Filing Overview
Registrant: Concierge Technologies, Inc. (the filing does not identify Marygold Companies, Inc.). Reporting period: quarterly and year-to-date periods ended March 31, 2016, filed May 23, 2016. The request metadata states “2015 Q3,” but the source filing is a fiscal 2016 third-quarter Form 10-Q.
The company operated through Kahnalytics, Inc., which sold mobile video recording devices, and Gourmet Foods, Ltd., a New Zealand producer and distributor of meat pies and bakery products. Gourmet Foods was acquired effective August 1, 2015 and contributed eight months of results during the nine-month period.
Financial Highlights
| Metric | Three months ended March 31, 2016 | Nine months ended March 31, 2016 | Comparable prior period |
|---|---|---|---|
| Revenue | $970,654 | $2,706,364 | $0 in both 2015 periods |
| Gross profit | $285,951 | $768,488 | $0 |
| Gross margin | Approximately 29.5% | Approximately 28.4% consolidated | Not meaningful |
| Operating income (loss) | $10,182 | $(72,355) | $(7,837) and $(70,713), respectively |
| Net income (loss) | $(136) | $(89,442) | $74,046 and $(116,734), respectively |
| Operating cash flow | Not provided for the quarter | $333,653 | $(260,945) |
- Gourmet Foods generated $2,588,664 of nine-month revenue, $764,886 of operating income before corporate allocations, and $72,071 of net income after depreciation, taxes and other items.
- Kahnalytics generated $117,700 of nine-month revenue and $3,683 of operating income before general and administrative expenses and taxes. Hardware sales ceased during the period as the business redirected resources toward software and device integration.
- Cash and cash equivalents were $878,981 at March 31, 2016, down from $1,970,062 at June 30, 2015.
- Total current assets were $1,363,906 and total current liabilities were $1,105,302. Total assets were $3,062,535 and stockholders’ equity was $1,957,233.
- Accounts payable and accrued expenses increased to $638,302 from $269,501 at June 30, 2015. The notes provide a component breakdown totaling $578,270, so the filing does not provide a fully clear reconciliation to the balance-sheet total.
- Debt included a $450,000 unsecured convertible promissory note issued to an affiliate of the chief executive officer, bearing 4% interest, maturing in five years and convertible at $0.10 per share after 180 days. Other notes payable totaled $17,000, including $8,500 of related-party notes.
- Capital expenditures were $196,597, and the company paid $1,519,802 for the Gourmet Foods acquisition, deposited $159,237 toward a potential Canadian acquisition and received $450,000 from related-party financing.
Material Changes Versus Prior Comparable Period
- Revenue and gross profit were newly reported in fiscal 2016 because Gourmet Foods and Kahnalytics were not comparable operating businesses in the prior periods.
- Nine-month operating cash flow improved to $333,653 from cash used of $260,945, primarily reflecting acquired operations, depreciation and working-capital changes.
- The nine-month net loss narrowed to $89,442 from $116,734, despite acquisition-related transaction and audit costs. The prior-year quarter benefited from a $48,877 derivative fair-value gain; no comparable gain occurred in 2016.
- Cash declined by $1,091,081 during the nine months, principally because acquisition, deposit and equipment expenditures exceeded operating cash flow and related-party financing.
- Property and equipment increased to $1,257,340 net from zero, and goodwill of $268,431 was recorded, primarily reflecting the Gourmet Foods acquisition.
- The company completed a one-for-ten reverse stock split effective December 15, 2015. Reported share data has been adjusted for the split.
Outlook, Risks, Contingencies and Unusual Items
- Management forecast Gourmet Foods to be profitable for the fiscal year and stated that existing capital should fund general and administrative expenses and planned objectives for the coming fiscal year. No quantified revenue or earnings guidance was provided.
- The financial statements include a going-concern disclosure. The company had an accumulated deficit of $6,439,012 and acknowledged liquidity, vendor-payment, product-development, profitability and foreign-currency risks.
- Management’s ability to continue operations depends on increasing profitability, maintaining supplier relationships, successfully integrating and operating Gourmet Foods, and developing Kahnalytics’ software opportunity. Management believes its plans support continued operations for the next 12 months.
- Gourmet Foods had operating leases requiring approximately $147,873 of future minimum payments and a security arrangement in favor of a family trust. The company also maintained a cash deposit securing a separate facility lease.
- A $135,000 accrued judgment remains recorded for Brookside Investments, although the company states the judgment lapsed and a new court action would be required to pursue remedies. The filing reports no current legal proceedings.
- On May 4, 2016, after the reporting date, an affiliate of the chief executive officer funded a separate $350,000 unsecured convertible note bearing 4% interest and convertible at $0.13 per share after 180 days.
- The company made a refundable $159,237 deposit for a potential Canadian acquisition under a non-binding letter of intent. The deposit was refundable if no definitive documentation resulted by June 30, 2016.
- New Zealand operations create foreign-currency exposure. The company reported a $1,083 accumulated translation loss at March 31, 2016 and a $15,274 translation gain for the quarter.
Investor Verification Priorities
- Confirm the correct issuer and period, because the source filing is for Concierge Technologies, Inc. for the quarter ended March 31, 2016, not Marygold Companies, Inc. or 2015 Q3.
- Reconcile the accounts payable and accrued-expense balance-sheet amount of $638,302 with the note disclosure totaling $578,270.
- Assess Gourmet Foods’ sustainable margins, cash generation, customer concentration and integration costs after the acquisition.
- Review liquidity after the acquisition spending, Canadian acquisition deposit, capital expenditures and related-party borrowings.
- Evaluate dilution and related-party financing risk from the $450,000 note, the subsequent $350,000 note and their conversion provisions.
- Verify the status and recoverability of the Canadian acquisition deposit and the company’s plans for Kahnalytics’ software-based business.
- Review the going-concern disclosure, accrued judgment and lease/security commitments, including the company’s ability to meet vendor and supplier obligations.