Meridian Holdings Inc./NV (MRDN)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-looking statements

The following discussion of the Company’s historical performance and financial condition should be read together with the consolidated financial statements and related notes in “Item 8. Financial Statements and Supplemental Data” of this Report. This discussion contains forward-looking statements based on the views and beliefs of our management, as well as assumptions and estimates made by our management. These statements by their nature are subject to risks and uncertainties, and are influenced by various factors. As a consequence, actual results may differ materially from those in the forward-looking statements. See “Item 1A. Risk Factors” of this Report for the discussion of risk factors and see “Cautionary Statement Regarding Forward-Looking Statements” for information on the forward-looking statements included below.

Summary of 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 audited financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. MD&A is organized as follows:

Results of Operations

Twelve months ended December 31, 2024, compared to the twelve months ended December 31, 2023.

The following table summarizes the consolidated results of operations for the changes between the periods. Effective on April 1, 2024, the Golden Matrix acquired 100% of the MeridianBet Group, which was accounted for as a reverse merger. As a result, the historical financial information below represents the accounts of MeridianBet Group. Golden Matrix’s operations before the Meridian Purchase were excluded prior to April 1, 2024, the effective closing date of the Meridian Purchase.

Revenue. Revenue increased by $58,122,011, or 63%, to $151,115,532 for the twelve months ended December 31, 2024, from $92,993,521 for the twelve months ended December 31, 2023. The increase was primarily attributable to the acquisition of Golden Matrix, which contributed $44,885,110 of revenues in the twelve months ended December 31, 2024. $32,401,718 of the revenues were from prize competitions and trade promotions, and $11,230,611 of the revenues were from resale of third-party gaming content and software usage, both of which did not exist until the acquisition of Golden Matrix. Revenues from online casinos increased by $8,126,070, or 24%, to $42,529,464, for the twelve months ended December 31, 2024, from $34,403,393 for the twelve months ended December 31, 2023, mainly due to the increase in the offer of online casino games from different providers to 1500+, the launch of our integrated Play'n GO provider, the launch of the new game "Super Heli" from the Company’s studio Expanse, which became a top 3 most popular game in the third quarter of 2024, and revenues from online sports betting which increased by $4,149,050, or 12%, to $37,604,954, for the twelve months ended December 31, 2024, from $33,455,904 for the twelve months ended December 31, 2023, mainly due to our marketing campaigns, including marketing around the European football/soccer Championship in June 2024 and the Summer Olympic Games in August/September of 2024. Revenues from retail sports betting and retail casino increased by $814,105, or 4%, to $23,183,054 for the twelve months ended December 31, 2024, from $22,368,949 for the twelve months ended December 31, 2023, mainly due to an increase in the number of new slot machines (120) and favorable retail sports results during the month of June 2024, thanks to the impact of the European football/soccer championship during June/July 2024.

COGS. Costs of goods sold increased by $37,793,114, or 153%, to $62,543,407 for the twelve months ended December 31, 2024, from $24,750,293 for the twelve months ended December 31, 2023. The increase was primarily attributable to the acquisition of Golden Matrix, which contributed $33,401,741 to COGS in the twelve months ended December 31, 2024. A total of $24,439,740 of the COGS was from prize competitions and trade promotions, and $8,783,959 of the COGS was from resale of third-party gaming content, both of which did not exist until the acquisition of Golden Matrix effective on April 1, 2024. COGS from online casinos, online sports betting, retail casinos and retail sports betting increased by $4,347,736 in total, or 18%, to $28,018,654 for the twelve months ended December 31, 2024, from $23,670,918 for the twelve months ended December 31, 2023, mainly due to the increase in the variable amounts of gaming tax and software fee costs which were in line with the increase in income from online casinos, online sports betting, retail casinos and retail sports betting.

Gross profit. Gross profit increased by $20,328,897, or 30%, to $88,572,125 for the twelve months ended December 31, 2024, from $68,243,228 for the twelve months ended December 31, 2023. The increase was primarily attributable to the acquisition of Golden Matrix, which contributed $11,483,369 to gross profit in the twelve months ended December 31, 2024. Gross profit from online casinos, online sports betting, retail casinos and retail sports betting increased by $8,741,490 or 13%, for the twelve months ended December 31, 2024, compared to the twelve months ended December 31, 2023. The increase in the gross profit was mainly due to the increase in the revenues as discussed above.

General and administrative expenses (G&A). General and administrative expenses increased by $31,344,423, or 58%, to $85,828,421 for the twelve months ended December 31, 2024, from $54,483,998 for the twelve months ended December 31, 2023. General and administrative expenses consisted primarily of stock-based compensation, depreciation expenses, amortization expenses, salary and wages, professional fees, marketing expenses, bad debt expense, rents and utilities. The reasons for the increase in the G&A are discussed in greater detail below:

Stock-based compensation (within G&A) for the twelve months ended December 31, 2024, was $4,627,557, compared to $0 for the twelve months ended December 31, 2023, a $4,627,557 increase from the prior period, which was due mainly to restricted stock units (RSUs) granted to employees and directors of the Company, as well as shares issued for services during the period.

Amortization expenses for the twelve months ended December 31, 2024, were $6,373,696, compared to $1,898,027 for the twelve months ended December 31, 2023, a $4,475,669, or 236% increase from the prior period, which was due mainly to the amortization of the new intangible assets recognized as a result of the acquisition of Golden Matrix.

Salaries and wages for the twelve months ended December 31, 2024, were $21,230,038, compared to $14,591,220 for the twelve months ended December 31, 2023, a $6,638,818 or 45% increase from the prior period, which was due partially to $2,506,238 of salaries paid to employees of Golden Matrix after the acquisition. Salaries paid to employees of MeridianBet Group increased by $4,132,580, which was due mainly to increased headcount to both support revenue growth and to enable the entry into new markets for the current period, as well as an increase in employee salaries, compared to the prior period.

Professional fees for the twelve months ended December 31, 2024, were $3,992,383, compared to $2,024,135 for the twelve months ended December 31, 2023, a $1,968,248 or 97% increase from the prior period, which was due partially to the $1,173,025 of professional fees of Golden Matrix after the acquisition, in connection with the acquisition of Golden Matrix, Classics, fund raising and accounting fees. Professional fees of MeridianBet Group increased by $795,223, which was mainly due to consulting services as well as legal and audit services, in connection with the acquisition with Golden Matrix.

Marketing expenses for the twelve months ended December 31, 2024, were $18,925,124, compared to $12,190,153 for the twelve months ended December 31, 2023, a $6,734,971 or 55% increase from the prior period, which was due partially to the $4,088,272 of marketing fees from Golden Matrix after the acquisition, in connection with prize competitions in the UK, trade promotions in Australia and online casino business in Mexico, and the resale of gaming content in the Asia Pacific region. Marketing expenses of MeridianBet Group increased by $2,646,699, primarily driven by our focused efforts around the European football/soccer championship (EURO 2024, June/July 2024) and the Summer Olympic Games in August/September 2024. We invested in new video content on YouTube, TV commercials, billboards, and strategic sponsorships. Additionally, our expanded online campaigns on Facebook and Google, along with organizing trips for our customers, reflect our traditionally rooted commitment to investing in customer engagement and brand visibility.

Rents and utilities for the twelve months ended December 31, 2024, were $6,845,588, compared to $5,691,895 for the twelve months ended December 31, 2023, a $1,153,693 or 20% increase from the prior period, which was mainly due to the opening of new betting shops, which contributed to the growth of rent and utility costs, as well as the general increase in heating, electricity, telephone and internet costs, due to inflationary trends.

Bad debt expense for the twelve months ended December 31, 2024 were $1,358,147, compared to $304,358 for the twelve months ended December 31, 2023, a $1,053,789 or 346% increase from the prior period, which was mainly due to the recognition of an allowance for doubtful accounts related to aged receivables from the Company’s resale of gaming content business that were deemed uncollectible.

Interest expense. The interest expense increased by $3,485,125, or 2,490%, to $3,521,288 for the twelve months ended December 31, 2024, from $36,163 for the twelve months ended December 31, 2023. The increase was mainly due to the amortization of debt discount related to the issuance of the Secured Convertible Note in the amount of $2,157,607 and interest from Facility Agreement in the amount of $1,114,524.

Interest earned. The interest earned increased by $120,325, or 123%, to $218,145 for the twelve months ended December 31, 2024, from $97,820 for the twelve months ended December 31, 2023. The increase was mainly due to earned interest income from term deposits with banks.

Foreign exchange loss. The foreign exchange loss increased by $(567,284), to $(494,825) for the twelve months ended December 31, 2024, from a gain of $72,459 for the twelve months ended December 31, 2023. This increase was primarily driven by the appreciation of the USD against the AUD and MXN, affecting subsidiaries that owe balances to the parent company in USD and the depreciation of the USD against the Euro and RSD, currencies in which the Company holds debts.

Other Income. Other income is related to income from marketing services for third-party advertising in MeridianBet Group betting shops, the sale of fixed assets, value-added-tax (VAT) refunds, income from compensation for damages, income from reduction of liabilities and other income that is not directly related to the Company's core activity. For the twelve months ended December 31, 2024, and 2023, other income amounted to $2,262,782 and $1,572,256, respectively. The increase of $690,526 for the twelve months ended December 31, 2024, versus the twelve months ended December 31, 2023, is attributable to other operating income from the franchise partners such as marketing services, customer support services, staff training services, etc.

Provision for income taxes. The provision for income tax increased by $1,047,651, or 67%, to $2,618,367 in the twelve months ended December 31, 2024, from $1,570,716 in the twelve months ended December 31, 2023.  The increase was mainly due to $1,468,472 in accrued tax expenses in Greece, discussed in greater detail in “NOTE 21 - COMMITMENTS AND CONTINGENCIES”, in the notes to the financial statements included under “Item 8. Financial Statements and Supplementary Data”, as well as $558,637 in income taxes related to prize competitions in the UK and trade promotions in Australia, which were acquired as part of the Golden Matrix acquisition effective on April 1, 2024.

Net income (loss) attributable to noncontrolling interest. Net income (loss) attributable to noncontrolling interest in the acquired entity is measured at their proportionate share of the acquired entity’s and for (a) Bit Tech Tanzania in the percentage of 10%, (b) Meridian Gaming Peru in the percentage of 24.5%, (c) Fair Champions Meridian Cyprus in the percentage of 49%, and (d) Classics Holding Pty Ltd Australia in the percentage of 20%. For the twelve months ended December 31, 2024, and 2023, net income attributable to noncontrolling interest amounted to $70,400 and $192,348, respectively. The decrease was primarily due to the net loss incurred by the companies for the twelve months ended December 31, 2024.

Net income (loss) attributable to GMGI. Net income attributable to GMGI decreased by $15,182,787, or 111%, to a net loss of $1,480,249 for the twelve months ended December 31, 2024, from net income of $13,702,538 for the twelve months ended December 31, 2023. The decrease was mainly due to an increase in the general and administrative expenses, foreign exchange losses, and interest expenses as discussed above.

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.

Cash Requirements, Liquidity and Capital Resources

We had $30,125,944 of cash on hand and a working capital deficit of $18,484,062 as of December 31, 2024. We believe our cash on hand is sufficient to meet our current working capital and capital expenditure requirements for a period of at least twelve months. We will continue to evaluate our long-term operating performance and cash needs and we believe we are well positioned to continue to fund the long-term operations of our business. We may raise additional equity and debt funding in the future, including up to $8.5 million that is available to be sold under our November 22, 2024, Equity Distribution Agreement in at-the-market offerings

Our material cash requirements include the following contractual obligations:

Debt:

The Company currently has the following outstanding debts:

See “NOTE 15 – LONG TERM LIABILITIES” in the notes to the financial statements included under “Item 8. Financial Statements and Supplementary Data”, for more details on these debts.

Consideration payable to the former owners of MeridianBet Group:

As discussed in greater detail in “NOTE 22 - MERIDIANBET GROUP PURCHASE AGREEMENT”, in the notes to the financial statements included under “Item 8. Financial Statements and Supplementary Data”, the Company incurred the following payment obligations in connection with the Meridian Purchase:

Contingent obligation:

The Company had a possible holdback payment of approximately $626,450 (GBP 500,000) as part of the consideration for the acquisition of RKings. The holdback is contested by the Company and currently subject to ongoing claims.

Holdback Cash Considerations to Classics Sellers

The Holdback Cash in the amount of AUD $500,000 (USD $326,700) is to be released to the Classics Sellers, if (and only if) the Company determines, within six (6) months after the Closing Date (defined below) that the Classics Sellers have not defaulted in, or breached, any of their obligations, covenants or representations under the Exchange Agreement and/or under the Shareholders Agreement.

Liquidity and capital resources

The Company had $30,125,944 of cash on hand at December 31, 2024 and total assets of $213,717,593 ($45,066,481 of which were current assets) and a working capital deficit of $18,484,062 as of December 31, 2024. The working capital deficit was mainly due to $17,291,241 of current portion of long-term loans included in current liabilities as well as $19,870,460 current consideration payable to the Meridian Sellers. Included in total assets at December 31, 2024 was $71,249,119 of goodwill and $56,393,457 in net intangible assets, as discussed in greater detail above under “NOTE 8 – INTANGIBLE ASSETS– SOFTWARE, LICENSES, TRADEMARKS, DEVELOPED TECHNOLOGY,  CUSTOMER RELATIONSHIPS, AND NON-COMPETE AGREEMENTS”, in the notes to the financial statements included under “Item 8. Financial Statements and Supplementary Data”.

The Company had $20,405,296 of cash on hand and total assets of $79,852,980 ($26,929,402 of which were current assets) at December 31, 2023. The Company had total working capital of $9,355,540 as of December 31, 2023. Included in total assets at December 31, 2023 was $15,107,422 in net intangible assets, as discussed in greater detail above under “NOTE 8 – INTANGIBLE ASSETS– SOFTWARE, LICENSES, TRADEMARKS, DEVELOPED TECHNOLOGY,  CUSTOMER RELATIONSHIPS, AND NON-COMPETE AGREEMENTS”, in the notes to the financial statements included under “Item 8. Financial Statements and Supplementary Data”.

The increase in cash of $9,720,648 between December 31, 2024, and December 31, 2023, was mainly due to the proceeds from loans and borrowings.

Our financial focus is on long-term, sustainable growth in revenue with the goal of marginal increases in expenses. We believe that 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.

In the future, we may be required to seek additional capital, including to pay amounts due pursuant to the terms of the MeridianBet Group Purchase Agreement, and to repay outstanding debt as discussed above, by selling additional debt or equity securities, which may include up to $8.5 million that is available to be sold under our November 22, 2024, Equity Distribution Agreement in at-the-market offerings, or may 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 15 – LONG TERM LIABILITIES” in the notes to the financial statements included under “Item 8. Financial Statements and Supplementary Data”, for more details on the Company’s debts and lending facilities.

Cash flows

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 twelve months ended December 31, 2024, mainly include stock-based compensation, amortization expenses on intangible assets, and depreciation on property plant and equipment.

The Company generated cash from operating activities of $23,916,426 during the twelve months ended December 31, 2024, due primarily to a $4,337,364 increase in accounts payable and accrued liabilities, a $5,618,901 increase in right of use liabilities, $4,707,313 of stock-based compensation, $2,157,607 of non-cash interest expense related to debt discount amortization, $6,373,696 of amortization expenses relating to intangible assets, and $4,416,495 of depreciation expenses, which was mainly offset by a $1,409,849 net loss, and a $958,112 increase in inventory.

The Company generated cash from operating activities of $23,689,511 during the twelve months ended December 31, 2023, due primarily to $13,894,886 of net income, $1,898,027 of amortization expenses, $3,519,083 of depreciation expenses, a $3,617,968 increase in accounts payable and accrued liabilities, an $843,595 increase in taxes payable, and a $1,839,949 increase in right of use liabilities, which was mainly offset by a $556,447 decrease in other liabilities.

During the twelve months ended December 31, 2024, cash used in investing activities was $37,434,035, which was primarily due to $23,852,949 of consideration paid to the former owners of MeridianBet Group in connection with the Meridian Purchase, $4,126,172 of consideration paid to acquire Classics, $14,827,206 spent on intangible assets, and the $7,164,733 spent on property, plant and equipment, which was partially offset by $17,355,360 in cash assumed from investment in Golden Matrix.

During the twelve months ended December 31, 2023, cash used in investing activities was $13,065,811, which was primarily due to $7,345,778 spent on intangible assets, and $5,744,202 spent on property, plant and equipment.

During the twelve months ended December 31, 2024, cash provided by financing activities was $27,712,266, which was primarily due to proceeds from loans of $25,972,500, attributable to the Unicredit Bank facility, Hipotekarna Bank facility and the Igor Salindrija borrowing, and proceeds from convertible note and warrant of $8,747,556, relating to the Secured Convertible Note and Lind Warrants, discussed in greater detail above in the notes to consolidated financial statements under “NOTE 15 – LONG TERM LIABILITIES—Lind Global Asset Management VIII LLC Securities SPA / Promissory Note” in the notes to the financial statements included under “Item 8. Financial Statements and Supplementary Data”, for more details on these debts, which was offset by repayment of lease of $2,474,864 and repayment of debt of $3,675,091. During the twelve months ended December 31, 2023, cash used in financing activities was $4,153,625, which was primarily due to repayment of lease of $2,354,666 and payments of dividends of $1,798,959 to the former owners of MeridianBet Group.

The Company had a net increase in cash of $9,720,648 for the twelve months ended December 31, 2024, which is mostly attributable to the proceeds from loans and borrowings as discussed above.

Distribution Agreement

On November 22, 2024, we entered into an Equity Distribution Agreement with Craig-Hallum Capital Group LLC. Pursuant to the Distribution Agreement, the Company may sell, at its option, up to an aggregate of $20 million in shares of its common stock through Craig-Hallum, as sales agent. Sales of the common stock made pursuant to the Distribution Agreement, if any, will be made under the Company’s effective Registration Statement on Form S-3. Subject to the terms and conditions of the Distribution Agreement, Craig-Hallum may sell the shares, if any, only by methods deemed to be an “at the market” offering as defined in Rule 415 promulgated under the Securities Act, including without limitation sales made directly through The Nasdaq Capital Market, by means of ordinary brokers’ transactions, in negotiated transactions, to or through a market maker other than on an exchange or otherwise, at market prices prevailing at the time of sale, at prices related to such prevailing market prices, or at negotiated prices and/or any other method permitted by law. The Company is not obligated to sell, and Craig-Hallum is not obligated to buy or sell, any shares of common stock under the Distribution Agreement.

The Company will pay Craig-Hallum a commission equal to 3.00% of any gross proceeds from the sale of shares of the Company’s common stock under the Distribution Agreement. Pursuant to the terms of the Distribution Agreement, the Company also provided Craig-Hallum with customary indemnification rights and has agreed to reimburse Craig-Hallum for certain specified expenses up to $50,000, plus up to $5,000 for each future quarterly period that the Distribution Agreement remains in place. The offering of common stock pursuant to the Distribution Agreement will terminate upon the earlier of (i) the sale of all of the common stock subject to the Distribution Agreement and (ii) the termination of the Distribution Agreement by the Company or Craig-Hallum. Either party may terminate the agreement in its sole discretion at any time upon written notice to the other party.

No assurance can be given that the Company will sell any shares of common stock under the Distribution Agreement, or, if it does, as to the price or amount of shares of common stock that it sells or the dates when such sales will take place.

No shares have been sold under the Distribution Agreement to date.

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 December 31, 2024. EBITDA means net income (loss) before interest, taxes, depreciation and amortization. Adjusted EBITDA means EBITDA before stock-based compensation, and restructuring costs which include charges or expenses attributable to acquisition related costs. EBITDA and 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 they provide 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):

Critical Accounting Policies and Estimates

The discussion and analysis of the Company’s financial condition and results of operations are based upon its consolidated audited 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, 2023, filed with the Commission on January 17, 2024, are those that depend most heavily on these judgments and estimates. As of December 31, 2024, 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, 2023, filed with the Commission on January 17, 2024, 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.

Stock-Based Compensation

The Company accounts for stock-based compensation to employees in accordance with Accounting Standards Codification (ASC) 718, “Compensation-Stock Compensation”. ASC 718 requires companies to measure the cost of employee services received in exchange for an award of equity instruments, including stock options, based on the grant date fair value of the award and to recognize it as compensation expense over the period the employee is required to provide service in exchange for the award, usually the vesting period. Stock option forfeitures are recognized at the date of employee termination.

Recently adopted accounting pronouncements

In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, requiring public entities to disclose information about their reportable segments’ significant expenses and other segment items on an interim and annual basis. Public entities with a single reportable segment are required to apply the disclosure requirements in ASU 2023-07, as well as all existing segment disclosures and reconciliation requirements in ASC 280 on an interim and annual basis. The Company adopted ASU 2023-07 during the year ended December 31, 2024. See “NOTE 19 – SEGMENT REPORTING AND GEOGRAPHIC INFORMATION”, included under “Item 8. Financial Statements and Supplementary Data”, for further detail.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-looking statements

The following discussion of the Company’s historical performance and financial condition should be read together with the consolidated financial statements and related notes in “Item 8. Financial Statements and Supplemental Data” of this Report. This discussion contains forward-looking statements based on the views and beliefs of our management, as well as assumptions and estimates made by our management. These statements by their nature are subject to risks and uncertainties, and are influenced by various factors. As a consequence, actual results may differ materially from those in the forward-looking statements. See “Item 1A. Risk Factors” of this Report for the discussion of risk factors and see “Cautionary Statement Regarding Forward-Looking Statements” for information on the forward-looking statements included below.

Summary of 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 audited 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

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 and (iii) an online casino in Mexico through Golden Matrix MX.

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 RKings (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, 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.

We derive revenues from four distinctive revenue streams; they are segregated into the B2B and B2C segments.

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.

In the B2B segment there are two revenue streams:

(i) Company charges gaming operators for the use of the Company’s unique intellectual property (IP) and technology systems; and

(ii) a royalty charged on the use of third-party gaming content.

As of October 31, 2023, our systems had over 8.2 million registered players and a total of more than 785 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 October 31, 2023, RKings has over 325,000 registered users. GMG Assets has completed 150 transactions since November 1, 2022, representing $5,642,703 in revenues and $198,470 in net income. Also, Mexplay commenced generating revenues from online casino (and related activities) in Mexico in March 2023. As of October 31, 2023, Mexplay has over 61,000 registered users; and since March 2023, it has generated $337,659 in revenues.

In the B2C segment, there are two revenue streams:

(i) 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 (We consider the operations of GMG Assets a part of the operations of RKings in that 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); and

(ii) revenues generated 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 financial focus is on long-term, sustainable growth in revenue with the goal of marginal increases in expenses. The Company’s activity is highly scalable. We are highly encouraged by recent revenue growth, clearly demonstrating the acceptance and reputation of the Company’s GM-X and GM-Ag Systems and its gaming content in the B2B segment as well as the popularity of the Company’s pay to enter prize competitions in the B2C segment. We plan to continuously add new products to our offerings in the B2B segment and expand our tournament platform in the B2C segment and anticipate revenue growth assuming we are successful therewith.

The Company has generated positive cash flows from operating activities since 2018. The Company is self-sustaining, and its cash needs are met through current operations; as of October 31, 2023, the cash balance was $17,100,280. 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 expenses incurred in connection with system development, marketing initiatives, and inventory purchase.

As previously noted, the Company is self-sustaining through its operations and therefore is not considering additional sources of liquidity; however, the Company may consider raising funds through debt, private placements, or additional public offerings for expansion of operations or synergetic acquisitions if additional external funds are sought. Unused sources of liquid assets, as of October 31, 2023, mainly included cash of $17,100,280, receivables (including receivables from related party) of $3,882,629 and inventory of $1,714,525, with offsetting liabilities of $4,479,423.

The Company does not have material cash requirements other than a possible payment of approximately $607,607 (GBP 500,000) in connection with the acquisition of RKings, which payment is currently subject to ongoing claims.

Key elements of our growth strategy include:

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) 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 or equity 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.

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.

Results of Operations

Revenues

The Company currently has four distinctive revenue streams. In the B2B segment there are two revenue streams (i) charges for usage of the Company’s software, and (ii) a royalty charged on the use of third-party gaming content. In the B2C segment, there are two revenue streams (i) selling tickets directly to customers to enter prize competitions in the UK through RKings, and (ii) the operation of an online casino in Mexico.

B2B segment, revenue descriptions:

(i). charges for usage of the Company’s software

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.

Total revenues recognized from the usage of our gaming IP and technology systems for the twelve months ended October 31, 2023 and 2022, are shown in the following table:

The decrease of $178,589 in revenues in the twelve-month period ended October 31, 2023, relating to IP gaming revenues, compared to the twelve-month period ended October 31, 2022, is due to the Company focusing on appointing more resellers of third-party gaming content and reducing its reliance on related parties. The increase in revenues from third-party clients can be attributed to the acquisition of new customers. 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.

Included in the IP and technology systems revenues are $662,532 of revenues 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 twelve months ended October 31, 2022, the Company generated $872,066 of revenues from its unique IP and technology systems, including $862,373 from Articulate.

(ii). a royalty charged on the use of third-party gaming content

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. The Company acquires the third-party gaming content for a fixed cost and resells the content at a margin.

Revenues derived from the reselling of gaming content during the twelve-months ended October 31, 2023 and 2022, are shown in the following table:

This is an increase of $959,610 in revenues in the twelve-month period ended October 31, 2023, relating to third party gaming content, compared to the twelve-month period ended October 31, 2022.  The increase can be attributed to the integration of fresh and popular gaming content into the Company’s GM-Ag system, drawing in a greater number of new customers and operators and boosting usage.

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. The Company has implemented certain strategies to overcome the recent loss of certain gaming operators 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 GM-Ag system.

The Company’s strategic emphasis on expanding product diversity is expected to attract more resellers, allowing the Company to scale its distribution more efficiently and broaden its global reach. As the Company engages additional resellers, it will also increase its number of operators and broaden its global market. We believe that this is achievable via the Company’s GM-Ag system that is more suitable for Latin American and European markets.

B2C segment, revenue description:

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.

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.

Revenues derived from the sales of prize competitions tickets, purchases and sales of prizes from the RKings prize winners as well as the online casino in Mexico during the twelve-months ended October 31, 2023, and 2022, are shown in the following table:

Prize competition tickets and purchases and sales of prizes from the RKings prize winners

During the twelve months ended October 31, 2023, and 2022, revenues from prize competitions were $28,207,113 and $21,186,597, respectively, which included $5,642,703 and $1,024,268, respectively, of revenues which were derived from facilitating cash alternative offers for winners of prizes within RKings’ business. This aspect of the business became effective August 1, 2022. The increase of $7,020,516 in revenues in the twelve-month period ended October 31, 2023, relating to sales of prize competitions tickets, compared to the twelve-month period ended October 31, 2022, is mainly attributable to the revenues derived from facilitating cash alternative offers which did not exist until August 31, 2022, and the introduction of an expanded tournament platform at RKings from June 2023, which has increased popularity and revenues at RKings.

Online casino in Mexico

During the twelve months ended October 31, 2023, and 2022, revenues from online casinos were $337,659 and $0, respectively. The increase of $337,659 in revenues in the twelve-month period ended October 31, 2023, relating to online casino, compared to the twelve-month period ended October 31, 2022, is due to the online casino not being operational until March 2023.

Total B2B and B2C combined revenues for the twelve months ended October 31, 2023 and 2022 were $44,174,052 and $36,034,856, respectively.

Costs of goods sold

The Company currently has three distinctive sources of cost of goods sold.  Two are related to the B2B segment (i.e., (i). charges for usage of the Company’s software and (ii). a royalty charged on the use of third-party gaming content) and the third is related to the B2C segment.

B2B segment, Cost of goods sold descriptions:

(i). charges for usage of the Company’s software

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. The amortization expenses of the stock options granted to consultants recognized in the twelve months ended October 31, 2023 and 2022 are shown in the following table:

During the twelve months October 31, 2023, and 2022, cost of goods sold, due to the amortization of options, was $520,410 and $562,857, respectively. The decrease of $42,447 in the cost of goods sold was due to certain stock options being fully amortized in the prior fiscal year.

(ii). a royalty charged on the use of third-party gaming content

The cost of usage of the third-party content (the reselling of the gaming content) is recognized as a cost of goods sold (COGS). The cost of goods sold during the twelve-months ended October 31, 2023 and 2022 is shown in the following table:

During the twelve months ended October 31, 2023, and 2022, cost of goods sold due to the usage of gaming content was $11,454,420 and $10,352,814, respectively. The increase of $1,101,606 in cost of goods sold from the resale of gaming content in the twelve-month period ended October 31, 2023, compared to the twelve months ended October 31, 2022, was attributable to the increase in the diversity and usage of the gaming content via the Company’s GM-Ag system. The Company incorporated new popular gaming content into its GM-Ag system between 2022 and 2023, leading to enhanced royalty charges. The increase in the cost of goods sold was mainly due to the increased royalty charges associated with the newly integrated gaming content.

B2C segment, Cost of goods sold descriptions:

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.

The Company also incurs cost of goods sold related to the online casino Mexplay for usage of third-party gaming content.  Mexplay commenced generating revenues in March 2023.

Cost of goods sold due to prizes purchased which are awarded to winners of RKings’ prize competitions throughout the United Kingdom and the purchases of prizes from the RKings prize winners as well as the costs of goods sold related to the online casino in Mexico during the twelve-months ended October 31, 2023, and 2022, are shown in the following table:

Prize competition tickets and purchases and sales of prizes from the RKings prize winners

During the twelve months ended October 31, 2023, and 2022, cost of goods sold relating to prizes purchased to be awarded in the prize competitions was $22,287,272 and $15,956,558, respectively. The increase of $6,330,714 in cost of goods sold from the resale of prizes in the twelve-month period ended October 31, 2023, compared to the twelve months ended October 31, 2022, was mainly attributable to the costs related to facilitating cash alternative offers of $5,451,975, as discussed above, which the Company only began offering on August 1, 2022, after the acquisition of GMG Assets.

Online casino in Mexico

During the twelve months ended October 31, 2023 and 2022, cost of goods sold due to usage of third-party gaming content on the online casino in Mexico was $43,079 and $0, respectively. The increase of $43,079 in cost of goods sold in the twelve-month period ended October 31, 2023, relating to online casinos, compared to the twelve-month period ended October 31, 2022, is due to the online casino not being operational during the twelve-month period ended October 31, 2022.

Total cost of goods sold for the twelve months ended October 31, 2023, and 2022 was $34,305,181 and $26,872,229, respectively.

Gross Profit and Gross Profit Margin

We had gross profit of $9,868,871 for the twelve months ended October 31, 2023, compared to gross profit of $9,162,627 for the twelve months ended October 31, 2022, an increase of $706,244 from the prior period, mainly due to the increase of $984,382 of gross profit from the B2C segment, which was mainly due to the increase in revenues from RKings and GMG Assets, as discussed above. RKings and GMG Assets, combined, contributed $5,919,841 and $5,230,039, respectively, to gross profit for the twelve months ended October 31, 2023 and 2022.

Gross profit margin was 22% for the twelve months ended October 31, 2023, compared to 25% for the twelve months ended October 31, 2022. The gross profit margin in B2B segment was 23% for the twelve months ended October 31, 2023, down from 26% in the corresponding period of 2022. This decline in the B2B segment’s gross profit margin can be primarily attributed to the intense competition in the supply of specific brands of online gaming content in the Asia Pacific region and the Company’s aggressive pricing of these prominent brands to attempt to maintain the loyalty of its existing client base and to also expand the customer base by remaining competitive. The Company has already adopted a strategy with the goal of counteracting this challenge and to restore the higher margins by selling gaming content in bundles to its clients. The bundles will contain not only the prominent content but also new popular content on which the Company derives higher margins. Whilst these bundles of content will still be offered at highly competitive prices, they are expected to offer substantially higher margins due to the mix.

The gross profit margin in B2C segment was 22% for the twelve months ended October 31, 2023, compared to 25% for the twelve months ended October 31, 2022. The reduction in the B2C segment’s gross profit margin was largely influenced by the increase in revenues from GMG Assets, which carries a gross profit margin of 3%, thus diluting the overall gross profit margin in the B2C segment.

Moving forward, the Company expects to enhance the variety of gaming content within its GM-Ag system and emphasize the promotion of gaming content with higher profit margins in the B2B segment. Additionally, the Company plans to persist in the expansion of RKings’ website, undertaking initiatives to introduce a new and more diverse range of tournaments offering higher margins.

General and administrative Expenses

General and administrative expenses consist primarily of stock-based compensation, advertising and promotion expenses, travel expenses, website maintenance expenses, payroll costs, office expenses, bank charges, commission expenses, lease expenses, gaming license expenses, professional fees, depreciation expenses and amortization expenses on our intangible asset (see “NOTE 9 – INTANGIBLE ASSETS – SOFTWARE PLATFORM, WEBSITE DEVELOPMENT COSTS, TRADEMARKS AND NON-COMPETE AGREEMENTS” to the financial statements included herein under Item 8. Financial Statements and Supplementary Data). Total general and administrative expenses for the twelve months ended October 31, 2023 and 2022, are shown in the following table:

The increase in the general and administrative expenses for the twelve months ended October 31, 2023, compared to the twelve months ended October 31, 2022, was mainly due to increased stock-based compensation expense of $829,279 for employees and consultants, increased payroll costs of $681,159 in the B2B segment, increased consulting fees of $296,771 and increased operating expenses of $497,278 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. The increase in consulting fees was mainly related to the oversight of RKings and Mexplay, as well as the customer service within the B2B segment. The operating expenses of Mexplay were primarily associated with the marketing expenditures, payment gateway transaction fees and accounting service fees.

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 twelve months ended October 31, 2023 and 2022, general and administrative expenses from related parties were $1,963,926 and $2,841,137, respectively. The components of general and administrative expenses from related parties are as follows:

During the twelve-months ended October 31, 2023, and 2022, the stock compensation expenses decreased as the Company determined that it is not probable that the EBITDA performance condition for RSUs issued to directors and specific consultants would be achieved for the fiscal year ended October 31, 2023. Only the revenue performance condition will be met for the RSUs. Consequently, the Company recognized stock-based compensation cost for half of the RSUs granted to directors and certain consultants, in contrast to the full vesting observed in the preceding fiscal year. The consulting and salary expense increased by $124,831, which is principally due to the increased compensation to the Company’s directors and officers.

Interest Expense

During the twelve-months ended October 31, 2023, and 2022, interest expense was $12,400 and $0, respectively. The increase in interest expense was due to interest on the Company’s credit card balance, interest charged on the overdue tax liabilities of RKings, and interest charged on the overdue payroll tax liabilities of GTG.

Interest income

Interest income was attributable to the interest from the bank savings. During the twelve-months ended October 31, 2023, and 2022, interest income was $57,004 and $9,190, respectively. The increase of $47,814 in interest income was mainly due to an increase in interest rates.

Foreign Exchange Gain (loss)

The foreign exchange gain (loss) is mainly due to the fluctuation of the Euro, British Pound, Mexican Peso against the U.S. dollar, and as a result of certain suppliers billing the Company in Euros, and settlement of other liabilities in currencies other than U.S. dollars.

During the twelve-months ended October 31, 2023,  the foreign exchange loss was $7,801, and during the twelve-months ended October 31, 2022, the foreign exchange gain was $261,395. The decrease of $269,196 of foreign exchange gain was mainly due to the depreciation of the US dollar against other currencies, in which the Company has liabilities.

Provision for income taxes

The provision for income taxes was $683,306 for the twelve months ended October 31, 2023, compared to $419,049 for the twelve months ended October 31, 2022. The increase of $264,257 was attributable to the increase in UK gross profits resulting in the corresponding increase in tax expenses in the B2C segment in the UK. There is no provision for income taxes in the B2B segment during the twelve months ended October 31, 2023, and 2022, as a result of operating losses carried forward in the B2B segment.

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 twelve months ended October 31, 2023 and 2022, was $0 and $294,066, 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 October 31, 2023, and for the twelve months ended October 31, 2023, there is no noncontrolling interest in RKings and the noncontrolling interest is $0.

The net income attributable to noncontrolling interest of $294,066 for the twelve months ended October 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 twelve-months ended October 31, 2023, and 2022, net loss was $1,172,750 and $250,038, respectively. The increase in net loss of $922,712 is mainly due to an increase in B2B payroll costs of $681,159, an increase in Mexplay operation costs of $497,278, an increase in consulting fees of $296,771, an increase in income tax expenses of $264,257, and a decrease in foreign exchange gain of $269,196, offset by an increase in gross profits of $706,244 and a decrease in net income attributable to noncontrolling interest of $294,066, each as discussed in greater detail above.

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):

Liquidity and Capital Resources

Cash requirements

The Company is self-sustaining, and its cash needs for ongoing operations are met through current operations; as of October 31, 2023, the cash balance is $17,100,280. 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 above, 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 “Item 1. Business, Summary of Recent Material Agreements, Meridian Purchase Agreement” and  “NOTE 18 – MERIDIAN PURCHASE AGREEMENT”, to the financial statements included herein under Item 8. Financial Statements and Supplementary Data), the Company agreed to acquire 100% of the Meridian Companies in consideration for cash, a promissory note and equity. The Closing is required to occur prior to March 31, 2024, unless extended by the mutual consent of the parties, or automatically extended upon the occurrence of certain events.

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 due at the Closing, less cash on hand and generated through our operations, and up to $20 million of cash which may be paid from cash on hand of the Meridian Companies at 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 October 31, 2023, include cash of $17,100,280, receivables of $3,882,629 and inventory of $1,714,525, with offsetting liabilities (current and long-term) of $4,479,423.

Capital Resources

The Company does not require material cash requirements for its ongoing operations other than a possible holdback payment of approximately $607,607 (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 $17,100,280 and operations that are self-sustaining, the contested obligations to pay the aforementioned holdback of approximately $607,607 may be met without burdening the Company.

We do not currently have any 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 under “Liquidity and Capital Resources - Cash requirements” of which the initial $30 million is due at the Closing; however, with the consent of, and in the sole discretion of, the Meridian Sellers, up to $20 million of the $30 million required to be paid to the Meridian Sellers by the Company at the closing of the Meridian Purchase Agreement, may be paid from cash on hand of the Meridian Companies at closing, including from the $10 million of cash the Meridian Sellers are required to have as of Closing pursuant to the terms of the Meridian Purchase Agreement. 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.

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.

The below table summarizes our cash and cash equivalents, working capital and shareholders’ equity as of October 31, 2023 and 2022:

The Company had $17,100,280 of cash on hand and total assets of $35,582,817 ($22,852,676 were current assets) at October 31, 2023. The Company had total working capital of $18,373,253 as of October 31, 2023. Included in total assets at October 31, 2023 was $10,381,710 of goodwill associated with the Company’s interest in RKings and $1,960,000 in intangible assets related to trademarks and non-compete agreements.

The Company had total liabilities of $4,479,423 (all of which were current liabilities) as of October 31, 2023, which mainly included $2,847,653 of accounts payable and accrued liabilities, $348,620 of customer deposits, and $476,485 of accrued income tax liability related to RKings’ and GMG Assets’ operations, $607,607 of contingent liability related to the RKings acquisition, and $59,089 of operating lease liabilities related to the Company’s office lease.

The increase in cash of $2,150,607 between October 31, 2023 and 2022, was mainly due to cash generated by operations.

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 $17,100,280 as of October 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.

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 $607,607 (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.

See “Note 3 – Accounts Receivable, Net”, for a description of accounts receivable; “Note 4 – Accounts Receivable – Related Party”, for a description of related party accounts receivable; “Note 5 –  Prepaid Expenses”, for a description of prepaid expenses; “Note 6 – Short-term deposits”, for a description of the Company’s short-term deposits; each included herein under “Item 8. Financial Statements and Supplementary Data.”

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 twelve months ended October 31, 2023, include stock-based compensation, depreciation of equipment, amortization expenses on intangible assets, and unrealized foreign exchange gain on contingent liability.

The Company generated cash from operating activities of $2,206,367 and $2,771,418 for the twelve-months ended October 31, 2023 and 2022, respectively. Cash flows from operating activities include net income adjusted for certain non-cash expenses, and changes in operating assets and liabilities.

Net cash used in investment activities was $95,961 and $4,405,409 for the twelve-months ended October 31, 2023 and 2022.

Net cash provided by (used in) financing activities was $(32,322) and $32,000 for the twelve-months ended October 31, 2023, and 2022, respectively.

Material Events and Uncertainties

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

There can be no assurance that we will successfully address such risks, expenses, and difficulties.

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 this Annual Report on Form 10-K for the year ended October 31, 2023, are those that depend most heavily on these judgments and estimates. “NOTE 2 -- SUMMARY OF ACCOUNTING POLICIES,” to the financial statements included herein under Item 8. Financial Statements and Supplementary Data), 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.

Stock-Based Compensation

The Company accounts for stock-based compensation to employees in accordance with Accounting Standards Codification (ASC) 718, “Compensation-Stock Compensation”. ASC 718 requires companies to measure the cost of employee services received in exchange for an award of equity instruments, including stock options, based on the grant date fair value of the award and to recognize it as compensation expense over the period the employee is required to provide service in exchange for the award, usually the vesting period. Stock option forfeitures are recognized at the date of employee termination.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-looking statements

The following discussion of the Company’s historical performance and financial condition should be read together with the consolidated financial statements and related notes in “Item 8. Financial Statements and Supplemental Data” of this Report. This discussion contains forward-looking statements based on the views and beliefs of our management, as well as assumptions and estimates made by our management. These statements by their nature are subject to risks and uncertainties, and are influenced by various factors. As a consequence, actual results may differ materially from those in the forward-looking statements. See “Item 1A. Risk Factors” of this Report for the discussion of risk factors and see “Cautionary Statement Regarding Forward-Looking Statements” for information on the forward-looking statements included below.

Summary of 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 audited 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

We derive revenues primarily from (1) licensing fees received from gaming operators located in the Asia Pacific (APAC) region that utilize the Company’s technology, and (2) selling prize competitions directly to customers for prizes throughout the United Kingdom (UK).

As to licensing fees, the Company’s goal is to expand our customer base globally and to integrate additional operators, launch additional synergistic products and appoint more distributors. Currently the Company has more than 7.1 million registered users across all gaming operators that utilize the Company’s technology and is currently integrating additional operators to expand this usage.

As to prize competitions tickets, the Company’s goal is to expand and complete its marketing efforts throughout the UK and then expand the platform to other countries throughout Europe and Latin America that allow the selling of prize competition tickets.

As to our Online Casino in Mexico, these operations commenced in November 2022 (post October 31, 2022 year-end) and the Company’s goals are to penetrate the Mexican market with a competitive website that provides users with an online casino site Mexplay (www.mexplay.mx), that features an extensive number of table games, slots, as well as a sportsbook, and offers tournament competition prizes similar to those offered by RKings. Once the site is optimized, the Company’s goal is to expand its marketing efforts throughout Mexico and scale the site and its functions to other Latin American countries.

Our financial focus is on long-term, sustainable growth in revenue with the goal of marginal increases in expenses. The Company’s activity is highly scalable. We are highly encouraged by recent revenue growth, clearly demonstrating the acceptance and reputation of the Company’s GM-X System and its gaming content. We plan to continuously add new products to our offerings and anticipate revenue growth assuming we are successful therewith.

The Company has generated positive cash flows from operating since 2018. The Company is self-sustaining, and its cash needs are met through current operations; as of October 31, 2022, the cash balance was $14,949,673. 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.

As previously noted, the Company is self-sustaining through its operations and therefore is not considering additional sources of liquidity; however, the Company may consider raising funds through debt, private placements, or additional public offerings for expansion of operations or synergetic acquisitions if additional external funds are sought. Unused sources of liquid assets, as of October 31, 2022, mainly included cash of $14,949,673, receivables (including receivables from related party) of $3,054,737 and inventory of $1,147,591, with offsetting liabilities of $2,774,932.

The Company does not have material cash requirements other than a possible payment of approximately $573,197 (GBP 500,000) in connection with the acquisition of RKings, which payment is currently subject to ongoing claims.

EBITDA – Earnings Before Interest Taxes Depreciation Amortization

In addition to our results calculated under generally accepted accounting principles in the United States (“GAAP”), we also present EBITDA below. EBITDA is a “non-GAAP financial measure” presented as a supplemental measure of the Company’s performance. It is not presented in accordance with GAAP. The Company uses EBITDA as a metric of profits and successful operations management. In particular, we use EBITDA in the 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, 2022, 2023 and 2024. EBITDA means net income before interest, taxes, depreciation, amortization and stock-based compensation. EBITDA should be viewed as supplemental to, and not as an alternative for net income or loss calculated in accordance with GAAP.

EBITDA is presented because we believe it provides additional useful information to investors due to the various noncash items during the period. EBITDA is also frequently used by analysts, investors and other interested parties to evaluate companies in our industry. EBITDA is unaudited, and has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our operating results as reported under GAAP. Some of these limitations are: EBITDA does not reflect cash expenditures, or future or contractual commitments; EBITDA does not reflect changes in, or cash requirements for, capital expenditures or working capital needs; EBITDA does 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 does not reflect any cash requirements for such replacements. In addition, other companies in this industry may calculate 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 to Net Income:

Results of Operations

Revenues

The Company currently has three distinctive revenue streams. In the B2B segment there are two revenue streams (i) charges for usage of the Company’s software, and (ii) a royalty charged on the use of third-party gaming content. In the B2C segment, the revenue stream is related to the prize competition tickets sold to enter prize competitions in the UK through RKings.

B2B segment, revenue descriptions:

(i). 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.

Total revenues recognized from the usage of our Gaming IP and technology systems for the twelve months ended October 31, 2022 and 2021, nine months ended October 31, 2021 and 2020, and the twelve months ended January 31, 2021 and 2020 are shown in the following table:

The decrease in revenues, regarding the usage of our Gaming IP and technology systems, in the twelve-month period ended October 31, 2022, compared to the twelve-month period ended October 31, 2021, as well as in the nine-month transition period ended October 31, 2021, compared to the nine-month period ended October 31, 2020, is due to the Company’s shift in focus to appointing resellers of its product and services. A portion of the decrease in revenues by third-party clients can be attributed to the loss of certain major operators from our third-party customers which is being phased out.

The decrease in revenues in the twelve-month period ended January 31, 2021, compared to the twelve-month period ended January 31, 2020, is due to a marginal decrease in revenues from our third-party customers and can be attributed to the reduced performance of certain operators.

(ii) 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. The Company acquires the third-party gaming content for a fixed cost and resells the content at a margin.

Revenues derived from the reselling of gaming content during the twelve-months ended October 31, 2022 and 2021, nine-months ended October 31, 2021 and 2020, and the twelve-months ended January 31, 2021 and 2020, are shown in the following table:

The increase in this category of revenues is due to the Company’s shift in focus to appoint resellers for its products and services. The Company believes its strategy to appoint resellers will allow the Company to scale its distribution more efficiently and broaden its global reach. The Company is seeking to engage additional resellers, increase its number of operators, and broaden its global market. We believe that this is also now achievable via the Company’s GM-Ag system that is more suitable for Latin American and European markets.

The Company believes that there is a significant opportunity to scale this revenue stream with low related expenses and no capital expenditures and also to expand its global reach. We believe the revenue stream is highly scalable i.e., the running and support costs relative to the incremental revenues are low and will reduce exponentially as a percentage of revenues as revenues grow. The Company has been striving to roll out this new product offering to its existing client base and expects to scale up its revenues as a result.

B2C segment, revenue description:

Since the acquisition of 80% of RKings effective November 1, 2021 and the acquisition of GMG Assets on August 1, 2022, the Company generates revenues from sales of prize competitions tickets directly to customers for prizes throughout the United Kingdom ranging from automobiles to jewelry as well as travel and entertainment experiences.

During the twelve months ended October 31, 2022, $21,186,597 of total revenues were derived from prize competitions ticket sales. Included in this amount are $1,024,268 of revenues, since August 1, 2022, from the purchase and sale of prizes the winners opted to receive the cash value of instead of the prize. The Company did not have revenues from the sales of prize competitions tickets prior to November 1, 2021, as it acquired 80% of RKings effective on November 1, 2021 and as discussed above under “Item 1. Business”, the Company acquired 100% of RKings on November 30, 2022, effective as of November 4, 2022.

Total revenues for the twelve months ended October 31, 2022 and 2021 were $36,034,856 and $11,285,731, respectively.

Costs of goods sold

The Company currently has three distinctive sources of cost of goods sold.  Two (i.e., (i) and (ii)) are related to the B2B segment and the third is related to the B2C segment.

(i). Historically, the Company only recognized the value of stock options granted to consultants under the 2018 Equity Incentive Plan as cost of goods sold. This recognition was based on the fact that the stock options directly contributed to the revenue generated by the Company’s GM2 Asset. The amortization expenses of the stock options granted to consultants recognized in the twelve months ended October 31, 2022 and 2021, nine months ended October 31, 2021 and 2020, and the twelve months ended January 31, 2021 and 2020 are shown in the following table:

The increase in the cost of goods sold in the twelve-month period ended October 31, 2022, compared to the twelve-months ended October 31, 2021, was due to new options granted last year in March and September 2021, and in May 2022. The increase in the share price has increased the option valuation based on the Black-Scholes valuation model and therefore increased the amortization expenses over time.

The increase in the option amortization expenses of $194,657 in the nine-month transition period ended October 31, 2021, compared to the nine-months ended October 31, 2020, is due to new options granted during the nine-months ended October 31, 2021. The increase in the share price has increased the option valuation based on the Black-Scholes valuation model and therefore increased the amortization expenses.

The increase in the option amortization expense in the twelve-month period ended January 31, 2021, compared to the twelve-months ended January 31, 2020, is attributable to the options issued during the year. The increase in the share price has also increased the option valuation based on the Black-Scholes valuation model and therefore increased the amortization expenses. The negative cost of goods sold during the twelve months ended January 31, 2020 was due to the adoption of new accounting standard ASU 2018-07.

(ii). Beginning in June 2020, due to the reselling of the gaming content, the cost of usage of the third-party content is recognized as a cost of goods sold (COGS). The cost of goods sold during the twelve-months ended October 31, 2022 and 2021, nine-months ended October 31, 2021 and 2020, and the twelve-months ended January 31, 2021 and 2020 are shown in the following table:

The increase of $3,817,229 in cost of goods sold from the resale of gaming content in the twelve months ended October 31, 2022, versus the twelve months ended October 31, 2021, and the increase of $4,810,581 in cost of goods sold from the resale of gaming content in the nine months ended October 31, 2021, versus the nine months ended October 31, 2020, were attributable to the increased usage of gaming content as a result of an increased number of customers and registered players with our customers.

The increase of $1,724,272 in cost of goods sold from the resale of gaming content in the twelve months ended January 31, 2021, versus the twelve months ended January 31, 2020, is the result of the Company having no such costs before the twelve-months ended January 31, 2021.

While the Company is focusing on appointing additional resellers in order to scale its customer base, sales and global reach, the Company’s gross profit margin may be reduced. However, the Company expects a long-term benefit in the cost of goods as a result of the increase in buying power due to higher overall usage of gaming content.

(iii) Beginning November 1, 2021, in connection with the acquisition of an 80% interest in RKings (which has since increased to 100% as of November 30, 2022, effective as of November 4, 2022) the Company incurs cost of goods sold due to the prizes purchased which are awarded to winners of prize competitions throughout the United Kingdom ranging from automobiles to jewelry as well as travel and entertainment experiences. During the twelve months ended October 31, 2022, $15,956,558 of cost of goods sold related to prizes that were awarded in the prize competitions. Included in this amount are $ 962,793 of cost of goods sold, since August 1, 2022, from the purchase and sale of prizes the winners opted to receive the cash value instead of the prize. The Company did not have cost of goods sold related to prize competitions prior to November 1, 2021.

Total costs of goods sold for the twelve months ended October 31, 2022 and 2021 are $26,872,229 and $7,006,022, respectively.

Gross Profit and Gross Profit Margin

We had gross profit of $9,162,627 for the twelve months ended October 31, 2022, compared to gross profit of $4,279,709 for the twelve months ended October 31, 2021, an increase of $4,882,918, mainly due to $5,230,039 of gross profit contributed from the B2C segment which started with the acquisitions of RKings on November 1, 2021, and GMG Assets on August 1, 2022. RKings and GMG Assets contributed $5,168,564 and $61,475 respectively, to gross profit for the twelve months ended October 31, 2022 and 2021. A decrease of gross profit of $347,121 in the B2B segment was mainly due to the decrease in revenues from the usage of IP and technology systems as discussed above.

We had gross profit of $3,282,984 for the nine months ended October 31, 2021, compared to gross profit of $2,226,383 for the nine months ended October 31, 2020, an increase of $1,056,601, mainly due to the increasing revenues derived from reselling of gaming content which started in June 2020.

Gross profit margin was 25% for the twelve months ended October 31, 2022, compared to 38% for the twelve months ended October 31, 2021, mainly due to the increase in revenues in the resale of gaming content and higher revenues in the B2C segment (i.e., prize competitions), which have a lower gross profit margin compared with revenues from the usage of IP and technology systems. The gross profit margin on revenues from the resale of gaming content was approximately 26% for the twelve months ended October 31, 2022. The Company believes that this resale revenue stream is highly scalable and there is a significant opportunity to scale this resale revenue stream with low related expenses and no capital expenditures and also to expand its global reach. The gross profit margin on the B2C segment was approximately 25% for the twelve months ended October 31, 2022.

Gross profit margin was 35% for the nine months ended October 31, 2021, compared to 68% for the nine months ended October 31, 2020, mainly due to the increase in revenues from resales which had a lower gross profit margin.

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

General and administrative Expenses

General and administrative expenses consist primarily of advertising and promotion expenses, travel expenses, website maintenance expenses, administrative expenses, commission expenses, lease expenses, gaming license expenses and amortization expenses on our intangible asset (see “NOTE 9 – INTANGIBLE ASSETS – SOFTWARE PLATFORM” to the financial statements included herein). Total general and administrative expenses for the twelve months ended October 31, 2022 and 2021, nine months ended October 31, 2021 and 2020, and the twelve months ended January 31, 2021 and 2020 are shown in the following table:

The increase in the general and administrative expenses for the twelve months ended October 31, 2022, compared to the twelve months ended October 31, 2021, was mainly due to $3,131,121 of general and administrative expenses from our B2C segment which started with the acquisitions of RKings on November 1, 2021, and GMG Assets on August 1, 2022.  The expenses mainly include the payroll costs, advertisement, and bank charges for the transaction fees of which RKings accounted for $3,060,844 and GMG Assets accounted for $70,277, for the twelve months ended October 31, 2022 and 2021. The increase in the general and administrative expenses in the B2B segment for the twelve months ended October 31, 2022, compared to the twelve months ended October 31, 2021, was mainly due to the increase in marketing costs and payroll costs.

The increase in the general and administrative expenses for the nine months ended October 31, 2021, compared to the nine months ended October 31, 2020, was mainly due to a marketing fee paid to one of the Company’s customers and certain new expenses which were applicable this fiscal year, but not last, including lease expenses, gaming license expenses, and amortization expenses on our intangible asset. The marketing fee is due to one customer pursuant to a Software Services Agreement which stipulates benchmark targeted gross gaming revenues that the customer is required to achieve in order to obtain a marketing rebate. As such, if the customer generates the benchmark by a predetermined date, then the customer will be granted a marketing rebate of 1% of the gross gaming revenues generated by the customer. The customer has satisfied the requirement of the stipulated June 2021 benchmark which was 4 million Euro gross gaming revenues, and as such was granted the 1% rebate. This rebate resulted in an increase in general and administrative expenses.

The increase in the general and administrative expenses for the twelve months ended January 31, 2021, compared to twelve months ended January 31, 2020, is mainly due to the marketing compensation granted to one of the Company’s customers. As per the Company’s Software Agreement with the customer, the customer is required to achieve benchmark targeted gross gaming revenues in order to obtain a marketing rebate. If the customer generates the benchmark by a predetermined date then the customer will be granted a marketing rebate of 1% of the gross gaming revenues generated by the customer. The customer has satisfied the requirement of the stipulated September 2020 benchmark which was 2 million Euro gross gaming revenues, and as such was granted the 1% rebate.

General and administrative Expenses – Related Parties

General and administrative expenses from related parties consist primarily of amortization expenses due to stock incentives granted to directors and officers, back-office expenses paid to Articulate Pty Ltd (“Articulate”), which is wholly-owned by Anthony Brian Goodman, CEO and Chairman of the Company and his wife Marla Goodman, consulting expenses and salary expenses payable to the Company’s Directors and officers. The components of general and administrative expenses from related parties for the twelve months ended October 31, 2022 and 2021, nine months ended October 31, 2021 and 2020, and the twelve months ended January 31, 2021 and 2020, are shown in the following table:

During the twelve-months ended October 31, 2022 and 2021, the stock compensation expenses increased due to the restricted stock units granted to members of the Board of Directors including executive directors and independent directors on September 16, 2022; the back-office expenses decreased due to the cancellation of a Back Office Services Agreement with Articulate on June 30, 2021; the consulting & salary expense increased by $258,384, which is principally due to the increased compensation to the Company’s directors and officers.

During the nine-months ended October 31, 2021 and 2020, the directors’ stock options amortization expense decreased due to the stock options granted to the Company’s Chief Executive Officer (options to purchase 2,700,000 shares of common stock) and the Chief Operating Officer (options to purchase 700,000 shares of common stock) in addition to other options granted under the 2018 Equity Incentive Plan becoming fully vested and fully amortized; the back-office expenses decreased due to the cancellation of a Back Office Services Agreement with Articulate (a related party owned by the Company’s Chief Executive Officer, Anthony Brian Goodman); the consulting & salary expense increased by $199,116, which is principally due to increased salaries of the Company’s Chief Executive Officer, the Chief Operating Officer and the addition of the Chief Financial Officer’s compensation.

During the twelve-months ended January 31, 2021 and 2020, the amortization expenses increased due to the stock options granted to three Independent Directors under the 2018 Equity Incentive Plan; the back office expenses (with Articulate, a related party owned by the Company’s Chief Executive Officer, Anthony Brian Goodman and his wife) increased due to the increasing cost per month thereof from $5,500 to $11,000 beginning in August 1, 2019; the consulting expenses increased due to the increasing number of Directors which the Company had, and the consulting services provided by Mr. Brett Goodman, a consultant, and the son of the Company’s Chief Executive Officer, who was engaged to assist the Company with building a Peer-to-Peer gaming system.

Professional fees

Professional fees consisted primarily of SEC filing fees, legal fees, financial service fees and accounting and audit fees. The professional fees for the twelve-months ended October 31, 2022 and 2021, the nine months ended October 31, 2021 and 2020, and the twelve months ended January 31, 2021 and 2020, are shown in the following table:

During the twelve-months ended October 31, 2022 and 2021, professional fees increased by $327,176 to $663,315, from $336,139, respectively, mainly due to the Company’s acquisition of RKings, GMG Assets, and the Company’s Nasdaq uplisting application, which was approved effective on March 17, 2022, and other one-time corporate matters which did not occur in the prior period.

During the nine-months ended October 31, 2021 and 2020, professional fees increased by $177,047 to $287,383, from $110,336, respectively, mainly due to legal and accounting fees related to corporate actions, filings with the SEC, preparation of tax returns and period end audits and reviews. Legal fees increased by $112,411 (from $54,556 to $166,967) and accounting and audit fees increased by $53,950 (from $32,550 to $86,500).

During the twelve-months ended January 31, 2021 and 2020, professional fees increased $101,584 from $57,507, to $159,091, respectively, mainly due to the corporate actions and filings with the SEC during the year including the change of fiscal year, a stock reverse split and fees in connection with the filing of our Nasdaq uplisting application.

Research and development expense

Research and development expense was incurred in connection with the building of the Company’s Seamless Aggregation Platform (“Aggregation Platform”) acquired on March 1, 2021, from Gamefish Global Pty Ltd, and the Company’s Proprietary Peer to Peer gaming system. During the twelve-months ended October 31, 2022 and 2021, the research and development expense decreased $155,533 to $23,092, from $178,625, respectively, mainly due to the termination of ongoing development work contemplated by the Asset Purchase Agreement with Gamefish, effective on November 30, 2021.

During the nine-months ended October 31, 2021 and 2020, the research and development expense increased $131,067 to $149,738, from $18,671, respectively, mainly due to increased development of the Aggregation Platform.

During the twelve-months ended January 31, 2021 and 2020, research and development expense was $47,558 and $0, respectively. The research and development expense was incurred in connection with the building of the Company’s Proprietary Peer-to-Peer gaming system.

Bad Debt Expense

During the twelve-months ended October 31, 2022 and 2021 and, the nine-months ended October 31, 2021 and 2020, bad debt expense remained unchanged at $0. Accounts receivables are monitored regularly for impairment and all amounts are collectible except for a reserve for doubtful accounts of $168,557 which was written off during the twelve months ended October 31, 2022 along with the related accounts receivable balance.

During the twelve-months ended January 31, 2021 and 2020, the bad debt expense was $0 and $179,396, respectively.

Interest Expense

During the twelve-months ended October 31, 2022 and 2021, interest expense was $0 and $955, respectively. The decrease of interest expense is mainly due to the decrease in the outstanding balance of the convertible debt and the promissory note with Luxor Capital, LLC (“Luxor”), a Nevada limited liability corporation, which is wholly-owned by the Company’s Chief Executive Officer and Chairman, Anthony Brian Goodman, that was paid in full as of January 31, 2021.

During the nine-months ended October 31, 2021 and 2020, interest expense was $0 and $10,897, respectively. Historically, interest expense was mainly attributed to settlement payable and promissory note to Luxor, a Nevada limited liability corporation, which is wholly-owned by the Company’s Chief Executive Officer and Chairman, Anthony Brian Goodman. The promissory note had an original principal balance of $1,031,567, with interest accruing on the unpaid balance at a rate of 6% per annum. The settlement payable and promissory note were paid in full as of January 31, 2021; therefore, no interest was incurred during the nine months ending October 31, 2021.

During the twelve-months ended January 31, 2021 and 2020, interest expense was $11,852 and $63,583, respectively. The decrease of interest expense is mainly due to the decrease in the outstanding balance of the convertible debt and the promissory note with Luxor that was paid in full as of January 31, 2021.

Interest income

Interest income is related to earnings on the Company’s savings account with Wells Fargo Bank, and interest charges to customers for late payments.

During the twelve-months ended October 31, 2022 and 2021, the interest income was $9,190 and $242, respectively. The increase in interest income is due to the interest charges to customers for late payments.

During the nine-months ended October 31, 2021 and 2020, the interest income was $201 and $1,570, respectively. The decrease in interest income is due to the decrease in the earnings from Wells Fargo Bank.

During the twelve-months ended January 31, 2021 and 2020, interest income was $1,611 and $26,779, respectively. The decrease in interest income is due to the decrease in the earnings from Wells Fargo Bank.

Foreign Exchange Gain (loss)

The foreign exchange gain (loss) is mainly due to the fluctuation of the Euro, British Pound against the U.S. dollar, and as a result of certain suppliers billing the Company in Euros, and settlement of other liabilities in currencies other than U.S. dollars.

During the twelve-months ended October 31, 2022 and 2021, the foreign exchange gain was $261,395 and foreign exchange loss was $39,709, respectively. The increase of foreign exchange gain was due to the settlement of three million GBP consideration payable to acquire RKings and unrealized foreign exchange gain from the GBP £500,000 RKings Purchase Agreement Holdback Amount which is a contingent liability.  The contingent liability is attributable to a dispute between the Company and Mr. Paul Hardman (the seller of a 40% interest in RKings). Mr. Hardman has alleged that he is owed his share of the Purchase Agreement, Holdback Amount (a total of £500,000 (approximately USD $573,000) (half) of the £1,000,000 aggregate amount). The amount of $573,000 is accrued and included in the Company’s liabilities.  However, the Company disputes Mr. Hardman’s claims due to the breaches of the terms of the Purchase Agreement by Mr. Hardman. The Company is vigorously pursuing the claim of breach of the Purchase Agreement by Mr. Hardman which voids the Company’s obligation to pay the Holdback Amount.

During the nine-months ended October 31, 2021 and 2020, the foreign exchange loss was $62,983 and $14,320, respectively.

During the twelve-months ended January 31, 2021 and 2020, the foreign exchange gain was $8,996 and $0, respectively.

Other Expense

On August 25, 2021, the Company first became aware of a default judgment entered against the Company (under its former name Source Gold Corp.), pursuant to an action filed against the Company by NPNC Management LLC (“NPNC”), in the Eighth Judicial District Court of Clark County, Nevada (Case No: A-15-716733-C). The action was originally filed on April 9, 2015, with a default judgment originally granted on November 3, 2015, which default judgment was renewed on August 24, 2021. The default judgment was in the amount of $42,485, plus interest at 18% per annum.

The Company was unaware of the prior default judgment until August 25, 2021, and had no knowledge of any liability, contracts with, or amounts due to, NPNC. On October 1, 2021, in an effort to settle the matter, the Company paid $40,000 to NPNC in full satisfaction of amounts owed.

There were no such expenses in prior periods or throughout the twelve months ended October 31, 2022.

Gain (loss) on derivative liability - note conversion feature

The gain (loss) on derivative liability was mainly due to the change of fair value change of derivative liabilities related to the note conversion features of convertible notes. As of January 31, 2020, all convertible notes were settled.

During the twelve-months ended October 31, 2022 and 2021 as well as the nine-months ended October 31, 2021 and 2020, there was no gain or loss on derivative liability as the convertible notes were settled.

During the twelve-months ended January 31, 2021 and 2020, the loss on derivative liability was $0 and $3,182, respectively. The loss on derivative liability during the January 31, 2020 year was mainly due to the fair value change of derivative liabilities. The Company settled all the derivative liabilities on January 31, 2020; therefore, no gains or losses on derivative liabilities accrued during the January 31, 2021 year.

Provision for income taxes

The provision for income taxes was $419,049 for the twelve months ended October 31, 2022, compared to $0 for the twelve months ended October 31, 2021. The increase was attributable to the tax expenses incurred in the B2C segment starting November 1, 2021, with our acquisition of 80% of RKings. There is no provision for income taxes in the B2B segment during the twelve months ended October 31, 2022 and 2021, as a result of operating losses carried forward in the B2B segment.

There was no provision for income taxes in prior periods.

Net income attributable to noncontrolling interest

For the twelve months ended October 31, 2022, we recorded net income of $294,066 and for the twelve months ended October 31, 2021, we recorded net income of $0, attributable to the noncontrolling interest. The net income attributable to noncontrolling interest was due to the acquisition of an 80% interest in RKingsCompetition Ltd, effective on November 1, 2021. These amounts represent the share of income that is not attributable to the Company.

Net Income (loss) attributable to the Company

During the twelve-months ended October 31, 2022 and 2021, net loss was $250,038 and net income was $700,230, respectively. The increase in net loss of $950,268 is mainly due to the increase in stock-based compensation to directors and officers of $2,095,600.

During the nine-months ended October 31, 2021 and 2020, net income was $648,072 and $345,922, respectively. The increase in net income of $302,150 is mainly due to the increase in gross profit of $1,056,601 from B2B, offset by increases in (i) general and administrative expenses of $698,021, (ii) professional fees of $177,047, and (iii) research and development expense of $131,067.

During the twelve-months ended January 31, 2021 and 2020, net income was $398,080 and $1,982,892, respectively. The decrease in net income of $1,584,812 is mainly due to the increase of $1.4 million in the option amortization expenses.

Liquidity and Capital Resources

The below table summarizes our cash and cash equivalents, working capital and shareholders’ equity as of October 31, 2022 and 2021:

The Company had $14,949,673 of cash on hand and total assets of $32,571,413 ($19,288,950 were current assets) at October 31, 2022. The Company had total working capital of $16,573,796 as of October 31, 2022. The Company had total liabilities of $2,774,932 (of which $2,715,154 were current liabilities) as of October 31, 2022, which mainly included $1,385,076 of accounts payable and accrued liabilities, $109,328 of customer deposits, and 324,147 of accrued income tax liability related to RKings’ operations, $573,197 of contingent liability related to the RKings acquisition, and $154,863 of operating lease liabilities related to the Company’s office lease. The decrease in cash was mainly due to $4,024,703 of cash consideration paid to acquire an 80% interest in RKingsCompetition Ltd, offset by cash generated by operations.

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

In the future, we may be required to seek additional capital by selling additional debt or equity securities, or otherwise be required to bring cash flows in balance when we approach a condition of cash insufficiency. The sale of additional equity or debt securities, if accomplished, may result in dilution to our then 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.

See “Note 3 – Accounts Receivable, Net”, for a description of accounts receivable; “Note 4 – Accounts Receivable – Related Party”, for a description of related party accounts receivable; “Note 5 –  Prepaid Expenses”, for a description of prepaid expenses; “Note 6 – Short-term deposits”, for a description of the Company’s short-term deposits; each included herein under “Item 8. Financial Statements and Supplementary Data.”

The Company generated cash from operating activities of $2,771,418, $1,349,870, $1,271,119, $1,799,079, $1,878,043, and $1,599,319 for the twelve-months ended October 31, 2022 and 2021, the nine-months ended October 31, 2021 and 2020, and the twelve months ended January 31, 2021 and 2020. Cash flows from operating activities include net income adjusted for certain non-cash expenses, and changes in operating assets and liabilities. The $2,771,418 of cash generated from operating activities during the twelve-months ended October 31, 2022 was due primarily to $44,028 of net income, and non-cash expenses relating to stock-based compensation (including stocks, options and restricted stock units issued for services) which totaled $2,665,221 during the twelve-months ended October 31, 2022. The $1,349,870 cash generated from operating activities during the twelve-months ended October 31, 2021, was due primarily to $700,230 of net income, and non-cash expenses relating to stock-based compensation (including options issued for services and stocks issued for services) which were $1,691,345 during the twelve-months ended October 31, 2021.

Net cash used in investment activities was $4,405,409 and $231,314 for the twelve-months ended October 31, 2022 and 2021. During the twelve-months ended October 31, 2022, the cash used in investment activities was due primarily to $4,024,703 of cash consideration paid to acquire an 80% interest in RKingsCompetition Ltd of and $219,934 for acquiring a gaming permit in Mexico.

Net cash provided by (used in) financing activities was $32,000, $10,668,363, $4,051,165, $1,354,412, $7,971,610, and $(861,313) for the twelve-months ended October 31, 2022 and 2021, the nine-months ended October 31, 2021 and 2020, and the twelve months ended January 31, 2021 and 2020, respectively. The $32,000 cash provided by financing activities during the twelve-months ended October 31, 2022 was due primarily to the exercise of options. The $10,668,363 of cash provided by financing activities during the twelve-months ended October 31, 2021 was due primarily to sales of equity securities through private placements, warrant exercises and a public offering.

Recent Fund-Raising Activities

Private Offering of Units

On August 20, 2020, the Company sold, to eleven accredited investors, an aggregate of 527,029 units, with each unit consisting of one share of restricted common stock and one warrant to purchase one share of common stock, at a price of $3.40 per unit, raising cash of $1,791,863. The units were sold pursuant to the Company’s entry into subscription agreements with each investor. The subscription agreements provide the investors customary piggyback registration rights (for both the shares and the shares of common stock underlying the warrants) which remain in place for the lesser of one year following the closing of the offering and the date that the applicable investor is eligible to sell the applicable securities under Rule 144 of the Securities Act, as amended. Such piggyback registration rights agreements also provided that the Company is not required to register securities in a registration statement relating solely to an offering by the Company of securities for its own account if the managing underwriter or placement agent has advised the Company in writing that the inclusion of such securities would have a material adverse effect upon the ability of the Company to sell securities for its own account.

The warrants had an exercise price of $4.10 per share (and no cashless exercise rights), and were exercisable until the earlier of (a) August 20, 2022, and (b) the 30th day after the Company provided the holder of the warrants notice that the closing sales price of the Company’s common stock has closed at or above $6.80 per share for a period of ten consecutive trading days.

From November 23, 2020, to December 7, 2020 (ten consecutive trading days), the closing sales price of the Company’s common stock closed at or above $6.80 per share, and on December 8, 2020, the Company provided notice to the holders of the warrants and that they had until January 7, 2021 to exercise such warrants, or such warrants would expire pursuant to their terms. From December 9, 2020, to January 7, 2021, ten holders of warrants to purchase an aggregate of 409,029 shares of the Company’s common stock exercised such warrants and paid an aggregate exercise price of $1,677,019 to the Company. In connection with such exercises, the Company issued such warrant holders an aggregate of 409,029 shares of restricted common stock.

Separately, effective on January 7, 2021, the Board of Directors of the Company agreed to extend the expiration date of warrants to purchase 118,000 shares of common stock, which would have otherwise expired on January 7, 2021, pursuant to the terms of the warrants, to February 8, 2021, which warrants expired unexercised.

On January 20, 2021, the Company sold an aggregate of 1,000,000 units to one investor, with each unit consisting of one share of restricted common stock and one warrant to purchase one share of common stock, at a price of $5.00 per unit. In total the Company raised cash of $4,999,982 pursuant to the private offering of the units. The units were sold pursuant to the entry into a subscription agreement with the investor. The Subscription Agreement provided the investor customary piggyback registration rights (for both the shares and the shares of common stock underlying the warrants) which remain in place for the lesser of one year following the closing of the offering and the date that the investor is eligible to sell the applicable securities under Rule 144 of the Securities Act. Such piggyback registration rights agreements also provided that the Company is not required to register securities in a registration statement relating solely to an offering by the Company of securities for its own account if the managing underwriter or placement agent have advised the Company in writing that the inclusion of such securities would have a material adverse effect upon the ability of the Company to sell securities for its own account.

The warrants have an exercise price of $6.00 per share (and no cashless exercise rights), and are exercisable until the earlier of (a) January 14, 2023, and (b) the 30th day after the Company provides the holder of the Warrants notice that the closing sales price of the Company’s common stock has closed at or above $10.00 per share for a period of ten consecutive trading days. The warrants include a beneficial ownership limitation, which limits the exercise of the warrants held by the investor in the event that upon exercise such investor (and any related parties of such investor) would hold more than 4.999% of the Company’s outstanding shares of common stock (which percentage may be increased to 9.999% with at least 61 days prior written notice to the Company from the investor).

From April 26, 2021, to May 7, 2021 (the “Triggering Date”) (ten consecutive trading days), the closing sales price of the Company’s common stock closed at or above $10.00 per share. However, as the total number of shares of common stock issuable upon exercise of the Warrants would have exceeded 4.999% of the Company’s common stock, and as an accommodation to the holder of the Warrants, on May 11, 2021, the Company agreed to provide the holder 61 days from the Triggering Date to exercise the Warrants, and as a result the holder had until July 11, 2021 to exercise such Warrants.

On July 9, 2021, the holder exercised a portion of the Warrants to purchase 170,000 shares of the Company’s common stock at $6.00 per share and paid the Company $1,020,000 in connection with such exercise and funds were received by the Company in a total amount of $1,019,982 ($1,020,000 less $18 in bank charges) on July 14, 2021. The Company issued the holder 170,000 shares of common stock in connection with such exercise.

On July 14, 2021, and effective on June 6, 2021, the Company and the holder of the Warrants entered into an Agreement to Amend and Restate Common Stock Purchase Warrant (the “Amendment Agreement”), whereby, in consideration for the holder exercising a portion of the Warrants (warrants to purchase 170,000 shares of common stock, as described above), and as an accommodation to the holder, due to the fact that the Warrants did not contemplate a situation where a Triggering Event would result in the holder holding over 4.999% of the Company’s outstanding common stock, the parties agreed to enter into an Amended and Restated Common Stock Purchase Warrant, effective as of June 6, 2021, amending, restating and replacing the prior Warrant Agreement, and evidencing the right of the holder to purchase 830,000 shares of common stock of the Company (the original 1,000,000 shares less the portion of the Warrants previously exercised)(the “Amended and Restated Warrants”) to remove the Trigger Event and to fix the expiration date thereof as of November 11, 2022. The other terms of the prior Warrant Agreement were not changed and the warrant expired on November 11, 2022.

October 2021 Public Offering

On October 25, 2021, we entered into a Securities Purchase Agreement (the “SPA”) with certain institutional investors (the “Purchasers”) for the sale by the Company in a registered direct offering (the “Offering”) of an aggregate of 496,429 shares of common stock of the Company (the “Shares”), together with warrants to purchase 496,429 shares of common stock (the “Warrants”), at $7.00 per combined Share and Warrant, for aggregate gross proceeds of approximately $3.475 million, before deducting the placement agent fees and related offering expenses. The Offering closed on October 27, 2021.

EF Hutton, division of Benchmark Investments, LLC agreed to act as placement agent (the “Placement Agent”) on a “reasonable best efforts” basis, in connection with the Offering. The Company entered into a Placement Agency Agreement, dated as of October 25, 2021, by and between the Company and the Placement Agent (the “Placement Agency Agreement”). Pursuant to the Placement Agency Agreement, the Placement Agent received an aggregate cash fee of 6% of the gross proceeds of the Offering, a non-accountable expense reimbursement of 1% of the gross proceeds in the Offering, the reimbursement of certain of the Placement Agent’s expenses not to exceed $60,000, and the reimbursement of certain other expenses.

The Shares, Warrants and shares of common stock issuable upon exercise of the Warrants, were registered under the Securities Act, on the Company’s effective shelf registration statement on Form S-3 (File No. 333-260044), filed with the SEC on October 5, 2021, which was declared effective by the SEC on October 15, 2021, and the base prospectus contained therein, and a prospectus supplement forming a part of the effective Registration Statement, dated October 25, 2021, which was filed with the Commission on October 27, 2021.

The Warrants sold in the Offering have a term of three years, and an exercise price of $8.63 per share (subject to customary adjustments for stock splits, dividends and recapitalizations), the closing sales price of the Company’s common stock on October 22, 2021, the last trading day prior to the date that the SPA was entered into. The Warrants provide that they may be exercised on a ‘cashless exercise’ basis if, at any time of exercise, there is no effective registration statement registering, or no current prospectus available for, the issuance or resale of the shares of common stock issuable upon exercise of the Warrants. The exercise of the Warrants is subject to a beneficial ownership limitation, which will prohibit the exercise thereof, if upon such exercise the holder of the Warrants, its affiliates and any other persons or entities acting as a group together with the holder or any of the holder’s affiliates would hold 4.99% (or, upon election of a purchaser prior to the issuance of any shares, 9.99%) of the number of shares of the common stock outstanding immediately after giving effect to the issuance of shares of common stock issuable upon exercise of the Warrants held by the applicable holder, provided that the holders may increase or decrease the beneficial ownership limitation, provided that any increase in beneficial ownership limitation shall not be effective until 61 days following notice to us and in no event shall such beneficial ownership exceed 9.99% and such 61 day period cannot be waived.

The Warrants also include anti-dilution rights, which provide that if at any time the Warrants are outstanding, we issue (or announce any offer, sale, grant or any option to purchase or other disposition) or are deemed to have issued (which includes shares issuable upon exercise of warrants and options and conversion of convertible securities) any common stock or common stock equivalents for consideration less than the then current exercise price of the Warrants, the exercise price of such Warrants will be automatically reduced to the lowest price per share of consideration provided or deemed to have been provided for such securities, subject to certain exceptions.

Material Events and Uncertainties

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

There can be no assurance that we will successfully address such risks, expenses, and difficulties.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of net sales and expenses for each period. “Note 2 - Summary of Accounting Policies,” of the notes to Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K describes the significant accounting policies and methods used in the preparation of the Company’s consolidated financial statements. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

Stock-Based Compensation

The Company accounts for stock-based compensation to employees in accordance with Accounting Standards Codification (ASC) 718, “Compensation-Stock Compensation”. ASC 718 requires companies to measure the cost of employee services received in exchange for an award of equity instruments, including stock options, based on the grant date fair value of the award and to recognize it as compensation expense over the period the employee is required to provide service in exchange for the award, usually the vesting period. Stock option forfeitures are recognized at the date of employee termination.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-looking statements

The following discussion of the Company’s historical performance and financial condition should be read together with the consolidated financial statements and related notes in “Item 8. Financial Statements and Supplemental Data” of this Report. This discussion contains forward-looking statements based on the views and beliefs of our management, as well as assumptions and estimates made by our management. These statements by their nature are subject to risks and uncertainties, and are influenced by various factors. As a consequence, actual results may differ materially from those in the forward-looking statements. See “Item 1A. Risk Factors” of this report for the discussion of risk factors and see “Cautionary Statement Regarding Forward-Looking Statements” for information the forward-looking statements included below.

Overview

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

The Company’s goal is to expand our customer base globally and to integrate additional operators, launch additional synergistic products and appoint more distributors. Currently the Company has more than 1.5 million registered users across all gaming operators that utilize the Company’s technology and is currently integrating additional operators to expand this usage.

Our financial focus is on long-term, sustainable growth in revenue with the goal of marginal increases in expenses. The Company’s activity is highly scalable. We are highly encouraged by recent revenue growth, clearly demonstrating the acceptance and reputation of the Company’s GM-X System and its gaming content. We plan to continuously add new products to our offerings and anticipate revenue growth assuming we are successful therewith.

Novel Coronavirus (COVID-19)

In December 2019, a novel strain of coronavirus, which causes the infectious disease known as COVID-19, was reported in Wuhan, China. The World Health Organization declared COVID-19 a “Public Health Emergency of International Concern” on January 30, 2020 and a global pandemic on March 11, 2020. In March and April, many U.S. states and local jurisdictions began issuing ‘stay-at-home’ orders. Although to date we have not experienced any significant issues associated with the ongoing pandemic, the range of possible impacts on the Company’s business from the coronavirus pandemic could include: (i) changing demand for the Company’s products and services; (ii) rising bottlenecks in the Company’s supply chain; and (iii) increasing contraction in the capital markets. At this time, the Company believes that it is premature to determine the potential impact on the Company’s business prospects from these or any other factors that may be related to the coronavirus pandemic; however, it is possible that COVID-19 and the worldwide response thereto, may have a material negative effect on our operations, cash flows and results of operations.

Currently we believe that we have sufficient cash on hand, and availability to raise additional funding, or borrow additional funding, as needed, to support our operations for the foreseeable future; however, we will continue to evaluate our business operations based on new information as it becomes available and will make changes that we consider necessary in light of any new developments regarding the pandemic.

The future impact of COVID-19 on our business and operations is currently unknown. The pandemic is developing rapidly and the full extent to which COVID-19 will ultimately impact us depends on future developments, including the duration and spread of the virus, as well as potential seasonality of new outbreaks.

Results of Operations

Revenues

The Company currently has two 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. Total revenues recognized from the usage of our Gaming IP and technology systems in the years ended January 31, 2021 and 2020, the six months periods ended January 31, 2020 and 2019, and the fiscal years ended July 31, 2019 and 2018 are shown in the following table:

The decrease in revenues for the fiscal year ended 2021, compared to the fiscal year ended 2020, is due to a marginal decrease in revenues from one of our customers.

The increase in revenues in the six-month transition period ended January 31, 2020, compared to the six-month period ended January 31, 2019, is attributable to an increase in registered end-users from our third-party customer.

The increase in revenues in fiscal year 2019, compared to fiscal year 2018, is attributable to the addition of a new distributor as well as the global expansion by one of our distributors.: (1) on July 1, 2018, Red Label Technology Pte Ltd and the Company entered into a License Agreement. Red Label desired to license the use of the GM-X System to support its business-to-business (B2B) business. During the year ended July 31, 2019, Red Label Technology Pte Ltd contributed to 16% of the total revenue; and (2) on July 1, 2018, Articulate Pty Ltd and the Company entered into an Addendum to License Agreement (the “Addendum”). Articulate requested that the Company provide system for usage in Malaysian Currency. The new market also contributed to 26% of the total revenue in fiscal year 2019.

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. During the year ended January 31, 2021, $2,378,363 in revenues were derived from the reselling of gaming content. There were no such revenues in the previous years or periods. The Company believes that there is a significant opportunity to scale this new revenue stream with low related expenses and no capital expenditures and also to expand its global reach. The new revenue stream is highly scalable i.e., the running and support costs relative to the incremental revenues are low, and will reduce exponentially as a percentage of revenues as revenues grow. The Company plans to strive to roll out this new product offering to its existing client base and expects to scale up its revenues as a result.

Costs of goods sold

The Company currently has two distinctive costs of goods sold.

1) The Company recognized the amortization of stock options granted to consultants under the 2018 Equity Incentive Plan as a cost of goods sold. This recognition is based on the fact that the stock options directly contributed to the revenues generated by the Company’s GM2 Asset. The amortization expenses of the consultants’ stock options recognized in the years ended January 31, 2021 and 2020, the six months periods ended January 31, 2020 and 2019, and the fiscal years ended July 31, 2019 and 2018 are shown in the following table:

The increase in the option amortization expense in fiscal year 2021, compared to 2020 is attributable to the options issued during the year. The increase in the share price has also increased the option valuation based on the Black-Scholes valuation model and therefore increased the amortization expenses.

The decrease in the option amortization expenses in the six-month transition period ended 2020, compared to the six months ended January 31, 2019, and the fiscal year ended 2019, compared to the fiscal year ended July 31, 2018, is due to the adoption of new accounting standard ASU 2018-07, in which the Company was not required to re-value options at each reporting date.

2) From June 2020, due to the reselling of the gaming content, the cost of usage of the third-party content is recognized as a cost of goods sold. During the year ended January 31, 2021, $1,724,272 of costs were recognized. There were no such costs before.

General and administrative Expenses

General and administrative expenses consist primarily of advertising and promotion expenses, travel expenses, website maintenance expenses, and administrative expenses. Total general and administrative expenses in the years ended January 31, 2021 and 2020, the six months periods ended January 31, 2020 and 2019, and the fiscal years ended July 31, 2019 and 2018 are shown in the following table:

The increase in the general and administrative expenses in fiscal year 2021, compared to 2020, is mainly due to the marketing compensation granted to one of the Company’s customers. As per the Company’s Software Agreement with the customer, if the customer reaches a certain amount of usage (based on net income usage), the customer will be granted marketing compensation of 1% per month.

The general and administrative expenses remained consistent during the six-month transition period ended January 31, 2020, compared to the six-month period ended January 31, 2019.

The increase in general and administrative expenses in fiscal year 2019, compared to fiscal year 2018, is attributable to the increase in travel expenses and advertising expenses. During the fiscal year 2019, there was a need for increased travel by management overseas to meet suppliers and attend trade shows. The Company also increased its marketing and awareness efforts, which resulted in higher advertising expenses.

General and administrative Expenses – Related Parties

General and administrative expenses from related parties consist primarily of amortization expenses due to stock options granted to Directors, back-office expenses, consulting expenses and salary expenses payable to the Company's CEO and CFO. The components of general and administrative expenses from related parties in the years ended January 31, 2021 and 2020, the six months periods ended January 31, 2020 and 2019, and the fiscal years ended July 31, 2019 and 2018 are shown in the following table:

During the fiscal years ended January 31, 2021 and 2020, the amortization expenses increased due to the stock options granted to three Independent Directors under the 2018 Equity Incentive Plan; the back office expenses increased due to the increasing cost per month from $5,500 to $11,000 since August 1, 2019; the consulting expenses increased due to the increasing number of Directors and the consulting services provided by Mr. Brett Goodman, a consultant, and the son of our CEO, who has been engaged in to assist the Company with building a Peer-to-Peer gaming system.

During the six months ended January 31, 2020 and 2019, the increasing in stock option amortization expenses were due to the stock options granted to our CEO and CFO on September 19, 2019; and the increasing back office expenses were due to the increasing cost per month from $2,300 to $5,500 since December 1, 2018.

During the fiscal years ended July 31, 2019 and 2018, the increase in general and administrative expenses from related parties were mainly due to the increase in amortization expenses.

Compensation Expense – Acquisition Cost - Related Party

The acquisition cost was a result of an Asset Purchase Agreement entered into on February 28, 2018, with Luxor Capital, LLC (“Luxor”), which is wholly-owned by the Company’s Chief Executive Officer Anthony Brian Goodman. Pursuant to the Asset Purchase Agreement, the Company purchased certain Intellectual Property and Know-how (the “GM2 Asset”) and agreed that 50% of the revenues generated by the GM2 Asset during the 12-month period of March 1, 2018 to February 28, 2019 would be paid to Luxor. As of July 31, 2018, the Company estimated a number for the acquisition cost at $1,242,812.

During the fiscal years ended January 31, 2021 and 2020, the acquisition cost was $0 and $6,791. The acquisition cost for the fiscal year ended January 31, 2020, was an adjustment to the estimated number.

During the six months ended January 31, 2020 and 2019, the acquisition cost was $0 and $84,082, respectively. The acquisition cost for the six months ended January 31, 2019, was an adjustment to the estimated number.

During the years ended July 31, 2019 and 2018, the acquisition cost was $90,873 and $1,242,812, respectively. The acquisition cost for the year ended July 31, 2019, was an adjustment to the estimated number.

Research and development expense

Research and development expense was incurred in connection with the building of the Company’s Proprietary Peer-to-Peer gaming system. During the year ended January 31, 2021, the research and development expense was $47,558. There was not research and development expense before.

Professional fees

Professional fees consisted primarily of SEC filing fees, legal fees and accounting and audit fees. The professional fees in the fiscal years ended January 31, 2021 and 2020, the six months periods ended January 31, 2020 and 2019, and the fiscal years ended July 31, 2019 and 2018 are shown in the following table:

The increase in the professional fees in fiscal year 2021 compared to 2020 is attributable to the corporate actions during the year including the change of fiscal year, stock reverse split and fees in connection with the filing of our NASDAQ uplisting application, which increased the legal service fees for the current year compared to the prior period.

The professional fees remained consistent during the six-month transition period ended January 31, 2020, compared to the six-month period ended January 31, 2019, and fiscal year ended July 31, 2019 compared to the fiscal year ended July 31, 2018, due to the fact that audit costs and legal fees also remained fairly consistent over those periods.

Bad Debt Expense

During the fiscal years ended January 31, 2021 and 2020, bad debt expenses were $0 and $179,396. There was no bad debt expense recorded during this year.

During the six months ended January 31, 2020 and 2019, bad debt expenses were $10,839 and $0, respectively. As of January 31, 2020, the Company had an accounts receivable of $10,839 from Globaltech Software Services LLC, a Company from which our CEO previously had an interest but does not have an interest as of this date. The amount was over one year past due, so the Company decided to record a bad debt expense for the total amount of $10,839.

During the years ended July 31, 2019 and 2018, bad debt expenses were $168,557 and $0, respectively. As of July 31 2019, the Company had an accounts receivable of $433,115 for Red Label Technology Pte Ltd. While management is confident that Red Label Technology will settle the debt, it has recorded a bad debt expense in the amount of $168,557.

Interest Expense

During the fiscal years ended January 31, 2021 and 2020, interest expenses were $11,852 and $63,583, respectively. The decrease of interest expense is mainly due to the decrease in the outstanding balance of notes payable.

During the six months ended January 31, 2020 and 2019, interest expenses were $26,227 and $7,994 respectively. The principal reason for the increase in the interest expense was that the Company issued a Promissory Note of $1,031,567 to Luxor on April 1, 2019. The interest rate for the Promissory Note was 6% per annum.

During the years ended July 31, 2019 and 2018, interest expenses were $45,350 and $162,041 respectively. The principal reason for the decrease in the interest expense was that the Company did not issue any convertible notes during this year, and therefore did not incur any interest expenses due to derivative liabilities.

Gain (loss) on derivative liability - note conversion feature

During the fiscal years ended January 31, 2021 and 2020, the loss on derivative liability was $0 and $3,182, respectively. The loss on derivative liability during last year was mainly due to the fair value change of derivative liabilities. The Company has settled all the derivative liabilities on January 31, 2020 and thus has no gains or losses on derivative liabilities this year.

During the six months ended January 31, 2020 and 2019, loss on derivative liability was $0 and $1,899, respectively. The decrease in the expense was mainly due to the settlement of the convertible notes and fair value change of derivative liabilities.

During the fiscal years ended July 31, 2019 and 2018, loss on derivative liability was $5,081 and $165,514, respectively. The decrease in the expense was mainly due to the settlement of the convertible notes.

Gain (loss) on extinguishment of debt

There was no gain or loss on extinguishment of debt for the fiscal years ended January 31, 2021 and 2020.

During the six months ended January 31, 2020 and 2019, loss on extinguishment of debt was $0 and $106. The loss was due to the settlement of convertible notes (Convertible Note #46) with LG Capital Funding, LLC.

Loss on extinguishment of debt was $106 for the fiscal year ended July 31, 2019 as compared to gain on extinguishment of debt of $129 for the fiscal year ended July 31, 2018.

Interest income

During the fiscal years ended January 31, 2021 and 2020, interest income was $1,611 and $26,779, respectively. The decrease in interest income is due to the decrease in the interest from the Wells Fargo bank.

During the six months ended January 31, 2020 and 2019, interest income was $18,659 and $0, respectively. The interest income was from interest on amounts held in the Company’s Wells Fargo Saving account which the Company opened in February 2019.

During the fiscal years ended July 31, 2019 and 2018, interest income was $8,120 and $0, respectively.

Foreign Exchange Gain (loss)

We had $8,996 of foreign exchange gain during the year ended January 31, 2021. The foreign exchange gain was due to the fluctuation of the Euro against the US dollar, and as a result of certain suppliers billing the Company in Euros.

Net Income (loss)

During the fiscal years ended January 31, 2021 and 2020, net income was $398,080 and $1,982,892, respectively. The decrease in net income is mainly due to the increase in the option amortization expenses, which increased by $1.4 million for the fiscal year ended January 31, 2021, compared to prior period.

During the six months ended January 31, 2020 and 2019, net income was $966,774 and $753,790. The increase in net income was due to the increase in revenues and the decrease in acquisition costs and costs of goods sold.

The Company had net income of $1,769,908 for the financial year ending July 31, 2019 and had a loss of $1,318,373 for the previous year ending July 31, 2018. The increase in net income was due to the increase in revenues and the decrease in acquisition costs, the decrease in interest expenses and the lower derivative expenses as stated above.

Liquidity and Capital Resources

The Company had $11,706,349 of cash on hand at January 31, 2021 and total assets of $13,814,547 (all of which were current assets). The Company had total working capital of $13,261,937 as of January 31, 2021. The Company had total liabilities (which were all current liabilities) of $552,610 as of January 31, 2021, which included $208,521 of accounts payable to related parties, $115,314 of consideration payable to Anthony Brian Goodman, the CEO of the Company, for the acquisition of Global Technology Group Pty Ltd, $78,913 of accounts payable and accrued liabilities, and $149,640 of customer deposits.

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.

In the future, we may be required to seek additional capital by selling additional debt or equity securities, or otherwise be required to bring cash flows in balance when we approach a condition of cash insufficiency. We also plan to sell equity in connection with an underwritten offering pursuant to which we plan to uplist our common stock on The NASDAQ Capital Market, which offering may not be completed on favorable terms, if at all. 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.

See “Note 5 – Notes Payable”, for a description of outstanding notes payable; “Note 7 – Customer Deposits”, for a description of customer deposits; and “Note 8 – Related Party Transactions”, for a description of related party transactions, each included herein under “Item 8. Financial Statements and Supplementary Data.”

The Company generated cash from operating activities of $1,878,043, $1,599,319, $986,723, $839,338, $1,451,934 and $302,716 during the calendar years ended January 31, 2021 and 2020, the six months ended January 31, 2020 and 2019 and during the fiscal years ended July 31, 2019 and 2018, respectively. Cash flows from operating activities include net income adjusted for certain non-cash expenses, and changes in operating assets and liabilities. Significant non-cash expenses for the period include stock-based compensation and imputed interest. The $1,878,043 cash generated during this year was due primarily to $398,080 of net income, and non-cash expenses relating to stock-based compensation (including options issued for services and stock issued for services) which were $1,906,183 during the year ended January 31, 2021.

Net cash provided by investment activities was $192 for the year ended January 31, 2021. There was no cash provided by investing activities for the year ended January 31, 2020. The $192 of cash provided by investment activities during the 2021 fiscal year was due to the acquisition of Global Technology Group Pty Ltd. More details as discussed in “Note 6 – Asset Acquisition – Related Party” to the consolidated financial statements included herein under “Item 8. Financial Statements and Supplementary Data”.

Net cash provided by (used in) financing activities was $7,971,610, $(861,313), $(861,313), $(167,420), $(167,420) and $118,698 for the calendar years ended January 31, 2021, and 2020, the six months ended January 31, 2020 and 2019 and for the fiscal years ended July 31, 2019 and 2018, respectively. The $7,971,610 cash provided during this year was due primarily to the sales of equity securities in August 2020 and January 2021 through private placements and warrant exercises as discussed in “Note 9 – Equity” to the consolidated financial statements included herein under “Item 8. Financial Statements and Supplementary Data”.

Material Events and Uncertainties

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

There can be no assurance that we will successfully address such risks, expenses, and difficulties.

Off‑Balance Sheet Arrangements

We have no off-balance sheet arrangements including arrangements that would affect our liquidity, capital resources, market risk support and credit risk support or other benefits.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of net sales and expenses for each period. The following represents a summary of our critical accounting policies, defined as those policies that we believe are the most important to the portrayal of our financial condition and results of operations and that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain.

Stock-Based Compensation

The Company accounts for stock-based compensation to employees in accordance with Accounting Standards Codification (ASC) 718, “Compensation-Stock Compensation”. ASC 718 requires companies to measure the cost of employee services received in exchange for an award of equity instruments, including stock options, based on the grant date fair value of the award and to recognize it as compensation expense over the period the employee is required to provide service in exchange for the award, usually the vesting period. Stock option forfeitures are recognized at the date of employee termination.

See also the summary of accounting policies below under “Item 8. Financial Statements and Supplementary Data” under “Note 2 – Summary of Accounting Policies.”