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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 September 30, 2023

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

 

img155329547_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: 24,781,697 common shares as of October 31, 2023.

 

 


 

GALAXY GAMING, INC.

QUARTERLY REPORT ON FORM 10-Q FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023

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

16

Item 3:

Quantitative and Qualitative Disclosures About Market Risk

19

Item 4:

Controls and Procedures

19

 

PART II

 

Item 1:

Legal Proceedings

20

Item 2:

Unregistered Sales of Equity Securities and Use of Proceeds

20

Item 6:

Exhibits

21

 

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, 2023 and December 31, 2022 (unaudited)

4

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2023 and 2022 (unaudited)

5

Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the three and nine months ended September 30, 2023 and 2022 (unaudited)

6

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022 (unaudited)

7

Notes to Condensed Consolidated Financial Statements (unaudited)

8

 

3


 

GALAXY GAMING, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

ASSETS

 

September 30,
2023

 

 

December 31,
2022

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

15,938,072

 

 

$

18,237,513

 

Accounts receivable, net of allowance of $262,961 and $183,242, respectively

 

 

3,667,887

 

 

 

3,449,753

 

Income tax receivable

 

 

84,810

 

 

 

515,259

 

Prepaid expenses

 

 

2,357,596

 

 

 

1,402,824

 

Other current assets

 

 

 

 

 

588,838

 

Total current assets

 

 

22,048,365

 

 

 

24,194,187

 

Property and equipment, net

 

 

112,699

 

 

 

143,438

 

Operating lease right-of-use assets

 

 

823,542

 

 

 

1,002,749

 

Assets deployed at client locations, net

 

 

1,882,896

 

 

 

1,399,708

 

Goodwill

 

 

1,091,000

 

 

 

1,091,000

 

Other intangible assets, net

 

 

13,104,821

 

 

 

13,906,111

 

Other assets

 

 

275,836

 

 

 

273,323

 

Total assets

 

$

39,339,159

 

 

$

42,010,516

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

632,995

 

 

$

1,129,869

 

Accrued expenses

 

 

1,681,985

 

 

 

3,697,504

 

Revenue contract liability

 

 

194,308

 

 

 

16,667

 

Current portion of operating lease liabilities

 

 

255,146

 

 

 

248,317

 

Current portion of long-term debt

 

 

946,513

 

 

 

940,084

 

Total current liabilities

 

 

3,710,947

 

 

 

6,032,441

 

Long-term operating lease liabilities

 

 

640,173

 

 

 

830,289

 

Long-term debt and liabilities, net

 

 

52,989,282

 

 

 

52,960,772

 

Deferred tax liabilities, net

 

 

75,460

 

 

 

72,401

 

Total liabilities

 

 

57,415,862

 

 

 

59,895,903

 

Commitments and Contingencies (See Note 7)

 

 

 

 

 

 

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; 24,522,197 and 24,411,098 shares issued and outstanding, respectively

 

 

24,522

 

 

 

24,411

 

Additional paid-in capital

 

 

18,358,814

 

 

 

17,575,396

 

Accumulated deficit

 

 

(36,304,235

)

 

 

(35,316,540

)

Accumulated other comprehensive loss

 

 

(155,804

)

 

 

(168,654

)

Total stockholders’ deficit

 

 

(18,076,703

)

 

 

(17,885,387

)

Total liabilities and stockholders’ deficit

 

$

39,339,159

 

 

$

42,010,516

 

 

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

 

 

Nine Months Ended

 

 

 

September 30, 2023

 

 

September 30, 2022

 

 

September 30, 2023

 

 

September 30, 2022

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Licensing fees

 

$

6,103,861

 

 

$

5,906,989

 

 

$

21,051,731

 

 

$

17,501,783

 

Total revenue

 

 

6,103,861

 

 

 

5,906,989

 

 

 

21,051,731

 

 

 

17,501,783

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of ancillary products and assembled components

 

 

187,841

 

 

 

71,363

 

 

 

1,039,441

 

 

 

174,392

 

Selling, general and administrative

 

 

4,185,893

 

 

 

3,340,691

 

 

 

11,604,729

 

 

 

9,867,968

 

Research and development

 

 

226,405

 

 

 

127,774

 

 

 

632,830

 

 

 

478,866

 

Depreciation and amortization

 

 

567,628

 

 

 

740,069

 

 

 

1,639,104

 

 

 

2,189,789

 

Share-based compensation

 

 

225,971

 

 

 

329,140

 

 

 

716,029

 

 

 

954,550

 

Total costs and expenses

 

 

5,393,738

 

 

 

4,609,037

 

 

 

15,632,133

 

 

 

13,665,565

 

Income from operations

 

 

710,123

 

 

 

1,297,952

 

 

 

5,419,598

 

 

 

3,836,218

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

202,477

 

 

 

18,674

 

 

 

426,234

 

 

 

23,166

 

Interest expense

 

 

(2,301,878

)

 

 

(1,896,865

)

 

 

(6,747,555

)

 

 

(5,281,322

)

Foreign currency exchange gain (loss)

 

 

(24,238

)

 

 

(255,140

)

 

 

(22,078

)

 

 

(490,041

)

Other non-recurring (loss) income

 

 

 

 

 

(18,255

)

 

 

 

 

 

(18,255

)

Total other expense, net

 

 

(2,123,639

)

 

 

(2,151,586

)

 

 

(6,343,399

)

 

 

(5,766,452

)

Income (loss) before provision for income taxes

 

 

(1,413,516

)

 

 

(853,634

)

 

 

(923,801

)

 

 

(1,930,234

)

(Provision) benefit for income taxes

 

 

(41,642

)

 

 

154,944

 

 

 

(63,894

)

 

 

101,941

 

Net income (loss)

 

 

(1,455,158

)

 

 

(698,690

)

 

 

(987,695

)

 

 

(1,828,293

)

Foreign currency translation adjustment

 

 

21,493

 

 

 

(77,871

)

 

 

12,850

 

 

 

(233,405

)

Comprehensive income (loss)

 

$

(1,433,665

)

 

$

(776,561

)

 

$

(974,845

)

 

$

(2,061,698

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.06

)

 

$

(0.03

)

 

$

(0.04

)

 

$

(0.07

)

Diluted

 

$

(0.06

)

 

$

(0.03

)

 

$

(0.04

)

 

$

(0.07

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

24,479,301

 

 

 

24,945,839

 

 

 

25,229,971

 

 

 

24,654,517

 

Diluted

 

 

24,479,301

 

 

 

24,945,839

 

 

 

25,229,971

 

 

 

24,654,517

 

 

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, 2022

 

 

24,411,098

 

 

$

24,411

 

 

$

17,575,396

 

 

$

(35,316,540

)

 

$

(168,654

)

 

$

(17,885,387

)

Net income

 

 

 

 

 

 

 

 

 

 

 

110,694

 

 

 

 

 

 

110,694

 

Foreign currency translation gain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16,637

 

 

 

16,637

 

Share-based compensation

 

 

27,392

 

 

 

28

 

 

 

244,895

 

 

 

 

 

 

 

 

 

244,923

 

Balance, March 31, 2023

 

 

24,438,490

 

 

$

24,439

 

 

$

17,820,291

 

 

$

(35,205,846

)

 

$

(152,017

)

 

$

(17,513,133

)

Net income

 

 

 

 

 

 

 

 

 

 

 

356,769

 

 

 

 

 

 

356,769

 

Foreign currency translation loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(25,280

)

 

 

(25,280

)

Share-based compensation

 

 

28,391

 

 

 

28

 

 

 

245,107

 

 

 

 

 

 

 

 

 

245,135

 

Balance, June 30, 2023

 

 

24,466,881

 

 

$

24,467

 

 

$

18,065,398

 

 

$

(34,849,077

)

 

$

(177,297

)

 

$

(16,936,509

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(1,455,158

)

 

 

 

 

 

(1,455,158

)

Foreign currency translation gain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21,493

 

 

 

21,493

 

Stock options exercised

 

 

30,000

 

 

 

30

 

 

 

67,470

 

 

 

 

 

 

 

 

 

67,500

 

Share-based compensation

 

 

25,316

 

 

 

25

 

 

 

225,946

 

 

 

 

 

 

 

 

 

225,971

 

Balance, September 30, 2023

 

 

24,522,197

 

 

$

24,522

 

 

$

18,358,814

 

 

$

(36,304,235

)

 

$

(155,804

)

 

$

(18,076,703

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 income

 

 

 

 

 

 

 

 

 

 

 

(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 CASH FLOWS

(Unaudited)

 

 

Nine Months Ended

 

 

 

September 30, 2023

 

 

September 30, 2022

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(987,695

)

 

$

(1,828,293

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

1,639,104

 

 

 

2,189,789

 

Amortization of right-of-use assets

 

 

179,207

 

 

 

173,799

 

Amortization of debt issuance costs and debt discount

 

 

1,134,240

 

 

 

1,114,488

 

Bad debt expense (recovery)

 

 

109,533

 

 

 

(40,231

)

Loss on write-down of assets deployed at client locations

 

 

-

 

 

 

95,307

 

Loss on sale of property & equipment

 

 

-

 

 

 

18,255

 

Deferred income tax

 

 

3,059

 

 

 

(146,218

)

Share-based compensation

 

 

716,029

 

 

 

954,550

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(327,667

)

 

 

1,020,719

 

Income tax receivable

 

 

1,104,190

 

 

 

766,599

 

Prepaid expenses and other current assets

 

 

12,066

 

 

 

245,649

 

Other assets

 

 

(2,513

)

 

 

(78,130

)

Accounts payable

 

 

(496,874

)

 

 

1,025,766

 

Accrued expenses

 

 

(2,677,583

)

 

 

(333,469

)

Revenue contract liability

 

 

177,641

 

 

 

6,595

 

Operating lease liabilities

 

 

(183,287

)

 

 

(170,515

)

Net cash provided by operating activities

 

 

399,450

 

 

 

5,014,660

 

Cash flows from investing activities:

 

 

 

 

 

 

Investment in internally developed software

 

 

(556,040

)

 

 

(409,626

)

Acquisition of property and equipment

 

 

(15,494

)

 

 

(24,950

)

Acquisition of assets deployed at client locations

 

 

(718,806

)

 

 

(545,358

)

Net cash used in investing activities

 

 

(1,290,340

)

 

 

(979,934

)

Cash flows from financing activities:

 

 

 

 

 

 

Payments of debt issuance costs

 

 

(26,897

)

 

 

(13,438

)

Proceeds from stock option exercises

 

 

67,500

 

 

 

542,500

 

Principal payments on long-term debt

 

 

(1,450,406

)

 

 

(950,369

)

Net cash used in financing activities

 

 

(1,409,803

)

 

 

(421,307

)

Effect of exchange rate changes on cash

 

 

1,252

 

 

 

(396,953

)

Net (decrease) increase in cash and cash equivalents

 

 

(2,299,441

)

 

 

3,216,466

 

Cash and cash equivalents – beginning of period

 

 

18,237,513

 

 

 

16,058,714

 

Cash and cash equivalents – end of period

 

$

15,938,072

 

 

$

19,275,180

 

Supplemental cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$

5,734,663

 

 

$

4,254,362

 

Cash paid for income taxes

 

$

161,124

 

 

$

 

Supplemental schedule of non-cash activities:

 

 

 

 

 

 

Acquisition of intellectual property

 

$

 

 

$

2,000,000

 

Insurance acquired under note payable

 

$

378,000

 

 

$

 

Net option settlement and tax withholding through additional paid-in capital

 

$

 

 

$

1,280,133

 

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

 

$

 

 

$

71,901

 

 

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 and iGaming industries. Casinos use our proprietary products and services to enhance their gaming operations and improve their profitability, productivity and security, 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, to land-based casino gaming companies in North America, the Caribbean, Central America, the United Kingdom, Europe and Africa, and to cruise ship companies. We license our product