Golden Matrix (GMGI) - 2023 Q4 - Annual Report

Part I Business Overview Golden Matrix Group operates in B2B and B2C online gaming, providing SaaS platforms and running prize competitions and online casinos, with significant growth planned through the pending Meridian acquisition Organizational History and Key Acquisitions GMGI transitioned from mining to software in 2016, entering B2C with RKings acquisitions and launching Mexplay, with a major pending acquisition of Meridian Companies for $300 million - Acquired an 80% interest in RKingsCompetitions Ltd on November 1, 2021, and the remaining 20% on November 4, 2022, establishing a significant B2C presence[34][42] - Launched Mexplay, a B2C online casino in Mexico, in November 2022, which began generating revenue in March 2023[39] - Entered into an agreement to acquire the Meridian Companies for a total consideration of approximately $300 million, comprising $30 million in cash at closing, 82.1 million restricted shares, preferred stock, and subsequent cash and note payments, with the deal expected to close by March 31, 2024[43][47][49] Business Segments and Platforms The company's B2B segment offers SaaS platforms (GM-X, GM-Ag) to iGaming operators, while its B2C segment includes UK prize competitions (RKings) and a Mexican online casino (Mexplay) - The B2B segment develops and licenses turn-key and white-label gaming platforms (GM-X and GM-Ag) for international iGaming operators, mainly in the Asia Pacific region[63][64] - The B2C segment includes RKings, offering pay-to-enter prize competitions in the UK, and Mexplay, a licensed online casino and sportsbook in Mexico[63][75][78] - As of October 31, 2023, the company's systems supported over 8.2 million registered players and 785 unique casino and live game operations[65] Business Model and Revenue Streams GMGI generates B2B revenue from software usage fees and third-party content royalties, and B2C revenue from UK prize competition ticket sales and Mexican online casino net gaming revenue Revenue Streams by Business Segment | Segment | Revenue Stream | Description | | :--- | :--- | :--- | | B2B | Software Usage Fees | Charges to gaming operators for using the company's proprietary IP and technology systems, typically a percentage of monthly usage | | B2B | Third-Party Content Royalties | Margin earned from reselling gaming content (slots, table games, live games) from third-party providers | | B2C | Prize Competition Tickets | Sales of tickets for prize competitions (e.g., cars, holidays) through RKings in the UK | | B2C | Online Casino | Net revenue (user wagers minus payouts and incentives) from casino games and sportsbook offered on Mexplay in Mexico | Growth Strategy The company's growth strategy involves organic expansion by supporting existing customers, global market entry, B2C marketing, proprietary content development, and strategic acquisitions like Meridian - Support existing iGaming customers as they scale their operations[131] - Expand globally by securing new customers in existing and newly regulated markets, with a focus on Africa and Latin America[131] - Invest in sales and marketing to drive customer growth for the RKings and Mexplay B2C platforms[131] - Pursue synergistic acquisitions, highlighted by the pending Meridian Purchase Agreement, to expand market position[131][136] Regulation GMGI operates under strict regulations, holding an AGCC certificate, structuring RKings for UK gambling law exemption, securing a Mexican gaming permit for Mexplay, and complying with GDPR - Holds a Category 2 Associate Certificate from the Alderney Gambling Control Commission (AGCC), a key license for B2B software providers[158][160] - RKings' prize competitions in the UK are structured to be exempt from gambling/lottery laws by requiring skill and offering a free-entry route[165][187] - Obtained a gaming permit from Mexico's Ministry of the Interior (SEGOB) to operate its online casino, Mexplay[166][199] - Subject to the European Union's General Data Protection Regulation (GDPR), which governs the handling of personal data and carries significant fines for non-compliance[189][191][194] Risk Factors The company faces financial risks from funding growth and acquisitions, regulatory risks from evolving gaming laws, integration challenges from the Meridian deal, and management control risks - Financial Risk: The company may require significant additional financing to fund growth and acquisitions, particularly the Meridian purchase, which may not be available on favorable terms and could cause dilution[214][219] - Regulatory Risk: The business is subject to extensive and evolving gaming regulations, where failure to obtain or maintain licenses or changes in laws in key jurisdictions could disrupt operations and harm financial results[217][292][302] - Acquisition Risk: The pending Meridian acquisition involves significant risks, including potential failure to close, integration challenges, substantial dilution to existing shareholders, and a change of control[217][381][388] - Management and Control Risk: The CEO, Anthony Brian Goodman, exercises majority voting control over the company through his ownership of Series B Preferred Stock, limiting other shareholders' ability to influence corporate matters[217][336] Properties The company does not own real estate, operating from a virtual office in Las Vegas, leasing office space in Australia, and maintaining UK facilities for its RKings subsidiary - Leases office space in Bondi Junction, Australia, for $115,882 AUD per year under a three-year agreement[424] - Maintains its principal business location at a virtual managed office in Las Vegas, NV[425] Legal Proceedings The company is in a dispute with a former RKings owner over a contested $607,607 holdback payment, which has been accrued as a liability, with no other material legal actions pending - A dispute exists with a former owner of RKings, Mr. Paul Hardman, over a contested holdback payment of $607,607, which the company has accrued as a liability but is vigorously pursuing its claim of breach of contract against Mr. Hardman[427] Part II Market for Common Equity and Shareholder Matters GMGI common stock trades on The Nasdaq Capital Market, with no history or plans for cash dividends, and a $2 million share repurchase program expired without purchases in Q4 FY2023 - Common stock is traded on The Nasdaq Capital Market under the symbol "GMGI"[431] - The company has never paid cash dividends and does not plan to in the foreseeable future[433] - A $2 million share repurchase program expired on September 29, 2023, with no shares repurchased in the fourth quarter of fiscal 2023[437] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) FY2023 revenues increased to $44.2 million driven by B2C growth, but gross margin declined to 22%, resulting in a net loss of $1.17 million, while the company maintains $17.1 million cash and seeks funding for the Meridian acquisition Results of Operations FY2023 total revenues grew 22.6% to $44.2 million, primarily from B2C, while gross profit margin decreased to 22% due to competitive pricing and lower-margin assets, leading to a net loss of $1.17 million Fiscal Year 2023 vs. 2022 Performance | Metric | FY 2023 | FY 2022 | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $44,174,052 | $36,034,856 | +22.6% | | B2B Revenues | $15,629,280 | $14,848,259 | +5.3% | | B2C Revenues | $28,544,772 | $21,186,597 | +34.7% | | Gross Profit | $9,868,871 | $9,162,627 | +7.7% | | Gross Profit Margin | 22% | 25% | -3 p.p. | | Operating Expenses | $10,395,118 | $8,970,135 | +15.9% | | Net Loss Attributable to GMGI | ($1,172,750) | ($250,038) | +$922,712 | | Adjusted EBITDA | $2,397,276 | $3,526,543 | -32.0% | - The increase in B2C revenue was mainly attributable to the full-year contribution of GMG Assets (which facilitates cash alternatives for RKings prizes) and the launch of the Mexplay online casino in March 2023[468][469] - The decline in gross profit margin was due to aggressive pricing in the competitive APAC B2B market and the dilutive effect of the lower-margin (3%) GMG Assets business[482][483] Liquidity and Capital Resources As of October 31, 2023, GMGI had $17.1 million in cash and $18.4 million in working capital, with positive operating cash flow, but is actively seeking funding for the $30 million initial cash payment for the Meridian acquisition Liquidity Position as of October 31 | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $17,100,280 | $14,949,673 | | Working capital | $18,373,253 | $16,573,796 | | Total Shareholders' Equity | $31,103,394 | $29,796,481 | - Cash provided by operating activities was $2.2 million for FY 2023, a decrease from $2.8 million in FY 2022[519] - The company is pursuing funding sources to meet the cash payment requirements for the Meridian acquisition, totaling $70 million over 24 months, with an initial $30 million due at closing[504][508] Financial Statements and Supplementary Data This section presents the independent auditor's unqualified opinion on the consolidated financial statements, detailing the company's financial position, performance, and key notes on acquisitions, related parties, and segment results - The independent auditor, M&K CPAS, PLLC, issued an unqualified opinion on the consolidated financial statements, stating they are presented fairly in all material respects in conformity with U.S. GAAP[529] - The auditor identified Revenue Recognition as a Critical Audit Matter due to the significant judgment involved in determining the principal in sales transactions and the satisfaction of performance obligations[534] Consolidated Financial Statements The consolidated financial statements show total assets of $35.6 million, total liabilities of $4.5 million, total revenues of $44.2 million, a net loss of $1.17 million, and positive operating cash flow of $2.2 million for FY2023 Key Financial Statement Data (Year Ended Oct 31, 2023) | Financial Statement | Metric | Amount (USD) | | :--- | :--- | :--- | | Balance Sheet | Total Assets | $35,582,817 | | | Total Liabilities | $4,479,423 | | | Total Shareholders' Equity | $31,103,394 | | Income Statement | Total Revenues | $44,174,052 | | | Gross Profit | $9,868,871 | | | Net Loss Attributable to GMGI | ($1,172,750) | | Cash Flow | Net Cash from Operating Activities | $2,206,367 | Note 13 - Related Party Transactions The company engages in significant related party transactions, including revenue from an entity owned by the CEO and his wife, and a software license agreement with a company where CEO and COO serve as officers - Generated $662,532 in revenue from Articulate Pty Ltd, an entity wholly-owned by CEO Anthony Goodman and his wife, during fiscal year 2023[705] - Entered into a Software License Agreement with Elray Resources Inc., a company where GMGI's CEO and COO also serve as officers and directors, with no revenue generated from this agreement in FY2023 as operations began in January 2024[710][717] - Acquired GMG Assets from former director Aaron Johnston and a former RKings shareholder for £25,000[719][720] Note 15 - Segment Reporting In FY2023, the B2C segment contributed 65% of total revenues, with the UK being the largest geographical region at 64%, followed by Asia Pacific at 35% FY 2023 Revenue by Segment and Geography | Category | Sub-Category | Revenue ($) | % of Total | | :--- | :--- | :--- | :--- | | Segment | B2B | 15,629,280 | 35% | | | B2C | 28,544,772 | 65% | | Geography | Asia Pacific | 15,629,280 | 35% | | | UK | 28,207,113 | 64% | | | Latin America | 337,659 | 1% | Controls and Procedures Management concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of October 31, 2023 - Management concluded that the company's disclosure controls and procedures were effective as of October 31, 2023[810] - Management concluded that the company's internal control over financial reporting was effective as of October 31, 2023[811] Part III Directors, Executive Officers and Corporate Governance The company's Board includes independent directors and operates under a classified structure, with CEO Anthony Goodman holding majority voting control, while adhering to Nasdaq's independent committee requirements and having a Clawback Policy - The Board is classified, with directors serving staggered three-year terms, and includes three independent directors: Thomas E. McChesney, Murray G. Smith, and Philip Daniel Moyes[820][874] - The company is a "controlled company" because CEO Anthony Brian Goodman controls a majority of the voting power, but it voluntarily maintains independent Audit, Compensation, and Nominating committees[865] - Adopted a Clawback Policy in September 2023 to comply with SEC rules, allowing for the recovery of erroneously awarded incentive-based compensation from executive officers in the event of a financial restatement[878][880] Executive Compensation Executive compensation for fiscal year 2023 consisted primarily of base salaries and superannuation contributions for the CEO and COO, with CFO Omar Jimenez receiving $300,000 in consulting fees FY 2023 Named Executive Officer Compensation | Name and Principal Position | Salary ($) | All Other Compensation ($) | Total ($) | | :--- | :--- | :--- | :--- | | Anthony B. Goodman, CEO | 161,040 | 17,186 | 178,226 | | Weiting 'Cathy' Feng, COO | 134,200 | 14,322 | 148,522 | | Omar Jimenez, CFO | 300,000 | - | 300,000 | - As of year-end, CEO Anthony Goodman held 500,000 unvested RSUs and COO Weiting 'Cathy' Feng held 250,000 unvested RSUs, with vesting contingent on future performance metrics[895] - Employment agreements for the CEO and COO provide for severance payments upon termination without cause (18 months' salary for CEO, 6 months' for COO) and enhanced payments (3x base salary + bonus) upon a change of control[904][911] Security Ownership and Equity Compensation Plans As of January 17, 2024, CEO Anthony Brian Goodman beneficially owned 45.5% of common stock and held 100% of Series B Voting Preferred Stock, giving him 53.6% total voting power, with 21.6 million securities available for future issuance Beneficial Ownership of Key Individuals (as of Jan 17, 2024) | Name of Beneficial Owner | Common Stock Beneficially Owned | Percent of Common Stock | Total Voting Shares | Percent of Total Voting Shares | | :--- | :--- | :--- | :--- | :--- | | Anthony B. Goodman | 17,124,562 | 45.5% | 23,624,562 | 53.6% | | Weiting 'Cathy' Feng | 2,853,415 | 7.8% | 2,853,415 | 6.5% | | All directors and executive officers as a group (6 persons) | 20,477,374 | 54.4% | 26,817,374 | 60.8% | - CEO Anthony Goodman's voting control is primarily through his ownership of 1,000 shares of Series B Preferred Stock, which collectively hold 7,500,000 votes[926] - As of October 31, 2023, a total of 21,624,994 securities were available for future issuance under the company's approved equity compensation plans[930] Principal Accountant Fees and Services The company's independent public accounting firm, M&K CPAS, PLLC, billed $132,000 for audit services in FY2023, a decrease from FY2022, with all services pre-approved by the board of directors Accountant Fees | Fee Category | FY 2023 ($) | FY 2022 ($) | | :--- | :--- | :--- | | Audit Fees | 132,000 | 152,000 | | Audit Related Fees | - | 5,000 | | Tax Fees | - | 1,800 | | All Other Fees | - | - | | Total | 132,000 | 158,800 |