Marygold Companies, Inc. quarterly report, Q2 FY2022

Marygold Companies, Inc. (formerly Concierge Technologies, Inc.) — Form 10-Q Summary

Business Context and Reporting Period

The filing was issued under the name Concierge Technologies, Inc. for the quarterly and six-month periods ended December 31, 2021, filed February 14, 2022. The company operated through investment fund management, food products, security systems and beauty products subsidiaries in the United States, New Zealand and Canada. Marygold & Co. was a development-stage fintech subsidiary, and Marygold UK had no operations as of December 31, 2021. The proposed corporate name change to The Marygold Companies, Inc. had not yet been completed.

Financial Performance and Position

Metric	Three Months Ended Dec. 31, 2021	Three Months Ended Dec. 31, 2020	Six Months Ended Dec. 31, 2021	Six Months Ended Dec. 31, 2020
Revenue	$9.45 million	$9.96 million	$19.17 million	$20.71 million
Gross profit	$7.03 million	$7.58 million	$14.11 million	$15.93 million
Gross margin	74.4%	76.1%	73.6%	76.9%
Operating income (loss)	$1.33 million	$1.74 million	$(0.32) million	$4.60 million
Net income (loss)	$1.02 million	$1.35 million	$(0.86) million	$3.57 million
Basic and diluted EPS	$0.03	$0.04	$(0.02)	$0.09

Cash and cash equivalents were $13.29 million at December 31, 2021, compared with $16.07 million at June 30, 2021. Including restricted cash, ending cash was $13.30 million.
Net cash used in operating activities was $1.45 million for the six months ended December 31, 2021, compared with $4.41 million provided in the prior-year period.
Net cash used in investing activities was $1.03 million, primarily reflecting $1.53 million of investment purchases partly offset by $0.51 million of investment sales.
Net cash used in financing activities was $0.26 million, including $0.25 million of costs related to a planned stock issuance.
Total liabilities were $6.55 million and stockholders’ equity was $24.33 million at December 31, 2021.
Borrowings were approximately $1.0 million, including $603,500 of related-party notes and approximately $377,000 of Brigadier property-related debt. One $3,500 shareholder note was past due.
Operating lease liabilities totaled $1.78 million; finance lease liabilities totaled approximately $149,000.
Short-term investments were $2.85 million, up from $1.83 million at June 30, 2021.
Wainwright managed approximately $4.0 billion of assets at December 31, 2021; average assets under management were approximately $4.2 billion for both the quarter and six-month period, versus approximately $4.9 billion and $5.2 billion, respectively, in the prior-year periods.

Material Changes Versus the Prior Comparable Period

Quarterly revenue declined 5% to $9.45 million, primarily because investment fund management revenue fell 7% to $5.70 million as a result of lower assets under management. Six-month revenue declined 7% to $19.17 million, with fund management revenue down 14% to $11.36 million.
Quarterly net income declined $0.33 million, while six-month results shifted from $3.57 million of net income to an $0.86 million loss.
The six-month operating loss included a $2.5 million SEC and CFTC settlement expense related to Wainwright’s USCF subsidiary. Excluding that settlement, management stated that operating expenses declined from the prior-year period.
Marygold development costs increased corporate expenses. Management attributed approximately $1.8 million of six-month expenses to the development-stage Marygold subsidiary and approximately $940,000 of quarterly expenses to Marygold.
Gourmet Foods revenue increased for the six-month period, but gross margin decreased to approximately 27% from 29%, partly because of higher shipping and raw-material costs associated with COVID-19-related disruptions.
Original Sprout revenue was broadly stable for the six-month period, but higher operating expenses resulted in an approximately $8,000 net loss compared with approximately $4,000 of net income in the prior-year period.
Foreign-currency translation changed from a $370,000 gain in the prior-year six-month period to a $101,000 loss, reducing comprehensive income.

Guidance, Outlook, Risks and Unusual Items

Management expects Marygold’s fintech services to launch commercially during the current fiscal year, although timing and successful execution are not assured. Approximately $5.1 million had been invested in fintech development over the prior five fiscal years.
The company plans to expand Original Sprout through traditional retail and online channels, pursue moderate growth at Brigadier, improve Gourmet Foods efficiency and market share, develop new Wainwright fund products, and pursue acquisitions.
Marygold UK entered into an agreement to acquire Tiger Financial and Asset Management Limited for approximately £1.5 million plus acquired cash, payable in installments. As of February 11, 2022, closing conditions had not been completed.
Marygold identified potentially fraudulent activity in its beta fintech platform in December 2021. Approximately 80 accounts were allegedly opened fraudulently, resulting in approximately $250,000 of misappropriated funds. The application was removed from app stores; management stated that it believed no personally identifiable information was compromised.
USCF and USO resolved SEC and CFTC Wells Notice matters on November 8, 2021 through cease-and-desist orders and aggregate civil penalties of $2.5 million. The company consented without admitting or denying the findings, except jurisdiction.
Putative class-action and derivative litigation relating to USO remains pending. The matters are subject to motions to dismiss or stays, no accrual was recorded, and the company stated that potential losses cannot currently be reasonably estimated. An adverse outcome could materially affect financial condition, results and cash flows.
Key operating risks include dependence on investment fund assets under management, customer and distributor concentration, COVID-19-related economic and supply-chain disruption, foreign-currency movements, regulatory compliance, fintech cybersecurity and fraud exposure, and dependence on certain suppliers and monitoring-service relationships.
Management stated that consolidated liquidity was sufficient for the coming fiscal year under expected operating conditions, but noted that COVID-19 and financial-market disruptions could adversely affect results. No dividends were expected during the next fiscal year.
The company filed a Form S-1 for a potential common-stock offering and possible NYSE American uplisting but provided no assurance that either the offering or uplisting would occur.

Most Important Facts for Investors to Verify

Confirm the company’s legal name change from Concierge Technologies, Inc. to The Marygold Companies, Inc. and the status of any related listing or capital-markets transactions.
Track Wainwright assets under management and fund concentration, particularly USO, because fund-management revenue represents the largest revenue stream and is tied to AUM.
Monitor Marygold’s fintech launch, vendor commitments, platform controls and any additional losses arising from the reported $250,000 fraud event.
Review the status, potential exposure and insurance or indemnification arrangements associated with the USO class-action and derivative litigation.
Assess cash consumption, including the $1.45 million six-month operating cash outflow, planned stock issuance costs, fintech spending and acquisition funding requirements.
Verify repayment or refinancing plans for the $603,500 of related-party notes, including the past-due $3,500 note and notes maturing in April and May 2022.
Evaluate whether Original Sprout and Gourmet Foods can restore margins amid channel changes, customer concentration and elevated supply and shipping costs.