Business Context and Reporting Period
This Form 10-Q was filed by Concierge Technologies, Inc., the predecessor name of Marygold Companies, Inc., for the quarter ended March 31, 2013. The filing covers the three- and nine-month periods ended March 31, 2013, compared with the corresponding 2012 periods. The company’s principal operating business was the sale and distribution of mobile video surveillance equipment through Wireless Village, operating as Janus Cam.
On January 31, 2013, the company acquired the remaining 49% of Wireless Village and made it wholly owned by issuing 10,000,000 Series B preferred shares. On the same date, the company disposed of Planet Halo in a stock-redemption transaction.
Key Financial Metrics
| Metric | Three Months Ended March 31, 2013 | Three Months Ended March 31, 2012 | Nine Months Ended March 31, 2013 | Nine Months Ended March 31, 2012 |
|---|---|---|---|---|
| Revenue | $436,797 | $635,131 | $1,471,364 | $1,366,491 |
| Gross profit | $186,600 | $294,537 | $638,423 | $592,406 |
| Gross margin | 42.7% | 46.4% | 43.4% | 43.4% |
| Operating expenses | $190,971 | $168,559 | $789,110 | $477,496 |
| Income from continuing operations | $(6,998) | $102,555 | $(171,416) | $88,077 |
| Net income attributable to the company | $187,919 | $39,512 | $54,076 | $25,288 |
| Net earnings per share | $0.00 | $0.00 | $0.00 | $(0.00) |
For the nine months, hardware and support-service revenue increased approximately 11% to $1.463 million from $1.319 million. Cost of revenue was $832,941, producing a gross margin generally consistent with the prior year. The filing does not provide a separately reported EBITDA measure.
Balance Sheet and Liquidity
- Cash and cash equivalents were $8,246 at March 31, 2013, compared with $102,022 at June 30, 2012.
- Current assets were $225,425 versus $426,268; current liabilities were $368,947 versus $692,664. The implied current ratio was approximately 0.61 at March 31, 2013.
- Total liabilities were $573,647, including a $204,700 convertible debenture and $28,000 of related-party notes payable.
- Stockholders’ deficit was $285,869 at March 31, 2013, compared with $357,047 at June 30, 2012.
- Accounts receivable declined to $86,753 from $264,309, while inventory increased to $118,531 from $37,442.
Cash Flow and Financing
- Net cash used in operating activities was $110,626 for the nine months ended March 31, 2013, compared with $19,289 of cash provided in the prior-year period.
- Net cash used in investing activities was $47,069, including $34,165 of payroll advances and $11,093 of equipment purchases.
- Net cash provided by financing activities was $51,508, including $57,500 of related-party loans.
- Cash decreased by $106,187 during the nine months, ending at $8,246.
- Noncash transactions included the $204,700 consolidation of related-party notes into a convertible debenture, issuance of $112,000 of Series B preferred stock against a convertible note, and the $2.4 million stock-based acquisition of the Wireless Village minority interest.
Material Changes Versus the Prior Comparable Period
- Third-quarter revenue declined 31% to $436,797, which management attributed primarily to customer-order timing and trade-show activity.
- Nine-month revenue increased 8% to $1.471 million, but operating expenses increased 65% to $789,110, resulting in a $171,416 loss from continuing operations compared with $88,077 of income in the prior-year period.
- Third-quarter net income benefited from a $194,917 gain on the disposal of Planet Halo. Excluding that gain, the quarter produced a loss from continuing operations.
- Planet Halo had no revenue during the nine-month periods and was sold on January 31, 2013. Its assets, liabilities, and operations were removed from the consolidated accounts.
- Non-controlling interest was eliminated after the company acquired the remaining Wireless Village ownership. The transaction materially increased preferred stock and additional paid-in capital but did not provide cash funding.
- Related-party notes payable declined from $150,000 to $28,000, while a $204,700 related-party convertible debenture was recorded as a long-term liability.
Guidance, Outlook, Risks, and Unusual Items
The filing provides no formal quantitative revenue, earnings, or cash-flow guidance. Management expected losses to be curtailed through increased product sales and stated that trade shows, regulatory conditions, and market awareness supported the nine-month sales increase.
Management expressly identified substantial doubt-related risks. The company had an accumulated deficit of $4.615 million, minimal cash, negative operating cash flow, and dependence on increased operating profitability, financing, timely payment of vendors, supplier relationships, and successful execution of the Janus Cam business. Management stated that its plans were expected to support operations for the next 12 months, but the financial statements contain no adjustments that might be required if the company cannot continue as a going concern.
- The company had no bank account in its own name and used an administrative account maintained by a related consulting company.
- A $135,000 accrued judgment remained recorded, although the underlying judgment had lapsed and the creditor would need to initiate a new action to pursue remedies.
- The company settled a trademark infringement claim involving the “3rd Eye” name, discontinued the branding, and transitioned to the Janus Cam name.
- The Series B preferred stock carried 20 votes per share and could convert to common stock at a 1:20 ratio after the applicable holding period. The related-party convertible debenture was convertible at $0.02 per common share.
- As of May 15, 2013, the company reported 240,284,270 common shares, 206,186 Series A preferred shares, and 9,498,409 Series B preferred shares outstanding.
Important Facts for Investors to Verify
- Confirm the company’s current legal name, capital structure, and the treatment of the historical Concierge Technologies securities following subsequent corporate changes.
- Assess whether Janus Cam generated sustained positive operating cash flow after March 31, 2013 rather than relying on the Planet Halo disposal gain.
- Verify the terms, maturity, accrued interest, and potential dilution from the $204,700 related-party convertible debenture.
- Review the voting power and conversion impact of the Series B preferred stock and the 10,000,000 shares issued to acquire Wireless Village’s minority interest.
- Evaluate the company’s ability to fund operations given $8,246 of reported cash, a current ratio below one, negative nine-month operating cash flow, and the disclosed going-concern risks.
- Confirm the status of the accrued $135,000 judgment, tax reserves, trademark settlement, and other contingent liabilities.