Marygold Companies, Inc. (formerly Concierge Technologies, Inc.) — Form 10-Q Summary
Reporting period: Three months ended September 30, 2015, filed November 23, 2015. The filing identifies the registrant as Concierge Technologies, Inc.; the provided metadata identifies the company as Marygold Companies, Inc. The company was a smaller reporting company and reported operations through Kahnalytics, Inc. and newly acquired New Zealand subsidiary Gourmet Foods, Ltd. (“GFL”).
Business context and reporting period
- Kahnalytics purchases, configures, and sells mobile video recording hardware and related installation services in North America.
- GFL produces and distributes gourmet meat pies and bakery products throughout New Zealand. Its operations were consolidated from August 1, 2015, following the acquisition completed August 11, 2015.
- The company divested Wireless Village/Janus Cam in May 2015 through a stock redemption transaction. Prior-period discontinued-operation losses are therefore not comparable with the current period.
- As of November 16, 2015, the company reported 679,536,298 common shares and 41,949,967 Series B convertible voting preferred shares outstanding. The balance sheet shows 37,543,544 Series B shares, creating an apparent inconsistency that investors should verify.
Key financial metrics
| Metric | Three months ended September 30, 2015 | Three months ended September 30, 2014 |
|---|---|---|
| Revenue | $721,725 | $0 |
| Cost of revenue | $557,950 | $0 |
| Gross profit | $163,774 | $0 |
| Gross margin | Approximately 22.7% | Not meaningful |
| General and administrative expense | $238,187 | $13,766 |
| Operating loss | $(74,412) | $(13,766) |
| Net loss | $(73,006) | $(161,632) |
| Comprehensive loss | $(86,204) | Not clearly provided |
| Net loss per common share | $(0.00) | $(0.00) |
- GFL contributed $600,525 of revenue and $159,935 of operating income before general and administrative expense for the two months ended September 30, 2015. GFL reported an approximate 27% gross margin and a net loss of $2,365 after depreciation, tax, and interest.
- Kahnalytics generated $121,200 of revenue and $117,360 of cost of revenue, producing $3,840 of operating income before general and administrative expense.
- Revenue was $721,725, but consolidated gross profit was insufficient to cover $238,187 of general and administrative costs.
- Operating cash flow was reported as $121,420, compared with $1,020 in the prior-year period. The filing separately reports $121,420 of cash used in continuing operations before discontinued-operations cash flows, an apparent presentation inconsistency.
- Investing cash outflow was $1,558,163, including $1,519,802 for the GFL acquisition and $38,361 for fixed assets.
- Cash and cash equivalents declined from $1,970,062 at June 30, 2015 to $491,286 at September 30, 2015. Total current assets were $1,055,966, compared with current liabilities of $576,042.
- Total assets were $2,444,643 and stockholders’ equity was $1,868,601 at September 30, 2015.
- Current debt consisted of $8,500 of related-party notes and $8,500 of other notes. The related-party notes were past due and unsecured. Convertible debentures and related derivative liabilities had been fully repaid or eliminated by June 30, 2015.
Material changes versus the prior comparable period
- The company moved from no reported revenue in the prior-year quarter to $721,725, primarily due to GFL and the start-up of Kahnalytics.
- Net loss improved to $73,006 from $161,632, primarily because the prior-year period included a $67,021 loss from discontinued operations and $80,846 of other expense, including derivative-related items.
- Operating loss increased to $74,412 from $13,766 because of higher general and administrative expenses, including acquisition-related transaction and audit costs.
- The balance sheet shifted substantially toward operating assets, including $1,107,513 of net property and equipment and $268,431 of goodwill, following the GFL acquisition.
- Accounts payable and accrued expenses increased to $547,359 from $269,501, including $170,932 of accrued expenses and a $135,000 accrued judgment.
- Foreign currency translation losses of $86,204 were recorded in accumulated other comprehensive loss, reflecting GFL’s New Zealand-dollar functional currency.
Guidance, outlook, risks, contingencies, and unusual items
- Management forecast GFL to produce a profit during fiscal 2016 and expected to improve profitability through production automation, sales growth, and expanded distribution.
- Management planned a Kahnalytics software-development project intended to generate a significant recurring revenue stream, but no quantified forecast, timeline, or probability of success was provided.
- Management stated that approximately $2 million had been invested in purchasing and assimilating GFL and believed available capital was sufficient for general and administrative expenses and planned objectives for the coming fiscal year.
- The filing includes a going-concern disclosure. The company had an accumulated deficit of $6,442,524 and acknowledged risks involving liquidity, timely vendor payments, product development, GFL profitability, and foreign-exchange fluctuations.
- Management’s ability to continue as a going concern depends on increased operating profitability and successful execution of its plans. The financial statements contain no adjustments that might be required if the company cannot continue operating.
- GFL leases office, factory, and warehouse facilities and equipment with future minimum payments totaling approximately $454,806 through fiscal 2019. Monthly lease payments were approximately $13,400.
- The company accrued a $135,000 judgment related to Brookside Investments, although the filing states the judgment had lapsed and the creditor would need a new court action to seek remedies.
- The company extended an interest-free intercompany loan of NZ$250,000 to GFL for machinery purchases and working capital.
- The filing reports no legal proceedings, defaults upon senior securities, or unregistered equity sales during the period.
Important facts for investors to verify
- Reconcile the reported Series B preferred-share count on the cover page with the 37,543,544 shares shown on the balance sheet.
- Clarify the cash-flow presentation, particularly the conflicting descriptions of $121,420 of continuing-operation cash flow.
- Assess post-acquisition GFL revenue, margins, cash generation, lease obligations, and the effect of New Zealand-dollar exchange rates.
- Verify the company’s liquidity runway after the decline in cash to $491,286 and the increase in accounts payable and accrued expenses.
- Evaluate the going-concern disclosure, accumulated deficit, past-due related-party notes, and the company’s ability to achieve projected profitability.
- Review the valuation and recoverability of GFL goodwill, fixed assets, inventory, and other acquired assets.
- Determine whether Kahnalytics’ planned software project has produced recurring revenue or required additional capital since the filing date.