Filing Context and Reporting Period
This is an unaudited Form 10-Q filed by Concierge Technologies, Inc., the predecessor name of Marygold Companies, Inc., for the quarter and nine months ended March 31, 2020. The request metadata identifies “2019 Q3,” but the filing itself clearly reports fiscal 2020 third-quarter results. The company operates investment fund management, food products, security systems, and beauty products businesses through subsidiaries in the United States, New Zealand, and Canada. Marygold & Co., a newly formed fintech subsidiary, was still in development and had not begun operations.
Financial Performance and Position
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Revenue | $5.9 million, versus $6.3 million | $17.7 million, versus $20.1 million |
| Gross profit | $4.2 million, versus $4.6 million | $12.5 million, versus $14.9 million |
| Operating income (loss) | $(181,000), versus $162,000 | $(223,000), versus $787,000 |
| Net income (loss) | $(17,000), versus $76,000 | $(37,000), versus $425,000 |
| Operating cash flow | Not separately provided for the quarter | $23,000, versus $343,000 |
- Revenue mix: Fund management revenue was $3.0 million for the quarter and $8.9 million year to date; food products generated $1.3 million and $3.8 million; security systems generated $606,000 and $2.1 million; and beauty products generated $1.1 million and $2.9 million, respectively.
- Margins: Consolidated gross margin was approximately 70.3% for the quarter and 70.4% year to date, compared with approximately 73.8% and 74.0% in the prior-year periods. The decline primarily reflected the reduced contribution from high-margin fund management revenue.
- Cash and liquidity: Cash and cash equivalents were $6.0 million at March 31, 2020, compared with $6.5 million at June 30, 2019. Including restricted cash, ending cash was $6.04 million. Management reported working capital of approximately $11.9 million.
- Debt: Total borrowings were approximately $1.0 million, compared with $0.7 million at June 30, 2019. This included $603,500 of related-party notes, of which $3,500 was past due, and approximately $361,000 of debt secured by Brigadier’s Saskatoon land and building.
- Balance sheet: Total assets were $21.6 million and stockholders’ equity was $17.2 million at March 31, 2020. Operating lease liabilities totaled $847,000 following adoption of ASC 842.
- Investments: Short-term investments were $3.8 million, primarily money market funds and other securities, including $32,768 of unrealized losses.
Material Changes Versus the Prior Comparable Period
- Quarterly revenue declined approximately 6%, while nine-month revenue declined approximately 12%, largely because fund management revenue fell 16% for the quarter and 24% year to date.
- Average assets under management declined to approximately $2.3 billion for the quarter and $2.2 billion year to date, compared with approximately $2.6 billion and $2.8 billion, respectively, in the prior-year periods.
- Lower fund management revenue drove the company from operating income to an operating loss and from net income to a net loss. Variable fund operating expenses declined as AUM decreased, partially offsetting the revenue pressure.
- Other operating units produced modest growth overall. Food revenue increased 13% for the quarter and 10% year to date; beauty revenue increased 40% for the quarter and 14% year to date; and security revenue declined 26% for the quarter and 11% year to date.
- Gross margin declined year over year, although Gourmet Foods improved its nine-month gross margin to approximately 30% from 28%, and Brigadier improved to approximately 53% from 45%.
- Marygold & Co. incurred startup and software-development costs. The company capitalized $217,990 of internally developed software costs, with no amortization recorded as of March 31, 2020.
- Common shares outstanding increased to 37,412,519 from 37,237,519 at June 30, 2019, reflecting 175,000 shares issued for investment-banking services. The maximum additional 175,000 shares related to a potential national-exchange up-listing had not been accrued.
- Cash decreased by $454,000 during the nine months, compared with a $1.2 million increase in the prior-year period. Investing cash flow was negative $714,000, primarily due to property and equipment and software expenditures.
Guidance, Outlook, Risks, and Unusual Items
- Management expected all four operating subsidiaries to be profitable in the coming fiscal year and stated that existing liquidity should fund operating expenses and long-term objectives, assuming subsidiaries perform as projected.
- The company planned to grow Original Sprout, expand Brigadier’s offerings, improve Gourmet Foods’ efficiency and distribution, develop new Wainwright funds, pursue acquisitions, and build fintech capabilities through Marygold & Co.
- COVID-19 had a nominal effect on reported results through March 31 because restrictions began late in the quarter; however, management stated that the future financial impact was largely unknown and could be material.
- Fund management revenue is highly dependent on AUM, commodity markets, market volatility, fund performance, and investor demand. Wainwright had approximately $2.1 billion of AUM at March 31, 2020.
- The business has customer and supplier concentration risks. For example, a major customer represented approximately 49% of Brigadier’s quarterly revenue, while large grocery and fuel-channel customers represented substantial portions of Gourmet Foods revenue.
- Foreign currency movements in the New Zealand dollar and Canadian dollar produced a $295,000 translation loss in the quarter and a $126,000 loss year to date, reducing comprehensive income.
- Related-party fund management revenue accounted for approximately 50% of consolidated revenue year to date. Related-party accounts receivable were $1.1 million, and expense-waiver obligations were approximately $383,000.
- No legal proceedings were pending, and management reported effective disclosure controls with no material change in internal control over financial reporting.
Investor Verification Checklist
- Verify that the applicable filing period is March 31, 2020, rather than the “2019 Q3” period stated in the request metadata.
- Assess the sustainability of fund management revenue in light of lower AUM and its concentration in related-party funds.
- Monitor COVID-19 effects on fund AUM, consumer demand, supply chains, and the New Zealand and Canadian operating subsidiaries.
- Reconcile cash usage, capital expenditures, lease obligations, and the company’s assertion that liquidity is sufficient for the next fiscal year.
- Review the $603,500 of related-party notes, including the $3,500 past-due balance, and the secured Brigadier property loan.
- Evaluate the execution risk and additional funding needs associated with Marygold & Co.’s fintech development.
- Review customer and supplier concentration, particularly within Brigadier and Gourmet Foods.
- Confirm the impact of the 175,000 shares issued for services and the contingent additional 175,000-share up-listing obligation.