Business Context and Reporting Period
This unaudited Form 10-Q was filed by Concierge Technologies, Inc., the predecessor name associated with the requested Marygold Companies, Inc. metadata. The filing covers the three- and nine-month periods ended March 31, 2015; therefore, it does not correspond to “2014 Q3” as stated in the request metadata.
The company’s operating business was mobile video-surveillance equipment and related services conducted through Wireless Village, Inc., doing business as Janus Cam. On February 26, 2015, the company agreed to divest Janus Cam through a redemption of 68 million common shares and forgiveness of $300,000 of intercompany debt. The transaction closed on May 7, 2015, after the reporting date.
Financial Results and Key Metrics
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Continuing-operations revenue | $0 in 2015 and 2014 | $0 in 2015 and 2014 |
| Continuing-operations operating loss | $7,837 in 2015; $36,132 in 2014 | $70,713 in 2015; $81,441 in 2014 |
| Income (loss) from continuing operations | $43,959 in 2015; $(39,760) in 2014 | $(143,044) in 2015; $(91,159) in 2014 |
| Income (loss) from subsidiary held for sale | $30,087 in 2015; $(26,757) in 2014 | $26,310 in 2015; $(102,762) in 2014 |
| Net income (loss) | $74,046 in 2015; $(66,517) in 2014 | $(116,734) in 2015; $(193,921) in 2014 |
| Cash flow from operating activities | $(260,945) for the nine months in 2015; $(178,582) in 2014 | |
| Cash and cash equivalents | $2,353,378 at March 31, 2015; $15,731 at June 30, 2014 |
- Janus Cam’s disclosed combined net revenue, including other income and adjustments, was $569,176 for the quarter and $1,372,249 for the nine-month period, down 15% and 24%, respectively, from the comparable 2014 periods.
- Janus Cam’s nine-month hardware and support-service revenue was $1,368,458, including $84,675 of support services, compared with $1,744,210 in 2014. Cost of revenues was $884,950 versus $1,010,538, implying an approximate gross margin of 35% versus approximately 42% based on the disclosed figures. Quarterly cost of revenues was $376,781 versus $362,187; the filing attributes the decline in profitability to wholesale pricing and expedited inventory deliveries.
- Other income and expense for the 2015 quarter included $48,877 of non-cash derivative fair-value income and $5,086 of debt forgiveness, partially offset by $2,168 of interest expense.
- For the nine months, interest expense was $77,417, compared with $9,717 in 2014. The company reported no income-tax provision.
- Net cash used in operating activities was $260,945, net cash used in investing activities was $133,408, and net cash provided by financing activities was $2,732,000.
Balance Sheet, Debt and Liquidity
- Total assets were $3,177,425 at March 31, 2015, including $2,353,378 of cash and $791,946 of assets classified as held for sale.
- Total liabilities were $757,972, including $234,392 of accounts payable and accrued expenses, $8,500 of related-party notes, $8,500 of other notes, and $506,580 of liabilities of Janus Cam held for sale.
- Convertible debentures were fully repaid or converted by March 31, 2015. The related derivative liability was reduced to zero.
- The company completed a $3 million equity financing on January 26, 2015, consisting of $1.16 million from common-stock issuance and $1.84 million from Series B preferred-stock issuance. Proceeds were used principally to repay debt, trade obligations, transaction costs and other expenses.
- Series B preferred shares carry 20 votes per share and are convertible into 20 common shares per preferred share. The beneficial conversion feature generated a $1,470,053 deemed dividend.
- Cash held at the company’s financial institution exceeded FDIC insurance limits by $2,103,378 at March 31, 2015.
Material Changes Versus the Prior Comparable Period
- The quarterly consolidated result improved from a $66,517 loss to $74,046 of income, primarily because of derivative fair-value income, debt forgiveness and improved results from the subsidiary held for sale.
- The nine-month consolidated loss narrowed by $77,187 to $116,734. Management attributed much of the improvement to the suspension of Janus Cam executive salaries beginning in October 2014, although related management advances remained recorded as an asset.
- Continuing operations remained pre-revenue, but the operating loss declined by $28,295 for the quarter and $10,728 for the nine months.
- Janus Cam sales declined materially because of inventory shortages and customer cost-cutting. Management also reported increased inventory purchases and growth in installation and maintenance services.
- Common shares outstanding increased from 240,337,841 at June 30, 2014 to 746,505,368 at March 31, 2015. Series B preferred shares increased from 9,498,409 to 37,543,544.
Outlook, Commentary, Risks and Unusual Items
- Management stated that the company’s historical losses and accumulated deficit of $6,480,496 create substantial liquidity and going-concern risks. The company depends on increased profitability, financing and new revenue opportunities.
- Management believed its financing, expense-management, Janus Cam divestiture and potential strategic transactions would support operations for the next 12 months; this is management’s stated expectation, not formal financial guidance.
- Management expected Janus Cam’s sales decline to be temporary, citing vehicle-video regulations, insurance-industry adoption and expected demand for Janus V2HD products. The filing provides no quantified revenue or earnings guidance.
- As of March 31, 2015, Janus Cam had advanced approximately $144,391 to management personnel in lieu of salaries. The amount could ultimately be expensed, together with applicable employment taxes, depending on employment-contract negotiations.
- The company continued to accrue a $135,000 judgment-related liability despite stating that the judgment had expired and was no longer enforceable absent further legal action.
- The May 7, 2015 closing separated Janus Cam from the company and forgave $300,000 of intercompany debt. The company subsequently received initial orders for Janus V2HD cameras and planned a new wholly owned California subsidiary to sell cameras and related products.
- Disclosure controls and procedures were concluded to be effective, with no material changes to internal control over financial reporting reported during the period.
Important Facts for Investors to Verify
- Confirm the issuer identity and reporting period: the supplied filing is for Concierge Technologies, Inc. for the quarter ended March 31, 2015, not clearly Marygold Companies, Inc. or 2014 Q3.
- Verify the final accounting and cash consequences of the May 7, 2015 Janus Cam divestiture, including the $300,000 intercompany-debt forgiveness and transfer of assets and liabilities.
- Assess the company’s ability to generate revenue from continuing operations, which reported no revenue during both comparable periods.
- Review dilution, voting control and conversion terms associated with the 400 million common shares and 32.45 million Series B preferred shares issued in the January 2015 financing.
- Evaluate going-concern exposure, uninsured cash balances, working-capital needs and dependence on future financing or strategic transactions.
- Reconcile the treatment of management advances, accrued liabilities, related-party transactions, derivative fair-value income and other non-recurring items when assessing recurring earnings.