Business Context and Reporting Period
Marygold Companies, Inc. filed this Form 10-Q under its then-current legal name, Concierge Technologies, Inc., for the three months ended September 30, 2021, the first quarter of fiscal 2022. The company operated through investment fund management, New Zealand food and printing, Canadian security systems, and U.S. beauty-products subsidiaries. Marygold & Co. was still in the fintech development stage, while Marygold UK had no operations and had not completed acquisitions. Management approved a proposed name change to The Marygold Companies, Inc., but it had not become effective as of November 12, 2021.
Key Financial Metrics
| Metric | Q1 FY2022 | Q1 FY2021 | Change |
|---|---|---|---|
| Revenue | $9.731 million | $10.745 million | Down 9% |
| Gross profit | $7.079 million | $8.346 million | Down 15% |
| Gross margin | 72.8% | 77.7% | Down approximately 4.9 percentage points |
| Operating income (loss) | $(1.646) million | $2.869 million | Decrease of $4.515 million |
| Net income (loss) | $(1.881) million | $2.219 million | Decrease of $4.100 million |
| Basic and diluted EPS | $(0.05) | $0.06 | Turned to loss |
| Cash flow from operations | $0.864 million | $3.605 million | Down $2.742 million |
| Cash and cash equivalents | $17.281 million | $16.073 million at June 30, 2021 | Up $1.208 million |
| Total debt and related-party notes | Approximately $1.0 million | Approximately $1.0 million | Essentially unchanged |
Operating expenses increased to $8.725 million from $5.477 million, primarily because of a $2.5 million SEC/CFTC legal settlement accrual. Excluding that settlement, operating expenses were approximately $6.225 million. Total liabilities increased to $8.838 million from $6.221 million at June 30, 2021, principally because of the settlement accrual.
Current assets were $25.108 million versus current liabilities of $7.806 million, implying approximately $17.302 million of working capital. Cash, cash equivalents, and restricted cash totaled $17.295 million at September 30, 2021. Investing activities provided $0.502 million, primarily from sales of investments, while financing activities used $0.004 million for loan repayments.
Material Changes Versus the Prior Comparable Period
- Investment fund-management revenue declined 20% to $5.657 million, reflecting lower average assets under management of approximately $4.2 billion versus $5.6 billion.
- Revenue from the other operating units increased 10% to approximately $4.074 million. Food revenue increased to $2.362 million, beauty revenue was $1.021 million, and security-systems revenue was $0.691 million.
- The $2.5 million SEC/CFTC settlement converted Wainwright’s operating results from income of approximately $3.2 million to a loss of approximately $0.4 million. Excluding the settlement, Wainwright remained profitable but operating income declined because of lower fund-management revenue.
- Gourmet Foods improved net income to approximately $153 thousand from $93 thousand, supported by higher revenue and gross margin of approximately 27% versus 24%.
- Brigadier’s net income declined to approximately $79 thousand from $167 thousand, partly because the prior-year period included approximately $100 thousand of COVID-19 government subsidies.
- Original Sprout’s revenue was approximately flat, but gross margin declined to 41% from 46% because of supply-chain difficulties, higher raw-material costs, and higher inbound freight. Net income declined to approximately $5 thousand from $65 thousand.
- Marygold development expenses were approximately $817 thousand during the quarter. Capitalized internally developed software totaled $217,990 at September 30, 2021.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
Management did not provide formal numerical revenue or earnings guidance. It expects growth initiatives for Original Sprout, Brigadier, Gourmet Foods and Printstock, continued development of new fund products, additional acquisitions, and the launch of Marygold fintech services during the current fiscal year. Management stated that existing cash resources should be sufficient for the coming fiscal year and long-term objectives, assuming subsidiaries continue to operate as projected.
- The SEC and CFTC settlements announced November 8, 2021 required aggregate civil monetary penalties of $2.5 million. The amount was accrued in the September 30, 2021 financial statements.
- Putative class-action and derivative litigation relating to United States Oil Fund remains pending. The company had recorded no accrual because the timing, outcome, and potential loss range could not reasonably be estimated; an adverse outcome could materially affect financial condition, results, and cash flows.
- Marygold UK agreed to acquire Tiger Financial and Asset Management Limited for approximately £1.5 million plus acquired cash, payable in installments, subject to U.K. regulatory approval and other closing conditions. The filing states that funding would come through a loan facility from the company.
- Marygold had approximately $647 thousand of future commitments to primary service vendors, including approximately $47 thousand due in 2021 and approximately $300 thousand due in each of 2022 and 2023.
- Major customer and business concentration risks remain significant. USO generated 56% of Wainwright revenue; a major Gourmet Foods customer represented approximately 32% of consolidated Gourmet Foods revenue; and Brigadier’s largest customer represented 50% of its revenue.
- COVID-19 effects, commodity-market volatility, lower assets under management, supply-chain disruptions, foreign-currency movements, regulatory compliance, and dependence on key customers and service providers could materially affect results.
- The company maintained approximately $603,500 of related-party notes payable, including a $3,500 note that was past due. It also had approximately $380,678 of property-secured debt at Brigadier.
Most Important Facts to Verify
- Whether the proposed corporate name change to The Marygold Companies, Inc. became effective and whether any reverse stock split was implemented.
- The final cash payments and accounting treatment for the SEC/CFTC settlement and any remaining regulatory obligations.
- The status, expected exposure, and insurance or indemnification coverage related to the pending USO class and derivative litigation.
- Whether Marygold’s U.S. fintech launch occurred as planned and whether development spending, vendor commitments, and capitalized software increased materially.
- Trends in Wainwright assets under management and the revenue concentration associated with USO and other related-party funds.
- Liquidity after funding the proposed Tiger acquisition, future Marygold commitments, operating leases, and other acquisitions.
- Whether supply-chain inflation and freight costs continue to pressure Original Sprout margins and whether Gourmet Foods’ customer concentrations change.