Filing summary
Entity and period: The supplied filing is Golden Matrix Group, Inc.’s unaudited Form 10-Q for the quarter and six months ended January 31, 2020—not a filing identified as Meridian Holdings Inc. The filing describes a social-gaming software and technology business. Its MD&A contains stale references to earlier reporting periods, so the financial statements are the clearer source for the period covered.
Financial performance and position
| Metric | Three months ended Jan. 31, 2020 | Three months ended Jan. 31, 2019 | Six months ended Jan. 31, 2020 | Six months ended Jan. 31, 2019 |
|---|---|---|---|---|
| Total revenue | $876,754 | $713,542 | $1,758,599 | $1,352,237 |
| Gross profit | $851,723 | $644,564 | $1,701,375 | $1,213,735 |
| Operating income | $443,432 | $407,145 | $992,258 | $763,789 |
| Net income | $438,802 | $421,791 | $984,690 | $753,790 |
| Operating cash flow | Not presented separately | Not presented separately | $986,723 | $839,338 |
- Revenue increased about 23% for the quarter and 30% for the six-month period. Third-party revenue rose to $670,783 for six months from $2,752; related-party revenue declined to $1,087,816 from $1,349,485.
- Gross margin was approximately 97% for the quarter and 97% for the six-month period, compared with approximately 90% in each prior-year comparable period.
- Six-month operating expenses rose to $709,117 from $449,946. Amortization expense increased to $385,024 from $114,180; management attributes the increase to stock options under the equity incentive plan. Cost of goods sold fell to $57,224 from $138,502.
- At January 31, 2020, cash was $1,856,505, current assets $3,717,558, current liabilities $1,248,521, and working capital $2,469,037. Total liabilities were $1,248,521. Cash increased by $125,410 during the six months after $861,313 of financing outflows, primarily repayment of a Luxor promissory note.
- Reported net income per share was $0.00, rounded. Weighted-average diluted shares were 4.179 billion versus 2.848 billion in the prior-year quarter; the filing includes 1.326 billion options and warrants in the 2020 diluted-share calculation. Common shares issued and outstanding were 2.845 billion.
Changes, outlook, and risks
- Management says it plans to expand its global customer base, integrate additional operators, launch complementary products, and appoint more distributors. The filing provides no quantified revenue or earnings guidance.
- The company identifies substantial doubt about its ability to continue as a going concern, citing its history of significant losses and accumulated deficit of $25,453,045, despite six-month net income of $984,690.
- Customer concentration is material: two customers generated all reported six-month revenue—Articulate Pty Ltd, 62%, and Red Label Technology Pty Ltd, 38%. Articulate is wholly owned by the CEO and generated $1,087,816 of six-month related-party revenue. The filing says customer diversification is expected but gives no timetable.
- Related-party arrangements are significant, including customer revenue, executive payables, office services, and debt with Luxor, which is wholly owned by the CEO. The filing reports a $290,000 Luxor settlement payable, with the $145,000 installment due September 2019 in default.
- The company also reports convertible notes of $40,000 principal, including a $10,000 note in default. It says payment was tendered on two notes but responses or resolution remained outstanding and legal opinions were being sought. The filing states there are no known legal disputes at this time.
- Management concluded disclosure controls were ineffective, citing the absence of independent directors and an audit committee financial expert and gaps in disclosure controls. The discussion refers to an evaluation as of July 31, 2018, making the period-specific status unclear; management reported no significant subsequent changes in internal control.
Important facts to verify
- Confirm the intended issuer: the provided filing is for Golden Matrix Group, Inc., not Meridian Holdings Inc.
- Reconcile the related-party promissory note: the balance sheet reports $174,254, while the note disclosure gives $170,254 principal, $39,013 accrued interest, and a $4,000 late fee, totaling $213,267.
- Verify the status and classification of defaulted or tendered obligations, including the Luxor settlement installment and convertible notes.
- Assess receivable collectability and dependence on the two customers, particularly related-party Articulate.
- Review dilution and equity-compensation effects, including the large options-and-warrants count and the filing’s descriptions of option-related expense.
- Confirm the current status of the going-concern assessment and disclosure-control weaknesses; the MD&A includes outdated period references.