Golden Matrix Group, Inc. — Form 10-Q summary
Period: Three and six months ended April 30, 2022. The filing identifies Golden Matrix Group, Inc. as the registrant, not Meridian Holdings Inc.; confirm the company and filing intended. Financial statements are unaudited.
Business context
Golden Matrix provides B2B software and gaming-content services to online gaming operators, primarily in Asia-Pacific, and, through its 80%-owned RKings subsidiary, operates UK pay-to-enter prize competitions. RKings was acquired effective November 1, 2021, so the 2021 reported comparison excludes its results. The company reported 6.5 million-plus registered players across its B2B platforms and 182,951 RKings users as of April 30, 2022.
Financial results
| Metric | Three months ended April 30 | Six months ended April 30 |
|---|---|---|
| Total revenue, 2022 / 2021 | $8.48m / $2.64m | $17.36m / $4.59m |
| Gross profit, 2022 / 2021 | $2.54m / $1.15m | $4.56m / $2.14m |
| Gross margin, 2022 / 2021 | 30% / 43% | 26% / 47% |
| Net income attributable to Golden Matrix, 2022 / 2021 | $0.59m / $0.13m | $0.94m / $0.18m |
| Basic / diluted EPS, 2022 | $0.02 / $0.02 | $0.03 / $0.03 |
- Revenue mix, six months: B2B revenue was $6.75m (39%); RKings B2C revenue was $10.61m (61%). Third-party gaming-content resale generated $6.30m, while software/IP revenue was $0.45m.
- Operating performance: Six-month operating income was $1.16m, versus $0.17m in 2021. Higher sales were partly offset by cost of goods sold rising to $12.80m and operating expenses rising to $3.40m. UK prize competitions generated $2.82m of six-month gross profit, according to management.
- Cash flow: Operating cash flow was $2.61m, investing cash outflow was $3.46m, and financing cash flow was zero for the six months. Cash declined $0.99m to $15.81m, primarily reflecting $3.34m of cash consideration for RKings, partly offset by operating cash generation.
- Balance sheet and liquidity, April 30: Cash was $15.81m; current assets $19.93m; current liabilities $4.50m; working capital $15.43m; total assets $33.50m; total liabilities $4.62m; and total equity $28.88m. Conventional borrowings are not reported; liabilities include $0.22m of operating leases and $1.26m of RKings-related contingent liability. The filing reports $0.72m of UK income tax payable.
- Acquisition accounting: RKings contributed $10.61m revenue and $0.72m net income attributable to Golden Matrix from acquisition through April 30. The acquisition added $10.72m goodwill and identifiable intangible assets. Purchase-price allocation remained preliminary.
Changes, outlook and risks
- Reported growth is substantially acquisition-driven and not directly comparable with the prior-year reported period. On a pro forma basis assuming RKings had been acquired November 1, 2020, six-month revenue was $17.36m versus $26.14m in 2021, and net income attributable to Golden Matrix was $0.94m versus $1.11m.
- Management attributed lower B2B software/IP revenue to losing a large operator through a distributor, reduced related-party revenue, and competition. Third-party content resale grew with more customers and players. Related-party revenue from Articulate was $0.44m for six months, down from $1.29m.
- Management expects to pursue geographic expansion, additional distributors and regulatory approvals, proprietary gaming and esports products, and selective acquisitions. An esports portfolio was planned for launch in the third quarter of 2022. Management cited economies of scale and potential margin improvement; no quantified financial guidance was provided.
- Management described operations as self-sustaining and stated it expected existing liquidity to support the business. It also noted possible future financing for expansion or acquisitions, which could be unavailable or dilute shareholders. The RKings sellers may receive a $1.26m holdback if specified revenue and other conditions are met; a further approximately $5.33m earn-out is payable only if performance and other criteria are achieved. Management considered the earn-out threshold highly unlikely and recorded no liability for it.
- Risks include gaming regulation and licensing, third-party content dependence, customer concentration, competition, acquisition integration, discretionary consumer spending, foreign exchange, cybersecurity and systems failures, and potential financing needs. COVID-19 had not materially affected operations to date, but future effects remain uncertain. The filing also discloses past unauthorized bank transfers; Citibank had reimbursed most of the $729,505, with $67,498 still due after a May 12, 2022 reimbursement.
- The CEO holds Series B preferred stock carrying 7.5 million votes in aggregate and retains substantial voting influence. The shares may convert into common stock at 1,000 common shares per preferred share, subject to the designation’s terms. The company uplisted to Nasdaq on March 17, 2022. Management reported disclosure controls effective and noted changes to financial-reporting processes and staffing.
Important facts to verify
- Confirm the intended issuer: the supplied filing is for Golden Matrix Group, Inc., while the request names Meridian Holdings Inc.
- Assess RKings’ standalone and pro forma performance, acquisition valuation, preliminary purchase-price allocation, and potential goodwill or intangible-asset impairment.
- Verify the conditions and timing for the $1.26m holdback, any remaining tax obligations, and the status of the Citibank receivable.
- Review B2B customer concentration and related-party transactions, including Articulate revenue, receivables, and the CEO’s voting control.
- Evaluate the dilution implications of the 2022 equity incentive plan, outstanding options and warrants, and potential preferred-stock conversion.