Business Context and Reporting Period
The filing is a Form 10-Q for Concierge Technologies, Inc. (the registrant name in the filing; the request identifies Marygold Companies, Inc.) for the quarter and six months ended December 31, 2016. The financial statements are unaudited and include Wainwright Holdings, Gourmet Foods, Brigadier Security Systems, and Kahnalytics.
The company’s principal activities were investment-fund management, New Zealand food manufacturing and distribution, Canadian security-alarm services, and vehicle data-streaming services. Wainwright was acquired on December 9, 2016 in a common-control transaction and the comparative financial statements were adjusted as though it had been included from July 1, 2015.
Key Financial Metrics
| Metric | Three months ended December 31, 2016 | Three months ended December 31, 2015 | Six months ended December 31, 2016 | Six months ended December 31, 2015 |
|---|---|---|---|---|
| Revenue | $8.529 million | $6.639 million | $16.966 million | $12.670 million |
| Gross profit | $7.452 million | $5.959 million | $14.775 million | $11.422 million |
| Gross margin | 87.4% | 89.8% | 87.1% | 90.1% |
| Operating income | $1.607 million | $1.707 million | $3.983 million | $3.644 million |
| Operating margin | 18.8% | 25.7% | 23.5% | 28.8% |
| Net income | $1.016 million | $0.949 million | $2.327 million | $2.286 million |
| Comprehensive income | $1.021 million | $1.019 million | $2.234 million | $2.270 million |
| Net cash from operations | Not separately provided | Not separately provided | $2.813 million | $3.860 million |
Fund management generated $12.840 million of six-month revenue, food products generated $2.394 million, security-alarm monitoring generated $1.642 million, and other/data-streaming activities generated $0.090 million. Wainwright’s average assets under management were $4.804 billion for the six-month period, up from $4.093 billion.
At December 31, 2016, cash and cash equivalents were $7.081 million, total current assets were $12.630 million, and total assets were $16.581 million. Total liabilities were $4.493 million and stockholders’ equity was $12.075 million. Current liabilities included $0.600 million of related-party convertible promissory notes, $0.939 million payable to related parties, and $3.882 million of accounts payable and accrued expenses including related-party amounts. The filing does not present a conventional current ratio or a separate long-term debt balance.
Material Changes Versus the Prior Comparable Period
- Six-month revenue increased 33.9% to $16.966 million, primarily due to higher Wainwright fund-management revenue and the addition of Brigadier; the comparison also includes Gourmet Foods for only five months in 2015.
- Six-month operating income increased approximately 9.3%, but operating margin declined because operating expenses grew faster than gross profit.
- Six-month net income increased approximately 1.8%. The increase was limited by higher taxes, acquisition-related costs, increased marketing and staffing expenses, and fund expense-waiver reimbursements.
- Second-quarter operating income declined approximately 5.9%, although net income increased approximately 7.1%, primarily because the income-tax provision was lower than in the prior-year quarter.
- Operating cash flow declined to $2.813 million from $3.860 million. Investing cash outflow was $1.104 million, including $0.843 million for investments, while financing cash outflow was $0.005 million. Cash increased $1.627 million during the six months.
- Wainwright’s acquisition resulted in the issuance of 818,799,976 common shares and 9,354,119 Series B preferred shares, convertible into 187,082,377 common shares. Basic common shares outstanding were 886,753,846 at December 31, 2016, while diluted weighted-average shares were 1.154 billion.
- Kahnalytics discontinued camera-hardware sales to insurance companies and shifted to a subscription-based fleet-management platform. Six-month revenue declined to $89,573 from $117,781, and the segment reported a $32,867 net loss.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management stated that Wainwright, Gourmet Foods, and Brigadier were expected to be profitable for the fiscal year and that the company had sufficient capital for the coming fiscal year, assuming subsidiaries perform as projected.
- Management expected to pursue additional acquisitions using available cash resources without further equity dilution or debt instruments; this is a forward-looking statement and is not assured.
- Revenue is highly concentrated in related-party fund-management activities. Wainwright’s revenue is dependent on fund assets under management, fee agreements, and the continued operation of its funds.
- Customer concentration is material: Brigadier’s two largest customers represented 53% of six-month revenue, while major Gourmet Foods customers represented substantial portions of revenue and receivables.
- Cash concentration risk was significant. Approximately $5.674 million of U.S. cash, approximately $0.326 million of Canadian cash, and approximately $0.335 million of foreign deposits were uninsured at December 31, 2016.
- The company had $0.600 million of unsecured related-party convertible notes bearing 4% interest, increasing to 8% upon default, and convertible at $0.13 per share after the applicable conversion period.
- The company accrued a $135,000 judgment related to Brookside Investments, although management stated that the judgment had lapsed and that a new court action would be required. An additional $8,500 interest-free note was treated as a contingent liability.
- Operating lease commitments totaled approximately $273,000 for Gourmet Foods, $85,887 for Brigadier, and $245,969 for Wainwright, based on the disclosed schedules.
- Foreign-currency translation produced a six-month loss of $92,581, compared with a $16,357 loss in the prior-year period. The company also reported $29,000 of unrecognized tax benefits.
- The filing reports no legal proceedings expected to be material, no defaults upon senior securities, and no significant changes in internal control over financial reporting.
Most Important Facts to Verify
- Confirm the issuer identity and corporate-name history, because the filing names Concierge Technologies, Inc., while the request identifies Marygold Companies, Inc.
- Verify the accounting and pro forma treatment of the Wainwright common-control acquisition, including the substantial common and preferred share issuance and related-party revenue concentration.
- Assess whether Wainwright’s assets under management and fund-fee agreements support the reported revenue and management’s profitability outlook.
- Review liquidity after considering uninsured cash balances, related-party payables, convertible notes, taxes payable, lease obligations, and acquisition plans.
- Evaluate the sustainability of Brigadier and Gourmet Foods revenue given customer concentration and foreign-currency exposure.
- Confirm the status and enforceability of the accrued Brookside judgment and the $8,500 contingent note.
- Reconcile the filing’s cash-flow statement date reference, which states six months ended December 30 in one heading, with the December 31 reporting period used elsewhere.