SEC Form 10-Q Summary
Important identity note: The supplied filing is for Concierge Technologies, Inc., not Marygold Companies, Inc. It covers the quarter and six-month period ended December 31, 2017, within the fiscal year ending June 30, 2018. The financial statements are unaudited and were filed February 14, 2018.
Business Context and Reporting Period
The company operated through subsidiaries in investment fund management, New Zealand food products, Canadian security alarm monitoring, and, beginning December 18, 2017, U.S. beauty products under the Original Sprout brand. The company was a smaller reporting company and stated that it was not a shell company.
Wainwright's investment-management revenue was related-party revenue from funds managed or advised by its subsidiaries. The company operated on a decentralized basis and pursued acquisitions of established businesses.
Key Financial Metrics
| Metric | Three months ended December 31, 2017 | Three months ended December 31, 2016 | Six months ended December 31, 2017 | Six months ended December 31, 2016 |
|---|---|---|---|---|
| Revenue | $7.37 million | $8.53 million | $14.59 million | $16.97 million |
| Gross profit | $5.90 million | $7.45 million | $11.87 million | $14.78 million |
| Gross margin | 80.1% | 87.4% | 81.4% | 87.1% |
| Operating income | $675 thousand | $1.61 million | $2.06 million | $3.98 million |
| Net income (loss) | $(22) thousand | $1.02 million | $850 thousand | $2.33 million |
| Operating cash flow | Not separately provided | Not separately provided | $1.24 million | $2.81 million |
Operating expenses were $5.22 million in the quarter and $9.81 million for the six-month period. The effective tax rate was approximately 104% for the quarter, primarily reflecting the effects of the Tax Cuts and Jobs Act, including a $0.5 million deferred-tax remeasurement expense and an approximately $0.05 million transition-tax charge. Basic earnings per share were approximately $(0.00) for the quarter and $0.03 for the six-month period.
Liquidity, Debt and Balance Sheet
- Cash and cash equivalents were $5.63 million at December 31, 2017, down from $6.73 million at June 30, 2017.
- Total current assets were $14.52 million; total current liabilities were $4.50 million.
- Short-term investments were $3.37 million, and total assets were $21.54 million.
- Total liabilities were $5.56 million, including $603.5 thousand of related-party notes, $250.3 thousand of equipment-loan principal, $866.3 thousand of related-party expense waivers, and $1.25 million of purchase consideration payable.
- Stockholders' equity was $15.98 million at December 31, 2017.
Material Changes Versus the Prior Comparable Period
- Quarterly revenue declined 13.6%, and six-month revenue declined 14.0%, primarily because Wainwright's assets under management and related fees decreased.
- Average Wainwright assets under management decreased to approximately $3.6 billion from $4.9 billion for the quarter and to $3.7 billion from $4.8 billion for the six-month period.
- Quarterly operating income declined approximately 58%, while six-month operating income declined approximately 50%.
- Net income declined to a quarterly loss of $22 thousand from $1.02 million and to $850 thousand for six months from $2.33 million.
- Gross margins contracted to 80.1% for the quarter and 81.4% for six months, compared with 87.4% and 87.1%, respectively, in the prior-year periods.
- Cash flow from operations declined $1.57 million to $1.24 million for the six months. Investing cash use increased to $2.39 million, including $2.23 million paid for the Original Sprout acquisition.
- Accounts receivable increased to $2.77 million in total, including $1.60 million from related parties. Inventory increased to $926 thousand from $444 thousand.
- Goodwill increased to $3.36 million from $499 thousand, largely reflecting the provisional $2.86 million goodwill allocation for Original Sprout.
- On December 15, 2017, the company completed a one-for-thirty reverse stock split. Series B preferred stock was reclassified from the mezzanine section to equity because sufficient authorized common shares became available for conversion.
Guidance, Outlook, Risks and Unusual Items
Management did not provide quantitative financial guidance. Its stated plan was to develop Original Sprout, pursue moderate growth at Brigadier, improve Gourmet Foods' efficiency and market share, develop new Wainwright funds, and continue an acquisition strategy focused on profitable, mature businesses.
- Original Sprout acquisition: The business was acquired for approximately $3.48 million. The company paid $982 thousand at closing, deposited $1.25 million in an attorney-held trust account subject to adjustment, and owed a further $1.25 million due by January 5, 2019. The purchase allocation, including $2.86 million of goodwill, was provisional pending valuation work.
- Revenue concentration: Wainwright's USO fund represented 52% of quarterly and 54% of six-month Wainwright revenue. A Brigadier monitoring customer represented 27% of consolidated quarterly revenue and 36% of six-month revenue. Gourmet Foods also relied materially on several grocery and convenience-store customer groups.
- Related-party exposure: Wainwright revenue and $1.60 million of related-party receivables were generated from affiliated funds. Related-party expense-waiver obligations were $866 thousand at December 31, 2017.
- Tax uncertainty: The company reported approximately $0.2 million of unrecognized tax benefits. The TCJA-related transition tax and deferred-tax remeasurement materially increased the current-period tax burden.
- Cash concentration and currency risk: Approximately $3.8 million of Wainwright deposits, US$0.5 million of Canadian deposits, and US$0.4 million of New Zealand deposits were uninsured or exceeded insurance limits. Foreign operations also exposed the company to currency translation losses.
- Fund and regulatory risks: Wainwright's revenue depends on assets under management, fund performance, fund launches and regulatory compliance. Two funds, TOFR and MENU, were liquidated during the quarter because of low asset levels and limited growth.
- Management stated that no legal proceedings were expected to have a material effect and reported no material changes in internal control over financial reporting.
Most Important Facts to Verify
- Confirm whether this Concierge Technologies filing is the intended source for Marygold Companies, Inc.; the supplied document does not identify Marygold.
- Verify the final valuation and purchase-price allocation for Original Sprout, including whether the provisional $2.86 million goodwill amount was later revised.
- Assess the sustainability of Wainwright's revenue given the 23% to 27% decline in average assets under management and concentration in a small number of funds.
- Review the $1.25 million purchase consideration payable and the $1.25 million trust deposit for required funding, adjustments and timing.
- Evaluate related-party receivables, expense-waiver obligations and the dependence of consolidated revenue on affiliated funds.
- Review subsequent filings for the effects of the reverse stock split, Series B preferred-stock conversion rights, tax adjustments and any additional equity issuance.
- Assess uninsured cash balances, foreign-exchange exposure, customer concentration and the operating lease and expense-waiver commitments.