Business Context and Reporting Period
Concierge Technologies, Inc. filed this unaudited Form 10-Q for the quarter and nine-month period ended March 31, 2014. The filing concerns the former Concierge Technologies entity, not the current Marygold Companies name. The company’s principal operating business was Janus Cam, operated through wholly owned subsidiary Wireless Village, which sold and distributed mobile video surveillance and “drive cam” equipment.
The filing identifies the company as a smaller reporting company and states that it is not a shell company. As of May 14, 2014, it had 240,337,841 common shares, 206,186 Series A preferred shares, and 9,498,409 Series B preferred shares outstanding.
Financial Performance and Position
| Metric | Three Months Ended March 31 | Nine Months Ended March 31 |
|---|---|---|
| Net revenue | $668,560 versus $436,797 | $1,744,209 versus $1,471,364 |
| Gross profit | $306,373 versus $186,600 | $733,671 versus $638,423 |
| Gross margin | 45.8% versus 42.7% | 42.1% versus 43.4% |
| Operating loss | $(66,284) versus $(4,371) | $(239,364) versus $(150,687) |
| Net income attributable to the company | $(66,517) versus $187,919 | $(193,921) versus $54,076 |
General and administrative expense increased to $372,658 from $190,971 for the quarter and to $973,035 from $789,110 for the nine-month period. The nine-month 2013 comparison included a $194,917 gain on disposal of the Planet Halo subsidiary, which did not recur in 2014.
For the nine months, net cash used in operating activities was $178,582, compared with $144,791 in the prior-year period. Investing activities used $5,157, primarily for equipment and amounts due from a related party. Financing activities provided $185,500 from related-party notes, notes payable, and debentures. Cash increased by $1,761 to $41,205 at March 31, 2014.
At March 31, 2014, total assets were $648,352, including $41,205 of cash, $290,399 of net accounts receivable, and $277,872 of inventory. Current liabilities were $1,211,903, producing a current ratio of approximately 0.5 to 1. Total liabilities were $1,211,903 and stockholders’ deficit was $563,551. Accounts payable and accrued expenses totaled $786,985.
Debt included $78,000 of related-party notes, a $50,000 short-term note, an $85,500 convertible debenture, and a $204,700 related-party convertible debenture. The company also reported $12,616 of accrued interest on the related-party convertible debenture.
Material Changes Versus the Prior Comparable Period
- Quarterly revenue increased approximately 53% to $668,560; nine-month revenue increased approximately 19% to $1,744,209.
- Quarterly gross margin improved by approximately three percentage points, while nine-month gross margin declined by approximately one percentage point.
- Quarterly operating loss widened substantially, and the nine-month operating loss increased to $239,364 from $150,687.
- The company reported a quarterly net loss instead of prior-year net income, and a nine-month net loss instead of prior-year net income. The prior-year results benefited from the $194,917 Planet Halo disposal gain and a non-controlling-interest adjustment.
- Accounts receivable increased to $290,399 from $113,386 at June 30, 2013, while inventory increased to $277,872 from $190,281.
- Accounts payable and accrued expenses increased to $786,985 from $522,773, and total stockholders’ deficit increased from $370,380 to $563,551.
- The company raised $135,500 through notes and debentures and received $50,000 of related-party note proceeds during the nine months.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
Management attributed revenue growth to the transition to next-generation products. Discounted sales of discontinued inventory and limited availability of replacement products reduced nine-month margins, while product development, marketing, and staffing costs increased losses. Management stated that margins improved during the March quarter as more profitable next-generation products became available.
The company disclosed substantial going-concern risk. It had an accumulated deficit of $4,767,810 and a nine-month loss of $193,921. Management stated that continued operations depend on increasing profitability, obtaining financing, maintaining supplier relationships, meeting obligations, and successfully competing for customers. Management believed its actions would support operations for the next 12 months, but the filing states that the financial statements do not include adjustments that could be necessary if the company cannot continue as a going concern.
Management expected it might need additional short-term borrowing to purchase inventory and stated that it had relied on insiders, related parties, and third-party convertible debentures to address cash shortfalls. Several debt instruments were convertible into unregistered common shares at discounts to market prices, creating potential dilution.
A $50,000 note was extended to June 1, 2014, with a $750 commitment fee paid through issuance of 53,571 common shares. Convertible debentures funded $53,000 on February 18, 2014 and $32,500 on March 28, 2014, with maturity dates in November and December 2014. An additional $32,500 convertible debenture was funded on April 28, 2014, after the reporting date, with maturity in January 2015.
The company continued to accrue a $135,000 liability related to an expired 2002 judgment, although it stated that the judgment was no longer enforceable absent a new court action. The company’s office lease arrangement runs through November 2014. The filing also disclosed that a temporary chief financial officer was appointed on May 12, 2014 while the regular CFO was unavailable for medical reasons.
Management stated that disclosure controls and procedures were effective and that there were no material changes in internal control over financial reporting during the period.
Investor Verification Priorities
- Verify the correct issuer and reporting period: the supplied filing is for Concierge Technologies, Inc. and ended March 31, 2014, despite the request metadata referring to “Marygold Companies, Inc.” and “2013 Q3.”
- Assess going-concern risk, including $41,205 of cash versus $1.21 million of current liabilities and continued negative operating cash flow.
- Review the terms, maturities, conversion discounts, and potential dilution from the convertible debentures and related-party borrowings.
- Validate the collectability and aging of the $290,399 accounts receivable balance and the valuation and saleability of $277,872 of inventory.
- Reconcile the sharp increase in accounts payable and accrued expenses, including the $135,000 judgment accrual, payroll taxes, accrued interest, and sales-tax items.
- Separate recurring operating performance from the prior-year $194,917 subsidiary-disposal gain and the 2014 $47,849 of other income related primarily to sales-tax and accrued-expense adjustments.