain selling expenses to third party distributors, |
● | have sufficient cash reserves to pay down accrued expenses, |
● | attract parties who have an interest in selling their privately held companies to us, and |
● | achieve efficiencies in accounting and reporting through consolidated operations of our subsidiaries from a management perspective. |
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 expenses and the funding of additional business acquisitions. Our operating subsidiaries' principal liquidity requirements arise from cash used in profits, are the one-time transactionoperating activities, debt service, and capital expenditures, including purchases of equipment and services, operating costs to acquire the aforementioned subsidiaries plus the transaction cost to acquire Wainwright during the current period.
As of $3,982,862September 30, 2017, we had $7.3 million of cash and cash equivalents on a consolidated basis as compared to $6.7 million as of June 30, 2017.
Investments
Wainwright, from time to time, provides initial investments in the creation of ETP funds that Wainwright manages. Wainwright classifies these investments as current assets as these investments are generally sold within one year from the balance sheet date. These investments are described further in Note 7 to our Financial Statements.
Reverse Stock Split
Our Board and the majority stockholders have approved the adoption of a one-for-thirty (1:30) reverse stock split whereby each thirty shares of our common stock and Series B Preferred stock issued and outstanding as of the record date established by the Board shall be combined into one share of common stock or preferred stock, as applicable (the “Reverse Stock Split”). The Reverse Stock Split will become effective as determined by the Board in its discretion at any time prior to December 31, 2017.
Recent Developments
On October 18, 2017, through our wholly owned subsidiary Kahnalytics, we entered into an operating incomeAsset Purchase Agreement which, if effectuated, will result in the purchase of $3,643,763all of the assets of The Original Sprout LLC, a California limited liability company, which engages in the manufacture and sale of organic, non-toxic, all natural hair care, bath, skin, and styling products, by Kahnalytics. The purchase price of approximately $3.6M will be paid in cash by Kahnalytics through funds advanced by us in the form of an interest free loan. Closing of the proposed transaction, which is structured as an asset purchase falling under California Bulk Sales guidelines, is subject to satisfaction of certain closing conditions and disclosures which are usual and customary for transactions of this nature. For details, refer to the Company’s Form 8-K filed with the SEC on October 20, 2017 and incorporated by reference herein.
As it relates to Wainwright, on September 22, 2017 the board of trustees of the USCF ETF Trust approved a plan for the six months ended December 31, 2015. This represents an increase in operating incomeliquidation of $339,099 over the six months ended December 31, 2016 when compared toStock Split Index Fund (“TOFR”) and the six months ended December 31, 2015, or approximately 9%.
Concierge is a smaller reporting company and is not required to provide the information required by this item.
Disclosure Controls and Procedures
Concierge maintains disclosure controls and procedures that are designed to provide reasonable assurances that the information required to be disclosed in Concierge’sConcierge’s periodic reports filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms.
The duly appointed officers of Concierge, including its chief executive officer and chief financial officer, who perform functions equivalent to those of a principal executive officer and principal financial officer of Concierge if Concierge had any officers, have evaluated the effectiveness of Concierge’s disclosure controls and procedures and have concluded that the disclosure controls and procedures of Concierge have been effective as of the end of the period covered by this quarterly report on Form 10-Q.
Change in Internal Control Over Financial Reporting
There were no significant changes in the Company's internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.
Risk Factors |
Concierge is a smaller reporting company and is not required to provide the information required by this item.
Other Information |
On September 19, 2016,November 10, 2017, the Company’s Board appointed the following officers:
David Neibert Chief Operating Officer and Secretary
Stuart Crumbaugh Chief Financial Officer and Treasurer
Mr. Neibert has been a director of Concierge Technologies Inc.since June 17, 2002 and previously served as the Company’s Chief Financial Officer. In connection with Mr. Neibert’s promotion to the position of Chief Operating Officer, he will receive an annual salary of $200,000 plus a limited reimbursement of health insurance premiums.
Mr. Crumbaugh, 54, has served as the Secretary, Chief Financial Officer and Treasurer of USCF since May 15, 2015. Mr. Crumbaugh has been a principal of USCF listed with the CFTC and NFA since April 30, 2015. Mr. Crumbaugh joined USCF as the Assistant Chief Financial Officer on April 6, 2015. Prior to joining USCF, Mr. Crumbaugh was the Vice President Finance and Chief Financial Officer of Sikka Software Corporation, a software as a service (“Concierge” or the “Company”SaaS”) entered intohealthcare company providing optimization software and data solutions from April 2014 to April 6, 2015. Mr. Crumbaugh was Vice President, Corporate Controller and Treasurer of Auction.com, LLC, a conditional Stock Purchase Agreement (the “Agreement”), datedresidential and commercial real estate online auction company from December 2012 through December 2013. From March 2011 through September 19, 2016, with Wainwright Holdings,2012, Mr. Crumbaugh was Chief Financial Officer of IP Infusion Inc., a Delaware corporation (“Wainwright”technology company providing network routing and switching software enabling software-defined networking solutions for major mobile carriers and network infrastructure providers. Mr. Crumbaugh was the Global Vice President of Finance at Virage Logic Corporation (acquired by Synopsys, Inc.) from January 2010 through December 2010. Mr. Crumbaugh served as a consultant with the Connor Group for the periods of January and certain shareholders of Wainwright (the “Sellers”), pursuantFebruary 2011, October and November 2012 and January through March 2014, providing technical accounting, IPO readiness and M&A consulting services to which the Sellers conditionally agreed to sell,various early stage companies. Mr. Crumbaugh earned a B.A. in Accounting and the Company conditionally agreed to purchase, shares representing approximately 97% of the total issuedBusiness Administration from Michigan State University in 1987 and outstanding common stock of Wainwright (the “Wainwright Shares”)is a Certified Public Accountant – Michigan (inactive). The Company subsequently, on December 8, 2016, obtained the joiner agreements to include the entirety of the Wainwright shareholders as Sellers.
As a result of the transaction, all shareholders of Wainwright have become shareholders of the Company.
On November 10, 2017, the Company's Board formed a sub-committee to assist the Board in the review of the issuedCompany’s quarterly and outstanding limited liability company membership interestsannual reports and the financial statements included therein. The members of United States Commodity Funds LLC,this sub-committee are Matt Gonzalez, Derek Mullins, Erin Grogan, Tabatha Coffey and Joya Harris. The sub-committee has not yet adopted a Delaware limited liability company (“USCF”) and USCF Advisers, LLC (“USCF Advisers”). USCF is a commodity pool operator registered withformal charter.
On November 10, 2017, the Commodity Futures Trading Commission. USCF Advisers isCompany's Board also approved the annual compensation to be paid to its independent directors. The Board approved an SEC registered investment adviser. USCF and USCF Advisers act as the advisersannual fee of $10,000, to the Funds set forthbe paid quarterly in the Agreement (each, a “Fund”, and collectively, the “Funds”).arrears.
Exhibits |
The following exhibits are filed, by incorporation and by reference, as part of this Form 10-Q:
Exhibit Number | Description of Document | ||
2.1 | Agreement for Sale and Purchase | ||
2.2 | |||
2.3 | |||
3.2 | |||
3.3 | |||
10.1 | |||
10.2 | |||
10.3 | |||
10.4 | |||
10.5 | |||
10.6 | |||
10.7 | |||
31.1(1) | |||
31.2(1) | |||
32.1(1) | |||
32.2(1) | |||
101.INS | XBRL Instance Document# | |
101.SCH | XBRL Taxonomy Extension Schema Document# | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document# | |
101.LAB | XBRL Taxonomy Extension Labels Linkbase Document# | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document# | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document# |
# Filed herewith.
(1) | Filed herewith. |
1Previously filed with Form 8-K12G3Annual Report on March 10, 2000; Commission File No. 000-29913, incorporated herein.
2Previously filed with Current Report on Form 8-K on January 29, 2015 and incorporated by reference herein.
3 Previously filed with Current Report on Form 8-K on March 4, 2015 and incorporated by reference herein.
4Previously filed with Current Report on Form 8-K on June 2, 2015 and incorporated by reference herein.
5 Previously filed with Current Report on Form 8-K on February 2, 2016 and incorporated by reference herein.
6 Previously filed with Current Report on Form 8-K on June 8, 2016 and incorporated by reference herein.
7 Previously filed with Current Report on Form 8-K on September 19, 2016 and incorporated by reference herein.
8Previously filed with Current Report on Form 8-K on December 12, 2016 and incorporated by reference herein.
9Previously filed with Definitive Proxy Materials on Schedule 14A on February 28, 2017 and incorporated by reference herein.
10 Previously filed with Current Report on Form 8-K on April 6, 2017 and incorporated by reference herein.
11 Previously filed with Current Report on Form 8-K on October 19, 2017 and incorporated by reference herein.
Pursuant to the requirements of the Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
CONCIERGE TECHNOLOGIES, INC. | |||
Dated: | By: | /s/ Nicholas Gerber | |
Nicholas Gerber | |||
Chief Executive Officer | |||
A signed original of this written statement required by Section 906 has been provided to Concierge Technologies, Inc. and will be retained by Concierge Technologies, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
29