Business Context and Reporting Period
This filing is a Form 10-K for Concierge Technologies, Inc. (the predecessor name of Marygold Companies, Inc.), covering the fiscal year ended June 30, 2014. The request metadata references “2013 Q4,” but the filing itself reports fiscal 2014 annual results and compares them with fiscal 2013.
The company’s only operating subsidiary at June 30, 2014 was Wireless Village, doing business as Janus Cam. The business imports, configures, sells, distributes and installs in-vehicle digital video recording and surveillance systems with GPS, audio, wireless transmission and security features. The company had five full-time employees and relied on independent sales personnel and contractors.
Key Financial Metrics
| Metric | FY 2014 | FY 2013 | Change |
|---|---|---|---|
| Net revenue | $2,268,127 | $2,207,756 | Up 2.7% |
| Cost of revenue | $1,318,657 | $1,237,813 | Up 6.5% |
| Gross profit | $949,471 | $969,943 | Down 2.1% |
| Gross margin | Approximately 41.9% | Approximately 43.9% | Down approximately 2 percentage points |
| General and administrative expense | $1,307,571 | $1,147,556 | Up 13.9% |
| Operating loss | $(358,100) | $(177,612) | Loss increased |
| Net loss attributable to the company | $(319,819) | $94,976 | Declined by $414,795 |
| Net cash used in operating activities | $(200,931) | $(112,710) | Outflow increased |
| Cash and cash equivalents | $20,454 | $39,444 | Down 48.1% |
| Total assets | $691,582 | $385,295 | Up 79.5% |
| Total liabilities | $1,381,031 | $755,675 | Up 82.8% |
| Stockholders’ deficit | $(689,449) | $(370,380) | Deficit increased |
Including other income, consolidated net revenues were $2,326,828 in fiscal 2014 versus $2,219,313 in fiscal 2013. Other income of $58,701 included shipping reimbursements and several adjustments, including a $44,649 downward adjustment to a California sales-tax liability.
Accounts receivable, net of a $25,186 allowance, increased to $159,047 from $113,386. Inventory increased substantially to $474,034 from $190,281. Accounts payable and accrued expenses increased to $953,578 from $522,773.
Current liabilities totaled $1,381,031 against current assets of $667,904, indicating a current ratio of approximately 0.48. Current obligations included $48,000 of related-party notes, $50,000 of notes payable, $118,000 of convertible debentures and $204,700 of related-party convertible debt.
Financing activities provided $188,000, consisting of $20,000 from related-party notes and $168,000 from notes and debentures. Investing activities used $6,060, primarily for equipment purchases and amounts due from a related party.
Material Changes Versus the Prior Comparable Period
- Revenue increased modestly, but gross profit declined because the company discounted existing inventory while transitioning to a new product.
- General and administrative costs increased by approximately $160,000, driven by additional employees, employment agreements, benefits and product-development costs.
- The company shifted from fiscal 2013 income attributable to Concierge of $94,976 to a fiscal 2014 loss of $319,819. Fiscal 2013 benefited from $275,686 of discontinued-operations income, including a gain on the sale of Planet Halo; there was no discontinued-operations income in fiscal 2014.
- Operating cash use increased by $88,221, primarily reflecting the larger net loss, a $283,753 increase in inventory and a $45,661 increase in accounts receivable, partly offset by a $430,805 increase in accounts payable and accrued expenses.
- Debt increased materially. The company recorded $118,000 of new convertible debentures and $50,000 of notes payable at June 30, 2014, while related-party convertible debt of $204,700 was classified as current in 2014 rather than long-term in 2013.
- Common shares outstanding increased slightly to approximately 240.34 million at June 30, 2014 from approximately 240.28 million, including 53,571 shares issued as a $750 loan commitment fee.
Guidance, Outlook, Risks and Unusual Items
Management planned to expand Janus Cam’s sales and marketing channels, add products, develop a proprietary branded offering, introduce a lower-cost consumer product and pursue opportunities in consumer electronics and fleet management. Management also expected to reduce certain selling expenses through third-party distributors and improve cash reserves to address accrued liabilities.
The independent auditors stated that substantial doubt exists regarding the company’s ability to continue as a going concern. The company had an accumulated deficit of $4,893,709 and continuing operating losses. Management’s ability to continue depends on increasing profitability, obtaining financing, maintaining supplier relationships and successfully competing for customers. The financial statements contain no adjustments that might be required if the company cannot continue as a going concern.
- Three convertible debentures funded $53,000, $32,500 and $32,500 in February, March and April 2014. The notes bear 8% interest and become convertible after specified six-month periods at discounts to the market price, creating potential dilution.
- Subsequent to year-end, the holder of the $53,000 debenture converted $28,000 into 4,346,247 common shares. A $25,000 balance plus accrued interest remained payable as of September 30, 2014, subject to further conversion.
- The company retained a $135,000 accrued judgment related to Brookside Investments, although the judgment had lapsed and was no longer enforceable according to the filing.
- The company depends on a major supplier for recording products and had no assurance that products would remain available at required quantities and prices.
- Related-party transactions included notes payable, a $75,000 payment to The Wallen Group, controlled by CEO David Neibert, for consulting and administrative services, and management fees charged by Concierge to Janus Cam.
- Chairman and director Allen E. Kahn died on July 26, 2014. Directors Nelson Choi and Peter Park resigned from the parent-company board on August 27, 2014, leaving vacancies as of the filing date.
- The common stock traded on the OTC Markets QB exchange and was subject to penny-stock regulations, potentially limiting liquidity and resale opportunities.
- Management reported effective disclosure controls and no material weakness in internal control over financial reporting; the auditor’s report did not include an internal-control attestation because the company qualified for the applicable exemption.
Most Important Facts for Investors to Verify
- Whether the company can generate positive operating cash flow and reduce its substantial accounts payable and accrued liabilities.
- The maturity, repayment status, conversion terms and potential dilution from the convertible debentures and related-party convertible debt.
- Whether Janus Cam’s product transition improves gross margins after the fiscal 2014 inventory liquidation.
- The collectability and valuation of the $474,034 inventory balance and $159,047 accounts receivable balance.
- The company’s ability to obtain financing and address the auditor’s going-concern uncertainty.
- The status of the $135,000 accrued judgment and other tax, payroll-tax and accrued-interest liabilities.
- The effect of management and board changes following Mr. Kahn’s death and the resignations of Messrs. Choi and Park.
- The voting and conversion impact of 206,186 Series A preferred shares and 9,498,409 Series B preferred shares, which carry significant common-stock-equivalent voting rights.