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Table of Contents

 

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 December 31, 2019

 

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.)

 

1202 Puerta Del Sol

San Clemente, CA 92673

949-429-5370

Fax: 888.312.0124

 

 


(Address and telephone number of registrant's principal

executive offices and principal place of business)

  

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class of Security

Trading Symbol

Name of Exchange on Which Registered

None

   

 

 

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, every Interactive Data File required to be submitted 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 such files).  ☒   Yes     ☐    No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

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 37,412,519 shares of Common Stock, $0.001 par value, and 53,032 shares of Series B Convertible, Voting, Preferred Stock on February 13, 2020. Series B Preferred stock is convertible, under certain conditions, to 20 shares of common stock for each share of Series B Preferred stock. Each share of Series B Preferred stock votes as 20 shares of common stock.

 

 

 

 

 

 
 

CONCIERGE TECHNOLOGIES, INC.

 

Table of Contents

 

 

Page

 

 

Part I. FINANCIAL INFORMATION

 

 

 

Item 1. Financial Statements (Unaudited)

3

 

 

Condensed Consolidated Balance Sheets as of December 31, 2019 and June 30, 2019

5

 

 

Condensed Consolidated Statements of Operations for the Three and Six Months Ended December 31, 2019 and 2018

6

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended December 31, 2019 and 2018

7

 

 

Condensed Consolidated Statements of  Stockholders' Equity for the Three and Six Months Ended December 31, 2019 and 2018

8

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2019 and 2018

9

 

 

Notes to Condensed Consolidated Financial Statements

26

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

32

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

32

 

 

Item 4. Controls and Procedures

33

 

 

Part II. OTHER INFORMATION

33

 

 

Item 1. Legal Proceedings

33

 

 

Item 1A. Risk Factors

33

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

33

 

 

Item 3. Defaults Upon Senior Securities

33

 

 

Item 4. Mine Safety Disclosures

33

 

 

Item 5. Other Information

33

 

 

Item 6. Exhibits

34

 

 

Signatures

35

 

 

2

 

 

 

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 future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “would,” “shall,” “might,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

 

 

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 our cash and cash equivalents to meet our working capital, capital expenditure, and liquidity needs;

 

our operating subsidiaries' 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 technologies affecting our operating subsidiaries' products and markets;

 

our operating subsidiaries' ability to innovate and provide a superior user experience and our intentions and strategy with respect thereto;

 

our operating subsidiaries' ability to successfully penetrate enterprise markets;

 

our operating subsidiaries' 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

 

and our operating subsidiaries' 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 foregoing list does not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.

 

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 projections about future events and trends that we believe may affect our business, financial condition, operating results, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” in our annual report on Form 10-K for the year ended June 30, 2019. Moreover, we and our subsidiaries operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.

 

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We and our subsidiaries may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements.

   

3

 

 

 

CONCIERGE TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

    December 31, 2019     June 30, 2019  
           

(AUDITED)

 

ASSETS

 
                 

CURRENT ASSETS

               

Cash and cash equivalents

  $ 6,532,285     $ 6,481,815  

Accounts receivable, net

    811,699       939,649  

Accounts receivable - related parties

    1,002,708       1,037,146  

Inventories

    1,219,403       1,008,662  

Prepaid income tax and tax receivable

    1,346,703       1,754,369  

Investments

    3,792,918       3,756,596  

Other current assets

    272,814       546,105  

Total current assets

    14,978,530       15,524,342  
                 

Restricted cash

    13,468       13,436  

Property and equipment, net

    1,298,455       757,014  

Operating lease right-of-use asset

    928,964       -  

Goodwill

    915,790       915,790  

Intangible assets, net

    2,490,590       2,659,723  

Deferred tax assets, net

    859,696       859,696  

Other assets, long - term

    523,607       523,607  

Total assets

  $ 22,009,100     $ 21,253,608  
                 

LIABILITIES AND STOCKHOLDERS' EQUITY

 
                 

CURRENT LIABILITIES

               

Accounts payable and accrued expenses

  $ 2,118,950     $ 2,867,081  

Expense waivers – related parties

    288,119       325,821  

Current portion operating lease liabilities

    366,617       -  

Notes payable - related parties

    3,500       3,500  

Loans - property and equipment, current portion

    13,556       26,241  

Total current liabilities

    2,790,742       3,222,643  
                 

LONG TERM LIABILITIES

               

Notes payable - related parties

    600,000       600,000  

Loans - property and equipment, net of current portion

    384,412       61,057  

Long-term operating lease liabilities

    600,231       -  

Deferred tax liabilities

    176,578       176,578  

Total long-term liabilities

    1,761,221       837,635  

Total liabilities

    4,551,963       4,060,278  
                 

STOCKHOLDERS' EQUITY

               

Preferred stock, $0.001 par value; 50,000,000 authorized

               

Series B: 53,032 issued and outstanding at December 31, 2019 and at June 30, 2019

    53       53  

Common stock, $0.001 par value; 900,000,000 shares authorized; 37,412,519 shares issued and outstanding at December 31, 2019 and 37,237,519 at June 30, 2019

    37,412       37,237  

Additional paid-in capital

    9,292,955       9,178,838  

Accumulated other comprehensive (loss)

    (6,122 )     (175,659 )

Retained earnings

    8,132,839       8,152,861  

Total stockholders' equity

    17,457,137       17,193,330  

Total liabilities and stockholders' equity

  $ 22,009,100     $ 21,253,608  

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 

4

 

 

 

CONCIERGE TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

   

For the Three-Month Periods Ended

   

For the Six-Month Periods Ended

 
   

December 31,

   

December 31,

 
   

2019

   

2018

   

2019

   

2018

 
                                 

Net revenue

                               

Fund management - related party

  $ 2,839,718     $ 3,939,004     $ 5,880,287     $ 8,161,988  

Food products

    1,320,357       1,145,410       2,570,334       2,339,704  

Security systems

    733,533       714,069       1,506,753       1,561,100  

Beauty products and other

    902,928       897,457       1,866,601       1,799,786  

Net revenue

    5,796,536       6,695,940       11,823,975       13,862,578  
                                 

Cost of revenue

    1,724,507       1,751,280       3,493,827       3,584,431  
                                 

Gross profit

    4,072,029       4,944,660       8,330,148       10,278,147  
                                 
                                 

Operating expense

                               

General and administrative expense

    986,392       1,076,585       2,106,392       2,148,468  

Fund operations

    727,450       1,144,734       1,537,287       2,410,388  

Marketing and advertising

    634,871       762,742       1,210,003       1,634,484  

Depreciation and amortization

    150,485       174,657       300,148       349,096  

Salaries and compensation

    1,673,443       1,721,688       3,216,485       3,104,842  

Total operating expenses

    4,172,641       4,880,406       8,370,315       9,647,278  
                                 

(Loss) Income from operations

    (100,612 )     64,254       (40,167 )     630,869  
                                 
                                 

Other (expense) income:

                               

Other (expense) income

    (31,347 )     (320,048 )     (22,458 )     (493,083 )

Interest and dividend income

    26,403       351,582       52,239       355,364  

Interest expense

    (10,246 )     (7,269 )     (21,248 )     (15,377 )

Total other (expense) income, net

    (15,190 )     24,265       8,533       (153,096 )
                                 

(Loss) Income before income taxes

    (115,802 )     88,519       (31,634 )     477,773  
                                 

Benefit (Provision) of income taxes

    40,888       (25,358 )     11,612       (129,106 )
                                 

Net (loss) income

  $ (74,914 )   $ 63,161     $ (20,022 )   $ 348,667  
                                 

Weighted average shares of common stock

                               

Basic

    37,412,519       29,559,139       37,368,769       29,559,139  

Diluted

    37,412,519       38,298,159       37,368,769       38,298,159  
                                 

Net income per common share

                               

Basic

    (0.00 )   $ 0.00     $ (0.00 )   $ 0.01  

Diluted

  $ (0.00 )   $ 0.00     $ (0.00 )   $ 0.01  

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 

5

 

 

 

CONCIERGE TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

 

   

Three Months Ended December 31,

   

Six Months Ended December 31,

 
   

2019

   

2018

   

2019

   

2018

 
                                 

Net (loss) income

  $ (74,914 )   $ 63,161     $ (20,022 )   $ 348,667  
                                 

Other comprehensive income (loss):

                               

Foreign currency translation gain (loss)

    135,588       (47,125 )     169,537       (58,708 )

Comprehensive income

  $ 60,674     $ 16,036     $ 149,515     $ 289,959  

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 

6

 

 

 

CONCIERGE TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF  STOCKHOLDERS' EQUITY 

FOR THE THREE AND Six MONTH PERIODS ENDING December 31, 2019 AND December 31, 2018

(UNAUDITED)

 

Period Ending December 31, 2019

  Preferred Stock (Series B)    

Common Stock

                                 
   

Number of Shares

   

Amount

   

Number of Shares

   

Par Value

   

Additional Paid - in Capital

   

Accumulated Other Comprehensive Income (Loss)

   

Retained Earnings

   

Total Stockholders' Equity

 

Balance at June 30, 2019

    53,032     $ 53       37,237,519     $ 37,237     $ 9,178,838     $ (175,659 )   $ 8,152,861     $ 17,193,330  

Gain on currency translation

    -       -       -       -       -       33,949       -       33,949  

Common stock issued for services

    -       -       175,000       175       -       -       -       175  

Common stock issued for services - earned(1)

    -       -       -       -       37,366       -       -       37,366  

Net income

    -       -       -       -       -       -       54,892       54,892  

Balance at September 30, 2019

    53,032     $ 53       37,412,519     $ 37,412     $ 9,216,204     $ (141,710 )   $ 8,207,753     $ 17,319,712  

Gain on currency translation

    -       -       -       -       -       135,588       -       135,588  

Common stock issued for services

    -       -       -       -       -       -       -       -  

Common stock issued for services - earned(1)

    -       -       -       -       76,751       -       -       76,751  

Net (loss)

    -       -       -       -       -       -       (74,914 )     (74,914 )

Balance at December 31, 2019

    53,032     $ 53       37,412,519     $ 37,412     $ 9,292,955     $ (6,122 )   $ 8,132,839     $ 17,457,137  

 

 

Period Ending December 31, 2018

  Preferred Stock (Series B)    

Common Stock

                                 
   

Number of Shares

   

Amount

   

Number of Shares

   

Par Value

   

Additional Paid - in Capital

   

Accumulated Other Comprehensive Income (Loss)

   

Retained Earnings

   

Total Stockholders' Equity

 

Balance at June 30, 2018

    436,951     $ 437       29,559,139     $ 29,559     $ 9,186,132     $ 148,808     $ 7,611,061     $ 16,975,997  

(Loss) on currency translation

    -       -       -       -       -       (11,583 )     -       (11,583 )
Reclass of investment gains     -       -       -       -       -       (279,951 )     279,951       -  

Net income

    -       -       -       -       -       -       285,954       285,954  

Balance at September 30, 2018

    436,951     $ 437       29,559,139     $ 29,559     $ 9,186,132     $ (142,726 )   $ 8,176,966     $ 17,250,368  

(Loss) on currency translation

    -       -       -       -       -       (47,125 )     -       (47,125 )

Reclass of investment gains

    -       -       -       -       -       -       (448 )     (448 )

Net income

    -       -       -       -       -       -       63,161       63,161  

Balance at December 31, 2018

    436,951     $ 437       29,559,139     $ 29,559     $ 9,186,132     $ (189,851 )   $ 8,239,679     $ 17,265,956  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

(1)  See Shares Issued for Services contained in Note 13 

 

  

7

 

 

 

CONCIERGE TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED) 

 

   

For the Six Month Period Ended

 
   

December 31,

 
   

2019

   

2018

 

CASH FLOWS FROM OPERATING ACTIVITIES:

               

Net (loss) income

  $ (20,022 )   $ 348,667  

Adjustments to reconcile net income to net cash provided by operating activities

               

Depreciation and amortization

    300,148       349,096  

Stock based vendor compensation

    114,292       -  
Bad debt expense     91       -  

Unrealized loss on investments

    688       314,313  

Loss on disposal of equipment

    -       1,434  
Operating lease right-of-use asset - Non-cash lease cost     184,876       -  
                 

Decrease (increase) in current assets:

               

Accounts receivable, net

    130,917       142,174  

Accounts receivable - related party

    34,437       226,377  

Prepaid income taxes and tax receivable

    427,260       (64,010 )

Inventories

    (207,324 )     (306,271 )

Other current assets

    94,986       178,635  

Increase (decrease) in current liabilities:

               

Accounts payable and accrued expenses

    (781,736 )     (309,587 )
Operating lease liabilities     (184,068 )     -  

Expense waivers - related party

    (37,702 )     (273,655 )

Net cash provided by operating activities

    56,843       607,173  
                 

CASH FLOWS FROM INVESTING ACTIVITIES:

               

Cash paid for acquisition of business assets

    -       (45,000 )

Purchase of real estate and equipment – net of disposal

    (495,579 )     (8,984 )

Sale of investments

    -       180,000  

Purchase of investments

    (29,060 )     (346,759 )

Net cash (used in) investing activities

    (524,639 )     (220,743 )
                 

CASH FLOWS FROM FINANCING ACTIVITIES:

               

Loans - real estate, property and equipment

    404,518       -  

Repayment of equipment loan

    (94,613 )     (96,525 )

Net cash provided by (used in) financing activities

    309,905       (96,525 )
                 

Effect of exchange rate change on cash and cash equivalents

    208,393       (30,515 )
                 

NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

    50,502       259,390  
                 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING BALANCE

    6,495,251       7,524,114  
                 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, ENDING BALANCE

  $ 6,545,753     $ 7,783,504  
                 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

               

Cash paid during the period for:

               
Interest paid   $ 8,990     $ -  

Income taxes-U.S.

  $ 159,363     $ 43,000  

Non-Cash financing and investing activities:

               

Acquisition of operating right-of-use assets through operating lease obligations

  $ 1,150,916     $ -  
Reclassification of deposit from other current assets to property and equipment   $ 178,276     $ -  

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

8

 

 

CONCIERGE TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS

(UNAUDITED)

  

 

 

NOTE 1.

ORGANIZATION AND DESCRIPTION OF BUSINESS

 

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

 

 

Wainwright Holdings, Inc. (“Wainwright”), a U.S. based company, is the sole member of two investment services limited liability company subsidiaries, United States Commodity Funds LLC (“USCF”), and USCF Advisers LLC (“USCF Advisers”), each of which manages, operates or is an investment advisor to exchange traded funds organized as limited partnerships or investment trusts that issue shares which trade on the NYSE Arca stock exchange.

 

Gourmet Foods, Ltd. (“Gourmet Foods”), a New Zealand based company, manufactures and distributes New Zealand meat pies on a commercial scale.

 

Brigadier Security Systems (2000) Ltd. (“Brigadier”), a Canadian based company, sells and installs commercial and residential alarm monitoring systems.

 

Kahnalytics, Inc. dba/Original Sprout (“Original Sprout”), a U.S. based company, is engaged in the wholesale distribution of hair and skin care products under the brand name Original Sprout on a global scale. The former business of Kahnalytics, providing live-streaming mobile video on a subscription basis, was insignificant and was terminated after transitioning to the current business of distributing hair and skin care products.

  Marygold & Co., a newly formed U.S. based company, established by Concierge to explore opportunities in the financial technology ("Fintech") space, estimated to commence operations by May 2020.

 

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

 

 

NOTE 2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation and Accounting Principles

 

The Company has prepared the accompanying financial statements on a consolidated basis. In the opinion of management, the accompanying consolidated balance sheets and related statements of income and comprehensive income, and cash flows include all adjustments, consisting only of normal recurring items, necessary for their fair presentation, prepared on an accrual basis, in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The information included in this Form 10-Q should be read in conjunction with information included in the Company’s 2019 Form 10-K filed on September 30, 2019 with the U.S. Securities and Exchange Commission.

 

Principles of Consolidation

 

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

 

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

 

Use of Estimates

 

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

 

Cash and Cash Equivalents

 

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

 

Accounts Receivable, net and Accounts Receivable - Related Parties

 

Accounts receivable, net, consist of receivables from the Brigadier, Gourmet Foods and Original Sprout businesses. The Company does not currently maintain an allowance for doubtful accounts as it believes all accounts are collectible. Management regularly reviews the composition of accounts receivable and analyzes customer credit worthiness, customer concentrations, current economic trends and changes in customer payment patterns to determine whether or not an account should be deemed uncollectible. Reserves, if any, are recorded on a specific identification basis. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. As of December 31, 2019 and June 30, 2019, the Company had $0 and $2,075, respectively, listed as doubtful accounts.

 

Accounts receivable - related parties, consist of fund asset management fees receivable from the Wainwright business. Management fees receivable generally consist of one month of management fees which are collected in the month after they are earned. As of December 31, 2019, and June 30, 2019, there is no allowance for doubtful accounts as all amounts are deemed collectible.

 

9

 

 

Major Customers and Suppliers – Concentration of Credit Risk

 

Concierge, has a holding company, operates through its wholly-owned subsidiaries and has no concentration of risk either from customers or suppliers as a stand alone entity. Marygold & Co., as a newly formed entity, had no revenues and no significant transactions for the three or six months ended December 31, 2019. What transactions that did occur were combined with those of Concierge.

 

Concierge, through Brigadier, is partially dependent upon its contractual relationship with the alarm monitoring company who provides monitoring services to Brigadier’s customers. In the event this contract is terminated, Brigadier would be compelled to find an alternate source of alarm monitoring, or establish such a facility itself. Management believes that the contractual relationship is sustainable, and has been for many years, with alternate solutions available should the need arise. Sales to the largest customer, which includes contracts and recurring monthly support fees, totaled 50% and 51% of the total Brigadier revenues for the three and six months ended December 31, 2019 ,respectively, as compared to 53% and 55% for the three and six months ended December 31, 2018, respectively. The same customer accounted for approximately 41% of Brigadier's accounts receivable as of the balance sheet date of December 31, 2019 as compared to 37% as of June 30, 2019.

 

Concierge, through Gourmet Foods, has three major customer groups comprising the gross revenues to Gourmet Foods; 1) grocery, 2) gasoline convenience stores, and 3) independent retailers. The grocery and food industry is dominated by several large chain operations, which are customers of Gourmet Foods, and there are no long term guarantees that these major customers will continue to purchase products from Gourmet Foods, however the relationships have been in place for sufficient time to give management reasonable confidence in their continuing business. For the quarter ended December 31, 2019, Gourmet Foods’ largest customer in the grocery industry, who operates through a number of independently branded stores, accounted for approximately 19% of Gourmet Foods sales revenues as compared to 20% for the three months ended December 31, 2018. This customer accounted for 36% of the accounts receivable at December 31, 2019 as compared to 28% as of June 30, 2019. The second largest in the grocery industry accounted for approximately 13% of Gourmet Foods sales revenues for the quarter ended December 31, 2019 as compared to 12% for the three months ended December 31, 2018. This same group accounted for 15% of Gourmet Foods accounts receivable as of December 31, 2019 as compared to 19% as of June 30, 2019. In the gasoline convenience store market Gourmet Foods supplies two major channels. The largest is a marketing consortium of gasoline dealers operating under the same brand who, for the three months ended December 31, 2019, accounted for approximately 44% of Gourmet Foods’ gross sales revenues as compared to 44% for the three months ended December 31, 2018. No single member of the consortium is responsible for a significant portion of Gourmet Foods’ accounts receivable. The third category of independent retailers and cafes accounted for the balance of Gourmet Foods’ gross sales revenue, however the group members are independently owned and individually responsible for their financial obligations with no one customer accounting for a significant portion of revenues or accounts receivable.

 

Concierge, through Original Sprout, is not dependent upon any one customer or group of customers as no single customer or buying group consistently accounts for over 10% of the gross revenues, though due to timing of deliveries a customer may account for a significant portion of our gross revenues during any particular period. For the three months ended December 31, 2019, no customer accounted for 10% or more of our revenues as compared to two different companies accounting for 13% and 10% of our revenues for the three-month period ending December 31, 2018. These companies did not account for any significant portion of our accounts receivable as of December 31, 2019 or as of June 30, 2019, however three different customers who did not account for a significant portion of our revenues did account for 18%, 16% and 15% of our accounts receivable as of December 31, 2019 as compared to three other different companies whose accounts receivable represented 25%, 17% and 12% of all accounts receivable as of June 30, 2019. Original Sprout is partially dependent upon its relationship with a product packaging company who, at the direction of Original Sprout, manufactures the products, packages them in appropriate containers, and delivers the finished goods to Original Sprout for distribution to its customers. All of Original Sprout’s products are currently produced by this packaging company, although if this relationship were to fail there are other similar packaging companies available to Original Sprout at competitive pricing. 

 

For our subsidiary, Wainwright, the concentration of risk and the relative reliance on major customers are found within the various funds it manages and the associated three and six month revenues as of  December 31, 2019 and December 31, 2018 along with the accounts receivable at December 31, 2019 as compared with June 30, 2019 as depicted below.

 

    For the Three Months Ended December 31, 2019     For the Three Months Ended December 31, 2018  
   

Revenue

   

Revenue

 

Fund

                               

USO

  $ 1,441,122       51 %   $ 1,853,481       47 %

USCI

    455,435       16 %     1,095,830       28 %

UNG

    515,611       18 %     572,526       14 %

All Others

    427,550       15 %     417,167       11 %

Total

  $ 2,839,718       100 %   $ 3,939,004       100 %

 

    For the Six Months Ended December 31, 2019     For the Six Months Ended December 31, 2018  
   

Revenue

   

Revenue

 

Fund

                               

USO

  $ 2,991,321       51 %   $ 3,838,402       47 %

USCI

    1,076,484       18 %     2,349,689       29 %

UNG

    975,073       17 %     1,077,388       13 %

All Others

    837,409       14 %     896,509       11 %

Total

  $ 5,880,287       100 %   $ 8,161,988       100 %

 

   

As of December 31, 2019

   

As of June 30, 2019

 
   

Accounts Receivable

   

Accounts Receivable

 

Fund

                               

USO

  $ 467,895       47 %   $ 526,981       51 %

USCI

    142,699       14 %     236,251       23 %

UNG

    207,145       21 %     141,413       13 %

All Others

    184,969       18 %     132,501       13 %

Total

  $ 1,002,708       100 %   $ 1,037,146       100 %

 

10

 

 

Inventories

 

Inventories, consisting primarily of food products and packaging in New Zealand, hair and skin care finished products and components in the U.S. and security system hardware in Canada, are valued at the lower of cost (determined on a FIFO basis) or net realizable value. Inventories include product cost, inbound freight and warehousing costs where applicable. Management compares the cost of inventories with the net realizable value and an allowance is made for writing down the inventories to their net realizable value, if lower. For the six months ended December 31, 2019 and 2018 impairment to inventory value was recorded as $0 and $0, respectively. An assessment is made at the end of each reporting period to determine what slow-moving inventory items, if any, should be deemed obsolete and written down to their estimated net realizable value. For the six months ended December 31, 2019 and December 31, 2018, the expense for slow-moving or obsolete inventory was $0 and $0, respectively.

 

Property and Equipment

 

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

 

Category

  Estimated Useful Life (in years)  

Plant and equipment:

    5 to 10  

Furniture and office equipment:

    3 to 5  

Vehicles

    3 to 5  

Buildings

    10 to 39  

 

Intangible Assets

 

Intangible assets consist of brand names, domain names, recipes, non-compete agreements and customer lists. Intangible assets with finite lives are amortized over the estimated useful life and are evaluated for impairment at least on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The Company assesses recoverability by determining whether the carrying value of such assets will be recovered through the discounted expected future cash flows. If the future discounted cash flows are less than the carrying amount of these assets, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the assets. There was no impairment recorded for the six months ended December 31, 2019 or 2018.

 

Goodwill

 

Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in a purchase businesses combination. Goodwill is tested for impairment on an annual basis during the fourth quarter of our fiscal year, or more frequently if events or changes in circumstances indicate that the carrying amount of goodwill may be impaired. The goodwill impairment test is a two-step test. Under the first step, the fair value of the reporting unit is compared with its carrying value including goodwill. If the fair value of the reporting unit exceeds its carrying value, step two does not need to be performed. If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit and the enterprise must perform step two of the impairment test. Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill. There was no impairment recorded for the six months ended December 31, 2019 or 2018.

 

Impairment of Long-Lived Assets

 

The Company tests long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value. There was no impairment recorded for the six months ended December 31, 2019 or 2018.

 

Investments and Fair Value of Financial Instruments

 

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

 

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

 

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

 

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

 

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

 

11

 

 

Revenue Recognition

 

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

 

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

 

1. Identifying the contract(s) with customers

2. Identifying the performance obligations in the contract

3. Determining the transaction price

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

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

 

Transactions involve security systems that are sold outright to the customer where the Company's performance obligations include customer support services and the sale and installation of the security systems. For such arrangements, the Company allocates a portion of the transaction price to each performance obligation based on a relative stand-alone selling price. Revenue associated with the sale and installation of security systems is recognized once installation is complete, and is reflected as security system revenue in the Consolidated Statements of Operations. Revenue associated with customer support services is recognized as those services are provided, and is included as a component of security system revenue in the Condensed Consolidated Statements of Operations, which for the three and six months ended December 31, 2019, were approximately US$202,656 and US$413,119, or approximately 28% of the total security system revenues. These revenues for the three and six months ended December 31, 2019 account for approximately 3% of total consolidated revenues. None of the other subsidiaries of the Company generate revenues from long term contracts.

 

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

 

Income Taxes

 

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

 

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

 

Advertising Costs

 

The Company expenses the cost of advertising as incurred. Marketing and advertising costs for the three and six months ended December 31, 2019 were $634,871 and $1,210,003, respectively, as compared to $762,742 and $1,634,484 for the three and six months ended December 31, 2018 million, respectively.

 

Other Comprehensive Income (Loss)

 

Foreign Currency Translation

 

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

 

12

 

 

Short-Term Investment Valuation

 

In January 2016, the FASB issued authoritative guidance related to the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. Under the new guidance, equity investments with readily determinable fair values, except those accounted for under the equity method, will be measured at fair value with changes in fair value recognized in earnings rather than other comprehensive income (loss). In addition, this update clarifies the guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from the unrealized losses on certain debt securities. The Company adopted this guidance effective on July 1, 2018, resulting in reclassification of $279,951 of accumulated other comprehensive income to retained earnings. Besides this reclassification there was no material impact to the Condensed Consolidated Financial Statements as a result of the adoption.

 

Segment Reporting

 

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

 

Business Combinations

 

We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired users, acquired trade names from a market participant perspective, useful lives and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed. For the three and six months ended December 31, 2019 and 2018 a determination was made that no adjustments were necessary

 

Recent Accounting Pronouncements 

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

 

The Company adopted the new standard on July 1, 2019 using the modified retrospective method and the transition relief guidance provided by the FASB in ASU 2018-11, Leases (Topic 842): Targeted Improvements. Consequently, the Company did not update financial information or provide disclosures required under the new standard for dates and periods prior to July 1, 2019. The Company elected the package of practical expedients and did not reassess prior conclusions on whether contracts are or contain a lease, lease classification, and initial direct costs. In addition, the Company adopted the lessee practical expedient to combine lease and non-lease components for all asset classes and elected to not recognize ROU assets and lease liabilities for leases with a term of 12 months or less.

 

Adoption of the new standard resulted in the Company recording operating lease ROU assets and operating lease liabilities of $1,113,840 and $1,150,916 respectively, as of July 1, 2019. The ROU assets were recorded net of $37,076 in deferred rent adjustments that were previously recorded in accrued expenses and deferred rent on the Consolidated Balance Sheets as of June 30, 2019. The adoption of this standard did not result in any cumulative-effect adjustments to retained earnings. Additionally, there was no impact on the Company’s unaudited condensed consolidated statements of operations and comprehensive income or the unaudited statement of cash flows as a result of the adoption of Topic 842 for the three months ended December 31, 2019.

 

Refer to Note 6 for additional disclosures over the Company’s leases.

 

A summary of the effects of the initial adoption of ASU 2016-02 and ASC 842 on July 1, 2019 are as follows:

 

   

ASC 842

 

Increase (decrease):

       

Assets

  $ 1,113,840  

Current portion operating lease liabilities

  $ 370,697  

Long-term operating lease liabilities

  $ 780,219  

Accumulated other comprehensive income

  $ -  

Retained earnings

  $ -  

 

The Company has reviewed new accounting pronouncements issued between September 30, 2019, the filing date of our most recent prior Annual Report on Form 10-K, and the filing date of this Quarterly Report on Form 10-Q and has determined that no new pronouncements issued are relevant to the Company, and/or have, or will have, a material impact on the Company’s consolidated financial position, results of operations or disclosure requirements.

 

13

 

 

 

 

NOTE 3.

BASIC AND DILUTED NET INCOME PER SHARE

 

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

 

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

 

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

 

   

For the Three Months Ended December 31, 2019

 
   

Net Income

   

Shares

   

Per Share

 

Basic income per share:

                       

Net income available to common shareholders

  $ (74,914 )     37,412,519     $ (0.00 )

Effect of dilutive securities

                       

Preferred stock Series B

    -       -       -  

Diluted income per share

  $ (74,914 )     37,412,519     $ (0.00 )

 

   

For the Three Months Ended December 31, 2018

 
   

Net Income

   

Shares

   

Per Share

 

Basic income per share:

                       

Net income

  $ 63,161       29,559,139     $ 0.00  

Effect of dilutive securities

                       

Preferred stock Series B

    -       8,739,020       -  

Diluted income per share

  $ 63,161       38,298,159     $ 0.00  

 

   

For the Six Months Ended December 31, 2019

 
   

Net Income

   

Shares

   

Per Share

 

Basic income per share:

                       

Net income available to common shareholders

  $ (20,022 )     37,368,769     $ (0.00 )

Effect of dilutive securities

                       

Preferred stock Series B

    -       -       -  

Diluted income per share

  $ (20,022 )     37,368,769     $ (0.00 )

 

   

For the Six Months Ended December 31, 2018

 
   

Net Income

   

Shares

   

Per Share

 

Basic income per share:

                       

Net income

  $ 348,667       29,559,139     $ 0.01  

Effect of dilutive securities

                       

Preferred stock Series B

    -       8,739,020       -  

Diluted income per share

  $ 348,667       38,298,159     $ 0.01  

 

14

 

 

 

NOTE 4.

INVENTORIES

 

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

 

   

December 31,

   

June 30,

 
   

2019

   

2019

 

Raw materials

  $ 275,228     $ 208,284  

Supplies and packing materials

    189,781       188,035  

Finished goods

    754,394       612,343  

Total inventories

  $ 1,219,403     $ 1,008,662  

 

 

NOTE 5.

PROPERTY AND EQUIPMENT

 

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

 

    December 31, 2019     June 30, 2019  

Plant and equipment

  $ 1,538,300     $ 1,511,629  

Furniture and office equipment

    200,147       188,370  

Vehicles

    388,354       332,672  

Land and building

    586,609       -  

Total property, plant and equipment, gross

    2,713,410       2,032,671  

Accumulated depreciation

    (1,414,955 )     (1,275,657 )

Total property, plant and equipment, net

  $ 1,298,455     $ 757,014  

 

For the three and six months ended December 31, 2019 depreciation expense for property, plant and equipment totaled $65,919 and $131,015, respectively, as compared to $90,091 and $179,963 for the three and six months ended December 31, 2018, respectively. 

 

 

NOTE 6.

LEASES

 

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use assets, accrued expenses, and long-term operating lease liabilities in the Unaudited Condensed Consolidated Balance Sheets. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement date. The operating lease right-of-use assets also include any lease payments made at or before the commencement date and are reduced by any lease incentives received. The Company’s lease terms may include options to extend or not terminate the lease when it is reasonably certain that it will exercise any such options. For the majority of its leases, the Company concluded that it is not reasonably certain that any renewal options would be exercised, and, therefore, the amounts are not recognized as part of operating lease right-of-use assets nor operating lease liabilities. Leases with an initial term of 12 months or less, and certain office equipment leases which are deemed insignificant, are not recorded on the balance sheet and expensed as incurred and included within rent expense under general and administrative expense. Lease expense is recognized on a straight-line basis over the expected lease term.

 

The Company’s most significant leases are real estate leases of office, warehouse and production facilities. The remaining operating leases are primarily comprised of leases of printers and other equipment which are deemed insignificant. For all operating leases, the Company has elected the practical expedient permitted under Topic 842 to combine lease and non-lease components. As a result, non-lease components, such as common area or equipment maintenance charges, are accounted for as a single lease element. The Company does not have any finance leases.

 

Fixed lease expense payments are recognized on a straight-line basis over the lease term. Variable lease payments vary because of changes in facts or circumstances occurring after the commencement date, other than the passage of time. Certain of the Company’s operating lease agreements include variable payments that are passed through by the landlord, such as insurance, taxes, and common area maintenance. Variable payments are deemed immaterial, expensed as incurred, and included within rent expense under general and administrative expense.

 

15

 

 

The Company leases various facilities and offices throughout the world including the following subsidiary locations:

 

Gourmet Foods has operating leases for its office, factory and warehouse facilities located in Tauranga, New Zealand, as well as for certain equipment including printers and copiers. These leases are generally for three-year terms, with some options to renew for an additional term. The leases mature between August 2021 and September 2022, and require monthly rental payments of approximately US$8,663 (GST not included) translated to U.S. currency as of December 31, 2019. Brigadier leases office and storage facilities in Regina, Saskatchewan. The minimum lease obligations for the Regina facility require monthly payments of approximately US$2,541 translated to U.S. currency as of December 31, 2019. Original Sprout currently leases office and warehouse space in San Clemente, CA under a three-year lease agreement expiring or renewing at March 1, 2021. Minimum monthly lease payments are approximately $7,837 with increases annually. Wainwright leases office space in Walnut Creek, California under an operating lease which expires in December 2024. Minimum monthly lease payments are approximately $12,000 with increases annually.

 

For the three and six months ended December 31, 2019 the combined lease payments of the Company and its subsidiaries totaled $100,689 and $197,219, respectively, as compared to $120,950 and $217,739 for the three and six months ended December 31, 2018,  and recorded under general and administrative expense in the Condensed Consolidated Statements of Operations. As of December 31, 2019 the Condensed Consolidated Balance Sheets included operating lease right-of-use assets totaling $928,964, recorded net of $37,884 in deferred rent, and $966,848 in total Operating lease liabilities.

 

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

 

Year Ended June 30,

 

Lease Amount

 

2020

  $ 192,947  

2021

    356,763  

2022

    233,320  

2023

    203,192  

2024

    109,198  

Total minimum lease payments

    1,095,420  

Less: present value discount

    (128,572 )

Total operating lease liabilities

  $ 966,848  

  

The weighted average remaining lease term for the Company's operating leases was 4 years as of December 31, 2019 and a weighted-average discount rate of 5.8% was used to determine the total operating lease liabilities.  

 

 

NOTE 7.

INTANGIBLE ASSETS

 

Intangible assets consisted of the following as of:

 

   

December 31,

   

June 30,

 
   

2019

   

2019

 

Customer relationships

  $ 700,252     $ 700,252  

Brand name

    1,142,122       1,142,122  

Domain name

    36,913       36,913  

Recipes

    1,221,601       1,221,601  

Non-compete agreement

    274,982       274,982  

Total

    3,375,870       3,375,870  

Less : accumulated amortization

    (885,280 )     (716,147 )

Net intangibles

  $ 2,490,590     $ 2,659,723  

 

CUSTOMER RELATIONSHIPS

 

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

 

   

December 31,

   

June 30,

 
   

2019

   

2019

 

Customer relationships

  $ 700,252       700,252  

Less: accumulated amortization

    (243,114 )     (203,492 )

Total customer relationships, net

  $ 457,138       496,760  

 

16

 

 

BRAND NAME

 

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

 

   

December 31,

   

June 30,

 
   

2019

   

2019

 

Brand name

  $ 1,142,122     $ 1,142,122  

Less: accumulated amortization

    (149,354 )     (129,084 )

Total brand name, net

  $ 992,768     $ 1,013,038  

 

 

DOMAIN NAME

 

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

 

   

December 31,

   

June 30,

 
   

2019

   

2019

 

Domain name

  $ 36,913     $ 36,913  

Less: accumulated amortization

    (30,063 )     (26,341 )

Total brand name, net

  $ 6,850     $ 10,572  

  

 

RECIPES AND FORMULAS

 

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

 

   

December 31,

   

June 30,

 
   

2019

   

2019

 

Recipes and formulas

  $ 1,221,601     $ 1,221,601  

Less: accumulated amortization

    (324,417 )     (246,622 )

Total recipes and formulas, net

  $ 897,184     $ 974,979  

 

NON-COMPETE AGREEMENT

 

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

 

   

December 31,

   

June 30,

 
   

2019

   

2019

 

Non-compete agreement

  $ 274,982     $ 274,982  

Less: accumulated amortization

    (138,332 )     (110,608 )

Total non-compete agreement, net

  $ 136,650     $ 164,374  

 

17

 

 

AMORTIZATION EXPENSE

 

The total amortization expense for intangible assets for the three and six months ended December 31, 2019 and 2018 was $84,567 and $169,133, respectively. 

 

Estimated amortization expenses of intangible assets for the next five fiscal years, are as follows:

 

Years Ending June 30,

 

Expense

 

2020

  $ 166,375  

2021

    326,033  

2022

    306,809  

2023

    286,507  

2024

    268,809  

Thereafter

    1,136,057  

Total

  $ 2,490,590  

  

 

 

 

NOTE 8.

OTHER ASSETS

 

Other Current Assets

 

Other current assets totaling $272,814 as of December 31, 2019 and $546,105 as of June 30, 2019 are comprised of various components as listed below.

 

    As of December 31, 2019     As of June 30, 2019  

Deposits and prepaid expenses

  $ 225,428     $ 462,215  

Other current assets

    47,386       83,890  

Total

  $ 272,814     $ 546,105  

 

18

 

 

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. As of December 31, 2019 and June 30, 2019 we have no such investments. Investments in which no controlling financial interest or significant influence exists are recorded at fair value included in comprehensive income (loss) through June 30, 2018 and subsequently through earnings in accordance with ASU 2016-01. As of December 31, 2019 and June 30, 2019, investments were approximately $3.8 million. Investments in which no controlling financial interest exists, but significant influence exists are recorded as per the equity method of investment accounting. As of December 31, 2019 and June 30, 2019, there were no investments requiring the equity method investment accounting.

 

Investments measured at estimated fair value consist of the following as of December 31, 2019 and June 30, 2019:

 

   

December 31, 2019

 
   

Cost

   

Gross Unrealized Gains

   

Gross Unrealized Losses

   

Estimated Fair Value

 

Money market funds

  $ 3,034,242     $ -     $ -     $ 3,034,242  

Other short term investments

    757,790       -       -       757,790  

Other equities

    1,421       -       (535 )     886  

Total short-term investments

  $ 3,793,453     $ -     $ (535 )   $ 3,792,918  

 

   

June 30, 2019

 
   

Cost

   

Gross Unrealized Gains

   

Gross Unrealized Losses

   

Estimated Fair Value

 

Money market funds

  $ 3,005,182     $ -     $ -     $ 3,005,182  

Other short term investments

    749,988       -       (739 )     749,249  

Other equities

    3,421       -       (1,256 )     2,165  

Total short-term investments

  $ 3,758,591     $ -     $ (1,995 )   $ 3,756,596  

 

During the six months ended December 31, 2019 and 2018, there were no transfers between Level 1 and Level 2.

 

Restricted Cash

 

At December 31, 2019 and June 30, 2019, Gourmet Foods had on deposit approximately NZ$20,000 (approximately US$13,468 and US$13,436, respectively, after currency translation) securing a lease bond for one of its properties. The cash securing the bond is restricted from access or withdrawal so long as the bond remains in place.

 

Long - Term Assets

 

Other long term assets totaling $523,607 as of December 31, 2019 and June 30, 2019, respectively, were attributed to Wainwright and Original Sprout and consisted of

 

(i)

$514,435 as of December 31, 2019 and June 30, 2019 representing 10% equity investment in a registered investment adviser accounted for on a cost basis as $500,980, and $13,455 representing deposits and prepayments.

 

(ii)

and $9,172 as of December 31, 2019 and at June 30, 2019 representing deposits and prepayments of rent.

 

 

19

 

 

 

NOTE 9.

GOODWILL

 

Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in business combinations. The amounts recorded in goodwill for December 31, 2019 and June 30, 2019 were $915,790.

 

Goodwill is comprised of the following amounts:

 

    December 31, 2019     June 30, 2019  
                 

Goodwill – Original Sprout

    416,817       416,817  

Goodwill – Gourmet Foods

    147,628       147,628  

Goodwill – Brigadier

    351,345       351,345  

Total

  $ 915,790     $ 915,790  

 

The Company tests for goodwill impairment at each reporting unit. There was no goodwill impairment for the six months ended December 31, 2019 or as of June 30, 2019.

 

 

 

NOTE 10.

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

Accounts payable and accrued expenses consisted of the following:

 

    December 31, 2019     June 30, 2019  

Accounts payable

  $ 1,157,260     $ 1,720,902  

Accrued interest

    135,915       117,555  

Taxes payable

    57,814       181,563  

Deferred rent

    -       37,076  

Accrued payroll, vacation and bonus payable

    292,405       345,520  

Accrued expenses

    475,556       464,465  

Total

  $ 2,118,950     $ 2,867,081  

 

 

 

20

 

 

NOTE 11.

RELATED PARTY TRANSACTIONS

 

Notes Payable - Related Parties

 

Current related party notes payable consist of the following:

 

    December 31, 2019     June 30, 2019  
                 

Notes payable to shareholder, interest rate of 8%, unsecured and payable on December 31, 2012 (past due)

  $ 3,500     $ 3,500  

Notes payable to shareholder, interest rate of 4%, unsecured and payable on May 25, 2022

    250,000       250,000  

Notes payable to shareholder, interest rate of 4%, unsecured and payable on April 8, 2022

    350,000       350,000  
    $ 603,500     $ 603,500  

  

Interest expense for all related party notes for the three and six months ended December 31, 2019 and 2018 was $6,120 and $12,240, respectively. 

 

Wainwright - Related Party Transactions

 

The Funds managed by USCF and USCF Advisers are deemed by management to be related parties. The Company’s Wainwright revenues for the three and  six months ended December 31, 2019 totaling $2.8 million and $5.9 million, respectively, as compared to $3.9 million and $8.2 million for the three and six months ended December 31, 2018, respectively, were earned from these related parties. Accounts receivable, totaling $1.0 million as of December 31, 2019 and as of June 30, 2019, respectively, were owed from these related parties. Fund expense waivers, totaling $0.1 million and $0.2 million, for both three and six month periods ended December 31, 2019 and 2018, respectively, were incurred on behalf of these related parties. Waivers payable, totaling $0.3 million as of December 31, 2019 and as of  June 30, 2019, respectively, were owed to these related parties. Fund expense waivers and fund expense limitation obligations are defined under Note 15 to the Condensed Consolidated Financial Statements.

 

 

NOTE 12.

LOANS - PROPERTY AND EQUIPMENT

 

As of December 31, 2019, Brigadier had repaid all the loan balances related to vehicle purchases and had taken out a new loan facilitating the purchase of the Saskatoon office land and building. The initial principal balance was CD$525,000 (approximately US$401,000 translated as of the loan date July 1, 2019) with an annual interest rate of 4.14% maturing June 30, 2024. The short-term portion of principal for this loan due within 12 months as of December 31, 2019 is CD$17,594 (approximately US$13,556) and the long term principal amount due is CD$498,905 (approximately US$384,412). For each vehicle purchased in prior periods, the loan principal together with interest was amortized over 60 equal monthly installments. The Condensed Consolidated Balance Sheets as of December 31, 2019 and June 30, 2019 include the amount of the principal balance on vehicle loans which is due within twelve months as a current liability of zero and US$26,241, respectively. Principal amounts under the vehicle loans which is due after twelve months are recorded in long term liabilities as zero and US$61,057 as of December 31, 2019 and June 30, 2019, respectively. Interest on the loans is expensed or accrued as it becomes due. Total interest on all loans for the three and six months ended December 31, 2019 was US$4,064 and US$8,990, respectively, as compared to the three and six months ended December 31, 2018 of US$1,133 and US$3,137, respectively.

 

 

NOTE 13.

STOCKHOLDERS' EQUITY

 

Convertible Preferred Stock

 

Each issued Series B Voting, Convertible Preferred Stock is convertible, under certain conditions, into 20 shares of common stock and carries a vote of 20 shares of common stock in all matters brought before the shareholders for a vote. On February 7, 2019, the Company converted 383,919 shares of Series B Voting, Convertible Preferred Stock to 7,678,380 shares of common stock per the request of the shareholder and pursuant to the stock designation. After the conversion, there remain 53,032 shares of Series B Voting, Convertible Preferred Stock outstanding as of December 31, 2019.

 

Shares Issued for Services

 

On August 15, 2019 the Company issued 175,000 shares of its common stock, par value $0.001, as partial payment for services to be rendered in connection with an investment banking engagement letter. The fair market value of the shares, as determined by the closing price of CNCG stock listed at $0.87 on the OTCQB exchange on August 15, 2019, was determined to be $152,250. The terms of the engagement provide for an earn-out of the shares over a 6-month period from the effective date of the agreement. Accordingly, the Company releases a portion of the shares each month. For the six month period ended December 31, 2019, the Company incurred an expense of $114,292 attributed to the release of shares due to 137 days of performance under the engagement. As a non-cash expense for the three month period ended December 31, 2019, the amount of $76,751 was recorded as additional paid in capital as detailed on the Condensed Consolidated Statements of Stockholders' Equity. The engagement letter also contains a provision for payment of an additional 175,000 shares if the Company is successful in effectuating an up-listing to a national exchange during the term of the engagement. Because of the uncertainty of success, the Company has not accrued any liability for the remittance of these shares and will expense the payment, if any, at the time of issuance.

 
21

 

 

NOTE 14.

INCOME TAXES

 

The Company accounts for income taxes under the asset and liability method, which recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the tax bases of assets and liabilities and their financial statement reported amounts, and for net operating losses and tax credit carryforwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company records a valuation allowance against deferred tax assets when it is more likely than not that such asset will not be realized. The Company continues to monitor the likelihood that it will be able to recover its deferred tax assets. If recovery is not likely, the Company must increase its provision for income taxes by recording a valuation allowance against the deferred tax assets.

 

The Company accounts for uncertain tax positions in accordance with the authoritative guidance on income taxes under which the Company may only recognize or continue to recognize tax positions that meet a "more likely than not" threshold. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes.

 

As of December 31, 2019, the Company's total unrecognized tax benefits were approximately $0.3 million, which would affect the effective tax rate if recognized. The Company will recognize interest and penalties, when they occur, related to uncertain tax positions as a component of tax expense. There is no interest or penalties to be recognized for the six months ended December 31, 2019 or 2018.

 

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 benefit (provision) of $12 thousand and ($129) thousand for the six months ended December 31, 2019 and 2018, respectively. The effective tax rate for the six months ended December 31, 2019 and 2018 differed from the statutory rate primarily due to the mix of non-deductible items. The effective tax rate could fluctuate in the future due to changes in the taxable income mix between various jurisdictions.

 

The Company is subject to income taxes in the U.S. federal, various states, Canada and New Zealand tax jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. The Company’s U.S. tax years 2014 through 2018 will remain open for examination by the federal and state authorities which is three and four years, respectively. The Company’s tax years from acquisition through 2018 remain open for examination by Canada and New Zealand authorities which is four years. As of December 31, 2019, there were no active taxing authority examinations.

 

 

NOTE 15.

COMMITMENTS AND CONTINGENCIES

 

Lease Commitments

 

Refer to Note 6 for the Company's lease commitments and disclosure.

 

Additionally, Gourmet Foods entered into a General Security Agreement in favor of the Gerald O’Leary Family Trust and registered on the Personal Property Securities Register for a priority sum of NZ$110,000 (approximately US$74,072) to secure the lease of its primary facility. In addition, a NZ$20,000 (approximately US$13,468) bond has been posted through ANZ Bank and secured with a cash deposit of equal amount to secure a separate facilities lease. The General Security Agreement and the cash deposit will remain until such time as the respective leases are satisfactorily terminated in accordance with their terms. Interest from the cash deposit securing the lease accumulates to the benefit of Gourmet Foods and is listed as a component of interest income/expense on the accompanying Consolidated Statements of Operations.

 

Other Agreements and Commitments

 

USCF manages four funds (BNO, CPER, UGA, UNL) which have expense waivers provisions, whereby USCF will reimburse funds when fund expenditure levels exceed certain threshold amounts. As of December 31, 2019 and June 30, 2019 the expense waiver payable was $0.3 million and $0.3 million, respectively. USCF has no obligation to continue such payments for these four funds into subsequent periods.

 

USCF Advisers previously managed one mutual fund, the USCF Commodity Strategy Fund ("USCFX" and USCIX") until it was liquidated on March 21, 2019. Prior to liquidation, USCF Advisers had an expense waiver provision for the USCF Commodity Strategy Fund, whereby, USCF Advisers reimbursed the USCF Commodity Strategy Fund when fund expenditure levels exceeded a certain threshold amount.  The expense fee waiver terminated upon the liquidation of the fund on March 21, 2019. 

 

Litigation 

 

From time to time, the Company is involved in legal proceedings arising mainly from the ordinary course of its business. Currently, there are no legal proceedings pending.

 

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. Quarterly profit sharing contributions paid totaled approximately $61 thousand and $0 thousand for each of the six months ended December 31, 2019 and 2018, respectively. 

 

 

22

 

 

NOTE 16.

SEGMENT REPORTING

 

With the acquisition of Wainwright Holdings, Gourmet Foods, Ltd., Brigadier, and the launch of the Original Sprout business unit of Kahnalytics, the Company has identified four segments for its products and services; U.S.A. investment fund management, U.S.A. beauty products, New Zealand food industry and Canada security alarm systems. Our recently incorporated subsidiary, Marygold & Co., has not begun operations so the accounts have been consolidated with those of corporate headquarters and not yet identified as a separate segment. Our reportable segments are business units located in different global regions. The Company’s operations in the U.S.A. include the manufacture and wholesale distribution of hair and skin care products by Original Sprout and the income derived from management of various investment funds by our subsidiary Wainwright. In New Zealand operations include the production, packaging and distribution on a commercial scale of gourmet meat pies and related bakery confections through our wholly owned subsidiary Gourmet Foods, Ltd. and in Canada we provide security alarm system installation and maintenance services to residential and commercial customers sold through our wholly owned subsidiary Brigadier. Separate management of each segment is required because each business unit is subject to different operational issues and strategies due to their particular regional location. The Company accounts for intra-company sales and expenses as if the sales or expenses were to third parties and eliminates them in the consolidation. Amounts are adjusted for currency translation as of the balance sheet date and presented in US dollars.

  

The following table presents a summary of identifiable assets as of December 31, 2019 and June 30, 2019:

 

    December 31, 2019     June 30, 2019  

Identifiable assets:

               

Corporate headquarters

  $ 3,675,454     $ 2,730,805  

U.S.A.: beauty products

    3,986,334       3,780,278  

U.S.A.: fund management

    9,924,749       10,878,549  

New Zealand: food industry

    2,143,664       1,838,800  

Canada: security systems

    2,278,899       2,025,176  

Consolidated total

  $ 22,009,100     $ 21,253,608  

  

 

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

 

   

Three Months Ended December 31, 2019

   

Three Months Ended December 31, 2018

 

Revenues from external customers:

               

U.S.A. : beauty products

  $ 902,928     $ 897,457  

U.S.A. : investment fund management - related party

    2,839,718       3,939,004  

New Zealand : food industry

    1,320,357       1,145,410  

Canada : security systems

    733,533       714,069  

Consolidated total

  $ 5,796,536     $ 6,695,940  
                 

Net (loss) income:

               

Corporate headquarters

  $ (315,943 )   $ (334,703 )

U.S.A. : beauty products

    (57,765 )     98,893  

U.S.A. : investment fund management - related party

    77,830       220,648  

New Zealand : food industry

    156,235       24,868  

Canada : security systems

    64,729       53,455  

Consolidated total

  $ (74,914 )   $ 63,161  

 

23

 

 

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

 

   

Six Months Ended December 31, 2019

   

Six Months Ended December 31, 2018

 

Revenues from external customers:

               

U.S.A. : beauty products

  $ 1,866,601     $ 1,799,786  

U.S.A. : investment fund management - related party

    5,880,287       8,161,988  

New Zealand : food industry

    2,570,334       2,339,704  

Canada : security systems

    1,506,753       1,561,100  

Consolidated total

  $ 11,823,975     $ 13,862,578  
                 

Net (loss) income:

               

Corporate headquarters

  $ (754,200 )   $ (675,564 )

U.S.A. : beauty products

    23,149       207,285  

U.S.A. : investment fund management - related party

    286,368       579,940  

New Zealand : food industry

    257,487       41,453  

Canada : security systems

    167,174       195,553  

Consolidated total

  $ (20,022 )   $ 348,667  

 

The following table presents a summary of net capital expenditures for the three month periods ended December 31:

 

   

Three Months Ended December 31, 2019

   

Three Months Ended December 31, 2018

 

Capital Expenditures

               

U.S.A.: corporate headquarters

  $ -     $ -  

U.S.A.: beauty products

    919       1,551  

U.S.A.: fund management

    -       -  

New Zealand: food industry

    13,742       11,087  

Canada: security systems

    13,376       (6,668 )

Consolidated

  $ 28,037     $ 5,970  

 

The following table presents a summary of net capital expenditures for the six month periods ended December 31:

 

   

Six Months Ended December 31, 2019

   

Six Months Ended December 31, 2018

 

Capital Expenditures

               

U.S.A.: corporate headquarters

  $ -     $ -  

U.S.A.: beauty products

    3,914       2,937  

U.S.A.: fund management

    -       -  

New Zealand: food industry

    47,118       22,016  

Canada: security systems

    622,823       (15,969 )

Consolidated

  $ 673,855     $ 8,984  

 

24

 

 

The following table represents the property, plant and equipment in use at each of the Company's locations as of December 31, 2019 and June 30, 2019:

 

    As of December 31, 2019     As of June 30, 2019  
                 

Asset Location

               

Corporate headquarters

  $ 14,305     $ 14,305  

U.S.A. : beauty products

    14,658       10,745  

U.S.A. : investment fund management

    -       -  

New Zealand : food industry

    1,710,133       1,659,186  

Canada : security systems

    974,314       348,435  

Total All Locations

    2,713,410       2,032,671  

Less accumulated depreciation

    (1,414,955 )     (1,275,657 )

Net property, plant and equipment

  $ 1,298,455     $ 757,014  

 

 

 

25

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion and analysis should be read in conjunction with the condensed financial statements and the accompanying notes thereto and is qualified in its entirety by the foregoing and by more detailed financial information appearing elsewhere in this quarterly report on Form 10-Q. See "Financial Statements."

  

Overview

 

Concierge Technologies, Inc. (“Concierge”) or the (“Company”) conducts business through its wholly-owned operating subsidiaries operating in the U.S., New Zealand and Canada. The operations of the Company’s wholly-owned subsidiaries are more particularly described herein but are summarized as follows:

 

 

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 (2000) Ltd. (“Brigadier”), a Canadian based company, sells and installs commercial and residential alarm monitoring systems.

 

Kahnalytics, Inc. dba/Original Sprout (“Original Sprout”), a U.S. based company, is engaged in the wholesale distribution of hair and skin care products under the brand name Original Sprout on a global scale. The former business of Kahnalytics, providing live-streaming mobile video on a subscription basis, was insignificant and was terminated after transitioning to the current business of distributing hair and skin care products as of December 18, 2017.

  Marygold & Co., a newly formed U.S. based company, established by Concierge to explore opportunities in the financial technology ("Fintech") space, estimated to commence operations by May 2020. 

 

Because the Company conducts its businesses through its wholly-owned operating subsidiaries, the risks related to our wholly-owned subsidiaries are also risks that impact the Company's financial condition and results of operations.  See, "Note 2. Summary of Significant Accounting Policies / Major Customers and Suppliers - Concentration of Credit Risk" in the consolidated financial statements for more information.

 

Results of Operations

 

Concierge and Subsidiaries

 

Financial Summary for the Three and Six Months Ended December 31, 2019 as Compared to the Three and Six Months Ended December 31, 2018

 

The table below summarizes each of Concierges subsidiaries into one of two categories. The Wainwright business is included in the Financial Services columns and all other subsidiaries, including Gourmet, Brigadier, and Original Sprout in the Other Operating Units columns. Corporate expenses are included in the Concierge Corporate columns.

 

   

Financial Services

Other Operating Units

Concierge Corporate

Consolidated

($'s in thousands)

 

For the Six Months Ended December 31,

For the Six Months Ended December 31,

For the Six Months Ended December 31,

For the Six Months Ended December 31,

   

2019

 

2018

 

Change

2019

 

2018

 

Change

2019

 

2018

 

Change

2019

 

2018

 

Change

                   

$

 

%

               

$

 

%

               

$

 

%

               

$

 

%

Revenue

    $ 5,880       $ 8,162       $ (2,282)     (28)%     $ 5,944       $ 5,701       $ 243     4%     -       -       -     -     $ 11,824       $ 13,863       $ (2,039)     (15)%  

% of total revenue

    50%       59%       -     (9)%     50%       41%       -     9%     -       -       -     -     -       -       -     -  
Cost of revenue     -       -       -     -     3,494       3,585       $ (91)     (3)%     -       -       -     -     3,494       3,585       $ (91)     (3)%  

Gross profit

    $ 5,880       $ 8,162       $ (2,282)     (28)%     $ 2,450       $ 2,116       $ 334     16%     -       -       -     -     $ 8,330       $ 10,278       $ (1,948)     (19)%  

Operating expenses

    5,611       7,374       (1,763)     (24)%     1,873       1,585       288     18%     886       688       198     26%     8,370       9,647       (1,277)     (13)%  

% of total operating expenses

    67%       77%       -     (10)%     22%       16%       -     6%     11%       7%       -     4%     -       -       -     -  

Income (loss) from operations

    $ 269       $ 788       $ (519)     (66)%     $ 577       $ 531       $ 46     9%     $ (886)       $ (688)       $ (198)     28%     $ (40)       $ 631       $ (671)     (106)%  
Other (expense) / income     30       (151)       181     (120)%     (27)       10       (37)     (370)%     5       (12)       17     142%     8       (153)       161     (105)%  

Income (loss) before income taxes

    $ 299       $ 637       $ (338)     (53)%     $ 550       $ 541       $ 9     2%     $ (881)       $ (700)       $ (181)     26%     $ (32)       $ 478       $ (510)     (107)%  

 

For the Three Months Ended December 31, 2019 Compared to the Three Months Ended December 31, 2018

 

Revenue and Operating Income

 

Consolidated revenue for the three months ended December 31, 2019 was $5.8 million representing a $0.9 million decrease from the prior year revenue of $6.7 million. While net revenues decreased as a result of lower Fund assets under management ("AUM") from our fund management business by approximately $1.1 million for the three months ended December 31, 2019 as compared to the three months ended December 31, 2018, the corporation's revenues derived from its other operating units were up slightly by $0.2 million from the same prior year period, resulting in a net reduction to revenue in the current quarter of approximately 13%. Concierge produced an operating loss for the three months ended December 31, 2019 of ($101) thousand as compared to income of $64 thousand for the three months ended December 31, 2018. The decrease in operating income was primarily attributable to lower fund management revenue from Wainwright due to lower AUM.

 

Other Expenses 

 

Other (expenses) income for the three months ended December 31, 2019 and 2018, were ($15) thousand and $24 thousand for the three months ended December 31, 2019 and 2018, respectively, resulting in a net income (loss) before income taxes of ($116) thousand and $89 thousand, respectively. Benefit (Provision) for income tax for the three months ended December 31, 2019 and 2018 were $41 thousand and ($25) thousand, respectively, resulting in net loss of ($75) thousand for the three months ended December 31, 2019 as compared to net income of $63 thousand for the three months ended December 31, 2018. The difference is primarily attributable to our United States operations through our Wainwright subsidiary. 

 

 

26

 

 

Net Income (Loss)

 

Overall, the net income (loss) between the three months ended December 31, 2019 as compared to the three months ended December 31, 2018 decreased by approximately $138 thousand. The reduction in profits for the three months ended December 31, 2019 was primarily attributable to lower fund management revenue from Wainwright due to a lower amount of AUM, partially offset by decreases in Wainwright variable operating expenses, and general and administrative costs. Also contributing to the net loss were expenses related to the start up of our new subsidiary, Marygold & Co. and new funds, as well as one-time expenses incurred in connection with employee incentive programs at the subsidiary level. After giving consideration to currency translation gains of $136 thousand our comprehensive income for the three months ended December 31, 2019 was $61 thousand as compared to the three months ended December 31, 2018 where there was a currency translation loss of ($47) thousand resulting in comprehensive income of $16 thousand. Comprehensive gain and loss are comprised of fluctuations in foreign currency exchange rates related to the effects in the valuation of our holdings in New Zealand and Canada.

 

For the Six Months Ended December 31, 2019 Compared to the Six Months Ended December 31, 2018

 

Revenue and Operating Income

 

Consolidated revenue for the six months ended December 31, 2019 was $11.8 million representing a $2.1 million decrease from the prior year revenue of $13.9 million. While net revenues decreased as a result of lower Fund assets under management ("AUM") from our fund management business by approximately $2.3 million for the six months ended December 31, 2019 as compared to the six months ended December 31, 2018, the corporation's revenues derived from its other operating units increased $0.2 million, resulting in a net reduction in revenue of approximately $2.1 million. Concierge produced an operating (loss) income for the six months ended December 31, 2019 of ($40) thousand as compared to $631 thousand for the six months ended December 31, 2018. The decrease in operating income was primarily attributable to lower fund management revenue from Wainwright due to lower AUM.

 

Other Expenses 

 

Other (expenses) income for the six months ended December 31, 2019 and 2018, were $8 thousand and ($153) thousand for the six months ended December 31, 2019 and 2018, respectively, resulting in a net loss before taxes of ($32) thousand and net income of $478 thousand, respectively. Benefit (Provision) for income tax for the six months ended December 31, 2019 and 2018 were $12 thousand and ($129) thousand, respectively. The difference is primarily attributable to our United States operations through our Wainwright subsidiary. 

 

Net Income (Loss)

 

Overall, the net income (loss) between the six months ended December 31, 2019 as compared to the six months ended December 31, 2018 decreased by approximately $369 thousand to approximately ($20) thousand loss from $349 thousand income. The reduction in profits for the six months ended December 31, 2019 was primarily attributable to lower fund management revenue from Wainwright due to a lower amount of AUM, partially offset by decreases in Wainwright variable operating expenses, and general and administrative costs. Also contributing to the net loss were expenses related to the start up of our new subsidiary, Marygold & Co. and new funds, as well as one-time expenses incurred in connection with employee incentive programs at the subsidiary level. After giving consideration to currency translation gains of $170 thousand our comprehensive income for the six months ended December 31, 2019 was $150 thousand as compared to the six months ended December 31, 2018 where there was a currency translation loss of ($59) thousand resulting in comprehensive income of $290 thousand. Comprehensive gain and loss are comprised of fluctuations in foreign currency exchange rates related to the effects in the valuation of our holdings in New Zealand and Canada.

 

Wainwright Holdings

 

Wainwright was founded as a holding company in March 2004 as a Delaware corporation with one subsidiary, Ameristock Corporation, which was an investment adviser to Ameristock Mutual Fund, Inc., a registered 1940 Act large cap value equity fund. In January 2010, Ameristock Corporation was spun off as a standalone company. In May 2005, USCF was formed as a single member limited liability company in the state of Delaware. In June 2013, USCF Advisers was formed as a Delaware limited liability company and in July 2014, was registered as an investment adviser under the Investment Advisers Act of 1940, as amended. In November 2013, the USCF Advisers board of managers formed USCF ETF Trust (“ETF Trust”) and in July 2016, the USCF Mutual Funds Trust (“Mutual Funds Trust” and together with “ETF Trust” the “Trusts”) both as open-end management investment companies registered under the Investment Company Act of 1940, as amended ("the 1940 Act"). The Trusts are authorized to have multiple segregated series or portfolios. Wainwright owns all of the issued and outstanding limited liability company membership interests of its subsidiaries, USCF and USCF Advisers, each a Delaware limited liability company and are affiliated companies.  USCF serves as the general partner (“General Partner”) for various limited partnerships (“LP”) and sponsor (“Sponsor”) as noted below. USCF and USCF Advisers are subject to federal, state and local laws and regulations generally applicable to the investment services industry. USCF is a commodity pool operator (“CPO”) subject to regulation by the Commodity Futures Trading Commission (the "CFTC") and the National Futures Association (the “NFA”) under the Commodities Exchange Act (“CEA”). USCF Advisers is an investment adviser registered under the Investment Advisers Act of 1940, as amended and has registered as a CPO under the CEA. Exchange traded products (“ETPs”) issued or sponsored by USCF are required to be registered with the Securities and Exchange Commission (the “SEC”) in accordance with the Securities Act of 1933.  Wainwright operates through USCF and USCF Advisers, which collectively operate eleven exchange-traded products ("ETPs") and exchange traded funds (“ETFs”) listed on they NYSE Arca, Inc. ("NYSE Arca") with a total of approximately $2.1 billion assets under management as of December 31, 2019. Wainwright and subsidiaries USCF and USCF Advisers are collectively referred to as “Wainwright” hereafter. 

 

 

27

 

 

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 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; Liquidated September 12, 2018

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; Liquidated September 12, 2018

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; Liquidated September 12, 2018

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; Liquidated December 18, 2019

United States 3X Short Oil Fund (“USOD”)

A commodity pool formed in May 2017 and made public July 2017; Liquidated December 18, 2019

 

 

USCF Advisers serves as the investment adviser to the fund(s) listed below within the Trusts and has overall responsibility for the general management and administration for the Trusts. Pursuant to the current Investment Advisory Agreements, USCF Advisers provides an investment program for the Trusts’ fund(s) and manages the investment of the assets.

 

Advisers as fund manager for each series within the USCF ETF Trust and the USCF Mutual Funds Trust:

USCF ETF Trust (“ETF Trust”)

Organized as a Delaware statutory trust in November 2013  

USCF SummerHaven SHPEI Index Fund ("BUY")

Fund launched November 30, 2017

USCF SummerHaven SHPEN Index Fund ("BUYN")

Fund launched November 30, 2017

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 SummerHaven Dynamic Commodity Strategy No K-1 Fund

Fund launched May 2018

 

 

USCF Mutual Funds Trust ("Mutual Funds Trust")

 Organized as a Delaware statutory trust in July 2016  

USCF Commodity Strategy Fund ("USCFX" and "USCIX")

Fund launched March 2017; Liquidated March 21, 2019

  

All USCF funds and the Trusts' funds are collectively referred to as the “Funds” hereafter.

 

Wainwright’s revenue and expenses are primarily driven by the amount AUM. Wainwright earns monthly management and advisory fees based on agreements with each Fund as determined by the contractual basis point management fee structure in each agreement multiplied by the average AUM over the given period. Many of the company’s expenses are dependent upon the amount of AUM. These variable expenses include Fund administration, custody, accounting, transfer agency, marketing and distribution, and sub-adviser fees and are primarily determined by multiplying contractual fee rates by AUM. Total Operating Expenses are grouped into the following financial statement line items: General and Administrative, Marketing, Operations and Salaries and Compensation.

  

For the Three Months Ended December 31, 2019, Compared to the Three Months Ended December 31, 2018

 

Revenue

 

Average AUM for the three months ended December 31, 2019 was at $2.1 billion, as compared to approximately $2.8 billion from the three months ended December 31, 2018 primarily due to a decrease in USO, USCI and UNG AUM. As a result, the revenues from management and advisory fees decreased by approximately $1.1 million, or 28%, to $2.8 million for the three months ended December 31, 2019 as compared to the thee months ended December 31, 2018 where revenues from management and advisory fees totaled $3.9 million.

 

Expenses

 

Wainwright’s total operating expenses for three months ended December 31, 2019 decreased by $1.0 million to $2.8 million, or approximately 26%, from $3.8 million for the three months ended December 31, 2018. Variable expenses, as described above, decreased by $0.5 million over the respective three-month period due to lower AUM which reduced variable marketing and distribution expenses, sub-advisory fees and other variable costs. General and Administrative expenses, excluding new fund development cost, were $0.4 million for each of the  three months ended December 31, 2019 and December 31, 2018. Expenses were reduced marginally due to decreases in legal and professional fees. Total marketing expenses decreased $0.2 million to $0.5 million for the three months ended December 31, 2019 as compared to the prior year period due to a decrease of $0.1 million in advertising and marketing conference spend along with a $0.1 million reduction in variable distribution costs as a result of lower AUM. Employee Salaries and Compensation expenses were approximately $1.1 million and $1.4 million for the three months ended December 31, 2019 and December 31, 2018, respectively, with the decrease due to no bonuses for 2019.

 

28

 

 

Income

 

Income before income taxes for the three months ended December 31, 2019 decreased $0.1 million to $0.1 million from $0.2 million for three months ended December 31, 2018 due to $1.1 million in lower revenue as a result of lower AUM, offset by a $1.0 million reduction in operating expenses.

 

For the Six Months Ended December 31, 2019 Compared to the Six Months Ended December 31, 2018

 

Revenue

 

Average AUM for the six months ended December 31, 2019 was at $2.1 billion, as compared to approximately $2.9 billion from the six months ended December 31, 2018 primarily due to a decrease in USO, USCI and UNG AUM. As a result, the revenues from management and advisory fees decreased by approximately $2.3 million, or 28%, to $5.9 million for the six months ended December 31, 2019 as compared to the six months ended December 31, 2018 where revenues from management and advisory fees totaled $8.2 million.

 

Expenses

 

Wainwright’s total operating expenses for six months ended December 31, 2019 decreased by $1.8 million to $5.6 million, or approximately 24%, from $7.4 million for the six months ended December 31, 2018. Variable expenses, as described above, decreased by $1.0 million over the respective six-month period due to lower AUM which reduced variable marketing and distribution expenses, sub-advisory fees and other variable costs. General and Administrative expenses, excluding new fund development cost, for the six months ended December 31, 2019 were $0.7 million as compared to $0.9 million for the six months ended December 31, 2018. Expenses were reduced marginally due to decreases in legal and professional fees. Total marketing expenses decreased $0.5 million to $0.9 million for the six months ended December 31, 2019 as compared to the prior year period due to a decrease of $0.3 million in advertising and marketing conference spend along with a $0.2 million reduction in variable distribution costs as a result of lower AUM. Employee Salaries and Compensation expenses were approximately $2.1 million and $2.4 million for the six months ended December 31, 2019 and December 31, 2018, respectively, with the decrease due to no bonuses for 2019.

 

Income

 

Income before income taxes for the six months ended December 31, 2019 decreased $0.3 million to $0.3 million from $0.6 million for six months ended December 31, 2018 due to $2.3 million in lower revenue as a result of lower AUM, offset by a $1.8 million reduction in operating expenses along with a decrease of $0.2 million in other expenses.

 

 

Gourmet Foods, Ltd.

 

Gourmet Foods Limited (“Gourmet Foods”), was organized in its current form in 2005 (previously known as Pats Pantry Ltd). Pats Pantry was founded in 1966 to produce and sell wholesale bakery products, meat pies and patisserie cakes and slices, in New Zealand. Gourmet Foods, located in Tauranga, New Zealand, sells substantially all of its goods to supermarkets and service station chains with stores located throughout New Zealand. Gourmet Foods also has a large number of smaller independent lunch bars, cafes and corner dairies among the customer list, however they comprise a relatively insignificant dollar volume in comparison to the primary accounts of large distributors and retailers.

 

Gourmet Foods operates exclusively in New Zealand and thus the New Zealand dollar is its functional currency. In order to consolidate Concierge’s reporting currency, the US dollar, with that of Gourmet Foods, Concierge records foreign currency translation adjustments and transaction gains and losses in accordance with ASC 830-30. The translation of New Zealand currency into U.S. dollars is performed for balance sheet accounts using the exchange rates in effect at the balance sheet date and for revenue and expense accounts using a weighted average exchange rate during the period. Gains and losses resulting from foreign currency translations are included in foreign currency translation (loss) gain on the Condensed Consolidated Statements of Comprehensive Income as well as accumulated other comprehensive (loss) income found on the Condensed Consolidated Balance Sheets.

 

For the Three Months Ended December 31, 2019, Compared to the Three Months Ended December 31, 2018

 

Revenue

 

Net revenues for the three months ended December 31, 2019 were $1.3 million with cost of goods sold of $0.9 million resulting in a gross profit of $0.4 million, or approximately 31% gross margin, as compared to the year ended December 31, 2018 where net revenues were $1.1 million and cost of goods sold were $0.8 million producing a gross profit of $0.3 million, or approximately 26%.

 

Expenses

 

General, administrative and selling expenses, including wages and marketing, for the three month periods ended December 31, 2019 and 2018 were $0.2 million and $0.2 million producing operating income of $0.2 million and $0.1 million, respectively, or approximately 17% net operating profit for the three months ended December 31, 2019 and 9% for the three months ended December 31, 2018. The depreciation expense, provision for income tax, and other income (expense) totaled approximately $0.1 million for the three months ended December 31, 2019 as compared to $0.1 million for the three months ended December 31, 2018

 

29

 

 

Income

 

Income for the three months ended December 31, 2019, after expenses of approximately $0.3 million, resulted in an income of approximately $172 thousand before income tax provision of approximately $14 thousand resulted in a net income of approximately $157 thousand as compared to a net income of $25 thousand for the three months ended December 31, 2018. Overall, net profit margins for the comparative periods are consistent and differences are attributed to depreciation expense, varying income tax provisions and the fluctuation of currency exchange rates with the New Zealand dollar.

 

For the Six Months Ended December 31, 2019 Compared to the Six Months Ended December 31, 2018

 

Revenue

 

Net revenues for the six months ended December 31, 2019 were $2.6 million with cost of goods sold of $1.8 million resulting in a gross profit of $0.8 million, or approximately 31% gross margin, as compared to the year ended December 31, 2018 where net revenues were $2.3 million and cost of goods sold were $1.7 million producing a gross profit of $0.6 million, or approximately 26%.

 

Expenses

 

General, administrative and selling expenses, including wages and marketing, for the six month periods ended December 31, 2019 and 2018 were $0.4 million and $0.4 million producing operating income of $0.4 million and $0.2 million, respectively, or approximately 15% net operating profit for the six months ended December 31, 2019 and 8% for the six months ended December 31, 2018. The depreciation expense, provision for income tax, and other income (expense) totaled approximately $0.1 million for the six months ended December 31, 2019 as compared to $0.1 million for the six months ended December 31, 2018

 

Income

 

Income for the six months ended December 31, 2019, after expenses of approximately $0.5 million, resulted in approximately $0.3 million before income tax provision of approximately $29 thousand resulted in a net income of approximately $258 thousand as compared to a net income of $41 thousand for the six months ended December 31, 2018. Overall, net profit margins for the comparative periods are consistent and differences are attributed to depreciation expense, varying income tax provisions and the fluctuation of currency exchange rates with the New Zealand dollar.

 

Brigadier Security Systems (2000) Ltd.

 

Brigadier Security Systems (2000) Ltd. (“Brigadier”) was founded in 1985 and through internal growth and acquisitions the core business of Brigadier began in 1998. Today Brigadier is one of the largest SecurTek security monitoring dealers in Saskatchewan with offices in both major urban areas of Regina (dba Elite Security Systems (2005) Ltd.) and Saskatoon. SecurTek is owned by SaskTel which is Saskatchewan's leading Information and Communications Technology (ICT) provider with over 1.4 million customer connections across Canada. Brigadier is also a Honeywell Certified Access Control Integrator, Kantech Corporate Certified Integrator and UTC Authorized dealer and the largest independent security contractor in the province. Brigadier provides comprehensive security solutions including access control, camera systems, fire alarm monitoring panels, and intrusion alarms to home and business owners as well as government offices, schools and public buildings. Brigadier typically sells hardware, installation service, and a monitoring contract to customers. Under the terms of its authorized dealer contract with the monitoring company, Brigadier earns monthly payments during the term of the monitoring contract in exchange for performance of customer service activities on behalf of the monitoring company.

 

Brigadier operates exclusively in Canada and thus the Canadian dollar is its functional currency. In order to consolidate Concierge’s reporting currency, the U.S. dollar, with that of Brigadier, Concierge records foreign currency translation adjustments and transaction gains and losses in accordance with ASC 830-30. The translation of Canadian currency into U.S. dollars is performed for balance sheet accounts using the exchange rates in effect at the balance sheet date and for revenue and expense accounts using a weighted average exchange rate during the period.

 

Gains and losses resulting from foreign currency translations are included in foreign currency translation (loss) gain on the Condensed Consolidated Statements of Comprehensive Income as well as accumulated other comprehensive (loss) income found on the Condensed Consolidated Balance Sheets.

 

 

For the Three Months Ended December 31, 2019 Compared to the Three Months Ended December 31, 2018

  

Revenue

 

Net revenues for the three months ended December 31, 2019 were $0.7 million with cost of goods sold recorded as approximately $0.3 million, resulting in a gross profit of approximately $0.4 million with a gross margin of approximately 53% as compared to the three months ended December 31, 2018 where net revenues were approximately $0.7 million with cost of goods sold of $0.4 million and a gross profit of $0.3 million, or approximately 44%.

 

Expenses

 

General, administrative and selling expenses for the three months ended December 31, 2019 were $0.3 million producing an operating profit of $0.1 million or approximately 12% as compared to the three months ended December 31, 2018 where operating profits were $0.1 million, or approximately 10%, with general, administrative and selling expenses of $0.2 million.

 

Income

 

Other expense comprised of depreciation, income tax, interest income, other income, and gain on sale of assets totaled approximately $26 thousand for the three months ended December 31, 2019 resulting in income after income taxes of approximately $65 thousand as compared to income after income taxes of approximately $53 thousand for the three months ended December 31, 2018 where other expense totaled $18 thousand.

 

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For the Six Months Ended December 31, 2019 Compared to the Six Months Ended December 31, 2018

 

Revenue

 

Net revenues for the six months ended December 31, 2019 were $1.5 million with cost of goods sold recorded as approximately $0.7 million, resulting in a gross profit of approximately $0.8 million with a gross margin of approximately 53% as compared to the six months ended December 31, 2018 where net revenues were approximately $1.6 million with cost of goods sold of $0.8 million and a gross profit of $0.8 million, or approximately 46%.

 

Expenses

 

General, administrative and selling expenses for the six months ended December 31, 2019 were $0.6 million producing an operating profit of $0.2 million or approximately 15% as compared to the six months ended December 31, 2018 where operating profits were $0.3 million, or approximately 17%, with general, administrative and selling expenses of $0.4 million.

 

Income

 

Other expense comprised of depreciation, income tax, interest income, other income, and gain on sale of assets totaled approximately $66 thousand for the six months ended December 31, 2019 resulting in income after income taxes of approximately $168 thousand as compared to income after income taxes of approximately $193 thousand for the six months ended December 31, 2018 where other expense totaled $70 thousand.

 

Original Sprout 

 

Kahnalytics was founded in 2015 and adopted the dba/Original Sprout in December 2017. Original Sprout formulates and packages various hair and skin care products that are 100% vegan, tested safe and non-toxic, and marketed globally through distribution networks to salons, resorts, grocery stores, health food stores, e-tail sites and on the company's website. The company operates from warehouse and sales offices located in San Clemente, CA, USA.

 

For the Three Months Ended December 31, 2019 Compared to the Three Months Ended December 31, 2018

 

Revenue

 

Net revenues for the three months ended December 31, 2019 were $0.9 million as compared to $0.9 million for the three months ended December 31, 2018. Cost of goods sold for the three months ended December 31, 2019 and 2018 were $0.5 million and $0.5 million, respectively, resulting in a gross profit of approximately $0.4 million and $0.4 million, respectively.

 

Expenses

 

General, administrative and selling expenses were approximately $0.4 million resulting in an operating income of approximately $32 thousand, or approximately 4%, as compared to $0.2 million of general, administrative and selling expenses resulting in $0.2 million for the three months ended December 31, 2018, or approximately 21%.

 

Income (Loss)

 

After consideration given to income tax provision, other income (expense), and depreciation expense, the net loss for the three months ended December 31, 2019 was approximately ($58) thousand as compared to $0.1 million income from the prior year comparable period. The net loss for the period is attributed to a one-time payment of employee incentive bonus as well as the creation and production of a new product line to be introduced later in the fiscal year, all of which were recorded in operating expense.

 

 

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For the Six Months Ended December 31, 2019 Compared to the Six Months Ended December 31, 2018

 

Revenue

 

Net revenues for the six months ended December 31, 2019 were $1.9 million as compared to $1.8 million for the six months ended December 31, 2018. Cost of goods sold for the six months ended December 31, 2019 and 2018 were $1.0 million and $1.0 million, respectively, resulting in a gross profit of approximately $0.9 million and $0.8 million, respectively.

 

Expenses

 

General, administrative and selling expenses were approximately $0.7 million resulting in an operating income of approximately $0.2 million, or approximately 11%, as compared to $0.4 million of general, administrative and selling expenses resulting in $0.4 million for the six months ended December 31, 2018, or approximately 20%.

 

Income

 

After consideration given to income tax provision, other income, and depreciation expense, the net income for the six months ended December 31, 2019 was approximately $23 thousand as compared to $0.2 million from the prior year comparable period. The reduction in net income for the period is attributed to a one-time payment of employee incentive bonus as well as the creation and production of a new product line to be introduced later in the fiscal year, all of which were recorded in operating expense.

 

 

Plan of Operation for the Next Twelve Months

 

Our plan of operation for the next twelve months is to apply necessary resources, which may include experienced personnel, cash, or synergistic acquisitions made with cash, equity or debt, into growing each of our business units to their potential. Original Sprout is in the initial stages of transitioning from a largely boutique offering to a more mainstream product and as such we anticipate measurable growth in revenues for the coming years. Additionally, we are expecting moderate growth in Brigadier through focused management initiatives and consolidation within the security industry coupled with expanded product offerings. Similarly, we expect Gourmet Foods to be operating more efficiently under current management and continue to increase market share through additional product offerings and channels to market, including distribution in New Zealand of the products from Original Sprout. Wainwright will continue to develop innovative and new fund products to grow its portfolio. In addition to our long-term mission that is an acquisition strategy based upon identifying and acquiring profitable, mature, companies of a diverse nature and with in-place management that produces increased revenue streams, the Company is also focused upon building expertise and developing Fintech opportunities in the financial services sector. In a more general sense, the Company is characterizing its business in two categories; 1) financial services and 2) other operating units. The purpose is to isolate the cyclical nature of the financial services business from our other industry segments. As revenues from financial services fluctuate over time due to varying performance of the commodities markets, our other operations are expected to be stable and sustainable by comparison. By these initiatives we seek to:

 

 

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 and losses,

 

attract parties who have an interest in selling their privately held companies to us,

 

achieve efficiencies in accounting and reporting through adoption of standards used by all subsidiaries on a consistent basis,

 

strategically pursue additional company acquisitions, and

 

exploit opportunities as may present themselves in the Fintech space, including creation of new corporate entities such as Marygold as focused subsidiary holdings.

 

Liquidity and Capital Resources 

 

Concierge is a holding company that conducts its operations through its subsidiaries. At its holding-company level, its liquidity needs relate to operational expense, the funding of additional business acquisitions and new investment opportunities. Our operating subsidiaries' principal liquidity requirements arise from cash used in operating activities, debt service, and capital expenditures, including purchases of equipment and services, operating costs and expenses, and income taxes.

 

As of December 31, 2019, we had $6.5 million of cash and cash equivalents on a consolidated basis as compared to $6.5 million as of June 30, 2019.

 

During the current and past fiscal years combined, Concierge has invested approximately $3.5 million in cash towards purchasing and assimilating the Original Sprout assets into the Concierge Technologies group of companies. During the previous years ended June 30, 2016 through June 30, 2017, Concierge invested approximately $3.3 million in cash to acquire Gourmet Foods and Brigadier Security Systems as well as the acquisition through a stock-for-stock exchange of Wainwright, which provides a significant revenue stream and value. During the current six month period ended December 31, 2019 we have invested cash and resources to the formation of our wholly-owned subsidiary, Marygold & Co., and its product development. Despite these cash investments, our working capital position remains strong at $12 million and our position has strengthened year-to-year. Management forecasts Wainwright, Gourmet Foods, Brigadier and Original Sprout to all produce a profit during the coming fiscal year and the realization of those profits by Concierge is not expected to be significantly impacted by foreign currency fluctuations against the U.S. dollar during the period. While Concierge intends to maintain and improve its revenue stream from wholly owned subsidiaries, Concierge continues to pursue acquisitions of other profitable companies which meet its target profile. Provided Concierge’s subsidiaries continue to operate as they are presently, and are projected to operate, Concierge has sufficient capital to pay its operating expenses for the coming fiscal year and to adequately pursue its long term business objectives.

 

In relation to the adoption of ASC 842 (see Note 2), the Company recognized $1,150,916 of operating lease liabilities on July 1, 2019. The total amount due under these obligations was $966,848 and $0 as of December 31, 2019 and June 30, 2019, respectively. The obligations will amortize over the passage of time through the recognition of periodic rent expense. See Note 6 for further analysis of this obligation.

 

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Borrowings

 

As of December 31, 2019, we had $1.0 million of related-party and third-party indebtedness on a consolidated basis as compared to $0.7 million as of June 30, 2019. Approximately US$397,968 is owed by Brigadier and secured with the land and building in Saskatoon purchased in July 2019. Concierge, without inclusion of its subsidiary companies, as of December 31, 2019 and June 30, 2019, had $0.6 million of related-party indebtedness. We are not required to make interest payments on our related party notes until the maturity date.

 

Current related party notes payable consist of the following:

 

    December 31, 2019     June 30, 2019  

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  

 

As of December 31, 2019, Brigadier had an outstanding principal balance of CD$516,499 (approx. US$397,968 translated as of December 31, 2019) related to the purchase of their Saskatoon office land and building. The Consolidated Balance Sheets as of December 31, 2019 and June 30, 2019 reflect the amount of the principal balance which is due within twelve months as a current liability of US$13,556 and a long term liability of US$384,412. As of June 30, 2019, the loan liability consisted of principal balances outstanding for vehicle purchases. The principal amounts under the loans which were due within twelve months were recorded in short term liabilities as US$26,241, and after twelve months as US$61,057. These loans were paid in full as of December 31, 2019, whereas there was no liability for the loan related to the property purchase as of June 30, 2019. Total interest on all loans for the three months ended December 31, 2019 was US$4,064 and US$1,133 for the three months ended December 31, 2018.

 

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. As of December 31, 2019 and June 30, 2019 we have no such investments. These investments are described further in Note 7 to our Financial Statements.

 

Reverse Stock Split

 

On November 17, 2017 our Board and the majority stockholders 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 became effective on December 15, 2017 and all share amounts have been retroactively adjusted for this reverse stock split.

 

Dividends

 

Our strategy on dividends is to declare and pay dividends only from retained earnings and only when our Board of Directors deems it prudent and in the best interests of the company to declare and pay dividends. We have paid no dividends and we do not expect to pay any dividends over the next fiscal year.

 

Item 3.    Quantitative and Qualitative Disclosures about Market Risk.

 

Concierge is a smaller reporting company and is not required to provide the information required by this item.

 

Item 4.    Controls and Procedures

 

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’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.

 

33

 

 

PART II - OTHER INFORMATION

 

Item 1.

Legal Proceedings

 

None.

 

Item 1A.

Risk Factors

 

Concierge and its subsidiaries (referred to herein as “we,” “us,” “our” or similar expressions) are subject to certain risks and uncertainties in its business operations. The risks and uncertainties are included in our annual report on Form 10-K filed September 30, 2019 and are not the only risks we face. Additional risks and uncertainties that are presently unknown or are currently deemed immaterial may also impair our business operations. These risk factors should be read in connection with the other information included in this quarterly report on Form 10-Q, including Management’s Discussion and Analysis of Financial Condition and Results of Operations and our financial statements and the related notes.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

None. 

 

Item 3.

Defaults Upon Senior Securities

 

None.

 

Item 4.

Mine Safety Disclosures

 

Not applicable.

 

Item 5.

Other Information

 

None.

 

 

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Item 6.

Exhibits

 

The following exhibits are filed or incorporated by reference as part of this Form 10-Q:

 

Exhibit

Number

 

Description of Document

 

 

 

2.1

 

Agreement for Sale and Purchase of a Business, dated May 29, 2015, by and between Gourmet Foods Ltd. and Concierge Technologies, Inc.3

2.2

 

Stock Purchase Agreement, dated May 27, 2016, by and among Concierge Technologies, Inc., Brigadier Security Systems (2000) Ltd., and the shareholders of Brigadier Security Systems (2000) Ltd.5

2.3

 

Stock Purchase Agreement, dated September 19, 2016 by and among Concierge Technologies, Inc., Wainwright Holdings, Inc. and Each of the Individuals and Entities Executing Signature Pages Attached Thereto6

2.4

 

Asset Purchase Agreement, dated June 24, 2019, by and between Concierge Technologies, Inc., through its wholly owned subsidiary Gourmet Foods Ltd. and RG & MK Wilson Limited.10

2.5

 

Termination of Asset Purchase Agreement, dated June 24, 2019, by and between Concierge Technologies, Inc., through its wholly owned subsidiary Gourmet Foods Ltd. and RG & MK Wilson Limited.11

3.1

 

Certificate of Designation (Series of Preferred Stock) filed with the Secretary of State of Nevada on September 23, 2010.1

3.2

 

Amended Articles of Incorporation of Concierge Technologies, Inc., a Nevada corporation, filed with the Secretary of State of Nevada on April 17, 2017.7

3.3

 

Amended Bylaws of Concierge Technologies, Inc. effective on March 20, 2017.7

10.1

 

Securities Purchase Agreement, dated January 26, 2015, by and among Concierge Technologies, Inc. and Purchasers.2

10.2

 

Registration Rights Agreement, dated January 26, 2015, by and among Concierge Technologies, Inc. and Purchasers.2

10.3

 

Convertible Promissory Note, dated January 27, 2016, by and between Wainwright Holdings, Inc. and Concierge Technologies, Inc.4

10.4

 

Amended and Restated Asset Purchase Agreement, dated November 20, 2017, by and between The Original Sprout, LLC and each of the Individual Members of Original Sprout LLC and Kahnalytics, Inc.8

14.1

 

Code of Business Conduct and Ethics9

21.1

 

Concierge Technologies, Inc. - Subsidiary List12

31.1(1)

 

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2(1)

 

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1(1)

 

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2(1)

 

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

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. Pursuant to Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

 

 

(1) 

Filed herewith.

1Previously filed with Report on Form 10-K on October 8, 2010 and incorporated by reference herein.

 

2Previously filed with Current Report on Form 8-K on January 29, 2015 and incorporated by reference herein.

 

3Previously filed with Current Report on Form 8-K on June 2, 2015 and incorporated by reference herein.

 

4Previously filed with Current Report on Form 8-K on February 2, 2016 and incorporated by reference herein.

 

5Previously filed with Current Report on Form 8-K on June 8, 2016 and incorporated by reference herein.

 

6Previously filed with Current Report on Form 8-K on September 20, 2016 and incorporated by reference herein.

 

7Previously filed with Definitive Proxy Materials on Schedule 14A on February 28, 2017 and incorporated by reference herein.

 

8Previously filed with Current Report on Form 8-K on November 21, 2017 and incorporated by reference herein. 

 

9Previously filed with Current Report on Form 10-K on September 28, 2018 and incorporated by reference herein.

 

10Previously filed with Current Report on Form 8-K on June 27, 2019 and incorporated by reference herein.

 

11Previously filed with Current Report on Form 8-K on August 2, 2019 and incorporated by reference herein.

 

12Previously filed with Current Report on Form 10-K on September 30, 2019 and incorporated by reference herein.

 

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SIGNATURES

 

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: February 14, 2020

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.