Marygold Companies Inc

NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS

(UNAUDITED)

NOTE 1. ORGANIZATION AND DESCRIPTION OF BUSINESS

The Marygold Companies, Inc., (“Company,” “The Marygold Companies,” “we,” “our,” or “us”), 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 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 Marygold Companies’ management in the day-to-day business affairs of its operating subsidiary businesses apart from oversight. Each subsidiary is responsible for its financial reporting to the Company’s corporate management which corporate management maintains controls over the Company’s consolidated regulatory and financial reporting in accordance with Securities and Exchange Commission and other regulatory reporting requirements. 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 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, 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 three months ended September 30, 2024, are not necessarily indicative of the results that may be expected for the year ending June 30, 2025. The condensed consolidated balance sheet as of June 30, 2024, 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, 2024, 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, 2024.

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. Intercompany transactions and balances 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 Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, Improvements to Reportable Segment Disclosures (Topic 280). The guidance expands the disclosures required for reportable segments in our annual and interim consolidated financial statements, primarily through enhanced disclosures about significant segment expenses. The standard will be effective for us beginning with our annual reporting for fiscal year 2025 and interim periods thereafter, with early adoption permitted. Upon adoption, this standard should be applied retrospectively to all prior periods presented. We will adopt the standard when it becomes effective in our fiscal year 2025 annual reporting. The Company does not anticipate any impact other than changes to disclosures in the segment reporting from the adoption date onwards.

In December 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures (Topic 740). The guidance requires disclosure of disaggregated income taxes paid, prescribes standardized categories for the components of the effective tax rate reconciliation, and modifies other income tax-related disclosures. The standard will be effective for us beginning with our annual reporting for fiscal year 2026, with early adoption permitted. We are currently evaluating the impact of this standard on our income tax disclosures.

NOTE 3. NET INCOME (LOSS) PER SHARE

Basic net (loss) 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 (loss) 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 quarters ended September 30, 2024 and 2023, the Company excluded 1.1 million and 1.3 million common stock equivalents, respectively, from the diluted net loss per share calculation as their effect would be anti-dilutive. Since the Company generated a net loss in the quarter ended September 30, 2024, basic and diluted net (loss) income per share were the same.

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

The components of certain balance sheet line items are as follows (in thousands).

Included in the other current assets balance as of June 30, 2024 was a deposit of $1.8 million made in connection with the potential acquisition of a less than 10% equity interest in a domestic financial institution that was seeking certain regulatory approval. The regulatory approval was obtained in September 2024 and the deposit was then converted into an equity interest in the financial institution. After the regulatory approval, the $1.8 million was transferred from other current assets to other assets, non-current in the consolidated balance sheet as shown below.

Depreciation expense for property and equipment was less than $0.1 million for the three months ended September 30, 2024 and 2023, respectively.

The $0.5 million investment represents a 10% equity interest in a registered investment advisor accounted for on a cost basis which we believe approximates fair value. The $1.8 million investment represents a less than 10% equity interest in a domestic financial institution accounted for on a cost basis which we believe approximates fair value. These cost basis equity investments are recorded at cost minus impairment.

NOTE 5. 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 LLC 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 in the Company’s condensed Consolidated Statements of Operations. As of September 30, 2024 and June 30, 2024, the Company invested a total of $7.4 million and $7.5 million, respectively, of funds managed by USCF Advisers which are related parties and are included in other equities in the below table. In addition to the holdings in these funds, the Company also invests in marketable securities.

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

During the three months ended September 30, 2024 and year ended June 30, 2024, respectively, there were no transfers between Level 1 and Level 2.

NOTE 6. BUSINESS COMBINATION

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 $1.2 million, subject to adjustment as provided for in the SPA. Marygold UK paid $0.7 million upon the closing and the remaining $0.5 million owed will be payable in two subsequent payments as provided in the SPA. Step-By-Step is an asset manager and investment advisor based in Staffordshire, England with $80.1 million in assets under management as of September 30, 2024. In addition to growing the business through increasing assets under management, Marygold UK expects to expand 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.

NOTE 7. INTANGIBLE ASSETS

Total amortization expense for intangible assets for the three months ended September 30, 2024 and 2023 was $0.1 million.

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

NOTE 8. NOTES PAYABLE

On September 19, 2024, we entered into a note purchase agreement the (“Purchase Agreement”) with Streeterville Capital, LLC (“Holder”), pursuant to which we agreed to issue and sell to Holder a secured promissory note in an initial principal amount of $4,380,000 (“Initial Note”) payable on or before 24 months from the issuance date (“Maturity Date”) and, upon the satisfaction of certain conditions in the Purchase Agreement, up to one additional secured promissory note (“Subsequent Note,” Initial Note and Subsequent Note, “Notes”). The initial principal amount of the Notes includes an original issue discount of 9% and expenses that the Company agreed to pay to the Holder to cover the Holder’s transaction costs. The original issue discount of the Initial Note was $360,000. Interest on the principal amount of the Notes accrues at a rate of 9% per annum. The Company may pay all or any portion of the amount owed under the Notes earlier than it is due. All payments made under the Notes, including any repayments, are subject to an exit fee of 6% of the portion of the outstanding balance being repaid. The Subsequent Note would have a principal amount of $2,180,000, which will have terms substantially similar to the terms of the Initial Note. The original issue discount of the Subsequent Note, if issued, would be $180,000.

The Purchase Agreement contains certain covenants and agreements, including that we will not pledge or grant any lien or security interest in our or our subsidiaries’ assets without the Holder’s prior written consent and that we will file reports under the Securities Exchange Act timely, and that our shares will continue to be listed or quoted on the NYSE American or Nasdaq. Also, without the Holder’s prior written consent, we may not: issue, incur or guarantee any debt obligations other than trade payables in the ordinary course; issue any security that has conversion rights in which the number of shares varies with the market price of our shares; issue any securities convertible into our shares with a conversion price that varies with the market price of our shares; issue any securities that have a conversion or exercise price subject to a reset due to a change in the market price of our shares or upon the occurrence of certain events related to our business (but excluding certain standard antidilution protection for any reorganization, recapitalization, noncash dividend, stock split or similar transaction); issue and securities pursuant to an equity line of credit, standby equity purchase agreement or similar arrangement. The Purchase Agreement also contains a most favored nations provision that provides we will grant to the Holder the same terms as we offer any subsequent investor in our debt securities and certain arbitration provisions in the event of a claim arising under the Purchase Agreement and other transaction documents.

The Company’s obligations under the Note are secured by: (i) a pledge of all the common stock the Company owns in USCF Investments, Inc. and (ii) a security interest in all of the assets of the Company. Further, the Company’s Chief Executive Officer’s trust, the Nicholas and Melinda Gerber Living Trust (“Gerber Trust”), provided: (i) a guaranty of the Company’s obligations to the Holder under the Note and (ii) a pledge of all of the common stock of the Company owned by the Gerber Trust.

Beginning on the date that is six months from the issuance date until the applicable Note is paid in full, each month the Holder has the right to require the Company to redeem up to an aggregate of $400,000 with respect to the Initial Note and $200,000 with respect to the Subsequent Note plus any interest accrued thereunder and an exit fee of 6% of the principal amount. The Company has the right to defer such redemption payments that Holder could otherwise elect to make three times by providing advance written notice to Holder. If the Company exercises its deferral right, the outstanding balance is automatically increased by 0.85% for each instance that the deferral right is exercised by Company, which cannot be exercised more than once every ninety calendar days.

Pursuant to the terms of the Purchase Agreement, beginning on the date of the issuance and sale of the Note and ending 24 months later, Holder will have the right, but not the obligation, with Company’s prior written consent, to reinvest up to an additional $10,000,000 in the Company on the same terms and conditions as the Notes (structured as two tranches of $5,000,000 each).

The Company engaged Maxim Group LLC to serve as placement agent for the transaction between the Company and Holder in exchange for an aggregate commission equal to 7% of the gross cash proceeds received from the sale of the Notes.

As of September 30, 2024, the note payable balance outstanding, net of the original issue discount and fees paid, was $3.7 million, of which $2.8 million is due within 12 months from September 30, 2024 and the remaining balance of $0.9 million is due prior to September 30, 2026. The effective interest rate for this note is 41.3%.

As of June 30, 2024, Brigadier had an outstanding principal balance of $0.3 million due related to the purchase of its Saskatoon office land and building. The bank loan matured and was paid off in full in July 2024.

NOTE 9. STOCKHOLDERS’ EQUITY

Stock-based Compensation

During the quarter ended September 30, 2024, the following activity occurred under the Company’s Equity Plan.

The fair value of the options granted during the three months ended September 30, 2024 was $1.34 per share which was estimated using the following assumptions:

As of September 30, 2024, there was $0.6 million of unrecognized compensation expense related to outstanding stock options that will be recognized over a remaining weighted average period of 2.9 years. The weighted average remaining contractual life of the outstanding stock options as of September 30, 2024 was 8.8 years. As of September 30, 2024, there was $0.5 million of unrecognized compensation expense related to outstanding RSAs that will be recognized over a remaining weighted average period of 1.8 years. The total stock-based compensation expense recognized during the quarters ended September 30, 2024 and 2023 were $0.5 million and $0.1 million, respectively.

NOTE 10. COMMITMENTS AND CONTINGENCIES

Lease Commitments

For each of the quarters ended September 30, 2024 and 2023, the Company’s combined lease costs were $0.2 million and were recorded under general and administrative expense in the statements of operations. During the quarter ended September 30, 2024, the Company renewed leases in New Zealand and the US which increased the right-of-use assets and lease liabilities by $0.7 million.

Future minimum lease payments are (in thousands):

The weighted average remaining lease term for the Company’s operating leases was 2.2 years as of September 30, 2024 and a weighted-average discount rate of 5.7% was used to determine the total operating lease liabilities. The remaining lease term for the Company’s finance lease was 7.1 years as of September 30, 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 September 30, 2024, Marygold has future payment commitments with its primary service vendors totaling $0.9 million, including $0.8 million due during the remainder of fiscal 2025 and $0.1 million due in fiscal 2026.

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 LLC is an indirect wholly owned subsidiary of the Company. USCF LLC, 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 LLC are not currently party to any material legal proceedings.

In re: United States Oil Fund, LP Securities Litigation

On June 19, 2020, USCF LLC, USO, and USCF LLC executive officers, 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 Securities Act of 1933, as amended, the Securities Exchange Act of 1934 as amended (“Securities Exchange Act”), and Rule 10b-5 under the Securities Exchange Act. 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, USCF executive officers John P. Love, Stuart P. Crumbaugh, Nicholas D. Gerber, Andrew F Ngim, and USCF LLC directors 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 LLC, 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 LLC executive officers John P. Love, Stuart P. Crumbaugh, Nicholas D. Gerber, Andrew F Ngim, and USCF LLC directors 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 LLC, 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 LLC executive officers John P. Love, Stuart P. Crumbaugh, Andrew F Ngim, Nicholas D. Gerber, and USCF LLC directors, Robert L. Nguyen, Gordon L. Ellis, Malcolm R. Fobes, III, 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 Securities 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 LLC, 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 September 30, 2024 and June 30, 2024. 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 were less than $0.1 million for the three months ended September 30, 2024 and 2023, respectively.

NOTE 11. RELATED PARTY TRANSACTIONS

USCF Investments – Related Party Transactions

The funds managed by USCF LLC and USCF Advisers are considered related parties. The Company’s fund management revenue, totaling $4.6 million and $5.0 million for the quarters ended September 30, 2024 and 2023, respectively, were earned from these related parties. Accounts receivable, totaling $1.6 million and $1.5 million as of September 30, 2024 and June 30, 2024, respectively, were owed from the funds that are related parties. USCF Investments, from time to time, provides initial investments in the creation of ETP and ETF funds that USCF LLC manages. As of September 30, 2024 and June 30, 2024, the Company invested a total of $7.4 million and $7.5 million, respectively, of funds managed by USCF Advisers which are included in investments on the consolidated balance sheets. The Company owns 41% and 45% of the outstanding shares of these investments as of September 30, 2024 and June 30, 2024, respectively.

USCF Advisers is contractually obligated to pay license fees up to $0.8 million to an affiliated entity related to intellectual property rights for two of the funds during fiscal 2025 and 2026. The amount of license fee accrued as an expense during the quarter ended September 30, 2024 and fiscal 2024 was $0.2 million and $0.4 million, respectively.

Refer to Note 8. Notes Payable for a description of a related party transaction involving the Nicholas and Melinda Gerber Living Trust (“Gerber Trust”), of which our CEO is a trustee, pursuant to which, in connection with the Company’s recent debt financing transaction, the Gerber Trust provided to the holder of the note issued in the financing transaction a guaranty of the Company’s performance under the note and, as security, a pledge of all of the shares of the Company’s common stock owned by the Gerber Trust.

NOTE 12. INCOME TAXES

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 13. SEGMENT REPORTING

In its operation of the business, our chief operating decision maker (“CODM”) who is our Chief Executive Officer reviews revenues and profits in assessing segment performance and deciding how to allocate resources. The CODM does not evaluate segments on the basis of assets at each segment.