The following discussion and analysis should be read in conjunction with the
unaudited condensed consolidated 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 quarterly report on Form 10-Q.
See "Financial Statements."
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 "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 the Form 10-K.
Overview
The Marygold Companies, Inc. ("The Marygold Companies" or the "Company")
conducts business through its wholly owned operating subsidiaries operating in
the U.S., New Zealand, and Canada. Further, the Company anticipates operating in
the United Kingdom upon the consummation of the pending acquisition of Tiger
Financial & Asset Management Limited, a U.K. limited company. The operations of
the Company's wholly owned subsidiaries are more particularly described herein
but are summarized as follows:
? USCF Investments, Inc. ("USCF Investments") (f/k/a Wainwright Holdings, Inc.),
a U.S. based company, is the sole member of two investment services limited
liability company subsidiaries, United States Commodity Funds LLC ("USCF"),
and USCF Advisers LLC ("USCF Advisers"), each of which manages, operates or is
an investment advisor to exchange traded funds organized as limited
partnerships or investment trusts that issue shares which 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")
? 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 newly formed 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, still in
the development stage as of December 31, 2022, and estimated to launch
commercial services in the current fiscal year. Through December 31, 2022,
expenditures have been limited to developing the business model and the
associated application development.
? Marygold & Co. (UK) Limited, a newly formed U.K. limited company ("Marygold
UK"), was established to act as a holding company for acquisitions to be made
in the U.K. As of December 31, 2022, the accounts of Marygold UK are
consolidated with its wholly owned subsidiary, Tiger Financial and Asset
Management Limited.
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 / Major Customers and
Suppliers - Concentration of Credit Risk" in the notes to the condensed
consolidated financial statements for more information. The emergence of a novel
coronavirus on a global scale, known as COVID-19, and related geopolitical
events could lead to increased market volatility, disruption to U.S. and world
economies and markets and may have significant adverse effects on the Company
and its wholly owned subsidiaries. The financial risk to future operations is
largely unknown, (refer to Part II, Item 1A, for further details.)
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Results of Operations
The Marygold Companies and Subsidiaries
Financial summary and comparison data for the three month periods ended December
31, 2022 and December 31, 2021.
For the Three Months Ended December 31, 2022 Compared to the Three Months Ended
December 31, 2021
Revenue and Operating Income
Consolidated revenue for the three months ended December 31, 2022 was
$8.8 million representing a $0.6 million decrease from the three months ended
December 31, 2021 revenue of $9.4 million. The decrease in consolidated revenues
was primarily attributed to a decrease of $0.4 million in revenues of USCF
Investments which were impacted by lower assets under Assets Under Management
("AUM"). The remainder of the revenue decrease for the three months ended
December 31, 2022 compared to the same period of 2021, related to a decrease
of approximately $0.2 million from Original Sprout and a $0.2 million decrease
from Gourmet Foods, offset by our recent Marygold UK acquisition which
contributed $0.3 million to overall revenue compared to $0 during the three
months ended December 31, 2021. The Marygold Companies produced an operating
income for the three months ended December 31, 2022 of $0.1 million as compared
to an operating income of $1.3 million for the three months ended December 31,
2021. This represents an decrease in operating income of $1.2 million for the
three months ended December 31, 2022 when compared to the three months ended
December 31, 2021. Apart from the $0.7 million decline in revenues, the
difference in operating income is attributed to higher general & administrative
("G&A") expenses and additional expenses incurred by our subsidiary, Marygold &
Co., in development of its mobile fintech app, which amounted to approximately
$0.7 million.
Other Income (Expenses)
Other income (expense) for the three months ended December 31, 2022 increased
$408 thousand compared to the same period in 2021 due to higher interest income
and unrealized investment gains, and were $189 thousand and ($219) thousand,
respectively, resulting in income before income tax of $0.3 million and
$1.1 million, respectively.
Income Tax
Provision for income tax for the three months ended December 31, 2022 and
2021 was $107 thousand and $84 thousand, respectively, primarily attributable to
our United States operations through our USCF Investments subsidiary. Income tax
expense recorded at The Marygold Companies level totaled $92 thousand for the
three months ended December 31, 2022, while a tax expense of $21 thousand was
recorded for the three months ended December 31, 2021. The remaining income tax
expense was recorded at the subsidiary level during the three months ended
December 31, 2022 and 2021.
Net Income
Overall, the net income between the three months ended December 31, 2022 as
compared to the three months ended December 31, 2021 decreased by approximately
$0.8 million, or approximately 81%, to approximately $0.2 million. The decrease
in net income for the three months ended December 31, 2022 was primarily due to
$0.7 million in lower revenue and $0.2 million lower cost of revenue in addition
to $0.7 million in higher operating expenses offset by a $0.4 million increase
in other income.
Comprehensive Income
After giving consideration to currency translation gain (loss) of approximately
$0.3 million our comprehensive income for the three months ended December 31,
2022 was $0.5 million as compared to the three months ended December 31,
2021 where there was a currency translation loss of ($14) thousand which
resulted in comprehensive income of $1.0 million. Comprehensive gain and loss
are comprised of fluctuations in foreign currency exchange rates and effects in
the valuation of our holdings in the U.K., New Zealand and Canada.
For the Six Months Ended December 31, 2022 Compared to the Six Months Ended
December 31, 2021
Revenue and Operating Income
Consolidated revenue for the six months ended December 31, 2022 was
$17.7 million representing a $1.5 million decrease from the same prior year
period revenue of $19.2 million. Net revenues declined from our fund management
business as a result of lower AUM by approximately $0.7 million, or 6%, for the
six months ended December 31, 2022 as compared to the six months ended December
31, 2021. The Company's revenues derived from its other operating units
decreased by $1.1 million, or 14%, from the same prior year period offset by
$0.3 million from our Marygold UK subsidiary which had $0 revenue in the prior
year six month period, resulting in an overall decrease in consolidated revenue
of approximately 8%. The Marygold Companies produced an operating income for the
six months ended December 31, 2022 of $0.9 million as compared to an operating
loss of ($0.3) million for the six months ended December 31, 2021. The increase
in operating income was primarily attributable to the $2.5 million SEC / CFTC
Wells Notice settlement incurred in the prior year six month period in
addition to lower revenue from USCF Investments and our other operating
subsidiaries.
Other (Expense) Income
Other income (expense) for the six months ended December 31, 2022 increased
$350 thousand compared to the same period in 2021 due to higher interest income
and unrealized investment gains, and were $136 thousand and ($214) thousand,
respectively, resulting in income (loss) before taxes of $1.0 million and ($0.5)
million, respectively.
Income Tax
Provision for income tax for the six months ended December 31, 2022 and
2021 were $0.3 million for both periods, primarily attributable to our United
States operations through our USCF Investment subsidiary. The Company files
income taxes as a combined group and records most income taxes at the
Parent level.
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Net Income (Loss) and Comprehensive Income (Loss)
Overall, the net income for the six months ended December 31, 2022 as compared
to the six months ended December 31, 2021 increased by approximately $1.5
million. The increase in profits for the six months ended December 31, 2022 was
primarily attributable to the $2.5 million SEC / CFTC Wells Notice settlement
recorded in the prior year reporting period in addition to lower revenue from
each of our operating subsidiaries. Adding to the loss were expenses of
$1.4 million related to our development stage subsidiary, Marygold. After giving
consideration to currency translation gain of $20 thousand our comprehensive
income for the six months ended December 31, 2022 was $0.7 million as compared
to the six months ended December 31, 2021 where there was a currency translation
loss of ($101) thousand resulting in a comprehensive loss of ($1.0) million.
Comprehensive gain and loss are comprised of fluctuations in foreign currency
exchange rates related to the effects in the valuation of our holdings in New
Zealand and Canada.
Investment Fund Management - USCF Investments
USCF Investments was founded as a holding company in March 2004 as a Delaware
corporation with one subsidiary, Ameristock Corporation, which was an investment
adviser to Ameristock Mutual Fund, Inc., a large cap value equity fund
registered under the Investment Company Act of 1940, as amended (the "1940
Act"). In January 2010, Ameristock Corporation was spun off as a standalone
company. In May 2005, USCF was formed as a single member limited liability
company in the state of Delaware. In June 2013, USCF Advisers was formed as a
Delaware limited liability company and in July 2014, was registered as an
investment adviser under the Investment Advisers Act of 1940, as amended. In
November 2013, the USCF Advisers board of managers formed USCF ETF Trust ("ETF
Trust") as an open-end management investment company registered under the 1940
Act. The Trust is authorized to have multiple segregated series or portfolios.
USCF Investments owns all of the issued and outstanding limited liability
company membership interests of its subsidiaries, USCF and USCF Advisers, each
a Delaware limited liability company and are affiliated companies. USCF serves
as the general partner ("General Partner") for various limited partnerships
("LP") and sponsor ("Sponsor") as noted below. USCF and USCF Advisers are
subject to federal, state and local laws and regulations generally applicable to
the investment services industry. USCF is a commodity pool operator ("CPO")
subject to regulation by the Commodity Futures Trading Commission (the "CFTC")
and the National Futures Association (the "NFA") under the Commodities Exchange
Act ("CEA"). USCF Advisers is an investment adviser registered under the
Investment Advisers Act of 1940, as amended and has registered as a CPO under
the CEA. Exchange traded products ("ETPs") issued or sponsored by USCF are
required to be registered with the Securities and Exchange Commission (the
"SEC") in accordance with the Securities Act of 1933. USCF Investments operates
through USCF and USCF Advisers, which collectively operate
twelve exchange-traded products ("ETPs") and exchange traded funds
("ETFs"), regulated by the 1940 Act and 1933 Act, and listed on the NYSE Arca,
Inc. ("NYSE Arca") with a total of approximately $3.7 billion assets under
management as of December 31, 2022. USCF Investments and subsidiaries USCF and
USCF Advisers are collectively referred to as "USCF Investments" hereafter.
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
shares pursuant to the Securities Act of 1933, as amended:
USCF as General
Partner for the
following funds
United Organized
States as a
Oil Delaware
Fund, LP limited
("USO") partnership
in May 2005
United Organized
States as a
Natural Delaware
Gas limited
Fund, LP partnership
("UNG") in November
2006
United Organized
States as a
Gasoline Delaware
Fund, LP limited
("UGA") partnership
in April
2007
United Organized
States as a
12 Month Delaware
Oil limited
Fund, LP partnership
("USL") in June
2007
United Organized
States as a
12 Month Delaware
Natural limited
Gas partnership
Fund, LP in June
("UNL") 2007
United Organized
States as a
Brent Delaware
Oil limited
Fund, LP partnership
("BNO") in
September
2009
USCF as fund Sponsor -
each a series within
the United States
Commodity Index
Funds Trust ("USCIF
Trust")
United Series of the
States USCIF Trust
Commodity created in
Index April 2010
Fund
("USCI")
United Series of the
States USCIF
Copper Trust created
Index in November
Fund 2010
("CPER")
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 Fund
SummerHaven launched
Dynamic May 2018
Commodity
Strategy No
K-1 Fund
("SDCI")
USCF Fund
Midstream launched
Energy March
Income Fund 2021
("UMI")
USCF Gold Fund
Strategy launched
Plus Income November
Fund 2021
("GLDX")
USCF Fund
Dividend launched
Income Fund June
("UDI") 2022
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.
USCF Investments' revenue and expenses are primarily driven by the amount of
AUM. 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 company'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 primarily determined by multiplying contractual fee rates by AUM. Total
Operating Expenses are grouped into the following financial statement line
items: General and Administrative, Marketing, Operations and Salaries and
Compensation.
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For the Three Months Ended December 31, 2022 Compared to the Three Months Ended
December 31, 2021
Revenue
Average AUM for the three months ended December 31, 2022 was at $3.8 billion, as
compared to approximately $4.2 billion from the three months ended December 31,
2021 primarily due to a decrease in USO, CPER and USL AUM partially offset by
an increase in UMI, UNG and USCI AUM. As a result, the revenues from management
and advisory fees decreased by approximately $0.4 million, or 8%, to
$5.3 million for the three months ended December 31, 2022 as compared to the
three months ended December 31, 2021 where revenues from management and advisory
fees totaled $5.7 million.
Expenses
USCF Investments total operating expenses for three months ended December 31,
2022 decreased approximately $100 thousand to $3.7 million compared to the three
months ended December 31, 2021. Variable expenses, as described above, decreased
by $215 thousand due to a decrease in total AUM along with a new negotiated
agreement with the existing marketing distributor resulting in lower fees, which
included a $257 thousand decrease in variable marketing and distribution
expenses, and offset by a small increase in fund accounting and administration
expenses and in sub-advisory fees related to an increase in UMI AUM over the
prior year quarter. General and administrative ("G&A") expenses increased $333
thousand to $641 thousand from $308 thousand for the three months ended December
31, 2022 compared to three months ended December 31, 2021, respectively. G&A
expenses increased primarily due to higher legal and professional expenses
related to new future fund launches. Total marketing expenses decreased $237
thousand to $336 thousand for the three months ended December 31, 2022 compared
to $573 thousand for the three months ended December 31, 2021 due to the new
reduced fee agreement with the existing marketing distributor as noted above.
Employee salaries and benefit compensation expenses were
approximately $1.5 million for the three months ended December 31, 2022 and $1.7
million for the three months ended December 31, 2021 due to allocating employee
costs related to time working at the Marygold Companies, Inc. corporate level.
Operations expenses remained flat at $1.1 million during the quarter compared to
the prior year quarter.
Income
Operating income decreased $0.4 million to $1.6 million for the three months
ended December 31, 2022 from $2.0 million for the three months ended December
31, 2021. Other income (expense) was $180 thousand for the three months ended
December 31, 2022 compared to $38 thousand for the three months ended December
31, 2021 due to unrealized losses in investments and interest income. Net income
before income taxes for the three months ended December 31, 2022 decreased $0.2
million to $1.8 million compared to $2.0 million for three months ended December
31, 2021 due to a $0.4 million decrease in revenue as a result of lower AUM,
offset by a $0.1 million decrease in total expenses and a $0.1 million increase
in Other income.
For the Six Months Ended December 31, 2022, Compared to the Six Months Ended
December 31, 2021
Revenue
Average AUM for the six months ended December 31, 2022 was at $3.8 billion, as
compared to approximately $4.2 billion from the six months ended December 31,
2021 primarily due to decreases in USO, BNO and USL AUM. As a result, the
revenues from management and advisory fees decreased by approximately $0.7
million, or 6%, to $10.7 million for the six months ended December 31, 2022 as
compared to the six months ended December 31, 2021 where revenues from
management and advisory fees totaled $11.4 million.
Expenses
USCF Investments total operating expenses decreased to $7.2 million, after
recording the $2.5 million SEC / CFTC Wells Notice settlement in the prior year
six month period, or approximately 26%, from $9.8 million for the six months
ended December 31, 2022 compared to same prior year period. Excluding the Wells
Notice settlement, total operating expenses decreased $42 thousand, or
approximately 1%. Variable expenses, as described above, decreased $0.2
million over the respective six -month period due to lower overall average AUM
offset by an increase of $0.1 million in sub-advisory fees for UMI which did not
exist for the full prior year six month period, as well as with small offset
increases in UMI, USCI and CPER sub-advisory fees due to increases in their
respective AUM from the prior year six month period, offset by lower expenses
related to other fund AUM which decreased variable marketing and distribution
expenses, fund accounting and administration expenses. G&A expenses, excluding
new fund development cost, were $1.0 million and $0.8 million for the six months
ended December 31, 2022 and December 31, 2021, respectively. G&A expenses
increased $0.2 million due to increases in travel & entertainment and
professional fees. Total marketing expenses decreased $0.2 million to
$0.9 million for the six months ended December 31, 2022 as compared to the prior
year period due to an decrease in variable distribution costs as a result of
lower AUM and reduced rates in marketing distribution expenses as mentioned
above partially offset by an increase in conference expenses. Employee salaries
and benefit compensation expenses were approximately $2.7 million and
$2.8 million for the six months ended December 31, 2022 and December 31, 2021,
respectively. Operations expenses remained flat at $2.2 million.
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Income
Income before income taxes for the six months ended December 31, 2022 decreased
$0.5 million, to $3.6 million, excluding the prior year SEC / CFTC Wells Notice
settlement, compared to $4.1 million for six months ended December 31, 2021 due
to a $0.7 million decrease in revenue as a result of lower AUM offset by a small
decrease in total operating expenses and an increase of $0.1 million in other
income. Operating income, including the $2.5 million settlement expense in the
prior year, increased $1.9 million to $3.5 million for the six months ended
December 31, 2022, or approximately 117%, from $1.6 million for the six months
ended December 31, 2021. Other income (expense) was $118 thousand for the
six months ended December 31, 2022 compared to $43 thousand for the six months
ended December 31, 2021.
Food Products - Gourmet Foods, Ltd. and Printstock Products Limited
Gourmet Foods, Ltd. was organized in its current form in 2005 (previously known
as Pats Pantry Ltd). Pats Pantry was founded in 1966 to produce and sell
wholesale bakery products, meat pies and patisserie cakes and slices, in New
Zealand. Gourmet Foods, located in Tauranga, New Zealand, sells substantially
all of its goods to supermarkets and service station chains with stores located
throughout New Zealand. Gourmet Foods, Ltd. also has a large number of smaller
independent lunch bars, cafes and corner dairies among the customer list,
however they comprise a relatively insignificant dollar volume in comparison to
the primary accounts of large distributors and retailers. On July 1, 2020,
Gourmet Foods, Ltd. acquired the New Zealand company, Printstock Products
Limited. Located in nearby Napier, New Zealand, Printstock prints wrappers for
food products, including those used by Gourmet Foods, Ltd. Printstock is a
wholly owned subsidiary of Gourmet Foods, Ltd. and its operating results are
consolidated with those of Gourmet Foods, Ltd. from July 1, 2020 onwards.
Gourmet Foods operates exclusively in New Zealand and thus the New Zealand
dollar is its functional currency. In order to consolidate The Marygold
Companies' reporting currency, the US dollar, with that of Gourmet Foods, The
Marygold Companies records foreign currency translation adjustments and
transaction gains and losses in accordance with ASC 830-30. The translation of
New Zealand currency into U.S. dollars is performed for balance sheet accounts
using the exchange rates in effect at the balance sheet date and for revenue and
expense accounts using a weighted average exchange rate during the period. Gains
and losses resulting from foreign currency translations are included in foreign
currency translation (loss) gain on the Condensed Consolidated Statements of
Comprehensive Income as well as accumulated other comprehensive (loss) income
found on the Condensed Consolidated Balance Sheets.
For the Three Months Ended December 31, 2022 Compared to the Three Months Ended
December 31, 2021
Revenue
Net revenues for the three months ended December 31, 2022 were $1.9 million with
cost of goods sold of $1.4 million resulting in a gross profit of $0.5 million,
or approximately 24% gross margin, as compared to the three month period
ended December 31, 2021 where net revenues were $2.1 million and cost of goods
sold were $1.5 million producing a gross profit of $0.6 million, or
approximately 27%. The decrease in net revenues is attributed to a changing
product mix in response to rising costs of certain raw ingredients making
production of related products unprofitable.
Expenses
Operating expenses, including wages and marketing, for the three month periods
ended December 31, 2022 and December 31, 2021 were $0.5 million and
$0.4 million, respectively, producing an operating income of $10 thousand and
$0.2 million, respectively, or approximately nil% operating income for the three
months ended December 31, 2022 and 8% for the three months ended December 31,
2021. Other income totaled $4 thousand for three months ended December 31, 2022
as compared to $1 thousand for the three months ended December 31, 2021.
Included in operating expenses were discretionary bonuses paid to all employees
which totaled approximately $130,300 and was largely responsible for the
decrease in operating income.
Income
(Loss) income for the three months ended December 31, 2022 was approximately
($27) thousand as compared to a net income of $135 thousand after income tax
provision of $41 thousand for the three months ended December 31, 2021.
For the Six Months Ended December 31, 2022, Compared to the Six Months Ended
December 31, 2021
Revenue
Net revenues for the six months ended December 31, 2022 were $3.9 million with
cost of goods sold of $2.8 million resulting in a gross profit of $1.1 million,
or approximately 28% gross margin, as compared to the six month period
ended December 31, 2021 where net revenues were $4.5 million and cost of goods
sold were $3.3 million producing a gross profit of $1.2 million, or
approximately 27%. The decrease in revenues is largely due to a changing product
mix due to the rising costs of some raw ingredients, and the company's response
to focus on production of higher margin products even though they may have a
lower selling price.
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Expenses
General, administrative and selling expenses, including wages and marketing, for
the six month periods ended December 31, 2022 and 2021 were $0.8 million and
$0.8 million producing operating income of $0.3 million and $0.4 million,
respectively, or approximately 7% net operating profit for the six months ended
December 31, 2022 and 8% for the six months ended December 31, 2021. Other
income for the six month periods ended December 31, 2022 and 2021 were $9
thousand and $10 thousand, respectively.
Income
Income for the six months ended December 31, 2022, after income tax provision of
approximately $61 thousand, resulted in a net income of approximately $217
thousand, as compared to $289 thousand for the six months ended December 31,
2021 where the income tax provision was approximately $89 thousand.
Security Systems - Brigadier Security Systems (2000) Ltd.
Brigadier, founded in 1985, is a leading electronic security company in the
province of Saskatchewan. Brigadier has offices located in the urban areas of
Saskatchewan, Canada; Brigadier Security Systems in Saskatoon, and operating as
Elite Security in Regina. The company has a combined industry experience of over
135 years. Brigadier provides comprehensive security solutions including access
control, camera systems, fire alarm monitoring panels, and intrusion alarms to
home and business owners as well as government offices, schools, and public
buildings. Their experience as the provider of choice on many large notable
sites shows a commitment to design, service and support. Brigadier specializes,
and is certified, in several major manufacturers' products: Honeywell Security,
Panasonic, Avigilon and JCI/DSC/Kantech security products. The company and staff
are recognized for dedication to customer service with annual awards from
SecurTek including being recipients of the Customer Retention, Service
Excellence, and overall best dealer with the President's Award. The company
demonstrates a commitment to delivering outstanding quality to customers by the
notable facilities, businesses, and homes they secure.
Brigadier is an authorized SecurTek dealer. SecurTek is owned by SaskTel which
is Saskatchewan's leading Information and Communications Technology (ICT)
provider with over 1.4 million customer connections across Canada. Under the
terms of its authorized dealer contract with the monitoring company, Brigadier
earns monthly payments during the term of the monitoring contract in exchange
for performance of customer service activities on behalf of the monitoring
company.
Brigadier operates exclusively in Canada and thus the Canadian dollar is its
functional currency. In order to consolidate The Marygold Companies' reporting
currency, the U.S. dollar, with that of Brigadier, The Marygold Companies
records foreign currency translation adjustments and transaction gains and
losses in accordance with ASC 830, Foreign Currency Matters. The translation of
Canadian currency into U.S. dollars is performed for balance sheet accounts
using the exchange rates in effect at the balance sheet date and for revenue and
expense accounts using a weighted average exchange rate during the period.
For the Three Months Ended December 31, 2022 Compared to the Three Months Ended
December 31, 2021
Revenue
Net revenues for the three months ended December 31, 2022 were $0.6 million with
cost of goods sold recorded as approximately $0.3 million, resulting in a gross
profit of approximately $0.3 million with a gross margin of approximately 49% as
compared to the three months ended December 31, 2021 where net revenues were
approximately $0.6 million with cost of goods sold of $0.3 million and a gross
profit of $0.3 million, or approximately 52%.
Expenses
Operating expenses for the three months ended December 31, 2022 were
$0.3 million producing an operating profit of $0.1 million or approximately 11%
as compared to the three months ended December 31, 2021 where operating profits
were $0.1 million, or approximately 11%, with operating expenses of
$0.3 million.
Income
Other income comprised of interest income, rental income and commission
income totaled approximately $11 thousand for the three months ended December
31, 2022, and provision for income tax expense was $10 thousand, resulting in
net income after income taxes of approximately $74 thousand as compared to net
income after income taxes of approximately $66 thousand for the three months
ended December 31, 2021 where other income totaled $6 thousand and income tax
was $12 thousand.
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For the Six Months Ended December 31, 2022 Compared to the Six Months
Ended December 31, 2021
Revenue
Net revenues for the six months ended December 31, 2022 were $1.3 million with
cost of goods sold recorded as approximately $0.6 million, resulting in a gross
profit of approximately $0.7 million with a gross margin of approximately 55% as
compared to the six months ended December 31, 2021 where net revenues were
approximately $1.3 million with cost of goods sold of $0.6 million and a gross
profit of $0.7 million, or approximately 52%.
Expenses
Operating expenses for the six months ended December 31, 2022 were $0.5 million
producing an operating profit of $0.2 million or approximately 15% as compared
to the six months ended December 31, 2021 where operating profits were
$0.2 million, or approximately 12%, with operating expenses of $0.5 million.
Income
Other income (expense) totaled approximately $25 thousand and income tax
provision was $33 thousand for the six months ended December 31, 2022 resulting
in income after income taxes of approximately $181 thousand as compared to
income after income taxes of approximately $141 thousand for the six months
ended December 31, 2021 where other income totaled approximately $14 thousand
and provision for income tax was approximately $30 thousand.
Beauty Products - Original Sprout
Kahnalytics was founded in 2015 and adopted the dba/Original Sprout in December
2017. Original Sprout formulates and packages various hair and skin care
products that are 100% vegan, tested safe and non-toxic, and marketed globally
through distribution networks to salons, resorts, grocery stores, health food
stores, e-tail sites and on the company's website. The company operates from
warehouse and sales offices located in San Clemente, CA, USA. As a result of the
ongoing COVID-19 pandemic, Original Sprout has made adjustments to its primary
channels to market. Prior to the pandemic Original Sprout relied heavily upon
its wholesale distribution network to place products at retail locations and
generally to make products available to consumers, whereas in the current
environment of social distancing and closures of retail businesses the company
found a significant drop in sales volumes as consumers avoided traditional sales
outlets. Moreover, distributors found it more profitable to sell directly to
consumers via ecommerce that to sell wholesale to resellers. The result was a
dramatic downturn in the average selling price of Original Sprout products on
ecommerce sites as distributors began selling to end users at wholesale price.
In response to this trend, Original Sprout has established new sales channels
with online retailers and also reconstructed many of its distribution agreements
and pricing tiers. The positive effects of this transition are expected to take
up to 12 months to realize, while the negative effects of the COVID-19 pandemic
on the wholesale distribution business seems to be easing somewhat and
management expects overall positive results to occur in the global
marketplace. The company has also incurred expenses related to new product
development and creation of upcoming marketing collateral, which is expected to
continue well into calendar year 2023 as the company pursues its growth
initiatives.
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For the Three Months Ended December 31, 2022 Compared to the Three Months Ended
December 31, 2021
Revenue
Net revenues for the three months ended December 31, 2022 were $0.8 million as
compared to $1.0 million for the three months ended December 31, 2021. Cost of
goods sold for the three months ended December 31, 2022 and December 31, 2021
were $0.4 million and $0.6 million, respectively, resulting in a gross profit of
approximately $0.3 million and $0.4 million, respectively, or 44% as compared to
43% gross margin. The decrease in revenues was due to the continuing trends of
increased online shopping at lower prices and the restructuring of domestic
distribution channels in an effort to thwart Internet diverters.
Expenses
Operating expenses were approximately $0.4 million resulting in an operating
loss of ($41) thousand, as compared to $0.4 million of operating expenses
resulting in an operating loss of ($16) thousand for the three months ended
December 31, 2021.
(Loss) income
The net loss for the three months ended December 31, 2022 was approximately
($41) thousand as compared to $13 thousand net loss for the three months ended
December 31, 2021 where other expenses totaled $3 thousand.
For the Six Months Ended December 31, 2022 Compared to the Six Months Ended
December 31, 2021
Revenue
Net revenues for the six months ended December 31, 2022 were $1.6 million as
compared to $2.0 million for the six months ended December 31, 2021. Cost of
goods sold for the six months ended December 31, 2022 and December 31, 2021
were $0.9 and $1.2 million, respectively, resulting in a gross profit of
approximately $0.7 million and $0.8, respectively, for each period.
Expenses
Operating expenses for the six months ended December 31, 2022 were approximately
$0.8 million resulting in an operating loss of approximately ($61) thousand, as
compared to $0.9 million of operating expenses resulting in an operating income
of approximately ($12) thousand for the six months ended December 31, 2021.
Income (Loss)
The net loss for the six months ended December 31, 2022 was approximately
($61) thousand as compared to ($8) thousand net loss for the six months ended
December 31, 2021 where the other income totaled approximately $4 thousand.
Financial Services - Marygold & Co. (UK) Limited
Marygold & Co. (UK) Limited was formed in August 2021 as a wholly owned
subsidiary of The Marygold Companies. There were no operations in Marygold UK
until June 20, 2022 when the acquisition of Tiger Financial and Asset Management
Limited was completed in the U.K. Tiger is a company incorporated and registered
in England and Wales and located in Northampton, England. Tiger is an asset
manager and investment advisor operating pursuant to certification by the
Financial Conduct Authority of the United Kingdom. Tiger derives revenues from
providing ongoing investment advice to clients as a percentage of total Assets
Under Management ('AUM') which, as of December 31, 2022, totaled approximately
£35 million. Additionally, the company earns fees and commissions on the sale of
insurance-based products and other financial instruments secured through third
parties. Results of operations for the period from June 20, 2022 through June
30, 2022 were insignificant and thus combined with those of the parent. Because
the company has only begun operations in the current fiscal year, there is no
comparison data for the prior year period. The accounts of Tiger are
consolidated with those of Marygold UK.
Marygold UK operates exclusively in the U.K. and thus the Great Britain Pound
("GBP") is its functional currency. In order to consolidate The Marygold
Companies' reporting currency, the U.S. dollar, with that of Marygold UK, The
Marygold Companies records foreign currency translation adjustments and
transaction gains and losses in accordance with ASC 830, Foreign Currency
Matters. The translation of U.K. currency into U.S. dollars is performed for
balance sheet accounts using the exchange rates in effect at the balance sheet
date and for revenue and expense accounts using a weighted average exchange rate
during the period.
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For the three months ended December 31, 2022
Revenues
Net revenues for the three months ended December 31, 2022 were $124 thousand,
resulting in a gross profit of $124 thousand as there are no cost of goods sold
within the business.
Expenses
Operating expenses were approximately $108 thousand resulting in an operating
income of $16 thousand.
Income
Net income, after giving consideration to interest income of $2 thousand and
income tax provision of $5 thousand, was $13 thousand.
For the six months ended December 31, 2022
Revenues
Net revenues for the six months ended December 31, 2022 were $258 thousand,
resulting in a gross profit of $258 thousand.
Expenses
Operating expenses were approximately $222 thousand resulting in an operating
income of $36 thousand.
Income
Net income, after giving consideration to interest expense of $2 thousand
and income tax provision of $11 thousand, was $23 thousand.
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Plan of Operation for the Next Twelve Months
Our plan of operation for the next twelve months is to apply necessary
resources, which may include experienced personnel, cash, or synergistic
acquisitions made with cash, equity or debt, into growing each of our business
units to their potential. Original Sprout is transitioning from a largely
boutique offering distributed through specialty wholesalers to a more mainstream
product available at traditional outlets and online and as such we anticipate
measurable growth in revenues for the coming years, though there may be one-time
initial expenses associated with the launch of new sales channels. Additionally,
we are expecting moderate growth in Brigadier through focused management
initiatives and consolidation within the security industry coupled with expanded
product offerings. Similarly, we expect Gourmet Foods to be operating more
efficiently under current management and continue to increase market share
through additional product offerings and channels to market, including the
printing and sale of food wrappers by their subsidiary, Printstock. USCF
Investments expects to continue development of innovative and new fund products
to grow its portfolio. In addition to our long-term mission that is an
acquisition strategy based upon identifying and acquiring profitable, mature,
companies of a diverse nature and with in-place management that produces
increased revenue streams, the Company is also focused upon building expertise
and developing Fintech opportunities in the financial services sector through
its development stage subsidiary Marygold and Co. In a more general sense, the
Company is characterizing its business in two categories: 1) financial services
and 2) other consumer-based operating units. The purpose is to isolate the
cyclical, and sometimes volatile, nature of the financial services business from
our other industry segments. As revenues from financial services fluctuate over
time due to varying performance of the commodities markets, our other operations
are expected to be stable and sustainable by comparison. By these initiatives we
seek to:
? continue to gain market share for our wholly owned subsidiaries' areas of
operation,
? increase our gross revenues and realize net operating profits,
? lower our operating costs by unburdening certain selling expenses to third
party distributors,
? have sufficient cash reserves to pay down accrued expenses and losses,
? attract parties who have an interest in selling their privately held companies
to us,
? achieve efficiencies in accounting and reporting through adoption of standards
used by all subsidiaries on a consistent basis,
? strategically pursue additional company acquisitions, and
? explore opportunities as may present themselves in the Fintech space,
including the launch of services by Marygold and Marygold Advisory Services,
and the creation of new corporate entities as focused subsidiary holdings.
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 expense, 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 December 31, 2022, we had $14.6 million of cash and cash equivalents on a
consolidated basis as compared to $12.9 million as of June 30, 2022.
During the past five fiscal years combined, The Marygold Companies has invested
an aggregate of approximately $6.6 million in cash towards purchasing and
assimilating Printstock within Gourmet Foods, and adding the Original Sprout
assets into the The Marygold Companies group of companies as well as forming a
new U.K. limited company, Marygold UK, and funding it with enough capital to
pay approximately $1.8 million in cash towards the $2.9 million purchase price
of its subsidiary, Tiger. We have also invested approximately $6.8 million in
the development of Fintech applications through our development stage
subsidiary, Marygold. Despite these cash investments and expenses, our working
capital position remains strong at $22 million. While The Marygold Companies
intends to maintain and improve its revenue stream from wholly owned
subsidiaries, The Marygold Companies continues to pursue acquisitions of other
profitable companies which meet its target profile. Provided The Marygold
Companies' subsidiaries continue to operate as they are presently, and are
projected to operate, The Marygold Companies has sufficient capital to pay its
general and administrative expenses for the coming fiscal year and to adequately
pursue its long-term business objectives. However, given the significant
economic and financial market disruptions associated with the COVID-19 pandemic
and the conflict in the Ukraine, the Company's results of operations could be
adversely impacted.
Lease Liability
The Company has various operating leases. The total amount due under these
obligations was $1,251,674 and $1,404,880 as of December 31, 2022 and June 30,
2022, respectively. The obligations will reduce over the passage of time
through periodic lease payments. See Note 15 for further analysis of this
obligation.
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Borrowings
As of December 31, 2022, we had $0.4 million of third-party indebtedness on a
consolidated basis as compared to $0.4 million of third-party indebtedness as of
June 30, 2022. Approximately US$340,784 is owed by Brigadier and secured with
the land and building in Saskatoon purchased in July 2019. The initial principal
balance was CD$525,000 (approximately US$401,000 translated as of the loan date
July 1, 2019) with an annual interest rate of 4.14% maturing June 30, 2024. The
short-term portion of principal for this loan due within 12 months as
of December 31, 2022 is approximately US$14,710, and the long term principal
amount due is approximately US$326,074. Interest on the loan is expensed or
accrued as it becomes due. Interest expense on the loan for the three and six
months ended December 31, 2022 were US$3,646 and US$7,230, respectively.
Interest expense on the loan for the three and six months ended December 31,
2021 were $4,026 and $8,014, respectively.
In addition to the loan due by Brigadier, our subsidiary, Gourmet Foods, on
December 21, 2021 entered into a finance lease agreement related to a solar
energy system. The present value of the leased asset is included on the
Consolidated Balance Sheets with property, plant and equipment as $125,969. The
solar assets are amortized over a life span of 10 years with monthly payments,
including GST, totaling $4,754 for the three months ended December 31, 2022 and
$9,491 for the six months ended December 31, 2022.
The Marygold Companies, without inclusion of its subsidiary companies, as of
December 31, 2022, has no debt.
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 December 31, 2022 and June
30, 2022, USCF Investments held an initial investment position of $1.2 million
and $1.3 million, respectively, in one of its 40 Act funds, GLDX.
This investment along with other investments, as applicable, are described
further in Note 7 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 paid no dividends
during the three months ended December 31, 2022 and 2021.
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THE MARYGOLD COMPANIES, INC. 