UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

☒

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended July 31, 2023 

 

☐

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934

 

For the transition period from ______ to _______

 

Commission File Number 001-41326

 

gmgi_10qimg2.jpg

 

Golden Matrix Group, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada

46-1814729

(State or other jurisdiction

of incorporation or organization)

(I.R.S. Employer

Identification No.)

 

3651 Lindell Road, Ste D131

Las Vegas, NV

 

89103

(Address of principal executive offices)

(Zip Code)

 

(702) 318-7548

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.00001 Par Value Per Share

 

GMGI

 

The NASDAQ Stock Market LLC

(The NASDAQ Capital Market)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

 

 

Emerging growth company

☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised accounting standard provided pursuant to Section 13(a) of the Exchanger Act ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

As of September 7, 2023, there were 36,134,932 shares of the registrant’s $0.00001 par value common stock issued and outstanding.

 

 

 

 

GOLDEN MATRIX GROUP, INC.

 

TABLE OF CONTENTS

 

 

Page

Special Note Regarding Forward-Looking Statements

 

3 

 

 

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

Item 1.

Financial Statements

 

5 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

44 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

61 

 

Item 4.

Controls and Procedures

 

61 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

 

62 

 

Item 1A.

Risk Factors

 

62 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

66 

 

Item 3.

Defaults Upon Senior Securities

 

66 

 

Item 4.

Mine Safety Disclosures

 

66 

 

Item 5.

Other Information

 

66 

 

Item 6.

Exhibits

 

67 

 

 

 
2

Table of Contents

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Information included in this Quarterly Report on Form 10-Q (this “Report”) contains forward-looking statements within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”) and the Private Securities Litigation Reform Act of 1995. This information may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Golden Matrix Group, Inc. (the “Company”), to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words “may,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” or “project” or the negative of these words or other variations on these words or comparable terminology. These forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance that these projections included in these forward-looking statements will come to pass. Actual results of the Company could differ materially from those expressed or implied by the forward-looking statements as a result of various factors. Except as required by applicable laws, the Company has no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future. You should read the matters described and incorporated by reference in “Risk Factors” and the other cautionary statements made in this Report, and incorporated by reference herein, as being applicable to all related forward-looking statements wherever they appear in this Report. We cannot assure you that the forward-looking statements in this Report will prove to be accurate and therefore prospective investors are encouraged not to place undue reliance on forward-looking statements.

 

Summary Risk Factors

 

Our business is subject to numerous risks and uncertainties, including those included in, and incorporated by reference in, the section entitled “Risk Factors” and elsewhere in this Report. These risks include, but are not limited to, the following:

 

 

·

our need for significant additional financing to grow and expand our operations, the availability and the terms of such financing, and potential dilution which may be caused by the availability of such financing, if obtained through the sale of equity or convertible securities;

 

 

 

 

·

the ability of the Company to obtain additional gaming licenses;

 

 

 

 

·

the Company’s ability to complete acquisitions, including the pending acquisition of the Meridian Companies (as defined below), and the available funding for such acquisitions; and disruptions caused by acquisitions, including the pending Meridian Acquisition, changes of control in connection with the Meridian Acquisition and other risks associated therewith;

 

 

 

 

·

the reliance on suppliers of third-party gaming content and the cost of such content;

 

 

 

 

·

dilution caused by fund raising, the conversion of outstanding preferred stock, and/or acquisitions;

 

 

 

 

·

the Company’s ability to maintain the listing of its common stock on the Nasdaq Capital Market;

 

 

 

 

·

the Company’s expectations for future growth, revenues, and profitability;

 

 
3

Table of Contents

 

 

·

the Company’s expectations regarding future plans and timing thereof;

 

 

 

 

·

the Company’s reliance on its management;

 

 

 

 

·

the fact that the Company’s Chief Executive Officer has voting control over the Company;

 

 

 

 

·

related party relationships as well as conflicts of interest related thereto;

 

 

 

 

·

the potential effect of economic downturns, recessions, increases in interest rates and inflation, and market conditions, including recessions, decreases in discretionary spending and therefore demand for our products, and increases in the cost of capital, related thereto, among other affects thereof, on the Company’s operations and prospects as a result of increased inflation, increasing interest rates, global conflicts and other events;

 

 

 

 

·

the Company’s ability to protect proprietary information;

 

 

 

 

·

the ability of the Company to compete in its market;

 

 

 

 

·

the effect of current and future regulation, the Company’s ability to comply with regulations (both current and future) and potential penalties in the event it fails to comply with such regulations and changes in the enforcement and interpretation of existing laws and regulations and the adoption of new laws and regulations that may unfavorably impact our business;

 

 

 

 

·

the risks associated with gaming fraud, user cheating and cyber-attacks;

 

 

 

 

·

risks associated with systems failures and failures of technology and infrastructure on which the Company’s programs rely, as well as cybersecurity and hacking risks;

 

 

 

 

·

risks relating to inventory management;

 

 

 

 

·

foreign exchange and currency risks;

 

 

 

 

·

the outcome of contingencies, including legal proceedings in the normal course of business;

 

 

 

 

·

the ability to compete against existing and new competitors;

 

 

 

 

·

the ability to manage expenses associated with sales and marketing and necessary general and administrative and technology investments; and

 

 

 

 

·

general consumer sentiment and economic conditions that may affect levels of discretionary customer purchases of the Company’s products, including potential recessions and global economic slowdowns.

 

 
4

Table of Contents

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements 

 

Golden Matrix Group, Inc. and Subsidiaries

Consolidated Balance Sheets

 

 

 

As of

 

 

As of

 

 

 

July 31,

2023

 

 

October 31,

2022

 

 

 

(Unaudited)

 

 

(Audited)

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash

 

$16,142,096

 

 

$14,949,673

 

Accounts receivable, net

 

 

3,923,213

 

 

 

2,641,023

 

Accounts receivable – related parties

 

 

324,326

 

 

 

413,714

 

Prepaid expenses

 

 

122,393

 

 

 

84,372

 

Short-term deposit

 

 

54,723

 

 

 

52,577

 

Inventory, prizes

 

 

1,521,855

 

 

 

1,147,591

 

Total current assets

 

$22,088,606

 

 

$19,288,950

 

 

 

 

 

 

 

 

 

 

Non-current assets:

 

 

 

 

 

 

 

 

Property, plant & equipment, net

 

 

59,936

 

 

 

72,411

 

Intangible assets, net

 

 

2,375,100

 

 

 

2,607,075

 

Operating lease right-of-use assets

 

 

84,518

 

 

 

150,653

 

Goodwill

 

 

10,381,710

 

 

 

10,452,324

 

Total non-current assets

 

 

12,901,264

 

 

 

13,282,463

 

Total assets

 

$34,989,870

 

 

$32,571,413

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$2,417,258

 

 

$1,385,076

 

Accounts payable – related parties

 

 

11,798

 

 

 

10,637

 

Accrued income tax liability

 

 

206,975

 

 

 

324,147

 

Deferred revenues

 

 

270,245

 

 

 

182,444

 

Deferred tax liability

 

 

19,949

 

 

 

4,409

 

Current portion of operating lease liability

 

 

88,198

 

 

 

95,085

 

Customer deposits

 

 

433,034

 

 

 

109,328

 

Accrued interest

 

 

123

 

 

 

123

 

Contingent liability

 

 

641,766

 

 

 

573,197

 

Consideration payable – related party

 

 

-

 

 

 

30,708

 

Total current liabilities

 

 

4,089,346

 

 

 

2,715,154

 

 

 

 

 

 

 

 

 

 

Non-current liabilities:

 

 

 

 

 

 

 

 

Non-current portion of operating lease liability

 

 

-

 

 

 

59,778

 

Total non-current liabilities

 

 

-

 

 

 

59,778

 

Total liabilities

 

$4,089,346

 

 

$2,774,932

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock: $0.00001 par value; 20,000,000 shares authorized

 

 

-

 

 

 

-

 

Preferred stock, Series B: $0.00001 par value, 1,000 shares designated, 1,000 and 1,000 shares issued and outstanding, respectively

 

 

-

 

 

 

-

 

Common stock: $0.00001 par value; 250,000,000 shares authorized; 36,134,932 and 28,182,575 shares issued and outstanding, respectively

 

$361

 

 

$282

 

Additional paid-in capital

 

 

57,395,842

 

 

 

51,677,727

 

Accumulated other comprehensive income (loss)

 

 

122,070

 

 

 

(205,747 )

Accumulated deficit

 

 

(26,617,749)

 

 

(24,674,847 )

Total shareholders’ equity of GMGI

 

 

30,900,524

 

 

 

26,797,415

 

Noncontrolling interests

 

 

-

 

 

 

2,999,066

 

Total equity

 

 

30,900,524

 

 

 

29,796,481

 

Total liabilities and shareholders’ equity

 

$34,989,870

 

 

$32,571,413

 

 

See accompanying notes to consolidated financial statements. 

 

 
5

Table of Contents

 

Golden Matrix Group, Inc. and Subsidiaries

Consolidated Statements of Operations and Comprehensive Income (Loss)

(Unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

July 31,

 

 

July 31,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$11,155,143

 

 

$8,885,206

 

 

$31,837,451

 

 

$25,800,234

 

Revenues-related party

 

 

151,883

 

 

 

216,335

 

 

 

555,613

 

 

 

661,155

 

Total revenues

 

 

11,307,026

 

 

 

9,101,541

 

 

 

32,393,064

 

 

 

26,461,389

 

Cost of goods sold

 

 

(9,171,849)

 

 

(6,620,517 )

 

 

(25,754,871)

 

 

(19,415,700 )

Gross profit

 

 

2,135,177

 

 

 

2,481,024

 

 

 

6,638,193

 

 

 

7,045,689

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

G&A expense

 

 

2,281,203

 

 

 

1,556,002

 

 

 

6,141,687

 

 

 

4,618,975

 

G&A expense- related party

 

 

746,073

 

 

 

195,710

 

 

 

2,208,293

 

 

 

534,910

 

Total operating expenses

 

 

3,027,276

 

 

 

1,751,712

 

 

 

8,349,980

 

 

 

5,153,885

 

Income (loss) from operations

 

 

(892,099)

 

 

729,312

 

 

 

(1,711,787)

 

 

1,891,804

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(7,624)

 

 

-

 

 

 

(9,362)

 

 

-

 

Interest earned

 

 

15,132

 

 

 

793

 

 

 

43,957

 

 

 

1,776

 

Foreign exchange gain

 

 

47

 

 

 

28,495

 

 

 

33,361

 

 

 

227,324

 

Total other income

 

 

7,555

 

 

 

29,288

 

 

 

67,956

 

 

 

229,100

 

Net income (loss) before tax

 

 

(884,544)

 

 

758,600

 

 

 

(1,643,831)

 

 

2,120,904

 

Provision for income taxes

 

 

81,084

 

 

 

78,951

 

 

 

299,071

 

 

 

326,135

 

Net income (loss)

 

 

(965,628)

 

 

679,649

 

 

 

(1,942,902)

 

 

1,794,769

 

Less: Net income attributable to noncontrolling interest

 

 

-

 

 

 

51,317

 

 

 

-

 

 

 

230,074

 

Net income (loss) attributable to GMGI

 

$(965,628)

 

$628,332

 

 

$(1,942,902)

 

$1,564,695

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average ordinary shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

36,130,272

 

 

 

28,149,967

 

 

 

35,174,601

 

 

 

27,994,628

 

Diluted

 

 

36,130,272

 

 

 

36,558,151

 

 

 

35,174,601

 

 

 

35,876,734

 

Net income (loss) per ordinary share attributable to GMGI:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$(0.03)

 

$0.02

 

 

$(0.06)

 

$0.06

 

Diluted

 

$(0.03)

 

$0.02

 

 

$(0.06)

 

$0.04

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$(965,628)

 

$

679,649

 

 

$

(1,942,902)

 

$

1,794,769

 

Foreign currency translation adjustments

 

 

79,215

 

 

 

(53,881 )

 

 

327,817

 

 

 

(107,062 )

Comprehensive income (loss)

 

 

(886,413)

 

 

625,768

 

 

 

(1,615,085)

 

 

1,687,707

 

Less: Net income attributable to noncontrolling interest

 

 

-

 

 

 

51,317

 

 

 

-

 

 

 

230,074

 

Comprehensive income (loss) attributable to GMGI

 

$(886,413)

 

$574,451

 

 

$(1,615,085)

 

$1,457,633

 

 

See accompanying notes to consolidated financial statements.

 

 
6

Table of Contents

 

Golden Matrix Group, Inc. and Subsidiaries

Consolidated Statement of Shareholders’ Equity

(Unaudited) 

 

For the Nine Months Ended July 31, 2023

 

 

 

Preferred

Stock-Series B

 

 

Common Stock

 

 

Treasury Stock

 

 

Additional

Paid-in

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Equity of

 

 

Non-controlling

 

 

Total

Shareholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

 Income (Loss)

 

 

Deficit

 

 

 GMGI

 

 

interest

 

 

Equity

 

Balance at October 31, 2022

 

 

1,000

 

 

$-

 

 

 

28,182,575

 

 

$282

 

 

 

-

 

 

$-

 

 

$51,677,727

 

 

$(205,747)

 

$(24,674,847)

 

$26,797,415

 

 

$2,999,066

 

 

$29,796,481

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued as consideration to acquire RKings

 

 

-

 

 

 

-

 

 

 

165,444

 

 

 

2

 

 

 

-

 

 

 

-

 

 

 

2,928,450

 

 

 

-

 

 

 

-

 

 

 

2,928,452

 

 

 

(2,928,452)

 

 

-

 

Shares issued on cashless exercise of options

 

 

-

 

 

 

-

 

 

 

7,122,230

 

 

 

71

 

 

 

-

 

 

 

-

 

 

 

(71)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Shares issued for services

 

 

-

 

 

 

-

 

 

 

104,277

 

 

 

1

 

 

 

-

 

 

 

-

 

 

 

265,999

 

 

 

-

 

 

 

-

 

 

 

266,000

 

 

 

-

 

 

 

266,000

 

Shares issued for vested RSUs

 

 

-

 

 

 

-

 

 

 

575,000

 

 

 

5

 

 

 

-

 

 

 

-

 

 

 

(5)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Purchase of common stock

 

 

-

 

 

 

-

 

 

 

(14,594)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(32,322)

 

 

-

 

 

 

-

 

 

 

(32,322)

 

 

-

 

 

 

(32,322)

FV of stock-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,556,064

 

 

 

-

 

 

 

-

 

 

 

2,556,064

 

 

 

-

 

 

 

2,556,064

 

Cumulative translation adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

327,817

 

 

 

-

 

 

 

327,817

 

 

 

-

 

 

 

327,817

 

Adjustment to reduce NCI amount recorded for RKings acquisition

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(70,614)

 

 

(70,614)

Net loss for the period

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,942,902)

 

 

(1,942,902)

 

 

-

 

 

 

(1,942,902)

Balance at July 31, 2023

 

 

1,000

 

 

$-

 

 

 

36,134,932

 

 

$361

 

 

 

-

 

 

$-

 

 

$57,395,842

 

 

$122,070

 

 

$(26,617,749)

 

$30,900,524

 

 

$-

 

 

$30,900,524

 

 

See accompanying notes to consolidated financial statements.

 

 
7

Table of Contents

 

For the Three Months Ended July 31, 2023

 

 

 

Preferred

Stock-Series B

 

 

Common Stock

 

 

Treasury Stock

 

 

Additional

Paid-in

 

 

Accumulated Other

Comprehensive

 

 

Accumulated  

 

 

Total

Equity of  

 

 

Non-controlling

 

 

Total

Shareholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

GMGI

 

 

interest

 

 

Equity

 

Balance at April 30, 2023

 

 

1,000

 

 

$-

 

 

 

36,124,526

 

 

$361

 

 

 

(14,594)

 

$(32,322)

 

$56,496,550

 

 

$42,855

 

 

$(25,652,121)

 

$30,855,323

 

 

$-

 

 

$30,855,323

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued for vested RSUs

 

 

-

 

 

 

-

 

 

 

25,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Purchase of common stock

 

 

-

 

 

 

-

 

 

 

(14,594)

 

 

-

 

 

 

14,594

 

 

 

32,322

 

 

 

(32,322)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

FV of stock-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

931,614

 

 

 

-

 

 

 

-

 

 

 

931,614

 

 

 

-

 

 

 

931,614

 

Cumulative translation adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

79,215

 

 

 

-

 

 

 

79,215

 

 

 

-

 

 

 

79,215

 

Net loss for the period

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(965,628)

 

 

(965,628)

 

 

-

 

 

 

(965,628)

Balance at July 31, 2023

 

 

1,000

 

 

$-

 

 

 

36,134,932

 

 

$361

 

 

 

-

 

 

$-

 

 

$57,395,842

 

 

$122,070

 

 

$(26,617,749)

 

$30,900,524

 

 

$-

 

 

$30,900,524

 

 

 See accompanying notes to consolidated financial statements.

 

 
8

Table of Contents

 

For the Nine Months Ended July 31, 2022

 

 

 

Preferred

Stock-Series B

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated Other Comprehensive

 

 

Accumulated

 

 

Total Equity of

 

 

Non-controlling

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

GMGI

 

 

interest

 

 

Equity

 

Balance at October 31, 2021

 

 

1,000

 

 

$-

 

 

 

27,231,401

 

 

$272

 

 

$43,354,366

 

 

$(1,720)

 

$(24,424,809)

 

$18,928,109

 

 

$-

 

 

$18,928,109

 

 Fair value of shares issued for services

 

 

-

 

 

 

-

 

 

 

808

 

 

 

-

 

 

 

6,000

 

 

 

-

 

 

 

-

 

 

 

6,000

 

 

 

-

 

 

 

6,000

 

Shares issued on exercise of options

 

 

-

 

 

 

-

 

 

 

66,666

 

 

 

1

 

 

 

31,999

 

 

 

-

 

 

 

-

 

 

 

32,000

 

 

 

-

 

 

 

32,000

 

Shares issued on cashless exercise of options

 

 

-

 

 

 

-

 

 

 

112,095

 

 

 

1

 

 

 

(1)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Shares issued on cashless exercise of options – related party

 

 

-

 

 

 

-

 

 

 

35,023

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 FV of option/warrants issued for services

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

437,068

 

 

 

-

 

 

 

-

 

 

 

437,068

 

 

 

-

 

 

 

437,068

 

Shares issued as consideration to acquire RKings

 

 

-

 

 

 

-

 

 

 

736,582

 

 

 

8

 

 

 

5,892,642

 

 

 

-

 

 

 

-

 

 

 

5,892,650

 

 

 

-

 

 

 

5,892,650

 

 Cumulative Translation adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(107,062)

 

 

-

 

 

 

(107,062)

 

 

-

 

 

 

(107,062)

Fair value of non-controlling interest in RKings

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,705,000

 

 

 

2,705,000

 

 Net profit for the period

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,564,695

 

 

 

1,564,695

 

 

 

230,074

 

 

 

1,794,769

 

Balance at July 31, 2022

 

 

1,000

 

 

$-

 

 

 

28,182,575

 

 

$282

 

 

$49,722,074

 

 

$(108,782)

 

$(22,860,114)

 

$26,753,460

 

 

$2,935,074

 

 

$29,688,534

 

 

See accompanying notes to consolidated financial statements.

 

 
9

Table of Contents

 

For the Three Months Ended July 31, 2022

 

 

 

Preferred Stock-Series B

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated Other Comprehensive

 

 

Accumulated

 

 

Total Equity of

 

 

Non-controlling

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

GMGI

 

 

interest

 

 

Equity

 

Balance at April 30, 2022

 

 

1,000

 

 

$-

 

 

 

28,115,909

 

 

$281

 

 

$49,542,802

 

 

$(54,901)

 

$(23,488,446)

 

$25,999,736

 

 

$2,883,757

 

 

$28,883,493

 

Shares issued on exercise of options

 

 

-

 

 

 

-

 

 

 

66,666

 

 

 

1

 

 

 

31,999

 

 

 

-

 

 

 

-

 

 

 

32,000

 

 

 

-

 

 

 

32,000

 

FV of option/warrants issued for services

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

147,273

 

 

 

-

 

 

 

-

 

 

 

147,273

 

 

 

-

 

 

 

147,273

 

 Cumulative Translation adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(53,881)

 

 

-

 

 

 

(53,881)

 

 

-

 

 

 

(53,881)

 Net profit for the period

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

628,332

 

 

 

628,332

 

 

 

51,317

 

 

 

679,649

 

Balance at July 31, 2022

 

 

1,000

 

 

$-

 

 

 

28,182,575

 

 

$282

 

 

$49,722,074

 

 

$(108,782)

 

$(22,860,114)

 

$26,753,460

 

 

$2,935,074

 

 

$29,688,534

 

 

See accompanying notes to consolidated financial statements.

 

 
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Table of Contents

 

Golden Matrix Group, Inc. and Subsidiaries

Consolidated Statements of Cash Flow

(Unaudited)

 

 

 

Nine Months Ended

 

 

 

July 31,

 

 

 

2023

 

 

2022

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income (loss)

 

$(1,942,902)

 

$1,794,769

 

Adjustments to reconcile net income (loss) to cash provided by operating activities:

 

 

 

 

 

 

 

 

Fair value of stock-based compensation

 

 

2,556,064

 

 

 

437,068

 

Fair value of shares issued for services

 

 

266,000

 

 

 

6,000

 

Unrealized foreign exchange gain (loss) on contingent liability

 

 

68,569

 

 

 

(148,473)

Amortization expense

 

 

328,669

 

 

 

285,815

 

Depreciation of property, plant and equipment

 

 

30,988

 

 

 

13,841

 

 

 

 

 

 

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

(Increase) decrease in accounts receivable, net

 

 

(2,272,125)

 

 

(182,592)

(Increase) decrease in accounts receivable – related party

 

 

89,388

 

 

 

647,381

 

(Increase) decrease in prepaid expense

 

 

(34,034)

 

 

(94,554)

(Increase) decrease in inventory, prize

 

 

(231,322)

 

 

(411,704)

(Increase) decrease in operating lease assets

 

 

72,906

 

 

 

72,868

 

(Decrease) increase in accounts payable and accrued liabilities

 

 

1,946,785

 

 

 

560,168

 

(Decrease) increase in accounts payable – related party

 

 

1,897

 

 

 

(4,818)

(Decrease) increase in accrued income tax liability

 

 

(148,464)

 

 

(239,281)

(Decrease) increase in deferred revenues

 

 

77,940

 

 

 

(40,225)

(Decrease) in customer deposit

 

 

321,887

 

 

 

34,201

 

(Decrease) increase in operating lease liabilities

 

 

(73,615)

 

 

(70,132)

Net cash provided by operating activities

 

 

1,058,631

 

 

 

2,660,332

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Cash paid for purchase of RKings

 

 

-

 

 

 

(3,341,453)

Cash paid for purchase of GMGAsset

 

 

(30,708)

 

 

-

 

Cash paid for leasehold improvement

 

 

-

 

 

 

(35,520)

Cash paid for purchase of fixed assets

 

 

(12,575)

 

 

(35,738)

Cash paid for purchase of intangible assets

 

 

(52,788)

 

 

(86,339)

Net cash used in investing activities

 

$(96,071)

 

$(3,499,050)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Purchase of common stock

 

 

(32,322)

 

 

-

 

Proceeds from option exercise

 

 

-

 

 

 

32,000

 

Net cash provided by (used in) financing activities

 

$(32,322)

 

$32,000

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

 

262,185

 

 

 

(121,278)

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

 

1,192,423

 

 

 

(927,996)

Cash and cash equivalents at beginning of year

 

 

14,949,673

 

 

 

16,797,656

 

Cash and cash equivalents at end of the quarter

 

$16,142,096

 

 

$15,869,660

 

 

 

 

 

 

 

 

 

 

Supplemental cash flows disclosures

 

$

 

 

$

 

Interest paid

 

$9,362

 

 

$-

 

Tax paid

 

$433,158

 

 

$565,417

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash activities

 

 

 

 

 

 

 

 

Cashless exercise of options

 

$71

 

 

$1

 

Acquisition of 20% shares of RKings

 

$2,928,452

 

 

$-

 

Accounts payable settled with accounts receivable

 

$1,000,000

 

 

$-

 

Intangible asset written down

 

$-

 

 

$58,000

 

Adjustment to non-controlling interest

 

$70,614

 

 

$-

 

 

See accompanying notes to consolidated financial statements. 

 

 
11

Table of Contents

 

Golden Matrix Group, Inc. and Subsidiaries

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. 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”).

 

With the acquisition of 80% of RKingsCompetitions Ltd. (“RKings”) effective on November 1, 2021 (and the acquisition of the remaining 20% of RKings effective November 4, 2022), the Company entered into the business-to-consumer (“B2C”) segment by offering what we refer to as “pay to enter prize competitions” throughout the UK. These prize competitions are not gambling or a lottery; we do not offer B2C online sports betting and/or online casino services in the UK. 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. Also, effective on August 1, 2022, the Company expanded its B2C reach by acquiring GMG Assets Limited (“GMG Assets”), a UK company, which was formed to facilitate the Company’s operations of RKings.

 

On July 11, 2022, the Company acquired Golden Matrix MX, S.A. DE C.V., which had no assets or operations at the time of acquisition and was formed for the benefit of the Company, for the sole purpose of operating an online casino in Mexico, named Mexplay, which features an extensive number of table games, slots, as well as sportsbook, and offers tournament competition prizes similar to those offered by RKings. The Company’s online casino in Mexico, Mexplay, commenced generating revenues in March 2023.

 

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. The Company commenced marketing efforts in Mexico in March 2023.

 

On November 29, 2021, the Company entered into a Sale and Purchase Agreement of Ordinary Issued Share Capital (the “RKings Purchase Agreement”), to acquire an 80% ownership interest in RKings. On December 6, 2021, the Company closed the transaction contemplated by the RKings Purchase Agreement, 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).

 

 
12

Table of Contents

 

Effective on August 1, 2022, the Company acquired a 100% ownership interest in GMG Assets Limited (“GMG Assets”).

 

On July 11, 2022, the Company acquired 99.99% of the stock of Golden Matrix MX, S.A. DE C.V. (“Golden Matrix MX”).

 

On November 30, 2022, the Company completed the purchase of the remaining 20% of RKings and effective as of November 4, 2022, the Company owns 100% of RKings.

 

On January 11, 2023, the Company entered into a Sale and Purchase Agreement of Share Capital (the “Original Purchase Agreement”) with the owners of Meridian Tech Društvo Sa Ograničenom Odgovornošću Beograd, a private limited company formed and registered in and under the laws of the Republic of Serbia; Društvo Sa Ograničenom Odgovornošću “Meridianbet” Društvo Za Proizvodnju, Promet Roba I Usluga, Export Import Podgorica, a private limited company formed and registered in and under the laws of Montenegro; Meridian Gaming Holdings Ltd., a company formed and registered in the Republic of Malta; and Meridian Gaming (Cy) Ltd, a company formed and registered in the republic of Cyprus (collectively, the “Meridian Companies”). The Original Purchase Agreement was amended and restated by the parties on June 28, 2023, by the entry into an Amended and Restated Sale and Purchase Agreement of Share Capital (the “Purchase Agreement”). Pursuant to the Purchase Agreement, we agreed to acquire 100% of the Meridian Companies in consideration for cash, a promissory note and equity, as described in greater detail below under “Note 16 – Purchase Agreement”, which transaction has not closed to date.

 

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, 2022, and notes thereto, which the Company filed with the Securities and Exchange Commission (the “SEC”) on January 30, 2023.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, Global Technology Group Pty Ltd. (“GTG”), RKings, GMG Assets and its 99.99% ownership interest in Golden Matrix MX. All intercompany transactions and balances have been eliminated.

 

Business Combination - Acquisitions of RKingsCompetitions Ltd., Golden Matrix MX, S.A. DE C.V. and GMG Assets Limited

 

 

·

RKingsCompetitions Ltd.

 

Effective on November 1, 2021, the Company acquired 80% of RKings and effective on November 4, 2022, the Company acquired the remaining 20% interest in RKings.

 

 

·

Golden Matrix MX, S.A. DE C.V.

 

On July 11, 2022, the Company acquired 99.99% of the stock of Golden Matrix MX, S.A. DE C.V. (“Golden Matrix MX”), a then newly formed shell company incorporated in Mexico for nominal consideration. Golden Matrix MX had no assets or operations at the time of acquisition and was formed for the benefit of the Company, for the sole purpose of operating an online casino in Mexico. The acquisition closed on September 7, 2022, and the Company’s online casino (and related activities), in Mexico, commenced generating revenues in March 2023.

 

 
13

Table of Contents

 

 

·

GMG Assets Limited

 

Effective August 1, 2022, the Company acquired a 100% ownership interest in GMG Assets.

 

The Company accounts for business combinations using the acquisition method of accounting in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (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

 

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, 2023 and October 31, 2022.

 

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, 2023 and October 31, 2022, the allowance for doubtful accounts was $0 and $0, respectively. During the three months ended July 31, 2023 and 2022 and the nine months ending July 31, 2023 and 2022, no bad debt was recorded. However, during the nine months ended July 31, 2022, a $168,557 allowance for doubtful debts was written off and 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. The website development costs to upgrade and enhance the functionality of RKings’ and Mexplay’s websites were capitalized and amortized on a straight-line basis over their expected useful lives, estimated to be 3 years. During the three months ended July 31, 2023 and 2022, $0 and $0 in website development costs, or related costs were incurred and capitalized. During the nine months ending July 31, 2023 and 2022, $52,788 and $86,339 in website development costs, or related costs were incurred and capitalized.

 

 
14

Table of Contents

 

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 “Costs of Software to Be Sold, Leased, or 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. No software development costs, or related costs were incurred for the three months ended July 31, 2023 and 2022 or the nine months ending July 31, 2023 and 2022.

 

Inventory, Prizes

 

RKings purchases prizes to be awarded 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 specific identification method (which approximates the previously reported first-in, first-out (“FIFO”) method and there is no change (or cumulative change) resulting from a change in accounting 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 of the prize inventory. Inventory of prizes was $1,521,855 and $1,147,591 at July 31, 2023 and October 31, 2022, 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 $59,936 and $72,411 at July 31, 2023 and October 31, 2022, 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 $111,489 and $96,232 during the three months ended July 31, 2023 and 2022, respectively, and $328,669 and $285,815 during the nine months ending July 31, 2023 and 2022, respectively.

 

 
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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) 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, as well as online casino operation in Mexico.

 

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, throughout the UK, for prizes ranging from automobiles to jewelry, as well as travel and entertainment experiences, and through GMG Assets, we facilitate cash alternative offers for winners of prizes within RKings’ business.  We also generate revenues from our online casino in Mexico, branded as Mexplay, which features an extensive number of table games, slots, as well as sportsbook, and offer tournament competition prizes similar to those offered by RKings.

 

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.

 

For the online casino operation in Mexico, we offer customers digital versions of wagering games available in land-based casinos, such as slots, live, bingo, jackpots, and roulettes. For these offerings, the Company operates similarly to land-based casinos, generating revenue as the users play against the house. The online casino revenue is generated from user wagers net of payouts made on users’ winning wagers and incentives awarded to users.

 

 
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Earnings (Loss) Per Common Share

 

Basic net earnings (loss) per share of common stock is computed by dividing net earnings (loss) available to common shareholders by the weighted-average number of common stock shares (Common Shares) outstanding during the period. Diluted net earnings (loss) 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 (loss) per share by application of the treasury stock method. The dilutive effect of outstanding convertible securities is reflected in diluted earnings (loss) per share by application of the if-converted method.

 

The following is a reconciliation of basic and diluted earnings (loss) per common share for the three months and nine months ended July 31, 2023 and 2022:

 

 

 

For the three months ended

 

 

For the nine months ended

 

 

 

July 31,

 

 

July 31,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per common share

 

 

 

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) available to common shareholders

 

$(965,628)

 

$628,332

 

 

$(1,942,902)

 

$1,564,695

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

36,130,272

 

 

 

28,149,967

 

 

 

35,174,601

 

 

 

27,994,628

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per common share

 

$(0.03)

 

$0.02

 

 

$(0.06)

 

$0.06

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) available to common shareholders

 

$(965,628)

 

$628,332

 

 

$(1,942,902)

 

$1,564,695

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

36,130,272

 

 

 

28,149,967

 

 

 

35,174,601

 

 

 

27,994,628

 

Preferred shares

 

 

-

 

 

 

793,478

 

 

 

-

 

 

 

267,399

 

Warrants/Options

 

 

-

 

 

 

7,614,706

 

 

 

-

 

 

 

7,614,707

 

Adjusted weighted average common shares outstanding

 

 

36,130,272

 

 

 

36,558,151

 

 

 

35,174,601

 

 

 

35,876,734

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per common share

 

$(0.03)

 

$0.02

 

 

$(0.06)

 

$0.04

 

 

For the three months and nine months ended July 31, 2023, the weighted-average number of common shares outstanding excludes anti-dilutive common stock equivalents.

 

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.  The Company incurred income tax expenses, directly related to its UK operations, of $81,084 and $78,951 during the three months ended July 31, 2023 and 2022, respectively and, of $299,071 and $326,135 during the nine months ended July 31, 2023 and 2022, respectively.  The Company has no deferred tax assets, deferred tax liabilities of $19,949 and $4,409, and accrued income tax liabilities of $206,975 and $324,147, each at July 31, 2023 and October 31, 2022, respectively.

 

 
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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. The Company has foreign currency translation adjustments of $79,215 and $(53,881) during the three months ended July 31, 2023 and 2022, respectively, and $327,817 and $(107,062) during the nine months ended July 31, 2023 and 2022, respectively.

 

We record exchange gains and losses resulting from the conversion of transaction currency to functional currency as a component of other income (expense).  The Company incurred foreign exchange gains of $47 and $28,495 during the three months ended July 31, 2023 and 2022, respectively, and $33,361 and $227,324 during the nine months ended July 31, 2023 and 2022, respectively.

 

Treasury Stock

 

Treasury stock is carried at cost.

 

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, restricted stock units and restricted stock granted in return for services rendered. The share-based payment arrangements with employees were accounted for under Accounting Standards Update (ASU) 718, “Compensation - Stock Compensation”. In 2018, the Financial Accounting Standards Board (FASB) issued ASU 2018-07, which simplifies the accounting for share-based payments granted to non-employees for goods and services. Under the ASU, most of the guidance on such payments to non-employees would be aligned with the requirements for share-based payments granted to employees.

 

 
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The expenses related to the stock-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, in the amount of $203,652 and $147,273 during the three months ended July 31, 2023 and 2022, respectively, and $433,374 and $437,068 during the nine months ended July 31, 2023 and 2022, respectively.

 

Stock-based compensation included in general and administrative (G&A) expense is $198,833 and $0 during the three months ended July 31, 2023 and 2022, respectively, and $825,937 and $6,000 during the nine months ended July 31, 2023 and 2022, respectively.

 

Stock-based compensation included in G&A expense related party is $529,129 and $0 during the three months ended July 31, 2023 and 2022, respectively, and $1,562,753 and $0 during the nine months ended July 31, 2023 and 2022, respectively.

 

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.

 

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 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. Through July 31, 2023, Citibank has replenished $683,010 of the unauthorized ACH transactions which resulted in a receivable due from Citibank of $46,495, which amount is outstanding as of the date of this report on September 7, 2023. 

 

The Company has accounts receivable of $3,923,213 and $2,641,023 as of July 31, 2023 and October 31, 2022, respectively (net of allowance for bad debt of $0 and $0, respectively). During the three months ended July 31, 2023 and 2022, no accounts payable were settled with accounts receivable. During the nine months ended July 31, 2023 and 2022, $1,000,000 and $0 accounts payable were settled with accounts receivable.

 

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 $324,326 and $413,714 as of July 31, 2023 and October 31, 2022, respectively.

 

 
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NOTE 4 – PREPAID EXPENSES

 

Prepaid expenses mainly include prepayments to suppliers for the gaming content usage, Nasdaq listing fees, rent, insurance, retainer for legal services, prepaid employee wages, and a one-year Gaming License fee. The balances of prepaid expenses are $122,393 and $84,372 as of July 31, 2023 and October 31, 2022, respectively. The components of prepaid expenses are as follows:

 

 

 

As of

July 31,

 

 

As of

October 31,

 

 

 

2023

 

 

2022

 

Prepayments to suppliers

 

$93,485

 

 

$70,156

 

Prepayment for the gaming license fee

 

 

24,229

 

 

 

8,744

 

Prepaid payroll expense

 

 

4,679

 

 

 

5,472

 

Total prepaid expenses

 

$122,393

 

 

$84,372

 

 

NOTE 5 – SHORT-TERM DEPOSITS

 

Office Lease deposit

 

Short-term deposits represent a deposit required for an office lease in Australia. On June 1, 2021, the Company (through GTG) entered into a three-year term lease agreement for office space and two parking spaces which commenced on June 1, 2021. The Company has the option to renew for a period of three years. The current rent is $112,780 ($167,338 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 $54,133 ($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%. On June 1, 2023, 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%. The Company has Term Deposits of $54,723 and $52,577 as of July 31, 2023 and October 31, 2022, respectively.

 

As of July 31, 2023 and October 31, 2022, the operating lease right-of-use asset is $84,518 and $150,653, respectively, and there was also a current operating lease liability of $88,198 and $95,085, respectively and a non-current operating lease liability of $0 and $59,778, respectively.

 

NOTE 6 – ACQUISITIONS

 

Related Party Asset Acquisition

 

Acquisition of GMG Assets

 

On October 17, 2022, and effective on August 1, 2022, the Company entered into a Stock Purchase Agreement (the “GMG Purchase Agreement”), to acquire a 100% ownership interest in GMG Assets, a private limited company formed under the laws of Northern Ireland from Aaron Johnston and Mark Weir, individuals, the owners of 100% of the ordinary issued share capital (100 Ordinary Shares) of GMG Assets. Aaron Johnston was then a Board Member of the Company, and Mark Weir was then a 10% Shareholder in RKings, of which the Company then owned 80% of, and as such were both related parties to the Company.

 

Pursuant to the GMG Purchase Agreement, which was approved by the Company’s Board of Directors and the Audit Committee of the Board of Directors, the Company agreed to pay the sellers 25,000 British pound sterling (GBP) (USD $30,708) for 100% of GMG Assets, which represented the combined costs paid by the sellers to form GMG Assets. GMG Assets was formed for the sole purpose of facilitating the Company’s operation of RKings and to facilitate cash alternative offers for winners of prizes within RKings’ business. The consideration was paid on March 6, 2023.

 

 
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During the nine months ended July 31, 2023, GMG Assets contributed revenues of $4,447,181 and net income attributable to the Company of $176,856.

 

Third Party Business Acquisition

 

RKings 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 an “RKing Seller” and collectively the “RKing Sellers”), the then 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; we refer to these tournaments as “pay to enter prize competitions”.

 

Pursuant to the Purchase Agreement, the RKing 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 RKing 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, valued at $7.60 per share (the “Closing Shares” and the “Initial Share Value”); 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 Initial Share Value (the “Post-Closing Shares”).

 

On December 6, 2021, the Company paid the RKing Sellers the cash payment of GBP £3,000,000 (USD $4,099,500) (described in (1) above) and, on November 29, 2021, the Company issued the 666,250 restricted shares of the Company’s common stock (described in (2) above). Also, 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 in (3) above), in the amount of $562,650.

 

The Purchase Agreement provided for a total of GBP £1,000,000 (USD $1,366,500) (the “Holdback Amount”) to be retained by the Company, following closing, which was to be released to the RKing 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 RKing Sellers did not default in any of their obligations, covenants or representations under the Purchase Agreement or other transaction documents. On June 1, 2022, the Company notified the RKing Sellers that they were in default, under the Purchase Agreement, of their obligations (aforementioned (B) above). Consequently, the Company notified the RKing Sellers that their right to receive the £1,000,000 Holdback Amount and the £4,000,000 Earn-Out Consideration had been terminated. However, 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. The Settlement Agreement was entered into to partially settle certain breaches of the Purchase Agreement with the RKing Sellers (Mr. Mark Weir and Mr. Paul Hardman) whereby we agreed to pay to Mr. Weir 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”). The Settlement Payment was in full satisfaction of all payments (including any portion of the Holdback Amount or Earn-Out Consideration (defined and discussed below)), 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 RKing 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.

 

 
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RKings Notice of Buyout

 

The RKings Purchase Agreement also required that the RKing Sellers and the Company enter into a Shareholders Agreement (the “Shareholders Agreement”), which was entered into and became effective on November 29, 2021, and which provided various rights and restrictions on the owners of RKings. One of those rights was a buyout right provided to the Company (the “Buyout Right”), which beginning on May 29, 2022 (the date that was six months from November 29, 2021), which provided the Company, upon written notice to the RKing Sellers, the right to purchase all, but not less than all, of the shares of RKings then held by the RKing Sellers (i.e., the 20% of RKings retained by such RKing Sellers following the closing of the RKing Purchase Agreement) for an aggregate purchase price equal to 20% of the product of (i) RKings’ then most recent three-month trailing EBITDA multiplied by (ii) sixteen (the “Buyout Price”). The Buyout Price was payable at the option of the Company in either (x) cash; or (y) shares of the Company’s common stock valued at $8.00 per share or any combination thereof.

 

On October 27, 2022, the Company exercised its Buyout Right by providing written notice to each of the RKing Sellers. In connection with such exercise, the Company agreed to pay each RKing Seller USD $661,773, which was equal to their pro rata portion of the Buyout Price, which was satisfied by the issuance by the Company to each RKing Seller of 82,722 shares of restricted common stock of the Company (with such shares being valued at $8.00 per share pursuant to the terms of the Shareholders Agreement) (an aggregate of 165,444 shares of common stock of the Company, the “Buyout Shares”).

 

On November 30, 2022, the Company completed the purchase of 10% of RKings from each RKing Seller (20% in aggregate) in consideration for the Buyout Shares and effective as of November 4, 2022, the Company owns 100% of RKings. The fair value of the 165,444 shares issued on November 4, 2022 at $2.95 per share amounted to $488,060. The carrying value of the 20% non-controlling interest (NCI) was $2,928,452 (original value of $2,634,386, plus $294,066, allocated to NCI over the past year for its share in the income of the subsidiary) at the time of Buyout. The difference between the NCI amount ($2,928,452) and the fair value of the consideration paid ($488,060) is recognized directly in additional paid in capital (APIC). The Shareholders Agreement was terminated on November 4, 2022, effective upon the Company’s acquisition of 100% of RKings.

 

Consideration paid for RKings

 

Amount

 

Closing cash consideration of GBP £3,000,000 based on Exchange Rate on November 1, 2020

 

$4,099,500

 

Fair value of 666,250 restricted shares consideration at $7.60 per share

 

 

5,063,500

 

Fair value of contingent shares consideration for net assets

 

 

562,650

 

Holdback amount paid to Mr. Mark Weir

 

 

683,250

 

Fair value of 165,444 restricted shares at $2.95 per share

 

 

488,060

 

Consideration paid through July 31, 2023

 

$10,896,960

 

 

Additionally, in the event the (A) the Company determined, on or before the date on which the Company filed 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 (“EBITDA Metric”); and (B) the RKing Sellers did not default in any of their obligations, covenants or representations under the Purchase Agreement or other transaction documents, then the Company was required to pay the RKing Sellers GBP £4,000,000 (USD $5,330,000) (the “Earn-Out Consideration”), which was 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”). For the fiscal year ended October 31, 2022, RKings did not achieve the aforementioned EBITDA Metric and did not earn the Earn-Out Consideration.

 

 
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On December 6, 2021, the Company closed the RKings Purchase, which had an effective date of November 1, 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 $11,092,150, and (2) the fair value of the 20% noncontrolling interest in RKings, which was estimated to be $2,634,386, 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.

 

RKings’ results of operations have been included in our consolidated financial statements beginning November 1, 2021. RKings contributed revenues of $36,346,280 and net income attributable to the Company of $2,024,397 for the period from the date of acquisition through July 31, 2023. During the nine months ended July 31, 2023, RKings contributed revenues of $16,183,951 and net income attributable to the Company of $1,611,306.

 

RKings Notice of Breach

 

On June 1, 2022, the Company notified the RKings Sellers that RKings Sellers were in default under the RKings Purchase Agreement and demanded that RKings Sellers cease and desist from all activity in violation of the RKings Purchase Agreement, including (1) use of Company confidential data in breach of the non-disclosure requirements of the RKings Purchase Agreement, (2) tortious interference with the Company’s business and customer relationships, and (3) exploitation of Company assets for personal gain. Also, RKings Sellers had breached the Shareholders Agreement as well as their fiduciary duties as stipulated in the Shareholders Agreement dated November 29, 2021.

 

Based on the foregoing, and without limitation as to other breaches by either RKings Seller, the Company notified the RKings Sellers that they were in breach of the RKings Purchase Agreement and demanded that each RKings Seller cease and desist from further actions in breach of the RKings Purchase Agreement or in violation of applicable law. In addition, the Company notified the RKings Sellers of their indemnification obligations under the RKings Purchase Agreement and the Company’s decision to terminate the RKings Sellers’ right to receive the £1,000,000 Holdback Amount and the £4,000,000 Earn-Out Consideration. In addition, the Company has the right to set off any amounts which are the subject of an indemnification claim against such Holdback Amount and Earn-Out Consideration. Therefore, no contingent liability was recorded.

 

Weir Settlement & Release

 

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 RKings Sellers. The Settlement Agreement was entered into in order to partially settle certain breaches of the RKings Purchase Agreement which the RKings Sellers (Mr. Weir and Mr. Paul Hardman) were jointly and severally responsible for pursuant to the terms of the RKings 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 RKings 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.

 

 
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RKings Notice of Buyout

 

On October 27, 2022, the Company exercised its Buyout Right by providing written notice to each of the RKings Sellers. In connection with such exercise, the Company agreed to pay each RKings Seller USD $661,773, which is equal to their pro rata portion of the Buyout Price, which was satisfied by the issuance by the Company to each RKings Seller of 82,722 shares of restricted common stock of the Company (with such shares being valued at $8.00 per share pursuant to the terms of the Shareholders Agreement) (an aggregate of 165,444 shares of common stock of the Company, the “Buyout Shares”).

 

On November 30, 2022, the Company completed the purchase of 10% of RKings from each RKings Seller (20% in aggregate) in consideration for the Buyout Shares and effective as of November 4, 2022, the Company owns 100% of RKings.

 

Golden Matrix MX Acquisition

 

On July 11, 2022, the Company entered into a Share Purchase Agreement to acquire 99.99% of the stock of Golden Matrix MX, a then newly formed shell company incorporated in Mexico for nominal consideration of $2,411. Golden Matrix MX had no assets or operations and was formed for the benefit of the Company, for the sole purpose of operating an online casino in Mexico. The acquisition closed on September 7, 2022.

 

NOTE 7 – INTANGIBLE ASSETS – SOFTWARE PLATFORM, WEBSITE DEVELOPMENT COSTS, TRADEMARKS AND NON-COMPETE AGREEMENTS

 

Website development costs incurred to upgrade and enhance the functionality of Golden Matrix MX’s website (i.e., Mexplay https://www.mexplay.mx) were capitalized; which amount to $0 and $52,788 for the three months and nine months ended July 31, 2023, respectively. Capitalized costs of $0 and $86,339 were incurred to upgrade RKings’ website for the three months and nine months ended July 31, 2022, respectively.

 

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 80% acquisition of RKings, the Company recognized $2,600,000 of 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.

 

In connection with the online casino in Mexico, the Company applied for a gaming permit in Mexico through its subsidiary Golden Matrix MX in the amount of $223,725, which was approved on July 13, 2022. The gaming permit is amortized over 6 years.

 

Amortization expenses related to intangible assets were $111,489 and $96,232 for the three months ended July 31, 2023 and 2022, respectively, and $328,669 and $285,815 for the nine months ended July 31, 2023 and 2022, respectively. Accumulated amortization was $758,733 and $422,479 as of July 31, 2023 and October 31, 2022, respectively.

 

 
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The following table details the carrying values of the Company’s intangible assets excluding goodwill:

 

 

 

As of

 

 

 

July 31,

 

 

October 31,

 

 

 

2023

 

 

2022

 

Definite-lived intangible assets

 

 

 

 

 

 

Aggregation Platform

 

$116,000

 

 

$116,000

 

Gaming permit in Mexico

 

 

264,691

 

 

 

223,725

 

Website Development Cost

 

 

153,142

 

 

 

89,829

 

Trademarks

 

 

2,000,000

 

 

 

2,000,000

 

Non-compete Agreements

 

 

600,000

 

 

 

600,000

 

Gross definite-lived intangible assets

 

 

3,133,833

 

 

 

3,029,554

 

Less: accumulated amortization

 

 

 

 

 

 

 

 

Aggregation Platform

 

 

(97,125)

 

 

(73,047 )

Gaming permit in Mexico

 

 

(36,588)

 

 

(3,062 )

Website Development Cost

 

 

(65,020)

 

 

(26,370 )

Trademarks

 

 

(350,000)

 

 

(200,000 )

Non-compete Agreements

 

 

(210,000)

 

 

(120,000 )

Total accumulated amortization

 

 

(758,733)

 

 

(422,479 )

Net definite-lived intangible assets

 

$2,375,100

 

 

$2,607,075

 

 

NOTE 8 – ACCOUNTS PAYABLE – RELATED PARTIES

 

Accounts payable to related parties include superannuation payable to the management of the Company of $11,798 and $10,637, as of July 31, 2023 and October 31, 2022, 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 $270,245 and $182,444 as of July 31, 2023 and October 31, 2022, respectively.

 

NOTE 10 – CUSTOMER DEPOSITS

 

The Company has customer deposits in both the B2B segment and the B2C segment.

 

In the B2B segment, 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, 2023 and October 31, 2022, customer deposits for Progressive Jackpot Games amounted to $70,438 and $69,016, respectively. The other source of deposits is the payment from customers in advance of any usage of gaming content. As the gaming content is utilized by the customers, revenues are recognized. As of July 31, 2023 and October 31, 2022, a total of $347,738 and $40,312 of customer deposits are from this source.

 

Total customer deposits in the B2B segment amount to $418,176 and $109,328 as of July 31, 2023 and October 31, 2022, respectively.

 

In the B2C segment, the Company records liabilities for user account balances in Mexico. User account balances consist of user deposits, promotional awards, and user winnings less user withdrawals. As of July 31, 2023 and October 31, 2022, user account balances were $14,858 and $0, respectively.

 

Total customer deposits amount to $433,034 and $109,328 as of July 31, 2023 and October 31, 2022, respectively.

 

NOTE 11 – RELATED PARTY TRANSACTIONS

 

All related party transactions have been recorded at the amount of consideration established and agreed to by the related parties.

 

 
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Anthony Brian Goodman, the Company’s Chief Executive Officer and Chairman

 

On September 16, 2022, the Company entered into a First Amended and Restated Employment Agreement with Mr. Goodman. The agreement amended and restated, effective as of September 16, 2022, the prior Employment Agreement entered into between the Company and Mr. Goodman dated October 26, 2020, to among other things extend the term thereof for four years to August 20, 2026, increase Mr. Goodman’s base salary to $158,400 per year, plus a Superannuation as mandated by the Australian Government - Superannuation Guarantee (Administration) Act 1992 (currently 11%) and to provide for annual increases in Mr. Goodman’s salary of no less than 10% per annum.

 

As of July 31, 2023 and October 31, 2022, total wages payable to Mr. Goodman were $0 and $0, respectively, and the superannuation payable was $5,269 and $5,229, respectively.

 

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 Mr. Goodman, transferred all 1,000 shares of Series B Preferred Stock which it held to Mr. Goodman for no consideration in a private transaction.

 

On September 16, 2022, the Company granted 750,000 restricted stock units (RSUs) to Mr. Goodman in consideration for services to be rendered by Mr. Goodman through October 2024. The restricted stock units are subject to vesting, to the extent that certain performance metrics are met by the Company. Certain revenue and Adjusted EBITDA goals for the year ended October 31, 2022, were met and 250,000 RSUs for the year ended October 31, 2022 vested upon the filing of the Company’s Annual Report on Form 10-K for the year ended October 31, 2022, on January 30, 2023. 250,000 shares of common stock were issued to Mr. Goodman on January 30, 2023, to settle the vested RSUs. More details of the restricted stock units are covered in “NOTE 12 - EQUITY”.

 

On December 1, 2022, Mr. Goodman, exercised options to purchase 5,400,000 shares of common stock in a cashless exercise pursuant to which 151,017 shares of common stock were surrendered to the Company to pay for the aggregate exercise price of the options ($356,400) and 5,248,983 shares of common stock were issued. These shares were issued pursuant to the terms of the Company’s 2018 Equity Incentive Plan.

 

Weiting ‘Cathy’ Feng the Company’s Chief Operating Officer and Director

 

On September 16, 2022, we entered into a First Amended and Restated Employment Agreement with Ms. Feng. The agreement amended and restated, effective as of September 16, 2022, the prior Employment Agreement entered into between the Company and Ms. Feng dated October 26, 2020, to among other things extend the term thereof for four years to August 20, 2026, increase Ms. Feng’s base salary to $132,000 per year, plus a Superannuation as mandated by the Australian Government - Superannuation Guarantee (Administration) Act 1992 (currently 11%), and to provide for annual increases in Ms. Feng’s salary of no less than 10% per annum.

 

As of July 31, 2023, and October 31, 2022, total wage payable to Ms. Feng was $0 and $0, respectively, and the superannuation payable was $4,391 and $4,358, respectively.

 

On September 16, 2022, the Company granted 375,000 restricted stock units to Ms. Feng in consideration for services to be rendered by Ms. Feng through October 2024. The restricted stock units are subject to vesting, to the extent that certain performance metrics are met by the Company. Certain revenue and Adjusted EBITDA goals for the year ended October 31, 2022, were met and 125,000 RSUs for the year ended October 31, 2022 vested upon the filing of the Company’s Annual Report on Form 10-K for the year ended October 31, 2022, on January 30, 2023. 125,000 shares of common stock were issued to Ms. Feng on January 30, 2023, to settle the vested RSUs. More details of the restricted stock units are covered in “NOTE 12- EQUITY”.

 

On December 1, 2022, Ms. Feng, exercised options to purchase 1,400,000 shares of common stock in a cashless exercise pursuant to which