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9

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

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

 

img154406026_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

 

 

 

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

 

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 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

 

3


 

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.

 

4


 

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.

5


 

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.

6


 

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