Golden Matrix Group, Inc. — Form 10-Q Summary
Entity and period note: The supplied filing is for Golden Matrix Group, Inc., not Meridian Holdings Inc. It covers the quarter and nine months ended April 30, 2016; the company’s fiscal year ends July 31. The filing describes an exploration-stage company pursuing mineral properties while acquiring gaming-related intellectual property.
Financial results and liquidity
| Metric | Three months ended April 30, 2016 | Nine months ended April 30, 2016 | Comparable 2015 period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Operating loss | $658,284 | $1,542,589 | $246,971; $1,138,906 |
| Net loss | $22,475,244 | $25,756,104 | $389,528; $1,455,387 |
| Derivative fair-value loss / (gain) | $20,900,753 loss | $20,725,354 loss | $891 loss; $176,565 gain |
| Interest expense | $916,207 | $3,509,312 | $141,666; $493,046 |
There was no revenue or gross profit, so a meaningful gross margin is not available. The substantially larger reported losses were driven mainly by noncash fair-value changes in embedded conversion features and convertible-note interest, rather than operating sales.
- Cash flow, nine months: Operating activities used $862,065; investing activities used $650,000; financing activities provided $1,512,065. Reported ending cash was $0.
- Balance sheet, April 30: Total assets were $2,901,007, including $2,766,468 of intangible assets and $49,539 of current assets. Current liabilities were $29,797,809, including a $25,296,862 derivative liability. Working-capital deficit was $29,748,270; shareholders’ deficit was $26,896,801.
- Debt: Notes payable were $5,681,471 principal less $1,837,359 discount, or $3,844,111 net, with $558,956 accrued interest. The filing reports substantial convertible-note issuance and conversions; certain conversion prices are linked to the market price of the stock.
Material changes and notable items
- In February 2016, the company acquired gaming IP and know-how from Luxor Capital, an entity wholly owned by CEO Anthony Goodman. Consideration included 1,666,667 common shares and a $2,374,712 convertible note bearing 6% interest. The company also reported acquiring “We Buy Gold” website-related intellectual property.
- The company changed its name to Golden Matrix Group, Inc. and completed a 1-for-1,500 reverse split effective April 7, 2016. The filing also describes an earlier 1-for-2,000 reverse split in October 2015.
- Common shares issued and outstanding were 2,405,512 at April 30; the filing reports 13,925,616 as of June 10, 2016. Numerous subsequent note conversions are disclosed, including conversions at market-linked prices, creating potential dilution.
- After quarter-end, on May 27, 2016, the company entered into agreements cancelling $2,693,697 of convertible debt. This is a subsequent event, not reflected in the April 30 balance sheet.
- Management said it expected to rely on equity sales and/or other financing. It gave no quantified operating guidance and stated it did not anticipate revenue until commercial production of mineral claims, while also describing development of a social online gaming product.
Risks, contingencies, and controls
- Going concern: The company had no recurring revenue, accumulated losses of $44,440,209, a large working-capital and shareholders’ deficit, and no formal financing plan. Management said further equity financing or related-party advances might be sought, with no assurance of availability or acceptable terms. The filing states these conditions raise substantial doubt about continuing as a going concern.
- Convertible debt and valuation: Embedded conversion features produced a $25,296,862 derivative liability and large, volatile fair-value charges. The filing’s reported loss is therefore highly sensitive to valuation assumptions; conversions may also materially dilute existing holders.
- Operating and asset risks: The company had not established economically recoverable mineral reserves. Recovery of mineral-property amounts depends on reserves, financing, and future operations. The filing’s exploration-stage description alongside its gaming-IP acquisition indicates a business transition that investors should assess.
- Internal controls: Management reported disclosure controls were not effective, citing a lack of independent directors and an audit committee financial expert, and deficiencies in disclosure controls. The stated evaluation date is “April 30, 2015,” which appears inconsistent with this 2016 quarterly report and should be checked against the filed version.
- The filing reported no known current legal disputes and no material off-balance-sheet arrangements. It states no commitments; no specific quantified litigation contingency was reported.
Important facts for investors to verify
- Confirm the registrant identity and reporting period: this source is Golden Matrix Group, Inc., not Meridian Holdings Inc.
- Review the May 27, 2016 debt-cancellation agreements, their conditions, and the resulting post-quarter debt balance.
- Reconcile debt principal, discounts, accrued interest, and derivative liabilities, and assess the assumptions used to value conversion features.
- Trace share counts through both reverse splits and subsequent conversions; verify the June 10 share count and dilution exposure from outstanding convertible notes.
- Assess available funding and liquidity against the going-concern warning, and clarify the company’s near-term business focus between gaming IP and mineral exploration.
- Check the controls evaluation date and the status of remediation, board independence, and audit-committee expertise.