Golden Matrix Group, Inc. — Form 10-Q Summary
Entity note: The supplied filing is for Golden Matrix Group, Inc., not Meridian Holdings Inc. It reports the unaudited three months ended January 31, 2022, compared with the three months ended January 31, 2021. The company changed its fiscal year-end to October 31; this is its first fiscal quarter under that year-end.
Business context and results
Golden Matrix provides B2B online-gaming software and third-party gaming content, primarily in Asia-Pacific. Following its November 1, 2021 effective acquisition of 80% of RKingsCompetitions Ltd., it also operates a UK B2C pay-to-enter prize-competition business. The quarter includes RKings results; the prior-year comparison does not.
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenue | $8.88 million | $1.95 million |
| Gross profit / margin | $2.02 million / 23% | $1.00 million / 51% |
| Operating income | $404,000 | $30,000 |
| Net income | $414,000 | $52,000 |
| Net income attributable to Golden Matrix | $349,000 | $52,000 |
| Cash from operations | $1.84 million | $79,000 |
2022 revenue comprised $5.50 million from RKings B2C competitions and $3.38 million from B2B operations. B2C contributed $1.19 million of gross profit; B2B gross profit declined $162,000, according to management. The lower consolidated margin reflected the mix of lower-margin content-resale and B2C revenue. Basic and diluted earnings per share attributable to Golden Matrix were each reported as $0.01.
Financial position and cash flows
At January 31, 2022, cash was $15.24 million, current assets $18.50 million, current liabilities $4.41 million, and working capital $14.09 million. Total assets were $32.13 million and total liabilities $4.56 million. The filing reports no material borrowings; liabilities include $239,955 of operating lease obligations. Cash fell $1.56 million during the quarter: operating activities generated $1.84 million, investing activities used $3.40 million, primarily for the RKings acquisition, and financing activities provided $200. Management characterized operations as self-sustaining and stated it expected sufficient liquidity for the foreseeable future.
Material changes, outlook, and risks
- The RKings acquisition materially expanded revenue and added $10.72 million of goodwill and $2.52 million of acquired trademarks and non-compete intangible assets. RKings generated $321,000 net income for the post-acquisition period reported.
- Acquisition consideration included $4.10 million cash, 666,250 initial shares valued at $5.33 million, and contingent items. A $1.37 million holdback liability was recorded, subject to revenue and other conditions. The company said the separate £4 million EBITDA-based earn-out was highly unlikely to be achieved and recorded no liability for it. An additional 70,332 shares valued at $563,000 were issued on March 7, 2022.
- Management expects to pursue customer and geographic expansion, develop proprietary gaming content, and launch its e-sports portfolio in Q2 2022. A Nasdaq uplisting application was pending; the company discussed a possible equity offering but gave no specific financial forecast or revenue guidance.
- Risks include gaming regulation and licensing, third-party content dependence, acquisition integration and performance, related-party dealings, potential need for financing and dilution, foreign exchange exposure, cybersecurity and systems risks, and COVID-19 uncertainty. The company disclosed $88,676 due from Citibank after unauthorized ACH transfers; Citibank said it was addressing the matter.
- Management reported disclosure controls effective and described additions to accounting personnel and procedures. The filing’s risk summary also identifies lack of effective internal controls as a risk; investors should reconcile that disclosure with management’s assessment.
Key facts investors should verify
- Whether RKings meets the conditions for the $1.37 million holdback, and whether the purchase-price allocation or earn-out assessment changes during the measurement period.
- Whether RKings’ reported revenue and margins are sustainable, and how results compare on a comparable, acquisition-adjusted basis.
- Collection of the $88,676 Citibank receivable and the status of related bank-control safeguards.
- The amount and terms of any planned financing or Nasdaq-related offering, including potential shareholder dilution.
- Related-party revenue and receivables: the filing reports $235,246 of related-party revenue and $533,606 due from Articulate for the quarter-end period.