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See Note 15, Business Combinations Refer to Note 13, Business Combinations, regarding increase in goodwill during the years ended June 30, 2022 and 2021. 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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE FISCAL YEAR ENDED JUNE 30, 2022

or

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000-29913

 

The Marygold Companies, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada

(state of incorporation)

 

90-1133909

(IRS Employer Identification No.)

 

120 Calle Iglesia

Unit B

San Clemente, CA 92672

(Address of principal executive offices) (Zip Code)

Tel: 866.800.2978 (Registrant's telephone number, including area code)

 
     

 

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

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.001 per share.

MGLD

NYSE American LLC

 

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, $0.001 par value

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

 

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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

         

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐ Yes   ☒ No

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐   Yes     ☒   No

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was $7,688,869 based upon the per share price of $1.26, as reported by our trading exchange platform, OTC Markets, for the common stock as of December 31, 2021, the last business day of the registrant’s most recently completed second fiscal quarter, multiplied by the approximate number of shares of common stock held by persons other than executive officers, directors and five percent stockholders of the registrant without conceding that any such person is an “affiliate” of the registrant for purposes of the federal securities laws.

 

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 September 27, 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.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

None

 

  

 

 

 

TABLE OF CONTENTS

 

PART I

   
     

ITEM 1  Business

 

5

     

ITEM 1A Risk Factors

 

11

     

ITEM 1B Unresolved Staff Comments

 

16

     

ITEM 2  Properties

 

16

     

ITEM 3  Legal Proceedings

 

16

     

ITEM 4  Mine Safety Disclosures

 

18

     

PART II

   
     

ITEM 5  Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities

 

19

     

ITEM 6 Selected Financial Data

 

20

     

ITEM 7  Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

20

     

ITEM 7A Quantitative and Qualitative Disclosures About Market Risk

 

27

     

ITEM 8  Financial Statements and Supplementary Data

 

27

     

ITEM 9  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

29

     

ITEM 9A Controls and Procedures

 

29

     

ITEM 9B Other Information

 

29

     

PART III

   
     

ITEM 10 Directors, Executive Officers, and Corporate Governance

 

30

     

ITEM 11 Executive Compensation

 

34

     

ITEM 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

35

     

ITEM 13 Certain Relationships and Related Transactions, and Director Independence

 

36

     

ITEM 14 Principal Accounting Fees and Services

 

37

     

PART IV

   
     

ITEM 15 Exhibits, Financial Statement Schedules

 

38

     

ITEM 16 Form 10-K Summary

 

38

 

  

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Annual Report on Form 10-K 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 Annual Report on Form 10-K 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 3. 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 Annual Report on Form 10-K.

 

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Annual Report on Form 10-K 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”. 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 Annual Report on Form 10-K. 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 Annual Report on Form 10-K 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 Annual Report on Form 10-K to reflect events or circumstances after the date of this Annual Report on Form 10-K 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 I

 

ITEM 1.

BUSINESS.

 

General

 

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 June 30, 2022, and is estimated to launch commercial services within the current calendar year. Through June 30, 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 for the purposes of segmented reporting.

 

Marygold & Co. (UK) Limited, a newly formed U.K. limited company, together with its newly acquired UK subsidiary, Tiger Financial and Asset Management, Ltd. (collectively “Marygold UK”) is an asset manager and registered investment advisor in the UK. Operations began on June 20, 2022.

 

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 101people.

 

Subsidiary Business Overview

 

USCF Investments

 

On December 9, 2016, we acquired all of the issued and outstanding stock in USCF Investments. USCF Investments wholly owns both USCF and USCF Advisers, which collectively operate 12 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 $4.9 billion in assets under management as of June 30, 2022. USCF Investments receives revenues as a result of its ownership of USCF and USCF Advisers, which provides investment management and advisory services in exchange for management fees charged against the ETPs and ETFs. The ETPs and ETFs managed by USCF and USCF Advisers invest in a broad base index or single commodity, particularly in oil, natural gas, gasoline and metals.

 

 

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 adviser 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 launched November 2021

USCF Dividend Income Fund ("UDI") Fund launched June 2022

 

All commodity pools managed by USCF and each series of the ETF Trust managed by USCF Advisers are collectively referred to as the “Funds” hereafter.

 

For the year ended June 30, 2022 approximately 73% of USCF Investments’ revenue were attributed to its three largest funds which were United States Oil Fund, LP, United States Natural Gas Fund, LP and United States Commodity Index Fund as compared to the year ended June 30, 2021 with approximately 84% of the revenue attributed to United States Oil Fund, LP, United States Natural Gas Fund, LP and United States Brent Oil Fund, LP.

 

Competition

 

USCF Investments faces competition from other commodity fund managers, which include larger, better financed companies that offer products similar to USCF Investments. Many of these competitors have substantially greater financial, technical, and human resources than USCF Investments does, as well as greater experience in the discovery and development of products and the commercialization of those products. Our competitors’ products may be more effective, or more effectively marketed and sold, than any products we may commercialize. USCF Investments will continue to develop and consider new fund opportunities identified through its research efforts and review of market needs. However, the cost of launching and seeding new funds is dependent upon existing and new capital resources. The ability to successfully launch new funds competing with much larger financial institutions with greater financial and human capital will be challenging.

 

Regulation

 

USCF Investments’ operating subsidiaries, 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 of 1936, as amended (the “CEA”). USCF Advisers is an investment adviser registered under the Investment Advisers Act of 1940, as amended, and is also registered as a CPO under the CEA. Public offerings conducted by ETPs sponsored by USCF are required to be registered with the Securities and Exchange Commission (the “SEC”) in accordance with the Securities Act of 1933, as amended and each ETP has SEC reporting obligations under the Securities Exchange Act of 1934, as amended. The series of the ETF Trust managed by USCF Advisers are registered investment companies under the Investment Company Act of 1940, as amended.

 

Employees

 

USCF Investments’ operating subsidiaries employ approximately 14 persons, a majority of whom are located in Walnut Creek, California. The operating subsidiaries are responsible for the retention of sub-advisers to manage the investments of each managed Funds’ assets in conformity with their respective investment policies if the operating subsidiary does not provide those services directly. USCF Investments’ operating subsidiaries may also retain third-parties to provide custody, distribution, fund administration, transfer agency, and all other non-distribution related services necessary for each fund to operate. USCF Investments, through its operating subsidiaries, bears all of its own costs associated with providing these advisory services and the expenses of the members of the board of directors of each fund who are affiliated with USCF Investments.

 

 

 

Intellectual Property

 

USCF Investments subsidiary USCF owns registered trademarks for USCF and USCF Advisers.  The Funds for which USCF is a general partner or sponsor have registered trademarks owned by USCF. Additionally, USCF was granted two patents Nos. 7,739,186 and 8,019,675, for systems and methods for an exchange traded fund (ETF) that tracks the price of one or more commodities.

 

Gourmet Foods

 

Gourmet Foods, Ltd. (“Gourmet Foods”), was organized in its current form in 2005 (previously known as Pats Pantry Ltd) and acquired by The Marygold Companies in August 2015. 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 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 acquired the New Zealand company, Printstock Products Limited ("Printstock"). Located in nearby Napier, New Zealand, Printstock prints wrappers for food products, including those used by Gourmet Foods. Printstock is a wholly-owned subsidiary of Gourmet Foods and its operating results are consolidated with those of Gourmet Foods from July 1, 2020 onwards.

 

Products and Customers

 

The Marygold Companies, 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. While these major groups are comprised of different customers and supply chains, we consider the consolidation of Gourmet Foods with Printstock to be within the food industry as Printstock only supplies the food industry manufacturers, some of which are competitors to Gourmet Foods, and the inclusion of Printstock to the Gourmet Foods operations does not extend its presence beyond the food industry. Therefore, for the purpose of segment reporting (Note 16), both revenue streams are considered part of the same "food industry" segment.

 

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 year ended June 30, 2022, Gourmet Foods’ largest customer in the grocery and food industry, who operates through a number of independently branded stores, accounted for approximately 22% of baking sales revenues as compared to 18% for the year ended June 30, 2021. This customer accounted for 25% of the baking accounts receivable at June 30, 2022 as compared to 19% as of June 30, 2021. The second largest customer in the grocery and food industry did not account for significant sales during the years ended June 30, 2022 and 2021. However, this customer did account for 26% and 27% of baking accounts receivable as of June 30, 2022 and 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 years ended June 30, 2022 and 2021 accounted for approximately 50% and 49%, respectively, of baking gross sales revenues. No single member of the consortium is responsible for a significant portion of Gourmet Foods’ baking accounts receivable, however as a group they collectively accounted for 21% and 22% of baking accounts receivable as of June 30, 2022 and 2021, respectively. A second consortium of gasoline convenience stores accounted for 23% of baking accounts receivable as of June 30, 2022 and June 30, 2021. No single member of this consortium was a significant contributor to Gourmet Foods' sales revenues, but as a group they contributed 8% and 9% of the baking sales revenues for the years ended June 30, 2022 and 2021, respectively.

 

The third major customer group is independent retailers and cafes, which accounted for the balance of baking gross sales revenue, however no single customer in this group was a significant contributor of baking sales revenues or baking accounts receivable as of and for the years ended June 30, 2022 and 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 37% of the printing sector revenues and 39% of the printing sector accounts receivable as of and for the year ended June 30, 2022 as compared to 33% of printing sector revenues and 40% of printing sector accounts receivable as of and for the year ended June 30, 2021. No other customers comprised a significant contribution to printing sector sales revenues or accounts receivable as of and for the years ended June 30, 2022 and 2021. 

 

Consolidated: With respect to Gourmet Foods’ consolidated risk, the largest three customers accounted for 32%, 14% and 13% as compared to 32%, 12% and 12% of Gourmet Foods' consolidated gross revenues for the years ended June 30, 2022 and 2021, respectively. These same customers accounted for 7%, 8% and 26%, respectively, of the consolidated accounts receivable of Gourmet Foods as of June 30, 2022 as compared to 8%, 7%, 26%, respectively, as of June 30, 2021.

 

 

Sources and Availability of Materials

 

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 effects of the ongoing COVID-19 pandemic on global supply chains has reduced available supplies of raw ingredients and increased their price. All sources of raw ingredients are experiencing shortages, and those shortages, along with price increases, have negatively impacted Gourmet Foods profit margins and, in some instances, their ability to meet market demand in a timely manner. As the industry continues to recover from the lock downs and other measures taken to reduce the spread of the COVID-19 virus, management expects the availability of materials and competitive pricing to return to normal levels.

 

Competition

 

Gourmet Foods faces competition from other commercial-scale manufacturers of meat pies located in New Zealand and Australia. Competitors’ products may be more effective, or more effectively marketed and sold, than any products Gourmet Foods may commercialize. Larger competitors in New Zealand also enjoy a wider and more entrenched market share making it particularly difficult for us to penetrate certain market segments and, even if penetrated, might make it difficult to maintain. In an effort to expand its market presence and limit competitive interference, Gourmet Foods from time to time attempts to acquire other commercial-scale manufacturers of meat pies or confections. Gourmet Foods has also collapsed a portion of its supply chain by acquiring Printstock, who prints the food wrappers utilized by Gourmet Foods. Printstock, in turn, also faces competition from other New Zealand-based printing companies who offer similar services to the food production industry.

 

Seasonality

 

The location of Gourmet Foods in the southern hemisphere provides it with a warm Christmas holiday season and some increased business as customers tend to be traveling and purchase more ready-to-eat foods. Although this increase in sales is observable, it is not deemed significant and the opposing seasons to the northern hemisphere work to offset any corresponding downturn in revenues for Brigadier, our Canadian subsidiary, during winter months. Overall, The Marygold Companies’ consolidated business does not experience any material seasonality due to Gourmet Foods.

 

Regulation

 

In New Zealand our subsidiary, Gourmet Foods, is required to have certain permits from health regulatory agencies and export permits for certain products it chooses to export. Gourmet Foods is also subject to local regulations as are usual and customary for those in the food processing, manufacturing and distribution business. Gourmet Foods believes it has all necessary licenses and permits and is compliant in all material respects with New Zealand laws and local regulations.

 

Employees

 

Gourmet Foods, including Printstock, employs approximately 49 persons in New Zealand.

 

Intellectual Property

 

Gourmet Foods, Ponsonby Pies and Pat’s Pantry are all registered trademarks of Gourmet Foods, Ltd.

 

Brigadier

 

On June 2, 2016, we acquired all of the issued and outstanding stock in Brigadier, a Canadian corporation headquartered in Saskatoon, Saskatchewan. Brigadier sells and installs alarm monitoring and security systems to commercial and residential customers under the brand names "Brigadier Security Systems" and "Elite Security" throughout the province of Saskatchewan with offices in Saskatoon and Regina.

 

Services, Products and Customers

 

Brigadier, founded in 1985, is a leading electronic security company in the province of Saskatchewan. Brigadier has two offices located in the urban areas of Saskatchewan, Brigadier Security Systems in Saskatoon, and operating as Elite Security in Regina. The company's management team has a combined industry experience of over 136 years. Brigadier provides comprehensive security solutions including access control, camera systems, fire alarm monitoring panels, and intrusion alarms to home and business owners as well as government offices, schools, and public buildings. Their experience as the provider of choice on many large notable sites shows a commitment to design, service and support. Brigadier specializes, and is certified, in several major manufacturers’ products: Honeywell Security, Panasonic, Avigilon and JCI/DSC/Kantech security products. Brigadier and its staff are recognized for dedication to customer service with annual awards from SecurTek including being recipients of the Customer Retention, Service Excellence, and overall best dealer with the President’s Award.  Brigadier has demonstrated a commitment to delivering outstanding quality to customers by the notable facilities, businesses, and homes they secure.

 

Brigadier is an authorized SecurTek dealer. SecurTek is owned by SaskTel which is Saskatchewan's leading Information and Communications Technology (ICT) provider with over 1.4 million customer connections across Canada. Under the terms of its authorized dealer contract with the monitoring company, Brigadier earns monthly payments during the term of the monitoring contract in exchange for performance of customer service activities on behalf of the monitoring company.

 

 

The Marygold Companies, through Brigadier, is partially dependent upon its contractual relationship with the alarm monitoring company that 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 52% and 49% of the total Brigadier revenues for the years ended June 30, 2022 and June 30, 2021, respectively. The same customer accounted for approximately 31% of Brigadier's accounts receivable as of the balance sheet date of June 30, 2022 and 2021. No other customers were significant for the year ended June 30, 2022, however another customer accounted for 12% of total Brigadier revenues and 39% of accounts receivable as of and for the year ended June 30, 2021.

 

Sources and Availability of Materials

 

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.

 

Competition

 

Although it holds a leading market position in the province of Saskatchewan, Brigadier faces competition from larger, better financed companies that offer similar products and services throughout Canada and globally. In addition, it is possible that Brigadier may face increasing competition as disruptive technologies enter the market. However, with respect to the market share it currently enjoys, Brigadier expects to maintain its current market position in Saskatchewan and believes that opportunities exist to capitalize on the deployment of new technologies within this market. Brigadier's management will continue efforts to capture additional customers through organic growth and a focus on quality.

 

Seasonality

 

Brigadier, due to its location in the province of Saskatchewan, Canada, is far enough north that winter weather has a negative effect on its ability to complete some installations, particularly those involving new construction. For this reason, the period from November through March typically produces less revenue than comparison periods during other seasons of the year. Although this decrease in sales is observable, the downturn in sales revenues for the winter months at Brigadier are offset in large part by the increase in revenues for our subsidiary Gourmet Foods in the Southern Hemisphere. Overall, The Marygold Companies, on a consolidated basis, does not experience any material seasonality due to Brigadier.

 

Employees

 

Brigadier employs approximately 18 persons in Canada.

 

Original Sprout

 

Kahnalytics was formed in 2015 as a wholly-owned subsidiary of the Company and acquired the assets of Original Sprout LLC in December 2017. Original Sprout LLC was founded in 2003. Kahnalytics began doing business as Original Sprout in December 2017. Original Sprout formulates and packages various hair and skin care products that are 100% vegan, tested safe and non-toxic, and marketed globally through distribution networks to salons, resorts, grocery stores, health food stores, e-tail sites and on Original Sprout's website. Original Sprout operates from warehouse and sales offices located in San Clemente, CA, USA.

 

Products and Customers

 

As a result of the ongoing COVID-19 pandemic, Original Sprout has made adjustments to its primary distribution and marketing channels. Prior to the pandemic Original Sprout relied heavily upon its wholesale distribution network to place products at retail locations and generally to make products available to consumers, whereas during the environment of social distancing and closures of retail businesses, consumers avoided traditional sales outlets. In response to this trend, many of Original Sprout's distributors became retailers by selling direct to consumers on e-tail platforms. Original Sprout, in defense of its brand and price points, was compelled to commence a transition from its wholesale distribution model to one wherein Original Sprout sells direct to retail outlets, or even direct to consumers, through online platforms such as Costco.com and others. The positive effects of this transition are expected to be realized within the next 6 to 12 months, as will be evidenced by increasing profit margins to offset a decrease in sales to distributors. 

 

 

Original Sprout sells its products through 3 channels to market: 1) direct sales to end users via online shopping carts, 2) sales through international wholesale distributors who, in turn, sell to other retailers or wholesalers, and 3) to retail stores selling to end users either from the shelf or online.

 

Original Sprout has thousands of customers and, from time to time, certain of them become significant during specific reporting periods, but may not be significant during other periods. Due to the increase in online sales channels and the discontinuation of most domestic distribution agreements, Original Sprout had 1 significant international distributor for the year ended June 30, 2022 which accounted for 11% of Original Sprout's total revenues as compared to 4% of total revenues for the year ended June 30, 2021. A different domestic customer, who was insignificant for the year ended June 30, 2022, accounted for 12% of sales for the year ended June 30, 2021. Six different customers, none of whom contributed significant sales levels, accounted for 19%, 16%, 15%, 13%, 12%, and 11% of total accounts receivable as of June 30, 2022 as compared to 15%, 30%, 6%, 7%, 17%, and 11%, respectively, as of June 30, 2021.

 

Sources and Availability of Materials

 

Original Sprout is dependent upon its relationship with a product formulating and packaging company who, at the direction of Original Sprout, produces its 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. If this relationship were to terminate, Original Sprout believes that 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 a 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.

 

Competition

 

Original Sprout manufactures and distributes only 100% vegan, safe and non-toxic, hair and skin care products which it believes differentiate it significantly from competitors that do not employ such standards. The use of organic and natural extracts is a growing trend in the U.S. and abroad, and other established brands are beginning to make products that directly compete with Original Sprout. As more entrants to the high-end, vegan, hair care segment come into existence it is inevitable that some will be better financed and have more brand recognition and resources than those of Original Sprout. Original Sprout is focused on promoting its own brand name as a recognized pioneer in 100% vegan, safe, effective, hair care products through the recruitment of addition distributors, contracts with additional nationwide retail stores, a continued emphasis on online sales either directly or through retail stores and an increased social media presence. Original Sprout believes that these steps will allow for the continued growth of annual revenues and market share protection, though there can be no guarantees that such efforts will be sufficient to offset the effects of competition in the future.

 

Seasonality

 

There is no significant seasonality for sales of products for Original Sprout, though sales will fluctuate around traditional holidays, and certain products, such as sunscreen, will be lower in winter months than in summer months. Overall, The Marygold Companies, on a consolidated basis, does not experience any material seasonality due to Original Sprout.

 

Regulation

 

In the U.S. our subsidiary, Original Sprout, is not required to have permits or inspections by regulatory agencies for the products it formulates and distributes in the U.S.; however, it has chosen to gain recognition from certain testing laboratories and other quasi-regulatory agencies for compliance with accepted standards for hair and skin care ingredients and lack of toxic chemicals in their formulas and processes. For export, Original Sprout is often compelled to submit its products to foreign government agencies or certified laboratories for ingredient testing prior to being accepted for import as a “safe” product. We believe that Original Sprout products comply with all applicable regulations, both domestic and foreign, in areas where they are sold or distributed.

 

Intellectual Property

 

The formulations and ingredient percentages of the many products of Original Sprout are considered its intellectual property, though many cannot be patented, they are maintained as confidential. The names "Original Sprout", "D’Organiques Original Sprout" are registered trademarks of Original Sprout.

 

Employees

 

Original Sprout employees approximately 6 persons on a full-time basis, not including temporary workers or "temp-to-hire" status workers, in California.

 

 

 

Marygold

 

While still in the development phase, Marygold continues to devote considerable resources to the development of a proprietary Fintech software application that is envisioned to provide a superior mobile banking experience to its customers. Marygold employs 6 full time staff members and also subcontracts for a variety of services, both in the U.S. and internationally. These operating expenses are combined with those of The Marygold Companies in our Consolidated Financial Statements and segmented reports. Marygold estimates that it will launch its mobile app during the fiscal year ending June 30, 2023 and, at that time, its operations will be segregated from those of the parent, The Marygold Companies. 

 

Marygold UK

 

Marygold UK was formed under the laws of England and Wales as a wholly owned subsidiary of The Marygold Companies for the specific purpose of acquiring existing operating companies in the financial services sector of the U.K.  On June 20, 2022, Marygold UK entered into a Variation Agreement providing for a revised schedule of payments which shall be paid by Marygold UK to the Seller, as described therein (the “Variation Agreement”) and simultaneously therewith, Marygold UK completed the acquisition of Tiger Financial and Asset Management Limited ("Tiger"). Prior to June 20, 2022, Marygold UK had no operations, and any incidental expenses were consolidated with those of the parent. For the period June 20, 2022 through June 30, 2022, operating income and expenses were de minimis and are combined with those of the parent in our Consolidated Financial Statements and segmented reports where indicated. The business of Marygold UK will be that of Tiger, an asset manager and investment advisor to residents of the U.K. As of June 30, 2022, Tiger has approximately £42 million in assets under management. Tiger earns revenues as a percentage of the assets under management. At this level of assets under management, Tiger is nominally cash flow breakeven. Although assets under management have been stable and consistent over the prior 5-year period, management expects to be able to increase the level through a concentrated sales effort, however there is no assurance that such effort will be successful or that assets under management will not decline from their present level. Marygold UK is also planning to introduce the Marygold fintech app to its customers and, more broadly, to the population of the U.K. as the mobile app finalizes its commercial launch in the U.S. and banking relationships are established in the U.K. There is no scheduled timeline for this launch, nor can assurances be made that the product will be widely or well received by the target customer base. Marygold UK employs 3 persons full time in the U.K.

 

Available Information

 

We maintain a website at www.themarygoldcompanies.com. We make available free of charge on or through our website our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as soon as reasonably practicable after we electronically file or furnish such materials to the SEC. The information on our website is not incorporated by reference in this annual report on Form 10-K.  In addition, the U.S. Securities and Exchange Commission ("SEC") maintains an Internet site at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC, from which investors can electronically access The Marygold Companies' SEC filings.

 

Controlled Company Status

 

Pursuant to a voting agreement, (the “Voting Agreement”), Nicholas Gerber and Scott Schoenberger, through their respective trusts, will represent 22,948,008, or 56.84% of the Voting Stock with respect to matters that may have a material impact on Company strategy and shareholder rights. Because more than 50% of the combined voting power of all of our outstanding common stock is beneficially owned by Messrs. Gerber and Schoenberger, we are a “controlled company” as defined in section 801(a) of the NYSE American Company Guide. As such, we are exempt from certain NYSE American rules requiring our Board of Directors to have a majority of independent members, a compensation committee composed entirely of independent directors and a nominating and governance committee composed entirely of independent directors.

 

ITEM 1A.

RISK FACTORS

 

The Marygold Companies and its subsidiaries (referred to herein as “we,” “us,” “our” or similar expressions) are subject to certain risks and uncertainties in its business operations which are described below. The risks and uncertainties described below are not the only risks we face. Additional risks and uncertainties that are presently unknown or are currently deemed immaterial may also impair our business operations. The following risk factors should be read in connection with the other information included in this annual report on Form 10-K, including Management’s Discussion and Analysis of Financial Condition and Results of Operations and our financial statements and the related notes.

 

The Companys business and operation could be negatively affected by any material litigation involving the Company or its subsidiaries.

 

USCF, an indirect wholly owned subsidiary of the Company, is currently subject to class action litigation. See “Item 3. Legal Proceedings” of this Annual Report on Form 10-K. 

 

Estimating an amount or range of possible losses resulting from litigation proceedings is inherently difficult and requires an extensive degree of judgment, particularly where the matters involve indeterminate claims for monetary damages, are in the early stages of the proceedings, and are subject to appeal. In addition, because most legal proceedings are resolved over extended periods of time, potential losses are subject to change due to, among other things, new developments, changes in legal strategy, the outcome of intermediate procedural and substantive rulings and other parties’ settlement posture and their evaluation of the strength or weakness of their case against us. For these reasons, we are currently unable to predict the ultimate timing or outcome of, or reasonably estimate the possible losses or a range of possible losses resulting from, the matters described in “Item 3. Legal Proceedings” of this Annual Report on Form 10-K. In light of the inherent uncertainties involved in such matters, an adverse outcome in this litigation could materially adversely affect the Company’s financial condition, results of operations or cash flows in any particular reporting period.

 

Litigation could result in substantial costs and divert management’s attention and resources from a company’s business. Additionally, litigation could give rise to perceived uncertainties as to a company’s future, adversely affect its relationships with vendors and make it more difficult to attract and retain qualified personnel. Also, a company subject to litigation may be required to incur significant legal fees and other expenses related to any litigation.

 

COVID-19 Risk

 

An outbreak of infectious respiratory illness caused by a novel coronavirus known as COVID-19 was first detected in China in December 2019 and has now been detected globally. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. COVID-19 has resulted in numerous deaths, travel restrictions, closed international borders, enhanced health screenings at ports of entry and elsewhere, disruption of and delays in healthcare service preparation and delivery, prolonged quarantines and the imposition of both local and more widespread “work from home” measures, cancellations, supply chain disruptions, and lower consumer demand, as well as general concern and uncertainty. The ongoing spread of COVID-19 has had, and is expected to continue to have, a material adverse impact on local economies in the affected jurisdictions and also on the global economy, as cross border commercial activity and market sentiment are increasingly impacted by the outbreak and government and other measures seeking to contain its spread. The impact of COVID-19, and other infectious illness outbreaks that may arise in the future, could adversely affect individual issuers and capital markets in ways that cannot necessarily be foreseen. In addition, actions taken by government and quasi-governmental authorities and regulators throughout the world in response to the COVID-19 outbreak, including significant fiscal and monetary policy changes, may affect the value, volatility, pricing and liquidity of some investments or other assets, including those held by or invested in by the Company. Public health crises caused by the COVID-19 outbreak may exacerbate other preexisting political, social and economic risks in certain countries or globally. The duration of the COVID-19 outbreak and its ultimate impact on the Company and, on the global economy, cannot be determined with certainty. The COVID-19 pandemic and its effects may last for an extended period of time and could result in significant and continued declines in global financial markets, higher default rates, and a substantial economic downturn or recession. The foregoing could disrupt the operations of the Company's service providers, adversely affect the Company's stock price, and negatively impact the Company's performance and your investment in the Company. The extent to which COVID-19 will affect the Company and its’ service providers will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of COVID-19 and the actions taken to contain COVID-19. Given the significant economic and financial market disruptions associated with the COVID-19 pandemic, the Company’s results of operations could be adversely impacted.

 

 

Additional risks and uncertainties that are presently unknown or are currently deemed immaterial may also impair our business operations. These risk factors should be read in connection with the other information included in this annual report on Form 10-K, including Management’s Discussion and Analysis of Financial Condition and Results of Operations and our financial statements and the related notes.

 

Risks Related to our Business and Structure

 

The Marygold Companies is a holding company and its only material assets are its cash in hand, equity interests in its operating subsidiaries and its other investments. As a result, The Marygold Companiesprincipal source of cash flow is distributions from its subsidiaries and its subsidiaries may be limited by law and by contract in making distributions to The Marygold Companies.

 

As a holding company, The Marygold Companies’ assets are its cash and cash equivalents, the equity interests in its subsidiaries and other investments.

 

The principal source of cash flow is distributions from our subsidiaries. Thus, our ability to finance future acquisitions or develop new projects is dependent on the ability of our subsidiaries to generate sufficient net income and cash flows to make upstream cash distributions to us. Our subsidiaries are separate legal entities, and although they may be wholly-owned or controlled by us, they have no obligation to make any funds available to us, whether in the form of loans, dividends, distributions or otherwise. The ability of our subsidiaries to distribute cash to us are and will remain subject to, among other things, restrictions that are contained in each subsidiaries’ financing agreements, availability of sufficient funds and applicable state laws and regulatory restrictions.

 

Claims of creditors of our subsidiaries generally will have priority as to the assets of such subsidiaries over our claims and claims of our creditors and stockholders. To the extent our cash flow is dependent on our subsidiaries ability to make distributions to us could materially limit our ability to grow, pursue business opportunities or make acquisitions that could be beneficial to our businesses.

 

Our business is subject to extensive government regulation and oversight. Our failure to comply with extensive, complex, overlapping, and frequently changing rules, regulations, and legal interpretations could materially harm our business.

 

Our business is subject to complex and changing laws, rules, regulations, policies, and legal interpretations in the markets in which we operate, including, but not limited to, those governing and enforcing: banking, credit, deposit taking, cross-border and domestic money transmission, prepaid access, foreign currency exchange, privacy and data protection, data governance, cybersecurity, banking secrecy, digital payments and cryptocurrency, payment services (including payment processing and settlement services), fraud detection, consumer protection, antitrust and competition, economic and trade sanctions, anti-money laundering, and counter-terrorist financing. As we, through our subsidiaries, introduce new products and services and expand into new markets, including through acquisitions, we may become subject to additional regulations, restrictions, and licensing requirements.

 

Any failure or perceived failure to comply with existing or new laws, regulations, or orders of any government authority (including changes to or expansion of their interpretation) may subject us to significant fines, penalties, criminal and civil lawsuits, forfeiture of significant assets, and enforcement actions in one or more jurisdictions; result in additional compliance and licensure requirements; cause us to lose existing licenses or prevent or delay us from obtaining additional licenses that may be required for our business; increase regulatory scrutiny of our business; divert management’s time and attention from our business; restrict our operations; lead to increased friction for customers; force us to make changes to our business practices, products or operations; require us to engage in remediation activities; or delay planned transactions, product launches or improvements. Any of the foregoing could, individually or in the aggregate, harm our reputation, damage our brands and business, and adversely affect our results of operations and financial condition.

 

We have implemented policies and procedures designed to help ensure compliance with applicable laws and regulations, but there can be no assurance that our employees, contractors, and agents will not violate such laws and regulations.

 

 

We are dependent on certain key personnel, the loss of which may adversely affect our financial condition or results of operations.

 

Major capital allocation decisions and investment decisions are made by Chief Executive Officer and Chairman of the Board of Directors, Nicholas Gerber, with consultation from key personnel, from our management team and the executive management teams from our subsidiaries. The executive management teams that lead the Company and our subsidiaries are also highly experienced and possess extensive skills in their industry. If Mr. Gerber were to become unavailable, there could be a material adverse impact on our operations. However, the Company’s Board of Directors have the power and authority to fill a vacancy left by Mr. Gerber. The ability to retain key personnel is important to our success and future growth. Competition for these professionals can be intense, and we may not be able to retain and motivate our existing officers and senior employees and continue to compensate such individuals competitively. The unexpected loss of the services of one or more of these individuals could have a detrimental effect on our operations and negatively impact our financial condition or results of operations of our businesses and could hinder the ability of our business and our subsidiaries to effectively compete in the various industries in which we operate.

 

We need qualified personnel to manage and operate our subsidiaries.

 

Our decentralized business model requires that we retain qualified and competent managers to continue day-to-day operations of our subsidiaries and continue business operations in a changing political, business or regulatory environment. Our subsidiaries require qualified and competent personnel to execute their business plans and continue servicing their clients, suppliers and other stakeholders. Our inability to attract and retain qualified personnel to operate our business subsidiaries could negatively impact our operating results and our overall financial condition that is important to our success and future growth.

 

Risks related to commodity prices could materially and adversely affect USCFs business.  

 

In 2020, in the context of the COVID-19 pandemic and disputes among oil-producing countries regarding potential limits on the production of crude oil, significant market volatility occurred and is continuing in the crude oil markets as well as the oil futures markets. As a result of this, significant market volatility in the oil futures markets, the market price of the front month futures contract fell below zero for a period of time.

 

Crude oil prices also vary depending on a number of factors affecting supply. For example, increased supply from the development of new oil supply sources and technologies to enhance recovery from existing sources tends to reduce crude oil prices to the extent such supply increases are not offset by commensurate growth in demand. Similarly, increases in industry refining or petrochemical manufacturing capacity may impact the supply of crude oil. World oil supply levels can also be affected by factors that reduce available supplies, such as adherence by member countries to the Organization of the Petroleum Exporting Countries (“OPEC”) production quotas and the occurrence of wars, hostile actions, natural disasters, disruptions in competitors’ operations, or unexpected unavailability of distribution channels that may disrupt supplies. Technological change can also alter the relative costs for companies in the petroleum industry to find, produce, and refine oil and to manufacture petrochemicals, which in turn may affect the supply of and demand for oil.

 

The demand for crude oil also correlates closely with general economic growth rates. The occurrence of recessions or other periods of low or negative economic growth will typically have a direct adverse impact on crude oil prices. Other factors that affect general economic conditions in the world or in a major region, such as changes in population growth rates, periods of civil unrest, pandemics (e.g. COVID-19), government austerity programs, or currency exchange rate fluctuations, can also impact the demand for crude oil. Sovereign debt downgrades, defaults, inability to access debt markets due to credit or legal constraints, liquidity crises, the breakup or restructuring of fiscal, monetary, or political systems such as the European Union, and other events or conditions (e.g. pandemics such as COVID-19) that impair the functioning of financial markets and institutions also may adversely impact the demand for crude oil.

 

Abnormally wide bid/ask spreads and market disruptions that halt or disrupt trading or create extreme volatility could undermine investor confidence in the ETP investment structure and limit investor acceptance of ETPs.

 

ETPs trade on exchanges in market transactions that generally approximate the value of the referenced assets or underlying portfolio of securities held by the particular ETP. Trading involves risks including the potential lack of an active market for fund shares, abnormally wide bid/ask spreads (the difference between the prices at which shares of an ETP can be bought and sold) that can exist for a variety of reasons and losses from trading. These risks can be exacerbated during periods when there is low demand for an ETP, when the markets in the underlying investments are closed, when markets conditions are extremely volatile or when trading is disrupted. This could result in limited growth or a reduction in the overall ETP market and result in our revenues not growing as rapidly as it has in the recent past or even in a reduction of revenues.

 

We derive a substantial portion of our revenues from our USCF Investments subsidiary, as a result, our operating results are particularly exposed to investor sentiment toward investing in the ETPs and ETFs sponsored by USCF and advised by USCF Advisers.

 

For the years ended June 30, 2022 and 2021, approximately 63% of our revenues were derived from USCF Investments operations, which consists of the management of ETPs and ETFs by USCF and USCF Advisers.  As a result, our operating results are particularly exposed to the performance of these funds and our ability to maintain the assets under management of these funds, as well as investor sentiment toward investing in the funds’ strategies. If the assets under management in these funds were to decline, either because of declining market values or net outflows from these funds, our revenues would be adversely affected.

 

 

We rely on third party suppliers, and our business may be affected by interruption of supplies or increases in product costs.

 

Gourmet Foods obtains most food related products and services from third party suppliers. Gourmet Foods typically does not have long-term contracts with suppliers. Although Gourmet Foods’ purchasing volume can provide leverage when dealing with suppliers, suppliers may not provide the foodservice products and supplies Gourmet Foods needs in the quantities and at the time and prices requested. Gourmet Foods does not control the actual production of most of the products it sells. This means Gourmet Foods is also subject to delays caused by interruption in production and increases in product costs based on conditions outside its control. These conditions include work slowdowns, work interruptions, strikes or other job actions by employees of suppliers; severe weather; crop conditions; product recalls; transportation interruptions; unavailability of fuel or increases in fuel costs; competitive demands; and natural disasters, terrorist attacks or other catastrophic events (including, but not limited to, the outbreak of food-borne illnesses in the United States). Gourmet Foods’ inability to obtain adequate supplies of foodservice and related products because of any of these or other factors could mean that Gourmet Foods could not fulfill its obligations to its customers and, as a result, customers may turn to other distributors.

 

Product recalls or other product liability claims could materially and adversely affect us.

 

Selling products for human consumption involves inherent legal and other risks, including product contamination, spoilage, product tampering, allergens, or other adulteration. We could in the future be required to recall products due to suspected or confirmed product contamination, adulteration, product mislabeling or misbranding, tampering, undeclared allergens, or other deficiencies. Product recalls or market withdrawals could result in significant losses due to their costs, the destruction of product inventory, and lost sales due to the unavailability of the product for a period of time.

 

Adverse attention about these types of concerns, whether or not valid, may damage our reputation, discourage consumers from buying our products, or cause production and delivery disruptions that could negatively impact our net sales and financial condition.

 

We may also suffer losses if our products or operations violate applicable laws or regulations, or if our products cause injury, illness, or death. In addition, our marketing could face claims of false or deceptive advertising or other criticism. A significant product liability or other legal judgment or a related regulatory enforcement action against us, or a significant product recall, may materially and adversely affect our reputation and profitability. Moreover, even if a product liability or fraud claim is unsuccessful, has no merit, or is not pursued to conclusion, the negative publicity surrounding assertions against our products or processes could materially and adversely affect our product sales, financial condition, and operating results.

 

Our stock price may change significantly, and you may not be able to sell your shares of our common stock at or above the price you paid or at all, and you could lose all or part of your investment as a result.

 

The stock market may routinely experience periods of large or extreme volatility. In some instances, this volatility is unrelated or disproportionate to the operating performance of particular companies.

 

 

The trading price of our common stock may be adversely affected due to a number of factors, many of which we cannot control. These factors may include, among other thing, results of operations that vary from the expectations of securities analysts and investors; changes in expectations as to our or our industry’s future financial performance, including financial estimates and investment recommendations by securities analysts and investors, and the publication of research reports regarding the same;

  changes in general economic or market conditions or trends in our industry or markets;
    future issuances or sales or purchases of our common stock or other securities;
  the public’s response to press releases or other public announcements by us or third parties, including our filings with the SEC; and
  changes in senior management or other key personnel.

 

In the past, we have expanded our business internationally. This expansion subjects us to increased operational, regulatory, financial and other risks.

 

We face increased operational, regulatory, financial, compliance, reputational and foreign exchange rate risks as a result of our international expansion. The failure of our compliance and internal control systems to properly mitigate such additional risks, or of our operating infrastructure to support such expansion, could result in operational failures and regulatory fines or sanctions. If our international products and operations experience any negative consequences or are perceived negatively in non-U.S. markets, it may also harm our reputation in other markets, including the U.S. market.

 

 

Our risk management policies and procedures, and those of our third-party vendors upon which we rely, may not be fully effective in identifying or mitigating risk exposure, including employee misconduct. If our policies and procedures do not adequately protect us from exposure to these risks, we may incur losses that would adversely affect our financial condition, reputation and market share.

 

We have developed risk management policies and procedures and we continue to refine them as we conduct our business. Many of our procedures involve oversight of third-party vendors that provide us with critical services. Our policies and procedures to identify, monitor and manage risks may not be fully effective in mitigating our risk exposure.

 

These risks are difficult to detect in advance and deter, and could harm our business, results of operations or financial condition. If our policies and procedures do not adequately protect us from exposure and our exposure is not adequately covered by insurance or other risk-shifting tools, we may incur losses that would adversely affect our financial condition and could cause a reduction in our revenues as investors in our products shift their investments to the products of our competitors.

 

We rely on trademarks, trade secrets, and other forms of intellectual property protections, which may not be adequate to protect us from misappropriation or infringement of our intellectual property.

 

We rely on a combination of trademark, trade secret and other intellectual property laws in the U.S. and foreign jurisdictions in which we operate our businesses. We have applied for registration of a limited number of trademarks in the U.S. and in certain other countries, some of which have been registered or issued. We cannot guarantee that our applications will be approved by the applicable governmental authorities, or that third parties will not seek to oppose or otherwise challenge our registrations or applications. We also rely on unregistered proprietary rights, including common law trademark protection. Third parties may use trademarks identical or confusingly similar to ours, or independently develop trade secrets or know-how similar or equivalent to ours. If our proprietary information is divulged to third parties, including our competitors, or our intellectual property rights are otherwise misappropriated or infringed, our business could be harmed or adversely affected.

 

Risks Related to Our Controlled Company Election and Status

 

We are acontrolled companywithin the meaning of the NYSE American rules and rely on exemptions from various corporate governance requirements that provide protection to stockholders of other companies.

 

We are a “controlled company” as defined in section 801(a) of the NYSE American Company Guide because more than 50% of the combined voting power of all of our outstanding common stock is beneficially owned or controlled by Messrs. Gerber and Schoenberger. Under the NYSE American rules, a company of which more than 50% of the voting power is held by another person or group of persons acting together is a controlled company and may elect not to comply with certain NYSE American corporate governance requirements, including the requirements that:

 

 

A majority of the Company’s Board of Directors consist of independent directors;

 

the Company has a nominating committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

 

the Company has a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.

 

These independence standards are intended to ensure that directors who meet those standards are free of any conflicting interest that could influence their actions as directors.

 

The Company may elect in the future to use certain of these controlled company exemptions and the Company may continue to use all or some of these exemptions in the future for so long as the Company is a controlled company. Although we may rely on NYSE American’s controlled company exemptions in the future, we currently have an independent board, nomination and governance committee and compensation committee. If the makeup of one or more of our board, nomination and governance committee or compensation committee changes such that we no longer comply with the independence standard of the NYSE American guidelines, then our stockholders may not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NYSE American rules.

 

The CompanyCEO, through the Gerber Trust, controls a significant percentage of our common stock, and may exert significant control over matters subject to stockholder approval as well as heightened voting power at the board level, preventing other stockholders and new investors from influencing significant corporate decisions.

Mr. Nicholas D. Gerber, the President and Chief Executive Officer of the Company and Chairman of the Board of the Company, is the beneficial owner of approximately 18,250,015 shares of our common stock, par value $0.001 per share (the “Common Stock”), representing approximately 45.21% of our total issued and outstanding Common Stock (giving effect to the conversion of all Series B Preferred Stock). Mr. Gerber’s Common Stock is held by the Nicholas and Melinda Gerber Living Trust (the “Gerber Trust”). Nicholas Gerber and Melinda Gerber serve as trustees of the Gerber Trust; As such, the Gerber Trust and Mr. Gerber share power to vote or to direct the vote of the shares and share power to dispose or to direct the disposition of Common Stock beneficially owned or controlled by Mr. Gerber.

Mr. Scott Schoenberger is a member of the Board of the Company. Mr. Schoenberger’s shares of Common Stock are held by the Schoenberger Family Trust (the “Schoenberger Trust”). Mr. Schoenberger serves as the sole trustee of the Schoenberger Trust; As such, the Schoenberger Trust and Mr. Schoenberger share power to vote or to direct the vote of the shares and share power to dispose or to direct the disposition of these shares. Shares of our Common Stock held by Schoenberger Trust total 4,697,993 shares, representing 11.64% of the outstanding shares of Common Stock (giving effect to the conversion of all Series B Preferred Stock).

 

Additionally, pursuant to a voting agreement, (the “Voting Agreement”), the Gerber Trust and Schoenberger Trust will continue to vote all shares of Voting Stock owned by them to elect each of Messrs. Gerber and Schoenberger to the Board along with other designees mutually agreed upon. By virtue of the Voting Agreement, Messrs. Gerber and Schoenberger will represent 22,948,008, or 56.84% of the Voting Stock with respect to matters that may have a material impact on Company strategy and shareholder rights.

 

In addition, pursuant to the Company’s Bylaws, Directors have voting power equivalent to their percentage of total Share ownership, multiplied by the number of directors then on the board of directors, rounded to the nearest whole number, with no Director holding less than one vote. As a result of Mr. Gerber’s ownership of Company Shares, Mr. Gerber has a relatively higher number of votes relative to other directors, in proportion to Mr. Gerber’s ownership interest in the Company.

Cyber Security Risks

The efficient operation of our businesses is dependent on computer hardware and software systems. Unauthorized computer infiltration, denial-of-service attacks, phishing efforts, unauthorized access, malicious software codes, computer viruses or other such harmful computer campaigns may negatively impact our business causing significant disruptions to our business operations. We expect that we may be subject to a cyber-attack in some form or fashion in the future as such attacks become more sophisticated and frequent to all industries and all businesses of every size. There can be no assurance that our cyber-security measures and technology will adequately protect us from these and other risks, including external risks such as natural disasters and power outages and internal risks such as insecure coding and human error.

 

Although we have undertaken steps to prevent and mitigate cyber risks, there is no guarantee that our efforts will prevent cyber-attacks perpetrated against our information systems which could result in loss of assets and critical information, theft of intellectual property or inappropriate disclosure of confidential information and could expose us to remediation costs and reputational damage which could adversely affect our business in ways that cannot be predicted at this time. Any of these risks could materially affect our results of operations and consolidated financial results.

 

Future acquisitions or business opportunities could involve unknown risks that could harm our business and adversely affect our financial condition and results of operations.

 

We are a holding company that owns interests in a number of different businesses. We have in the past, and intend in the future, to acquire businesses that involve unknown risks, some of which will be particular to the industry in which the investment or acquisition targets operate, including risks in industries with which we are not familiar or experienced. There can be no assurance our due diligence investigations will identify every matter that could have a material adverse effect on us or the entities that we may acquire. We may be unable to adequately address the financial, legal and operational risks raised by such investments or acquisitions, especially if we are unfamiliar with the relevant industry, which can lead to significant losses on material investments. The realization of any unknown risks could expose us to unanticipated costs and liabilities and prevent or limit us from realizing the projected benefits of the investments or acquisitions, which could adversely affect our financial condition and liquidity. In addition, our financial condition, results of operations and the ability to service our debt may be adversely impacted depending on the specific risks applicable to any business we invest in or acquire and our ability to address those risks.

 

We could consume resources in researching acquisitions, business opportunities or financings and capital market transactions that are not consummated, which could materially adversely affect subsequent attempts to locate and acquire or invest in another business.

 

We are a holding company in the business of owning diverse and profitable businesses. Our business model also encompasses researching and investigating new acquisitions and business opportunities to support the growth of our Company. With each new contemplated acquisition or business opportunity, there are resources that must be allocated towards acquisition or engaging in a new business opportunity such as, the negotiation, drafting and execution of relevant agreements, disclosure documents and other instruments with respect to such transaction and may require substantial management time and attention and substantial costs for financial advisors, accountants, attorneys and other advisors. If a decision is made not to consummate a specific acquisition, business opportunity or financing and capital market transaction, the costs incurred up to that point for the proposed transaction likely would not be recoverable. Furthermore, even if an agreement is reached relating to a specific acquisition, investment target or financing, we may fail to consummate the investment or acquisition for any number of reasons, including those beyond our control. Any such event could consume significant management time and result in a loss to us of the related costs incurred, which could adversely affect our financial position and our ability to consummate other acquisitions and investments.

 

 

We may fail to effectively integrate the businesses we acquire.

 

Historically, a portion of our growth has come through acquisitions. If we are unable to integrate acquired businesses successfully or realize anticipated synergies in a timely manner, our business and results of operations may be adversely affected. Integrating acquired businesses may be more difficult in a region or market where we have limited expertise. A significant expansion of our business and operations, in terms of geography or magnitude, could strain our administrative and/or operational resources. Significant acquisitions may also require incurring debt. This could increase our interest expense and make it difficult for us to obtain financing for other significant acquisitions or capital investments in the future.

 

ITEM 1B.

UNRESOLVED STAFF COMMENTS

 

None

 

ITEM 2.

PROPERTIES

 

On July 2, 2019, Brigadier finalized the purchase of its office facility and land located in Saskatoon for CAN $750,000 (Approximately US$572,858), funded by a bank loan of CAN$525,000 (approximately US$401,000) and CAN$225,000 (approximately US$171,858) in cash. The bank loan matures in 2024 and bears interest at the annual rate of 4.14%. The Company does not own any other plants or real property.

 

Facilities

 

Administrative offices are co-located in the facility leased by our subsidiary, Original Sprout, whose mailing address is 120 Calle Iglesia, San Clemente, California 92672. Our wholly-owned subsidiary, Brigadier, owns its land and buildings in Saskatoon and rents facilities in Regina, Canada. Our wholly-owned subsidiary, Gourmet Foods, rents facilities in Tauranga and in Napier, New Zealand. Our wholly-owned subsidiary, USCF Investments, leases office space in Walnut Creek, California. Our wholly-owned subsidiary Marygold UK rents office space in Croydon, England. We believe that the facilities described herein are adequate for our current and immediately foreseeable operating needs.

 

ITEM 3.

LEGAL PROCEEDINGS

 

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, USO and USCF are not currently party to any material legal proceedings.

 

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 and have moved for their dismissal.

 

 

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 stated that the SEC staff 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 Securities Act of 1933, as amended (the “1933 Act”), and Section 10(b) of the 1934 Act, and Rule 10b-5 thereunder.

 

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 stated that the CFTC staff 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).

 

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.

 

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 have moved for their dismissal.

 

Mehan Action

 

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

 

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

 

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

 

In re United States Oil Fund, LP Derivative Litigation

 

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

 

The complaints in the Cantrell and AML Actions are nearly identical. They each allege violations of Sections 10(b), 20(a) and 21D of the 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.

 

ITEM 4.

MINE SAFETY DISCLOSURES

 

Not applicable.

 

 

  

PART II

 

ITEM 5.

MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Our Common Stock presently trades on the New York Stock Exchange ("NYSE")-American. The high and low bid prices, as reported by NYSE American, are as follows for fiscal years ended June 30, 2022 and 2021. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

 

   

High

   

Low

 
   

Calendar 2020

 

3rd Quarter

  $ 1.00     $ 0.70  

4th Quarter

  $ 1.55     $ 0.71  
                 
   

Calendar 2021

 

1st Quarter

  $ 3.20     $ 1.27  

2nd Quarter

  $ 3.20     $ 1.90  

3rd Quarter

  $ 4.78     $ 1.75  

4th Quarter

  $ 3.96     $ 2.60  
                 
   

Calendar 2022

 

1st Quarter

  $ 7.11     $ 1.77  

2nd Quarter

  $ 2.30     $ 0.97  

 

Holders

 

On September 27, 2022, there were approximately 358 registered holders of record of our common stock.

 

Dividends

 

We have declared no dividends for the current year, nor do we expect to in the foreseeable future. Our ability to pay dividends is subject to limitations imposed by Nevada law. Under Nevada law, dividends may be paid to the extent that a corporation’s assets exceed its liabilities and it is able to pay its debts as they become due in the usual course of business. Under Nevada law, a company - such as our company - can pay dividends only

 

 

from retained earnings, and

  no distribution can be made, if after giving it effect,
  the corporation would not be able to pay its debts as they become due in the usual course of business; or
  except as otherwise specifically allowed by the articles of incorporation, the corporation’s total assets would be less than the sum of its total liabilities plus the amount that would be needed, if the corporation were to be dissolved at the time of distribution, to satisfy the preferential rights upon dissolution of stockholders whose preferential rights are superior to those receiving the distribution.

 

Our strategy on dividends is to declare and pay dividends only from retained earnings and only when our Board of Directors deems it prudent and in the best interests of the company to declare and pay dividends.

 

 

 

Recent Sales of Unregistered Securities; Shares Issued for Services; Outstanding Stock Options

 

On January 15, 2021, the Company issued 73,440 shares of unregistered common stock in the conversion of 3,672 shares of our Series B Voting Convertible Preferred Stock. The conversion of the preferred stock was non-dilutive as total voting shares remained unchanged. The Company neither sold or issued any other unregistered shares of any class of stock within the last two years up to and including June 30, 2022. 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 June 30, 2022 (see Note 17, Subsequent Events).

 

ITEM 6.

SELECTED FINANCIAL DATA

 

As a "smaller reporting company", we are not required to provide the information required by this Item.  

 

ITEM 7.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis should be read in conjunction with the 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 Annual Report on Form 10-K. See “Consolidated Financial Statements.” In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Some of the numbers included herein have been rounded for the convenience of presentation. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed in the “Special Note Regarding Forward Looking Statements” found on page 4 of this Annual Report on Form 10-K.

 

Our audited financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.

 

Introduction

 

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. The operations of the Company’s wholly-owned subsidiaries are more particularly described herein but are summarized as follows:

 

USCF Investments, Inc. (“USCF Investments”), a U.S. based company, is the sole member of two investment services limited liability company subsidiaries that manages, operates or is an investment advisor to exchange traded funds organized as limited partnerships or investment trusts that issue shares that trade on the NYSE Arca stock exchange.

Gourmet Foods, Ltd., a New Zealand based company, manufactures and distributes New Zealand meat pies on a commercial scale and its wholly-owned New Zealand subsidiary company, Printstock Products Limited, prints specialty wrappers for the food industry in New Zealand and Australia. (collectively "Gourmet Foods") 

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 June 30, 2022, and estimated to launch commercial services in the coming fiscal year. Through June 30, 2021, 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, together with its newly acquired UK subsidiary, Tiger Financial and Asset Management, Ltd. (collectively “Marygold UK”) is an asset manager and registered investment advisor in the UK. Operations began on June 20, 2022.

 

Because the Company conducts its businesses through its wholly-owned operating subsidiaries, the risks related to our wholly-owned subsidiaries are also risks that impact the Company's financial condition and results of operations.  See, "Note 2. Summary of Significant Accounting Policies / Major Customers and Suppliers - Concentration of Credit Risk" in the 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 I, Item 1A, for further details.)

 

Critical Accounting Policies

 

We have chosen accounting policies that we believe are appropriate to report accurately and fairly our operating results and financial position, and we apply those accounting policies in a consistent manner. Our significant policies are summarized in Note 2 to the Consolidated Financial Statements.

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principals ("US GAAP" or "GAAP") requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures of contingent assets and liabilities. We base our estimates on historical experience and other factors we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may vary from those estimates.

 

 

We believe the following accounting policies are the most critical in the preparation of our financial statements because they involve the most difficult, subjective or complex judgments about the effect of matters that are inherently uncertain.

 

Business Combinations - Purchase Price Allocation

 

We are a diversified holding company whose activities involve the acquisition of operating companies through stock purchase or asset purchase transactions. We account for business combinations using the acquisition method of accounting. All the assets acquired, liabilities assumed and amounts attributable to intangible assets, including goodwill, are recorded at their respective fair values at the date of acquisition. The determination of fair values of identifiable assets and liabilities involves estimates and the use of valuation techniques when market value is not readily available. We use various techniques to determine fair value in such instances, including the income approach and use of independent valuation firms. Significant estimates used in determining fair value include, but are not limited to, the amount and timing of future cash flows, growth rates, discount rates and useful lives. The excess of the purchase consideration over fair values of identifiable assets and liabilities is recorded as goodwill. See Note 8 for further detail on goodwill. Management’s estimate of fair value is based on assumptions believed to be reasonable, and are supported by independent valuations where possible, but nevertheless remain subjective and subject to future adjustment if actual results differ from the estimates.

 

Foreign Subsidiaries

 

We currently have three wholly-owned subsidiaries that are domiciled in foreign countries. In the future we may acquire additional foreign subsidiaries. The financial statements of our foreign subsidiaries are kept in accordance with their respective local jurisdictions and require adjustment in order to conform to U.S. GAAP. Additionally, local currencies of these subsidiaries require conversion to our US dollar in accordance with ASC 830, Foreign Currency Matters. Due to changing currency translation rates, the value of our assets and liabilities held in foreign jurisdictions are inherently volatile in nature and may vary significantly despite our use of averages and estimates.

 

Revenue Recognition

 

Our operating subsidiaries derive revenues from a number of sources including sales of hardware, services, food items, printing, financial services, and consumer products. The company recognizes the revenue when the product or service is delivered, or the ownership of the product is deemed to have been transferred to the buyer. We carefully monitor the outgoings of product shipments and service completions to ensure revenues are properly recorded. In the case of continued support services, such as warranty or extended contracts, the company makes an assessment at each reporting period as to the significance of the cost of such support or warranty. This estimate is based on historical experience and careful monitoring of costs throughout the reporting period to determine if any reserve should be recorded for estimated expenses. We believe we have made careful and reasonable estimates, however adjustments may be required in the future if actual results vary from our estimates.

 

Plan of Operation for the Next Twelve Months

 

Our plan of operation for the next twelve months is to apply necessary resources, which may include experienced personnel, cash, or synergistic acquisitions made with cash, equity or debt, into growing each of our business units to their potential. Original Sprout has found it necessary to alter its approach through domestic distribution channels. Due to the effects of the COVID-19 pandemic on consumer shopping habits, many domestic distributors have found it advantageous to sell direct to consumers online, thus becoming retailers in lieu of distributors. The result has been an erosion of profit margins and a fragmented sales channel which have slowed the product roll out plans of Original Sprout. They are in the final stages of correcting this situation and, in spite of incurring losses as a result, expect to realize significant growth in sales volume and profits in the coming fiscal year. Additionally, we are expecting moderate growth in Brigadier through focused management initiatives and partnering with local telecoms and contractors. Similarly, we expect Gourmet Foods to be operating more efficiently as low margin products are eliminated, new channels to market are established, and the printing and sale of food wrappers by their subsidiary, Printstock, continue to improve. USCF Investments will continue to develop innovative and new fund products to grow its portfolio. In addition to our long-term mission that is an acquisition strategy based upon identifying and acquiring profitable, mature, companies of a diverse nature and with in-place management that produces increased revenue streams, the Company is also focused upon building expertise and developing Fintech opportunities in the financial services sector through its development stage subsidiary Marygold and Co. To augment that effort, the Company established a subsidiary in England, Marygold UK, who acquired a registered UK investment advisor, Tiger Financial and Asset Management (“Tiger”). We hope to leverage the client list, industry experience, and banking relationships of Tiger to project our Marygold & Co fintech offerings in the UK during the coming fiscal year. In a more general sense, the Company is characterizing its business in two categories: 1) financial services and 2) other consumer-based operating units. The purpose is to isolate the cyclical, and sometimes volatile, nature of the financial services business from our other industry segments. As revenues from financial services fluctuate over time due to varying performance of the commodities markets, our other operations are expected to be stable and sustainable by comparison. By these initiatives we seek to:

 

continue to gain market share for our wholly-owned subsidiaries’ areas of operation,

increase our revenues and realize net operating profits,

lower our operating costs by unburdening certain selling expenses to third party distributors,

have sufficient cash reserves to pay down accrued expenses.

attract parties who have an interest in selling their privately held companies to us,

achieve efficiencies in accounting and reporting through adoption of standards used by all subsidiaries on a consistent basis,

strategically pursue additional company acquisitions, and

launch of services by Marygold & Co., Marygold UK, and Marygold & Co. Advisory Services LLC, and the creation of new corporate entities as focused subsidiary holdings.

 

 

Results of Operations

 

For the Year Ended June 30, 2022 Compared to the Year Ended June 30, 2021

 

Revenue and Operating Income

 

Consolidated revenue for the year ended June 30, 2022 was $37.8 million representing a $2.1 million decrease from the prior year revenue of $39.9 million. The decrease in consolidated revenues is primarily attributed to the decrease in annual revenues of USCF Investments. USCF Investments' average Assets Under Management ("AUM") for the year ended June 30, 2022 was lower than that of 2021, which resulted in a revenue decrease of approximately $1.3 million. The other subsidiaries combined for a total decrease in revenues of approximately $740 thousand, in part due to a loss in currency translation between the New Zealand dollar the U.S. dollar. The Marygold Companies produced an operating income for the year ended June 30, 2022 of $2.4 million as compared to $7.4 million for the year ended June 30, 2021. This represents a decrease in operating income of $5.0 million for the year ended June 30, 2022 when compared to the year ended June 30, 2021 or approximately 125%. Apart from the $2.1 million decline in revenues, the difference in operating income is attributed to the expenses incurred by our subsidiary, Marygold & Co., in development of its mobile fintech app, which amounted to approximately $3.1 million, and a legal settlement of $2.5 million incurred by our USCF Investments subsidiary.

 

Other Income (Expenses) 

 

Other (expense) income for the years ended June 30, 2022 and 2021 were ($22) thousand and $216 thousand, respectively, resulting in income before income tax of $2.4 million and $7.6 million, respectively.

 

Income Tax

 

Provision for income tax for the years ended June 30, 2022 and 2021 are $1.2 million and $1.8 million, respectively, primarily attributable to our United States operations through our USCF Investments subsidiary. Income tax expense recorded at The Marygold Companies level totaled $1.1 million for the year ended June 30, 2022, while a tax expense of $1.5 million was recorded for the year ended June 30, 2021. The remaining income tax expense was recorded at the subsidiary level during the years ended June 30, 2022 and 2021.

 

Net Income

 

Overall, the net income between the year ended June 30, 2022 as compared to the year ended June 30, 2021 decreased by approximately $4.8 million, or approximately 83%, to approximately $1.1 million. The decrease in net income for the year ended June 30, 2022 was primarily attributable to lower fund management revenue from USCF Investments due to a lower amount of AUM coupled with approximately $3 million expensed in Marygold for the mobile fintech app development costs and legal settlement cost of $2.5 million.

 

Comprehensive Income

 

After giving consideration to currency translation loss of approximately $0.4 million our comprehensive income for the year ended June 30, 2022 was $0.8 million as compared to the year ended June 30, 2021 where there was a currency translation gain of $0.3 million which resulted in comprehensive income of $6.2 million. Comprehensive gain and loss are comprised of fluctuations in foreign currency exchange rates and effects in the valuation of our holdings in the U.K., New Zealand and Canada.

 

 

Investment Fund Management - USCF Investments

 

USCF Investments was founded as a holding company in March 2004 as a Delaware corporation with one subsidiary, Ameristock Corporation, which was an investment adviser to Ameristock Mutual Fund, Inc., a large cap value equity fund registered  under the Investment Company Act of 1940, as amended (the “1940 Act”). In January 2010, Ameristock Corporation was spun off as a standalone company. In May 2005, USCF was formed as a single member limited liability company in the state of Delaware. In June 2013, USCF Advisers was formed as a Delaware limited liability company and in July 2014, was registered as an investment adviser under the Investment Advisers Act of 1940, as amended. In November 2013, the USCF Advisers board of managers formed USCF ETF Trust (“ETF Trust”) as an open-end management investment company registered under the 1940 Act. The Trust is authorized to have multiple segregated series or portfolios. USCF Investments owns all of the issued and outstanding limited liability company membership interests of its subsidiaries, USCF and USCF Advisers, each a Delaware limited liability company and are affiliated companies.  USCF serves as the general partner (“General Partner”) for various limited partnerships (“LP”) and sponsor (“Sponsor”) as noted below. USCF and USCF Advisers are subject to federal, state and local laws and regulations generally applicable to the investment services industry. USCF is a commodity pool operator (“CPO”) subject to regulation by the Commodity Futures Trading Commission (the “CFTC”) and the National Futures Association (the “NFA”) under the Commodities Exchange Act (“CEA”). USCF Advisers is an investment adviser registered under the Investment Advisers Act of 1940, as amended and has registered as a CPO under the CEA. Exchange traded products (“ETPs”) issued or sponsored by USCF are required to be registered with the Securities and Exchange Commission (the “SEC”) in accordance with the Securities Act of 1933.  USCF Investments operates through USCF and USCF Advisers, which collectively operate twelve exchange-traded products (“ETPs”) and exchange traded funds (“ETFs”), regulated by the 1940 Act and 1933 Act, and listed on the NYSE Arca, Inc. (“NYSE Arca”) with a total of approximately $4.9 billion assets under management as of June 30, 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 adviser 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 launched November 2021

USCF Dividend Income Fund ("UDI") Fund launched June 2022

 

All commodity pools managed by USCF and each series of the ETF Trust managed by USCF Advisers are collectively referred to as the “Funds” hereafter.

 

USCF Investments' revenue and expenses are primarily driven by the amount of AUM. USCF Investments earns monthly management and advisory fees based on agreements with each Fund as determined by the contractual basis point management fee structure in each agreement multiplied by the average AUM over the given period. Many of the company’s expenses are dependent upon the amount of AUM. These variable expenses include Fund administration, custody, accounting, transfer agency, marketing and distribution, and sub-adviser fees and are primarily determined by multiplying contractual fee rates by AUM. Total Operating Expenses are grouped into the following financial statement line items: General and Administrative, Marketing, Operations and Salaries and Compensation.

 

For the Year Ended June 30, 2022, Compared to the Year Ended June 30, 2021

 

Revenue

 

Average AUM for the year ended June 30, 2022 was at $4.4 billion, as compared to approximately $4.9 billion from the year ended June 30, 2021 primarily due to a decrease in AUM at USO, BNO and USL. As a result, the revenues from management and advisory fees decreased by approximately $1.4 million, or 5%, to $23.8 million for the year ended June 30, 2022 as compared to the year ended June 30, 2021 where revenues from management and advisory fees totaled $25.2 million.

 

 

Expenses

 

USCF Investments’ total operating expenses for the year ended June 30, 2022 increased by $1.5 million, after recording the $2.5 million Wells Notice payment, to $16.7 million, or approximately 10%, from $15.2 million for the year ended June 30, 2021. Variable expenses, as described above, increased by $0.8 million over the respective twelve-month period due to higher AUM for UMI and USCI during the fiscal year which resulted in higher sub-advisory fees, partially offset by lower marketing and distribution expenses and other variable costs from other funds with lower average AUM during the fiscal year. General and Administrative expenses decreased $1.3 million to $2.1 million for the year ended June 30, 2022 from $3.4 million for the year ended June 30, 2021 due to a $0.8 million decrease in expense waivers as a result of eliminating expense waivers for BNO, UGA and CPER in May 2021 along with a $0.5 million decrease in legal and professional expenses. Total marketing expenses decreased $0.1 million to $2.5 million for the year ended June 30, 2022 as compared to the prior year period due to a decrease in marketing distribution costs as a result of lower overall AUM, partially offset by increases in advertising and marketing conferences. Other Operating expenses increased by $0.9 million primarily due to higher sub-adviser fees as result of higher AUM for UMI and USCI, partially offset by lower fund administration expense due to lower average AUM from other funds. Employee Salaries and Compensation expenses were approximately $4.9 million and $5.4 million, a decrease of $0.5 million, for the years ended June 30, 2022 and June 30, 2021, respectively, primarily due to moving three employees to The Marygold Companies parent to better align functions and the related expense across the entities.

 

Income

 

Income before income taxes for the year ended June 30, 2022 decreased $2.9 million to $7.1 million from $10.0 million for the year ended June 30, 2021 due to a $1.4 million decrease in revenue as a result of lower AUM, a $1.5 million  increase in operating expenses, and after recording the $2.5 million legal settlement expense.

 

Food Products - Gourmet Foods, Ltd.

 

Gourmet Foods 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 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 acquired the New Zealand company, Printstock Products Limited ("Printstock"). Located in nearby Napier, New Zealand, Printstock prints wrappers for food products, including those used by Gourmet Foods. Printstock is a wholly-owned subsidiary of Gourmet Foods and its operating results are consolidated with those of Gourmet Foods 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 Accounting Standards Codification ("ASC") 830, Foreign Currency Matters. 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 Year Ended June 30, 2022, Compared to the Year Ended June 30, 2021

 

Revenue

 

Net revenues for the year ended June 30, 2022 were $7.9 million with cost of goods sold of $5.9 million resulting in a gross profit of $2.0 million, or approximately 25% gross margin, as compared to the year ended June 30, 2021 where net revenues were $8.3 million and cost of goods sold were $5.7 million producing a gross profit of $2.6 million, or approximately 31% gross margin. The decrease in revenues is attributed to the decline of the New Zealand dollar against the U.S. dollar coupled with the effects of the ongoing COVID-19 pandemic on consumer shopping habits, shipping costs and ingredient availability. 

 

Expenses

 

General, administrative and selling expenses, including wages and marketing, for the year ended June 30, 2022 and 2021 were $1.6 million and $1.7 million, respectively, producing operating income of $0.4 million and $0.8 million, respectively, or approximately 4% net operating profit for the year ended June 30, 2022 and 10% for the year ended June 30, 2021. The depreciation expense and other income (expense) totaled approximately ($29) thousand for the year ended June 30, 2022 as compared to ($157) thousand for the year ended June 30, 2021. 

 

 

Income

 

Income for the year ended June 30, 2022, after income tax of $0.1 million, resulted in net income of approximately $0.3 million as compared to a net income of $0.5 million for the year ended June 30, 2021. 

 

Security Systems - Brigadier Security Systems (2000) Ltd.

 

Brigadier Security Systems, founded in 1985, is a leading electronic security company in the province of Saskatchewan.  Brigadier Security Systems has offices located in the urban areas of Saskatchewan, Brigadier Security in Saskatoon, and operating as Elite Security in Regina. The company has a combined industry experience of over 135 years. Brigadier provides comprehensive security solutions including access control, camera systems, fire alarm monitoring panels, and intrusion alarms to home and business owners as well as government offices, schools, and public buildings. Their experience as the provider of choice on many large notable sites shows a commitment to design, service and support.   Brigadier specializes, and is certified, in several major manufacturers’ products: Honeywell Security, Panasonic, Avigilon and JCI/DSC/Kantech security products. The company and staff are recognized for dedication to customer service with annual awards from SecurTek including being recipients of the Customer Retention, Service Excellence, and overall best dealer with the President’s Award.  The company demonstrates a commitment to delivering outstanding quality to customers by the notable facilities, businesses, and homes they secure.

 

Brigadier Security Systems is an authorized SecurTek dealer. SecurTek is owned by SaskTel which is Saskatchewan's leading Information and Communications Technology (ICT) provider with over 1.4 million customer connections across Canada. Under the terms of its authorized dealer contract with the monitoring company, Brigadier earns monthly payments during the term of the monitoring contract in exchange for performance of customer service activities on behalf of the monitoring company.

 

Brigadier operates exclusively in Canada and thus the Canadian dollar is its functional currency. In order to consolidate The Marygold Companies’ reporting currency, the U.S. dollar, with that of Brigadier, The Marygold Companies records foreign currency translation adjustments and transaction gains and losses in accordance with ASC 830, Foreign Currency Matters. The translation of Canadian currency into U.S. dollars is performed for balance sheet accounts using the exchange rates in effect at the balance sheet date and for revenue and expense accounts using a weighted average exchange rate during the period.

 

For the Year Ended June 30, 2022, Compared to the Year Ended June 30, 2021

 

Revenue

 

Net revenues for the year ended June 30, 2022 were $2.5 million with cost of goods sold of approximately $1.2 million, resulting in a gross profit of approximately $1.3 million with a gross margin of approximately 54% as compared to the year ended June 30, 2021 where net revenues were approximately $2.7 million with cost of goods sold of $1.3 million and a gross profit of $1.4 million, or approximately 53% gross margin. 

 

Expenses

 

General, administrative and selling expenses for the year ended June 30, 2022 were $1.1 million producing an operating profit of $0.2 million or approximately 10% operating profit margin as compared to the year ended June 30, 2021 where general, administrative and selling expenses were $1.2 million producing an operating profit of $0.2 million, or approximately 11% operating profit margin.

 

Income

 

Other income (expense) comprised of rental income, commission income, gain on sale of assets, and income tax totaling approximately $12 thousand for the year ended June 30, 2022 resulted in income after income taxes of approximately $0.3 million as compared to income after income taxes of approximately $0.3 million for the year ended June 30, 2021 with expenses totaling approximately ($6) thousand.

 

 

Beauty Products - Original Sprout 

 

Kahnalytics was founded in 2015 and adopted the dba/Original Sprout in December 2017. Original Sprout formulates and packages various hair and skin care products that are 100% vegan, tested safe and non-toxic, and marketed globally through distribution networks to salons, resorts, grocery stores, health food stores, e-tail sites and on the company's website. The company operates from warehouse and sales offices located in San Clemente, CA, USA. As a result of the ongoing COVID-19 pandemic, Original Sprout has made adjustments to its primary channels to market. Prior to the pandemic Original Sprout relied heavily upon its wholesale distribution network to place products at retail locations and generally to make products available to consumers, whereas in the current environment of social distancing and closures of retail businesses the company found a significant drop in sales volumes as consumers avoided traditional sales outlets. In response to this trend, Original Sprout has established new sales channels with online retailers and also encouraged those national retail chains who stock the product to also make it available at online shopping carts. The positive effects of this transition are now being realized while at the same time the negative effects of the pandemic on the wholesale distribution business continues to increase for the U.S. market. The result is that sales overall have been relatively stable during the pandemic, though derived from different sources. Contributing to lower profit margins and higher expenses during the current fiscal year are the one-time costs of relocating to a larger facility during December and January, the disposal of obsolete product, the transition to new packaging and new product development. 

 

For the Year Ended June 30, 2022, Compared to the Year Ended June 30, 2021

 

Revenue

 

Net revenues for the year ended June 30, 2022 were $3.5 million with cost of goods sold of approximately $2.1 million resulting in a gross profit of approximately $1.4 million and a gross margin of approximately 41% compared to the year ended June 30, 2021 were net revenues totaled $3.8 million with cost of goods sold of approximately $2.3 million resulting in a gross profit of approximately $1.5 million and a gross margin of approximately 40%.

 

Expenses

 

General, administrative and selling expenses for the years ended June 30, 2022 and 2021 were approximately $1.6 million and $1.5 million, respectively, resulting in operating (losses) of approximately ($193) thousand and ($210) thousand, respectively.

 

Income

 

After consideration given to income tax provision and other income of $5 thousand and $27 thousand, respectively, the net (loss) for the years ended June 30, 2022 and 2021 was approximately ($188) thousand and ($192) thousand, respectively.

 

Liquidity and Capital Resources

 

The Marygold Companies is a holding company that conducts its operations through its subsidiaries. At the holding-company level, its liquidity needs relate to operational expense, the funding of additional business acquisitions and new investment opportunities. Our operating subsidiaries' principal liquidity requirements arise from cash used in operating activities, debt service, and capital expenditures, including purchases of equipment and services, operating costs and expenses, and income taxes. Cash is managed at the holding company or the subsidiary level. There are no limitations or constraints on the movement of funds between the entities.

 

As of June 30, 2022, we had $12.9 million of cash and cash equivalents on a consolidated basis as compared to $16.1 million as of June 30, 2021. The decrease in cash was primarily due to the continuing investment in the development of the mobile fintech app by Marygold and the $2.5 million legal settlement expense.

 

During the past five fiscal years combined, The Marygold Companies has invested an aggregate of approximately $6.6 million in cash towards purchasing and assimilating Printstock within Gourmet Foods, and adding the Original Sprout assets into the The Marygold Companies group of companies as well as forming a new U.K. limited company, Marygold UK, and funding it with enough capital to pay approximately $1.8 million in cash towards the $2.9 million purchase price of its subsidiary, Tiger. We have also invested approximately $6.1 million in the development of Fintech applications through our development stage subsidiary, Marygold. Despite these cash investments and expenses, our working capital position remains strong at $20 million. While The Marygold Companies intends to maintain and improve its revenue stream from wholly owned subsidiaries, The Marygold Companies continues to pursue acquisitions of other profitable companies which meet its target profile. Provided The Marygold Companies’ subsidiaries continue to operate as they are presently, and are projected to operate, The Marygold Companies has sufficient capital to pay its general and administrative expenses for the coming fiscal year and to adequately pursue its long-term business objectives. However, given the significant economic and financial market disruptions associated with the COVID-19 pandemic, the Company’s results of operations could be adversely impacted.

 

Lease Liability

 

In relation to the adoption of ASC 842, the Company recognized $1,150,916 of operating lease liabilities on July 1, 2019. The total amount due under these obligations was $1,404,880 and $1,120,631 as of June 30, 2022 and June 30, 2021, respectively. The obligations will reduce over the passage of time through periodic lease payments. See Note 14 for further analysis of this obligation.

 

 

Borrowings

 

As of June 30, 2022, we had $0.4 million of third-party indebtedness on a consolidated basis as compared to $1.0 million of third-party and related-party indebtedness as of June 30, 2021. Approximately US$365,429 is owed by Brigadier and secured with the land and building in Saskatoon purchased in July 2019. The initial principal balance was CD$525,000 (approximately US$401,000 translated as of the loan date July 1, 2019) with an annual interest rate of 4.14% maturing June 30, 2024. The short-term portion of principal for this loan due within 12 months as of June 30, 2021 is CD$19,509 (approximately US$15,135) and the long term principal amount due is CD$451,506 (approximately US$350,293). Interest on the loan is expensed or accrued as it becomes due. Interest expense on the loan for the year ended June 30, 2022 and 2021 was US$15,742 and US$16,078, respectively.

 

In addition to the loan due by Brigadier, our subsidiary, Gourmet Foods, on December 21, 2021 entered into a finance lease agreement related to a solar energy system. The present value of the leased asset is included on the Consolidated Balance Sheets with property, plant and equipment as US$138,030. The solar assets are amortized over a life span of 10 years with monthly payments, including GST, totaling $12,488 for the year ended June 30, 2022. 

 

The Marygold Companies, without inclusion of its subsidiary companies, as of June 30, 2022, has no debt whereas on June 30, 2021 the Company had $0.6 million of related-party indebtedness. 

 

Investments

 

USCF Investments, from time to time, provides initial investments in the creation of ETP funds that USCF Investments manages. USCF Investments classifies these investments as current assets as these investments are generally sold within one year from the balance sheet date. As of June 30, 2022 and June 30, 2021, USCF Investments held an initial investment position of $1.3 million and $0, respectively,  in one of its 40 Act funds, GLDX. This investment along with other investments, as applicable, are described further in Note 7 to our Financial Statements.

 

Dividends

 

Our strategy on dividends is to declare and pay dividends only from retained earnings and only when our Board of Directors deems it prudent and in the best interests of the Company to declare and pay dividends. We paid no dividends during the years ended June 30, 2022 and 2021.

 

Off-Balance Sheet Arrangements

 

At June 30, 2022, and as of September 27, 2022, we have not entered into any transaction, agreement or other contractual arrangement with an entity unconsolidated with us under which we have:

 

 

An obligation under a guarantee contract,

  A retained or contingent interest in assets transferred to the unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to such entity for such assets,
  An obligation, including a contingent obligation, arising out of a variable interest in an unconsolidated entity that is held by, and material to, us where such entity provides financing, liquidity, market risk or credit risk support to, or engages in leasing, hedging, or research and development services with us.

 

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a "smaller reporting company", we are not required to provide the information required by this Item.

 

 

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Our financial statements appear as follows:

 

Report of Independent Registered Public Accounting Firm. BPM San Francisco, CA. (Firm ID No. 207)

 

F-1

Consolidated Balance Sheets, as of June 30, 2022 and 2021

 

F-2

Consolidated Statements of Income for the years ended June 30, 2022 and 2021

 

F-3

Consolidated Statements of Comprehensive Income for the years ended June 30, 2022 and 2021

 

F-4

Consolidated Statements of Stockholders’ Equity for the years ended June 30, 2022 and 2021

 

F-5

Consolidated Statements of Cash Flows, for the years ended June 30, 2022 and 2021

 

F-6

Notes to Consolidated Financial Statements

 

F-7

 

  

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Board of Directors and
Stockholders of The Marygold Companies, Inc. and Subsidiaries

 

Opinion on the Consolidated Financial Statements

 

We have audited the accompanying consolidated balance sheets of The Marygold Companies, Inc. and subsidiaries (the “Company”) as of June 30, 2022 and 2021, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the two-year period ended June 30, 2022, and the related notes (collectively referred to as “the consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two-year period ended June 30, 2022, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Critical Audit Matter

 

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee of the Board of Directors and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

 

Description of the Matter

 

As described in Note 15, Commitments and Contingencies, of the consolidated financial statements, the Company is party to various legal proceedings and regulatory inquiries. The Company discloses the legal proceedings and that no accrual has been recorded with respect to them as of June 30, 2022. The Company further discloses that it is currently unable to predict the timing or outcome of, or reasonably estimate the possible losses or range of possible losses resulting from these matters, and that it is reasonably possible that this estimate will change in the near term. The Company discloses that an adverse outcome regarding these matters could materially adversely affect the Company’s financial condition, results of operations and cash flows. Auditing the Company’s accounting for, and disclosure of, loss contingencies related to the various legal proceedings was especially challenging due to the significant judgement required to evaluate management’s assessment of the likelihood of a loss, and of the potential amount or range of such loss.

 

How We Addressed the Matter in Our Audit

 

To test the Company’s assessment of the probability of incurrence of a loss, whether the loss was reasonably estimable, and the conclusion and disclosures regarding any range of possible losses, including when the Company believes such a range cannot be reasonably estimated at this time, we read the minutes or a summary of the meetings of the Board of Directors, requested and received internal and external legal counsel confirmations letters, discussed with legal counsel the nature of the various matters and obtained representations from management. We also evaluated the appropriateness of the related disclosures included in Note 15, Commitments and Contingencies, to the consolidated financial statements.

 

/s/ BPM LLP

 

We have served as the Company’s auditor since 2017.

 

San Francisco, California

September 28, 2022

  

 

 

THE MARYGOLD COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

   

June 30, 2022

   

June 30, 2021

 
                 

ASSETS

 
                 

CURRENT ASSETS

               

Cash and cash equivalents

  $ 12,915,620     $ 16,072,955  

Accounts receivable, net

    959,350       1,070,541  

Accounts receivable - related parties

    2,230,874       2,038,054  

Inventories

    2,200,742       1,951,792  

Prepaid income tax and tax receivable

    1,166,318       747,343  

Investments, at fair value

    5,065,931       1,828,926  

Other current assets

    699,547       399,524  

Total current assets

    25,238,382       24,109,135  
                 

Restricted cash

    1,013,279       13,989  

Property, plant and equipment, net

    1,391,894       1,573,445  

Operating lease right-of-use asset

    1,357,686       1,058,199  

Goodwill

    2,307,202       1,043,473  

Intangible assets, net

    2,708,896       2,341,803  

Deferred tax assets, net - United States

    753,078       827,476  

Other assets, long - term

    540,160       540,160  

Total assets

  $ 35,310,577     $ 31,507,680  
                 

LIABILITIES AND STOCKHOLDERS' EQUITY

 
                 

CURRENT LIABILITIES

               

Accounts payable and accrued expenses

  $ 2,805,790     $ 3,862,874  

Expense waivers – related parties

    70,199       69,684  

Operating lease liabilities, current portion

    660,957       513,071  

Purchase consideration payable

    1,237,207       -  

Notes payable - related parties

    -       603,500  

Loans-property and equipment, current portion

    33,496       15,094  

Total current liabilities

    4,807,649       5,064,223  
                 

LONG-TERM LIABILITIES

               

Loans-property and equipment, net of current portion

    459,178       379,804  

Operating lease liabilities, net of current portion

    743,923       607,560  

Deferred tax liabilities, net - foreign

    260,553       169,429  

Total long-term liabilities

    1,463,654       1,156,793  

Total liabilities

    6,271,303       6,221,016  
                 

STOCKHOLDERS' EQUITY

               

Convertible preferred stock, $0.001 par value; 50,000,000 shares authorized

               

Series B: 49,360 shares issued and outstanding at June 30, 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 June 30, 2022 and 37,485,959 at June 30, 2021

    39,384       37,486  

Additional paid-in capital

    12,313,205       9,330,843  

Accumulated other comprehensive (loss) income

    (234,790 )     142,581  

Retained earnings

    16,921,426       15,775,705  

Total stockholders' equity

    29,039,274       25,286,664  

Total liabilities and stockholders' equity

  $ 35,310,577     $ 31,507,680  

 

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

 

 

 

THE MARYGOLD COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

 

   

Year Ended

   

Year Ended

 
   

June 30, 2022

   

June 30, 2021

 
                 
                 

Net revenue

               

Fund management - related party

  $ 23,835,348     $ 25,169,182  

Food products

    7,930,888       8,263,267  

Security systems

    2,533,098       2,715,487  

Beauty products and other

    3,529,789       3,756,512  

Net revenue

    37,829,123       39,904,448  
                 

Cost of revenue

    9,194,783       9,290,616  
                 

Gross profit

    28,634,340       30,613,832  
                 
                 

Operating expense

               

Salaries and compensation

    8,812,081       8,843,618  

General and administrative expense

    6,794,645       7,140,870  

Fund operations

    4,600,535       3,658,593  

Marketing and advertising

    2,985,659       2,952,295  

Legal settlement

    2,500,000       -  

Depreciation and amortization

    561,019       599,979  

Total operating expenses

    26,253,939       23,195,355  
                 

Income from operations

    2,380,401       7,418,477  
                 
                 

Other income (expense):

               

Interest and dividend income

    35,357       28,823  

Interest expense

    (31,512 )     (40,375 )

Other (expense) income, net

    (26,125 )     227,976  

Total other (expense) income, net

    (22,280 )     216,424  
                 

Income before income taxes

    2,358,121       7,634,901  
                 

Provision of income taxes

    (1,212,400 )     (1,785,458 )
                 

Net income

  $ 1,145,721     $ 5,849,443  
                 

Weighted average shares

               

Basic and diluted

    39,034,611       38,473,159  
                 

Net income per share

               

Basic and diluted

  $ 0.03     $ 0.15  

 

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

 

 

 

THE MARYGOLD COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

   

Year Ended

   

Year Ended

 
   

June 30, 2022

   

June 30, 2021

 
                 

Net income

  $ 1,145,721     $ 5,849,443  
                 

Other comprehensive income:

               

Foreign currency translation (loss) gain

    (377,371 )     287,325  

Comprehensive income

  $ 768,350     $ 6,136,768  

 

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

 

 

 

THE MARYGOLD COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE YEARS ENDED JUNE 30, 2022 AND 2021

 

   

Convertible Preferred Stock

                                                 
   

(Series B)

   

Common Stock

                                 
                                           

Accumulated

                 
                                   

Additional

   

Other

           

Total

 
   

Number of

           

Number of

   

Par

   

Paid - in

   

Comprehensive

   

Retained

   

Stockholders'

 
   

Shares

   

Amount

   

Shares

   

Value

   

Capital

   

(Loss) Income

   

Earnings

   

Equity

 

Balance at July 1, 2020

    53,032     $ 53       37,412,519     $ 37,413     $ 9,330,912     $ (144,744 )   $ 9,926,262     $ 19,149,896  

Gain on currency translation

    -       -       -       -       -       287,325       -       287,325  

Conversion of preferred stock to common stock

    (3,672 )     (4 )     73,440       73       (69 )     -       -       -  

Net income

    -       -       -       -       -       -       5,849,443       5,849,443  

Balance at June 30, 2021

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

Loss on currency translation

    -       -       -       -       -       (377,371 )     -       (377,371 )

Issuance of common stock in public offering, net of issuance costs $549,090

    -       -       1,897,500       1,898       2,982,362       -       -       2,984,260  

Net income

    -       -       -       -       -       -       1,145,721       1,145,721  

Balance at June 30, 2022

    49,360     $ 49       39,383,459     $ 39,384     $ 12,313,205     $ (234,790 )   $ 16,921,426     $ 29,039,274  

 

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

 

 

 

THE MARYGOLD COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   

For the years ended

 
   

2022

   

2021

 

CASH FLOWS FROM OPERATING ACTIVITIES:

               

Net income

  $ 1,145,721     $ 5,849,443  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Depreciation and amortization

    561,019       599,979  

Deferred taxes

    51,689       (19,092 )

Bad debt expense

    4,350       9,753  

Inventory provision

    10,509       65,021  

Unrealized gain on investments

    (28,474 )     (582 )

(Gain) loss on disposal of equipment

    (17,455 )     18,813  

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

    764,311       614,506  
                 

(Increase) decrease in operating assets:

               

Accounts receivable, net

    44,356       (306,596 )

Accounts receivable - related party

    (192,820 )     572,863  

Prepaid income taxes and tax receivable

    (431,005 )     114,083  

Inventories

    (379,905 )     (787,081 )

Other current assets

    (287,750 )     223,590  

Increase (decrease) in operating liabilities:

               

Accounts payable and accrued expenses

    (1,048,279 )     978,726  

Operating lease liabilities

    (777,082 )     (361,823 )

Expense waivers - related party

    515       (352,207 )

Net cash (used in) provided by operating activities

    (580,300 )     7,219,396  
                 

CASH FLOWS FROM INVESTING ACTIVITIES:

               

Cash paid for acquisition of business, net

    (508,851 )     (1,115,545 )

Purchase of property, plant and equipment

    (44,041 )     (77,721 )

Proceeds from sale of property, plant and equipment

    31,612       -  

Proceeds from sale of investments

    508,122       -  

Purchase of investments

    (3,712,250 )     (7,827 )

Net cash used in investing activities

    (3,725,408 )     (1,201,093 )
                 

CASH FLOWS FROM FINANCING ACTIVITIES:

               

Cash received from sale of common stock, net

    2,984,260       -  

Repayment of related party loans

    (603,500 )     -  

Repayment of property and equipment loans

    (41,884 )     (28,434 )

Net cash provided by (used in) financing activities

    2,338,876       (28,434 )
                 
                 
                 

Effect of exchange rate change on cash, cash equivalents and restricted cash

    (191,213 )     271,033  
                 

NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

    (2,158,045 )     6,260,902  
                 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING BALANCE

    16,086,944       9,826,042  
                 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, ENDING BALANCE

  $ 13,928,899     $ 16,086,944  
                 

Cash and cash equivalents

  $ 12,915,620     $ 16,072,955  

Restricted cash

    1,013,279       13,989  

Total cash, cash equivalents and restricted cash shown in statement of cash flows

  $ 13,928,899     $ 16,086,944  
                 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

               

Cash paid during the period for:

               

Interest paid

  $ 16,401     $ 16,095  

Income taxes paid, net

  $ 1,704,970     $ 1,688,781  
                 

NON CASH INVESTING AND FINANCING ACTIVITIES

               

Reclassification of business acquisition deposit

  $ -     $ 122,111  

Purchase consideration payable

  $ 1,237,207     $ -  

Fair value of warrants of common stock issued to underwriters

  $ 132,000     $ -  

Acquistion of equipment through finance lease liability

  $ 150,625     $ -  

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

  $ 1,057,965     $ 730,741  

 

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

 

 

 

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 June 30, 2022, and is estimated to launch commercial services within the current calendar year. Through June 30, 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 for purposes of segmented reporting.

Marygold & Co. (UK) Limited, a newly formed U.K. limited company, together with its newly acquired UK subsidiary, Tiger Financial and Asset Management, Ltd. (collectively “Marygold UK”) is an asset manager and registered investment advisor in the UK. Operations began on June 20, 2022. 

 

The Marygold Companies manages its operating businesses on a decentralized basis. There are no centralized or integrated operational functions such as marketing, sales, legal or other professional services and there is little involvement by The Marygold Companies’ management in the day-to-day business affairs of its operating subsidiary businesses apart from oversight. The Marygold Companies’ corporate management is responsible for capital allocation decisions, investment activities and selection and retention of the Chief Executive to head each of the operating subsidiaries. The Marygold Companies’ corporate management is also responsible for corporate governance practices, monitoring regulatory affairs, including those of its operating businesses and involvement in governance-related issues of its subsidiaries as needed.

  

 

NOTE 2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation and Accounting Principles

 

The Company has prepared the accompanying financial statements on a consolidated basis. In the opinion of management, the accompanying consolidated balance sheets and related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows include all adjustments, consisting only of normal recurring items, necessary for their fair presentation, prepared on an accrual basis, in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

 

Principles of Consolidation

 

The accompanying consolidated financial statements, which are referred herein as the “Financial Statements”, include the accounts of The Marygold Companies and its wholly-owned subsidiaries, USCF Investments, Gourmet Foods, Brigadier, Original Sprout, Marygold and Marygold UK are presented on a consolidated basis.

 

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

 

Use of Estimates

 

The preparation of the Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

F- 7

 

Cash and Cash Equivalents

 

Cash and cash equivalents includes all cash and 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, United Kingdom, Canada, and New Zealand. Accounts in the United States are insured by the Federal Deposit Insurance Corporation up to $250,000 per depositor, accounts in Canada are insured by the Canada Deposit Insurance Corporation up to CD$100,000 per depositor and accounts in the United Kingdom are insured by the Financial Services Compensation Scheme up to £85,000. 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 from 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 June 30, 2022 and June 30, 2021, the Company had $4,350 and $15,499, respectively, reserved for doubtful accounts.

 

Accounts receivable - related parties, consist of fund asset management fees receivable from 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 June 30, 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, as a newly formed development stage entity, had no revenues and no significant transactions for the years ended June 30, 2022 and 2021. Any transactions that did occur were combined with those of The Marygold Companies. Marygold UK began operations through its newly acquired subsidiary, Tiger, on June 20, 2022 and had no significant transactions for the year ended June 30, 2022.

 

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 12 month revenues and accounts receivable – related parties as of June 30, 2022 and June 30, 2021 as depicted below.

 

   

Year ended June 30, 2022

   

Year ended June 30, 2021

 
   

Revenue

   

Revenue

 

Fund

                               

USO

  $ 12,634,794       53 %   $ 16,361,870       65 %

BNO

    2,074,177       9 %     2,665,589       11 %

UNG

    2,380,912       10 %     2,054,047       8 %

USCI

    2,266,692       10 %     1,176,094       5 %

All Others

    4,478,773       18 %     2,911,582       11 %

Total

  $ 23,835,348       100 %   $ 25,169,182       100 %

 

   

June 30, 2022

   

June 30, 2021

 
   

Accounts Receivable

   

Accounts Receivable

 

Fund

                               

USO

  $ 1,101,495       49 %   $ 1,156,691       57 %

BNO

    192,208       9 %     196,713       10 %

USCI

    270,796       12 %     141,346       7 %

UNG

    249,638       11 %     130,543       6 %

All Others

    416,737       19 %     412,761       20 %

Total

  $ 2,230,874       100 %   $ 2,038,054       100 %

 

F- 8

 

The Marygold Companies, 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. While these major groups are comprised of different customers and supply chains, we consider the consolidation of Gourmet Foods with Printstock to be within the food industry as Printstock only supplies the food industry manufacturers, some of which are competitors to Gourmet Foods, and the inclusion of Printstock to the Gourmet Foods operations does not extend its presence beyond the food industry. Therefore, for the purpose of segment reporting (Note 15), both revenue streams are considered part of the same "food industry" segment.

 

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 year ended June 30, 2022, Gourmet Foods’ largest customer in the grocery and food industry, who operates through a number of independently branded stores, accounted for approximately 22% of baking sales revenues as compared to 18% for the year ended June 30, 2021. This customer accounted for 25% of the baking accounts receivable at June 30, 2022 as compared to 19% as of June 30, 2021. The second largest customer in the grocery and food industry did not account for significant sales during the years ended June 30, 2022 and 2021. However, this customer did account for 26% and 27% of baking accounts receivable as of June 30, 2022 and 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 years ended June 30, 2022 and 2021 accounted for approximately 50% and 49%, respectively, of baking gross sales revenues. No single member of the consortium is responsible for a significant portion of Gourmet Foods’ baking accounts receivable, however as a group they collectively accounted for 21% and 22% of baking accounts receivable as of June 30, 2022 and 2021, respectively. A second consortium of gasoline convenience stores accounted for 23% of baking accounts receivable as of June 30, 2022 and June 30, 2021. No single member of this consortium was a significant contributor to Gourmet Foods' sales revenues, but as a group they contributed 8% and 9% of the baking sales revenues for the years ended June 30, 2022 and 2021, respectively.

 

The third major customer group is independent retailers and cafes, which accounted for the balance of baking gross sales revenue, however no single customer in this group was a significant contributor of baking sales revenues or baking accounts receivable as of and for the years ended June 30, 2022 and 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 37% of the printing sector revenues and 39% of the printing sector accounts receivable as of and for the year ended June 30, 2022 as compared to 33% of printing sector revenues and 40% of printing sector accounts receivable as of and for the year ended June 30, 2021. No other customers comprised a significant contribution to printing sector sales revenues or accounts receivable as of and for the years ended June 30, 2022 and 2021. 

 

Consolidated: With respect to Gourmet Foods’ consolidated risk, the largest three customers accounted for 32%, 14% and 13% as compared to 32%, 12% and 12% of Gourmet Foods' consolidated gross revenues for the years ended June 30, 2022 and 2021, respectively. These same customers accounted for 7%, 8% and 26%, respectively, of the consolidated accounts receivable of Gourmet Foods as of June 30, 2022 as compared to 8%, 7%, 26%, respectively, as of June 30, 2021.

 

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 that 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 52% and 49% of the total Brigadier revenues for the years ended June 30, 2022 and June 30, 2021, respectively. The same customer accounted for approximately 31% of Brigadier's accounts receivable as of the balance sheet date of June 30, 2022 and 2021. No other customers were significant for the year ended June 30, 2022, however another customer accounted for 12% of total Brigadier revenues and 39% of accounts receivable as of and for the year ended 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, sells its products through 3 channels to market: 1) direct sales to end users via online shopping carts, 2) sales through international wholesale distributors who, in turn, sell to other retailers or wholesalers, and 3) to retail stores selling to end users either from the shelf or online.

 

Original Sprout has thousands of customers and, from time to time, certain of them become significant during specific reporting periods, but may not be significant during other periods. Due to the increase in online sales channels and the discontinuation of most domestic distribution agreements, Original Sprout had 1 significant international distributor for the year ended June 30, 2022 which accounted for 11% of Original Sprout's total revenues as compared to 4% of total revenues for the year ended June 30, 2021. A different domestic customer, who was insignificant for the year ended June 30, 2022, accounted for 12% of sales for the year ended June 30, 2021. Six different customers, none of whom contributed significant sales levels, accounted for 19%, 16%, 15%, 13%, 12%, and 11% of total accounts receivable as of June 30, 2022 as compared to 15%, 30%, 6%, 7%, 17%, and 11%, respectively, as of June 30, 2021.

 

F- 9

 

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., (iii) security system hardware in Canada, and (iv) printed debit cards and wearables at Marygold 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 years ended  June 30, 2022 and June 30, 2021, the expense for slow moving or obsolete inventory was $10,509 and $65,021, respectively.

 

Property, Plant and Equipment

 

Property, plant and equipment are stated at cost, net of accumulated depreciation. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and leasehold 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 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  

 

Intangible Assets

 

Intangible assets consist of brand names, domain names, recipes, non-compete agreements and customer lists along with the internally developed software in process for the business applications of Marygold to be launched during the coming fiscal year, and the U.K. regulatory certification acquired by Marygold UK in the Tiger purchase transaction. 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. When it is determined that an indefinite intangible asset is impaired, 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 years ended June 30, 2022 and 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 years ended June 30, 2022 and 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 years ended June 30, 2022 and 2021.

 

F- 10

 

Investments and Fair Value of Financial Instruments

 

Equity securities included in short-term investments are classified as available-for-sale securities and debt securities are classified as trading 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 U.S. GAAP, and expands disclosures about fair value measurement. The changes to past practice resulting from the application of ASC 820 relate to the definition of fair value, the methods used to measure fair value, and the expanded 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.

 

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.

 

Revenue Recognition

 

Revenue consists of fees earned through management of investment funds in the United States and in the United Kingdom, sales of gourmet meat pies and printing of food wrappers in New Zealand, sales of 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, the revenue recognition criteria described below are met at the time the product is shipped, the subscription period commences, or the management services are provided. 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

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 Consolidated Statements of Income, which for the years ended June 30, 2022 and 2021, were approximately $399,322 and $723,456, or approximately 16% and 27%, respectively, of the total security system revenues. These revenues for the year ended June 30, 2022 account for approximately 1% of total consolidated revenues as compared to 2% for the year ended June 30, 2021. None of the other subsidiaries of the Company generate revenues from long-term contracts.

 

F- 11

 

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; therefore, 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.

 

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 years ended June 30, 2022 and 2021 were approximately $3.0 million and $3.0 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, Foreign Currency Matters. The accounts of Gourmet Foods use the New Zealand dollar as the functional currency. The accounts of Brigadier Security System use the Canadian dollar as the functional currency, and the accounts of Marygold UK use the Great Britain pound 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 consolidated balance sheet.

 

Segment Reporting

 

The Company defines operating segments as components about 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 the geographic locations of its subsidiaries (Refer to Note 16 of the 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 years ended June 30, 2022 and 2021 a determination was made that no adjustments were necessary.

 

F- 12

 

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. 

 

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 PER SHARE

 

Basic net income per share is based upon the weighted average number of common shares outstanding. This calculation includes the weighted average number of Series B Convertible Preferred shares outstanding also, as they are deemed to be substantially similar to the common shares and shareholders are entitled to the same liquidation and dividend rights. Diluted net income per share is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. The Company does not have any options or warrants or other dilutive financial instruments. As such, basic and diluted earnings per share are the same. 

 

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 year ended June 30, 2022

 
   

Net Income

   

Shares

   

Per Share

 

Basic and diluted income per share:

                       

Net income available to common shareholders

  $ 1,116,745       38,047,411     $ 0.03  

Net income available to preferred shareholders

    28,976       987,200     $ 0.03  

Basic and diluted income per share

  $ 1,145,721       39,034,611     $ 0.03  

 

   

For the year ended June 30, 2021

 
   

Net Income

   

Shares

   

Per Share

 

Basic and diluted income per share:

                       

Net income available to common shareholders

  $ 5,693,262       37,445,919     $ 0.15  

Net income available to preferred shareholders

    156,181       1,027,240     $ 0.15  

Basic and diluted income per share

  $ 5,849,443       38,473,159     $ 0.15  

 

F- 13

  
 

NOTE 4.

INVENTORIES

 

Inventories for Marygold, Gourmet Foods, Brigadier and Original Sprout consisted of the following totals:

 

   

June 30, 2022

   

June 30, 2021

 

Raw materials

  $ 1,273,581     $ 942,911  

Supplies and packing materials

    195,207       193,322  

Finished goods

    731,954       815,559  

Total inventories

  $ 2,200,742     $ 1,951,792  

  

 

NOTE 5.

PROPERTY, PLANT AND EQUIPMENT

 

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

 

   

June 30, 2022

   

June 30, 2021

 

Plant and equipment

  $ 1,905,921     $ 2,147,617  

Furniture and office equipment

    254,616       246,697  

Land and buildings

    590,662       613,891  

Vehicles

    363,295       412,681  

Solar energy system

    138,030       -  

Total property and equipment, gross

    3,252,524       3,420,886  

Accumulated depreciation

    (1,860,630 )     (1,847,441 )

Total property and equipment, net

  $ 1,391,894     $ 1,573,445  

 

For the years ended June 30, 2022 and 2021, depreciation expense for property, plant and equipment totaled $243,295 and $265,531, respectively. 

   

 

NOTE 6.

INTANGIBLE ASSETS

 

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

 

   

June 30, 2022

   

June 30, 2021

 

Customer relationships

  $ 1,363,935     $ 777,375  

Brand name

    1,297,789       1,199,965  

Domain name

    36,913       36,913  

Recipes

    1,221,601       1,221,601  

Internally developed software

    217,990       217,990  

Non-compete agreement

    274,982       274,982  

Total

    4,413,210       3,728,826  

Less : accumulated amortization

    (1,704,314 )     (1,387,023 )

Net intangibles

  $ 2,708,896     $ 2,341,803  

 

 

CUSTOMER RELATIONSHIP

 

On August 11, 2015, the Company acquired Gourmet Foods. 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 Security Systems. 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, 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. On June 20, 2022 our wholly-owned subsidiary, Marygold UK, acquired Tiger Financial and Asset Management Limited. The fair value of the acquired customer relationships was estimated to be $587,328 and is amortized over a useful life of 7 years.

 

   

June 30, 2022

   

June 30, 2021

 

Customer relationships

  $ 1,363,935     $ 777,375  

Less: accumulated amortization

    (458,550 )     (369,471 )

Total customer relationships, net

  $ 905,385     $ 407,904  

 

F- 14

 

BRAND NAME

 

On August 11, 2015, the Company acquired Gourmet Foods. 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 Security Systems. 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 continue to 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, 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. On June 20, 2022 our wholly-owned subsidiary, Marygold UK, acquired Tiger Financial and Asset Management Limited. The fair value of the acquired trade name, $24,456, together with is regulatory business certification, $73,368, totaled $97,824 and, like those of Printstock and Original Sprout, would continue to stay in use for an indefinite period of time. Therefore, the Company will test for impairment at each reporting interval with no amortization recognized.

 

   

June 30, 2022

   

June 30, 2021

 

Brand name

  $ 1,297,789     $ 1,199,965  

Less: accumulated amortization

    (249,831 )     (209,620 )

Total brand name, net

  $ 1,047,958     $ 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 Security Systems. 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.

 

   

June 30, 2022

   

June 30, 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. 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. 

 

   

June 30, 2022

   

June 30, 2021

 

Recipes and formulas

  $ 1,221,601     $ 1,221,601  

Less: accumulated amortization

    (701,736 )     (551,737 )

Total recipes and formulas, net

  $ 519,865     $ 669,864  

 

NON-COMPETE AGREEMENT

 

On June 2, 2016, the Company acquired Brigadier Security Systems. 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.

 

   

June 30, 2022

   

June 30, 2021

 

Non-compete agreement

  $ 274,982     $ 274,982  

Less: accumulated amortization

    (257,284 )     (219,282 )

Total non-compete agreement, net

  $ 17,698     $ 55,700  

 

INTERNALLY DEVELOPED SOFTWARE

 

During the first quarter of 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 June 30, 2022 and June 30, 2021, have been capitalized as intangible assets. Once development has been completed and the product is commercially viable, these capitalized costs will be amortized over their useful lives. As of June 30, 2022, no amortization expense has been recorded for these intangible assets.

 

F- 15

 

AMORTIZATION EXPENSE

 

The total amortization expense for intangible assets for the years ended  June 30, 2022 and June 30, 2021 was $317,675 and $334,448, respectively.

 

Estimated amortization expenses of intangible assets for the next five years ending June 30, are as follows:

 

Years Ending June 30,

 

Expense

 

2023

  $ 378,543  

2024

    361,226  

2025

    345,962  

2026

    234,194  

2027

    92,417  

Thereafter

    1,296,554  

Total

  $ 2,708,896  

  

 

NOTE 7.

OTHER ASSETS

 

Other Current Assets

 

Other current assets totaling $699,547 as of June 30, 2022 and $399,524 as of June 30, 2021 are comprised of various components as listed below.

 

   

As of June 30, 2022

   

As of June 30, 2021

 

Prepaid expenses

  $ 630,285     $ 373,381  

Other current assets

    69,262       26,143  

Total

  $ 699,547     $ 399,524  

 

Investments

 

USCF Investments, from time to time, provides initial seed capital in connection with the creation of ETPs or ETFs that are managed by USCF or USCF Advisers. USCF Investments classifies these investments as current assets as these investments are generally sold within one year of the balance sheet date. Investments in which no controlling financial interest or significant influence exists are recorded at fair value with the change included in earnings on the 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 unless the fair value option is elected under Accounting Standards Codification ("ASC") 825, Fair Value Option. As of June 30, 2022 and 2021, the Company owned $1.3 million and $0, respectively, of the USCF Gold Strategy Plus Income Fund ("GLDX"), a related party managed by USCF Advisers, which is included in other equities in the below table. The Company elected the fair value option related to this investment as the shares were purchased and will be sold on the market and this accounting treatment is deemed to be most informative. The Company recognized unrealized gains of $33 thousand and $0 during the years ended June 30, 2022 and 2021, respectively. In addition to the holdings in GLDX, the Company also invests in marketable securities. As of June 30, 2022 and 2021, the aggregate of such investments were approximately $5.1 million and $1.8 million, respectively.

 

All of the Company's short-term investments are classified as Level 1 assets as of June 30, 2022 and June 30, 2021. Investments measured at estimated fair value consist of the following as of June 30, 2022 and June 30, 2021:

 

   

As of June 30, 2022

 
           

Gross

   

Gross

   

Estimated

 
           

Unrealized

   

Unrealized

   

Fair

 
   

Cost

   

Gains

   

Losses

   

Value

 

Money market funds

  $ 1,051,017     $ -     $ -     $ 1,051,017  

Other short-term investments

    271,346       -       (1,919 )     269,427  

Short-term treasury bills

    2,470,020       -       (4,156 )     2,465,864  

Other equities

    1,246,926       32,697       -       1,279,623  

Total short-term investments

  $ 5,039,309     $ 32,697     $ (6,075 )   $ 5,065,931  

 

   

As of June 30, 2021

 
           

Gross

   

Gross

   

Estimated

 
           

Unrealized

   

Unrealized

   

Fair

 
   

Cost

   

Gains

   

Losses

   

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  

 

During the years ended June 30, 2022 and 2021, there were no transfers between Level 1 and Level 2.

 

F- 16

 

Restricted Cash

 

At June 30, 2022 and 2021, Gourmet Foods had on deposit approximately NZ$20,000 (approximately US$12,486 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.

 

At June 30, 2022, Marygold UK had on deposit £823,768 (approximately US$1,000,793) securing deferred purchase price payments due the seller of Tiger. The cash deposit is restricted by covenant from access or withdrawal prior to payment of the remaining deferred purchase price. The Company had no similar deposits at  June 30, 2021.

 

Long - Term Assets

 

Other long-term assets totaling $540,160 at June 30, 2022 and $540,160 at June 30, 2021, were attributed to USCF Investments and Original Sprout and consisted of

 

(i)

$500,000 as of June 30, 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 years ended June 30, 2022 and June 30, 2021;

 

(ii)

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

  

 

NOTE 8.

GOODWILL

 

Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in business combinations. The amounts recorded in goodwill for June 30, 2022 and 2021 were $2,307,202 and $1,043,473, respectively.

 

Goodwill is comprised of the following amounts:

 

   

As of June 30, 2022

   

As of June 30, 2021

 
                 

Goodwill – Original Sprout

  $ 416,817     $ 416,817  

Goodwill – Gourmet Foods (1)

    275,311       275,311  

Goodwill - Brigadier

    351,345       351,345  

Goodwill - Marygold & Co. (UK) (1)

    1,263,729       -  

Total

  $ 2,307,202     $ 1,043,473  

(1) Refer to Note 13, Business Combinations, regarding increase in goodwill during the years ended June 30, 2022 and 2021.

 

The Company tests for goodwill impairment at each reporting unit. There was no goodwill impairment for the years ended June 30, 2022 and June 30, 2021.

  

 

NOTE 9.

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

Accounts payable and accrued expenses consisted of the following:

 

   

June 30, 2022

   

June 30, 2021

 

Accounts payable

  $ 2,001,978     $ 1,672,647  

Accrued interest

    -       129,596  

Taxes payable

    196,473       238,020  

Accrued payroll, vacation and bonus payable

    331,644       1,049,359  

Accrued operating expenses

    275,695       773,252  

Total

  $ 2,805,790     $ 3,862,874  

 

F- 17

  
 

NOTE 10.

RELATED PARTY TRANSACTIONS

 

Notes Payable - Related Parties

 

Notes payable totaling $600,000 in principal plus $144,000 in accrued interest were repaid to two shareholders as of June 30, 2022, and the Company currently has no notes payable outstanding to related parties. Interest expense for all related party notes for the years ended June 30, 2022 and 2021 was $19,798 and $24,281, respectively. Total accrued interest due related parties was $0 and $129,596 as of June 30, 2022 and 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 $23.8 million and $25.2 million for the years ended June 30, 2022 and 2021, respectively, were earned from these related parties. Accounts receivable, totaling $2.2 million and $2.0 million as of June 30, 2022 and June 30, 2021, respectively, were owed from the Funds that are related parties. Fund expense waivers, totaling $0.1 million and $0.9 million and fund expense limitation amounts, totaling $0.1 million and $0.1 million, for the years ended June 30, 2022 and 2021, respectively, were incurred on behalf of these related parties. Waivers payable, totaling $0.1 million and $0.1 million as of June 30, 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 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 June 30, 2022 and June 30, 2021, the investment total was $1.3 million and $0, respectively. The Company owns approximately 40% and 0% of the outstanding shares of this investment as of June 30, 2022 and June 30, 2021, respectively.  

 

NOTE 11.

LOANS - PROPERTY AND EQUIPMENT

 

As of June 30, 2022, Brigadier had an outstanding principal balance of CD$471,015 (approx. US$365,429 translated as of June 30, 2022) due to Bank of Montreal related to the purchase of its Saskatoon office land and building. The Consolidated Balance Sheets as of June 30, 2022 and June 30, 2021 reflect the amount of the principal balance which is due within twelve months as a current liability of US$15,135 and a long-term liability of US$350,293. Interest on the mortgage loan for the year ended June 30, 2022 and 2021 was US$15,742 and US$16,078, respectively.  

 

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. 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).

 

F- 18

 

Underwriter's Warrants

 

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 related to this issuance. 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%. As the warrant issuance was for services rendered related to an equity issuance, no expense was recognized during the year ended June 30, 2022 related to the issuance.

 

Convertible Preferred Stock

 

The Company has 50,000,000 shares authorized to issue as Preferred Stock. The Preferred Stock is designated into two series, 5,000,000 designated as Series A, and 45,000,000 designated as Series B. As of June 30, 2022 there are no issued or outstanding shares of Series A stock.

 

Each issued Series B 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. On January 15, 2021, the Company converted 3,672 shares of Series B Convertible Preferred Stock to 73,440 shares of common stock per the request of the shareholder and pursuant to the stock designation. After conversion, there remain 49,360 shares of Series B Convertible Preferred Stock outstanding as of June 30, 2022.

 

Stock-based Awards - Employees and Vendor Compensation

 

For the year ending June 30, 2022 the Company's 2021 Omnibus Equity Incentive Plan did not issue any awards and had no awards outstanding. Subsequent to year end the Company issued awards. Refer to Note 17 for details.

 

There were no shares issued for services during the year ended June 30, 2022 and June 30, 2021.

  

 

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 17, 2021, our wholly-owned subsidiary Marygold UK entered into a Stock Purchase Agreement (“SPA”) to acquire all the issued and outstanding shares of Tiger Financial and Asset Management Limited (“Tiger”), a company incorporated and registered in England and Wales and located in Northampton, England. Tiger is an asset manager and investment advisor operating pursuant to certification by the Financial Conduct Authority of the United Kingdom with approximately £42 million in assets under management as of June 20, 2022. The transaction closed on June 20, 2022 with an agreed purchase price of £2,382,372 (translated to US$2,913,164), subject to adjustment as provided for in the SPA. As of June 30, 2022 approximately£1,018,935 remained payable, £18,935 of which is payable within 20 business days of closing, followed by subsequent equal payments of £500,000 due on December 31, 2022 and December 31, 2023, subject to downward adjustment per the terms of the SPA for an amount up to £500,000 should existing clientele close their accounts prior to December 31, 2023. There is no provision for any upward adjustments. As a result, management was able to complete its preliminary purchase price allocation as follows, under the assumption no downward adjustment will take place on December 31, 2023. Included in the allocation are estimated income tax liabilities of approximately US$86,277 pertaining to the operations prior to acquisition, and $113,833 of deferred income tax liabities associated with the value of the acquired intangible assets. The amounts have been translated to US currency as of the acquisition date. Tiger will be operated as a subsidiary of Marygold UK and is expected to be initially cash flow neutral. In addition to growing the business through increasing assets under management, Marygold UK intends to project the fintech mobile app services to be offered by Marygold in the U.S. into the U.K. through the established contacts and certifications held by Tiger. 

 

Item

 

Amount

 

Cash in bank

  $

1,159,020

 

Prepayments/deposits

    17,962  

Property and equipment

    2,922  

Intangible assets

   

684,768

 

Goodwill

    1,263,729  

Tax liability

    (86,277

)

Deferred tax liability     (113,833 )

Accounts payable and accrued expenses

    (15,127

)

Total Purchase Price

  $ 2,913,164  
F- 19

 

Supplemental Pro Forma Information (Unaudited)

 

The following unaudited supplemental pro forma information for the year ended June 30, 2022, assumes the acquisition of Tiger had occurred as of July 1, 2021, giving effect on a pro forma basis to purchase accounting adjustments such as depreciation of property and equipment, amortization of intangible assets, and acquisition related costs. The pro forma data is for informational purposes only and may not necessarily reflect the actual results of operations had Tiger been operated as part of the Company since July 1, 2021. Furthermore, the pro forma results do not intend to predict the future results of operations of the Company.

 

   

Year Ended June 30, 2022

   

Year Ended June 30, 2022

 
   

Actual

   

Pro Forma

 

Net revenues

  $ 37,829,123     $ 38,475,091  

Net income

  $ 1,145,721     $ 1,464,172  

Basic and diluted earnings per share

  $ 0.03     $ 0.04  

  

 

NOTE 14.

INCOME TAXES

 

The following table summarizes income before income taxes:

 

   

Years Ended June 30,

 
   

2022

   

2021

 

U.S.

  $ 2,067,224     $ 6,983,223  

Foreign

    290,897       651,678  

Income before income taxes

  $ 2,358,121     $ 7,634,901  

 

Income Tax Provision

 

Provision for income tax as listed on the Consolidated Statements of Income for the years ended June 30, 2022 and 2021 are $1,212,400 and $1,785,458, respectively. 

 

Provision for taxes consisted of the following:

 

   

Years Ended June 30,

 
   

2022

   

2021

 

U.S. operations

  $ 1,062,895     $ 1,488,351  

Foreign operations

    149,505       297,107  

Total

  $ 1,212,400     $ 1,785,458  

 

Provisions for income tax consisted of the following as of the years ended:

 

For the year ended:

 

June 30, 2022

   

June 30, 2021

 
                 

Current:

               

Federal

  $ 741,200     $ 1,426,303  

States

    242,393       122,052  

Foreign

    177,118       256,195  

Total current

    1,160,711       1,804,550  

Deferred:

               

Federal

    69,422       (56,397 )

States

    9,880       (3,607 )

Foreign

    (27,613 )     40,912  

Total deferred

    51,689       (19,092 )

Total

  $ 1,212,400     $ 1,785,458  

 

F- 20

 

Tax effects of temporary differences that give rise to significant portions of the Company’s deferred tax assets for the years ended June 30, 2022 and 2021 are presented below:

 

For the year ended:

 

June 30, 2022

   

June 30, 2021

 
                 

Deferred tax assets:

               

Property and equipment and intangible assets - U.S.

  $ 445,629     $ 469,403  

Net operating loss

    4,904       14,220  

Accruals, reserves and other - U.S.

    297,521       336,823  

Leasing assets

    137,756       245,819  

Leasing liabilities

    (132,732 )     (238,789 )

Gross deferred tax assets

    753,078       827,476  

Less valuation allowance

    -       -  

Total deferred tax assets

  $ 753,078     $ 827,476  
                 

Deferred tax liabilities:

               

Intangible assets - foreign

  $ (237,844 )   $ (150,878 )

Accruals, reserves and other - foreign

    (22,709 )     (18,551 )

Total deferred tax liabilities

  $ (260,553 )   $ (169,429 )

Total net deferred tax assets

  $ 492,525     $ 658,047  

 

The Company’s accounting for deferred taxes involves the evaluation of a number of factors concerning the realizability of the Company’s net deferred tax assets. The Company primarily considered such factors as the Company’s history of operating losses; the nature of the Company’s deferred tax assets and the timing, likelihood and amount, if any, of future taxable income during the periods in which those temporary differences and carryforwards become deductible.  At present, the Company does believe that it is more likely than not that the deferred tax assets will be realized. The valuation allowance was unchanged during the year ended  June 30, 2022.

 

On March 27, 2020 the U.S. enacted the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act). The Company has evaluated the provisions of the CARES Act and determined that it did not result in a significant impact on the Company’s tax provision.

 

Income tax expense (benefit) for the years ended  June 30, 2022 and June 30, 2021 differed from the amounts computed by applying the statutory federal income tax rate of 21.00% to pretax income (loss) as a result of the following:

 

For the year ended:

 

June 30, 2022

   

June 30, 2021

 
                 

Federal tax expense (benefit) at statutory rate

  $ 495,287     $ 1,603,764  

State income taxes

    201,369       92,813  

Permanent differences

    371,987       17,737  

Foreign tax credit

    (58,413 )     (88,648 )

Change in valuation allowance

    -       -  

Foreign rate differential

    202,170       159,792  

Total tax expense

  $ 1,212,400     $ 1,785,458  

 

For the year ended:

 

June 30, 2022

   

June 30, 2021

 
                 

Federal tax expense (benefit) at statutory rate

    21.00