10-Q

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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 June 30, 2022


☐	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

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.

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. ☐

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

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:24,116,083 common shares as of August 8, 2022.

GALAXY GAMING, INC.

QUARTERLY REPORT ON FORM 10-Q FOR THE THREE MONTHS ENDED JUNE 30, 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

PART I

ITEM 1. FINANCIAL STATEMENTS

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


Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021 (unaudited)	4
Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income for the three and six months ended June 30, 2022 and 2021 (unaudited)	5
Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the three and six months ended June 30, 2022 and 2021 (unaudited)	6
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021 (unaudited)	7
Notes to Condensed Consolidated Financial Statements (unaudited)	8

GALAXY GAMING, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


ASSETS	June 30, 2022			December 31, 2021
Current assets:
Cash and cash equivalents	$	17,249,631		$	16,058,714
Accounts receivable, net of allowance of $333,978 and $348,695, respectively		4,661,439			4,377,165
Inventory		883,575			770,248
Income tax receivable		766,225			1,536,682
Prepaid expenses		971,559			1,125,777
Other current assets		8,575			21,536
Total current assets		24,541,004			23,890,122
Property and equipment, net		90,579			98,594
Operating lease right-of-use assets		1,118,888			1,167,903
Assets deployed at client locations, net		426,717			360,735
Goodwill		1,091,000			1,091,000
Other intangible assets, net		12,543,802			13,677,264
Other assets		258,879			167,087
Total assets	$	40,070,869		$	40,452,705
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	527,871		$	374,323
Accrued expenses		3,014,122			2,666,073
Revenue contract liability		75,000			37,500
Current portion of operating lease liabilities		237,915			222,806
Current portion of long-term debt		767,645			1,100,369
Total current liabilities		4,622,553			4,401,071
Long-term operating lease liabilities		957,095			1,019,029
Long-term debt and liabilities, net		52,585,791			52,143,810
Deferred tax liabilities, net		201,944			175,218
Total liabilities		58,367,383			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; 24,116,083 and 23,523,969 shares issued and outstanding, respectively		24,116			23,524
Additional paid-in capital		16,655,051			16,380,597
Accumulated deficit		(34,672,954	)		(33,543,351	)
Accumulated other comprehensive loss		(302,727	)		(147,193	)
Total stockholders’ deficit		(18,296,514	)		(17,286,423	)
Total liabilities and stockholders’ deficit	$	40,070,869		$	40,452,705

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

GALAXY GAMING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

(Unaudited)


	Three Months Ended						Six Months Ended
	June 30, 2022			June 30, 2021			June 30, 2022			June 30, 2021
Revenue:
Licensing fees	$	5,676,195		$	4,749,330		$	11,594,794		$	9,032,339
Total revenue		5,676,195			4,749,330			11,594,794			9,032,339
Costs and expenses:
Cost of ancillary products and assembled components		50,439			19,599			103,029			33,903
Selling, general and administrative		3,483,918			2,532,655			6,527,277			5,243,707
Research and development		152,022			129,859			351,092			248,560
Depreciation and amortization		725,258			720,488			1,449,720			1,437,742
Share-based compensation		315,408			441,444			625,410			758,084
Total costs and expenses		4,727,045			3,844,045			9,056,528			7,721,996
Income from operations		949,150			905,285			2,538,266			1,310,343
Other income (expense):
Interest income		2,259			388			4,492			771
Interest expense		(1,697,435	)		(140,142	)		(3,384,457	)		(321,052	)
Share redemption consideration		—			(195,482	)		—			(390,964	)
Foreign currency exchange (loss) gain		(174,638	)		11,355			(234,901	)		2,271
Change in fair value of interest rate swap liability		—			16,187			—			66,009
Total other expense, net		(1,869,814	)		(307,694	)		(3,614,866	)		(642,965	)
(Loss) income before provision for income taxes		(920,664	)		597,591			(1,076,600	)		667,378
Provision for income taxes		(194,977	)		(47,136	)		(53,003	)		(28,186	)
Net (loss) income		(1,115,641	)		550,455			(1,129,603	)		639,192
Foreign currency translation adjustment		(113,585	)		21,207			(155,534	)		(58,000	)
Comprehensive (loss) income	$	(1,229,226	)	$	571,662		$	(1,285,137	)	$	581,192

Net (loss) income per share:
Basic	$	(0.05	)	$	0.03		$	(0.05	)	$	0.03
Diluted	$	(0.05	)	$	0.03		$	(0.05	)	$	0.03

Weighted-average shares outstanding:
Basic		24,665,496			18,952,464			24,506,442			18,895,658
Diluted		24,665,496			20,741,009			24,506,442			20,512,648

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

GALAXY GAMING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

(Unaudited)


	Common Stock						Additional Paid-in			Accumulated			Accumulated Other Comprehensive			Total Stockholders'
	Shares			Amount			Capital			Deficit			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	)
Net loss		—			—			—			(1,115,641	)		—			(1,115,641	)
Foreign currency translation loss		—			—			—			—			(113,585	)		(113,585	)
Surrender of options		(365,751	)		(366	)		(1,279,767	)		—			—			(1,280,133	)
Stock options exercised		671,665			672			733,641			—			—			734,313
Share-based compensation		47,236			47			315,361			—			—			315,408
Balance, June 30, 2022		24,116,083		$	24,116		$	16,655,051		$	(34,672,954	)	$	(302,727	)	$	(18,296,514	)


	Common Stock				Additional Paid-in		Accumulated			Accumulated Other Comprehensive			Total Stockholders'
	Shares		Amount		Capital		Deficit			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	)
Net income		—		—		—		550,455			—			550,455
Foreign currency translation gain		—		—		—		—			21,207			21,207
Stock options exercised		50,000		50		15,451		—			—			15,501
Share-based compensation		55,000		55		441,389		—			—			441,444
Balance, June 30, 2021		22,180,638	$	22,181	$	11,582,910	$	(35,015,971	)	$	(20,309	)	$	(23,431,189	)

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

GALAXY GAMING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended
	June 30, 2022			June 30, 2021
Cash flows from operating activities:
Net (loss) income	$	(1,129,603	)	$	639,192
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		1,449,720			1,437,742
Amortization of right-of-use assets		116,051			113,329
Amortization of debt issuance costs and debt discount		741,981			30,308
Bad debt (recovery) expense		(14,717	)		138,160
Change in fair value of interest rate swap liability		—			(66,009	)
Deferred income tax		26,726			-
Share-based compensation		625,410			758,084
Foreign currency exchange loss		234,644			1,491
Changes in operating assets and liabilities:
Accounts receivable		(385,529	)		(2,196,930	)
Inventory		(294,193	)		(164,796	)
Income tax receivable/payable		752,315			(269,024	)
Prepaid expenses and other current assets		164,307			499,068
Other assets		(91,792	)		(140,124	)
Accounts payable		153,067			(139,760	)
Accrued expenses		(289,371	)		410,314
Revenue contract liability		37,500			45,833
Operating lease liabilities		(113,861	)		(87,218	)
Net cash provided by operating activities		1,982,655			1,009,660
Cash flows from investing activities:
Investment in internally developed software		(174,926	)		(49,900	)
Acquisition of property and equipment		(18,433	)		(40,863	)
Net cash used in investing activities		(193,359	)		(90,763	)
Cash flows from financing activities:
Proceeds from stock option exercises		304,517			26,500
Principal payments on long-term debt		(632,724	)		(1,128,400	)
Net cash used in financing activities		(328,207	)		(1,101,900	)
Effect of exchange rate changes on cash		(270,172	)		(30,773	)
Net increase (decrease) in cash and cash equivalents		1,190,917			(213,776	)
Cash and cash equivalents – beginning of period		16,058,714			5,993,388
Cash and cash equivalents – end of period	$	17,249,631		$	5,779,612
Supplemental cash flow information:
Cash paid for interest	$	2,742,388		$	223,279
Cash paid for income taxes	$	—		$	321,167
Supplemental schedule of non-cash activities: