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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended March 31, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 000-30653

 

img154400261_0.jpg 

Galaxy Gaming, Inc.

(Exact name of small business issuer as specified in its charter)

 

 

Nevada

 

20-8143439

(State or other jurisdiction of incorporation or organization)

 

(IRS Employer Identification No.)

 

 

 

6480 Cameron Street Ste. 305 – Las Vegas, NV 89118

(Address of principal executive offices)

 

(702) 939-3254

(Issuer’s telephone number)

 

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

 

Title of each class

 

Trading symbol

 

Name of exchange on which registered

Common stock

 

GLXZ

 

OTCQB marketplace

 

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

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

 

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

 

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 23,779,599 common shares as of May 10, 2022.

 

 


 

GALAXY GAMING, INC.

QUARTERLY REPORT ON FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 2022

TABLE OF CONTENTS

 

 

PART I

 

 

Item 1:

Financial Statements (unaudited)

3

Item 2:

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

15

Item 3:

Quantitative and Qualitative Disclosures About Market Risk

18

Item 4:

Controls and Procedures

18

 

 

PART II

 

 

Item 1:

Legal Proceedings

19

Item 2:

Unregistered Sales of Equity Securities and Use of Proceeds

19

Item 6:

Exhibits

20

 

2


 

PART I

 

ITEM 1. FINANCIAL STATEMENTS

Our financial statements included in this Form 10-Q are as follows:

 

Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021 (unaudited)

4

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months ended March 31, 2022 and 2021 (unaudited)

5

Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the three months ended March 31, 2022 and 2021 (unaudited)

6

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021 (unaudited)

7

Notes to Condensed Consolidated Financial Statements (unaudited)

8

 

3


 

GALAXY GAMING, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

ASSETS

 

March 31,
2022

 

 

December 31,
2021

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

17,242,102

 

 

$

16,058,714

 

Accounts receivable, net of allowance of $332,864 and $348,695, respectively

 

 

4,332,696

 

 

 

4,377,165

 

Inventory

 

 

752,699

 

 

 

770,248

 

Income tax receivable

 

 

765,160

 

 

 

1,536,682

 

Prepaid expenses

 

 

949,634

 

 

 

1,125,777

 

Other current assets

 

 

162,690

 

 

 

21,536

 

Total current assets

 

 

24,204,981

 

 

 

23,890,122

 

Property and equipment, net

 

 

91,518

 

 

 

98,594

 

Operating lease right-of-use assets

 

 

1,110,721

 

 

 

1,167,903

 

Assets deployed at client locations, net

 

 

432,322

 

 

 

360,735

 

Goodwill

 

 

1,091,000

 

 

 

1,091,000

 

Other intangible assets, net

 

 

13,082,297

 

 

 

13,677,264

 

Other assets

 

 

139,217

 

 

 

167,087

 

Total assets

 

$

40,152,056

 

 

$

40,452,705

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

488,235

 

 

$

374,323

 

Accrued expenses

 

 

1,904,179

 

 

 

2,666,073

 

Revenue contract liability

 

 

106,250

 

 

 

37,500

 

Current portion of operating lease liabilities

 

 

223,842

 

 

 

222,806

 

Current portion of long-term debt

 

 

934,433

 

 

 

1,100,369

 

Total current liabilities

 

 

3,656,939

 

 

 

4,401,071

 

Long-term operating lease liabilities

 

 

961,905

 

 

 

1,019,029

 

Long-term debt and liabilities, net

 

 

52,363,551

 

 

 

52,143,810

 

Deferred tax liabilities, net

 

 

6,537

 

 

 

175,218

 

Total liabilities

 

 

56,988,932

 

 

 

57,739,128

 

Commitments and Contingencies (See Note 8)

 

 

 

 

 

 

Stockholders’ deficit

 

 

 

 

 

 

Preferred stock, 10,000,000 shares authorized, $0.001 par value;
   
0 shares issued and outstanding

 

 

 

 

 

 

Common stock, 65,000,000 shares authorized; $0.001 par value;
   
23,762,933 and 23,523,969 shares issued and outstanding, respectively

 

 

23,763

 

 

 

23,524

 

Additional paid-in capital

 

 

16,885,816

 

 

 

16,380,597

 

Accumulated deficit

 

 

(33,557,313

)

 

 

(33,543,351

)

Accumulated other comprehensive loss

 

 

(189,142

)

 

 

(147,193

)

Total stockholders’ deficit

 

 

(16,836,876

)

 

 

(17,286,423

)

Total liabilities and stockholders’ deficit

 

$

40,152,056

 

 

$

40,452,705

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

4


 

GALAXY GAMING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31, 2022

 

 

March 31, 2021

 

Revenue:

 

 

 

 

 

 

Licensing fees

 

$

5,918,599

 

 

$

4,282,901

 

Total revenue

 

$

5,918,599

 

 

$

4,282,901

 

Costs and expenses:

 

 

 

 

 

 

Cost of ancillary products and assembled components

 

 

52,590

 

 

 

14,304

 

Selling, general and administrative

 

 

3,043,359

 

 

 

2,711,052

 

Research and development

 

 

199,070

 

 

 

118,701

 

Depreciation and amortization

 

 

724,462

 

 

 

717,254

 

Share-based compensation

 

 

310,002

 

 

 

316,640

 

Total costs and expenses

 

 

4,329,483

 

 

 

3,877,951

 

Income from operations

 

 

1,589,116

 

 

 

404,950

 

Other income (expense):

 

 

 

 

 

 

Interest income

 

 

2,233

 

 

 

382

 

Interest expense

 

 

(1,687,022

)

 

 

(180,910

)

Share redemption consideration

 

 

 

 

 

(195,482

)

Foreign currency exchange loss

 

 

(60,263

)

 

 

(8,975

)

Change in fair value of interest rate swap liability

 

 

 

 

 

49,822

 

Total other expense, net

 

 

(1,745,052

)

 

 

(335,163

)

(Loss) income before benefit for income taxes

 

 

(155,936

)

 

 

69,787

 

Benefit for income taxes

 

 

141,974

 

 

 

18,950

 

Net (loss) income

 

 

(13,962

)

 

 

88,737

 

Foreign currency translation adjustment

 

 

(41,949

)

 

 

(79,207

)

Comprehensive (loss) income

 

$

(55,911

)

 

$

9,530

 

 

 

 

 

 

 

 

Net (loss) income per share:

 

 

 

 

 

 

Basic

 

$

0.00

 

 

$

0.00

 

Diluted

 

$

0.00

 

 

$

0.00

 

 

 

 

 

 

 

 

Weighted-average shares outstanding:

 

 

 

 

 

 

Basic

 

 

24,405,278

 

 

 

18,838,221

 

Diluted

 

 

24,405,278

 

 

 

20,173,443

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

5


 

GALAXY GAMING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Common Stock

 

 

Additional Paid-in

 

 

Accumulated

 

 

Other Comprehensive

 

 

Total Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Deficit

 

Beginning balance, December 31, 2021

 

 

23,523,969

 

 

$

23,524

 

 

$

16,380,597

 

 

$

(33,543,351

)

 

$

(147,193

)

 

$

(17,286,423

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(13,962

)

 

 

 

 

 

(13,962

)

Foreign currency translation loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(41,949

)

 

 

(41,949

)

Stock options exercised

 

 

219,999

 

 

 

220

 

 

 

195,236

 

 

 

 

 

 

 

 

 

195,456

 

Share-based compensation

 

 

18,965

 

 

 

19

 

 

 

309,983

 

 

 

 

 

 

 

 

 

310,002

 

Balance, March 31, 2022

 

 

23,762,933

 

 

$

23,763

 

 

$

16,885,816

 

 

$

(33,557,313

)

 

$

(189,142

)

 

$

(16,836,876

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Common Stock

 

 

Additional Paid-in

 

 

Accumulated

 

 

Other Comprehensive

 

 

Total Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Deficit

 

Beginning balance, December 31, 2020

 

 

21,970,638

 

 

$

21,971

 

 

$

10,798,536

 

 

$

(35,655,163

)

 

$

37,691

 

 

$

(24,796,965

)

Net income

 

 

 

 

 

 

 

 

 

 

 

88,737

 

 

 

 

 

 

88,737

 

Foreign currency translation loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(79,207

)

 

 

(79,207

)

Stock options exercised

 

 

50,000

 

 

 

50

 

 

 

10,949

 

 

 

 

 

 

 

 

 

10,999

 

Share-based compensation

 

 

55,000

 

 

 

55

 

 

 

316,585

 

 

 

 

 

 

 

 

 

316,640

 

Balance, March 31, 2021

 

 

22,075,638

 

 

$

22,076

 

 

$

11,126,070

 

 

$

(35,566,426

)

 

$

(41,516

)

 

$

(24,459,796

)

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

6


 

GALAXY GAMING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31, 2022

 

 

March 31, 2021

 

Cash flows from operating activities:

 

 

 

 

 

 

Net (loss) income

 

$

(13,962

)

 

$

88,737

 

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

 

 

 

 

 

 

Depreciation and amortization

 

 

724,462

 

 

 

717,254

 

Amortization of right-of-use assets

 

 

57,182

 

 

 

56,472

 

Amortization of debt issuance costs and debt discount

 

 

369,741

 

 

 

12,243

 

Bad debt (recovery) expense

 

 

(15,831

)

 

 

76,160

 

Change in fair value of interest rate swap liability

 

 

 

 

 

(49,822

)

Deferred income tax

 

 

(168,681

)

 

 

-

 

Share-based compensation

 

 

310,002

 

 

 

316,640

 

Foreign currency exchange loss (gain)

 

 

60,263

 

 

 

(3,573

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

14,836

 

 

 

(1,139,395

)

Inventory

 

 

(110,710

)

 

 

(70,010

)

Income tax receivable/payable

 

 

793,522

 

 

 

(42,816

)

Prepaid expenses and other current assets

 

 

34,989

 

 

 

138,788

 

Other assets

 

 

27,870

 

 

 

(144,072

)

Accounts payable

 

 

114,236

 

 

 

(66,044

)

Accrued expenses

 

 

(784,082

)

 

 

834,001

 

Revenue contract liability

 

 

68,750

 

 

 

77,083

 

Operating lease liabilities

 

 

(56,088

)

 

 

(33,817

)

Net cash provided by operating activities

 

 

1,426,499

 

 

 

767,829

 

Cash flows from investing activities:

 

 

 

 

 

 

Investment in intangible assets

 

 

(59,616

)

 

 

(49,900

)

Acquisition of property and equipment

 

 

(6,131

)

 

 

(31,892

)

Net cash used in investing activities

 

 

(65,747

)

 

 

(81,792

)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from stock option exercises

 

 

195,456

 

 

 

10,999

 

Principal payments on long-term debt

 

 

(315,936

)

 

 

(568,638

)

Net cash used in financing activities

 

 

(120,480

)

 

 

(557,639

)

Effect of exchange rate changes on cash

 

 

(56,884

)

 

 

(40,366

)

Net increase in cash and cash equivalents

 

 

1,183,388

 

 

 

88,032

 

Cash and cash equivalents – beginning of period

 

 

16,058,714

 

 

 

5,993,388

 

Cash and cash equivalents – end of period

 

$

17,242,102

 

 

$

6,081,420

 

Supplemental cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$

1,358,531

 

 

$

112,487

 

Cash paid for income taxes

 

$

 

 

$

500

 

Supplemental schedule of non-cash activities:

 

 

 

 

 

 

Debt modification fee payable

 

$

 

 

$

50,185

 

Inventory transferred to assets deployed at client locations

 

$

128,259

 

 

$

29,849

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

7


 

GALAXY GAMING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. NATURE OF OPERATIONS

Unless the context indicates otherwise, references to “Galaxy Gaming, Inc.,” “we,” “us,” “our,” or the “Company,” refer to Galaxy Gaming, Inc., a Nevada corporation (“Galaxy Gaming”).

We are an established global gaming company specializing in the design, development, acquisition, assembly, marketing and licensing of proprietary casino table games and associated technology, platforms and systems for the casino gaming industry. Casinos use our proprietary products and services to enhance their gaming operations and improve their profitability and productivity, as well as to offer popular cutting-edge gaming entertainment content and technology to their players. We market our products and services to online casinos worldwide and to land-based casino gaming companies in North America, the Caribbean, Central America, the United Kingdom, Europe and Africa as well as to cruise ship companies. We license our products and services for use solely in legalized gaming markets. We also license our content and distribute content from other companies to iGaming operators throughout the world.

Disruptions due to the COVID-19 crisis continue to impact our results of operations. Most of the Company’s land-based customers have resumed normal operations. However, some of our customers rely on international travelers from countries that are still enforcing COVID-19 lockdowns or are affected by the war in Ukraine.

We rely on third-party suppliers and manufacturers in China. Many of these suppliers were affected by COVID-19 and the worldwide supply chain disruptions that ensued and, in many cases, are continuing. These disruptions of our suppliers and their contract manufacturers may impact our sales and operating results going forward.

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation. The accompanying condensed financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and the rules of the SEC. In the opinion of management, the accompanying unaudited interim condensed financial statements contain all necessary adjustments (including all those of a recurring nature and those necessary in order for the financial statements to be not misleading) and all disclosures to present fairly our financial position and the results of our operations and cash flows for the periods presented.

These unaudited interim condensed financial statements should be read in conjunction with the financial statements and the related notes thereto included in our 2021 10-K.

The operating results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year.

Basis of accounting. The financial statements have been prepared on the accrual basis of accounting in conformity with U.S. GAAP.

Use of estimates and assumptions. We are required to make estimates, judgments and assumptions that we believe are reasonable based on our historical experience, contract terms, observance of known trends in our Company and the industry as a whole, and information available from other outside sources. Our estimates affect reported amounts for assets, liabilities, revenues, expenses and related disclosures. Actual results may differ from initial estimates.

Consolidation. The financial statements are presented on a consolidated basis and include the results of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

Cash and cash equivalents. Our cash and cash equivalents consist of bank deposits. These deposits are in insured banking institutions, which are insured up to $250,000 per account. To date, we have not experienced uninsured losses, and we believe the risk of future loss is negligible.

Accounts receivable and allowance for doubtful accounts. Accounts receivable are stated at face value less an allowance for doubtful accounts. Accounts receivable are non-interest bearing. The Company reviews the accounts receivable on a quarterly basis to determine if any receivables will potentially be uncollectible. The allowance for doubtful accounts is estimated based on specific customer reviews, historical collection trends and current economic and business conditions.

Goodwill. Goodwill (Note 5) is assessed for impairment at least annually or at other times during the year if events or circumstances indicate that it is more-likely-than-not that the fair value of a reporting asset is below the carrying amount. If found to be impaired, the carrying amount will be reduced, and an impairment loss will be recognized.

8


 

Other intangible assets, net. The following intangible assets have finite lives and are being amortized using the straight-line method over their estimated economic lives as follows:

 

Patents

 

4 - 20 years

Client relationships

 

9 - 22 years

Trademarks

 

30 years

Non-compete agreements

 

9 years

Internally-developed software

 

3 years

 

Other intangible assets (Note 5) are analyzed for potential impairment at least annually or whenever events or changes in circumstances indicate the carrying value may not be recoverable and exceeds the fair value, which is the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the intangible assets. No impairment was recorded for the three months ended March 31, 2022.

Fair value of financial instruments. We estimate fair value for financial assets and liabilities in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement (“ASC 820”). ASC 820 defines fair value, provides guidance for measuring fair value, requires certain disclosures and discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow) and the cost approach (cost to replace the service capacity of an asset or replacement cost). ASC 820 utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels:

Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.

The estimated fair values of cash equivalents, accounts receivable and accounts payable approximate their carrying amounts due to their short-term nature. The estimated fair value of our long-term debt approximates its carrying value based upon our expected borrowing rate for debt with similar remaining maturities and comparable risk. The Company currently has no financial instruments measured at estimated fair value on a recurring basis based on valuation reports provided by counterparties.

Leases. We account for lease components (such as rent payments) separately from non-lease components (such as common-area maintenance costs, real estate and sales taxes and insurance costs). Operating and finance leases with terms greater than 12 months are recorded on the condensed consolidated balance sheets as right-of-use assets with corresponding lease liabilities. Lease expense is recognized on a straight-line basis using the discount rate implicit in each lease or our incremental borrowing rate at lease commencement date (Note 6).

Revenue recognition. We account for our revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers. See Note 3.

Foreign currency translation. The functional currency for PGP is the Euro. Gains and losses from settlement of transactions involving foreign currency amounts are included in other income or expense in the consolidated statements of operations. Gains and losses resulting from translating assets and liabilities from the functional currency to U.S. dollars are included in accumulated other comprehensive income or (loss) in the consolidated statements of changes in stockholders’ deficit.

Net income per share. Basic net income per share is calculated by dividing net income by the weighted-average number of common shares issued and outstanding during the year. Diluted net income per share is similar to basic, except that the weighted-average number of shares outstanding is increased by the potentially dilutive effect of outstanding stock options and restricted stock, if applicable, during the year.

Segment Information. We define operating segments as components of our enterprise for which separate financial information is reviewed regularly by the chief operating decision-makers to evaluate performance and to make operating decisions. We currently have two operating segments (land-based gaming and online gaming) which are aggregated into one reporting segment.

Other significant accounting policies. Our significant accounting policies are described in our 2021 10-K. There have been no material changes to those policies.

New accounting standards not yet adopted. Financial Instruments – Credit Losses. In February 2020, the FASB issued ASU No. 2020-02, Financial Instruments – Credit Losses (Topic 326). ASU 2020-02 provides updated guidance on how an entity should measure credit losses on financial instruments and delayed the effective date of Topic 326 for smaller reporting companies until fiscal years beginning

9


 

after December 15, 2022. Early adoption is permitted. We do not believe the adoption of this guidance will have a material impact on our condensed consolidated financial statements or related disclosures.

NOTE 3. REVENUE RECOGNITION

Revenue recognition. We generate revenue primarily from the licensing of our intellectual property. We recognize revenue under recurring fee license contracts monthly as we satisfy our performance obligation, which consists of granting the customer the right to use our intellectual property. Amounts billed are determined based on flat rates or usage rates stipulated in the customer contract.

Disaggregation of revenue

The following table disaggregates our revenue by geographic location for the following periods:

 

 

 

Three Months
Ended March 31,

 

 

 

2022

 

 

2021

 

North America and Caribbean

 

$

2,291,913

 

 

$

2,451,896

 

Europe, Middle East and Africa

 

 

3,626,686

 

 

 

1,831,005

 

Total revenue

 

$

5,918,599

 

 

$

4,282,901

 

 

Contract liabilities. Amounts billed and cash received in advance of performance obligations fulfilled are recorded as contract liabilities and recognized as performance obligations are fulfilled.

Contract Assets. The Company’s contract assets consist solely of unbilled receivables which are recorded when the Company recognizes revenue in advance of billings. Unbilled receivables totaled $996,258 and $771,293 for the periods ended March 31, 2022 and December 31, 2021, respectively, and are included in the accounts receivable balance in the accompanying condensed consolidated balance sheets.

NOTE 4. INVENTORY

Inventory consisted of the following at:

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Raw materials and component parts

 

$

340,180

 

 

$

413,320

 

Finished goods

 

 

412,519

 

 

 

356,928

 

Inventory, net

 

$

752,699

 

 

$

770,248

 

 

NOTE 5. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill. A goodwill balance of $1,091,000 was created as a result of a transaction completed in October 2011 with Prime Table Games, LLC (“PTG”).

Other intangible assets, net. Other intangible assets, net consisted of the following at:

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Patents

 

$

13,507,997

 

 

$

13,507,997

 

Customer relationships

 

 

14,040,856

 

 

 

14,040,856

 

Trademarks

 

 

2,880,967

 

 

 

2,880,967

 

Non-compete agreements

 

 

660,000

 

 

 

660,000

 

Software

 

 

342,956

 

 

 

283,340

 

Other intangible assets, gross

 

 

31,432,776

 

 

 

31,373,160

 

Less: accumulated amortization

 

 

(18,350,479

)

 

 

(17,695,896

)

Other intangible assets, net

 

$

13,082,297

 

 

$

13,677,264

 

 

For the three months ended March 31, 2022 and 2021, amortization expense related to other intangible assets was $653,330 and $649,171, respectively.

10


 

NOTE 6. LEASES

Lessee

We have operating leases for our corporate office, two satellite facilities in the state of Washington and for certain equipment. We account for lease components (such as rent payments) separately from the non-lease components (such as common-area maintenance costs, real estate and sales taxes and insurance costs). The discount rate represents the interest rate implicit in each lease or our incremental borrowing rate at lease commencement date.

On September 21, 2021, we executed a third amendment to one of our satellite facilities to amend the lease expiration date from December 31, 2021 to December 31, 2023, with monthly base rents of $1,025 from January 1, 2022 to December 31, 2023. As a result of the amendment, we recorded a $23,293 increase to operating lease right-of-use assets and operating lease liabilities.

As of March 31, 2022, our leases have remaining lease terms ranging from three months to 57 months.

Supplemental balance sheet information related to leases is as follows:

 

 

 

As of March 31, 2022

 

 

Amount

 

 

Classification

Operating leases:

 

 

 

 

 

Operating lease right-of-use lease assets

 

$

1,110,721

 

 

 

 

 

 

 

 

 

Operating lease current liabilities

 

$

223,842

 

 

 Current portion of operating lease liabilities

 

 

 

 

 

 

Operating lease long-term liabilities

 

 

961,905

 

 

 Long-term operating lease liabilities

 

 

 

 

 

 

Total operating lease liabilities

 

$

1,185,747

 

 

 

 

 

 

 

 

 

Weighted-average remaining lease term:

 

 

 

 

 

Operating leases

 

4.7 years

 

 

 

 

 

 

 

 

 

Weighted-average discount rate:

 

 

 

 

 

Operating leases

 

 

4.2

%

 

 

 

The components of lease expense are as follows:

 

 

 

Three Months Ended March 31, 2022

 

 

Amount

 

 

Classification

Operating lease cost

 

$

70,905

 

 

Selling, general and administrative expense

 

 

 

 

 

 

 

Supplemental cash flow information related to leases is as follows:

 

 

 

Three Months Ended March 31, 2022

 

 

Amount

 

 

Classification

Cash paid for amounts included in the
   measurement of lease liabilities:

 

 

 

 

 

Operating cash flows from operating leases

 

$

68,840

 

 

 Net income

 

 

 

 

 

 

Right-of-use assets obtained in exchange
   for lease liabilities:

 

 

 

 

 

Operating leases

 

$

 

 

 Supplemental cash flow information

 

11


 

As of March 31, 2022, future maturities of our operating lease liabilities are as follows:

 

Twelve Months Ending March 31,

 

Amount

 

2023

 

$

223,842

 

2024

 

 

235,551

 

2025

 

 

245,204

 

2026

 

 

266,645

 

2027

 

 

214,505

 

Thereafter

 

 

 

Total lease liabilities

 

$

1,185,747

 

 

NOTE 7. LONG-TERM LIABILITIES

Long-term liabilities consisted of the following at:

 

 

 

March 31,

 

 

December 31,

 

 

 

2022