Meridian Holdings Inc./NV (MRDN) FY 2023 MD&A

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.