Business context and reporting period
Entity clarification: The supplied filing is Golden Matrix Group, Inc. (NASDAQ: GMGI), not Meridian Holdings Inc. It is a Form 10-Q for the quarter and nine months ended July 31, 2023, filed September 7, 2023. The company operates B2B online-gaming software and content services, UK B2C prize competitions, and a Mexico online casino.
Key financial results
| Metric | Three months ended July 31, 2023 | Prior-year quarter | Nine months ended July 31, 2023 | Prior-year period |
|---|---|---|---|---|
| Total revenue | $11.31 million | $9.10 million | $32.39 million | $26.46 million |
| Gross profit / margin | $2.14 million / 19% | $2.48 million / 27% | $6.64 million / 20% | $7.05 million / 27% |
| Operating income (loss) | $(0.89) million | $0.73 million | $(1.71) million | $1.89 million |
| Net income (loss) attributable to GMGI | $(0.97) million | $0.63 million | $(1.94) million | $1.56 million |
| Diluted earnings (loss) per share | $(0.03) | $0.02 | $(0.06) | $0.04 |
| Adjusted EBITDA (non-GAAP) | $0.16 million | $1.01 million | $1.50 million | $2.86 million |
Quarterly revenue grew about 24%; nine-month revenue grew about 22%. B2C represented 67% of quarterly revenue and 64% of nine-month revenue. Despite revenue growth, gross profit fell and margins contracted. Quarterly B2C growth included UK cash-alternative prize transactions and Mexplay revenue; B2B revenue was pressured by competition and lower content resale revenue in the quarter.
Cash flow, balance sheet and liquidity
- Cash was $16.14 million at July 31, up $1.19 million from October 31, 2022. Nine-month operating cash flow was $1.06 million, down from $2.66 million a year earlier. Investing used $0.10 million; financing used $0.03 million.
- Current assets were $22.09 million and current liabilities $4.09 million; reported working capital was $18.00 million. Total assets were $34.99 million and total liabilities $4.09 million.
- The balance sheet lists no material borrowing debt. Liabilities included $88,198 of current operating lease obligations and a $641,766 contingent liability related to the disputed RKings seller holdback. The Meridian transaction, if completed, would add substantial financing obligations.
- Accounts receivable, net, rose to $3.92 million from $2.64 million. Prize inventory was $1.52 million, up from $1.15 million. Cash and liquidity figures include a $46,495 receivable from Citibank related to erroneous unauthorized ACH transfers; $683,010 of $729,505 had been replenished by the report date.
Material changes, outlook and risks
- Higher operating and related-party expenses contributed to the swing to losses. Nine-month stock-based compensation was $2.82 million, including $1.56 million of related-party stock compensation. Common shares outstanding increased from 28.18 million at October 31, 2022 to 36.13 million at July 31, 2023, principally reflecting cashless option exercises and equity awards.
- Management attributed lower B2C margins to technology problems in April 2023 that compromised some large competition ticket sales and reduced May activity. Systems were upgraded in May; RKings gross margin was reported at 20% in June and 29% in July. Management expects efficiencies and a broader, higher-margin prize mix but provided no quantified earnings or revenue guidance.
- Management said operating cash should support working capital for the next 12 months and beyond, excluding the pending Meridian acquisition. That acquisition had not closed as of the filing. Consideration includes $30 million cash at closing, 82.14 million common shares valued at $3 per share, preferred shares, possible contingent post-closing consideration, later cash payments, and $15 million in promissory notes. The company stated it was seeking financing and had no financing agreement in place; completion, terms, dilution, debt service and change of control are significant uncertainties.
- Other risks include competitive pressure and third-party content costs, gaming licensing and regulation, technology and cybersecurity failures, foreign exchange, consumer spending, and financing availability. A dispute with former RKings seller Paul Hardman over approximately $641,766 remains unresolved; the amount is accrued. Related-party relationships include revenue and receivables from Articulate, owned by the CEO and his wife.
- Management reported disclosure controls were effective and no material changes in internal control during the quarter. The filing reports no material legal proceeding other than the described seller dispute.
Most important facts to verify
- Confirm the intended issuer: the filing is for Golden Matrix Group, Inc., not Meridian Holdings Inc.
- Check the Meridian acquisition’s status, financing commitments, final consideration, closing conditions and resulting dilution/control changes.
- Assess whether the RKings technology remediation sustained improved ticket sales and margins after July 2023.
- Review receivables collection, including the remaining Citibank ACH balance, and the aging and collectability of customer and related-party receivables.
- Evaluate the Paul Hardman holdback dispute and the basis for the recorded $641,766 liability.
- Separate recurring operating performance from the impact of stock-based compensation, related-party costs and other non-GAAP adjustments.