Marygold Companies Inc

NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS

(UNAUDITED)

NOTE 1. ORGANIZATION AND DESCRIPTION OF BUSINESS

The Marygold Companies, Inc., (the “Company” or “The Marygold Companies”), a Nevada corporation, is a global holding company that intends to focus on financial services. The Company is currently directing its investments towards financial services and the emerging Fintech space. The operations of the Company’s wholly owned subsidiaries are summarized as follows:

The Marygold Companies manages its operating businesses on a decentralized basis. 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 unaudited condensed financial statements on a consolidated basis. In the opinion of management, the accompanying unaudited condensed consolidated balance sheets, related statements of operations, comprehensive (loss) 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 generally accepted accounting principles in the United States of America (“U.S. GAAP”) but does not include all of the information and footnotes required by U.S. GAAP for complete audited financial statements. Operating results for the nine months ended March 31, 2024, are not necessarily indicative of the results that may be expected for the year ending June 30, 2024. The condensed consolidated balance sheet as of June 30, 2023, has been derived from the audited consolidated financial statements at that date included in our annual report on Form 10-K for the year ended June 30, 2023, but does not include all of the information and footnotes required by U.S. GAAP for complete audited financial statements. The information included in this Form 10-Q should be read in conjunction with information included in the Company’s Annual Report on Form 10-K for year ended June 30, 2023.

Principles of Consolidation

The accompanying Condensed Consolidated Financial Statements, which are referred herein as the “Financial Statements”, include the accounts of The Marygold Companies and its wholly owned subsidiaries, 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.

Concentration of Credit Risk

Our subsidiary USCF Investments relies on the revenues generated through the various funds it manages. The concentration of fund management revenue and related receivables were (dollars in thousands):

There are no significant concentrations for the other operating subsidiaries on a consolidated basis.

Recently Issued and Adopted Accounting Pronouncements

In 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Board Update (“ASU”) 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, and also issued subsequent amendments to the initial guidance, 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 was effective for annual reporting periods beginning after March 15, 2022, including interim periods within that annual period. The Company adopted the standard during fiscal year 2024 with the additional disclosures and no changes related to the period of recognition of losses on its receivables.

In November 2023, the FASB issued ASU No. 2023-07, Improvements to Reportable Segment Disclosures (Topic 280). This ASU updates reportable segment disclosure requirements by requiring disclosures of significant reportable segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within each reported measure of a segment’s profit or loss. This ASU also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources. The ASU is effective for annual periods beginning after March 15, 2023, and interim periods within fiscal years beginning after March 15, 2024. Adoption of the ASU should be applied retrospectively to all prior periods presented in the financial statements. Early adoption is also permitted. This ASU will likely result in us including the additional required disclosures when adopted. We are currently evaluating the provisions of this ASU and expect to adopt them for the year ending June 30, 2025.

In December 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures (Topic 740). The ASU requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income taxes paid. The ASU is effective on a prospective basis for annual periods beginning after March 15, 2024. Early adoption is also permitted for annual financial statements that have not yet been issued or made available for issuance. This ASU will result in the required additional disclosures being included in our consolidated financial statements, once adopted.

NOTE 3. BASIC AND DILUTED NET EARNINGS 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.

For the three and nine-months ended March 31, 2024, the Company excluded 1,312,198 common stock equivalents from the diluted earnings per share calculation as their effect would be anti-dilutive. For the three and nine months ended March 31, 2023, the Company excluded 364,196 common stock equivalents from the diluted earnings per share calculation as their effect would be anti-dilutive.

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

The components of basic and diluted earnings per share were as follows (in thousands, except per share data):

NOTE 4. CERTAIN BALANCE SHEET DETAILS

Other current assets

Included in the other current assets balance of $3.1 million as of March 31, 2024 is a deposit of $1.8 million made during the quarter then ended in connection with the potential acquisition of a 9.9% equity interest in a domestic financial institution that is currently seeking certain regulatory approval. If the regulatory approval is obtained, the deposit will convert to an equity interest in the financial institution and if the regulatory approval is not obtained the deposit will be refunded to the Company.

NOTE 5. INTANGIBLE ASSETS

Total amortization expense for intangible assets for the three months ended March 31, 2024 and 2023 was $0.1 million and for the nine months ended March 31, 2024 and 2023 was $0.3 million.

Estimated remaining amortization expenses of intangible assets for the next five fiscal years and thereafter are as follows (in thousands):

NOTE 6. 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 in fair value included in earnings on the Statements of Operations. Investments in which no controlling financial interest exists, but significant influence exists are recorded using the equity method of accounting unless the fair value option is elected under Accounting Standards Codification 825, Fair Value Option. As of March 31, 2024, the USCF Advisers owned $1.3 million of the USCF Gold Strategy Plus Income Fund (changed ticker to “USG” from “GLDX” in March 2024), $0.4 million of the USCF Sustainable Battery Metals Strategy Fund (“ZSB”), $3.2 million of the USCF Energy Commodity Strategy Absolute Return Fund (“USE”) and $2.3 million of the USCF Sustainable Commodity Strategy Fund (“ZSC”). As of June 30, 2023, USCF Advisers held positions in USG, ZSB and USE of $1.3 million, $1.9 million and $2.6 million, respectively. These funds are related parties managed by USCF Advisers, which are included in other equities in the below table. The Company elected the fair value option related to these investments as the shares were purchased and will be sold on the market and this accounting treatment is considered to be most informative. In addition to the holdings in USG, ZSB, USE and ZSC, the Company also invests in marketable securities. The Company recognized unrealized gains (losses) of $0.3 million and ($0.1)million for the three months ended March 31, 2024 and 2023, respectively, and less than $0.1 million and($0.1)million for the nine months ended March 31, 2024 and 2023, respectively.

All of the Company’s short-term investments are classified as Level 1 assets and consist of the following (in thousands):

During the three and nine months ended March 31, 2024 and 2023, respectively, there were no transfers in or out of Level 3.

As of March 31, 2024 and June 30, 2023, the Company also holds a $0.5 million equity investment in a registered investment advisor accounted for on a cost basis, minus impairment, which we believe approximates fair value, given the lack of observable price changes in orderly transactions, which is included in other assets on the balance sheet. There was no impairment recorded for the nine months ended March 31, 2024 or 2023.

NOTE 7. RELATED PARTY TRANSACTIONS

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 earned from related parties were $4.4 million and $5.0 million for the three months ended March 31, 2024 and 2023, respectively, and $14.5 million and $15.7 million for the nine months ended March 31, 2024 and 2023, respectively. Accounts receivable due from related parties were $1.5 million and $1.7 million as of March 31, 2024 and June 30, 2023, respectively. USCF Investments, from time to time, provides initial investments in the creation of ETP and ETF funds that USCF Advisers manages. Such investments included USG, ZSB, USE and ZSC, related party funds managed by USCF Advisers, and as of March 31, 2024 the investments totaled $1.3 million, $0.4 million, $3.2 million and $2.3 million, respectively. As of June 30, 2023 the investments totaled $1.3 million, $1.9 million, $2.6 million and $0, respectively. The Company owns 62% and 68% of the outstanding shares of these investments as of March 31, 2024 and June 30, 2023, respectively.

USCF Advisers is contractually obligated to pay license fees related to ZSB and ZSC intellectual property rights to an affiliated entity during the next two fiscal years totaling up to $0.8 million. For the three and nine months ended March 31, 2024, the license fee expenses incurred totaled $0.2 million and $0.3 million, respectively.

NOTE 8. STOCKHOLDERS’ EQUITY

Stock-based Compensation

During the three and nine months ended March 31, 2024 the Company granted stock options for the purchase ofzero and 315,881 shares, respectively, with a weighted average grant date fair values of $1.11 per share. The fair value of the options granted were estimated using the following assumptions:

As of March 31, 2024, there was $0.5 million of unrecognized compensation expense related to outstanding stock options that will be recognized over a remaining weighted average period of 3.3 years. As of March 31, 2024, the weighted average remaining contractual life of the outstanding stock options was 9.1 years.

The following table summarizes the restricted stock activities for the nine months ended March 31, 2024.

During the three and nine months ended March 31, 2024, the Company granted zero and 447,543 restricted stock awards (“RSAs”) with a weighted average grant date fair value of $1.03 per share and a total fair value at date of grant of $0.5 million. The intrinsic value of outstanding RSAs was $0.9 million as of March 31, 2024. Stock-based compensation relating to RSAs totaled $0.1 million andzero for the three months ended March 31, 2024 and 2023, respectively, and $0.2 million and less than $0.1 million for the nine months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, there was $0.6 million of unrecognized compensation expense related to outstanding RSAs that will be recognized over a remaining weighted average period of 2.9 years.

The table below summarizes total remaining stock-based compensation for all outstanding awards (in thousands):

The aggregate expected stock-based compensation expense remaining to be recognized reflects only awards as of March 31, 2024 and assumes no forfeiture activity and will be recognized over a weighted-average period of 2.9 years.

NOTE 9. BUSINESS COMBINATION

In 2021, 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”) which is an asset manager and investment advisor. The transaction closed in 2022 with an agreed purchase price of $2.9 million, subject to adjustment as provided for in the SPA. As of June 30, 2023, $0.6 million remained payable which was due on March 31, 2024, subject to downward adjustment per the terms of the SPA for an amount up to $0.6 million should existing clientele close their accounts prior to December 31, 2023. In accordance with the SPA, there was a downward adjustment of the purchase price of less than $0.1 million as a result of existing clientele closing their accounts prior to December 31, 2023. The remaining payment of $0.6 million was made in January 2024.

As disclosed in Note 13. Subsequent Events, the Company closed on the acquisition of Step-by-Step on April 30, 2024.

NOTE 10. INCOME TAXES

As of March 31, 2024, the Company’s total unrecognized tax benefits were $0.3 million, which would affect the effective tax rate if recognized. The Company will recognize interest and penalties, when they occur, related to uncertain tax positions as a component of tax expense. There isno interest or penalties to be recognized for the three and nine months ended March 31, 2024 and 2023.

The Company is required to make its best estimate of the annual effective tax rate for the full fiscal year and use that rate to provide for income taxes on a current year-to-date basis. The effective tax rate could fluctuate in the future due to changes in the taxable income mix between various jurisdictions.

NOTE 11. COMMITMENTS AND CONTINGENCIES

Lease Commitments

For the three and nine months ended March 31, 2024 and 2023, the Company’s combined lease costs were $0.2 million and $0.6 million, respectively, and were recorded under general and administrative expense in the Statements of Operations.

Future minimum lease payments are (in thousands):

The weighted average remaining lease term for the Company’s operating leases was 1.5 years as of March 31, 2024 and a weighted-average discount rate of 5.6% was used to determine the total operating lease liabilities. The remaining lease term for the Company’s finance lease was 7.7 years as of March 31, 2024 with an annual interest rate of 7.0%.

Other Agreements and Commitments

As the Company builds out its Fintech application, it enters into agreements with various service providers. As of March 31, 2024, Marygold has future payment commitments with its primary service vendors totaling $0.9 million including $0.4 million due during the remainder of fiscal 2024 and $0.5 million due in fiscal 2025.

The Company’s USCF Advisers subsidiary is contractually obligated to pay license fees related to ZSB and ZSC intellectual property rights to an affiliated entity including $0.3 million due during the remainder of fiscal 2024 and $0.5 million due in fiscal 2025.

Litigation

From time to time, the Company may be involved in legal proceedings arising from the ordinary course of their respective businesses. Except as described below, there are no material pending legal proceedings against the Company or its subsidiaries. USCF is an indirect wholly owned subsidiary of the Company. USCF, as the general partner of the United States Oil Fund, LP (“USO”) and the general partner and sponsor of the related public funds may, from time to time, be involved in litigation arising out of its operations in the ordinary course of business. Except as described herein, USO and USCF are not currently party to any material legal proceedings.

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 captionIn 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 Exchange 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 inIn 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 inIn 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 Exchange Act, Rule 10b-5 thereunder, and common law claims of breach of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets. These allegations stem from USO’s disclosures and defendants’ alleged actions in light of the extraordinary market conditions in 2020 that caused demand for oil to fall precipitously, including the COVID-19 global pandemic and the Saudi Arabia-Russia oil price war. The complaints seek, on behalf of USO, compensatory damages, restitution, equitable relief, attorney’s fees, and costs. The plaintiffs in the Cantrell and AML Actions have marked their actions as related to the Lucas Class Action.

The Court consolidated the Cantrell and AML Actions under the captionIn re United States Oil Fund, LP Derivative Litigation, Civil Action No. 1:20-cv-06974 and appointed co-lead counsel. All proceedings inIn re United States Oil Fund, LP Derivative Litigationare stayed pending disposition of the motion(s) to dismiss inIn re: United States Oil Fund, LP Securities Litigation.

USCF, USO, and the other defendants intend to vigorously contest the claims inIn re United States Oil Fund, LP Derivative Litigation.

No accrual has been recorded with respect to the above legal matters as of March 31, 2024 and June 30, 2023. We are currently unable to predict the timing or outcome of, or reasonably estimate the possible losses or range of, possible losses resulting from these matters. It is reasonably possible that this estimate will change in the near term. An adverse outcome regarding these matters could materially adversely affect the Company’s financial condition, results of operations and cash flows.

Retirement Plan

The Company has a 401(k) Profit Sharing Plan (“401K Plan”) covering U.S. employees. Participants may make contributions pursuant to a salary reduction agreement. In addition, the 401K Plan makes a safe harbor matching contribution. The Company’s matching contributions of less than $0.1 million for the three months ended March 31, 2024 and 2023, respectively, and $0.2 million for the nine months ended March 31, 2024 and 2023.

NOTE 12. SEGMENT REPORTING

The Company’s Chief Operating Decision Maker (“CODM”) evaluates the Company’s segments based on revenue type, as well as net (loss) income at each segment. The CODM does not evaluate segments on the basis of assets at each segment.

NOTE 13. SUBSEQUENT EVENTS

The Company evaluated subsequent events for recognition and disclosure through the date the financial statements were issued or filed. Other than the below, nothing has occurred outside normal operations since that required recognition or disclosure in these financial statements.

On January 31, 2024, Marygold UK entered into a Share Purchase Agreement (“SPA”) to acquire all the issued and outstanding shares of Step-by-Step Financial Planners Limited (“Step-by-Step”), subject to certain closing conditions and regulatory approval. The transaction closed on April 30, 2024 with an agreed purchase price of approximately $1.1 million, subject to adjustment as provided for in the SPA. On April 30, 2024, Marygold UK paid $0.7 million upon the closing and the remaining approximately $0.4 million owed will be payable in two subsequent payments as provided in the SPA. The Company is still evaluating total accounting consideration and the purchase price allocation has not been completed as of the date of this report. Step-by-Step is an asset manager and investment advisor based in Staffordshire, England with approximately $35 million in assets under management. Step-by-Step will be operated as a subsidiary of Marygold UK. In addition to growing the business through increasing assets under management, Marygold UK intends to project the fintech mobile app services offered in the U.S. into the U.K. through the established contacts and certifications held by Step-by-Step.