Form 10-K Summary
Filing and period: The provided filing is for Concierge Technologies, Inc., not Marygold Companies, Inc., and covers the fiscal year ended June 30, 2017. The request metadata identifies “2016 Q4,” which does not match the filing period. The company subsequently operated through subsidiaries in investment fund management, food manufacturing, security systems, and data streaming.
Business Context
- Wainwright Holdings, acquired December 9, 2016 in a common-control stock transaction, operated USCF and USCF Advisers, managing or advising funds with approximately $4.1 billion of assets under management at June 30, 2017.
- Gourmet Foods manufactures and distributes New Zealand meat pies and bakery products.
- Brigadier sells and installs residential and commercial security and alarm-monitoring systems in Saskatchewan, Canada.
- Kahnalytics’ legacy vehicle-camera and live-streaming business was being wound down and was expected to be eliminated during the following fiscal year.
Financial Results and Key Metrics
| Metric | FY 2017 | FY 2016, as adjusted | Change |
|---|---|---|---|
| Net revenue | $32.0 million | $27.8 million | Up $4.2 million |
| Gross profit | $27.2 million | $25.0 million | Up $2.1 million |
| Income from operations | $6.7 million | $8.9 million | Down $2.1 million |
| Income before taxes | $6.8 million | $8.9 million | Down $2.1 million |
| Net income | $5.2 million | $5.3 million | Down approximately 2% |
| Comprehensive income | $5.3 million | $5.2 million | Up approximately $0.1 million |
| Net cash from operating activities | $5.2 million | $5.3 million | Down approximately $0.1 million |
| Cash and cash equivalents | $6.7 million | $5.5 million | Up $1.3 million |
| Total assets | $19.6 million | $13.8 million | Up $5.8 million |
| Total liabilities | $4.4 million | $3.9 million | Up $0.4 million |
Revenue consisted primarily of fund management fees of $23.9 million, food products revenue of $4.8 million, security alarm monitoring revenue of $3.1 million, and other revenue of $0.2 million. The filing does not present a consolidated gross margin percentage; based on reported figures, gross profit was approximately 84.8% of revenue in FY 2017 versus approximately 90.1% in FY 2016.
Basic weighted-average shares were 886.8 million in both years. Diluted weighted-average shares were 1.149 billion, reflecting potential conversion of Series B preferred stock. Basic earnings per share were $0.01; diluted earnings per share were reported as $0.00 because of the extremely large share count.
Material Changes Versus the Prior Comparable Period
- Revenue increased 15%, primarily because FY 2017 included a full year of Brigadier operations and a full year of Gourmet Foods operations, while the FY 2016 comparison included only one month and 11 months, respectively. The company cautions that these subsidiary comparisons are not fully comparable.
- Wainwright revenue increased 1.6% to $23.9 million, while average assets under management remained approximately $4.5 billion. Wainwright operating expenses increased 16% to $17.0 million.
- Consolidated operating income declined because of acquisition-related transaction costs, higher professional and legal expenses, increased marketing, new fund launch costs, and higher personnel expenses.
- Gourmet Foods revenue increased to $4.8 million, but operating income declined to approximately $0.3 million from $0.6 million in the shorter FY 2016 comparison period. Its operating margin declined to approximately 7% from 15%.
- Brigadier generated $3.1 million of revenue, $1.8 million of gross profit, and approximately $0.3 million of net income in FY 2017. There was no meaningful prior-year comparison because it was acquired in June 2016.
- Investments increased from approximately $1 thousand to $3.6 million, primarily reflecting Wainwright investments in funds and related products.
- Retained earnings increased from $0.7 million to $5.9 million, and stockholders’ equity increased from $7.9 million to $13.2 million.
Cash Flow, Debt, Liquidity, and Capital Resources
- Operating cash flow was $5.2 million. Investing activities used $4.0 million, including $3.8 million of investment purchases, $0.3 million of capital expenditures, and $0.2 million paid for an acquisition-related adjustment.
- Financing activities provided $0.1 million. Ending cash increased to $6.7 million from $5.5 million.
- Consolidated indebtedness was approximately $0.7 million, consisting primarily of $0.6 million of related-party notes and approximately $0.1 million of Brigadier equipment loans. The related-party notes bear 4% interest and mature in 2022; the filing states that interest is not required to be paid until maturity.
- Cash at the parent-company level was $1.8 million, compared with $0.3 million in the prior year. Management stated that available cash was sufficient for expected corporate expenses and contemplated acquisitions, assuming subsidiaries continued to perform as projected.
- The company paid no dividends and did not expect to pay dividends during the following fiscal year.
Guidance, Outlook, Risks, and Unusual Items
- Management expected moderate growth at Brigadier, improved efficiency and market expansion at Gourmet Foods, and additional fund-product development at Wainwright.
- Management intended to transition or replace Kahnalytics with a more profitable business through an acquisition or business combination while limiting losses and capital spending.
- The company planned to continue an acquisition strategy focused on profitable, mature businesses with existing management.
- Key risks include concentration of revenue and receivables. Wainwright derived approximately 91% of revenue and accounts receivable from its three largest funds. Brigadier’s largest customer represented 46% of its revenue and approximately 40% of receivables. Gourmet Foods also relied heavily on several grocery and gasoline-sector customer groups.
- Wainwright is subject to SEC, CFTC, NFA, Investment Advisers Act, and Investment Company Act regulation. Regulatory changes, compliance failures, fund closures, or declines in assets under management could materially affect results.
- Wainwright competes with larger and better-financed fund managers. Commodity prices and fund performance can affect assets under management and fee revenue.
- Gourmet Foods faces food-cost inflation, customer concentration, competition, food-processing regulation, and foreign-currency exposure. Brigadier depends on its third-party monitoring relationship and faces winter installation seasonality and technology disruption.
- The company disclosed approximately $3.6 million of uninsured U.S. Wainwright deposits, $1.6 million of uninsured U.S. corporate cash, and additional uninsured Canadian and New Zealand deposits.
- A one-for-thirty reverse stock split had been approved and could become effective before December 31, 2017. The company also had 13.1 million Series B preferred shares, each generally convertible into 20 common shares, subject to conversion conditions and available authorized shares.
- Subsequent events included the July 2017 launch of two leveraged oil funds with initial external seed capital of $2.5 million each and approval in September 2017 to liquidate two low-asset funds, TOFR and MENU.
- The independent auditor issued an unqualified opinion on the consolidated financial statements. The auditor did not express an opinion on internal control over financial reporting because the company was not required to obtain such an attestation.
Investor Verification Items
- Confirm the issuer identity and reporting period, because the filing is for Concierge Technologies, Inc. for FY 2017 rather than Marygold Companies, Inc. for 2016 Q4.
- Reconcile the common-control accounting for Wainwright and understand that FY 2016 amounts were presented as adjusted as though Wainwright had been included from July 1, 2015.
- Assess the sustainability of Wainwright’s revenue given fund concentration, commodity-market exposure, regulatory oversight, and subsequent fund liquidations.
- Review the effect of the planned reverse stock split and the potential conversion of Series B preferred shares on voting control and per-share economics.
- Evaluate customer concentration at Brigadier and Gourmet Foods and the dependence on third-party monitoring and major retail or fuel-distribution customers.
- Verify the company’s liquidity after investment purchases, acquisition spending, related-party debt obligations, leases, and fund expense-waiver commitments.