Business Context and Reporting Period
The Marygold Companies, Inc. filed this unaudited Form 10-Q for the quarter and nine months ended March 31, 2022, despite the request metadata referencing “2021 Q3.” The company operates through subsidiaries in investment fund management, food products and printing, security systems, beauty products, and developing fintech services. Its common stock began trading on NYSE American on March 10, 2022 under the symbol MGLD.
Marygold & Co. remained in the development stage, with commercial services expected to launch during calendar 2022. Marygold UK had no operations and had not completed its proposed acquisition of Tiger Financial and Asset Management Limited as of the filing date.
Key Financial Metrics
| Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Nine Months Ended March 31, 2022 | Nine Months Ended March 31, 2021 |
|---|---|---|---|---|
| Revenue | $8.79 million | $9.54 million | $27.96 million | $30.26 million |
| Gross profit | $6.73 million | $7.21 million | $20.83 million | $23.13 million |
| Gross margin | 76.5% | 75.5% | 74.5% | 76.5% |
| Operating income | $1.04 million | $2.04 million | $0.72 million | $6.64 million |
| Operating margin | 11.9% | 21.4% | 2.6% | 22.0% |
| Net income | $0.87 million | $1.58 million | $0.01 million | $5.15 million |
| Net margin | 9.9% | 16.6% | 0.04% | 17.0% |
| Basic and diluted EPS | $0.02 | $0.04 | $0.00 | $0.13 |
Revenue was driven primarily by related-party fund management fees, which represented $5.87 million, or approximately 67%, of quarterly revenue and $17.23 million, or approximately 62%, of nine-month revenue. USCF Investments reported approximately $5.0 billion of assets under management at March 31, 2022.
Cash and cash equivalents were $16.18 million at March 31, 2022, compared with $16.07 million at June 30, 2021. Total assets were $34.07 million and stockholders’ equity was $28.26 million. Working capital was approximately $22.2 million based on reported current assets and current liabilities.
For the nine months, operating activities used $1.77 million of cash, compared with $5.32 million provided in the prior-year period. Investing activities used $1.00 million, while financing activities provided $2.97 million, primarily from the March public offering. Ending cash, cash equivalents, and restricted cash totaled $16.19 million.
Total reported debt was approximately $1.0 million, consisting principally of $603,500 of related-party notes and approximately $380,000 of Brigadier property debt, together with finance lease obligations. Operating lease liabilities totaled $1.62 million. One $350,000 shareholder note was repaid on April 8, 2022 for principal and accrued interest totaling $434,000.
Material Changes Versus Prior Comparable Period
- Quarterly revenue declined 7.9% to $8.79 million, primarily because food, security, and beauty revenue declined; fund management revenue decreased 2% due to lower average assets under management.
- Nine-month revenue declined 7.6% to $27.96 million. Fund management revenue decreased 10% to $17.23 million as average AUM declined to approximately $4.3 billion from $5.1 billion.
- Quarterly operating income fell approximately 49% and net income fell approximately 45%, reflecting higher fund operations costs, consumer-business weakness, and approximately $694,000 of Marygold development expenses.
- Nine-month operating income declined approximately 89% and net income declined approximately 100%. The results included a $2.5 million SEC/CFTC settlement payment and $2.2 million of Marygold development expenses.
- Consumer businesses experienced margin pressure. Gourmet Foods’ quarterly gross margin fell to approximately 18% from 30% because of higher raw-material, labor, and shipping costs. Original Sprout continued to experience lower sales through salons and boutiques and lower pricing in online channels.
- Common shares outstanding increased by 1,897,500 shares in the March 2022 public offering. Gross proceeds were approximately $3.80 million; underwriting discounts and offering expenses reduced proceeds, with net issuance proceeds reported in equity of approximately $2.98 million.
- The company issued underwriter warrants for up to 82,500 common shares, exercisable at $2.40 per share from September 14, 2022 through March 14, 2027.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
Management expects to pursue growth across its operating subsidiaries, including expanded product channels for Original Sprout, additional offerings and market share for Gourmet Foods and Printstock, growth initiatives at Brigadier, and new fund products at USCF Investments. Management also expects to launch Marygold fintech services and continue its acquisition strategy, but the filing does not provide quantitative revenue or earnings guidance.
Management stated that existing liquidity should be sufficient for the coming fiscal year and planned objectives, subject to continued subsidiary performance. Risks include lower or volatile AUM, COVID-19-related disruption, inflation in raw materials and shipping, customer concentration, dependence on key suppliers and service providers, foreign currency movements, regulatory compliance, acquisition execution, and the ability to launch and secure the Marygold fintech platform.
In December 2021, Marygold identified fraudulent activity involving approximately 80 beta-platform customer accounts and estimated approximately $250,000 of misappropriation. The application was removed from Apple and Android app stores. The estimated loss accrual was reduced by approximately $147,000 during the March 2022 quarter, and management stated that it believed no personally identifiable information had been compromised.
USCF and USO remain defendants in securities, derivative, and related litigation arising from 2020 oil-market conditions and disclosures. The company recorded no accrual because the timing, outcome, and potential losses could not be reasonably estimated. An adverse outcome could materially affect financial condition, results of operations, and cash flows. A new Optimum Strategies action was filed on April 6, 2022.
The company’s SEC and CFTC investigations were resolved in November 2021 through cease-and-desist orders and aggregate civil penalties of $2.5 million, which were recorded in the nine-month results. The filing states that the company had no material changes to previously disclosed risk factors and no off-balance-sheet arrangements.
Important Facts for Investors to Verify
- Confirm the correct reporting period: the filing covers the quarter and nine months ended March 31, 2022, not 2021 Q3.
- Assess the sustainability and concentration of fund management revenue, including exposure to USO and other major funds and changes in AUM.
- Reconcile the nine-month cash outflow from operations with reported profitability and evaluate the company’s cash needs for Marygold development and acquisitions.
- Review the effect of the $2.5 million SEC/CFTC settlement and the continuing USO-related litigation, for which no loss accrual was recorded.
- Monitor the Marygold fintech launch, platform-security remediation, the remaining fraud exposure, and the approximately $357,000 of service-provider commitments.
- Evaluate customer concentration in Gourmet Foods, Brigadier, and printing operations, as well as rising raw-material, labor, and shipping costs.
- Review dilution from the March offering, Series B preferred shares convertible into 987,200 common shares, and 82,500 underwriter warrants.
- Verify completion and financing of the proposed Tiger acquisition, which remained subject to closing conditions as of May 13, 2022.