Business Context and Reporting Period
The Marygold Companies, Inc. filed this Form 10-K for the fiscal year ended June 30, 2022, with audited comparative results for fiscal 2021. The supplied metadata references “2021 Q4,” but the filing is an annual FY2022 report, not a quarterly filing.
The company is a decentralized holding company operating through subsidiaries in investment fund management, food manufacturing and printing, security systems, beauty products, and developing fintech and U.K. asset-management businesses. USCF Investments remained the principal business, managing 12 exchange-traded products with approximately $4.9 billion of assets under management at June 30, 2022.
- Marygold & Co. remained in the development stage and expected to launch its mobile application during fiscal 2023.
- Marygold UK began operations after acquiring Tiger Financial and Asset Management on June 20, 2022; Tiger had approximately £42 million of assets under management.
- The company began trading on NYSE American on March 10, 2022.
Key Financial Metrics
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | $37.83 million | $39.90 million | Down $2.08 million |
| Gross profit | $28.63 million | $30.61 million | Down $1.98 million |
| Income from operations | $2.38 million | $7.42 million | Down $5.04 million |
| Income before taxes | $2.36 million | $7.63 million | Down $5.28 million |
| Net income | $1.15 million | $5.85 million | Down 80.4% |
| Basic and diluted EPS | $0.03 | $0.15 | Down $0.12 |
| Comprehensive income | $0.77 million | $6.14 million | Down $5.37 million |
| Net cash from operating activities | $(0.58) million | $7.22 million | Down $7.80 million |
Consolidated gross margin was approximately 75.7% in FY2022 versus 76.7% in FY2021. Operating margin was approximately 6.3% versus 18.6%, and net margin was approximately 3.0% versus 14.7%.
Revenue by Segment
| Segment | FY2022 | FY2021 |
|---|---|---|
| Investment fund management | $23.84 million | $25.17 million |
| New Zealand food industry | $7.93 million | $8.26 million |
| Beauty products | $3.53 million | $3.76 million |
| Canada security systems | $2.53 million | $2.72 million |
- USCF Investments generated approximately 63% of consolidated revenue. Average AUM declined to approximately $4.4 billion from $4.9 billion, reducing management and advisory-fee revenue by approximately $1.4 million.
- Gourmet Foods reported a 25% gross margin versus 31% in the prior year, reflecting ingredient shortages, higher input and shipping costs, COVID-19 effects, and currency translation.
- Brigadier reported an approximately 54% gross margin versus 53% in the prior year and maintained an operating profit margin of approximately 10%.
- Original Sprout reported an approximately 41% gross margin versus 40%, but remained loss-making at the operating and net-income levels.
Liquidity, Cash Flow, Debt and Capital Resources
| Balance-sheet item | June 30, 2022 | June 30, 2021 |
|---|---|---|
| Cash and cash equivalents | $12.92 million | $16.07 million |
| Restricted cash | $1.01 million | $0.01 million |
| Total current assets | $25.24 million | $24.11 million |
| Total assets | $35.31 million | $31.51 million |
| Total liabilities | $6.27 million | $6.22 million |
| Stockholders’ equity | $29.04 million | $25.29 million |
- Cash, cash equivalents, and restricted cash declined by $2.16 million during FY2022 to $13.93 million.
- Operating cash flow was negative $0.58 million, while investing cash outflow was $3.73 million, primarily reflecting $3.71 million of investment purchases and acquisition-related payments.
- Financing cash inflow was $2.34 million, including $2.98 million of net proceeds from the March 2022 public offering and repayment of $0.60 million of related-party loans.
- Third-party indebtedness was approximately $0.4 million, primarily a Brigadier property loan bearing 4.14% interest and maturing in 2024. The company reported no parent-level debt at June 30, 2022.
- Operating lease liabilities totaled $1.40 million, and finance-lease liabilities totaled approximately $0.13 million.
- Working capital was approximately $20 million. Management stated that available capital was sufficient for the coming fiscal year under expected operating conditions, while noting sensitivity to COVID-19 and market disruptions.
- The company paid no dividends and does not expect to pay dividends in the foreseeable future.
Material Changes Versus the Prior Comparable Period
- Revenue decreased 5.2%, primarily because of lower USCF AUM and lower revenue at the other operating subsidiaries.
- Operating income declined 68.0%, driven by approximately $3.1 million of Marygold fintech development costs, a $2.5 million USCF legal settlement, lower revenue, and higher fund operating costs.
- Net income declined approximately 80%, from $5.85 million to $1.15 million.
- Operating cash flow changed from positive $7.22 million to negative $0.58 million.
- USCF’s operating expenses increased to $16.7 million, including the $2.5 million settlement payment, while its income before taxes declined to $7.1 million from $10.0 million.
- Gourmet Foods’ gross margin contracted from approximately 31% to 25% as revenue declined and input costs increased.
- The company acquired Tiger Financial and Asset Management for approximately $2.9 million, with approximately £1.0 million remaining payable at June 30, 2022, subject to contractual adjustments.
- The company issued 1,897,500 common shares in a March 2022 underwritten offering, generating approximately $2.98 million of net proceeds, and issued warrants for up to 82,500 shares.
- Goodwill increased to $2.31 million from $1.04 million, primarily due to the Tiger acquisition.
Guidance, Outlook, Risks and Unusual Items
Management Outlook
- Management expects Marygold & Co. to launch its mobile application during fiscal 2023, although timing and market acceptance are uncertain.
- Original Sprout is transitioning from wholesale distribution toward direct retail and online channels, with management expecting future sales-volume and margin benefits but acknowledging prior losses and channel disruption.
- Management expects moderate Brigadier growth through focused initiatives and telecom and contractor partnerships.
- Gourmet Foods is targeting improved efficiency by eliminating low-margin products, developing new sales channels, and expanding Printstock operations.
- USCF intends to develop additional fund products, but revenue remains dependent on AUM, commodity markets, fund performance, and investor sentiment.
Material Risks and Contingencies
- USCF and USO remain defendants in securities and derivative litigation related to 2020 oil-market conditions. No accrual was recorded because the company could not estimate the timing or amount of any potential loss.
- USCF and USO previously resolved SEC and CFTC investigations through cease-and-desist orders and aggregate civil penalties of $2.5 million, paid in FY2022.
- Marygold identified fraudulent activity during beta testing of its fintech platform involving approximately 80 accounts and approximately $103,000 of misappropriated funds. The application was removed from app stores; an accrual of approximately $250,000 was recorded and later reduced by approximately $147,000.
- USCF revenue concentration is significant: approximately 53% of USCF revenue came from USO in FY2022, compared with 65% in FY2021.
- Brigadier’s largest customer represented 52% of its FY2022 revenue, while Gourmet Foods and Original Sprout also have significant customer and supplier concentrations.
- COVID-19-related supply-chain disruption, ingredient shortages, inflation, shipping costs, commodity-price volatility, foreign-exchange movements, cybersecurity incidents, regulatory compliance, and competition could materially affect results.
- The company is a controlled company under NYSE American rules. Nicholas Gerber and Scott Schoenberger represented approximately 56.8% of voting stock under their voting agreement and may exert significant influence over corporate matters.
- Management concluded that disclosure controls and internal control over financial reporting were effective as of June 30, 2022. The independent auditor did not provide an internal-control attestation because the company was not required to obtain one.
Important Facts for Investors to Verify
- Confirm the filing period: the document reports the fiscal year ended June 30, 2022, not 2021 Q4.
- Review whether USCF AUM and revenue concentration continue to decline or remain concentrated in USO and other commodity funds.
- Assess Marygold fintech launch timing, remaining development commitments, cybersecurity controls, and the ultimate impact of the beta-platform fraud incident.
- Monitor the outstanding USO-related litigation and any changes in the company’s ability to estimate potential losses.
- Verify the remaining Tiger acquisition payments, including the December 2022 and December 2023 installments and any customer-retention adjustment.
- Evaluate whether Gourmet Foods can recover lost gross margin as supply-chain pressures and input costs normalize.
- Consider the company’s negative FY2022 operating cash flow relative to stated acquisition and fintech investment plans.
- Review related-party fund-management revenue and receivables, controlled-company governance implications, preferred-stock conversion rights, and potential dilution from outstanding warrants and preferred shares.