Filing summary
Registrant and period: The supplied filing is Golden Matrix Group, Inc. (NASDAQ: GMGI), not Meridian Holdings Inc. It is a Form 10-Q for the three months ended January 31, 2023, the company’s fiscal first quarter. Unless otherwise noted, amounts are in U.S. dollars. The filing is unaudited.
Business context
Golden Matrix provides business-to-business (B2B) gaming software and third-party gaming content, and operates a UK business-to-consumer (B2C) prize-competition business through RKings and GMG Assets. Its Mexican online casino, Mexplay, was still under development and had not begun marketing or generating revenue. The company reported revenue across B2B and B2C, with B2C contributing 61% of quarterly revenue.
Financial performance and position
| Metric | Q1 FY2023 | Q1 FY2022 |
|---|---|---|
| Total revenue | $10.78 million | $8.88 million |
| Gross profit / margin | $2.44 million / 23% | $2.02 million / 23% |
| Operating income (loss) | $(329,000) | $404,000 |
| Net income (loss) | $(444,000) | $414,000 |
| Adjusted measure: EBITDA* | $890,000 | $729,000 |
| Cash from operating activities | $402,000 | $1.84 million |
Revenue and margins: Revenue increased approximately 21%. B2B revenue grew to $4.22 million from $3.38 million, mainly from increased third-party content customers and usage; the company’s software/IP revenue declined. B2C revenue rose to $6.55 million from $5.50 million, including $1.22 million from GMG Assets’ cash-alternative prize transactions. Gross margin remained approximately 23% overall; management reported B2B margin of about 24% and B2C margin of about 22%.
Profitability: The company moved from operating and net income to losses. Management attributed the net-income decline primarily to a $938,000 increase in stock-based compensation, partly offset by higher gross profit. General and administrative expense, including related-party expense, increased; related-party G&A was $735,000 versus $156,000.
Cash flow and liquidity: Operating cash flow was $402,000, down from $1.84 million. The quarter’s operating cash flow included substantial noncash compensation and working-capital uses, notably increased receivables and prize inventory. Cash increased by $474,000 to $15.42 million. At January 31, current assets were $21.21 million, current liabilities $3.83 million, and working capital $17.39 million. Total liabilities were $3.87 million; the balance sheet reported lease liabilities but no material borrowings. Investing cash outflow was $61,000, and financing cash flow was zero.
Other balance-sheet items: Accounts receivable was $3.49 million, including a $46,495 balance due from Citibank related to erroneous ACH transfers; $683,010 of $729,505 in unauthorized transactions had been replenished by the bank. Prize inventory was $1.61 million. Goodwill was $10.38 million. Common shares outstanding rose to 36.10 million from 28.18 million at October 31, 2022, reflecting, among other items, cashless option exercises and acquisition consideration.
*EBITDA is a non-GAAP measure as defined by the company, including stock-based compensation adjustments; it should not be treated as a substitute for GAAP results or cash flow.
Material changes, outlook, and risks
- Pending Meridian acquisition: On January 11, 2023, Golden Matrix agreed to acquire gaming businesses in Serbia, Montenegro, Malta, and Cyprus in a two-phase transaction. Phase 1 was targeted before June 30, 2023, and Phase 2 before October 31, 2023, subject to conditions. Consideration includes $50 million cash at Phase 1, $10 million cash after six months subject to conditions, a $10 million note due nine months after Phase 1, and substantial common-stock and preferred-stock issuances. The company said it needed to raise $70 million of cash in connection with the stated payments and was seeking financing; no loan agreement had been entered into as of the filing. Failure to obtain required financing, approvals, or satisfy other conditions could prevent completion. The planned equity issuance would significantly dilute existing shareholders.
- The proposed Series C preferred stock would carry 7,500 votes per share, board appointment rights, and other protective rights. The filing describes shareholder approval and other transaction steps as outstanding conditions.
- RKings ownership and dispute: Golden Matrix acquired the remaining 20% of RKings in November 2022 and reported full ownership. A dispute with seller Paul Hardman concerns approximately $573,000 of contested holdback consideration, which is accrued as a liability. The company is pursuing claims; neither party had initiated formal legal action as of the filing. The filing also states that the sellers did not meet the stated earn-out EBITDA metric.
- Management outlook: Management said existing operations were self-sustaining and expected cash from operations to support working capital needs, while also noting that the Meridian transaction would require substantial outside financing. It plans to expand B2B customers and markets, grow UK prize competitions, and develop Mexplay. It cited potential operating efficiencies and improved prize margins, but provided no quantified financial guidance.
- Execution and other risks: Risks include financing availability and potential dilution, acquisition completion and integration, gaming licensing and regulation, competition, reliance on third-party gaming content, cybersecurity and systems failures, foreign-exchange movements, and economic conditions affecting discretionary spending. Elray, a related-party licensee with overlapping company executives, had generated no revenue by quarter-end; integration and testing were expected to be completed by the end of fiscal Q3 2023.
- The company reported effective disclosure controls as of January 31, 2023, and no material changes in internal control over financial reporting during the quarter. It reported no other material changes to previously disclosed risk factors.
Key facts for investors to verify
- Confirm the registrant identity: this filing is for Golden Matrix Group, Inc., not Meridian Holdings Inc.
- Track Meridian acquisition conditions, including the required financing, shareholder and regulatory approvals, due diligence, closing timetable, and any changes to the consideration or proposed securities.
- Assess the scale, terms, and dilution effects of the proposed Meridian financing and share issuances against the company’s cash, operating cash flow, and existing share count.
- Monitor whether the Citibank receivable is collected and how the Paul Hardman holdback dispute is resolved.
- Review the sustainability of revenue growth and gross margins, particularly B2C cash-alternative transactions, and the impact of stock-based compensation on GAAP results and share count.
- Check progress toward Mexplay launch and Elray integration, including licensing, operating readiness, and evidence of revenue generation.