Filing summary
Entity and period mismatch: The supplied filing is for Golden Matrix Group, Inc., not Meridian Holdings Inc. It is a Form 10-Q for the quarter ended April 30, 2018 (the third quarter of the company’s fiscal year), covering the nine months then ended. The filing does not match the company and period identified in the request.
Business context and financial performance
Golden Matrix describes its business as software technology for social online gaming operators, with a focus on the Asian market. The filing reports unaudited financial results in U.S. dollars.
- Revenue: $345,148 for the quarter, versus $30,000 in the prior-year quarter; $405,148 for the nine months, versus $90,000. Revenue was from related parties. Management attributed quarterly growth mainly to software usage fees under its agreement with Articulate.
- Profit/loss: Quarterly net loss was $35,248, compared with net income of $200,228. Nine-month net loss was $408,807, compared with net income of $1,625,792. Nine-month operating loss was $162,746, versus $211,599.
- Expenses and unusual earnings items: Nine-month operating expenses were $567,894, including $350,400 of related-party G&A and $91,886 of amortization expense. Other expense was $246,061, including a $114,064 unrealized loss from changes in derivative-liability fair value and $132,811 of note interest. The prior-year nine-month results included $1,414,761 of derivative fair-value gains and $806,867 of debt-extinguishment gains, making the comparison materially affected by non-operating items.
- Margins: The filing does not provide a clear gross-profit or gross-margin measure.
- Cash flow: Nine-month operating cash flow was positive $26,774, versus negative $16,499. Investing cash flow was zero; financing cash flow was $38,000, from convertible notes. Cash increased by $64,774 to $89,941.
- Liquidity and debt: Current assets were $340,589, against current liabilities of $1,559,992, for a working-capital deficit of $1,219,403. The filing states that this condition raises substantial doubt about the company’s ability to continue as a going concern without additional capital. Current liabilities included $865,926 of convertible-note principal, $161,003 of accrued interest, and $416,207 payable to a related party. Some notes were in default.
- Equity and dilution: Shareholders’ deficit was $1,219,403 at April 30. Common shares outstanding were 1,992,904,757 at that date and 2,292,904,757 as of June 13. During the nine months, the company issued more than 1.046 billion shares to convert debt and 625 million shares to acquire GM2 intellectual property. Substantial stock-option awards were also granted.
Material changes, outlook, and risks
- In February 2018, the company acquired GM2 intellectual property from Luxor Capital, which is wholly owned by CEO Anthony Goodman, issuing 625 million shares and agreeing to an earnout equal to 50% of GM2 Asset revenue during March 1, 2018–February 28, 2019. Management said the asset was expected to attract clients and add revenue; the filing provides no quantified forecast.
- A March 2018 license agreement allowed Articulate, also wholly owned by the CEO, to use the GM2 technology in return for usage fees. Articulate generated $315,148 of quarterly revenue, and $190,148 was receivable from it at April 30. The filing says nine-month revenue came from two related parties and reports $250,648 in related-party receivables.
- Management cited delays in fully launching the social gaming platform and described operating results as difficult to forecast. It said continued operations depend on additional debt or equity financing and, ultimately, profitable gambling-business operations.
- Management reported that disclosure controls were not effective based on an evaluation as of July 31, 2017, citing the absence of independent directors and an audit committee financial expert, as well as disclosure-control weaknesses. It reported no significant subsequent changes in internal control over financial reporting.
- Subsequent to quarter-end, the company reported 300 million shares issued under subscription agreements, raising $120,000 in total, and a board resolution to increase authorized common shares from 4 billion to 6 billion. These developments increase available equity funding but also potential dilution.
Important facts for investors to verify
- Confirm the filing’s correct issuer and reporting period; both differ from the request metadata.
- Assess the company’s ability to fund operations given its $89,941 cash balance, working-capital deficit, going-concern warning, and reliance on new financing.
- Review the terms, balances, defaults, conversion features, and potential dilution from outstanding notes and equity awards.
- Examine the related-party asset purchase, earnout, license, revenue, receivables, and payables, including the concentration of revenue with related parties.
- Reconcile derivative-liability disclosures: the balance sheet and activity table report $101,905 at April 30, while narrative text elsewhere in the note gives a different amount.
- Check the presentation of amortization and stock-based compensation, and the subsequent financing and share-count disclosures, against the underlying financial statements and exhibits.