0001005101 Marygold Companies, Inc. false --06-30 Q3 2022 0.001 0.001 50,000,000 50,000,000 49,360 49,360 49,360 49,360 0.001 0.001 900,000,000 900,000,000 39,383,459 39,383,459 37,485,959 37,485,959 545,090 0 49 50 0 1 0 0 0 0 0 217,990 20,000 13,913 13,989 500,000 0 40,160 0 8 8 December 31, 2012 December 31, 2012 4 4 May 25, 2022 May 25, 2022 4 4 April 8, 2022 April 8, 2022 239 49,360 1.9 1.5 420,552 68,061 2,100,000 0 0 0 2017 2018 2019 2020 2017 2018 2019 2020 2017 2018 2019 2020 3 110,000 76,524 20,000 13,913 0 Included with plant and equipment as of March 31, 2022 are the underlying assets of the solar energy finance lease stated at present value as of the date of acquisition by Gourmet Foods totaling $153,807. Includes the underlying assets of the solar energy system finance lease totaling $150,625 at Gourmet Foods. Includes $401,681 related to the acquisition of Printstock in July 2020. See Note 15, Business Combinations Included with accumulated depreciation is the amortization of the underlying assets of the solar energy finance lease at Gourmet Foods, which totaled $4,214 as of March 31, 2022. 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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

 

For the quarterly period ended March 31, 2022

 

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: 000-29913

 

THE MARYGOLD COMPANIES, INC.

(Exact name of registrant as specified in its charter)

 

Nevada

90-1133909

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

 

120 Calle Iglesia

Unit B

San Clemente, CA 92672

949-429-5370

Fax: 888.312.0124

 

 


(Address and telephone number of registrant's principal

executive offices and principal place of business)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class of Security

Trading Symbol

Name of Exchange on Which Registered

Common Stock, par value $0.001 per share

MGLD

NYSE, American LLC

 

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. ☒   Yes     ☐    No

 

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).  ☒   Yes     ☐    No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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

         

Non-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     ☒   No

 


 

The registrant’s common stock began trading on the NYSE American exchange on March 10, 2022. The registrant had 39,383,459 shares of Common Stock, $0.001 par value, and 49,360 shares of Series B Convertible, Voting, Preferred Stock outstanding on May 13, 2022. Series B Preferred stock is convertible, under certain conditions, to 20 shares of Common Stock for each share of Series B Preferred stock. Each share of Series B Preferred stock votes as 20 shares of Common Stock.

 

2
 

 

THE MARYGOLD COMPANIES, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2022

 

Table of Contents

 

 

 

Page

   

PART I. FINANCIAL INFORMATION

 
   

Item 1. Financial Statements (Unaudited)

5

   

Condensed Consolidated Balance Sheets as of March 31, 2022 and June 30, 2021

5

   

Condensed Consolidated Statements of Income for the Three and Nine Months Ended March 31, 2022 and March 31, 2021

6

   

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended March 31, 2022 and March 31, 2021

7

   

Condensed Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended March 31, 2022 and March 31, 2021

8

   

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2022 and March 31, 2021

9

   

Notes to Condensed Consolidated Financial Statements

10

   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

31

   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

40

   

Item 4. Controls and Procedures

40

   

PART II. OTHER INFORMATION

40

   

Item 1. Legal Proceedings

40

   

Item 1A. Risk Factors

42

   

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

42

   

Item 3. Defaults Upon Senior Securities

42

   

Item 4. Mine Safety Disclosures

42

   

Item 5. Other Information

43

   

Item 6. Exhibits

43

   

Signatures

44

 

3
 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “would,” “shall,” “might,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

 

 

the outcome of the class action litigation;

 

recent resolutions with the Securities and Exchange Commission (the “SEC”) and the Commodity Futures Trading Commission (the “CFTC”) against United States Oil Fund, L.P., United States Commodity Funds, LLC, a subsidiary of our subsidiary, USCF Investments, Inc. ("USCF Investments") (f/k/a Wainwright Holdings), and other related parties, as disclosed under “Item 1. Legal Proceedings”;

 

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; and the impact of the COVID-19 pandemic thereon;

 

the sufficiency of our cash and cash equivalents to meet our working capital, capital expenditure, and liquidity needs; and the impact of the COVID-19 pandemic thereon;

 

our operating subsidiaries' ability to attract and retain customers to use our products, to optimize the pricing for our products, to expand our sales to our customers, and to convince our existing customers to renew subscriptions;

 

the evolution of technologies affecting our operating subsidiaries' products and markets;

 

our operating subsidiaries' ability to innovate and provide a superior user experience and our intentions and strategy with respect thereto;

 

our operating subsidiaries' ability to successfully penetrate enterprise markets; and the impact of the COVID-19 pandemic thereon;

 

our operating subsidiaries' ability to successfully expand in our existing markets and into new markets, including international markets; and the impact of the COVID-19 pandemic thereon;

 

the attraction and retention of key personnel;

 

our ability to effectively manage our growth and future expenses;

 

worldwide economic conditions, including the economic disruption imposed by the COVID-19 pandemic, and their impact on spending; and

 

our operating subsidiaries' ability to comply with modified or new laws and regulations applying to our business, including privacy and data security regulations.

 

We caution you that the foregoing list does not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.

 

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q 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, 2021, this Quarterly Report on Form 10-Q or our registration statements filed with the U.S. Securities and Exchange Commission. 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 Quarterly Report on 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 Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q 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.

 

 

PART IFINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

 

THE MARYGOLD COMPANIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

   

March 31, 2022

   

June 30, 2021

 
                 

ASSETS

 
                 

CURRENT ASSETS

               

Cash and cash equivalents

  $ 16,180,701     $ 16,072,955  

Accounts receivable, net

    1,007,455       1,070,541  

Accounts receivable - related parties

    2,346,570       2,038,054  

Inventories

    2,288,099       1,951,792  

Prepaid income tax and tax receivable

    705,827       747,343  

Investments, at fair value

    2,940,930       1,828,926  

Other current assets

    948,369       399,524  

Total current assets

    26,417,951       24,109,135  
                 

Restricted cash

    13,913       13,989  

Property, plant and equipment, net

    1,559,152       1,573,445  

Operating lease right-of-use asset

    1,562,908       1,058,199  

Goodwill

    1,043,473       1,043,473  

Intangible assets, net

    2,105,053       2,341,803  

Deferred tax assets, net - United States

    827,476       827,476  

Other assets, long - term

    540,160       540,160  

Total assets

  $ 34,070,086     $ 31,507,680  
                 

LIABILITIES AND STOCKHOLDERS' EQUITY

 
                 

CURRENT LIABILITIES

               

Accounts payable and accrued expenses

  $ 2,874,286     $ 3,862,874  

Expense waivers – related parties

    17,793       69,684  

Operating lease liabilities, current portion

    680,223       513,071  

Notes payable - related parties

    603,500       603,500  

Loans - property and equipment, current portion

    35,896       15,094  

Total current liabilities

    4,211,698       5,064,223  
                 

LONG TERM LIABILITIES

               

Loans - property and equipment, net of current portion

    491,420       379,804  

Operating lease liabilities, net of current portion

    935,355       607,560  

Deferred tax liabilities, net - foreign

    169,429       169,429  

Total long-term liabilities

    1,596,204       1,156,793  

Total liabilities

    5,807,902       6,221,016  
                 

STOCKHOLDERS' EQUITY

               

Preferred stock, $0.001 par value; 50,000,000 authorized

               

Series B: 49,360 issued and outstanding at March 31, 2022 and at June 30, 2021

    49       49  

Common stock, $0.001 par value; 900,000,000 shares authorized; 39,383,459 shares issued and outstanding at March 31, 2022 and 37,485,959 at June 30, 2021

    39,383       37,486  

Additional paid-in capital

    12,313,206       9,330,843  

Accumulated other comprehensive income

    121,365       142,581  

Retained earnings

    15,788,181       15,775,705  

Total stockholders' equity

    28,262,184       25,286,664  

Total liabilities and stockholders' equity

  $ 34,070,086     $ 31,507,680  

 

(1) Derived from audited financial statements

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

THE MARYGOLD COMPANIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

 

    For the Three-Month Periods Ended March 31,     For the Nine-Month Periods Ended March 31,  
   

2022

   

2021

   

2022

   

2021

 
                                 

Net revenue

                               

Fund management - related party

  $ 5,868,558     $ 5,997,085     $ 17,226,969     $ 19,182,801  

Food products

    1,667,345       2,015,529       6,131,791       6,212,698  

Security systems

    555,006       717,664       1,888,362       2,013,819  

Beauty products and other

    702,779       813,084       2,716,702       2,846,052  

Net revenue

    8,793,688       9,543,362       27,963,824       30,255,370  
                                 

Cost of revenue

    2,065,422       2,336,541       7,132,249       7,121,339  
                                 

Gross profit

    6,728,266       7,206,821       20,831,575       23,134,031  
                                 
                                 

Operating expense

                               

General and administrative expense

    1,651,057       1,512,387       4,973,337       5,071,090  

Fund operations

    1,171,282       860,027       3,375,135       2,562,525  

Marketing and advertising

    755,403       689,939       2,160,180       2,227,322  

Depreciation and amortization

    136,909       178,588       424,727       521,584  

Salaries and compensation

    1,969,998       1,925,571       6,677,378       6,106,978  

Legal settlement

    -       -       2,500,000       -  

Total operating expenses

    5,684,649       5,166,512       20,110,757       16,489,499  
                                 

Income from operations

    1,043,617       2,040,309       720,818       6,644,532  
                                 
                                 

Other income:

                               

Other income

    251,767       26,748       46,398       203,275  

Interest and dividend income

    5,546       6,730       19,030       22,193  

Interest expense

    (9,856 )     (9,988 )     (30,142 )     (30,215 )

Total other income, net

    247,457       23,490       35,286       195,253  
                                 

Income before income taxes

    1,291,074       2,063,799       756,104       6,839,785  
                                 

Provision of income taxes

    (420,940 )     (480,991 )     (743,628 )     (1,685,754 )
                                 

Net income

  $ 870,134     $ 1,582,808     $ 12,476     $ 5,154,031  
                                 

Weighted average shares of common stock

                               

Basic and diluted

    38,831,576       38,473,159       38,561,536       38,473,159  
                                 

Net income per common share

                               

Basic and diluted

  $ 0.02     $ 0.04     $ 0.00     $ 0.13  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

THE MARYGOLD COMPANIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

 

   

Three Months Ended March 31,

   

Nine Months Ended March 31,

 
   

2022

   

2021

   

2022

   

2021

 
                                 

Net income

  $ 870,134     $ 1,582,808     $ 12,476     $ 5,154,031  
                                 

Other comprehensive income:

                               

Foreign currency translation gain (loss)

    79,394       (17,317 )     (21,216 )     352,829  

Comprehensive income (loss)

  $ 949,528     $ 1,565,491     $ (8,740 )   $ 5,506,860  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

THE MARYGOLD COMPANIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 

FOR THE THREE AND NINE MONTH PERIODS ENDED MARCH 31, 2022 AND MARCH 31, 2021

(UNAUDITED)

 

Period Ending March 31, 2022

 

Preferred Stock (Series B)

   

Common Stock

                                 
   

Number of Shares

   

Amount

   

Number of Shares

   

Par Value

   

Additional Paid - in Capital

   

Accumulated Other Comprehensive (Loss) Income

   

Retained Earnings

   

Total Stockholders' Equity

 

Balance at July 1, 2021

    49,360     $ 49       37,485,959     $ 37,486     $ 9,330,843     $ 142,581     $ 15,775,705     $ 25,286,664  

Loss on currency translation

    -       -       -       -       -       (86,168 )     -       (86,168 )

Net loss

    -       -       -       -       -       -       (1,880,993 )     (1,880,993 )

Balance at September 30, 2021

    49,360     $ 49       37,485,959     $ 37,486     $ 9,330,843     $ 56,413     $ 13,894,712     $ 23,319,503  

Loss on currency translation

    -       -       -       -       -       (14,442 )     -       (14,442 )

Net income

    -       -       -       -       -       -       1,023,335       1,023,335  

Balance at December 31, 2021

    49,360     $ 49       37,485,959     $ 37,486     $ 9,330,843     $ 41,971     $ 14,918,047     $ 24,328,396  

Gain on currency translation

    -       -       -       -       -       79,394       -       79,394  

Issuance of common stock in public offering, net of issuance costs $545,090

    -       -       1,897,500       1,897       2,982,363       -       -       2,984,260  

Net income

    -       -       -       -       -       -       870,134       870,134  

Balance at March 31, 2022

    49,360     $ 49       39,383,459     $ 39,383     $ 12,313,206     $ 121,365     $ 15,788,181     $ 28,262,184  

 

 

 

Period Ending March 31, 2021

 

Preferred Stock (Series B)

   

Common Stock

                                 
   

Number of Shares

   

Amount

   

Number of Shares

   

Par Value

   

Additional Paid - in Capital

   

Accumulated Other Comprehensive Income (Loss)

   

Retained Earnings

   

Total Stockholders' Equity

 

Balance at July 1, 2020

    53,032     $ 53       37,412,519     $ 37,412     $ 9,330,913     $ (144,744 )   $ 9,926,262     $ 19,149,896  

Gain on currency translation

    -       -       -       -       -       72,714       -       72,714  

Net income

    -       -       -       -       -       -       2,219,434       2,219,434  

Balance at September 30, 2020

    53,032     $ 53       37,412,519     $ 37,412     $ 9,330,913     $ (72,030 )   $ 12,145,696     $ 21,442,044  

Gain on currency translation

    -       -       -       -       -       297,432       -       297,432  

Net income

    -       -       -       -       -       -       1,351,788       1,351,788  

Balance at December 31, 2020

    53,032     $ 53       37,412,519     $ 37,412     $ 9,330,913     $ 225,402     $ 13,497,484     $ 23,091,264  

Loss on currency translation

    -       -       -       -       -       (17,317 )     -       (17,317 )

Conversion of preferred stock to common stock

    (3,672 )     (4 )     73,440       74       (70 )     -       -       -  

Net income

    -       -       -       -       -       -       1,582,808       1,582,808  

Balance at March 31, 2021

    49,360     $ 49       37,485,959     $ 37,486     $ 9,330,843     $ 208,085     $ 15,080,292     $ 24,656,755  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

THE MARYGOLD COMPANIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED) 

 

   

For the Nine-Month Periods Ended

 
   

March 31,

 
   

2022

   

2021

 

CASH FLOWS FROM OPERATING ACTIVITIES:

               

Net income

  $ 12,476     $ 5,154,031  

Adjustments to reconcile net income to net cash provided by (used in) operating activities

               

Depreciation and amortization

    424,727       521,584  

Bad debt expense

    3,175       14,082  

Impairment to inventory value

    3,478       67,576  

Unrealized gain on investments

    (116,148 )     (5,146 )

Loss (gain) on disposal of equipment

    37,189       (2,148 )

Operating lease right-of-use asset - non-cash lease cost

    494,375       420,948  
                 

Decrease (increase) in current assets:

               

Accounts receivable

    57,416       (91,002 )

Accounts receivable - related party

    (308,514 )     559,327  

Prepaid income taxes and tax receivable

    43,440       302,313  

Inventories

    (341,966 )     (254,177 )

Other current assets

    (551,815 )     47,336  

Increase (decrease) in current liabilities:

               

Accounts payable and accrued expenses

    (979,332 )     (808,350 )

Operating lease liabilities

    (500,857 )     (424,071 )

Expense waivers - related party

    (51,891 )     (183,006 )

Net cash (used in) provided by operating activities

    (1,774,247 )     5,319,297  
                 

CASH FLOWS FROM INVESTING ACTIVITIES:

               

Cash paid for acquisition of business assets

    -       (993,435 )

Purchase of real estate and equipment

    (5,224 )     (41,074 )

Proceeds from sale of property and equipment

    -       2,148  

Sale of investments

    506,492       -  

Purchase of investments

    (1,501,980 )     (492 )

Net cash used in investing activities

    (1,000,712 )     (1,032,853 )
                 

CASH FLOWS FROM FINANCING ACTIVITIES:

               

Proceeds from issuance of common stock, net of underwriter discounts

    3,529,350       -  

Payment of issuance cost of common stock

    (545,090 )     -  

Payment of finance lease liabilities

    (4,167 )     -  

Repayment of property and equipment loans

    (11,159 )     (25,394 )

Net cash provided by (used in) financing activities

    2,968,934       (25,394 )
                 

Effect of exchange rate change on cash and cash equivalents

    (86,305 )     190,171  
                 

NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

    107,670       4,451,221  
                 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING BALANCE

    16,086,944       9,826,042  
                 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, ENDING BALANCE

  $ 16,194,614     $ 14,277,263  
                 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

               

Cash paid during the period for:

               

Interest paid

  $ 12,264     $ 11,989  

Income taxes paid, net of refunds

  $ 833,901     $ 1,247,005  

Non-cash financing and investing activities:

               

Acquisition of operating right-of-use assets through operating lease obligations

  $ 995,805     $ 730,741  

Reclassification of acquisition deposit

  $ -     $ 122,111  

Acquisition of equipment through finance lease liability

  $ 150,625     $ -  

Fair value of warrants of common stock issued to underwriters

  $ 132,000     $ -  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

THE MARYGOLD COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS

(UNAUDITED)

 

 

 

NOTE 1.

ORGANIZATION AND DESCRIPTION OF BUSINESS

 

The Marygold Companies, Inc., (the “Company” or "The Marygold Companies"), a Nevada corporation, operates through its wholly owned subsidiaries who are engaged in varied business activities. 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 ("Printstock"), 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 under the names Brigadier Security Systems and Elite Security in the province of Saskatchewan.

 

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, is still in the development stage as of March 31, 2022, and is estimated to launch commercial services within the current calendar year. Through March 31, 2022, expenditures have been limited to developing the business model and the associated application development. The expenses of Marygold have been included with those of the Company.

 

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 March 31, 2022, there have been no acquisitions completed and no operations. The expenses of Marygold UK have been included with those of the Company.

 

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 Company’s management in the day-to-day business affairs of its operating subsidiary businesses apart from oversight. 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 executive 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. Across the Company and its subsidiaries the Company employs 95 people.

 

As more fully detailed in the Company’s Definitive Information Statement on Schedule 14C, filed with the U.S. Securities and Exchange Commission on September 13, 2021, on August 24, 2021, the Board of Directors of the Company approved, by unanimous written consent in lieu of a meeting, to effect a name change of the Company from “Concierge Technologies, Inc.” to "The Marygold Companies, Inc." On March 10, 2022, the name change became effective in connection with the Company’s uplist to the NYSE American LLC and its public offering of common stock. Additionally, on April 20, 2022, the Company’s wholly-owned subsidiary, Wainwright Holdings, Inc. changed its name to “USCF Investments, Inc.”

 

 

 

NOTE 2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation and Accounting Principles

 

The Company has prepared the accompanying unaudited financial statements on a consolidated basis. In the opinion of management, the accompanying unaudited condensed consolidated balance sheets, related statements of income and comprehensive income, 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 accounting principles generally accepted in the United States of America (“U.S. GAAP”). 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, 2021 and filed with the U.S. Securities and Exchange Commission on September 22, 2021.

 

10

 

Principles of Consolidation

 

The accompanying unaudited condensed consolidated financial statements, which are referred to herein as the “Financial Statements” include the accounts of The Marygold Companies and its wholly owned subsidiaries, USCF Investments (f/k/a Wainwright Holdings, Inc.), Gourmet Foods, Brigadier, Original Sprout, Marygold and Marygold UK.

 

All inter-company transactions and accounts have been eliminated in consolidation. 

 

Use of Estimates

 

The preparation of the Financial Statements are in conformity with U.S. GAAP which 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.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include all highly liquid debt instruments with original maturities of three months or less on the date of purchase. The Company maintains its cash and cash equivalents in financial institutions in the United States, Canada, and New Zealand. Accounts in the United States are insured by the Federal Deposit Insurance Corporation up to $250,000 per depositor, and accounts in Canada are insured by the Canada Deposit Insurance Corporation up to CD$100,000 per depositor. Accounts in New Zealand are uninsured. The Company has, at times, held deposits in excess of insured amounts, but the Company does not expect any losses in such accounts.

 

Accounts Receivable, net and Accounts Receivable - Related Parties

 

Accounts receivable, net consist of receivables related to the Brigadier, Gourmet Foods and Original Sprout businesses. Management regularly reviews the composition of accounts receivable and analyzes customer credit worthiness, customer concentrations, current economic trends and changes in customer payment patterns to determine whether or not an account should be deemed uncollectible. Reserves, if any, are recorded on a specific identification basis. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. As of March 31, 2022 and June 30, 2021, the Company had $3,672 and $15,499, respectively, reserved for as doubtful accounts.

 

Accounts receivable - related parties consist of fund asset management fees receivable related to the USCF Investments business. Management fees receivable generally consist of one month of management fees which are collected in the month after they are earned. As of March 31, 2022 and June 30, 2021, there is no allowance for doubtful accounts as all amounts are deemed collectible.

 

Major Customers and SuppliersConcentration of Credit Risk

 

The Marygold Companies, as a holding company, operates through its wholly owned subsidiaries and has no concentration of risk either from customers or suppliers as a stand-alone entity. Marygold and Marygold UK, as newly formed development stage entities, had no revenues and no significant transactions for the three and nine months ended March 31, 2022. Any transactions that did occur were included with those of the Company.

 

For our subsidiary, USCF Investments, the concentration of risk and the relative reliance on major customers are found within the various funds it manages and the associated three and nine month revenues as of March 31, 2022 compared with those at March 31, 2021 along with the accounts receivable – related parties as of March 31, 2022 and June 30, 2021 as depicted below.

 

   

For the Three Months Ended

   

For the Three Months Ended

 
   

March 31, 2022

   

March 31, 2021

 
   

Revenue

   

Revenue

 

Fund

                               

USO

  $ 3,186,393       54 %   $ 3,813,588       64 %

BNO

    498,603       8 %     663,973       11 %

UNG

    534,048       9 %     520,978       9 %

USCI

    565,816       10 %     308,497       5 %

All Others

    1,083,698       19 %     690,049       11 %

Total

  $ 5,868,558       100 %   $ 5,997,085       100 %

 

11

 
   

For the Nine Months Ended

   

For the Nine Months Ended

 
   

March 31, 2022

   

March 31, 2021

 
   

Revenue

   

Revenue

 

Fund

                               

USO

  $ 9,304,211       54 %   $ 12,909,971       67 %

BNO

    1,489,400       9 %     2,060,809       11 %

UNG

    1,648,194       9 %     1,664,761       9 %

USCI

    1,537,179       9 %     774,913       4 %

All Others

    3,247,985       19 %     1,772,347       9 %

Total

  $ 17,226,969       100 %   $ 19,182,801       100 %

 

 

   

As of March 31, 2022

   

As of June 30, 2021

 
   

Accounts Receivable

   

Accounts Receivable

 

Fund

                               

USO

  $ 1,309,388       56 %   $ 1,156,691       57 %

BNO

    200,591       9 %     196,713       10 %

UNG

    192,010       8 %     130,543       6 %

USCI

    234,738       10 %     141,346       7 %

All Others

    409,841       17 %     412,761       20 %

Total

  $ 2,346,568       100 %   $ 2,038,054       100 %

 

The Company, through Gourmet Foods and following the acquisition of Printstock Products Limited on July 1, 2020, has two major customer groups comprising gross revenues: 1) baking, and 2) printing. For the purpose of segment reporting (Note 15) both revenue streams are considered part of the same "food industry" segment as they are evaluated as one segment by the Company's Chief Operating Decision Maker.

 

Baking: Within the baking sector there are three major customer groups; 1) grocery, 2) gasoline convenience stores, and 3) independent retailers. The grocery industry is dominated by several large chain operations, which are customers of Gourmet Foods, and there are no long-term guarantees that these major customers will continue to purchase products from Gourmet Foods, however, many of the existing relationships have been in place for sufficient time to give management reasonable confidence in their continuing business. For the three months ended March 31, 2022, Gourmet Foods’ largest customer in the grocery industry, who operates through a number of independently branded stores, accounted for approximately 22% of baking sales revenues as compared to 18% for the three months ended March 31, 2021. For the nine months ended March 31, 2022, the largest customer accounted for approximately 23% of baking sales revenues as compared to 18% for the nine months ended March 31, 2021. This customer accounted for 23% of the baking accounts receivable as of March 31, 2022 as compared to 19% as of June 30, 2021. The were no other grocery industry customers who accounted for a significant portion of baking sales for the 3 or 9 month periods ended March 31, 2022 and 2021, however one additional customer accounted for 28% and 27% of baking accounts receivable as of March 31, 2022 and  June 30, 2021, respectively.

 

In the gasoline convenience store market customer group, Gourmet Foods supplies two major channels. The largest is a marketing consortium of gasoline dealers operating under the same brand who, for the three and nine month periods ended March 31, 2022 accounted for approximately 49% of baking sales revenues as compared to 50% for the three and nine month periods ended March 31, 2021. No single member of the consortium is responsible for a significant portion of Gourmet Foods’ accounts receivable, however as a group they accounted for 19% of baking accounts receivable as of March 31, 2022 as compared to 22% as of June 30, 2021. A second consortium of gasoline convenience stores were not significant in sales volume, however did account for 18% and 23% of baking accounts receivable as of March 31, 2022 and June 30, 2021, respectively.

 

The third major customer group is independent retailers and cafes, which collectively accounted for the balance of baking sales revenue, however no single customer in this group was a significant contributor of baking sales revenues for the three and nine month periods ended March 31, 2022 or March 31, 2021, nor a significant contributor to baking accounts receivable as of March 31, 2022 and June 30, 2021.

 

Printing: The printing sector of Gourmet Foods' gross revenues is comprised of many customers, some large and some small, with one customer accounting for 39% and 38% of the printing sector revenues for the three and nine months ended March 31, 2022, respectively, as compared to 29% and 26% for the three and nine months ended March 31, 2021, respectively. This same customer accounted for 48% and 40% of the printing sector accounts receivable as of March 31, 2022 and June 30, 2021, respectively.

 

Consolidated: With respect to Gourmet Foods’ consolidated risk, the largest three customers accounted for 36%, 16% and 12% of Gourmet Foods' consolidated gross revenues for the three months ended March 31, 2022 compared to 32%, 11% and 11% for the three months ended March 31, 2021. For the nine month period ended March 31, 2022, these three customers accounted for 31%, 15% and 14% of consolidated gross revenues as compared to 31%, 11% and 9% for the nine month period ended March 31, 2021. These customers accounted for nil%, 10% and 30% of the consolidated accounts receivable of Gourmet Foods as of March 31, 2022 as compared to nil%, 7% and 26%, respectively, as of June 30, 2021. 

 

12

 

Gourmet Foods, including Printstock, is not dependent upon any one major supplier as many alternative sources are available in the local marketplace should the need arise. However, the unavailability of, or increase in price in, any of the ingredients on which Gourmet Foods relies to produce its products could harm its operating results for such period.

 

The Marygold Companies, through Brigadier, is partially dependent upon its contractual relationship with the alarm monitoring company who provides monitoring services to Brigadier’s customers. In the event this contract is terminated, Brigadier would be compelled to find an alternate source of alarm monitoring, or establish such a facility itself. Management believes that the contractual relationship is sustainable, and has been for many years, with alternate solutions available should the need arise. Sales to the largest customer, which includes contracts and recurring monthly support fees, totaled 57% and 51% of the total Brigadier revenues for the three and nine month periods ended March 31, 2022, respectively, as compared to 43% and 47% for the three and nine month periods ended March 31, 2021, respectively. The same customer accounted for approximately 30% of Brigadier's accounts receivable as of March 31, 2022 as compared to 31% as of June 30, 2021.

 

Brigadier purchases alarm panels, digital and analog cameras, mounting hardware and accessory items needed to complete security installations from a variety of sources. The manufacture of electronic items such as those sought by Brigadier has expanded to a global scale thus providing Brigadier with a broad choice of suppliers. Brigadier bases its vendor selection on several criteria including: price, availability, shipping costs, quality, suitability for purpose and the technical support of the manufacturer. Brigadier is not reliant on any one supplier.

 

The Marygold Companies, through Original Sprout, has thousands of customers and, from time to time, certain customers become significant during specific reporting periods, but may not be significant during other periods. Original Sprout had no significant customer for the three and nine month periods ended March 31, 2022 as compared to the three and nine month periods ended March 31, 2021 where one customer accounted for 9% and 13% of sales revenues, respectively. Four other customers who were insignificant contributors to sales, but whose balance due exceeded 10% of total accounts receivable, collectively accounted for 72% and 61% of accounts receivable as of March 31, 2022 and June 30, 2021, respectively.

 

The Marygold Companies, through Original Sprout, is dependent upon its relationship with a product packaging company who, at the direction of Original Sprout, produces the products in accordance with proprietary formulas, packages them in appropriate containers, and delivers the finished goods to Original Sprout for distribution to its customers. All of Original Sprout’s products are currently produced by this packaging company, although if this relationship were to fail there are other similar packaging companies available to Original Sprout at competitive pricing. Because of the nature of the Original Sprout product ingredients, some of the ingredients may, at times, be difficult to source in timely fashion or at the expected price point. To safeguard against this possibility, Original Sprout endeavors to maintain at least a 90-day supply of all products in stock. Estimating and maintaining a reserve stock account is not a guarantee that a shortage of ingredient supplies will not affect production such that Original Sprout will not exhaust its reserves or be unable to fulfill customer orders.

 

Inventories

 

Inventories, consisting primarily of: (i) food products, printing supplies, and packaging in New Zealand; (ii) hair and skin care finished products and components in the U.S.; and, (iii) security system hardware in Canada, are valued at the lower of cost or net realizable value. Inventories in Canada and New Zealand are maintained on the first-in, first-out method, while inventory in the U.S. is maintained using the average cost method. Inventories include product cost, inbound freight and warehousing costs where applicable. Management compares the cost of inventories with the net realizable value and an allowance is made for writing down the inventories to their net realizable value, if lower. An assessment is made at the end of each fiscal quarter to determine what slow-moving inventory items, if any, should be deemed obsolete and written down to their estimated net realizable value. For the three months ended March 31, 2022 and 2021, the expense for slow-moving or obsolete inventory was $0 and $67,576, respectively. For the nine months ended March 31, 2022 and March 31, 2021, the expense for slow-moving or obsolete inventory was $3,478 and $67,576, respectively.

 

Property and Equipment

 

Property and equipment are stated at cost, net of accumulated depreciation. Expenditures for maintenance and repairs are charged to operating expense as incurred; additions and improvements are capitalized. Office furniture and equipment include office fixtures, computers, printers and other office equipment plus software and applicable packaging designs. Leasehold improvements, which are included in plant and equipment, are depreciated over the shorter of the useful life of the improvement and the length of the lease. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation is computed using the straight line method over the estimated useful life of the asset (see Note 5 to the Condensed Consolidated Financial Statements). 

 

 

Category

 

Estimated Useful Life (in years)

 

Building

    39  

Plant and equipment

    5 to 10  

Furniture and office equipment

    3 to 5  

Vehicles

    3 to 5  

 

13

 

Intangible Assets

 

Intangible assets consist of brand names, domain names, recipes, non-compete agreements and customer lists along with the internal use software in process for the business applications of Marygold to be launched in the coming fiscal year. Intangible assets with finite lives are amortized over the estimated useful life and are evaluated for impairment at least on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The Company assesses recoverability by determining whether the carrying value of such assets will be recovered through the discounted expected future cash flows. If the future discounted cash flows are less than the carrying amount of these assets, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the assets. There was no impairment recorded for the nine month period ended March 31, 2022 or the fiscal year ended June 30, 2021.

 

Goodwill

 

Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in a business combination transaction. Goodwill is tested for impairment on an annual basis during the fourth quarter of the Company's fiscal year, or more frequently if events or changes in circumstances indicate that the carrying amount of goodwill may be impaired. The Company first performs a qualitative test to determine if goodwill is impaired at a reporting unit. In performing this test, the Company evaluates macroeconomic factors,  industry and market considerations, cost factors such as the increase in the cost of materials or labor or other costs, overall financial performance, changes in key personnel or customers or strategy, and other entity-specific events or trends that could indicate impairment, among other items. If the results of this test indicate that it is more likely than not that the fair value of the reporting is below its carrying value, a quantitative test is then performed to determine the amount of the impairment. When impaired, the carrying value of goodwill is written down to fair value. There was no impairment recorded for the nine month period ended March 31, 2022 or the fiscal year ended June 30, 2021.

 

Impairment of Long-Lived Assets

 

The Company tests long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value. There was no impairment recorded for the nine month period ended March 31, 2022 or the fiscal year ended June 30, 2021.

 

Investments and Fair Value of Financial Instruments

 

Short-term investments are classified as available-for-sale securities. The Company measures the investments at fair value at period end with any changes in fair value reflected as unrealized gains or (losses) which is included as part of other (expense) income. The Company values its investments in accordance with Accounting Standards Codification ("ASC") 820 – Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurement. ASC 820 establishes a fair value hierarchy that distinguishes between: (1) market participant assumptions developed based on market data obtained from sources independent of the Company (observable inputs) and (2) The Company’s own assumptions about market participant assumptions developed based on the best information available under the circumstances (unobservable inputs). The three levels defined by the ASC 820 hierarchy are as follows:

 

Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

 

Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 assets include the following: quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs).

 

Level 3 – Unobservable pricing input at the measurement date for the asset or liability. Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available.

 

14

 

In some instances, the inputs used to measure fair value might fall within different levels of the fair value hierarchy. The level in the fair value hierarchy within which the fair value measurement in its entirety falls shall be determined based on the lowest input level that is significant to the fair value measurement in its entirety.

 

Warrants to Purchase Common Stock

 

The Company from time to time will issue warrant instruments to purchase common stock and accounts for warrant instruments as either equity-classified or liability-classified instruments based on an assessment of the specific terms of the warrants and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity ("ASC 480") and ASC 815, Derivatives and Hedging ("ASC 815"). Generally, warrants issued in connection with debt and equity financings are presented as a component of equity unless the warrants include a conditional obligation to issue a variable number of shares among other conditions, or it is possible that the Company may need to settle the warrants in cash, in which instance the warrants would be accounted for as non-current liabilities in the accompanying balance sheets. As of March 31, 2022 all outstanding warrants are classified as equity instruments. No warrants were outstanding as of June 30, 2021.

Revenue Recognition

Revenue consists of fees earned through management of investment funds, sale of gourmet meat pies and printing of food wrappers in New Zealand, security alarm system installation and maintenance services in Canada, and sales of hair and skin care products internationally. Revenue is accounted for net of sales taxes, sales returns, and trade discounts. The performance obligation is satisfied when the product has been shipped and title, risk of loss and rewards of ownership have been transferred. For most of the Company’s product sales or services, these criteria are met at the time the product is shipped, the subscription period commences, or the management fees earned each month. For our Brigadier subsidiary in Canada, the Company operates under contract with an alarm monitoring company that pays a percentage of its recurring monitoring fee to Brigadier in exchange for continued customer service and support functions with respect to each customer maintained under contract by the monitoring company. The Company has no costs of contracts which require capitalization.

 

The Company generates revenue, in part, through contractual monthly recurring fees received for providing ongoing customer support services to monitoring company clientele. The five-step process governing contract revenue reporting includes:

 

 

1. Identifying the contract(s) with customers;

 

2. Identifying the performance obligations in the contract;

 

3. Determining the transaction price;

 

4. Allocating the transaction price to the performance obligations in the contract; and

 

5. Recognizing revenue when or as the performance obligation is satisfied.

 

Transactions involve security systems that are sold outright to the customer where the Company's performance obligations include customer support services and the sale and installation of the security systems. For such arrangements, the Company allocates a portion of the transaction price to each performance obligation based on a relative stand-alone selling price. Revenue associated with the sale and installation of security systems is recognized once installation is complete, and is reflected as security system revenue in the Consolidated Statements of Income. Revenue associated with customer support services is recognized as those services are provided, and is included as a component of security system revenue in the Condensed Consolidated Statements of Income, which for the three and nine months ended March 31, 2022, were approximately $171,798 and $318,394, or approximately 31% and 17%, of the total security system revenues as compared to $182,631 and $538,436 for the three and nine months ended March 31, 2021, respectively, or 25% and 27% of the total security system revenues. These revenues for the three and nine months ended March 31, 2022 account for approximately 1% and 2%, respectively, of total consolidated revenues as compared to 2% and 2% for the three and nine months ended March 31, 2021, respectively. None of the other subsidiaries of the Company generate revenues from long-term contracts.

 

Because the Company has no contract with the end user, and the monthly payments for customer support services are made to the Company by the monitoring company who has a contract with the end user, and end user customers are subject to cancellation through no control of the Company, no deferred revenues or contingent liability reserves have been established with respect to these contracts. The services are deemed delivered as the obligation is acknowledged on a monthly basis.

 

Income Taxes

 

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. A valuation allowance is provided for deferred tax assets if it is more likely than not that these items will either expire before the Company is able to realize their benefits or if future deductibility is uncertain.

 

15

 

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Applicable interest and penalties associated with unrecognized tax benefits are classified as additional income taxes in the statements of Income.

 

Advertising Costs

 

The Company expenses the cost of advertising as incurred. Marketing and advertising costs for the three months ended March 31, 2022 and March 31, 2021 were $0.7 million and $0.7 million, respectively. Marketing and advertising costs for the nine months ended March 31, 2022 and March 31, 2021 were $2.2 million and $2.2 million, respectively.

 

Other Comprehensive Income (Loss)

 

Foreign Currency Translation

 

We record foreign currency translation adjustments and transaction gains and losses in accordance with ASC 830-30, Foreign Currency Translation. The accounts of Gourmet Foods use the New Zealand dollar as the functional currency. The accounts of Brigadier Security Systems use the Canadian dollar as the functional currency. Assets and liabilities are translated at the exchange rate on the balance sheet date, and operating results are translated at the weighted average exchange rate throughout the period. Foreign currency transaction gains and (losses) can also occur if a transaction is settled in a currency other than the entity's functional currency. Accumulated currency translation gains and (losses) are classified as an item of accumulated other comprehensive income (loss) in the stockholders’ equity section of the Condensed Consolidated Balance Sheets.

 

Segment Reporting

 

The Company defines operating segments as components for which separate financial information is available that is evaluated regularly by the Chief Operating Decision Maker in deciding how to allocate resources and in assessing performances. The Company allocates its resources and assesses the performance of its sales activities based on these segments (Refer to Note 16 of the Condensed Consolidated Financial Statements).

 

Business Combinations

 

We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired users, acquired trade names from a market participant perspective, useful lives and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed. For the nine months ended March 31, 2022 and March 31, 2021 a determination was made that no adjustments were necessary.

 

Recent Accounting Pronouncements

 

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Board Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and also issued subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-10, and ASU 2019-11, which replace the existing incurred loss impairment model with an expected credit loss model and require a financial asset measured at amortized cost to be presented at the net amount expected to be collected. The new guidance will be effective for annual reporting periods beginning after December 15, 2022 (as amended by ASU 2019-10), including interim periods within that annual period. The Company anticipates the adoption of the standard will lead to changes in disclosures as well as insignificant changes related to the period of recognition of losses on its receivables. 

 

16

 

In August 2020, the FASB issued ASU No. 2020-06, DebtDebt with Conversion and Other Options (Subtopic 470-20) and Derivatives and HedgingContracts in Entitys Own Equity (Subtopic 815-40). The amendment is meant to simplify the accounting for convertible instruments by removing certain separation models in subtopic 470-20 for convertible instruments. The amendment also changed the method used to calculate diluted earnings per share ("EPS") for convertible instruments and for instruments that may be settled in cash. The amendment is effective for years beginning after December 15, 2023, including interim periods for those fiscal years. Early adoption is permitted for periods beginning after December 15, 2020, including interim periods within those fiscal years. The Company anticipates the adoption of the standard will not have a material impact on its condensed consolidated financial statements and related disclosures given its current and anticipated operations.

 

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, which aims to provide increased transparency by requiring business entities to disclose information about certain types of government assistance they receive in the notes to the annual financial statements. The guidance will become effective for annual reporting periods beginning after December 15, 2021, including interim periods within those fiscal years. The Company anticipates the adoption of the standard will not have a material impact on its condensed consolidated financial statements and related disclosures given its current and anticipated operations. 

 

 

 

NOTE 3.

BASIC AND DILUTED NET INCOME (LOSS) PER SHARE

 

Basic net income (loss) per share is based upon the weighted average number of common shares outstanding. This calculation also includes the weighted average number of Series B Convertible Preferred shares outstanding as they are deemed to be substantially similar to the common shares and shareholders are entitled to the same liquidation and dividend rights. Diluted net income (loss) 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. The Underwriter’s Warrants, as defined in Note 12, may be exercised at $2.40 per share beginning on September 14, 2022, which is the date that is 180 days after the commencement of sales of the common stock issued in connection with public offering, and expire on March 14, 2027, which is five years from their initial issuance date. The Company does not have any other outstanding options or exercisable warrants or other dilutive financial instruments as of March 31, 2022 and 2021. As of March 31, 2022, the exercise price of the warrants exceeded the closing price of the Company's stock, and not dilutive, as such, basic and diluted earnings per share are the same. 

 

On August 25, 2021 the Company adopted the 2021 Omnibus Equity Incentive Plan (the "Plan") and had not issued any awards under the Plan as of March 31, 2022. The Company has also authorized a reverse stock split of its Common Stock by a ratio of not less than 1-for-1.5 and not more than 1-for-2.75 (the “Reverse Stock Split”) at any time prior to the one year anniversary of filing of a definitive Information Statement on Schedule 14C with the Board of Directors (the "Board") having the discretion as to whether or not the Reverse Stock Split is to be effected, and with the exact ratio of any Reverse Stock Split to be set within the above range as determined by the Board in its discretion.

 

Basic and diluted net income per share reflects the effects of shares actually potentially issuable upon conversion of convertible preferred stock.

 

The components of basic and diluted earnings per share were as follows: 

 

   

For the Three Months Ended March 31, 2022

 
   

Net Income

   

Shares

   

Per Share

 

Basic income per share:

                       

Net income available to common shareholders

  $ 848,013       37,844,376     $ 0.02  

Net income available to preferred shareholders

    22,121       987,200     $ 0.02  

Basic and diluted income per share

  $ 870,134       38,831,576     $ 0.02  

 

   

For the Three Months Ended March 31, 2021

 
   

Net Income

   

Shares

   

Per Share

 

Basic income per share:

                       

Net income available to common shareholders

  $ 1,541,724       37,474,535     $ 0.04  

Net income available to preferred shareholders

    41,084       998,624     $ 0.04  

Basic and diluted income per share

  $ 1,582,808       38,473,159     $ 0.04  

 

   

For the Nine Months Ended March 31, 2022

 
   

Net Income

   

Shares

   

Per Share

 

Basic income per share:

                       

Net income available to common shareholders

  $ 12,157       37,574,336     $ 0.00  

Net income available to preferred shareholders

    319       987,200     $ 0.00  

Basic and diluted income per share

  $ 12,476       38,561,536     $ 0.00  

 

17

 
   

For the Nine Months Ended March 31, 2021

 
   

Net Income

   

Shares

   

Per Share

 

Basic income per share:

                       

Net income available to common shareholders

  $ 5,014,672       37,432,889     $ 0.13  

Net income available to preferred shareholders

    139,359       1,040,270     $ 0.13  

Basic and diluted income per share

  $ 5,154,031       38,473,159     $ 0.13  

 

 

 

NOTE 4.

INVENTORIES

 

Inventories for Gourmet Foods, Brigadier and Original Sprout consisted of the following totals as of March 31, 2022 and June 30, 2021:

 

   

March 31,

   

June 30,

 
   

2022

   

2021

 

Raw materials

  $ 1,212,699     $ 942,911  

Supplies and packing materials

    207,841       193,322  

Finished goods

    867,559       815,559  

Total inventories

  $ 2,288,099     $ 1,951,792  

 

 

 

NOTE 5.

PROPERTY, PLANT AND EQUIPMENT

 

Property, plant and equipment consisted of the following as of March 31, 2022 and June 30, 2021:

 

   

March 31,

   

June 30,

 
   

2022

   

2021

 

Plant and equipment(1)

  $ 2,277,545     $ 2,147,617  

Furniture and office equipment

    248,180       246,697  

Vehicles

    425,396       613,891  

Land and building

    608,721       412,681  

Total property, plant and equipment

    3,559,842       3,420,886  

Accumulated depreciation (2)

    (2,000,690 )     (1,847,441 )

Total property and equipment, net

  $ 1,559,152     $ 1,573,445  

(1) Included with plant and equipment as of March 31, 2022 are the underlying assets of the solar energy finance lease stated at present value as of the date of acquisition by Gourmet Foods totaling $153,807. 

(2) Included with accumulated depreciation is the amortization of the underlying assets of the solar energy finance lease at Gourmet Foods, which totaled $4,214 as of March 31, 2022.

 

For the three and nine months ended March 31, 2022 depreciation expense for property, plant and equipment totaled $59,145 and $187,978, respectively, as compared to $96,663 and $268,535 for the three and nine months ended March 31, 2021.

 

 

 

NOTE 6.

INTANGIBLE ASSETS

 

Intangible assets consisted of the following as of March 31, 2022 and June 30, 2021:

 

   

March 31,

   

June 30,

 
   

2022

   

2021

 

Customer relationships

  $ 777,375     $ 777,375  

Brand name

    1,199,964       1,199,965  

Domain name

    36,913       36,913  

Recipes

    1,221,601       1,221,601  

Non-compete agreement

    274,982       274,982  

Internally developed software

    217,990       217,990  

Total

    3,728,825       3,728,826  

Less : accumulated amortization

    (1,623,772 )     (1,387,023 )

Net intangibles

  $ 2,105,053     $ 2,341,803  

 

18

 

CUSTOMER RELATIONSHIPS

 

On August 11, 2015, the Company acquired Gourmet Foods, Ltd. The fair value on the acquired customer relationships was estimated to be $66,153 and is amortized over the remaining useful life of 10 years. On June 2, 2016, the Company acquired Brigadier. The fair value on the acquired customer relationships was estimated to be $434,099 and is amortized over the remaining useful life of 10 years. On December 18, 2017, the Company’s wholly owned subsidiary, Kahnalytics, Inc., acquired the assets of Original Sprout LLC. The fair value of the acquired customer relationships was determined to be $200,000 and is amortized over the remaining useful life of 7 years. On July 1, 2020, our wholly owned subsidiary, Gourmet Foods, Ltd., acquired Printstock Products Limited. The fair value of the acquired customer relationships was estimated to be $77,123 and is amortized over a useful life of 9 years.

 

   

March 31,

   

June 30,

 
   

2022

   

2021

 

Customer relationships

  $ 777,375     $ 777,375  

Less: accumulated amortization

    (434,906 )     (369,471 )

Total customer relationships, net

  $ 342,469     $ 407,904  

 

BRAND NAME

 

On August 11, 2015, the Company acquired Gourmet Foods, Ltd. The fair value on the acquired brand name was estimated to be $61,429 and is amortized over the remaining useful life of 10 years. On June 2, 2016, the Company acquired Brigadier. The fair value on the acquired brand name was estimated to be $340,694 and is amortized over the remaining useful life of 10 years. On December 18, 2017, the Company’s wholly owned subsidiary, Kahnalytics, Inc., acquired the assets of Original Sprout LLC. The fair value of the acquired brand name was determined to be $740,000 and is considered to have an indefinite life. Unlike the brand names Gourmet Foods and Brigadier Security Systems, Original Sprout is an actual product name and recognized associated brand that is identifiable to consumers of the product and is the basis of the value proposition. That brand name will forever be associated with the product offering unless and until such time in the future as the Company may elect to discontinue the use of the brand and move towards establishment of an alternative product offering. On July 1, 2020, our wholly owned subsidiary, Gourmet Foods, Ltd., acquired Printstock Products Limited. The fair value of the brand name was determined to be $57,842 and, like that of Original Sprout, would continue to stay in use for an indefinite period of time. Therefore, the Company will test for impairment of the brand names "Original Sprout" and "Printstock" at each reporting interval with no amortization recognized. 

 

   

March 31,

   

June 30,

 
   

2022

   

2021

 

Brand name

  $ 1,199,964     $ 1,199,965  

Less: accumulated amortization

    (239,805 )     (209,620 )

Total brand name, net

  $ 960,159     $ 990,345  

 

DOMAIN NAME

 

On August 11, 2015, the Company acquired Gourmet Foods, Ltd. The fair value on the acquired domain name was estimated to be $21,601 and is amortized over the remaining useful life of 5 years. On June 2, 2016, the Company acquired Brigadier. The fair value on the acquired domain name was estimated to be $15,312 and is amortized over the remaining useful life of 5 years. As of March 31, 2022, the fair value of the acquired domain names had been fully amortized.

 

   

March 31,

   

June 30,

 
   

2022

   

2021

 

Domain name

  $ 36,913     $ 36,913  

Less: accumulated amortization

    (36,913 )     (36,913 )

Total brand name, net

  $ -     $ -  

 

RECIPES AND FORMULAS

 

On August 11, 2015, the Company acquired Gourmet Foods, Ltd. The fair value on the recipes was estimated to be $21,601 and is amortized over the remaining useful life of 5 years. On December 18, 2017 the Company’s wholly owned subsidiary, Kahnalytics, Inc., acquired the assets of Original Sprout LLC. The fair value of the acquired recipes and formulas was determined to be $1,200,000 and is amortized over the remaining useful life of 8 years.

 

   

March 31,

   

June 30,

 
   

2022

   

2021

 

Recipes and formulas

  $ 1,221,601     $ 1,221,601  

Less: accumulated amortization

    (664,339 )     (551,737 )

Total recipes and formulas, net

  $ 557,262     $ 669,864  

 

19

 

NON-COMPETE AGREEMENT

 

On June 2, 2016, the Company acquired Brigadier. The fair value on the acquired non-compete agreement was estimated to be $84,982 and is amortized over the remaining useful life of 5 years. On December 18, 2017 the Company’s wholly owned subsidiary, Kahnalytics, Inc., acquired the assets of Original Sprout LLC. The fair value of the acquired non-compete agreement was determined to be $190,000 and is amortized over the remaining useful life of 5 years.

 

   

March 31,

   

June 30,

 
   

2022

   

2021

 

Non-compete agreement

  $ 274,982     $ 274,982  

Less: accumulated amortization

    (247,809 )     (219,282 )

Total non-compete agreement, net

  $ 27,173     $ 55,700  

 

INTERNAL USE SOFTWARE

 

During the quarter ended December 31, 2020, Marygold began incurring expenses in connection with the internal development of software applications that are planned for eventual integration to its consumer Fintech offering. Certain of these expenses, totaling $217,990 as of March 31, 2022, have been capitalized as intangible assets. Once development has been completed and the product is commercially available, these capitalized costs will be amortized over their useful lives. As of March 31, 2022, no amortization expense has been recorded for these intangible assets.

 

AMORTIZATION EXPENSE

 

The total amortization expense for intangible assets for the three and nine months ended March 31, 2022 was $77,764 and $236,750, respectively. The total amortization expense for intangible assets for the three and nine months ended March 31, 2021 was $81,956 and $253,049, respectively.

 

Estimated remaining amortization expenses of intangible assets for the next five fiscal years, are as follows:

 

Years Ending June 30,

 

Expense

 

2022

  $ 78,628  

2023

    295,078  

2024

    277,378  

2025

    262,114  

2026

    150,347  

Thereafter

    1,041,508  

Total

  $ 2,105,053  

 

 

 

NOTE 7.

OTHER ASSETS

 

Other Current Assets

 

Other current assets totaling $948,369 as of March 31, 2022 and $399,524 as of June 30, 2021 are comprised of various components as listed below.

 

   

As of March 31, 2022

   

As of June 30, 2021

 

Deposits and prepaid expenses

  $ 779,752     $ 373,381  

Other current assets

    168,617       26,143  

Total

  $ 948,369     $ 399,524  

 

Investments

 

USCF Investments, from time to time, provides initial investment in the creation of ETF and ETP funds that USCF manages. 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 in accordance with ASC 825, Financial Instruments, with the change included in earnings on the Condensed Consolidated Statements of Income. Investments in which no controlling financial interest exists, but significant influence exists are recorded per the equity method of investment accounting. As of March 31, 2022 and June 30, 2021, there were no investments in its ETF and ETP funds or investments requiring equity method investment accounting. The Company also invests in marketable securities. As of March 31, 2022 and June 30, 2021, such investments were approximately $2.9 million and $1.8 million, respectively. Of these amounts, $1.4 million and $0 were invested in the USCF Gold Strategy Plus Income Fund ("GLDX"), a related party managed by USCF Advisers, as of March 31, 2022 and June 30, 2021, respectively. The Company owns approximately 40% and 0% of the outstanding shares of this investment as of March 31, 2022 and June 30, 2021, respectively, which are included in "other equities" in the tables below.

 

20

 

Investments measured at estimated fair value consist of the following as of March 31, 2022 and June 30, 2021:

 

   

March 31, 2022

 
   

Cost

   

Gross Unrealized Gains

   

Gross Unrealized Losses

   

Estimated Fair Value

 

Money market funds

  $ 1,299,393     $ 5,378     $ -     $ 1,304,771  

Other short term investments

    270,413       -       (583 )     269,830  

Other equities

    1,246,926       119,403       -       1,366,329  

Total short-term investments

  $ 2,816,732     $ 124,781     $ (583 )   $ 2,940,930  

 

   

June 30, 2021

 
   

Cost

   

Gross Unrealized Gains

   

Gross Unrealized Losses

   

Estimated Fair Value

 

Money market funds

  $ 1,044,748     $ 5,378     $ -     $ 1,050,126  

Other short term investments

    772,981       4,568       -       777,549  

Other equities

    1,421       -       (170 )     1,251  

Total short-term investments

  $ 1,819,150     $ 9,946     $ (170 )   $ 1,828,926  

 

 

All of the Company's short-term investments are Level 1 as of March 31, 2022 and June 30, 2021. During the nine months ended March 31, 2022 and March 31, 2021, there were no transfers between Level 1 and Level 2.

 

Restricted Cash

 

At March 31, 2022 and  June 30, 2021, Gourmet Foods had on deposit NZ$20,000 (approximately US$13,913 and US$13,989, respectively, after currency translation) securing a lease bond for one of its properties. The cash securing the bond is restricted from access or withdrawal so long as the bond remains in place.

 

Long Term Assets

 

Other long-term assets totaling $540,160 as of March 31, 2022 and $540,160 at June 30, 2021 consisted of:

 

 

(i)

$500,000 as of March 31, 2022 and  June 30, 2021 representing 10% equity investment in a registered investment adviser accounted for on a cost basis, minus impairment, which we believe approximates fair value, given the lack of observable price changes in orderly transactions. There was no impairment recorded for the nine months ended March 31, 2022 or the year ended June 30, 2021;

 

(ii)

$40,160 as of March 31, 2022 and at June 30, 2021 representing lease deposits and prepayments.

 

 

 

NOTE 8.

GOODWILL

 

Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in business combinations.

 

Goodwill is comprised of the following amounts as of March 31, 2022 and June 30, 2021:

 

   

March 31,

   

June 30,

 
   

2022

   

2021

 
                 

Goodwill – Original Sprout

  $ 416,817     $ 416,817  

Goodwill – Gourmet Foods

    275,311       275,311  

Goodwill – Brigadier

    351,345       351,345  

Total

  $ 1,043,473     $ 1,043,473  

 

The Company tests for goodwill impairment at each reporting unit. There was no goodwill impairment for the nine months ended March 31, 2022 or 2021.  

 

21

 

 

NOTE 9.

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

Accounts payable and accrued expenses consisted of the following as of March 31, 2022 and June 30, 2021:

 

   

March 31,

   

June 30,

 
   

2022

   

2021

 

Accounts payable

  $ 2,030,984     $ 1,672,647  

Accrued interest

    147,822       129,596  

Taxes payable

    360,821       238,020  

Accrued payroll, vacation and bonus payable

    266,906       1,049,359  

Accrued expenses

    67,753       773,252  

Total

  $ 2,874,286     $ 3,862,874  

 

 

 

NOTE 10.

RELATED PARTY TRANSACTIONS

 

Notes Payable - Related Parties

 

Current related party notes payable consisted of the following as of March 31, 2022 and June 30, 2021:

 

   

March 31,

   

June 30,

 
   

2022

   

2021

 
                 

Notes payable to shareholder, interest rate of 8%, unsecured and payable on December 31, 2012 (past due)

  $ 3,500     $ 3,500  

Notes payable to shareholder, interest rate of 4%, unsecured and payable on May 25, 2022

    250,000       250,000  

Notes payable to shareholder, interest rate of 4%, unsecured and payable on April 8, 2022

    350,000       350,000  
    $ 603,500     $ 603,500  

 

Interest expense for all related party notes for the three and nine months ended March 31, 2022 was $5,987 and $18,226, respectively, as compared to $5,987 and $18,227 for the three and nine months ended March 31, 2021, respectively. Total accrued interest due to related parties was $147,822 and $129,596 as of March 31, 2022 and June 30, 2021, respectively.

 

USCF Investments - Related Party Transactions

 

The Funds managed by USCF and USCF Advisers are deemed by management to be related parties. The Company’s USCF Investments revenues, totaling $5.9 million and $6.0 million for the three month periods ended March 31, 2022 and 2021, respectively, and $17.2 million and $19.2 million for the nine month periods ended March 31, 2022 and 2021, respectively, were earned from these related parties. Accounts receivable, totaling $2.3 million and $2.0 million as of March 31, 2022 and June 30, 2021, respectively, were owed from the Funds that are related parties. Fund expense waivers, totaling $18 thousand and $239 thousand for the three month periods ended March 31, 2022 and March 31, 2021, respectively, were incurred on behalf of these related parties. Fund expense waivers, totaling $77 thousand and $792 thousand for the nine month periods ended March 31, 2022 and March 31, 2021, respectively, were incurred on behalf of these related parties. Waivers payable, totaling $18 thousand and $70 thousand as of March 31, 2022 and June 30, 2021, respectively, were owed to these related parties. Fund expense waivers and fund expense limitation obligations are defined under Note 15 to the Condensed Consolidated Financial Statements. USCF Investments, from time to time, provides initial investments in the creation of ETP and ETF funds that USCF manages. Such investments included GLDX, a related party fund managed by USCF Advisers, and as of March 31, 2022 and June 30, 2021, the investment total was $1.4 million and $0, respectively. The Company owns approximately 40% and 0% of the outstanding shares of this investment as of March 31, 2022 and June 30, 2021, respectively, which are included in "other equities" in the tables below.

 

 

NOTE 11.

LOANS - PROPERTY AND EQUIPMENT

 

As of March 31, 2022, Brigadier had an outstanding principal balance of $380,414 due to Bank of Montreal related to the purchase of its Saskatoon office land and building. The Condensed Consolidated Balance Sheets as of March 31, 2022 and June 30, 2021 reflect the amount of the principal balance, as of March 31, 2022, which is due within twelve months as a current liability of $15,438 and a long-term liability of $364,976. Interest expense on the mortgage loan for the three months ended March 31, 2022 and March 31, 2021 was $3,865 and $4,001, respectively. Interest expense on the mortgage loan for the nine months ended March 31, 2022 and March 31, 2021 was $11,884 and $11,981 respectively. Also included as of March 31, 2022, are the short and long-term finance lease liabilities related to our subsidiary Gourmet  Foods of $20,459 and $126,444, respectively. There were no finance lease liabilities as of June 30, 2021 (refer to Note 15, Lease Commitments).

 

22

 

 

NOTE 12.

STOCKHOLDERS' EQUITY

 

Common Stock Issued in Underwritten Offering

 

On March 9, 2022, the Company entered into an underwriting agreement (the “Underwriting Agreement”) between the Company and Maxim Group LLC (the “Underwriter”), relating to the Company’s upsized underwritten public offering (the “Offering”) of 1,650,000 shares (the “Shares”) of the Company’s common stock, par value $0.001 per share (the “Common Stock”). The Offering was made pursuant to the Company’s registration statement on Form S-1 (File No. 333-261522), previously filed with Securities Exchange Commission (SEC) and subsequently declared effective by the SEC on March 9, 2022.

 

Pursuant to the Underwriting Agreement, the public offering price was $2.00 per Share (the "Offering Price"), and the Underwriter purchased the Shares at a 7.0% discount to the public Offering Price. The Company granted the Underwriter the option to purchase, within 45 days from the date of the Underwriting Agreement, an additional 247,500 shares of Common Stock at the same price per share as the Shares (the “Over-Allotment Option”), which the Underwriter exercised in full on March 11, 2022. Maxim Group LLC acted as sole book-running manager for the Offering.

 

The Underwriting Agreement includes customary representations, warranties and agreements by the Company, customary conditions to closing, indemnification obligations of the Company and the Underwriter, including liabilities under the Securities Act of 1933, as amended, other obligations of the parties and termination provisions. In addition, pursuant to the terms of the Underwriting Agreement and related “lock-up” agreements, the Company, each director and executive officer of the Company and certain significant stockholders of the Company have agreed not to sell, transfer or otherwise dispose of securities of the Company, without the prior written consent of the Underwriter, for a 180-day period, subject to certain limitations therein.

 

In exchange for the Underwriter’s services, the Company agreed to (i) sell the Common Stock to the Underwriter at a purchase price of $1.86 per share of Common Stock, reflecting the underwriting discount of 7%, and (ii) issue the Underwriter (or its designees) the Warrants to purchase shares of Common Stock equal to 5.0% of the aggregate number of shares of Common Stock sold in the Offering, along with associated registration rights (the “Underwriter’s Warrants”).

 

On March 14, 2022, the Offering closed resulting in the Company selling a total of 1,897,500 shares of common stock, including 247,500 shares sold pursuant to the full exercise of the underwriter’s over-allotment option. Gross proceeds from the offering were approximately $3,795,000 before underwriting discounts and other estimated offering expenses which totaled $265,650 and $545,090, respectively.

 

The Underwriting Agreement is included as an exhibit to a Current Report on Form 8-K filed on March 15, 2022 (included by reference herein) to provide investors and security holders with information regarding its terms. The representations, warranties and covenants contained in the Underwriting Agreement were made only for purposes of such agreement and as of specific dates, were solely for the benefit of the parties to such agreement and may be subject to limitations agreed upon by the contracting parties. There has been no material change in the planned use of proceeds as described in our final prospectus filed with the SEC on March 9, 2022 pursuant to Rule 424(b)(4).

 

Warrants to Purchase Common Stock

 

On March 14, 2022, pursuant to the Underwriting Agreement, the Company issued the Underwriter’s Warrants to purchase up to an aggregate of 82,500 shares of Common Stock as compensation for their services. The Underwriter’s Warrants may be exercised beginning on September 14, 2022, until March 14, 2027. The initial exercise price of each Warrant is $2.40 per share, which represents 120% of the Offering Price. The total fair value of the warrants granted to the Underwriter was $132,000. The Company estimated the fair value of the warrants using the Black-Scholes option pricing model using the following assumptions: Risk-free interest rate of 2.10%, expected life of 5 years, dividend yield of 0% and volatility of 117%.

 

Convertible Preferred Stock

 

Each issued Series B Voting, Convertible Preferred Stock is convertible into 20 shares of common stock and carries a vote of 20 shares of common stock in all matters brought before the shareholders for a vote. There are 49,360 shares of Series B Convertible Preferred Stock outstanding as of March 31, 2022 and June 30, 2021 which, when converted, represent 987,200 shares of common stock.  

 

23

 

 

NOTE 13.

BUSINESS COMBINATIONS

 

On March 11, 2020 our wholly owned subsidiary Gourmet Foods, Ltd. entered into a Stock Purchase Agreement to acquire all the issued and outstanding shares of Printstock, a New Zealand private company located in Napier, New Zealand. Printstock is a printer of wrappers distributed to food manufacturers primarily within New Zealand and limited export to Australia. The company will be operated as a subsidiary of Gourmet Foods and is expected to incrementally reduce the cost of goods sold through reduction in the cost of wrappers purchased by Gourmet Foods by elimination of inter-company profit while increasing overall revenues and profits to Gourmet Foods on a consolidated basis through inclusion of Printstock operations. The purchase price was agreed to be NZ$1.9 million subject to adjustment within 90 days of the closing date. The transaction closed on July 1, 2020 with a payment of NZ$1.5M and an estimated final payment due of NZ$420,552 on September 30, 2020. Included in the below purchase price allocation are estimated deferred income tax liabilities of US$68,061 pertaining to the increase in the value of fixed assets above their book value and the acquired intangible assets. The amounts have been translated to US currency as of the acquisition date, July 1, 2020.

 

Item

 

Amount

 

Cash in bank

  $ 118,774  

Accounts receivable

    384,222  

Prepayments/deposits

    1,372  

Inventories

    509,796  

Operating lease right-of-use asset

    201,699  

Property and equipment

    401,681  

Intangible assets

    134,965  

Goodwill

    127,683  

Deferred tax liability

    (68,061 )

Assumed lease liabilities

    (201,699 )

Accounts payable and accrued expenses

    (376,112 )

Total Purchase Price

  $ 1,234,320  

 

On August 13, 2021, Marygold UK entered into a Share Purchase Agreement that, when consummated, would result in the acquisition of all the outstanding and issued shares of Tiger Financial and Asset Management Limited, a U.K. limited company, ("Tiger") in exchange for GBP 1,500,000 (approximately US$2,100,000) plus acquired cash-on-hand at the time of closing. Marygold UK will pay the purchase price in 3 approximately equal payments commencing at closing and at each annual anniversary date. Funding for the purchase price will be provided through a loan facility granted by The Marygold Companies. The Company plans to expand its Marygold Fintech services offering into the U.K. market provided a successful launch in the U.S. is realized. Tiger is an established and certified investment advisor in the U.K., and will be able to more easily offer such services as Marygold's to its clientele and other U.K. residents thus greatly reducing the cost and time to market for Marygold. As of May 13, 2022, the transaction remains subject to completion of the required closing conditions.

 

 

 

NOTE 14.

INCOME TAXES

 

The Company accounts for income taxes under the asset and liability method, which recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the tax bases of assets and liabilities and their financial statement reported amounts, and for net operating losses and tax credit carryforwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company records a valuation allowance against deferred tax assets when it is more likely than not that such asset will not be realized. The Company continues to monitor the likelihood that it will be able to recover its deferred tax assets. If recovery is not likely, the Company must increase its provision for income taxes by recording a valuation allowance against the deferred tax assets.

 

The Company accounts for uncertain tax positions in accordance with the authoritative guidance on income taxes under which the Company may only recognize or continue to recognize tax positions that meet a "more likely than not" threshold. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes.

 

As of March 31, 2022, the Company's total unrecognized tax benefits were approximately $0.3 million, which would affect the effective tax rate if recognized. The Company will recognize interest and penalties, when they occur, related to uncertain tax positions as a component of tax expense. There is no interest or penalties to be recognized for the three and nine months ended March 31, 2022 and March 31, 2021.

 

24

 

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 Company recorded tax expense of $421 thousand and $744 thousand for the three and nine months ended March 31, 2022, respectively, as compared to tax expense of $481 thousand and $1.7 million for the three and nine months ended March 31, 2021, respectively. The effective tax rate could fluctuate in the future due to changes in the taxable income mix between various jurisdictions.

 

The Company is subject to income taxes in the U.S. federal, various states, Canada and New Zealand tax jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. The Company’s U.S. tax years 2017 through 2020 will remain open for examination by the federal and state authorities which is three and four years, respectively. The Company’s tax years from 2017 through 2020 remain open for examination by Canada and New Zealand authorities. As of March 31, 2022, there were no active taxing authority examinations.  

 

 

 

NOTE 15.

COMMITMENTS AND CONTINGENCIES

 

Lease Commitments

 

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use assets, accrued expenses, and long-term operating lease liabilities in the Condensed Consolidated Balance Sheets. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement date. The operating lease right-of-use assets also include any lease payments made at or before the commencement date and are reduced by any lease incentives received. The Company’s lease terms may include options to extend or not terminate the lease when it is reasonably certain that it will exercise any such options. For the majority of its leases, the Company concluded that it is not reasonably certain that any renewal options would be exercised, and, therefore, the amounts are not recognized as part of operating lease right-of-use assets nor operating lease liabilities. Leases with an initial term of 12 months or less, and certain office equipment leases which are deemed insignificant, are not recorded on the balance sheet and expensed as incurred and included within rent expense under general and administrative expense. Lease expense is recognized on a straight-line basis over the expected lease term.

 

The Company’s most significant operating leases are real estate leases of office, warehouse and production facilities. The remaining operating leases are primarily comprised of leases of printers and other equipment which are deemed insignificant. For all operating leases, the Company has elected the practical expedient permitted under Topic 842 to combine lease and non-lease components. As a result, non-lease components, such as common area or equipment maintenance charges, are accounted for as a single lease element.

 

The Company has one finance lease wherein ownership of the underlying asset will be transferred to the Company at the end of the lease term. The underlying asset of the finance lease is a solar energy system at our Gourmet Foods subsidiary in New Zealand that is included with property, plant and equipment on the Condensed Consolidated Balance Sheets.

 

Fixed lease expense payments are recognized on a straight-line basis over the lease term. Variable lease payments vary because of changes in facts or circumstances occurring after the commencement date, other than the passage of time. Certain of the Company’s operating lease agreements include variable payments that are passed through by the landlord, such as insurance, taxes, and common area maintenance. Variable payments are deemed immaterial, expensed as incurred, and included within rent expense under general and administrative expense.

 

The Company leases various facilities and offices throughout the world including the following subsidiary locations:

 

Gourmet Foods has operating leases for its office, factory and warehouse facilities located in Tauranga, New Zealand, and facilities leased by its subsidiary, Printstock, in Napier, New Zealand, as well as for certain equipment including printers and copiers. These leases are generally for three-year terms, with some options to renew for an additional term. The leases mature between October 2022 and October 2026, and require monthly rental payments of approximately $23,964 (GST not included) translated to U.S. currency as of March 31, 2022. Additionally, Gourmet Foods has one finance lease for its solar energy system that ends in December 2031 at the monthly rate (GST not included) of approximately $1,586 translated as of March 31, 2022. Brigadier leases office and storage facilities in Regina, Saskatchewan. The minimum lease obligations for the Regina facility require monthly payments of approximately $2,636 translated to U.S. currency as of March 31, 2022. Original Sprout currently leases office and warehouse space in San Clemente, CA with 3-year facility lease expiring on November 30, 2023. Minimum monthly lease payments of approximately $22,750 commenced December 1, 2021 with annual increases. USCF Investments leases office space in Walnut Creek, California under an operating lease which expires in December 2024. Minimum monthly lease payments are approximately $13,063 with increases annually.

 

25

 

For the three month periods ended March 31, 2022 and March 31, 2021, the combined lease payments of the Company and its subsidiaries totaled $204,816 and $201,801, respectively. For the nine month periods ended March 31, 2022 and March 31, 2021, the combined lease payments of the Company and its subsidiaries totaled $616,075 and $549,654, respectively. Lease payments are recorded under general and administrative expense in the Condensed Consolidated Statements of Income. As of March 31, 2022 the Condensed Consolidated Balance Sheets included operating lease right-of-use assets totaling $1,562,908, recorded net of $52,669 in deferred rent, and $1,615,578 in total operating lease liabilities. Accounting for the increase in the right-of-use assets as of March 31, 2022 compared to June 30, 2021 were the renewal of operating leases at our Gourmet Foods and Printstock facilities in New Zealand. The underlying assets of the finance lease, totaling $149,593 net of depreciation, are included in property, plant and equipment while the lease liability of $146,903 is included in long-term and short-term loans-property and equipment, net of GST payments which are expensed as incurred, on the Condensed Consolidated Balance Sheets as of March 31, 2022. There was no finance lease at June 30, 2021. The assets of the solar lease are amortized on a straight-line basis over the 10 year term of the lease. Amortization of the leased assets totaled $3,723 and $4,167 for the three and nine months ended March 31, 2022, respectively, and is included in depreciation expense on the Condensed Consolidated Statements of Income, and is identified as a reduction in finance lease liabilities on the Condensed Consolidated Statements of Cash Flows. Interest expense for the finance lease totaled $346 and $387 for the three and nine months ended March 31, 2022, respectively, and is included in interest expense on the Condensed Consolidated Statements of Income. 

 

Future minimum consolidated lease payments for the Company and its subsidiaries are as follows:

 

Year Ended June 30,

 

Operating Leases

   

Finance Lease

 

2022

  $ 188,772     $ 5,472  

2023

    742,759       21,889  

2024

    484,975       21,889  

2025

    184,226       21,889  

2026

    169,732       21,889  

Thereafter

    70,722       118,563  

Total minimum lease payments

    1,841,186       211,589  

Less: present value discount

    (225,608 )     (64,686 )

Total lease liabilities

  $ 1,615,578     $ 146,903  

 

The weighted average remaining lease term for the Company's operating leases was 3.1 years as of March 31, 2022 and a weighted-average discount rate of 5.5% was used to determine the total operating lease liabilities. The remaining lease term for the Company’s finance lease was 116 months with a discount rate of 6.99%. Finance lease right-of-use assets are combined with those of property, plant and equipment with lease liabilities included in long-term and short-term loans-property and equipment on the Condensed Consolidated Balance Sheets. 

 

Additionally, Gourmet Foods, Ltd. entered into a General Security Agreement in favor of the Gerald O’Leary Family Trust and registered on the Personal Property Securities Register for a priority sum of NZ$110,000 (approximately US$76,524) to secure the lease of its primary facility. In addition, a NZ$20,000 (approximately US$13,913) bond has been posted through ANZ Bank and secured with a cash deposit of equal amount to secure a separate facilities lease. The General Security Agreement and the cash deposit will remain until such time as the respective leases are satisfactorily terminated in accordance with their terms. Interest from the cash deposit securing the lease accumulates to the benefit of Gourmet Foods, Ltd. and is listed as a component of interest income/expense on the accompanying Condensed Consolidated Statements of Income.

 

Other Agreements and Commitments

 

USCF manages four Funds (BNO, CPER, UGA, UNL) which had expense waiver provisions during the prior fiscal year, whereby USCF reimburses funds when fund expenditure levels exceed certain threshold amounts. Effective May 1, 2021 USCF discontinued expense waiver reimbursements for BNO, CPER and UGA with only UNL continuing. As of March 31, 2022 and June 30, 2021 the expense waiver payable was $18 thousand and $70 thousand, respectively. USCF has no obligation to continue such payments for UNL into subsequent periods.

 

As Marygold builds out its application it enters into agreements with various service providers. As of March 31, 2022, Marygold has future payment commitments with its primary service vendors totaling $357,000 including approximately $287,000 due in 2022 and $70,000 due in 2023. 

 

Litigation 

 

From time to time, the Company and its subsidiaries may be involved in legal proceedings arising primarily from the ordinary course of their respective businesses. Except as described below there are no pending legal proceedings against the Company. USCF, is an indirect wholly owned subsidiary of the Company.  USCF, as the general partner of 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, neither the Company or its subsidiaries are currently party to any material legal proceedings.

 

26

 

Optimum Strategies Action

 

On April 6, 2022, USO and USCF were named as defendants in an action filed by Optimum Strategies Fund I, LP, a purported investor in call option contracts on USO (the “Optimum Strategies Action”). The action is pending in the U.S. District Court for the District of Connecticut at Civil Action No. 3:22-cv-00511.

 

The Optimum Strategies Action asserts claims under the Securities Exchange Act of 1934, as amended (the “1934 Act”), Rule 10b-5 thereunder, and the Connecticut Uniform Securities Act. It purports to challenge statements in registration statements that became effective in February 2020, March 2020, and on April 20, 2020, as well as public statements between February 2020 and May 2020, in connection with 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 complaint seeks damages, interest, costs, attorney’s fees, and equitable relief.

 

USCF and USO intend to vigorously contest such claims.

 

Settlement of SEC and CFTC Investigations 

 

On November 8, 2021, one of The Marygold Companies, Inc.'s (the "Company") indirect subsidiaries, the United States Commodity Funds LLC (“USCF”), together with United States Oil Fund, LP (“USO”), for which USCF is the general partner, announced a resolution with each of the U.S. Securities and Exchange Commission (the “SEC”) and the U.S. Commodity Futures Trading Commission (the “CFTC”) relating to matters set forth in certain Wells Notices issued by the staffs of each of the SEC and CFTC, as detailed below.

 

On August 17, 2020, USCF, USO, and John Love received a “Wells Notice” from the staff of the SEC (the “SEC Wells Notice”). The SEC Wells Notice relates to USO's disclosures in late April 2020 and early May 2020 regarding constraints imposed on USO's ability to invest in Oil Futures Contracts. The SEC Wells Notice states that the SEC staff has made a preliminary determination to recommend that the SEC file an enforcement action against USCF, USO, and Mr. Love alleging violations of Sections 17(a)(1) and 17(a)(3) of the 1933 Act and Section 10(b) of the 1934 Act and Rule 10b-5 thereunder, in each case with respect to its disclosures and USO’s actions.

 

Subsequently, on August 19, 2020, USCF, USO, and Mr. Love received a Wells Notice from the staff of the CFTC (the “CFTC Wells Notice”). The CFTC Wells Notice states that the CFTC staff has made a preliminary determination to recommend that the CFTC file an enforcement action against USCF, USO, and Mr. Love alleging violations of Sections 4o(1)(A) and (B) and 6(c)(1) of the CEA, 7 U.S.C. §§ 6o(1)(A), (B), 9(1) (2018), and CFTC Regulations 4.26, 4.41, and 180.1(a), 17 C.F.R. §§ 4.26, 4.41, 180.1(a) (2019), in each case with respect to its disclosures and USO’s actions.

 

On November 8, 2021, acting pursuant to an offer of settlement submitted by USCF and USO, the SEC issued an order instituting cease-and-desist proceedings, making findings, and imposing a cease-and-desist order pursuant to Section 8A of the 1933 Act, directing USCF and USO to cease and desist from committing or causing any violations of Section 17(a)(3) of the 1933 Act, 15 U.S.C. § 77q(a)(3) (the “SEC Order”). In the SEC Order, the SEC made findings that, from April 24, 2020 to May 21, 2020, USCF and USO violated Section 17(a)(3) of 1933 Act, which provides that it is “unlawful for any person in the offer or sale of any securities . . . to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser.” USCF and USO consented to entry of the SEC Order without admitting or denying the findings contained therein, except as to jurisdiction.

 

Separately, on November 8, 2021, acting pursuant to an offer of settlement submitted by USCF, the CFTC issued an order instituting cease-and-desist proceedings, making findings, and imposing a cease-and-desist order pursuant to Section 6(c) and (d) of the CEA, directing USCF to cease and desist from committing or causing any violations of Section 4o(1)(B) of the CEA, 7 U.S.C. § 6o(1)(B), and CFTC Regulation 4.41(a)(2), 17 C.F.R. § 4.41(a)(2) (the “CFTC Order”). In the CFTC Order, the CFTC made findings that, from on or about April 22, 2020 to June 12, 2020, USCF violated Section 4o(1)(B) of the CEA and CFTC Regulation 4.41(a)(2), which make it unlawful for any commodity pool operator (“CPO”) to engage in “any transaction, practice, or course of business which operates as a fraud or deceit upon any client or participant or prospective client or participant” and prohibit a CPO from advertising in a manner which “operates as a fraud or deceit upon any client or participant or prospective client or participant,” respectively. USCF consented to entry of the CFTC Order without admitting or denying the findings contained therein, except as to jurisdiction.

 

Pursuant to the SEC Order and the CFTC Order, in addition to the command to cease and desist from committing or causing any violations of Section 17(a)(3) of the 1933 Act, Section 4o(1)(B) of the CEA, and CFTC Regulation 4.14(a)(2), civil monetary penalties totaling two million five hundred thousand dollars ($2,500,000) in the aggregate were paid to the SEC and CFTC, of which one million two hundred fifty thousand dollars ($1,250,000) was paid by USCF to each of the SEC and the CFTC, respectively, pursuant to the offsets permitted under the orders. The SEC Order can be accessed at www.sec.gov and the CFTC Order can be accessed at www.cftc.gov.

 

In re: United States Oil Fund, LP Securities Litigation

 

On June 19, 2020, USCF, USO, John P. Love, and Stuart P. Crumbaugh were named as defendants in a putative class action filed by purported shareholder Robert Lucas (the “Lucas Class Action”).  The Court thereafter consolidated the Lucas Class Action with two related putative class actions filed on July 31, 2020 and August 13, 2020, and appointed a lead plaintiff.  The consolidated class action is pending in the U.S. District Court for the Southern District of New York under the caption In re: United States Oil Fund, LP Securities Litigation, Civil Action No. 1:20-cv-04740.

 

27

 

On November 30, 2020, the lead plaintiff filed an amended complaint (the “Amended Lucas Class Complaint”). The Amended Lucas Class Complaint asserts claims under the 1933 Act, the 1934 Act, and Rule 10b-5.  The Amended Lucas Class Complaint challenges statements in registration statements that became effective on February 25, 2020 and March 23, 2020 as well as subsequent public statements through April 2020 concerning certain extraordinary market conditions and the attendant risks that caused the demand for oil to fall precipitously, including the COVID-19 global pandemic and the Saudi Arabia-Russia oil price war.  The Amended Lucas Class Complaint purports to have been brought by an investor in USO on behalf of a class of similarly-situated shareholders who purchased USO securities between February 25, 2020 and April 28, 2020 and pursuant to the challenged registration statements.  The Amended Lucas Class Complaint seeks to certify a class and to award the class compensatory damages at an amount to be determined at trial as well as costs and attorney’s fees.  The Amended Lucas Class Complaint named as defendants USCF, USO, John P. Love, Stuart P. Crumbaugh, Nicholas D. Gerber, Andrew F Ngim, Robert L. Nguyen, Peter M. Robinson, Gordon L. Ellis, and Malcolm R. Fobes III, as well as the marketing agent, ALPS Distributors, Inc., and the Authorized Participants: ABN Amro, BNP Paribas Securities Corporation, Citadel Securities LLC, Citigroup Global Markets, Inc., Credit Suisse Securities USA LLC, Deutsche Bank Securities Inc., Goldman Sachs & Company, J.P. Morgan Securities Inc., Merrill Lynch Professional Clearing Corporation, Morgan Stanley & Company Inc., Nomura Securities International Inc., RBC Capital Markets LLC, SG Americas Securities LLC, UBS Securities LLC, and Virtu Financial BD LLC. 

 

The lead plaintiff has filed a notice of voluntary dismissal of its claims against BNP Paribas Securities Corporation, Citadel Securities LLC, Citigroup Global Markets Inc., Credit Suisse Securities USA LLC, Deutsche Bank Securities Inc., Morgan Stanley & Company, Inc., Nomura Securities International, Inc., RBC Capital Markets, LLC, SG Americas Securities LLC, and UBS Securities LLC. 

 

USCF, USO, and the individual defendants in In re: United States Oil Fund, LP Securities Litigation intend to vigorously contest such claims and has moved for their dismissal.

 

Mehan Action

 

On August 10, 2020, purported shareholder Darshan Mehan filed a derivative action on behalf of nominal defendant USO, against defendants USCF, John P. Love, Stuart P. Crumbaugh, Nicholas D. Gerber, Andrew F Ngim, Robert L. Nguyen, Peter M. Robinson, Gordon L. Ellis, and Malcolm R. Fobes, III (the “Mehan Action”). The action is pending in the Superior Court of the State of California for the County of Alameda as Case No. RG20070732.

 

The Mehan Action alleges that the defendants breached their fiduciary duties to USO and failed to act in good faith in connection with a March 19, 2020 registration statement and offering and disclosures regarding certain extraordinary market conditions that caused demand for oil to fall precipitously, including the COVID-19 global pandemic and the Saudi Arabia-Russia oil price war. The complaint seeks, on behalf of USO, compensatory damages, restitution, equitable relief, attorney’s fees, and costs. All proceedings in the Mehan Action are stayed pending disposition of the motion(s) to dismiss in In re: United States Oil Fund, LP Securities Litigation.

 

USCF, USO, and the other defendants intend to vigorously contest such claims.

 

In re United States Oil Fund, LP Derivative Litigation

 

On August 27, 2020, purported shareholders Michael Cantrell and AML Pharm. Inc. DBA Golden International filed two separate derivative actions on behalf of nominal defendant USO, against defendants USCF, John P. Love, Stuart P. Crumbaugh, Andrew F Ngim, Gordon L. Ellis, Malcolm R. Fobes, III, Nicholas D. Gerber, Robert L. Nguyen, and Peter M. Robinson in the U.S. District Court for the Southern District of New York at Civil Action No. 1:20-cv-06974 (the “Cantrell Action”) and Civil Action No. 1:20-cv-06981 (the “AML Action”), respectively.

 

The complaints in the Cantrell and AML Actions are nearly identical. They each allege violations of Sections 10(b), 20(a) and 21D of the 1934 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 entered and consolidated the Cantrell and AML Actions under the caption In re United States Oil Fund, LP Derivative Litigation, Civil Action No. 1:20-cv-06974 and appointed co-lead counsel. All proceedings in In re United States Oil Fund, LP Derivative Litigation are stayed pending disposition of the motion(s) to dismiss in In re: United States Oil Fund, LP Securities Litigation.

 

USCF, USO, and the other defendants intend to vigorously contest the claims in In re United States Oil Fund, LP Derivative Litigation.  No accrual has been recorded with respect to the above legal matters as of March 31, 2022 and June 30, 2021. 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.

 

28

 

Other Contingencies

 

On December 2, 2021, Marygold became aware of certain activity indicative of potential fraud on its Fintech platform, which was still in beta testing stage of development, and associated with the opening of end-customer accounts. As of the date of this Quarterly Report on Form 10-Q filing, Marygold estimates that approximately 80 end-customer accounts were opened fraudulently that resulted in approximately $250,000 being misappropriated. Upon learning of this activity, Marygold removed its app from all App Stores including, Apple and Android, to prevent any fraudulent activity through opening of new accounts created on its platform. Marygold further believes that no personal identifiable information was compromised. Marygold continues to monitor the security measures of its Fintech platform while continuing development. The accrual of approximately $250,000 was recorded through other income (expense) during the quarter ended December 31, 2021, and was reduced by approximately $147,000 during the quarter ended March 31, 2022 as the total amount of the estimated loss decreased. 

 

Retirement Plan

 

The Marygold Companies through its wholly owned subsidiary USCF Investments, has a 401(k) Profit Sharing Plan ("401K Plan") covering U.S. employees, including Original Sprout, who are over 21 years of age and who have completed a minimum of 1,000 hours of service and have worked for USCF Investments or Original Sprout for at least three months. Participants may make contributions pursuant to a salary reduction agreement. In addition, the 401K Plan makes a safe harbor matching contribution. Profit sharing contributions paid totaled approximately $46 thousand and $32 thousand for each of the three months ended March 31, 2022 and 2021, respectively, and for the nine months ended March 31, 2022 and 2021, totaled $134 thousand and $113 thousand, respectively.

 

 

 

NOTE 16.

SEGMENT REPORTING

 

With the acquisition of USCF Investments, Gourmet Foods, Brigadier, and the launch of the Original Sprout business unit of Kahnalytics, the Company has identified four segments for its products and services; U.S.A. investment fund management, U.S.A. beauty products, New Zealand food industry and Canada security alarm systems. Our recently incorporated subsidiaries, Marygold and Marygold UK, have not begun operations, so their accounts have been consolidated with those of the parent, The Marygold Companies, and are not identified as a separate segment. The Company's reportable segments are business units located in different global regions. The Company’s operations in the U.S.A. include the manufacture and wholesale distribution of hair and skin care products by Original Sprout and the income derived from management of various investment funds by our subsidiary USCF Investments. In New Zealand operations include the production, packaging and distribution on a commercial scale of gourmet meat pies and related bakery confections, and the printing of specialized food wrappers through our wholly owned subsidiary Gourmet Foods and its subsidiary, Printstock. In Canada, the Company provides security alarm system installation and maintenance services to residential and commercial customers sold through its wholly owned subsidiary, Brigadier. Separate management of each segment is required because each business unit is subject to different operational issues and strategies due to their particular regional location. The Company accounts for intra-company sales and expenses as if the sales or expenses were to third parties and eliminates them in the consolidation. Amounts are adjusted for currency translation as of the balance sheet date and presented in US dollars. The Company files income taxes as a combined group and records most income taxes at the parent level.

 

The following table presents a summary of identifiable assets as of March 31, 2022 and June 30, 2021.

 

   

March 31,

   

June 30,

 
   

2022

   

2021

 

Identifiable assets:

               

U.S.A. : investment fund management - related party

  $ 17,660,600     $ 17,467,044  

U.S.A. : beauty products

    3,772,178       4,024,803  

New Zealand: food industry

    4,475,419       3,831,539  

Canada: security systems

    2,588,908       2,671,286  

Corporate headquarters - including Marygold

    5,572,981       3,513,008  

Consolidated total

  $ 34,070,086     $ 31,507,680  

 

The following table presents a summary of operating information for the three months ended March 31:

 

   

Three Months Ended

   

Three Months Ended

 
   

March 31, 2022

   

March 31, 2021

 

Revenues from external customers:

               

U.S.A. : investment fund management - related party

  $ 5,868,558     $ 5,997,085  

U.S.A. : beauty products

    702,779       813,084  

New Zealand : food industry

    1,667,345       2,015,529  

Canada : security systems

    555,006       717,664  

Consolidated total

  $ 8,793,688     $ 9,543,362  
                 

Net income (loss):

               

U.S.A. : investment fund management - related party

  $ 2,322,177     $ 2,588,841  

U.S.A. : beauty products

    (146,959 )     (120,060 )

New Zealand : food industry

    (72,388 )     153,847  

Canada : security systems

    39,689       51,828  

Corporate headquarters - including Marygold

    (1,272,385 )     (1,091,648 )

Consolidated total

  $ 870,134     $ 1,582,808  

 

29

 

The following table presents a summary of operating information for the nine months ended March 31:

 

   

Nine Months Ended

   

Nine Months Ended

 
   

March 31, 2022

   

March 31, 2021

 

Revenues from external customers:

               

U.S.A. : investment fund management - related party

    17,226,969       19,182,801  

U.S.A. : beauty products

  $ 2,716,702     $ 2,846,052  

New Zealand : food industry

    6,131,791       6,212,698  

Canada : security systems

    1,888,362       2,013,819  

Consolidated total

  $ 27,963,824     $ 30,255,370  
                 

Net income (loss):

               

U.S.A. : investment fund management - related party

  $ 3,939,412     $ 8,087,112  

U.S.A. : beauty products

    (155,155 )     (116,021 )

New Zealand : food industry

    217,280       485,974  

Canada : security systems

    180,641       250,522  

Corporate headquarters - including Marygold

    (4,169,702 )     (3,553,556 )

Consolidated total

  $ 12,476     $ 5,154,031  

 

The following table presents a summary of capital expenditures for the three month periods ended March 31:

 

   

Three Months Ended

   

Three Months Ended

 
   

March 31, 2022

   

March 31, 2021

 

Capital expenditures, net of disposals:

               

U.S.A.: corporate headquarters - including Marygold

  $ -     $ -  

U.S.A.: beauty products

    988       4,967  

U.S.A.: fund management

    -       -  

New Zealand: food industry

    676       1,182  

Canada: security systems

    -       743  

Consolidated

  $ 1,664     $ 6,892  

 

The following table presents a summary of capital expenditures for the nine month periods ended March 31:

 

   

Nine Months Ended

   

Nine Months Ended

 
    March 31, 2022     March 31, 2021(1)  

Capital expenditures, net of disposals:

               

U.S.A.: corporate headquarters - including Marygold

  $ -     $ 653  

U.S.A.: beauty products

    1,508       33,724  

U.S.A.: fund management

    -       -  

New Zealand: food industry

    3,716       417,979  

Canada: security systems

    -       (11,748 )

Consolidated

  $ 5,224     $ 440,608  

(1) Includes $401,682 related to the acquisition of Printstock in July 2020. See Note 13, Business Combinations

 

30

 

The following table represents the property, plant and equipment in use at each of the Company's locations as of March 31, 2022 and June 30, 2021:

 

    As of March 31, 2022 (1)     As of June 30, 2021  
                 

Asset Location

               

U.S.A. : investment fund management

  $ -     $ -  

U.S.A. : beauty products

    60,469       58,961  

New Zealand : food industry

    2,491,427       2,345,569  

Canada : security systems

    990,202       998,612  

Corporate headquarters - including Marygold

    17,744       17,744  

Total

    3,559,842       3,420,886  

Less accumulated depreciation

    (2,000,690 )     (1,847,441 )

Net property and equipment

  $ 1,559,152     $ 1,573,445  

(1) Includes the underlying assets of the solar energy system finance lease totaling $149,593 at Gourmet Foods.

 

 

 

NOTE 17.

SUBSEQUENT EVENTS

 

The Company evaluated subsequent events for recognition and disclosure through the date the financial statements were issued or filed. Nothing has occurred outside normal operations since that required recognition or disclosure in these financial statements apart from the events noted below.

 

On April 1, 2022, the Company filed with the U.S. Securities and Exchange Commission (the “Commission”) a registration statement on Form S-8 to register the shares of its Common Stock underlying the Company’s 2021 Omnibus Equity Incentive Plan. For more detailed information, please refer to the Company’s Form S-8.

 

On April 8, 2022, the Company’s Board of Directors, upon approval from the Company’s Compensation Committee, approved: (i) employment agreements for each of Stuart Crumbaugh, David Neibert and Carolyn Yu; and (ii) a one-time transaction bonus agreement for John Love. For more detailed information, please refer to the Company’s Current Report on Form 8-K filed with the Commission on April 19, 2022.

 

On April 8, 2022, the Company repaid the outstanding loan balance due a shareholder in the amount of $350,000 plus $84,000 in accrued interest, totaling $434,000.

 

On April 20, 2022, an amendment to the Articles of Incorporation of Wainwright Holdings, Inc. was filed with the Secretary of State of Delaware  to officially change the name of that company to USCF Investments, Inc.

 

On April 29, 2022, the Company filed with the Commission a registration statement on Form S-3  to register up to $100 million of its securities for issuance pursuant to one or more offerings at a future date. On May 12, 2022, the Commission declared the Company's Form S-3 effective. For more detailed information, please refer to the Company’s Form S-3 and notice of effectiveness.

 

 

 

Item 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations

 

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 March 31, 2021, and estimated to launch commercial services in the current fiscal year. Through March 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 March 31, 2022, there have been no acquisitions completed and no operations. The expenses of Marygold UK have been combined with those of The Marygold Companies.

 

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.)

 

 

Results of Operations

 

The Marygold Companies and Subsidiaries

 

Financial summary and comparison data for the three and nine month periods ended March 31, 2022 and March 31, 2021.

 

For the Three Months Ended March 31, 2022 Compared to the Three Months Ended March 31, 2021

 

Revenue and Operating Income

 

Consolidated revenue for the three months ended March 31, 2022 was $8.8 million representing a $0.7 million decrease from the same prior year period revenue of $9.5 million. Net revenues decreased as a result of lower revenues from all of our subsidiaries, apart from USCF Investments, by a combined $621 thousand, or 18%, for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021. The Company's revenues derived from its USCF Investments subsidiary declined slightly by $130 thousand, or 2%, from the same prior year period due to lower average AUM, resulting in an overall decrease in consolidated revenue of approximately 8%. The Company had an operating income for the three months ended March 31, 2022 of  $1.0 million as compared to operating income of $2.0 million for the three months ended March 31, 2021.

 

Other Income 

 

Other income for the three months ended March 31, 2022 and March 31, 2021, was $247 thousand and $23 thousand, respectively, resulting in income before income taxes of $1.3 million and $2.1 million, respectively.

 

Income Tax

 

Provision for income tax expense for the three months ended March 31, 2022 and March 31, 2021 were $421 thousand and $481 thousand, respectively, attributable to our United States operations and specifically to expenses incurred by our Marygold subsidiary and from our USCF Investments subsidiary who recorded a lower income for the period ended March 31, 2022 as compared to the income for the period ended March 31, 2021. The Company files income taxes as a combined group and records most income taxes at the parent level. 

 

Net Income and Comprehensive Income

 

Overall, the net income for the three months ended March 31, 2022 decreased by $0.7 million to $0.9 million, as compared to net income of $1.6 million for the three months ended March 31, 2021. The decrease in profits for the three months ended March 31, 2022 was primarily due to increased costs at our Marygold subsidiary, lower sales revenues at our consumer-based operations, and the income tax provision of $421 thousand. The consumer-based operations contributed approximately $180 thousand of net losses representing a $266 thousand decrease in net income from the same prior year period primarily as result of higher costs and lower profit margins within Original Sprout. Contributing to the overall decrease in net income were expenses of $694 thousand related to our development stage subsidiary, Marygold. After giving consideration to currency translation gain of $79 thousand, our comprehensive income for the three months ended March 31, 2022 was $0.9 million as compared to the three months ended March 31, 2021 when there was a currency translation loss of ($17) thousand resulting in comprehensive income of $1.6 million. Comprehensive gains and losses are comprised of fluctuations in foreign currency exchange rates related to the effects in the valuation of our holdings in New Zealand and Canada.

 

For the Nine Months Ended March 31, 2022 Compared to the Nine Months Ended March 31, 2021

 

Revenue and Operating Income

 

Consolidated revenue for the nine months ended March 31, 2022 was $28.0 million representing a $2.3 million decrease from the same prior year period revenue of $30.3 million. Net revenues declined from our fund management business as a result of lower AUM by approximately $2.0 million, or 10%, for the nine months ended March 31, 2022 as compared to the nine months ended March 31, 2021. The Company's revenues derived from its other operating units decreased by $0.3 million, or 3%, from the same prior year period, resulting in an overall decrease in consolidated revenue of approximately 8%. The Company produced an operating income for the nine months ended March 31, 2022 of $0.7 million as compared to an operating income of $6.6 million for the nine months ended March 31, 2021. The decrease in operating income was primarily attributable to the $2.5 million SEC / CFTC Wells Notice settlement in addition to lower fund management revenue from USCF Investments due to lower AUM as well as additional expenses incurred by Marygold which totaled $2.2 million for the nine months ended March 31, 2022.

 

Other Income

 

Other income for the nine months ended March 31, 2022 and 2021, were $35 thousand and $195 thousand, respectively, resulting in income before taxes of $0.8 million and $6.8 million, respectively. 

 

 

Income Tax

 

Provision for income tax for the nine months ended March 31, 2022 and 2021 were $0.7 million and $1.7 million, respectively, primarily attributable to our United States operations through our USCF Investments subsidiary. The Company files income taxes as a combined group and records most income taxes at the parent level.

 

Net Income and Comprehensive (Loss) Income

 

Overall, the net income for the nine months ended March 31, 2022 as compared to the nine months ended March 31, 2021 decreased by approximately $5.1 million. The decrease in profits for the nine months ended March 31, 2022 was primarily attributable to the $2.5 million SEC / CFTC Wells Notice settlement in addition to lower fund management revenue from USCF Investments due to lower AUM as well as higher costs within our consumer-based subsidiaries. Income was further decreased by expenses of $2.2 million related to our development stage subsidiary, Marygold. After giving consideration to currency translation loss of ($21) thousand, our comprehensive loss for the nine months ended March 31, 2022 was ($9) thousand as compared to the nine months ended March 31, 2021 where there was a currency translation gain of $353 thousand resulting in comprehensive income of $5.5 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 named Wainwright Holdings, Inc. in March 2004 as a Delaware corporation with one subsidiary, Ameristock Corporation, which was an investment adviser to Ameristock Mutual Fund, Inc., a registered 1940 Act large cap value equity fund. 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”) and in July 2016, the USCF Mutual Funds Trust (“Mutual Funds Trust” and together with “ETF Trust” the “Trusts”) both as open-end management investment companies registered under the Investment Company Act of 1940, as amended ("the 1940 Act"). The Trusts are 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 eleven exchange-traded products ("ETPs") and exchange traded funds (“ETFs”), each of which has its shares listed on the NYSE Arca, Inc. ("NYSE Arca"). The ETPs and ETFs managed by USCF and USCF Advisers have a total of approximately $5.0 billion assets under management as of March 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 States Oil Fund, LP (“USO”)

Organized as a Delaware limited partnership in May 2005

United States Natural Gas Fund, LP (“UNG”)

Organized as a Delaware limited partnership in November 2006

United States Gasoline Fund, LP (“UGA”)

Organized as a Delaware limited partnership in April 2007

United States 12 Month Oil Fund, LP (“USL”)

Organized as a Delaware limited partnership in June 2007

United States 12 Month Natural Gas Fund, LP (“UNL”)

Organized as a Delaware limited partnership in June 2007

United States Brent Oil Fund, LP (“BNO”)

Organized as a Delaware limited partnership in September 2009

 

USCF as fund Sponsor - each a series within the United States Commodity Index Funds Trust ("USCIF Trust")

United States Commodity Index Fund (“USCI”)

Series of the USCIF Trust created in April 2010

United States Copper Index Fund (“CPER”) 

Series of the USCIF Trust created in November 2010

 

 

USCF Advisers, a registered investment adviser, serves as the investment adviser to the funds listed below within the USCF ETF Trust (the “ETF Trust”) and has overall responsibility for the general management and administration for the ETF Trust. Pursuant to the current Investment Advisory Agreements, USCF Advisers provides an investment program for each of series within the ETF Trust and manages the investment of the assets.

 

USCF Advisers as fund manager for each series within the USCF ETF Trust:

USCF SummerHaven Dynamic Commodity Strategy No K-1 Fund ("SDCI")

Fund launched May 2018

USCF Midstream Energy Income Fund ("UMI")

Fund launched March 2021

USCF Gold Strategy Plus Income Fund ("GLDX")

Fund launced November 2021

 

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.

 

For the Three Months Ended March 31, 2022 Compared to the Three Months Ended March 31, 2021

 

Revenue

 

Average AUM for the three months ended March 31, 2022 was at $4.4 billion, as compared to approximately $4.8 billion from the three months ended March 31, 2021 primarily due to a decrease in USO, BNO and USL AUM. As a result, the revenues from management and advisory fees decreased by approximately $0.1 million, or 2%, to $5.9 million for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 where revenues from management and advisory fees totaled $6.0 million.

 

Expenses

 

USCF Investments total operating expenses for three months ended March 31, 2022 increased by $0.2 million to $3.6 million, or approximately 7%, from $3.4 million for the three months ended March 31, 2021. Variable expenses, as described above, increased by $0.2 million due to an increase in UMI, USCI and CPER sub-advisory fees due to increases in their respective AUM from the prior year quarter, offset by smaller decreases in other variable expenses over the respective three-month period due to overall lower AUM which included variable marketing and distribution expenses, and fund accounting and administration expenses. General and administrative ("G&A") expenses of $0.6 million decreased $0.1 million from $0.7 million for the three months ended March 31, 2022 and March 31, 2021, respectively. G&A expenses decreased  primarily due to lower fund expense waivers as a result of eliminating expense waivers for BNO, UGA and CPER in May 2021. Total marketing expenses remained at $0.6 million for the three months ended March 31, 2022 and March 31, 2021. Employee salaries and benefit compensation expenses were approximately $1.2 million for both three month periods ended March 31, 2022 and  March 31, 2021. Operations expenses increased by $0.3 million to $1.2 million due to sub-advisory fees for UMI, USCI and CPER offset by other lower operations expenses due to lower AUM.

 

Income

 

Operating income decreased $0.4 million to $2.2 million for the three months ended March 31, 2022 from $2.6 million for the three months ended March 31, 2021. Other  income (expense) was $92 thousand for the three months ended March 31, 2022 compared to $5 thousand for the three months ended March 31, 2021 due to unrealized gains in investments. Net income before income taxes for the three months ended March 31, 2022 decreased $0.3 million to $2.3 million compared to income of $2.6 million for three months ended March 31, 2021 due to a  $0.1 million decrease in revenue as a result of lower AUM, offset by a $0.2 million increase in total expenses.

 

 

For the Nine Months Ended March 31, 2022 Compared to the Nine Months Ended March 31, 2021

 

Revenue

 

Average AUM for the nine months ended March 31, 2022 was at $4.3 billion, as compared to approximately $5.1 billion from the nine months ended March 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 $2.0 million, or 10%, to $17.2 million for the nine months ended March 31, 2022 as compared to the nine months ended March 31, 2021 where revenues from management and advisory fees totaled $19.2 million.

 

Expenses

 

USCF Investments' total operating expenses, after recording the $2.5 million SEC / CFTC Wells Notice payment, increased to $13.4 million, or approximately 21%, from $11.1 million for the nine months ended March 31, 2022 compared to same prior year period. Excluding the Wells Notice payment, total operating expenses decreased $0.2 million, or approximately 2%, to $10.9 million from $11.1 million for the nine months ended March 31, 2022 compared to same prior year period. Variable expenses, as described above, increased $0.6 million over the respective nine -month period due to an increase of $1.0 million in sub-advisory fees for UMI, USCI and CPER due to increases in their respective AUM from the prior year nine month period, offset by lower by other fund AUM which decreased variable marketing and distribution expenses, fund accounting and administration expenses, and other variable costs. G&A expenses, excluding new fund development cost, were $1.4 million and $2.4 million for the nine months ended March 31, 2022 and March 31, 2021, respectively. G&A expenses decreased $1.0 million due to decreases in fund expense waivers of $0.7 million as a result of eliminating expense waivers for BNO, UGA and CPER in May 2021 as well as decreases in legal and professional fees. Total marketing expenses decreased $0.1 million to $1.8 million for the nine months ended March 31, 2022 as compared to the prior year period due to a decrease in variable distribution costs as a result of lower AUM as mentioned above. Employee salaries and benefit compensation expenses were approximately $4.0 million and $3.9 million for the nine months ended March 31, 2022 and March 31, 2021, respectively. Operations expenses increased by $0.8 million due to increases in sub-advisory fees from UMI, USCI and CPER due to increases in their respective AUM, partially offset by decreases in fund accounting and administration expense due to lower AUM for other funds.

 

Income

 

Income before income taxes for the nine months ended March 31, 2022 decreased $4.2 million, after recording the $2.5 million SEC / CFTC Wells Notice settlement, to $3.9 million compared to $8.1 million for nine months ended March 31, 2021 due to a $2.0 million decrease in revenue as a result of lower AUM, along with a $2.2 million increase in expenses as a result of the settlement expense. Operating income, excluding the settlement expense, decreased $1.8 million to $6.3 million for the nine months ended March 31, 2022, or approximately 22%, from $8.1 million for the nine months ended March 31, 2021.  Other  income (expense) was $136 thousand for the nine months ended March 31, 2022 compared to $14 thousand for the nine months ended March 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 March 31, 2022 Compared to the Three Months Ended March 31, 2021

 

Revenue

 

Net revenues for the three months ended March 31, 2022 were $1.7 million with cost of goods sold of $1.4 million resulting in a gross profit of $0.3 million, or approximately 18% gross margin, as compared to the three month period ended March 31, 2021 where net revenues were $2.0 million and cost of goods sold were $1.4 million producing a gross profit of $0.6 million, or approximately 30%. The decrease in gross profit is attributed to the rising costs of raw materials, increased labor cost and increase in the cost of out-bound shipping.

 

 

Expenses

 

Operating expenses, including wages and marketing, for the three month periods ended March 31, 2022 and March 31, 2021 were $0.4 million and $0.3 million, respectively, producing an operating loss of ($0.1) million and operating income of $0.3 million, respectively, or approximately (5%) operating loss for the three months ended March 31, 2022 and 13% for the three months ended March 31, 2021. Other income totaled $13 thousand for three months ended March 31, 2022 as compared to $12 thousand for the three months ended March 31, 2021. 

 

Income

 

Loss for the three months ended March 31, 2022 was approximately ($72) thousand as compared to a net income of $124 thousand after income tax provision of $48 thousand for the three months ended March 31, 2021. 

 

For the Nine Months Ended March 31, 2022, Compared to the Nine Months Ended March 31, 2021

 

Revenue

 

Net revenues for the nine months ended March 31, 2022 were $6.1 million with cost of goods sold of $4.6 million resulting in a gross profit of $1.5 million, or approximately 24% gross margin, as compared to the nine month period ended March 31, 2021 where net revenues were $6.2 million and cost of goods sold were $4.4 million producing a gross profit of $1.8 million, or approximately 29%. The increase in cost of goods sold is attributed to the increase in shipping costs as well as raw materials due, in large part, to the continuing effects of the COVID-19 pandemic in New Zealand.

 

Expenses

 

General, administrative and selling expenses, including wages and marketing, for the nine month periods ended March 31, 2022 and 2021 were $1.2 million and $1.0 million producing operating income of $0.3 million and $0.8 million, respectively, or approximately 5% operating profit for the nine months ended March 31, 2022 and 13% for the nine months ended March 31, 2021. Other income for the nine month periods ended March 31, 2022 and 2021 were $23 thousand and $25 thousand, respectively.

 

Income

 

Income for the nine months ended March 31, 2022, after income tax provision of approximately $88 thousand, resulted in a net income of approximately $215 thousand, as compared to $484 thousand for the nine months ended March 31, 2021 where the income tax provision was approximately $153 thousand.&nb