Filing Scope and Business Context
This Form 10-Q was filed by Concierge Technologies, Inc., not Marygold Companies, Inc., for the quarter ended September 30, 2020. The filing identifies Marygold & Co. as a development-stage fintech subsidiary; it had limited expenditures and no revenue during the quarter. The company operated through investment fund management, food products and printing, security systems, and beauty products subsidiaries in the United States, New Zealand, and Canada.
The financial statements are unaudited and prepared under U.S. GAAP. The comparable period is the three months ended September 30, 2019.
Key Financial Metrics
| Metric | Q1 FY2021 | Q1 FY2020 | Change |
|---|---|---|---|
| Net revenue | $10.745 million | $6.028 million | Up 78% |
| Gross profit | $8.346 million | $4.258 million | Up 96% |
| Gross margin | 77.7% | 70.6% | Up approximately 7.1 percentage points |
| Income from operations | $2.869 million | $0.061 million | Up $2.807 million |
| Operating margin | 26.7% | 1.0% | Improved materially |
| Net income | $2.219 million | $0.055 million | Up $2.165 million |
| Net margin | 20.6% | 0.9% | Improved materially |
| Diluted EPS | $0.06 | $0.00 | Improved |
| Net cash from operating activities | $3.605 million | $0.669 million | Up $2.937 million |
Revenue was led by related-party fund management fees of $7.036 million, up 131% from $3.041 million. Food products revenue was $2.057 million, up 65%; security systems revenue was $0.679 million, down 12%; and beauty products and other revenue was $0.973 million, essentially flat.
Operating expenses increased 30% to $5.477 million, including general and administrative expense of $1.911 million, fund operations of $0.903 million, marketing and advertising of $0.801 million, depreciation and amortization of $0.166 million, and salaries and compensation of $1.696 million. Income tax expense was $0.766 million, compared with $0.029 million in the prior-year quarter.
Cash Flow, Liquidity, Debt and Balance Sheet
- Cash and cash equivalents were $12.894 million at September 30, 2020, compared with $9.813 million at June 30, 2020. Cash, cash equivalents, and restricted cash totaled $12.908 million.
- Operating cash flow was $3.605 million. Investing cash flow was negative $0.732 million, primarily reflecting $0.723 million paid for the Printstock acquisition. Financing cash flow was negative $0.003 million.
- Working capital was approximately $15.7 million based on reported current assets of $20.426 million and current liabilities of $4.754 million.
- Total assets were $27.891 million and total liabilities were $6.449 million at September 30, 2020. Stockholders’ equity was $21.442 million.
- Reported related-party and third-party indebtedness was approximately $1.0 million, including $603,500 of related-party notes and approximately $376,055 of property-related debt. A $3,500 shareholder note was past due.
- Operating lease liabilities totaled $852,195, with future minimum lease payments of $979,910 before the present-value discount.
- The company had $1.824 million of short-term investments and no dividends were paid or expected over the next fiscal year.
Material Changes Versus the Prior Comparable Period
- Fund management revenue increased substantially because average assets under management rose to approximately $5.6 billion from $2.1 billion. Reported AUM at September 30, 2020 was approximately $5.2 billion.
- Wainwright’s pretax income increased to approximately $3.2 million from $0.2 million, while its operating expenses increased approximately 34% to $3.8 million.
- Other operating-unit revenue increased 24%, partly because Printstock was acquired on July 1, 2020 and contributed approximately $0.8 million of revenue.
- Gourmet Foods’ revenue increased to approximately $2.1 million, but gross margin declined to approximately 24% from 30%, and net income declined modestly to approximately $93,000 from $102,000. Management cited acquisition-related costs and COVID-19 effects on the New Zealand economy.
- Security systems revenue declined approximately 12%, while its gross margin remained approximately 54%.
- Original Sprout revenue was approximately flat, but net income declined to approximately $65,000 from $81,000.
- Corporate headquarters, including Marygold, reported a net loss of approximately $1.334 million, compared with a $0.438 million loss in the prior-year quarter. Management attributed approximately $0.3 million of the increase to Marygold startup expenses.
- Total assets increased approximately $3.5 million from June 30, 2020, primarily reflecting the Printstock acquisition, higher cash, inventory, property and equipment, goodwill, and intangible assets.
Outlook, Commentary, Risks and Unusual Items
Management stated that it expected Wainwright, Gourmet Foods, Brigadier, and Original Sprout to remain profitable during the coming fiscal year and believed the company had sufficient capital to fund corporate expenses and pursue its objectives, assuming subsidiaries continued to operate as expected. The plan included growing existing businesses, pursuing acquisitions, improving distribution, developing new fund products, and launching Marygold’s fintech services, which management estimated could launch by December 2020. No formal revenue or earnings guidance was provided.
- COVID-19 could adversely affect operations, consumer and investment spending, financial markets, and liquidity; the filing states that the future financial impact was largely unknown.
- Fund management revenue is highly dependent on assets under management and commodity-market conditions. Approximately 69% of Wainwright revenue came from USO in the quarter.
- The company disclosed material customer and supplier concentration risks, including major customers representing significant portions of Brigadier and Gourmet Foods revenue and receivables.
- USCF, USO, and an executive received SEC and CFTC Wells Notices concerning disclosures and actions related to USO’s ability to invest in oil futures. The notices were preliminary and were not formal charges or final findings.
- Multiple putative class actions and derivative actions related to USO disclosures and performance were pending. The defendants intended to contest the claims and seek dismissal. No legal loss contingency was accrued.
- Marygold had approximately $647,000 of future commitments to primary service providers as of September 30, 2020.
- The Printstock purchase price was finalized after quarter-end. A final payment of approximately $277,577 was made on October 5, 2020, funded through an increased intercompany loan to Gourmet Foods.
- Management reported that disclosure controls and procedures were effective at quarter-end and that there were no material changes in internal control over financial reporting.
Most Important Facts to Verify
- Confirm the issuer and reporting-period mapping: the supplied filing is for Concierge Technologies, Inc. for the quarter ended September 30, 2020, while the request metadata identifies Marygold Companies and “2020 Q1.”
- Assess the sustainability of the sharp increase in fund-management revenue and AUM, particularly the concentration in USO and exposure to commodity-market volatility.
- Review the SEC and CFTC Wells Notices and the related USO securities and derivative litigation for potential financial, regulatory, or reputational consequences.
- Verify the final accounting and cash funding of the Printstock acquisition, including the post-quarter-end payment and intercompany financing.
- Monitor Marygold’s development spending, vendor commitments, launch progress, and ability to generate revenue.
- Reconcile reported debt, lease liabilities, related-party balances, expense waivers, and the past-due shareholder note with future cash requirements.
- Evaluate whether the company’s liquidity assessment remains appropriate under continued COVID-19 disruption and changes in fund assets under management.