Business Context and Reporting Period
This filing is a Form 10-Q for Concierge Technologies, Inc. (the historical issuer associated with Marygold Companies, Inc.), covering the quarter and nine months ended March 31, 2018, within fiscal 2018. The unaudited consolidated operations comprise U.S. investment-fund management, U.S. beauty products, New Zealand food products, and Canadian security-alarm monitoring.
The company remained a smaller reporting company and reported 29,559,139 common shares and 436,951 Series B preferred shares outstanding as of May 10, 2018. Each Series B preferred share was convertible, subject to conditions, into 20 common shares and carried equivalent voting rights.
Key Financial Metrics
| Metric | Three months ended March 31, 2018 | Three months ended March 31, 2017 | Nine months ended March 31, 2018 | Nine months ended March 31, 2017 |
|---|---|---|---|---|
| Revenue | $6.79 million | $7.49 million | $21.39 million | $24.43 million |
| Gross profit | $5.34 million | $6.45 million | $17.22 million | $21.20 million |
| Gross margin | 78.7% | 86.1% | 80.5% | 86.8% |
| Operating income | $222 thousand | $1.10 million | $2.22 million | $5.08 million |
| Operating margin | 3.3% | 14.7% | 10.4% | 20.8% |
| Net income | $779 | $1.04 million | $850 thousand | $3.37 million |
| Basic earnings per share | $0.00 | $0.04 | $0.03 | $0.11 |
Net revenue consisted principally of fund management fees of $4.35 million for the quarter and $14.35 million for the nine-month period. Food products generated $1.24 million and $3.75 million, security monitoring generated $554 thousand and $2.53 million, and beauty products generated $655 thousand and $766 thousand, respectively.
For the nine months, net cash provided by operating activities was $2.35 million, compared with $4.10 million in the prior-year period. Investing activities used $2.21 million, including $2.25 million paid for business assets and $302 thousand for equipment. Financing activities provided $123 thousand. Cash and cash equivalents increased to $7.07 million from $6.73 million at June 30, 2017.
At March 31, 2018, total assets were $22.24 million and total liabilities were $6.04 million. Current assets were $15.51 million versus current liabilities of $5.02 million. Investments were $3.11 million. Debt included $603.5 thousand of related-party notes, including a $3.5 thousand past-due note, and approximately $211.5 thousand of equipment-loan principal. Purchase consideration payable for the Original Sprout acquisition was $1.23 million.
Material Changes Versus the Prior Comparable Period
- Quarterly revenue declined 9.4% and nine-month revenue declined 12.4%, primarily because lower assets under management reduced Wainwright fund-management revenue.
- Average assets under management declined to approximately $3.2 billion for the quarter from $4.3 billion and to $3.5 billion for the nine months from $4.6 billion.
- Quarterly operating income fell approximately 80% and nine-month operating income fell approximately 56%. Gross and operating margins contracted materially.
- Net income declined to nominal profitability for the quarter and fell approximately 75% for the nine-month period.
- Original Sprout assets were acquired on December 18, 2017 for approximately $3.5 million. The acquisition added $655 thousand of quarterly revenue but also increased intangible assets, goodwill, amortization, and acquisition-related charges.
- Beauty-products revenue increased substantially because of Original Sprout, while food revenue increased and security-monitoring revenue declined. The company completed a one-for-thirty reverse stock split effective December 15, 2017; historical share data was retrospectively adjusted.
- Accumulated other comprehensive income benefited from a $224 thousand nine-month increase in short-term investment valuation, partly offset by a $91 thousand foreign-currency translation loss.
Guidance, Outlook, Risks, and Unusual Items
No quantified financial guidance was provided. Management’s stated plan is to grow Original Sprout through marketing, pursue moderate growth in Brigadier, improve Gourmet Foods’ efficiency and market share, develop new Wainwright fund products, and continue pursuing acquisitions of profitable mature companies.
- Wainwright’s results are highly sensitive to fund assets under management, fund flows, commodity-market conditions, and the launch or liquidation of funds.
- Revenue concentration is material: one monitoring customer represented 51% of quarterly consolidated revenue and 39% of nine-month revenue; significant customer concentration also existed within Gourmet Foods and Wainwright.
- Original Sprout was acquired with a $1.23 million remaining purchase obligation at March 31, 2018, with additional payment and adjustment terms extending into 2018 and 2019. The acquisition generated a one-time $46 thousand inventory charge, $64 thousand of imputed interest, and increased amortization.
- USCF had expense-waiver obligations of $1.06 million at March 31, 2018 and may be required to reimburse certain fund expenses, although it had no obligation to continue payments into subsequent periods.
- The company held $1.03 million of net deferred tax assets and disclosed approximately $200 thousand of unrecognized tax benefits. The Tax Cuts and Jobs Act resulted in a transition-tax charge of approximately $50 thousand and a separate $500 thousand deferred-tax remeasurement expense during the second quarter.
- Total minimum lease commitments were $484 thousand, and a new Wainwright office lease beginning October 2018 was expected to total approximately $763 thousand over 63 months.
- Management reported no material litigation, no significant changes in internal controls, and no active tax-authority examinations as of March 31, 2018. The filing does not provide a separate risk-factor discussion because the company qualified as a smaller reporting company.
- Subsequent to quarter-end, a new Wainwright fund launched with initial seed capital of $6.6 million on May 3, 2018.
Most Important Facts to Verify
- Confirm the issuer identity and corporate-name history, because the supplied filing is for Concierge Technologies, Inc., while the request identifies Marygold Companies, Inc.
- Assess whether lower Wainwright AUM and fund-management revenue represent a continuing trend and how sensitive earnings are to fund flows.
- Review the Original Sprout acquisition’s remaining payment obligations, purchase-price adjustments, integration results, and recurring versus one-time costs.
- Evaluate customer concentration and the effect of losing or renegotiating the major monitoring and food-distribution relationships.
- Reconcile cash availability at the holding-company level with subsidiary cash, restricted cash, investment liquidity, related-party obligations, lease commitments, and acquisition payments.
- Verify the dilutive effect and voting control associated with the Series B preferred stock and the one-for-thirty reverse stock split.