Marygold Companies, Inc. - Quarter Report: 2016 December (Form 10-Q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

☒

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended December 31, 2016.

 

OR

 

☐	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from         to         .

 

Commission File Number: 000-29913

 

CONCIERGE TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

  

Nevada		90-1133909
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

 

29115 Valley Center Rd. K-206

Valley Center, CA 92082

866-800-2978

____________________________________________________

(Address and telephone number of registrant's principal

executive offices and principal place of business)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒   Yes     ☐    No

 

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

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or smaller reporting company.

 

Large accelerated filer		☐	Accelerated filer		☐
Non-accelerated filer		☐   (Do not check if a smaller reporting company)	Smaller reporting company		☒

 

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

 

As of February 10, 2017, there were 886,753,847 shares of the Registrant’s Common Stock, $0.001 par value, outstanding and 13,108,474 shares of its Series B Convertible Voting Preferred Stock, par value $0.001.

 

 

 

 

TABLE OF CONTENTS

 

	Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)	1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	23
Item 3. Quantitative and Qualitative Disclosures About Market Risk.	34
Item 4. Controls and Procedures.	34
Part II. OTHER INFORMATION	35
Item 1. Legal Proceedings.	35
Item 1A. Risk Factors.	35
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	35
Item 3. Defaults Upon Senior Securities.	35
Item 4. Mine Safety Disclosures.	35
Item 5. Other Information.	35
Item 6. Exhibits.	36
Signatures	38

 

 

 

PART I – FINANCIAL INFORMATION

 

 

Index to Financial Statements

Documents		Page
Condensed Consolidated Balance Sheets as of December 31, 2016 and June 30, 2016 (Unaudited)		4
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Six Months Ended December 31, 2016 and 2015 (Unaudited)		5
Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2016 and 2015 (Unaudited)		6
Notes to Unaudited Condensed Financial Statements		7

 

Organization and Business Overview

 

On May 26, 2015, a new wholly-owned subsidiary of Concierge Technologies, Inc. (the “Company” or “Concierge”) named Kahnalytics, Inc. (“Kahnalytics”), was established in the State of California for the purpose of taking on the segment of the business retained in the spinoff of Janus Cam and to direct resources towards the further development of data processing capabilities intended for risk management used by vehicle insurance companies. As of September 30, 2016, Kahnalytics ended its sale of camera hardware to insurance companies and began providing an online platform where subscribers to the Kahnalytics Fleet Management Service (“FMS”) can track their vehicles, view event video clips, see programmable alert functions and use the live-streaming function to operate in-vehicle cameras in real time.

 

On August 11, 2015, Concierge acquired all of the issued and outstanding stock in Gourmet Foods, Ltd., a New Zealand corporation (“Gourmet Foods”) located in Tauranga, a commercial-scale manufacturer of New Zealand meat pies under the brand names “Ponsonby Pies” and “Pat’s Pantry”. Gourmet Foods distributes its products through major grocery store chains, convenience stores, small restaurants and gasoline station markets. The purchase price of $1,753,428 was paid in cash.

 

On June 2, 2016, Concierge acquired all of the issued and outstanding stock in Brigadier Security Systems, a Canadian corporation (“Brigadier”) 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. The purchase price of $1,540,829 was paid in cash.

 

On December 9, 2016, Concierge acquired all of the issued and outstanding stock in Wainwright Holdings (“Wainwright”), a Delaware corporation, controlled as a group by our CEO and majority shareholder Nicholas Gerber together with affiliated shareholder Scott Schoenberger. Wainwright operates 13 investment funds in the commodities market with a total of approximately $4.5 billion under management. Wainwright earns revenues from contractual agreements providing for commissions and other expenses charged against the funds. The purchase price was paid in a stock-for-stock exchange whereby the sellers of Wainwright shares received in the aggregate a total of 818,799,976 shares of our common stock and 9,354,119 shares of our Series B Voting, Convertible, Preferred stock.

 

 

 

CONCIERGE TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS & COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

	For the Three-Month Periods Ending		For the Six-Month Periods Ending
	December 31,		December 31,
	2016	2015	2016	2015
		As Adjusted		As Adjusted
Net revenue
Fund management - Related Party	$6,472,531	$5,645,696	$12,840,475	$10,941,614
Food products	1,203,521	996,563	2,394,081	1,610,923
Security alarm monitering	828,114	-	1,641,660	-
Other	25,039	(3,500)	89,566	117,700
Net revenue	8,529,205	6,638,759	16,965,782	12,670,237
Cost of revenue	1,077,615	680,083	2,190,634	1,248,184
Gross profit	7,451,590	5,958,676	14,775,148	11,422,053
Operating expense
General & administrative expense	1,447,595	1,103,195	2,731,254	3,788,994
Fund operations	1,335,265	1,029,646	2,769,467	1,029,646
Marketing	1,051,152	729,691	1,831,683	1,345,440
Depreciation	101,188	58,487	199,830	96,676
Salaries and compensation	1,909,832	1,330,358	3,260,053	1,517,535
Total Operating Expenses	5,845,031	4,251,378	10,792,286	7,778,291
Income from operations	1,606,559	1,707,299	3,982,862	3,643,762
Other income (expense)
Other income	2,636	4,512	6,816	4,393
Interest Income	-	1,604	-	3,297
Interest expense	(5,711)	-	(5,689)	-
Total other expense	(3,075)	6,116	1,127	7,689
Income before income taxes	1,603,484	1,713,414	3,983,989	3,651,452
Provision of income taxes	(587,038)	(764,340)	(1,657,049)	(1,365,358)
Net Income	$1,016,446	$949,074	$2,326,940	$2,286,094
Other Comprehensive Income (Loss)
Foreign currency translation gain (loss)	4,714	69,847	(92,581)	(16,357)
Comprehensive Income	$1,021,161	$1,018,921	$2,234,359	$2,269,737
Weighted average shares of common stock
Basic	886,753,846	886,753,846	886,753,846	886,753,846
Diluted	1,153,666,000	1,148,923,323	1,153,666,000	1,148,923,323
Net income per common share
Basic	$0.00	$0.00	$0.00	$0.00
Diluted	$0.00	$0.00	$0.00	$0.00

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

 

CONCIERGE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

	For the Six-Month Periods Ended December 30,
	2016	2015
CASH FLOWS FROM OPERATING ACTIVITIES:		As Adjusted
Net Income	$2,326,940	$2,286,094
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	199,830	96,676
Loss on disposal of equipment	6,220	-
(Increase) decrease in current assets:
Accounts receivable	62,600	189,464
Accounts receivable - related party	(78,579)	(194,989)
Deferred taxes	(197,188)	362,883
Prepaid income taxes	(437,499)	263,368
Inventory	(74,549)	74,140
Other assets	(86,423)	(14,115)
Increase (decrease) in current liabilities:
Accounts payable & accrued expenses	601,393	435,981
Expense waivers payable - related party	490,455	360,973
Net cash provided by operating activities	2,813,200	3,860,475
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisition of subsidiary net of subsidiary cash acquired	(214,035)	(1,519,802)
Purchase of equipment	(47,346)	(110,585)
Purchase of investments	(842,994)	(493,047)
Net cash used in investing activities	(1,104,374)	(2,123,434)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of related party loan	(5,000)	-
Purchase of treasury stock	-	(2,200,557)
Net cash used in financing activities	(5,000)	(2,200,557)
Effect of exchange rate change on cash and cash equivalents	(77,147)	(27,677)
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS	1,626,679	(491,193)
CASH & CASH EQUIVALENTS, BEGINNING BALANCE	5,454,107	3,353,274
CASH & CASH EQUIVALENTS, ENDING BALANCE	$7,080,786	$2,862,081
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest paid	$5,000	$-
Income taxes paid	$2,200,800	$2,110,000
The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 

CONCIERGE TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

Concierge Technologies, Inc., (the “Company” or “Concierge”), a Nevada corporation, was originally incorporated in California on August 18, 1993 as Fanfest, Inc. On March 20, 2002, the Company changed its name to Concierge Technologies, Inc. The Company’s principal operations include Wainwright Holdings, Inc. a Delaware corporation (“Wainwright”). Wainwright is a holding company that currently holds both United States Commodity Funds LLC (“USCF”) and USCF Advisers LLC (“Advisers”), an investment adviser registered under the Investment Advisers Act of 1940, as amended; Gourmet Foods, Ltd. (“Gourmet Foods”), a manufacturer and distributor of meat pies in New Zealand; Brigadier Security Systems (2000) Ltd. (“Brigadier”), a provider of security alarm installation and monitoring located in Canada; and Kahnalytics, Inc. a California corporation(“Kahnalytics”), providing vehicle-based live streaming video and event recording to online subscribers.

 

 

Basis of Presentation and Accounting Principles

 

The Company has prepared the accompanying financial statements on a condensed consolidated basis. In the opinion of management, the accompanying unaudited condensed consolidated balance sheets and related interim statements of income and comprehensive income, and cash flows include all adjustments, consisting only of normal recurring items, necessary for their fair presentation, prepared on an accrual basis, in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with information included in the Company’s 2016 Form 10-K filed on October 21, 2016 with the U.S. Securities and Exchange Commission.

 

Principles of Consolidation

 

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

 

Wainwright was acquired during the current quarter (Refer to Note 11). Due to the commonality of ownership and control between the two companies, the transaction has been accounted for as a transaction between entities under common control. As a result, the assets and liabilities of Wainwright have been considered at their carrying amounts.

 

The accompanying Financial Statements as of December 31, 2016 and June 30, 2016 and for the three and six month periods ending December 31, 2016 and 2015 include the assets, liabilities and the results of operations of Wainwright at carrying amounts as though the transaction and exchange of equity interests has occurred at the beginning of the comparative period.

 

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

 

Use of Estimates

 

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

 

 

CONCIERGE TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Other Comprehensive Income (Loss) and Foreign Currency

 

Comprehensive income (loss) is the total of net income (loss) and other comprehensive income (loss). We record foreign currency translation adjustments and transaction gains and losses in accordance with ASC 830-30, Foreign Currency Translation. The accounts of Gourmet Foods use the New Zealand dollar as the functional currency. The accounts of Brigadier use the Canadian dollar as the functional currency. Assets and liabilities are translated at the exchange rate on the balance sheet date, and operating results are translated at the average exchange rate throughout the period. For the periods ended December 31, 2016 and June 30, 2016, other comprehensive loss consisted of unrealized losses on investments and accumulated translation losses as noted above. Accumulated translation loss, classified as an item of accumulated other comprehensive loss in the stockholders’ equity section of the consolidated balance sheet, was $99,702 as of December 31, 2016.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents. Concierge’s corporate office maintains cash balances at a financial institution headquartered in San Diego, California. Accounts are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 per depositor. The corporation’s uninsured cash balance in the United States was $0 at December 31, 2016. The Company’s subsidiary, Wainwright, also maintains cash balances at various high credit quality institutions and from time to time those deposits exceed the FDIC coverage amount of $250,000. As of December 31, 2016 the uninsured amount totaled $5,673,920, though no losses have been realized and none are expected. Cash balances in Canada are maintained at a financial institution in Saskatoon, Saskatchewan by the Company’s subsidiary. Each account is insured up to CD$100,000 by Canada Deposit Insurance Corporation (CDIC). The Company’s subsidiary had an uninsured cash balance in Canada of CD$438,067 (approximately US$325,988) at December 31, 2016. Balances at financial institutions within certain foreign countries, including New Zealand where the Company’s subsidiary maintains cash balances, are not covered by insurance. As of December 31, 2016, the Company’s subsidiary had uninsured deposits related to cash deposits in uninsured accounts maintained within foreign entities of approximately $335,010. The Company has not experienced any losses in such accounts.

 

Accounts Receivable, Related Parties

 

Accounts receivable primarily consists of fund 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.

 

Management closely monitors receivables and records an allowance for any balances that are determined to be uncollectible. As of December 31, 2016 and June 30, 2016, the Company considered all remaining accounts receivable to be fully collectible.

 

Major Customers & Suppliers – Concentration of Credit Risk

 

Concierge, through Kahnalytics as a licensed user of a proprietary software application, is dependent on the continued support of this online platform and the adherence to the license contract terms between Kahnalytics and the foreign-based licensor. Kahnalytics is also largely dependent on its sales channel to continue to expand its dealer network of resellers who, in turn, activate subscribers to the Kahnalytics service. No single customer accounts for a significant percentage of sales or accounts receivable. Hardware sold by Kahnalytics is currently supplied by one source, however in the event this source proves to be inadequate there are other alternative sources of equal or comparable devices as needed by Kahnalytics. During the six-month period ended December 31, 2015 Kahnalytics had just one customer accounting for 100% of its sales. Correspondingly, Kahnalytics had only two suppliers of the hardware it sold with the larger of the suppliers accounting for 92% of the cost of goods sold for the six-month period ended December 31, 2015. Sales of these products were discontinued during the current fiscal year.

 

 

CONCIERGE TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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 two largest customers, which includes contracts and recurring monthly residuals from the monitoring company, totaled 53% of the total revenues for the six months ended December 31, 2016, and accounted for approximately 26% of accounts receivable as of the balance sheet date of December 31, 2016.

 

Concierge, through Gourmet Foods, has three major customer groups comprising the gross revenues to Gourmet Foods; 1) grocery, 2) gasoline convenience stores, 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 six-month period ending and balance sheet date of December 31, 2016, our largest customer in the grocery industry, who operates through a number of independently branded stores, accounted for approximately 18% of our gross sales revenues and 29% of our accounts receivable. The second largest in the grocery industry accounted for approximately 11% of our gross revenues but less than 10% of our accounts receivable. In the gasoline convenience store market we supply two major accounts. The largest is a marketing consortium of gasoline dealers accounting for approximately 42% of our gross sales revenues and 26% of our accounts receivable. The second largest are independent operators accounting for less than 10% of gross sales but approximately 15% of accounts receivable. The third category of independent retailers accounted for the balance of our gross sales revenue however the group is fragmented and no one customer accounts for a significant portion of our revenues.

 

For the six months ended December 31, 2015 and the balance sheet date of December 31, 2015 our largest customer in the grocery industry accounted for approximately 13% of revenues and 26% of accounts receivable. For the gasoline convenience store sector, the largest customer is a consortium of independent owners who accounted for approximately 45% of revenues and 20% of accounts receivable (though no single member of the consortium accounted for more than 3% of accounts receivable). Independent retail stores accounted for approximately 12% of revenues however no single store accounted for any significant amount of the accounts receivable. The balance of the revenues and accounts receivable were not dominated by any significant single source for the six months ended December 31, 2015. 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.

 

 

CONCIERGE TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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 accounts receivable as of December 31, 2106 and June 30, 2016 as depicted below.

 

	December 31, 2016
Fund	Accounts Receivable
USO	$1,256,213	57%
USCI	445,163	20%
UNG	303,354	14%
All Others	197,954	9%
Total	$2,202,684	100%

	June 30, 2016
Fund	Accounts Receivable
USO	$1,245,396	59%
USCI	400,258	19%
UNG	280,431	13%
All Others	198,020	9%
Total	$2,124,105	100%

Reclassifications

 

For comparative purposes, prior year’s Financial Statements have been reclassified to conform to report classifications of the current year.

 

Recent Accounting Pronouncements

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. This pronouncement is effective for annualreporting periods beginning after December 15, 2016, and is to be applied using one of two retrospective application methods, with early application not permitted. The Company is currently evaluating the impact of the pending adoption of ASU 2014-09 on its consolidated financial statements.

 

 

CONCIERGE TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

In January 2015, the FASB issued Accounting Standards Update (ASU) No. 2015-01 (Subtopic 225-20) - Income Statement - Extraordinary and Unusual Items. ASU 2015-01 eliminates the concept of an extraordinary item from GAAP. As a result, an entity will no longer be required to segregate extraordinary items from the results of ordinary operations, to separately present an extraordinary item on its income statement, net of tax, after income from continuing operations or to disclose income taxes and earnings-per-share data applicable to an extraordinary item. However, ASU 2015-01 will still retain the presentation and disclosure guidance for items that are unusual in nature and occur infrequently. ASU 2015-01 is effective for periods beginning after December 15, 2015. The adoption of ASU 2015-01 is not expected to have a material effect on the Company’s consolidated financial statements. Early adoption is permitted.

 

In February, 2015, the FASB issued Accounting Standards Update (ASU) No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. ASU 2015-02 provides guidance on the consolidation evaluation for reporting organizations that are required to evaluate whether they should consolidate certain legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions). ASU 2015-02 is effective for periods beginning after December 15, 2015. The adoption of ASU 2015-02 is not expected to have a material effect on the Company’s consolidated financial statements. Early adoption is permitted.

 

In September, 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805). Topic 805 requires that an acquirer retrospectively adjust provisional amounts recognized in a business combination, during the measurement period. To simplify the accounting for adjustments made to provisional amounts, the amendments in the Update require that the acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amount is determined. The acquirer is required to also record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date.  In addition an entity is required to present separately on the face of the income statement or disclose in the notes to the financial statements the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. ASU 2015-16 is effective for fiscal years beginning December 15, 2015. The adoption of ASU 2015-016 is not expected to have a material effect on the Company’s consolidated financial statements.

 

In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes. The new guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. This update is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. The Company does not anticipate the adoption of this ASU will have a significant impact on its consolidated financial position, results of operations, or cash flows.

 

In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, to mainly change the accounting for investments in equity securities and financial liabilities carried at fair value as well as to modify the presentation and disclosure requirements for financial instruments. The ASU is effective for annual periods beginning after December 15, 2018, with early adoption permitted. Adoption of the ASU is retrospective with a cumulative adjustment to retained earnings or accumulated deficit as of the adoption date. The Company does not anticipate that the adoption of the ASU will have a material impact on its financial statements.

 

 

CONCIERGE TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The guidance in ASU No. 2016-02 supersedes the lease recognition requirements in ASC Topic 840, Leases (FAS 13). ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the effect this standard will have on its consolidated financial statements.

 

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share Based Payment Accounting, to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The guidance will be effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact of the adoption of this newly issued guidance to its consolidated financial statements.

 

On November 17, 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. It is intended to reduce diversity in the presentation of restricted cash and restricted cash equivalents in the statement of cash flows. The new standard requires that restricted cash and restricted cash equivalents be included as components of total cash and cash equivalents as presented on the statement of cash flows. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. ASU 2016-18 is effective for annual periods beginning after December 15, 2017 including interim periods within those fiscal years. Earlier adoption is permitted. The adoption of ASU 2016-18 is not expected to have a material effect on the Company’s consolidated financial statements.

 

In January 2017, the FASB issued Accounting Standards Update No. 2017-01, Clarifying the Definition of a Business, which clarifies and provides a more robust framework to use in determining when a set of assets and activities is a business. The amendments in this update should be applied prospectively on or after the effective date. This update is effective for annual periods beginning after December 15, 2017, and interim periods within those periods. Early adoption is permitted for acquisition or deconsolidation transactions occurring before the issuance date or effective date and only when the transactions have not been reported in issued or made available for issuance financial statements. The Company does not expect the adoption to have any significant impact on its Consolidated Financial Statements.

 

In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. Under the new standard, goodwill impairment would be measured as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying value of goodwill. This ASU eliminates existing guidance that requires an entity to determine goodwill impairment by calculating the implied fair value of goodwill by hypothetically assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. This update is effective for annual periods beginning after December 15, 2019, and interim periods within those periods. Early adoption is permitted for interim or annual goodwill impairment test performed on testing dates after January 1, 2017. The Company will apply this guidance to applicable impairment tests after the adoption date.

 

No other recently issued accounting pronouncements are expected to have a material impact on the Company’s consolidated financial statements.

 

 

CONCIERGE TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

Inventories consisted of the following:

 

	December 31, 2016	June 30, 2016
		As Adjusted
Raw materials	$46,711	$50,023
Supplies and packing materials	119,734	77,497
Finished goods	332,366	357,351
	498,811	484,871
Less impairment finished goods	(2,774)	(48,330)
Total	$496,037	$436,541

 

 

Property and equipment consisted of the following as of December 31, 2016 and June 30, 2016:

 

	December 31, 2016	June 30, 2016
		As Adjusted
Plant and Equipment	$1,236,138	$1,477,411
Furniture & Office Equipment	146,076	119,123
Vehicles	82,491	58,850
Total Property and Equipment, Gross	1,464,705	1,655,384
Accumulated Depreciation	(428,660)	(488,691)
Total Property and Equipment, Net	$1,036,045	$1,166,693

 

Depreciation expense amounted to $139,873 and $96,676 for the six months ended December 31, 2016 and 2015, respectively.

 

 

Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in business combinations. Goodwill comprised of the following amounts:

 

	December 31, 2016	June 30, 2016
		As Adjusted
Trained workforce – Gourmet Foods	$51,978	$51,978
Trained workforce - Brigadier	75,795	75,795
Goodwill – Gourmet Foods	45,669	45,669
Goodwill - Brigadier	45,814	45,814
	$219,256	$219,256

 

 The Company tests for goodwill impairment at each reporting unit. There was no goodwill impairment for the three months ended December 31, 2016.

 

 

CONCIERGE TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

Intangible assets consisted of the following:

 

	December 31, 2016	June 30, 2016
		As Adjusted
Brand name	$402,123	$402,123
Domain name	36,913	36,913
Customer relationships	500,252	500,252
Non-compete agreement	84,982	84,982
Recipes	21,601	21,601
Total	1,045,871	1,045,871
Less : Accumulated Amortization	(87,615)	(27,658)
Net Intangibles	$958,256	$1,018,213

 

CUSTOMER RELATIONSHIP

 

On August 11, 2015, the Company acquired Gourmet Foods. The fair value on the acquired customer relationships was estimated to be $66,153 and is amortized over the remaining useful life of 10 years. On June 2, 2016, the Company acquired Brigadier Security Systems. The fair value on the acquired customer relationships was estimated to be $434,098 and is amortized over the remaining useful life of 10 years.

 

	December 31, 2016	June 30, 2016
		As Adjusted
Customer relationships	$500,252	$500,252
Less: accumulated amortization	(34,877)	(9,659)
Total customer relationships, net	$465,375	$490,593

 

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.

 

 

CONCIERGE TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

DOMAIN NAME

 

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

 

 

 

 

CONCIERGE TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

Other Current Assets

 

Other current assets totaling $1,263,521 as of December 31, 2016 and $755,509 as of June 30, 2016 are comprised of various components as listed below.

 

	As of December 31,	As of June 31,
	2016	2016
		As Adjusted
Deferred tax asset	$12,727	$19,501
PrePaid expenses	319,868	242,582
PrePaid income tax	930,926	493,427
Notes receivable	150,000	150,000
Total	$1,263,521	$755,509

 

Investments

 

Investments are comprised mainly of investments in ETF funds. Wainwright, from time to time, provides initial investments in the creation of ETF funds that Wainwright manages. Wainwright classifies these investments as current assets as these investments are generally sold within one year from the balance sheet date. 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 condensed consolidated statements of operations and comprehensive income (loss). Investments in which no controlling financial interest exists, but significant influence exists are recorded as per the Equity Method of Investment. As of December 31, 2016 and June 30, 2016, investments are approximately $0.8 million and $1 thousand, respectively.

 

Restricted Cash

 

At December 31, 2016 Gourmet Foods had on deposit NZ$20,000 (approximately US$13,847) securing a lease bond for one of its properties. The cash securing the bond is restricted from access or withdrawal so long as the bond remains in place. There was no bond posted by Gourmet Foods at June 30, 2016, thus the restricted cash amount was zero.

 

Long Term Assets

 

Long term assets totaling $1,723,342 and $1,526,154,at December 31, 2016 and June 30, 2016, respectively, were attributed to Wainwright and consisted of

 

 

Accounts payable and accrued expenses, included related party payables, consisted of the following:

 

	December 31, 2016	June 30, 2016
		As Adjusted
Accounts payable	$1,140,125	$1,044,026
Accrued judgment	135,000	135,000
Accrued interest	20,369	5,238
Taxes payable	627,920	769,224
Expense waiver – Funds (related party)	939,385	448,930
Deferred rent	16,943	19,202
Accrued payroll and vacation	580,054	127,271
Accrued expenses	421,258	295,955
Total	$3,881,054	$2,844,847

 

 

CONCIERGE TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

Notes Payable - Related Parties

 

Current related party notes payable consist of the following:

 

 

On July 7, 2016 the Company repaid the outstanding note due to a related party totaling $5,000 in principal and $5,000 in accrued interest. A total of $2,075 in accrued interest was forgiven by the noteholder in settlement of the debt.

 

Interest expense for all related party notes for the three-month period ending December 31, 2016 and 2015 were $71 and $197 respectively and for the respective six months ended December 31, 2016 and 2015 the interest expense was $141 and $393.

 

Convertible Promissory Note Payable – Related Parties

 

On April 8, 2016 the Company entered into a convertible promissory note (the “Promissory Note”) with Gerber Irrevocable Family Trust, an affiliate of our shareholder and CEO, that resulted in the funding of $350,000. The Promissory Note bears interest at four percent (4%) per annum and increases to eight percent (8%) 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 .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. The Promissory Note may be prepaid at any time in whole or in part by the Company and is convertible into restricted common stock of the Company at the election of Promissory Note holder on the date which is 180 days following issuance of the Promissory Note at a conversion price of $0.13 per share. The conversion price is subject to adjustment for mergers, consolidations, share exchanges, recapitalizations or similar events. The Promissory Note matures five (5) years from issuance and is unsecured. Proceeds from the Promissory Note are intended to be used for transactions involving acquisitions of unrelated companies by Concierge Technologies that meet the criteria as determined by the Board of Directors. There was no beneficial conversion feature identified as of the date of issuance of the Promissory Note.

 

 

CONCIERGE TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

On May 25, 2016 the Company entered into a convertible promissory note (the “Promissory Note”) with Schoenberger Family Trust, an affiliate of our shareholder and director, that resulted in the funding of $250,000. The Promissory Note bears interest at four percent (4%) per annum and increases to eight percent (8%) 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 .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. The Promissory Note may be prepaid at any time in whole or in part by the Company and is convertible into restricted common stock of the Company at the election of Promissory Note holder on the date which is 180 days following issuance of the Promissory Note at a conversion price of $0.13 per share. The conversion price is subject to adjustment for mergers, consolidations, share exchanges, recapitalizations or similar events. The Promissory Note matures five (5) years from issuance and is unsecured. Proceeds from the Promissory Note are intended to be used for transactions involving acquisitions of unrelated companies by Concierge that meet the criteria as determined by the Board of Directors. There was no beneficial conversion feature identified as of the date of issuance of the Promissory Note.

 

Interest expense for all related party convertible debentures, for the three months ended December 31, 2016 and 2015 amounted to $2,521 and was $0 respectively.

 

Wainwright - Related Party Transactions

 

The Funds managed by USCF and Advisers are deemed by management to be related parties. The Company’s Wainwright revenues, totaled $12,840,475 and $10,941,614 for the six months ended December 31, 2016 and 2015, respectively, were earned from these related parties. Accounts receivable, totaling $2,202,684 and $2,124,105 as of December 31, 2016 and June 30, 2016, respectively, were owed from these related parties. Fund expense waivers, totaling $490,455 and $363,768 for the six months ended December 31, 2016 and 2015, respectively, were incurred on behalf of these related parties. Waivers payable, totaling $939,385 and $448,930 as of December 31, 2016 and June 30, 2016, respectively, were owed to these related parties.

 

 

 

CONCIERGE TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

An unsecured loan in the amount of $8,500 due a former director and shareholder who is now deceased has been reclassified as a note due unrelated party. The note is interest free, not deemed assignable to successors by the Company, and held as a contingent liability until resolved.

 

 

On May 28, 2015, the Company entered into an agreement to acquire the assets of Gourmet Foods, Ltd., a New Zealand corporation, subject to satisfactory completion of due diligence and other customary criteria for a transaction of this kind. Gourmet Foods is a baker of New Zealand meat pies and other confections distributed to major grocery stores, convenience stores, restaurants and other retailers throughout New Zealand. The Company placed a cash deposit with Gourmet Foods in accordance with the provisions of the asset purchase agreement, however the parties later elected to change the nature of the transaction to a stock purchase agreement. The Stock Purchase Agreement (the “SPA”) was entered into on July 28, 2015 and was set to close on July 31, 2015 subject to final adjustments to accounts receivable, accounts payable, inventory, employee entitlements and other current assets and liabilities. The Company paid a purchase consideration of NZ$2,597,535 (approximately US$1,753,428) in cash. An independent evaluation was conducted in order to obtain a fair market value of the fixed assets and intangible assets acquired. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill.

On August 11, 2015 the parties reached agreement to close the SPA based on the balance sheet information as of July 31, 2015, subject to further adjustments if necessary once certain balances became known without dispute, and the Company remitted the remainder of the purchase price in cash to an account in New Zealand established for the benefit of the shareholders of Gourmet Foods, Ltd. The operations of Gourmet Foods, Ltd. was consolidated going forward with those of the Company as of August 1, 2015.

The following table summarizes the value of the net assets acquired as of the Acquisition Date:

 

Assets
Cash	80,391
Accounts Receivable	431,656
Inventory	238,148
Prepaid Expenses & Other Assets	20,001
Property, plant and equipment	20,455
Intangible Assets	875,087
Goodwill	121,609
Total Assets	1,787,348
Liabilities
Accounts Payable	187,925
Income Tax Payable	55,953
Customer Deposits	2,640
Total Liabilities	246,518
Consideration paid for net assets	1,540,830

 

 

CONCIERGE TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

On December 9, 2016 the Company closed a Stock Purchase Agreement (the “Purchase Agreement”), by and among the Company and Wainwright and each of the shareholders of Wainwright common stock (the “Wainwright Sellers”), pursuant to which the Wainwright Sellers agreed to sell, and the Company agreed to purchase 1,741 shares of Wainwright common stock, par value $0.01 per share, (the “Wainwright Common Stock”), which represents all of the issued and outstanding Wainwright Common Stock, in exchange for: (i) 818,799,976 shares of Company Common Stock, and (ii) 9,354,119 shares of Company Preferred Stock (which preferred shares are convertible into 187,082,377 shares of Company Common Stock). Wainwright and the Company have a commonality of ownership and control as represented by the shareholdings, either directly or beneficially, of Nicholas Gerber and Scott Schoenberger as a group pursuant to the aforementioned Purchase Agreement and a voting agreement which gives them control of over 50% of Wainwright and over 50% of Concierge both before and after the business combination. Accordingly, the acquisition has been recorded as a transaction between entities under Common Control in the accompanying financial statements . Further, the accompanying financial statements have been adjusted to include the carrying value of assets, liabilities, equity and operations of Wainwright as if the transaction had concluded on July 1, 2015.

The unaudited pro forma financial information below represents the combined results of our operations together with those of Wainwright and as if the Gourmet Foods Limited and Brigadier acquisition had occurred at the beginning of the periods presented. The unaudited pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have occurred if the acquisitions had taken place at the beginning of the period presented, nor is it indicative of future operating results.

 

 

Year Ended June 30,	Lease Amount
2017	$65,345
2018	130,690
2019	57,707
2020	17,806
2021	1,487
Total Minimum Lease Commitment	$273,035

 

 

CONCIERGE TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Gourmet Foods entered into a General Security Agreement in favor of the Gerald O’Leary Family Trust and registered on the Personal Property Securities Register for a priority sum of NZ$110,000 (approximately US$76,156) to secure the lease of its primary facility. In addition, a NZ$20,000 (approximately US$13,847) bond has been posted through ANZ Bank and secured with a cash deposit of equal amount to secure a separate facilities lease. The General Security Agreement and the cash deposit will remain until such time as the respective leases are satisfactorily terminated in accordance with their terms. Interest from the cash deposit securing the lease accumulates to the benefit of Gourmet Foods and is listed as a component of interest income/expense on the accompanying Consolidated Statements of Operations.

 

Brigadier leases office and storage facilities in Saskatoon, Saskatchewan as well as vehicles used for installations and service and various office equipment. The minimum lease obligations through their expiry dates are indicated as below and require monthly payments of approximately US$11,455 translated to U.S. currency as of December 31, 2016.

 

Future minimum lease payments for Brigadier are as follows:

 

 

Wainwright leases office space in Oakland, California under an operating lease, which expires in October 2018. Rent expense was $63,994 and $64,648 for the six months ended December 31, 2016 and 2015, respectively.

 

Future minimum rental payments required under the operating lease, which has remaining non-cancellable lease terms in excess of one year, are as follows:

 

Year ended June 30,	Lease Amount
2017	$66,002
2018	134,645
2019	45,322
Total minimum lease commitment	$245,969

 

Litigation

 

On May 6, 2002, a default judgment was awarded to Brookside Investments Ltd. against, jointly and severally, Concierge, Allen E. Kahn, and The Whitehall Companies in the amount of $135,000 plus legal fees. As of May 7, 2012, the judgment had lapsed due to the passage of time and the creditor’s failure to renew. Although a new court action would be required by the plaintiff in order to seek legal remedies, the Company has accrued the amount of $135,000 in the accompanying financial statements as accrued expenses as of December 31, 2016.

 

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.

 

 

CONCIERGE TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Retirement Plan

 

Wainwright's wholly owned subsidiary USCF, has a 401(k) Profit Sharing Plan covering its employees who are over 21 years of age and who have completed a minimum of 1,000 hours of service and have worked for USCF for one or more years. Participants may make contributions pursuant to a salary reduction agreement. In addition, USCF makes a safe harbor matching contribution. Annual matching contributions paid totaled approximately $70,000 for each of the six months ended December 31, 2016 and 2015, respectively.

 

 

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

 

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

 

As of December 31, 2016, the Company's total unrecognized tax benefits were approximately $29,000, which would affect the effective tax rate if recognized. The Company will recognize interest and penalties, when they occur, related to uncertain tax provisions as a component of tax expense. There is no interest or penalties to be recognized for the quarter ended December 31, 2016.

 

The Company is required to make its best estimate of the annual effective tax rate for the full fiscal year and use that rate to provide for income taxes on a current year-to-date basis. The Company recorded a tax provision of $1.7 million and $1.4 million from its continuing operations for the six months ended December 31, 2016 and December 31, 2015, respectively. The Company recorded a tax provision of $0.6 million and $0.8 million from its continuing operations for the three months ended December 31, 2016 and December 31, 2015, respectively. The effective tax rate for the six months ended December 31, 2016 and three months ended September 30, 2016 differed from the statutory rate primarily due to the mix of non-deductible meals and entertainment expenses, imputed interest income and decrease in valuation allowance. The effective tax rate could fluctuate in the future due to changes in the taxable income mix between various jurisdictions.

 

The Company is subject to income taxes in the U.S. federal jurisdiction and various state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. The Company’s tax years 2012 through 2016 will remain open for examination by the federal and state authorities for three and four years, respectively. As of December 31, 2016, there were no active taxing authority examinations.

 

 

CONCIERGE TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

With the acquisition of Wainwright Holdings, Gourmet Foods, Ltd. and Brigadier, the Company has identified four segments for its products and services; U.S. investment fund management, U.S. data streaming and hardware, New Zealand and Canada. Our reportable segments are business units located in different global regions. The Company’s operations in the U.S.A. include the gathering of live-streaming video recording data displayed online to subscribers through our wholly owned subsidiary Kahnalytics, Inc. and the income derived from management of various investment funds by our subsidiary Wainwright. In New Zealand operations include the production, packaging and distribution on a commercial scale of gourmet meat pies and related bakery confections through our wholly owned subsidiary Gourmet Foods, Ltd. and in Canada we provide security alarm system installation and monitoring to residential and commercial customers sold through our wholly owned subsidiary Brigadier. Separate management of each segment is required because each business unit is subject to different operational issues and strategies due to their particular regional location. The Company accounts for intra-company sales and expenses as if the sales or expenses were to third parties and eliminates them in the consolidation. Amounts are adjusted for currency translation as of the balance sheet date and presented in US dollars.

 

The following table presents a summary of identifiable assets as of December 31, 2016 and June 30, 2016:

 

 

The following table presents a summary of operating information for the three months ended December 31, 2016 and 2015: (note: Canadian interests had not yet been acquired in 2015)

 

 

CONCIERGE TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

The following table presents a summary of operating information for the six months ended December 31, 2016 and 2015: (note: New Zealand interest were present for only 5 months in 2015 and Canadian interests had not yet been acquired in 2015)

 

 

 

 

 

 

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

 

Forward-Looking Information

 

This quarterly report on Form 10-Q, including this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements regarding the plans and objectives of management for future operations. This information may involve known and unknown risks, uncertainties and other factors that may cause Concierge Technologies, Inc.’s (“Concierge” or the “Company”) actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe Concierge’s future plans, strategies and expectations, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project,” the negative of these words, other variations on these words or comparable terminology. These forward-looking statements are based on assumptions that may be incorrect, and Concierge cannot assure investors that the projections included in these forward-looking statements will come to pass. Concierge’s actual results could differ materially from those expressed or implied by the forward-looking statements as a result of various factors.

 

Concierge has based the forward-looking statements included in this quarterly report on Form 10-Q on information available to it on the date of this quarterly report on Form 10-Q, and Concierge assumes no obligation to update any such forward-looking statements. Although Concierge undertakes no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, investors are advised to consult any additional disclosures that Concierge may make directly to them or through reports that Concierge in the future files with the U.S. Securities and Exchange Commission (the “SEC”), including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

 

Some of the information contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report includes forward-looking statements based on our current management’s expectations. There can be no assurance that actual results, outcomes or business conditions will not differ materially from those projected or suggested in such forward-looking statements as a result of various factors, including, among others, our limited operating history, unpredictability of future operating results, competitive pressures and the other potential risks and uncertainties.

 

 

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:

 

 

Results of Operations

 

Kahnalytics

 

The six months ended December 31, 2016 involved a different business model than that of the corresponding period in 2015. By obtaining an exclusive software license and partnering with a camera importer/distributor as a channel-to-market, Kahnalytics began the business of hosting a web-based server that subscribers could access to view their camera video files, vehicle location, speed and event triggers in real time. To facilitate the sales process and entice customers to the online subscription service, Kahnalytics implemented a hardware subsidy program and offered a wireless data plan that was resold to subscribers of the service, called the Kahnalytics Fleet Management Service or “FMS”. Two types of services were offered, 1) a FMS basic subscription plan where subscribers provided their own wireless connection to the FMS and 2) a FMS data plan where subscribers were provided hardware needed to connect wirelessly to the Internet and also charged a monthly fee for the air time usage. Kahnalytics also charged a subsidized price of $50 per each wireless hardware device used in creating the wireless connection. Kahnalytics purchases data plans from a network reseller and, in turn, resells that plan to its subscribers.

 

During the six months ended December 31, 2015, Kahnalytics purchased cameras, various other hardware items, and installation services for sale to specific insurance companies, and ultimately for installation into insured’s vehicles. The hardware items were either listed in inventory if held beyond the close of the current accounting period, or summarized as “cost of goods sold” when sold. Inventory orders which had been paid for, or partially paid for, in advance of receipt are classified as “Advance to Suppliers.” Generally, hardware is sold to customers who require delivery and installation of the product in their vehicles. The charges for services such as these are included in the bundled, installed, sales price reflected on sales invoices and accounts receivable.

 

 

Due to these differences in the business model of Kahnalytics, the comparative results below will not be a true representation of Kahnalytics operating trends.

 

For the Three Months Ended December 31, 2016 Compared to the Three Months Ended December 31, 2015

 

For the three months ended December 31, 2016 sales of FMS basic subscriptions were $2,667 and FMS data plans were $20,685. There were no FMS related subscription sales for the three months ended December 31, 2015. Hardware sales of wireless connection devices for the three months ended December 31, 2016 were $1,688 as compared to $0 for the three months ended December 31, 2015. Other income for the three months ended December 31, 2016 was $7 for reimbursed shipping charges as compared to $81 for the three months ended December 31, 2015 as an adjustment to sales tax liability.

 

Net loss for the three months ended December 31, 2016 after income tax of $800 and a downward revaluation to inventory as a result of selling subsidies of $2,774 was $16,036 as compared to a net loss for the three months ended December 31, 2015 of $4,181 after income tax provision of $800.

 

No sales were recorded for the three-month period ended December 31, 2015, apart from a refund of $3,500. Total revenues (including other income) for the three month periods ended December 31, 2016 and 2015 were $25,046 and ($3,419) respectively.

 

For the Six Months Ended December 31, 2016 Compared to the Six Months Ended December 31, 2015

 

For the six months ended December 31, 2016 sales of FMS basic subscriptions were $4,825 and FMS data plans were $31,980. There were no FMS related subscription sales for the six months ended December 31, 2015. Hardware sales of wireless connection devices for the six months ended December 31, 2016 were $10,637 as compared to $0 for the three months ended December 31, 2015. Other income for the six months ended December 31, 2016 was $7 for reimbursed shipping charges as compared to $81 for the three months ended December 31, 2015 as an adjustment to sales tax liability. Obsolete camera inventory was also liquidated during the six months ended December 31, 2016 for a total of $42,124. Total revenues (including other income) for the six month periods ended December 31, 2016 and 2015 were $89,573 and $117,781 respectively.

 

Net loss for the six months ended December 31, 2016 after income tax of $800 and a downward revaluation to inventory as a result of selling subsidies of $2,774 was $32,867, as compared to a net loss for the six months ended December 31, 2015 of $1,817 after income tax provision of $800.

 

Accounts receivable as of December 31, 2016 were $43,805 as compared to $2,640 as of June 30, 2016. The difference is attributed to the sale of discontinued hardware at a discount to a distributor on a deferred payment plan rather than any significant change in the aging of accounts receivable.

 

 

Gourmet Foods, Ltd.

 

Gourmet Foods Limited (“GFL”), was organized in its current form in 2005 (previously known as Pats Pantry Ltd). Pats Pantry was founded in 1966 to produce and sell wholesale bakery products, meat pies and patisserie cakes and slices, in New Zealand. Gourmet Foods, located in Tauranga, New Zealand, sells substantially all of its goods to supermarkets and service station chains with stores located throughout New Zealand. Gourmet Foods also has a large number of smaller independent lunch bars, cafes and corner dairies among the customer list, however they comprise a relatively insignificant dollar volume in comparison to the primary accounts of large distributors and retailers. Concierge purchased all of the issued and outstanding shares of Gourmet Foods as of August 1, 2015 even though the transaction did not officially close until August 11, 2015.

 

The accompanying financial statements include the operations of Gourmet Foods for the period August 1, 2015 through December 31, 2015 as compared to the operations for the period July 1, 2016 through December 31, 2016. Due to these differences in the accounting periods, the comparative results below will not be a true representation of GFL’s operating trends.

 

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 SFAS 52, Foreign Currency Translation. The translation of New Zealand currency into U.S. dollars is performed for balance sheet accounts using the exchange rates in effect at the balance sheet date and for revenue and expense accounts using a weighted average exchange rate during the period. Gains and losses resulting from the foreign currency translations are included in Accumulated Other Comprehensive Expense found on the Condensed Consolidated Balance Sheets.

 

For the Three Months Ended December 31, 2016 Compared to the Three Months Ended December 31, 2015

 

Net revenues for the three months ended December 31, 2016 were $1,203,521 with cost of goods sold of $839,571, resulting in a gross profit of $363,950 for an approximate 30% gross margin as compared to net revenues for the three months ended December 31, 2015 of $996,564 with a cost of goods sold for the three months ended December 31, 2015 of $683,345 producing a 31% gross profit of $313,219.

 

General and administrative expenses for the three months ended December 31, 2016 were $117,272 plus depreciation expense of $69,872, marketing expense $96,847, wages $56,840 and interest income of $378 producing a pre-tax net income of $23,498 as compared to a pre-tax net income of $41,598 for the three months ended December 31, 2015. General and administrative expenses for the three months ended December 31, 2015 were $145,862, marketing expense $2,530, wages $66,702, and depreciation was $58,450 which produced an operating income of $39,675 before interest income of $1,183, other income of $740 and income tax provision of $11,647.

 

 

Overall, profit margins for the comparative periods are consistent and differences are attributed to depreciation expense, varying income tax provisions and the strengthening of the U.S. dollar against New Zealand currency during the current period.