See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
Notes to the Consolidated Financial Statements
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION AND ACCOUNTING POLICIES
Organization and Operations
Golden Matrix Group, Inc. (together with its consolidated subsidiaries, collectively, “Golden Matrix”, “GMGI” “we”, “our”, “us”, or “Company”) is incorporated and registered in the State of Nevada, and operates as (i) 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).
The Company has historically operated in the business-to-business (“B2B”) segment where it develops and owns online gaming intellectual property (IP) and builds configurable and scalable, turn-key, and white-label gaming platforms for international customers, located primarily in the Asia Pacific region. With the acquisition of RKingsCompetitions Ltd. effective on November 1, 2021, the Company entered into the business-to-consumer (“B2C”) segment by offering pay to enter prize competitions throughout the UK which are not gambling or a lottery; we do not offer B2C online sports betting and/or online casino services. The prize competitions require entrants to demonstrate sufficient skill, knowledge or judgment to have a chance of winning and participants are provided with a route to free entry to the prize competitions as required by UK law.
In the B2B segment, the Company has developed a proprietary Internet gaming enterprise software system that provides for unique casino and live game operations on the platforms that include GM-X System (“GM-X”) and GM-Ag System, Turnkey Solution and White Label Solutions. These platforms are provided to Asia Pacific Internet-based and land-based casino operators as a turnkey technology solution for regulated real money Internet gaming (“RMiG”), Internet sports gaming, and virtual simulated gaming (“SIM”).
In the B2C segment, the Company has improved functionality and responsiveness of the RKingsCompetitions.com website and expanded its marketing efforts from Northern Ireland to encompass the UK as its customer reach.
On April 27, 2020, we filed a Certificate of Change Pursuant to NRS 78.209 with the Nevada Secretary of State pursuant to which we affected a reverse stock split of our authorized and issued and outstanding common stock in a ratio of 1-for-150. As a result of such filing, our authorized shares of common stock decreased from 6 billion to 40 million and our issued and outstanding shares of common stock decreased in a ratio of 1-for-150. All fractional shares of common stock remaining after the reverse split were rounded up to the nearest whole share. Pursuant to Section 78.207(1) of the Nevada Revised Statutes (“NRS”), shareholder approval was not required for this transaction. The Certificate of Change was effective with the Financial Industry Regulatory Authority (FINRA) on June 26, 2020. The effects of the reverse stock split are retroactively reflected throughout this Report.
On May 12, 2020, the Board of Directors of the Company approved a change in the Company’s fiscal year from July 31 to January 31, effective as of the same date.
On January 19, 2021, the Company acquired 100% ownership of Global Technology Group Pty Ltd (GTG), an Australian Company. GTG has an Alderney Gambling Control Commission (“AGCC”) license (an AGCC Category 2 Associate Certificate). The government of Alderney offers software service providers in the gaming industry with a gaming license that allows gaming operators to conduct business related to casino, lotto, and other gaming related activities. Alderney has long been recognized as one of the preferred locations for online gaming operators. Alderney is regarded in the community as one of the strictest licensing jurisdictions with policies aimed at improving transparency and cultivating a good gaming environment.
The Company is required to have a recognized business-to-business (B2B) gaming license in order to acquire certain gaming content. Currently the Company is not required to have a gaming license for the licensing of its GM-X System or the resale of third-party content to operators in the jurisdictions in which it currently conducts business, however as the Company expands its global distribution licensing, regulatory requirements will be required.
On October 29, 2021, the Board of Directors approved a change in the Company’s fiscal year from January 31 to October 31, effective as of the same date.
On November 22, 2021, the Board of Directors of the Company approved the filing of a Certificate of Amendment to the Company’s Articles of Incorporation to increase the Company’s authorized number of shares of Common Stock from forty million (40,000,000) shares to two hundred and fifty million (250,000,000) shares and to restate Article 3, Capital Stock thereof, to reflect such amendment, and clarify the Board of Director’s ability to designate and issue ‘blank check’ preferred stock. The Amendment was filed with the Secretary of State of Nevada and became effective on December 16, 2021.
On November 29, 2021, the Company entered into a Sale and Purchase Agreement of Ordinary Issued Share Capital (the “Purchase Agreement”), to acquire an 80% ownership interest in RKingsCompetitions Ltd, a private limited company formed under the laws of Northern Ireland (“RKings”). On December 6, 2021, the Company closed the Purchase, which was effective on November 1, 2021.
Effective March 10, 2022, Luxor Capital LLC (“Luxor”), the then sole shareholder of the Series B Voting Preferred Stock of the Company (the “Series B Preferred Stock”), which entity is wholly-owned by the Company’s Chief Executive Officer and Chairman, Anthony Brian Goodman, transferred all 1,000 shares of Series B Preferred Stock which it held to Mr. Goodman for no consideration.
On March 11, 2022, the Company’s Board of Directors and Mr. Goodman, as the then sole shareholder of the Company’s Series B Preferred Stock (pursuant to a written consent to action without meeting of the sole Series B Preferred Stock shareholder), approved the adoption of, and filing of, an Amended and Restated Certificate of Designation of Golden Matrix Group, Inc. Establishing the Designation, Preferences, Limitations and Relative Rights of its Series B Voting Preferred Stock (the terms of which are discussed in greater detail under “NOTE 12 – EQUITY”, below).
2022 Equity Incentive Plan
On May 5, 2022, the Company’s Board of Directors and majority stockholders approved the adoption of the Company’s 2022 Equity Incentive Plan (the “2022 Plan”). The 2022 Plan provides an opportunity for any employee, officer, director or consultant of the Company, subject to limitations provided by federal or state securities laws, to receive (i) incentive stock options (to eligible employees only); (ii) nonqualified stock options; (iii) restricted stock; (iv) restricted stock units, (v) stock awards; (vi) shares in performance of services; (vii) other stock-based awards; or (viii) any combination of the foregoing. In making such determinations, the Board of Directors may take into account the nature of the services rendered by such person, his or her present and potential contribution to the Company’s success, and such other factors as the board of directors of the Company in its discretion shall deem relevant.
Subject to adjustment in connection with the payment of a stock dividend, a stock split or subdivision or combination of the shares of common stock, or a reorganization or reclassification of the Company’s common stock, the aggregate number of shares of common stock which may be issued pursuant to awards under the 2022 Plan is the sum of (i) 5,000,000 shares, and (ii) an annual increase on May 1st of each calendar year, beginning in 2023 and ending in 2032, in each case subject to the approval of the Board of Directors or the compensation committee of the Company (if any) on or prior to the applicable date, equal to the lesser of (A) ten percent (10%) of the total shares of common stock of the Company outstanding on the last day of the immediately preceding fiscal year; (B) 1,000,000 shares of common stock; and (C) such smaller number of shares as determined by the Board of Directors or compensation committee of the Company (the “Share Limit”). Notwithstanding the foregoing, shares added to the Share Limit are available for issuance as incentive stock options only to the extent that making such shares available for issuance as incentive stock options would not cause any incentive stock option to cease to qualify as such. In the event that the Board of Directors or the compensation committee (if any) does not take action to affirmatively approve an increase in the Share Limit on or prior to the applicable date provided for under the plan, the Share Limit remains at its then current level. Notwithstanding the above, no more than 10,000,000 total awards and 10,000,000 incentive stock options may be granted pursuant to the terms of the 2022 Plan. The 2022 Plan became effective on June 29, 2022.
Interim Financial Statements
These unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, the consolidated financial statements do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and such adjustments are of a normal recurring nature. These consolidated financial statements should be read in conjunction with the financial statements for the fiscal year ended October 31, 2021 and notes thereto and other pertinent information contained in the Transition Report on Form 10-KT for the nine months ended October 31, 2021, which the Company filed with the Securities and Exchange Commission (the “SEC”) on January 13, 2022.
The results of operations for the nine months ended July 31, 2022, are not necessarily indicative of the results to be expected for the full fiscal year ending October 31, 2022.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiary, Global Technology Group Pty Ltd. and its 80% ownership interest in RKingsCompetitions Ltd. All intercompany transactions and balances have been eliminated.
Business Combination - Common Control Asset Acquisition of Global Technology Group Pty Ltd
A common-control transaction is a transfer of net assets or an exchange of equity interests between entities under the control of the same parent. As disclosed in “NOTE 1 - BASIS OF PRESENTATION AND ACCOUNTING POLICIES — Organization and Operations”, on January 19, 2021, the Company acquired 100% ownership of GTG, then wholly-owned by Mr. Anthony Brian Goodman. Mr. Goodman is also a controlling party of the Company via his stock holding in Luxor Capital, LLC, which has a controlling vote of greater than 50% of the Company. As such, the acquisition of GTG was a common control acquisition.
The accounting and reporting for a transaction between entities under common control is addressed in the “Transactions Between Entities Under Common Control” subsections of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 805-50. ASC 805-50 requires that the receiving entity recognize the net assets received at their historical carrying amounts.
Business Combination - Acquisition of 80% of RKingsCompetitions Ltd
The Company accounts for business combinations using the acquisition method of accounting in accordance with FASB ASC 805, “Business Combinations”. Identifiable assets acquired, and liabilities assumed, in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. Any adjustments to the purchase price allocation are made during the measurement period, not exceeding one year from the acquisition date, in accordance with ASC 805. The Company recognizes any non-controlling interest in the acquired subsidiary at fair value. The excess of the purchase price and the fair value of non-controlling interest in the acquired subsidiary over the fair value of the identifiable net assets of the subsidiary is recognized as goodwill. Identifiable assets with finite lives are amortized over their useful lives. Acquisition related costs are expensed as incurred.
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include contingent liability, stock-based compensation, warrant valuation, accrued expenses and collectability of accounts receivable. The Company evaluates its estimates on an on-going basis and bases its estimates on historical experience and on various other assumptions the Company believes to be reasonable. Due to inherent uncertainties, actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The Company currently has no cash equivalents at July 31, 2022 and October 31, 2021.
Allowance for Doubtful Accounts
The allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance. The Company determines the allowance based on known troubled accounts, historical experience, and other currently available evidence. As of July 31, 2022 and October 31, 2021, the allowance for doubtful accounts was $0 and $168,557, respectively. During the nine months ended July 31, 2022, a $168,557 allowance for doubtful debts was written off and there was no bad debt expense recorded. The corresponding accounts receivable balance was also written off.
Website Development Costs
The Company accounts for website development costs in accordance with ASC 350-50 “Website Development Costs”. Accordingly, all costs incurred in the planning stage are expensed as incurred, costs incurred in the website application and infrastructure development stage that meet specific criteria are capitalized and costs incurred in the day-to-day operation of the website are expensed as incurred. All costs associated with the websites are subject to straight-line amortization over a three-year period. During the nine months ended July 31, 2022, $79,247 in development costs, or related costs were incurred and capitalized.
Software Development Costs
The Company capitalizes internal software development costs subsequent to establishing technological feasibility of a software application in accordance with guidelines established by “ASC 985-20-25” Accounting for the Costs of Software to Be Sold, Leased, or Otherwise Marketed, requiring certain software development costs to be capitalized upon the establishment of technological feasibility. The establishment of technological feasibility and the ongoing assessment of the recoverability of these costs require considerable judgment by management with respect to certain external factors such as anticipated future revenue, estimated economic life, and changes in software and hardware technologies. Amortization of the capitalized software development costs begins when the product is available for general release to customers. Capitalized costs are amortized based on the straight-line method over the remaining estimated economic life of the product.
Inventories, Prizes
RKings purchases prizes to award to winners of prize competitions; these prizes are RKings’ inventory. Operations that include prizes are only through RKings. Inventory is stated at the lower of cost or net realizable value, using the first-in, first out (“FIFO”) method. Costs include expenditures incurred in the normal course of business in bringing stocks to their present location and condition. Full provision is made for obsolete and slow-moving items. Net realizable value comprises actual or estimated selling price (net of discounts) less all costs to complete and costs incurred in marketing and selling. Inventory was $1,191,102 and $0 at July 31, 2022 and October 31, 2021, respectively.
Property, Plant and Equipment
Plant and machinery, fixtures, fittings, and equipment are recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation is computed pursuant to the straight-line method over the useful life of four years. The depreciable life of leasehold improvements is limited by the expected lease term. Property, plant and equipment were $81,783 and $0 at July 31, 2022 and October 31, 2021, respectively.
Impairment of Intangible Assets
In accordance with ASC 350-30-65 “Goodwill and Other Intangible Assets”, the Company assesses the impairment of identifiable intangible assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers important, which could trigger an impairment review include the following:
1. | Significant underperformance compared to historical or projected future operating results; |
2. | Significant changes in the manner or use of the acquired assets or the strategy for the overall business; and |
3. | Significant negative industry or economic trends |
When the Company determines that the carrying value of an intangible asset may not be recoverable based upon the existence of one or more of the above indicators of impairment and the carrying value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge. The Company measures any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent to the current business model. Significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows. Intangible assets that have finite useful lives are amortized over their useful lives. The Company incurred amortization expense of $285,815 and $24,131 during the nine months ended July 31, 2022 and 2021, respectively.
Revenue Recognition
The Company currently has three distinctive revenue streams. In the B2B segment there are two revenue streams (i) charges for usage of the Company’s software, and (ii) a royalty charged on the use of third-party gaming content. In the B2C segment, the revenue stream is related to the prize competition tickets sold to enter prize competitions in the UK through RKings.
B2B segment, revenue descriptions:
| 1. | For the usage of the Company’s software, the Company charges gaming operators for the use of its unique intellectual property (IP) and technology systems. |
| 2. | For the royalty charged on the use of third-party gaming content, the Company acquires the third-party gaming content for a fixed cost and resells the content at a margin. |
B2C segment, revenue descriptions:
| | The Company generates revenues through RKings 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. |
Pursuant to FASB Topic 606, Revenue Recognition, our company recognizes revenues by applying the following steps:
Step 1: Identify the contract with a customer.
Step 2: Identify the separate performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the separate performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
For the usage of the Company’s software, the Company provides services to the counterparty which include licensing the use of its unique IP and technology systems. The counterparty pays consideration in exchange for those services which include a variable amount depending on the Software Usage. The Company only recognizes the revenue at the month end when the usage occurs, and the revenue is based on the actual Software Usage of its customers.
For the royalty charged on the use of third-party gaming content, the Company acts as a distributor of the third-party gaming content which is utilized by the client. The counterparty pays consideration in exchange for the gaming content utilized. The Company only recognizes the revenue at the month end when the usage of the gaming content occurs, and the revenue is based on the actual usage of the gaming content.
For the prize competitions ticket sales, revenue is recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration RKings expects to be entitled to in exchange for those goods or services.
Payments for prize competitions received in advance of services being rendered are recorded as deferred revenue and recognized as revenue when control of the prize has been transferred to the winner of prize competitions.
Earnings Per Common Share
Basic net earnings per share of common stock is computed by dividing net earnings available to common shareholders by the weighted-average number of common stock shares (Common Shares) outstanding during the period. Diluted net earnings per Common Share are determined using the weighted-average number of Common Shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents.
The dilutive effect of outstanding stock options and warrants is reflected in diluted earnings per share by application of the treasury stock method. The dilutive effect of outstanding convertible securities is reflected in diluted earnings per share by application of the if-converted method.
The following table sets forth the calculation of basic and diluted net earnings per share for the periods ended July 31, 2022 and 2021. All shares and per share amounts have been adjusted for the 1-for-150 reverse stock split which took effect in the marketplace on June 26, 2020:
| | For the three months ended | | | For the nine months ended | |
| | July 31, | | | July 31, | |
| | 2022 | | | 2021 | | | 2022 | | | 2021 | |
| | | | | | | | | | | | |
Basic earnings per common share | | | | | | | | | | | | |
Numerator: | | | | | | | | | | | | |
Net income available to common shareholders | | $ | 628,332 | | | $ | 484,613 | | | $ | 1,564,695 | | | $ | 664,757 | |
Denominator: | | | | | | | | | | | | | | | | |
Weighted average common shares outstanding | | | 28,149,967 | | | | 23,404,205 | | | | 27,994,628 | | | | 22,615,734 | |
| | | | | | | | | | | | | | | | |
Basic earnings per common share | | $ | 0.02 | | | $ | 0.02 | | | $ | 0.06 | | | $ | 0.03 | |
| | | | | | | | | | | | | | | | |
Diluted earnings per common share | | | | | | | | | | | | | | | | |
Numerator: | | | | | | | | | | | | | | | | |
Net income available to common shareholders | | $ | 628,332 | | | $ | 484,613 | | | $ | 1,564,695 | | | $ | 664,757 | |
Denominator: | | | | | | | | | | | | | | | | |
Weighted average common shares outstanding | | | 28,149,967 | | | | 23,404,205 | | | | 27,994,628 | | | | 22,615,734 | |
Preferred shares | | | 793,478 | | | | 1,000 | | | | 267,399 | | | | 1,000 | |
Warrants/Options | | | 7,614,707 | | | | 11,336,768 | | | | 7,614,707 | | | | 11,228,241 | |
Adjusted weighted average common shares outstanding | | | 36,558,152 | | | | 34,741,973 | | | | 35,876,734 | | | | 33,844,975 | |
| | | | | | | | | | | | | | | | |
Diluted earnings per common share | | $ | 0.02 | | | $ | 0.01 | | | $ | 0.04 | | | $ | 0.02 | |
Income Taxes
The Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statements carrying amounts of existing assets and liabilities and loss carry-forwards and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rules on deferred tax assets and liabilities is recognized in operations in the year of change. A valuation allowance is recorded when it is “more likely-than-not” that a deferred tax asset will not be realized.
Foreign Currency Translation and Transactions
The functional currency of our foreign operations is generally the local currency. For these foreign entities, we translate their financial statements into U.S. dollars using average exchange rates for the period for income statement amounts and using end-of-period exchange rates for assets and liabilities. We record these translation adjustments in Accumulated other comprehensive income (loss), a separate component of Equity, in our consolidated balance sheets. We record exchange gains and losses resulting from the conversion of transaction currency to functional currency as a component of other income (expense).
Fair Value of Financial Instruments
The Company has adopted the provisions of ASC Topic 820, “Fair Value Measurements”, which defines fair value, establishes a framework for measuring fair value in US GAAP, and expands disclosures about fair value measurements. ASC 820 does not require any new fair value measurements, but it does provide guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. The fair value hierarchy distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs).
The hierarchy consists of three levels:
| · | Level 1 - Quoted prices in active markets for identical assets or liabilities. |
| · | Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets of liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
| · | Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
The Company uses Level 3 inputs for its valuation methodology for the warrant derivative liabilities and embedded conversion option liabilities.
Financial instruments consist principally of cash, accounts receivable, prepaid expenses, intangible assets, accounts payable, accrued liabilities, and customer deposits. The carrying amounts of such financial instruments in the accompanying balance sheets approximate their fair values due to their relatively short-term nature. It is management’s opinion that the Company is not exposed to any significant currency or credit risks arising from these financial instruments.
Stock-Based Compensation
The Stock-based compensation expense is recorded as a result of stock options granted in return for services rendered. For the comparative periods, the share-based payment arrangements with employees were accounted for under FASB Accounting Standards Codification (ASC) 718, while nonemployee share-based payments issued for goods and services are accounted for under ASC 505-50. ASC 505-50 and Accounting Standards Update (ASU) 2018-07.
The expenses related to the share-based compensation are recognized on each reporting date. The amount is calculated as the difference between total expenses incurred and the total expenses already recognized.
The stock-based compensation of options issued to consultants was recognized as a component of cost of goods sold since the stock-based compensation is the direct labor cost associated with running the Company’s GM2 Asset system.
Recent Issued Accounting Pronouncements
The Company does not believe that any recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying financial statements.
Impact of COVID-19 Pandemic on Consolidated Financial Statements.
The outbreak of the 2019 novel coronavirus disease (“COVID-19”), which was declared a global pandemic by the World Health Organization on March 11, 2020 and the virus has continued to spread through 2022, and the related responses by public health and governmental authorities to contain and combat its outbreak and spread of the virus, 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. The range of possible impacts on the Company’s business from economic recessions caused by coronavirus pandemic could include, but are not limited to: (i) changing demand for the Company’s products and services; (ii) the closure of, or reduction in the number of persons who may be present in, establishments using the Company’s technology (resulting in a decrease in demand for such technology); (iii) decreases in the amount of discretionary spending available to consumers and/or the amount such consumers are willing to spend; and (v) increasing contraction in the capital markets. Our operations have not been materially negatively impacted by the coronavirus pandemic to date and much of the Company’s work was performed in the commuter environment, as opposed to the office setting. Our employees and consultants returned to our offices in June 2022.
NOTE 2 – ACCOUNTS RECEIVABLE, NET
Accounts receivable are carried at their estimated collectible amounts. The balance is composed of trade accounts receivables that are periodically evaluated for collectability based on past credit history with customers and their current financial condition and amount due from Citibank for Automated Clearing House (ACH) transfers that were erroneously processed by Citibank (described below).
Amount due from Citibank is the result of Automated Clearing House (ACH) transfers that were erroneously posted to the Company’s bank account. The Company first notified Citibank of ACH transfers that were erroneously posted to the account. Overall, $729,505 of ACH transactions had posted to its accounts that were not authorized. Citibank immediately recognized that it was an error under the Electronic Fund Transfer Act (EFTA) (15 U.S.C. 1693 et seq.) of 1978 and 12 CFR 1005.11 and proceeded to immediately replenish $392,921 of the unauthorized ACH transactions which resulted in a receivable due from Citibank of $336,584 as of October 31, 2021. During the nine months ended July 31, 2022, an additional $269,086 was replenished by Citibank which resulted in a balance due from Citibank of $67,498.
The Company has accounts receivable of $1,929,653 and $1,762,725 as of July 31, 2022 and October 31, 2021, respectively (net of allowance for bad debt of $0 and $168,557, respectively).
NOTE 3 – ACCOUNTS RECEIVABLE – RELATED PARTY
Accounts receivable-related party are carried at their estimated collectible amounts. Trade accounts receivable are periodically evaluated for collectability based on past credit history with customers and their current financial condition. The Company has accounts receivable from one related party: Articulate Pty Ltd. (“Articulate”), which is wholly-owned by Anthony Brian Goodman, CEO of the Company and his wife Marla Goodman, which amounts to $659,515 and $1,306,896 as of July 31, 2022 and October 31, 2021, respectively.
NOTE 4 – PREPAID EXPENSES
The prepaid expenses mainly include prepayments to suppliers for the gaming content usage, IR service, rent, insurance, advance payment for the Mexican gaming permit application, and a one-year Gaming License fee. The gaming permit application has been approved but cannot be utilized until such time as the Company closes its pending acquisition of Golden Matrix MX, a newly formed shell company incorporated in Mexico, for nominal consideration, which entity has no assets or operations, and has been formed for the sole purpose of operating an online casino in Mexico. The balances of prepaid expenses are $202,779 and $114,426 as of July 31, 2022 and October 31, 2021, respectively. The components of prepaid expenses are as follows:
| | As of July 31, | | | As of October 31, | |
| | 2022 | | | 2021 | |
Prepayments to suppliers | | $ | 71,508 | | | $ | 104,336 | |
Advance payment for the Mexican gaming permit application | | | 100,000 | | | | - | |
Prepayment for the gaming license fee | | | 25,832 | | | | 10,090 | |
Prepaid payroll expense | | | 5,439 | | | | - | |
Total prepaid expenses | | $ | 202,779 | | | $ | 114,426 | |
NOTE 5 – SHORT-TERM DEPOSITS
Office Lease deposit
Short-term deposits represent a deposit required for a new office lease in Australia. On June 1, 2021, the Company (through GTG) entered into a three-year term lease agreement for office space which commenced on June 1, 2021. The Company has the option to renew for a period of three years. The rent is $115,265 ($148,902 AUD) per year (subject to a 4% annual increase) plus goods and services tax charged at 10% based on Australian Taxation Law.
Under the terms of the lease, the Company is required to provide a bank guarantee and has entered into a $57,385 ($81,896 AUD) Term Deposit at St. George Bank (with lessor as beneficiary) as collateral for the bank guarantee (from St. George Bank) to the benefit of the lessor. The Term Deposit was opened on June 1, 2021, had a one-year maturity and earned 0.25% interest per year. On June 1, 2022, the Term Deposit was automatically reinvested at St. George Bank for an additional one-year term, under the same terms as the original Term Deposit of June 1, 2021; the interest rate on renewal is 0.25%.
As of July 31, 2022 and October 31, 2021, the operating lease right-of-use asset is $188,914 and $280,183, respectively, and there was also a current operating lease liability of $101,007 and $100,209, respectively and a non-current operating lease liability of $92,487 and $182,024, respectively.
NOTE 6 – ACQUISITION
Related Party Asset Acquisition
On December 22, 2020, the Company entered into a Share Purchase Agreement with Anthony Brian Goodman, CEO of the Company and also the sole director and owner of GTG, which entity was acquired on January 19, 2021, as disclosed in “NOTE 1 - BASIS OF PRESENTATION AND ACCOUNTING POLICIES — Organization and Operations”. Under the agreement, Mr. Goodman agreed to sell 100% of the shares in GTG to the Company for total consideration of 85,000 GBP. On January 19, 2021, the Company acquired the shares in GTG and became the ultimate holding company of GTG. On March 22, 2021, the Company paid Mr. Goodman $115,314 (equivalent to 85,000 GBP), for the acquisition of GTG.
As described more fully in “NOTE 1 - BASIS OF PRESENTATION AND ACCOUNTING POLICIES”, the assets and liabilities of GTG have been recorded at their historical cost basis at the acquisition date, and are included in the Company’s consolidated financial statements.
The assets acquired and liabilities assumed in the Share Purchase Agreement are as follows:
Purchase Price: | | | |
85,000 GBP based on the exchange rate on January 19, 2021 | | $ | 115,314 | |
| | | | |
Assets acquired and liabilities assumed | | | | |
Cash | | | 192 | |
Prepayments – Gaming License | | | 61,513 | |
Advance from shareholders | | | (100 | ) |
| | $ | 61,605 | |
Reduction in Additional Paid in Capital in GMGI | | | 53,709 | |
Consideration payable – related party | | $ | 115,314 | |
Third Party Business Acquisition
On November 29, 2021, the Company entered into the Purchase Agreement, to acquire an 80% ownership interest in RKings from Mark Weir and Paul Hardman, individuals (each a “Seller” and collectively the “Sellers”), the owners of 100% of the ordinary issued share capital of RKings.
RKings is a United Kingdom based online competition company offering business-to-consumer tournaments whereby individuals can purchase entries for online prize drawings.
Pursuant to the Purchase Agreement, the Sellers agreed to sell the Company 80% of the outstanding capital stock of RKings (the “Purchase” and the “RKings Stock”). In consideration for the RKings Stock, we agreed to pay the Sellers, pro rata with their ownership of RKings:
| (1) | a cash payment of GBP £3,000,000 (USD $4,099,500); |
| (2) | 666,250 restricted shares of the Company’s common stock, with an agreed value of GBP £4,000,000 (USD $5,330,000), or $8.00 per share of Company common stock (the “Company Share Value” and such aggregate shares of Company Common Stock, the “Closing Shares”); and |
| (3) | within seven days after the receipt of the audit of RKings (as required by Securities and Exchange Commission (“SEC”) rules and regulations), an additional number (rounded to the nearest whole share) of restricted shares of Company common stock, equal to (i) 80% of RKings’ net asset value (inventory on hand (minus allowances for reserve inventory and allocated goods and materials) plus RKings’ total cash and cash equivalents on hand; less RKings’ current and accrued liabilities, as described in greater detail in the Purchase Agreement) as of October 31, 2021, divided by (ii) the Company Share Value (the “Post-Closing Shares”). On March 7, 2022, the Company issued 70,332 restricted shares of the Company’s common stock in payment of 80% of RKings’ net asset value as of October 31, 2021 (described above), in the amount of $562,650. |
A total of GBP £1,000,000 (USD $1,366,500)(the “Holdback Amount”) was retained by the Company following closing and was to be released to the Sellers, within six months after the closing date only to the extent that (A) RKings achieved revenue of at least USD $7,200,000 during the six full calendar months immediately following the closing date; and (B) the Sellers did not default in any of their obligations, covenants or representations under the Purchase Agreement or other transaction documents. As of July 31, 2022, the Holdback Amount had not been released as the Holdback Amount was being contested as of such date in connection with a default which was alleged by the Company under the Purchase Agreement. Subsequent to July 31, 2022, the Company entered into a settlement agreement with one of the Sellers to release half of the Holdback Amount, as discussed in greater detail below under “NOTE 15 – SUBSEQUENT EVENTS”.
Additionally, in the event the (A) the Company determines, on or before the date on which the Company files its Annual Report on Form 10-K with the SEC for the Company’s fiscal year ending October 31, 2022 (the “Filing Date”), that the increase (if any) between (1) RKings’ twelve-month trailing EBITDA for the year ended October 31, 2022, less (2) RKings’ twelve-month trailing EBITDA for the year ended October 31, 2021, is at least GBP £1,250,000 during the twelve-month period ending October 31, 2022; and (B) the Sellers do not default in any of their obligations, covenants or representations under the Purchase Agreement or other transaction documents, then the Company is required to pay the Sellers GBP £4,000,000 (USD $5,330,000) (the “Earn-Out Consideration”), which is payable at the option of the Company in either (a) cash; or (b) shares of Company common stock valued at $8.00 per share of Company common stock (subject to equitable adjustment in accordance with dividends payable in stock on such Company Common Stock, stock splits, stock combinations, and other similar events affecting the Company Common Stock) (such shares of Company Common Stock, if any, the “Earn-Out Shares”). Based on the performance of the nine months ended July 31, 2022, the Company determined that it was highly unlikely that the Earn-Out EBITDA Threshold would be met; therefore, no contingent liability was recorded.
On December 6, 2021, the Company closed the Purchase, which had an effective date of November 1, 2021.
The Purchase Agreement also required that the Sellers and the Company enter into a Shareholders Agreement (the “Shareholders Agreement”), which was entered into and became effective on November 29, 2021.
In accordance with FASB ASC Section 805, “Business Combinations”, the Company has accounted for the Purchase Agreement transaction as a business combination using the acquisition method. Due to the continuity of operations that will remain after the acquisition, the acquisition was considered the acquisition of a “business”.
Goodwill is measured as a residual and calculated as the excess of the sum of (1) the purchase price to acquire 80% of RKings’ shares, which was $11,358,650, and (2) the fair value of the 20% noncontrolling interest in RKings, which was estimated to be $2,705,000, over the net of the acquisition-date values of the identifiable assets acquired and the liabilities assumed.
The Company accounts for business combinations in accordance with FASB ASC 805, “Business Combinations”. The preliminary fair value of purchase consideration for the acquisition has been allocated to the assets acquired and liabilities assumed based on a preliminary valuation of their respective fair values and may change when the final valuation of the assets acquired and liabilities assumed is determined.
As described more fully in “NOTE 1 - BASIS OF PRESENTATION AND ACCOUNTING POLICIES”, the assets and liabilities of RKings have been recorded at their fair value at the acquisition date, and are included in the Company’s consolidated financial statements.
The calculation of the purchase price and the assets acquired and liabilities assumed in the Purchase Agreement are as follows:
Calculation of Purchase Price and Preliminary Estimated Purchase Price Allocation |
| | | |
Purchase price buildup | | Amount | |
Closing cash consideration of GBP £3,000,000 based on Exchange Rate on November 1, 2020 | | $ | 4,099,500 | |
Fair value of contingent cash consideration of GBP £1,000,000 to be paid in six months based on Exchange Rate on November 1, 2020 | | | 1,366,500 | |
Fair value of 666,250 restricted shares at $8 per share | | | 5,330,000 | |
Fair value of contingent shares consideration | | | 562,650 | |
Purchase price | | $ | 11,358,650 | |
Fair value of non-controlling interest | | | 2,705,000 | |
Equity value | | $ | 14,063,650 | |
Add: Current liabilities | | | 960,753 | |
Total equity and liabilities | | $ | 15,024,403 | |
| | | | |
Allocation to assets | | | | |
Cash and cash equivalents | | $ | 758,047 | |
Inventory, prizes | | | 906,018 | |
Property, Plant & Equipment, net | | | 27,613 | |
Total tangible assets | | | 1,691,678 | |
| | | | |
Intangible assets | | | | |
Website development costs, net | | $ | 13,901 | |
Trade Names and Trademarks | | | 2,000,000 | |
Non‐Compete Agreements | | | 600,000 | |
Total intangible assets | | | 2,613,901 | |
| | | | |
Goodwill | | | 10,718,824 | |
Total assets allocated | | $ | 15,024,403 | |
RKings’ results of operations have been included in our consolidated financial statements beginning November 1, 2021. RKings contributed revenues of $15,458,552 and net income attributable to GMGI of $920,294 for the period from the date of acquisition through July 31, 2022.
The following table summarizes the unaudited pro-forma consolidated results of operations for the periods ended July 31, 2022 and 2021, as if the acquisition had occurred on November 1, 2020.
| | Three Months Ended | | | Nine Months Ended | |
| | July 31, 2022 | | | July 31, 2021 | | | July 31, 2022 | | | July 31, 2021 | |
Pro-forma total revenues | | $ | 9,101,541 | | | $ | 10,201,863 | | | $ | 26,461,389 | | | $ | 36,339,185 | |
Pro-forma net income attributable to GMGI | | $ | 628,332 | | | $ | 1,080,034 | | | $ | 1,564,695 | | | $ | 2,192,686 | |
The unaudited pro-forma consolidated results above are based on the historical financial statements of the Company and RKings and are not necessarily indicative of the results of operations that would have been achieved if the acquisition was completed at November 1, 2020, and are not indicative of the future operating results of the combined company. The pro-forma consolidated results of operations also include the effects of purchase accounting adjustments, including amortization charges related to the finite-lived intangible assets acquired, assuming that the business combination occurred on November 1, 2020. The values assigned to the assets acquired and liabilities assumed are based on preliminary valuations, for the RKings acquisition, and are subject to change as the Company obtains additional information during the remaining measurement period.
NOTE 7 – INTANGIBLE ASSETS – SOFTWARE PLATFORM, WEBSITE DEVELOPMENT COSTS, TRADEMARKS AND NON-COMPETE AGREEMENTS
On March 1, 2021, the Company entered into an Asset Purchase Agreement with Gamefish Global Pty Ltd, a company incorporated in Australia (“Gamefish”), pursuant to which the Company acquired an instance of certain intellectual property that consists of a fully functional Seamless Aggregation Platform (“Aggregation Platform”). As consideration for the acquisition, the Company agreed to pay Gamefish $174,000, payable pursuant to a schedule set forth in the agreement, and certain milestones being met with respect to the stability, functionality and operation of the Aggregation Platform. The Company also agreed to pay a minimum of three months of monthly fees to Gamefish in the amount of $13,050 per month, for ongoing support for the intellectual property. As part of the Asset Purchase Agreement, the Company entered into consulting agreements with two principals of Gamefish. On November 23, 2021, the Company terminated the consultants and the ongoing development work contemplated by the Asset Purchase Agreement with Gamefish, effective on November 30, 2021. The outstanding payable to Gamefish of $58,000 was written off and the intangible asset was written down by the same amount.
The website development costs to upgrade and enhance the functionality of RKings’ website were capitalized which amount to $79,247 as of July 31, 2022.
Intangible assets related to software and website are amortized on a straight-line basis over their expected useful lives, estimated to be 3 years.
In connection with the acquisition of RKingsCompetition, Ltd, the Company recognized the definite-lived intangible assets consisting of $2,000,000 of trademarks and $600,000 of non-compete agreements. The trademark for RKings is amortized over 10 years and the non-compete agreement is amortized over 5 years.
Amortization expenses related to intangible assets were $285,815 and $24,131 for the nine months ended July 31, 2022 and 2021, respectively. Accumulated amortization was $324,880 and $38,737 as of July 31, 2022 and October 31, 2021, respectively.
The following table details the carrying values of the Company’s intangible assets excluding goodwill:
| | As of | |
| | July 31, 2022 | | | October 31, 2021 | |
Definite-lived intangible assets | | | | | | |
Aggregation Platform | | $ | 116,000 | | | $ | 174,000 | |
Website Development Cost | | | 94,885 | | | | - | |
Trademarks | | | 2,000,000 | | | | - | |
Non-compete Agreements | | | 600,000 | | | | - | |
Gross definite-lived intangible assets | | | 2,810,885 | | | | 174,000 | |
Less: accumulated amortization | | | | | | | | |
Aggregation Platform | | | (64,932 | ) | | | (38,737 | ) |
Website Development Cost | | | (19,948 | ) | | | - | |
Trademarks | | | (150,000 | ) | | | - | |
Non-compete Agreements | | | (90,000 | ) | | | - | |
Total accumulated amortization | | | (324,880 | ) | | | (38,737 | ) |
Net definite-lived intangible assets | | $ | 2,486,005 | | | $ | 135,263 | |
NOTE 8 – ACCOUNTS PAYABLE – RELATED PARTIES
The accounts payable to related parties include the accrued consulting fees and salaries payable to the Directors and management of the Company and also the accounts payable to Articulate Pty Ltd. (“Articulate”), which is wholly-owned by Anthony Brian Goodman, CEO of the Company and his wife, Marla Goodman. Accounts payable to related parties was $100,541 and $105,062 as of July 31, 2022 and October 31, 2021, respectively.
NOTE 9 – DEFERRED REVENUES
The payments for prize competitions received in advance of services being rendered are recorded as deferred revenue and recognized as revenue when control of the prize has been transferred to the winners of prize competitions. Deferred revenues were $212,636 and $0 as of July 31, 2022 and October 31, 2021, respectively.
NOTE 10 – CUSTOMER DEPOSITS
The Company has two sources of customer deposits.
One source of deposits is from the Company’s customers participating in the Progressive Jackpot Games. The clients are required to provide the Company with a minimum deposit amount of $5,000, which serves as a deposit for the Progressive Contribution Fee. During the tenure of the client’s operation, the deposit will not be used to deduct or offset any invoices, and when the client decides not to operate, the deposit will be fully refunded to the client. As of July 31, 2022 and October 31, 2021, customer deposits relating to customers participating in the Progressive Jackpot Games amounted to $57,058 and $32,886, respectively.
The other source of deposits is the payment from customers in advance of any use of gaming content. As the gaming content is utilized by the customers, revenues are recognized. As of July 31, 2022 and October 31, 2021, a total of $43,867 and $35,749 of customer deposits are from this source.
NOTE 11 – RELATED PARTY TRANSACTIONS
All related party transactions have been recorded at the exchange value which was the amount of consideration established and agreed to by the related parties.
Anthony Brian Goodman
On October 26, 2020, the Company entered into an Employment Agreement with Mr. Goodman, the Company’s Chief Executive Officer and Chairman. Pursuant to the agreement, Mr. Goodman is to receive an annual salary of $144,000, plus a superannuation (compulsory payments required pursuant to Australian law made into a fund by an employee toward a future pension) of 9.5% of Mr. Goodman’s salary. Beginning July 1, 2022, the superannuation increased to 10.5% of the salary pursuant to Australian law. As of July 31, 2022 and October 31, 2021, total wages payable to Mr. Goodman were $7,612 and $0, respectively, and the superannuation payable was $4,860 and $14,205, respectively.
On June 29, 2021, the Company extended the expiration date of options to purchase 5,400,000 shares of common stock previously granted to Mr. Goodman, the Company’s Chief Executive Officer, at an exercise price of $0.066 per share, which were to expire on June 30, 2021, until December 31, 2022. More details of the options are covered in “NOTE 12 – EQUITY”.
On September 18, 2021, Mr. Goodman exercised options to purchase 2,700,000 shares of common stock in a cashless exercise pursuant to which 355,109 shares were surrendered to the Company to pay for the aggregated exercise price of the options ($2,450,250) and 2,344,891 shares were issued. More details of the options are covered in “NOTE 12 – EQUITY”.
Effective March 10, 2022, Luxor Capital LLC (Luxor), the then sole shareholder of the Series B Voting Preferred Stock of the Company (the “Series B Preferred Stock”), which entity is wholly-owned by the Company’s Chief Executive Officer and Chairman, Anthony Brian Goodman, transferred all 1,000 shares of Series B Preferred Stock which it held to Mr. Goodman for no consideration.
Weiting ‘Cathy’ Feng
On October 26, 2020, the Company entered into an Employment Agreement with Weiting ‘Cathy’ Feng, the Company’s Chief Operating Officer and Director. Pursuant to the agreement, Ms. Feng is to receive an annual salary of $120,000, plus a superannuation (compulsory payments required pursuant to Australian law, made into a fund by an employee toward a future pension) of 9.5% of Ms. Feng’s salary. Beginning July 1, 2022, the superannuation increased to 10.5% of the salary pursuant to Australian law. As of July 31, 2022 and October 31, 2021, total wage payable to Ms. Feng was $7,000 and $0, respectively, and the superannuation payable was $4,050 and $11,838, respectively.
On June 29, 2021, the Company extended the expiration date of options to purchase 1,400,000 shares of common stock previously granted to Weiting Feng, the Company’s Chief Operating Officer, at an exercise price of $0.06 per share, which were to expire on June 30, 2021, until December 31, 2022.
On September 18, 2021, Weiting Feng, exercised options to purchase 700,000 shares of common stock in a cashless exercise pursuant to which 83,696 shares were surrendered to the Company to pay for the aggregated exercise price of the options ($577,500) and 616,304 shares were issued. More details of the options are covered in “NOTE 12 – EQUITY”.
Thomas E. McChesney
On April 24, 2020, the Board of Directors appointed Mr. Thomas E. McChesney as a member of the Board of Directors of the Company. Mr. McChesney’s appointment was effective on April 27, 2020. The Board of Directors agreed to compensate Mr. McChesney in the amount of $2,000 per month payable in arears and to grant Mr. McChesney options to purchase 100,000 shares of common stock (at $0.795 per share, expiring April 27, 2025) in connection with his appointment.
On September 29, 2021, the Board of Directors agreed to increase the compensation of Mr. McChesney to $3,000 per month, commencing November 1, 2021.
On January 28, 2022, Mr. McChesney exercised options to purchase 40,000 shares of common stock in a cashless exercise pursuant to which 4,977 shares were surrendered to the Company to pay for the aggregated exercise price of the options ($31,800) and 35,023 shares were issued.
On May 25, 2022, the Compensation Committee agreed to increase the monthly retainer payable to non-executive independent Board members from $3,000 to $5,000 per month effective immediately.
During the nine months ended July 31, 2022 and 2021, total consulting fees payable to Mr. McChesney were $31,000 and $12,000, respectively. As of July 31, 2022 and October 31, 2021, the amount payable to Mr. McChesney was $0 and $0, respectively. More details regarding the options are covered in “NOTE 12 – EQUITY”.
Murray G. Smith
On July 27, 2020, the Board of Directors appointed Mr. Murray G. Smith as a member of the Board of Directors of the Company. Mr. Smith’s appointment was effective on August 1, 2020. The Board of Directors agreed to compensate Mr. Smith in the amount of $2,000 per month payable in arears and to grant Mr. Smith options to purchase 100,000 shares of common stock (at $2.67 per share, expiring August 1, 2025) in connection with his appointment.
On September 29, 2021, the Board of Directors agreed to increase the compensation of Mr. Smith to $3,000 per month, commencing November 1, 2021.
On May 25, 2022, the Compensation Committee agreed to increase the monthly retainer payable to non-executive independent Board members from $3,000 to $5,000 per month, effective immediately.
During the nine months ended July 31, 2022 and 2021, total consulting fees payable to Mr. Smith were $31,000 and $12,000, respectively. As of July 31, 2022 and October 31, 2021, the amount payable to Mr. Smith was $0 and $0, respectively. More details regarding the options are covered in “NOTE 12 – EQUITY”.
Aaron Richard Johnston
On August 13, 2020, the Board of Directors agreed to appoint Mr. Aaron Richard Johnston as a member of the Board of Directors of the Company subject to his acceptance. On August 23, 2020, the Company received Mr. Johnston’s acceptance letter. The effective date of appointment was August 23, 2020. The Board of Directors agreed to compensate Mr. Johnston in the amount of $2,000 per month payable in arears and to grant Mr. Johnston options to purchase 100,000 shares of common stock (at $2.67 per share, expiring August 1, 2025) in connection with his appointment.
On September 29, 2021, the Board of Directors agreed to increase the compensation of Mr. Johnston to $3,000 per month, commencing November 1, 2021.
On May 25, 2022, the Compensation Committee agreed to increase the monthly retainer payable to non-executive independent Board members from $3,000 to $5,000 per month, effective immediately.
During the nine months ended July 31, 2022 and 2021, total consulting fees payable to Mr. Johnston were $31,000 and $12,000, respectively. As of July 31, 2022 and October 31, 2021, the amount payable to Mr. Johnston was $0 and $2,000. More details regarding the options are covered in “NOTE 12 – EQUITY”.
Brett Goodman
On May 1, 2020, the Company entered into a consultant agreement with Brett Goodman, the son of the Company’s Chief Executive Officer, where Mr. Brett Goodman agreed to provide consulting services assisting the Company with building a Peer-to-Peer gaming system. The consultant will be paid $3,000 per month.
On August 10, 2020, the Company entered into a Stock Purchase Agreement with Mr. Brett Goodman, and Jason Silver, who was then subject to a partnership agreement with Brett Goodman. Mr. Goodman and Mr. Silver had previously engaged a third-party company to develop a Peer-to-Peer betting application and the Company determined it was in the Company’s best interests to assume ownership of the Peer-to-Peer betting application development program, and to engage Mr. Goodman and Mr. Silver for management of the project. Pursuant to the agreement, we agreed to issue each of Mr. Goodman and Mr. Silver 2,000 shares of restricted common stock (4,000 shares in aggregate) (which shares were issued on March 24, 2021), and as a result, a $14,840 expense was recorded during the fiscal year ended January 31, 2021. Additionally, each of Mr. Goodman and Mr. Silver agreed to manage the project. We also agreed to reimburse Mr. Goodman and Mr. Silver for the costs of the project; however, there have been no expenses to date.
During the nine months ended July 31, 2022 and 2021, total consulting fees paid to Mr. Brett Goodman were $24,000 and $27,000, respectively. As of July 31, 2022 and October 31, 2021, the amount payable to Mr. Brett Goodman was $0 and $0, respectively.
Marla Goodman
Marla Goodman is the wife of Anthony Brian Goodman, the Company’s Chief Executive Officer. Marla Goodman owns 50% of Articulate Pty Ltd. (discussed below).
Articulate Pty Ltd
(a) Back Office Services:
On June 30, 2021, a Back Office Services Agreement, between the Company and Articulate Pty Ltd, which is wholly-owned by Anthony Brian Goodman, Chief Executive Officer and Chairman of the Company and his wife Marla Goodman, was cancelled. During the nine months ended July 31, 2022 and 2021, general and administrative expense related to the Back Office Services Agreement was $0 and $66,000, respectively. As of July 31, 2022 and October 31, 2021, the amount payable to Articulate for Back Office Services was $77,019 and $77,019, respectively.
(b) License Agreement:
On March 1, 2018, the Company entered into a License Agreement with Articulate, in which Articulate received a license from the Company to use the GM2 Asset technology, and agreed to pay the Company a usage fee calculated as a certain percentage of the monthly content and software usage within the GM2 Asset system.
During the nine months ended July 31, 2022 and 2021, revenues from Articulate were $661,155 and $1,841,906, respectively. As of July 31, 2022 and October 31, 2021, the amount receivable from Articulate was $659,515 and $1,306,896, respectively.
(c) Prepaid deposit paid to Skywind Services IOM Ltd (“Skywind”) by Articulate on behalf of Global Technology Pty Ltd (“GTG”):
Articulate had a prepaid deposit in favor of Skywind in the amount of $43,569 (35,928 EUR) as of February 18, 2021. Articulate allowed GTG to utilize the prepaid deposits in order that GTG would be able to operate and utilize certain Progressive Jackpot games of Skywind. On February 18, 2021, the Company recorded an accounts payable of $43,569 to Articulate. On July 29, 2021, the Company paid the equivalent of $42,464 to Articulate to settle the accounts payable based on the exchange rate on the same date.
Mr. Omar Jimenez
On April 22, 2021, the Company entered into a Consulting Agreement with Omar Jimenez, who was appointed as Chief Financial Officer/Chief Compliance Officer on the same date. The Consulting Agreement provides for Mr. Jimenez to be paid $12,500 per month (which may be increased from time to time with the mutual consent of Mr. Jimenez and the Company and which salary was increased to $25,000 per month on January 26, 2022, effective January 1, 2022), to be granted options to purchase 50,000 shares of common stock (at $9.910 per share, expiring April 23, 2023), granted under the Company’s 2018 Equity Compensation Plan, of which options to purchase 25,000 shares vested on April 22, 2021, and options to purchase 25,000 shares vested on October 22, 2021. Mr. Jimenez may also receive discretionary bonuses from time to time in the discretion of the Board of Directors in cash, stock or options.
During the nine months ended July 31, 2022 and 2021, total consulting fees paid to Mr. Jimenez were $200,000 and $41,250, respectively. As of July 31, 2022 and October 31, 2021, the amount payable to Mr. Jimenez was $0 and $0, respectively. More details regarding the options are covered in “NOTE 12 – EQUITY”.
Note 12 - Equity
Preferred Stock
The Company has 20,000,000 shares of $0.00001 par value preferred stock authorized.
Effective March 10, 2022, Luxor, the then sole shareholder of the Series B Voting Preferred Stock of the Company (the “Series B Preferred Stock”), which entity is wholly-owned by the Company’s Chief Executive Officer and Chairman, Anthony Brian Goodman, transferred all 1,000 shares of Series B Preferred Stock which it held to Mr. Goodman for no consideration.
On March 11, 2022, the Company’s Board of Directors and Mr. Goodman, as the then sole shareholder of the Company’s Series B Preferred Stock (pursuant to a written consent to action without meeting of the sole Series B Preferred Stock shareholder), approved the adoption of, and filing of, an Amended and Restated Certificate of Designation of Golden Matrix Group, Inc. Establishing the Designation, Preferences, Limitations and Relative Rights of its Series B Voting Preferred Stock (the “Amended and Restated Designation”).
The Amended and Restated Designation, which was filed with, and became effective with, the Secretary of State of Nevada on March 11, 2022, amended the Certificate of Designation of the Series B Preferred Stock, previously filed by the Corporation with the Secretary of State of Nevada on August 18, 2015, to, among other things:
(a) include the right of the holder of the Series B Preferred Stock to convert each share of the Series B Preferred Stock into 1,000 shares of the Company’s common stock at the holder’s option from time to time after May 20, 2022;
(b) provide for the automatic conversion of all outstanding shares of Series B Preferred Stock into common stock of the Company, on a 1,000 for 1 basis, on the date that the aggregate beneficial ownership of the Company’s common stock, calculated without regard to any shares of common stock issuable upon conversion of the Series B Preferred Stock, nor any voting rights associated with such Series B Preferred Stock, of Mr. Goodman, falls below 10% of the Company’s common stock then outstanding, or the first business day thereafter that the Company becomes aware of such;
(c) provide that each share of Series B Preferred Stock entitles the holder to 7,500 votes on all matters presented to the Company’s shareholders for a vote of shareholders, whether such vote is taken in person at a meeting or via a written consent (7,500,000 votes in aggregate for all outstanding shares of Series B Preferred Stock);
(d) require the consent of the holders of at least a majority of the issued and outstanding shares of Series B Preferred Stock to (i) amend any provision of the Amended and Restated Designation, (ii) increase or decrease (other than by redemption or conversion) the total number of authorized shares of Series B Preferred Stock, (iii) adopt or authorize any new designation of any preferred stock or amend the Articles of Incorporation of the Company in a manner which adversely affects the rights, preferences and privileges of the Series B Preferred Stock, (iv) effect an exchange, or create a right of exchange, cancel, or create a right to cancel, of all or any part of the shares of another class of shares into shares of Series B Preferred Stock, (v) issue any additional shares of Series B Preferred Stock, or (vi) alter or change the rights, preferences or privileges of the shares of Series B Preferred Stock so as to affect adversely the shares of Series B Preferred Stock;
(e) provide that the shares of Series B Preferred Stock are not transferrable by Mr. Goodman; and
(f) clarify that the Series B Preferred stock is not entitled to any dividend rights, preemptive rights, redemption rights, or liquidation preference.
As of July 31, 2022 and October 31, 2021, 1,000 Series B preferred shares of par value $0.00001 were designated and outstanding and 19,999,000 shares of preferred stock remained undesignated.
Common Stock
(a) Reverse Stock Split
On April 27, 2020, we filed a Certificate of Change Pursuant to NRS 78.209 with the Nevada Secretary of State pursuant to which we affected a reverse stock split of our authorized and issued and outstanding common stock in a ratio of 1-for-150. As a result of such filing, our authorized shares of common stock decreased from 6 billion to 40 million and our issued and outstanding shares of common stock decreased in a ratio of 1-for-150. All fractional shares of common stock remaining after the reverse split were rounded up to the nearest whole share. Pursuant to Section 78.207(1) of the Nevada Revised Statutes (“NRS”), shareholder approval was not required for this transaction. The Certificate of Change was effective with the Financial Industry Regulatory Authority (FINRA) on June 26, 2020. The reverse stock split had no effect on the par value of the common stock. The number of authorized shares of common stock was reduced to 40,000,000. All issued and outstanding shares of common stock were reduced at a ratio of 1 share for every 150 shares of common stock outstanding. All fractional shares were rounded up to the next whole number. As a result, 3,639 shares of common stock were issued due to the rounding up of fractional shares.
(b) Stock Purchase Agreement
On August 10, 2020, the Company entered into a Stock Purchase Agreement with Brett Goodman, the son of the Company’s Chief Executive Officer, and Jason Silver (collectively, the “Partnership”). The Company agreed to issue 4,000 shares to the Partnership (2,000 to each of Brett Goodman and Jason Silver) as compensation for their service provided to assist the Company in developing a betting application. As a result, a $14,840 expense was recognized during the fiscal year ended January 31, 2021. The shares were issued on March 24, 2021.
(c) August 2020 Private Placement and Subsequent Warrant Exercise
From August 14, 2020 to August 20, 2020, the Company offered for purchase to a limited number of accredited and offshore investors up to an aggregate of 900,000 units, each consisting of one share of common stock and one warrant to purchase one share of common stock for $3.40 per unit. The warrants have an exercise price of $4.10 per share (and no cashless exercise rights) and are exercisable until the earlier of (a) August 20, 2022, and (b) the 30th day after the Company provides the holder of the warrants notice that the closing sales price of the Company’s common stock has closed at or above $6.80 per share for a period of ten consecutive trading days. The Company sold 527,029 Units in total to 11 investors, raising cash of $1,791,863. The shares included in the Units purchased have been issued.
From November 23, 2020, to December 7, 2020 (ten consecutive trading days), the closing sales price of the Company’s common stock closed at or above $6.80 per share, and on December 8, 2020, the Company provided notice to the holders of the Warrants that they had until January 7, 2021 to exercise such Warrants, or such Warrants would expire pursuant to their terms.
From December 9, 2020, to January 7, 2021, ten holders of Warrants to purchase an aggregate of 409,029 shares of the Company’s common stock exercised such Warrants and paid an aggregate exercise price of $1,677,019 to the Company. In connection with such exercises the Company issued such Warrant holders an aggregate of 409,029 shares of restricted common stock. The remaining warrants expired unexercised.
(d) January 2021 Private Placement and Subsequent Warrant Exercise and Warrant Amendment
On January 20, 2021, the Company sold an aggregate of 1,000,000 units to one investor, with each unit consisting of one share of restricted common stock and one warrant to purchase one share of common stock, at a price of $5.00 per unit. The Warrants have an exercise price of $6.00 per share (and no cashless exercise rights) and are exercisable until the earlier of (a) January 14, 2023, and (b) the 30th day after the Company provides the holder of the Warrants notice that the closing sales price of the Company’s common stock has closed at or above $10.00 per share for a period of ten consecutive trading days. The shares included in the Units purchased have been issued.
From April 26, 2021, to May 7, 2021 (ten consecutive trading days), the closing sales price of the Company’s common stock closed at or above $10.00 per share. On May 11, 2021, the Company agreed to provide the holder 61 days from the Triggering Date to exercise the warrants, and as a result the holder had until July 11, 2021 to exercise such Warrants.
On July 9, 2021, the holder exercised a portion of the warrants to purchase 170,000 shares of the Company’s common stock at $6.00 per share and on July 14, 2021, the holder paid to the Company $1,020,000 (less $18 in bank charges). The Company issued the holder 170,000 shares of common stock in connection with such exercise.
On July 14, 2021, and effective on June 6, 2021, the Company and the holder of the remaining 830,000 warrants (the original 1,000,000 shares less the 170,000 warrants exercised on July 9, 2021) entered into an Agreement to Amend and Restate Common Stock Purchase Warrant, whereby, in consideration for the holder exercising warrants to purchase 170,000 shares of common stock (as described above), the parties agreed to enter into an Amended and Restated Common Stock Purchase Warrant, effective as of June 6, 2021, amending, restating and replacing the prior Warrant Agreement, and evidencing the right of the holder to purchase 830,000 shares of common stock of the Company to remove the trigger event (i.e. ten consecutive trading days when the closing sales price of the Company’s common stock closed at or above $10.00 per share) and to fix the expiration date thereof as of November 11, 2022. The other terms of the prior Warrant Agreement were not changed.
(e) Business Consultant Agreements
On March 1, 2021, the Company entered into two Business Consultant Agreements with Ontario Inc. and ANS Advisory. Pursuant to the agreements, Vladislav Slava Aizenshtat, acting on behalf of Ontario Inc. and Aaron Neill-Stevens, acting on behalf of ANS Advisory will each be issued $3,000 of shares of common stock per month beginning on March 1, 2021, payable in arrears, based on the 7-day average price of the stock leading up to the end of the calendar month and to be issued within 7 days of month end. The Company also agreed to grant Vladislav Slava Aizenshtat, acting on behalf of Ontario Inc., warrants to purchase 120,000 shares of common stock and Aaron Neill-Stevens, acting on behalf of ANS Advisory, warrants to purchase 120,000 shares of common stock. On March 22, 2021, the warrants were granted. The warrants have an exercise price of $5.50 per share (and no cashless exercise rights) and are exercisable until the earlier of (a) March 22, 2023, and (b) the 20th day after the Company provides the holder of the warrants notice that the closing sales price of the Company’s common stock has closed at or above $11.00 per share for a period of ten consecutive trading days. On November 23, 2021, the two previously mentioned Business Consulting Agreements were terminated.
During the nine months ended July 31, 2022, a former consultant’s widow, two consultants and one director exercised options. As a result, 147,118 shares of common stock were issued upon the cashless exercise of the options, and 66,666 shares of common stock were issued upon the cash exercise of the options, pursuant to which $32,000 aggregate exercise price of the options was paid to the Company. During the nine months ended July 31, 2021, fourteen consultants exercised their options. As a result, 1,238,827 shares of common stock were issued upon the cashless exercise of the options and 200,000 shares of common stock were issued upon the cash exercise of the options, pursuant to which the $12,010 aggregate exercise price of the options was paid to the Company.
During the nine months ended July 31, 2022, 808 shares of restricted common stock, with a value of $6,000, were issued to two consultants for IT consultation services provided in connection with the maintenance and development of the Company’s GM-Ag system. During the nine months ended July 31, 2021, 8,608 shares of restricted common stock, with a value of $48,840, were issued for services provided in connection with investor relations services, development of peer-to-peer betting application and maintenance and development of GM-Ag system.
(f) Certificate of Amendment
On November 23, 2021, Luxor Capital LLC, which entity is beneficially owned and controlled by Anthony Brian Goodman, the President, Chief Executive Officer and Chairman of the Board of Directors of the Company, which beneficially owned an aggregate of 109,121,634,483 total voting shares, representing approximately 99.982% of the Company’s then voting stock as of such date, including (a) 7,470,483 shares of common stock, representing 27.4% of the Company’s outstanding shares of common stock, and (b) 1,000 shares of the Company’s Series B Voting Preferred Voting Stock, representing 100% of the Company’s issued and outstanding Series B Voting Preferred Voting Stock, which Series B Voting Preferred Voting Stock shares each vote four times the number of shares of the Company’s common stock outstanding (27,278,541 shares), executed a written consent in lieu of a special meeting of shareholders, approving the following matter, which had previously been approved by the Board of Directors of the Company on November 22, 2021: the filing of a Certificate of Amendment to the Company’s Articles of Incorporation to increase the Company’s authorized number of shares of Common Stock from forty million (40,000,000) shares to two hundred and fifty million (250,000,000) shares and to restate Article 3, Capital Stock thereof, to reflect such amendment, and clarify the Board of Director’s ability to designate and issue ‘blank check’ preferred stock (the “Amendment”). The Amendment was filed with the Secretary of State of Nevada and became effective on December 16, 2021.
As of July 31, 2022 and October 31, 2021, 250,000,000 and 40,000,000 shares of common stock, par value $0.00001 per share, were authorized, of which 28,182,575 and 27,231,401 shares were issued and outstanding, respectively.
(g) Share consideration issued to acquire RKings
On November 29, 2021, the Company entered into a Sale and Purchase Agreement of Ordinary Issued Share Capital to purchase 80% of the outstanding capital stock of RKings.
Pursuant to the Purchase Agreement, on November 29, 2021, the Company issued 666,250 restricted shares of the Company’s common stock to the sellers, with an agreed value of GBP £4,000,000 (USD $5,330,000), or $8.00 per share of Company common stock. On March 7, 2022, the Company issued 70,332 restricted shares of the Company’s common stock to the sellers, equal to 80% of RKings’ net asset value as of October 31, 2021, in the amount of $562,650.
Option Extension
On June 29, 2021, the Company agreed to extend the exercise period of certain stock options granted to Anthony Brian Goodman, the Company’s Chief Executive Officer, Weiting Feng, the Company’s Chief Operating Officer, and an external consultant of the Company (collectively the “Optionees”), which options would have expired on June 30, 2021. The Company extended the expiration date of the options granted to the Optionees until December 31, 2022, which covered options to purchase 466,667 shares of common stock previously granted to the external consultant at an exercise price of $0.06 per share, options to purchase 5,400,000 shares of common stock previously granted to Anthony Brian Goodman at an exercise price of $0.066 per share, and options to purchase 1,400,000 shares of common stock previously granted to Weiting Feng at an exercise price of $0.06 per share. The Company recorded a total of $2,069 of expenses due to the option extension.
Stock Option Plan
On January 3, 2018, the Company adopted a stock option plan: the 2018 Equity Incentive Plan. The fair value of stock options was measured using the Black-Scholes option pricing model. The Black-Scholes valuation model takes into consideration the share price of the Company, the exercise price of the option, the amount of time before the option expires, and the volatility of share price. Compensation expense will be charged to operations through the vesting period. The amount of cost will be calculated based on the new accounting standard ASU 2018-07. All option awards described below were granted under the 2018 Equity Incentive Plan. All shares and prices per share have been adjusted for a 1 share-for-150 shares reverse stock split that took effect on June 26, 2020:
During the nine months ended July 31, 2022, 50,000 options to purchase shares were granted, 66,666 options expired, and none forfeited. During the nine months ended July 31, 2022, 223,332 options to purchase shares of common stock were exercised.
The total compensation cost related to stock options granted was $437,068 and $1,366,288 for the nine months ended July 31, 2022 and 2021, respectively.
The following table represents stock option activity for the nine months ended July 31, 2022:
Options | | Number Outstanding | | | Weighted Average Exercise Price | |
Options Outstanding as of October 31, 2021 | | | 8,616,664 | | | $ | 0.45 | |
Options granted | | | 50,000 | | | $ | 4.22 | |
Options forfeited | | | - | | | $ | - | |
Options expired | | | (66,666 | ) | | $ | 0.12 | |
Options exercised | | | (223,332 | ) | | $ | 0.44 | |
Options Outstanding as of July 31, 2022 | | | 8,376,666 | | | $ | 0.48 | |
Options Exercisable as of July 31, 2022 | | | 8,049,999 | | | $ | 0.31 | |
Public Offering
On October 25, 2021, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional investors (the “Purchasers”) for the sale by the Company in a registered direct offering (the “Offering”) of an aggregate of 496,429 shares of common stock of the Company (the “Shares”), together with warrants to purchase 496,429 shares of common stock (the “Warrants”), at $7.00 per combined Share and Warrant, for aggregate gross proceeds of $3,475,003, before deducting the placement agent fees and related offering expenses. The Offering closed on October 27, 2021.
The Company used the net proceeds from the offering for general corporate purposes and working capital.
EF Hutton, division of Benchmark Investments, LLC acted as placement agent (the “Placement Agent”) on a “reasonable best efforts” basis, in connection with the Offering. The Company entered into a Placement Agency Agreement, dated as of October 25, 2021, by and between the Company and the Placement Agent (the “Placement Agency Agreement”). Pursuant to the Placement Agency Agreement, the Placement Agent received an aggregate cash fee of 6% of the gross proceeds in the Offering, a non-accountable expense reimbursement of 1% of the gross proceeds in the Offering, the reimbursement of certain of the Placement Agent’s expenses not to exceed $60,000, and the reimbursement of certain other expenses.
NOTE 13 – SEGMENT REPORTING AND GEOGRAPHIC INFORMATION
We operate our business in two operating segments i.e., B2B for charges for usage of the Company’s software, and royalties charged on the use of third-party gaming content, and the B2C segment which is related to the charges to enter prize competitions in the UK.
All operating segments have been aggregated due to their inter-dependencies, commonality of long-term economic characteristics, products and services, the production processes, class of customer, and distribution processes.
For geographical revenue reporting, revenues are attributed to the geographic location in which the distributors are located. Long-lived assets consist of property, plant and equipment, net, intangible assets, operating lease right-of-use assets, and goodwill, and are attributed to the geographic region in which they are located.
The following is a summary of revenues by geographic region, for the indicated periods (as a percentage of total revenues):
| | For the three months ended | | | For the nine months ended | |
Description | | July 31, 2022 | | | July 31, 2021 | | | July 31, 2022 | | | July 31, 2021 | |
Revenues: | | | | | | | | | | | | | | | | | | | | | | | | |
Asia Pacific | | $ | 4,256,372 | | | | 47 | % | | $ | 3,251,354 | | | | 100 | % | | $ | 11,002,837 | | | | 42 | % | | $ | 7,842,271 | | | | 100 | % |
UK | | | 4,845,169 | | | | 53 | % | | | - | | | | - | | | | 15,458,552 | | | | 58 | % | | | - | | | | - | |
Total | | $ | 9,101,541 | | | | 100 | % | | $ | 3,251,354 | | | | 100 | % | | $ | 26,461,389 | | | | 100 | % | | $ | 7,842,271 | | | | 100 | % |
The following is a summary of revenues by products for the indicated periods (as a percentage of total revenues):
| | For the three months ended | | | For the nine months ended | |
Description | | July 31, 2022 | | | July 31, 2021 | | | July 31, 2022 | | | July 31, 2021 | |
Revenues: | | | | | | | | | | | | | | | | | | | | | | | | |
B2B | | $ | 4,256,372 | | | | 47 | % | | $ | 3,251,354 | | | | 100 | % | | $ | 11,002,837 | | | | 42 | % | | $ | 7,842,271 | | | | 100 | % |
B2C | | | 4,845,169 | | | | 53 | % | | | - | | | | - | | | | 15,458,552 | | | | 58 | % | | | - | | | | - | |
Total | | $ | 9,101,541 | | | | 100 | % | | $ | 3,251,354 | | | | 100 | % | | $ | 26,461,389 | | | | 100 | % | | $ | 7,842,271 | | | | 100 | % |
The following is a summary of cost of goods sold (COGS) by geographic region, for the indicated periods (as a percentage of total cost of goods sold):
| | For the three months ended | | | For the nine months ended | |
Description | | July 31, 2022 | | | July 31, 2021 | | | July 31, 2022 | | | July 31, 2021 | |
COGS: | | | | | | | | | | | | | | | | | | | | | | | | |
B2B | | $ | 3,059,856 | | | | 46 | % | | $ | 2,043,593 | | | | 100 | % | | $ | 8,063,306 | | | | 42 | % | | $ | 4,491,520 | | | | 100 | % |
B2C | | | 3,560,661 | | | | 54 | % | | | - | | | | - | | | | 11,352,394 | | | | 58 | % | | | - | | | | - | |
Total | | $ | 6,620,517 | | | | 100 | % | | $ | 2,043,593 | | | | 100 | % | | $ | 19,415,700 | | | | 100 | % | | $ | 4,491,520 | | | | 100 | % |
The following is a summary of cost of goods sold by products for the indicated periods (as a percentage of total cost of goods sold):
| | For the three months ended | | | For the nine months ended | |
Description | | July 31, 2022 | | | July 31, 2021 | | | July 31, 2022 | | | July 31, 2021 | |
COGS: | | | | | | | | | | | | | | | | | | | | | | | | |
Asia Pacific | | $ | 3,059,856 | | | | 46 | % | | $ | 2,043,593 | | | | 100 | % | | $ | 8,063,306 | | | | 42 | % | | $ | 4,491,520 | | | | 100 | % |
UK | | | 3,560,661 | | | | 54 | % | | | - | | | | - | | | | 11,352,394 | | | | 58 | % | | | - | | | | - | |
Total | | $ | 6,620,517 | | | | 100 | % | | $ | 2,043,593 | | | | 100 | % | | $ | 19,415,700 | | | | 100 | % | | $ | 4,491,520 | | | | 100 | % |
Long-lived assets by geographic region as of the dates indicated below were as follows:
| | As of | | | As of | |
Description | | July 31, 2022 | | | October 31, 2021 | |
Long-lived assets: | | | | | | |
Asia Pacific | | $ | 273,740 | | | $ | 415,446 | |
UK | | | 13,201,786 | | | | - | |
Total | | $ | 13,475,526 | | | $ | 415,446 | |
Note 14 - Income Taxes
For the nine months ended July 31, 2022, the Company had income tax expense in the amount of $326,135 attributable to its operations of RKings in the United Kingdom.
The Company, through RKings, conducts a significant amount of its businesses in the United Kingdom and is subject to tax in this jurisdiction. As a result of its business activities, the Company files tax returns that are subject to examination by the local tax authority. Although the operations in its segments outside of the United Kingdom generate net income, the Company has sufficient tax net operating losses to offset the current net income which results in $0 tax liability for the non-United Kingdom operations.
The Company, through RKings, is subject to a statutory tax rate of approximately 19% of net income generated in the United Kingdom.
As a result of the acquisition of RKings, the Company assumed the income tax liability of RKings as of November 1, 2021 of $602,628.
Balance November 1, 2021 | | $ | 602,628 | |
Income Tax November 1, 2021 through July 31, 2022 | | | 326,135 | |
Tax paid | | | (565,417 | ) |
Currency Adjustment | | | (119,357 | ) |
Income Tax Liability | | $ | 243,989 | |
As of July 31, 2022 and October 31, 2021, the Company had income tax payable of $243,989 and $0.
Note 15 – Subsequent Events
On August 1, 2022, and effective on August 4, 2022, we entered into a Settlement and Mutual Release Agreement (the “Settlement Agreement”) with Mark Weir, one of the two sellers of the 80% interest in RKings which we acquired effective on November 1, 2021, pursuant to the November 29, 2021 Sale and Purchase Agreement of Ordinary Issued Share Capital. The Settlement Agreement was entered into in order to partially settle certain breaches of the Purchase Agreement which the Sellers (Mr. Weir and Mr. Paul Hardman) were jointly and severally responsible for pursuant to the terms of the Purchase Agreement. Pursuant to the Settlement Agreement, (a) we agreed to make a payment to Mr. Weir in the amount of £450,000 (approximately $548,112), representing one-half of the £1,000,000 (approximately $1,218,027) Holdback Amount, less £50,000 (approximately $60,902) in excess salary payments made to Mr. Weir (the “Settlement Payment”); (b) Mr. Weir agreed to enter into an employment agreement with RKings; and (c) we and Mr. Weir, on behalf of ourselves and our affiliates and representatives, provided each other mutual releases, subject to certain customary exceptions. The Settlement Payment was in full satisfaction of all payments (including any portion of the Holdback Amount or Earn-Out Consideration), due to Mr. Weir under the Purchase Agreement. The Settlement Payment was paid in full on August 21, 2022. The Company’s ongoing disputes and claims against Mr. Hardman, the other Seller, relating to breaches of the terms of the Purchase Agreement by Mr. Hardman, remain outstanding and the Company is continuing to pursue such claims.
Pursuant to the Employment Agreement, Mr. Weir agreed to provide employment services to RKings, as business manager thereof, for a salary of £130,000 ($158,344) per year, subject to increases and discretionary bonuses which may from time to time be approved by RKings’ board of directors. The Employment Agreement includes a non-compete provision which applies for five years after the end of the term of the agreement, prohibiting Mr. Weir from competing against RKings in or around the UK and Ireland, a customary non-solicitation prohibition, which also applies for five years after the end of the term of the Agreement, and customary confidentiality obligations and work for hire language. The Employment Agreement continues in effect until terminated as provided in the agreement.