Business Context and Reporting Period
This Form 10-Q is filed by Concierge Technologies, Inc., not Marygold Companies, Inc. The filing covers the three and six months ended December 31, 2019, with comparative periods ended December 31, 2018. Marygold & Co. was a newly formed fintech subsidiary that had not commenced operations and was expected to begin operations by May 2020.
The company operated through investment fund management, New Zealand food products, Canadian security systems, and U.S. beauty products subsidiaries. The financial statements are unaudited and prepared under U.S. GAAP.
Key Financial Metrics
| Metric | Three Months Ended Dec. 31, 2019 | Six Months Ended Dec. 31, 2019 |
|---|---|---|
| Revenue | $5.80 million | $11.82 million |
| Gross profit | $4.07 million | $8.33 million |
| Gross margin | 70.2% | 70.5% |
| Operating income (loss) | $(0.10) million | $(0.04) million |
| Net income (loss) | $(0.07) million | $(0.02) million |
| Net margin | (1.3)% | (0.2)% |
| Cash flow from operations | Not separately provided | $0.06 million |
| Capital expenditures and investing cash flow | Not separately provided | $(0.52) million investing cash flow |
Cash and cash equivalents were $6.53 million at December 31, 2019, compared with $6.48 million at June 30, 2019. Including restricted cash, period-end cash was $6.55 million. Total current assets were $14.98 million against current liabilities of $2.79 million, implying reported working capital of approximately $12.19 million.
Total debt, excluding operating lease liabilities, was approximately $1.00 million, consisting principally of $603,500 of related-party notes and approximately $398,000 of Brigadier property debt. Operating lease liabilities totaled $966,848 after adoption of ASC 842. Total liabilities were $4.55 million and stockholders’ equity was $17.46 million.
Material Changes Versus the Prior Comparable Period
- Three-month revenue declined 13% to $5.80 million from $6.70 million; six-month revenue declined 15% to $11.82 million from $13.86 million.
- Fund management revenue fell 28% to $2.84 million for the quarter and $5.88 million for the six-month period, primarily because average assets under management declined to approximately $2.1 billion from approximately $2.8 billion and $2.9 billion, respectively.
- Other operating units increased revenue approximately 4% for the six-month period, led by Gourmet Foods and Original Sprout growth, while security systems revenue declined modestly.
- Gross profit decreased 18% for the quarter and 19% for the six-month period, although the consolidated gross margin remained approximately 70% because fund management revenue has no reported cost of revenue.
- The company moved from net income of $63,161 in the quarter and $348,667 for the six-month period to net losses of $74,914 and $20,022, respectively.
- Operating expenses declined 13% for the six-month period to $8.37 million, but the reduction did not offset the decline in gross profit. Corporate expenses increased, partly due to Marygold & Co. startup costs and other new-fund and employee incentive expenses.
- Operating cash flow declined to $56,843 from $607,173. Investing cash flow was negative $524,639, primarily reflecting approximately $495,579 of property and equipment purchases, including the Saskatoon property.
- Property and equipment increased to $1.30 million from $757,014, and the company recorded $928,964 of operating lease right-of-use assets following adoption of ASC 842.
- Common shares outstanding increased to 37,412,519 from 37,237,519 due to the issuance of 175,000 shares for investment banking services. The Series B preferred stock remained at 53,032 shares and is convertible, under certain conditions, into 20 common shares per preferred share.
Guidance, Outlook, Risks, and Unusual Items
Management expected all four operating subsidiaries to be profitable during the coming fiscal year. Its stated strategy was to grow Original Sprout from a boutique to a more mainstream offering, expand Brigadier’s products and market share, improve Gourmet Foods’ efficiency and distribution, and develop new fund products through Wainwright. The company also intended to pursue acquisitions and fintech opportunities.
- Fund management concentration: Wainwright generated approximately 50% of consolidated revenue for the six-month period, and its results depend substantially on assets under management and commodity-market conditions.
- Customer concentration: Brigadier’s largest customer represented 50% of quarterly and 51% of six-month Brigadier revenue. Gourmet Foods also relied on several large grocery and gasoline convenience-store customer groups.
- Related-party exposure: All Wainwright fund-management revenue was earned from related parties, with approximately $1.00 million of related-party receivables at December 31, 2019. Related-party notes totaled $603,500, including $3,500 that was past due.
- Lease and debt commitments: The company recognized substantial operating lease obligations under ASC 842. Brigadier’s approximately $398,000 property loan is secured by the Saskatoon land and building and matures in 2024.
- Tax uncertainty: Unrecognized tax benefits were approximately $0.3 million. No active tax examinations were reported.
- Equity compensation: The company recognized $114,292 of stock-based vendor compensation for the investment banking engagement and could issue an additional 175,000 shares if it achieves a national-exchange uplisting.
- Currency exposure: Foreign-currency translation produced a $169,537 gain for the six-month period, compared with a $58,708 loss in the prior-year period. This improved comprehensive income but did not affect reported net income.
- No legal proceedings were pending, and management stated that disclosure controls were effective with no material changes in internal control over financial reporting.
Important Facts for Investors to Verify
- Confirm the requested issuer and period: the supplied filing identifies Concierge Technologies, Inc. and the quarter ended December 31, 2019, rather than Marygold Companies, Inc.
- Verify whether the decline in Wainwright assets under management and related revenue is temporary or reflects a continuing trend.
- Assess the sustainability and independence of related-party fund-management revenue and related-party receivables.
- Review the terms, maturity, and past-due status of the $603,500 related-party notes and the security supporting Brigadier’s property loan.
- Evaluate the effect of ASC 842 lease obligations and planned capital expenditures on future liquidity.
- Monitor Original Sprout’s new product investment and employee incentive costs, as well as the company’s ability to convert the planned growth initiatives into recurring profitability.
- Review potential dilution from preferred-stock conversion and the additional 175,000-share uplisting provision.