Marygold Companies, Inc. Form 10-Q Summary
Reporting period: Three and nine months ended March 31, 2023; filed May 15, 2023. The provided metadata labels this as “2022 Q3,” but the filing is for fiscal third quarter 2023. The company operates investment fund management, food products, security systems, beauty products, U.K. financial services, and a developing U.S. fintech business.
Key Financial Metrics
| Metric | Three Months Ended March 31 | Nine Months Ended March 31 |
|---|
| Revenue | $8.3 million vs. $8.8 million | $26.0 million vs. $28.0 million |
| Gross profit | $6.1 million vs. $6.7 million | $19.6 million vs. $20.8 million |
| Gross margin | Approximately 73.6% vs. 76.5% | Approximately 75.2% vs. 74.5% |
| Operating income | $166 thousand vs. $1.04 million | $1.05 million vs. $721 thousand |
| Net income | $153 thousand vs. $870 thousand | $832 thousand vs. $12 thousand |
| Operating cash flow | $819 thousand for the nine months, compared with $(1.77) million |
- Quarterly revenue declined approximately 6%, primarily because U.S. fund-management revenue fell $846 thousand as average assets under management declined to approximately $3.7 billion from $4.4 billion.
- Nine-month revenue declined approximately 7%, including a $1.5 million decline in fund-management revenue. U.K. financial-services revenue contributed $388 thousand for the period following the Tiger acquisition.
- Quarterly net income decreased approximately 82%, driven by lower revenue, higher corporate and fintech development costs, and unfavorable other income compared with the prior-year quarter.
- Nine-month net income increased substantially from the prior year, largely because the prior-year period included a $2.5 million SEC/CFTC settlement expense.
- Net income per share was $0.00 for the quarter and $0.02 for the nine months, compared with $0.02 and $0.00, respectively, in the comparable prior-year periods.
Liquidity, Cash Flow and Capital Structure
| Balance Sheet Item | March 31, 2023 | June 30, 2022 |
|---|
| Cash and cash equivalents | $9.86 million | $12.92 million |
| Restricted cash | $417 thousand | $1.01 million |
| Short-term investments | $8.70 million | $5.07 million |
| Total current assets | $26.0 million | $25.2 million |
| Total liabilities | $4.83 million | $6.27 million |
| Stockholders’ equity | $29.9 million | $29.0 million |
- Cash, cash equivalents and restricted cash totaled $10.3 million at March 31, 2023, down from $13.9 million at June 30, 2022.
- Investing activities used $4.40 million, primarily reflecting $8.0 million of investment purchases, $4.28 million of investment-sale proceeds, and $616 thousand paid toward the Tiger acquisition consideration.
- Financing activities used $16 thousand. The company had no parent-level debt and approximately $337 thousand of third-party property-related debt at the consolidated level.
- The Brigadier mortgage matures June 30, 2024. Operating lease liabilities totaled approximately $1.07 million, and finance lease liabilities totaled approximately $121 thousand.
- Management reported approximately $22 million of working capital and stated that available capital is sufficient for expected expenses and current objectives, subject to operating performance and market conditions.
Material Changes and Segment Developments
- Investment fund management: Revenue declined 14% in the quarter and 9% year to date due to lower AUM. Average AUM was approximately $3.7 billion for the quarter and $3.8 billion for the nine months; reported AUM was approximately $3.7 billion at March 31, 2023.
- Food products: Nine-month revenue declined to $5.7 million from $6.1 million, but gross margin improved to approximately 25% from 24% as management emphasized higher-margin products.
- Security systems: Nine-month revenue was essentially flat at $1.9 million, while net income increased to approximately $302 thousand from $188 thousand.
- Beauty products: Nine-month revenue decreased to $2.3 million from $2.7 million and the net loss widened to approximately $193 thousand from $155 thousand. Management is restructuring distribution channels and expanding online and mainstream retail channels.
- U.K. financial services: The acquired Tiger business generated $130 thousand of quarterly revenue and $388 thousand of nine-month revenue, with nine-month net income of approximately $39 thousand. U.K. AUM was approximately £35 million at March 31, 2023.
- Fintech development: Marygold & Co. remained in the development stage. The company expects commercial services to launch during the current fiscal year and had approximately $1.5 million of future service-provider commitments, including $700 thousand due in fiscal 2023.
Guidance, Outlook, Risks and Unusual Items
- Management expects growth from expanded Original Sprout distribution, continued improvement and product expansion at Gourmet Foods, moderate Brigadier growth, new USCF fund products, additional acquisitions, and the planned fintech launch.
- Results remain sensitive to AUM, commodity and financial-market conditions, foreign-exchange movements, inflation, interest rates, supply disruptions, geopolitical events, and broader economic conditions.
- Cash balances may exceed applicable deposit-insurance limits. The company reported no exposure to Silicon Valley Bank or Signature Bank and stated that it was not affected by the SVB failure.
- USCF and related parties remain defendants in securities and derivative litigation connected with 2020 USO disclosures. The Optimum Strategies action was dismissed on March 15, 2023, with prejudice as to the federal claims and without prejudice as to the Connecticut claim. No accrual was recorded for the remaining matters, and potential losses cannot currently be estimated.
- The company previously paid $2.5 million in aggregate SEC and CFTC civil penalties, which affected the prior-year nine-month comparison.
- The company disclosed approximately $0.3 million of unrecognized tax benefits. No material goodwill or intangible-asset impairment was recorded.
- The company authorized a potential reverse stock split within a range of 1-for-1.5 to 1-for-2.75, subject to board discretion.
- Management concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes in internal control over financial reporting.
Investor Verification Checklist
- Verify the sustainability of fund-management revenue and the sensitivity of earnings to AUM, particularly USO and other major funds.
- Reconcile operating cash flow with the decline in cash and the significant purchases and sales of investments.
- Review the terms and remaining payment exposure for the $605 thousand Tiger acquisition consideration payable at December 31, 2023, including possible downward adjustments.
- Assess the $1.5 million fintech vendor commitments, expected launch timing, development costs, and fraud-control measures following the previously disclosed fintech-account fraud.
- Monitor the remaining USO-related class and derivative litigation and the absence of recorded loss accruals.
- Evaluate customer concentration in Gourmet Foods, Brigadier, and printing operations, including major customers representing substantial portions of revenue and receivables.
- Confirm the effect of the proposed reverse stock split and outstanding equity awards, options, warrants, and Series B preferred shares on dilution and voting control.
