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 September 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: 24,253,124 common shares as of November 4, 2022.

GALAXY GAMING, INC.

QUARTERLY REPORT ON FORM 10-Q FOR THE THREE MONTHS ENDED September 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	17
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	21
Item 4:	Controls and Procedures	21
	PART II
Item 1:	Legal Proceedings	22
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	22
Item 6:	Exhibits	23

PART I

ITEM 1. FINANCIAL STATEMENTS

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


Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 (unaudited)	4
Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income for the three and nine months ended September 30, 2022 and 2021 (unaudited)	5
Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the three and nine months ended September 30, 2022 and 2021 (unaudited)	6
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021 (unaudited)	8
Notes to Condensed Consolidated Financial Statements (unaudited)	9

GALAXY GAMING, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


ASSETS	September 30, 2022			December 31, 2021
Current assets:
Cash and cash equivalents	$	19,275,180		$	16,058,714
Accounts receivable, net of allowance of $250,821 and $348,695, respectively		3,558,352			4,377,165
Inventory		924,021			770,248
Income tax receivable		766,225			1,536,682
Prepaid expenses		893,024			1,125,777
Other current assets		8,640			21,536
Total current assets		25,425,442			23,890,122
Property and equipment, net		67,452			98,594
Operating lease right-of-use assets		1,061,140			1,167,903
Assets deployed at client locations, net		481,362			360,735
Goodwill		1,091,000			1,091,000
Other intangible assets, net		14,110,589			13,677,264
Other assets		245,217			167,087
Total assets	$	42,482,202		$	40,452,705
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	3,399,386		$	374,323
Accrued expenses		2,982,457			2,666,073
Revenue contract liability		44,095			37,500
Current portion of operating lease liabilities		243,038			222,806
Current portion of long-term debt		600,000			1,100,369
Total current liabilities		7,268,976			4,401,071
Long-term operating lease liabilities		895,318			1,019,029
Long-term debt and liabilities, net		52,794,860			52,143,810
Deferred tax liabilities, net		29,000			175,218
Total liabilities		60,988,154			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; 24,327,426 and 23,523,969 shares issued and outstanding, respectively		24,327			23,524
Additional paid-in capital		17,221,963			16,380,597
Accumulated deficit		(35,371,644	)		(33,543,351	)
Accumulated other comprehensive loss		(380,598	)		(147,193	)
Total stockholders’ deficit		(18,505,952	)		(17,286,423	)
Total liabilities and stockholders’ deficit	$	42,482,202		$	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						Nine Months Ended
	September 30, 2022			September 30, 2021			September 30, 2022			September 30, 2021
Revenue:
Licensing fees	$	5,906,989		$	5,281,788		$	17,501,783		$	14,314,127
Total revenue		5,906,989			5,281,788			17,501,783			14,314,127
Costs and expenses:
Cost of ancillary products and assembled components		71,363			26,310			174,392			60,212
Selling, general and administrative		3,340,691			2,740,328			9,867,968			7,984,035
Research and development		127,774			156,768			478,866			405,327
Depreciation and amortization		740,069			722,475			2,189,789			2,160,217
Share-based compensation		329,140			449,564			954,550			1,207,649
Total costs and expenses		4,609,037			4,095,445			13,665,565			11,817,440
Income from operations		1,297,952			1,186,343			3,836,218			2,496,687
Other income (expense):
Interest income		18,674			392			23,166			1,163
Interest expense		(1,896,865	)		(129,422	)		(5,281,322	)		(450,474	)
Share redemption consideration		—			(195,482	)		—			(586,446	)
Foreign currency exchange loss		(255,140	)		(33,781	)		(490,041	)		(31,511	)
Change in fair value of interest rate swap liability		—			—			—			66,009
Other non-recurring (loss) income		(18,255	)		25,000			(18,255	)		25,000
Total other expense, net		(2,151,586	)		(333,293	)		(5,766,452	)		(976,259	)
(Loss) income before benefit (provision) from income taxes		(853,634	)		853,050			(1,930,234	)		1,520,428
Benefit (provision) from income taxes		154,944			21,186			101,941			(7,000	)
Net (loss) income		(698,690	)		874,236			(1,828,293	)		1,513,428
Foreign currency translation adjustment		(77,871	)		(81,716	)		(233,405	)		(139,716	)
Comprehensive (loss) income	$	(776,561	)	$	792,520		$	(2,061,698	)	$	1,373,712

Net (loss) income per share:
Basic	$	(0.03	)	$	0.04		$	(0.07	)	$	0.07
Diluted	$	(0.03	)	$	0.04		$	(0.07	)	$	0.07

Weighted-average shares outstanding:
Basic		24,945,839			20,410,950			24,654,517			20,315,730
Diluted		24,945,839			22,364,694			24,654,517			22,080,338

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	)
Net loss		—			—			—			(698,690	)		—			(698,690	)
Foreign currency translation loss		—			—			—			—			(77,871	)		(77,871	)
Stock options exercised		182,168			182			237,801			—			—			237,983
Share-based compensation		29,175			29			329,111			—			—			329,140
Balance, September 30, 2022		24,327,426		$	24,327		$	17,221,963		$	(35,371,644	)	$	(380,598	)	$	(18,505,952	)

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, 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	)
Net income		—		—		—		874,236			—			874,236
Foreign currency translation loss		—		—		—		—			(81,716	)		(81,716	)
Stock options exercised		119,166		119		62,697		—			—			62,816
Share-based compensation		—		—