Table of Contents

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE FISCAL YEAR ENDED JUNE 30, 2018

or

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

Concierge Technologies, Inc.

(Exact name of registrant as specified in its charter)

 

 

Nevada

(state of incorporation)

000-29913

(Commission File Number)

90-1133909

(IRS Employer I.D. Number)

1202 Puerta Del Sol

San Clemente, CA 92673

Tel: 866.800.2978

Fax: 888.312.0124

____________________________________________________

(Address and telephone number of registrant's principal

executive offices and principal place of business)

 

Securities registered under Section 12(b) of the Exchange Act: None.

 

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, $0.001 par value

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]

 

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 12 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 [X] No [ ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ]

 

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

☐    (Do not check if a smaller reporting company)

 

 

 

Smaller reporting company

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐   Yes     ☒   No

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was $10,730,129 based upon the per share price of $1.80 for the common stock as of December 31, 2017, the last business day of the registrant’s most recently completed second fiscal quarter, multiplied by the approximate number of shares of common stock held by persons other than executive officers, directors and five percent stockholders of the registrant without conceding that any such person is an “affiliate” of the registrant for purposes of the federal securities laws.

 

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 29,559,139 shares of Common Stock, $0.001 par value, and 436,951 shares of Series B Convertible, Voting, Preferred Stock on September 28, 2018. 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.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

None

 

 

TABLE OF CONTENTS

 

PART I

 

 

 

 

 

ITEM 1  Business

 

4

 

 

 

ITEM 2  Properties

 

9

 

 

 

ITEM 3  Legal Proceedings

 

9

 

 

 

ITEM 4  Mine Safety Disclosures  (Removed as not applicable)

 

 

 

 

 

PART II

 

 

 

 

 

ITEM 5  Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities

 

10

 

 

 

ITEM 6 Selected Financial Data  (Removed as not applicable)

 

 

 

 

 

ITEM 7  Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

12

 

 

 

ITEM 8  Financial Statements and Supplementary Data

 

19

 

 

 

ITEM 9  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

20

 

 

 

ITEM 9A Controls and Procedures

 

20

 

 

 

PART III

 

 

 

 

 

ITEM 10 Directors, Executive Officers, and Corporate Governance

 

21

 

 

 

ITEM 11 Executive Compensation

 

26

 

 

 

ITEM 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

27

 

 

 

ITEM 13 Certain Relationships and Related Transactions, and Director Independence

 

28

 

 

 

ITEM 14 Principal Accounting Fees and Services

 

29

 

 

 

PART IV

 

 

 

 

 

ITEM 15 Exhibits, Financial Statement Schedules

 

30

 

 

 

 

  SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Annual Report on Form 10-K 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 Annual Report on Form 10-K 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 with respect to us and our operating subsidiaries in this Annual Report on Form 10-K.

 

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Annual Report on Form 10-K 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”. 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 Annual Report on Form 10-K. 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 Annual Report on Form 10-K 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 Annual Report on Form 10-K to reflect events or circumstances after the date of this Annual Report on Form 10-K 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.

 

3

 

PART I

 

ITEM 1.            BUSINESS.

 

General

 

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 and exchange traded products organized as limited partnerships or investment trusts that issue shares which trade on the NYSE Arca stock exchange.

 

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

 

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

 

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

 

See “Note 12. Business Combinations” to our audited financial statements included elsewhere in this annual report for a description of the terms of our acquisitions for our operating businesses.

 

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

 

Subsidiary Business Overview

 

Wainwright

 

On December 9, 2016, Concierge acquired all of the issued and outstanding stock in Wainwright which is controlled by our CEO and majority shareholder Nicholas Gerber and another Concierge shareholder, Scott Schoenberger, a member of our board of directors. Wainwright operates through USCF and USCF Advisers, which collectively operate 15 exchange traded products (“ETPs”) and exchange traded funds (“ETFs”) listed on NYSE Arca, Inc. ("NYSE Arca") and a mutual fund with a total of approximately $3.1 billion in assets under management as of June 30, 2018. Wainwright earns revenues through its subsidiaries' contractual agreements providing investment management and advisory services in exchange for management fees charged against the funds. Wainwright’s operating subsidiaries focus primarily on providing investment advisory services to funds that invest in a broad base or single commodity, particularly in oil, natural gas, gasoline and heating oil and metals. Concierge acquired Wainwright in a stock-for-stock exchange for (i) 27,293,333 (as adjusted approximately for the 1 for 30 reverse stock split of our outstanding shares of common and preferred stock effective on December 15, 2017, (the "2017 Reverse Stock Split")) shares of our common stock and (ii) 311,804 (as adjusted approximately for the 2017 Reverse Stock Split) shares of our Series B Voting, Convertible, Preferred stock (which preferred shares are convertible into approximately 6,236,079 shares of Company Common Stock). (See Note 13 to our Financial Statements)

 

Services and Customers

 

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

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

A commodity pool formed in May 2017 and made public July 2017

 

 

 

 

In addition, USCF is the sponsor of the USCF Funds Trust and the USCIF Trust. The USCF Funds Trust with its series, the REX S&P MLP Fund (“RMLP”) and the REX S&P MLP Inverse Fund (“MLPD”), were in registration and had not commenced operations (together, the “REX Funds”) prior to both funds filing to withdraw from registration on March 30, 2018. The USCIF Trust, with its USCF Canadian Crude Oil Index Fund ("UCCO"), is currently in registration but has not commenced operations.

 

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

 

 

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

 

As of and for the years ended June 30, 2018 and 2017 approximately 90% of Wainwright’s revenue and accounts receivable were attributed to its three largest funds United States Oil Fund, LP, United States Natural Gas Fund, LP and United States Commodity Index Fund.

 

Competition

 

Wainwright faces competition from other commodity fund managers, which include larger, better financed companies that offer products similar to Wainwright’s. Many of these competitors have substantially greater financial, technical, and human resources than Wainwright does, as well as greater experience in the discovery and development of products and the commercialization of those products. Our competitors’ products may be more effective, or more effectively marketed and sold, than any products we may commercialize. Wainwright will continue to develop and consider new fund opportunities identified through its research efforts and review of market needs. However, the cost of launching and seeding new funds is dependent upon existing and new capital resources. The ability to successfully launch new funds competing with much larger financial institutions with greater financial and human capital will be challenging.

 

Regulation

 

Wainwright’s operating subsidiaries, 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. ETPs issued or sponsored by USCF are required to be registered with the Securities and Exchange Commission (the “SEC”) in accordance with the Securities Act of 1933. USCF Advisers advises exchange traded funds and a mutual fund registered with the SEC under the Investment Company Act of 1940.

 

 

Employees

 

Wainwright’s operating subsidiaries employ approximately 15 persons, a majority of whom are located in Oakland, California. The operating subsidiaries are responsible for the retention of sub-advisers to manage the investments of each managed Funds’ assets in conformity with their respective investment policies if the operating subsidiary does not provide those services directly. Wainwright’s operating subsidiaries may also retain third-parties to provide custody, distribution, fund administration, transfer agency, and all other non-distribution related services necessary for each fund to operate. Wainwright, through its operating subsidiaries, bears all of its own costs associated with providing these advisory services and the expenses of the members of the board of directors of each fund who are affiliated with Wainwright.

 

Intellectual Property

 

Wainwright subsidiary USCF owns registered trademarks for USCF and USCF Advisers.  The funds USCF is a general partner or sponsor of each have registered trademarks owned by USCF. Additionally, USCF was granted two patents Nos. 7,739,186 and 8,019,675, for systems and methods for an exchange traded fund (ETF) that tracks the price of one or more commodities.

 

Gourmet Foods

 

Gourmet Foods, Ltd. (“Gourmet Foods”), was organized in its current form in 2005 (previously known as Pats Pantry Ltd) and acquired by Concierge in August 2015. 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.

 

Products and Customers

 

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

 

For the year ended and balance sheet date of June 30, 2018, Gourmet Foods’ largest customer in the grocery industry, who operates through a number of independently branded stores, accounted for approximately 21% of Gourmet Foods sales revenues and 33% of Gourmet Foods accounts receivable as compared to 18% and 26% for the prior year ended June 30, 2017, respectively. The second largest in the grocery industry accounted for approximately 12% of Gourmet Foods sales revenues for the year ended June 30, 2018 as compared to 11% for the year ended June 30, 2017. This same group accounted for 16% of Gourmet Foods accounts receivable as of June 30, 2018 as compared to 11% as of June 30, 2017. In the gasoline convenience store market Gourmet Foods supplies two major channels. The largest is a marketing consortium of gasoline dealers operating under the same brand who, for the year ended and balance sheet date of June 30, 2018, accounted for approximately 41% of Gourmet Foods’ gross sales revenues as compared to 43% for the year ended June 30, 2017. No single member of the consortium is responsible for a significant portion of Gourmet Foods’ accounts receivable. The third category of independent retailers and cafes accounted for the remaining balance of Gourmet Foods’ gross sales revenue, however the group members are independently owned and individually responsible for their financial obligations with no one customer accounting for a significant portion of revenues or accounts receivable.

 

Sources and Availability of Materials

 

Gourmet Foods is not dependent upon any one major supplier as many alternative sources are available in the local market place should the need arise. However, the unavailability of, or increase in price in, any of the ingredients on which Gourmet Foods relies to produce its products could harm its operating results for such period.

 

Competition

 

Gourmet Foods faces competition from other commercial-scale manufacturers of meat pies located in New Zealand and Australia. Competitors’ products may be more effective, or more effectively marketed and sold, than any products Gourmet Foods may commercialize. Larger competitors in New Zealand also enjoy a wider and more entrenched market share making it particularly difficult for us to penetrate certain market segments and, even if penetrated, might make it difficult to maintain.

 

 

Seasonality

 

The location of Gourmet Foods in the southern hemisphere provides them with a warm Christmas holiday season and some increased business as customers tend to be traveling and purchase more ready-to-eat foods. The opposing seasons to the northern hemisphere work to offset the corresponding down turn in revenues for Brigadier, our Canadian subsidiary during winter months. Overall, the consolidated business does not experience any material seasonality.

 

Regulation

 

In New Zealand our subsidiary, Gourmet Foods, is required to have certain permits from health regulatory agencies and export permits for certain products it chooses to export. Gourmet Foods is also subject to local regulations as are usual and customary for those in the food processing, manufacturing and distribution business.

 

Intellectual Property

 

Gourmet Foods, Ponsonby Pies and Pat’s Pantry are all registered trademarks of Gourmet Foods, Ltd.

 

Employees

 

Gourmet Foods employs approximately 45 persons in New Zealand.

 

Brigadier

 

On June 2, 2016, Concierge acquired all of the issued and outstanding stock in Brigadier, a Canadian corporation located in Saskatoon, Saskatchewan. Brigadier sells and installs alarm monitoring and security systems to commercial and residential customers under brand names "Brigadier Security Systems" and "Elite Security" throughout the province of Saskatchewan with offices in Saskatoon and Regina.

 

Services, Products and Customers

 

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 Interlogix Authorized dealer and the largest independent security contractor in the province. Brigadier provides comprehensive security solutions including access control, camera systems, and intrusion alarms to home and business owners as well as government offices, schools and public buildings. Brigadier typically sells hardware to customers and a 24/7 monitoring of their premises. The contract for monitoring the premises is then conveyed to a monitoring company in exchange for recurring residuals based on subscriber contracts.

 

Concierge, through Brigadier, is dependent upon its contractual relationship with the alarm monitoring company who purchases the monitoring contracts and provides monitoring services to Brigadier’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 residuals, totaled 41% and 46% of the total Brigadier revenues for the years ended June 30, 2018 and June 30, 2017, respectively. The same customer accounted for approximately 35% of Brigadier's accounts receivable as of the balance sheet date of June 30, 2018 as compared to 40% as of June 30, 2017. Another large account, which is not expected to be a recurring customer, contributed 13% of the total sales revenues for the year ended June 30, 2018 and approximately 7% of the accounts receivable as of June 30, 2018. There were no significant sales to this customer for the year ended June 30, 2017. A recurring customer accounted for approximately 12% of the accounts receivable at June 30, 2018, though total sales for this customer for the year ended June 30, 2017 were insignificant as was the related account receivable at June 30, 2017.

 

Sources and Availability of Materials

 

Brigadier purchases alarm panels, digital and analog cameras, mounting hardware and accessory items needed to complete security installations from a variety of sources. The manufacture of electronic items such as those sought by Brigadier has expanded to a global scale thus providing Brigadier with a broad choice of suppliers. Brigadier bases its vendor selection on several criteria including: price, availability, shipping costs, quality, suitability for purpose and the technical support of the manufacturer.

 

Competition

 

Although it holds a dominant market position in the province of Saskatchewan, Brigadier faces competition from larger, better financed companies that offer similar products and services. In addition, it is possible that Brigadier may face increasing competition as disruptive technologies enter the market. However, with respect to the market share it currently enjoys, Brigadier expects that their core customers will remain loyal and that an opportunity exists to capitalize on the deployment of new technologies. Brigadier's management will continue efforts to capture additional customers through organic growth and a focus on quality.

 

 

Seasonality

 

Brigadier, due to its location in the province of Saskatchewan, Canada, is far enough north that winter weather has a negative effect on its ability to complete some installations, particularly those involving new construction. For this reason, the period from November through March typically produces less revenue than comparison periods during other seasons of the year.

 

Employees

 

Brigadier employs approximately 21 persons in Canada.

 

Original Sprout

 

Kahnalytics was founded in 2015 and adopted the dba/Original Sprout in December 2017 (see Note 12 to the Consolidated Financial Statements). For the year ended June 30, 2017  (prior to the acquisition of the Original Sprout assets), Kahnalytics had incurred de minimis operating losses insignificant to the overall enterprise. Prior to the acquisition of the Original Sprout assets, and as of June 30, 2017, the residual business the company was founded to oversee was being wound down and management expected to transition focus to another industry. As of June 30, 2018, this legacy business has been completely wound down.  Accordingly, the results of operations for the twelve month period ending June 30, 2018 reflects only two quarters of business operations with the newly acquired assets and should not be viewed as indicative of a full twelve month period of operations. Similarly, there is no meaningful comparative data for the twelve month period ending June 30, 2017 as the business of 2017 included nominal subscription sales to a web hosted service and not the wholesale distribution of beauty products as it currently exists. 

 

Products and Customers

 

Original Sprout sells its products through 3 channels to market: 1) direct sales to end users via online shopping cart, 2) distributors who, in turn, sell to other retailers or wholesalers, and 3) to retail stores selling to end users.

 

For the year ended June 30, 2018, Original Sprout, which operated with its current product offering for only 194 days, is not indicative of historical or future operations. For the actual concentration of risk with respect to the current business, focus is given for the period from January 1, 2018 through June 30, 2018 and no comparison exists for the prior year period as no business in this sector was conducted by Original Sprout. Among thousands of customers, Original Sprout does have several major accounts with distributors however no single account represents 10% or more of our annual sales revenues. There were 3 major distributor accounts, all current, representing 10%, 13%, and 20% for a total of 43% of all accounts receivable as of June 30, 2018. There is no comparison data for the prior year as the business operation was only begun as of December 18, 2017.

 

Sources and Availability of Materials

 

Concierge, through Original Sprout, is dependent upon its relationship with a product packaging company who, at the direction of Original Sprout, produces the products in accordance with proprietary formulas, 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. Because of the nature of the Original Sprout product ingredients, some of the ingredients may, at times, be difficult to source in timely fashion or at the expected price point. To safeguard against this possibility Original Sprout endeavors to maintain at least a 90-day supply of all products in stock. Estimating and maintaining a reserve stock account is not a guarantee that a shortage of ingredient supplies will not affect production such that Original Sprout will not exhaust its reserves or be unable to fulfill customer orders.

 

Competition

 

Original Sprout manufactures and distributes only all-natural, 100% vegan, hair and skin care products which we believe differentiate it significantly from other main-stream products. The use of organic and natural products is a growing trend in the U.S. and abroad, and other established brands are beginning to make products for this market. As more entrants to the high-end, organic, hair care segment come into existence it is inevitable that some will be better financed and have more brand recognition and resources than those of Original Sprout. Original Sprout is focused on promoting its own brand name as a recognized pioneer in 100% vegan, safe, effective, hair care products through recruitment of addition distributors, nationwide retail stores, and increased social media presence with the expectation that establishing brand awareness will allow the continued growth of annual revenues and market share protection, though there can be no guarantees that such efforts will be sufficient to offset the effects of competition in the future.

 

 

Seasonality

 

There is no significant seasonality for sales of products for Original Sprout, though sales will fluctuate around traditional holidays, and certain products, such as sun screen, will be lower in winter months than in summer months.

 

Regulation

 

In the U.S. our subsidiary, Original Sprout, is not required to have permits for distribution of its products, however it chooses to gain recognition from certain testing laboratories and other quasi-regulatory agencies for compliance with accepted standards for natural ingredients and lack of toxic chemicals in their formulas and processes. For export, Original Sprout is often compelled to submit its products to foreign government agencies or certified laboratories for ingredient testing prior to being accepted for import as a “safe” product. The Original Sprout products comply with all applicable regulations, both domestic and foreign, in areas where they are sold or distributed.

 

Intellectual Property

 

The formulations and ingredient percentages of the many products of Original Sprout are considered its intellectual property, though many cannot be patented they are maintained as confidential. The names "Original Sprout", "D’Organiques Original Sprout " are registered trademarks of Original Sprout.

 

Employees

 

Original Sprout employees 8 persons on a full time basis at its location in San Clemente, California.

 

Available Information

 

Concierge is required to file annual, quarterly and current reports, proxy statements and other information with the U.S. Securities and Exchange Commission ("SEC"). Investors may read and copy any document that Concierge files, including this Annual Report on Form 10-K, at the SEC's Public Reference Room at 100 F Street, N.E., Room 1580, Washington, DC 20549. Investors may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC, from which investors can electronically access Concierge's SEC filings.

 

We maintain a website at www.conciergetechnology.net . We make available free of charge on or through our website our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as soon as reasonably practicable after we electronically file or furnish such materials to the SEC.

 

 

ITEM 2.          PROPERTIES

 

We own no plants or real property.

 

Facilities

 

Administrative offices are co-located in the facility leased by our subsidiary, Original Sprout, whose mailing address is 1202 Puerta Del Sol, San Clemente, California 92673. The Company pays no rent and has no lease obligations. Our wholly-owned subsidiary, Brigadier, rents facilities in Saskatoon and Regina, Canada. Our wholly-owned subsidiary, Gourmet Foods, rents facilities in Tauranga, New Zealand. Wainwright leases office space in Oakland, California and will move to a new office in Walnut Creek, California with a lease commencing October 1, 2018. We believe that the facilities described herein are adequate for our current and immediately foreseeable operating needs.

 

 

ITEM 3.          LEGAL PROCEEDINGS

 

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

 

 

PART II

 

ITEM 5.          MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Our Common Stock presently trades on the OTC Markets QB Exchange. The high and low bid prices, as reported by OTC Markets, are as follows for fiscal years ended June 30, 2017 and 2018. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. The prices are adjusted for the 1:30 reverse stock split effectuated on December 15, 2017.

 

   

High

   

Low

 
   

Calendar 2016

 

3 rd Quarter

  $ 1.80     $ 0.93  

4 th Quarter

  $ 1.80     $ 1.05  
                 
   

Calendar 2017

 

1 st Quarter

  $ 3.00     $ 1.23  

2 nd Quarter

  $ 3.00     $ 1.47  

3 rd Quarter

  $ 1.79     $ 1.17  

4 th Quarter

  $ 2.15     $ 1.22  
                 
   

Calendar 2018

 

1 st Quarter

  $ 1.61     $ 1.21  

2 nd Quarter

  $ 1.41     $ .90  

 

 

Holders

 

On June 30, 2018, there were approximately 374 registered holders of record of our common stock.

 

Dividends

 

Until the acquisition of Wainwright in the prior year, we have had no retained earnings and have declared no dividends on our capital stock. We have declared no dividends for the current year nor do we expect to in the foreseeable future. Our ability to pay dividends is subject to limitations imposed by Nevada law. Under Nevada law, dividends may be paid to the extent that a corporation’s assets exceed its liabilities and it is able to pay its debts as they become due in the usual course of business. Under Nevada law, a company - such as our company - can pay dividends only

 

 

from retained earnings, and

 

 

and no distribution can be made, if after giving it effect,

 

 

the corporation would not be able to pay its debts as they become due in the usual course of business; or

 

 

except as otherwise specifically allowed by the articles of incorporation, the corporation’s total assets would be less than the sum of its total liabilities plus the amount that would be needed, if the corporation were to be dissolved at the time of distribution, to satisfy the preferential rights upon dissolution of stockholders whose preferential rights are superior to those receiving the distribution.

 

 

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.

 

Penny Stock Regulations

 

Our common stock trades on the OTC Markets QB Exchange at a price less than $5 a share and therefore is subject to the rules governing "penny stocks."

 

A "penny stock" is any stock that:

 

 

sells for less than $5 a share.

 

is not listed on an exchange or authorized for quotation on The NASDAQ Stock Market, and

 

is not a stock of a "substantial issuer." We currently have net tangible assets of at least $2 million which would qualify us as a “substantial issuer”.

 

There are statutes and regulations of the Commission that impose a strict regimen on brokers that recommend penny stocks.

 

 

The Penny Stock Suitability Rule

 

Before a broker-dealer can recommend and sell a penny stock to a new customer who is not an institutional accredited investor, the broker-dealer must obtain from the customer information concerning the person's financial situation, investment experience and investment objectives. Then, the broker-dealer must "reasonably determine" (1) that transactions in penny stocks are suitable for the person and (2) that the person, or his advisor, is capable of evaluating the risks in penny stocks.

 

After making this determination, the broker-dealer must furnish the customer with a written statement setting forth the basis for this suitability determination. The customer must sign and date a copy of the written statement and return it to the broker-dealer.

 

Finally, the broker-dealer must also obtain from the customer a written agreement to purchase the penny stock, identifying the stock and the number of shares to be purchased.

 

The above exercise delays a proposed transaction. It causes many broker-dealer firms to adopt a policy of not allowing their representatives to recommend penny stocks to their customers.

 

The Penny Stock Suitability Rule, described above, and the Penny Stock Disclosure Rule, described below, do not apply to the following:

 

 

transactions not recommended by the broker-dealer,

 

sales to institutional accredited investors,

 

transactions in which the customer is a director, officer, general partner, or direct or indirect beneficial owner of more than 5 percent of any class of equity security of the issuer of the penny stock that is the subject of the transaction, and

 

transactions in penny stocks by broker-dealers whose income from penny stock activities does not exceed five percent of their total income during certain defined periods.

 

The Penny Stock Disclosure Rule

 

Another Commission rule - the Penny Stock Disclosure Rule - requires a broker-dealer, who recommends the sale of a penny stock to a customer in a transaction not exempt from the suitability rule described above, to furnish the customer with a "risk disclosure document." This document is set forth in a federal regulation and contains the following information:

 

 

A statement that penny stocks can be very risky, that investors often cannot sell a penny stock back to the dealer that sold them the stock,

 

A warning that salespersons of penny stocks are not impartial advisers but are paid to sell the stock,

 

The statement that federal law requires the salesperson to tell the potential investor in a penny stock,

 

the "offer" and the "bid" on the stock, and

 

the compensation the salesperson and his firm will receive for the trade,

 

An explanation that the offer price and the bid price are the wholesale prices at which dealers are willing to sell and buy the stock from other dealers, and that in its trade with a customer the dealer may add a retail charge to these wholesale prices,

 

A warning that a large spread between the bid and the offer price can make the resale of the stock very costly,

 

Telephone numbers a person can call if he or she is a victim of fraud,

 

Admonitions -

 

 

to use caution when investing in penny stocks,

 

to understand the risky nature of penny stocks,

 

to know the brokerage firm and the salespeople with whom one is dealing, and

 

to be cautious if one’s salesperson leaves the firm.

 

Finally, the customer must be furnished with a monthly statement including prescribed information relating to market and price information concerning the penny stocks held in the customer's account.

 

Effects of the Rule

 

The above penny stock regulatory scheme is a response by the Congress and the Commission to known abuses in the telemarketing of low-priced securities by "boiler shop" operators. The scheme imposes market impediments on the sale and trading of penny stocks. It has a limiting effect on a stockholder's ability to resell a penny stock.

 

Our shares likely will trade below $5 a share on the OTC Markets exchange and be, for some time at least, shares of a "penny stock" subject to the trading market impediments described above.

 

 

Recent Sales of Unregistered Securities; Outstanding Stock Options

 

The following sets forth certain information concerning securities which were sold or issued by us without the registration of the securities under the Securities Act of 1933 in reliance on exemptions from such registration requirements within the past two years:

 

On December 9, 2016, Concierge acquired all of the issued and outstanding stock in Wainwright, a Delaware corporation, controlled as a group by our CEO and majority shareholder Nicholas Gerber together with affiliated shareholder Scott Schoenberger. The purchase price was paid in a stock-for-stock exchange whereby the sellers of Wainwright shares received in the aggregate a total of 27,293,333 (adjusted for the 1:30 reverse stock split effective December 15, 2017) shares of our common stock and 311,804 (adjusted for the 1:30 reverse stock split effective December 15, 2017) shares of our Series B Voting, Convertible, Preferred stock. The transaction was accounted for as a pooling of interest under common control. We sold no shares of any class of stock and issued no stock options during the past two years.

 

Common Stock issued in the transaction (adjusted for the 1:30 reverse stock split):

 

Date

 

No. of Shares

 

Shareholder

Dec 9, 2016

    1,733,284  

Robert Nguyen & Mitzi Wong-Nguyen

Dec 9, 2016

    1,598,473  

Andrew Ngim & Eleanor Yee

Dec 9, 2016

    3,543,602  

Eliot & Sheila Gerber

Dec 9, 2016

    3,532,387  

Scott & Jennifer Schoenberger

Dec 9, 2016

    9,562,746  

The Nicholas & Melinda Gerber Living Trust

Dec 9, 2016

    5,623,543  

Gerber Family Trust (FBO Jacob & Vasch)

Dec 9, 2016

    577,762  

BJ Gerber Family Trust

Dec 9, 2016

    285,483  

Jerry Goodman

Dec 9, 2016

    305,874  

Michelle Goodman

Dec 9, 2016

    122,350  

Sarah Mason Crook

Dec 9, 2016

    142,742  

Susan Bailey Crook

Dec 9, 2016

    265,091  

Suzanne Glasgow

 

Series B Voting, Convertible, Preferred stock issued in the transaction (adjusted for the 1:30 reverse stock split):

 

Date

 

No. of Shares

 

Shareholder

Dec 9, 2016

    311,804  

The Nicholas & Melinda Gerber Living Trust

 

All of the above unregistered issuances were made pursuant to the exemption from registration provided by the Commission’s Regulation D, Rule 506. All purchasers were either accredited investors or, if not, were provided copies of our recent filings with the Commission including financial statements meeting the requirements of the Commission’s Item 310 of Regulation S-B. All purchasers were provided the opportunity to ask questions of our management.

 

 

ITEM 7.          MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis should be read in conjunction with the 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 annual report on Form 10-K. See "Consolidated Financial Statements."

 

 

Introduction

 

Concierge Technologies, Inc. (“Concierge”) or the (“Company”) conducts business through its wholly-owned operating subsidiaries operating in the U.S., New Zealand and Canada, respectively. The operations of the Company’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.

 

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 Critical Accounting Policies - Major Customers and Suppliers - Concentration of Credit Risk" in the consolidated financial statements for more information.

 

Critical Accounting Policies

 

A summary of our significant accounting policies is described in detail in Note 2 to our Consolidated Financial Statements.

 

Plan of Operation for the Next Twelve Months

 

Our plan of operation for the next twelve months is to apply necessary resources into the business of Original Sprout to grow that business segment to its potential. Additionally, we are expecting moderate growth in Brigadier through focused management initiatives and consolidation within the security industry. Similarly, we expect Gourmet Foods to be operating more efficiently under current management and continue to increase market share through additional product offerings and channels to market, 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. Our long-term mission is to continue with our acquisition strategy by identifying and acquiring profitable, mature, companies of a diverse nature and with in-place management to produce increasing revenue streams. By these initiatives we hope to:

 

 

continue to gain market share for our wholly-owned subsidiaries’ areas of operation,

 

increase our gross revenues and realize net operating profits,

 

lower our operating costs by unburdening certain selling expenses to third party distributors,

 

have sufficient cash reserves to pay down accrued expenses,

 

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

 

achieve efficiencies in accounting and reporting through consolidated operations of our subsidiaries from a management perspective, and

 

strategically pursue additional company acquisitions.

 

  Results of Operations

 

Concierge and Subsidiaries

 

With the acquisition of Wainwright in December 2016, where Wainwright and Concierge have a commonality of ownership and control as represented by the shareholdings, the acquisition has been recorded as a transaction between entities under common control on the Consolidated Balance Sheets of the Company. Further, the Consolidated Statements of Operations and Comprehensive Income have been adjusted to include the carrying value of operations of Wainwright as if the transaction had concluded on July 1, 2015.

 

For the Year Ended June 30, 201 8 Compared to the Year Ended June 30, 201 7

 

Operating Income

 

Concierge produced an operating income for the year ended June 30, 2018 of $2.8 million as compared to $6.7 million for the year ended June 30, 2017. This represents a decrease in operating income of $3.9 million for the year ended June 30, 2018 when compared to the year ended June 30, 2017, or approximately 58%. The decrease in operating income was primarily attributable to lower fund management revenue from Wainwright due to lower AUM  along with transaction costs incurred while acquiring the assets of Original Sprout LLC and increased advertising and marketing costs during the current year connected to the launching of new product offerings.

 

Other Expenses  

 

Other expense, including provision for income tax of $0.8 million and $1.6 million, for the years ended June 30, 2018 and 2017 were $1.1 million and $1.5 million for the years ended June 30, 2018 and 2017, respectively, resulting in a net income of $1.7 million and $5.2 million, respectively. After giving consideration to currency translation losses of $214 thousand and a short-term investment valuation increase of $244 thousand our  comprehensive income for the year ended June 30, 2018 was $1.8 million as compared to the year ended June 30, 2017 where there was a currency translation gain of $113 thousand and a short-term investment valuation increase of $36 thousand resulting in comprehensive income of $5.3 million. Comprehensive gain and loss are comprised of fluctuations in foreign currency exchange rates and effects the valuation of our holdings in New Zealand and Canada.

 

 

Net Income

 

Overall, the net income between the year ended June 30, 2018 as compared to the year ended June 30, 2017 decreased by $3.5 million or approximately 67% to $1.7 million. The reduction in profits for the year ended June 30, 2018 was primarily attributable to lower fund management revenue from Wainwright due to lower AUM, partially offset by decreases in Wainwright variable operating expenses, and general and administrative costs of $0.8 million, but also included one-time transaction costs to acquire the Original Sprout assets and marketing costs associated with the launch of new funds increased. Management is pursuing a less aggressive acquisition strategy and expects the transaction costs to diminish over the coming fiscal year and the assets under management are expected to increase from June 2018 averages, along with associated revenues. While net revenues decreased as a result of the lower assets under management from our fund management business by approximately $5.2 million for the year ended June 30, 2018 as compared to the year ended June 30, 2017, the corporation's net revenues derived from its other operating subsidiaries have increased by approximately $1.9 million over the same period, resulting in a net reduction to revenue in fiscal year 2018 of approximately $3.3 million.

 

Income Tax

 

Provision for income tax for the years ended June 30, 2018 and 2017 are $0.8 million and $1.6 million, respectively, primarily attributable to our United States operations through our Wainwright subsidiary. The decrease in income tax for the year is mainly attributable to lower net profits, a lower effective tax rate for the second half of the year resulting from the enactment of new tax laws taking effect January 1 st  of the fiscal year which reduced deferred tax assets and increased the tax provision by $0.5 million.  

 

Wainwright Holdings

 

Wainwright was founded as a holding company in March 2004 as a Delaware corporation with one subsidiary, Ameristock Corporation, which was an investment adviser to Ameristock Mutual Fund, Inc., a registered 1940 Act large cap value equity fund. In January 2010, Ameristock Corporation was spun off as a standalone company. In May 2005, USCF was formed as a single member limited liability company in the state of Delaware. In June 2013, USCF Advisers was formed as a Delaware limited liability company and in July 2014, was registered as an investment adviser under the Investment Advisers Act of 1940, as amended. In November 2013, the USCF Advisers board of managers formed USCF ETF Trust (“ETF Trust”) and in 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.  As of June 30, 2018, USCF Advisers advises three exchange traded funds (“ETFs”) and one commodity mutual fund registered with the SEC under the Investment Company Act of 1940. Wainwright and subsidiaries USCF and USCF Advisers are collectively referred to as “Wainwright” hereafter. 

 

USCF is currently the General Partner in the following Securities Act of 1933 LP commodity based index funds and Sponsor (“Sponsor”) for the fund series within the United States Commodity Index Funds Trust (“USCIF Trust”) and the USCF Funds Trust (“USCF Funds Trust”):

  

USCF as General Partner for the following funds:

United States Oil Fund, LP (“USO”)

Organized as a Delaware limited partnership in May 2005

United States Natural Gas Fund, LP (“UNG”)

Organized as a Delaware limited partnership in November 2006

United States Gasoline Fund, LP (“UGA”)

Organized as a Delaware limited partnership in April 2007

United States Diesel Heating Oil Fund, LP (“UHN”)

Organized as a Delaware limited partnership in April 2007; 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

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

A commodity pool formed in May 2017 and made public July 2017

 

 

In addition, USCF is the sponsor of the USCF Funds Trust and the USCIF Trust. The USCF Funds Trust with its series, the REX S&P MLP Fund (“RMLP”) and the REX S&P MLP Inverse Fund (“MLPD”), were in registration and had not commenced operations (together, the “REX Funds”) prior to both fund filing to withdraw from registration on March 30, 2018. The USCIF Trust, with its USCF Canadian Crude Oil Index Fund ("UCCO"), is currently in registration but has not commenced operations.

 

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

 

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

  

For the Year Ended June 30, 201 8 , Compared to the Year Ended June 30, 201 7

 

Revenue

 

Average AUM for the year ended June 30, 2018 was at $3.4 billion, as compared to approximately $4.5 billion from the year ended June 30, 2017 primarily due to a decrease in USO AUM. As a result, the revenues from management and advisory fees decreased by approximately $5.2 million, or 22%, to $18.7 million for the year ended June 30, 2018 as compared to the year ended June 30, 2017 where revenues from management and advisory fees totaled $23.9 million.

 

  Expenses

 

Wainwright’s total operating expenses for year ended June 30, 2018 decreased by $1.4 million to $15.5 million, or approximately 8%, from $16.9 million for the year ended June 30, 2017. Variable expenses, as described above, decreased by $1.0 million over the respective twelve-month period due to due to lower AUM which reduced variable marketing and distribution expenses, sub-advisory fees and other variable costs, but were partially offset by operating costs of new funds and fixed minimum costs of smaller funds. General and Administrative expenses decreased $1.0 million to $2.5 million for the year ended June 30, 2018 from $3.5 million for the year ended June 30, 2017 due to decreases in legal and professional fees and new fund startup expenses. Total marketing expenses had no significant change for the year ended June 30, 2018 as compared to the prior year period even though advertising expenses increased substantially by $0.5 million from an increase in advertising and branding efforts offset by a  $0.5 million reduction in variable distribution costs as a result of lower AUM. Employee Salaries and Compensation expenses were approximately $4.6 million and $4.5 million for the years ended June 30, 2018 and June 30, 2017, respectively, due to a full year with an additional employee.

 

Income

 

Income before taxes for the year ended June 30, 2018 decreased $4.1 million to $2.9 million from $7.0 million for year ended June 30, 2017 due to $5.2 million in lower revenue as a result of lower AUM, offset by a $1.4 million  reduction in operating expenses along with an increase of $0.3 million in other expenses relating to a write-off of a note receivable and realized losses relating to a hedge offsetting unrealized gains on Wainwright's  USCF mutual fund investment.

 

 

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 the foreign currency translations are included in Accumulated Other Comprehensive Income found on the Consolidated Balance Sheets.

 

For the Year Ended June 30, 2018, Compared to the Year Ended June 30, 2017

 

Net revenues for the year ended June 30, 2018 were $5 million with cost of goods sold of $3.5 million resulting in a gross profit of $1.5 million as compared to the year ended June 30, 2017 where net revenues were $4.8 million; cost of goods sold were $3.3 million; and gross profit was $1.5 million.

 

General, administrative and selling expenses, including wages and marketing, for the years ended June 30, 2018 and 2017 were $1.1 million and $1.1 million producing operating income of $0.4 million and $0.3 million, respectively, or approximately 8% net operating profit for 2018, 7% for 2017.

 

The depreciation expense, income tax provision and other expense totaled $0.3 million for the year ended June 30, 2018 as compared to $0.3 million for the year ended June 30, 2017, resulting in a net income of approximately $99 thousand as compared to a net income of $14 thousand, respectively.

 

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 Interlogix Authorized dealer and the largest independent security contractor in the province. Brigadier provides comprehensive security solutions including access control, camera systems, and intrusion alarms to home and business owners as well as government offices, schools and public buildings. Brigadier typically sells hardware to customers and a 24/7 monitoring of their premises. The contract for monitoring the premises` is then conveyed to a monitoring company in exchange for recurring residuals based on subscriber contracts.

 

Brigadier operates exclusively in Canada and thus the Canadian dollar is its functional currency. In order to consolidate Concierge’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 the foreign currency translations are included in Accumulated Other Comprehensive Income found on the Consolidated Balance Sheets.

 

For the Year Ended June 30, 2018, Compared to the Year Ended June 30, 2017

 

Net revenues for the year ended June 30, 2018 were $3.3 million with cost of goods sold recorded as approximately $1.5 million, resulting in a gross profit of approximately $1.8 million with a gross margin of approximately 55% as compared to the year ended June 30, 2017 where net revenues were approximately $3.1 million with cost of goods sold of $1.3 million and a gross profit of $1.8 million, or approximately 57%.

 

General, administrative and selling expenses for the year ended June 30, 2018 were $1.4 million producing an operating profit of $0.4 million or approximately 13% as compared to the year ended June 30, 2017 where operating profits were $0.5 million, or approximately 15%, with general, administrative and selling expenses of $1.3 million.

 

Other expense comprised of depreciation, income tax, interest income, other income, and gain on sale of assets totaled approximately $31 thousand for the year ended June 30, 2018 resulting in income after income taxes of approximately $0.4 million as compared to income after income taxes of approximately $0.3 million for the year ended June 30, 2017 where other expense totaled $142 thousand.

 

Original Sprout

 

Kahnalytics was founded in 2015 and adopted the dba/Original Sprout in December 2017 (see Note 12 to the Consolidated Financial Statements). For the year ended June 30, 2017  (prior to the acquisition of the Original Sprout assets), Kahnalytics had incurred de minimis operating losses insignificant to the overall enterprise. Prior to the acquisition of the Original Sprout assets, and as of June 30, 2017, the residual business the company was founded to oversee was being wound down and management expected to transition focus to another industry. As of June 30, 2018, this legacy business has been completely wound down.  Accordingly, the results of operations for the twelve month period ending June 30, 2018 reflects only two quarters of business operations with the newly acquired assets and should not be viewed as indicative of a full twelve month period of operations. Similarly, there is no meaningful comparative data for the twelve month period ending June 30, 2017 as the business of 2017 included nominal subscription sales to a web hosted service and not the wholesale distribution of beauty products as it currently exists. As a result, only the operating results for the twelve months ended June 30, 2018 are included below.

 

For the Year Ended June 30, 2018

 

Net revenues for the year ended June 30, 2018 were $1.7 million with cost of goods sold recorded as approximately $0.9 million resulting in a gross profit of approximately $0.8 million and a gross margin of approximately 47%. General, administrative and selling expenses were approximately $0.6 million resulting in an operating income of approximately $0.2 million or approximately 10%. After consideration given to income tax provision, other income, and depreciation expense, the net income for the year ended June 30, 2018 was approximately $43 thousand.

 

 

 

Liquidity and Capital Resources

 

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

 

As of June 30, 2018, we had $7.5 million of cash and cash equivalents on a consolidated basis as compared to $6.7 million as of June 30, 2017. The increase in cash was a direct result of operating profits realized in our subsidiary operations together with a slightly higher amount of accounts payable as of June 30, 2018 compared to June 30, 2017.

 

During current year Concierge has invested approximately $2.5 million in cash towards purchasing and assimilating the Original Sprout assets into the Concierge Technologies group of companies. During the previous two years ended June 30, 2015 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. Despite these cash investments, our working capital position remains strong at $7.5 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 general and administrative expenses for the coming fiscal year and to adequately pursue its long term business objectives.

 

Borrowings

 

As of June 30, 2018, we had $0.8 million of related-party and third-party indebtedness on a consolidated basis as compared to $0.7 million as of June 30, 2017. Concierge, without inclusion of its subsidiary companies, as of June 30, 2018 and June 30, 2017, had $0.6 million of indebtedness. We are not required to make interest payments on our notes until the maturity date.

 

Current related party notes payable consist of the following:

 

   

June 30, 201 8

   

June 30, 201 7

 

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  

 

On April 8, 2016 and May 25, 2016, the Company entered into convertible promissory note agreements (the “Promissory Notes”) with the Gerber Irrevocable Family Trust, an affiliate of our shareholder and CEO, that resulted in the funding of $350,000 and with the Schoenberger Family Trust, an affiliate of our shareholder and director, that resulted in the funding of $250,000, respectively. The Promissory Notes bear interest at four percent (4%) per annum and increases to nineteen percent (19%) in the event of default by the Company. The Company and the noteholder negotiated the interest rate at arm’s length relying upon the available market rate for long-term deposits at financial institutions as well as the current rate of return realized by the noteholder for cash deposits currently held. Larger deposits traditionally fall into a “Jumbo” rate category with marginally higher returns. Interest ranged from annual percentage rates of 0.01% at the lowest to 1.75% at the highest. Recognizing the unsecured nature of the promissory note, and the historical record of continued operating losses by the Company, a rate of 4 percent annual interest was agreed upon in light of the heightened default risk over traditional investment instruments. There was no beneficial conversion feature identified as of the date of issuance of the Promissory Notes.

 

During the prior eighteen months, our subsidiary Brigadier has been purchasing new service vehicles to replace the aging leased vehicle fleet. The new vehicles are, in part, financed by a Saskatchewan-based bank through an installment loan agreement related to each vehicle collateralized individually as the vehicles are delivered. As of June 30, 2018 Brigadier had, in the aggregate, an outstanding principal balance of CD$257,816 (approximately US$196,200). The loan principal together with interest is amortized over 60 equal monthly installments. (Refer to Note 11 in the Consolidated Financial Statements)

 

 

Investments

 

Wainwright, from time to time, provides initial investments in the creation of ETP funds that Wainwright manages. Wainwright classifies these investments as current assets as these investments are generally sold within one year from the balance sheet date. These investments are described further in Note 7 to our Financial Statements.

 

Reverse Stock Split

 

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.

 

 Goodwill

 

 Goodwill is comprised of the following amounts:

 

 

 

As of June 30, 2018

 

 

As of June 30, 2017

 

 

 

 

 

 

 

 

 

 

Goodwill – Original Sprout

 

 

416,817

 

 

 

-

 

Goodwill – Gourmet Foods

 

 

147,628

 

 

 

147,628

 

Goodwill - Brigadier

 

 

351,345

 

 

 

351,345

 

Total

 

$

915,790

 

 

$

498,973

 

 

 The Company tests for goodwill impairment at each reporting unit. There was no goodwill impairment for the year ended June 30, 2018 or June 30, 2017.

 

Distributions

 

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. Prior to the acquisition of Wainwright we had no retained earnings and had declared no dividends on our capital stock. Subsequent to the acquisition of Wainwright, we have paid no dividends and we do not expect to pay any dividends over the next fiscal year.

 

Off-Balance Sheet Arrangements

 

As of September 28, 2018, we have not entered into any transaction, agreement or other contractual arrangement with an entity unconsolidated with us under which we have:

 

 

An obligation under a guarantee contract,

 

A retained or contingent interest in assets transferred to the unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to such entity for such assets,

 

An obligation, including a contingent obligation, arising out of a variable interest in an unconsolidated entity that is held by, and material to, us where such entity provides financing, liquidity, market risk or credit risk support to, or engages in leasing, hedging, or research and development services with us.

 

ITEM 8.          FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Our financial statements appear as follows:

 

Report of Independent Registered Public Accounting Firm

 

F-1

Consolidated Balance Sheets, as of June 30, 2018 and 2017

 

F-2

Consolidated Statements of Operations for the years ended June 30, 2018 and 2017

 

F-3

Consolidated Statements of Comprehensive Income (Loss) for the years ended June 30, 2018 and 2017

 

F-4

Statements of Changes in Stockholders’ Equity (Deficit), for the years ended June 30, 2018 and 2017

 

F-5

Consolidated Statements of Cash Flows, for the years Ended June 30, 2018 and 2017

 

F-6

Notes to Consolidated Financial Statements

 

F-7

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Board of Directors and
Stockholders of Concierge Technologies, Inc. and Subsidiaries

 

Opinion on the Consolidated Financial Statements

 

We have audited the accompanying consolidated balance sheets of Concierge Technologies, Inc. and its subsidiaries (the "Company") as of June 30, 2018 and 2017, the related consolidated statements of operations, comprehensive income, convertible preferred stock and stockholders’ equity, and cash flows, for each of the two years in the period ended June 30, 2018, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2018 and 2017, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2018, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

 

/s/ BPM LLP

 

We have served as the Company's auditor since 2017.

 

San Francisco, California

September 28, 2018

 

 

 

CONCIERGE TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

   

June 30, 2018

   

June 30, 2017

 

 

 
ASSETS  
               

CURRENT ASSETS

               

Cash and cash equivalents

  $ 7,524,114     $ 6,730,486  

Accounts receivable, net

    1,068,240       871,570  

Accounts receivable - related parties

    1,458,159       1,762,271  

Inventories

    931,065       444,274  

Prepaid income tax and tax receivable

    2,138,636       1,276,540  

Investments

    3,204,005       3,578,749  

Other current assets

    374,617       369,599  

Total current assets

    16,698,836       15,033,489  
                 

Restricted cash

    13,536       14,870  

Property and equipment, net

    1,080,471       1,159,465  

Goodwill

    915,790       498,973  

Intangible assets, net

    2,995,231       899,276  

Deferred tax assets, net

    865,120       1,480,272  

Other assets, long - term

    532,165       509,538  

Total assets

  $ 23,101,149     $ 19,595,883  
                 

LIABILITIES, CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS' EQUITY

 
                 

CURRENT LIABILITIES

               

Accounts payable and accrued expenses

  $ 3,249,387     $ 2,842,855  

Expense waivers – related parties

    662,650       589,093  

Purchase consideration payable

    1,205,000       -  

Notes payable - related parties

    3,500       3,500  

Equipment loans

    46,705       17,388  

Total current liabilities

    5,167,242       3,452,836  
                 

LONG TERM LIABILITIES

               

Notes payable - related parties

    600,000       600,000  

Equipment loans, net of current portion

    149,491       72,605  

Deferred tax liabilities

    208,419       258,601  

Total liabilities

    6,125,152       4,384,042  
                 

Commitments and Contingencies (Note15)

               
                 

Convertible preferred stock, $0.001 par value; 50,000,000 shares authorized Series B: 0 issued and outstanding at June 30, 2018 and 436,951 at June 30, 2017 1

    -       2,011,934  
      -       2,011,934  
                 

STOCKHOLDERS' EQUITY

               

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

               

Series B: 436,951 issued and outstanding at June 30, 2018 and 0 at June 30, 2017

    437       -  

Common stock, $0.001 par value; 900,000,000 shares authorized; 29,559,139 shares issued and outstanding at June 30, 2018 and June 30, 2017 1

    29,559       29,559  

Additional paid-in capital

    9,186,132       7,174,635  

Accumulated other comprehensive income

    148,808       119,338  

Retained earnings

    7,611,061       5,876,375  

Total stockholders' equity

    16,975,997       13,199,907  

Total liabilities, convertible preferred stock, and stockholders' equity

  $ 23,101,149     $ 19,595,883  

 

  1 Share amounts adjusted for 1:30 reverse stock split (Note 13)

 

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

 

 

 

CONCIERGE TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

 

   

Year Ended

   

Year Ended

 
   

June 30, 201 8

   

June 30, 201 7

 
           

 

 
                 

Net revenue

               

Fund management - related party

  $ 18,744,313     $ 23,926,065  

Food products

    4,968,158       4,791,996  

Security alarm monitoring

    3,303,584       3,136,733  

Beauty products and other

    1,694,534       156,327  

Net revenue

    28,710,589       32,011,121  
                 

Cost of revenue

    5,914,719       4,850,231  
                 

Gross profit

    22,795,870       27,160,890  
                 
                 

Operating expense

               

General and administrative expense

    4,828,241       5,627,235  

Fund operations

    4,933,437       5,431,408  

Marketing and advertising

    3,554,507       3,434,228  

Depreciation and amortization

    576,674       418,840  

Salaries and compensation

    6,096,232       5,519,079  

Total operating expenses

    19,989,091       20,430,790  

 

               
Income from operations     2,806,779       6,730,100  

 

               
                 

Other (expense) income:

               

Other (expense) income

    (316,337

)

    64,039  

Interest and dividend income

    111,929       3,177  

Interest expense

    (101,089

)

    (21,582

)

Total other (expense) income, net

    (305,497

)

    45,634  
                 

Income before income taxes

    2,501,282       6,775,734  
                 

Provision of income taxes

    766,596       1,589,403  
                 

Net income

  $ 1,734,686     $ 5,186,331  
                 

Weighted average shares of common stock 1

               

Basic

    29,559,139       29,559,139  

Diluted

    38,298,159       38,298,159  
                 

Net income per common share

               

Basic

  $ 0.06     $ 0.18  

Diluted

  $ 0.05     $ 0.14  

 

  1 Share amounts adjusted for 1:30 reverse stock split (Note 13)

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

 

 

 

CONCIERGE TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

   

Year Ended

   

Year Ended

 
   

June 30, 201 8

   

June 30, 201 7

 
           

 

 
                 

Net income

  $ 1,734,686     $ 5,186,331  
                 

Other comprehensive income (loss):

               

Foreign currency translation (loss) gain

    (214,284

)

    113,444  

Changes in short-term investment valuation

    243,754       36,197  

Comprehensive income

  $ 1,764,156     $ 5,335,972  

 

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

 

 

 

CONCIERGE TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF  CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)

FOR THE YEARS ENDED JUNE 30, 201 8 AND 201 7

 

   

Preferred Stock

(Series B)

   

Common Stock

   

 

           

 

 

   

 

 
   

Number of

Shares

   

Amount

   

Number of

Shares

   

Par

Value

   

Additional

Paid - in

Cap it al

   

Accumulated

Other Comprehensive (Loss) Income

   

Accumulated

Retained

Earnings

   

Total

Stockholders' Equity

 

Balance at July 1, 2016

    436,951     $ 2,011,934       29,559,139     $ 29,559     $ 7,174,635     $ (30,303

)

  $ 690,044     $ 7,863,935  
                                                                 
   Change in investment valuation     -       -       -       -       -       36,197       -       36,197  
   Gain  on currency translation for the year     -       -       -       -       -       113,444       -       113,444  
Net income for the year     -       -       -       -       -       -       5,186,331       5,186,331  

Balance at June 30, 2017

    436,951     $ 2,011,934       29,559,139     $ 29,559     $ 7,174,635     $ 119,338     $ 5,876,375     $ 13,199,907  

Reclassification of Series B Preferred stock par value (1)

    -       437       -       -       -       -       -       437  

Reclassification of Series B Preferred stock to additional paid-in capital (1)

    -       (2,011,497 )     -       -       2,011,497       -       -       2,011,497  

Stockholders' equity following reverse stock split (1)

    436,951       437       29,559,139     $ 29,559     $ 9,186,132     $ 119,338     $ 5,876,375       15,211,841  

Change in investment valuation

    -       -       -       -       -       243,754       -       243,754  

(Loss) on currency translation for the year ended June 30, 2018

    -       -       -       -       -       (214,284 )     -       (214,284 )

Net income for the year ended June 30, 2018

    -       -       -       -       -       -       1,734,686       1,734,686  

Balance at June 30, 2018

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

 

Note (1) Upon issuance of the preferred shares in the Wainwright acquisition, the Company no longer had sufficient authorized, unissued, common stock to allow for Series B conversion. Accordingly, the Series B was reclassified to the mezzanine section. On December 15, 2017 a 1:30 reverse stock split was completed and allowed for the Series B shares to be moved from the mezzanine section to stockholders' equity. All share amounts have been adjusted for the reverse stock split (Note 13).

 

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

 

 

 

CONCIERGE TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   

For the years ended

 
   

201 8

   

201 7

 
CASH FLOWS FROM OPERATING ACTIVITIES:                
    Net income   $   1,734,686     $  5,186,331  
    Adjustments to reconcile net income to net cash provided by operating activities:                

   Depreciation and amortization

    576,674       418,840  
       Deferred taxes     564,992       (314,294 )
Bad debt expense     51,747       -

 

Loss (gain) on sale of investments

    356,074       (2,399

)

(Gain) on disposal of equipment

    (8,364 )     (4,341 )

 

             

 

(Increase) decrease in current assets:

               

Accounts receivable

    7,137       (24,890 )

Accounts receivable - related party

    304,112       361,834

 

Prepaid income taxes

    (906,085 )     (918,230

)

Inventory

    (162,388 )     (2,109

)

Other current assets

    4,045       (101,725

)

Increase (decrease) in current liabilities:

               

Accounts payable and accrued expenses

    406,126       449,756  

Expense waivers payable - related party

    73,557       140,163  

Conversion of loan to other income

    -

 

    (8,500

)

Net cash provided by operating activities

    3,002,213       5,180,436  
                 

CASH FLOWS FROM INVESTING ACTIVITIES:

               
       Cash paid for acquisition of business assets     (2,277,172 )     (214,035 )

Purchase of equipment - net of disposals

    (318,064

)

    (259,017

)

Sale of investments

    1,372,019       227,632  

Purchase of investments

    (1,109,596

)

    (3,766,111

)

Net cash used in investing activities

    (2,332,813 )     (4,011,531

)

                 

CASH FLOWS FROM FINANCING ACTIVITIES:

               

Proceeds of equipment loan

    178,604       88,383  

Repayment of equipment loan

    (67,660 )     -

 

Repayment of loans from related parties

    -       (5,000 )

Net cash provided by financing activities

    110,944       83,383  
                 
                 
                 

Effect of exchange rate change on cash and cash equivalents

    13,184       24,090  
                 

NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

    793,628       1,276,378  
                 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING BALANCE

    6,730,486       5,454,107  
                 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, ENDING BALANCE

  $ 7,524,114     $ 6,730,486  
                 
                 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

               

Cash paid during the period for:

               

Interest paid

  $ -     $ 5,000  

Income taxes paid, U.S.

  $ 965,272     $ 2,475,800  
       Purchase consideration payable (see Note 12)   $ 1,205,000     $ -  

 

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

 

 

 

NOTE 1.      ORGANIZATION AND DESCRIPTION OF BUSINESS

 

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

 

 

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

 

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

 

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

 

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

 

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

 

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

 

 

NOTE 2.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation and Accounting Principles

 

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

 

Principles of Consolidation

 

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

 

Wainwright was acquired during the prior fiscal year. Due to the commonality of ownership and control between the two companies, the transaction has been accounted for as a transaction between entities under common control (Refer to Note 12 of the Consolidated Financial Statements). The accompanying Financial Statements as of June 30, 2018 and June 30, 2017 include the assets, liabilities and the results of operations of Wainwright at carrying amounts as though the transaction and exchange of equity interests has occurred at the beginning of the comparative period, or July 1, 2016.

 

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, Related Parties and Accounts Receivable, net

 

Accounts receivable -related parties, consist of fund asset management fees receivable from the Wainwright business. Management fees receivable generally consist of one month of management fees which are collected in the month after they are earned. As of June 30, 2018 and June 30, 2017, there is no allowance for doubtful accounts as all amounts are deemed collectible.

 

Accounts receivable, net, consist of receivables from the Brigadier, Gourmet Foods and Original Sprout businesses. The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management regularly reviews the composition of accounts receivable and analyzes customer credit worthiness, customer concentrations, current economic trends and changes in customer payment patterns. Reserves are recorded primarily on a specific identification basis. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. As of June 30, 2018 and June 30, 2017, the Company had $51,747 and nil, respectively, recorded in doubtful accounts.

 

Major Customers and Suppliers – Concentration of Credit Risk

 

Concierge, through Brigadier, is dependent upon its contractual relationship with the alarm monitoring company who purchases the monitoring contracts and provides monitoring services to Brigadier’s customers. Sales to the largest customer, which includes contracts and recurring monthly residuals, totaled 41% and 46% of the total Brigadier revenues for the years ended June 30, 2018 and June 30, 2017, respectively. The same customer accounted for approximately 35% of Brigadier's accounts receivable as of the balance sheet date of June 30, 2018 as compared to 40% as of June 30, 2017. Another large account, which is not expected to be a recurring customer, contributed 13% of the total sales revenues for the year ended June 30, 2018 and approximately 7% of the accounts receivable as of June 30, 2018. There were no significant sales to this customer for the year ended June 30, 2017.

 

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. For the year ended and balance sheet date of June 30, 2018, Gourmet Foods’ largest customer in the grocery industry, who operates through a number of independently branded stores, accounted for approximately 21% of Gourmet Foods sales revenues and 33% of Gourmet Foods accounts receivable as compared to 18% and 26% for the prior year ended June 30, 2017, respectively. The second largest in the grocery industry accounted for approximately 12% of Gourmet Foods sales revenues for the year ended June 30, 2018 as compared to 11% for the year ended June 30, 2017. This same group accounted for 16% of Gourmet Foods accounts receivable as of June 30, 2018 as compared to 11% as of June 30, 2017. In the gasoline convenience store market Gourmet Foods supplies two major channels. The largest is a marketing consortium of gasoline dealers operating under the same brand who, for the year ended and balance sheet date of June 30, 2018, accounted for approximately 41% of Gourmet Foods’ gross sales revenues as compared to 43% for the year ended June 30, 2017. 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 accounts for over 10% of the gross revenues.There were 3 major distributor accounts, all current, representing 10%, 13%, and 20% for a total of 43% of all accounts receivable as of June 30, 2018. There is no comparison data for the prior year as the business operation was only begun as of December 18, 2017. Original Sprout is dependent upon its relationship with a product packaging company who, at the direction of Original Sprout, manufactures the products, packages them in appropriate containers, and delivers the finished goods to Original Sprout for distribution to its customers. All of Original Sprout’s products are currently produced by this packaging company, although if this relationship were to fail there are other similar packaging companies available to Original Sprout at competitive pricing.

 

For our subsidiary, Wainwright, the concentration of risk and the relative reliance on major customers are found within the various funds it manages and the associated 12 month revenues and accounts receivable – related parties as of June 30, 2018 and June 30, 2017 as depicted below.

 

   

Year ended June 30, 201 8

   

Year ended June 30, 2017

 
   

Revenue

   

Revenue

 

Fund

                               

USO

  $ 9,752,223       52

%

  $ 13,761,317       58

%

USCI

    4,253,921       23

%

    4,865,171       20

%

UNG

    2,753,723       15

%

    3,118,432       13

%

All Others

    1,984,446       10

%

    2,181,145       9

%

Total

  $ 18,744,313       100

%

  $ 23,926,065       100

%

 

 

   

June 30, 201 8

   

June 30, 201 7

 
   

Accounts Receivable

   

Accounts Receivable

 

Fund

                               

USO

  $ 674,535       46

%

  $ 1,060,421       60

%

USCI

    431,288       30

%

    317,032       18

%

UNG

    182,399       12

%

    217,760       12

%

All Others

    169,937       12

%

    167,058       10

%

Total

  $ 1,458,159       100

%

  $ 1,762,271       100

%

 

Inventor ies

 

Inventories, consisting primarily of food products and packaging in New Zealand, hair and skin care finished products and components in the U.S. and security system hardware in Canada, are valued at the lower of cost (determined on a FIFO basis) or net realizable value. Inventories include product cost, inbound freight and warehousing costs where applicable. Management compares the cost of inventories with the net realizable value and an allowance is made for writing down the inventories to their net realizable value, if lower. For the years ended June 30, 2018 and 2017 impairment to inventory value was recorded as $0 and $2,090, respectively. An assessment is made at the end of each fiscal year to determine what slow-moving inventory items, if any, should be deemed obsolete and written down to their estimated net realizable value. As of June 30, 2018 and June 30, 2017, 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 Consolidated Financial Statements). 

 

Category

 

Estimated Useful Life (in years)

 

Plant and equipment:

    5 to 10  

Furniture and office equipment:

    3 to 5  

Vehicles

    3 to 5  

 

Intangible Assets

 

Intangible assets consist of brand names, domain names, recipes, non-compete agreements and customer lists. Intangible assets with finite lives are amortized over the estimated useful life and are evaluated for impairment at least on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The Company assesses recoverability by determining whether the carrying value of such assets will be recovered through the discounted expected future cash flows. If the future discounted cash flows are less than the carrying amount of these assets, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the assets. There was no impairment recorded for the year ended June 30, 2018 or for the year ended June 30, 2017.

 

Goodwill

 

Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in a purchase businesses combination. Goodwill is tested for impairment on an annual basis during the fourth quarter of our fiscal year, or more frequently if events or changes in circumstances indicate that the carrying amount of goodwill may be impaired. The goodwill impairment test is a two -step test. Under the first step, the fair value of the reporting unit is compared with its carrying value including goodwill. If the fair value of the reporting unit exceeds its carrying value, step two does not need to be performed. If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit and the enterprise must perform step two of the impairment test. Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill. There was no impairment recorded for the year ended June 30, 2018 or for the year ended June 30, 2017

 

 

Impairment of Long-Lived Assets

 

The Company tests long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value. There was no impairment recorded for the years ended June 30, 2018 or 2017.

 

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

 

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

 

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

 

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

 

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

 

 

 

 

Revenue Recognition

 

Revenue consists of fees earned through management of investment funds, sale of gourmet meat pies and related bakery confections in New Zealand, security alarm system installation and monitoring service in Canada, and wholesale distribution of hair and skin care products. Revenue is accounted for net of sales taxes, sales returns, and trade discounts. Revenue is recognized when persuasive evidence of an arrangement exists, the price is fixed or determinable, the delivery has occurred, no other significant obligations of the Company exist, and collectability is probable. Product is considered delivered to the customer once it has been shipped and title, risk of loss and rewards of ownership have been transferred. For most of the Company’s product sales or services, these criteria are met at the time the product is shipped, the subscription period commences, or the management fees are accrued.

 

Income Taxes

 

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

 

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

 

Advertising Costs

 

The Company expenses the cost of advertising as incurred. Marketing and advertising costs for the years ended June 30, 2018 and 2017 were $3.6 million and $3.4 million, respectively.

 

Other Comprehensive Income (Loss) and Foreign Currency Translation

 

Foreign Currency Translation

 

We record foreign currency translation adjustments and transaction gains and losses in accordance with ASC 830 - 30, Foreign Currency Translation . The accounts of Gourmet Foods use the New Zealand dollar as the functional currency. The accounts of Brigadier Security System use the Canadian dollar as the functional currency. Assets and liabilities are translated at the exchange rate on the balance sheet date, and operating results are translated at the weighted average exchange rate throughout the period. Foreign currency transaction gains and (losses) can also occur if a transaction is settled in a currency other than the entity's functional currency. Accumulated currency translation gains and (losses) are classified as an item of accumulated other comprehensive income (loss) in the stockholders’ equity section of the consolidated balance sheet. Other comprehensive income, foreign currency translation (loss) gain was approximately ( $214 ) thousand and $113 thousand for the years ended June 30, 2018 and 2017, respectively.

 

Short-term Investment Valuation

 

Other comprehensive income attributed to changes in the valuation of short-term investments held for sale by Wainwright was approximately $244 thousand and $36 thousand for the years ended June 30, 2018 and 2017, respectively.

 

Segment Reporting

 

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

 

 

Business Combinations

 

We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired users, acquired trade names from a market participant perspective, useful lives and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed. For the years ended June 30, 2018 and 2017 a determination was made that no adjustments were necessary.

 

Recent Accounting Pronouncements adopted Subsequent to June 30, 2017  

 

The Company has reviewed new accounting pronouncements issued between October 13, 2017, the filing date of our most recent prior Annual Report on Form 10 -K, and the filing date of this Annual Report on Form 10 -K and has determined that no pronouncements issued are relevant to the Company, other than as listed below, have, or will have, a material impact on the Company’s consolidated financial position, results of operations or disclosure requirements.

 

In May 2014, the FASB issued ASU No. 2014 - 09 (Topic 606 ) —Revenue from Contracts with Customers and several amendments thereafter (“ASU 2014 - 09” ), which provides guidance for revenue recognition that will supersede the revenue recognition requirements in Topic 605, and most industry specific guidance. The core principle for ASU 2014 - 09 is that revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. ASU 2014 - 09 is effective for annual reporting periods beginning after December 15, 2017 and interim periods within those annual periods. The Company does not anticipate that the adoption of the amendments will have a material impact on the Consolidated Financial Statements.

 

In January 2016, the FASB issued ASU 2016 - 01 , Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities   which amends the guidance related to the classification and measurement of investments in equity securities. The guidance requires equity investments (except those accounted for under the equity method of accounting, certain cost method investments, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. The ASU will also amend the guidance related to the presentation of certain fair value changes for financial liabilities measured at fair value and certain disclosure requirements associated with the fair value of financial instruments. The ASU is effective for the Company for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of the ASU will impact the Company’s recording of unrealized gains and losses on its investments on the Statement of Operations, rather than on the Statement of Comprehensive income, beginning in the first quarter of the fiscal year ended June 30, 2019.

 

In February 2016, the FASB issued ASU No. 2016 - 02, Leases , which requires lessees to recognize right-of-use assets and lease liabilities, for all leases, with the exception of short-term leases, at the commencement date of each lease. This ASU requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. This ASU is effective for annual periods beginning after December 15, 2018 and interim periods within those annual periods.  Early adoption is permitted. The amendments of this update should be applied using a modified retrospective approach, which requires lessees and lessors to recognize and measure leases at the beginning of the earliest period presented. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.

 

 

NOTE 3.           BASIC AND DILUTED NET LOSS PER SHARE

 

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

 

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

 

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

 

   

For the year ended June 30, 201 8

 
   

Net Income

   

Shares

   

Per Share

 

Basic income per share:

                       

Net income available to common shareholders

  $ 1,734,686       29,559,139     $ 0.06  

Effect of dilutive securities

    -       -       -  

Preferred stock Series B

    -       8,739,020       -  

Diluted income per share

  $ 1,734,686       38,298,159     $ 0.05  

 

   

For the year ended June 30, 201 7

 
   

Net Income

   

Shares

   

Per Share

 

Basic income per share:

                       

Net income available to common shareholders

  $ 5,186,331       29,559,139     $ 0.18  

Effect of dilutive securities

    -       -       -  

Preferred stock Series B

    -       8,739,020       -  

Diluted income per share

  $ 5,186,331       38,298,159     $ 0.14  

 

 

 

NOTE  4.           INVENTORIES

 

Inventories consisted of the following:

 

   

June 30,

   

June 30,

 
   

201 8

   

201 7

 

Raw materials

  $ 195,674     $ 43,088  

Supplies and packing materials

    142,257       125,241  

Finished goods

    593,134       275,945  

Total inventories

  $ 931,065     $ 444,274  

 

 

 

NOTE 5.           PROPERTY AND EQUIPMENT

 

Property, plant and equipment consisted of the following as of June 30, 2018 and 2017:

 

 

   

June 30, 201 8

   

June 30, 201 7

 

Plant and equipment

  $ 1,487,568     $ 1,460,180  

Furniture and office equipment

    171,978       162,781  

Vehicles

    351,381       185,866  

Total property and equipment, gross

    2,010,927       1,808,827  

Accumulated depreciation

    (930,456

)

    (649,362

)

Total property and equipment, net

  $ 1,080,471     $ 1,159,465  

 

 

For the years ended June 30, 2018 and 2017, depreciation expense for property, plant and equipment totaled $ 342,628 and $299,903, respectively. 

 

 

 

NOTE 6.           INTANGIBLE ASSETS

 

Intangible assets consisted of the following:

 

   

 

       
   

June 30, 201 8

   

June 30, 201 7

 

Customer relationships

  $ 700,252     $ 500,252  

Brand name

    1,142,122       402,123  

Domain name

    36,913       36,913  

Recipes

    1,221,601       21,601  

Non-compete agreement

    274,982       84,982  

Total

    3,375,870       1,045,871  

Less : accumulated amortization

    (380,639

)

    (146,595

)

Net intangibles

  $ 2,995,231     $ 899,276  

 

CUSTOMER RELATIONSHIP

 

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

 

   

 

   

 

 
   

June 30, 2018

   

June 30, 201 7

 

Customer relationships

  $ 700,252       500,252  

Less: accumulated amortization

    (124,895

)

    (59,684

)

Total customer relationships, net

  $ 575,357       440,568  

 

 

BRAND NAME

 

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

 

   

 

   

 

 
   

June 30, 201 8

   

June 30, 201 7

 

Brand name

  $ 1,142,122     $ 402,123  

Less: accumulated amortization

    (88,872

)

    (48,660

)

Total brand name, net

  $ 1,053,250     $ 353,463  

 

DOMAIN NAME

 

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

 

   

 

   

 

 
   

June 30, 201 8

   

June 30, 201 7

 

Domain name

  $ 36,913     $ 36,913  

Less: accumulated amortization

    (18,958

)

    (11,576

)

Total brand name, net

  $ 17,955     $ 25,337  

 

RECIPES AND FORMULAS

 

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

 

   

 

   

 

 
   

June 30, 201 8

   

June 30, 201 7

 

Recipes and formulas

  $ 1,221,601     $ 21,601  

Less: accumulated amortization

    (92,303

)

    (8,257

)

Total recipes and formulas, net

  $ 1,129,298     $ 13,344  

 

NON-COMPETE AGREEMENT

 

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

 

   

 

   

 

 
   

June 30, 201 8

   

June 30, 201 7

 

Non-compete agreement

  $ 274,982     $ 84,982  

Less: accumulated amortization

    (55,612

)

    (18,418

)

Total non-compete agreement, net

  $ 219,370     $ 66,564  

 

AMORTIZATION EXPENSE

 

The total amortization expense for intangible assets for the years ended June 30, 2018 and June 30, 2017 was $234,046  and $118,937, respectively.

 

 

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

 

Years Ending June 30,

 

Expense

 

2019

  $ 335,508  

2020

    335,508  

2021

    325,678  

2022

    306,809  

2023

    286,507  

Thereafter

    1,405,221  

Total

  $ 2,995,231  

 

 

NOTE 7.           OTHER ASSETS

 

Other Current Assets

 

Other current assets totaling $374,617 as of June 30, 2018 and $369,599 as of June 30, 2017 are comprised of various components as listed below.

 

   

 

   

 

 
   

As of June 30, 201 8

   

As of June 30, 201 7

 
                 

Deposits

  $ -     $ 183,634  

Prepaid expenses

    358,869       28,667  

Other current assets

    15,748       7,298  

Notes receivable

    -       150,000  

Total

  $ 374,617     $ 369,599  

 

Investments

 

Wainwright, from time to time, provides initial investments in the creation of ETP funds that Wainwright manages. Wainwright classifies these investments as current assets as these investments are generally sold within one year from the balance sheet date. Investments in which no controlling financial interest or significant influence exists are recorded at fair value with unrealized holding gains and losses included in accumulated other comprehensive income (loss) as a component of stockholders’ equity, except for unrealized losses determined to be other-than-temporary, which are included in the consolidated statements of operations and comprehensive income (loss). As of June 30, 2018 and June 30, 2017, investments were approximately $3.2 million and $3.6 million, respectively. Investments in which no controlling financial interest exists, but significant influence exists are recorded as per the equity method of investment accounting. As of June 30, 2018  and June 30, 2017, there were no investments requiring the equity method investment accounting.

 

Investments measured at estimated fair value consist of the following as of June 30, 2018 and June 30, 2017:

 

   

As of June 30, 2018

 
   

Cost

   

Gross

Unrealized

Gains

   

Gross

Unrealized

Losses

   

Estimated

Fair

Value

 

Money market funds

  $ 180,138     $ -     $ -     $ 180,138  

USCI mutual fund investment

    2,500,000       280,480       -       2,780,480  

Hedged asset

    523,100       -       (280,761 )     242,339  

Other equities

    1,577       -       (529

)

    1,048  

Total short-term investments

  $ 3,204,815     $ 280,480     $ (281,290

)

    3,204,005  

 

 

   

As of June 30, 2017

 
   

Cost

   

Gross

Unrealized

Gains

   

Gross

Unrealized

Losses

   

Estimated

Fair

Value

 

Money market funds

  $ 86,204     $ -     $ -     $ 86,204  

USCI mutual fund investment

    2,500,000       -       (49,080

)

    2,450,920  

MENU ETF investment

    768,427       41,473       -       809,900  

Hedged asset

    187,000       43,746       -       230,746  

Other equities

    1,577       -       (598

)

    979  

Total short-term investments

  $ 3,543,208     $ 85,219     $ (49,678

)

    3,578,749