SEC Filing Summary
Filing: Form 10-K for Concierge Technologies, Inc. (the filing predates the Marygold Companies, Inc. name), filed September 28, 2018, covering the fiscal year ended June 30, 2018. The supplied metadata references “2017 Q4,” but the filing reports fiscal 2018 annual results and fiscal 2017 comparisons.
Business Context and Reporting Period
The company operated through four principal subsidiaries: Wainwright Holdings, which manages and advises commodity funds and exchange-traded products; Gourmet Foods, a New Zealand meat-pie and bakery business; Brigadier Security Systems, a Canadian security-system and monitoring business; and Original Sprout, a U.S. wholesale hair- and skin-care products business acquired in December 2017.
The company uses a decentralized operating model. Wainwright’s results are highly dependent on assets under management, while the other businesses are exposed to customer concentration, foreign-currency movements, operating execution, and acquisition integration. Wainwright reported approximately $3.1 billion of assets under management at June 30, 2018 and approximately $3.4 billion average AUM for the year.
Financial Results and Key Metrics
| Metric | FY2018 | FY2017 | Change |
|---|---|---|---|
| Net revenue | $28.71 million | $32.01 million | Down 10.3% |
| Gross profit | $22.80 million | $27.16 million | Down 16.1% |
| Gross margin | 79.4% | 84.8% | Down 5.4 percentage points |
| Operating income | $2.81 million | $6.73 million | Down 58% |
| Income before taxes | $2.50 million | $6.78 million | Down 63% |
| Income tax provision | $0.77 million | $1.59 million | Down 51.8% |
| Net income | $1.73 million | $5.19 million | Down 66.6% |
| Comprehensive income | $1.76 million | $5.34 million | Down 66.9% |
| Basic earnings per share | $0.06 | $0.18 | Declined |
| Diluted earnings per share | $0.05 | $0.14 | Declined |
| Net cash from operating activities | $3.00 million | $5.18 million | Down 42.0% |
Revenue consisted of $18.74 million from fund management, $4.97 million from food products, $3.30 million from security alarm monitoring, and $1.69 million from beauty products and other activities. Wainwright revenue declined approximately 22% as average AUM fell from approximately $4.5 billion to $3.4 billion, primarily because of lower USO AUM.
Operating expenses were $19.99 million versus $20.43 million in the prior year. General and administrative expense declined, but salaries, depreciation and amortization, and advertising remained significant. Marketing and advertising expense was approximately $3.6 million.
At June 30, 2018, cash and cash equivalents were $7.52 million versus $6.73 million. Total current assets were $16.70 million, compared with current liabilities of $5.17 million. Total assets were $23.10 million and stockholders’ equity was $16.98 million.
Total liabilities were $6.13 million, including $603,500 of related-party notes payable and approximately $196,000 of equipment-loan principal at Brigadier. The company also reported $1.205 million of purchase consideration payable for the Original Sprout acquisition, due by January 5, 2019 subject to adjustment. A $3,500 related-party note was past due.
Material Changes Versus the Prior Comparable Period
- Consolidated revenue decreased $3.30 million, driven primarily by a $5.18 million decline in Wainwright fund-management revenue, partially offset by approximately $1.9 million of growth from the other operating subsidiaries.
- Operating income declined $3.92 million and net income declined $3.45 million.
- Operating cash flow declined $2.18 million to $3.00 million, while cash increased because investing outflows were lower than in the prior year and operating activities remained positive.
- Original Sprout was acquired on December 18, 2017 and contributed $1.69 million of revenue and approximately $43,000 of net income. The filing states that only two quarters of current operations are reflected, so the year is not representative of a full operating period and there is no meaningful comparable prior-year segment.
- The company invested approximately $2.5 million in cash toward acquiring and integrating Original Sprout assets. The acquisition created $416,817 of goodwill and substantially increased intangible assets.
- A 1-for-30 reverse stock split became effective December 15, 2017. Series B preferred stock was reclassified into stockholders’ equity after the split because sufficient authorized common shares became available for conversion.
- Foreign-currency translation changed from a $113,000 gain in FY2017 to a $214,000 loss in FY2018. Short-term investment valuation gains increased from $36,000 to $244,000.
Segment Performance
| Segment | FY2018 Revenue | FY2018 Net Income | FY2017 Net Income |
|---|---|---|---|
| U.S. investment fund management | $18.74 million | $1.95 million | $5.52 million |
| New Zealand food products | $4.97 million | $99,000 | $14,000 |
| Canada security alarm | $3.30 million | $387,000 | $343,000 |
| U.S. beauty products | $1.69 million | $43,000 | $(26,000) |
| Corporate headquarters | Not separately reported | $(745,000) | $(669,000) |
Guidance, Outlook, Risks, and Unusual Items
Management expected all four operating subsidiaries to be profitable in the following fiscal year. Its stated priorities were to invest in Original Sprout, achieve moderate growth at Brigadier, improve Gourmet Foods’ efficiency and distribution, develop new Wainwright fund products, and continue pursuing acquisitions of profitable, mature companies.
- Wainwright revenue and accounts receivable were concentrated in three funds: USO, USCI, and UNG. Approximately 90% of Wainwright revenue and receivables were attributed to those funds.
- Gourmet Foods had significant customer concentration. One gasoline-convenience consortium represented approximately 41% of its FY2018 sales, while two grocery customers represented approximately 33% of sales combined.
- Brigadier’s largest customer represented approximately 41% of segment revenue and 35% of accounts receivable. The business also depends on its contractual relationship with the alarm-monitoring company that services customer accounts.
- Original Sprout relied on one packaging company for current production, although management identified alternative suppliers. Three distributor accounts represented 43% of Original Sprout accounts receivable.
- The company is exposed to competition, commodity-market and AUM fluctuations, customer loss, ingredient and packaging availability, foreign-currency movements, regulatory requirements, acquisition integration, and key-person dependence.
- The company recorded a provisional $506,017 net tax charge related to the Tax Cuts and Jobs Act, including approximately $504,905 from remeasuring deferred tax balances. The filing states that the accounting was incomplete and could be revised.
- USCF Advisers had expense-waiver and expense-limitation obligations for certain funds. Expense-waiver payables were $662,650 at June 30, 2018.
- Future minimum lease commitments totaled approximately $1.51 million, including $407,212 due in the year ending June 30, 2019.
- After year-end, USAG, DNO, and UHN were authorized for liquidation, with liquidation occurring September 12, 2018.
- The company reported no material legal proceedings and no material off-balance-sheet arrangements. Management concluded that disclosure controls and internal control over financial reporting were effective; the auditor did not provide an internal-control attestation because it was not required.
Most Important Facts for Investors to Verify
- Verify the issuer identity and period: the source filing is for Concierge Technologies, Inc. and fiscal year ended June 30, 2018, not a 2017 fourth-quarter filing for Marygold Companies, Inc.
- Reconcile the substantial decline in Wainwright AUM, fund-management revenue, operating income, and net income.
- Assess whether Original Sprout can scale beyond its partial-year FY2018 contribution and whether the $1.205 million acquisition balance was paid or adjusted by January 5, 2019.
- Review customer and fund concentration, particularly USO, USCI, UNG, the major Gourmet Foods customers, and Brigadier’s largest customer.
- Evaluate liquidity after acquisition payments, lease commitments, related-party obligations, fund expense waivers, and equipment-loan repayments.
- Review the potential dilution and voting impact of 436,951 Series B preferred shares convertible into approximately 8.74 million common shares and carrying 20 votes per preferred share.
- Confirm the final accounting for the Tax Cuts and Jobs Act, uncertain tax positions, and any subsequent revisions to the provisional tax charge.
- Consider the effect of the 1-for-30 reverse stock split and the company’s OTCQB penny-stock trading status on liquidity and shareholder resale ability.