Meridian Holdings Inc.: Form 10-Q for the period ended Jul 31, 2023

General Information

The following discussion 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 as part of our Annual Report on Form 10-K for the year ended October 31, 2022 (the “2022 Annual Report”) and Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our 2022 Annual Report.

Statements made in this “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” are subject to forward-looking statements and various risks and should be read in connection with the “Special Note Regarding Forward-Looking Statements”, above and “Risk Factors”, incorporated by reference into this Report, as described below.

Certain capitalized terms used below and otherwise defined below, have the meanings given to such terms in the footnotes to our consolidated financial statements included above under “Part I - Financial Information - Item 1. Financial Statements”.

Our logo and some of our trademarks and tradenames are used in this Report. This Report also includes trademarks, tradenames and service marks that are the property of others. Solely for convenience, trademarks, tradenames and service marks referred to in this Report may appear without the ®, ™ and SM symbols. References to our trademarks, tradenames and service marks are not intended to indicate in any way that we will not assert to the fullest extent under applicable law our rights or the rights of the applicable licensors if any, nor that respective owners to other intellectual property rights will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend the use or display of other companies’ trademarks and trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

The market data and certain other statistical information used throughout this Report are based on independent industry publications, reports by market research firms or other independent sources that we believe to be reliable sources. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. We are responsible for all of the disclosures contained in this Report, and we believe these industry publications and third-party research, surveys and studies are reliable; however, we have not commissioned or paid for any such reports or studies. While we are not aware of any misstatements regarding any third-party information presented in this Report, their estimates, in particular, as they relate to projections, involve numerous assumptions, are subject to risks and uncertainties, and are subject to change based on various factors, including those discussed under the section entitled “Item 1A. Risk Factors”. These and other factors could cause our future performance to differ materially from our assumptions and estimates. Some market and other data included herein, as well as the data of competitors as they relate to Golden Matrix Group, Inc., is also based on our good faith estimates.

Where You Can Find Other Information

We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and proxy and information statements and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended. The SEC maintains a website (http: //www.sec.gov (http://www.sec.gov)) that contains reports, proxy and information statements and other information regarding us and other companies that file materials with the SEC electronically. Our filings can be found at https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001437925. Copies of documents filed by us with the SEC are also available from us without charge, upon oral or written request to our Secretary, who can be contacted at the address and telephone number set forth on the cover page of this Report and are also available on our website at https://goldenmatrix.com/investors-overview/sec-filings/ which website includes information we do not desire to incorporate by reference into this Report.

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Definitions:

Unless the context requires otherwise, references to the “Company,” “we,” “us,” “our,” and “Golden Matrix” in this Report refer specifically to Golden Matrix Group, Inc. and its consolidated subsidiaries.

In addition, unless the context otherwise requires and for the purposes of this report only:

• “AUD” means Australian dollars;
• “Exchange Act” refers to the Securities Exchange Act of 1934, as amended;
• “Euro” or “€” refers to the Euro, the official currency of the majority of the member states of the European Union;
• “GBP” or “£” means Pounds Sterling or Great British Pounds;
• “SEC” or the “Commission” refers to the United States Securities and Exchange Commission;
• “Securities Act” refers to the Securities Act of 1933, as amended; and
• “USD” or “$” means United States dollars.

All dollar amounts in this Report are in U.S. dollars unless otherwise stated.

Summary of The Information Contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. MD&A is organized as follows:

• Overview. Discussion of our business and overall analysis of financial and other highlights affecting us, to provide context for the remainder of MD&A.
• Results of Operations. An analysis of our financial results comparing the three and nine months ended July 31, 2023 and 2022.
• Liquidity and Capital Resources. An analysis of changes in our consolidated balance sheets and cash flows and discussion of our financial condition.
• Critical Accounting Policies and Estimates. Accounting estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts.

OVERVIEW

We operate (i) as an innovative provider of enterprise Software-as-a-Service (“SaaS”) solutions for online casino operators and online sports betting operators, commonly referred to as iGaming operators and, (ii) a provider of pay to enter prize competitions in the United Kingdom (UK), through RKingsCompetitions Ltd. and GMG Assets Limited and (iii) an online casino in Mexico through Golden Matrix MX, S.A. DE C.V.

We have historically operated in the B2B segment where we develop and own online gaming intellectual property (IP) and build configurable and scalable, turn-key and white-label gaming platforms for our international customers, located primarily in the Asia Pacific (APAC) region. With the acquisitions of RKingsCompetitions Ltd. (effective November 1, 2021 as to 80% and effective November 4, 2022, as to the remaining 20%) and GMG Assets (effective on August 1, 2022), we entered into the business-to-consumer (“B2C”) segment by offering pay to enter prize competitions throughout the UK. Also, in the B2C segment, 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, branded as 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 and related activities in Mexico commenced generating revenues in March 2023.

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B2B Segment

The Company provides business-to-business (B2B) services and products. Our customers are primarily gaming Distributors and licensed online gaming operators. The Company also provides services and resells third party gaming content to licensed online gaming distributors and gaming operators.

We derive revenues primarily from licensing fees received from gaming operators, in most cases via gaming Distributors located in the Asia Pacific (APAC) region that utilize the Company’s technology.

As of July 31, 2023, our systems had over 7.7 million registered players and a total of more than 771 unique casino and live game operations within all of our platforms including our GM-X, GM-Ag, Turnkey Solution, and White Label Solutions.

The Company’s goal is to expand our customer base globally and to integrate additional operators, launch additional synergistic products and appoint more Distributors.

As described above, our core markets are currently the Asia-Pacific (APAC) region and while we have a solid customer base; we are continuing to engage new gaming Distributors and gaming operators on a regular basis and we anticipate that our current gaming Distributors and gaming operators will continue to grow.

B2C Segment

Our B2C segment customers are primarily located in Northern Ireland and we have expanded our marketing efforts to reach customers throughout the UK. As of July 31, 2023, RKings has over 311,000 registered users. GMG Assets has completed 111 transactions since November 1, 2022, representing $4,447,181 in revenues and $176,856 in net income. Also, Mexplay commenced generating revenues from online casino (and related activities) in Mexico in March 2023. As of July 31, 2023, Mexplay has over 32,000 registered users; and for the nine months ended July 31, 2023, it has generated $176,091 in revenues.

We derive revenues primarily from selling prize competitions tickets directly to customers for prizes throughout the United Kingdom ranging from automobiles to jewelry as well as travel and entertainment experiences and we 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.

Our objective in managing our resources is to ensure that we have sufficient liquidity to fund our operations and meet our growth objectives while maximizing returns to shareholders. Liquidity is necessary to meet (i) the working capital needs of our operations, (ii) fund our growth and expansion plans, and (iii) consummate strategic acquisitions (including the Meridian Purchase Agreement, discussed below). We have met, and plan to continue to meet, our cash requirements through our operations and sales of equity securities. As to the funding of strategic acquisitions (including the pending Meridian Purchase Agreement), we may issue debt in addition to raising funds through the sales of the Company’s capital stock.

The Company’s financial performance is subject to global, Asia Pacific, UK and Mexico economic conditions and their impact on levels of spending by consumers and customers, particularly discretionary spending for entertainment, gaming and leisure activities. Economic recessions may have adverse consequences across industries, including the global entertainment and gaming industries, which may adversely affect the Company’s business and financial condition. As a result of rising interest rates and inflation, there is substantial uncertainty about the strength of the global, Asia Pacific, UK and Mexico economies, which may currently or in the near term be in a recession and have experienced rapid increases in uncertainty about the pace of potential recovery. In addition, changes in general market, economic and political conditions in domestic and foreign economies or financial markets, including fluctuation in stock markets resulting from, among other things, trends in the economy, and increases in inflation and interest rates, as are being currently experienced, may reduce users’ disposable income and/or lead to recessions.

We believe that our business will continue to be resilient through a continued economic downturn or recession, or slowing or stalled recovery therefrom, and that we have the liquidity to address the Company’s financial obligations and alleviate possible adverse effects on the Company’s business, financial condition, results of operations or prospects.

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Key elements of our growth strategy include:

• Supporting our existing customers as they scale up their respective iGaming and online sportsbook operations. As our customers’ businesses grow, we intend to deploy additional resources to expand the GM-X and GM-Ag Systems’ platform functionality, expand our gaming content portfolios by integrating additional third-party content providers, and seek to obtain additional regulatory approvals to operate in other global markets. The GM-X and GM-Ag Systems’ turn-key solution (including modular, configurable and scalable gaming platforms), is a complete software package for starting an online gaming business, incorporating all the tools and gaming content necessary to run an online Casino and/or Sportsbook and offers a full suite of tools and features for successfully operating and maintaining an online gaming website; from player registration to user management and content management.
• Expanding our global reach by securing new gaming distributors, casino and sportsbook operator customers in existing and newly regulated markets.
• Investing in sales and marketing initiatives to aggressively pursue new deployment opportunities in developing markets such as Africa and Latin America, as well as exploring opportunities in the U.S.
• Investing in sales and marketing initiatives to drive UK and Mexican customers to the respective RKings and Mexplay platforms.
• Expanding the prizes and prize options available to customers on the RKings and Mexplay platforms.
• Developing and deploying our own proprietary gaming content in casino iGaming category. Our E-sport project is currently on hold.
• Pursuing acquisitions of synergistic companies and assets with the goal of expanding our competitive position in the markets in which we operate, including pursuant to the pending Meridian Purchase Agreement, which transaction we are currently working to close. We are also exploring the opportunity to selectively acquire independent slot and gaming development studios in order to launch our own proprietary games on our platform.

The Company does not intend to make significant investments (except for potential acquisitions, none of which are currently pending other than the pending Meridian Purchase Agreement discussed below) to support our business growth strategy. We believe that our business model is highly scalable and our existing resources can be leveraged to (i) develop new offerings and features, (ii) enhance our existing platform, and (iii) improve our operating infrastructure.

The Company may face significant costs with respect to legal fees incurred in the applications for licenses, continued regulatory requirements, and legal representation.

To acquire complementary businesses and technologies, we may need to pursue equity or debt financing to secure additional funds, and we are currently seeking debt funding in connection with the acquisition contemplated by the Meridian Purchase Agreement. Our ability to obtain additional capital will depend on our business plans, investor demand, our operating performance, capital markets conditions and other factors. If we raise additional funds by issuing equity, equity-linked or debt securities, those securities may have rights, preferences or privileges senior to the rights of our then issued and outstanding equity or debt, and our existing shareholders may experience dilution. If we are unable to obtain additional capital when required, or on satisfactory terms, our ability to continue to support our business growth or to respond to business opportunities, challenges or unforeseen circumstances could be adversely affected, and our business may be harmed.

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We may acquire other businesses, and our business may be detrimentally affected if we are unable to successfully integrate acquired businesses into our company or otherwise manage the growth associated with multiple acquisitions.

As part of our business strategy, we intend to make acquisitions of new or complementary businesses, products, brands, or technologies, including the pending Meridian Purchase Agreement. In some cases, the costs of such acquisitions may be substantial, including the costs of professional fees and due diligence efforts. There is no assurance that the time and resources expended on pursuing a particular acquisition will result in a completed transaction, or that any completed transaction will ultimately be successful. In addition, we may be unable to identify suitable acquisition or strategic investment opportunities or may be unable to obtain the required financing or regulatory approvals, and therefore we may be unable to complete such acquisitions or strategic investments on favorable terms. We may pursue acquisitions that our investors may not agree with, and we cannot assure investors that any acquisition or investment will be successful or otherwise provide a favorable return on investment. In addition, if we fail to successfully close transactions, integrate new technology or operational teams, or integrate the products and technologies associated with these acquisitions into our company, our business could be seriously harmed.

Cash requirements

The Company is self-sustaining, and its cash needs for ongoing operations are met through current operations; as of July 31, 2023, the cash balance is $16,142,096. There are no current expected future cash demands or commitments other than ongoing operations for the following next 12 months and beyond, except that the Company has entered into the Meridian Purchase Agreement, as discussed below, which will require the Company to raise additional funding to complete the acquisition, and the Company may acquire additional businesses or assets in the future, which acquisitions may require additional capital as well.

As discussed in greater detail in “NOTE 16 - PURCHASE AGREEMENT”, in the notes to the financial statements included under “Item 1. Financial Statements”, on June 28, 2023, the Company entered into an Amended and Restated Sale and Purchase Agreement of Share Capital (the “Meridian Purchase Agreement”) with Aleksandar Milovanovic, Zoran Milosevic (“Milosevic”) and Snezana Bozovic (collectively, the “Meridian Sellers”), 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 (“Meridian 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”).

Pursuant to the Meridian Purchase Agreement, the Meridian Sellers agreed to sell the Company 100% of the outstanding capital stock of each of the Meridian Companies in consideration for (a) a cash payment of $30 million, due at the closing of the A&R Meridian Purchase Agreement (the “Closing”); (b) 82,141,857 restricted shares of the Company’s common stock (the “Closing Shares”), with an agreed upon value of $3.00 per share, due at the Closing; (c) 1,000 shares of a to be designated series of Series C preferred stock of the Company (the “Series C Voting Preferred Stock”), due at the Closing; (d) $5,000,000 in cash and 5,000,000 restricted shares of Company common stock (the “Post-Closing Shares”), due within five business days following the six month anniversary of the Closing, if (and only if) the Company has determined that: the Meridian Sellers and their affiliates are not then in default in any of their material obligations, covenants or representations under the Purchase Agreement, or any of the other transaction documents entered into in connection therewith (the “Contingent Post-Closing Consideration”); (e) $20,000,000 in cash, of which $10,000,000 is due 12 months after the date of the Closing and $10,000,000 is due 18 months after the date of the Closing (the “Non-Contingent Post-Closing Consideration”); and (f) promissory notes in the aggregate amount of $15,000,000 (the “Promissory Notes”) issuable to the Meridian Sellers, due 24 months after the Closing.

The Closing is required to occur prior to December 31, 2023 (but no earlier than August 10, 2023), unless extended by the mutual consent of the parties.

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The Company is actively pursuing funding sources to meet the cash payment requirements described above, which are summarized below, as discussed in greater detail under “Capital Resources”, below:

As discussed above, to the extent the Meridian Purchase Agreement closes, we will need to raise $70 million to pay the amounts summarized above, including $30 million at the Closing.

Liquidity

There are no known trends, demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in the Company’s liquidity decreasing in any material way. As previously noted, the Company is self-sustaining through its operations and therefore is not considering additional sources of liquidity, except in connection with the Meridian Purchase Agreement, described above; however, the Company may consider raising funds through debt, private placements, or additional public offerings for expansion of operations or synergetic acquisitions if additional external funds are sought. Sources of liquid assets, as of July 31, 2023, include cash of $16,142,096, receivables of $4,247,539 and inventory of $1,521,855, with offsetting liabilities (current and long-term) of $4,089,346.

Capital Resources

The Company does not require material cash requirements for its ongoing operations other than a possible holdback payment of approximately $643,150 (GBP 500,000) as part of the hold-back on the 80% acquisition of RKings that was completed effective November 1, 2021. The hold-back is contested by the Company and currently subject to ongoing claims. With a cash balance of $16,142,096 and operations that are self-sustaining, the contested obligation to pay the aforementioned holdback of approximately $643,150 may be met without burdening the Company.

We do not currently have any additional commitments or identified sources of additional capital from third parties or from our officers, directors or majority stockholders. Additional financing may not be available on favorable terms, if at all.

The Company is actively pursuing funding sources to meet the cash requirements for the Meridian Purchase Agreement described above in “***Overview - Cash requirements”***of which the initial $30 million is due at the Closing. We plan to raise this funding through debt and/or equity (which may include conversion rights); however, we have not entered into any agreements regarding such funding to date, and such funding may not be available on favorable terms, if at all. If debt financing is available and obtained, our interest expense may increase and we may be subject to the risk of default, depending on the terms of such financing. If equity financing is available and obtained it may result in our shareholders experiencing significant dilution. If such financing is unavailable, we may be unable to complete the acquisition of the Meridian Companies.

Assuming we successfully complete the acquisition of the Meridian Companies, it is expected the combined operations of the Company and Meridian will continue to be self-sustaining through their respective operations with minimal impact on liquidity.

In the future, we may be required to seek additional capital by selling equity securities or debt securities, or taking on additional debt, or otherwise be required to bring cash flows in balance when we approach a condition of cash insufficiency. The sale of additional equity or debt securities, if accomplished, may result in dilution to our then stockholders. Financing may not be available in amounts or on terms acceptable to us, or at all. In the event we are unable to raise additional funding and/or obtain revenues sufficient to support our expenses, we may be forced to scale down our operations, which could cause our securities to decline in value.

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Our historical primary sources of liquidity are the cash flows generated from our operations, along with debt and equity financing and available cash and cash equivalents. Our primary use of this liquidity is to fund ongoing cash requirements, including our working capital needs, capital investments, and acquisitions. As previously mentioned, we believe that the cash generated from our operations will be sufficient to meet our working capital needs for the next 12 months and beyond, including investments made and expenses incurred in connection with system development, marketing initiatives, and inventory purchase.

Adjusted EBITDA – Adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization

In addition to our results calculated under generally accepted accounting principles in the United States (“GAAP”), we also present EBITDA and Adjusted EBITDA below. EBITDA and Adjusted EBITDA are “non-GAAP financial measures” presented as a supplemental measure of the Company’s performance. They are not presented in accordance with GAAP. The Company uses EBITDA and Adjusted EBITDA as a metric of profits and successful operations management. In particular, we use Adjusted EBITDA as a milestone for the purposes of certain incentive compensation programs applicable to some of our officers and directors, in order to evaluate our company’s performance and determine whether certain restricted stock units vest as of the end of October 31, 2023 and 2024. EBITDA means net income (loss) before interest, taxes, depreciation and amortization. Adjusted EBITDA means EBITDA before stock-based compensation. Adjusted EBITDA should be viewed as supplemental to, and not as an alternative for net income or loss calculated in accordance with GAAP.

EBITDA and Adjusted EBITDA are presented because we believe it provides additional useful information to investors due to the various noncash items during the period. EBITDA and Adjusted EBITDA are also frequently used by analysts, investors and other interested parties to evaluate companies in our industry. EBITDA and Adjusted EBITDA are unaudited, and have limitations as an analytical tool, and you should not consider them in isolation, or as a substitute for analysis of our operating results as reported under GAAP. Some of these limitations are: EBITDA and Adjusted EBITDA do not reflect cash expenditures, or future or contractual commitments; EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, capital expenditures or working capital needs; EBITDA and Adjusted EBITDA do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on debt or cash income tax payments; although depreciation and amortization are noncash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements. In addition, other companies in this industry may calculate EBITDA and Adjusted EBITDA differently than the Company does, limiting its usefulness as a comparative measure. The Company’s presentation of these measures should not be construed as an inference that future results will be unaffected by unusual or nonrecurring items. We compensate for these limitations by providing a reconciliation of such non-GAAP measures to the most comparable GAAP measure, below. We encourage investors and others to review our business, results of operations, and financial information in their entirety, not to rely on any single financial measure, and to view non-GAAP measures in conjunction with the most directly comparable GAAP financial measure.

Reconciliation of EBITDA and Adjusted EBITDA to Net income (loss):

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Recent and Pending Transactions

Meridian Purchase Agreement:

See “NOTE 16 – PURCHASE AGREEMENT”, included herein in the notes to the financial statements included under “Item 1. Financial Statements”, for a detailed discussion of the Meridian Purchase Agreement.

RESULTS OF OPERATIONS

Three months ended July 31, 2023, compared to the three months ended July 31, 2022.

Revenues

The Company currently has three distinctive revenue streams.

1) The Company charges gaming operators for the use of its unique intellectual property (IP) and technology systems. Revenues derived from such charges were based on the usage of the systems by the clients. During the three months ended July 31, 2023, the Company generated $153,186 of revenues from its unique IP and technology systems, including $151,883 from Articulate Pty Ltd (“Articulate”), a related party, which is wholly-owned by Anthony Brian Goodman, CEO and Chairman of the Company and his wife, Marla Goodman. During the three months ended July 31, 2022, the Company generated $218,491 of revenues from its unique IP and technology systems, including $216,335 from Articulate.

The decrease of $65,305 in revenues in the three-month period ended July 31, 2023 relating to IP gaming revenues, compared to the three-month period ended July 31, 2022, is due to the Company focusing on appointing more resellers of third-party gaming content and reducing its reliance on related parties. Although the Company operates in a highly competitive environment, the Company’s aim is to appoint more resellers that will expand the Company’s global presence while it continues to broaden its product offerings which have already resulted in an increase in alternate revenue streams as discussed below.

2) Since June 2020, the Company has contracted with certain clients to offer third party gaming content and as such become a reseller of this gaming content. Revenues derived from the reselling of gaming content during the three months ended July 31, 2023 and 2022 were $3,546,073 and $4,037,881, respectively.

There was a decrease of $491,808 in revenues in the three-month period ended July 31, 2023 relating to third party gaming content, compared to the three-month period ended July 31, 2022. Although the Company has increased its focus on this revenue stream, the decrease is attributable to the highly competitive online gaming landscape in the Asian Pacific region and the loss of certain gaming operators to other gaming content providers.

The Company has implemented certain strategies to overcome the recent loss of revenues in third party gaming content sales and also to mitigate the competitive environment. These strategies include adding new popular gaming content to its portfolio that offers higher margins, and implementing certain innovations in the Company’s new GM-Ag system. The Company has also focused on creating larger product diversity. As a result, the Company’s new GM-Ag system has already seen a recent increase in usage. The revenues from new gaming content have increased from $13,463 to $587,919 in the three-month period ended July 31, 2023, compared to the three-month period ended July 31, 2022.

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3) The Company generates revenues from sales of prize competitions tickets directly to customers for prizes throughout the United Kingdom ranging from automobiles to jewelry as well as travel and entertainment experiences. In addition, prize winners may elect to accept the cash value of a prize instead of accepting the prize. The cash value of the prize is less than the actual value of the prize. If the cash value is accepted, GMG Assets purchases the prize from the prize winner and then sells the prize in the market, which has historically generated a profit on the sale. During the three months ended July 31, 2023 and 2022, revenues from prize competitions were $7,451,586 and $4,845,169, respectively which included $1,655,642 and $0, respectively of revenues which were derived from facilitating cash alternative offers for winners of prizes within RKings’ business (the Company did not have revenues from facilitating cash alternative offers for winners of prizes during the three-month period ended July 31, 2022, as it acquired GMG Assets effective on August 1, 2022). The increase of $2,606,417 in revenues in the three-month period ended July 31, 2023 relating to sales of prize competitions tickets, compared to the three-month period ended July 31, 2022, is mainly attributable to the revenues derived from facilitating cash alternative offers which did not exist during the three-month period ended July 31, 2022 and the recent introduction of an expanded tournament platform at RKings, which has increased popularity and revenues at RKings.

The Company also generates revenues from operating an online casino in Mexico, branded 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. Mexplay commenced generating revenues in March 2023. During the three months ended July 31, 2023 and 2022, revenues from online casinos were $156,181 and $0, respectively. The increase of $156,181 in revenues in the three-month period ended July 31, 2023, relating to online casino, compared to the three-month period ended July 31, 2022, is due to the online casino not being in operations during the three-month period ended July 31, 2022.

Total revenues for the three months ended July 31, 2023 and 2022 are $11,307,026 and $9,101,541, respectively.

Cost of goods sold

The Company currently has three distinctive sources of cost of goods sold.

1) The Company recognizes the value of stock options granted to consultants under the 2018 Equity Incentive Plan as cost of goods sold. These stock options directly contributed to the revenue generated by the Company’s GM2 Asset. During the three months July 31, 2023 and 2022, cost of goods sold due to the amortization of options was $203,652 and $147,273, respectively. The increase of $56,379 in the cost of goods sold was due to the extension of options previously issued to two consultants during the current period.

2) The cost of usage of the third-party content is recognized as a cost of goods sold. During the three months ended July 31, 2023 and 2022, cost of goods sold due to the usage of gaming content was $2,725,472 and $2,912,583, respectively. The decrease of $187,111 in cost of goods sold from the resale of gaming content in the three-month period ended July 31, 2023, compared to the three months ended July 31, 2022, was attributable to the decrease in revenues as discussed above.

3) The Company incurs cost of goods sold due to the prizes purchased which are awarded to winners of RKings’ prize competitions throughout the United Kingdom, ranging from automobiles to jewelry as well as travel and entertainment experiences. During the three months ended July 31, 2023 and 2022, cost of goods sold relating to prizes purchased to be awarded in the prize competitions was $6,227,763 and $3,560,661, respectively. The increase of $2,667,102 in cost of goods sold from the resale of prizes in the three-month period ended July 31, 2023, compared to the three months ended July 31, 2022, was mainly attributable to the costs related to facilitating cash alternative offers of $1,582,513, as discussed above, which the Company only began offering on August 1, 2022, after the acquisition of GMG Assets.

The Company incurs cost of goods sold related to the online casino Mexplay for usage of third-party gaming content. During the three months ended July 31, 2023 and 2022, cost of goods sold due to usage of third party gaming content was $14,962 and $0, respectively. The increase of $14,962 in cost of goods sold in the three-month period ended July 31, 2023 relating to online casinos, compared to the three-month period ended July 31, 2022, is due to the online casino not being in operations during the three-month period ended July 31, 2022.

Total costs of goods sold for the three months ended July 31, 2023 and 2022 were $9,171,849 and $6,620,517, respectively.

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Gross Profit and Gross Profit Margin

We had gross profit of $2,135,177 for the three months ended July 31, 2023, compared to gross profit of $2,481,024 for the three months ended July 31, 2022, a decrease of $345,847 from the prior period, mainly due to the $426,381 decrease in gross profit contributed from the B2B segment, which was due to the erosion of margins on certain content as a result of the current highly competitive environment, offset by an increase of gross profit of $80,534 in the B2C segment, which was mainly due to the increase in revenues as discussed above.

Gross profit margin was 19% for the three months ended July 31, 2023, compared to 27% for the three months ended July 31, 2022. The gross profit margin on the B2B segment was approximately 21% for the three months ended July 31, 2023, compared to 28% for the three months ended July 31, 2022, which decrease was mainly due to erosion of margins on certain content as a result of the highly competitive environment. The gross profit margin on the B2C segment was approximately 18% for the three months ended July 31, 2023, compared to 27% for the three months ended July 31, 2022, which decrease is mainly due to the negative effect of previous technology challenges and failures in April 2023 which led to a reduced number of customers purchasing RKings prize tickets in May 2023. The gross profit margin of RKings in May 2023 was only 5%. The Company upgraded and modified the systems in May 2023, and has since introduced a larger and more diverse set of tournaments offering higher margins. As a result of the recent implementations and actions in RKings, the gross profit margin of RKings increased resulting in a gross profit margin of 20% in June 2023 and 29% in July 2023.

Moving forward, the Company expects to consolidate several operating aspects that are redundant and plans to generate increased gross profit and gross profit margin due to economies of scale. Also, the competition prizes are expected to generate larger profit margins with a focus on increasing the margins on individual prizes.

General and administrative expenses

During the three months ended July 31, 2023, and 2022, general and administrative expenses were $2,281,203 and $1,556,002, respectively. General and administrative expenses consisted primarily of stock-based compensation, advertising and promotion expenses, travel expenses, website maintenance expenses, payroll expenses, office expenses, bank charges, commission expenses, lease expenses, gaming license expenses, depreciation, amortization expense, professional fees and research and development expense.

The increase of $725,201 in general and administrative expenses was mainly due to increased stock-based compensation expense of $198,833 for employees and consultants, increased payroll costs of $154,285 in the B2B segment and increased operating expenses of $214,472 for our recently launched Mexplay operation. The increase in the stock-based compensation was mainly due to the RSUs issued to consultants and employees during the first and second quarters of this fiscal year. The increase in payroll costs was mainly due to an increase in the number of employees for the maintenance and development of RKings’ and Mexplay’s websites, development of the GM-Ag platform, providing customer services and management of day-to-day operations.

General and administrative expenses – Related parties

General and administrative expenses from related parties consisted primarily of stock-based compensation, consulting expenses and salary expenses payable to the Company’s management and Directors. During the three months ended July 31, 2023 and 2022, general and administrative expenses from related parties were $746,073 and $195,710, respectively. The components of general and administrative expenses from related parties are as follows:

During the three-month period ended July 31, 2023 and 2022, the stock-based compensation increase of $529,129 is due to the amortization of the RSUs and options previously issued to the Company’s Directors and management while the consulting and salary expenses increase of $21,234 is mainly due to the increase in salaries to the Company’s directors and officers.

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Interest expense

During the three months ended July 31, 2023, and 2022, interest expense was $7,624 and $0, respectively. The interest expense increase of $7,624 was due to the interest charged on the overdue tax liabilities of RKings.

Interest income

Interest income was attributable to the interest from the bank savings. During the three months ended July 31, 2023, and 2022, interest income was $15,132 and $793, respectively. The increase of $14,339 in interest income was mainly due to an increase in interest rates.

Foreign exchange gain

The foreign exchange gain was due to the fluctuation of the Euro, British Pound and Mexican Peso, against the US dollar, and as a result of certain suppliers billing the Company in Euros, and settlement of other liabilities in currencies other than US dollars. During the three months ended July 31, 2023, foreign exchange gain was $47, compared to $28,495 for the three months ended July 31, 2022.

Provision for income taxes

The provision for income taxes was $81,084 for the three months ended July 31, 2023, compared to $78,951 for the three months ended July 31, 2022. The increase of $2,133 was attributable to an $18,432 increase in income tax expense from GMG Assets, which did not exist during the three-month period ended July 31, 2022.

Net income attributable to noncontrolling interest

These amounts represent the share of income that is not attributable to the Company.

Net income attributable to the noncontrolling interest for the three months ended July 31, 2023 and 2022 was $0 and $51,317, respectively. As of November 4, 2022, the Company owns 100% of RKings by way of the purchase of the remaining 20% interest of RKings effective on November 4, 2022. Therefore, as of July 31, 2023, and for the three months ended June 31, 2023, there is no noncontrolling interest in RKings and the net income attributable to noncontrolling interest is $0.

The net income attributable to noncontrolling interest for the three months ended July 31, 2022 was due to the ownership of an 80% interest in RKings which was acquired effective November 1, 2021.

Net income (loss) attributable to the Company

During the three months ended July 31, 2023 and 2022, the Company had net income/(loss) attributable to the Company of ($965,628) and $628,332, respectively. The decrease of $1,593,960 in net income attributable to the Company was primarily due to the $345,847 decrease in gross profit, increase in general and administrative expenses of $725,201, and increase in general and administrative expenses – related party of $550,363, each as discussed in greater detail above.

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Nine months ended July 31, 2023, compared to the nine months ended July 31, 2022.

Revenues

The Company currently has three distinctive revenue streams.

1) The Company charges gaming operators for the use of its unique intellectual property (IP) and technology systems. Revenues derived from such charges were based on the usage of the systems by the clients. During the nine months ended July 31, 2023, the Company generated $560,597 of revenues from its unique IP and technology systems, including $555,613 from Articulate, a related party, which is wholly-owned by Anthony Brian Goodman, CEO and Chairman of the Company and his wife Marla Goodman. During the nine months ended July 31, 2022, the Company generated $668,996 of revenues from its unique IP and technology systems, including $661,155 from Articulate.

The decrease of $108,399 in revenues from IP and technology systems in the nine-month period ended July 31, 2023, compared to the nine-month period ended July 31, 2022, is due to the Company’s shift in focus to appointing resellers of the third-party gaming content and the Company’s reduction of its reliance on related parties. Although the Company operates in a highly competitive environment, the Company’s aim is to appoint more resellers that will expand the Company’s global presence while it continues to broaden its product offerings which have already resulted in an increase in alternate revenue streams as discussed below.

2) The Company has contracted with certain clients to offer third party gaming content and as such become a reseller of this gaming content. Revenues derived from the reselling of gaming content during the nine months ended July 31, 2023 and 2022 were $11,163,102 and $10,333,841, respectively.

The increase of $829,261 in revenues from the resale of third party gaming content in the nine-month period ended July 31, 2023, compared to the nine-month period ended July 31, 2022, is attributable to an increased number of customers and registered players with our customers for the current period compared to the prior period. There has been recent pressure from the highly competitive online gaming landscape in the Asian Pacific region and the Company has also been affected by the loss of certain gaming operators to other gaming content providers.

As previously discussed, the Company has implemented certain strategies to overcome competition and mitigate its effect on the competitive environment. These strategies include adding new popular gaming content to its portfolio that offers higher margins and creating larger product diversity.

3) The Company generates revenues from sales of prize competitions tickets directly to customers for prizes throughout the United Kingdom ranging from automobiles to jewelry as well as travel and entertainment experiences. In addition, prize winners may elect to accept the cash value of a prize instead of accepting the prize. The cash value of the prize is less than the actual value of the prize. If the cash value is accepted, GMG Assets purchases the prize from the prize winner and then sells the prize in the market, which has historically generated a profit on the sale. During the nine months ended July 31, 2023 and 2022, revenues from prize competitions were $20,493,274 and $15,458,552, respectively which included $4,309,323 and $0, respectively of revenues which were derived from facilitating cash alternative offers for winners of prizes within RKings’ business (the Company did not have revenues from facilitating cash alternative offers for winners of prizes during the nine-month period ended July 31, 2022, as it acquired GMG Assets effective on August 1, 2022). The increase of $5,034,722 in revenues in the nine-month period ended July 31, 2023 relating to sales of prize competitions tickets, compared to the nine-month period ended July 31, 2022, is mainly attributable to the revenues derived from facilitating cash alternative offers which did not exist during the nine-month period ended July 31, 2022.

The Company also generates revenues from operating an online casino in Mexico, branded 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. Mexplay commenced generating revenues in March 2023. During the nine months ended July 31, 2023 and 2022, revenues from online casinos were $176,091 and $0, respectively. The increase of $176,091 in revenues in the nine-month period ended July 31, 2023 relating to online casino, compared to the nine-month period ended July 31, 2022, is due to the online casino not being in operations during the nine-month period ended July 31, 2022.

Total revenues for the nine months ended July 31, 2023 and 2022 were $32,393,064 and $26,461,389, respectively.

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Cost of goods sold

The Company currently has three distinctive sources of cost of goods sold.

1) The Company recognizes the value of stock options granted to consultants under the 2018 Equity Incentive Plan as cost of goods sold. These stock options directly contributed to the revenue generated by the Company’s GM2 Asset. During the nine months July 31, 2023 and 2022, cost of goods sold due to the amortization of options was $433,374 and $437,068, respectively.

2) The cost of usage of the third-party content is recognized as a cost of goods sold. During the nine months ended July 31, 2023 and 2022, cost of goods sold due to the usage of gaming content was $8,493,876 and $7,626,238, respectively. The increase of $867,638 in cost of goods sold from the resale of gaming content in the nine-month period ended July 31, 2023, compared with the nine months ended July 31, 2022, was attributable to the increased usage of gaming content as a result of an increased number of customers and registered players with our customers.

3) The Company incurs cost of goods sold due to the prizes purchased which are awarded to winners of RKings’ prize competitions throughout the United Kingdom, ranging from automobiles to jewelry as well as travel and entertainment experiences. During the nine months ended July 31, 2023 and 2022, cost of goods sold due to prizes purchased to be awarded in the prize competitions was $16,806,753 and $11,352,394, respectively. The increase of $5,454,359 in cost of goods sold from the resale of prizes purchased in the nine-month period ended July 31, 2023, compared with the nine months ended July 31, 2022, was mainly attributable to the costs related to facilitating cash alternative offers of $4,077,759, as discussed above, which the Company only began offering on August 1, 2022, after the acquisition of GMG Assets.

The Company incurs cost of goods sold related to the online casino Mexplay for usage of third party gaming content. During the nine months ended July 31, 2023 and 2022, cost of goods sold due to usage of third party gaming content was $20,868 and $0, respectively. The increase of $20,868 in cost of goods sold in the nine-month period ended July 31, 2023 relating to online casino, compared to the nine-month period ended July 31, 2022, is due to the online casino not being in operations during the nine-month period ended July 31, 2022.

Total costs of goods sold for the nine months ended July 31, 2023 and 2022 were $25,754,871 and $19,415,700, respectively.

Gross Profit and Gross Profit Margin

We had gross profit of $6,638,193 for the nine months ended July 31, 2023, compared to gross profit of $7,045,689 for the nine months ended July 31, 2022, a decrease of $407,496 from the prior period, mainly due to the $264,414 decrease in gross profit contributed from the B2C segment in the UK, which was mainly due to the technology challenges and failures in April and a decrease of gross profit of $143,082 in the B2B segment which was mainly due to erosion of margins on certain content as a result of the highly competitive environment.

Gross profit margin was 20% for the nine months ended July 31, 2023, compared to 27% for the nine months ended July 31, 2022. The gross profit margin on the B2B segment was approximately 24% for the nine months ended July 31, 2023, compared to 26% for the nine months ended July 31, 2022. The decrease in gross profit margin over the periods, as discussed above, is mainly due to the erosion of margins on certain content as a result of the highly competitive environment. The gross profit margin on the B2C segment was approximately 19% for the nine months ended July 31, 2023, compared to 27% for the nine months ended July 31, 2022, mainly due to the decrease in sales of prize competition tickets, caused by unforeseen technology challenges and failures in April 2023 that led to certain compromised ticket sales for large competitions. The profit margin in the RKings’ business during the 2023 second quarter period was reduced as a result of such technology failures. The technological failures also led to a reduced number of customers purchasing the tickets in May 2023, leading to a 5% gross profit margin in May 2023. The Company upgraded and modified its systems in May 2023, and has since introduced a larger and more diverse set of tournaments offering higher margins. As a result of the recent implementations and actions in RKings, the gross profit margin has increased resulting in a gross profit margin of 20% in June 2023 and 29% in July 2023.

Moving forward, the Company expects to consolidate several operating aspects that are redundant and plans to seek to generate increased gross profit and gross profit margin due to economies of scale. Also, the competition prizes are expected to generate larger profit margins with a focus on increasing the margins on individual prizes.

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General and administrative expenses

During the nine months ended July 31, 2023 and 2022, general and administrative expenses were $6,141,687 and $4,618,975, respectively. General and administrative expenses consisted primarily of stock-based compensation, advertising and promotion expenses, travel expenses, website maintenance expenses, payroll expenses, office expenses, bank charges, commission expenses, lease expenses, gaming license expenses, depreciation, amortization expense, professional fees and research and development expense.

The increase of $1,522,712 in general and administrative expenses was mainly due to the increase in stock-based compensation expense of $819,937 for employees and consultants and the increase in payroll costs of $540,154 in the B2B segment. The increase in the stock-based compensation was mainly due to the RSUs and restricted stock issued to consultants and employees during the first and second quarters of this fiscal year. The increase in payroll costs was mainly due to an increase in the number of employees for the maintenance and development of RKings’ and Mexplay’s websites, development of GM-Ag platform, providing customer services and management of day-to-day operations.

General and administrative expenses – Related parties

General and administrative expenses from related parties consisted primarily of stock-based compensation, consulting expenses and salary expenses payable to the Company’s management and Directors. During the nine months ended July 31, 2023 and 2022, general and administrative expenses from related parties were $2,208,293 and $534,910, respectively. The components of general and administrative expenses from related parties are as follows:

During the nine-month period ended July 31, 2023 and 2022, the stock-based compensation increase of $1,562,753 is due to the amortization of the RSUs and options issued to the Company’s Directors and management and the consulting and salary expenses increase of $110,630 is mainly due to the increase in salaries to the Company’s directors and officers.

Interest expense

During the nine months ended July 31, 2023 and 2022, interest expense was $9,362 and $0, respectively. The interest expense increase of $ 9,362 was due to interest on the Company’s credit card balance and interest charged on the overdue tax liabilities of RKings.

Interest income

Interest income was attributable to the interest from the bank savings. During the nine months ended July 31, 2023 and 2022, interest income was $43,957 and $1,776, respectively. The increase of $42,181 in interest income was mainly due to an increase in interest rates.

Foreign exchange gain

The foreign exchange gain was due to the fluctuation of the Euro, British Pound and Mexican Peso, against the US dollar, and as a result of certain suppliers billing the Company in Euros, and settlement of other liabilities in currencies other than US dollars. During the nine months ended July 31, 2023, foreign exchange gain was $33,361, compared to $227,324 for the nine months ended July 31, 2022. The decrease of $193,963 of foreign exchange gain was mainly due to the depreciation of US dollars against other currencies, in which the Company has liabilities.

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Provision for income taxes

The provision for income taxes was $299,071 for the nine months ended July 31, 2023, compared to $326,135 for the nine months ended July 31, 2022. The decrease of $27,064 was attributable to the decrease in UK gross profits resulting in the corresponding decrease in tax expenses in the B2C segment in the UK.

Net income attributable to noncontrolling interest

These amounts represent the share of income that is not attributable to the Company.

Net income attributable to the noncontrolling interest for the nine months ended July 31, 2023 and 2022, was $0 and $230,074, respectively. As of November 4, 2022, the Company owns 100% of RKings by way of the purchase of the remaining 20% interest effective November 4, 2022. Therefore, as of July 31, 2023 and for the nine months ended July 31, 2023, there is no noncontrolling interest in RKings and the noncontrolling interest is $0.

The net income attributable to noncontrolling interest for the nine months ended July 31, 2022, was due to the ownership of an 80% interest in RKings which was acquired effective November 1, 2021.

Net income attributable to the Company

During the nine months ended July 31, 2023 and 2022, the Company had net income/(loss) attributable to the Company of $(1,942,902) and $1,564,695, respectively. The decrease of $3,507,597 in net income attributable to the Company was primarily due to a decrease in gross profits of $407,496, an increase in stock-based compensation of $2,378,996, a decrease in foreign exchange gain of $193,963, and an increase in B2B payroll costs of $540,154, each as discussed in greater detail above.

LIQUIDITY AND CAPITAL RESOURCES

The Company had $16,142,096 of cash on hand at July 31, 2023 and total assets of $34,989,870 ($22,088,606 of which were current assets) and total working capital of $17,999,260 as of July 31, 2023. Included in total assets at July 31, 2023 was $10,381,710 of goodwill associated with the Company’s interest in RKings and $2,040,000 in intangible assets related to trademarks and non-compete agreements.

The Company had $14,949,673 of cash on hand at October 31, 2022 and total assets of $32,571,413 ($19,288,950 of which were current assets) and total working capital of $16,573,796 as of October 31, 2022. Included in total assets of October 31, 2022 was $10,452,324 of goodwill associated with the Company’s interest in RKings and $2,280,000 of intangible assets related to trademarks and non-compete agreements.

The increase in cash of $1,192,423 between July 31, 2023 and October 31, 2022, was mainly due to cash generated by operating activities.

Our financial focus is on long-term, sustainable growth in revenue with the goal of marginal increases in expenses. The Company’s operations are highly scalable and we plan to continuously add new products to our offerings with the anticipation that they will provide successful revenue growth.

The Company has generated positive cash flows from operations since 2018. The Company is self-sustaining, and its cash needs are met through current operations which, as noted above, has resulted in cash balances of $16,142,096 as of July 31, 2023 and $14,949,673 as of October 31, 2022. We believe that the cash generated from our operations will be sufficient to meet our working capital needs for the next 12 months and beyond, including investments made and expenses incurred in connection with system development, marketing initiatives, and inventory purchase.

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Because the Company is self-sustaining through its operations, it is not considering additional sources of liquidity, except to complete the acquisition of the Meridian Companies as discussed above; however, the Company may also consider raising funds through debt, private placements, or additional public offerings for expansion of operations or synergetic acquisitions if additional external funds are sought.

The Company does not have material cash requirements other than a possible payment of approximately $641,766 (GBP 500,000) in connection with the acquisition of RKings, which payment is currently subject to ongoing claims, and the requirement to raise funds to complete the transactions contemplated by the Meridian Purchase Agreement, discussed above.

Except as discussed above under “Overview-Cash Requirements” and “Overview-Capital Resources” in connection with the pending Meridian Purchase Agreement, there are no known trends, demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in the Company’s liquidity decreasing in any material way. We do not currently have any additional commitments or identified sources of additional capital from third parties or from our officers, directors or majority shareholders. Additional financing may not be available on favorable terms, if at all.

In the future, we may be required to seek additional capital, including in connection with the Meridian Purchase Agreement, as discussed above, by selling additional debt or equity securities, or otherwise be required to bring cash flows in balance when we approach a condition of cash insufficiency. The sale of additional equity or debt securities, if accomplished, may result in dilution to our then shareholders. Financing may not be available in amounts or on terms acceptable to us, or at all. In the event we are unable to raise additional funding and/or obtain revenues sufficient to support our expenses, we may be forced to scale down our operations, which could cause our securities to decline in value.

See “NOTE 3 – ACCOUNTS RECEIVABLE – RELATED PARTY”, for a description of related party accounts receivable; “NOTE 7 – INTANGIBLE ASSETS – SOFTWARE PLATFORM, WEBSITE DEVELOPMENT COSTS, TRADEMARKS AND NON-COMPETE AGREEMENTS”, for a description of the Company’s intangible assets; “NOTE 8 – ACCOUNTS PAYABLE – RELATED PARTIES”, for a description of related party accounts payable; and “NOTE 11 – RELATED PARTY TRANSACTIONS”, for a description of related party transactions, each included herein in the notes to the financial statements included under “Item 1. Financial Statements.”

Cash flows from operating activities include net income adjusted for certain non-cash expenses, and changes in operating assets and liabilities. Non-cash expenses for the nine months ended July 31, 2023, include stock-based compensation, amortization expenses on intangible assets, and unrealized foreign exchange gain on contingent liability.

The Company generated cash from operating activities of $1,058,631 during the nine months ended July 31, 2023, due primarily to non-cash expenses relating to stock-based compensation of $2,822,064 (including RSUs and options issued for services of $2,556,064, and stock issued for services of $266,000), depreciation and amortization of $359,657, and $1,946,785 of increase in accounts payable and accrued liabilities, offset by $1,942,902 of net loss, $2,272,125 of increase in accounts receivable, and $231,322 of increase in prize inventory.

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The Company generated cash from operating activities of $2,660,332 during the nine months ended July 31, 2022, due primarily to $1,794,769 of net income, non-cash expenses relating to stock-based compensation of $443,068 (including options issued for services of $437,068, and stock issued for services of $6,000), depreciation and amortization of $299,656, $647,381 of decrease in accounts receivable from related party, Articulate, and $560,168 of increase in accounts payable and accrued liabilities, offset by $411,704 of increase in inventory, prize.

During the nine months ended July 31, 2023, cash used in investing activities was $96,071 which was primarily due to $52,788 in payments related to website development costs, and $30,708 in payments as the consideration to acquire GMG Assets. During the nine months ended July 31, 2022, cash used in investing activities was $3,499,050 which was primarily due to the cash consideration paid to acquire an 80% interest in RKingsCompetition Ltd of $3,341,453.

During the nine months ended July 31, 2023, cash used in financing activities was $32,322 for the purchase of common stock. During the nine months ended July 31, 2022, cash provided by financing activities was $32,000, which was due to cash option exercises.

The Company had a net increase in cash of $1,192,423 for the nine months ended July 31, 2023, which is mostly attributable to cash provided by operating activities of $1,058,631, effect of exchange rate changes on cash of $262,185, offset by cash used in investing activities of $96,071 and cash used in financing activities of $32,322, as discussed above.

Material Events and Uncertainties

RKings Purchase – Holdback Amount In Dispute:

The Company has an ongoing dispute with Mr. Paul Hardman (one of the sellers of RKings) with regards to the Holdback Amount of approximately $641,766 that he has alleged is still owed to him, and which we alleged was forfeited. That amount is accrued and included in the Company’s liabilities as of July 31, 2023. The Company’s dispute and claims against Mr. Hardman stem from breaches of the terms of the Purchase Agreement by Mr. Hardman. The Company is vigorously pursuing the claim of breach of the Purchase Agreement against Mr. Hardman; however, at this point, no formal legal action has been initiated by either party to date.

Our operating results are difficult to forecast. Our prospects should be evaluated in light of the risks, expenses and difficulties commonly encountered by comparable development stage companies.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The discussion and analysis of the Company’s financial condition and results of operations are based upon its consolidated unaudited financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these unaudited financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. On an on-going basis, management evaluates past judgments and estimates, including those related to bad debts, accrued liabilities, goodwill and contingencies. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The accounting policies and related risks described in the Company’s Annual Report on Form 10-K for the year ended October 31, 2022, filed with the Commission on January 30, 2023 are those that depend most heavily on these judgments and estimates. As of July 31, 2023, there had been no material changes to any of the critical accounting policies contained therein. “NOTE 2 -- SUMMARY OF ACCOUNTING POLICIES,” of the notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended October 31, 2022, filed with the Commission on January 30, 2023, describes the significant accounting policies and methods used in the preparation of the Company’s consolidated financial statements. The critical accounting estimates include transactions, assets, liabilities and obligations that are stated in foreign local currency and their conversion to US currency. Resulting loss on currency conversions related to assets and liabilities is recognized in shareholders’ equity in accumulated other comprehensive income (loss) on the Company’s consolidated balance sheets and realized foreign currency translation adjustments are recognized in other income in the consolidated statements of operations and comprehensive income.

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Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).

Disclosure controls and procedures

The Company’s Chief Executive Officer (the principal executive officer) and Chief Financial Officer (principal financial/accounting officer) have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of July 31, 2023. Based upon such evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in our reports filed with the Commission pursuant to the Exchange Act, is recorded properly, processed, summarized and reported within the time periods specified in the rules and forms of the Commission and that such information is accumulated and communicated to our management, including our CEO and CFO, to allow timely decisions regarding required disclosures.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the three months ended July 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

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There have been no material changes from the risk factors previously disclosed in Part I, Item 1A of the Company’s Form 10-K for the year ended October 31, 2022, filed with the Commission on January 30, 2023 (the “Form 10-K”), under the heading “Risk Factors”, except as discussed below, and investors should review the risks provided in the Form 10-K and below, prior to making an investment in the Company. The business, financial condition and operating results of the Company can be affected by a number of factors, whether currently known or unknown, including but not limited to those described in the Form 10-K, under “Risk Factors” and below, any one or more of which could, directly or indirectly, cause the Company’s actual financial condition and operating results to vary materially from past, or from anticipated future, financial conditions and operating results. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, operating results and stock price.

Our stock repurchases are discretionary and even if effected, they may not achieve the desired objectives.

On March 29, 2023, the Board of Directors of the Company authorized and approved a share repurchase program for up to $2 million of the currently outstanding shares of the Company’s common stock. Subject to any future extension in the discretion of the Board of Directors of the Company, the repurchase program is scheduled to expire on September 29, 2023, when a maximum of $2.0 million of the Company’s common stock has been repurchased, or when such program is discontinued by the Board of Directors. Under the stock repurchase program, shares may be repurchased from time to time in the open market or through negotiated transactions at prevailing market rates, or by other means in accordance with federal securities laws. Repurchases will be made at management’s discretion at prices management considers to be attractive and in the best interests of both the Company and its stockholders, subject to the availability of stock, general market conditions, the trading price of the stock, alternative uses for capital, and the Company’s financial performance. To date, 14,594 shares of common stock totaling $32,322 have been repurchased by the Company. The program does not obligate the Company to acquire a minimum amount of shares.

There can be no assurance that any repurchases pursuant to our stock repurchase program will enhance stockholder value because the market price of our common stock may decline below the levels at which we repurchase such shares. In addition, there is no guarantee that our stock repurchases in the past or in the future will be able to successfully mitigate the dilutive effect of recent and future employee stock option exercises and restricted stock unit vesting. The amounts and timing of the repurchases may also be influenced by general market conditions, regulatory developments (including recent legislative actions which, subject to certain conditions, may impose an excise tax of 1% on our stock repurchases) and the prevailing price and trading volumes of our common stock. If our financial condition deteriorates or we decide to use our cash for other purposes, we may suspend repurchase activity at any time.

Adverse developments affecting the financial services industry, including events or concerns involving liquidity, defaults or non-performance by financial institutions or transactional counterparties, bank closures or FDIC takeovers, could adversely affect our business, financial condition or results of operations.

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Events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems. Although we assess our banking and customer relationships as we believe necessary or appropriate, our access to funding sources and other credit arrangements could be significantly impaired by factors that affect us, the financial services industry or economy in general, in the future. These factors could include, among others, events such as liquidity constraints or failures, the ability to perform obligations under various types of financial, credit or liquidity agreements or arrangements, disruptions or instability in the financial services industry or financial markets, including, but not limited to bank closures, or concerns or negative expectations about the prospects for companies in the financial services industry.

In addition, investor concerns regarding the U.S. or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for us to acquire financing on acceptable terms or at all. Any decline in available funding or access to our cash and liquidity resources could, among other risks, make it more costly or difficult to complete planned acquisitions, including the transactions contemplated by the Meridian Purchase Agreement, or prohibit the closing of such transactions, or make it harder or more costly for us to borrow additional funding in the future. Any of these impacts, or any other impacts resulting from the factors described above or other related or similar factors not described above, could have material adverse impacts on our liquidity and our business, financial condition or results of operations.

Our technology, systems and infrastructure have previously experienced, and may in the future, experience, a disruption in service, failure or a loss of data, which have in the past, and may in the future, cause financial and reputational harm to our business.

Our technology, systems and infrastructure have previously experienced, and may in the future, experience, a disruption in service. For example, the decrease in our gross profit margin of 8% and 7%, for the three and nine months ended July 31, 2023, compared to the three and nine months ended July 31, 2022, respectively, was partially due to a decrease in gross profit margin in our B2C segment. This was mainly due to a decrease in sales of prize competition tickets caused by unforeseen technology challenges and failures that led to certain compromised ticket sales for large competitions and hence a reduced profit margin in the RKings’ business during the current periods, compared to the prior periods. The systems have now been upgraded and modified to cater to the large simultaneous demands placed on the system and the Company is confident that this instability and failure will not reoccur; however, future disruptions or issues may be material in the future.

A failure or inability of our technology, systems or infrastructure, including through a disruption in the services, has in the past, and could in the future, result in financial or reputational harm to our business. Moreover, the risk of reputational harm may be magnified and/or distorted through the rapid dissemination of information over the Internet, including through news articles, blogs, chat rooms, and social media sites. This may affect our ability to retain clients and attract new business.

The effects of the above may result in a material adverse effect on our operations, cash flow, future prospects and the value of our securities.

The number of shares of common stock issuable pursuant to the Meridian Purchase Agreement will cause significant dilution to existing shareholders.

Pursuant to the Meridian Purchase Agreement, following the initial closing, the Meridian Sellers are expected to collectively own approximately 70% of the Company’s then outstanding shares of common stock (with Aleksandar Milovanovic owning approximately 59%), and approximately 70% of the Company’s then outstanding voting shares (with Milovanovic voting 58%). Assuming the Post-Closing Shares are issued, the Meridian Sellers will collectively own approximately 71% of the Company’s then outstanding shares of common stock (with Milovanovic owning approximately 60%), and approximately 68% of the Company’s then outstanding voting shares (with Milovanovic voting approximately 58%). The above percentages are based on the Company’s currently outstanding shares of common stock and voting shares. It is also currently contemplated that the Company may sell convertible debt securities or equity to raise funding to complete the Purchase, which could result in dilution to the interests of the Meridian Sellers as discussed above. As a result, the total shares of common stock and preferred stock issuable upon initial closing of the Meridian Purchase Agreement will cause significant dilution to existing shareholders, and result in a change of control.

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The number of shares of common stock and preferred stock that will be issuable in the Meridian Purchase Agreement are not adjustable based on the market price of the Company’s common stock, so the shares issued at the closing may have a greater or lesser value than the market price at the time the Meridian Purchase Agreement was signed.

The number of shares of common stock issuable at the closings of the Meridian Purchase Agreement is fixed. Any changes in the market price of the Company’s common stock before the closings will not affect the number of shares the Meridian Sellers will be entitled to receive pursuant to the Meridian Purchase Agreement. Therefore, if before the closing, the market price of the Company’s common stock declines from the market price on the date of the Meridian Purchase Agreement, then the Meridian Sellers could receive consideration with a substantially lower value. Similarly, if before the completion of the Meridian Purchase Agreement, the market price of the Company’s common stock increases from the market price on the date of the Meridian Purchase Agreement, then the Meridian Sellers could receive consideration with substantially more value for their shares of the Meridian Companies capital stock than the parties had negotiated for in the establishment of the initial value per share of Company common stock ($3.00 per share). The Meridian Purchase Agreement does not include a price-based termination right.

The Company’s shareholders will have a reduced ownership and voting interest in, and will exercise less influence over the management of, the combined company following the completion of the Meridian Purchase Agreement.

Pursuant to the Meridian Purchase Agreement, following the closing, Sellers are expected to collectively own approximately 70% of the Company’s then outstanding shares of common stock (with Aleksandar Milovanovic owning approximately 59%), and approximately 70% of the Company’s then outstanding voting shares (with Milovanovic voting 58%). Assuming the Post-Closing Shares are issued, the Meridian Sellers will collectively own approximately 71% of the Company’s then outstanding shares of common stock (with Milovanovic owning approximately 60%), and approximately 68% of the Company’s then outstanding voting shares (with Milovanovic voting approximately 58%). The above percentages are based on the Company’s currently outstanding shares of common stock and voting shares. It is also currently contemplated that the Company may sell convertible debt securities or equity to raise funding to complete the Purchase, which could result in dilution to the interests of the Meridian Sellers as discussed above. In addition, the five-member board of directors of the combined company will initially be comprised of one member selected by the Meridian Sellers (which appointment right is set forth in the designation of the Series C Voting Preferred Stock) and four directors selected by the current members of the board of directors of the Company (provided that the Meridian Sellers will have the right to appoint up to two of the Company’s five directors). Consequently, the Company’s shareholders will be able to exercise less influence over the management and policies of the combined company than they currently exercise over the management and policies of the Company.

The consummation of the Meridian Purchase Agreement will result in a change of control of the Company.

Due to the significant number of shares issuable at the initial closing of the Meridian Purchase Agreement (i.e., 82,141,857 shares of the Company’s common stock and 1,000 shares of Series C Voting Preferred Stock, which vote 7,500,000 voting shares on all shareholder matters), a change of control of the Company will be deemed to have occurred, and the Meridian Sellers will obtain voting control of the Company. Additionally, the Meridian Sellers will exercise control in determining the outcome of all corporate transactions or other matters, including the election and removal of directors, mergers, consolidations, the sale of all or substantially all of our assets, and also the power to prevent or cause a further change in control. Any investors who purchase shares or hold shares prior to the initial closing of the Meridian Purchase Agreement will be minority shareholders and as such will have little to no say in the direction of the Company and the election of directors. Additionally, it will be difficult if not impossible for investors to remove the directors appointed by the Meridian Sellers, which will mean they may, under certain circumstances, control of who serves as officers of the Company as well as whether any changes are made in the board of directors. An owner of the Company’s securities should keep in mind that your shares, and your voting of such shares, will likely have little effect on the outcome of corporate decisions.

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We will need to raise significant additional capital to complete the acquisition of the Meridian Companies.

Pursuant to the Meridian Purchase Agreement, the Meridian Sellers agreed to sell us 100% of the outstanding capital stock of each of the Meridian Companies in consideration for (a) a cash payment of $30 million, due at the closing of the Purchase Agreement (the “Closing”); (b) 82,141,857 restricted shares of the Company’s common stock (the “Closing Shares”), with an agreed upon value of $3.00 per share, due at the Closing; (c) 1,000 shares of a to be designated series of Series C preferred stock of the Company, discussed in greater detail below (the “Series C Voting Preferred Stock”), due at the Closing; (d) $5,000,000 in cash and 5,000,000 restricted shares of Company common stock (the “Post-Closing Shares”), due within five business days following the six month anniversary of the Closing, if (and only if) the Company has determined that: the Meridian Sellers and their affiliates are not then in default in any of their material obligations, covenants or representations under the Purchase Agreement, or any of the other transaction documents entered into in connection therewith (the “Contingent Post-Closing Consideration”); (e) $20,000,000 in cash, of which $10,000,000 is due 12 months after the date of the Closing and $10,000,000 is due 18 months after the date of the Closing (the “Non-Contingent Post-Closing Consideration”); and (f) promissory notes in the aggregate amount of $15,000,000 (the “Promissory Notes”) issuable to the Meridian Sellers, due 24 months after the Closing.

We currently estimate that we will need to raise approximately $30.0 million to complete such acquisition. We plan to raise this funding through the sale of debt and/or equity; however, we have not entered into any agreements regarding such funding to date, and such funding may not be available on favorable terms, if at all. If debt financing is available and obtained, our interest expense may increase and we may be subject to the risk of default, depending on the terms of such financing. If equity financing is available and obtained it may result in our shareholders experiencing significant dilution. If such financing is unavailable, we may be unable to complete the acquisition of the Meridian Companies.

We anticipate financing the majority of the purchase price of the Meridian Companies by way of debt which is expected to be secured by a priority security interest in substantially all of our assets.

As described above, we currently anticipate the need for approximately $30 million of additional funding to complete the acquisition of the Meridian Companies. We have not entered into any loan documents relating to the funding to date. In the event that such funding is available to us, and we are able to borrow such planned funding, we anticipate our obligations under the debt facility being secured by a priority security interest in substantially all of our assets. We further expect that substantially all of our subsidiaries would be required to guarantee our obligations under such loan facility. As such, our creditors will likely have security interests over our assets and/or our subsidiaries which secure the repayment of such obligations, and in the event we default under such facility, the lenders may be able to take control of our assets and operations, force a sale of our assets, force us to seek bankruptcy protection, or force us to curtail or abandon our current business plans and operations. If that were to happen, any investment in the Company (including, but not limited to any investment in our common stock) could become worthless.

The Meridian Purchase Agreement may be terminated in accordance with its terms and the acquisition of the Meridian Companies may not be completed.

The Meridian Purchase Agreement is subject to several conditions that must be fulfilled in order to complete the Acquisition of the Meridian Companies. These conditions to the closing of the acquisition of the Meridian Companies may not be fulfilled, and accordingly, the acquisition of the Meridian Companies may not be completed. In addition, the parties to the Meridian Purchase Agreement can generally terminate such agreement if (a) the closing contemplated under such agreement is not completed by December 31, 2023; or (b) funding is not obtained for such acquisition by August 31, 2023 (provided that the parties have verbally agreed to extend such date, with plans to document a new definitive date via amendment in the future), and the Company can terminate the Meridian Purchase Agreement under certain circumstances as a result of its due diligence process or if certain shareholder agreements are not entered into with certain minority shareholders of the subsidiaries of the Meridian Companies by August 27, 2023 (60 days after the entry into the Meridian Purchase Agreement, provided that the parties have verbally agreed to extend such date, with plans to document a new definitive date via amendment in the future), provided the agreement may also be terminated under certain other conditions, including if the terms of the Meridian Purchase Agreement are breached, and the parties can mutually decide to terminate the Meridian Purchase Agreement at any time.

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