Business Context and Reporting Period
The filing is submitted by Concierge Technologies, Inc. and subsidiaries, although the request metadata identifies Marygold Companies, Inc. The unaudited Form 10-Q covers the three and six months ended December 31, 2011, compared with the corresponding 2010 periods. The company had transitioned from wireless internet subscriptions to the sale and distribution of mobile video-surveillance systems through majority-owned Wireless Village, operating as 3rd Eye Cam.
- Six-month hardware sales were $729,332 versus $300,916 in the prior-year period.
- Wireless internet subscription revenue was discontinued; subscription revenue was $0 in the six-month period versus $885 in 2010.
- As of February 7, 2012, the company reported 233,667,610 common shares, 596,186 Series A preferred shares, and 273,333 Series B preferred shares outstanding.
Financial Performance and Position
| Metric | Three months ended December 31 | Six months ended December 31 |
|---|---|---|
| Net revenue | $456,729; prior year $259,004 | $731,360; prior year $309,187 |
| Gross profit | $190,851; prior year $141,905 | $297,869; prior year $153,813 |
| Gross margin | 41.8%; prior year 54.8% | 40.7%; prior year 49.8% |
| Operating expenses | $193,235; prior year $69,506 | $309,576; prior year $85,120 |
| Net loss attributable to Concierge | $28,362; prior year $141,001 | $15,663; prior year $151,700 |
| Net loss per share | Approximately $0.00 | Approximately $0.00 |
- Six-month revenue increased 137% year over year, driven primarily by camera hardware sales.
- Six-month cost of revenue increased to $433,491 from $155,374, reflecting the shift toward higher-volume, lower-margin hardware sales.
- Six-month other expenses were $3,410, including $18,766 of interest expense and $25,172 of beneficial-conversion-feature expense, partially offset by $40,527 of other income. The other income primarily reflected a $38,381 reversal of accrued interest.
- Cash and cash equivalents declined to $22,129 at December 31, 2011 from $53,704 at June 30, 2011.
- Total assets were $135,838, including $32,312 of inventory and $60,847 of accounts receivable.
- Total liabilities were $745,723, compared with $850,686 at June 30, 2011. The company reported a total shareholders’ deficit of $609,885.
- Current liabilities of $666,928 substantially exceeded current assets of $133,010, indicating significant working-capital pressure.
- For the six months, operating activities used $10,238 of cash, investing activities used $1,336, and financing activities used $20,000. Cash decreased by $31,575.
Material Changes Versus the Prior Comparable Period
- Revenue increased substantially as the company expanded camera and digital-equipment sales, while service and subscription revenue became immaterial.
- Gross margin declined because hardware sales replaced higher-margin service revenue.
- Operating expenses increased to $309,576 from $85,120 for the six-month period. The prior-year comparative period included a $149,137 service expense/share-based compensation charge related to services and agreements for Wireless Village; the filing does not present a current-period equivalent charge.
- Net loss improved materially despite higher operating expenses, partly because the prior-year period included significant other expenses and the $149,137 comparative charge.
- Inventory decreased to $32,312 from $140,233 at June 30, 2011, while accounts receivable increased to $60,847 from $41,688.
- Accounts payable and accrued expenses declined to $439,926 from $542,546, but remained substantially above cash and other liquid assets.
Outlook, Risks, Contingencies, and Unusual Items
- Management expected losses to be curtailed during the fiscal year through increased product sales and believed its actions could support operations for the next 12 months.
- The financial statements contain a going-concern emphasis. Continued operations depend on increased profitability, obtaining financing, maintaining vendor and supplier relationships, and managing unpaid obligations.
- Management stated that additional financing may be required to expand the mobile incident-reporting and camera business. Any financing remained speculative, and absent financing, liquidity would depend on increased operating profits.
- Wireless Village owed $20,000 under an inventory-financing arrangement with a foreign corporation that was also a company shareholder; the filing states that the obligation was secured by inventory.
- Related-party obligations included $150,000 of current notes payable, $20,000 of long-term notes payable, and a related-party convertible debenture with a net carrying amount of $58,795.
- The company had no bank account in its own name; an administrative account was maintained by The Wallen Group, a consulting company headed by the chief executive officer and a director.
- A $135,000 judgment, plus legal fees, related to a 2002 default judgment in favor of Brookside Investments Ltd. remained accrued in accounts payable and accrued expenses.
- Executive management was continuing to provide services without cash compensation for the near term.
- Management reported that disclosure controls and procedures were effective and that no material changes had occurred in internal control over financial reporting during the period.
Important Facts for Investors to Verify
- Confirm that the filing entity is Concierge Technologies, Inc., rather than Marygold Companies, Inc., and verify any corporate-name or successor relationship.
- Assess whether camera-sales growth is sustainable and whether the lower hardware gross margin can support operating expenses.
- Reconcile the company’s very limited cash balance with current liabilities, vendor obligations, related-party debt, and expected working-capital needs.
- Review the terms, maturity dates, interest rates, security, and conversion provisions of the related-party notes, convertible debenture, and inventory financing.
- Evaluate the going-concern disclosure, including the feasibility of obtaining financing and management’s expectation of funding operations through profitability.
- Review the Brookside judgment, tax reserve, accrued interest, and other accrued obligations for potential cash requirements or additional contingencies.