Marygold Companies, Inc. - Quarter Report: 2019 September (Form 10-Q)

 

 

Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

☒	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended September 30, 2019

 

OR

 

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

 

Commission File Number: 000-29913

 

CONCIERGE TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

  

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

 

1202 Puerta Del Sol

San Clemente, CA 92673

949-429-5370

Fax: 888.312.0124

 

 

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(Address and telephone number of registrant's principal

executive offices and principal place of business)

  

 

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

 

Title of Each Class of Security	Trading Symbol	Name of Exchange on Which Registered
None

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

☒   Yes     ☐    No

 

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

 

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

 

Large accelerated filer	☐		Accelerated filer	☐
Non-accelerated filer	☐		Smaller reporting company	☒
			Emerging growth company	☐

    

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

 

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

 

 

 

 

The registrant had 37,412,519 shares of Common Stock, $0.001 par value, and 53,032 shares of Series B Convertible, Voting, Preferred Stock on November 13, 2019. Series B Preferred stock is convertible, under certain conditions, to 20 shares of common stock for each share of Series B Preferred stock. Each share of Series B Preferred stock votes as 20 shares of common stock.

 

 

 

CONCIERGE TECHNOLOGIES, INC.

 

Table of Contents

 

	Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)	3
Condensed Consolidated Balance Sheets as of September 30, 2019 and June 30, 2019	3
Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 2019 and 2018	4
Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended September 30, 2019 and 2018	5
Condensed Consolidated Statements of  Stockholders' Equity for the Three Months Ended September 30, 2019 and 2018	6
Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2019 and 2018	7
Notes to Condensed Consolidated Financial Statements	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3. Quantitative and Qualitative Disclosures About Market Risk	30
Item 4. Controls and Procedures	30
Part II. OTHER INFORMATION	30
Item 1. Legal Proceedings	30
Item 1A. Risk Factors	30
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3. Defaults Upon Senior Securities	30
Item 4. Mine Safety Disclosures	30
Item 5. Other Information	30
Item 6. Exhibits	31
Signatures	33

 

 

 

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		September 30, 2019				June 30, 2019
						(AUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	6,904,137			$	6,481,815
Accounts receivable, net			875,672				939,649
Accounts receivable - related parties			988,769				1,037,146
Inventories			1,049,184				1,008,662
Prepaid income tax and tax receivable			1,232,219				1,754,369
Investments			3,775,158				3,756,596
Other current assets			265,796				546,105
Total current assets			15,090,935				15,524,342
Restricted cash			12,543				13,436
Property and equipment, net			1,299,866				757,014
Operating lease right-of-use asset			1,005,006				-
Goodwill			915,790				915,790
Intangible assets, net			2,575,156				2,659,723
Deferred tax assets, net			859,696				859,696
Other assets, long - term			523,607				523,607
Total assets		$	22,282,599			$	21,253,608
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses		$	2,533,875			$	2,867,081
Expense waivers – related parties			213,095				325,821
Current portion operating lease liabilities			361,996				-
Notes payable - related parties			3,500				3,500
Loans - property and equipment, current portion			13,153				26,241
Total current liabilities			3,125,619				3,222,643
LONG TERM LIABILITIES
Notes payable - related parties			600,000				600,000
Loans - property and equipment, net of current portion			380,200				61,057
Long-term operating lease liabilities			680,490				-
Deferred tax liabilities			176,578				176,578
Total long-term liabilities			1,837,268				837,635
Total liabilities			4,962,887				4,060,278
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value; 50,000,000 authorized
Series B: 53,032 issued and outstanding at September 30, 2019 and at June 30, 2019			53				53
Common stock, $0.001 par value; 900,000,000 shares authorized; 37,412,519 shares issued and outstanding at September 30, 2019 and 37,237,519 at June 30, 2019			37,412				37,237
Additional paid-in capital			9,216,204				9,178,838
Accumulated other comprehensive (loss)			(141,710	)			(175,659	)
Retained earnings			8,207,753				8,152,861
Total stockholders' equity			17,319,712				17,193,330
Total liabilities and stockholders' equity		$	22,282,599			$	21,253,608

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		Three Months Ended				Three Months Ended
		September 30, 2019				September 30, 2018
Net revenue
Fund management - related party		$	3,040,569			$	4,222,984
Food products			1,250,331				1,192,996
Security systems			773,277				858,651
Beauty products and other			963,673				902,328
Net revenue			6,027,850				7,176,959
Cost of revenue			1,769,393				1,838,384
Gross profit			4,258,457				5,338,575
Operating expense
General and administrative expense			1,117,149				1,072,932
Fund operations			809,836				1,265,655
Marketing and advertising			577,876				871,781
Depreciation and amortization			149,663				174,505
Salaries and compensation			1,543,022				1,384,982
Total operating expenses			4,197,546				4,769,855
Income from operations			60,911				568,720
Other (expense) income:
Other (expense) income			8,436				(174,661	)
Interest and dividend income			25,847				3,779
Interest expense			(11,005	)			(8,136	)
Total other (expense) income, net			23,278				(179,018	)
Income before income taxes			84,189				389,702
Provision of income taxes			29,297				103,748
Net income		$	54,892			$	285,954
Weighted average shares of common stock
Basic			37,325,019				29,559,139
Diluted			38,385,659				38,298,159
Net income per common share
Basic		$	0.00			$	0.01
Diluted		$	0.00			$	0.01

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		Three Months Ended				Three Months Ended
		September 30, 2019				September 30, 2018
Net income		$	54,892			$	285,954
Other comprehensive income (loss):
Foreign currency translation gain (loss)			33,949				(11,583	)
Comprehensive income		$	88,841			$	274,371

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Period Ending September 30, 2019		Preferred Stock (Series B)								Common Stock
		Number of Shares				Amount				Number of Shares				Par Value				Additional Paid - in Capital				Accumulated Other Comprehensive Income (Loss)				Retained Earnings				Total Stockholders' Equity
Balance at July 1, 2019			53,032			$	53				37,237,519			$	37,237			$	9,178,838			$	(175,659	)		$	8,152,861			$	17,193,330
Gain on currency translation			-				-				-				-				-				33,949				-				33,949
Common stock issued for services			-				-				175,000				175				-				-				-				175
Common stock issued for services - earned(1)			-				-				-				-				37,366				-				-				37,366
Net income			-				-				-				-				-				-				54,892				54,892
Balance at September 30, 2019			53,032			$	53				37,412,519			$	37,412			$	9,216,204			$	(141,710	)		$	8,207,753			$	17,319,712

Period Ending September 30, 2018		Preferred Stock (Series B)								Common Stock
		Number of Shares				Amount				Number of Shares				Par Value				Additional Paid - in Capital				Accumulated Other Comprehensive Income (Loss)				Retained Earnings				Total Stockholders' Equity
Balance at July 1, 2018			436,951			$	437				29,559,139			$	29,559			$	9,186,132			$	148,808			$	7,611,061			$	16,975,997
(Loss) on currency translation			-				-				-				-				-				(11,583	)			-				(11,583	)
Reclass of investment gains			-				-				-				-				-				(279,951	)			279,951				-
Net income			-				-				-				-				-				-				285,954				285,954
Balance at September 30, 2018			436,951			$	437				29,559,139			$	29,559			$	9,186,132			$	(142,726	)		$	8,176,966			$	17,250,368

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		For the Three Month Period Ended September 30,
		2019				2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	54,892			$	285,954
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization			149,663				174,505
Stock based vendor compensation			37,541				-
Unrealized (gain) loss on investments			(94	)			78,018
Realized (gain) on sale of investments			-				(84,901	)
(Gain) on disposal of equipment			-				(1,979	)
Decrease (increase) in current assets:
Accounts receivable, net			39,506				12,770
Accounts receivable - related party			48,377				136,349
Prepaid income taxes and tax receivable			540,808				(57,776	)
Inventories			(67,549	)			(154,928	)
Other current assets			280,145				67,197
Increase (decrease) in current liabilities:
Accounts payable and accrued expenses			(302,275	)			(65,722	)
Expense waivers - related party			(112,726	)			(250,911	)
Net cash provided by operating activities			668,288				138,576
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisition of business assets			-				(22,500	)
Purchase of real estate and equipment – net of disposal			(645,817	)			(4,531	)
Sale of investments			-				100,000
Purchase of investments			(18,245	)			-
Net cash provided by (used in) investing activities			(664,062	)			72,969
CASH FLOWS FROM FINANCING ACTIVITIES:
Loans - real estate, property and equipment			393,353				-
Repayment of equipment loan			(87,298	)			(88,401	)
Net cash provided by (used in) financing activities			306,055				(88,401	)
Effect of exchange rate change on cash and cash equivalents			111,148				(11,359	)
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH			421,429				111,785
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING BALANCE			6,495,251				7,524,114
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, ENDING BALANCE		$	6,916,680			$	7,635,899
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest paid		$	4,885			$	-
Income taxes		$	159,363			$	6,000
Noncash financing and investing activities:
Acquisition of operating right-of-use assets through operating lease obligations		$	1,150,916			$	-

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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 13. 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”). The information included in this Form 10-Q should be read in conjunction with information included in the Company’s 2019 Form 10-K filed on September 30, 2019 with the U.S. Securities and Exchange Commission.

 

Principles of Consolidation

 

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

 

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

 

Use of Estimates

 

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

 

 

Cash and Cash Equivalents

 

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

 

Accounts Receivable, net and Accounts Receivable - Related Parties

 

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

 

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

 

Major Customers and Suppliers – Concentration of Credit Risk

 

Concierge, through Brigadier, is partially dependent upon its contractual relationship with the alarm monitoring company who provides monitoring services to Brigadier’s customers. In the event this contract is terminated, Brigadier would be compelled to find an alternate source of alarm monitoring, or establish such a facility itself. Management believes that the contractual relationship is sustainable, and has been for many years, with alternate solutions available should the need arise. Sales to the largest customer, which includes contracts and recurring monthly support fees, totaled 52% and 59% of the total Brigadier revenues for the three months ended September 30, 2019 and September 30, 2018, respectively. The same customer accounted for approximately 36% of Brigadier's accounts receivable as of the balance sheet date of September 30, 2019 as compared to 37% as of June 30, 2019. A second customer accounted for approximately 10% of the revenues for the three-month period ending September 30, 2018, however no significant sales from this customer were recorded for the three month period ending September 30, 2019.

 

Concierge, through Gourmet Foods, has three major customer groups comprising the gross revenues to Gourmet Foods; 1) grocery, 2) gasoline convenience stores, and 3) independent retailers. The grocery and food industry is dominated by several large chain operations, which are customers of Gourmet Foods, and there are no long term guarantees that these major customers will continue to purchase products from Gourmet Foods, however the relationships have been in place for sufficient time to give management reasonable confidence in their continuing business. For the quarter ended September 30, 2019, 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 as compared to 24% for the three months ended September 30, 2018. This customer accounted for 25% of the accounts receivable at September 30, 2019 as compared to 28% as of June 30, 2019. The second largest in the grocery industry accounted for approximately 14% of Gourmet Foods sales revenues for the quarter ended September 30, 2019 as compared to 13% for the three months ended September 30, 2018. This same group accounted for 20% of Gourmet Foods accounts receivable as of September 30, 2019 as compared to 19% as of June 30, 2019. In the gasoline convenience store market Gourmet Foods supplies two major channels. The largest is a marketing consortium of gasoline dealers operating under the same brand who, for the three months ended September 30, 2019, accounted for approximately 43% of Gourmet Foods’ gross sales revenues as compared to 40% for the three months ended September 30, 2018. No single member of the consortium is responsible for a significant portion of Gourmet Foods’ accounts receivable. The third category of independent retailers and cafes accounted for the balance of Gourmet Foods’ gross sales revenue, however the group members are independently owned and individually responsible for their financial obligations with no one customer accounting for a significant portion of revenues or accounts receivable.

 

Concierge, through Original Sprout, is not dependent upon any one customer or group of customers as no single customer or buying group consistently accounts for over 10% of the gross revenues, though due to timing of deliveries a customer may account for a significant portion of our gross revenues during any particular period. For the three months ended September 30, 2019, one customer accounted for approximately 15% of our revenues as compared to two different companies accounting for 15% and 11% of our revenues for the three-month period ending September 30, 2018. These companies did not account for any significant portion of our accounts receivable as of September 30, 2019 or as of June 30, 2019, however two different customers who did not account for a significant portion of our revenues did account for 18% and 16% of our accounts receivable as of September 30, 2019 as compared to 25% and 12%, respectively, along with a third customer whose account receivable represented 17% of all accounts receivable as of June 30, 2019. Original Sprout is partially dependent upon its relationship with a product packaging company who, at the direction of Original Sprout, manufactures the products, packages them in appropriate containers, and delivers the finished goods to Original Sprout for distribution to its customers. All of Original Sprout’s products are currently produced by this packaging company, although if this relationship were to fail there are other similar packaging companies available to Original Sprout at competitive pricing. 

 

 

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

 

 

 

Inventories

 

Inventories, consisting primarily of food products and packaging in New Zealand, hair and skin care finished products and components in the U.S. and security system hardware in Canada, are valued at the lower of cost (determined on a FIFO basis) or net realizable value. Inventories include product cost, inbound freight and warehousing costs where applicable. Management compares the cost of inventories with the net realizable value and an allowance is made for writing down the inventories to their net realizable value, if lower. For the three months ended September 30, 2019 and 2018 impairment to inventory value was recorded as $0 and $0, respectively. An assessment is made at the end of each reporting period to determine what slow-moving inventory items, if any, should be deemed obsolete and written down to their estimated net realizable value. For the three months ended September 30, 2019 and September 30, 2018, the expense for slow-moving or obsolete inventory was $0 and $0, respectively.

 

Property and Equipment

 

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

 

 

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 three months ended September 30, 2019 or 2018.

 

 

Goodwill

 

Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in a purchase businesses combination. Goodwill is tested for impairment on an annual basis during the fourth quarter of our fiscal year, or more frequently if events or changes in circumstances indicate that the carrying amount of goodwill may be impaired. The goodwill impairment test is a two-step test. Under the first step, the fair value of the reporting unit is compared with its carrying value including goodwill. If the fair value of the reporting unit exceeds its carrying value, step two does not need to be performed. If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit and the enterprise must perform step two of the impairment test. Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill. There was no impairment recorded for the three months ended September 30, 2019 or 2018.

 

Impairment of Long-Lived Assets

 

The Company tests long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value. There was no impairment recorded for the three months ended September 30, 2019 or 2018.

 

Investments and Fair Value of Financial Instruments

 

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

 

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

 

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

 

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

 

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

 

Revenue Recognition

 

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

 

 

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

 

1. Identifying the contract(s) with customers

2. Identifying the performance obligations in the contract

3. Determining the transaction price

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

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

 

Transactions involve security systems that are sold outright to the customer where the Company's performance obligations include customer support services and the sale and installation of the security systems. For such arrangements, the Company allocates a portion of the transaction price to each performance obligation based on a relative stand-alone selling price. Revenue associated with the sale and installation of security systems is recognized once installation is complete, and is reflected as security system revenue in the Consolidated Statements of Operations. Revenue associated with customer support services is recognized as those services are provided, and is included as a component of security system revenue in the Condensed Consolidated Statements of Operations, which for the three months ended September 30, 2019, were approximately US$208,890, or approximately 27% of the total security system revenues. These revenues for the three months ended September 30, 2019 account for approximately 3% of total consolidated revenues. None of the other subsidiaries of the Company generate revenues from long term contracts.

 

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

 

Income Taxes

 

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

 

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

 

Advertising Costs

 

The Company expenses the cost of advertising as incurred. Marketing and advertising costs for the three months ended September 30, 2019 and 2018 were $0.6 million and $0.9 million, respectively.

 

 

Other Comprehensive Income (Loss)

 

Foreign Currency Translation

 

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

 

Short-Term Investment Valuation

 

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

 

Segment Reporting

 

The Company defines operating segments as components about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performances. The Company allocates its resources and assesses the performance of its sales activities based on the geographic locations of its subsidiaries (Refer to Note 17 of the Condensed Consolidated Financial Statements).

 

Business Combinations

 

We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired users, acquired trade names from a market participant perspective, useful lives and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed. For the three months ended September 30, 2019 and 2018 a determination was made that no adjustments were necessary

 

 

Recent Accounting Pronouncements 

 

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

 

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

 

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

 

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

 

A summary of the effects of the initial adoption of ASU 2016-02 and ASC 842 follows:

 

 

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

 

 

 

NOTE 3.

BASIC AND DILUTED NET INCOME PER SHARE

 

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

 

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

 

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

 

 

 

 

NOTE 4.

INVENTORIES

 

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

 

 

NOTE 5.

PROPERTY AND EQUIPMENT

 

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

 

 

For the three months ended September 30, 2019 and 2018, depreciation expense for property, plant and equipment totaled $65,096 and $89,938, respectively. 

 

 

 

NOTE 6.

LEASES

 

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

 

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

 

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

 

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

 

Gourmet Foods has operating leases for its office, factory and warehouse facilities located in Tauranga, New Zealand, as well as for certain equipment including printers and copiers. These leases are generally for three-year terms, with some options to renew for an additional term. The leases mature between August 2021 and September 2022, and require monthly rental payments of approximately US$8,068 (GST not included) translated to U.S. currency as of September 30, 2019. Brigadier leases office and storage facilities in Regina, Saskatchewan. The minimum lease obligations for the Regina facility require monthly payments of approximately US$2,491 translated to U.S. currency as of September 30, 2019. Original Sprout currently leases office and warehouse space in San Clemente, CA under a three-year lease agreement expiring or renewing at March 1, 2021. Minimum monthly lease payments are approximately $7,837 with increases annually. Wainwright leases office space in Walnut Creek, California under an operating lease which expires in December 2024. Minimum monthly lease payments are approximately $12,000 with increases annually.

 

For the three months ended September 30, 2019 and 2018, the combined lease payments of the Company and its subsidiaries totaled $96,524 and $67,848, respectively, and recorded under general and administrative expense in the Condensed Consolidated Statements of Operations. As of September 30, 2019 the Condensed Consolidated Balance Sheets included operating lease right-of-use assets totaling $1,005,006, recorded net of $37,480 in deferred rent, and $1,042,486 in total Operating lease liabilities.

 

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

 

  

The weighted average remaining lease term for the Company'a operating leases was 4.0 years as of September 30, 2019 and a weighted-average discount rate of 5.8% was used to determine the total operating lease liabilities.

 

NOTE 7.

INTANGIBLE ASSETS

 

Intangible assets consisted of the following as of:

 

 

CUSTOMER RELATIONSHIPS

 

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

 

 

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.

 

 

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.

 

  

 

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.

 

 

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.

 

 

AMORTIZATION EXPENSE

 

The total amortization expense for intangible assets for the three months ended September 30, 2019 and 2018 was $84,567 and $84,567, respectively. 

 

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

 

  

 

 

NOTE 8.

OTHER ASSETS

 

Other Current Assets

 

Other current assets totaling $265,796 as of September 30, 2019 and $546,105 as of June 30, 2019 are comprised of various components as listed below.

 

 

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 included in comprehensive income (loss) through June 30, 2018 and subsequently through earnings in accordance with ASU 2016-01. As of September 30, 2019 and June 30, 2019, investments were both approximately $3.8 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 September 30, 2019 and June 30, 2019, there were no investments requiring the equity method investment accounting.

 

 

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

 

 

 

The following tables summarize the valuation of the Company’s securities at September 30, 2019 and June 30, 2019 using the fair value hierarchy:

 

 

 

During the three months ended September 30, 2019 and 2018, there were no transfers between Level 1 and Level 2.

 

Restricted Cash

 

At September 30, 2019 and June 30, 2019, Gourmet Foods had on deposit approximately NZ$20,000 (approximately US$12,543 and US$13,437, respectively, after currency translation) securing a lease bond for one of its properties. The cash securing the bond is restricted from access or withdrawal so long as the bond remains in place.

 

Long - Term Assets

 

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

	(i)	$514,435 as of September 30, 2019 and June 30, 2019 representing 10% equity investment in a registered investment adviser accounted for on a cost basis as $500,980, and $13,455 representing deposits and prepayments.
	(ii)	and $9,172 as of September 30, 2019 and at June 30, 2019 representing deposits and prepayments of rent.

 

 

 

NOTE 9.

GOODWILL

 

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

 

Goodwill is comprised of the following amounts:

 

 

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

 

NOTE 10.

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

Accounts payable and accrued expenses consisted of the following:

 

 

 

NOTE 11.

RELATED PARTY TRANSACTIONS

 

Notes Payable - Related Parties

 

Current related party notes payable consist of the following:

 

  

Interest expense for all related party notes for the three months ended September 30, 2019 and 2018 was $6,120 and $6,120, respectively. 

 

Wainwright - Related Party Transactions

 

The Funds managed by USCF and USCF Advisers are deemed by management to be related parties. The Company’s Wainwright revenues, totaling $3.0 million and $4.2 million for the three months ended September 30, 2019 and 2018, respectively, were earned from these related parties. Accounts receivable, totaling $1.0 million as of September 30, 2019 and as of June 30, 2019, respectively, were owed from these related parties. Fund expense waivers, totaling $0.1 million and $0.1 million and fund expense limitation amounts, totaling $0 and $0.1 million, for the three months ended September 30, 2019 and 2018, respectively, were incurred on behalf of these related parties. Waivers payable, totaling $0.2 million and $0.3 million as of September 30, 2019 and June 30, 2019, respectively, were owed to these related parties. Fund expense waivers and fund expense limitation obligations are defined under Note 16 to the Condensed Consolidated Financial Statements.

 

 

 

NOTE 12.

LOANS - REAL ESTATE AND EQUIPMENT

 

As of September 30, 2019, Brigadier had repaid all the loan balances related to vehicle purchases and had taken out a new loan facilitating the purchase of the Saskatoon office land and building. The initial principal balance was $525,000 (approximately US$401,000 translated as of the loan date July 1, 2019) with an annual interest rate of 4.14% maturing June 30, 2024. The short-term portion of principal for this loan due within 12 months as of September 30, 2019 is $17,413 (approximately US$13,153) and the long term principal amount due is $503,329 (approximately US$380,200). For each vehicle purchased in prior periods, the loan principal together with interest was amortized over 60 equal monthly installments. The Condensed Consolidated Balance Sheets as of September 30, 2019 and June 30, 2019 include the amount of the principal balance on vehicle loans which is due within twelve months as a current liability of zero and US$26,241, respectively. Principal amounts under the vehicle loans which is due after twelve months are recorded in long term liabilities as zero and US$61,057 as of September 30, 2019 and June 30, 2019, respectively. Interest on the loans is expensed or accrued as it becomes due. Total interest on all loans for the three months ended September 30, 2019 was US$4,885 and US$2,016 for the three months ended September 30, 2018.

 

 

NOTE 13.

BUSINESS COMBINATIONS

 

Acquisition of the assets of The Original Sprout, LLC

 

Kahnalytics, Inc., a wholly owned subsidiary of Concierge Technologies domiciled in California, was founded during May 2015 for the purpose of carrying on the residual business from the disposal of Concierge Technologies' former subsidiary, Wireless Village dba/Janus Cam. As that business segment slowly wound down over the ensuing two years, management began a search for another business opportunity for Kahnalytics. Accordingly, on December 18, 2017, Kahnalytics acquired all of the assets of The Original Sprout, LLC, a California limited liability company. Simultaneous with the acquisition, Kahnalytics registered a "doing business as" (or "dba") name of “Original Sprout” and transitioned its business to the manufacture, warehousing and wholesale distribution of non-toxic, all-natural, hair and skin care products under the brand name Original Sprout. The acquisition by Kahnalytics was financed through a non-interest bearing note from Concierge Technologies. The purchase price was approximately $3.5 million with payments to be made over the course of a twelve-month period and per the estimated allocation as depicted in the following table.

 

*See Note 6 for further detail of intangible assets acquired.

**This amount represents a discount on installment payments and was charged to interest expense.

 

On the closing date of the transaction, December 18, 2017, Kahnalytics paid $982,172 in cash towards the purchase price and deposited an additional $1,250,000 in an attorney-held client trust account which was released to the sellers, after downward adjustments due to changes in acquired accounts receivable, on May 18, 2018. The balance of the purchase price, after consideration for monthly installment payments, was paid in full on January 5, 2019. 

 

 

NOTE 14.

STOCKHOLDERS' EQUITY

 

Convertible Preferred Stock

 

Each issued Series B Voting, Convertible Preferred Stock is convertible into 20 shares of common stock and carries a vote of 20 shares of common stock in all matters brought before the shareholders for a vote. On February 7, 2019, the Company converted 383,919 shares of Series B Voting, Convertible Preferred Stock to 7,678,380 shares of common stock per the request of the shareholder and pursuant to the stock designation. After the conversion, there remain 53,032 shares of Series B Voting, Convertible Preferred Stock outstanding as of September 30, 2019.

 

 

 

 

 

 

 

Shares Issued for Services

 

On August 15, 2019 the Company issued 175,000 shares of its common stock, par value $0.001, as partial payment for services to be rendered in connection with an investment banking engagement letter. The fair market value of the shares, as determined by the closing price of CNCG stock listed at $0.87 on the OTCQB exchange on August 15, 2019, was determined to be $152,250. The terms of the engagement provide for an earn-out of the shares over a 6-month period from the effective date of the agreement. Accordingly, the Company releases a portion of the shares each month. For the three month period ended September 30, 2019, the Company incurred an expense of $37,541 attributed to the release of shares due to 45 days of performance under the engagement. As a non-cash expense, the amount of $37,366 was recorded as additional paid in capital as detailed on the Condensed Consolidated Statements of Stockholders' Equity. The engagement letter also contains a provision for payment of an additional 175,000 shares if the Company is successful in effectuating an up-listing to a national exchange during the term of the engagement. Because of the uncertainty of success, the Company has not accrued any liability for the remittance of these shares and will expense the payment, if any, at the time of issuance.

 

Accumulated Other Comprehensive Income (Loss)

 

The following table presents activity for the three months ending September 30, 2019 and year ending June 30, 2019:

 

 

 

 

NOTE 15.

INCOME TAXES

 

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

 

The Company accounts for uncertain tax positions in accordance with the authoritative guidance on income taxes under which the Company may only recognize or continue to recognize tax positions that meet a "more 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 September 30, 2019, the Company's total unrecognized tax benefits were approximately $0.3 million, which would affect the effective tax rate if recognized. The Company will recognize interest and penalties, when they occur, related to uncertain tax positions as a component of tax expense. There is no interest or penalties to be recognized for the three months ended September 30, 2019 or 2018.

 

The Company is required to make its best estimate of the annual effective tax rate for the full fiscal year and use that rate to provide for income taxes on a current year-to-date basis. The Company recorded a tax provision of $0.03 million and $0.1 million for the three months ended September 30, 2019 and 2018, respectively. The effective tax rate for the three months ended September 30, 2019 and 2018 differed from the statutory rate primarily due to the mix of non-deductible items. The effective tax rate could fluctuate in the future due to changes in the taxable income mix between various jurisdictions.

 

The Company is subject to income taxes in the U.S. federal, various states, Canada and New Zealand tax jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. The Company’s U.S. tax years 2014 through 2018 will remain open for examination by the federal and state authorities which is three and four years, respectively. The Company’s tax years from acquisition through 2018 remain open for examination by Canada and New Zealand authorities which is four years. As of September 30, 2019, there were no active taxing authority examinations.

 

 

 

NOTE 16.

COMMITMENTS AND CONTINGENCIES

 

Lease Commitments

 

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

 

Additionally, Gourmet Foods entered into a General Security Agreement in favor of the Gerald O’Leary Family Trust and registered on the Personal Property Securities Register for a priority sum of NZ$110,000 (approximately US$68,984) to secure the lease of its primary facility. In addition, a NZ$20,000 (approximately US$12,543) bond has been posted through ANZ Bank and secured with a cash deposit of equal amount to secure a separate facilities lease. The General Security Agreement and the cash deposit will remain until such time as the respective leases are satisfactorily terminated in accordance with their terms. Interest from the cash deposit securing the lease accumulates to the benefit of Gourmet Foods and is listed as a component of interest income/expense on the accompanying Consolidated Statements of Operations.

 

Other Agreements and Commitments

 

USCF manages four funds (BNO, CPER, UGA, UNL) which have expense waivers provisions, whereby USCF will reimburse funds when fund expenditure levels exceed certain threshold amounts. As of September 30, 2019 and June 30, 2019 the expense waiver payable was $0.2 million and $0.3 million, respectively. USCF has no obligation to continue such payments for these four funds into subsequent periods.

 

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

 

Litigation 

 

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

 

Retirement Plan

 

Wainwright's wholly owned subsidiary USCF, has a 401(k) Profit Sharing Plan covering its employees who are over 21 years of age and who have completed a minimum of 1,000 hours of service and have worked for USCF for one or more years. Participants may make contributions pursuant to a salary reduction agreement. In addition, USCF makes a safe harbor matching contribution. Quarterly profit sharing contributions paid totaled approximately $32 thousand and $0 thousand for each of the three months ended September 30, 2019 and 2018, respectively. 

 

 

 

NOTE 17.

SEGMENT REPORTING

 

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

  

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

 

  

The following table presents a summary of operating information for the three months ended September 30:

 

 

The following table presents a summary of net capital expenditures for the three month periods ended September 30:

 

 

 

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

 

 

 

 

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