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 November 1, 2024, shares of the registrant’s Common Stock, $ 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 QUARTER ENDED SEPTEMBER 30, 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, strategies, 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 involving our subsidiary, USCF Investments Inc.; | |
| ● | 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 flows which is primarily dependent upon the performance of our U.S. investment fund management business and its ability to maintain and expand fund assets under management (“AUM”) such that we can meet our working capital, capital expenditure, and liquidity needs; | |
| ● | our continued investments in the development and marketing of our Fintech application (“app”) and the uncertainty of the acceptance thereof and its ability to generate sufficient revenue to meet or cover or exceed development expenditures incurred to date; | |
| ● | the ability of our operating subsidiaries 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 continue using our services and products; | |
| ● | the evolution of technologies affecting our operating subsidiaries’ products, services and markets; | |
| ● | the ability of our operating subsidiaries to innovate and provide a superior user experience and our intentions and strategies with respect thereto; | |
| ● | the ability of our operating subsidiaries to successfully penetrate enterprise and other markets; | |
| ● | the ability of our operating subsidiaries 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; | |
| ● | the incurrence of additional indebtedness and our ability to repay our existing indebtedness when due or at all, including in connection with our recent debt financing transaction; | |
| ● | our ability to raise additional financing in connection with further development of our fintech app and to cover our operating losses; | |
| ● | worldwide economic conditions, including after-effects from the economic disruption imposed by the COVID-19 pandemic, and the conflicts in Ukraine and the Middle East, and their impact on spending; | |
| ● | our operating subsidiaries’ ability to comply with modified or new laws and regulations applying to our businesses, including privacy and data security regulations; and | |
| ● | our ability to acquire new businesses or expand our existing businesses, including the integration and financing of acquisitions or business expansion. |
The foregoing list does not contain all of 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 primarily on our current expectations and projections about future events and trends that we believe may affect our business, 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, 2024, 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 Form 10-Q. 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)
| September 30, 2024 | June 30, 2024 | |||||||
| 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 | $ | $ | ||||||
| Lease liabilities, current portion | ||||||||
| Purchase consideration payable, current portion | ||||||||
| Notes payable, current portion | ||||||||
| Total current liabilities | ||||||||
| Notes payable, net of current portion | ||||||||
| Purchase consideration payable, net of current portion | ||||||||
| 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 September 30, 2024 and June 30, 2024 | ||||||||
| Common stock, $ par value; shares authorized; and shares issued and outstanding at September 30, 2024 and June 30, 2024, respectively | ||||||||
| 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)
| Quarters Ended September 30, | ||||||||
| 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 from operations | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| Interest and dividend income | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Other (expense) income, net | ( | ) | ||||||
| Total other income (expense), net | ||||||||
| Loss before income taxes | ( | ) | ( | ) | ||||
| Benefit from income taxes | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Weighted average shares of common stock | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
| Net loss 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
(in thousands)
(unaudited)
| Quarters Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Foreign currency translation gain (loss) | ( | ) | ||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | ||
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)
| Quarter Ended September 30, 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 | Retained Earnings | Stockholders’ Equity | |||||||||||||||||||||||||
| Balance at July 1, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | | |||||||||||||||||||||||
| Issuance of stock awards | - | |||||||||||||||||||||||||||||||
| Gain on currency translation | - | - | ||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
| Quarter Ended September 30, 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 | Retained Earnings | Stockholders’ Equity | |||||||||||||||||||||||||
| Balance at July 1, 2023 | | $ | $ | $ | $ | ( | ) | $ | $ | | ||||||||||||||||||||||
| Loss on currency translation | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at September 30, 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)
| Quarters Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock-based compensation | ||||||||
| Loss (gain) on investments | ( | ) | ||||||
| Non-cash interest expense | ||||||||
| Non-cash lease costs | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Prepaid income taxes and tax receivable | ( | ) | ( | ) | ||||
| Inventories | ||||||||
| Other assets | ( | ) | ||||||
| Accounts payable and accrued expenses | ||||||||
| Lease liabilities | ( | ) | ( | ) | ||||
| Net cash (used in) provided by operating activities | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Proceeds from sale of investments | ||||||||
| Purchase of investments | ( | ) | ( | ) | ||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Net proceeds from note payable | ||||||||
| Principal repayment of mortgage loan payable | ( | ) | ( | ) | ||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Effect of exchange rate change on cash and cash equivalents | ||||||||
| NET INCREASE (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: | ||||||||
| Original issue discount and loan fee added to note payable balance | $ | $ | ||||||
| Acquisition of operating right-of-use assets through operating lease liabilities | $ | $ | ||||||
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., (“Company,” “The Marygold Companies,” “we,” “our,” or “us”), 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:
| ● | Fund Management - USCF Investments, Inc., a Delaware corporation (“USCF Investments”), with corporate headquarters in Walnut Creek, California and its wholly-owned subsidiaries: |
| ○ | United States Commodity Funds, LLC, a Delaware limited liability company (“USCF LLC”), and | |
| ○ | USCF Advisers, LLC, a Delaware limited liability company (“USCF Advisers”). The principal place of business for each of USCF LLC and USCF Advisers is in Walnut Creek, California. |
| ● | Food Products – Gourmet Foods, Ltd., a registered New Zealand company located in Tauranga, New Zealand and its wholly-owned subsidiary, Printstock Products Limited, a registered New Zealand company, with its principal manufacturing facility in Napier, New Zealand. | |
| ● | Security Systems – Brigadier Security Systems (2000) Ltd., a Canadian registered corporation, with locations in Regina and Saskatoon, Saskatchewan, Canada. | |
| ● | Beauty Products - Kahnalytics, Inc., a California corporation, doing business as “Original Sprout,” located in San Clemente, California. | |
| ● | Financial Services – United States and Great Britain: |
| ○ | Marygold & Co., a Delaware corporation, based in Denver, Colorado, and its wholly-owned subsidiary, Marygold & Co. Advisory Services, LLC, a Delaware limited liability company, whose principal business office is in New Albany, Ohio; | |
| ○ | Marygold & Co., (UK) Limited, a private limited company incorporated and registered in England and Wales, whose registered office is in London, England, and its wholly-owned subsidiaries: |
| ■ | Marygold & Co. Limited f/k/a Tiger Financial & Asset Management Limited, a company incorporated and registered in England and Wales, whose registered office is in Northampton, England; and | |
| ■ | Step-By-Step Financial Planners Limited, a company incorporated and registered in England and Wales, whose registered office is in Staffordshire, England. |
The Company manages its operating businesses on a decentralized basis. There are no centralized or integrated operational functions such as marketing, sales, legal or other professional services and there is little involvement by The Marygold Companies’ management in the day-to-day business affairs of its operating subsidiary businesses apart from oversight. Each subsidiary is responsible for its financial reporting to the Company’s corporate management which corporate management maintains controls over the Company’s consolidated regulatory and financial reporting in accordance with Securities and Exchange Commission and other regulatory reporting requirements. The Company’s 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 Company’s 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, 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 three months ended September 30, 2024, are not necessarily indicative of the results that may be expected for the year ending June 30, 2025. The condensed consolidated balance sheet as of June 30, 2024, 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, 2024, 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, 2024.
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. Intercompany transactions and balances 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):
| Quarters Ended September 30, | ||||||||||||||||||||||||||||||||
| 2024 | 2023 | September 30, 2024 | June 30, 2024 | |||||||||||||||||||||||||||||
| Revenue | % of Total | Revenue | % of Total | 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.
| 10 |
Recently Issued Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, Improvements to Reportable Segment Disclosures (Topic 280). The guidance expands the disclosures required for reportable segments in our annual and interim consolidated financial statements, primarily through enhanced disclosures about significant segment expenses. The standard will be effective for us beginning with our annual reporting for fiscal year 2025 and interim periods thereafter, with early adoption permitted. Upon adoption, this standard should be applied retrospectively to all prior periods presented. We will adopt the standard when it becomes effective in our fiscal year 2025 annual reporting. The Company does not anticipate any impact other than changes to disclosures in the segment reporting from the adoption date onwards.
In December 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures (Topic 740). The guidance requires disclosure of disaggregated income taxes paid, prescribes standardized categories for the components of the effective tax rate reconciliation, and modifies other income tax-related disclosures. The standard will be effective for us beginning with our annual reporting for fiscal year 2026, with early adoption permitted. We are currently evaluating the impact of this standard on our income tax disclosures.
Basic net (loss) 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 (loss) 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 quarters ended September 30, 2024 and 2023, the Company excluded million and million common stock equivalents, respectively, from the diluted net loss per share calculation as their effect would be anti-dilutive. Since the Company generated a net loss in the quarter ended September 30, 2024, basic and diluted net (loss) income per share were the same.
Basic and diluted net income per share reflects the effects of shares potentially issuable upon conversion of convertible preferred stock.
Quarter Ended September 30, 2024 | Quarter Ended September 30, 2023 | |||||||||||||||||||||||
| Net Loss | Shares | Per Share | Net Loss | Shares | Per Share | |||||||||||||||||||
| Basic and diluted net loss per share: | ||||||||||||||||||||||||
| Net loss available to common shareholders | $ | ( | ) | $ | ) | $ | ( | ) | $ | ) | ||||||||||||||
| Net loss available to preferred shareholders | ( | ) | $ | ) | ( | ) | $ | ) | ||||||||||||||||
| Basic and diluted net loss per share | $ | ( | ) | $ | ) | $ | ( | ) | $ | ) | ||||||||||||||
| 11 |
NOTE 4. CERTAIN BALANCE SHEET DETAILS
The components of certain balance sheet line items are as follows (in thousands).
| September 30, | June 30, | |||||||
| Restricted cash | 2024 | 2024 | ||||||
| Deposit restricted relating to account for Fintech app | $ | $ | ||||||
| Deposit for securing a lease bond | ||||||||
| Total restricted cash | $ | $ | ||||||
| September 30, | June 30, | |||||||
| Other current assets | 2024 | 2024 | ||||||
| Deposit for potential | $ | $ | ||||||
| Prepaid expenses and other current assets | ||||||||
| Total other current assets | $ | $ | ||||||
Included
in the other current assets balance as of June 30, 2024 was a deposit of $
| September 30, | June 30, | |||||||
| Inventories | 2024 | 2024 | ||||||
| Raw materials and supplies | $ | $ | ||||||
| Finished goods | ||||||||
| Total inventories | $ | $ | ||||||
| September 30, | June 30, | |||||||
| Property and equipment, net | 2024 | 2024 | ||||||
| Manufacturing equipment | $ | $ | ||||||
| Land and building | ||||||||
| Other equipment | ||||||||
| Total property and equipment, gross | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Total property and equipment, net | $ | $ | ||||||
Depreciation
expense for property and equipment was less than $
| September 30, | June 30, | |||||||
| Goodwill | 2024 | 2024 | ||||||
| Food products – Gourmet Foods | $ | $ | ||||||
| Security systems - Brigadier | ||||||||
| Financial Services – Marygold & Co. (UK) | ||||||||
| Total goodwill | $ | $ | ||||||
| September 30, | June 30, | |||||||
| Other assets, non-current | 2024 | 2024 | ||||||
| Equity investment in a financial institution | $ | $ | ||||||
| Equity investment in a registered investment advisor | ||||||||
| Deposits and other assets | ||||||||
| Total other assets, non-current | $ | $ | ||||||
The
$
| September 30, | June 30, | |||||||
| Accounts payable and accrued expenses | 2024 | 2024 | ||||||
| Accounts payable | $ | $ | ||||||
| Accrued operating expenses | ||||||||
| Accrued payroll, vacation and bonus payable | ||||||||
| Taxes payable | ||||||||
| Total | $ | $ | ||||||
| 12 |
NOTE 5. 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 LLC 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 included in earnings in the Company’s condensed Consolidated Statements of
Operations. As of September 30, 2024 and June 30, 2024, the Company invested a total of $
All of the Company’s short-term investments are classified as Level 1 assets and consist of the following (in thousands):
| September 30, 2024 | ||||||||||||||||
| Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||
| Money market funds | $ | $ | $ | $ | ||||||||||||
| Other short-term investments | ||||||||||||||||
| Other equities - related parties | ||||||||||||||||
| Total short-term investments | $ | $ | $ | $ | ||||||||||||
| June 30, 2024 | ||||||||||||||||
| Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||
| Money market funds | $ | $ | $ | $ | ||||||||||||
| Other short-term investments | ||||||||||||||||
| Other equities - related parties | ||||||||||||||||
| Total short-term investments | $ | $ | $ | $ | ||||||||||||
During the three months ended September 30, 2024 and year ended June 30, 2024, respectively, there were no transfers between Level 1 and Level 2.
NOTE 6. BUSINESS COMBINATION
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 $
NOTE 7. INTANGIBLE ASSETS
| September 30, 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 | |||||||||||||||
| Internally developed software | ( | ) | ||||||||||||||
| Total | $ | $ | ( | ) | $ | |||||||||||
| June 30, 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 | |||||||||||||||
| Internally developed software | ( | ) | ||||||||||||||
| Total | $ | $ | ( | ) | $ | |||||||||||
Total
amortization expense for intangible assets for the three months ended September 30, 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 | |||
| 2025 (remainder of the fiscal year) | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| Thereafter | ||||
| Total | $ | |||
| 13 |
NOTE 8. NOTES PAYABLE
On
September 19, 2024, we entered into a note purchase agreement the (“Purchase Agreement”) with Streeterville Capital, LLC
(“Holder”), pursuant to which we agreed to issue and sell to Holder a secured promissory note in an initial principal
amount of $
The Purchase Agreement contains certain covenants and agreements, including that we will not pledge or grant any lien or security interest in our or our subsidiaries’ assets without the Holder’s prior written consent and that we will file reports under the Securities Exchange Act timely, and that our shares will continue to be listed or quoted on the NYSE American or Nasdaq. Also, without the Holder’s prior written consent, we may not: issue, incur or guarantee any debt obligations other than trade payables in the ordinary course; issue any security that has conversion rights in which the number of shares varies with the market price of our shares; issue any securities convertible into our shares with a conversion price that varies with the market price of our shares; issue any securities that have a conversion or exercise price subject to a reset due to a change in the market price of our shares or upon the occurrence of certain events related to our business (but excluding certain standard antidilution protection for any reorganization, recapitalization, noncash dividend, stock split or similar transaction); issue and securities pursuant to an equity line of credit, standby equity purchase agreement or similar arrangement. The Purchase Agreement also contains a most favored nations provision that provides we will grant to the Holder the same terms as we offer any subsequent investor in our debt securities and certain arbitration provisions in the event of a claim arising under the Purchase Agreement and other transaction documents.
The Company’s obligations under the Note are secured by: (i) a pledge of all the common stock the Company owns in USCF Investments, Inc. and (ii) a security interest in all of the assets of the Company. Further, the Company’s Chief Executive Officer’s trust, the Nicholas and Melinda Gerber Living Trust (“Gerber Trust”), provided: (i) a guaranty of the Company’s obligations to the Holder under the Note and (ii) a pledge of all of the common stock of the Company owned by the Gerber Trust.
Beginning
on the date that is six months from the issuance date until the applicable Note is paid in full, each month the Holder has the right
to require the Company to redeem up to an aggregate of $
Pursuant
to the terms of the Purchase Agreement, beginning on the date of the issuance and sale of the Note and ending 24 months later, Holder
will have the right, but not the obligation, with Company’s prior written consent, to reinvest up to an additional $
The Company engaged Maxim Group LLC to serve as placement agent for the transaction between the Company and Holder in exchange for an aggregate commission equal to 7% of the gross cash proceeds received from the sale of the Notes.
As
of September 30, 2024, the note payable balance outstanding, net of the original issue discount and fees paid, was $
As
of June 30, 2024, Brigadier had an outstanding principal balance of $
NOTE 9. STOCKHOLDERS’ EQUITY
Stock-based Compensation
| Stock Options | Restricted Stock | |||||||||||||||
| Number of Shares | Weighted Average Exercise Price | Number of Shares | Weighted Average Grant Date Fair Value | |||||||||||||
| Balance at June 30, 2024 | $ | $ | ||||||||||||||
| Granted | $ | $ | ||||||||||||||
| Released | $ | ( | ) | $ | ||||||||||||
| Outstanding at September 30, 2024 | $ | $ | ||||||||||||||
| Exercisable at September 30, 2024 | $ | |||||||||||||||
| Quarter Ended September 30, | ||||
| 2024 | ||||
| Expected volatility | % | |||
| Expected term | years | |||
| Risk-free interest rate | % | |||
| Expected dividend yield | % | |||
As of September 30, 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. The weighted average remaining contractual life of the outstanding stock options as of September 30, 2024 was years. As of September 30, 2024, there was $ million of unrecognized compensation expense related to outstanding RSAs that will be recognized over a remaining weighted average period of years. The total stock-based compensation expense recognized during the quarters ended September 30, 2024 and 2023 were $ million and $ million, respectively.
| 14 |
NOTE 10. COMMITMENTS AND CONTINGENCIES
Lease Commitments
For
each of the quarters ended September 30, 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 | Total | |||||||||
| Remainder of fiscal 2025 | $ | $ | |
$ | ||||||||
| 2026 | ||||||||||||
| 2027 | ||||||||||||
| 2028 | ||||||||||||
| 2029 | ||||||||||||
| Thereafter | ||||||||||||
| Total minimum lease payments | ||||||||||||
| Less: present value discount | ( |
) | ( |
) | ( |
) | ||||||
| Total lease liabilities | $ | $ | $ | |||||||||
The
weighted average remaining lease term for the Company’s operating leases was
| 15 |
Other Agreements and Commitments
As
the Company builds out its Fintech application, it enters into agreements with various service providers. As of September 30, 2024, Marygold
has future payment commitments with its primary service vendors totaling $
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 LLC is an indirect wholly owned subsidiary of the Company. USCF LLC, 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 LLC are not currently party to any material legal proceedings.
In re: United States Oil Fund, LP Securities Litigation
On June 19, 2020, USCF LLC, USO, and USCF LLC executive officers, 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 Securities Act of 1933, as amended, the Securities Exchange Act of 1934 as amended (“Securities Exchange Act”), and Rule 10b-5 under the Securities Exchange Act. 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, USCF executive officers John P. Love, Stuart P. Crumbaugh, Nicholas D. Gerber, Andrew F Ngim, and USCF LLC directors 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.
| 16 |
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 LLC, 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 LLC executive officers John P. Love, Stuart P. Crumbaugh, Nicholas D. Gerber, Andrew F Ngim, and USCF LLC directors 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 LLC, 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 LLC executive officers John P. Love, Stuart P. Crumbaugh, Andrew F Ngim, Nicholas D. Gerber, and USCF LLC directors, Robert L. Nguyen, Gordon L. Ellis, Malcolm R. Fobes, III, 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 Securities 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 LLC, USO, and the other defendants intend to vigorously contest the claims in In re United States Oil Fund, LP Derivative Litigation.
| 17 |
No accrual has been recorded with respect to the above legal matters as of September 30, 2024 and June 30, 2024. 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
were less than $
NOTE 11. RELATED PARTY TRANSACTIONS
USCF Investments – Related Party Transactions
The
funds managed by USCF LLC and USCF Advisers are considered related parties. The Company’s fund management revenue, totaling
$
USCF
Advisers is contractually obligated to pay license fees up to $
Refer to Note 8. Notes Payable for a description of a related party transaction involving the Nicholas and Melinda Gerber Living Trust (“Gerber Trust”), of which our CEO is a trustee, pursuant to which, in connection with the Company’s recent debt financing transaction, the Gerber Trust provided to the holder of the note issued in the financing transaction a guaranty of the Company’s performance under the note and, as security, a pledge of all of the shares of the Company’s common stock owned by the Gerber Trust.
NOTE 12. INCOME TAXES
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 13. SEGMENT REPORTING
In its operation of the business, our chief operating decision maker (“CODM”) who is our Chief Executive Officer reviews revenues and profits in assessing segment performance and deciding how to allocate resources. The CODM does not evaluate segments on the basis of assets at each segment.
| Quarters Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Revenue from external customers: | ||||||||
| Fund management - related party | $ | $ | ||||||
| Food products | ||||||||
| Beauty products | ||||||||
| Security systems | ||||||||
| Financial services | ||||||||
| Total revenue | $ | $ | ||||||
| Quarters Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Operating income (loss): | ||||||||
| Fund management - related party | $ | $ | ||||||
| Food products | ( | ) | ||||||
| Beauty products | ( | ) | ( | ) | ||||
| Security systems | ||||||||
| Financial services | ( | ) | ( | ) | ||||
| Corporate headquarters | ( | ) | ( | ) | ||||
| Total operating loss | $ | ( | ) | $ | ( | ) | ||
| 18 |
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, 2024.
Overview
The Marygold Companies, Inc., a Nevada corporation (together with its subsidiaries, “we,” “us,” “our,” “Company,” or “The Marygold Companies”), is a holding company which operates through its wholly owned subsidiaries engaged in certain diverse business activities listed below:
| ● | Fund Management - USCF Investments, Inc., a Delaware corporation (“USCF Investments”), with corporate headquarters in Walnut Creek, California and its wholly-owned subsidiaries: |
| ○ | United States Commodity Funds, LLC, a Delaware limited liability company (“USCF LLC”), and | |
| ○ | USCF Advisers, LLC, a Delaware limited liability company (“USCF Advisers”). The principal place of business for each of USCF LLC and USCF Advisers is in Walnut Creek, California. |
| ● | Food Products – Gourmet Foods, Ltd., a registered New Zealand company located in Tauranga, New Zealand and its wholly-owned subsidiary, Printstock Products Limited, a registered New Zealand company, with its principal manufacturing facility in Napier, New Zealand. | |
| ● | Security Systems – Brigadier Security Systems (2000) Ltd., a Canadian registered corporation, with locations in Regina and Saskatoon, Saskatchewan, Canada. | |
| ● | Beauty Products - Kahnalytics, Inc., a California corporation, doing business as “Original Sprout,” located in San Clemente, California. | |
| ● | Financial Services – United States and Great Britain: |
| ○ | Marygold & Co., a Delaware corporation, based in Denver, Colorado, and its wholly-owned subsidiary, Marygold & Co. Advisory Services, LLC, a Delaware limited liability company, whose principal business office is in New Albany, Ohio; | |
| ○ | Marygold & Co., (UK) Limited, a private limited company incorporated and registered in England and Wales, whose registered office is in London, England, and its wholly-owned subsidiaries: |
| ■ | Marygold & Co. Limited f/k/a Tiger Financial & Asset Management Limited, a company incorporated and registered in England and Wales, whose registered office is in Northampton, England; and | |
| ■ | Step-By-Step Financial Planners Limited, a company incorporated and registered in England and Wales, whose registered office is in Staffordshire, England. |
| 19 |
Recent Developments
Refer to “Liquidity and Capital Resources – Recent Note Financing” below.
Summary Results of Operations
| Quarters Ended September 30, | Percentage | |||||||||||
| (in thousands, except percentages) | 2024 | 2023 | Change | |||||||||
| Revenue | $ | 7,910 | $ | 8,235 | -4% | |||||||
| Cost of revenue | 2,128 | 2,037 | 4% | |||||||||
| Gross profit | 5,782 | 6,198 | -7% | |||||||||
| Operating expenses | 7,952 | 7,234 | 10% | |||||||||
| Loss from operations | (2,170 | ) | (1,036 | ) | 109% | |||||||
| Other income, net | 101 | 233 | -57% | |||||||||
| Loss before income taxes | (2,069 | ) | (803 | ) | 158% | |||||||
| Benefit from income taxes | 483 | 303 | 59% | |||||||||
| Net loss | $ | (1,586 | ) | $ | (500 | ) | 217% | |||||
Quarter Ended September 30, 2024 Compared with Quarter Ended September 30, 2023
Revenue decreased by $0.3 million or 4% for the quarter ended September 30, 2024 driven by a decrease in average Assets Under Management (“AUM”) in our fund management business. Average AUM for the quarter ended September 30, 2024 was $3.1 billion compared to $3.5 billion for the quarter ended September 30, 2023. The decrease in AUM in quarter ended September 30, 2024 was due to commodity price fluctuations and the high-interest rate environment, along with geopolitical and economic uncertainty.
Gross profit decreased by $0.4 million or 7% for the reasons described above for the reduced revenue plus cost of revenue increased by $0.1 million compared to the quarter ended September 30, 2023.
Operating expenses increased by $0.7 million or 10% as a result of the following. General and administrative expenses increased by $0.3 million or 14% driven by increased costs associated with our Fintech app development including additional software and security infrastructure in the UK. Salaries and compensation increased by $0.6 million or 22% compared to the quarter ended September 30, 2023 driven by increased stock-based compensation expenses plus increased compensation at USCF. Fund operations increased by $0.1 million or 11% driven by increased costs associated with managing more funds. Partially offsetting these increased operating expenses was a decrease in marketing and advertising of $0.3 million or 31% as a result of prior year increased spending for new products at Original Sprout as well as from the Fintech app and new fund launches.
Other income, net, decreased by $0.1 million or 57% driven by a decrease in gains on investments during the quarter ended September 30, 2024 compared to prior year quarter.
Benefit from income taxes increased by $0.2 million or 59% driven by the increase in the loss before income taxes for the reasons explained above.
Net loss increased by $1.1 million or 217% and was driven by decreased profits from our fund management business due to lower average AUM and higher stock-based compensation charges.
| 20 |
SEGMENT RESULTS OF OPERATIONS
| Quarters Ended September 30, | Percentage | |||||||||||
| (in thousands, except percentages) | 2024 | 2023 | Change | |||||||||
| Revenue | ||||||||||||
| Fund management - related party | $ | 4,591 | $ | 5,049 | -9% | |||||||
| Food products | 1,822 | 1,730 | 5% | |||||||||
| Beauty products | 597 | 775 | -23% | |||||||||
| Security systems | 690 | 554 | 25% | |||||||||
| Financial services | 210 | 127 | 65% | |||||||||
| Total revenue | $ | 7,910 | $ | 8,235 | -4% | |||||||
| Operating Income (Loss) | ||||||||||||
| Fund management - related party | $ | 960 | $ | 1,734 | -45% | |||||||
| Food products | (8 | ) | 10 | -180% | ||||||||
| Beauty products | (173 | ) | (319 | ) | -46% | |||||||
| Security systems | 133 | 71 | 87% | |||||||||
| Financial services | (1,582 | ) | (1,523 | ) | 4% | |||||||
| Corporate headquarters | (1,500 | ) | (1,009 | ) | 49% | |||||||
| Total operating loss | $ | (2,170 | ) | $ | (1,036 | ) | 109% | |||||
Reportable Segments
Quarter Ended September 30, 2024 Compared with Quarter Ended September 30, 2023
Fund Management – Related Party - USCF Investments
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. Average AUM for the quarter ended September 30, 2024 was $3.1 billion compared to $3.5 billion for the quarter ended September 30, 2023. As a result of lower AUM for the current quarter when compared to the quarter ended September 30, 2023, revenue decreased by $0.5 million or 9%. The decrease in AUM in the quarter ended September 30, 2024 was due to commodity price fluctuations and the high-interest rate environment, along with geopolitical and economic uncertainty.
Operating income decreased by $0.8 million or 45% driven by the decrease in average AUM as described above and increased fund operations expenses of $0.1 million or 11% as a result of increased license fees, fund accounting and administration costs connected to new fund launches as well as increases in compensation expense of $0.1 million or 15%.
Food Products - Gourmet Foods
Gourmet Foods has two distinct operating divisions: 1) a commercial-scale bakery producing iconic Kiwi pies and sausage rolls and 2) a digital printing establishment (Printstock Products Limited) who prints specialty food wrappers. Total food products revenue increased by $0.1 million or 5% for the quarter ended September 30, 2024 as compared to 2023, which was the net result of an increase at our printing business and a decrease at our bakery business.
Operating (loss) income was nearly break-even for both quarters ended September 30, 2024 and 2023 which was driven by a non-recurring cost of goods sold adjustment coupled with a depreciation charge taken for our solar electricity system and partially offset by increased profits from the sale of higher margin products at our bakery business.
Beauty Products – Original Sprout
Original Sprout derives revenues through the sale of proprietary hair and skin care products marketed to domestic and international distributors, grocery stores, hair salons and direct-to-consumers via online platforms. Revenue decreased by $0.2 million or 23% driven by the efforts to control the discounted price of products sold online by authorized resellers. This trend is expected to continue for the remainder of the current fiscal year as Original Sprout reduces the number of authorized Internet sales channels and repositions its products for a larger presence on store shelves.
Operating loss decreased by $0.1 million or 46% for the quarter ended September 30, 2024 as compared to 2023 as a result of reduced marketing cost and a nominal price increase to domestic distributors.
Security Systems - Brigadier
Brigadier earns revenue from recurring alarm monitoring fees charged to residential customers, and from hardware sales and installations of access controls to commercial customers. Revenues from monitoring residual fees remained relatively static while sales and installations of larger commercial installations increased for the quarter ended September 30, 2024 as compared to 2023. Revenue increased by $0.1 million or 25% and operating income increased by $0.1 million or 87% driven by increased sales to commercial customers. The larger commercial accounts generate more revenue and profits but take longer to complete, thus may produce spikes or declines in revenue and profits for specific reporting periods. As the residential consumer segment of the industry becomes more complex due to the bundling of services, including alarm monitoring, offered by larger telecom companies, we expect to focus even more heavily on the commercial and public facilities customers in the coming years.
Financial Services – Marygold US and Marygold UK
Our Financial Services segment is comprised of Marygold US and Marygold UK, which are distinct operating entities with differing revenue streams.
Marygold US has developed and recently launched a mobile banking fintech app which earns revenues in the form of management fees based on a percentage of the amount of account holder funds are invested in various curated ETF portfolios offered on the app (“Money Pools”), and from transaction fees when account holders use our debit card. The app was soft-launched in June 2023 and since that time has earned only de minimis revenues. Operating costs are comprised of development team salaries and expenses, fees paid to third party vendors, fees paid to our sponsoring bank, marketing costs and staff salaries. For the quarter ended September 30, 2024, Marygold US incurred an operating loss of $1.4 million as compared with an operating loss of $1.5 million for the quarter ended September 30, 2023. These losses and negative cash flows are expected to continue for the coming fiscal year.
Marygold UK is a holding company in the U.K. which operates through its two wholly-owned subsidiaries Tiger Financial and Asset Management and Steb By Step Financial Planners, both of whom are registered investment advisors who earn revenues based on the amount of assets under management or from the sale of financial products, such as insurance, to customers in the U.K.
Our total Financial Services revenue, which was derived entirely from Marygold UK, for the quarter ended September 30, 2024 increased by $0.1 million or 65% to $0.2 million as compared to $0.1 million for the quarter ended September 30, 2023. The increase was primarily driven by the incremental revenue of $0.1 million from Step-By-Step, which was acquired in April 2024. Operating loss increased by less than $0.1 million or 4% due to increased costs incurred in connection with the adoption and implementation of the Marygold mobile Fintech app for the U.K. market. The consolidated operating loss for financial services was $1.6 million for the current quarter as compared to a loss of $1.5 million for the quarter ended September 30, 2023.
| 21 |
Corporate Headquarters
The parent company has no significant revenue, however it does have operating expenses such as, but not limited to, salaries, audit and legal fees, NYSE listing expenses, shareholder reports, insurance, interest expense, and investor relations which produce operating losses. Operating loss for the corporate headquarters increased by $0.5 million, or 49%, for the quarter ended September 30, 2024 as compared to same period in 2023. The increased loss was driven by higher stock-based compensation expenses from a large equity grant awarded in the quarter ended September 30, 2024.
Liquidity and Capital Resources
The Marygold Companies is a holding company that conducts its individual business 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 and the subsidiary level. There are generally no legal limitations or constraints on the movement of funds between the entities, however there are potential tax consequences for funds moved from foreign subsidiaries to the parent company. Additionally, registered investment advisor subsidiaries are required to maintain certain minimum capital requirements.
As of September 30, 2024, we had $6.7 million of cash and cash equivalents on a consolidated basis as compared to $5.5 million as of June 30, 2024, an increase of $1.2 million or 22%. Our cash used in operating activities for the quarter ended September 30, 2024 was $0.9 million. For the quarter ended September 30, 2024, the Company made additional expenditures of $1.5 million with regard to the development of our mobile Fintech app. We have invested a total of $16.5 million in the Fintech app since Marygold’s inception. In September 2024, we entered into a new financing arrangement under which we borrowed $4.4 million and have the potential to borrow an additional $2.2 million. The new financing arrangement also gives the lender the right but not the obligation to provide an additional $10.0 million in financing to us on the same terms as the initial loans. We expect that we will require additional financing to fund our fintech operations over the coming 12 months. As the funding requirements become known, we will decide upon the source of the additional capital. Despite these cash investments and expenses, our working capital position remains strong at $17.1 million as of September 30, 2024.
Based on our current operating plan which includes continued significant investments in the mobile Fintech app, we intend to raise additional capital through one or more debt and/or equity financing to meet our operating and cash needs. There can be no assurance we will be able to raise additional financing upon terms acceptable to us. In the event we are unable to obtain additional financing in an amount or upon terms acceptable to us, we expect to reduce or curtail our investment in the development of our Fintech app.
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Lease Liability
The Company has various leases for offices, warehouses and manufacturing facilities. The total amount due under these obligations was $1.6 million as of September 30, 2024. During the quarter ended September 30, 2024, the Company renewed leases in New Zealand and the US which increased the right-of-use assets and lease liabilities by $0.7 million. The obligations will reduce over the passage of time through periodic lease payments. See Note 10 for further analysis of this obligation.
Recent Note Financing
On September 19, 2024, we entered into a note purchase agreement (“Purchase Agreement”) with Streeterville Capital, LLC, a Utah limited liability company (“Holder”), pursuant to which we agreed to issue and sell to Holder a secured promissory note in an initial principal amount of $4,380,000 (“Initial Note”) payable on or before 24 months from the issuance date (“Maturity Date”) and, upon the satisfaction of certain conditions in the Purchase Agreement, up to one additional secured promissory note (“Subsequent Note,” Initial Note and Subsequent Note, “Notes”). The initial principal amount of the Notes includes an original issue discount of 9% and expenses the Company agreed to pay to the Holder to cover the Holder’s transaction costs. The original issue discount of the Initial Note was $360,000. Interest on the principal amount of the Notes accrues at a rate of 9% per annum. The Company may pay all or any portion of the amount owed under the Notes earlier than it is due. All payments made under the Notes, including any repayments, are subject to an exit fee of 6% of the portion of the outstanding balance (including accrued interest) being repaid. The Subsequent Note would have a principal amount of $2,180,000, which will have terms substantially similar to the terms of the Initial Note. The original issue discount on the Subsequent Note, if issued, will be $180,000.
The Purchase Agreement contains certain covenants and agreements, including that we will not pledge or grant any lien or security interest in our or our subsidiaries’ assets without the Holder’s prior written consent and that we will file reports under the Securities Exchange Act timely, and that our shares will continue to be listed or quoted on the NYSE American or Nasdaq. Also, without the Holder’s prior written consent, we may not: issue, incur or guarantee any debt obligations other than trade payables in the ordinary course; issue any security that has conversion rights in which the number of shares varies with the market price of our shares; issue any securities convertible into our shares with a conversion price that varies with the market price of our shares; issue any securities that have a conversion or exercise price subject to a reset due to a change in the market price of our shares or upon the occurrence of certain events related to our business (but excluding certain standard antidilution protection for any reorganization, recapitalization, noncash dividend, stock split or similar transaction); issue and securities pursuant to an equity line of credit, standby equity purchase agreement or similar arrangement. The Purchase Agreement also contains a most favored nations provision that provides we will grant to the Holder the same terms as we offer any subsequent investor in our debt securities and certain arbitration provisions in the event of a claim arising under the Purchase Agreement and other transaction documents.
The Notes contain certain trigger events, including in the event that: (a) we fail to pay any amount when due; (b) a receiver or trustee is appointed with respect to our assets; (c) we become insolvent; (d) we make an assignment for the benefit of creditors; (e) we file a petition under bankruptcy, insolvency or similar laws; (f) an involuntary bankruptcy proceeding is filed against us; (g) a “fundamental transaction” occurs without Holder’s prior written consent: (h) we, USCF Investments or any of the USCF Investments subsidiaries, fail to observe covenants in our agreements with the Holder; (i) we default in observing or performing any covenant in the transaction documents; (j) any representation in the transaction documents is or becomes false or incorrect; (i) we effect a reverse stock split without 20 trading days’ prior written notice to the Holder; (k) any judgment is entered against us for more than $500,000 which remains unstayed for more than 20 days unless consented to by the Holder; (m) our shares cease to be DTC (Depositary Trust Company) eligible; or (n) we breach any covenant or agreement in any other agreement with Holder or in any financing or other agreement that affects our ongoing business operations. A “fundamental transaction” occurs if: we merge with another entity; we dispose of all or substantially all of our assets, we allow more than 50% of our voting shares to be acquired by another person; we enter into a share purchase agreement with a third party that acquires more than 50% of our shares; we recapitalize or reclassify our shares; we transfer a material asset to a subsidiary; we pay a dividend to our shareholders; or any person or group becomes the beneficial owner of 50% of the ordinary voting power of our shares. Upon the occurrence of a trigger event, the Holder may increase the amount outstanding under a Note by 10% for an event described in (a) through (h) above or 5% for an event described in (i) through (n) above (a “default amount”). Alternatively, the Holder may treat the trigger event as an event of default and demand repayment of the Note, subject to a five-day cure period, together with any applicable default amount.
The Company’s obligations under the Note are secured by: (i) a pledge of all the common stock the Company owns in USCF Investments, Inc. and (ii) a security interest in all of the assets of the Company. Further, the Company’s Chief Executive Officer’s trust, the Nicholas and Melinda Gerber Living Trust (“Gerber Trust”), provided: (i) a guaranty of the Company’s obligations to the Holder under the Note and (ii) a pledge of all of the common stock of the Company owned by the Gerber Trust.
Beginning on the date that is six months from the issuance date until the applicable Note is paid in full, each month the Holder has the right to require the Company to redeem up to an aggregate of $400,000 with respect to the Initial Note and $200,000 with respect to the Subsequent Note plus any interest accrued thereunder and an exit fee of 6% of the principal amount and accrued interest redeemed. The Company has the right to defer such redemption payments that Holder could otherwise elect to make three times by providing advance written notice to Holder. If Company exercises its deferral right, the outstanding balance automatically increases by 0.85% for each instance that the deferral right is exercised by Company, which cannot be exercised more than once every ninety calendar days.
Pursuant to the terms of the Purchase Agreement, beginning on the date of the issuance and sale of the Note and ending 24 months later, Holder will have the right, but not the obligation, with Company’s prior written consent, to reinvest up to an additional $10,000,000 in the Company on the same terms and conditions as the Notes (structured as two tranches of $5,000,000 each).
The Company engaged Maxim Group LLC to serve as placement agent for the transaction between the Company and Holder in exchange for an aggregate commission equal to 7% of the gross cash proceeds received from the sale of the Notes.
As of September 30, 2024, the note payable balance outstanding, net of the original issue discount and fees paid, was $3.7 million, of which $2.8 million is due within 12 months from September 30, 2024 and the remaining balance of $0.9 million is due prior to September 30, 2026. The effective interest rate for this note is 41.3%.
In July 2024, Brigadier repaid its mortgage loan of $0.3 million in full that was secured with the land and building in Canada.
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 September 30, 2024, USCF Investments held investment positions in four of its 40 Act funds, USG (ticker changed from GLDX in March 2024), ZSB, USE and ZSC of $1.5 million, $0.4 million, $3.2 million, and $2.3 million, respectively. These investment positions along with other investments, as applicable, are described further in Note 5 to our Financial Statements.
Dividends
Our strategy on dividends is to declare and pay dividends only from retained earnings and only when our Board of Directors deems it prudent and in the best interests of the Company to declare and pay dividends. We have historically not paid any dividends on our shares of common or preferred 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.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Refer to “Note 10. Commitments And Contingencies – Litigation” in our Condensed Consolidated Financial Statements included in this Report.
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 their 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, 2024 (“2024 Form 10-K”), which could materially affect our business, financial condition and/or operating results. The risks described in our 2024 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.
See risk factors discussed in “Risk Factors” in our 2024 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, specifically “Liquidity and Capital Resources – Recent Note Financing.”
In addition to the “Risk Factors” included in our 2024 Form 10-K we are adding the following risk factor in connection with our recent debt financing.
We may be unable to generate sufficient cash flow from operations to repay amounts due under our recent debt financing or other obligations we have incurred which could adversely affect our business, including our ability to further develop and market our Fintech app, as well as our financial condition, results of operations, and our stock price.
We recently entered into a significant debt financing transaction, which has increased our financial leverage. This heightened level of indebtedness could limit our ability to operate effectively and may expose us to various risks, including:
| 1) | Inability to repay debt when due: Our cash flow may not be sufficient to meet our debt service obligations, especially if our revenues and/or cash flows from operations decline or if we encounter unforeseen operational or other challenges. Failure to repay this debt when due could lead to a default under the terms of our debt agreements. | |
| 2) | Event of default consequences: The occurrence of an event of default under our debt agreements could result in the acceleration of our indebtedness, requiring immediate repayment of outstanding amounts an increase in the amount due, and a requirement to pay an increased (or default) rate of interest on the outstanding amount due. Our obligations under the debt agreements are secured by a pledge of our shares in USCF Investments and a security interest in all our assets enabling the lender to foreclose on our assets upon the occurrence of an event of default. Further, the performance of our obligations under the debt agreements is guaranteed by the Gerber Trust and our obligations under the note are secured by a pledge of all the shares of Marygold owned by the Gerber Trust, of which our CEO is a trustee. An event of a default under the debt agreements could force us to liquidate assets, seek additional financing, or restructure our obligations, all of which may adversely affect our liquidity, financial condition, results of operations, and stock price. There can be no assurance we will be able to liquidate our assets, restructure our indebtedness, or obtain additional financing upon terms acceptable to us, or at all. | |
| 3) | Restrictive covenants: Our debt agreements contain certain covenants that restrict our operational flexibility, including limitations on mergers and acquisitions, sales of assets, and our ability to engage in certain equity linked financing transactions in which the conversion or exercise price of any debt or other equity linked securities we issue in the transaction varies with the market price of our shares or upon the occurrence of certain trigger events, and other strategic initiatives. Our non-compliance with these covenants could lead to an event of default and further exacerbate our financial position. |
Failure to manage these risks effectively or repay our debt when due could result in severe financial and operational consequences, including a potential reduction in the market price of our securities and a negative impact on our shareholders.
Also, if we issue additional shares in a financing, any such issuance could be dilutive to our existing shareholders. See “Liquidity and Capital Resources – Recent Note Financing.”
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 September 30, 2024, none of the Company’s directors or officers, as defined in Section 16 of the Securities
Exchange Act of 1934,
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) |
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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: November 8, 2024 | By: | /s/ Nicholas Gerber |
| Nicholas Gerber | ||
| Principal Executive Officer | ||
| By: | /s/ Scott A. West | |
| Scott A. West | ||
| Principal Accounting Officer | ||
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