UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For
the quarterly period ended
OR
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to . |
Commission
File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
(Address of principal executive offices and zip code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered | ||
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. ☒
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes
As of May 10, 2024, shares of the registrant’s Common Stock, $0.001 par value per share, were issued and outstanding. In addition, as of this date 49,360 shares of Series B Preferred Stock were issued and outstanding. Each share of Series B Preferred Stock is convertible into 20 shares of Common Stock and votes pari passu on an as if converted basis on all matters presented to our stockholders for a vote.
THE MARYGOLD COMPANIES, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2024
Table of Contents
| 2 |
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“Report”) contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “would,” “shall,” “might,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. Forward-looking statements contained in this Report include, but are not limited to, statements about:
| ● | the outcome of certain class action litigation as disclosed under “Note 11- Commitments and Contingencies”; | |
| ● | our future financial performance, including our revenue, cost of revenue, gross profit, gross margin, operating expenses, ability to generate positive cash flow, and ability to achieve and maintain profitability; | |
| ● | the sufficiency of our cash and cash equivalents to meet our working capital, capital expenditure, and liquidity needs; | |
| ● | our operating subsidiaries’ ability to attract and retain customers to use our products or services, to optimize the pricing for our products or services, to expand sales to our customers, and to convince our existing customers to renew subscriptions; | |
| ● | the evolution of technologies affecting our operating subsidiaries’ products, services and markets; | |
| ● | our operating subsidiaries’ ability to innovate and provide a superior user experience and our intentions and strategy with respect thereto; | |
| ● | our operating subsidiaries’ ability to successfully penetrate enterprise markets; | |
| ● | our operating subsidiaries’ ability to successfully expand in our existing markets and into new markets, including international markets; | |
| ● | the attraction and retention of key personnel; | |
| ● | our ability to effectively manage our growth and future expenses; | |
| ● | worldwide economic conditions, including aftereffects from the economic disruption imposed by the COVID-19 pandemic, the conflicts in Israel and Ukraine, and their impact on spending; | |
| ● | our operating subsidiaries’ ability to comply with modified or new laws and regulations applying to our business, including privacy and data security regulations. |
We caution you that the foregoing list does not contain all the forward-looking statements made in this Report.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Report on our current expectations and projections about future events and trends that we believe may affect our businesses, financial condition, operating results, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” in our Annual Report on Form 10-K for the year ended June 30, 2023, and this Report. Moreover, we and our subsidiaries operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Report. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.
The forward-looking statements made in this Report relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Report to reflect events or circumstances after the date of this Report or to reflect new information or the occurrence of unanticipated events, except as required by law. We and our subsidiaries may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.
| 3 |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
THE MARYGOLD COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)
| March 31, 2024 | June 30, 2023 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net (of which $ | ||||||||
| Inventories | ||||||||
| Prepaid income tax and tax receivable | ||||||||
| Investments, at fair value | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Restricted cash | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Deferred tax assets, net | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Operating lease liabilities, current portion | ||||||||
| Purchase consideration payable | ||||||||
| Loans - property and equipment, current portion | ||||||||
| Total current liabilities | ||||||||
| Loans - property and equipment, net of current portion | ||||||||
| Operating lease liabilities, net of current portion | ||||||||
| Deferred tax liabilities, net | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Preferred stock, par value $; shares authorized | ||||||||
| Series B: issued and outstanding at March 31, 2024 and June 30, 2023 | - | - | ||||||
| Common stock, $ par value;shares authorized; shares issued and outstanding at March 31, 2024 and at June 30, 2023 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Retained earnings | ||||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 4 |
THE MARYGOLD COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
| Three Months Ended March 31, | Nine Months Ended March 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenue | ||||||||||||||||
| Fund management - related party | $ | $ | $ | $ | ||||||||||||
| Food products | ||||||||||||||||
| Beauty products | ||||||||||||||||
| Security systems | ||||||||||||||||
| Financial services | ||||||||||||||||
| Revenue | ||||||||||||||||
| Cost of revenue | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expense | ||||||||||||||||
| Salaries and compensation | ||||||||||||||||
| General and administrative expense | ||||||||||||||||
| Fund operations | ||||||||||||||||
| Marketing and advertising | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| (Loss) income from operations | ( | ) | ( | ) | ||||||||||||
| Other income (expense) | ||||||||||||||||
| Interest and dividend income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense), net | ( | ) | ( | ) | ( | ) | ||||||||||
| Total other income (expense), net | ( | ) | ||||||||||||||
| (Loss) income before income taxes | ( | ) | ( | ) | ||||||||||||
| Benefit (provision) of income taxes | ( | ) | ||||||||||||||
| Net (loss) income | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Weighted average shares of common stock | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
| Net (loss) income per common share | ||||||||||||||||
| Basic | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Diluted | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 5 |
THE MARYGOLD COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in thousands)
(unaudited)
| Three Months Ended March 31, | Nine Months Ended March 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net (loss) income | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Foreign currency translation loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Comprehensive (loss) income | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 6 |
THE MARYGOLD COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
(unaudited)
| Nine Months Ended March 31, 2024 | Preferred Stock (Series B) | Common Stock | Additional | Accumulated Other | Total | |||||||||||||||||||||||||||
Number of Shares | Amount | Number of Shares | Par Value | Paid-In Capital | Comprehensive (Loss) Income | Retained Earnings | Stockholders’ Equity | |||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
| Loss on currency translation | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at September 30, 2023 | ( | ) | ||||||||||||||||||||||||||||||
| Gain on currency translation | - | - | ||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at December 31, 2023 | ( | ) | ||||||||||||||||||||||||||||||
| Loss on currency translation | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
| Nine Months Ended March 31, 2023 | Preferred Stock (Series B) | Common Stock | Additional | Accumulated Other | Total | |||||||||||||||||||||||||||
Number of Shares | Amount | Number of Shares | Par Value | Paid - In Capital | Comprehensive (Loss) Income | Retained Earnings | Stockholders’ Equity | |||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
| Loss on currency translation | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | ( | ) | ||||||||||||||||||||||||||||||
| Gain on currency translation | - | - | ||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | ( | ) | ||||||||||||||||||||||||||||||
| Loss on currency translation | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 7 |
THE MARYGOLD COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock-based compensation | ||||||||
| Unrealized loss on investments | ||||||||
| Non-cash lease costs | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Prepaid income taxes and tax receivable | ( | ) | ||||||
| Inventories | ( | ) | ||||||
| Other current assets | ( | ) | ( | ) | ||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Net cash (used in) provided by operating activities | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Deposit related to investment (see Note 4) | ( | ) | ||||||
| Payment of purchase consideration payable | ( | ) | ( | ) | ||||
| Proceeds from sale of investments | ||||||||
| Purchase of investments | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Repayment of property and equipment loans | ( | ) | ( | ) | ||||
| Principal payments of finance lease liability | ( | ) | ( | ) | ||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Effect of exchange rate change on cash and cash equivalents | ( | ) | ( | ) | ||||
| NET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | ( | ) | ( | ) | ||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING BALANCE | ||||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH, ENDING BALANCE | $ | $ | ||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Total cash, cash equivalents and restricted cash | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes (net of refunds received) | $ | $ | ||||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Acquisition of operating right-of-use assets through operating lease liability | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 8 |
THE MARYGOLD COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
(UNAUDITED)
NOTE 1. ORGANIZATION AND DESCRIPTION OF BUSINESS
The Marygold Companies, Inc., (the “Company” or “The Marygold Companies”), a Nevada corporation, is a global holding company that intends to focus on financial services. The Company is currently directing its investments towards financial services and the emerging Fintech space. The operations of the Company’s wholly owned subsidiaries are summarized as follows:
| ● | USCF
Investments, Inc. (“USCF Investments”), a U.S. based company, is the sole member of two investment services limited
liability company subsidiaries that manages, operates or is an investment advisor to exchange traded funds organized as limited
partnerships or investment trusts that issue shares that trade on the NYSE Arca stock exchange. This subsidiary contributed
approximately | |
| ● | Gourmet
Foods, Ltd., a New Zealand based company, manufactures and distributes New Zealand meat pies on a commercial scale and its wholly
owned New Zealand subsidiary company, Printstock Products Limited, prints specialty wrappers for the food industry in New Zealand
and Australia (collectively “Gourmet Foods”). These subsidiaries contributed approximately | |
| ● | Brigadier
Security Systems (2000) Ltd. (“Brigadier”), a Canadian based company, sells and installs commercial and residential alarm
monitoring systems. This subsidiary contributed approximately | |
| ● | Kahnalytics,
Inc. dba/Original Sprout (“Original Sprout”), a U.S. based company, is engaged in the wholesale distribution of hair
and skin care products under the brand name Original Sprout on a global scale. This subsidiary contributed approximately | |
| ● | Marygold & Co., a U.S. based company, together with its wholly owned limited liability company, Marygold & Co. Advisory Services, LLC, (collectively “Marygold”) was established by The Marygold Companies to explore opportunities in the financial technology (“Fintech”) space, completed its initial development phase and launched its commercial services in June 2023. Through March 31, 2024, Marygold continued its launch efforts and commenced with new marketing campaigns. | |
| ● | Marygold
& Co. (UK) Limited, a UK limited company, together with its UK subsidiary, Tiger Financial and Asset Management, Ltd. (collectively
“Marygold UK”) is an asset manager and registered investment advisor in the UK. This subsidiary contributed approximately
|
The Marygold Companies manages its operating businesses on a decentralized basis. The Marygold Companies’ corporate management is responsible for capital allocation decisions, investment activities and selection and retention of the Chief Executive to head each of the operating subsidiaries. The Marygold Companies’ corporate management is also responsible for corporate governance practices, monitoring regulatory affairs, including those of its operating businesses and involvement in governance-related issues of its subsidiaries as needed.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Accounting Principles
The Company has prepared the accompanying unaudited condensed financial statements on a consolidated basis. In the opinion of management, the accompanying unaudited condensed consolidated balance sheets, related statements of operations, comprehensive (loss) income, stockholders’ equity and cash flows include all adjustments, consisting only of normal recurring items, necessary for their fair presentation, prepared on an accrual basis, in conformity with generally accepted accounting principles in the United States of America (“U.S. GAAP”) but does not include all of the information and footnotes required by U.S. GAAP for complete audited financial statements. Operating results for the nine months ended March 31, 2024, are not necessarily indicative of the results that may be expected for the year ending June 30, 2024. The condensed consolidated balance sheet as of June 30, 2023, has been derived from the audited consolidated financial statements at that date included in our annual report on Form 10-K for the year ended June 30, 2023, but does not include all of the information and footnotes required by U.S. GAAP for complete audited financial statements. The information included in this Form 10-Q should be read in conjunction with information included in the Company’s Annual Report on Form 10-K for year ended June 30, 2023.
Principles of Consolidation
The accompanying Condensed Consolidated Financial Statements, which are referred herein as the “Financial Statements”, include the accounts of The Marygold Companies and its wholly owned subsidiaries, USCF Investments, Gourmet Foods, Brigadier, Original Sprout, Marygold and Marygold UK are presented on a consolidated basis.
All inter-company transactions and accounts have been eliminated in consolidation.
| 9 |
Use of Estimates
The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Concentration of Credit Risk
Our subsidiary USCF Investments relies on the revenues generated through the various funds it manages. The concentration of fund management revenue and related receivables were (dollars in thousands):
| Three Months Ended March 31, | Nine Months Ended March 31, | |||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||||||
| Revenue | % of Total | Revenue | % of Total | Revenue | % of Total | Revenue | % of Total | |||||||||||||||||||||||||
| Fund | ||||||||||||||||||||||||||||||||
| USO | $ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||||||
| UNG | % | % | % | % | ||||||||||||||||||||||||||||
| UMI | % | % | % | % | ||||||||||||||||||||||||||||
| All Others | % | % | % | % | ||||||||||||||||||||||||||||
| Total | $ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||||||
| March 31, 2024 | June 30, 2023 | |||||||||||||||
Accounts Receivable | % of Total | Accounts Receivable | % of Total | |||||||||||||
| Fund | ||||||||||||||||
| USO | $ | % | $ | % | ||||||||||||
| UNG | % | % | ||||||||||||||
| UMI | % | % | ||||||||||||||
| All Others | % | % | ||||||||||||||
| Total | $ | % | $ | % | ||||||||||||
There are no significant concentrations for the other operating subsidiaries on a consolidated basis.
Recently Issued and Adopted Accounting Pronouncements
In 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Board Update (“ASU”) 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, and also issued subsequent amendments to the initial guidance, which replace the existing incurred loss impairment model with an expected credit loss model and require a financial asset measured at amortized cost to be presented at the net amount expected to be collected. The new guidance was effective for annual reporting periods beginning after March 15, 2022, including interim periods within that annual period. The Company adopted the standard during fiscal year 2024 with the additional disclosures and no changes related to the period of recognition of losses on its receivables.
| 10 |
In November 2023, the FASB issued ASU No. 2023-07, Improvements to Reportable Segment Disclosures (Topic 280). This ASU updates reportable segment disclosure requirements by requiring disclosures of significant reportable segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within each reported measure of a segment’s profit or loss. This ASU also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources. The ASU is effective for annual periods beginning after March 15, 2023, and interim periods within fiscal years beginning after March 15, 2024. Adoption of the ASU should be applied retrospectively to all prior periods presented in the financial statements. Early adoption is also permitted. This ASU will likely result in us including the additional required disclosures when adopted. We are currently evaluating the provisions of this ASU and expect to adopt them for the year ending June 30, 2025.
In December 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures (Topic 740). The ASU requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income taxes paid. The ASU is effective on a prospective basis for annual periods beginning after March 15, 2024. Early adoption is also permitted for annual financial statements that have not yet been issued or made available for issuance. This ASU will result in the required additional disclosures being included in our consolidated financial statements, once adopted.
Basic net income per share is based upon the weighted average number of common shares outstanding. This calculation includes the weighted average number of Series B Convertible Preferred shares outstanding also, as they are deemed to be substantially similar to the common shares and shareholders are entitled to the same liquidation and dividend rights. Diluted net income per share is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.
For the three and nine-months ended March 31, 2024, the Company excluded common stock equivalents from the diluted earnings per share calculation as their effect would be anti-dilutive. For the three and nine months ended March 31, 2023, the Company excluded common stock equivalents from the diluted earnings per share calculation as their effect would be anti-dilutive.
Basic and diluted net income per share reflects the effects of shares potentially issuable upon conversion of convertible preferred stock.
Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | |||||||||||||||||||||||
| Net (Loss) Income | Shares | Per Share | Net Income | Shares | Per Share | |||||||||||||||||||
| Basic net (loss) income per share: | ||||||||||||||||||||||||
| Net (loss) income available to common shareholders | $ | ( | ) | $ | ) | $ | $ | |||||||||||||||||
| Net (loss) income available to preferred shareholders | ( | ) | $ | ) | $ | |||||||||||||||||||
| Basic net (loss) income per share | $ | ( | ) | $ | ) | $ | $ | |||||||||||||||||
| Diluted net (loss) income per share: | ||||||||||||||||||||||||
| Net (loss) income available to common shareholders, basic | $ | ( | ) | $ | ||||||||||||||||||||
| Impact of dilutive securities | ||||||||||||||||||||||||
| Net (loss) income available to common shareholders, diluted | ) | $ | ) | $ | ||||||||||||||||||||
| Net (loss) income available to preferred shareholders | ( | ) | $ | ) | $ | |||||||||||||||||||
| Diluted net (loss) income per share | $ | ( | ) | $ | ) | $ | $ | |||||||||||||||||
| 11 |
Nine Months Ended March 31, 2024 | Nine Months Ended March 31, 2023 | |||||||||||||||||||||||
| Net (Loss) Income | Shares | Per Share | Net Income | Shares | Per Share | |||||||||||||||||||
| Basic net (loss) income per share: | ||||||||||||||||||||||||
| Net (loss) income available to common shareholders | $ | ( | ) | $ | ) | $ | $ | |||||||||||||||||
| Net (loss) income available to preferred shareholders | ( | $ | ) | $ | ||||||||||||||||||||
| Basic net (loss) income per share | $ | ( | ) | $ | ) | $ | $ | |||||||||||||||||
| Diluted net (loss) income per share: | ||||||||||||||||||||||||
| Net (loss) income available to common shareholders, basic | $ | ( | ) | $ | ||||||||||||||||||||
| Impact of dilutive securities | ||||||||||||||||||||||||
| Net (loss) income available to common shareholders, diluted | ) | $ | ) | $ | ||||||||||||||||||||
| Net (loss) income available to preferred shareholders | ( | ) | $ | ) | $ | |||||||||||||||||||
| Diluted net (loss) income per share | $ | ( | ) | $ | ) | $ | $ | |||||||||||||||||
NOTE 4. CERTAIN BALANCE SHEET DETAILS
Other current assets
Included
in the other current assets balance of $
| (in thousands) | ||||||||
| March 31, | June 30, | |||||||
| Inventories | 2024 | 2023 | ||||||
| Raw materials and supplies | $ | $ | ||||||
| Finished goods | ||||||||
| Total inventories | $ | $ | ||||||
| March 31, | June 30, | |||||||
| Property and equipment, net | 2024 | 2023 | ||||||
| Manufacturing equipment | $ | $ | ||||||
| Land and building | ||||||||
| Other equipment | ||||||||
| Total property and equipment, gross | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Total property and equipment, net | $ | $ | ||||||
| 12 |
| March 31, | June 30, | |||||||
| Accounts payable and accrued expenses | 2024 | 2023 | ||||||
| Accounts payable | $ | $ | ||||||
| Taxes payable | ||||||||
| Accrued payroll, vacation and bonus payable | ||||||||
| Accrued operating expenses | ||||||||
| Total | $ | $ | ||||||
NOTE 5. INTANGIBLE ASSETS
| March 31, 2024 | ||||||||||||||
| Intangible Assets | Weighted Average Remaining Life (in years) | Intangible Assets (Gross) | Accumulated Amortization | Intangible Asset (Net) | ||||||||||
(dollars in thousands) | ||||||||||||||
| Customer relationships | $ | $ | ( | ) | $ | |||||||||
| Brand name | ( | ) | ||||||||||||
| Brand name – indefinite lived | N/A | |||||||||||||
| Recipes | ( | ) | ||||||||||||
| Internally developed software | ( | ) | ||||||||||||
| Total | $ | $ | ( | ) | $ | |||||||||
| June 30, 2023 | ||||||||||||||
| Intangible Assets | Weighted Average Remaining Life (in years) | Intangible Assets (Gross) | Accumulated Amortization | Intangible Asset (Net) | ||||||||||
(dollars in thousands) | ||||||||||||||
| Customer relationships | $ | $ | ( | ) | $ | |||||||||
| Brand name | ( | ) | ||||||||||||
| Brand name – indefinite lived | N/A | |||||||||||||
| Recipes | ( | ) | ||||||||||||
| Internally developed software | ||||||||||||||
| Total | $ | $ | ( | ) | $ | |||||||||
Total
amortization expense for intangible assets for the three months ended March 31, 2024 and 2023 was $
Estimated remaining amortization expenses of intangible assets for the next five fiscal years and thereafter are as follows (in thousands):
| Years Ending June 30, | Expense | |||
| 2024 (remainder of the year) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total | $ | |||
NOTE 6. INVESTMENTS
USCF
Investments, from time to time, provides initial seed capital in connection with the creation of ETPs or ETFs that are managed by
USCF or USCF Advisers. USCF Investments classifies these investments as current assets as these investments are generally sold
within one year of the balance sheet date. Investments in which no controlling financial interest or significant influence exists
are recorded at fair value with the change in fair value included in earnings on the Statements of Operations. Investments in which
no controlling financial interest exists, but significant influence exists are recorded using the equity method of accounting unless
the fair value option is elected under Accounting Standards Codification 825, Fair Value Option. As of March 31, 2024, the USCF
Advisers owned $
| 13 |
All of the Company’s short-term investments are classified as Level 1 assets and consist of the following (in thousands):
| March 31, 2024 | ||||||||||||||||
| Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||
| Money market funds | $ | $ | $ | $ | ||||||||||||
| Other short-term investments | ||||||||||||||||
| Short-term treasury bills | ||||||||||||||||
| Other equities - related parties | ( | ) | ||||||||||||||
| Total short-term investments | $ | $ | $ | ( | ) | $ | ||||||||||
| June 30, 2023 | ||||||||||||||||
| Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||
| Money market funds | $ | $ | $ | $ | ||||||||||||
| Other short-term investments | ( | ) | ||||||||||||||
| Short-term treasury bills | ||||||||||||||||
| Other equities - related parties | ( | ) | ||||||||||||||
| Total short-term investments | $ | $ | $ | ( | ) | $ | ||||||||||
During the three and nine months ended March 31, 2024 and 2023, respectively, there were no transfers in or out of Level 3.
As
of March 31, 2024 and June 30, 2023, the Company also holds a $
NOTE 7. RELATED PARTY TRANSACTIONS
USCF Investments – Related Party Transactions
The
Funds managed by USCF and USCF Advisers are deemed by management to be related parties. The Company’s USCF Investments revenues
earned from related parties were $
USCF
Advisers is contractually obligated to pay license fees related to ZSB and ZSC intellectual property rights to an affiliated entity
during the next two fiscal years totaling up to $
| 14 |
NOTE 8. STOCKHOLDERS’ EQUITY
Stock-based Compensation
During the three and nine months ended March 31, 2024 the Company granted stock options for the purchase of and shares, respectively, with a weighted average grant date fair values of $ per share. The fair value of the options granted were estimated using the following assumptions:
| Three and Nine Months Ended March 31, 2024 | ||||
| Expected volatility | % - | % | ||
| Expected term | years | |||
| Risk-Free interest rate | % - | % | ||
| Expected dividend yield | % | |||
| Stock Options | ||||||||
Number of Options | Weighted Average Exercise Price | |||||||
| Outstanding at July 1, 2023 | $ | |||||||
| Granted | $ | |||||||
| Forfeited | ( | ) | $ | |||||
| Outstanding and expected to vest at March 31, 2024 | $ | |||||||
| Exercisable as of March 31, 2024 | $ | |||||||
As of March 31, 2024, there was $ million of unrecognized compensation expense related to outstanding stock options that will be recognized over a remaining weighted average period of years. As of March 31, 2024, the weighted average remaining contractual life of the outstanding stock options was years.
| Restricted Stock Awards | ||||||||
Number of RSAs | Weighted Average Grant Date Fair Value | |||||||
| Nonvested as of July 1, 2023 | $ | |||||||
| Granted | $ | |||||||
| Canceled | ) | $ | ||||||
| Vested | ( | ) | $ | |||||
| Nonvested as of March 31, 2024 | $ | |||||||
During the three and nine months ended March 31, 2024, the Company granted and restricted stock awards (“RSAs”) with a weighted average grant date fair value of $ per share and a total fair value at date of grant of $ million. The intrinsic value of outstanding RSAs was $ million as of March 31, 2024. Stock-based compensation relating to RSAs totaled $ million and for the three months ended March 31, 2024 and 2023, respectively, and $ million and less than $ million for the nine months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, there was $ million of unrecognized compensation expense related to outstanding RSAs that will be recognized over a remaining weighted average period of years.
| 15 |
The table below summarizes total remaining stock-based compensation for all outstanding awards (in thousands):
| Years Ending June 30, | ||||
| Remainder of fiscal 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Total stock-based compensation | $ |
The aggregate expected stock-based compensation expense remaining to be recognized reflects only awards as of March 31, 2024 and assumes no forfeiture activity and will be recognized over a weighted-average period of years.
NOTE 9. BUSINESS COMBINATION
In
2021, Marygold UK entered into a Stock Purchase Agreement (“SPA”) to acquire all the issued and outstanding shares of
Tiger Financial and Asset Management Limited (“Tiger”) which is an asset manager and investment advisor. The transaction
closed in 2022 with an agreed purchase price of $
As disclosed in Note 13. Subsequent Events, the Company closed on the acquisition of Step-by-Step on April 30, 2024.
NOTE 10. INCOME TAXES
As
of March 31, 2024, the Company’s total unrecognized tax benefits were $
The Company is required to make its best estimate of the annual effective tax rate for the full fiscal year and use that rate to provide for income taxes on a current year-to-date basis. The effective tax rate could fluctuate in the future due to changes in the taxable income mix between various jurisdictions.
NOTE 11. COMMITMENTS AND CONTINGENCIES
Lease Commitments
For
the three and nine months ended March 31, 2024 and 2023, the Company’s combined lease costs were $
Future minimum lease payments are (in thousands):
| Year Ended June 30, | Operating Leases | Finance Lease | ||||||
| 2024 | $ | $ | ||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| Thereafter | ||||||||
| Total minimum lease payments | ||||||||
| Less: present value discount | ( | ) | ( | ) | ||||
| Total lease liabilities | $ | $ | ||||||
| 16 |
The
weighted average remaining lease term for the Company’s operating leases was
Other Agreements and Commitments
As
the Company builds out its Fintech application, it enters into agreements with various service providers. As of March 31, 2024, Marygold
has future payment commitments with its primary service vendors totaling $
The
Company’s USCF Advisers subsidiary is contractually obligated to pay license fees related to ZSB and ZSC intellectual property
rights to an affiliated entity including $
Litigation
From time to time, the Company may be involved in legal proceedings arising from the ordinary course of their respective businesses. Except as described below, there are no material pending legal proceedings against the Company or its subsidiaries. USCF is an indirect wholly owned subsidiary of the Company. USCF, as the general partner of the United States Oil Fund, LP (“USO”) and the general partner and sponsor of the related public funds may, from time to time, be involved in litigation arising out of its operations in the ordinary course of business. Except as described herein, USO and USCF are not currently party to any material legal proceedings.
In re: United States Oil Fund, LP Securities Litigation
On June 19, 2020, USCF, USO, John P. Love, and Stuart P. Crumbaugh were named as defendants in a putative class action filed by purported shareholder Robert Lucas (the “Lucas Class Action”). The Court thereafter consolidated the Lucas Class Action with two related putative class actions filed on July 31, 2020 and August 13, 2020, and appointed a lead plaintiff. The consolidated class action is pending in the U.S. District Court for the Southern District of New York under the caption In re: United States Oil Fund, LP Securities Litigation, Civil Action No. 1:20-cv-04740.
On November 30, 2020, the lead plaintiff filed an amended complaint (the “Amended Lucas Class Complaint”). The Amended Lucas Class Complaint asserts claims under the 1933 Act, the Exchange Act, and Rule 10b-5. The Amended Lucas Class Complaint challenges statements in registration statements that became effective on February 25, 2020 and March 23, 2020 as well as subsequent public statements through April 2020 concerning certain extraordinary market conditions and the attendant risks that caused the demand for oil to fall precipitously, including the COVID-19 global pandemic and the Saudi Arabia-Russia oil price war. The Amended Lucas Class Complaint purports to have been brought by an investor in USO on behalf of a class of similarly-situated shareholders who purchased USO securities between February 25, 2020 and April 28, 2020 and pursuant to the challenged registration statements. The Amended Lucas Class Complaint seeks to certify a class and to award the class compensatory damages at an amount to be determined at trial as well as costs and attorney’s fees. The Amended Lucas Class Complaint named as defendants USCF, USO, John P. Love, Stuart P. Crumbaugh, Nicholas D. Gerber, Andrew F Ngim, Robert L. Nguyen, Peter M. Robinson, Gordon L. Ellis, and Malcolm R. Fobes III, as well as the marketing agent, ALPS Distributors, Inc., and the Authorized Participants: ABN Amro, BNP Paribas Securities Corporation, Citadel Securities LLC, Citigroup Global Markets, Inc., Credit Suisse Securities USA LLC, Deutsche Bank Securities Inc., Goldman Sachs & Company, J.P. Morgan Securities Inc., Merrill Lynch Professional Clearing Corporation, Morgan Stanley & Company Inc., Nomura Securities International Inc., RBC Capital Markets LLC, SG Americas Securities LLC, UBS Securities LLC, and Virtu Financial BD LLC.
| 17 |
The lead plaintiff has filed a notice of voluntary dismissal of its claims against BNP Paribas Securities Corporation, Citadel Securities LLC, Citigroup Global Markets Inc., Credit Suisse Securities USA LLC, Deutsche Bank Securities Inc., Morgan Stanley & Company, Inc., Nomura Securities International, Inc., RBC Capital Markets, LLC, SG Americas Securities LLC, and UBS Securities LLC.
USCF, USO, and the individual defendants in In re: United States Oil Fund, LP Securities Litigation intend to vigorously contest such claims and have moved for their dismissal.
Mehan Action
On August 10, 2020, purported shareholder Darshan Mehan filed a derivative action on behalf of nominal defendant USO, against defendants USCF, John P. Love, Stuart P. Crumbaugh, Nicholas D. Gerber, Andrew F Ngim, Robert L. Nguyen, Peter M. Robinson, Gordon L. Ellis, and Malcolm R. Fobes, III (the “Mehan Action”). The action is pending in the Superior Court of the State of California for the County of Alameda as Case No. RG20070732.
The Mehan Action alleges that the defendants breached their fiduciary duties to USO and failed to act in good faith in connection with a March 19, 2020 registration statement and offering and disclosures regarding certain extraordinary market conditions that caused demand for oil to fall precipitously, including the COVID-19 global pandemic and the Saudi Arabia-Russia oil price war. The complaint seeks, on behalf of USO, compensatory damages, restitution, equitable relief, attorney’s fees, and costs. All proceedings in the Mehan Action are stayed pending disposition of the motion(s) to dismiss in In re: United States Oil Fund, LP Securities Litigation.
USCF, USO, and the other defendants intend to vigorously contest such claims.
In re United States Oil Fund, LP Derivative Litigation
On August 27, 2020, purported shareholders Michael Cantrell and AML Pharm. Inc. DBA Golden International filed two separate derivative actions on behalf of nominal defendant USO, against defendants USCF, John P. Love, Stuart P. Crumbaugh, Andrew F Ngim, Gordon L. Ellis, Malcolm R. Fobes, III, Nicholas D. Gerber, Robert L. Nguyen, and Peter M. Robinson in the U.S. District Court for the Southern District of New York at Civil Action No. 1:20-cv-06974 (the “Cantrell Action”) and Civil Action No. 1:20-cv-06981 (the “AML Action”), respectively.
The complaints in the Cantrell and AML Actions are nearly identical. They each allege violations of Sections 10(b), 20(a) and 21D of the Exchange Act, Rule 10b-5 thereunder, and common law claims of breach of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets. These allegations stem from USO’s disclosures and defendants’ alleged actions in light of the extraordinary market conditions in 2020 that caused demand for oil to fall precipitously, including the COVID-19 global pandemic and the Saudi Arabia-Russia oil price war. The complaints seek, on behalf of USO, compensatory damages, restitution, equitable relief, attorney’s fees, and costs. The plaintiffs in the Cantrell and AML Actions have marked their actions as related to the Lucas Class Action.
The Court consolidated the Cantrell and AML Actions under the caption In re United States Oil Fund, LP Derivative Litigation, Civil Action No. 1:20-cv-06974 and appointed co-lead counsel. All proceedings in In re United States Oil Fund, LP Derivative Litigation are stayed pending disposition of the motion(s) to dismiss in In re: United States Oil Fund, LP Securities Litigation.
USCF, USO, and the other defendants intend to vigorously contest the claims in In re United States Oil Fund, LP Derivative Litigation.
| 18 |
No accrual has been recorded with respect to the above legal matters as of March 31, 2024 and June 30, 2023. We are currently unable to predict the timing or outcome of, or reasonably estimate the possible losses or range of, possible losses resulting from these matters. It is reasonably possible that this estimate will change in the near term. An adverse outcome regarding these matters could materially adversely affect the Company’s financial condition, results of operations and cash flows.
Retirement Plan
The
Company has a 401(k) Profit Sharing Plan (“401K Plan”) covering U.S. employees. Participants may make contributions pursuant
to a salary reduction agreement. In addition, the 401K Plan makes a safe harbor matching contribution. The Company’s matching contributions
of less than $
NOTE 12. SEGMENT REPORTING
The Company’s Chief Operating Decision Maker (“CODM”) evaluates the Company’s segments based on revenue type, as well as net (loss) income at each segment. The CODM does not evaluate segments on the basis of assets at each segment.
| Three Months Ended March 31, | Nine Months Ended March 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenue from external customers: | ||||||||||||||||
| Fund management - related party | $ | $ | $ | $ | ||||||||||||
| Food products | ||||||||||||||||
| Beauty products | ||||||||||||||||
| Security systems | ||||||||||||||||
| Financial services (1) | ||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||
| Three Months Ended March 31, | Nine Months Ended March 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net (loss) income: | ||||||||||||||||
| Fund management - related party | $ | $ | $ | $ | ||||||||||||
| Food products | ( | ) | ||||||||||||||
| Beauty products | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Security systems | ||||||||||||||||
| Financial services (1) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Corporate headquarters | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total net (loss) income | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| (1) |
NOTE 13. SUBSEQUENT EVENTS
The Company evaluated subsequent events for recognition and disclosure through the date the financial statements were issued or filed. Other than the below, nothing has occurred outside normal operations since that required recognition or disclosure in these financial statements.
On January 31, 2024, Marygold UK entered into a Share Purchase Agreement (“SPA”) to acquire all the issued and outstanding
shares of Step-by-Step Financial Planners Limited (“Step-by-Step”), subject to certain closing conditions and regulatory approval.
The transaction closed on April 30, 2024 with an agreed purchase price of approximately $
| 19 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the unaudited financial statements and the accompanying notes thereto and is qualified in its entirety by the foregoing and by more detailed financial information appearing elsewhere in this Report. See “Item 1 - Financial Statements (Unaudited).”
Forward-Looking Statements
In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. See “Special Note Regarding Forward-Looking Statements.” Our results and the timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under “Item 1A. Risk Factors” in Part II of this Report and “Item 1A. Risk Factors” in our Form 10-K for the year ended June 30, 2023.
Overview
The Marygold Companies, Inc. (“The Marygold Companies” or the “Company”) conducts business through its wholly owned subsidiaries operating in the US, New Zealand, the United Kingdom and Canada. The operations of the subsidiaries are summarized as follows:
| ● | USCF Investments, Inc. (“USCF Investments”), a U.S. based company, is the sole member of two investment services limited liability company subsidiaries that manages, operates or is an investment advisor to exchange traded funds organized as limited partnerships or investment trusts that issue shares that trade on the NYSE Arca stock exchange. | |
| ● | Gourmet Foods, Ltd., a New Zealand based company, manufactures and distributes New Zealand meat pies on a commercial scale and its wholly owned New Zealand subsidiary company, Printstock Products Limited, prints specialty wrappers for the food industry in New Zealand and Australia (collectively “Gourmet Foods”). |
| 20 |
| ● | Brigadier Security Systems (2000) Ltd. (“Brigadier”), a Canadian based company, sells and installs commercial and residential alarm monitoring systems. | |
| ● | Kahnalytics, Inc. DBA Original Sprout (“Original Sprout”), a U.S. based company, is engaged in the wholesale distribution of hair and skin care products under the brand name Original Sprout on a global scale. | |
| ● | Marygold & Co., a U.S. based company, together with its wholly owned limited liability company, Marygold & Co. Advisory Services, LLC, (collectively “Marygold”) was established to explore opportunities in the financial technology (“Fintech”) space, completed its development phase and launched its commercial services in June 2023. Through March 31, 2023, Marygold continued its launch efforts and commenced with new marketing campaigns. | |
| ● | Marygold & Co. (UK) Limited, a UK limited company, together with its UK subsidiary, Tiger Financial and Asset Management, Ltd. (collectively “Marygold UK”) is an asset manager and registered investment advisor in the UK. The operations of Marygold UK began in June 2022. |
Because the Company conducts its businesses through its wholly owned operating subsidiaries, the risks related to our wholly owned subsidiaries are also risks that impact the Company’s financial condition and results of operations. See, “Note 2. Summary of Significant Accounting Policies / Concentration of Credit Risk” in the notes to the financial statements for more information.
Results of Operations
The Marygold Companies, Inc.
Comparison of the Three Months Ended March 31, 2024 and 2023
Revenue
Consolidated revenue for the three months ended March 31, 2024 was $7.9 million representing a $0.4 million, or 5%, decrease from the three months ended March 31, 2023 revenue of $8.3 million. The decrease in consolidated revenue was primarily attributed to USCF Investments where assets under management (“AUM”) for the three months ended March 31, 2024 was lower than the comparable prior year period which resulted in a revenue decrease of $0.6 million, offset by an increase in revenue of $0.1 million from each of our beauty products and security systems business segments.
Operating (Loss) Income
The Company’s operating loss for the three months ended March 31, 2024 was ($1.5) million as compared to operating income of $0.2 million for the three months ended March 31, 2023. This represents a decrease in operating income of approximately $1.6 million for the three months ended March 31, 2024 compared to the prior year. The decrease in operating income was attributable to the reduced revenue from the fund management business and an increase in operating expenses related to the roll out of our fintech business at Marygold & Co.
Other (Expense) Income, Net
For the three months ended March 31, 2024 the Company had other income, net of $0.6 million compared to an other expense, net of less than ($0.1) million for the three months ended March 31, 2023. The $0.6 million increase compared to the prior year period was primarily attributable to unrealized gains on investments.
Income Taxes
For the three months ended March 31, 2024 we had an income tax benefit of $0.4 million compared to less than $0.1 million for the comparable period of the prior year which was a function of reporting a pre-tax loss in the current year period.
Net (Loss) Income
For the three months ended March 31, 2024, the Company generated a net loss of ($0.5 million) as compared to net income of $0.2 million for the three months ended March 31, 2023. The $0.7 million decrease in net income was attributable to $0.5 million in lower profits at our fund management business and increased losses of $0.4 million in our financial services business as the Company continues to invest capital into our fintech subsidiary, partially offset by reduced corporate costs of $0.2 million.
Comparison of the Nine Months Ended March 31, 2024 and 2023
Revenue
Consolidated revenue for the nine months ended March 31, 2024 was $24.6 million representing a $1.4 million or 6% decrease from the nine months ended March 31, 2023 revenue of $26.0 million. The decrease in consolidated revenue was attributed to lower revenues by $1.3 million from lower AUM at USCF Investments and lower revenue by $0.2 million from our food products segment as we were transitioning to a more favorable product mix and refocused production capacity to higher profit margin customers.
| 21 |
Operating (Loss) Income
The Company’s operating loss for the nine months ended March 31, 2024 was ($3.1) million as compared to operating income of $1.1 million for the nine months ended March 31, 2023. This represents a decrease in operating income of $4.2 million which was attributed to reduced revenue of $1.3 million at USCF Investments from lower AUM and increased losses from our financial services business unit as we ramped up the development of our fintech app.
Income Taxes
For the nine months ended March 31, 2024 we had an income tax benefit of $0.9 million compared to an income tax provision of ($0.3) million for the comparable period of the prior year which was a function of reporting pre-tax income in the prior year period to reporting a pre-tax loss in the current year period.
Net (Loss) Income
For the nine months ended March 31, 2024, the Company generated a net loss of ($2.2 million) as compared to net income of $0.8 million for the nine months ended March 31, 2023. The $3.0 million decrease in net income was attributable to lower profits of $1.3 million at our fund management business, increased losses of $2.1 million in our financial services business as the Company continues to invest capital into our fintech app, and increased losses of $0.4 million at our beauty products business as further described below, partially offset by reduced corporate costs of $0.7 million.
Segment Operations
Fund Management – USCF Investments (56% and 59% of consolidated revenues for the three and nine months ended March 31, 2024, respectively)
USCF currently serves as the General Partner or the Sponsor to the following commodity pools, each of which is currently conducting a public offering of its limited partnership shares pursuant to the Securities Act of 1933, as amended:
| USCF as General Partner for the following funds | ||
| United States Oil Fund, LP (“USO”) | Organized as a Delaware limited partnership in 2005 | |
| United States Natural Gas Fund, LP (“UNG”) | Organized as a Delaware limited partnership in 2006 | |
| United States Gasoline Fund, LP (“UGA”) | Organized as a Delaware limited partnership in 2007 | |
| United States 12 Month Oil Fund, LP (“USL”) | Organized as a Delaware limited partnership in 2007 | |
| United States 12 Month Natural Gas Fund, LP (“UNL”) | Organized as a Delaware limited partnership in 2007 | |
| United States Brent Oil Fund, LP (“BNO”) | Organized as a Delaware limited partnership in 2009 | |
| USCF as fund Sponsor – each a series within the United States Commodity Index Funds Trust (“USCIF Trust”) | ||
| United States Commodity Index Fund (“USCI”) | Series of the USCIF Trust created in 2010 | |
| United States Copper Index Fund (“CPER”) | Series of the USCIF Trust created in 2010 | |
USCF Advisers, a registered investment adviser, serves as the investment adviser to the funds listed below within the USCF ETF Trust (the “ETF Trust”) and has overall responsibility for the general management and administration for the ETF Trust. Pursuant to the current Investment Advisory Agreements, USCF Advisers provides an investment program for each of series within the ETF Trust and manages the investment of the assets.
| USCF Advisers as fund manager for each series within the USCF ETF Trust: | ||
| USCF SummerHaven Dynamic Commodity Strategy No K-1 Fund (“SDCI”) | Fund launched May 2018 | |
| USCF Midstream Energy Income Fund (“UMI”) | Fund launched March 2021 | |
| USCF Gold Strategy Plus Income Fund (“USG”) previous ticker (“GLDX”) | Fund
launched November 2021
Ticker symbol change March 2024 | |
| USCF Dividend Income Fund (“UDI”) | Fund launched June 2022 | |
| USCF Sustainable Battery Metals Strategy Fund (“ZSB”) | Fund launched January 2023 | |
| USCF Energy Commodity Strategy Absolute Return Fund (“USE”) | Fund launched May 2023 | |
| USCF Sustainable Commodity Strategy Fund (“ZSC”) | Fund launched August 2023 | |
| USCF Aluminum Strategy Fund (“ALUM”) | Fund launched October 2023 | |
All commodity pools managed by USCF and each series of the ETF Trust managed by USCF Advisers are collectively referred to as the “Funds” hereafter.
| 22 |
USCF Investments’ revenue and expenses are driven by the amount of AUM of the Funds. USCF Investments earns monthly management and advisory fees based on agreements with each Fund as determined by the contractual basis point management fee structure in each agreement multiplied by the average AUM over the given period. Many of the Fund’s expenses are dependent upon the amount of AUM. These variable expenses include Fund administration, custody, accounting, transfer agency, marketing and distribution, and sub-adviser fees and are determined by multiplying contractual fee rates by AUM.
Comparison of the Three Months Ended March 31, 2024 and 2023
Revenue
Average AUM for the three months ended March 31, 2024 was $3.0 billion as compared to $3.7 billion from the three months ended March 31, 2023, a decrease of $0.7 billion or 19%, due to a decrease in USO, UNG and BNO AUM, partially offset by an increase in UMI AUM. As a result, the revenues from management and advisory fees decreased by $0.6 million, or 12%, to $4.4 million for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 where revenues from management and advisory fees totaled $5.0 million.
Operating Expenses
USCF Investments total operating expenses for three months ended March 31, 2024 increased $0.5 million to $3.6 million, or 16%, from $3.1 million for the three months ended March 31, 2023. Total variable expenses, as described above, were comparable quarter over quarter, with offsetting changes including a decrease in sub-advisory fees of $0.1 million due to a decrease in USCI and CPER AUM offset by an increase of $0.1 million in fund accounting and administration expenses due to an increase in the number of funds under management. General and administrative (“G&A”) expenses increased $0.1 million to $0.6 million, or 18%, from $0.5 million due to an increase in professional fees. Operations expenses increased by $0.2 million to $1.3 million from $1.1 million compared to the prior year quarter and employee compensation expenses increased $0.2 million due to quarterly bonus accruals in anticipation of year-end bonuses.
Operating income and net income
Operating income decreased by $1.1 million to $0.8 million for the three months ended March 31, 2024 from $1.9 million for the three months ended March 31, 2023. The decrease was due to lower revenue as a result of lower AUM along with the increase in expenses as described above. Other income (expense) was $0.6 million for the three months ended March 31, 2024 compared to ($0.1) million for the three months ended March 31, 2023 resulting in a $0.6 million increase due to unrealized gains of $0.3 million on equity investments in the current period in addition to $0.2 million in dividend and interest income.
Comparison of the Nine Months Ended March 31, 2024 and 2023
Revenue
Average AUM for the nine months ended March 31, 2024 was $3.3 billion as compared to $3.8 billion from the nine months ended March 31, 2023 due to a decrease in USO and USCI AUM, partially offset by an increase in UNG AUM. As a result, the revenues from management and advisory fees decreased by $1.3 million, or 8%, to $14.5 million for the nine months ended March 31, 2024 as compared to the nine months ended March 31, 2023 where revenues from management and advisory fees totaled $15.7 million.
Operating Expenses
USCF Investments total operating expenses for the nine months ended March 31, 2024 increased by $0.4 million to $10.7 million, or 3%, from $10.3 million for the nine months ended March 31, 2023. Total variable expenses, as described above, decreased by $0.3 million due to a decrease in total AUM which included a $0.3 million decrease in variable marketing and distribution expenses, a decrease of $0.1 million in sub-advisory fees related to lower USCI and CPER AUM partially offset by a $0.1 million increase in fund accounting and administration expenses due to an increase in the number of funds under management. G&A expenses remained flat at $1.8 million for each nine-month period. Employee compensation expenses remained consistent at $3.7 million for the nine months ended March 31, 2024 compared to the nine months ended March 31, 2023. Operations expenses increased by $0.4 million due to an increase in license and director fees for new funds.
| 23 |
Operating income and net income
Operating income decreased $1.6 million to $3.8 million for the nine months ended March 31, 2024 from $5.4 million for the nine months ended March 31, 2023. The decrease was due to lower revenue as a result of lower AUM and a $0.4 million increase in operating expenses. Other income (expense) was $0.4 million for the nine months ended March 31, 2024 compared to $0.1 million for the nine months ended March 31, 2023 due to $0.5 million in dividend, interest and other income in the current year period.
Food Products (23% and 22% of consolidated revenue for the three and nine months ended March 31, 2024, respectively)
Food products (Gourmet Foods and Printstock) revenues for the three months ended March 31, 2024 and 2023 was flat at $1.8 million; however net income improved by less than $0.1 million from the comparative prior year quarter as result of a more favorable product mix and refocusing production capacity to higher profit margin customers.
For the nine months ended March 31, 2024, food products revenues declined by $0.2 million; however net income was flat at $0.2 million due to operating efficiencies achieved during the current nine-month period as compared to the prior year comparative period.
Beauty Products (11% and 10% of consolidated revenues for the three and nine months ended March 31, 2024, respectively)
For the quarter ended March 31, 2024, beauty products (Original Sprout) revenue increased by $0.1 million and net loss increased by less than $0.1 million. The increase in net loss was due to increased expenses associated with new product development and marketing. For the nine months ended March 31, 2024, beauty products revenues increased by $0.1 million and net loss increased by $0.4 million. The increase in net loss was due to increased expenses associated with new product development and marketing.
Security Systems (8% and 7% of consolidated revenue for the three and nine months ended March 31, 2024, respectively)
For the quarter ended March 31, 2024, security systems (Brigadier) revenue increased by less than $0.1 million and net income was flat compared to the prior year quarter. For the nine months ended March 31, 2024, security systems revenues declined by $0.1 million due to market timing and weather patterns and net income declined by less than $0.1 million compared to the prior year period.
Financial Services includes Marygold (UK) and Marygold
Financial Services – Marygold (UK)
Marygold UK operates through its wholly owned subsidiary Tiger Financial & Asset Management Limited (“Tiger”), which was acquired in 2022. Tiger acts as an investment advisor and financial planner to its clients and has two principal revenue streams which comprise ongoing fees for providing investment advice, and commissions for the intermediation of insurance-based products. Tiger does not provide investment management services directly, rather the clients’ assets are referred to third party investment managers, discretionary investment managers. Tiger receives fees for the ongoing advice and financial planning services which are charged as a percentage of the assets under management, which as of June 30, 2023 and March 31, 2024 was $40 million. The ratio of fees earned from investment advice as compared to commissions earned is generally 80:20, but may fluctuate for any given period.
Comparison of the Three Months Ended March 31, 2024 and 2023
Revenues for the three months ended March 31, 2024 were unchanged at $0.1 million as compared to the three months ended March 31, 2023. Operating expenses for the three months ended March 31, 2024 were $0.2 million as compared to $0.1 million for the three months ended March 31, 2023 with the increase attributed to the hiring of additional staff and increased professional fees in connection with the development of the Marygold mobile fintech app in the UK.
| 24 |
Comparison of the Nine Months Ended March 31, 2024 and 2023
Revenues for the nine months ended March 31, 2024 were unchanged at $0.4 million as compared to the nine months ended March 31, 2023. Operating expenses for the nine months ended March 31, 2024 were $0.6 million as compared to $0.3 million for the nine months ended March 31, 2023 with the increase attributed to the hiring of additional staff and increased professional fees in connection with the development of the Marygold mobile fintech app in the UK.
Financial Services – Marygold (USA)
Marygold & Co. is a financial technology company, not a bank, providing similar banking services through an all-in-one banking and payment services app offering FDIC-insured accounts with a Debit Mastercard®. Like a private banker on your phone, Marygold has introduced a secure way to send, receive, spend, save and invest with no banking fees or minimum balance requirements and aims to redefine mobile banking and payments, all in one app. Marygold completed its development phase in June 2023 and continues to devote considerable resources to the development and launch of its proprietary Fintech app. Revenue is earned from the Mastercard® interchange system with debit card spend by users and from asset management fees earned on investments through the use of Money Pools, which are goal based savings and investment accounts.
Comparison of the Three Months Ended March 31, 2024 and 2023
Onboarding of new customers continued during the three months ended March 31, 2024 resulting in nominal revenue. Operating expenses for the three months ended March 31, 2024 increased by $0.4 million to $1.4 million compared to $1.0 million in the prior year quarter. The increase was attributed to ongoing development of the app and continued ramping up for the product post launch. Increases from the prior year’s quarter included additional spend of $0.2 million in product development and app service provider infrastructure, as well as $0.1 million in advertising, marketing and professional fees.
Comparison of the Nine Months Ended March 31, 2024 and 2023
Operating expenses for the nine months ended March 31, 2024 increased $1.9 million to $4.2 million compared to $2.3 million in the prior year period. The increase was attributed to ongoing development of the app and continued ramping up for the product post launch. Increases from the prior year’s nine-month period included additional spend in product development, advertising and marketing and professional fees.
Liquidity and Capital Resources
The Marygold Companies is a holding company that conducts its operations through its subsidiaries. At the holding-company level, its liquidity needs relate to operational expenses, the funding of additional business acquisitions and new investment opportunities. Our operating subsidiaries’ principal liquidity requirements arise from cash used in operating activities, debt service, and capital expenditures, including purchases of equipment and services, operating costs and expenses, and income taxes. Cash is managed at the holding company or the subsidiary level. There are no limitations or constraints on the movement of funds between the entities.
As of March 31, 2024, we had $4.5 million of cash and cash equivalents on a consolidated basis as compared to $8.2 million as of June 30, 2023, a decrease of $3.7 million or 45%. For the nine months ended March 31, 2024, USCF Investments invested $3.0 million by seeding one new fund and we made additional expenditures of $4.1 million in Marygold. We have invested a total of $13.5 million in the fintech app since Marygold’s inception. We expect that Marygold will require additional expenditures over the coming 12 months. As the funding requirements become known, we will decide upon the source of the additional capital investment to be made as the need arises. During the quarter ended March 31, 2024, we made a deposit of $1.8 million in connection with the potential acquisition of a 9.9% equity interest in a domestic financial institution that is currently seeking certain regulatory approval.
Based on our current operating plan, we believe existing cash resources will be sufficient to meet our working capital requirements for the next twelve months. If sufficient funds are not available to finance our business and operations, including our investment in Marygold, we may need to raise additional financing through one or more debt or an equity financing to meet our operating and cash needs. There can be no assurance we will be able to raise additional financing or obtain terms that are acceptable to us.
| 25 |
Lease Liability
The Company has various operating leases for offices, warehouses and manufacturing facilities. The total amount due under these obligations was $1.1 million and $1.0 million as of March 31, 2024 and June 30, 2023, respectively. The obligations will reduce over the passage of time through periodic lease payments. See Note 11 for further analysis of this obligation.
Borrowings
As of March 31, 2024, we had $0.4 million of third-party indebtedness as compared to $0.3 million of third-party and related-party indebtedness as of June 30, 2023. Brigadier owes $0.3 million under a loan that is secured with the land and building in Canada. The initial principal balance was $0.6 million as of the loan date in 2019 with an annual interest rate of 4.14% maturing June 30, 2024. Interest on the loan is expensed or accrued as it becomes due.
In addition, Gourmet Foods has a finance lease liability of $0.1 million related to a solar energy system as March 31, 2024 and June 30, 2023, respectively, and are included under loans - property and equipment on our consolidated balance sheets.
Investments
USCF Investments, from time to time, provides initial investments in the creation of ETP funds that USCF Investments manages. USCF Investments classifies these investments as current assets as these investments are generally sold within one year from the balance sheet date. As of March 31, 2024, USCF Investments held investment positions in four of its 40 Act funds, USG (renamed from GLDX in March 2024), ZSB, USE and ZSC of $1.3 million, $0.4 million, $3.2 million, and $2.3 million, respectively. As of June 30, 2023 USCF held positions in USG, ZSB, and USE of $1.3 million, $1.9 million, and $2.6 million, respectively. These investment positions along with other investments, as applicable, are described further in Note 7 to our Financial Statements.
Dividends
We have historically not paid any dividends on our shares of common stock and we have no current plans to pay dividends.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
As a “smaller reporting company”, we are not required to provide the information required by this Item.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
The Marygold Companies maintains disclosure controls and procedures that are designed to provide reasonable assurances that the information required to be disclosed in The Marygold Companies’ periodic reports filed or submitted under Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that there are inherent limitations to the effectiveness of any system of disclosure controls and procedures and any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving their control objectives.
The duly appointed officers of The Marygold Companies, including its chief executive officer and chief accounting officer, who perform functions equivalent to those of a principal executive officer and principal financial officer of The Marygold Companies, have evaluated the effectiveness of The Marygold Companies’ disclosure controls and procedures and have concluded that the disclosure controls and procedures of The Marygold Companies were effective as of the end of the period covered by this quarterly report on Form 10-Q.
(b) Change in Internal Control Over Financial Reporting
There were no significant changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) during the quarterly period covered by this report that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.
| 26 |
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Refer to “Note 11. Commitments And Contingencies – Litigation”
Item 1A. Risk Factors
The Marygold Companies and its subsidiaries (referred to herein as “we,” “us,” “our” or similar expressions) are subject to certain risks and uncertainties in its business operations. In addition to the other information set forth in this report, you should carefully consider the factors discussed under “Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended June 30, 2023 (“2023 Form 10-K”), which could materially affect our business, financial condition and/or operating results. The risks described in our 2023 Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results.
There have been no material changes to the risk factors discussed in “Risk Factors” in our 2023 Form 10-K. These risk factors should be read in connection with the other information included in this quarterly report on Form 10-Q, including Management’s Discussion and Analysis of Financial Condition and Results of Operations and our financial statements and the related notes.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Securities Trading Plans of Directors and Executive Officers
During the fiscal quarter ended March 31, 2024, none of the Company’s directors or officers, as defined in Section 16 of the Securities Exchange Act of 1934, adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement” as defined under Item 408(a) of Regulation S-K.
Item 6. Exhibits
The following exhibits are filed or incorporated by reference as part of this Form 10-Q:
* Indicates management contract or any compensatory plan, contract or arrangement.
| 101.INS | Inline XBRL Instance Document# |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document# |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document# |
| 101.LAB | Inline XBRL Taxonomy Extension Labels Linkbase Document# |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document# |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document# |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
| 27 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| THE MARYGOLD COMPANIES, INC. | ||
| Dated: May 13, 2024 | By: | /s/ Nicholas Gerber |
| Nicholas Gerber | ||
| Principal Executive Officer | ||
| By: | /s/ Scott A. West | |
| Scott A. West | ||
| Principal Accounting Officer | ||
| 28 |