Business context and reporting period
The filing is Golden Matrix Group, Inc.’s unaudited Form 10-Q for the three months ended April 30, 2020, compared with the three months ended April 30, 2019. The request metadata names Meridian Holdings Inc.; the filing itself identifies Golden Matrix Group, Inc., so the issuer identity should be verified. Golden Matrix develops and licenses social-gaming software, with a stated focus on Asian markets.
Financial performance and position
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Total revenue | $734,764 | $737,169; down about 0.3% |
| Gross profit | $703,268 | $522,320 |
| Gross margin | About 95.7% | About 70.9% |
| Operating expenses | $468,674 | $229,084 |
| Operating income | $234,594 | $293,236 |
| Net income | $229,739 | $279,323; down about 17.8% |
| Operating cash flow | $258,141 | $306,995 |
Cash was $1,940,392 at April 30, 2020, up from $1,856,505 at January 31, 2020. Total assets were $4,175,871 and current liabilities were $1,140,587; reported shareholders’ equity was $3,035,284. Current assets were $4,175,871. Receivables included $994,540 from non-related parties and $1,240,939 from related parties.
Reported current debt included $30,000 of convertible notes, $10,000 of convertible notes in default, $42,451 of accrued interest, and a $290,000 related-party settlement payable. The $174,254 related-party promissory-note balance shown at January 31 was repaid during the quarter. The filing reports no senior securities outstanding. Basic and diluted earnings per share were each reported as $0.00; diluted weighted-average shares were 4,220,395,360 versus 2,851,432,351 in the prior-year quarter.
Material changes versus the prior comparable period
- Revenue was nearly flat, with third-party revenue rising to $203,199 from $162,772 while related-party revenue declined to $531,565 from $574,397.
- Cost of goods sold fell to $31,496 from $214,849. The company attributes the change partly to accounting for consultant options under ASU 2018-07, including no longer revaluing options at each reporting date.
- Operating expenses more than doubled, principally because amortization rose to $259,560 from $54,979, largely related to executive stock options. General and administrative expense increased to $188,726 from $159,331; professional fees increased to $20,388 from $7,983.
- Net income and operating cash flow decreased despite higher gross profit. Financing cash outflow was $174,254, primarily reflecting repayment of the related-party promissory note.
Outlook, risks, contingencies, and unusual items
- Management says it plans to expand the global customer base, integrate additional operators, launch complementary products, and appoint more distributors. No quantified guidance is provided.
- The company disclosed substantial doubt about its ability to continue as a going concern, citing significant prior-period losses and an accumulated deficit of $25,241,222. Management points to quarterly profit, revenue growth, and cash flow, but the filing provides no assurance that its growth plans will succeed.
- Customer concentration is significant: two customers generated all $734,764 of quarterly revenue—Articulate Pty Ltd, a company wholly owned by the CEO, accounted for 72%, and Red Label Technology Pty Ltd accounted for 28%. The two customers represented $2,235,479 of net receivables. All reported customer cash receipts for the quarter, $349,500, came from Articulate.
- Related-party exposure includes revenue, receivables, payables, and service arrangements involving entities associated with the CEO. The filing reports $1,240,939 receivable from Articulate and $344,501 payable to Articulate at April 30.
- Two convertible notes remain unresolved: the company says it tendered payment on Note #2 and Note #59, but is seeking legal opinions regarding its liability. Note #59 is reported in default; accrued interest on it was $3,025.
- Disclosure controls were reported ineffective based on an evaluation as of July 31, 2019, citing no independent directors, no audit committee financial expert, and disclosure-control weaknesses. Management reported no significant subsequent changes in internal control over financial reporting.
- Subsequent to quarter-end, the company issued 10 million shares to James Caplan on May 6, 2020 for services. It also appointed director Thomas McChesney effective April 27 and granted him 15 million options.
Most important facts for investors to verify
- Confirm the issuer identity: the supplied metadata says Meridian Holdings Inc., while the filing and financial statements identify Golden Matrix Group, Inc.
- Assess collectability and payment timing for the $2.24 million receivable from the two concentrated customers, particularly the CEO-affiliated Articulate.
- Review the going-concern disclosure, cash needs, and progress in diversifying revenue beyond the two customers.
- Verify the status and legal treatment of the defaulted and tendered convertible notes and the $290,000 related-party settlement payable.
- Reconcile the filing’s related-party note payment disclosures: it reports $175,627 paid to Luxor including $1,373 interest, while financing cash flows show a $174,254 repayment.
- Evaluate potential dilution from outstanding options and warrants and the large difference between basic and diluted weighted-average shares.
- Review the disclosed control weaknesses and the lack of independent directors and an audit committee financial expert.