10-Q: Marygold Companies Narrows Q1 Loss, Sells Security Unit

The Marygold Companies reported a significantly reduced net loss in Q1 2026, driven by the sale of its security systems segment and reduced operating expenses from pausing its U.S. Fintech app development, despite a decline in overall revenue.

Summary

• Net loss significantly decreased by 78% to $356,000 for the quarter ended September 30, 2025, compared to $1.586 million in the prior year.
• Revenue declined by 12% to $6.963 million, primarily due to the sale of the security systems segment and a 6% decrease in U.S. fund management revenue.
• Operating expenses decreased by 17% to $6.628 million, largely due to pausing the U.S. Fintech app development and the sale of the Brigadier security systems business.
• The company recorded a $521,000 gain from the sale of its Brigadier Security Systems (2000) Ltd. subsidiary to a related party on July 1, 2025.
• Cash used in operating activities improved to $533,000 from $893,000 in the prior year quarter.
• The U.S. Fund Management segment saw a 6% revenue decrease and a 61% operating income decrease due to lower average Assets Under Management (AUM) of $2.9 billion, down from $3.1 billion.
• The U.S. Fintech app development was paused due to de minimis revenues, leading to a $1.2 million reduction in financial services operating loss.
• Beauty products and food products segments showed improved operating income, with beauty products revenue increasing by 12%.
• The company fully repaid a $1.4 million secured promissory note during the quarter, releasing all associated collateral and guarantees.
• Working capital remains strong at $13.4 million as of September 30, 2025.

Sentiment

Score: 7

Explanation: The company showed significant improvement in net loss and operating loss, driven by strategic cost reductions and a profitable divestiture. While revenue declined and the U.S. Fintech app failed, the overall financial health improved, and debt was repaid. The ongoing legal risks and potential need for future capital raise for the UK Fintech app temper the positive sentiment.

Positives

• Net loss decreased by 78% to $356,000, a significant improvement from $1.586 million in the prior year quarter.
• Loss from operations improved by 42% to $(1.264) million from $(2.170) million.
• The sale of Brigadier Security Systems generated a $521,000 gain.
• Operating expenses decreased by 17% ($1.3 million) due to strategic decisions, including pausing the U.S. Fintech app development.
• Cash used in operating activities improved to $533,000 from $893,000.
• The financial services segment's operating loss improved by $1.2 million due to pausing the U.S. Fintech app.
• Beauty products segment revenue increased by 12% and operating income improved to $123,000 from a loss of $173,000.
• Food products segment operating income improved to $102,000 from a loss of $8,000.
• The company fully repaid a $1.4 million secured promissory note, eliminating high-interest debt (41.3% effective rate) and releasing collateral.
• Working capital increased to $13.4 million as of September 30, 2025, from $12.4 million as of June 30, 2025.

Negatives

• Total revenue decreased by 12% to $6.963 million, primarily due to the sale of the security systems segment and a decline in fund management revenue.
• U.S. fund management revenue decreased by 6% ($0.3 million) due to lower average Assets Under Management (AUM) of $2.9 billion, down from $3.1 billion.
• Operating income for the U.S. fund management segment decreased by 61% to $379,000, impacted by lower revenue and increased sub-advisor fees and new fund development costs.
• The U.S. Fintech app development was paused due to generating only de minimis revenues, indicating a failure to achieve initial market traction.
• Cash and cash equivalents decreased by 3% to $4.860 million from $5.005 million.
• Marygold UK's financial services operating loss increased by $0.2 million due to costs associated with developing a scaled-down Fintech app for the U.K. market.
• The company has invested a total of $19.3 million in the Fintech app since 2019, with the U.S. version now paused due to poor performance.

Risks

• The outcome of certain class action litigation involving the subsidiary, USCF Investments Inc., is uncertain and an adverse outcome could materially adversely affect the company's financial condition, results of operations, and cash flows.
• Future financial performance, including revenue, profitability, and cash flow generation, is subject to risks and uncertainties.
• Sufficiency of cash flows is primarily dependent on the performance of the U.S. investment fund management business and its ability to maintain and expand fund assets under management (AUM).
• Continued investments in Marygold & Co (UK) for its U.K. Fintech application carry uncertainty regarding market acceptance and its ability to generate sufficient revenue to meet or exceed capital investment.
• The ability of operating subsidiaries to attract and retain customers, optimize pricing, expand sales, and retain existing customers is crucial.
• The company faces risks related to the evolution of technologies affecting its products, services, and markets.
• The ability to successfully penetrate enterprise and other markets, and expand into new markets, including international markets, is uncertain.
• The attraction and retention of key personnel is a risk factor.
• The ability to effectively manage growth and future expenses is a challenge.
• The company may need to raise additional capital through debt or equity financing if operating losses continue or strategic acquisitions are pursued.
• Worldwide economic conditions, including increasing tariffs, the after-effects of the COVID-19 pandemic, and conflicts in Ukraine and the Middle East, could impact spending.
• Operating subsidiaries' ability to comply with modified or new laws and regulations, including privacy and data security, is a continuous risk.
• The ability to acquire new businesses or expand existing ones, including integration and financing, as well as disposing of existing businesses, carries risks.
• The company is currently unable to predict the timing or outcome of, or reasonably estimate the possible losses or range of possible losses resulting from the ongoing legal proceedings.

Future Outlook

The company expects significantly reduced losses and negative cash flows from its Marygold US Fintech app for the remainder of the fiscal year due to pausing its operations. It believes its current cash and cash equivalents, combined with cash generated from ongoing operations, will be sufficient to fund cash requirements for the next 12 months. However, it acknowledges the possibility of needing additional financing for continued investments in the U.K. Fintech app and states that if additional financing is not secured on acceptable terms, it expects to further reduce or curtail investment in the app's development.

Management Comments

• Our executive management team is primarily responsible for vision and strategy of the Company while effectively implementing capital allocation decisions, investment activities, leadership talent selection, development, performance and retention of the management executives to head each of the operating subsidiaries.
• Our executive management is also responsible for organizational accountability, corporate governance practices, monitoring regulatory affairs, including those of our operating businesses and involvement in governance-related issues of its subsidiaries as needed.
• The Company believes that its cash and cash equivalents along with the cash generated from ongoing operations will be sufficient to fund its cash requirements over the next 12 months.
• However, based on our current operating plan which we expect may include continued additional investments in our mobile Fintech app for the U.K. market, we may need to raise additional funds through one or more debt, equity or equity linked financings to meet our operating and cash needs.
• In the event we are unable to obtain additional financing in an amount or upon terms acceptable to us, we expect to further reduce or curtail our investment in the development of our Fintech app.

Industry Context

The company operates in diversified segments including financial services (ETF management, Fintech), food products, and beauty products. The U.S. fund management segment's performance is directly tied to commodity price fluctuations and geopolitical/economic uncertainty, reflecting broader market volatility impacting AUM. The decision to pause the U.S. Fintech app development highlights the competitive and challenging landscape for new digital financial services, while continued investment in the U.K. app suggests a strategic pivot or refinement of the Fintech approach in different markets. The sale of the security systems segment indicates a focus on core or higher-potential businesses.

Corporate Governance

Legal Proceedings

• In re: United States Oil Fund, LP Securities Litigation (Lucas Class Action): A putative class action filed on June 19, 2020, consolidated with two other actions, alleging violations of the Securities Act of 1933 and 1934, and Rule 10b-5. The complaint challenges statements made between February 25, 2020, and April 28, 2020, concerning extraordinary market conditions (COVID-19, Saudi Arabia-Russia oil price war) and seeks compensatory damages, costs, and attorneys' fees. USCF LLC, USO, and individual defendants are vigorously contesting these claims.
• Mehan Action: A derivative action filed on August 10, 2020, alleging breach of fiduciary duties to USO and failure to act in good faith regarding a March 19, 2020, registration statement and disclosures about oil market conditions. All proceedings are stayed pending the disposition of motions to dismiss in the Lucas Class Action. USCF LLC, USO, and other defendants are vigorously contesting these claims.
• In re United States Oil Fund, LP Derivative Litigation (Cantrell and AML Actions): Two derivative actions filed on August 27, 2020, consolidated, alleging violations of Sections 10(b), 20(a), and 21D of the Securities Exchange Act, Rule 10b-5, and common law claims (breach of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement, waste of corporate assets). These claims stem from USO's disclosures and defendants' alleged actions during the 2020 oil market conditions. All proceedings are stayed pending the disposition of motions to dismiss in the Lucas Class Action. USCF LLC, USO, and other defendants are vigorously contesting these claims.
• The company has made no accrual or reserve for these legal matters and is unable to predict the timing, outcome, or estimate possible losses, but an adverse outcome could materially adversely affect its financial condition, results of operations, and cash flows.

Related Party Transactions

• Fund Management Revenue: $4.3 million for the quarter ended September 30, 2025, and $4.6 million for the same period in 2024, were earned from funds managed by USCF LLC and USCF Advisers, which are considered related parties.
• Accounts Receivable: $1.5 million as of September 30, 2025, and $1.3 million as of June 30, 2025, were owed from these related party funds.
• Investments in Related Party Funds: The company held $2.4 million as of September 30, 2025, and $3.6 million as of June 30, 2025, in funds managed by USCF Advisers. The company owns 32% and 21% of the outstanding shares/interest in these funds, respectively.
• Dividends from Related Party Investments: $0.1 million was earned for both the three months ended September 30, 2025, and 2024.
• License Fees: USCF Advisers is no longer contractually obligated to pay license fees to an affiliated entity for intellectual property rights for two funds, resulting in zero expense for the quarter ended September 30, 2025, compared to $0.2 million in the prior year.
• Note Payable Guaranty: The Nicholas and Melinda Gerber Living Trust (of which the CEO is a trustee) provided a guaranty and pledged common stock of the company as security for a secured promissory note. This guaranty and collateral were released upon full repayment of the note during the quarter ended September 30, 2025.
• Sale of Brigadier: Brigadier Security Systems (2000) Ltd. was sold to SKCAL LLC, an entity whose sole member, Scott Schoenberger, is a director and 10.9% shareholder of The Marygold Companies. The transaction was approved by independent board members and overseen by the audit committee.

Stakeholder Impact

• Shareholders: Experienced a significant reduction in net loss and improved operational performance, potentially leading to increased investor confidence. The repayment of high-interest debt and release of collateral are positive. However, the decline in fund management AUM and the failure of the U.S. Fintech app could be concerns. The ongoing litigation poses a material risk.
• Employees: The pausing of the U.S. Fintech app development might impact employees associated with that project, though the filing doesn't specify layoffs. The decentralized management structure suggests stable operations within other subsidiaries.
• Customers: Customers of the U.S. Fintech app will no longer have access to the service. Customers of other segments (fund management, food, beauty) continue to be served.
• Suppliers: The company has $0.7 million in payment commitments and $0.2 million in unused service commitments with former primary service vendors for the U.S. Fintech app, with uncertainty regarding reduction, potentially impacting these vendors.
• Creditors: The full repayment of the $1.4 million secured promissory note and release of collateral is a positive for creditors, indicating financial responsibility and reduced leverage.

Next Steps

• Continue developing and marketing the U.K. Fintech application.
• Evaluate the impact of new accounting standards (ASU No. 2023-09 and ASU 2025-05) on financial statements.
• Monitor and potentially reduce or curtail investment in the U.K. Fintech app if additional financing is not secured.
• Vigorously contest ongoing class action and derivative litigation related to the United States Oil Fund, LP.
• Maxim Group LLC holds a right of first refusal for future registered offerings or private placements until January 25, 2026.
• Potentially sell shares under the Equity Distribution Agreement (EDA) for up to $4.65 million.

Key Dates

Recommendation

The company demonstrated significant financial improvement by narrowing its net loss and operating loss, largely due to strategic cost-cutting measures and a profitable divestiture. The full repayment of a high-interest secured note is a strong positive, reducing financial risk. However, revenue decline, particularly in the core fund management segment due to AUM reduction, and the failure of the U.S. Fintech app, indicate ongoing operational challenges. The substantial legal proceedings against its fund management subsidiary present a material, unquantified risk. While the company is moving in a positive direction financially, these underlying issues and unquantified risks suggest a "hold" position until there is clearer resolution on the litigation and more consistent organic growth across its core segments.

Keywords

Financial Services, Fund Management, ETF, Fintech, SEC Filing, Quarterly Report, Investment Management, Commodity Funds, Beauty Products, Food Products, Corporate Governance, Risk Factors, Liquidity, Capital Resources, Net Loss, Revenue, Operating Expenses, Asset Under Management, Brigadier Sale, Related Party Transaction, Legal Proceedings, Stock Offering, Debt Repayment