Business Context and Reporting Period
This summary is based on Concierge Technologies, Inc.’s Form 10-K for the fiscal year ended June 30, 2019, filed September 30, 2019. The requested metadata identifies Marygold Companies, Inc. and “2018 Q4,” but the supplied filing is for Concierge Technologies and does not report a 2018 fourth quarter.
Concierge operated through four wholly owned subsidiaries: Wainwright Holdings, an investment fund management business; Gourmet Foods, a New Zealand meat-pie manufacturer and distributor; Brigadier Security Systems, a Canadian security-system installer and monitoring dealer; and Original Sprout, a U.S. hair- and skin-care products distributor. The company used a decentralized operating model and employed approximately 90 full-time personnel.
Financial Performance and Position
| Metric | FY2019 | FY2018 | Change |
|---|---|---|---|
| Revenue | $26.95 million | $28.71 million | Down 6% |
| Gross profit | $20.01 million | $22.80 million | Down 12% |
| Gross margin | Approximately 74.3% | Approximately 79.4% | Down approximately 5.1 points |
| Operating income | $0.76 million | $2.81 million | Down 73% |
| Income before taxes | $0.61 million | $2.50 million | Down 76% |
| Net income | $0.26 million | $1.73 million | Down 85% |
| Basic earnings per share | $0.01 | $0.06 | Declined |
| Net cash from operating activities | $0.88 million | $3.00 million | Down 71% |
- Revenue mix included fund management of $15.02 million, food products of $4.75 million, security systems of $3.56 million, and beauty products and other of $3.62 million.
- Average assets under management at Wainwright declined to approximately $2.7 billion from $3.4 billion, reducing fund-management revenue by approximately $3.7 million.
- Other operating units increased revenue by approximately $2.0 million, primarily because FY2019 included a full year of Original Sprout operations while FY2018 included only approximately six months of the acquired business.
- Cash and cash equivalents were $6.48 million at June 30, 2019, compared with $7.52 million at June 30, 2018. Total current assets were $15.52 million and reported working capital was approximately $12.3 million.
- Total assets were $21.25 million, compared with $23.10 million in the prior year. Stockholders’ equity was $17.19 million.
- Consolidated indebtedness was approximately $0.7 million, including $0.60 million of related-party notes and approximately $0.09 million of Brigadier equipment loans. One $3,500 shareholder note was past due; the other related-party notes mature in 2022.
- Capital expenditures were $50,165. The company paid $1.21 million for the final portion of the Original Sprout acquisition and had $3.76 million of short-term investments at year-end.
- Comprehensive income was $0.22 million, including a $44,516 foreign-currency translation loss. FY2018 comprehensive income was $1.76 million, including a short-term investment valuation gain.
Material Changes Versus the Prior Comparable Period
- Wainwright revenue fell 20% to $15.02 million as lower AUM reduced management and advisory fees. Wainwright operating income declined to approximately $0.93 million from $3.22 million.
- Revenue from other operating units rose 20% to $11.93 million. Brigadier revenue increased to $3.56 million from $3.30 million, while Original Sprout generated $3.62 million in FY2019. Gourmet Foods revenue declined to $4.75 million from $4.97 million.
- Consolidated operating expenses decreased 4% to $19.26 million, but the reduction was insufficient to offset the decline in fund-management revenue. Salaries and compensation increased to $6.94 million from $6.10 million, while marketing and advertising declined to $2.91 million from $3.55 million.
- Original Sprout produced approximately $0.41 million of net income in FY2019. The prior-year comparison is not meaningful because the acquired business operated for only part of FY2018.
- Gourmet Foods reported a net loss of approximately $13,000 versus net income of $99,000, while Brigadier’s net income increased modestly to approximately $404,000 from $387,000.
- Cash flow deteriorated primarily because of lower earnings, the final acquisition payment for Original Sprout, and working-capital changes. Current liabilities declined to $3.22 million from $5.17 million, largely because the prior-year purchase consideration payable was paid.
- On February 7, 2019, the company converted 383,919 Series B preferred shares into 7,678,380 common shares. The remaining 53,032 Series B shares were convertible into approximately 1.06 million common shares and carried voting rights equal to 20 common shares per preferred share.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management expected all four operating businesses to be profitable in the coming fiscal year and anticipated growth in Original Sprout, moderate growth at Brigadier, improved efficiency and expanded distribution at Gourmet Foods, and new fund products from Wainwright.
- The company intended to pursue acquisitions of profitable, mature businesses and develop FinTech opportunities. No quantitative revenue or earnings guidance was provided.
- Wainwright implemented fee waivers for three ETFs effective August 15, 2019 through October 31, 2020, subject to possible renewal. These waivers could pressure future financial-services revenue.
- Gourmet Foods terminated an agreement to acquire Maketu Pies on July 31, 2019 after due diligence produced unsatisfactory results.
- On July 2, 2019, Brigadier acquired its Saskatoon office facility and land for approximately US$573,000, funded with approximately US$401,000 of bank debt and US$172,000 of cash. The five-year loan bears interest at 4.14%.
- On August 15, 2019, the company issued 175,000 unregistered common shares to Maxim Group LLC for investment-banking services.
- Key risks include dependence on Wainwright’s AUM and three major funds, customer concentration, reliance on Brigadier’s monitoring-company relationship, dependence on Original Sprout’s packaging supplier, foreign-currency exposure, competition, acquisition execution risk, cybersecurity, regulatory obligations, and reliance on key personnel.
- Approximately 89% of Wainwright revenue and accounts receivable were attributable to USO, USCI, and UNG. Brigadier’s largest customer represented 46% of its revenue, while Gourmet Foods’ largest gasoline-convenience channel represented approximately 43% of revenue.
- Future minimum lease commitments totaled approximately $1.36 million. The company reported no pending legal proceedings and no material off-balance-sheet arrangements.
- The independent auditor, BPM LLP, issued an unqualified opinion on the consolidated financial statements. Management concluded that disclosure controls and internal control over financial reporting were effective; no external auditor attestation was required because the company was a smaller reporting company.
Most Important Facts for Investors to Verify
- Verify the issuer and reporting period: the supplied filing is Concierge Technologies’ FY2019 Form 10-K, not clearly a Marygold Companies filing or a 2018 Q4 report.
- Verify whether the decline in AUM and the related 20% reduction in Wainwright revenue continued after June 30, 2019.
- Review the impact of ETF fee waivers and any subsequent changes in fund assets, product lineup, or regulatory status.
- Assess customer and fund concentration, particularly Wainwright’s reliance on USO, USCI, and UNG and Brigadier’s reliance on its largest customer and monitoring relationship.
- Reconcile reported cash, short-term investments, working capital, acquisition payments, and the post-year-end Saskatoon property financing.
- Review dilution and control implications of the Series B preferred stock, the February 2019 conversion, the voting agreement, and the 175,000 shares issued to Maxim.
- Evaluate the sustainability of profitability given the sharp decline in net income, reduced operating cash flow, and the company’s acquisition-focused strategy.