General Information
The following discussion should be read in conjunction with the attached
consolidated unaudited financial statements and notes thereto, and our
consolidated audited financial statements and related notes for the nine-month
transition period ended October 31, 2021, found in our Transition Report on Form
10-KT that the Company has filed with the Securities and Exchange Commission on
January 13, 2022 (the "Transition Report") and Part II, Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in our Transition Report.
Statements made in this "Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations" are subject to forward-looking
statements and various risks and should be read in connection with the "Special
Note Regarding Forward-Looking Statements", above and "Risk Factors",
incorporated by reference into this Report, as described below.
Certain capitalized terms used below and otherwise defined below, have the
meanings given to such terms in the footnotes to our consolidated financial
statements included above under "Part I - Financial Information - Item 1.
Financial Statements".
Our logo and some of our trademarks and tradenames are used in this Report. This
Report also includes trademarks, tradenames and service marks that are the
property of others. Solely for convenience, trademarks, tradenames and service
marks referred to in this Report may appear without the ®, ™ and SM symbols.
References to our trademarks, tradenames and service marks are not intended to
indicate in any way that we will not assert to the fullest extent under
applicable law our rights or the rights of the applicable licensors if any, nor
that respective owners to other intellectual property rights will not assert, to
the fullest extent under applicable law, their rights thereto. We do not intend
the use or display of other companies' trademarks and trade names to imply a
relationship with, or endorsement or sponsorship of us by, any other companies.
The market data and certain other statistical information used throughout this
Report are based on independent industry publications, reports by market
research firms or other independent sources that we believe to be reliable
sources. Industry publications and third-party research, surveys and studies
generally indicate that their information has been obtained from sources
believed to be reliable, although they do not guarantee the accuracy or
completeness of such information. We are responsible for all of the disclosures
contained in this Report, and we believe these industry publications and
third-party research, surveys and studies are reliable. While we are not aware
of any misstatements regarding any third-party information presented in this
Report, their estimates, in particular, as they relate to projections, involve
numerous assumptions, are subject to risks and uncertainties, and are subject to
change based on various factors, including those discussed under the section
entitled "Item 1A. Risk Factors". These and other factors could cause our future
performance to differ materially from our assumptions and estimates. Some market
and other data included herein, as well as the data of competitors as they
relate to Golden Matrix Group, Inc., is also based on our good faith estimates.
Where You Can Find Other Information
We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and proxy and information statements and amendments to
reports filed or furnished pursuant to Sections 13(a) and 15(d) of the
Securities Exchange Act of 1934, as amended. The SEC maintains a website (http:
//www.sec.gov) that contains reports, proxy and information statements and other
information regarding us and other companies that file materials with the SEC
electronically. Our filings can be found at
https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001437925.
Copies of documents filed by us with the SEC are also available from us without
charge, upon oral or written request to our Secretary, who can be contacted at
the address and telephone number set forth on the cover page of this Report and
are also available on our website at
https://goldenmatrix.com/investors-overview/sec-filings/ which website includes
information we do not desire to incorporate by reference into this Report.
Definitions:
Unless the context requires otherwise, references to the "Company," "we," "us,"
"our," and "Golden Matrix" in this Report refer specifically to Golden Matrix
Group, Inc. and its consolidated subsidiaries.
In addition, unless the context otherwise requires and for the purposes of this
report only:
? "AUD" means Australian dollars;
? "Exchange Act" refers to the Securities Exchange Act of 1934, as amended;
? "Euro" or "€" refers to the Euro, the official currency of the majority of
the member states of the European Union;
? "GBP" or "£" means Pounds Sterling or Great British Pounds;
? "SEC" or the "Commission" refers to the United States Securities and
Exchange Commission;
? "Securities Act" refers to the Securities Act of 1933, as amended; and
? "USD" or "$" means United States dollars.
All dollar amounts in this Report are in U.S. dollars unless otherwise stated.
Summary of The Information Contained in Management's Discussion and Analysis of
Financial Condition and Results of Operations
Our Management's Discussion and Analysis of Financial Condition and Results of
Operations (MD&A) is provided in addition to the accompanying consolidated
financial statements and notes to assist readers in understanding our results of
operations, financial condition, and cash flows. MD&A is organized as follows:
· Critical Accounting Policies and Estimates. Accounting estimates that we
believe are important to understanding the assumptions and judgments
incorporated in our reported financial results and forecasts.
· Overview. Discussion of our business and overall analysis of financial and
other highlights affecting us, to provide context for the remainder of
MD&A.
· Results of Operations. An analysis of our financial results comparing the
three and nine months ended July 31, 2022 and 2021.
· Liquidity and Capital Resources. An analysis of changes in our
consolidated balance sheets and cash flows and discussion of our financial
condition.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The discussion and analysis of the Company's financial condition and results of
operations are based upon its consolidated unaudited financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these unaudited financial
statements requires management to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent liabilities. On an on-going basis, management evaluates
past judgments and estimates, including those related to bad debts, accrued
liabilities, goodwill and contingencies. Management bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. The accounting policies and
related risks described in the Company's Transition Report on Form 10-KT for the
nine months ended October 31, 2021, filed with the Commission on January 13,
2022 are those that depend most heavily on these judgments and estimates. As of
July 31, 2022, there had been no material changes to any of the critical
accounting policies contained therein. "NOTE 2 -- SUMMARY OF ACCOUNTING
POLICIES," of the notes to Consolidated Financial Statements included in the
Company's Transition Report on Form 10-KT for the nine months ended October 31,
2021, filed with the Commission on January 13, 2022, describes the significant
accounting policies and methods used in the preparation of the Company's
consolidated financial statements. The critical accounting estimates include
transactions, assets, liabilities and obligations that are stated in foreign
local currency and their conversion to US currency. Resulting loss on currency
conversions related to assets and liabilities are recognized in shareholders'
equity in accumulated other comprehensive income (loss) on the Company's
consolidated balance sheets and realized foreign currency translation
adjustments are recognized in other income in the consolidated statements of
operations and comprehensive income.
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OVERVIEW
We operate (i) as an innovative provider of enterprise Software-as-a-Service
("SaaS") solutions for online casino operators and online sports betting
operators, commonly referred to as iGaming operators and, (ii) a provider of pay
to enter prize competitions in the United Kingdom (UK), through our 80% interest
in RKings.
We have historically operated in the B2B segment where we develop and own online
gaming intellectual property (IP) and build configurable and scalable, turn-key
and white-label gaming platforms for our international customers, located
primarily in the Asia Pacific (APAC) region. With the acquisition of 80% of
RKingsCompetitions Ltd. effective on November 1, 2021, we entered into the
business-to-consumer ("B2C") segment by offering pay to enter prize competitions
throughout the UK.
B2B Segment
Our customers are primarily gaming Distributors and licensed online gaming
operators. The Company also provides services and resells third party gaming
content to licensed online gaming distributors and gaming operators. The Company
provides business-to-business services and products and does not deal directly
with players.
We derive revenues primarily from licensing fees received from gaming operators,
in most cases via gaming Distributors located in the Asia Pacific (APAC) region
that utilize the Company's technology.
As of July 31, 2022, our systems had over 6.8 million registered players and a
total of more than 645 unique casino and live game operations within all of our
platforms including our GM-X, GM-Ag, Turnkey Solution, and White Label
Solutions.
The Company's goal is to expand our customer base globally and to integrate
additional operators, launch additional synergistic products and appoint more
Distributors.
As described above, our core markets are currently the Asia-Pacific (APAC)
region and while we have a solid customer base; we are continuing to engage new
gaming Distributors and gaming operators on a regular basis and we anticipate
that our current gaming Distributors and gaming operators will continue to grow.
B2C Segment
Our customers are primarily located in Northern Ireland and we have expanded our
marketing efforts to attempt to reach customers throughout the U.K. As of July
31, 2022, RKings has over 229,000 registered users.
We derive revenues primarily from selling prize competitions tickets directly to
customers for prizes throughout the United Kingdom ranging from automobiles to
jewelry as well as travel and entertainment experiences.
Our objective in managing our resources is to ensure that we have sufficient
liquidity to fund our operations and meet our growth objectives while maximizing
returns to shareholders. Liquidity is necessary to meet (i) the working capital
needs of our operations, (ii) fund our growth and expansion plans, and
(iii) consummate strategic acquisitions. We have met, and plan to continue to
meet, our cash requirements through our operations and sales of equity
securities. As to the funding of strategic acquisitions, we may issue debt in
addition to raising funds through the sales of the Company's capital stock.
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The COVID-19 pandemic has not had a material impact on our business, and we
expect our business to be resilient through the pandemic. We have continued
operations, supported our online products and customers, and grown our sales,
and our employees and consultants have returned to the office in June 2022.
Notwithstanding the aforementioned, we previously experienced minor issues in
connection with the transition of certain resources to remote settings as a
result of the pandemic, which have since been resolved.
The Company's financial performance is subject to global, Asia Pacific and UK
economic conditions and their impact on levels of spending by consumers and
customers, particularly discretionary spending for entertainment, gaming and
leisure activities. Economic recessions may have adverse consequences across
industries, including the global entertainment and gaming industries, which may
adversely affect the Company's business and financial condition. As a result of
the ongoing COVID-19 pandemic, there is substantial uncertainty about the
strength of the global, Asia Pacific and UK economies, which may currently or in
the near term be in a recession and have experienced rapid increases in
uncertainty about the pace of potential recovery. In addition, changes in
general market, economic and political conditions in domestic and foreign
economies or financial markets, including fluctuation in stock markets resulting
from, among other things, trends in the economy, and increases in inflation and
interest rates, as are being currently experienced, may reduce users' disposable
income and/or lead to recessions.
We believe that our business will continue to be resilient through a continued
economic downturn or recession, or slowing or stalled recovery therefrom, and
that we have the liquidity to address the Company's financial obligations and
alleviate possible adverse effects on the Company's business, financial
condition, results of operations or prospects.
Key elements of our growth strategy include:
• Supporting our existing customers as they scale up their respective
iGaming and online sportsbook operations. As our customers' businesses
grow, we intend to deploy additional resources to develop the GM-X and
GM-Ag Systems' platform functionality, expand our gaming content
portfolios by integrating additional third-party content providers, and
seek to obtain additional regulatory approvals to operate in other global
markets. The GM-X and GM-Ag Systems' turn-key solution (including modular,
configurable and scalable gaming platforms), is a complete software
package for starting an online gaming business, incorporating all the
tools and gaming content necessary to run an online Casino and/or
Sportsbook and offers a full suite of tools and features for successfully
operating and maintaining an online gaming website; from player
registration to user management and content management.
• Expanding our global reach by securing new gaming Distributors, casino and
sportsbook operator customers in existing and newly regulated markets.
• Investing in sales and marketing initiatives to aggressively pursue new
deployment opportunities in developing markets such as Africa and Latin
America, as well as exploring opportunities in the U.S.
• Developing and deploying our own proprietary gaming content in both casino
iGaming as well as E-sport categories. We plan to launch our E-sport
portfolio by December 2022.
• Pursuing acquisitions of synergistic companies and assets with the goal of
expanding our competitive position in the markets in which we operate. We
are also exploring the opportunity to selectively acquire independent slot
development studios in order to launch our own proprietary games on our
platform.
The Company does not intend to make significant investments (except for
potential acquisitions, none of which are currently pending) to support our
business growth strategy. We believe that our business model is highly scalable
and our existing resources can be leveraged to (i) develop new offerings and
features, (ii) enhance our existing platform, and (iii) improve our operating
infrastructure.
The Company may face significant costs with respect to legal fees incurred in
the applications for licenses, continued regulatory requirements, and legal
representation.
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To acquire complementary businesses and technologies, we may need to pursue
equity or debt financings to secure additional funds. Our ability to obtain
additional capital, will depend on our business plans, investor demand, our
operating performance, capital markets conditions and other factors. If we raise
additional funds by issuing equity, equity-linked or debt securities, those
securities may have rights, preferences or privileges senior to the rights of
our then issued and outstanding equity or debt, and our existing shareholders
may experience dilution. If we are unable to obtain additional capital when
required, or on satisfactory terms, our ability to continue to support our
business growth or to respond to business opportunities, challenges or
unforeseen circumstances could be adversely affected, and our business may be
harmed.
We may acquire other businesses, and our business may be detrimentally affected
if we are unable to successfully integrate acquired businesses into our company
or otherwise manage the growth associated with multiple acquisitions.
As part of our business strategy, we intend to make acquisitions of new or
complementary businesses, products, brands, or technologies. In some cases, the
costs of such acquisitions may be substantial, including as a result of
professional fees and due diligence efforts. There is no assurance that the time
and resources expended on pursuing a particular acquisition will result in a
completed transaction, or that any completed transaction will ultimately be
successful. In addition, we may be unable to identify suitable acquisition or
strategic investment opportunities or may be unable to obtain the required
financing or regulatory approvals, and therefore we may be unable to complete
such acquisitions or strategic investments on favorable terms. We may pursue
acquisitions that our investors may not agree with, and we cannot assure
investors that any acquisition or investment will be successful or otherwise
provide a favorable return on investment. In addition, if we fail to
successfully close transactions, integrate new technology or operational teams,
or integrate the products and technologies associated with these acquisitions
into our company, our business could be seriously harmed.
Cash requirements
The Company generates net profits and has done so since 2017. The Company is
self-sustaining, and its cash needs are met through current operations; as of
July 31, 2022, the cash balance is $15,869,660. There are no current expected
future cash demands or commitments other than ongoing operations for the
following next 12 months and beyond, provided that the Company may acquire
additional businesses or assets in the future, which acquisitions may require
additional capital.
Liquidity
There are no known trends, demands, commitments, events or uncertainties that
will result in or that are reasonably likely to result in the Company's
liquidity decreasing in any material way. On March 17, 2022, the Nasdaq Capital
Market approved the uplisting of the Company's common stock, which we believe
will provide additional opportunities to raise funds to expand operations and
identify possible acquisitions. No material deficiencies are present. As
previously noted, the Company is self-sustaining through its operations and
therefore is not considering additional sources of liquidity; however, the
Company may consider raising funds through debt, private placements, or
additional public offerings for expansion of operations or synergetic
acquisitions if additional external funds are sought. Unused sources of liquid
assets, as of July 31, 2022, include cash of $15,869,660, receivables of
$2,589,168 and inventory of $1,191,102, with offsetting liabilities of
$3,697,086.
Capital resources.
The Company does not have material cash requirements other than a possible
earn-out and holdback payments (if certain metrics are met) of approximately
$1.22 million (GBP 1 million) as part of the hold-back on the acquisition of
RKings that was completed effective November 1, 2021 (of which half of such
hold-back has been settled to date, as discussed below under "Recent Events" and
the other half is currently subject to ongoing claims) and certain earn-out
payments which could be due thereunder, which we believe are unlikely to be
triggered. With a cash balance of $15,869,660 and operations that are
self-sustaining, the obligation to pay the remaining half of the aforementioned
holdback of $1.22 million may be met if obligations that are part of the
acquisition of RKings are met without burdening the Company.
In addition, the Company, as part of the acquisition of RKings, provided the
sellers of RKings' shares, the right to earn additional consideration of
approximately $5.03 million (GBP 4 million) if certain metrics are met based on
operating results, during the year ended October 31, 2022, which is payable at
the option of the Company in either cash or shares of the Company's common
stock.
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The Company may consider raising funds through debt, private placements, or
additional public offerings for expansion of operations or synergetic
acquisitions. Unused sources of liquid assets, as of July 31, 2022, include cash
of $15,869,660, receivables of $2,589,168, and inventory of $1,191,102, with
offsetting liabilities of $3,697,086. If particular metrics are met (which
appear highly unlikely), the earn-out payments of $5.03 million are expected to
be met with current liquid assets.
Our historical primary sources of liquidity are the cash flows generated from
our operations, along with debt and equity financing and available cash and cash
equivalent. Our primary use of this liquidity is to fund ongoing cash
requirements, including our working capital needs, capital investments, and
acquisitions. We believe that the cash generated from our operations will be
sufficient to meet our working capital needs for the next 12 months and beyond,
including investments made and expenses incurred in connection with system
development, marketing initiatives, and inventory purchase.
Novel Coronavirus (COVID-19)
In December 2019, a novel strain of coronavirus, which causes the infectious
disease known as COVID-19, was reported in Wuhan, China. The World Health
Organization declared COVID-19 a "Public Health Emergency of International
Concern" beginning in 2020 and the virus has continued to spread through 2022.
In March and April of 2020, many U.S. states and foreign jurisdictions began
issuing 'stay-at-home' orders. Through 2022, the COVID-19 pandemic has adversely
impacted global commercial activity, disrupted supply chains and contributed to
significant volatility in financial markets. We did not experience a decrease in
demand for our products and services as a result of COVID-19, nor did we
experience a material adverse effect on our results of operations. However,
economic recessions as a result of COVID-19, may have a negative effect on the
demand for our products, services and our operating results.
A significant or prolonged decrease in consumer spending on entertainment or
leisure activities would likely have an adverse effect on demand for our product
offerings, reducing cash flows and revenues, and thereby materially harm our
business, financial condition and results of operations. In addition, a
recurrence of COVID-19 cases or an emergence of additional variants or strains
could cause other widespread or more severe impacts depending on where infection
rates are highest. To ensure that employees were safe and that our business
continued to function with minimal disruptions, steps were taken to mitigate the
spread of COVID-19 such as a shift away from a traditional office environment to
employees working remotely. In June 2022, our offices were re-opened and our
employees returned to work onsite. We will continue to monitor developments
relating to disruptions and uncertainties caused by COVID-19.
As shown in our results of operations herein, we have to date, not experienced a
material negative impact to our operations, revenues or gross profit due to
COVID-19. However, moving forward, the range of possible impacts on our business
from the coronavirus pandemic could include: (i) changing demand for our
products and services; (ii) decreases in the amount of discretionary spending
available to consumers and/or the amount such consumers are willing to spend;
and (iii) increasing contraction in the capital markets. Our operations have not
been materially negatively impacted by the coronavirus pandemic to date;
however, it is possible that COVID-19 and the worldwide response thereto, may
have a material negative effect on our operations, cash flows and results of
operations.
We believe that we have sufficient cash on hand, and the ability to raise
additional funding, or borrow additional funding, as needed, to support our
operations for the foreseeable future; however, we will continue to evaluate our
business operations based on new information as it becomes available and will
make changes that we consider necessary in light of any new developments
regarding the pandemic.
The full extent to which the COVID-19 pandemic or recovery from the COVID-19
pandemic will directly or indirectly impact the global economy, the lasting
social effects thereof, and the impact on our business, results of operations
and financial condition, will depend on future developments that are highly
uncertain and cannot be accurately predicted.
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Inflation and Recession
The Company's financial performance is subject to global, Asia Pacific and UK
economic conditions and their impact on levels of spending by consumers and
customers, particularly discretionary spending for entertainment, gaming and
leisure activities. Economic recessions may have adverse consequences across
industries, including the global entertainment and gaming industries, which may
adversely affect the Company's business and financial condition. As a result of
the ongoing COVID-19 pandemic, there is substantial uncertainty about the
strength of the global, Asia Pacific and UK economies, which may currently or in
the near term be in a recession and have experienced rapid increases in
uncertainty about the pace of potential recovery. In addition, changes in
general market, economic and political conditions in domestic and foreign
economies or financial markets, including fluctuation in stock markets resulting
from, among other things, trends in the economy and inflation, as are being
currently experienced, may reduce users' disposable income.
We believe that our business will continue to be resilient through a continued
economic downturn or recession, or slowing or stalled recovery therefrom, and
that we have the liquidity to address the Company's financial obligations and
alleviate possible adverse effects on the Company's business, financial
condition, results of operations or prospects.
Recent Material Events
Uplisting to Nasdaq Capital Market
On March 17, 2022, the Company's common stock was uplisted to the Nasdaq Capital
Market.
RESULTS OF OPERATIONS
Three months ended July 31, 2022, compared to the three months ended July 31,
2021.
Revenues
The Company currently has three distinctive revenue streams.
1) the Company charges gaming operators for the use of its unique intellectual
property (IP) and technology systems. Revenues derived from such charges were
based on the usage of the systems by the clients. During the three months ended
July 31, 2022, the Company generated $218,491 of revenues from its unique IP and
technology systems, including $216,335 from Articulate Pty Ltd ("Articulate"), a
related party, which is wholly-owned by Anthony Brian Goodman, CEO and Chairman
of the Company and his wife Marla Goodman. During the three months ended July
31, 2021, the Company generated $575,049 of revenues from its IP and technology
systems, including $556,743 which was from Articulate.
The decrease of $356,558 in IP gaming revenues in the three-month period ended
July 31, 2022, compared to the three-month period ended July 31, 2021, is due to
the Company's shift in focus to appointing resellers of the third-party gaming
content, reduction in reliance on related party, and the Company's aim to expand
the product into additional global jurisdictions. The decrease in revenue is
attributed to the loss of a large operator by one of the Company's non-related
party distributors and also reduced revenues generated by Articulate, which is
attributable to a highly competitive environment. The Company has taken steps to
mitigate the effect of the aforementioned decrease by expanding its global
presence and broadening its product offerings which has already resulted in
an increase in alternate revenue streams.
2) Since June 2020, the Company has contracted with certain clients to offer
third party gaming content and as such become a reseller of this gaming content.
Revenues derived from the reselling of gaming content during the three months
ended July 31, 2022 and 2021 were $4,037,881 and $2,676,305, respectively.
The increase of $1,361,576 in revenues in the three-month period ended July 31,
2022 relating to third party gaming content, compared to the three-month period
ended July 31, 2021, is attributable to an increased number of customers and
registered players with our customers.
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3) Since the acquisition of 80% of RKings effective November 1, 2021, the
Company generates revenues from sales of prize competitions tickets directly to
customers for prizes throughout the United Kingdom ranging from automobiles to
jewelry as well as travel and entertainment experiences. During the three months
ended July 31, 2022, $4,845,169 of total revenues were derived from prize
competitions ticket sales. The Company did not have revenues from the sales of
prize competitions tickets during the three-month period ended July 31, 2021, as
it only acquired 80% of RKings effective on November 1, 2021.
Total revenues for the three months ended July 31, 2022 and 2021 are $9,101,541
and $3,251,354, respectively.
Cost of goods sold
The Company currently has three distinctive sources of cost of goods sold.
1) Historically, the Company only recognized the value of stock options granted
to consultants under the 2018 Equity Incentive Plan as cost of goods sold. This
recognition was based on the fact that the stock options directly contributed to
the revenue generated by the Company's GM2 Asset. During the three months ended
July 31, 2022 and 2021, cost of goods sold due to the amortization of options
was $147,273 and $88,259, respectively. The increase in the cost of goods sold
was due to new options granted last year in March and September 2021, and in May
2022. The increase in the share price has increased the option valuation based
on the Black-Scholes valuation model and therefore increased the amortization
expenses over time.
2) Beginning in June 2020, due to the reselling of the gaming content, the cost
of usage of the third-party content is recognized as a cost of goods sold.
During the three months ended July 31, 2022 and 2021, cost of goods sold due to
the usage of gaming content was $2,912,583 and $1,955,334, respectively. The
increase of $957,249 in cost of goods sold from the resale of gaming content in
the three-month period ended July 31, 2022, compared with the three months ended
July 31, 2021, was attributable to the increased usage of gaming content as a
result of an increased number of customers and registered players with our
customers.
3) Beginning November 1, 2021, in connection with the acquisition of an 80%
interest in RKings, the Company incurs cost of goods sold due to the prizes
purchased which are awarded to winners of prize competitions throughout the
United Kingdom ranging from automobiles to jewelry as well as travel and
entertainment experiences. During the three months ended July 31, 2022,
$3,560,661 of cost of goods related to prizes that were awarded in the prize
competitions. The Company did not have cost of goods related to prize
competitions during the three-month period ended July 31, 2021.
Total costs of goods sold for the three months ended July 31, 2022 and 2021 were
$6,620,517 and $2,043,593, respectively.
Gross Profit and Gross Profit Margin
We had gross profit of $2,481,024 for the three months ended July 31, 2022,
compared to gross profit of $1,207,761 for the three months ended July 31, 2021,
an increase of $1,273,263 from the prior period, mainly due to $1,284,508 of
gross profit contributed from the B2C segment starting November 1, 2021, with
our acquisition of 80% of RKings. A decrease of gross profit of $11,245 in the
B2B segment was mainly due to the decrease in revenues from the usage of IP and
technology systems as discussed above.
Gross profit margin was 27% for the three months ended July 31, 2022, compared
to 37% for the three months ended July 31, 2021, mainly due to the increase in
revenues in the resale of gaming content and higher revenues in the B2C segment
(i.e., prize competitions), which have a lower gross profit margin compared with
revenues from the usage of IP and technology systems. The gross profit margin on
revenues from the resale of gaming content was approximately 28% for the three
months ended July 31, 2022. The Company believes that this resale revenue stream
is highly scalable and there is a significant opportunity to scale this resale
revenue stream with low related expenses and no capital expenditures and also to
expand its global reach. The gross profit margin on the B2C segment was
approximately 27% for the three months ended July 31, 2022.
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Moving forward, the Company expects to consolidate several operating aspects
that are redundant and plans to seek to generate increased gross profit and
gross profit margin due to economies of scale. Also, the competition prizes are
expected to generate larger profit margins with a focus on increasing the
margins on individual prizes.
General and administrative expenses
During the three months ended July 31, 2022 and 2021, general and administrative
expenses were $1,453,776 and $340,903, respectively. General and administrative
expenses consisted primarily of advertising and promotion expenses, travel
expenses, website maintenance expenses, payroll expenses, office expenses, bank
charges, commission expenses, lease expenses, gaming license expenses and
depreciation and amortization expense.
The increase of general and administrative expenses was mainly due to $832,901
of general and administrative expenses from our B2C segment starting November 1,
2021, with our acquisition of 80% of RKings, which mainly include the payroll
costs and bank charges for the transaction fees. The depreciation and
amortization expense also increased due to the newly acquired intangible assets
of trademarks and non-compete agreement associated with RKings. More details of
the intangible assets are covered in "NOTE 7 - INTANGIBLE ASSETS- SOFTWARE
PLATFORM, WEBSITE DEVELOPMENT COSTS, TRADEMARKS AND NON-COMPETE AGREEMENTS" in
the notes to the financial statements included under "Item 1. Financial
Statements." The general and administrative expenses from our B2B segment also
increased due to the increased costs of marketing fees, lease expenses, and
payroll costs.
General and administrative expenses - Related parties
General and administrative expenses from related parties consisted primarily of
amortization expenses due to stock options granted to Directors and Officers,
back-office expenses (which have been terminated as of June 30, 2021),
consulting expenses and salary expenses payable to the Company's Management and
Directors. During the three months ended July 31, 2022 and 2021, general and
administrative expenses from related parties were $195,710 and $224,266,
respectively. The components of general and administrative expenses from related
parties are as follows:
Three months ended
July 31,
2022 2021
Amortization expenses of Directors' and Officers' stock
options
$ - $ 65,150
Back-office expenses - 22,000
Consulting & salary expenses 195,710 137,116
Total $ 195,710 $ 224,266During the three-month period ended July 31, 2022 and 2021, the amortization
expenses decreased due to the stock options becoming fully amortized during the
last fiscal year; therefore, there was no amortization expense during this
quarter; the back-office expenses decreased due to the cancellation of Back
Office Services Agreement with Articulate; the consulting & salary expenses
increased mainly due to the increased compensation to the Company's officers,
and hiring of new officers.
Professional fees
Professional fees consisted primarily of SEC filing fees, legal fees, transfer
agent service fees and accounting and audit fees. During the three months ended
July 31, 2022 and 2021, professional fees were $101,656 and $63,770,
respectively. The increase in professional fees of $37,886 was mainly due to the
increasing of service fees related to the 2022 shareholder meeting print and
proxy mailing, and financial consulting service fees in connection with RKings'
operations.
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Research and development expense
During the three months ended July 31, 2022 and 2021, the research and
development expense was $570 and $68,046, respectively. The $570 research and
development expense during the three months ended July 31, 2022 was incurred in
connection with the building of the Company's Proprietary Peer to Peer gaming
system. The $68,046 research and development cost during the three months ended
July 31, 2021 was incurred in connection with the building of the Company's
Proprietary Peer to Peer gaming system and the Company's Seamless Aggregation
Platform ("Aggregation Platform") acquired on March 1, 2021, from Gamefish
Global Pty Ltd. The Peer to Peer gaming system is due to be released in December
2022.
Interest expense
During the three months ended July 31, 2022 and 2021, the Company did not incur
interest expense.
Interest income
Interest income was attributable to the interest from the bank savings. During
the three months ended July 31, 2022 and 2021, interest income was $793 and $46,
respectively.
Foreign exchange gain
The foreign exchange gain was due to the fluctuation of the Euro, British Pound
against the US dollar, and as a result of certain suppliers billing the Company
in Euros, and settlement of other liabilities in currencies other than US
dollars. During the three months ended July 31, 2022, foreign exchange gain was
$28,495, compared with foreign exchange loss of $26,209 for the three months
ended July 31, 2021. The increase of foreign exchange gain was mainly due to the
appreciation of US dollars against other currencies, in which the Company has
liabilities.
Provision for income taxes
The provision for income taxes was $78,951 for the three months ended July 31,
2022, compared to $0 for the three months ended July 31, 2021. The increase was
attributable to the tax expenses incurred in the B2C segment starting November
1, 2021, with our acquisition of 80% of RKings. There is no provision for income
taxes in the B2B segment during the three months ended July 31, 2022 and 2021 as
a result of operating losses carried forward in the B2B segment.
Net income attributable to noncontrolling interest
For the three months ended July 31, 2022, we recorded net income of $51,317 and
for the three months ended July 31, 2021, we recorded net income of $0,
attributable to the noncontrolling interest. The net income attributable to
noncontrolling interest was due to the acquisition of an 80% interest in
RKingsCompetition Ltd, effective on November 1, 2021. These amounts represent
the share of income that is not attributable to the Company.
Net income attributable to the Company
The Company had net income attributable to the Company of $628,332 and $484,613
for the three months ended July 31, 2022 and 2021, respectively. The increase in
net income attributable to the Company of $143,719 was primarily due to an
increase in revenues from the B2C operations of $4,845,169 and from the B2B
operations of $1,005,018 (of which $1,345,426 of the increase was attributable
to revenues from third-party distributors, offset by a $340,408 decrease
attributable to related party revenues, each as discussed above); which increase
in revenues was offset by (i) an increase of cost of goods sold of $4,576,924
and (ii) an increase of operating expenses of $1,054,727, each as discussed in
greater detail above.
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Nine months ended July 31, 2022, compared to the nine months ended July 31,
2021.
Revenues
The Company currently has three distinctive revenue streams.
1) the Company charges gaming operators for the use of its unique intellectual
property (IP) and technology systems. Revenues derived from such charges were
based on the usage of the systems by the clients. During the nine months ended
July 31, 2022, the Company generated $668,996 of revenues from its unique IP and
technology systems, including $661,155 from Articulate, a related party, which
is wholly-owned by Anthony Brian Goodman, CEO and Chairman of the Company and
his wife Marla Goodman. During the nine months ended July 31, 2021, the Company
generated $2,105,223 of revenues from its IP and technology systems, including
$1,841,906 which was from Articulate.
The decrease of $1,436,227 in revenues from IP and technology systems in the
nine-month period ended July 31, 2022, compared to the nine-month period ended
July 31, 2021, is due to the Company's shift in focus to appointing resellers of
the third-party gaming content, reduction in reliance on related party, and the
Company's aim to expand the product into additional global jurisdictions. The
decrease in revenue is attributed to the loss of a large operator by one of the
Company's non-related party distributors and also reduced revenues generated by
Articulate, which is attributable to a highly competitive environment. The
Company has taken steps to mitigate the effect of the aforementioned decrease by
expanding its global presence and broadening its product offering which has
already resulted in an increase in alternate revenue streams.
2) Since June 2020, the Company has contracted with certain clients to offer
third party gaming content and as such become a reseller of this gaming content.
Revenues derived from the reselling of gaming content during the nine months
ended July 31, 2022 and 2021 were $10,333,841 and $5,737,048, respectively.
The increase of $4,596,793 in revenues in the nine-month period ended July 31,
2022, compared to the nine-month period ended July 31, 2021, is attributable to
an increased number of customers and registered players with our customers.
3) Since the acquisition of 80% of RKings effective November 1, 2021, the
Company generates revenues from sales of prize competitions tickets directly to
customers for prizes throughout the United Kingdom ranging from automobiles to
jewelry as well as travel and entertainment experiences. During the nine months
ended July 31, 2022, $15,458,552 of total revenues were derived from prize
competitions ticket sales. The Company did not have revenues from the sales of
prize competitions tickets during the nine-month period ended July 31, 2021, as
it only acquired 80% of RKings effective on November 1, 2021.
Total revenues for the nine months ended July 31, 2022 and 2021 are $26,461,389
and $7,842,271, respectively.
Cost of goods sold
The Company currently has three distinctive sources of cost of goods sold.
1) Historically, the Company only recognized the value of stock options granted
to consultants under the 2018 Equity Incentive Plan as cost of goods sold. This
recognition was based on the fact that the stock options directly contributed to
the revenue generated by the Company's GM2 Asset. During the nine months ended
July 31, 2022 and 2021, cost of goods sold due to the amortization of options
was $437,068 and $277,133, respectively. The increase in the cost of goods sold
was due to new options granted last year in March and September of 2021, and in
May 2022. The increase in the share price has increased the option valuation
based on the Black-Scholes valuation model and therefore increased the
amortization expenses over time.
2) Beginning in June 2020, due to the reselling of the gaming content, the cost
of usage of the third-party content is recognized as a cost of goods sold.
During the nine months ended July 31, 2022 and 2021, cost of goods sold due to
the usage of gaming content was $7,626,238 and $4,214,387, respectively. The
increase of $3,411,851 in cost of goods sold from the resale of gaming content
in the nine-month period ended July 31, 2022, compared with the nine months
ended July 31, 2021, was attributable to the increased usage of gaming content
as a result of an increased number of customers and registered players with our
customers.
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3) Beginning November 1, 2021, in connection with the acquisition of an 80%
interest in RKings, the Company incurs cost of goods sold due to the prizes
purchased which are awarded to winners of prize competitions throughout the
United Kingdom ranging from automobiles to jewelry as well as travel and
entertainment experiences. During the nine months ended July 31, 2022,
$11,352,394 of cost of goods related to prizes that were awarded in the prize
competitions. The Company did not have cost of goods related to prize
competitions during the nine-month period ended July 31, 2021.
Total costs of goods sold for the nine months ended July 31, 2022 and 2021 were
$19,415,700 and $4,491,520, respectively.
Gross Profit and Gross Profit Margin
We had gross profit of $7,045,689 for the nine months ended July 31, 2022,
compared to gross profit of $3,350,751 for the nine months ended July 31, 2021,
an increase of $3,694,938 from the prior period, mainly due to $4,106,158 of
gross profit contributed from the B2C segment starting November 1, 2021, with
our acquisition of 80% of RKings. A decrease of gross profit of $411,220 in the
B2B segment was mainly due to the decrease in revenues from the usage of IP and
technology systems as discussed above.
Gross profit margin was 27% for the nine months ended July 31, 2022, compared to
43% for the nine months ended July 31, 2021, mainly due to the increase in
revenues in the resale of gaming content and high revenues in the B2C segment
which have lower gross profit margin compared with revenues from the usage of IP
and technology systems. The gross profit margin on revenues from the resale of
gaming content was approximately 26% for the nine months ended July 31, 2022.
The Company believes that the resale revenue stream is highly scalable and there
is a significant opportunity to scale this resale revenue stream with low
related expenses and no capital expenditures and also to expand its global
reach. The gross profit margin on the B2C segment was approximately 27% for the
nine months ended July 31, 2022.
Moving forward, the Company expects to consolidate several operating aspects
that are redundant and plans to seek to generate increased gross profit and
gross profit margin due to the economies of scale. Also, the competition prizes
are expected to generate larger profit margins with a focus on increasing the
margins on individual prizes.
General and administrative expenses
During the nine months ended July 31, 2022 and 2021, general and administrative
expenses were $4,133,368 and $820,254, respectively. General and administrative
expenses consisted primarily of advertising and promotion expenses, travel
expenses, website maintenance expenses, payroll expenses, office expenses, bank
charges, commission expenses, lease expenses, gaming license expenses and
depreciation and amortization expense.
The increase of general and administrative expenses was mainly due to the
$2,504,602 general and administrative expenses from our B2C segment starting
November 1, 2021, with our acquisition of 80% of RKings, which mainly include
the payroll costs and bank charges for the transaction fees. The depreciation
and amortization expense also increased due to the newly acquired intangible
assets of trademarks and non-compete agreement associated with RKings. More
details of the intangible assets are covered in "NOTE 7 - INTANGIBLE ASSETS-
SOFTWARE PLATFORM, WEBSITE DEVELOPMENT COSTS, TRADEMARKS AND NON-COMPETE
AGREEMENTS" in the notes to the financial statements included under "Item 1.
Financial Statements." The general and administrative expenses from our B2B
segment also increased due to the increased costs of marketing fees, lease
expenses, and payroll costs.
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General and administrative expenses - Related parties
General and administrative expenses from related parties consisted primarily of
amortization expenses due to stock options granted to Directors and Officers,
back-office expenses (which have been terminated as of June 30, 2021),
consulting expenses and salary expenses payable to the Company's Management and
Directors. During the nine months ended July 31, 2022 and 2021, general and
administrative expenses from related parties were $534,910 and $1,524,208,
respectively. The components of general and administrative expenses from related
parties are as follows:
Nine months ended
July 31,
2022 2021
Amortization expenses of Directors' and Officers' stock
options $ - $ 1,089,155
Back-office expenses - 88,000
Consulting & salary expenses 534,910 347,053
Total $ 534,910 $ 1,524,208During the nine-month period ended July 31, 2022 and 2021, the amortization
expenses decreased due to the stock options becoming fully amortized during the
last fiscal year; therefore, there was no amortization expense during this
period; the back-office expenses decreased due to the cancellation of the Back
Office Services Agreement with Articulate; and the consulting and salary
expenses increased mainly due to the increased compensation to the Company's
officers, and hiring of new officers.
Professional fees
Professional fees consisted primarily of SEC filing fees, legal fees, transfer
agent service fees and accounting and audit fees. During the nine months ended
July 31, 2022 and 2021, professional fees were $463,625 and $206,132,
respectively. The increase in professional fees of $257,493 was mainly due to
recent corporate actions relating to the Company's acquisition of RKings, and
the Company's NASDAQ uplisting application, which was approved effective on
March 17, 2022, and other one-time corporate matters which were not represented
in the prior period.
Research and development expense
During the nine months ended July 31, 2022 and 2021, research and development
expense was $21,982 and $118,151, respectively. The research and development
expense was incurred in connection with the building of the Company's
Proprietary Peer to Peer gaming system and Seamless Aggregation Platform
acquired on March 1, 2021, from Gamefish Global Pty Ltd. The Peer to Peer gaming
system is due to be released in December 2022.
Interest expense
During the nine months ended July 31, 2022 and 2021, interest expense was $0 and
$955, respectively. The interest expense during the nine months ended July 31,
2021 was mainly attributable to the settlement payable to Luxor, a Nevada
limited liability corporation, which is wholly-owned by the Company's Chief
Executive Officer and Chairman, Anthony Brian Goodman. The settlement payable
was fully paid as of January 31, 2021; therefore, no interest was incurred
during the nine months ended July 31, 2022.
Interest income
Interest income was attributable to the interest from the Company's bank
savings. During the nine months ended July 31, 2022 and 2021, interest income
was $1,776 and $127, respectively.
Foreign exchange gain
The foreign exchange gain was due to the fluctuation of the Euro, British Pound
against the US dollar, and as a result of certain suppliers billing the Company
in Euros, and settlement of other liabilities in currencies other than US
dollars. During the nine months ended July 31, 2022 and 2021, foreign exchange
gain was $227,324 and foreign exchange loss was $16,421, respectively. The
increase of foreign exchange gain was due to the settlement of three million GBP
consideration payable to acquire RKings and unrealized foreign exchange gain
from the one million GBP contingent liability.
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Provision for income taxes
The provision for income taxes was $326,135 for the nine months ended July 31,
2022, compared to $0 for the nine months ended July 31, 2021. The increase was
attributable to the tax expenses incurred in the B2C segment starting November
1, 2021, with our acquisition of 80% of RKings. There is no provision for income
taxes in the B2B segment during the nine months ended July 31, 2022 and 2021 as
a result of operating losses carried forward in the B2B segment.
Net income attributable to noncontrolling interest
For the nine months ended July 31, 2022, we recorded net income of $230,074 and
for the nine months ended July 31, 2021, we recorded net income of $0,
attributable to the noncontrolling interest. The net income attributable to
noncontrolling interest was due to the acquisition of an 80% interest in
RKingsCompetition Ltd, effective on November 1, 2021. These amounts represent
the share of income that is not attributable to the Company.
Net income attributable to the Company
The Company had net income attributable to the Company of $1,564,695 and
$664,757 for the nine months ended July 31, 2022 and 2021, respectively. The
increase in net income attributable to the Company of $899,938 was primarily due
to an increase in revenues from the B2C operations of $15,458,552 and from the
B2B operations of $3,160,566 (of which $4,341,317 of the increase was
attributable to revenues from third-party distributors, offset by a $1,180,751
decrease attributable to related party revenues, each as discussed above); which
increase in revenues was offset by (i) an increase of cost of goods sold of
$14,924,180 and (ii) an increase of operating expenses of $2,485,140, each as
discussed in greater detail above.
LIQUIDITY AND CAPITAL RESOURCES
As of As of
July 31, October 31,
2022 2021
Cash and cash equivalents $ 15,869,660 $ 16,797,656
Working capital 16,305,495 18,694,687
Shareholders' equity of GMGI 29,688,534 18,928,109
The Company had $15,869,660 of cash on hand at July 31, 2022 and total assets of
$33,385,620 ($19,910,094 of which were current assets) and total working capital
of $16,305,495 as of July 31, 2022. Included in total assets at July 31, 2022
was $10,718,824 of goodwill associated with the Company's 80% interest in
RKingsCompetition Ltd. and $2,486,005 in intangible assets related to trademarks
and non-compete agreements, which were not included in the prior period.
The Company had total liabilities of $3,697,086 (of which $3,604,599 were
current liabilities) as of July 31, 2022, which mainly included $100,541 of
accounts payable to related parties, $1,622,694 of accounts payable and accrued
liabilities, $243,989 of accrued income tax liability related to RKings'
operations, $1,218,027 of contingent liability related to the RKings acquisition
(due if certain metrics relating to RKings' operations are met), a portion of
which was satisfied in connection with the Settlement Agreement, discussed
below, and $193,494 of operating lease liabilities related to the office lease.
See "NOTE 1 - BASIS OF PRESENTATION AND ACCOUNTING POLICIES, Recent Issued
Accounting Pronouncements" to the financial statements included herein. The
decrease in cash of $927,996 between July 31, 2022 and October 31, 2021, was
mainly due to $3,341,453 of cash consideration paid to acquire an 80% interest
in RKingsCompetition Ltd in December 2021, offset by cash generated by
operations.
We do not currently have any additional commitments or identified sources of
additional capital from third parties or from our officers, directors or
majority shareholders. Additional financing may not be available on favorable
terms, if at all.
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In the future, we may be required to seek additional capital by selling
additional debt or equity securities, or otherwise be required to bring cash
flows in balance when we approach a condition of cash insufficiency. The sale of
additional equity or debt securities, if accomplished, may result in dilution to
our then shareholders. Financing may not be available in amounts or on terms
acceptable to us, or at all. In the event we are unable to raise additional
funding and/or obtain revenues sufficient to support our expenses, we may be
forced to scale down our operations, which could cause our securities to decline
in value.
See "NOTE 3 - ACCOUNTS RECEIVABLE - RELATED PARTY", for a description of related
party accounts receivable; "NOTE 7 - INTANGIBLE ASSETS - SOFTWARE PLATFORM,
WEBSITE DEVELOPMENT COSTS, TRADEMARKS AND NON-COMPETE AGREEMENTS", for a
description of the Company's intangible assets; "NOTE 8 - ACCOUNTS PAYABLE -
RELATED PARTIES", for a description of related party accounts payable; and "NOTE
11 - RELATED PARTY TRANSACTIONS", for a description of related party
transactions, each included herein in the notes to the financial statements
included under "Item 1. Financial Statements."
Nine Months Ended
July 31,
2022 2021
Cash provided by operating activities $ 2,660,332 $ 1,454,776
Cash used in investing activities (3,499,050 ) (231,122 )
Cash provided by financing activities 32,000 7,641,208
Cash flows from operating activities include net income adjusted for certain
non-cash expenses, and changes in operating assets and liabilities. Non-cash
expenses for the nine months ended July 31, 2022, include stock-based
compensation, amortization expenses on intangible assets, and unrealized foreign
exchange gain on contingent liability.
The Company generated cash from operating activities of $2,660,332 during the
nine months ended July 31, 2022, due primarily to $1,794,769 of net income,
non-cash expenses relating to stock-based compensation of $443,068 (including
options issued for services of $437,068, and stock issued for services of
$6,000), depreciation and amortization of $299,656, $647,381 of decrease in
accounts receivable from related party, and $560,168 of increase in accounts
payable and accrued liabilities, offset by $411,704 of increase in inventory,
prize. Cash provided by operating activities was $1,454,776 for the nine months
ended July 31, 2021, which was mainly due to $664,757 of net income, non-cash
expenses relating to stock-based compensation of $1,421,128 (including options
issued for services of $1,366,288 and stock issued for services of $54,840), and
$1,333,681 of increase in accounts payable and accrued liabilities, offset by
a $637,710 increase in accounts receivable and an $866,907 increase in accounts
receivable - related party.
During the nine months ended July 31, 2022, cash used in investing activities
was $3,499,050 which was primarily due to the cash consideration paid to acquire
an 80% interest in RKingsCompetition Ltd of $3,341,453. During the nine months
ended July 31, 2021, cash used in investing activities was $231,122, which was
mainly due to the investment in GTG and purchase of an aggregation platform.
During the nine months ended July 31, 2022, cash provided by financing
activities was $32,000, which was due to cash option exercises. During the nine
months ended July 31, 2021, cash provided by financing activities was
$7,641,208, which was due primarily to the sales of equity securities through
private placements and warrant exercises.
The Company had a net decrease in cash of $927,996 for the nine months ended
July 31, 2022, which is mostly attributable to the cash used in investing
activities of $3,499,050, offset by the net cash provided by operating
activities of $2,660,332, as discussed above.
Material Events and Uncertainties
Our operating results are difficult to forecast. Our prospects should be
evaluated in light of the risks, expenses and difficulties commonly encountered
by comparable development stage companies.
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There can be no assurance that we will successfully address such risks, expenses
and difficulties.
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GOLDEN MATRIX GROUP, INC. 
