Marygold Companies, Inc. (formerly Concierge Technologies, Inc.) — Form 10-Q Summary
Reporting period: Three months ended September 30, 2013; filed November 14, 2013. The company’s principal operating business was the purchase and sale of digital equipment, including mobile video surveillance systems, through its wholly owned subsidiary Wireless Village, doing business as Janus Cam. Planet Halo was disposed of during fiscal 2013 and is presented as discontinued operations.
Financial performance and position
| Metric | Q1 FY2014 | Q1 FY2013 |
|---|---|---|
| Net revenue | $561,899 | $624,577 |
| Cost of revenue | $351,558 | $355,689 |
| Gross profit | $210,341 | $268,888 |
| Gross margin | 37% | 43% |
| General and administrative expense | $308,547 | $220,334 |
| Operating income (loss) | $(98,206) | $48,554 |
| Total other income (expense) | $46,465 | $(15,194) |
| Net loss attributable to the company | $(52,541) | $(37,217) |
| Net cash provided by operating activities | $24,475 | $(77,217) |
- Revenue declined approximately 10.0% year over year. Management reported combined hardware and support-service sales of $561,899 versus $621,237 in the comparable period.
- Gross profit declined approximately 22%, and gross margin fell six percentage points to 37%, primarily because discontinued products were sold at discounts during the transition to next-generation products.
- General and administrative expense increased approximately 40%, reflecting additional staff, insurance and medical coverage, product development, and expanded office space.
- Other income included a nonrecurring $44,649 downward adjustment to a California sales-tax liability and a $1,100 reduction in accrued expenses. Other income totaled $49,701 in the quarter.
- Cash and cash equivalents increased to $63,108 at September 30, 2013 from $39,444 at June 30, 2013, primarily because of positive operating cash flow and working-capital changes.
- Total assets were $345,465. Total liabilities were $768,386, resulting in stockholders’ deficit of $422,921.
- Accounts payable and accrued expenses totaled $535,404, including a $135,000 accrued judgment, $23,612 of accrued interest, and $343,025 of accounts payable.
- Debt included $28,000 of current related-party notes payable and a $204,700 related-party convertible debenture due January 1, 2015. The debenture bears interest at 4.944% and is convertible into common stock at $0.02 per share.
Material changes versus the prior comparable period
- The company moved from operating income of $48,554 to an operating loss of $98,206.
- Net revenue decreased $62,678, while gross profit decreased $58,547.
- The company reported a consolidated net loss of $52,541 compared with a prior-year net loss attributable to Concierge Technologies of $37,217. The filing’s MD&A contains an inconsistent reference to a prior-year loss of $32,217; the financial statements report $37,217.
- Net cash from operating activities improved by $101,692, from $(77,217) to $24,475, aided by a $45,573 reduction in inventory and a $14,008 decrease in accounts receivable.
- Prior-year results included a $43,942 loss from discontinued operations, $25,834 of income attributable to noncontrolling interests, and $9,439 of beneficial conversion feature expense. None of these items was recorded in the current quarter.
- On January 31, 2013, the company completed the disposition of Planet Halo and exchanged shares with Janus Cam minority owners; consequently, no noncontrolling-interest income was recorded in the current quarter.
Outlook, liquidity, risks, and unusual items
- Management expected product-transition effects to continue into the following quarter because discounted discontinued inventory had been sold and replacement next-generation inventory was insufficient to immediately fulfill orders. Management expected stabilized inventory levels to resolve the issue.
- The filing includes a going-concern disclosure. The company had an accumulated deficit of $4,626,430 and stated that continued operations depend on increasing profitability, obtaining financing, maintaining vendor and supplier relationships, and successfully competing for customers.
- Management stated that its operating initiatives, including expanded distribution channels, management of accrued expenses and payables, subsidiary strategy execution, and pursuit of synergistic partners, were expected to support operations for the next 12 months.
- Liquidity remained constrained by aging commercial and vendor liabilities. Management stated that available resources had generally supported payments to management, contractors, sales personnel, advisors, and vendors as obligations became due, but had not eliminated accumulated liabilities from prior years.
- The company continued to accrue a $135,000 Brookside Investments judgment even though the filing states that the judgment had expired and was no longer enforceable absent a new court action.
- Rent expense increased to $9,002 from $5,693. Janus Cam operated as a month-to-month subtenant while assuming lease obligations through November 2014.
- Management concluded that disclosure controls and procedures were effective and reported no material changes to internal control over financial reporting.
Important facts for investors to verify
- Whether Janus Cam’s next-generation product transition restored inventory availability and revenue growth after the reporting period.
- Whether the company generated sustained positive operating cash flow and reduced its $535,404 accounts-payable and accrued-expense balance.
- How the $204,700 related-party convertible debenture and other related-party obligations may affect future share dilution and liquidity.
- Whether management’s plan to continue operations for the next 12 months was achieved, given the explicit going-concern disclosure and stockholders’ deficit.
- The nature and sustainability of the $45,749 combined benefit from the sales-tax and accrued-expense adjustments included in other income.
- The filing’s inconsistent prior-year net-loss figures in MD&A versus the financial statements.