Business context and reporting period
This filing is Golden Matrix Group, Inc.’s Form 10-Q for the three months ended October 31, 2019, its fiscal first quarter—not a filing identifying Meridian Holdings Inc. The company develops social gaming software and technology for operators, with a focus on Asian markets. Its two largest customers are related-party Articulate Pty Ltd and Red Label Technology Pty Ltd.
Financial results and position
| Metric | Quarter ended Oct. 31, 2019 | Comparable 2018 quarter |
|---|---|---|
| Total revenue | $881,845 | $638,695 |
| Gross profit | $849,652 | $569,171 |
| Operating income | $548,826 | $356,644 |
| Net income | $545,888 | $331,999 |
| Operating cash flow | $972,335 | $234,246 |
- Revenue rose about 38%; gross margin was approximately 96% versus 89%, and operating margin approximately 62% versus 56%.
- Third-party revenue was $362,276, up from $633; related-party revenue was $519,569, down from $638,062. Revenue remained concentrated: Articulate represented 59% and Red Label 41% of quarterly revenue.
- Cash and cash equivalents were $2.305 million at October 31, up from $1.731 million at July 31. Current assets were $3.375 million and current liabilities $1.639 million, for working capital of $1.736 million and a current ratio of about 2.1.
- Financing cash outflow was $398,313, principally repayment of the Luxor promissory note. Reported cash increased by $574,022 over the quarter.
- Total liabilities were $1.639 million. Notable obligations included a $290,000 related-party settlement payable, a related-party promissory note with $633,254 principal plus accrued interest and fees, and $40,000 principal of convertible notes, including a $10,000 note reported in default.
- Shareholders’ equity was $1.736 million, while accumulated deficit remained $25.892 million. Common shares outstanding were 2.845 billion; diluted weighted-average shares were 4.200 billion, largely reflecting options and warrants. Reported basic and diluted EPS each rounded to $0.00.
Material changes, outlook, and risks
Profit and operating cash flow improved year over year, with the revenue mix shifting sharply toward third-party business. General and administrative expense increased to $161,332 from $118,230; amortization expense increased to $120,679 from $57,347. Interest expense rose to $16,390 from $7,792. The company attributed higher net income mainly to increased revenue.
Management plans to expand its global customer base, integrate additional operators, launch complementary products, and appoint more distributors. No quantified revenue, earnings, or cash-flow guidance is provided. Management says results are difficult to forecast and that there is no assurance it will address the risks of a development-stage business.
- The filing says prior-period losses and the $25.892 million accumulated deficit raise substantial doubt about the company’s ability to continue as a going concern, notwithstanding current-quarter profit and positive cash flow.
- Customer concentration and related-party dealings are significant: Articulate is owned by the CEO, and the company records substantial revenue, receivables, payables, and office-service expenses involving related parties. Receivables from Articulate and Red Label totaled $1.070 million.
- The company disclosed tendering payment on two older convertible notes but said it was seeking legal opinions regarding the remaining liability; one note is classified as in default. A related-party settlement installment was also reported in default.
- Disclosure controls were described as ineffective due to the absence of independent directors and an audit committee financial expert, and weaknesses in controls over required financial-statement disclosures. The filing reported no significant subsequent changes in internal control.
- The filing reports no subsequent events and no known legal disputes, while warning that forward-looking plans are subject to risks and actual results may differ.
Important facts for investors to verify
- Confirm the issuer and period: the supplied filing is for Golden Matrix Group, Inc., quarter ended October 31, 2019, notwithstanding the request metadata naming Meridian Holdings Inc. and “2020 Q1.”
- Assess revenue sustainability and collectability given customer concentration, related-party revenue, and the $1.070 million receivable exposure to the two major customers.
- Review liquidity and debt-payment capacity, including the Luxor obligations, overdue settlement installment, and notes described as in default or subject to legal review.
- Evaluate going-concern disclosures and the remediation status of the disclosed control weaknesses.
- Check reported figures against the underlying statements: the MD&A gives professional fees of $18,851 while the operations statement lists $18,815; the cash-flow statement’s amortization adjustment also differs from the reported amortization expense.