# Meridian Holdings Inc./NV (MRDN) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Meridian Holdings Inc./NV's 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1437925/000147793225001897/gmgi_10k.htm
Accession: 0001477932-25-001897
Filing date: 2025-03-24
Report date: 2024-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/MRDN/
All MD&A years: /company/MRDN/mda/
Previous year: /company/MRDN/mda/fy2023/ (FY 2023)
Next year: /company/MRDN/mda/fy2025/ (FY 2025)

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:

[[GREPCENT_TABLE]]
[["","\u00b7","Results of Operations. An analysis of our financial results comparing the twelve-month periods ended December 31, 2024 and 2023."],["","\u00b7","Cash Requirements, Liquidity and Capital Resources. An analysis of changes in our consolidated balance sheets and cash flows and discussion of our financial condition."],["","\u00b7","Critical Accounting Policies and Estimates. Accounting estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts."]]
[[/GREPCENT_TABLE]]

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.

[[GREPCENT_TABLE]]
[["","","Twelve Months Ended December 31,"],["","","2024","","","2023","","","$Change","","","%Change"],["Revenue","","$","151,115,532","","","$","92,993,521","","","$","58,122,011","","","","63","%"],["Cost of goods sold (COGS)","","","62,543,407","","","","24,750,293","","","","37,793,114","","","","153","%"],["Gross profit","","","88,572,125","","","","68,243,228","","","","20,328,897","","","","30","%"],["General and administrative expenses","","","85,828,421","","","","54,483,998","","","","31,344,423","","","","58","%"],["Income from operations","","","2,743,704","","","","13,759,230","","","","(11,015,526",")","","","(80",")%"],["Interest expense","","","(3,521,288",")","","","(36,163",")","","","(3,485,125",")","","9637","%"],["Interest earned","","","218,145","","","","97,820","","","","120,325","","","","123","%"],["Foreign exchange gain (loss)","","","(494,825",")","","","72,459","","","","(567,284",")","","","(783",")%"],["Other income","","","2,262,782","","","","1,572,256","","","","690,526","","","","44","%"],["Provision for income taxes","","","2,618,367","","","","1,570,716","","","","1,047,651","","","","67","%"],["Net income (loss)","","","(1,409,849",")","","","13,894,886","","","","(15,304,735",")","","","(110",")%"],["Net income attributable to noncontrolling interest","","","70,400","","","","192,348","","","","(121,948",")","","","(63",")%"],["Net income (loss) attributable to GMGI","","$","(1,480,249",")","","$","13,702,538","","","$","(15,182,787",")","","","(111",")%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["72"],["Table of Contents"]]
[[/GREPCENT_TABLE]]

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.

[[GREPCENT_TABLE]]
[["73"],["Table of Contents"]]
[[/GREPCENT_TABLE]]

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.

[[GREPCENT_TABLE]]
[["74"],["Table of Contents"]]
[[/GREPCENT_TABLE]]

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:

[[GREPCENT_TABLE]]
[["","1.","Unicredit Bank Facility;"],["","2.","Hipotekarna Bank Facility;"],["","3.","Igor Salindrija Facility; and"],["","4.","Lind Global Asset Management VIII LLC Secured Convertible Note."]]
[[/GREPCENT_TABLE]]

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.

[[GREPCENT_TABLE]]
[["75"],["Table of Contents"]]
[[/GREPCENT_TABLE]]

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:

[[GREPCENT_TABLE]]
[["Consideration payable to the former owners of MeridianBet Group","","Cash Consideration Due","","","Cash Consideration Paid","","","Paid In Golden Matrix Shares","","","Cash Consideration Balance as of December 31, 2024"],["Closing Cash Consideration","","$","12,000,000","","","$","12,000,000","","","$","-","","","$","-"],["Deferred Cash Consideration","","","18,000,000","","","","11,498,409","","","","6,000,000","","","","501,591"],["Contingent Post-Closing Cash Consideration due 5 days after the six-month anniversary of the Closing","","","5,000,000","","","","225,000","","","","2,125,000","","","","2,650,000"],["12 Month Non-Contingent Post-Closing Cash Consideration","","","10,000,000","","","","129,540","","","","-","","","","9,870,460"],["18 Month Non-Contingent Post-Closing Cash Consideration","","","10,000,000","","","","-","","","","-","","","","10,000,000"],["Promissory Note Consideration","","","15,000,000","","","","-","","","","-","","","","15,000,000"],["Consideration paid","","$","70,000,000","","","$","23,852,949","","","$","8,125,000","","","$","38,022,051"]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["Description","","As ofDecember 31,","","","As ofDecember 31,"],["","2024","","","","2023"],["Cash and cash equivalents","","$","30,125,944","","","$","20,405,296"],["Working capital (deficit)","","$","(18,484,062",")","","$","9,355,540"],["Shareholders\u2019 equity","","$","108,950,580","","","$","59,986,549"]]
[[/GREPCENT_TABLE]]

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”.

[[GREPCENT_TABLE]]
[["76"],["Table of Contents"]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["","","Twelve Months Ended December 31,"],["","","2024","","","2023"],["Cash provided by operating activities","","$","23,916,426","","","$","23,689,511"],["Cash used in investing activities","","$","(37,434,035",")","","$","(13,065,811",")"],["Cash provided by (used in) financing activities","","$","27,712,266","","","$","(4,153,625",")"]]
[[/GREPCENT_TABLE]]

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.

[[GREPCENT_TABLE]]
[["77"],["Table of Contents"]]
[[/GREPCENT_TABLE]]

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.

[[GREPCENT_TABLE]]
[["78"],["Table of Contents"]]
[[/GREPCENT_TABLE]]

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):

[[GREPCENT_TABLE]]
[["","","Twelve Months Period Ended"],["","","December 31, 2024","","","December 31, 2023"],["Net income (loss)","","$","(1,409,849",")","","$","13,894,886"],["+ Interest expense","","","3,521,288","","","","36,163"],["- Interest income","","","(218,145",")","","","(97,820",")"],["+ Taxes","","","2,618,367","","","","1,570,716"],["+ Depreciation","","","4,416,495","","","","3,519,083"],["+ Amortization","","","6,373,696","","","","1,898,027"],["EBITDA","","$","15,301,852","","","$","20,821,055"],["+ Stock-based compensation","","","4,707,313","","","","-"],["+ Restructuring costs","","","2,184,397","","","","427,223"],["Adjusted EBITDA","","$","22,193,562","","","$","21,248,278"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["79"],["Table of Contents"]]
[[/GREPCENT_TABLE]]

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.