Business context and reporting period
The supplied filing is Golden Matrix Group, Inc.’s unaudited Form 10-Q for the quarter ended April 30, 2019, covering its fiscal third quarter and nine months ended on that date. This differs from the request metadata naming Meridian Holdings Inc. The company describes itself as a software and social-gaming technology provider focused on business-to-business operators, including in Asian markets.
Financial results and position
| Metric | Three months ended Apr. 30, 2019 | Nine months ended Apr. 30, 2019 |
|---|---|---|
| Revenue | $737,169 | $2,089,406 |
| Gross profit | $522,320 | $1,736,055 |
| Operating income | $293,236 | $1,057,025 |
| Net income | $279,323 | $1,033,113 |
| Operating cash flow | Not separately presented | $1,146,333 |
- Nine-month revenue included $1,923,882 from related parties; three-month related-party revenue was $574,397. Gross margins were approximately 71% for the quarter and 83% for the nine-month period.
- At April 30, cash was $1,425,494; current assets were $2,499,242 and current liabilities $1,768,425, implying working capital of $730,817. Total liabilities were $1,913,425 and shareholders’ equity was $585,817.
- Liabilities included a $1,031,567 related-party promissory note, $40,000 of convertible-note principal, and $10,910 of derivative liabilities. A separate $290,000 interest-free Luxor loan is disclosed as payable in two $145,000 installments; the balance sheet reports related-party settlement payables of $145,000 current and $145,000 long-term.
- Common shares outstanding rose from 2,622,904,757 at July 31, 2018 to 2,845,318,757 at April 30, 2019. Reported basic and diluted EPS rounded to $0.00.
Changes versus prior comparable periods
- Quarterly revenue increased from $345,148 to $737,169, and net results improved from a $35,248 loss to $279,323 income.
- Nine-month revenue increased from $405,148 to $2,089,406; net results improved from a $408,807 loss to $1,033,113 income. Management attributed much of the revenue increase to software usage fees under the related-party Articulate license.
- Nine-month operating cash flow increased from $26,774 to $1,146,333. Financing activities used $167,420, mainly associated with settlement payments, versus $38,000 provided in the prior-year period.
- The company converted $209,414 of related-party convertible debt into 209,414,000 common shares during the nine months.
Outlook, risks, contingencies and unusual items
- Management provided no specific financial guidance. It described results as difficult to forecast and said continuing operations depend on raising additional debt or equity capital and, over time, achieving profitable operations from its gaming business.
- The filing states that substantial doubt exists about the company’s ability to continue as a going concern, citing its accumulated deficit of $27,174,530 and dependence on additional financing and future profitability, despite current-period income and positive operating cash flow.
- Revenue and receivables are concentrated in related parties, including entities owned by or associated with the CEO. The GM2 asset earn-out with CEO-owned Luxor was settled through a $1,031,567 promissory note after a proposed 10% discount; the note bears 6% interest and is due in installments.
- Stock-option compensation was a significant noncash item: the cash-flow statement reports $522,510 of fair value for options issued for services. The filing also describes substantial outstanding option grants, creating potential dilution.
- Management said disclosure controls were ineffective, citing the absence of independent directors and an audit committee financial expert, and deficiencies in disclosure controls. It reported no significant subsequent changes to internal control over financial reporting.
- The company reported no known legal disputes and no material subsequent events. Forward-looking statements are subject to risks and the company disclaims an obligation to update them.
Important facts for investors to verify
- Confirm issuer identity: the filing names Golden Matrix Group, Inc., not Meridian Holdings Inc., and covers the quarter ended April 30, 2019.
- Reconcile related-party revenue and receivables. The notes report $1,923,882 due from two related parties, while the balance sheet shows $906,380 of related-party receivables; the filing text does not provide a clear reconciliation.
- Verify the presentation and payment status of the $290,000 Luxor loan and the $1,031,567 Luxor promissory note, including the current and long-term balance-sheet classifications.
- Assess customer concentration, related-party governance and terms, and the company’s ability to collect outstanding receivables and fund operations without additional financing.
- Review potential dilution from the large common-share base, convertible instruments, preferred-stock voting rights and outstanding options; the Series B preferred shares carry votes equal to four times the votes of all common and other voting preferred shares.