Marygold Companies, Inc. annual report, FY2023

Business Context and Reporting Period

The filing is Marygold Companies, Inc.’s Form 10-K for the fiscal year ended June 30, 2023, filed September 25, 2023. Although the request metadata references “2022 Q4,” this is an annual filing covering fiscal 2023 and comparative fiscal 2022 results, not a quarterly filing.

Marygold operates through diversified subsidiaries: USCF Investments and USCF Advisers manage commodity and other exchange-traded products; Gourmet Foods produces and prints food products and wrappers in New Zealand; Brigadier provides security systems in Canada; Original Sprout distributes beauty products; Marygold & Co. develops fintech services; and Marygold UK operates the acquired Tiger financial-advisory business.

Financial Metrics

Metric	FY2023	FY2022	Change
Revenue	$34.9 million	$37.8 million	Down 8%
Gross profit	$26.1 million	$28.6 million	Down $2.5 million
Gross margin	74.9%	75.7%	Down approximately 0.8 percentage points
Operating expenses	$24.7 million	$26.3 million	Down $1.5 million
Operating income	$1.4 million	$2.4 million	Down approximately 40%
Income before taxes	$1.6 million	$2.4 million	Down $0.8 million
Net income	$1.2 million	$1.1 million	Up approximately $19 thousand
Basic and diluted EPS	$0.03	$0.03	No reported change
Comprehensive income	$1.3 million	$0.8 million	Improved due to currency translation

USCF Investments generated $20.9 million of revenue, down from $23.8 million, primarily because average assets under management declined to approximately $3.7 billion from $4.4 billion. AUM at June 30, 2023 was approximately $3.5 billion.
Food-products revenue was $7.6 million, with $1.9 million of gross profit and an approximately 25% gross margin.
Security-systems revenue was $2.8 million, with $1.5 million of gross profit and an approximately 55% gross margin.
Beauty-products revenue was $3.0 million, with $1.3 million of gross profit and an approximately 42% gross margin. The segment recorded a net loss of approximately $289 thousand.
Marygold UK contributed $517 thousand of revenue and $53 thousand of net income. Tiger had approximately $40 million of AUM at June 30, 2023.
Marygold & Co. incurred approximately $3.4 million of fintech-app development expense. The app launched commercially in June 2023, but operations were insignificant during the fiscal year.
Net cash provided by operating activities was $1.85 million, compared with $0.58 million of cash used in operating activities in FY2022.
Net cash used in investing activities was $7.29 million, principally reflecting $15.86 million of investment purchases, partly offset by $9.28 million of investment sales.
Cash and cash equivalents were $8.16 million at June 30, 2023, compared with $12.92 million at June 30, 2022. Restricted cash was $425 thousand.
Working capital was approximately $22.6 million. Total assets were $35.3 million and total stockholders’ equity was $30.4 million.
Third-party debt was approximately $0.3 million, primarily a Brigadier mortgage of approximately $341 thousand secured by its Saskatoon property. The loan matures in June 2024 and bears interest at 4.14%.
Total operating lease liabilities were $837.8 thousand, and a finance-lease liability related to a New Zealand solar-energy system was approximately $117.8 thousand.
No dividends were paid, and management does not expect dividends in the foreseeable future.

Material Changes Versus the Prior Comparable Period

Revenue declined $3.0 million, driven mainly by lower USCF fund-management revenue. Non-financial subsidiaries collectively declined approximately $0.5 million, partly offset by $0.5 million from the newly acquired UK financial-services operation.
Operating income decreased despite lower operating expenses because of lower revenue and substantial fintech development spending. FY2022 operating expenses included a $2.5 million USCF legal settlement that did not recur in FY2023.
Net income increased slightly because the prior-year legal settlement and higher tax expense more than offset lower revenue and fintech investment.
USCF Investments’ pretax income increased to $7.6 million from $7.1 million as the reduction in operating expenses exceeded the revenue decline.
Original Sprout revenue declined approximately 14%, and its net loss widened from approximately $188 thousand to $289 thousand as the business transitioned away from domestic wholesale distributors toward direct and online channels.
Brigadier revenue increased approximately 12%, and its operating margin improved to approximately 13% from 10%.
Cash declined approximately $4.8 million, primarily because of fintech development and investment activity. Investments at fair value increased to $11.5 million from $5.1 million.
Marygold UK became a separately identified operating segment in FY2023 following the acquisition of Tiger in June 2022.

Guidance, Outlook, Risks and Unusual Items

Management expects Original Sprout to improve sales volume and profitability as it establishes new channel partners and implements price protections.
Management expects moderate Brigadier growth through focused initiatives and partnerships with telecom companies and contractors.
Management expects Gourmet Foods to improve efficiency by eliminating low-margin products, developing new sales channels and expanding Printstock operations.
USCF plans to develop new fund products, but results remain sensitive to commodity markets, investor sentiment and fund AUM.
Management intends to expand Marygold’s fintech services in the United States and ultimately the United Kingdom, but no firm UK launch timeline or market-acceptance assurance is provided.
Marygold has approximately $1.7 million of future commitments to primary service vendors, including approximately $1.3 million due in fiscal 2024.
USCF and related parties remain subject to putative class and derivative litigation arising from 2020 USO disclosures and market conditions. No accrual was recorded because the company cannot reasonably estimate the timing or amount of potential losses.
The Optimum Strategies action was dismissed by the court in March 2023; no appeal was filed. Other USO-related matters remain pending or stayed.
USCF and USO previously paid aggregate SEC and CFTC civil monetary penalties of $2.5 million under 2021 settlements.
In a prior fintech-platform fraud incident, approximately 80 accounts were opened fraudulently and approximately $103 thousand was misappropriated. The company states that no personally identifiable information was compromised.
Major risks include dependence on USCF revenue and AUM, customer concentration, commodity-market volatility, regulatory compliance, litigation, cybersecurity, fintech execution, foreign-currency movements, supply-chain and labor constraints, and reliance on key personnel.
Gerber and Schoenberger control approximately 56.84% of voting stock under a voting agreement. The company qualifies as a controlled company and may rely on exemptions from certain NYSE American governance requirements.
The independent auditor issued an unqualified opinion. Management reported effective disclosure controls and internal control over financial reporting; the auditor was not required to provide an internal-control attestation.

Important Facts for Investors to Verify

Verify current USCF AUM, fund flows and revenue concentration, including the continuing dependence on USO, UNG and USCI.
Assess whether Marygold & Co. can convert its fintech investment into commercial revenue while meeting regulatory, cybersecurity and vendor commitments.
Monitor Original Sprout’s channel transition, revenue recovery and path to profitability.
Review liquidity after considering the June 2024 Brigadier debt maturity, lease obligations, restricted cash and fintech vendor commitments.
Follow the pending USO-related litigation and any potential exposure not accrued in the financial statements.
Evaluate customer concentration in Gourmet Foods, Brigadier and Tiger, including Tiger’s reliance on approximately 50 families and one client representing 33% of Tiger revenue and AUM.
Consider the effect of foreign-exchange movements on New Zealand, Canadian and UK operations and comprehensive income.
Confirm the voting and conversion effects of the 49,360 outstanding Series B preferred shares, each convertible into 20 common shares and carrying equivalent voting rights.